Qualicorp : 4Q18 Earnings Release

São Paulo, March 18th 2019. 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 4Q18 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, 1st, 2018 on, the IFRS 9 and IFRS 15 instruction became effective, reflecting financial statements regarding revenues, new sales commission and bad debt.

•  The 4Q18 the Net Revenue reached R$479.0 million, -2.5% q/q and -0.9% y/y. The decrease is mainly due to lives reduction in Affinity's portfolio. In 2018, there was also a decrease, of 2,1%, in the amount of R$1.932,1 million;

•  The Adjusted EBITDA reached R$238.3 million in 4Q18, which represents -1.5% q/q and flat margin. In the annual comparison, we observe 18.4% y/y growth, even with the operational income reduction. This shows an efficiency regarding bad debts and other operational expenses, especially regarding regulatory contingencies. Going through 2018, we notice a slightly negative variation with R$931,3 million and stable margin of 48,2%;

•  The Company's net income reached R$96.0 million in 4Q18. The growth q/q is due to better operating performance. The sequential decrease, to a net margin of 20.0%, reflects the increase in amortizations over the last quarter. Over 2018, Qualicorp reached R$397.0 million, 3.5% higher y/y, even with lower operating and financial revenues;

•  We closed 4Q18 with R$121.8 million operating cash flow. After CAPEX, the cash flow generation reached R$-129.6 million, lower than 3Q18 due to the payment of intangibles. Analyzing the full year, the Company generated more than R$377 million, much higher than the R$133.9 million generated in 2017.

1,932.1

1,972.9

-2.1%

(952.5) (1,066.2)

-10.7%

(48.4) 931.3 48.2%

31.5 938.1 47.6%

-253.8% -0.7% 65bps

(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.

Qualicorp Consultoria e Corretora de Seguros S.A.

MAIN INDICATORS (R$MM)

Consolidated Income Statement -4Q18

4Q17

(R$ MM)

% Change 4Q18/4Q17

3Q18

% Change 4Q18/3Q18

2018

2017

% Change 2018/2017

Net Income (Loss)

96.0

90.6

6.0%

109.7

-12.5%

397.0

383.5

3.5%

IFRS 9 and 15

IFRS 9 and 15 instruction were issued by the IASB and became effective on January 1st, 2018, reflecting the financial statements in the current year with opening balance on January 1st, 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 1st, 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.

1 | Beneficiaries

Total Portfolio

The total number of beneficiaries reached 2.4 million lives in the end of the quarter. The reduction. regarding prior quarters. is mainly related to lower volume of lives in Corporate and TPA, but with slight impact in financial results. Out of the total beneficiaries, 1.3 million are in the Affinity segment and 1.1 million in the Corporate and Others segment.

Affinity Portfolio



Medical Care

Our Affinity Medical Care portfolio ended with 1.2 million lives in 4Q18 leading to a variation of -4.0% y/y and 1.9% q/q. As well as the past quarter, the Company was able to reduce churn y/y, reflecting retention channel's initiatives, along with sales increment, and contributed to the performance of our portfolio, which initially was affected by lives decrease among the price readjustment period.

 Other products

The Other products portfolio, in the Affinity segment, closed 4Q18 with 96.9 thousand lives, lower y/y and q/q, reflected by a contract termination in 1Q18. Regarding the sequential comparative, we observed relative stability.

BENEFICIARIES (MM)

BENEFICIARIES PORTFOLIO QUARTER

BREAKDOWN

Corporate and Others Total Portfolio

Our total portfolio of beneficiaries in the Corporate and Others segment presented a -61.7% y/y variation in 4Q18, mainly due to a contract termination in TPA in 1Q18. In the sequential comparison, this portfolio decreased - 11.1%, due to lives reduction by TPA contracts, without prejudice to the financial results.



Corporate

The Corporate segment decreased 59.3% y/y in 4Q18 (-10.8% q/q), reaching 292.1 thousand lives, mainly due to the exit of a Company representing 430 thousand lives, as explained in 2Q18.



SME

The SME segment shows an increase of 120 thousand lives when compared to 4Q17 (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 0.7 million lives by the end of 4Q18, substantially lower y/y and lower 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.