Risk Factors

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Investment in our securities involves exposure to certain risks. Before making any investment decision on any of our securities, potential investors must carefully review all information in this Reference Form, the risks mentioned below, as well as our financial statements, quarterly earnings release and notes. Our business, financial condition, operating results, cash flow, liquidity and/or our future business may be adversely affected by any of the risk factors detailed below. The market price of our securities may decrease due to the occurrence of any of these and/or other risk factors, in which case potential investors may lose all or a substantial part of their investment in our securities. The risks detailed below are those we know and believe that, on the date of this Reference Form, may materially and adversely affect us. In addition, additional risks not currently known or considered irrelevant may also adversely affect us.

The risks described below are, on the date of filing of the 2021 Reference Form at Securities and Exchange Commission ("CVM"), those that we are aware of and that we believe may adversely affect us. In addition, additional risks not currently known to us or that we consider immaterial as of the date of this Reference Form may also adversely affect us.

For purposes of section "4.1 Risk Factors" and section "4.2. Market Risks", of the 2021 Reference Form, unless expressly stated otherwise or if the context so requires, the mention of the fact that a risk, uncertainty or problem may cause or have or will cause or will have an "adverse effect" or "negative effect" for us, or similar expressions, means that such risk, uncertainty or issue could or could have a material adverse effect on our business, financial condition, operating results, cash flow, liquidity and/or future business and our subsidiaries, as well as the price of the securities issued by us. Similar expressions included in this section "4. Risk Factors" and in the section "5. Market Risks" should be understood in this context.

Notwithstanding the subdivision of this section "4.1 Risk Factors" and section "4.2 Market Risks", certain risk factors that are in an item may also apply to other items in this section "4.1 Risk Factors" and section "4.2 Market Risk".

a. to the issuer

Due to the greater exposure to the Federal Government from the participation in programs such as FIES, PRONATEC and PROUNI, as detailed below, any delay or suspension of onlending, as well as changes in the rules, could adversely affect our cash flow and, therefore, our business.

Due to the increased penetration of the Higher Education Student Fund ("FIES"), a program created by MEC, operated by the Brazilian Education Development Fund ("FNDE"), to finance low-income students in undergraduate and technological courses in private institutions of higher education, as a financing option to our students, our exposure to the transfer of FIES’ monthly tuitions by the Federal Government became significant as of 2012. Additionally, the Brazilian Program of Access to Technical Education and Employment ("PRONATEC"), created by the Federal Government in 2011, was adopted with the purpose of expanding the offer of vocational and technological education courses. In addition, we joined the "University for All" Program ("PROUNI"), with the Federal Government granting financing policies and tax benefits. PROUNI, institutionalized by Law 11096/05, has the purpose of granting full and partial scholarships to low-income students, in undergraduate and technological courses, in private institutions of higher education, offering, on the other hand, exemption of some federal taxes from institutions that join PROUNI.Our competitors may offer programs similar to or better than those offered by us, have access to more funds, be more prestigious or well-regarded within the academic community, have more conveniently located campuses with better infrastructure, or charge lower or, in the case of public post-secondary education institutions, not charge tuition. We may be required to reduce our tuition or increase our operating expenses in order to retain or attract students or to pursue new market opportunities. As a result, our revenues and profitability may decrease. We cannot assure you that we will be able to compete successfully against our current or future competitors. If we are unable to maintain our competitive position or otherwise respond to competitive pressures effectively, we may lose our market share, our profits may decrease and we may be adversely affected.

If the Federal Government decides to extinguish or reduce the benefits of PROUNI and FIES, or if we are unable to meet PROUNI’s requirements and, in FIES’ case, students are unable to meet the program’s requirements or the Government extends the deadlines of reimbursements or changes the rule adversely, our operating results may be affected and we may be compelled to pay taxes which we are currently exempted from and this would reduce our revenue with the lower funding of students coming from FIES.

Finally, recent changes in the rules to renew FIES’ agreements, as well as the end of the system for students to contract new loans and changes in PROUNI’s legislation may negatively affect the number of students in our courses, leading to a decrease in our revenues, as occurred with the changes observed during 2015 in PRONATEC.

As of December 2014, the Federal Government, through the Ministry of Education, reduced its investments in FIES and PRONATEC, reducing the number of vacancies available for both programs. As a result, the FIES student base went from 31.6% of the undergraduate student base on December 31, 2018 to 23.5% on December 31, 2019 and 15.3% on December 31, 2020.

As of 2018, the Company joined the new model of student loans from the Federal Government entitled "New FIES". Such as the old program, the new loan also grants several financing limits throughout Brazil, focusing on the North, Northeast and Midwest regions. The new program is divided between Public FIES, which is under the control and responsibility of the Federal Government, and ‘Private FIES’ (P-FIES), which is controlled by public and private financial institutions. In relation to Public FIES, when joining the program, the HEIs are required to join the FIES Guarantee Fund (FG-FIES), which replaces FGEDUC. In addition to joining FG-FIES, institutions will have an increased risk exposure in the new program. For loans granted as of 1H18, the HEIs maintainers who joined FIES will assume the risk of the loan, as solidary debtors, and must commit themselves to make contributions to FG-FIES by using the following percentages (a) 13% (thirteen percent) in the first year, (b) between 10% (ten percent) and 25% (twenty five percent) from the second to fifth year, (c) as of the sixth year of the maintainer in FG-FIES, the percentage of participation may not be less than 10% (ten percent). The offer of FIES vacancies for the private higher education sector by the Federal Government went from approximately 700 thousand vacancies in 2014 to approximately 300 thousand vacancies between the years 2015 to 2017 and, as of 2018, it was again reduced to less than 100 thousand vacancies.

The increased in the levels of non-payment of our monthly tuitions may jeopardize our revenues and our cash flow.

We rely on the full and timely payment of the monthly tuition we charge our students for the continuity of our business. Therefore, the increase in the non-payment levels of our students in the payment of the monthly tuitions or in rebuilding the debts may compromise our cash flow and our ability to meet our obligations. The increase in the non-payment levels may negatively affect our cash flow and, therefore, may harm our business. The allowance for doubtful accounts as a percentage of net revenue, as of December 31, 2018, was 7.0%, due to high unemployment rates and the consequent increase in non-payment. In 2019, still as a result of high unemployment rates, it was 6.3%, and in 2020, due to the impacts of the COVID-19 pandemic, it was 9.8% of net revenue.

We may be harmed if we cannot identify, open, install and manage new units under economically efficient conditions or obtain the necessary regulatory acts for authorizations or accreditations of such units in a timely manner. If we are not able to implement our expansion plan by opening new units in the planned manner, our business may be adversely affected.

Our strategy includes the organic expansion through opening new units and integrating them in our teaching network. Thus, our expansion plan creates significant challenges to the maintenance of our educational quality and culture, due to the degree of complexity and difficulty in efficiently managing many units and courses. In this sense, we may not be able to maintain our current quality standards, which would mean reducing our market share and, therefore, reducing our efficiency and profitability.

In addition, opening new units leads to major challenges and requires large investments in infrastructure, marketing, personnel and other pre-operating expenses, specially identifying new facilities (units), both for rental and acquisition. In this sense, we prioritize the identification of strategic locations, the negotiation of the acquisition or lease of properties, the evaluation of the need to build or renovate of all facilities, especially libraries, laboratories and classrooms, as well as obtaining operating licenses, hiring and training of teachers and employees and investing in administration and support.

In addition, before opening or operating the new units, we are required to accredit such units in MEC, as well as to approve and authorize our new courses to be able to operate, recruit students and issue degrees and certificates. Therefore, if we are not able to make the necessary investments to open new units to comply with all specifications of MEC, or if MEC imposes to this processes requirements, restrictions, goals or impediments to the approval of our requests that result in the delay of authorization, accreditation or recognition of such units, our business may be impaired.

