Ânima faces significant competition in each course it offers in each geographic market in which it operates and, if it does not compete efficiently, it could lose its market share and profitability.

Ânima competes against colleges, universities, and university centers, public and private. Pursuant to the Higher Education Census (Censo da Educação Superior) performed by Instituto Nacional de Estudos e Pesquisas Educacionais Anísio Teixeira (“INEP”), there were 2,416 private and public graduation institutions in Brazil on December 31, 2012. The competitors may, including public higher education institutions, offer courses similar to or better than the ones offered by Ânima, count on more resources, be more prestigious among the academic community, have unities in more convenient locations and with a better infrastructure and/or charge lower fees or even do not charge fees. Ânima can be obliged to increase operational expenses or reduce monthly fees as a response to the competition in order to retain or attract students or search for new market opportunities. Thus, occasional increase in monthly fees caused by macroeconomic or specific factors to the business may impact its capacity of attracting students. There is, also, competition from distance-learning courses offered by the competitors, which have a background and experience in this sector and yet distinguish for offering lower costs and higher flexibility to the student when compared to on-site courses. Moreover, there could be competition from foreign groups that operate in the same educational sector that Ânima operates and/or intends to operate.

Additionally, regarding HSM, there is competition from other events executed by third-parties with the same target audience, including about hiring of lecturers. It is not possible to assure that Ânima will be able to successfully compete against current and future competitors, which may cause a relevantly prejudicial effect in business and results.

The hardships of integrating and eficiently managing a growing number of unities or expansion of Ânima’s businesses to education sectors in which it does not operate yet may impact negatively businesses and results, as well as the business’ culture.

The Company’s strategy includes organic expansion, through an increase on supply of classes and courses in existing unities and opening of new unities, as well as through acquisition of higher education institutions and its integration to the learning network. The expansion plan has as its principle the implementation and maintenance of the learning culture, with focus on quality. The corporate and learning culture are fundamental mainstays of Ânima’s business model. In the event of the Company not being able to keep its current standards, it could lose its market share and be impacted, which could cause a relevant prejudicial effect to the business and results. In addition, the Company is constantly analyzing business opportunities that can expand its activities to other educational sectors, in which the Company currently does not operate and has no background or experience, such as, for example, the creation of distant-learning courses. The Company may not obtain satisfactory operational results in these new sectors in short or even long term, which may adversely affect it.

Part of Company’s growth strategy is based on the acquisition of other companies, which can demand notice and be contested by CADE and the acquisition of maintenance rights shall be approved previously by MEC. Acquisitions and corporate reorganization present risks that may have a negative impact in operations and revenue.

Company’s growth strategy involves, besides organic growth, growth by acquisition and integration of higher education institutions to the education network and it is subject to risks.

Risks arising from proceedings of acquisition of Higher Education Institutions include, among others, the following:

1. failure to identify institutions that offer proper opportunities or favorable conditions at the time of performance of the business deal;
2. due diligence process may not be able to identify all legal, technical, or regulatory liabilities undertook by the institution to be acquired, to which the Company shall be legal successor;
3. an acquisition may not contribute for the commercial strategy as expected, or it could be paid for it a higher amount than estimated as fair, due, among other factors, to the current competitive scenario for acquisition targets within the industry in which the Company operates;
4. the operation strategy is based upon the strengthening of regional brands of acquired institutions, which are subject to their own and specific institutional risks;
5. the acquisition proceeding may take a long time and the investment in acquisition may not generate returns as expected;
6. the acquisition may eventually not contribute with Ânima’s image and/or could be subject to approval by CADE, which can reject or approve it with restrictions;
7. acquisition of maintenance rights should be subject to MEC’s approval, which can reject it;
8. the acquisition proceeding creates additional challenges considering maintenance of the quality and learning culture and there is no guarantee that the brand Ânima will not be harmed as a result of any loss, real or perceived, of the quality of education; and
9. the acquisition proceeding may be subject to setbacks and take higher attention and time of the Administration for matters related to the transition or integration when compared to what was previously expected.

The Company may also face relevant risks in the integration process of the operations and management of any acquired unities (including already performed acquisitions and future ones), such as management of a higher number of employees, geographic dispersion, creation and implementation of controls, adoption of efficient and uniform proceedings and policies, besides integration costs and management and implementation of the acquired company’s business plan. For example, in March 2013, Company acquired 50% share interest of HSM and concluded the acquisition of the remaining 50% in 2014, and the negative financial results of HSM may negatively impact the Company’s results in case it is not successful in the process of integration of operations and management of HSM.

Additionally, the Company may undertake liabilities or contingencies of acquired companies and/or resulting from corporate reorganization, related to civil, regulatory, tax, labor, social security, environmental matters and issues of intellectual property, accounting practices, disclosing of financial statements or internal controls, which may not be sufficiently covered by contractual warranties offered by the sellers of learning institutions, or it could not be detected during the due diligence proceeding and audit performed in the learning institution. In this case, the Company may need further resources to continue its expansion strategy.

They must be subject to CADE’s approval, prior to the closing in each acquisition, all acquisition operations in which one of the companies or group of companies have reported annual gross income in Brazil, in the year prior to the operation, of at least BRL 750 million, and at the same time the other involved party have reported gross income of at least BRL 75 million within the same period. As per Company’s acquisitions, CADE should analyze if the subject operation harms competitive conditions in markets in which the Company operates or harms customers in these markets. Acquisition of maintenance rights should be subject to MEC’s approval. Acquisition of corporate control of holding companies of learning institutions must be reported to MEC after the acquisition is performed. In the event of the Company failing to provide such report, the Company may be subject to one of the following penalties: temporary suspension of openings for entrance examination, cancelation of operational permits or to recognize courses, operation of the institution, suspension of autonomy prerogatives, and even discharge, any of which may have a relevant negative impact to Company’s businesses and results. Moreover, CADE may disapprove future acquisitions of entities and/or maintenance rights by the Company or it could impose costly obligations to the Company, as a condition for approval of such acquisitions, such as sale of a part of its operations or restrictions on how the Company shall operate or commercialize services, also MEC may not approve future acquisitions of maintenance rights by the Company.

