Stadio Holdings Limited (SDO) Earnings Call Transcript & Summary

Good morning and welcome to Stadio Holdings 2022 Annual Results Presentation. With me this morning to do the presentation is our Group CFO, Samara Totaram. In our presentation this morning, I will start off by setting the scene and give a brief overview of the financial results. Thereafter, I will hand over to Samara, who will unpack the results for us in more detail. After her presentation, I'll come back and look at the investment case and the way forward for Stadio. And we will then also make a question session available at the end of the presentation. Sorry, we just have a little glitch with the slide show. There we go. So Stadio Holding's purpose is to empower the nation by widening access to quality higher education. We do this through our 3 distinct private higher education institutions being Stadio higher education, our comprehensive institution and then our 2 niche institutions being Milpark Education as well as AFDA. So ladies and gentlemen, when we look back at 2022, let me use the word interesting. I think the year was an interesting year for the Stadio Group as well as through our students. It's been the first year that operations returned to normal since COVID-19. Our students as well as staff all had to return to campus. And we've seen that some of them had to readjust to go back to venue-based lectures, venue-based examinations and assessments. That led to a slight drop in the pass rates during the first venue-based exams in June, but we've seen now that the students are back in the rhythm and it's all business as usual on our different campuses. During the second half of the year, especially, we've seen that students felt the pressure of having less disposable income due to inflationary pressures, increase in interest rates, fuel costs, food prices, unemployment as well as load-shedding coupled with the aftereffects of COVID. Management had to make a difficult decision to disallow students from continuing with their studies in the second semester last year, all those with outstanding fees. The good news on that topic is that we see a lot of those students who were thus excluded last year are coming back in the 2023 academic year. With all this being said, I'm very excited this morning to say that we still will produce or will give a solid set of results this morning. A big thank you to the team for driving our results. The team consisting of our Chief Academic Officer, Dr. Divya Singh; our Chief Operations Officer Johan Human; Samara, our Chief Financial Officer. Then very exciting things happening there under the leadership of Andrew Horsfall, our CEO at Milpark. Next to Andrew, we have Chariska Knoetze, our Executive Head for Distance Learning Stadio Higher Education; Professor Patrick Bean, the Executive Head Contact Learning Stadio Higher Education and then Teresa Passchier doing a fantastic job with AFDA. So ladies and gentlemen, let's look at the 2022 financial results, just a high level. We see that our student numbers went up in the first semester by 11%. And in the second semester, up 8%. We ended the year with 41,296 students. The revenue went up 11%. EBITDA margin also went up 29%. We're very excited about this, seeing that all our efficiencies are starting to show. Profit after tax up 36%; earnings per share up 31%. Core headline earnings up 18% from ZAR 149 million last year to ZAR 176 million this year. Our core headline earnings per share, up 18% from ZAR 0.176 last year to ZAR 0.207 this year. Also, good news to share is that we are starting to return cash to our shareholders. Last year was the first year where we declared our maiden dividend of ZAR 0.047. The good news this year, we've increased the dividend payment by 89% to ZAR 0.089. We are working towards that paying out of 85% of free cash in time. We are currently at the 44% mark. Then also return on equity is starting to move in the right direction, up from 9% last year to 10% in 2022. I think also important to know at this stage that even through this tough economic times, the group also managed to be debt-free at this stage. With this overview, I will now hand over to Samara, who will unpack these results for us in more detail. Thank you, Samara.