We may not succeed in our strategy to expand our activities in the Distance Learning segment ("DL" or "Digital Learning").

DL market is constantly changing, especially after the new regulatory framework for distance learning published in 2017 and with the change in behavior by students due to the impacts of the COVID-19 pandemic. Therefore, we may have difficulties in operating courses in the distance learning model, as well as in promoting the changes and technological investments that such teaching model requires. Online product technology, including for the DL segment, evolves rapidly and therefore we will have to modify and update our products and services quickly to adapt to the new market practices and standards expected by the students. In this sense, our strategy may be jeopardized if our competitors, current or future, introduce products or service platforms that are superior to ours and our funds availability is not enough to develop and implement the technological changes required to maintain our competitive position.

In addition to keeping up the technological innovations, the success of DL also depends on the population’s easy access to Internet at an affordable cost, as well as on technological factors beyond our control. If the internet access is made difficult or available at a higher cost than the current, or if the number of people interested in educational services via Internet does not increase, we may not be able to implement our growth strategy in EAD services and, therefore, we’ll not be able to satisfactorily implement our growth strategy.

We face a significant competition in each course we offer and in each region in which we operate; therefore, if we are not efficient, we may lose market share and profitability.

We compete with colleges, universities, public and private university centers, distance learning institutions, as well as with alternatives to private higher education, such as philanthropic entities, which are exempted from collection of certain taxes. According to the ‘Sinopse Educação Superior 2019’, published by the Brazilian Institute of Educational Studies and Research Anísio Teixeira (INEP), there were 2,608 institutions of higher education in Brazil, 302 public and 2,306 private.

Our competitors may offer similar or better courses, have more resources, have more prestige in the academic community, have more conveniently located units and better infrastructure, charge lower tuition fees, or do not charge tuition fees, when a public higher education. We may be required to reduce our monthly fees or increase our operating expenses to retain or attract students or seek new market opportunities. We cannot ensure that we will be able to successfully compete with our current and future competitors. If we cannot keep our competitive position or answer efficiently to the competitive pressures, our revenues may decline, our profitability may be compromised, and we may lose our market share.

We may not be able to identify and acquire new higher education institutions or meet our strategic and financial purpose for any intended acquisition.

We intend to acquire higher education institutions as part of the expansion strategy of our operations, including acquisitions that may be significant in size and/or strategic relevance. We may not be able to continue to identify higher education institutions that offer adequate and/or favorable acquisition opportunities when we wish to carry them out. In addition, past and present acquisitions involve several risks and challenges that may have a material adverse effect on our business, especially because, among others:

  • the acquisition may not contribute to our commercial strategy or the image of our institution;
  • the acquisition may be subject to the authorization of competition authorities, which may refuse to accept or impose restrictions;
  • we can face a material contingent liability due to the legal proceedings of the units acquired, as well as regulatory issues related to MEC;
  • the acquisition process may be time consuming and consume more resources and/or require additional time and effort from our management, diverting the focus of the management from our operations;
  • investments in acquisitions may not generate the expected returns;
  • the business model of the acquired institutions may be different from ours, and we may not be able to adapt these models to ours or to do so efficiently;
  • acquisitions may generate goodwill, the amortization of which will result in the reduction of our net income and dividends; and
  • the transfer of the maintenance resulting from the sale of control or corporate restructuring must be later ratified by the MEC.

We may need additional resources to continue our expansion strategy. Therefore, if we cannot obtain the due financing to complete any potential acquisition and implement our expansion plans, we will not be able to fully implement our growth strategy.

We may not be able to satisfactorily integrate and manage the institutions and/or units purchased.

In the process of integrating the acquired institutions and/or units with existing ones, we can face significant challenges, such as managing a larger number of geographically dispersed employees and efficiently creating and implementing uniform controls, procedures and policies, as well as additional integration costs. If the integration of the institutions and/or units acquired in our operations and the management, disclosure and application of our business strategy in such new units, we may not achieve the benefits we expect to obtain from the acquisitions. We may also not be able to integrate the faculty and staff with different professional backgrounds and corporate cultures, and our relationship with current and new faculty and staff may be jeopardized. In addition, the integration of new units acquired may be affected due to the collective bargaining in each region, including pressure from unions. If we are not able to efficiently manage our growth through acquisitions, our business could be significantly jeopardized.

We may not be able to update and improve our learning project and continue to offer a good cost-benefit ratio to our students.

Our curricula and teaching programs are focused on the academic training to empower students to access the job market, providing better employability conditions. Thus, to set us apart from the competition, we regularly update our curricula, as well as develop new teaching programs, including the adoption of new technological tools. If we are unable to adjust to the demands of our students and the market, these aspects may make our courses no longer acceptable in the future. In addition, we may not succeed in introducing new teaching programs at the same speed as our competitors or as quickly as employers’ demand. If we do not adequately respond to changes in market demands due to financial constraints, fast technological changes, or other factors, our ability to attract and retain students may be undermined, given that the cost-benefit ratio of our costs may be questioned.

We depend on the members of our Management and we may not be able to retain or replace them with people with the same experience and qualification.

Part of our success depends on the skills and efforts of our Management. However, our senior managers and employees may step aside in the future. If senior managers or employees no longer wish to be part of the management of our business, we may not be able to hire equally qualified professionals. The loss of members of our Management and our inability to hire professionals with the same experience and qualification may have a detrimental effect on our business.

An increase in the dropout rate of our students may adversely affect our operating results.

We believe that dropout rates are mainly related to personal reasons, the country’s socioeconomic conditions, and the financial condition of our current and potential students. Significant deviations in our estimates of the dropout rates of our students may affect our efforts to attract new students and these efforts may not enough to make it possible for us to achieve the revenues expected by us. Thus, a possible increase in the dropout rate and/or non-renewal of enrollment may reduce our revenues, impairing our operating results.

We may be disadvantaged in certain unfavorable negotiations in collective bargaining agreements signed between the unions representing our teachers and employees and the trade unions of the economic categories that represent our teaching institutions.

Our expenses with personnel and social charges represent most of our cost of products and services rendered, and, for the full year ended December 31, 2020, these expenses accounted for 65% of our costs. Our teachers and administrative staff are represented by trade unions. The collective bargaining agreements regulate the duration of the class, the minimum remuneration, vacation and direct benefits for teachers and administrative staff and are subject to annual renegotiation and may substantially change in the future. Thus, we may be jeopardized in case of negotiations unfavorable to us with respect to said collective agreements. We may also be affected if we do not have a good relationship with the unions of teachers or administrative staff or if we face strikes, work stoppages or other labor contingencies on the part of our teachers or employees.

Finally, we may not be able to pass onlend to the tuitions of our students an increase in costs resulting from the renegotiation of collective agreements, which could have an adverse effect on our business.

We may be held accountable for certain events in our units, which may have a detrimental effect on our image, our results and, therefore, our business.

We may be held accountable for acts by directors, teachers and employees. In case of accidents, injuries or other damages to students in our units, we may face claims on the grounds of negligence, for example, not having the due supervision of our facilities, or that we have been in any way, responsible for such accidents, injuries or damages, as well as for the noncompliance by directors or employees with specific laws of MEC and/or regulatory acts of our courses. We may also face allegations that teachers or other employees have committed moral or sexual harassment or other unlawful acts against other employees or against students. In these cases, our insurance coverage may (i) not provide us with protection against these types of claims; (ii) not be enough to cover any indemnities that may be due or (iii) be non-existent for a certain act or fact. We also can’t guarantee that in the future we will be able to renew our coverage under the same conditions. Liability lawsuits can affect our reputation and adversely affect our business and our financial results. Finally, we may be subject to lawsuits brought by students and/or former students, alleging possible damages to rights provided for in the Consumer Protection Code (Law 8078, of September 11, 1990, as amended). The mere existence or disclosure of such lawsuits, even prior to the substantiation of the related facts, may damage our image, decrease the enrollment rates, increase the student’s dropout rates, involve substantial expenses, and divert the time and attention of our management; which may adversely affect our operating results and our financial condition.

