4Q16 Earnings Release

Transcription

1 Belo Horizonte, March 22, 2017, Kroton Educacional S.A. (BM&FBovespa: KROT3; OTCQX: KROTY), Kroton or Company, announces today its results for the fourth quarter of 2016 (4Q16). The Company s financial information is presented on a consolidated basis and in Brazilian real, in accordance with Brazilian Corporate Law and Generally Accepted Accounting Principles in Brazil (BRGAAP), and already conforms to International Financial Reporting Standards (IFRS), except where stated otherwise. HIGHLIGHTS PRO FORMA MANAGEMENT ANALYSIS SPECIAL NOTE: Since the 3Q16 results were presented on a pro forma basis due to delays in the Student Financing Fund Transfer System (SisFIES) during the reenrollment of FIES students, the Company opted to analyze its 4Q16 financial performance (On Campus and Consolidated) on a pro forma basis to avoid compromising the comparison base. Therefore, the 4Q16 pro forma results present only the recognition of tuitions from FIES related to the monthly tuition payments for the actual quarter, i.e. excluding any amounts already recorded in the previous quarter also on a pro forma basis. Note, however, that the Company has not changed its policy for recognizing students and revenues, but merely adopted this procedure to portray more realistically its performance in the periods. A reconciliation of this result with the balance sheet is provided in Appendix 2" hereto. Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Chg.% Gross Revenue 1,742,552 1,690, % 1,588, % 6,732,976 6,723, % Net Revenue 1,361,514 1,331, % 1,223, % 5,244,710 5,265, % Gross Income 934, , % 866, % 3,723,308 3,580, % Gross Margin 68.6% 67.8% 0.8 p.p. 70.8% -2.2 p.p. 71.0% 68.0% 3.0 p.p. Operating Result 685, , % 667, % 2,902,305 2,779, % Operat ing Margin 50.4% 51.3% -1.0 p.p. 54.5% -4.1 p.p. 55.3% 52.8% 2.5 p.p. Adjusted EBITDA 528, , % 532, % 2,300,300 2,178, % Adjust ed EBITDA Margin 38.8% 38.9% -0.1 p.p. 43.5% -4.7 p.p. 43.9% 41.4% 2.5 p.p. Adjusted Net Income 487, , % 452, % 2,008,011 1,785, % Adjust ed Net Margin 35.8% 30.7% 5.1 p.p. 37.0% -1.2 p.p. 38.3% 33.9% 4.4 p.p. Adjusted Net Income /share % % % Operating Cash Generation (OCG) after Capex ¹ 466, , % 465, % 1,505, , % OCG aft er Capex 1 / EBITDA (unadjust ed)² 104.0% 27.9% 76.1 p.p. 96.1% 7.9 p.p. 72.1% 34.1% 38.0 p.p. ¹ Capex excludes investments in M&A and Special Projects. ² EBITDA excluding the capital gain from the divestment of Uniasselvi. Note: Figures for 2015 include the results from Uniasselvi. For 2016, this impacts only the full year figures, since they included the results for January and February of Uniasselvi. HIGHLIGHTS MANAGEMENT ANALYSIS (EX-UNIASSELVI¹) Consolidated - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Chg.% Net Revenue 1,361,514 1,266, % 1,223, % 5,203,150 4,979, % Adjusted EBITDA 528, , % 532, % 2,282,438 2,077, % Adjust ed EBITDA Margin 38.8% 39.7% -0.8 p.p. 43.5% -4.7 p.p. 43.9% 41.7% 2.1 p.p. Adjusted Net Income 487, , % 452, % 1,992,774 1,698, % Adjust ed Net Margin 35.8% 31.3% 4.5 p.p. 37.0% -1.2 p.p. 38.3% 34.1% 4.2 p.p. ¹ Excludes figures from Uniasselvi for both 2016 (January and February) and Investor Relations Carlos Lazar IRO Pedro Gomes Manager Ana Troster Coordinator Tel: + 55 (11) / 7311 / dri@kroton.com.br Website: 1

2 QUARTER HIGHLIGHTS: Despite the highly challenging economic environment, Kroton ended the year with approximately 909,000 students, stable in relation to 2015 (ex-uniasselvi). Opening of two new on-campus units in early 2017, with one in Luis Eduardo Magalhães, Bahia and one in Bacabal, Maranhão, which offer programs in Engineering. Student recruiting at the new units is above expectations and will contribute to the Company s operating performance. Net revenue grew 7.5% compared to 4Q15 (excluding the results of Uniasselvi), which was due in particular to the results from the admissions processes, which registered a significant drop in the granting of discounts and scholarships in the quarter, as well as to the improvement in the mix of academic programs. These effects were partially offset by the lower revenue from Pronatec and LFG. In the year, pro forma net revenue came to R$5,203.2 million, increasing 4.5% from Adjusted EBITDA in 4Q16 amounted to R$528.7 million, representing growth of 2.0% compared to 4Q15. Adjusted EBITDA margin was virtually flat at 38.8%. Excluding the effects from Uniasselvi in 4Q15, adjusted EBITDA advanced 5.2%, demonstrating the various efforts made to capture operating efficiency gains in the period. In 2016, adjusted EBITDA was R$2,300.3 million, with margin of 43.9%. Adjusted net income came to R$487.6 million in 4Q16, growing 19.3% from R$408.8 million in 4Q15, accompanied by expansion in adjusted net margin of 511 bps. Excluding Uniasselvi, adjusted net income posted solid growth of 22.9% compared to 4Q15. In the year, adjusted net income was R$2.0 billion, with margin of 38.3%, improving 4.4 p.p. from the previous year. Operating cash generation after capex was one of the highlights in the period, reaching R$466.7 million in 4Q16, with an EBITDA-to-cash conversion rate of 104.0%. When excluding the receipt in December of an additional month of FIES credits (R$191.7 million), operating cash flow after capex was a solid R$275.1 million, representing an EBITDA-to-cash conversion rate of 61.3%. In 2016, operating cash flow after capex was R$1,505.9 million, despite the economic crisis, attesting to the resilience and strength of the operation. MESSAGE FROM MANAGEMENT In a scenario of sharp deterioration in key economic indicators, 2016 was yet another year marked by many challenges for Kroton, but also by many important and promising accomplishments. More than ever, we are closely guided by our mission, To improve people s lives through responsible education by developing citizens and preparing professionals for the market, while creating value sustainably, and by our goal of enabling the more than one million students in our various businesses to support Brazil s economic recovery. We believe this is easily borne out by our actions focused on employability, which is part of our clear and well-outlined strategy that is being rigorously implemented. On this front, the highlight was the results of the Conecta Channel, which not only is working to improve our academic model, but also is as a key tool for improving our students access to the job market or to career advancement. And, in 2016, we made substantial progress, with this important jobs platform made available nationwide and delivering exceptional numbers, such as 4,700 partner companies registered and 48,000 job opportunities advertised. We are working to continue innovating and improving our students experience with the rollout of our academic model KLS 2.0, which will play a critical role in continuing to improve our performance in regulatory indicators. In this context, the highlight is the massive investment of some R$400 million made in the past two years in actions to continually improve our academic quality and in other projects related to teaching excellence. And our regulatory results for 2015, which were just announced in early 2017, bring, despite some opportunities for improvement, very positive signs. The General Program Index (IGC) once again posted a very strong result, with 95% of our institutions receiving satisfactory scores. Kroton s score surpassed the average score of private institutions of 85% and of public institutions of 87%. In the Preliminary Program 2

3 Score (CPC), Kroton received 87% of satisfactory scores, and in relation to the National Exam of Students Performance (Enade), although presenting a significant improvement in relation to the 2014 grade, moving up from 29% to 46% satisfactory scores, we are prioritizing a series of initiatives aimed at repositioning at a notably higher level in the years to come. Regarding the Performance Difference Index (IDD), once again Kroton improved its results, outperforming public institutions, with 81% of our programs receiving positive scores. The IDD score for 2015 is the highest in Kroton s history and attests to the capacity of our institutions to collaborate decisively to its students education and development. We continued to rollout the Digital Student Portal (PDA), which offers a range of administrative, academic and financial services in digital format to make students lives easier. We also made progress on developing the Retention Program, which supports our students through targeted projects to help them conclude their studies at our institutions, which also helps to control our dropout rate. And we delivered consistent results throughout 2016, effectively beating all of the goals and targets set. We delivered very strong operating and financial results, largely due to the superior levels of efficiency we have attained in our various operations. The organic growth initiatives began to materialize with the accreditation of four on-campus units in the second semester of 2016 and early 2017, not to mention the 44 other accreditation requests that should be authorized over this and the coming years. Note that this does not include any opportunities from the transaction with Estácio, which is pending approval by Brazil s antitrust agency CADE. And all these efforts are complemented by our social responsibility actions, which, in 2016, benefitted over 2.3 million people through some 2,300 social actions and projects, in which our students become involved, which supported their development in competencies aligned with the learning practices, effectively reinforcing the development of citizenship. These accomplishments and the more than 190 other ongoing strategic projects being carried will serve as the foundation for making 2017 another year in which Kroton continues to surprise on the upside and to overcome adversities whatever they may be. The challenges of 2016 have been surmounted and we are ready for 2017, with a permanent focus on building a solid foundation for the sustainable creation of value in the long term. 3

