Outlook for the Second Half of 2016 and 2Q16 Results
Aug 5, 2016 Disclaimer
This material reflects management’s expectations and may contain estimates related to future events. Any information, data, forecasts or future plans herein refer to estimates, and therefore cannot be taken as concrete evidence or a promise to the market. Ser Educacional is not responsible for investment operations or decisions taken based on the information herein. These estimates are subject to change without prior notice.
This material has been prepared by Ser Educacional S.A. (“Ser Educacional" or the “Company”) in accordance with the highest national and international standards and includes certain forward-looking statements that are primarily based on Ser Educacional’s current expectations and projections of future events and financial trends that currently affect or may affect the Company’s business, and therefore they are not guarantees of future performance. They are based on management’s expectations and involve a number of risks and uncertainties that could lead the Company’s financial situation and operating results to differ materially from those expressed in said forward-looking statements. Ser Educacional assumes no obligation to publicly update or revise any forward-looking statements.
This material is disclosed solely for information purposes and should not be construed as a request or an offer to buy or sell any shares or related financial instruments. Accordingly, this presentation is not a recommendation of investment and should not be considered as such. It is not related to the specific investment objectives, financial situation or particular needs of any recipient, neither does it make a statement or provide a guarantee, either expressly or implicitly, related to the accuracy, completeness or reliability of the information herein. This presentation should not be regarded as a substitute to the recipients’ judgment. Any opinion expressed herein is subject to change without prior notice and Ser Educacional does not assume the obligation to update or revise them..
2 Defined strategic rationale and growth potential above the average for the sector
Strategic High Growth Potential Pillars Solid Competitive Advantages
On-Campus Organic Growth . 6 new units opened in the last 6 months (Maurício de Nassau Olinda, Jaboatão, Petrolina, Cabo and Feira de Santana and Joaquim Nabuco João Pessoa) and more than 250 new courses 1 Solid position in the North and Northeast . 19 new units to open through 2018 2 Strong brands that are regionally recognized by the job . Second organic growth phase: 20 new units to open through 2020 (45 market and society as a whole between 2013 and 2020)
3 Unique value proposition for students: Solid Distance Learning Expansion Project Academic excellence
. New distance learning regulatory framework should benefit regional players High-quality infrastructure
. Accreditation of 400 new centers under way (versus the current 15) Privileged locations Attractive cost/benefit ratio for students . Strong brands, regionally recognized by society, duly positioned to gain market share in the coming years 4 State-of-the-art standardization and scalability:
ISO 9001 certification Mergers and Acquisitions Comprehensive collegiate test Unified curricular frameworks . Main competitors virtually out of the next important transactions Class record and electronic roll call . Cash position strengthened by the return of FIES payment flows Market’s most integrated SSC and SRC . Demonstration of the controlling shareholder’s flexibility for new transactions . Offer of merger with Estácio led to new options to be explored 5 Shareholder with solid post-secondary teaching concepts and long-term commitment 3 Efficiency gain projects implemented during the “FIES crisis” have prepared Ser Educacional for a new level of competitiveness
UNG / UNAMA Operating Efficiency Academic Progress
