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Edited Transcript of IEL.AX earnings conference call or presentation 20-Aug-20 10:59am GMT

Full Year 2020 IDP Education Ltd Earnings Presentation

Deakin Act Aug 20, 2020 (Thomson StreetEvents) -- Edited Transcript of Idp Education Ltd earnings conference call or presentation Thursday, August 20, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Barkla

IDP Education Limited - MD, CEO & Director

* Murray Walton

IDP Education Limited - CFO & Company Secretary

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Conference Call Participants

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* Aaron Yeoh

Goldman Sachs Group, Inc., Research Division - Equity Analyst

* James Bales

Morgan Stanley, Research Division - Equity Analyst

* Matthew Johnston

Macquarie Research - Analyst

* Philip Pepe

Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst

* Tim Plumbe

UBS Investment Bank, Research Division - Research Analyst

* William Macdiarmid

Ord Minnett Limited, Research Division - Small-Caps Industrials Analyst

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Presentation

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [1]

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Yes, thanks, operator. And good morning and welcome, everyone, to IDP's FY '20 financial results.

Today, I'm joined by Murray Walton, our CFO; and Craig Mackey, our Head of Investor Relations and Corporate Development. I'm going to be walking through with Murray the pack that was published this morning, and we'll begin with the business update.

IDP's results for the year reflect strong momentum of the business, in particular through the first 8 months of the year. This was followed by a decisive pivot to disciplined capital management, expense control and digital product innovation through the remainder of the year.

If we move to Page 4 and review the performance highlights. I mean certainly a solid performance, I believe, despite the COVID-19 headwinds in Q4. If we look at revenue: Revenue was $587 million, down 2%. Some highlights in that number were our multi-destination revenue up 52% for the full year. And at the end of Q3, across all lines of the business, we were up 19.2%. The impacts of COVID-19 lockdown, social distancing and travel restrictions meant that Q4 was a challenge, with revenue down in that quarter, down 64%. EBIT at $107.8 million was up 11%, again really a combination of the momentum we had through the first 8 months and then a disciplined and prudent cost control through the following 4 months. In fact, when we look at the average operational overhead run rate, to the first half, we were running at around $21 million per month. And through the second half, that averages out at $15 million, so you can see the actions taken delivered significant cost savings through the last 4 months of the year.

NPATA at $70.5 million, up 3%. Strong cash balance at $307 million as at June 30, 2020. So since the equity raise towards that end of February or that end of February period, we've only seen a reduction of $27 million in cash in that time. Our working capital facility at $175 million remains undrawn.

If I touch on a couple of the highlights as they relate to volume metrics. Student placement at 51,000 students placed, or APFs, was up 3%, the U.K. up 22% in that number, Canada up 29%, Australia down 15%. And this primarily reflects some of those restrictions which impacted intakes through the second half of the year. IELTS testing at 1,095,000 is down 15%. The first half, as some of you may recall, was up 11%; and through the second half, basically across the globe, through April, with almost a full shutdown impacting second half volumes, being down 41%.

English language teaching at 94,400 courses reflects a 0.2% growth on the year even though we had lockdowns of schools in both Vietnam and Cambodia for extended periods in the second half. Digital marketing at $27.3 million revenue, up 11%. And pleasingly, inside that number, our international digital marketing orders which are supporting our clients in engaging with international students using our digital technology were up 25% in the year.

If I move to Slide 5 just to really summarize to everyone how we responded as we entered into this challenging period. I mean the first thing we did was not take our foot off the transformation accelerator. We made a commitment and have continued to double down on those transformational initiatives which we believe position IDP for the long term and equally position us to effectively engage with our customers and our markets through this difficult time. Rapid, very rapid, innovation enabled us to stand up new capabilities literally within weeks. And we had 60,000 students attend more than 660 virtual events through the 4-month period from March. We introduced IELTS Indicator, an online English proficiency test, in 70 countries across and during the peak of restrictions. And we quickly moved to virtual counseling, with over 35,000 virtual counseling sessions delivered. So the business really did pivot quickly. And thankfully to the investments that we've made over the last few years, we were able to stand up strong engagement channels with our customers.

We took prudent and decisive capital management actions. The $254 million equity raise and the $175 million working capital facility has really enhanced our balance sheet strength. And clearly, when you look at our current cash balance and cash burn, we're very, very well positioned to ride out the challenges that we see ahead of us. Disciplined cost control measures delivered over $35 million of overhead savings in H2 versus H1. And we also quickly reprioritized our capital expenditure profile to ensure that those strategic programs, in particular aligned to student placement and IELTS transformation, continued to be resourced through the period. We've been able to develop and continue to grow a strong pipeline and with our technology continue to nurture our customers. We've really established ourselves as the authority of content in the industry, and SEO is driving a -- strong organic web inquiries. In fact, organic web inquiries are up 25% over the same period last year. Our IDP Connect business, which is serving our clients directly with data and digital marketing services, continues to perform strongly and remained completely operational through the period. Our data insights orders for our information or insight data products was actually up 89% over the previous year, reflecting our clients' desire to get greater insights into how student perceptions are shifting.

