Taaleem Holdings PJSC (TAALEEM) Earnings Call Transcript & Summary

Hello, everyone. This is Hatem Alaa from EFG Hermes and welcome to Taaleem Holdings 9M '23-'24 Results Conference Call. I'm pleased to have on the call today from Taaleem, Alan Williamson, CEO; Arnaud Prudhomme, CFO; and Nora Ghannam, Senior Manager of Investor Relations. We'll start by a presentation from management, and then we'll open the floor for Q&A. [Operator Instructions] Please go ahead.

Thank you, Hatem, and thank you once again to EFG Hermes for hosting this third quarter results. As stated, I'm joined by Arnaud, CFO; and Nora, our investment manager, and we would be delighted if after the call, if you have any queries or questions, please e-mail them direct to Nora. And so another very successful quarter for Taaleem. We're really, really pleased with our results and why I want to focus on as we look across the financial highlights is the year-on-year improvement, which we are particularly pleased with. A quick reminder to all who listen and increasingly understand the education business. The 9 months results are always, well not always, they're positive because of good performance, but just a caution that we run with 10 months of revenue and 12 months of costs. Despite that, the financial highlights are there to see increased revenue year-on-year, increased EBITDA year-on-year, increased net profit year-on-year and the deployment of CapEx in relation to delivering our strategy and reinvesting in our skills. The revenue obviously related to a substantial increase in enrollment as well as the increase in Premium Schools, we have 6 PPP added to our portfolio. You will see the total capacity has increased with the new ESE skills. Delighted to show that increase in capacity utilization, and I will drill down later into the Premium Schools where, as you know, 90% of the revenue comes from and is the key to our profitability. So thank you, Nora. If we go on to the next slide. I just wanted to look at the big picture in the UAE particularly for new investors who are tuning in today, there is an incredible enrollment increase in Dubai and also across the UAE with the population boom. Even if you just take the previous year, 40,000, which is incredible, 40,000 new students moving into Dubai. If you look at the relationship between the private and public sector and UAE, you will see that there has been a dramatic shift in both the number of students and the share of students in the private sector. And then government expenditure shows the level of investment that our government are putting into the education sector and we have seen that come out in particular in our public private partnerships. Another slide that many of you have seen before, but it relates both to our -- where we operate, but also in relation to our strategy, and we'll be announcing really big news on our strategy today. I'm sure if you're tuning into the twin growth story, you will captured that already in the media. What I want you to focus on in the outstanding schools, the very good schools and the good schools is the average price point of competitors. If you look at the outstanding schools, you will see that they are closer to Jumeira park, which went up this year to expanding. If you look at the very good schools, you will see that we're operating best value within the Premium sector. And even in the good schools, we're operating in a very, very accessible price point for a population that is rising both in terms of it's ambition and its aspiration. Many questions have came in from investors about the flood impact in the UAE. We have came out of it fairly well. The overall impact is around the AED 2 million price point. If you look at the operational impact around AED 1.95 million. The CapEx impact around AED 1.8 million, but the insurance coverage is TBC, but fairly confident that it will come in around that position. So given the extent of the damage and given my relationship with other CEOs in the region and indeed beyond, we've actually came out of that in a good position. Just to highlight, again, if you're new to the investor call, we mainly operate in Dubai and Abu Dhabi and our Premium Private Schools are focused there with our government schools in Abu Dhabi with the charter schools in the Northern Emirates with the ESE schools. A couple of statistics in relation to the market share, we have 27% share of the very good and good rated schools and our price point. So in that Premium rectangle that I showed you previously, and we have 10% of the 21 outstanding schools here in Dubai. And what's -- why you're staying with DBS Jumeira Park and DBS Emirates [ Hills ] being outstanding that we are actually the only group with all our sister schools rated outstanding and indeed, yesterday, in the Arabian Business magazine, which is a very, very high regarded REIT here in the business world. And Dubai British School, Emirates Hills in Dubai, which is called Jumeira Park were rated as 2 of the top 3 schools to be in Dubai in relation to rating and geographical area. So we're delighted to have 2 of the top 3 outstanding schools. Capacity utilization at a group level, I'll break this down later and in the Premium level, considerable improvement 9 months-to-9 months, 84% to 88%, and that's despite getting 6 new ESE schools, a substantial progress in relation to blended capacity utilization. And again, if you look at the enrollment curve, you'll see a substantial increase in capacity and closing capacity utilization over the past 3 to 4 years, very successful track record. In relation to our strategy, delighted to report again that we are on track in September 2024, greenfield expansion, the expansion of existing capacity in greenfield school, [ IB ] International School of the Year and the school has moved recently from good to very good. DBS Jumeira will open. I'll spend more time on later in the call and on track with our two super Premium Schools in 2026. and the fourth DBS in Mira. And you'll see that we're really focused on developing within the Jumeira catchment and the Arabian Ranches catchment moving towards South Dubai and capturing that population growth and shift. So after investor call -- after investor call where we have been asked what will be our new Super Premium U.K. school, we are very proud to announce a partnership with Harvard School U.K. I think for those of you who are familiar with education in the U.K. When you think about the top universities and top schools, it trips off your tongue that it's Oxford and Cambridge and Eton and Harrow. So we are delighted to bring undoubtedly, the top school in the U.K. to the UAE, and this has reached real headlines across the whole of the UAE with one headline saying that this is the biggest news -- the biggest educational news in the UAE for a decade. And the excitement already around Harrow School coming to the UAE as being significant. Of course, it's wider than that. In terms of our strategy, we have agreed a partnership with Harrow School for the whole of the GCC. I know that may lead to some questions. And our focus at the moment remains on capturing the incredible opportunities here in the UAE. Harrow has a incredible history from 1572, fantastic academics, known for its success in the political world and the world of the expressive [ arts ] with lots of -- and film stars coming from its alumni and also in sport with still, I think, four or five of the present English rugby team. including Maro Itoje, who is [ Peruvian ] fan. In terms of notable alumina, seven U.K. Prime Ministers have came from Harrow. We don't necessarily need to highlight Harrow to talk about excellence. Our present portfolio continues to deliver excellence across all of our schools without exception. We've won so many awards this year, DBSJP as well as being outstanding also picked up Expressive Arts School of the Year, sports school of the Year and Foundation Stage Team of the Year. And I just used that as one example across our portfolio, right now in Helsinki in a major football tournament in the world, we have [ eliminated ] playing the top schools in the world. I'm going to pause there and hand over to Arnaud to continue the celebration of financial performance.

