Anima Holding SA
BOVESPA:ANIM3
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Anima Holding SA
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[Interpreted] Good morning, and welcome to the conference call of Ânima Educação for the earnings for Q1 '19. We have with us Mr. André Tavares, Chief Financial Officer; and our analyst for investors. It's important to say that the company may -- released yesterday in its IR website a video explaining its results for the period. So therefore, this conference call will be solely dedicated to the Q&A session. Participants will be able to ask questions in Portuguese and in English, and the company will make the transcript available in both languages in the IR website. [Operator Instructions]
Today's live webcast is available on Ânima's website, www.animaeducacao.com.br/ir and also on the MZiQ platform.
We'd like to clarify that any declarations made during this conference call concerning the business perspectives of Ânima, projections, financial goals are based on beliefs and assumptions of the company's management and also on information currently available.
Forward-looking statements do not guarantee future performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, sector conditions and other factors may affect the future results of Ânima, which may lead to results that will differ materially from those mentioned in the forward-looking statements.
Now we pass the floor to Mr. André Tavares. Mr. Tavares, you have the floor.
[Interpreted] Good morning. I'd like to thank all the participants for your interest in our conference call. As you can see, yesterday after the closing of the stock market, we made available on our website a release with the earnings and as we have done in the previous 3 quarters, we have a video presenting the results. This in order to have more efficiency and optimize your time and our time.
I would like to say that in Q1, because of the IFRS 16, the new accounting standard, we created a new attachment, Attachment 5 in the release, and we also made a video, which is on our website in the Investor Relations part, a video explaining the effects of this new accounting standard, IFRS 16. We believe that this video and this attachment will clarify all the points for our investors and for the markets in general the effects of this new accounting standard.
Thus, I believe we can go directly to the Q&A session.
[Interpreted] [Operator Instructions] The first question is from Itaú Bank.
[Interpreted] Congratulations for the results. Two questions. The first, could you give more details about the measures in J2A that brought the good results in the retention rates in this quarter? Second question, could you give details about the competition dynamics during this cycle?
[Interpreted] Okay, Vitor. Thank you for the questions. J2A was one of the pillars of our strategy and most of the efforts in the digital transformation we have made in Ânima that we included in the release, they are aimed at J2A. They are aimed at J2A. We began seeing that we had a very superior academic quality, but our services to the students were not on the same level as the academic quality. So we created these squares. In this quarter, we had 2 victories. Everything 100% online for students. This helped to speed up and decreased the number of students that were able to capture less disciplines. This, by itself, had a good effect. We mapped a positive effect in dropouts, and we also created from now on in 2019, we will have a solution where enrollment -- the capture of enrollment will be easier through an app where they will use their grade in it to come -- to be part of our schools. So most of the squares are directed for this, to improve services so the student will feel that these services now have a superior quality with everything online as good as the academic part. We also highlight that students can now receive their diploma in a much faster way and in an automated process for obtaining the diploma. Much better than before. So we made a series of small wins, a series of quick wins, which are improving the perception on the part of students concerning the services rendered to them, apart from the academic services.
Now concerning your second question, competition in the main cities. We see that in general, in all the cities, we have more competition, competition is more fierce. And especially in the region of Belo Horizonte and São Paulo, in these 2 cities. And this has had an impact in a more significant way our locus, we call, the base block, which are the more mature operations. We have noticed with a lot of attention this competition, most of the growth of the company has come from the other 2 blocks, the organic expansion in the other block, but in the base block, you saw that although we did not grow, we now have a better operational margin. So this is our intention to grow even in the base block, but if this is not possible, the company will continue growing in the other blocks and continuing with the efforts to recover margin.
[Interpreted] Mr. Leandro Bastos from Citi has a question.
[Interpreted] Two questions. The first is on the mature cities. We saw the drop in revenue, also the tickets and also based on the comments, your initiatives to increase efficiency. Please comment more on these initiatives. And what opportunities do you see in this segment? That's the first question. Now concerning the tickets, it is under pressure. You have focused on this topic and the company's strategy, yes. And when you talked about the pilot [ MGC ], can you share any learning after this, the beginning of this project, and also pricing to help the company's average ticket?
