Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Kroton Educacional's fourth quarter 2018 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 question-and-answer session for analysts and investors. At that time, further instructions will be given. Should any participants need assistance during the call, please press star zero to reach the operator. Also, today's live webcast, both audio and slideshow, may be accessed through Kroton Educacional's investor relations website at www.kroton.com.br/ir by clicking on the banner for 4Q18 webcast. This presentation will also be available to download on the company's website.
The following information is available in Brazilian real in accordance with Brazilian corporate law and generally accepted accounting principles, which now conform with International Financial Reporting Standards, except where otherwise indicated. Before proceeding, let me mention that forward-looking statements are based only on the beliefs and assumptions of Kroton management and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of the company and could cause results to differ materially from those expressed in such forward-looking statements. Now, I'll turn the conference over to Kroton's CEO, Mr. Rodrigo Galindo, who will begin the presentation. Mr. Galindo, you may begin the conference.
Morning, everyone. Thank you for participating in this earnings call of Kroton Educacional on the results of the fourth quarter and the year 2018. Today with me, IR Director, Carlos Lazar; Finance VP, Jamil Marques; and Heads of Business Areas, Higher Education, Roberto Valério, and K12, Mario Ghio. 2018 was an important year. The company dealt with internal and external factors that were really relevant. Reduction in FIES student base, increase in distance learning competition, unfavorable macroeconomic scenario. But we used this adverse scenario to take care of conditions for future growth. We decided to implement four strategic pillars: focus on student success, grow higher education because we still saw lots of opportunities, focus on basic education, go back to Kroton origins very intensely in K12, and four, digital transformation. So student success, higher education growth, focus on basic education, and digital transformation.
The four pillars of the strategic planning are doing really well in the organization. We'll talk about their evolution in today's presentation. 2018 was an important year. We overcame short-term challenges. We delivered the financial results announced in the guidance, and at the same time, we made all the necessary investments to continue to grow. Financial performance shows Kroton once again attained its goals. Slide four compares projections and the results delivered. Slide four, we see a consolidated revenue of BRL 5.6 billion, 1.3% above expectations, which proves our commercial strategy was assertive. Strong brand and a program portfolio aligned to market demands. In addition to the initial positive contribution from greenfields. Adjusted annual EBITDA, BRL 2.3 billion, above the guidance by 1.2%. Margin was 41.5%, following the same trend as net revenue.
High level of efficiency was possible because of levers to obtain cost efficiency, commercial levers, and student retention to neutralize the anticipated pressure of a change in the profile of our students. Also expenditure to launch new units that consume cash and earnings in the ramp-up. This year, we had the greatest reduction of FIES students, still we delivered the results announced in revenue and EBITDA. We overcame the guidance. More in consolidated results than in the ex-greenfields view, which means the performance of greenfields was even better than the rest of the operation. It means we delivered results above the original business plans, which shows the financial soundness of the greenfields project. Consolidated adjusted net income, BRL 1.9 billion on a margin of 35%.
The total investments accounted for 12.7% of the net revenue in 2018, a reduction compared to the guidance of 13.5%, even with the increase of Unicesp and other very relevant projects for the company in 2018, digital transformation and expansion projects, among others. We're happy with the results. They confirm the soundness of our operations and the assertiveness of our strategies that kept high profitability and efficiency, even facing the challenges we mentioned. We're even happier because all of that is followed by higher educational quality and better service offering to students. Therefore, we are certain that 2019 has all conditions to deliver even more positive financial indicators. I'll give the floor to Maria Eugênia, our Vice President of Basic Education, and next, we'll talk about Somos.
Thank you very much, Rodrigo. Good morning to all. Let's please turn to slide 7. Since October last year, we've started the integration of Somos, and we've been making great progress in recent months trying to maximize synergy between the two companies. I would like to show you in broad lines the numbers that give the dimension of this process. One of our first steps was to establish governance at Somos, covering the most important topics of the operation in specific focuses to ensure that we have focused delivery of targets, capture of opportunities to support our growth. What we felt was that to achieve all of this, we had to create five new committees, reaching 19 in total. In those committees, we discussed educational quality, revenue, CapEx, among other subjects.
We have 12 fronts currently in execution, in addition to the four operating fronts that will have finalization by the end of this semester, and with a high cost in the capture of synergies. For example, we have integration and centralization of the strategic areas of our shared services center at Kroton Paulínia, the definition of the financial ERP and systemic migrations, integration of our print shop, and storage and logistic operations at Kroton, and renegotiation of agreements with suppliers with the implementation of the strategic sourcing project at Somos. I can say that now the company is integrated, and all corporate areas have been successfully integrated from the systemic point of view. Some systems have completed the integration, and others will not be integrated because they support some very specific processes. To some of them, the integration would not result in synergies.
The integration is proceeding better than expected. Moving now to slide eight, we see the integration of the budgetary process with the development of the 2019 budget at Somos. According to the model we use at Kroton, a company that prides itself on its budgetary processes. We had a process that lasted 60 days, and 200 people were involved. We had two workshops and three specific committees involved. In relation to the budget, Somos is organized in different business units. We have K12 sets, schools, and language schools, all of them with a different dynamic and seasonality pattern. Of course, the budget treats each of them independently. We also adopted the nutritional budgetary vision and a centralized control of expenses for Somos to ensure better management of some lines such as materials, leases, marketing, travel, and legal.
