Koolearn Technology Holding Limited
新東方在綫科技控股有限公司
(Incorporated in the Cayman Islands with limited liability)
Stock Code: 1797
2020 INTERIM REPORT
CONTENTS
Corporate information | 2 |
Financial highlights | 4 |
Business overview and outlook | 5 |
Management discussion and analysis | 9 |
Other information | 16 |
Report on review of condensed consolidated | 24 |
financial statements | |
Condensed consolidated statement of | 25 |
profit or loss and other comprehensive income | |
Condensed consolidated statement | 26 |
of financial position | |
Condensed consolidated statement | 28 |
of changes in equity | |
Condensed consolidated statement of cash flows | 29 |
Notes to the condensed consolidated | 30 |
financial statements | |
Definitions | 62 |
CORPORATE INFORMATION
Board of Directors | Company secretary |
Executive Directors | Mr. CHEUNG Kai Cheong Willie (FCPA, FCCA) |
Mr. SUN Dongxu (孫東旭) Chief executive officer | Authorised representatives |
(appointed on 16 August 2019) | |
Mr. YIN Qiang (尹強) | Mr. YIN Qiang |
Mr. PAN Xin (潘欣) (resigned on 16 August 2019) | Mr. CHEUNG Kai Cheong Willie |
Non-executive Directors | Auditor |
Mr. YU Minhong (俞敏洪) Chairman | Deloitte Touche Tohmatsu |
Ms. SUN Chang (孫暢) (re-designated from executive | Certified Public Accountants |
- Director to non-executive Director on 20 January 2020)
Mr. WU Qiang (吳強) | Registered office |
Ms. LEUNG Yu Hua Catherine (梁育華) | Cricket Square |
Hutchins Drive | |
Independent non-executive Directors | P.O. Box 2681 |
Mr. TONG Sui Bau (董瑞豹) | Grand Cayman KY1-1111 |
Mr. KWONG Wai Sun Wilson (鄺偉信) | Cayman Islands |
Mr. LIN Zheying (林哲瑩) | Headquarters |
(appointed on 20 January 2020) | |
Mr. CHI Yufeng (池宇峰) | Level 18, South Wing |
(resigned on 20 January 2020) | 2 Haidian East Third Road |
Board committees | Haidian District |
Beijing, China | |
Audit committee | Principal place of business in |
Mr. TONG Sui Bau Committee chairman | |
Mr. WU Qiang | Hong Kong |
Mr. KWONG Wai Sun Wilson | Level 40, Sunlight Tower |
248 Queen's Road East | |
Remuneration committee | Wanchai, Hong Kong |
Mr. LIN Zheying |
- (appointed on 20 January 2020 and committee
- chairman from date of appointment)
Mr. CHI Yufeng Committee chairman
-
(resigned on 20 January 2020) Ms. SUN Chang
Mr. TONG Sui Bau
Nomination committee
Mr. YU Minhong Committee chairman
Mr. TONG Sui Bau
Mr. LIN Zheying
- (appointed 20 January 2020) Mr. CHI Yufeng
- (resigned on 20 January 2020)
2 KOOLEARN TECHNOLOGY HOLDING LIMITED
Corporate Information (Continued)
Legal advisers
As to Hong Kong and United States Laws
Skadden, Arps, Slate, Meagher & Flom and affiliates
As to PRC Laws
Beijing Tian Yuan Law Firm
As to Cayman Islands Laws
Conyers Dill & Pearman
Compliance adviser
China International Capital Corporation Hong Kong Securities Limited
Hong Kong share registrar
Computershare Hong Kong Investor Services Limited
Principal share registrar
Conyers Trust Company (Cayman) Limited
Principal bank
Bank of China (Hong Kong) Limited
Stock code
1797
Website
www.koolearn.hk
INTERIM REPORT 2020 | 3 |
FINANCIAL HIGHLIGHTS
Key highlights
Six months | Six months | ||
ended | ended | ||
30 November | 30 November | Period-on- | |
2019 | 2018 | period change | |
RMB'000 | RMB'000 | % | |
Revenue | 567,641 | 477,969 | 19 |
(Loss) profit for the period before tax | (94,863) | 35,768 | (365) |
Income tax credit | 7,347 | 417 | 1,662 |
(Loss) profit for the period | (87,516) | 36,185 | (342) |
(Loss) profit for the period attributable to: | |||
- Owners of our Company | (71,282) | 48,912 | (246) |
- Non-controlling interests | (16,234) | (12,727) | 28 |
(Loss) earnings per Share: | |||
- Basic and diluted (RMB) | (0.08) | 0.07 | (214) |
Non-IFRS measure: Adjusted Net (Loss) Profit(1) | (56,250) | 31,433 | (279) |
Non-IFRS measure: EBITDA(2) | (108,829) | (33,877) | 221 |
- Adjusted (loss) profit ("Adjusted Net (Loss) Profit") for a given period represents (loss) profit for the period less gain on fair value changes of financial assets at fair value through profit or loss (FVTPL) plus listing expenses and share-based compensation expenses for that period. IFRS refers to the International Financial Reporting Standards ("IFRS").
- Earnings before interest, taxes, depreciation, and amortisation ("EBITDA") represents (loss) profit for a given period plus income tax (credit) expenses, listing expenses, share-based compensation expenses, finance costs, depreciation of property and equipment and depreciation of right-of-use assets less other income, gains and losses and impairment losses under expected credit loss model, net of reversal, for that period. The change of finance costs and depreciation of right-of-use assets, in the reconciliation and consequently, the change in the definition of our EBITDA, was due to our application of IFRS16 on 1 June 2019.
4 KOOLEARN TECHNOLOGY HOLDING LIMITED
BUSINESS OVERVIEW AND OUTLOOK
Our business
We are a leading online provider of extracurricular education services in China with a comprehensive portfolio of well- recognised brands known for high-quality courses and content, with a core expertise in online after-school tutoring and test preparation. We strive to become a lifelong learning partner, empowering students to achieve their full potential. We provide our courses and products through different online platforms and mobile applications in multiple formats across three core segments, namely our college education, K-12 education and pre-school education segments.
The number of student enrolments in each type of course offering for the periods indicated is summarised below:
For the | For the | |
six months | six months | |
ended | ended | |
30 November | 30 November | |
2019 | 2018 | |
Student | Student | |
enrolment | enrolment | |
'000 | '000 | |
Students | ||
College education | 526 | 621 |
K-12 education | 755 | 292 |
Pre-school education | 36 | 191 |
Total | 1,317 | 1,104 |
The average spending per enrolment in each type of course offering for the periods indicated is summarised below:
For the | For the | |
six months | six months | |
ended | ended | |
30 November | 30 November | |
2019 | 2018 | |
RMB | RMB | |
Formal courses | ||
College education | 1,128 | 723 |
K-12 education | 1,040 | 967 |
Pre-school education(1) | (61) | 153 |
Sub-total average | 1,022 | 617 |
Entry courses | 24 | 19 |
Total average | 425 | 430 |
- There was product lines adjustment in pre-school education during Reporting Period.
INTERIM REPORT 2020 | 5 |
Business Overview and Outlook (Continued)
Our performance overview
Overall financial performance
We achieved stable and healthy growth in terms of net revenue and student enrolments during the Reporting Period. Our total net revenues increased by 18.8% from RMB478.0 million for the six months ended 30 November 2018 to RMB567.6 million over the Reporting Period. Our total student enrolment increased by 19.3% to 1.3 million over the Reporting Period. In the college education segment, we adjusted product lines and recorded RMB361.4 million in net revenue, representing a period-on-period growth of 5.5%. In the K-12 education segment, the successful execution of our growth strategies led to impressive growth in this highly competitive market. Our net revenue and student enrolments in the K-12 segment increased period-on-period by 69.4% and 158.6%, respectively. In our pre-school education segment, we changed our operational focus to Donut English-learning APP only. We continued to optimise our courses offerings and our net revenue in the pre-school education segment recorded a period-on-period growth of 72.8%.
College education
Our courses in the college segment mainly consist of courses for college test preparation and overseas test preparation courses. Our courses are primarily used by college students and working professionals preparing for standardised tests or seeking to improve their English language proficiency. During the Reporting Period, we further improved the product structure and concentrated on higher-priced college test preparation and overseas test preparation businesses, which increased the average spending per enrolment in formal courses from RMB723 for the six months ended 30 November 2018 to RMB1,128 over the Reporting Period. As there was less contribution from English language learning courses, our student enrolment in the college segment recorded 0.5 million in the Reporting Period, representing a decrease of 15.3% over the previous six-month period.
K-12 education
Our comprehensive K-12 course offerings, including primarily Koolearn K-12 courses and location-based live interactive after-school tutoring courses ("DFUB"), provide after-school tutoring courses that cover the majority of standard school subjects from primary and high school in China. We also offer preparation courses designed for standardised high school and national college entrance exams. Our courses are carefully designed for K-12 students taking standard education courses in primary and high school in China.
During the Reporting Period, we continued to implement a series of initiatives to accelerate the expansion of our K-12 segment and achieved outstanding operating results in our K-12 segment. Our student enrolments for overall K-12 segment recorded period-on-period growth of 158.6%. More specifically, our student enrolments for Koolearn K-12 courses recorded period-on-period growth of 157.5%, and our student enrolments for DFUB courses grew period-on-period by 186.2%. Our growth in K-12 education during the Reporting Period was largely attributable to the continued successful execution of our growth strategies in this segment. We accelerated the expansion of our DFUB business during the Reporting Period and continued to optimise the operations of DFUB courses in each city. As at 30 November 2019, DFUB had entered 128 cities across 23 provinces in China.
6 KOOLEARN TECHNOLOGY HOLDING LIMITED
Business Overview and Outlook (Continued)
Pre-school education
Our pre-school education segment offers inspiring and interactive English learning and other pre-school education courses designed specifically for children between the ages of three and ten. Our child-friendly online educational content is mainly delivered through our Donut English-learning APP. During the Reporting Period, we adjusted our product line in our Donut live online English classroom courses and focused on the integration and optimisation of Donut APP, which resulted in a decrease in student enrolment during the Reporting Period.
Strategic update and future development
We refer to our announcement of 2 September 2019 and our FY 2019 annual report of 24 September 2019, in which we set out our long-term growth strategies. As mentioned in these documents, we will continue our long-term growth strategies to increase student enrolments by increasing the retention of our existing students and the acquisition of new students. To achieve this, we will continue to invest more in recruiting, retaining, training and promoting high- calibre teaching, course research and marketing staff. We will continue to construct a flexible and efficient central backing platform to support the growth of front-end programmes and business. Along with the development of 5G technology and increasing penetration in the online education market, the competition in the online education industry is intensifying. We will continue to optimise our product portfolio in response to the fast-changing industry landscape and customers' booming demand for new technology and new content. During the Reporting Period, we have reorganised a series of products in each business segment. After the modification is complete, our college segment will focus on domestic college test preparation and overseas test preparation, our K-12 segment will focus on dual-teachers' classes and the small classes business of DFUB in order to meet different needs of students from different cities and regions, and our pre-school segment will focus on optimising the series of educational content in Donut English APP. While business restructuring and product portfolio optimisation may affect the growth of certain segments, we believe that such measures, will enable us to concentrate our core resources on main businesses and products. We believe that the strong vitality of our organisation bodes well for our healthy and sustainable development in the long run.
We view our K-12 education sector, and in particular, our education platforms operating in this area, as still having significant room and opportunity for growth. As seen by our acquisition of Dongfang Youbo this year (see our announcement of 16 August 2019 on the DFUB acquisition) and our appointment of Mr. SUN Dongxu as an executive Director (see our announcement of 16 August 2019 on the FY 2019 annual results and changes in directorship), we plan to, among other areas, focus on developing our K-12 education segment. Dongfang Youbo, our wholly- owned subsidiary, is a significant contributing factor in this strategy and has enhanced our Group's presence in the K-12 education market in China. During the Reporting Period, DFUB has entered into an additional 65 cities. For the remainder of FY 2020, we expect DFUB to expand into more cities through more diversified offline marketing channels and we plan to further customise course content based on materials used by local schools. For Koolearn K-12 courses, we will continue to increase our investments in upgrading our APP for primary and middle school students and self-develop our online platform. Through continuously introducing new education technologies, we will be able to offer more and more tools that can help improve teaching effectiveness and efficiency, which will in turn, be realised and applied in our online classes. We also plan to establish teaching training centers in other geographical locations to attract more qualified teachers and tutors and provide systematic training programs. We will continue to enhance flexible and effective marketing strategies to optimise our average user acquisition cost.
