Qualicorp Consultoria e Corretora de - Seguros S.A. 2Q18 Earnings Release Qualicorp Consultoria e Corretora de Seguros S.A. BOVESPA: QUAL3 Shares Outstanding () 283,176,826 shares Free Float () 282,276,689 shares ( 99.7%) Cash and Cash Equivalents () R$400.0 million São Paulo, August 14th 2018. QUALICORP S.A (B3: QUAL3), one of the leading full-service healthcare benefits trader, administrator and health management services provider in Brazil, announces its consolidated 2Q18 results. The operating and financial data are presented on a consolidated basis in Reais ( BRL or R$ ), in accordance with Corporate Law and regulations of Comissão de Valores Mobiliários CVM (the Brazilian SEC). From January, 1 st, 2018 on, the IFRS 9 and IFRS 15 instruction became effective, reflecting financial statements regarding revenues, new sales commission and bad debt. The 2Q18 the Net Revenue reached R$482.8 million, -1.0% y/y and 0.7% q/q. The slightly increase is due to the portfolio stability in Affinity reflected by churn improvement; The Adjusted EBITDA reached R$214.4 million in 2Q18, -9.4% q/q and - 9.7% y/y. The decrease in EBITDA is mainly due to [i] higher personnel expenses; and [ii] operational expenses due to price readjustment process aiming clients retention, observed along the quarter; The Company reached R$88.6 million in 2Q18, 23.9% y/y and -13.8% q/q. It is important to highlight the Potencial write-off held last year; Investor Relations Grace Tourinho IRO Pedro Nocetti IR Phone: +55 (11) 3191 3829 ri@qualicorp.com.br www.qualicorp.com.br Conference Calls August 15th 2018 (Wednesday) Portuguese Time: 11:00 am (EST Brasilia) / 10:00 am (NY) Phone: +55 11 2188-0155 Code: Qualicorp English Time: 11:00 am Brasilia 10:00 EST Simultaneous Translation Phone: +1 646 843-6054 Code: Qualicorp We closed 2Q18 with R$130.2 million operating cash flow. After CAPEX, the cash flow generation reached R$82.8 million, 20.8% y/y reflected by lower working capital consumption and interest rate drop. Income Statement - (R$ MM) MAIN INDICATORS (R$MM) 2Q18 2Q17 2Q18/2Q17 1Q18 2Q18/1Q18 1H18 1H17 1H18/1H17 Net Revenues 482.8 487.6-1.0% 479.2 0.7% 962.0 968.9-0.7% Total Expenses (Ex-Depreciation and amortizatio (257.2) (288.3) -10.8% (230.9) 11.4% (488.1) (538.8) -9.4% Adjustments to EBITDA (11.2) 38.3-129.2% (11.7) -4.7% (22.9) 43.2-152.9% Adjusted EBITDA 214.4 237.6-9.7% 236.6-9.4% 451.0 473.4-4.7% Adjusted EBITDA Margin 44.4% 48.7% -431bps 49.4% -496bps 46.9% 48.9% -197bps Net Income (Loss) 88.6 71.4 24.0% 102.7-13.8% 191.3 181.9 5.1% Change Balance Sheet 2Q18 2017 1Q17/2017 Equity 2,178.7 2,415.4-9.8% Net Debt¹ 241.3 134.8 79.0% Other 2Q18 2017 Change 1Q17/2017 Net Debt / Equity 0.11x 0.06x 98.5% Net Debt / Adjusted EBITDA LTM 0.26x 0.14x 78.9% (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 subsidiary Clube de Saúde Administradora de Benefícios Ltda., according to the 33rd normative instruction by the ANS, from October 5, 2009. 1/65
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release IFRS 9 and 15 IFRS 9 and 15 instruction were issued by the IASB and became effective on January 1 st, 2018, reflecting the financial statements in the current year with opening balance on January 1 st, 2018. Regarding IFRS 9, the Company assessed that the allowance for losses on bad debts should be recognized by estimation, based on a revenue percentage. This rate will be defined by an actuarial technical note and no longer based on the amounts of credits due after 60 days, which used to consider the history of "losses incurred", being accrued due to the recognition of the "expected credit losses", at the same time as the respective revenue was recorded. (CPC 48) On IFRS 15, the Company adopted the retrospective method modified with cumulative effect of the initial application of the pronouncement, recognized on the date of the initial application (January 1 st, 2018). The Company concluded the following impacts arising from this instruction: i. " Financial transfers from stipulation of contracts", previously recognized as revenue in the income statement for the year, do not meet the criteria for recognizing revenues and are now recognized as a deduction from the item "Financial transfers from membership contracts", from the cost of services group provided, not generating impacts on the Company's results, only in its presentation; and ii. The rule establishes that the costs directly related to the acquisition of new contracts must be capitalized. Thus, variable expenses with third party commissions, including internal brokers, will be capitalized as intangible assets and amortized over the average term of the beneficiaries in our portfolio, generating an impact on the Company's results. It is important to highlight that the Company is applying the effects mentioned above in 2017 financial year here presented, differing from the Financial Statements previously reported. 2/65 2
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release BENEFICIARIES (MM) NET REVENUES (R$ MM) ADJUSTED EBITDA (R$ MM) NET INCOME (R$ MM) 3/65 3
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 1 Beneficiaries BENEFICIARIES (MM) BENEFICIARIES PORTFOLIO QUARTER BREAKDOWN Total Portfolio The total number of beneficiaries reached 2.6 million lives in the end of the quarter. The reduction q/q is related to corporate contracts termination, which were not profitable for the Company and did not affect the financial results and future perspectives. It is worth mentioning the stability in Affinity Medical Care portfolio, achieved by the efforts to reduce churn and compensations in the sales challenge. Out of the total beneficiaries, 1.3 million are in the Affinity segment and 1.3 million in the Corporate and Others segment. Affinity Portfolio Medical Care Our Affinity Medical Care portfolio ended with 1.2 million lives in 2Q18, leading to a variation of -8.8% y/y and 0.4% q/q. The sequential stability reflects the Company s investments in retention area that led to churn reduction in the quarter. In the annual comparison, we still see the effect of price readjustment on plans. Other products The Other products portfolio, in the Affinity segment, closed 2Q18 with 120.2 thousand lives, lower y/y and flat q/q. This decrease is due to the termination of a life insurance contract, around 226k lives. 4/65 4
