2nd Annual Latin American Small Caps Conference – October 2008 Who we are
Campus Rebouças . Largest Player in the Private Post-Secondary Sector in Brazil, with broadest geographical coverage
. 205k undergraduate students
. National Footprint: 77 campuses in 16 states Campus Tom Jobim
. 2 Universities, 2 University Centers and 20 Colleges
. Asset Light Model: ROE of 20% (1H08)
. LTM Revenue of R$901 million and EBITDA of R$98 million (1H08) Campus R9
. Labor Market Oriented Programs / Quality Above Average
Who we are 1 Current Focus: Efficiency Gains
2008 On: Efficiency Gains Early Turnaround and Strong Organic Growth and Stages Preparation for IPO Consolidation
(Accounting and Management Systems) National 205* CAGR of 25.7% - 1997/2005 (Vs 13.5% for Brazil) Leadership 178 162 167 GP (May/08)
141 144 IPO (July/07) 135 Main subsidiary 118 North and Northeast: (SESES): for profit subsidiaries for status (Feb/07)
profit status (in thousand) (in Begin National
Expansion 70 Undergraduate Students Undergraduate 51 35 23 26
Asset Light Growth: Long Term Leasing Agreements (Campuses)
1970/96 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08
(*) - Includes 5 recent acquisitions
Who we are 2 Largest Student Base: 205 k students1 – June/08 Largest Player in Brazil with a National Geographic Coverage 1.4 3.3 Market-Share per State2 12.8 PR 0.7% SP 1.0% 0.7 GO 1.7% MG 2.2% SC 3.0% 1.4 MS 3.6% 6.1 5.0 ES 5.9% 4.4 PE 5.9% 2.4 PA 7.0% 11.7 2.3 BA 8.1% CE 20.5% RJ 3.1 28.6% 1.6 2 – Undergraduate students enrolled (excludes public universities) Source: SINAES/2006
1.8 1.3 Monthly Tuition: R$447 (1H08; +3.3% yoy) University 17.5 3.0 University Center 4.4 118.2 2.2 College Upgrade to University Center 1- Includes 5 recent acquisitions (in process of approval with the MEC3)
Largest Student Base 3 – Ministry of Education 3 Labor Market Oriented Programs
Our Student Profile
Young working adults Self-financed students (~70%)
Target Market • Convenience multi-campus • Location (work / home) • Internship Programs Living in Urban • Adequate Facilities Family income up Centers (large cities) • Competitive Price to 10 minimum • Perceived Quality (above average) salaries (~73%) • Focus on Labor-Market
Salary improvement Searching for Career
Who we are 4 ESTC3: Competitive Advantages
Headquarter in RJ . Strong Shareholder Structure: Co-Management with GP Investments (Largest Private Equity in LATAM)
Best Governance Practices: Only Voting Shares & Novo Mercado Listing
Campus Tom Jobim Highly Qualified Professional Management Aligned with Shareholders (Aggressive Bonus and Stock Option Programs)
Widest Scope for Margin Improvement in the Industry
. Significant Growth Opportunities (M&A / Organic) Gastronomy Class . Largest Student Base & Geographic Coverage
Competitive Advantages 5 Strong Shareholder Structure and Outstanding Corporate Governance Standards
Founder Shareholders GP Investments Large Expertise in the Active Management Education Sector Meritocracy Culture Proven track record in Free Float National Expansion the Brazilian Capital and Market Leadership Market (Gafisa, Lame, Ambev, Submarino, ALL, Magnesita and others)
54.8% 20.0 % 25.2%
Higher Corporate Governance Levels • Listed at Novo Mercado • Fiscal Council
• 100% Tag Along Rights • No Poison Pills
• Two Independent Members at Board of Directors • Audit and Compensation Committee
Strong Shareholder Structure 6 Shareholder Agreement with GP
Highlights of Shareholder Agreement
. Leading Private Equity Firm in LATAM / . Co-Management 5 years (renewable for First Listed Stock 2+ years)
. Mission: Generate Exceptional . Board Members 4 each party (being 2 Long-Term Returns to its Investors independent) and Shareholders . Lockup period of 3 years . Outstanding performance of invested companies, with integrity, clear targets, . M&A Agreement entrepreneurship, meritocracy and professionalism. Some examples: . Non-Competition Agreement