If I move on to the next page, Page 6, just covering off really a current operational status for everybody on the call. We're seeing a progressive reopening of offices and IELTS test centers after a near-global shutdown in April. As of the 18th of August, at a student placement level, 109 of our 127 student placement offices are open. And we've established virtual offices, in fact, across a number of countries but in India to specifically supplement in some of the states where we've been unable to open our physical offices. But 31 of our 40 offices have now opened in that market.

In English language testing, IELTS has now resumed testing in 53 of the 55 countries in the IDP network. There are still some restrictions in a number of markets due to social distancing and the amount of people who can come together as a group. That is impacting the capacity, but nevertheless, as of the 18th of August, 55% of IDP's network capacity has been reinstated. From an English language teaching perspective, schools reopened quickly in Vietnam, as they really overcome some of the challenges of COVID-19 quickly, but our schools in Cambodia remain closed for the moment. And we expect those, hopefully, to be opening or reopening in the October time frame. From an IDP Connect perspective, really little impact on our teams and our ability to continue to sell our digital marketing and data products to clients. In fact, again as I've noted earlier, a greater demand for those services through this period.

Moving to Page 7 and again just reinforcing how we were able to leverage the investment not just in technology but really capabilities that we've built in the business through the last couple of years. We launched very quickly a number of new products and services to ensure that we remain connected and really became the authoritative voice and platform for the industry through this difficult time. I touched on virtual events. We established a bespoke virtual events platform literally within 3 or 4 weeks of countries going into lockdown, and this really enabled us to stay connected with students and the continued opportunity there and desire for international students to connect and travel ultimately for an international education. We have 60,000 students, I think, most pleasingly, as well over 7,000 clients attended 660 virtual events by the end of the financial year.

IELTS Indicator, which we stood up and in particular for those markets where we're unable to provide a physical test, whether that be paper or computer delivered, was stood up in a very short period of time. And we managed to get it accepted literally in weeks by more than 900 institutions around the world, and it was delivered in 70 countries at the peak of the shutdown. Virtual counseling, again the technology that we had put in place pre COVID-19, enabled virtual counseling, so we were very quickly able to ensure our counselors were productive regardless of the fact that they were working from home. And around the world, at one point in time, all of our counselors were working from an at-home environment. And they have continued to be productive, and we've continued to hold on to that resource because we see that critical to position ourselves for the rebound as it occurs.

If I move to Page 8, just touching on the pipeline. Clearly the virtual events and lead-nurturing programs has enabled us to continue to build a strong pipeline of customers. And as you can see by that pie chart on the right-hand side, our applied volumes through the full year have grown by 31%, and there you can see a breakdown by market. If we look at the chart on the left, you can see that our physical events engagement in terms of attendance grew by 10%, but overall, having implemented our virtual events platform, we were able to grow attendance by 58% through the full year. And in the lighter blue chart, you can see really the pure growth in attendance on that virtual platform. We significantly reduced our cost per lead as we pulled back on paid marketing spend and put our efforts into SEO and content development. And really I think we also benefited in that context from the aura around our digital events, with -- which led to continued growth in pipeline. In fact, if we look within our pipeline in that period from September coming up just ahead of us to March of next year, we have over 82,000 unique applicants in our pipeline that we are engaged with who are preparing to study overseas in the coming period. We were equally able to continue to engage and ensure our customers were serviced well, with 9 out of 10 students saying that they would recommend IDP.

If I move to Page 9 now. Through the year, we built out and executed what I think is the definitive insight into student intentions through our crossroads surveys, and we've run a number of those through this period. They've been provided to and have provided policymakers and governments in our destinations as well as our universities unique insights into the changing intentions of international students through this disruptive period. Our research shows that students are still holding onto their study intentions, with 74% of students with current offers holding on their plans to take up courses, whether that be a combination of online or, should they be able to, to travel into the destination market. I think, interestingly, since we did the first study in April, the second study has shown a -- I guess, a transition of preference from face-to-face to online. And maybe it's not so much preference. It's probably more acceptance that students are realizing that they may need to, should they want to begin, begin their courses online and then transition to face-to-face as face-to-face delivery becomes available.

