Taaleem Holdings PJSC (TAALEEM) Earnings Call Transcript & Summary

Good morning, and good afternoon, everyone. This is Omar Maher from EFG Hermes. On behalf of my colleague, Hatem Alaa, I would like to welcome everyone to Taaleem Holdings 9M 2024-'25 Results Conference Call. I'm pleased to be joined by Mr. Alan Williamson, Chief Executive Officer of Taaleem Holdings; Mr. Arnaud Prudhomme, Chief Financial Officer; and Ms. Nora Ghannam, Head of Investor Relations. As usual, the call will begin with a discussion of the key highlights of the period, and this will be followed by a Q&A session. And I will now hand the call over to Alan. Thank you very much.

Thank you, Omar. Assalamu alaikum, and thank you once again to EFG Hermes for hosting our Q3 results. We will go through a variety of agenda items, including an overview, detail on the financial performance, then a look segment by segment and then a deeper dive into the new acquisition of Kids First Group. And we will end with some guidance from Arnaud looking ahead to Q4 and our summary blueprint for our ongoing growth strategy. So welcome to Q3. It's actually the end of the school academic year in this quarter. And today, actually, we were celebrating our IB results as our schools close, which are strong, and we are publishing these across a variety of social media forums. And just a reminder as we start Q3 that the Taaleem financial year runs September to September, and Q3 always looks very, very positive thus far, inshallah, anyway. But it's 10 months revenue, but Q4 brings out 12 months of cost. So just a reminder on that, and we'll highlight that on a couple of occasions. Overview, another robust performance year-on-year is the key indicator here in Q3. Operating revenues are close to AED 1 billion, plus 18.5% on previous year and a strong EBITDA margin at this stage in Q3. Net profit is up 7.6% year-on-year. And obviously, as we begin to deliver the strategy, you see a considerable rise in CapEx investment. Arnaud will go into a deep dive on the finances throughout the presentation. Some key highlights here relate to delivering the strategy with the increase in debt, but maintaining strong cash flows as we increase revenue through increased enrollments. So the key developments here across 12 premium schools is that revenue continues to be around the balance that Arnaud and I have delivered for several meetings now, around 90% contribution from the premium schools and around 10% contribution from the PPP. The slight increase in PPP comes from an increase in enrollment, particularly in the Dubai Schools, and we'll take you into more detail on that later in the presentation. A very, very positive rise in premium school enrollment, 19% year-on-year. One addition into that being the acquisition of the Lycee Libanais Francophone Prive. Growing capacity, both in the premium sector and in the PPP. The PPP sees a dramatic increase in Dubai Schools as we deliver an enhanced Dubai Schools capacity. And in the premium, obviously, with the addition of the Lycee, but also with the introduction of Dubai Schools, Jumeira -- Dubai British School Jumeira and the extension of Greenfield International School. So overall, a slight decline in premium utilization, but please see that as a positive. It's room for growth as we add schools like Dubai British School Jumeira and a slight decrease in PPP due to the rapid expansion of Dubai Schools. This is again the map of our portfolio focused in Dubai and in Abu Dhabi. You'll see in bold a move from 10 to 12 premium schools with the addition of DBS Jumeira and the Lycee Libanais. The key thing for here is quality. As you look on the right, 19% of the market share of very good schools, 6 of 32 very good schools and 3 of 23 outstanding schools. So it's a focus on premium, a focus on quality and a focus on government regulatory relationship with the PPP. The big news, obviously, recently that the market reacted well to is the acquisition of Kids First Group. We are super excited to bring this into our portfolio. We'll take a look in detail at what this portfolio is later in the presentation, 34 nurseries, 4 different early years curricula, 5,000 students with 6,000 seats and 2 additional nurseries already in the pipeline for this year, taking the portfolio to 36 nurseries. And that is in addition to the 4 nurseries that we run as part of the charter school program. A 95% acquisition, very important to stress, it's asset-light. It will enable us to ramp up quickly, and we'll show some of our targets later in the presentation. Immediately value accretive, strengthening our position in the market, again, a premium portfolio that adds to the defensiveness of Taaleem as a company and a very favorable multiple acquisition. So again, a fantastic acquisition for Taaleem. The transaction rationale, a strategic entry into high-growth early childhood education. It's a fragmented market, but a very popular and growing market as the UAE matures and more and more professional people want high-quality early years education. Again, I stress that this is a premium acquisition, high-quality brands, such as Redwood, and the Abu Dhabi and Dubai government are focused on pushing the growth of the early years. It's immediately value accretive. I said that before. It brings strong EBITDA into the company. Mixed funding, Arnaud will take us through this later, but obviously, the acquisition as all our greenfield and acquisitions, we get the best possible business model for the shareholders, so a mixture of debt and equity. It diversifies Taaleem by a move beyond K-12 or rather before K-12 into the early years. It also takes Taaleem for the first time out with the UAE into Qatar and a presence in Doha. And we have executed it with confidence, with operational confidence and still retaining strong finances for our growth strategy and additional acquisition in both the early years in K-12 sector. Finally, it strengthens our ESG. The company aligns with the UN charter and also all of the workforce in the school sector of the nurseries are female, which, again, is very strong in relation to ESG. I'm going to pause there and hand over to Arnaud to take us through a deeper dive into the financial performance of Q3.

