IDP Education Limited (IEL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. It is now 10 AM, and there is a quorum present at this virtual meeting. Consequently, I declare the 2020 AGM of IDP Education Limited open. Having regard to social distancing requirements and in the interest of the health and safety of shareholders, the AGM is being held as a virtual event. Details about how shareholders can participate have been set out in the notice of meeting and the online virtual AGM guide, which have been made available to you. Both documents are also available to view and download at the bottom of your screen alongside the Get a Vote Card and the Ask a Question buttons. I would also say that if you're having difficulty with the slides, you can view the presentation and the slides on the ASX announcement. I appreciate that some shareholders may have to leave before the end of the meeting. I, therefore, formally open the poll on resolutions and encourage shareholders to submit their written questions online now. While we will endeavor to answer all questions today, if there are similar questions, we will answer one from the group. Also, if we run out of time, additional questions will be followed up after the meeting. Voting in today's virtual meeting will be conducted on a poll by virtue of the virtual voting platform. All poles will remain open until the conclusion of today's meeting. As we move through the items of business, I will respond to questions from shareholders and proxies. To begin with, let me introduce myself. My name is Peter Polson, the Chairman of IDP Education Limited. Also present at today's virtual meeting are Board members; Professor David Battersby; Ariane Barker; Professor Colin Stirling; Chris Leptos; Greg West; Andrew Barkla, our CEO and Managing Director; and Murray Walton, our Company Secretary and Chief Financial Officer. The Chairman's and CEO and Managing Director's features have been released to the market this morning. You will be able to follow the presentation on the webcast as the presenters speak. Once again, good morning, and thank you very much for joining us at today's AGM. As I said, my name is Peter Polson, and I'm the Chairman of your company. It is fitting today's AGM takes place in a virtual environment. As much of what we will discuss today centers on themes of adaption, technology and connection. I will shortly hand over to Andrew Barkla to discuss the operational highlights of the year. But before I do, I would like to provide an overview on IDP's performance in the year, the world did not see coming. In the financial year of 2020, IDP showed its true spirits. This year, IDP demonstrated its responsible management, sector leadership and compassion for its customers. While nobody could have foreseen a global pandemic, IDP had already been adapting to a new world. So our vision to create a global platform and connected community for international students suddenly became even more prescient. This investment in new ways of working, our people and technology allowed us to rapidly accelerate our transformation and seize new opportunities. It was a year of 2 halves or more accurately, a story of 3 quarters and 1 quarter. After reporting record growth across all business loans at our February interim results, March saw the company adapt quickly as the world responded to the global pandemic. Given we are operating in one of the sectors, hardest hit by COVID-19, at the year-end, we were pleased to report an 11% increase in earnings before interest and tax, leading to a 3% increase in net profit after tax and amortization. Importantly, we ended the year with a cash balance of $307 million. In light of the uncertainty, the Board of Directors made the prudent decision to not declare a full year dividend. The first half interim dividend of $0.165 per share was paid in September after the Board deferred the original March payment date. While revenue was down 2% on last year, it was our practical decision and cost control measures that saw the company deliver a commendable outcome while still retaining our global talent. The early move to raise additional equity was widely applauded, and we were met with very strong demand from shareholders. The capital raising will ensure that we are well placed to navigate the current period of uncertainty and capture market opportunities as they arrive. Accompanying our capital raise was a disciplined cost management program. In March, cost control measures were rolled out across the business. Remuneration reductions led by our Board of Directors, our global leadership team helped to manage cash flow when revenue fell sharply during the last quarter of the year. While asking our global teams to temporarily reduce salaries was a difficult decision, our focus throughout COVID-19 has been to keep our people together. And this commitment -- are our single greatest asset. Over the last 5 years, we have built a talented and passionate global team who are constantly demonstrating agility in their day-to-day work. We did not want to lose this team. We are pleased to report that at the end of the year, we have been successful in keeping our teams in place, and salaries have now been reinstated. The only exception is our Board of Directors and the global leadership team who have continued with reduced remuneration. While IDP and the wider international education sector faces challenges ahead, we know students are holding on to their study abroad goals. The search conducted by our IDP Connect teams shows more than 70% of students who hold current university offers are still aiming to commence their studies as planned. The international education sector is an industry that is resilient to through the cycle challenges. That is because of the nature. It is not a short-term purchase. It is a long-term investment that changes the course of our customers' lives. The role of our global -- to become globally and socially mobile is not something that we take for granted. The world is slowly rebuilding. And while international student flows continue to rebound, we will continue to create new depth of ways to deliver for them via digital and other channels. We need big thinkers, doctors and people with global perspectives to lead our communities. The next-generation of leaders are the customers of the IDP today. The importance of assisting our customers to achieve their goals is not lost on our global teams. I would like to thank our global teams for their dedication this year. It is abundantly clear that it is this empathy and compassion for our customers that drove the innovation, responsible management and agility that we saw during the last year. We are proud to be by the side of our customers and higher education clients as our sector rebuilds. To you, our shareholders, thank you for your support for our organization, our sector and our customers. Thank you again. I would now like to hand over to Andrew Barkla for an operational update.