Thank you, Alan. So a couple of words about the 9 months period with a comparison with the same period in the previous financial year. So as mentioned during the highlights, we have had solid financial performance year-on-year with double-digit growth across main KPIs. As you can see, the revenue have grown by 15%, the EBITDA by 27%, and the net profit pretax by 39%. The CapEx has started to be deployed more actively versus last year just because we execute the strategy. We'll go back to this slightly later. In terms of balance sheet, we have a sound balance sheet, very well positioned to support the growth and the expansion of the business. Our cash and cash equivalents has grown dramatically versus last year during the same period just because we transferred in fact, part of the Wekala deposit to cash [indiscernible] to fund the expansion. And because as well we are a business which is by construction, generating more and more cash as we generate more enrollment into the schools. The total debt has increased because we moved from the situation where we have virtually deleverage fully the balance sheet at the end of August 23 to again taking debt on the balance sheet on purpose to fund in that case, the construction of DBS Jumeira. The net fixed assets have grown as well quite substantially. It's related precisely to the execution of the strategy, mainly DBS, Jumeira and the expansion of GIS, but as well the investment in light CapEx. CapEx Investment, books and equipment into the Dubai private school -- Dubai, sorry, school portfolio. Finally in terms of cash conversion cycle, which is the free cash flow to firm and the EBITDA, it means that any time we generate AED 1 of EBITDA, it creates free operating cash flow at the level of AED 20 or AED 19.1, which is as well an increase of close to 10% versus last year. Having now a quick focus on the top line. So the revenue has grown by 15% year-on-year, it's -- and this growth can be attributed to the two verticals, through record-breaking enrollment numbers and enhanced utilization of the capacity across the two verticals. For the Premium School, we moved up from 75.5% to 83%. And also, we benefited this financial year from the fee increase coming from two sources. One is the regulatory fee increase that we applied to the portfolio at the beginning of September last year. and because we have more and more students moving upgrades, especially in the secondary. So all of this brought as well an increase of the revenue. This translates into the contribution of the two verticals, which is close to 11.5% of the total revenue, operating revenue by the PPPs and [indiscernible] bulk of the revenue, obviously, is coming from the 10 Premium School 87.5%. The average gross tuition fees, as you can see on the right-hand side, has increased as well because, again, we have more students, we have increased the fees and we benefit from the promotion from one [indiscernible] to another. Looking now at the EBITDA. So a strong EBITDA growth, as I mentioned, close to 27% year-on-year as we [indiscernible] on AED 39 million. It's attributed or can be attributed first and foremost to the Premium School portfolio where there was reached close to 22%. But as well, the PPP has known some growth through additional enrollment with now a contribution to the EBITDA close to 8%. The growth is supported obviously by the revenue upside, but as well by a [ type of ] management and a strong working capital management as well, which leads to ratio of operating costs and G&A to operating cost precisely, which is as shown here, decreasing. So it shows how we are tied to, cost base is managed. This translates ultimately into an expansion of the EBITDA margin from 37% to 40.8%, which is the first time we crossed at the group level, the 40% mark. Again, as stressed by Alan at the beginning, it's for 9 months. So as you know, we recognize from an IFRS perspective, from an accounting perspective, to recognize the revenue only on 10 months and the cost on 12 months. So you cannot draw any conclusion for the full year based on the 9-month result. Moving now to the income statement highlights, I am not going to come back on the revenue, the profit and the EBITDA. I just look at the net profit before tax on the right-hand side. As you can see, it has increased strongly by 39% at AED 278 million. And even though we have had the impact of higher lease FRS charges of additional depreciation in relation to the CapEx expense. And this has been offset by -- almost offset by the finance income, which is strong, given we are deploying the funding raised during the IPO. So we benefit from net profit after tax, which has grown so dramatically -- before tax, sorry. After tax, the tax [ operation ] currently close to AED 52.4 million of expense of charge leading to a AED 225 million post tax net profit, which is again a quite strong increase versus last year. On the balance sheet, we have a balance sheet which confirm its soundness. We are in a strong position to support growth, as you can see on the different elements. The total debt has increased by EUR 77.7 million just to fund the expansion, the construction of DBS Jumeira. The net debt, the negative number is reduced and it's reduced because of different movements. We have increased the debt. We have slightly less cash because precisely we use part of it to fund the construction of the news school. And we have increased as well the respective cash, which is the cash which is deposited from the PPP's program in total to manage the operation on a daily basis. The CapEx has grown dramatically, as you can see, especially the expansion CapEx. And again, it reflects the construction of DBS Jumeira and the expansion of JIS. Finally, in terms of lease liabilities, the main change is driven by the fact that we have signed a lease in December '23 to be able to construct to build a super Premium School in Dubai. Finally, a word on the cash flow. So the business is continuing to generate by construction a strong cash flow and it's very resilient. As you can see, the cash balance movement has increased during the period from AED 200 million to AED 258 million. This is mainly driven by the high cash flow generation. But as well, as you can see by the deposit and the interest burn on the deposit by the fact that we have borrowed some money, again, to fund the construction of the school. On the other side, you can see that it reflects the fact that we have spent in terms of cash flow, the CapEx for the dividend and for the new additional lease payment or for the lease payment until for the 9-month period, AED 18.8 million. The cash conversion cycle, I mentioned this, again, AED 1 of EBITDA is translating into close to 20 Fils of free operating cash after cash spend and maintenance CapEx in cash. I pause here and give back the floor to Alan to go through the segmental performance of the business.

