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Edited Transcript of QUAL3.SA earnings conference call or presentation 26-Aug-20 2:00pm GMT

Q2 2020 Qualicorp Consultoria e Corretora de Seguros SA Earnings Call

Sao Paulo Aug 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Qualicorp Consultoria e Corretora de Seguros SA earnings conference call or presentation Wednesday, August 26, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bruno Blatt

Qualicorp Consultoria e Corretora de Seguros S.A. - CEO

* Elton Hugo Carluci

Qualicorp Consultoria e Corretora de Seguros S.A. - VP of Commercial, Innovation & New Business

* Frederico de Aguiar Oldani

Qualicorp Consultoria e Corretora de Seguros S.A. - CFO & IRO

* Pablo dos Santos Meneses

Qualicorp Consultoria e Corretora de Seguros S.A. - VP of Operations & Relationships

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Conference Call Participants

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* Eugenia Tedde Cavalheiro

JPMorgan Chase & Co, Research Division - Research Analyst

* Frederico P. Mendes

Banco Bradesco BBI S.A., Research Division - Research Analyst

* Tobias Stingelin

Citigroup Inc., Research Division - Director

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for holding. At this time, I would like to welcome you to Qualicorp's conference call to discuss results for the second quarter 2020. We have with us today Mr. Bruno Blatt, the company's CEO; Mr. Frederico Oldani, the CFO and IRO; and Elton Carluci, the VP for Sales, Innovation and New Business.

This event is being broadcast live via webcast and may be accessed through the Qualicorp's website at www.qualicorp.com.br/ir, where the presentation is also available. This event is being recorded. (Operator Instructions)

I would now like to turn the floor over to Mr. Blatt, who will begin his remarks. You may proceed, sir.

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Bruno Blatt, Qualicorp Consultoria e Corretora de Seguros S.A. - CEO [2]

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A good day to all of you. And it's always very good to fill in our days to fill in all the cases. This is what moves us to be good is an ethical imperative to be correct and to do what has to be done in a competitive world without leaving aside values. The world has frightened us. The virus has separated us from people, goals and the tracks that we were following. The virus has shown us how fragile we are, but how strong we also are and about this that I would like to speak to you to share data and dreams achievements in the future.

We took on Qualicorp in November of 2019. It was yesterday. We took it on with a decision of somebody who wants to grow; investing in people and never neglecting values. The pandemic has moved us more, leading us to reflect upon what is superfluous and essential. And the happy choice of taking on the leadership of Qualicorp and to work for its greatest goal; to care for the health of people. And we keep in mind our reason to be or we will become bureaucrats, an organization without dreams. Each member of the Qualicorp company knows that what hurts us most is what hits us in our most vulnerable moments. And that is why we need safety and tranquility to face the losses that arise with the care that we offer. We care for people, and this is the core of our organization. And when we know our mission, it is easier to advance and to adapt and to face obstacles. It is easier to redress our track and to grow. And the more we grow, the more we can care for people. This is positive. And because of this, the day today is good. This is how we began.

The world of artificial intelligence, of robotics, of the information revolution, the world of respect, truth, interpersonal relationships and affection go hand-in-hand with an ethical awareness of diversity, transparency and sustainability. It is possible to grow without destroying. Not destroying others or this common home, which is nature, a new Qualicorp is being born. The new water sources are clean, and we want to turn these into rivers that are full of life and that will nurture people. We will not go along with fills or lack of respect. Each professional at Qualicorp will be treated with dignity, with attention. We truly believe in machines and new technologies, but we believe more in human beings. We're beginning the new Quali-way of being. And here, I would like to summarize what we have done in this short time.

First. We looked towards the past. We looked at our correct and incorrect actions. We are working with agility, transparency, valuing humans and goals. And I repeat, we know exactly where we want to get to. The governance model will become a benchmark for the Brazilian and the international market, always caring for people.

Two. We want to ease the access of people to private health systems and care for every moment since the first approach to the negotiation of adjustments, qualities of intervention. We want our shareholders, clients and partners to have pride in our company and to know that you can always do things the correct way.