Thank you, Chris, and good morning to everybody and thank you for taking the time out to come and listen to our presentation this morning. The results were actually posted at 7:00 a.m. on SENS and a copy of long-form announcement and annual financial statements are available on our website. Sorry, I've just got a problem with my clicker. Give me a second. Okay. Here we go. Sorry, still having a technical difficulty here. Okay. Great. So let's proceed on with that. So I'm going to start by just giving a high-level overview and specific highlights of the actions and the corporate actions that happened during the year that will actually impact or impacted the results to December 2022. So we focused on greenfield expansion and CapEx expansion. We completed Phase 2 of Centurion and spent ZAR 23 million. We also commenced with the expansion of the Stadio distance learning operational team in Krugersdorp ZAR 34 million to the end of December on that. That project was actually subsequently finished in February of 2023. We also disposed of the Stadio Montana campus and we had cash inflow of ZAR 52 million during the year. As a reminder, we concluded an early segment agreement with the CA Connect shareholders regarding the acquisition of the CA Connect business in June of 2021. And linked to that was the settlement of the consideration, which was done over a period of 2 years. So we've done the last and final tranche of that settlement, where we settled ZAR 33 million in April of this year. As a result of that transaction, Stadio Holdings' interest in Milpark reduced from 87.2% to 68.5%. And that dilution has had an impact in the growth in earnings per share, HEPS and core HEPS to December 2022. As Chris mentioned earlier in the presentation, we also -- 2022 was very much a normal operating year for the business. And the result of that is it has impacted operating costs for the period. We've mentioned this in previous results presentations. We managed to actually take significant savings as a result of the COVID way of delivery. And moving back to a normal operations environment, we've seen additional costs that have come into play. Moving on to the next slide. Sorry, one back to that. [indiscernible] Okay. Here we go. Also to note in 2022, we recognized an onerous contract with respect to the Milpark Gauteng lease and a little bit of background to this, we took the strategic decision I think was at the end of 2021 to transition Milpark from being hybrid offering contact learning and distance learning to actually focus specifically on distance learning and effectively phase out the contact learning operation. As a result of this, Milpark actually no longer requires the use of this Gauteng lease. We've been unsuccessful in terms of exiting the contract with the leaser in respect of this land. And we also haven't been able to sublet the premises. The result of this is we've vacated the premises. We don't expect to earn any further economic benefit associated with that campus. And accordingly, we've actually recognized the expenses that are to be incurred to the end of that contract being November 2025 as an onerous contract. So that's an additional expense of ZAR 5.5 million that we've taken during the course of this year. Also, as a result of the change in tax rate from 28% to 27% given that we actually do it in a deferred tax asset position, this change in tax rate has had an opposite effect on us. It actually has a negative effect on our earnings for the period. During the year, the share incentive trust was also authorized to repurchase shares in Stadio Holdings to settle its obligations in terms of the share incentive scheme. We repurchased 4 million of shares for the amount of ZAR 15 million and 3.8 million of those shares were reissued to employees to settle the obligations. And as Chris mentioned, exciting to note that we've increased our dividend to ZAR 0.89 a share and that's reflecting an 89% increase in our dividends declared versus the prior year. Looking at student numbers. And just a reminder that when we look at student numbers we did on a head count basis and we look at it at for Semester 1, which is at the 30th of June and then semester 2, which is actually at the 31st of December. So we need to go back one slide just to focus student numbers. Okay. So looking at semester 1 growth, we've showed 11% growth in student numbers for the period, very much driven by solid demand for professional qualifications. What we also have impacting the growth in our student numbers is our corporate business. It's actually been a very strong headwind over the last 5 years, definitely still feeling the pressure, specifically in training with the banks, the financial services providers, short-term insurers as an example. So it's still very much a cyclical business. It hasn't recovered to effectively its pre-2018 levels. But it all continues to contribute to revenue, but it actually has a drag on our overall student numbers. That means if we have to actually strip out the B2B business, our growth in student numbers in the first semester would be 15%. Looking at second semester growth. We've had an 8% growth in total student numbers, so lower than the first semester. Majority of that lower growth in the second semester is actually due to the timing, again, of corporate business, where we had more corporate business coming in the first semester versus the second semester. And if we exclude the B2B business, we see that the student number growth was actually 14% in the second semester, which was slightly lower than the first semester. And this sizing with what Chris mentioned, where we do have the situation where our customers are feeling economic strain and really haven't engaged with the institution and they haven't actually paid anything. We haven't been able to allow them to continue and as such, we actually have a portion of lower rollovers from your first semester to your second semester. Change the slide. Looking at contact learning, so showing effectively a 4% decline in the first semester as well as the second semester. So 3 primary reasons for this decline. And the first one is definitely -- and the biggest contributor to the decline is the strategic decision to actually transition Milpark out of contact learning. We do have students that we've actually -- had to actually put on a teach art and we see those student numbers declining over time and there's no new enrollment on contact learning students in the Milpark business. Also, in 2020 and 2021, we looked at the current offerings in the contact learning arena. And there were a number of qualifications that were either put on to an improvement plan or we decided to teach art. As a result of that, we see a consistent decline on those programs where we actually no longer taking in new students. And the third reason is at the beginning of 2022, we did see a lower enrollment for contact learning students, which we believe was largely as a result of the uncertainties of COVID-19 and students not knowing whether 2021 would actually be a normal academic year. And as a result of that, we see lower rollovers into the second year into 2022 and that will also come out into 2023 as well. But if we had to actually specifically take out the impact of the Milpark student numbers or the transition of the Milpark student numbers and those qualifications that were put into teach art, we see that our contact learning base has actually grown by 6%, which is actually very encouraging. And also into 2022 and also now