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release Corporate and Others Total Portfolio Our total portfolio of beneficiaries in the Corporate and Others segment presented a -52.9% y/y variation in 2Q18, mainly due to a contract termination in TPA in 1Q18. In the sequential comparison, this portfolio decreased -24.9%, due to corporate contracts termination without prejudice to the financial results. Corporate The Corporate segment increased 57.1% y/y in 2Q18 (-32.4% q/q), reaching 326.9 thousand lives, mainly due to the exit of a Company representing 430 thousand lives. SME The SME segment shows an increase of 120 thousand lives when compared to 2Q17 (flat regarding the sequential comparison). This increase reflects the portfolio acquisition of Vision Med held in 2017 and with revenue impact only in 2018. TPA The Self-management portfolio, which consolidates Qualicorp TPA and CRC/Gama lives has reached 0.8 million lives by the end of 2Q18, substantially lower y/y and slightly higher q/q. The decrease is mainly due to the foreseen termination of a 1.4 million lives contract. It is important to mention that this contract is accountable for less than 1% of the Company s monthly gross revenue. 5/65 5
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 1.1 Portfolio of lives evolution Portfolio 2Q18 2Q17 2Q18/2Q17 1Q18 2Q18/1Q18 1H18 1H17 1H18/1H17 Affinity Health Lives Total Portfolio (BOP) 1,222,706 1,349,630-9.4% 1,211,591 0.9% 1,211,591 1,369,676-11.5% (+) Gross Adds 98,981 124,581-20.5% 97,805 1.2% 196,786 209,210-5.9% (-) Churn (93,927) (128,433) -26.9% (97,602) -3.8% (191,529) (233,108) -17.8% (+) Portfolio Acquisition - - N.A. 10,912 N.A. 10,912 - N.A. New Lives Added (net) 5,054 (3,852) -231.2% 11,115-54.5% 16,169 (23,898) -167.7% Total Portfolio (EOP) 1,227,760 1,345,778-8.8% 1,222,706 0.4% 1,227,760 1,345,778-9.1% Affinity Other Products Lives Total Portfolio (BOP) 121,607 406,897-70.1% 346,635-64.9% 346,635 421,321-17.7% New Lives Added (net) (1,385) (16,500) -91.6% (225,028) -99.4% (226,413) (30,924) 632.2% Total Portfolio (EOP) 120,222 390,397-69.2% 121,607-1.1% 120,222 390,397-69.2% Affinity Portfolio 1,347,982 1,736,175-22.4% 1,344,313 0.3% 1,347,982 1,736,175-22.4% Corporate 326,869 483,576-32.4% 762,634-57.1% 326,869 483,576-32.4% TPA 806,295 2,203,490-63.4% 793,695 1.6% 806,295 2,203,490-63.4% Small/Medium Enterprises 146,081 26,695 447.2% 146,889-0.6% 146,081 26,695 447.2% Corporate and Others Portfolio 1,279,245 2,713,761-52.9% 1,703,218-24.9% 1,279,245 2,713,761-52.9% Total Portfolio 2,627,227 4,449,936-41.0% 3,047,531-13.8% 2,627,227 4,449,936-41.0% In the Affinity segment, which represents 92.0% of our net revenues in 2Q18 ( 91.9% in 1Q18 and 92.0% in 2Q17), we reached 99k lives in gross additions. Regarding the new lives dynamics, when compared to previous quarters, it is important to highlight that the 2Q18 performance was completely achieved due to organic retail sales and without the benefit of new entities affecting the performance. In 2Q7 we had the impact of 25k lives due to a new entity partnership and in 1Q18, 18k lives. Concerning the additions made in 2Q18, we highlight that 27% are related to Clube de Saúde, vs 29% y/y. In terms of churn level, we had 94 thousand cancellations in 2Q18, lower volume q/q and y/y, and taking into account the 18k lives cancelation by the Company s decision over the Clube de Saúde operational internalization. We observed an improvement in churn through the year, related to [i] affordable products in important regions; [ii] less aggressive competitive scenario and [iii] sales channel s performance improvement in retention. The Company took measures, in order to enhance operational performance. Also, is convicted that will be able to report, along the price readjustment s cycle in 2S18, higher net additions y/y. Our channel retention held downgrades in 2Q18, impacting 4.9k lives (3.1k lives in 2Q17) which reduced the ticket around 30%. Therefore, our portfolio in Medical Care Affinity segment had 1.2 million lives in the end of 2Q18, -8.8% y/y and +0.4% q/q. Out of this amount, over 136 thousand lives belongs to the Clube de Saúde segment. 6/65 6
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 2 Operating Net Revenues Net Revenues (R$ MM) 2Q18 2Q17 1Q18 1H18 1H17 2Q18/2Q17 2Q18/1Q18 1H18/1H17 Affinity 444.2 448.8-1.0% 440.4 0.8% 884.6 887.6-0.3% % on Total Net Revenues 92.0% 92.0% -4bps 91.9% 9bps 92.0% 91.6% 35bps Corporate and Other 38.6 38.8-0.5% 38.8-0.4% 77.4 81.3-4.9% % on Total Net Revenues 8.0% 8.0% 4bps 8.1% -9bps 8.0% 8.4% -35bps Total 482.8 487.6-1.0% 479.2 0.7% 962.0 968.9-0.7% Our total Net Revenues decreased -1.0% in 2Q18 y/y, reaching R$482.8 million. Regarding 1Q18, there was a 0.7% increase, reflecting the portfolio stability. In 1H18 the variation is -0.7%, reaching R$962.0 million. The Affinity segment contributed with R$444.2 million in 2Q18 ( -1.0% y/y and 0.8% q/q). The relatively small variations, reflects the portfolio s performance due to higher brokerage revenue in 2Q18 when compared to 2Q17, as well as lower recurring revenue y/y due to portfolio reduction vs last year. The Net Revenue from the Corporate and Others Segment reached R$38.6 million in 2Q18, -0.5% y/y (-0.4% q/q). The decrease is due to the termination of corporate contracts in TPA segment, partially offset by revenues from the Vision Med portfolio acquired in December. The slight variation mentioned is reflected by the recent corporate portfolio drop and had an immaterial impact in the Company s result. The Group gross revenue tax rate (ISS, PIS and COFINS) reached 8.3% in 2Q18 (versus 7.8% in 2Q17 and 8.0% in 1Q18). 7/65 7