4 OPERATING PERFORMANCE POSTSECONDARY EDUCATION Evolution in Number of Students The evolution in the number of Postsecondary students between 3Q16 and 4Q16 by product (Undergraduate and Graduate) and teaching format (On-Campus and Distance Learning) is presented below. On-Campus Distance Learning Students Undergraduate Graduate Total Undergraduate Graduate Total 4Q15 Base ex-uniasselvi 425,347 11, , ,119 29, ,736 3Q16 Base 425,246 8, , ,935 29, ,727 New Students ,582 3,582 Graduates - (1,874) (1,874) - (7,272) (7,272) Dropouts (13,183) (327) (13,510) (25,149) (821) (25,970) 4Q16 Base 412,247 6, , ,786 25, ,067 % 4Q16 Base / 4Q15 Base ex-uniasselvi -3.1% -43.7% -4.2% 2.8% -14.6% 1.7% % 4Q16 / 3Q16 Base -3.1% -21.6% -3.4% -5.1% -15.1% -5.7% Students Total Undergraduate Total Graduate Total 4Q15 Base ex-uniasselvi 877,466 41, ,611 3Q16 Base 915,181 38, ,253 New Students 184 3,992 4,176 Graduates - (9,146) (9,146) Dropouts (38,332) (1,148) (39,480) 4Q16 Base 877,033 31, ,803 % 4Q16 Base / 4Q15 Base ex-uniasselvi 0.0% -22.8% -1.1% % 4Q16 / 3Q16 Base -4.2% -16.6% -4.7% At the end of 2016, the number of Postsecondary students (Undergraduate and Graduate) in both the On-Campus and Distance Learning formats continued to exceed 900,000. This level is virtually the same as the ex-uniasselvi figure for 2015, despite the deepening economic crisis and the lower number of FIES students in recent admissions processes, attesting to the resilience and success of the Company s strategy, especially in terms of its sales efforts. Compared to the prior quarter, the 4.7% reduction is due to the natural seasonality of the business. Broken down by teaching format, the On-Campus student base accounted for 46% of the total student base in 4Q16, while the Distance Learning student base accounted for 54%. Meanwhile, the Graduate business alone registered 4,000 new enrollments, mainly in Distance Learning programs. Bear in mind that the Preparatory Courses (LFG) business also offers Graduate programs, whose students are included in the above table. It is important to note that the enrollment and re-enrollment processes for the first semester of 2017 are ongoing and scheduled to end in April. Evolution of Undergraduate Dropouts 4

5 The above analysis shows the history of dropouts among On-Campus and Distance Learning Undergraduate students. Since end-2015, Kroton has been making progress on implementing the initiatives associated with its Student Retention Program. The Company is also implementing various improvements in its collections and debt renegotiation practices in order to adjust them to the weaker macroeconomic scenario and maintain healthy levels of accounts receivables. The results of these initiatives are already visible and were important mitigators of a potentially sharper increase in the dropout rate in The data for 4Q16 show an increase in the dropout from the prior-year quarter (from 2.7% to 3.1%), which is explained by the deepening economic crisis and mounting unemployment, as well as by a significant change in the profile of freshmen students in the prior quarter, with a lower share of FIES students. In Distance Learning, the dropout rate continued to show consistent improvement, with levels down from the previous two years, despite all the negative factors cited above. FIES Number of FIES Students At the end of 4Q16, the Company had 191,426 students enrolled with FIES contracts, which is slightly lower than in 3Q16, reflecting the effective curve for new student loans following the delays in re-enrollments observed in the previous quarter. Compared to same quarter of 2015, the number of FIES students declined significantly 20%, confirming the lower share of FIES students in recent admissions cycles. To illustrate this movement, in the admissions process for the second semester of 2016, FIES accounted for only 9% of new students in the On-campus segment and for less than 4% of total new students in the Company s Undergraduate programs. As a result, the penetration of students supported by the financing program stood at 46.4% of the On-Campus Undergraduate student base, or 21.8% of the total Undergraduate student base. Private Student Installment Plan (PEP) 5

6 At the end of 4Q16, Kroton had 43,500 students enrolled in PEP programs, with about 30,400 enrolled in PEP30 and 13,100 in PEP50. During the new enrollment process of 1S17, the Company will continue to offer installment programs with the same commercial conditions of the enrollment process for 2016 and with the same conservative accounting practices. As a reminder, the payment conditions of both products are as follows: in PEP30, students start the cycle paying 30% of their monthly tuition, which gradually increases to 40%, 50% and 60% in subsequent years, and remaining at the highest rate during the amortization period, which leads the rate of return of these students to equal that of PEP50, under which students pay 50% of their monthly tuition throughout their entire academic program and during the amortization period. Specifically regarding the amortization period, both products give graduates a period equal to the length of their program to repay the accumulated debt interest-free, subject only to annual inflation adjustments of the monthly tuition fee. Furthermore, Kroton continues to adopt the same conservative policies for revenue recognition as in 2015, including for calculating the Adjustment to Present Value (APV) of revenue and for provisioning losses from bad debt, which is accrued at 50% of the financed portion for all PEP students. National Program to Promote Access to Vocational Education and Jobs (Pronatec) With regard to Pronatec (Bolsa Formação), Kroton (including the Anhanguera institutions) recorded an average student base (average number of students with revenue recognized) in the quarter of 1,974 students (which are not included in the Postsecondary student base figure informed above). Unregulated Programs and Language Courses Kroton offers Unregulated Programs through its On-Campus units and Distance Learning centers operated under various brands. These short-duration open enrollment programs allow students to increase their knowledge in various fields, such as Management, Education, Mathematics and Languages. In the year, the Company administered these programs to 92,893 students (as with Pronatec courses, these students are not considered in the figure for Postsecondary students), for growth of 18.3% from the previous year. Preparatory Courses (LFG) Through the brand LFG, the Company offers preparatory courses for the examination of the Brazilian Bar Association (OAB) and for examinations for civil servant positions. Always positioned as a reference in preparatory courses, LFG registered an average of 25,049 students throughout 4Q16 (as with Pronatec courses, these students are not considered in the figure for Postsecondary students), growing 40.2% compared to 4Q15. PRIMARY & SECONDARY In the Primary and Secondary Education business, Kroton's main activity is offering, through the Pitágoras Network, its Learning System, which comprises teaching book collections, teacher training, educational evaluations and other services, to private schools in the Pre-School, Primary and Secondary Education businesses. The segment also manages schools, especially for large companies, and operates an own school in Belo Horizonte, the capital of Minas Gerais state. In 2016, the Company is serving a total 669 Associated Schools and approximately 228,000 students in the private sector. The efforts in this business are currently focused on sales of book collections for FINANCIAL PERFORMANCE 6

7 Note 1: Since the 3Q16 results were presented on a pro forma basis due to delays in the Student Financing Fund Transfer System (SisFIES) during the reenrollment of FIES students, the Company opted to analyze its 4Q16 financial performance (On Campus and Consolidated) on a pro forma basis to avoid compromising the comparison base. Otherwise, the results for 3Q16 would be lower than what actually should have been recorded following the normalization of the schedule for renewing FIES agreements. Conversely, the results in 4Q16 would have been inflated by the recognition of monthly tuitions from the previous quarter. Note, however, that the Company has not changed its policy for recognizing students and revenues, but merely has adopted this procedure to portray more realistically its performance in the period. A reconciliation of this result with the balance sheet is provided in Appendix 2" hereto. Note 2: the corporate financial data for 4Q15 and 2015 include, respectively, three and 12 months of the operations of Uniasselvi in its various operating segments (On-Campus and Distance Learning). Meanwhile, the corporate financial data for 2016 include two months (January and February) of the operations of Uniasselvi in its various operating segments (On-Campus and Distance Learning). Lastly, the financial data ex-uniasselvi exclude the operations of Uniasselvi in its various operating segments (On- Campus and Distance Learning) for all periods. 4Q16 RESULTS FIES PRO FORMA WITH UNIASSELVI On-Campus Education Distance Learning Primary and Secondary Education Kroton Consolidated Values in R$ ('000) 4Q16 % Net Rev. 4Q16 % Net Rev. 4Q16 % Net Rev. 4Q16 % Net Rev. Gross Revenue 1,336, % 340, % 65, % 1,742, % Gross Revenue Deductions (302,413) -29.2% (77,140) -29.3% (1,485) -2.3% (381,038) -28.0% Tax (36,688) -3.5% (5,696) -2.2% (1,328) -2.1% (43,713) -3.2% ProUni (166,857) -16.1% (49,799) -18.9% - 0.0% (216,656) -15.9% Returns - 0.0% - 0.0% (117) -0.2% (117) 0.0% Total Discounts (98,868) -9.6% (21,644) -8.2% (40) -0.1% (120,552) -8.9% Net Revenue 1,034, % 263, % 63, % 1,361, % Costs (COGS) (355,107) -34.3% (44,403) -16.9% (27,776) -43.4% (427,287) -31.4% Cost of Goods - 0.0% - 0.0% (15,339) -24.0% (15,339) -1.1% Cost of Services (355,107) -34.3% (44,403) -16.9% (12,437) -19.4% (411,948) -30.3% Faculty, Other Personnel and Third-Party Services (262,052) -25.3% (33,475) -12.7% (8,812) -13.8% (304,339) -22.4% Rent (78,802) -7.6% (4,643) -1.8% (199) -0.3% (83,645) -6.1% Materials (2,630) -0.3% (1,948) -0.7% - 0.0% (4,578) -0.3% Maintenance (5,866) -0.6% (190) -0.1% (225) -0.4% (6,281) -0.5% Other (5,757) -0.6% (4,146) -1.6% (3,201) -5.0% (13,104) -1.0% Gross Income 679, % 218, % 36, % 934, % Operating Expenses (142,800) -13.8% (33,633) -12.8% (6,020) -9.4% (182,452) -13.4% Personnel, General and Administrative Expenses (142,800) -13.8% (33,633) -12.8% (6,020) -9.4% (182,452) -13.4% Personnel Expenses (69,604) -6.7% (22,397) -8.5% (5,115) -8.0% (97,116) -7.1% General and Administrative Expenses (73,196) -7.1% (11,235) -4.3% (905) -1.4% (85,336) -6.3% Provision for Doubtful Accounts - PDA (66,647) -6.4% (21,315) -8.1% (514) -0.8% (88,476) -6.5% (+) Interest and Penalties on Tuition 18, % 3, % % 22, % Operating Result 488, % 167, % 29, % 685, % Sales and Marketing Expenses (63,963) -4.7% C Corporate Expenses (93,166) -6.8% o Adjusted EBITDA 528, % (-) Nonrecurring Items (67,980) -5.0% EBITDA 460, % Depreciation and Amortization (100,090) -7.4% Financial Result 6, % Income and Social Contribution Tax 10, % Income Tax / Social Cont. - Disposal of Uniasselvi - 0.0% Net Profit 377, % (+) Nonrecurring Items 67, % (+) Intangible Amortization (Acquisitions) 41, % (+) Income Tax / Social Cont. - Disposal of Uniasselvi - 0.0% Adjusted Net Profit 487, % 2016 RESULTS WITH UNIASSELVI 7

