Ser Educacional s Net Income increases by 30% to R$63.8 million in 2Q16 Year-to-date net income reaches R$149.7 million, with a net margin of 26%

Transcription

1 2Q16 Earnings Release Ser Educacional s Net Income increases by 30% to R$63.8 million in 2Q16 Year-to-date net income reaches R$149.7 million, with a net margin of 26% Recife, August 5, 2016 Ser Educacional S.A. (BM&FBOVESPA SEER3, Bloomberg SEER3:BZ and Reuters SEER3.SA) announces its results for the second quarter of 2016 (2Q16). All information is presented in accordance with international financial reporting standards (IFRS) and consolidated in Brazilian reais (R$). All comparisons refer to the second quarter of 2015, unless otherwise indicated. 2Q16 Conference Call August 5, 2016 Portuguese 10:00 am (Brasília time) 9:00 am (New York time) Phone: +55 (11) Code: Ser Educacional Replay: +55 (11) English 11:30 am (Brasília time) 10:30 am (New York time) Phone: +1 (646) or +55 (11) Code: Ser Educacional Replay: +55 (11) Code: Ser Educacional Contacts: Jânyo Diniz - CEO João Aguiar - CFO Rodrigo Alves - IRO Geraldo Soares - IR Manager Highlights Net revenue totaled R$289.6 million in 2Q16, 6.0% up on 2Q15, due to the increase in the student base, driven by the consolidation of the latest acquisitions and the improved course mix, primarily due to the recent approval of higher average ticket courses. These factor were partially offset compensated by the reduction in student base of the Pronatec program, which was discontinued for the private sector in In 2Q16, adjusted EBITDA came to R$91.0 million, 16.0% higher than in 2Q15. The adjusted EBITDA margin stood at 31.4%, versus 28.7% in the same period last year, chiefly due to the Company s organic growth, with the opening of new units and courses, and operating efficiency gains as a result of the synergies from the acquisitions of UNG and UNAMA. Net income came to R$63.8 million in 2Q16, 30.1% more than the R$49.0 million recorded in 2Q15, thanks to the excellent 2Q16 intake result and the Company s initiatives to improve operating efficiency, which led to an 8.1% year-onyear reduction in expenses. Accounts receivable from tuition and agreements remained under control, totaling R$131.1 million in 2Q16, 3.7% up on 2Q15, but below net revenue growth of 6.0% in the same period. Phone: ri@sereducacional.com Website: Media Relations Sílvia Fragoso (+55 81) silvia.fragoso@sereducacional.com In the first seven months of the year, Ser Educacional confirmed the realization of all FIES transfers in line with the schedule established by the FNDE in its 2016 Annual Repurchase Schedule. A total of R$154.8 million was received in the second quarter itself and a further R$187.9 million between July 1 and August 3. Operating cash generation amounted to R$78.1 million, more than six times the 2Q15 figure of R$11.0 million. Year-to-date cash generation totaled R$56.8 million, 176% more than the R$20.6 million reported in 1H15. Financial Highlights 2Q16 2Q15 6M16 6M15 (R$ '000) Net Revenue 289, , % 574, , % Gross Profit 151, , % 320, , % Gross Margin 52.4% 53.4% -1.0 p.p. 55.8% 57.6% -1.7 p.p. Adjusted EBITDA 91,001 78, % 204, , % Adjusted EBITDA Margin 31.4% 28.7% 2.7 p.p. 35.5% 33.7% 1.8 p.p. Net Income 63,759 49, % 149, , % Net Margin 22.0% 17.9% 4.1 p.p. 26.0% 24.3% 1.7 p.p.

2 The Company received authorization from the Ministry of Education (MEC) for two new units: the Faculdade Maurício de Nassau facility in Cabo de Santo Agostinho and the Faculdade Joaquim Nabuco unit in João Pessoa. They will begin operations in the second half and are part of the Company s organic growth strategy, which is designed to expand its activities in cities with high economic growth potential. A total of 73 new courses were approved in 2Q16, giving 991 in the end of first half. The highlight was the city of Vitória da Conquista, which obtained authorization for 12 new courses, including Dentistry, Biomedicine, Nutrition, Chemical Engineering and Production Engineering. The city currently has 32 courses, 25 of which approved within the last 12 months. In June and July, the Company proposed a business combination with Estácio Participações S.A., thereby creating a company with enormous value creating for the shareholders of both companies. Although the proposal did not reach fruition, Ser Educacional s Management believes that the Company s current business plan based on its three growth pillars: (i) organic on-campus expansion, (ii) distance learning expansion, and (iii) M&A s, has great potential for generating value for its shareholders. The Company will continue to pursue new growth opportunities through acquisitions and believes that this has become even more important with the improvement in Brazil s overall scenario. In July, Fitch Ratings, one of the world s most respected risk rating agencies, assigned an initial Long Term National Scale rating of "A+(bra)" to Ser Educacional, with a stable outlook. When assigning the rating, Fitch declared that Ser Educacional "has a good track record of expanding its operations, supported by a mix of organic growth and acquisitions", as well as highlighting its "differentiated cost structure, with lower general and administrative costs and expenses", and its "solid operating margins, considering the highly competitive nature of Brazil s private post-secondary education industry, giving it competitive advantages over its peers". Fitch further emphasized that Ser Educacional adopts "a conservative approach to financing its activities in terms of capital structure, and has a history of maintaining adequate liquidity and satisfactory debt coverage ratios, its mix of capital and operating cash generation having allowed it to maintain sufficient credit indices in recent years". On July 15, the federal government published Executive Decree 741 (MP 741) in the Diário Oficial da União, altering Law of July 12, 2001, which deals with the Post-Secondary Student Financing Fund (FIES), and imposing an additional 2% deduction on freed student charges for educational institutions, to be transferred directly to the financial agents. Based on the information in MP 741, the Company estimates a negative impact on its operating result before income and social contribution taxes of up to R$6 million in This estimate does not include eventual mitigating effects from efforts to optimize operating income and expenses. July 15 also saw the beginning of FIES enrollment for the intake process. The Company was allocated 5,700 of the 75,000 places offered by the federal government for the semester, representing 7.6% of the total, similar to the same period in 2015, when the Company received 4,600 of the 62,000 available places. The number of students enrolled increased substantially, rising from 11,700 in to 20,500 in Message from Management The first half of 2016 was important for Ser Educacional s growth, being especially marked by its continuing growth cycle and the recovery of an upward profitability trajectory. This improved financial performance was in turn the result of a series of measures implemented throughout 2015 to generate operating efficiency gains, such as the introduction of a student retention system (SRS), the new negotiation scale (intake BI), the integration of 100% of the operations of UNAMA and UNG, and positive results generated by the student intake intelligence unit, as well as improved academic processes. On the growth front, the Company took an important step forward with the MEC s approval of the Cabo de Santo Agostinho unit in the Metropolitan Region of Recife, which will play a significant role in consolidating the Company s position in this region, and the new unit in João Pessoa under the Joaquim Nabuco banner, marking the beginning of this brand s organic expansion in the Northeast. In addition, 85 new on-campus courses were approved in the first six months of the year, including Dentistry, Physiotherapy, Nursing, Physical Education and Radiology, with 3,680 annual places, and Mechanical, Civil and Electrical Engineering, with 1,920 places per year. In June and July, Ser Educacional proposed a business combination with Estácio Participações S.A., thereby creating a company with enormous potential for value creating for the shareholders of both companies. Although the proposal did not reach fruition, Ser Educacional s Management believes that the Company s current business plan 2