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 3 Operating Expenses Cost summary (R$ MM) 2Q18 2Q17 2Q18/2Q17 1Q18 2Q18/1Q18 1H18 1H17 1H18/1H17 Cost of Services (94.3) (97.5) -3.3% (92.0) 2.5% (186.3) (198.6) -6.2% Total Costs of Services (94.3) (97.5) -3.3% (92.0) 2.5% (186.3) (198.6) -6.2% Total Adm. Expenses (130.7) (116.1) 12.5% (112.8) 15.8% (243.5) (237.7) 2.4% Total Selling Expenses (68.9) (77.5) -11.2% (65.1) 5.8% (134.0) (149.1) -10.2% Bad Debt (Uncollectible Receivables) (35.3) (28.5) 24.1% (34.9) 1.3% (70.2) (57.0) 23.2% Other Operating Income (Expenses) (7.0) (45.1) -84.5% (4.3) 61.9% (11.3) (48.4) -76.7% Total Operating Expenses (241.9) (267.2) -9.5% (217.1) 11.4% (459.0) (492.2) -6.7% Total (336.2) (364.7) -7.8% (309.1) 8.8% (645.3) (690.8) -6.6% (+) One Time Expenses (a) 0.3 43.1-99.3% 0.3 0.0% 0.6 50.2-98.7% Total Recurring (335.8) (321.6) 4.4% (308.8) 8.8% (644.6) (640.6) 0.6% a) Refers to Stock option expenses and also the Potencial write-off in 2017. Our consolidated recurring Operating Expenses increased 4.4%y/y in 2Q18 (8.8% q/q). The increase regarding to the quarters compared is mainly due to the increase in personnel expenses, mainly those allocated to administrative expenses and related to variable remuneration and bonuses for executives. It is important to highlight that a relevant part of these expenditures should not recur on the following quarters. Regarding selling expenses, there was an increase q/q, due to sales performance improvement in retail. Moreover, the Company expend more with mail and graphic material due to the readjustment cycle, in order to improve the communication with the beneficiaries. Concerning bad debts losses, as a percentage of the net revenue, we observed a growth y/y and q/q. The worsening in this scenario, even with the Resolution 412/2016 is due to Aliança segment, which has high exposure of clients from public services and in the actual scenario of economic difficulties in many states, has been affected by high churn volume due to delinquency. 8/65 8
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 3.1 Cost of Services Cost of Services (R$ MM) 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. 2Q18 2Q17 The consolidated Cost of Services reached R$ 94.3 million in 2Q18 ( - 3.3% y/y and 2.9% q/q). Thus, we achieved 80.5% of gross margin, flat when compared to prior years. 2Q18/2Q17 Regarding personnel expenses, we had an increase of 10.2% q/q (-12.4% variation y/y), reflected by the staff restructuring held by the Company. In comparison with the previous quarter, it reflects higher expenses with medical assistance of employees, allocated in cost; and one-time expenses with resignations in 2Q18. Regarding Third Party services, the cost increased 5.3% y/y (5.1% q/q) and was compensated by savings in third party, allocated in administrative expenses line. This effect is due to an adjustment in the allocation of these services, as of 2018, between costs and expenses, in order to enhance result analysis. Consolidating our third-party costs and administrative expenses, we achieved savings of 12.0% y/y, due to lower legal and consulting expenses, and the internalization of the Clube de Saúde s operation. Concerning the quarterly comparison, third party increased 1Q18 2Q18/1Q18 due to rollout of new services with higher operational efficiency in customer services. 1H18 1H17 1H18/1H17 Personnel expenses (33.4) (38.1) -12.4% (30.0) 11.3% (63.4) (79.8) -20.5% Third Party Services (26.1) (24.8) 5.3% (24.8) 5.1% (50.9) (47.4) 7.3% Occupancy expenses (3.8) (2.8) 37.5% (4.0) -5.3% (7.8) (5.7) 37.1% Royalties (a) (22.2) (24.5) -9.7% (24.2) -8.3% (46.3) (49.3) -6.1% Others (b) (8.9) (7.3) 21.7% (8.7) 2.2% (17.6) (16.3) 7.7% Total (94.3) (97.5) -3.3% (91.7) 2.9% (186.0) (198.6) -6.3% Gross Margin 80.5% 80.0% 46bps 80.9% -40bps 80.7% 79.5% 116bps In the Occupancy expenses line, if we consider all of its costs, administrative and commercial lines, we obtained a 2.8% increment y/y due to the Administradora de Benefícios reallocation, from Barueri back to São Paulo. It is worth mentioning that, the ISS tax rate changed to 2% in the capital, which is the same as the prior location. In compliance with IFRS 15, the Royalties of Affinity contracts are net of the contract stipulation revenue and were reduced by 9.7% y/y and 8.3% q/q, reaching R$22.2 million in 2Q18. Finally, concerning the variation in other s line (21.7% y/y), we observed an increase in legal actions. 9/65 9
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 3.2 Administrative Expenses Administrative expenses (R$ MM) 2Q18 2Q17 1Q18 1H18 1H17 2Q18/2Q17 2Q18/1Q18 1H18/1H17 Personnel expenses (35.7) (24.8) 44.4% (22.7) 57.8% (58.4) (54.7) 6.7% Third Party services (13.8) (20.6) -32.9% (11.7) 17.8% (25.5) (39.5) -35.3% Occupancy expenses (2.7) (3.8) -28.6% (2.6) 4.4% (5.4) (7.9) -32.2% Depreciation and amortization (61.2) (58.0) 5.4% (60.1) 1.7% (121.3) (116.2) 4.4% Others (17.2) (8.9) 93.1% (15.7) 9.7% (32.9) (19.4) 69.3% Total (130.7) (116.1) 12.5% (112.8) 15.8% (243.5) (237.7) 2.4% (+) Stock Options Expenses 0.3 2.5-87.1% 0.3 0.0% 0.6 9.5-93.3% Total Recurring Adm. Expenses (130.3) (113.7) 14.7% (112.5) 15.9% (242.8) (228.2) 6.4% Recurring Adm. Expenses/ Net Revenue % 27.0% 23.3% 369bps 23.5% 352bps 25.2% 23.5% 169bps Our recurring Administrative expenses increased 14.7% y/y 15.9% q/q), reaching R$130.3 million in 2Q18. Regarding net revenue, 2Q18 closed at 27.0%, around 369bps higher than 2Q17 and 352bps higher than 1Q18. In the Personnel line, this quarter, if we were to exclude the Stock Option expenses amortization effect, there was a 58.8% y/y variation (58.6% q/q). The increase in this line is due to the one-time payment of R$10 million, to some of the Company's executives, due to the extinction of the stock option program since February 2017. The Company has made efforts to develop a new program that aligns interests and which is a retention tool, but as in the last 12 months the issue has not yet been made, commitments were held through gratification. We understand this issue as a non-recurrent, since the restricted action plan was approved in the last Shareholder s extraordinary meeting. In Third Party expenses, as mentioned before, the reductions are due to costs and administrative expenses reallocation as of 2018. Lastly, the sequential growth in Other Administrative Expenses line is due to legal actions increase in 2Q18. 10/65 10
