CURRO HOLDINGS LIMITED - Results For The Six Months Ended 30 June 2018

Release Date: 14/08/2018 07:05
Code(s): COH
 
Wrap Text
Results For The Six Months Ended 30 June 2018

Curro Holdings Limited 
Incorporated in the Republic of South Africa  
Registration number: 1998/025801/06   
JSE share code: COH  
ISIN: ZAE000156253   
("Curro" or "the Company" or "the Group")

RESULTS FOR THE SIX MONTHS
ENDED 30 JUNE 2018

HEADLINE EARNINGS* Up 22% from R113m to R138m  
HEPS* Up 22% from 27.6 cents to 33.6 cents  
EBITDA* Up 31% from R255m to R335m  
REVENUE* Up 18% from R1 051m to R1 242m  

*From continuing operations

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                                                                                    Unaudited             
                                                                     Unaudited      Restated*       Audited
                                                                   30 Jun 2018    30 Jun 2017   31 Dec 2017
                                                                      6 months       6 months     12 months
                                                       change        R million      R million     R million
Continuing operations                                                                                
Revenue                                                  18%             1 242          1 051         2 099
Operating expenses                                       14%             (907)          (796)       (1 626)
Earnings before interest, taxation,
depreciation and amortisation (EBITDA)                   31%               335            255          473
– Schools' EBITDA                                        27%               402            316          594
– Head office EBITDA                                     10%              (67)           (61)        (121)
Depreciation and amortisation                            18%              (79)           (67)        (131)
Earnings before interest and taxation (EBIT)             36%               256            188          342
Interest income                                          19%                31             26           41
Profit on sale of property, plant and
equipment                                                                    –              1           12
Share of profits of associate                                                1              –            1
Finance costs                                            51%             (104)           (69)        (119)
Profit before taxation (PBT)                             26%               184            146          277
Taxation                                                 32%              (50)           (38)         (75)
Profit for the period (PAT)                              24%               134            108          202
Discontinued operations                                                                                    
Loss from discontinued operations                                            –            (3)          (4)
Profit for the period (PAT)                              28%               134            105          198
Other comprehensive income:                                                                               
Net fair value profit/(loss) on
cash-flow hedges                                                             5            (3)         (13)
Total comprehensive income                               36%               139            102          185
Profit attributable to:                                                                                  
Owners of the parent                                     24%               138            111          209
Non-controlling interest                                                   (4)            (6)         (11)
                                                         28%               134            105          198
Total comprehensive income
attributable to:                                                                                         
Owners of the parent                                     32%               143            108          196
Non-controlling interest                                                   (4)            (6)         (11)
                                                         36%               139            102          185
Reconciliation of headline earnings:                                                                    
Earnings attributable to owners of the parent                              138            111          209
Adjusted for:                                                                                           
Profit on sale of property, plant and
equipment                                                                    –            (1)         (12)
Headline earnings                                        25%               138            110          197
– From continuing operations                             22%               138            113          201
– From discontinued operations                                               –            (3)          (4)
EBITDA margin                                                              27%            23%          23%
Schools' EBITDA margin                                                     33%            31%          28%
Earnings per share (cents)                                                                                
– Basic                                                  24%              33.6           27.2         51.0
– Diluted                                                24%              33.5           27.1         50.8
Headline earnings per share (cents)                      25%              33.6           26.9         48.1
– From continuing operations                             22%              33.6           27.6         49.0
– From discontinued operations                                               –          (0.7)        (0.9)
Diluted headline earnings per share 
(cents)                                                  25%              33.5           26.8         48.0
– From continuing operations                             22%              33.5           27.5         48.9
– From discontinued operations                                               –          (0.7)        (0.9)
Number of shares in issue (millions)                                                                      
– Basic                                                                  412.1          407.2        412.1
– Diluted                                                                412.9          408.9        413.5
Weighted average number of shares in
issue (millions)                                                                                        
– Basic                                                                  412.1         407.2         408.9
– Diluted                                                                412.9         408.9         410.4
*Previous figures were restated to reflect discontinued operations.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                                                                    Unaudited      Unaudited      Audited
                                                                  30 Jun 2018    30 Jun 2017  31 Dec 2017
                                                                    R million      R million    R million
ASSETS                                                                                                 
Non-current assets                                                      7 936          6 928        7 276
Property, plant and equipment                                           7 219          6 241        6 660
Goodwill                                                                  481            437          397
Intangible assets                                                         192            212          169
Investment in associate                                                    13             11           12
Other financial assets                                                     31             27           38
Current assets                                                            407            502          808
Inventories                                                                 1              6            3
Current tax receivables                                                     2              2            2
Other financial assets                                                      6              3          125
Trade receivables                                                          76             43           66
Other receivables                                                          50             30           41
Cash and cash equivalents                                                 272            418          571
                 
