Cogna Educacao SA
BOVESPA:COGN3
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1.23
3.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Cogna Educacao SA
You don't have any saved screeners yet
Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Kroton Educacional Second Quarter 2019 Earnings Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] Also, today's live webcast, both audio and slide show, may be accessed through Kroton Educacional's Investor Relations website at www.kroton.com.br/ir by clicking on the banner 2Q '19 Webcast. The following presentation is also available to download on the company's website.
The following information is available in Brazilian real in accordance with Brazilian Corporate Law and generally accepted accounting principles, BR GAAP, which now conform with International Financial Reporting Standards, IFRS, except where otherwise indicated.
Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Kroton management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of the company and could cause results to differ materially from those expressed in such forward-looking statements.
Now I'll turn the conference over to Kroton's CEO, Mr. Rodrigo Galindo, who will begin the presentation. Mr. Galindo, you may begin your conference.
Good morning, everyone. Thank you for participating in our earnings conference call of Q2 '19. With us today, Carlos Lazar, our Investor Relations Director; our Finance VP, Jamil Marques; and the Managing Director of our Business Unit, Roberto Valério, Higher Education; and Mario Ghio, K-12.
Again, reinforcing the management's earnings release, in the last 10 years we made very relevant strategic decisions that changed the direction of the company. In 2011, the acquisition of Unopar, we made that decision because we believed education would go through a course of digitalization, which really happened. Coursing this way has allowed for us to generate a lot of value. Same thing in 2013 with the merger with Anhanguera. The merger decision was made because we believed in the capacity to generate value with the integration of assets and increasing the efficiency of these assets.
Now late '17, early '18, we had another turning point. We made another relevant decision, maybe the most important in our history of all strategic decisions. And to see what came up from this discussion, first, increased our exposure to K-12 at Kroton; and next, engaged in a deep journey of digital transformation.
After 1 year, how these 2 fundamental thesis has contributed and will contribute to generate value in the company? First, K-12. The acquisition of Somos helped us increase our K-12 participation. Somos allowed for us to operate in 2 segments: B2C, managing K-12 schools; and also creating the largest service platform for K-12 schools in Brazil.
We're very happy with the results so far, both with the platform and the B2C operation. We'll tell you more about this during today's presentation. And we'll tell you our plans and dates for these plans in the future.
We're going through the greatest digital transformation we've experienced in the last 10 years of the company. It's a mindset change. And the new digital mindset has allowed for us to improve current business through the transformation and, at the same time, we've identified new business opportunities, services that were considered less relevant in the past. We now view them as opportunities to create new businesses.
Our business model based on subscription and B2B services supported by technology platforms are examples of this digital mindset that is changing the way we do business at Kroton. We have a lot to tell you. And our Kroton Day this year will focus the opportunities in each line of business. It's going to be in October. You're all invited for Kroton Day, and we'll give you more information about the changes and opportunities we are currently developing.
But we cannot deny our DNA. We cannot build the future if we do not deliver earnings in the present. So the first relevant information about the results is that the numbers of the first half make us confident and comfortable that we will obtain the results announced in the guidance. Some revenue was displaced from the second to the third Q, but the second Q was then a bit weaker than historically. We did not necessarily deliver 50% of the guidance in the first half, but all indicators tell us we'll have a strong second half and the guidance will be delivered.
Now for better understanding of these messages, let's go to Slide 4, where we have a comparison to the guidance. Traditionally, the first half has been stronger because of seasonal effects in Higher Education. This year, we had the impact of K-12, which is different. And the weight of K-12 will make the second half stronger.
Now net revenue. We delivered 49% of the BRL 7.4 billion projected for the year. In the second half, we'll have a bigger contribution of K-12, as I mentioned, and we will have accounts receivable of the National Textbook Program and the Literary Program, which was postponed for the second half of the year. Also, results of the second student intake in Higher Education will be strong.
EBITDA, we've retained more than 45% of the projected number for the first half of 2019 or BRL 1.4 billion of the BRL 3 billion total. The second half, we will see positive impact in net revenue and also solid margins in addition to more synergies being captured and more efficiency that we built in the first half. Additionally, in K-12, we will have a reduction in marketing expenses because some of them were anticipated for the first half of the year.
Finally, also compared to the guidance, we generated BRL 141 million cash after CapEx in the second quarter, which reduced our cash consumption for BRL 89 million. The guidance of cash generation of BRL 800 million is maintained.