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 3.3 Selling Expenses Selling Expenses (R$ MM) 2Q18 2Q17 1Q18 1H18 1H17 2Q18/2Q17 2Q18/1Q18 1H18/1H17 Personnel expenses (14.4) (11.6) 24.1% (13.7) 4.7% (28.1) (24.5) 14.6% Third Party services (3.4) (3.4) -0.6% (3.9) -13.9% (7.3) (6.4) 13.7% Occupancy expenses (1.9) (1.6) 18.2% (1.9) 0.4% (3.7) (3.2) 14.9% Sales campaign (4.9) (11.6) -57.6% (4.8) 2.9% (9.7) (21.2) -54.1% Sponsorships (1.1) (2.1) -48.3% (1.4) -23.9% (2.5) (3.7) -32.4% New sales comission amortization (17.8) (18.4) -3.1% (18.1) -1.7% (35.9) (35.8) 0.3% Third-party commission (15.3) (21.3) -28.1% (14.5) 5.5% (29.8) (39.9) -25.4% Publicity and advertising (5.2) (4.8) 7.4% (4.7) 9.3% (9.9) (9.0) 10.2% Others (a) (5.0) (2.8) 79.8% (2.0) 142.3% (7.0) (5.3) 31.7% Total (68.9) (77.5) -11.2% (65.1) 5.8% (134.0) (149.1) -10.2% Selling/Net Revenue % 14.3% 15.9% -163bps 13.6% 68bps 13.9% 15.4% -146bps Our consolidated Selling Expenses decreased -11.2% y/y in 2Q18 ( 5.8% q/q) reaching R$ 68.9 million. Regarding personnel expenses, we had an increase of 24.1% y/y and 4.7% sequentially, mainly due to the increase of R$0.5 million in expenses with medical assistance of employees, as well as occasional expenses with severance in the sales department. In the third-party services line, q/q variation was not relevant in absolute terms, regards hiring and one-time severance consulting expenses. Concerning sales campaigns, there was a 57.6% y/y reduction and slightly growth q/q. It is important to highlight that, as of March 2018, the Company resumed the cycle of investments in campaigns and awards for new sales, which contributed to the evolution of gross additions in 2Q18. However, due to the adoption of IFRS 15, such expenses are considered investments when directly linked to a new sale. As a result, approximately R$6.5 million in awards were sent to assets in the balance sheet. This capitalized volume will be amortized over the next 24 months. The third-party commissions line, linked to the external channels performance, grew 5.5% sequentially due to the evolution in sales and improvement in churn throughout 2Q18. The third-party commissions regarding new sales, for internal and external channel, are being capitalized in the Company's intangible assets. The amortization, with minor variations between quarters, reflects the sales performance in the 24 months prior to the end of each period, this assumption also works for amortization. If we were to spend these commissions (internal and external channel) by competency, these would represent R$16.7 million in 2Q18 (R$14.9 million in 1Q18 and R$18.8 million in 2Q17). The increase in the other commercial expenses line, to R$5.0 million in 2Q18, is related to expenses with graphic material, mail and structures for customer service during the price readjustment process. 11/65 11
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 3.4 Bad Debt (Uncollectible Receivables) Bad Debt (R$ MM) 2Q18 2Q17 1Q18 1H18 1H17 2Q18/2Q17 2Q18/1Q18 1H18/1H17 Bad Debt/Uncollectible Receivables (35.3) (28.5) 24.1% (34.9) 1.3% (70.2) (57.0) 23.2% % Net Revenue 7.3% 5.8% 148bps 7.3% 4bps 7.3% 5.9% 142bps Our Bad Debt expenses, reached R$ 35.3 million in 2Q18, representing 7.3% of our total net revenue, 5.8% in 2Q17 and 7.3% in 1Q18. Noticing the Bad Debt increase in 2018, even after RN412/2016, we can highlight the delinquency growth in Aliança segment, with higher volume of customers losing their ability to pay. Breakdown 2Q18 2Q17 1Q18 1H18 1H17 2Q18/2Q17 2Q18/1Q18 1H18/1H17 Bad Debt (42.1) (32.5) 29.7% (40.2) 4.8% (82.3) (65.1) 26.4% Recovering 6.8 4.0 70.2% 5.3 27.7% 12.1 8.1 48.4% The past due credit recovery contributed positively with R$6.8 million during 2Q18, higher than R$ 4.0 million in 2Q17 and R$5.3 million in 1Q18, reflected by the efforts to recovery clients credits after high volume losses in 2S17. 3.5 Other Operating Income / (Expense) Other Operating 2Q18 2Q17 1Q18 1H18 1H17 Income/Expenses (R$ MM) 2Q18/2Q17 2Q18/1Q18 1H18/1H17 Expenses related to contingencies (5.1) (4.0) 30.0% (5.9) -12.6% (11.0) (7.9) 40.0% Impairment 0.5 0.5 16.0% 0.7-24.4% 1.3 1.0 21.6% Operational Losses (3.3) (1.8) 82.9% 5.8-156.5% 2.5 (2.0) -224.7% Potencial Sale - (40.6) N.A. - N.A. - (40.6) N.A. Other income (expenses) 0.9 0.8 9.4% (5.0) -118.6% (4.0) 1.1-452.6% Total (7.0) (45.1) -84.5% (4.3) 61.9% (11.3) (48.4) -76.7% (-) One-time revenues - - N.A. - N.A. - - N.A. (+) One-time expenses - 40.6 N.A. - N.A. - 40.6 N.A. Total (7.0) (4.5) 56.8% (4.3) 61.9% (11.3) (7.7) 45.8% Other Operating Income/Expenses presented a negative effect of R$7.0 million vs. R$4.5 million positive impact in 2Q17 and R$4.3 million negative impact in 1Q18. This variation reflects higher contingencies expenses volume and other expenses line improve. Expenses related to operating gains, are due to reconciliation of invoices which had a negative effect of R$3.3 million in 2Q18, vs R$1.8 million in 2Q17. It should be noted that, in 2Q17, we had the Selling Potential write-off an event highlighted as extraordinary and did not impact the Company's Adjusted EBITDA. 12/65 12
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 4 Financial Income (expenses) Financial Income (Expenses) (R$MM) 2Q18 2Q17 2Q18/2Q17 1Q18 2Q18/1Q18 1H18 1H17 1H18/1H17 Financial income Income from short-term investments 8.6 18.2-52.7% 9.2-6.2% 17.7 35.9-50.6% Interest and fine on late payment of health plans 6.4 13.6-53.1% 6.1 4.4% 12.4 28.9-56.9% Other income 0.7 2.5-71.4% 1.1-37.4% 1.9 8.8-78.9% Total 15.7 34.2-54.3% 16.4-4.5% 32.0 73.6-56.5% Financial expenses Debentures Interest (11.6) (17.8) -34.6% (11.8) -1.5% (23.4) (38.8) -39.6% Monetary adjustment from acquisition payables - (8.8) -100.0% (0.2) -100.0% (0.2) (17.3) -98.8% Other financial expenses (11.2) (11.3) -0.7% (10.6) 6.5% (21.8) (22.4) -2.8% Total (22.9) (37.9) -39.7% (22.6) 1.4% (45.4) (78.6) -42.2% Total (7.2) (3.7) 95.0% (6.2) 16.9% (13.4) (4.9) 170.6% The Company s Financial Income results comes from two main sources: interest on financial investments, interest, and penalties on late premiums payments from beneficiaries. The lower yield on financial investments is due to the drop in the basic interest rate (6.5% in June/18, compared to 10.25% in June/17) and lower resources volume (R$400.0 million in June/18 vs R$727.3 million in June/17 and R$527.5 million in March/18), after the payment of R$204.9 million in dividends in 2H18. In October, 2017, the Company signed the TCAC with ANS, pledging to charge 2% instead of the usual 10% on clients with overdue payment. Therefore we can observe the revenue slowing down when compared to 2Q17. The financial expenses had a considerable drop, due the purchase of Aliança closure. Completed in October 2017, this operation represented R$272 million payment. It is worth to mention our debentures costs, whose interests are paid in 2Q and 4Q of each year. The debentures were renewed in 4Q16 considering more attractive taxes for the Company and which updated value decreases due to basic interest rate. Other financial expenses, which includes financial operations IOF tax, bank expenses, discounts, among others, had immaterial impact y/y and q/q. 13/65 13