3 based on its three growth pillars: (i) organic on-campus growth, with 19 new units by 2018, followed by a further 20 by 2020, (ii) the expansion of distance learning, with requests for the accreditation of 400 new centers, and (iii) M&A s, has great potential for generating value for its shareholders. The Company will continue to pursue new growth opportunities through acquisitions and believes that this has become even more important with the improvement in Brazil s overall outlook. Another important highlight was the federal government s compliance with annual FIES transfer schedule established at the beginning of the year, including transfer of the first installment of debt created with the sector in As a result, Ser Educacional is upbeat in regard to operating cash generation in 2016, allowing the Company (and the sector as a whole) to resume its normal operational pace. The economic and political scenario of the country has also achieved some important definitions, contributing positively to certain critical indicators for the education sector, such as the consumer and business confidence indices, even though the economic figures per se have not yet incorporated this improvement. Given this context, Ser Educacional Group believes it is well positioned in the Brazilian market. In addition to having a long-term project combining organic growth opportunities in the on-campus post-secondary segment, the introduction of distance learning into its portfolio and growth via acquisitions.these activities are performed with a unique value proposition for students. This proposition consists of providing competitively-priced high-quality teaching in privileged locations with excellent infrastructure, through brands recognized by the job market and society as a whole. Such a value proposition is only possible if it can be offered in a consistent manner. Consequently, the active management of operating efficiency and constant investments in improving academic quality, in developing brand recognition and in infrastructure are absolutely vital. These pillars are part of a long-term vision, which has allowed the Company to generate growing results with consistent profitability along the years. Ser Educacional Group continues to believe in its strategic plan and the pursuit of these objectives, which, in addition to creating shareholder value, will make a substantial contribution to high-quality post-secondary education in Brazil. OPERATING PERFORMANCE Status of 1H16 Student Enrollment Reported Adjusted Reported In thousands 06/30/16 06/30/15 % Chg 06/30/15 % Chg Undergraduate Enrollments* 42,900 40, % 48, % On-campus* 39,108 38, % 46, % Distance Learning 3,792 2, % 2, % Graduate Enrollments 3,891 3, % 3, % On-campus 3,646 3, % 3, % Distance Learning % % * Excludes 8,300 students enrolled in who dropped out by July/2015, since they had joined the Company's institutions in anticipation of accessing FIES but were not able to due to changes in the program that occurred in 2015 and after the end of enrollment process. At the end of 1H16, 39,100 new on-campus undergraduate students had been enrolled, 1.7% up on adjusted intake on June 30, 2015 (excluding the 8,300 students who had already been enrolled but were denied access to FIES). Distance learning intake increased by 69.6%, reaching 3,800 students, already including UNG s six centers. Graduate intake remained virtually in line with the first semester of 2015, edging down by just 0.7%, although the total graduate student base ended the period 0.5% higher than at the close of 1H15. Of the total number of students enrolled at the end of 1H16, 9,200 came with student loans, 600 of whom financed through PraValer, 300 through Educred and 8,300 through FIES. Through June 30, 2016, the total number of new finalized FIES contracts reached 10,900 (8,300 freshmen and 2,600 upperclassmen), filling around 57.1% of the 19,100 places allocated to the Company by the federal government. 3

4 The enrollment process for the second semester of 2016 is already happening. Although it is not yet possible to publish a preview of the results, the number of FIES places offered by the federal government for this semester is 5,700, around 24% more than for the same period last year. Besides that, the number of students applying for the FIES places this year, which came to 20,500, compared to 11,700 in , mainly due to the upturn in the limiting factor from 2.5 to 3 minimum wages. Student Growth Trends Number of Students Undergraduate Graduate Vocational Total On Campus Distance Learning On Campus Distance Learning Dec15 Base 123,988 3,089 10, , ,701 Enrollments* 39,108 3,792 3, ,791 Leavers (8,487) (4) (3,360) - (1,966) (13,817) Dropouts (18,209) (1,871) (813) (81) (267) (21,241) Jun16 Base 136,400 5,006 9, ,434 % Jun16 Base / Dec15 Base 10.0% 62.1% -5.1% 71.0% -74.3% 8.3% % Jun16 Base / Jun15 Base 3.1% 76.4% 0.5% 387.7% -83.9% 1.7% % Jun16 Base / Jun15 Adjusted Base* Total Total 10.0% 7.7% * Excludes 8,300 students enrolled in who dropped out by July/2015, since they had joined the Company's institutions in anticipation of accessing FIES but were not able to due to changes in the program that occurred in 2015 and after the end of enrollment process. The re-enrollment ratio for 1H16 reached 93.4% of the renewable base, underlining the effectiveness of the dropout control initiatives and the success of the student retention projects in The Ser Retention System (SRS), which currently has more than 600 control points, has been generating its first positive results in regard to dropout prevention and control, while the revision of the negotiation scale focused on preventive charging-related activities, such as sending automatic reminders of monthly tuition due dates, contract signings and other important routine financial and academic activities, thus allowing a greater engagement of the financial and academic areas in student activities. As a result, the on-campus undergraduate student base totaled 136,400 students, 10.0% up on the base of 124,000 students in , being this base adjusted for the non-recurring dropout of 8,300 students, and 3.1% more than the base of 132,300 on-campus undergraduate students reported in 1H15. The total student base increased by 7.7% compared to the 141,600 students. This base is adjusted for the nonrecurring dropout of 8,300 students, and 1.7% up on the base of 149,900 on-campus undergraduate students reported in 1H15, as explained above Dec14 Base Enrollments Acquisition Leavers Dropouts Dec15 Base Enrollments Leavers Dropouts Jun16 Base Dropout Rate The first-half dropout rate stood at 11.8%, a 3.2 p.p. reduction over the 15.0% recorded in 1H15, including the nonrecurring dropout of 8,300 students due to the changes in the FIES rules. 4