Thank you. And I will focus in the presentation on the Premium Schools. And when we post our presentation on the website in the appendix, you can take a closer look at the public private partnerships. But just to pause on the Premium Schools again, adding to Arnaud's story, a very, very strong performance, enrollment capacity utilization shifting from 75% to 83% in the most profitable segment vertical of our organization. As Arnaud alluded to and has always been part of our strategy and something we've answered questions on a number of occasions. Our average fee is moving up as we close capacity utilization. So you'll see a shift in average fee from AED 57,000 to AED 50,000 or almost AED 60,000 as the students move into the older year group. And Arnaud has deep dived into a EBITDA and CapEx as we deliver our strategy and reinvest in our Premium Schools. In terms of curricula, we are celebrating across every part of our Premium vertical. Our British schools, as you are aware, are already at 100% capacity utilization, and that is why our strategy will put four more U.K. schools, three into to Dubai and one into Abu Dhabi. And our IP School in Abu Dhabi, of course, is relatively new Raha, Khalifa City, but an incredible growth there of 400 students. And indeed, in our IP schools in Dubai as JBS and GIS move towards capacity utilization and additional 500 students. And in many ways, the one that I would like to celebrate is the growth of 100 students in the American Academy for Girls. Remember, a bespoke Premium boutique school for Emirati girls with an Islamic American education. In relation to capacity utilization, worthwhile just reflecting back to the acquisition of Jebel Ali School and seeing where we were previous to that in '21 and '22 and then reflecting on where we are today. So on the acquisition of Jebel Ali School of 5,400 student capacity utilization gap and we've closed that to under 3,000. So tremendous performance by our principles and our central office team in relation to closing capacity utilization, increasing revenues through improved enrollment. Okay. And trying to reflect on our strategy and moving forward, these are the five parts that drive our strategy. They have been part of our declared strategy since pre-IPO and after IPO. Expanding the portfolio is a tick. It's on track for premium -- Super Premium Schools, adding around 8,000 seats over the next 2 to 3 years. Adding new capacity to existing schools, the delivery of 500 seats in the highly successful Greenfield International School, ramping up utilization with utilization in our Premium sector moving from 75% to 83%. And the announcement in this quarter of 9, 6 -- sorry, ESE schools, adding to government partnership. And a deep dive in acquisition in a second. Thank you. So again, a summary of where we are greenfield plus 500, DBS Jumeira plus 1,900, DBS Mira plus 1.8 and our two new schools, which we've declared our partnership with Harrow across the GCC. We have the land secured in Abu Dhabi, the land secured in Dubai, and now we need to push for regulatory approval for these super Premium Schools, now that we have announced the partnership. Thank you. DBS Jumeira on the water canal, again, lots of fantastic media and social media attention on our state-of-the-art school on the water canal, the architecture adding to the backdrop of Dubai's Downtown. As you move forward, please you'll see state-of-the-art facilities for sports, for the Expressive Art, for the early years and for the health and well-being agenda of our students. We targeted to get around 300 students into the school for the year ahead, the best performance from a Premium or Super Premium so previous to DBS Jumeira in Dubai have been around 250 students. And we have already today significantly exceeded even our own stretch targets on admission into DBS Jumeira. In terms of ramping up our utilization. As a public company, we believe in transparency. We believe that you as our shareholders are also stakeholders and we need to and enjoy in deeply engaging with you. And we would like to look at capacity utilization in terms of moving forward. And you can see the success of Gardens and Abu Dhabi of Greenfield here in Dubai and Jabel Ali. Significant improvement and profitability in these three schools. Looking forward, we will close in the next 2 to 3 years, capacity utilization in JBS. As I said earlier, we are actually super proud of the performance of the American Academy for girls given that it is only a Girl School, mainly for Emiratis and mainly for premium -- the premium Emirati community. So actually, a rise of 100 seats in that school is a really significant performance. And in relation to uptime, the appointment of a new principle there has seen a real improvement in the academic and enrollment and profitable performance of the school. In relation to a frequently asked question and in relation to our M&A strategy. We have two exciting opportunities from many IMs continue to come across our desk and be evaluated. And as we move towards due diligence that does not mean, of course, the result of that due diligence will lead to acquisition. Often the due diligences can lead you away from an acquisition, but we are moving forward towards M&A transaction that meets our criteria of unlevered IRR around 15% or more and a payback period of 10 years. We have a variety of [ IMs ] on our desk but we need to be ensuring that these acquisitions fit within our strategy and that they will be value-accretive, that they will fit within Taaleem's portfolio and/or add an additional vertical that benefits Taaleem's portfolio. Thank you. I'll hand back to Arnaud before I have a final work in relation to our overall company-wide performance.

