[Non-English content] Good morning, ladies and gentlemen. Welcome to our video conferencing from Ser Educacional to discuss results from the fourth quarter of 2023. This video call is being recorded and the replay can be accessed in the company's website, re.sereducacional.com. The presentation is also available for download. We like to inform all participants, you will only be watching this video conferencing throughout this presentation. Right after it, we will start with the Q&A session, when other instructions will be given. Before we move forward, I would just like to reinforce that all of these statements have as basis the beliefs of Ser Educacional and the current available information to the company.
All of these statements can involve risks and uncertainties take into consideration that they might be connected with future events, and therefore need circumstances that may or may not happen. Investors, journalists, and analysts need to take into consideration that events connected to the macroeconomic environment, to the segment, and other factors may cause the results to be substantially different from the ones that were expressed in these statements. In this video conference, we have Jânyo Diniz, President Director, João Aguiar, Financial Director, and Rodrigo Alves, IRO. I would like to now give the word to Jânyo Diniz. He's the CEO of the company, and he'll be starting out this presentation. Please, Mr. Jânyo Diniz, please move forward.
Thank you everyone for your presence to another results meeting. I want to go straight to the fourth slide, where we talk about some of the results of the fourth quarter.
We are combining profitability and organic growth of our operations. This new phase reflects the success of the execution of our strategy in financial deleveraging, with the main objectives defined for 2023. They were reached because of a detailed action plan that would take into consideration all of the financials and evolutions that we have on the quality of education. This, we were reporting throughout the year, we were able again, to show substantial growth in our main operational lines. This happened, take into consideration that some market conditions were favorable and helped us to reorganize our portfolio. We have this offer, especially in health courses and the reorganization of some of the brands, making sure that our most relevant brands and some local brands were united in this.
This initiative were quite positives, and they helped with a huge development of retention of students, and they proved as correct measures for us to favor our performance. Now going to slide five, we are able to observe that we were also able to generate positive results in our optimization of resources. Improvement in rents, in personal expenses, in cost and marketing, all of them, we had an important decrease taking into consideration that revenue. This is just a part of all of the operational optimization work that we've done because we divided this project in three different categories. Just like it was highlighted in slide six, we have a second wave concluded in December with another substantial reduction of rent costs and only going to be completely effective in the first trimester of 2024.
The third wave will be completed in June, and we gave back some spaces that we are finalizing in Rondônia and Pernambuco. We will also be concluding a long project that we started February last year of improving the quality of customer service to our clients through automation of process, improving a better satisfaction, and a feeling of ownership to the students. At the same time, it rationalizes the processes and brings different synergies in-house. Going to slide seven, we demonstrated in the left graph that even though we are just in the initial stages of synergies recognition, we were able in 2023 to reach the biggest expansion of EBITDA margin from 2016, showing the difference in trend of the cycle of Ser Educacional was focused in the spaces that doubled in this period. We changed to a cycle focused on growth, profitability, and extraction of synergies.
For 2024, we are confident that we will have positive impact of these deliveries in the second wave of operational optimization that will have an integral effect for this year and also for the second semester as an impact of the third wave. We are always also observing a positive environment for capturing and re-enrollment in this cycle of 2024. Let's go to slide nine to talk about the main highlights of the operational aspect in 2023. As you were able to observe, it was quite solid. We had a substantial growth in student capturing, digital teaching and performance in hybrid teaching. If we consider that second semester of 2022 was a strong base of comparison for this market. We have good rates of re-enrollment. Our total bases of students grew 13%, and we saw a good boost from the digital and hybrid graduations program.
In 11th, we showed the average ticket, and we saw an increase of 2.8%, very close to the inflation rate, and this is connected to the increase of basis from students from ProUni, and this caused our average ticket of the hybrid ticket was almost stable if compared last year. If we exclude average ticket of on-site grew about 2%, which shows the success of our pricing policy and increase in our student base. Before we go to João Aguiar, we want to present this slide, our base of students through growth area. We continue working in our health courses. We have a total movement of renewal and revision of portfolio of courses in hybrid and digital learning. Since these courses have an increased demand in the market, the margin average tickets that have a very interesting worldwide. These were my initial comments.
