Hailiang Education Group Inc. (HLG) Q2 2020 Results - Earnings Call
Hailiang Education Group Inc. (NASDAQ:HLG) Q2 2020 Results Earnings Conference Call March 25, 2020 9:00 AM ET
Company Participants
Ming Wang - Chairman, Chief Executive Officer
Jianguo Yu - Chief Financial Officer
Litao Qiu - Board Secretary
Conference Call Participants
Operator
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Hailiang Education Group's first six months of fiscal year 2020 financial results conference call. During today's presentation, all parties will be in a listen-only mode. This conference has been recorded today, Wednesday, March 25, 2020.
Joining us today from Hailiang Education Group are the company's Chairman and CEO, Mr. Ming Wang, the company's Chief Financial Officer, Mr. Jianguo Yu and the company's Board Secretary, Mr. Litao Qiu.
I would like to remind our listeners who are on this call, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements as contained in the Private Securities and Litigation Reform Act of 1995. Hailiang Education is under no obligation to update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
At this time, I would like to turn the call over to Mr. Ming Wang, Chairman and CEO of Hailiang Education Group. Mr. Wang, please go ahead.
Ming Wang
Thank you, operator and everyone for joining Hailiang Education's first six months of fiscal year 2020 earnings conference call today.
We are pleased to report strong financial results for first six months of fiscal year 2020. Our revenue increased by 12.9% to RMB736.7 million. Net profit increased by 52.5% to RMB197.6 million compared to the same period of last year, as revenue increased across both our basic education program and international program as well as our study trip services and overseas study consulting services. Our strong operational execution and strategic planning timing have helped drive profitability generation to new levels.
As of December 31, 2019, we sponsored and managed 38 schools. The aggregate number of enrollments in both our affiliated and managed schools were 67,821 students.
We have endeavored to recruit more professional teachers to prepare our curriculums, increase our reputation and provide excellent academic performance in order to attract top key students. We have received awards such as Barron's Top 50 Investment-Worthy Chinese Stocks in 2019. We adhere to the hybrid development strategy, which combines an asset-light model with self construction and strategic acquisitions.
As of December 31, 2019, 10 to 38 schools were affiliated schools that we sponsored and 28 of 38 schools were managed schools where we provide education and management services. We will continue to enhance market leadership in the private K-12 education services industry in China. We look forward to expanding our affiliated and managed schools network among major metropolitan in China and overseas. We see this improve the quality of our faculty, attracting more talented students and diversify our educational services offerings in the future. Hailiang Education's job to provide excellent K-12 education services to our students.
Thank you again for your support and attention. Next, I will turn the call over to Mr. Jianguo Yu, our CFO, who will summarize our first six months of fiscal year 2020 financial results.
On the behalf of management team, Mr. Yu, please go ahead.
Jianguo Yu
Thank you, Mr. Wang. Good evening everyone. Next, on the behalf of the management team, I will summarize some of the key financial results for the first six months of fiscal year 2020.
For the first six months of fiscal year 2020, our revenue was RMB736.7 million or $105.8 million increased by 12.9% from RMB652.7 million. Our gross profit was RMB237.8 million or $34.2 million, an increase of 20.3% from RMB197.7 million.
Our net profit was RMB197.6 million or $28.4 million, increased by 52.5% from RMB129.6 million. Our gross profit margin was 32.3% and net profit margin was 26.8%, increased from 30.3% and 19.9% respectively.
Compared to the same period last year, the basic and diluted earning per share was RMB0.49 or $0.07, compared with RMB0.29 over the same period last year. Our revenue mainly derived from K-12 educational services, educational training services, study trip services and education and management services. Revenue from K-12 basic educational program was RMB411.8 million or $59.1 million, an increase of 16% from RMB355.1 million for the same period of last year.
Revenue from K-12 international programs was RMB212.7 million or $30.6 million, increase of 12.5% from RMB189 million for the same period of last year. Revenue from educational training services was RMB43.4 million or $6.2 million, a decrease of 27.4% from RMB59.8 million for the same period of last year, mainly due to the termination of our educational training business in Jiangxi Province.