5 Average Net Ticket Average Ticket (R$) 2Q16 2Q15 2Q16 x Undergraduate Students (On Campus) % % The average ticket in 2Q16 was R$678.86, 7.7% up year-on-year, mainly due to the pass through of inflation and the improvement in the course mix, exemplified by the gradually increasing share of engineering, health and teaching courses. In comparison with the previous quarter, the average ticket increased by 0.5%. Student Financing STUDENT LOANS Dec/12 Dec/13 Dec/14 2Q15 Dec/15 2Q16 Students 48,670 70, , , , , ,400 FIES Students 15,916 31,432 48,048 56,694 56,089 57,842 61,408 % of FIES Students 32.7% 44.7% 47.5% 42.8% 45.2% 42.7% 45.0% EDUCRED Students ,021 % of EDUCRED Students 0.0% 0.3% 0.6% 0.7% 0.7% PRAVALER Students ,114 1,561 % of PRAVALER Students 0.0% 0.4% 0.8% 0.8% 1.1% PRAVALER Students - 57,613 57,797 59,877 63,990 % of PRAVALER Students 0.0% 43.5% 46.6% 44.2% 46.9% On June 30, 2016, students adhering to the FIES program accounted for 45.0% of the undergraduate student base, a 2.2 p.p. increase over the 42.8% recorded in 2Q15, due to the extraordinary evasion of students, which reduced the amount of ex-fies students in the second half of 2015 and thus increasing the participation of FIES students base. As of April 2015, the Company launched two new student financing plans. The first was PraValer, one of Brazil s largest private student financing programs, which allows students to finance part of their tuition with installment payments only after completion of their undergraduate courses and at competitive rates. The second option was the re-launch of Educred, the Company s own loan program that finances approximately 50% of tuition at 7.44% per year. In 1H16, 600 students were financed by PraValer and 300 by Educred. Organic Growth In 2Q16, 73 new courses were authorized, totaling 991, and the number of places in certain courses also expanded. As a result, in June 2016 the Company had more than 280,000 places per year, 55,400 of which in the distance learning segment. Ser Educacional continues to develop its organic growth strategy based on the accreditation of new units and the authorization of new courses. In this context, the highlight was the city of Vitória da Conquista, which obtained authorization for 12 new courses, including Dentistry, Biomedicine, Nutrition, Chemical Engineering and Production Engineering. The city currently has 32 courses, 25 of which approved within the last 12 months. 5

6 Number of Authorized Courses Q16 FINANCIAL PERFORMANCE Gross Revenue Gross Revenue (R$ '000) 2Q16 2Q15 2Q16 x 6M16 6M15 Gross Operating Revenue 368, , % 352, % 721, , % Undergraduate Monthly Tuition 355, , % 336, % 691, , % Graduate Monthly Tuition 5,459 8, % 5, % 11,179 13, % Vocational Courses Revenues , % 3, % 4,623 30, % Distance Learning Revenues 3,989 2, % 2, % 6,943 4, % Others 3,054 3, % 3, % 6,580 7, % Deductions from Gross Revenue (79,381) (73,799) 7.6% (66,938) 18.6% (146,319) (127,607) 14.7% Discounts and Scholarships (68,818) (62,074) 10.9% (54,607) 26.0% (123,425) (104,380) 18.2% Taxes (10,563) (11,725) -9.9% (12,331) -14.3% (22,894) (23,227) -1.4% % Discounts and Scholarships/ Net Oper. Rev. 18.7% 17.9% 0.8 p.p. 15.5% 3.1 p.p. 17.1% 15.6% 1.5 p.p. Net Operating Revenue 289, , % 285, % 574, , % In 2Q16, gross revenue totaled R$369.0 million, a 6.3% improvement over 2Q15, thanks to the combined effect of organic growth and the addition of the recently acquired UNG and UNAMA, which increased the total undergraduate student base, upturn in the average ticket, the inflation pass through and better mix of courses. For the same reasons, gross revenue in the undergraduate segment increased by 10.7% year-on-year, reaching R$355.6 million in 2Q16, representing 96.4% of the total. The graduate segment recorded revenue of R$5.5 million in 2Q16, or 1.5% of the total, 35.7% down on 2Q15, due to Delay in the start of classes, seeking greater class distribution. Revenue from vocational courses/pronatec amounted to R$0.9 million in 2Q16, accounting for 0.2% of the total and 92.4% down on 2Q15, due to the graduation of PRONATEC students during the semester who were not replaced as a result of the reduction in the program by the federal government. Distance learning, a segment in which the Company began operating in 2014, already accounted for 1.1% of total revenue, or R$4.0 million, an increase of 60.1% in relation to 2Q15, reflecting the 76.4% year-on-year upturn in the segment s student base. Deductions from gross revenue increased by 7.6% in 2Q16, due to the increase in sales discounts and scholarships, in turn mainly due to the higher number of PROUNI students as a result of the allocation of this type of scholarship to UNG and UNAMA in Given that they were originally nonprofit institutions, they had had little exposure to PROUNI. On June 30, 2016, discounts, scholarships and rebates contained R$15.0 million in FGEDUC discounts, versus R$11.9 million on June 30, On the same date, 93.2% of FIES students were with FGEDUC and 6.8% had guarantors. Net revenue climbed by 6.0%, from R$273.2 million, in 2Q15, to R$289.6 million. 6

