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KROT11
Unopar December 2011
2 2
Important Notes
The forward-looking statements contained in this document, including financial data and other estimates and assessments of the fiscal year
ending in 2011, relating to business prospects, projections of operating and financial results, and those related to the growth prospects of
Kroton are merely estimates and as such are based exclusively on the Management's expectations about the future of the business. These
forward-looking statements depend substantially on the approvals and licenses necessary for the projects, market conditions, and
performance of the Brazilian economy, the sector and international markets and hence are subject to change without prior notice. This
performance report includes accounting data and non-accounting data such as operating, pro forma financial data and projections based on
the Management's expectations. Non-accounting data has not been reviewed by the Company's independent auditors.
In the preparation of this document, Kroton assumed and relied, without assuming any responsibility for independent verification, on the
accuracy and completeness of all financial and other information and data publicly available regarding Unopar or provided to or otherwise
reviewed by or discussed with Unopar’s Management. With respect to financial forecasts and other information and data provided to or
otherwise reviewed by or discussed with Kroton related to Unopar, Kroton assumed that the forecasts and other information and data were
reasonably prepared by Unopar on basis reflecting the best currently available estimates and judgments of Unopar’s management as to the
future financial performance of Unopar, subjected to the same uncertainty factors as above.
Holders of shares of Kroton should take into account the information contained herein, in addition to other information made available by the
Company to the Brazilian Securities and Exchange Commission (CVM), notably its Reference Form and periodic financial information, also
under the acquisition of Unopar’s shares, capital increase and migration to the “Novo Mercado” of BM&FBovespa, in order to understand
their rights and what they should do to exercise these rights.
3 3
Main Events Since IPO
Source: Kroton and Unopar Notes: 1 LTM Net Revenues until June 30th, 2011 2 LTM growth until respective dates 3 Market cap on the end of the period. The end of 2011/1 considers the primary offer of the company’s follow on 4 Considers Kroton’s units @ R$19,50 (last price of December, 14th, 2011), a capital increase of R$600 mm (assuming 100% of float’s subscription) and R$260 mm in shares to Unopar’s Sellers 5 Combined company based on 1H11 for Unopar and November 2011 for Kroton 6 Combined company Net Revenues projected to 2011
2007 2009 2010 1H2011 2H2011
Post Secondary Students (‘000)
Net Revenues (R$ mm)
Event
Net Revenues Growth
Market Cap (R$ mm)
IPO Advent Investment and Capital Increase
Acquisition of IUNI Integration and Turnaround Follow-on Acquisition of Unopar
44 85 92 264
148 343 642 667 1,115
54% 26% 87% 47% 74%
881 1,106 1,428 1,701 2,544
18
1
4
2
3
5
6
4 4 4 4
Investment Highlights: Unopar’s Acquisition
Distance Learning is a business with strong cash generation and high growth Kroton becomes the leader of the Brazilian education market after Unopar’s acquisition The transaction is highly accretive for Kroton’s shareholders Kroton has a relevant integration track record with efficient use of synergies Controlling Shareholders and Unopar’s Founders are aligned with the transaction
5 5
Unopar: Largest Distance Learning Institution in Brazil
Source: Kroton and Unopar Notes: 1 For the non listed companies, # of students according to CM consultoria studies for 2010 (except Unopar, which is based on company’s numbers as of 1H11) 2 # of students as of 3Q11 to: Anhanguera and Estácio. Considers only students in high education
Distance Learning Students of Unopar DL Ranking in Brazil1,2
• 469 Accredited DLCs
• 422 Cities
• 399 Active DLCs
• 5 Onsite Campuses
1.8 11.9
38.8
70.1
102.6
104.6
111.2
123.4 145.6
2003 2004 2005 2006 2007 2008 2009 2010 1H11
DL Students (‘000) DL Students (‘000)
