So we will be talking a bit more about this partnership during the day today.
But we're happy to see we have quite a few market analysts and we're always trying to innovate. So, well, not only the place where we hold the meeting, although it also helps to hold the Croton Day in this building, But we always try to innovate in content and talk about topics that are currently being discussed by the market. And we did it again this time. I tried, I mean, together with our Investor Relations department, I tried to look for topics that aren't being discussed in the market, the issues that the market is discussing, what you want to know about Kraton or what you don't want to know sometimes. And the answers, they were not really, really thorough because I asked the same question inside the company as well as outside.
Of course, the answers helped, but they were not enough. So then we tried to find who to ask this question. We said, well, maybe we need to ask an organization. So then asked Siri. Siri, how can we have an innovative Croton Day?
Hello, Carlos. My participation in Croton Day is already a good first step. Additionally, I would suggest executives would tell analysts about the main news and opportunities the company will have in the next few years. Thank you, Citi. Yes.
Well, we do have lots of contents about this. What about the agenda? Of course, the agenda. First, we'll have Rodrigo Galindo talking about Croton's position. Next, Mario Guillot will talk about opportunities in Primary Education.
And then Roberto Valerio will talk about undergrad. Then Julia Gonsalves will talk about expansion in undergrad. And finally, Rodrigo Galindo will talk about digital transformation. Well, great content. And we will also open the floor for Q and A in the end.
We expect to close our day by 6 p. M. But more than this, I mean, we want to know if with all of this content, will the stock price go up? Yes. Kraken's stock prices are extremely low right now, meaning the market is not doing their homework.
I agree, Sidi, I couldn't agree more. So, Lucidi, what else can we do to make it happen? Well, Carlos, I recommend you call Rodrigo Gallindo to begin his presentation. And we wish you all a good Krotman day. All right, you have the floor.
Hello, everyone. Good afternoon. Thank you for being with us. One more Kraton day. We don't have a lot of time and we want to talk about many things.
Now the first presentation will have 30 or 40 minutes to give you a strategic view, a general view about our 3 big lines of business. We tried, I mean more than talk about details about each line of business, we wanted to tell you the big messages. I mean what can we expect for our three lines of business and then talk about the opportunities we see ahead in undergrad business and Continuing Education and also in K-twelve. We feel highly optimistic about the three lines of questions. We will open the floor after each presentation.
And also at the end of the day, we will open for a specific Q and A session. So let's begin, Kraton's positioning. So as of the 1st Q 2019, we will have a few changes in our reports with the onboarding of Somos. And so we will make analysis on 2018 so that we have comparable numbers. We will provide the highest possible transparency, but showing the company the way we view strategically.
So today, on this Crocton Day, we will be showing the company in this way that we look at it. We'll talk about three lines of business. First, undergrad. In 2018, the revenue expected would be 69.2%, I mean representing 69.2% of our net revenue. Continuing Education in 2018 would represent 3.4% of our net revenue and K12 27.3 percent of our net revenue.
Now continuing education, I mean we already have continuing education from Croton plus that piece of SOMOS we call sets technical education and SOMOS higher education which is now included in continuing education. So Croton plus SOMOS together represent 3.4% of our net revenue and we have a lot of room to improve this share. Now on K-twelve, we have Somos except for sets plus relevant business for us represented on the 70% of our net revenue in 2018. And what can we expect from now onwards? 1st, accelerated growth.
And we will be talking about how this growth will take place. 2017 2018 were years when we sowed the seeds for this growth. We'll talk about the new units for on premise learning and also the new distance learning and projections for 2019. So you will see how many seeds we sowed and the harvest will begin as of 2019 and then 2021. We feel very comfortable with this strategy.
Growth will come. The first results are really positive. Giulio will talk about growth, showing the first results. We feel really happy with the early results of our organic growth strategy. We'll talk about our new units, the ones we've built and the ones we will build now.
Together with we same store concept, we will deliver margin stability, yes, but we still have pressure on margin in same stores. For example, students from FIES that have left and who will still leave. Of course, the percentage will be smaller than in 2018, but it's still relevant and it exercises pressure on our margin. Stores. Of course, as we add new stores, we to have margin stability in same stores.
Of course, as we add new stores, we will have pressure on the margin. We will tell you how much this pressure will be. But as they reach maturity, then we expect to have the same undergrad margins we delivered in 2018. So what do expect? We expect to grow our top line and deliver stable margins in same stores.
This is the short story of what we expect in undergrad. Let's talk about the accelerated growth. In 2017, we had 112 units. In 2019, we already have accepting enrollments 183 units, a growth of 63%. 71 new units, the seventy one new units have brought to us approximately 3,000 new students.
It's more than 200,000 students as they reach maturity. So we are very comfortable that this growth will generate a lot of value. But of course, it has some initial impact. And we always want to make it really clear ever since we implemented the greenfield project, we want to generate value in the mid and long term. We want to create value for our shareholders.
And this strategy was so did 2017. We knew it would not generate value in 2017. It would consume cash. It would consume EBITDA. It would consume operating cash because the new units have a negative cash in the 1st year, but we knew they would generate value in time.
Now this is a summary. What is the impact of the What is the profile of the greenfield? Breakeven for EBITDA will be in the 3rd year. So in the 1st 2 years, it will consume EBITDA. In the 3rd year, it will reach the breakeven point in EBITDA, reaching the same level of margins of post secondary education and maturity.
That is, as these projects mature, they will no longer hurt the margins of undergrad, and they will begin to generate cash positive cash as of the 4th year. The 1st 3 years, it will consume cash. Now as of 2018, without considering the past impact, it will generate an impact between BPS 100 and BPS 300 bps in the undergraduate business in the 1st 3 years up until maturity because at IRR IRR above 35% in perpetuity, so it really generates value for shareholders. It's a combination of projects that will bring value in the first moment in the short term and strategy that will generate value in the long run. But of course, we had to pay the price for that in 2017 2018.
2018, well, we are already seeing some greenfields in the 3rd year, the ones that were implemented in 2017. So the negative impact on operating cash is less. And as of 2020, we will begin to have a positive cash generation impact. The first results are above the numbers that we expected. They're above the BPs that we provided to you.
Giulia will give some more information on that. But this is the growth potential. But as we feel happy and very optimistic about the revenue growth in undergrad and our own units without hurting the margin. That is, they will hurt the margin only up until maturity. But at maturity, they will deliver the same margins undergrad delivered in 2018.
Now partnerships. In 2017, we had I mean before 2017, we had 9 10 centers and were limited to growing 200 centers in 2017218. This was the regulatory bonus. Now, we have recently received approval. I mean, the evaluation has been approved.
We still don't have the final decision, but 2 distance learning institutions with Concept 5 or Grade 5, and we believe this will soon have final approval, we will have the possibility of opening 9 50 centers. It doesn't mean we will open all of them, but we will have this opportunity. Why is this important? I mean, you might counter argue and say, well, in the 5 last interactions with you, you said that one thing is for us to have an accredited center. Something really different is to have a well implemented center with the right partner, trained partners, sustainable growth as part of the same network of centers so that the management will have support.
This is what we mean by having an implemented center. And so this is what we do. I mean, we implement centers in a satisfactory way. So what is the value of having 9 50 new centers? Well, while we were implementing 200 centers a year, our competitors could implement many more centers than we could.
But now we can grow at the same pace as the competition. However, we will grow protecting the same quality as we implement new centers. The differentiator in distance learning is no longer the regulatory barrier, but the quality of the product and the quality of the network of partners. And we the talk a little bit about partners, and he will give you some color on the management quality of our partners. We've spoken about this in previous Croton days, and the numbers truly show the high quality of our partners' structure.
Although we tripled the number of accredited centers in Brazil, so 3 in 16 years from 2000, 2016. And in 2017 2018, we attained 12,000 centers. I mean, we had a huge growth of distance learning and we were able to increase the absolute number of enrollments. So the strategy was right. Our partners competitors.
So the scenario is much more comfortable for Croton as of 2019. So this is about our expansion, the accelerated growth in undergrad, many more units, many more distance learning centers. Of course, there are many other elements of growth we did not mention. We did not mention, and but they will also contribute for growth. For example, portfolio in the on premise program, portfolio also in distance learning, premium distance learning, I mean, many strategies that will also contribute.
But the 2 main strategies will be more capillarity, so more units for on premise learning and more DL centers. This is the strategy to grow. The second thing we said about undergrad is margin stability in same stores. Now how margin stability in same stores if we still suffer pressure because FIES students are still dropping out even in 2019? Well, first, let's talk about this issue of FIES students dropping out.
You will see this scenario. You will see that the year we suffered more pressure was 2018, but we will hit the guidance. And then, well, 20 19, we feel very comfortable because we are already considering this dropout in the budget and we know 2019 will be a good year. And as of 2020, there will be no more strong pressure on this. So yes, FIES students dropping out generated a lot of pressure, but in 2018, we were already capable to neutralize the impact, and we still have a little bit for 2020.
But what are these levers that I mentioned? Well, Krotum will now have fewer opportunities to gain efficiency. Other companies still have more opportunities for that. Let's see if this is true. Here, we try to work and as I mean, when we talk about efficiency, cost comes to mind, but it's not the only metric.
So we looked at efficiency in three blocks: cost efficiency, commercial efficiency and retention or loyalty efficiency. Now cost efficiency, I think the information is correct. I mean, we started in 2010. When we started to integrate Grotto and Munich, we captured lots of synergies and efficiency up until 2018. We still have some efficiencies to capture.
You see this blue line below the pink curve, we still have opportunities to capture cost efficiency through digital transformation, but it is not a big portion. Now look at commercial efficiency. Here, we still have a lot of efficiency to gain, But the main lever to improve our efficiency will be loyalty or retention. We started to capture these efficiency as of 2016. We already have a few results in terms of retention, but this is the great value that we will attain by improving the retention rate.
In all of these projects, digital transformation will be the great engine for us to harvest benefits. So how is digital transformation going to impact this challenge? Look at the column on the right. Beginning on the pink from cost efficiency, you remember the PO, the operational research per student. We're now going into the 4th phase of this research.
It is a true revolution. We are rerating most of the system, and we are breaking the concept of class. And now we will have operational research per student. And we actually had to rerate the system because we are now adopting this concept of operational research per student, which we didn't have in the past due to system limitations, but now we can do that. Strategic sourcing in wave 5 and then a whole array of activities that come from digital transformation.
And they can be summarized by saying we will centralize and automate activities in the units and also corporate, providing self-service. This is now being implemented in all the waves of PIs in development, And this is how we will capture this final portion of cost efficiency through automation and centralization. Now the same thing applies to commercial efficiency. Technology is the name of the 6 teams to look at the students' entry process. We now have the new PUC, the Unified Enrollment Portal, and we will talk about the performance of this new portal compared to the previous portals, which were already good, but now we are at a higher level, a higher level of system architecture, and we were able to do this only because of the digital transformation, which has provided integration between technology and business and the optimized model for offering disciplines, which will again improve our revenue.
So we will be reselling disciplines to students. So maybe they were transferred and they need some discipline. So again, it is technology helping us be more efficient also commercially. And this is true more than true again when we talk about retention efficiency. 50 teams we have in our model, all of them are somehow working directly or indirectly in retention, all of them.
So everyone has retention as one of the main drivers. None of our teams can develop solutions which are not considering the students' perspective and the students' retention perspective. So of course, this will have a great impact. We've just implemented CX and UX, customer experience and user experience, to think about the students' journey, a new model of evaluation, which is disruptive. It is changing the concept of evaluation also based on technology, and it was again made possible because of the digital transformation.
And now we are replacing all of our transaction systems using a decoupling methodology. So we are adding model by module on new platforms with new languages, new system architecture, so that the students' experience will be much better than today's experience, so that we will be able to retain more students. If you ask me what is the size of this opportunity, in the Agile model, it's difficult to measure all the opportunities because ideas happen during the development. I mean, you do, then you have an idea, you test, you pilot, you test the value. If it's adding value, you implement and roll it out.
Or if you test and it didn't work, you test another option. When it works, then you bring it to the whole organization. It is no longer the old model where you have a project, then you test, then you need a year and a half to roll it out. No, Agile is really agile. I mean, it conducts tests and pilots, so you do all the time prototyping and testing.
And this is already happening. We have seen that in all cases, all the prototypes we've tested so far and all the retention ideas that we prototyped on the system and implemented, they're all generating more value than expected. Dropout predictive models, I mean, all retention projects are generating better results than expected. 3rd quarter compared to the previous year, we had a reduction of 0.17%. I mean, the number of students of FIES is much lower than the number of FIES students we had a year ago.
So, the dropout should have grown dramatically. So, not only have we neutralized the effect of the FIES cluster, we were so efficient that the dropout rate overall was reduced. I mean, this is, of course, a result of our retention projects and technology has been a great ally. That is why we have huge opportunity in blue. So, we do have elements in house to be more efficient and thus neutralize the dropout of FIES students in 2019 and still a bit in 2020.
Now, so this was the message on undergrad, margin stability in same stores, 1,000 stores that will create an impact of 300 basis points until maturity and revenue growth because we will have more a long story cut short. It represents 70% of our business. Now continuing education, 3.4% of our net revenue, bringing together Croton plus sets from Somos. But of course, we have a huge potential to tap. And this business is going through transformation and digital transformation.
Let's understand more of this business. Well, basically, we have lots of opportunities to capture synergies. As we bring together these two worlds, Croton and Somos, we have an opportunity to gain market share by segregating operation and gaining focus. 2 years ago, we decided to do this, that is to take continuing education, separate this business and provide more autonomy to continuing education. At that time, represented only 2% of our net revenue and it was never given priority to improve the systems or to change its processes or services.
So, it didn't grow very quickly. And then, we started a project called discovery. And we detected that continuing education needed more autonomy. We did that. Actually, we created almost like a with academic issues.
