Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Cloten's Ipiracana's First Quarter 2019 Earnings Call. We would like to inform you that this event is being recorded and that all participants will be in listen only mode during the company's presentation. After the company's remarks are complete, there will be a question and answer session All from today's live webcast, both audio and slide show, may be accessed through Croson Ebycacana's Investor Relations website at www.croson.com.brir by clicking on the banner 1Q 2019 Webcast. This presentation is also available followed on the company's website.
The following information is available in Brazilian reals in accordance with Brazilian corporate law and generally accepted accounting principles, 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 Prop and Management and also 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 Crocs and CEO, Mr.
Rodrigo Galindo, who will begin the presentation. Ms. Galindo, you may begin your conference. Good morning, everyone. Thank you for participating in Kraton's earnings conference call for Q 2019.
With us today, our IR Director, Carlos Lanzar our Finance Vice President, Jean Marcet, Roberto Valeri for Higher 2018 as we acquired SOMOS, changing our profile today. We work more in this relevant segment. We've broadened our operations in K-twelve. The company had to review the way it discloses earnings because we had to make adjustments in the format of our disclosure to align our management practices and the way we present our results to the market. In addition, we also had the impact of IFRS 16.
We made all the adjustments to be in line with the new accounting practice. I know it makes it more complex to understand our numbers, and we're trying to present this report on the 1st Q 2019 with all possible views so that the financial market can have a better understanding of the analysis going back to 2018. For example, 2018, we also applied a pro form a analysis applying IFRS 16, so it's more comparable to 2019 performance. IFRS was applied on both years. We also made comparisons of Somos and Croton separately.
So you can compare to the company's guidance. And we also presented the earnings as the company was consolidated. It will be clear as you look at our slides and listen to the presentation, but we know it's more complex to understand our numbers. Our IR team is at your service to provide all the necessary explanation. We're trying to provide most transparency so that in this new phase of the company beginning now, we'll be presented in full transparency to the financial community.
Let me begin today's presentation from a message I deem extremely relevant, our expectation for the 2019 guidance. Now as we show our results, our numbers in this new way, as it's more difficult to interpret the results because of the complexity in comparison, it's more important to look at the future and think about the future value generation at Graz. And that's why we are providing a full level of detail. In this guidance, we've made available also a number for cash generation. So the market feels comfortable not only regarding our performance but also cash generation from our operations.
Severating, Somos and Cronje X. Somos are also presenting consolidated results in Slide 4. In the first two results, there are some peculiar numbers. And higher education seasonal events have impacted our analysis. So the operating result seems lower, but that will be recovered in the following quarters.
In K-twelve, we have the seasonality of PDA from 2018, which is very different from the seasonal effects we will see in 2019. So that's yet another distortion even in the pro form a comparison. So if you want to look at the projection of results, the guidance would be the best number. That's why we start from the guidance. As expected, 2019 will be a challenging year.
Macroeconomic scenario is unfavorable, high unemployment and we'll have our last year of big volume of CS students phasing out. Even under these challenges, our guidance prospects are positive. Today, we published 3 guidances. Somos and the original structure of Somos, excluding Tithagoras and including SEK, the service structure for technical program at Somos. The second guidance will be croton ex Somos.
That is croton without considering the acquisition of Somos. So not considering the expenses or the earnings from Somos. And the third one, the consolidated company guidance. Now Somos will present its guidance in 2019. So the financial market can follow the capture of synergies from Somos.
Croton ex Somos guidance will be shown this year again to show that independent from Cronos, Croton or regional operation ex Somos continues very sound. And also well the consolidated company guidance, which talks about the performance of the consolidated company considering all effects. After the brief introduction, we move to Slide 4, the guidance we're publishing today. First, two views. First, on the left, Somos guidance that was already published in March is now confirmed.
On the right, Croton ex Somos guidance, not considering the Somos acquisition. And in line with the trends we anticipated early this year. So both on the guidance and on the release, all numbers include the application of IFRS 16 in both years '18 'nineteen so that the numbers are comparable. Now back to the Somos guidance on the left. Somos adjusted EBITDA moves from EUR 545,000,000 to EUR 6 70,000,000 growing 23%.
The greatest impact is cash generation. We move to a positive cash generation after CapEx of BRL 150,000,000 in 2019. On the right, the guidance of Croton ex Somos. Our net income dropped 2.4% because we have less intake of PEP in the first half of twenty nineteen. PEP accounted for only 11% of new students.
And because this is a higher ticket, the revenue is lower. However, the revenue that we have now creates more cash generation. So we have a lower net revenue by 2.4%. As we prioritize cash generation in 2019, we reduced nonrecurring expenses this year at Groton ex Somos. So it makes more sense to look at the EBITDA line, which includes nonrecurring expenses.
This will, in fact, be one of the indicators that will determine the variable compensation of executives, replacing adjusted EBITDA. So we'll focus EBITDA in Croton ex Somos Companies. Work has been includes nonrecurring expenses that were reduced in 2019. Now Croton ex Somos EBITDA expected for 2019 is EUR 2,500,000,000 margin of 45.2%, which is an increase of 1.2% 160 basis points compared to 2018 because we reduced nonrecurring expenses and we also had a good intake process in the first half of twenty nineteen. Now projections for cash generation and conversion post CapEx compared to 2018 and excluding PN 23.
Now the increase in cash generation is 12% with a conversion of 20 6.5%. That is 260 basis points above 2018, making Croton already in a positive trend. So Croton ex almost EUR 670,000,000 cash generation post CapEx, a growth of 12% with positive cash generation already in 2019. Slide 5, you have the consolidated Croton guidance. That's the official projection of the consolidated company, including all effects, including the acquisition post CapEx, growth 64%.
