Taaleem Holdings PJSC (TAALEEM) Earnings Call Transcript & Summary

Hello, everyone. This is Mirna Maher from EFG Hermes, and welcome to Taaleem Holdings Third Quarter 2026 Results Conference Call. I'm pleased to be joined today by Alan Williamson, CEO; Arnaud Prudhomme, CFO; and Nora Ghannam, Head of Investor Relations. We will first start the call with a presentation from management side, and then we'll open the floor for the Q&A session. Please go ahead.

Thank you, Mirna, and thank you to everyone who has joined us today, [Foreign Language] and welcome to our Q3 presentation. It's been a good quarter for us. Just to remind to all with some of these very healthy numbers, that our business model, remember, is largely, not exclusively, but largely 10 months of revenue and 12 months of cost. That stated, as you see across the top, and every category, Q3 to Q3 year-on-year, we have performed very well which given everything that's been going on shows the resilience of our operating model and the continuing demand for premium education in the UAE as well as the benefits of our investments, our greenfields and our M&A coming to fruition. As you see, record operating revenues at AED 1.17 billion and a further expansion of the premium portfolio. A reminder of the acquisition of DBS Islands joining the Emirates Hills campus expanding by 400 students and immediately filled the entire campus DBS Jumeira and DBS Mira, extremely strong starts and good, very good indications for the year ahead. So we've navigated regional disruption, no material impact on our K-12 and a very strong bounce back as you'll see later in the KFG segment. Growth continues. As you will see later in the presentation with Harrow Dubai,Harrow Abu Dhabi and DBS Ghaf Woods. So we have a disciplined capital allocation strong risk management and continued growth with strong operational execution and most importantly, continuing healthy demand across the entire portfolio. I'll pause there and hand immediately over to Arnaud to take us through the financial highlights, the balance sheet performance, cash generation and revenue recognition adjustment. Thank you, Arnaud.

Thank you, Alan. So good afternoon, everybody. we'll start with the fact that during the period as we are, as you know, a growth equity story, we have continued to strategically invest with the objective to boost returns for the shareholder long term. So our CapEx has reached close to AED 330 million and it has been deployed or correspond to the 3 committed new schools we are currently developing, Harrow Dubai, Harrow Abu Dhabi and Harrow Ghaf Woods. 98% of this CapEx is expansionary, no acquisition during the period. And the maintenance CapEx is slightly below the average during the year, which is over 3% just because of the events. To fund this, we have, as usual, mixed cash and debt. So our IPO proceeds, as you can see, has been -- has continued to be used. We are now at of what was raised in 2022 of usage. In parallel, we have continued to raise the debt. So AED 180 million additional debt have been raised since August 25 leading obviously to an increase of the net debt and a slight increase of the covenant net debt to EBITDA over the last 12 months to a multiple which is still very comfortable, 3.58 multiple, much below our covenant of 4. If you look at the metrics of the shareholder returns, they have improved over the period, as you can see for the ROE, the ROI, the ROC and other metrics. Our cash conversion ratio remains quite robust, even though it's slightly below last year during the same period. just because we have used part of our equity and cash to fund the working capital requirement of the new developments. Turning now to our leverage and debt position. As you know, Taaleem is financially managed prudently. And the prudence is especially on the side of the leverage. We have a focus on sustainable growth, and we want to have to fund value-accretive expansion. So our only purpose to make leverage to raise debt, it's precisely to fund this sustainable investment. So our total debt has elevated now to AED 1.5 billion. Again, an increase of AED 180 million versus August. And as you can see on the right-hand side of the board with a different bond covenants, we have a comfortable headroom which has been maintained all across. Now moving to a critical element in this very fluid environment, which is the cash and the cash flows. We have kept during the period, a strong liquidity position, and it is supported by 3 elements. One is the fact that we have, as I mentioned, a healthy cash conversion ratio, which is important. Second, we have, as you can see, at the end of the period, strong cash balances, AED 225 million, excluding the restricted cash, which correspond to the public private partnership. And we have as well AED 317 million of undrawn bank facilities, which are available that we can use to continue to construct to develop the school projects. So all in, if you adopt this, we sit with the liquidity at the end of the period, over AED 0.5 billion, AED 542 million exactly, which is quite comfortable. Moving now to complete the financial overview to -- in fact, it's come back to an accounting adjustment which was already presented at the time of the Q1 results, but it's still useful to clarify. So I stress the word accounting because it has no impact on the cash or the underlying operational results or operations. Fundamentally, it's a question of timing between the financial year which starts, as you know, on the first of September and the academic year, which starts usually before the financial year. So the overlap teaching days needs to fall inside the closing fiscal year as per the IFRS standards in which we report. Practically, we assumed at the beginning of the financial year, that the school year will start earlier that it will fundamentally on the 24th of August instead of the 31st of August. And we did it. We did this assumption based on the last year's 3-year pattern where the school year was started roughly a week before the start of the financial year. In February 2026, we got from the regulator, the start date of the school year for the next 3 years, which is an innovation. Usually, it was only for 1 year. Now we have a visibility over 3 years, which is, again, very good. So what we did is to reverse 7 days in Q1, corresponding to AED 27.3 million. And we will add 1 day because the school year starts on the 1st of August, we will have 1 day of revenue on this financial year, in Q4, all in the impact will be AED 22.7 million. This revenue recognition will continue over the next year. Obviously, it will normalize and will be structurally positive I won't disclose numbers at this stage because it depends fundamentally on the enrollment, and we will note the actuals at the beginning of September this year and obviously, the following years. But for the next 3 years, we plan it to be structurally positive and quite positive. I pause now and give back the floor to Alan.