If I move to Page 10. This provides a -- really, I think, a very strong and clear insight into the challenges that we had in April as the world went into a lockdown almost in unison, but clearly we're seeing the recovery begin. In particular, this is reflecting the IELTS numbers, and you can see the recovery through the May, June and right up to the end of July period. Computer-delivered testing has really assisted us in taking advantage of that recovery opportunity, as it enables us to stand up and configure environments that can fulfill social distancing and group size restrictions in a very agile way. In fact, yes, we currently have available IELTS in 196 computer-delivered centers, with 29 new centers added since January 1. And we're planning on adding another 52 to be scheduled and opened before the end of the financial year.

If I move to Page 11. Again I wanted to just represent and reinforce the fact that we continued to pursue our objective as being the industry transformer through bringing our platform, technology, capability and data insights to market. And those investments continue. Our digital campus in Chennai has grown in number through this difficult period as we've continued to prioritize and in some cases expand on the work we're doing, in particular in areas like our propensity modeling and matching for students and for institutions. We've completed building our data science team. And they are engaged in driving data science initiatives, which we believe will unlock operational product and new insight opportunities.

So let me pause there and we'll move into the financial results update. And I'll hand over to Murray Walton to take us through the next few slides.

Murray?

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Murray Walton, IDP Education Limited - CFO & Company Secretary [2]

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Thanks, Andrew.

I'm going to start on Page 13, covering the FY '20 overview. So revenue was $587 million, 5% below last year on a constant currency basis. We were showing strong growth through the end of the third quarter with growth of 19% versus the same period last year. COVID-19 had a significant impact on the fourth quarter with a reduction in revenue, as Andrew mentioned, of 64% compared to the same period in FY '19. A couple of highlights for the year, however, were the strong growth in multi-destination student placement which was up 48% on a constant currency basis. And our digital marketing business excluding discontinued revenue lines was up 11%.

EBIT is -- was $107.8 million, up 7% on last year on a constant currency basis. The EBIT margin increase from 16% to 18% was a result of improved gross profit margin and the effective control of costs as we delivered savings of $35 million from the run rate when you started taking action to reduce overheads in March. Overheads on a pre-AASB 16 basis at a constant currency was 6% lower than last year.

Depreciation and amortization of $38 million includes $21 million of depreciation of leases capitalized under AASB 16, with normal depreciation of $17 million which increased by 11%.

And net profit after tax is $67.8 million, and it's 2% below last year on a constant currency basis.

So I'm going to move to Page 14, on disciplined cost reduction. So in March, as we started to see the impacts of COVID-19 on our revenues, Andrew set up a team to develop the plans and report on the execution of cost reduction initiatives across the business. In the first half and through to the end of February, our monthly run rate of overheads pre AASB 16, so including the rental of our offices, was $21 million per month. In the last 4 months, we reduced our monthly run rate to $12.5 million and delivered overall savings of $35 million. The actions we took included all staff agreeing to a 20% salary reduction to the end of September, a hiring freeze on both replacements and new positions, reduction in bonuses, negotiated reductions in rent and reducing marketing and travel speeds. We also participated in government wage subsidies in a number of countries where that was available, and this totaled $3.7 million of the savings in overhead of $35 million.

I'm now going to move Page 15, our key operating metrics. The key operating metrics highlights the importance of our multi-destination strategy. Student placement volumes increased to 51,000, up 3% on last year, with multi-destination volumes up 28% to 26,800 and making up 53% of our total volume. Strong growths in Canada, U.K. and the U.S.A. to the end of March ensured strong full year growth despite the second half declining 7%. The Australian student placement volume of 24,200 was a decline of 15%, with a small number of Chinese students unable to commence in semester 1, but semester 2 for all of our source markets was effectively canceled. IELTS volumes were 1,095,000, a decline of 15% on last year, as a large proportion of our test centers were unable to operate in the last quarter. We did see, however, Nigeria, Japan and Uzbekistan had some solid growth year-on-year, but the majority of our markets declined versus the pcp.

Moving on to average price performance. The average test fee for IELTS increased by 6%, and on a constant currency basis, the increase was 1%. Price increases were applied in many markets, including India and Australia, adding 1.5% on a constant currency basis, but the loss of the BT -- the British Council China license fee for 5 months was a negative impact of 2% on our average price for the year. The average student placement application processing fee has increased to $3,740, an 8% increase on the same period last year on a constant currency basis. The Australian average fee increased 2% on a constant currency basis with favorable study mix, increase in commission from clients and a small amount of client incentives, offset by a 4.6% increase in our credit provisions. The multi-destination average fee increased 16% on a constant currency basis with a favorable study sector mix and increase in client commissions negotiated by client teams, offset a little by a decline in student pays revenue from China which was down.