Thank you, Alan. So this board is showing the actuals after 9 months this financial year 2024. And on the right-hand side, it is to serve forward guidance for the full financial year. I will focus on the group-wide revenue -- the consolidated results, sorry, not spending too much time on premium and government partnership. On the consolidated level, as you can see for the enrollment growth and the revenue growth, the numbers are not so different of the 9 months number that might be slightly up because usually in May, June, we have additional students enrolled in our school, mainly in early years so that can move up again the enrollment number and the revenue goals. In terms of EBITDA, we are very pleased that we will be able to achieve AED 162.5 million. You might remember that in the previous financial year, we were at AED 205 million. And as well in terms of margins, this is quite a strong expansion of the margin close to 28%. We were close to 25% in the previous financial year. The CapEx, you might consider that before between the 9 months and the end of the year, there is a big jump. Yes, it is. It's because we are deploying actively the equity raise and the cash available to fund the four Greenfield projects. So DBS Jumeira that is nearly done, but we have DBS Mira progressing. [indiscernible] the construction is moving up. We have as well, we are working as well on the two super Premium School and we have done the design of all other things. Free cash flow. So we moved from 19.1% of the EBITDA, which will be at the end of the year at a much higher level, 84% of EBITDA. The reason of this change is the fact that we start collecting now and it will accelerate the fees for the next financial year, the next academic year. Finally, net debt to EBITDA will remain in the same kind of parameter negative given the level of cash we have and the fact that we don't raise that when we funded it. So as much as we deploy the capital and execute the strategy, we continue to [ revive ] portfolio.

Thank you, Arnaud. Thank you. So thank you for joining us on the call again, and it's really been a celebration as we announced another set of strong financial results and celebrate our strategy being very much on track. And I will hand back to [ Hatem ] and as always, Arnaud and I would be delighted to answer your questions and/or please send them to Nora and she will pass them on to us, and we'll get back to you. Thank you. [Foreign Language].

