Abril Educação S.A. Quarterly Information (ITR) at September 30, 2013 and report on review of quarterly information

Transcription

1 Abril Educação S.A. Quarterly Information (ITR) at September 30, 2013 and report on review of quarterly information

2 (A free translation of the original in Portuguese) ABRIL EDUCAÇÃO S.A. QUARTERLY INFORMATION (ITR) at September 30, 2013 and report on review of quarterly information CONTENTS Page Management Report 1 19 Balance sheet Statement of Income Statement of comprehensive income (loss) Statement of changes in equity 24 Statement of cash flows 25 Statement of value added 26 Notes to the quarterly information Board of Directors and Fiscal Concil 77 Board of Executive Officers 78 Report on review of quarterly information 79-80

3 (A free translation of the original in Portuguese) September 2013 Management Report São Paulo, November 13, Abril Educação S.A. (BM&FBOVESPA: ABRE11) announces its results for the Third Quarter of 2013 (3Q13) and First Nine Months of 2013 (9M13). The comments herein refer to the consolidated results in accordance with International Financial Reporting Standards (IFRS) and the comparisons are in relation to the same period of 2012, as indicated. KEY INDICATORS - CONSOLIDATED QUARTER Change Change YTD (%) (%) (R$ mm) 3Q13 3Q12 3Q13/3Q 9M13/9 9M13 9M12 12 M12 Net Revenue % % Adjusted EBITDA % % EBITDA Margin 14% 15% -1 p.p. 24% 22% 2 p.p. (=) Net Income (loss) before minority interest (13.6) (1.1) n/a % Cash Generation (2.0) (12.3) n/a % HIGHLIGHTS Consolidated net revenue grew by 29% over 3Q12 reaching R$178.4 million, which includes revenue of R$45.8 million from Grupo OMETZ (Wise Up and You Move), Red Balloon and Colégio Motivo, which were acquired after 3Q12. Due to the delay in the PNLD 2014, 3Q13 does not include any revenue from this federal government textbook purchasing program, which in 3Q12 accounted for R$26 million. Excluding the effects from the PNLD program and acquisitions, net revenue growth was 18%. In 9M13, net revenue amounted to R$568.0 million, up 16% over 9M12. In the same period, excluding revenue from the abovementioned acquisitions, from the PNLD 2012 of R$27 million (1Q12) and the PNLD 2013 of R$26 million (3Q12), as reported previously, net revenue growth was 12%. In 3Q13, adjusted EBITDA amounted to R$24.9 million, which includes R$13.6 million in contributions from Grupo OMETZ, Red Balloon and Colégio Motivo, representing growth of 20% in the period. EBITDA was impacted by R$ 8.6 million of non-recurring expenses during the quarter, as detailed in SG&A section, and by excluding these effects 3Q13 EBITDA reached R$ 33.5 million. In 3Q12, EBITDA from the PNLD program was R$14 million. 1

4 (A free translation of the original in Portuguese) Excluding the effects from the PNLD program in 3Q12 and from the acquisitions in 3Q13, EBITDA growth was 66%. In 9M13, EBITDA amounted to R$134.8 million, growing 27% over 9M12. EBITDA in 9M12 includes contributions from the PNLD 2012 (1Q12) and PNLD 2013 (3Q12) both amounting to R$14 million. Excluding the effects from the PNLD programs, the abovementioned acquisitions and the nonrecurring adjustment in COGS made in 2Q12, EBITDA growth in 9M13 was 11%. Operating cash generation in 3Q13 was negative R$2.0 million, compared to negative R$12.3 million in 3Q12. In 9M13, operating cash generation was positive R$173.5 million, increasing 23% from R$140.9 million in In 3Q13 SG&A was impacted by two effects, when compared to 2Q13: (i) R$8.6 million of non-recurring expenses related to M&A activities, contract renewal and executives retention plan and review in labor contingencies; and (ii) R$ 27.2 million of expenses related to Grupo OMETZ, Red Balloon and Motivo. Excluding these effects, SG&A stood at R$ 90.6 million vs. R$126.4 million in 3Q13. For the PNLD 2014, Publishers received a total order of 30.0 million books. The amount of revenue from the program expected for 4Q13, assuming the invoicing of the full amount in the period, is R$235 million. Based on estimates from ABRELIVROS, Publishers' total market share stood at 22%. ETB Technical Learning System signed agreements with Grupo Ser Educacional and Uni Sant Anna for the provision of services to over 30,000 students of PRONATEC, a national program to promote access to vocational education and technical jobs. As of September, ETB had invoiced contracts with 26 educational institutions with 7,000 students enrolled in 19 courses. Galeazzi & Associados was hired to help the Company with the integration project, cost reviewing and preparation of the establishment of zero-based budgets for the Company's main businesses. On Oct 1, the transaction to acquire 100% of the capital of Centro Educacional Sigma was concluded. On Sept 24, the Board of Directors approved the first Stock Buyback Program. The shares acquired will be held in treasury for use in meeting the exercise of stock options held by key executives without diluting the holdings of the Company's shareholders. 2

5 (A free translation of the original in Portuguese) MESSAGE FROM THE MANAGEMENT We ended 9M13 with growth of 16% in revenue, 27% in EBITDA and 23% in operating cash generation in relation to 9M12. The main drivers of this growth were the acquisition of Grupo OMETZ, Red Balloon and Colégio Motivo, as well as our Learning Systems and Schools and Preparatory Courses businesses, which continued to post organic growth, offsetting the lower-thanexpected performance of our Publishers this year. As of this quarter, we are adopting a simpler earnings release to provide clearer information on our business model in order to ensure transparency in our relations with the market. The main changes include: a. Performance reports aligned with the company's recent reorganization to reflect our three main business lines: Educational Products & Services for elementary schools, Schools and Preparatory Courses, and Language Courses; b. In Educational Products & Services, in addition to our traditional brands Anglo, SER, GEO, Maxi and ph, the line Learning Systems now also includes two other lines with good growth prospects: ETB Technical Learning System and The Leader in Me. These businesses are similar to the other Learning System businesses and are not offered solely to schools served by our other products or services, i.e. teaching materials accompanied by services and training. c. Greater focus on the operating and financial performance of our main business lines. In 3Q13, we made progress on important fronts in preparation for a new phase of the Company's development, with our efforts in 2014 to focus on the capture of greater synergies, integrating our business lines and organic growth. On the integration and synergies front, we launched important projects. We concluded the migration of the legacy inventory management system to ERP Oracle, a system that will manage the Company's core business activities. We concluded the new IT Master Plan with the support of an external consulting firm, which is expected to require investment of R$60 million over the next three years to integrate and unify the legacy systems of the acquired companies. The Company hired Galeazzi & Associados to assist it with the project to integrate units, review costs and capture synergies and in establishing best practices for monitoring performance and establishing business indicators in preparation for the implementation of zero-based budgeting for the Company's main businesses. 3