146
83
60 5753
49 4641
28 27
An
han
gue
ra
Un
iass
elv
i
Ulb
ra
Fate
c In
tern
acio
nal
Un
ip
Cas
telo
Bra
nco
Esta
cio
Un
iSe
b
FTC
• In-class Undergrad: 10.3 • Graduation: 6.0
Total: 161.9
6 6
DL: High Growth and Under Penetrated Market
Source: MEC, Kroton and CM Consultoria Note: 1 2009 Numbers
Historical Growth
Low Penetration
Growth Potential
1.9x
15%
29%
DL Students (‘000)
Share of DL as % of higher education students
DL students (mm)
1
CM Consultoria 370
728
838 930
2007 2008 2009 2010
0.9
2.1
3.1
2010 2016E 2020E
7 7
Unopar is a First-Class Cash Generator
• High EBITDA margin
• Low CAPEX as a percentage of net revenues ̶ Most of CAPEX is responsibility of each DLC
• Low Working Capital needs ̶ DLCs are paid every fifth working day of the month
subsequent to the effective cash receivable from students tuition by Unopar
Unopar’s Operational Cash Flow
Source: Kroton and Unopar
R$ million 2010 2011E
EBITDA 105 117
EBITDA Margin (%) 28% 28%
Operational Cash Flow 82 109
% of EBITDA 78% 93%
Adjusted operational Cash Flow to non- recurring items of CAPEX and Working Capital
82 94
% of EBITDA 78% 80%
EBITDA to cash = 75 - 80%
• Low taxation, average effective tax rate of 1.5%
8 8
Kroton + Unopar
Unopar’s Acquisition is Complementary to Kroton
Merger of two leader and complementary platforms
Geographical Complementarity
Unopar Kroton
Business Complementarity3
Campuses (#) 45
DLCs (#) 616
=
422 Cities
Campuses (#) 5
DLCs (#) 4692
467 Cities
1 + =
128 Cities 1
Campuses (#) 40
DLCs (#) 147
Post Secondary In-Class
K12
Kroton
20%
80%
Unopar
12%
88%
In-class
Distance Learning +
In-class
Distance Learning 55% 33%
12%
K12
Source: Kroton and Unopar Notes: 1 Not considering Basic Education schools which are not currently part of Kroton’s DLC 2 Certified DLCs 3 Participation of each business line in terms of Net Revenues (In-Class, Distance Learning and K-12)
9 9
111
162
2010 2011E
12
54
2010 2011E
+45.9%
10.9% 14.5%
Margin
168
220
2010 2011E
Kroton – EBITDA (R$ mm)¹
99108
2010 2011E
63
103
2010 2011E
375416
2010 2011E
1,016 1,115
2010 2011E
642 699
2010 2011E
Sustainable Growth of Revenues and Margins
Kroton – Net Revenues (R$ mm) Unopar – Net Revenues (R$ mm)2 Combined – Net Revenues (R$ mm)
Unopar – EBITDA (R$ mm)3 Combined – EBITDA (R$ mm)
Kroton – Net Income (R$ mm)¹ Unopar – Net Income (R$ mm)3 Combined – Net Income (R$ mm)
+ =
+ =
+ =
Source: Kroton and Unopar Notes: 1 According to company’s release criteria 2 Adjusted for Unopar reflecting Kroton`s accounting practices 3 EBITDA and Net Income for Unopar were adjusted and reduced compared to Unopar`s Financial Statements, in order to reflect Kroton`s accounting practices
+9.0%
+64.1%
+350.0%
9.8%
14.8%
1.9%
7.7%
Margin
Margin
105117
2010 2011E
+11.6%
28.1% 28.2%
Margin
+10.9%
26.4% 26.0%
+9.1%
Margin
+9.7%
+30.9%
Margin
16.5% 19.7%
10 10 10 10
The Acquisition Consolidates Kroton as a Leader in the Education Market
Kroton becomes the 6th largest company of the sector in the world3 in terms of market cap
+
#2295
226
157
123 103
Ranking – Post Secondary Students1
+
#2295
226
157
123 103
+
#2295
226
157
123 103
+
#2295
226
157
123 103
#3 398
292
264 248
162
122 102
Post Secondary Students (‘000)
EBITDA2
+
#2295
226
157
123 103
#2
+
#2295
226
157
123 103
+
#2295
226
157
123 103
+
#2295
226
157
123 103
+
#2295
226
157
123 103
2011E R$ (mm)
Source: Kroton, Unopar, Bloomberg, Capital IQ (Market Cap as of December 14th, 2011) and BMO Capital Markets Notes: 1 According to 3Q11 or last data available. Considers only publicly traded institutions 2 For Anhanguera and Estacio, based on the market consensus of the Capital IQ. For Kroton and Unopar, based on companies` forecasts 3 Considers Kroton`s units price as of December, 14th, 2011 , capital increase of R$600 mm (assuming 100% of float subscription) and R$260 mm of Kroton`s units issue to Unopar. For the other
companies market cap as of December 14th, 2011 based on Bloomberg and Capital IQ data
287
220
152
117
103
11 11
Kroton has Expertise in Relevant Integration Processes
Largest acquisition of
education sector in Brazil
2011
1o
Successful Integration: Post Secondary Impacts - 2010
Operational Margin (%)
0.5%
21.3%
Jan -Jul Aug-Dec
Dif. %: +20.8 p.p.