So I'm going to move to Page 16 and looking at our strong margin performance. So we have continued to expand our gross profit margin, increasing our FY '20 GP margin by 2.9 percentage points to 58.8%. IELTS margins increased by 1.8 percentage points to 44.8%, coming from a combination of lower costs or test pay activity in India and price increases in key markets, more than offsetting the reduction in the British Council China license fee in the second half.

Student placement gross profit margin held steady at 81.4%, as increases in both volume and average price of multi-destination student placement covered the increase in investments in the support of our student placement platform in Chennai. Lower subagent commissions from China also supported the holding of the student placement gross profit margin. While student placement margin holding steady -- with the student placement margin holding steady, it contributed 2.9% -- sorry, contributed to the 2.9% GP margin improvement due to a higher mix of student placement revenue. The move to virtual events in the second half also made a positive contribution to margin improvement, as the cost of running virtual events was significantly lower than physical events.

I'm going to move to Page 16 (sic) [17], the balance sheet. The balance sheet remained strong with a cash balance at the close of $307 million. Our cash burn for the last 4 months was limited to $27 million relative to the pro forma balance sheet we presented before the equity raise in March. Given our current cash burn rate and our current cash balance, we're in a strong position to get to the other side of the pandemic.

I'm going to hand back to Andrew now.

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [3]

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Thanks, Murray.

I'll move on to the summary, which is on Page 19. I think again I'd probably just reinforce a couple of things that I've already said. For us through this period, we saw an opportunity to accelerate our digital transformation. And we saw, of course, a need given the physical lockdowns that were impacting the business, but that investment and our ability to pivot using the technologies available to us and the capabilities has enabled us to rapidly change and address opportunity again to reposition ourselves as a -- as the leader in the international education marketplace. Virtual events and virtual counseling enabled us to remain in a position where we could nurture not just new prospects but those prospects sitting in our pipeline for future intakes. The investment in our data science capabilities now complete is putting us in a good position to continue with new transformational services into the coming period. I think, just as Murray quickly noted, another highlight is our disciplined capital management and cost control. Clearly that contributed significantly to our EBIT performance without requiring us to cut muscle out of the environment, and we remain strongly focused on ensuring that we take out strong global talent to the other side and actually position them to take advantage of the opportunities we see as we do that.

I think, finally and most importantly, the structural demand drivers of our industry remain unchanged. And I think that's clearly reflected in the feedback and the intentions of students through our surveys. I mean, firstly, clients are relying more and more on us and our IDP Connect business for trusted insights on those student behaviors and student intentions. Again you can see the industry coming back to life and its preparations to travel abroad through the reopening of the IELTS test centers and the increasing curve of volume as test takers come back into market to take tests. And we believe students are holding onto their global study aspirations. And as I said, 74% of those surveyed with applications intend to continue with their objective to travel and study overseas. So I believe the company is poised and well positioned to take advantage of these opportunities as restrictions slowly ease into the forward period.

So let me stop there. And what I'd like to do, operator, is open up the call to questions at this point.

Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Tim Plumbe from UBS.

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Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [2]

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Just -- so just 2 questions from me, if that's all right, please, Andrew. Just if I'm looking at that slide that shows the IELTS recovery test, it looks like you guys are kind of back to a monthly run rate of about 62,000-odd, which if I apply the price is just around $18 million of revenue and kind of $14 million of GP. Am I thinking about that the right way in terms of July?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [3]

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I think certainly from a volume perspective you're thinking about it in the right way. So yes, volumes are continuing to increase. I think, Murray, did you want to make a comment on the margin component of that question?

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Murray Walton, IDP Education Limited - CFO & Company Secretary [4]

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Well, what was your revenue number, Tim? So...

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Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [5]

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About $18 million of revenue, about $14 million of GP.

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Murray Walton, IDP Education Limited - CFO & Company Secretary [6]

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So our GP for IELTS is around 43%, 44%. So if you're $18 million, at 44%, so you have about $8 million of GP.

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Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [7]

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Great. Sorry. Yes, $8 million. And are you able to make any comments in terms of overall exit -- well, beginning run rate revenues for July for the group?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [8]

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No, we're not in a position to do that, Tim.