[Interpreted] Well, thank you, Leandro for your questions. Now concerning the drop in the mature bases, the mature cities, it is exactly as you said. The markets -- these markets have been more competitive, more competition. We've seen more difficulty in growth, but we have worked to optimize the teachers work. We have reviewed the administrative structures. We're working on them. So this lack of growth in the base cities may not put pressure on our margins more than we have already had pressure. We had strong pressure on the tickets, especially in these mature markets, the base markets.
Now considering optimization of the portfolio, what we want. We're concluding some analysis concerning bringing together some courses, joining some courses and joining some units. Those that are located geographically close ones to the other. We made an analysis of convergence of these campus. And we're trying to optimize these units, especially the administrative structure of these units, thus sharing in expenses and also geographic proximity. And also I believe we should have more actions now in 2019 and especially in the second semester -- first and second semester.
Now concerning the tickets, we have been talking for some time that this is the main concern of the company's management. We have focused a lot in doing more granular analysis. And we want a more intelligent pricing system -- a pricing policy. We did this in São Judas in the 2 campus we have there, and we believe that we need to evolve a little more in our testing. In 2019, we have a new dynamic. The first semester has a dynamic that is a little different in terms of capturing students and also the interesting -- the students that are interesting for us. We want to run more tests in Q2 in 2 or 3 units so we can observe the behavior and the impact of this test, whether in the dynamics of the first semester or second. And thus in 2020, we will make a decision to scale the [ MPC ] or not. But we're very committed and we have defined some actions that I believe for this second semester, we will be able to improve these trends, to have a drop. And we continue very focused on the strategy that we have to give discounts in the first and second months, and discounts linked to merit on the part of students. We know that if on one side we lose a little in the ticket, we win both in academic performance and also better dropout rates when we accept the students that has better grades from the [ NM ] test. So these are the points I would like to highlight. We continue very committed in really changing the situation, this trend.
[Interpreted] I'd like to congratulate the adoption of IFRS 16. The explanation was very good.
[Interpreted] Thank you.
[Interpreted] Mr. Guilherme Palhares from BTG Pactual has a question.
[Interpreted] Please talk about some financial points directly linked to the dropout rate in the company. I would like to understand another 2 points. Marketing, we saw that the company had a stronger marketing. How will this continue during the year? And also the point about the qualifications. And firstly, I'd like to understand the effect of this on revenue, especially organic expansion because...
[Interpreted] Okay, Guilherme. Thank you for your questions. Concerning the discounts, what we did, they increased a little, they went up a little in relation to last year. What we did, Guilherme, we gave incentives. We motivated students to enroll before the end of the year for the next year. So the students could anticipate their registration, their enrollment for the next year. We gave a little more discount, always focusing on interest and penalties -- fines. We don't have any type of discounts on the principal, the main part of the monthly fee. So it is not our desire, it's much more important for us or it's more important for us for the student to be able to enroll and stay longer, continuing until the end of the course and graduating. This is more important for us than making their lives difficult in terms of renegotiation. So all the effort we made was to give a little more discounts in the interest for those students that were delinquent, as long as they anticipated their re-enrollments and pay the monthly fees and arrears and enroll for the next year. And thus we see an improvement in dropouts, and we believe this is very sustainable.
Now concerning marketing expenses, it's true. We had an increase, a significant increase in the expenses with marketing in Q1. We believe this was in 2019. We have more expenses and Q1 was marked by the inaugurations of the new units. We inaugurated 8 new units. We had these in our durations, 8 units. And this consumes a lot of resources and advertising because you have to tell people that you are arriving in that suburb, in that city. So our brands are present in some cities but you have to spend more, communicating your presence and your arrival and inaugurating the new units, the 8 that we mentioned. Those that are opening their doors in 2019. We believe that because of this, during the year, certainly, we will increase advertising expenses in relation to 2018, but not at the same level as in Q1 in relation to Q1 '18. So there will be an increase in advertising, but on a lower level in relation to Q1 when we had a lot of concentration of new units. And this is it.
