Curro Holdings Limited (24P.SG) Earnings Call Transcript & Summary

Okay. Good morning, ladies and gentlemen. Welcome to Curro's presentation on our half year results. That would be for the 6 months up to 30 June 2025. There was an announcement this morning, and maybe I should just deal with that first, and then we'll go through the rest of our results. So the Jannie Mouton Stigting has made an offer to acquire all of the issued shares in Curro Holdings Limited for approximately ZAR 7.2 billion. In terms of the offer, Curro shareholders will receive a consideration equivalent of about ZAR 13 per share comprising of Capitec shares, PSG Financial Services shares and cash, and that would be in exchange for Curro shares. This represents a substantial premium of about 60% to the closing price of Curro as at Monday afternoon, the 25th of August. Further details regarding the composition of the consideration can be found in the joint firm intention announcement that was released this morning at just before 9 on SENS. The scheme remains subject to shareholder approval and the receipt of various regulatory approvals, amongst other things, and further details will be provided in due course. Jannie Mouton Stigting is a charitable organization, which is established as a public benefit organization. And the founder of the Jannie Mouton Stigting, of course, is Jannie Mouton who is also the founder of Capitec Bank, PSG Financial Services and various others. So that's the news that went out this morning before our results. And we'll take questions and things after this session. So I'm going to continue with our results. Just in terms of the agenda then I'm going to do a brief overview of our performance for this 6 months period. I'm going to share an example of Curro's excellence with you. And we'll talk about our strategic focus in the future. And then I'll hand over to our CFO, Burthryne September, who will scrutinize key financial information with you. Then as usual, we'll take questions at the end. So if we kind of just take the highlights for the period. Revenue increased by 4.7%, and that's despite a 1.4% reduction in the average number of learners that we had in our schools. Cash generated from operations increased by just over 10%, and that was well ahead of the ZAR 264 million that we invested in CapEx. And this trend of free cash generation continues since 2023. EBITDA recurring headline earnings per share and headline earnings per share were basically flat on last year. So substantially the same. And then I think, in general, the results demonstrate the strength of our diversified portfolio of schools, our diversified educational platform also to deliver value to families, and that would be across different school models. Our focus relentlessly is on extending quality education through excellence in an environment where every child matters. This is essential for our success, and certainly essential for a brighter future for all. Curro's mission is to create opportunities for more learners. And schools are ambitiously expanding their extracurricular programs, their academic offerings to really prepare versatile learners for the future. We launched a new national football tournament, and it's one that I'm very excited about, and it's called the Curro Halala Cup. And we launched this recently. It was played out a few weeks ago. It was contested by top football teams from around the country. Initially, 60 teams who played out across 8 of our campuses in knockout rounds and eventually the top 16 through to the finals. And I think from our perspective, it's a great example of how Curro can establish something new at a national level at scale that presents brand-new opportunities for, for instance, footballers, young footballers to show their skill, to have fun, to make friends and to develop the kind of skills they need also to take them into life. So I'm going to share a short video with you. And maybe my team will do that. [Presentation]

It's Halala, South Africa. Halala. We had a lot of fun with this, but it's the kind of event that doesn't exist in football, but it does in other sports, and it should change and we're going to change that. So let's talk about maybe our strategic focus. So this is a long cycle business. And we are confident that our educational offering and the quality thereof is compelling and that it will lead to learner growth. Consumer spend remains constrained, and our enrollment did not benefit yet from softening inflation and lower interest rates. We started this year with about 1,000 learners less than where we started 2024, and that's about 1.4%. And that trend broadly continues at this stage. We have seen high levels of retention, and we believe, particularly in this climate, that, that endorses our strategy to create more opportunities for learners and it shows that parents trust the education that we deliver. So I'm briefly going to recap our strategy, which is clear and unwavering. We've generated strong growth momentum, and that is focused on achieving the kind of operating leverage that's available in our operations. And we've established the schools, we're at about 70% of capacity and there's much operating leverage available to us above that. It means that we can -- should drive up our operating profit by growing revenue, by improving our operating margin and by containing CapEx to generate more free cash. And you saw evidence of that in this set of results. Revenue growth is a function of the number of learners and the fees charged per learner. As I said, this is a long cycle business, and we are confident that we