Stadio Holdings Limited (SDO) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to this STADIO Holdings 2025 Interim Financial Results Presentation. With me this morning, as usual, to do the presentation is our Group CFO, Mr. Ishak Kula. I will start us off with a brief overview on the group as well as a short summary of the interim results, and then hand over to Ishak, who will then go ahead and unpack the numbers for us in more detail. After Ishak's presentation, we will then gladly open for a question-and-answer session. There we go. So ladies and gentlemen, I think my message this morning to everybody is that the STADIO Holdings Group is in a strong position. We started the year, 2025 first semester quite well with the group showing a solid 9% increase in our student numbers. Our earlier investment into systems, processes, all the new programs, our academic staff is starting to show, and we see great efficiencies in our operating aspects as well as seeing improved margins. A few years ago, we've set ourselves the target of EBITDA margin of 50%, and we are excited to announce today that the group has achieved that margin, and we really believe those are sustainable EBITDA margins. We continue to make a big impact on our country with our student enrollments increasing to where we are currently today in August. In the second semester, we have a student population of just under 55,000 students, 54,487 to be exact. Our programs and qualification mix continue to grow, ensuring that our programs are relevant and that they are all commercially viable. We're excited also to announce that a minimum of 8 new programs will be offered in 2026, and these 8 new programs exclude any site extension programs. All our campuses are now multi-school campuses. A few years ago when we just completed the merger, we had some of our campuses only being 1 or 2 faculty campuses. We can now say that all our campuses are at least 3 or more faculties strong. Industry partnerships in relation with industry is of big importance for the group. We invite industry into our institution right from where we start with the concept of a new program, the design of it, then inviting industry into the classroom to assist with the teaching and learning and then very important also to get feedback from industry on the program as well as on our graduates. Let's get back to the first 6 months of the year, and we look at the short summary of the financial results. This is now for the period January to June. Student numbers up by 9%. Our revenue up by 16% to ZAR 957 million. EBITDA margins, as I already alluded to, and which is quite an achievement for us as a young institution, up to 30.6%. And then our profit after tax up by 27%. Earnings per share, up 28%. Core headline earnings per share also up 28%. And then cash generated from operations, up 20%. Our return on equity is also starting to move in the right direction, up to 15.4%. The need for quality higher education in South Africa continues to grow. Our three private higher education institutions are playing a big role in supporting government to address the need for quality higher education. We do this, we assist government in this by offering opportunities to higher education by opening access to support our students to be successful with their studies and to put them in a position to obtain a quality higher education qualification and also to give them hope for a better future. We are already one of South Africa's largest providers of higher education in the country, and our ambition remain to be South Africa's first choice higher education institution. We have strength through our 3 distinct offerings or brands. Our 3 brands include STADIO Higher Education, which is our big comprehensive institution, offering multi-faculty, multi programs as well as multi-mode of delivery. And then our 2 niche institutions being Milpark Education. Milpark offering distance learning and distance online, becoming South Africa's leading provider in the online space, offering programs in the commerce, banking and financial services as well as accounting and then soon to come a few new study fields also in our Milpark brand. Then AFDA, also our well renowned film school being a pure contact learning institution, focusing on the creative economies. All 3 of these institutions are registered with the regulator in their own right, having their own policies, their own quality registered qualifications as well as their own leadership and management. Exciting to also share with you this morning is the appointment of our new principal and CEO for the STADIO Higher Education brand, Professor Stan or Dr. Stan Du Plessis. Dr. Stan Du Plessis is the former COO from the Stellenbosch University, and he joined the institution on the 1st of