In the pro form a or corporate analysis, the consolidated net revenue will be flat for two reasons. At Croton ex Somos, the revenue was impacted by CS students phase out. And at Somos, the revenue was already defined when we took over the operation. In October 2018, the revenue was already planned for. So it's flat, a drop of 0.9 percent in the pro form a analysis.
Adjusted EBITDA in the pro form a analysis will also remain flat, But EBITDA will grow 21.1 percent compared to 2018, reaching BRL 3,000,000,000 in 2019. And we still have synergies to capture from Somo's operation and also opportunities to grow margin in our new higher education units. Guidance for the adjusted net profit is BRL 1 point 3,000,000,000 margin of 18.3 percent, an increase of 14% and 2 40 basis points compared to 2018. Part of EBITDA gains will be consumed by higher financial expenses, higher debt because of the acquisition of SOMOS and also a higher depreciation from recent investments made by the company. It's the first time we provide a guidance for operating cash generation post CapEx ex pension, which will be BRL 800,000,000 a growth in society analysis of 64% and in pro form a, 40% growth.
And the EBITDA to cash conversion, 26.3%, a relevant growth that is from 40% in the pro form a analysis or 67% in the society, pointing to important growth in 2019 and a positive trend in following years. The final message on guidance is that 2017 2018 were years of investment. We acquired our new owned schools, new centers and T12 demanded that. And they still demand relevant investments, but the prospects are very favorable for this year and especially the following year. Now Slide 7.
I will talk about the main operating results that is the basis for our projections. Slide 7 shows indicators of higher education. On the left, you see a very favorable student intake in the first half of twenty nineteen, growing 1.4% in intake ex pro only. Even with the challenges we mentioned, a very competitive scenario, high unemployment and a relevant reduction in CIES students. The final numbers have been published at the end of April, but we had a drop in our student base of 4%.
But at the same time, we had a very good intake of on campus students growing 4%. And the drop in our base was not because of more dropout. Our dropout on campus fell 20% between 2017 2019. The drop was because of the phase out of FIES students, which was already predictable because in 2013 and in 2014, we had a big intake of FIES students. Since these were the biggest numbers, we believe that the pressure on this FIES student phase out will be reduced.
Now because the intake early this year was successful and it is relevant, this is a very important result to sustain a robust performance in 2019. Distance Learning, we have a strategy to protect our ticket. And margin, you will see the results. So we kept the intake stable. Now dropout rate in distance learning, we had a drop in on campus students even considering a change in the profile because of students phase out.
Now in Distance Learning, we had an increase as we have a bigger share of 100% web distance learning, but we're still below the numbers of 2017. On the right, for your information, you see the FIES student phase out from a peak of 260,000 students in 2014 or 61% of our student base. And at the end of this year, the reduction will be more than 75 percent in the number of FIES students. They will account for only 14% of our student base on campus or less than 6 percent in the overall student base. The projection for 2020 2022 is that CIES will be only residual in our student base.
In summary, our higher education operating indicators are under control and have a positive trend, especially as of next year where the Fies phase out will have less pressure. Now Slide 8. We'd like to show some of our main operating indicators in K-twelve, which has become more relevant in our organization. In the release published today, we have a table with a number of operating indicators. We'll now talk about some of the most relevant.
For comparison, we've included Somos number also in the Q1 of 2018 in a pro form a report to show the real growth in each operation. On the left, you see the information on private schools and students that use our core content solution. We are agnostic regarding the pedagogical choice of schools. They can use learning systems or textbooks. It is a choice of the school method.
We are ready to meet the needs with learning systems or textbooks. We keep long term contracts with schools whether they choose to use learning systems or textbooks. On the left, you see the number of schools and students in these schools with which we have contracts. In 2019, more than 3,500 schools, actually 3,538 schools are using our K-twelve integrated service platform, a total number of 1,300,000 students. That is a growth of 11% or 15.3% compared to 2018.
That is a growth of 11% in the number of schools and a growth of 15.3% in the number of students in our K-twelve service platform. We believe the segment has a huge potential to grow both in our penetration in Brazil's 3,500 schools with which we already have a contract, in addition to dozens of thousands of schools with which we still do not have a commercial contract. We are very enthusiastic about the launch of our new go to market strategy, our new proposal of building commercial relations with schools. We talked about that in our last call, and we are very optimistic with the intake of students for 2020. We no longer have a product approach.
We now build commercial relationships in our service platform. The SOMOS commercial teams that worked isolatively have been integrated. Incentives have been aligned. Our commercial force is oriented to understand the school needs and provide the school needs. This was a complete mindset change in our commercial team, and we believe it will add a lot of value in our relationship with portfolio, which is integrated, flexible, includes recognized brands and learning systems, text, book, countership solutions, everything backed by a broad support to SCOR's pedagogical consulting, teachers training and technology platform.
On the right side of the slide, more operating indicators in K 12 for the other business unit, which is the management of schools, our own schools and contracts. We closed the 1st Q 2019 with 37,000 students enrolled in our 54 schools, a relevant increase of more than 50% compared to the first Q 2018. And considering also the acquisition by Somos and by Proton, meeting different audiences in several regions, 50% growth in the number of schools and 50.1% growth in the number of students. That includes organics plus inorganic growth. These are the operating indicators.
We have another list of operating indicators in our release published today. With that, we close the first part of the presentation. I'll give the floor to Carlos Laza, our IR Director, to talk about financial highlights in the Q1 2019. Thank you very much, Rodrigo. I would like to start to by calling your attention to some of the changes in our system for releasing information.