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Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [9]

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Right. Just last question, around the -- there's the one for the Australian universities. Just wondering how the discussions are going with the universities. How are they thinking about this? And if -- what's the appetite in terms of providing online? [And is there] any upside to provide a discount or to contribute towards quarantine costs required?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [10]

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Yes. As I think -- I mean I would say semester 1 seems a long way away at this juncture, being in next February of -- primarily February of next year, and there's a lot of movement in the industry. You would have seen Charles Darwin, sort of the NT industry looking to stand up their first pilot of bringing students back in, providing quarantine for them; and equally in the South Australian pilot, which is aimed for September, to do a similar thing. And I think that's -- those pilots will be used to inform the government and, I think, equally balance out the local citizens' concerns around public health, but it's very difficult to predict what will happen in the S1 intake in Australia at this point in time. And I think probably I will just expand on that and note that from IDP's perspective, I mean, clearly we're continuing to develop a large pipeline, should that intake be something that students want to pursue, but at the moment we're very much focused really on the fall intakes into Canada and to the U.K. I think it's a bit difficult to predict exactly what will happen with the S1 intake and where universities will be. A number of them are looking clearly at being prepared to bring students back onto campus through quarantine measures but equally have online learning available should that not be the case.

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Operator [11]

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Our next question comes from Philip Pepe from Blue Ocean Equities.

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Philip Pepe, Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst [12]

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Look, well done on a good result in very tough conditions. Just on when things can potentially get back to "normal," I guess we [connect all the pins] at the moment, but do you think, as you look around the ground in terms of where you operate, that governments again -- they're going to require a full reopening of the borders before students are allowed in? Or do you think in some regions they'll be considered temporary residents and, as mentioned earlier, subject to lockdown, quarantined for a couple of weeks come -- before the tourists come for the sake of various economies, [where are we] around the world in terms of willingness to allow [a student team] to help some of these economies recover?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [13]

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Yes. I think it's a good question, and it's probably a question that we ask ourselves every day at the moment. We have a situation call with each of our destinations and source countries around the world, and things are changing very dramatically. And I'll give you just an example, if you like, and then maybe just we can do a quick trip around the world, but in the course of the last week, British Airways started flying into India and out of India, in -- back into the U.K. And the U.K. is working very hard to be opened for their September intakes. And in that context, changes are happening very rapidly. If someone had us said 3 weeks ago is there an opportunity for students really to take up the opportunity in the U.K., I would have been a little bit more conservative, but in the last week, flights have appeared. So now the logistics challenges of students getting there are no longer an issue. Now for the U.K., of course, they don't have restrictions in being able to travel into the U.K. And they have a quarantine period required, but it's different in different markets. Of course, Australia at the moment, international students can't get into the country. Canada, they can get into the country, but they have to have a clear reason for why they need to be there on campus to study in the fall. In the case of Canada, many institutions are providing letters to the students that they can provide to immigration upon their arrival.

So I think, just to point out, there's a lot of complexity given the amount of destination markets and the source markets we're talking about, and it's changing on a weekly basis at the moment. My view is, from a near-term period, the U.K. is the most open. And we can see in terms of student interest a real pull towards the U.K. because of that opportunity to travel. I think it's also worth noting that in many markets, and let's take the U.K. for example, they're also now looking at having -- some universities having a November and a January intake. For Canada, of course, we have 3 intakes through the year. So if people can't get in to study -- sorry, study on campus in September, you'll see a lot of that pipeline probably defer to intakes in the second half. And for Australia, it's still a little bit unknown, all right? Australia, I think, is still working through those challenges with what's been proposed by South Australia and Northern Territory and would seem in South Australia's coast -- case to be supported by the federal government. Clearly, in that case, Scott Morrison has stepped away from his demands that all state borders be open and is enabling in that case one of the states to begin their pilots without as -- without that as a prerequisite.

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Philip Pepe, Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst [14]

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Excellent. And if I can just sneak in one question about the operating cash flow. Obviously, creditors need to be paid. [And debtors saw] revenue down because of COVID. Do we just take the current balance sheet ratios as an abnormal and we get back to normal operating cash flow levels of, let's call it, calendar 2021?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [15]

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Yes. I'll just pass that question to Murray.

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Murray Walton, IDP Education Limited - CFO & Company Secretary [16]

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Yes. Look, I think that's reasonable. An example for -- of the abnormal level here is that -- of activity is the fee we pay Cambridge for the IELTS test. At year-end, we -- this was $16 million or 75% lower than the last year, but for the year, the fee we paid Cambridge was actually only 20% below. So right at the end of the year, quite a significant movement in a number of those working capital items.

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Operator [17]

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Our next question comes from Matt Johnston from Macquarie.

