Nord Anglia Education Inc (NYSE:NORD)
Q4 2016 Earnings Conference Call
November 29, 2016 08:00 AM ET
Vanessa Cardonnel - Corporate Finance and IR Director
Andrew Fitzmaurice - CEO
Graeme Halder - CFO
Manav Patnaik - Barclays Capital
Gary Bisbee - RBC Capital Markets
Jeff Silber - BMO Capital Markets
Trace Urdan - Credit Suisse
Mariana Kou - CLSA
Brandon Dobell - William Blair
Leon Chik - J.P. Morgan
Greetings, and welcome to the Nord Anglia Education Fiscal Year 2016 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Ms. Vanessa Cardonnel, Corporate Finance and Investor Relations Director for Nord Anglia Education. Thank you. You may begin.
Good morning, and thank you to everyone for joining us on today’s call to discuss Nord Anglia Education’s fourth quarter and full year fiscal 2016 results, which were released this morning. Joining me, as usual, are Andrew Fitzmaurice, Chief Executive Officer and Graeme Halder, Chief Financial Officer.
Our earnings press release is available on the Investor Relations section of our Web site, nordanglia.com. We’ve also posted a supplementary presentation to the Web site, which we will refer to during today’s call. The call is being webcast and a complete recording will be available after the call.
I would like to remind you that some of the comments made on today’s call, including but not limited to our financial guidance, constitute forward-looking statements within the meaning of applicable U.S. Securities Laws. Forward-looking statements relate to events involving certain risks and uncertainties and actual results may differ materially from the views expressed.
Information contained in this conference call is subject to and qualified in its entirety by information contained in our public filings with the SEC, including our Annual Report for fiscal 2016 on Form 20-F, which was also filed this morning. In addition, all forward-looking statements are made as of today and Nord Anglia Education does not undertake any responsibility to update any forward-looking statements based on new circumstances or revised expectations. You are cautioned not to place undue reliance on any forward-looking statements.
We use EBITDA, adjusted EBITDA, and adjusted net income as supplemental financial measures of our operating performance. These supplemental financial measures are not standard measures under IFRS and should not be considered in isolation or construed as alternatives to cash flows, net income or any other measure of financial performance. The non-GAAP measures that we discussed are detailed and reconciled to the nearest IFRS measure, in profit or loss for the period, in our press release, and Form 20-F, or is available on the Web site.
Now, with the formalities out of the way, I will turn the call over to Andrew.
Thank you, Vanessa. I will start today’s call with the highlights of our financial and operating results for 2016. I will then share some of our other notable achievements and then turn the call over to Graeme to provide a more detailed review. We delivered strong financial and operating results in the fourth quarter and in FY2016 that were in line with our expectations. For the fiscal year revenue increased 55% on a constant currency basis to $856 million. Adjusted EBITDA increased 66% on a constant currency basis to $207.3 million, and the adjusted net income and adjusted EPS improved by 62% and 55% respectively.
The average full time equivalents students for the year increased by 56% to 34,819, and we expanded our capacity by 57% to 49,177 seats. Current research suggested 65% of students entering school today will be working in jobs that don’t yet exist. To be successful in this new jobs market, students will need to demonstrate academic success and develop skills such as creativity, emotional intelligence and problem solving.
Nord Anglia Education is providing an educational offer which results in outstanding academic outcomes for students and equips them with the 21 century skill they need to thrive in a globalized world. Our Nord Anglia University and global campus initiatives link our students and teachers across the world. These programs, and our collaborations with the The Juilliard School, MIT and King's College London, create exceptional learning opportunities for our students and staff.
Nord Anglia Education is the world’s leading premium schools organization and we now educate over 37,000 students and have 54,813 seats of capacity. We believe that providing an outstanding education for our students benefit all parts of our organization. Our organic FTE growth was 8% from September 2015 to September 2016, which is around twice the market average.
We get 38 applications for every teaching vacancy, which enables us to recruit the best talent. In addition, we’re continuing to widen the gap between the academic outcomes achieved by our students and national and global averages. As a result, our students are accepted to many of the world’s leading universities. This year, once again, one in three students went to one of the world’s top 100 universities, and we are particularly proud that Nord Anglia Education students were accepted into 24 of the world’s top 20 universities this year.