into 2023, we actually see very good new student growth, which is -- which poses -- that makes it very exciting for us going forward. Next slide. Looking at distance learning, our distance learning student numbers contributing 86% of our total student numbers. Our corporate B2B business units are, in fact, a distance learning students. So if we look at semester 1, good increase of 14% in semester 1. And excluding the B2B business, we're seeing an 18% growth. And then in semester 2 seeing a 10% growth, again, it's due to the timing of registration of students on the corporate business, which actually came in more in the first semester than in the second semester. But effectively, excluding the B2B business, the 17% growth in the second semester and that's where we see a proportional drop of students who weren't able to pay. We're quite excited about the growth in our distance learning student numbers. We're creating a very, very nice pipeline of additional qualifications that we are adding to our distance learning offering. And we actually see good potential future growth in the distance learning student numbers going forward. Next slide. Looking at revenue, we see an 11% growth in revenue for the year. Our S2 has a slightly lower contribution due to the timing of the B2B business where more revenue came in the first 6 months of the year. We also see a mix change in our revenue versus prior years. We've had bigger growth in DL students that's actually at a lower price point at an average price point of ZAR 22,000. And we see a contraction in our contact learning student numbers, which actually reduces our contribution of our contact learning revenue. So there is that mix that is definitely coming through quite evidently in the figures. Exciting to report, we've seen an 18% growth in short course revenue for the period. We had a massive drop off in our short course revenue during 2020. It recovered and slightly to 2021. And we see consistent good growth in the short course income into 2022, which is very encouraging. Our hostel income declined significantly and that is linked to the sale of the Stadio Montana campus where we offered hostel facilities that we don't actually offer any of those hostel facilities anymore. And then we've also seen an increase in other income, which is driven generally by other academic income, which includes supplementary exams, re-marks, levies being charged to the students and the like. Overall, from a revenue perspective, though, we've seen over the last 4 years, a 18% compounded growth in revenue, which I think is also quite encouraging. Looking at EBITDA movement for period, we've grown EBITDA by 13% from ZAR 309 million to ZAR 351 million. But disaggregating it and specifically looking at the specific items that have impacted that growth for the period. As you know, we've opened the Centurion campus into 2022. It was kind of the full first year of operation. And the incremental costs of actually opening a greenfield campus definitely impacted our growth in EBITDA for the period. So there was effectively a ZAR 7 million incremental cost -- ZAR 7 million incremental cost of opening the Centurion campus. Historically, we've also talked about the COVID savings that we had taken and I say COVID savings because the savings, where we were operating on a very different or a hybrid model in terms of servicing our students during COVID-19 and then into 2021. As a normal 2022 operational year, there are significant costs that have now come back into the business and costs that we actually cannot do without. And those would be the likes of graduations and in-person graduation is actually very, very important to our students and we recognize that and it's something that we actually don't want to compromise on. And that's an additional cost that has come back in. As Chris mentioned earlier, also venue-based examinations and how assessments are actually run is actually going back more towards the traditional way of doing it in a pre-COVID environment. And then there were certain costs that we actually really minimized during the COVID years and that was staff training as well as travel. And we've seen those costs come back into the business. And effectively, the incremental cost and some other savings we realized is about ZAR 6 million for the 2021 year. As I mentioned, the onerous contract impact on our earnings was about ZAR 5 million. And if we strip that out and on a like-for-like basis compare it to our EBITDA in the prior year, we see -- we actually have an organic growth of about ZAR 60 million or 19% organic EBITDA movement for the period. Another way we look at our cost and we generally try and monitor and manage it on a margin basis to an extent. And effectively, with an 11% growth in revenue, we've seen an 8% growth in employee cost, but definitely the margin moving in the right direction. So pre-COVID, we were sitting with the 48% employee cost margin and we've seen our growth in revenue and largely keeping our cost base, I wouldn't say static, but not necessarily growing in exactly the same proportion to revenue. We're seeing our margins come in line to where we are expected to be and we're currently sitting at 42%. From a long-term perspective, we are targeting a 40% margin. On the operating expenditure line -- sorry, go back. On the operating expenses line, we see a 16% growth in operating expenses for the period and that's largely to do with additional costs that have come in return to normal operations, also the incremental cost of operating the new greenfield campus and the onerous contract also impacting that. So overall, we see a slight increase from 22% as a percentage of revenue to 23%. However, if we had to extract the true one-off item, which is the onerous contract that margin drops down to 22%, which I think is actually a sustainable margin and a margin that we can improve on in years to come. Looking at EBITDA and adjusted EBITDA. So adjusted EBITDA historically we've adjusted for and specifically you would look at in 2019 and 2020 related to the fair value adjustment that we had taken in respect of the CA Connect acquisition. We see that's largely normalized off. And then the only further adjustment we've taken out of EBITDA to actually just show a true reflection of where our EBITDA is sitting is the once-off onerous cost which will effectively take our adjusted EBITDA to ZAR 357 million, which is effectively a 15% growth on our adjusted EBITDA after a year. And encouraging to see is a 29% growth in our EBITDA margin for the period. Also interesting to note is if we look at our compounded annual growth rate in EBITDA over the last 4 years, it's currently sitting at 29%. So definitely good metrics in terms of how we monitor our EBITDA. Next slide. Looking at trade receivables and our loss allowance. So we've seen an increase in our debtors book for the period. It's about a 24% increase in our gross debtors and it's definitely a function of the space that we actually see in the economic environment. And customers -- our customers are under pressure. Also contributing to the increase in the debtors book specifically from a Stadio perspective, is the changing approach in how we collect debtors. And this change in approach is very much linked to our purpose of widening access to education. So more students have been offered turns over which today. Historically, we had a higher percentage of students that we're electing to pay upfront and yearly in advance or even quarterly in advance. We see a lot