Malvern Intl Regulatory News (MLVN)

AIM: AEC

AEC EDUCATION PLC

("AEC" or "the Group")

Full Year Results

 for the 12 months ended 31 December 2012

Key Points

·; Asian operations performed well but overall Group results impacted by significant non-recurring items principally relating to UK activities

·; Revenues on continuing activities of £15.1m (2011: £19.1m). Total Group revenues of £16.5m including £1.4m contribution from Education Resources Pte Ltd ("ER"), disposed of in October 2012

·; Adjusted loss before tax before non-recurring items of £0.89m (2011: profit before tax of £0.36m)

Statutory loss before tax of £3.84m (2011: profit before tax of £0.36m) including £2.95m of non-recurring items - of which £2.42m related to UK activities, £0.27 related to set up cost of new colleges in Ireland and Oman and the balance related to the disposal of ER

·; Adjusting for non-recurring items, loss per share of 1.98p (2011: earnings per share of 0.73p)

Statutory loss per share of 7.15p (2011: earnings per share of 0.73p)

·; Net cash of £2.71m (30 June 2012: £2.90m and 31 Dec 2011: £3.81m)

·; In Asia - Singapore performed strongly, with revenues up 21% and PBT up 50% and Malaysia returned to profitability with revenues up 4% and student numbers back to pre-Arab Spring levels 

·; In UK - completed significant restructuring, including consolidating London activities into one site

·; Newer operations in Dublin and Oman showing encouraging progress; Cyprus JV - strong progress

·; Board expects the Group to return to profitability in 2013

Liam Swords, Chairman of AEC, commented,

"The year under review proved to be very challenging, with markedly contrasting trading performances from our two key trading regions of Asia and the UK. Our Asian operations performed well over the period with revenues on continuing activities up 14% year-on-year. By contrast, mainly as a result of poor trading in the UK, in part reflecting the UK government's actions on visas for overseas students, we have taken decisive action resulting in significant one-off write-offs which have impacted results. This tough but necessary action has put our UK activities on a firmer footing for 2013. This, along with our Asian operations performing well and our newer operations in Dublin, Oman and Cyprus gaining traction, leads us to expect that the Group will return to profitability in the current financial year.

The Group's financial position remains healthy with net cash at the year end of £2.71m and good cash flows."

Enquiries:

CHAIRMAN'S STATEMENT

Overview

The year under review proved to be very challenging, with markedly contrasting trading performances from our two key trading regions of Asia and the UK. Our Asian operations performed well over the period with revenues on continuing activities up 14% year-on-year. By contrast, mainly as a result of poor trading in the UK, in part reflecting the UK government's actions on visas for overseas students, we have taken decisive action resulting in significant one-off write-offs which have impacted results. This tough but necessary action has put our UK activities on a firmer footing for 2013. This, along with our Asian operations performing well and our newer operations in Dublin, Oman and Cyprus gaining traction, leads us to expect that the Group will return to profitability in the current financial year.

The Group's financial position remains healthy with net cash at the year end of £2.71m and good cash flows.

Financial results

Revenues on continuing activities for the year to 31 December reduced by 21% to £15.1m (2011: £19.1m). The reduction was partly due to the exclusion of revenues of £1.4m generated by Educational Resources Pte Ltd up to the time of its disposal in October 2012. Taking this into account Group revenues for the period were £16.5m (2011: £19.1). The Group's statutory loss before tax was £3.84m (2011: profit before tax of £0.36m). This result reflected non-recurring items totalling £2.95m, of which £2.42m of this relates to the Group's UK activities, £0.27m was incurred in the set up cost of the new colleges in Ireland and Oman during the first half year and the balance of £0.26m relates to the disposal of Education Resources Pte Ltd. After adjusting for these non-recurring items, the loss before tax for the year was £0.89m (2011: profit of £0.36m).

In Asia, the Singapore college recorded a pre-tax profit of £0.30m and Malaysia returned a profit of £0.07m. Additionally our share of the profit from our joint venture in Cyprus, after the deduction of all marketing and sales costs, was £0.07m. Results from the new operations in Dublin and Oman show start up losses of £0.35m and £0.09m respectively. However, we expect both our operations in Dublin and Oman to move toward profitability in 2013 as well as the English language teaching operations in London. In addition, prospects for our Asian operations in 2013 look encouraging.

