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Edited Transcript of HLG earnings conference call or presentation 24-Sep-19 1:00pm GMT

Q4 2019 Hailiang Education Group Inc Earnings Call

HANGZHOU Sep 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Hailiang Education Group Inc earnings conference call or presentation Tuesday, September 24, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jian guo Yu

Hailiang Education Group Inc. - CFO

* Litao Qiu

Hailiang Education Group Inc. - Board Secretary

* Ming Wang

Hailiang Education Group Inc. - Chairman & CEO

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Hailiang Education Group's Fiscal Year 2019 Financial Results Conference Call. (Operator Instructions) This conference is being recorded today, Tuesday, September 24, 2019.

Joining us today from Hailiang Education Group are the company's Chairman and CEO, Mr. Ming Wang; the company's Chief Financial Officer, Mr. Jian Guo 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 Security 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. His opening remarks will be delivered in English by the translator. Mr. Wang, please go ahead.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [2]

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Thank you, operator and everyone, for joining Hailiang Education Fiscal Year 2019 Earning Conference Call today. We are pleased to report strong financial results for fiscal year 2019. Our revenue increased by 28.2% to RMB 1.499 billion, and the net profit increased by 36.8% to RMB 315.8 million compared to the same period of last year as revenue increased across both our basic education program and the international program, as well as our education training services, study trip services and education and management services. Our strong operation execute and strategical aligning at the head, job public stability and the teach floor generation to new levels.

As of June 30, 2019, we expanded on all the management, 36 schools with an enrollment of 61,109 students [lot] of our schools with affiliated schools with 4,553 students enrolled in our international program and 18,266 students enrolled in our basic education programs. We have endeavored to recruit more professional teachers to reflect our current schedule, increase our rotation and to provide excellent academic performance in order to achieve top key students. We have received award in the private education industry. We adopted our asset-light strategy to private education and management services to more students.

During the year ended June 30, 2019, we provide various education and management services to 27 private schools in Zhejiang, Hubei, Shandong and the Jiangxi provinces. We have earned our students and their parents' trust. We will continue to enhance market leadership in the private K-12 education services industry in China. These [therefore] expansion has [stimulated] our [dedication], outstanding educational management ability and a strong potential to increase the profitability and the market penetration.

We look forward to implementing our hybrid development to attract teachers on collaboration of -- on asset-light model and strategical accreditation to expand our affiliated and the managed schools network among major metropolitan areas. We see this improving. The quality of our [model] attracted the more [entire] students and diversify our education services offering. In a new fiscal year, we strive to provide excellent K-12 education services to our students.

Thank you again for all your support and attention. Next I will turn the call over to Mr. Jian Guo Yu, our CFO, who will summarize our fiscal year 2019 fiscal results -- financial results on behalf of management team. Mr. Yu, please go ahead.

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Jian guo Yu, Hailiang Education Group Inc. - CFO [3]

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Thank you, Mr. Wang. Good evening, everyone. Next, on behalf of management team, I will summarize some of the key financial results for the fiscal year 2019.

For the fiscal year 2019, our total revenue increased by 28.2% to RMB 1.499 billion or USD 218.4 million in the fiscal year 2019, from RMB 1.169 billion in the fiscal year 2018. The increase in total revenue was mainly due to the increase in revenue from both our basic education program and international program, as well as our educational training services, study trip services and education and management services over the period.

Revenue from basic educational programs increased by 5.4% to RMB 805.7 million or USD 117.4 million in the fiscal year 2019 from RMB 764.2 million in the fiscal year 2018. This was primarily driven by increase in average tuition charged in our basic educational programs.

Revenue from our international program increased by 24.7% to RMB 411.3 million or USD 59.9 million in the fiscal year 2019 from RMB 329.8 million in the fiscal year 2018. This was mainly due to an increase in the number of students enrolled in our international programs as well as increase in average tuition charged in our international programs.

Revenue from our educational training services increased by 296.2% to RMB 144.2 million or USD 21 million in the fiscal year 2019, from RMB 36.4 million in the fiscal year 2018. This was mainly a consequence of the increase in the student attendance in educational training programs resulting from expansion of our affiliate and managed schools.