more students elected to pay monthly as it's actually just more affordable to pay on a monthly basis. Also a significant change that we've done is we've allowed more students to register with the arrear balances. And historically, we've been very, very strict on this, where students were not allowed to reregister at most of the institutions without having settled fully all the outstanding debt. Now we've actually opened that up a little bit in terms of allowing students to carry over a certain amount of balance, but it's still within strict criteria. And it varies across the institutions, but it's anywhere between 10% or 20% of the year's fees as a maximum that you're allowed to carry over. We still run the very strict requirements that students are still required to pay or enter into a payment plan and show that they have paid before we release academic results or academic transcripts. And very much so, where those students haven't engaged with the institution or haven't paid anything other than the registration fee, we actually do not allow them to reregister. And to the extent that we reported revenue, we actually provide for that in fall. Looking at our bad debts written off. In 2022, we wrote up ZAR 72 million of historic bad debt. In previous years, that is 2020 and 2021, we have taken a little bit more convenient approach in terms of offering students more time to catch up with their payments. We've now cleaned that up to an extent and taken a write-off of balances where we believe collection is unlikely. And if we look at the percentage of bad debts written off, it's currently sitting at about -- average of about 7% of average revenue. Looking at the provision that we've taken as a percentage of revenue and this would be the income statement effect, in 2020, we took about 8.6% of revenue and in 2021, we took about 7.8% of revenue. But our actual write-offs have actually been significantly lower than that. And more so actually, our collections in 2020 and 2021 have actually been better than what we anticipated during those COVID years. We have not reversed the provision. And then what we see in 2022 is actually bringing that provision more in line to where we see the reality of where our bad debt write-off is actually settling and ultimately, where we expect to do some future strain in the system. We can go to the next slide. So this is just a different way of segmenting our debtors' book and it's actually looking at the debtors' book in terms of will the academic revenue was actually recognized. It's splitting our academic book in terms of the academic year in which the revenue is recognized. And we'll see in the current year, there's effectively about ZAR 37 million of prior academic year debtors that are still on the book. Prior year, it was about ZAR 29 million. Now we've taken a view that we provide for almost everything that's on -- that relates to prior academic years where we haven't provided it actually relates to specific customers where we're reasonably assured that they will actually pay. So if you look at 2022 or our debtors' book, the risk is largely concentrated on our 2022 revenue. Now as I mentioned, looking at our historic write-off rates and what we've provided for in the past, if we provide for what we believe from our previous academic revenue will not be achieved, the margin that we're providing on our current year revenue is actually about 8.2% and that gives us ZAR 100 million of 2022 revenue, which is slightly higher than the 7.1% average write-off that we're experiencing and we believe that then is actually giving us a better reflection of the risk that we are managing for and providing for in our debtors' book. Now I know that sounds like a mouthful, but the long and the short of it is effectively in looking at specifically, the historic write-off rates we're considering also that our customers are under strain, we may see some further decline in our customers' ability to pay. We believe we've adequately provided for it. And even though we show a 51% coverage on our gross [ features ], which is lower than what we had in the prior year, 58% on the analysis and see through of the debtors, we believe we are adequately provided and the risk is actually catered for. Next slide. So we recognized about ZAR 6.5 million of impairments for the year. ZAR 2.8 million of that is actually linked to the Milpark Gauteng lease. And this effectively relates to the portion of the rates and insurance for the remainder of that lease considered to November 2025 that we've recognized as a right of these assets and the premium paid. And effectively, the entire effect of the Gauteng lease is now actually being recorded in the box. Furthermore, we've actually taken a ZAR 3.7 million de-recognition of curriculum intangibles. We evaluate our programs on an annual basis and really apply commercial quarter in terms of determining what quantifications should be offered at which site. It's also part of our optimization strategy in terms of looking at the -- each of the campuses as individual profit centers. And with that, we've actually taken a view that certain qualifications will no longer be offered and as such, taken an impairment on that side of -- on those specific qualifications. Next slide, please. Looking at profit and loss for the period. So a big increase, 36% increase in profit after tax for the period. So good growth in profit after tax. As I've mentioned, linked to the growth in EBITDA for the period. But the material jump is actually coming as a result of the significant impairments that we have taken in the prior year. So '17 -- sorry, there was about ZAR 50 million of impairments in total. ZAR 17 million of those impairments was related to the right of use assets linked to the Gauteng lease and about ZAR 10 million related to the Montana campus that we had subsequently disposed of. Next slide. Looking at earnings per share and headline earnings per share. So growth in earnings per share is 31%, largely following as a result of the growth in profit after tax. It is impacted negatively by the dilution of our interest in Milpark from 87.2% to 68.5%, where that transaction was effective in June. So the December 2021 results actually had 6 months of the year where we actually were accounting for Milpark at 87.2%. On the HEPS side, we see an 18% growth in HEPS. Again, HEPS impacted by the Milpark dilution, but also impacted as a result of the negative impact of the deferred tax rate change for the period. And in terms of share dilution impact, we issued shares of 2.3 million in April of last year and that was largely to settle the employee options in terms of the long-term incentive scheme. Next slide. So core headline earnings has been the measure that we've used since listing in 2017. And effectively, it's an internal measure that we use amongst the executive management and is to really understand what the underlying performance of the business is actually showing us. Historically, we've adjusted for client list amortization, once-off acquisition costs. And over the last couple of years, the material adjustments that have come through that has been the fair value adjustment on the CA Connect transaction. In the current year, we've actually added an adjustment to core headline earnings meeting the onerous contract, which is a once-off cost, which we believe distorts the results. And if we expect all of the funding effectively, we should report an 18% growth in core headline earnings and an 18% growth in core headline earnings