AdvTech increases school enrolments by 5% despite Covid restrictions

Producing an 8% bump in revenue and 5% profit growth for FY2020.
Crawford College Sandton. In prior years, a major source of student churn was emigration, but Covid largely cancelled that. Image: Supplied
The headline has been corrected to reflect the fact that school enrolments across the group grew by 5% (not 4% as previously indicated). 

At the start of the Covid lockdowns a year ago, schools were the first to be hit as classrooms were shut down for health reasons, though some seem to have weathered that storm with relative ease.

Education and recruitment group AdvTech increased its school enrolments by 5% for the financial year to December 2020, translating that into a 5% gain in earnings per share.

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Private school operators like Curro and AdvTech operate in some ways like hotels, where classroom occupancy rates are critical to financial success. In prior years, a major source of student churn was emigration, but Covid largely cancelled that.

“We’re seeing a return to normal levels of schooling,” says CEO Roy Douglas. “Even before Covid we had made substantial investments in online education, so when Covid arrived, we were relatively prepared. More importantly, I think we are well positioned for any future disruptions.”

When the lockdowns were announced, AdvTech transitioned 75 000 students to online tuition without losing a single academic day, adds Douglas.

Where the pain was most deeply felt was in disposable incomes of parents. “We were able to extend R47 million in assistance to more than 5 000 families through a very difficult period.”

Though operating profit grew by 5% to R910 million (2019: R869 million), there was a near doubling in loss allowance and bad debts written off amounting to R264 million (2019: R136 million).

Portfolio

The portfolio includes Crawford Schools, Pinnacle, Trinityhouse and several smaller school brands, as well as a number of tertiary education institutions such as Monash, Varsity College, Rosebank College, Vega and six Capsicum chef schools.

The schools division comprises 11 brands with 109 schools across South Africa, including Gaborone International School in Botswana, Makini Schools, Kenya and Crawford International, also in Nairobi.

It owns nine tertiary brands, operating 33 campuses across South Africa.

Rest of Africa

Revenue in rest of Africa was hit by Makini School in Kenya, which was unable to invoice fees following a Kenyan government directive to defer the school year in response to Covid.

Despite this, school enrolments in the rest of Africa increased 10%, against a 4% increase for SA. The group now has nearly 34 000 students across the continent, including SA.

“The University of Africa, a small distance learning institution in Zambia, was severely impacted by the effects of Covid-19 on the Zambian economy, which was already in recession before the pandemic,” says AdvTech in a results statement issued on Tuesday. “The cash injection that was required to sustain the business was not considered feasible. Therefore, to afford the institution the best opportunity to remain sustainable, a decision was made to dispose of our 51% holding. This allowed the business to merge with an education provider with a similar offering.”

Priorities

Like most groups staring down the uncertainties of the Covid lockdown, cash preservation and balance sheet protection took top priority. Steps taken included a dividend holiday and cutting back on non-essential capital and operating costs, allowing it to pay down roughly R500 million of debt which reduced net borrowings to R2.1 billion. Gearing reduced from 68% to 64%.

Cash generated by operating activities increased by 21% to R1.3 billion (2019: R1.1 billion). This enabled it to fund investments and capital expenditure of R308 million, retire R484 million in debt, and settle R213 million in tax and R98 million in leases.

Revenue of R5.5 billion came predominantly from education, with R848 of this coming from placement fees. The placement business in SA took a hit as a result of Covid, with a 30% drop in revenue to R183 million (2019: R263 million).

There was better news out of the rest of Africa, where AdvTech runs low-margin payroll and other services for companies operating outside SA. Revenue from this segment jumped 39% to R665 million, with a 42% increase in profits to R21 million.

Douglas believes demand for quality education in Africa remains robust, though the winners in this space will have to be nimble and flexible enough to adapt their delivery models to maintain promises of academic excellence.

Key figures:

  • Revenue up 8% to R5.5 billion
  • School enrolments up 4% in SA and 10% in rest of Africa
  • Student numbers nearly 34 000
  • Operating profit up 5%
  • Earnings per share down 2% to 85.1c
  • Profit for the year up 1% to R465.5 million
  • Debt reduced by nearly R500 million to R2.1 billion, and
  • Increase in loss allowance and bad debts to R264 million.

Listen to this MoneywebNOW podcast with Simon Brown (or read the transcript here): 

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