NOMPU SIZIBA: Education player and JSE-listed ADvTECH came out with their annual results today [March 23, 2020]. For the 12 months ended December 2019 the company reported that revenue came in at R5.1 billion. That’s up 16% on the year prior. Operating profit rose 8% to R869 million, while headline earnings per share rose by 20% to 86 cents. The company indicates that it managed to increase its student complement by 20% in the year.
Well, to tell us more I’m joined on the line by Roy Douglas, the CEO at ADvTECH. Thanks very much, Roy, for joining us. So 2019 was a positive one in terms of growth – what were the main drivers?
ROY DOUGLAS: Our tertiary business, of course, has done extremely well again, continuing the trend that we have enjoyed over the last few years. So a really strong performance there. During the course of the year we also acquired Monash South Africa, MSA, and we’ve been busy integrating that institution into our structure. So it helped to make a positive contribution to students numbers in particular, although we did actually have to incur some restructuring costs and re-integrate and consolidate that operation into our own.
We’ve had good student enrolment growth. I think particularly pleasing is our 2020 enrolment numbers at schools. In the past few years our school gross net enrolment numbers have struggled as a result of financial hardship and emigration, but we have been busy repositioning the organisation. We’ve also been increasing our presence in the mid-fee sector, and in 2020 we opened two new mid-fee schools, and we’ve had an outstanding response to those schools, which has helped to grow our numbers.
We’ve repositioned two other schools as mid-fee brand, and that has been very positively received by the market.
And in addition we opened the new Trinity Glenvista, which is a premium school, and just goes to show that there is still a demand for premium-quality education at the top end, in Glenvista, and the numbers there far exceeded our expectations. In fact, we almost doubled our targeted enrolment growth there. So I think its operation affects our improvement in terms of our marketing enrolment, our brand positioning, including our product offering across the mid-fee sector.
So it’s been a very busy year, and a year in which we really are starting to see some of the benefits of all the work that we’ve done bearing fruit.
NOMPU SIZIBA: So, while you registered profit growth, you do mention that it was also quite a heavy year in terms of costs and investments, including an investment in Kenya. Just tell us a bit about that.
ROY DOUGLAS: Yes, certainly. We have clearly indicated that our intention is to expand across the continent, and we’ve made some exciting investments in Kenya in particular. We’ve actually launched a Crawford International. That was very exciting – to take our Crawford brand into a new market in Kenya, and it’s been very positively received as well. Our enrolment numbers there are now in excess of 400 and, despite the relatively heavy capex which of course is accounted for in the 2019 year, so we’ve had a quite a deep J-Curve. But the school with its strong enrolment growth has come out of that J-curve much sooner than we anticipated, and we believe it will make a positive contribution in 2020. So a deep J-curve, but an early exit from that, and very good growth.
Our Makini schools in Kenya as well have also shown good growth as a result. But we’ve invested in improving the facilities, and particularly in improving the academic offering. And that’s obviously been positively received by that market too, because we are starting to see stronger enrolment growth at Makini than had been experienced for a number of years prior to our acquisition.
So, all in all, we’re excited about the investments. We have been investing and we have been involved in processes of improving the offering in total, which is a cost that we incurred. But the number of growth and in total our revenue in Africa has gown by 55%. So that’s very exciting and encouraging for us.
NOMPU SIZIBA: Very substantial. I wanted to ask you about the move into the rest of Africa. As you do that, is it a case of putting up a good building and finding, you know, people who are keen to have nice facilities – or do you export some South African teachers there and bring your own culture to the situation? How does it work?
ROY DOUGLAS: Actually we’re very mindful, as we move into new territories and markets, to make sure that we don’t just assume that we understand the culture and the environment, and the expectations of our consumers and the students and parents. It’s important for us. In fact our strategy into Africa has been two-pronged. One is to look for schools that we can perhaps partner with. Now, the education sector lends itself – there are people who are passionate about education, perhaps they started an institutional school or a higher education institute. And they get to a point of either where they are constrained, in terms of the resources available, to expand their operation, or there is a legacy concern. And in the case of Makini Schools it was actually that, it was started by Mary Okelo, who built the school up over a period of 40 years – an incredibly capable person with a wonderful track record and reputation in the industry, and also in setting up her own educational institution.
But of course Mary thinks about what she’s going to do in her retirement. I think she’s approaching 80, and the opportunity for us acquire that school and to continue with its traditions is one that suits as well.
So we like to try and find partners who have similar values next to our goals, who are committed to quality education
our partners as we learn and understand the environment and I hope to develop that, of course. We have also had some of our educators who have moved to Kenya to help in the understanding and also adding value to the institutions.