Adjusting for one-off items the loss per share was 1.98p (2011: earnings per share of 0.73p) and the statutory loss per share was 7.15p (2011: earnings per share of 0.73p).

The net cash outflow from operating activities was £2.42m (2011: inflow of £2.03m).

Net cash at the end of the year stood at £2.71m (30 June 2012: £2.90m and 31 December 2011: £3.81m).

Dividend

Given the Group's trading results, the Board does not intend to propose the payment of a final dividend for the year ended 31 December 2012 (2011: 0.20p per share).

Business Review

In Asia, our operations in Singapore performed strongly, with revenues rising by 21% and pre-tax profits up by 50% to £0.30m. We continued to experience strong demand for our courses and expanded our facilities to meet that demand. During the year we increased our focus on the direct recruitment of students as well as the local market, with pleasing results. We also strengthened the management team, with the appointment of Dr Chong Chee Leong as head of our Singapore operations in May 2012. He is leading an initiative to build new relationships with overseas universities to strengthen our position. There has been significant momentum in this business over the last two years, aided by a tightening of quality standards in the private education marketplace by the Singapore Private Education Regulatory Authority and our early attainment of the prestigious EduTrust certification. The government continues to introduce new regulations to ensure that the marketplace operates to the highest standards. We expect our growth rate to steady a little given the strong Singaporean dollar and the slowdown in the country's economic growth but nonetheless remain confident about prospects for continuing expansion and we are moving forwards with our plans to launch a number of new programmes with new university partners in 2013.

Our operations in Malaysia saw a considerable rebound in student numbers, having been affected last year by the Arab Spring which led to a fall in numbers from the high volume markets in Northern Africa. I am pleased to report that student numbers over the year under review returned to pre-Arab Spring levels, helped by the initiatives we implemented to grow student numbers and diversify into new markets. Revenue in Malaysia increased by 4% over the year and the operations returned to profitability, generating a pre-tax profit of £0.07m. Over half our students took an accounting programme and over 10% took an English language programme, with the majority of these students coming from Northern Africa. All our Malaysian sites now operate under the 'Malvern House' brand and as well as focusing on new markets in the Middle East, we are building new partnerships with European universities. In 2013, we are introducing bilingual programmes in logistics delivered in English and Mandarin, and English and Arabic. We continue to invest in Malaysia, in particular to raise the level of our programmes to position the business to take advantage of the opportunities for high performing education institutions in Malaysia to become 'deemed' universities, with their own university campuses.

As we have previously reported, our English language teaching operations in the UK have felt the significant effects of the changing legislation and regulations regarding visas and work permits for overseas students. International students in private institutions are now not able to subsidise their study costs by working part time and uptake of long term courses has been particularly impacted. In view of market conditions, we have reduced and restructured our Malvern House operations in London, consolidating all our activities into our Kings Cross site. This restructuring has incurred one-off costs of £0.95m. Additionally, we have closed the operation in the funded business, acquired in March 2012, after significant deficiencies emerged. The cost of the write-off of this investment as well as the pre-acquisition losses (guaranteed but accounted for as non-recoverable) and the initial trading losses amounted to £1.5m, with £0.88m being impairment of goodwill and the non-controlling interest held by the vendors. Having taken this action, we are currently reviewing our overall position in the UK government funded sector.

In 2011, we established a number of initiatives to expand our English language school provision internationally under the Malvern House brand. Our joint venture in Cyprus has made excellent progress and returned a pre-tax profit of £0.07m for our 50% stake. As well as a very strong English language summer school, we have expanded its provision and it now has an all-year offering, which is growing very well. We believe that our Cyprus joint venture should continue to make good progress over 2013. In the first half of 2012 we also launched colleges in Dublin and Oman and incurred set-up costs of £0.27m. I am pleased to report that both colleges are progressing well, with student numbers growing. We expect both colleges to move to profitability in 2013 and believe that they represent an attractive investment, enabling us to build on the strong reputation of Malvern House overseas.

In October 2012, we completed the sale of the Group's non-core examinations subsidiary, Educational Resources Pte Ltd, which provides London Chamber of Commerce & Industry examinations in Asia, to Pearson Education South Asia Pte Ltd for a total consideration of £2.9m cash of which £0.25m is held in escrow for any claims by the purchaser.

