Good morning, ladies and gentlemen. Thank you for waiting. At this time, we would like to welcome everyone to Craft and Educaste Nares Q2 2019 Earnings Conference Call. We would like to inform you that this event is being recorded, and all participants will be in listen only mode during the company's presentation. After the company's remarks are complete, there will be a Q and A session for analysts and investors.
At this time, further instructions will be given. Also, today's live webcast, both audio and slide show, may be accessed through Croton Medecacional's Investor Relations website at
www.croton.com.brir
by clicking on the banner 2Q 2019 webcast. The following presentation is also available to download on the company's Web site. The following information is available in Brazilian reais in accordance with Brazilian corporate law and generally accepted accounting principle, PR 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 Croton 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 Kraftwerk'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 2019. With us today, Carlos Lazar, our Investor Relations Director our Finance VP, Javier Marques and the Managing Director of our Business, Unit, Rogerio Valerio, Higher Education and Mario Guille, K-twelve. Again, reinforcing the message in our 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 Unipar, we made that decision because we believed education would go through a process of digitalization. It truly happens. Surfing this way has allowed for us to generate a lot of value. Same thing in 2013 with the merger with Ayangueira. 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 2017, early 2018, we had another turning point. We made another relevant decision, maybe the most important in our history of all strategic decisions. And 2 thesis came up from this discussion. 1st, increase our exposure to K-twelve at Kratzen and next engage in a deep journey of digital transformation after 1 year how these two fundamental thesis has contributed and will contribute to generate value in the company. 1st, K-twelve, the acquisition of Somos helped us increase our K-twelve participation.
Somos allowed for us to operate in 2 segments: B2C, managing K-twelve schools and also creating the largest service platform for K-twelve schools in Brazil. We're very happy with the results so far, both in 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 Croton. We have a lot to tell you. And Croton Day this year will focus the opportunities in each line of business.
It's going to
be in October, we are all invited for Krotum 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 attain the results announced in the guidance. Some revenue was displaced from the second to the 3rd Q, but the second Q was then a bit weaker than historically.
We did not necessarily delivered 50% of the guidance in the first half, but all indicators Talos will 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-twelve, which is different and the weight of K-twelve will make the second half stronger. Now net revenue, we delivered 49% of the DKK7.4 billion projected for the year.
In the second half, we'll have a bigger contribution of K-twelve, 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 is student intake in higher education will be strong. EBITDA, we've attained more than 45% of the projected number for the first half of twenty nineteen or BRL 1,400,000,000 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-twelve, 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 $141,000,000 cash after CapEx in the second quarter, which reduced our cash consumption for $89,000,000 dollars The guidance of cash generation of 800,000,000 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 CIES. We also expect a lower volume of CapEx and non recurring expenses in the second half, which were already budgeted, an improvement in the average payment term since 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 percent from BRL 1,500,000,000 to BRL 1,400,000,000, 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 2013 2014. And of course, we see that in have a challenging scenario. Our seasonality has been a little different this year compared to 2018 with anticipation of some effects to 1Q 2019 owing to some adjustments also in the student workload.
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 Q2 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 there was 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 lines. So on Slide 9, we can detail the K-twelve performance. And similarly to what we did in the Q1 to make for better comparison, We will comment variations pro form a considering some of those numbers in 2Q 2018 after the convergence of the to the Crotons accounting standards. We had BRL 263,000,000 net revenue in the Q2 2019, 3 0.7% 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 acquisitions that were concluded by some of Enkrafting in 2018. It's important to mention that in the Q3 2019, we expect there will be an expected 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 percent and 800 basis points, respectively. And finally, the operating results, post marketing reached BRL 108 million, representing growth of 27.4 percent 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 form a comparison, including the sum of numbers in the Q2 2018 for better comparison.
So here, we saw some negative events, extraordinary events with an impact on the 2Q results. For example, we can mention K-twelve events with the postponement of revenue coming from the National Textbook Program. As a result of this, BRL 90,000,000 of EBITDA were not posted in the Q2, and they are going to be moved to the Q3. There were other events also with negative impact on 2Q 2019 results. That's why we maintain the conviction that the guidance numbers will be reached.