And then, very exciting, and probably a little unexpected, we had a chance to take the Crawford brand, which of course is very well established, and has an excellent reputation here in South Africa. It is known internationally – and we were able to find a suitable opportunity to acquire land, and to build a new Crawford school in Nairobi at Tatu City, and the response has been phenomenal. We’re very excited. What that proves is that we have a brand that can cross international borders, and the response we’ve had for that has been very encouraging.
NOMPU SIZIBA: In terms of the difficult economy – I’m speaking more around South Africa now – what’s your experience been in terms of students or their family struggling to pay fees?
ROY DOUGLAS: Yes. Over the last few years, we certainly have seen much more pressure on the consumer, and unfortunately one of the consequences of that, of course, has been a higher level of exclusion for financial hardship. That’s a case of people withdrawing their pupils from our system because of that situation, which is obviously quite tragic. We do engage with our parents as much as we possibly can to assist. But obviously, unfortunately, perhaps they’re making the right call.
We’ve also had an increase in the level of people that we have had to exclude for non-payment of fees – and we don’t do that lightly, obviously. It only occurs after a period of significant consultation and discussion and an attempt to make arrangements. But, unfortunately, it is a consequence of the very, very tough economic times and the pressure that the consumer is under. So we have seen an escalation of that, but it’s well managed. In our collections and our debtors book remains very comfortable. We are well within our limits, and we haven’t seen any undue increase in that from posing a financial risk to the business, it’s well managed. In fact, we have the restructuring that we put into our business has been consolidation of all of our transaction processing, and we’ve actually seen an improvement in the efficiency of our collection processes in the schools business. So we are managing that as best we can, and it is a complex and unpleasant side-effect of the current economic environment.
NOMPU SIZIBA: Roy, despite relatively good numbers in the current market environment, you’ve decided not to give shareholders a dividend this time around. Why so?
ROY DOUGLAS: I must clarify. What the board has done is give careful consideration to the circumstances and the immediate challenge that the Covid-19 poses to us. So there’s not a decision not to pay a dividend, I want to be absolutely clear on that. The board has deferred the decision of the dividend payment at this point in time, because of the uncertainty. Quite obviously we are all moving into an area of the unknown, and there could be some significant financial implications for the organisation. We do not know yet. It’s very difficult for us to quantify. But the board deemed it to be prudent to just defer the decision until there is greater clarity. I do want to stress that we have not made the decision not to pay a dividend; we simply deferred the decision until there is more clarity and facts available for us to make an informed decision.
NOMPU SIZIBA: Okay, that’s crystal clear. As you mentioned, Covid-19 has touched pretty much all of us in one way or another, and most definitely the area of education, with many students now having to study at home. How have your schools adapted to this sudden change, where you already geared up for an eventuality like this?
ROY DOUGLAS: Yes, indeed we have. Part of the process that we’ve been undertaking in our schools division in particular, but also in our tertiary business over the last few years, is that
we have invested quite significantly in technology to support the delivery of quality academic offering.
So we are actually in a good position to be able to shift quite seamlessly into the online environment and provide quality academic support at home to our student body. So we are very fortunate in that respect, because we’ve done a lot of preparation and work in the area in the last few years leading up to it, fortuitously, as I say.
So this last week our schools are of course closed, but our staff and educators have been working very hard to make sure that we are thoroughly prepared. Obviously what we have done is we have rearranged the term calendar at schools so that at this point in time if in fact we open on the 14th, which is still uncertain, but that the plan at the moment, we will immediately move into a comprehensive academic support programme. So we are very comfortable in the sense that we will position on that, and we believe that there will be a minimal disruption to the delivery of the academic curricula.
In our tertiary business likewise, we have been investing in our learning management course for a number of years now. Every single qualification that we bring …… accreditor is registered for that online, as well as face-to-face tuition, so again we are able to switch seamlessly to supporting students in an online environment.
The one complexity that we still have to resolve, of course, is connectivity. While we are able to support our students completely at our own site, because of the infrastructure that exists, and some students are fortunate in the sense that they have connections at home and are able to access remotely, we have concerns about some of those students who are perhaps not in such an advantaged situation, and we need to also be able to make sure that we can support those students as well. All of that will be resolved in time. But in terms of content, in terms of our programmes, our qualifications and our infrastructure and capability, we’re very well positioned to support all of our students at school and tertiary at home.
NOMPU SIZIBA: Our thanks to Roy Douglas, the CEO at ADvTECH.