Results of the recent AGM
Curro's AGM was held yesterday, which is the corporate equivalent of a parent-teacher meeting. As is appropriate for such meetings, the company updated its report card and gave shareholders an update on the business.
It's worth touching on some of the important insights from the presentation, which can be accessed in full here for those interested.
A recap of 2020
2020 was a tough year even for Curro, with middle-class South Africa under incredible economic pressure. When you are having to move your kids to more affordable schools, you know things are getting ugly.
As a result, headline earnings per share (HEPS) took a nosedive of -39% in FY20, with recurring HEPS slightly better at -24%. This is despite revenue increasing 5% as average learner numbers increased 6%.
Many investors would have focused on the Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) number, which was only down -1% to R686m. The red pen on the report card was applied below this operating profit number.
Curro estimates that R300m in revenue was lost in 2020 thanks to the pandemic. Still, the company fared far better than many others under the circumstances.
Part of the profitability issue came from the loss of ancillary revenue, which is all the "other stuff" that parents are constantly asked to pay for. This includes the likes of aftercare, bus fees, hostel fees etc. Many of these fees fell away in the worst of the lockdown, evidenced by a drop from R103m in Q1 2020 to R41m in Q2 2020.
Curro had a negative JAWS problem in 2020, which is a situation where revenue growth is slower than expenses growth. This creates downward pressure on operating margins. If this is a temporary issue, it's not the end of the world. If it's a longer-term issue, then there's a problem for investors.
In 2020, expenses excluding salaries and depreciation increased 8% compared to average learner growth of 6%. This is mainly due to facility costs like water and electricity, which are beyond Curro's control.
This external cost pressure is important to take into account going forward.
New year. New me.
Everyone says that on 1st January and breaks that promise within the first five days, but Curro can claim to have gotten its new year off to a much brighter start.
Curro had over 66,000 learners at 28 February 2021, its highest organic growth since 2015. There were record enrolments in February and March, although this might be because space was freed up after 3,200 learners were terminated in January 2021 due to outstanding accounts.
That's probably the most frightening statistic of all. Around 5% of the learners in the school had to leave because parents couldn't afford the fees. If that isn't a stark measure of the economic hardship of the lockdowns, I don't know what is.
Looking ahead, the strategic focus of the group is on high school growth, as learners move through the Curro system. The high school potential is around 8,000 learners which is 12% higher than the current learner base.
Curro plans to invest R1.1bn in capex this year, as the business continues to grow.