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 5 Generation of Operating Cash (EBITDA and Adjusted EBITDA) 1,2 EBITDA and Adjusted EBITDA (R$ MM) 2Q18 2Q17 1Q18 1H18 1H17 2Q18/2Q17 2Q18/1Q18 1H18/1H17 Net Income 88.6 71.4 24.0% 102.7-13.8% 191.3 181.9 5.1% (+) Taxes 50.8 47.8 6.4% 61.2-17.0% 112.0 91.3 22.7% (+) Depreciation and Amortization 79.0 76.4 3.4% 78.2 0.9% 157.2 152.0 3.4% (+) Financial Expense 22.9 37.9-39.7% 22.6 1.4% 45.4 78.5-42.2% (-) Financial Income (15.6) (34.2) -54.3% (16.4) -4.5% (32.0) (73.6) -56.5% EBITDA 225.6 199.3 13.2% 248.3-9.2% 473.9 430.2 10.2% EBITDA Margin 46.7% 40.9% 585bps 51.8% -509bps 49.3% 44.4% 487bps Non-cash Stock Option Plan Expense 0.3 2.5-87.1% 0.3 0.0% 0.6 9.5-93.3% Potencial Sale - 40.6 N.A. - N.A. - 40.6 N.A. Interest and fine on late payment of health plans 6.3 13.6-53.3% 6.1 4.0% 12.4 28.9-57.0% New sales comission amortization (17.8) (18.4) -3.1% (18.1) -1.7% (35.9) (35.8) N.A. Adjusted EBITDA 214.4 237.6-9.7% 236.6-9.4% 451.0 509.2-11.4% Adjusted EBITDA Margin 44.4% 48.7% -431bps 49.4% -496bps 46.9% 52.6% -567bps Our consolidated Adjusted EBITDA reached R$214.4 million in 2Q18 ( -9.7% y/y, - 9.4% q/q). The consolidated Adjusted EBITDA margin reached 44.4% in 2Q18. The margin decrease is related to personnel expenses, as previously mentioned, as well as operating expenses related to customer retention, which had a positive churn effect. EBITDA AJUSTADO (R$ MM) 1,2 (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. 14/65 14
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 6 Net Income (Loss) Net Income (Loss) (R$ MM) 2Q18 2Q17 1Q18 1H18 1H17 2Q18/2Q17 2Q18/1Q18 1H18/1H17 Net Income 88.6 71.4 24.0% 102.7-13.8% 191.3 181.9 5.1% Our consolidated net income reached R$88.6 million in 2Q18, which implies a 24.0% y/y increase, mainly due to the impact of the Potential write-off in 2017. The reduction q/q is related to the lower operating profit in the period, and the effective tax rate was 36.5%, vs 37.3% in 1Q18 and 37.6% in 2Q17. 7 Amortization Amortizações 2T18 2T17 Var. Var. 1T18 2T18/2T17 2T18/1T18 Amortização de Relacionamento c/ Clientes 36.2 26.5 36.4% 23.9 51.5% Amortização Ágio 79.4 57.4 38.5% 79.6-0.2% Amortização de Aquisição de Portfólio 19.1 14.3 33.1% 18.7 1.7% Amortization Summary Income Fiscal Amount Adjustments to Tax Statement benefit 2Q18 net income Amortization Clients Relationship Yes No 23.9 8.1 15.8 Goodwill amortization No Yes 79.4 27.0 27.0 Portfolio Amortization Yes Yes 61.7 21.0 40.7 Amortization Schedule 2018 2019 2020 2021 2022 2023 2024 Clients Relationship 95.4 90.6 53.1 0.8 0.8 0.8 0.5 Goodwill 255.8 155.9 154.0 150.8 150.3 3.4 - Portfolio Acquisition 70.9 51.5 46.0 21.3 8.1 2.5-15/65 15
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 8 Capital Expenditures Capex (R$ MM) 2Q18 2Q17 1Q18 2Q18/2Q17 2Q18/1Q18 Capex in IT 18.1 10.5 72.0% 12.5 44.6% Other Capex 0.2 0.5-57.4% 0.3-30.3% Right Assignment Agreeement / Exclusivity 10.0-0.0% 13.6-26.5% TOTAL 28.3 11.0 157.2% 26.4 7.1% Our total IT Capex reached R$18.1 million in 2Q18, mainly due to operational systems improvements. It is important to note that the Company is working on constant development of its operating systems, which will optimize processes and provide better customer service, as well as greater efficiency in operating expenses. The fixed assets CAPEX of R$0.2 million reflects improvements in equipment in our facilities. On May 25 th, 2018 an agreement was signed between Qualicorp Corretora de Seguros S.A. and Hapvida Assistência Médica Ltda. The contract held represents R$10 million and has the purpose of the preference right on sales, related to collective health care plan contracts for Affinity for a period of five years, which is in line with the amortization deadline. Capital Structure (R$ MM) 2Q18 4Q17 Var. 1Q18/4Q17 Current Debt 21.4 39.2-45.5% Long Term Debt (1) 619.9 613.3 1.1% TOTAL 641.2 652.5-1.7% Cash and cash equivalents (2) 400.0 517.7-22.7% TOTAL NET DEBT 241.3 134.8 79.0% (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 subsidiarie Clube de Saúde Administradora de Benefícios Ltda., according to the 33rd normative instruction by the ANS, from October 5, 2009 Our Net Debt decreased 22.7% in 1H18. It is important to highlight that until June 2018, around R$355 million were payed regarding 2017 and early 2018 dividends. In addition from January to June, 2018 there was R$99.2 million impact from buy back shares and over 7.4 million shares held by the Company were canceled in March. In 2Q18 R$23.7 million were payed related to Interest on debentures. 16/65 16