per share. And the compounded growth over the last 4 years has been 26% on core headline earnings and 25% on core headline earnings per share. Disaggregating our core headline earnings movement. So I've spoken a lot about the prior year COVID savings and the incremental cost of the greenfield campus. I think specifically, just to illustrate to the audience is the impact of the change in tax rate, it was about ZAR 1.6 million additional cost on taxation that we have taken in this year as a result of the change in tax rate. And then the impact of the Milpark dilution on the business for 2022 was about a ZAR 6 million impact. So on an organic basis, comparing kind of the see through elements of the business and where the growth is coming from, we've grown organic headline earnings by ZAR 44 million or 30% for the period. Next slide. As Chris mentioned earlier, we've got a really healthy and strong balance sheet and some items impacting the balance sheet for the period is we invested ZAR 93 million of capital for the year. We've recognized ZAR 6.5 million of impairments. As I mentioned earlier in the presentation, we settled the final tranche of the CA Connect transaction. So that's ZAR 33 million. It was previously sitting under other liabilities. We've also disposed of Stadio in Montana for ZAR 52 million and we repaid all of our debt. So currently, we sit with the balance sheet that's debt free. We've also refinanced our debt facility. It historically was ZAR 200 million. And considering our short- to medium-term requirements for cash, we've reduced the facility to ZAR 100 million. And we do have the option to further increase that facility by an additional ZAR 100 million. We're also sitting with ZAR 148 million of cash in hand and largely excluding the impact of our IFRS 16 lease liability, we've got an ungeared balance sheet. Next slide. Stadio has historically always been a strong cash generator and we continue to generate strong cash for the period. So we're illustrating the adjusted cash flow generation and this adjusts for the impact of the settlement of the CA Connect transaction. We've had to actually treat that as working capital change for IFRS purposes. But if we extract that, we see that our net cash generated from operations has increased. We generated ZAR 341 million for the year to December, which equates to 96% of cash -- 96% of EBITDA. It's slightly lower than the prior year, given the growth in our debtors' book, but largely still within very acceptable limits that we are comfortable with. And if you look at our free cash flow, the recurring CapEx is sitting at ZAR 241 million and that equates to about 20% of revenue for the period. And just a further illustration in terms of where we spent our cash this year. So we generated ZAR 263 million of cash. About ZAR 90 million was spent on taking acquisitions being the CA Connect acquisition as well as investing in growth CapEx being the Stadio's Centurion campus and the Stadio Krugersdorp distance learning logistics center, our general CapEx for the period was ZAR 36 million. ZAR 29 million of that is what we refer to as our normal business as usual CapEx. And the remainder is new program development for the year. We've also disposed of Stadio Montana, which I've mentioned multiple times. And then we've repaid the ZAR 15 million of debt. And for the first year, we've paid dividends to our ordinary shareholders and reflected in that dividend is ZAR 0.47 that we declared last year as well as the additional -- or as was the dividend that we've actually paid to minority shareholders. And then also a new item appearing is where we've actually repurchased shares and then this is effectively the net share repurchase after reissuing to employees. Next slide. And then looking at capital invested for the period, as I mentioned, ZAR 93 million of capital invested for the period, ZAR 7 million on program development, about ZAR 57 million in terms of new construction for greenfield campuses and to cater for the growth in distance learning through the development of the logistics center. So since listing and capital raisings that we had actually done in 2017, we've actually cumulatively invested ZAR 2.65 billion of capital. And looking at 2023 capital expenditure to this is effectively what we plan to spend from a growth CapEx perspective into 2022. So there is some residual cost relating to the completion of the previous low logistics center and then we do take transfer of that property in 2023 as well. We're also investing significantly in curriculum and other intangible developments for the period. And then we've earmarked ZAR 45 million for the Durbanville development. I note that this is not fully committed. It's still subject to Board approval. And -- but effectively, in terms of our site development plans and what we need to plan to be able to construct, we've actually earmarked an amount of ZAR 45 million for the year. Next slide. And then in terms of dividend declaration. So as I mentioned, we've actually been a strong generator of cash over the years. We're coming out of that significant investment in capital, be it through acquisitions or new campuses. And our aim is to return 85% of free cash flow over time, having regard for these growth projects. Going forward, we see the major growth projects would be the Durbanville campus in time and also investment in systems processes and then specifically on new qualifications as well. Given all of this, we believe we are able to declare a second annual dividend of ZAR 0.09 a share, up 89% to what we declared last year. And it equates to effectively about 43% of our core headline earnings last year, I think we declared about 27% of our core headline earnings. So definitely going through the processes of looking to return excess cash to shareholders. And the payment date for that dividend would be the 17th of April. Next slide. And lastly, to close off, is just looking at where we've come from and where we currently sit. We largely -- a young listed institution. And if I look in 2016, we started with the teacher-training business, this was Embry and we've grown student numbers from 840 to 41,000 in the 7 years. EBITDA has gone from ZAR 11 million to ZAR 351 million. Core headline earnings ZAR 8 million to ZAR 176 million and core HEPS from ZAR 0.017 per share to ZAR 0.27 a share. And we're trying to get into that steady state of continuing to pay dividends, which is very good to see. So we will continue to pay dividends in the future and then also reassuring to see where our return on equity from where we started in 2017, having raised capital through a rights issue in the market as well as raising capital as part of our BEE deal at the time. We're starting to actually see our return on equity move in the right direction. Our target is definitely more in the high teens to currently at the 10%. And I think we are positioning the business to be able to return or to actually post a good and acceptable return on equity going forward. And then lastly, just to close off, I think, a big thank you to the Stadio finance teams. It's a widely dispersed team. And for all their efforts in actually if it's in contributions to actually putting together the set of results, but also for the role that they actually pay in actually making sure that we hit our targets that we set after our sales over the period. And with that, I'll conclude from my side and I'll hand over back to Chris to take us through the investment case for Stadio. Thank you very much.

