Wey Education plc (LON:WEY), the educational services group today provided a trading update for its year ending 31 August 2018 and announces certain other matters.
· Group turnover to exceed market expectations of £4.1 million
· Significant progress with Academy 21 acquired in December 2017 which is now integrated into the Group
· Underlying profit and loss expected to be in line with market expectations
· Cash balances remain substantial and in excess of £4 million
· Nigerian subsidiary established
· Chinese joint venture in final stages of negotiation with first sales expected in September 2018
· Board pleased with progress made in 2017/18 and foundations built for further growth
This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No.596/2014 and is disclosed in accordance with the Company’s obligations under Article 17 of those Regulations.
Group turnover will exceed market expectations of £4.1 million for the year to 31 August 2018 (2016/17 £2.4 million) representing growth of at least 70% year on year including the contribution of Academy 21 which was acquired in December 2017. As a result of the integration of Academy 21 into the Group, its results will in future be reported as part of the Group B2B results but management estimates that it increased turnover by at least 25% and profits by at least 100% over the corresponding period of 2016/17. As previously reported growth in the original InterHigh business ran at about 20% during the year and is expected to accelerate again in 2018/19.
As indicated at the time of the oversubscribed £5 million placing in November 2017, much of this year has been spent on building the foundations for further growth and in certain areas, spending has been at higher than normal year to year levels. In accordance with IFRS all this expenditure will be expensed in the Company’s audited accounts for the year ending 31 August 2018 but as with the Company’s interim results to 28 February 2018, the Board wishes shareholders to be able to assess the Company on a consistent basis and therefore will report in its Preliminary Announcement both a statutory profit and loss account and an adjusted profit figure.
Underlying trading overall has been in line with expectations and it is expected that Group adjusted pre-tax profit for the year will be between £400-£500k. These adjustments will include costs highlighted in the interim statement such as share based payments, amortisation of intangibles, acquisition costs, and certain expenditure on marketing initiatives considered to be non-recurring. In addition, it will include costs incurred in the second half in relation to business development and the establishment of new overseas companies and business development in China, Nigeria and Kenya which in aggregate amount to approximately £200k. These figures remain provisional until year end and audit and may be adjusted to reflect matters which occur between now and year end.
The Company remains well funded for future expansion with current cash balances of over £4 million.
A new subsidiary company, Wey Education Nigeria Limited (“WNL”) has been incorporated in Nigeria.
WNL is in advanced negotiations regarding entering into a technical agreement with an existing educational establishment in Nigeria under which the partner will provide the relevant education licenses to enable WNL to operate as an online educational establishment in Nigeria.
In the initial stages WNL will concentrate on offering the traditional British curriculum offered by Wey to Nigerian students both for home study and also through a WNL learning centre to be opened in Lagos. Over the next few months the parties will also co-operate to add the Nigerian curriculum onto Wey’s learning platform with a view to offering it online within Nigeria and overseas during 2019.
Separately WNL is negotiating an operation and services agreement with a local Nigerian company who will be sub-contracted by WNL to provide a range of operations and marketing services to WNL in Nigeria including collection of tuition fees.
Through the agreements it is anticipated that WNL will need very limited personnel in Nigeria and therefore will be able to concentrate on education provision while delegating the services required in Nigeria to local firms. Operations are expected to commence this Autumn.
Documentation of our proposed joint venture agreement with Starcube, announced on 8 May 2018 progresses and is expected to be completed over the coming weeks. Following execution of definitive documentation, the joint venture expects to enter into a contract to supply English language classes concentrating on pronunciation to a range of public (state) schools in China. The initial launch this September will be to around 50 classes in 15 schools. This is viewed as a trial towards greater adoption in other cities across China in due course.
The JV intends, in early 2019, to offer an out of school private tuition option.
The recent deterioration in relations between China and the USA creates an even greater opportunity for the British curriculum to thrive in China and we are discussing with Starcube how to exploit that opportunity.
With first sales expected in September 2018, it anticipated that China should make a meaningful contribution to revenues next year but the extent of this contribution will be dependent on timing of new contracts. In this initial year we have priced the business to grow market share. We remain excited about the opportunities for the Group from China which are considerable in the medium term.
The Company is in discussion with its teaching staff over the introduction of a new teaching contract which will move them from a school type, 35 week, 23 hour teaching commitment to a 42 week, 37.5 hour working week, standard employment contract. This will enable the Company to provide greater flexibility in teaching hours to different world time zones. In the near term it is expected that this will result in the Company employing fewer teachers than otherwise would have been the case but with them working a greater number of hours on average. Reaction from the teaching workforce to this opportunity has been positive.
Artificial Intelligence (“AI”)
The Company plans to introduce some new areas of AI into its operations during the forthcoming year.
The embedded computer scientist, from the University of South Wales, partially funded by the Knowledge Transfer Partnership Scheme administered by Innovate UK on behalf of the British Government, has now been in place several months and has already proved useful in providing insights on how AI can transform our business. It has assisted the Company to reject several proposals where the AI was more vanity than business proposition. Our current strategy is twofold:
i. in the short term to buy in AI products which enhance students’ experience but that are cost efficient for the Company; and
ii. in the medium term, (up to 5 years), to build an AI school capable of providing education in the Third World on a low cost basis.