So you're all invited to turn to Slide 1. Starting this quarter, our financial performance will be released in 2 segments: higher education and K-twelve. Higher education will be divided into 3 business units: our own units, 3rd party units and continuing education. And continuing education will be divided into business units: K-twelve platform and school management. In higher education, the division between our own units and third party units have a clear reason because our own units are those managed by CorSo fully.
And in those, we are responsible for all lines relating to costs and expenses. And the 3rd party units are managed by partners. And the partner is responsible for the P and L lines. So the management dynamics and the results structure is very different between the 2 with different margins as well. That's why it makes sense to consolidate results in different business units.
As for the continuing education business unit, there we concentrate all postgraduate activities, both on campus and distance learning, for the courses and also sets this came to us originally from SOMOS. As for the K-twelve education, it's now structured in 2 major business units with the K-twelve service platform and also with contracts and the national Textbook Program that we are going to call the K-twelve platform for sure. And that encompasses all products and services offered through partner schools, such as physical and digital content, pedagogical support, assessments, teacher training and the like. In those business units, we also consider the services that are rendered through the National Textbook Program and also agreements we have with education authorities. The private K-twelve platform and the national textbook program are reported in a unified way because they use the same areas of sports marketing.
And as soon as the expenses can be aggregated, we will treat those units in an independent way in relation to the K-twelve education. So in school management, we have the performance of our own K-twelve schools and also some agreements we have for managing third party schools. We are hired by large companies to manage their school units. And also the counter shift activities and operations of Red Balloon, including several units. Red Balloon is consolidated in school management because most of the students work and study in autonomous units that are not linked to K-twelve schools.
And we reported for comparison purposes, all numbers we'll present from now on include both in Q1Q 2018 2019, the application of IFRS 16, which came into force this year. So let's turn now to Slide 13, starting with the analysis of the consolidated Higher Education segment. Looking to the left of the slide, Net revenue totaled BRL 1,300,000,000, down 1.8% in the annual comparison due to the decrease in the student basins, which, as commented, ended up offsetting the solid intakes of 1Q 2019. Going to the middle of the slide, we see a decrease in gross income related to the consolidation of FETs numbers. However, when we exclude FETs, gross margin would have been stable, reflecting scale gains and the benefit of several efficiency levers, such as strategic sourcing in spite of the pressure coming from new units.
Finally, higher education operating results show a reduction in margin related especially to the impact of SAS consolidation and the launch of the new units and events that are seasonal and impact, for example, our provision for launches and also marketing expenses, which will probably normalize as the year progresses. Now turning to Slide 15. Let's take a look at K12. Also for comparison purposes, we are conducting our analysis with 1Q 'eighteen pro form a considering the SOMOS numbers in 1Q 'eighteen after converging our accounts in practices with those of Croton and the first half of last year. The variation of net revenues reflects two effects in the P and LV, mostly purchases that should have been made in 2017, but that were made in the Q1 of last year and also some postponement of purchases that were put off through the 2nd semester of the year.
And even in the pro form a analysis, we see that the other lines are growing. In addition to this, our gross earnings grew 1% and 300 basis points in the margin with the start of capturing synergies from some of them, increasing efficiency in management of SCO. Finally, we had our operational results post marketing of K-twelve, growing 1.5% and 200 basis points in spite of the increase in marketing expenses related to the new go to market within the K-twelve platform, which will increase our revenues even more expressively as of next year. In Slide 17, we see the consolidated results adding up higher education and K-twelve that we have just seen in the pro form a vision considering SOMOS in 1Q 2018 for comparison. In the consolidated net revenues, we had a reduction of 4.3%, a reflection of the smaller number of higher education students.
And also the P and D effect that is now being neutralized along the year, and that will lead to a reduction in the guidance of only 0.9%. Our EBITDA margin had a retraction of 2 70 basis points, especially because of the one off impact in the increase of costs related to the launch of new units. In addition to the different seasonality in the National Textbook Program and the marketing expenses. For this line, I would like to reinforce once again that the EBITDA guidance for the company in the consolidated company is BRL 3,000,000,000, growing 21%. The EBITDA guidance for Prosus ex Somos is also positive, growing 1.2%.
Finally, we had adjusted net income down 38.6%, especially because of the higher level of financial Comas and also the depreciation line that results from the investments that were conducted in the last few years. With this, I conclude this session, and I'll hand it over to Jamil Manti. Thank you very much. In Slide 1920, I'll try to give you some more guidance on our provision for losses in the segment, broken down by type of student and also average term. We start in Slide 19, on the left, where we see the PDAs for higher education consolidating losses in both on campus and distance learning in the comparison with 4Q 2018, we see an increase that was driven by a few factors.
First of all, a higher recognition of revenue from the late enrollment installment plan students that was more noticeable in 1Q 2019, almost double in relation to 1Q 2018. 18. But this is a one off event, and we'll see probably an expensive drop in 2Q 20 19, leading to an increase in the semester of 15% approximately. There was also change in the profile of our student base with a high number of graduations of FIES students that have a lower level of provisioning. Those effects were partially offset by the lower offering of tax in the latest intake cycle and also by the highest contribution of on campus out of pocket students that have also a lower level of provisioning.
If we're considering only the out of pocket PDA, which reached 9% this quarter, down 1.6 percentage points visavis 4Q 2018. I would like to say that even though there was a drop that resulted from the mix effect I have mentioned, In relation to 4Q 2018, we observed an increase of 0.2 percentage points in out of pocket on campus PDA. And in Distance Learning, we see that it remains flat. Provisioning remains flat. In On Campus, the increase was due to the fact that even though there was a reduction in the effective losses and recovery of the tuition that is made, the increase in the out of pocket base also led to a higher number of delinquent students and also to a higher level of agreement.
