Raffles Education: Is the K-12 Business Really Doing Well?

In today’s Business Times report titled “Raffles Education hopes to shake off recent controversy with growth in K-12 business”, Doris Chung, a Raffles Education executive and wife of the founder, chairman and CEO, was quoted as saying that the K-12 schools do well “because of their ability to capture students for 12 years”. She also said that the K-12 school in Iskandar, Johor, had been doing well before the pandemic hit.

It is unclear what percentage of students in its K-12 schools are “captured” for 12 years. Just because a school offers K-12 education, it does not mean that the students will stay for 12 years. In terms of the K-12 school in Iskandar doing well before the pandemic, the audited financial statements for Raffles K12 Sdn Bhd, which I obtained from the Companies Commission of Malaysia, appear to show otherwise. Raffles K12’s principal activity is disclosed as “operating an American system of school” in Note 2 of its financial statements.

The audited financial statements show that Raffles K12 was profitable in FY2016 and FY2017, but started making losses in FY2018 (year ended 30 June 2018), when it made a loss after tax of RM638,607, even though revenue increased from RM8,168,300 in FY2017 to RM14,199,508 in FY2018. In FY2019,  revenue increased to RM21,255,384 but it made a huge loss after tax of RM23,181,378 – which was more than its revenue. In FY2020. revenue increased further to RM29,151,880 but the company made a loss after tax of RM17,302,413.

Retained earnings was negative RM13,115,652 as at 30 June 2016 and by 30 June 2020, had ballooned to negative RM47,035,623. As at 30 June 2020, current liabilities exceeded current assets by RM123,243,090.  Note 4.1 in the FY2020 financial statements stated: “The ultimate holding company has indicated its intention to provide continuous financial support to the Company so as to enable the Company to meet its obligations as and when they fall due and to operate as a going concerns in the foreseeable future….In view of the foregoing, the Directors consider it appropriate to prepare the financial statements of the Company on a going concern basis…”. The auditor’s opinion was not modified. Without the “continuous financial support” from the ultimate holding company, Raffles Education, there would be doubt as to whether Raffles K12 can continue to operate as a going concern.

Perhaps Raffles Education should clarify why it said that the K-12 school in Iskandar has been doing well in the pandemic when the financial statements for its Raffles K12 subsidiary in Malaysia show that it was already making significant losses before the pandemic.