The Alpha Plus Group is a case study of for-profit education in the twenty-first century.

Its portfolio includes a host of prestigious schools, such as Wetherby, which educated Princes William and Harry. The group was first sold to a private equity group in 2002, and then bought in 2007 by clients of Delancey Real Estate Management.

So how profitable is education? As we reported earlier this year, Alpha Plus is rapidly expanding. It is also lossmaking. Its half-year results, added to its website yesterday, show that this is still the case: it lost a further £4.2m in the six months to the end of February.

This is all of note because the company, which recently opened a school in Manhattan, has a £50m retail bond which comes due in December. It is one of two retail bonds secured against schools located in prime London locations.

The company had cash of £5m, as of the end of February. In the six month reporting period, its cash flow was negative to the tune of just under £5m. Here’s what it says about the bond repayment in its latest results:

The Directors have various options regarding the £48.5m bond redemption in December 2019 including selling all or part of the £50m of March 2024 bonds which are held on the Company’s behalf by Deutsche Bank acting as Security Custodian or arranging alternative financing given the unsecured underlying assets held by the Group and available to provide security.

According to the group, the results show that its expansion program is “beginning to bear fruit”. It points, in the report, to a 7 per cent rise in revenue year-on-year, compared to a 2 per cent rise in operating costs.

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A spokesperson for Alpha Plus said: “we are pleased to report that the results are materially better than the equivalent period last year, reflecting the success of the renewed focus on all operating aspects of the business.”

The spokesperson added: “the loss for the period clearly relates to depreciation, which is charged in accordance with our accountancy policies, but does not represent a cash outflow.”

The company also included an “underlying ebitda” figure, after adjusting for the operating costs “incurred as the Group expands and creates additional capacity expansion”. Its calculation is below:

Student numbers, though, rose by just 8 over the period, from 4,322 to 4,330. The group’s equity, meanwhile, is now £11.7m, compared to £22.5m at the same time last year.

The company owns valuable London real estate, albeit in an city where prime prices have suffered in the aftermath of Brexit. It has a policy of valuing its property, plant and equipment at cost less accumulated depreciation. The depreciation cost of £4.3m over the six-month period is mostly accounted for by fixtures and equipment and leasehold improvements. Depreciation of the buildings themselves only accounted for £655,000.

The retail bonds are secured against these property holdings, which are required to be worth 1.5 times the value of the debt, and subject to a separate valuation process. It says that, if this valuation were reflected in its financial statements, net assets would increase by £120m. It is worth adding, in relation to the security, that the properties are used for schools; the ability to convert the buildings for other uses would require a change in planning permission.

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Alpha Plus originally loaned a large chunk of the proceeds of its latest retail bond (which is not the one coming due this year) to a parent company based in the British Virgin Islands. While that loan is technically due in 2024, Alpha Plus has been drawing it down; the parent company repaid £7m in December.

Meanwhile, the tone in the report strikes an optimistic note:

Whilst the Group’s primary focus is on improving the trading performance of its existing schools and colleges, the Group does continue to look for opportunities to further expand its school and college portfolio both in the UK and overseas.

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