INTERIM REPORT 2020 | 7 |
Business Overview and Outlook (Continued)
In our college segment, we have focused on key sectors and key customers to strengthen our market leading position. With product lines adjusted to be more focused, we expect to invest more into our courses in domestic test preparation and overseas test preparation. In response to the booming demands for new technology and new content, we will accelerate our progress in developing and upgrading our portfolio of courses by adding more live steaming content and interactive modules. During the Reporting Period and for the remainder of FY 2020, we intend to continue introducing more high-quality courses offering higher knowledge density in shorter class hours, such as our preparation course series for graduate school entrance exams, with the aim of enhancing efficiency for students and productivity for teachers. We will also continue to explore our "dual-teacher model" to deliver a brand new in- class experience and comprehensive after class assistance. We will continue to collaborate closely with providers of overseas English tests such as ETS. As a growing number of Chinese students take the SAT and GRE outside of China, we will also continue to optimise our SAT and GRE preparation courses to better meet their study needs.
8 KOOLEARN TECHNOLOGY HOLDING LIMITED
MANAGEMENT DISCUSSION AND ANALYSIS
Revenue
Our revenue increased by 18.8% from RMB478.0 million in the six months ended 30 November 2018 to RMB567.6 million in the six months ended 30 November 2019.
College education
Revenue from our college education segment increased by 5.5% from RMB342.7 million in the six months ended 30 November 2018 to RMB361.4 million in the six months ended 30 November 2019, driven by the increase in revenue from college test preparation and revenue from overseas test preparation, which increased by 23.7% and 12.9% period-on-period, respectively. During the Reporting Period, we conducted a restructuring of our college education business lines, with more focus on our college test preparation and overseas test preparation businesses. While we adjusted some English-learning courses in our college segment, we reorganised certain products with relatively strong demands (such as New Concept English) to the college test preparation product line. If we excluded the impact of our product line restructuring, revenue from college test preparation courses would have recorded a 11.1% increase during the Reporting Period. Our courses for graduate school entrance exams, the revenue from which accounted for more than half of the revenue under college test preparation, grew by 10.8% from the previous year for the same period, as we upgraded course portfolio and average spending per enrolment steadily enhanced.
K-12 education
Revenue from our K-12 education segment increased by 69.4% from RMB75.6 million in the six months ended 30 November 2018 to RMB128.2 million in the six months ended 30 November 2019, primarily due to the continued expansion of DFUB courses and solid operational progress in the Koolearn K-12 courses. Student enrolments in the K-12 education segment increased from 292 thousand in the six months ended 30 November 2018 to 755 thousand in the six months ended 30 November 2019.
Pre-school education
Revenue from our pre-school education segment increased by 72.8% from RMB12.4 million in the six months ended 30 November 2018 to RMB21.5 million in the six months ended 30 November 2019, primarily due to the continued optimisation of our Donut English-learning APP, where the average spending per enrolment in formal courses increased from RMB87 in the six months ended 30 November 2018 to RMB153 in the six months ended 30 November 2019. During the Reporting Period, we made a business adjustment for our Donut online classrooms to focus on driving our competitiveness in our Donut English-learning APP.
Institutional customers
Revenue from our institutional customers increased by 19.9% from RMB47.2 million in the six months ended 30 November 2018 to RMB56.6 million in the six months ended 30 November 2019.
Cost of revenue, gross profit and gross margin
Our total cost of revenue increased by 27.3% from RMB196.8 million in the six months ended 30 November 2018 to RMB250.5 million in the six months ended 30 November 2019, primarily due to an increase in teaching staff costs, course research staff costs, and IT support and technology costs, which grew by 29.4%, 48.8% and 54.2% period-on- period, respectively, as we devoted significant resources to enhance the quality of our courses.
Our gross profit increased by 12.8% from RMB281.2 million in the six months ended 30 November 2018 to RMB317.1 million in the six months ended 30 November 2019. Our gross profit margin decreased from 58.8% in the six months ended 30 November 2018 to 55.9% in the six months ended 30 November 2019, primarily due to the expansion in K-12 segment, in particular the increase in teaching staff costs and course research staff costs.
INTERIM REPORT 2020 | 9 |
Management Discussion and Analysis (Continued)
College education
Cost of revenue for our college education segment increased by 4.1% from RMB109.5 million in the six months ended 30 November 2018 to RMB114.0 million in the six months ended 30 November 2019, primarily due to the increase in teaching staff costs and course research staff costs.
Segment gross profit for our college education business increased by 6.1% from RMB233.1 million in the six months ended 30 November 2018 to RMB247.4 million in the six months ended 30 November 2019, and the gross profit margin increased from 68.0% in the six months ended 30 November 2018 to 68.5% in the six months ended 30 November 2019.
K-12 education
Cost of revenue for our K-12 education segment increased by 75.9% from RMB63.6 million in the six months ended 30 November 2018 to RMB111.8 million in the six months ended 30 November 2019, primarily due to an enhancement of our offerings for Koolearn K-12 courses and the expansion of DFUB to more regions required significant upfront investment to attract qualified teachers and design high-quality courses.
Segment gross profit for our K-12 business increased by 35.5% from RMB12.1 million in the six months ended 30 November 2018 to RMB16.4 million in the six months ended 30 November 2019. Gross profit margin decreased from 16% to 12.8%, primarily due to an increase in student enrolments to entry courses from the summer of 2019, and an increase in teaching staff costs and course research staff costs, as we continued to update our Koolearn K-12 course offerings and continued to commit more resources on course development, as well as the increase in IT support and technology costs, as all of our Koolearn K-12 courses and DFUB courses are delivered in a live format.
Pre-school education
Cost of revenue for our pre-school education segment decreased by 15.6% from RMB15.1 million in the six months ended 30 November 2018 to RMB12.8 million in the six months ended 30 November 2019, primarily due to a business adjustment in small class live English learning courses by Donut online classroom, which led to an decrease in course research staff costs and teaching materials costs.
Segment gross profit for our pre-school education business recorded RMB8.7 million in the six months ended 30 November 2019, compared to segment gross loss of RMB2.7 million in the six months ended 30 November 2018, and the gross profit margin increased from a loss margin of 21.6% to a profit margin of 40.6%, primarily due to a shift in operational focus towards our Donut APP business.
10 KOOLEARN TECHNOLOGY HOLDING LIMITED
Management Discussion and Analysis (Continued)
Institutional customers
Cost of revenue for services to institutional customers increased by 40.6% from RMB8.5 million in the six months ended 30 November 2018 to RMB12.0 million in the six months ended 30 November 2019.
Segment gross profit for our services to institutional customers increased by 15.3% from RMB38.7 million in the six months ended 30 November 2018 to RMB44.6 million in the six months ended 30 November 2019, and the gross profit margin decreased from 81.9% to 78.8%.
Other income, gains and losses
Our other income, gains and losses remained relatively steadily from RMB89.2 million in the six months ended 30 November 2018, to RMB88.8 million in the six months ended 30 November 2019.
Selling and marketing expenses
Our selling and marketing expenses increased by 25.4% from RMB232.6 million in the six months ended 30 November 2018 to RMB291.6 million in the six months ended 30 November 2019, primarily due to an increase in sales and marketing staff costs as we continued to expand our business and strengthen our professional marketing team, in particular for our DFUB courses.
Research and development expenses
Our research and development expenses increased by 109% from RMB61.7 million in the six months ended 30 November 2018 to RMB128.9 million in the six months ended 30 November 2019, primarily due to a continued increase in staff costs as our business strategies required more qualified research and development staff to support our expansion.
Administrative expenses
Our administrative expenses increased by 177.2% from RMB28.4 million in the six months ended 30 November 2018 to RMB78.8 million in the six months ended 30 November 2019, primarily due to share-based compensation expenses and an increase in staff costs as our business strategies required more qualified administrative staff.
Share of result of associates
Our share of profit of associates remained relatively steadily from RMB3.6 million in the six months ended 30 November 2018 to RMB3.3 million in the six months ended 30 November 2019.
INTERIM REPORT 2020 | 11 |
Management Discussion and Analysis (Continued)
Income tax (expenses) credit
From the six months ended 30 November 2018 to the six months ended 30 November 2019, our income tax credit increased by 1,661.9% from RMB417 thousand to RMB7.3 million in the six months ended 30 November 2019, primarily due to a decrease in current income tax expenses.
(Loss) profit for the period
As a result of the above, our profit for the period decreased by 341.9% from RMB36.2 million in the six months ended 30 November 2018 to a loss of RMB87.5 million in the six months ended 30 November 2019.
Non-IFRS measures
To supplement the financial information that is prepared and present in accordance with IFRS, we have used "adjusted (loss) profit" and EBITDA as non-IFRS measures, which are not required by, or presented in accordance with IFRS.
We define "adjusted (loss) profit" (or "Adjusted Net (Loss) Profit") as the (loss) profit for the period less gain on fair value changes of financial assets at FVTPL plus listing expenses and share-based compensation expenses for that period. We have defined EBITDA as (loss) profit for a given period plus income tax (credit) expenses, listing expenses, share-based compensation expenses, finance costs, depreciation of property and equipment and depreciation of right- of-use assets less other income, gains and losses and impairment losses under expected credit loss model, net of reversal for the period. The change of finance costs and depreciation of right-of-use assets, in the reconciliation and consequently, the change in the definition of our EBITDA, was due to our application of IFRS16 on 1 June 2019.
We believe that these non-IFRS measures facilitate comparison of operating performance from period to period by eliminating potential impacts of items that our management do not consider to be indicative of our operating performance. We also believe that these measures provide useful information to potential investors and shareholders of our Company ("Shareholder") in understanding and evaluating our consolidated statements of profit or loss in the same manner as they have assisted our management. Please note, however, that our presentation of Adjusted Net Profit (Loss) or EBITDA may not be comparable to similarly titled measures presented by other companies. The use of these non-IFRS measures has limitations as an analytical tool, and you should not consider these figures in isolation from, or as substitute for, our consolidated statements of profit or loss or financial condition as reported under IFRS.
12 KOOLEARN TECHNOLOGY HOLDING LIMITED
Management Discussion and Analysis (Continued)
The following table reconciles our net (loss) profit to Adjusted Net Profit (Loss): | |||
Six months | Six months | ||
ended | ended | ||
30 November | 30 November | ||
2019 | 2018 | ||
RMB'000 | RMB'000 | ||
Reconciliation of net (loss) profit to Adjusted Net (Loss) Profit: | |||
(Loss) profit for the period | (87,516) | 36,185 | |
Less: | |||
Gain on fair value changes of financial assets at FVTPL - Non-current assets | 14(1) | 19,677 | |
Add: | |||
Listing expenses | - | 14,925 | |
Share-based compensation expenses | 31,280 | - | |
Adjusted Net (Loss) Profit | (56,250) | 31,433 | |
The following table reconciles our net (loss) profit to EBITDA: | |||
Six months | Six months | ||
ended | ended | ||
30 November | 30 November | ||
2019 | 2018 | ||
RMB'000 | RMB'000 | ||
Reconciliation of (loss) profit for the period to EBITDA | |||
(Loss) profit for the period | (87,516) | 36,185 | |
Add: | |||
Income tax credit | (7,347) | (417) | |
Listing expenses | - | 14,925 | |
Share-based compensation expenses | 31,280 | - | |
Finance costs | 4,555 | - | |
Depreciation of property and equipment | 6,200 | 3,980 | |
Depreciation of right-of-use assets | 32,544 | - | |
Less: | |||
Other income, gain and losses | 88,754 | 89,220 | |
Impairment losses under expected credit loss model, net of reversal | (209) | (670) | |
EBITDA | (108,829) | (33,877) | |
Note:
- During the Reporting Period, gain on fair value changes of financial assets at FVTPL includes interest income from wealth management products, which is excluded for calculation of adjusted loss for the period.
INTERIM REPORT 2020 | 13 |
Management Discussion and Analysis (Continued)
Liquidity and capital resources
During the Reporting Period, we funded our cash requirements principally from cash and cash equivalents. As at 30 November 2019, we had cash and cash equivalents RMB716.5 million and term deposits RMB1,757.5 million. Cash and cash equivalents represented bank balances and cash. Bank balances and cash comprised of cash and short-term deposits with a term of less than three months.
During the Reporting Period, we primarily used cash to fund required working capital, acquisition of the remaining 49% equity interest in Dongfang Youbo, and other recurring expenses to support the expansion of our operations. Going forward, we believe that our liquidity requirements will be satisfied by using funds from a combination of internally generated cash and net proceeds received from our Global Offering.
As at the end of the Reporting Period, our Group's gearing ratio was 28.4% (compared with 21.4% as at 31 May 2019), calculated as total liabilities divided by total assets.
Capital expenditure
The following table sets forth our capital expenditure for the period indicated:
Six months | Six months | |
ended | ended | |
30 November | 30 November | |
2019 | 2018 | |
RMB'000 | RMB'000 | |
Purchase of property and equipment | 33,357 | 10,118 |
Our capital expenditures were primarily for purchases of property and equipment in the six months ended 30 November 2018 and 2019, respectively. Our purchases of property and equipment were RMB10.1 million and RMB33.4 million for the six months ended 30 November 2018 and 2019, respectively.
Off-balance sheet commitments and arrangements
As of 30 November 2019, we had not entered into any off-balance sheet transactions.