The availability of courses in proper numbers and accessible costs is essential to allow funding of the Company’s expansion plans and its absence may negatively impact the Company’s growing strategy. Moreover, adverse situations may impact the Company’s capacity of managing the debt resulting from its growth strategy, resulting in excessive financial leverage and rise in risks related to its capacity of paying financial liabilities.

Finally, if each one of the aforementioned risks, resulting from these acquisitions and corporate reorganizations, is materialized, the Company will be impacted and these variables may cause a relevant adverse effect in Company’s businesses and results.

The increase in default levels in payment of monthly fees, withdraw from courses by students, or failure of attendance in events can negatively affect the Company.

The increase in default levels in payment of monthly fees by students, withdraw from ongoing courses, as well as failure of attendance in events sponsored by the Company or its controlled companies may negatively impact its cash flow, the capacity of fulfilling its financial obligations, and reaching goals and objectives, which may cause a relevant negative impact on businesses and results.

Withdrawing from ongoing courses is related to the financial condition of students. If there is an increase in withdraw levels, the number of students can fall to levels that may render impossible the accomplishment of financial objectives. Any increase in withdraw levels may impact substantially and adversely Company’s businesses and operational results.

Loss or reduction in funding policies and/or tax benefits granted by joining PROUNI and FIES may negatively impact Company’s results.

Ânima has access to FIES, a program created by MEC and managed by FNDE, targeting the funding of students that fulfill program requirements, in graduation and technological on-site courses provided by private higher-education institutions with a positive evaluation in proceedings performed by MEC. Company has also joined (UNIBH, Unimonte, and UNA), since 2005, ProUni, which goal is to grant full or partial scholarships for low income students, in graduation and technology courses, in private higher-education institutions, offering, in return, tax exemptions in a few federal taxes to the institutions that join PROUNI. If the Federal Government decides to extinguish or reduce or modify the type of payment in PROUNI or FIES or in case the Company is not able to fulfill PROUNI and FIES’ requirements, or, yet, in case the students are not able to fulfill the requirements for its use, the operational results may be impacted and there could be payment of taxes which, currently, the Company is exempt in relation to PROUNI or that could be subject to offset because of FIES, which may cause a prejudicial relevant effect in businesses and results.

On September 13, 2013, it was issued the Brazilian Federal Revenue Office’s (“RFB”) Normative Ruling No. 1,394 (“IN 1,394”), revoking SRF’s Normative Instruction No. 456 of October 5, 2004, that regulated Law No. 11,096/05. IN 1,394 provides for new rules related to tax exemptions granted within PROUNI, specially in relation to the calculation method of these exemptions, which are effective as from January 1, 2014. Pursuant to IN 1,394, the exemption shall be calculated over the “proportion of actual fulfillment of due scholarships” as provided for in Paragraph Three, article 8, of Law No. 11,096/05 added by Law No. 12,431/11. To obtain the “proportion of actual fulfillment of due scholarships”, higher-education private learning institutions shall calculate the ratio between the full amount of fulfilled scholarships and the total amount of due scholarships, pursuant to the rules provided for in the aforementioned Normative Instruction. In order to set exemption to Legal Entities Income Tax (“IRPJ”), IN 1,394 provided for the exclusion of the ten-percent (10%) additional to the IRPJ.

On December 6, 2013, RFB’s Normative Instruction No. 1,417 (“IN 1,417”) has been edited modifying article 9, II, of IN 1,394, With such modification, the calculation of the exemption must include the 10% additional to the IRPJ, besides CSLL’s tax rate. The assessed amount pursuant to article 9, II, of IN 1,394, modified by IN 1,417 constitutes the exemption amount to IRPJ and CSLL, respectively, which may be deducted from due IRPJ and CSLL.

In this sense, occasional residual impact of the modification brought by IN 1,417, in relation to the exemption granted to institutions joining PROUNI, would result in the calculation of the exemption proportionally to the actual fulfillment of scholarships.

On December 26, 2014, through Normative Ordinance 21, MEC has modified rules of MEC’s Normative Ordinances No. 2, of August 31, 2008; No. 1, of January 22, 2010; No. 10, of April 30, 2010; No. 15, of July 8, 2011; No. 23, of November 10, 2011; No. 25, of December 22, 2011; No. 16, of September 4, 2012; No. 19, of December 31, 2012; and No. 28, of December 28, 2012, which legislates on FIES. In this modification, it has been established a minimal score of 450 points and a condition of not scoring zero on the composition in ENEM’s test for new entrants graduated after 2010 to be able to require FIES from April 2015.

On December 29, 2014, through Normative Ordinance 23, MEC has modified rules of MEC’s Normative Ordinances No. 1, of January 22, 2010, No. 15, of July 8, 2011, and No. 21, of December 26, 2014, which ruled about FIES. Among other provisions, it has modified onlending and rebuy deadlines of CFT-E (Treasury Financial Bonds - Series “E) for higher-education institutions.

Within the fiscal year that ended on December 31, 2014, and within the fiscal year that ended on December 31, 2013, the discounts resulting from PROUNI amounted to BRL 95.7 million and BRL 40.7 million, respectively, which the Company discounted from its gross income when reporting net income in its financial statements.

In case the rules applicable to PROUNI come to be modified with the creation of new restrictions, the tax exemption obtained by the Company may be significantly reduced and, therefore, may cause an adverse impact to its businesses and results.