I mean, they now can grow. And the results can already be
The can approve 20% of the digital content for high schools daytime and 80% for high schools with classes for youth and young adults. If the state implement the curriculum, Crounten will be ready to step in as a very important digital player. So we'll be able to offer this service with top quality to the schools that need it. We, of course, have no influence on the definition of public policies. But once a public policy has been defined, we can provide several different services.
So what can we expect from continuing education? Growth of top line with growth of margins. In one slide, let's see the picture of continuing education at Croton. We have 6 main areas. We have post secondary and postgraduate.
Here, we are talking about 1300 points of sales, an over 80 institutions, I mean, library, which is used by over 400 2,000,000 students use Miya Biblioteca. Content provision and all of the brands that came together with SOMOS. And we also have a technology area that's dedicated to B2C with free courses and with the course labs and also concept of platform
as a service. And B2C,
we the concept of platform as a service and B2C with customized services offering technology solutions directly to our consumers, everything supported by our digital transformation process. Our technology department is making very good progress in this endeavor. Today, 100% of our development is agile and can be put into production in any given moment. We have several cloud applications. Data analytics and cloud services are being offered to our students.
And customer experience focuses on the learning experience. So everything that we're implementing in our undergraduate courses have has already been implemented in continuing education. So it's very interesting to keep track of their progress. And here, once again, we have an NPS of 40% in postgrad. It's something that's very uncommon to find with a recurring NPS.
This is much more prevalent in sporadic consumption activities. Now let's turn now to K12. I think that the first message to give you is that we're feeling very satisfied with our strategic decisions and also with the integration of SOMOS. Gil will give you a presentation on this integration, but I would like to discuss not the integration per se, but rather the meaning of this SOMOS and what is its current status quo, how it compares to our expectations and how it compares to the perceptions in the market. So let's take a look at Somozon and what it might represent and what we're going to build it to be in the future.
And we had some very interesting findings in this process. By the way, we actually ratified some of the perceptions we had, and we built our strategic positioning in a completely brand new way. And in our view, this is a very disruptive positioning for the K12 segment in Brazil. This is what we wanted to show to you. Gil will give you all the details, but I would like to restrict myself to the strategic considerations.
So let's a look at it. K12, what can we expect? Just to summarize everything at a glance. The synergies are higher than the ones originally announced, especially in terms of revenue. Gil will give you some guidance on the synergies we have mapped out.
We drilled down into the operations, and we are very comfortable into in announcing that the synergies we found are better than expected. So when I say that the synergy is high, we confirm what we have said previously. And besides that, we have found other points of synergy, and we're happy to announce them, too. So almost together with the K-twelve operations that we had such as Sabir, well, what we see is that there is a perspective for growth in top line margins and an excellent cash generation operating cash generation. We can also expect some organic and inorganic growth opportunities to emerge, which, in turn, will revert into better top line and margin.
So as you can see, we have several opportunities to grow our top line and margins going forward. Now let's take a look at the strategic aspects of Somos, this K-twelve education platform. More than detecting opportunities, what we did was to develop a new strategic vision on K12. And this was really a process, a building process. From the very beginning, we had this perception, and we started working on it even before we made the proposal to acquire SOMOS.
What we saw is that this company was far better than the market was able to see. And in this building process, what we saw is the potential for creating a brand new disruptive process. So how was SOMUS seen up to now? And this, of course, based on hundreds of exchanges we had with analysts in the analysts in the market. Solmos was seen as a company with 3 different lines of business: a publishing house, a group of schools and also an educational system.
But we saw it in a different way. We didn't see that structure. In fact, we thought that SOMOS was much more than that because for us, this is an antiquated old fashioned way of looking at the company. It's broken down by products. And as any company undergoing a digital transformation process, you shouldn't look at your business thinking only of the different products.
You should look at the company based on the eyes or the perception of the customer in line with customer centricity. And so based on that, Solvos is not simply a combination of 3 lines of businesses. It's much more than that. We see a company operating in 2 major markets with 3 important lines of business. In our understanding, they work in the public market and in the private market.
In the public market, they provide content for official programs. This represents 28% of their net revenue with stable cash generation revenue. And what about the private market? This is where we have more potential for growth. This represents 72% of the net revenues, 30% in classic B2C in education and 42% in K-twelve integrated solutions for K-twelve schools.
K12 This is a BRL 106,000,000,000 market where SOMOS has just 1% of market share. Croton in Higher education has a 14% market share. We're not saying that we're going to expand all the way to 14%. What we're seeing is that between 14, there is a lot of room for growth in schools. Always maintaining the same strategy we like to emphasize.
It's different to have we should have different models for K-twelve and for higher education. In K-twelve, we tend to stay with the same corpus and the faculty, and we just integrate the back office of these schools when we acquire a new school. So we have 46 owned schools now in K-twelve, 17 language schools, 32 1,000 students enrolled in our own schools, 28,000 schools in language schools and 3,000 teachers and great potential for expansion either through greenfield or brownfield operations. So this is a market we master. We know how to integrate different schools.
We know the distinctions between higher education and K-twelve, but once again, this is a high potential market. And let's see now our strategic possibility in Sonos. We have K12 representing 42% of the revenues in Sonos. In the B2B or B2B2C. This is a market in which you provide services to schools or to students through schools.
So what do we have in place at Somos? What can we offer as integrated K-twelve education solution? When we say it's ready indeed, we have those solutions at Croton. And those solutions are being offered perhaps not under concept of an integrated platform. This is a concept that we are now refining and we're going to implement in 2019.
So there will be a very important change in the go to market. Those were solutions that were sold piecemeal. And our concept basically is to create an integrated platform, including all services schools need. For example, if they want integrated technology, they can go to SOMS. If they want textbooks, they can go to SOMS.
If they prefer a system, an educational system, they can come to us. If they want pedagogical support, they can come to us. If they want teacher training, they can come to us. If they want to buy, make purchases on the marketplace, fine. If they want a solution for the off peak hours in their schools, they can come to us as well.
And it's the school the client schools that decide what to buy from us. We're completely indifferent to the fact where that they want teaching or textbooks. So as you know, there's this discussion on textbooks and that they are losing a lot of ground to to educational systems. For example, they say technology will replace print materials, but we have the technology concept we're going implement as of 2019. So in terms of textbooks, what do we have?
We have digital textbooks and also print textbooks, comprehending 9, educational systems, bilingual, teaching and also pedagogical and para pedagogical books. In terms of integrated solutions, what do we have? We have, for example, technology platforms to support learning, learning, Triridaene Plural and Stuje. We also have technology platforms for evaluation of students and also Stujeari, our technology platform in adaptive education. Teacher training, we have profs.
This is a platform from Somos and also U. K, our platform of corporate education that will be made available for K-twelve teachers as well. In terms of marketplace, well, we have our physical and virtual stores that sell both to families and schools. As for the countershift, we have language options and also social emotional skill solutions as well. So what do we want to be?
We want to be the one stop partner powered by technology to all schools. Why technology? Because technology is going to bind all of these solutions together. And our premise is that when we structure the go to market, no schools will be receiving services or products from SOMOS without some technology example, if somebody buys a textbook from one of our solutions, we'll get information about it. And based on this information, we'll be able to tell schools and to reveal to them other needs they might not be aware of.
Based on the use of the platform by the students, we'll be able to have findings. For example, we can say, oh, there is a deviation in terms of the cognitive performance in your students. And maybe our cognitive this cognitive problem could be solved by our adaptive platform. So technology will be the basis for everything. In all solutions we deliver to companies, we'll have onboarded information and information technology because this will be the secret for us to drive even more demand for our services.
Well, in this chart, we tried to summarize the penetration in our schools. For example, they can buy a spot textbook or the pie, which is the kit the textbook kit and also with some services that go with it and also the educational system. And with this, we increased proton penetrations in the different schools. But any schools can also hire, for example, marketplace or teacher training or countershift solutions independently. So let's imagine, for example, if this is a school that's not as driven to content, they can choose educational system with a lower price tag and with all the technology that goes together with it.
Or if they want, for example, to invest more in teacher training, they can also select to do so. So this one stop partner concept for us is key, and it really changes the equation a little bit. In the previous concept, we were seen as an educational system partner, a textbook partner when we sold books to school. Well, of course, this is part of a publishing house. Publishing houses don't grow very fast, and the multiples are low.
This was, of course, the financial proposition. But now I can see what is the school that gives me the greater potential. It's the school where I can sell one book because I can sell from 1 to 30 to 50 different books. I can sell the whole package of solutions, and I can have many cross selling and upselling opportunities. So selling an opportunity.
So and opportunity. So and the more opportunities we'll find will be in the schools in which we sell 36,000 schools with whom we have no relations yet. So this is what we have in house and what we are reorganizing ourselves to become a one stop shop platform. And what else is in store? What are we developing for beyond 20 19?
And that can really create disruption in the K-twelve market. It's the concept of the Allied School. This is what we are betting on. It's what is clearly added value. It was not in the original plans, and it's an added value that we found in the operations.
And what does it mean? It means to leave time for schools to do what they like to do and were born to do, And we offer as a service to those schools the things in which we excel and what we do better than they are than they do. So payable, human resources, invoicing, payable, human resources, invoicing, billing, all administrative processes, AVA, a virtual environment for learning, all services that are additional to the core business of schools, including student recruitment and full support to management. Do you know how much schools spend on this? Usually, they spend up to 35% of their net revenues in these administrative services.
And because of their lack of scale, they cannot deliver on all of this with high quality. The process, as I was saying, can be very disruptive because it can make possible that schools with a lower number of students become viable financially. They be able to manage their activities at a much lower cost, at much less than 35% of the net revenues they used in the past. For example, when they hire accounts payable from us, they will benefit from a scale that includes 8,000 other schools. Or when they get ERP services from us, it's the same proposition, a lot more scale.
And all of this at a cost that will be far inferior to the 35% of net revenues. This will completely revolutionize the industry. It's an asset light project for Croton, and the ROI will be extremely high for us. Why do I say it's an asset light project? Because I would have had to develop this platform for my schools.
At any rate, I need state of the art ERP. I need shared services in the state of the interested in hiring services like that. And this will free up their time to manage their the schools and their activities academically, which is what they like to do the most. So this concept, the Allied concept, was not born in Brazil. It's found in other segments.
And even in the educational sector of other countries in Latin America, we see that this model is other countries in Latin America, we see that this model is prospering. But we want to set up this alliance model, and we are here is in perfect execution. But I think that Frontera now has the skills to accomplish this and to completely change the face of K-twelve education in Brazil, introducing a product that is unprecedented in Brazil and that will benefit all schools, students with higher quality service and higher quality education and also shareholders generating high return on invested capital. So this is a project where all stakeholders will benefit, and it's the kind of thing we like to go after. So I will now just like to close the presentation.
So what do we expect? Undergraduate, we expect top line growth with stability of margins in same stores. New stores until they don't reach maturity continuing indication, top line growth with growth in margins K12 growth in top line with growth in margins and a new strategic positioning for the organization. So as you can see, opportunities abound in Croton. We're feeling very optimistic.
We planted the seeds in 2018. We still have some planting to do in 2019 and in the future, but the harvest will come and it will be abundant. So now let's turn to the presentation to Gil. It's It's an honor to be here. Well, in the last Croton Day, we brought you this message that we would love to invest once again in K12.
And this is what we did, 1st of all, with the acquisition of some of the SABEL units. And all of this gained gigantic traction with the acquisition of SOMOS for all purposes and intents, when of course, when I talk about SOMOS, I'm referring to the integration of both all K-twelve assets of the company with the exception of technical school and Higher Education, which is now under our continuing education VP. Along my talk, I would like to show you a little bit about the prospects for education in the world, what learnings we can get from the American market. And also, I want to say a few words about the potential for growth in K-twelve in Brazil. So education, education worldwide.
According to our projections, the growth in spending will be above the growth in the economy with several $1,000,000,000,000 being spent. This including, of course, all public systems. And it's interesting to note that 63% of all the spending are being channeled into preschool and K-twelve. And learning. And here, the CAGR projections are very high.
They should be gaining a lot of traction in coming years as a result of the higher spending in technology in high school and also the enrollment of millions of children in preschools. This is, of course, the worldwide situation. In the U. S, there are a few phenomena taking place that I would like to call your attention to. The American market for didactic content was not really going very well until 2,0092010 when the United States instituted the Common Core Curriculum, meaning that all American states should get organized to offer the common core in the school districts.
And Brazil is going through a very similar time. What we call, however, is the BNCC, Bazzi Nacional Coricolaibre. It's the same thing. So with the introduction of the Common Core between 20,082,009, there was a jump of 42% in the availability education has much higher penetration. The market is far more sensitive to regulatory changes than Brazil, where we have 15% to 70% of students enrolled in private schools.
But it's important to know that the American Common Core was something that really propelled the growth of content. And at least all books that were printed from this year backwards are obsolete. Everything that anymore with the core Brazilian curriculum. And this is a turnover that happens just a few years in a lifetime. And very interestingly, in the Obama administration, the new core.
And in the Obama administration, a new policy was developed in the U. S. All children have to learn.
So each child will have to learn. Now states and districts had to focus on buying products and services that could be customized, that could evaluate each child and then propose between 2014 2016 because now with this new policy, states and districts in the United States started to buy different things. Many of these initiatives were not successful. So therefore today and I'm going to talk about that in the next slide, districts and states that were able to provide the common core using additional technology. These were able to deliver the desired quality.
And so now the projection is that $8,200,000,000 will be spent until 2020 in the U. S, but these will be spent in an integrated solution. So we are no longer discussing whether it's going to be software, textbook, but we're talking about fully integrated educational content using technology. Now so the teaching materials market grew 42% after the implementation of the common core in the U. S.
And personalization initially made the revenue decrease, but now it is already returning to the previous level. And talking a bit about the consumption profile of those $1,000,000,000 which are spent by states or districts in the United States. In 2,005, we had essentially the orange portion on the left. It was traditional educational content printed on paper into small penetration of additional materials. And the additional materials were also print.