Thank you, Arnaud, we'll take a look at business continuity. And I need to stay with real intention, how I am of how Taaleem responded in the context of the regional environment. I think it really showed the strength of our operational platform and most importantly, it showed the commitment of the teams across the organization, the leadership at all levels, the leadership and central choice, the leadership of each individual school and each individual notary, and it was a true testament to the values of Taaleem. In general, on the left-hand side, the K-12 schools maintained full operational continuity and delivered high education quality. And we'll take a moment later in the presentation to give you a snapshot of that education quality, but it has still led to outstanding outcomes in all of our examinations that have been published to date. Most importantly, teacher stability across the workforce, 99%, which is absolutely incredible, all of teachers were retained. And even some of that 1% are coming back to us in September, August for the new academic year. And for the first ever year, we retained all our principals moving into the new academic year than 1, which was a Taaleem decision. So it just shows the loyalty of the teachers and principals to the brand of Taaleem. And in particular, with Kids First Group, we preserved customer confidence with all of the bullet points lots of them innovative as we took on third-party venues as we opened home pots -- home ports. And I will take a deep dive into kids first group to show you the accelerated recovery of reopening. And you'll be really encouraged by things like the outlook for the forthcoming summer camps that have just ended just started. So the experience really reinforced the quality of our leadership teams and its central office and its schools, the strength of our operating platform and the dedication of our staff. In terms of a deep dive on K-12, demand remained and remains resilient. Fee collection is one to look at actually in K-12, we are now heading towards 99% fee collection, which is really incredible given the situation that we experienced. If you look at the bottom left, a reminder that our portfolio of students is actually extremely defensive. And even within the medium risk block, we have a strong cohort of students that no matter for will -- and families will remain with us. So demand remains strong. Schools continue to attract families and the growth story remains firmly on track. On the far right you might be interested in, I'm sure you are interested for certain and some demand visibility, which is encouraging. Tentatively, obviously, at this early stage to a busy summer ahead. But from a 12% growth in enrollment, we're confident that we will move at least to a continuing growth story at present forecasts suggesting around 5% increase, which given that I believe or 8 of our 14 schools are either at capacity or 95% capacity, closing that gap actually becomes harder and harder. But a bit of proxy data for you, DBS Mira and DBS Jumeira, which are really the schools that will continue to grow the portfolio will both be at over 200 -- sorry, together will be over 2,000 students in the next academic year, and we say that with real confidence. Harrow Dubai already has overperformed the original business plan as we sit today above our AED 374 million target, which again given the parameters of the regional situation is a very strong performance. And in addition, Dubai schools PPP will grow increased by 33% up to 6,000 students. A deep dive on Kids First, really, the message here is the strong and encouraging recovery. Look at some of the data on the slide. 82% already of pre-conflict student numbers. Over 2,300 students who left and during the conflict have been immediately regained, a very strong bounce back plus an additional 424 newcomers, which have joined the strength of the Kids First brand. So I guess these data points are a reminder of the strength of the platform. Remember, as we grow it, its asset light, it's cash generative, and it provides strategic advantage to Taaleem. The recovery trajectory is strong, and the disruption was very much temporary and not in any way, shape or form [indiscernible] It is a very, very resilient platform, quick recovery, and it's stronger now than it was before. Now, this is an interesting slide. When we IPO-ed our Chairman talked to Arnaud and I and said focus on execution rather than share valuation. However, with strong revenue growth with high margins with visible demand, as I've just shown you and significant expansion pipeline, we believe Taaleem continues to trade at a meaningful discount. The valuation remains below peer averages as you see across PE, EV to EBITDA measures and therefore, we see this as an opportunity. A reminder that new school capacity is maturing, harried performing well and earnings will scale with growth. And we believe that in the not-too-distant future, the market will recognize these strong fundamentals. I want to take a second to look ahead to the near term. And a reminder to most of you as you're already aware of the immediate strategic expansion pipeline. And the news today is the pipeline remains very much on track indeed. I had the honor of visiting Harrow Dubai yesterday, 1,000 workers working 24 hours a day. There's a double shift on in Harrow Dubai and will open in August 2026. As I said already, we have met our business plan for student recruitment and there's still 2 more months to go. So no stop, no change with Harrow Dubai. Harrow Abu Dhabi, I was also with his excellency Mohammed, who is the deck Chairman yesterday, who was finding in more detail the strength of the Harrow brand and the opening plan for Harrow Abu Dhabi in September 2027, and the design of a -- sorry, DBF Woods is complete. So we're very, very excited to start that project on [indiscernible] team land in a fantastic new community in Dubai. And a reminder that our DBS schools in communities like Jumeira, like Mira, like Jumeira Park, like Emirates Hills, have all performed extremely strongly. So as you stay at that board, you see another 5,400 seats coming to the Taaleem portfolio and the next chapter of our premium school growth strategy. The visibility is there on future capacity and earnings growth. And please be assured that the management team, the Board are already planning an ambitious future beyond what you're seeing, and we will be coming to announce that to the market in the not too distant future as we secure a new pipeline over and above this one. I'll pause again and hand back to Arnaud.