Our success is linked to our ability to follow and adapt to technological changes in the educational segment and to the proper and uninterrupted operation of our technological infrastructure.

Our information technology systems and tools may become obsolete or insufficient. In addition, we may find it difficult to monitor and adapt to the technological changes that may occur, especially in the distance learning segment, which is affected by the fast-changing technologies, as well as changes in the technological needs and expectations of our students, students and market standards.

Our competitors may introduce new products or service platforms that are superior to those we offer, and our success depends on our ability and efficiency to improve our current products and develop new services to keep a competitive position in the market.

In addition, our technological infrastructure may be affected by unauthorized access, hacking and other security breaches. A user who circumvents security measures may misappropriate proprietary information or lead to disruptions or malfunctions in operations. As a result, we may need to incur substantial expenses to protect ourselves against the threat of such security breaches or to solve the issues caused by such failures.

Finally, our business depends on the due and uninterrupted operation of our information technology infrastructure. Several issues related to our information technology structure, such as viruses, hackers and disruptions in our systems, and technical difficulties related to our satellite transmissions may adversely affect our business.

Failures in our security system regarding to protecting confidential information, including personal data, and our network could cause loss of revenue and damage to our reputation, harming our operations or resulting in the unauthorized disclosure of information.

Any failure on our part to prevent breaches of information security, in the transmission and data storage, electronic or otherwise, affecting the confidentiality, integrity and availability of stored information, may harm our reputation and also substantially affect our business and operating results. This may result in: (i) cyber attacks, which may include invasion of information technology platforms and systems, which aim to access, alter, steal, corrupt or destroy systems and platforms used by us, computer networks and information stored or transmitted by us or our business partners; and (ii) breach of privacy and personal data, unauthorized access or disclosure of confidential and/or private customer data by people inside or outside our organization.

The above factors may be due to malware (such as computer viruses), ransomware, worm, phishing, social engineering, exploitation of environmental and system weaknesses, contamination (whether intentional or accidental) of networks and systems by third parties with which the data exchange, as well as other types of attacks.
Any successful cyber attacks can result in impacts on the organization‘s image and reputation, system downtime or unavailability of services, causing business losses, contamination, corruption or loss of customer data and other stored sensitive information, in breach of security data, unauthorized disclosure of information, or loss of significant levels of liquid assets (including monetary values).

Cyber attack attempts continue to evolve in scale and sophistication, and we may incur significant costs in attempting to modify or improve protection measures, or to investigate or remediate any vulnerabilities or breaches, or to report cyber attacks to our customers.

If we are not able to efficiently protect our systems and platforms against cyber attacks, this could lead to: breaches of privacy, personal data and customer confidentiality; losses arising from damage to network security and breach of customer data; conflicts with customers; damage to our image and reputation; media liability and related costs; lawsuits, regulatory fines, sanctions, intervention, reimbursements and other compensation costs; costs arising from crisis management for data identification and preservation, legal advice, contracting third parties, emergency defenses and indemnities; costs necessary to restore environments (costs related to using the backup structure to restore our information or systems); and costs related to indemnity arising from lawsuits.

All of these factors could have a material adverse effect on our business, reputation and results of operations. Furthermore, we may not be able to update ourselves at the same speed, or we may have to devote more financial resources than we had originally planned to combat such attacks.

In addition, we manage, retain and maintain partnerships with third parties for the archiving, processing, maintenance and availability, via internet, of electronic data containing confidential personal information of customers in the regular course of their operations, which can be accessed and unauthorized disclosures.

Any misuse or unauthorized use of customer information, or any public perception of us disclosing our customers‘ information without their prior authorization, may subject us to legal action and administrative sanctions, which could materially and detrimentally affect our reputation and financial condition.

These risks were exacerbated during the COVID-19 pandemic, including as a result of our employees has started working from home.

In addition, security failures that lead to the loss of data and information can prevent the proper development of our activities and interfere with the fulfillment of our legal obligations, such as, for example, the retention of records of access to the application required by Law No. 12.965 /2014 ("Marco Civil da Internet"). Any failures in data storage for accessing and using the platform by us may make it difficult or prevent the defense of our interests in any legal or administrative actions, such as, for example, for the investigation of fraud and recovery of amounts.

If we cannot keep the quality of teaching and infrastructure in our network or if we don’t get positive grades for our units and our students, we may be adversely affected.

The faculty is key to maintain the quality of our courses and our reputation. There is a shortage of qualified teachers in the market, which leads to a fierce dispute to hire these professionals. We cannot guarantee that we will be able to retain our current teachers or recruit new teachers who meet our quality standards, especially as we continue to expand our operations geographically.

In addition, the quality of the learning projects of our courses and the infrastructure of our units are also key for our teaching quality.

Likewise, we cannot guarantee that (i) we will find new properties with the proper infrastructure; (ii) we will be able to install the proper infrastructure in properties acquired in the future; (iii) we will have enough resources to do so in our expansion process; or (iv) we will be able to develop learning projects with the same level of those we currently have for new courses. In this sense, we may be adversely affected due to the lack of (i) qualified teachers; (ii) proper infrastructure; or (iii) learning projects for new courses that are in accordance with our business model and with the parameters established by MEC. In addition, our business may also be affected if it is perceived, in one or more of the markets in which we operate, that there has been a decline in the quality of our education in one or more of our markets.

In addition, we and our students are often evaluated and scored by MEC. If our units and courses or our students receive from MEC lower grades than those of previous years, in any of its evaluations, there may be a reduction in our number of enrollments due to the perception of the decrease in the quality of the education that we offer. Therefore, any decrease in the result of our evaluation in the General Index of Courses or ENADE could damage the image of our brand, which may negatively affect our operating results and our financial condition.

Finally, if any of our courses are rated as unsatisfactory, we may enter into a commitment agreement between the higher education institution and MEC, including goals, measures and deadlines to correct the unsatisfactory conditions. The full or partial non-compliance with the conditions prescribed in the commitment term may result in penalties applied by MEC, which include the temporary suspension of the admission process of undergraduate courses to the annulment of the accreditation or re-accreditation of the institution and operating authorization of our courses, which may adversely affect our operating results and our financial condition.

We are subject to supervision activities of the Ministry of Education and, therefore, we may suffer the applicable sanctions, as listed below, due to any non-compliance of regulatory requirements.

The supervision activity of institutions of higher education and undergraduate and sequential courses in the federal education system was instituted by Law 10861, of April 14, 2004, and regulated by Decree 5773, of May 9, 2006. They are responsible for supervising activities related, respectively, undergraduate and sequential courses, higher education courses of technology and distance learning courses. The Offices of Higher Education, Professional and Technological Education and Distance Learning are the bodies of the Ministry of Education responsible for supervising activities related elated, respectively, undergraduate and sequential courses, higher education courses of technology and distance learning courses. The Office of Higher Education has wo types of supervision: common and special.

Common supervision originates from reports and complaints from students, parents and teachers, as well as from government agencies and the press, involving isolated cases of institutions and courses with indications of irregularities or deficiencies. It is worth noting that we are subject to these reports and complaints.

Special supervision, in turn, is initiated by MEC itself, based on its indicators of regularity and quality of higher education, and includes more than one course or institution, grouped according to the criteria chosen for the supervision. These criteria may include unsatisfactory results in the Brazilian Student Performance Exam and the Difference Indicator of Observed and Expected Performance, the background of course evaluations by the Brazilian Institute for Educational Studies and Research, as well as the compliance with specific legal requirements, such as the minimum percentage of masters and doctors in universities and university centers.

