Overseas Education Limited

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Second Quarter Results Financial Statement And Related Announcement For the Financial Period Ended: 30-06-2018

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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 $21.45 million and $42.67 million for the second quarter ended 30 June 2018 (Q2 2018) and the six months ended 30 June 2018 (H1 2018) respectively. The decrease in total revenue compared to corresponding periods last year was due to the lower student enrolments compared to the same period last year.

Details of revenue lines are as follows:

Revenue from tuition fees was lower at $20.88 million in Q2 2018 compared to $21.89 million in Q2 2017. The six-month tuition fees was lower at $41.43 million in H1 2018 compared to $43.43 million in H1 2017.

Revenue from registration fees was S$0.30 million in Q2 2018 compared to $0.34 million in Q2 2017. The six-month registration fees revenue was lower at $0.61 million in H1 2018 compared to $0.69 million in H1 2017.

School shop revenue at $0.07 million in Q2 2018 and $0.17 million in H1 2018 were comparable with the corresponding periods last year.

Enrichment programme revenue was $0.13 million in Q2 2018 and comparable with Q2 2017. The six-month enrichment programme revenue was higher at $0.27 million in H1 2018 compared to $0.25 million in H1 2017.

Interest income was higher at $0.07 million in Q2 2018 compared to $0.05 million in Q2 2017. Similarly, interest income ended higher at $0.19 million in H1 2018 compared to $0.12 million in H1 2017.

Total operating expenses before depreciation and amortisation was lower at $16.22 million in Q2 2018 compared to $17.89 million in Q2 2017. Similarly, the six-month total operating expenses before depreciation and amortisation was also lower at $32.06 million in H1 2018 compared to $35.33 million in H1 2017. The Group benefitted mainly from lower personnel expenses and interest cost savings, and maintaining a conservative stance on the other operating expenditure as explained below.

Personnel expenses decreased to $12.14 million in Q2 2018 from $13.52 million in Q2 2017, and the six-month personnel expenses decreased to $24.10 million in H1 2018 from $26.77 million in H1 2017. The decrease was due to rightsizing measures to reduce personnel expenses in line with the lower student enrolments.

Utilities expenses were marginally higher at $0.26 million and $0.45 million in Q2 2018 and H1 2018 respectively, compared to $0.21 million and $0.42 million in the corresponding periods of last year due to fluctuations in the wholesale electricity tariffs.

Upkeep and maintenance expenses were lower at $0.37 million in Q2 2018 and $0.72 million in H1 2018, compared to $0.44 million and $0.88 million in the corresponding periods of Q2 2017 and H1 2017.

Finance costs on Bonds were reduced to $1.80 million in Q2 2018 and $3.62 million in H1 2018 from $1.94 million and $3.88 million in Q2 2017 and H1 2017 respectively, due to the interest cost savings from the repurchase of further $5,000,000 Bonds in Q2 2018. Information on the repurchase of the Bonds is disclosed above.

Other operating expenses were lower at $1.51 million in Q2 2018 compared to $1.65 million in Q2 2017. The six-month other operating expenses also decreased to $2.88 million in H1 2018 from $3.09 million in H1 2017.

Depreciation and amortisation expenses were $2.54 million and $5.09 million in Q2 2018 and H1 2018 respectively, compared to $2.62 million and $5.24 million in the corresponding periods of Q1 2017 and H1 2017.

Profit before taxation ended higher at $2.69 million for Q2 2018 compared to $1.99 million in Q2 2017, an increase of 35.6% over the same period last year. The six-month profit before taxation similarly ended higher at $5.52 million for H1 2018 compared to $4.12 million for H1 2017.

Income tax expense for Q2 2018 and H1 2018 were $0.92 million and $1.81 million respectively. The Q2 2018 income tax expense comprised of provision for current tax of $0.66 million and accrual of net deferred tax liabilities of $0.26 million. The H1 2018 income tax expense comprised of provision for current tax of $0.69 million and accrual of net deferred tax liabilities of $1.12 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 Q2 2017 and H1 2017 were $0.62 million and $1.20 million respectively.

Net profit after taxation for Q2 2018 ended higher at $1.78 million compared to $1.37 million for Q2 2017, an improvement of 29.8% over the same period last year. Profit after taxation for H1 2018 also ended higher at $3.72 million for H1 2018 compared to $2.92 million for H1 2017.

Review of Group Balance Sheet as at 30 June 2018

Total property, plant and equipment at 30 June 2018 amounted to $262.18 million compared to $266.63 million at 31 December 2017. The decrease of $4.45 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 $0.44 million at 30 June 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 $0.95 million at the end of Q2 2018 from 31 December 2017 was due mainly to the timing of collection of the receivables for the reporting period.

The Group's cash and bank balances amounted to $31.92 million at 30 June 2018 and $53.58 million at 31 December 2017. The decrease was due to cash used in operating, investing and financing activities, as explained in the review of Group cash flow below.

Trade and other payables and liabilities were lower at $1.26 million at 30 June 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 $16.14 million at 30 June 2018 from $29.97 million at 31 December 2017. The total fees received in advance at 30 June 2018 and 31 December 2017 comprised of tuition fees and registration fees collected before the commencement of a semester commencing in August and January respectively. As at 30 June 2018, the fees for the new semester commencing in August 2018 were not due yet.

Bonds - Interest payable at 30 June 2018 was for the interest accrued on the remaining balance of $130 million bonds at 5.20% p.a. for the period from 17 April 2018 to 30 June 2018. Bonds - Interest payable at 31 December 2017 was for the bonds interest accrued on $135 million bonds for the period from 17 October 2017 to 31 December 2017.

The Goods and Services Tax payable of $2.66 million at 30 June 2018 arose mainly from the billing of semester one 2018/2019 tuition fees.

Deferred tax liabilities amounted to $8.78 million at 30 June 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 second quarter ended 30 June 2018

In Q2 2018, the net cash generated from operating activities was $2.60 million, which consisted of cash inflow from operating profit before working capital changes of $7.01 million, net working capital outflow of $4.43 million, interest received of $0.07 million and income tax paid of $0.05 million.

The above-mentioned net working capital outflow of $4.43 million arose mainly from cash outflow relating to the decrease in trade payables, other payables, liabilities and fees received in advance of $4.46 million. There was also the increase in cash outflow from trade receivables of $1.08 million, offset by the cash inflow from other receivables, deposits and prepayments of $1.10 million.

The net cash used in financing activities of $19.96 million in Q2 2018 was for the payment of bond interest of $3.37 million in April 2018, bonds repurchased of $5.17 million and payment of the final dividend of $11.42 million in respect of FY 2017 in May 2018.

Commentary

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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