Competitive Advantages

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Our Competitive Advantages

We believe we are well positioned to compete in the Brazilian higher education market, especially in the Northeast and North regions, mainly due to following factors:

Unique positioning in areas with a great potential for growth

We believe we are the largest private organization in the higher education sector, in terms of units in the Northeast of Brazil, with 43 MEC-accredited units in the region on December 31, 2018. We also have a strong presence in the north region, with 16 additional accredited units. We believe we are the company with the strongest capillarity in the sector in these regions, with units located in all states, and we are also the institution with the largest number of student positions approved by the MEC for the higher education market, with approximately 947,200 positions per year as of December 31, 2018.

The Northeast and North regions are the fastest growing regions in terms of student enrollment for undergraduate courses in Brazil. According to data provided by the Ministry of Education, from 2011 to 2016, the number of undergraduate students in Brazil grew at an annual compound rate of 3.6%, being 5.1% in the Northeast region and 4.7% in the North region, rates that are much higher than in other regions of the country, such as the Southeast, Midwest and South, with 3.0% p.a., 3.4% p.a. and 3.0% p.a., respectively.

Value creation, financial performance and growth

We implemented several efforts in recent years to improve the operations of our units, as well as their results and profitability. For example, in 2014, we launched a Shared Services Center (CSC) with a relevant idle capacity allowing us to increase our student base at very low marginal costs. In 2016, we launched our new distance learning operations center, located in Recife. We believe this facility will give us the ability to absorb all future projected needs for our distance learning operations.

As a result of these efforts, we were able to observe, during the period between December 31, 2016 and December 31, 2018, an increase in our total student base, which grew at a compound annual rate (CAGR) of 0.8% even amidst a challenging economic scenario in Brazil with GDP felling by 3.6% in 2016 and growing only 1% in 2017 and 1% in 2018. Our average monthly ticket also showed sustainable growth during the same period, increasing by 13.4% from 4Q15 and 4Q17, while the IPC-A inflation index during the same period increased by 13.4%.

Higher scalability, replicability and standardization of operations

We believe we can expand our operations through acquisitions, generating significant efficiencies from our scalable business model that can absorb more units and students at a reduced incremental cost. Since our Initial Public Offering in December 2013, we have acquired and integrated more than 20 institutions. On average, all the systems of these acquired companies were integrated into ours, including the adaptation of their curriculum framework into our model within six months after the acquisition. Our operational efficiency, gained through the implementation of pioneer control instruments such as efficient classroom management, standard processes and pedagogical plans, with the intensive use of technology, enables us to add new units, courses and students quickly and efficiently, without compromising our profitability. Our unified educational project allows us to effectively control the quality and consistency of our educational practices, disseminating these practices and delivering standard and better educational content throughout our educational network. Our administrative activities are concentrated in our Shared Service Center, which allow us to efficiently implement our expansion plan and generate gains in scale. This model has helped us increase the quality and efficiency levels of our internal processes, supporting growth at low incremental costs. We believe this structure enables us to expand our operations organically and through acquisitions, generating significant efficiencies from our scalable business model and standardized processes. In addition to inorganic growth opportunities, we also believe we are operationally prepared for the organic growth of our on-campus operations and our distance learning platform.

Differentiated value proposition for students

We believe potential students choose their higher education institution based on a combination of five main factors:

(i) Prime location and easy access for students. This is a key factor for determining a potential student’s choice of an educational institution and our units are strategically located in major capital cities and metropolitan areas in the Northeast, North and Southeast regions, usually close to our target audience’s workplaces or homes, as well as in easily accessible areas with local infrastructure that are convenient for students. This characteristic increased the higher perceived value of both on-campus and distance learning courses among our target audience, as students enrolled in distance learning courses must periodically go to the units. We believe that combination of factors has a significant impact on the value perceived by students. Since location is a key factor in the success of an educational company, we will evaluate options that enable us to secure the best properties in the cities where we operate and, at the same time, obtain appropriate returns. We also consider our units are a decisive factor for the growth and expansion of our distance learning segment since they also serve as educational centers for this service. Indeed, even distance learning students must go to educational units regularly;