Now concerning acquisitions, for example, CESUC, FACED. We placed them in the organic expansion block. We understand that they follow the logic of organic expansion, adding students, adding muscle to the units we already had in those cities, in the case of Catalão, Jaraguá do Sul, Jangada, Divinópolis, FACED, these operations, most of them already integrated with our units. So we believe that they are accelerators of organic expansion, and not a real M&A. And they represented in terms of revenue together BRL 7.1 million, this block. Of course, in this block, we have this, and also strong growth of the units that were inaugurated now in 2019, and also parts of the units inaugurated in the previous year. CESUC, Jangada and FACED were not there in Q1 '18. So this is their impact on revenue with organic expansion.
[Interpreted] Yes. Clear answers. Just a follow on. Do you believe the 8 new schools are in operation? Did they capture well? And these expenses with marketing are for these 8, can you give us numbers?
[Interpreted] These 8 new campus have begun to operate, yes. They captured well now in 2019. These are new campus in São Judas and São Paulo in the Metropolitan region in São Judas 2, also another campus in Florianópolis and another 2 in Itumbiara and Conselheiro Lafaiete. These 2 cities. They are all in operation. All of them had good results in obtaining students and enrollments. We communicated to the markets. We released this information. They captured 2,400 students, these 8 units opened in 2019. All of them are in line with the business plan that we prepared previously for them. And concerning advertising expenses, what we can say is these expenses are in line with what we had foreseen for the inauguration of these units. And I believe we will have a better idea of these volumes, hence, we report these units in a more normalized situation in relation to expenses with advertising.
[Interpreted] Mr. Luiz Garcia from Bradesco has a question.
First, a follow-up on tickets. If you could give us details where you feel pressure from competitors who are close with an aggressive price policy? Is there pressure coming from other courses, GIT? So where this pressure is coming from affecting you because of competition? The second point, the market has tried to compensate this with GIT, a segment with high margins. So since it's not your focus, GIT but we would like to talk about 4.0, how is the project? You wanted to accelerate and you decided not to segregate this. So I'd like to know how things are. When can we see you accelerating more? This may be a factor that will compensate the price drop.
[Interpreted] Okay, Luiz. Thank you for your questions. Concerning the tickets, we have felt a stronger pressure, especially in the metropolitan regions, Belo Horizonte and São Paulo, and I believe that this pressure has come from closer competitors. Competitors that are close and not distance-learning. Of course, distance-learning also becomes a substitute product, but in our vision, competition has been stronger from schools close to us. We see actions from players that were not aggressive and now are becoming aggressive. So the competition is concentrated on schools. We also had brick-and-mortar schools. We also had an impact on the ticket from the new units, the 8 new units that I mentioned that we inaugurated in 2019. One of the actions that we have during inaugurations for the first semester, students that enrolled during the inaugurations, they received more discounts as we had in the first semester of 2018, and we know that these units have a more normalized tickets as of the second semester. So as of the second semester, the same should happen with these new units with a more normal ticket in relation to the first semester when we had these actions for the inaugurations.
Concerning 4.0, our hybrid product, we believe it's very early, it's still early. We made an experiment with 4.0. It captured students but it's not relevant still, but it was within our expectations. So right now, we are evaluating the enrollments, the captured students, the margins that we are having in order to have an internal discussion, whether we should put more focus on this product, 4.0 or not. It's still early to talk about this, but we are alert to this experiment, and it has followed the results or following logic. And we launched 4.0 in cities where people -- where we're not having good performance in physical classes. We have analyzed the cities and seen in which cities we may have a better performance of 4.0. But I'd like to say that we believe that the future is hybrid, and students should choose different degrees of class or without class. We have done very well with EBRADI. You can see that the performance is good and growing. Both in HSM and also EBRADI, which are 100% online courses and are in accordance with our proposal to take postgraduate courses where students have more autonomy, when students can, as we say, be -- have more autonomy and with very high quality material. And this product is 100% online with a participation of authorities in this field. And I believe that they should learn to see what we can do. We launched HSMu, which has the same proposal as EBRADI for management courses, administration courses. In postgraduate courses, I can tell you that we're very optimistic with the online trend. And we're evaluating the performance of 4.0 for graduation.
