Taaleem Holdings PJSC (TAALEEM.AE) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Taaleem's results conference call. My name is Nada Amin. I'm from EFG Hermes Research, and it's my pleasure to be welcoming you to today's call. From the company's management, we have Mr. Alan Williamson, the company's CEO; Mr. Arnaud Prudhomme, the company's CFO; and Ms. Nora Ghannam, the company's Head of Investor Relations. We'll begin with a presentation from the management, and then they'll open the floor to Q&A. Please go ahead.

[Foreign Language], Nada. Thank you very much, and thank you to EFG Hermes once again for hosting our quarterly presentation. [Foreign Language] Good afternoon. I would like to start by highlighting how Taaleem have delivered on their promise at IPO, and indeed, overdelivered in many areas. If you look across this line, you will see some exemplary practice and some exceptionally good progress. 67.8% of our IPO proceeds have been utilized as we grow the schools. We've expanded capacity by M&A and also by Greenfield in schools such as DBS Jumeira, DBS Mira and the acquisition of the Lycee Libanais. Our student enrollment has grown considerably. In fact, up 97% since listing, including PPP and premium schools. We've enhanced our EBITDA margins by up 0.3% and sustained at 28%, despite inflationary pressures and J curves of new schools. Our disciplined capital structure remains at 3x net debt to EBITDA, and we still have room to add at least 1 or 2 new schools. And indeed, today, we will announce and give you details on an additional new premium school that we will add to the portfolio. Throughout the period, we've consistently maintained our dividend policy. And indeed, in the invitation to our AGM, we confirm a dividend of AED 150 million at AED 0.15 or 15 fils per share, and a payout of over 91%. We've enhanced our premium school revenues that now contribute to 87% of the company revenue and 98% of our EBITDA. And indeed, the EBITDA profitability is up 6.3% since listing. In addition to all of that, we have diversified and grown vertically scaled growth through acquisition of Kids First Group with 34 nurseries. And now a path to long-term growth through the expansion of Kids First Group, the expansion of our premium school portfolio and the addition of 2 super-premium schools. And we will be updating you today on the progress of Harrow. Harrow Dubai will open in 2026. And in full consultation with ADEK, Harrow Abu Dhabi will open in 2027. And as I mentioned, the addition of one new premium school. In addition to that, Nora continues to engage with the investment community as indeed Arnaud and I are regularly at places like the EFG Conference and the HSBC conferences. Our share price is striking well, and we have 76% rise since lockup and 41% year-on-year, with 2 or 3 analyst presentations coming through with a top price around 6.5% with an implied upside as much as 57%. As mentioned, in the invite to the AGM, we will distribute AED 150 million of dividend, strong cash flows are enabling that to happen. And we are able to do that despite a serious expansion of CapEx as we roll out the commitment to new schools. So consolidated financial highlights, focusing, first of all, on our revenues exceeding AED 1 billion, a strong EBITDA at AED 317.9 million, up 17.4% year-on-year, and our revenue is up over 20% year-on-year with a very strong net profit of AED 164.5 million, up 19.2%. And Arnaud, later in the presentation, will outline just how we've been able to push that net profit up. At the same time, considerable increase in CapEx investment as we deliver our new school pipeline. The balance sheet is strong, and Arnaud will go into more details in relation to finance later in the presentation, but you can read the upside on debt, obviously, as we deliver the new pipeline. Free cash flow remains strong. And we are staying within all covenants. Shareholder returns, return on equity, return on assets and return on invested capital is all outlined there in relation to last year. And as I highlighted, 15 fils per share and 91.2% payout. And therefore, we reflected the end of a financial and academic year as we closed Q4 on an increasingly diversified portfolio, a strong premium school portfolio that's already growing. Obviously, we are already in Q1 and have already opened, for example, DBS Mira, DBS Islands, but reflecting, as this presentation mainly does on the previous year, we're highlighting the acquisition of the Lycee and also the launch of DBS Jumeira. A new vertical through the acquisition of Kids First Group that will bring strong EBITDA and net profit and value accretive to the company later in the presentation, we will explain to you, as we've done before, the timing of that acquisition. As you're well aware, the education sector has 10 months of revenue in 12 months, of course. So the timing of the Kids First Group has led to a slight net loss and -- but we will update that more fully in the presentation today. Dubai schools revenue contribution continues to grow and a massive, absolutely massive increase in capacity as we move towards 3 very large 3,000 to 4,000 student schools, which as they fill up and we close capacity utilization, will increasingly turn positive for Taaleem. And charter revenues remain 3 more year contracts for each of our charter schools in the addition of 4 nurseries. So the Dubai PPP and the charter PPP is absolutely secured. And the Ministry of Education PPP, although we gained an additional school, the agreement with the Ministry of Education as ESC transfers back to the MOE, our schools will also return back to the MOE. So let's talk about, first of all, the new schools on the left-hand side. We have already updated you on Harrow Dubai and Harrow Abu Dhabi. But recently, in partnership with Majid Al Futtaim team, we announced a U.K. curriculum school in the new community of Ghaf Woods, which is already rising out of the sand, looks extremely positive. The Majid Al Futtaim announced the mall that will go in, and it will be an innovative school that sits within innovative community. As you look at our 71% increase in capacity -- student capacity, 16.9 in the previous year. And by 2027 or slightly longer than that, we will be close to 30 million capacity. And you can see each of the projects as we move forward. Thank you. So a unique diversified platform with scalable growth, the investment highlights would be a 28.5% capacity growth, premium enrollment up 19% and new schools such as DBS Jumeira, DBS Mira launched exposure to the U.S. -- UAE's fastest-growing education market through a premium and super-premium strategy. And now a diversified and scalable platform with the addition of the nurseries, the addition of Harrow and the addition of the new U.K. school in Ghaf Woods. Strong financial discipline with double-digit EBITDA CAGR and as I announced already a strong and progressive dividend policy post-IPO. Reflecting on our 3-tiered growth model, super-premium, premium and nursery growth continues. Government partnerships strengthened with the 3-year contract, securing the charter schools and the considerable investment done by Dubai government in 10,000 -- close to 10,000 seats in Dubai schools. And our premium school vertical strengthened with the addition of our 3 new Dubai British Schools, Jumeira, Mira and Islands. I'll pause there, and I'll pass over to Arnaud to give us many more details on the financial performance.