2018/2019 Outlook and Focus
The board believes that significant progress has been made in 2017/18 and the main tasks for 2018/19 are to ensure that those initiatives undertaken in the current year are successfully implemented. The board is planning for significant revenue growth in the year ahead, but the extent will be partly dependent on the pace of overseas growth.
Our UK strategy remains twofold:
i. to continue to build on our traditional school operations by expanding the range of tuition options, year groups and method of purchase; and
ii. to expand our B2B offering in the public sector and the corporate sector.
Increasingly our UK businesses overlap. Teachers can teach using a common learning platform across different brands. In addition, we are increasing the ability for parents to purchase lessons on a ‘pick and mix’ basis so that home educators can buy the subjects they need rather than the whole school experience. As such student numbers become largely irrelevant in measuring progress as they can fluctuate materially over time. However, between InterHigh, the Wey Ecademy and Academy 21 we estimate we provided education to over 2,000 different students at different times during the year.
Wey Ecademy and Academy 21 are now integrated and will in future report as a single B2B division. We believe we are the market leader in online Alternative Provision teaching and we are planning for further expansion in 2018/2019.
The main operating targets are to:
i. ensure revenue growth in the core UK business of InterHigh and B2B (including Academy 21);
ii. commence operations in China; and
iii. commence operations in Nigeria and work towards implementation of the Nigerian curriculum.
Other initiatives in hand (including learning centres in Kenya and London and appointment of marketing agents in the Middle East) will be continued.
It is expected the Company will make its Preliminary Announcement for the year ending 31 August 2018 on 29 October 2018.
The Company expects to send a circular to shareholders in the next few days to convene a general meeting to consider the Company’s general authority to issue shares and its authority to disapply pre-emption rights. A resolution will also be proposed to grandfather the Company’s ability to honour certain existing option and warrant contracts. In addition, a resolution will be proposed to reduce the Company’s share premium account to facilitate the payment of dividends in the future
Authority to Allot Shares
The existing power of the Board to allot shares expired in August 2018 and the Company proposes to pass a resolution at a general meeting to give the Directors new authority to (a) allot shares in the Company up to an aggregate nominal amount of £400,000 representing 40,000,000 ordinary shares and (b) allot ordinary shares in connection with a rights issue in favour of the shareholders of the Company.
Both authorities are subject to the above limits and will expire on the date of the annual general meeting in 2019 or fifteen months from the date of approval, whichever is sooner.
Passing of this resolution will give the Directors flexibility in managing the Group’s capital resources but there is no current intention to issue any shares other than to satisfy any option exercises.
Dis-application of Pre-emption Rights
Section 570 of the Company’s Act 2006 gives all shareholders the right to participate on a pro rata basis in all issues of equity shares for cash unless they agree that this right should be excluded. The Board considers that the dis-application of pre-emption rights provides the Company with flexibility in managing the Company’s capital resources but the existing power of the board to allot shares has expired in August 2018. The forthcoming general meeting also includes a resolution to allow the Directors to allot ordinary shares for cash without first offering them to existing shareholders up to a limit of an aggregate nominal value of £130,207.12 representing 10% of the Company’s issued ordinary share capital as at 22 August 2018. The authorities given pursuant to this resolution will expire on the date of the annual general meeting in 2019 or fifteen months from its approval at the forthcoming general meeting, whichever is sooner.
Grandfathering of Options and Warrants
In addition to options issued to employees under the Company’s EMI scheme and unapproved options to employees, the Company, pre-Admission, granted options to Mr David Massie, its Executive Chairman, conditional on various matters which total 4,333,333 and subsequently granted Mr Massie a warrant over 850,514 shares. Following the acquisition of Interhigh, Mr and Mrs Paul Daniell were each granted options over 1,000,000 shares. In order to allow flexibility in using the shares authorities described above , the Company wishes to take a specific authority over the aforementioned options and warrants.
It is emphasised that there is no current intention to make any further grant of options or grants to Mr Massie or Mr or Mrs Daniell.
Proposed Reduction of Share Premium Account
The Company does not have sufficient distributable reserves to enable the Board to recommend the payment of dividends. As and when trading conditions and underlying profitability justifies such, it is the Board’s intention to introduce a progressive dividend policy. The Board therefore proposes that the Company’s share premium account be used to increase the distributable reserves of the Company.
As at 31 August 2017, being the date of the Company’s most recent audited accounts, the Company has a profit and loss account deficit of £2,744,397. As a result of share issues at a premium during the current year when combined with previous issues the balance standing to the Company’s share premium account is currently £7,492,523.
A proposal will be made at the forthcoming general meeting by way of special resolution to reduce the share premium account and credit the sum arising to the Company’s profit and loss account. In addition to this matter being considered by way of a special resolution at a general meeting, the matter requires the approval of the High Court of Justice in England and Wales.
It is emphasised that the Company has no current intention to propose a dividend, but the Board considers this a useful preparatory stage towards such time when the Board is in a position to make such a recommendation.
General Meeting and Circular to Shareholders
The general meeting will take place at 10:00 a.m. on 24 September 2018 at 43-44 New Bond St, London, W1S 2SA.
Details of the resolutions to allot shares, the dis-application of pre-emption rights, the grandfathering of existing options and warrants and the proposed reduction of share premium account will be contained in a circular to be posted to shareholders shortly.
As previously announced, the Company will be holding an Investor Presentation evening to private and other investors this evening which will include references to matters in this announcement as well as a general review of the Company’s business operations.
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