Thank you, Alan. So good afternoon, everyone. We'll look at first at the P&L. It's another period of strong financial performance year-on-year. In terms of revenue, we, for the first time, Taaleem go over the AED 1 billion mark, as you can see, with a double-digit growth over 20%. This has been driven, obviously, fundamentally by the enrollment, an increase of 9% versus the same period last year. And out of which you have 99% coming from the premium school -- 19.2%, sorry, coming from the premium schools. One element I want to stress is you can see that the nonoperating income has more than doubled, moving close to -- from close to AED 10 million to AED 26 million. This is mainly because we have benefited from a bargain gain accounting-wise following the transaction related to the French Lycee. So it's -- half of it is coming from this bargain gain, meaning we have bought an asset, which has a fair value, which is over the acquisition price. Looking now at the EBITDA and the net profit. The EBITDA has grown by 12% during the period, closed by an increase of AED 40 million. However, as you can see, the margin has decreased quite significantly, 2.3% versus the same period last year. And for that, there are some specific reasons. One is the fact that we have to record one-off transaction costs related to the Lycee and to the acquisition of the Amity Early Learning Center. Second element is it's an accounting matter. So we have to take into account what is called the revenue cutoff period. In practice, it means that because the financial year and the academic year don't coincide, the days -- in fact, the school year starts before the financial year, and these days are not recorded during the current financial year, but during the previous financial year. So it has an impact, which is close to AED 4 million. And finally, we have a lot of expenses which were spent upfront. So it's a timing issue. And again, it will normalize during the rest of the year. In terms of net profit, the growth is close to 8%, 7.6%. We can say the same for the margin. So it's related to the EBITDA margin going slightly down and the fact that we have higher depreciation and finance costs in relation to the expansion of the business. Moving now to the revenue. I just will want to focus on the attribution between the premium school and the PPP. Alan alluded to it, but 88% of the total revenue are generated by the premium school. And if you look at the EBITDA, it's 97% coming from the premium school. So it shows -- it tells a lot about the respective weight of this vertical into the profitability of Taaleem. This is driven, and it's -- I don't come back on this, but the operating revenue has been driven by a big increase in enrollment, 9% in total, again, 19.2% for the premium school. And you will see that the average tuition fee for the premium school is slightly decreasing. No worry to have about this. It is just because we have opened DBS Jumeira and some other lower grades across the portfolio, which obviously has an impact on the average fee we can collect. Moving now to the cost base and its evolution. What we continue to do is to action the operational leverage that does exist across Taaleem. But at the same time, we try to keep a thin balance between cost efficiencies and ensuring we continue to invest strongly in people to attract them and to retain them. After all, we are a people business. So that's the key asset that Taaleem has, and we need to make sure at any time that people are rewarded as they should be. So what we see in the current environment is the kind of evolution of the paradigm. You remember, we talked many times during previous investor call about recruitment crisis, about the churn of our teachers. What is changing is that we are effectively now in a recruitment crisis. One of the reasons being the cost of living in Dubai and Abu Dhabi versus some other competing locations. And the churn of our teacher at the same time is lowering down. People stay longer or tend to stay longer, and it has an impact on the cost base. This is partially offset by the fact that we continue to centralize operations and standardize practices, which obviously helped to make some savings. So all in, we have increased our operating costs quite significantly. But you need to keep in mind, it is to support the expansion. We are recruiting -- we have recruited during the period 305 teachers, the bulk of them for the premium school, 225. And we will continue to do so as we need, obviously, to support the opening of new classes. General and admin expenses have grown as well. It's a reflection of the inflation, especially utility cost, but it's as well a reflection of the fact that we need to be compliant with the new regulation. For instance, we are working on what is called the international control framework, which is something which will be mandated from September '25 for all listed company in Dubai. And we are preparing this, which is a review of our control process and the test of our processes, control processes to make sure everything is fine. EBITDA, I don't come back on it. But as we discussed, there is a strong growth, AED 40 million versus the previous period. Now let's focus a couple of minutes on the balance sheet. What we have done is to continue to support the growth, and the balance sheet is obviously a reflection of the expansion of the business. We have taken new finances to support acquisitions and the construction of DBS Jumeira and DBS Mira, which will open in September this year. So the balance sheet has been dramatically releveraged on purpose, close to 4x versus August '24. We are now sitting close to AED 550 million of debt. At the same time, as a consequence, because we have used part of the IPO proceeds to fund this acquisition and this greenfield expansion and because we have releveraged, the net debt has moved from being negative to a low amount of positivity, AED 17.4 million. The CapEx as a translation of all of this as well dramatically increased, especially the expansion CapEx -- or the acquisition CapEx, sorry, which represents AED 440 million out of the AED 600 million at the end of May '25. The rest expansion is related to the premium school fundamentally, and the maintenance is slightly lower than usual during this period, but it's a question of timing. Most of the maintenance will be done during the summer break. Finally, lease liabilities. Again, a reflection of our growth, we have taken on board 2 new leases related to the 2 Harrow School in Dubai and in Abu Dhabi. Moving now to the debt profile. We remain very comfortable with our debt profile and the bank covenants, which we are in. The total new debt, as mentioned, has grown 4x. And as you can see on the right-hand side of the board, you see the bank covenant or some of the bank covenants we have, like net debt to EBITDA, we sit currently at 0.05 multiple, whereas our maximum allowed by the banks is 4x. The same can be said for the gearing ratio, where the maximum is 1.5 multiple, and you can see that we are much below even 1. And for the DSCR, that's the same, minimum is 1.2 multiple, 1.2x, and we are at 17.6x at the end of the period. So even though we have releveraged the balance sheet, again, we keep a large headroom to continue to grow the debt and make it more efficient in terms of using our strong balance sheet. Moving now to the cash flow. So our cash and cash equivalents has reduced during the period by close to AED 80 million. It's normal. Again, it's just because we deploy the capital we raised during IPO times. We -- it has been -- and the other reason is obviously so that the CapEx -- the cash CapEx, but the other reason is, obviously, we paid a dividend of AED 102 million -- AED 120 million during November last year, and it has not completely been offset by the fact that we have drawn down some new loans, AED 410 million. The restricted cash is now sitting over AED 110 million. It was close to AED 33 million last year during the same period. It's just because we have received more budget from ADEK and from the Ministry of Education for the Ajyal program to run operationally the schools. Free cash flow to firm and free cash flow conversion, it's in a way, the same. It shows our ability to transform AED 1 of EBITDA into free cash. As you can see, there is a quite a strong improvement. And the reason behind this is working capital movement related to the fees collected in advance from the students.