Future plans for material investments and capital assets
As of 30 November 2019, we did not have any other foreseeable plans for material investments and capital assets.
14 KOOLEARN TECHNOLOGY HOLDING LIMITED
Management Discussion and Analysis (Continued)
Material acquisitions and/or disposals of subsidiaries and affiliated companies
We refer to our announcements of 16 August 2019 and 2 September 2019 on our acquisition of the remaining 49% interest of Dongfang Youbo, following which Dongdang Youbo changed from a non-wholly owned subsidiary to our wholly-owned subsidiary.
Save as disclosed above, during the Reporting Period, we did not have any other material acquisitions and/or disposals of subsidiaries and affiliated companies.
Employees and remuneration policy
As at 30 November 2019, we had 2,813 full-time employees and 4,051 part-time employees, among which we had
- full-timeand 3,229 part-time teaching, content development and content production staff; 1,007 full-time and
- part-timeselling and marketing staff; 665 full-time and 20 part-time research, development and technology staff; and 215 full-time and 49 part-time general and administrative staff. All of our employees were based in China, in our headquarters in Beijing and in various other cities across China.
Our success depends on our ability to attract, retain and motivate qualified personnel. As part of our retention strategy, we offer employees competitive salaries, performance-based bonuses and other incentives. As at 30 November 2019, 97 employees held share-based awards. The total remuneration expenses, including share-based compensation expense, for the six months ended 30 November 2019 were RMB338.2 million, representing a period- on-period increase of 57.2%.
Foreign exchange risk
Foreign exchange risk arises when commercial transactions or recognised assets and liabilities are denominated in a currency that is not the functional currency of our operating entities. We operate in the PRC with most of the transactions settled in RMB. During the Reporting Period, we had assets and liabilities denominated in United States dollars and Hong Kong dollars. We continuously monitor changes in currency exchange rates and will take necessary measures to mitigate exchange rate impact.
Indebtedness
During the Reporting Period, we did not incur any bank loan or other borrowing.
Pledge of assets
As at 30 November 2019, none of our Group's assets were pledged.
Contingent liabilities
As at 30 November 2019, we did not have any material contingent liabilities.
INTERIM REPORT 2020 | 15 |
OTHER INFORMATION
Disclosure of interests
Directors and chief executives
As at 30 November 2019, the interests and short positions of our Company's directors and chief executives in our Shares, underlying Shares and debentures of our Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), the "SFO"), as recorded in the register required to be kept by our Company pursuant to Section 352 of the SFO, or as otherwise notified to our Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers ("Model Code") are set out below. All interests disclosed represent long positions in shares. Our Directors and company's chief executives do not hold any short positions in Shares.
Interest in our Shares
Approximate | |||||
Name of | Number of | percentage of | |||
Director or | Relevant | Shares | shareholding in | ||
chief executive | Nature of interest | entity | interested | our Company(1) | |
Mr. SUN Dongxu(2) | Beneficial owner | 8,000,000 | 0.85% | ||
Ms. SUN Chang(3) | Interest in a controlled corporation | First Bravo | 14,742,640 | 1.57% | |
Mr. YU Minhong(4) | Beneficial owner | 16,695,285 | 1.78% | ||
Beneficiary of a trust | Tigerstep | 13,858,832 | 1.48% | ||
Mr. YIN Qiang(5) | Beneficial owner | 2,100,000 | 0.22% | ||
Interest in a controlled corporation | Perfect Go | 3,371,196 | 0.36% | ||
Mr. WU Qiang(6) | Beneficial owner | 1,350,000 | 0.14% | ||
Notes:
- The percentages are calculated based on our Company's total number of issued shares, being 938,446,602 Shares, as at 30 November 2019.
- These interests represent the 8,000,000 Shares that may be issued pursuant to an exercise of options granted to Mr. SUN Dongxu under the Pre-IPO ESOP.
- First Bravo Asia Limited ("First Bravo") is wholly-owned by Ms. SUN Chang. Under the SFO, Ms. SUN Chang is deemed to be interested in all of First Bravo's interests in our Company.
- These interests comprise: (i) 16,695,285 Shares that may be issued pursuant to an exercise of options granted to Mr. YU Minhong under the Pre-IPO ESOP; and (ii) 13,858,832 Shares held through Tigerstep Developments Limited ("Tigerstep"). Mr. YU Minhong is a beneficiary of a family trust that controls Tigerstep through a trust arrangement, and as such, under the SFO, Mr. YU Minhong is deemed to be interested in all of Tigerstep's interests in our Company.
- These interests comprise: (i) 2,100,000 Shares that may be issued pursuant to an exercise of options granted to Mr. YIN Qiang under the Pre- IPO ESOP; and (ii) 3,371,196 Shares held through Perfect Go Industries Limited ("Perfect Go"), which is wholly-owned by Mr. YIN Qiang, and as such, under the SFO, Mr. YIN Qiang is deemed to be interested in all of Perfect Go's interests in our Company.
- These interests represent the 1,350,000 Shares that may be issued pursuant to an exercise of options granted to Mr. WU Qiang under the Pre-
IPO ESOP.
16 KOOLEARN TECHNOLOGY HOLDING LIMITED
Other Information (Continued)
Interest in New Oriental | ||||
Name of | Percentage of | |||
Director or | Total number | shareholding in | ||
chief executive | Nature of interest | of shares | New Oriental(1) | |
Mr. YU Minhong(1) | Interest in a controlled corporation; beneficiary of a trust | 20,238,554 | 12.8% | |
Note:
- According to the best knowledge of our Directors, New Oriental is held by Tigerstep as to approximately 12.8% while Mr. YU Minhong is a beneficiary of a family trust that controls Tigerstep through a trust arrangement. Under the SFO, Mr. YU Minhong is deemed to be interested in all of Tigerstep's interests in New Oriental.
Interest in our associated corporations (other than New Oriental)
Approximate | |||||
Amount of | percentage of | ||||
registered | shareholding in | ||||
Name of | Associated | capital | the associated | ||
Director | Nature of interest | corporation | (RMB) | corporation | |
Mr. YU Minhong | Nominee shareholder whose | Beijing Xuncheng(1) | 122,351,229 | 74.49% | |
shareholder's rights are subject to | |||||
contractual arrangements | |||||
Beneficial owner | Century Friendship(1) | 8,000,000 | 80% | ||
Interest in a controlled corporation | New Oriental China(1) | 10,000,000 | 100% | ||
Interest of controlled limited partnership | New Venture(2) | 5,000 | 50% | ||
Notes:
- Beijing Century Friendship Education Investment Co., Ltd. ("Century Friendship") and New Oriental Education & Technology Group Co., Ltd. ("New Oriental China") are controlled through a series of contractual arrangements by, and are therefore treated as subsidiaries of New Oriental. Mr. YU Minhong holds a 80% equity interest in Century Friendship, which in turn, holds the enquire equity interests in New Oriental China. New Oriental China holds a 74.49% equity interest in, and has entered into our Contractual Arrangements with (as defined and detailed in the section headed "Contractual Arrangements" in the Prospectus), Beijing Xuncheng. Under the SFO, Mr. YU Minhong is deemed to be interested in all of Century Friendship's interests in New Oriental China, and all of New Oriental China's interests in Beijing Xuncheng.
- Huoerguosi Oriental New Venture Equity Investment Partnership (L.P.) ("New Venture") is held by our Company as to more than 20%, and is held by New Oriental China as to 50%. Mr. YU Minhong controls New Oriental China and, under the SFO, is deemed to be interested in all of New Oriental China's interests in New Venture.
INTERIM REPORT 2020 | 17 |
Other Information (Continued)
Substantial shareholders
As at 30 November 2019, as far as our Directors are aware, the following persons (other than our Directors and the chief executive of our Company) had interests or short positions in our Shares or underlying Shares of our Company as recorded in the register required to be kept by our Company pursuant to Section 336 of the SFO. All of the interests below represent long positions in shares. As far as our Directors are aware, none of the persons listed below held any short positions in Shares.
Approximate | ||||
percentage of | ||||
Name of | Number of | shareholding in | ||
Shareholder | Nature of interest | ordinary shares | our Company(1) | |
New Oriental | Beneficial interest | 500,000,000 | 53.28% | |
Image Frame(2) | Beneficial interest | 90,416,181 | 9.63% | |
Tencent(2) | Interest in a controlled corporation | 90,416,181 | 9.63% | |
Notes:
- The percentages are calculated based on our Company's total number of issued shares, being 938,446,602 Shares, as at 30 November 2019.
- Image Frame Investment (HK) Limited ("Image Frame") is a subsidiary of Tencent Holdings Limited ("Tencent"). Under the SFO, Tencent is deemed to be interested in all of Image Frame's interests in our Company.
Share Option Schemes
The purpose of our Pre-IPO ESOP and Post-IPO ESOP (collectively, the "Share Option Schemes") is to provide respective eligible participants with an opportunity to acquire proprietary interest in our Company and to encourage the eligible participants to work towards enhancing the value of our Company and our Shares for the benefit of our Company and our Shareholders as a whole. The Share Option Schemes are further intended to provide our Company with a flexible means of retaining, incentivising, rewarding, remunerating, compensating and/or providing benefits to their respective eligible participants.
18 KOOLEARN TECHNOLOGY HOLDING LIMITED
Other Information (Continued)
Pre-IPO ESOP
As at 30 November 2019, (a) our Directors held unexercised options under the Pre-IPO ESOP to subscribe for a total of 28,145,285 Shares, representing 3.0% of the issued share capital of our Company (being 938,446,602 Shares), and
- the other grantees held unexercised options under the Pre-IPO ESOP to subscribe for a total of 12,331,700 Shares, representing approximately 1.3% of the issued share capital of our Company (being 938,446,602 Shares), details of which are as follows:
Number of options | |||||||||
Exercised | Cancelled | Lapsed | Outstanding | ||||||
Outstanding | during the | during the | during the | as at | |||||
Name or category | Date of | Vesting | Maximum period during | Exercise | as at | Relevant | Relevant | Relevant | 30 November |
of grantee | grant | period | which options are exercisable | price | 1 June 2019 | Period | Period | Period | 2019 |
YU Minhong | 6 March 2019 | Three years | From the commencement | HK$8.88 | 16,695,285 | Nil | Nil | Nil | 16,695,285 |
from Listing | of the first vesting period | per Share | |||||||
Date | to the day prior to the sixth | ||||||||
anniversary of the Listing Date | |||||||||
SUN Dongxu | 6 March 2019 | Three years | From the commencement | HK$8.88 | 8,000,000 | Nil | Nil | Nil | 8,000,000 |
from Listing | of the first vesting period | per Share | |||||||
Date | to the day prior to the sixth | ||||||||
anniversary of the Listing Date | |||||||||
YIN Qiang | 6 March 2019 | Three years | From the commencement | HK$8.88 | 2,100,000 | Nil | Nil | Nil | 2,100,000 |
from Listing | of the first vesting period | per Share | |||||||
Date | to the day prior to the sixth | ||||||||
anniversary of the Listing Date | |||||||||
WU Qiang | 6 March 2019 | Three years | From the commencement | HK$8.88 | 1,350,000 | Nil | Nil | Nil | 1,350,000 |
from Listing | of the first vesting period | per Share | |||||||
Date | to the day prior to the sixth | ||||||||
anniversary of the Listing Date | |||||||||
Other grantees | 6 March 2019 | Three years | From the commencement | HK$8.88 | 16,595,200 | 2,111,000 | Nil | 2,152,500 | 12,331,700 |
(in aggregate) | from Listing | of the first vesting period | per Share | ||||||
Date | to the day prior to the sixth | ||||||||
anniversary of the Listing Date | |||||||||
Total | 44,740,485 | 2,111,000 | Nil | 2,152,500 | 40,476,985 | ||||
Further details of movements in the Pre-IPO ESOP is set out in Notes 19 and 20 to the condensed consolidated financial statements.
INTERIM REPORT 2020 | 19 |
Other Information (Continued)
Post-IPO ESOP
As at 30 November 2019, no options have been granted, exercised, cancelled or lapsed under the Post-IPO ESOP. Please see our announcement of 29 January 2020 for options granted under the Post-IPO ESOP after the Reporting Period.
Corporate governance practices
Our Company is committed to maintaining and promoting stringent corporate governance. The principle of our Company's corporate governance is to promote effective internal control measures and to enhance the transparency and accountability of the Board to all Shareholders. During the Reporting Period, our Company has complied with the applicable code provisions in the Corporate Governance Code as stated in Appendix 14 of the Listing Rules.
Our Directors' compliance with the Model Code
We have adopted the Model Code as set out in Appendix 10 to the Listing Rules as the code of conduct regulating our Directors' dealings in our Company's securities. To our Directors' best knowledge and belief, all of our Directors confirm that they have strictly complied with the required standards set out in the Model Code during the Reporting Period.