Thank you, Peter. Good morning, everyone. It is my pleasure to present the operational update for the financial year of FY '20. To echo Peter, this was a year like no other, resilience, adaptability and empathy. These were the pillars that underpinned our year. This was as true for IDP as an organization as it was for our globally ambitious customers. If we look back to the start of the year, IDP was making excellent progress in all areas of our business. With global teams in place, we were on track and delivering our vision of building a global platform and connected community for international students. A highlight of the first half took place in November when we opened our 400 staff digital campus in Chennai. While at the time, we knew this was an important milestone in our transformation strategy, we could not have foreseen how quickly this initiative would return benefits for our customers. When COVID-19 began to impact our global community and economy, IDP's response was guided by 3 goals: Firstly, to keep customers and our people at the center of our decision making; secondly, to take proactive prudent actions that will enable us to emerge stronger from this period of global disruption; and finally, to remain focused on our longer-term strategic goals. While this was a year of new challenges, we are proud of how our organization responded to the crisis in a way that allows for the opportunity to rapidly accelerate our successful transformation strategy. IDP's customer-centric culture shone through this year as teams adapted how we delivered our products, and stay connected to our customers in new ways. From a global perspective, this meant rapidly transitioning face-to-face events and counseling services to a virtual platform. Proactively implementing recommendations from governments and health authorities to adapt our IELTS test experience and moving our language learning classrooms online. At an individual customer level, the role of our counselors as trusted advisers was pivotal. In an environment of fast-changing and conflicting news, our students and families turn to IDP counselors as a source of the truth. This was reflected in our recent IDP Connect research, which showed our students across the globe usually rated their counselor as the source of information they trust above all else including universities, governments and media [indiscernible] to showing that more than 70% of students with current offers from universities are aiming to commence their studies as planned. This trusted support positioning [indiscernible] resumes. This year forced organizations around the world to move quickly and decisively. While the capital raising increased our financial flexibility, it was a challenge. I am pleased to report that after a near-global shutdown of operations and rapid adaption to a new environment, we are steadily regaining global capacity based on our trading results since the 30th of June. The gradual lifting of restrictions relating to COVID-19 has allowed IDP to increasingly reinstall IELTS testing capacity. Our network is currently operating at around 70% of our total capacity, up from approximately 55% in late August. Social distancing measures are still limiting our ability to deliver the test in large-scale group environment in several countries. However, our shift to smaller and more frequent test sessions, enabled by computer delivered IELTS is helping us meet demand. For student placement, while our applied volume are down 22% for Q1 compared with last year, students are largely holding on to their study goals. The credit for nurturing this pipeline goes to our global counseling teams. Our team of education experts who have remained in place throughout the crisis, have played a key role in ensuring we remain side-by-side with our customers. While [indiscernible] hemisphere to be smaller than last year, students are increasingly being presented with opportunities to commence studies at later intake dates. This is particularly relevant in Canada, a destination with 3 intake cycles across the year. Both Canada and the United Kingdom have signaled they are ready to welcome back international students. In particular, the recent announcement of relaxed travel restrictions for international students headed to Canada, was well received by our global customer base. Turning to Australia. It is currently too early to provide commentary on intake volumes for semester 1, 2021. Throughout uncertainty, IDP's vision of building a global platform and connected community to guide our customers through their lifelong learning journey, provided us with an anchor point as we navigated COVID-19 challenges. Most importantly, this led us to seize the opportunity to fast track our digital transformation program. Our team has proved that a digital transformation program has less to do with technology and everything to do with how an organization can shift towards an agile, customer-focused mindset. Our ability to embrace change saw our teams deliver an unprecedented number of new products and innovations. Driven by our digital campus in Chennai, key highlights included the rapid rollout of IELTS Indicator, our temporary online IELTS test, which was accepted by more than 900 organizations and available in 70 countries. The launch of Ask IDP, an app that helps students have the difficult questions answered by people they trust and the rollout of our virtual events and counseling solutions. While the events connected to COVID-19 may have challenged our physical operations, it did not challenge our sense of purpose. We are now more than ever committed to helping students change the world through global education. 2020 was a year our global corporate responsibility program gained momentum. IDP's sustainable futures framework covers a range of strategic and tactical initiatives that cement our commitment to improving gender equality, access to education and preserving the environment. FY '20 was a second year IDP set objectives for corporate responsibility to direct the program and work. 13 ambitious deliverables were set. Of these, 12 were delivered and 1 was delayed until FY '21, largely due to challenges related to the pandemic. Key deliverables this year included; establishing global recognition awards to celebrate community and environmental action, introducing customer satisfaction programs to measure customer loyalty, and developing pay equity audits and action plans across 11 countries to examine gender pay imbalances. We also continued our support of Nyumbani, an organization providing access to education and lifelong learning opportunities for children impacted by AIDS or HIV in Kenya. To understand the steps we are taking towards building more equitable and balanced communities, we have documented our corporate responsibility goals on our website. You will find the links in our annual report. I look forward to sharing ongoing updates with you on our corporate responsibility framework at our AGMs. Before I hand back to Peter, I would like to take this opportunity to thank you, our shareholders for the support you have given IDP in this difficult year. While there are factors outside of our control, the way our teams have responded to what we can control gives me great confidence in our organization's future. We have a key role to play in transforming the international education sector and the experience of our students. After the events of this year, we will lead this role with greater compassion for customers, new capabilities and a renewed focus to help the world a more united place through education. Thank you.