(ii) Brands with strong appeal in their respective regions: we have strong regional brands that are highly recognized by the target audience and the job market for their educational excellence. Grupo Ser brands are considered Top of Mind in eight cities in the Northeast, North and Southeast regions. Our "Maurício de Nassau" brand brand has a high recall rate in the higher education industry in the Northeast and North regions, being the most mentioned higher education brand in the State of Pernambuco and one of the most recognized in the other northeastern states, according to surveys conducted by the Company. We believe these results are associated with the quality of our education. UNINASSAU was the top-of-mind brand of Higher Education Institution in 2017, according to Jornal do Commercio’s Brand Recall Award, in addition to achieving a relevant brand positioning in the cities of João Pessoa, Maceió, Natal, Fortaleza and Salvador. This brand positioning strengthens the demand for our courses, contributes to our marketing efforts and influences our ability to attract and retain good professionals in the regions where we operate. In 2016, the Universidade da Amazônia ("UNAMA") was recognized as the Best Private University in the North of Brazil according to the Guia do Estudante published by Editora Abril, which has been evaluating undergraduate courses and Brazilian universities for the last 27 years and is one of the most respected publications that evaluates the Brazilian higher education market. In addition to our existing brands, we launched the UNIVERITAS brand in 2016 to focus on operations in the Southeast, Midwest and Southern regions of Brazil. We make relevant marketing investments for brand awareness and dissemination. Based on the performance of the first unit launched in Rio de Janeiro, we believe that UNIVERITAS will be a well-accepted brand, complementing our brand portfolio;

(iii) Physical and technological infrastructure offered by the institutions: renovated buildings with classrooms equipped with air-conditioning, wi-fi and audiovisual equipment, in addition to modern laboratories. For example, our digital platform for student and faculty academic activities allows them to monitor their academic life through a portal with access to several information, such as the electronic class register, collegiate tests, financial agreements with us, online applications, enrollment in a new semester, among others; and

(iv) Employability: Thanks to our recognized excellence, we have high employability rates, further encouraged by initiatives such as an extensive career portal and partnerships with more than 3,000 companies.

Quality and cost-effectiveness

The structure we developed has allowed us to offer quality education to our students at a more competitive price than our main competitors. Our academic programs, undergraduate and graduate educational services, as well as our faculty, students and facilities have always been consistently evaluated positively by the MEC and by our students. Virtually all our institutions have an IGC (Índice Geral de Cursos, or General Index of Courses) equal to or greater than 3. We believe this performance reflects our ongoing efforts to improve the quality and infrastructure of our courses. We have an academic audit department that standardizes and monitors our academic activities, enabling us to maintain high quality and consistency in all our processes. We believe our high educational standards and over 60% of our professors have master’s or PhD degrees that also attract potential students. Our tuition fees are carefully set based on the price charged by our direct competitors at a level that is appropriate for our value proposition and ensures healthy return levels. This is possible because, by improving academic development, faculty training and administrative and management functions in our head office, we are able to reduce costs related to the administrative and management structure at each unit. This allows us to charge affordable tuition fees and continue providing quality educational services for our students.

Professional management and well-established corporate governance

We have been focusing on adopting a business philosophy in our operations since inception. Our Management team is comprised of professional executives with extensive experience in the educational industry, particularly in higher education, with a business vision based on clearly defined targets, considerable experience in opening new units, obtaining authorization for new academic programs and acquiring other companies, speeding up the decision-making process. Most of our senior executives have over 10 years’ experience on average in the industry and have been at the Company for over six years. In addition, we believe strategic partnerships, which bring knowledge and experience complementary to our own, add great value to our business. In addition to the Remuneration and Finance Committees, Ser Educacional introduced a Statutory Audit Committee, composed of three members, in 2015 after the proposal submitted spontaneously by the Company’s Management was approved. As part of Management’s plan, the Statutory Audit Committee was reinstated for fiscal years 2016, 2017 and 2018.