Our success depends on our ability to operate in strategically located properties and with easy access to public transportation for our students.

We understand that the location of our units is an important factor in the choice of the teaching institution by the students, due to the difficulty of urban mobility in many Brazilian cities and the commute expenses being relevant in the students’ family budget. In this way, identifying, renting and/or buying well-located properties is considered a strategic factor of our business. In this sense, we cannot guarantee that in the future we will be able to retain our current properties or acquire new properties that are well located. In the same way, it is possible that the costs related to the acquisition of new properties (improvements, renovations, etc.) and the rental prices of these properties will increase, which could negatively affect our profitability. We also cannot assure that the locations of our units will keep the potential of attractiveness and convenience due to eventual demographic and socioeconomic changes in the regions where we already operate.

Unfavorable decisions in judicial, administrative or arbitration proceedings may adversely affect us.

We are and may be a party to judicial, administrative and/or arbitration proceedings in civil, tax and labor matters, including our suppliers, students, faculty and/or environment, competition and tax authorities, among others, arising from our business in general as non-recurring events of a corporate nature, tax nature, regulatory nature, among others. We cannot guarantee that the results of these proceedings will be favorable to our interests or that we will have provision, partial or total, for all liabilities that may arise from these lawsuits.

Decisions contrary to our interests that eventually reach substantial amounts may adversely affect our results and the price of our shares.

Part of the properties we occupy is in the process of obtaining or renewing city permits and the fire department.

To occupy and use a building we must obtain the license proving the regularity of the construction work, represented by the Permit of Conclusion (Habite-se) or equivalent certificate, issued by the City in which the property is located. In addition, non-residential properties must have the following licenses to operate regularly: (i) Permit and License of Use and Operation, issued by the due Municipal Government; and (ii) Inspection Order of the Fire Department, issued by the Fire Department.

The lack of such permits may lead to penalties ranging from fines to, as the case may be, the need to demolish the area built irregularly or, worst case scenario, the closure of the respective unit. The possible imposition of penalties in relation to our units, especially the closure of a unit, could have a detrimental effect on our activities. In addition, in case of an accident, the absence of these licenses may lead to civil and criminal liability, as well as the cancellation of any insurance policy of the properties in question, as well as possible damages to the Company‘s image.

Part of the properties that we occupy have lease agreements or amendment under registration at the due enrollments and part of the lease agreements entered by the Company do not have a lifetime clause.

Part of the properties occupied by the Company are under registration of their lease contracts in the due enrollments. In addition, part of the lease agreements entered by the Company does not have a lifetime clause.

The registration and filing of lease agreements on enrollments may take longer than expected or even not occur due to any requirement or impediment unknown to us. Such registration or filing is important given that, if the leased property is sold to third parties, the buyer is required to respect the lease for the entire period of lifetime provided in the agreement, provided that the agreement has: (i) a fixed period; (ii) a lifetime clause; and (iii) is registered with the due Properties Notary Office. In addition, in case of the sale of leased properties, the lessee has the preference to purchase the property on equal terms with third parties. However, a tenant who does not have his/her preemptive right respected can cancel the sale of the property only if the lease is registered at the due Property Notary Office. Finally, if the property sold has no lifetime clause in the lease agreement, we may have to relinquish the property in up to 90 days if the purchaser of the property reports this lease agreement.

Therefore, the lack of lease agreements filed or the termination, at any time, of the agreements for an indefinite period may result in the loss of the right to such properties used by us and, therefore, undermine the development of our activities and our results.

Part of the lease agreements of the properties where our units are located were entered for less than five (5) years or have an indefinite term.

According to Law 8245, of October 18, 1991, as amended, the lessee is entitled to the renewal action that assures the right to renew the lease for equal subsequent periods. Generally, to propose this proceeding, it is necessary that: (i) the non-residential lease agreement has a fixed term equal to or greater than five (5) consecutive years or, if there is more than one agreement or amendment with the same property, whose aggregate terms results in a minimum term of 5 consecutive years; (ii) the lessee is developing the same activity in the property for a minimum period of 03 (three years); and (iii) the renewal proceeding is proposed from 01 (one) year to 06 (six) months from the date of termination of the term of the lease. In case of properties whose lease agreement has a term of less than five (5) years, it would not be possible to propose the renewal proceeding, so that at the end of the term of the agreement the lessor could refuse to renew the lease.

In addition, in the cases of units operating in properties whose lease is in force for an indefinite period, the lessor may terminate the agreement by notifying the lessee thirty (30) days in advance. The discontinuance of the activity in a certain unit, due to the termination of the lease of the said property could lead to negative effects in our activities, as well as our results.

Our indebtedness may adversely affect our business.

On December 31, 2020, our total consolidated gross debt was of R$653.1 million, considering loans, financing and debentures payable and financial commitments related to the acquisitions. Our consolidated indebtedness may:

• limit our ability to obtain new financing;

• require us to dedicate a substantial portion of our cash flow to serve our debt, which may impair our ability to use our cash flow to finance working capital, capital expenditures and other general corporate requirements, as well as compliance of our obligations;

• limit our flexibility to plan and react to changes in our business and the industry in which we operate;

• put us at a competitive disadvantage against some of our competitors who have less debt than we do; and

• increase our vulnerability to negative economic and industrial conditions, including changes in interest rate or a decline in our business or economy.

In addition, we have loan agreements with restrictive covenants that, in general, require the maintenance of economic and financial rates at certain levels (covenants). The non-compliance with these restrictions may lead to early maturity of the debt.

The applicable law establishes that acquisition operations that comply with certain legal requirements must be submitted to the approval of the Administrative Council for Economic Defense ("CADE").

According to Article 88 of Law 12529, of 2011, subsequently amended by Interministerial Decree 994, of 2012, concentration acts must be submitted to CADE for prior approval in which, cumulatively: (i) at least one of the groups involved in the operation had, in the last balance, gross annual revenues in the country, in the year prior to the operation, in the amount of R$750 million and at least one other group involved in the operation had in the last balance, gross annual revenues in the country, in the year prior to the operation, in the amount of R$75 million.

Thus, CADE may not approve our future acquisitions or may impose costly obligations as a condition for the approval of such acquisitions, such as the sale of part of its operations or restrictions on how it operates or markets in which it operates, which may adversely affect our operating results and our financial condition
Due to this strategy of expansion through acquisitions of new institutions, we may need additional resources to continue our expansion strategy. Therefore, if we cannot obtain the due financing to complete any potential acquisition and implement our expansion plans, our growth strategy will be jeopardized.

Disability or failure to protect our intellectual property or infringement of the intellectual property of others, including attacks on the infrastructure necessary to maintain our IT systems, could result in damage to our reputation and financial damage.

Our success depends, in part, on our ability to protect and preserve our assets subject to protection by intellectual property institutes provided for by Brazilian law (including trademarks, patents and software).

We believe that our brands are valuable assets that are important to our success and that issues related to intellectual property can significantly affect us. Events such as the definitive rejection of our trademark registration applications before the National Institute of Industrial Property (INPI), the unauthorized use or other misappropriation of our trademarks may diminish the value of our brands or our reputation, so that we may negatively impact our operating results. If we are not successful in obtaining the pending registrations, as well as adequately protecting our intangible assets, such an event could have material adverse impacts on our business, our financial situation, our operating results, our cash flow, our liquidity, our reputation and/or our future business.

In addition, cyber security incidents may result in misappropriation of our information and/or our students‘ information or in downtime on their servers or operations, which could materially and adversely affect us.

Any loss of intellectual property, trade secrets or other sensitive business information or interruption of our operations could negatively affect our financial results.