Thank you, Andrew. We will now turn to the formal business of the meeting. The minutes of the previous AGM were approved by the Board and signed by myself as Chair. The notice of meeting, dated the 21st of September 2020, was sent to shareholders and copies are available online on the ASX site. I propose that the notice of meeting be taken as read. I would just like to summarize the proxy voting procedures for this meeting. Shareholders and proxy holders have the opportunity to consider and submit their vote on each resolution up to the end of the meeting, where voting will close one minute after the meeting has been formally closed. Following discussion on each item, the proxy results will be displayed on the screen, and you are -- the screen you are watching this virtual meeting on. I would also like to highlight that IDP Education Limited directors and executives identified as key management personnel will not be voting undirected proxy votes given to them for item #3, the remuneration report. On all other items of business, where undirected proxies have been given in favor of the Chairman, I will be voting those proxies in favor of all items. I've been informed by my fellow directors and company secretary that they will also vote any undirected proxies given to them in the same manner with the exception of item 3, the remuneration report. Please note, only shareholders and proxy holders may ask questions and all questions will be required to be entered on the virtual meeting platform following the instructions on the platform or in the virtual meeting online guide provided to shareholders. All questions will be moderated to ensure that they are appropriate to be put to this meeting. We will now move on to the items of business for the meeting as set out in the notice of meeting. The first item of formal business is to receive the IDP Education Limited financial report for the year ended 30th of June 2020. Let me introduce our auditor for the 2020 financial year, Gen Cavallo from Deloitte Touche Tohmatsu. Gen is available to take questions relevant to the conduct of the audit and the preparation and content of the independent audit report. Please ask any questions that you have of our auditor on the virtual meeting platform. Voting is not required for this item. It is a discussion item only. Are there any questions on the IDP Education Limited Financial statement or report or the Auditor's report?

