Vocation imploded last year after a damning government audit stripped it of funds.
The tin can could have been rattled longer — for another six months by some estimates. But in the end it wasn’t just a lack of capital that ended the Icarian life of Vocation, one of Australia’s first listed private training providers; there was also fatigue.
The company spectacularly imploded last year after a damning government audit stripped it of funds, and management slowly rebuilt an internal sales team.
Investors were also tired, wary of a private training college industry rife with rorting, unscrupulous conduct and under the intense glare of the federal government and its regulatory apparatuses.
Vocation, which this week became the first listed training provider to call in administrators, was once worth more than $770 million.
And the remaining listed education stocks aren’t looking all that healthy either. Australian Careers Network, which runs the lucrative Phoenix Institute, has been in a trading halt for weeks and isn’t likely to exit soon.
Another, Ashley Services, has seen its share price drop more than 80 per cent after a big earnings downgrade in April.
Vocation, a roll-up of three large training colleges — former chief executive Mark Hutchinson’s Avana, Brett Whitford’s Customer Service Institute of Australia, and BAWM — floated in late 2013, with Keating-era treasurer John Dawkins appointed chairman.
By mid-2014, the company had become dogged by rumours of a sweeping Victorian government probe, which it first denied and then suggested would be immaterial.
That was, as it turned out, definitely not the case. That review, which revoked $19.6m in public funding and shuttered two of the company’s most lucrative colleges — BAWM and Aspin — sent Vocation’s shares from $2.29 to just 90c, while a number of profit downgrades further depressed the share price to below 10c.
The shares last traded two weeks ago at 12c, when chief executive Stewart Cummins finally called in Ferrier Hodgson, leaving 12,000 students across the country with an uncertain future.
In hindsight, it was both a failure of the company and the regulators — the Victorian Registration and Qualifications Authority and the federal Australian Skills Quality Authority, which was conducting its own undisclosed probe into Vocation.
The size of the funding pullback was the largest in the VRQA’s history — more than the total of all other penalties. It would have been difficult for the company to foresee, unless its transgressions, described in a statement as the provision of “inappropriate” and “lower-quality” courses, were great.
One of the many travesties is public, but Vocation investors may never know exactly what the problems were. Despite a lengthy Freedom of Information process, aggressively appealed by the company at every turn, The Weekend Australian failed to obtain the original audit documents.
Whatever the problems, sources within the company said they would pale in comparison to some of the allegations levelled at ACN’s Phoenix Institute, and indeed the horror stories circulating about the private training industry.
The stories include the wholesale enrolment of community groups and even nursing homes, with their elderly residents, many of whom with weak English-language skills, signed up to courses intended to have tangible employment outcomes.
Those stories don’t concern Phoenix Institute, but it faces other allegations, brought by the Australian Competition & Consumer Commission, that are no less damning.
They include allegations the college paid an unemployed indigenous man $100 to assist it in enrolling others living in a public housing estate into its courses.
Phoenix, the ACCC alleges, also enrolled a woman on the Disability Support Pension living in public housing, despite being told she would not be able to undertake the course.
ACN strongly denies the claims, and is planning to appeal a separate decision taken by ASQA to deregister the college, which is one of the company’s biggest earners. Since it acquired Phoenix in January, the amount of funding obtained under the federal government’s VET FEE-HELP loan scheme jumped from $1.9m last year to $106m this year to date.
The VET FEE-HELP scheme allows students to access nearly $100,000 in government loans to study at colleges, with the debt to be repaid once a student earns more than $54,000 in a year.
However, low completion and progress rates have raised fears a significant amount of that money will never be repaid.
One college enrolled 4000 students in 2014, managing to graduate only five students.
It is the speed of growth in the industry that has many investors worried.
Steve Johnson, a fund manager at Forager Funds, said the initial red flag was the listing of a “whole heap of these companies … particularly businesses with no assets at all”.
“In the case of ACN, the capital was less than $5 million, and all of a sudden it was worth hundreds of millions of dollars. It’s a big flag to us there was something untoward happening,” Mr Johnson said.
“It was actually the speed of the growth that worried us the most, and we didn’t understand how you could build a legitimate business that could genuinely train that many people in such a short period of time.”
Vocation, on the other hand, had very little exposure to the VET FEE-HELP market — just $3.2m this year. A wry observer quipped that if Vocation had entered that part of the industry with quite the same vigour as many other players, it may have been a different story.
There is no doubt Vocation’s troubles, and those of ACN and Ashley Services, will serve to scare already wary investors away from the education sector.
Despite this, IDP Education, which floated earlier this week, rose 28 per cent to close at $3.40 in its first two days of trade.
It appears both the government and Labor are set on “turning the tap off”, with a new tranche of legislation due to be voted on this week. It will not be an easy end of the year for training colleges.