Three. We're looking upon a world that suffers. We invested more than BRL 15 million in solidarity projects. 345 beds for the unified health system, broad distribution of alcohol to the needy population throughout Brazil, the donation of 30,000 rapid tests and the donation of masks for the frontline personnel and public hospital. If everybody does their part, the days will be good.

Fourth. We look upon technology as a way of expanding human awareness. We are more expeditious, more transparent. We reduce the damage we caused to the environment. We have already begun. We have reduced paperwork, tiresome and unnecessary work, and that times that we no longer spend with pens and papers can be used to devote to our new clients. And this data will help us to have more systematic procedures to correct our track and to act quickly.

Five. We will and we will always look upon people. Now to look at our portfolio means to comply with this mission. And the brokers are part of our mission. They are part of our wealth. Each broker represents all of Brazil in its diversity, in its way of looking upon people and caring for people. There are so many people in this large Brazil. There are emotions for the lives we have recovered and even a farewell that can be very painful.

Six. We look at the business. We look at PMA and addition. We look carefully upon growth. And we look at the self-potential. We have 35,000 brokers, 1,200,000 clients and 50 health operators. And we're the main link between them. We're building bridges and to be very modest, we know how to do this. We like numbers. We like challenges and this broad vision that allows us to understand the path to live the present and to plan in the future. We care more for people and our partners that we affectionately call Qualis. And we will show how coherent we are between what we say and practice. We're very agile. One of the possible examples of this is that at the very beginning of the pandemic, on March 16, we set up a model home office for more than 2,000 associates with online recourses following up on their difficulties and celebrating their achievements. This was used as a plan for hybrid work, which is already being implemented. We returned 7 of the floors of the company, and we're going to return another 5, generating savings of BRL 18.8 million in 2020.

To know where we're going makes a difference, and everybody know this to be lighter helps us to go further in a short time. We have reduced costs by 25% with the digital transformation. We saved BRL 24 million with this streamlining with digitation and operational synergy. We obtained the Great Place to Work seal, and we are among the 150 best companies to work within Brazil with a score given by partners that went from 51% to 84%. And the pride to belong went from 42% to 91%. And when you know where you're going, substantially improves our competitive strategy for regionalization.

We are in Rio de Janeiro and Paraná and Rio Grande do Sul in the Northeast. And with the launch of the new SulAmérica Health division, we have something innovative and encompassing. Our day is good whenever we embrace an issue on when we involve other people that believe in this same issue. To care for the health of people is an extremely good issue. We have a market to grow, and we have the will to grow, and this is good, and we have an excellent team and our day is good. We don't want to become disheartened. We don't want to have ill humor or become accommodated or be distracted. Our focus is on growth and our strength lies in our unity and our awareness that the path is very challenging. And then because of this, it is better to walk hand-in-hand with respect, with speed and with attention. And above all, with love. With love for what we do, with love for the people who are part of our journey, this journey of the new Qualicorp.

Thank you to all, and we hope that this will be a good day, that all days will be good.

I would now like to give the floor to Elton, our Vice President.

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Elton Hugo Carluci, Qualicorp Consultoria e Corretora de Seguros S.A. - VP of Commercial, Innovation & New Business [3]

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A good day to all of you, and thank you very much. It is a pleasure to be with you in another call for results at Qualicorp.

After these very inspiring remarks, I have to state that the bar is extremely high, and we'll try to maintain this bar. Before I give the floor to Fred, very quickly, I would like to highlight some of the issues of our commercial strategy, to speak about what we're thinking about for SME, about loyalty and then a quick glance at what is happening within our squads. We begin with the commercial part and to speak about sales. One of the novelties that we launched recently was the SulAmérica portfolio, an innovative product, a new milestone because it brings the concept of family product to the Affinity segment. We have a 9% discount when we have 2 or more lives in the contract. And doubtlessly, this will leverage the actuarial risk and contribute to the sustainability of our partnership with SulAmérica. This is definitely a different innovative product that fulfills the demand that we have in the market for this type of product.

The second highlight was the launch of the partnership with GNDI, the Notre Dame Intermédica, an unprecedented product that expands access to our offer within the portfolio. The sales began now. This will come into effect in September, and the product is already available in the proprietary channels of Qualicorp. And the loyalty team and the sales channel were also leveraging the offer of GNDI for corporate clients, including contracts for small and medium-sized businesses. We also launched Paraná Clínicas at the end of July. We began sales, and we have the operation of the Assim Saúde integrated into our distribution base. And of course, Qualicorp continues to pursue new opportunities without forgetting the commitment we have with our present day partners.

