 "Queries on Treehouse's accounts")
This article has been modified. Please see the clarification at the end.
Ahead of TreeHouse Education and Accessories' annual general meeting (AGM) on Friday, proxy advisory Stakeholders’ Empowerment Services (SES) has raised concerns over high levels of trade receivables in the former's balance sheet.
Unusual, SES says, for a schooling business where fees are usually paid in advance. It has advised shareholders to raise some basic queries in this regard, though it hasn't advised voting against the AGM resolutions.
TreeHouse runs pre-schools and offers consultancy services. It had operating revenue of Rs 207 crore for financial year 2014-15. Most of this came from its 'Early childhood education’ business, which accounted for Rs 179.4 crore.
Consultancy income contributed Rs 20.4 crore. Rent, royalty and others accounted for the rest. From the notes to financial statements, trade receivables were nearly Rs 43 crore. Of this, Rs 17.6 crore was overdue for more than six months. Other receivables were Rs 25.4 crore.
In its voting recommendation report, SES said: “Major revenue (96 per cent) is from consultancy income and income from early childhood education. SES is of the opinion for both types of activities, the fee is received in advance (generally before the service is provided). In the education business, receipt of fees in arrears is rare and an exception.”
Putting the debtors turnover ratio at 4.83, SES said: “The company has trade receivables of Rs 42.96 crore. SES is of the opinion that (this) is too high for a company like TreeHouse, keeping in mind its business.”
It has asked the shareholders to seek clarifications on these high receivables and also raised several queries on the company’s fee collection and accounting systems. However, it did not recommend that shareholders vote against any of the resolutions coming up in the AGM.
In an e-mail response last Saturday, Sanjay Shah, the chief financial officer and head of compliance at TreeHouse, said: ”The company has two modes of receivables. One is from school management fees from K-12 schools and other is the pre-schools' fees. The outstanding (amounts) observed by you are not entirely from the pre-schools. Parents give post-dated cheques and these are realised after the year end as well. But, on the reporting date, we have to show this as outstanding (dues).”
On the receivables which are over six months old, Shah said, “These pertain to the K-12 schools, school management fees.”
In response to further clarifications sought by Business Standard, he added in an e-mail response on Wednesday, “All the outstanding (dues) pertain to K-12 school management fees. It has nothing to do with the students. We receive the fees from the Trusts whose schools we manage. There are few outstandings pertaining to the curriculum design charges, for which we have agreed to be paid by them over three years. Hence, it is an understanding, so it will reflect under (the) more than six months (category).”
J N Gupta, managing director of SES, said he was not satisfied with the explanation and that there was scope for more transparency. “If you see the revenue, Rs 180 crore is from nursery but they say the receivables are not from nursery. In that case, receivables are from consultancy, which contributed Rs 20 crore to revenue. Assuming no part of this consultancy income was due this year, this means about 66 per cent of the previous year’s income was still overdue. I am not very convinced and shareholders are in the dark on these issues,” he concluded.
CLARIFICATION
In an earlier version of this article, the adjoining chart had mentioned figures in Rs crore instead of Rs lakh. The error is regretted.