IRR: 1,339% (3 year investment) . Minimum Dividend Payout (50% of Net Income)
IRR: 221% (1 year investment)
IRR: 107% (2 year investment) IRR: 24% (10 year investment)
GP & Shareholders Agreement 7 Highly Qualified Professional Management Team
Management Experience Variable compensation (Bonus + Stock Option)
João Rosas – CEO CVRD; Head of Intermodal Business Unit at ALL; Consumer Market Align interests of shareholders and Officer at Infoglobo management
Lorival Luz – CFO Implement targets on global and individual basis (cost cutting, quality goals) Treasury Director at Citibank - Banco Credicard; Corporate Bank Chief of Staff Reconcile quality and long-term targets Rogério Melzi – Economic and Operational Planning Retain key managers and professionals Head of Financial Planning in Suzano; Planning Officer in Inbev/Labat and Ambev Maximum dilution of 5%
Miguel de Paula – People and Management Head of Human Resources in Farmasa and Votorantim; HR People Development Manager at Gerdau Rubens Vasconcelos – Academic Officer • Faculty Training Program Member of the Board of Directors at Cultura Inglesa; COO at Máxima Consultoria; CFO at Cougar • Trainee Program for Estácio s students
Jessé Hollanda – Operations • Executive Development Program Principal of Estácio s College in Ceará; Academic Director of CSN • Qualification Program for Course Foundation and Executive Board member of CBS Coordinators Alexandre Ferraz – Market Officer • Variable Compensation for Coordinators & Sales and Corporate Marketing Manager at Infoglobo Teachers
Professional Team 8 Widest Scope for Margin Improvement in the Industry
General and Administrative Expenses (G&A) EBITDA MARGIN (1H08) Streamline Organizational Structure Shared Service Center System Integration & Process Review Zero Based Budgeting 21% Matrix Budgeting Drivers of Efficiency Gains Cost of Services (Faculty) - Salaries’ Negotiation in Rio (Teachers Union) 11% - Modularization: Flexible Entry - Common Courses - Standardization of Programs - On-Line Courses Distance Learning Extra-Class Activities
Average Peers ESTC
Widest Scope for Margin Improvement in the Industry 9 Margin Improvement: Opportunities on G&A Expenses
• Streamline of organizational structure Streamline • Process Standardization (Shared Services of Corporate Centers) Processes • BackOffice Centralization: Procurement / Accounting / HR / Legal / Accounts Payable / Treasury / IT / Real Estate Management
• SAP: Already running in all our Units Integrated Systems • SIA: Academic System - running in all our units by 2008 YE
• Zero Based / Matrix Budget Zero Based • Internal / External Benchmarks Budgeting • Best Practices Sharing
Margin Improvement Opportunities 10 Margin Improvement: Opportunities on COGS - Faculty Costs
Increase Faculty wages below Labor Agreement - Rio inflation
Academic Reform Increase the number of students per class
MODULARIZATION: Reduce Course Pre-requisites / Reduce Attrition / Flexible Curricula
COMMON COURSES: Same Course for Different Programs (Languages, Math, etc)
STANDARDIZED PROGRAMS in all our campuses
DISTANCE LEARNING: Increase usage of on-line activities (up to 20% of Schedule)
Margin Improvement Opportunities 11 Significant Growth Opportunities
• Post-secondary education market highly untapped Organic Growth • Maximizing growth opportunities in São Paulo and NE Markets • Upgrading Colleges to University Centers • New programs and seats
• Market share relevance – expansion and consolidation Acquisitions • Strategic fit – compatible market positioning • Priority for university centers • Take advantages of potential synergies
Distance • Opening a new market; reaching new segments Learning • Produce and distribute Estácio s own learning content • Marginal CAPEX - sunk costs
Significant Growth Opportunities 12 Deeply Discounted vs Domestic and International Peers
Education Sector
Average 2009
Peer Comparison EV/EBITDA P/E