August. Stan comes with a lot of experience in this industry and with a wide network, not just nationally but also internationally, and we believe that Stan will make a great contribution to STADIO Higher Education and to the group at large. I can say, ladies and gentlemen, with all this new developments in our group, it is a very exciting time for us all in the group. Technology remains a critical part for our success and to enable us to be scalable and at the same time, retain quality. Our long-term goal is to service 100,000-plus students through our 3 brands, and to do that, we must incorporate technology throughout our business. With that in mind, we've recently appointed Mr. Merwe Roux as our new Group CIO with the task to drive efficiencies and synergies across the group. Technology, ladies and gentlemen, will also require continued investment to remain up to date with all new developments in our industry as well as to stay relevant. We are actually very proud on how we have incorporated AI into our teaching and learning at STADIO. And by doing that, we are also sure that we are one of the leading institutions in this regard. Technology will, however, not replace the human contact. We will continue to need good people in our business, working with technology to offer a superior product. Some feedback on our Durbanville campus and the construction thereof. The construction is progressing well. We've had a few days delay with the continuous rain here in the Western Cape, but we are still well on track to open in January for the 2026 academic year. The target that we've set ourselves to open with is that of 1,000 students to open the campus in January 2026. We've decided to construct Phase 2 earlier to be completed by August 2026. The total construction cost for Phase 1 and Phase 2 will be ZAR 325 million, as we've already communicated during our AGM earlier in the year. By constructing Phase 2 earlier, it would put us in the position to have capacity in excess of 6,000 students on that campus. So ladies and gentlemen, it's a real comprehensive campus, where we will be housing 7 of our faculties, offering a wide variety and range of qualifications, including our new School of Engineering and Architecture. This is totally different from when we opened our comprehensive campus in Centurion. When we opened that campus during the COVID period in 2021, we opened only with 2 faculties and with approximately 400 students. The approach with the Durbanville campus is to offer our students a holistic student experience with sports as well as other facilities available to them. More good news is that in the AFDA brand, we will also open a new campus for AFDA at Hatfield in Pretoria. We continue to execute our growth strategy, reaching more students and creating value for all our stakeholders. The 5 pillars of our growth strategy includes the accreditation of new in-demand programs; taking programs to new sites of deliveries, that is basically site extensions; opening new faculties and schools; opening new comprehensive campuses and importantly, optimizing our existing campuses; and then fifthly, exploring new opportunities in markets. Very exciting for us for next year is that we will offer 2 cobadge qualifications. This is in our partnership with Stellenbosch University. And next year, we will offer the post-graduate diploma in data science as well as a BCom degree with a specialization in data science in partnership with the Stellenbosch University. Ladies and gentlemen, we're still well on track in achieving our pre-listing target of 56,000 students by the end of 2026, as I've already indicated earlier. Currently, we are in the second semester of the year, August. We -- our student numbers are at 54,487. The next target that we've set ourselves is that of 80,000 students by 2030. To get there, we need to show a growth of 8% per annum, which we think, with all our resources, our strategy as well as our infrastructure, is an achievable target. Just lastly, from my side is to show that we've shown consistent growth over the last 5 years. If we look at our student numbers from 2020 up to 2025, we've seen our student numbers growing from 31,000 to 51,000, which is a 63% growth for the 5-year period. Revenue also showing very good growth of 104%, and then our core headline earnings showing growth of 209% over the 5-year period. As I've indicated earlier, there is great excitement in the group with all the new changes going on currently. We see change is the heartbeat of our growth, and we really believe that the future is bright for the STADIO Holdings Group. With this brief introduction and background on the group, I will now hand over to our CFO, Ishak Kula, who will unpack our interim financial results in more detail. Over to you, Ishak.

