AdvTech profit up 22%

‘Our brands, from our premium right the way through to mid-fee and our specialist offerings, have all seen enrolment growth’: CEO Roy Douglas.

FIFI PETERS: We’re checking into the classroom right now with the private-school operator AdvTech, whose schools include Crawford college, Trinity and Vega.

The company released its results today, reporting a 22% jump in operating profit for the year to December. It also reported that more learners had registered across its schools. So let’s get into the numbers and the state of the education sector in the view of AdvTech with CEO Roy Douglas. Roy, thanks so much for your time. The kids are back at school and you’ve got new learners who have registered across your schools. Would you say that business as usual – or unusual – has resumed in the classroom, or are there still some teething issues that you’re dealing with from the Covid-19 pandemic?

ROY DOUGLAS: Evening, Fifi. We really are moving back to a situation of normalcy and kind of the pre-Covid pandemic, and I think everybody is very appreciative and thankful for that. There may be some slight alterations and changes, but essentially we are pretty much moving back into full operations, particularly in schools. We do continue with some hybrid operations in some of our tertiary divisions as we comply with schools and social distancing requirements, but essentially I think people are starting to move back to pre-Covid arrangements.

FIFI PETERS: Just on the hybrid learning, how much of that is still happening, just given that we throughout this pandemic heard so much about the future of education and the future of learning and how things would be a lot more hybrid as opposed to just face-to-face on campus?

ROY DOUGLAS: There’s an awful lot of comment and speculation about that. But I think it’s important to remember that at the end of the day we are human beings and social interaction is very important to us, and we are social and gregarious beings. I’m sure you’ll probably appreciate and think back to your education experience, a lot of really important learning takes place in groups and through others. So being able to move back into a classroom environment, we think, is critically important.

Having said that, technology can play a phenomenal part in improving the teaching and learning experience and assisting in certain areas and application. We do actually look at integrating technology into our education system for exactly that, and it can be either in the way of actually bringing productivity improvements, [and] better learning in certain instances, in certain cases. But I think it’s fair to say social interaction group work, communication, the involvement and ability to interact with others is always going to be an important part of the education process. I don’t think it’s possible to completely replace that altogether. I’m not sure it’s desirable in a sense, but we are certainly seeing things moving back to normal.

FIFI PETERS: Sure. Well, certainly I see it being quite difficult to do a hybrid form of extramural activity and the sporting activities that happen, because there’s a lot of learning that happens outside the classroom. I see that that part of the business has also returned to normal. I’m just interested in the manner or the way in which some of the social distancing restrictions are impacting that part of the business.

ROY DOUGLAS: Yes, they certainly did, and I think that’s been one of the fortunate side effects. You’ll appreciate that extramural activities and participation, such events are an important component of school life in particular, and even at a tertiary level. Families, as well as the children, obviously enjoy participation and involvement in those kinds of extramural activities, and that’s been one of the negative impacts of the Covid pandemic. But we’re moving back to normal now, and I think sporting activities, sporting events and social occasions are starting to pick up within the confines of the regulations and the requirements. We are certainly seeing that parents and students alike are appreciative and enjoying the moving back to a more normal situation.

FIFI PETERS: Let’s talk about revenue growth. Just looking at the pace of revenue growth reported in South Africa compared to the rest of Africa, I see that the pace of the continent is a lot stronger than here at home. So just talk to us about those different dynamics at play, and what is driving such strong demand for education outside South Africa.

ROY DOUGLAS: Yes, certainly there are some very specific reasons as to why that is. We actually forwent a price increase in 2021, acknowledging and understanding the significant pressure that consumers were under with regard to disposable income, and the aftermath and the effect of the pandemic. We decided to forego price increases here in South Africa. So that’s the primary reason why the revenue growth is muted. We did see an increase during the second part of the year in revenues, as boarding and aftercare kind of activity started to pick up, but revenue for South Africa was affected by that decision, and we were very pleased we were able to put into effect.

In the rest of Africa the business was obviously very badly affected by government decisions to completely close schooling, whereas here in South Africa we managed to transition some 75 000 students to an online education system in three weeks and not lose any academic days.