In distance learning, we enjoy a more favorable solution because the efficiency in collections the increase in collection have offset the adverse macroeconomic scenario, and we were able to reduce our provisioning. Going to the right side, K-twelve PDA was 0.6% in the quarter, down 20 basis points visavis the comparable quarter in the previous year. This is the result of the incorporation of some of them, the highest contribution of B2B business in this segment. In addition to the mix effect, we also observed a decrease in the PDAs coming from school management. This is the consequence of the more premium profile of the acquired units.
In the comparison with the previous quarter, we see the seasonality effect. Moving to Slide 20. The average term for receivables in higher education was 169 days in 1Q 2019, up 21 days in the annual comparison. This increase can be explained by the PEP and late enrollment plant maturities that climbed 101 days in relation to 1Q 2018. Additionally, we saw an increase in the average term for out of pocket, which was driven by more agreements in on campus.
It's important to mention, however, that we are now slowing down the pace of agreements, in fact, because when we look at the comparison with the Q4, it's now much more acceptable. The average PS term was 107 days, an improvement of 38 days visavis the previous year and with a decrease of 43 days worsening of 43 days in comparison to the previous quarter. This situation is a one off situation because since 2017, the government has been anticipating payments from November to December instead of January, and this reduces the contribution of peers in the Q4. Going now to K12, the average term of receivables was 93 days, 48 days less than the annual comparison. This, of course, shows an improvement in the collection of our scope.
With this, I close the session on terms of receivables. And on Slide 22, I would like to turn to CapEx, expansion investments and cash generation. The first thing to highlight is that we eliminated the concept of special project CapEx. And we are now presenting, in a segregated way, only the investments that focus on the organic expansion of the company. And on the left, you see the CapEx that includes all investments relating to the current businesses, including those special projects, but excluding any investments to fund the organic expansion of the company.
So starting with the left side of the slide, our CapEx was BRL 107,000,000 in 1Q 2019, on a par with 1Q 2018. Even with the calculation of solvency, this led to a decrease of 1.6 percentage points in the evaluation with the net revenues. Most of this CapEx was EMR to the development of content and systems, expansion and improvements to our units in line with our quality of promoting a more premium group of programs with a focus in health care and engineering. Our investments and expansion totaled BRL 41,100,000 in this quarter, reflecting our expansion strategy. Going now to the right side of the slide with post CapEx operating cash generation, we consumed BRL 230,000,000 in operation in 1Q '19, above the level of the previous quarter, also because of the nature of the K12 business, which concentrates several needs for cash in the Q1 of EUR 1,000,000,000.
Looking at Crofton ex Somos, well, the cash consumption was practically stable with the performance of out of pocket students, offsetting any delays in the FIES amendment schedule. And also, I would like to state that the guidance for the year is growth of 64% in post CapEx cash generation with a positive generation of BRL 800,000,000. In Slide 23, I would like to explain some of the movements related to those BRL 230,000,000 post CapEx operating cash consumption. First of all, we had BRL 107,000,000 invested in growth initiatives, of which BRL 45,000,000 in organic expansion. We opened 12,000,000 units in the first half of the year.
And BRL 61,000,000 were invested in the acquisition of subsidiaries. Of course, we have to pay for those acquisitions. Secondly, we disbursed BRL 2.70 67,000,000 for the repayment of interest of our debt in the quarter. Adding up these factors together with the other effects, our free cash flow in 1Q 2019 led to a consumption of BRL589,000,000. If we move now to Slide 24, I would like to shed some light on our net debt, starting with our cash position in 1Q 2019.
At the end of the Q1 2019, our position was a reduction of 22% in comparison to 4Q 2018, reflecting the effects I have just mentioned, those BRL589,000,000. Adding up the debt and short- and long term liabilities, our net debt was BRL 5 point 5,000,000,000 in 1Q 2019. And if we add receivables in the short and long term, which includes the second half of the payment for Unicell, the adjusted to net present value and also the payment of Par and Faxama, we closed 1Q 2019 with a net debt of BRL 5,400,000,000, represents growth of 8 point 4% in comparison with 4Q 2018, mostly because of the reduction in cash equivalents that were offset by the reduction of obligations and payments of M and As and interest expenses. I would like to close here by saying that our financial position is very solid and in line with expectations considering the debt profile we acquired after Como. And with this, I turn it over to Rodrigo for his last remarks.
Slide 26, final considerations. An update on our organic expansion projects. Since 2017, we launched 64 new units, greenfield units, including acquisitions to accelerate opening new units. Another 7 will be launched in 2020, totaling 71 new units or a growth of 63% compared to our initial position of 112 units in 2017, bigger concentration in the north and northeast, a mix that has more premium programs, especially in health care, that have a greater demand. But it's not enough to open new units.
We have to do previous work to select the right cities, identify the best location in each city to ensure a successful implementation of the new units. Our numbers show we are successful. The greenfields project is truly successful. We have 2 indicators. So to show you that the consolidated result until 2018, we had a net consolidated revenue of greenfield projects, 15% above our business plan.
So if we add up all the business plans up until 2018, we delivered 15% more above the business plan. So it is a truly robust greenfield program. Intake for 2019 shows this robustness is sustainable and consistent. The intake was 11% above our goal. So we're doing well and we're happy with the results of our greenfield project.
Now Slide 27 to update our digital transformation project. We've spoken a lot about it, and we will still continue to talk about it because this is key for the company, and it doesn't end because it is a mindset change. We decided to engage in a journey that will change the company's face. It has a date of beginning but not an end. Let me give you an update.