8 On-Campus Education Distance Learning Primary and Secondary Education Kroton Consolidated Values in R$ ('000) 2016 % Net Rev % Net Rev % Net Rev % Net Rev. Gross Revenue 5,131, % 1,402, % 199, % 6,732, % Gross Revenue Deductions (1,143,681) -28.7% (334,170) -31.3% (10,415) -5.5% (1,488,266) -28.4% Tax (137,443) -3.4% (30,675) -2.9% (5,490) -2.9% (173,608) -3.3% ProUni (673,043) -16.9% (216,169) -20.2% - 0.0% (889,212) -17.0% Returns - 0.0% - 0.0% (4,485) -2.4% (4,485) -0.1% Total Discounts (333,194) -8.4% (87,327) -8.2% (440) -0.2% (420,960) -8.0% Net Revenue 3,987, % 1,067, % 189, % 5,244, % Costs (COGS) (1,274,875) -32.0% (163,048) -15.3% (83,479) -44.1% (1,521,402) -29.0% Cost of Goods - 0.0% - 0.0% (40,812) -21.6% (40,812) -0.8% Cost of Services (1,274,875) -32.0% (163,048) -15.3% (42,667) -22.5% (1,480,590) -28.2% Faculty, Other Personnel and Third-Party Services (911,666) -22.9% (125,949) -11.8% (31,657) -16.7% (1,069,272) -20.4% Rent (306,061) -7.7% (19,202) -1.8% (1,046) -0.6% (326,310) -6.2% Materials (11,167) -0.3% (11,617) -1.1% - 0.0% (22,784) -0.4% Maintenance (14,437) -0.4% (895) -0.1% (827) -0.4% (16,159) -0.3% Other (31,544) -0.8% (5,383) -0.5% (9,138) -4.8% (46,065) -0.9% Gross Income 2,712, % 904, % 105, % 3,723, % Operating Expenses (479,661) -12.0% (107,505) -10.1% (20,910) -11.0% (608,076) -11.6% Personnel, General and Administrative Expenses (479,661) -12.0% (107,505) -10.1% (20,910) -11.0% (608,076) -11.6% Personnel (259,248) -6.5% (75,517) -7.1% (17,022) -9.0% (351,788) -6.7% General and Administrative (220,413) -5.5% (31,987) -3.0% (3,888) -2.1% (256,288) -4.9% Provision for Doubtful Accounts - PDA (263,641) -6.6% (82,354) -7.7% (1,543) -0.8% (347,539) -6.6% (+) Interest and Penalties on Tuition 109, % 24, % % 134, % Operating Result 2,078, % 739, % 84, % 2,902, % Sales and Marketing Expenses (316,604) -6.0% Corporate Expenses (285,401) -5.4% Adjusted EBITDA 2,300, % (-) Nonrecurring Items 105, % EBITDA 2,405, % Depreciation and Amortization (401,605) -7.7% Financial Result (18,051) -0.3% Income and Social Contribution Tax (49,532) -0.9% Income Tax / Social Cont. - Disposal of Uniasselvi (71,772) -1.4% Net Profit 1,864, % (+) Nonrecurring Items (105,293) -2.0% (+) Intangible Amortization (Acquisitions) 176, % (+) Income Tax / Social Cont. - Disposal of Uniasselvi 71, % Adjusted Net Profit 2,008, % PRO FORMA FINANCIAL PERFORMANCE ON-CAMPUS EDUCATION 8

9 On-Campus Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Chg.% Gross Revenue 1,336,706 1,269, % 1,229, % 5,131,129 4,951, % Gross Revenue Deductions (302,413) (262,931) 15.0% (281,773) 7.3% (1,143,681) (1,052,302) 8.7% Tax (36,688) (26,734) 37.2% (34,859) 5.2% (137,443) (117,076) 17.4% ProUni (166,857) (157,527) 5.9% (170,924) -2.4% (673,043) (635,231) 6.0% Returns - - n.a. - n.a. - - n.a. Total Discounts (98,868) (78,670) 25.7% (75,990) 30.1% (333,194) (299,995) 11.1% Net Revenue 1,034,293 1,006, % 947, % 3,987,448 3,898, % Net Revenue - Undergraduate 1,021, , % 937, % 3,929,271 3,732, % Net Revenue - Ex-FIES and ex-pep 349, , % 282, % 1,176, , % Net Revenue - FIES (financed part) 601, , % 537, % 2,441,188 2,633, % Net Revenue - PEP (financed part net of APV) 69,735 31, % 118, % 312, , % Net Revenue - Graduate, Unregulated Programs, Pronatec 13,275 28, % 10, % 58, , % Net Revenue - Pronatec 6,296 16, % 1, % 17, , % Net Revenue - Graduate and Unregulated Programs 6,979 11, % 8, % 40,260 49, % Total of Costs (355,107) (353,556) 0.4% (306,166) 16.0% (1,274,875) (1,355,581) -6.0% Cost of Goods - - n.a. - n.a. - - n.a. Cost of Services (355,107) (353,556) 0.4% (306,166) 16.0% (1,274,875) (1,355,581) -6.0% Faculty, Other Personnel and Third-Party Services (262,052) (262,203) -0.1% (218,226) 20.1% (911,666) (984,942) -7.4% Rent (78,802) (74,721) 5.5% (74,142) 6.3% (306,061) (296,384) 3.3% Materials (2,630) (1,755) 49.9% (3,323) -20.9% (11,167) (19,142) -41.7% Maintenance (5,866) (5,858) 0.1% (2,709) 116.6% (14,437) (17,377) -16.9% Other (5,757) (9,019) -36.2% (7,767) -25.9% (31,544) (37,736) -16.4% Gross Income 679, , % 641, % 2,712,573 2,543, % Gross Margin 65.7% 64.9% 0.8 p.p. 67.7% -2.0 p.p. 68.0% 65.2% 2.8 p.p. Total Operating Expenses (142,800) (146,361) -2.4% (105,387) 35.5% (479,661) (514,811) -6.8% Personnel Expenses (69,604) (69,787) -0.3% (65,124) 6.9% (259,248) (274,811) -5.7% General and Administrative Expenses (73,196) (76,573) -4.4% (40,263) 81.8% (220,413) (239,999) -8.2% Provision for Doubtful Account - PDA (66,647) (44,734) 49.0% (84,851) -21.5% (263,641) (178,415) 47.8% (+) Interest and Penalties on Tuition 18,543 21, % 32, % 109,193 69, % Operating Result 488, , % 483, % 2,078,463 1,919, % Operat ing Margin 47.2% 48.0% -0.8 p.p. 51.1% -3.8 p.p. 52.1% 49.2% 2.9 p.p. PRO FORMA RESULT 9

10 Revenue and Deductions On-Campus Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Gross Revenue 1,336,706 1,269, % 1,229, % Gross Revenue Deductions (302,413) (262,931) 15.0% (281,773) 7.3% Tax (36,688) (26,734) 37.2% (34,859) 5.2% ProUni (166,857) (157,527) 5.9% (170,924) -2.4% Returns - - n.a. - n.a. Total Discounts (98,868) (78,670) 25.7% (75,990) 30.1% Net Revenue 1,034,293 1,006, % 947, % Net Revenue - Undergraduate 1,021, , % 937, % Net Revenue - Ex-FIES and ex-pep 349, , % 282, % Net Revenue - FIES (financed part) 601, , % 537, % Net Revenue - PEP (financed part net of APV) 69,735 31, % 118, % Net Revenue - Graduate, Unregulated Programs, Pronatec 13,275 28, % 10, % Net Revenue - Pronatec 6,296 16, % 1, % Net Revenue - Graduate and Unregulated Programs 6,979 11, % 8, % Deductions In 4Q16, deductions as a ratio of gross revenue increased 1.9 p.p. compared to 4Q15, which is explained by the impact from the start of charging of a 2% FIES administrative fee on the amount of educational charges, as well as by the higher taxes paid due to the gross revenue growth in the period and by the deductions related to ProUni. Compared to the prior quarter, deductions fell 0.3 p.p. as a ratio of gross revenue, reflecting the higher revenue due to the delay in the normalization of re-enrollments, which offset the increase in total discounts due to the seasonality of the Tuition Adjustment Process (PAM), which is concentrated primarily in even quarters. Net Revenue Net revenue grew 2.8% in 4Q16 compared to the year-ago period, mainly due to the expansion in the paying student base following the admissions and re-enrollment processes throughout the year, as well to the higher average ticket in the period. These factors offset the lower revenue from the Pronatec program (R$ 6.3 million, vs. R$16.4 million in 4Q15) and the divestment of Uniasselvi. Another factor supporting revenue growth was the performance of the Special Installment Program (PEP), which has proven to be an important commercial option. Revenue from PEP accounted for R$69.7 million in the quarter (net of Adjustment to Present Value, or APV), or 6.7% of the On-campus segment s total revenue. Including APV, which is not recorded in the P&L, revenue from PEP students came to approximately R$105.3 million in 4Q16. Excluding solely the Pronatec figures from both periods (for a more adequate analysis of the trend going forward), revenue would have increased 3.9% from the prior-year period. The performance attests to the Company s resilience even in a challenging economic environment. Compared to the prior quarter, the 9.1% increase in net revenue is mainly due to seasonality, which generates positive impacts in even-numbered quarters, with the recognition of 6 months of FIES tuitions in a single quarter, due to the delayed re-enrollments. This impact was even higher this quarter, since FIES revenues from 3Q16 were presented on a pro forma basis based on the historical data for re-enrollments, given the delays in the SisFIES system in the period. In the year, net revenue amounted to R$4.0 billion, increasing 2.3% from 2015, despite the negative effects noted above, such as the Uniasselvi divestment and the significantly lower Pronatec contribution. Average Net Ticket ¹ On-Campus Postsecondary Education- Values in R$ 4Q16 4Q15 Chg.% 3Q16 Chg.% Total % % Note. Net average ticket considers the Net Revenue after FGEDUC, FIES Administration Fee, Prouni and Taxes for all products of the face-to-face modality (Graduation, Lato Sensu, Stricto Sensu and Extension) excluding Pronatec and the effects of APV. 10