Talking about government programs, they will be much more relevant in the second half of the year, which will concentrate 90% of the overall amount to be received by the National Textbook Program and 60% of total FIES. We also expect a lower volume of CapEx and nonrecurring expenses in the second half, which were already budgeted; and improvement in the average payment terms in 2018, which impacted the result in the first half.
So we will see benefits in the second half of the year. As we know, it is important to deliver the annual earnings although we see some variations between the different quarters, but we are very confident and we confirm our guidance.
Let me now invite our Investor Relations Director, Carlos Lazar, to talk about financial results in the quarter.
Thank you, Rodrigo. Let's turn now to Slide 7 in which I will comment on the Higher Education performance.
In terms of net revenue, we posted a decrease of 6.6% from BRL 1.5 billion to BRL 1.4 billion, owing to the decrease in the student base, which in turn reflects the number of graduations that occurred this year and also the fact that we had a strong student recruitment in '13 and '14. And of course, we see that in FIES students, we also have a challenging scenario. Our seasonality has been a little different this year compared to 2018, with anticipation of some effects to 1Q '19, owing to some adjustments also in the student workflows. And also, there was an impact in the average ticket as we had announced in last quarter's conference call.
The numbers of the average ticket in the second quarter were quite positive, in line with what we had been talking about with the market: 6.7% in On-Campus and 5% in Distance Learning. Net income showed a decrease of 8.3% with a reduction of gross margin of 150 basis points. And we also see that was a pressure associated with the launch of our own units, but this is a one-off event.
So finally, we had a decrease in our operating results of around 15.6% in the annual comparison, also because of the effect of net income. And as we said in the last quarter's conference call, we saw a decrease in marketing and also in the PCLD (sic) [ PNLD ] line.
Slide 9, we can detail the K-12 performance and similarly to what we did in the first quarter to make for better comparison, we will comment variations pro forma considering some of the numbers in 2Q '18 after the convergence of the -- to the Kroton's accounting standard. We had BRL 363 million net revenue in the second quarter '19, 3.7% down in the annual comparison. And this is probably an effect of the seasonality in repurchase of the National Textbook Program.
There was also a high volume of acquisition that were concluded by some of them crossing in 2018. It's important to mention that in the third quarter '19, we expect there will be an explosive increase in revenue. So in spite of the synergies we have captured, we have made great progress not only in net income but also in gross margin from 14.1% and 800 basis points, respectively.
And finally, the operating result post marketing reached BRL 108 million (sic) [ BRL 103.8 million ] representing a growth of 27.4% with an operating margin reaching 700 basis points in the annual comparison, following the trend we see in gross income.
Now, in the consolidated results, we also see the same pro forma comparison, including the -- some of the numbers in the second quarter '18 for better comparison.
So here, we saw some negative event -- extraordinary event with an impact on the 2Q results. For example, we can mention K-12 event with the postponement of revenue coming from the National Textbook Program. And the result of this, BRL 90 million of EBITDA were not posted in the second quarter, and they are going to be moved to the third quarter. There were other events of -- there was negative impact on 2Q '19 results, that's why we maintain the conviction that the guidance numbers will be reached.
Consolidated net revenue totaled BRL 1.7 billion, down 7.6% vis-à-vis 2Q '18, also with an impact of Higher Education regulations and the different schedule of the National Textbook Program. And also in terms of our EBITDA, after nonrecurring expenses, amounted to BRL 625 million, down 7.9%, were reflecting the impact of some performance of the group for the third quarter, together with the launch of our own units. The situation remains stable.
And in terms of the EBITDA margin, we are capturing the synergy and efficiencies and also, we see a reduction in nonrecurring expenses line.
In the first half of the year, we reached 45% of the guidance from base line, which represents 21% annual growth even in the pro forma provisions, including the numbers of Somos. Finally, adjusted net income [indiscernible] and after considering intangibles, amortization reached BRL 267 million, down 14.3%, reflecting our higher interest expenses and also an increase in indebtedness because of the acquisition of Somos.
In the first half of the year, as a whole, we reached 43% of the BRL 1.3 billion expected for the year, representing an increase of 14% in relation to 2018. And in the second half of the year will have the benefit of EBITDA, supporting the achievement of our goals.
With this, I close my presentation, and then I hand it over to our CFO.
Thank you, Carlos. Now in the next section, we're going to look at our provisions for losses and evolution of our average term of receivables per segment and type of student.