[Operator Instructions] We have a few questions in the chat. Question from Zohaib [Kargaz], will Harrow follow a similar model as in the U.K. being boarding school for boys only.

Thank you for the question. No is the answer to the gender part of that question. Harrow actually, one of the reasons we chose Harrow above several English independent schools that we engaged with in relation to opening the next part, the next best school in our strategy was that Harrow had experienced -- several experiences in the international sector, just about to open in Manhattan, opening in Tokyo and several schools in the far East. So Harrow International School will be a mixed gender school, and that would be the case subject to regulatory approval opening in Dubai and Abu Dhabi. We are presently 2 years away from opening these schools, and we are evaluating the possibility of Boarding. And however, in the first instance, remember in the UAE, the regulator will only allow us to open these Harrow schools to around Grade 6 in the English system, I think that's Year 6, Year 7. So they certainly will not be boarding schools when they open in relation to child protection, safeguarding, et cetera, I would be against Boarding children below the age of 14.

I will add something, Alan, which is the fact that it's got nothing that this school that we will develop in the UAE will be exactly the reflection of the ethos of the Harrow mothership. The educational framework will be the same, obviously, adjusted to take into account and reflect the regulatory framework with UAE. But in essence, when you will have a child schooled in one of our Harrow school in Abu Dhabi or Dubai, they will receive exactly the same education in terms of quality, in terms of diversity, in terms of everything you can imagine, than if they were schooled in [U.K. or Britain ].

A question from Nikhal Aurora also on Harrow. Can you please tell us whether the two new planned schools, one in Abu Dhabi and one in Dubai, would be Harrow Schools or is Harrow an incremental opportunity beyond the four announced expansions? And is there a time line target set for expansion under this agreement, which is expanding in the GCC countries?

Yes, great question. And the process for opening a school in Dubai and Abu Dhabi is actually very similar, you approach the regulator, which is ADEK and KHDA and you submit an academic and business plan. So although we have the land secured in Abu Dhabi and Dubai, and although we have started the process that I have just alluded to, until we have full regulatory approval as, for example, we have for DBS Jumeira and DBS Mira from the regulator. I can't announce officially that Harrow in Dubai and Abu Dhabi will be opening. But the plan, the strategy is to open Harrow Dubai and Harrow Abu Dhabi in 2026. And in relation to that time line, including regulatory approval from ADEK and KHDA, we are very much on track. The design of the school, including the Harrow standards has been ongoing and for a number of months. And so the architectural and educational design of the school is already underway. In relation to the GCC, the question is correct. We now and are very excited by the fact that we have the right to open a Harrow beyond the UAE. So Harrow Qatar, Harrow Doha, Harrow Riyadh, Harrow Jeddah. These are all possibilities. But the immediate focus of our strategy that we set out in our 5-year plan is to take advantage and benefit from the fantastic opportunities that are available in the UAE at the present time.

Thank you. We'll take a question from [indiscernible]. What was the revenue contribution for the Dubai PPP schools in the 9 months? Is it higher or lower EBITDA margin than the Premium schools. the school EBITDA margin that is closed. Separately, you don't find acquisitions that make sense over the next 12 months, what will we do with the cash?

I'll cover the first part of that. And in terms of revenue, I said 90%, 10%, Arnaud corrected me and gave the exact distribution between the Premium and the PPP. And I think the specific question was in relation to the Dubai schools partnership, and I think, we don't have that on hand we will certainly pick that up on e-mail and get that to the question up. In relation to the second part of the question, Hatem remind me, please.

The second part is, if you don't conclude [indiscernible] contract in the next 12 months, what would you do with the cash?

Okay. So as you know, we are -- and it's -- we've been fairly -- we'll be very transparent with the -- with the investment that will go into the 4.5 schools, we've given a fairly good indication of the sum of money we're spending on Greenfield in relation to DBS Jumeira and DBS Mira. These are investments at least around AED 200 million mark when you take the whole investment and not just the cost of the building and AED 300 million into our two Super Premium Schools. If an M&A opportunity does not come to pass, then we already have a strategy for 2027. And in relation to further Greenfield investment. That stated, I think everyone on the call will be experienced enough in the financial world to know that if you invest money into a full due diligence of an M&A transaction, it gives an indication of the seriousness of Taaleem's management, Taaleem's Board in relation to tent on acquisitions. So we are currently pursuing opportune M&A transactions that will be value accretive to me.

Okay. We'll take a question from the line of Musa [ Haslani ].

This is Musa [ Haslani ] from [indiscernible] investment companies. Regarding the house schools, I'm wondering here how the profitability in the [ GCC ] compared to UAE and what is the expected capacity in the Harrow School?

