Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong financial performance with revenue up 9% and operating profit up 15%.
- Healthy enrollment growth across all divisions, with total enrollments up 6%.
- Significant margin improvements in both the schools and tertiary divisions.
- Successful expansion into African markets, contributing to revenue and profit growth.
- Sound balance sheet with consistent cash generation and reduced net borrowings.
Negative Points
- Resourcing division in South Africa underperformed due to tough economic conditions and national elections.
- Short-term negative impact on enrollment growth due to the shift from local to Cambridge curriculums and the closure of a subscale rural school in Kenya.
- Challenges in the South African market affecting the resourcing business, leading to a small operating loss.
- Minor decline in trade receivables relative to revenue growth, indicating some collection challenges.
- Potential over-reliance on moderate fee increases to drive revenue growth, which may not be sustainable in the long term.
Q & A Highlights
Q: Can you give us some indication on the city in which the new campus is located? What is the philosophy on property in respect to the tertiary division, i.e., is there a view to own or rent the property?
A: We would love to tell you more about the location of our new campus. But at this point, we can't. We do have a view on renting and selling. We are agnostic between renting and owning. The first and most important thing is the location. We need to have the right terms and secure tenure, especially for specialized assets. As long as we can make it work and it's a sound investment, we're agnostic. (Jean-Didier Oesch, CFO)
Q: On the resources side, the original rationale for the inclusion of the resources division within the group was the placement of students as they move out. Does it still fit within the group despite being a profitable national business?
A: The theory was to take students from kindergarten through to placement in jobs. However, in practice, recruitment businesses don't typically place fresh graduates. Our recruitment business must operate on its own value proposition. We manage the resourcing business well, and at some point, an opportunity may arise to tidy up the group, but we won't do it just for the sake of it. (Jean-Didier Oesch, CFO)
Q: The operating margin for schools in the rest of Africa has been lifting steadily. What is the ceiling for that margin, and at what point do you push for more growth and less margin?
A: The margins could get into the mid-30s. Teaching costs are generally cheaper than in South Africa, but a higher margin is needed to get a return on capital investment. We believe there is still some opportunity for margin improvement. (Jean-Didier Oesch, CFO)
Q: Given your trends in CapEx, are you becoming more towards a tertiary education company like STADIO?
A: We see opportunity in tertiary distance education, but the bulk of our business remains in face-to-face. We are not abandoning face-to-face to pursue distance education. (Geoff Whyte, CEO)
Q: Why does the rest of Africa resourcing do so much better than South Africa? Is it due to competition?
A: The big difference is the economic environment. South Africa is under huge pressure, while many African countries we operate in have stronger economic growth. The rest of Africa resourcing business also has more annuity income from long-term contracts. (Geoff Whyte, CEO)
Q: How do you plan on growing the resourcing segment, particularly in South Africa?
A: The economy has been extremely tough, especially ahead of elections. Post-elections, activity is starting to pick up. The business manages costs well and looks for opportunities. We need a tailwind from the economy to assist the management team. (Jean-Didier Oesch, CFO)
Q: Could you please clarify what average fee increases were going into 2024 for both the tertiary and the schools businesses? What fee increases do you expect to put through in 2025?
A: The increases are in line with inflation last year and this year. There were no material mix effects. We expect fee increases to be in line with inflation for 2025 as well. (Geoff Whyte, CEO)
Q: Are there significant differences among the different school brands in terms of receivables and loss allowance?
A: There are minor differences. More premium brands tend to get more upfront fees, while mid-fee schools have more monthly payments. This results in a slightly higher level of default at the mid-fee level. (Jean-Didier Oesch, CFO)
Q: What is the building capacity in the tertiary division?
A: We don't measure it strictly because we can schedule and timetable to accommodate capacity. We are always adding capacity as needed and are confident we can fill it quickly based on track records. (Jean-Didier Oesch, CFO)
Q: Are you more likely to expand in the countries where you currently operate or expand into new countries?
A: We are looking for a balance between building out the countries we're in and new country entries. (Geoff Whyte, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
