As they beg for government assistance, Australia’s public universities are sitting on a $1.6 billion windfall courtesy of their collective 40% shareholding in listed education services provider IDP Education Limited.
IDP’s share price has surged since 2015, having risen from its listing price of $3.40 to $14 this month, giving it a market capitalisation of $3.9 billion.
The little-known company burst out of the shadows last week when boss Andrew Barkla was revealed had drawn the largest annual salary of any chief executive in the country for the 2018-19 financial year: $38 million.
The bulk of the pay packet came from 3.5 million options exercised by the former IT industry executive that he was handed by the board as a “signing-on bonus” in 2015. They came in addition to his $1.2 million salary cash payment during his first year in charge. They had an exercise price of $1.44, handing him the stonking bonus.
But amid the shock horror headlines and understandable teeth-gnashing over the obscene payday, and questions (again) over executive remuneration, there was little investigation into IDP itself.
The company is in fact controlled by the universities that started the business 50 years ago. They own 40% through Education Australia Limited (EA) — held jointly and equally by Australia’s 39 public universities — which has sold down its stake in IDP by 10% in the past 12 months.
Perhaps it’s little wonder the IDP’s board signed off on such a handsome package for Barkla. Education Australia’s board consists of five Australian vice-chancellors as well as two accountants, including chair Greg West.
Australian vice-chancellors are already collectively the world’s highest paid. More than half of them earn more than their peers at Oxford and Cambridge universities and the top tier — led by Sydney University’s Michael Spence, who made $1.5 million in 2019 — earn twice as much.
Perhaps envious of Barkla’s payday, IDP’s directors handed themselves pay rises of between 60% and 78%. Chairman Peter Polson’s fees rose from $233,000 to $350,000. Other directors took home between $160,000 and $190,000 for attending seven board meetings. West and EA deputy chair David Battersby both sit on the IDP board, and have both taken home more than $500,000 since the float.
IDP has been able to ride this wave by virtue of its two core businesses.
Its foundation is the International English Testing System (IELTS) exams that is jointly owned by the British government agency British Council and Cambridge English Language Assessment. Last year that business grew by 17% to $360 million, and remains the standard test for Australian universities in a competitive market — leading some in the sector to suggest there may be competition issues that ought be looked at by the Australian Competition and Consumer Commission.
There have also long been serious questions over serial rorting of IELTS, landing university lecturers in Australia with students whose English is sub-standard.
IDP’s other main business is a student placement business, placing students in Australian universities as well as universities in the United Kingdom, the United States, Canada, New Zealand and Ireland, plus a string of English-language courses in a range of Asian countries.
Last year the placement business pulled in revenues of $170 million, up 39% from the year before.
Still, no one at IDP or its university shareholders should rest easy. COVID-19 has created an existential crisis for universities that depend on international student fees (as all IDP’s client universities do).
This calendar year the IELTS business has gone into freefall, with exams cancelled across China and elsewhere for the first three months. IDP’s study abroad business is similarly under extreme pressure, sending its shares down 25% from their February peak. In April it issued a profit warning.
“COVID-19 is having a material impact on IDP and other organisations globally, however IDP is taking decisive action to ensure we have sufficient liquidity to trade through the current situation,” Barkla said.
A further complication may be the rails run the company is getting over its competitors from federal government agencies, including a deal with Austrade, which may also pique the interest of the competition watchdog.
Due to collective hands-off risk management that appears to have ignored the risk of a pandemic that many saw coming, the universities are now exposed to a revenue and profit collapse. It appears that IDP’s risk management committee was similarly unprepared.
If EA was willing to sell down its IDP stake, it appears there would be no shortage of institutional shareholders prepared to buy into the company. In April a capital raising initially scoped at $190 million that was lifted to $225 million due to strong demand. In June Merrill Lynch’s stockbroking desk picked up 5.1% of the company sold down by Education Australia for a cool $220 million.
EA has committed, after its last divestment, not to sell any more shares for six months, but if it did sell down its whole stake, each university would receive $40 million in cash, substantially ameliorating losses in the sector.
The rest of the losses — estimated by Universities Australia to be between $3.1 billion and $4.8 billion this year — would be covered by the past two year’s worth of bumper profits that nearly every Australian university banked. It would also free the sector up to invite competition into English testing and dodge the gaze of the competition watchdog were it bothered to have a look.
More importantly, it would remove a questionable collective vested interest by Australia’s universities and be a concrete sign that they are committed to ensuring they are not, any more, mortgaging the future of Australian higher education to international students.