ST Unitas posts W2.8 billion operating profit in 2017

ST Unitas CEO Yoon Sung-hyuk

The Princeton Review at risk because of its financially shaky Korean owner

By Jhoo Dong-chan

ST Unitas failed to turn around in 2017, dealing a blow to its ambitious goal of listing its shares on the tech-heavy Kosdaq market this year.

Korea's largest operator of private learning institutes, offering English, Chinese and other foreign language courses as well as various civil-service tests, has seen its financial health deteriorate over the past years as it has borrowed substantial amounts of money to acquire The Princeton Review (TPR), a major U.S. education service firm, early last year, and to expand its presence here and abroad.

The company has also been engaged in fierce competition with Mega Study and other local rivals, which have chipped away at its profitability.

Industry analysts here say TPR should worry about the deteriorating financial soundness of ST Unitas, its Korean owner, because it may siphon off cash from TPR to finance its money losing operations.

The Princeton Review office in Plano, Texas

According to audit data provided by the Financial Supervisory Service Tuesday, ST Unitas saw its sales grow to 416.4 billion won ($400 million) in 2017 from 315.7 billion won the previous year.

But its expanding business failed to generate profits as it incurred a 2.8 billion won operating loss last year, more than doubling the previous year's 1.37 billion won loss. It also posted a 15.4 billion won net loss in 2017.

“ST Unitas acquired a 100 percent stake in TPR. The company's expansion reflected in the filing,” said an ST Unitas official. “It is inappropriate at this point to comment on when the company will hit the bottom or become profitable.”

Despite its worsening profitability, ST Unitas bought the U.S. education firm to expand its operations abroad. According to investment bank analysts, ST Unitas paid about 100 billion won for the takeover.

The company reportedly borrowed money from Pine Tree Investment & Management at a high interest rate. The firm's interest costs were only 40 million won in 2012, but skyrocketed to 10.8 billion won in 2017 following the takeover.

As of the end of last year, ST Unitas has issued corporate bonds worth 90 billion won, paying 15 percent annual interest.

The official said ST Unitas expects to be listed on the Kosdaq next year, but an industry analyst says the firm's plan to go public is likely to face difficulties if it fails to turn a profit.

“Still, the nation's education industry is driven mainly by those aged between five and 25. Korea has long experienced a low birthrate problem. And the demographic cliff is already here. The industry will gradually lose its potential customers,” said the analyst who declined to be named.

“ST Unitas won't be able to hit the bottom anytime soon. It's a bold move to go abroad by acquiring TPR. I understand it has networks in some 20 countries but it remains to be seen whether ST Unitas will be able to effectively capitalize on the U.S. firm's extensive networks.”

She also said TPR will be adversely affected by its parent firm's financial trouble, stressing it may end up becoming a cash drawer for the Korean company.

While ST Unitas concentrates on expanding its business in size, many workers are allegedly subject to overtime work even without pay as part of the company's efforts to reduce labor costs.

The company recently came under fire for forcing one of its employees to work excessively long hours, leading her to commit suicide.

The employee, surnamed Chang, who worked with the firm between May 2015 and December 2017, worked more than 12 hours a day, nearly seven days a week, for 46 weeks.

Chang had to take time off work due to the deterioration of her health after working excessive overtime, but ST Unitas continued such practices even after Chang returned from her leave in November 2017.