Kroton Educacional : Notice to the Market - 2S18 Enrollment and Re-enrollment Processes

NOTICE TO THE MARKET

2S18 Student Recruiting Results

Belo Horizonte, October 11, 2018, 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 to the general market the results of its enrollment and re-enrollment processes for On-campus and Distance Learning Undergraduate students in 3Q18.

Admissions and Reenrollment Processes 3Q18

Following the same trend observed in the beginning of the year, the processes for admitting and re-enrolling Undergraduate students for the second semester were concluded with very solid results, especially given all the pressures generated by the uncertain political environment, the still-stagnant economy, with a high unemployment rate and the highly challenging competitive environment. Nevertheless, Kroton was able to grow the number of freshmen students in both the On-Campus and Distance Learning segments, which attests to the effectiveness of its commercial strategy, the strength of its brands and a program portfolio aligned with market demands. Moreover, this good performance was achieved despite the already expected reduction in the offering of FIES student financing, which confirms the resilience of the Company's businesses. Other factors contributing to this result were the balanced offering of payment plans and the robust employability channel, with the latter proving an important advantage and significant transformational agent for students.

Another important factor that has been observed since last year is the registration of a higher number of graduations of students who enrolled during the strong recruiting processes of 2013 and 2014. This semester, total graduates grew by 8.3% compared to the same period of 2017, which reduced the student base eligible for re-enrollment.

As a result of the enrollment and re-enrollment processes in both segments (On-Campus and Distance Learning), Kroton ended 3Q18 with a base of 871,243 undergraduate students, a decrease of only 2.8% compared to 3Q17. With these solid results, Kroton continues to converge towards meeting its guidance for 2018.

Total New Enrollments

2.6%

178,685

183,312

* Excludes the assets divested during 2017 (FAIR, FAC/FAMAT and Novatec).

On-Campus

3Q17

3Q18	3Q17
Distance Learning	Total
Students	Undergraduate	Undergraduate	Undergraduate
3Q17 Base	399,862	501,780	901,642
Asset sales*	4,852	-	4,852
Comparable 3Q17	395,010	501,780	896,790
2Q18 Base	385,684	515,981	901,665
New Enrollments	68,221	115,091	183,312
Graduates	(39,734)	(51,983)	(91,717)
Dropouts	(44,783)	(77,234)	(122,017)
3Q18 Base	369,388	501,855	871,243
% 3Q18 Base / 2Q18 Base	-4.2%	-2.7%	-3.4%
% 3Q18 Base / 3Q17 Base	-6.5%	0.0%	-2.8%

3Q18

Total Re-Enrollments -4.2%

3Q17

Total Student Base

-2.8%

718,105

687,931

896,790

871,243

3Q18

* Assets divested during 2017 (FAIR, FAC/FAMAT and Novatec).

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NOTICE TO THE MARKET

2S18 Student Recruiting Results

On-Campus Undergraduate

On-campusNew Enrollments1

On-campus Re-Enrollments

On-campusStudent Base

Total

Total

Total

5.3%

-8.8%

-6.5%

64,810

68,221

3Q18

330,200

301,167

3Q17

3Q17

3Q18

395,010

369,388

3Q18

3Q17

New Enrollments Out -of-Pocket

-5.7%

3Q17

3Q18

New Enrollments

FIES

-64.6%

48,876

46,069

5,079

1,798

3Q17

3Q18

New Enrollments

PEP

176.0%

5,710

1,181 4,529

15,759 2,907 12,852

3Q17

3Q18

PEP 30

PEP 50

New Enrollments

ProUni

-10.7%

5,145

4,595

3Q17

3Q18

¹ Excludes the assets divested in 2017.

The On-Campus segment admitted over 68,000 Undergraduate students, 5.3% more than the new enrollments in the same period of 2017. This performance is due to a series of factors, including (i) the quality education offered, (ii) strong brands with good penetration in the labor market, (iii) the offering of programs aligned with market demand, and (iv) the exclusive payment plan solutions. This combination of factors more than offset the adverse effects caused by the economic scenario and the highly competitive landscape. Another factor benefitting student recruiting are the 25 new units (greenfields) opened in recent months, which admitted 3,267 students, surpassing even the initial projections of the business plan, which reaffirms Kroton's confidence in its growth projects and reinforces the analytical intelligence adopted for opening a new unit. In this context, bear in mind that these new units and the programs they offer are subject to a natural maturation process. Excluding the figures from expansion projects, admissions in the On-Campus segment posted growth of 3.1%, which is still a solid result.

In this student recruiting cycle, we observed a stronger performance by the PEP student installment plan than last year, when a different commercial strategy was adopted. Although the product presented robust growth of 170% in this student recruiting cycle compared to 3Q17, the product's penetration in this cycle was similar to that observed in the first semester of the year. PEP, through its two versions (PEP30 and PEP50), attracted some 15,800 new students or 23% of total new enrollments in the segment, which is in line with the level of exposure expected by the Company for the coming cycles and in keeping with the segment's commercial strategy.