Total assets                                                            8 343          7 430        8 084
EQUITY AND LIABILITIES                                                                                   
Equity attributable to equity holders of parent                         5 169          5 091        5 019
Share capital                                                           4 733          4 556        4 733
Reserves                                                                   25             28           14
Retained income                                                           411            507          272
Non-controlling interest                                                 (19)           (17)         (23)
Total equity                                                            5 150          5 074        4 996
LIABILITIES                                                                                              
Non-current liabilities                                                 2 774          2 009        2 717
Loans and other financial liabilities                                   2 310          1 658        2 342
Deferred tax                                                              464            351          375
Current liabilities                                                       419            347          371
Loans and other financial liabilities                                      34             27           40
Trade and other payables                                                  146            126          169
Prepaid school fees and deposits                                          215            177          135
Development and acquisitions payables                                      24             17           27
                 
Total liabilities                                                       3 193          2 356        3 088
                 
Total equity and liabilities                                            8 343          7 430        8 084
Net asset value per share (cents)                                       1 249          1 246        1 226
 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                                                                   Unaudited      Unaudited       Audited
                                                                 30 Jun 2018    30 Jun 2017   31 Dec 2017
                                                                    6 months       6 months     12 months
                                                                   R million      R million     R million
Balance at the beginning of the period                                 4 996          4 964         4 964
Total comprehensive income                                               139            102           185
Issue of shares                                                            –              –           177
Share issue costs                                                          –              –           (1)
Stadio unbundling                                                          –              –         (345)
Other                                                                     15              8            16
Balance at the end of the period                                       5 150          5 074         4 996

CONDENSED CONSOLIDATED SEGMENTAL REPORT

                                                                 Unaudited       Unaudited       Audited
                                                               30 Jun 2018     30 Jun 2017   31 Dec 2017
                                                                  6 months        6 months     12 months
                                                     change      R million       R million     R million
Learner numbers                                        10%          50 691          45 890        45 870
– Curro                                                14%          41 356          36 288        36 205
– Meridian                                            (3%)           9 335           9 602         9 665
Revenue                                                18%           1 242           1 051         2 099
– Curro                                                20%           1 102             915         1 828
– Meridian                                              3%             140             136           271
Schools' EBITDA                                        27%             402             316           594
– Curro                                                30%             372             287           540
– Meridian                                              3%              30              29            54
Net head office expenditure                            10%            (67)            (61)         (121)
– Curro                                                11%            (61)            (55)         (110)
– Meridian                                              0%             (6)             (6)          (11)
EBITDA margin                                                          27%             23%           23%
– Curro                                                                28%             25%           24%
– Meridian                                                             17%             17%           16%
Headline earnings                                      25%             138             110           197
Schools                                                22%             138             113           201
– Curro                                                17%             150             128           232
– Meridian                                             N/a            (12)            (15)          (31)
Stadio                                                                   –             (3)           (4)
Headline earnings per share (cents)                    25%            33.6            26.9          48.1
Schools                                                22%            33.6            27.6          49.0
– Curro                                                17%            36.6            31.4          56.6
– Meridian                                             N/a           (3.0)           (3.8)         (7.6)
Stadio                                                                   –           (0.7)         (0.9)
Earnings per share (cents)                             24%            33.6            27.2          51.0
Schools                                                20%            33.6            27.9          51.9
– Curro                                                15%            36.6            31.7          59.5
– Meridian                                             N/a           (3.0)           (3.8)         (7.6)
Stadio                                                                   –           (0.7)         (0.9)
Total assets                                           12%           8 343           7 430         8 084
Schools                                                16%           8 343           7 181         8 084
– Curro                                                17%           7 632           6 525         7 381
– Meridian                                              8%             711             656           703
Stadio                                                                   –             249             –
Total liabilities                                      36%           3 193           2 356         3 088
Schools                                                50%           3 193           2 131         3 088
– Curro                                                69%           2 400           1 421         2 315
– Meridian                                             12%             793             710           773
Stadio                                                                   –             225             –
Net asset value per share (cents)                                    1 249           1 246         1 226