So for example, when they were preparing for the SAT, families or schools would buy this service, but again, it was print materials, print exercises, print tests. So this was the scenario in 2,005. Now, 2010, 5 years later, we could see a reduction in traditional content, an increase of the penetration of digital contents in the dark blue and a growth in all kinds of supplemental materials, 15, where you have almost the same level of traditional disciplines plus supplemental materials. And again, we see almost a a balance between print and digital. So as an example, it means that the winning suppliers are those that can integrate the common core to supplemental content, providing all digital solutions if the school saw once.
But of course, if the school still wants to use print look at an interesting case on K12 of a U. S. Company that was truly able to understand the scenario and make the most of these trends, that was McGraw Hill. McGraw Hill is a case of success that's going to help us understand the phenomena that happened in the U. S.
So the dominant or prevailing player must combine the common core with hardware and Internet connection is much easier than it is in our country. So maybe here in Brazil, paper will still life longer than in the U. S. Of course, it still accounts for half of the market. Now if prevailing player must combine educational content and technology, well, we have just described our own company, Somos and all Sabir assets use different technology solutions integrated to the educational materials.
Now educational materials we can provide in the media that the school wants, in the methodology that the school wants. I mean, if the school wants to use textbook, fine. If they prefer a learning systems, then fine. If they prefer that we identify class by class what the group needs then, okay, again. So if the school wants to have more flexibility, and I'm not going to tell the teacher what to do each day, but what to do perhaps in a week or in a month, okay, too.
All of these products are available. Again, players training, everyone who comes into contact with students, because we're always talking about teachers training, but if you want to have a successful school, you also need good coordinators, good directors. So, the content of Croton Universities can be applied and it's very useful. We were already using that in partner schools of Pithagoras and quite successfully. Also solutions for counter shift, the supplemental portion in the United States is related to technologies, of course, but also countershift solutions.
They don't call it countershift there because students study for a longer period in the period in the United States. But this is when students stay longer in school for another one hour, for another four hours. We call it counter shift in Brazil. In the U. S, they call it supplemental education.
So we already have languages, English, which is priority number 1 for children's education. But we have to expand this portfolio, including computer science, coding, robotics and many other opportunities. Now the somehow a vaccination for things that may happen in the future. Have you seen what's happening to Brazilian bookshops? Well, we all know that this channel of distribution bookshops as a channel to distribute books is now going through a crisis.
And we have our own channel. Big schools in Sao Paulo, such as Porto Seguro or I forgot the
name of this
name. Also in Morumbi, Santoamerico. So large schools in Sao Paulo already have their own marketplace called Livru Facio or Easy Book to sell contents, educational content, even school uniforms. But this, of course, makes sense for big schools, but the fact is that smaller schools also need a solution. This is good for us because we can have direct contact into a rebate as benefit for the schools.
So it is truly a win win model. Now what Rodrigo just described, I mean, the school the marketplace is perfectly aligned to the successful companies in the United States. Now this is about penetration. Rodrigo has shown this slide already, but I wanted to add that, yes, a school that uses only one book is extremely important for us. I mean, the most important school for us when we talk about growth potential is that kind of school that doesn't buy anything from us, and there are many who still don't buy anything from us.
But a school who buys only one book from us will have access to this technology. So we will know who the students are who are who have information and data, we can bring information to the teachers, to the directors, to the families, and we can start to uplift this relationship so they can begin from one book in spot, then they may move on to par. Yes, bless you. I have a video I wanted to show you about PAR, and I'm going to show it to you in a couple of flights. But in short, if I wanted to summarize this, PAR is an education system using textbooks.
Of course, we have the learning system using our own textbooks. Brazil was actually a pioneer developing these learning systems. PAR is similar. However, it uses books. It is a more flexible solution because teachers can look at the catalog of books and choose the books they would like to use in their school.
But the video will talk more about PAR. Now, the learning systems market is very well known here in Brazil. Today, I'm not going to talk a lot about this market because I believe that you are following information on this already. But from one book or only a few books, we can grow this partnership based on textbooks in Par. Par has a minimum 50% of all contents
Par.
But percent of our contents. They may also decide to be a hybrid school where they will remain in par for primary education, but then for high school maybe they want to use a learning system and both par as well as learning systems can transform these schools into you think that this business of Allied Schools can be successful? Look, I believe that if schools love to teach, if schools love to educate, to choose methodologies and resources to teach and if they already choose us as a partner, I mean, in things that they love, they already choose us as a partner that is they're already giving to us through the services we provide, they give to us part of their methodology, well, then I believe that to do things that school don't really like to they want to have a partner. I mean, I always make a joke. I say, I never met any school who was in love with accounting.
I've never seen a school that conducted a meeting saying those who are in love with collections. No, that doesn't happen. Schools don't like to do that typically. And the world of private schools here in Brazil, I mean, without having any kind of stigma, of course, we have many different types of schools. But the average Brazilian private schools are family concerns where you have a portion of the family who loves education and this is what they do.
And then, well, other members of the family who are not actually into education, well, then they end up taking on G and A to manage the school. So I see a great opportunity because maybe schools are struggling in a market which is increasingly more competitive. So yes, maybe they can concentrate in their core business, which is education, and they might accept partners in our allies to do the other activities. So they will be able to improve their margins. They will provide a better service in providing educational services.
So this is the concept of Allied Schools. And now thinking about penetration, schools where we have less penetration when they buy only one book from us up until our own schools where we have full penetration. We own the schools, right? Now I'd like to show you the penetration opportunity we have. I mean how much we can still grow even in what you already see in our reports in our ITRs.
Now each one of these bars is a histogram looking at the number of books that each school uses from our ecosystem, Saver and Somos. Now let me add some explanation to you about Brazilian schools. I mean, if you look at INAP Census, Brazil has 34,000 private schools. If
we
on farms and technical schools because these are very specific niches, then Brazil has 20,000 private schools, which concentrate 95% of all Brazilian private students. And I have a chart showing these 20,000 Brazilian private schools. 10,000 are in the bar you see on the left, 10,000. 10,000 of these schools do not use any materials from SOMOS, nothing at all. Half of the Brazilian market does not use I mean the private market in Brazil uses no contents from Somos.
And this is the most spectacular market share because everything we can get will be again. Of course, on the right hand side, we have a large number of schools and a large number of students who of all Brazilian schools today don't use I mean, have used less than 10% of our contents. I mean, their contents do not come from SOMOS, which means we have a huge opportunity to grow. Obviously, if you look at the number of 5% market share, which is the weighted average, then the story is not complete. Why not?
Well, because 60% of the schools, half of them have nothing and 10% have only 10 percent of SOMOS content. So 60% of all of these scores have less than 10% of our resources. And so we have a great opportunity to grow beginning from 1 book and ending with allied schools. And Par will help us on this journey. So let's understand Par a little deeper.
The world has changed, but what about your school? The way we deal with education has to change too. Now today, we're going to help you with this task. PAR is an educational platform that combines textbooks, high quality textbooks, digital tools and support tools. It is a complete solution that will make your work easier thinking about the objectives of your school.
How do we do that together? Through the implementation of the education management cycle and 4 steps, planning, development, continued evaluation and pedagogical intervention. Together, we will create a personalized cycle, including the ideology and the pedagogical proposal of your school ensuring autonomy and freedom, more than 800 titles of renowned offers plus many benefits that will be available, so as to educate creative students that will be prepared to face the challenges of the future, a complete platform to support the students' studies, continued education and perfectioning for teachers. And also, English teaching in a flexible and excessive way, a development of social and emotional skills for students and consultancy talk to us to know more about PAR. Our experts are at your service.
I think that it's easier to connect to what I said before, combining the common core plus technology today. We have reinforced PAR as a solution to sell textbooks. However, the same technology can be present in all of our learning systems. Actually part of them already have their own platform, so we can integrate that so the school will be able to choose whether they want to work using textbooks or learning systems in each part, in each portion of their school. Now PAR is not a project.
PAR is a reality already at SOMOS. In 2015, when we bought Sarajevo e Ducasseau, we already had in mind this idea of setting up a broad catalog that it would be impossible or almost impossible for a teacher not to find the right solution in that catalog. And now the fact is, I mean, let's understand here the PAR journey. So this is the journey of a school who is already in PAR. Schools which are not at par, this is a market share of 30% on average.
I I showed you that in 60% of all Brazilian schools, we have almost nothing. But on average, 30% of the private market are schools which are not included in PAR. Now the minimum contents from par. So of the 4 20 schools that are already in the par system, 4 20 schools, I mean, this is equivalent to a midsized educational system and it's already grown 21%, as you can see here on top of the average use of Par Materials, which is 30%. Now almost immediately after the school signs this agreement named Par Simples, they convert into the full Par and this has already happened.
So 51% that was the minimum level to be a par member, to be a par simple member, these schools have decided to be full par members. So that we may have if we can reach 70%. And as of the 2nd year in the contract, we believe we can reach 75%. So these are all the resources, the academic resources that schools use coming from par. So at least, I mean, if we didn't have all of these opportunities, we would go from 30% to 67%.
And that is not so difficult. So we see a great opportunity to gain share to increase our relationship with these schools. Now this is another solution I'd like to show you. It is supplemental to par. So this is a school that will say, Guillaume, I don't want to use use paper books can go to the library, but everything else will be digital.
This is named the Parr library. It is an evolution of our relationship with PAR because if you want to be a PAR library member, 1 100% of your teaching materials have to come from SOMOS. In the traditional PAR, you can use 50 percent up to 70%. But if you want to be a PAR library, remember, you have to use 100 percent PAR materials. But it's interesting.
If you compare spot books, books that families buy anywhere in a group of 30 students of high school, the family pays BRL2,471 for the sellout. So the family pays to the retail stores, BRL2,000 $400,000 We have 30% market share. So in each distribution channel. So we have 30% share. So well then of course you have the cost of paper, cost of printing, but the spot book brings a margin of contribution of BRL 11,000 in a group of 30 Par library, look at that, the family will pay to our marketplace to Livrufat, the family will pay only BRL10.79.
The conversion rate is 97%. But didn't you say it was 100? Yes, well, but 3% of these students, they are teachers' children. And so we donate these materials
to
children of teachers. And so our conversion rate would be 97%, and the contribution margin is BRL 21,000 BRL494. It's good for the family because they are spending less than half. And why is it good for the school? It's good for the school because in par and much more in par library, schools will receive consultancy, training.
Also have a rebate when they sell. I mean, let's remember that many Brazilian schools adopt learning systems because they need the markup that the learning systems give them. Now the Parr library is recognizing that the other half of schools, they may not want to use learning systems, but maybe they also want the markup. And so well, and they also have the physical books. We can even donate these books to the library If they have no connection, the connection is not working, they can study in the library.
It's good for us, and we can double the margin of contribution of any school, as you can see here, from 11,000 to 21,000. So it generates a lot of value for us. So this, again, is a project that requires low investment because all the technology is already up and running. Now about Allied Schools, what are the noncore activities in a school? Well, I think Rodrigo has already mentioned these are things that schools can buy from us, paying to us part of their G and A.
And then the systems we will use to provide these services. I think Rodrigo has already mentioned also, but in my final slide, I'd like to talk about the size of this opportunity because it's huge. Okay. There's one thing though and journalists asked about that in the previous meeting. They were asking us whether this is already working.
I mean it depends. Most of these systems are already being used in our own schools. But in Anglo, for example, there is a partnership between Anglo and the schools for marketing and students service for them. Now when we talk about schools, we have schools scattered throughout Brazil. Now this is important for our company's ecosystem.
Schools are good business. Schools that have a good reputation, they have top line and so they have good margins. But in addition, they allow for us to build solid systems, which we can then offer to other schools too. Today, we have 46 schools. Brazil has, as I told you, Brazil has about 20,000 schools.
And it is impossible, I mean, if you can creating value, generating quality, increasing the number of enrollments, so we must have robust transaction systems that can be used by these schools. Now to talk about what happened after the last Graton Day. So talking about SABIR, regardless of sumo, SABIR was already doing this strategy of buying flagship schools and then build other units in the area of influence. This is the Leonardo da Vinci School in Espirito Santo. Santo.
This is a true gem, a champion in its state. These are some photographs of the school. The school has 72% of its students studying morning and afternoon, which is again a very important lesson. Remember this number, only 3% of SOMOS students are studying morning and afternoon. Now here you have an example of a school that has 72% of their students morning and afternoon whereas we have 3%.
Look at the size of this opportunity and we know we can do it. Leonardo da Vinci started its expansion already. These are some photographs of the new architectural building of the new unit, the new Greenfield
unit,
of the process revitalizing the building. Enrollment will be open in September and this first greenfield project of Leonardo da Vinci will begin classes in February 2020. Now this is in Manaus, we acquired this school Lato Senso, which is a champion in the national exam. And now if you compare Lato Senso, Lato Senso ranks 2nd and the first who's always the 1st school, there are 7 times more students. The national exam is taken by students in the 3rd grade of the high school and this school that always ranks 1st has 7 more students.
I mean not every year, but many, many years they are the world the national champion. Now here we have the expansion of Lato Senso, 1 brownfield ready in the north of Manaus. It's a neighborhood named Cidade Nova and the new project, the greenfield project named Punta Negra, it's a beautiful neighborhood in Manaus. We're already building this greenfield. So you can see some photographs of the building site last week.
And on the right hand side, you have the project. So let me go back one slide and I could comment that the educational quality of Lato Senso is not really reflected in the building architecture. I mean, the building architecture is not up to the quality provided by the school. So now, well, the school is going to go through this expansion. Now talking about integration and synergies, I have another 4 minutes.
I'd like to thank Julia, our great partner in this integration. He's doing an incredible job. She while we've obtained this approval from CADE, the Brazilian antitrust authority, which was quicker than expected. So now we know what to do. The first thing we did was to conduct 87 meetings with the main leaders of Somos saying, well, the reports will not change or yes, the report will change.