Consolidated net revenue totaled BRL 1,700,000,000 down 7.6% visavis2q 2018, also with an impact of higher education graduations and the different schedule of the national textbook program. And also in terms of our EBITDA after nonrecurring expenses amounted to BRL 625,000,000 down 7.9%, reflecting the impact of some postponement of results for the Q3, together with the launch of our own units. The situation remains stable in terms of the EBITDA margin. We are capturing the synergy and efficiencies, and also we see a reduction in nonrecurring expenses volume. In the first half of the year, we reached 45% of the guidance for this line, which represents 21% annual growth even in the pro form a vision, including the numbers of somos.
Finally, adjusted net income of stocks and also considering intangibles amortization reached BRL 267,000,000 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 percent of the EUR 1,300,000,000 expected for the year, representing an increase of 14% in relation to 2018. And in the second half of the year, we'll have the benefit of EBITDA, supporting the achievements of our growth. 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 average term of receivables per segment and type of student. Slide 13 on the left, an annual comparison higher education. We had an increase of 70 basis points in the volume of total provisioning. These are increases of PDA in paying students that attained 9.1% this quarter. We had an increase in on premise PDA and stability and distance learning.
In both cases, efficiency initiatives have 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 twenty eighteen. 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 2018. Now in Slide 14, want to talk a bit more about the average term of receivables beginning in higher education, an increase of 27 days at any 192 days. So an increase of 27 days compared to the second Q 2018, reflecting the same trend as the last quarter when we had an annual increase of 21 days. In the case of paying students, PMR attained 129 days in this quarter, 30 2 days above the annual comparison, basically because of the same factors that I mentioned before. So we had to increase our provisions for doubtful accounts.
And because of the impact in the migration of system of the students from the first half of twenty eighteen. But in the second half, we will have a positive impact in cash. And let me highlight that Rodrigo also mentioned that, but we are more strict in our time and improvements in our financial NPS. So this promotes more on time payment. Now in the case of the average time of fee, yes, 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 absorbed.
Finally, the average term of PEP and PMT was 5 91 days, up 166 days compared to the same Q last year. Now in Q in K-twelve, the average receivable 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 our new schools, our new owned school. Now finally, the average receivables from the integrated platform was 63 days, 22 days below 2nd Q 2018, which is again an improvement. Now Slide 16, we will talk about CapEx and cash generation. On Slide 16 on the left, our CapEx BRL 120,000,000 in Q2 2019, 6.9 percent 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 attained BRL277 1,000,000 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 new units amounted to BRL 53,000,000 in the Q2 2019. So the total invested in the year to date was BRL 98,000,000. On the right, you see our cash generation post CapEx operating cash generation BRL 141,000,000 in the Q2 2019 with an EBITDA to cash ratio of 23%.
The reduction in the annual comparison is due to a higher consumption of working capital, change in the profile of our students, graduation of CES students and the increase in the number of students using our financing options. And also as Rodrigo mentioned, receivables of the National Tax Program that were postponed to the second half of the year. Now for the year, we expect the cash generation post CapEx cash generation positive at $800,000,000 second half was benefit will be benefit by a few factors. First, receivables from CES 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 passing 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 twenty nineteen. Now also reduction in cost and expenses and less out of pocket expenses in marketing. Now Slide 17, can see the variations in cash balance beginning from operating cash consumption post CapEx, dollars 141,000,000 first block of expansion and M and A. We invested $1,800,000,000 of which $53,000,000 in expansion projects, including 3 new units that will have students intake for the first time in the second half and EUR 1,700,000,000 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 $133,500,000 dividends. Next, you have funding and amortization in the quarter, BRL778,000,000 positive first the issuance of debentures in April to reinforce our working capital and elongate our financial liability. With that, we had EUR996,000,000
cash flow. Moving on to Slide 19, we can see the evolution of net debt in the quarter. Our cash position and also cash availability reached BRL 1,000,000,000 at the end of 2Q 2019, down 50% in the quarterly comparison, reflecting the effects I have mentioned in the previous slide. Also highlighting the disbursement for the OPPA at home, cash consumption and investments in expansion and dividend payout. So considering our debt and obligations in the short and long term, our net debt reached BRL 7,400,000,000 into Q2 2019.