Thank you, Alan, and good afternoon, everyone, and thank you again for participating in this presentation. So I will first review the P&L and show the different highlights. The financial year '24-'25 has been another year of strong financial performance with double digits on the main KPI. Further, revenue, as you can see, we have been of the mark of the AED 1 billion for the first time in terms of operating revenue is driven mainly by the higher enrollment, the sustained demand and the fact that we have increased the capacity across the full portfolio. The gross profit has increased as well by a double-digit number, 18%, reaching AED 476 million. Yes, the margin -- the gross profit margin has slightly declined in a nonmaterial way it's because at the time -- at the same time, we were expanding a lot the cost base to support the enrollment growth. And I will come back on this. Our EBITDA, when I call adjusted EBITDA is EBITDA without taking into account KFG. The adjusted EBITDA has grown by 17.4%, and the margin remained constant at 28%, slight decrease for the same reason I will expand later in the presentation. Finally, the net profit, which includes on this board KFG, reached 164.5%. It's an increase of AED 26.5 million versus the prior financial year and it's an increase of 19.2%. The margin remains fundamentally stable at 14.5%. Now looking at the revenue more specifically. So in terms of operating revenue, an increase of 20% close to AED 1.1 billion. The review by vertical confirms the fact that our premium school are driving the profitability of the business. It represents in terms of operating revenue 85%. The balance is coming from the PPP and nonoperating revenue, which reached close to AED 32 million this financial year. Enrollment has increased dramatically, reaching 41,400 students, which is an increase of 9% over the market, especially in this specific segment of the premium schools. The use of capacity has declined, which is completely normal given the fact that we have put online more capacity, including DBS Jumeira last year. Finally, in terms of average gross tuition fee, you can see a slight decline of the fees is due to a temporary situation with 2 elements skewing downwards the gross tuition fee. One is the fact that we have opened DBS Jumeira from September '24. And obviously, what we have opened are the lowest or the lower grade. And the second element is the fact that the average fee in the Lycée Libanais Francophone Privé Meydan are lower than in the rest of our premium school segment. Then let's move in an analysis of the cost efficiency. As you know, we have a strategy which is to approach strategically the way we manage the cost base. On one side, we try to obviously maintain a strong cost discipline, and this slide showed it, but we keep at the same time, again, to invest in talent, in people and in the facilities. So we try to maintain thin balance between the 2 in a market which remains highly competitive and where attracting and retaining top talented teachers is absolutely critical for the growth and the quality of the education we deliver. So you will see that our operating costs and G&A continued to grow at a pace, which is quite significant. But at the back of it, we have recruited more than 300 teachers, 309 teachers precisely, out of which 222 for the premium schools. And this is to support enrollment and the opening of new grades or new subject matters in the different premium school of the portfolio. The G&A has increased more specifically, it's due to the fact that we have a series of one-offs, including the transaction cost related to the acquisition we have completed this financial year. The adjusted EBITDA I don't come back on it, but it's again a strong and massive growth of 17.4% versus the prior year. Now coming back on the cost management. Again, our strategy in the medium term is to make sure that the growth of the revenue outpaced the growth of the expenses, both operating expenses and G&A. We are confronted into some headwinds. One is the teacher salaries, again, in a highly competitive market. This is true specifically, but not only for the housing, and you know what the situation is in Dubai, a bit less in Abu Dhabi, but still it's a pressure on the cost base. we have a churn of the teacher, which has reached less than 10% in '24, '25. Historically, it's quite a low level. And as you know, we usually use this churn to rebase in a way the cost base of the teachers, having teachers paying with the high -- in the higher salary band leaving and being replaced by younger teacher less paid, obviously, before they are more experienced. Finally, we are under the pressure of the utilities cost and the rent inflation, even though it's starting to ease a bit. But as the portfolio grows and as these costs continue to grow, we need obviously to continue to be confronted by this situation. So we have a series of mitigation measures that explains how we can manage the -- maintain the cost discipline. We have a volume impact. So we continue to grow