Next, we had this event, this meeting you can see in the center, it's called pre day 1. It was on Teachers' Day. So, I think this was a good sign. The first day of the new combined company was October 15, which is Teachers' Day. We brought together all the leaders of Somos and we spoke about these contents that we're discussing here today.
The integration ended with day 1, 1500 people, the top leaders of both Somos and Croton meeting in Sao Paulo and the other 28,000 employees participating through our distance learning tools or the SOMOS communication platform. And the feedback was different roles in this structure. Now going to the synergies, what Rodrigo referred to in his talk. Based on the knowledge we have about the company after the deep dive we did in the different verticals, we feel very comfortable to be showing you 20% more in synergies than the ones we had previously identified. Those are synergies coming from all of those lines.
Many of those synergies are in the area of costs and expenses. Mentioning in the comparison between Leonardo da Vinci and the Somos schools that we also have a potential for top line synergy. Synergy. If we have schools where more than half of the students study in the countership and some schools in which only 3% of the students take the percent of the students take the counter shift. Of course, we have a lot of expertise and we can capture this opportunity side comment.
I had actually asked for a And by the way, I have a side comment. I had actually asked for permission from Giulia to make this comment. The pool of synergies I was referring to in the will come more than half of this pool of synergies are to be expected between 2019 2020. So how far can we go? This is the question.
This is, of course, not a promise. It's an exercise in trying to outline the It's a very stable program. We believe that all governments from Ferlandaiki to Lula and Dilma in all of these programs, we saw growth in penetration in the number of students. We have 23% of revenue share in this program, while the average we have 40% of share. So we believe that by making wider investments, we'll have the same share that we used to have in the past.
This, of course, means that we have an opportunity as for the K12 content, well, we have a golden rule that I would like to share with you, something we learned after 32 years operating in the K-twelve twelve market. How much does the school spend on textbooks? This is the golden rule. Usually, what is equivalent to 1 month of tuition. So if the cost of this tuition is BRL 1500, usually, they adopt textbooks that will cost around BRL 1500.
If the tuition is BRL 3,000, then BRL 3,000 in textbooks. So based on the total revenue of the schools, you can define size or quantify this possible K-twelve cost. So for example, the total tuition paid in Brazil represents €60,000,000,000 and onetwelve of this is what family spend on K12. Content, €5,000,000,000 We have 28%. So we believe that the fair share, considering all of the content options, plus par, plus the par library, should reach 40%.
So just So in K12's content today, we should have a company as large as SOMO is today. And to manage the school, Rodrigo mentioned that we have 14% of the private school students in Brazil. And with 4% of the students in this projection, with just 4% of the K-twelve students. And today, we have just 1%. And this is not daydreaming to believe that we can reach up to 4%.
And countershifts, this is a market worth EUR 40,000,000,000. And there is another golden rule that is very clear in the mind of everyone who works with it, and it was spent in countership cotton, for example, English as a second language or the other share with the service itself. So that's why I can break down the countershift column, the countershift services and also the materials on the CounterShift are the textbooks we use in the CounterShift. And of course, we have both lines of activity. Since 4% of the students will be attending our schools, 4% of the countership should be the minimum fair share for us.
But if we were able to capture 2% more in the counter shift percent of the counter shift revenue. Once again, in just in this column, we would have a company with a in Brazilian schools, maybe half of this, when we are providers of counter shift content, we would have over €600,000,000 in opportunities. And then we have the Allied Schools. It's €60,000,000,000 is the revenue in these schools. 35% of this revenue is spent by schools in general administrative expenses.
This is an expense that is already being made. And based on our due diligence, this is the average in the Somos schools, in the Sabeir schools. And of all pipeline that Somos and A and us have considered. So 35% everything that is captured as revenue goes to SG and A. And if we are able to capture 20% of this market in our Allied School concept in this very improvised market, we would have the aligned school business could be just as big as SOMOS is today.
So in 2017, we see a company of BRL 2,000,000,000 in revenue, and we believe that the potential market to be pursued and those columns are indeed our priorities, we could actually have a revenue that's 6x as big as that. So thank you very much. Now who's next? Roberto Valeri with you. Thank you.
Good afternoon, everyone. It's a great pleasure to be here once again. Now to talk about our leadership in undergraduate. Going back to what Rodrigo presented, I think that one of our missions in the undergraduate team is to grow revenues while maintaining margins. Rodrigo made a list of our strategies, cost efficiency, commercial discipline and also loyalty, higher loyalty among our we're going to use.
While Rodrigo talked about the major impact factors, the pressure we received on margin and revenues. We know that unemployment in Brazil is a great pressure we're feeling. A lot of students are thinking twice because before they start an educational project. And finally, the reduction of the availability of FIES financing. Just to give a little more color on this, you can observe the penetration of Student in December 2017.
We lost 14 percentage points from the 2018 base. This is a challenge that is very significant. It will be overcome. We will beat the guidance delivering results in spite of all the pressure. We have finished our budget, and we have found the ways of taking this next leap of 12 percentage points.
And we'll have a challenge all the way through December 2020 of 5 percentage points more, which would take us to 8% of penetration in the CIES funded CS funded students. So 2018 was challenging. For 2019, we've found the path to follow. And from then on, everything will be much easier just to make sure that you're reassured that what we saw 2 years what we said 2 years ago that we would be able to overcome the FIES pressures is in fact come to reality. So in the light of what Rodrigo presented and being aware of our strategic map that's based on delivering student experience, What is it that we expect?
And how do we work on these focuses on the undergraduate unit? First of all, we're responsible for delivering great student experiences. This goes through loyalty engagement and finally will result in reenrollments in a very simple way. We are the orchestrators of the resources available in the organization that will create the best possible experience for our student base. And as you know, the student recruitment team works with me and marketing as well.
So I'll give you an example of the level of sophistication that we use in student recruitment. And this actually has a strong link with loyalty. And margin loyalty, the 3 pillars we have to emphasize. This may sound like a cliche, but in fact, the purpose of this slide is to show you how everything has to be very well orchestrated. I'll show in practice how it works, how we work and make sure that reenrollments occur.
So if you've seen me talking about distance learning before, you know that the operation itself is very simple. It's a simple concept that needs proper execution. And it's all about the details, about the sweat and blood you put into the execution. We know that there are 3 very important pillars that will sustain operations. First of all, intelligence.
I need to have access to information. I need to be fed with data to be sure I can take the best decisions. And also, I need a management model. If I am not able to transform information into actionable data, I won't be able to manage an opportunities involved. And finally, development.
What I cannot execute on a daily basis through my plans has to go into projects and initiatives so that in the next cycle, in the next student recruitment wave, we'll obtain better results than in the past. And of course, based on the current our area. Well, intelligence tools. Until not very long ago, we tried to recruit as many students as possible. We were trying to drive greater values with higher tickets.
This is still valid for us. But for us, now this is only the first step. If I am able to recruit a good student that is a good student, meaning a student with a lower likelihood of dropping out, I can have different tickets depending on how long they will stay with us. And I'll give you an example of that. Academic quality for the student, academic engagement and also is a reference for the probability of reenrollment.
Performances in the 1st or second cycle. For example, a student with a very high NA that enrolled after classes have begun show a lower performance than the cluster of NAIM students who enrolled by December in the previous year. Well, it makes sense if you stop to think about it. It's somebody who is better organized, who enrolled earlier and all of this is an indication of the quality of this student. But this is, of course, a piece of information that isolated doesn't mean much.
But when used with data intelligence, we can make better decisions and in terms of how to address the student at what point of the cycle. So once again, our decisions are not only based on price and volume of students. We try to analyze the potential of the student along his lifetime or her lifetime, the lifetime value along the program and considering also the cycle they are enrolling in. The second item, what I call the student experience. Let's imagine a student enroll in a 4 year program that will enroll several times, up to 7 times, in fact, if they go all the way through graduation.
And at every new cycle, there is a fee. And here, this fee doesn't vary according to the in ANGRY or any other variables. Why is this important to remember? Because in my student recruitment definition, if I know what's the probability of converting student early on, I can act more aggressively on a lead or I can try to secure better conversion rates along the enrollment cycle to offset something. So for example, the CPMATIC, this is what we call the cost per enrollment in a unit of like Niteroi, where it's a very expensive location such as Sertaozinho.
So a long time, how can I really optimize the lifetime value of the student? I can use the tools I have available. For example, reenrollment is one of these tools. But this, of course, depends on delinquency rates. It depends on engagement and everything under the background of loyalty.
But when I look at loyalty from the beginning of the cycle, from first time I get this lead with a phone number, then I can say, for example, in this chart, I can tell how much value I'll gain in terms of cost synergies because that student, depending on where he enrolls, can be worth more depending on the grades they obtain. So for example, if this is a student that will be on campus for most of the courses, maybe I can offer them a better scholarship to be sure that they enroll because I know that this is an exceptional student regardless of the type of class he attends. So like this, I can optimize the first part of my chart. Secondly, the commercial aspect. If I know that this is a student with a potential to increase his lifetime value along the life cycle, then of course, I can act more aggressively.
Well, so as I was saying, the intelligence tools are very important, for example, to decide many things, for example, how much I'm willing to pay for a keyword in Google and how to optimize some of our programs that have reached maturity level and that have no specific recruitment needs right now. I think it's very important that we spend a little time on this so that you really understand all the details. And once again, to avoid the cliche, those of us working with analytics and machine learning, we have to avoid using cliches. So I am, of course, talking about vision and execution at the same time. But what do we use today?
We use external and internal data besides student information potential student information. So we do now commit with this data. I won't tell you the details, but I'll give you some practical examples of how we are or how much we're willing to pay for this lead. So for example, how do we work with the external factors for each of our 70 1,000 courses. If we were to consider those courses as SKUs because multiplying hold the course.
And this is, of course, one of the criteria we use. So first of all, I need to know what is my what is the portfolio of my competitors? Do they have similar programs? What are their pricing policies? And also, what are the offers.
Many times, what you see being announced in a website is not what is eventually prices, the prices of our competitors that are being announced not only in competitors' website, but also in Duques Maes and other marketplaces. This, of course, is very helpful as a reference. We also have our need to checks. And I also have my call center. When I really need to be sure that this is solid information, reliable information thinking that, of course, we're always trying to maximize revenue and the average ticket of that specific student.
And of course, the basis for everything is competitive intelligence. This is just the first step. This in terms of the external information. What about the internal information? Well, by using analytics and forecasting, I need to define the value of that student considering the 70,000 SKUs, the 70 1,000 courses, how much is the student worth in terms of the historic enrollment levels, so in simple terms, we use several tools, but analytics here are critical.
So I have the little worse, of course, this will have an influence on my need to pursue this student. So once I get the tax registration to drop out, I can have closer contact through WhatsApp and other messaging tools? And secondly, how can I create incentives in terms of offers depending on the potential of the student that can be more aggressive or not in the offering of scholarships? Sometimes people say, well, your policies for scholarships are very aggressive in some locations. This is not a specific or rather a widespread policy.
It's always always very specific to that specific program and Citi. And it's very important that our sales force be properly compensated, and we also have variable compensation for our sales team tied to the life cycle value of the student. This is a graph that shows our curves permanent curves. Let me give you a practical example. We know, for example, that in agreements, they have a reenrollment rate that is better than just giving out leaflets.
I mean, when you have an agreement with, I don't know, a union in a specific city or it's a union with for the Brazil, you're going to get totally different students in terms of the type of student you get. So K360, this is the tool that orchestrates this student recruitment dynamic, always based on value. Let me show you in the video. The ability to clusterize and replicate statistic models. This is the context field where we'll find the applicants using the filters available in the platform.
Besides that, you can search for a specific applicant by typing her name, tax ID and other data. By selecting an applicant, you'll get access to the full history and information such as e mail and phone number. You can also check-in what campaign this applicant is inserted, and you can continue with the next steps. You can also drive offers, the offers that best suit each different audience. More efficiency for you, more productivity and higher enrollment conversion rates.
In the offer field, you map out the profiles of Croton, the best it will be for you in terms of your compensation. To find the ideal offer, you have to check the tool with information about different programs, the different units. For example, here we see an agreement with Ford Motor Company. So if the available offers will be presented to you, you can be sure that the proposition will be a success. And finally, the payment slip with the proposal will be generated and delivered to the applicant.
In very simple terms, we have all of this intelligence in house in the K360. We can find out a lot about the student. And there is also I'm not really sure, but if you saw that we also have different scripts that are used because I know the information about the student, if they have a good in grade. In this case, we discovered it was a Ford employee. And in this case, for example, the scholarship is more attractive than it would have been offered if it was just an in name student.
And just imagine how this would work in one of the tools that makes part of this digital transformation journey. So recruiting attention to. And with this, I close my presentation on recruitment. I was trying to demonstrate to you the meaning of recruiting quality students. Now let's talk about loyalty.
We started to measure NPS
a couple of years ago. So it's more than the institutional evaluation we had because now we measure monthly. How do we measure in all possible ways? We measure 7 main dimensions: academic, on premise, service on premise, service online service to students and the brand perception. We measure by brand, by mode, whether it is on premise or distance learning, if it is in a partner unit or our own unit and we measure all of this monthly.
So we can clearly identify everything that happens during the year so that we can take action. This is a deep dive to work on these initiatives and then set up action plans. For us, this is so serious that in our management rituals, we have monthly rituals in all units and Rodrigo actually participates in this committee, the Student Success Committee. I will show you 13.5 percentage points, which is huge, especially in a context where students need to accumulate different experiences to change their perception and a large number of meetings, 300 work meetings. Talking about projects focusing on retention, what is retention for us?
