Hailiang Education Group Inc.
Annual Report 2018

Plain-text annual report

Morningstar® Document Research℠ FORM 20-FHailiang Education Group Inc. - HLGFiled: October 18, 2018 (period: June 30, 2018)Annual and transition report of foreign private issuers under sections 13 or 15(d)The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 20-F ¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2018 OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to OR ¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report Commission file number: 001-36907 Hailiang Education Group Inc.(Exact Name of Registrant as Specified in its Charter) N/A(Translation of Registrant’s Name into English) Cayman Islands(Jurisdiction of Incorporation or Organization) 1508 Binsheng Road, Binjiang District,Hangzhou City, Zhejiang 310051People’s Republic of China(Address of Principal Executive Offices) Ming Wang, Chief Executive Officer1508 Binsheng Road, Binjiang District,Hangzhou City, Zhejiang 310051People’s Republic of ChinaTel: (+86-571) 58121974Fax: (+86-571) 58121974E-mail: ir@hailiangeducation.com(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which RegisteredAmerican Depositary Shares, each representing 16ordinary shares, par value US$0.0001 per share NASDAQ Global Market Securities registered or to be registered pursuant to Section 12(g) of the Act: None(Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneSource: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(Title of Class) Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 412,450,256 ordinary shares, par value US$0.0001 per share, as of June 30, 2018. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934. Yes ¨ No x Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. Seedefinition of “large accelerated filer,” accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer¨Accelerated filerx Non-accelerated filer¨Emerging growth companyx If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ¨ International Financial Reporting Standards as issued bythe International Accounting Standards Board x Other ¨ *If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected tofollow. Item 17 ¨ Item 18 ¨ If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. TABLE OF CONTENTS INTRODUCTION1 PART I4 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS4 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE4 ITEM 3. KEY INFORMATION4 ITEM 4. INFORMATION ON THE COMPANY28 ITEM 4A. UNRESOLVED STAFF COMMENTS52 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS52 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES69 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS74 ITEM 8. FINANCIAL INFORMATION77 ITEM 9. THE OFFER AND LISTING77 ITEM 10. ADDITIONAL INFORMATION78 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK84 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES86 PART II88 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES88 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS88 ITEM 15. CONTROLS AND PROCEDURES88 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT89 ITEM 16B. CODE OF ETHICS89 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES89 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES89 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS89 ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT89 ITEM 16G. CORPORATE GOVERNANCE90 ITEM 16H. MINE SAFETY DISCLOSURE90 PART III91 ITEM 17. FINANCIAL STATEMENTS91 ITEM 18. FINANCIAL STATEMENTS91 ITEM 19. EXHIBITS91 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. INTRODUCTION Unless the context otherwise requires, in this annual report on Form 20-F references to: ·“14 Baishu schools” are to 14 managed schools sponsored or operated by “Nanchang Baishu Tecnology”, in Jiangxi province, namely,Jiulixianghucheng Kindergarten, Nanchang Baishu Angel City&Fenghuang Kindergarten, Nanchang Foreign Language Jiulixianghucheng School,Nanchang Foreign Language Gaoxin School, Nanchang Maqiu Senior Middle School, Nanchang Baishu School, Yichun Baishu Foreign LanguageSchool, Yichun Baishu Foreign Language School Xuefulu Campus, Yichun Baishu Angel City&Bilingual Kindergarten, Yichun Baishu AngelCity&Bilingual Kindergarten Xuefulu Campus, Xingfu Shiguang Angel Kindergarten, Nanchang Hualian Foreign Language Experimental School,Nanchang Xihu District Baishu Education Group Teaching Staff Kindergarten, Jingdezhen Baishu School, sponsored or operated by “NanchangBaishu Technology”; ·“ADRs” are to the American depositary receipts, which, if issued, evidence our ADSs; ·“ADSs” are to our American depositary shares, each of which represents 16 ordinary shares; ·“affiliated entities” are to Hailiang Management, seven companies controlled by Hailiang Management including (i) Zhejiang Hailiang MingxinEducation Technology Co., Ltd., (ii) Hangzhou Hailiang Education Management Co., Ltd., (iii) Zhuji Youer Network Technology Co., Ltd., (iv)Zhuji Mingrui Business Information Consulting Co., Ltd., (v) Zhuji Shangzhuo Enterprise Management Consulting Co., Ltd., (vi) Zhuji HongdaTrade Co., Ltd., (vii) Zhejiang Mingxin International Travel Co., Ltd., and seven affiliated schools owned and operated by Hailiang Management,including (i) Hailiang Experimental High School (previously named Zhuji Private High School), (ii) Tianma Experimental School, (iii) HailiangPrimary School, (iv) Hailiang Junior Middle School, (v) Hailiang Senior Middle School, (vi) Hailiang High School of Art (previously named “Hailiang Art Middle School”), (vii) Hailiang Foreign Language School, and (viii) Zhuji Hailiang Foreign Language High; ·“affiliated schools” are to schools that we, through Hailiang Management, control and act as sponsor to, as of June 30, 2018, including (i) HailiangPrimary School, (ii) Hailiang Junior Middle School, (iii) Hailiang Senior Middle School, (iv) Hailiang High School of Art, (v) Tianma ExperimentalSchool, (vi) Hailiang Experimental High School, (vii) Hailiang Foreign Language School; and (viii) as of the date of this annual report on Form 20-F, Zhuji Hailiang Foreign Language High; ·“Beize Group” are to “Zhejiang Beize Group Co., Ltd.” (previously named “Zhejiang Zhongyida Investment Co., Ltd.”) a PRC company 100%owned by Mr. Feng and his wife, and is a 0.1% record shareholder of Hailiang Management. ·“fiscal year” are to the period from July 1 of each calendar year to June 30 of the following calendar year; ·“Gaokao” are to university entrance examinations administered in China; ·“graduate class” are to the class of students graduated or graduating at the end of a school year; ·“Haibo Logistics” are to Jiangxi Haibo Logistics Management Co., Ltd., a subsidiary of the Company, where Mr. Honggen Min holds 44% of theequity through his wholly owned company, Nanchang Baishu Education Group (“Nanchang Baishu Education”), and Ningbo Haoliang holds 56%; ·“Hailiang After-school” are to Zhuji Hailiang After-school Service Co., Ltd., incorporated on August 2, 2018 as a wholly owned subsidiary ofNingbo Haoliang; ·“Hailiang Consulting” are to Zhejiang Hailiang Education Consulting and Services Co., Ltd., our wholly-owned PRC subsidiary; ·“Haibo Education” are to Jiangxi Haibo Education Management Co., Ltd., a subsidiary of the Company, where Mr. Honggen Min holds 44% of theequity through his wholly owned company, Nanchang Baishu Education Group (“Nanchang Baishu Education”), and Ningbo Haoliang holds 56%; 1Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·“Hailiang Finance” are to Hailiang Group Finance Co., Ltd., a related party; ·“Hailiang Group” are to Hailiang Group Co., Ltd., a related party; ·“Hailiang HK” are to “Hailiang Education (HK) Limited,” our wholly owned subsidiary incorporated in Hong Kong which holds 100% of the equityinterest in Hailiang Consulting; ·“Hailiang Inc.” are to “Hailiang Education Group Inc.,” our listed entity incorporated in the Cayman Islands; ·“Hailiang International Studying” are to “Hailiang Education International Studying Service Limited”, Hailiang HK’s wholly owned subsidiaryincorporated on September 26, 2018 in Hong Kong; ·“Hailiang Investment” are to “Hailiang Education Investment Group Co., Ltd.” a company controlled by our controlling shareholder, Mr. Feng.Hailiang Investment previously was named “Hailiang Education Management Group Co., Ltd.”; and ·“Hailiang Management” are to Hailiang Education Management Group Co., Ltd., an entity in which we do not hold any equity interests but whichwe control through various contractual arrangements. Hailiang Management was previously named “Zhejiang Hailiang Education Investment GroupCo., Ltd.”; ·“Hailiang Mingxin” are to Zhejiang Hailiang Mingxin Education Technology Co., Ltd., Hailiang Management’s wholly owned subsidiaryincorporated on August 9, 2017 as a PRC corporation; ·“Hailiang Sports” are to “Ningbo Hailiang Sports Development Co., Ltd.”, incorporated on May 18, 2018, as a wholly owned subsidiary of HailiangConsulting; ·“Hangzhou Hailiang” are to “Hangzhou Hailing Education Management Co., Ltd.” incorporated on June 19, 2018, as a wholly owned subsidiary ofHailiang Management; ·“managed schools” are to schools we operate by providing education and management service, but do not own or sponsor, as of June 30, 2018,including Jiulixianghucheng Kindergarten, Nanchang Baishu Angel City&Fenghuang Kindergarten, Nanchang Foreign LanguageJiulixianghucheng School, Nanchang Foreign Language Gaoxin School, Nanchang Maqiu Senior Middle School, Nanchang Baishu School, YichunBaishu Foreign Language School, Yichun Baishu Foreign Language School Xuefulu Campus, Yichun Baishu Angel City&Bilingual Kindergarten,Yichun Baishu Angel City&Bilingual Kindergarten Xuefulu Campus, Xingfu Shiguang Angel Kindergarten, Nanchang Hualian Foreign LanguageExperimental School, Nanchang Xihu District Baishu Education Group Teaching Staff Kindergarten, Jingdezhen Baishu School, Xinchang NanruiExperimental School and Xiantao No.1 Middle School. Information regarding an additional seven schools that we were engaged to provideeducation and non-education service after June 30, 2018 can be found in “Item 4. Information on the Company – B. Business Overview – ServicesProvided to Our Managed Schools”. ·“Mr. Feng” are to Mr. Hailiang Feng, our founder and controlling shareholder. Mr. Feng served as the chairman and chief executive officer of ourgroup, held directorships and management roles in our subsidiaries and affiliated entities until November 2014. Mr. Feng is the founder andchairman of the board of directors of Hailiang Group; ·“Nanchang Baishu Technology” are to Nanchang Baishu Technology Co., Ltd., a related party of the Company as controlled by HailiangInvestment; ·“Ningbo Hailiang” are to Ningbo Hailiang Education Logistics Management Co. Ltd., incorporated on June 22, 2017 as a wholly owned subsidiaryof Hailiang Consulting; ·“Ningbo Haoliang” are to Ningbo Haoliang Information Consulting Co., Ltd., incorporated on June 20, 2017, as a wholly owned subsidiary ofHailiang Consulting; 2Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·“our company,” “we,” “us,” “our” or “our group” are to Hailiang Inc. and, unless the context otherwise requires, all of their subsidiaries and affiliatedentities; ·“our schools” are to both affiliated schools and managed schools as of June 30, 2018, including Hailiang Primary School, Hailiang Junior MiddleSchool, Hailiang Senior Middle School, Hailiang High School of Art, Tianma Experimental School, Hailiang Experimental High School, HailiangForeign Language School, Jiulixianghucheng Kindergarten, Nanchang Baishu Angel City&Fenghuang Kindergarten, Nanchang Foreign LanguageJiulixianghucheng School, Nanchang Foreign Language Gaoxin School, Nanchang Maqiu Senior Middle School, Nanchang Baishu School, YichunBaishu Foreign Language School, Yichun Baishu Foreign Language School Xuefulu Campus, Yichun Baishu Angel City&Bilingual Kindergarten,Yichun Baishu Angel City&Bilingual Kindergarten Xuefulu Campus, Xingfu Shiguang Angel Kindergarten, Nanchang Hualian Foreign LanguageExperimental School, Nanchang Xihu District Baishu Education Group Teaching Staff Kindergarten, Jingdezhen Baishu School, Xinchang NanruiExperimental School and Xiantao No.1 Middle School. ·“PHIC company” are to “Pate's - Hailiang International College Company Limited”, Hailiang International Studying’s wholly owned subsidiaryincorporated on October 9, 2018 in United Kingdom; ·the “PRC” are to the People’s Republic of China, excluding Taiwan and the special administrative regions of Hong Kong and Macau for thepurposes of this annual report only; ·“RMB” or “Renminbi” are to the legal currency of China; ·“school year” are to the period from September 1 of each calendar year to June 30 of the following calendar year; ·“shares” or “ordinary shares” are to our ordinary shares, par value US$0.0001 per share; ·“US$,” “U.S. dollars,” or “dollars” are to the legal currency of the United States; ·“Zhongkao” are to high school entrance examinations administered in China; ·“Zhuji Hailiang Foreign Language High” are to “Zhuji Hailiang Foreign Language High School Co., Ltd.” incorporated on August 28, 2018, as awholly owned subsidiary of Hailiang Management. ·“Zhuji Hailiang Logistics” are to “Zhuji Hailiang Logistics Service Co., Ltd.”, Ningbo Hailiang’s wholly owned subsidiary incorporated onSeptember 26, 2018 as a PRC corporation; ·“Zhuji Hailiang Supply” are to “Zhuji Hailiang Supply Chain Management Co., Ltd.”, Ningbo Hailiang’s wholly owned subsidiary incorporated onSeptember 26, 2018 as a PRC corporation; ·“Zhuji Hongda” are to “Zhuji Hongda Trade Co, Ltd”, incorporated on November 15, 2017, as a wholly owned subsidiary of Hailiang Management; ·“Zhuji Hotel” are to Zhuji Nianxin Lake Hotel Management Co. Ltd., Hailiang Consulting’s wholly owned subsidiary was incorporated onSeptember 22, 2017 as a PRC corporation; ·“Zhuji Mingrui” are to “Zhuji Mingrui Business Information Consulting Co, Ltd”, incorporated on November 15, 2017, as a wholly ownedsubsidiary of Hailiang Management; ·“Zhejiang Mingxin International Travel” are to “Zhejiang Mingxin International Travel Co., Ltd.” incorporated on August 2, 2018, as a whollyowned subsidiary of Hailiang Management; ·“Zhuji Shangzhuo” are to “Zhuji Shangzhuo Enterprise Management Consulting Co, Ltd”, incorporated on November 20, 2017, as a wholly ownedsubsidiary of Hailiang Management; and ·“Zhuji Youer” are to “Zhuji Youer Network Technolog Co, Ltd”, incorporated on November 15, 2017, as a wholly owned subsidiary of HailiangManagement; Names of certain companies provided in this annual report on Form 20-F are translated or transliterated from their original Chinese legal names. Discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding. This annual report on Form 20-F includes our audited consolidated financial statements as of June 30, 2017 and 2018 and each of the three years periodended June 30, 2018. This annual report on Form 20-F contains translations of certain Renminbi amounts into U.S. dollars at specified rates. Unless otherwise stated, the translationof Renminbi into U.S. dollars has been made at RMB 6.6171 to US$1.00, the noon buying rate in effect on June 29, 2018 as set forth in the H.10 StatisticalRelease of the Federal Reserve bank. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S.dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreigncurrency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On October12, 2018, the noon buying rate was RMB6.9182 to US$1.00. We completed an initial public offering of 2,858,000 ADSs on July 6, 2015. On July 7, 2015, we listed our ADSs on the NASDAQ Global Market under thesymbol “HLG.” Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.3Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Part I Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not Applicable. Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not Applicable. Item 3. KEY INFORMATION A. Selected Financial Data The following selected consolidated statements of comprehensive income data for the years ended June 30, 2016, 2017 and 2018, and the selectedconsolidated statements of financial position data as of June 30, 2017 and 2018, have been derived from our audited consolidated financial statementsincluded elsewhere in this annual report. The consolidated financial statements are prepared and presented in accordance with International FinancialReporting Standards, or IFRSs. Historical results are not necessarily indicative of the results for any future periods. The selected consolidated statements of comprehensive income data for the years ended June 30, 2014 and 2015 and the selected consolidated statements offinancial position data as of June 30, 2014, 2015 and 2016 have been derived from our audited consolidated financial statements that are not included in thisannual report. Years Ended June 30, 2014RMB 2015RMB 2016RMB 2017RMB 2018RMB 2018USD (In thousands, except per share data) Consolidated Statements of ComprehensiveIncome Data: Revenue 462,754 514,787 654,060 853,295 1,169,348 176,716 Cost of revenue (299,683) (334,528) (498,944) (648,482) (804,674) (121,605)Gross profit 163,071 180,259 155,116 204,813 364,674 55,111 Other income, net 1,792 2,460 1,756 6,325 3,689 557 Selling expenses (15,635) (15,540) (16,753) (21,902) (24,539) (3,708)Administrative expenses (28,622) (33,334) (36,153) (28,385) (63,374) (9,577)Disposal loss of leasehold improvement — — (10,286) — — — Operating profit 120,606 133,845 93,680 160,851 280,450 42,383 Gain on disposal of affiliated entities — — — — 5,349 808 Net finance income 20,066 7,149 5,752 6,892 11,391 1,721 Profit before tax 140,672 140,994 99,432 167,743 297,190 44,912 Income tax expenses — — — — (66,288) (10,018)Net profit 140,672 140,994 99,432 167,743 230,902 34,894 Profit attributable to: Net profit attributable to non-controllinginterests — — — — 8,314 1,256Net profit attributable to the Group’sshareholders 140,672 140,994 99,432 167,743 222,588 33,638 Basic and diluted earnings per share (1) 0.39 0.39 0.24 0.41 0.54 0.08 Net profit 140,672 140,994 99,432 167,743 230,902 34,894 Other comprehensive income/(loss) — 29 8,437 2,202 (2,542) (384)Total comprehensive income 140,672 141,023 107,869 169,945 228,360 34,510 Comprehensive income attributed to: Comprehensive income attributed to non-controlling interests — — — — 8,314 1,256Comprehensive income attributed to theGroup’s shareholders 140,672 141,023 107,869 169,945 220,046 33,254 (1)After giving effect to a share split effected on December 23, 2014, following which each of our previously issued ordinary shares was subdivided into tenordinary shares. 4Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. As of June 30, 2014 2015 2016 2017 2018 2018 RMB RMB RMB RMB RMB US$ Consolidated Statements of Financial PositionData: Cash and cash equivalents 42,003 233,379 291,011 77,801 812,620 112,806 Total assets 638,922 857,516 1,132,962 1,399,010 1,884,850 284,846 Total equity 556,792 697,815 921,668 1,101,613 1,334,813 201,722 Current liabilities 82,130 159,701 211,294 297,397 550,037 83,124 Total liabilities 82,130 159,701 211,294 297,397 550,037 83,124 Exchange Rate Information We conduct substantially all of our operations in China. All of our revenue, costs and expenses of our operation companies are denominated in Renminbi.This annual report contains translations of certain Renminbi amounts into U.S. dollars at specified rates. Unless otherwise stated, the translation of Renminbiinto U.S. dollars has been made at RMB 6.6171 to US$1.00, the noon buying rate in effect on June 29, 2018 as set forth in the H.10 Statistical Release of theFederal Reserve bank. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars orRenminbi, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreign currency reservesin part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On October 12, 2018, thenoon buying rate was RMB6.9182 to US$1.00. The following table sets forth information concerning the rates of exchange of US$1.00 into RMB for the periods indicated. These rates are provided solelyfor your convenience and are not necessarily the exchange rates that we used in this annual report or will use in the preparation of our periodic reports or anyother information to be provided to you. Exchange Rate Year ended Periodend Average(1) Low High (RMB per US$1.00) June 30, 2013 6.1374 6.2312 6.3879 6.1213 June 30, 2014 6.2036 6.1448 6.2591 6.0402 June 30, 2015 6.2000 6.1860 6.2741 6.1107 June 30, 2016 6.6459 6.4259 6.5798 6.2008 June 30, 2017 6.7793 6.8074 6.958 6.6239 June 30, 2018 6.6171 6.4965 6.8039 6.2649 Month April 2018 6.3325 6.2967 6.3340 6.2655 May 2018 6.4096 6.3701 6.4175 6.3325 June 2018 6.6171 6.4651 6.6235 6.3850 July 2018 6.8038 6.7164 6.8102 6.6123 August 2018 6.8300 6.8453 6.9330 6.8018 September 2018 6.8680 6.8551 6.8880 6.8270 October (through October 12, 2018) 6.9182 6.8878 6.9224 6.8680 (1)Annual averages were calculated by using the average of the exchange rates on the last day of each month during the relevant year. Monthly averages arecalculated by using the average of the daily rates during the relevant month. B. Capitalization and Indebtedness Not Applicable. C. Reasons for the Offer and Use of Proceeds Not Applicable. D. Risk Factors Risks Relating to Our Business and Industry We may be unable to charge tuition at a sufficient level to be profitable or raise tuition as planned. Our results of operations are affected by the pricing of our educational programs. We charge tuition based on a student’s grade level and whether the studentattends our basic educational program or international program. Tuition we charge includes courses, books, boarding, extracurricular activities and otherschool services. Subject to the applicable regulatory requirements, we generally determine tuition based on the demand for our educational programs, thecost of our education and non-education services and the tuition and the fees charged by our competitors. Although we have been able to increase tuition inthe past, there is no guarantee that we will be able to maintain or increase our tuition in the future. 5Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In addition, the tuition we charge for some of our education programs is subject to regulatory restrictions. See “–—The tuition, accommodation and other feescharged by our K-12 schools and student enrollment at these schools are subject to regulation by the Chinese government, and our revenue is highlydependent on the level of these fees and the number of students enrolled.” Furthermore, the tuition we charge is subject to a number of other factors beyondour control such as the perception of our brand, the academic success of our students, our ability to hire qualified teachers and economic conditions generallyand particularly in Zhuji city, where, as of June 30, 2018, our affiliated schools are located. Any significant deterioration in these factors could have amaterial adverse effect on our ability to charge tuition at a sufficient level for us to be profitable. We may fail to continue to attract and retain students in our schools. The success of our business largely depends on the number of students enrolled in our current schools and in any new schools we may establish or acquire inthe future, as well as on the amount of tuition our students and parents are willing to pay. Therefore, our ability to continue to attract students to enroll in ourschools is critical to the continued success and growth of our business. The success of our efforts to enroll students will depend on several factors, includingwithout limitation our ability to: ·enhance existing programs to respond to market changes and student demands; ·develop new programs that appeal to our students; ·expand our geographic reach; ·manage our growth while maintaining the consistency of our teaching quality; ·effectively market our schools and programs to a broader base of prospective students; ·develop and license additional high-quality educational content; and ·respond to the increasing competition in the market. In addition, local and provincial government authorities may impose restrictions on the number of students we can recruit or the areas in which we can recruitstudents. Our business, financial condition and results of operations could be materially and adversely affected if we cannot maintain or increase ourenrollment as we expand our programs. We may fail to continue to attract and retain teachers and we may not be able to maintain consistent teaching quality throughout our schools. Our teachers are critical to maintaining the quality of our educational programs and services, and to maintaining our brand and reputation. We must continueto attract qualified teachers who have a strong command of their subject areas and who meet our qualifications. Currently, there is a well-publicizednationwide shortage of teachers and other educational professionals in the PRC. There is also a limited number of teachers in China with the necessaryexperience, expertise and qualifications that meet our requirements. We also must provide competitive compensation packages to attract and retain qualifiedteachers. Our teacher retention rates as of June 30, 2016, 2017, and 2018 were 90.5%, 95.1%, and 91.5%, respectively. “Retention rate” is calculated as 100% minusthe quotient of the number of teachers who cease being employed during the period by the number of teachers at the beginning of that period (not includingteachers hired during that period). In addition, we plan to increase the proportion of students enrolled in our international program and increase courseofferings. Doing so will require a greater number of teachers from overseas. As the market for qualified foreign teachers is extremely competitive, we cannotguarantee that we can maintain or increase our number of foreign teachers. Shortages of qualified teachers, or significant decreases in the quality of oureducational programs and services, whether actual or perceived in one or more of our schools, or an increase in hiring costs, may have a material and adverseeffect on our business and our reputation. In addition, we may not be able to hire and retain enough qualified teachers to maintain consistent teaching qualityin different locations should we establish and/or acquire additional schools as anticipated. Further, any inability to retain teachers may adversely affect ourHailiang brand and significantly increasing teacher salaries may have a material adverse effect on our business, financial condition and results of operations. Our students’ academic performance may fall and satisfaction with our educational services may otherwise decline. The success of our business depends on our ability to deliver a satisfactory learning experience and ensure the academic performance of our students. Ourschools may not be able to meet students’ and parents’ expectations for academic performance or help them achieve their college admissions goals. A studentmay not experience expected academic improvement and his or her performance may otherwise decline significantly due to reasons beyond our control.There is no assurance that we can provide learning and school experiences that are satisfactory to all of our students. Student and parent satisfaction with ourservices may decline. We may also experience negative publicity or a decrease in word-of-mouth referrals. In addition, we cannot ensure that our students willbe accepted to universities at rates we have experienced in the past, and parents and students may not be satisfied with our ability to help students gainadmission to universities. Any such negative developments could result in a student’s withdrawal from our schools. Although we have not experienced anysignificant school withdrawals in the past, if our student retention rate decreases significantly or if we otherwise fail to continue to attract and recruit students,our business, financial condition and results of operations may be materially and adversely affected. 6Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our historical results, growth rates and profitability may not be indicative of our future performance. We have experienced growth in revenue in recent years. Our historical growth was driven by both the expansion of our existing schools as well as by ouracquisition of an additional school in 2009. In addition, our growth in the past three fiscal years was primarily driven by the increase in levels of tuition feeswe charge our students. Our financial condition and results of operations may fluctuate due to a number of other factors, such as expansion and related costs in a given period, ourability to maintain and increase our profitability and to enhance our operational efficiency, increased competition and market perception and acceptance ofany newly introduced educational programs in any given year. In addition, while we plan to increase the proportion of our students enrolled in ourinternational program, there is no guarantee that we will be able to do so successfully. Furthermore, we may not be successful in continuing to increase thenumber of students admitted to the schools we operate, and we may not be as successful as we expect in identifying and acquiring additional schools. We may not sustain our past growth rates in future periods, and we may not sustain profitability on a quarterly or annual basis in the future. Our historicalresults, growth rates and profitability may not be indicative of our future performance. Our ADSs could be subject to significant price volatility should ourearnings fail to meet the expectations of the investment community. Any of these events could cause the price of our ADSs to materially decrease. If fewer Chinese students choose to study abroad, especially in the United States, Canada, Australia and the United Kingdom, demand for ourinternational program may decline. One of the principal drivers of the growth of our international program is the increasing number of Chinese students who choose to study abroad, especiallyin the United States, Canada, Australia and the United Kingdom, reflecting the growing demand for higher education in overseas countries by Chinesestudents. As such, any restrictive changes in immigration policy, terrorist attacks, geopolitical uncertainties and any international conflicts involving thesecountries could increase the difficulty for Chinese students to obtain student visas to study overseas, or decrease the appeal of studying in such countries toChinese students. Any significant change in admission standards adopted by overseas educational institutions could also affect the demand for overseaseducation by Chinese students. If overseas educational institutions significantly reduce their reliance on or acceptance of admission and assessment tests,such as TOEFL, IELTS or the Scholastic Assessment Test, or the SAT, the difficulty for Chinese students to meet the new admission standards couldsignificantly increase, which could in turn negatively affect the demand for overseas education by Chinese students. Additionally, Chinese students may alsobecome less attracted to studying abroad due to other reasons, such as improving domestic educational or employment opportunities associated withincreased economic development in China. These factors could cause declines in the demand for our international program, which may adversely affect ourrevenue and profitability. The tuition, accommodation and other fees charged by our affiliated schools and student enrollment at these affiliated schools are subject to regulation bythe Chinese government, and our revenue is highly dependent on the level of these fees and the number of students enrolled. The regulatory authorities in China, at both the national and local levels, have broad powers to regulate the tuition, accommodation and other fees chargedby K-12 schools as well as the student enrollment levels at these schools. As a result, new regulations could adversely impact the tuition, accommodation andother fees we may charge for our school programs and the level of student enrollment at our schools. In particular, the regulatory authorities impose amaximum ceiling on the amount of tuition we can charge. For example, the most recent ceiling on the amount of tuition and boarding expenses we cancharge was set out by the Zhuji branch of the MOE in August 2016, which sets forth the maximum amounts of tuition and boarding expenses for the basiceducation program of primary school, middle school and high schools at RMB60,000 per student, RMB65,000 per student and RMB70,000 per student,respectively. The international program of our affiliated schools are not currently subject to ceiling limitation on the amount of tuition and boardingexpenses we can charge as long as the tuitions we charge for our international programs are record-filed with local authorities and approved. Pursuant to theregistration documents filed with local authorities for the 2017/2018 school year, we are approved to charge RMB 73,000 to RMB 136,000 for ourinternational program. In the 2017/2018 school year, we charged an average tuition per student for the primary school, middle school and high schooleducation under our basic educational program of RMB41,368, RMB40,497 and RMB41,971, we charged an average tuition per student of RMB83,170 forour international program. The tuition limitation is reviewed by regulatory authorities on a periodic basis. See “Item 4. Information on the Company—B.Business Overview—Regulations—Regulations on Private Education—The Law for Promoting Private Education (2016) and the Implementation Rules forthe Law for Promoting Private Education (2004).” In addition, the Zhejiang provincial government has set a maximum number of high school students wecan admit from cities other than Zhuji in Zhejiang province to our basic educational program, after consultation with us. In the 2016/2017 school year, themaximum number of such high school students was set at 1,400 for Hailiang Experimental High School and 420 for Hailiang Senior Middle School. In the2017/2018 school year, the maximum number of such high school students was 400 for Hailiang Senior Middle School and 1,045 for Hailiang ExperimentalHigh School. We generally recruit students at the maximum level set by the government in Zhejiang province and additional students from other provinces.We may not admit more than the number that is approved by the regulatory authority. There is currently no limit as to the number of students we may admitfor our international program. In light of the significant increase in tuition and other education-related fees in recent years, regulatory authorities may imposestricter price control on educational charges in the future. As part of their efforts to regulate the private education industry, regulatory authorities may alsoimpose stricter student annual enrollment quotas. If the fees were to decrease or were not allowed to increase in line with increases in our costs, or if studentenrollment at our private K-12 schools were otherwise restricted, our business, financial condition and results of operations may be materially and adverselyaffected. The tuition, accommodation and other fees charged by our managed schools and student enrollment at these managed schools are subject to regulation bythe local governments in which they are located, are subject to record filing, but are not subject to ceiling amounts. Presently, the services we provide to ourmanaged schools are partially but not wholly dependent upon the size of the student population, and are not dependent upon the tuition levels, and as such,while we believe that our revenue is less dependent on the level of these fees and the number of students enrolled in our managed schools, we are uncertainhow our revenues would be impacted in the event the respective local governments of our managed schools were to decide to place ceiling limitations oneither tuitions, or student numbers, or both. 7Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We are exposed to concentration risks as all of the affiliated schools we own are currently located in a single city. All of the affiliated schools we own are currently located in Zhuji city in Zhejiang province. While we continue our expansion into other cities in the future,we anticipate that a significant part of our business operations in the short-term will continue to be in Zhuji city. As such, we would be materially andadversely affected if new regulations relating to the private K-12 education business were adopted in Zhejiang province or Zhuji city that placed additionalrestrictions or burdens on us. Our business depends on the strength of our Hailiang brand in the market. Our business operation and future growth are highly dependent on the awareness and recognition of our Hailiang brand. We believe that maintaining andenhancing the Hailiang brand is critical to our competitive advantage and to the growth of our business. The consistency and quality of our educationalprograms and services are critical to our brand and reputation. As we continue to grow in size, and expand our presence and geographical reach, it may bemore challenging to maintain the quality and consistency of our services. Any negative publicity about our programs, services or schools, regardless of itsveracity, could harm our brand image. In addition, in order to retain existing students and attract new students