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Simon Brown: We're talking with Curro CEO Cobus Loubser. The financial results for the December period have been released. Revenues increased by 15%, HEPS increased by 19%, dividends increased by 32% and Learners increased by his 2%. Cobas, let's start with expenses such as acquisitions. Other expenses increased 19%. Is this just inflation affecting business or is there something else? I think part of it was probably interest rates.
Cobas Louver: I think it makes a little more sense. Thanks for your interest in Curro, Simon. If you look at our operations, I think we've grown about 2% from a learner perspective. That, of course, also affects campus activities and their costs. But if you look closer, you'll see that the ancillary revenue that comes with our business has increased by more than 30%. This incurs ancillary costs, such as additional buses, additional aftercare, and additional boarding costs, which are of course part of these operating expenses. What comes from there.
And in areas like capital costs, if you look at things like energy and electricity, I think we generated R23 million in 2023 to run the diesel on the generators and keep the business going. So I think that's an additional cost that companies have to bear.
But overall, I think it's really important to note that we're actively reinvesting in the campus experience. So we need more sports programs, more tours and tournaments, more culture and more of everything to create a truly holistic and special experience in our hallways and fields. This includes many innovations on issues such as artificial intelligence, coding, and robotics.
So I think we're in a really tough time. It's hard for parents. They make huge sacrifices to provide learners and children with the best possible learning opportunities. We strive to ensure they have a great experience and product on our campus.
Simon Brown: I understand your opinion. Operating profit margin he increased to 17.8%. In comparison, it is 15.5%. What is the goal here? Is there much room for upside at 17.8%?
Cobas Louver: I think there is still upside. And I think a company's operating margin is actually a measure of the quality of the management team and the quality of the company's strategy for success. So from that perspective, we expect to see an increase. But of course, operating leverage is available within our facility.
So we invested R13.5 billion to establish 182 schools. These schools are currently at approximately 72% capacity and can accommodate tens of thousands more learners. And of course, this is attractive operating leverage compared to existing business operating costs. So that in itself should add to operating margins over time.
But if you look at things like the significant improvement in bad debt costs over the past two to three years. There are several other aspects as well.
Simon Brown: yes. Bad debts amount to his 4.1% of revenue this year, and in 2023 he will decrease to 3.3%. Is this a normal level? I don't know what is normal. I believe this was before the pandemic. Because we've had high interest rates and before that we had a pandemic. We have to go back to 2019 to have some kind of sense of normalcy.
Cobas Louver: yes. Fair – We can get very philosophical about this issue, but since our choice and ambition is to expand educational opportunities, we have made a firm decision to accept a certain amount of bad debt risk. Maybe I should think about it. Therefore, we are offering schools that opportunity and are prepared to take some risk for customers who may not be able to continue their course. But we want to give their children that opportunity – and many of them are happy about it.
So, in general, I think this number should be a little lower. However, we have made great progress in our collection over the past few years and expect that to continue.
Simon Brown: I respect your opinion on that. I have a question regarding capital investment. Clearly, Mr. Curro has made significant capital investments. He's done some acquisitions, but he's also done a lot of construction as well. He emphasized that it will peak in the next 12 to 18 months, and from there onwards it will just be maintenance capital expenditures, from R300 million to R400 million a year.
Cobas Louver: Yes, from a modeling perspective, I think we are probably looking at spending between R300 million and R400 million a year to maintain the facility. This involves work such as painting and waterproofing. We have a large portfolio of assets and are responsible for managing it.
And to strike a balance, we need to… make sure we have an expected core of at least 8,000 additional high school learners over the next few years, and that we have enough classrooms, labs, etc. for that. they. Therefore, small investments are being made in existing facilities to support that growth.
Simon Brown: Last question. You mentioned diesel costs. Schools obviously operate primarily during the day. Solar power is an option. Is that what you're deploying? The challenge is that there are so many sites.
Cobas Louver: Yes, this is an interesting challenge for us. This is because in Curro, the school is only open for part of the day and only on weekdays, so in a sense the energy consumption is very low. Therefore, when you start considering the feasibility of investing in large-scale solar power, it is sometimes difficult to justify it.
Having said that, I think we've done a lot of work in this space across battery, solar power, and generator capabilities. I'm happy to say that by the end of last year, we had reached a point where our kind of integrated solution could reduce our monthly costs. Promotion of diesel fuel business. So I think what we're doing is sophisticated.We expect him to spend R18 million on power and backup solutions in 2023, with further spending expected. R14 million Next year. [It’s] Our areas of focus are fundamentally because in the hallways, every child is important and we need to ensure that they are able to have uninterrupted and successful learning at all times.
Simon Brown: Leave it as is. That person is Curro's CEO, Cobus Loubser. Mr. Kobus, thank you very much for today.
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