Overseas Education Limited

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Third Quarter Results Financial Statement And Related Announcement For the Financial Period Ended: 30-09-2018

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Consolidated Statements Of Comprehensive Income

Consolidated Statements Of Comprehensive Income

Balance Sheets

Consolidated Statements Of Comprehensive Income

Review of performance

Review of Income statement

The Group posted total revenue of $20.22 million and $62.89 million for the third quarter ended 30 September 2018 (Q3 2018) and the nine months ended 30 September 2018 (9M 2018) respectively. The decrease in total revenue compared to corresponding periods last year was due to the lower student enrolments compared to the same periods last year.

Details of revenue lines are as follows:

Revenue from tuition fees was lower at $19.35 million in Q3 2018 compared to $20.24 million in Q3 2017. The nine-month tuition fees was lower at $60.78 million in 9M 2018 compared to 63.67 million in 9M 2017.

Revenue from registration fees was S$0.29 million in Q3 2018 compared to $0.33 million in Q3 2017. The nine-month registration fees revenue was lower at $0.90 million in 9M 2018 compared to $1.03 million in 9M 2017.

School shop revenue at $0.35 million in Q3 2018 and $0.51 million in 9M 2018 were comparable with the corresponding periods last year.

Enrichment programme revenue at $0.11 million in Q3 2018 and $0.38 million in 9M 2018 were comparable with the corresponding periods last year.

Interest income was higher at $0.12 million in Q3 2018 compared to $0.08 million in Q3 2017. Similarly, interest income ended higher at $0.30 million in 9M 2018 compared to $0.20 million in 9M 2017.

Total operating expenses before depreciation and amortisation was lower at $15.83 million in Q3 2018 compared to $16.73 million in Q3 2017. Similarly, the nine-month total operating expenses before depreciation and amortisation was also lower at $47.89 million in 9M 2018 compared to $52.06 million in 9M 2017. The Group benefitted mainly from lower personnel expenses and savings on interest cost as explained below.

Personnel expenses decreased to $11.62 million in Q3 2018 from $12.44 million in Q3 2017, and the nine-month personnel expenses decreased to $35.72 million in 9M 2018 from $39.21 million in 9M 2017. The decrease was due to rightsizing measures to reduce personnel expenses in line with the lower student enrolments.

Utilities expenses were higher at $0.21 million and $0.66 million in Q3 2018 and 9M 2018 respectively, compared to $0.17 million and $0.59 million in the corresponding periods of last year due to fluctuations in the wholesale electricity tariffs.

Upkeep and maintenance expenses were lower at $0.43 million in Q3 2018 and $1.15 million in 9M 2018, compared to $0.58 million and $1.46 million in the corresponding periods of Q3 2017 and 9M 2017.

Finance costs on Bonds were reduced to $1.76 million in Q3 2018 and $5.39 million in 9M 2018 from $1.87 million and $5.75 million in Q3 2017 and 9M 2017 respectively, due to savings on interest cost from the repurchase of further $5,000,000 Bonds in Q2 2018 and $11,000,000 Bonds in Q3 2018.

Other operating expenses were higher at $1.52 million in Q3 2018 compared to $1.38 million in Q3 2017. However, the nine-month other operating expenses were lower at $4.40 million in 9M 2018 compared to $4.48 million in 9M 2017.

Depreciation and amortisation expenses were $2.50 million and $7.59 million in Q3 2018 and 9M 2018 respectively, compared to $2.57 million and $7.81 million in the corresponding periods of Q3 2017 and 9M 2017.

Profit before taxation ended marginally higher at $1.89 million for Q3 2018 compared to $1.85 million in Q3 2017. The nine-month profit before taxation similarly ended higher at $7.42 million for 9M 2018 compared to $5.97 million for 9M 2017.

Income tax expense for Q3 2018 and 9M 2018 were $0.57 million and $2.38 million respectively. The Q3 2018 income tax expense comprised of provision for current tax of $0.48 million and accrual of net deferred tax liabilities of $0.09 million. The 9M 2018 income tax expense comprised of provision for current tax of $1.17 million and accrual of net deferred tax liabilities of $1.21 million. The net deferred tax liabilities arose due to the recognition of the tax effect on temporary differences between the net book value and the tax-written-down value of qualifying assets. The income tax expense for the previous Q3 2017 and 9M 2017 were $0.55 million and $1.75 million respectively.