Our growing reputation and brand is leading to increased opportunities. We’ve successfully opened our first bilingual school in China in September 2016, and they are excited by the opportunities to develop more bilingual schools. In addition, we’re pleased with the progress of our new campus in Huston, which opened in September 2016, and they are looking forward to launching three new school campuses in Abu Dhabi, Honk Kong, and Bangkok in September 2017.
I will now hand over to Graeme to take you through the financial performance of quarter four and fiscal 2016 in more detail.
Thank you Andrew, as a reminder of our seasonality, our school in fiscal year runs from September through to June. And the majority of our earnings are recognized over the first 10 months of the fiscal year. This means that our fourth quarter results include any one-month for revenue in direct cost, but three months of SG&A and rent. This result in significantly reduced operating profit for the fourth quarter compared to the first three quarters of the fiscal year.
Looking first to the Group performance for quarter four of FY16 compared to quarter four of FY15, total revenue increased 31% on a constant currency basis and 27% on a reported basis to $115.1 million. This increase was driven by strong enrollment growth, tuition fee increases and the acquisitions completed during the prior year. Gross profit increased 52% to $38.5 million and gross margin increased 550 basis points to 33.4%. The increase in gross margin was primarily due to a full quarter contribution in Q416 from the schools we acquired during Q415.
SG&A expenses increased 9% to $51.9 million, and SG&A, as a percentage of total revenue, decreased 760 basis points to 45.1%. Similar to the gross margin in the quarter, the decrease, as a percentage of revenue, was mainly due to the impact of a full quarter of revenue contribution from the schools acquired during Q4 FY15.
Adjusted EBITDA improved to $6.7 million from negative $5.2 million and adjusted EBITDA margin increased to positive 5.8% from negative 5.7%. Included in our adjusted EBITDA for the quarter is the negative impact of our start-up schools in Chicago and Aubonne of $3.1 million, and a further $3.9 million as a result of the sale and leaseback.
Net financing expense decreased to $19.3 million from $24.7 million in the fourth quarter last year, primarily due to a larger unrealized FX loss on the Swiss bonds of $9.7 million in Q415 compared to $1.3 million in Q416. Adjusted net income improved to a loss of $14.6 million from a loss of $23.2 million and adjusted EPS improved to a loss of $0.14 compared to a loss of $0.22.
Now turning to the Group performance for the full fiscal year ’16 compared to the prior year. Total revenue increased 55% on a constant currency basis and 49% on a reported basis to $856 million. The increase was driven by enrollment growth and tuition fee increases and the acquisitions we completed in FY ’15. Average revenue per FTE decreased 2.6% on a reported basis, and was flat on a constant currency basis at $24,400, largely due to the negative mix impact of acquisitions and stronger growth in lower priced point schools offset by tuition fee increases.
Gross profit increased 54% to $333.8 million. The gross profit margin increased to 110 basis points to 39%. The increase in gross margin was due to tuition fee increases and FTE growth, as well as the full year contribution from the schools acquired during FY15, partially offset by the opening of our new school in Chicago and the sale and leaseback impact.
SG&A expenses increased 49% to $192.7 million and SG&A, as a percentage of total revenue, decreased 10 basis points to 22.5%. Adjusted EBITDA increased by 66% on a constant currency basis and 59% on a reported basis to $207.3 million and adjusted EBITDA margin increased to 140 basis points to 24.2%. Adjusted EBITDA includes the negative of our start-up schools in Chicago and Aubonne of $9.9 million and $4.6 million from the sale and leaseback.
Net financing expense increased to $63.6 million from $46.3 million last year. The increase was a result of the additional debt raised to fund the acquisitions in FY, partially offset by an unrealized gain of $4.7 million from the change in value of $200 million of Swiss bonds in FY16 compared to an unrealized loss of $9.7 million in FY15.