11 For a better understanding, the calculation of Kroton s average ticket considers the number of students effectively billed in the period (excluding Pronatec students, but including ProUni students), since, due to retroactive contract amendments, a student could be billed more than once in a certain month. The average net ticket in the On-campus segment was R$ in 4Q16, an increase of 10.4% from the yearago period, basically reflecting the lower volumes of scholarships and discounts granted during the admissions process this year and the higher number of new enrollments under PEP, which had a positive impact on the ticket mix, since they are priced without any discounts or scholarships. In addition, the annual adjustment to tuitions and the participation of programs with higher tickets in the mix also supported the increase in average ticket. The average ticket in 2H16 was R$802.89, increasing 13.8% from the second semester of Costs On-Campus Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Total of Costs (355,107) (353,556) 0.4% (306,166) 16.0% Cost of Goods (CG) - - n.a. - n.a. Cost of Services (CS) (355,107) (353,556) 0.4% (306,166) 16.0% Faculty, Other Personnel and Third-Party Services (262,052) (262,203) -0.1% (218,226) 20.1% Rent (78,802) (74,721) 5.5% (74,142) 6.3% Materials (2,630) (1,755) 49.9% (3,323) -20.9% Maintenance (5,866) (5,858) 0.1% (2,709) 116.6% Other (5,757) (9,019) -36.2% (7,767) -25.9% % of Net Revenues 4Q16 4Q15 Chg.% 3Q16 Chg.% Total of Costs -34.3% -35.1% 0.8 p.p % -2.0 p.p. Cost of Goods (CG) 0.0% 0.0% n.a. 0.0% n.a. Cost of Services (CS) -34.3% -35.1% 0.8 p.p % -2.0 p.p. Faculty, Other Personnel and Third-Party Services -25.3% -26.1% 0.7 p.p % -2.3 p.p. Rent -7.6% -7.4% -0.2 p.p. -7.8% 0.2 p.p. Materials -0.3% -0.2% -0.1 p.p. -0.4% 0.1 p.p. Maintenance -0.6% -0.6% 0.0 p.p. -0.3% -0.3 p.p. Other -0.6% -0.9% 0.3 p.p. -0.8% 0.3 p.p. In 4Q16, cost of services as a ratio of net revenue fell 0.8 p.p. compared to the same period in As observed in the previous quarters of the year, this improvement is explained by the implementation of the operational research (OR) software at Kroton units as of the second half of 2015, which led to significant savings in costs with faculty, other personnel and third-party services. Note that the second half of 2016 was marked by the launch of the third phase of OR, which adjusts the supply of faculty and infrastructure to the distribution of classes across physical spaces and days of the week, capturing significant gains in the allocation of classroom hours. Although the tool has not reached its maximum capacity in terms of scope, the important contribution it makes to the quality and efficiency of the On-Campus operations is already clear. Compared to the prior quarter, the ratio of total costs to net revenue increased 2.0 p.p., reflecting the higher charges related to the year-end vacation period, which has a seasonal impact on faculty costs. Gross Income On-Campus Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Gross Income 679, , % 641, % Gross Margin 65.7% 64.9% 0.8 p.p. 67.7% -2.0 p.p. Gross income from On-Campus Education was R$679.2 million in 4Q16, increasing 4.1% on the same period last year. The increase was driven by the combination of revenue growth in the period and the continued capture of efficiency gains at units, which supported gross margin expansion of 0.8 p.p. Compared to the prior quarter, the 2.0 p.p. gross margin contraction is due to seasonal increases in costs with faculty and third-party services. In 2016, gross margin expanded 2.8 p.p. to 68.0%, which demonstrates the efforts made to ensure the continuous capture of efficiency gains at the various institutions. 11

12 Operating Expenses On-Campus Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Total Operating Expenses (142,800) (146,361) -2.4% (105,387) 35.5% Personnel Expenses (69,604) (69,787) -0.3% (65,124) 6.9% General and Administrative Expenses (73,196) (76,573) -4.4% (40,263) 81.8% % of Net Revenues 4Q16 4Q15 Chg.% 3Q16 Chg.% Total Operating Expenses -13.8% -14.5% 0.7 p.p % -2.7 p.p. Personnel Expenses -6.7% -6.9% 0.2 p.p. -6.9% 0.1 p.p. General and Administrative Expenses -7.1% -7.6% 0.5 p.p. -4.2% -2.8 p.p. Personnel, General and Administrative Expenses In 4Q16, total personnel, general and administrative expenses as a ratio of net revenue decreased 0.7 p.p. from 4Q15, basically due to the capture of economies of scale and synergies and to the efforts to control operating expenses, especially general and administrative expenses. Compared to the previous quarter, the indicator increased 2.7 p.p., consistent with the segment s natural seasonality and with the greater expenses with contingencies in the period. Provision for Doubtful Accounts (PDA) On-Campus Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Provision for Doubtful Account - PDA (66,647) (44,734) 49.0% (84,851) -21.5% PDA / Postsecondary Net Revenues¹ -6.5% -4.5% -2.0 p.p. -9.0% 2.5 p.p Provision for Doubt ful Account - PDA ex-fies & PEP (26,366) (18,297) 44.1% (20,927) 26.0% PDA ex-fies / Postsecondary Net Revenues ex-fies & ex-pep¹ -7.4% -6.5% -0.9 p.p. -7.2% -0.2 p.p. Provision for Doubt ful Account - PDA FIES (5,413) (10,853) -50.1% (4,829) 12.1% PDA FIES / Postsecondary Net Revenues FIES¹ -0.9% -1.6% 0.7 p.p -0.9% -0.0 p.p. Provision for Doubt ful Account - PDA PEP (34,868) (15,585) 123.7% (59,095) -41.0% PDA PEP / Postsecondary Net Revenues PEP¹ -50.0% -50.0% -0.0 p.p % 0.0 p.p ¹ Net Revenue for the On-Campus excludes revenues from Pronatec Total PDA as a ratio of net revenue in the On-Campus segment increased 2.0 p.p. from the same period last year, to 6.5%. The performance is basically related to the higher share of PEP students, as well as to the accruals made since 1Q16 to PDA ex-fies and ex-pep to better reflect the expected delinquency levels in light of the deterioration in the macroeconomic scenario. Although Kroton has created a high Accounts Receivable coverage ratio in recent years, since effective losses lagged the increase in provisioning, the decision to increase PDA levels is consistent with the policy of observing historical cycles and reinforces the Company s conservative approach to provisioning. Accounts Receivable On-Campus Education - Values in R$ ( 000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Net Accounts Receivable 1,326,233 1,352, % 1,469, % Tuition and Agreements to Receive 299, , % 269, % FIES - Short Term 440, , % 661, % FIES - Long Term 353, , % 350, % Long Term Portfolio - ex-fies 232,872 73, % 187, % Note: 4Q15 and 3Q16 values adjusted to include credit card accounts receivable Total Accounts Receivables net of PDA decreased 9.8% between 4Q16 and 3Q16, mainly reflecting the payment in December of the FIES credit for November, which normally is made in January. This payment of an additional month of FIES mitigated the impacts from the expansion in the PEP student base in recent admissions cycles. Meanwhile, the long-term FIES line, as explained in previous quarters, consists of 50% of the installments not paid in 2015 and which will be repurchased in 2018 (adjusted to present value). 12

13 Average Accounts Receivable Term For the calculation of the average term of accounts receivable in the Postsecondary business, Kroton presents three distinct analyses: 1. Total Accounts Receivable On-Campus Education - days 4Q16 4Q15 Chg.(days) 3Q16 Chg.(days) Net Accounts Receivable Total Net Revenue On-Campus Days Days Calculation base: net balance of short-term and long-term Accounts Receivable in the On-Campus Postsecondary business related to monthly tuitions, agreements and other academic services, divided by net operating revenue in the On-Campus Postsecondary business in the last 12 months, multiplied by 360 days. In 4Q16, the average receivables term decreased 5 days from the same period last year, mainly due to the normalization of FIES payments, as well as to the receipt of an additional installment this quarter, as described above, which offset the increase in PEP accounts receivables. Excluding the Uniasselvi accounts receivable for both periods, the average term would be 6 days lower. Compared to the previous quarter, the reduction of 15 days in the average term is due to the FIES payment flow. 2. Accounts Receivable, excluding the balances of FIES receivables and revenues On-Campus Education - days 4Q16 4Q15 Chg.(days) 3Q16 Chg.(days) Net Accounts Receivable (ex-fies) Net Revenue (ex-fies) Days Days Calculation base: net balance of short-term and long-term Accounts Receivable (excludes FIES and includes PEP) in the On-Campus Postsecondary business related exclusively to monthly tuitions, agreements and other academic services, divided by net revenue (ex-fies) in the On-Campus Postsecondary business in the last 12 months, multiplied by 360 days. In 4Q16, the average term ex-fies increased 45 days from 4Q15, mainly reflecting the effect from the longer average term of PEP students. Excluding this effect from both periods, the average receivables term (ex-fies and ex-pep) was 83 days in 4Q16, or 18 days more than in 4Q15 (65 days), which reflects the deterioration in the economic scenario and the higher volume of negotiations. Note that part of the Company s student retention strategy consisted of optimizing the ratio of dropouts to the average receivables term, without any additional impact on PDA. Excluding the Uniasselvi impact for both periods, the increase in the average term would be of 43 days. When compared to the prior quarter, the increase of 7 days is explained by seasonality and a higher volume of negotiations. 3. FIES Accounts Receivable On-Campus Education - days 4Q16 4Q15 Chg.(days) 3Q16 Chg.(days) Net Accounts Receivable Fies Net Revenue Fies Days Days Calculation base: net balance of short-term and long-term Accounts Receivable related solely to FIES, divided by net revenue from monthly FIES tuitions in the last 12 months, multiplied by 360 days. In 4Q16, the average term of FIES accounts receivable was 117 days, declining 30 and 28 days from 4Q15 and 3Q16, respectively. The decrease reflects not only the normalization of the payment flow, but also the receipt of an additional month in 4Q16. 13