I will speak very quickly about SMEs. We're concluding a restructuring of our organization structure. We intend to be the largest in this sector. This doesn't happen overnight, but this is in the goal that we are pursuing. This is an incremental strategy. We're going to seek greater market share within the SME segment without losing our focus of the main business, which is the Affinity segment.

I will now speak about one of the highlights of this segment, which is retention, the decrease of churn, responsible for the performance of our portfolio. We had an improvement of 8.5% in churn when we compare the second quarter 2020 with the second quarter 2019. And these are the results we have achieved so far. And these are the strategies that we wanted to share with you. And once again we're focusing on these 3 people: we look at the clients, our brokers, operators, all the part of customer intelligence as well as new products. Once again, these are the 3 pillars that we have organized through squads.

And I would now like to give the floor to Fred, who will proceed with the presentation.

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Frederico de Aguiar Oldani, Qualicorp Consultoria e Corretora de Seguros S.A. - CFO & IRO [4]

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Thank you, Elton, and a very good day to all of you. I will begin my presentation on results on Slide #9 and speak about the quarter highlights. First of all, I would like to highlight the increase of the Affinity portfolio. And it shows the first results of our new commercial strategy with an improvement in sales and a reduction in churn. The revenues for the quarter reached BRL 483.7 million, a slight contraction compared to the year 2019, but the drop was due to nonrecurring revenues. Revenues that depend on marketing activities, and the brokerage fees and the administration fees are fully aligned with the growth of lives in the portfolio and had a slight growth in the quarter.

Our EBITDA is approximately BRL 233.5 million, a slight contraction vis-à-vis the same quarter last year. It's important to highlight the good performance in costs and expenses, which allowed us to offset this somewhat lower result in revenues. We came in net income to BRL 126.7 million, a growth vis-à-vis last year, especially due to nonrecurring events, thanks to an operation that we will refer to in greater detail further ahead. We had a strong free cash flow, which is characteristic of our business model and with an additional benefit this quarter due to an improvement in the working capital indicators.

I now go on to Slide #10 to speak about the performance of our lives portfolio. Here, we begin to see the details of how our strategy reflects on an improvement. We have 4,300 lives in the Affinity Health lives with an increase in sales and a reduction in churn. In the other product lives Affinity segment, we had a good performance driven by the dental products. And when we speak about the performance of other segments, we had a decrease in the Corporate and Gama segment because of contracts that were canceled due to the decision of the company because of their poor results. And they have now improved and will continue to improve.

A new topic that I would like to mention, we have segmented the contracts in PME. We have 2 quite different models. One is the traditional SME model that Bruno and Elton mentioned and that have become a significant focus for the company. We have reached 44,000 lives in this segment and a growth of approximately 20% vis-à-vis the year '19. And it shows you the potential that our efforts have been leveraging this segment. We have another portfolio that is called SME stipulation, a somewhat different contract where we receive a fee on the volumes that are commercialized in the contract. And Qualicorp doesn't necessarily manage this portfolio, but it is a specific contract with the operator. And this contract was broken unilaterally with the counterpart in April. We had a judicial discussion because of these contracts. As we stopped having revenues in April, we eliminated these lives from our portfolio. Now the impact of this is minor. It refers to BRL 6 million per quarter.

We continue on to Slide #11 to speak about the quarter results, our income statement. And I would like to highlight the main points here. The first is the growth of EBITDA. As we mentioned, we had several nonrecurring events during the quarter impacting the EBITDA. Now when we look at adjusted EBITDA and discount the nonrecurring effects, the EBITDA had a performance quite aligned with our top line performance because of the work that we did in costs and expenses. We continue in this P&L and highlight the increase of financial expenses vis-à-vis the year 2019. It is important to mention that this increase in financial expenses refers to the leverage profile of the company and the capital reduction carried out in 2019. Last year, we practically did not have any indebtedness. Once we change the structure, we have to expect this impact on financial expenses. The effective rate reduction with an important benefit for the quarter, we had a significant reduction in taxes and health will have a tax benefit. The taxation will not be on the main amount, and this explains the performance of this effective rate during the quarter.