We also introduced the zero-based budget process at Somos and implemented budgetary management, including system locks to make sure that our expenses are compliant with the budget. One of the first systemic integrations we performed was a system lock that locks purchase orders with no budget allocation. Kroton takes pride in its budgetary culture and the sophistication of its processes. Kroton, without budget being allocated, it cannot even start the procurement process. Like this, no one will discover budget overruns exposed or after the fact because it simply cannot be made. All system adjustments were made at Somos. Since the beginning of 2019, Somos was following these rules, and this increased predictability of our costs and expenses. In terms of treasury, we integrated cash and debt management, including the integration of the venture contracts, creating more opportunities to reduce debt-related costs.
I would like to discuss slide number 9. Before we begin, it's important to remind you that Somos has three major business lines. First, we have the editorial program here to the federal government, the national textbook program. We also have the school management program, very similar to higher education. Finally, the integrated K12 platforms, which is in fact a B2C unit. Slide nine shows our vision over this business and the different services that make up the platform. We would like to become a full-range provider of services for K12 schools in Brazil. The most important service we offer today is the learning materials, which could be a textbook or handouts, both in print or in digital format. There are several other services that complete our portfolio, such as technology, educational support, teacher training, and countershift activities.
We have several competitive edges, among them, the most solid and well-reputed brands in the country. Another differential we have is that we have an addressable market that's very significant. Currently, we have 6.2 million in the private schools using textbooks. 3.8 million use learning systems, and 2.4 million use textbooks. Somos has all of those options in its portfolio, as such, our addressable market is higher than anybody else's. We want to meet the needs of our schools by providing the best educational solution. Based on this concept, we position ourselves as a K12 education solution platform that is permeated by the use of technology. The one-stop partner powered by technology. This is the concept we use.
We want to meet the needs of each partner company in an individualized way, offering learning systems, textbooks, teacher development, technology solutions, and adaptive learning, in addition to countershift activities such as language development and also other skills. We believe that we can increase penetration and seize more business opportunities in addition to the schools we already serve, also expand our market with the 34,000 schools that don't use our solutions yet. This slide shows the K-12 platform concept fully implemented throughout our brands and current solutions. Now, let's turn now to the next slide, in which we will talk about the most important aspect of our go-to-market strategy. We'll be also explaining to the market the Allied Schools project that we're going to engage in. It's going to be a totally different platform, non-core services under our responsibility.
We want to provide to schools, for example, services such as collection, legal services in addition to e-commerce, so that the focus of schools will be on their core business, which is education. Now moving to slide 10. Since October 2018, we have been working very hard to review Somos' go-to-market and to adopt a different approach based on the commercial relationship of services platform. Somos commercial teams were working in isolation, now all incentives are in line with this new concept. Our sales team is working very hard to understand the needs of schools. It was a total change in our mindset, we believe that this will add a lot of value in the relationships we maintain with partner companies and potential prospects.
Two, we have a flexible, integrated portfolio with recognized brands, including learning systems, including books, also we provide learning assistance, teacher development, and adaptive learning opportunities. Our portfolio also has an integrated offering in countershift solutions such as English learning and social emotional skills. So the value in our proposition is to offer these activities inside the schools. The schools will become a holistic center for the development of the students, this will also strengthen our relationship with partner companies. We're also optimizing and strengthening the focus our commercial leaders in integrated solutions to take this transformation even further, also to back up our vision for the future of the K-12 segment. In terms of our sales team, we have the largest number of consultants and specialists by school in the whole market.
We're trying to solidify our relationships with schools, always paying attention to the demands and specific needs they report to us. This is only possible thanks to our technology that is incorporated in the complete portfolio. We are currently investing in new technology solutions to make the lives of our students and their parents even better, driving the digital transformation of the company. Now I would like to turn the word to Mr. Carlos Lazar, who will talk about Somos results for 4Q18.
Thank you, Eugenia. The next deck of slides on Somos talk about adjustments in Somos results reported today. With a transfer of control, Kroton analyzed the financial statements of Somos to align criteria and accounting practices to those of Kroton. This is reflected in the results and the balance sheet of 2018. Many are non-recurrent and have no effect on cash. They relate to previous fiscal year. After these alignments, the comparison will be affected. The implementation unifies the accounting practices between Somos and Kroton, in the future, they will be comparable. Slide 12. First important review were the punctual payment deduction values, no longer as financial expenses, but now as deductions from the revenue. As they relate to the operation, they're not really financially expensed.
Secondly, we've implemented a new concept of provision for inventory obsolescence based on production aging, because this is more in line with our business and Somos and Kroton strategy. We reviewed provisioning criteria for losses in receivable accounts and the criteria for the capitalization of Kroton expenses. In addition to write-off of assets, we also wrote off active deferred tax and time-barred recoverable tax. This is only to reinforce these adjustments will make future results fully comparable with no impact on cash. To quantify these adjustments, let's look at slide 13. We begin from the EBITDA we would have presented for Somos without these adjustments, would have been BRL 499.3 million in 2018. First, reclassification of punctual payment deduction, now on net revenue. Recurring EBITDA is BRL 473 million. Based on recurring EBITDA, we had a few other adjustments.