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Matthew Johnston, Macquarie Research - Analyst [18]

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I might just pick up where we left off just around the student placements for multi-destination. Is there any sense you can give us or make any comments around the size of the intakes for U.K. and Canada?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [19]

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Well, not really. I can give you a little bit of commentary, but I'm not sure I can really give you any firm view on what the volumes will look like because we just don't know at the moment. I would say that the fall intakes for both Canada and the U.K. will certainly be more subdued than they were last year in the first half. And I think we'll see certainly how where we're predicting it, a stronger second half with many of the U.K. universities for the first time standing up a January intake and, of course, with the 2 Canadian intakes in the second half. Those will prove to be more attractive for the students. And the reason I say that is you have to recognize that, for the past couple of months, in markets like China and India it's been very difficult to do your IELTS testing. And in many cases, the Visa offices have been closed. So a large proportion -- and as I pointed out, we have a very large pipeline of students ready to go, but because through this last period both IELTS and Visa processing have been disrupted, there's -- a view that we have is that a number of students are deferring into those new intakes in terms of the U.K. and those available intakes in terms of Canada just to provide them with the time to do their full preparation, have their Visas ready to go and a much higher chance of being able to go directly into an in-classroom environment. We do certainly have demand for both Canada and the U.K. in autumn. And we're seeing some interesting shifts, as I said, on a weekly basis. I mean literally in the last week, if you look into some of our data. Now students in India, there's -- 80% of the volume of students we have in India plan to travel, that was not the case 3 or 4 weeks ago, into the U.K. in the coming fall intake. But it's very difficult to predict how many may -- when they get down to the wire, may choose to defer because of current requirements for quarantine and equally the ability potentially to defer to a January intake in some cases.

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Matthew Johnston, Macquarie Research - Analyst [20]

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Okay, that's helpful. And maybe just a quick one on the overhead cost per month. Is it fair to assume that -- going into first half '21, that the $12.5 million to $15 million is a fair assumption?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [21]

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Well, maybe I'll pass that one to Murray.

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Murray Walton, IDP Education Limited - CFO & Company Secretary [22]

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So as the staff salary reductions roll off -- because they will roll off at some point in the first half. So for the first quarter -- the run rate that we've had in the last quarter of last year, it'll tick up a little, but once those salary reductions come off, the expectation is that it will tick up again closer to the $18 million to $19 million over the longer period.

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Matthew Johnston, Macquarie Research - Analyst [23]

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Okay, that's helpful. And then I might squeeze one, quick one more in, just around, I guess, the digital strategy and the platform. When you talk about shifts from students, Andrew, have you seen [any] changes, i.e., from people indicating they wanted to go to Australia but given the border closures they then shift to U.K., Canada through the platform?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [24]

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Yes, I think that's a great question. And we had a similar question the other day at us from a geopolitical perspective, but most people, from a behavior and an intentions perspective based on the survey data, still intend to go to their destination of choice. And for us, I mean, out of China, for example, our major placement locations are Australia and the U.K. They remain strong in terms of intentions. I mean, interestingly, what we have seen, though, because of some of those geopolitical rhetoric is those students who -- many of the students out of China who had intended to go to the U.S. are now shifting their intentions to Australia or the U.K., which was an interesting insight from the data. I think clearly, if students intending to come to Australia start to get nervous about their ability to come in, in that s1 intake, I believe we will see a number of those shift to the U.K., with the U.K. being a net beneficiary of that as they go into what looks like many of the universities having for the first time an intake that will be competitive with Australia's S1 in that January, February period.

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Operator [25]

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Our next question comes from James Bales from Morgan Stanley.

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James Bales, Morgan Stanley, Research Division - Equity Analyst [26]

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Firstly, I appreciate the color that you've given on the IELTS forward bookings trajectory. Can you talk maybe to how -- or the current test taking. Can you maybe talk to the forward bookings visibility that you've got and how that compares to the 55% capacity that you've outlined?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [27]

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Yes. I think good question, James. Thank you. I mean, at the moment, what we're seeing from a capacity and a volume perspective, they're pretty much in sync. As the capacity is increasing, the test volume is increasing. And that probably reflects that the demand for testing is robust. And as we open up more centers, we are fulfilling the capacity of those centers with test takers. It's almost linear at the moment, to be quite frank. So whether that continues or not is another question, but right now it's running pretty much in sync.

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James Bales, Morgan Stanley, Research Division - Equity Analyst [28]

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So that begs the question. What does that ramp-up profile look like? And roughly, where do you expect to be by December or June?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [29]

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Yes. Well, I wish I had the crystal ball for that one, but clearly we're impacted by the continued social distancing and restrictions on venue numbers. The team, I mean -- so I would say the team globally has done an awesome job of daily restructuring of venues based on shifting chief medical officer requirements on how many people you can have per session. Probably one of the bigger things to watch, and it's not a prediction because I don't think I'm in a position to do that with so many unknowns, is India and the continued ability for us to start standing up paper testing because that enables us to do larger volumes quickly. It's again step by step. India itself is opening up, but I think people need to understand that occasionally, for 1 step, 2 steps, forward, we take a little step back. I mean, for example, the Philippines took a step back when it closed down a few weeks ago, but so yes. Overall I think it has a lot more, right now, to do with us being able to stand up the capacity, but that where -- that dependency is on the restrictions in place country by country. As restrictions ease, we will push forward with more and more capacity, but I can't predict when those restrictions will ease with any accuracy.