6 (A free translation of the original in Portuguese) On the commercial synergies front, we accelerated our offering of integrated solutions to clients, seeking to leverage our competitive advantage built over the last few years with the creation of the industry's most complete portfolio. One example of the potential of these synergies is the contract signed with the Porto Seguro School, which is one of the country's most prestigious institutions. In 2014, we will offer Red Balloon English language courses to around one thousand of the school's students in the afternoon class. We also saw the first advances in the development of our Language business. At Red Balloon, we signed 21 franchise agreements, with the units slated to launch operations in This will take our franchise network to 46 units in 2014, following three years with just 25. At Grupo OMETZ, we concluded the hiring of the new CEO, who began working in August. In the half-period time since his hiring, we began to observe a reversal in enrollment trends, as described in this report, following the implementation of our initial sales actions. Over the coming years, the focus of network growth will be on expanding into new regions and forging partnerships with schools in the Learning System business for the offering of extracurricular English courses on an in-school basis. The Company is particularly optimistic on the prospects of three new businesses: Alfacon, ETB Technical Learning System and The Leader in Me. Alfacon is growing at an accelerated pace driven by the excellent acceptance rates achieved by students in civil service examinations. With a scalable and profitable business model, the company will continue to invest in its development. After two years of development, ETB Technical Learning System launched its growth phase. The Company signed long-term agreements with two educational institutions with a higher number of scholarships under the recently created PRONATEC, a national program to promote access to vocational education and technical jobs. In 2014, we plan to serve over 30,000 students at Grupo Ser Educacional and Uni Sant Anna, as well as the 7,000 students this recently launched system already serves. In the case of The Leader in Me, the pilot program for this leadership program was very successful, with 100% renewal by clients participating in the pilot phase and fulfillment of the new school target for 2014, when we plan to expand the universe of 19 schools currently served to 95. The target was achieved in October and the Company opened a waiting list for 2015 for schools interested in the program. Management is optimistic on the business prospects while also aware of the execution challenges involved in its strategy and the focus required during this time of integrating units and accelerating organic growth, which are priorities that will guide our actions over the coming months. 4

7 (A free translation of the original in Portuguese) OPERATING PERFORMANCE ANALYSIS I) Educational Products & Services Learning Systems We ended September with 557,800 students enrolled at 1,811 associated schools, which represents growth of 5% over the number of students in 3Q12. In the public school segment, our student base grew by 2,000 students in the brand Maxi in relation to 2Q13. Net revenue per student on a comparable basis* advanced by 7% from R$103.2/student to R$110.4/student. (*) Considers the effects from the anticipation of R$3 million in revenue from Q3 to Q2, as informed in the 2Q13 earnings release. In addition to Learning Systems students from the brands Anglo, ph, Ser, GEO and Maxi, we have two other brands that operate as Learning Systems: ETB Technical System (ETB) and The Leader in Me (OLEM), which as of this quarter will be consolidated into this business line. The number of students, including those at ETB and OLEM, follows: Number of Students 3Q13 3Q12 Change% Learning Systems (Anglo, ph, Ser and Maxi) % Technical Learning System (ETB) The Leader in Me (OLEM) Total of Students % At the close of the quarter, OLEM already had 68 new contracts with new schools. By the end of 2014, we will implement the program for Elementary School II (grades 6 to 9). 5

8 (A free translation of the original in Portuguese) Publishing Business In the private school segment, Publishers registered growth in book sales volume of 1.4 million books to 1.9 million books in 3Q13, from 0.5 million books in 3Q12. In 9M13, book sales volume in the private segment grew by 14% to 5.0 million books, due to the special sale to the Education Development Foundation (FDE) of 1.7 million books. Meanwhile, the public school segment registered sales volume of 0.1 million books sold under the National School Library Program (PNBE), compared to sales volume of 4.6 million in 3Q12. As explained previously, 3Q13 did not include any PNLD sales volumes, which in 3Q12 amounted to 3.8 million books. In 9M13, the public segment declined by 86% due to the delay in the PNLD 2014 and the lack of any sales under the program in 1Q13, as explained in prior earnings releases. For the PNLD 2014, Publishers received total orders for 30.0 million books, 12.4 million of which in the initial purchase by the program and 17.6 million for books repurchase from previous programs. Based on estimates from ABRELIVROS, the total market share of Publishers stood at 22%. Meanwhile, the market share of purchases for Elementary School II stood at 16%. Complementary Products and Services (Alfacon, Escola Satélite, Edumobi, Ei Você and Pré-Enem) Alfacon, a company offering preparatory courses for online civil service examinations, continued to grow, selling 27,000 online course to more than 20,000 active students in 3Q13. The company continues to post excellent results in important civil service examinations. Highlights include the 348 students accepted by the Federal Police, which represents an approval rate of 33% for the position of registrar, 155 accepted by the National Corrections Department out of 650 openings, 115 accepted by the 12 th Regional Labor Court of Santa Catarina and 1,257 accepted by Federal Highway Police out of 4,500 openings. 6

