Anima Holding SA
BOVESPA:ANIM3
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Anima Holding SA
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Good afternoon. Welcome everyone to Anima's Second Quarter of 2018 Call. Today with us, we have Mr. Marcelo Battistella Bueno, CEO; Gabriel Ralston Correa Ribeiro, is the Strategy and IR Vice President; and Mr. André Tavares, Chief Financial Officer. [Operator Instructions] Today's live webcast may be accessed through the Anima website www.animaeducacao.com.br/ir and NZIQ platform.
Before proceeding, we would like to mention that during this conference call, forward-looking statements may be made relating to Anima's business prospects, operational and financial estimates and goals, based on beliefs and assumptions of Anima's management and on information currently available. Forward-looking statements do not guarantee performance. They involve risks, uncertainties and assumptions because they relate to future events. They therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, sector conditions and other operational factors could also affect Anima's future results and could cause these results to differ materially from those expressed in such forward-looking statements.
Now I will turn the conference over to Mr. Marcelo Battistella, who will begin the presentation. Mr. Battistella, you may begin your conference.
Good afternoon, everybody. First of all, it's a great honor to be here. It's a great honor to do this first conference as the CEO of Anima, and I'll be short, because everything -- all the changes in management that we have just announced and can say as itself. So the first message that I want to say is that our weak results based on profitability, most on deterioration and acquisition especially of UniSociesc and SG&A expenses is something that we don't like, as the CEO, as a team, as a company, as a shareholder, as a founder. And publicly, I would like to say that before the compromise to face that with responsibility, execution, simplicity and results. So we will do that. And publicly, I want to do the compromise to all of you in the beginning of this new challenge I am facing. Now I will pass to Gabriel to give the presentation and hop into Q&A. Thank you.
Thank you, Marcelo. Good afternoon, everyone. Thank you for attending our call. As usual, we're going to use the presentation that was made available in our Investor Relations website and I'll start just with the highlights of this first semester on Slide 3. Or as Marcelo mentioned, that the governance changes that we announced last night, I think it comes in the right timing to clarify better the roles between the different stakeholders and management team, the Board of Directors and shareholders, and we expect that to help on the decision-making process, making us move much faster than what we have done so far.
The tone of the semester and the quarter is obviously not positive. But I think it's important to highlight some of the achievements that we have been and the progress we have been able to do together. We changed our commercial strategy 1.5 years ago, and so far, I think that the overall results are very positive. It's the third consecutive intake cycle that we have a good growth -- sound growth, sustainable growth, not only looking at the new campuses but also on a same-campuses basis, and I think it's a matter of time as we continue to improve that strategy. We also made good progress in the opening of new sites, our new campuses. It's been 14 new units since the last 18 months and 7 just in the last semester. All of them are performing in line or better than the business plan. If you look at the first year of operation, and especially on the healthy intake cycles that we had in all of them. We just announced that 2 very targeted acquisitions in cities and towns that we already have a physical presence, increasing and consolidating our presence in those locations, 1 of them in the midwest town of Catalão and the other one in the countryside of -- Santa Catarina with the [ Sociesc ]. So I think it's, as we did in 2016, we're now advancing with the target acquisitions to make sure that our organic and semi-organic growth plan goes as fast as possible.
We rolled out the new academic model, the competency-oriented curriculum, with high engagement from the academic community, with good and positive feedback from the students given that we had all the new freshmen already in this new academic model for the whole semester, and it has gone nice and smoothly again with the full engagement of all of our academic community.
And we also took time over the last few months to update our strategic map, and that is helping us to make the right choices and the conscious choices to what is going to come for the future.
Now as I said, efficiency and margins recovery, as Marcelo highlighted, are below our expectations. And to attack that and to fix that, we just and already started to execute G&A, aggressive G&A expenses reduction plan that should drive reductions of about BRL 35 million on an annual basis when fully implemented. As I said, it's already under execution. And we expect to have it fully executed within the third quarter so we can see already some benefits in the fourth quarter and in the year of 2018. We also had an efficiency gap -- in classroom efficiency gap, specifically in Sociesc that caused the profitability of our acquisitions go back 3.5 percentage points in the semester. Note, we still have a long way to go in terms of bringing the efficiency of those units to the same level as we had in the original -- on the mature campuses, and we're already fixing that. I'm going to talk a little bit more throughout the presentation.