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 10 Return on Investments We closed 2Q18 with 44.6% ROIC, lower y/y due to operational result decrease in the quarter. Return on Investment 2Q18 1Q18 4Q17 3Q17 2Q17 Invested Capital Fixed Asset 2,328,706 2,362,696 2,403,610 2,386,283 2,425,987 Working Capital 36,343 (19,234) 59,061 (55,884) (56,030) TOTAL 2,365,049 2,343,462 2,462,670 2,330,399 2,369,957 (-) Intangible - Goodwill (LBO) 924,767 924,767 924,767 924,767 924,767 (-) Intangible - Client Relationship (LBO) 170,084 189,711 209,335 228,960 248,584 Adjusted Invested Capital 1,270,198 1,228,984 1,328,568 1,176,672 1,196,606 NOPAT Adjusted EBITDA 214,429 236,612 201,249 263,506 237,525 EBIT 135,456 158,381 127,111 187,829 161,125 (+) Ammortization (60,590) (60,735) (56,999) (58,036) (59,225) EBIT adjusted 196,046 219,117 184,110 245,865 220,351 (-) taxes (34%) (66,656) (74,500) (62,598) (83,594) (74,919) NOPAT 129,390 144,617 121,513 162,271 145,432 ROIC (12m) 44.6% 46.6% 47.2% 49.4% 46.4% The operating cash flow reached R$130.2 million in 2Q18. After Capex, the cash generation reached R$82.8 million, 20.8% higher y/y. It should be noted: [i] improvement in working capital accounts; [ii] CAPEX reduction; and [iii] SELIC rate decrease that led to a lower interest payment. The Company remains confident in its operating cash flow expansion, supported by its business model consistency. Cash Flow 2Q18 1Q18 2017 4Q17 3Q17 2Q17 Income adjusted by non-cash effects 236,158 260,110 1,054,840 225,286 293,744 266,345 Working Capital (49,100) 67,827 (204,997) (123,585) (30,340) (89,595) Interest paid (23,740) - (73,960) (32,769) - (41,191) Dividends received/paid - - (19,072) (9,440) (2,245) (6,242) Income tax and social contribution paid (33,111) (33,744) (148,075) (47,321) (41,504) (33,962) Cash Flow from Operating Activities 130,207 294,193 608,736 12,171 219,655 95,355 Capex (TI) (20,168) (10,644) (40,603) (13,024) (10,814) (7,160) PP&E (196) (429) (8,825) (7,301) (650) (504) New Sales Comissions (16,674) (14,247) (16,378) (16,904) (18,787) Intangible (M&A + Portfolio + Deals) (10,375) (25,340) (356,024) (315,617) (7,316) (374) Cash Flow from Investment Activities (47,413) (50,660) (405,452) (352,320) (35,684) (26,825) Cash Flow from Operating Activities (-) Capex 82,794 243,533 203,284 (340,149) 183,971 68,530 Cash Flow from Financing Activities (192,091) (233,031) (79,689) 4,852 (57,024) (27,517) Other Investments 39,120 21,434 (50,154) 199,720 (124,783) 13,669 Total Cash Flow (70,177) 31,936 73,441 (135,577) 2,164 54,682 Cash Flow on the begining of the period 178,669 146,733 125,361 282,310 280,146 225,464 Cash Flow on the end of the period 108,492 178,669 146,733 146,733 282,310 280,146 17/65 17
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release 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 18/65 18
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release Appendix I Income Statement INCOME STATEMENT (R$ MM) 2Q18 2Q17 2Q18/2Q17 1Q18 2Q18/1Q18 1H18 1H17 1H18/1H17 Net Operating Revenue 482.8 487.6-1.0% 479.2 0.7% 962.0 968.9-0.7% Cost of Services (94.3) (97.5) -3.3% (92.0) 2.5% (186.3) (198.6) -6.2% Gross Profit 388.5 390.1-0.4% 387.2 0.3% 775.7 770.3 0.7% Operating Income (expenses) (241.9) (267.2) -9.5% (217.1) 11.4% (459.0) (492.2) -6.7% Administrative expenses (130.7) (116.1) 12.5% (112.8) 15.8% (243.5) (237.7) 2.4% Selling expenses (68.9) (77.5) -11.2% (65.1) 5.8% (134.0) (149.1) -10.2% Losses on uncollectible receivables (35.3) (28.5) 24.1% (34.9) 1.3% (70.2) (57.0) 23.3% Other operating income (expenses), net (7.0) (45.1) -84.5% (4.3) 61.9% (11.3) (48.4) -76.7% Income From Operations Before Financial Income (Expenses) 146.6 122.9 19.3% 170.1-13.8% 316.7 278.2 13.9% Financial income 15.6 34.2-54.3% 16.4-4.5% 32.0 73.6-56.5% Financial expenses (22.9) (37.9) -39.7% (22.6) 1.4% (45.4) (78.5) -42.2% Income Before Income Tax Social Contribution 139.4 119.2 16.9% 163.9-15.0% 303.3 273.2 11.0% INCOME TAX AND SOCIAL CONTRIBUTION (50.8) (47.8) 6.4% (61.2) -17.0% (112.0) (91.3) 22.7% Current (25.2) (38.4) 40.3% (53.8) -53.2% (79.0) (73.3) 7.7% Deferred (25.6) (9.4) -21.4% (7.4) 245.8% (33.0) (17.9) 84.2% NET (LOSS) INCOME FOR PERIOD 88.6 71.4 24.0% 102.7-13.8% 191.3 181.8 5.2% Attributable to Controlling interest 88.6 66.0 34.2% 102.7-13.8% 191.3 170.8 12.0% Noncontrolling interest - 5.4 N.A. - N.A. - 11.0 N.A. Controlling interest 88.6 71.4 24.1% 102.7-13.8% 191.3 181.9 5.2% 19/65 19
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release Appendix II Balance Sheet ASSETS (R$ MM) 2Q18 4Q17. 2Q18/4Q17 CURRENT ASSETS Cash and cash equivalents 108.5 146.7-26.1% Short-term investments 360.5 421.0-14.4% Trade receivables 208.4 217.7-4.3% Other assets 277.1 249.1 11.3% Other financial assets 251.2 245.7 2.2% Other non-financial assets 25.9 3.4 672.0% Total current assets 954.5 1,034.5-7.7% NONCURRENT ASSETS Long-term assets Income tax and social contribution 110.4 130.3-15.2% Other assets 25.5 14.0 81.9% Other financial assets 10.2 8.8 15.4% Other non financial assets 15.4 5.2 193.4% Total long-term assets 136.0 144.3-5.8% Investments 0.3 0.3 0.0% Property, plant and equipment 60.9 67.8-10.1% Intangible assets Goodwill 1,624.2 1,624.2 0.0% Others intangible assets 643.3 708.8-9.2% Total noncurrent assets 2,464.7 2,545.3-3.2% TOTAL ASSETS 3,419.1 3,579.8-4.5% LIABILITIES & SHAREHOLDERS EQUITY (R$ MM) 2Q18 4Q17. 2Q18/4Q17 CURRENT LIABILITIES Debentures 4.7 5.0-6.2% Taxes payable 30.5 33.7-9.5% Technical Reserves 17.0 13.3 27.7% Premiums to be transferred 199.7 128.7 55.2% Financial transfers payable 23.2 14.6 58.5% Payroll and related taxes 29.1 50.0-41.9% Transferable prepayments 53.3 47.7 11.8% Other payables 96.4 114.4-15.8% Total current liabilities 453.8 407.5 11.4% NONCURRENT LIABILITIES Debentures 610.0 608.8 0.2% Income tax and social contribution 5.5 5.9-7.1% Deferred income tax and social contribution 96.4 86.2 11.8% Provision for risks 64.8 53.8 20.5% Other payables 9.9 2.3 3.9% Total noncurrent liabilities 786.6 757.0 3.9% EQUITY Capital 1,839.7 1,750.7 5.1% Capital reserves 0.5 159.1-99.7% Earnings reserves 104.9 360.5-70.9% Asset vaaccumulated losses 145.0 0.0 N.A. Asset valuation adjustment 88.6 145.0-38.9% Total equity 2,178.7 2,415.4-9.8% TOTAL LIABILITIES AND EQUITY 3,419.1 3,579.8-4.5% 20/65 20
