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MarketScreener Homepage  >  Equities  >  Bolsa de valores de Sao Paulo  >  Kroton Educacional    KROT3   BRKROTACNOR9

KROTON EDUCACIONAL

(KROT3)
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Kroton Educacional : Notice to the Market – 1Q19 Admissions and Reenrollment Processes

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04/22/2019 | 05:54pm EDT

NOTICE TO THE MARKET

Result of the 1H19 Enrollment Process

Belo Horizonte, April 22, 2019 - Kroton Educacional S.A. (B3: KROT3; OTCQX: KROTY) - "Kroton" or "Company", in compliance with Instruction 358/2002 issued by the Securities and Exchange Commission of Brazil (CVM), as amended, announces to its shareholders, investors and the general market the results of its enrollment and re-enrollmentprocesses for On-Campusand Distance Learning Undergraduate students in 1Q19.

On-Campus Undergraduate

On-campus New Enrollments

Ex-ProUni

4.1%

104,158

108,407

1Q18

1Q19

New Enrollments

New Enrollments

New Enrollments

Out-of-Pocket

PEP

FIES

24.8%

-50.4%

-73.1%

24,754

4,072

12,273

95,324

76,398

20,682

3,006

8,722

810

3,551

1Q18

1Q19

1Q18

1Q19

1Q18

1Q19

PEP 30

PEP 50

A total of 108,000 students were enrolled in On-Campus Undergraduate programs, including out-of-pocket, FIES and PEP students, representing growth of 4.1% on the prior year, which reflects the Company's efforts to adopt a commercial strategy effectively aligned with market demand, with a strong share of engineering and healthcare programs. These factors were crucial in neutralizing the impacts from the still-challenging economic scenario, particularly in regards to the high unemployment rate. The results also were supported by the 29 new units (greenfield and acquisitions) launched in 2018.2 and 2019.1, which enrolled 3,500 new students in this last process, surpassing the target for this group. These initial results attest to the effectiveness of Kroton's expansion project with regard to the selection of cities, infrastructure of the units, program portfolio, academic quality and building of brand awareness. Excluding the figures from expansion projects, new enrollments in the On-Campus segment grew 1%, which is still a solid result considering the current economic context and competitive scenario.

The highlight of this process was the new enrollments of out-of-pocket students (ex-FIES and ex-PEP), which grew 24.8% in comparison with 1Q18, totaling 95,324 new students. Note that this semester the Company adopted a more conservative pricing policy, with greater parsimony in the offering of scholarships and discounts, while maintaining the same level of efficiency and financial responsibility in its decisions regarding the opening of new classes.

New enrollments of PEP students, in turn, decreased 50.4% in relation to the 2018.1 process, reaching 12,300 new students, which corresponded to 11% of total new enrollments in the On-Campus segment. Nevertheless, it is important to highlight that, because of the new commercial strategy adopted, most new enrollments of PEP students were under the PEP50 program, which, for the first time in the Company's history, accounted for more than 70% of the program's total new enrollments, which should help to improve Kroton's cash generation.

1

NOTICE TO THE MARKET

Result of the 1H19 Enrollment Process

FIES students reduced their share of enrollments in this last recruiting process, following a trend driven by the major changes made to the program. As such, in 1Q19, only 810 students were enrolled with FIES financing, down 73.1% from the number of FIES students enrolled last year.

In addition, 4,560 ProUni students were enrolled in the process, down from the same period last year, although still in compliance with the program's new rules (POEB), since Kroton still possesses an amount of enrolled students above the required number.

Students

1Q19

1Q18

Chg.

Enrollments Ex-ProUni

108,407

104,158

4.1%

Out-of-Pocket

95,324

76,398

24.8%

FIES

810

3,006

-73.1%

PEP

12,273

24,754

-50.4%

PEP 30

3,551

20,682

-82.8%

PEP 50

8,722

4,072

114.2%

Enrollments ProUni

4,560

11,342

-59.8%

Re-Enrollments

266,221

290,540

-8.4%

Total Base

379,188

406,040

-6.6%

Adding to the 112,967 new students enrolled in 2019.1 the 266,221 students re-enrolled in the period, the student base in the On-Campus Undergraduate segment in the semester came to 379,188 students, down 6.6% from 2018.1, reflecting the higher ratio of graduations (17.0%, vs. 12.8% in 2018.1) and the lower number of ProUni students enrolled. These effects ended up neutralizing the robust enrollment of students paying out of pocket and the improvement in the dropout rate given the maturation of the initiatives implemented under the Retention Program.