Thank you, Arnaud. Moving on to a deep dive into our premium schools. But firstly, just a reminder of where the premium schools sit in the entirety of the portfolio, and we have broken down for the first time, not only the PPP, but the revenue contribution from each of the PPP segment. So overall, as Arnaud has said, plus 80% of the revenue flowing in from the private schools, and we'll take a deeper dive into them. The highlight there is the acquisition of LLFP, DBS Islands and the DBS Jumeira coming online. Dubai Schools, the key update there is a dramatic increase in capacity as The Executive Council of Dubai expands the 3 schools into approximately 3,500 student schools and a large increase in enrollment there within the Dubai Schools portfolio. 4 additional nurseries coming into the charter schools as part of Her Excellency, Sara Musallam's focus on the early years, which aligns with the acquisition of Kids First Group and the Ajyal Schools. So just a reminder to the investment community that we have 8 Ajyal Schools. The government, the Ministry of Education has decided to take all ESE schools back into the Ministry of Education and our Ajyal Schools will flow back to the Ministry of Education. Nothing to do with performance, a political decision by the Ministry of Education. So next year, we will retain our tranche 2 schools, 4 schools, but we will have one added from another operator. So in many ways, that shows the strength of Taaleem's performance. And as Arnaud mentioned, for the first time, and this was actually the headlines in the media for Taaleem's results in Q3, we will be above AED 1 billion in terms of total revenue balanced between non-operations and operations. Thank you. So enrollment is up from 14,000 to 16,700 in the premium sector. Obviously, the utilization is slightly down because we've added 500 seats to Greenfield and also around 2,000 seats in the Lycee Libanais. Revenue is up, as Arnaud said, because of the regulatory framework and only being able to open primary seats, elementary seats, then DBS Jumeira brings that slightly down. Arnaud has given you all of the information for the slight decrease in EBITDA, including the J-curve and the investment in our staffing. Again, a 9 to 12 -- sorry, 10 to 12 months balance there on that EBITDA margin as we move towards Q4. And obviously, a substantial CapEx investment as we move forward with our growth strategy. Broken down by segment and by curriculum, we see a slight drop in utilization in the British curriculum. It was sitting at 100%. But even though we've increased by 600 seats in the British curriculum, a dramatic increase in enrollment, we've actually reduced capacity -- or increased capacity utilization because of the introduction of DBS Jumeira. IB, again, a successful growth of 400 seats, but because of the additional seats in Greenfield, we see a slight capacity utilization drop. Abu Dhabi, Raha Khalifa City continues to ramp up. So 200 additional enrollments, highly successful and again, controlled by the regulator as we move from Grade 11 to Grade 12 in that school. American curriculum, slight increase in enrollment, which we are happy with and the addition of 1,300 new students in our LLFP. So overall, a slight decrease in utilization even though we've had a dramatic increase in enrollment, and that is a strategy that you will see moving forward as we bring on the other 3 committed Greenfield schools. Interesting pie chart on the left, as we look at the breakdown of our new joiners. On the left-hand side, you see basically expats coming in, but we are particularly proud that the right-hand side shows -- continues to show a growth of our new joiners from competitors as the reputation of Taaleem and the reputation of our schools continues to grow. We've also taken a more in-depth look at a selection of schools just for your information so that you can capture some of where this capacity utilization sits. 38 seats in the Gardens campus of Raha. Many of you have asked Arnaud and I on a number of occasions what our capacity utilization satisfaction sits at. Most operators would be happy with 95%. We target 100%. The gap here is some students who reach the senior years in Raha and transferred to the American curriculum, but we still expect these seats to be filled. Jebel Ali School has had its first year of Grade 12. So we're on a pyramid model, where the enrollment begins to increase. And as we close off high enrollment in the A-level qualification, that will go to 100%. And Greenfield, although it's done very, very well in terms of filling the 500 seats, this year, we hope and expect as we look at our enrollment projection for that school to cross 2,000 students. JBS, we've actually taken 4 classrooms, and we've talked to you before about the pyramid model, where the year groups get larger and larger. So we've created some additional seats into Jumeira Baccalaureate School that will be filled. Uptown has went up by 100 students year-on-year from 1,200 to in excess of 1,500 students. But again, in a different area of the city. But still, we're very pleased with the growth of Uptown and another strong IB set of results published yesterday. Meydan, we will be ambitious now that we have full control of the school to enhance enrollment. And American Academy won't go up by 200 students every year, but if it continues to go up by 30 or 40 in that particular VIP demographic, we're doing well. And although you're seeing a large capacity gap in DBS Jumeira, it's actually really exciting for U.S. investors and us for management because we'll be able to rapidly increase that enrollment. Remember, it started at 500, and we're targeting 800 students next academic year. This is an overview of premium schools. So although you've seen the U.K. grow from 3 to 5, the strategy will take that to 8 with DBS Mira, Harrow Abu Dhabi and Harrow Dubai coming online. And you'll see in a visual how our capacity utilization closes and then opens as we open up new Greenfield schools. So again, by 2024, we were looking to close it, but then dramatically, we bring on the Lycee Libanais, we bring on GIS, we bring on DBS Jumeira, and it opens up again, but it allows us to cater for the increasing population. Arnaud touched on this and gave a very good overview of staff retention, just to give the actual figures on that. We've moved from 77.6% retention to 80.2%, which is -- it's really a fantastic result. There are some operators who lose 25% of their cohort, the teaching and leadership cohort. This is exemplified by a worldwide award that we participate in through our HR department, and I'm very proud to announce that 3 of our schools are platinum and 2 of our schools