We also have to mention that we have receivables in the short and long term, comprehending the 2nd part of payment for the sale of Uni Acelva. As such, our net debt at the end of 2Q 2019 was EUR 7,300,000,000 35% above the 1st quarter, also as a result of the decrease in cash availabilities and also the first emission of the benches of Proton in April, totaling BRL 800,000,000. In spite of this, we continue to be in a leverage level that's adequate, consistent with the projects and opportunities we are seizing.
Thank you, Jaime. On Slide 20, an update on our prospects in the 3 main K-twelve businesses. The public market, sales in the National Text Book Program, PNLD. You already know the results of approval 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 number one business is school management. We've concluded our commercial strategy after the acquisition of Somos and integration 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, among the main activities, we have a detailed analysis of competitors in each marketplace with that equation of strategy, also pricing strategy using all of this 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 leaders and investment in online and offline communication in all brands. With that, we are confident that we will be successful in 2020 in this segment of B2C K-twelve. And as this materializes and our service platform comes to the level we expect, we can continue to consider in the second half of twenty twenty the process of consolidation in this market. Let me now speak about our 2nd business in the private market, which is the to B service platform for K-twelve 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 revenues, long term contracts. 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 revenues on this platform. Now to ensure this growth, we have also prepared a go to market for 2020 for this platform.
This was structured between October 2018 March 2019. The commercial teams are new go to market as of April 2019. So this call is 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 had 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 revenue. Finally, the capture of synergies, which will total EUR 115,000,000 until year end, more than 30% of the €375,000,000 announced. Now higher education greenfields are also performing above 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 these cities. About student intake, Slide 21, for my final consideration.
An update on student intake for higher education second Q 2019. 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 Pro Union, 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 twenty eighteen. Considering the macroeconomic scenario, we believe this result is quite positive in terms of student intake for the second half of twenty nineteen. And that's yet another reason that makes us certain that we will deliver the guidance announced for the year.
Now in the Q2 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 train for the K-twelve systems as well. And the second important move was the conclusion of distance learning convergence project. In 2018, we migrated all on premise graduation students that use the Ayahuet original system to the new Olinpo system, our system. At that time, we had a few operating exceptions, which made it more difficult to collect payment from students.
So that's why we had a worse performance in receivables from on premise students. And we had to carry that for 3 60 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 Business Learning Ayahuengueira are in the Colabora system, which is Groton'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 a system migration to worsen our NPS. Now the digital transformation that we are experiencing, especially the implementation of agile methodology for development has 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 Project 10 Digital Solutions that will be made available soon for our students and they will be communicated to the market around about October, I believe we will have news to tell you. Now finally, we have a clear 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.
Since 2018, we said our digital transformation view was broad. It's 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. Cropped Sunday in October will provide news on the opportunities that we have identified and how 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.
Thank you, Mr. Galindo. Ladies and gentlemen, now we will initiate the question and answer session. Our first question is from Guilherme Canarias from BTG Pactual. You may proceed.
Good morning, everyone. I have two questions. First of all, about the SOMOS synergies. How much of those synergies have been captured? And I would like to understand a little bit more about K-twelve and the ACV bookings.
What part has been completed considering the 2Q 2019 results? Good morning, Guilherme. Let me answer your questions. For the end of 2019, we expect BRL 115,000,000. Part of this has been captured last year and we'll complete those BRL 115,000,000 of the previously announced amount.
About your second question, the Q2 that closes at June 13, it represents 20 percent to 35% of our commercial campaigns for the year. So as we said in the announcements, we are very satisfied with initial results, but they still represent only 20% to 25% of the year's targets. Just to clarify the question, I'm talking about ACV. So that is the previous campaign that you're still you were accepted. Do you have a little bit of this curve?
And also, I would 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 this line in the future. Regarding between 2018 2019, since we didn't have this integrated platform concept in place, I cannot answer your question.
