Covid-19 opens Curro’s wounds as learners diminish, bad debt rockets

Curro, the largest listed private education company on the local bourse, announced a rather grim trading update for its 2020 year-end. The trading update underpins many of the issues surrounding the education sector, with many parents unable to afford school fees as a result of the economic upheaval caused by the coronavirus pandemic and ensuing lockdowns. Since listing in 2011, the independent school provider has been extremely acquisitive, growing its assets more than fifteen-fold. Although the assets have managed to grow significantly since listing on the JSE, the value of the company has been largely unchanged. Shareholders have been made to pay for poor capital allocation decisions and a shrinking macroeconomic environment in South Africa. Curro’s business model targets the middle-to-high income households and its results display the difficulties experienced by these families. Curro experienced an increase in outstanding school fees, rocketing bad debts expense to R63m. The company averaged 4.1% less learners in the second half of 2020 compared to the first half, arguably the most concerning barometer of performance for the group. – Justin Rowe-Roberts

Curro SENS statement:

Trading statement and publication date of the financial results for the year ended 31 December 2020

Covid-19 has had a severe impact on our lives during 2020 and Curro was presented with various challenges as such. Management has dealt with these challenges, as far as it was within their control, but it nevertheless affected the results for the year ended 31 December 2020.

Over and above management’s many operational interventions to keep learners, staff and parent communities safe whilst continuing to provide high-quality education, the Company bolstered its balance sheet with a successful rights offer in September 2020.

As a result of the rights offer, the Company had 597,961,595 shares in issue at year-end compared to 412,087,989 shares at the end of the previous financial year. Accordingly, the weighted average number of shares used to calculate earnings per share for the year was 470,998,749 (2019: 420,384,587). Further details are included below.

In terms of the JSE Limited Listings Requirements, a listed company is required to publish a trading statement as soon as it becomes reasonably certain that the financial results for the next period to be reported on will differ by 20% or more from the financial results for the previous corresponding period.

Shareholders are advised that as required by International Financial Reporting Standards (IFRS), the Company’s results for the year ended 31 December 2019 have been adjusted to account for the rights offer.

Read also: Curro launches massive R1.5bn rights issue as it eyes “lucrative opportunities”

In evaluating these results, shareholders should take the following into account:

  • HEPS for the previous corresponding period included a non-recurring tax reversal (a profit) of R53m and the current reporting period includes a non-recurring acquisition cost of R8m (net of tax) which accounts for the key differences between RHEPS and HEPS;
  • Following a detailed and prudent review of the business plans for each of its schools, the Company recognised impairments of R202m (net of tax) in the 2020 financial year, relating to lower-yielding school assets. These impairment charges are included in the calculation of EPS but are added back for purposes of the calculation of HEPS, and accordingly accounts for the key difference between HEPS and EPS. EPS for the previous corresponding period included a bargain purchase gain of R27m and an impairment charge of R86m (net of tax);
  • The Company experienced an increase in outstanding school fees and a deterioration of the debtor aging profile. In response to this, Curro enhanced its debt collection processes and increased the impairment of its debtors’ book, which resulted in a R63m (after tax) higher bad debt expense than in the prior year;
  • The financial results for the second half of 2020 were lower than that of the first half. The business achieved savings in staff costs in the first half of the year, whilst schools were fully operational in the second half. In addition, fee income was negatively impacted in the second half of the year due to the Company on average having 4.1% less learners in the second half of the year relative to the first half of the year;
  • Curro right-sized its schools to contain costs and successfully expanded its digital educational offering to meet the demand triggered by the pandemic; and
  • The Company used the proceeds of its rights offer to repay R1.1bn of debt, which strengthened the balance sheet, achieve savings in finance costs and enables Curro to pursue various acquisition opportunities.

Prospects

Curro’s schools opened on 15 January 2021 but subsequently closed for face-to-face tuition until 1 February 2021 after engagement with the Department of Basic Education.

Schools shifted seamlessly to online teaching for its learners, but the sudden lockdown-related closure disrupted learner registration processes for the new academic year. New registrations for the academic year are however satisfactory within the current circumstances.

The Company’s business model has proven resilient to date, underpinned by its robust offering and its strong financial position following the rights offer in 2020. We remain committed to provide excellent education to all our learners into the future.

Results announcement

The Company is currently finalising its financial results for the year ended 31 December 2020. These results will be published on or about Wednesday, 17 March 2021 due to certain logistical challenges brought about by the latest national lockdown. A webcast of the results presentation is scheduled for 10:30 on Wednesday, 17 March 2021.

The financial information on which this trading statement is based has not been reviewed or reported on by the auditor of the Company.

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