are gold. This is an incredible accolade for Taaleem, and it shows just how happy our teachers are. And Taaleem Board have always said happy leaders lead to happy teachers, lead to happy students, lead to happy parents, who are our paying customers. So it's very important that we get the HR part of the people organization that Arnaud talked about. And that both comes from monetary benefits, and we try to live within the 2.5% that ADEK have -- 3% to 2.5% that ADEK and KHD (sic) [ KHDA ] give us in fee increase. But it's also important to highlight nonmonetary benefits that we provide for our employees. Let's take a quick deep dive into the PPP, while reminding you that there's this 90% to 10% revenue. The major addition here is the growth of 4 nurseries, taking the ADEK charter schools from 11 to 15. And on the right-hand side, you see the actuals and the impact of the government of Dubai, The Executive Council of Dubai, investing a huge sum of money in building three 3,000-plus capacity Dubai Schools. And as you will see, our challenge now is to move these schools and increase enrollment, hindered by the regulatory ramp-up, where these schools are moving from Grade 7 to Grade 8. So we can't just flood the schools to fill them, but we have had operational CapEx investment from Taaleem. The government, remember, pay for the building, but we pay for the operations of the school. Super-premium and premium expansion, very exciting. And as you see, we had 10 schools at 16,000 -- 17,000 student capacity in the next 2 to 3 years, declaring our '26, '27 strategy. You know about DBS Mira opening next year. We'll take a deep dive into that in a second. Harrow Abu Dhabi, Harrow Dubai, increasing our student capacity to 27,000. And as we fill that up with enrollment, an addition of 10,000 seats, it will lead to future profitability of the company. The strategy you're now very well aware of, an increase of 500 seats in GIS, the opening of DBS Jumeira with 500 of the 1,900 seats. The expansion of Emirates Hills expansion into what we will refer to for the business community as DBS Islands, but one school with DBS Emirates Hills. The good news is we've made rapid enrollment for the year ahead, and that will be all 400 seats in the new Islands capacity will be filled. Mira is on track, 700 seats sold in that school, and Harrow Dubai and Harrow Abu Dhabi about to join the pipeline. So it's July, and we are on track to open Mira. You'll see on the right a fantastic new building in the interiors shown on the left. This has been an incredible success for us, way beyond the business plan and way beyond anyone's expectation. DBS Jumeira opened the highest number of seats ever in a premium school, in a new premium school in Dubai. And DBS Mira will open way beyond our expectation in terms of student enrollment. Thank you. Okay. Let's take a deep dive into the acquisition of Kids First Group. Firstly, a quick overview of the market. You will see in dark red in the pie chart that only 22% of children who are eligible to be in the nursery sector actually go into nurseries, but that is rapidly changing. And you'll see that just for Dubai on the right, 20,000 to 27,000. By the way, this is 2023 data, we sit in 2025. So it's even more impressive today and 462 nurseries going into 650. It's a strong private sector involvement in this landscape. There are medium barriers to entry in terms of KHDA and ADEK regulation, which Kids First Group management and Taaleem fully understand, giving us competitive advantage. Social and economic and cultural dynamics are changing rapidly. High-quality education is being sought, women want to be in the workforce, and we've got a professional population who understand the importance of high-quality education. So the pie chart, the rest of the pie chart is open to us, and we expect rapid expansion in this sector. You see the visual pie chart now in numbers. 473,000 UAE children in this segment. And this data is 2022. So we believe for every figure you're looking at that it's already up. So immediately, there's a shortage of 16,000 seats required. And you'll see the projected number of seats rising from 2022, an additional 20,000 seats, and we will be part of that ambition. Young professionals, accelerated growth in female employment, rising parental professional awareness of early childhood development, a high GDP, so an affordability for premium education and government initiatives backed by Her Excellency in order to deliver this agenda. So Kids First Group has been operating since 2011. They have 34 nurseries. As we said earlier, there will be an additional 2 taking it to 36. Enrollment sitting in a strong position at 5,000 in a 6,000 capacity. So currently kind of aligned with Taaleem in relation to the 80% plus-plus. We have plans to immediately over the next 2 to 3 years, grow this company and taking it from a 6,000-seat capacity to a 9,000-plus seat capacity from 36 nurseries to plus 50. Strong regional presence, both in the UAE and in Qatar. It's a highly fragmented market with lots of family-owned villa nurseries that are available for us to significantly scale up. And it's asset-light. So a CapEx investment of around AED 4 million, AED 5 million can bring you to immediately operational with a very short payback, unlike the K-12, a 1- to 2-year payback on that investment. Thank you. So the transaction overview, 95% stake with Kamil Najjar holding the other 5%, valuation of AED 912 million, as I've said, operationally asset-light, stand-alone vertical within Taaleem, maintaining the present management team with governance coming from Taaleem Board. Arnaud will go into the deep dive into the financials in a couple of slides' time. Thank you. Curricula, just to keep you updated on that. 4 curricula in the brand, aligning with Taaleem's philosophy on early years through the Montessori and the Reggio Emilia. That's what we deliver in our early years schools. And also alignment on the U.K. and the IB, which are our 2 main premium school curricula. You'll see in terms of price point that there's a weighted average of around AED 48,000, AED 49,000, which is 13% higher than Taaleem's fees in this early years segment. So you'll see that and like Taaleem when we show you the famous rectangle and Arnaud and I refer to our premium brands being in the sweet spot, the DBS Raha sweet spot, you'll see that the Kids First Group brands, Redwood, Odyssey, Willow also sit within that, with Ladybird sitting at a slightly lower price point offering a more differentiated product. Thank you. So I'll pause there and pass over to Arnaud, who will take you on a deep dive into the finances of the Kids First Group acquisition.