Brazil 12.7 16.1 Estacio Offers US 11.8 22.3 a Huge Upside Opportunity International 13.2 23.9
ESTÁCIO 9.1 6.6
Brazil -28% -59%
Discount Vs US -23% -70%
Global -31% -72%
Based on Market Consensus
Education Sector 13 Asset Light Model: No Investment in Real Estate
Best ROE in the Industry in Brazil
Best ROE In Industry Return on Equity (June 08)1: 20%
ESTC R$891 x Industry Lowest PP&E per Student Average of R$2,004
High Mobility to Grow
Source: Company Data 1 – LTM Net Income / Shareholders Equity
Efficient Business Model 14 Analyst Coverage & Forecast: Stock Coverage picking up recently
Analyst Coverage & Forecast
R$ million 2008 2009 2010 2011
Report Target Net Net Net Net Net Net Net Brokers EBITDA EBITDA Net EBITDA EBITDA Date Price Revenue Income Revenue Income Revenue Income Revenue Income
UBS 06/16 R$ 50 963 120 116 1,166 163 166 1,334 206 196 1,528 259 244 Morgan 134 1,295 251 169 Stanley 07/07 R$ 47 949 122 103 1,025 165 1,122 192 147
Itaú 09/02 R$ 44 963 119 103 1,237 192 185 1,634 261 214 2,019 362 287
Unibanco 09/24 R$ 34 975 110 103 1,183 156 112 1,563 238 117 2,037 350 144
Fator 09/09 R$ 33 964 119 86 1,142 171 134 1,305 225 175 1,493 295 227
Safra 05/26 R$ 30 946 104 96 1,031 131 122 1,279 166 141 1,407 220 189
Average 960 116 101 1,131 163 142 1,373 215 165 1,630 289 210
Analyst Coverage 15 Financial Highlights
(R$ million) 2005 2006 2007 1H07 1H08
Net Revenue 762 829 860 428 476
EBITDA ex rental1 124 164 172 82 92
EBITDA Margin ex-rental 16% 20% 20% 19% 19%
Adjusted EBITDA1 56 96 101 47 51
Adjusted EBITDA Margin 7% 12% 12% 11% 11%
Adjusted Net Income2 23 60 81 31 43
Net Cash (48) (4) 229 41 256
(1) Adjusted in 1H07, to the payment of taxes in jan/07 (SESES became for profit in February 2007) and to extraordinary items in 2Q08 (2) Excluding goodwill amortization from acquisitions and extraordinary expenses
Financial Highlights 16 Annex
17 Sector Overview – Significantly Untapped Demand
Largest market in Latin America, with low penetration rates and increasing demand for qualified labour
Post-secondary Enrollments – (Unesco – 2005, million) Gross Enrollment Rate (Unesco - 2005) 83% 23.4 71% High Growth Potential 65% 17.3
48% 11.8
9.0
22% 24% 24% 4.5 4.0 11%
China USA India Russia Brazil Japan India China Brazil Mexico Chile Argentina Russia USA Post-secondary Institutions in Brazil (units) Total Enrollments (million) 4.7 4.5 4.2 3.9 3.5 3.0 74% 73% 1,934 2,022 72% 1,789 71% 1,652 1,442 70% 1,208 69%
31% 30% 29% 28% 27% 26% 183 195 207 224 231 248
2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006 Source: INEP/MEC Public Private Public Private 18 Positive Sector Dynamics Sector Overview: Highly Fragmented Market
Top10 largest post-secondary institutions account for less than 20% of total enrollments1
Top 10 Non-Government Institutions Market Share (2005) Non-Government Institutions (number & Size)
Based on Number of Enrolled Students
17.4% 5K or more 131 173 2K < 4.9K 500 < 1.9K 616
Up to 499
1,014
82.6%
10+ Others
3.3 million enrollments 1,934 Institutions
High Potential for Consolidation
(1) Source: Hoper Educational (2005)
Positive Sector Dynamics 19 Sector Overview - Regulatory Framework
Institution Benefits Costs
Autonomy, guaranteed by the constitution, to create programs within the city (except for 1/3 of faculty must hold a master or PhD degree Medicine, Law, Psychology and Odontology) 1/3 of faculty must be in full time regime or must Allowed to create campuses outside the city, offer 3 master programs with CAPES (ministry’s University subject to authorization by the Ministry of Education graduate coordinator) recommendation (MEC) Need to conduct research Ability to register diploma without the MEC authorization
Autonomy, guaranteed by federal gov’t decree, to create programs inside the city, except for 1/3 of faculty must hold a master or PhD degree Medicine, Law, Psychology and Odontology University Centers 1/5 of faculty must be in full time regime Ability to register diploma without MEC Not allowed to create other campuses outside the authorization city No need to conduct research