We only inaugurated the use of concept this year, and we'll be announcing ACV for this campaign next year only. This is Valerio 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 you can 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 collection. 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 1 quarter and another, but now we see it earlier. So I think that 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 try 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 Saradu from Itau. You may continue. Thank you very much for this opportunity.
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 platform?
And are they solutions that will drive margin expansion? Good morning, Susana. This is Jean Mil. 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 projections, we see 80% of reversion in those contracts.
So obviously, this is just a first phase. We have several other programs. We have been working very hard to try to understand the reason for default so that we can increase the situation. I'll answer your second question. Yes, we can assume that the digital solutions we're implementing are focused on the solutions that we'll be able to plug into the K-twelve platform, creating a full service offering for 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 in front of me, we'll 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 has been 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 the company because this is the driver that has been guiding all of our work in the area of digital solutions. Thank you very much.
Our next question is from Mariana Edmantes, Credit Suisse. You may proceed. Thank you very much for accepting my question. I have 3 questions, in fact. 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 offsetting 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 that contribution? How relevant it is? And what are the other impacts? And about K-twelve, could you give us a little more flavor on it? Because I know that you gave us numbers for student recruitment 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 20%? Hello, Maria. This is Roberto Valerio.
In relation to higher education, we I think that you are right in relation to the pressure we have been feeling on margins. We'll start to see benefits, however, in the second half of twenty twenty with the maturity as it comes along. And this will also help us even surpass the other champions. We'll see this. Good morning, Maria.
This is Jean Liu. In relation to our cash, we used up BRL 90,000,000 of our cash in the first half of the year, and we have to generate BRL 900,000,000 for the second half. So this increase, 2 thirds come from governmental programs, just to give a more objective measure. Mariana, this is Gil. I would like to answer your question on K12.
In fact, we don't even have commercial targets in terms of textbooks. What we are doing right now on our go to markets 2020 is to get agreements. We usually use the soft book schools. They are schools that with whom we have a 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 agreements than in relation to the financial volume of SCAR. And something that was very interesting was the penetration of our solutions, our complementary solutions among our existing client base. According to commercial, we have the pro sell opportunities 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 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 subscriptions on a subscription model. This is a key message, especially when you consider that we have we use this platform as a company.
Thank you very much. Our next question is from Roberto Weitzman, Bradesco BPI. Good morning. Two questions. I would like to understand the behavior of higher education revenue with this decline of 7% in higher education.
Of course, we know that the student base has decreased, but considering that there has been a relevant increase in tickets as well. Could you please explain this scenario? Why do we see this decline of 7% in revenues, Considering you don't break down the accounts, 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 in 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 PEP 3,050? We saw exposure to PEG-thirty in the last cycle. And of course, PEG-fifty is more relevant. And we would like to know if the situation will remain the same or if we'll see more significant volumes in the future. This is Jean Liu.
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 maturity of CS students in our base. And overall, this decrease comes mainly from own units and on campus. And in TL, we see more stability.
In relation to TEP, we had an increase in TEP 15. In the second half, we'll continue to see relevant penetration of PEP 50, however, lower than in the first half. So this is moving much closer to fifty-fifty than 20 to 50 as we saw in the past. Our next question is from Marcelo Santos, JPMorgan. You may proceed.
Thank you very much. Good morning to everyone. I would like to talk about the National Tax Book Program. What's the 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 in next year?
And if you can give us some numbers, I know that you have 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 disciplines? Were you approved in all disciplines? How many were approved? What's the comparison in relation to the previous year?
I think this would 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 90,000,000 in EBITDA, and this will 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 P and L deal, we have the cycle of 1 and 2, and we can make a comparison with 3 years back, in fact. So we 91% of our textbooks were approved in comparison to 73% in the previous year. In terms of disciplines, yes, we are competing in all disciplines. With the exception of 1 discipline, we have at least 3 books competing in all other ones. So we have a very robust portfolio that's being advertised.
And we're still waiting for 2 books to be approved in a second hearing at the court. And this, of course, would take our books to over 91% in April. In relation to the tax book program revenues, it was usually in the Q1 that we posted the repurchases. So we have to think that the government buys in soup, the government buys new and then he orders the repurchase. Usually, this was in the Q1.