7 Cost of Services Rendered Breakdown of Cost of Services Rendered¹ (R$ '000) 2Q16 2Q15 2Q16 x 6M16 6M15 Cash Cost of Services Rendered (128,680) (117,799) 9.2% (106,923) 20.3% (235,603) (213,540) 10.3% Payroll and Charges (96,929) (91,996) 5.4% (82,524) 17.5% (179,453) (166,969) 7.5% Rent (16,842) (14,586) 15.5% (15,199) 10.8% (32,041) (28,825) 11.2% Concessionaires ( Electricity, Water and Telephone) (8,988) (7,993) 12.4% (5,989) 50.1% (14,977) (12,410) 20.7% Third-Party Services (5,921) (3,224) 83.7% (3,211) 84.4% (9,132) (5,336) 71.1% The cash cost of services rendered (excluding depreciation and amortization) totaled R$128.7 million in 2Q16, 9.2% more than in 2Q15. The main components of this line all recorded an upturn in the quarter for the following reasons: a) Despite the cost optimization generated mainly by greater efficiency in class distribution and the review of the curriculum matrices between 1H15 and 1H16, there was in the quarter extraordinary cost of this reduction related to fines and labor costs in the amount of R$2.6 million, that still impacted 2Q16, mainly for UNG, related to reduction and exchange of personnel involving approximately 230 employees. In addition, there was also the impact of labor disputes occurred between 2H15 and 1H16, with an average 8% increase in the Company's operations staff salary basis. Between the first half of 2015 and 2016 there was a reduction of 724 teachers (13.8% of the previous base), mainly due to the variation of the student base, closure of Pronatec activities, synergy gains, among others. b) The 15.5% increase in the rent line over 2Q15 was due to the inflationary adjustment of contracts and rents of new units, partially offset by the return of properties in 2015, and the suspension of leasing contracts for properties belonging to the Company in which the controlling shareholder retains a majority stake for a period of 12 months, as announced in the Earnings Release. In addition, the variables rents paid or provisioned for payment to UNAMA and UNG property owners have generated an additional and non-recurring effect of R$1.6 million in the quarter, due the fact of these values are involved the period between October 2014 and March c) The variation in the concessionaires line was due to the increased number of operational units (São Luís, Manaus, Petrolina, Jaboatão dos Guararapes, Olinda and Feira de Santana), the consolidation of the units acquired (Unama/FIT, UNG, FAL and FASE), the inauguration of new buildings to expand operations, as in Aracaju and Salvador, and higher electricity tariffs, partially offset by the return of rented properties throughout last year. The cash cost of services rendered represented 44.4% of net revenue, 1.3 percentage points up on the 43.1% recorded in 2Q15, as described above. % of net operating revenue 2Q16 2Q15 2Q16 x 6M16 6M15 Cash Cost of Services Rendered -44.4% -43.1% -1.3 p.p % -6.9 p.p % -39.4% -1.6 p.p. Payroll and Charges -33.5% -33.7% 0.2 p.p % -4.5 p.p % -30.8% -0.5 p.p. Rent -5.8% -5.3% -0.5 p.p. -5.3% -0.5 p.p. -5.6% -5.3% -0.3 p.p. Concessionaires ( Electricity, Water and Telephone) -3.1% -2.9% -0.2 p.p. -2.1% -1.0 p.p. -2.6% -2.3% -0.3 p.p. Third-Party Services -2.0% -1.2% -0.9 p.p. -1.1% -0.9 p.p. -1.6% -1.0% -0.6 p.p. Gross Profit Gross Profit (R$ '000) 2Q16 2Q15 2Q16 x 6M16 6M15 Net Operating Revenue 289, , % 285, % 574, , % Cost of Services Rendered (137,909) (127,282) 8.3% (115,978) 18.9% (253,887) (230,293) 10.2% Gross Profit 151, , % 169, % 320, , % Gross Margin 52.4% 53.4% -1.0 p.p. 59.3% -6.9 p.p. 55.8% 57.6% -1.7 p.p. (-) Depreciation 9,229 9, % 9, % 18,284 16, % Cash Gross Profit 160, , % 178, % 339, , % Cash Gross Margin 55.6% 56.9% -1.3 p.p. 62.5% -6.9 p.p. 59.0% 60.6% -1.6 p.p. Cash gross profit increased by 3.6%, from R$155.4 million in 2Q15 to R$160.9 million in 2Q16, while the cash gross margin narrowed from 56.9% to 55.6%. 7