the enrollment, plus 9% last year. And we have a price impact. We keep on increasing the tuition fees. So the impact this year was AED 21.2 million for an average of 2.3% across the portfolio. And obviously, we continue to deliver efficiencies, including automation and this avoid to add admin staff to certain functions, and we will continue obviously to do so. So the conclusion that you can see on the right-hand side of this board is that despite the strong inflationary pressure that we are in and the fact that we continue to grow our investment, the costs are contained. And you can see the margin, they are yet, in some cases, slightly deteriorating. But again, midterm, our target, very clear target is to continue to grow the revenue at a pace, which is higher than the growth of the expenses. A couple of words now on the balance sheet. Strong financial position. As you know, our total debt has been multiplied by 9.5. We remain very clearly within all our bond covenants, very comfortable here. A lot of headroom still available to continue to grow the business. The net debt, because we have invested and deployed cash and on the other side, increased the leverage, obviously, has changed. It was negative. It has become positive. Nothing to be worried about. Our CapEx reflects the fact that we have made acquisitions. So the Lycée Libanais Francophone Privé Meydan, the Amity School, which has now reopened as Taaleem School from September '25 and obviously, the KFG Group. And finally, the lease liability, just the full year impact of some leases that were concluded in the previous year. A word on our debt situation. So our current position, we have, as I mentioned, increased dramatically our leverage of the balance sheet on purpose. We incurred this increase with our strong operating cash flow. We make sure that all project -- growth projects are fully funded, and it is the case today for the 2 Harrow School and [indiscernible] Ghaf Woods development. The financing is secured with a model which is, as you know, 80% debt and 20% equity. We don't have any risk of repayment. It's a very important term. No midterm or no short-term refinancing risk. We have -- as you know, we usually raise debt with bullet payment with 3-year or 5-year tenure so that we have all the flexibility and the option at the end of the bullet to either repay partially or fully or refinance. And the plan at this stage, especially the interest rate environment is conducive to this is to refinance the debt at lower rates than what we have currently. On the right-hand side, as you can see, our debt ratio, especially the net debt to EBITDA, as you can see, has reached 3 multiples, 3x. We have in our bank covenants and we are working now with 2 banks, EIB and HSBC. The maximum we can afford is 4x, and we are not close to this at the end of the financial year '24, '25. Now a word on the cash flow generation. So our business model is by construction a cash-generative business. It supports very well the expansion and the growth in which we are, and we will continue to do so. We have reduced our cash globally by AED 200 million versus the previous financial year just because we have deployed the IPO cash to support the expansion, both the M&A and the greenfield projects. The restricted cash corresponds to what we owe ADEK, ESC and Ajyal. This is cash which is deposited to us as a budget to run this operation. And obviously, this is not our cash. And when you look at our capacity to convert the EBITDA into free cash, this is a conversion rate, which is mentioned here, 116%, an increase of 24% versus the previous year. That's a very good signal in terms of the quality of the earnings. An element on the depreciation policy. We have changed our accounting policy this financial year from the 1st of September '24. It was discussed during the summer and approved obviously by the governance and reviewed by the auditors without any issue. Historically, we depreciate our buildings over 30 years. And looking at the market and doing some benchmark analysis, we have realized that there are now clear signs that the market is depreciating over 50 years. We have done a third-party evaluation check to make sure that our building is of enough quality to support this. Conclusion is, yes. So we now apply to all our own school buildings, this 50-year depreciation. The impact is, in terms of net profit, equals to AED 24.8 million in the financial year '24, '25. It will be over this amount, close to AED 30 million, AED 35 million, AED 36 million in the coming period as we grow the portfolio. The benefit of this is obviously strengthen our retained earnings, align us with the market, which support better comparison and benchmarking analysis. And because the cash flow are not affected, are not concerned, but again, because it strengthened the retained earnings, it will give us more headroom to increase continually the distribution of dividend. Thank you. So I give back the floor to Alan, which will lead us to the portfolio performance and the strategy.