Slide 13, on the left, an annual comparison. Higher Education. We have an increase of 70 basis points in the volume of total provisioning. These are increases of PDA and paying students that attained 9.1% this quarter. We had an increase in on-premise PDA and stability in Distance Learning. In both cases, efficiency initiative has mitigated part of this worsening macroeconomic scenario and the increase in the number of students facing a default situation.
But also on-premise, we had some effects of the maturation of renewals from the first half of 2018, also negative impact in the system migration that happened in June 2018. In the annual comparison, we see the incorporation of Somos. In the quarterly comparison, we see an increase of 90 basis points, reflecting the natural seasonality of operations after the integration of Somos and a PDA of 1.5% is comparable to 1.9% posted in the 4Q '18.
Now in Slide 14, I want to talk a bit more about the average term of receivables, beginning in Higher Education. An increase of 27 days, attaining 192 days, so an increase of 27 days compared to the second Q '18, reflecting the same trend as the last quarter when we had an annual increase of 21 days.
In the case of paying students, PMR (sic) [ PMT ] attained 129 days in this quarter, 32 days above the annual comparison, basically because of the same factors that I mentioned before. So we had to increase our provision for doubtful accounts and because of the impact in the migration of system of the student from the first half of 2018.
But in the second half, we will have a positive impact in cash. And let me highlight that -- well, Rodrigo also mentioned that, but we are more strict in our policies to make agreements on payment with students. We also have a better strategy of communication and incentive for payment on time and improvements in our financial NPS so this promotes more on-time payment.
Now in the case of the average time of FIES, it was 91 days, 75 days below the second Q '18 because we now have more normal flow of receivables after all due payments in the context of PN23 were up for it. Finally, the average term of PEP/PMT was 591 days, up 166 days compared to the same Q last year.
Now in Q -- in K-12, the average receivables term was 51 days, an improvement of 34 days, showing that after the acquisition of Somos, we were able to reduce the term of receivables and also the incorporation to the business of new -- or new schools -- our new owned schools. Now, finally, the average receivables from the integrated platform was 63 days, 22 days below second Q '18, which is, again, an improvement.
Now Slide 16, we will talk about CapEx and cash generation. On Slide 16, on the left, CapEx, BRL 120 million in Q2 '19, 6.9% of the net revenue, which is stable in the annual comparison. We want to remind you, we eliminated the concept of special project CapEx. It's already included in the total CapEx, which attainted BRL 277 million (sic) [ BRL 227 million ], of which 88% were invested in the development of content, systems, extension and improvements in our units and editorial CapEx. Investments in the implementation of the new units amounted to BRL 53 million in the second quarter '19 so the total invested in the year-to-date was BRL 98 million.
On the right, you see our cash generation. Post-CapEx operating cash generation of BRL 141 million in the second quarter '19, with an EBITDA-to-cash ratio of 23%. A reduction in the annual comparison is due to a higher consumption of working capital, change in the profile of our student, graduation of FIES students and the increase in the number of students using our financing options and also, as Rodrigo mentioned, receivables of the National Textbook Program that were postponed to the second half of the year.
Now for the year, we expect a cash generation -- the post-CapEx generation positive at BRL 800 million, the second half will benefit -- will be benefit by a few factors: first, receivable from FIES and the National Textbook Program. Although the National Textbook Program we will receive less than in 2018, most of these receivables will be in the second half. FIES, because the government is cutting on the payments of November already in December, then we will have a bigger concentration of receivables in the second half of the year, approximately 60% of the overall amount received in the first half of 2019. Now also reduction in cost and expenses and less out-of-pocket expenses in marketing.
Now Slide 17. You can see the variations in cash balance, beginning from operating cash consumption, that's the post-CapEx of BRL 141 million. First block of expansion and M&A, we invested BRL 1.8 billion, of which BRL 53 million in expansion projects, including 3 new units that will help students and pay for the first time in the second half; and BRL 1.7 billion in acquisitions of controlled companies, the acquisition of participation of minority shareholders of Somos concluded in May. In the second block, you see shareholder value generation. We paid BRL 133.5 million dividends.
Next, you have funding and amortization in the quarter, BRL 778 million positive for the issuance of debentures in April, to reinforce our working capital and elongate our financial liability. With that, we had BRL 996 million cash flow.