Increase in Institutional Subjects SRS Common to all 100% Ser Retention System Segment 2015 2016 Integrated in less than 1 year +600 control points developed Teaching Degrees 3 6 Bachelor’s Degrees 4 6 Student Collection Scale Vocational Courses 2 5 Curricular Framework Notification system and proactive negotiation Increase in Common Areas Unified with Ser Educacional Segment 2015 2016 Engineering 4 6 Business Intelligence Teaching 0 2 Student intake Health - Biology and Pharma 2 3 Health - Nursing, SSC and SRC 1 2 Physiotherapy and Nutrition 100% Ser Educacional Organizational Class Distribution in 2nd Semester and Structure Review Greater Class Unification in Advanced Stages Cultural Transition Cost Reduction AumentoIncrease dain DistanceCarga Horária Learning de Non-Profit Universities Rent and G&A EADHours no in Ensino On-Campus Presencial Programs 4 6 new on-campus units in 2016: strategic rationale
Surrounding the Population Density Belt in the Petrolina (PE): New Market with Major Feira de Santana (BA): High Potential and Recife Metropolitan Region Development Potential Exceptionally Competitive
new Privileged location: potential to attract students in Petrolina and Juazeiro
Highest GDP in Bahia outside the state capital and second largest beltway in Brazil João Pessoa (PB): New Joaquim Nabuco 2nd largest population in the state of Bahia
Jaboatão: City with the City Population HDI Players* Inhab. / Player highest growth in the Recife 1.6 mn 210º 41 39,000 Recife Metropolitan Cabo / Ipojuca 287,000 2,282º 5 57,000 new Region Jaboatão 686,000 1,398º 5 137,000 2nd largest population in the state of Pernambuco Olinda 370,000 897º 10 34,000
new S.L. da Mata 100,000 3,055º 1 100,000
1- Cabo/Ipojuca: 2nd highest Petrolina/Juazeiro 535,000 1,995º 7 71,000 GDP in Pernambuco Support the relevance of Nassau brand on the city Feira de Santana 617,000 1,456º 12 51,000 2- Commuter Traffic through the Nabuco. Port – City João Pessoa 790,000 320º 28 27,000 5 Sources: Population: IBGE 2010 census / HDI: Human Development index - United Nations Development Program – base date 2013 / EMEC and IPEA * Information from EMEC for reference only, includes public and private institutions New courses in existing units were one of the main intake and average ticket sustainability vectors in the first semester of 2016
Growth in the Number of Courses Main Cities – Expansion of Course Portfolio - 2015 City New Courses 2015 Highlights
Vitória da Conquista (BA) 13 Nursing, Pharmacy, Electrical Engineering and Physiotherapy
Teresina (PI) 10 Psychology and Electrical. Mechanical and Computer Engineering
Parnaíba (PI) 10 Architecture and Production and Chemical Engineering
991 Manaus (AM) 8 Dentistry and Civil, Production and Mechanical Engineering 906 Lauro de Freitas (BA) 13 Dentistry, Engineering, Nursing and Physiotherapy João Pessoa (PB) 8 Dentistry and Nutrition Fortaleza (Nassau) (CE) 7 Law, Civil Engineering, Architecture and Nutrition
662 Caruaru (PE) 10 Dentistry, Nutrition and Electrical Engineering Campina Grande (PB) 10 Physiotherapy, Nutrition and Pedagogy Belém (Nassau) (PA) 12 Psychology, Nursing, Mechanical and Chemical Engineering, and Dentistry
Aracaju (SE) 8 Pharmacy, Nursing and Physical Education 365 High Demand Courses Approved in 2015 Course New Courses 2015 Cities Reference Ticket* Lauro de Freitas, Caruaru, Manaus, Belém, João Pessoa, Maceió. Dentistry 8 R$1,992 Salvador and Natal Law 1 Fortaleza R$1,043 Psychology 7 Fortaleza, Teresina, São Luís, Belém, Aracajú and Natal R$796 2013 2014 2015 1H16 Santarém, Fortaleza, São Lourenço da Mata, Paulista, Recife, Pharmacy 9 R$948 Vitoria da Conquista, Aracaju, Campina Grande and Natal Civil Engineering 4 Santarém, Fortaleza, Manaus, Teresina R$938 Santarém, Fortaleza, São Loureço da Mata, Vitória da Conquista, Nursing 8 R$978 *Table in Recife, night courses Lauro de Freitas, Belém and Aracaju 6 Portfolio diversification effect has an immediate impact on student intake in those units in the growth phase