What was the expected capacity of two schools, right. Okay. So yes, you can see the expected capacity 1,800 plus students in Abu Dhabi and 1,800-plus students in Dubai. Again, at this stage when you -- when we are designing the schools to at least take the students, sometimes the regulator will look at traffic impact studies. It may be that we can bring a few more students into this, but we don't want this school given that Super Premium to not have the feel and the values of a Harrow School. Harrow set and we are fully aligned with them, very particular educational standards that Arnaud mentioned them in relation to, say, class size and specifics around the design of the school in relation to the expressive arts, science, sports facilities, et cetera. In terms of profitability, we will obviously be targeting a strongly profitable schools. In terms of margins, not significantly above the profitability of our Premium School. But if anything, it will move in that direction, although we will be cognizant as Arnaud stressed to ensure the best leaders and the best teachers in the world, not just in Dubai and Abu Dhabi come into these schools to deliver the quality that we expect. That was the question. In terms of the GCC, what was question? Yes. Of course, our price point in relation to GCC and profitability. In general, the Super Premium fee in relation to Abu Dhabi and Dubai will mean that we can have a cost structure that delivers that quality. One of our questions, if you like, on our risk assessments before we announced moving into Qatar or KSA will be whether we can deliver a Super Premium School at this price point and deliver the cost structure that still allows us the expected returns that our shareholders and [ indeed ] Board and indeed our management team expect from any school.

I'll take a question from Shankar in the chat on the Super Premium Schools. Will the CapEx be similar to the guidance at the time of the IPO of around AED 180 million? What will be the fee range? And are the royalties to Harrow on revenues or some other metrics like profits. There is also a question similar [indiscernible] because they're linked from Ali and [indiscernible]. Can you share some high-level terms of the agreement with Harrow with regard to the economics on revenue sharing, royalty management fees and CapEx sharing, if that is okay.

Okay. And so the first part of the question is around fee structure for these schools. As you see, hopefully, still sharing your screen, the Super Premium Schools in Dubai that presently exists and Abu Dhabi operate and as an average fee around -- between the AED 90 and AED 100 price point and our Harrow schools will operate within that price point and will aim to be the best schools in Dubai and Abu Dhabi. That will be our mission to deliver the best schools and the highest quality of educational outcome. In relation to the specifics of the legal and financial agreement reached with Harrow, we're not willing or able indeed to give the detail of that, All I can say is that there is a market standard for this. There are many Super Premium Schools, not quite the price -- not quite the reputation of Harrow, but you have Cranleigh and [ Reigate ] and North London Collegia and we are very, very aware managers and this sector of what -- the financial and legal expectation is, if you like, market standard, and we have not went above market standard in any way, in our relationship with Harrow.

Maybe I can add on the CapEx and the profitability for this project Super Premium School. On the CapEx, obviously, the numbers are significantly higher than what we usually have as a reference point for the Premium School. Why? Because the facilities. Because the size of the school. Because different elements leads to something around the 300 mark. You need to take into account as well that this school are planned to open in '26, meaning we are impacted by the inflationary pressure on the side of the construction. So we have factored this in our plan. And obviously, a couple of years ago, it was not necessarily the exact assessment we could make of the market because market was quite different. In terms of profitability, it's a different, slightly different model than the Premium Schools. Why? First, your fees, I expect by [indiscernible] are higher. But at the same time, your cost base needs to be higher because the profile of the education team is different. It's more experienced and usually come from a different sources or environment. The second thing is in terms of enrollment ramp up, we are more cautious because we don't believe it will be as strong or necessarily as strong as in the Premium School. At least on the business plan, we are more cautious. So practically, it means that versus a Premium School, which is usually EBITDA positive in year 1 of its operation year, you will need to wait 2 or 3 years to be at EBITDA positive. And in terms of net profit, given the size of CapEx. Obviously, it will take a bit more years to get on the profitable side. So probably 6, 7 years, depending all of this of the enrollment and our capacity to attract sufficient growth of students with different grades.

We'll take a question from the line of Nitin Garg.

A good set of numbers. My first question is on the new opening Jumeira school, in September 2024. So you mentioned the capacity is 1,900, and you expect 300 seats to be filled. So I just wanted to ask up to which grade you have the approval, and how many grades you are opening in the first year. and how it will be ramped up to further grades. My second question is, as you mentioned, your DBS is fully utilized, 100%. Do you have any room to do some brownfield expansion at any of the campus, like the way you did in GIS, you added 500 seats, which are set to open this year. Yes, these are my two questions.

