Unopar - Kroton

Unopar
December 2011
KROT11
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.
2
Main Events Since IPO
2007
Event
IPO
2009
2010
Advent Investment
Acquisition of IUNI
and Capital Increase Integration and Turnaround
1H2011
2H2011
Follow-on
Acquisition of Unopar
264
Post Secondary
Students (‘000)
18
44
85
92
Net Revenues
(R$ mm)
148
343
642
667
Net Revenues
2
Growth
54%
26%
87%
47%
74%
Market Cap 3
(R$ mm)
881
1,106
1,428
1,701
2,544
1
5
1,115
6
4
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$260 mm in shares to Unopar’s Sellers
5
Combined company based on 1H11 for Unopar and November 2011 for Kroton
6
Combined company Net Revenues projected to 2011
3
Investment Highlights: Unopar’s Acquisition





Distance Learning is a business with strong cash generation and high growth
Kroton becomes the leader of the Brazilian education market after Unopar’s acquisition
The transaction is highly accretive for Kroton’s shareholders
Kroton has a relevant integration track record with efficient use of synergies
Controlling Shareholders and Unopar’s Founders are aligned with the transaction
4
Unopar: Largest Distance Learning Institution in Brazil
DL Ranking in Brazil1,2
Distance Learning Students of Unopar
DL Students (‘000)
DL Students (‘000)
•
•
•
•
146
145.6
469 Accredited DLCs
422 Cities
399 Active DLCs
5 Onsite Campuses
123.4
111.2
104.6
102.6
83
70.1
60
57
53
• In-class Undergrad: 10.3
• Graduation: 6.0
49
46
28
27
FTC
UniSeb
Estacio
Castelo Branco
Unip
Fatec Internacional
Ulbra
Uniasselvi
1.8
Anhanguera
Total: 161.9
38.8
41
2003
11.9
2004
2005
2006
2007
2008
Source: Kroton and Unopar
Notes:
1
For the non listed companies, # of students according to CM consultoria studies for 2010 (except Unopar, which is based on company’s numbers as of 1H11)
2
# of students as of 3Q11 to: Anhanguera and Estácio. Considers only students in high education
2009
2010
1H11
5
DL: High Growth and Under Penetrated Market
Historical Growth
Growth Potential
DL students (mm)
DL Students (‘000)
3.1
2.1
838
930
0.9
728
370
2010
2016E
2020E
CM Consultoria
Low Penetration
Share of DL as % of higher education students
1.9x
29%
15%
1
2007
2008
Source: MEC, Kroton and CM Consultoria
Note:
1 2009 Numbers
2009
2010
6
Unopar is a First-Class Cash Generator
Unopar’s Operational Cash Flow
R$ million
2010
EBITDA
105
2011E
117
• High EBITDA margin
EBITDA Margin (%)
28%
28%
• Low CAPEX as a percentage of net revenues
̶
Most of CAPEX is responsibility of each DLC
Operational Cash Flow
% of EBITDA
Adjusted operational Cash Flow to nonrecurring items of CAPEX and Working Capital
% of EBITDA
82
109
78%
93%
82
94
78%
80%
EBITDA to cash =
Source: Kroton and Unopar
• 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
• Low taxation, average effective tax rate of 1.5%
75 - 80%
7
Unopar’s Acquisition is Complementary to Kroton
Merger of two leader and complementary platforms
Geographical Complementarity
+
128
=
422
1
Cities
1
467
Cities
Cities
Kroton
Unopar
Campuses (#)
40
Campuses (#)
5
Campuses (#)
45
DLCs (#)
147
DLCs (#)
4692
DLCs (#)
616
Business Complementarity3
Kroton
Unopar
20%
80%
Kroton + Unopar
12%
12%
K12
Post Secondary
In-Class
In-class
+
Distance Learning
88%
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)
=
In-class
33%
55%
Distance Learning
K12
8
Sustainable Growth of Revenues and Margins
Unopar – Net Revenues (R$ mm)2
Kroton – Net Revenues (R$ mm)
+9.0%
375
699
642
+10.9%
1,016
+64.1%
103
105
63
14.8%
2011E
2010
Unopar – EBITDA (R$ mm)3
Kroton – EBITDA (R$ mm)¹
+
1,115
=
2010
2011E
+9.7%
416
+
2010
Combined – Net Revenues (R$ mm)
+11.6%
2011E
Combined – EBITDA (R$ mm)
+30.9%
117
220
168
28.1%
28.2%
=
16.5%
19.7%
9.8%
2010
2011E
2010
Margin
54
+9.1%
99
12
7.7%
2010
2011E
+
26.4%
2011E
Margin
Unopar – Net Income (R$ mm)3
Kroton – Net Income (R$ mm)¹
+350.0%
Margin
Combined – Net Income (R$ mm)
+45.9%
108
26.0%
162
111
=
10.9%
14.5%
1.9%
2010
2011E
Margin
2010
2011E
2010
Margin
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
2011E
Margin
9
The Acquisition Consolidates Kroton as a Leader in the Education Market
Ranking – Post Secondary Students1
EBITDA2
Post Secondary Students (‘000)
2011E R$ (mm)
287
#2
220
398
#3
152
292
264
248
295295
295
295
#2
295
#2
295
#2
295
295
122
226
#2
157
226
157
226
157
103
226226
226
226
162
226
157157
157
157
102
123123
123
123
123
103
123
103103
103
103
103
123
157
117
#2 #2#2#2
103
123
103
+ +
+
+ + ++
+
Kroton becomes the 6th largest company of the sector in the world3 in terms of market cap
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$260 mm of Kroton`s units issue to Unopar. For the other
companies market cap as of December 14th, 2011 based on Bloomberg and Capital IQ data
10
Kroton has Expertise in Relevant Integration Processes
IUNI’s integration process was implemented in a fast and efficient way, successfully impacting
results in the subsequent 12 months
Successful Integration: Post Secondary Impacts - 2010
Operational Margin (%)
Average Monthly Net Revenues