The first impact refers to inventory totaling BRL 116.2 million because of the new concept of obsolescence for inventory. We've also reviewed provisioning criteria for receivable accounts losses, including the impact of Saraiva's creditors agreement requests totaling BRL 36 million, and also write-off of fixed assets and intangibles, BRL 11.4 million. Active deferred tax and time-barred recoverable tax impacted EBITDA by BRL 7.7 million, and review of other provisions, almost BRL 28 million. With that, the whole impact without any effect on cash was BRL 225 million. On the other hand, we also had non-recurring expenses that had an effect on cash totaling BRL 189.1 million, of which BRL 23.7 million were for other non-recurring expenses. EBITDA after adjustments was BRL 84.6 million.
In the future, we will consider the recurring EBITDA BRL 473 million, because it shows the results of 2018 without the adjustments, and it allows for a better comparison with 2019 results in future years. I'll give the floor to Rodrigo to talk about the guidance for Somos for 2019.
Thank you, Carlos. The final slide back on Somos. We'll talk about the guidance of Somos for 2019. It's slide 15, the guidance of Somos and the educational business unit. That's Somos company without including Pitágoras, and it includes Sette, which is to be part of Somos. You have the guidance of Somos, and we shall track the guidance of Somos during 2019. To allow for comparison with the guidance and results to be announced in 2019, we depart from the recurring results of 2018, which is EBITDA BRL 473 million.
In addition, to allow for comparison, we considered a hypothetical impact of IFRS 16 on 2018 results. The comparison to 2019, which will already have the IFRS 16 impact. We are applying IFRS 16 to the EBITDA BRL 473 million of 2018, and it becomes BRL 556 million in 2018. This is the best number to compare to the guidance of 2019 EBITDA. Again, about the main line, we project net revenue of BRL 1.933 million for 2019, an increase of only 3.5%. The new management took control in October only, when almost all actions to ensure the future year revenues had been implemented because of the characteristics of our business. Estimated recurring EBITDA, BRL 670 million for 2019. Margin of 34.7%. It's a relevant growth of 20.5% in relation to 2018, already adjusted by IFRS.
Margin goes up 490 basis points, and the EBITDA guidance is BRL 670 million, or 490 basis points higher, reflecting the integration of Somos and Kroton and synergy gains. We come from a loss of BRL 258 million in 2018, up to an adjusted net income of BRL 100 million in 2019, a significant improvement. Finally, this is perhaps the number one message. Company announces an operating cash generation moving from negative BRL 9 million in 2018 to a positive cash generation of BRL 150 million, with an EBITDA cash conversion rate of 24.2%, already considering the IFRS adjustment too. BRL 150 million will be the positive cash generation coming from a negative BRL 9 million in 2018, and this is the first year after integration. All the efforts to revert this cash generation situation already in the first year.
The initial projections show the great potential of Somos in terms of profitability gains, in addition to the impact from integration, which brings great improvements, academic and educational improvements. We are convinced that our unique portfolio of educational solutions at Somos and our new positioning, plus the management model, robust governance structure, the highly qualified team we have at Somos, and aligned incentives, build all the necessary conditions for growing and sustainable value generation in all senses, educationally, academically, and financially in the long term. We're very optimistic about Somos in the long run. Slide 16, you see details on the timing of synergy gains in 2018, 2019, and then as of 2020.
Let me begin saying that in the 2018 earnings, we already had BRL 20 million synergies, raising our recurring EBITDA from BRL 536 million to BRL 556 million, which is the number we showed in the previous slide, on a basis of comparison with the guidance. BRL 556 million, the third bar, is recurring EBITDA of 2018. The guidance of 2019 is BRL 670 million. Of the BRL 114 million increase, BRL 19 came from organic operational growth and BRL 95 million from efficiency initiatives or synergies from the transaction. Up until December 2019, we will capture BRL 115 million synergies, BRL 20 million in 2018 and BRL 95 million in 2019. Slide 17, an update of the synergies we expect from the integration.
I'd like to remind you, when we announced the operation in April 2018, we announced an estimate of BRL 300 million of synergies in four years, but we raised that by 20% to BRL 360 million on Kroton Day 2018, when we started the integration. Now we have more access to numbers and opportunities. Again, we raised the expected synergies according to slide 17. Today, we expect BRL 375 million, an increase of 20% compared to the original synergies announced in April 2018, which was BRL 300 million. As you've seen in the previous slide, BRL 115 million will be captured until December 2019, first phase. Another BRL 245 million will be captured as of 2020, totaling BRL 360 million, as announced in the second estimate presented today. Again, we review upward this estimate. Another BRL 15 million of opportunities on the integration front.
We move to BRL 375 million, an increase of 25% compared to the initial estimate. We were right when we made the decision to make this investment in Somos, diversifying operations and opening new growth fronts. I'll pause here and invite our Financial VP, Jamil Marques, to continue.
Thank you very much. Proceeding the next session, I will make some comments about our performance in the most important lines of results, loss provisioning, and also average receivables churn. First segment considering Kroton standalone without the Somos impact. Starting with slide 20, we see the most important lines of results in this quarter. Following the disclosure that we have this year, we are showing the results on two different perspectives. In the higher side of the slide, we have consolidated figures excluding the results of assets sold in 2017. In the lower part, we exclude the results of 2018 in relation to the new units launched this year for greater clarity. In this slide, there are three points I would like to call your attention to.