And finally, as the new academic model is rolled out, we expect not only the academic benefits of this new model but also some efficiency that should come especially in the second and third year of implementation. Going specifically into the numbers of the semester. Looking around a consolidated basis, on Slide 5. We see net revenues reaching BRL 542 million, a growth of 5.2% over the same period last year. Highlighting the educational segment, it is a 3.7% increase and a big help from the other business with 52.6% but still a smaller proportion on the total revenues, and still also impacted by the seasonality of some of the HSM events. On the margin basis, the 2.7 percentage points decline is mostly driven by an increase in commercial expenses and the corporate expenses. On the commercial expenses side, it's -- I think it's a reflection of the environment that we are going through externally, a lot of competitiveness around. On the corporate side, we're already expecting that as we did some of the centralization and consolidation process throughout last year and looking forward, the reduction plan is going to attack exactly that.
Opening up the numbers to look at education segment. On Slide 7, we see an increase -- the increase on student base, overall student base reaching 97 -- almost 97,900 students with a growth of 2.9%. The growth of undergraduate students is a little bit higher, 6% and you see the details on the following slide. And on the consolidated basis, it was impacted by the decline of business learning, as expected, as we discontinued the intakes for this segment but also the challenges on the graduate programs that we're still facing.
Going back to the undergraduates. 6% growth on the total base, still impacted by a higher dropout. When we double-click what happened to our dropouts in this quarter, we see that overall, the student base for students that have been already studying with us second, third and fourth year has not increased, they keep at the same rate as we have last year, and all of the increase is driven by freshmen. And that is a little bit increase on the total number because not only the number for freshman was higher but also the mix of freshman on the total base is also higher, given the good intake cycle that we had. We are -- we are right now under the reenrollment process, that should continue over the next 2 or 3 weeks, when the bulk of the students that still have not reenrolled are going to come to the campus to reenroll, and we expect to close some of the gap. We're working hard to close some of the gap during this reenrollment process, no, from the dropout that we saw throughout the semester.
On Slide 9, we see the net tuition -- net average tuition increase, which has been basically flat throughout the whole semester, with a slightly improvement in the second quarter. We were expecting a little bit more improvements as some of the discounts that we gave in the first quarter are not -- they don't exist in the second quarter, and that actually happened when you isolate the impact of discounts, the impact of discounts in the second quarter is much smaller than what we saw in the first quarter. But that was offset by changes in mix. So we ended up with basically a flat tuition level throughout the whole semester.
On Slide 10, breaking out net revenues and operating results. Similar to what we saw on the consolidated numbers, gross margin was slightly down versus the same period last year and -- but the bulk of the margin decline comes from commercial expenses increases, given the environment that we are facing.
Double-clicking on the following slide and we have been breaking out the results, grouping the different stage of maturity of our campuses. Looking first at the base business, or the more mature campuses where we have the São Judas original campus, UniBH, Una in the Metropolitan area and we see that we still have a challenge of growth there. Our net revenues was almost flat, 1% decline versus the same period last year, and margins were down 0.9 percentage points. This is more -- the issue there, or the challenge there is more concentrated at the metropolitan region of Belo Horizonte, partially offset by a better results in the São Paulo metropolitan area with the [indiscernible].
Looking at the acquisitions. As I highlighted, we were slightly down in terms of revenues, 3.8%. A lot of that decline is driven by both the business learning, which is big, used to be big in Sociesc and also the graduate problems, again at Sociesc and the graduate business there is doing fine in terms of growth. But we have a decline of 3.5 percentage points in operating results. Here, a combination of, similar to what we see in the other piece, slight increase in the commercial expenses but also a decline in gross margin. And that was mostly driven by, again, a worse ratio, of student per class ratio in the -- in our campus in the South region. When we double click or when we further analyze what happened there, I think we prioritized growth in that region without having all the systems and the technology fully control the student per class ratios, and now we are having to fix that. We already have all the systems in place and we have a task force right now working at UniSociesc to again, reverse that trend and capture some of the benefits already for the second half of the year. And overall, the new campuses, the organic expansion is driving a lot of the growth for -- both on the student base and net revenues. It's improving in terms of margins in line with their business plan, but it's still diluting overall margins as they still -- a single digit margin when you look at them on an isolated basis.
Advancing on other business on Slide 13. We see a nice progress in terms of both net revenue and also operating results. When we double click here, HSM is still influenced by the seasonality of the events and the big -- I mean, the big events coming in the second half of the year to guarantee the full year results. But when we look at EBRADI, our law degree -- the law programs, online programs, which is only in the second year of operation, it's going better than the business plan overall in terms of margin and in line in terms of sales, which is good news as it's already -- it's a break-even levels, slightly positive margin in this first half.