Looking on to Slide 19 (sic) [ 18 ]. We can see the evolution of net debt in the quarter. Our cash position and also cash availability reached BRL 1 billion at the end of 2Q '19, down 50% in the quarterly comparison, reflecting the effect I have mentioned in the previous slide. Also highlighting the disbursement for the offer at Somos, cash consumption and investments in expansion and dividend payout.
So considering our debt and other obligations in the short and long term, our net debt reached BRL 7.4 billion in 2Q '19. We also have to mention that we have receivables in the short and long term, comprehending the second part of payment for the sale of Uniasselvi. As such, our net debt at the end of 2Q '19 was BRL 7.3 billion, 35% above the first quarter, also as a result of the decrease in cash availabilities and also the first emission of debentures of Kroton in April totaling BRL 800 million. In spite of this, we continue to be in our average level that's adequate, consistent with the projects and opportunities we are seizing.
Thank you, Jamil. On Slide 20, an update on our prospects in the 3 main K-12 businesses. The public market, sales in the National Textbook Program, PNLD, we already know the results of the approvals for the 2020 program. We were very happy to report a record approval. About 90% of the books we submitted were approved by the committee. It reflects the assertiveness of our investment in content and the quality of our editorial team.
Now, after the approval, we will begin disseminating information. The materials are sent to the 48,000 public schools in Brazil. In addition to the samples, we have intense work of on-premise communication and digital communication. So we expect to exceed our market share in the last few years.
The private market, our #1 business is School Management. We've concluded our commercial strategy after the acquisition of Somos and the integration. Now we have a new commercial structure, we call it the GTM 2020, all activities to prepare the process of student intake and renewal for 2020 beginning in August.
Now, amongst the main activity, we have a detailed analysis of competitors in each marketplace. We've added equation of strategy, also pricing strategy using all of these information, establishing different levels of authority to provide discounts on student payments, creation of digital marketing for schools, adaptation of digital channels, attraction of new readers and investment in online and off-line communication in all brands.
With that, we are confident that we will be successful in 2020 in this segment of B2C K-12. And as this materializes and our service platform comes to the level we expect, we can continue to consider in the second half of 2020 the process of consolidation in this market.
Let me now speak about our second business in the private market, which is the B2B service platform for K-12 schools. We're very optimistic after the restructuring. That was really relevant. Our business model is based on subscription with recurring revenue, high retention, high predictability of revenue, long-term contract, the lifetime value is very high. So this business is based on technology. And all of that will potentialize our growth capacity or capacity to grow our revenue on this platform. But to ensure the growth, we also prepared a Go-to-Market for 2020 for this platform. This was structured between October '18 and March '19. The commercial teams are already using the new Go-to-Market as of April '19.
So the school was in the center of our strategy. We still have a long way ahead of us. But we see a very promising outlook with many more contracts of educational solutions than we have last year, and we're very excited about the pipeline of opportunities for this year. With the implementation of the service platform concept and all the changes implemented, we expect to deliver high growth in the total number of contracts already in 2020, so high growth of revenues.
Finally, the capture of synergies, which will total BRL 115 million until year-end, more than 30% of the BRL 375 million announced. Now Higher Education Greenfields are also performing at both the business plan, both financially and also in student intake for 2019 second half, which shows a great path to grow and generate value in this cities.
About student intake, Slide 21, for my final consideration. An update on student intake for Higher Education second Q '19 have more than a month to conclude the process -- to close the student intake process. But it's very, very promising already, although we know we still have some way ahead of us. Now the macroeconomic and competitive scenario is as challenging as earlier this year. We expected the economy to recover but, so far, it has not happened. But we have initial results that are very good, and we have a few qualitative messages.
Not considering ProUni, which does not bring revenue, we have, in Distance Learning, a slight volume growth with a ticket higher than that in 2018 the second half. And on-premise, we expect stable volumes but the intake ticket will also be higher than in the second half of 2018. Considering the macro economic scenario, we believe this result is quite positive in terms of student intake for the second half of 2019. And that's yet another reason that makes us certain that we will deliver the guidance announced for the year.
Now in the second quarter 2019, we made 2 important moves in our journey of digital transformation. We trained more than 100 collaborators in the SAFe methodology so that we can implement the new Agile development training for the K-12 systems as well. And the second important move is the conclusion of Distance Learning convergence project.