Both in the consolidated Exxar vision and in the ex Greenfields vision, our net revenues had an increase of 4%, which reflects our robust student recruitment processes, re-enrollment, and an improvement in the mix of programs, both in once-a-weekend distance learning, despite the initial impact of new campuses and also the stronger collection in 2019. We see a decrease in consolidated view as seen in the previous semester, and this becomes more evident when we see the growth in adjusted EBITDA. It's important to highlight that the increase in cost was expected and is below the business plan for this new unit. Finally, we have adjusted EBITDA or net income that had a decrease in the annual vision because of the increase in the levels of depreciation and income tax that had been announced in our guidance.
Now let's turn to slide 23 to see the provisioning for losses and also the students in this segment. It's important to remind you that like in previous quarters, we exclude from this analysis the numbers relating to the units we sold in 2017. Starting with the analysis of higher education. On campus, we see an increase in loan losses provision and also in the average term of receivables following the natural trend. If we consider only the out-of-pocket balance, we also see an increase in loan losses and also in losses provisions and also some important receivable services. It's important to remind you that the macroeconomic scenario continues to be very challenging with higher delinquency rates, and we also have realized fewer agreements with on-the-spot payments, which increased the volume of financial charges and increased also the average term of receivables.
The level of losses continued to be high in spite of the tendency towards stability, this once again increased the losses provision. Now going to distance learning. In spite of the increase in the losses provisions, we see also a reduction in the average term of receivables. Once again, the macroeconomic scenario continues to be challenging with driving delinquency, and we also see higher efficiency in collection and a reduction in the number of agreements. This has positively contributed to the reduction of the average term of receivables and losses levels. We also see a positive tendency. We increased our losses provisions because of the level of losses remaining high. Also in K12, we had an increase in losses provision, reflecting the acquisition of schools, Leonardo da Vinci and Lato Sensu.
In short, we continue to observe the impact of a very challenging macroeconomic scenario with high unemployment rates, this of course, creates an impact in our average term of receivables and loan losses provision. However, we were able to reduce for the second time the provision for doubtful accounts, and also we see a return in relation to the out-of-pocket students. We have implemented several collection policies, for 2019, we'll continue to search and seek the responsible quality growth we are characterized by. Now moving on to the next section. I will talk about the evolution of CapEx and cash generation considering the impact of. Let's start with CapEx on slide 25. On the left side of the slide, we see recurring annual CapEx representing 7.9% of net revenue in the period, down 1.2 percentage points vis-à-vis 2018, thanks to optimization and efficiency gains.
On the right side of the slide, we see also the investment relating to special projects and greenfields totaling BRL 266 million. This took total CapEx to 12.7% of the annual net revenue, below the guidance, which was 13.5%. Moving on to slide 26 in relation to operational cash generation in the quarter, there are two points to highlight. First of all, post CapEx cash generation saw a conversion of EBITDA to cash of 49% along the year. This represents a reduction in the annual compared and relates to the impact of the working capital consumption coming from the change in profile in our student base, with a reduction in the number of PF students and also reflecting the high number of graduations and lower student recruitment rates.
In 2018, we generated BRL 994 million in cash with the operational flow CapEx. We consumed BRL 427 million of our cash in 2018. To give you better details of the use of this cash, please turn to slide 27. We start with the generation of operational cash post CapEx, as BRL 994 million in 2018. In the first block, we had BRL 242.5 million, BRL 206 million of which were destined to the organic expansion with the opening of 25 new on-campus units. BRL 600 million were invested in digital transformation processes. Also, BRL 76.5 million were geared to the acquisition of controlled companies. In the second block, we see value generation to shareholders totaling BRL 833 million, in which we had BRL 194 million of dividends and of repurchase of shares along the year, it is important. BRL 639 million of dividends.
We maintain a payout of 40% along the year in spite of our new projects. We also have the reduction of gross debt, representing BRL 234 million in debt amortization. This takes us to the BRL 427 million of free cash that was used in the year. Moving to slide 29, let's talk about the net debt considering consolidating the Kroton platform, because we believe this is the more adequate way of interpreting our cash and debt positions. At the end of the year, we have cash visibility of BRL 2.6 billion, representing 50% growth in comparison to 4Q17. This is due mainly to the increase in gross debt of BRL 5 billion as compared to BRL 4.1 billion used at the moment with the acquisition of Somos.
If we add up all the financial debt and our short- and long-term liabilities, we have net debt of BRL 5.1 billion in 4Q18. This is explained also by the emission of debentures at Saber in a total amount of BRL 5.5 billion. Also, the sum of the effects. We also have receivables, short and long-term. The second part of the payment for the payoff Uniasselvi, adjusted to net present value. In this quarter, we received the first of the five annual installments. Also, the payment for the sale of Fair, Park and Farm concluded in August 2017. Considering our receivables, our net debt was BRL 5 billion on December 31, 2018. With this, I close the session of the presentation. I would like to invite Rodrigo for his final remarks.
Thank you, Jamil. Slide 31 for final considerations. We continue in an accelerated pace of organic expansion. We are doing really well in all the campi implemented, 12 in the first half of 2019, as approved by the organization. We are very happy about the results. We continue to offer capillarity, quality services in the marketplaces where we work. As I said, we have implemented 12 new campi in the first half of 2019 with four on-campi learning. We expect to open another 12 in the second half, closing the year with 167 campi, growing 17% compared to 143 campi we had at the end of 2018. The project is doing well. We are happy. Probably the break-even curve and the cross of the line when we begin to have positive cash generation will be before plan.