Growth of Student Base
Vitória da Conquista (BA) – 13 New Courses in 2015 Teresina (PI) – 10 New Courses in 2015 Lauro de Freitas (BA) – 13 New Courses in 2015
3,579 2,333 797 2,884 1,670 2,536 1,537
356 341
2014 2015 1H16 2014 2015 1H16 2014 2015 1H16
Total no. of courses in the Unit: 32 Total no. of courses in the Unit: 29
In 2Q16, 12 more new courses were approved in the Nassau Belém (PA) – 12 New Courses in 2015 Aracaju (SE) – 8 New Courses in 2015 city: Dentistry, Biomedicine, Biological Sciences, Gastronomy, Computer Networks, Occupational Safety, Physical Education, Production Engineering, Chemical 5,626 Engineering, Nutrition, Social Work and Information 4,726 1,670 Systems. 4,271 1,253 1,326
Total no. of courses in the Unit: 32 (25 of which approved in less than 12 months)
* The variation in Ser Educacional’s undergraduate 2014 2015 1H16 2014 2015 1H16 student base in the same period was -0.2% Total no. of courses in the Unit: 33 Total no. of courses in the Unit: 31 7 8
Organic growth in existing units
Aracaju (SE) João Pessoa Old building and Annex (PB)
Salvador (BA)
Unique Well-located infrastructures
Value Fully-equipped, well-lit and air- Proposition conditioned environments
for Competitive prices in relation to Students traditional players Boa Viagem (PE) Maceió (AL) 8 Acquisitions in 2015: have not yet begun to impact results
Mantença Bennett – Rio de Janeiro Talles de Mileto – Fortaleza (CE) and Parnamirim (RN)
Transaction Date: March 2015
Brand to be Used: Maurício de Nassau (premium position versus local mass-market players)
Operations: Located in a building in the final contracting phase; operational start-up scheduled for 1H17
Fortaleza Unit Transformed into Joaquim Nabuco – mass- Status: Transfer of Mantença awaiting approval market brand to compete with local players, repeating the from the Ministry of Education (MEC) strategy adopted in Recife
MEC visits expected in August/16
Approval expected for 2H16 (assuming no unforeseen circumstances)
Parnamirim Unit Transformed into Nassau 9 Second semester 2016 intake – preliminary considerations
History of FIES 1.5 Performance Overview – 2016.2 Intake
% Chg. Available Places (FIES 1.5) 2015.2 2016.1 2016.2 2015.2 X Slight delay in FIES intake process, but unlikely to have a 2016.2 significant impact
National FIES (‘000) 62 252 75 22% The change from 2.5 to 3 minimum wages had a positive impact on preliminary registration numbers: Ser Educacional (‘000) 4.6 19.1 5.7 24%
2016.2: 20,500 students registered Market Share – Ser 7.5% 7.6% 7.6% -
2015.2: 11,700 students registered Places Filled (‘000 freshmen) 1.8 8.3 - -
More rational competitive scenario in 2016.2, as expected Places Filled (‘000 existing students) 1.0 2.6 - -
New units and courses (in the implantation phase) should help Total (‘000) 2.8 10.9 - - 2016.2 intake
% Occupation 61% 57% - - Economic scenario still not showing signs of recovery
10 Ser Educacional's students and alumni participants of the Rio 2016 Olympic and Paralympic Games
Jeniffer Martins Érica de Sena e Cisiane Dutra Gabriel Pinheiro Female Athletics - Paralympics Games Female Race Walking 20km Male Judo (66kg) Yane Marques Modern Pentathlon ( London bronze medal in 2012 and Rio 2016 Brazil Team Flag-bearer)
Adrianinha, Kelly e Tatiane Brazilian Female Basketball Team Wagner Domingos Franciele Rocha Suely Guimarães Athletics Men's Hammer Throw Brazilian Female Handball Team Joanna Maranhão and Etiene Medeiros Gold medal for Shot Discus in Barcelona-1992 and Athens-2004 Female Swimming Bronze medal for Shot Discus in Atlanta-1996 (Paralympics Games) Second Quarter 2016 Results 11 1S16 intake
On Campus Undergraduate Distance Learning Undergraduate On Campus and Distance Learning Graduate
+2%
39.1 38.5
+4% +70% 3.8 3.8 3.9 2.2
1S15* 1S16 1S15 1S16 1S15* 1S16