14 Operating Result On-Campus Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Gross Income 679, , % 641, % (-) Total Operating Expenses (142,800) (146,361) -2.4% (105,387) 35.5% (-) Provision for Doubtful Account - PDA (66,647) (44,734) 49.0% (84,851) -21.5% (+) Interest and Penalties on Tuition 18,543 21, % 32, % Operating Result 488, , % 483, % Operat ing Margin 47.2% 48.0% -0.8 p.p. 51.1% -3.8 p.p. The operating result (before marketing expenses) in 4Q16 amounted to R$488.3 million, with operating margin of 47.2%, down only by 0.8 p.p. from the prior-year period, despite the higher pressure on the level of provisioning. Compared to 3Q16, operating margin fell 3.8 p.p., due to the seasonal increase in general and administrative expenses, as well as to the higher costs with faculty in the quarter. As mentioned in previous quarters, the operating result includes an impact from the agreement for the receipt of FIES installments, which generated a positive effect from the recognition of inflation adjustment (accrual method of accounting) on the line interest and penalties on tuitions, in the amount of R$3.0 million in 4Q16. In the year, the operating result came to R$2,078.5 million, with operating margin of 52.1%, expanding 2.9 p.p. from 2015, attesting to the successful initiatives to capture efficiency and synergy gains implemented to date, despite all the adverse effects of the economic crisis, the lower Pronatec revenue and the Uniasselvi divestment. RESULTS EX-UNIASSELVI The following table presents the main P&L lines excluding the data from Uniasselvi for 2015 and 1Q16: On-Campus - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Chg.% Net Revenue 1,034, , % 947, % 3,975,092 3,796, % Gross Income 679, , % 641, % 2,705,148 2,486, % Gross Margin 65.7% 65.3% 0.3 p.p. 67.7% -2.0 p.p. 68.1% 65.5% 2.6 p.p. Operating Result 488, , % 483, % 2,073,917 1,885, % Operat ing Margin 47.2% 48.6% -1.4 p.p. 51.1% -3.8 p.p. 52.2% 49.7% 2.5 p.p. In this analysis, net revenue in 4Q16 advanced 5.6% on the prior-year period, supported by the higher average ticket and the expansion in the paying student base, which offset the lower contribution from Pronatec. Gross income increased 6.1% compared to 4Q15, with gross margin expanding 0.3 p.p., while the operating result grew 2.5% to R$488.3 million, with operating margin declining 1.4 p.p. In the year, the expansion in margins was even more significant, with gross margin and operating margin expanding 2.6 p.p. and 2.5 p.p. from 2015, respectively. 14

15 CORPORATE FINANCIAL PERFORMANCE DISTANCE LEARNING Distance Learning - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Chg.% Gross Revenue 340, , % 333, % 1,402,053 1,579, % Gross Revenue Deductions (77,140) (94,123) -18.0% (81,240) -5.0% (334,170) (395,839) -15.6% Tax (5,696) (7,727) -26.3% (7,948) -28.3% (30,675) (31,033) -1.2% ProUni (49,799) (61,506) -19.0% (51,584) -3.5% (216,169) (249,369) -13.3% Returns - - n.a. - n.a. - - n.a. Total Discounts (21,644) (24,889) -13.0% (21,707) -0.3% (87,327) (115,437) -24.4% Net Revenue 263, , % 252, % 1,067,883 1,183, % Net Revenue - Undergraduate 248, , % 234, % 990,928 1,084, % Net Revenue - Graduate, LFG and Unregulated Programs 15,152 21, % 18, % 76,954 98, % Total of Costs (44,403) (56,283) -21.1% (37,710) 17.7% (163,048) (251,780) -35.2% Cost of Goods - - n.a. - n.a. - - n.a. Cost of Services (44,403) (56,283) -21.1% (37,710) 17.7% (163,048) (251,780) -35.2% Faculty, Other Personnel and Third-Party Services (33,475) (45,967) -27.2% (30,038) 11.4% (125,949) (200,995) -37.3% Rent (4,643) (6,347) -26.8% (4,478) 3.7% (19,202) (26,398) -27.3% Materials (1,948) (2,886) -32.5% (2,537) -23.2% (11,617) (19,996) -41.9% Maintenance (190) (551) -65.5% (210) -9.6% (895) (2,153) -58.4% Other (4,146) (532) 679.4% (446) 829.1% (5,383) (2,238) 140.5% Gross Income 218, , % 214, % 904, , % Gross Margin 83.1% 80.1% 3.1 p.p. 85.1% -1.9 p.p. 84.7% 78.7% 6.0 p.p. Total Operating Expenses (33,633) (25,830) 30.2% (23,055) 45.9% (107,505) (103,288) 4.1% Personnel Expenses (22,397) (18,675) 19.9% (19,283) 16.2% (75,517) (80,796) -6.5% General and Administrative Expenses (11,235) (7,155) 57.0% (3,772) 197.9% (31,987) (22,491) 42.2% Provision for Doubtful Account - PDA (21,315) (20,863) 2.2% (19,704) -8.2% (82,354) (87,618) -6.0% (+) Interest and Penalties on Tuition 3,818 3, % 6, % 24,780 38, % Operating Result 167, , % 178, % 739, , % Operat ing Margin 63.7% 64.7% -1.0 p.p. 70.6% -6.9 p.p. 69.3% 65.9% 3.4 p.p. 15

16 CORPORATE RESULTS Revenue and Deductions Distance Learning - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Gross Revenue 340, , % 333, % Gross Revenue Deductions (77,140) (94,123) -18.0% (81,240) -5.0% Tax (5,696) (7,727) -26.3% (7,948) -28.3% ProUni (49,799) (61,506) -19.0% (51,584) -3.5% Returns - - n.a. - n.a. Total Discounts (21,644) (24,889) -13.0% (21,707) -0.3% Net Revenue 263, , % 252, % Net Revenue - Undergraduate 248, , % 234, % Net Revenue - Graduate, LFG and Unregulated Programs 15,152 21, % 18, % Deductions In the Distance Learning business, the main deduction items are the discounts granted and ProUni, which combined corresponded to 21.0% of total gross revenue in 4Q16, down 1.9 p.p. from the same period last year, which reflects the more effective adjustment and filling of ProUni seats. Another factor contributing to the period s lower deductions was the lower volume of total discounts due to the pricing strategy adopted, especially during the second half of the year. Compared to the previous quarter, the main deduction items decreased 1.0 p.p., reflecting the higher gross revenue in the period. Net Revenue Net revenue in 4Q16 came to R$263.2 million, down 6.8% from the same period of 2015, reflecting the divestment of Uniasselvi and the lower revenue contribution from LFG and unregulated programs. These same factors were responsible for the 9.7% decline in net revenue in the year, to R$1,067.9 million, which neutralized the positive effects from the enrollment and re-enrollment processes conducted in recent cycles and from the higher average net ticket in the period. Average Net Ticket Distance Learning - Values in R$ 4Q16 4Q15 Chg.% 3Q16 Chg.% Total (Student) % % For comparison purposes, Kroton reports only the effective ticket paid by the student, without discounting the transfers to the partners of the centers. To enable a better understanding, when calculating the average ticket, Kroton uses the number of invoices effectively recognized as revenue in the period, including the invoices of ProUni. On this basis, considering all (100%) of the revenue and the combination of the DL Undergraduate, DL Graduate and LFG businesses, the average ticket was R$273.80, or 11.1% higher than in 4Q15, reflecting the annual tuition increase and a still-marginal impact from new Premium DL students, whose monthly tuitions are higher than in the blended learning model. Compared to the previous quarter, the 6.3% increase in the period s average ticket reflects the one-off impact from the campaigns offering discounts and exemptions on enrollment fees for new students enrolling in that period, but which do not affect the student s monthly tuition over the course of their program. Compared to the second semester of 2015, the average ticket increased 10.3% to R$265.91, which reinforces the impacts described above. 16

17 Costs Distance Learning - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Total of Costs (44,403) (56,283) -21.1% (37,710) 17.7% Cost of Goods - - n.a. - n.a. Cost of Services (44,403) (56,283) -21.1% (37,710) 17.7% Faculty, Other Personnel and Third-Party Services (33,475) (45,967) -27.2% (30,038) 11.4% Rent (4,643) (6,347) -26.8% (4,478) 3.7% Materials (1,948) (2,886) -32.5% (2,537) -23.2% Maintenance (190) (551) -65.5% (210) -9.6% Other (4,146) (532) 679.4% (446) 829.1% % of Net Revenues 4Q16 4Q15 Chg.% 3Q16 Chg.% Total of Costs -16.9% -19.9% 3.1 p.p % -1.9 p.p. Cost of Goods (CG) 0.0% 0.0% 0.0 p.p. 0.0% 0.0 p.p. Cost of Services (CS) -16.9% -19.9% 3.1 p.p % -1.9 p.p. Faculty, Other Personnel and Third-Party Services -12.7% -16.3% 3.6 p.p % -0.8 p.p. Rent -1.8% -2.2% 0.5 p.p. -1.8% 0.0 p.p. Materials -0.7% -1.0% 0.3 p.p. -1.0% 0.3 p.p. Maintenance -0.1% -0.2% 0.1 p.p. -0.1% 0.0 p.p. Other -1.6% -0.2% -1.4 p.p. -0.2% -1.4 p.p. In 4Q16, cost of services (CS) came to R$44.4 million and as a ratio of net revenue decreased 3.1 p.p. from the same period in This reduction is mainly explained by the capture of efficiency gains from the expansion in the student base over the past few years, as well as by the ongoing initiatives to optimize the performance of DL programs at Anhanguera, highlighting the migration of the teaching model to one on-campus meeting per week (instead of two), the restructuring of the commercial model in the segment, and the lower costs with rent and materials. Compared to the previous quarter, costs as a ratio of net revenue increased 1.9 p.p., reflecting the retroactive expenses related to the copyrights of textbooks, which impacted the line Other. Gross Income Distance Learning - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Gross Income 218, , % 214, % Gross Margin 83.1% 80.1% 3.1 p.p. 85.1% -1.9 p.p. Gross income was R$218.8 million in 4Q16, with gross margin of 83.1%, expanding 3.1 p.p. from 4Q15, even considering the Uniasselvi divestment at the start of the year. This improvement in profitability was driven by the capture of efficiency and synergy gains in recent quarters. Compared to 3Q16, the decline in gross income was due to the one-off and retroactive costs incurred in the period, as commented above. In the year, gross income amounted to R$904.8 million, with gross margin expanding 6.0 p.p. to 84.7%, demonstrating the substantial improvement in the efficiency of the operation. Operating Expenses Distance Learning - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Total Operating Expenses (33,633) (25,830) 30.2% (23,055) 45.9% Personnel Expenses (22,397) (18,675) 19.9% (19,283) 16.2% General and Administrative Expenses (11,235) (7,155) 57.0% (3,772) 197.9% % of Net Revenues 4Q16 4Q15 Chg.% 3Q16 Chg.% Total Operating Expenses -12.8% -9.1% -3.6 p.p. -8.8% -4.0 p.p. Personnel Expenses -8.5% -6.6% -1.9 p.p. -7.3% -1.2 p.p. General and Administrative Expenses -4.3% -2.5% -1.7 p.p. -1.4% -2.8 p.p. Personnel, General and Administrative Expenses In the quarter, personnel expenses as a ratio of net revenue in the business increased 1.9 p.p. and 1.2 p.p. from 4Q15 and 3Q16, respectively, reflecting the growth in headcount to support the expansion of centers. This effect offset the capture of economies of scale and the initiatives to optimize headcount carried out since mid General and administrative expenses as a ratio of net revenue also increased both on the prior-year period and sequentially, driven by higher expenses with collections advisory services, as well as by the lower volume of reversals of contingencies compared to prior periods. 17