I would like to invite João Aguiar to discuss some of our financial results.
Thank you Jânyo. Good morning, everyone. Let's go to slide 14, and we want to show our summary table for this quarter. We saw good improvements in our financial results with the growth of 9% in net revenue and improve in our of 11.8 and our EBITDA margin in 5.84. These improvements really reflect what Jânyo just said. These are the first positive reflects coming from a ample and broad project that we have done in the company, and the idea is to go back to our historical margins, since we invested so much in our student base and that almost doubled in five years. This was a movement that combined acquisitions and organic growth, and now we are focused on a different cycle, focused on improving profitability and growing this.
As a result, our adjusted net profit showed improvement this year of a neutral result last year to 3.8 percentage points. Slide 15, we show some of the graphs that show our results by segment of market and teaching model. We have medicine courses as being some of the main booster for this result and show some of these good results from digital teaching. We want to highlight as well that hybrid teaching, our biggest business in terms of generation of revenue, finally started showing some improvements in development. Something very encouraging. Once most works of optimization that was done in 2023 started showing some very interesting results, and its impact will be completely integrated in 2024. This is quite representative because this is where we have most comprised margins and a recent history of more robust margins.
We can see that this is more tangible to make sure that we are able to do this from now on. Now to slide 16, we have an average timeline of receivables. We have a general PMR showing a drop of seven days and Ex-FIES of last 16 days. In March last year, we can see that was quite different. A pioneer operation that happened in the Brazilian market that helped us to improve our indexes in operational cycle. In the 17th slide, we want to show our net cash flow of our dispenses. You can see that we had a positive effect this year, especially because we were selling the portfolio that was partially offset for an increase of payment of interest in a bigger average CDI.
Another aspect that affected our operation this year was FIES, that delayed a payment of BRL 20 million that in the past years was paid up until December, and this year they were paid only in January of 2024. Lastly, in this trimester, the net cash flow was a little bit lower than usual because of a negotiation that we did with rentals. On one hand, we had an anticipation of payment to owners that this impacted our cash flow from BRL 8.8 million, but we had a reduction of these rentals up to the end of the contract that are associated with the value of BRL 108 million. This was allocated for interest payments. After CapEx is the same effect because development investment between these two years was very similar. In the next slide, we show what is our debt and financial leverage.
They had an improvement of net debt or for a bit debt that went from 2.68 to 2.17 this year because of the compounding effect of the optimization project that we did this year and the selling the Educred portfolio. For this year, the objective is to continue with this trend of decrease of debt that we started last year so that the company can go back to having cash flow that works in alignment with dividend payment. To wrap up, CapEx slide show that the volume of investments in 2023 was very similar to what we presented in 2022, being the main investments, the renewals in the field, so that we can receive credential visits for health courses, especially medicine technology and production of digital content.
The index of investment is in about 5% of our net revenue, and we consent is appropriate for the current stage of development of company and expansion plans. These were my initial comments about the results. Now I want to invite back Jânyo to say his final considerations before we open for Q&A.
Thank you, João. I believe that we are in a very positive moment for our company once we were able to advance significantly in every single strategy that we have, so that we could retain a rebalance in our rentals occupation. With this, we hope that in 2024, we will have another solid performance year, operationally, financially speaking, because of students that we will have for 2024, it has been quite positive. In 2024, we will have an integral impact of the initiatives of optimization that we did last year.
Another way of adjustments that we will be concluding in June. In this sense, our objectives for 2024 is to maintain the execution of the plan that we started in the end of 2022, trying to improve our profitability and reduce our financial debt. We also want this year to increase our working capital just because we have an improvement of the profile of students that we have been capturing the last few years, the reduction of the non-recurrent events that we have. That is why we need to continue execution of the same plan that we have been presenting without leaving behind the development of our educational ecosystem, that it is more integrated and more ready to become a new way of organic growth. I would like to thank everyone for being with us and the celebration of 20 years that Ser Educacional celebrated last year.