*Excludes 8,300 students enrolled in 2015,1 who dropped out by July/2015 since they had joined the Company's institutions in anticipation of accessing FIES. but were not able to due to changes in the program that occurred in 2015 and after the end of enrollment process, 12 1H16 student base
On Campus Undergraduate Student Base Evolution Technical Number of Students Undergraduate Graduate Total Courses +10%
On- Distance On- Distance Total Total 2016.1 Campus Learning Campus Learning
Base Dec/15 123,988 3,089 10,388 231 3,005 140,701 136.4 124.0 101.2 Intake 39,108 3,792 3,646 245 - 46,791 70.3 48.7 Leavers (8,487) (4) (3,360) - (1,966) (13,817) 2012 2013 2014 2Q15* 2Q16
Drop-outs (18,209) (1,871) (813) (81) (267) (21,241) Total Student Base Evolution
Base Jun/16 136,400 5,006 9,861 395 772 152,434 +8%
% Base Jun16 / Base Dec15 10.0% 62.1% -5.1% 71.0% -74.3% 8.3%
% Base Jun16 / Base Jun15 3.1% 76.4% 0.5% 387.7% -83.9% 1.7% 152.4 141.6 % Base Jun16 / Base Jun15 128.5 10.0% - - - - 7.7% Ajustada* 98.8
* Excludes 8.300 students enrolled in 2015,1 who dropped out by July/2015 since they had joined the 56.7 Company's institutions in anticipation of accessing FIES. but were not able to due to changes in the program 2012 2013 2014 2Q15* 2Q16 that occurred in 2015 and after the end of enrollment process, 13 2Q16 Results Summary
Financial Highlights (R$MM) 2Q16 2Q15 ∆ (%) 6M16 6M15 ∆ (%)
Net Revenue 289.6 273.2 6.0% 574.7 542.7 5.9%
Gross Profit 151.7 145.9 4.0% 320.8 312.4 2.7%
Gross Margin 52.4% 53.4% -1.0 p.p. 55.8% 57.6% -1.7 p.p.
Adjusted EBITDA 91.0 78.4 16.0% 204.1 183.0 +11.5%
Adjusted EBITDA Margin 31.4% 28.7% 2.7 p.p. 35.5% 33.7% 1.8 p.p.
Net Income 63.8 49.0 30.1% 149.7 131.9 13.5%
Net Margin 22.0% 17.9% 4.1 p.p. 26.0% 24.3% 1.7 p.p.
Highlights
. Average ticket growth of 7,7% in 2Q15 x 2Q16 . Reduction of G&A payroll and third-party services as % of net revenue . Accounts receivables under control . Extraordinary results for the early closure rental UNG*
* Net income only, result excluded from the calculation of adjusted EBITDA 14 Aging of accounts receivables
Aging of Monthly tuition fees 2Q16 % Chg. 4Q15 % Chg. (R$ '000) Overdue by up to 30 day 16,438 21.6% 12,091 17.3% Overdue from 31 to 60 days 13,442 17.6% 9,867 14.1% Overdue from 61 to 90 days 11,761 15.4% 8,972 12.8% Overdue from 91 to 180 days 19,242 25.2% 12,601 18.0% Overdue more than 180 days 15,363 20.1% 26,434 37.8% TOTAL 76,245 100.0% 69,965 100.0% % of Gross Accounts Receivable 13.7% 16.4%
Aging of Negotiated Agreements 2Q16 % Chg. 4Q15 % Chg. (R$ '000) Not yet due 13,941 25.4% 14,872 31.8% Overdue by up to 30 day 7,576 13.8% 5,847 12.5% Overdue from 31 to 60 days 6,078 11.1% 4,702 10.0% Overdue from 61 to 90 days 5,952 10.8% 4,456 9.5% Overdue from 91 to 179 days 9,965 18.2% 8,395 17.9% Overdue more than 180 days 11,349 20.7% 8,517 18.2% TOTAL 54,861 100.0% 46,789 100.0% % of Gross Accounts Receivable 9.8% 11.0% 15 1S16 and 2016 cash generation analysis
Solid Cash Flow Adherence to Adjusted EBITDA Cash Conversion (Adjusted EBITDA – Taxes – Working Capital – Capex (ex acquisitions) – interest paid + Adjustment payment FIES*) % of EBITDA
Operating Cash Flow Analysis (OCF) 6M16 2015
OCF - Financial statements 56.8 77.1
Minimum rent paid (19.5) (38.5)
Interest booked 37.0 72.2 76% Provision for doubtful accounts (19.4) (47.7) OCF - Adjusted by interest paid and provision for 68% 54.9 63.1 doubtful accounts FIES receivable on may-jun/16 received on 166.7 - july-august/16* FIES second semester 2015* - 290.4
OCF - Adjusted by FIES payments 221.6 353.5
1S16 Reported Adjusted EBITDA 204.1 297.8
OCF / EBITDA Adherence 108.6% 118.7% 2015 2016
*Adjusted by FIES values received between July and August 2016 (referent to 1H16) and net of federal taxes / related to the agreement signed with the federal government. 16 Capital expenditures
6M16 CAPEX: 34.1 million
Intangibles and Others Software Licence 5.0% 11.1% 6M16 Main Investments.