8 The decline in the gross margin was primarily due to the decrease in the PRONATEC student base as a result of the graduation of students, who were not replaced due to the program s discontinuation by the federal government, partially offset by the entry of distance learning. Operating Expenses (Selling, General and Administrative) Operating Expenses (R$ '000) 2Q16 2Q15 2Q16 x 6M16 6M15 General and Administrative Expenses (75,672) (82,385) -8.1% (69,941) 8.2% (145,613) (152,553) -4.5% Payroll and Charges (26,566) (34,976) -24.0% (26,168) 1.5% (52,734) (68,268) -22.8% Third-Party Services (7,325) (7,806) -6.2% (6,806) 7.6% (14,131) (14,044) 0.6% Advertising (13,381) (9,317) 43.6% (15,677) -14.6% (29,058) (21,514) 35.1% PDA (13,058) (14,239) -8.3% (6,390) 104.4% (19,448) (18,834) 3.3% Depreciation and Amortization (5,582) (5,481) 1.8% (5,457) 2.3% (11,039) (10,537) 4.8% Materials (4,028) (3,928) 2.5% (3,165) 27.3% (7,193) (7,431) -3.2% Others (5,732) (6,638) -13.6% (6,278) -8.7% (12,010) (11,925) 0.7% Operating Income 80,169 61, % 99, % 179, , % General and Administrative Expenses (Ex- Depreciation and Amortization) (70,090) (76,904) -8.9% (64,484) 8.7% (134,574) (142,016) -5.2% Second-quarter general and administrative expenses fell by 8.1%, from R$82.4 million, in 2Q15, to R$75.7 million, mainly due to: a) The 24% year on year reduction in payroll and charges, compared to 2T15, despite the increase from the collective wage increase occurred in 2H15 and 1H16, with an average increase of 4% in the Company's administrative staff salary base. This reduction is mainly due to the integration of movements of UNG and UNAMA and the organizational restructuring process begun in 2H15. b) Increased advertising expenses due to the student intake process, which involved more units than in the previous year, including those recently acquired (UNAMA/FIT and UNG). c) The 8.3% reduction in the provision for doubtful accounts (PDA) from R$14.2 million, in 2Q15, to R$13.1 million, primarily due to decrease in the default rate, with higher quality of the student portfolio in comparison with 2015, as well as the positive impact of renegotiations revision as detailed in the Student Growth Trends section. d) The 13.6% upturn in other expenses from R$6.6 million, in 2Q15, to R$5.7 million, due Company s efforts to reduce expenses. As a percentage of net sales, in the comparison of the quarter and the first half with the previous year, reductions in personal lines and charges and services for individuals and companies demonstrate the streamlining of the Company s expenses and point to the beginning of operational synergy gains from the recent acquisitions. % of net operating revenue 2Q16 2Q15 2Q16 x 6M16 6M15 General and Administrative Expenses -26.1% -30.2% 4.0 p.p % -1.6 p.p % -28.1% 2.8 p.p. Payroll and Charges -9.2% -12.8% 3.6 p.p. -9.2% 0.0 p.p. -9.2% -12.6% 3.4 p.p. Third-Party Services -2.5% -2.9% 0.3 p.p. -2.4% -0.1 p.p. -2.5% -2.6% 0.1 p.p. Advertising -4.6% -3.4% -1.2 p.p. -5.5% 0.9 p.p. -5.1% -4.0% -1.1 p.p. PDA -4.5% -5.2% 0.7 p.p. -2.2% -2.3 p.p. -3.4% -3.5% 0.1 p.p. Depreciation and Amortization -1.9% -2.0% 0.1 p.p. -1.9% 0.0 p.p. -1.9% -1.9% 0.0 p.p. Materials -1.4% -1.4% 0.0 p.p. -1.1% -0.3 p.p. -1.3% -1.4% 0.1 p.p. Others -2.0% -2.4% 0.5 p.p. -2.2% 0.2 p.p. -2.1% -2.2% 0.1 p.p. Operating Income 27.7% 22.4% -5.3 p.p. 34.7% -7.0 p.p. 31.2% 28.7% -2.5 p.p. General and Administrative Expenses (Ex- Depreciation and Amortization) -24.2% -28.2% 4.0 p.p % -1.6 p.p % -26.2% 2.8 p.p. 8

9 Other Operating Expenses / Revenue This quarter, the other operating expenses (revenue) line, which normally refers to expenses related to expansion activities and other expenses not related to the Company s day-to-day operations, comprised non-recurring net revenue of approximately R$4.1 million, versus a net expense of R$2.3 million in 2Q15. This revenue was related to an agreement for the early winding up of a rent contract between UNG and the lessor of a property in São Paulo that was sold and the new proprietor wanted UNG to vacate the building before termination of the lease. UNG s São Paulo unit will begin operations in the second semester of 2016 at Av. Brigadeiro Luis Antônio, close to Avenida Paulista, without any prejudice to its students. The amount received by the agreement, net of expenses for the transfer of the unit generated a non-recurring revenue in the amount of $ 5 million. EBITDA and Adjusted EBITDA EBITDA (R$ '000) 2Q16 2Q15 2Q16 x 6M16 6M15 Net Income (Loss)¹ 63,759 49, % 85, % 149, , % (+) Net financial expense² 14,696 10, % 11, % 25,719 18, % (+) Income and social contribution taxes 1,714 1, % 2, % 3,784 4, % (+) Depreciation and amortization 14,811 14, % 14, % 29,323 27, % EBITDA³ 94,980 76, % 113, % 208, , % EBITDA Margin 32.8% 27.9% 4.9 p.p. 39.8% -7.0 p.p. 36.3% 33.7% 2.6 p.p. (+) Revenue from interest and fines on tuition 5 5,444 4, % 7, % 13,235 10, % (+) Non-recurring costs and expenses , % 1, % 1,855 8, % (-) Minimum rent paid 7 (9,750) (9,750) 0.0% (9,750) 0.0% (19,500) (19,029) 2.5% Adjusted EBITDA 4 91,001 78, % 113, % 204, , % Adjusted EBITDA Margin 31.4% 28.7% 2.7 p.p. 39.7% -8.2 p.p. 35.5% 33.7% 1.8 p.p. 1. Due to our adherence to PROUNI, we are entitled to certain tax benefits that affect net income. 2. Corresponds to the difference between financial revenue and expenses. 3. EBITDA is not an official accounting measurement. 4. Adjusted EBITDA corresponds to EBITDA plus financial revenue from fines and interest on tuition, non-recurring costs and expenses, and minimum rent paid. 5. Revenue from interest and fines on tuition corresponds to the net financial result from interest income and tuition fines corresponding to financial charges on renegotiated and overdue tuition fees. 6. Non-recurring costs and expenses are mainly related to costs and expenses from mergers and acquisitions, which would not affect normal cash flow. 7. Minimum rent refers to rental agreements recorded under financial leasing in accordance with CPC 6. The expenses from such leasing are not recorded under EBITDA, but are part of adjusted EBITDA. Cash generation as measured by adjusted EBITDA totaled R$9.1 million in 2Q16, 16.0% up on the R$78.4 million reported in 2Q15. The adjusted EBITDA margin closed the quarter at 31.4%, a 2.7 p.p. improvement over 2Q15. In both comparisons, the increase in the EBITDA margin was due to operational synergy gains resulting from the gains in scale following the recent acquisitions and the Company s organic growth, as well as the projects specifically designed to improve operating efficiency implemented throughout The non-recurring effects recognized in the quarter were as follows: 1. R$2.6 million in severance pay due to the rationalization process and synergies from UNG; 2. R$1.6 million in costs related to non-recurring effect on rents of UNG and UNAMA; 3. R$0.4 million from expenses of strategic consulting services related to the projects to improve operating efficiency in effect since 2015; 4. R$0.7 million in non-recurring expenses with expansion and M&A projects, and; 5. R$5.0 million in other operating income related to the agreement for the early termination of UNG s lease as discussed under "Other Operating Income / Expenses". 9