The digital transformation is based on 3 pillars. The final goal is to generate a cultural transformation. The first pillar is agility in scale, so we can implement agile models of system development. For that, 100% of our team is now using agile methods. We have more than 600 people in 55 agile teams.
They have ensured the delivery of more than 500,000 hours of development in the last 12 months. Using agile management team, it's a relevant, a daring change, placing Crollton as one of the few Brazilian companies that has 100% of its development team working on agile teams. The second pillar of the digital transformation is the development of digital capabilities we considered key for us to be recognized as a digital company. We're now investing time, resources, attracting and retaining talents to develop these capabilities in the organization. What are they?
System architecture, analytics, customer experience and user experience design. The numbers are very significant when we include all the information that we use and that we analyze to improve operations on different fronts. The 3rd pillar is open innovation, which materializes through a partnership with Cubo Itau. It's a direct contact with this innovation ecosystem that brings fresh air to the whole company. We have an active pipeline with 250 start ups that is with spoken to these 250 start ups, 30 start ups.
We have already started curatorship work or connection, 8 already have a pilot design, 2 are in a practical experience and 5, we have concluded investment or we are closing investment, which can be to buy part of the equity or hire services from these startups because it's already generating concrete value to our operations as we participate in this innovation ecosystem. All of these initiatives are already producing an impact in our culture, which is the ultimate goal of the digital transformation. To reinforce this culture in the company, we've conducted more than 27,000 hours of training in digital transformation with more than 35,000 certifications in 2018 2019. It's clear evidence we are going through a digital transformation. The company is truly revolutionizing the quality and speed of delivery, guided by our strategic planning that focuses on student success.
And I want to talk more about that in our final Slide 28, which is student success. The digital transformation has contributed for a great improvement in our Net Promoter Score Indicators, the NPS, which evaluates the level of satisfaction, the perception of our students about the academic experience, the services we deliver to them in the different business units. Now we measure NPS monthly in different contact points, academic, administration services. And in the last 12 months, as we make this comparison year on year, we were able to improve the performance in all possible analysis. In our own units, the growth was 38 percentage points, extraordinary.
In 3rd party units, we've improved 4 percentage points. The number was high already. And in graduate programs, the increase was 48 percentage points. We are improving significantly the perception of students on the quality of the services we delivered. In 2018, as we prepared our strategic plan, we placed our student success in the center of the process, building a whole culture of customer centricity, which is key for a digital culture.
15 months later, the significant improvement of NPS is a clear evidence we are on the right track. In conclusion, if I could summarize our key messages in this earnings call. Today, this guidance is highly consistent. We see a positive trend in cash generation, a good outlook for the next few years, robust operating indicators in K-twelve and in higher education important evolution in our strategic projects such as the new Somos go to market, the organic expansion, the digital transformation, no doubt, all of this allows for us to view an even more promising future for Croton Performance. Thank you all for participating.
I do invite you to a Q and A session now. Thank you. Thank you. We'll now open the Q and A session. First question from Mr.
Marcelo Santos from JPMorgan. Marcelo, you can begin. I have two questions. 1, I'd like to hear more about seasonal effects you mentioned, which may have impacted our analysis of higher ticket. But in this quarter, we will see the effect of inflation.
So that's why I wanted you to talk more about seasonal effect. And also the provision or the late enrollment installment plan, which was much higher than before. And again, in distance learning, the result was not very consistent with the student base ticket Because you see, the revenue, if you combine your own units plus partners, it went up 11%. So I'd like to understand the impact on this line. These are my two questions.
Okay, Marcelo. This is Jamil Beginning from seasonal effect on higher education, first, average ticket. Average ticket, the seasonal effect, we had the change, an important change in our processes, especially in the end of 2018, which led to some important effects to be postponed. 1st, the renegotiation of debt with inactive students. So it reduced the principal and so it reduced the revenue.
And because of process changes, it had more impact in the second half of twenty eighteen than in the first half of twenty eighteen. And because of these same changes, the adjustment in the workload that students decide if they want to study more or fewer disciplines and they usually make a choice for fewer disciplines. In 2018, we had more concentration of this process in the second half of the year. So in the first quarter in the first half of twenty eighteen, we did not feel this effect. But in the second half of the year, yes, we did feel this impact.
Now in 2019, these processes will be normalized. So the negative effects will be more uniformly distributed in the first and second half of the year. So as you compare year on year, the first quarter has this effect on campus had a drop of 2%. Just to give you more color on this, these two effect they represent 2 percentage points as we compare the 1st Q 2019 to the 1st Q 2018. And that's why we believe that the average ticket in the first half will be in line with inflation.
The second question, PMT, revenue. What happened was that we had an acceleration. The PMT revenue. What happened was that we had an acceleration in the intake and in the recognition of these students in 2019. And in 2018, these factors had a later effect.
So we had more revenue from these students in the second half of the year in 2018. Now about this 100% growth of PMT, we will see a drop in the second half of this year. So we expect that in this half, it will grow more in line with what happened last year in 2018. Now regarding Distance Learning revenue, I'll give the floor to Roberto. He will talk about this.
Thank you, Jamil. I think a comment we can make about Distance Learning revenue. You spoke about a drop in our student base and an increase in the revenue. And why do we not see this on the ticket? The explanation is simple.
Perhaps you will remember that in the case of Anyangueira, the model we use with partners is variable depending on the performance. So in one case, we pass on 36% in Ayangueyara 53% and the other 3% will be in a pool to be distributed amongst the network of partners based on results. Now the partner network of Rangamuera specifically had a performance below what we provisioned. And so this is a reversal of these provisions. So it impacts the revenue, but not the average ticket.