Good morning, ladies and gentlemen. A privilege to be with you this morning. I have the honor to present the financial results, the interim financial results in a bit more detail. We produced a solid set of results with revenue growth of 16% to ZAR 957 million at the half year, really driven by overall good student growth of 9%. Our EBITDA margins, as Chris alluded to, proudly sitting at 30.6%, up from the prior comparative period of 28.5%, with efficiencies really starting to show and coming through in our results. Our financial performance is also well supported by good cash generation with cash generated by operations up 20% to ZAR 368 million. Our loss allowance margin for the period has marginally increased to 8.7% in comparison to the 2024 loss allowance margin of 8.3%, and is in line with our December 2024 full year loss allowance margin. Some investments, key capital and other investments during the period of ZAR 120 million. Some of the key elements of that, we invested ZAR 71 million in our STADIO Durbanville campus for the period. We also invested ZAR 16 million in other campus and expansion projects, including new IT labs on some of our campuses. We've also spent ZAR 13 million in curriculum and software developments during the period. Then our Randburg, our STADIO Randburg campus, you'd recollect, was classified as held for sale in our March 2025 results presentations. The asset continues to be classified as held for sale at the date of the release of the results. Shares issued and repurchased during the period. We issued 3.3 million shares worth ZAR 24.4 million towards the settlement of our group's share incentive scheme. In addition, we also purchased and canceled 1.1 million shares worth ZAR 9.4 million by the end of June, and subsequent to the half year period, we purchased another 800,000 shares worth ZAR 7.2 million. The group, we remain committed to avoid shareholders dilution and we'll continue to make sure that the long-term incentive scheme doesn't cause any dilution on our share of existing shareholders. We also, in April, paid a dividend of ZAR 128.6 million, and we also paid ZAR 11.3 million dividends to our minority shareholders. Ladies and gentlemen, we have a strong balance sheet with ZAR 53 million in debt only after we consider the IFRS 16 leases. Before I go in more detail, as always, just a reminder for our community that we have a second semester ongoing, and the first half year results is not a proxy that the full year will be necessarily in line with the first 6 months. If I unpack the total student numbers in a bit more detail, you'll see there that our student numbers up by 9% from last year's 47,024 to 51,197, which is a 9% growth. If we very encouragingly see that there's a 14% new student growth in the current period. If we look at the student growth excluding our cyclical B2B business within our Milpark brand, our student growth would have been 11%. Breaking our student numbers down to contact learning. Contact learning student numbers growing by 11% for the period from last year from 6,322 to 7,018, really driven off site extensions and growth in new qualifications coming through on the various businesses as well as historically poor enrollment starting to work its way out of the system. Flipping over to Distance Learning. Distance learning student number growth, 9% increase from the prior period from 40,702 to 44,179. Our distance learning student numbers impacted by still the B2B business with our Milpark Education business. If we exclude the cyclical nature of that, our growth would have been 11%. The growth really then coming also from new qualifications that was rolled out in our organization. Then moving on to revenue. Revenue increasing by 16% for the period moving from ZAR 826 million in the prior year period to ZAR 957 million in the current year, with the key elements of that, 15% growth in our contact learning revenue growing to ZAR 301 million and 16% growth on distance learning growing to ZAR 650 million. EBITDA and adjusted EBITDA, there is no adjusted -- adjustments made to our EBITDA for the current period. So our EBITDA at ZAR 293 million, up to 30.6% for the period and up from the prior year's EBITDA of 28.5%. Then looking a bit more at the analysis of our various margins for the period. Our employee cost margin sitting at -- for the period at 38.2%, improving from 40.7% on the prior year, really off the back of the revenue growth, but still continued investment in the various programs that has been rolled out. Looking at our operating expense margin, which also improved from 23.2% in the prior year to 22.9% in the current year with ongoing strategic investments in marketing and advertising and also impacted by various software licenses and computer costs across the group. Our loss allowance margin increased from the prior period, but which is in line with the full year, December '24, moving from 8.3% in June '24 to 8.7% in the current period. Our trade receivables and loss allowance, like I've mentioned, we've embedded various collection processes in our organization. Those continue to be refined, and we are seeing good results in that, as you can see from our recoveries in the period. In addition, I mentioned already that our loss allowance margin is in line with December '24 and slightly up from June 2024. Then just breaking down the debtors growth for the period. As always, we look at our debtors growth and the highest risk category being our prior year debtors. So just to give you a breakdown of where the revenue or the debtors growth came from. Our total receivables grew by 18% compared to our revenue growth of 16%. Our