With expansion of our study trip services, the revenue reached RMB43.1 million or $6.2 million, an increase of 62.6% from RMB26.5 million for the same period of last year. We provide a variety of education and management services to our schools located in Jiangxi, Zhejiang, Jiangsu, Hubei and Shandong provinces. And the revenue was RMB17.4 million or $2.5 million for the first six months of fiscal year 2020.
Cost of revenue was RMB498.9 million or $71.7 million, an increase of 9.6% from RMB455 million for the same period of last year. The increase was primarily due to the increased compensation levels of employees and increased cost related to study trip services. Selling expenses were RMB15.1 million or $2.2 million, an increase of 52.5% from RMB9.9 million for the same period of last year. The increase was mainly attributed to the increasing sales compensation payment related to educational training services. Administrative expenses were RMB31.6 million or $4.5 million, a slightly decrease from 3.1% from RMB32.6 million for the same period of last year.
Other income was RMB49.8 million or $7.2 million, an increase of 403% from RMB9.9 million for the same period of last year, primarily due to increase in the government grants. Finance income was RMB13.9 million or $2 million, an increase of 11.2% from RMB12.5 million for the same period of last year. The finance cost was RMB3.9 million or $0.6 million, which represented interest portions of operating lease payment upon the adoption of IFRS 16.
Income tax expenses were RMB53.1 million or $7.6 million, compared with RMB48 million for the same period of last year which was driven by the growth of educational services were subject to income tax.
Now a quick summary of our balance sheet and cash flows. As of December 31, 2019, we have cash and cash equivalents of RMB228.2 million or $32.8 million, compared with RMB260.7 million as of June 30, 2019. Net cash provided by operating activity was RMB476.1 million or $68.4 million, a decrease of 26.4% from RMB646.9 million for the same period of last year. The decrease was primarily due to the more income tax and the labor costs paid during the year and a larger amount of the tuition of fiscal year 2020 received before June 30, 2019 compared with the same period of last year.
The net cash used in the investment activity was RMB457.1 million or $65.7 million compared with RMB211.5 million for the same period of last year. The increase was mainly due to the prepayment of lease rental and partially offset by the increase of term deposits withdrawn upon the maturity from the related party finance entity compared with the same period of last year. Net cash used in financing activities was RMB51.8 million or $7.4 million, compared with RMB7.3 million for the same period of last year. The increase was mainly due to more dividends paid by the subsidiary of HLG to non-controlling interests and loan repayment to the related party.
Now I would like to turn the discussion over to the operator for any questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions]. The first question today comes from Eva Nu [ph], a private investor. Please go ahead.
Unidentified Analyst
Good day, management. I am Eva Nu, an individual investor. As we all know, the COVID-19 continues to spread and affects lots of industries. Could you please introduce the impact on HLG and the education industry? Thank you.
Litao Qiu
Okay. Let me answer this question. This is Litao Qiu. I am the Board Secretary. Thank you for your question. Well, due to the COVID-19 epidemic issue, we were actually informed by the local government to postpone the new term onsite class start date. So instead, we provide Internet real-time class lessons to our students by each subject teachers based on the each original class, thanks for the IT strategy and support and our strong teaching team, comprehensive teaching material.
As of February 2020, we had more than 2,000 teachers and nearly 38,000 students who are participating in all your real-time lessons by using our jointly developed Hailiang VIP Cloud Virtual Classroom software platform. Since we do not receive any official notice about a new term start date and end date of this semester, so we cannot provide the actual figures on the latest impact at this moment. But we will continually monitor the progress of the epidemic and timely disclose the impact we saw of the outbreak on our business. Thank you.
Operator
The next question comes from Simon Chen [ph], a private investor. Please go ahead.
Unidentified Analyst
We know that the company's net profit margin increased by 6.9 percentage points compared to the same period of the last year. What is the specific reason?
Jianguo Yu
I am Thomas Yu. I am the company's CFO. I will answer this question. Thank you. This was mainly due to the steady growth of our business income, the improvement of our company's cost control capabilities and as well as the government grant we received this first six months of fiscal year 2020. More specifically, as we mentioned in our 6-K, our revenue increased by 12.9% while our cost and expenses only increased by 9.7%.