Our next question comes from Luiz Mauricio Garcia from Bradesco. First question, if you could speak a bit more about your own school, Your the information you disclosed on Page 21 was very interesting, but I'd like to understand the main reason for this drop. I mean, we have some clear numbers when we look at the number of out of pocket students. But what do you see as the biggest impact on these numbers? I mean, if it is because you have a more competitive environment on campus impacting your unit or if it is distance learning?
And how do you view this number for the future? This would be my first question. And the second question, what can we expect? I mean, you also spoke about PPA, I'd like to know what we can expect. I mean, you have already spoken about this, but what can we expect for the future, I mean, compared to this 1st [SPEAKER CANDIDO BOTELHO BRACHER:] Luis, thank you very much for your question.
Jeanil here. In relation to our young units, in fact, we are expecting a decrease for the year, but not as sharp as we saw in the Q1 for 2 effects. First of all, the CDA, well, P and T in the data I mentioned is what's announced in the Q1. And also, out of pocket revenue is not as pronounced as it will be in the Q2 because of those net effects in the Q2. We'll see a much more favorable scenario.
So when we look to margins, the it's really a one off situation in the Q1, this consumption of margin. And we also have marketing expenses to think about. They will grow along the year. But because of our strategy for allocation of resources, they are more concentrated in the first half of the year too. As for PBA, what do we expect?
With the mix that we have seen that's not very different from last year, the effect in the payment form, the effect will be practically neutral. So the offending factor is the decrease in CIES students. When we talk about out of pocket is 10% to 12% in average. When you look exclusively through out of pocket in on campus, well, we saw an increase of PBA because in spite of the trend for decrease, there was also a trend for making agreements. So currently, we are expecting neutrality here.
And in distance learning, the working capital is looking much healthier because the average terms have reduced. So for distance learning, we're feeling a lot more positive, but for the Q1, our provisioning for distance learning remains flat. Okay. So the number of agreements that's tied for now, So this should be the level, the seasonal level we should expect, yes, for on campus, yes. Our next question is from Mr.
Javier Martinez, Morgan Stanley. I have two questions. First of all, about pet students. You mentioned in the release that the dropout was really in line with out of pocket. And specifically, considering the past students who have already graduated, well, the first phase happened in 2015 and now with graduations, what could you learn from the behavior of those PEH students who have already graduated and better?
How are they behaving? And secondly, about content, especially learning systems, which I believe that you're marketing as of now with under the SOMOS brand and that will generate revenue for 2020. So first of all, about the product, were you able to make adjustments to the product? Or any changes in the product that you're marketing now? Or didn't you have enough time for that?
And secondly, did you make any changes to your sales team for those products, for example, adopting incentives or cross selling strategies? So can we feel your influence on this product basically? Javier? Good morning. I am Jean Luc.
I'll answer about TEP and then Diogo will answer about case of diversion to check. It's still too early to tell. We don't have much information available. But in fact, yes, there was a group of 1500 students graduating in the Q1, and it's been positive. One of the points we observe is, in terms of behavior, is on time payment among these students after they graduate.
And in comparison before graduation, what we see is that, of course, there's an increasing delinquency, but at an estimated level, 20% in relation to what they used to pay after graduation. And if you consider that staff students' delinquency rates are slightly better than out of pocket full out of pocket students. When you look at the modeling, we believe that they are on a positive bias. Besides that, dropout rate, if you consider the number of students graduation, it might be not so good. But when you consider credit and the provision for them, we see more graduated students, and this is beneficial.
So still very early to tell. But in terms of behavior, we believe it's a positive behavior that they exhibit. And Gil, I'll be answering your questions about K-twelve thirteen with the end of your question with the go to market and the commercial team. This has been our focus early this year, the reorganization of the go to market strategy, and we counted on 2 main pillars. Firstly, ensuring that this department has the adequate leaders and also strengthening our sales team.
So our sales reps and the pedagogical consultants that work with us on the contract was increased by 25% if we compare it to the team last year, considering the combined company. So it's a more robust team under very determined leadership, another important point in the go to market strategy. We are agnostic. We provide traditional learning or the learning systems through textbooks or through learning systems. So our consultants sell both learning systems and textbooks in an integrated approach.
And this, of course, increased our potential for closing deals. When you go and visit a school and then you leave it up to the school to choose what they want to use, of course, you have a much better chance of making a deal. And as for the first half of your question, the product itself, the cycle on this cycle we are talking about, we have the products that were already in our portfolio. We're starting now a new cycle investment for the products we'll have in next year's portfolio. But we have unleashed value through several technology initiatives in these products using the holistic approach.
Just to give an example in our learning systems in 2018, we had 6,000,000 homeworks that were completed along the year. And up to now, considering last week, we had on this year 30,000,000 homeworks. So the digitalization of the learning experience is progressing by leaps and bounds, and this brings systemic benefits. We capture data. We know the shortcomings of our students, and this is helpful for the professors and teachers alike.
We let them know of any deficiencies. So we are a company now offering digital products, and the school may choose several analog products as well. And this, of course, is how we present ourselves to school. Allow me to highlight that we have a few clients who prefer to go digital 100%, all print materials. They leave aside, they don't even want to receive them.
So I think that we're making a lot of progress. And soon, we'll be able to report more on our go to market strategy progress. Thank you very much. If I can go back to your first question, there are so many students who have graduated already. But have you noticed a difference between 30, 50, 70 PEP students?
For example, above the expectations or not. So when exactly we'll be able to reverse this overpositioning you did for them. We haven't seen many differences between 35 percent, 35.10 percent, 30.50 percent. And in relation to the accounting, we use the 50% criteria. In our vision, this is the adequate provisioning.