Great. Thank you, Samara. If I can then continue and we look at the investment case and going forward for Stadio. I want to say that our strategy is underpinned by our WWS. WWS standing for widening access, meaning giving more people the opportunity to access higher education, a world of work, meaning that we want to ensure that our programs are relevant and that our students are sought after in the workplace. And then thirdly, student centeredness supporting our students to be successful with their studies. What have we done in the last 2 years since 2020, we've launched the new Stadio Higher Education institution, which is our comprehensive institution that came about with the merging of 4 of the legacy institutions. We've invested in infrastructure. We've aligned and improved processes and procedures. We've improved our academic quality, which was very important for us as management. We've improved our distance learning offerings and we really believe that we can compete with the best in the continent as well as internationally. And we feel that we've also built a solid foundation to become an institution of choice, a first choice institution, really an institution that can compete with our big public universities in South Africa. Our growth strategy is built on these 5 pillars. The first one -- so I see there's a bit of a delay, there we go, back it, please. There we go. The 5 pillars accrediting new in-demand programs. We are seeing quite a number of those programs coming through now, which is very exciting, taking programs to new sites and also changing them into new modes, meaning changing contact learning programs to distance learning programs and vice versa. That gives us much more scope. Opening of new faculties in academic schools, the latest schools that we've introduced in 2023 would be the school of architecture as well as the school of humanities. Then the opening of our comprehensive campuses, as Samara already indicated, that Centurion campus is now in full operation. And we are planning one more comprehensive campus over the next few years and that could be our Durbanville campus. And then very important, as part of our growth strategy is to optimize our existing campuses and we do that by taking more product to those campuses. I will show how this work in practice in one of our next slides. And then lastly, they're exploring new geographic regions. '22 has shown us that our strategy is working. As already indicated, we opened that comprehensive campus in Centurion. We really get fantastic feedback from students as well as other stakeholders from that campus. We're very excited about the new strategy that Milpark is adopting, that is now operational. We get good feedback from the financial industry. I think this type of delivery mode as well as the methodology that the team uses on those programs is really enjoyed by the financial industry. We will continue with new accreditation and development of new in-demand programs. We have built a strong academic team as well as with good products. And we will also continue to relocate existing programs to new sites. Okay. Let's have a look at the new programs that we are launching in the 2023 academic year. These programs come from those different schools, the school of law, school of education, the school of architecture, commerce and accounting. Also, very good news to share this morning is in the last 2 months -- the first 2 months of the year, we've received accreditation for 12 new qualifications. Unfortunately, we can't offer these qualifications yet. They still have to go to the rest of the regulatory process, meaning SAQA as well as Department of Higher Education. But this creates a very nice pipeline already for the 2024 academic year. There are a few of these qualifications that we will consider, especially in the distance learning mode to offer from June this year. Then the regulatory delays still continue, but I must say our accreditations are coming through. The regulatory process is a barrier to entry, but I think it's also very good for the sector that there are these barriers. This slide, we want to try and illustrate why we are so excited about the strategy and how the strategy working in practice. This is actually one of our campuses. This campus in the past was only a single faculty campus offering, let's say, program X only. If we continue by only offering those programs on the campus, we would have seen 15% growth on that campus thus far in 2023. But by adding a new faculty and new school, we've seen nice growth on that campus on the new programs and the overall growth on that campus is up by 43%. Just a side note, also very exciting for me to share this information with all the uncertainties about the comprehensive campus. We see that our new student number growth on the Centurion campus is already up 57% and we are still registering students for the 2023 academic year. So why are new students so important for us as an institution? The new student numbers in general have a 3-year impact on the institution. So if one had a good intake in year 1, this will roll over for the next 3 years. And as we already indicated, I think Samara in her presentation also mentioned it. Unfortunately, in 2021, in the contact learning space, we didn't have such a good intake. And that low intake first year intake of 2021 is still in the system. But with this good news of good new first year intake for the last 2 years, we should see our numbers -- student number growth really taking off in the years to come. We are growing to meet demand. 11 campuses already, were 3 support centers. We took the decision now also to use all our campuses to double up as distance learning support centers to make sure that we give our distance learning students a real fantastic student support. We're also expanding to support our comprehensiveness by renting extra space for the Bellville campus. Our AFDA business in Johannesburg has also reached capacity. We are renting extra space to accommodate student growth in Johannesburg for AFDA. And then also, we've completed the construction of the Krugersdorp Logistics Centre. This will streamline our distance learning offering even more going forward. Then regarding the Durbanville campus and other comprehensive campuses that we have in our planning. We continued with the drawing up of plans. We are nearly really to submit our skills -- our site development plan to the municipality. And we are awaiting approval of that as well as approval of Board for our business case. If everything goes according to plan and we receive those approvals, we should start with construction later this year, but only to take a first intake in 2025. We will also investigate opportunities for expansion of AFDA, especially in Johannesburg as that business is really going very well at the moment. Important for me just to make clear, our strategy is still very intact. 80% of our students will always be accommodated in the distance learning mode. So we only have to create campus space for 20% of our student population. We aim to have only 3 comprehensive campuses, one in Gauteng, which is already completed. It's the campus that we currently have in Centurion. Then we also have a campus already in Durbin at Musgrave and then the new one that we planned for Durbanville. Very much part of our strategy is to optimize our current campuses. There's still a lot that we can do on these current campuses to optimize it and to really get those campuses to or be at capacity. All campuses, we've made sure that we have alternative power sources. So our teaching and learning has not been affected by load-shedding thus far. Any expansions that we have in our plans will be funded by cash as well as with minimum debt levels. We move on cap debt. I say that the institution or the business will stay capital-light and that will remain. Here is just a picture of the Krugersdorp Logistics Centre that is now completed. We opened that facility on the 23rd of February. I must say it's a really state-of-the-art facility that is purpose built. We are very excited for our distance learning business to use this facility. And I'm 100% sure that we will see even more efficiencies coming through in the distance learning business with this facility. In our pre-listing statement, we've set ourselves the target of 56,000 students by 2026. With the growth that we've already mentioned in our presentation, we are still well on track. We've ended last year in December, with 41,296 students. So everything is still on track to meet that target of 56,000 students by 2026. Looking at the market --- the higher education market. There, we also see that the market is growing in year-on-year. Over the last 20 years, we've seen 136% growth in the higher education market. Last year -- or is the 2021 numbers, yes, 440,000 grade 12s qualified for university status and only 171,000 received base at public universities. So the market just for that 1 year for us in private high education institution is 269,000 students. So definitely, the market for higher education is growing. I feel that Stadio is very well-placed for the future. We're very excited about where we are currently. A few notes there to consider. We offer quality programs, quality academic stuff that we've put in place. Our programs are affordable, especially in the distance learning mode, very affordable. Milpark is really showing very nice growth potential for the future with their new strategy of becoming the leading online provider, especially in the financial sector. AFDA remains our #1 form school and a leader in South Africa. Stadio Higher Education is well-positioned as a comprehensive institution, offering multi-modes of delivery, multi-faculties. And I think we're in a very good position to compete with the big universities in the country. Efficiencies are starting to show nicely in our financial results as well. And then I think our overall target for EBITDA margin, we think realistically can be between 30% and 35%. The business is a highly cash-generative business, minimum debt and everything, all our growth projects we are comfortable that we can act on all those growth projects with the debt facilities that we have available. The group has already grown our student numbers to be one of the top 10 higher education institutions in South Africa. Last, I want to conclude by saying that Stadio is a new vision in higher education. What we mean by that is we really give more people the opportunity to access higher education in our country. We are creating a Stadio community where our students, staff and shareholders benefit in the growth of our institution. In conclusion, we know that the current South African economy is under tremendous pressure. We understand that 2023 will also have its challenges. But we believe as an institution, we are well-positioned and our brand is really taking off very well and we believe that we can grow the institution going forward and also take more market share. So thank you, ladies and gentlemen. I think we will now move to the question session. [ Kate ], if you could just read the questions for myself and Samara and then we will be -- thank you.