Thank you, Arnaud. So the headlines here are just a repeat of what we've been talking about, the strong performance of the premium schools and of the government partnerships, outlining the revenue contribution, the enrollment, the capacity and the utilization. So the key things here are the increasing capacity in the premium schools with DBS Jumeira, the extension to GIS and the acquisition of Lycee. So as Arnaud highlighted a slight decrease in utilization given the increase in capacity, and we will show that in a diagram in a second. Also want to highlight the increase in enrollment and capacity in the PPP, which is focused on the Dubai schools PPP. So a number of schools in the previous financial year were 12. But obviously, with Mira coming on board and Islands coming on board, we will move beyond that as we move forward. But again, focusing on the previous year -- the one thing I want to highlight along the bottom is the point made by Arnaud on the EBITDA margin. Actually, if you look at the EBITDA margin in our premium schools, it's extremely positive, and that's something that investors always ask us as we hover around 28%. What can we move that to moving forward. And if you just take the premium portfolio, we're actually performing very, very well there. What you'll see in the right-hand diagram is the strong dark line of our enrollment going up by 1,500, 2,000 per year. And then the wavy line is the increase in capacity as we open new schools every 1 or 2 year. And as you are aware, we are doing extremely well in terms of our efforts to close capacity utilization, both in our existing portfolio and overperforming on the business plan in the new schools. So some highlights to repeat, again, similar to what Arnaud presented earlier, strong enrollment growth with capacity utilization slightly declining, but only declining because of the additional seats put into the system by DBS Jumeira, the Lycee Libanais and Greenfield International School. A strong revenue growth, plus AED 158 million. But as Arnaud said, a lot of the seats in GIS and DBS Jumeira are in the -- the younger year group. So there will be an upside as the students move through. And also, it's the students in schools such as Raha International, Khalifa City moved through into the older year groups. As I mentioned, strong EBITDA, very strong EBITDA in the premium schools with an EBITDA margin increase despite all of the pressures that Arnaud mentioned in relation to inflation, housing, et cetera. And obviously, the CapEx deployment, as we not only delivered Jumeira, but planned for Mira and delivered Islands, DBS Islands, the Amity nursery over the summer and plan for Harrow. So some more detail on the successful ramping up of capacity utilization. If you look at the left-hand side, you will see the overall capacity of our schools that were pre-'24, '25 last year, and the utilization improving in schools such as Uptown International School, Raha, et cetera. The new launches, which really focus on Lycee, DBS Jumeira, GIS and a couple of additional classrooms that we've added to some of our schools, you'll see that there is significant headroom paused not by underperformance, but caused by ADEK and KHDA's regulation. But the positive there is the considerable headroom for growth. I also wanted, as we've done previously, Arnaud and I, to focus on the sort of broad parameters of business planning as we open our Greenfield Schools. And we've always said that we target EBITDA positive in year 1 and 2 and net profit by year 4 and 5. But you'll see the considerable performance, the very positive performance of Jumeira, and we've added Mira and projected ahead and also highlighted Raha, Khalifa City in terms of the performance, the capacity. But actually, what we're showing you here is the significant capacity utilization that will close and add to profitability as we move forward. So as mentioned, we have taken a second here to focus on the PPP, the growth in charter schools of our 11 schools plus 4 nurseries and the significant capacity evolution of Dubai schools and also the progress that we are making in relation to enrollment. What we really want you to focus on again here is the potential for improvement in the Dubai schools as we move forward -- as the students go from Grade 8 into Grade 9. And the lower year groups, the KGs, where there's classes form entries of 12 and 14 as they come through, the Dubai schools will move to a more profitable situation. Thank you. So ending on strategy before Arnaud sets out some financial parameters as we look ahead. A reminder of our pillars of growth. We are expanding our premium schools, DBS Jumeira DBS Mira and Harrows coming online and the announcement of the U.K. School at Ghaf Woods. We're also continuing to look at capacity within our existing schools, 500 additional seats in GIS and 400 filled seats, every single seat filled in DBS Islands. As well as that, the ramp-up and utilization of our existing schools, and I highlighted that in the previous slide, schools like Uptown International School in the present quarter and break in 1,500 students. Government partnerships, highlighting the extension of the charter school contract and the significant additional capacity put in by the Dubai government to our 3 Dubai schools and also under in organic growth, the exciting, very exciting addition and diversification of the portfolio into the nurseries. Disciplined CapEx phasing, Arnaud has covered this. We've deployed 67.8% of our IPO proceeds and yet, we still have financial headroom for additional initiatives, projects, if they come -- as and when, sorry, they come online. And we've shown that by the acquisition of the land to build the U.K. curriculum school at Ghaf Woods. So the strategic focus and growth levers for us as a management team and Taaleem Board are driving our new schools quickly out of the J-curve, scaling up significantly the Kids First platform, and we'll show you that in a second, launching new schools such as the Harrows and the U.K. curriculum school in Ghaf Woods, and ramping up enrollment in our existing schools and as Arnaud focused, ensuring that EBITDA progresses and our margins improve. So just a quick recap and a visualization of that strategy. Greenfield, the overdelivery of our IPO commitment and promise Greenfield 500 students, DBS Jumeira and DBS Mira both now opened successfully and ramping up, as we said, to quickly recover from the J-curve, and Islands opening again at capacity in the present Q1, and we'll update on that at the end of Q1. And planned opening of Harrow School Dubai and actually better for Taaleem in relation to our financials and our returns, the agreement with ADEK to open Harrow Abu Dhabi in 2027. So just touching on Harrow and giving you, a, some background and, b, some updates on it. So a reminder of Harrow. On the streets of the U.K., Harrow and Eton would still be communicated as the most famous 2 schools in the United Kingdom, global prestige academic excellence, brand appeal and a strategic fit for Taaleem and indeed the UAE. And as you look on the right-hand side, research from Henley Private Wealth on high net worth individuals, the amount of parents who are looking for super-premium education for their children. We see that Abu Dhabi now has 2 schools that fit the super-premium definition for Abu Dhabi in 7 schools in Dubai with a price point at or around 95,000. The initial indications as we opened enrollment are very encouraging for us, with 200 prelaunch inquiries and significant numbers of parents already paid. Again, business planning, above 300, but we are ambitious to overachieve in both of the schools. So just an update on Kids First Group, a snapshot acquired in June 2025. Long term, it will be very value accretive to Taaleem. In the present financial year, as I highlighted earlier, we have caught in the 10-month revenue, 12 months of cost. There are summer camps, et cetera, in the nurseries, but as you see in the bottom, initially not adding to our net profit. However, as you see the projections in 12 months' time and the guidance for '26, '27, you will see significant value accretion for Taaleem. And we want to give you even more detail on that because we know, at investor conferences, you've been asking for this level of detail. So as we declared in the previous investor call, we want to take around 5,000 students over the next 4 to 5 years to around 9,500 students. So you will see our projections working with the Taaleem Board and the Kids First Group's leadership and management team that there's going to be significant EBITDA coming into Taaleem over the next 5 years. And you will see the contribution to the overall Taaleem EBITDA, which is significant at around 23% to 21% as we roll through the year. So this -- again, the message from Arnaud and I is Kids First Group is a significant value accretion acquisition for us, higher margins, faster payback. And remember, it does -- it's asset light as we scale up. We don't have the CapEx impact that we have on building a premium school or indeed the time lag of 2 and indeed sometimes 3 years that we have to build premium schools. We can be quickly up and running. And indeed, the commitment was 34 nurseries, will, by January, immediately go to 36 nurseries with 2 very, very exciting Redwood nurseries coming online. Thank you, Nora. So I'll pause there and pass over to Arnaud for our guidance overview as we look ahead.