(R$ million)
45.9
21.3%
1o
Largest acquisition of
education sector in Brazil
2011
41.7 +10%
Integration challenges of
Kroton / IUNI performed
in 2010:
Largest Integration
Process of the
Education Sector in
Brazil
40 Post Secondary
units integrated at
the same time
Dif. %:
+20.8 p.p.
80 thousand In-class
students integrated
2o
Second largest acquisition
of education sector in Brazil
8,000 employees and
teachers involved
0.5%
2010
Jan -Jul
Source: Kroton
Aug-Dec
Jan -Jul
Aug-Dec
11
Unopar Integration Plan
Post Merger Integration methodology (PMI)
Integration
Structure
18 Integration teams
49 Projects
HR, Process, Systems and Projects Consultancies
Integration
Committee
Integration PMO
• Integration directions
• Decision making
• Methodology and mediation
• Consolidation and works alignment
Integration Teams
Source: Kroton
Short-Term Management
Communication
Integration Managment
Indicators
Diagnosis
Finance
Budget
Accounting
Marketing /Commercial
HR
Academic
Regulatory
Legal
Students Managment
Operations
Supply
Distance Learning
IT
12
Top 10 Upsides and Synergies
New
Businesses
1 Distance Learning technical courses
2 Distance Learning corporate courses
DLCs
Expansion
3 High synergies with Kroton’s 777 Primary and Secondary Education schools
4 Opening of 70 new DLCs which are already certified
Business and
Courses
Expansion
5 Distance Learning Graduation courses
6 Introduction of new courses in distance learning
7
8
9
10
In-class
New in-class courses
FIES expansion (low penetration in Unopar)
Faster implementation of the 20% of DL on Kroton’s In-class courses
Synergies between Kroton and Unopar Londrina’s campuses
Synergies already quantified to be captured in the short term
Costs and Expenses Annual Synergies (R$ mm)
Source: Kroton and Unopar
2012
2013
6.7
14.6
13
Transaction Overview
Highlights
Acquisition Price and
Payment Conditions
Description
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)
Cash
Capital
Increase
• 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
New
Financial
Debt
• 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
Acquisition’s Financing
Migration to Novo Mercado
• R$100 million
• 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
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$110 million at the exchange rate of the liquidation date
3
An amendment to Shareholders` Agreement of the controlling shareholders approved the migration to Novo Mercado in 2012
14
Transaction Structure
Transaction Structure
R$ 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
Unopar
Sellers
100% of Unopar’s Equity
Shareholder Structure Before the Transaction
Controlling Shareholders
40.1%
Float
58.4%
Shareholder Structure After the Transaction3,4
Controlling
Shareholders
34.5%
Unopar
Sellers
Float
54.2%
+ Treasury Shares:
1.5%
10.3%
+ Treasury Shares:
1.0%
+
Addition of 2 members on the Board of Directors nominated by Unopar
– Total of 11 members
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
15
Acquisition Financing and Debt
Capital Increase Description
Value
Adequate funding in any scenario
Cash Total Payment: R$910 million
• Maximum of R$600 million
Scenario
Source
Unit Price
Commitment
of Controlling
Shareholders
• 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$206 million at the exchange rate of
December, 14th, 2011)
50% of
subscription2
100% of
subscription2
Cash1
100
100
Capital Increase (R$ mm)
422
600
New Financial Debt (R$ mm)
388
210
Leverage (net financial debt /
EBITDA 2011E)
1.8x
1.0x
130
130
2.4x
1.5x
Events Schedule of the Capital Increase
12/19/2011 to
01/23/2012
01/26/2012 to
02/14/2012
02/16/2012 to
03/02/2012
03/12/2012
• Period for subscription of the Capital
Increase
Seller´s Note Maturing in Dec/2012
(R$ mm)
• Period for “sobras” subscription
• Cancelation period
• Issue of new units
Notes:
1 Kroton’s cash used for the operation. For leverage analysis a net cash position of zero was considered
2 Of the float
Leverage Considering
Seller´s Note (net debt / EBITDA
2011E)
Cost: CDI + 2 % p.y.
Grace Period: 36 months for amortization
Maturity: 7 years
16
Consistent Results Delivery by Kroton
What happened?
After Acquisition of
Unopar
• 60 thousand
students until
2013
• Acquisition of 3 institutions
with a total of 8,000
students
• Unopar: 162 thousand
students
DL Segment
• 20 thousand
students until
2013
• Entrance in the segment
through organic growth
(3,500 students)
• Unopar: 146 thousand
students
K-12 Growth
• 10 – 15%
annually
• Growth of 11.9% in 9M11
• Not impacted by the
acquisition of Unopar

• 6 – 9% annually
• Growth of 8.4% in 9M11
• Not impacted by the
acquisition of Unopar

M&A
• Target: 80,000
students
• Delivered : 173,500
students
• Excelled in 117% the
target


Organic
New Businesses
Follow-On Guidance
In-class
Growth
17
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
18
Investor Relations
www.kroton.com.br/ri
Carlos Lazar
carlos.lazar@kroton.com.br
+55 11 3775-2288
Carolina Igi
carolina.igi@kroton.com.br
+55 11 3775-2003
19