Thank you, Alan. So first element is what are we talking about with the acquisition of Kids First Group. If you look at on the left-hand side of this board, you will see that Kids First Group is a business, which gathered AED 234 million of revenue last year. Remember, please, that their financial year runs from January to December. They managed to generate an EBITDA close to AED 89 million and a net profit of AED 49 million. And the margin of the EBITDA is 38%. The margin for the net profit after tax, 21%. So it's a profitable, very well-managed business, which doesn't require any restructuring, any adjustment. How we will fund it, I will come slightly later on more detail on this, but we will have a mix of equity and debt. The equity is coming from the cash we raised during the IPO, 20% roughly will come from this and the 80% balance will come from new debt raised in the market. The third element, what is our ambition by acquiring this business? As mentioned by Alan, it's a platform which is based -- which is done for growth. So the plan is year after year to acquire between around, say, 750 additional students between 2 and 3 nurseries, 4 to 5 nurseries. But the number of nurseries doesn't -- is not that important. What is important is the number of students. So in terms of revenue, the CAGR over the period should reach 14% and the EBITDA CAGR will be around 12%, ending up with potentially 56 nurseries, but more importantly, 9,500 capacity and an occupation rate, which will be over 90% at the time. Let's now look at the impact on Taaleem consolidated accounts. On the left-hand side, you will see further impact for the 3 months going from June to August this year, which is '24, '25 financial year for Taaleem. So we will consolidate 100% of Kids First Group in our accounts from June '25. The contribution during this period will be -- if you look at it as a stand-alone, Kids First Group is making roughly AED 7 million of EBITDA and have negative profit due to financial -- some financial costs and depreciation, financial costs related to some debt they have that will be sorted at completion. Consolidated, however, we will be probably due to one-off transaction cost at a breakeven EBITDA or slightly positive maybe. And we will have a negative impact on the accounts that needs to be still exactly assessed. I say exactly assessed because, as you know, after an acquisition, we need to go through what is called the purchase price allocation, which is an accounting review of the assets and the liabilities. They will be fair valued. And from there, we will see how much are the intangibles and how they are split between potentially goodwill and bond value. Moving forward, after this 3 months interim period from '25, '29, in terms of profitability, we will have an enhanced return on equity for Taaleem on average 1.9 uplift over the next 5 years, and it will bring the ROE of Taaleem consolidated, including Kids First Group, at 12.2 on average over the next 5 years. The second element, we will still be in a comfortable territory in terms of financial prudence. We are not doing things which could hurdle the business or create a problem on the business. We will have still a comfortable headroom on all debt covenants. And third element, we will be able to increase the dividend to continue to distribute dividend and potentially to increase it through the fact that Kids First Group is profitable, will be more and more profitable and is strongly cash generative. Another element in terms of profitability is the earnings per share. As you can see, when we increase sunshine, what you see here as percentages is the difference between the EPS that Taaleem Group consolidated over the next 5 years will generate versus what Taaleem Group with its first will generate. So the variance is the percentage you can see here, starting from 12.5% in the Taaleem financial year '24, '25 and then moving up the curve. At the end of the period, you can see a decrease. It's just a question of relative weight of the 2 entities, Kids First Group and Taaleem and this explains the decrease, but it's not something to be worried about. Again, it's a mathematical outcome. Operationally, on the right-hand side, you can see the uplift that Kids First Group will bring in terms of capacity, in terms of enrollment and in terms of utilization of the total capacity as soon as we have consolidated it. Finally, a couple of words on the way we finance this acquisition. We will -- and we have gone to the market and now have secured the best proposal we can in terms of loan. It will be a 5-year bullet payment loan, meaning we will pay only interest during the next 5 years, not going to repay the principal. And at the end of the 5 years, we will be -- we will have the flexibility either to refinance it partially, refinance it fully or repay it. Currently, we are leaning over the first assumption, which is to refinance it fully. In terms of interest payment, to give you some color, we will be around on average 5% plus interest rate during the period, starting slightly higher and finishing downwards following the market assessment of the interest environment over the next 5 years. In terms of cash, we will pay the acquisition at completion, which we expect to happen during Q4 of the financial year. When you look at the impact of the loan and the acquisition on our Q4 results. So for the interest payment of the debt we contract, there will be only 1 month impacting this financial year at the Taaleem level. For the transaction fee, obviously, which are borne by Taaleem Holdings, it's a one-off cost of AED 7 million impacting the EBITDA this financial year. Another important element or very important element, the financing of the transaction is not dilutive, and that's very important. Again, we have enough EBITDA. We have enough cash to finance the acquisition with our own means plus the debt. We don't need to issue new shares or do any convertible or this kind of instruments. The structure will remain very simple. And again, it's not dilutive for the shareholder. We will have a capacity to benefit from EPS accretion from '26, '27, as I have shown in the previous slide. Finally, we'll keep on the same dividend policy as we have history at the Taaleem level, keeping on increase the dividend as the earnings grow. And because Kids First Group will be value accretive, we'll continue to practice this policy in the coming period. Thank you, Alan. I think I give it back to you -- so now if you look at the guidance for the full period. So on the left-hand side, these are the actual spot results at the end of May '25. I don't come back on them. This is what we have presented to you today. Then we look at the full year financial guidance, excluding First -- Kids First and then the increment brought by Kids First to the results. So if you look at it, Taaleem Group, excluding Kids First Group, we will have an enrollment growth at 9%, an operating revenue growth close to 19.5% for the year. The EBITDA will be between AED 305 million and AED 310 million. And the CapEx will be between AED 800 million and AED 860 million. This variance is due -- or this gap is due to the process of the construction work, the timing of the construction work, if they progress more quickly than anticipated, we will be at AED 860 million. If it is slightly slower, we'll be around AED 800-plus million. The maintenance CapEx will remain at its standard level. Free cash flow, thanks to the collection of the fees in advance for the next academic year, you will see that it will represent between 75% and 85% of the EBITDA, which is standard historically. And finally, the net debt to EBITDA because of the debt raised to fund the acquisition of Kids First Group is moving to 4.5 multiple, which is much below the maximum covenant we have, which is 4x. Now if you include the KFG, you can see the impact on the enrollment. So in total, our enrollment in this financial year will increase by 23%, meaning Kids First Group is bringing 14% up. The operating revenue will grow by 24% year-on-year. The EBITDA will be at the same level, AED 305 million, AED 310 million, no more through Kids First for the reason I mentioned because of the 3 months interim period in which we are, during which we will have to pay the one-off transaction cost. CapEx will be higher because of the acquisition of the business. The free cash flow remains the same for the same reason. And the net debt to EBITDA, obviously, is higher because of the fact that we acquired debt between now and the closing of the financial year. Thank you, Alan.