Audit committee
We have established an Audit Committee in compliance with Rule 3.21 of the Listing Rules and the Corporate Governance Code as set out in Appendix 14 to the Listing Rules. The primary duties of the Audit Committee are to review and supervise the financial reporting process and internal controls system (including risk management) of our Group, to review and approve connected transactions and to provide advice and comments to the Board. The Audit Committee consists of three members: Mr. TONG Sui Bau (as the Audit Committee's chairperson), Mr. WU Qiang and Mr. KWONG Wai Sun Wilson.
The Audit Committee has reviewed our Group's unaudited consolidated financial statements for the six months ended 30 November 2019 and discussed matters with respect to the accounting policies and practices adopted by our Company and internal control measures with senior management members and our external auditor, Deloitte Touche Tohmatsu.
Other Board committees
In addition to our Audit Committee, our Board has established a nomination committee and a remuneration committee.
20 KOOLEARN TECHNOLOGY HOLDING LIMITED
Other Information (Continued)
Purchase, sale or redemption of our company's listed securities
During the Reporting Period, neither our Company nor any of its subsidiaries purchased, sold or redeemed any of our Company's securities listed on the Stock Exchange.
Material litigation
As at 30 November 2019, our Company was not involved in any material litigation or arbitration. Nor were the Directors of our Company aware of any material litigation or claims that were pending or threatened against our Company.
Changes in the information of Directors
Pursuant to Rule 13.51B(1) of the Listing Rules, the following Directors experienced changes in their directorship in our Group, as set out as follows:
- Ms. SUN Chang has been re-designated from executive Director to non-executive Director, and has stepped down from her position as co-chief executive officer of our Company;
- Mr. CHI Yufeng has resigned from his position as an independent non-executive Director, chairman of the Board's remuneration committee and member of the Board's nomination committee; and
- Mr. LIN Zheying has been appointed an independent non-executive Director, chairman of the Board's remuneration committee and member of the Board's nomination committee, with the above changes having taken place on 20 January 2020.
Please see our Company's announcement of 20 January 2020 on changes to directors and the composition of our Board, in relation to the above changes. - Mr. WU Qiang has stepped down as one of Beijing Xuncheng's directors.
Save as disclosed above and in our FY 2019 annual report dated 24 September 2019, there is no other information required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules.
INTERIM REPORT 2020 | 21 |
Other Information (Continued)
Use of proceeds from our global offering
Our Shares were listed on the Main Board of the Stock Exchange on 28 March 2019. Net proceeds received from our Global Offering aggregated to approximately HK$1.78 billion. As at 30 November 2019, our Group had used the net proceeds from the Global Offering in the following manner and according to the intended uses set out in the Prospectus:
Utilised during | |||||
the six months | |||||
Net proceeds | Utilised as at | ended | |||
from Global | 30 November | 30 November | Remaining | ||
Offering | 2019 | 2019 | amount | ||
(HK$ million)(1) | (HK$ million)(2) | (HK$ million)(2) | (HK$ million) | ||
Staff recruitment and | |||||
training activities | 533 | - | - | 533 | |
Acquisitions and/or investments | 533 | - | - | 533 | |
Course development | 178 | - | - | 178 | |
Technology infrastructure | 178 | 42.7 | 42.7 | 135.3 | |
Marketing activities | 178 | - | - | 178 | |
Working capital and general | |||||
corporate purposes | 178 | 1.7 | 1.7 | 176.3 | |
Notes:
- Includes net proceeds from the partial exercise of the over-allotment options, as detailed in our Company's announcement of 22 April 2019, which will be used by our Company for the purposes and in the same allocation proportions set out in the Prospectus. The same amounts have been carried forward to the beginning of this Reporting Period.
- Converted from RMB at the exchange rate of HK$1:RMB0.8862, being the midpoint rate of HKD to RMB published by the People's Bank of China on 19 January 2020. The figures presented in this table are approximations and subject to currency exchange fluctuation and rounding.
The remaining balance was placed with banks and financial institutions or under held in accordance with our treasury policy detailed in "Business - Risk management and internal control - Treasury management policy" in the Prospectus. Our Group will apply the remaining net proceeds in the manner set out in the Prospectus. Our Company will gradually utilise the remaining amount of the net proceeds in accordance with the intended purposes depending on actual business needs and circumstances surrounding the utilisation and as at the date of this report, we anticipate to use up the remaining amount of the net proceeds within ten years of the Listing Date.
22 KOOLEARN TECHNOLOGY HOLDING LIMITED
Other Information (Continued)
Events after the Reporting Period
We refer to our announcement of 29 January 2020 on the grant of options under our Post-IPO ESOP, including certain grants made to our Directors and our announcement of 20 January 2020 on changes to our Board and the composition of our Board committees. Save as disclosed in these announcements and this interim report, no other significant events affecting our Company have occurred since the end of the Reporting Period to the date that this interim report is published on the Stock Exchange's website.
INTERIM REPORT 2020 | 23 |
REPORT ON REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors of Koolearn Technology Holding Limited
(incorporated in Cayman Islands with limited liability)
Introduction
We have reviewed the condensed consolidated financial statements of Koolearn Technology Holding Limited (the "Company") and its subsidiaries (collectively referred to as the "Group") set out on pages 25 to 61, which comprise the condensed consolidated statement of financial position as of 30 November 2019 and the related condensed consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the six-month period then ended, and certain explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34 "Interim Financial Reporting" ("IAS 34") issued by the International Accounting Standards Board. The directors of the Company are responsible for the preparation and presentation of these condensed consolidated financial statements in accordance with IAS 34. Our responsibility is to express a conclusion on these condensed consolidated financial statements based on our review, and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the International Auditing and Assurance Standards Board. A review of these condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34.
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
20 January 2020
24 KOOLEARN TECHNOLOGY HOLDING LIMITED
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For The Six Months Ended 30 November 2019 | |||
Six months ended 30 November | |||
2019 | 2018 | ||
RMB'000 | RMB'000 | ||
NOTES | (unaudited) | (audited) | |
Revenue | 4 | 567,641 | 477,969 |
Cost of revenue | (250,535) | (196,759) | |
Gross profit | 317,106 | 281,210 | |
Other income, gains and losses | 6 | 88,754 | 89,220 |
Impairment losses under expected credit loss model, | |||
net of reversal | (209) | (670) | |
Selling and marketing expenses | (291,553) | (232,575) | |
Research and development expenses | (128,883) | (61,653) | |
Administrative expenses | (78,797) | (28,427) | |
Listing expenses | - | (14,925) | |
Share of results of associates | 3,274 | 3,588 | |
Finance costs | (4,555) | - | |
(Loss) profit before tax | (94,863) | 35,768 | |
Income tax credit | 7 | 7,347 | 417 |
(Loss) profit for the period | 8 | (87,516) | 36,185 |
Other comprehensive income | |||
Item that may be reclassified subsequently to | |||
profit or loss: | |||
Exchange difference on translation of foreign operations | 124 | - | |
Total comprehensive (expense) income for the period | (87,392) | 36,185 | |
(Loss) profit for the period attributable to:
Owners of the Company | (71,282) | 48,912 | ||
Non-controlling interests | (16,234) | (12,727) | ||
(87,516) | 36,185 | |||
Total comprehensive (expense) income for the period | ||||
attributable to: | ||||
Owners of the Company | (71,158) | 48,912 | ||
Non-controlling interests | (16,234) | (12,727) | ||
(87,392) | 36,185 | |||
(Loss) earnings per share | ||||
- Basic and diluted (RMB) | 9 | (0.08) | 0.07 | |
INTERIM REPORT 2020 | 25 |
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 November 2019
30/11/2019 | 31/05/2019 | |||
RMB'000 | RMB'000 | |||
NOTES | (unaudited) | (audited) | ||
Non-current Assets | ||||
Property and equipment | 11 | 33,340 | 29,548 | |
Right-of-use assets | 11 | 251,310 | - | |
Interests in associates | 87,560 | 84,025 | ||
Financial assets at fair value through profit or loss | 12 | 146,869 | 146,855 | |
Deferred tax assets | 21 | 34,942 | 27,591 | |
Deposits for acquisition of property and equipment | 26,535 | 5,757 | ||
Refundable rental deposits | 12,289 | - | ||
592,845 | 293,776 | |||
Current Assets | ||||
Trade and other receivables | 13 | 67,378 | 35,478 | |
Prepayments | 53,117 | 81,870 | ||
Financial assets at fair value through profit or loss | 12 | 210,486 | 352,943 | |
Income tax recoverable | 6,905 | 6,905 | ||
Term deposits | 15 | 1,757,450 | - | |
Bank balances and cash | 16 | 716,531 | 2,497,621 | |
2,811,867 | 2,974,817 | |||
Current Liabilities | ||||
Lease liabilities | 56,780 | - | ||
Contract liabilities | 17 | 388,617 | 400,928 | |
Refund liabilities | 26,863 | 19,414 | ||
Trade payables | 18 | 36,300 | 41,541 | |
Accrued expenses and other payables | 258,296 | 219,645 | ||
Income tax payables | 428 | 428 | ||
767,284 | 681,956 | |||
Net Current Assets | 2,044,583 | 2,292,861 | ||
Total Assets less Current Liabilities | 2,637,428 | 2,586,637 | ||
26 KOOLEARN TECHNOLOGY HOLDING LIMITED
Condensed Consolidated Statement of Financial Position (Continued)
At 30 November 2019
30/11/2019 | 31/05/2019 | |||
RMB'000 | RMB'000 | |||
NOTES | (unaudited) | (audited) | ||
Capital and Reserves | ||||
Share capital | 19 | 120 | 120 | |
Reserves | 2,436,777 | 2,601,466 | ||
Equity attributable to owners of the Company | 2,436,897 | 2,601,586 | ||
Non-controlling interests | - | (31,479) | ||
Total Equity | 2,436,897 | 2,570,107 | ||
Non-current Liabilities | ||||
Deferred tax liabilities | 21 | 16,534 | 16,530 | |
Lease liabilities | 183,997 | - | ||
200,531 | 16,530 | |||
2,637,428 | 2,586,637 | |||
INTERIM REPORT 2020 | 27 |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 November 2019
Attributable to owners of the Company | |||||||||||
Retained | |||||||||||
Share | profits/ | Non- | |||||||||
Share | Share | Preferred | Statutory | Translation | option | Other Accumulated | controlling | ||||
capital | premium | shares | reserve | reserve | reserve | reserve | losses | Subtotal | interests | Total | |
RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | |
At 1 June 2018 (audited) | 73 | 164,242 | 590,030 | 23,978 | - | - | 946 | 105,873 | 885,142 | (7,143) | 877,999 |
Profit (loss) and | |||||||||||
total comprehensive income | |||||||||||
(expense) for the period | - | - | - | - | - | - | - | 48,912 | 48,912 | (12,727) | 36,185 |
Issuance of ordinary shares | 2 | 132,199 | - | - | - | - | - | - | 132,201 | - | 132,201 |
At 30 November 2018 (audited) | 75 | 296,441 | 590,030 | 23,978 | - | - | 946 | 154,785 | 1,066,255 | (19,870) | 1,046,385 |
At 1 June 2019 (audited) | 120 | 2,456,221 | - | 23,978 | - | 51,513 | 946 | 68,808 | 2,601,586 | (31,479) | 2,570,107 |
Loss for the period | - | - | - | - | - | - | - | (71,282) | (71,282) | (16,234) | (87,516) |
Other comprehensive expense for | |||||||||||
the period | - | - | - | - | 124 | - | - | - | 124 | - | 124 |
Loss and total comprehensive | |||||||||||
expense for the period | - | - | - | - | 124 | - | - | (71,282) | (71,158) | (16,234) | (87,392) |
Recognition of equity-settled | |||||||||||
share-based payments | - | - | - | - | - | 31,280 | - | - | 31,280 | - | 31,280 |
Acquisition of non-controlling | |||||||||||
interests (Note 25) | - | - | - | - | - | - | (141,713) | - | (141,713) | 47,713 | (94,000) |
Exercise of share options | |||||||||||
(Note 20) | - | 23,868 | - | - | - | (6,966) | - | - | 16,902 | - | 16,902 |
At 30 November 2019 | |||||||||||
(unaudited) | 120 | 2,480,089 | - | 23,978 | 124 | 75,827 | (140,767) | (2,474) | 2,436,897 | - | 2,436,897 |
28 KOOLEARN TECHNOLOGY HOLDING LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 November 2019 | |||
Six months ended 30 November | |||
2019 | 2018 | ||
RMB'000 | RMB'000 | ||
(unaudited) | (audited) | ||
NET CASH (USED IN) GENERATED FROM OPERATING | |||
ACTIVITIES | (53,355) | 35,420 | |
INVESTING ACTIVITIES | |||
Proceeds from disposal of financial assets at | |||
fair value through profit or loss | 350,000 | 380,000 | |
Purchases of financial assets at fair value through | |||
profit or loss | (208,000) | (400,000) | |
Proceeds on disposal of property and equipment | 53 | 20 | |
Interest received | 7,879 | 8,891 | |
Purchase of property and equipment | (33,357) | (10,118) | |
Payments for right-of-use assets | (8,217) | - | |
Payments for rental deposits | (10,489) | - | |
Placement of term deposits | (1,757,450) | - | |
NET CASH USED IN INVESTING ACTIVITIES | (1,659,581) | (21,207) | |
FINANCING ACTIVITIES | |||
Proceeds from issuance of ordinary shares | 16,902 | 132,211 | |
Proceeds from issuance of series A preferred shares | - | 12 | |
Payment of issue costs | - | (1,898) | |
Repayment of lease liabilities | (21,784) | - | |
Interest paid | (4,555) | - | |
Acquisition of non-controlling interest of a subsidiary | (94,000) | - | |
NET CASH (USED IN) GENERATED FROM | |||
FINANCING ACTIVITIES | (103,437) | 130,325 | |
NET (DECREASE) INCREASE IN CASH AND | |||
CASH EQUIVALENTS | (1,816,373) | 144,538 | |
CASH AND CASH EQUIVALENTS AT 1 JUNE | 2,497,621 | 709,448 | |
Effect of exchange rate changes | 35,283 | 57,939 | |
CASH AND CASH EQUIVALENTS AT 30 NOVEMBER, | |||
REPRESENTED BY BANK BALANCES AND CASH | 716,531 | 911,925 | |
INTERIM REPORT 2020 | 29 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 November 2019
1. GENERAL
Koolearn Technology Holding Limited (the "Company", and together with its subsidiaries, the "Group") was incorporated as an exempted company with limited liability in the Cayman Islands on 7 February 2018 under the Companies law, Cap 22 (law 3 of 1961, as consolidated and revised) of the Cayman Islands and its shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the "Stock Exchange"). New Oriental Education & Technology Group Inc. ("New Oriental Group") is the ultimate controlling shareholder of the Company.