In simple terms, it has 3 steps embracing, so after the student is enrolled, how is the student welcomed? 50 50% of the dropout rate happens usually in the 1st year, 75% of the dropout happens in the 1st term, in the 1st semester or between the 1st and third the and then had difficulty to pay for the 2nd bill, then he will not be able to pay for the 3rd bill and so he will not be able to reenroll. So, if we have this information, what do we do to help that student be able to re enroll? Now, talking about the first phase, embracing, it seems like something simple and it would be if we had a school with 400 students. The headmaster would go there on the 1st day or at the time of enrollment, would introduce the school, would explain everything, welcome the student.
And we try to replicate this in our large scale. And yes, we've been able to harvest good results. The first item is very similar. So we have a team using a new platform. So this is a dedicated to welcoming these students at the call center or in the units.
This team will call the student, will explain the school, will tell him how to use the virtual environment, provide him his login, explain how the academic model model works, how the evaluation model works because we work with continued evaluation. So, this team student will remain engaged between enrollment and the time when classes begin. As classes begin, we also have a whole ritual as we welcome the students, the opening class because we know that it is worth to invest in this first moment. Of course, I don't have time to talk about all the actions that we take, but the result is clear. We started to do this in January 20 points improvement in the first semester of this initiative is huge and it shows a big potential for the future.
We also see this is consistent. The student not only reenrolls more, but the student is, in fact, more engaged in pre class, post class activities. Now retention. During the semester, because embracing is early on as classes begin. But during the semester, we provide reactive service and proactive service.
I'll give you just two examples. Reactive service at the unit, but what is this? This is a team, a dedicated team using a platform with different arguments, academic depths, relationship depths, plus tools to make it easier for the student. Sometimes, the student needs to have equivalent disciplines acknowledged or the student is facing some financial difficulties. And since we implemented this cancellation, we've been able to retain 30% of these requests for cancellation.
And of course, this is the result of the last semester, twenty eighteen, the second half of the year. So the first half of the year, we had 22% and in the second half of the year, 32%, I mean. We also used the CRM tool. So, the same intelligence we use to attract students, we also use it for retention. So, that was reactive service.
What about our proactive service? Today, we have a good predictive model. We hope to have an even better model, but this one has 74% assertiveness. So, it's a good model, although we think we can still improve. But the model points at students that may drop out.
Then we cross that information with other information to evaluate the accuracy of this model. Why is it important to have this model? Because, of course, we cannot talk to 800 1,000 students at the same time, so we have to be selective and know who we will talk to. This model helps because it saves 50% of the efforts. So then we make a personal contact with the people that are appointed by the model.
Now looking at the results, I mean, today, when you look at the control group and the group of people under this initiative, we've been able to retain 8 percentage points. So, 8% more enrollments among the group that received a contact by our team compared to the control group. And all of them were pointed by the model as inclined to cancel the enrollment. So in a very simple way, we can look at the students' full journey. But of course, it has to be managed.
How do we support the students' journey? You have probably heard my talk on distance learning and we always talk about Mondrian which is one of our tools. However, we have many more. So, financial model, indicators book, operations map, 0 fold. So whenever we see a failure in operations, especially well, Rodrigo mentioned about costs.
So for instance, what is the cost of energy per student? What is the cost of energy per square meter? What's the cost of the kilowatt hour? What is the consumption of energy along the year. Many times, the Porto Alegre unit just to give you an example so you see the level of depth.
So, the Porto Alegre consumption of energy is very close to the consumption of energy in Maceillor. This is, of course, in the summer. What happens in the winter? Now then we want to look at the holistic picture to see how we can optimize the picture. So this is a level of detail where we work.
But the basis here is the Mondrian system. I'll tell you how it works. I brought a video so you will easily understand. Mondrian helps identify opportunities, but they have to be part of an action plan. So it is a list of the things that have to be done for us to be able to detect and tap an opportunity.
And then how do we control the execution of these action plans? I mean, those of you who work in operations, you know how it works. I mean, the big challenge is how to execute that. Mondrian sets up comparable units, identifies to 20 panels where we evaluate our centers. The main panel compares the performance of these centers on financial indicators and also operations and academic performance.
Let's look at Sericeira Center in the south of Rondonia. We can see on the chart that it is in a position in a good position compared to the national average. But we want to compare that with other similar units. SK3 a segment where we include smaller towns that had a lower level of development where conversion panel, we see the reason why there was a perceptible improvement in attraction of students, better conversion rates based on a smaller number of students. Delivery in many of our indicators.
So this is a quick and clear diagnosis of the Serijeda center. If this center continues with the same performance, it will grow and have the right level of productivity. Look at default. For example, if I know that a unit is facing collection problems or a center that does not have a collection team, I can attach priority to that using my corporate collections team to support that center. And then, well, we write an action plan to be able to set up a collection team in that center.
This is a simple example. But if I don't know that, if I don't have the information, I cannot set up an action plan. And as I said in the beginning, I don't want this to be a cliche, but what I need to do is to use Mondrian to orchestrate our resources. Mondrian helps us in that. Well, I think we had a problem in the screen.
No, it's back. So Mondrian, as you could see, the clusters, it has basically 4 pillars, which we call FOCA, financial, operational, commercial and academic. This is why is it important because this is the way we set up our action plans by segments. This is a clear example of our evolution. Look at the axis.
You can see the evolution between 2017 2018. That is all of this group of units have made progress going towards the blue quadrant, which is the highest quality. Of course, in some examples, I mean, this center had difficulties in operations, in commercial, finance, but they set up action plans. And in 6 months, they were able to move to the blue quadrant. It's very simple to know because the center looks at the cluster and asks, how am I performing?
What do other people do better? And how can I improve? And this is what we I mean, we want directors who ask this question, who are interested to know how to improve, and then they can set up an action plan. Just to give you an example, this is not done easily. Only in 2017, we conducted more than 16 100 visits with more than 2,000 plans.
And in 2018, we have more than 6,000 action plans. So you can imagine the average number of action plans we have. So it's no easy task, but this is how we have managed to evolve to improve our revenue. And I'll give you an easy example, a simple example. Let's say we're facing difficulties in attracting students for a health care program.
So, one of the questions is, but does your unit have an agreement with hospitals or diagnosis clinics? No, we don't. Oh, well, so the
benchmark of your category says that
you should have these of your category says that you should have these partnerships. It's easy to do. It's easy to implement. So FOCA is an app. I'm going to show you a feature so you see how it works, but it is an app where we team includes the action plans in the app, so we know what the action plan is and we can monitor progress.
So I'll show you the video. After you download FOCA, you have an icon on your mobile phone. In the screen, the manager can see the centers and the date of the last visit. So, let's select Americana Center to see the details and to have the route to visit that unit. On Google Maps or Waze, again, in the first screen, if we click on actions, manager can see what actions were listed to be executed in that center.
In addition, the manager can check the dates and cross out the activities after they are done. Here again in visits, on the first screen, there is a history of visits to that center and the actions that were agreed upon in each visit. You can also provide more information about the visits about the topics that were discussed and the actions that were listed. These visits will then be converted into weekly reports that will be tracked by business directors. Managers visit the units and centers.
We're now implementing this also in units. Then they will track the action plans and every week the regional director will look at the action plan performance. The person responsible for the channel will look at the outliners action by corporate, by a corporate team. And so, this concept, Misaffini knows that really well. It's a
concept that is very
similar to the agile have somebody has to release such and such so that I can make progress. Here, we have a similar methodology. So, we track daily, then weekly and monthly with me so that we can make progress as agreed. But I said in the beginning, this is not rocket science. You've seen how these things work, I mean, how they are executed and monitored.
Because of the size of our operation, we need these platforms. But what we cannot do in action Plans, I mean, what is not under the control of Unit Directors, for example, I mean, let me open parenthesis here, but also I've become the leader of Kempe. We have built the Mondrian tools for the campus teams. And if you find a unit director, you will see how enthusiastic they are because now they can clearly see where the opportunities are and how they can tap these opportunities. So we're now setting up the action plans for each campus.
But when it is not enough to have an action plan, I mean, sometimes we have to develop a strategy or change something or redefine concepts for these actions to be executed or even review processes. Let me give you an example. Oh, well, I understand that for me to improve my revenues, I need more transfers. Just to give you an example that can be confidential or strategic. But I cannot do that myself.
So well, then we need a team to redesign the processes because the processes have to be simplified or maybe you need systems to be developed. And to close my presentation, this goes back to what Rodrigo said, which is this connection between our digital process, which is helping us to evolve faster. I'm going to show you some examples. K360, 360, which is the CRM tool, can give us a practical example of the 6 agile teams working in student attraction. One team works only with the K360.
The other one would be evolution of the leads generation. So more than the digital transformation as an opportunity, Rodrigo also spoke about our new sales portal and I'll give you some more color on that. Now here, most of what we do in terms of student attraction and recruitment have the well known actions in schools, distributing flyers in the streets, using media. But there is something which we find really important, especially for Somos, which is visits or leads generation different from the media. What am I talking about?
I'm talking about examples we had in house. So, you choose your job. This is a vertical we have. It's a website. So, people can have their profile analyzed and a profession will be suggested to them.
So we recently had more than 5,000,000 searches. Then we have a website to prepare students for the national exam with 51,000,000 searches. Connect, 65,000,000 searches. I mean, these are actions whereby we provide example of the last 12 months, it's generated more than 500,000 leads in addition to the traditional actions we take that we continue to take. So, this has a huge potential and, of course, it uses our digital base so that we can do this quickly and with high quality.
Now, the last example, this one, vestibulitis.com.br, the new sales portal, we had and we still do. We used to have quite a few portals. Ayangueira had, a few other brands had. Now we consolidated these sales portal. And you can see the result here, a 20 5% conversion growth.
This is a lot. I mean so up until we launched this new portal, we I mean, after we launched it, we grew 25% and in some clusters, even more than that. Look at mobile, for example, we grew 66%. And more importantly, if we have now a responsive website for mobile phones, we the percentage of calls we receive from notebooks or desktops and mobile, we received many more mobile contacts. It means that if we make it easier, we can improve the number of students we can convert.
So we're talking about 2 150,000 enrollments a day, minus 20%. Look at the number of leads that we generate and we have 20% conversion rate. So, it's very high efficiency, especially considering I have to do all that process of data intelligence to use the best tools to
convert these students.
For undergrad. I think that the growth via new units is clear, also new centers for distance learning, but we cannot have good operations and attract more revenue and improve our margins, especially in this business that has this pressure without us having an operation that is running smoothly. So we wanted to tell you how our operations work. Thank you very much. I wanted to show you this and I now thank you.
Bazar? Okay. Thank you. Let me now invite you to have some coffee. We'll break for 15 minutes for coffee, and we will have 2 more presentations plus the Q and A after the coffee break.
So good afternoon. Well, my mission is to make our share price go up today. We have several expansion projects underway and same stores. Paulo is leading important project in higher education and continuing education. But today, the focus will be on something I spend most of my energy, our own units, both M and A and greenfield.
So why is it that we feel so confident that expansion is the right choice for Croton? Last year, we shared with you what the addressable demand in the market is, and we believe that we have 32,000,000 prospective students, people who could be taking our undergraduate programs. But we know that not all of them are inclined to study, and we conducted many analysis broken down by different categories, market, location, programs. And we believe that the addressable market is EUR 5,600,000 in effect, in terms of profit. And based on this, we have designed our growth thesis.
And this growth thesis is based mostly on organic growth with the complementary support of inorganic inorganic growth. The greenfield organic expansion is twofold. First of all, we have to think of when the expansion started, we didn't enjoy any regulatory bonuses at the time, and we were starting our operations based we use this methodology based on something new. We chose locations, cities with the necessary indicators and but where we would be the 1st player to enter the market. And then in 2017, we started using protocols from the Ministry of Education to start our student recruitment activities.
And then we started using the fair share model, which is somewhat different. Here, we use a different model. We start with distance learning. And this, of course, creates a much more profitable equation for us. And we use the fair share based on the pent up demand, cities with high pent up demand, and we always analyze the more suitable programs for the different cities we are introducing our programs in.
And we also have the inorganic growth model based on strategic cities high pent up demand and also high fair share. But we believe that it only makes sense to go into these markets when we have a small operation. This starts usually with a competition that doesn't begin asset, an asset that would like to be acquired. We look at the market share and other elements. And another M and A model we use is when we have already started operations in a certain town and there is an opportunity for acceleration and we acquire the available assets of interest.
I remember that last we mentioned that we were starting this project dedicated to expansion, and the results are starting to crop up. Between 'seventeen 'eighteen first half or starting operations in the first 85% of the cities in which we operate. Of this growth, 71 new units are based on organic expansion, and 5 of them are already with us and 3 in the process of closing. Just to give you a little flavor of what we have been doing in the last 12 months. We acquired five units, 1 in Maranhao, 2 in Serra.
1 is being a credit, the other is already with its store opens, plus Paraiba and Piaui. Just for you to understand why we think it really makes all the sense and why we think we can deliver a lot of value through this acquisition, you are familiar with our history of integrations. And for small of the integration, and we ensure that in at least 6 months' time, we'll have all processes and systems completely integrated. It could be done in a shorter time, but we like to respect the academic cycle. So we only change around the systems at the end of the school year.
But of course, the cash has already been taken over by the company. And in 3 months, all back office activities are integrated, and we just wait for the end of the term for the turnaround in academic systems. Fabio is the leader of M and As and all small acquisitions, both in undergraduate and K-twelve. Now let's turn to greenfield expansion. I explained the 2 models, the brand new model and the fair share model.
What I would like to highlight in this slide is that regardless of the model, costs evolve or have to evolve in tandem with the number of our the number of students in our base. And in some cases, we have to do a little hold back or put a curve on the growth of the unit. So in terms of brand new, we have some operations that start in partner centers or in other schools. And for about 2 years, they, of course, they stay in that way, and then they go into operations with us in a block. And then we also have our own units with 2 more blocks.
And this starts with accreditation for our on campus programs. Usually, this is how it starts. And since we are in this period of regulatory bonus, we usually also start with a distance learning center when the case applies. And in the fair share model, we start with dedicated operations, and we start especially with distance learning. And then on campus follows: we require we file for accreditation.
