Curro cuts 2020 capital expenditure

SA’s largest private school group Curro will cut capital expenditure by about a fifth in 2020 as it struggles to retain students in a weak economy.

Founded in 1998, Curro has been growing at a breakneck pace — the number of students has increased 15-fold since 2011 to nearly 63,000. This was driven by middle-class and higherincome parents who, frustrated with underresourced and overcrowded state-run schools, invested in private education.

But an economy that has hardly grown in the past 10 years, coupled with record low wage increases, has made it harder for the company — controlled by investment heavyweight PSG Group — to enroll and retain new students.

Curro, which reported a slight increase in annual profit on Tuesday, said capital expenditure is likely to be as much as R1bn in this financial year after allocating R1.3bn mainly to expand existing campuses and build new ones in 2019.

The group’s headline earnings per share, a widely watched measure of profit that excludes one-off, non-operational items, edged up 2% to 61.1c per share.

It cut its final dividend to endDecember 15% to 10.2c as money flowed to service interest on its R3.6bn net debt racked up to build new schools and fund acquisitions. Finance costs jumped 45% to R279m.

“Although these investments are not yet yielding profits in excess of the cost of debt, we are encouraged by the performance of these schools in such a short time frame,” the group said. The group had a portfolio of 175 schools as at the end of December, with the number of students rising 12% to 57,597.

The results were as expected, and although 2019 will be the group’s “annus horribilis”, Curro is likely to see a rebound in Small earnings Talk in 2020’ Daily s and Anthony 2021, Clark said. Curro has invested heavily in new secondary schools to ensure it will retain children moving through primary schools, and the improved capacity utilisation at its existing schools as children migrate is likely to pay off. Of more concern is a R100m impairment of its property, which is surprising given that Curro’s buildings are new, he said.

“For a company that has invested heavily in new buildings, to see impairments so early on in their life cycle indicates that perhaps the underlying growth scenario, and positioning of their properties, was not optimal in their rush to expand.”

In the coming years, Curro is likely to tweak its model, and seek growth in existing schools, rather than investment in new ones, Clark said.

Curro’s share price closed nearly 8% lower at R12.45, with its shares having lost about twothirds of its value over the past two years.