Qualicorp : 4Q21 Conference Call Transcript

Operator:

Good afternoon, ladies and gentlemen, and thank you for holding. Welcome to the Quali webcast to discuss the 4Q21 results. Present with us today are Mr. Bruno Blatt, the Company's CEO, Fred Oldani, Chief Financial and Investor Relations Officer. Elton Carluci, Vice-President for Commercial, Innovation and New Businesses, Pablo Meneses, Vice-President for Operations and Relationship, and Ms. Ana Paula Carracedo, Chief Compliance, Audit and Risk Officer.

Some statements on this webcast may be projections or statements about future expectations. Such statements are subject to known and unknown risks and uncertainties that may lead these expectations not to materialize or differ materially from what was expected.

This event is being broadcast simultaneously over the internet and can be accessed atwww.qualicorp.com.br/ri,where the respective presentation is available.

We would like to inform you that this event is being recorded and participants will be on listen-only mode during the Company's presentation. Ensuing this, we will go on to the question and answer session.

I would like to turn the floor over to Mr. Bruno Blatt, who will begin the presentation.

Bruno Blatt:

A good day to all of you who are accompanying our Quali's earnings result call. For me, these moments of presentation of our figures and performance are not merely a routine for a listed company. For me, this is a deep moment of reflection of a company which during these two years, has been growing with quality, respecting its collaborators and embracing ethics with a daily posture in all of its actions.

It is no surprise for you, the moments that we are living through impacting the lives of people. I cannot speak only about results. In the final account, we are a company that cares for the health of people. The families who have put their trust in us, we truly regret losing them when they are unable to pay for their plans.

This crisis, that despite having 107 operators in our portfolio and the largest offer for Brazilians in 2021, had a high level of cancelations. Along with this, we have the PDV and the increase in the interest rate. Of course, these are factors that have impacted our results and us as well.

I would like to share with you the feelings that go beyond financial results. Cancelations for us represent not only numbers, they also represent families, people, and each cancelation is surveyed deeply.

Since I took office in November of 2019, we opened 69 new operators to enable our customers to have more choices and to offer quality healthcare for the Brazilians. At Quali, all clients are important. We do not give up on anybody, and not giving up on anybody is a mantra that we repeat in our daily working.

In this cycle of a little more than two years, we have had several changes in the Company. We have created a team of excellence, a committed team focused on the goal of being the largest and best company inthe sector in the country. A team that is active to deliver our goal. And every day we become a Company focused on data and technology.

The high interest rates, the economic issues, they squeezed the purchasing power of Brazilian companies and are hampering the advance of our companies. We could have advanced more, but we should celebrate the important results of the changes that have been made.

I will give you some examples. We have changed the sales level in 2021. We had 514,000 new lives added in the year to our affinity sector, a growth of 56.4% vis-à-vis the previous year. As we had mentioned, we maintained the sales at 45,000 or 40,000 new lives every month, and we went beyond this.

Beyond the affinity health side, we had a growth of 36% in the SME segment, to become the largest broker in this segment. We did all of this in the commercial part, while we also distributed R$750 million houses to our shareholders, buyback of shares and much more.

For shareholders who believed in this Company, this expressive return was done while we undertook an enormous cultural, operational and digital change at Quali. There were several investments, and we will detail these further ahead.

We also worked with all of the deliveries and achievements that I have mentioned, and there were many. We obtained these results because we work very arduously, because we are constantly pursuing goals.

This is how we manage Quali as leaders. Everything that we have done here will generate value for the Company and its shareholders in the long term. This is what I believe. When we look at the long term, I look at this year and I say our expectation is to maintain the new level of sales achieved in 2021, an achievement for Quali, and we hope to have a normalized level of churn to go back to our normal activities after these two atypical years.

We know that this will be perceived as of the 1Q22. Additionally, all of this with solid foundations as part of our growth strategy. We will continue the transformation of quality with multi-products and multiple channels. Several channels, such as Vivo, which Elton will speak about, and Quali Insurance. This shows us we are on the right path carrying out deliveries.

So what is happening today does not reflect our financial results, nor the structural changes we have implemented in the Company. This is another conviction. So do trust us. We know the path, we know where we are getting to, and we will get there.

We are concerned with the situation of violence, the war in the world, which makes us very saddened. And we also have difficulties in our country. But we can celebrate the concrete actions in terms of Quali.

We, who live in private initiative, have to work on our sensibility to understand the problems that surround us and contribute to a more just, more humane, more cooperative and more efficient world. We want an environment of peace while we work at a company that will be evermore better. No more pessimism. This is a grand enterprise that was born with people with hope, and we have to work together.

Thank you very much for your attention, for your confidence. Let us continue on together. We know the paths, we know the challenges, and under challenge we produce ever more.

I would now like to give the floor to our team.

Ana Paula Carracedo:

Thank you, Bruno. A good day to all of you. I think most of you do not know me. I am Ana Paula Carracedo, Compliance Risk and audit director at Qualicorp. I have 20 years of experience in the Votorantim Group, where I was responsible for compliance.

At the end of 2020, I accepted the challenge of joining Quali, and I saw the transformation into a statutory company. What I would like to underscore here is the importance of this topic for the present day management.

My reach is to work in five different areas. The first is compliance and integrity, risk management, internal auditing and ESG. These areas have undergone a broad reformulation, and I would like to share with you our main items in the 2020 agenda.

When we speak about compliance, we set up the pillars. We reviewed and brought the policies at Quali, with a vision geared towards ESG and our stakeholders. We also set forth clear policies about sponsorship donations, we set up an ethics committee and created an area for the prevention of fraud and others.

We also activated our Security Operations Center to work with cybersecurity 24/7. This allows us to be calmer. In terms of privacy, we created policies concluding our plan when it comes to the treatment of personal data. As you know, personal data are critical items for our Company, and we devote a great deal of energy and attention to comply with the legislation.