We launched the unit with the entire DL portfolio and 4 programs that are considered premium. Why is model so good? Because it improves all economic performance indicators in the unit and also marks strong cash generation from the very beginning. Well, you're all interested, of course, in finding out more information about fair share and greenfield. Well, here we see a green field fair share.
It's a unit with almost 3,000 students where we'll have a turnover of almost 24 €1,000,000 in this unit, in fact, net revenue. And it's going to be very similar to a crowded unit with 48% margin. Now as of the 3rd year, this unit shows a positive cash flow, and over 75 percent of the CapEx is spent on the initial 3 years, just to give you an idea of how everything unfolds. Now it's time to break down these numbers. In the new maturity, we would be adding 750,000,000 in EBITDA and 636,000,000 to our cash flow.
And EBITDA in these units will be positive on the 3rd year. That is, as of 2020, it will become positive. And cash flow will also reverse as of the 3rd year, that is 2021. So how can we make sure this will happen? Of course, this could be seen as a dream or projections, but what are we doing to really reach those numbers?
Valerio talked a lot about the way we work, the difference between what is planned, the execution and the execution discipline. We have a dedicated team that the execution discipline. We have a dedicated team that ensures proper execution and sound planning for everything. Everything thing that makes sure that we have a very efficient operation is the team. We understand that the people who work in our units make all the difference in terms of achieving what we have committed to in terms of results.
So we have a training program. We train our staff for 300 hours. We use the best instructors. And the top performers in our existing units, we provide them theoretical training and also on-site training, which is very important. The principles go to the different units, and they try to understand more about their role.
Those who participate in trainee programs also enjoy the benefits of spending time with the principles that come from other units. And like this, they can gain a new perspective on their activities. This is a model that has been very successful. 29 of our principles have been allocated to new units or same store units. Besides that, this is a program that's not restricted to the principles of our units.
It also goes and includes our commercial teams. The commercial teams, they are trained in our units, and are moved to the units at least 15 days before the student recruitment phase. We also try to scale up our human resources team. They are the pioneers in the new regions that we are where we are breaking the ground. We also have the academic coordinator.
This is a key figure for us. One of the leading actors that's going to ensure quality in our academic model. He receives training. They come to Sao Paulo. They get a great deal of support so that we can all start on the best footing.
We also have the IT team. They are very helpful for the operations and also the service team that's key for the student recruitment phase. So just for you to understand, most of our strengths in the expansion is derived from the talent we have in our team. Recognized. Most of the times, the brand is not well known in the region.
We only have some DL offerings. So it's very important that we start on the best footing. And many times, those cities are really small towns, very tiny locations. So we start, for example, by hiring PR services. The communications officer talks to the local press, somebody who knows the mayor, all principles in the government schools and in private schools, who is familiar with the influential people so that is tangibly.
And then we start using visual marketing and also promotions. 1st of all, we try to learn about the city, and then we really do the visits we have to do. And we keep in touch with Valera's team a lot. Some the new cities are always different from the large cities because in the small towns, usually, student recruitment comes from the commercial team. In larger cities, up to 50% of the new students come from the digital channels.
But these are small channels, and the buzz and really making the visits and paying calls makes all the difference. And we believe that this is a very important way of gaining market share, and it's very important that we have discipline in our commercial teams. Here, you can see some of the facades. We have Franca, Novi Guacu, Eriching and Palmas, Palmas, some of the towns, Serra, Santarem, Sant'Antoni do Jesus, Assif. Once again, the units, we are going everywhere in Brazil.
We really are very particular about the Visual Communications. So what are and employability. Employability is shown as a very important tool for our student body. We have the connected channel. Connected channel for them shouldn't be seen only as a promise, but as a truth, something that will support them greatly in their quest for a job.
And routine management, everything I was saying is very nice in theory, but we also have meetings and the daily and fortnightly routine. But this is the plan. But how do we go about this? We have the daily meetings on which we discuss things we have to do. For example, I should have recruited 50 students yesterday.
Why didn't it work? Or what should we do to reach that goal? And we have daily meetings and also weekly meetings together with meetings every 15 years 15 days and also monthly meetings. In case we detect a nonperformance issue, we can work on the planning to make sure that we hit all the targets in terms of the economic performance, financial outcomes and also academic quality. We know that dedication is needed for expansion to work.
So Valerio has 130 units plus the centers representing those €5,000,000,000 So it would be impossible for us to have just a few units with a handful of students. So it for us, it would make sense that this unit was separated. So the team stays in the unit for at least 1 year, And we follow-up on everything until 2 recruitment cycles have been completed, and then we hand over the operation to Valerio's team. As for the positive impacts, doing? So far.
So if we look to September, how are we doing? They have 38% they are up 38% in net revenue. We cannot say that this is going to last forever. But if you think of it, 38% up in net revenues, very significant. And also, 16% less costs and expenses, and student recruitment is up 25%.
So either because we have more students per class or because we're paying less in rent in utilities and other services. In all, we have 5 percent more in TRIR. So it's an operation that makes all the sense for us. Everything we were saying about execution of choosing the right location, everything is working just fine. Now I have a case study to share with you.
It's a unit in Cerae state. This is a location from 200,000 to 500,000 inhabitants. We chose the best location in town, a beautiful building. We made a beautiful facade. We worked with a very qualified team, and the results have been excellent.
So when you look at the unit, we have an IRR of 18 percent in 39% in 10 years and 43% in perpetuity. Now let's take a look at this case. What about projects that are not as successful as that? Yes. Sometimes happens.
The recruitment the 1st recruitment cycle is not as successful. But very quickly, we can address the problem and the correct course. This is a unit in Minas Gerais. It was an old model. We had a partnership with the school.
The location was not the best. I'm not sure if you can see it. In blue, we see the location of the unit. It was a large avenue very little visibility, and we thought that maybe this was the reason why student recruitment was not taking off. Sometimes the partner didn't let us use the front of the building for advertising.
And so we thought this was a very attractive location, but we wanted to improve student recruitment. And of course, we eventually hit our target, but we had to put a lot of effort into it. And eventually, we also found another property with high flow of cars. So we are moving the units to another building, a building that used to be a school, a separate building, it's not going to be very expensive to revamp the building. And it's in the best location in town.
We believe that student recruitment levels will improve. And additionally, the IRR in 10 years will be 25% and in perpetuity, 37.4 percent and EUR 227,000,000 in net revenue in maturity. So this is the analysis we do every day. Every day, we try to see whether the units are performing as they should. There are many sometimes that most of them hit their targets, but those who are not meeting the targets need a little push from us.
And what if the unit doesn't recover or doesn't improve? As you know, there are several waves in terms of real estate price increases. And unless we do what we have to do, the asset will remain healthy in terms of costs. Just as a few of our final numbers. We're going to generate EUR 1.8 €1,000,000,000 of raw immaturity and over EUR 600 €1,000,000 in cash flow in 2027.
Thank you, Julia. All right. So you can see that we feel pretty comfortable. We're doing better than the business plan, and we feel very comfortable this project will generate the value we desire. However, a success is always a combination of different factors.
Since the last Croton Day, we've said this, in a journey of digital transformation, this is a journey. It's a journey that has no return, but it is a journey. Now we started the digital transformation project in April 2017, a bit before question was no because we needed to develop some digital functionality so that we could be ready to enjoy success in this new moment of the organization when we had digital challenges. And not only digital challenges, but we had to adapt to the new digital frame of mind. So, we studied, we dedicated a lot of energy to understand what the digital transformation was and how it could impact our company.
I think I said this in the last Croton Day, but we spoke to 25 people and companies that had gone through or that were going through digital transformation, either successful or not in Brazil and abroad. So we had Brazilians, Brazilian companies, CTOs, CIOs, Brazilian and foreign companies that had, had an experience in digital transformation using different solutions. Some did the big band concept, other decided to go for a phased transformation and then we designed our own way. We had consultancy to help us, but above all, we engaged in the digital transformation process. And I would say that today, I mean, we have not yet won.
This is the beginning of our journey, but I have no doubt whatsoever I can of us know it is important. All of us are engaged and living through this experience in a relevant way. And we do have some signs of this. I mean, in the process of integration between Croton and Somos, one of the surveys we conducted is related to organizational culture. At that time, it was not related to digital transformation.
We just wanted to understand cultural characteristics of Croton and Somos to identify similarities and differences so that we could have a smooth integration process. Now one of the questions that was asked among many in culture survey was a cloud of words. So, each person says a word that translates his or her company and the one word that was mentioned more times was innovation. Well, we had conducted the same survey 1 year before while we were planning to integrate another merger that finally did not happen and innovation was not one of the words mentioned. So we included this topic of digital transformation, talking about innovation.
And so in the last survey, innovation digital transformation and we now know starts by saying that today we believe the winning model, the winning company, I mean, we don't want transform our company into a digital company. No, we want Kraton to be also a digital company because we want to have a platform of physical digital services. This combination of physical and digital strength is the secret of success for about other cases that have generated values by combining physical and digital assets. Some digital companies that walked towards digital and some digital for example, as they bought Whole Foods. They said that Amazon's move is pretty clever.
If you think about the luxury, it will give the online company to reinvent and reengineer the process of buying, moving and selling foods. So, they were digital, they became physical. Domino's is the opposite. This was traditionally a company of brick and mortar and it is now moving a combination of physical and digital assets. And Croton already has a track record from the physical world with great edges.
So why do we believe we already have strengths from the physical world and what we're doing to also build strength in the digital world. First question is, how can we build a service platform that can combine the best of the physical and the digital worlds? First, we believe we already have a good track record from the physical world and a strong digital transformation process ongoing. We still don't have a strong track record on the digital world, but we're building it. On the physical world, we have distribution and physical presence in more than 1,000 cities, proven academic solutions with high quality and large scale for both K-twelve and post secondary education, strong expertise in organic and inorganic expansion and sophisticated and efficient management systems.
But we already have distance learning, which is on the border of digital. On the digital front, we already have digital products. Half of our base operates on the digital world. We have a robust program We are developing digital capabilities such as analytics, customer experience, digital platform architecture. We are building a program for open innovation.
For example, the partnership we have in People now think digital at Croton. It's difficult to describe that, but I'll try to give you some examples of how the digital culture changes the way people think. But first, let's talk about the physical world. What are the proven competences that create competitive edge for us in the physical world. In post secondary education, we have more than 143 units, 1310 centers, and we will reach 2,000 at the end of 2019, over 1 1,000 cities and this is not a franchise.
These are partners. But if we were we have in the physical world, a huge network of partners, which certainly helps when we move into the digital world and to bring this value from the physical world, 1,000,000 students impacted every year. Now in K-twelve, 4,000 partner schools, more than 178,000 public schools working with P and LD and more than 25,000,000 students in this program. Now in post secondary education, 12,000 professors, 2,000 tutors, 1300 coordinators. Also learning assets that nobody else has in the country, 3,600 labs and clinics scattered throughout Brazil, more than 1,000 computer labs, more than 100 libraries and more than 1,000 libraries in partnership, over 30 hours of video produced per year.
And our processes are highly solid. KLS, the Croton Learning System, has 11,300 model classes for quality on large scale, 330,000 hours of professors training at Croton University and a recurring communication channel to communicate academic strategy to units and centers. So we have our network, we have assets and we have processes structured for the physical world. What about K-twelve? We have complete solutions, 17 solutions for teaching materials
and educational support, 4 solutions
for counter shift, 2 solutions for educational support, 4 solutions for CounterShift, 2 solutions for teachers training, 46 owned schools and 17 language schools plus relationship, a huge network of educators, the largest in Brazil. In terms of relationship, we have a relationship with over 500,000 teachers in private education and more than 1,500,000 teachers in public education. So our network of relationships is unprecedented. Nobody else has that and we have to know how to use a but it's a set of tools and governance models, which are structured so that the whole structure will generate value to our our stakeholders. So initiatives to develop our strategy, then another set of tools to plan our strategy, then tools to align and plan for our operations and then tools to monitor, learn and adapt.
Now we could spend many hours discussing each one of these boxes because each one is filled with contents. All of these tools, they are management tools or governance tools we use at Groton. I mean, in the physical world, we have overcome this challenge, and we are very well prepared to face the challenges in the physical world. But we knew we had to be prepared for the digital challenge, how to win the game in the digital environment. This was the initial question.
Now, if we say that we were not part of the game, part of the digital game, this was not true. We already had a relevant digital presence. So let me show you some data. The LMS we had 65,000,000 online activities per year, 240,000,000 page views in our LMS, our virtual learning environment. 30% of the sessions carried out can be used on mobile devices as well.
Self 60,000 requests for academic and financial self-service per month, 15,000,000 page views in students portal per month, and 49 different types of services can be requested online. So, of course, we now have a lot of opportunity to grow this. Employ ability, 210,000 jobs announced in Connecta, 20,000 companies registered and 2,500,000 page views per month in our Employability channel. Now adaptive learning, 1,800,000 user using our adaptive learning solutions, 150,000,000 questions answered and algorithms that use deep learning are running on our structure. So we already have a lot of knowledge of how to do and how to apply adaptive learning in our organization.
Recruitment portals, more than 4,500,000 active users per month, 20% growth compound growth CAGR between 2016 and 'eighteen, 500,000 leads captured via digital channels year. Marcelo mentioned this number already. So, we already had a relevant digital presence, but it's different from being a true digital company. So, that's why we're showing this slide again because of everything we read and heard and learned about digital transformation, this slide truly shows what is digital transformation because everything we said in the slide is related to this axis here, the vertical axis, which is how to digitalize the students' experience, the go digital. All companies are doing this.
All companies are building apps, providing self-service, trying to digitalize customer experience. If you're at the top of Go Digital, you have 100% of your user experience digital, it doesn't necessarily mean your company is digital. Why? Because there is another perspective of digital companies, which is the organization itself, which is what we call the be digital. And that's related to the culture of your organization, the mindset of the people who work there.