Thank you, Arnaud. So thank you for joining the call today. Just a reminder of the key strategy pillars of our growth story, our exciting growth story. We continue to expand premium schools in a very buoyant market. DBS Jumeira is up and running. DBS Mira will see the most amount of students ever to join premium school in its first year and plans continue in Dubai and in Abu Dhabi for our 2 Harrow schools. We will also continue to add capacity to existing schools. We've shown that in Greenfield International School and with the acquisition of Amity to expand our flagship school, Dubai British School, Emirates Hills. We continue to ramp up utilization. We've given you data on that today. So we will continue to close the capacity utilization gap in our existing schools, often controlled by the regulator as we see JAS and Raha Khalifa City come to fruition with between 3% and 12% enrollment growth across each curricula. Government partnerships, very important in terms of regulatory relationships, less important in terms of profitability and contribution to revenue. But we've extended the charter schools for 3 years, and we have 4 additional nurseries. And although we will reduce the Ajyal Schools, we will actually see another one transferred to Taaleem from a competitor. Acquisition of existing or operational schools, and we have added with great excitement and nurseries to our inorganic growth story. We have a proven track record with Jebel Ali School, with Lycee Libanais. And now we will advance on the story that Arnaud gave to you of transforming 34 immediately to 36 and then on to an ambitious future of 50-plus nurseries. I'll pause there. I'll hand back to Omar from EFG. And as always, we welcome questions.