Adjusted net income increased 62% to $67.5 million and adjusted EPS increased 55% to $0.65. I know that in completing the FY16 audit we have made some adjustments to the first three quarters of FY16 on the full year and quarters of FY15. The revisions include voluntary changes in presentation and correction of errors that we determined to be not material. The revisions to FY15 are included in our Form 20-F and the quarterly revisions are included in the Form 6-K, both filed with the SEC today.
Slide nine sets out a bridge for premium schools revenue from FY15 to FY16. The bridge highlights premium school revenue growth, splitting out the impact of FX, acquisitions, and organic growth. Of the increase, 13% was from organic revenue growth.
Now, looking at the performance of each region for FY'16 in more detail. In China, revenue increased 12% on a constant currency basis and 8% on a reported basis from enrollment growth and tuition fee increases. Average FTEs in China grew by 11% to $5,820, but average revenue per FTE decreased 3.1% to $33,900. But the decline average revenue per FTE was due to the strengthening of the U.S. dollar and relatively stronger growth in lower price points schools in the region.
Adjusted EBITDA margin decreased 270 basis points to 43.5% due principally to around $3 million of new employment related taxes and the mix shift to lower margin schools. We expect this mix shift to continue in FY17 due to stronger growth in lower margin schools, as well as the impact of our new bilingual school in Shanghai during its ramp-up pace.
There has been recent legislation in China regarding private schools for children age six to 15. Although the full implications of the new floor are not yet clear, we do not currently anticipate that they will impact our first bilingual school in Shanghai or the roll-outs of additional bilingual schools in China. I would like to stress that the new legislation covers private schools teaching Chinese students and doesn’t affect our international schools, which are exclusively for its taxes in China.
Turning to Europe, revenue increased 68% on a constant currency basis and 59% on a reported basis due to student enrollment growth, tuition fee increases, and the acquisition of Collège du Léman in Geneva in FY15. Average FTEs increased 44% to $6,679 and average revenue per FTE increased 10.1% to $31,700. The increase in average revenue per FTE was primarily due to the positive mix impact of Collège du Léman, partially offset by negative currency translation impact from the strengthening of the U.S. dollar.
Adjusted EBITDA margin increased 710 basis points to 19.8% due to a full year contributions from Collège du Léman, which was acquired in Q4 of FY15, as well as the lower losses from our start-up school in Aubonne.
Turning to the Middle East, revenue increased 27% as a result of strong organic growth across the region. Average FTEs increased 22% to $5,302 and average revenue per FTE was up 3.8% to $16,400 due to tuition fee increases and the mix impact of stronger growth in higher priced schools in the region. Adjusted EBITDA margin increased 700 basis points to 20.1% due to fee increases and higher utilization, including the filling of our Dubai school.
Moving onto Southeast Asia, revenue increased 50% on a constant currency basis and 42% on a reported basis due to organic enrollment growth, tuition fee increases, and the full year impact to the schools we acquired in Vietnam in FY15. Average FTEs increased 42% to $7,505 and average revenue per FTE remained unchanged at $17,400. This was due to tuition fee increases offset by the negative impact from the strengthening of the U.S. dollar against South East Asian currencies.
Adjusted EBITDA margin increased 270 basis points to 32.1%, primarily due to continued fill-up of the Vietnamese schools and tuition increase across the region. There remains upside in the Vietnamese schools, which were acquired at low utilization and are still ramping up
In North America, revenue increased 172% to $224.3 million due to student enrollment growth, tuition fee increases, and the full impact to the schools we acquired in the U.S. and Mexico. Average FTEs increased 238% to $9,513, but average revenue per FTE decreased 19.6% to $23,600. The decrease in average revenue per FTE was principally driven by the negative mix impact of the Mexico school and the fact that FY15 included some summer revenue from the Meritas schools but no students, so the schools were acquired during the summer break.
Adjusted EBITDA margin decreased to 120 basis points to 26.6% due to the new Chicago school, the acquisitions in U.S. and Mexico and the impact of sale and lease back.
Slide 15 of our presentation shows our summary cash flow for the year to the August 31, 2016. We generated $78 million cash in FY16 and ended the period with a cash balance $372 million. We received a $167 million in cash proceeds from the sale and leaseback transaction, offset by $94.3 million of CapEx and $33.6 million for acquisitions of subsidiaries, including the final differed payment for the Meritas Schools.