The Company is an investment holding company. The principle activities of the Group are providing on-line education service to pre-school children, primary and middle school students, college students and other occupational people. The Group also provides education and related services to institutional customers such as public libraries and universities.
The shares of the Company have been listed on the Stock Exchange with effect from 28 March 2019.
The condensed consolidated financial statements is presented in Renminbi ("RMB"), which is also the functional currency of the Company.
2. BASIS OF PREPARATION
The condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting issued by the International Accounting Standards Board ("IASB") as well as with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules").
3. PRINCIPAL ACCOUNTING POLICIES
The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair values, as appropriate.
Due to the restrictions imposed by the relevant laws and regulatory regime of the People's Republic of China (the "PRC") on foreign ownership of companies engaged in the value-added telecommunications services carried out by the Group, the Group conducts a substantial portion of the business through Beijing New Oriental Xuncheng Network Technology Inc. ("Beijing Xuncheng"), Beijing Kuxue Huisi Network Technology Co., Ltd. ("Kuxue Huisi") and Beijing Dongfang Youbo Network Technology Co., Ltd. ("Dongfang Youbo") (together the "Consolidated Affiliated Entities") in the PRC. On 10 May 2018, the wholly-owned subsidiary of the Company, Beijing Dexin Dongfang Network Technology Co., Inc. ("Dexin Dongfang") has entered into the contractual arrangements (the "Contractual Arrangements") with the Consolidated Affiliated Entities and their respective equity holders, which enable Dexin Dongfang and the Company to:
- expose, or has rights, to variable returns from its involvement with the investee and has ability to affect those returns through its power over the Consolidated Affiliated Entities;
30 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
3. PRINCIPAL ACCOUNTING POLICIES (Continued)
- exercise equity holders' controlling voting rights of the Consolidated Affiliated Entities;
- receive substantially all of the economic interest returns generated by the Consolidated Affiliated Entities in consideration for the business support, technical and consulting services provided by Dexin Dongfang;
- obtain an irrevocable and exclusive right to purchase all or part of equity interests in the Consolidated Affiliated Entities from the respective equity holders at nil consideration or a minimum purchase price permitted under PRC Laws. Dexin Dongfang may exercise such options at any time until it has acquired all equity interests and/or all assets of the Consolidated Affiliated Entities. In addition, the Consolidated Affiliated Entities are not allowed to sell, transfer, or dispose any assets, or make any distributions to their equity holders without prior consent of Dexin Dongfang; and
- obtain a pledge over the entire equity interest of the Beijing Xuncheng from their equity holders as collateral security for all of Beijing Xuncheng's and Kuxue Huisi's payments due to Dexin Dongfang and to secure performance of Beijing Xuncheng's and Kuxue Huisi's obligations under the Contractual Arrangements.
The Group does not have any equity interest in the Consolidated Affiliated Entities. However, as a result of the Contractual Arrangements, the Group has power over the Consolidated Affiliated Entities, has rights to variable returns from its involvement with the Consolidated Affiliated Entities and has the ability to affect those returns through its power over the Consolidated Affiliated Entities and is considered to have control over the Consolidated Affiliated Entities. Consequently, the Company regards the Consolidated Affiliated Entities as indirect subsidiaries for accounting purpose. The Company consolidates the assets, liabilities, revenue, income and expenses of the Consolidated Affiliated Entities upon the completion of the reorganisation.
Other than changes in accounting policies resulting from application of new and amendments to International Financial Reporting Standards ("IFRSs"), the accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30 November 2019 are the same as those presented in the Group's annual financial statements for the year ended 31 May 2019.
Application of new and amendments to IFRSs
In the current interim period, the Group has applied, for the first time, the following new and amendments to IFRSs issued by the IASB which are mandatory effective for the annual period beginning on or after 1 January 2019 for the preparation of the Group's condensed consolidated financial statements.
IFRS 16
IFRIC-23
Amendments to IFRS 9 Amendments to IAS 19 Amendments to IAS 28 Amendments to IFRSs
Leases
Uncertainty over Income Tax Treatments Prepayment Features with Negative Compensation Plan Amendment, Curtailment or Settlement Long-term Interests in Associates and Joint Ventures Annual Improvements to IFRSs 2015-2017 Cycle
INTERIM REPORT 2020 | 31 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
3. PRINCIPAL ACCOUNTING POLICIES (Continued)
Application of new and amendments to IFRSs (Continued)
Except as described below, the application of the new and amendments to IFRSs in the current period has had no material impact on the Group's financial position and performance for the current and prior periods and/or on the disclosures set out in these condensed consolidated financial statements.
3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases
The Group has applied IFRS 16 for the first time in the current interim period. IFRS 16 superseded IAS 17 Leases, and the related interpretations.
3.1.1 Key changes in accounting policies resulting from application of IFRS 16
The Group applied the following accounting policies in accordance with the transition provisions of IFRS 16.
Definition of a lease
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
For contracts entered into or modified on or after the date of initial application, the Group assesses whether a contract is or contains a lease based on the definition under IFRS 16 at inception or modification date. Such contract will not be reassessed unless the terms and conditions of the contract are subsequently changed.
As a lessee
Allocation of consideration to components of a contract
For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.
Non-lease components are separated from lease component on the basis of their relative stand-alone prices.
Short-term leases
The Group applies the short-term lease recognition exemption to leases of buildings that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. Lease payments on short-term leases are recognised as expense on a straight line basis over the lease term.
32 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
3. PRINCIPAL ACCOUNTING POLICIES (Continued)
Application of new and amendments to IFRSs (Continued)
3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (Continued)
3.1.1 Key changes in accounting policies resulting from application of IFRS 16 (Continued) As a lessee (Continued)
Right-of-use assets
Except for short-term leases, the Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.
The cost of right-of-use asset includes:
- the amount of the initial measurement of the lease liability;
- any lease payments made at or before the commencement date, less any lease incentives received; and
- any initial direct costs incurred by the Group.
Right-of-use assets in which the Group is reasonably certain to obtain ownership of the underlying leased assets at the end of the lease term is depreciated from commencement date to the end of the useful life. Otherwise, right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.
The Group presents right-of-use assets as a separate line item on the condensed consolidated statement of financial position.
Refundable rental deposits
Refundable rental deposits paid are accounted under IFRS 9 Financial Instruments and initially measured at fair value. Adjustments to fair value at initial recognition are considered as additional lease payments and included in the cost of right-of-use assets.
Lease liabilities
At the commencement date of a lease, the Group recognises and measures the lease liability at the present value of lease payments that are unpaid at that date. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.
INTERIM REPORT 2020 | 33 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
3. PRINCIPAL ACCOUNTING POLICIES (Continued)
Application of new and amendments to IFRSs (Continued)
3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (Continued)
3.1.1 Key changes in accounting policies resulting from application of IFRS 16 (Continued) As a lessee (Continued)
Lease liabilities (Continued)The lease payments include:
- fixed payments (including in-substance fixed payments) less any lease incentives receivable; and
- payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate.
After the commencement date, lease liabilities are adjusted by interest accretion and lease payments.
The Group remeasures lease liabilities (and makes a corresponding adjustment to the related right-of- use assets) whenever:
- the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the related lease liability is remeasured by discounting the revised lease payments using a revised discount rate at the date of reassessment.
- the lease payments change due to changes in market rental rates following a market rent review, in which cases the related lease liability is remeasured by discounting the revised lease payments using the initial discount rate.
Lease modifications
The Group accounts for a lease modification as a separate lease if:
- the modification increases the scope of the lease by adding the right to use one or more underlying assets; and
- the consideration for the leases increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.
For a lease modification that is not accounted for as a separate lease, the Group remeasures the lease liability based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.
34 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
3. PRINCIPAL ACCOUNTING POLICIES (Continued)
Application of new and amendments to IFRSs (Continued)
3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (Continued)
-
Key changes in accounting policies resulting from application of IFRS 16 (Continued) As a lessee (Continued)
Taxation
For the purposes of measuring deferred tax for leasing transactions in which the Group recognises the right-of-use assets and the related lease liabilities, the Group first determines whether the tax deductions are attributable to the right-of-use assets or the lease liabilities.
For leasing transactions in which the tax deductions are attributable to the lease liabilities, the Group applies IAS 12 Income Taxes requirements to the leasing transaction as a whole. Temporary differences relating to right-of-use assets and lease liabilities are assessed on a net basis. Excess of depreciation on right-of-use assets over the lease payments for the principal portion of lease liabilities resulting in net deductible temporary differences. - Transition and summary of effects arising from initial application of IFRS 16 Definition of a lease
The Group has elected the practical expedient to apply IFRS 16 to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease and not apply this standard to contracts that were not previously identified as containing a lease. Therefore, the Group has not reassessed contracts which already existed prior to the date of initial application.
For contracts entered into or modified on or after 1 June 2019, the Group applies the definition of a lease in accordance with the requirements set out in IFRS 16 in assessing whether a contract contains a lease.
As a lessee
The Group has applied IFRS16 retrospectively with the cumulative effect recognised at the date of initial application, 1 June 2019. Any difference at the date of initial application is recognised in the opening retained profits and comparative information has not been restated.
INTERIM REPORT 2020 | 35 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
3. PRINCIPAL ACCOUNTING POLICIES (Continued)
Application of new and amendments to IFRSs (Continued)
3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (Continued)
3.1.2 Transition and summary of effects arising from initial application of IFRS 16 (Continued) As a lessee (Continued)
When applying the modified retrospective approach under IFRS 16 at transition, the Group applied the following practical expedients to leases previously classified as operating leases under IAS 17, on lease-by-lease basis, to the extent relevant to the respective lease contracts:
- relied on the assessment of whether leases are onerous by applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets as an alternative of impairment review;
- applied a single discount rate to a portfolio of leases with a similar remaining terms for similar class of underlying assets in similar economic environment. Specifically, discount rate for certain leases of buildings in the PRC was determined on a portfolio basis; and
- used hindsight based on facts and circumstances as at date of initial application in determining the lease term for the Group's leases with extension and termination options.
As at 1 June 2019, the Group recognised additional lease liabilities and right-of-use assets at amounts equal to the related lease liabilities adjusted by any prepaid or accrued lease payments by applying IFRS 16.C8(b)(ii) transition.
When recognising the lease liabilities for leases previously classified as operating leases, the Group has applied incremental borrowing rates of the relevant group entities at the date of initial application. The weighted average incremental borrowing rates applied by the relevant group entities range from 4.60% to 4.70%.