In addition, interruptions or failures in our information technology systems, such as in the calculation and accounting of billing, caused by accidents, malfunctions or malicious acts, can impact our corporate, commercial and operational functioning, which it may adversely affect our business and operating results, in addition to adversely affecting our image and reliability in the market.

Additionally, such interruptions or failures may not be covered by the insurance policies that we have taken out for our assets. Losses not covered by these insurances could result in losses, which could negatively impact our financial condition and operating results.

Finally, third parties may claim that products or services provided by us infringe their intellectual property rights. Any dispute or litigation related to intellectual property assets can be costly and time-consuming due to the uncertainty of litigation on the matter.

b. To its Parent Company, direct or indirect, or Control Group

We have a direct controlling shareholder, with approximately 57% of the voting capital, whose interests may conflict with the interests of our investors.

We have a direct shareholder holding an absolute majority of the voting capital. This controlling shareholder has the power to, among other things, elect a majority of our Board of Directors and establish the outcome of resolutions that require the shareholders’ approval, including related party transactions, corporate reorganizations, sale of asset, partnerships and payment of any future dividends, subject to the mandatory dividend payment requirements imposed by the Brazilian Corporation Law. Our controlling shareholder may have an interest in making acquisitions, selling assets, partnerships, seeking financing or similar transactions that may conflict with the interests of our other investors and lead to a material adverse effect on our activities, financial condition and operating results.

Part of the properties we occupy is owned by a company belonging to our controlling shareholder. Thus, we are exposed to conflicts of interest, since the management of these properties may conflict with our interests, of our controlling shareholder and of our investors.

Some properties in which our units are located are owned by a company controlled by our controlling shareholder, so the interests of our controlling shareholder in the management of such properties may conflict with our interests, as well as with the interests of our investors. In addition, the historical expenses and costs of the use of these units by the Company may not represent future costs and expenses with the rents of such properties paid to our Controlling Shareholder.

c. Risks Related to its Shareholders

Not applicable, as management is not aware of additional risks related to our shareholders beyond those already mentioned in item 4.1 (b) above.

d. Risks Related to its Subsidiaries and Affiliates

In addition to the risk below, our subsidiaries and affiliates are subject to the same risks described in items 4.1(a) and 4.1(b) above.

We depend on the distribution of the results of our subsidiaries and we may be adversely affected if our subsidiaries have their performance impaired.

We are a parent company of several other companies that carry out specific activities. The ability to meet our financial obligations and pay dividends to our shareholders is related to the cash flow and profits of our subsidiaries. There is no guarantee that the cash flow and profits of our subsidiaries will be positive or that they will be sufficient to meet our financial obligations and pay dividends to our shareholders.

e. Risks Related to its Suppliers

We and our subsidiaries may be the main or several liability of labor debts of service providers.

We enter into several service provision contracts such as cleaning, construction, renovation and buildings security and surveillance, among others.

If the third-party companies that provide services to us and our subsidiaries do not meet the requirements of labor legislation, we and our subsidiaries may be held jointly or severally liable for the labor debts of these companies, and may, therefore, be fined and/or required to carry out the payment of fines imposed by the competent authorities. In the hypothesis of we are held responsible for all these demands, our activities may be adversely affected.

f. Risks Related to its Customers

We may not be able to readjust the tuition fees charged to pass through the increases in our costs.

Our main source of income is the receipt of tuition fees charged to our students. Of our total costs, as of December 31, 2020, 64.9% were related to personnel and social charges and 5.1% were related to water, electricity and telephone services. Rent costs were positively impacted in 2020 by rental renegotiations carried out during the year, due to the effects of COVID-19, but we cannot guarantee that the discounts granted on our rentals will be maintained after the COVID-19 pandemic.

Both personnel costs and rents and energy are normally adjusted by indexes that reflect inflationary fluctuations. If we are unable to pass on our cost increases to students through the increase in tuition fees, our operating results may be adversely affected.

If we are unable to attract and retain students, or if we are unable to do that without reducing tuition fees, our revenues may be reduced and we may be harmed.

The success of our business essentially depends on the number of students enrolled in our courses and the tuition fees that are paid. Our ability to attract and retain students depends mainly on the tuition fees we charge, the convenience of location, the infrastructure of our units and the quality of our courses perceived by our current and potential students. Such ability may be affected by a number of factors, such as our ability to: (i) respond to increasing competitive pressures; (ii) develop our education systems to respond to changing market trends and the demands of schools and students; (iii) develop new courses and improve existing ones in order to respond to changing market trends and student demands; (iv) adequately prepare our students to pursue careers in their respective professional occupations; (v) successfully implement our expansion strategy; (vi) manage our growth and, at the same time, maintain our teaching quality; and (vii) efficiently deliver our courses to a broader base of potential students. If we are unable to continue to attract students to enroll in our courses and if we are unable to retain our current students without significantly reducing tuition fees, our revenues and business could decline and we could be harmed.

g. Risks Related to the sectors of the economy in which the Issuer operates

Private higher education institutions could be harmed if the government changes its education investment strategy.

According to Law No. 9,394, of December 20, 1996 ("Law of Guidelines and Bases of Education"), education is a duty of the State and of the family, being the education services allowed to the private sector, in compliance with the conditions of the Law of Guidelines and Basics of Education. Historically, direct government financial support for Higher Education has been concentrated in certain public universities that act as centers of excellence and research. The limited number of vacancies and highly competitive admissions processes significantly restrict access to these universities. The Federal Government can change this policy and increase the competition we face through: (i) the increase in the level of public investment in Basic and Higher Education in general and a greater offer of vacancies and improvement in the quality of education offered; and (ii) the transfer of incentive resources from universities that act as centers of excellence and research to public higher education institutions accessible to working adults from the middle and lower classes, our potential students. The creation and expansion, by federal and state universities, of quota policies for public higher education institutions using income or ethnicity as socioeconomic criteria may also increase the competition we face. In addition, the Federal Government can reduce the level of public investment in basic education, resulting in a decrease in the number of new students seeking entry into higher education institutions after completing basic education, thus restricting the demand for our courses. Additionally, any changes in government policy on education could eventually have an adverse impact on our activities and our business.

h. Risks Related to the Regulation of Sectors in which the Issuer operates

We operate in a sector that is highly regulated by government agencies, in particular the Ministry of Education (MEC), which draw up laws and regulations, the non-compliance of which may lead to inspections, administrative procedures or legal actions against higher education institutions, which may have adverse effects on their business.

The higher education sector is subject to federal laws and extensive government regulation imposed, among others, by the MEC and its agencies, such as the National Council of Education ("CNE"), INEP and the National Commission for the Evaluation of Higher Education ( "CONAES").

Educational regulations in Brazil define 3 (three) types of higher education institutions, namely: (i) colleges; (ii) university centers; and (iii) universities. The three types mentioned above depend on prior accreditation by the MEC in order to operate.

Regarding the offer of courses, the faculties differ from other types, as they depend on prior authorization by the MEC to implement a new course, which is not the case in other types of higher education institutions. University centers and universities are not subject to this requirement, and must only inform the Secretariat for Regulation and Supervision of Higher Education ("SERES") about new courses created for the purposes of supervision, evaluation and subsequent recognition by the MEC, with the exception of courses in law, medicine, psychology, nursing and dentistry, which require prior approval from the MEC.

Regarding the creation of campuses outside the headquarters, it should be mentioned that this is the only prerogative of the universities.

Likewise, it is important to highlight that all higher education courses are subject to recognition by the MEC, as a necessary condition together with registration (accreditation) for the national validity of the respective diplomas. Thus, any non-compliance with legal and regulatory requirements by our higher education institutions may lead to sanctions by the MEC, as well as a deterioration of our image with clients.

Distance learning, as well as the on-campus teaching modality, is also subject to a series of requirements imposed by the legislation for its operation, which we must fully comply, in order to obtain and renew the authorizing acts of the courses and the institution.