In 2018, we migrated all on-premise graduation students that used Anhanguera original system to the new Olimpo system, our system. At that time, we had a few operating exceptions, which made it more difficult to collect payments for -- from students. So that's why we had a worse performance in receivables from on-premise students. And we had to carry that for 360 days so the impact ended only in July 2019. Of course, we didn't want to have the same problem in Distance Learning. So -- but now, months ago, we were able to solve this issue. All students from Distance Learning at Anhanguera are in the Colaborar system, which is Kroton's system.
We did not identify any operating system, so the migration was successful. No operating noise. And we now have standardized administrative processes, operating efficiency gains and what is really important, an improvement in the experience of our students, NPS is growing significantly. And we did not want the system migration to worsen our NPS. Now the digital transformation that we are experiencing, especially the implementation of Agile methodology for development, have been key for this migration to be successful. We learned a lot during the process, and we concluded the migration quite successfully.
We have lots of news in terms of products and digital solutions that will be made available soon for our students, and they will be communicated to the market right about October, I believe we will have news to tell you.
Now finally, we have a career reading that we are now coming to a new phase in the company when we will have new strategies providing more autonomy to business units, with B2B and B2C operations very clearly segregated operating in different segments and unlocking value depending -- with different approaches depending on the segments. In 2018, we said our digital transformation view was broad, but not only technology. It was a cultural change. The big value was in the cultural change. Today, we can tell you that we already see that in practice, developing services and new businesses that will make our growth sustainable. Kroton Day in October, we'll provide news on the opportunities that we have identified and how the company is organizing to capture these opportunities.
Now thank you all very much for your participation. I'd like to invite you for the questions-and-answer session.
[Operator Instructions] Our first question is from Guilherme Palhares from BTG Pactual.
I have two questions. First of all, about the -- some of the synergies. How much of the synergies have been captured? And I would like to understand a little bit more about K-12 and the ACV bookings. What parts has been completed considering the 2Q '19 results?
Good morning, Guilherme. Let me answer your question. For the end of 2019, we expect BRL 115 million. Part of this has been captured last year. And we'll complete those BRL 115 million of the previously announced amount.
About your second question. The second quarter that closes at June 30, it represents 20% to 35% of our commercial campaigns for the year. So as we said in the announcement, we are very satisfied with the initial results, but they still represent only 20% to 25% of the year's target.
Just to clarify, the question -- I'm talking about ACV, so that is the previous campaign that you still -- you weren't captured yet. Do you have a little bit of this curve? And also, I'd like to understand more about the dropout rate. We saw an increase in that. So what are the strategies the company is adopting to manage dropout? And what we can expect in the client in the future?
Guilherme, about -- between '18 and '19, since we didn't have this integrated platform concept in place, I cannot answer your question. We only inaugurated the use of this concept this year. And we'll be announcing ACV for this campaign next year only.
This is Valério answering your questions about the dropout rate. The macroeconomic scenario in Brazil is still adverse. There are some -- there were expectations that the economy would be much better now. So we have -- we could see in the last month, there has been an increase in default rates both in terms of the students, individual students, and also in the volume of default. We have been tracking this very closely in this program that you know very well for a correction. So part of the dropout rates that are increasing come from the fact that we are able to detect lesser engagement of students and act on it sooner. So before we saw this only at the transition between one quarter and another, but now we see it earlier. So I think that's the challenges to work together with the financial team. Jamil and I have been doing a lot together using different renegotiation policies to bring down dropout rates. We also tried to increase student engagement both academically and in terms of timely payments. And what we'll see in the next semester is that there will still be pressure on dropouts on campus, but stability in DL for sure.
Our next question is from Susana Salaru from Itaú.
We have two questions. First of all, could you tell us a little bit about the first and second tax receiving? We would like to know how this is being handled in terms of receivables. And another question. You mentioned that you were -- that you have several digital products and services in the pipeline. Are those solutions geared to the integrated platforms? And are they solutions that will drive margin expansion?
Good morning, Susana. This is Jamil. In relation to PEP, yes we have around 1,000 students. And what we see is that if you compare this with out-of-pocket, we see -- based on our projection, we see 80% of reversion in those contracts. So obviously, this is just a first thing. We have several other programs. We have been working very hard to try to understand the reason for the defaults, for there is an increase in the situation.
I'll answer your second question. Yes, we can assume that the digital solutions we're implementing are focused on the assumptions that we'll be able to plug into the K-12 platform, creating full-service offering for schools. As we have said, last year, our idea is to become the one-stop shop for schools, and many of our services are strictly digital. And as you've seen Kroton doing, we will explain how digital transformation is helping us tackle problems with efficiency, engagement and in other areas. So that's why digital solutions for the company as they're seen as a lever for revenue. Of course, we want efficiency, but what we want is to invest in digital solutions that will create new sources of revenue for this company because this is the driver that has been guiding all of our work in the area of digital solutions.