can attract many more learners. And with nearly 14,600 new enrollments for this year and over 70,000 or nearly 72,000 learners in our schools, there can be no doubt that there is sustained support and enthusiasm for the quality education that Curro offers. There can be no doubt. We have valuable unutilized capacity to add thousands more learners in our current facilities. Generally, tuition fees for this year increased by just over 5%, and fees will increase by about 4.5% going into 2026. And schools will publish their fee letters in the next week or so. Affordability remains a challenge for families in the younger grades. We're very sensitive to that. So we continue to invest in both our service offering at those levels, but we are also adjusting our price architecture to really accommodate and to try and make it as easy as possible for our families to come to us and for us to recapture some market share that we've lost in the early schooling stages. Curro will contain fee increases for the next year in that competitive pre-primary and primary markets to well below 4%, with high school fees increasing by about 6%. From an operating margin perspective, I mean, I warned in our previous results presentation earlier this year that I expected a lower operating margin for this year, and that was directly due to the lower learner enrollment. This did restrict revenue growth for this year to about 5%, and it does inject some negative operating leverage where we potentially couldn't respond with on the staffing front relative to a few less learners in classes. So operating margin for this period did reduce by about 1%. But I think we should contextualize that. We increased our operating margin by about 4% over the last 4 years. And that was despite the relatively tough trading kind of environment, high interest rates and the like. So we're confident that we can and will continue to drive operating margin higher over the medium term and that we are managing costs closely, but that we will not curtail the ambition and the high-quality education programs in our schools. And then from a CapEx perspective, I mean, Curro has reached a stage where it consistently generates more cash than what it requires for CapEx. We are confident that this trend will continue, and you can again see it in this particular period. So cash generated from operations should consistently exceed future CapEx requirements and excess cash, of course, should go to shareholders. So just to round things off in that context. I mean we're in a healthy financial position. Our business is resilient. Our balance sheet is in good shape. We refinanced debt during this period at lower costs. We had great support from the banks. And our debt level is also lower at the end of this interim period. So we're very confident that buying back shares was a smart capital allocation, that it's created permanent value for shareholders. And in that regard, really over the last kind of 3 years, we've repurchased 33 million shares for about ZAR 327 million. And then just to close off before Burthryne kind of takes you through the financial numbers. Curro really built up significant momentum over many years. And we've created a brand that is synonymous with quality education. Our models are efficient. They are scalable and very capable of optimizing service and profitability. The slight decrease in learner enrollment in 2025 throttles the pace at which we can achieve our return objectives over the medium term. But Curro is resilient, and we very much remain on track to achieve our shareholder return objectives. Our learners continue to record remarkable achievements and there's certainly much more to come. If you look at the video, we just watched. So I'm going to hand over to Burthryne to take us through the financial numbers, and then we'll take questions and things after that. Thank you.

Thank you, Jacobus. Good morning, ladies and gentlemen. I will provide commentary on our financial results and the key drivers of earnings growth for this period. In particular, I'll provide detail on revenue and operating expenses, explain the status of our trade receivables, review the earnings of the group for this period before reflecting on our funding and CapEx plans. Total revenue increased by 4.7%, driven by annual school fee increases at the beginning of the year, higher ancillary income despite a decrease in the average weighted number of learners. We reported in March that Curro had 1.4% less learners enrolled at the beginning of the 2025 year than at the beginning of the previous 2024 year. Curro's average weighted number of learners, therefore, decreased by 1.4% in the first half of 2025 to 71,749 from 72,758 in the first half of 2024. Fee revenue is the main component of Curro's revenue and increased by 4.1% in the first half of 2025. Average fees per learner increased by about 5.1% at the beginning of the year. Fee revenues reported net of discounts. The process of granting discounts is discerning and disciplined, and this expense is well controlled. Ancillary revenue consists of non-tuition fee revenue lines being rentals, boarding school fees, aftercare fees, bus services and other income. Ancillary revenue increased by 10.8% on the first half of last year. Growth in ancillary revenue over the last 5 years is higher than the increase in the total school fee revenue. We are pleased that ancillary revenue has recovered to pre-pandemic levels. Learner activity drive operating expenses. Total operating costs increased by 5.4% from the first half of 2024, which exceeds the increase in total revenue of 