No autonomy to create new programs, vacancies No minimum requirements on faculty qualification or to register diplomas without the MEC Colleges or hours of work ( full time regime) authorization
Regulatory Framework 20 Undergraduate Students and Net Revenue Growth
Students (thousand) Net Revenue (R$ million)
860 205* 829 762 178 173 167 162
476 428
2005 2006 2007 1H07 1H08 2005 2006 2007 1H07 1H08
* Includes 5 recent acquisitions
Financial and Operational Performance 21 Cost of Services and SG&A (R$ million)
Cost of Services SG&A
Gross Margin: 38.9% Gross Margin: 39.3%
R$142.2M ( 29.9% NR*) R$261.4 M R$288.9M 2.2 Extraordinary Items 5.3% 4.7% R$116.1M (27.2% NR*) 3.1% 3.5%
14.7% 15.5%
140.0 116.1 76.9%. 76.3%
1H07 1H08 1H07 1H08
Faculty Rentals Third-Party Services Others *NR = Net Revenue
Financial and Operational Performance 22 Adjusted EBITDA and Net Income (R$ million)
Adjusted EBITDA1 Adjusted Net Income2
81
CAGR 34.3% CAGR 87.7% 101 60 96
43
56 51 31 47 23
2005 2006 2007 1H07 1H08 2005 2006 2007 1H07 1H08
1 - Adjusted in 1H07 to the payment of taxes in January 2007 (SESES 2 - Excluding goodwill amortization from acquisitions and extraordinary expenses became for-profit in February 2007) and to the one-off expenses in 2Q08
Financial and Operational Performance 23 Capex (R$ million)
47.8 Acquisition
21.2
Organic
12.1 26.6 Acquisition 4.3 Organic 14.5 7.9 7.8
2Q07 2Q08 1H07 1H08
Financial and Operational Performance 24 Capitalization and Market Data
R$ Million 06/30/08
Shareholders Equity 441.8
Debt (0.3)
Net Cash 255.9
Sound balance sheet and strong cash flow support our key position as one of the main players in sector consolidation in Brazil
Free Float: 25.2%
Brazilian Investors 36%
Foreign Investors 64%
25 Financial and Operating Performance IR Contacts & Disclaimer
Investor Relations Team:
Av. das Américas, 3434 - Bloco 7 - 2º andar Lorival Luz – CFO Cep 22640-102 Barra da Tijuca - Rio de Janeiro Carlos Lacerda – [email protected] Fernando Santino – [email protected] e-mail: [email protected] Phone: (55) 21 2433 9789 / 9790 / 9791 Fax: (55) 21 2433 9700 Visit our website: www.estacioparticipacoes.com/ir
Disclaimer:
This presentation may contain forward-looking statements concerning the industry’s prospects and Estácio Participações’ estimated financial and operating results; these are mere projections and, as such, are based solely on the Company management’s expectations regarding the future of the business and its continuous access to capital to finance Estácio Participações’ business plan. These considerations depend substantially on changes in market conditions, government rules, competitive pressures and the performance of the sector and the Brazilian economy as well as other factors and are, therefore, subject to changes without previous notice. We are a holding company, and our only assets are our interests in SESES, STB, SESPA, SESCE, SESPE and IREP, and we currently hold 99.9% of the capital stock of each of these subsidiaries. Considering that the Company was incorporated on March 31 2007, the information presented herein is for comparison purposes only, on a proforma unaudited basis, relative to the first three months of 2007, as if the Company had been organized on January 1 2007. Additionally, information was presented on an adjusted basis, in order to reflect the payment of taxes on SESES, our largest subsidiary, which from February 2007, after becoming a for-profit company, is subject to the applicable taxation rules applied to the remaining subsidiaries, except for the exemptions arising out of the PROUNI – University for All Program (“PROUNI”). Information presented for comparison purposes should not be considered as a basis for calculation of dividends, taxes or for any other corporate purposes.
IR Contact Info 26