Thank you, Alan. So now we turn to the guidance for the full financial year '25, '26. Obviously, given the regional events, we have reset the guidance versus what was presented to you in Q1. And I will go through the different element to give the background of the reset. First, the enrollment. So if you look at the K-12 enrollment, we will deliver what we said in Q1, close to 42,000 students. For KFG, the range remains the same. In fact, the higher end of the range has been reduced by 500 students due to the operational disruption and obviously, the fact that the nurseries as a whole, not only KFG, we are closed for more than 50 days, which obviously didn't bring revenue. In terms of operational revenue for Taaleem only, we have reset it to an increase year-on-year of 15%. It's still in the range we shown at the time of Q1. It remains resilient, as you can see. But obviously, we need to take into account, and it reflects the revenue cutoff of accounting treatment I presented earlier today. In terms of EBITDA, EBITDA margin, we should be around AED 331 million and we have a margin which should reach 25%. As you can see, it's, again, within the range presented earlier, but slightly at the lower end because of the revenue cut off. KFG the share of net profit to Taaleem. KFG as a stand-alone. So we are planning AED 40 million to AED 43 million Net profit as a stand-alone. Now we are probably around 1.6, maybe slightly over this. And it's reduced because of the temporary closure and the impact of the events on the business itself. Now if you look at the contribution of KFG to the Taaleem bottom line, it was planned to be positive. It remains positive -- it remains not positive, sorry, because of the accounting adjustment we need to make at the level of Taaleem which are the follow-up of the purchase price allocation. We need to review the fair value of some leases and to take into account the amortization of the brand value of KFG. So it's roughly AED 7 million. Hence, the fact that the contribution itself will be negative at AED 6 million. Net profit consolidated Taaleem plus KFG, we target now something around AED 170 million plus. It will depend, obviously, at the end of the financial year, and we lack full visibility still on this. For instance, about the bad debt level versus what we plan today. As mentioned by Alan, the collection rate is quite high, over 99%, but still, there is still some money to collect. So all of this will determine the final lending in terms of net profit. CapEx remains aligned for Taaleem with what we announced in Q1, and we continue to invest. And the net debt to EBITDA should be around the 4 multiple because we are in the investment phase. So cyclically, our CapEx is quite high and net debt is quite high accordingly. Now to share a bit of a perspective, a larger perspective than just this financial year. This board is presenting a kind of outlook. It's not properly a guidance. It's more an outlook for the coming years, both for Taaleem consolidated and for Kids First Group. For Taaleem, due to the fact that the school in which we are -- that we are developing that are already opened, but they are continuing to open new grades. And for those, we continue to ramp up. The school will mature, bring more revenues and EBITDA and net profit. So we will have, from '27, '28, a stronger earnings profile, meaning we will be over '24, '25 in terms of net profit. And 2 years later, the return on equity will go up to around 16%. It's standing currently at 9.1% at the end of 9 months this year, just to give a comparison. In terms of KFG, and we plan within 2 years because of rapidity of the recovery and the expansion on which we are working, both through M&A and greenfield opportunities. The EBITDA should reach at least AED 240 million in 2 years' time, AED 180 million probably 2 years later. And in terms of net profit after tax, the contribution for Taaleem assumed here at 95%, will reach around AED 95 million. This projection or this outlook, obviously, is quite conservative on purpose until we know better. And we will refine them and communicate to the market later on when we know better again. The other thing to stress, obviously, it depends on what's going on outside and what is not in our control will have obviously an impact on them. I pause again and give back the floor to Alan.