The first question is for Samara. Can you please remind us how the dilution in your key subsidiary in Milpark occurred and the rationale for why this is not a bad thing, given that it's a key subsidiary.

Yes. So as part of the early settlement agreement with the CA Connect shareholders of the CA Connect business, we elected to actually settle a portion of that consideration through the issue of Milpark shares. And what we found is, why that's a good thing is we've got a very, very entrepreneurial team that is now coming to the Milpark business. And if effectively equally aligned with us as shareholders as well in terms of driving that business forward.

Does Stadio intend to remain debt-free? Under what conditions will it take on borrowings?

Chris, you want to go or…

I think we have positioned ourselves to really have access to debt for our growth projects. Realistically, I think we will have to go to that facility that we secured if we go ahead with the construction of our Durbanville campus. So yes, we want, I think, stay debt free forever in the future because we would have to use some debt to come through or to finish the construction of the Durbanville comprehensive campus. But we believe that with the cash that we generate, that would be a short-term position that the institution will be in.

Thank you, Chris. Which academic programs are the faces growing, which are the highest margin and which contributes the largest to the group's consolidated revenues?

So I don't want to highlight specific programs, but we see very nice growth, especially in our school of education. And then the new programs in our school of commerce is also showing very nice growth potential. And then -- and in the Milpark business, we see, obviously, the qualifications for chartered accountants is also showing fantastic growth.

And following on, could you give us some color on learner growth coming from the new programs, which is what you -- I think we've touched on that in the presentation, an idea of utilization on the new campuses and whether you have reached breakeven.

So Samara, I think you can deal with the breakeven question. I think we're still in the J-curve at our Centurion campus, but I will ask Samara just to give more clarity on when we will get to the breakeven point.

Yes. So we said we'd get to breakeven between 2 to 3 years. I think we -- probably in 2021 as our first full year of operation in Centurion. So we do anticipate breaking even in 2024 and provided our learner number growth is where we expected to be. And then I think on learner growth on new programs and I think that was part and parcel of the question. So in 2022, we unfortunately didn't have available to offer the new programs. I think we had 2 to 3 new programs and effectively off our new student enrollment that was effectively about 4%. I don't know that there's another part of that question, [ Kate ]?

I mean, just to add on that, Samara, just for everybody to understand, when we decide to go ahead with the Durbanville campus, I think we would be in a much better position than what was the case with the Centurion campus. We opened the Centurion campus with only a few qualifications, but we've given ourselves enough time here in the Western Cape via our Bellville campus to really get a whole set of qualifications, faculties and schools accredited. So when we ready to move to the Durbanville campus, that would mean we will just apply for relocation of the qualifications from Bellville to Durbanville. So we will be able to open that campus being in a much stronger position and having more students as well as more qualifications available to offer.