The increase in revenue was mainly due to the 4.6% increase in the number of students enrolled and the 9.7% increase in the average tuition and the expansions of our study trips and overseas study consulting services. Meanwhile, we received government grant of discretionary and the non-conditional subsidies from our local government amount of RMB49.8 million for the six months of fiscal year 2020. And we are glad to see our development of the company and thanks again for your question. Thank you.
Operator
[Operator Instructions]. The next question comes from Wendy Kim [ph], a private investor. Please go ahead.
Unidentified Analyst
Thank you operator and Mr. Wang and Thomas for guiding us through this conference call. Mr. Wang, I am Wendy Kim from South Korea and I am also an individual investor and I have a question for you. Well, what's the propensity of the investment decisions in the future for Hailiang Education?
Ming Wang
Thank you for your question. I am glad to answer your question in Chinese.
[Foreign Language]
The future development strategies are mainly focused on four aspects.
[Foreign Language]
Firstly, we shall focus on building our brand and reputation as global leading K-12 education integrated service provider.
[Foreign Language]
Our second strategy is to strengthen our market leadership by increasing education quality and scale while improving academic performance.
[Foreign Language]
Thirdly, we will continue to focus on quality K-12 educational training services and education to diversify our offerings.
[Foreign Language]
The last one is we shall implement hybrid development strategy which combines asset-light approach construction and strategic acquisition to expand our affiliate and managed school network in China and the overseas countries. Thank you for your question.
Operator
[Operator Instructions]. The next question comes from Jack Yu [ph], a private investor. Please go ahead.
Unidentified Analyst
Okay. Thank you. As new media workers, I want to know what's the strategy of the company's online education? Thank you.
Litao Qiu
Okay. This is Litao Qiu. I am the Board Secretary. Let me answer this question. Actually, our company's online education strategy is mainly in three key areas. The first one is the technology side. Since we have a fully prepared a system, so during the outbreak of the COVID-19, we actually launched the Hailiang VIP Cloud Virtual Classroom platform to all the students. We have set up more than 1,500 virtual classrooms running more than 67,000 lessons with great result.
Actually, in the biggest single classroom lesson, we had more than one million participants which was conducted by our executive principal, Mr. Ye, a few weeks ago. The new system not only helped to keep our student's study progress in line with the schedule, but also to speed up at least one to two years of the cloud systems deployment time among the education group.
And the second area, which is the curriculum and teaching resources side, during the outbreak of COVID-19, our online education has covered almost 100% of the compulsory class lessons. In addition, we have more than 200 elective courses and other specified courses delivered by 15 of our golden Olympiad competition training coaches and also 133 senior teachers. Those comprehensive curriculums will expand our online teaching resources in the future.
And the third part is the teaching innovation side. We will take advantage of the flexibility of online education system, increase the proportion of the online lessons and leave more time for students to communicate with their teachers and classmates, enable teachers to give students and target guidance. We can also integrate high quality domestic and foreign teaching resources teachers in China or overseas through online education platform to deliver excellent lessons to local and foreign country students.
So in short, online education service is one of the key focus of our business. We will continue invest on the technology development of the software platform to enrich the teaching content and also to innovate our Hailiang OMO, which is Online-Merge-Offline, new teaching approach to quickly increase the number of online students in our school as well as other school students to improve our future revenues.
So this is my answer to your question. Thank you.
Operator
Seeing no further questions, let me turn the call over to Mr. Litao Qiu, our Board Secretary for any closing remarks.
Litao Qiu
Okay. Thank you operator. On behalf of our entire management team, I would like to thank everyone, again, for joining us today for our conference call. If you have any questions, please contact us through email at ir@hailiangeducation.com or reach our IR Counsel, Ascent Investor Relations, at tina.xiao@ascent-ir.com. Management will respond to your question as soon as possible. We appreciate your interest and support in Hailiang Education and look forward to speaking with you again next time. Operator, please go ahead.
Operator
Thank you again for attending Highland Education Group's Education Group's first six months of fiscal year 2020 financial results conference call. This concludes our call today and we thank you for listening. Good bye. You can please disconnect.
