Education services group Navitas is taking a $130 million hit from rationalising its operations.
The write down will be a one off item in the company’s 2017-18 results to be announced shortly.
The company has blamed regulatory constraints on US “for profit” providers for the writedown as it announced it was considering selling its US creative media colleges.
"As a consequence, a number of one-off charges will be included in the Company’s 2018 financial year result. Subject to final audit review, these charges will total approximately $130m post tax,” the company said yesterday.
Navitas said its “unaudited 2017-18 earnings before interest, tax, depreciation and amortisation result prior to these one-off charges are in line with market expectations."
“While the company has been working closely with the relevant US regulators since entering the US, and has gained accreditation for some courses, a range of recent regulatory constraints on ‘for profit’ providers in the US have prevented the ability to operate profitably and expand accredited programs in our SAE US businesses for the last two years,” chief executive David Buckingham said in a statement to the ASX on Wednesday.
The company said the rationalisation program will include: the investigation of a divestment of all SAE US colleges; closure of two sub scale SAE US colleges on the west coast; closure or divestment of Health Skills Australia; closure of SAE Oxford; and conversion of SAE Indonesia into a licensed operation.
"Students at affected colleges and campuses will be able to complete their programs before closure or will be supported to transfer to a similar provider to complete their program.
Mr Buckingham said “Navitas remains committed to delivering quality student outcomes and strong shareholder returns, which necessitates taking a disciplined approach to capital allocation across the Company.”
“A review of our Careers and Industry Division has been undertaken which determined that certain businesses within the division were likely to remain as either subscale or with limited opportunities for profitable returns.
“We exhausted all possible options to address these constraints to improve the performance of these operations and have now concluded that they are unlikely to deliver a satisfactory return on capital in an acceptable timeframe.”
“Although difficult, this is a decision we needed to make to put the Careers and Industry division on a solid foundation to pursue future growth opportunities.
"Demand for quality education remains high globally, and following this rationalisation, Navitas will be better positioned to succeed in an evolving sector and deliver on the 2020 targets we outlined in April 2017.”
"Navitas’ Careers and Industry Division provides industry focussed tertiary education in Creative and Media, Government Programs, Human Services and Health Services.
"It encompasses SAE (formerly School of Audio Engineering, acquired in 2011) and has operations in Australasia, Europe and the US. The Division accounted for 39% of Group revenue and 39% of Group EBITDA in the Company’s 2017 financial year.
"The portfolio review has confirmed the Division is well placed to keep offering students high quality programs in areas of employment growth through its colleges located in high demand sectors and regions. However, some rationalisation of the portfolio is required to improve efficiency, return on capital and create a solid foundation for future growth for the Division.
"The majority of this restructure will be in the US which accounts for around 17% of the Careers and Industry Division revenue and comprises eight SAE colleges. The SAE US businesses are expected to generate $60m of revenue and a $3m EBITDA loss in the 2018 financial year. Excluding SAE US, the remaining SAE business EBITDA margin is expected to be approximately 20% for the 2018 financial year.,’ Mr Buckingham said yesterday. Navitas shares fell 3.3% to $4.09.