[Interpreted] Just a follow up in 4.0 for graduation. It's not unique to study more, I believe. Your decision is between focusing or not focusing on this. Is it a single unique decision for the whole operation? Or if you're not satisfied, do you plan to divide this, focus on certain units not in others?
I believe that as I said, we don't have a decision yet. It's possible, yes, to have more focus in using 4.0 in some regions only. Yes, that's possible. To have more focus in some regions with 4.0.
[Interpreted] Mr. Caio Moscardini from Morgan Stanley has a question.
[Interpreted] Two questions. Could you comment more on the project E2A, the majority of the units opened is -- also we should see -- should we see more expenses with the actions to retain students or these efforts were concluded?
[Interpreted] Thank you, Caio, for your questions. I believe you understood well what we said in the viewed video concerning Q2A. Q2A is the project that has been more important for company growth, and we know that especially initially in the beginning, it consumes margins in the first years of its operation. So what we did looking at the good results that the 3 acquisitions that we made last year gave us: CESUC, Jangada and FACED and Divinópolis and how these operations had excellent results when we add these acquisitions to our other operations in those cities. So these are giving us results. Thus we can make margin and also win scale in the city. These are operations that are good for everybody. All these operations that we mentioned, CESUC, FACED when we visit these cities, the students, the teachers who worked in these schools said that they appreciate very much now being with Ânima. For example, CESUC and FACED with a brand so it's a win-win situation. We are accelerating expansion. We're improving the margin of this block of these units. Teachers and students are very happy. Employees, too, are very happy. They feel that they are winning for being with Ânima.
So for next year 2020, the units that will be inaugurated in Q2, we made a small change, giving more focus on these acquisitions that bring a positive operational margin to our campus instead of inaugurating greenfield schools, which are important. They bring growth but they consume margin in the beginning. So this is a change that we are making. It's a tactical change for the years 2019 and new units in 2020. We're very optimistic with Q2A, and we hope to see the majority of these units, and to make more successful acquisitions, channel and growth with a good profit, a good margin. In terms of personnel, we have continued in a strict way to classify what is recurrent and nonrecurrent. We even reported lower levels of nonrecurrent that we had reported in Q1 '18. And I would say to you that we're still following -- we're very committed in obtaining efficiency gains to have a more lean, a more fast -- a faster company with more automated processes in order to have structures with a quicker response and a more lean company. We're very committed still in searching for new opportunities for efficiency gains whether it be in general expenses or in payroll.
[Interpreted] One more question, concerning M&A. We've seen a very competitive market. So what we can understand is that the smaller schools must be suffering much more than the larger schools. And this would facilitate consolidation, the acquisition. How do you see this market, M&A?
[Interpreted] The M&A market has -- we are always alert to opportunities in this market, and we look at the market in 2 ways, smaller acquisitions, as I mentioned, in your first question. That catalyst for Q2A, where we have had a significant success, whether it be in a transformational M&A, acquiring strong brands with potential for growth in their regions. M&A is always a binary thing. So what we have seen in the market is that your analysis is correct. We have been able to have more traction, more adherence in conversations with smaller institutions in the cities where we are present. They're interesting for us than larger institution schools. We're always observing this market. We're always looking for opportunities. And I believe that we have had a greater speed in the negotiations, a better convergence and interest in these operations that are smaller. You are right. And these are catalysts for our organic growth.
[Interpreted] [Operator Instructions] Since there are no more questions, I'd like to pass the floor to Mr. André Tavares for his final comments.
[Interpreted] I would like to thank once again all the ladies and gentlemen for participating in our conference call, for your interest in our earnings, and I would like to say that we continue with a strong agenda. We're very committed to increase our margins with -- based on the drivers that we make clear. So we hope 2019 will be a promising year, much better than 2018, and we continue committed to deliver these results, better results and sustainable results, especially in the medium and long term for all our shareholders. Thank you for participating, and we wish you a good week.
[Interpreted] Thank you. The conference call of Ânima is concluded. We thank you all for participating. We wish you a good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]