Our next question is from Mariana Hernandes, Crédit Suisse.
I have 3 questions, if I could. Firstly, about Higher Education margins. I think it's clear that we see a decrease, that is clearly explained. But could you tell us a little bit more about the normalization of this drop, when we'll see the maturity affecting this impact?
And the second point is in relation to cash generation. You have really emphasized this in relation to the guidance being met for the end of the year. But I would like to know in relation to the FIES and the National Textbook Program, what is their contribution? How relevant it is? And what are the other impacts?
And about K-12, could you give us a little more flavor on it because I know that you gave us numbers for cumulative cushion for 2020. But what are you really investing on, systems? What's really making the difference in terms of the initial metrics? What do you expect for 2020?
Hello, Mariana. This is Roberto Valério. In relation to Higher Education, we -- I think that you're right. In relation to the pressure we have been feeling in margins, we start to see benefits, however, in the second half of 2020, with the maturity as it comes along and this will also help us even surpass the other champions. We'll see this.
Good morning, Mariana. This is Jamil. In relation to our cash, we used up BRL 90 million of our cash in the first half of the year, and we have generated BRL 900 million for the second half. So this increase, 2/3 come from governmental programs, just to give a more objective measure.
Mariana, this is Ghio, I would like to answer your question on K-12. In fact, we don't even have commercial targets in terms of textbooks. What we're doing right now on our Go-to-Market 2020 is to get agreements. We usually use these [ textbook ] schools. They are schools that -- with whom we have our relationship in which we can easily market our services either through textbooks, or creating a mix between digital and textbooks, depending on the segment.
So your question was about a preview of our results. We signed more learning system agreement than in relation to the financial bottom-off. And something that was very interesting was the penetration of our solutions are complementary solutions. Among our existing clients base according to commercial, we have the profound opportunity that grew out of proportion considering the size of our client base.
Just to add something. This is Rodrigo. I think that the first message is the B2C platform doesn't sell books, it's just impossible. What we market is services. So all revenue is based on a subscription model with long-term agreements, including sale of books. So we are a company that's based on subscription -- on a subscription model. This is a key message especially when you consider that we have -- we used this platform in the company.
Our next question is from Roberto Waissmann, Bradesco [ BTM ].
Two questions. I would like to understand the behavior of higher education revenue, was a decline of 7% in higher education. Of course, we know that the student base has decreased. But considering that there has been relevant increase in tickets as well, could you please explain this scenario? Why do we see this decline of 7% in revenue considering you don't break down the account? We don't know exactly how much is coming from On-Campus, but we believe that -- it will be important to understand what could offset this if not the increase on tickets. Could you please explain this high-single-digit decrease? And also, in terms of student recruitment, the cycle for 2019, could you give us some light on the PEP30, 50? We saw exposure to PEP30 in the last cycle and of course PEP50 is more relevant. And we would like to know if that situation will remain the same or if we'll see more significant volumes in the future.
This is Jamil. I will answer your two questions. The first question in relation to revenue. In fact -- of course, there has been a reduction of our student base because of the maturing of FIES students in our base. And overall, this decrease comes mainly from own units and On-Campus and in DL we see more stability. In relation to that, we have an increase in PEP50. In the second half, we continue to see relevant penetration of PEP50, however, lower than in the first half. So this is excluding much growth into 50-50 than 20 to 50 as we saw in the past.
Our next question is from Marcelo Santos, JPMorgan.
I would like to talk about that National Textbook Program. What's your schedule for recognition of revenues in that area for the half of the year? Do you think that the receivables will come in this year or next year. And if you can give us some numbers. I know that you had some agreements in place but it's also a line that's very hard to predict in terms of forecast. And also in relation to the same program, could you talk a little bit about discipline? Were you approved in all disciplines? How many were approved? What's the comparison in relation to the previous year? I think this will be interesting. And also a clarification in relation to the same textbook program. If I understood correctly in the presentation, the literary part of this would represent BRL 90 million in EBITDA, and this would be only coming in later.