[Operator Instructions] And we have our first question -- pardon, I think the hand was removed. So first question is actually from Nitin Garg.

I have a couple of questions. First is, since the acquisition of Lycee Libanais School, which is a Lebanese-French curriculum, what changes you have done? I mean, what is the improvement in terms of enrollment, fee, the overall KPIs? That's the first question. Second question is, so post the IPO, you have done 2 inorganic acquisitions. One is this Lebanese-French school and now the Kids First Group. And you are doing a lot in terms of organic, opening 3 schools, already opened 1 and 3 more, 2 Harrow and 1 DBS Mira, then you are trying to increase the capacity in existing schools. So how should we think about the future? Now you already have a lot on the plate to manage. Are you still looking for more inorganic acquisitions? And the third question is on Harrow schools. So 2 schools, one in Abu Dhabi and in one Dubai. In Abu Dhabi, I think it's close to Saadiyat Island, where you have signed the lease, I think, early this year. And if you can talk about Dubai, where is the school, this Harrow school? And what is the arrangement with Harrow? I mean, is it like a royalty you will be paying them? Or what actually is the arrangement with them?

Okay. Thank you. I'll try to answer these questions. Arnaud, feel free to pitch in. So the acquisition of the Lycee Libanais, you have to remember that the management didn't actually get control of that school to later in the academic year. So when we took over Jebel Ali School, we took over at the start of -- actually in -- pre the start of the academic year, we were able to make changes. And if you know the Taaleem story, you'll know that we have seen over the last 2 to 3 years, rapid growth in enrollment. So as with all not-for-profit schools and remember, the Lycee Libanais Francophone Prive operated under that model, you need to get time to get into the management team, to the philosophy of the school, a not-for-profit school is quite happy to have low enrollment and small class sizes. So immediately, we've actually strengthened the management team. We have put in an admissions manager. We've put in a finance manager. We've put in a marketing manager. The key thing for us is to market the school. It's actually a fantastic school. It's French curriculum exam results. We're actually the best in Dubai at the recent Baccalaureate qualification announcement. So we really need to market the school in order to improve enrollment. You will see an increase in enrollments next year, but it's not as dramatic as Jebel Ali School. We'll need one more year in order to really market the school and improve the internal management. The one key thing, which might not be a big thing for investors, but should be is we were able to retain the principal of the school who's widely known, not just in Dubai and not just in the UAE, but indeed in France, it's a top principle. So he's confirmed that he will continue with us on the Taaleem journey. In relation to acquisitions, you're correct. You actually missed one out. We also acquired Amity Nursery building, not the operations, but we acquired the building in order to expand our Dubai British School, Emirates Hills. It's possibly one of the biggest bits of news in relation to immediately being able to bring in 400 students with that oversubscribed waiting list there. Look, we look at IMs on a permanent basis. We will -- they need to be value accretive. They need to fit comfortably within our portfolio of schools, and they need to fit in with the expertise of the management team unless we also buy the management team of, say, a mid-market schools group. I don't believe that our growth story is taken the management team or the central office beyond their expertise and their ability to deliver the strategy. It's controlled, it's strategic, and it's well thought through. And the Taaleem Board will continue the growth story on that basis. We do have an additional strategy for 2027, 2028. But as you well know, we need to get all regulatory approvals in place before we announce that to the market. And finally, Harrow, it's not just near Saadiyat, it's on Saadiyat Island. Harrow Abu Dhabi will open on Saadiyat Island. And if you can see the visual off the slide, we have confirmed that Harrow Dubai will be in the new ARN development of the Jebel Ali Racecourse. It's just off Hessa Street. It's actually in an amazing area. And both of these properties come with rent below market value in our opinion and come from those strong government regulatory relationships that we spoke about later. Finally, what is our relationship with Harrow? Very strong, not just focused on finances, focused on curriculum, [ pastoral ] care, getting the brand right. We do give a small royalty that's within the industry standard on our revenue in order to access the governance, the curricula of Harrow School. Arnaud, do you want to add anything? No? Okay. I think that answers the question. The question is plural.

I have one more question. I'll go back in the queue if I get time. If the call goes on.

And the next one is from [indiscernible].

We can't hear you. I don't know if your mic is off.

Can you hear me now?

Yes. Perfect.

Best of luck to you. My question is, what is your guidance for net profit for this year and next year?

Look, we don't share any guidance for the net profit since the beginning. We share a guidance for the EBITDA, as you can see here. So we'll be around AED 305 million, AED 310 million. That's the guidance for the full financial year.

And next year?

The same, meaning the same. We don't share guidance again for the net profit, which are guidance for the EBITDA. Next year, the EBITDA will continue to grow.

Hopefully, with the same rate? Or are you targeting a higher growth rate?

Look, again, I think we will be in a better position to disclose the path for the next 5 years, probably at the next investor call when we discuss the results for the full financial year.

And we have one from the Q&A box from Waleed [indiscernible] and it says, what is the expected average CapEx for new premium schools?

So it's around AED 250 million, AED 300 million, given the cost of construction currently in the market and the pressure on cost there is, inflation and everything. But that's the quantum of what you can expect for a premium or even a super-premium school. Super-premium school is above AED 300 million, a premium like DBS Mira or DBS Jumeira around this quantum, AED 250 million, AED 300 million, including FF&E.

And next one is from [indiscernible].

Am I audible?

Yes.

Best of luck on your new acquisitions. Just a follow-up question on acquiring Kids First Group. I see they do have one of their nurseries located in Qatar. Are you guys looking towards expanding, be it on nurseries, on the nursery side or even on the school side in neighboring GCC countries, including, for example, Qatar?

Thank you for that question. I mean we have answered this one before. Firstly, let me stress that the Kids First Group is like Taaleem is a growth story. But as Arnaud showed you, it will be more ambitious in relation to transforming a 34 nursery group into a 50-plus nursery group. In relation to the GCC, our growth story at the moment is entirely focused in the K-12 sector on the UAE. The UAE is booming. I could give you 5 bullet points on the strength of the UAE market, an affluent population, government investment in education, strong population growth, strong youth population growth. It's -- Dubai and Abu Dhabi, we believe, still has continued room for expansion. The KHDA have published D33, Dubai 33 and Education 33. They are saying they need 100 additional premium schools. Places like Hudayriyat Island in Abu Dhabi are publishing through Modon that they need 14 new education schools, whether nursery or K-12 on that island alone. So our present Board focus is to continue to put the type of investment that Arnaud has just talked about between AED 200 million and AED 300 million into the UAE, where Taaleem understand the regulatory framework and have a proven track record and brands such as Dubai British School, Harrow and Raha International that are known and recognized. There's also the growth of the other Emirates, places like Ras Al-Khaimah. So at the moment, this is a very exciting and dynamic marketplace for us. We have had several conversations with Riyadh government entities, government indeed in Riyadh. And we've always said that across the 5-year plan that Arnaud talked about, we are open to conversations about the GCC, but the immediate focus is the attractiveness of the UAE marketplace for us.