18 Provision for Doubtful Accounts (PDA) Distance Learning - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Provision for Doubtful Account - PDA (21,315) (20,863) 2.2% (19,704) 8.2% PDA / Distance Learning Net Revenues -8.1% -7.4% -0.7 p.p. -7.8% -0.3 p.p. The level of provisioning for the DL business stood at 8.1% in 4Q16, following a natural and expected increase given the deterioration in the economic scenario. The increase is also consistent with the trend observed in the on-campus segment and reflects the Company s strategy adopted since early 2016 to offset the effects from the more challenging economic scenario. Accounts Receivable Distance Learning - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Net Accounts Receiveble 249, , % 219, % Tuition and Agreements to Receive - Short term 249, , % 219, % Note: 4Q15 and 3Q16 values adjusted to include credit card accounts receivable In 4Q16, net Accounts Receivables in the Distance Learning business amounted to R$249.8 million, increasing 8.7% from the same period a year ago, which is basically explained by growth in the receivables-generating student base and by the limited increase in the average receivables term due to the more adverse economic scenario. Compared to 3Q16, the increase is due to the seasonality of the business. Average Accounts Receivable Term Distance Learning - Days 4Q16 4Q15 Chg.(days) 3Q16 Chg.(days) Net Accounts Receivable Net Revenue Calculation base: net balance of short-term and long-term Accounts Receivable in the DL business, divided by net revenue in the DL business in the last 12 months, multiplied by 360 days. The average term of accounts receivable in the Distance Learning segment increased by 14 days on the prior-year period due to the higher average receivables term at LFG and to the higher amount of receivables due to the economic scenario. The increase of 7 days compared to 3Q15 is due to the seasonality of the operation, which is in line with that observed in the same periods of Operating Result Days Days Distance Learning - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Gross Income 218, , % 214, % (-) Total Operating Expenses (33,633) (25,830) 30.2% (23,055) 45.9% (-) Provision for Doubtful Account - PDA (21,315) (20,863) 2.2% (19,704) 8.2% (+) Interest and Penalties on Tuition 3,818 3, % 6, % Operating Result 167, , % 178, % Operat ing Margin 63.7% 64.7% -1.0 p.p. 70.6% -6.9 p.p. The operating result (before marketing expenses) in the Distance Learning business came to R$167.7 million in 4Q16, or 8.3% lower than in the same period of 2015, due to the lower sales following the divestment of the Uniasselvi operations and the weaker performance in the LFG operations, as well as to the one-off costs incurred in the period. Despite the lower operating result in the quarter and the divestment of a relevant asset such as Uniasselvi, the Company was able to maintain its operating margin in the period near the levels of 4Q15, which demonstrates the substantial capture of synergy and efficiency gains in the business. Compared to the previous quarter, the 6.9 p.p. contraction in operating margin was influenced mainly by seasonality. In the year, the operating result was R$739.8 million, with margin of 69.3%, an improvement of 3.4 p.p., even with the 10 fewer months of contribution from Uniasselvi. RESULTS EX-UNIASSELVI 18

19 The following table presents the main P&L lines excluding data from Uniasselvi for 2015 and 1Q16: Distance Learning - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Chg.% Net Revenue 263, , % 252, % 1,038, , % Gross Income 218, , % 214, % 884, , % Gross Margin 83.1% 84.0% -0.8 p.p. 85.1% -1.9 p.p. 85.2% 81.9% 3.2 p.p. Operating Result 167, , % 178, % 722, , % Operat ing Margin 63.7% 68.6% -4.9 p.p. 70.6% -6.9 p.p. 69.6% 69.3% 0.3 p.p. Excluding Uniasselvi, net revenue in the quarter grew 7.7% from 4Q15, which is explained by the results of the enrollment and re-enrollment processes and by the higher average ticket in the period. Meanwhile, gross income advanced 6.7%, with gross margin of 83.1%, expanding slightly by 0.8 p.p. compared to 4Q15. The operating result in the quarter was virtually flat, with operating margin down 4.9 p.p. In the year, the results were stronger, with revenue growing 3.9%, gross income increasing 8.0% (gross margin expansion of 3.2 p.p.) and the operating result up 4.3%, with operating margin expansion of 0.3 p.p. CORPORATE FINANCIAL PERFORMANCE PRIMARY AND SECONDARY 19

20 Primary and Secondary Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Chg.% Gross Revenue 65,472 44, % 25, % 199, , % Gross Revenue Deductions (1,485) (2,124) -30.1% (1,910) -22.2% (10,415) (10,523) -1.0% Tax (1,328) (936) 41.9% (1,140) 16.6% (5,490) (4,324) 27.0% ProUni - - n.a. - n.a. - - n.a. Returns (117) (1,188) -90.2% (604) -80.7% (4,485) (6,199) -27.7% Total Discounts (40) - n.a. (167) -75.8% (440) - n.a. Net Revenue 63,986 42, % 23, % 189, , % Management Contracts and Own Operations 14,392 16, % 14, % 58,939 62, % Associated Schools Network 49,594 26, % 9, % 130, , % Total of Costs (27,776) (19,159) 45.0% (13,521) 105.4% (83,479) (77,827) 7.3% Cost of Goods (15,339) (8,498) 80.5% (4,276) 258.7% (40,812) (35,248) 15.8% Cost of Services (12,437) (10,661) 16.7% (9,245) 34.5% (42,667) (42,579) 0.2% Faculty, Other Personnel and Third-Party Services (8,812) (7,873) 11.9% (7,949) 10.9% (31,657) (31,100) 1.8% Rent (199) (273) -27.0% (292) -31.7% (1,046) (1,222) -14.4% Materials - (2) n.a. - n.a. - (43) n.a. Maintenance (225) (223) 0.8% (198) 13.8% (827) (699) 18.3% Other (3,201) (2,290) 39.8% (806) 296.9% (9,138) (9,515) -4.0% Gross Income 36,210 23, % 10, % 105, , % Management Contracts and Own Operations 5,844 7, % 5, % 24,342 28, % Associated Schools Network 30,366 15, % 4, % 81,558 76, % Gross Margin 56.6% 55.0% 1.6 p.p. 42.7% 13.9 p.p. 55.9% 57.5% -1.6 p.p. Management Contracts and Own Operations 40.6% 46.7% -6.1 p.p. 41.8% -1.2 p.p. 41.3% 45.1% -3.8 p.p. Associated Schools Network 61.2% 60.2% 1.1 p.p. 44.1% 17.1 p.p. 62.5% 63.5% -0.9 p.p. Total Operating Expenses (6,020) (5,423) 11.0% (5,310) 13.4% (20,910) (22,667) -7.8% Personnel Expenses (5,115) (4,145) 23.4% (4,191) 22.0% (17,022) (17,081) -0.3% General and Administrative Expenses (905) (1,278) -29.2% (1,119) -19.2% (3,888) (5,586) -30.4% Provision for Doubtful Account - PDA (514) (425) 21.1% (185) 177.6% (1,543) (2,124) -27.3% (+) Interest and Penalties on Tuition % % % Operating Result 29,874 17, % 4, % 84,085 81, % Operat ing Margin 46.7% 41.7% 5.0 p.p. 20.5% 26.2 p.p. 44.4% 44.3% 0.1 p.p. Revenue and Deductions 20

21 Primary and Secondary Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Gross Revenue 65,472 44, % 25, % Gross Revenue Deductions (1,485) (2,124) -30.1% (1,910) -22.2% Tax (1,328) (936) 41.9% (1,140) 16.6% ProUni - - n.a. - n.a. Returns (117) (1,188) -90.2% (604) -80.7% Total Discounts (40) - n.a. (167) -75.8% Net Revenue 63,986 42, % 23, % Management Contracts and Own Operations 14,392 16, % 14, % Associated Schools Network 49,594 26, % 9, % Deductions In 4Q16, gross revenue deductions fell 2.5 p.p. from the same period of 2015, basically due to the higher gross revenue and lower volume of returns resulting from the logistics team achieving its targets. Compared to the previous quarter, the decrease was even more significant, with deductions as a ratio of gross revenue declining 5.2 p.p. from 3Q16. The result reflects the seasonality of the operation, since sales of school materials are concentrated in even-numbered quarters (see more details below). Net Revenue As discussed in previous quarters, it is important to remember that Kroton has been anticipating the delivery of book collections to even-numbered quarters to better manage the distribution of books to the Associated Schools. As a result, part of the revenues that previously were recognized in odd-numbered quarters is now being anticipated to the quarter immediately prior. This event is essential for understanding the dynamics of revenue behavior in the business and is expected to continue over the coming quarters. Considering this new dynamic and the good performance of collection sales in 2017, net revenue increased 50.2% from the same period last year and by 171.0% compared to 3Q16. In 2016, net revenue in the Primary and Secondary Education segment amounted to R$189.4 million, or 3.4% higher than in Average Net Ticket In the Primary and Secondary Education business, the average annual amount charged for the sale of textbooks to the Associated Schools in 2016 was R$ per student, or 5.0% higher than in Costs Primary and Secondary Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Total of Costs (27,776) (19,159) 45.0% (13,521) 105.4% Cost of Goods (CG) (15,339) (8,498) 80.5% (4,276) 258.7% Cost of Services (CS) (12,437) (10,661) 16.7% (9,245) 34.5% Faculty, Other Personnel and Third-Party Services (8,812) (7,873) 11.9% (7,949) 10.9% Rent (199) (273) -27.0% (292) -31.7% Materials - (2) n.a. - n.a. Maintenance (225) (223) 0.8% (198) 13.8% Other (3,201) (2,290) 39.8% (806) 296.9% % of Net Revenues 4Q16 4Q15 Chg.% 3Q16 Chg.% Total of Costs -43.4% -45.0% 1.6 p.p % 13.9 p.p. Cost of Goods (CG) -24.0% -19.9% -4.0 p.p % -5.9 p.p. Cost of Services (CS) -19.4% -25.0% 5.6 p.p % 19.7 p.p. Faculty, Other Personnel and Third-Party Services -13.8% -18.5% 4.7 p.p % 19.9 p.p. Rent -0.3% -0.6% 0.3 p.p. -1.2% 0.9 p.p. Materials 0.0% 0.0% 0.0 p.p. 0.0% 0.0 p.p. Maintenance -0.4% -0.5% 0.2 p.p. -0.8% 0.5 p.p. Other -5.0% -5.4% 0.4 p.p. -3.4% -1.6 p.p. In 4Q16, cost of goods sold as a ratio of net revenue in the business increased 4.0 p.p. on the prior-year period, which is explained by higher sales volume in the period, which offset the higher revenue in the 21

