The decision to retain learners who are struggling to pay while still opening new schools started hurting Curro [JSE:COH] in the 2019 financial year, causing a 15% decline in recurring headline earnings.
The private schooling group has 175 schools in southern Africa, most of which are in South Africa.
It said despite the number of learners increasing by 12% to 57 597 in 2019, boosting revenue by 18%, the increase in bad debts and "economic pressure" in certain schools had eaten into profits.
The schools affected by this "economic pressure" were mostly high-fee established schools in selected rural locations. Curro had already indicated during its half-year results that its high-fee schools had lower average fee increases to try to retain students, and the growth of learner numbers was slow.
"The deliberate strategy to retain learners in a depressed economy [...] negatively impacted the net revenue per learner as well as increasing the net bad debt expense," said the company in its results announcement booklet.
Private schooling groups in the country, including Advtech and Curro, had indicated earlier in 2019 that learners were leaving the private system - some because parents' finances were stretched too far as costs of living rose faster than salaries in the country, and others because they were migrating.
Curro had already said 3.7% of learners left in the first six months of the year, and CEO Andries Greyling said in its case, the main reason was financial pressure and relocation. But he added that the group hadn’t experienced a spike in leavers.
In the face of challenges faced by its high-fee schools, Curro is expanding more into townships and low-fee schools. The four campuses that the group built in 2019 were either DigiEd schools (Curro New Road and Curro Delft) where average monthly school fees were R1 900 in 2018; or Curro Academies (Blyde and Mbombela) which are also more affordable.
Other factors that contributed to profit decrease were increased interest expenses, as a result of Curro’s borrowing to fund acquisitions and building new campuses; as well as low learner/teacher ratios in the higher grades, as the composition of learner numbers across its schools and grades changed.
All these factors drove down the recurring headline earnings – the measure of profits that focuses on operations and ignores other once-off transactions – to R212 million, 15% lower than the R248 million reported in the 2018 financial year. Recurring headline earnings per share followed suit, while earnings per share dipped even further by 18% to 49 cents.
Despite these challenges and classes in its current schools not running at full capacity, Curro invested R1.3 billion in the construction of five new schools in 2019, the expansion of existing campuses, buying land for future development and on new acquisitions.