The $94.3 million of CapEx included $29 million maintenance CapEx and $65.3 million on expansion of existing school at our new campuses in Huston and Shanghai, which both opened in September 2016. In line with recent years, by August 2016, we received a significant portion of our expected FY17 revenue. And as a result, our net debt position at the end of August was $766 million, which translates into net leverage of 3.8 times, down from 4.8 times in Q3 [technical difficulty] last year.
As we have previously communicated, our net target leverage range remains at 3.5 to 4 times for the year ended August 2017. As we described in the earnings press release, we are currently in the process to amending our credit agreement to take advantage of favorable markets to improve our interest rates. We expect to complete this process over the next week.
I will now hand back to Andrew to go over our latest student numbers and our outlook and capital allocation for FY17.
Thanks, Graeme. As you’re aware, we announced our starting student enrollment for FY17 in a press release and conference call on October 10th. We began the year with 36,848 FTEs, an 8% organic increase over September 2015.
As in past years, we expect to see in year growth throughout FY17, and as at the November 18th, we now have 37,026 FTEs. We expect the new growth for the full year to be within our target range at of 2% to 4%. Again this year, we increased tuition of 1.5 to 2 times inflation, which was on average a 4% increase.
In conjunction with reporting our starting student enrollment figures for FY17 on October 10th, we also provided our initial guidance for FY17. From an operating standpoint, our outlook has not changed. We still feel confident about the trends in the business and our student enrollment, and organic growth is tracking in line with expectations. However, the U.S. dollars strengthened significantly since the presidential election and this has a negative impact on our revenue, and to a lesser extent, our adjusted EBITDA and adjusted net income.
In March 2016, we put in place the series of cross-currency swaps as a hedge against volatility in foreign exchange rates, in particular, the RMB and the euro. We expect the negative impact of recent currency movements on our adjusted EBITDA and adjusted net income to be largely mitigated by gains on the cross-currency swaps that mature in FY17. Accordingly, we are reducing the revenue target range that we’ve provided in October 2016 by $15 million to reflect the strong U.S. dollar, but are reiterating our guidance for adjusted EBITDA, adjusted net income, and adjusted EPS. All other underlying assumptions with respect to our operating and financial performance have not changed.
We now expect overall revenue in the range of $910 million to $913 million. We continued to anticipate adjusted EBITDA to be in the range of $207 million to $217 million. Our adjusted net income is still expected to be in the range of $67 million to $72 million. With respect to share count, we project the $104.5 million shares for FY17 and we are therefore reiterating our adjusted guidance of $0.64 to $0.69. Our guidance for fiscal 2017 does not include any unannounced acquisitions or the impact of the proposed re-pricing of our term loan facility.
With the stronger U.S. dollar, we are now expecting $65 million of capital expenditures in FY17, down from the $70 million we guided during October. This comprises $28 million maintenance CapEx, $4 million one-off project CapEx to improve systems, and $33 million expansion CapEx. Expansion CapEx includes $11 million invested in same-school growth and $22 million in new build campuses. In addition, we are working on several opportunities to open new bilingual schools in China, including a potential opening for September, 2017. Whilst this project is still somewhat uncertain, if it goes ahead we expect approximately $20 million of additional CapEx.
Finally, we ended FY16 with a significant cash balance of $372 million due to strong cash generation and the proceeds from the sale and leaseback. We intend to use our available capital of over $200 million on accretive acquisitions during FY17. Over the past year, we have continued to expand our family of schools. This has been achieved by opening our new campus in Houston, our first bilingual school in China, and increasing capacity of many of our existing schools. As we look to the future, we see numerous opportunities to continue to achieve high levels of profitable growth.
Operator, we would now like to open up the call for Q&A.
Thank you. At this time, we’ll be conducting a question-and-answer session [Operator Instructions]. Our first question comes from the line of Manav Patnaik with Barclays. Please proceed with your question.
Just a question, if you could help us to understand those legislation changes you talked about in China. And related to that, those employment taxes that you called out this quarter, is that a onetime impact or should that be something that could change out there as well?