Thank you, Alan. So the guidance shown here on this board is for the next 3 years, to give you some perspective. It confirms very clearly that we are continuing to be on a strong financial performance path, with an EBITDA for Taaleem only, which will reach up to AED 440 million, AED 450 million in 3 years' time from now. The share of net profit of Kids First Group will go up to AED 65 million, AED 70 million at the end of year 3, and it will obviously impact Taaleem positively. And the net profit, if you look at this line, which includes both Taaleem as such and KFG, will lead to a net profit going up between AED 228 million, AED 239 million in year 3. The CapEx will decline as we have shown because we are continuing to deploy the investments that we committed during the IPO, the 2 Harrow school and Ghaf Woods. After that, we will continue to grow, and we'll come back in due course with the next step of the strategy. And the other thing is, obviously, KFG, is not capital intensive. We need AED 20 million to AED 25 million a year to create 750 seats a year. This is a plan for the next coming years, and this will be funded through a mix of debt and equity. Finally, the net debt to EBITDA to show or to confirm the cautious approach to leverage of our balance sheet. We will go up to 3.9 multiples in '26, '27. This is a max over the next 5 years, not only the 3 years, but the next 5 years, and then it goes down dramatically to very low level. Obviously, we will releverage the balance sheet, as and when if we have a proper opportunity which arise. Thank you, Alan.