Just a follow-up question. I mean, it does look like your immediate focus is on the UAE and the growth in that market is more than enough. But I was just curious because in your Harrow agreement, you basically have exclusivity over all GCC countries. So is that something of a...

You've answered your own question, Waleed. Yes, I mean that wasn't by accident. We did ask for the GCC in relation to future growth. But in the immediate -- and also the Qatar aspect of the Kids First Group is exciting for us. In the immediate future, we are looking at the UAE and indeed, the 2 further nurseries that will come on stream.

Next one from the [ Slido from Nada Hisham ] asking if you can repeat the EBITDA guidance and also how will the nurseries be accounted for in your financials?

Okay. I think Arnaud answered that, but we did -- I don't know if you want to go back to that slide.

Yes. So how it will be accounted for, we are going to consolidate 100% of the results of Kids First Group from June '25 onwards. And in terms of EBITDA guidance, we will be around AED 305 million, AED 310 million, including Kids First Group, again, because during this interim period of 3 months, June to August, when Taaleem will close their accounts, we have one-off costs that we need to take into account, which will neutralize the EBITDA generated during this period by Kids First, knowing that during this period, there is a kind of seasonality of the activity as July and August, obviously allow Kids First to continue to collect fees, but they are not term fees. They are fees related to summer comps fundamentally, so lower than term fees. Obviously, they will start to collect fees for the following academic year, but it's not impacting the EBITDA yet.

No, I was just echoing Arnaud's thoughts that the upside in EBITDA is tempered by the timing of the acquisition. And again, it's very similar to the 10 and 12 months that we talk about in Taaleem.

Next one is from [ Seki Mutukwa ]. It says, when do you expect EBITDA margins through -- EBITDA margin drop based on your '24 to '29 business plan, including KFG?

If we include -- sorry, if I get the question correct...

So he's asking about the EBITDA margin trough. So the lowest point of the EBITDA, I guess, based on...

That will be addressed over the next 5 years when we start to add Kids First Group. So taking it from 26.6% and getting it back into the 30s over a 5-year plan.

So if you look at the EBITDA margin, which is not what is shown here on this board, which is the EPS, but the EBITDA margin are going to benefit from an increment due to Kids First Group acquisition. On average, it will be 2% per year versus our own EBITDA margin. When I say our own, it's Taaleem without Kids First. The EBITDA margin, as you know, is going to decrease slightly this year because we are in the middle of J-curve. We are opening DBS Mira, so there are pre-ops costs. Practically, we need to recruit people, teachers, principal and so on before the start of the academic year. So it's bearing on this financial year. And the same for the Dubai School PPP, where the expansion of the capacity creates the same requirement. Next year for Harrow and the following year as well for Harrow, we will continue to recruit upfront before the start of the academic year. So if you look at the EBITDA margin for Taaleem first, this will continue to decline around 26-plus percent. And then from '27, '28, the EBITDA margin because we are starting to go out of the J-curve and moving to EBITDA positive to stronger EBITDA, we will start to again increase the margin. And in '28, '29, we should be at an EBITDA margin Taaleem alone, again, without Kids First, slightly over 30%. Now if you add up to this Kids First Group, then again, the incremental improvement will be of 2% year after year.

And next one is from Ahmed [indiscernible].

Congratulations on the set of results. I have a question -- just a question. It's regarding the same question previously about your margins. And given the pressure on your margins and given the pipeline, upcoming pipeline, you expect to have further pressures. Do you expect to increase your fees to offset that pressure?

Look, we've talked about the fee regulation a few times. The fee increase has annually been around 3%, 2.5% to 3%. It's set by the regulator, Ahmed. We can't actually control that. So it's set by KHDA and ADEK, but traditionally has been between 2% and 3%. Remember, I mean, Arnaud gave a very good answer to the EBITDA margin. So we are sitting plus 26%. And all of the questions are right to highlight the J-curves of the schools. But the more schools perform like the 2 new Dubai British Schools, Dubai British School Mira, Dubai British School Jumeira, they actually become EBITDA positive pretty soon into the operations. And hopefully, both of the Harrows will follow that model. And then you've got to remember, Ahmed, at the same time, the other parts of the portfolio like Raha, Khalifa City are coming out of -- not only out of the J-curve, but moving into net profit positive. So there's the balance of closing capacity utilization in the legacy schools, and we showed you some of the gaps on a slide today, balancing that against the J-curve. And then on top of that, you've got the positive of Kids First Group. And remember, we highlighted today that the ramp-up J-curve on Kids First Group is much shallower than a K-12 schools. So within 1 or 2 years, you're into payback with only a CapEx of AED 4 million to AED 5 million. So if we deliver the strategy of going from 34 to 50 nurseries and if we continue to get high enrollment in the first few years of our Greenfield, then the margins that Arnaud just explained over the next 5 years can be delivered.

Unfortunately, that's all the time we have for the Q&A today. So we'll give the floor back to management in case you'd like to make any concluding remarks.

Thank you, Shukran, for joining the call. Just remember that Nora is our Investment Relations Manager. The e-mail is on the slide. So if you did have questions, please send them to Nora, and Arnaud and I will be more than happy to answer them. Just repeating another strong set of results, an ambitious growth agenda and a hugely exciting acquisition of Kids First Group. And we would like to thank you. The vast majority of people on the call today are investors in Taaleem, and we thank you for investing in us, trusting in us and joining us on our growth story. Shukran, and Ma'a salama.

Thank you, Alan, Arnaud and Nora, and thank you, everyone, for your participation. This concludes the call, and have a good rest of the week. Thank you.