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James Bales, Morgan Stanley, Research Division - Equity Analyst [30]

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Great. So you've given a run rate for IELTS up until last week or something in that deck. There's nothing similar for student placement. You've talked about how things might unfold, but could you maybe give us a sense of how applications are coming in as a percentage of last year? And how do you sort of think about the willingness of the student to actually go ahead and study remotely if that's forced upon them versus deferrals?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [31]

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Yes. No, good question. And again it's very difficult to do a run rate on student placement in this environment given the structure of when intakes happen and the disruption that we're currently facing, but clearly in the pack I showed that applications are up 31% year-on-year. And over the last couple of months, they've probably stepped down a little bit into that low-teen teen numbers, but nevertheless the number of applicants we're holding in inventory is still growing. As I mentioned, we have 82,000 students, unique students, with counselors, with applications in to go study between September and March; and that application number is continuing to grow in that probably low-teens number. And the challenge now is just helping them navigate the restrictions and the opportunity to move ahead. We have seen in the last month, in particular as it relates to the fall intakes, an increasing number of those students willing to start online. Now again, is that a clear predictor as to what will happen? We're not sure because we don't have historic data that gives us any confidence. And what we can see is, compared to we were -- where we were last year as to where we are today, students are taking longer to really finalize and commit to their study. They're still watching. And as I used that example before, literally in the last week, British Airways started flying in and out of India, to the U.K. again. And on my call, situation call, last night, the Chinese airlines and DA now look like they're going to go into China. And that's shifting people's views. So people are watching. And at the last minute, I think we'll see which path they choose to go, but it's not clear to us at the moment. There are students who will go online. What proportion would only be a guesstimate at the moment.

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James Bales, Morgan Stanley, Research Division - Equity Analyst [32]

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And then finally: You flagged a step-up in commissions. Can you talk to the quantum of commission step-ups in SP and [the permanence] that you expect there?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [33]

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Sure. I might get Murray to take that one. Thanks, James.

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Murray Walton, IDP Education Limited - CFO & Company Secretary [34]

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So James, the negotiated increase in commission rate across all destinations is at 6.4%. So that's there's no FX. That's purely increase in negotiated commissions. And then of course, there's a study sector mix. So we've had a big step-up in post-grad volume. It's now 50% of our total volume. So that was -- also added 3% to the average price.

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Operator [35]

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Our next question comes from Will Macdiarmid from Ord Minnett.

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William Macdiarmid, Ord Minnett Limited, Research Division - Small-Caps Industrials Analyst [36]

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Andrew and Murray, the growth in applicants that you're currently getting is -- obviously is very impressive, with the environment. To what extent do you think you're sort of winning market share in that space? And I guess, what are you seeing in the market with respect to other agents? Presumably there's a little bit of pain, but are you seeing a lot of smaller agents or even larger agents leave the market?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [37]

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I think -- so I kind of missed a little bit of the first part of that question, but I thought it related to market share. Was that correct?

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William Macdiarmid, Ord Minnett Limited, Research Division - Small-Caps Industrials Analyst [38]

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That's right. Sorry. Yes.

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [39]

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Yes, yes. I mean, from a market share perspective, we continue to do very well, if we look at Australia through the full year. Australian numbers overall were probably down, minus 24%. And as I mentioned, we were down 15%. Obviously you're seeing the impact of a reduced S1 and -- sorry, S2 and S1 in that second half in those numbers. From a U.K. perspective, we know they're probably growing as a market sub 10%, and IDP was 22% up. And then Canada's growth was about 4.3%, and we were up 29%. So I think, with where we sit right now with that inventory of international students and our ability to continue to engage and a full complement of counselors in place, as restrictions do ease and students do start to travel, one of our aims was to ensure that we would take again a step-up in market share from our competitors. I think we're well poised to do that given our close connection to the clients; and the inventory of international students we're engaged with, who are as I said ready to go and may choose online or may defer until they can do face to face, but they will be from our inventory. And then I think, to the second part of your question, clearly many of the smaller agents are under duress and having a more difficult time through this period. So the clients, I believe, will be more reliant on us to fulfill their seats and their demand as the market does come back.