36 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
3. PRINCIPAL ACCOUNTING POLICIES (Continued)
Application of new and amendments to IFRSs (Continued)
3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (Continued)
3.1.2 Transition and summary of effects arising from initial application of IFRS 16 (Continued) As a lessee (Continued)
At 1 June | ||
2019 | ||
RMB'000 | ||
Operating lease commitments disclosed as at 31 May 2019 | 175,540 | |
Lease liabilities discounted at relevant incremental borrowing rates | 161,283 | |
Less: Recognition exemption - short-term leases | (4,886) | |
Lease liabilities relating to operating leases recognised upon application | ||
of IFRS 16 and lease liabilities as at 1 June 2019 | 156,397 | |
Analysed as | ||
Current | 41,121 | |
Non-current | 115,276 | |
156,397 | ||
The carrying amount of right-of-use assets as at 1 June 2019 comprises the following:
Right-of-use | ||
assets | ||
NOTES | RMB'000 | |
Right-of-use assets relating to operating leases recognised upon | ||
application of IFRS 16 | 156,397 | |
Reclassified from prepaid lease payments | (a) | 9,859 |
Adjustments on rental deposits at 1 June 2019 | (b) | 1,977 |
Less: Accrued lease liabilities at 1 June 2019 | (c) | (10) |
168,223 | ||
INTERIM REPORT 2020 | 37 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
3. PRINCIPAL ACCOUNTING POLICIES (Continued)
Application of new and amendments to IFRSs (Continued)
3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (Continued)
3.1.2 Transition and summary of effects arising from initial application of IFRS 16 (Continued) As a lessee (Continued)
- Upon application of IFRS 16, prepaid lease payments amounting to RMB9,859,000 were reclassified from prepayments to right-of-use assets.
- Before the application of IFRS 16, the Group considered refundable rental deposits paid as rights and obligations under leases to which IAS 17 applied. Based on the definition of lease payments under IFRS 16, such deposits are not payments relating to the right to use of the underlying assets and were adjusted to reflect the discounting effect at transition. Accordingly, RMB1,977,000 was adjusted to refundable rental deposits paid and right-of-use assets.
- Lease payments increase progressively over lease terms
These relate to accrued lease liabilities of several operating leases for leases of properties in which the rentals increase progressively by fixed annual percentage. The carrying amount of the accrued lease liabilities as at 1 June 2019 was adjusted to right-of-use assets at transition.
38 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
3. PRINCIPAL ACCOUNTING POLICIES (Continued)
Application of new and amendments to IFRSs (Continued)
3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (Continued)
3.1.2 Transition and summary of effects arising from initial application of IFRS 16 (Continued) As a lessee (Continued)
The following adjustments were made to the amounts recognised in the condensed consolidated statement of financial position at 1 June 2019. Line items that were not affected by the changes have not been included.
Carrying | Carrying | ||
amounts | amounts | ||
previously | under | ||
reported at | IFRS 16 at | ||
31 May 2019 | Adjustments | 1 June 2019 | |
RMB'000 | RMB'000 | RMB'000 | |
Non-current Assets | |||
Right-of-use assets | - | 168,223 | 168,223 |
Refundable rental deposits | - | 5,799 | 5,799 |
Current Assets | |||
Trade and other receivables | 35,478 | (7,776) | 27,702 |
Prepayments | 81,870 | (9,859) | 72,011 |
Non-current Liabilities | |||
Lease liabilities | - | (115,276) | (115,276) |
Current Liabilities | |||
Accrued expenses and other payables | (219,645) | 10 | (219,635) |
Lease liabilities | - | (41,121) | (41,121) |
Note:
For the purpose of reporting cash flows from operating activities under indirect method for the six months ended 30 November 2019, movements in working capital have been computed based on opening statement of financial position as at 1 June 2019 as disclosed above.
INTERIM REPORT 2020 | 39 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
4. REVENUE
Disaggregation of revenue from contracts with customers
Six months ended 30 November | ||
2019 | 2018 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
Timing of revenue recognition | ||
Over time | 534,256 | 459,990 |
A point in time | 33,385 | 17,979 |
Total | 567,641 | 477,969 |
Type of customer | ||
Students | 511,056 | 430,772 |
Institutional customers | 56,585 | 47,197 |
Total | 567,641 | 477,969 |
Type of service | ||
Pre-recorded online course services provided to students | 337,677 | 347,259 |
Pre-recorded online education package services to | ||
institutional customers | 56,572 | 38,505 |
Live online course services provided to students | 140,007 | 74,226 |
Sales of online testing package | 15,289 | 6,624 |
Others | 18,096 | 11,355 |
Total | 567,641 | 477,969 |
There were no adjustments or eliminations between the revenue from contracts with customers and the amount disclosed in the segment information.
40 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
5. SEGMENT INFORMATION
Information reported to the executive directors, being the chief operating decision maker ("CODM"), for the purposes of resource allocation and assessment of segment performance focuses on types of services provided.
Specifically, the Group's reportable segments under IFRS 8 Operating Segments are as follows:
- College Education - online education service targeted to college and above students and adults.
- K12 Education - online education service targeted to primary school, middle school and high school students.
- Pre-schoolEducation - online education service targeted to pre-school children.
- Institutional customers - online education service provided to institutional customers.
The following is an analysis of the Group's revenue and results by reportable segment:
For the six months ended 30 November 2019 (unaudited)
College | K12 | Pre-school | Institutional | ||
Education | Education | Education | customer | Total | |
RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | |
Revenue | 361,392 | 128,154 | 21,510 | 56,585 | 567,641 |
Cost of revenue | (113,990) | (111,762) | (12,773) | (12,010) | (250,535) |
Segment gross profit | 247,402 | 16,392 | 8,737 | 44,575 | 317,106 |
Unallocated income and expenses: | |||||
Other income, gains and losses | 88,754 |
- Impairment losses under
- expected credit loss model,
net of reversal | (209) | |
Selling and marketing expenses | (291,553) | |
Research and development | ||
expenses | (128,883) | |
Administrative expenses | (78,797) | |
Share of results of associates | 3,274 | |
Finance costs | (4,555) | |
Loss before tax | (94,863) | |
INTERIM REPORT 2020 | 41 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
5. SEGMENT INFORMATION (Continued)
For the six months ended 30 November 2018 (audited)
College | K12 | Pre-school | Institutional | ||
Education | Education | Education | customer | Total | |
RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | |
Revenue | 342,675 | 75,649 | 12,448 | 47,197 | 477,969 |
Cost of revenue | (109,528) | (63,552) | (15,137) | (8,542) | (196,759) |
Segment gross profit (loss) | 233,147 | 12,097 | (2,689) | 38,655 | 281,210 |
Unallocated income and expenses: | |||||
Other income, gains and losses | 89,220 |
- Impairment losses under
- expected credit loss model,
net of reversal | (670) | |
Selling and marketing expenses | (232,575) | |
Research and development | ||
expenses | (61,653) | |
Administrative expenses | (28,427) | |
Listing expenses | (14,925) | |
Share of results of associates | 3,588 | |
Profit before tax | 35,768 | |
Segment gross profit (loss) is the measure reported to the CODM for the purposes of resource allocation and performance assessment. Segment gross profit (loss) is gross profit earned (gross loss incurred) by each segment and other income, gains and losses, impairment losses under expected credit loss model, net of reversal, selling and marketing expenses, research and development expenses, administrative expenses, listing expenses, share of results of associates and finance costs are excluded from segment result.
Information of segment assets and liabilities and other segment information that are available for reportable and operating segments are not provided to the CODM for their review. Therefore, no analysis of the Group's assets and liabilities and other segment information by reportable and operating segment are presented.
The Company is domiciled in the PRC and all of the Group's revenue were generated from external customers in the PRC during the six months ended 30 November 2019 and 2018. The Group's non-current assets are all located in the PRC.
No service provided to a single customer exceeds 10% or more of the total revenue of the Group for the six months ended 30 November 2019 (Six months ended 30 November 2018: nil).
42 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
6. OTHER INCOME, GAINS AND LOSSES
Six months ended 30 November | ||
2019 | 2018 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
Exchange gain, net | 45,243 | 57,939 |
Interest income from term deposits | 24,871 | - |
Interest income from bank balances | 8,732 | 907 |
Interest income from rental deposits | 330 | - |
Gain on fair value changes of financial assets at fair value through | ||
profit or loss ("FVTPL") | 6,891 | 30,096 |
Gain on lease termination | 2,672 | - |
Government grants | 762 | 302 |
Loss on disposal of property and equipment | (2,533) | (87) |
Others | 1,786 | 63 |
88,754 | 89,220 | |
7. INCOME TAX CREDIT
Six months ended 30 November | ||
2019 | 2018 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
Current tax: | ||
PRC enterprise income tax | - | 9,067 |
Deferred tax (Note 21) | (7,347) | (9,484) |
(7,347) | (417) | |
The Company and Dong Fund Co., Ltd ("Dong Fund") were incorporated in the Cayman Islands. Both are tax exempted under the tax laws of the Cayman Islands, as no business is carried out in the Cayman Islands. There were no material change of tax status of the Group from 31 May 2019. Applicable tax rates of the Group's major subsidiaries are as follows.
INTERIM REPORT 2020 | 43 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
7. INCOME TAX CREDIT (Continued)
In October 2017, a two-tiered profits tax rates regime ("Regime") was proposed by the Chief Executive of Hong Kong. To implement the Regime, the relevant Inland Revenue (Amendment) (No. 3) Ordinance 2018 ("Ordinance") was signed into law on 28 March 2018 and was gazetted on the following day by Hong Kong Legislative Council. Subject to the Ordinance, the Regime will be applicable to any year of assessment commencing on or after April 1, 2018. Under the Regime, in the year of assessment, the first Hong Kong dollars ("HK$") 2 million of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK$2 million will be taxed at 16.5%. As there is no assessable profits during the six months ended 30 November 2019, a flat rate of 8.25% could be applied accordingly when proceeding tax returns (Six months ended 30 November 2018: 8.25%).
Under the law of the PRC on enterprise income tax (the "EIT Law") and implementation regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25% during the six months ended 30 November 2019 (Six months ended 30 November 2018: 25%).
The Group's subsidiaries operating in the PRC are eligible for certain tax concessions for the years ended 31 December 2018 and 2019. In 2017, Beijing Xuncheng obtained the "high and new technology enterprise" (the "HNTE") status and enjoy the preferential tax rate of 15% from 2018 to 2020. Under the EIT Law effective on 1 January 2008, the HNTE status is valid for three years and qualifying entities can re-apply for an additional three years provided their business operations continue to qualify for the new HNTE status. In 2018, Kuxue Huisi obtained the HNTE status and enjoy the preferential tax rate of 15% from 2018 to 2020. During the subsequent years, the tax authority will make reassessment on the Group's HNTE status. According to the EIT Law, qualified research and development expenses can be deducted at 175% of such expenses for income tax deduction purpose upon approval from the relevant tax authority for the year ended 31 December 2019 (Year ended 31 December 2018: 150%).
8. (LOSS) PROFIT FOR THE PERIOD
(Loss) profit for the period has been arrived at after charging the following items:
Six months ended 30 November | ||
2019 | 2018 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
Depreciation of property and equipment | 6,200 | 3,980 |
Depreciation of right-of-use assets | 32,544 | - |
44 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
9. (LOSS) EARNINGS PER SHARE
The calculation of the basic and diluted (loss) earnings per share attributable to owners of the Company is based on the following data:
Six months ended 30 November | ||
2019 | 2018 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
(Loss) earnings: | ||
(Loss) profit for the period attributable to owners of the Company | ||
for the purpose of calculating diluted (loss) earnings per share | (71,282) | 48,912 |
Less: | ||
Profit attributable to series A preferred shareholders | - | (5,901) |
Profit attributable to series B preferred shareholders | - | (4,203) |
(Loss) earnings for the purpose of calculating basic (loss) | ||
earnings per share | (71,282) | 38,808 |
Number of shares: | ||
Weighted average number of ordinary shares for the purpose of | ||
basic (loss) earnings per share | 936,852,651 | 593,497,700 |
Effect of dilutive potential ordinary shares: | ||
Weighted average number of series A preferred shares | - | 90,416,181 |
Weighted average number of series B preferred shares | - | 64,396,251 |
Weighted average number of ordinary shares for the purpose of | ||
diluted (loss) earnings per share | 936,852,651 | 748,310,132 |
INTERIM REPORT 2020 | 45 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
9. (LOSS) EARNINGS PER SHARE (Continued)
The calculation of the number of shares for the purpose of basic loss per shares for the six months ended 30 November 2019 has taken into account the weighted average number of ordinary shares outstanding with regard to the issuance of shares upon exercise of share options.
The calculation of diluted loss per share for the six months ended 30 November 2019 does not assume the exercise of the Company's share options since the assumed exercise of share options would result in a decrease in loss per share.
The calculation of the number of shares for the purpose of basic earnings per shares for the six months ended 30 November 2018 has taken into account the weighted average number of ordinary shares outstanding with regard to the issuance of shares, without considering the effect of conversion of series A preferred shares nor series B preferred shares.
The calculation of basic earnings per share for the six months ended 30 November 2018 was based on the profit for the period attributable to the ordinary shareholders, which has been adjusted for earnings attributable to series A preferred shareholders and series B preferred shareholders as these preferred shares are considered as participating securities for the purpose of calculating basic earnings per share.
The calculation of diluted earnings per share for the six months ended 30 November 2018 assumes the conversion of series A preferred shares and series B preferred shares using the conversion ratio as of 30 November 2018.