10 Financial Result Financial Result (R$ '000) 2Q16 2Q15 2Q16 x 6M16 6M15 (+) Financial Revenue 19,955 10, % 26, % 46,652 18, % Interest on Tuition and Agreements 5,444 4, % 7, % 13,235 10, % Returns on Financial Investments 6,847 1, % 7, % 14,711 3, % Others 7,664 4, % 11, % 18,706 5, % (-) Financial Expenses (34,651) (20,435) 69.6% (37,720) -8.1% (72,371) (37,234) 94.4% Interest Expenses (15,713) (5,449) 188.4% (14,946) 5.1% (30,659) (8,629) 255.3% Interest on Leasing (8,593) (8,727) -1.5% (8,631) -0.4% (17,224) (16,884) 2.0% Discounts Granted (3,990) (3,386) 17.8% (8,119) -50.9% (12,109) (4,142) 192.3% Monetary Variation Expenses (4,049) (3,109) 30.2% (4,070) -0.5% (8,119) (6,424) 26.4% Others (2,306) % (1,954) 18.0% (4,260) (1,155) 268.8% Financial Result (14,696) (10,318) 42.4% (11,023) 33.3% (25,719) (18,643) 38.0% Financial revenue increased by 97.2%, from R$10.1 million in 2Q15 to R$20.0 million in 2Q16, mainly due to the variation in the returns from financial investments line, due to the higher cash and securities balance, which increased from R$34.1 million at the end of 2Q15 to R$248.8 million in 2Q16, as a result of the addition of two lines of credit (a loan from the IFC and a debenture issue), which strengthened the cash position and enabled the generation of higher financial revenue. Another contributory factor was the recognition of R$6.5 million in monetary variation, reflecting the restatement by the IPCA consumer price index of the balance of outstanding FIES accounts receivable related to 2015, the result of an agreement with the government establishing settlement in three annual installments, the first of which, representing 25% of the June 2016 balance, having been transferred via the issue of CFTEs (Treasury Financial Certificates) on June 30 and received on August 3. The next installment, representing 25% of the total amount due, will be settled by June 2017, and the remaining 50% will be paid by June Financial expenses increased from R$20.4 million in 2Q15 to R$34.7 million in 2Q16, mainly due to: a) Interest expenses, which climbed by 188.4%, from R$5.4 million, in 2Q15, to R$15.7 million, due to the increase in indebtedness, resulting from the completion in July 2015 of the issuance of long-term debt of R$120 million with the IFC and the issuance of debentures of R$150 million, both at the beginning of 3Q15, as outlined in the Indebtedness section. Another factor contributing to the upturn was the increase during the year in the average CDI interbank deposit rate, the Company's main debt indexing unit. b) Interest on leasing related to rented properties, which fell by 1.5% from R$8.7 million, in 2Q15, to R$8.6 million. This reduction is due to the reduction of the principal of the lease, as the interest rate is constant. c) Discounts granted, totaling R$4.0 million in 2Q16 versus R$3.4 million in 2Q15, due to discounts given to UNG and UNAMA students (approximately R$2.2 million), renegotiation of students in the re-enrollment process, and agreements for students in arrears for more than 360 days. In 2Q15, there were no discounts granted to UNG students, since the systems were only effectively integrated as of April d) Monetary variation expenses, which correspond to the financial remuneration related to amounts payable, especially in regard to the acquisition of UNG, increased from R$0.8 million, in 2Q15, to R$4.0 million due to the adjustment of the amounts by the IGPM. As a result of the increase in financial expenses, the net financial result was an expense of R$14.7 million in 2Q16, versus an expense of R$10.3 million in 2Q15. 10

11 Net Income Net Income (R$ 000) 2Q16 2Q15 2Q16 x 6M16 6M15 Operating Income 80,169 61, % 99, % 179, , % (+) Financial Result (14,696) (10,318) 42.4% (11,023) 33.3% (25,719) (18,643) 38.0% (+) Income and Soc. Contrib. Taxes (1,887) (1,881) 0.3% (2,070) -8.8% (3,957) (4,985) -20.6% (+) Deferred Income and Soc. Contrib. Taxes % - 0.0% % Net Income (Loss) 63,759 49, % 85, % 149, , % Net Margin 22.0% 17.9% 4.1 p.p. 30.1% -8.1 p.p. 26.0% 24.3% 1.7 p.p. Operating income increased by 31.0%, from R$61.2 million in 2Q15 to R$80.2 million in 2Q16. Income tax and social contributions remained virtually flat, edging up by just 0.3% over 2Q15 to R$1.9 million, due to the R$2.7 million compensation related to tax losses in units acquired previously. The Company posted net income of R$63.8 million, 30.1% up on the R$49.0 million recorded in 2Q15 and equivalent to 22.0% of net revenue, 4.1 p.p. higher than the 17.9% reported in the same period last year. Accounts Receivable and Average Collection Period Accounts Receivable and Average Receivable Days (R$ '000) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 2Q16 Gross Accounts Receivable 139, , , , , , , , , ,237 Monthly tuition fees 33,970 43,577 35,479 74, ,462 93,071 66,214 69,965 73,334 76,245 FIES 69, , , , , , , , , ,752 PRONATEC 6,639 15,347 12,893 19,610 30,309 17,408 12,111 10,023 7,791 6,343 Negotiated agreements receivable 15,839 16,361 19,050 17,736 29,020 33,320 47,533 46,789 58,411 54,861 Education credits receivable 10,376 9,628 9,023 8,730 8,171 8,202 7,380 9,020 10,229 9,616 Others 2,605 1,166 2,663 5,900 6,622 10,726 12,703 5,988 7,925 19,420 PDA balance (18,459) (18,344) (19,829) (27,744) (25,595) (31,129) (37,319) (45,743) (41,330) (37,029) Net Accounts Receivable 120, , , , , , , , , ,208 Net Revenue (Last 12 Months - FIES+Ex-FIES+Pronatec) 504, , , , , , ,799 1,032,448 1,048,075 1,064,511 Net Receivable Days (FIES+Ex-FIES+Pronatec) Net Revenue FIES (Last 12 Months) 230, , , , , , , , , ,979 Net Receivable Days (FIES) Net Receivable Days (Monthly tuition fees + Negotiated agreements receivable) Net Receivable Days (Monthly tuition fees + Negotiated agreements receivable + Education credits receivable) Accounts receivable balance presented an increase of R$139.9 million compared to 4Q15, mainly due to the increase in accounts receivable from FIES due to the effects of Ordinances Regulations # 23/2015 and 02/2016, which held payments relating to the year Consequently, the accounts receivable from FIES suffered from delays in the payment schedule and the effects of Ordinances Regulations # 23/2015 and 02/2016, impacting the balance of 2Q15 accounts receivable, leading our average collection period to rise significantly. With the normalization of the flow of payments from July, as reported in the "Highlights" section, the Company expects to reduce this average balance already from 3Q16. The Company constituted provisions for doubtful accounts considered sufficient by Management to deal with any losses from accounts receivable, taking into account the risks involved. The criterion used by the Company is to provision 100% of receivables overdue by more than 180 days, plus FIES provisions. 11