Given all of these effects, we had a net income of BRL 126.7 million with a growth of 26% year-on-year, quite influenced by the nonrecurring events that have already been mentioned.

We continue on to Slide #12 to speak about the main nonrecurring impacts that were adjusted in the EBITDA. We had 4 main effects that I think are worthwhile mentioning. The first is QSaúde BRL 40 million positive for the quarter. We have a second line of adjustment that refers to our terminations of executives and directors due to the change in the company. And with these terminations for the quarter and suits that were anticipated, the nonrecurring events associated to this represents BRL 18.6 million in the quarter. Now we had a provision in the first quarter of an amount of approximately BRL 25 million in charges referring to the termination of another executive. We review this understanding this quarter. And it is our understanding that these labor charges should not fall upon the amount of termination and that is why we had a reversal of those BRL 25 million that offset the BRL 18.6 million cost and termination with a net effect of approximately BRL 7 million for the quarter, positive.

It is also important to make adjustments in the EBITDA. In terms of the values that we invested in our activities to combat COVID, we have already spent BRL 15 million for these activities. And in the second quarter, we, in fact, spent BRL 9.4 million. We have a last important item that I would like to mention, also remarked by Bruno, we have returned 7 floors of the company headquarters. Now with this return, the company had to write off all the improvements or betterments done on those floors. All of this has been fully amortized. And the effect was BRL 12.2 million during the quarter. This is a nonrecurring effect, something that normally wouldn't be allocated to EBITDA but to depreciation. But as this was done in an anticipated way, it ends up having an impact on EBITDA. Once again, this is a noncash expense. And we will now have the benefit of having returned these floors on our results going forward.

We continue on with the presentation on Slide 13 to speak about costs and expenses. As I mentioned previously, our good management of costs and expenses allowed us to offset that mild drop in revenues. But what is more important than discussing the details of the account for the quarter, what is important to mention is that management is changing the direction of resources within the company, and this will become ever clearer in the cost and expenses of the company. We have a great focus and would like to gear our resources to all of the fronts that involve technology, innovation, client retention, distribution channels, actions that, for us, are fundamental to implement our growth agenda. And on the other hand, of course, we will be quite hard when it comes to finding efficiency and cost-cutting in all fronts. We have already mapped several opportunities for savings. And most of these savings will be reinvested into our growth front.

And finally, it is worthwhile mentioning that in part of costs and expenses, we're going to reformulate the model for the compensation of management. The new management has already come into the company with a compensation and an incentive model that is quite different, and this will become evident in the coming quarters with a substantial reduction that we will have in our remuneration model as of this moment.

We continue on with the presentation and go to the last slide where we would like to highlight the strong free cash generation of the company. BRL 214 million in cash for the quarter, with a growth of 50% vis-à-vis 2019, almost 40% vis-à-vis the previous quarter. And just a few points to highlight here. A strong cash generation is characteristic of our business, but we do have some businesses with very strong cash generation, high EBITDA levels. And this quarter, we had 2 important effects that are worthwhile mentioning, both with a positive impact on working capital, where we had a gain of about BRL 50 million for the quarter.

Two effects that I would like to highlight. The first, a substantial reduction in the amount of advances for operators and a somewhat lower effect that refers to the postponement of federal taxes as part of the government's program to aid the companies because of the pandemic. This represents BRL 15 million approximately. And the situation will be normalized throughout the third quarter.

These are the main highlights that the management wanted to underscore regarding the quarterly results. And we are now at your entire disposal to respond to any doubt or comments that you may have regarding our results. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Fred Mendes from Bradesco BBI.

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Frederico P. Mendes, Banco Bradesco BBI S.A., Research Division - Research Analyst [2]

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I have 2 questions. If you could speak about the contract with GNDI. Give us more details on the partnership that extends to São Paulo and Rio de Janeiro, and if you received any flexibility to close this contract. Now the second question, doesn't refer specifically to the second quarter, but refers to the line item on cost and commissions. If you could focus on this line item, there has been a relevant increase of 10% quarter-on-quarter. We would like to gain an understanding of this.