Thank you, Nitin. In terms of DBS Jumeira, I said that the best school that's opened recently, opened at around 250. We targeted to be above that at 300, and we have already performed significantly above that. So we have go after flying staff. We could not be more delighted with the enrollment in DBS Jumeira and we will significantly exceed our target. The school is open from FS1 at the English system, which is KG through to year 6, which is primary. So the regulator approved the opening of primary to year 6 and then we will move to year 7, 8, 9 , et cetera. So a tremendous start in DBS Jumeira. Regretfully, the answer to question two, is despite as many visits as we possibly could make with as many architects as we could possibly gather, in relation to at Jabel Ali School in Dubai. British School Jumeira Park in Dubai, British School Emirates Hills. We can't do additional brownfield. And however, we are opening DBS Jumeira with hugely with successful enrollment. And if anything, we think the enrollment in DBS Mira will be even better, especially given the colored population and economic situation in Dubai.

Okay. Thank you, understood. One more question. I mean, if you can spend some time on Abu Dhabi market, if I remember, during our last conversation, the fee escalation, which was approved by regulator, was much lower than expected. So how are the dynamics in Abu Dhabi market.

Yes. Actually, the fee increase was almost identical to Dubai, 2.5% against 2.6%. So no real issues in relation to that in terms of Abu Dhabi and Dubai. We are actually seeing significant growth in Abu Dhabi. I actually read on Arabian business that the professional Expat entry in Abu Dhabi is actually exceeding expectation. You look at the developments on Yas Island, on Saadiyat Island and the significant fellow communities coming up there. Our competitors, but an organization that we work in partnership with [ Aldar ] Education is doing extremely well in relation to growth -- so all of the projections in Abu Dhabi are very positive tick, for example, the significant growth in enrollment in Raha Khalifa City for us, we are performing way above the business plan and 400 additional students in Raha Khalifa City. So if anything, we are as excited by the growth of Abu Dhabi as we are of Dubai.

I'll take the last question from -- a follow-up question from Nikhil. Can we please update on the CapEx requirements? How much has been sent and you're thinking about 2025 and 2026. How much -- second question is how much the increase on average are you targeting for the upcoming year considering KHDA announced 2.6% fee increase and the movement of the overall student body towards higher classes.

Okay. Arnaud will give us sort of rough indication to see hands on previous calls around CapEx. In relation to fee increase, look, previous to COVID, we saw annual fee increases around the average 2% to 3% that we saw this year. 2.5% and 2.6% across the cities this year with the escalation if your school moves from good to very good, very good type standard. Look, I don't think we can sit here with a crystal ball and say that, that will continue or indeed not continue. There is a an ECI, an educational cost index that is transparent and the regulator publishes that on an annual basis. So we have no indication that, that won't continue. But again, we don't have a crystal ball on inflation. And I'm guessing people on the call have as good an idea if not better than me for certain in relation to predictive inflationary pressures moving forward.

So in terms of CapEx, if you look at 3 years from '23, '24 to '25, '26, given this is a period in which we developed the full benefit in which as well, we continue to invest in the Dubai PPP program. In which as well, we continue to invest in our existing portfolio. So for the expansion CapEx, if you take only this one, on average, we will spend AED 450 million a year. Maintenance CapEx will stay around the same level at historically between 2.6% to 2.7% of the operating revenue, up to 3% a year.

There is a slide Arnaud, if I can just come back in on the fee increase, and it was the slide that shows the average -- the average fee across our premium sector. I feel that Arnaud and I stressed that fee increases are the icing on the cake. It was in the premium sector breakdown. And you will see that because our students and the existing capacity are getting older. And because we have a double multiple in fee in most of our schools between KG and Grade 12, there is, if you like, an in-built profitability and efficiency with our students getting older and moving to the year group. Now, we still have capacity utilization. And as we open all of our schools as pointed out, whether it's Raha Khalifa City, whether it's DBS Jumeira or whether it's DBS Mira you will see this continued as students move into older year groups.

Maybe we'll take one last question from the line of Harry Wilson.

We can't hear you, Harry.

Congratulations on the really strong numbers. And I know there's been lots of questions about different things. I just wanted to firstly touch on the CapEx, which you've talked about at length. But just to clarify, is that the AED 450 million, the expectation is about AED 450 million for '25 and '26, each.

Sorry to interpret you that is the average since '23, '24 up until '25, '26. So if you take these 3 years, we have this average of AED 450 million, in reality next year, this is the peak of the CapEx with close to AED 640 million. Why? Because we are preparing -- we are opening in Riyadh. We are preparing the opening of the two Premium Schools. So the construction work will start at this period.

Okay. So you think it could be around AED 600, AED 650 in 2025, which would capture the -- would that capture just the Premium Schools -- sorry, the Super Premium. Would Mira mainly the CapEx reflected in this current year? Or is that not the right way to understand it?