Thank you, Arnaud. So before closing, I'd like to finish where every education company should finish with the educational outcomes because although Q3 is in the midst of our financial year, Q3 is actually the close of the academic year. And ultimately, the academic outcomes are the key driving force in our company. And the news is that the outcomes for young people are improving. In a second outlook at one indicator of that, the IB results, but our predictions for A level and GCSE are also strong as well as the American AP and we have absolutely smashed the French Baccalaureat results, and they are all -- across all subject areas rated as outstanding. And we have improving cash rates at all levels. Six of our schools have been rated platinum or gold and indeed five of them platinum globally recognized Best Place to Work initiative, which is run across the world by schools group. And what it shows you is that our schools are not only academically excellent, but they are very, very happy places for our staff to work and we are seeing that year-on-year in relation to teacher attrition and the attraction of -- or lowering teacher attrition and their traction of clean when we go to recruit. We also have examples of sporting excellence, excellence in [ express a facts ] and international enrichment across the portfolio. It gives us confidence in short, medium and long-term future of our schools. And when you invest in Taaleem, and I'm sure you all know this, you're also investing in shaping the future of young people in the UAE. And again, the screen is a reminder that the outcomes that are most to our parents and our student are these academic and social outcomes, but they drive the demand, the growth in demand, the underpin, the reputation of the schools and the company, and ultimately, that is what creates the shareholder value. So on this page, I don't think we have ever across 20 years of having IB schools seen a results portfolio where across every single area -- all of our IB schools went upwards in terms of trend. And you'll see for the first ever time the Raha International Kalifa city, a small cohort of grade 12, children, which will grow as the pyramid of our enrollment grows to Grade 12, but exceptional results to be up in every single category. In terms of university outcomes, it's also something that we are particularly proud of. With so many of our students going to Russell Group Ivy League universities, such as Oxford, such as Imperial, such as UCL. So we're really, really proud of our students and positive destinations. So I guess, in conclusion, we -- across this portfolio that grows year-on-year. We have strong financial performance at the end of Q3. We have a resilience in relation to the current environment. We continue to invest in future growth projects and plan for even more growth projects. We have strengthened our current foundations and we have a clear strategy for growth and returns. And the ambition is unchanged. And on that note, I'll pause and on behalf of the Board, thank you once again for investing in the company, and I'll return to Mirna and ask if anybody has questions. Thank you, and thank you to everyone for joining the call.

[Operator Instructions] We will take the first question from Alowi Alimera.

I just had one question in terms of the operating environment in UAE now. You expand that in terms of the leading indicators you highlighted principal retain the teachers. Could you explain in terms of the students and what are the feedback you're getting for the parents and also the tuition and part of it?

Yes. I think that proxy data that I've given you is strong in relation to the current environment. And I believe it's sticky. It's something that I would refer it to. I know it's not the most academic term. I think the property market has helped people Lots of people have now invested in Dubai and Abu Dhabi property. So lots of people who may have lost one job in the household are sticking around and looking for opportunities with recovery. As I said, we are -- we ended the academic year around 18,350 students. Now I know the data on the board shows 18,591 , but that was average across the year-to-date at Q3. And we have a level of confidence in terms of sign-ups, in terms of deposits, in terms of a collection of revenue already for the next academic year that we're tracking around 19,500. Obviously, Arnaud hinted that the situation remains uncertain. However, I believe if you were in Dubai on the ground, there is that stickability we're going to see this through, and we need our child in the best school that they can possibly get into. Remember, our schools are rated outstanding and very good. And also remember, our price point is actually extremely good value for the educational outcomes that I just showed you at the end of the presentation. And as you suggested, whether it's the principal, whether it's the leaders, whether it's the C-suite and Central office, whether it's teachers, we are seeing actually no attrition at leadership or teacher level, which is the important indicator. And again, even out with that price point, that sweet price point that Taaleem [indiscernible] -- if you look at Harrow Dubai, where the average fees are closer to AED 100,000. It's quite incredible actually that we are tracking on or above our business plan at the present pack.