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                Unaudited       Unaudited        Audited
                                                              30 Jun 2018     30 Jun 2017    31 Dec 2017
                                                                 6 months        6 months      12 months
                                                    change      R million       R million      R million
Cash generated from operations                        31%             342             262            489
Tax paid                                              N/a             (7)               –            (8)
Net finance cost                                      74%            (73)            (42)           (77)
Working capital movements –               
operations                                            76%              37              21           (27)
Working capital movements –             
investments                                           N/a             (3)            (74)           (64)
Net cash generated from operating             
activities                                            77%             296             167            313
Net cash utilised in investing               
activities                                            40%           (681)           (487)        (1 192)
Net cash from financing activities                    N/a              86              32            891
Net cash outflow from Stadio             
unbundling                                            N/a               –               –          (147)
Cash and cash equivalents             
movement for the period                                             (299)           (288)          (135)
Cash and cash equivalents at the              
beginning of the period                                               571             706            706
Cash and cash equivalents at the                  
end of the period                                                     272             418            571
             
KEY RATIOS             
                                                       31 Dec        31 Dec          31 Dec       30 Jun
                                                         2015          2016            2017         2018
Number of campuses                                         41            48              51           57
Number of schools                                         100           114             127          139
Number of learners                                     35 130        42 343          45 870       50 691
Average number of learners per                 
campus                                                    857           882             899          889
Number of employees                                     3 886         4 723           5 369        5 710
Number of teachers                                      2 290         2 546           2 778        2 976
Learner/teacher ratio                                      15            17              17           17
Building size (m2)                                    447 221       540 799         598 194      631 287
Land size (ha)                                            359           423             444          465
Capital investment (R million)                          1 022         1 700           1 192          681
– Current campuses (R million)                            638           571             652          213
– New campuses (R million)                                369           649             472          253
– Acquisitions (R million)                                 15           266              12          215
– Stadio (R million)                                        –           214              56            –
                                                                                       

J-CURVE
The table below illustrates the J-curve effect from the newly established schools to more mature schools by age. All figures and amounts are as at 30 June.

                       Number at 30 Jun 2018     Learner numbers            Growth        EBITDA** (R million)        Growth         EBITDA margin       Eventual capacity
                       Campuses    Schools     2016    2017     2018   16/17      17/18    2016     2017     2018   16/17   17/18   2016  2017  2018    2016   2017    2018
Developed schools            40         98   24 344  28 315   31 872     16%        13%     131      179      243     37%     36%    27%   29%   33%     42%    45%     45%
2009 and before*              4          9    3 818   3 897    3 872      2%       (1%)      23       29       36     26%     24%    26%   30%   33%     81%    83%     82%
2010                          2          6    2 216   2 254    2 205      2%       (2%)      15       20       20     33%      0%    32%   37%   35%     69%    70%     68%
2011                          5         15    4 134   4 098    4 177    (1%)         2%      27       29       33      7%     14%    30%   30%   31%     46%    46%     46%
2012                          2          6    1 764   1 904    1 978      8%         4%       9       14       17     56%     21%    24%   30%   32%     53%    57%     59%
2013                          4         12    5 651   6 149    6 445      9%         5%      47       55       69     17%     25%    41%   40%   44%     58%    63%     65%
2014                          4          8    1 506   1 833    2 169     22%        18%       2        3        8     50%    167%     8%    9%   19%     22%    27%     32%
2015                          8         19    4 730   5 748    6 216     22%         8%       9       19       25    111%     32%    14%   21%   23%     30%    37%     40%
2016                          4          8      525   1 179    1 681    125%        43%     (1)        7       19     N/a    171%   (9%)   26%   38%      9%    20%     28%
2017                          3          8        –   1 253    2 499       –        99%       –        3       21       –    600%      –   14%   41%       –    23%     46%
2018                          4          7        –       –      630       –          –       –        –      (5)       –       –      –     – (42%)       –      –      9%
Acquired schools             17         41   16 209  17 575   18 819      8%         7%     123      144      165     17%     15%    33%   33%   33%     78%    75%     73%
2012 and before               7         17    6 847   6 919    7 007      1%         1%      68       76       78     12%      3%    36%   39%   38%     71%    72%     72%
2013***                       2          2    4 701   4 253    3 855   (10%)      (10%)      25       19       17   (24%)   (11%)    34%   28%   25%     78%    71%     64%
2014                          2          6    2 425   2 618    2 742      8%         5%      23       30       40     30%     33%    31%   35%   40%     85%    92%     95%
2015 and 2016                 4         13    2 236   3 785    4 147     69%        10%       7       19       25    171%     32%    19%   22%   24%     92%    72%     79%
2018                          2          3        –       –    1 068       –          –       –        –        5       –       –      –     –   25%       –      –     52%
Property rental and   
royalties                                                                                   (5)      (7)      (6)                                                         
Total                        57        139   40 553  45 890   50 691     13%        10%     249      316      402     27%     27%    30%   31%   33%     51%    53%     53%
Note:
Acquired schools indicates the year the school was incorporated into Curro. All acquired schools have been established for at least seven years.  
* 2009 and before schools have a maximum of 20 learners per class, which has a direct impact on the EBITDA. Other schools have a maximum of 25 learners for Curro and Select 
  or 35 for Meridian and Academy schools.
** Schools' EBITDA
*** Learner number losses at Northern Academy.