Yes. Marcelo, three questions about the textbook program. I'll start with the second one. We can never make a comparison on an annual basis because in the PNLD, we have cycle 1 and 2, and we can make a comparison with 3 years back in fact. So with 91% of our textbooks were approved in comparison to 73% in the previous year.
In terms of discipline. Yes, we're competing in all disciplines, with the exception of 1 discipline. We have at least 3 books competing in all of the ones. So we have a very robust platform that's being advertised. And we're still waiting for 2 books to be approved in a second hearing, at a course, and this of course would take our books to over 91% in approval. In relation to the textbook program revenues, it was initially in the first quarter that we posted the repurchases, so we had to think that the government buys -- in truth, the government buys new and then we obviously repurchase. Usually this was in the first quarter, now we've moved it to the third quarter. The purchase is always focused on the fourth quarter. The negotiations takes place in September, but only when the books are available for shipping that we recorded in this half in October. In this year, the literature books that should have been invoiced at the end of 2019 were moved to 2020. In the first quarter, this would move to the second quarter. So we have of course invoiced part of the literature books, but we haven't recognized this revenue -- or just a little of this in the quarter. So this isn't a typical year. And for the second half, we'll have everything: the repurchase and the purchase and the literary books. And in terms of cash generation between the program and FIES, we'll have 2/3 of the cash generation needed to close our numbers for the -- in relation to the EBITDA traction, here we're talking about repurchases, not literature books. And this is a much smaller participation that cannot result in this level of EBITDA.
[Operator Instructions] Our next question comes from Maria Tereza Azevedo from UBS Bank.
I have two questions. The first, what is the priority in terms of capital allocation, organic expansion of higher education, M&A in K-12 or M&A in learning systems? And how can you generate more value to shareholders in K-12?
And the second question about Higher Education. If you could speak a bit more about Greenfield operations. When will the ramp up end? If you have any projections on ticket and dropout. Is that going to be better than previous units? And if you see any room to accelerate or speed up the strategy to open new units, looking at macroeconomics and the competitive scenario today?
Thank you, Maria Tereza. So this is Rodrigo. I'll begin the answer. And if needed Ghio and Roberto will -- about capital allocation, we will discuss about opportunities and priorities on Kroton Day in October. But I can give you some color. We have seen relevant opportunity in B2B products and services, not only the K-12 platform, which is up and running, generating value and growing. We still see opportunity to add more services to the K-12 platform, so we become our one-stop provider for K-12 schools. So part of capital will be allocated there. New products, M&A of products on the K-12 platform, but we also see opportunity -- I mean other business opportunity, all of them based on technology solutions, digital solutions, and we will talk about that on Kroton Day.
Still, about capital allocation. By the midpoint of 2020, we may resume the process of K-12 school consolidation because they add value, it has an adequate ROIT, the market is not highly professional, so we can capture synergies and efficiencies, and we believe we can add a lot of value in this process of K-12 schools consolidation. It's similar to Higher Education a couple of decades ago. Of course, the integration is different, the consolidation is different. But at the end of the day, we have a lot of efficiencies to be captured. So in this game of consolidation and efficiency we played in Higher Education in the past, we can now play in K-12. However, we made a strategic decision to first optimize our K-12 platform with the schools in our base. And then as we see or the time has come, we will resume the process of consolidation, with a good student retention for 2020. So 2020 may be the right time to resume this process of K-12 schools consolidation. And then capital would be allocated.
About your second question on Greenfields. In general, the -- some of our Greenfields we are above the business plan, in revenue, in volume and earnings. It doesn't mean that the project is already generating positive cash, but it's consuming less cash than expected in the business plan. Greenfield is long term. It adds a lot of value, but during the first 4, 5 semesters or 2, 3 years, it consumes cash. So we already have Greenfields that finished their ramp up. They're already providing cash. But overall, Greenfields are still consuming cash. That's why Roberto said, we expect that in terms of margins, we will already have positive margins as of the second half of 2020. But the overall message is that the project is doing really well. Thank you. As we add up all Greenfield projects, we are above the business plan. And we're very optimistic also in relation to student intake in 2020. So the best indicators we have is, well, the student intake for the second half of 2019, and we expect very good results. That is we're certain we will overcome our target for Greenfield operations.
Our next question comes from Thiago Bortoluci from Goldman Sachs.
I have two. The first is about K-12. We believe this year is atypical. We still had the integration with Somos. But thinking about 2020 and the midterm, what would be a top line satisfactory growth rate for this business unit? And what products would be the focus of this growth in run rate?