9 (A free translation of the original in Portuguese) II) Schools and Preparatory Courses The Schools and Preparatory Courses business (Anglo, ph and Motivo) ended September with 20,100 students enrolled in 16 units, up 26% over 2012, reflecting the inclusion of 2,700 students from Colégio Motivo, which was acquired in July 2013, and the organic growth of 1,400 students at the Anglo and ph schools in the period. On Sept 1, we concluded the divestment of 4 ETB schools with 1,700 students located in the state of São Paulo that had not made any EBITDA contributions for the second straight year. The objective was to focus on the development of the ETB Technical Learning System, which was launched in mid-june 2012 and offers excellent prospects for achieving significantly better results. Note: Excludes the number of students at the on-site schools of ETB and Alfacon launched in 2Q13. III) Language The Language business (Red Balloon and Wise Up) ended September with 82,900 students enrolled at 415 units. Red Balloon registered growth of 800 students due to the opening of one unit in the period, for a total of 13,600 students at 8 own units and 25 franchised units. The number of teaching material kits sold by the brands of Grupo OMETZ came to 11,800 in 3Q13. The number is 6% higher than the number of kits sold in 2Q13, reflecting the seasonality of the business, but still 10% lower than in the same period of ,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Wise Up - Number of Kits Sold 7,755 6,040 5,725 6,563 4,237 4,401 5,058 3,866 3,827 3,519 4,955 3,794 4,049 4,415 3,474 3,206 3,490 3,352 January February March April May June July August September

10 (A free translation of the original in Portuguese) In this business, kits are sold within 30 to 60 days after enrollment, with students normally waiting the same amount of time after enrolling to begin attending classes. In 3Q13, we began to change the trend in our enrollment. From January to June, the number of enrollments decreased by 15% from the same period of In July, enrollments were 29% lower than a year earlier. In August, we began to see improvement in this trend, with enrollments 10% lower in the month, with the second half of the month being almost flat over 2012; and 12% higher in September 2013, the first month in which we posted positive growth over the prior year. 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Wise Up - Number of Enrollments 9,514 9,040 8,195 8,295 7,325 6,991 6,352 7,059 7,091 5,634 4,936 6,591 5,151 5,674 4,500 4,558 4,947 4,585 January February March April May June July August September At the end of 3Q13, Grupo OMETZ had 69,400 students enrolled and 382 franchised units. In August, the company hired Julio De Angeli as the CEO, following a difficult initial transition period starting with the announcement of the Grupo OMETZ acquisition on February 8 and the transaction's effective conclusion on Apr

11 (A free translation of the original in Portuguese) FINANCIAL PERFORMANCE ANALYSIS I) Abril Educação Consolidated (R$ mm) QUARTER Change (%) YTD Change (%) Financial Information 3Q13 3Q12 3Q13/3Q12 9M13 9M12 9M13/9M12 Net Revenue % % (-) Cost of goods sold (COGS) (43.5) (44.7) -3% (154.7) (169.3) -9% (=) Gross Profit % % Gross margin (%) 76% 68% 8 p.p. 73% 65% 8 p.p. (-) Selling, general and administrative expenses (126.4) (84.0) 50% (328.9) (256.1) 28% (=) Operating income (loss) % % Operating Margin(%) 5% 7% 2 p.p. 15% 13% 2 p.p. (-) Financial Result (19.4) (6.5) 200% (39.0) (25.9) 51% (=) Net Income (loss) before IT and Social contribution (10.9) 2.8 n/a % (-) Income tax and social contribution (2.7) (3.9) -31% (29.7) (6.7) 343% (=) Net Income (loss) before minority interest (13.6) (1.1) n/a % (+) Non-controlling interest (1.6) 1.0 n/a (3.3) 2.0 n/a (=) Net Income (loss) after minority interest (15.1) (0.2) n/a % Net Margin (%) -8% 0% -8 p.p. 2% 7% -5 p.p. (=) Operating income (loss) % % (+) Depreciation and Amortization % % (+) Amortization of publishing investment % % (=) EBITDA % % EBITDA Margin (%) 14% 15% -1 p.p. 24% 22% 2 p.p. Net Revenue Consolidated net revenue grew by 29% from 3Q12 to R$178.4 million, which includes revenue of R$45.8 million from Grupo OMETZ, Red Balloon and Colégio Motivo. As commented in last quarter's earnings release, 3Q13 did not include any revenue from the PNLD program, which in 3Q12 amounted to R$26 million. Excluding the effects from the PNLD program in 3Q12 and from the acquisitions in 3Q13, net revenue growth was 18%. In 9M13, consolidated net revenue amounted to R$568.0 million, growing by 16% over 9M12. On a comparable basis, excluding the effects described before, net revenue growth was 12%. 9

12 (A free translation of the original in Portuguese) (*) Excludes PNLD effect (3Q12: R$ 26.0 mm); (9M12: R$ 53 mm). (**) Excludes acquisitions: Grupo Ometz, Red Balloon and Motivo (3Q13: R$ 45.8 mm); (9M13: R$ 81.4 mm). Cost of Goods Sold Consolidated COGS in 3Q13 decreased by 3% to R$43.5 million, which contributed to the gross margin expansion in the period of 8 p.p. In 3Q13, there was no recognition of costs related to the PNLD 2014 program, which in 3Q12 came to R$9.0 million. On the other hand, 3Q13 included the impact from costs related to the newly acquired assets (Grupo OMETZ, Red Balloon and Motivo) in the amount of R$5.7 million. Excluding these effects, COGS in 3Q13 increased by 6%, lagging revenue growth in the period. In 9M13, COGS decreased by 9% from 9M12 to R$154.7 million. In 9M13, there was no recognition of costs related to PNLD 2014, while in 9M12, R$20 million was recognized from PNLD 2012 (1Q12) and PNLD 2013 (3Q12), in addition to the nonrecurring effect from the inventory write off in 2Q12 of R$20.3 million. Excluding these effects and the effects from acquisitions in 3Q13, COGS in 9M13 increased by 9%, which lagged the comparable growth in revenue of 12%. Considering the effects mentioned above, gross margin in 3Q13 and 9M13 expanded from 68% to 72% and from 70% to 71%, respectively. 10