Hi Manav, I’ll pick up the legislation and perhaps leave Graeme to pick up the tax point. So the legislation in China what they’ve announced is that whilst private school are still allowed for compulsory education and compulsory education you see as one to nine, which is for children between the age of six and 15. But they’ve got to be not for profit as schools in that sector. So you allowed to be full profit with the kinder garden, so up to the age of six, and then for high school, which is the age of 16 to 18 year, also that to be for profit but not for compulsory education.
Our school in Shanghai was actually set-up as a not for profit, and so we were already in compliance there. And I think the other thing that they are particularly keen on with the legislation is that the national curriculum, whether it's the Shanghai version of the Chinese national curriculum or whichever municipality you happen to be in that that dose get strictly delivered. And I think there has been some move-away from that in some places, not with our school to legislation, we were very strictly observing that. But I think they were the two things, the delivery of the curriculum and the full profit in the age of six to 15 that the legislation aims to tie the up.
In terms of the taxes, they were put up last summer so we’ve had those for the full quarter of this year. So with the full impact in the base already as there are more to come so they are ongoing, so we have stuff to through in FY16, but they are now in the base.
And then just on the CapEx reductions, was that just a FX impact there, or did you guys pull back on some planned investments?
No, it's just purely the FX impact on the local currency spends that we have.
Thank you. Our next question comes from the line of Gary Bisbee with RBC Capital Markets. Please proceed with your question.
I guess the first question, can you just give us some perspective to -- I know M&A is always inherently lumpy, and you want to find the right deals at the right price with willing sellers and that’s not always easy. But you haven’t done anything in, I guess what's getting -- I don’t know, year and a half basically. You did the sale lease back. You said you could -- you thought it first you could do deals to time them with when you would do that, so that you wouldn’t have this period where you’re getting hit by the cost but not having a profits to offset that. And I guess just what’s -- is it that you’ve been focused on the clear acceleration you’re doing in the organic start-up? Is it something that’s changed in the market or in seller’s expectations what is the gating factors to putting this capital to work? Thanks.
So, on the first point, in terms of the timing of the sale and leaseback, when we did the final leaseback, I mean it's easy to forget that it was a very different view of risk in general back then in kind of April. And people were very much thinking of well, including outflow of this $170 million nearly available here plus the additional facility, the ability to invest and build-out the other U.S. schools with more capital from W.P. Carey. We thought it was a good yield, it was a good offer at the time. It was a much more of a risk of time. And we decided rather than waiting to try and be too cute and time it to do the transactions that we take the money when it was available.
So that was why we did that and when we didn’t have transactions which were good to go. Having said that, we are working on a deeper pipeline as ever, and it really is just the point of not being able to time the transactions. We did in typically with family sellers. It just is about making sure everything is aligned, making sure we continue to be disciplined on people’s expectation on price, and just doing the same things that we’ve always done.
So we don’t believe that we’re seeing anything different in the market. It’s not like we‘re suddenly seeing competitive bids on all the staff that we’re looking to do. It’s just that you cannot time this stuff. We wanted, as we said, stay disciplined around price. We tend to be the only buyer of these types of assets. So it’s in our interest to remain disciplined on price. And we’re just going to continue to do, and make sure that we get the right deal.
And I think that’s the right answer, but I am still obligated to ask. And the follow-up Andrew for you, one question I have got and debated with investors a lot particularly since you gave the guidance the couple of months ago. Is just, how much of a priority is it for you and the management team and the Board to deliver consistent profit growth year-in and year-out versus putting as much capital to work today because you thinks it’s high ROI stuff. And I think we all understand with the opportunity in China that’s one you’re excited about and with timing of sale leaseback versus putting the proceeds to work full of punitive to the initial guidance you’ve given. But nonetheless I think there is real debate as to whether you’re taking more of a private equity longer term you as opposed to believing that it’s a high priority for you and the Board to deliver consistent profit growth each and every year for your public equity shareholders. So any thoughts on that would be helpful? Thank you.