Net profit after taxation for Q3 2018 ended higher at $1.32 million compared to $1.30 million for Q3 2017. Profit after taxation for 9M 2018 also ended higher at $5.04 million for 9M 2018 compared to $4.22 million for 9M 2017.

Review of Group Balance Sheet as at 30 September 2018

Total property, plant and equipment at 30 September 2018 amounted to $259.85 million compared to $266.63 million at 31 December 2017. The decrease of $6.78 million was due mainly to the depreciation charge for the reporting period.

Inventories for school uniforms, books and stationery supplies for sale at the school shop were $0.42 million at 30 September 2018 compared to $0.43 million at 31 December 2017.

Trade receivables comprised amounts attributable to tuition fees, registration fees, school shop revenue and other revenue. The increase of $0.08 million at the end of Q3 2018 from 31 December 2017 was due mainly to the timing of collection of the receivables for the reporting period.

Prepayments increased by $0.61 million due to the timing of prepaid expenses incurred at the start of each new academic year.

The Group's cash and bank balances amounted to $29.86 million at 30 September 2018 and $53.58 million at 31 December 2017. The decrease was due to cash used in investing and financing activities, as explained in the review of Group cash flow below.

Trade and other payables and liabilities were lower at $1.58 million at 30 September 2018 compared to $1.78 million at 31 December 2017 due to timing of payments of operating expenses.

Total fees received in advance (current and non-current) decreased to $21.44 million at 30 September 2018 from $29.97 million at 31 December 2017. The total fees received in advance at 30 September 2018 comprised registration fees and tuition fees collected for the first semester which started in August 2018, less fees recognised in Q3 2018. The fees received in advance at 31 December 2017 were for registration fees and tuition fees collected for the second semester which commenced in January 2018.

Borrowings - Bonds. The remaining outstanding $119 million Bonds due on 17 April 2019 was reclassified as current liabilities. The Group has negotiated an unsecured long-term bank loan facility to fully redeem the remaining outstanding Bonds maturing on 17 April 2019.

Bonds - Interest payable at 30 September 2018 was for the interest accrued on the remaining balance of $119 million Bonds at 5.20% p.a. for the period from 17 April 2018 to 30 September 2018. Bonds - Interest payable at 31 December 2017 was for the interest accrued on $135 million Bonds for the period from 17 October 2017 to 31 December 2017.

Deferred tax liabilities amounted to $8.87 million at 30 September 2018 compared to $7.66 million at 31 December 2017. The net deferred tax liabilities arose from the tax effect on temporary differences between the net book value and the tax-written-down-value of qualifying assets.

Review of Group cash flow for the third quarter ended 30 September 2018

In Q3 2018, the net cash generated from operating activities was $9.33 million, which consisted of cash inflow from operating profit before working capital changes of $6.09 million, net working capital inflow of $3.12 million and interest received of $0.12 million.

The above-mentioned net working capital inflow of $3.12 million arose mainly from cash inflow relating to the increase in trade payables, other payables, liabilities and fees received in advance of $3.03 million. There was also cash inflow from the decrease in trade receivables of $0.87 million, offset by the cash outflow from the increase in other receivables, deposits and prepayments of $0.84 million.

The net cash used in financing activities of $31.22 million in 9M 2018 was for the payment of bond interest of $3.37 million in April 2018, bonds repurchased of $16.43 million and payment of the final dividend of $11.42 million in respect of FY 2017 in May 2018.

Commentary

The Group wishes to inform that the Group has negotiated an unsecured long-term bank loan facility to fully redeem the remaining outstanding Bonds maturing on 17 April 2019. The Group expects to finalise the bank facility letter before year-end.

The Group remains cautious and expects the current operating environment for foreign system schools (FSS) to remain challenging.

The Group continues to focus on delivering quality school programmes, and has increased our student recruitment efforts and developed more channels to attract student enrolments. The Group maintains a conservative stance on expenditure, and will continue to rightsize personnel expenses as and when necessary during this challenging period.

FSS in Singapore are to a large extent dependent upon the ability of Singapore to continue to attract foreign direct investments, and the Group is well placed in the FSS market to compete and to support any expansion of foreign investments into Singapore.

Overseas Education Limited
81 Pasir Ris Heights, Singapore 519292 | Tel (65) 6738 0211 | Fax (65) 6733-8825
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