Staff

On behalf of the Board I would like to thank all staff for their hard work and efforts during what has been a very difficult period. It is rewarding to see the positive attitude and support as we have implemented the necessary changes to ensure the Group returns to sustainable profit growth.

Prospects

2012 was a very difficult year in the UK operations but our investment in the expansion of the Malvern House brand internationally as well as the growth of our operations in Singapore and Malaysia and the completion of the restructuring in London gives us confidence that 2013 will see a return to growth and profits.

We still have strong cash balances, strong markets in Asia and new operations that are now gaining traction in Dublin and Oman and we have stabilized the operations in London. The Board feel that the range of developments now being achieved will enable AEC to return toprofitability in 2013.

Liam Swords

Chairman

28 May 2013

AEC EDUCATION PLC

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

AEC EDUCATION PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2012

AEC EDUCATION PLC

STATEMENTS OF FINANCIAL POSITION

AS AT 31 DECEMBER 2012

AEC EDUCATION PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2012

AEC EDUCATION PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2012 (Cont.)

AEC EDUCATION PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2012

Cash and cash equivalents consist of the following:

AEC EDUCATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012

1 General

AEC Education plc (the "Company") is a public limited liability company incorporated in England and Wales on 8 July 2004. The Company was admitted to AIM on 10 December 2004. Its registered office is Witan Gate House, 500-600 Witan Gate West, Milton Keynes MK9 1SH and its principal place of business is in Singapore. The registration number of the Company is 05174452.

The principal activities of the Company are that of investment holding and provision of educational consultancy services. There have been no significant changes in the nature of these activities during the year.

The Board of Directors have authorised the issue of these financial statements on the date of the Statement by Directors.

2 Significant Accounting Policies

Basis of Preparation

The consolidated financial statements of the Group and Company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed and adopted for use in the European Union (EU).

The financial statements have been prepared on a going concern basis under the historical cost convention, except that certain financial instruments are accounted for at fair values. The principal accounting policies are set out below.

3 Segmental Information

All revenue and profit before taxation arises from operations in the education sector. Reportable segments are based on the geographical area where operations

Segmental analysis is as follows:

4 Earnings/(Loss) Per Share

The basic earnings/(loss) per share was based on loss attributable to shareholders of £3,174,361 (2011: profit of £321,514) and the weighted average number of ordinary shares in issue during the year of 44,198,781 (2011: 44,198,781) shares.

The diluted earnings/(loss) per ordinary share was based on loss attributable to shareholders of £3,174,361 (2011: profit of £321,514) and the weighted average number of ordinary shares in issue at during the year of 44,198,781 (2011: 47,899,375) shares diluted for the effect of share options and warrants. At 31 December 2012 there were 2,840,000 options (2011: 3,490,000 options) and no warrants (2011: 262,649) outstanding. Of these all 2,840,000 options (2011: 52,055 options and nil warrants) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive.

5 Property, Plant and Equipment

The write-down of equipment occurred as a result of the closure of two schools and separate offices in London as part of the restructuring which occurred during the year ended 31 December 2012.

6 Intangible Assets

Intangible assets are summarised as follows:

Licences

Licences are summarised as follows:

Brands

Brands are summarised as follows:

Trademarks

Trademarks are summarised as follows:

7 Goodwill

Goodwill has arisen on acquisitions by the Group.

During the year ended 31 December 2012, the Group acquired Malvern House Training Solutions Limited with goodwill on consolidation calculated as £591,737.

The goodwill relating to Malvern House Training Solutions Limited was reassessed and a provision to write this down to £nil was created at 31 December 2012.

In addition to the impairment loss of £591,737 a further £290,426 has been charged in the Consolidated Income Statement in respect of the non-controlling interest in Malvern House Training Solutions Limited which gives a total impairment of £882,163.

During the prior year, the impairment of goodwill on acquisitions arose on the provision made against BrainBox Limited of £24,831 on its closure and Smartworks Learning Centre Pte Ltd of £150,932 since it was no longer a profit generating company.

8 Share Capital

9 Annual Report

The Annual Report will be sent to shareholders by close of business on or around 4 June 2013. Additional copies will be available to the public, free of charge, from the Company's website www.aeceducationplc.co.uk.