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Elton Hugo Carluci, Qualicorp Consultoria e Corretora de Seguros S.A. - VP of Commercial, Innovation & New Business [3]

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Fred, this is Elton. Thank you for the question. I'm going to speak about GNDI. Well, first of all, we did have more flexible rates vis-à-vis the table list of Notre Dame, this to be able to distribute the products. What we have been surveying is if we're going to carry out a commercial strategy in the retention channel. But this means that Qualicorp might adopt a more aggressive strategy, and we're going to see if we can do something different in terms of retention. And this product as a priority is being sold through the Qualicorp channels and through our fidelity sale. And initially, the focus will be São Paulo state.

Another important point. We have already received this question frequently. And we have no actuarial risk in this contract. What we do have is that part of our commissions can be variable. But once again, the variation can be upwards or downwards. And we do not run a risk. This is a very controlled risk. And once again, something we have perceived clearly.

In terms of the commissions, we're going to speak about commission/incentives. Strategies and as the focus is growth, we're allocating priority to some partners and incentives based on goals. And because of this, the commissions might be somewhat higher vis-à-vis 2019 because of this model. We're working very closely with some of our partners. And secondly, because the company will grow again, and naturally, we expect to have to spend some more because of this growth. Basically, this is what we have in terms of commissions.

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Bruno Blatt, Qualicorp Consultoria e Corretora de Seguros S.A. - CEO [4]

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Fred, this is Bruno speaking. The partnership with GNDI, while we have high expectations in terms of this, we're beginning with a project that is strictly for our own channel. When it comes to compensation or remuneration, we already have this partnership with other operators and there is that risk of the commission going upwards or downwards, but there is no actuarial risk. We do not do the pricing. We do not do the regulation. This is a network. We're working with an operator. And we do have this type of partnership with other operators. Based on this same model, we're working with coming closer to GNDI in the Affinity segment. And we will probably be doing this with a SME and Corporate segment as well.

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Frederico P. Mendes, Banco Bradesco BBI S.A., Research Division - Research Analyst [5]

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If you allow me a quick follow-up. It's obvious that this contract should have an impact on both sides, gross sales and share. But you delayed this in the fourth quarter 2019. Now this partnership could help you even more in the churn and the sales, of course, will also help you in the churn.

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Bruno Blatt, Qualicorp Consultoria e Corretora de Seguros S.A. - CEO [6]

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As we do believe in this spread. And when we look at this product, not something we had internally, especially in the loyalty sale and it will be a very complementary product, especially in São Paulo. And as a priority, we're focusing on retention, on the part of script, on the part of intelligence. There is an intelligence underpinning the entire part of retention. And of course, there is a more intelligent script underlying this. And because of this, we require more time for the fidelity process. One of the -- this is our own channel, and people know the product and 80% of our efforts are geared towards retention and fidelity because of this.

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Operator [7]

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Our next question is from Tobias from Citibank.

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Tobias Stingelin, Citigroup Inc., Research Division - Director [8]

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I would like to gain an understanding of what you think about that churn premise going forward after all of the initiatives and launches that you have. And if you could speak about your strategy, those pillars that will increase the penetration in the Affinity segment.

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Elton Hugo Carluci, Qualicorp Consultoria e Corretora de Seguros S.A. - VP of Commercial, Innovation & New Business [9]

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Very well, Tobias. Thank you for the question. Churn, well, we had a surprising result in the second quarter, we, for some months, had had a large part of our people working on loyalty. I will say that this was a starting point. Predictive processes, modeling, the profiling of people. We haven't implemented everything. We haven't implemented more than 20% or 30% because this is being carefully segmented. And something that we don't control, of course, is the macroeconomic variables. And when it comes to churn, we have questions about what will happen post COVID and what will happen with GDP. This is significant for churn. And as I said, we have some products that we did not have formerly. And when we launched GNDI, we also launched our theme group, and all of this is being included in our retention strategy. Some of these things may decrease that we're going to continue to implement. But once again, there are those macro issues. And people are working towards understanding the impacts. Our expectation, of course, is that we will continue to improve, perfect this, decrease churn, but that macroeconomic variable is of great importance. As part of our modeling, 80% refers to financial issues.