Qualicorp Consultoria e Corretora de Seguros S.A. 2Q18 Earnings Release Appendix III Cash Flow Statement STATEMENTS OF CASH FLOWS (R$ MM) STATEMENTS OF CASH FLOWS (R$ MM) CASH FLOW FROM OPERATING ACTIVITIES Profit (losses) before income tax and social contribution 1H18 1H17 Var. 1Q18/1Q17 CASH FLOW FROM OPERATING ACTIVITIES Profit (losses) before income tax and social contribution 303.3 273.2 11.0% Adjustments 193.0 1 262.6-26.5% Depreciation and Amortization 157.2 152.0 3.4% Impairment (1.3) 39.6-103.2% Result from fixed Assets and Intangibles 0.3 - N.A. Stock Option Program 0.6 9.5-93.3% Financial Expenses 25.1 57.4-56.3% Provision for Risks 11.0 4.2 164.7% Adjusted profit (loss) 496.3 4 535.8-7.4% Origin Cash provided by operating activities (0.2) (54.5) -99.6% Cash provided by operating ac tivities 496.0 4 481.3 3.1% Interest paid on debentures (23.7) (41.2) -42.4% Dividends paid to non controlling shareholders - (7.4) -100.0% Income tax and social contribution paid (66.9) (59.3) 12.8% Net cash provided by operating activities 405.4 373.5 8.6% CASH FLO W FRO M INVESTING ACTIVITIES Investments in intangible assets (97.4) (68.6) 42.0% Purchase of property, plant and equipment (0.6) (0.9) -28.5% Financial Investments 79.5 (121.6) -165.4% Net cash used in investing activities (18.6) ( (191.1) -90.3% CASH FLO W FRO M FINANCING ACTIVITIES Buyback - Treasury (99.2) - 0,0% Dividends paid to Qualicorp S.A. shareholders (354.9) (137.3) 158.4% Capital Increase 28.9 109.8 N.A. Cash provided by (used in) financ ing ac tivities (425.1) (27.5) 1444.9% INCREASE IN CASH AND CASH EQ UIVALENTS, NET (38.2) 154.8-124.7% Cash and cash equivalents at beginning of period 146.7 125.4 17.0% Cash and cash equivalents at end of period 108.5 280.1-61.3% 1Q17 1Q16 %Change 1Q17/1Q16 155,4 105,4 47,5% Adjustments ts 98,0 90,5 8,3% Depreciation and Amortization 58,2 56,1 3,7% Impairment (0,6) 1,3-145,2% Result from fixed Assets and Intangibles 0,0 - N.A. Stock Option Program 7,1 3,7 91,7% Financial Expenses 30,2 30,1 0,3% Provision for Risks 3,2 (0,6) -612,3% Adjusted profit (loss) 253,5 195,9 21/6529,4% 21 Origin Cash provided by operating activities 35,5 (32,5) -209,4%
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QUALICORP CONSULTORIA E CORRETORA DE SEGUROS S.A. (FORMERLY QUALICORP S.A.) AND SUBSIDIARIES BALANCE SHEET AT JUNE 30, 2018 AND DECEMBER 31, 2017 All amounts in thousands of reais (A free translation of the original in Portuguese 12/31/2017 12/31/2017 ASSETS Note Parent company Parent company LIABILITIES AND EQUITY Note Parent company Parent company CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents 7.1 26 108.492 12.293 146.733 Debentures 15-4.699-5.009 Financial investments 7.2-360.490-421.044 Taxes and contributions payable 142 30.513 2.165 33.711 Amounts receivable from customers 8-208.378-217.326 Technical reserves for healthcare operations - 16.555-13.287 Other assets 13.586 277.102 14.071 249.078 Premiums to be transferred 16-199.709-128.710 Other financial assets 9.1 10.140 251.164 12.934 245.718 Financial transfers payable - 23.161-14.609 Other non-financial assets 9.2 3.446 25.938 1.137 3.360 Payroll and related charges 17-29.059-50.002 Related parties 11.1 - - 15.770 - Transferable prepayments - 53.346-47.700 Total current assets 13.612 954.462 42.134 1.034.181 Other payables 18 6.802 96.794 6.277 114.436 NON-CURRENT ASSETS Total current liabilities 6.944 453.836 8.442 407.464 Long-term receivables: Deferred income tax and social contribution 10-110.411-155.230 NON-CURRENT LIABILITIES Related parties 11.1 276-127 - Debentures 15-609.991-608.781 Other assets 2.648 25.548 2.399 14.045 Taxes and contributions payable - 5.520-5.939 Other financial assets 9.1 239 10.157 154 8.800 Deferred income tax and social contribution 10-96.388-86.227 Other non-financial assets 9.2 2.409 15.391 2.245 5.245 Provision for contingencies 19-64.813-53.802 Total long-term receivables 2.924 135.959 2.526 169.275 Other payables 18-9.870-2.250 Total non-current liabilities - 786.582-756.999 Investments 12 2.168.974 262 2.327.460 262 Property and equipment 13-60.888-67.755 EQUITY Intangible assets: Share capital 1.839.667 1.839.667 1.750.721 1.750.721 Goodwill 14.1-1.624.223-1.624.223 Capital reserves 507 507 159.066 159.066 Other intangible assets 14.2 143 643.333 3.217 635.662 Revenue reserves 104.913 104.913 312.064 312.064 Total non-current assets 2.172.041 2.464.665 2.333.203 2.497.177 Carrying value adjustments 145.044 145.044 145.044 145.044 Retained earnings 88.578 88.578 - - Total equity attributable to owners of the Parent company 2.178.709 2.178.709 2.366.895 2.366.895 TOTAL ASSETS 2.185.653 3.419.127 2.375.337 3.531.358 TOTAL LIABILITIES AND EQUITY 2.185.653 3.419.127 2.375.337 3.531.358 The accompanying notes are an integral part of these interim financial statements. 25/65
QUALICORP CONSULTORIA E CORRETORA DE SEGUROS S.A. (FORMERLY QUALICORP S.A.) AND SUBSIDIARIES STATEMENT OF INCOME QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017 All amounts in thousands of reais, except earnings per share (A free translation of the original in Portuguese) 4/1/2018 to 4/1/2017 to 6/30/2017 1/1/2018 to 1/1/2017 to 6/30/2017 Note Parent company Parent company Parent company Parent company NET OPERATING REVENUE 29.d - 482.774-512.526-961.977-1.019.583 COST OF SERVICES 22 and 29 - (94.306) - (122.452) - (186.293) - (249.241) OPERATING INCOME (EXPENSES) Administrative expenses 23 and 29 (4.471) (130.665) (2.767) (116.117) (8.705) (243.475) (7.007) (237.722) Selling expenses 24 and 29 - (68.863) - (77.926) - (133.973) - (149.435) Losses on uncollectible receivables 8 - (35.348) - (29.189) - (70.240) - (56.367) Equity in results of investees 12 93.172-95.901-200.136-205.566 - Other income (expenses), net 26 - (6.977) (40.610) (45.091) - (11.294) (40.610) (48.381) OPERATING PROFIT BEFORE FINANCE RESULT 88.701 146.615 52.524 121.751 191.431 316.702 157.949 278.437 Finance income 25 120 15.650 1.277 34.208 350 32.030 1.567 73.602 Finance costs 25 (246) (22.869) (917) (37.910) (503) (45.424) (1.333) (78.550) PROFIT BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 88.575 139.396 52.884 118.049 191.278 303.308 158.183 273.489 INCOME TAX AND SOCIAL CONTRIBUTION 27 - (50.821) 12.387 (47.403) - (112.030) 12.876 (91.386) Current - (25.193) - (38.357) - (78.990) - (73.337) Deferred - (25.628) 12.387 (9.046) - (33.040) 12.876 (18.049) PROFIT FOR THE PERIOD 88.575 88.575 65.271 70.646 191.278 191.278 171.059 182.103 ATTRIBUTABLE TO Owners of the parent 88.575 88.575 65.271 65.271 191.278 191.278 171.059 171.059 Non-controlling interests - - - 5.375 - - - 11.044 88.575 88.575 65.271 70.646 191.278 191.278 171.059 182.103 EARNINGS PER SHARE Basic (R$ per share) 32 0,31322 0,31322 0,23466 0,23466 0,66882 0,66882 0,61820 0,61820 Diluted (R$ per share) 32 0,31178 0,31178 0,22941 0,22941 0,66576 0,66576 0,60430 0,60430 The accompanying notes are an integral part of these interim financial statements. 26/65