Thank you, Arnaud. And thank you for listening to us, as we have highlighted, it's been an extremely successful year for Taaleem as we close quarter 4, and we thank you all for your investment in Taaleem and for your commitment to our growth and dividend story. So I'll pass back to Nada, and Arnaud and I are more than happy to take questions.

[Operator Instructions] I see there's a raised hand from Anil Kumar. Anil, please go ahead. I think maybe that was on accident. [Operator Instructions] We have a question from the line of Ahmed [indiscernible]. Sorry, my apologies. It appears at this point, we have no questions in the queue or the chat box.

Hello? Sorry.

Yes. Hello?

Yes. This is Ahmed from SICO. So I have 2 questions from my end. Regarding KFG, although you own 95% of it, it is accounted for as a JV rather than fully consolidated. So can you elaborate on the reasoning behind this accounting statement?

Yes. So why is it? So when you acquire a company which is a founder, and it was obviously part of the transaction that the founder will stay to help us to continue to grow the business. This founder, as a minority shareholder, have some reserve matters, have some rights, which are protective of its interest, which are called reserve matters, meaning, there is a need to have an agreement at the governance of this entity, a specific Board has been set up for this purpose to -- on certain specific matters. Some are regulated by law. And we have no choice than comply, obviously, with the law. It's related to share capital movements, for instance, an increase of the capital or a decrease of this capital. Some are related to finance. So any finance movement event, which is outside of the course -- the normal course of the business, like taking loans or guarantees again, outside the normal course of business. It gives some rights to the minority shareholders to protect this interest. The same for material transaction beyond a certain threshold, it needs to be -- to approve them, either to divest or to invest in new nurseries or nursery group. There is one specific element, which is related to governance. He has some -- the minority shareholder has some substantive rights, as it is called, meaning that we can -- we need this right to -- or approval -- formal approval on the budget, for instance, so that is comfortable with it to continue to progress. This leads an interpretation of the IFRS standard accounting -- accounting standard, which means that it is considered as a joint control of the entity and not fully control of the entity by Taaleem. What I need to stress is that it is an interim situation for maximum 5 years. During these 5 years, the minority shareholder benefit from the call option on the capital. So it can divest progressively in one go during these 5 years. There are window for this. And after 5 years and every year following that, Taaleem has a call option on the capital -- sorry, the minority shareholder has a put option. Taaleem has a call option on the capital and will be able to get the full control of the entity, 100%. So this way of consolidating will disappear, which is the equity method, and we will go to a consolidation line by line. To go to this conclusion, we have gone to a third-party independent specialist, who has given us their view. We have gone as well to EY, our external auditor, to check that they were comfortable with the analysis. We have challenges because it was not our initial understanding of the transaction and its philosophy. But the final view is that we need to consolidate as a joint venture, meaning equity method, meaning we recognize the investment in the JV as part of our EBITDA, which makes it a bit complex to report. But the bottom line of KG will impact our EBITDA, including everything which is normally below the EBITDA, like depreciation of finance cost. This will be part of our EBITDA, but we will continue to present quarter after quarter as a stand-alone, the performance of the business of KFG, so that you have full transparency of this result. Again, after 5 years maximum, depending on the decision of the minority shareholder, Taaleem will have 100% of the shareholding of KFG, and it will be consolidated full fledged line by line.

That's clear. And my next question is regarding the dividend policy. You guys maintained a 90% payout now. Going forward, how sustainable is that given that you raise debt and you have -- you need to use your CapEx for expansion. So would you maintain this 90% payout?

We will continue to increase the dividend year after year versus the previous year as we have done so far since the IPO, it was our commitment at the time. Our earnings are still growing. And we will not necessarily fully align on the growth of the earnings. We can be beyond this. And I will stress 2 points. One, from a retained earning perspective, if you project yourself in 5 years' time, we have absolutely enough headroom to continue to grow the dividend. From a cash perspective as well, as you know, we are cash rich. And I'm talking only here of the operations cash, the cash flow from operations, not the IPO cash, which is fully devoted to the growth expansion plan. We have the headroom as well to continue to increase the dividend. So the plan is, as much as possible -- and again, we are comfortable it can happen. We will continue to grow the dividend year after year as a percentage of the share capital.

I have a couple of questions more, but I'll just wait in line, if anyone wants to ask a question.

We have a couple of questions. So there's 2 in the chat box from [ Pratish ]. One of them is, do you anticipate pricing pressure to continue on tuition fees as more schools come in?

Yes. We set our prices -- our tuition fee based on our brand and based on the geographical location of the brand. You'll see that if you are familiar with the company in relation to the Dubai British Schools. And we have Dubai British School Emirates Hills, Jumeira Park, Mira, Jumeira, and they're not all at the same price point. They're around about the same price point, but some are slightly more expensive based on the geographical area. If you look at the performance of these schools and in particular, the recent performance of DBS Jumeira, opening with 500 moving well beyond 800, and Mira, we actually have to close enrollment in Mira as we cap to add 700 students in its first year. So I'm confident that the prices that you see or the tuition fee that you see on the screen, if you can still see it, has been strategically planned and carefully decided by the Taaleem management team for each of the schools, each of the brands and each of the locations. At the moment, we are not seeing intense competition. You're looking at 3 or 4 schools -- 3 to 5 schools opening each year. And partly, that relates to the barriers to entry that still exist for competitors in terms of knowledge of regulation and/or more so access to land that Taaleem have been able to still access due to our strong reputation. So we think we -- our fees are at the right point for each school. And we will continue on a case-by-case basis to increase the fee as ADEK and KHDA continue to give the annual fee increase.

And there's a follow-up question. How has the effective cost -- how has the effective cost of debt changed following the new borrowing for Ghaf Woods School?

So the cost is following, obviously, the market. So we raised debt at EIBOR 3 months plus a margin, which is spread -- the spread that the bank wants to have on its -- leverage, its debt. Fundamentally, our cost has increased over the previous years because of the rate -- interest rate increase, but it's a market trend. It's a worldwide market trend. It's not something specific to Taaleem. Currently, to give you an average cost of our debt weighted, it's 5.37%, which is quite good, with long tenure, some over 5 years, up to 10 years. And again, we have this flexibility that we have embedded in each of our loans with any bank we work with, which is a capacity after 3 to 5 years, depending on the loan to refinance or to repay. So what we want to do is like potentially next year, where we have AED 130 million to bullet to repay. We probably will refinance and capture the decline in the interest rate worldwide that the Central Bank of the UAE is reflecting and the commercial bank as well. And if not, we will see whether we repay a bit or what is the most effective financially way to manage the debt. And I'm mentioning here, I should have stressed one point, which is important. This average cost of debt combined a mix of secured and more and more unsecured debt. And that's why we have, at the same time, a slight pressure on the margin, on the spread taken by the bank. But we try to evolve our debt financing towards something which is unsecured to have more flexibility and more capacity to raise that moving forward, if need be.

That's clear. We have a couple of questions in the queue. One is from Mr. Nitin Garg. You can go ahead. I think you should be audible now.

Yes. Can you hear me well?