13 (A free translation of the original in Portuguese) (*) Excludes PNLD effect (3Q12: R$9.0 mm); YTD excludes PNLD and inventory write off (9M12: R$40.3 mm). (**) Exclude acquisitions: Grupo Ometz, Red Balloon and Motivo (3Q13: R$5.7 mm); (9M13: R$14.5 mm). Selling, General and Administrative Expenses SG&A expenses increased by 50% compared to 3Q12 reaching R$126.4 million. Total expenses in the quarter increased by R$42.4 million over 3Q12, which is primarily explained by: (i) R$27.2 million increase in expenses related to Grupo OMETZ, Red Balloon and Motivo; (ii) R$8.6 million related to non-recurring expenses, of which: R$3.7 million related to M&A activity, R$3.6 million related to contract renewal and executives retention plan and R$1.3 million with review in labor contingencies; and (iii) organic/inflation growth of the businesses. EBITDA In 3Q13, EBITDA amounted to R$24.9 million, increasing 20% over 3Q12, including the contributions from Grupo OMETZ, Red Balloon and Colégio Motivo of R$13.6 million. EBITDA was impacted by R$ 8.6 million of non-recurring expenses during the quarter, and by excluding these effects 3Q13 EBITDA reached R$ 33.5 million. In 3Q12, EBITDA from the PNLD program was R$14 million. Excluding the effects, only from the PNLD program in 3Q12 and from the acquisitions in 3Q13, EBITDA growth was 66%. In 9M13, EBITDA was R$134.8 million, growing by 27% over 9M12, which includes the EBITDA contributions from the PNLD 2012 (1Q12) and PNLD 2013 (3Q12) both amounting to R$14 million. Excluding the effects from the PNLDs, acquisitions and the nonrecurring adjustment in COGS in 2Q12 in the aggregate amount of R$20.3 million, EBITDA grew by 11% in 9M13. EBITDA margin stood at 14% in 3Q13 and 24% in 9M13; adjusted for the effects described above, EBITDA margin was 9% in 3Q13 and 22% in 9M13. 11

14 (A free translation of the original in Portuguese) (*) Excludes PNLD effect (3Q12: R$14.0 mm); YTD excludes PNLD and inventory write off (9M12: R$7.7 mm). (**) Excludes acquisitions: Grupo Ometz, Red Balloon and Motivo (3Q13: R$13.6 mm); (9M13: R$25.5 mm). Excludes the non-recurring expenses of R$8.6 million in 3Q13 and 9M13. Net Income (Loss) The amortization of the fair value adjustment of intangible assets related to the acquisition amounted to R$11.4 million in 3Q13 and R$25.2 million in 9M13. This amortization is noncash, but impacts the consolidated result, which in 3Q13 was a net loss of R$13.6 million and in 9M13 was net income of R$15.6 million. For the calculation of the adjusted net income, we excluded the accounting amortization of fair value adjustment and included the tax benefit (cash) from the use of goodwill (see the following chart), which resulted in adjusted net income of R$7.3 million in 3Q13 and of R$69.0 million in 9M13. 12

15 (A free translation of the original in Portuguese) (*) Excludes the amortization of fair value adjustment and the tax benefit from the use of goodwill. At the close of September 2013, the Company had a balance of tax goodwill for use amounting to approximately R$1.7 billion. Management considers this tax goodwill deductible for the purposes of income tax and social contribution tax. Investments Operating investments amounted to R$57.6 million in 9M13, composed as follows: (i) acquisitions of property and equipment: R$23.1 million; and (ii) publishing investments: R$34.2 million, which is allocated to the production of new digital content for the PNLD, new collections, the reformulation and updating of publishers' collections and materials, and the learning systems. Total operating investment in the period was 29% higher than the R$44.5 million invested in 2012, due to the new assets acquired over the course of Operating Cash Generation Operating cash generation in 3Q13 was negative R$2.0 million, compared to negative R$12.3 million in 3Q12, reflecting the seasonality of the Publishing business, in which revenues from the PNLD are concentrated in the fourth and first quarters of the year. In 9M13, operating cash flow was R$173.5 million, increasing 23% from the cash generation of R$140.9 million in

16 (A free translation of the original in Portuguese) The increase of R$32.6 million was due to operational improvements at existing businesses and the entry of new assets in the period. Operating cash generation net of interest and tax payments was negative R$26.5 million in 3Q13, improving by R$2.9 million from 3Q12. In 9M13, operating cash generation was R$119.4 million, growing by R$30.4 million over 9M12. Capital Structure Abril Educação ended September 2013 with consolidated net debt of R$779.6 million, formed by gross debt of R$1,034.5 million and cash and cash equivalents of R$255.0 million. Total gross debt was formed by R$578.7 million in financial debt and R$455.8 million in debt with the sellers of the acquired companies. Of this total, 78% corresponded to long-term debt. In the quarter, the main factors contributing to the R$188.9 million increase in net debt were: (i) the R$81.1 million disbursement for the acquisition of the Colégio Motivo in July combined with the contracting of a long-term loan with the sellers in the restated amount of R$22.4 million; and (ii) the advance of R$35.0 million related to the acquisition of Centro Educacional Sigma announced in July and concluded in October. In the first week of October, we carried out the issue of R$200.0 million in new debentures with a term of 5 years, 3-year grace period and remuneration of CDI overnight rate + 1.5% p.a. The proceeds from the issue will be used mainly to pay the debt arising from the acquisitions. 14

17 (A free translation of the original in Portuguese) II) Educational Products and Services Learning Systems Learning Systems -R$ mm 3Q13 3Q12 Change % Change % 9M13 9M12 3Q13/3Q12 9M13/9M12 Net Revenue % % (-) Cost of goods sold (COGS) (11.2) (10.8) 3% (45.6) (34.2) 33% (=) Gross Profit % % Gross margin (%) 81% 80% 1 p.p. 78% 81% -3 p.p. (-) Selling, general and administrative expenses (18.0) (17.4) 4% (46.8) (44.6) 5% (=) Operating income (loss) % % (+) Depreciation and Amortization % % (+) Amortization of publishing investment % % EBITDA % % EBITDA Margin (%) 54% 51% 3 p.p. 59% 58% 1 p.p. Revenue from Learning Systems in 3Q13 reached R$59.2 million, up 8% over 3Q12, which included revenue of about R$1.0 million from the ETB and OLEM Learning Systems, which did not occur in 3Q12. In 9M13, revenue from Learning Systems amounted to R$209.0 million, growing 19% from 9M12, which included R$14.6 million from the GEO Learning System acquired in July 2012, which in 2012 amounted to R$3.3 million. Excluding these effects, organic growth in the Learning Systems was 12% in 9M13, with 5% driven by growth in the student base and 7% by the higher net revenue per student. Learning Systems registered COGS of R$11.2 million in 3Q13, increasing 3% from 3Q12, which included the costs of R$0.3 million from the ETB and OLEM Learning Systems. 15