In addition to 100 new education centers, we will open another 100 in the second half of 2019. We will have 1,510 centers at the end of 2019, growing 15% vis-à-vis 2018. We're increasing our capacity and also we're improving the program mix with the new on-campi units. We now offer healthcare, engineering, and we have premium distance learning that shall gain market share in the processes of student recruitment this year. We gain more relevance in student recruitment, and this is key for us to meet market demand and to protect the average ticket due to the more fierce competition we're facing now. In the middle of the slide, you have an update of student recruitment process for the first half of 2019. We still have a month to conclude this process. The scenario is competitive and macroeconomically, we see challenges.
We are confident in the evolution, and we're happy with the results. We want to protect average ticket, both on-campi and distance learning. In distance learning recruitment, we will have approximately the same volume and average ticket. On-campi, the volume will be similar to last year, but the average ticket has a positive trend in on-campi. This was our strategy to prioritize average ticket. In distance learning, we have a more competitive position. We wanted to improve our ticket on-campi. The volume is even better than the expectation we had. We will talk about the final results of student recruitment up until the end of April, as we've been doing in previous years. Next point, let me highlight our main deliverables in the context of the digital transformation project. First, we implemented and improved our project execution methodology.
We now have a methodology that combines traditional portfolio management and software development by agile methodology. We're using the Scaled Agile Framework, SAFe, with more than 550 people involved for 11 months, more than 640 features, and 10,000 stories delivered. This is a very tangible proof that we are making significant progress in the quality of our technology deliverables. We see a drop by in the volume of incidents and problems in all projects that involve our systems migration, which brings cost efficiency in CapEx, because we no longer see a difference between technology and business. It's part of the same deliverable. We prioritize agile deliveries. We are building a new organizational culture, which has shown results in the short term and will be a great asset for the company in the long run.
It's difficult to make it tangible. Those who know can feel the difference after the implementation of this methodology. We have talked to other companies to exchange information about how we obtain results with agile deliveries. We're very happy about the change we're going through in the company. It means we will need less investment. We will have better cost control and more stability in the operation, which contributes for a better experience for our students. We already see a significant evolution in our NPS, both on-premise and also distance learning. We have some objective deliverables. Conversion of candidates already had a great improvement. We've also increased the number of student requests. In the past, we had 7% of all services being digital.
We now have 50% of all services being digital. We want to attain 100% service requests being met digitally, which will improve student satisfaction, and it will also bring cost reduction. We now have a new technological platform, which is extremely scalable on the cloud for data treatment and analysis. We are using it more and more to make decisions. We have more data classes for analytics, more granularity. We are improving our algorithms for predictions, bringing more information on academic issues and also analysis of student dropout, for example. We are becoming increasingly more sophisticated, and this was possible because of all the decisions we made in the digital transformation and because of this digital mindset we took on. Finally, ever since we took this role of curators on the education vertical of Cubo Itaú, we came to know 2,390 startups.
We had more than 2,000 visits at Cubo. We had 145 connections with Kroton ambassadors who are our leaders responsible for identifying technology solutions for their areas. Eight experiments have been conducted to find solutions at Cubo to solve Kroton issues that might be solved by these startups. At the same time, we're conducting other experiments with Google companies. We've signed two contracts with these companies that have a potential transformation or simplification of our administrative and academic processes. Internally, the implementation of SAFe and systems in the company, and also in terms of open innovation in our relationship with these startups. The whole ecosystem we're building at Cubo, we're really happy about the results of our digital transformation, which is revolutionizing all areas of the organization, and there is no way back. This will be our great differentiator in the next few years.
The final column talking about dividend payout, BRL 43 million, or BRL 0.03 per share, keeping our payout at 40%. Dividends will be paid on April 15, 2019. To conclude today's presentation, I'd like to remind you that despite the difficulties faced in 2018, again, we delivered the guidance. Our commitment to the market we took on in May last year. In 2018, we had the largest number of FIES students graduating. In 2019, the macro scenario will still be unfavorable, but we are certain we will deliver more sound results in 2019, especially in cash generation. In terms of K12 and basic education, we're going through a revolution on the commercial area that will bring great opportunities and more synergies. In higher education, we are at full steam with our organic expansion project and also sustainable growth to provide quality education and ensure the success of our students.
2019 will be another year of achievement for Kroton. Thank you very much for participating. I'll invite you for the Q&A session.
Thank you very much. Ladies and gentlemen, we will now initiate the Q&A session. If you would like to ask a question, please dial star one. Our first question is from Suzana Favero, Itaú. You may proceed.
Good morning, everyone. Thank you very much for the opportunity to ask questions. I have two questions, in fact. A question to you in relation to the upward revision of synergies. In which synergy blocks is it going to happen? The revenue, CapEx? What were the main reasons for this revision? This is my first question. Secondly, this year will see a graduation of FIES students starting at a low level initially. We would like to know what will be the impact of that in terms of financing. Do you see graduation still starting to appear this year?
Thank you very much, Suzana. Here, I'll start with the synergies.
We have this upward revision because after a few months with the company, we have now become much more familiar about the scenario. These synergies are in OpEx. The BRL 15 million, in addition to what we had reported before, are completely in OpEx.
Suzana. Here, Jamil. In relation to the question about the graduating FIES students, we still have a very small level, 1,500 students graduated in December. We have been tracking this very closely in terms of the influence of this. It's too early to tell, we have observed that in terms of the behavior of payment in the last six months, it's very similar to out-of-pocket. It was a very marginal decrease in collection, up to now, we continue to believe that the guidance we gave is adequate.