22 period. Compared to the previous quarter, the increase is even more significant, of 5.9 p.p., reflecting the new seasonality of the segment, with the anticipation of sales to even-numbered quarters. Similarly, compared to 4Q15, cost of services benefitted from the new schedule for revenue recognition. Gross Income Primary and Secondary Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Gross Income 36,210 23, % 10, % Management Contracts and Own Operations 5,844 7, % 5, % Associated Schools Network 30,366 15, % 4, % Gross Margin 56.6% 55.0% 1.6 p.p. 42.7% 13.9 p.p. Management Contracts and Own Operations 40.6% 46.7% -6.1 p.p. 41.8% -1.2 p.p. Associated Schools Network 61.2% 60.2% 1.1 p.p. 44.1% 17.1 p.p. Gross income reached R$36.2 million in 4Q16, up 54.4% from the same period last year, while gross margin expanded 1.6 p.p., due to the factors described above. In 2016, gross income was R$105.9 million, with gross margin of 55.9%, contracting 1.6 p.p. from Operating Expenses Primary and Secondary Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Total Operating Expenses (6,020) (5,423) 11.0% (5,310) 13.4% Personnel Expenses (5,115) (4,145) 23.4% (4,191) 22.0% General and Administrative Expenses (905) (1,278) -29.2% (1,119) -19.2% % of Net Revenues 4Q16 4Q15 Chg.% 3Q16 Chg.% Total Operating Expenses -9.4% -12.7% 3.3 p.p % 13.1 p.p. Personnel Expenses -8.0% -9.7% 1.7 p.p % 9.8 p.p. General and Administrative Expenses -1.4% -3.0% 1.6 p.p. -4.7% 3.3 p.p. Personnel, General and Administrative Expenses Personnel, general and administrative expenses as a ratio of net revenue decreased 3.3 p.p. compared to 4Q15, which is mainly explained by the initiatives to optimize headcount and better control indirect expenses, which offset the higher provisioning for the payment of variable compensation due to the change in group of eligible employees and to the segment s performance. Compared to the prior quarter, operating expenses also decreased due to the new schedule for revenue recognition. Provision for Doubtful Accounts (PDA) Primary and Secondary Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Provision for Doubtful Account - PDA (514) (425) 21.1% (185) 177.6% PDA / Primary and Secondary Education Net Revenues -0.8% -1.0% 0.2 p.p. -0.8% 0.0 p.p. This quarter, PDA stood at 0.8% of net revenue, down 0.2 p.p. from the same period of 2015, attesting to the effective provisioning policies adopted for the primary and secondary education segment. Compared to the prior quarter, PDA was stable. Accounts Receivable Primary and Secondary Education 4Q16 4Q15 Chg.% 3Q16 Chg.% Net Accounts Receivable 64,636 44, % 26, % In 4Q16, the increase in Accounts Receivable compared to 4Q15 and 3Q16 reflects the growth in the sales volume of book collections for the 2017 academic year. Average Accounts Receivable Term 22

23 Primary and Secondary Education - Days 4Q16 4Q15 Chg.(days) 3Q16 Chg.(days) Net Accounts Receivable Net Revenue Days Days Calculation base: net balance of short-term Accounts Receivable in Primary and Secondary Education, divided by the net revenue in Primary and Secondary Education in the last 12 months, multiplied by 360 days. As mentioned in the analysis of Accounts Receivable, the 35-days increase in the average accounts receivable term in the Primary and Secondary Education segment in 4Q16 compared to 4Q15 is associated with higher sales in the period. Operating Result Primary and Secondary Education - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Gross Income 36,210 23, % 10, % (-) Total Operating Expenses (6,020) (5,423) 11.0% (5,310) 13.4% (-) Provision for Doubtful Account - PDA (514) (425) 21.1% (185) 177.6% (+) Interest and Penalties on Tuition % % Operating Result 29,874 17, % 4, % Operat ing Margin 46.7% 41.7% 5.0 p.p. 20.5% 26.2 p.p. In 4Q16, the operating result (before marketing expenses) reached R$29.9 million, with margin of 46.7%, a strong performance that offset, as already mentioned, the lower result registered in the prior quarter. In the year, operating margin expanded 5.0 p.p., attesting to the rigorous management of costs and expenses in the primary and secondary education operations. As a result of this performance, the operating result in the year was R$84.1 million, advancing 3.7% on the prior year, and with operating margin practically stable. PRO FORMA FINANCIAL PERFORMANCE KROTON 23

24 Consolidated - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Chg.% Gross Revenue 1,742,552 1,690, % 1,588, % 6,732,976 6,723, % Gross Revenue Deductions (381,038) (359,178) 6.1% (364,923) 4.4% (1,488,266) (1,458,664) 2.0% Tax (43,713) (35,398) 23.5% (43,947) -0.5% (173,608) (152,433) 13.9% ProUni (216,656) (219,033) -1.1% (222,508) -2.6% (889,212) (884,601) 0.5% Returns (117) (1,188) -90.2% (604) -80.7% (4,885) (6,199) -21.2% Total Discounts (120,552) (103,559) 16.4% (97,698) 23.4% (420,561) (415,432) 1.2% Net Revenue 1,361,514 1,331, % 1,223, % 5,244,710 5,265, % Total of Costs (427,287) (428,998) -0.4% (357,397) 19.6% (1,521,402) (1,685,188) -9.7% Cost of Goods (15,339) (8,498) 80.5% (4,276) 258.7% (40,812) (35,248) 15.8% Cost of Services (411,948) (420,500) -2.0% (353,120) 16.7% (1,480,590) (1,649,940) -10.3% Faculty, Other Personnel and Third-Party Services (304,339) (316,043) -3.7% (256,212) 18.8% (1,069,272) (1,217,037) -12.1% Rent (83,645) (81,341) 2.8% (78,912) 6.0% (326,310) (324,005) 0.7% Materials (4,578) (4,643) -1.4% (5,861) -21.9% (22,784) (39,181) -41.8% Maintenance (6,281) (6,632) -5.3% (3,117) 101.5% (16,159) (20,228) -20.1% Other (13,104) (11,841) 10.7% (9,019) 45.3% (46,065) (49,488) -6.9% Gross Income 934, , % 866, % 3,723,308 3,580, % Gross Margin 68.6% 67.8% 0.8 p.p. 70.8% -2.2 p.p. 71.0% 68.0% 3.0 p.p. Total Operating Expenses (182,452) (177,614) 2.7% (133,752) 36.4% (608,076) (640,765) -5.1% Personnel, General and Administrative Expenses (182,452) (177,614) 2.7% (133,752) 36.4% (608,076) (640,765) -5.1% Personnel Expenses (97,116) (92,608) 4.9% (88,597) 9.6% (351,788) (372,688) -5.6% General and Administrative Expenses (85,336) (85,006) 0.4% (45,154) 89.0% (256,288) (268,077) -4.4% Provision for Doubtful Account - PDA (88,476) (66,022) 34.0% (104,740) -15.5% (347,539) (268,158) 29.6% (+) Interest and Penalties on Tuition 22,558 24, % 39, % 134, , % Operating Result 685, , % 667, % 2,902,305 2,779, % Operat ing Margin 50.4% 51.3% -1.0 p.p. 54.5% -4.1 p.p. 55.3% 52.8% 2.5 p.p. Selling and Marketing Expenses (63,963) (75,710) -15.5% (71,748) -10.9% (316,604) (311,436) 1.7% Corporate Expenses (93,166) (89,702) 3.9% (63,164) 47.5% (285,401) (289,402) -1.4% Adjusted EBITDA 528, , % 532, % 2,300,300 2,178, % Adjust ed EBITDA Margin 38.8% 38.9% -0.1 p.p. 43.5% -4.7 p.p. 43.9% 41.4% 2.5 p.p. (-) Non-Recurring Items (67,980) (57,599) n.a. (40,673) 67.1% 105,293 (195,537) n.a. EBITDA 460, , % 491, % 2,405,593 1,983, % EBITDA Margin 33.8% 34.6% -0.7 p.p. 40.2% -6.3 p.p. 45.9% 37.7% 8.2 p.p. Depreciation and Amortization (100,090) (92,157) 8.6% (104,498) -4.2% (401,605) (379,841) 5.7% Financial Result 6,966 (34,378) % 11, % (18,051) (138,934) -87.0% Income Tax / Social Contribution 20,069 (29,067) n.a. (37,539) n.a. (33,324) (106,114) -68.6% Deferred Income Tax / Social Contribution (9,999) (9,463) n.a. 6,692 n.a. (16,208) 37,787 n.a. Income Tax / Social Cont. - Disposal of Uniasselvi - - n.a. - n.a. (71,772) - n.a. Net Income 377, , % 368, % 1,864,633 1,396, % Net Margin 27.7% 22.2% 5.5 p.p. 30.1% -2.3 p.p. 35.6% 26.5% 9.0 p.p. (+) Non Recurring Items 67,980 57,599 n.a. 40, % (105,293) 195,537 n.a. (+) Intagnible Amortization (Acquisitions) 41,924 55, % 43, % 176, , % (+) Income Tax / Social Cont. - Disposal of Uniasselvi - - n.a. - n.a. 71,772 - n.a. Adjusted Net Income 487, , % 452, % 2,008,011 1,785, % Adjust ed Net Margin 35.8% 30.7% 5.1 p.p. 37.0% -1.2 p.p. 38.3% 33.9% 4.4 p.p. SELLING AND MARKETING EXPENSES 24