We have a question in the chart. For the announced new school capex, what kind of construction inflation are you seeing that could impact FY26/27 capex vs. your base case pre-war? What levers can you pull?

So to address your question a different way of looking at it. What has happened since February is clearly a strong pressure on the cost of construction and all the element of the construction -- so we have factored this and we have reviewed the business plan of the 3 schools to make sure that it is currently properly reflected. My colleague, the CEO of Taaleem, Sam Truman, who'll talk better than me about this. But what he has done with these teams is to in-source sourcing of precisely of materials, so trying to find them in the UAE instead of outside to be less dependent on the pressures. He has done everything equal to try to manage the cost base. It goes from plus 10% to plus 20%, plus 30% depending on what you're talking about. Is it the cement? Is it the material to fit out the school? Is it the equipment go all of these varies. They are negotiated his team has negotiated very hard to make it as low as possible, but we know that moving forward, probably the cost of construction will keep on not necessarily increasing further, but stay at a level which was -- which will be higher than prior to the crisis, and we take this into account into our revised business plan and for the new projects on which we are working.

We'll take the next question from [indiscernible] Bilbao. Bilal, we can't hear you.

Yes. So I just wanted to reconcile your guidance for Kids First group based on what you've reported year-to-date in the new updated guidance. So are you expecting losses in the fourth quarter?

In the fourth quarter no, we are expecting -- in fact, the fourth quarter for KG as a business is usually quite strong because they have the summer camp and the summer camp so far for what we understand from the data we get are very strong. They are very much in demand and probably stronger than what we all expected and there are different reasons for that. So the revenues which will be generated by this is higher even than the forecast you can see on the different boards. We mentioned AED 8.5 million plus for the summer camp, we will be over AED 10 million for sure.

Then I'm reading AED 1.6 million versus AED 40 million to AED 43 million.

Yes. That's a full year. That's the full financial year. So you have Initially, we were planning, as mentioned, AED 40 million to AED 43 million as a net profit. Now as a net profit as a stand-alone for KFG, now because of the loss of EBITDA fundamentally. We end up to be at a positive of AED 1.6 million plus is slightly higher than this if possible. But that's the main reason for which the net profit will be lower, but it will be still positive, net profit would be significantly lower than what was planned during Q1.

Right. So sorry to ask you this, but in the 9 months of '25, '26, how much have you recognized in Kids First Group as a net profit?

I don't have the number on top of my head, but we can share it with you. AED 10.7 million, sorry.

Yes. So I'm sorry, maybe I'm reading the slide wrong, but -- so if you've done AED 10 million plus in 9 months, and you expect for the full year to do $1.6 million only. So I'm having trouble reconciling the numbers.

No, I understand your question. The point is KFG as apart from the summer camp revenue during the summer, no other new stream. This is what makes it. So it will be AED 10 million something. But at the same time, they keep their cost base unchanged to prepare for the new academic are. So it's a bit like for the K-12 for Taaleem. You recognize your revenue over 10 months fundamentally, and you have your cost base over 12 months. So that's why we go down from AED 10.7 million to AED 1.6 million plus at the end of the financial year. For Taaleem, by the way, you can see the group net profit sitting at AED 283 million at the end of the 9 months period and as you can see in the lending forecast for the full year, for Taaleem only, it will be when consolidated, it will be AED 117 million plus, and this is exactly the same reason. The costs are here all over the year. The revenue are here only fundamentally for 10 months only. This is to comply with an IFRS standard. It's not a decision we have made.

We'll take some questions from the chat. The first one, can you please give us some details on the reasons for PPP management fee-related revenues increased to AED 13.8 million in Q3 2026 compared to the usual rate of AED 5 million to AED 7 million per quarter?

Yes. One reason which drives this important increase is the fact that the contract with the charter school program has changed since September last year, and part of the costs which were borne directly by charter school are now paid back to Taaleem as a fee. So in fact, we collect more management fee through this. When you exclude this cost, which corresponds to the cost of running the program in Abu Dhabi, then the management fee continue to increase or increase at a rate which is much lower than what you can see on this board.

Thank you. The next question or questions from Ahmed Kamal. The first one is what normalized EBITDA margin should we expect post ramp up? And the second question is any comment on dividend policy for the year?