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William Macdiarmid, Ord Minnett Limited, Research Division - Small-Caps Industrials Analyst [40]

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Okay, great. And then if students do elect the study online or are required to study online, what impacts might that have on your fee and, I suppose, the fee that they pay as well? Are they just going to be doing 1 or 2 modules, which means their first year is less? What are the sort of dynamics around how that might play out?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [41]

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Yes. No, we've been quite clear with our clients and our agreements. And we've had, by the way, extremely good support from our clients in reconfirming how we propose to move forward. And our position is that we will continue to receive full commission regardless of whether it's online or they begin online or if it's in classroom; and regardless, generally, if it's for a smaller number of modules. In fact, we're being offered in some cases larger commissions to help them bring students into an online environment so that they can rely on us to increase conversion [in that] period where they may not be able to get students into market. I mean, interestingly, some of the U.K. universities are also paying at an earlier point in the student onboarding process to try and keep their agents afloat through this difficult period. So there are institutions who are very aware that they need to keep the muscle in their agent networks to enable them to actually benefit from the rebound when it comes.

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William Macdiarmid, Ord Minnett Limited, Research Division - Small-Caps Industrials Analyst [42]

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Okay, that's really interesting. And then just finally, in terms of the recovery of IELTS volumes is -- have there been some markets in particular where that have supported that? I guess what I'm getting to is India has had a tough time with COVID. Are you seeing a recovery there as well?

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [43]

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Yes. Interesting. In these numbers, India is probably muted a little bit relative to the upticks we're seeing across the rest of the world. I think we'll start to see India come into these numbers in the coming months, but these numbers and this uptick is more reflective of the other markets opening up around the world. I mean just I'll give you one really positive data point. In Canada, which is 1 of our top 3 markets, we are seeing demand for IELTS 25% up on what it was in the same period last year. So again those are markets that aren't even completely open. We don't have all of our test centers open in Canada yet, but we've been able to again leverage the network of CD centers where we can operate 3 times a day, 7 days a week should we choose to, to start to service that demand. But India will start to come more online and impact this upswing through the coming months.

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Operator [44]

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Our final question will come from Aaron Yeoh from Goldman Sachs.

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Aaron Yeoh, Goldman Sachs Group, Inc., Research Division - Equity Analyst [45]

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Congrats on great results in tough times. Just the first one, just thinking about your comments about growing inventory and the pipeline building. Can you maybe just give us an idea about what you think a potential sort of super semester intake could look like relative to normal levels? Like do you think you could be 50% higher than normal, twice as large? Any sort of sense around there? And just with regard to the operational capacity of your business, do you think you'd be able to handle these volumes? And also any color around discussions with universities about larger intakes as well would be helpful.

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [46]

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Yes. No, thanks, Aaron. I certainly thought we thought earlier in the piece, going really all the way back to probably the half year result, you have some of the universities who could see the challenges were speaking to the potential for super intakes. I don't believe that's really the case now. I think that universities themselves are looking to having multiple intakes, as opposed to super intakes. And I think multiple intakes are more closely aligned to getting them back to on trend with where they were COVID-19 through the course of 2021 and into 2022. It's very difficult for the universities really to have a super intake of any one particular cohort for any particular course, so my view is what we're seeing is the universities respond by ensuring that they're much more flexible now with multiple intakes as they move towards bringing back international students to a similar degree as what they had them before. I think IDP's position in that is that what we are seeking and are well positioned to do is to take again a larger share of those intakes as they come back, as opposed to be reliant on what was referred to by the universities as potential super intakes.

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Aaron Yeoh, Goldman Sachs Group, Inc., Research Division - Equity Analyst [47]

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Great. That's very helpful. And I was just really interested in that slide you had just on the pickup in IELTS volumes and how it's much more computer-based testing, just wondering if you think this is a bit of a catalyst to actually transition your networks to computer-based testing faster than what you would have originally expected and maybe perhaps more of an opportunity over the longer term.

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Andrew Barkla, IDP Education Limited - MD, CEO & Director [48]

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Yes. I think, Aaron, you -- I mean it's a good, great question. You've probably heard from some other companies along this regard. I mean the new normal has accelerated, right? I mean our ability to do virtual counseling, virtual events, which Murray told me today are actually less expensive than physical events, which sounds interesting; and then yes, the shift to CD is accelerating. And partly it becomes a self-fulfilling prophecy because more people do it; and then they themselves communicate to more test takers about the convenience, the ease and the experience. So yes, I think, coming out through this forward period, and you can see how many CD centers we've got scheduled to open up between now and the end of the year, we see it as a bigger proportion of the overall testing volume relative to paper.

Thanks, everyone. Thanks for joining us on the call today, and we look forward to speaking with many of you through the next couple of days. Cheers.