10. DIVIDENDS
No dividends were paid, declared or proposed during the six months ended 30 November 2019 (Six months ended 30 November 2018: nil). The directors of the Company have determined that no dividend will be paid in respect of the six months ended 30 November 2019 (Six months ended 30 November 2018: nil).
11. MOVEMENTS IN PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS
During the current interim period, the Group disposed of certain office equipment with an aggregate carrying amount of RMB2,586,000 (Six months ended 30 November 2018: RMB107,000) for cash proceeds of RMB53,000 (Six months ended 30 November 2018: RMB20,000), resulting in a loss on disposal of RMB2,533,000 (Six months ended 30 November 2018: RMB87,000).
During the current interim period, the Group entered into several new lease agreements for the use of buildings ranging from one month to three years. On lease commencement, the Group recognised RMB130,896,000 of right-of-use assets and RMB121,660,000 lease liabilities.
46 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
12. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
30/11/2019 | 31/05/2019 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
Non-current assets | ||
Financial assets at FVTPL | ||
- unlisted equity investments(a) | 146,869 | 146,855 |
Current assets | ||
Financial assets at FVTPL | ||
- wealth management products(b) | 210,486 | 352,943 |
- Included in the equity investments are the Group's investments in preferred shares of Beijing Edutainment World Education Technology Co., Ltd. ("Edutainment World") and EEO Education Technology Co., Ltd. ("EEO") incorporated in the PRC.
- Wealth management products are purchased from various banks with expected rate of return ranging from 2.95% to 4.4% per annum, and maturity period ranging from 1 day to 182 days. The principles and returns of these wealth management products are not guaranteed.
During the six months ended 30 November 2019, the Group made purchases of online course services and referral services from Edutainment World amounting to RMB1,338,000 (Six months ended 30 November 2018: RMB774,000).
During the six months ended 30 November 2019, the Group made purchases of online classroom related services from EEO amounting to RMB9,215,000 (Six months ended 30 November 2018: RMB6,593,000).
INTERIM REPORT 2020 | 47 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
13. TRADE AND OTHER RECEIVABLES
30/11/2019 | 31/05/2019 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
Trade receivables | 15,685 | 9,974 |
Less: allowance for credit losses | (2,386) | (2,177) |
13,299 | 7,797 | |
Other receivables | 54,079 | 27,681 |
Trade and other receivables | 67,378 | 35,478 |
Trade receivables arising from institutional customers
The following is an analysis of trade receivables by age, presented based on the invoice date, net of allowance for credit losses:
30/11/2019 | 31/05/2019 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
1-90 days | 6,196 | 3,968 |
91-180 days | 371 | 3,267 |
181 days-365 days | 6,205 | 527 |
over 365 days | 527 | 35 |
13,299 | 7,797 | |
48 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
14. IMPAIRMENT ASSESSMENT ON FINANCIAL ASSETS SUBJECT TO EXPECTED CREDIT LOSS ("ECL") MODEL
Six months ended 30 November | ||
2019 | 2018 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
Impairment loss recognised in respect of: | ||
Trade receivables | (209) | (670) |
The basis of determining the inputs and assumptions and the estimation techniques used in the condensed consolidated financial statements for the six months ended 30 November 2019 are the same as those followed in the preparation of the Group's annual financial statements for the year ended 31 May 2019.
15. TERM DEPOSITS
The Group's term deposits are deposited with an original maturity of over three months in a bank.
As at 30 November 2019, the Group's term deposits carried at market rate ranged from 2.93% to 3.25% per annum.
The Group's term deposits that are denominated in currencies other than the functional currency of the respective group entities are set out below:
30/11/2019 31/05/2019
RMB'000 RMB'000
(unaudited) (audited)
United States dollars ("US$") | 1,757,450 | - |
INTERIM REPORT 2020 | 49 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
16. BANK BALANCES AND CASH
Bank balances and cash comprise cash and short-term deposits with an original maturity of three months or less.
As at 30 November 2019, the Group's short-term bank deposits carried at market rate ranged from 0.00% to 2.65% (31 May 2019: 0.00% to 2.65%) per annum.
The Group's bank balances that are denominated in currencies other than the functional currency of the respective group entities are set out below:
30/11/2019 | 31/05/2019 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
US$ | 560,388 | 1,603,887 |
HK$ | 16,753 | 736,610 |
17. CONTRACT LIABILITIES
30/11/2019 | 31/05/2019 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
Contract liabilities in relation to students | 320,176 | 321,810 |
Contract liabilities in relation to institutional customers | 68,441 | 79,118 |
388,617 | 400,928 | |
50 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
17. CONTRACT LIABILITIES (Continued)
The following table shows the unsatisfied contracts at 30 November 2019 and 31 May 2019 and the expected timing of recognising revenue.
30/11/2019 | 31/05/2019 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
Expected to be recognised within one year | ||
Students | 297,656 | 293,940 |
Institutional customers | 60,966 | 67,869 |
Expected to be recognised over one year | ||
Students | 22,520 | 27,870 |
Institutional customers | 7,475 | 11,249 |
Total | 388,617 | 400,928 |
Included in contract liabilities, RMB71,000 as at 30 November 2019 (31 May 2019: RMB212,000) were amounts due to related parties (details as set out in Note 24).
18. TRADE PAYABLES
The following is an analysis of trade payable by age, presented based on the invoice date.
30/11/2019 | 31/05/2019 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
1-90 days | 30,872 | 32,263 |
91-180 days | 1,325 | 5,423 |
181 days-365 days | 559 | 2,064 |
366 days-730 days | 2,211 | 720 |
over 730 days | 1,333 | 1,071 |
36,300 | 41,541 | |
Included in trade payables, RMB362,000 as at 30 November 2019 (31 May 2019: RMB494,000), were amounts due to related parties (details as set out in Note 24), which were aged 1-90 days based on the invoice date.
INTERIM REPORT 2020 | 51 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
19. SHARE CAPITAL
Details of the movements of share capital of the Company are as follows: | |||||
Number of | |||||
ordinary | Par value per | ||||
Issued and fully paid | shares | ordinary share | Share capital | ||
US$ | RMB | US$ | RMB | ||
At 1 June 2019 (audited) | 936,335,602 | 18,726 | 120,000 | ||
Exercise of share options(a) | 2,111,000 | 0.00002 | 0.00013 | 42 | 298 |
At 30 November 2019 (unaudited) | 938,446,602 | 18,768 | 120,298 | ||
- In the current period, as a result of options exercised, 2,111,000 ordinary shares were issued by the Company. Upon the exercise of share options, RMB23,868,000 was credited to share premium and RMB6,966,000 was debited to share option reserve.
20. SHARE-BASED PAYMENTS
The Company's share option scheme was adopted pursuant to a resolution passed on 13 July 2018 for the primary purpose of providing incentives to directors and eligible employees, and will expire on 28 March 2025.
The table below discloses movement of the Company's share options held by the Group's employees:
Number of | |
share options | |
Outstanding as at 1 June 2019 (audited) | 44,740,485 |
Forfeited during the period | (2,152,500) |
Exercised during the period | (2,111,000) |
Outstanding as at 30 November 2019 (unaudited) | 40,476,985 |
The weighted average closing price of the Company's shares immediately before the dates on which the options were exercised was RMB12.88.
52 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
21. DEFERRED TAX ASSETS AND LIABILITIES
The followings are the major deferred tax liabilities and assets recognised and movements thereon during the current and preceding interim periods:
Deductible | Change in fair | |||||
advertising | Right-of-use | value of | ||||
expenses | assets and | financial | ||||
Accrued | without | Provision for | lease | assets at | ||
expenses | expiry date | credit losses | liabilities | FVTPL | Total | |
RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | |
At 1 June 2018 (audited) | 3,903 | 1,057 | 264 | - | (11,049) | (5,825) |
Credited (charged) to profit or loss | 1,505 | 12,775 | 123 | - | (4,919) | 9,484 |
At 30 November 2018 (audited) | 5,408 | 13,832 | 387 | - | (15,968) | 3,659 |
Credited (charged) to profit or loss | 1,871 | 6,063 | 30 | - | (562) | 7,402 |
At 31 May 2019 (audited) | 7,279 | 19,895 | 417 | - | (16,530) | 11,061 |
(Charged) credited to profit or loss | (458) | 7,543 | 31 | 235 | (4) | 7,347 |
At 30 November 2019 (unaudited) | 6,821 | 27,438 | 448 | 235 | (16,534) | 18,408 |
For the purpose of presentation in the condensed consolidated statement of financial position, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:
30/11/2019 | 31/05/2019 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
Deferred tax assets | 34,942 | 27,591 |
Deferred tax liabilities | (16,534) | (16,530) |
18,408 | 11,061 | |
INTERIM REPORT 2020 | 53 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
22. CAPITAL COMMITMENTS
30/11/2019 | 31/05/2019 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
Capital commitments in respect of the acquisition of | ||
office equipment | 20,720 | 7,392 |
23. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS
Fair value of the Group's financial assets that are measured at fair value on a recurring basis
Some of the Group's financial assets are measured at fair value at 30 November 2019 and 31 May 2019. The following table gives information about how the fair values of these financial assets are determined (in particular, the valuation techniques and inputs used) as well as the level of the fair value hierarchy into which the fair value measurements are categorised (levels 1 to 3) based on the degree to which the inputs to the fair value measurements is observable.
Fair value hierarchy as at 30 November 2019 (unaudited) | |||
Level 2 | Level 3 | Total | |
RMB'000 | RMB'000 | RMB'000 | |
Financial assets at FVTPL | |||
Unlisted equity securities | - | 146,869 | 146,869 |
Financial assets at FVTPL | |||
Wealth management products | 210,486 | - | 210,486 |
210,486 | 146,869 | 357,355 | |
Fair value hierarchy as at 31 May 2019 (audited) | |||
Level 2 | Level 3 | Total | |
RMB'000 | RMB'000 | RMB'000 | |
Financial assets at FVTPL | |||
Unlisted equity securities | - | 146,855 | 146,855 |
Financial assets at FVTPL | |||
Wealth management products | 352,943 | - | 352,943 |
352,943 | 146,855 | 499,798 | |
54 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
23. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (Continued)
Fair value of the Group's financial assets that are measured at fair value on a recurring basis (Continued)
The fair values of the financial assets included in the level 2 and level 3 categories above have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most significant input being the weighted average cost of capital ("WACC") that reflects the credit risk of the counterparties.
Significant | ||||||
Fair value | Valuation technique(s) | unobservable | ||||
Financial assets | Fair value as at | hierarchy | and key input(s) | input(s) | ||
30 November 2019 | 31 May 2019 | |||||
(unaudited) | (audited) | |||||
Wealth management products issued by banks classified as financial asset at FVTPL
Wealth management | Wealth management Level 2 | Discounted cash flow | N/A |
products issued | products issued | - future cash flows | |
by banks - | by banks - | are estimated based on | |
RMB210,486,000 | RMB352,943,000 | contractual terms of the | |
wealth management | |||
products and discounted | |||
at a rate that reflects | |||
the credit risk of the | |||
counterparties. |
INTERIM REPORT 2020 | 55 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
23. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (Continued)
Fair value of the Group's financial assets that are measured at fair value on a recurring basis (Continued)
Significant | ||||||
Fair value | Valuation technique(s) | unobservable | ||||
Financial assets | Fair value as at | hierarchy | and key input(s) | input(s) | ||
30 November 2019 | 31 May 2019 | |||||
(unaudited) | (audited) | |||||
Unlisted equity | 24.50% equity | 25.02% equity | Level 3 | Income approach - in |
investments classified | investment in | investment in | this approach, the | |
as financial assets at | Edutainment World | Edutainment World | discounted cash flow | |
FVTPL | which engaged in | which engaged in | method was used to | |
education research, | education research, | capture the present | ||
product development | product development | value of the expected | ||
and education service | and education service | future economic benefits | ||
- RMB62,659,000; | - RMB62,659,000; | to be derived from | ||
the ownership of this | ||||
investee, based on an | ||||
appropriate WACC. |
Long-term revenue growth rates, taking into account management's experience and knowledge of market conditions of the specific industries of 3% (31 May 2019: 3%) (Note I).
WACC determined using a Capital Asset Pricing Model is 22% (31 May 2019: 22%) (Note II).
Discount for lack of marketability, determined by reference to the share price of listed entities in similar industries is
21% (31 May 2019:
21%) (Note III).
56 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
23. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (Continued)
Fair value of the Group's financial assets that are measured at fair value on a recurring basis (Continued)
Significant | ||||||
Fair value | Valuation technique(s) | unobservable | ||||
Financial assets | Fair value as at | hierarchy | and key input(s) | input(s) | ||
30 November 2019 | 31 May 2019 | |||||
(unaudited) | (audited) | |||||
Unlisted equity | 10% equity | 10% equity | Level 3 | Income approach - in |
investments classified | investment in EEO | investment in EEO | this approach, the | |
as financial assets at | which engaged in | which engaged in | discounted cash flow | |
FVTPL | development of | development of | method was used to | |
computer platforms | computer platforms | capture the present | ||
used in online | used in online | value of the expected | ||
education services - | education services - | future economic benefits | ||
RMB84,210,000. | RMB84,196,000. | to be derived from | ||
the ownership of this | ||||
investee, based on an | ||||
appropriate WACC. |
Long-term revenue growth rates, taking into account management's experience and knowledge of market conditions of the specific industries of 3% (31 May 2019: 3%) (Note IV).