25 Consolidated - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Selling and Marketing Expenses (63,963) (75,710) -15.5% (71,748) -10.9% % of Net Revenue 4Q16 4Q15 Chg.% 3Q16 Chg.% Selling and Marketing Expenses -4.7% -5.7% 1.0 p.p. -5.9% 1.2 p.p. Selling and marketing expenses as a ratio of net revenue declined 1.0 p.p. compared to the same period a year ago. As commented in previous quarters, the decline already was expected and reflects the anticipation of part of the marketing campaigns to the first half of the year to consolidate the Company s new strategy to streamline costs with advertising and media agencies as part of the strategic sourcing project. Compared to the previous quarter, the 1.2 p.p. decrease was due to seasonality. CORPORATE EXPENSES Consolidated - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Corporate Expenses (93,166) (89,702) 3.9% (63,164) 47.5% Personnel Expenses (68,989) (66,317) 4.0% (56,846) 21.4% General and Administrative Expenses (24,177) (23,385) 3.4% (6,319) 282.6% % of Net Revenue 4Q16 4Q15 Chg.% 3Q16 Chg.% Corporate Expenses -6.8% -6.7% -0.1 p.p. -5.2% -1.7 p.p. Personnel Expenses -5.1% -5.0% -0.1 p.p. -4.6% -0.4 p.p. General and Administrative Expenses -1.8% -1.8% 0.0 p.p. -0.5% -1.3 p.p. Personnel expenses as a ratio of net revenue in corporate expenses increased 0.1 p.p. compared to 4Q15 and 0.4 p.p. compared to 3Q16, due to adjustments to the amounts under the variable compensation plan based on the achievement of the targets set for 2016 and also to new grants of stock options, which were partially offset by the positive impacts from synergies. When analyzed separately, general and administrative expenses as a ratio of net revenue were stable compared to 4Q15, but increased 1.3 p.p. compared to the prior quarter, due to higher expenses with consulting services and corporate events, in addition to the lower volume of reversal of contingencies at the end of the year. NONRECURRING EVENTS Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Integrations (17,947) (23,353) -23.1% (5,216) 244.1% Severance (13,315) (11,486) 15.9% (13,591) -2.0% Restructuring of units (28,648) (10,508) 172.6% (13,936) 105.6% M&A and Other projects (20,088) (12,253) 64.0% (15,137) 32.7% Subtotal ex-capital gain from Uniasselvi (79,999) (57,599) 38.9% (47,880) 67.1% Capital Gain - Uniasselvi 12,019 - n.a. 7, % Total Nonrecurring (67,980) (57,599) 18.0% (40,673) 67.1% As reported in the prior quarters, nonrecurring items are divided into two groups, as shown in the table above: (1) nonrecurring events that generated costs and expenses, and (2) the capital gain recorded from the sale of Uniasselvi. The nonrecurring items in the first group amounted to R$80.0 million and included: (i) expenses with integrations, due to the migration and standardization of the last academic software that still served Anhanguera exclusively, as well as to the initial expenses with the Estácio integration plan, which already amounted to R$10.4 million in the period; (ii) severance charges, especially those related to the reduction in classroom hours generated by the initiatives to capture efficiency gains, such as the operational research software; (iii) the restructuring of on-campus units, which included not only the deactivations of campuses, but also the payment of compensation under certain contracts in the amount of R$16.0 million; and (iv) other costs and expenses, such as those related to the Estácio transaction of some R$6.4 million and the organic growth projects in the on-campus and distance learning segments. On the other hand, the capital gain from the Uniasselvi divestment had a 25

26 positive impact of R$12.0 million on the result. In all, nonrecurring items in the quarter amounted to R$68.0 million. In 2016, nonrecurring expenses, excluding the capital gain from Uniasselvi, amounted to R$211.7 million. FINANCIAL RESULT Consolidated - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% (+) Financial Revenues 38,555 14, % 49, % Interest on Financial Investment 33,341 13, % 41, % Others 5,214 1, % 8, % (-) Financial Expenses (31,589) (49,111) -35.7% (37,737) -16.3% Banks Expenses (2,156) (4,513) -52.2% (1,776) 21.4% Interest on Loans (16,337) (26,071) -37.3% (21,089) -22.5% Interest and Tax on Late Payment (1,111) (2,840) -60.9% (2,903) -61.7% Interest on Loans for Acquisitions 3,444 (6,047) n.a. (5,246) n.a. Restatement of Contingencies (4,764) (7,943) -40.0% (6,390) -25.4% Others (10,665) (1,697) n.a. (333) n.a. Financial Result 1 6,966 (34,378) n.a. 11, % ¹ Excludes interest and fines on late monthly tuition payments. As already mentioned in the prior quarter, in 4Q16, Kroton posted net financial income of R$7.0 million, due to the higher cash balance and resulting increase in the line interest income. As was the case in prior quarters, the breakdown of the line Restatement of Contingencies, which had an adverse impact on the quarter s financial result, proved necessary due to the higher amount assessed after preparing the Opening Balance Sheet due to the Anhanguera merger. NET INCOME Consolidated - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Operating Result 685, , % 667, % (+) Selling and Marketing Expenses (63,963) (75,710) -15.5% (71,748) -10.9% (+) Corporate Expenses (93,166) (89,702) 3.9% (63,164) 47.5% (+) Depreciation and Amortization ex-intangible (58,166) (36,389) 59.8% (60,658) -4.1% (+) Financial Result 1 6,966 (34,378) n.a. 11, % (+) Income Tax / Social Contribution 20,069 (29,067) n.a. (37,539) n.a. (+) Deferred Income Tax / Social Contribution (9,999) (9,463) 5.7% 6,692 n.a. Adjusted Net Income 487, , % 452, % Adjust ed Net Margin 35.8% 30.7% 5.1 p.p. 37.0% -1.2 p.p. (+) Nonrecurring Items (67,980) (57,599) 18.0% (40,673) 67.1% (+) Intangible Amortization (Acquisitions) (41,924) (55,767) -24.8% (43,840) -4.4% (+) Income Tax / Social Cont. - Disposal of Uniasselvi - - n.a. - n.a. Net Income 377, , % 368, % Net Margin 27.7% 22.2% 5.5 p.p. 30.1% -2.3 p.p. ¹ Excludes interest and fines on late monthly tuition payments. Adjusted net income (adjusted for the amortization of intangible assets, nonrecurring events and taxes related to the Uniasselvi divestment) amounted to R$487.6 million, with adjusted net margin of 35.8%, expanding 5.1 p.p. from the same period in This result is explained by the capture of synergy and efficiency gains and by the projects successfully implemented by the Company over the year. Excluding Uniasselvi from the analysis, adjusted net income posted even stronger growth, of 22.9%. Note also that the variation in the line Income Tax/ Social Contribution is a consequence of a reversal of provision made in the previous quarter. Also, the variation in the line Deferred Income Tax / Social Contribution is due to temporary tax differences (for more information, see Note 9 to the Financial Statements). In 2016, adjusted net income advanced 12.5% to R$2,008.0 million, with adjusted net margin of 38.3%, expanding 4.4 p.p. from PRO FORMA: 26

27 EX-UNIASSELVI: Excluding the adjustments for nonrecurring items, amortization of intangible assets and taxes on the sale of Uniasselvi, net income amounted to R$377.7 million in 4Q16 and R$1.9 billion in Given the significant impact from these adjustments in the year, the Company recommends the pro forma and adjusted result as the best metric for accompanying financial performance. EBITDA Consolidated - Values in R$ ('000) 4Q16 4Q15 Chg.% 3Q16 Chg.% Net Income (Loss) 377, , % 368, % (+) Depreciation and Amortization 100,090 92, % 104, % (+) Financial Result 1 (6,966) 34, % (11,990) -41.9% (+) Income Tax / Social Contribution (20,069) 29, % 37,539 n.a. (+) Deferred Income Tax / Social Contribution 9,999 9, % (6,692) n.a. EBITDA 460, , % 491, % EBITDA Margin 33.8% 34.6% -0.7 p.p. 40.2% -6.3 p.p. (+) Nonrecurring Items 67,980 57, % 40, % Adjusted EBITDA 528, , % 532, % Adjust ed EBITDA Margin 38.8% 38.9% -0.1 p.p. 43.5% -4.7 p.p. ¹ Excludes interest and fines on late monthly tuition payments. Adjusted EBITDA grew 2.0% in 4Q16 compared to the same period of 2015 to reach R$528.7 million, with margin virtually stable. Maintaining the level profitability in a very challenging economic scenario and with negative pressures on revenues (e.g., Uniasselvi divestment, reduction in Pronatec and fewer FIES seats) is extremely important and underscores the Company s capacity to continue creating value for its shareholders. In 2016, profitability was even higher, with the Company able to expand its margin by 2.5 p.p. to reach adjusted EBITDA of R$2.3 billion. The performance reflects all the efforts being made to capture operating efficiency gains and rigorously control costs and expenses. Excluding Uniasselvi from the analysis, adjusted EBITDA grew 5.2% from 4Q15 and 9.9% from PRO FORMA: 27

28 EX-UNIASSELVI: Excluding the adjustments for nonrecurring events, the Company generated EBITDA of R$460.7 million in 4Q16 and R$2,406.6 million in 2016, remaining flat compared to 4Q15 and growing by 21.3% compared to Meanwhile, EBITDA margin stood at 33.8% in the quarter and 45.9% in the year. INVESTMENT (CAPEX) In 4Q16, Kroton invested R$128.3 million, allocated as follows: (i) information technology and library equipment: R$26.8 million (21%); (ii) content and systems development and software licenses: R$54.1 million (42%); (iii) laboratory and related equipment: R$11.3 million (9%); (iv) expansions construction and improvements: R$36.0 million (28%). In 4Q16, investments corresponded to 9.4% of net revenue, with the largest portion allocated to projects involving content development, systems development and software licensing, as well as construction works and improvements at existing units, with the objective of preparing the units for the 2017 academic year. In 2016, capex amounted to R$356.8 million, which corresponds to 6.8% of net revenue for the year. 28