18 (A free translation of the original in Portuguese) The growth in costs lagged revenue growth, which supported gross margin expansion of 1 p.p. to 81% in 3Q13. In 9M13, Learning Systems registered COGS of R$45.6 million, increasing by 33% from R$34.2 million in 9M12. Note that COGS in 9M13 included R$9.2 million in costs from the GEO Learning System, compared to R$2.0 million from the three months of recognition of this asset in Excluding these effects, COGS increased by 12%, in line with revenue growth in the period. Gross margin excluding the GEO Learning System was stable at 81%. The Learning System registered selling, general and administrative expenses of R$18.0 million in 3Q13, increasing 4% from R$17.4 million in 3Q12 and including expenses from ETB and OLEM of R$1.1 million. In 9M13, these expenses amounted to R$46.8 million, increasing 5% from 9M12, and included the expenses from the GEO Learning System of R$5.3 million, which in 9M12 were R$1.3 million. Excluding these effects, expenses decreased by 4%, from R$43.3 million in 9M12 to R$41.5 million in 9M13. Publishers Publishers -R$ mm 3Q13 3Q12 Change % Change % 9M13 9M12 3Q13/3Q12 9M13/9M12 Net Revenue % % (-) Cost of goods sold (COGS) (7.9) (17.2) -54% (45.3) (89.4) -49% (=) Gross Profit % % Gross margin (%) 52% 57% -5 p.p. 68% 53% 15 p.p. (-) Selling, general and administrative expenses (36.6) (34.5) 6% (111.2) (112.6) -1% (=) Operating income (loss) (27.9) (12.0) 132% (16.0) (10.7) 50% (+) Depreciation and Amortization % % (+) Amortization of publishing investment % % EBITDA (25.4) (8.7) 192% (1.0) % EBITDA Margin (%) -153% -22% -131 p.p. -1% 3% -4 p.p. Net revenue from the Publishing business amounted to R$16.6 million in 3Q13, decreasing 58% from the same period of The decrease was due to the fact that no revenue from PNLD 2014 was recognized in 3Q13, due to the delay in the announcement of the program's results this year, while in 3Q12 this recognition amounted to R$26 million. Excluding this effect on revenue in 3Q13, net revenue grew by 22% to R$16.6 million, from R$13.7 million in 3Q12. In 9M13, net revenue decreased by 27% to R$140.4 million, from R$191.3 million in 9M12. 16

19 (A free translation of the original in Portuguese) Excluding from 9M12 the effects from the PNLD 2012 (R$27 million) in 1Q12 and from the PNLD 2013 (R$26 million) in 3Q12, net revenue in 9M13 grew by 2%. Publishers recorded decreases in COGS of 54% and 49% in 3Q13 and 9M13, respectively. The reduction in COGS was due to the fact that no PNLD 2014 volumes were recognized in the periods. In 3Q12, R$9.0 million in costs related to the PNLD 2013 program were recognized, which did not occur in 3Q13. Excluding this effect, COGS would be at R$8.2 million. In 9M12, R$11.0 million in costs related to the PNLD program were recognized that had been postponed from 2011 to 1Q12 and did not recur in 9M13, as explained above, while in 3Q12 this recognition amounted to R$9.0 million. Excluding these effects and the inventory write-off occurred in 2Q12 in the amount of R$20.3 million, COGS in 9M13 decreased by 8%. Following these adjustments, gross margin increased by 12 p.p. in 3Q13 to 52% and by 4 p.p. in 9M13 to 68%. Publishers registered selling, general and administrative expenses of R$36.6 million in 3Q13, up 6% from R$34.5 million in 3Q12. In 9M13, these expenses decreased by 1%, from R$112.6 million in 9M12 to R$111.2 million in 9M13. In 9M12, SG&A expenses were impacted by the postponement of expenses related to the PNLD 2012 in the amount of R$3.6 million, which did not occur in Excluding this effect, expenses would increase by 2%. Complementary Products and Services Complementary Products and Services -R$ mm 3Q13 3Q12 Change % Change % 9M13 9M12 3Q13/3Q12 3Q13/3Q12 Total Net Revenue % % Alfacon n/a % Outhers % % TOTAL EBITDA 1.9 (0.9) 308% (0.3) (2.5) 89% Alfacon 1.6 (0.2) 981% 3.9 (0.2) n/a Outhers 0.3 (0.7) 142% (4.2) (2.4) 75% TOTAL EBITDA Margin -% 31% -45% 76 p.p. -2% -78% 76 p.p. In 3Q13, Alfacon recorded net revenue of R$3.6 million and EBITDA of R$1.6 million. Alfacon sold 27,000 online courses to more than 20,000 active students in the quarter. 17