Yes. Please go ahead.

Yes. If you can spend some time on each of the 3 schools. First is Lycee Libanais school. Have you been able to increase the fee post acquisition? Because if I remember correctly, the fee in this school was lower and you had a target to increase the fee. Second, as you said, DBS Jumeira and DBS Mira, how are they ramping up in the -- you mentioned you were capped at 700 students in DBS Mira for the first year. So how should we think about second year? Where this cap -- how much this cap will go up from 700? So -- and same for DBS Jumeira. That's my question on all the 3 schools, if you can give us more color.

Thank you. Firstly, if we take a look at the fee, the Lycee is only slightly under Greenfield, and it's -- we are not actually able to increase the fee other than via the annual regulatory increase. Now if the school moved from very good to outstanding, then there is a possibility of a multiplier, but inspections have been frozen for this particular financial and academic year. So it will be the 2.5%, 3% whatever KHDA give us. In terms of DBS Jumeira and DBS Mira. So as I alluded to, DBS Jumeira opened in its first year at 500 students -- sorry, just above 500 students, 550 students and has now moved up by around 300 students. We set a cap on Mira that wasn't the regulator. We felt that 700 new students with x number of teachers and over 1,000 parents, obviously, 1,400 parents in the first year, was enough for our new leadership team to cope with. Remember that the regulator only allowed us to open these schools to year 7 -- year 6, sorry. So you can see that Jumeira has moved up by about 300 students on -- moving from year 7 -- year 6 to year 7. And we would expect Mira to be around 1,000 students in the next academic year on a similar basis. But it's an incredible performance, and these schools will now ramp up as they go up a year group from year 7 to year 8 to year 9 to year 10, et cetera. Next question, please? We lost them? Nada?

Yes, yes. I apologize. Somebody had their hand raised and it was just lowered. So I was waiting -- there we go. Harry?

Can you hear me, okay?

Yes, Harry.

So my first question was just trying to understand like on the government partnership side, I think. Could you help us like -- or share which -- what the revenue contribution was for or how much revenue was generated from PPP, the charter and ESE respectively, please?

Yes. It's -- I don't know if you can see the board here, Harry, the revenue contribution, 84.9 in premium; Dubai schools, 10.4; charter, 1.3; and Ministry, 0.6. But obviously, charter and Ministry, as you know, are PPP management project.

Yes, yes. Yes, yes. No, understood. So that's revenue contribution that's looking at operating -- that total revenue. So is that the [ 1 1 6 ]?

That's operating revenue only. It doesn't include the nonoperating revenue.

Okay. So that's the [indiscernible] of the [ 1 1 3 5 ] figure.

Yes.

Okay. Okay. That's clear. And then on the PPP, I know this has been growing really significantly, capacity in students, but could you share what the student count was or the enrollment in the PPP for 2025, please?

So for the previous year, there were around 3,300 students in the Dubai schools, and that's the real -- the one that's really relevant, Harry. The rest, it's really immaterial to the management. I mean, there is a multiplier on the success of the KPIs. But we've moved from 3,300 in the analysis of Q4 that we're looking at today. And as we move into Q1, you'll see that figure is around 4,400.

Okay. Yes, that's growing really fast, maybe at like 30% or so.

Yes. But it will actually grow faster because Dubai Schools Barsha and Dubai schools Khawaneej were built and before the opening of this new academic year, the other extensions. But for the opening of the next academic year, Dubai Schools Nad Al Sheba will also go to, say, around 3,500 students enrollment capacity.

Yes, yes. So current capacity for this year for Khawaneej is 2,000, is that right? And then it will get to 4,000 or?

No. Forgetting the analysis that we're looking on, Dubai Schools Barsha is around 3,500. Correct me if wrong, Arnaud. Dubai Schools Khawaneej capacity is now built for 3,500 also. Nad Al Sheba was only built for about 750. But the end of this financial year, not now, but at the end of this financial year, that school will also be open to around 3,500.

End of 2026?

Correct.

Okay. Okay.

You won't see that massive ramp up on our side because this -- the regulator is controlling that. We can only go from -- I think, they're in Grade 8 now moving into Grade 9.

So utilization levels should remain...

Fairly challenging.

Yes, like in the sort of 40% -- maybe 30%, 40% level, overall?

Yes. But I mean as you see on 2 of the ramp-ups, we've managed to put 1,000 children. And so we are trying to put as many children in as we possibly can. And that's based on demand from the Emirati community. It's absolutely -- the waiting list to get in the school are huge.

Okay. So it's just a regulated amount that you can enroll?

Yes, that's the basically year 8 moving into year 9, moving into year 10. It's actually great because it's the American curriculum.

Okay. Okay. Great. And then my final question was just related to the strong premium schools EBITDA margins. I sort of expected those to be, to maybe see a little bit of a dip in this year relative to last year. And like it was -- it was quite a muted dip. So I just wanted to understand if there's anything else we should -- I would have expected maybe because of the guidance that to go down a little bit more. But is there anything that you've done to mitigate that? Is that why the margins have been a bit more resilient? Or was the kind of the ramp up better than expected on some of the newer schools?