I don’t think that those two things should be mutually exclusive. It’s just a confluence of things that have happened this year, which have meant the profits are flat compared to last year, broadly flat compared to last year and that is that we have done a lot of build-out, build the big new school in Huston, which is going incredibly well. We built-out the school in Chicago, the year before that. Again, that’s been filling up exactly to plan, but too big brand new facilities in high quality locations in U.S. cities with great demand profiles.
In addition, we took on the sale and leaseback for the reasons that we described. Once we cycle that sale and leaseback money into acquisitions, it will be very accretive. And we are also going to -- it's likely into acquisitions where we’ve got the expectation up to 21% compound growth of profit that we achieved every year once we’ve made an acquisition. And then in addition to that we did see this opportunity in China that is filled up very well in the first year as you know. The demand profile for that school continues to be incredibly strong, but it's EPS this year
So I think the confluence of events, which are affecting 2017. And we believe that whilst we are making the right decisions in terms of the deployment of capital into 50% to same-school, 70% to Greenfield and acquisitions where we can double in three to four years, but these will deliver in the short term as well as long-term for investors. And it’s just a combination of all these events this year which is affecting. And so in a normal year, we would expect to achieve very exciting levels of profit growth in terms of public the company investor in addition to building significant long term value.
Thank you. Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question.
Thank you so much. I know it’s really. It's only been a few weeks since after the election. But are you hearing anything different from any potential customers over the past three weeks given their outlook on potential impact on trade in the U.S. et cetera?
No, Jeff, we haven’t seen. I mean I think one thing that we’d like to emphasize is that if there is a trade war or there is a much high degree of protectionism, we are not relying on imports to such. We are much more about FDI, so Foreign Direct Investment. So it’s not so much about the trade, the exclusively the trade between countries, we can also be a big beneficiary of people investing in a country to grow that market. And particularly when we think about China, most of the inward investment that we see in China is targeted at buy overseas company, including the U.S., is targeted at driving revenues in China.
So we haven’t seen anything now obviously, it’s way too early. But I think we have got some protection against something happening on world trade, it’s not like with completely exposed to any downside on that. Across the board, I guess, there is nothing else that we’re seeing. We think that the voucher system, I think that you called out that that the new administration is thinking of introducing could be a big benefit to us in our schools. As you know, we like North America. We’ve got a lot of schools there. And we want to continue to grow there, so net-net we’re not really expecting any negative from it.
You actually answered by follow-up question, so let me ask another one. This is more of a numbers related question, probably more for Graeme. I don’t know if you guys disclosed what exchange rates you locked-in in terms of your currency swaps. But especially for the RMB in Europe that’s something that you can give, I would appreciate it. Thanks.
Yes, it's Vanessa. They are effectively disclosed in note 25 to the financial statements, which part of the 20-F that was filed today. But it was around 6.51 was renminbi rate and 1.09 for the euro.
Thank you. Our next question comes from the line of Trace Urdan with Credit Suisse. Please proceed with your question.
Andrew, you’ve described sort of a different risk profile than you had thought might be the case a year ago. And I am wondering if that does had any impact on the way you are thinking about leverage and targeted leverage ratios?
No, I think we’re still thinking about it the same way Trace. I think people were very nervous, it's always the way, isn’t it. When you leverage this high people were very nervous and we got it mentioned a lot since we’ve kind of come down to below 4 times, it doesn’t seem to be such a big deal. But our target leverage remains at 3.5 to 4 times.
And then just a follow-up on Jeff's election question, one of the various proposals that’s being discussed as possible as a change to the U.S. tax laws regarding repatriation of foreign earnings. I am wondering if that -- if there were a change made there that was maybe easier to bring funds overseas into the U.S., whether that would have any impact on how you think about your business at all?
Trace, it's Graeme. Now, I mean, we don’t actually repatriate necessarily the funds. We’ve got a global pulling arrangement it means we can effectively get access to the cash without hand to physically move it. So until we come to actually finally so the dividend did up at some point in time which we will do, then there is really any issue as we determine to repatriate funds around the world.
Thank you. Our next question comes from the line of Mariana Kou with CLSA. Please proceed with your question.