And now we're going to also work on dropout rates and graduations to fine tune our accounting measures. Thank you very much. Our next question comes from Leandro Bastos from Citibank. Leandro, you may continue. Hello, good afternoon.
Now I have two questions. First, talking about in Cre reduction in Pro Uni, offset by the sound intake. How can we understand this line? This is my first question. 2nd, just a follow-up on guidance, looking at cash generation.
This guidance is post CapEx. But what do you expect for expansion this year in the greenfield project? Also on K-twelve, I know that you cannot give us a number, but maybe just in order of magnitude. Leandro, this is Rodrigo. Thank you for your questions.
I'll answer the second question, and Jean, you will answer your first one on Provenix. About the guidance, yes, the BRL 800,000,000 guidance of cash generation include all the company investments, recurring investments, which now also include special projects, but this does not include expansion and greenfield organic expansion and greenfield projects, which totaled BRL240,000,000 a year. So this is the order of magnitude of our expansion investments, which is not included in the cash generation guidance. About the reduction you mentioned in Prouni. Prouni produces a seasonal effect depending on when we had the intake and other effects.
So this effect of increase is just a seasonal effect. So in general, it is important to see that we always have a margin of additional places to ensure that we'll be able to meet the needs among the cycle. Okay. Thank you. Thank you, Rodrigo.
Thank you for the answer. Our next question comes from Mr. Guilherme Paliaris from BTG Pactual. You may continue. Good morning, everyone.
This is Now looking at out of pocket students, you already have the first data. What was the adjustment applied on students? And how much came from the new intakes? I'd like to understand the ex mix effect looking at same cost. So can you talk about that?
I mean, have you really been able to pass on your pricing to increase the pricing? And how much was the price adjustment for existing students? And then a question to Guido. I'd like to understand a bit more about the market for learning systems for private schools. This is a conversation we have with investors that this market already has a high rate of penetration.
So I'd like to understand from you, when you look at the strategy, I mean, not only you sell the concept of a one stop shop to partner schools, but what about growth for learning systems? Are you going to get more market share from the competition? Or are you going to work with the public system? I mean, where do you expect growth to come in this segment? These two questions.
Thank you. This is Jeanil. About the average ticket, first, the seasonal effects I mentioned are more visible on out of pocket students. Now the other information you requested, we cannot really open this data, but both have grown. That's all I can tell you.
Now to Gil. Thank you, Assin, for the question. One of the things that has transformed in the company, Gatine, is that now we no longer have this breakdown of what is Learning Systems market and what is Textbook market. Today, 3,800,000 students use learning systems and 2,008, no, 3,400,000 used learning systems and 2,800,000 used textbook. Although we are present on both sides of the market, schools prefer a more flexible solution.
Schools prefer to have an option where in some segments they can use textbooks plus the services of the learning system. And in other segments, they use only the learning systems plus its services. This is a very powerful value proposition, exclusive on our market. It is our number one level of growth. Of course, for schools that love the concept of learning systems, we have different methodologies to offer, highly well known brands to offer.
So yes, we want to grow market share, but we believe the perfect solution for schools is not one or the other. But it is for the school to be able to choose from all of these options. And what we have seen in our go to market initiative is that this is what schools expect. Brazil has offered this system of learning system for a long time. Textbook also have existed for a long time.
But now schools have a choice to have their own mix. And I will reinforce what we said in answering Javier's question, digital inclusion. Knowing that teachers are using, the platform students are using, parents are informed, this is really important for schools. Excellent. Thank you, Jamille.
Thank you, Guillaume. Our next question comes from Maria Theresa from UB. You may continue. Thank you for taking my question. I have two questions.
1, about distance learning. You said the higher dropout rate is related to the mix where you have more 100% online. What do you expect for the future in this mix? Are you going to have more hybrid programs, which would perhaps reduce the dropout rate in distance learning? Or shall we expect this indicator to remain high?
2nd question is a follow-up on what Guilla already mentioned. I'd like to understand what is a revenue growth driver. The number for 2019 is there already for Somos. But I'd like to know if you have any space to have a higher number. What lines of business do you view as more positive in the negotiation?
And if this cash generation number is basically coming only from synergies, what if there are other drivers? Now this is Rodrigo. Thanks for the questions. I'll answer the first one and Gil will answer the second one. In distance learning, today, we have in our distance learning project 3 different services or byproducts, 100% web, which accounts for 20% of the base once a week, which accounts for 65% of the student base and premium, which accounts for 15% of the student base.
These are ballpark numbers. Now the dropout of 100% web is significantly higher than the dropout rate of the other segments. Dropout of once a week is the lowest, actually lower than premium. The best dropout rate is the once a week program. Now the 100 percent web is growing because of the market despite the fact that our priority project is once a week and our go to market is trying to privilege to favor the once a week because we know that the present value of students is higher because the average revenue is higher because you have a lower dropout.
But because of the market, because all the market offers as a priority 100% web, Some students choose 100% web. And the idea is that these two segments will grow. Now premium web is also growing in our student base. 3 years ago, it was 0. Today, it accounts for 15% of the student base.
We believe these two levers may move, may change, but how fast they move will take share from once a week. That's why it's difficult to predict the future dropout. But in all segments, we can individually, in each segment, become more efficient to lower the dropout rate using more efficient predictive models, more efficient technologies. So the mix, we wanted to be more important than the specific dropout in each group. Now if the dropout rate grows a lot in 100% lab, then it will be more difficult.
But if premium can grow faster than 100% WAB, then we'll be able to control the dropout rate. There are many variables, but I've given you some context information so you can take your own conclusions, okay? Perfect. Thank you, Rodrigo. Now Maria Theresa, let me use this call to make a comment on our guidance this year.