Advancing on Slide 15, just talking a little bit more about corporate expenses. We did a reclassification, moving some of the items that were previously classified as corporate to being accrued back to the unit, mostly related to commercial teams, commercial compensation, variable compensation and call centers related to sales. We were managing that centrally, so we'd originally -- was accounted as corporate expenses. But we realized that given the nature and the variable piece that is naturally involved in those expenses, we are reclassifying that backwards to the units. When we look at the number without that, I think this is one of the main challenges, as Marcelo highlighted, I think the main focus right now after the centralization and standardization process that we went through last year, is to eliminate redundancies and simplifying process. So this is where we see the opportunity to reduce G&A to an amount that, when fully implemented, is going to drive an economy of our gain of BRL 35 million on an annual basis.
Just to highlight some of these nonrecurring items that we have excluded from our results. The first one is restructuring expenses, again related to this -- the whole process that we are executing, for about BRL 6 million in the quarter. And the other 2 is the GIT, which is basically the innovation and technology business in Sociesc which we are either discontinuing or transferring for Anima Institute, which is a nonprofit activity, that is not going to be consolidated in our numbers anymore. So excluding that of the number, gives us a better picture on a more comparable basis. And the final one, the adjustments for accounts receivable, I think this is the last quarter we're going to see that adjustment, which is related to the PN23 accounts receivable for FIES, as we just received the last installment related to that issue back of 2015.
Just to close on cash, we started the year with BRL 115.9 million in our balance sheet as cash, and we are ending up the semester with BRL 293.5 million. A lot of that growth is driven by the operating cash flow of the period, BRL 80.8 million. Changes in working capital, again related to the fact that we received the last installment of the PN23 accounts receivable of FIES, and the increase in CapEx of BRL 49.3 million in the period is related to the expansion plan that we're going through. We also issued a new corporate bond, a debenture, worth BRL 150 million in May to strengthen our cash position for the second half. So we are -- our financing is a net positive impact of BRL 109.7 million when we deduct the net amortization of installments that we have in previous debts. So all of that leads us, on Slide 19, to a net cash position of -- a net debt position, sorry, of BRL 197.8 million or 1.2x net debt-to-EBITDA ratio for the period.
Just -- so just to summarize and open for questions, I think as Marcelo highlighted, I think we're not happy with the results. I think that we have made advancements in several areas, but there is still challenges ahead and I think we have a very clear understanding or -- of where to attack. The new strategic map and the new government -- governance design are key enablers to help and to accelerate in that process. And there will be a lot of focus on execution going forward.
So with that, I'll open to questions.
[Operator Instructions] Our first question is from Thiago Bortoluci from Goldman Sachs.
I have 1 question for you guys, and it's about the Board of Directors. I know that profitability has been one of the key focus of the board since the Daniel Goldberg took place. Marcelo, you have a seat there. I'm curious to learn a little bit more, what is the topic today that generates more discussions, the topic that people there have opposite views and that generates more debate at the board level?
Thank you, Tiago, for your question. I think we did a step forward in the Corporate Governance of the company. It's a natural movement, segregating the board to the management, and it's one of the main challenges now. As you can see I'm -- stays only in the management and not in the board anymore for a while. So I think board should discuss more our strategic plan for Anima and improvements in all directions and leave the management to face all the initiatives we can face in the company, do all the plans that the management has to do here, related to growth, related to margin recovery. So I think it's a natural movement and I think Daniel Goldberg has done a great job, and now Daniel Castanho has a big challenge, to make our board stronger and support the management in all the challenges we have ahead.
If I could just follow up a little bit more on that. When you look to the board level today, would you say that there's a consensus view? Or there is any specific theme that generates a little bit of more debate between the different members that are sitting there?
It is direct consensus. As we know, we started that movement 1 year ago. So the board is supporting everything. There's a consensus. We think that we have to think about a new composition of the board, bringing the capabilities that we need to having Anima and that we need to have in our board as a digital capability, as orders capability, human resources capabilities. So I think this is a national movement and the board is aligned.
And if I could complement, Tiago, as the strategic map that we just updated was a process that involved a lot of people within the management team of Anima last year, but it was a process led by the board, and I think that we drove a lot of the alignment that we see today, and the support that Marcelo highlighted, after making sure that everybody understands and have the same plan in mind. So that previous movements of updating the strategic plan was the changes that we just announced, I think all goes in the right direction, which will not take any -- is not going to take any of the mindset of our -- the fact that they go back and post at the President of the board. No it's just going to complement what we already started.
[Operator Instructions] With no more questions, I would like to turn the floor back to Mr. Marcelo Battistella Bueno.
To finish, I would like again to thank Daniel Castanho and my partners. Daniel Goldberg, our former Chairman, and all other board members, thank all of you our investors and financial community, our teams, professors and staff for the support, trust and respect the [ positive ] person. Thank you very much, and count on me.
Thank you. Anima's second quarter results conference call is over. Have a nice day.