Average Monthly Net Revenues (R$ million)
41.7
45.9
+10%
Jan -Jul Aug-Dec
IUNI’s integration process was implemented in a fast and efficient way, successfully impacting results in the subsequent 12 months
Second largest acquisition
of education sector in Brazil
2010
2o
Source: Kroton
Integration challenges of Kroton / IUNI performed
in 2010:
40 Post Secondary units integrated at
the same time
80 thousand In-class
students integrated
8,000 employees and teachers involved
Largest Integration Process of the
Education Sector in Brazil
12 12
Unopar Integration Plan
Post Merger Integration methodology (PMI)
18 Integration teams
49 Projects
HR, Process, Systems and Projects Consultancies
Integration Structure
Integration Committee
Integration PMO
Integration Teams
Short-Term Management
Indicators
HR
Budget
Legal
Communication
Diagnosis Finance
Academic
Accounting
Students Managment
Distance Learning
Integration Managment
Marketing /Commercial
Operations
Regulatory
Supply
• Integration directions
• Decision making
• Methodology and mediation
• Consolidation and works alignment
IT
Source: Kroton
13 13 Source: Kroton and Unopar
New Businesses
DLCs Expansion
Business and Courses
Expansion
In-class
1 Distance Learning technical courses 2 Distance Learning corporate courses
3 High synergies with Kroton’s 777 Primary and Secondary Education schools 4 Opening of 70 new DLCs which are already certified
5 Distance Learning Graduation courses 6 Introduction of new courses in distance learning
7 New in-class courses 8 FIES expansion (low penetration in Unopar) 9 Faster implementation of the 20% of DL on Kroton’s In-class courses 10 Synergies between Kroton and Unopar Londrina’s campuses
Synergies already quantified to be captured in the short term
Top 10 Upsides and Synergies
Costs and Expenses Annual Synergies (R$ mm)
2012 2013
6.7 14.6
14 14
Transaction Overview
Notes: 1 Based on a discount of 6.39% over the weighted average of Kroton’s unit price of the last 60 days, until December 14th, 2011 2 Commitment to subscribe US$110 million at the exchange rate of the liquidation date 3 An amendment to Shareholders` Agreement of the controlling shareholders approved the migration to Novo Mercado in 2012
Acquisition Price and
Payment Conditions
Acquisition’s Financing
Migration to Novo Mercado
Acquisition of Unopar for R$1.3 billion
• Represents 9.9x EV/EBITDA 2011E and 10.6 x P/E 2011E (post synergies)
Payment Conditions:
• R$260 million in Kroton’s units
• R$650 million at closing
• R$260 million until March 14th, 2012
• R$130 million in 12 months (Seller’s Note)
• Controlling Shareholders approved to vote favorably for the migration to Novo Mercado in 20123
• Higher market cap after the transaction and migration to Novo Mercado should increase significantly shares liquidity
Highlights Description
Cash
Capital Increase
New Financial
Debt
• R$100 million
• R$600 million
• R$17.50 per unit1
• Controlling shareholders will subscribe a minimum amount of US$110 million (R$206 million at the exchange rate of December, 14th, 2011)2
• R$210 million
• Additional credit line of up to R$340 million pre-approved in case of partial subscription of the Capital Increase
• Cost of CDI + 2% p.y.