WACC determined using a Capital Asset Pricing Model is 25% (31 May 2019: 25%) (Note V).
Discount for lack of marketability, determined by reference to the share price of listed entities in similar industries is
18% (31 May 2019:
13%) (Note VI).
Note I: An increase in the long-term revenue growth rates used in isolation would result in an increase in the fair value of the private equity investments, and vice versa. A 1% increase/decrease in the long-term revenue growth rates holding all other variables constant would increase/decrease the carrying amount of the shares by RMB1,850,000 as at 30 November 2019 (31 May 2019: RMB1,642,000).
Note II: An increase in the WACC used in isolation would result in a decrease in the fair value of the private equity investments, and vice versa. A 3% increase/decrease in the WACC holding all other variables constant would decrease/increase the carrying amount of the private equity investments by RMB6,119,000 as at 30 November 2019 (31 May 2019: RMB5,973,000).
INTERIM REPORT 2020 | 57 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
23. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (Continued)
Fair value of the Group's financial assets that are measured at fair value on a recurring basis (Continued)
Note III: An increase in the discount for lack of marketability used in isolation would result in a decrease in the fair value of the private equity investments, and vice versa. A 5% increase/decrease in the discount for lack of marketability holding all other variables constant would decrease/increase the carrying amount of the private equity investments by RMB3,879,000 as at 30 November 2019 (31 May 2019: RMB3,912,000).
Note IV: An increase in the long-term revenue growth rates used in isolation would result in an increase in the fair value of the private equity investments, and vice versa. A 1% increase/decrease in the long-term revenue growth rates holding all other variables constant would increase/decrease the carrying amount of the shares by RMB1,706,000 as at 30 November 2019 (31 May 2019: RMB1,455,000).
Note V: An increase in the WACC used in isolation would result in a decrease in the fair value of the private equity investments, and vice versa. A 3% increase/decrease in the WACC holding all other variables constant would decrease/increase the carrying amount of the private equity investments by RMB7,906,000 as at 30 November 2019 (31 May 2019: RMB7,611,000).
Note VI: An increase in the discount for lack of marketability used in isolation would result in a decrease in the fair value of the private equity investments, and vice versa. A 5% increase/decrease in the discount for lack of marketability holding all other variables constant would decrease/increase the carrying amount of the private equity investments by RMB5,134,000 as at 30 November 2019 (31 May 2019: RMB4,839,000).
The following table represents the changes in level 3 instruments of long-term investments measured at FVTPL during the six months ended 30 November 2019 and 2018.
Six months ended
30 November
20192018
RMB'000 RMB'000
(unaudited) (audited)
At the beginning of the period | 146,855 | 124,929 |
Changes in fair value | 14 | 19,677 |
At the end of the period | 146,869 | 144,606 |
The total gains or losses for the period included an unrealised gain of RMB14,000 relating to level 3 financial assets that are measured at fair value at the end of each reporting period (Six months ended 30 November 2018: an unrealised gain of RMB19,677,000). Such fair value gains or losses are included in "other income, gains and losses".
58 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
24. RELATED PARTY TRANSACTIONS
During the interim period, the Group entered into the following transactions with related parties:
Trade sales | Trade purchases | ||||||
Six months ended | Six months ended | ||||||
30 November | 30 November | ||||||
2019 | 2018 | 2019 | 2018 | ||||
RMB'000 | RMB'000 | RMB'000 | RMB'000 | ||||
Relationship | (unaudited) | (audited) | (unaudited) | (audited) | |||
New Oriental Group | Controlling shareholder of | ||||||
the Company and | |||||||
its fellow subsidiaries | 15,454 | 6,766 | 6,641 | 4,571 | |||
Metropolis Holding | A company wholly owned | ||||||
(Tianjin) Co., Ltd. | by the Chairman of | ||||||
("Metropolis | the Company | ||||||
Holding") (a) | - | - | 5,492 | 5,066 | |||
Tencent Holdings Limited | Non-controlling shareholder | ||||||
("Tencent" and with | of the Company and its | ||||||
its subsidiaries | fellow subsidiaries | ||||||
the "Tencent Group") | - | - | 5,044 | 2,942 | |||
Beijing Shidai Yuntu | Associate | ||||||
Book Co., Ltd. | |||||||
("Shidai Yuntu") | 131 | 599 | 10,893 | 5,385 | |||
The following balances represent outstanding amounts due from related parties at 30 November 2019 and 31 May 2019:
Amounts due from | ||
related parties | ||
30/11/2019 | 31/05/2019 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
New Oriental Group | 4,889 | 673 |
Metropolis Holding(a) | 2,958 | 989 |
Shidai Yuntu | 637 | 506 |
Tencent Group | 332 | 1,172 |
INTERIM REPORT 2020 | 59 |
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
24. RELATED PARTY TRANSACTIONS (Continued)
The following balances represent outstanding amounts due to related parties at 30 November 2019 and 31 May 2019:
Amounts due to related parties
30/11/2019 | 31/05/2019 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
New Oriental Group | 2,957 | 3,294 |
Tencent Group | 69 | 27 |
Amounts due from related parties as of 30 November 2019 and 31 May 2019 are trade in nature including trade and other receivables of RMB8,388,000 (31 May 2019: RMB1,179,000), and prepayments of RMB428,000 (31 May 2019: RMB2,161,000).
Amounts due to related parties as of 30 November 2019 and 31 May 2019 are trade in nature including contract liabilities of RMB71,000 (31 May 2019: RMB212,000), and trade and other payables of RMB2,955,000 (31 May 2019: RMB3,109,000), which are unsecured, interest-free and repayable on demand.
- The Group has entered several lease agreements with Metropolis Holding, a company controlled by Mr. Yu Minhong, the chairman of the board of directors of the Company. The terms and conditions, including rental rates of the lease agreements are generally the same as other tenants in the same building. The lease agreements are typically of one and a half years or two years term and can be renewed at the end of the lease term. The lease arrangements were approved by the board of directors of the Company. During the six months ended 30 November 2019, the Group recorded lease payments and property management fee of RMB5,492,000 (Six months ended 30 November 2018: rental expenses of RMB5,066,000) in relation to such leases. As at 30 November 2019, amount due from Metropolis Holding was RMB2,958,000 (31 May 2019: RMB989,000), which represents rental deposit and prepaid property management fee (31 May 2019: rental deposit and prepaid rentals).
60 KOOLEARN TECHNOLOGY HOLDING LIMITED
Notes to the Condensed Consolidated Financial Statements (Continued)
For the six months ended 30 November 2019
24. RELATED PARTY TRANSACTIONS (Continued)
Compensation of key management personnel
The remuneration of directors and other members of key management during the six months ended 30 November 2019 and 2018 are as follows:
Six months ended | ||
30 November | ||
2019 | 2018 | |
RMB'000 | RMB'000 | |
(unaudited) | (audited) | |
Short-term benefits | 2,212 | 996 |
Retirement benefits | 79 | 87 |
Other long-term benefits | 138 | 108 |
Equity-settled share option expense | 22,295 | - |
24,724 | 1,191 | |
The remuneration of directors and key executives is determined by the board of directors of the Company having regard to the performance of individuals and market trends.
25. ACQUISITION OF NON-CONTROLLING INTEREST OF A SUBSIDIARY
During the six months end 30 November 2019, the Group entered into a purchase agreement with non-controlling shareholder, Tianjin Qiancheng Xiangyu Technology Limited Partnership, for the acquisition of the remaining 49% equity interests in Dongfang Youbo, for a cash consideration of RMB94,000,000. Upon completion of the acquisition, Dongfang Youbo became a wholly-owned subsidiary of the Company. The carrying amount of non- controlling interest on the date of acquisition was debit balance of RMB47,713,000 and the difference between the consideration paid and the carrying amount of the non-controlling interests was recorded as other reserve.
INTERIM REPORT 2020 | 61 |
DEFINITIONS
Unless otherwise stated or set out below, capitalised terms have the same meanings as those defined in the Prospectus (defined below).
"Beijing Xuncheng" | Beijing New Oriental Xuncheng Network Technology Inc. (北京新東方迅程網 |
絡科技股份有限公司), a company incorporated under the Laws of the PRC | |
on 11 March 2005 and a wholly-owned subsidiary of our Company | |
"Board" | the board of directors of our Company |
"China" or "the PRC" | the People's Republic of China, and for the purposes of this annual report |
only, except where the context requires otherwise, excluding Hong Kong, | |
the Macao Special Administrative Region of the People's Republic of China | |
and Taiwan | |
"Company", "we", "us", or "our" | Koolearn Technology Holding Limited (新東方在綫科技控股有限公司), an |
exempted company with limited liability incorporated under the Laws of the | |
Cayman Islands on 7 February 2018 | |
"DFUB" | an online education platform operating by Dongfang Youbo, including the |
website at http://dfub.xdf.cn/ and related apps | |
"Director(s)" | the director(s) of our Company |
"Dongfang Youbo" | Beijing Dongfang Youbo Network Technology Co., Ltd. (北京東方優播網絡 |
科技有限公司), a company incorporated under the Laws of the PRC on 23 | |
June 2016 and a wholly-owned subsidiary of our Company | |
"FY" | financial year ended 31 May |
"Global Offering" | the Hong Kong Public Offering and the International Offering (each as |
defined in the Prospectus and set out in the section headed "Structure of | |
the Global Offering" therein) | |
"Group" or "our Group" | the Company and its subsidiaries from time to time or, where the context |
requires, in respect of the period prior to our Company becoming the | |
holding company of its present subsidiaries, such subsidiaries as if they | |
were subsidiaries of our Company at the relevant time | |
"HK$" | Hong Kong dollars, the lawful currency of Hong Kong |
"Hong Kong" | the Hong Kong Special Administrative Region of the People's Republic of |
China |
62 KOOLEARN TECHNOLOGY HOLDING LIMITED
Definitions (Continued)
"IFRS" | International Financial Reporting Standards, as issued from time to time by |
the International Accounting Standards Board | |
"Laws" | all laws, statutes, legislation, ordinances, rules, regulations, guidelines, |
opinions, notices, circulars, orders, judgments, decrees, or rulings of any | |
government or regulatory authority (including, without limitation, the Stock | |
Exchange and the Securities and Futures Commission of Hong Kong) of all | |
relevant jurisdictions, whether at the city, provincial, state or federal level | |
(as appropriate) | |
"Listing Date" | 28 March 2019 |
"Listing Rules" | the Rules Governing the Listing of Securities on The Stock Exchange of |
Hong Kong Limited, as amended, supplemented or otherwise modified from | |
time to time | |
"New Oriental" or | New Oriental Education & Technology Group Inc., a company incorporated |
- "Controlling Shareholder" under the Laws of the Cayman Islands on 16 March 2006, the American depository shares of which are listed on the New York Stock Exchange (NYSE: EDU) and our Controlling Shareholder (as defined in the Listing Rules)
"Post-IPO ESOP" | the share options scheme adopted by our Company on 30 January 2019 |
and amended from time to time, the details of which are set out in the | |
section headed "Statutory and general information" in Appendix IV to the | |
Prospectus | |
"Pre-IPO ESOP" | the share options scheme adopted by our Company on 13 July 2018 |
and amended from time to time, the details of which are set out in the | |
section headed "Statutory and general information" in Appendix IV to the | |
Prospectus. The Pre-IPO ESOP is not subject to Chapter 17 of the Listing | |
Rules | |
"Prospectus" | the prospectus of our Company dated 15 March 2019 issued in relation to |
the listing of our Shares on the Main Board of the Stock Exchange | |
"Reporting Period" | the six months ended 30 November 2019 |
"RMB" or "Renminbi" | Renminbi, the lawful currency of China |
"Share(s)" | ordinary share(s) in the share capital of our Company currently with a par |
value of US$0.00002 each |
INTERIM REPORT 2020 | 63 |
Definitions (Continued)
"Shareholder(s)" | holder(s) of our Share(s) |
"Stock Exchange" | The Stock Exchange of Hong Kong Limited |
"subsidiary" or "subsidiaries" | has the meaning ascribed to it in the Listing Rules and includes consolidated |
affiliated entities controlled by our Group through the Contractual | |
Arrangements (as defined in the Prospectus and set out in the section | |
headed "Contractual Arrangements" therein) | |
"United States" | United States of America, its territories, its possessions and all areas |
subject to its jurisdiction | |
"US$" | United States dollars, the lawful currency of the United States |
"%" | per cent |
64 KOOLEARN TECHNOLOGY HOLDING LIMITED
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Koolearn Technology Holding Ltd. published this content on 28 February 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 February 2020 08:48:02 UTC