And this is something you do not change by decree. You change that when people begin to think digital. It's It's related to process. It's related to leaner governance structure, faster decision making processes. This is also related to accepting errors.
Innovative companies have to accept error. And this is a huge cultural transformation, of course, errors that generate lessons in learning. But first, you have to learn how to accept the error. You imagine a startup that will not accept errors. They will never innovate because if you know that this procedure leads to that correct result, you will never innovate because if you innovate, you may make a mistake.
You may have an error. So all of this is related to the company's mindset, to the organization culture. So then we started to think how we can take concrete measures to change our mindset and build a digital culture in our company. It's beautiful to say, yes, digital transformation is a mind set change. It's a cultural change.
Yes, right, but it has to happen. And you need concrete action so that the company begins to view things in a new way and will begin to think in a new way. That is you have to help the organization develop this new digital mindset. One of the ways we found was to completely change platform with 3 main deliverables. So we must have agility and scale, agile development and scale.
We have to develop digital capabilities, and we need an open innovation platform because all of that will lead to cultural change. If we can implement a new way to develop technology in the organization, the agile model, if we have digital capabilities, if we have an open innovation structure and if all of that works together, we will have the cultural digital challenge that is to be that platform of service is combining the best of the physical world with the best of the digital world, which we are now building. Let's look agility in scale. Traditionally, how do development structures work? Well, then executes, provides the solution, then the solution is tested.
It goes back and forth for 8 months until that is ready. But when it's ready, the requesting area no longer needs it. So you have a technology department always concerned about developing solutions, and you have a business area that is dealing with technology as a cause of problems and not as a problem solver. Now we changed the equation. So we did not reinvent the wheel to find a solution.
The solution already existed. It is the agile model that came from start ups. So you have the CEO of the start up and you have the CTO sitting at the same table. Then you have the 2 commercial guys, the 3 people who work in systems development, everybody working around the same table, thinking together, prototyping, going to market testing, bringing it back, control it worked, implement, go to market and pilot, focused on the customer centric, listening to customer, all I need an ideal plan for me in 5 years. Let's begin from Phase 1.
This is not how start ups work. This is not how the agile model works and this is not how digital companies work. So then these large companies said, come on, these startups are much faster to solve business issues. I also want an agile team. So then they did it and it worked really well.
So, now they had 2 agile teams, then 30 agile teams, and now it doesn't work anymore. Why? Well, because you need a methodology to have so many Agile teams working together in the same organization. Architecture. And many times, you still have legacy in your architecture.
So all of that has to be structured in a methodology. We chose SAFE, scale, agile framework to help us organize the implementation of agile teams in Croton. And we did it in a very aggressive way. For example, international banks operating in Brazil, it was one of the companies we surveyed for benchmarking. They are trying to implement SAFE.
This is a 2.5 year project. Yes, well, their technology team is 3x bigger than ours, but they've been into the implementation process for 2.5 years. And now 80 percent of their teams are already working using Agile. Now we started the Agile implementation in April, and we finished in October with 100% of the development teams working on Agile. Very aggressive.
Yes, it was our strategy. You have, of course, other more phased implementation models, but we didn't want that because we did not want to have new technology teams or technology development teams. Everyone is in an agile team. What is an agile team? It is a team that has the conversion.
The indicator for this team is, of course, conversion rate, number of enrollments. So people will be compensated. There will be variable compensation to the people in the team based on the business indicator. I mean, it doesn't matter if the person is the developer or the marketing analyst. If the conversion rate was good, if the number of enrollments is high, they will be compensated.
It doesn't matter if the problem is in the code or if the matter is in a go to market strategy.
What matters is whether
the business challenge was met or not. Technology to the end, and we want business to appropriate to own the technology. And this is how safe works. This is how it generates value, bringing together technology and business. So technology is now more business and business is now more technology.
So and have business challenges and everyone is responsible for meeting business challenges. And this is how we're changing the mindset. This is 10 weeks in this methodology, we have a BI meeting where we evaluate the deliverables of the last few weeks and we senior directors, they go up stage. We have 550 people in a hotel, all the participants of all teams, all agile teams and the business owners, they know all the developments that were delivered in the previous weeks, what they will be doing in the next following 10 weeks, and they can provide guidance to the teams so that the teams will know what the priorities are for the following 10 weeks. I have never seen the business area or business experts so involved in technology.
So this is how we're changing the culture of our organization. We embarked on this project head on, and the results can be seen here. 50 agile teams up and running distributed in 15 value streams, 8 delivery trains, 550 people involved. Now we have 5 150,000 hours of development every 10 weeks. 100% of the development being is already structured into agile teams.
And now look at the trains. So you have the incoming student, then the administrative journey, the academic journey and analytics train, analytics with a financial journey, one with continuing education and one with corporate processes. But we have many other teams, so system teams, shared services, user experience, customer experience, architecture, office and lease. And when you have a large system delivery, we split that into different features and each feature is broken into stories. So each story is a development to be executed in 2 weeks.
And it is the team that will decide what has to be developed. So what is the story that will generate more value and which is less complex to develop?
But it's not me. It's not Roberto. It's not Roberto's director.
It's the team develop. But it's not me. It's not Roberto. It's not Roberto's director. It's the team themselves who will say, well, with this story, I will spend value and I need only 2 hours.
So, let's do this one first and the other one we can do later on. This is a digital company. This is going to help us do what the start ups did when they were all together sitting around the same table. This is safe. This is the way we think digital.
Now look at the delivery. In the first one, 77%, then the second, 81%, and now 86% of the stories are ready. So from 5 100 to 1500 stories, I mean, we are involving with a lot of success, and we believe that this is key for us to continue in our digital transformation successfully. And we already have data for continuing evaluation. I mean, we were only able to do continuing evaluation because it was done by an agile team.
Now, we are talking about the admission exam, the automation of the syllabus. So, as the student makes progress, makes academic progress, then his CV, his curriculum vitae is receiving all
of this information. So his curriculum vitae
is always updated. And now, is always updated. And now the new user experience, which created additional revenue to us, just providing more visibility to students, what disciplines they can study before the suggested calendar. So these are only a few examples that have generated true value for students. More features that have already delivered value to the business, 8 features that have generated much more recruitment and retention, 13 percent improvement in NPS, 19% more students completing all online activity, 17% increase in the matching of students and job openings and revenue, EUR 70,000,000 more revenue from adjusting classroom hours and EUR 100,000,000 with
additional cash generated. This is concrete value. So when you say, well, digital transformation prepares you for the future, yes, true, but it also generates value in the present. And what we want to show you here is hard data. You shouldn't idealize the digital transformation journey.
It's not something you're going to plan today to reap the results in 10 years. If we didn't take this journey, we would regret it greatly in 10 years. And the value is being generated today, real value. And we're capturing the benefits and we're feeling very happy about it. But in addition to all the technology models we are developing, it's important for us to develop other digital capabilities.
And we have a few of them that we consider as key for our business: data and data and analytics customer experience and digital platform architecture. We must have full mastery over data, the ability to analyze data and to act on the customer's experience based on the augmented intelligence feature capable of predicting and working towards student success. We correlate dropout rates. We have €4,000,000,000 digital learning events that can be used, the data records that can be used to understand student behavior, 300,000 competencies demanded by the job market, millions of data points in on-site exams, absences, etcetera, thousands of behavioral items and questions answered by students. All of this serves as a source of information.
Many of the retention efforts we have done are based on data like this. And in other initiatives, we are certain that the data will be paramount. There's no question that all companies that live on data today knew 10 years ago why they were collecting their data. There was a premise, of course, that information would be valuable 10 years ago. But now we are collecting data in a very structured way, the best way we can.
And in many cases, we know how to use the data already. Or in other cases, we have to discover in time what is the potential value of the information. As for customer experience, I think that more than detailing this to you, it's important to give you the message. Any digital company mandatorily has to be a customer centric company. This is a prerequisite for any digital company.
It's absolutely essential to understand are a digital company with digital competencies. So we set up a center, a user experience center. We have 22 areas participating. With the involvement of the leadership, we have the academic success committee in which VPs also participate. They want to understand the customer experience, the student experience and improve on it.
We hold monthly sound obvious for the digital native companies among us, but we only started understanding of NPS early in 2017. We used to measure NPS, but using Avaliar, a manual tool that measured it just once a year. And this is not enough. Today, we measure countless data points, countless student what's not. And UX and UI are very important for us.
We have groups dedicated to these disciplines in the the here? Well, here, we have the benefit of being not an expert. We keep on this business perspective above everything. We took a very important decision. For us, our 2 the digital transformation we were embarking on.
And they are written in languages that are not of interest. So we have different modules written in up to date language and using the ideal architecture. And all modules in the system are now being decoupled. There is a digital decoupling of these modules, and we are creating isolated modules so that the systemic migration can naturally take place. So we're not going to have a systemic big bank.
We're not going to see this change. We're going to spend 2 years developing a new platform, and we have to cross our fingers and hope it will work out. We're going to move in steps little by little, decoupling systems and creating a brand new architecture. This is already taking place. We did this with the continuous education evaluation module and all of them based on microservices, all of these changes.
This is the basis for our discussion on digital transformation, and everything has to do with digital capabilities as expected. Now let's talk to open innovation. If we think back to the customer perspective and the company perspective, the go digital and the be digital. Digital capabilities, they drive innovation from within. Well, we want to develop capabilities in the company so that we can foster innovative thinking.
But for a company to be truly innovative, they have to be open to innovation coming from outside. So our open innovation model tries to act as a catalyzer for the experiences in technology and education that happen outside of the walls of the organization. So we're working very hard to create innovation within our walls, but we keep the radar on to detect what are the new trends emerging. And for our open innovation model, we chose dream from the source. Cubo is a very important digital and cultural transformation hub holding 600 events.
It's a very important startup center in Brazil. And we want to build the largest transformation hub in Brazil. We are responsible for the education vertical at Cubo All Startups for this area. And first of all, we have some criteria for selecting the ad techs. First of all, they have to serve a demand of the Brazilian public education.
They have to solve one of Croton's problems or issues. If Croton has a pain, if the startup can fix it, then they are eligible for Kobo. And finally, they have to be able to create a potential disruption in education. Those are the three criteria that we use for selecting EdTechs for Cubo. And we also have a funnel selection.
For now, we have talked to 126 potential start ups that are interested in working with us in Cubo. We have partnerships bank with 21 opportunities, and we also invested in small startups. We have 35 first approaches with companies. And in 73 cases, we are still in leads and validation. So there is a growing proximity with education companies, companies that do not necessarily want to join Qubo even though Qubo introduces them to us.
But we are serving as a catalyzer for start ups in the area of education. And at the end of the day, you end up fostering a whole ecosystem around you. It's almost automatic. Also approached us. And when you realize that you are at the center of an ecosystem that you created yourself and that you help feed, you exert with the selection of EdTechs.
And in parallel to education, as you know, Cupu has 14 other floors dedicated to other industries. We have 16 ambassadors of innovation from other areas of Croton, they visit Cubo to identify opportunities for partnering with the Cubo startups in other areas, for example, finance, payment means, collections, administrative processes. Kubo can be harboring many potential solutions of interest for us. So we have 96 projects now in pilot phase. All of this driving digital transformation and also overhauling the culture of the organization.
So as we see it, the secret sauce for success and the destination of this journey of innovation is adopting the platform as a service concept, combining physical and digital. We want to be a platform that's capable of serving the entire education chain with direct and indirect business models from B2C to B2B2C and with a physical structure that has been proven and that gains in efficiency every day, but it's backed by the digital resources we're building. And we feel certain that in a very short time, we'll be the company that will be able to deliver this platform of services. Thank you very much. Carlos, you're next.
Thank you very much, Rodrigo. Okay. Okay. Could you please bring over the chair so that we can start the Q and A? We're a little behind So we'll start with Mario Guillaume.
He's the K-twelve Officer Valerio from Higher Education Jamil Marques, our CFO Carlos Taffini, our VP of Digital Transformation, Paolo de Tarsa, VP of Continuing Education Giulia, our VP our star, Giselle Moreno, Institutional Development Officer and Rodrigo, so that we can get the Q and A started. And Fabiola, If you have any questions, we have some Rovi microphones in the room. Just please raise your hand. I see that we have a question in the corner. Can we please start with you?
Okay. I am Rodrigo from BTG. Rodrigo, I have two questions for you. First of all, just a clarification. Let me see if I got this right.
In the beginning of the presentation, you talked about a pressure of 300 bps in please explain to me everything you discussed and the top line growth and flat margins, how is this reflected in cash generation? I think that this is something we've been discussing. I know that you are under pressure to generate cash because of PEP and other funding lines. I think that very soon, we will see a relief with PEP paying off part of the debt. But what is converted in cash considering everything the company is facing?
And a question to Gil. Gil, could you please share with us in this process of and A, of schools and screening of potential targets, what has been the most difficult for you when you have to close a deal? What did you imagine in the past? And what you found different during the actual M and As? Can you share it with us, please?
Thank you very much, Rodrigo. Let me start with the first question about margins. When we talk about 100 to 300 basis points in reduction, it's in the same stores. From 2018 to 2019, it's basically flat. And when you look at the consolidated business in 2019, it's 100 or 2 100 basis points down or up.
It's the relationship between consolidated and nonconsolidated. I think that it's become clear in the materials that Julia showed you that cash generation evidently will be felt more strongly as the expansion projects mature. Now specifically, in the short term horizon 2019, the only effect, the only headwind that is negative comes from PN23. But for the coming year, we see nothing but tailwinds. And we also have, for example, the FIES issue this year, it was €400,000,000 We have some working capital detractors that we are working on, but they are smaller than this year.
So when we think of PP, we are not expecting to receive PP installment for next year. It's going to be in 2020 or 2021. But it's something that's not linked to the revenue 2021, but actually that relates to the graduating students. In the out of pocket world, we know that collection initiatives take a while to really gain flash and become mature. So last year, we started some of those initiatives.