4.7%. Total staff costs constitute about 2/3 of operating expenses, and this increased by 3.5% from the first half of 2024, whereas other expenses increased by 8.8%. If the cost to execute the increased ancillary services revenue is excluded from other expenses, the other expenses increased by 4.9% compared to an increase in fee revenue of 4.1%. The increase in operating expenses is driven by Curro's mission to create as much opportunity as possible to our learners and to continue to expand school activities as well as rising learning engagement in sports tournaments, leagues and a comprehensive range of [ extracurricular ] activities across our school. We are very pleased with the enthusiastic levels of participation and proud of the education enrichment for our learners. We will not curtail our ambition to provide exceptional experiences to our learners. Facility costs increased by 6.3% to ZAR 224 million in the first half of 2025. The learner-to-teacher ratio for the group decreased slightly during the first half of 2025 due to lower learner numbers in our pre- and primary schools. Additional teachers were appointed in the high schools to support our learner growth in this stage. Our focus on operational efficiency and disciplined financial management positioned us to benefit as economic conditions improve. We expect a relatively even distribution of earnings for the year subject to containing bad debts and facility costs in the second half of 2025. Gross receivables increased to ZAR 557 million at the end of this period from ZAR 546 million on 31 December 2024 and ZAR 522 million on 30 June 2024. The expected credit loss provision is now at 42.2% of gross receivables, slightly higher than the 41.8% on 31 December 2024. In addition to the provision for expected credit losses, Curro also incurs other bad debt-related costs such as collection fees. The total bad debt-related costs expressed as a ratio to turnover increased to 3.9% in this period. The group's provisions against long outstanding debtor account is prudent and consistent with the provisioning policy applied at the end of 2024, where we increased provision rates for older aging categories. Given the increase in the provision rates at the end of 2024, the bad debt-related cost in these interim results is higher than the 3.4% recorded in the first half of 2024, but below the 4.3% for the 2024 year. Collections remain a key focus area for us. This graph tracks the change in trade receivables and provisions in the first and second halves from 2022 to 2025. Curro recognized expected credit losses of ZAR 96 million in this period. We wrote off ZAR 90 million of debtors and sold this nonperforming portion of our debtors book, which relates to learners who have left Curro. The expected credit loss provision of ZAR 235 million well exceeds the provision balance of ZAR 161 million in June 2024. After writing off the oldest account balances, against both the debtor and the provision balance, we manage the risk prudently in our debtors book. Trade receivables are split between active accounts where learners are still enrolled in our schools and inactive accounts where learners have left our schools. The remaining debtors book net of expected credit loss provision consists of ZAR 242 million of actively enrolled accounts and ZAR 80 million of inactive accounts. This slide confirms the earnings per share numbers. Headline earnings and recurring headline earnings per share were substantially the same in the first half -- as for the first half of last year. Earnings per share on 30 June 2025 included a loss on the sale of assets of ZAR 7 million net of tax and impairments of land held for future developments of ZAR 74 million, which explains the difference between the recurring and headline earnings per share. The group's balance sheet is well structured to support our growth ambitions. Existing debt facilities totaling ZAR 2 billion were successfully refinanced during April 2025. Curro concluded new debt facilities totaling ZAR 2.4 billion on more favorable terms than the refinanced facilities. Total net debt decreased by ZAR 156 million to ZAR 2.99 billion on 30 June 2025 from the ZAR 3.15 billion on 31 December 2024. The global credit rating company reaffirmed both the positive long and short-term national scale issuer ratings assigned to Curro. Net finance cost decreased to ZAR 138 million in the first half of 2025 from ZAR 157 million in the first half of 2024. Cash generated from operating activities in the first half of this year increased by 10.3% to ZAR 688 million. Curro repurchased and canceled 10.8 million of its shares for ZAR 116 million in 2025. Cash reserves were funded or cash reserves funded a dividend payment of ZAR 93 million in April 2025. Curro invested ZAR 264 million in the business in the first half of 2025, which included the following: ZAR 136 million of expansion of capacity in classrooms and existing school facilities; ZAR 6 million on backup power solutions; ZAR 156 million on refurbishment, maintenance, replacement of assets as well as the ZAR 34 million was received from disposals. CapEx was funded from operating cash flows and Curro unutilized revolving debt facilities. Our objective is to increase capacity utilization at our existing facilities. Thank you, ladies and gentlemen. Jacobus and I will now take some questions.

Okay. So maybe we can start in the room. Dovie, you got a mic there. Do you mind just walking around with that, just if anybody has any questions. Are there any questions in the room? I'm just keeping my eye on the online or digital group as well.