This is a very rich story that transformed so many Brazilian families through quality education, building on social ownership, that proves that education is the most democratic of tools that it is possible in society. We are available for our Q&A session now.
We will start now the Q&A session for investors and analysts. If you want to ask a question, please raise your hand. If your question is answered, you can leave the queue just clicking lower hand. Our first question comes from Luca Marchesini from Itaú BBA. Please, you may continue. Your microphone is open. You can ask your question. Mr. Luca, you can ask your question.
Good morning, everyone. I am not sure if I was called, but can I ask my question?
Yes.
Thank you. Thank you for the space here. I have two questions from us. The first one is connected to Itaú.
If you can comment, what are you seeing the evolution of capturing from on-site and digital teaching? If you expect any perceptive impact of what is so show in the first semester or second semester. This is the first question. The second question is connected to rentals. We had a reduction of 20% in this quarter as we had in the third quarter. I just want to understand with this second and third wave of returning, do you expect an even more expressive reduction in the next quarters?
Good morning, Luca. Thank you for your question. Now, connected to capturing. It has been quite surprising, especially for hybrid teaching, without a lot of pressure on ticket, and we expect this to continue. We are already in the final process, and it has been really surprising what we had done initially. Now for EAD, it is aligned with what we had expected.
And now with Tecnologia Social, we are starting the process of capturing. We just released last year. It is very early for us to assess results, but yes, Tecnologia Social can increase a little bit the participation that we had of FIES, from 6%, 7% to maybe approximately 9%, 10% of our capturing.
Good morning, Luca. Thank you for your question. We had a huge reduction of rentals in this very second wave that happened in 2023. There is still another wave that we are foreseeing for 2024, but I like to say maybe 70% of what we had to do, especially what we had previously foreseen, this was 2023. What we have for 2024 is still half of what we were able to do in 2023.
And a quick follow-up, João, what exactly changed in this contract? Because the number of campus, it did not fall in the same proportion, a reduction of 7%.
So what allows this 20% reduction in rental?
So when we talk about campus, there is some in several blocks. And what we gave back was some of the blocks, optimizing the work that was done of putting classes together and groups together in labs in the remaining blocks. So what we explored was understanding what was the capacity of every campus in every city and every place for us to give back the blocks and focus operation in less buildings inside of these campuses.
Thank you, Jânyo and Rodrigo.
Our next question comes from Jack Sameller from JP Morgan. Please, you can move forward.
Good morning, everyone. Thank you for answering my question, Jânyo, João, Rodrigo. First, a follow-up from Luca's question. If you could go deeper about the competitive dynamic of tickets in every segment. How do you look at this dynamic now in the first semester?
And if you could maybe comment a little bit about the PDD line. What is its behavior for 2024 as you foresee it? Thank you.
Before, just to follow- up on the rentals discussion, minimal rental dropped 20%, but when we add the cost rental plus the other rentals, there is a drop of 7%. The thing is that we need to add two lines to have total cost that impact the result, okay? Now, in terms of ticket, I want to invite Jânyo to comment. What is the capturing in terms of market dynamic?
Just like I said, capturing comes strong, especially in hybrid mode, without a lot of pressure on ticket. We believe that we will have an improvement of the ticket. And we have been focusing in improvement of ticket than in basis, different than what was done in the past.
So especially now, at the end of this, where the prices are more aggressive, especially for EAD, with high average ticket for some courses. But in general, this week did not have a lot of pressure. Onsite was actually quite good, and we had an improvement of ticket for EAD. Now, in connected to PDD. Second semester of last year, we identified some of the agreements that we did at the time of the pandemic, that they had sensitized the PDD, but they changed it, and this was done throughout time. But when this started coming here closer to two years of these agreements being due, that were done around 2022, we started seeing that we had a higher delinquency of these tickets. And we have adjusted all the PDD, take into consideration because of the agreements we had during the pandemic.