NOTES TO THE FINANCIAL STATEMENTS
1. STATEMENT OF COMPLIANCE
   The condensed consolidated interim financial statements for the six months ended
   30 June 2018 have been prepared in accordance with the framework concepts and
   the measurement and recognition requirements of International Financial Reporting
   Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting
   Practices Committee and Financial Reporting Pronouncements as issued by the
   Financial Reporting Standards Council, and also, as a minimum, contain the information
   required by IAS 34 Interim Financial Reporting, the Listings Requirements of the JSE and
   the requirements of the Companies Act of South Africa, as amended. The results have
   not been reviewed or audited by the Company's auditor. The condensed consolidated
   interim financial statements have been prepared internally under the supervision of the
   Chief Financial Officer, B van der Linde, CA(SA) CFA.

2. ACCOUNTING POLICIES
   The accounting policies applied in the preparation of the condensed consolidated
   interim financial statements are materially consistent with those of the annual financial
   statements for the year ended 31 December 2017, except for the mandatory adoption
   of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers
   which became effective 1 January 2018. The adoption of IFRS 9 and IFRS 15 did not
   have a significant impact on the amounts recognised or disclosed in the condensed
   consolidated interim financial statements.

3. BUSINESS COMBINATIONS
   Effective 1 March 2018, Curro acquired Dot's Learning Centre and on the 1st April 2018, 
   Curro acquired Cooper College including Magic Beings.
                                                                                 R million
   The following assets and liabilities were recognised:                                  
   Property, plant and equipment                                                       176
   Intangible assets                                                                     4
   Trade and other receivables                                                          10
   Cash and cash equivalents                                                             1
   Deferred tax liabilities                                                           (47)
   Trade and other payables                                                           (10)
   Non-controlling interest                                                            (8)
   Total identifiable net assets                                                       126
   Goodwill                                                                             94
                                                                                       220
   Total purchase consideration                                                           
   Cash consideration paid                                                           (216)
   Deferred purchase consideration                                                     (4)
                                                                                     (220)
   Net cash outflow on acquisition                                                       
   Cash consideration paid                                                           (216)
   Cash acquired                                                                         1
                                                                                     (215)
4. CASH-FLOW HEDGES
   R million                                       Jun 2018        Jun 2017       Dec 2017
   Fixed-for-variable interest rate swap
   liabilities                                            9               3             17

   The interest rate swap agreements are measured using mark-to-market rates by the
   issuer of the instruments, representing a Level 2 fair value measurement for financial
   reporting purposes.

5. EVENTS AFTER THE REPORTING PERIOD
   The previously announced acquisition of the operations and property of Baobab
   Primary School (Gaborone, Botswana) became effective on 1 July 2018.

6. FINANCIAL ASSISTANCE
   Notice is hereby given, in terms of section 45(5)(a) of the Companies Act, No. 71 of
   2008, as amended ("the Act"), that the board of directors of Curro ("the Board"), at a
   meeting of the Board held on 13 August 2018, resolved that the Company will provide
   financial assistance to its subsidiary Campus and Property Management Company (Pty)
   Ltd ("CAPMAC") to the value of R256 million, for purposes of repaying a portion of
   the higher interest rate carrying debt in the Meridian venture. The R256 million will be
   provided in the form of interest free subordinated junior debt between the Company
   and CAPMAC. The primary source of the approved financial assistance is Curro's
   current bank debt and facilities. The resolution by the Board was taken pursuant to the
   authority granted to the Board by shareholders at Curro's annual general meeting held
   on 4 June 2018. In accordance with section 45 of the Act, the Board is satisfied and
   acknowledges that immediately after providing such financial assistance, Curro would
   satisfy the solvency and liquidity test provided for in section 4 of the Act and that the
   terms of the financial assistance are fair and reasonable to Curro.