Revenue from study trip services increased by 490.6% to RMB 81.5 million or USD 11.9 million in the fiscal year 2019, from RMB 13.8 million in the fiscal year 2018. This was mainly driven by the increase in the number of students participating in the study trips.

Revenues from education and management services increased by 150.3% to RMB 40.9 million or USD 6 million in the fiscal year 2019 from RMB 19 million in the fiscal year 2018. This was mainly due to the increase in the number of our managed schools.

Other revenues mainly represent our revenues derived from the increase in overseas study consulting services and hotel management services. Revenue from others were RMB 15.4 million or USD 2.2 million in the fiscal year 2019.

Cost of revenue increased by 27.6% to RMB 1.026 billion or USD 149 million in the fiscal year 2019 from RMB 804.7 million in fiscal year 2018. The increase was primarily due to an increase in the labor costs resulting from an increase in the total number of teachers and educational staff and a general increase in the compensation levels as well as the increase in the student-related costs and the transportation costs.

Gross profit increased by 29.4% to RMB 472.1 million or USD 68.8 million in the fiscal year 2019 from RMB 364.7 million in the fiscal year 2018. The gross margin was 31.5% for the 12 months ended June 30, 2019, compared to 31.2% in the fiscal year 2018.

Selling expenses slightly increased by 2% to RMB 25 million or USD 3.6 million in the fiscal year 2019 from RMB 24.5 million in the fiscal year 2018. Administrative expenses increased by 14.7% to RMB 72.7 million or USD 10.6 million in the fiscal year 2019 from RMB 63.4 million in the fiscal year 2018. This increase was primarily due to the increase in the labor costs resulting from the increase in the compensation level of our office and administrative staff. As a result, operating expenses increased by 11.1% to RMB 97.7 million or USD 14.2 million in the fiscal year 2019 from RMB 87.9 million in the fiscal year 2018.

Other income increased by 572.4% (sic) [578.4%] to RMB 25.1 million or USD 3.7 million in fiscal year 2019 from RMB 3.7 million in the fiscal year 2018, primarily due to the increase in the government grant in the fiscal year 2019.

Net finance income increased by 118.4% to RMB 24.9 million or USD 3.6 million in fiscal year 2019 from RMB 11.4 million in the fiscal year 2018, which was primarily due to the increase in interest income caused by more funds deposited with a related party in 2019 fiscal year, compared to the same period last year.

Net profit increased by 36.8% to RMB 315.8 million or USD 46 million in fiscal year 2019 from RMB 230.9 million in the fiscal year 2018.

Basic and the diluted earning per share were RMB 0.71 or USD 0.10 in the fiscal year 2019 compared to basic and the diluted earnings per share of RMB 0.54 in the fiscal year 2018.

Now for a quick summary of our balance sheet and cash flows. As of June 30, 2019, we have cash and cash equivalents of RMB 260.7 million or USD 38 million compared to RMB 812.6 million as of June 30, 2018. Net cash provided by operating activities was RMB 690.4 million (sic) [RMB 690.3 million] or USD 100.6 million in the fiscal year 2019, compared to RMB 587.9 million in the fiscal year 2018. The net cash used in the investment activities was RMB 1.234 billion or USD 179.8 million in the fiscal year 2019 compared with net cash provided by the investing activities of RMB 131 million in the fiscal year 2018. The net cash used in the financing activity was RMB 7.3 million or USD 1.1 million in the fiscal year 2019, compared with the net cash provided by the financing activity of RMB 18.6 million in the fiscal year 2018.

Now I would like to turn the discussion over to the operator for any questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question will come from Joyce with [TI].

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Unidentified Analyst, [2]

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(inaudible). Congratulation for the strong financial performance of fiscal year. Then how about the organic performance of higher education in the 2018 to 2019 school year? Would you please talk more details about it?

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Litao Qiu, Hailiang Education Group Inc. - Board Secretary [3]

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Okay. I'm Litao Qiu. I'm the Board Secretary. I would like to answer your question. Thank you for your question.

In the 2019, our high school entrance examination, 18 of our students ranked among the top 20 students in our Zhuji City while 475 our students got about 685 points out of 770 points, which signifies then outstanding academic performance. In addition, one of our students received the highest score of 731 points in 2019 high school entrance examination in our Zhuji City.