In risk management, we have a very experienced person with more than ten years of work, and we are analyzing the risks inherent to supplementary health care.

In terms of internal audit, the main change was an adjustment in our methodology, systemic tests looking at 100% of our key processes. And we are classifying what in fact could be critical and merits the attention of our management.

Finally, on ESG, we structured the area along with the integrity program. We have mapped all of the strategic issues, created a materiality matrix in the Company to have an integrated report, and we aligned all of the key points based on the U.N. SDG models. Our goal here is to have the Quali way of being an acting, and a new model to relate with our different stakeholders based on ethics, value, generation and sustainability.

It is a pleasure to be here with you, and I am at your entire disposal.

Elton Carluci:

Good morning to everybody. Thank you. Bruno, thank you, Ana. This is Elton speaking, it is a pleasure to be with you in another Quali earnings result call. I would now like to speak about the 4Q21, and consequently the closing of the entire exercise.

Before I go to the numbers, I would like to very briefly refer to the important deliveries we carried out in 2021. And I would like to begin speaking about our pillar for the orientation of customers, where the Company has practically redefined the entire service and relationship strategy, reinforcing with the operations team that outlook of transforming Quali into a customer-centric company, where we would like to leverage the investments that we receive in infrastructure and systems.

We have also contracted some specialized consultancies. We ended up replacing our BPO supplier, we carried out enhancements in the contracts and payment models, thus enabling us to align this and satisfy our customers.

We also had a significant change. We have implemented an operational management system called COPC, Customer Operation Performance Center, and we already observed significant improvements in the customer journey.

I would like to highlight three important indicators, with very important enhancements in the operation. First, the first call resolution, that was at a 69% level at the beginning of 2021, and we ended the year with 83% of resolution in the first contact in the voice channels and 92% in the digital channel.

The second indicator that is very important is the customer satisfaction with our service that has evolved. The average for the year 2020 was 24.6%. Presently, at the closing of December, we reach 74%, an expressive and significant improvement.

Third, our internal level of SLA. That is to say, promises to our customers within their terms set forth. We were able to reach 98%, which is a very important figure, a benchmark, as other companies work with 95%, which means we are above the market standard, and our teams, CX and UX, continue to work with procurement that will impact the Company throughout 2022.

Another very important pillar is people and culture. We have evolved considerably in terms of alignment of the interests of our associates. We have expanded our diversity and inclusion program. Women represent 68% of the Company, and 59% are in leadership positions, and we have also included nonwhite people; black people, brown and indigenous people that represent 36% of the Qualis.

In the I.T. and data area, we carried out an important change, especially in data and analytics. We have been supporting the Company considerably in the process of transformation so that we can be a data-driven company. We concluded that development of all the important proprietary systems, which includes sales, management and processing. All of this we call QualiTech, this set of systems.

And of course, besides the models for cancelation and an intelligent platform to offer plans that we have already begun to use and our retention models, we continue to invest in the loyalty of our commercialpartners. We have strengthened our relationship program with our brokers, and we have a significant expansion in the average number of lives sold by consultant. Our brokers are here to stay and this, of course, is a success.

I would also like to underscore some acquisitions, such as the Grupo Elo and Escale, which have been helping us a great deal in generating leads; Vivo. And ahead of new channels, we have had important deliveries throughout 2021, besides our own stores in shoppings, digital channels, important partnership with Vivo, Inter, Smart Fit, Orthopride, Sincor, among others, allowing us access to millions of prospects for all of our channels.

What we would like to highlight is our marketplace Quali Seguros, with significant rises. It was built during 2021, and in 2021, our e-commerce version for affinity plans with a journey that has been completely redesigned, allowing a better purchase journey for customers who buy from our site.

Bruno has already highlighted this, but 2021 was a year of a strong expansion for regional programs. We have reached 100 operators in our portfolio, a mark, and 1,000 products are available, covering all the regions and price categories. Practically, there is a product for each different region.

All of these actions, and a few more that I will not highlight because of our time constraints, will doubtlessly contribute so that the year 2022 can have a superior performance.

Now, to dwell on the numbers at the close of the year, to speak about sales and cancelation, we begin with sales. As you can observe, we ended the 4Q21 with 131,000 lives sold. In affinity health lives, this represents vis-à-vis the last year, a growth of 71%, showing that the Company has definitely changed its level of gross adds. We should now have to work with seasonality. The 4Q, of course, will have seasonality. But when we look at the curve, this is a level which, without a doubt, is here to stay.

I would like to anticipate something that will appear in the Q&A. We have not seen a significant change in the sales to these customers. In percentage terms, we are comparable with the previous quarter. There has been no alteration in these figures, and this is an important indicator.

In the SME front, we have already made comments, but we had a growth of 36% vis-à-vis the 4Q20. Our strategy to enhance loyalty remains unchanged. We have customers who are from companies, they cancel their affinity health lives and they continue receiving offers for SME me at the moment of the cancelation. This is important, and will continue on.

Now, changing topics, a very brief view of our churn before Fred takes on the presentation. Although this is a topic that we frequently shared in past calls, I would like to highlight once again that the year 2021 was atypical. We had a combination of an annual readjustment, and what happened in 2020 was a 37% increase for our customers. This continues to have an impact on our cancelation rate.

And although we can observe an improvement in the 4Q compared to the 3Q21, there was a reduction of a little more than 11%, but the proforma continues to be negative. And this is an important indicator that we would like to anticipate. There was an improvement in the sales month after month, and this continues to impact and contribute to the performance in the 4Q. That cancelation due to default, that, of course, continues to exert pressure in the 4Q. It caused a significant pressure on cancelation.