• 7 year term, with 36 months grace period
15 15
Transaction Structure
Unopar
Sellers
100% of Unopar’s Equity
R$ 1.3 billion R$ 910 mm – Cash¹
R$ 260 mm – Kroton`s Units
R$ 130 mm – Seller’s Note2
R$ 100 mm – Kroton Cash
R$ 600 mm – Capital Increase3
R$ 210 mm – New Debt3
Transaction Structure
Shareholder Structure Before the Transaction Shareholder Structure After the Transaction3,4
Controlling Shareholders Float
40.1% 58.4%
Controlling Shareholders
Unopar
Sellers
+
Addition of 2 members on the Board of Directors nominated by Unopar – Total of 11 members
Float
+ Treasury Shares: 1.0%
+ Treasury Shares: 1.5%
Source: Kroton Notes: 1 R$650 million in cash at the closing and R$260 million until March, 14th, 2012 2 Maturing in 12 months, adjusted by CDI 3 Assuming 100% of float subscription on the capital increase 4 New shares of the capital increase are issued @ R$17,50 per unit
34.5% 54.2% 10.3%
16 16
Capital Increase Description
Events Schedule of the Capital Increase
Notes: 1 Kroton’s cash used for the operation. For leverage analysis a net cash position of zero was considered 2 Of the float
Acquisition Financing and Debt
Adequate funding in any scenario
Source Scenario
50% of subscription2
100% of subscription2
Cash1 100 100
Capital Increase (R$ mm) 422 600
New Financial Debt (R$ mm) 388 210
Leverage (net financial debt / EBITDA 2011E)
1.8x 1.0x
Seller´s Note Maturing in Dec/2012 (R$ mm)
130 130
Leverage Considering
Seller´s Note (net debt / EBITDA 2011E)
2.4x 1.5x
Cash Total Payment: R$910 million
Cost: CDI + 2 % p.y. Grace Period: 36 months for amortization
Maturity: 7 years
Value
Unit Price
Commitment of Controlling Shareholders
• Maximum of R$600 million
• R$17.50 per unit, equivalent to a discount of 6.39% over the weighted average of the last 60 days
• Controlling shareholders will subscribe a minimum amount of US$110 million (R$206 million at the exchange rate of December, 14th, 2011)
12/19/2011 to 01/23/2012
• Period for subscription of the Capital Increase
01/26/2012 to 02/14/2012
• Period for “sobras” subscription
02/16/2012 to 03/02/2012
• Cancelation period
03/12/2012 • Issue of new units
17 17
Consistent Results Delivery by Kroton O
rgan
ic
Ne
w B
usi
nes
ses
Follow-On Guidance What happened? After Acquisition of
Unopar
M&A
DL Segment
• 60 thousand students until 2013
• Acquisition of 3 institutions with a total of 8,000 students
• Unopar: 162 thousand students
• Target: 80,000 students
• Delivered : 173,500 students
• Excelled in 117% the target
• 20 thousand students until 2013
• Entrance in the segment through organic growth (3,500 students)
• Unopar: 146 thousand students
K-12 Growth
In-class
Growth
• 10 – 15% annually
• Not impacted by the acquisition of Unopar
• 6 – 9% annually • Not impacted by the
acquisition of Unopar
• Growth of 11.9% in 9M11
• Growth of 8.4% in 9M11
18 18 18 18
Investment Highlights: Unopar’s Acquisition
Distance Learning is a business with strong cash generation and high growth Kroton becomes the leader of the Brazilian education market after Unopar’s acquisition The transaction is highly accretive for Kroton’s shareholders Kroton has a relevant integration track record with efficient use of synergies Controlling Shareholders and Unopar’s Founders are aligned with the transaction
19 19
Investor Relations www.kroton.com.br/ri Carlos Lazar
+55 11 3775-2288
Carolina Igi
+55 11 3775-2003