In the 2019 college entrance examination, 1,657 students from our accredited schools with the university admission offers, 410 students passed the admission cutoff of first-tier university in the general college entrance examination and 140 -- 184 passed the admission cutoff of first-tier university in that -- for athlete and art students.

In the college examination -- entrance examination, one of our students from our affiliated schools scored 702 out of 750, which is the highest score in Zhuji City, and this student was admitted to Tsinghua University, one of the most well-recognized and top-ranked university in China. Another student from our accredited school was award the gold medal of the 35th National Physics Competition and was admitted to Beijing University, another well-recognized and high-ranking university in the PRC China. Additionally, 18 students passed the high-level university independent admission examinations. Those universities include Tsinghua University, Peking University, Fudan University and Zhejiang University.

In the college entrance examination for athlete and art students, one student was admitted to Beijing Sport University and 2 students were admitted to China Academy of Art, both of which are top-level universities in sports and art areas. Besides our students received the highest score in the arts joint examination of Zhejiang Province for color [and section] performance and the highest score in the art school level examination for music and music performance in Zhejiang Province.

In the 2019 graduate classes of our accredited schools, 284 students in our international programs applied for overseas universities, which 283 students were received offer and 41% of those students received offers from global top 100 universities, such as Cambridge University, Imperial College London and University College, London. All of the 39 graduates of high-level foreign language school received offers from the world's top 100 universities. 72% of those offer were from the top -- world top 30 universities and 26% were from global top 1 -- global top 10 universities. Those universities include Imperial College London, University College London, the University of Edinburgh, the University of Manchester, King's College London, the University of New South Wales, the University of Queensland, University of Bristol and the University of Warwick.

In addition, students in HSK program achieved outstanding academic performance and received admissions from top-ranked universities including Tsinghua University, Fudan University, Zhejiang University, Nanjing University, Southwest University, China Academy of Arts and Shanghai International Studies University. Thank you.

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Operator [4]

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The next question will come from [Cora Black]. Please go ahead.

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Unidentified Analyst, [5]

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Congratulations on a good result. My question is related to the financial performance. And what's the main driver for strong financial performance for the 2019 fiscal year?

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Jian guo Yu, Hailiang Education Group Inc. - CFO [6]

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Thank you very much, and I am the CFO, Jian Guo Yu. I will be answering your question. Thank you very much for asking this.

We have experienced significant growth in our business in the recent years. For the fiscal year of 2019, our total revenue increased by 28.2% to RMB 1.499 billion compared to the same period of last year. Our gross profit increased by 29.4% to RMB 472.1 million compared to the same period last year. Our net profit was increased by 36.8% to RMB 315.8 million compared with same period last year. This is just a brief recap from our 20-F, and I'll give you a little bit more details on other source of revenues that also contributed to our strong financial performance in 2019.

Our revenue from K-12 educational services increased by 11.3% to RMB 1.217 billion in fiscal year 2019, mainly driven by a combination of increase in the average tuition charged per student and student enrollment increase in our international educational program.

In addition, we also offer a variety of international and domestic study trip services to our students and -- both in our managed and our affiliate schools. Our revenue from study trip services increased by 490.9% from RMB 13.8 million in fiscal year 2018 to RMB 81.5 million in fiscal year 2019.

We also have offered educational training services included course training, academic tutoring, quality work in education and online education services. Our revenue from educational training services increased by 296.2% from RMB 36.4 million in fiscal year 2018 to RMB 144.2 million into the fiscal year 2019.

In the process of implementing our asset-light strategies, we extended our school network by providing education and management services to both private and to public schools across China. For fiscal year 2019, we provided education and management services to 27 private and public schools located in [Zhejiang], Hubei, Shandong and Jiangxi Provinces. Therefore, our revenue from our education and management services increased by 115.3% to RMB 40.9 million in the fiscal year 2019. Those are some of the reasons as to why we have a strong financial performance in the fiscal year 2019. And I hope that answer your question, and thank you very much.

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Operator [7]

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The next question will come from [Amanda Lu], private investor.

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Unidentified Participant, [8]

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My name is Amanda. Congratulations to you for the company's stable growth in business and the strong financial results. As an investor, I'm also concerned about company's plans for future developments. So I have a quick question for Mr. Wang. Could you please tell us more about the company's growth strategy?