There was some improvement. We are not considering improvements in the macroeconomic scenario, but it's something that we've been feeling as well, a deteriorating macroeconomic scenario with an impact on unemployment and also on consumer trust. And just as a reference for for 10 days of receivables for us represents EUR 10,000,000. And in terms of recurring CapEx, we are focusing on several initiatives. We were really working on cost discipline, and now we are rolling out with a greater focus on CapEx, seeking efficiencies.
Expansion was also more limited. And Rodrigo said that CapEx next year will be better, especially when you consider the whole picture and the tailwinds. Nonrecurring will drop as well. This will happen next year. And looking more to something that's not operation, we have around EUR 600,000,000 of future receivables from the sale of CELFI that will be received in 5 installments.
So for in terms of conversion, we have a deterioration based on P23, but this is going to be I think that Fabio and Italo are better qualified to answer you because they lead acquisitions. Something that came as a positive surprise for us was the openness of schools. Even the more prestigious schools are undergoing succession processes, and this created an open door for us in terms of discussing the us was the level of this organization in terms of tax and ownership structure. So it's very difficult to be for them to be acquired by a large corporation such such as Crocton because they're disorganized. And this also indicates how important it is for them to seal alliances with companies like ours.
So when we make the alliance, the next step in this acquisition, it's a company you know. You know their finances many times. You're responsible for their human resources. This is something that's going to really ease the transition. And maybe Fabio agree with me, it's difficult for these smaller schools to show themselves as a potential target for a large corporation in terms of M and A.
And this, of course, do you agree with me? Do you think I'm right?
Yes. I think we still have time for yet one last question. In the back, Marcelo Santos. First question to Valerio and maybe to Jamil about the margins in post secondary. It was very clear on the Kempe side.
So there is some pressure on FIES and this will be made up for by gaining efficiency. What about distance learning? Do you believe you will also suffer pressure on margins in the next few years because of new competitors? And how would you make up for that? Also gaining more efficiency or you believe the current margin is sustainable and it will be no need to make up for any margin loss?
Next to Mario Guille about the $40,000,000,000 revenue on CounterShift, which is behind this revenue? Would that be more than language schools? Is that a revenue that already exists? I mean, is this money being spent already in Brazil? Where is this revenue going to come from?
Are we going to steal share from somebody else? Are we going to have more education spending? Okay. I will try to add in post secondary on premise, we will be able to sustain these margins. The initiatives are oriented, as Rodrigo mentioned, cost efficiency, expense efficiency.
We will continue our strategic sourcing, but also
digital transformation will help us a
lot, especially in transformation will help us a lot, especially in transactions. And commercial initiative and retention initiatives will also have an impact on distance learning, a positive impact. Marcelo, yes, these €40,000,000,000 are already being spent by Brazilian families. I mean, €12,000,000,000 is not really an estimate because €12,000,000,000 is only English, English as a second language. So all the spending of families for children to learn English in franchises.
This is already $12,000,000,000 30 percent of the overall amount. And as we remember that many families also take their children to Kumon so that they will learn more mathematics. That is also a share. Also education on coding, robotics, families also spend money in that kind of education. So this is how we came to the overall number.
Now in addition to these in this number of R40 $1,000,000,000 we also have reinforcement classes. Families should not spend that. If the school is paying attention to student is there already. So, we they know the student, the student is there already. So, we believe that all the amounts spent by families today with reinforcement tutors should be done in school because that's more convenient, that's more comfortable for the the families.
And so, but the message here is that we do not estimate that families will spend additional $40,000,000,000 No, we just say that families prefer to spend these $40,000,000,000 where they can trust in the school, for example, that they trust. Next, Roberto Tero from Banco America. I like to follow-up on Marcellus' question. I think it was really clear the size of the potential revenue thinking about product and the size of the addressable market. But what about the challenge in the sales process itself?
I mean, what is the diagnosis you have of your strategy, your sales strategy, the strategy of SOMOS? And then what changes, what initiatives will you make in SOMOS sales strategy? That's a very good question. Thank you. Let me go back to what we heard before.
I mean, SOMOS sells a history and actually we had a very compartmented history because if you sell books, you don't sell learning systems. If you sell learning systems, you don't sell books. So now the challenge we have is to reorganize the company based on the strategic guidelines that we shared with you today. I mean, so then we will no longer have this discussion whether I'm selling textbook or client who will decide whether they want a single solution, a combined solution on paper and print or digital. I mean, talking about that is easier than actually doing it because you have to train your sales force that has hundreds of people and we have to retrain them.
And this is something we have to execute really well. It seems to me also that every time we understand that we are becoming a service provider mediated by technology instead of a content provider with some technology, then our leadership should be of people who deliver services. So let me give you an example to make it clear. Perhaps our commercial directors should be someone who comes from a market consulting. Why?
Because we want to provide services to the schools. And so our leaders should be much more oriented to providing integrated services that can add value much more than selling isolated product. I always say that our traditional educational market, which we want to change, is very similar to the pharmaceutical market based on samples, about the market. I mean, why? Well, because we need to have partnerships with physicians, hospitals in this analogy of healthcare.
Yes. I think the question was really good, but I'd like to add because most of what we've shown today, I mean, it's very difficult to tell how this integrated platform is the platform is quite complex. You need to align compensation. You need to create aligned incentives. Today, people who know about books know nothing about adaptive learning, for example.
So, all of this has to be questioned. But the commercial cycle does not wait for us to reorganize the company. It simply happens. So what have we done? After the first step of the IMO was concluded, we hired external consulting to help us rethink about the commercial structure, I mean, the company's go to market and how we're going to present ourselves to the market.
And this new start, this new way will be concluded until March 2019 when we begin the first commercial contacts for the sales cycle of 2020 because 2019 has been concluded already with the sales force we already had in the company. And so now we are getting prepared to have the right go to market with the new strategy, which will be ready in March to work for the commercial cycle or the academic cycle of 2020. These are long cycles. That's why we have to be very well prepared as of March. But your question is key because at the end of the day, as everything we said here, the challenge will be to execute well this strategy of service platform that we're creating.
Any more questions? We still have time. There's one more.
Rodrigo Sertas is Plica Progencia.
Rodrigo, the question. Could you explain I mean, a question we had is where will this equation of price versus volume go? I mean, you have FIES, you have other types of financing mechanisms, out of pocket, the income is shrinking for families in Brazil. So internally, I mean, in the company, what will happen? Will there be cannibalization of on premise programs because of distance learning.
I mean, I'd like to understand a bit more what's going to happen to the average ticket and margins. I mean, but this is something we always try to understand and it would be really important to hear from you. Well, the first adjustment in the price volume relation has happened. I mean, FIES is no longer there in terms of its relevancy in the definition of pricing and the offering, FIES no longer exists. I mean, it represented 3% on premise in the last cycle and 1% in the company overall.
So I mean the impact of Versus today is negligible. In terms of new students, which is the moment when you define the pricing as the students come on board. So a good portion of this question price volume equation after the end of the FIES financing program. Of course, we had to allocate capital for that BRL1 1,000,000,000 in terms of net working capital to finance our students, but I think it was a smart move because we were able to keep our price level and grow our number of students between 2014 2018. So we're happy with our strategic decision to allocate capital in post secondary, which is what we know how to do.
Roberto, do you want to add to talk about 20 general, I think that what is really important of all the details that I explained, yes, we do have pricing pressure in some units, and we also have pricing opportunities in other programs and other units. Our challenge is to be able to tap these opportunities of upside tickets in some programs to make up for other environments that can be more competitive in programs where we would have to lower the price. Now, the second thing is that we have to understand deeply what our competitors do. And today, our teams know precisely what competition what the competition is offering. So, like you have players that provide a rebate in the 1st semester and then they make an adjustment in the 2nd semester or they move students to the evening programs or they provide a very cheap enrollment fee, but instead of having a 4 year program, then they have a 5 year program.
I mean the beauty here is that you have to talk about which program, which unit, what is the competition, what is the competition price, and this is how we will use our competitive edge. In K360 that I showed you today, you have attributes and differentiators. For example, you have an AD4 in a certain city in business program, and so that's an attribute, but it can be a differentiator if all my competitors had in add 3. So, how am I going to use this information to be able to convince a student to come to us? I mean, this is just an example.
But so then I talk about MyLab versus the competitors, how many students we have graduated compared to the competitor. Know how to do this, so we can detect these opportunities and capture them. Yes, this is exactly what I was going to say. I mean, in the short term, we know that we responded well to this change in fees, which was very relevant. I mean, we had the impact.
This year, the financing model changed completely, but this has been overcome. And now you have well the competition in a scenario where public financing is still very low and actually negligible. But the increase in competition will be phased, will be gradual. And how are we going to respond? Well, 1st with information.
We have a lot of information and we are very well prepared to respond in each location, in each program because every time we have a pricing model, if we don't have the right level of granular information, when it's not really necessary or we're not reducing the price where it is necessary. So granular information and being able to manage this information at the right granular level and have dynamic pricing is really response. Now, we live in a regulated world. Prepared to give this response. Now we live in a regulated world, so we don't really know what will be the relationship know.
It's difficult to predict. So as a company, our duty is to be prepared for a world where on premise and distance learning will live together and they can become hybrid anytime. So we have a portfolio which is increasingly more premium for distance learning and the same margins on distance learning as we do in on premise programs to ensure that for us it doesn't really make a difference if the students is going to on premise or distant learning. We think this can be a student's choice. The quality has to be the same.
The disciplines have to be the same. The number of practical classes have to be the same and the margins are the same. So then it is up to the student to make his choice or her choice. So within the regulatory framework, we are preparing ourselves to meet students' needs regardless of their choices. So, it doesn't matter if there will be cannibalization for us because we have this portfolio also in distance learning.
So we are building mechanisms for this to sort of decisions on pricing and quick decisions, dynamic decisions on pricing. And we need a capacity to have complementary regulations change, we will be ready for that. So, a student can study some disciplines on premise, some disciplines in distance learning. So, we will be ready for that. While the regulation still separates these two worlds, we can provide the same disciplines and the same programs in the two options.
Do we have another question? Hello. Yes, it is a question to Ghislain about regulatory update on the distance learning workload that is allowed when you have an on premise program? I forgot your name, sorry.
Marcelo Santos.
Yes. There is a threshold which was imposed last year by a decision, 30%. So 30% on this limit, the ministry said that it did not include the practical classes. And so today, you have this 30% limit, but it doesn't include the residents. So in healthcare, for example, the nursing program, so you can work with distance learning 30% the student has another 20%, which is residents.
So overall, you have 50% practical activities or on premise activities and 50% distance learning. But because we were already working to meet students' demand and we believe that in health care, it's important for them to have a portion of the program on premise, we did not have any impact really because the new regulation is very well aligned to what we are already doing. No, but I think he was talking about the limit for distance learning in an on premise program. So, your question was the opposite, right? Okay.
So, to date, it's 20%. This is the trend to increase from 20% to 40%. But since this hasn't been published, we cannot tell for sure whether it's going to happen. But yes, it is a trend according to discussions with the ministry. There was this discussion in the National Education Council, but there are some differences.
Like for instance, for example, on premise, you can have 20% distance learning provided that you have a distance learning program recognized by the ministry. So you can only offer 40% distance learning in an on premise program provided that the school is accredited for both things. So the school has to be accredited for on premise program and also for distance learning. So and it has to be the same program, right? It has to be accredited.
The same program has to be accredited. And it does not apply to university. So, it is news. But technically, I mean, if you are already accredited for on premise and distance learning in the same program, then, well, you can provide it. And otherwise, you cannot do that.
So did I answer the question? Yes. We have one more question here. Can you raise your hand again? I think she didn't see
you.
My name is Guilherme Palaiaris from BTG. Question to Guilherme Palaiaris about my question is, first, if the company will my question is first if the company will unify the brands or if it will include other brands in the portfolio? And also in the supplemental business of the counter shift, so you have English, also social, emotional skills. What other lines of business in the counter shift? Very good question.
Thank you. I'd like to refer to the second part of the consulting services that we hired. We are already surveying all the market stakeholders asking them of all our portfolio solutions, which ones do you believe a candidate to a merger of brands. So as we stand, we're completely open to receive the results of this survey. And yes, we want to simplify our portfolio of brands.
And one of the levers we've seen that generates value, and I think we lost a bit of that, is to invest more in our brands really. So part of the synergies that we have identified, I mean, and in some synergies, we are consuming to invest in the brands that will stay, that will remain in our portfolio. But the second part of your question, we have many things to do, social, emotional skills, for example, we only have that for the early years. And in English, we have a whole span of needs in schools to have a bigger load of English until proposals that are fully bilingual. And today, you have all shades between these two options.
Now again, robotics, computer science, we still don't have that in house. And everything else that families invest in terms of artistic education, music, painting, etcetera, these are needs that families had. They would like their children to have these additional activities also in school and also many important partnerships with sports brands. Children would love to participate international sports brands. So these are only some ideas of many we can implement.
We are now setting up a team who will take care of the countershift portfolio. Today, they are isolated activities. And now, we are setting up this team with great people to develop the whole portfolio. Yes, Carlos will close in a while, but I have a comment. We spoke a lot about SOMUS and change the approach, change the go to market, have a new vision in the company, have a new way to present ourselves, no longer be a tactic, strategic adjustments, but it's much easier when you have such high quality people, people who have technical competences and people who have a clear purpose.
And this is what we found in SOMOS. And that makes it a lot easier. It's much more difficult to make a is difficult. But sometimes you have a big strategic change, but the people are committed, they have a purpose and technical skills. It's much easier.
And this is what we found in SOMO. Thank you, Rodrigo. Thank you, our Croton staff. Thank you all for being with us. All the presentations are already available on our website and you can also contact our Investors Relations team.
Will be ready to answer your questions. Thank you all very much and have a great evening.