12 Aging of Monthly tuition fees 2Q16 4Q15 (R$ '000) Overdue by up to 30 day 16, % 12, % Overdue from 31 to 60 days 13, % 9, % Overdue from 61 to 90 days 11, % 8, % Overdue from 91 to 180 days 19, % 12, % Overdue more than 180 days 15, % 26, % TOTAL 76, % 69, % % of Gross Accounts Receivable 13.7% 16.4% Aging of Negotiated Agreements (R$ '000) 2Q16 4Q15 Not yet due 13, % 14, % Overdue by up to 30 day 7, % 5, % Overdue from 31 to 60 days 6, % 4, % Overdue from 61 to 90 days 5, % 4, % Overdue from 91 to 179 days 9, % 8, % Overdue more than 180 days 11, % 8, % TOTAL 54, % 46, % % of Gross Accounts Receivable 9.8% 11.0% Accounts receivable from students refers to renegotiations with students in debt to the Company. The table above shows that 25.4% of the agreements were falling due. The table below shows the evolution of our allowance for doubtful accounts from December 31, 2015 to June 30, 2016: Constitution of Provision for Gross Increase in Doubtful Accounts in the Provision for Income Statement (R$ '000) 12/31/2015 Doubtful Accounts Write-off 06/30/2016 Total 45,743 19,448 (28,162) 37,029 Investments (CAPEX) CAPEX (R$ ('000)) 6M16 % of Total 12M15 % of Total CAPEX Total 34, % 98, % Property acquisition / Construction / Maintenance of campuses 19, % 45, % Equipment / Library / IT 7, % 26, % MEC Licenses 1, % 13, % Software Licenses 3, % 8, % Partnerships % % Intangibles and Others 1, % 3, % Acquisitions Debt Payment 15,885 71,109 Total CAPEX + Aquisitions Payables 49, ,057 In 1H16, the Company invested R$19.3 million in campus reforms, the new Aracaju and Salvador buildings being delivered in the second quarter, together with the João Pessoa and Caruaru expansions that were delivered in the first quarter. For the second quarter was mainly performed works for expansion of the number of classrooms in Fortaleza unit, completed the medical unit of Uninassau Recife and Aracaju parking lot. Of the total R$15.9 million in debt payments for previous acquisitions (commitments payable) which are recorded in cash flow as investment activity, they were used to pay the acquisition of UNG. 12

13 Indebtedness Indebtedness (R$ '000) 06/30/ /31/2015 jun16 x dec15 Cash and cash equivalents 65,765 69, % Securities 183, , % Gross debt (534,152) (563,135) -5.1% Loans and financing (366,842) (382,724) -4.1% Short term (75,185) (49,484) 51.9% Long term (291,657) (333,240) -12.5% Aquisitions Payables* (167,310) (180,411) -7.3% Net debt (285,350) (280,001) 1.9% Net debt / Adjusted EBITDA (LTM) * Acquisitions payables refer to acquisition scheduled payments Ser Educacional closed June 2016 with gross debt of R$534.2 million, 5.1% down on the R$563.1 million in 4Q15, due to the settlement of commitments related to the acquisition of UNG. The Company's indebtedness is due primarily to the increase of commitments related to the acquisition of UNG and the taking out of two long-term debts with the following characteristics: (i) financing from the IFC over seven years, totaling R$120.0 million at the CDI+2.05% p.a., payable semi-annually as of April 15, 2017 and maturing on April 15, 2022, (ii) the issuance of nonconvertible debentures with a term of 5 years totaling R$150.0 million at the CDI+2.5% p.a., with monthly payments as of February 2017 until final maturity in July On the same date, the Company s net debt stood at R$285.4 million, representing a leverage ratio (net debt / LTM EBITDA) of 0.89x, versus 0.95x in 4Q15. With the resumption of FIES payments flow, as reported in the "Highlights" section, if we recalculate the same index, Proforma, considering the payment of R$187.9 million (R$166.0 million net of federal taxes) received in August, we can reach 0.4x net debt / adjusted EBITDA. Debt Amortization Schedule (R$ '000) Loans and Financing A.V. (%) Aquisitions Payables A.V. (%) Debentures A.V. (%) Total A.V. (%) Short Term 52, % 82, % 22, % 158, % Total Long Term 161, % 84, % 130, % 376, % 1-2 years 44, % 26, % 42, % 112, % 2-3 years 41, % 28, % 42, % 112, % 3-4 years 23, % 29, % 42, % 95, % 4-5 years 23, % - 0.0% 3, % 27, % After five years 28, % - 0.0% - 0.0% 28, % Total Loans, Financing and Acquisitions payables 214, % 167, % 152, % 534, % In regard to the debt payment schedule, 29.6% corresponds to short-term debt, showing that the Company has adequate debt amortization terms, as well as a comfortable level of financial leverage. 13