The maintenance of our authorization acts valid in the future is subject to compliance with regulatory requirements. Otherwise, the MEC may impose restrictions on operations, including the termination of courses, reduction in the number of places, cancellation of our prerogative to issue diplomas and certificates and revocation of our accreditation, which could harm our operating results and financial condition.

Furthermore, we cannot guarantee that obtaining accreditation or re-accreditation from our higher education institutions, as well as knowledge and recognition of our courses will occur within the expected timetable or that they will have all the required accreditations, re-accreditations, knowledge and recognition. The lack of such authorizing acts or the denial of obtaining them may have an adverse effect on our operating results.

The laws and regulations governing education service providers in Brazil may be revised and amended in the future. We may be significantly harmed by any change in laws and regulations applicable to higher education institutions, especially by changes relating to (i) accreditation and de-accreditation of private educational institutions; (ii) imposition of tuition controls or restrictions on profitability levels; (iii) qualification requirements for faculty members; (iv) academic requirements for courses and curricula; and (v) infrastructure requirements of the units, such as libraries, laboratories and administrative support, among others.

Government agencies, the MEC and third parties may conduct inspections, initiate administrative proceedings or initiate litigation against us.

Because a higher education institution operates in a highly regulated sector, government agencies, the MEC and third parties may conduct inspections, propose administrative procedures and file legal actions against it or against institutions acquired by us for non-compliance with regulatory standards. If the results of these proceedings or lawsuits are unfavorable to higher education institutions or if a higher education institution cannot successfully defend itself, it may be required to pay significant pecuniary convictions or be subject to fines, restrictions, or other penalties.

Even if the higher education institution presents adequate defense to the issues raised by the inspection of a certain agency or defends itself from an administrative procedure or a legal action, it may have to reserve significant financial and administrative resources to resolve issues raised by these procedures or to defend itself administrative proceedings or lawsuits. In addition, administrative proceedings and lawsuits filed against the higher education institution can damage its reputation, regardless of the outcome.

If we lose the benefits of the federal tax exemptions offered by PROUNI, our business, financial condition and operating results could be adversely affected.

Some of our students are part of PROUNI. This Federal Government program aims to provide entry to students who cannot afford academic costs in higher education, through the granting of scholarships by the Federal Government. Through PROUNI, higher education institutions, such as us, are benefited by certain federal tax exemptions from corporate income tax ("IRPJ"), social integration program ("PIS"), contribution to the financing of social security ("COFINS") and social contribution on net income ("CSLL") referring to income from undergraduate and technological undergraduate courses. In case of non-compliance with the rules established in the PROUNI Law, our educational institutions may lose such tax exemptions.

If we do not comply with certain requirements, such as offering full or partial scholarships for a certain percentage of paying students in the previous year, granting partial scholarships, semiannual presentation to the MEC of mandatory attendance control for scholarship holders, course use and student dropout control of courses and shifts, our higher education institutions may be disaccredited from PROUNI, which would result in the loss of our tax exemptions. If our higher education institutions lose their tax exemptions or fail to comply with other stricter requirements that may be introduced in the future, our business, financial condition and operating results could be adversely affected.

Furthermore, there is a risk that a tax reform will prevent, interrupt or modify the use of tax incentives granted. We cannot guarantee that the incentives related to PROUNI will be fully maintained and the term for which they will be maintained. Any suspension, modification, cancellation or non-renewal of tax incentives with the same characteristics could have an adverse effect on our operating results. In this sense, on September 12, 2013, the Federal Revenue Service of Brazil ("RFB") issued Normative Instruction RFB No. 1,394 ("IN. 1,394"), which was later amended by Normative Instruction RFB No. 1,417, of 6 of December 2013, which, in turn, revoked certain previous rules and introduced, among others, new provisions in relation to the tax exemptions instituted by PROUNI, in particular regarding the form of calculation of said benefit. According to IN. 1,394, in addition to the tax exemption obtained by private higher education institutions signatory to PROUNI being calculated based on the Proportion of Effective Occupation of Scholarships ("POEB"), the exemption related to IRPJ would be calculated with an additional 10%, in addition to the CSLL rate. This calculated amount constitutes the amount of the exemption from IRPJ and CSLL, respectively, which may be deducted from the IRPJ and CSLL due in relation to the totality of our activities. In this sense, the impact of IN. 1394, as amended, the exemption granted to us consists of the form of calculation of the exemption that takes into account the POEB and the inclusion of the additional IRPJ.

On July 21, 2020, the Ministry of Economy presented to the National Congress Bill No. 3887/2020 establishing the Social Contribution on Operations with Goods and Services ("CBS"), and amending the federal tax legislation ("Bill of Law" 3.887/2020"), which on September 30, 2020 was under discussion in the National Congress. Among the proposed changes, said Bill 3.887/2020 amends the PROUNI Law to exclude the exemptions related to the Social Contribution for Social Security Financing, and the Contribution to the Social Integration Program (taxes replaced by CBS), however, it does not include the provision for exemption from CBS. If said Bill 3887/2020 is approved as proposed, CBS will be levied at the rate of 12% on our gross revenue, which could significantly affect our results.

The approval of Bill 4.372/2012 is in process, which proposes the creation of the National Institute for Supervision and Evaluation of Higher Education ("INSAES"), which will be an autarchy linked to the MEC and will be responsible for supervising and evaluating institutions and courses higher education and certify charitable entities that work in the area of basic and higher education. INSAES will create new obligations for education service providers in Brazil, which may lead to an increase in operating costs and, consequently, harm our results.

If the Bill 4.372/2012 is sanctioned in its original form, we believe that (i) the sector‘s operating costs will increase due to supervision and inspection fees, with consequent transfer to the price of monthly fees; (ii) the in loco evaluation processes of educational institutions may be delayed if INEP is replaced or if its staff are not used; (iii) the prior approval of acquisitions, mergers, spin-offs, transfer of ownership, unification of maintained or voluntary de-accreditation of higher education institutions that are part of the federal education system, may harm or delay our operations; and (iv) the number of disputes against the MEC involving educational institutions may increase. Such changes could harm our results.

We are subject to risks associated with non-compliance with the General Data Protection Law and may be adversely affected by the application of fines and other types of sanctions.

In 2018, Law No. 13.709 of August 14, 2018 was enacted, as amended, called General Data Protection Law ("LGPD"), which will transform the way in which the protection of personal data in Brazil is regulated and treated, and which entered into force in September 2020, with the publication of law 14.058/20, however, articles 52, 53 and 54, which deal with administrative sanctions that may be applied by the National Data Protection Authority (ANPD), which will only come into force in August 2021. The LGPD establishes a new legal framework to be observed in processing operations of personal data and provides, among others, the rights of the holders of personal data, the legal bases applicable to the protection of personal data, the requirements for obtaining consent, the obligations and requirements relating to security incidents and leaks and data transfers, as well as the authorization for the creation of the National Data Protection Authority.

With the entry into force of administrative sanctions, if we are not in compliance with the LGPD, we and our subsidiaries may be subject to sanctions, individually or cumulatively, of warning, obligation to disclose the incident, temporary blocking and/or elimination of personal data and a fine of up to 2% (two percent) of the company, group or conglomerate‘s turnover in Brazil in its last fiscal year, excluding taxes, up to the global amount of BRL 50,000,000 (fifty million reais) per infringement . In addition, we may be held liable for material, moral, individual or collective damages caused and be held jointly and severally liable for material, moral, individual or collective damages caused by us and our subsidiaries, due to non-compliance with the obligations established by the LGPD.