20 (A free translation of the original in Portuguese) The company continues to build its reputation in preparatory courses for civil service examinations through the excellent results it has achieved. In 2Q13, Alfacon took over the on-site courses in the state of São Paulo, replacing the SIGA course of Anglo, and to date already has 970 students enrolled. III) Schools and Preparatory Courses Schools and Prep. Courses -R$ mm 3Q13 3Q12 Change % Change % 9M13 9M12 3Q13/3Q12 9M13/9M12 Net Revenue % % (-) Cost of goods sold (COGS) (22.3) (18.3) 21% (59.4) (47.5) 25% (=) Gross Profit % % Gross margin (%) 62% 58% 4 p.p. 58% 61% -3 p.p. (-) Selling, general and administrative expenses (19.2) (15.7) 22% (53.1) (48.3) 10% (=) Operating income (loss) % % (+) Depreciation and Amortization % % (+) Amortization of publishing investment % % EBITDA % % EBITDA Margin (%) 32% 23% 9 p.p. 23% 22% 1 p.p. Net revenue from Schools and Preparatory Courses in 3Q13 amounted to R$59.3 million, increasing 35% from 3Q12 and including the revenue from Colégio Motivo of R$5.9 million. Excluding this effect, the business posted net revenue growth of 22%. In 9M13, net revenue in this business amounted to R$142.5 million, growing 17% from 9M12. Excluding Colégio Motivo, net revenue grew by 12%, driven by the 9% increase in the student base and 3% growth in net revenue per student. In 2013, the recognition of revenue from Grupo ph ceased to be recognized on a straight-line basis over the year (1/12 per month) and began to be recognized once classes begin in late February. The Schools and Preparatory Courses business registered COGS in 3Q13 of R$22.3 million, up 21% from 3Q12, including the COGS from Colégio Motivo of R$2.4 million. Excluding this effect, COGS grew by 9% and gross margin increased by 5 p.p. to 63%. 18

21 (A free translation of the original in Portuguese) In the year to date, COGS increased by 25% to R$59.4 million. The increase of R$11.9 million was driven by the full recognition of costs related to the acquisition of Colégio Motivo in July 2013 in the amount of R$2.4 million and by the inclusion of more classes in the ph Learning System at ph School, which generated additional costs with and revenues from teaching materials in The selling, general and administrative expenses of the Schools and Preparatory Courses grew by 22% in 3Q13 and by 10% in 9M13, lagging the growth in net revenue, even considering the full recognition in 3Q12 of the costs associated with Colégio Motivo. EBITDA margin advanced by 9 p.p. in 3Q13 to 32% and by 1 p.p. in 9M13 to 23%. IV) Language Business Language -R$ mm 3Q13 3Q12 9M13 9M12 Net Revenue (-) Cost of goods sold (COGS) (3.3) 0.0 (12.1) 0.0 (=) Gross Profit Gross margin (%) 92% 0% 84% 0% (-) Selling, general and administrative expenses (25.2) 0.0 (40.3) 0.0 (=) Operating income (loss) (+) Depreciation and Amortization (+) Amortization of publishing investment EBITDA EBITDA Margin (%) 30% 0% 32% 0% The Language business posted net revenue of R$39.9 million in 3Q13, with the period marking the start of the full recognition of revenue from Grupo OMETZ (R$33.7 million) and Red Balloon (R$6.2 million). Revenue from Grupo OMETZ was 58% higher than in 2Q13 due to the partial recognition of said revenue in that period and to the seasonality of the business, whose sales are concentrated in the first and third quarters of the year. In 9M13, net revenue was R$75.5 million, of which R$20.4 million was from Red Balloon and R$55.1 million from Grupo OMETZ. This quarter we recognized R$3.8 million in expenses related to the sponsorship of the FIFA World Cup. EBITDA from Grupo OMETZ adjusted by the FIFA World Cup marketing expenses and NPV (account receivables) amounted to R$14.6 million with EBITDA margin of 43%. In 9M13 (May to September), EBITDA adjusted for the abovementioned effects was R$24.4 million. 19

22 (A free translation of the original in Portuguese) BALANCE SHEET (All amounts in thousands of Reais) ASSETS September 30, 2013 Parent company December 31, 2012 September 30, 2013 Consolidated December 31, 2012 CURRENT ASSETS Cash and cash equivalents (Note 7) 25, , , ,892 Financial investment Trade receivables (Note 9) 2,773 3, , ,050 Inventories (Note 10) , ,874 Taxes recoverable (Note 11) 12,268 11,381 45,733 21,057 Dividends receivable (Note 32) 17,142 17, Advances and prepaid expenses (Note 12) 248 2,139 66,432 14,632 58, , , ,505 NON-CURRENT ASSETS Loans and other related-party receivables (Note 32) - 45, Financial assets (Note 8) 743 4, ,043 Trade receivables (Note 9) ,251 - Taxes recoverable (Note 11) - - 4,123 4,112 Deferred income tax and social contribution (Note 20) ,175 37,617 Judicial deposits (Note 19) - - 6,809 6,129 Advances and prepaid expenses (Note 12) - - 3,113 1,022 Investments (Note 13) 1,487, , Intangible assets (Note 14) - - 1,983, ,066 Property and equipment (Note 15) ,078 67,304 1,488, ,803 2,140,305 1,114,244 Total assets 1,546,690 1,080,656 2,867,138 1,856,749 The accompanying notes are an integral part of this quarterly information. 20

23 BALANCE SHEET (All amounts in thousands of Reais) LIABILITIES AND EQUITY CURRENT LIABILITIES Trade and other payables (Note 16) 9,036 11, , ,247 Borrowings (Note 17) ,615 22,109 Taxes and contributions payable (Note 18) ,941 6,759 Income tax and social contribution payable ,569 7,948 Dividends payable - 23,783-23,783 Payables for the acquisition of equity - interests (Note 31) , ,530 9,048 35, , ,376 NON-CURRENT LIABILITIES Trade and other payables (Note 16) - - 5,703 - Loans and other payables to related parties (Note 32) Payables for the acquisition of equity interests (Note 31) , ,890 Borrowings (Note 17) , ,967 Taxes and contributions payable (Note 18) ,790 Provision for contingencies (Note 19) ,121 9,991 Deferred income tax and social contribution (Note 20) 4,631 4,631 66,077 43,849 4,631 4, , ,660 Total liabilities 13,679 40,188 1,325, ,036 EQUITY Attributable to the owners of the Parent company Share capital (Note 23) 852, , , ,952 Capital reserves (Note 24) 516, , , ,764 Revenue reserves (Note 24) 164, , , ,752 Carrying value adjustments (13,228) - (13,228) - Retained earnings 12,290-12,290-1,533,011 1,040,468 1,533,011 1,040,468 Non-controlling interests - - 8,256 5,245 Total equity 1,533,011 1,040,468 1,541,267 1,045,713 Total liabilities and equity 1,546,690 1,080,656 2,867,138 1,856,749 The accompanying notes are an integral part of this quarterly information. 21