Chairman, we have a question from Mike Robey, who's a representative of the Australian Shareholders' Association. Mike states, firstly that he congratulates the company on weathering the pandemic well so far. He would like us for some analysis of the business impact to IDP posed by both the worsening geopolitical tension with China and the travel restrictions and border closures across the globe.

Thank you. Thanks, Mike, for the question. Look, I think it's appropriate if I actually hand over to Andrew. He and these people are on the ground dealing with these issues on a day-to-day basis. So Andrew, if you would like to make a comment, that would be appreciated.

Yes. Okay, Peter. And thanks for the question, Mike. Yes, our business has had to navigate a challenging period during which global mobility has been impacted and various governments around the world have forced businesses and borders to close during these periods of lockdown. So we've not been immune to this and these challenges. Our revenue during the fourth quarter of FY '20 was 64% down versus last year, as our IELTS testing centers and English language teaching schools closed and there's many international students delayed their plans. But since May, however, we have seen a steady recovery in activity, as I noted in my presentation. And certainly, students are largely holding on to their international study goals, and we should see again that backlog and demand come through once our borders open and face-to-face teaching begins again. Back to you, Peter.

Thanks, Andrew. Are there any further questions on this item?

Chairman, there are no further questions on this item.

Thanks, Craig. We will then move on to item number 2A, which is the election of Professor David Battersby AM. Professor Battersby and Ms. Ariane Barker will retire in accordance with the provisions of the constitution and being eligible, offer themselves for reelection. Item 2A is the election of Professor David Battersby. David was appointed as a nonexecutive director at IDP, February 2011. He was appointed Vice Chancellor of the University of Ballarat in 2006. And in 2014, became Foundation Vice Chancellor of Federation University Australia, completing his term of office in 2016. He took up his current appointment as an Adjunct Professor at Southern Cross University in 2017. David's previous senior appointments have been at universities in Australia and New Zealand, and he has undertaken consultancies for UNESCO and the OECD and various other government agencies. He was Foundation Chair of the Australian Regional Universities Network and the Board of Museum of Australian Democracy at Eureka and is currently on the Board of Directors of the Melbourne Institute of Technology. David is also Deputy Chair of the Board of Education Australia Limited. Are there any questions?

Chairman, we have a question from Mike Robey, representative of the Australian Shareholders' Association. Mike notes that they are concerned that IDP is directed by a Board, which is an outlier in the ASX 200 in that it is a very low representation of women. He notes that the average for ASX 200 is 32% whilst IDP's Board has 14%. He asks, can you advise when this will be addressed and you will have better gender diversity? Given this anomaly and that Professor Battersby representing the major shareholder Education Australia has served for 9.5 years? He notes that they intend to vote against his reelection. So his question effectively, Peter, is that can you advise when this gender diversity issue will be addressed by the IDP Board?

Thanks, Craig. Thanks, Mike, for your question. Look, we acknowledge that we have more work to do to improve the gender diversity on our Board. We previously had 30% women directors. However, this was reduced with the resignation of Belinda Robinson. Education Australia has the majority shareholder of IDP, are responsible for putting forward nominees for 50% of our Board directors. We're actively in discussion with Education Australia to see a greater diversity of their nominees. Any other questions, Craig?

No, Peter, there's no further questions on this item.

With no further questions, we will now display details of the total valid proxies for this item. The directors recommend shareholders vote in favor of this resolution. Hopefully, people have seen those. I will now move to the next item of business, election of Ms. Ariane Barker. Ariane was appointed as a nonexecutive director at IDP Education in November 2015 and is Chair of the Audit and Risk Committee. As the CEO of scale investors, Ariane works to activate investment capital for female entrepreneurs and gender balanced startups to support growth for early-stage businesses. She is a member of the Murdoch Children's Research Institute, Investment Committee and a former Board member of Emergency Services & State Superannuation, that's ESSSuper. Ariane has extensive experience in international finance, risk management, debt and equity capital markets, having worked in executive roles with JBWere recently, Merrill Lynch, Goldman Sachs, HSBC in the United States, Europe, Japan, Hong Kong and Australia. Ariane is a graduate and a member of the Australian Institute of Company Directors. Are there any questions regarding this item, Craig?

No, Peter, there are no questions for this item.