Thus, failures in the protection of personal data processed by us and our subsidiaries, as well as inadequacy with applicable legislation, can lead to high fines, disclosure of the incident to the market, deletion of personal data from the database, and even the suspension of our activities, which could negatively affect our reputation and our results and, consequently, the value of our shares.

i. Risks Related to Foreign Countries Where the Issuer Acts

Not applicable, as we do not operate in foreign countries.

j. Risks Related to social and environmental issues

We are subject to various environmental laws and regulations that could become more stringent in the future and result in greater obligations and greater capital investments.

We are subject to comprehensive federal, state and local legislation relating to the protection of the environment. Compliance with this legislation is monitored by government agencies and agencies, which may impose administrative sanctions for any failure to comply with the legislation. Such sanctions may include, among others, the imposition of fines, the revocation of licenses and even the temporary or permanent suspension of activities carried out by us. The enactment of stricter environmental laws and regulations may force us to allocate greater capital investments in this field and, as a result, alter the allocation of resources from already planned investments. If we do not comply with the legislation relating to the protection of the environment, we may be subject to administrative and criminal sanctions, without prejudice to the obligation to repair any damage that may have been caused and, also, penalties such as fines (ranging from R$50 to R$50 million). There is no limit to the amount the courts can impose to cover repair costs in the case of civil liability or, if the environmental damage cannot be repaired, the payment of compensation. Furthermore, an indemnity claim for environmental damage is not subject to a statute of limitations. In addition, the delay or denial by the licensing environmental agencies in the issuance or renewal of licenses, as well as the eventual impossibility of meeting the requirements established by such environmental agencies in the process of environmental licensing, may harm or even prevent, as the case may be, the implementation of the refurbishments and improvements intended by us. Additional environmental requirements that may be imposed in the future as a result of changes in environmental legislation, as well as our inability to obtain necessary environmental licenses, may impose significant additional costs on us. The occurrence of the hypotheses foreseen above may adversely impact our image, business and results.

k. Macroeconomic Risks

Economic and political conditions in Brazil and the perception of these conditions in the international market have a direct impact on our business and our access to international capital and debt markets, which could negatively affect our results and financial condition.

The Federal Government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policies and regulations. The Brazilian government‘s measures to control inflation and its other policies and regulations have involved, among other measures, increases in interest rates, changes in tax policies, price controls, exchange rate controls, currency devaluations, capital controls and restrictions on imports. We have no control over and cannot predict the actions or policies that the Brazilian government may take in the future. We and the market price of our securities may be adversely affected by changes in Brazilian government policies, as well as general economic factors, including, but not limited to:

• growth or recession of the Brazilian economy;

• interest rates and monetary policies;

• exchange rates and currency fluctuations;

• inflation;

• liquidity of domestic capital and credit markets;

• import and export controls;

• exchange controls and restrictions on remittances abroad;

• changes to laws and regulations according to political, social and economic interests;

• tax policy and changes to tax laws;

• social, political and economic instability;

• labor regulations;

• rationing and shortages of energy and water;

• the intervention, modification or termination of existing concessions by the Brazilian government;

• Brazilian government control of, or influence over the control of, certain oil producing companies and refineries; and

• other political, social and economic events in Brazil, or that affect it.

In addition, Brazil is currently going through a still adverse economic cycle, with low GDP growth, which in turn generates an environment of high and prolonged unemployment. These weak macroeconomic conditions in Brazil are expected to continue throughout 2020. We cannot predict what actions will be taken by the Brazilian government in the face of mounting macroeconomic pressures or otherwise.

There is still uncertainty regarding the implementation by the Brazilian federal government of changes in policies or regulations that affect these or other factors in the future. Such changes could affect economic performance and contribute to economic uncertainty in Brazil, as well as increasing volatility in the Brazilian capital market and securities issued by Brazilian companies

Inflation and the Brazilian government‘s measures to combat it could significantly contribute to economic uncertainty in Brazil, and could have adverse effects on our business and operating results.

Brazil has historically presented high rates of inflation. Inflation, as well as the government‘s efforts to combat it, had significant negative effects on the Brazilian economy, particularly before 1995. Inflation rates, measured by the Broad National Consumer Price Index ("IPCA"), calculated by the Brazilian Institute of Geography and Statistically ("IBGE"), they remained reasonably stable between 2006 and 2014, ranging between 3.14% and 6.41%. As of 2015, the Brazilian economy has been facing moments of instability and the inflation rate reached 10.67% in 2015, dropping in 2016 to 6.29%, to 2.95% in 2017, to 3.75% in 2018 and to 4.31% in 2019. In 2020, due to the impacts generated by COVID-19, the inflation rate was 5.45%.

Our operating costs and expenses are substantially denominated in Reais and tend to increase with Brazilian inflation because our suppliers generally increase prices to reflect currency depreciation. In addition, high inflation generally leads to a higher domestic interest rate and, as a result, the costs of debt denominated in Reais may increase.

Inflation and its effect on interest rates may also lead to reduced liquidity in the capital markets and credit markets, which could affect our ability to refinance our debt. Additionally, inflationary pressures may also affect our ability to access foreign financial markets, which could lead to a deterioration of our financial condition and, consequently, negatively affect the price of our shares.

The Federal Government‘s measures to control inflation have often included maintaining a conservative monetary policy, with high interest rates, thus restricting the availability of credit and reducing economic growth. Actions to combat inflation and public speculation about possible additional measures could also substantially contribute to economic uncertainty in Brazil and, consequently, could weaken investor confidence in Brazil, influencing our ability to access international capital markets.

High interest rates have adversely affected the Brazilian economy and could adversely affect our business. The Brazilian government has been managing the interest rate in accordance with the impacts caused by crises or instability in global economies or Brazilian economic partners, in addition to political and economic uncertainties generated internally.

As of December 31, 2020, we had loan and financing agreements with charges linked to the CDI and a fixed interest rate per year (spread). Volatility in the Brazilian interest rate may adversely impact our ability to obtain financing in the future at attractive amounts, increasing the cost of debt and reducing the expected return on future investments. In addition, interest rates set by the Central Bank may negatively affect economic growth and, consequently, demand for our services.

Any of these factors could have a material adverse effect on our business, financial condition and our market share prices.

Developments and perceptions of risks in other countries, including other emerging markets, the United States and Europe, may adversely affect the Brazilian economy and the price of Brazilian securities, including the price of our shares.

The market for securities issued by Brazilian companies is influenced by economic and market conditions in Brazil and, to different degrees, by market conditions in other countries in Latin America and other emerging markets, as well as in the United States, Europe and In other countries. As global market or economic conditions deteriorate, Brazilian companies may have their businesses adversely affected. Historically, weakness in the global economy has been marked by, among other adverse factors, lower levels of consumption and corporate confidence, decreased investment and consumer spending, increased unemployment, decreased income and asset values in many areas, slowing China‘s growth rate, currency volatility and limited availability of credit and access to capital. Developments or economic conditions in other emerging market countries have at times significantly affected the availability of credit to Brazilian companies and have resulted in considerable withdrawals of funds from Brazil, thus decreasing the value of foreign investments in Brazil.

Any crisis, as well as political instability in other emerging market countries, in the United States, Europe or in other countries, could reduce investor demand for Brazilian securities, such as our shares. In June 2016, the United Kingdom held a referendum in which the majority of the population opted to withdraw from the European Union. We have no control over and cannot predict the effects of the UK‘s exit from the European Union, nor over whether any other Member States will decide to leave the European Union in the future. On January 20, 2017, Donald Trump became the President of the United States and in 2018 the Trump Government began negotiations to change trade relations between the United States and China, which has created instabilities in the perception of the future of the economy for part of market agents. We have no control over and cannot predict the effect of Donald Trump‘s administration or policies. This, as well as other crises and forms of political instability, may adversely affect us, as well as the price of our shares.

The activities and trading of shares issued by us are subject to risks inherent to the Brazilian securities market, such as market volatility and lack of liquidity.