And the second question about the guidance. You've delivered almost half of the guidance in revenues, but a bit less in EBITDA. In terms of EBITDA, what kind of acceleration do you expect in the second half coming from K-12 On-Campus or Distance Learning?
Hello, Thiago. This is Rodrigo again. I'll begin and Ghio will complement. First, about K-12, we cannot give you the rates of growth, this is something we cannot inform now but we can talk about that qualitatively, what we expect in terms of growth. We are optimistic about our growth and one product is not any more relevant than any other. What we want is to be an integrated platform that provides content services, technology services to support the content we provide and pure digital service. So this is not a platform or a solution that provides only content. It's much more thorough because we deliver content, technology to support the content and also technology solutions, which we can provide and maybe needed by the school. This is what is going to create growth in the future, and it increases our addressable market. So we expect huge growth in the platform. Penetration rate that is --now it's fairly small compared to their potential. And we still have a big penetration potential in our client base. The message is that in the current client base, we can grow our penetration. So we have a lot of room for upsell and cross-sell in the existing base. And in addition, we have some dozens of thousands of schools in the addressable market, so that we can capture part of their business. I think this is the message on K-12 and growth.
Yes, well I think Rodrigo has already spoken about most of the relevant factors. But if you think about only products and services for the core function of school, which is to teach, we have seen that our unique positioning has provided very good results that is this capacity of ours to provide good textbooks and learning systems at a reasonable pricing range is a very powerful offering. So this year or next year, we expect a lot of revenue to come from these new products and services, which are the most common that schools buy.
About our growth. As Rodrigo mentioned, we cannot give you precise numbers. But if we can, I mean in the next few months of student intake, if we can keep the same growth we've seen in the first results, well, then we will grow much more than in previous years. So most probably, at the end of the third quarter, we will be able to talk about this. How this student intake campaign produce results for next year.
Now Thiago, this is Rodrigo again. About your second question. To make a long story short, we're confident we will deliver the guidance. And the numbers in the second quarter have only confirmed this optimism that we will be able to deliver the guidance. You said that in revenue, we're very close to 50%, and EBITDA, we're at 45%. So it is easily understandable. We had seasonal impacts, and we understand these seasonal impacts. So we are concerned about attaining the EBITDA, but very confident that we will, provided that we can generate cash. We feel very comfortable that we will be able to deliver the guidance. Some elements that give this confidence to us. First, the quarterly deviations we mentioned during the presentation, the BRL 90 million EBITDA that were moved from the second Q to the third Q related to the National Textbook Program. Also synergies and efficiency, we implemented actions in the first half. But we will capture the results in the second half of the year. So that's also value to be captured in margins and so therefore, in EBITDA as well.
Now a reduction in marketing expenses in K-12 which were moved to the first half of the year. So these are some examples that give us this certainty that the second half will deliver more than 50%, so that we will be able to deliver the full guidance for 2019.
This is the final message. And if you have any more questions, do come and talk to us. We'll provide more color on this information. But we feel confident, and we want the market to also feel confident about this.
Yes. If I can follow up. So on revenue from K-12. In B2C for K-12, when will we begin to see the first G&A results with partner schools?
Can you please repeat the question?
I'm sorry. In K-12, in B2B, when will we begin to see the first results from the management services and partner schools?
Okay. Let's talk about this. Our objective is to provide services to schools no matter what services the school needs. So now we are plugging services to the platform, and we will be talking about this on Kroton Day. There is not much I can tell you today, but we will attach priority to digital solution, which are more scalable to plug to the platform. We'll give you more color on what these services are. And we'll give you more information about the platform, the services we already offer, the services we are preparing and what we expect in terms of results. We'll talk about this on Kroton Day in October.
[Operator Instructions] Let me now give the floor to Kroton for final consideration.
I would like to reinforce just one point. Value generation that's adequate and responsible is the one that thinks in the short term and build to the long term. This is what we are looking for in Kroton. And this is the strongest message we have to give you. We will deliver the guidance for 2019, as I said, but we talked a lot about the value generation, the ramp of new opportunities and how digital transformation is creating an impact on the way we work with education. And you're all invited to participate in Kroton Day. As soon as we get all the details, we'll communicate it to the market because we'll give a lot more color about the opportunities that we are seeing and implementing in the organization. And of course, our IR continues to be available for any other question.
Thank you very much. Kroton conference call is now complete, and we thank you all for your participation.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]