QUALICORP CONSULTORIA E CORRETORA DE SEGUROS S.A. (FORMERLY QUALICORP S.A.) AND SUBSIDIARIES STATEMENT OF COMPREHENSIVE INCOME QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017 All amounts in thousands of reais (A free translation of the original in Portuguese) 4/1/2018 to 4/1/2017 to 6/30/2017 1/1/2018 to 1/1/2017 to 6/30/2017 Parent company Parent company Parent company Parent company PROFIT FOR THE PERIOD 88.575 88.575 65.271 70.646 191.278 191.278 171.059 182.103 Other comprehensive income - - - - - - - - TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 88.575 88.575 65.271 70.646 191.278 191.278 171.059 182.103 ATTRIBUTABLE TO Owners of the parent 88.575 88.575 65.271 65.271 191.278 191.278 171.059 171.059 Non-controlling interests - - - 5.375 - - - 11.044 The accompanying notes are an integral part of these interim financial statements. 27/65
QUALICORP CONSULTORIA E CORRETORA DE SEGUROS S.A. (FORMERLY QUALICORP S.A.) AND SUBSIDIARIES STATEMENT OF CHANGES IN EQUITY SIX-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017 All amounts in thousands of reais (A free translation of the original in Portug Share capital Carrying value adjustments Non-controlling interests Revenue reserves Attributable to Share options - total Note Paid-up capital Treasury shares Share issue costs Capital reserve Legal reserve Other Fair value of merged investments Retained earnings owners of the parent (BR GAAP) Non-controlling interests non-controlling interests (IFRS and BR GAAP) AT DECEMBER 31, 2016 1.673.176 (59.403) (20.983) 147.005 37.714 140.957 145.044-2.063.510 92.272 (88.006) 2.067.776 Increase in share capital due to exercise of options granted 109.801 - - - - - - - 109.801 - - 109.801 Options granted 21 - - - 9.538 - - - - 9.538 - - 9.538 Payment of proposed additional dividend - - - - - (137.318) - - (137.318) - - (137.318) Profit for the period - - - - - - - 171.059 171.059 11.044-182.103 Distribution of dividends to non-controlling stockholders - - - - - - - - - (7.387) - (7.387) AT JUNE 30, 2017 1.782.977 (59.403) (20.983) 156.543 37.714 3.639 145.044 171.059 2.216.590 95.929 (88.006) 2.224.513 AT DECEMBER 31, 2017 1.836.751 (65.047) (20.983) 159.066 56.250 255.814 145.044-2.366.895 - - 2.366.895 Adjustment due to the adoption of IFRS 9 and IFRS 15 12 and 20 - - - - - 45.023 - - 45.023 - - 45.023 AT JANUARY 1, 2018 1.836.751 (65.047) (20.983) 159.066 56.250 300.837 145.044-2.411.918 - - 2.411.918 Increase in share capital due to exercise of options granted 20 28.906 - - - - - - - 28.906 - - 28.906 Options granted 12 and 21 - - - 635 - - - - 635 - - 635 Payment of proposed additional dividend 20 - - - - - (102.174) - - (102.174) - - (102.174) Treasury shares 20 - (99.154) - - - - - - (99.154) - - (99.154) Cancelation of treasury shares 20-159.194 - (159.194) - - - - - - - - Distribution of interim dividends 20 - - - - - (150.000) - (102.700) (252.700) - - (252.700) Profit for the period - - - - - - - 191.278 191.278 - - 191.278 AT JUNE 30, 2018 1.865.657 (5.007) (20.983) 507 56.250 48.663 145.044 88.578 2.178.709 - - 2.178.709 The accompanying notes are an integral part of these interim financial statements. 28/65
QUALICORP CONSULTORIA E CORRETORA DE SEGUROS S.A. (FORMERLY QUALICORP S.A.) AND SUBSIDIARIES STATEMENT OF CASH FLOWS SIX-MONTH PERIODS ENDED JUNE 30, 2018 AND 2017 All amounts in thousands of reais (A free translation of the original in Portuguese) 6/30/2017 Note Parent company Parent company CASH FLOWS FROM OPERATING ACTIVITIES Profit before income tax and social contribution 191.278 303.308 158.183 273.489 Adjustments for: Depreciation and amortization 23; 24 and 30 3.099 157.204 3.010 116.207 Impairment losses - (1.254) 40.612 39.569 Equity in results of investees 12 (200.136) - (205.566) - Result on disposal of property and equipment 14-278 - - Options granted 12 and 21-635 - 9.538 Finance income/costs 416 25.056 779 57.351 Provision for (reversal of) contingencies - 11.041-4.171 (5.343) 496.268 (2.982) 500.325 Changes in operating assets and liabilities: Increase in amounts receivable from customers - 4.060-25.170 Increase (decrease) in other assets 236 (43.636) 5.345 (18.311) Decrease in taxes and contributions payable (2.023) (17.006) (3.702) (19.797) Increase in premiums to be transferred - 70.999-3.685 Increase (decrease) in financial transfers payable - 8.552 - (540) Increase in technical reserves for healthcare operations - 3.268-613 Decrease in payroll and related charges - (20.943) (6.468) (27.079) Increase (decrease) in other payables 112 7.787 156 (24.570) Increase (decrease) in transferable prepayments - 5.646-8.352 Increase in related parties 15.621-43.218 773 Decrease in financial investments (restricted cash) 7.2 i) - (18.958) - (3.460) Cash from operations 8.603 496.037 35.567 445.161 Interest paid on debentures 15 - (23.740) - (41.191) Dividends received from subsidiaries 12 414.880-102.578 - Dividends paid to non-controlling stockholders - - - (7.387) Income tax and social contribution paid - (66.855) - (59.250) Net cash inflow from operating activities 423.483 405.442 138.145 337.333 CASH FLOWS FROM INVESTING ACTIVITIES Share capital increase in subsidiaries 12 (10.600) - (20.425) - Additions to intangible assets (28) (97.448) - (32.526) Purchases of property and equipment - (625) - (874) Increase (decrease) in financial investments - exclusive investment fund 7.2 ii) - 79.512 - (121.631) Net cash outflow from investing activities (10.628) (18.561) (20.425) (155.031) CASH FLOWS FROM FINANCING ACTIVITIES Increase in share capital 20 28.906 28.906 109.801 109.801 Purchase of treasury shares 20 (99.154) (99.154) - - Dividends paid 20 (354.874) (354.874) (137.318) (137.318) Net cash outflow from financing activities (425.122) (425.122) (27.517) (27.517) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12.267) (38.241) 90.203 154.785 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 7.1 12.293 146.733 98 125.361 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 7.1 26 108.492 90.301 280.146 The accompanying notes are an integral part of these interim financial statements. 29/65