Emerging securities markets such as Brazil often involve higher risk investments when compared to other world markets, and such investments are generally considered to be more speculative in nature.

Regarding economic and political risks, investors may have their ability to obtain returns, in whole or in part, from their investments affected by changes in the regulatory, fiscal, economic and political environment. Specifically regarding to foreign investors, there is a risk that they may face restrictions related to the repatriation of invested capital or the creation or increase of existing tax rates on foreign investment.

As it is a substantially smaller, less liquid, more concentrated and potentially more volatile market than the main global securities markets, the Brazilian securities market may substantially limit the ability of investors to sell our shares on their terms desired.
The comparison between some data from the Brazilian securities market and some international markets, such as the United States, allows illustrating the characteristics described above. As an example, in March 2020, B3 had a market capitalization of approximately R$3.1 trillion, with a daily trading volume in 2019 of R$17.2 billion. In the same month, the New York Stock Exchange had a market capitalization of approximately $22.9 trillion and an average daily trading volume of 1.3 billion shares.

Therefore, the size, liquidity, concentration and potential volatility of the Brazilian capital market may turn into obstacles for investors of our shares who wish to sell their shares at the desired price and at the desired time, which may have a material adverse effect on the market of our shares. In the event that our trading shares do not transform and remain an active and liquid trading market, the trading price of our shares could be negatively impacted.

The current economic and political crisis in Brazil may adversely affect our business, operations and financial condition.

The recent economic instability in Brazil caused by the increase in inflation observed in recent years, the slowdown in GDP growth and the uncertainty about whether the Brazilian government will be able to enact the economic reforms necessary to improve the deterioration of public accounts and the economy have led to a declining market confidence in the Brazilian economy and a government crisis.

With Brazil in the midst of an economic crisis scenario, due to the increase in inflation and fuel prices, as well as the increase in unemployment rates, amplified by the perception of widespread corruption, as well as other factors, in October 2018, President Jair Bolsonaro was elected, after a fierce election campaign for the presidency. The polarization presented during the electoral process, reflected in the dissatisfaction of certain segments of the population, can create difficulties in the formation of a support base for the government in Congress, which can impact the current government‘s ability to govern and, consequently, approve projects classified as essential for the recovery of the economy, such as the pension reform and the tax reform, and, as a consequence, hinder the resumption of growth of the Brazilian economy. The country‘s president has the power to determine government policies and actions relating to the Brazilian economy and, consequently, affect the operations and financial performance of companies, including ours, and as a result, may adversely affect the Brazilian markets and trading prices of securities issued by Brazilian companies, including us. We are not able to fully estimate the impact of global and Brazilian political and macroeconomic developments on your business. In addition, given the current political instability, arising from the divergences presented between the allies of President Jair Bolsonaro‘s government throughout 2019, and due to the opposition‘s performance, we cannot predict which policies will be adopted by the Brazilian government and whether these policies negatively affect the economy, your business or financial condition. Any recurring economic instability and political uncertainties could adversely affect our business and our shares.

The social distancing measures created to contain the spread of COVID-19 have affected and will continue to adversely affect our business, operations and financial condition. Furthermore, the global outbreak may impact the global and Brazilian economy and the financial and capital markets, lead to greater volatility in the global capital market, as well as directly impact our business and results and the consequent pricing of our shares.

In December 2019, the emergence of the Corona Virus ("COVID-19") was reported in Wuhan, China and in March 2020, the World Health Organization (WHO) declared COVID-19 to be a worldwide pandemic. In this context, the Federal, State and Municipal governments, in order to mitigate the propagation capacity of COVID-19, adopted, from mid-March 2020, in order to avoid overloading the health system and thereby preserve lives, a series social isolation measures such as the suspension of on-campus classes, closing of trade, services, travel, tourism and even industrial activities.

So far, there is no forecast of normalization of classes.

The slowdown in the cities in which we operate, generated an increase in the levels of unemployment and a drop in the population‘s income at levels not yet known and thus hampered the process of attracting and re-enrolling students in the first semester of 2021 and should have an adverse impact on our business.

The extent of the effects of COVID-19 on the global economy, especially the Brazilian economy, and on the financial system and the financial and capital markets, cannot yet be dimensioned, which could lead to a crisis of serious proportions that could have an impact adversely and materially our business and results.

Considering the economic projections released by the Focus Report of the Central Bank of Brazil, corroborated by financial market economists, it is estimated that the interest rates measured by the CDI are close to Scenario II of Raising Indexes.

In the normal course of our business, we are exposed to various risks that are inherent to our activities. How we identify and manage them is crucial to our profitability, with the most significant risks to which we are exposed: (i) Market risk; (ii) Credit risk; (iii) Liquidity risk and (iv) Regulatory risk.

market risk

The cash flow or fair value risk associated with our Group‘s interest rate arises from short and long-term loans, debentures, lease commitments and financial investments substantially linked to floating rates on the interbank deposit certificate (CDI). Our Group analyzes its interest rate exposure dynamically, evaluating scenarios and taking into account refinancing and renewal of existing positions. Based on this assessment, our Group monitors the risk of significant variation in the interest rate and calculates the impact on earnings.

regulatory risk

We are exposed to regulatory risk inherent in the Brazilian education system, especially regarding to the main public programs to encourage private education, namely, FIES and PROUNI, since if these programs are discontinued, our results will be negatively affected. For more information on public programs to encourage private education, see risk factors described in section 4.1 of this Reference Form.

Credit risk

We incur losses resulting from the difficulty of receiving outstanding amounts from our students. Therefore, the increase in default levels could affect our cash flow, as well as our business. The provision for doubtful accounts (PDA) as a percentage of net revenue on December 31, 2020, due to the impacts of the COVID-19 pandemic, was 9.8%. On December 31, 2019, PDA as a percentage of net revenue was 6.3% and on December 31, 2018, PDD as a percentage of net revenue was 7.0%.

In addition, we are subject to certain contractual obligations that impose restrictions on our operations, including the maintenance of minimum indebtedness levels, in accordance with the terms and conditions of the financing agreements we enter into and our indenture of debentures. In the event of failure by us to comply with any of these obligations contained in such instruments, the entire principal amount, future interest and any fines due under such instruments may become immediately due and payable.

liquidity risk

Liquidity risk is the risk of not having sufficient liquid resources to honor our financial commitments due to a mismatch of terms or volume between our receipts and our expected payments.

The control of liquidity and cash flow for us and our subsidiaries are monitored daily by our management areas, in order to ensure that the operating cash generation and the prior raising of funds, when necessary, are sufficient to maintain our schedule of financial commitments, not generating liquidity risks for us and our subsidiaries. There was no material change, outside of our normal course, in our financial liabilities as of December 31, 2019 compared to December 31, 2018.

The table below analyzes our financial leverage and our indebtedness indicator as of December 31, 2020, 2019 and 2018:

Indebtedness Indicator

(1) This measure is not an accounting measure according to Accounting Practices Adopted in Brazil or IFRS, nor should it be considered in isolation or as an alternative to net income, as an operating measure or alternative to operating cash flows, or as a measure of liquidity and should not be considered as a basis for the distribution of dividends. Other companies may calculate this measure differently than we do. See additional information regarding its use in table 3.2 (a) of 2021 Reference Form.

Financial Leverage(1) (in thousands of reais):

(2) Financial leverage means net debt divided by total equity added to net debt.

(3) This measure is not an accounting measure under Accounting Practices Adopted in Brazil or IFRS, nor should it be considered in isolation, or as an alternative to net income, as an operating measure, or an alternative to operating cash flows, or as a measure of liquidity and should not be considered as a basis for the distribution of dividends. Other companies may calculate this measure differently than we do. See additional information regarding its use in table 3.2 "a" of 2021 Reference Form.