And Chris, can you touch on the composition of your distance learning students when it comes to working class or adult learners versus the younger students market winning?

So without a doubt, the biggest percentage of the distance learning students are adult learners. These are learners that are mainly full-time employed. We do see an increase in school levers in the DL space, although it is still small. But I think that tendency started during COVID and we do see an increase in school levers entering distance learning, but it's still in the minority.

Thanks, Chris. And quite a few questions coming. I'm going to read them a few out and then let you answer. So a few people are asking what the contact learning enrollment brings and expectations are for 2023? They want to progress in terms of enrollments in Centurion, which I think you have touched on the Centurion enrollment. And in terms of Durbanville campus, the earmarking CapEx for this development suggests confidence around developing the campus despite the tougher more uncertain long-term environment? And then one for you, Samara, if you had to correct for the over-provisioning in the base, how would your current 51% provision coverage compare to corrective provision coverage? I'm just trying to understand the extent to which the provisioning on the book has increased to factor in the weakening macro environment? So Chris, if you can start.

So okay. Thanks, those were quite a mouthful. Let's start with the contact learning expectations. I just want to caution at this point of time, we are still in a registration cycle. So registrations are still open. We still receive applications. So it's very difficult to give a very clear picture at this point. However, our data show that we see nice growth, especially in new student numbers in both distance learning and contact learning, double-digit growth at this point. But as I say, we haven't finalized registrations yet. Students can still cancel. So these are just tentative numbers. If we look at Centurion, definitely, we expect good growth on that campus. As I already indicated, new student number growth where we stand today, up by more than 57%. So it really shows that students are buying into our comprehensive campus and what we try to do there on that specific Centurion campus. Just to clarify again the Durbanville, the reason why we haven't acted yet is exactly we realize that we're in a tough economic situation in the country at the moment. Therefore, we will not act before we see what our final student numbers are, see whether there is growth, especially in the contact learning space and then also to make sure that we are happy and the Board approved the business case for that campus. So definitely, we take the economic climate of the country into consideration.

Thanks, Chris. And Samara, in terms of the provisioning?

Yes. So if you look historically and I'm going to go to kind of go to pre-COVID levels between '18 and 2019. The coverage on our provision or on our debtors' book was actually sitting between 30% and 35%. And during 2020 and 2021, we just didn't know whether our students were going to be able to afford today. So we did increase the provision and I think it went up to about 58% off the debtors' book in 2021. When we've done our analysis for 2022, we've now taken the view of -- or we've actually cleaned up the book in terms of bad debts that we need to write off to actually just get a more reasonable indication of where our historic bad debt provisioning is and that's sitting at about 7%. And when we look at the aging in our book in terms of the existing provision, we've actually provided for almost everything that relates to revenue coming from prior academic period. So this would be academic periods prior to 2022. And then given the 7% bad debt write-off, we are actually providing for about 8.2% of the 2022 revenue as potentially revenue that will go bad. And in that 8.2%, what we are taking into account is the potential that customers will begin come under pressure in terms of paying in 2022 and potentially into 2023. So we actually believe that 51% provision coverage is probably our new norm. Again, I think our long-term target, if you can remember from a couple of years ago is we actually said if we can keep our bad debt ratio at 5%, we are actually very happy, but the market is actually -- or the economy has actually taken probably a worse turn from that. And I think we reset now is if we can actually maintain that ratio below 8%, it still makes commercial sense from a margin perspective in terms of the margin we generate on that business. So there is some work to do in the debtors' book. There's no doubt about that. It is challenging. It is challenging to try and get people to pay and at the same time, keeping true to our purpose of widening access. So it's something we continue to evaluate. But we think that the 51% provision, maybe there is some level of conservatism in there. But you think the 51% provision is probably the more reasonable provision that we are comfortable with on our current debt book.

Thanks, Samara. Then Chris, you've already touched on the number of students enrolled at Centurion campus. What is the current capacity utilization? And then second question is, have there been any developments on the university status? And lastly what were your average fee increases in your distance learning and contact learning modes?

All right. The Centurion capacity, 5,000 students that we can accommodate on our Centurion campus. So there's still a lot of growth that needs to take place to get to that number. On the university status front, we haven't received any feedback or any movement yet from the Department of Higher Education. As an institution, we are preparing for university status, we conduct some mock orders to ensure that we meet the preliminary requirements that were set out or criteria. However, those were just preliminary -- those criteria can still change. But as an institution, we are positioning ourselves to be ready should the legislation change and institutions can apply for university status. The third question, if I'm not mistaken, Samara, if you can assist, I think our increases in the distance learning space was between 6% and 7% on the program.

Yes, yes, Chris that was for 2023. For 2022, we actually had an average between 3% and 6%. That's a lot lower based on inflation at that point in time and then also positioning our qualifications to be in line with the public sector on a lot of the qualification. So for 2022, it was between 3% and 6%.

Thank you, Chris and thank you, Samara. I don't see any further questions coming through. Shareholders are welcome to e-mail questions to Investor Relations at stadio.co.za. I now hand over to Chris to close.

Yes. Thank you, [ Kate ], and to the team again. I think we're very proud of our achievements in 2022 under some tough economic conditions. But we really believe that Stadio is well-positioned and we look forward to the 2023 academic year. Just lastly, a big thank you from my side again to the whole team as well as to our shareholders and investors supporting Stadio Holdings. Thank you very much.