current period receivables growing by 15%, which is in line with our revenue growth, but our prior period receivables grew by 22%, but remains well covered as we continue to be prudent with our loss allowance covering 86% of the debt within that category. Looking at our profit for the period. Profit up by 27% from ZAR 144 million to ZAR 183 million in the period, really coming from strong growth, organic growth in EBITDA, but also well supported by our continued investment in various strategic initiatives like marketing and advertising and computer and license costs, as I've mentioned. But we've also seen a lower growth in depreciation and amortization for the period also contributing to the 27%. And in addition, which I'll unpack in the next slide, we've also seen our net investment income, our interest income growing of positive cash balances, but we also utilized the revolving credit facility in the prior period to acquire and buy out minority shareholders being Brimstone, which was obviously not incurred in the current period. Then moving on to our earnings per share and our headline earnings per share. On the left there, you'll see our earnings per share increasing by 28% from our ZAR 0.163 per share to 20.8%, up ZAR 0.208 per share in the period, whereas headline earnings per share also increasing by 28% from last year's ZAR 0.162 per share to ZAR 0.207 per share in the period. Then our core headline earnings, moving from -- increasing by 28%, increasing from ZAR 137 million in the prior period to ZAR 176 million in the current period, and our core headline earnings per share increasing from ZAR 0.162 per share to ZAR 0.207 per share. If we look at where the contribution and core headline earnings came from, moving from left to right. If we look at the organic growth that comes from the underlying businesses, offset by our loss allowances and bad debt recoveries, that contributed 25% of the 28% core headline earnings growth, whereas the residual 3% came off the prior year. We incurred the interest on the revolving credit facility to acquire the Brimstone minority shareholders shares, and that cost is not repeated, of course, in the current period. Then looking at our statement of financial position, strong statement of financial position. As alluded to earlier, we invested ZAR 120 million in capital expenditure, which substantially comes from our Durbanville campus at ZAR 71 million during the period. We continue to invest in our software development of ZAR 3 million, and we also invested ZAR 10 million in our curriculum development and also included about ZAR 16 million some building projects and new IT labs during the year with our residual costs coming from our recurring CapEx of about ZAR 20 million. We've got a strong cash position at ZAR 215 million at half year with our gearing ratio at 10%, if we include the impact of IFRS 16 and 3%. If we exclude IFRS 16 and our debt facility of ZAR 100 million, we've utilized ZAR 53 million at the half year. Then looking at our cash flow from operations. Our net cash flow from operations before working capital growing to ZAR 287 million with positive working capital movements of ZAR 81 million during the period, taking our net cash generated from operations to ZAR 368 million, which is 126% cash generated from operations. If we express that as a percentage of our normalized EBITDA with our free cash flow less recurring CapEx standing at ZAR 291 million at the half year. Capital invested, essentially ZAR 120 million split across the 2 categories, as I've outlined previously. Infrastructure development and capital assets, ZAR 110 million, and our program development at ZAR 10 million, taking our total capital invested to ZAR 120 million, and a cumulative investment of just over ZAR 2.5 billion. Our cash utilization for the period. If we work from left to right, we generated in our operating activities, ZAR 310 million during the period. We utilized ZAR 71 million to our Durbanville CapEx expansion. We utilized ZAR 16 million for other CapEx expansions. We invested ZAR 13 million in the curriculum and software development combined with our recurring CapEx number at ZAR 19 million. Our net borrowings for the period at ZAR 53 million. We've paid in our external leases ZAR 15 million during the period. We paid ZAR 129 million rounded to our shareholders in dividends with minorities paid ZAR 11 million during the period, and which also had a net share repurchase of ZAR 6 million, closing our cash -- closing and moving to our closing cash balance of ZAR 215 million for the period. Just a summary of our 2025 capital expenditure. Looking from left to right, you'll see that in curriculum and intangibles, we spend in semester 1, ZAR 13 million, with an estimated ZAR 29 million to come in semester 2. We take the full year spend to ZAR 42 million. Our Durbanville property, we spent ZAR 71 million at the half year with an estimated ZAR 142 million still to come in the second half of this year, taking the total full year spend to ZAR 213 million. And in some other capital assets, we spent ZAR 36 million at the half year with another ZAR 34 million to come, taking the full year to ZAR 70 million, and therefore, our expected total capital projects for the period at ZAR 325 million. And just to highlight that, that Durbanville property CapEx at ZAR 142 million that's still to come, that excludes any borrowing costs incurred. Then just reflecting on our 7-year financial performance. As Chris said earlier, we're in a strong position. And I think our metrics across those lines speaks for themselves. Happy to open for questions and answers. Thank you very much.

