Curro, South Africa’s largest independent school network, has seen a lower learner enrolment in its earlier grades as high interest rates burden parents, particularly younger families, the company said during its 2023 annual results presentation this week. However, overall learner enrolment was up.
Consumers have been battered by high interest rates as the South African Reserve Bank tries to contain inflation. The Bank has raised its main lending rate at 10 consecutive meetings since November 2021, before holding the current rate of 8.25% at its last four meetings.
At the beginning of February this year, Curro had 73,159 registered learners, up 1.6% from the 72,031 weighted average learners in 2023.
“Based on the strong enrolments we’ve seen, there is a sustained flight toward the quality education that Curro offers,” Curro ’s CEO Cobus Loubser said at the results presentation.
Despite growth in the group’s high school segment, the company saw a dip in enrolments in its earlier grade offerings.
“The challenging effects of higher interest rates on a constrained consumer impacted younger families particularly negatively over the last year or two. We experienced lower enrolments of learners in the youngest grades of primary and pre-primary schools,” Loubser said.
In 2023, the company increased tuition fees by 12%, while average fees per learner increased by about 8%.
It may be harder to drive fees up at quite this rate in the prevailing circumstances with the increase in fees for the 2024 year being about 1% above the inflation in our business.
— Curro’s CEO Cobus Loubser
“It may be harder to drive fees up at quite this rate in the prevailing circumstances with the increase in fees for the 2024 year being about 1% above the inflation in our business,” Loubser said.
Several of South Africa’s biggest banks are forecasting three 25-basis point interest rate cuts this year, starting in July.
“That is a key moment for us relative to how people decide about next year ... It’s really a function of could that ignite more enrolment and more interest going into next year and I think that’s probably what I’m excited about,” Loubser told Business Times.
Rising interest rates, which have raised Curro’s cost of capital by more than 2% over the past two years, and slowed learner growth in earlier grades in a strained consumer environment, forced the company to reduce the value of some of its assets in 2023.
“As a result, we have had to reduce the value of certain schools, not because they are loss-making, but to take into account the forecast assumptions that some of the schools may take longer to yield a return as high as the current cost of capital of 15.6%,” Burtie September, Curro’s CFO, said at the results presentation.
Curro has 182 schools and 3,935 teachers. It had to impair 28 of its schools over the period, most of which were pre-primary and primary schools, equating to R378m after tax. The impairment was a non-cash adjustment and constituted around 4% of Curro ’s asset value.
Loubser said there was no discernible trend in the schools impaired, but this was rather a reflection on consumers in South Africa.
“By and large it’s a broader perspective on the consumer in this country and how they are taking strain, and the extent to which particularly young families are finding it a little bit harder to balance their books.”
Curro also announced that it had generated more cash from operations than it used on capital expenditure in 2023, the first time it has done so in the company’s 25-year history.
The company shelled out R715m in capital expenditure but raked in R875m in operating cash over the period.
Loubser said that as far as possible the cash generated from operations should consistently exceed the capex requirements on a like-for-like basis going forward, excluding any major acquisitions which Curro intends to fund from debt.
September said the company’s ability to generate more cash from operations than is required for capex in the future is not affected by the impairments.
Despite the impairments, Curro plans to continue investment into its schools, with capex focused on opportunity, predominantly in its high school segment of 58 schools, and will be orientated to enhancing the use of Curro’s existing facilities.
The company plans to invest up to R700m in capital projects to maintain, replace and expand facilities in the 2024 financial year.
Curro posted headline earnings per share, a profit measure, of 73.2 cents for the year ended December 31, 2023, up 19% from the 61.4 cents posted a year earlier. Revenue increased 15% to R4.7bn.
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