24 (A free translation of the original in Portuguese) STATEMENTS OF INCOME THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30 (All amounts in thousands of Reais, except for earnings per share) Parent company Consolidated 7/1/2013 to 9/30/2013 1/1/2013 to 9/30/2013 7/1/2012 to 9/30/2012 1/1/2012 to 9/30/2012 7/1/2013 to 9/30/2013 1/1/2013 to 9/30/2013 7/1/2012 to 9/30/2012 1/1/2012 to 9/30/2012 Net revenue (Note 26) , , , ,275 Cost of sales and services (Note 27) (56) (249) - (69) (43,482) (154,741) (44,735) (169,322) Gross profit , ,221 93, ,953 Selling expenses (Note 27) (41) (42) (13) (56) (64,588) (172,434) (45,660) (138,793) General and administrative expenses (Note 27) (11,177) (27,251) (4,000) (16,781) (62,245) (157,632) (38,439) (118,274) Other income (expenses), net , Operating profit (loss) (11,126) (26,897) (4,009) (16,628) 8,527 84,302 9,227 63,825 Finance income (Note 28) 1,860 7,689 4,877 18,988 8,631 26,167 7,864 26,952 Finance costs (Note 28) (93) (3,747) (55) (1,967) (28,378) (66,351) (14,336) (53,381) Foreign exchange variations, net (Note 28) - (1) , Profit (loss) before equity in results of subsidiaries (9,359) (22,956) (10,859) 45,312 2,773 37,920 Carrying value adjustments (Nota 13) (5,734) 35,296 (709) 34, Profit (loss) before taxation (15,093) 12, ,688 (10,859) 45,312 2,773 37,920 Income tax and social contribution (Note 29) (50) (50) (291) (1,483) (2,705) (29,746) (3,917) (6,712) Profit (loss) for the period (15,143) 12,290 (187) 33,205 (13,564) 15,566 (1,144) 31,208 Attributable to Owners of the Parent company (15,143) 12,290 (187) 33,205 Non-controlling interest 1,579 3,276 (957) (1,997) (13,564) 15,566 (1,144) 31,208 Basic earnings per share - R$ (Note 24) Diluted earnings per share - R$ (Note 24) The accompanying notes are an integral part of this quarterly information. 22

25 (A free translation of the original in Portuguese) STATEMENT OF COMPREHENSIVE INCOME (LOSS) THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30 (All amounts in thousands of Reais unless otherwise stated) Parent company Consolidated 7/1/2013 to 9/30/2013 1/1/2013 to 9/30/2013 7/1/2012 to 9/30/2012 1/1/2012 to 9/30/2012 7/1/2013 to 9/30/2013 1/1/2013 to 9/30/2013 7/1/2012 to 9/30/2012 1/1/2012 to 9/30/2012 Profit (loss) for the period (15,143) 12,290 (187) 33,205 (13,564) 15,566 (1,144) 31,208 Other comprehensive loss Fair value adjustment in the issue of shares - (13,228) (13,228) - - Total comprehensive income (loss) for the period (15,143) (938) (187) 33,205 (13,564) 2,338 (1,144) 31,208 Attributable to Owners of the Parent company (15,143) (938) (187) 33,205 Non-controlling interests 1,579 3,276 (957) (1,997) (13,564) 2,338 (1,144) 31,208 The accompanying notes are an integral part of this quarterly information. 23

26 (A free translation of the original in Portuguese) STATEMENT OF CHANGES IN EQUITY (All amounts in thousands of Reais) Capital reserves Revenue reserves Stock Carrying Attributable to Share Capital options Legal Profit value Retained owners of the Non-controlling capital reserve granted reserve retention adjustments earnings parent interests Total AT DECEMBER 31, , ,933 10,542 7,928 80, , ,018 Stock option plan - - 4, ,660-4,660 Profit (loss) for the nine-month period ,205 33,205 (1,997) 31,208 Other movements in non-controlling interests ,996 1,996 AT SEPTEMBER 30, , ,933 15,202 7,928 80,468-33, , ,882 AT DECEMBER 31, , ,933 15,831 12, , ,040,468 5,245 1,045,713 Stock option plan (Note 22) Profit for the quarter ended 3/31/ ,256 36,256 1,052 37,308 Other movements in non-controlling interests (88) (88) AT MARCH 31, , ,933 16,610 12, ,817-36,256 1,077,503 6,209 1,083,712 Capital increase according to the minutes of the Board of Directors' Meeting of 4/25/ , , , ,570 Capital increase according to the minutes of the Board of Directors' Meeting of 4/30/ , , ,573 Capital increase according to the minutes of the Board of Directors' Meeting of 5/24/ , ,104-3,104 Share issue expenses (Note 23) - (8,402) (8,402) - (8,402) Fair value adjustment in the issue of shares (13,228) - (13,228) - (13,228) - - Stock option plan (Note 22) - - 1, ,626-1,626 Profit (loss) for the quarter ended 6/30/ (8,823) (8,823) 645 (8,178) Other movements in non-controlling interests (89) (89) AT JUNE 30, , ,869 18,236 12, ,817 (13,228) 27,433 1,547,923 6,765 1,554,688 Capital increase according to the minutes of the Board of Directors' Meeting of 8/12/ Stock option plan (Note 22) - - 1, ,237 1,237 Share issue expenses (Note 23) (1,013) (1,013) (1,013) Profit (loss) for the quarter ended 9/30/ (15,143) (15,143) 1,579 (13,564) Other movements in non-controlling interests (88) (88) AT SEPTEMBER 30, , ,856 19,473 12, ,817 (13,228) 12,290 1,533,011 8,256 1,541,267 The accompanying notes are an integral part of this quarterly information. 24