That wasn’t the case in the rest of Africa, where the restrictions on education were much more onerous and severe in schools. The school academic year was actually severely curtailed and disrupted by the decision to close. So that revenue increase over the prior year is explained by the fact that we’ve moved back into recovery on that side.

But yes, I think what’s pleasing in the results is [that], despite the muted revenue growth in South Africa we’ve managed to grow operating profit through our pursuit of efficiencies and effectiveness and the elimination of wastage and duplication. That has obviously contributed to the very positive profit result.

FIFI PETERS: Then fee increases going forward, what’s that looking like? We do appreciate that you yourselves as a business are facing cost pressures from the higher fuel price, the higher oil price, to the higher electricity costs – and generally inflation all around. So what’s the latest fee structure for the year ahead?

ROY DOUGLAS: We do understand that obviously inflation will have an impact on the cost base, but what we have been doing and pursuing over a number of years now, in terms of the reorganisation and restructuring of our business, is to deliberately look at how we can improve the value equation. We understand that private education is expensive, and a very important part of our strategy has been to drive value by trying to eliminate wasted duplication, as I say.

You’ll appreciate it’s not something that education businesses often talk about in terms of productivity and efficiency gains, but we’ve looked at our systems, our structures and processes, and by eliminating, as far as we possibly can, any areas of duplication by consolidating, transaction processing, moving towards group shared services. We’re keen to eliminate – and deliver a significant improved value offering. It’s our determination to ensure that we focus on that area.

You’ll also appreciate education inflation has traditionally run at two percentage points above inflation, but we are determined to try and ensure that we turn that situation around by having the most efficient structures that we possibly can, concentrating on the delivery of education as opposed to the affiliated and associated costs.

So we are going to try and strive for that, but we do understand inflation will have its impact, and we obviously need to compensate and reward our staff accordingly and take into account those market factors. But we are hoping that through our efforts we will really be able to deliver true value in the quality of our educational offering.

FIFI PETERS: Roy, what’s the situation looking like among some of the parents of the learners? We have been reporting broadly on the state of the economy. It’s not as bad, but it is still pretty fragile, and a number of people have lost their jobs in this time. I’m interested in what outstanding fees look like, particularly for those parents who did have it hard throughout the pandemic.

ROY DOUGLAS: Yes, you’re absolutely right. We do understand that consumers remain under significant pressure as a result of sub-optimal economic performance here in South Africa, and really low growth rates. So we know consumers – and that’s really what’s driving our desire to realign our own internal operations to deliver that value.

However, one of the most pleasing aspects of our results in this particular reporting cycle is the fact that our collections have improved, and that really is a result of the systems and processes that we’ve put into place over the last few years. As I mentioned, we’ve consolidated into group shared services, [and] we standardised on certain practices.

We have a centralised debt-collection department now, and we’ve been honing those practices and systems. So we’ve really seen an improvement in terms of collections. But we do understand that consumers remain under significant pressure. All that we are trying to do in our business is to make sure that we deliver quality education and the best-value equation. So that’s a focus for us.

FIFI PETERS: Just lastly, more learners are coming into your various schools, but what’s the level of dropouts looking like, and what are the reasons why you are losing some learners?

ROY DOUGLAS: It’s always been a feature. There’s always a degree of churn in our operations. I think the one thing that we had anticipated is that emigration, and I think certainly some years back emigration was a concern about the fact that we are a premium-based operation and it is possible that we would lose learners through that impact.

We have seen some escalation but, quite honestly, if you look at our enrolment numbers, we’ve seen really strong enrolment growth here in South Africa, at 8%. I can say that all of our brands from our premium right the way through to mid-fee and our specialist offerings have all seen enrolment growth. I think that’s testimony to the quality of our education and the fact that we are working hard to ensure that we deliver real value.

So, while there’s always churn, there’s nothing that is of particular concern to us at this point in time, and I think that’s always going to be a feature of our offering.

FIFI PETERS: All right. Roy, thanks so much for your time, sir. We’ll leave it there. Roy Douglas, CEO of AdvTech.

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