Sorry, Jamil, did you say that the payment?
No, there was a marginal decrease. This is what I meant. We had been expecting 80% for the graduating students, if you compare this with out-of-pocket today, with the decrease of 8%, we're still collecting 92%. The behavior of the students up to December, their payments from January to March, is very similar with a marginal decrease. This, of course, puts us within the expectations we have for this type of student.
Thank you very much. It's now very clear.
Our next question is from Mr. Rodrigo Gastim, BTG Pactual. You may proceed.
Good morning. I have two questions. The first one in relation to the contingency provision for Somos. Let me try to understand what's behind the numbers, because you wrote about this on the release, but the number seems a little high, especially when you compare it to the net worth, BRL 290 million in the last report.
Can you give me some indication of the level of conservatism in the company? Because were you expecting possible losses, remote losses? Did you bring this into the balance sheet as a likely or probable loss? How conservative were you, how much can you lose in relation to the BRL 1.2 billion that were provisioned for Somos? This is the first question. Now going to distance learning, there were efficiency gains in costs that were relevant, especially in relation to the teacher costs. If you consider personnel costs with a drop of 45% year-on-year, this is quite a sharp drop considering the company had also high margins on distance learning. What's behind this reduction of 40% also in DL? Thank you very much.
Hi, this is Galindo. About the provisions, when you have an M&A activity, the law defines you have an opportunity to post against the opening balance sheet, probable and possible contingency provisions. Because of transparency, we posted all probable and possible provisions. The ones we say they're possible, we believe we will come out as winners, and they will not materialize. Even probable, we believe that many of them shall not materialize. Even with that, because of transparency, we wanted to post them so the market knows they exist. They are there. Of the BRL 2.6 billion, which is the total amount of guarantees, whether we have them provisioned or not. Of the BRL 2.6 billion, BRL 1.3 billion is premium, and we are convinced that we will come out winners, and this amounts to BRL 1.3 billion. BRL 6 million we have collateral for guarantees.
What is left, BRL 600 million, which is the overall amount of possible labor suits. Many of them are highly convinced that we may come out winners, or that the, o ur contingencies will not materialize. If they do materialize, we believe we have enough arguments and elements to come out winners. We wanted to provide maximum transparency. Everything we found that could become a possible or probable contingency, if the lawyer said it was possible or probable that we may have a contingency there, we posted it in the opening balance sheet because we want to be transparent with the market. This was the rationale behind the contingency provisions. Let me give the floor to Roberto for the second question.
Good morning, Gastim. How are you?
In relation to the efficiency in DL costs, there are three important pillars that explain the reduction. First of all, the synergy between professors of similar disciplines, especially as we expand the range of premium programs, there is more sharing. For example, before, we could have two professors teaching two different disciplines, and with this synergy, we have just one. This, of course, is a good synergy to be captured. Secondly, we have the efficiency in the tutorship program. We've talked about it in the past, maybe you remember. We have tutors that have access tools and that support students more closely. Like this, there is an improvement in productivity. They actually are able to anticipate questions. We also have students supporting the tutorship program with peer review and peer support systems.
We have 100% online penetration in DL with lower tutor costs in those programs because we don't need a tutor to be in the room like we have in the once-a-week model. This represents also better cost-efficiency gains.
Thank you very much. Very clear. Thank you, Valério. Rodrigo, could you please go back to the contingency issues just to make sure it's clear? You're looking at the Somos scope 100%. There's nothing more relating to Saber. It's exclusively everything that you have on Somos in terms of probable and possible contingencies. Is that what you have brought into the balance sheet?
Correct. We have zero contingency provisions from Kroton or Saber. All of them are related to Somos. Thank you.
Our next question is from JP Morgan. Marcelo, you may proceed.
Thank you very much for taking my question. What is the driver for the increase in on-campus of this on-campus increase in the average ticket? Is it a kind of financing? Also in relation to distance learning, what are the pressure points since you're also increasing the premium distance learning program?
Hi, Marcelo. I'll start, then Marcelo will give you his comments. In relation to on-campus, I don't see a relevant increase in the ticket or change in the ticket in DL. However, the reason why we have a flat or a little similar to that is because we have more pressure on web products and a once-a-week, with higher pressure on the web products and once-a-week. Also a high participation of premium DL that does not suffer with the competition. In relation to this, we see prices that are in line with inflation or very similar to that. We have higher pressure in the distance learning ticket. In on-campus, we don't see this movement. We see that FIES students leaving the higher cost, higher prices in the program. At the same time, this is offset by the pricing strategy.
We don't have a change in mix that's really relevant between the two. This increase in ticketing in on-campus is related to two points. The commercial strategies we are implementing with fewer discounts and scholarships. We could have given more emphasis on volume, but this is not the way we chose to do. We gave more emphasis to ticket in comparison to volume, and this is how we chose to operate. Secondly, we have a pricing strategy and a pricing methodology that we have talked about in several other events that is being perfected and becoming more sophisticated. Today, we can use dynamic pricing very accurately among the thousands of products and many locations. We can understand every single day what the behavior among competitors is, and we can react much more quickly. This helps us define the strategy we want for each product in each location.