27 STATEMENT OF CASH FLOWS NINE-MONTH PERIODS ENDED SEPTEMBER 30 (All amounts in thousands of Reais) Parent company Consolidated CASH FLOWS FROM OPERATING ACTIVITIES Cash from operations (Note 30) (16,809) 3, , ,922 Interest paid - - (36,928) (34,301) Income tax and social contribution paid in advance - - (8,272) - Income tax and social contribution paid - (2,465) (8,931) (17,646) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (16,809) 1,196 84,375 88,975 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of/addition to: Property and equipment - (893) (6,975) (8,551) Intangible assets - - (16,108) (2,265) Financial investment - - 8,583 - Acquisition of subsidiary in the year, net of cash acquired - - (395,190) (24,145) Decrease in cash due to disposal of subsidiary in the year - - (438) - Acquisition of permanent investment (230) Payment of acquisition of subsidiaries from prior periods (Note 31) - - (85,563) (80,289) Payment of adjustments - acquisition price - (1,005) - (1,005) Capital increase in subsidiaries (308,071) Capital reduction in subsidiaries 17, Dividends recieved 13, Loans received from related parties 206,430 (106,829) (616) - Loans granted to related parties (161,070) 64,626 1,244 (65) Interest received NET CASH USED IN INVESTING ACTIVITIES (232,707) (43,436) (495,059) (115,885) CASH FLOWS FROM FINANCING ACTIVITIES New borrowings , ,525 Repayment of borrowings - - (13,218) (223,149) Payment of PAES and taxes in installments - - (3,320) (2,827) Capital increase 117, ,267 - Capital increase in subsidiaries Dividends paid (23,783) (11,475) (23,783) (11,475) Dividends paid to non-controlling stockholders - - (670) - NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 93,484 (11,475) 359,744 2,085 DECREASE IN CASH AND CASH EQUIVALENTS (156,032) (53,715) (50,940) (24,825) Cash and cash equivalents at the beginning of the period 181, , , ,647 Cash and cash equivalents at the end of the period 25, , , ,822 NET CHANGES IN CASH AND CASH EQUIVALENTS (156,032) (53,715) (50,940) (24,825) The accompanying notes are an integral part of this quarterly information. 25

28 STATEMENT OF VALUE ADDED NINE-MONTH PERIODS ENDED SEPTEMBER 30 (All amounts in thousands of Reais) Parent company Consolidated REVENUE , ,864 Sales of goods and services (Note 26) , ,478 Other revenue 125-3,600 2,415 Provision for impairment of trade receivables (Note 9) - - (7,034) (1,029) INPUTS ACQUIRED FROM THIRD PARTIES 13,628 4, , ,313 Raw materials consumed ,362 Cost of sales and services , ,781 Materials, energy, outsourced services and other 13,379 4, , ,170 GROSS VALUE ADDED (12,683) (4,102) 365, ,551 RETENTIONS ,985 26,747 Depreciation and amortization (Notes 14 and 15) ,985 26,747 NET VALUE ADDED GENERATED (12,847) (4,300) 329, ,804 VALUE ADDED RECEIVED THROUGH TRANSFER 42,985 53,393 27,916 28,062 Equity in the results of subsidiaries (Note 13) 35,296 34, Finance income (Note 28) 7,689 18,988 26,167 26,952 Foreign exchange gains (Note 28) ,749 1,110 TOTAL VALUE ADDED TO DISTRIBUTE 30,138 49, , ,866 DISTRIBUTION OF VALUE ADDED Personnel and payroll charges 11,599 10, , ,769 Salaries 11,240 9, ,587 97,467 Benefits ,990 10,944 Government Severance Indemnity Fund for Employees (FGTS) ,005 7,358 Taxes and contributions 2,460 3,426 86,479 50,415 Federal 2,460 3,411 75,346 42,686 State Municipal ,415 7,211 Remuneration of third parties' capital 3,789 2, ,966 92,474 Interest (Note 28) 3,747 1,967 66,351 53,381 Foreign exchange losses (Note 28) Rentals ,012 9,969 Copyright ,048 28,238 Other Remuneration of own capital 12,290 33,205 15,566 31,208 Profits reinvested 12,290 33,205 12,290 33,205 Non-controlling interests - - 3,276 (1,997) TOTAL VALUE ADDED DISTRIBUTED 30,138 49, , ,866 The accompanying notes are an integral part of this quartelry information. 26

29 1. GENERAL INFORMATION NOTES TO THE QUARTERLY INFORMATION (ITR) FOR THE PERIOD ENDED SEPTEMBER 30, 2013 (All amounts in thousands of Reais unless otherwise stated) Abril Educação S.A. (the "Company") is a corporation headquartered in São Paulo, State of São Paulo. The Company and its subsidiaries (the "Group") operate in the segment of primary and pre-university education, with the following business lines: Editoras Ática and Scipione - book publishing houses and SER teaching system; Sistema de Ensino Abril Educação - Anglo teaching system and pre-university entrance courses; PH Group - basic teaching schools and pre-university entrance courses; ETB Group - technical and professional teaching schools; Maxiprint Gráfica e Editora - Maxi teaching system; Escola Satélite - televised courses; Edumobi - digital content distribution technology; SGE GEO teaching system; Jafar preparatory courses for civil service exams; Red Balloon English language teaching schools for children and teenagers; EiVocê - e-learning professional training, and free courses, Wise Up - English language teaching schools for teenagers and adults, and Motivo Group - basic teaching schools and pre-university entrance courses. The Company's activities include the editing, printing, publication, advertising and sale, in the wholesale and retail markets, of books, textbooks and publications for basic education and pre-college admission courses. In addition it also provides specialized training services for teachers and school managers, meetings, lectures and workshop activities related to education, as well as the pedagogical activities of its basic and professional teaching courses through its own schools or teaching system. The issue of this Quarterly Information was authorized by the Company's Board of Directors on November 7, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of presentation The Quarterly Information (ITR) has been prepared on a historical costs basis, as modified by financial assets measured at fair value through profit or loss. The Quarterly Information was based on principles, methods and criteria consistent with those adopted at the end of the last fiscal year ended December 31, 2012 and, consequently, should be read together with the published annual financial statements. The interim accounting information contained in this Quarterly Information (ITR) has been prepared in accordance with the accounting standard CPC 21 (R1), Interim Financial Reporting, of the Brazilian Accounting Pronouncements Committee (CPC), and is presented in a manner consistent with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of Quarterly Information (ITR). 27