We included in this year's revenue, I mean, in the information we provide to you, a conservative view considering that the government would really delay the national textbook program. So that was already included in the guidance. At that time, we anticipated this might happen. And for this reason, we included that in our guidance. So the program for 2019, we expect it to be 70% lower than it would be if it were just a normal purchase.
And this has already been included in our guidance. So one of the revenue upsides we may this year and we will certainly have next year is the National Textbook Program that is that the books will be purchased as planned and not only a lower percent, which is this year 30% only to replenish the text books. So this would be a revenue upside. Now the other lever of growth in our K-twelve platform is what we call PAR, PAR, which is partnership with schools in a learning system based on books. So first, the school selects the books, then we systematize, we include that in the system with all the services of learning systems, and we've had a CAGR, a compound annual growth rate of 70%.
And this year, we're better structured, so we intend to keep a robust growth. In Learning Systems, and I'm going back to Gatine's question, these schools are really happy because they have realized they can choose a hybrid option, including textbook and learning systems. And when I talk about our learning systems, BH is a very good brand. The product is really nice, but the marketing was basically in Rio de Janeiro. So it has a huge potential for growth in Brazil.
Also, Pitagoras was very much regional in Minas Gerais. But now with our national sales force, this brand can also grow throughout Brazil. And our brand focused on schools that have a lower price, which at Mac also includes a new package of services. So it will also be a growth lever. So I spoke about 3.
Only on the K-twelve platform, we have 3 positive effects. So the National Textbook Program, we have a possibility of revenue upside, PAR or partnerships will continue to grow and learning systems can still expand because they used to be only regional brands. Perfect. Thank you, Guido. Thank you, Rodrigo.
Our next question is from Victor from Itau BBA. You may proceed. Good morning, everyone. I have two questions. First of all, could you give us an update on the progress of the cost synergy initiatives at Somos?
And what gains have you obtained so far? And a second question that we have, could you please elaborate more on the initiatives that lead to the reduction on nonrecurring costs for the guidance? Good morning, Victor. In relation to the synergies, From the very beginning of the integration, we have been trying to capture some of synergies as fast as possible in cost and expenses. And as we announced in the guidance, we increased the number of synergies to be captured to BRL 265,000,000 and BRL 115,000,000 of the BRL 265,000,000 have already been incorporated either in the Q4 of last year or along this year.
This is the information on the guidance. We also have other cost synergies in logistics and other projects that are taking place throughout the year. And at the end of the year and early next year, they will lead to more synergy. So answering your question, we have already captured EUR 115,000,000 of those synergies that were announced. And also, there's an increase in relation to what we had announced.
In relation to nonrecurring, well, this reduction has 2 things. We have incorporated part of this as recurring even in the restructure of units and other projects related to rent or signs and other possibilities of restructuring. And as for expansion and M and A, there was a slight decrease in relation to the previous year. Those are the 2 effects that lead to a drop in nonrecurring along the year. Just to complement this, I think, first of all, there was an effective reduction of expenses.
We're trying to become more efficient. And now we're also cleaning the nonrecurring. Whatever had something that was not sure about it, whether this was nonrecurring or not, we decided to give it a recurring aspect. So that's why we saw a decrease in nonrecurring as well because of those two effects. It's clear.
Thank you very much. Our next question is from Mr. Thiago Portaluci, Goldman Sachs. You may continue. Good morning, everyone.
Thank you for your questions. In fact, we have 3 questions on our side. To start, could you talk a little bit about the operating margin dynamic, both on campus and business learning? It would be very helpful for the analysis. And secondly, I'm trying to understand the impact of IFRS 16 in the guidance and the quarterly results.
And I see that the depreciation lines showed BRL 75,000,000 in this quarter, too. Does it make sense to multiply this by 4 to reach the annual impact? And thinking of the ex IFRS guidance, do you think that margin of 40% is in line with what you're expecting? And also a follow-up on the PEP PPA, of course, it's a big if, but assuming that the delinquency rates will continue in line with what we have seen so far, Does it make sense to expect a reduction in provision and then even a reversal in the PDA inventory in the balance sheet? Those are the questions.
Good morning, Thiago. Thank you very much for your question. Well, about the margin dynamic, it's not very different from what we saw in the 3rd quarter, Considering we have the National Textbook program in terms of marketing is not more concentrated than before. And this with this sort of drop coming, it will come from on campus with distance learning preserving or even increasing margin. And this is similar to what we'll see in 3rd party units.
And to break down the numbers for you, for 2019, the EPS impact was IFRS impact, if we make a robust return from us, we would have BRL 460,000,000 BRL470,000,000 in EBITDA. And more specifically, in relation to depreciation, in addition to depreciation, for example, we have an impact on IFRS 16 of financial installments and also the present value adjustment. So the impact is a little more than you are expecting for depreciation. And net income, it's important to highlight that the impact is higher than that. Net income suffered with BRL 80,000,000 in with the IFRS 16 because the depreciation is higher than our expenses with leasing.
And this number would be BRL 95,000,000. In relation to PEPI, of course, we see a trend for improvement and of course, with an eventual reduction in CDA, but with the maturity and this will be reflected in the balance sheet in the short term. If I may ask a last question. With the acquisition of Positivo by Arc, does it change your positioning or the competitive scenario for you in any way? Well, we are really focusing on K-twelve, and we're feeling very confident that there is a lot of room for us to make progress in it.
Thank you very much. Okay. Now I'll hand it over to Croson for their final remarks. I would like to thank you all for participating in our earnings call, and our Investor Relations department is at your disposal for anything you need. With this, we close the Continental de Castanal conference call.
We thank you all for your participation, and please have a great day.