MEC Licenses - Delivery of new buildings in Aracaju and Salvador 4.4% and extension of buildings in João Pessoa and Caruaru (1Q16)
- Extension of building in Fortaleza, new Medicine block in Recife, parking lot in Aracaju (2Q16) Equipment/ Library / IT - Library and equipment 23.1% Property acquisition/ Construction/Renovation 56.4%
17 Indebtedness (R$ million)
Gross Debt Net Debt Debt Repayment Schedule
563.1 534.2 285 180.4 167.3
158.1 0.95 0.90 112.7 112.2 333.2 291.7 280 82.9 95.4 26.3 28.4 29.7 55.7 22.5 42.2 42.2 42.2 3.6 52.7 52.1 49.5 75.2 44.3 41.6 23.5 4Q15 2Q16 4Q15 2Q16 Short term 1-2 years 2-3 years 3-4 years above 4 years Net Debt Short Term Long Term Acquisitions Debt Debentures Acquisitions Net Debt / Adjusted EBITDA (Last 12 Months)
. In July, Fitch Ratings assigned an initial Long Term National Scale Rating of "A+(bra)" to Ser Educacional, with a stable outlook. . Acquisitions payables refer to acquisition scheduled payments . FIES payments: R$ 154.8 million in 2Q16 and R$ 187.9mm during July and August (includes the first installment of the agreement from 2015) 18 Ser Educacional is prepared to create shareholder value in this new phase of Brazilian post-secondary education
1 Well-defined strategic pillars for growth above the sector average
Competitive advantages unaltered and expansion of entry 2 barriers in cities in the North and Northeast
Projects to generate operational efficiency gains in 2015 will 3 fuel results in the coming years
2016 results have a low execution risk following 2016.1 intake 4 and monitoring of the results to date
19 Contacts
Jânyo Diniz – CEO
João Aguiar – CFO
Rodrigo de Macedo Alves - IRO
Geraldo Soares - IR Assistant Manager
Phone: (11) 2769 3223 E-mail: [email protected] Website: www.sereducacional.com/ri
20 Attachment - Additionals Adherence Testing Cash Generation x Adjusted EBITDA
Adjusted EBITDA x Income Before Income Taxes Adjusted EBITDA x Operating Income
Adjusted EBITDA x Income Before Income Taxes 6M16 2015 Adjusted EBITDA x Operating Income Analysis 6M16 2015 Analysis
Income Before Income Taxes 153.5 172.5 Operating Income 179.2 218.1
Depreciation and amortization 29.3 56.1 Depreciation and amortization 29.3 56.1
Interest booked 37.0 72.2 Minimum rent paid (19.5) (38.5)
Minimum rent paid (19.5) (38.5) Working capital change* (131.6) (213.2)
FIES receivable on may-jun/16 received on Working capital change* (131.6) (213.2) 166.7 290.4 july-august/16 FIES receivable on may-jun/16 received on 166.7 290.4 Adjusted Cash Generation 224.1 312.8 july-august/16
Adjusted Cash Generation 235.3 339.5 Reported Adjusted EBITDA 204.1 297.8
Reported Adjusted EBITDA 204.1 297.8 EBITDA Adherence 109.8% 105.0%
EBITDA Adherence 115.3% 114.0%
* According to the cash flow in the financial statements **Adjusted by FIES values received between July and August 2016 (referent to 1H16) and net of federal taxes / related to the agreement signed with the federal government. 21