No, part of the CapEx related to Mira will be spent during this financial year '23-'24, but the bulk of it will be spent next year in view of the opening in September '25. And then in next year, '24-'25 and '25-'26, you will have the big chunk of CapEx related to the two Super Premium School as well.

Okay. So we can roughly expect like a similar level to '24 and '25 and then a higher level in '26.

You can expect AED 650 million in '24-'25. And then it comes down because the construction will have started dramatically. It comes down to something around AED 300-plus million in '25-'26 million.

Got it. Okay. That's really helpful. And then just in terms of the, you mentioned the Premium private schools. I think, fees were up by 3.7% year-on-year. I just want to understand like how much of that was headline price increases? Like yes, how much is it just from increasing your prices? And then how much has that been from the maturation of the student base, which I think you may have referenced before.

In terms of the increase, the average, blended average fee increase in '23-'24 is slightly below 3%. It's 2.97%, if I remember. Why? Because there were some school that we could not increase the fees on those who are not rated by the regulator, the first thing. And the second thing is there are some commercial decisions, which are made at that [ time], not to increase the fees. So that's how it went. Then and we can share with you after the call, the exact number of my money collection is that it has an impact of AED 12 million on the portfolio -- on the premium portfolio, the fee increase. The promotion of student from one grade to another is having another impact, probably around AED 4 million to AED 5 million, but I want to check the number.

Okay. Okay. So think of it as like maybe 75% came from fee -- outright fee increase and then 25% or so came from the mature like the increasing in grade.

Yes. But you have -- and this is the main driver. You have the additional enrollment that's going to bring a strong increase of the revenue. So it's a mix of the combination.

Okay. Yes, fair enough. Fair enough. Okay. Understood. And then just, I read that there will be no inspections, I think, under KHDA for the year, either this year or the coming academic year. Is that correct? And -- and if that's the case, does that mean that every school just benefits from possible fee increase of the 2.5% or 2.6% that you referenced earlier?

Yes, that's a good question, Harry. And it's one that a lot of the school operators have been asking KHDA. So there's two parts to that. If you -- one of your schools or two or free or 12 of your schools still to be inspected, you can request that. And we will request for at least one of our schools Taleem being sort of driven by academic outcomes for our students rather than money. The money follows our values-based approach. We will be doing that because we believe one of our schools is about to move from good to very good, and that will be our motivation. Some operators may take -- the other side of the question, which is if we don't put our schools forward to inspection then we have no chance of benefiting from the escalator. So the second part of your question is, yes, if there is then another 2.6% or 3% or whatever it is in Dubai, then all schools will benefit, if they are rated acceptable or better. There is no indication as yet from Abu Dhabi around inspection. But remember, in Abu Dhabi, inspections are biannual anyway, they only happen every 2 years.

Okay. Brilliant. And sorry, final one. It's just with regards to the additions on the government partnership side, I think earlier in the call, you mentioned that there were -- these were additions -- six additions to the ESE schools. And I just wanted to clarify, like if that's the case or if there was some charter in there as well.

Yes, it was 4 plus 2. And remember that we are reporting on 9 months-to-9 months. And we have reported in another meeting that the -- and we welcome this the moving forward book, the next year, but not after but, but then specifically for the next year, there is a pause, a welcome pause on the rapid expansion of the PPP in order that the three operators, Bloom Taleem and Aldar can refocus on delivering the KPIs that are partly came from [indiscernible] and seeing that the whole upside of this for the operator is to maximize the KPI.

For the variable fee [indiscernible].

Yes, yes. And because of the rapid expansion, we were more focused on growth and not delivering the actual financial [ accretive ] part of it for us, which is when we start delivering on the KPIs of the students. So all of the operator Bloom [indiscernible], Taleem and Aldar and met with His Excellency. Her Excellency in either City and said, let's pause, let focus on the outcomes, and then we will continue the growth at a later date. So -- the 6 that I'm reporting in this is -- are actually in someway historic. They are the schools that are [indiscernible] this year.

Yes, already sort of in the system. Okay. And does that also imply that there wouldn't be -- could you still feasibly see student growth within those schools?

Yes, yes. So that you could see us an increase in enrollment [indiscernible] it would be from 16,000 to 22,000 as it's been year-on-year.

The capacity utilization in this school currently sits around 91%. So there is still some room to grow the enrollment, and this is, as we understand, the plan of the government to continue to grow them up until their full capacity.

Thank you, everyone. I think we can conclude the call at this stage. We have exceeded the time. So thank you, everyone, for participating, and thank you so much Taleem's management for this presentation.

Thank you again to EFG Hermes for sponsoring and supporting the call.

Thank you, everyone, and this concludes today's call. I will [ address you ] away.

Thank you.

Thank you.