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [9]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [10]

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[Interpreted] This is Chief Executive Officer, Wang Ming, and I'm glad to answer your question. And I am answering this question in Chinese, and thank you very much for asking this question.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [11]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [12]

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[Interpreted] Our goal is to strengthen our leadership position in China private K-12 educational services, market and expand our asset-light approach by providing education and value-added services. We intended to leverage our strong market position and strengthen our brand name recognition in pursuing the following strategies.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [13]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [14]

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[Interpreted] Continue to build our brand name recognition and reputation as lead primary, middle, high school educational service providers in China.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [15]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [16]

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[Interpreted] We're going to hire, train and retain outstanding school management, teacher and staff to continuously deliver high quality education services and support our school network expansion.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [17]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [18]

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[Interpreted] In order to attract and retain outstanding students for our existing and new schools, to build up our market leadership by focusing on education quality and academic performance.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [19]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [20]

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[Interpreted] Pursuing opportunities of growing demand in the high-quality international education, to increase the enrollment in our international program and brighten our diversified program offers.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [21]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [22]

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[Interpreted] We're going to establish strategic partnerships with the right partners, including but not limited to Hailiang Group, local governments, third parties, to further expedite our asset-light approach, either by providing education and management services to nonprofit or for-profit schools or by sponsoring additional schools without acquiring the ownership of land and facilities in those schools.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [23]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [24]

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[Interpreted] We're going to be implementing a hybrid development strategy, which combine our asset-light approach and the strategic acquisitions, to promote the company's strategies, to improve our brand name recognition and to explore the market opportunities and possibilities and to extend our affiliate school network across the first tier cities and the capital cities in China.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [25]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [26]

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[Interpreted] In conclusion, further develop education and management service offering to create additional values for our affiliate and managed schools and to establish our virtual platform to fuel our revenue growth. Thank you.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [27]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [28]

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[Interpreted] That's my answer to the question. Thank you, operator.

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Operator [29]

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The next question will come from [Cindy], investor.

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Unidentified Participant, [30]

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I'm Cindy. Recent years, Chinese government has tightened controls on privately run schools and published series of policies on the promotion of these schools. What do you think about it?

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [31]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [32]

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[Interpreted] Thank you very much for your questions. I am Chief Exec Officer, Wang Ming, and I'm glad to answer this question.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [33]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [34]

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[Interpreted] The private education services development, there's no absence of the support from the government's regulation policies.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [35]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [36]

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[Interpreted] As you know, as of September 24, 2019, the implementation of law of the People's Republic of China on promotion of privately run schools revised draft has not been officially implemented.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [37]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [38]

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[Interpreted] Our company is still going to keep a very strong focus on the development of the law implementation.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [39]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [40]

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[Interpreted] Pursuit of the law of the People's Republic of China on promotion of privately run schools, law has already been implemented. The main focus of this policy revision is to regulate the operations of private schools, the classification management of the schools and to encourage the nongovernmental factor to run the management of schools.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [41]

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(foreign language)

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Jian guo Yu, Hailiang Education Group Inc. - CFO [42]

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[Interpreted] That is my answer to the question. Thank you very much. Operator?

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Operator [43]

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(Operator Instructions) I'm seeing no further questions. I'll turn the call back over to Mr. Yu for any closing remarks. Please go ahead, sir.

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Jian guo Yu, Hailiang Education Group Inc. - CFO [44]

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Thank you, operator. On behalf of our entire management team, I would like to thank you, everyone, again for joining us today for our conference call. If you have any questions, please contact us through the e-mail at ir@hailiangeducation.com or reach our IR counsel, Ascent Investor Relations, at tina.xiao@ascent-ir.com. Management will respond to your questions as soon as possible. We appreciate your interest and support in Hailiang Education and are looking forward to speaking with you again next time.

Operator, please go ahead. Thank you.

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Operator [45]

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Thank you, everyone, again for attending the Hailiang Education Group's Fiscal Year 2019 Earnings Conference Call. This concludes our call today, and we thank you for -- all for listening in. Goodbye.

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Ming Wang, Hailiang Education Group Inc. - Chairman & CEO [46]

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Thank you.

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Litao Qiu, Hailiang Education Group Inc. - Board Secretary [47]

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Goodbye. Thank you.