UAE's school managements need another year or two before they think expansion: Alpen Capital

Dubai: It could take another year or so before school operators in the UAE feel confident enough about taking on expansion or build new campuses.

School managements will also need to see growth in new admissions to compensate for all those children who had to leave because of circumstances created by the COVID-19 outbreak and its impact on jobs and livelihoods.

But schools will still need to see a majority of their students return to physical classes after more than a year of learning from the confines of homes. Only if these fall into place will managements be able to seriously re-think about raising new capacities, according to a new report brought out by Alpen Capital, a specialist consultancy.

“School operators have definitely suffered on revenue and profitability because of the closures,” said Krishna Dhanak, Executive Director of Alpen Capital. “This region had 50 per cent in the ratio of school closure dates during the last academic year, whereas the global average was 30 per cent.

“Because of the higher number of closures, schools lost more from loss of transportation fees and F&B revenues from their canteens. Plus, schools also had to contend with government orders on fee reductions after the pandemic.”

Waiting for cues

By September, school managements will have a better grasp of what the immediate future holds. If the intake of new students and readmissions drop, then it’s going to be another difficult year for these institutions. Sources in the education space say that it’s highly unlikely that fees will be increased.

Before the pandemic

Student enrolments in the GCC had crossed 12.2 million in 2019, “owing to governments’ support, favorable demographics and influx of private school operators,” according to the Alpen report. “Growth was driven by rise in enrolments in the pre-primary and tertiary segments at a CAGR (compounded annual growth rate) of 3.7 per cent and 1.9 per cent, respectively, between 2014-19.

“Total enrolments in private schools reached 2.4 million in 2019, growing at higher pace than the public school enrolments.”

One silver lining

Through the dark phase of the COVID-19 months, there have been some bright spots. Overseas funds or education-focussed businesses are looking at buying local or regional schools.

Earlier this month, UK-based Cognita acquired a school Horizon English School in Dubai, and its second in the UAE. The first was Royal Grammar School Guildford Dubai.

“The K-12 space remains of interest for potential acquisitions – we are seeing interest from operators globally and advising on a couple of potential buys,” said Dhanak.

Debt saddled

But local operators will still have issues to grapple with, and handling the debts on their books will be the biggest one. This, potentially, is one reason why these operators are open to deals with global/regional names. In short, anything that can be done to cut down on debts from running way too ahead of their cashflow.

But Dhanak says schools with a little bit of deft management can still be better placed than other sectors. “The beauty of it is that schools receive all their payments – fees, for instance – upfront. That covers three months of their cashflow needs. Schools are always operating cash-positive – that’s a big plus.”