Thank you, Ishak.

Thanks, Ishak. Thanks, Chris. I note that a few of you have struggled to see the slides. So we will have the presentation available on our website, if you did not manage to see the slides. And first question comes from [ Rudy Banico ]. You've seen further operating leverage evidenced by EBITDA and operating margin expansion. Do you foresee further margin expansion in the future? Or should we assume this is -- this as a sustainable base?

Yes. Thank you, [ Rudy. ] Definitely, as a young institution. I think this is a good base to work from. This was the target that we set ourselves as being a sustainable number. But as the business matures, we should see further prospects of growth in our margins. But one must just remember, as a young institution and us being focused on bringing more new programs into the institution, those new programs take quite a long time to mature and to become profitable as you start with a small impact in the first year, but you occur quite substantial costs upfront. So it takes some time. But as the institution matures, one should see further growth in those margins becoming a reality.

And good morning, [ Mark. ] Once Durbanville is completed, what is the plan for the excess capital that will be freed up, reduce debt, increase dividends? Over to you, Ishak.

Thank you for that question, [ Mark. ] Certainly, the strategy is, [ Mark ], if you look at the existing balance sheet, we've got a fairly low gearing. So the idea would be to have some gearing in the business to achieve an optimal debt level. So I think I want to start by saying that. Invariably, we've always communicated to our investor base and community that we definitely see ourselves continue to invest in the business, being a young institution. But certainly that our dividends should grow substantially over the period, and we've set ourselves a long-term target that's been communicated previously where we want to get our return on equity up substantially. So we do expect a significant increase in dividends in the next couple of years.

[ Zack ] had a few questions, trying to better understand the 11% cost growth. Is the business investing sufficiently at 11% cost growth given significant student growth still to come? Is the significant operating leverage being driven by the 11% cost growth? The second question, can you give us a sense of LFL growth in distance learning qualifications. Trying to understand dependence on new qualifications to drive the 9% DL growth. And then the last one. And then support centers, how many support centers does STADIO Higher Education have? What exactly happens there? And are there aspirations to grow the support center programs? So Ishak, they're trying to better understand the 11% cost growth.

Yes, I'll speak to that. Thank you, Kate, [ Zack ]. So on the back of that, we believe that 11% cost growth is definitely sufficient at this stage. If you look at the base of it, we've invested significantly in new programs and new qualifications over the last number of years, including the current year. So as you continue to grow, a number of those qualifications, obviously, start maturing. So we don't continue to add significant additional costs. As an example, we have invested in a program. As that is now moving into the second year and third year, you've got your fixed operating cost base and employee cost base already intact. And marginally, the operating cost base moves with incremental license costs and the likes. So I want to assure you that we're comfortable with the level of investment at the half year point. The operating leverage is definitely driven by both contact learning and distance learning [ Zack ]. So we've seen good growth in both. Both of those contributing to the EBITDA margin growth of 24% at the half year.

Then, Chris, can you give us a sense of the like-for-like growth in existing DL qualifications? Trying to understand the dependence on new qualifications to drive the 9% distance learning growth we see. And then just add some flavor on the support centers and what they do and how we will grow the footprint.

Yes, I think as Ishak indicated in his presentation, if one excludes the dependency on the B2B business, the kind of the distance learning actually shown good growth during the first 6 months of the [Technical Difficulty] in 1 or 2 of those new distance learning programs. On the regional offices, this is pretty much still in us waiting to see proof of concept. We've started with 3 regional offices being in the southern part of the country, in George, in the northern part as well as in the Mpumalanga area. If we see proof of concepts at these regional offices, we will consider expanding it. The main purpose of these regional offices is to improve our student support to students, where a student gets stuck with technology, wanting to have a safe place to study, have access to devices, the regional office is the place to go for that student to receive additional support from the institution, very much part of our thinking and our strategy going forward. So we might expand on the regional offices across the country, especially in those regions where we do not have a footprint for people to join the institution.