Distance Learning Undergraduate

DL New Enrollments

Ex-ProUni

0.1%

199,683199,798

1Q181Q19

In the Distance Learning business, the Company once again demonstrated its resilience and competitive advantages by delivering another period of positive results, especially considering the scenario of significantly higher competition following the introduction of the new regulatory framework for the segment in 2017. This quarter, 199,800 students paying out of pocket were enrolled in DL Undergraduate programs (including the 16,000 new students from the centers opened in 2018.2 and 2019.1), which is in line with the performance of the same period last year. Despite the stability, this is a very satisfactory result given the current competitive environment and reflects the Company's efforts and expertise in this segment, which comprises of high-quality education, cutting-edge technology, unique and constantly monitored partner network and a complete program portfolio, with offerings ranging from 100%-online programs to Premium DL programs. This semester, Premium DL programs accounted for 14% of total new enrollments in the Distance Learning segment, increasing 4 p.p. from 1H18, which attests to the product's excellent acceptance, which enables Kroton to continuously expand its footprint in higher-value programs and to grow its addressable market. Meanwhile, 100%- online programs accounted for 22% of new students in 1Q19, with this share stable compared to the same period last year. Lastly, as in the On-Campus Undergraduate segment, enrollment of ProUni students decreased to 2,828 students, which also represents full compliance with POEB rules, since Kroton still has an amount of enrolled students above the minimum number required.

2

NOTICE TO THE MARKET

Result of the 1H19 Enrollment Process

Adding the 202,626 new students to the 334,264 students who re-enrolled in the period, the Company ended the first semester of 2019 with 536,890 students, down 2.7% from the previous year.

Students

1Q19

1Q18

Chg.

Enrollments Ex-ProUni

199,798

199,683

0.1%

Enrollments ProUni

2,828

7,593

-62.8%

Re-Enrollments

334,264

344,598

-3.0%

Total Base

536,890

551,874

-2.7%

Total Undergraduate

As noted above, the admissions and reenrollment processes in the Undergraduate business in 1Q19 were concluded with very solid results in both the On-Campus and Distance Learning segments. Kroton once again was able to deliver growth in ex-ProUni new enrollments, despite the challenges posed by the more intense competitive scenario, the high unemployment rate and the significant reduction in FIES financing. This performance was supported by Kroton's effective commercial strategy, strong brands, academic quality and key competitive advantages for continually enhancing the student experience, such as its employability channel Conecta, which continues to expand rapidly.

In view of the above, Kroton ended 1Q19 with an Undergraduate student base of 916,078 students, considering both the On-Campus and DL segments, up 12.4% from the previous quarter and down only 4.4% from 1Q18, despite the aforementioned impacts. Given that the student-recruiting process at the start of the year is the most relevant, these results are essential for sustaining robust performance throughout 2019.

Total New Enrollments

Total Re-Enrollments

Ex-ProUni

-5.5%

1.4%

303,841

308,205

635,138

600,485

1Q18

1Q19

1Q18

1Q19

On-Campus

Distance Learning

Total

Students

Undergraduate

Undergraduate

Undergraduate

1Q18 Base

406,040

551,874

957,914

4Q18 Base

358,093

457,239

815,332

New Enrollments

112,967

202,626

315,593

Graduates

(60,907)

(65,868)

(126,775)

Dropouts

(30,965)

(57,107)

(88,072)

1Q19 Base

379,188

536,890

916,078

% 1Q19 Base

/ 4Q18 Base

5.9%

17.4%

12.4%

% 1Q19 Base

/ 1Q18 Base

-6.6%

-2.7%

-4.4%

% Graduates

-17.0%

-14.4%

-15.5%

% Dropouts

-10.4%

-14.6%

-12.8%

3

NOTICE TO THE MARKET

Result of the 1H19 Enrollment Process

Dropout Rate

Evolution in Dropout Rate - On-campus

Evolution in Dropout Rate - DL

12.6%

12.4%

11.2%

14.8%

13.0%

14.6%

10.

11.6%

1Q16

1Q17

1Q18

1Q19

1Q16

1Q17

1Q18

1Q19

In the context of the dropout indicators in the period, there was a considerable improvement in the On-Campus segment rate, which reached 10.4% in 1Q19, down 0.8 p.p. from a year earlier and even below the dropout rate recorded in 1Q16. This result reflects the efforts made to reduce this indicator, concentrated under the Retention Program, which, since 2018, includes retention teams at all units, predictive models to identify students with the highest propensity to drop out and various measures to increase student engagement. This result is even more remarkable considering the pressures from the shift in the profile of the student base, with the graduation of FIES students, since, due to the program's original characteristics, these students were less likely to drop out. In the Distance Learning segment, the dropout rate was 14.6% in 1Q19, up 1.6 p.p. from last year, reflecting the growth in 100%-online student base, who are more likely to drop out given their lower engagement, as well as the effects from the high unemployment and the significantly more intense competitive environment. Despite these effects, the dropout rate of Kroton's DL student base is below that of the competition, reflecting the various teaching formats offered, particularly the once a week model, as well as the various initiatives under the Retention Program.

For more information, please contact the Investor Relations department:

Carlos Lazar, Pedro Gomes or Ana Troster

E-mail:dri@kroton.com.br

4

Disclaimer

Kroton Educacional SA published this content on 22 April 2019 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 22 April 2019 21:53:14 UTC

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