And to speak about penetration, point number two, I'm going to invite some executives that were not in the opening. Pablo Meneses will speak about penetration and what we're thinking about this.

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Pablo dos Santos Meneses, Qualicorp Consultoria e Corretora de Seguros S.A. - VP of Operations & Relationships [10]

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Tobias, it's a pleasure to speak to all of you. Our relationship with EBITDA, we have worked with a much closer relationship with operators, with clients, with users of Quali and those who might become users. Now how do we work with proximity? By understanding the needs of this audience. We're speaking about more than 500 class entities and each in a different corner of this continental Brazil. We need to understand problems, tickets, characteristics and other issues. And of course, this makes it somewhat more difficult in terms of loyalty and market growth. And this market growth will take place alongside the entity, checking to see which are the products that are under demand for each of them. Rio de Janeiro, for example, is one state. We also have the [Amazonas]. We have to understand entities, operators and only this way can we deliver a great diversity of products.

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Tobias Stingelin, Citigroup Inc., Research Division - Director [11]

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And when do you think that we will begin to see the results of this initiative? And from the macro viewpoint, if 80% refers to financial issues, what has happened with your doubtful debts, your bad debts? I know that health plans are very important, but what has happened with your provision for doubtful accounts?

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Frederico de Aguiar Oldani, Qualicorp Consultoria e Corretora de Seguros S.A. - CFO & IRO [12]

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This is Fred, Tobias. The first important point is to speak about the issue of default or bad debt, which is quite under control. And this was important because we delayed or postponed readjustments. At the moment of a price readjustment, we have a loss in our portfolio. And because of the increase, we have an increase in financial default. As this readjustment was postponed, it allowed us to maintain the bad debt under control. There is a new factor. What we have perceived with the pandemic is the need for companies to maintain their health plan coverage because of the risk that this might pose to their health. Now this combination of a pandemic with the postponement of readjustments has helped us to hold back the bad account and to maintain a demand for a health plan in the short term. I think Bruno would like to add to this.

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Bruno Blatt, Qualicorp Consultoria e Corretora de Seguros S.A. - CEO [13]

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Tobias, thank you for the question. I would like to mention something that relates to our results. You said what is it that we expect. Now I'm going to reinforce my long-term vision. And here in the company, we're not looking at the short term. We're looking at the long term. You can see how much we've been able to do in the short term in terms of regionalization and the new local partners. We are going to offer more options to those who sell our plans and brokers. This will distribute revenues and lead to a greater sustainability in the long term. In the short term, of course, we do have important achievement. This is the example of Assim Saúde that has surprised us in terms of what we expected. And we see the need of users, brokers and entities. And this is something that we're tackling with a great deal of seriousness and diligence, and we're looking at everything in a regional way. And we are, of course, focusing on medium and long term results, although we have gained a great deal of traction in the short term.

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Operator [14]

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Our next question comes from [William] from Crédit Suisse.

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Unidentified Analyst, [15]

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Well, the certainty of growth, I'm also convinced of that. Congratulations for the results. They truly are surprising, and they give us a good vision for the long term. I do have some questions. We observed that you have had a very responsible cost and expense management. You were able to achieve quite a bit, but there are still some distortions, whether positive or negative, in the results to gain greater visibility. Are you close to a level of stabilization in terms of G&A and gross margin?

The second question. What do you foresee for the Affinity market post pandemic? What is happening in this market?

The third question refers to the evolution of tickets. What do you foresee? Is there a pressure on tickets? And how can you force this somewhat to be able to compete in the market?

And the fourth question. The idea that you have of the SMEs, which has been a commercial reception of this new idea too.

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Frederico de Aguiar Oldani, Qualicorp Consultoria e Corretora de Seguros S.A. - CFO & IRO [16]

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This is Fred, [William]. I will begin speaking about the SG&A. The level of SG&A, we don't expect to see great changes vis-à-vis the present day levels. Now as part of the line items, you may observe several changes. The part of commissions, for example, yes, we are going to use more resources to stimulate the channel, campaigns. We're going to invest more in lead generation, in technology and scores and all of this will be financed by a drop in other line items. To mention some examples, the occupancy rate with the return of the 7 floors. We also have other fronts mapped out with relevant savings and the issue of the remuneration or compensation of management. This is a very relevant scenario. We don't expect great changes in terms of our consolidated accounts, but there will be significant change in the makeup of accounts. As Bruno mentioned, we do have a growth plan. We have to focus on some fronts, and there was a company with 0 budget for innovation. This doesn't work for us. We're going to have to invest significantly on technology in our fronts for client retention and scores, we will have to invest. So the main message is don't expect enormous changes in costs and expenses, but there will be changes in the makeup of some line items.