I think my question will be related to going back to China, I know that the recollection has changed slightly. And I don’t think we do have any issues in terms of operations, but from the approval side, which you expect any sort of delays. I know you have only one school as target for next school year and then the pipeline that we talk about last time is more of that in order for next two years. But just want to get a sense that you have heard of any new sell in terms of potential issues which gets approval? That’s my first question.
Yes, so that’s the right question, Mariana. So, when we apply for licenses which is the key item we believe in terms of opening new schools, I think that would be the points at which we will experience any difference in the attitude of government to opening up these schools. Certainly in terms of enquiries from developers including SOEs who once a partner with us and who are looking for us to talk with them to either build schools in China, we’re not seeing anything different there.
So we are not experiencing any difference at the moment. But at the point at which we apply for license, I guess, that’s when we’ll find out. We’ve had discussions with education [technical difficulty] in the mean time and they haven’t raised any red flag. So I think we’ll have to see. On the school that we’re planning in September ’17, it will be probably be early in the New Year when we apply for the license for that school. So we’re continuing to develop them and work with people on that. We’ve been in touch with the relevant officials regarding our plans to do it, and have not been told not to. But we’ve yet to go through an approval process.
I guess put my second question pretty much if kind of follow-up on this one. So in the case that, I don’t you slight over the few projects that we’re talking about, like how much is actually earmarks in terms of light CapEx, if there is any like delays or any changes in plans in China. Should we expect that this budget will be allocated, especially with strong U.S. dollar may be we allocated to other projects?
Well, I think that we’ve the $65 million, yes the 65 million that we’ve called out in CapEx for this year, I think that some of that going into Hong Kong, which wouldn’t really be affected anyways. So the only Chinese element of that $65 million I think is the new site that we’ve got in Hong Kong coming up in September ‘17. The other aspect of the CapEx is that the $20 million. So we’ve said it, we open a big 2,000 seat Chinese school in September 2017 that it will be an additional $20 million on top of the $65 million. So the $65 million doesn’t include any new bilingual school. And if we did a big 2,000 seat bilingual school that we estimate that that $65 million would go up to $85 million.
Thank you. Our next question comes from the line of Brandon Dobell with William Blair. Please proceed with your question.
May be as a follow on to the last set of questions, you mentioned there’s opportunity of potential for September ’17 bilingual school. At what point would you have to push that until the next, and I guess next academic period? Definitely there was a time frame under which you just couldn’t get the construction, hiring, et cetera, so you’d have to push out a little bit. How do we think about those dynamics?
Yes, I think we’d have to probably call it at the end of Feb Brandon, if certain things have happened. I mean we’re not standing from scratch with this obviously. So we’ve done certain things with it with the project and it is the specific project. But I think that if, particularly the permissions that we need haven’t aligned by the end of February, then we’d push.
And then any more color or commentary on the new Abu Dhabi school in terms of size, price point, any hurdles left to get that squared away. And how are you guys tracking relative to your expectations to getting that open in ramps?
Yes, we’re pretty developed with the Abu Dhabi school. I think we’ve said previously that we’re going to start with 400 seats of capacity, and that will build towards 2,000 and our expectation is that the pricing in Abu Dhabi would be around about the price of school in Dubai, so around about the $20,000 price point.
And then final one, just because it's a Middle East, any change in last couple of months about how you think about the waiting lists negotiations with the authorities around pricing just given the continuing oil price weakness?
We got a little bit of price last year as you saw, but it got continued to be difficult. I think the result of that is that we’re pretty full in the Middle East, you can see that we’re 91%, most of the capacity that we’ve got there is actually in our Dubai school where we’ve got to save some capacity as we go up through the different year groups. We started up with up to nine and then we’ve introduced that the next years, so we’ve still got couple of years to go. And we got to save room for that in Dubai. So we are pretty full. Apart from that, we still like the UAE where you can get reasonable price, getting the right kind of price in caper continues to be difficult. And beyond that we’re not seeing a great deal of opportunities. So I think our main area of focus for growth will continue to be the UAE.
Thank you. Our next question comes from the line of Leon Chik with J.P. Morgan. Please proceed with your question.