[ Garison ] asks, what is the annual fee increases across distance and contact learning?

So for 2025, it ranges between 5% to 6%, depending on the programs. Some of the programs we've increased by 5% or less percent, and then others 5%, 6%.

And a question from [ Nico. ] Are there any additional acquisitions in the pipeline, specifically in the secondary schooling sector?

So, [ Nico, ] we're not operating in the school sector. We are purely a higher education institution. But as part of one of our pillars for growth, we continuously look at new opportunities in new markets, and we will, in the future, look at opportunities, but nothing concrete that we can give further information on at this stage.

And I think linked to the schooling thing, we heard this morning that PSG put in a bid to buy Curro. If successful, will Curro be incorporated within STADIO?

I think as indicated, STADIO is a higher education institution. We have a total different mandate and strategy. So I think at this stage, it's not part of our thinking.

Can you give some clarity on the ZAR 10 million on program development? Is this for all 3 brands?

Thank you, Kate. Correct. It's ZAR 10 million across all 3 of our education institutions.

And how are the enrollments for 2026 for the Durbanville campus? How many carryover students will there be from the Bellville campus?

So it's too early to say. We will soon, after the closing of our second semester, actively start with applications for the 2026 academic year. However, we see a lot of interest for our Durbanville campus, which is very exciting. The carryover from the Bellville campus would be in the range of 600 to 700 students, and what is also important to note is that when we open the new Durbanville campus, we will actually close the old Bellville campus.

[ Sam. ] Is there an appetite for strategic acquisitions outside South Africa? Or was the focus on South Africa acquisitions only?

Yes, at this stage, we will consider all opportunities. The focus up to now was really to build a solid foundation for the group as a whole. We've gone through the merger of merging the different smaller institutions in creating this big comprehensive institution. We now have a focused, dedicated management on each of these different brands, and as we progress later this year and into next year, we will consider all our options, whether it is nationally as well as internationally.

Can you give us a reflection of the split between the various brands since listing? And what will the split of students be across the 3 core brands when you achieve the 100,000 students in the future?

We have all those numbers by heart. I don't know, Ishak, if you have it. But I think what is important to know is that the biggest institution would be STADIO Higher Education, which is our comprehensive institution with multiple campuses as well as both contact and distance learning mode of delivery. So that would definitely make up the bulk of our student population. The other two are more focused specialized institutions. Obviously, due to the nature of the AFDA product being contact learning and being in the performing arts, one will never see huge numbers. But we think the potential for that business is to grow up to a student base of approximately 5,000 students over time. And then the Milpark business also, due to its online and distance learning nature, have growth prospects also to grow student numbers significantly in the future.

It sounds like there was a bit of an issue with the audio, [ Zack ] said, sadly the audio cut out when Chris was answering the question on the growth in existing DL qualifications and the dependence on new qualifications to drive the 9% DL growth. Can you please repeat?

Yes. What I've said is, if we exclude the B2B business, our distance learning growth numbers actually showing double-digit growth, 11% growth to be exact, which we think is very exciting, working from a high student number already. The new student or the new programs coming in will definitely accelerate growth going forward. But what one must remember, a new program actually takes a few years to fill up and to become profitable as one start in the first year with a small intake and as it progress delivering its first cohort, one actually then start to see the real efficiencies and numbers coming through.

What is STADIO's market share more or less of the private higher education market in South Africa?

We'll get back to you. I think it was in the range of 12% to 13% previously. But let us just make 100% sure and we can get back to you.

I'm not seeing any other questions coming through. If anyone does have further questions, please feel free to e-mail [email protected], and we can get back you. So it's [email protected].

Thank you, everybody.

Thank you.

Goodbye.