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Bruno Blatt, Qualicorp Consultoria e Corretora de Seguros S.A. - CEO [17]

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Mauricio -- William, the Affinity market what we have observed going into the third quarter is that well, in truth, different variations, and this is a very regional viewpoint. What we perceive is that in some states, they have been put aside a bit with very little growth. We look at the impact of the SulAmérica portfolio. I can't give you a forward-looking statement or its cost figures. But what happened is above what we expected because of the dollar rate and much more. So very generally, we haven't seen a slowdown. We changed portfolios from portfolios. We have lost a few days of beginning in specific regions, but this is something seasonal, of course. It tends to happen usually during the year with one or another portfolio.

But taking this away, we haven't seen a reduction in demand. And in principle, we haven't observed this. Of course, in the medium and long term, we have to focus on the macroeconomic issues. We're more concerned with the macro issues in the medium and long term. How long will it take for our economy to recover and the part of revenues? And the recovery has been much faster than we imagined. And of course, we do have a product gap, and we're trying to close these regional gaps as fast as possible. The great concern is the macroeconomy.

The evolution of tickets, yes, we may have a dilution because of the low-end growth in tickets and not because of the evolution of other tickets. Once again, we have had a better performance in some products with a higher ticket, which, of course, is extremely positive, and it is natural that we will have a dilution or increasing the share of lower tickets in our base. In principle, this does not mean a reduction in the sale of products with medium and higher tickets. And this is what we have observed internally.

Now to speak about the SMEs, we do have differentiated models for the SME segment. They're underway. And the short-term effects that we have observed is that we have the traditional distribution of products for SME. We have the retention model. And of course, we know what is not eligible for SME, and we work with predictive modeling for this. And what we see is a significant opportunity because we can distribute any health product as part of our customer base. We're quite enthusiastic with this. This will be complementary to what we do, and we will have different models coming up from Qualicorp. We also have a technological platform, and we can sell these products through our traditional distribution channels. I think that this rounds up the question, if I have forgotten something.

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Unidentified Analyst, [18]

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Yes, you did cover everything with great transparency. Thank you very much for enhancing our understanding and congratulations for your results.

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Operator [19]

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(Operator Instructions) Our next question is from Eugenia from JPMorgan.

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Eugenia Tedde Cavalheiro, JPMorgan Chase & Co, Research Division - Research Analyst [20]

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I hope all is well. I was not there at the beginning of the call. So I don't know if this was mentioned. I would like to understand the impact of not increasing prices at Qualicorp. Of course, this will help you in terms of the bad debt. And have you had any impact in terms of churn? And how is this going to impact your top line?

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Frederico de Aguiar Oldani, Qualicorp Consultoria e Corretora de Seguros S.A. - CFO & IRO [21]

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Eugenia, this is Fred. Now the details on how we suspend this and when we can go back to the price readjustments are pending. It is still very early to give you any estimates. We're assessing this. And as soon as we have something more concrete, we will signal this. But it's too early, once again, to speak about what type of impact we could have because of this suspension.

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Bruno Blatt, Qualicorp Consultoria e Corretora de Seguros S.A. - CEO [22]

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I was speaking to Fred about this. And in churn, for example, as we have that issue of income and price as one of the main variables for cancellation in the short term, well, eventually, all of this will be recomposed. The life cycle will mean that the client won't look at these 3 or 4 months as something isolated. And that is why we can't speak about the churn.

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Operator [23]

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Ladies and gentlemen, with this, we would like to end the question-and-answer section for analysts and investors. We will turn the floor over to Bruno Blatt for his closing remarks.

The Qualicorp conference call ends here. Thank you very much for your participation, and have a good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]