Just quickly on China, I think, your revenue per FTE would have almost 10% to 5,400. But that is in U.S. dollars rate, so how do you view that with the summer school is something special, that’s first question?
Do you mean in Q4, Leon, yes?
Yes, just some key points. I mean something different just in Q4, I guess, for the year one we wouldn’t see this as primarily as -- but just in Q4 [multiple speakers] so is it just mean that actually something is different?
Leon, we’ve got some enrollment fees into NACIS, that’s probably the only material difference, which obviously we would have got largely in Q4.
So NACIS is on new bilingual school in Shanghai.
But because we were opening in Abu Dhabi, we had quite a few enrollment fees for in Q4. But I think as we’ve said in Graeme’s commentary our expectation is that given the mix and everything that there’ll still be continued to be downward pressure on our revenue for FTE in China.
Yes, that’s fine. So I guess I just have one quick question. The $18 million gain in the fourth quarter, is it detailed somewhere that $18 million, is that swaps or ForEx, or I don’t know...
It’s ForEx. Its note five from the financial statements on the split between the -- there is an element, there is a smaller loss on the various derivatives we’ve got in the couple of our leases and in the cross currency swaps offset by some unrealized FX on into to company balances. But it’s laid out in note five of the 20-F.
In the 20-F, okay, I’ll look at that then. Okay, I’ll jump back in the queue. Thanks.
Thank you [Operator Instruction]. Our next question comes from the line of Trace Urdan with Credit Suisse. Please proceed with your question.
Thanks. I am wondering if you could maybe just simply describe, at this point, what capacity additions you have already identified for the fall of 2017? And then maybe put that into any context at [multiple speakers]. Can you hear me? Can you now hear me?
Yes, sorry, we can again now. You cut out for a while there.
I am sorry for that. My question had to do with just identifying how much capacity, additional capacity you currently have identified for the fall of 2017. And then maybe discuss that in the context of what a target capacity addition might be for the fall of 2017?
Yes, so I think we’ve got three new schools. Well, I know we’ve got three new schools; one is in Hong Kong, which is 500 seats; we’ve got 400 seats coming online in Abu Dhabi; and then we have 1,500 seats coming online in Bangkok. So, that’s 2,400 between those three greenfield schools. And in addition, we have another 200 seats of same-school expansion. So, our full cost, excluding the bilingual school in China, will be 2,600 seats to September.
And how does that, I mean, if that was all you were to add would be satisfied? Or can we think about that in the context of what -- go ahead.
Yes, I think it's a good province, because if you kind of think that we’re growing in a high single-digit in terms of enrollment. So, if you sort of time 37,000 or be higher by the end of the year, hopefully. You look at kind of the beginning enrollment to September, 37,000 times that by say 8% again, that’s giving you roundabout 2,500 seats. So, that’s certainly allowing us to keep the same level of utilization, and give plenty of room for growth. Clearly, we’ve got quite a few greenfields that we hope are going to fill more quickly such as the new the Shanghai bilingual school. In particular, we have another bilingual school in China.
So we would hope that we will start to track-up in terms of our utilization. Our utilization target is 70% to 80%. It's in the high 60s at the moment. We think that it's in our margin a bit. We were at 75% utilized. Obviously, that would be better for us would be more efficient. And I thinking of Gary's point earlier where we do want to deliver strong profit growth year-to-year, as well as building for the future, I think that the amount of capacity we’ve got going in is as much as we would want for next September.
Thank you. Our next question is a follow-up coming from the line of Leon Chik with J.P. Morgan. Please proceed with your question.
I think if you add the SG&A line across, you don’t get to the total of -- well, I think looks like a $50 million re-class from interest into SG&A, you know what that all about probably in the 20-F but I haven’t seen it yet.
Yes, it's in the 20-F, it’s a reclassification of an amount that we thought that are in the finance expense and SG&A, you step that it back and explain as one-off and we used to add it back on the adjusted EBITDA, so you could see an add-back of the FX and you no longer see that now, which is now in finance expense, which it thinks it fits better in.
Ladies and gentlemen, this concludes our question-and-answer session, and that concludes our call. Thank you for your participation and have a wonderful day.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!