Meanwhile, the behavior of the base of students paying out of pocket (ex-FIES and ex-PEP) was the highlight in On-Campus admission figures, with the enrollment of 46,000 new students in the period, which reflects the efforts to optimize the compensation of the sales teams and the effectiveness of the commercial strategy. In parallel, Kroton maintained pricing policies similar to those of prior processes, i.e., granting discounts/scholarships and adjusting prices in certain markets to address the more intense competition. However, these initiatives should not have any significant impact on the average ticket or on margins, since the Company maintained its high standards of efficiency and financial responsibility when deciding to open new classes.

With regard to FIES, the government financing program is following the same trend observed in recent enrollment cycles, accounting for an increasingly lower share of new students. In 3Q18, around 1,800 new students were added to the FIES base, which represents less than 3% of total admissions in the segment. As already mentioned, the changes in eligibility

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NOTICE TO THE MARKET

2S18 Student Recruiting Results

and payment criteria implemented in recent years made the program far less attractive from the student perspective and should help to reduce contracts in the Company's base, especially over the next two years.

Lastly, 4,595 new students were added through ProUni, which is 11% less than in the same period last year. After a strong increase in the number of ProUni seats offered in the first semester, the current level seeks to continuously comply with the POEB rules.

Combining all the 68,200 new On-Campus Undergraduate students enrolled during the admissions process and the 301,200 reenrollments results in a base of 369,400 students, down 6.5% from the same period of 2017, which reflects the higher number of graduations (of students admitted during the strong admission cycles of 2013 and 2014), with this factor partially offset by the improvement in the dropout rate in the period.

Distance Learning Undergraduate

DL New Enrollments

DL Re-Enrollments

DL Student Base

Total

Total

Total

1.1%

-0.3%

0.0%

113,875

115,091

3Q17

3Q18

387,905

386,764

3Q17

3Q18

501,780

501,855

3Q17

3Q18

DL New Enrollments

DL New Enrollments

ProUni

Out -of-Pocket

4.5%

-50.3%

7,222

3,588

3Q17

3Q18

106,653

111,503

3Q17

3Q18

In the Distance Learning segment, admissions also posted a solid performance, registering growth despite the more intense competitive landscape due to the entry of several new competitors. In 3Q18, approximately 115,000 new students were admitted, representing an increase of 1% compared to the same period of 2017. Excluding the 10,000 new students admitted by the new centers inaugurated this year, admissions fell by 7.7%, which can be considered a positive result given the substantial new competition this year and the smaller ProUni offering. Note that if we consider only students paying out of pocket (ex-ProUni), admissions in the Distance Learning segment grew by 4.5% on the same period last year. Note that admissions grew despite the significantly higher competition, which attests to the Company's efforts to develop a robust platform formed by solid quality indicators, highly committed partner centers, unique technology and content, rigid controls and a complete program offering. Accordingly, the outlook continues to point to important evolution in Premium DL programs, since they not only expand the addressable market, but also reinforce Kroton's

competitive advantages in the segment. This semester, 9% of the new DL students were admitted through Premium programs, an increase of 3 p.p. compared to the admissions cycle in the year-ago period. Meanwhile, admissions in

100% Online programs registered similar growth, with the format accounting for 28% of new students in 3Q18, while the share of ProUni admissions decreased by 3 p.p. as a ratio of total admissions.

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NOTICE TO THE MARKET

2S18 Student Recruiting Results

Meanwhile, reenrollments in Distance Learning Undergraduate programs remained practically stable in relation to the second semester of last year, at around 387,000 students. These results led the Distance Learning Undergraduate student base to remain stable at around 502,000 students in 3Q18.

Dropout Rate

Evolution in Dropout Rate - On-campus

The dropout rate in the On-Campus segment improved by 0.7 p.p., reversing the increase in the prior quarter. Despite the continued pressures on this indicator, such as the change in the student base profile (lower share of FIES students, which historically are less likely to drop out) and the persistently high unemployment rate in a turbulent political/economic scenario, this is the second straight semester in which the Company managed to deliver a reduction in the dropout rate. This attests to the initiatives under the Retention Project, which continued to advance, with the retention teams gaining maturity and experience and regular improvements being made to the academic model gradually. In this respect, if we exclude FIES students from the indicator, you already can observe stronger trends of improvement in the dropout rates among other student groups. Another important factor is Kroton's strong focus on student satisfaction, which is supported by significant investments at units and in managing students to ensure a better experience.

In the Distance Learning format, in addition to the macroeconomic environment, the higher dropout rate is due to the accelerated growth observed in recent student recruiting processes, given that students in the first few semesters of programs have a higher propensity to drop out. Moreover, the higher number of students in the 100% Online format also helped to worsen this indicator, since the lower student engagement in this format results in higher dropout rates for this product compared to other Distance Learning formats.

Lastly, the Company reinforces its positive perception of student recruiting in general, which grew 2.6% compared to the same period last year, and informs that the student recruiting process for the first semester of 2019 already has begun.

For more information, please contact the Investor Relations department:

Carlos Lazar, Pedro Gomes or Ana Troster

Tel: [phone] or +55 (11) 3133.7314

E-mail:[e-mail]

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