14 Cash Flow In the 2Q16, the Company recorded an increase of R$23.2 million in cash, getting a cash generation of R$78.1 million with operating activities, compared to the use of R$36.7 million in financing activities and R$18.3 million in investment activities (as described in section CAPEX). Cash Flow (R$ '000) 2Q16 2Q15 6M16 6M15 Cash flow from operating activities Net cash from operating activities 78,109 11, % 56,830 20, % (-) Cash flow allocated to investing activities (18,269) (12,095) 51.0% (49,986) (112,569) -55.6% (+) Securities (14,380) - N.M. 30,098 63, % (+) Cash flow allocated to financing activities (36,668) (10,515) 248.7% (41,176) (10,550) 290.3% Financing Activities (13,551) (8,589) 57.8% (18,059) (1,205) % Dividends Payment (23,117) (1,926) % (23,117) (9,345) 147.4% Increase in cash and cash equivalents 8,792 (11,583) % (4,234) (39,120) -89.2% Net increase in cash and cash equivalents Beginning of period % 69,999 73, % End of period 8,792 (11,583) % 65,765 34, % Increase in cash and cash equivalents 8,792 (11,583) % (4,234) (39,120) -89.2% Cash changes and Securities 23,172 (11,583) % (34,332) (102,538) -66.5% ABOUT SER EDUCACIONAL Founded in 2003 and headquartered in Recife, Ser Educacional (BM&FBOVESPA SEER3, Bloomberg SEER3:BZ and Reuters SEER3.SA) is one of the largest private education groups in Brazil and the leader in the Northeast and North regions in terms of number of students enrolled. It offers undergraduate, graduate, vocational and distance learning courses in 12 states, with a consolidated base of 152,000 students. The Company operates under the following brands: Faculdades Maurício de Nassau, UNINASSAU Centro Universitário Maurício de Nassau, Faculdades Joaquim Nabuco, Escolas Técnicas Joaquim Nabuco and Maurício de Nassau, FIT Faculdades Integradas dos Tapajós, UNG (Universidade Guarulhos) and UNAMA (Universidade da Amazônia), through which it offers more than 990 courses. This notice may contain forward-looking statements related to business prospects, estimates of operating and financial results and the growth prospects of Ser Educacional. These are merely projections and, as such, are solely based on the expectations of the Management of Ser Educacional. Such forward-looking statements are substantially dependent on external factors, in addition to the risks presented in the disclosure documents filed by Ser Educacional and are therefore subject to change without prior notice. 14

15 ATTACHMENTS Income Statement Income Statement (R$ '000) 2Q16 2Q15 2Q16 x 6M16 6M15 Revenue from the Sale of Goods and/or Services 289, , % 285, % 574, , % Cost of Goods Sold and/or Services Rendered (137,909) (127,282) 8.3% (115,978) 18.9% (253,887) (230,293) 10.2% Gross Profit 151, , % 169, % 320, , % Operating Expenses/Revenue (71,522) (84,677) -15.5% (70,141) 2.0% (141,663) (156,891) -9.7% General and Administrative Expenses (75,672) (82,385) -8.1% (69,941) 8.2% (145,613) (152,553) -4.5% Other Operating Expenses/Revenue 4,150 (2,292) % (200) % 3,950 (4,338) % Operating Income 80,169 61, % 99, % 179, , % Financial Result (14,696) (10,318) 42.4% (11,023) 33.3% (25,719) (18,643) 38.0% Financial Revenue 19,955 10, % 26, % 46,652 18, % Financial Expenses (34,651) (20,435) 69.6% (37,720) -8.1% (72,371) (37,234) 94.4% Income Before Income Taxes 65,473 50, % 87, % 153, , % Income and Social Contribution Taxes (1,714) (1,881) -8.9% (2,070) -17.2% (3,784) (4,985) -24.1% Current (21,865) (16,791) 30.2% (28,269) -22.7% (50,134) (46,783) 7.2% Deferred % - 0.0% % Tax Incentive - Prouni 19,978 14, % 26, % 46,177 41, % Consolidated Net Income/Loss 63,759 49, % 85, % 149, , % Attributed to the Controlling Shareholders 63,759 49, % 85, % 149, , % Attributed to Non-Controlling Shareholders % - 0.0% % Weighted Average Number of Shares (thousand) 124, , % 124, % 124, , % Earnings/Share Attributed to the Controlling Shareholders (R$/Share) % % % 15

16 Balance Sheet Balance Sheet - ASSETS (R$ '000) 06/30/ /31/ /30/2015 jun16 x dec15 jun16 x jun15 Total Assets 1,972,461 1,848, % 1,543, % Current Assets 678, , % 413, % Cash and cash equivalents 65,765 69, % 34, % Securities 183, , % - N.M. Accounts receivable 395, , % 362, % Taxes recoverable 11,419 7, % 3, % Advances to suppliers 1,073 5, % 4, % Other assets 20,994 9, % 8, % Non-Current Assets 1,294,377 1,351, % 1,130, % Long-Term Assets 1,294,377 1,351, % 1,130, % Accounts receivable 125, , % 3, % Other assets 8,080 5, % 5, % Indemnifications 112, , % 112, % Intangible assets 433, , % 406, % Property, plant and equipment 615, , % 603, % Balance Sheet - LIABILITIES (R$ '000) 06/30/ /31/ /30/2015 jun16 x dec15 jun16 x jun15 Total Liabilities 1,068,603 1,091, % 795, % Current Liabilities 323, , % 239, % Suppliers 24,939 18, % 16, % Accounts payable 82,916 70, % 68, % Loans and financing 52,680 44, % 38, % Debentures 22,505 5, % - N.M. Payroll and charges 89,824 66, % 83, % Taxes payable 16,091 16, % 15, % Income and social contribution taxes payable 3,943 11, % 3, % Tax installments % % Leasing 15,400 4, % 4, % Dividends payable - 20, % 3, % Other liabilities 15,683 13, % 5, % Non-Current Liabilities 744, , % 555, % Loans and financing 161, , % 81, % Debentures 130, , % - N.M. Leasing 236, , % 251, % Accounts payable 84, , % 101, % Taxes payable % % Tax installments 4,075 - N.M. - N.M. Provision for contingencies 121, , % 120, % Provision for contingencies 5,706 6, % - N.M. Consolidated Shareholders' Equity 903, , % 748, % Capital Realized 377, , % 377, % Income Reserve 394, , % 263, % Retained income 138,514 - N.M. 113, % Treasury shares (6,454) (6,454) 0.0% (6,217) 3.8% Total Liabilities and Shareholders' Equity 1,972,461 1,848, % 1,543, % 16