Private school group Curro announced much better results for year to December 2021, with headline earnings increasing by a tad more than 43% to R245 million on the back of revenue topping R3.5 billion.
While this will make shareholders happy, the strong increase in enrolments should make them even happier.
Curro CEO Andries Greyling disclosed in a presentation to shareholders that enrolments for the 2022 school year topped 70 000 learners, compared to the average of 66 447 last year. The 2021 number represented growth of some 9.3% on 2020 when Curro had 60 777 learners.
Total tuition fees increased by nearly 12% due to the growth in learners, a more beneficial tuition fee mix, and inflationary increases in fees.
It all translated into a solid increase in earnings.
Management pointed out that recurring headline earnings increased by nearly 37% to R245 million compared to the previous year.
“The results were pleasing, considering the circumstances. Many of the challenges of 2020 persisted in 2021,” says Greyling, mentioning that revenue from ancillary services remained low, while operating costs were higher as schools were open throughout 2021. Municipal and electricity costs also increased by more than the inflation rate.
In addition, learner numbers were still below what Curro would have wanted as its target market suffered due to financial stress brought on by the Covid-19 pandemic. The schools operated below best efficiency, while government relief of the previous year was absent.
Not only attracting students, but keeping them and keeping parents paying, has been Curro’s main challenge during the last two years.
The group’s business model is based on the belief that average families are willing to pay for better education to give their children a better change in life.
Unfortunately, lockdowns hit their ability to pay, even if the willingness to pay remained.
Curro had to get tough. Greyling said the business has a relatively high-fixed cost base and management was forced to maintain operational discipline.
Both Greyling and CFO Cobus Loubser referred to the problem of overdue accounts in the presentation of the results.
“Our stringent focus on disciplined collections and a tougher stance on overdue accounts resulted in higher terminations,” says Greyling, while acknowledging the extreme difficulty in seeing learners leave during the academic year.
Loubser says the firm approach on overdue accounts resulted in higher collections and improvements in the age of outstanding accounts.
However, he presented figures that show that collection of overdue accounts is problematic – especially if Curro wants to keep the kids on its school benches.
Debtors with fees outstanding up to three months increased to R92 million at the end of December compared to R68 million a year ago.
There was R52 million outstanding for three to six months, and R337 million unpaid for even longer.
Curro knows it will not collect most of the amounts due for so long and provided to write off R243 million out of everything owed for longer than three months.
This comes to more than half the total debtors book of R481 million.
However, shareholders should note that the bulk of the arrears date back to very long ago with R187 million outstanding for longer than 18 months – and apparently irrecoverable, with management providing to write off 93% of the old debt.
Things are improving …
“Ageing improved meaningfully due to an enhanced debt collection process,” says Loubser. The figures show that things have improved, except for the very old debt.
And things could improve further. Management noted that overdue accounts are managed more stringently and the quality and ageing of outstanding accounts for enrolled learners has improved significantly since a year ago as Curro enhanced its debt collection processes.
“The non-performing portion of the debtors’ book mainly relates to learners who have left Curro and concerted efforts are being made to recover the outstanding debt,” according to the commentary to the results.
Curro generated R767 million cash from it operating activities, 49.2% higher than in the previous financial year, and finance cost reduced by R53 million to R170 million following the R1.5 billion rights issue during 2020.
Looking to the future, Greyling says Curro’s business model is resilient and it is enhancing its offerings.
“Learner growth is buoyant as a result of increasing demand for affordable, high quality education.
“Curro is satisfied with the level of new registrations for the 2022 academic year, which commenced with much enthusiasm and few disruptions thus far. Whilst the ongoing Covid-19 pandemic and its associated impact on the economy and our business remain unpredictable, we hope that our learners will experience a more stable academic year where they can again participate in a wide range of extramural activities,” says Greyling.
Unfortunately, the share price suggests that Curro still has a long way to go.
After reaching a high of R58 on the last trading day of 2015, the share has declined steadily. The current price of R12.75 is still on a high price-earnings of above 30 times.