Curro's no-frills academies bolster group profit
Curro's less-expensive schools have become the private school group's fastest growth market, cushioning the impact of students leaving the group's pricier schools. Curro's interim results ending in June, released this week, show that pupils at its lowest-priced school brand, Curro Academies, grew 41.5% in the past year. In the previous reporting period their numbers increased by only 23.5%. Its overall learner numbers have grown by 13%."I think what we definitely see is that the middle end of the market is performing well. We've got our R5,000 schools but our Curro Academies, that segment is performing very well," said Bernardt van der Linde, CFO of Curro. The DigiEd Schools, Curro Academies and Meridian Schools start at R1,900 a month. Curro Schools, the most expensive in the group, charge up to R8,650 a month.Van der Linde said in Protea Glen, Soweto, the group has an academy with 500 pupils. It has 180 pupils at its school in Savannah City in Boksburg and 350 in Benoni.In Clayville, Olifantsfontein, the group has 750 pupils. It has another school in Soshanguve, north of Pretoria.Curro also has schools across SA and in Botswana and Namibia.The academies have limited extracurricular activities and they come with bigger classes, but Van der Linde said parents are drawn to these schools because they offer value for money."We are the brave guys to start in the middle segment of the market and I think it's working for us in that it's giving people an option not to go to ex-model C schools that are already overcrowded. So now we are giving [parents] schools much closer to where they stay and at a very good price," he said.Nolwandle Mthombeni, an investment analyst at Mergence, said it was comforting that the group's pupil numbers had increased by 13% because Curro has previously had problems with relocations and affordability. The lower-priced segment of the business struggled in the past few years and had previously had a cash injection.The gains in pupils helped the group lift profit 71% to R238m.But Mthombeni said the improvement is not really a sign that lower-priced schools are a growth avenue. "It's just that they've fixed the problems" in that section of the business. Van der Linde said the middle-market schools also had lower leaver rates of 3%, compared to the group's total leaver rate of 18% in 2018. In the six months ended in June, Curro's leaver rate increased to 3.7% from 3.6% in past year's half-year.Pupil exits have been a challenge for Curro, with Van der Linde saying: "If you look at last year, it was 18% on 50,000, so that's about 9,000 pupils. So we lose about 1,500 up until June and probably another 1,500 until November, but then you'll get about 6,000 [in] December."The 18% excludes grade 12 pupils and is made up mostly of preschool pupils who continue on to other non-Curro schools close to where they live or move to government schools. Van der Linde said the group also loses grade 7 and 8 pupils to more established competitors because of family loyalty.Relocations to other cities also play a big role in pupils leaving Curro schools as their parents move around the country for better employment prospects. However, 15% of those who leave find their way back to a Curro school. Competitor AdvTech, which operates Crawford Schools and Trinity House, previously said emigration and the financial pressure parents face have had an adverse impact on its student numbers.In its annual results for the year ending in December 2018, the group said 4,345 learners had left its schools due to emigration, finances and other reasons, this excludes 2,032 matric leavers. AdvTech's growth in pupil numbers was 3%. At Curro, Van der Linde said about 20% of pupils leave due to financial difficulties. The group used to kick out pupils whose parents didn't pay at the end of every quarter, but it has changed its approach. "We said just for now keep those pupils in the school, we walk a longer path. We understand the position of our account payer a bit better, and yes, that has increased the debtors but we still see that, overall, people are still paying," he said.For now, Curro applies the Gauteng education department's policy that no child may be kicked out of school during the year. Mthombeni said: "In terms of the revenue growth and the pupil-ship growth, we are seeing improvements, but the one downside that concerns me is the cash generation. It seems now their gearing is up, the cash generation is not coming through and those are important things that I feel the market is overlooking."Without generating cash, Curro cannot pay off its debts and return dividends to shareholders, she said.Anthony Clark, an analyst at @SmallTalkDaily Research, said Curro's growth in pupil numbers shows that people are still able to invest in their children's future.With regard to the group's overall performance, he said the results bring some relief to the market, following Curro's trading update last week that depressed its share price more than 13%. "What shocked the market last week was the deferred tax and aggressive capex," Clark said. He lauded Curro for scaling back its greenfield investment in new schools.The group reported that it will focus on increasing its existing capacity and improving operational efficiencies, including pupil retention. It will spend R223m on establishing new campuses in Midrand, Pretoria East, Delft near Cape Town and in Mbombela in Mpumalanga, and it will invest R1bn in expansion and replacement projects.