Why is this important for pricing? When you're seeing a competitor that is more aggressive in terms of pricing, you don't have to review the entire portfolio for that location. You can g o and change just the specific price. This granularity reduces the number of discounts we have to give while preserving our attractiveness. Putting together this strategy, we ended up with results that are in line with last year and also with a trend of prices climbing and going up.
Here's the question about the dynamic pricing. What was it like before, for example, the last six months? What did you implement in the system that wasn't available before, just to get a clearer picture?
This is Roberto speaking. This sophistication comes from the monitoring of the competition that we are now monitoring much more closely, even when it's a regional competitor. Before, the frequency of information was on a cycle of 15 days or more. Now we have bots that are online.
We also use verification through a call center with several dedicated tools, where people who are dedicated to calling the competitors every day, just to make sure that the prices we see online are valid. Then we also have the mystery shopper program that goes and visits, and to check whether the prices on the records are the ones that really are being practiced. We don't do this on a very large scale, but it's yet another validation step. As a result, we get more accurate information on a more regular basis and on more competitors. We have actually more than 4,000 on-campus programs on offer and 17,000 DL programs. This includes, of course, considering the centers in all. If you compare this to the competition, you can make the necessary adjustments on a daily basis, Indy.
I think sometimes as often as daily, but maybe on a weekly basis. As a result, we also have more people on the team. I think we have twice as large team as before working on this.
Our next question is from Mr. Roberto Pedro, Bank of America. You may proceed.
Hello. In fact, this is Pedro. Thanks for taking my question. I have a question on out-of-pocket receivables. What's the dynamic you expect for the future in terms of this line? Another question, looking to PEP students and contracts that become inactive, do they remain on the PEP line even if the agreement is inactive, or are they moved to out-of-pocket? We want to know whether the increase that we saw in receivables in out-of-pocket is because when a PEP contract is canceled, you change this person into an out-of-pocket since the contract is no longer active, or if they remain in the PEP line. Thank you.
Hello. Beginning from the last question. No, we don't do this migration. Inactive PEP balance remains there, whether it's still active or inactive. About receivables, yes, we will have a natural increase because we have a growing out-of-pocket revenue. In 2018, we had a deterioration of average time of receivables. This is on campus because of this strategy that had more charges and interest. It's important to mention this strategy matured in the second half of the year. What does that mean? We expected some deterioration because of this, but all the impact, I think, has already been posted.
We have seen neutrality in terms of default, actually a slightly positive trend, but still the level is high. Considering all of that and the initiatives we had to improve collection efficiency, our expectation is that these receivables will not grow more than the out-of-pocket revenue. We will have stability in average time of receivables.
Okay, it's clear. Thank you.
Let me remind you, if you have a question, please press star one. Please wait while we receive the questions. Our next question comes from Mr. Leandro Bastos. You can begin.
Hello, good morning. I have a question about the integration of Somos. I'd like to understand, if you could mention, what is your expectation in regards to tax gains because of the premium that was generated with the acquisition? I've seen in the explanation notes you have a goodwill of about BRL 4 billion. Would it make sense to think about 34% of this amount, BRL 1.4 billion? I think that my question would be that if this would be reasonable assumption, as we can try to calculate these gains, or would you have more concrete numbers to convey at this time?
Hello, Leandro, this is Jamil. We cannot really have the exact number, but yes, it's approximately as you said, with these tax credits to be recovered, looking at the ownership structure. We believe this would be the order of magnitude.
Okay. Thank you.
Our next question comes from Mr. Luiz Mauricio from Bradesco BBI. Luiz, you can begin.
Two questions. First, going back to the Somos opening balance sheet and contingency provisions we have seen. As we look at previous editions, and while as you mentioned, you have included all probable and possible contingencies to calculate the provisions. But in time, because of your conservatism, we believe some of that will be reverted. But not all of that was treated as non-recurring. In the future, these reversals, if they happen, will you isolate them as a non-recurring effect, or is that included in your guidance for Somos? I wanted to understand how you're going to deal with that, not only in Somos, but also in other cases, in the purchase of Leonardo da Vinci School. This is the first question. The second question is about receivables.
When you look on page 16, the portfolio leaped to BRL 97 million for a revenue of BRL 70 in these two segments. When we look at the portfolio, it's growing about 60%, if we consider the write-offs mentioned. It's a very strong pace of growth. How do you view the future? Do you think we can project the same rate into the future? These two questions, please.
Hello, Mauricio. This is Rodrigo Galindo. I'll answer the first question. Jamil will answer the second. About the contingency provisions, there are some comments I want to make. First, in the first year after the opening balance sheet, we can still make adjustments in the lines posted in the opening balance sheet. If we have a relevant adjustment that we may identify in the first year, we can still do that. This is the first message.
Second message, in all previous acquisitions, even if it affected results, we always provided all the necessary disclosure, whether the adjustments were to revert contingencies or not. Even when that affected results, it was always clear if it was a contingency reversal or not. An important message, the guidance of BRL 670 million for Somos has zero BRL of contingency reversals, this is important. Even if we may have these reversals of contingencies, even if they affect the result, they can only affect positively this guidance of BRL 670 million. My main message is that contingency reversals does not impact cash. We look at cash. That's why we have this cash guidance. In May, we will also give you a cash guidance for Kroton. Regardless of how we treat contingency reversals, the cash will be there.