Now we move this to the Q3. The purchase is always posted on the Q4. The negotiation takes place in Cassandra, but only when the books are available for shipping that we recorded and this starts in October. In this year, the literature books that should have been invoiced at the end of 2019 were moved to 2020 and the Q1. This was moved to the Q2.
So we have, of course, invoiced part of the literature books, but we haven't recognized this revenue just in our literacies in the quarter. So this is in a typical year. And for the second half, we'll have everything, the repurchase, the purchase and the literary books. And in terms of cash generation between the program and FIES, we'll have twothree of the cash generation needed To close our numbers for the in relation to the EBITDA question, here we're talking about repurchases, not literature books. And this is a much smaller participation that could not result in this level of EBITDA.
Okay. Thank you.
Our next question comes from Maria Tiras Vasilescu from UBS Bank. You may begin. Hello, good morning, everyone. Thank you for taking my question. I have two questions.
The first, what is the priority in terms of capital allocation? Organic expansion of higher education, M and A in K-twelve or M and A in Learning Systems? And how can you generate more value to shareholders in K-twelve? 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 Theresa. This is Rodrigo. I'll begin the answer.
And if needed, Guillaume and Roberto will add. About capital allocation, we will discuss about opportunities and priorities on Croton Day in October. But I can give you some color. We have seen relevant opportunity in B2B Products and Services. Noden lead a K-twelve platform, which is up and running, generating value and growing.
We still see opportunity to add more services to the K-twelve platform. So we become a one stop provider for K-twelve schools. So part of capital will be allocated there, new products, M and A of products on the K-twelve platform. But we also see opportunity, I mean, other business opportunities, all of them based on technology solutions, digital solutions and we will talk about that on Krasunde. Still about capital allocation by the midpoint of 2020, we may resume the process of K-twelve school consolidation because it adds 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-twelve 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-twelve. However, we made a strategic decision to first optimize our K-twelve platform with this goal in our base. And then as we feel 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-twelve schools consolidation and then capital would be allocated. About your second question on greenfields, in general, the sum of all 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 1st 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, green fields 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 twenty twenty. But the overall message is that the project is doing really well. Thank you.
As we add up all green field 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 twenty nineteen, and we expect very good results. That is for certain we will overcome our targets for greenfield operations. Okay. Thank you.
Yes. Our next question comes from Thiago Portozzi from Goldman Sachs. You can begin. Hello, everyone. Good morning.
Thank you for taking my questions. I have 2. The first is about K-twelve. 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 one 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-twelve on campus or distance is learning?
Hello, Thiago. This is Rodrigo again. I'll begin and Gio will complement. First, about K-twelve, we cannot give you the rate 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 project 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 technology to support the content and also technology solutions, which we can provide and may be needed by this goal. This is what's 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 fairly small compared to the 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-twelve 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 text book and learning systems at a reasonable pricing range is a very powerful offering. So this year, 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 Q3, we will be able to talk about this, how the student intake campaign produced 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%. In 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 gives us confidence to us. First, the quarterly deviations we mentioned during the presentation, The BRL90 1,000,000 EBITDA that were moved from the 2nd Q to the 3rd Q related to the National Textbook Program, also synergies and efficiencies. 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 margin and so therefore in EBITDA as well. Now a reduction in marketing expenses in K-twelve, which were moved to the first half of the year.
So these are some examples that give us the 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 still on revenue from K-twelve. In B2C for K-twelve, when will we begin to see the first G and A results with partner schools? Can you please repeat the question? I'm sorry, in K-twelve, 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 Croton Day. There's not much I can tell you today, but we will attach priority to digital solutions, 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 Croton Day in October.
Okay, thank you. Let me now give the floor to Kraton 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 builds the long term. This is what we are looking for in Crofton. 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 value generation levers, 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 Cross and Bay. 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 seizing and implementing in the organization. And of course, our IR continues to be available for any other questions. Thank you very much. Carleton's conference call is now complete, and we thank you all for your participation.