REVIEW OF RESULTS
The Board is pleased to present solid results for the six months ended 30 June 2018 in the year
that Curro celebrates its 20th birthday. With more than 50 000 learners in 57 campuses across
Southern Africa, Curro remains committed to providing quality independent school education
to an ever-increasing number of learners throughout Southern Africa.

Learner numbers

                                                        Dec 2017       Jun 2018     % increase
Organic growth                                            45 870         49 623             8% 
Acquisitions                                                              1 068               
Total                                                     45 870         50 691            10%

Financial results
For the comparative period to 30 June 2017, Stadio which was unbundled to shareholders on
3 October 2017, has been disclosed as a discontinued operation.

For the period ended 30 June 2018, learner numbers increased by 10% from 45 890 to 50 691,
increasing revenue by 18% from R1 051 million in 2017 to R1 242 million.

Schools' EBITDA (earnings before interest, taxation, depreciation, amortisation and head
office expenditure) increased by 27% from R316 million in 2017 to R402 million for the period
under review, with EBITDA increasing by 31% from R255 million to R335 million. The major
improvement in the EBITDA margin from 23% to 27% is due to increased efficiencies and
capacity utilisation.

Finance costs increased by 51% from R69 million to R104 million as a result of long-term interest
bearing debt increasing from R1 658 million to R2 310 million.

Headline earnings from continuing operations increased by 22% from R113 million to R138 million
during the reporting period. Headline earnings per share from continuing operations increased
by 22% from 27.6 cents to 33.6 cents.

Meridian
The shareholders have resolved to recapitalise the business to redeem expensive interest-bearing
debt. Curro is a 65% shareholder in Meridian and will invest R256 million. This will significantly
improve the profitability of this venture and will have a positive impact on Curro going forward.

New campuses and expansions
Curro will invest R400 million in six new campuses at Curro Vanderbijlpark and Edenvale, Curro
Academies at Parkdene (Boksburg), Protea Glen (Soweto) and Savanna City (Johannesburg),
as well as a Curro Castle at Burgundy Estate (Cape Town).

Major expansion projects are underway at Curro Brackenfell, Building Blocks, Curro Heritage
House (previously Curro Embury) and Windhoek Gymnasium. The estimated investment for
expansion and replacement of assets is R700 million.

Curro has acquired Baobab Primary School (Gaborone, Botswana), Cooper College (Douglasdale,
Gauteng) and Dot's Learning Centre. Further acquisitions are being explored.

Balance sheet and funding
Curro has a strong balance sheet. The increasing cash generation improves the Group's ability
to service debt, which will be the preferred method of funding going forward. Interest service
cover ratio for Curro (EBITDA/Net Finance costs (including capitalised interest)) was at 3.5 times
which is well ahead of internal targets. Gearing levels (debt/equity) increased from 33% to 45%
but will continue to be conservatively managed.

Directorate
Effective 10 August 2018, Zandile Nangamso (Nan) Mankai was appointed to the Curro Board as an
independent non-executive director. Nan has been appointed as a member of the audit and risk committee.

Dividends
No dividend was declared for the period under review.

Prospects
The Board believes Curro is well positioned for growth and remains optimistic about its
long-term prospects.

On behalf of the board

SL Botha                                                       AJF Greyling
Chairperson                                                    Chief Executive Officer

14 August 2018                                                  

STATUTORY AND ADMINISTRATION
Directors: SL Botha** (Chairperson), ZL Combi**, AJF Greyling (CEO), HG Louw (CIO),
ZN Mankai**, PJ Mouton*, SWF Muthwa**, B Petersen**, D Ramaphosa**,
B van der Linde (CFO), CR van der Merwe*

* Non-executive
** Independent non-executive

Registered office: 38 Oxford Street, Durbanville, Cape Town, 7550

Transfer secretaries: Computershare Investor Services (Pty) Ltd
Rosebank Towers, 15 Biermann Avenue, Rosebank, Johannesburg, 2196

Corporate adviser and sponsor: PSG Capital

Company Secretary: IWM Isdale

Celebrating 20 years of excellence in education

www.curro.co.za



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