Tracking cash, we will feel comfortable to say that even if we have contingency reversals, this is not going to impact cash. Obviously, if we have a process of goodwill, BRL 200 million, if we may come out winners, we're not going to include BRL 300 million on results because this would distort our analysis. This would harm the comparison of results. A small labor suit may be included in results. A large tax suit we may win has a different treatment. We must look at this case by case. What comes to recovering results or non-recovery results, it has to be analyzed case by case. In the first year, not only can we decide what will be recurrent or non-recurrent, if we have something really exceptional, we can simply adjust the opening balance sheet.
Regardless of what we decide to do, our financial statements will always show contingency reversals in a very transparent way. Cash, cash is cash. It is always going to be transparent, telling you how the company soundness is. Now the second question to Jamil.
Let me see if I understand your question. What we expect from the receivables portfolio, because again, it has grown this year. Is this the question? Yes, we could see that even in the 4Q, you had another growth in receivables. Even when you look at the breakdown, you see a lot of pressure, not only because of the reduction of FIES students. The fee cap and INT is still not in our base, at least not as a phase-out of FIES students is not yet concluded. 2018 was a very relevant year. We had a drop in the penetration of FIES.
Almost 20% was the drop in the on-campus base. That was offset by out-of-pocket PEP. For 2019, we will have another drop. We will have from 24%-25% down to 13%-14% of our student base at the end of the year. We will continue to see a growth in the PEP and out-of-pocket portfolio, less than in 2018, but still a high growth. It is important to say that in our recruitment process, we have limited the penetration of PEP to 25% of the on-campus portfolio. In fact, this level has not yet been attained. For PEP, we continue expecting growth in 2019, but a smaller growth than in 2018. The portfolio will stabilize around BRL 2 billion. The other items I think I have mentioned. The portfolio of receivables for out-of-pocket students grew also in 2018.
In 2019, we expect that to grow, not more than the proportion of net revenue. In 2018 was when we received these payments.
Let me just follow up on a question that has already been answered. You spoke about the average ticket on page 13. You spoke about pricing tools, when we look at the table, the average ticket increase was because of a 35% increase in the average ticket of FIES. Can you please talk about that? Because when you spoke about average ticket, you did not mention specifically the FIES students. If you could please comment.
Yes, the comment we made about ticket was related to 2019. It was a strategy on ticket for 2019. It is okay, I can talk about the FIES ticket, which is related to the cycle time and characteristics of programs.
We have a large number of students graduating. FIES students that graduate before the time are usually short-duration programs. The average ticket is usually lower. Now we have a larger base of higher average ticket. They pay more because they study engineering, medicine, or healthcare, because these are long-lasting programs. They last longer. Now we have a bigger base in programs that have a higher payment. That is why we have an increase in the average ticket. What we said about average ticket was on 2019. The increases will be equal for the whole base on the same units and the same programs. It is always going to be the same increase.
Okay. Thank you. Now it is clear. Thank you.
Our next question comes from Maria Tereza Azevedo from the UBS Bank.
Good afternoon. Well, some of the questions have been answered. Going back to the 25% cap for PEP, can you be a little more flexible in that? What would be the optimal mix in the long term, thinking of the financing and also cash to EBITDA conversion?
Hello, Maria Tereza. Here is Galindo talking. We always use 25% as the cap, but we could have a go-to-market that could cause this to differ. For example, we can use scholarships sooner or later, and this has an impact on PEP in the different municipalities. In our cap, in the regional office, for example, a principal could request more PEP, but this has to be approved by the higher education unit. Of course, we deal with this on a case-by-case basis. This happened two semesters ago. We have just a few cases on this semester, but usually for per unit, the limit is 25%. In this semester, we should be below 25%. We shouldn't reach 25% of that. We didn't have to use all 25% to deliver on the recruitment goals.
In the long term, for us, the optimal mix is one where 25% is not exceeded. In fact, what we think that it's not necessary. The results in the quarter show this. They're proof of this. You don't need more than 25%. Between 20% to 25%, this is the adequate range, I believe.
Thank you very much, Galindo. And I also have a question about the learning systems market. What growth do you expect? What contracts are in the pipeline for 2019? Do you continue to pursue the European initiative?
Thank you very much, Maria Tereza. The learning systems market continues to grow. It's actually more focused on schools than the textbook, and the figures for 2019, we see this market growing. In terms of the competition, I don't think we have more or fewer competitors. It's a different type of competition, which is, in fact, more profitable because it's more sophisticated, it's more quality-driven. The players we see operating in this field have a policy of avoiding discounts and charging higher fees. Our positioning, which is to offer a very diverse portfolio to the market, and with our technology differentiators and the brand reputation we have, I think it's really adequate considering the current market dynamic.
Sorry, I just couldn't hear the second part of your question. You mentioned an acronym, and I couldn't hear. No. What about selling other systems, back-office services?
Yes, this is something that is proceeding at full steam. We are now trying to understand the school needs using our own schools as a model. In 2019, well, we won't have the go-to-market yet of what we call the Allied Schools. It's still a year for modeling and pilots. By 2020, it should come online, and we're working with partner schools. We have many of them, and their receptiveness and their willingness to act as volunteers in our pilot is remarkable. The schools are now aware that they should focus on their core business, which is education, and leave the task of management to another partner. Thank you very much.
Now I would like to turn the floor to Kroton for the final remarks.
Well, I'd like to thank you all for participating in this earnings call. Thank you all very much.
Kroton earnings call is now closed. We want to thank you all for your participation. Have a nice day.