And we also had an increase of the amount of students in the digital world. We have a more sensitivity of PDD for this year. But I would like to say that considering the percentage of our net revenue, we have reached a maximal limit for provisioning. Maybe for the first semester of this year, we might have something similar that happened in the last two semesters. But the trend is with all of this credit recovery work that we've been doing inside the company, that we go back to something closer to what it was the 2023 calendar year, considering the percentage of net revenue.
Thank you, everyone. Very clear.
Our next question comes from Renan Prata from Citibank. Please, you can move forward.
Good morning, everyone. Thank you for answering my question. There are two quick questions.
The first one is just a quick follow-up on this process of campus devolution. But we already talked about some CSC revision process. Does this have additional CapEx, or it is just more of an internal change? This would be the first, and the second question is, even nice that you opened and released a line of new businesses, and apparently, we had a break even of EBITDA, at least in this quarter. And I wanted to understand this dynamic moving forward. We have reached the break even that we need to expand this or more of a seasonal result of this fourth quarter? This would be the questions.
Thank you, Renan. Good morning. Well, now, talking about the entire project that we had for process review and returning some of the campuses, there are some additional CapEx, but nothing relevant.
Since this project had already ran for some while, and the main CapEx here, it is a CapEx of support consultancy to review process, automatize, robotize, and the provision of this for CapEx is not relevant inside of what we usually do in terms of CapEx. Or project of this magnitude. But now campus return, we have no additional CapEx that is being foreseen. This is just a low amount inside the process. Now for new businesses, just like we have been saying some quarters ago, there are some things that are scalable throughout time. So we still have, in our point of view, another year for us to really have the break even most of these new businesses, and we want to make sure that they are scalable and contributing positively for EBITDA and the results of the company.
But these are some businesses that are being well-monitored, and throughout this year, every single one of them in their segments are already doing some contribution or having the break even throughout 2024 or the beginning of 2025.
Thank you.
Our next question comes from Mirela Oliveira from Bank of America. Please, you can ask your question.
Good morning, everyone. Thank you for this Q&A session. We have two questions. The first one connected to margin gains. What do you still see as an opportunity now in 2024 other than the rentals piece? And second question is connected to medicine. If maybe eventually these were not approved in STF, we know that we have some discussion there. Is there maybe a write-off that we need to do? What was this investment in terms of threshold in their final phases? If you can comment on that, please.
Thank you, Mirela, for your question. Good morning. The margin gain, I think we continue still, maybe scale this margin when all of these projects from this third wave of other projects that we've been doing will actually happen. We still had the expectation of 2023 capturing maybe a little bit more. But obviously, there are some things that slipped in 2024, and now in 2024, we're not going to have the entire project out of this synergy that we wanted to have. I'll probably say that we are very close to it. With this margin scales. While we were treating this, we improved the quality of revenue, with capturing and re-enrollment of students being better than what we had expected.
The average ticket scaling like we've been seeing, and improving this synergy and improving a little bit of what we are aiming for in terms of execution. I'd like to say that this margin scales in 2024. Now, connected to, there are no write-off because the investments that were done in the units that were already visited can be utilized in health courses. So we wouldn't have any reason to do write-off due to it.
Perfect. Thank you, everyone.
Our next question comes from Luca Marchesini from Itaú BBA.
Just adding, voting in the STF now has no voting in favor of ADC 81. All of them have modulation in favor of one way or another of the approval of medicine positions outside of Mais Médicos Law. All of the votes are modulated.
The next question comes from Luca Marchesini from Itaú BBA. Please, you can ask your question.
Mr. Luca, your microphone is open and you can ask your question. Mr. Luca, you can ask your question. The session for Q&A now is closed. We'd like now to invite Jânyo Diniz for his final statements.
Thank you everyone for participating in another results session. I'd like to put our area of relationship with investors at your disposal to help with further explanations. Good afternoon, everyone.
The video conferencing of Ser Educacional is now closed. We'd like to thank you for your participation and have a wonderful day.