So we had a slide where we showed you Dubai DBS Mira, DBS Jumeira and Raha Khalifa City ramp-up. And basically, Harry, we -- as you know, we business plan for a bit of positive by, say, year 2 and net profit by year 4 or 5. The impact of these schools doing very well in terms of enrollment, at say, 500 moving to 800 and 700 in the first year, has helped Raha Khalifa City, as you know, built for 3,000 students, is ramping up. So although this will be the first ever diploma phase students, it's actually in the bottom year groups, the KG, the Grade 1, Grade 2 that's actually moving through. So as Arnaud highlighted, there are strong inflationary pressures on our teaching costs. We -- our parents are absolutely delighted that our teacher attrition is down at 10%. It's great for academics. Your Math teacher stays with you, et cetera. But as Arnaud pointed out, it does help us in terms of cost to have a churn. But basically, our premium schools are performing extremely well in terms of not just academic performance, but also cost. But in Dubai schools portfolio, where these schools are mid-market schools, the high ramp-up in there is impacting the EBITDA margin because we are having to staff American teachers in a mid-market school. And it's only when these schools, and none of them are there yet, get into the 2,000-plus enrollment that the EBITDA margin will improve in these schools. And therefore, although you're seeing a strong EBITDA margin in the premium and given all Arnaud's points, it's really impacting the Dubai schools portfolio at the present time. And that's just about the relationship of revenue through school fee to the cost of running a school. And in the mid-market, when you get 3,000, 4,000 students, it all works out. But when you're in the 1,500 students, it's putting a bit of pressure on the overall EBITDA margin.

Got you. And you shared guidance for the EBITDA margin for Taaleem only. If we were to think about, is that's just the premium schools? Is that -- would that follow a similar kind of development or is the premium EBITDA kind of a bit more stable?

It's fairly stable. I don't want to underplay the points that Arnaud made in the pressure that, that's putting on us. And I also don't want to underplay what you're staring at here, which is how fast we can get the DBS Jumeiras, the DBS Miras, the Harrows out of the J-curve because that's real. You do have high start-up costs both in staffing. And then you've got things like Raha Khalifa City moving into diploma phase, where you need a lot of expensive chemistry, history, geography teachers as you move into your secondary schools. So there are pressures. But as Arnaud said, maintaining 28% to 30% is doing extremely well. And some of our schools are above 30, where they're fully matured, and they have a good revenue stream from a reasonable fee point, where schools are at various stages in the ramp-up, and that might be the initial 2 to 3 years or that actually might be when the schools move into the A level and diploma phase, then there's a bit of pressure on our EBITDA margins.

Very clear. And just a final follow-up on that. Is there any assumption for a student-teacher ratio, which I think is about 13.1 at this point in time. Is there any assumption of that increasing or is the assumption that stays pretty flat?

We're trying to keep it flat, Harry. Just so everybody on the call knows, the KHDA brought in an Arabic regulation, and that's some things that we don't always see and we had to put more Arabic and Islamic teachers into the early years of the school. And depending on the demographics of the school, i.e., how many students are Arabic passport holders and how many study Arabic as a modern language, it differed. The impact on each school differed depending on the extent of the Arabic population, student population in that school. But as a target, 13 to 1 is something that our premium schools are working on and slightly higher in the Dubai schools and slightly lower in Harrow.

And it's the same like the tuition fee or other elements that you mentioned, Harry, which is the fact that it depends on the cycle, where the school stands in the [indiscernible] sorry. And as we open new school every year, sometimes 2 schools like next year, for instance, we -- or in 2 years' time, obviously, the STR, the student to teacher ratio will evolve differently and probably be lower than what -- where it could be compared to a mature school. So you should not, I will not say pay too much attention. Obviously, it's an important KPI, but it needs to be looked at as a trend and not on a spot -- as a spot element of your analysis.

Got it. Okay. And the EBITDA margins you're talking about here in the guidance, this is as a percentage of operating revenue or percentage of total?

Percentage of total. We will define them, obviously, quarter after quarter, so that you get a better or even better understanding of where we go.

There are currently no more questions on the line. So I'll hand it back to the management team for any concluding remarks.

Well, first of all, thank you, Nada, again, to EFG Hermes for hosting our call. And thank you again to all of you and as investors in Taaleem. And I will repeat, on behalf of the Taaleem Board and the Taaleem management team, that we are, a, extremely positive about our Q4 results to close the financial year, but also to highlight that it's been an extremely successful academic year for our schools. Our U.K. exam results, as an example, were the strongest that we've ever had. And looking forward, we are excited to bring Kids First Group into the organization, the growth trajectory of Kids First Group is extremely exciting, and it will add positively to our EBITDA margin -- to our EBITDA, sorry, and to our net profit. And also, I'm really pleased with the progress of Harrow, and to announce yet another U.K. curriculum premium schools. So the future is looking very encouraging, and we look forward to presenting to you at the end of Q1. Thank you for joining the call. [Foreign Language]

Thanks, everyone, for dialing in. This concludes today's call. You may now disconnect.