as well as to recruit and to retain qualifiedteachers, we plan to continue to make significant expenditures maintaining and enhancing our positive brand image and brand loyalty. See “Item 4.Information on the Company—B. Business Overview—Marketing” for a description of such efforts. We may not be able to successfully execute our brandpromotion plan and as a result, our reputation and business may be materially and adversely affected. The private for-profit K-12 education business is relatively new and may not gain wide acceptance in China. Our future is highly dependent upon the acceptance, development and expansion of the market for private for-profit K-12 educational services in China. Theprivate for-profit K-12 educational services market started to develop in the early 1990s and has grown significantly due to favorable policies enacted by theChinese government. Zhuji Hailiang Foreign Language School, our first private K-12 school, was established in 1995. In 1997, the State Council of the PRCpromulgated the first regulation to promote the private education industry in China. However, private educational services on a for-profit basis were notpermitted in China until 2003 when the Law of the People’s Republic of China on the Promotion of Privately-run Schools became effective. As a private education provider, we charge relatively higher fees for our affiliated schools in comparison with public schools. The development of this markethas been accompanied by significant press coverage and public debate concerning the management and operation of private for-profit schools. Significantuncertainty remains in China as to public acceptance of this business model. If this model fails to gain wide acceptance among the general public, especiallyamong students and their parents, our results of operations will be adversely affected. Based on the recent development of PRC law, there is significant uncertainty relating to the application and interpretation of PRC law as it relates to thepromotion of the private for-profit education industry. The 2016 Private Education Law (as defined below) and its implementing rules might limit ourability to receive profit distributions from our affiliated schools in the future. The Standing Committee of the National People’s Congress amended the Law on the Promotion of Private Education (the “2016 Private Education Law”),effective on September 1, 2017. Pursuant to the 2016 Private Education Law, sponsors of private schools may choose to register their schools as either non-profit or for-profit schools. Sponsors of for-profit private schools are entitled to receive the profits or proceeding distributed from their schools and theoperating surplus may be allocated to the sponsors pursuant to the PRC company law and other relevant laws and regulations. Sponsors of non-profit privateschools are not entitled to any distribution of profits from their schools and all revenue must be used for the operation of the schools. Pursuant to the 2016 Private Education Law, sponsors are not permitted to register for-profit schools that provide compulsory education services, whichcovers grades one to nine which grades account for a significant portion of our for-profit K-12 education business. However, the 2016 Private Education Lawdoes not provide for a definitive time line for existing schools to re-register/change their for-profit or non-profit status. As of the date of this annual report onForm 20-F, we have not received any notice from the regulatory bodies regarding re-registration. The State Council and certain provinces including theZhejiang province have promulgated implementing rules (in the form of Opinions) for the 2016 Private Education Law. Zhejiang province has promulgatedimplementing rules that all schools located in Zhejiang province are required to re-register and/or change their for-profit or non-profit statuses before 2022.We intend to maintain the current statuses of our affiliated schools (as re-registration is not required at this time under 2004 Private Education Laws currentlyeffective) until we have obtained better clarity on the application of the 2016 Private Education Law. In the future, we might redefine and evolve ourbusiness model in response to the changes in law, which may include, without limitation, an increased emphasis on leveraging our knowledge and expertisein school operations by providing managerial and consulting services to various schools we operate or partner with. However, if local governments deem thatour new business plan fails to meet the revised local regulations, or if our new business plan fails to generate sufficient revenue, we may be unable to growour business and the market price of our ADSs could be materially and adversely affected. We have entered into contractual arrangements with Hailiang Management, the entity that owns and sponsors each of our affiliated schools, pursuant towhich we provide service to our affiliated schools in exchange for the payment of service fees. As advised by our PRC counsel, our right to receive the servicefees from our affiliated schools and other affiliated entities does not contravene any PRC laws and regulations and that payment of service fees under ourcontractual arrangements should not be regarded as the distribution of returns, dividends or profits to the sponsors of our affiliated schools under the PRClaws and regulations. However, if the relevant PRC government authorities take a different view, or if 2016 Private Education Law were to be implementedand interpreted in a manner that deems our current business practices to be in violation, our business, financial condition and results of operations may bematerially and adversely affected. 8Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We may fail to successfully develop and introduce new education services and programs. One of our growth strategies is to continue to maintain and introduce diversified educational programs. We may also need, from time to time, to introduceadditional education services and programs to meet market demand. The future success of our business depends partly on our ability to develop neweducational services and programs. The planned timing or introduction of new educational services and programs is subject to risks and uncertainties. Actualtiming may differ materially from any originally proposed timeframes. Unexpected operational, technical or other issues could delay or prevent theintroduction of one or more of our new educational services or programs. In addition, significant investment of human capital, financial resources andmanagement time and attention may be needed based on a particular feature of our newly introduced educational programs. If we fail to manage theexpansion of our portfolio of educational programs efficiently and cost-effectively, our business could be negatively affected. Moreover, we cannot assureyou that any of our new services and programs will achieve market acceptance or generate incremental revenue or that our operation of such new services orprograms will comply with our business scope or applicable licensing requirements. If our efforts to develop, market and sell our new educational servicesand programs to the market are not successful, our business, financial position and results of operations could be materially and adversely affected. We may not be able to continually enhance our educational services and adapt them to rapid pedagogical innovations, evolving test methods and studentneeds and preferences. The quality of our educational services and student and parent satisfaction are vital to the success of our business. The educational services market ischaracterized by rapid pedagogical innovations, evolving test methods and student needs and preferences. We must quickly identify areas for changes,improvements and enhancements of our programs and services to adapt to any pedagogical innovation, changes in test methods and curriculum and evolvingstudent needs and preferences. For example, a significant part of our educational services focuses on middle school and high school education. There are continual changes in the focuses ofthe subjects and questions tested on standardized tests, such as the Zhongkao and the Gaokao, the two most significant tests for Chinese students. These testsare administered by local government authorities and are critical in determining admission into high school, in the case of the Zhongkao, and college, in thecase of the Gaokao. The format of these tests and the manner in which such standardized tests are administered are also changing, especially in Zhejiangprovince, one of the pioneers in educational reform and innovation. In particular, in 2009, Zhejiang Province implemented its new Gaokao regime, where twonew types of evaluations, namely the High School Graduation Exam and the Comprehensive Quality Evaluation, were incorporated into the undergraduateadmission process. The new regime also allowed universities to use their self-designed tests, as opposed to the standard tests designed by the government, intheir admission process. In addition, on a national level, some top universities in China, including Tsinghua University and Peking University, have beenallowed to recruit a certain percentage of students through independently administered tests and admission procedures in recent years. While collegeapplicants are still required to have a Gaokao score above a certain threshold, the Gaokao scores for these applicants will not be the sole determining factor inthe admission process. In 2018, 90 universities and colleges were allowed to recruit students through independently administered tests and admissionprocedures. These changes require us to continually update and enhance our curriculum, educational materials and our teaching methods. Any inability to track andrespond to changes in the educational field in a timely and cost-effective manner would make our educational services and programs less attractive tostudents, which may adversely affect our students’ academic performance, our reputation and ability to continue to attract and retain students. Furthermore,we understand that PRC regulatory authorities have reformed and may continue to reform the K-12 curriculum we are required to teach at our schools.Therefore, school curriculum will likely undergo changes and our services, programs and educational materials will need to adapt to such changes. We may not be able to adapt to these planned changes, enhancements and developments in a timely and cost-effective manner. If changes to our programsand services are delayed or are not aligned with changes in market expectations, needs or preferences, we may lose market share, and our business, financialcondition and results of operations could be materially and adversely affected. We face significant competition and we may fail to compete effectively. The private K-12 education sector in China is rapidly evolving, highly fragmented and competitive, and we expect competition in this sector to persist andintensify. See “Item 4. Information on the Company—B. Business Overview—Competition” for more information relating to the competitive landscape ofthe industry in which we compete. Competition could result in loss of market share and revenue, lower profit margins and limitations on our future growth.Some of our competitors, particularly public schools, have governmental support in forms of government subsidies and other payments or fee reductions.These competitors may devote greater resources, financial or otherwise, than we can to student recruitment, campus development and brand promotion andrespond more quickly than we can to changes in student demands and market needs. Our student enrollment and retention may decrease due to intensecompetition. We may be required to reduce tuition and other fees or increase spending in response to competition in order to attract or retain students orpursue new market opportunities. As a result, our revenue, profit and profit margin may decrease. With respect to the services we provide to our managedschools, we are one of the pioneers in the industry to provide non-education value-added services but we also compete with specialized non-educationservice providers who provide services in their respective, specialized fields, such as logistics, operational, landscape and cafeteria services which have alower entry barrier. As such, we may not be able to compete effectively and efficiently. We cannot assure you that we will be able to compete successfullyagainst current or future competitors. If we are unable to maintain our competitive position or otherwise fail to respond to competitive pressures effectively,we may lose market share and our business, financial condition and results of operations may be materially and adversely affected. 9Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We have limited experience generating net income from some of our newer service offerings providing non-education services to schools and may notachieve expected results from these newer service offerings. We have been engaged to provide various both education and non-educational services to our managed schools, and have expanded to provide non-education, value-added services to our affiliated school. But we have limited experience providing non-educational services at a mass level. We may devotesignificant resources to our newer service offerings, but fail to achieve expected results from such newer service offerings. If such newer service offerings arenot well accepted, we may not achieve our expected expansion to service offerings. As a result, our overall business and results of operations may bematerially and adversely affected. We may experience declines in our margins due to the expansion of our business and addition of new business models. Many factors may result in a decline of our margins. For example, our gross margin may decrease as costs incurred in the expansion of our business and ourphysical network of learning centers and service centers increase faster than our revenues. In addition, new investments and acquisitions may cause ourmargins to decline before we successfully integrate the acquired businesses into our operations and realize the full benefits of these investments andacquisitions. In recent years, we have experienced fluctuations in our margins, there can be no assurance that our margins will not continue to decline in thefuture. We may not be able to integrate businesses we acquired or plan to acquire in the future, which may adversely affect our business growth. We plan to acquire 51% equity interest in Zhenjiang Jianghe High School of Art (from its founders), a for-profit high school specializing in the arts educationpursuant to an Investment Cooperation Agreement dated September 28, 2018. We also plan to selectively acquire schools to expand our network coverageand/or businesses that are complementary to our core expertise in K-12 education. We cannot assure you that we will be able to integrate the acquiredbusinesses with our existing operations, and we may incur significant financial resources to streamline the operation of the acquired businesses under ourinternal control requirements and divert substantial management attention to the transition of the acquired businesses before achieving full integration. Inaddition, the businesses and schools we acquire may be loss making or have existing liabilities or other risks that we may not be able to effectively manage ormay not be aware of at the time we acquire them, which may impact our ability to realize the expected benefits from the acquisition or our financialperformance. If we fail to integrate the acquired businesses in a timely manner or at all, we may not be able to achieve the anticipated benefits or synergy fromthe acquired businesses, which may adversely affect our business growth. We may not be able to manage our business expansion and strategic acquisitions effectively. We plan to continue to expand our presence through organic growth, the asset-light approach, and strategic acquisitions. In particular, to support ourcontinued growth and to strengthen our market share in the region in which we currently operate, we need to establish or acquire new schools, and obtainrights to operate new schools. We also need to establish or acquire new schools in other regions to expand geographically. Expansion has resulted, and willcontinue to result, in substantial demands on our management and on our operational, technological and other resources. We intend to extend our growthstrategy, the asset-light approach, where we provide various services including, but not limited to, management and operation services, educational services,and operate and manage additional schools, without acting as the sponsors of the schools that we provide services to either directly or through our wholly-owned foreign subsidiaries in the PRC, and without acquiring ownership in such schools where such schools are owned and sponsored by related orindependent third parties. We also hope to expand our asset-light model; such expansion is associated with substantial risks and uncertainties, including ourability to generate sufficient revenue to offset the costs and expenses of operating and managing the schools, including the possibility of failure to achievethe intended revenue and other benefits expected from the asset-light model, and the diversion of resources and management attention from our existingbusinesses. To manage our expected growth, we will be required to expand our existing managerial, operational, technological and financial systems. We also need toexpand, train, manage and retain our growing employee base. Significant financial resources may also be needed to support our planned growth. We cannotassure you that our current and planned managerial, operational, technological and financial systems will be adequate to support our future operations, orthat we will be able to effectively and efficiently manage the growth of our operations or recruit and retain qualified personnel. There is no assurance that wewill obtain financial resources at commercial terms that are acceptable to us on a timely basis, or at all, to support our planned growth. Any failure toeffectively and efficiently manage our expansion may materially and adversely affect our ability to capitalize on new business opportunities, which in turnmay have a material adverse effect on our financial condition and results of operations. In addition, as a significant part of our growth strategy, we intend to pursue selective strategic acquisitions and maximize synergies through integration ofacquired entities. Our strategic acquisitions involve substantial risks and uncertainties, including: ·our ability to identify and acquire targets in a cost-effective manner; ·our ability to obtain approval from relevant government authorities for the acquisitions and to comply with applicable rules and regulations foracquisitions, including those relating to the transfer of school properties and facilities relating to the acquisitions; ·our ability to obtain financing to support our acquisitions; ·our ability to generate sufficient revenue to offset the costs and expenses of acquisitions, including the possibility of failure to achieve the intendedrevenue and other benefits expected from the acquisitions; 10Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·potential ongoing financial obligations in connection with the acquisitions, including any expenses in connection with impairment of goodwillrecognized in connection with the acquisitions and potential unforeseen or hidden liabilities of any acquired entity, such as litigation claims or taxliabilities; ·the diversion of resources and management attention from our existing businesses; and ·potential loss of, or harm to, employee or customer relationships as a result of ownership changes in the acquired entities. If any one or more of these risks or uncertainties materializes or if any of the strategic objectives we contemplate are not achieved, our strategic acquisitionsmay not be beneficial to us and may have a material adverse effect on our business, financial condition and results of operations. We may not be able to successfully integrate businesses that we acquire, which may cause us to lose anticipated benefits from such acquisitions and toincur significant additional expenses. One of our growth strategies is to grow by acquisitions of additional schools. It is challenging to integrate business operations and management philosophiesof acquired schools. The benefits of our future acquisitions depend in significant part on our ability to integrate management, operations, technology andpersonnel. The integration of acquired schools is a complex, time-consuming and expensive process that, without proper planning and implementation,could significantly disrupt our business and operations. The main challenges involved in integrating acquired entities include the following: ·consolidating service and product offerings; ·retaining qualified education professionals of any acquired entity; ·consolidating and integrating corporate information technology and administrative infrastructure; ·ensuring and demonstrating to our students and their parents that the acquisitions will not result in any adverse changes to our brand image,reputation, service quality or standards; ·preserving strategic, marketing or other important relationships of any acquired entity and resolving potential conflicts that may arise with our keyrelationships; and ·minimizing the diversion of our management’s attention from ongoing business concerns. We may not successfully integrate our operations and the operations of schools we acquire in a timely manner, or at all, and we may not realize theanticipated benefits or synergies of the acquisitions to the extent, or in the timeframe, we anticipated, which may have a material adverse effect on ourbusiness, financial condition and results of operations. Any deterioration in our relationships with providers of international educational services may adversely affect our business. We have entered into cooperative relationships with various overseas schools and institutions to provide resources for our international program. We derivedirect benefits from these relationships such as the ability to offer more diverse programs and classes and the ability to charge a premium for the programs weteach with other education service providers. We also derive indirect benefits from these relationships such as enhancement of our Hailiang brand andreputation, and exposure to overseas educational methods and experiences. If our relationships with any of these education service providers deteriorate or are otherwise damaged or terminated, or if the benefits we derive from theserelationships diminishes, whether as a result of our own actions, actions of any third-party, including our competitors, or of regulatory authorities or otherentities beyond our control, our business, prospects, financial condition and results of operations would be harmed. Our business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter to quarter. This may result in volatilityand adversely affect the price of our ADSs. We have experienced, and expect to continue to experience, seasonal fluctuations in our results of operations, primarily due to seasonal changes in servicedays and student enrollments. We recognize revenue from the delivery of educational services on a straight-line basis over the school year. However, ourcosts and expenses vary significantly and do not necessarily correspond with our recognition of revenue. We expect quarterly fluctuations in our revenue andresults of operations to continue. These fluctuations could result in volatility and adversely affect the price of our ADSs. 11Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our business depends on the continuing services of our senior management team and other key personnel, and our business may be harmed if we lose theirservices. Our future success depends heavily upon the continuing services of the members of our senior management team. Competition for experienced managementpersonnel in the private K-12 education market is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services of oursenior executives or key personnel, or attract and retain high-quality senior executives or key personnel in the future. If one or more of our senior executivesor other key personnel, including the principals of our schools, are unable or unwilling to continue their services, we may not be able to replace them in acost-efficient and timely manner, or at all. In addition, if any member of our senior management team or any of our other key personnel joins a competitor orforms a competing company, we may lose teachers and we may not be able to maintain or recruit students. If any such negative development occurs, ourbusiness may be materially disrupted and our financial condition and results of operations may be materially and adversely affected. We may not be able to renew leases, control rent increases at our existing schools or obtain leases for new schools at reasonable terms. We lease real properties used by our affiliated schools with a total combined gross floor area and site area of approximately 1.10 million square meters as ofJune 30, 2018 from Hailiang Investment which is controlled by Mr. Feng, our controlling shareholder. Historically, we recorded rental expenses paid toHailiang Investment of RMB25.4 million, RMB30.0 million, and RMB31.0 million (approximately US$4.7 million) for these properties which amounted to3.9%, 3.5%, and 2.7% of our revenue in the 2016, 2017 and 2018 fiscal years, respectively. The terms of our current leases are for twenty years. All of our current leases contain priority renewal provisions which provide that we have the right of firstrefusal to renew each lease upon the expiration of the lease, provided we notify lessor six months in advance. Under the lease agreements, we can terminatethe lease at any time without cause, provided we notify the lessor in writing three months in advance. The lessor may only terminate the agreements upon awritten notice to us one year in advance for any unapproved sublease by the lessee, unapproved modification to the premises, failure to pay rent for more than60 days or use of the properties for illegal activities. To terminate the leases for other causes, the lessor would have to give us written notice one year inadvance and obtain our consent to such termination. However, there is no assurance that the lessor will observe its obligations under these lease agreements.As a result, at the end of each year or the term of the lease, we may fail to reach an agreement for a rental price or otherwise fail to continue to lease theproperties. We may be forced to relocate the affected operations to a new location, which could involve substantial rent increases and material businessinterruption. In addition, we cannot assure you that the lessor has duly obtained the title certificates of the properties subject to our leases or otherwise has the right tolease the properties. In particular, as of June 30, 2018, the lessor has failed to provide title certificates to properties associated with Tianma ExperimentalSchool and part of Hailiang Education Park that has an aggregate gross site area of approximately 545,000 square meters, representing 49.40% of all of ourleased properties as of June 30, 2018. If any of our leases were terminated as a result of challenges by third-parties or governmental authorities, we may beforced to relocate the affected operations and incur significant expenses. We might also be liable or incur costs associated with potential defects in theproperties we lease. We may also be required to pay fines or damages as a result of our use of such properties. There is no assurance that we may find suitablereplacement sites in a timely manner on terms acceptable to us. As of the date of this annual report, we are not aware of any actions, claims or investigations being contemplated by or pending before any governmentalauthorities with respect to our leased properties. We have not received any notice of claim from any third-party for our use of such leased properties. However,if any of these risks materializes, our business, financial condition and results of operations may be materially and adversely affected. See “Item 4.Information on the Company—B. Business Overview—Properties and Facilities” for more information. Accidents or injuries may occur at our schools, which could affect our reputation and student retention and enrollment. We could be held liable for the accidents or injuries or other harm to students or other people at our schools, including those caused by or otherwise arising inconnection with our school facilities or employees. We could also face claims alleging that we were negligent, provided inadequate maintenance to ourschool facilities or supervision to our employees and therefore should be held liable for accidents or injuries suffered by our students or other people at ourschools. In addition, if one of our students commits acts of violence, we could face allegations that we failed to provide adequate security or were otherwiseresponsible for his or her actions. Our schools may be perceived to be unsafe, which may discourage prospective students from attending our schools.Although we maintain certain liability insurance, this insurance coverage may not be adequate to fully protect us from these kinds of claims. In addition, wemay not be able to obtain liability insurance in the future at reasonable prices or at all. A liability claim against us or any of our employees could adverselyaffect our reputation and student enrollment and retention. Even if unsuccessful, such a claim could create unfavorable publicity, cause us to incursubstantial expenses and divert the time and attention of our management. There are risks associated with our use of the Hailiang Education Park. In September 2016, Hailiang Investment, a company controlled by our controlling shareholder, Mr. Feng, completed the construction of the HailiangEducation Park, which has a total site area of approximately 850,000 square meters and a gross floor area of approximately 550,000 square meters. See “Item4. Information on the Company—B. Business Overview—Our Schools and Programs—Hailiang Education Park.” As of June 30, 2018, our affiliated schoolsthat operated in Hailiang Education Park were Hailiang Primary School, Hailiang Junior Middle School, Hailiang Senior Middle School and HailiangForeign Language School. On November 18, 2015, we entered into a lease agreement with Hailiang Investment regarding Hailiang Education Park. The term of the lease is twenty yearsand the rental fee in the first year is RMB20.0 million (approximately US$3.0 million) and is subject to a 5% increase in the next three years. The rental feecommencing from the fifth year is subject to further negotiation between the Company and Hailiang Management. 12Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On December 29, 2017, we terminated the above mentioned lease agreement and entered into 4 new lease agreements with Hailiang Investment regardingHailiang Education Park, in order to allocate lease fees to each school occupying the Hailing Education Park according to their respective gross floor areas.See “Item 4. Information on the Company—B. Business Overview—Our Schools and Programs—Hailiang Education Park.” The hotel has completed final construction examination and has commenced operation in October 2017. As such, for all of the gross floor area and the grosssite area of Hailiang Education Park, Hailiang Investment has either undertaken the final construction examination or made the relevant filings with therelevant authorities required upon completion of the construction of the Hailiang Education Park. There are certain other risks associated with the utilization of the Hailiang Education Park, including: ·construction quality issues; ·greater time and resources may be required to utilize the Hailiang Education Park than we currently estimate; ·any dissatisfaction with the Hailiang Education Park on the part of our students, teachers or parents could lead to lower student enrollment or teacherretention in the future; ·the possibility that if there is no increase in enrollment or tuition, our profitability may be impaired; and ·the possibility that the Hailiang Education Park will be inadequate. Capacity constraints of our school facilities could cause us to lose students to our competitors. The educational facilities of our affiliated schools are limited in space and size. We may not be able to admit all qualified students who would like to enrollin our educational programs due to the capacity constraints of our current school facilities. Furthermore, absent additional acquisitions, we may not be able toexpand our capacity at our current campuses or relocate to other facilities in the local area with more space. If we fail to expand our physical capacity asquickly as the demand for our services grows, or if we otherwise fail to grow by establishing or acquiring additional schools and campuses, we could losepotential students to our competitors, and our results of operations and business prospects could suffer as a result. We may not be able to adequately protect our intellectual property. Unauthorized use of any of our intellectual property may adversely affect our business and reputation. We rely on a combination of copyright, trademark andtrade secrets laws to protect our intellectual property rights. Nevertheless, third-parties may obtain and use our intellectual property without dueauthorization. The practice of intellectual property rights enforcement action by Chinese regulatory authorities is in its early stage of development and issubject to significant uncertainty. We may also need to resort to litigation and other legal proceedings to enforce our intellectual property rights. Any suchaction, litigation or other legal proceedings could result in substantial costs and diversion of our management’s attention and resources and could disrupt ourbusiness. In addition, there is no assurance that we will be able to enforce our intellectual property rights effectively or otherwise prevent others from theunauthorized use of our intellectual property. Failure to adequately protect our intellectual property could materially and adversely affect our business,financial condition and results of operations. We may be exposed to infringement claims by third-parties, which, if successful, could cause us to pay significant damage awards. We cannot assure you that materials and other educational content used in our schools and programs do not or will not infringe intellectual property rights ofthird-parties. As of June 30, 2018, we have not experienced any claims for intellectual property infringement. However, there is no guarantee in the future thatthird-parties will not claim that we have infringed on their proprietary rights. For example, our educational materials may include test questions that aredeveloped based on actual questions of tests administered by third-parties or regulatory authorities, who may allege that our test questions infringe theircopyrights. We may also use educational materials designed in conjunction with our overseas associates and we cannot guarantee that disputes will not ariseover the intellectual property rights associated with these materials. Although we plan to defend ourselves vigorously in any such litigation or legal proceedings, there is no assurance that we will prevail in these matters.Participation in such litigation and legal proceedings may also cause us to incur substantial expenses and divert the time and attention of our management.We may be required to pay damages or incur settlement expenses. In addition, in case we are required to pay any royalties or enter into any licensingagreements with the owners of intellectual property rights, we may find that the terms are not commercially acceptable and we may finally lose the ability touse the related content or materials, which in turn could materially affect our educational programs. Any similar claim against us, even without any merit,could also hurt our reputation and brand image. Any such event could have a material and adverse effect on our business, financial condition and results ofoperations. We have limited insurance coverage with respect to our business and operations. We are exposed to various risks associated with our business and operations, and we have limited insurance coverage. See “Item 4. Information on theCompany—B. Business Overview—Insurance” for more information. We are exposed to risks including, but not limited to, accidents or injuries in ourschools, loss of key management and personnel, business interruption, natural disasters, terrorist attacks and social instability or any other events beyond ourcontrol. The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business-related insuranceproducts. While we maintain director and officer liability insurance for our executive officers and directors, we do not have any business disruptioninsurance, product liability insurance or key-man life insurance. Any business disruption, litigation or legal proceeding or natural disaster or other eventsbeyond our control could result in substantial costs and diversion of our resources. Our business, financial condition and results of operations may bematerially and adversely affected as a result. 13Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. A significant majority of our outstanding ordinary shares are held by our founder, Mr. Feng, and his interests may not be aligned with the interests of otherholders of our ordinary shares and ADSs. As of June 30, 2018, Mr. Feng beneficially owned approximately 83.61% of our total outstanding ordinary shares. As a result, Mr. Feng has significantinfluence in determining the outcome of any corporate transactions or other matters submitted to our shareholders for approval. These matters includemergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. This concentration ofownership may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive apremium for their shares as part of a sale of our company and might result in substantial reduction of the price of our ADSs. These actions may be taken evenif they are opposed by our other shareholders. Our founder, Mr. Feng, is also the founder, chairman and a major shareholder of Hailiang Group and itssubsidiaries, with which we have entered into related party transactions. Mr. Feng may from time to time make strategic decisions that he believes is in thebest interests of Hailiang Group as a whole, which may affect us or may not be aligned with the interests of other holders of our ordinary shares and ADSs. Wemay not be able to resolve any potential conflicts of interest and, even if we do, the resolution may be less favorable to us than if we were dealing with anunaffiliated party. We deposit a certain amount of cash with a related party and are subject to credit risks of such related party. As part of our cash management policy, we have historically deposited and expect to continue to deposit a certain amount of cash generated from our privateeducation business with Hailiang Finance, a related party finance company owned by Hailiang Group, in order to earn interest at market rates with flexiblewithdrawal terms on our deposits. Since September 2014, Hailiang Group and Mr. Feng have entered into a guarantee agreement with us to irrevocably andjointly guarantee the timely return of our deposits on behalf of the finance company, and the guarantee has been renewed annually since. As of June 30,2018, the balance of cash and term deposits we had with Hailiang Finance amounted to RMB944.7 million (approximately US$142.8 million). To controlour credit exposure with Hailiang Finance, based upon our current policy effective since October 10, 2018, we have set an upper deposit budget maintainedby Hailiang Finance at any given time in fiscal 2019 to be approximately RMB1.9 billion (approximately US$287.1 million), and any amount above theupper deposit budget must be transferred to a commercial bank within 7 business days. We do not control nor are we informed of the use of deposits made with the finance company and are subject to credit risks of such finance company. See“Item 11. Quantitative and Qualitative Disclosures about Market Risk.” In addition, there is no assurance that we will be able to successfully enforce theguarantee granted by Hailiang Group or Mr. Feng in the event that the finance company defaults on the return of such deposits. The credit profile of thefinance company and guarantors may deteriorate and their ability to return such deposits may be impaired due to various reasons beyond our control, such asa slowdown in the PRC, regional or local economies, a material decrease of profitability or significant tightening of liquidity with respect to their respectivebusinesses, loss or material deterioration of relationships with their respective key customers or suppliers, natural disasters or other force majeure events. Ourfinancial condition and liquidity position could be materially and adversely affected if any of these occur and, as a result, our business and prospects wouldbe materially and adversely affected. Worsening economic conditions generally affecting the global or Chinese economy could adversely impact our business. Beginning in 2008, there was a significant deterioration and instability in the U.S. and global economies. The recovery from such economic downturn hasbeen negatively affected by various subsequent events, including the European sovereign debt crisis. The growth of the Chinese economy also slowed downsignificantly in 2009 and may slow again in the future. Since we derive substantially all of our revenue in China, any prolonged slowdown in the Chineseeconomy, or downturn affecting the global economy generally, may have a negative impact on our business, financial condition and results of operations.For example, student families may choose schools or programs with lower tuition and other fees, or otherwise decrease or delay their education spending. As aresult, we may experience difficulty in recruiting and retaining students, or expanding our student base for our newly established or acquired schools. Wemay also need to reduce our tuition or other fees as a result of the general lower level of spending by Chinese students, especially those in the region in whichwe operate. The general economic downturn affecting the Chinese or global economy may also affect the attractiveness of our international program, whichtypically charges a higher level of fees for services associated with advanced studies in overseas educational institutions. Any such negative developmentcould have a material and adverse effect on our business, financial condition and results of operations. We face risks related to natural disasters, health epidemics or terrorist attacks in China. Our business could be materially and adversely affected by natural disasters, such as earthquakes, floods, landslides, tornados and tsunamis, outbreaks ofhealth epidemics such as avian influenza and severe acute respiratory syndrome, or SARS, and Influenza A virus, such as H5N1 subtype and H5N2 subtypeflu viruses, as well as terrorist attacks, other acts of violence or war or social instability in the region in which we operate or those generally affecting China. Ifany of these occur, our schools and facilities may be required to temporarily or permanently close and our business operations may be suspended orterminated. Our students, teachers and staff may also be negatively affected by such event. Our physical facilities may also be affected. In addition, any ofthese could adversely affect the Chinese economy and demographics of the affected region, which could cause significant declines in the number of ourstudents in that region and could have a material adverse effect on our business, financial condition and results of operations. 14Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We are an “emerging growth company” and may not be subject to requirements that other public companies are subject to, which could harm investorconfidence in us and our ADSs. We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, and we may take advantage of certainexemptions from various requirements applicable to other public companies that are not emerging growth companies including, most significantly, not beingrequired to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we are an emerging growthcompany. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they maydeem important. Failure to maintain effective internal control over financial reporting could cause us to inaccurately report our financial results or fail to prevent fraudand have a material adverse effect on our business, results of operations and the trading price of ADSs. Prior to our initial public offering in July 2015, we were a private company with limited accounting personnel and other resources with which to address ourinternal controls and procedures. As a public company in the United States, we are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual reporton Form 20-F. Our management has concluded that our internal control over financial reporting was effective as of June 30, 2018. See “Item 15. Controls and Procedures,”for a description of management’s evaluation of our internal control over financial reporting. If we fail to maintain effective internal control over financialreporting in the future, our management may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurancelevel. While we are not subject to our independent registered public accounting firm’s conclusion on effective internal control over financial reportingduring fiscal year ended June 30, 2018, we are unsure if our independent registered public accounting firm will conclude that we have effective internalcontrol over financial reporting at a reasonable assurance level. Moreover, effective internal controls over financial reporting are necessary for us to producereliable financial reports and are important to help prevent fraud. In addition, we need to continue to evaluate the consolidation of our affiliated entitiesgiven the change in the ownership or voting power of the Company by the nominee shareholders of the affiliated entities. As a result, while we have incurredand anticipate that we will continue to incur considerable costs, management time and other resources in an effort to continue to comply with Section 404and other requirements of the Sarbanes-Oxley Act of 2002, any failure to maintain effective internal controls over financial reporting could in turn result inthe loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of our ADSs. In addition, once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firmmust attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control overfinancial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, ourindependent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with ourinternal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differentlyfrom us. During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Actof 2002, we may identify other weaknesses and deficiencies in our internal control over financial reporting, and we may not be able to conclude on anongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. If we fail toachieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet ourreporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access tocapital markets, harm our results of operations, and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financialreporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which welist, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods. Prior material weakness in internal control over financial reporting may not have been adequately remediated and may adversely affect our ability tocomply with financial reporting regulations and to publish accurate financial statements. After identifying the material weakness in internal control over financial reporting for the fiscal year ended June 30, 2016, we have assigned two financialaccounting personnel familiars with internal control to implement necessary measures to improve our internal control system. For the fiscal year ended June30, 2017, we have standardized and improved essential business processes according to the requirements of internal control. For the fiscal year ended June30, 2018, we have hired a new Chief Financial Officer and additional key accounting staff with prior experiences with Big Four accounting firms andextensive knowledge of IFRSs and Chinese GAAP. We believe that we have fully remediated the material weakness identified in the fiscal years ended June30, 2016 and 2017. Any projections of any evaluation of effectiveness of internal control to future periods are subject to the risk that controls may becomeinadequate because of changes in conditions or that the degree of compliance with our policies or procedures may deteriorate. 15Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Risks Relating to Our Corporate Structure Our private educational service business is subject to extensive regulation in China. If the PRC government finds that the contractual arrangement thatestablishes our corporate structure for operating our business does not comply with applicable PRC laws and regulations, we could be subject to severepenalties. Our private education service business is subject to extensive regulations in China. The Chinese government regulates various aspects of our business andoperations, such as curriculum content, educational materials, standards of school operations, student recruitment activities and tuition and other fees. Thelaws and regulations applicable to the private education sector are subject to frequent changes, and new laws and regulations may be adopted, some of whichmay have a negative effect on our business, either retroactively or prospectively. Foreign ownership in educational services is subject to significant regulations in China. The PRC government regulates the provision of educational servicesthrough strict licensing requirements. In particular, PRC laws and regulations currently prohibit foreign ownership of companies and institutions providingcompulsory educational services at primary and middle school levels, and restrict foreign investment in educational services businesses at the high schoollevel. We are a company incorporated in the Cayman Islands. Our PRC subsidiary, Hailiang Consulting, is a foreign owned enterprise and is currentlyineligible to apply for and hold licenses to operate, or otherwise own equity interests in, our schools with K-12 educational programs. Due to theserestrictions, we conduct our private education business in China primarily through contractual arrangements among (i) Hailiang Consulting, our operatingsubsidiary in China, (ii) our affiliated entities, including Hailiang Management and its subsidiaries, and (iii) the shareholders of Hailiang Management,namely Mr. Feng (our founder and our ultimate controlling shareholder who holds a 99.9% equity interest in Hailiang Management, and Beize Group whoholds a 0.1% equity interest in Hailiang Management and is controlled by Mr. Feng and his wife). We hold the required licenses and permits necessary toconduct our private education business in China through the schools controlled and held by Hailiang Management. We have been, and expect to continue tobe, dependent on our affiliated entities to operate our private education business. Additionally, with respect to managed schools that we manage and operatebut do not own or sponsor, relevant regulations requiring that service and management fees charged to managed schools be negotiated on an arm’s lengthbasis that represents genuine service have not become effective as of June 30, 2018. We believe we are currently in compliance with and expect to be incompliance with the requisite fair value service regulations upon their effectiveness. If our ownership structure and contractual arrangements are found to be in violation of any PRC laws or regulations, or if we are found to be required butfailed to obtain any of the permits or approvals for our private education business, the relevant PRC regulatory authorities, including—the MOE, whichregulates the education industry in China, the Ministry of Commerce, or MOFCOM, which regulates the foreign investment in China, and the Civil AffairsBureau, which regulates the registration of schools in China—would have broad discretion in imposing fines or punishments upon us for such violations,including: ·requiring the Company to restructure its ownership structure and operations in the PRC to comply with the existing or future PRC laws andregulations; ·revoking the affiliated entities’ business and operating licenses; ·requiring the affiliated entities to discontinue or restrict operations; ·blocking the affiliated entities’ websites; ·imposing additional conditions or requirements with which the affiliated entities may not be able to comply; or ·takeing other regulatory or enforcement actions against the affiliated entities that could be harmful to the affiliated entities’ business. As of the date of this annual report on Form 20-F, similar ownership structure and contractual arrangements have been used by many China-based companieslisted overseas, including a number of education companies listed in the United States. To our knowledge, none of the fines or punishments listed above havebeen imposed on any of these public companies, including companies in the education industry. However, we cannot assure you that such fines orpunishments will not be imposed on us or any other companies in the future. If any of the above fines or punishments is imposed on us, our business,financial condition and results of operations could be materially and adversely affected. 16Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The draft Foreign Investment Law proposes sweeping changes to the PRC foreign investment legal regime and will likely to have a significant impact onbusinesses in China controlled by foreign invested enterprises primarily through contractual arrangements, such as our business. There are significant uncertainties under the Draft Foreign Investment Law relating to the status of businesses in China controlled by foreign investedprojects primarily through contractual arrangements, such as our business. On January 19, 2015, MOFCOM published a draft of PRC law on Foreign Investment (Draft for Comment), or the Draft Foreign Investment Law. At the sametime, MOFCOM published an accompanying explanatory note of the Draft Foreign Investment Law, or the Explanatory Note, which contains importantinformation about the Draft Foreign Investment Law, including its drafting philosophy and principles, main content, plans to transition to the new legalregime and treatment of business in China controlled by foreign invested enterprises, or FIEs, primarily through contractual arrangements. The Draft ForeignInvestment Law utilizes the concept of “actual control” for determining whether an entity is considered to be a foreign-invested project, and defines“control” broadly to include, among other things, voting or board control through contractual arrangements. The Draft Foreign Investment Law proposes significant changes to the PRC foreign investment legal regime and may have a material impact on Chinesecompanies listed or to be listed overseas. The Draft Foreign Investment Law would regulate FIEs the same way as PRC domestic entities, except for those FIEsthat operate in industries deemed to be either “restricted” or “prohibited” in a “negative list.” The Draft Foreign Investment Law also provides that only FIEsoperating in industries on the negative list will require entry clearance and other approvals that are not required of PRC domestic entities. As a result of theentry clearance and approvals, certain FIE’s operating in industries on the negative list may not be able to continue to conduct their operations throughcontractual arrangements. It also states that entities established in China but controlled by foreign investors will be treated as FIEs, while entities set upoutside of China which are controlled by PRC persons or entities, would be treated as domestic projects after completion of market entry procedures. TheMOFCOM, and the National Development and Reform Commission, or NDRC, promulgated the Catalogue of Industries for Guiding Foreign Investment, orthe Catalogue, as amended on March 10, 2015, which came into effect on April 10, 2015, and as further amended on June 28, 2017 and came into effect onJuly 28, 2017 (the “2017 Catalogue”). On June 28, 2018 the MOFCOM and NDRC promulgated the Special Measures for Foreign Investment Access (2018version), or the 2018 Negative List, terminating the 2017 Catalogue. According to the 2018 Negative List, the education services sector in which theCompany is currently engaged in business operations, is not deemed to be either “restricted” or “prohibited” in the “negative list.” However, the MOFCOMand NDRC publish new Catalogues from time to time that may change the scope of the “negative list,” and as such, it is uncertain whether future Cataloguesmay re-classify advertising services sector in the “negative list.” There is substantial uncertainty regarding the Draft Foreign Investment Law, including, among others, what the actual content of the law will be as well as theadoption and effective date of the final form of the law. As a result, we cannot assure you that the new Foreign Investment Law, when it becomes effective,will not have a material and adverse effect on our ability to conduct our business through our contractual arrangements. The Draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance practice and increase our compliance costs.For instance, the Draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on both foreign investors and theFIE subject to the law. Aside from an investment implementation report and an investment amendment report that are required for each investment andalteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to report on a quarterlybasis. Any company found to be non-compliant with these information reporting obligations may potentially be subject to fines and/or administrative orcriminal liabilities, and the persons directly responsible may be subject to criminal liabilities. Further, if we are deemed to have a non-PRC entity as a controlling shareholder and the MOFCOM re-classifies the advertising services sector in the“negative list,” the provisions regarding control through contractual arrangements could reach our VIE arrangement, and as a result LMG could becomesubject to restrictions on foreign investment, which may materially impact the viability of our current and future operations. Specifically, we may be requiredto modify our corporate structure, change our current scope of operations, obtain approvals or face penalties or other additional requirements, compared toentities which do have PRC controlling shareholders. Substantial uncertainties exist with respect to the enactment timetable, interpretation andimplementation of Draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance andbusiness operations. It is uncertain whether we would be considered as ultimately controlled by Chinese nationals. Mr. Hailiang Feng, our founder, principal shareholder and aPRC citizen, beneficially and indirectly own 83.61% of our outstanding voting securities. It is uncertain, however, if these factors would be sufficient to givethem control over us under the Draft Foreign Investment Law. Moreover, the Draft Foreign Investment Law has not taken a position on what actions will betaken with respect to the companies currently employing a VIE structure, whether or not these companies are controlled by Chinese parties, while it issoliciting comments from the public on this point. If the enacted version of the Draft Foreign Investment Law mandate further actions, such as MOFCOMmarket entry clearance or certain restructuring of our corporate structure and operations there may be substantial uncertainties as to whether we can completethese actions in a timely manner, if at all, and our business and financial condition may be materially and adversely affected. We rely on contractual arrangements with Hailiang Management and its shareholders for our operations in China, which may not be as effective inproviding control as direct ownership. We have relied and expect to continue to rely on the contractual arrangements with Hailiang Management and its shareholders, Beize Group and Mr. Feng,our founder and our ultimate controlling shareholder, to operate our private education business. For a description of these contractual arrangements, see “Item4. Information on the Company—A. History and Development of the Company” and “Item 4. Information on the Company —C. Organizational Structure.”However, these contractual arrangements may not be as effective as direct equity ownership in providing us with control over Hailiang Management and ouraffiliated schools. Any failure by our affiliated entities, including Hailiang Management and our affiliated schools controlled and held by HailiangManagement, and the shareholders of Hailiang Management, to perform their obligations under the contractual arrangements would have a material adverseeffect on the consolidated financial position and consolidated financial performance of our company. For example, the contractual arrangements aregoverned by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted inaccordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed assome other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractualarrangements. In addition, if the legal structure and the contractual arrangements were found to be in violation of any existing or future PRC laws andregulations, we may be subject to fines or other legal or administrative sanctions. If government actions cause us to lose our right to direct the activities of our affiliated entities or our right to receive substantially all the economic benefitsSource: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.and residual returns from our affiliated entities and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would nolonger be able to consolidate the financial results of our affiliated entities. The majority shareholder of Hailiang Management, Mr. Feng, our founder and our ultimate controlling shareholder, may not act in the best interests ofour company. Mr. Feng is the majority shareholder of Hailiang Management. He is also the founder and ultimate controlling shareholder of our company. We cannot assureyou that Mr. Feng will act in the best interests of our company. We rely on Mr. Feng to comply with the terms and conditions of the contractual arrangements.Although Mr. Feng is obligated to honor his contractual obligations with respect to our affiliated entities, he may nonetheless breach or cause HailiangManagement to breach or refuse to renew the existing contractual arrangements that allow us to effectively exercise control over our affiliated entities and toreceive economic benefits from them. If Mr. Feng does not honor his contractual obligations with respect to our affiliated entities, we may exercise ourexclusive option to purchase, or cause our designee to purchase, all or part of the equity interest in Hailiang Management to the extent permitted by PRC law.If we cannot resolve any disputes between us and the shareholder of Hailiang Management, we would have to rely on legal proceedings, which could result indisruption of our business and substantial uncertainty as to the outcome of any such legal proceedings. 17Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Contractual arrangements between our affiliated entities and us may be subject to scrutiny by the PRC tax authorities and a finding that we or ouraffiliated entities owe additional taxes could materially reduce our net income and the value of your investment. Under PRC laws and regulations, transactions between related parties should be conducted on an arm’s-length basis and may be subject to audit or challengeby the PRC tax authorities. We could face material adverse tax consequences if the PRC tax authorities determine that the contractual arrangements amongour subsidiary in the PRC, our affiliated entities and the shareholders of Hailiang Management are not conducted on an arm’s-length basis and adjust theincome of our affiliated entities through the transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in, for PRC taxpurposes, increased tax liabilities of our affiliated entities. In addition, the PRC tax authorities may require us to disgorge our prior tax benefits, and requireus to pay additional taxes for prior tax years and impose late payment fees and other penalties on our affiliated entities for underpayment of prior taxes. Todate, similar contractual arrangements have been used by many public companies, including companies listed in the United States, and, to our knowledge,the PRC tax authorities have not imposed any material penalties on those companies. However, we cannot assure you that such penalties will not be imposedon any other companies or us in the future. Our net income may be harmed if the tax liabilities of our affiliated entities materially increase or if they are foundto be subject to additional tax obligations, late payment fees or other penalties. If any of our affiliated entities becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy assets held by suchentity, which could materially and adversely affect our business, financial condition and results of operations. We currently conduct our operations in China through contractual arrangements with our affiliated entities and the shareholders of Hailiang Management. Aspart of these arrangements, substantially all of our education-related assets that are important to the operation of our business are held by our affiliatedentities. If any of these entities goes bankrupt and all or part of their assets become subject to liens or rights of third-party creditors, we may be unable tocontinue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If anyof our affiliated entities undergoes a voluntary or involuntary liquidation proceeding, its equity owner or unrelated third-party creditors may claim rightsrelating to some or all of these assets, which would hinder our ability to operate our business and could materially and adversely affect our business, ourability to generate revenue and the market price of our ADSs. PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using financing activities tomake loans or additional capital contributions to our PRC subsidiary and affiliated entities, which could harm our liquidity and our ability to fund andexpand our business. As an offshore holding company of our PRC subsidiaries, we may (i) make loans to our PRC subsidiary and affiliated entities, (ii) make additional capitalcontributions to our PRC subsidiaries, (iii) establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, and (iv) acquireoffshore entities with business operations in China in an offshore transaction. However, most of these uses are subject to PRC regulations and approvals. Forexample: ·loans by us to our wholly-owned subsidiary in China, which is a foreign-invested enterprise, cannot exceed statutory limits and must be registeredwith the State Administration of Foreign Exchange of the PRC, or SAFE, or its local counterparts; ·loans by us to our affiliated entities, which are domestic PRC entities, over a certain threshold must be approved by the relevant governmentauthorities and must also be registered with SAFE or its local counterparts; and ·capital contributions to our wholly-owned subsidiary must be approved by the MOFCOM or its local counterparts In addition, on August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a foreign-invested company of its capitalcontribution in foreign currency into Renminbi. The notice requires that the capital of a foreign-invested company settled in Renminbi converted fromforeign currencies shall be used only for purposes within the business scope as approved by the applicable governmental authorities. Such loan may not beused for equity investments within the PRC unless such activity is set forth in the business scope or is otherwise permissible under PRC laws or regulations.In addition, SAFE strengthened its oversight of the flow and use of such capital of a foreign-invested company settled in Renminbi converted from foreigncurrencies. The use of such Renminbi capital may not be changed without SAFE’s approval, and may not in any case be used to repay Renminbi loans if theproceeds of such loans have not otherwise been used. Violations of Circular 142 will result in severe penalties including heavy fines. In order to furtherreform the foreign exchange administration system, SAFE issued the Circular on Reform of Administration Model of the Settlement of Foreign CurrencyCapital of Foreign-Invested Enterprises on March 30, 2015, or Circular 19, which took effect from June 1, 2015 and replaced the SAFE Circular 142. Circular19 allows foreign invested enterprises to settle their foreign exchange capital on a discretionary basis according to the actual needs of their businessoperations and provides procedures by which a foreign-invested company may convert and use equity investments made in foreign currencies. Circular 19also reiterates, however, the principle that Renminbi converted from the foreign currency-denominated capital of a foreign-invested company may not beused, either directly or indirectly, for purposes beyond its business scope. Furthermore, SAFE has promulgated Notice of the State Administration of ForeignExchange on Policies for Reforming and Regulating the Control over Foreign Exchange Settlement under the Capital Account, on June 9, 2016, hereinafterreferred to as Circular 16, which emphasizes the unified policies for discretionary settlement of foreign exchange receipts under the capital account bydomestic institutions. Circular 16 also reiterates the principle that Renminbi converted from the foreign currency-denominated capital of a foreign-investedcompany may not be used, either directly or indirectly, for purposes beyond the company’s business scope. 18Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Furthermore, SAFE issued an internal guideline to its local counterparts, referred to as Circular 16, on June 9, 2016. Based on the version of Circular 16 madepublicly available by certain local governmental authorities on their websites, we understand that Circular 16 requires SAFE’s local counterparts to unify andregulate the control over discretionary settlement and payment of foreign exchange receipts under the capital account, with the purpose of better serving andfacilitating domestic enterprises’ needs in business and capital operations. Circular 16 stipulates that a domestic enterprise, when using its capital accountforeign exchange income and Renminbi funds obtained from foreign exchange settlements, shall abide by the principle of truthfulness and only for use in itsown operations, and comply with the following: (1) such receipts and funds shall not, directly or indirectly, be used for the expenditures beyond the businessscope of domestic institutions or the expenditures prohibited by laws and regulations of the State; (2) unless otherwise provided, such receipts and fundsshall not, directly or indirectly, be used for investment in securities or other investments than banks’ principal-secured products; (3) such receipts and fundsshall not be used for the granting of loans to non-affiliated enterprises, with the exception that such granting is expressly permitted in the business license;and (4) such receipts and funds shall not be used for construction or purchase of real estate for purpose other than self-use (exception applies for real estateenterprises). We expect that PRC laws and regulations may continue to limit our use of proceeds from financing sources. We cannot assure you that we will be able toobtain these government registrations or approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to our entities inChina. If we fail to receive such registrations or approvals, our ability to capitalize our PRC operations may be negatively affected, which could adverselyaffect our liquidity and our ability to fund and expand our business. Risks Relating to Doing Business in China PRC economic, political and social conditions, as well as changes in any government policies, laws and regulations, could adversely affect the overalleconomy in China or the educational services market, which could harm our business. Substantially all of our operations are conducted in China, and substantially all of our revenue is derived from China. Accordingly, our business, prospects,financial condition and results of operations are subject, to a significant extent, to economic, political and legal developments in China. The PRC economy differs from the economies of most developed countries in many respects. Although the PRC economy has been transitioning from aplanned economy to a more market-oriented economy since the late 1970s, the PRC government continues to play a significant role in regulating theindustry. The PRC government continues to exercise significant control over China’s economic growth through allocating resources, controlling theincurrence and payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries orcompanies. Uncertainties or changes in any of these policies, laws and regulations, especially those affecting the private education industry in China, couldadversely affect the economy in China or the market for education services, which could harm our business. For example, under the 2004 Private EducationLaws currently effective and its implementing rules, a private school should elect to be either a school that does not require “reasonable returns” or a schoolthat requires “reasonable returns.” A private school must consider factors such as the school’s tuition, ratio of the funds used for education-related activitiesto the course fees collected, admission standards and educational quality when determining the percentage of the school’s net income that would bedistributed to the investors as reasonable returns. However, pursuant to the 2016 Private Education Law, sponsors are not permitted to register for-profitschools that provide compulsory education services, which covers grades one to nine which grades account for a significant portion of our for-profit K-12education business. However, the 2016 Private Education Law does not provide for a definitive time line for existing schools to re-register/change their for-profit or non-profit status. As of the date of this annual report on Form 20-F, we have not received any notice from the regulatory bodies regarding re-registration. The State Council and certain provinces including the Zhejiang province have promulgated implementing rules (in the form of Opinions) for the2016 Private Education Law. Zhejiang province has promulgated implementing rules that all schools located in Zhejiang province are required to re-registerand/or change their for-profit or non-profit statuses before 2022. We intend to maintain the current statuses of our affiliated schools (as re-registration is notrequired at this time under 2004 Private Education Laws currently effective) until we have obtained better clarity on the application of the 2016 PrivateEducation Law. While the PRC economy has experienced significant growth in the past two to three decades, growth has been uneven, both geographically and amongvarious sectors of the economy. Demand for our educational services depends, in large part, on economic conditions in China. Any significant slowdown inChina’s economic growth may cause our potential students to delay or cancel their plans to enroll in our schools, which in turn could reduce our revenue. Inaddition, any sudden changes to China’s political system or the occurrence of social unrest could have a material and adverse effect on our business,prospects, financial condition and results of operations. Uncertainties with respect to the PRC legal system could have a material adverse effect on us. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions in a civil law system may be citedas reference but have limited precedential value. Since 1979, newly introduced PRC laws and regulations have significantly enhanced the protections ofinterest relating to foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system continues to evolverapidly, the interpretations of such laws and regulations may not always be consistent, and enforcement of these laws and regulations involves significantuncertainties, any of which could limit the available legal protections. 19Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In addition, the PRC administrative and judicial authorities have significant discretion in interpreting, implementing or enforcing statutory rules andcontractual terms, and it may be more difficult to predict the outcome of administrative and judicial proceedings and the level of legal protection we mayenjoy in the PRC than under some more developed legal systems. These uncertainties may affect our decisions on the policies and actions to be taken tocomply with PRC laws and regulations, and may affect our ability to enforce our contractual or tort rights. In addition, the regulatory uncertainties may beexploited through unmerited legal actions or threats in an attempt to extract payments or benefits from us. Such uncertainties may therefore increase ouroperating expenses and costs, and materially and adversely affect our business and results of operations. Any increase in applicable enterprise income tax rates or the discontinuation of any preferential tax treatments currently available to us may result in asignificantly higher tax burden or the disgorgement of any benefits we enjoyed in the past, which could in turn negatively affect our business, financialcondition and results of operations. Under the 2016 Private Education Law, which became effective on September 1, 2017, private schools, whether non-profit or for-profit, may enjoypreferential tax treatment. All of our affiliated schools currently have not elected to change or re-register their statuses pending the effectiveness of theimplementation rule. The 2016 Private Education Law provide that non-profit private schools will be entitled to the same tax benefits as public schools.Taxation policies for for-profit private schools following the effectiveness of the 2016 Private Education Law are still unclear as more specific provisions arenot yet to be introduced. Our affiliated schools by the end of 2018 fiscal year end have enjoyed preferential tax policies for enterprise income tax andbusiness tax since their establishment, as private schools requiring reasonable return, as permitted by the Implementing Rules for the Law for PromotingPrivate Education (2004). On July 16, 2018, we received confirmation letters from the Zhuji Municipal Office of the State Administration of Taxation and theZhuji Municipal Local Tax Bureau respectively for each of our affiliated schools which stated that (i) since its establishment, each school has been exemptfrom taxation, (ii) since its establishment, each school has been in compliance with applicable tax laws, and (iii) no enforcement action or penalty will beimposed with respect to the preferential tax treatment enjoyed by each school. Our PRC counsel has confirmed that this tax exemption is not contrary to PRCtax laws. Preferential tax treatments granted to us by local governmental authorities are subject to review and may be adjusted or revoked at any time in the future. Thediscontinuation of any preferential tax treatments currently available to us will cause our effective tax rate to increase, which will increase our income taxexpenses and in turn decrease our net income. In addition, we may not be granted preferential tax treatment by the local governments of additional regionsinto which we may expand. Any such negative development could have a material and adverse effect on our business, financial condition and results ofoperations. Under the New EIT Law, we may be classified as a “resident enterprise” of China. Such classification could result in unfavorable tax consequences to usand our non-PRC shareholders. The PRC Enterprise Income Tax Law (“NEW EIT Law”) and its implementing rules provide that enterprises established outside of China whose “de factomanagement bodies” are located in China are considered “resident enterprises” under PRC tax laws. The implementing rules promulgated under the New EITLaw define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, financeand assets of an enterprise. The State Administration of Taxation, or SAT, promulgated Notice of the State Administration of Taxation on Issues Concerningthe Determination of Chinese-Controlled Enterprises Registered Overseas as Resident Enterprises on the Basis of Their Bodies of Actual Management onApril 22, 2009, referred to as Circular 82; Circular 82 formulates specific criteria for determining “de facto management body:” (1) its premises where itsofficers and management departments in charge of routine production and operation management perform their duties are mainly located inside China; (2) itsfinancial decisions (such as borrowing, loan, financing and financial risk management) and personnel decision (such as appointment, dismissal andremuneration) are made by the organizations or persons located inside China, or need to be approved by them; (3) its principal properties, accounting books,corporate seals, meeting minutes and files of the board meetings and the shareholders’ meetings are placed or kept inside China; and (4) 1/2 or more than 1/2of its directors or officers with voting rights customarily reside inside China. However, SAT promulgated Announcement of the State Administration ofTaxation on Issues Concerning the Determination of Resident Enterprises on the Basis of Their Actual Management Bodies on January 29, 2014, referred toas Circular 9. Pursuant to these regulations, once we meet the above criteria, we shall file an application for determination of resident enterprise with thecompetent tax authorities at the place where its main investor is located in China. The competent local tax authorities will, upon preliminary judgment of theenterprise’s resident status, report the same from local, to municipal, to the provincial tax authorities for confirmation. Therefore, until we make such filingapplication, it is still unclear if the PRC tax authorities would determine that we should be classified as a PRC “resident enterprise.” If we are deemed as a PRC “resident enterprise,” we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25%,although dividends distributed to us from our existing PRC subsidiary, Hailiang Consulting and any other PRC subsidiares which we may establish fromtime to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient” status. This could have a material and adverseeffect on our overall effective tax rate, our income tax expenses and our net income. Furthermore, dividends, if any, paid to our shareholders and ADS holdersmay be decreased as a result of the decrease in distributable profits. In addition, if we were to be considered a PRC “resident enterprise,” dividends we paywith respect to our ADSs or ordinary shares and the gains realized from the transfer of our ADSs or ordinary shares may be considered income derived fromsources within the PRC and be subject to PRC withholding tax. This could have a material and adverse effect on the value of your investment in us and theprice of our ADSs. There are significant uncertainties under the New EIT Law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable byour PRC subsidiaries to our offshore subsidiaries may not qualify to enjoy certain treaty benefits. Under the New EIT Law and its implementation rules, the profits of a foreign invested enterprise generated through operations, which are distributed to itsimmediate holding company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong andthe PRC, such rate may be reduced to 5% if a Hong Kong resident enterprise owns more than 25% of the equity interest in the PRC company. Our currentPRC subsidiary, Hailaing Consulting is wholly-owned by our Hong Kong subsidiary. Hailiang Consulting also wholly owns the remaining of our PRCsubsidiaries. Moreover, under the Notice of the State Administration of Taxation on Issues regarding the Administration of the Dividend Provision in TaxTreaties promulgated on February 20, 2009, the tax payer needs to satisfy certain conditions to enjoy the benefits under a tax treaty. These conditionsinclude: (1) the taxpayer must be the beneficial owner of the relevant dividends, and (2) the corporate shareholder to receive dividends from the PRCsubsidiaries must have continuously met the direct ownership thresholds during the 12 consecutive months preceding the receipt of the dividends. Further,the State Administration of Taxation promulgated the Notice on How to Understand and Recognize the “Beneficial Owner” in Tax Treaties on October 27,2009, which limits the “beneficial owner” to individuals, enterprises or other organizations normally engaged in substantive operations, and sets forth certaindetailed factors in determining the “beneficial owner” status.Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 20Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Under applicable tax laws and regulations, we are required to apply for approvals from local tax authorities before we can enjoy any benefits under suchtaxation treaties relating to the 5% withholding tax rate which we have not undertaken. Hailiang Consulting will apply for such approvals when it intends todeclare and pay dividends, but there is no assurance that the PRC tax authorities will approve the 5% withholding tax rate on dividends received fromHailiang Consulting. We may be subject to significant limitations on our ability to engage in the private education business or make payments to our subsidiaries and mayotherwise be materially and adversely affected by changes in PRC laws and regulations. The Standing Committee of the National People’s Congress amended the Law on the Promotion of Private Education on November 7, 2016, which becameeffective on September 1, 2017. Pursuant to the 2016 Private Education Law, sponsors of private schools may choose to establish schools as either non-profitor for-profit schools. Sponsors are not permitted to establish for-profit schools that provide compulsory education services, which covers grades one to ninewhich accounted for a significant portion of our students as well as revenue during the reporting period. Sponsors of for-profit private schools are entitled toretain the profits from their schools and the operating surplus may be allocated to the sponsors pursuant to the PRC company law and other relevant laws andregulations. Sponsors of non-profit private schools are not entitled to any distribution of profits from their schools and all revenue must be used for theoperation of the schools. For further details, refer to “Item 4. Information on the Company–B. Business–Regulations on Private Education–The Law forPromoting Private Education (2016) and the Implementation Rules for the Law for Promoting Private Education (2004).” As of the date of this annual report on Form 20-F, the State Council and national ministries and certain provinces including Zhejiang province havepromulgated implementing rules (in the form of Opinions) for the 2016 Private Education Law. Under the 2016 Private Education Law and its implementingrules, schools that offer compulsory education services must register as non-profit schools. However, PRC authorities still have not provided for the specifictimeline for re-registering/changing. In addition, local government authorities, in implementing the amended law, may impose additional limits on thetuition and fees our schools charge. Furthermore, as a holding company, our ability to generate profits, pay dividends and other cash distributions to ourshareholders under the existing and amended law are affected by many factors, including whether our schools are characterized as for-profit or non-profitschools, the profitability of our schools, and our ability to receive dividends and other distributions from our PRC subsidiary, Hailiang Consulting, which inturn depends on the service fees paid to Hailiang Consulting from our affiliated schools and other service and management fees paid to Hailiang Consultingby our other PRC subsidiaries and managed schools. Hailiang Consulting has entered into an exclusive management services and business cooperation agreement with Hailiang Management, pursuant to whichwe provide service to our schools in exchange for the payment of service fees. As advised by our PRC counsel, our right to receive the service fees from ourschools and other affiliated entities does not contravene any PRC laws and regulations and that payment of service fees under our contractual arrangementsshould not be regarded as the distribution of returns, dividends or profits to the sponsors of our schools under the PRC laws and regulations. However, if therelevant PRC government authorities take a different view, or if the 2016 Private Education Law were to be implemented and interpreted in a manner thatdeems our current business practices to be in violation, our business, financial condition and results of operations may be materially and adversely affected. We face uncertainties with respect to indirect transfers of the equity interests in PRC resident enterprises by their non-PRC holding companies. Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or Circular 698,issued by the State Administration of Taxation on December 10, 2009, where a foreign investor transfers the equity interests in a PRC resident enterpriseindirectly via disposition of the equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding company is located in atax jurisdiction that (1) has an effective tax rate less than 12.5%, or (2) does not tax foreign income of its residents, the foreign investor shall report theIndirect Transfer to the competent PRC tax authority. The PRC tax authority will examine the nature of such Indirect Transfer, and if the tax authorityconsiders that the foreign investor has adopted an “abusive arrangement” in order to reduce, avoid or defer PRC taxes, it may disregard the existence of theoverseas holding company and re-characterize the Indirect Transfer such that gains derived from such Indirect Transfer may be subject to PRC withholdingtax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to itsrelated parties at a price lower than the fair market value, the competent tax authority has the power to make a reasonable adjustment to the taxable income ofthe transaction. Circular 698 is retroactively effective from January 1, 2008, however there is uncertainty as to the application of Circular 698. For example,while the term “Indirect Transfer” is not clearly defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests forinformation over a wide range of foreign entities having no direct contact with China. In addition, the State Administration of Taxation has promulgated theAnnouncement of the State Administration of Taxation on Several Issues Relating to Enterprise Income Tax on Transfer of Assets between Non-residentEnterprises, on February 3, 2015, hereinafter referred to as Circular 7. Circular 7 makes detailed regulations to specify the above uncertainties. For example,Circular 7 defined the term “Indirect Transfer” clearly in Article 1: Indirect transfer of taxable assets in China shall mean transfer by a non-resident enterpriseof equity and other similar interests (hereinafter referred to as the “equity”) of an overseas enterprise which holds taxable assets in China directly or indirectly(excluding Chinese resident enterprises registered overseas, hereinafter referred to as the “overseas enterprise”), which gives rise to a transaction that hasidentical or similar substantial results as direct transfer of taxable assets in China, including restructuring of a non-resident enterprise which causes changes inshareholders of an overseas enterprise. The non-resident enterprise which makes the indirect transfer of taxable assets in China shall be referred to as the“transferor of equity”. Moreover, Circular 7 has also stipulated how the effective tax rates in foreign tax jurisdictions are calculated, and the process andformat of the reporting of an Indirect Transfer to the competent tax authority of the relevant PRC resident enterprise. Articles 3, 4, 5 and 6 of Circular 7provide guidance on how to determine whether a foreign investor has adopted an abusive arrangement in order to reduce, avoid or defer PRC tax. As a result,we and our non-resident investors may have the risk of being taxed under Circular 698 and may be required to spend valuable resources to comply withCircular 698 or to establish that we or our non-resident investors should not be taxed under Circular 698, which may have a material adverse effect on ourfinancial condition and results of operations or such non-resident investors’ investments in us. 21Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Restrictions on currency exchange may limit our ability to receive and use our revenue effectively. Substantially all of our revenue is denominated in Renminbi. As a result, restrictions on currency exchange may limit our ability to use revenue generated inRenminbi to fund any business activities we may have outside China in the future or to make dividend payments to our shareholders and ADS holders in U.S.dollars. Under current PRC laws and regulations, Renminbi is freely convertible for current account items, such as trade and service-related foreign exchangetransactions and dividend distributions. However, Renminbi is not freely convertible for direct investment or loans or investments in securities outsideChina, unless such use is approved by SAFE. For example, foreign exchange transactions under our subsidiary’s capital account, including principalpayments in respect of foreign currency-denominated obligations, remain subject to significant foreign exchange controls and the approval requirement ofSAFE. These limitations could affect our ability to obtain foreign exchange for capital expenditures. Hailiang Consulting is permitted to declare dividends to our offshore subsidiary holding its equity interest, convert the dividends into a foreign currency andremit to its shareholder outside of the PRC. In addition, in the event that Hailiang Consulting liquidates, proceeds from the liquidation may be converted intoforeign currency and distributed outside of China to our overseas subsidiary holding its equity interest. Furthermore, in the event that Hailiang Managementliquidates, Hailiang Consulting may, pursuant to a power of attorney it has entered into with Mr. Feng and Beize Group, require Hailiang Management to payand remit the proceeds from such liquidation to Hailiang Consulting. Hailiang Consulting then may distribute such proceeds to us after converting them intoforeign currency and remit them outside of China in the form of dividends or other distributions. Once remitted outside of the PRC, dividends, distributionsor other proceeds from liquidation paid to us will not be subject to restrictions under PRC regulations on its further transfer or use. Other than the above distributions by and through Hailiang Consulting which are permitted to be made without the necessity to obtain further approvals, anyconversion of the Renminbi-denominated revenue generated by our affiliated entities for direct investment, loan or investment in securities outside Chinawill be subject to the limitations discussed above. To the extent we need to convert and use any Renminbi-denominated revenue generated by our affiliatedentities not paid to Hailiang Consulting and revenue generated by Hailiang Consulting not declared and paid as dividends, the limitations discussed abovewill restrict the convertibility of, and our ability to directly receive and use such revenue. As a result, our business and financial condition may be adverselyaffected. In addition, there is no assurance that the PRC regulatory authorities will not impose more stringent restrictions on the convertibility of Renminbi inthe future, especially with respect to foreign exchange transactions. Our subsidiaries and affiliated entities in China are subject to restrictions on making dividends and other payments to us. We are a holding company and rely principally on dividends paid by our subsidiary in China for our cash needs, including paying dividends and other cashdistributions to our shareholders to the extent we choose to do so, servicing any debt we may incur and paying our operating expenses. Hailiang Consulting’sincome in turn depends on the service fees paid by our affiliated entities. Current PRC regulations permit our subsidiary in China to pay dividends to us onlyout of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Under the applicable requirements ofPRC law, Hailiang Consulting may distribute dividends only after it has made allowances to fund certain statutory reserves. These reserves are notdistributable as cash dividends. In addition, at the end of each fiscal year, pursuant to the Implementation Rules for the Law for Promoting Private Education(2004), each of our schools that is a private school in China requiring reasonable return is required to allocate a certain amount to its development fund forthe construction or maintenance of the school properties or purchase or upgrade of school facilities. However, following the effectiveness of the 2016 PrivateEducation Law, which no longer uses the term “reasonable return” and requires a private school to either register as for-profit or non-profit, and prior to thespecific implementing rules of 2016 Private Education Law being promulgated by the State Council and other relevant regulations promulgated by otherlocal and regional governments, all of our affiliated schools that we control, each of which is a private school, are required to allocate not less than 25% oftheir annual net income to its development fund for the construction or maintenance of the school properties or for the purchase or upgrade of schoolfacilities. We are uncertain how the implementing rules of 2016 Private Education Law will be promulgated, and how such rules will impact our operation.For more detailed information, refer to “Item 4. Information on the Company–B. Business–Regulations on Private Education–The Law for Promoting PrivateEducation (2016) and the Implementation Rules for the Law for Promoting Private Education (2004).” Furthermore, if our subsidiaries or our affiliatedentities in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make otherpayments to us. Any such restrictions may materially affect such entities’ ability to make dividends or make payments, in service fees or otherwise, to us,which may materially and adversely affect our business, financial condition and results of operations. Fluctuations in the value of the Renminbi may have a material adverse effect on your investment. The change in value of the Renminbi against the U.S. dollar and other currencies is affected by, various factors, such as changes in China’s political andeconomic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Undersuch policy, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Later on, the People’sBank of China has decided to further implement the reform of the RMB exchange regime and to enhance the flexibility of RMB exchange rates. Suchchanges in policy have resulted in a significant appreciation of the Renminbi against the U.S. dollar since 2005 though there have been periods when theU.S. dollar has appreciated against the Renminbi as well. There remains significant international pressure on the PRC government to adopt a more flexiblecurrency policy, which could result in a further and more significant adjustment of the Renminbi against the U.S. dollar. 22Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Any significant appreciation or revaluation of the Renminbi may have a material adverse effect on the value of, and any dividends payable on, our ADSs inforeign currency terms. More specifically, if we decide to convert our Renminbi into U.S. dollars, appreciation of the U.S. dollar against the Renminbi wouldhave a negative effect on the U.S. dollar amount available to us. To the extent that we need to convert U.S. dollars we received from our initial public offeringor that we will receive from future offerings or financings into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would havean adverse effect on the Renminbi amount we would receive from the conversion. In addition, appreciation or depreciation in the exchange rate of theRenminbi to the U.S. dollar could materially and adversely affect the price of our ADSs in U.S. dollars without giving effect to any underlying change in ourbusiness or results of operations. We might have been required to obtain prior approval of the China Securities Regulatory Commission, or CSRC, of the listing and trading of our ADSs onthe Nasdaq Global Market. On August 8, 2006, six PRC regulatory authorities, including the MOFCOM, the State Assets Supervision and Administration Commission, the StateAdministration of Taxation, State Administration for Industry and Commerce of PRC, or SAIC, CSRC and SAFE, jointly issued the Regulations on Mergersand Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules. This regulation, among other things, requires that the listing and tradingon an overseas stock exchange of securities in an offshore special purpose vehicle formed for purposes of holding direct or indirect equity interests in PRCcompanies and controlled directly or indirectly by PRC companies or individuals be approved by the CSRC. On September 21, 2006, the CSRC publishedon its official website the procedures for such approval process. In particular, certain documents are required to be filed with the CSRC as part of the approvalprocedures and it could take several months to complete the approval process. While the implementation and interpretation of the M&A Rules remains unclear, we believe, based on the advice of our PRC counsel, that approval by theCSRC was not required for our initial public offering because we are not a special purpose vehicle formed or controlled by PRC companies or PRCindividuals as defined under the M&A Rules. However, we cannot assure you that the relevant PRC regulatory authorities, including the CSRC, would reachthe same conclusion as our PRC counsel. If the CSRC or other PRC regulatory authority subsequently determines that we needed to obtain the CSRC’sapproval for our initial public offering, we may face sanctions by the CSRC or other PRC regulatory authorities. In such event, these regulatory authoritiesmay, among other things, impose fines and penalties on or otherwise restrict our operations in the PRC or delay or restrict any remittance of the proceeds fromour initial public offering into the PRC. Any such or other actions taken could have a material adverse effect on our business, financial condition, results ofoperations, reputation and prospects, as well as the trading price of our ADSs. Certain PRC regulations, including the M&A Rules and national security regulations, may require a complicated review and approval process whichcould make it more difficult for us to pursue growth through acquisitions in China. The M&A Rules established additional procedures and requirements that could make merger and acquisition activities in China by foreign investors moretime-consuming and complex. For example, the MOFCOM must be notified in the event a foreign investor takes control of a PRC domestic enterprise. Inaddition, certain acquisitions of domestic companies by offshore companies that are related to or affiliated with the same entities or individuals of thedomestic companies, are subject to approval by the MOFCOM. In addition, the Implementing Rules Concerning Security Review on Mergers andAcquisitions by Foreign Investors of Domestic Enterprises, issued by the MOFCOM in August 2011, require that mergers and acquisitions by foreigninvestors in “any industry with national security concerns” be subject to national security review by the MOFCOM. In addition, any activities attempting tocircumvent such review process, including structuring the transaction through a proxy or contractual control arrangement, are strictly prohibited. There is significant uncertainty regarding the interpretation and implementation of these regulations relating to merger and acquisition activities in China. Inaddition, complying with these requirements could be time-consuming, and the required notification, review or approval process may materially delay oraffect our ability to complete merger and acquisition transactions in China. As a result, our ability to seek growth through acquisitions may be materially andadversely affected. In addition, if the MOFCOM determines that we should have obtained its approval for our entry into contractual arrangements with our affiliated entities andthe shareholder of Hailiang Management, we may be required to file for remedial approvals. There is no assurance that we would be able to obtain suchapproval from the MOFCOM. We may also be subject to administrative fines or penalties by the MOFCOM that may require us to limit our businessoperations in the PRC, delay or restrict the conversion and remittance of our funds in foreign currencies into the PRC or take other actions that could havematerial and adverse effect on our business, financial condition and results of operations. A failure by the beneficial owners of our shares who are PRC residents to comply with certain PRC foreign exchange regulations could restrict our abilityto distribute profits, restrict our overseas and cross-border investment activities and subject us to liability under PRC law. SAFE has promulgated regulations, including the Notice on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-TripInvestment through Special Purpose Vehicles , or SAFE Circular No. 37, effective on July 4, 2014, and its appendices, that require PRC residents, includingPRC institutions and individuals, to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshoreentity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises oroffshore assets or interests, referred to in SAFE Circular No. 37 as a “special purpose vehicle.” SAFE Circular No. 37 further requires amendment to theregistration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRCindividuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purposevehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributionsto the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in itsability to contribute additional capital into its PRC subsidiaries. Further, failure to comply with the various SAFE registration requirements described abovecould result in liability under PRC law for foreign exchange evasion. 23Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. These regulations apply to our direct and indirect shareholders who are PRC residents and may apply to any offshore acquisitions or share transfers that wemake in the future if our shares are issued to PRC residents. However, in practice, different local SAFE branches may have different views and procedures onthe application and implementation of SAFE regulations, and since SAFE Circular No. 37 was recently issued, there remains uncertainty with respect to itsimplementation. We have requested PRC residents who we know currently hold direct or indirect interests in our company to make the necessaryapplications, filings and amendments as required under SAFE Circular No. 37 and other related rules. As advised by AllBright Law Offices, our PRC legalcounsel, as of the date of this annual report on Form 20-F, such PRC residents have duly made such applications, filings and amendments as required bySAFE Circular No. 75, the predecessor regulation of SAFE Circular No. 37. Such applications, filings and amendments were made pursuant to SAFE CircularNo. 75 before SAFE Circular No. 37 went into effect. However, SAFE Circular No. 37 shall apply to any subsequent amendments made by Mr. Feng after theeffective date of SAFE Circular No. 37. As of the date of this annual report on Form 20-F, to the best of our knowledge, Mr. Feng is not required to make anyamendment under SAFE Circular No. 37. However, we cannot assure you that Mr. Feng or any other direct or indirect shareholders or beneficial owners of ourcompany who are PRC residents will be able to successfully complete the registration or update the registration of their direct and indirect equity interest asrequired in the future. If they fail to make or update the registration, our PRC subsidiaries could be subject to fines and legal penalties, and SAFE couldrestrict our cross-border investment activities and our foreign exchange activities, including restricting our PRC subsidiaries’ ability to distribute dividendsto, or obtain loans denominated in foreign currencies from, our company, or prevent us from paying dividends. As a result, our business operations and ourability to make distributions to you could be materially and adversely affected. Labor Contract Laws in China May Adversely Affect Our Results of Operations. On June 29, 2007, the PRC government promulgated the Labor Contract Law of the PRC, or the Labor Contract Law, which became effective on January 1,2008. The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce.Further, it requires certain terminations be based on the mandatory requirement age. In the event we decide to significantly change or decrease our workforce,the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely andcost-effective manner, thus materially and adversely affecting our financial condition and results of operations. Increases in labor costs in the PRC may adversely affect our business and our profitability. The economy of China has been experiencing significant growth, leading to inflation and increased labor costs. According to the National Bureau ofStatistics of China, the consumer price index in China increased by 1.4%, 2.0%, and 1.6% in 2015, 2016 and 2017, respectively. China’s overall economyand the average wage in the PRC are expected to continue to grow. Future increases in China’s inflation and material increases in the cost of labor maymaterially and adversely affect our profitability and results of operations unless we are able pass on these costs to our students by increasing tuition. Risks Relating to our Ordinary Shares and ADSs The market price for the ADSs may be volatile. The market price for our ADSs has fluctuated since we listed our ADSs. Since our ADSs became listed on the NASDAQ Global Market on July 7, 2015, thetrading price of our ADSs has ranged from US$7.02 to US$88.92 per ADS, and the last reported trading price on October 17, 2018 was US$63.55 per ADS. The market price of the ADSs may be highly volatile and subject to wide fluctuations in response to factors including the following: ·changes in the general environment and the outlook of the education industry; ·regulatory developments in the education industry; ·actual or anticipated fluctuations in our quarterly or annual results of operations; ·changes in financial estimates by securities research analysts or the failure by securities research analysts to cover our ADSs after the listing; ·negative market studies or reports; ·changes in performance and valuation of our peer or comparable companies; ·announcements by us or our competitors of new services, acquisitions, strategic relationships, joint ventures or capital commitments; ·changes in our senior management; ·sales or anticipated sales of additional ordinary shares or ADSs; and ·fluctuations in the exchange rate between the Renminbi and the U.S. dollar. In addition, the securities markets in the United States, China and elsewhere have from time to time experienced significant price and volume fluctuationsthat are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market priceof the ADSs. 24Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Substantial future sales of our ADSs or the anticipation of future sales of our ADSs in the public market could cause the price of our ADSs to decline. Sales of substantial amounts of our ADSs or ordinary shares in the public market, or the perception that these sales could occur, could cause the market priceof our ADSs to decline. All of our outstanding ADSs are freely transferable without restriction or additional registration under the Securities Act and areavailable for sale, subject to certain restrictions. Sales of these shares into the market could cause the market price of our ADSs to decline. We may need additional capital, and the sale of equity or debt securities would result in dilution to our shareholders and restrictions on our business andoperations. We believe that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs for morethan the next twelve months. We may, however, require additional cash resources due to changed business conditions or other future developments. If ourresources are insufficient to satisfy our cash requirements, we may seek to sell equity or debt securities or obtain a credit facility. The sale of equity securitiescould result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operatingand financing covenants that would restrict our operations or our ability to pay dividends. Our ability to raise additional funds in the future is subject to avariety of uncertainties, including our future financial condition, results of operations and cash flows, general market conditions for capital-raising activities,and economic, political and other conditions in China and elsewhere. We cannot assure you that if we need cash financing it will be available in sufficientamounts or on terms acceptable to us, if at all. If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding ourADSs, the price of our ADSs and trading volume could decline. The trading market for our ADSs depends in part on the research and reports that industry or securities analysts publish about us or our business. We do nothave any control over these analysts. If one or more of the analysts who cover us downgrade us, the price of our ADSs would likely decline. If one or more ofthese analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could causethe price of our ADSs or trading volume to decline. You may be subject to limitations on transfer of your ADSs. Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when itdeems necessary or advisable in connection with the performance of its duties, or at our reasonable written request. In addition, the depositary may refuse todeliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem itnecessary or advisable to do so in good faith, because of any requirement of law or of any government or governmental body or commission or securitiesexchange on which our ADSs are listed, or under any provision of the deposit agreement, or for any other reason. We incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.” As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002,as well as rules subsequently implemented by the SEC and the Nasdaq Global Market, imposes various requirements on the corporate governance practices ofpublic companies. As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant tothe JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicablegenerally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of2002 in the assessment of the emerging growth company’s internal control over financial reporting. Compliance with these rules and regulations has increased and will continue to increase our legal and financial compliance costs and has made and willcontinue to make some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” we expect to incursignificant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Actof 2002 and the other rules and regulations of the SEC. We will cease to qualify as an “emerging growth company” on the earliest of (i) the last day of thefiscal year in which we had US$1.07 billion or more in annual gross revenue, (ii) the last day of the fiscal year following the fifth anniversary of our initialpublic offering, (iii) the date on which we have, during the previous three-year period, issued more than US$1.0 billion in non-convertible debt or (iv) thedate on which we are deemed a “large accelerated filer” under the Exchange Act. In addition, we have incurred additional costs associated with our public company reporting requirements. It may also be more difficult for us to findqualified persons to serve on our board of directors or as executive officers. We expect these rules and regulations to increase our legal and financialcompliance costs, but we cannot predict or estimate the additional costs or the timing of additional costs we may incur. Shareholders of a public company often bring securities class action suits against the company following periods of instability in the market price of thatcompany’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources fromour business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class actionsuit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully madeagainst us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations. 25Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable toU.S. domestic issuers, and we would incur significant legal, accounting and other expenses that we do not incur as a foreign private issuer. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers,directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the ExchangeAct. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly asU.S. domestic issuers, and are not required to disclose in our periodic reports all of the information that U.S. domestic issuers are required to disclose. If we donot qualify as a foreign private issuer in the future, we will be required to comply fully with the reporting requirements of the Exchange Act applicable to USdomestic issuers, and we will incur significant legal, accounting and other expenses that we would not incur as a foreign private issuer. As a foreign private issuer, we are permitted to, and we may rely on exemptions from certain Nasdaq Global Market corporate governance standardsapplicable to U.S. issuers. This may afford less protection to holders of our ordinary shares and ADSs. Nasdaq Listing Rule 5605(b)(1) requires listed companies to have, among other things, a majority of its board members be independent. As a foreign privateissuer, however, we are permitted to, and we may follow home country practice in lieu of the above requirements, or we may choose to comply with the aboverequirement within one year of listing. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our boardto consist of independent directors. Currently, a majority of our board members are independent. However, we may consider following home country practicein lieu of the requirements under Nasdaq Listing Rules with respect to certain corporate governance standards which may afford less protection to investors. Anti-takeover provisions in our amended and restated memorandum and articles of association may discourage, delay or prevent a change in control. Some provisions of our currently effective amended and restated memorandum and articles of association may discourage, delay or prevent a change incontrol of our company or management that shareholders may consider favorable, including, among other things, the following: ·provisions that authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences,privileges and restrictions of such preferred shares without any further vote or action by our shareholders; and ·provisions that restrict the ability of our shareholders to call meetings and to propose special matters for consideration at shareholder meetings. The depositary may give us a discretionary proxy to vote the ordinary shares represented by the ADSs. The depositary will try, as far as practical, subject to the laws of the Cayman Islands and the provisions of our amended and restated memorandum and articlesof association, to vote or to have its agents vote the ordinary shares or other deposited securities (in person or by proxy) as you instruct. If we timelyrequested the depositary to solicit your instructions but no instructions are received by the depositary from an owner with respect to any of the depositedsecurities represented by the ADSs of that owner on or before the date established by the depositary for such purpose or the instructions fail to specify themanner in which the depositary is to vote, the depositary shall deem that owner to have instructed the depositary to give a discretionary proxy to a persondesignated by us with respect to such deposited securities, and the depositary shall give a discretionary proxy to a person designated by us to vote suchdeposited securities. However, no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter if weinform the depositary we do not wish such proxy given, substantial opposition exists or the matter materially and adversely affects the rights of holders of theordinary shares. The effect of this discretionary proxy is that if you do not give voting instructions, you cannot prevent the ordinary shares underlying yourADSs from being voted, except in the circumstances described above. This may make it more difficult for shareholders to influence the management of ourcompany. Holders of our ordinary shares are not subject to this discretionary proxy. You may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your rightto vote. As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisionsof the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. In order to give you a reasonableopportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we request the depositary to act, we will give thedepositary notice of any such meeting and details concerning the matters to be voted at least 30 business days in advance of the meeting date. However, thereis no guarantee that you will receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSsthrough brokers, dealers or other third-parties, will not have the opportunity to exercise a right to vote. Upon receipt of notice of a shareholders meeting from us, the depositary will distribute to registered holders of ADSs a notice which contains, among otherthings, a statement as to the manner in which your voting instructions may be given, including an express indication that, subject to limited exceptions, suchinstructions may be given or deemed given to the depositary to give a discretionary proxy to a person designated by us if no instructions are received by thedepositary from you on or before the response date established by the depositary. You may not be able to participate in rights offerings and may experience dilution of your holdings as a result. We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement for the ADSs, thedepositary will not offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are either registeredunder the Securities Act, or exempt from registration under the Securities Act with respect to all holders of ADSs. We are under no obligation to file aregistration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. Inaddition, we may not be able to take advantage of any exemptions from registration under the Securities Act. Accordingly, holders of our ADSs may beunable to participate in a rights offerings we make and may experience dilution in their holdings as a result. 26Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. You may not receive distributions on our ordinary shares or any value for them if such distribution is illegal or if any required government approvalcannot be obtained in order to make such distribution available to you. The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or otherdeposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinaryshares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to anyholders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under theSecurities Act but that are not properly registered or distributed under an applicable exemption from registration. In these cases, the depositary may determinenot to distribute such property. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anythingelse to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impracticalfor us to make them available to you. These restrictions may cause a material decline in the value of our ADSs. You will have limited ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, because weare incorporated in the Cayman Islands, we conduct a majority of our operations in China, and the majority of our directors and officers reside outside theUnited States. We are incorporated in the Cayman Islands and conduct our operations primarily in China. Substantially all of our assets are located outside the United Statesand the majority of our directors and officers reside outside the United States. As a result, it may be difficult or impossible for you to bring an action againstus or against these individuals in the Cayman Islands or in China in the event that you believe your rights have been infringed under the applicable securitieslaws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable toenforce a judgment against our assets or the assets of our directors and officers. The laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporationsincorporated in the United States. Our corporate affairs are governed by our amended and restated memorandum and articles of association, by the Companies Law, Cap 22 (Law 3 of 1961, asconsolidated and revised) of the Cayman Islands and by the common law of the Cayman Islands. The rights of shareholders to take action against ourdirectors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed bythe common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in theCayman Islands and from English common law. Decisions of the Privy Council (which is the final Court of Appeal for British overseas territories such as theCayman Islands) are binding on a court in the Cayman Islands. Decisions of the English courts, and particularly the House of Lords and the Court of Appealare generally of persuasive authority but are not binding in the courts of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilitiesof our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. Inparticular, the Cayman Islands has a less developed body of securities laws relative to the United States. Therefore, our public shareholders may have moredifficulty protecting their interests in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporationincorporated in a jurisdiction in the United States. We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequence to U.S. holdersof our ADSs or ordinary shares. A non-United States corporation such as ourselves will be treated as a PFIC, as defined in Section 1297(a) of the Code, for United States federal income taxpurposes for any taxable year if, applying applicable look-through rules, either: ·at least 75% of its gross income for such year is passive income; or ·at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets thatproduce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties, and rents (other than certain royalties and rents derived in the activeconduct of a trade or business and not derived from a related person). If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our ordinaryshares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements. Depending on the assets held for the production of passive income, it is possible that, for our 2018 taxable year or for any subsequent year, more than 50% ofour assets may be assets which produce passive income. We will make this determination following the end of any particular tax year. Although the law inthis regard is unclear, we are treating Hailiang Management and its subsidiaries as being owned by us for United States federal income tax purposes, not onlybecause we control their management decisions, but also because we are entitled to the economic benefits associated with Hailiang Management and itssubsidiaries, and as a result, we are treating Hailiang Management as our wholly-owned subsidiary for U.S. federal income tax purposes. For purposes of thePFIC analysis, in general, according to Internal Revenue Code Section 1297(c), a non-U.S. corporation is deemed to own its pro rata share of the gross incomeand assets of any entity in which it is considered to own at least 25% of the equity by value. Although we do not technically own any stock in HailiangManagement, because of our control of management decisions of Hailiang Management, our entitlement to economic benefits associated with HailiangManagement, and the inclusion of Hailiang Management as part of the consolidated group, there is a reasonable risk that our interest in HailiangManagement might be considered a deemed stock interest. Therefore, the income and assets of Hailiang Management and its subsidiaries should be includedin the determination of whether or not we are a PFIC in any taxable year. It is important to emphasize that there is little to no guidance other than the statuteitself (Internal Revenue Code Section 1297(c)) and analogous portions of the code, treasury regulations and other accepted authorities and as such it ispossible for the IRS to challenge the argument that the look through rule would apply in this case, especially since the statute explicitly says “stock.” Thus, ifwe are not treated as owning Hailiang Management and its subsidiaries for United States federal income tax purposes, we would likely be treated as a PFIC. Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.27Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. For PFICpurposes, passive income generally includes dividends, interest, royalties and rents (other than certain royalties and rents derived in the activeconduct of a trade or business and not derived from a related person). We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own,directly or indirectly, more than 25% by value of the stock. Although the law in this regard is unclear, we are treating Hailiang Management and itssubsidiaries as being owned by us for United States federal income tax purposes, not only because we control their management decisions, but also becausewe are entitled to substantially all of the economic benefits associated with these entities, and as a result, we will consolidate these entities’ operating resultsin our consolidated IFRS financial statements. The determination of whether we are or will become a PFIC for any taxable year may depend in part upon the value of our goodwill and other unbookedintangibles not reflected on our balance sheet (which may be determined based upon the market value of our ADSs or ordinary shares from time to time). Amaterial decline in the trading price of our ADSs relative to their current trading price may result in us becoming a PFIC. If we are a PFIC for any taxable yearfor which a U.S. holder holds our ADSs or ordinary shares, certain adverse United States federal income tax consequences could apply to such U.S. holders.See “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company.” Item 4. INFORMATION ON THE COMPANY A. History and Development of the Company We are an exempted company with limited liability incorporated in the Cayman Islands. We conduct our business through our subsidiary, and affiliatedentities in China. As of June 30, 2018, we owned and operated 7 affiliated schools offering K-12 educational services in Zhuji, Zhejiang province of China,and managed and operated, but did not own or sponsor, an additional 16 private schools that offer K-12 educational services in Jiangxi, Hubei, and Zhejiangprovinces of China. We started our operations in 1995 when Zhuji Hailiang Foreign Language School, our first private school, was founded by Mr. Feng. Our second privateschool, Hailiang Experimental High School, was founded by Mr. Feng and Mr. Zhanghuan Meng, or Mr. Meng, in 2001. At the time of its founding, Mr. Fengowned 60% of the equity interest in the school and Mr. Meng held the remaining equity interest in the school. In November 2011, Mr. Feng purchased theremaining 40% equity interest in Hailiang Experimental High School from Mr. Meng and became the sole sponsor of Hailiang Experimental High School.Our third private school, Tianma Experimental School, was jointly acquired by Mr. Feng and Mr. Meng in July 2009. At the time of the acquisition, Mr. Fengand Mr. Meng beneficially owned 80% and 20% of the equity interest in the school, respectively. In November 2011, Mr. Feng acquired the 20% equityinterest in the school from Mr. Meng and became the sole sponsor of Tianma Experimental School. Between 2011 and 2013, we underwent a corporate restructuring in contemplation of our initial public offering. In particular: ·Incorporation of the listing entity and Hong Kong subsidiary. In April 2011, Mr. Feng incorporated Hailiang Inc. as our proposed listing entity inthe Cayman Islands and Hailiang HK in Hong Kong. In January 2012, he transferred all of his shares of Hailiang HK to Hailiang Inc. ·Change in holding structure by Mr. Feng. In December 2011, Mr. Feng transferred all the shares in Hailiang Inc. to four BVI holding companies. ·Incorporation of PRC subsidiary. In December 2011, Hailiang HK incorporated Hailiang Consulting as our wholly-owned subsidiary in the PRC. ·Equity investment in our company. In March 2012, Maxida International Company Limited, an independent third party, purchased 5,000,000 newlyissued ordinary shares, or 1.4% of Hailiang Inc.’s total outstanding shares after the purchase, for US$3.0 million. ·Consolidation of our affiliated schools under a single entity. In April 2012, Mr. Feng incorporated Hailiang Management which is wholly-ownedby Mr. Feng, as the holding company to hold equity interests in our affiliated schools in China and transferred his equity interests in our threeschools to Hailiang Management. In October 2014, Mr. Feng transferred his 100% interest in Brilliant One Development Limited, one of the four BVI companies that Mr. Feng had previouslytransferred his shares of Hailiang Inc. to in December 2011, to Hailiang International Investment (HK) Limited, a company wholly owned by Hailiang Group.Hailiang Group is controlled by Mr. Feng. Foreign ownership in educational services is subject to significant regulations in China. The PRC government regulates the provision of educational servicesthrough strict licensing requirements. In particular, PRC laws and regulations currently prohibit foreign ownership of companies and institutions providingcompulsory educational services at primary and middle school levels, and restrict foreign investment in educational services businesses at the high schoollevel. We are a company incorporated in the Cayman Islands. Our PRC subsidiary, Hailiang Consulting, is a foreign-owned enterprise and is currentlyineligible to apply for and hold licenses to operate, or otherwise own equity interests in, our schools with K-12 educational programs, either for-profit or not-for-profit. Due to these restrictions, we, through our PRC subsidiary, Hailiang Consulting, have initially entered into a series of contractual arrangementsprior to our initial public offering, with (i) our affiliated entities, consisting of Hailiang Management and the schools which Hailiang Management controlsand holds, and (ii) the shareholder of Hailiang Management, Mr. Feng, who is also our founder, which enable us to: ·exercise the power over our affiliated entities; ·have the exposure or rights to variable returns from our involvement with our affiliated entities; and ·exercise the ability to affect those returns through use of its power over our affiliated entities. 28Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We do not have any equity interest in our affiliated entities. However, as a result of these contractual arrangements, we control our affiliated entities throughour PRC subsidiary, Hailiang Consulting. We have consolidated the results of our affiliated entities in our consolidated financial statements includedelsewhere in this annual report on Form 20-F in accordance with IFRSs. On June 30, 2017, Hailiang Consulting, Hailiang Management and Mr. Feng entered into a series of amended and restated contractual arrangements(collectively, the “First Amended and Restated Contractual Arrangements”). The First Amended and Restated Contractual Arrangements added new affiliatedentities of Hailiang Management and allowed for potential contractual arrangements, if any and when applicable, to be entered into by controlled affiliate(s)of Hailiang Consulting. On February 8, 2018, Beize Group, a PRC company 100% owned by Mr. Feng and his wife, became a 0.1% record shareholder of Hailiang Management bycontributing additional capital to Hailiang Management. As of the date of this annual report on Form 20-F, Mr. Feng and Beize Group hold 99.9% and 0.1%equity interest in in Hailiang Management, respectively. Accordingly, on February 23, 2018, Hailiang Management, Hailiang Consulting, Mr. Feng andBeize Group entered into a series of contractual arrangement (the “Second Amended and Restated Contractual Arrangements”), including the SecondAmended and Restated Call Option Agreement, Second Amended and Restated Powers of Attorney, Second Amended and Restated Consulting ServicesAgreement and Second Amended and Restated Equity Pledge Agreement. We have been advised by AllBright Law Offices, our PRC legal counsel, that: ·The ownership structures of Hailiang Consulting and our affiliated entities comply with all current PRC laws and regulations; however, the SecondAmended and Restated Contractual Arrangements may not be as effective in providing control as direct ownership; ·The Second Amended and Restated Contractual Arrangements are valid, binding and enforceable under PRC laws and regulations, and are not inviolation of PRC laws or regulations currently in effect; and ·The business licenses of Hailiang Consulting and our affiliated entities are in full force and effect. Each of Hailiang Consulting and our affiliatedentities have all necessary power to conduct its business as described in its business scope under its business license, and to enter into thecontractual arrangements described in this annual report on Form 20-F. To the best of our PRC legal counsel’s knowledge after due inquiry, none ofHailiang Consulting, any affiliated entities, or their respective assets are entitled to any sovereign immunity from any action, suit or other legalproceedings, or from enforcement, execution or attachment. We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of PRC lawsand regulations. Accordingly, PRC regulatory authorities may in the future take a view that is contrary to the opinion of our PRC legal counsel. We havebeen further advised by our PRC legal counsel that if the PRC government finds that the contractual arrangements and agreements that establish the structurefor operating our educational services business in China do not comply with relevant PRC government restrictions on foreign investment in the educationalservices industry, we could be subject to severe penalties, including being prohibited from continuing operations. For a detailed description of the risksassociated with our corporate structure, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure” and “Item 3. KeyInformation—D. Risk Factors—Risks Relating to Doing Business in China.” On July 6, 2015, we completed the initial public offering of 2,858,000 ADSs. On July 7, 2015, we listed our ADSs on the NASDAQ Global Market under thesymbol “HLG.” On December 22, 2017, we filed with the SEC a registration statement on Form F-3 for a shelf registration offering of Ordinary Shares and warrants in theaggregate amount of $100,000,000 (the “Shelf Offering”), which was declared effective on January 5, 2018. As of June 30, 2018 and the date of this annualreport on Form 20-F, we have not completed any draw down of the Shelf Offering. In September 2015, Zhuji Hailiang Foreign Language School and selected programs from Tianma Experimental School and Hailiang Experimental HighSchool relocated to the Hailiang Education Park. Tianma Experimental School’s and Hailiang Experimental High School’s remaining programs continue tooperate on their existing respective campuses. As of June 30, 2018, our affiliated schools operated in Hailiang Education Park include Hailiang PrimarySchool, Hailiang Junior Middle School, Hailiang Senior Middle School and Hailiang Foreign Language School. On December 29, 2017, the Companyterminated the original lease contract and entered into four new lease agreements with Hailiang Investment regarding Hailiang Education Park, in order toallocate lease fees to the respective schools according to their used gross floor area. The term of the lease is for twenty years and the rental fee in the first yearis RMB20.0 million (approximately US$3.0 million) and is subject to a 5% increase in the next three years. The rental fee commencing from the fifth year issubject to further negotiation between the Company and Hailiang Investment. The lease covers the properties and facilities of Hailiang Education Park with atotal combined gross floor area and site area of approximately 550,000 square meters and 850,000 square meters, respectively. See “Item 4. Information onthe Company—B. Business Overview—Our Schools and Programs—Hailiang Education Park.” 29Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In November 2016 and February 2017, certain schools were separated from Zhuji Hailiang Foreign Language School and Zhuji Private High School(currently named Hailiang Experimental High School) and established as separate legal entities, with all of their equity interests held by HailiangManagement. Hailiang International Kindergarten, Hailiang Primary School, Hailiang Junior Middle School and Hailiang Senior Middle School becameindependent from Zhuji Hailiang Foreign Language School, and Hailiang High School of Art became independent from Hailiang Experimental High School.As a result, we still owned 100% of the equity interest in each of the aforementioned schools by the end of 2017 fiscal year end. On February 28, 2018, we sold the sponsorship and 100% equity interest of Hailiang Kindergarten to Hangzhou Hailiang Preschool Education Group Co.,Ltd., a related party controlled by Mr. Feng, for a consideration of RMB20.0 million (approximately US$3.0 million), pursuant to a purchase agreement datedof even date. An independent third-party appraisal entity provided an appraisal opinion valuing the Hailiang Kindergarten at RMB20.0 million. TheHailiang kindergarten was operating at a loss in recent years while we have been focused on providing education and operation, management services toprimary, middle and high school students. On February 28, 2018, we sold all the assets and liabilities related to the kindergarten business unit of Tianma Experimental School (“Tianma Kindergarten”)to Zhuji Hailiang Preschool Education Investment Co., Ltd., a related party controlled by Mr. Feng, for a consideration of RMB1.7 million (approximatelyUS$0.3 million), pursuant to an asset restructuring agreement dated as of even date. An independent third-party appraisal entity provided an appraisalopinion valuing the Tianma Kindergarten at RMB1.7 million. We spun-off both Hailiang Kindergarten and Tianma Kindergarten as we have been focused on providing primary, middle and high school educationalservices. As a result, Hailiang Kindergarten and Tianma Kindergarten are no longer part of our operation and we own 100% of the equity interest in each ofthe remaining affiliated schools by the end of 2018 fiscal year. We initially acquired right to operate Chuzhou Hailiang Foreign Language School on July 19, 2017. Pursuant to a certain change of operator agreement inJune, 2018, we transferred the right to operate to Chuzhou Zhengxu Education Information Consulting Co., Ltd., a wholly owned subsidiary of HailiangGroup, for a consideration of RMB1.8 million (approximately US$0.3 million) (the “Chuzhou School Transfer Transaction”) based upon the appraised valuedetermined by an independent third-party evaluator. The Chuzhou School Transfer Transaction was based on our business assessment in response to currentmarket conditions. In the fiscal year ended June 30, 2018, we continued to vigorously implement our asset-light model where instead of acquiring ownership in and sponsoringschools, we would be providing management services and educational services as well as other related services to schools sponsored by affiliated thirdparties. Additionally, we have established several new subsidiaries in the PRC to facilitate the provisions of various types of services to carry out our asset-light strategic approach. Through collaboration with our related entities, Hailiang Group, and Hailiang Investment, as of the end of fiscal year 2018, we havecommenced managing and operating an aggregate of 16 schools sponsored by either Hailiang Group, or Hailiang Investment, where we receive managementfees and/or operation fees for providing a mixed array of services including but not limited to, admission and recruitment, human resources, procurement,financial and/or property and logistics management services, including but not limited to campus store management, property management, studentsrecruitment and admission management and consulting, financial consulting, employee management, supply chain consulting and management and IToperation and/or overseas consulting services. Pursuant to our collaboration with Hailiang Group and Hailiang Investment, we are now able to accelerate the expansion of our Company across China andimprove the business prospects of the Company, without the need for a large amount of capital. Our principal executive offices are located at No. 1508 Binsheng Road, Binjiang District, Hangzhou City, Zhejiang Province, 310051, People’s Republic ofChina. Our telephone number at this address is +86-571-5812-1974 and our fax number is +86-571-5812-1974. Our registered office in the Cayman Islands islocated at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, CaymanIslands. Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our website ishttp://www.hailiangeducation.com. The information contained on our website is not a part of this annual report on Form 20-F. Our agent for service ofprocess in the United States is Corporation Service Company, 1180 Avenue of the Americas, Suite 210, New York, New York 10036-8401. For information regarding our principal capital expenditures, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and CapitalResources—Capital Expenditures.” B. Business Overview Overview As of June 30, 2018, we operate and manage an aggregate of 7 affiliated schools in the PRC that we own or sponsor through our PRC affiliated entities (the“affiliated schools”), and we provide operational, supporting, or management services to, but do not own or sponsor an additional 16 schools (the “managedschools”). Our ultimate Cayman Islands holding company does not have any substantive operations other than indirectly controlling Hailiang Management,our affiliated entity, which controls and holds our schools through certain contractual arrangements. We have traditionally generated our revenues from operating and sponsoring our affiliated schools. As of June 30, 2018, 22,110 students were enrolled in ouraffiliated schools and we employed a total of 1,856 teachers and educational staff for our affiliated schools. We are dedicated to hiring teachers andeducational staffs who hold the necessary academic credentials, are dedicated and active professionals in their field, and are committed to improving theirstudents’ academic performance. 30Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We offer our basic educational program and international program at the primary school, middle school and high school levels. Our basic educationalprogram offers curricula with courses mandated by the PRC regulatory authorities, as well as those developed through our own research and developmentefforts. Our international program also offers curricula mandated by the PRC regulatory authorities and in addition, provides curricula with a focus onpreparing students to study abroad. As most of the students in our international program plan to study abroad after they graduate from our middle school andhigh school programs, we have designed our international program to specifically address the needs of these students in terms of both language andacademics. In addition, for students planning to apply to undergraduate programs in the U.S., the U.K. or Australia, we provide courses designed to helpstudents become eligible to these programs, such as A-levels courses for universities in the U.K., SAT courses for universities in the U.S., or VCE courses foruniversities in Australia. We have steadily developed our international program within our affiliated schools system from 1,913 students as of June 30, 2016,2,825 as of June 30, 2017, and further to 3,860 as of June 30, 2018. In addition to our education services and boarding services, we also provide otherancillary services to our students and their parents, such as after-school enrichment program, overseas study consulting services as well as hotel management. To diversify our operation and business model, we have adopted the asset-light model where we operate and/or manage K-12 schools pursuant to consultingand management agreements, but do not own or sponsor such schools. This approach has allowed us to operate a highly scalable business model and launchschools with significantly lower upfront capital expenditures. As such, we now also generate revenues from management fees and operation service feespursuant to stand-alone agreements entered into by and among us, any relevant wholly owned subsidiaries in the PRC, and the entity sponsoring the specificschool (either Hailiang Group or Hailiang Investment). We commenced operating and managing an aggregate of 16 schools, ranging from K-12 grades, in thefiscal year ended June 30, 2018, and expect to continue to increase the number of schools that we operate, manage but not own or sponsor. As of June 30,2018, across our 16 managed schools, we had an aggregate number of approximately 32,574 students. We are not responsible for the hiring and managing ofour managed schools as of the date of this annual report. For more detailed information on both our managed schools and our asset-light model, refer to “Item4. Information on the Company – B. Business Overview –Our Schools and Programs,” and “Item 4. Information on the Company – B. Business Overview –Asset Light Model.” With over 20 years of operation, according to Frost & Sullivan Report, Hailiang Education is the largest K-12 education and management service provider inChina. Hailiang Senior Middle School was recognized as Tier 2 Special Model School in Zhejiang province for the 2016/2017 school year. Both HailiangSenior Middle School and Hailiang Experimental High School were recognized as “Key Schools” (重点学校) and both of Hailiang Junior Middle School andTianma Experimental School were recognized as “Model Schools” (示范学校) by Zhejiang’s Department of Education in recognition of a number of factors,including the quality of education, course design, teacher qualifications and feedback from parents. In 2017/2018 school year, Hailiang Experimental HighSchool was recognized as “Digital Campus Model School” (浙江省数学校园示范学校) by Zhejiang’s Department of Education in recognition ofconvergence of information technology and education. In school year 2017/2018, Hailiang Education received multiple awards including "2017 EducationGroup Influencer" (2017年度影响力教育集团) by Tencent Education Annual Billboard, "2017 Top Brand of China's Education Group Award" (2017中国品牌实力教育集团) by Sina Education, "Annual Most Value Investment Award" by the China Financial Summit Winter Forum, and "Top 10 Innovative Brandin China" (中国十大创新品牌) awarded jointly by China International Business magazine and other authorized institutions. With respect to our international academic programs, we have continued to develop new courses with our partners or collaborators to strengthen thecompetitiveness of the programs offered by our affiliated schools. These programs are intended to provide an efficient international education pathway tostudents who wish to study abroad for their undergraduate degrees. On February 25, 2017, Hailiang Foreign Language School, Hailiang Education andThomas Carr College in Australia entered into a collaboration agreement (“TCC Agreement”) to deliver the Victorian Certificate of Education (“VCE”)program, as authorized by the Victorian Curriculum and Assessment Authority (“VCAA”), in addition to Chinese high school curriculums for students aimingat studying in Australia higher education institutions. On September 8, 2017, Hailiang Foreign Language School and ELS American Education Consulting(Shanghai) Co., Ltd. (“ELS”) entered into a cooperation agreement in order to supplement and incorporate the EAP program (English for Academic Purpose)into Hailiang’s existing curricula. With certificates issued by ELS, students can apply for community colleges and universities that recognize languagecertificates issued by ELS in the United States without completing IELTS/TOEFL examinations. We have made significant progress in the collaboration with Pate’s Grammar School, one of the best co-ed, state schools in the UK, to develop newcurriculum, teaching materials and principles of educational philosophy, pursuant to a cooperation agreements effective as of September 23, 2017, andsupplemented as of September 18, 2018. Accordingly, in September 2018, we commenced a new class in Hailiang’s Zhuji campus that teaches Pate’scurriculum to provide our Zhuji students with a full British education. For more detailed information on both our affiliated schools and our managed schools, refer to “Item 4. Information on the Company – B. Business Overview–Our Schools and Programs.” Under the new regulation, the 2016 Private Education Law effective as of September 1, 2017, schools that provide compulsory education services from firstgrade to ninth grade, are required to register as non-profit schools, where revenues generated by school operation are required to remain within the school andused for school operation, and cannot be disbursed to the sponsor or owner of the school. However, the 2016 Private Education Law as well as itsimplementing rules (in the form of Opinions) thereof do not provide for a definitive time line for existing schools to re-register/change their for-profit or non-profit status. As of the date of this annual report on Form 20-F, we have not received any notice from the regulatory bodies regarding re-registration. Itremains uncertain how the 2016 Private Education Law will be interpreted and implemented and impact our business operations. We intend to maintain thecurrent statuses of our affiliated schools until we have obtained better clarity on the application of the new law or direct guidance from the relevantauthorities. In the future, we may redefine and evolve our business model in response to the changes in law, which may include, without limitation, anincreased emphasis on leveraging our knowledge and expertise in school operations by providing managerial and consulting services to various schools weoperate or partner with. For more detailed information on the regulations, refer to “Item 4. Information on the Company–B. Business–Regulations on PrivateEducation–The Law for Promoting Private Education (2016) and the Implementation Rules for the Law for Promoting Private Education (2004). 31Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We have experienced significant growth in our business, including both growth from our existing operation and the commencement of our educationalservices provided to schools in exchange for management fee and other fees in fiscal year 2018. Our revenue increased by 30.5% to RMB853.3 million in the2017 fiscal year, and by 37.0% to RMB1,169.3 million (approximately US$176.7 million) in the 2018 fiscal year. These increases were driven primarily byan increase in the average tuition charged per student during the same periods and an increase in the number of enrolled students, as well as more studentsenrolled in our international education programs. Our gross profit increased by 32.0% to RMB204.8 million in the 2017 fiscal year, and increased by 78.1%to RMB364.7 million (approximately US$55.1 million) in the 2018 fiscal year. Our net profit increased by 68.7% to RMB167.7 million in the 2017 fiscalyear, and increased by 37.7% to RMB230.9 million (approximately US$34.9 million) in the 2018 fiscal year. In particular, in line with our strategy toincrease enrollment in our international program, we have increased the proportion of revenue derived from students enrolled in our international programfrom 18.7% of revenue in the 2016 fiscal year, 22.9% of revenue in the 2017 fiscal year, and to 28.2% of revenue in the 2018 fiscal year. Asset-Light Model Prior to fiscal year ended June 30, 2018, we have provided educational services in the PRC through the traditional model of owning and having legalsponsorship in each of the schools we launched or acquired. Beginning in 2017 and predominantly in the fiscal year ended June 30, 2018, we have also madea strategic shift to develop our asset-light expansion strategy. We entered into the 2017 Group Strategic Cooperation Agreement with our affiliatedcompanies, Hailiang Group, and Hailiang Investment. As part of the business strategies of Hailiang Group and Hailiang Investment, each plan to establishadditional schools through new construction, merger and acquisition, and entrusted management of private or public primary, middle and high schools.Pursuant to the 2017 Group Strategic Cooperation Agreement, all of these schools are expected to be operated through entrusted management and HailiangEducation has a priority right to operate and manage such schools. This cooperation affords Hailiang Education an opportunity to operate schools acquiredor owned by Hailiang Group or Hailiang Investment. Pursuant to our asset-light strategy commenced in the fiscal year 2018, we have accepted the option tooperate and manage 16 schools acquired by Hailiang Investment. We provided management services to schools in exchange for fixed services fees, includinglogistic, catering, and consulting services. Our managed schools are located in Jiangxi, Hubei, and Zhejiang Province. As of June 30, 2018, 32,574 studentswere enrolled in our managed schools. In the fiscal year 2018, as we carry out our asset-light strategic approach in acquiring rights to operate and manage new schools, and providing managementservices and other related services to schools sponsored by independent third-parties, we have established several new subsidiaries in the PRC to facilitateour strategic approach as described below. In November 2017, we entered into a Strategic Cooperation Agreement (the “2017 Group Strategic CooperationAgreement”) with our affiliated entities, Hailiang Group, and Hailiang Investment, to develop primary, middle and high school education in China. The goalof the 2017 Group Strategic Cooperation Agreement is to promote the development of private education in China by synergizing the competitive advantagesof Hailiang Education, Hailiang Group and Hailiang Investment, by providing education management services, including but not limited to, admission andrecruitment, strategic and development consulting, research and development, human resources, procurement, branding and marketing and/or property andlogistics management services, including but not limited to student transfer service, campus store management, canteen and restaurant management, propertymanagement, dormitory and apartment management and/or overseas consulting services. Pursuant to the 2017 Group Strategic Cooperation Agreement, each of Hailiang Group and Hailiang Investment is expected to offer to us the first right ofrefusal to accept operating schools over which Hailiang Group and/or Hailiang Investment have legal sponsorship, in exchange for education management,property and logistics management fees and/or other services rendered for each of the schools that we accept to operate. As of June 30, 2018, we operate butdo not sponsor or own 16 schools, all of which are private schools. In fiscal year 2018, Hailiang Group and/or Hailiang Investment engaged us to operate butnot sponsor the following 16 schools, (i) Jiulixianghucheng Kindergarten, (ii) Nanchang Baishu Angel City&Fenghuang Kindergarten, (iii) NanchangForeign Language Jiulixianghucheng School, (iv) Nanchang Foreign Language Gaoxin School, (v) Nanchang Maqiu Senior Middle School, (vi) NanchangBaishu School, (vii) Yichun Baishu Foreign Language School, (viii) Yichun Baishu Foreign Language School Xuefulu Campus, (ix) Yichun Baishu AngelCity&Bilingual Kindergarten, (x) Yichun Baishu Angel City&Bilingual Kindergarten Xuefulu Campus, (xi) Xingfu Shiguang Angel Kindergarten, (xii)Nanchang Hualian Foreign Language Experimental School, (xiii) Nanchang Xihu District Baishu Education Group Teaching Staff Kindergarten, (xiv)Jingdezhen Baishu School, (xv) Xinchang Nanrui Experimental School, and (xvi) Xiantao No.1 Middle School. All of the 16 schools that we operate but donot sponsor or own are currently in operation, and have students actively enrolled as of the 2017/2018 academic year. This cooperation provides HailiangEducation with an effective brand-new business expansion model, which will enhance the asset-light approach, accelerate the expansion of HailiangEducation across China, and greatly improve the business prospects of the Company. Ningbo Haoliang was incorporated on June 22, 2017, as a wholly owned subsidiary of Hailiang Consulting. Ningbo Haoliang’s business scope includesproviding consulting and management services to our schools. Ningbo Hailiang was incorporated on June 22, 2017 as a wholly owned subsidiary of Hailiang Consulting. Ningbo Hailiang’s business scope includesproviding logistics management services to our schools. Zhuji Hotel was incorporated on September 22, 2017 as a wholly owned subsidiary of Hailiang Consulting. Zhuji Hotel operates as a hotel to accommodatestudents’ parents, visitors, and event participants, and has obtained all relevant hotel operating permits. Hailiang Management incorporated Hailiang Mingxin on August 9, 2017 as a PRC corporation. Hailiang Mingxin’s business scope includes plans to provideafter-school tutoring and overseas consulting services to our schools and students. Hailiang Management incorporated Hangzhou Hailiang on June 19, 2018 as a PRC corporation. Hangzhou Hailiang’s business scope includes plans tosponsor or operate/manage schools located in Hangzhou. 32Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Hailiang Consulting incorporated Hailiang Sports on May 18, 2018 as a wholly owned subsidiary of Hailiang Consulting. Hailiang Sports’ business scopeincludes organizing sports events, competitions, providing sports information consulting service, sports training for competition, etc. The following four subsidiaries have been incorporated but have not commenced significant business activities. Hailiang Management incorporated ZhujiYouer on November 15, 2017 as a PRC corporation. Hailiang Management incorporated Zhuji Minrui on November 15, 2017 as a PRC corporation. HailiangManagement incorporated Zhuji Shangzhuo on November 20, 2017 as a PRC corporation. Hailiang Management incorporated Zhuji Hongda on November15, 2017 as a PRC corporation. Subsequent Corporate Events On August 28, 2018, Hailiang Management incorporated Zhuji Hailiang Foreign Language High School Co., Ltd. (“Zhuji Hailiang Foreign Language”) asthe first for-profit school of the Group. As of the date of this annual report on Form 20-F, nearly 1,500 students enrolled in Zhuji Hailiang Foreign Language,among which, about 1,200 students were transferred from the high school level of Hailiang Foreign Language School. In September 2018, we entered into anInvestment Cooperation Agreement with three school founders to acquire 51% equity in Zhenjiang Jianghe High School of Art Co. Ltd. Zhenjiang JiangheHigh School of Art was established in 2018, with a student body of approximately 120 and with 30 faculty members. It provides art programs including butnot limited to Painting, Music and Media, with a variety of specialized modules and seminars. As of the date of this annual report on Form 20-F, we have notcompleted the acquisition of Zhenjiang Jianghe High School of Art. On August 2, 2018, Zhuji Hailiang After-school Service Co., Ltd. (“Hailiang After-school Service”) was incorporated as Ningbo Haoliang’s wholly ownedsubsidiary. Hailiang After-school Service’s mainly engaged in the provision of after-school enrichment program. On August 2, 2018, Hailiang Managementincorporated Zhejiang Mingxin International travel Co., Ltd (“Mingxin International Travel”) as its wholly owned entity. Mingxin International Travel ismainly engaged in the provision of overseas study trip for students in the Group’s affiliated and managed schools. On September 26, 2018, Zhuji HailiangLogistics Service Co., Ltd. (“Zhuji Hailiang Logistics”) and Zhuji Hailiang Supply Chain Management Co., Ltd. (“Zhuji Hailiang Supply”) wereincorporated as Ningbo Hailiang’s wholly controlled subsidiaries. Zhuji Hailiang Logistics is mainly engaged in providing logistic services for theCompany’s affiliated schools. Zhuji Hailiang Supply is engaged in the provision of purchasing and transportation services for affiliated schools. OnSeptember 26, 2018, Hailiang Education International Studying Service Limited (“Hailiang International Studying”) was established as Hailiang HK’swholly owned subsidiary and planned to provide consulting services for oversea studies. On October 9, 2018, Pate's-Hailiang International College CompanyLimited (“PHIC company”) was incorporated in United Kingdom, as Hailiang International Studying’s wholly owned subsidiary. PHIC company is mainlyengaged in the operation of international study programs. Our Schools and Programs As of June 30, 2018, we operate and manage 7 centrally managed schools in the PRC that we own or sponsor through our PRC affiliated entities (the“affiliated schools”). Currently, we also provide operational, supporting and/or management services to an additional 16 schools in the PRC that we do notown or sponsor (the “managed schools”) either directly or through our affiliated entities in the PRC. While we intend to expand our asset-light approach toinclude providing a full range of educational services to schools that we do not own or sponsor in the fiscal year ending June 30, 2019, as of the end of ourfiscal year ended June 30, 2018, we were not involved in providing educational services to the managed schools. The affiliated schools are all located in Zhuji city, Zhejiang province and include (i) Hailiang Primary School, (ii) Hailiang Junior Middle School, (iii)Hailiang Senior Middle School, (iv) Hailiang High School of Art, (v) Tianma Experimental School, (vi) Hailiang Experimental High School, and (vii)Hailiang Foreign Language School. The 16 managed schools include (i) Jiulixianghucheng Kindergarten, (ii) Nanchang Baishu Angel City FenghuangKindergarten, (iii) Nanchang Foreign Language Jiulixianghucheng School, (iv) Nanchang Foreign Language Gaoxin School, (v) Nanchang Maqiu SeniorMiddle School, (vi) Nanchang Baishu School, (vii) Yichun Baishu Foreign Language School, (viii) Yichun Baishu Foreign Language School XuefuluCampus, (ix) Yichun Baishu Angel City&Bilingual Kindergarten, (x) Yichun Baishu Angel City&Bilingual Kindergarten Xuefulu Campus, (xi) XingfuShiguang Angel Kindergarten, (xii) Nanchang Hualian Foreign Language Experimental School, (xiii) Nanchang Xihu District Baishu Education GroupTeaching Staff Kindergarten, (xiv) Jingdezhen Baishu School, (xv) Xinchang Nanrui Experimental School and (xvi) Xiantao No.1 Middle School. They arelocated in Nanchang city, Yichun city, Jingdezhen city, Xinchang city, and Xiantao city. Nanchang Baishu Technology, our related party controlled byHailiang Investment, is the sponsor or operator of “14 Baishu Schools” in Jiangxi province; Hailiang Investment, our related party, is the sponsor ofXinchang Nanrui Experimental School; and Xiantao Tiancheng Education Investment Co, Ltd, our related party controlled by Hailiang Investment, is thesponsor of Xiantao No.1 Middle School. In September 2015, Zhuji Hailiang Foreign Language School and selected programs from Tianma Experimental School and Hailiang Experimental HighSchool relocated to the Hailiang Education Park. Tianma Experimental School’s and Hailiang Experimental High School’s remaining programs continue tooperate on their existing respective campuses. As of June 30, 2018, our affiliated schools operated in Hailiang Education Park are Hailiang Primary School,Hailiang Junior Middle School, Hailiang Senior Middle School and Hailiang Foreign Language School. As of June 30, 2018, across our affiliated schools, we had an aggregate number of 22,110 students, including 4,285 students in primary school, 5,631 studentsin middle school, 8,334 students in high school of our basic educational program and 3,860 students in our international program. At the same time, ourschools employed an aggregate number of 1,856 teachers and educational staff. We have experienced significant growth since 1995, as the national and localgovernments in the PRC have adopted various policies to encourage and support the growth of private K-12 education in China. Since the commencement ofoperation of our first Hailiang school in 1995, an aggregate number of approximately 30,000 students have graduated from high schools in our affiliatedschools. 33Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following table sets forth the basic information of our 7 currently in operation affiliated schools as of June 30, 2018. School YearOpened/Acquired EducationalPrograms NumberofStudents NumberofClasses Number ofTeachersandEducationalStaff Hailiang Foreign Language School 1995 International Primary School 1,035 57 143 International Middle School 1,274 55 156 International High School 1,551 80 226 Sub-total 3,860 192 525 Hailiang Primary School ** 2016 Primary School 2,695 83 220 Sub-total 2,695 83 220 Hailiang Junior Middle School ** 2016 Middle School 2,984 61 179 Sub-total 2,984 61 179 Hailiang Senior Middle School ** 2016 High School 3,495 80 297 Sub-total 3,495 80 297 Hailiang Experimental High School 2001 High School 3,491 73 224 Sub-total 3,491 73 224 Hailiang High School of Art *** 2017 High School 1,348 33 123 Sub-total 1,348 33 123 Tianma Experimental School 2009 * Primary School 1,590 47 131 Middle School 2,647 57 157 Sub-total 4,237 104 288 Total 22,110 626 1,856 (*) Tianma Experimental School commenced its operations in 1995, and we acquired Tianma in 2009. (**) Hailiang Primary School, Hailiang Junior Middle School and Hailiang Senior Middle School became independent from Zhuji Hailiang ForeignLanguage School. (***) Hailiang High School of Art became independent from Hailiang Experimental High School. The following table sets forth the numbers of students, classes and teachers and educational staff of our affiliated schools as of June 30, 2016, 2017, and2018. Number of Students Number of Classes Number of Teachers andEducational Staff June 30,2016 June 30,2017 June 30,2018 June 30,2016 June 30,2017 June 30,2018 June 30,2016 June 30,2017 June 30,2018 Kindergarten 423 421 — 18 16 — 63 33 — Primary School 4,004 4,018 4,285 126 123 130 378 340 351 Middle School 4,492 5,348 5,631 87 104 118 263 283 336 High School 7,841 8,338 8,334 180 181 186 538 659 644 International Program 1,913 2,825 3,860 96 141 192 286 319 525 Total 18,673 20,950 22,110 507 565 626 1,528 1,634 1,856 Each of our current affiliated schools is located within Zhuji city, Zhejiang province and is situated on spacious campuses. As of June 30, 2018, our affiliatedschools in aggregate had over 802 multi-media classrooms, all with Wi-Fi-coverage, over 2,190 computers and tablet computers,15 sports fields andapproximately 4,700 student dormitory rooms. On April 9, 2018, Hailiang Education Library and Hailiang Shooting Hall were both put into use. HailiangEducation Library is located in Hailiang Education Park and covers a gross floor area of approximately 2,000 square meters. Hailiang Education Library canaccommodate a total number of approximately 300,000 books. Hailiang Shooting Range Hall is located in Hailiang Education Park and covers a gross floorarea of approximately 2,256 square meters with 3 stadiums of 10-meter, 25-meter and 50-meter respectively. 34Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. For our affiliated schools, we generally require all of our students to board at our schools, and substantially all of our students are housed in our boardingfacilities. Each student dormitory building houses 192 to 1,404 students per building. Students who wish to commute and not board at our schools arereviewed and admitted on a case-by-case basis and generally we only accept non-boarding applications from kindergarten students or students that candemonstrate a feasible commuting arrangement that would not affect their ability to attend our school programs in any material way. The basic boarding feesare included in the tuition fees, and additional boarding fees generally range from RMB2,000 to RMB5,000 per school year depending on, among otherfactors, the schools and educational programs that the students are enrolled in, the level of the accommodation chosen by the students, and the grade of thestudents. A majority of our boarding students are from areas outside of Zhuji. Our boarding facilities provide an attractive option to parents who want theirchildren to experience living outside the home before attending college in China or overseas. Under the supervision of our board of directors, our affiliated schools system is managed by an eight-member principals committee. The committee consistsof a principal general in charge of our overall school operations, an executive vice-principal in charge of specific operations, five vice-principals responsiblefor discipline, strategic development educational research, teaching administration, enrollment status management, security, logistics, sport, purchase, hotelsand hospitals, and an assistant to principal general who is in charge of information technology and student affairs. The committee meets on a monthly basisand the meeting agenda consists of major policy decisions, personnel changes, student recruitment, and operation adjustments. We believe effective andtimely exchange among the principals of our schools and executives of our group ensures consistent quality in educational services as well as efficientresource allocation and school management. Academic Programs Students enrolled in our affiliated schools can choose between enrolling in our basic educational program or our international program. The key differencesbetween our basic educational programs and our international program are as follows: Basic educational program International program Post-graduation plans · Higher level education in the PRC · Higher level education overseas Coursework · Government-mandated coursework · Government-mandated coursework · Elective courses developed by our schoolfaculty. · Curricula with a focus on preparingstudents to study abroad, such asmandatory language courses and subjectsaddressed in A-levels courses, VCE andSAT courses Student to teacher ratio · 14 students to 1 teacher (in the 2017/2018school year) · 7 students to 1 teacher (in the 2017/2018school year) Examinations taken · Gaokao (China’s standardized collegeentrance examination) · In addition to Gaokao which is optional,examinations for purposes of entering intooverseas universities and colleges, such asA-levels, VCE and related language tests Tuition · RMB40,880 (approximately US$6,178)(for the 2017/2018 school year) · RMB83,170 (approximately US$12,569)(for the 2017/2018 school year) Basic educational program The basic educational program offered by our affiliated schools consists of primary school, middle school and high school programs. The curricula arecomposed of compulsory courses required by the PRC regulatory authorities and a variety of selective courses to develop student interests, strength andcomprehensive ability. The basic compulsory curriculum is guided by detailed and demanding government standards that specify what students should knowand be able to do at the end of each school year. Middle schools students in our basic educational program generally prepare for and take Zhongkao, a standardized annual admission test administered bylocal authorities at a prefectural level for admission into high schools in the same geographic region. High school students in our basic educational programgenerally prepare for and take Gaokao, a standardized annual admission test administered by local authorities at a provincial level and the result is critical indetermining student admission into undergraduate programs in universities in China. 35Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. As of June 30, 2018, our affiliated schools offered approximately 273 courses. These courses include approximately 53 courses mandated by the PRC centralgovernment and the local governments and approximately 220 elective courses including Applied Physics, Economics, English Literature, ComputerProgramming, Digital Media Design, Photography and Etiquette. Our selective courses include supplemental courses developed from compulsorycurriculum, and other courses such as STEM, extracurricular clubs, mentorship for start-ups, tips for daily life, and etiquette education, etc. Our STEM coursesare designed from integrating different disciplines, such as math, art, psychology, sociology, in the aim of developing our students the ability to deal withcomplicated situations. We categorize our STEM courses under five groups, including housework, architecture, transportation, energy and ecology, andprovide our students with various workshops, including 3D printing, robot design projects to facilitate innovation and compatibility. As for the coursematerials for our basic educational program, we primarily use materials designated by the governmental authorities while complementing materials designedby our teachers based on their research and experience. We also offer characterized sports training services, like swimming, NBA Academy, fencing, andshooting to enhance students’ physical health, and after-school courses based on our students’ interest and demand, such as workshops for sciencecompetitions. In addition, Hailiang High School of Art offers three programs – Painting, Music and Media, with a variety of specialized modules and seminars, such assketch, watercolor painting, bel canto, popular music, piano, flute, guzheng, dance, acting, etc. We also offer students enrolled in basic education programs to participate in study abroad trips to foreign countries where they tour Australia, New Zealand,the United States, Japan and Singapore, participate in workshops organized by us to learn and develop new skills and knowledge in the fields of language,history, culture, art and living abroad. International program In addition to the basic educational program offered by our affiliated schools, students enrolled in our affiliated schools can also elect to be placed into ourinternational program which is geared towards students who wish to study abroad. PRC students in our international program take courses required by thePRC regulatory authority and earn a Chinese school diploma. As most of the students in our international program plan to study abroad after they graduatefrom our middle school or high school programs, we have designed our international program to specifically address the needs of these students in terms ofboth language and academics. For instance, in primary and middle school, we opened bilingual international, immersive English Cambridge classes; in highschool, we opened A-level classes, or VCE classes. In addition, we provide programs that combine basic high school modules and intensive language courses.Thereby, students can acquire Chinese graduation certificate after passing graduation test with the completion of basic modules and at the same time learnforeign languages to be better prepared for university education abroad. For example, we provide IELTS, TOEFL, ELS training courses, and other foreignlanguage courses, including Korean, Japanese, and Spanish. For students who want to study in Japan, Korea, and Spain, they can take other foreign languagetest replacing English in Gaokao and acquire an international certificate. We also provide counseling services to our students to help them with the application for colleges and universities. In addition, through cooperation withother education service providers, we organized a number of study trips in the UK, US, Australia, Japan, Korea, New Zealand, Thailand, Singapore, andseveral European countries to get students to visit famous universities and experience local culture. These study trips are open to both our basic educationalprogram students as well as our international program students. For the 2017/2018 school year, we had 1,877 students participate in these study trips. The number of students enrolled in our affiliate schools’ international program has increased rapidly in the last three school years, from 1,913 as of June 30,2016 to 2,825 as of June 30, 2017, including both PRC students and foreign students. As of June 30, 2018, the number of students in our internationalprogram reached 3,860. In our graduating class, 175 students were admitted by overseas institutions, including King's College London, University CollegeLondon, Queen Mary University of London, The University of Nottingham, University of California Irvine, James Madison University, The AustralianNational University, The University of Sydney, Monash University, RMIT University, The University of Melbourne, University of Ottawa, KoreanUniversity, Ewha Womans University, and Waseda University. In addition to preparing Chinese students for studying abroad, we also offer the HSK (Hanyu Shuiping Kaoshi) program for our foreign students to learnChinese at our schools. In 1999, we were authorized by the Zhejiang provincial government to accept foreign students for Chinese language studying.Foreign students may prepare and take the Chinese Proficiency Test administered by the Department of Education of the PRC and the Gaokao for admissionto PRC universities. Our HSK program offers a variety of academic and non-academic subjects featuring Chinese culture, such as Chinese History, ChineseGeography, Martial Arts and Chinese Painting and Calligraphy, with varied optional modules including guitar, piano, dance, handwork, ceramics,badminton, football, basketball, etc. In addition, we provide students with activities to practice the Chinese language and short trips each academic year. Wehave accumulated more than ten years of teaching experience in HSK program. All of our teachers have acquired the International Chinese TeacherQualification Certificate issued by Education Commission of the PRC. 100% of our students passed HSK Level IV test. As of June 30, 2018, 121 foreignstudents were enrolled in our international program, from foreign countries including but not limited to, South Korea, Germany, Russia, Brazil, the UnitedStates, Italy, Spain and the Netherlands. For the 2017/18 school year, foreign students of our international programs were admitted into top universities bothin the PRC and outside of the PRC, including but not limited to Taiwan University, China Academy of Art, Xiamen University, Zhejiang University, and EastChina Normal University. Hailiang Education Park Hailiang Investment, a company controlled by our controlling shareholder, Mr. Feng, has completed the construction of the Hailiang Education Park, whichhas a total site area of approximately 850,000 square meters and a floor area of approximately 550,000 square meters. Hailiang Education Park commencedoperation in September 2015, and over 11,000 students and 900 teachers began classes on the new campus at the start of the school year on September 7,2015. In September 2015, Zhuji Hailiang Foreign Language School and selected programs from Tianma Experimental School and Hailiang ExperimentalHigh School relocated to the Hailiang Education Park. Tianma Experimental School’s and Hailiang Experimental High School’s remaining programscontinue to operate on their existing respective campuses. As of June 30, 2018, our affiliated schools operated in Hailiang Education Park were (i) HailiangPrimary School, (ii) Hailiang Junior Middle School, (iii) Hailiang Senior Middle School, and (iv) Hailiang Foreign Language School. 36Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Hailiang Education Park has six educational buildings, an administrative building, six dining halls, six track fields, a landmark tower, a school hospital, 20student dormitory buildings and ten dormitory buildings for teachers and staff, all of which have been completed and put into operation as of the date of thisannual report on Form 20-F. In addition, there is a multi-function sports center with basketball courts and an in door swimming pool, and a student activitycenter. There is also a hotel now in operation after having obtained all required permits and licenses. In September 2018, the automatic license plateidentification system and automatic face recognition system were installed and activated on the three main gates of Hailiang Education Park in order toimprove the security management. Hailiang Education Park is designed to accommodate a maximum of 12,000 students and 2,000 teachers. The schoolfacility contains a number of modern and distinctive buildings such as the main administration and educational building, the landmark tower, and the newkindergarten department building with a distinctive trumpet shell-shaped architectural design. On November 18, 2015, the Company entered into a lease agreement with Hailiang Investment regarding Hailiang Education Park. The term of the lease is fortwenty years and the rental fee in the first year is RMB20.0 million (approximately US$3.0 million) and is subject to a 5% increase in the next three years.The rental fee commencing from the fifth year is subject to further negotiation between the Company and Hailiang Investment. The lease covers theproperties and facilities of Hailiang Education Park with a total combined gross floor area and site area of approximately 550,000 square meters and 850,000square meters, respectively. On December 7, 2015, the Company entered into an agreement to terminate the property lease agreement by and between Hailiang Foreign Language Schooland Hailiang Investment dated June 30, 2009, pursuant to which the lease of the old campus occupied by Zhuji Hailiang Foreign Language School wasterminated on September 1, 2015. On December 29, 2017, the Company entered into an agreement to terminate the lease agreement between with Hailiang Investment dated November 18,2015, effective as of December 29, 2017. On December 29, 2017, each of our four affiliated schools at the time, namely Hailiang Primary School, HailiangJunior Middle School, Hailiang Senior Middle School and Hailiang Foreign Language School, entered into lease agreements with Hailiang Investmentrespectively regarding Hailiang Education Park. The term of each lease is for twenty years and the rental fee in the first year is RMB21.5 (approximatelyUS$3.2 million) and is subject to a 5% increase in the next three years. The rental fee commencing from the fourth year is subject to further negotiationbetween the Company and Hailiang Investment. The lease covers the properties and facilities of Hailiang Education Park with a total gross floor area and sitearea of approximately 540,000 square meters and 833,000 square meters, respectively. There are certain risks associated with utilization of the Hailiang Education Park. See “Item 3. Key Information—D. Risk Factors—Risks Relating to OurBusiness and Industry—There are risks associated with our use of the Hailiang Education Park. Leasehold improvement contracts On November 13, 2014, Hailiang Experimental High School entered into three leasehold improvement contracts with Heng Zhong Da, a company affiliatedwith Hailiang Group, for outfitting services and related improvements for student dormitories, educational buildings, dining halls, administrative building,sports stadiums, welcoming center and the school hospital of Hailiang Education Park. Under the contracts, Hailiang Experimental High School will pay atotal contract consideration of approximately RMB291.7 million (or RMB223.7 million, RMB12.2 million and RMB55.8 million under each of thecontracts, respectively) to Heng Zhong Da. The outfitting and improvements began on November 13, 2014 and were completed as of June 30, 2016. After afinal inspection by Hailiang Experimental High School, the parties of the contracts fixed the final contract payment based on the actual costs incurred whichwere approximately RMB291.7 million (or RMB223.7 million, RMB12.2 million and RMB55.8 million under each of the contracts, respectively). Furthermore, we also entered into a series of leasehold improvement contracts with Heng Zhong Da for the leasehold improvement of educational buildings,dining halls, student dormitories of Hailiang Experimental High School and Tianma Experimental School, and amount of the contracts was RMB 34.6million and RMB23.2 million (approximately US$3.5 million) for the years ended June 30, 2017 and 2018, respectively. We have paid RMB 22.7 million, RMB 29.4 million, and RMB24.3 million (approximately US$3.7 million) to Heng Zhong Da during the years ended June30, 2016, 2017 and 2018, respectively. Our Students Student recruitment and admission It has been 23 years since Hailiang Education was first established. We have confidence in our brand and our ability to attract more students in the future toour affiliated schools. Our target students are from families with medium to high levels of household income as well as students who want to study abroadafter graduating from our schools. Thanks to the improvement in the academic results of our affiliated schools, our recognized brand and social influence, we no longer send out our recruitersto most regions, but publicize our programs through social media, teachers and educational staffs’ promotion and parents’ recommendations. We encourageour teachers and educational staffs to actively participate in the recruitment process and offer incentive-based payments to employees who make a significantcontribution to student recruitment. We also rely on a combination of advertisements on local television channels and newspaper to recruit students. As of June 30, 2018, we had 15,315 students from Zhejiang province and 6,674 students from other regions in China, including 29 other provinces, HongKong and Taiwan. We also have 121 foreign students coming from 22 foreign countries. 37Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Students are required to take an entry examination before being admitted into our schools. We require applicants for high school to have certain minimumscores on the Zhongkao to ensure they have the necessary academic ability to succeed in our schools. In addition to academic requirements, the admissionand entrance standards of our schools are designed to identify those students who have strong desire to learn, passion for their areas of interest and ability tocontribute to a positive classroom dynamic. The characteristics are generally identified through personal interviews by representatives in admission office.We launched a ‘Creative Talent’ project in December 2017 to recruit exceptional middle and high school students in China. Academic performance We routinely monitor students’ progress in our affiliated schools according to academic standards. We make our standards and instructional programsaccording to national and local standards published by the regulatory authorities, and we believe our students are well prepared for Zhongkao and Gaokao.We require our teachers to regularly evaluate their students and set specific goals for them. Our students take all standardized tests required by provincial andlocal authorities, and we also administrate/manage our own annual tests calibrated to our academic standards. Our students have achieved outstandingacademic performance, as measured by these external assessments. For example, over 95.9% of our students from our affiliated schools in the 2017 graduateclasses passed the Joint Graduation Exam, which is an annual provincial test administered to each graduating class. In the 2017/2018 university entrance examination, we have 134 students from our affiliated schools passing the admission cutoff of “first tier universities.” Inthe 2017 graduate classes, approximately 88% of our students received admissions into universities and some of our students received admissions into top-tier PRC universities, including but not limited to Zhejiang University, Nankai University, Communication University of China, Jilin University, XiamenUniversity and Chongqing University. In the senior high school entrance examination of the 2017/2018 school year, 10 of our students placed in Top 8among other students in Zhuji city, while 166 of our students scored above 700 points out of 770 points which is considered to be outstanding academicperformance. For the 2017/2018 school year, some of our students in Hailiang High School of Art were offered admissions into China Academy of Art, China Conservatoryof Music, Beijing Film Academy, Shanghai Conservatory of Music, The Central Academy of Drama, Xi'an Academy of Fine Arts, Shenyang Conservatory ofMusic, Zhejiang Conservatory of Music, Sichuan Conservatory Of Music and other famous art academies. In the 2018 graduate classes of our affiliated schools, 175 students in our international program received admission offers from overseas universities,including the King's College London, University College London, Queen Mary University of London, The University of Nottingham, University ofCalifornia Irvine, James Madison University, The Australian National University, The University of Sydney, Monash University, RMIT Universit, TheUniversity of Melbourne, University of Ottawa, Korean University, Ewha Womans University, or Waseda University. Students from our affiliated schools have also achieved excellent results in various academic competitions at both the national and provincial levels,including competitions in mathematics, physics, chemistry, biology and computer science. In the 8th International Teenagers Mathematics Olympiad,Hailiang students won the second prize, 3 bronze medals, and one silver medal in team competition. In National Middle School Students Biology LeagueContest (Zhejiang District), Hailiang student, Beili Fu won the first prize, ranking number 4 among all senior one students in Zhejiang province. In the 2018Asia-Pacific Informatics Olympiad, Hailiang students won one silver medal and a bronze medal. In the 15th Network Originality Competition, Hailiangstudents won the first prize. Student retention Upon graduating from primary or middle school, students enrolled in our affiliated schools can apply for admission into the next level of educationalprograms in our school system. Although some of our students may apply for admission into programs of other education service providers, such as publicschools, we keep a relatively high student retention rate, indicating the wide recognition of our educational quality by students and parents. For our 2018graduate classes, 74% of our primary school graduates were admitted into our middle schools and 63% of our middle school graduates were admitted into ourhigh schools. From time to time, students may experience declining academic performance. Our teachers provide advice and assistant for students on academic andpersonal matters in order to maximize student retention. Remedial courses are available for students with lower grades, and additional practice materials andsessions are also available for students experiencing academic difficulties. Our average net annual student retention rate for all students, which measures thepercentage of students enrolled at the beginning of the year who move on to the next grade level was approximately 89.0% for the 2015/2016 school year,and 90.0 % for the 2016/2017 school year, and 90.0% for the 2017/2018 school year. Our Teachers Our affiliated schools seek to hire teachers and educational staff who hold the necessary academic credentials, are dedicated and active professionals in theirfield, and are committed to improving their students’ academic performance. As of June 30, 2018, from our affiliated schools, the number of our teachers andeducational reached 1,856, and approximately 9.8% of our teachers and educational staff hold a master’s degrees or above. We have built a team of sophisticated teachers with an average of over 5.6 years of educational experience for our affiliated schools. We are currently notinvolved in hiring, assessing or training teachers in our managed schools. We also require teachers in our affiliated schools to possess the qualificationsrequired by PRC regulatory authorities. Nine of all our teachers and educational staff, were recognized as “Exceptional Teachers” (), a nationalaward given by the MOE to teachers who have made significant contributions to their schools and profession. In addition, we have 10 golden Olympiadcompetition training coaches, 8 national excellent teachers, and 182 teachers with master’s or doctoral degrees. We had 76 full-time foreign teachers,approximately 34% of whom hold master’s degrees or above. Foreign teachers are from 27 countries, contributing to an international environment thatinspires our students with multiple cultures. They are staffed interchangeably in respective schools and mainly teach foreign languages including English,Japan, Korean, and French, A-level subjects including music, art. 38Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following table lists information about our teachers and educational staff from our affiliated schools at each school and each educational program as ofJune 30, 2018. School NumberofTeachersandEducationalStaff NumberofTeacherswith“AdvancedTeachingQualifications” NumberwithMaster’sDegreeorAbove Hailiang Foreign Language School 525 11 90 Hailiang Primary School 220 8 1 Hailiang Junior Middle School 179 20 12 Hailiang Senior Middle School 297 46 32 Hailiang Experimental High School 224 13 26 Haiiang High School of Art 123 — 11 Tianma Experiment School 288 18 10 Total 1,856 116 182 Our schools are staffed with three levels of teachers and educational staff: senior teachers, mid-level teachers and junior teachers. Senior teachers areoutstanding teachers chosen by our schools, with the highest K-12 teacher’s qualification available in China. Mid-level teachers are teachers with nationally-qualified first, second, or third degree teaching qualifications. Junior teachers are teachers who have not yet received their teaching certification. Seniorteachers have managerial responsibilities in addition to their responsibilities as classroom instructors. We believe this three-tier seniority system provides anattractive career path and allows new teachers to be mentored by more experienced teachers. As of June 30, 2018, our team of teachers and educational staff inour affiliated schools consisted of 116 senior teachers, 334 mid-level teachers and 869 junior teachers. It is crucial to keep a rich group of distinguished teachers and principals for us to expand our scale. We follow a specific process for faculty hiring which wehave developed over the years. Teachers are assessed via a series of procedures to be hired, including, without limitation, written examination, interviews,mock lectures, expertise in their specific subject areas, the item bank for ability assessment (IBA), and psychological risk evaluation. We expect teachers tohave or develop excellent communication and teaching skills, the ability to mentor other teachers and the ability to develop innovative curriculum. In 2018,we launched our “star talent” strategy, to recruit a group of exceptional principals, overseas graduates, teachers from home and abroad. Moreover, incooperation with many normal universities in China, we invite excellent university graduates to intern at our schools, and attempt to recruit those who showoutstanding performance during the internship. We have recommendation policy that encourages our educational staff to recommend excellent teachers andoffer reward accordingly. We have a comprehensive training system. First, newly hired teachers undergo a training program on teaching skills and techniques as well as our Hailiangschool culture and pedagogy to be better prepared for their positions. Second, senior educational staff and exceptional junior staff take leadership andexpertise training courses to foster their core skills. Third, we provide expertise knowledge and specific skills training designed to improve our teachersability and creativity, through one-on-one teaching. In 2018, we launched our “star principal” project that focuses on the training of exceptional principalsand candidates, and which aim at developing a group of talented principals in the following two years. One-on-one mentorship makes it possible to createcharismatic candidates with rich theoretical background, practical skills and an innovative mindset. We emphasize the professionalism of our teachers, thereby providing them with a wide platform and comfortable living environment. We provide twopromotion pathways, via the improvement of management and professional skills. We encourage our newly hired teachers to split their time to work andstudy equally, allowing them time for their development. Teachers who have taught in Hailiang for a certain time have a chance to study abroad, work onresearch materials and enhance their professional skills. We have a competitive compensation policy and our teachers’ salary increased by 15% in 2018. Inaddition, we offer a variety of bonuses and subsidies to drive our teachers’ enthusiasm and initiative. We have monthly evaluations of our teachers’performance, set clear targets, and form a transparent, well-organized, fair, and just system to ensure the stability of our teaching team. We also pay for healthinsurance for our teachers, and provide for paid vacation, free accommodation and other benefits. Each year, we remove approximately 1% to 6% of teachers and educational staff who do not meet our teaching standards. Our teacher retention rates as ofJune 30, 2016, 2017, and 2018 were 90.5%, 95.1%, and 91.5% respectively. “Retention rate” is calculated as 100% minus the quotient of the number ofteachers who cease being employed during the period by the number of teachers at the beginning of that period (not including teachers hired during thatperiod). Marketing We selectively and systematically employ a variety of marketing methods to enhance the brand recognition of the school programs offered by our affiliatedschools. By doing so, we intend to continue creating and implementing a standard corporate identity across all our schools. We take measures to increaseword-of-mouth referrals which have been key to bringing in new students and building our brand. For instance, we advertise in media and organize variouspromotional events, recruitment fairs, workshops to assist students and families to better understand our service and enhance our brand. 39Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Referrals. Word-of-mouth referrals by former and current students and their families have historically been a very significant source of student enrollment. Inparticular, recommendations made by our middle and high school graduates who have been successful in the Zhongkao or Gaokao or were admitted intooverseas educational institutions are particularly persuasive for prospective students. We actively work with our alumni and current students to encouragethem to recommend our programs to potential students. We believe that our student enrollment will continue to benefit from referrals by our extensivenetwork of alumni and their families, many of whom have enjoyed pleasant and satisfactory learning experiences and achieved their study goals at ourschools. Promotional events. From time to time, we organize promotional and recruiting events to provide real-time, on-site opportunities for our prospective studentsto learn more about our services and programs, as well as to meet our teachers and staff. We also organize events specifically for our international program sothat prospective students interested in studying abroad can meet with teachers and recruiting personnel from overseas institutions and learn more about ourinternational program. To enhance our brand, we organize more than ten promotional events, such as the visit of Kawhi Leonard, NBA player, the visit of TheYale Alley Cat, a world-renowned all-men a cappella singing group from Yale University, visit by former Vermont governor or a speech for environmentalprotection by Mr. Shende. Media advertising. We stay active in media advertising to promote the brand of Hailiang Education. We place advertisements in national and globalnewspapers and television, such as People’s Daily, PR Newswire, and CCTV Chanel 5. Moreover, we explore marketing via Wechat, television media, printmedia, and other off-line activities to promote our brand. Services Provided to Our Managed Schools Pursuant to the 2017 Group Strategic Cooperation Agreement, we may provide a wide range of services, as needed, to schools that our affiliated entitiessponsor and or own, including but not limited to, educational, managerial, logistics, supporting and operational services. We do not own or sponsor ourmanaged schools. Such schools are owned or sponsored by our affiliated entities, Hailiang Group or Hailiang Investment. Instead, we provide services to suchschools in exchange for a management fee or service fee. As of June 30, 2018, we provided various services to 16 managed schools that had an aggregateenrollment of about 32,574 students. For the fiscal year ended June 30, 2018, services we provided to our 16 managed schools were primarily managementservices, as well as educational training services provided to students at our managed schools. We may provide additional services, as needed, to ourmanaged schools and students at our managed schools in the future. On April 1, 2018, we entered into a service agreement with the Xiantao No.1 Middle School (the “Xiantao School”) in Hubei province, China. Pursuant tosuch agreement, we receive management fees based upon the provision of education and management services, including, but not limited to services relatedto human resources, financial management and information technology. Founded in 1958, with an area of about 378,666 square meters, Xiantao School is aprivate school that provides middle and high school education required by the PRC regulatory authority in Xiantao City, Hubei Province. In the 2017/2018School Year, the total number of students reached 7,969 and the number of teachers was 581. The tuition fee ranges from approximately 10,000 RMB peryear to approximately 60,000 RMB per year. In the University Entrance Examination of 2018, 6 students from Xiantao School ranked top 10 among all thestudents in Xiantao City. 675 students passed the first-tier university admission score, which accounted for about 39% of the total number of high schoolgraduates of Xiantao School. 1,416 students of Xiaotao School were admitted into undergraduate programs, which account for 82% of its total graduatestudents. In the 2018 senior high school entrance examination, among the top 10 students with highest scores in Xiantao City, eight students were fromXiantao School; among the top 30, 15 were from Xiantao School; among the top 100, 47 were from Xiantao School; among the top 200, 93 were fromXiantao School. On April 1, 2018, we entered into a service agreement (the “NanRui Agreement”) with the Nanrui Experimental School in Xinchang County (the “NanRuiSchool”). Pursuant to the NanRui Agreement, we receive management fees based upon the provision of education and management services, including, butnot limited to services related to human resources, financial management and information technology. Founded in 2004, with an area of about 50,000 squaremeters, Nanrui School is a non-profit private school that provides compulsory education required by the PRC regulatory authority in Xinchang County,Zhejiang Province. In the 2017/2018 School Year, the total number of students is approximately 2,524, and the number of teachers is approximately 175. Thetuition fee ranges from 14,000 RMB to 16,000 RMB annually. In the 2018 senior high school entrance examination, 309 or 88.29% of NanRui Schoolstudents passed the admission score into high school. Among all the students who had taken such examination in Xinchang County in 2018, three studentsfrom NanRui School ranked top 5, and five ranked top 10. On January 1, 2018, we entered into service agreements with each of Jiulixianghucheng Kindergarten, Nanchang Baishu Angel City&FenghuangKindergarten, Nanchang Foreign Language Jiulixianghucheng School, Nanchang Foreign Language Gaoxin School, Nanchang Maqiu Senior MiddleSchool, Nanchang Baishu School, Yichun Baishu Foreign Language School, Yichun Baishu Foreign Language School Xuefulu Campus, Yichun BaishuAngel City&Bilingual Kindergarten, Yichun Baishu Angel City&Bilingual Kindergarten Xuefulu Campus, Xingfu Shiguang Angel Kindergarten to operatethe above 11 schools (the “BaiShu Agreement No.1”). Pursuant to the BaiShu Agreement No.1, we receive management fees based upon the provision ofservices related to property management, landscaping, catering, maintenance, and logistic. On May 1, 2018, we entered into a service agreement withNanchang Hualian Foreign Language Experimental School, Nanchang Xihu District Baishu Education Group Teaching Staff Kindergarten, JingdezhenBaishu School to operate the above 3 schools (the “BaiShu Agreement No.2”). Pursuant to the BaiShu Agreement No.2, we receive management fees basedupon the provision of logistic services. Founded in 2002, Jiangxi Baishu Education Group consists of 14 schools in Nanchang city and Yichun city inJiangxi Province, providing kindergarten, primary, middle and high school education. With approximately 22,081 students 1,283 teachers in total, JiangxiBaishu Education Group offers kindergarten, primary, middle high school programs. In the University Entrance Examination of 2018, among 371 highschool graduates from Nanchang Maqiu Senior High school, 56 students passed the first-tier university line. In the 2018 senior high school entranceexamination, a student from Nanchang Baishu School ranked No.2 among students in Nanchang City. 40Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Pursuant to the 2017 Group Strategic Cooperation Agreement, we have entered into partnership programs with various local governments in China. On August 28, 2018, we entered into a cooperation agreement with the MOE of Binjiang district in Hangzhou, pursuant to which, we provide education andmanagement services to two existing public schools, namely Hangzhou Chunhui Primary School and Hangzhou Xixing Middle School. The two schools canaccommodate up to a total number of 2,560 students and the term of the agreement is 6 years. On October 10, 2018, we entered into a cooperation agreement with the local government of Jindong District, Jinhua City, Zhejiang Province (the “JindongGovernment”), pursuant to which Hailiang Investment will be the legal operator of Jinhua Hailiang Foreign Language School, and we will operate andmanage the school, and the Jindong Government will provide campuses, and building facilities as needed. The campus of Jinhua Hailiang Foreign LanguageSchool covers an area of around 13 acres and is expected to accommodate up to approximately 1,000 students. On October 10, 2018, we entered into a cooperation with the Education Bureau of Xiaoshan District, City of Hangzhou, National Tourism ResortManagement Committee of Xianghu, Zhejiang Province, and Xianghu Travel Holding Company. Pursuant to the partnership program, Hailiang Investment isto be the sponsor and legal operator of one new school located in Xianghu, and we started to provide education and management services, after the end offiscal year 2018, to three existing public schools located in Wenyan District, Hangzhou City, namely the Wenyan Primary School, Wenyan No. 2 PrimarySchool, and Wenyan Middle School. The three schools can accommodate up to a total number of more than 3,000 students and the term is 10 years. On October 10, 2018, we entered into a cooperation agreement with the government of Feicheng City, Shandong Province, pursuant to which FeichengHailiang Education Investment Co., Ltd., a wholly-owned subsidiary of Hailiang Investment, will be the sponsor of Feicheng Hailiang Foreign LanguageSchool, and the Feicheng Government is expected to provide campuses, building facilities, including a newly constructed campus. The current campus ofFeicheng Hailiang Foreign Language School is located in the campus of “Feicheng West District Experiment School” and is able to accommodate up to 750students. Growth Strategies Our goal is to further strengthen our leadership position in China’s private K-12 educational services market and further expand our asset light approach byproviding education services in addition to the value-added services we currently provide. We intend to leverage our strong market position and strong brandin pursuing the following strategies: · Continue to build our brand and reputation; · Expand the network of our affiliated and managed schools across China; · Further increase education and management service offerings to create additional value for our schools and to establish a virtual platform to fuel ourrevenue growth; · Strengthen our market leadership by focusing on education quality and scale; and · Further increase enrollment in our international program and broaden our diversified program offerings. Competition The K-12 educational services market in China is rapidly evolving, highly fragmented and competitive. According to the Frost & Sullivan Report, the totalnumber of student enrollments of private K-12 education in China has increased steadily, from 33.1 million in 2013 to 42.7 million in 2017. The proportionof students in private K-12 schools against the total number of students in K-12 schools also increased from 16.5% to 19.9% during the same period.However, in 2017, the top six listed education groups, including our Company, namely Hailiang Education, Yuhan Education, Wisdom Education, ChinaMaple Leaf Education, Virscend Education, and Bright Scholar Education in China, only enrolled 0.47% of the total private school students in China,according to the Frost & Sullivan Report. The top six listed education groups are based in different provinces, recruiting students in different regions,therefore relatively mutually independent in their growth. Based on this low concentration rate and scattered location of the leading private educationgroups, we believe that private education service providers have a huge growth potential. Because the market share of private K-12 schools is relatively small compared to that of public schools, our primary competitors are public K-12 schools inareas where we recruit our students. With respect to our basic educational program, currently our major competitor in Zhuji is Zhuji High School. We alsoface competition from Zhuji Ronghuai School, which is the second-largest private school in Zhuji, where all of our affiliated schools are located. As wecontinue to grow our business through expansion and acquisitions, we also expect to face competition from K-12 schools, both private and public, located inother geographic regions where we will establish or acquire additional K-12 schools. 41Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. According to the Frost & Sullivan Report, Hailiang Education is the largest K-12 education and management service provider in China. As of June 30, 2018,we provide education and management service to 23 schools, among which, we own and sponsor 7 affiliated schools, with an aggregate number of 22,110students. In addition, as of June 30, 2018, we provide various services to 16 schools not owned or sponsored by us, with a total number of 32,574 students.We believe that the competition in the K-12 educational services market is generally based on school brand, student academic performance, parentsatisfaction, quality of teachers, campus size, and tuition fees. We expect competition to persist and intensify. We believe that we are able to competeeffectively because of our strong brand recognition and established international program. However, some of our existing and potential competitors,especially public schools, may have access to resources that we do not have. Some of these competitors, particularly public schools, have governmentalsupport in forms of government subsidies and other payments or fee reductions. These competitors may devote greater resources, financial or otherwise, thanwe can to student recruitment, campus development and brand promotion and respond more quickly than we can to changes in student demands and marketneeds. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—We face significant competition and we may fail tocompete effectively.” Properties and Facilities For our affiliated schools, we currently lease properties with a total combined gross floor area and site area of approximately 0.80 million square meters and1.10 million square meters, including approximately 833,000 square meters of the Hailiang Education Park, in Zhuji city, Zhejiang province, China, fromentities affiliated with Mr. Feng, our controlling shareholder. By leasing such properties from Mr. Feng, we avoid significant capital expenditures inconnection with land use right purchases and facilities construction. See “Item 7. Major Shareholders and Related Party Transactions—B. Related PartyTransactions—Transactions with Certain Related Parties.” We have obtained assurance letters from the local regulatory authorities confirming that the landuse of our affiliated schools has been in compliance with all applicable laws and regulations as of December 31, 2013, but we have not obtained such lettersregarding Hailiang Education Park. The terms of our leases are for twenty years. All of our current leases contain priority renewal provisions which provide that we have the right of first refusal torenew the lease upon the expiration of the lease. Under the lease agreements, we can terminate the lease at any time without cause, provided we notify thelessor in writing three months in advance. The lessor may only terminate the agreements upon a written notice to us one year in advance for any unapprovedsublease by the lessee, unapproved modification to the premises, failure to pay rent for more than 60 days, or use of the properties for illegal activities. Toterminate the leases for other causes, the lessor would have to give us written notice one year in advance and obtain our consent to such termination. Hailiang Investment, a company controlled by our controlling shareholder, Mr. Feng, has completed the construction of the Hailiang Education Park, whichhas a total site area of approximately 850,000 square meters and a gross floor area of approximately 550,000 square meters. In September 2015, ZhujiHailiang Foreign Language School and selected programs from Tianma Experimental School and Hailiang Experimental High School relocated to theHailiang Education Park. Tianma Experimental School’s and Hailiang Experimental High School’s remaining programs continue to operate on their existingrespective campuses. As of June 30, 2018, our affiliated schools operated in Hailiang Education Park are Hailiang Primary School, Hailiang Junior MiddleSchool, Hailiang Senior Middle School and Hailiang Foreign Language School. On December 29, 2017, each of our affiliated 4 schools, namely HailiangPrimary School, Hailiang Junior Middle School, Hailiang Senior Middle School and Hailiang Foreign Language School, entered into lease agreements withHailiang Investment respectively regarding Hailiang Education Park. The term of the lease is for twenty years and the rental fee in the first year is RMB4.1million, RMB4.1 million, RMB4.6 million and RMB8.6 million respectively (approximately US$0.6 million, US$0.6 million, US$0.7 million and US$1.3million respectively) and is subject to a 5% increase in the next three years. The rental fee commencing from the fourth year is subject to further negotiationbetween the Company and Hailiang Investment. The leases cover the properties and facilities of Hailiang Education Park with a total gross floor area and sitearea of approximately 540,000 square meters and 833,000 square meters, respectively. See “Item 4. Information on the Company—B. Business Overview—Our Schools and Programs—Hailiang Education Park.” We have not entered into any leases with respect to our managed schools since we do not own or sponsor any of our managed schools. Employees We had 2,826, 3,240 and 4,129 employees as of June 30, 2016, 2017 and 2018, respectively. The majority of our employees is full-time and has signedemployment agreements for one to three years, which will be renewed with substantially the same terms upon the employee passing the end-of-contractevaluation. In addition to teachers and educational staff for our affiliated schools, we also have employees in sales and marketing, information technologyand general administration who provide services to both our affiliated schools and our managed schools. As of June 30, 2018, we do not employ teachers andeducational staff on behalf of our managed schools. The following table sets forth the numbers of our employees, categorized by function as of June 30, 2018. As of June 30, 2018 Teachers and educational staff 1,856 Cafeteria and dining hall staff 639 Student living staff 552 Security and safety staff 105 Administrative staff 349 Other staff 628 Total 4,129 42Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. As required by PRC laws and regulations, we participate in various employee social security plans for our employees that are administered by localgovernments, including housing, pension, medical insurance and unemployment insurance. We compensate our employees with base salaries as well asperformance-based bonuses. None of our employees are represented by any collective bargaining arrangements, and we consider our relations with ouremployees to be good. Intellectual Property Our schools hold copyrights to various course materials that have been developed internally and provide a basis for improving the quality of our educationalservices. Our strategic plan calls for continued and extensive investment in maintaining and expanding these assets. We have also registered nine domainnames with the China Internet Network Information Center, www.hailiangedu.com, www.hailiangeducation.com, www.hlcis.com, www.hlschool.com.cn,www.hlcjzx.com, www.zjhlgz.com, www.hailiangschool.com, www.hailiangart.com and www.tmschooledu.com. We have one registered trademark in thePRC. To protect our intellectual properties, we rely on a combination of trademark, copyright and trade secret laws. From time to time, we are required toobtain licenses with respect to course materials owned by third parties for our educational services, in particular for our international program which requiresforeign-language educational materials. Insurance We maintain various insurance policies designed to safeguard against risks and unexpected events. We maintain insurance to cover students and teachers’medical expenses for injuries they might sustain at our school. We also maintain insurance to cover our liability should any injuries occur at our schools. Inaddition, we maintain property insurance for our school facilities and vehicles. We do not maintain business interruption insurance, product liabilityinsurance or key-man life insurance. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—We have limitedinsurance coverage with respect to our business and operations.” We consider our insurance coverage to be in line with that of other private K-12 educationproviders of a similar scale in China. Legal Proceedings From time to time, we are subject to legal proceedings, investigations and claims incidental to the conduct of our business. We are not currently a party toany legal proceeding or investigation which, in the opinion of our management, is likely to have a material adverse effect on our business, financialcondition or results of operations. Regulations We operate our business in China under a legal regime consisting of the National People’s Congress, which is the country’s highest legislative body, theState Council, which is the highest authority of the executive branch of the PRC central government, and several ministries and agencies under its authority,including the MOE, the Ministry of Information Industry, SAIC, the Ministry of Civil Affairs and their respective local offices. This section summarizes theprincipal PRC regulations related to our business. Regulations on Private Education The principal laws and regulations governing private education in China consist of the Education Law of the PRC, the Law for Promoting Private Education(2016), the Implementation Rules for the Law for Promoting Private Education (2004), and the Regulations on Chinese-Foreign Cooperation in OperatingSchools. Below is a summary of the relevant provisions of these regulations. Education Law of the PRC On March 18, 1995, the National People’s Congress enacted the Education Law of the PRC. The Education Law sets forth provisions relating to thefundamental education system of the PRC, including a system of preschool, primary, secondary (including middle and high schools) and higher educationand a system of awarding certificates or diplomas. The Education Law stipulates that the government formulates plans for the development of education,establishes and operates schools and other institutions of education. Under the Education Law, enterprises, social organizations and individuals areencouraged to operate schools and other types of educational organizations in accordance with PRC laws and regulations. The Law for Promoting Private Education and the Implementation Rules for the Law for Promoting Private Education (2004) The Decision of the Standing Committee of the National People’s Congress on Amending the Law for Promoting Private Education of the PRC (the “2016Private Education Law”), or the Amendment, has been promulgated by Order No. 55 of the President of the PRC on November 7, 2016 and became effectiveon September 1, 2017. The Implementation Rules for the Law for Promoting Private Education of the PRC (“2004 Private Education Law”) became effectiveon April 1, 2004. Under these regulations, “private schools” are defined as schools established by non-governmental organizations or individuals using non-government funds. Private schools providing academic qualifications education, kindergarten education, education for self-study examination and othereducation shall be subject to approval by the education authorities at or above the county level, while private schools engaging in occupationalqualification training and occupational skill training shall be subject to approvals from the authorities in charge of labor and social welfare at or above thecounty level. A duly approved private school will be granted a Permit for Operating a Private School, and shall be registered as a company with either theMinistry of Civil Affairs of the PRC, or the MCA, or its local counterparts, as a privately run non-enterprise institution or Administration For Industry &Commerce. Each of our affiliate schools has obtained the Permit for Operating a Private School and has been registered with the relevant local counterpart ofthe MCA. 43Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Under the above regulations, private schools have the same status as public schools, though private schools are prohibited from providing military, police,political and other kinds of education that are of a special nature. However, the operations of a private school are highly regulated under the aboveregulations. For example, the types and amounts of fees charged by a non-profit private school shall be decided by the provincial government or itscounterpart authorities. Both non-profit and for-profit private schools shall publicly discloses such information. According to PRC laws and regulations, entities and individuals who establish non-profit private schools registered with MCA are commonly referred to as“sponsors” rather than “owners” or “shareholders.” The economic substance of “sponsorship” with respect to private schools is substantially similar to that ofshareholder’s ownership with respect to companies in terms of legal, regulatory and tax matters. For example, the name of the sponsor shall be entered intothe private schools’ articles of association and Permit for Operating a Private School, similar to that of shareholders where their names shall be entered intothe company’s articles of associations and corporate records filed with relevant authority. From the perspective of control, the sponsor of a private school alsohas the right to exercise ultimate control over the school by various means such as adopting the private school’s constitutional documents, electing theschool’s decision-making bodies, including the school’s board of directors and principals. The sponsor can also profit from the private schools by disposingof its sponsorship interests in the schools for economic gains. However, the rights of sponsors vis-à-vis private schools also differ from the rights ofshareholders vis-à-vis companies. For example, under the PRC laws, a company’s ultimate decision-making body is its shareholders meeting, while forprivate schools, it is the board of directors, though the members of which are substantially appointed by the sponsor. The sponsorship interest also differsfrom the ownership interests with regard to the right to the distribution of residual properties upon liquidation of a private school, mainly because privateeducation is treated as a public welfare undertaking under the current regulations. Non-profit private schools shall be entitled to the same preferential taxtreatment as public schools. In addition, the 2016 Private Education Law also provides that private schools providing certifications or diplomas, pre-school education, other cultureeducation (including K-12 education) and self-study aids are subject to approval by the education authorities, while private schools engaging inoccupational training are subject to approval by the administrative department(s) for human resources and social security. The key features of the differences between sponsorship and equity ownership, following the effectiveness of 2016 Private Education Law, include thefollowing: ·Right to receive a return on investment. Pursuant to the 2004 Private Law Education, either sponsors or owners shall have the right to receive areturn on investment. However, the portion of after-tax profits that can be distributed by a company to its owner is different from that distributed by aschool to its sponsor. Under the PRC Company Law, a company is required to allocate 10% of its after-tax profits to statutory reserve funds, whileunder the 2004 Private Education Law, a school that requires reasonable returns is required to allocate no less than 25% of its annual net profit orannual increased net assets to its development fund as well as make allocation for mandatory expenses as required by applicable laws andregulations. The 2016 Private Education Law no longer uses the term “reasonable return” and now requires private schools to register as either for-profit or non-profit schools. However, the Implementation Rules of 2016 Private Education Law have not been enacted, so it remains uncertain, howthe Implementation Rules will apply to the right to receive a return on investment for owners, and sponsors of schools that register as non-profit,specifically; ·Right to the distribution of residual properties upon termination and liquidation. With respect to a school, the 2016 Private Education Law providesthat the property of a private school shall be liquidated in the following order: (1) tuition fees and extras and other expenses paid by educatees thatshould be returned; (2) wages payable to the teachers and staff members and the social insurance premiums that should be paid; and (3) other debtsthat should be cleared off. The remaining property of a non-profit private school after the debts mentioned above are settled shall continue to beused for the running of other non-profit schools; the remaining property of a for-profit private school after the debts mentioned above are settledshall be disposed of according to relevant provisions of the PRC Company Law. Under the PRC Company Law, the remainder properties afterpayment of relevant fees and compensations upon termination and liquidation of a company, shall be distributed to its owners. Despite the above differences between sponsorship and ownership, the sponsor of a private school has effective control over such private school under the2016 Private Education Law through controlling the executive council or board of directors of such school, which is the decision-making body of theschool. Through the school’s decision-making body, the sponsor exercises a broad range of powers, including (i) the appointment and dismissal of the schoolprincipal, (ii) the amendment of articles of association of the school and formulation of rules and regulations of the school, (iii) the adoption of developmentplans and approval of annual work plans, (iv) raising funds for school operations and adoption of budgets and final accounts, (v) making decisions on thesize and compensation of the staff, (vi) making decisions on the division, merger or termination of the school, and (vii) making decisions on other importantmatters of the school. In addition, through controlling the decision-making body, the sponsor also has the power to use and manage the properties of theschool in accordance with relevant laws and regulations. A duly approved non-profit private school will be granted a private school operating permit, and shall be registered with the Ministry of Civil Affairs or itslocal bureaus as a privately run non-enterprise institution. In addition, schools and their learning centers must make filings with the MOE (Ministry ofEducation) and the Ministry of Civil Affairs, or MCA, or their local bureaus. Our 7 schools have obtained and maintained the private school operatingpermits. We have been informed by our managed schools that they have obtained necessary school operating permits and have obtained the operating permit from thelocal bureau of MOE and MCA. 44Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Besides the 2016 Private Education Law and the above regulations, the following and other specific implementation rules of the 2016 Private Education Lawas applied to the operation requirement of non-profit schools and for-profit schools have not been introduced: ·the amendment to the Implementation Rules for the Law for Promoting Private Education of the PRC; ·the local regulations relating to legal person registration of for-profit and non-profit private schools; ·the specific measures to be formulated and promulgated by the competent authorities responsible for the administration of private schools in theprovince(s) in which our schools are located, including but not limited to the specific requirements for authenticating various parties’ property rightsand payment of taxes and fees of for-profit private schools, taxation policies for for-profit private schools, measures for the collection of non-profitprivate schools’ fees. Prior to September 1, 2017, which is before the 2016 Private Education Law took effect, private schools were divided into three categories: private schoolsestablished with donated funds; private schools that require reasonable returns and private schools that do not require reasonable returns. While privateeducation is treated as a public welfare undertaking under the regulations, in the case of private schools choosing to require “reasonable returns,” sponsors ofthese schools may choose to require “reasonable returns” from the annual net balance of the school after deduction of costs, donations received, governmentsubsidies, if any, the reserved development fund and other expenses required by the regulations. According to the 2016 Private Education Law, the key features of the aforesaid new classification system for private schools include the following: ·sponsors of for-profit private schools are entitled to retain the profits and proceeds from the schools and the operation surplus may be allocated tothe sponsors pursuant to the PRC Company Law and other relevant laws and regulations; ·sponsors of non-profit private schools are not entitled to the distribution of profits or proceed from the non-profit schools and all operation surplusof non-profit schools shall be used for the operation of the schools; ·for-profit private schools are entitled to set their own tuition and other miscellaneous fees without the need to seek prior approvals from or report tothe relevant government authorities. The collection of fees by non-profit private schools, on the other hand, shall be regulated by the provincial,autonomous regional or municipal governments; ·private schools (for-profit and non-profit) may enjoy preferential tax treatments. Non-profit private schools will be entitled to the same tax benefitsas public schools. Taxation policies for for-profit private schools after the 2016 Private Education Law taking effect are still unclear as more specificprovisions are not yet to be introduced; ·where there is construction or expansion of a non-profit private school, the school may acquire the required land use rights in the form of allocationby the government as a preferential treatment. Where there is construction or expansion of a for-profit private school, the school may acquire therequired land use rights by purchasing them from the government; ·the remaining assets of non-profit private schools after liquidation shall continue to be used for the operation of non-profit schools. The remainingassets of for-profit private schools shall be distributed to the sponsors in accordance with the PRC Company Law; and ·people’s governments at or above the county level may support private schools by subscribing to their services, provision of student loans andscholarships, and leases or transfers of unused state assets. The governments may further take such measures as government subsidies, bonus fundsand incentives for donation in support of non-profit private schools. On December 29, 2016, the State Council issued the Several Opinions of the State Council on Encouraging the Operation of Education by Social Forces andPromoting the Healthy Development of Private Education, or the State Council Opinions, which requires to ease the access to the operation of private schoolsand encourages social forces to enter the education industry. The State Council Opinions also provide that each level of the people’s governments shallincrease their support to the private schools in terms of financial investment, financial support, autonomy policies, preferential tax treatments, land policies,fee policies, autonomy operation, protecting the rights of teachers and students. Further, the State Council Opinions require each level of the people’sgovernments to improve its local policies on government support to for-profit and non-profit private schools by ways of preferential tax treatments. Inaddition, the State Council Opinions require the strengthening of the Chinese Communist Party, or the CCP. Under the Opinions, local governments arerequired to consider the school CCO organization and the CCP’s leadership as important factors in the annual inspections of private schools. On December 30, 2016, the MOE, MCA, SAIC, the Ministry of Human Resources and Social Welfare and the State Commission Office of Public SectorsReform jointly issued the Implementation Rules on the Classification Registration of Private Schools to reflect the new classification system for privateschools as set out in the 2016 Private Education Law. Generally, if a private school established before promulgation of the 2016 Private Education Lawchooses to register as a non-profit school, it shall amend its articles of association, continue its operation and complete the new registration process. If suchprivate school chooses to register as a for-profit school, it shall conduct financial liquidation process, have the property rights of its assets such as lands,school buildings and net balance being authenticated by relevant government authorities, pay up relevant taxes, apply for a new Permit for Operating aPrivate School, re-register as for-profit schools and continue its operation. Specific provisions regarding the above registrations are yet to be introduced bypeople’s governments at the provincial level. 45Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On December 30, 2016, the MOE, SAIC and the Ministry of Human Resources and Social Welfare jointly issued the Implementation Rules on theSupervision and Administration of For-profit Private Schools, pursuant to which the establishment, division, merger and other material changes of a for-profitprivate school shall first be approved by the education authorities or the authorities in charge of labor and social welfare, and then be registered with thecompetent branch of SAIC. For a detailed discussion on how the 2016 Private Education Law and the above regulations will affect our schools, see “Risk Factors—Risks Related toBusiness and Industry—We may be subject to significant limitations on our ability to engage in the private education business or make payments to oursubsidiaries and may otherwise be materially and adversely affected by changes in PRC laws and regulations” As such, starting from September 1, 2017, when the 2016 Private Education Law took effect, private schools are required to register as either for-profit or non-profit schools, and the sponsor of a private school should independently register the school as non-profit or for-profit. Under existing regulations, schoolsproviding compulsory education services could not be registered as for-profit schools. The Implementing Rules of 2016 Private Education Law (in the formof Opinions) promulgated by the State Council and the provincial governments have not provided details regarding the new registration procedures ofschools, and therefore the specific effects of the rules on our company and operations are uncertain at the date of this annual report. For example, we areuncertain about the tax regulations for for-profit private schools under the 2016 Private Education Law since specific provisions have not been introduced. Inaddition, the specific procedure regarding registering as for-profit or non-profit private schools have not been promulgated or published. As of June 30, 2018, our affiliated schools have not changed their current registration statuses as private schools with reasonable return. The State Counciland certain provinces including the Zhejiang province have promulgated implementing rules (in the form of Opinions) for the 2016 Private Education Law.Zhejiang province has promulgated implementing rules that all schools located in Zhejiang province are required to re-register and/or change their for-profitor non-profit statuses before 2022. We intend to maintain the current statuses (as re-registration is not required at this time under 2004 Private EducationLaws currently effective) until we have obtained better clarity on the application of the 2016 Private Education Law. As of the date of this annual report onForm 20-F, an additional affiliated school Zhuji Hailiang Foreign Language School Co., Ltd. has been incorporated as a for-profit private school followingthe fiscal year ended June 30, 2018. For our managed schools, none of the schools have elected to register as for-profit or non-profit private schools and sincewe are not sponsors to any of our managed schools, we do not expect to determine when the registration change or re-registration shall take place. Regulations on Education-related Fees The 2016 Private Education Law stipulates that for-profit private schools are entitled to set their own tuition and other miscellaneous fees without the need toseek prior approvals from or report to the relevant government authorities. The collection of fees by non-profit private schools, on the other hand, shall beregulated by the provincial, autonomous regional or municipal governments. As such, if our private schools choose to register as for-profit private schools for our noncompulsory education services, we will be able to set our owntuitions and other miscellaneous fees according to the market conditions. However, pursuant to the 2016 Private Education Law, for our compulsoryeducation services, our private schools are required to register as non-profit private schools, and will be subject to regulations of non-profit private schools,and as such, shall be regulated by the provincial, autonomous regional or municipal governments. On July 8, 2011, the Zhuji Municipal Development and Reform Bureau, the Zhuji Finance Bureau, the Zhuji Education Department and the Zhuji HumanResources and Social Security Bureau jointly promulgated the Notice of Regulating the Fees Management of Private Primary and Secondary Schools (ZFGJ[2011] No. 96), or the Notice, under the Notice, private primary schools and secondary schools of Zhuji city are approved to charge tuition, accommodationfees and the registration fees from their students. In addition, when setting tuition and accommodation fee standards, schools should properly contemplatereasonable returns for the private schools. The registration fees standard should be in accordance with the principle of “voluntary payment, accuratecalculation of expenses, timely settlement and regular disclosure.” Specifically, textbook fees cannot exceed RMB365 for grade 10 and grade 11 and cannotexceed RMB265 for grade 12. However, notwithstanding the fact that the Opinions have already been promulgated by the State Council and some provincial governments, implementingrules for the 2016 Private Education Law are still being promulgated by provincial, autonomous regional or municipal governments, and we are uncertainhow these implementing rules will impact our operation and business model from the perspective of tuition and other education-related fees. For example, themost recent ceiling on tuition and boarding expenses we can charge was set out by the Zhuji branch of the MOE in August 2016, and sets forth the maximumamounts of tuition and boarding expenses for the basic education program of primary school, middle school and high schools at RMB60,000 per student,RMB65,000 per student and RMB70,000 per student, respectively. In the 2017/2018 school year, we charged an average tuition per student for the primaryschool, middle school and high school education under our basic educational program of RMB41,368, RMB40,497 and RMB41,971. Pursuant to theregistration documents filed with local authorities for the 2017//2018 school year, we can charge RMB73,000 to RMB136,000 for our international program.For the 2017/2018 school year, we charged an average tuition per student for international program of RMB83,170, tuition for some of our internationalprograms has reached the maximum limits of tuition, such as the A-Level program. See “Item 5. Operating and Financial Review and Prospects—A. OperatingResults—Factors Affecting Our Results of Operations—Pricing of Educational Programs.” Regulations on Chinese-foreign cooperation in operating schools Chinese-foreign cooperation in operating schools or training programs is specifically governed by the Regulations on Operating Chinese-foreign Schools,promulgated by the State Council in 2003 and the Implementing Rules for the Regulations on Operating Chinese-foreign Schools, or the ImplementingRules, which were issued by the MOE in 2004 and amended in 2013. The regulations on Operating Chinese-foreign Schools and its Implementing Rules encourage substantive cooperation between overseas educationalorganizations with relevant qualifications and experience in providing high-quality education and Chinese educational organizations to jointly operatevarious types of schools in the PRC, with such cooperation in the areas of higher education and occupational education being encouraged. Chinese-foreigncooperative schools are not permitted, however, to engage in compulsory education and military, police, political and other kinds of education that are of aspecial nature in the PRC. Permits for Chinese-foreign Cooperation in Operating Schools can be obtained from education authorities or from the authorities that regulate labor andsocial welfare in the PRC. Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.46Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. To date, none of our schools is being operated under a Chinese-foreign cooperation project, and therefore we are not governed by the Regulations onOperating Chinese-foreign Schools. Foreign investment in educational service industry Under the Foreign Investment Industries Guidance Catalog (2015), or Foreign Investment Catalog, which was amended and promulgated by the NationalDevelopment and Reform Commission, or NDRC, and the MOFCOM in March 2015 and became effective on April 10, 2015, as amended in 2017 whichamendment took effect on July 18, 2017, foreign investment is encouraged in non-academic vocational training institutions. Preschool education, seniorhigh school education and higher education in grades 10 to 12 are in a restricted industry, meaning foreign educational organizations with relevantqualifications and experience and Chinese educational organizations are only allowed to operate senior high schools in cooperative ways in the PRC. Anyforeign investment in higher education and senior high school education has to take the form of a cooperative joint venture. Foreign investment is bannedfrom compulsory education, which means grades 1 to 9. Foreign investment is allowed in after-school enrichment program and training services which do notgrant certificates or diplomas. We conduct our private education business in China primarily through contractual arrangements among our operating subsidiary in China and HailiangManagement and our affiliated schools owned and operated by Hailiang Management and the shareholder of Hailiang Management. We hold the requiredlicenses and permits necessary to conduct our private education business in China through the schools owned and operated by Hailiang Management. Thesponsor of our current 7 affiliated schools is in compliance with the requirements of the Foreign Investment Catalog, and we control and operate ouraffiliated schools through contractual arrangements that do not violate the Foreign Investment Catalog. Regulation of Domain Names and Website Names PRC law requires owners of Internet domain names to register their domain names with qualified domain name registration agencies approved by TheMinistry of Industry and Information Technology and obtain registration certificates from such registration agencies. A registered domain name owner has anexclusive use right over its domain name. Unregistered domain names may not receive proper legal protections and may be misappropriated by unauthorizedthird parties. As of June 30, 2018, we registered nine domain names relating to our websites, with the Internet Corporation for Assigned Names and Numbers and the ChinaInternet Network Information Center. Regulation of Copyright and Trademark Protection China has adopted legislation governing intellectual property rights, including copyrights and trademarks. China is a signatory to the main internationalconventions on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon itsaccession to the World Trade Organization in December 2001. Copyright The National People’s Congress amended the Copyright Law in 2001 and in 2010 to widen the scope of works and rights that are eligible for copyrightprotection. The amended Copyright Law extends copyright protection to Internet activities, products disseminated over the Internet and software products. Inaddition, there is a voluntary registration system administered by the China Copyright Protection Center. To address the problem of copyright infringementrelated to the content posted or transmitted over the Internet, the National Copyright Administration and the Ministry of Information Industry jointlypromulgated the Administrative Measures for Copyright Protection Related to the Internet on April 30, 2005. These measures became effective on May 30,2005. In addition, to protect the information network transmission right of copyright holders, performers, producers of audio and video recordings in theinternet space, Regulations on Protection of Information Network Transmission Right was promulgated in 2006 and amended in 2013 by State Council. Trademark The PRC Trademark Law, adopted in 1982, revised in 2001 and further revised in 2013, protects the proprietary rights to registered trademarks. TheTrademark Office under the SAIC handles trademark registrations and grants a term of ten years to registered trademarks and another ten years to trademarksas requested upon expiry of the prior term. Trademark license agreements must be filed with the Trademark Office for record. We had one registered trademarkin the PRC. Regulations on Foreign Exchange The PRC government imposes restrictions on the convertibility of the RMB and on the collection and use of foreign currency by PRC entities. Under currentregulations, the RMB is convertible for current account transactions, which include dividend distributions, and the import and export of goods and services.Conversion of RMB into foreign currency and foreign currency into RMB for capital account transactions, such as direct investment, portfolio investmentand loans, however, is still generally subject to the prior approval of or registration with SAFE. 47Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Under current PRC regulations, foreign-invested enterprises such as our PRC subsidiary are required to apply to SAFE for a Foreign Exchange RegistrationCertificate for Foreign-Invested Enterprise. With such a certificate (which is subject to review and renewal by SAFE on an annual basis), a foreign-investedenterprise may open foreign exchange bank accounts at banks authorized to conduct foreign exchange business by SAFE and may buy, sell and remit foreignexchange through such banks, subject to documentation and approval requirements. Foreign-invested enterprises are required to open and maintain separateforeign exchange accounts for capital account transactions and current account transactions. In addition, there are restrictions on the amount of foreigncurrency that foreign-invested enterprises may retain in such accounts. Regulations on Foreign Exchange in Certain Onshore and Offshore Transactions The Circular on Relevant Issues concerning Foreign Exchange Administration of Overseas Investment and Financing and Return Investments Conducted byDomestic Residents through offshore Special Purpose Company () the “Notice” or “Circular No. 37”), which was promulgatedby SAFE and became effective on July 14, 2014, requires a PRC individual resident to file a “Registration Form of Offshore Investments Contributed byDomestic Individual Residents” and register with the local SAFE branch before he or she contributes assets or equity interests in an offshore special purposecompany, that is directly established or controlled by the PRC resident for the purpose of conducting investment or financing. Following the initialregistration, the PRC resident is also required to register with the local SAFE branch for any major change includes, among other things, any major change ofthe offshore special purpose company’s PRC resident shareholder, name of the offshore special purpose company, term of operation, or any increase orreduction of the offshore special purpose company’s registered capital, share transfer or swap, and merger or division. Failure to comply with the registrationprocedures of Circular No. 37 may result in penalties, including the imposition of restrictions on the ability of the offshore special purpose company’s PRCsubsidiary to distribute dividends to the offshore entity. As of the date of this annual report on Form 20-F, to the best of our knowledge, our PRC resident shareholder with offshore investments in our group hadregistered with SAFE as to his offshore investments in accordance with the predecessor regulation of SAFE Circular No. 37, namely the Notice of the StateAdministration of Foreign Exchange on the Administration of Foreign Exchange Involved in Financing and Return Investments Conducted by DomesticResidents via Special Purpose Vehicles (“Circular No. 75”), which was replaced by SAFE Circular No. 37 on July 14, 2014 but still effective when therelevant PRC resident shareholder made his investments. Therefore, as of the date of this annual report, our PRC resident shareholder has duly made suchapplications, filings and amendments as required. Regulations on Dividend Distribution Under applicable PRC laws and regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any,determined in accordance with PRC accounting standards and regulations. In addition, foreign-invested enterprises in China are required to allocate at least10% of their accumulated profits each year, if any, to fund statutory reserves of up to 50% of the registered capital of the enterprise. Statutory reserves are notdistributable as cash dividends. Each wholly-owned subsidiary in China must comply with the foregoing regulations. Under PRC law, our subsidiary, Hailiang Consulting, is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserveuntil such reserve reaches 50% of its registered capital. Although the statutory reserves can be used, among other ways, to increase the registered capital andeliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the eventof liquidation. In addition, at the end of each fiscal year, each of our schools is required to allocate a certain amount to its development fund for the construction ormaintenance of the school properties or for the purchase or upgrade of school facilities. Such fund is also a statutory reserve that cannot be distributed as cashdividends. In particular, as of June 30, 2018, our 7 schools who are our affiliated entities, each of which is currently a private school that requires reasonablereturns, are required to allocate no less than 25% of their annual net income for such purposes. As of June 30, 2018, Hailiang Consulting had not paid any dividends to our offshore entities from its accumulated profits. No dividends were declared andpaid during the 2016, 2017 and 2018 fiscal years. M&A Rules and Overseas Listings On August 8, 2006, six PRC regulatory agencies, namely, the MOFCOM, the State Assets Supervision and Administration Commission, the StateAdministration of Taxation, SAIC, CSRC and SAFE, jointly adopted the M&A Rules which became effective on September 8, 2006. This M&A Rule purportsto require, among other things, offshore special purpose vehicles, or SPVs, formed for the purpose of acquiring PRC domestic companies and controlled byPRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. While theapplication of the M&A Rule remains unclear, we believe, based on the advice of our PRC counsel, that CSRC approval was not required in the context of ourinitial public offering as we are not a special purpose vehicle formed for the purpose of acquiring domestic companies that are controlled by our PRCindividual shareholders, as we acquired contractual control rather than equity interests in our domestic affiliated entities. However, we cannot assure you thatthe relevant PRC government agency, including the CSRC, would reach the same conclusion as our PRC counsel. If the CSRC or other PRC regulatoryagency subsequently determines that we needed to obtain the CSRC’s approval for our initial public offering or if CSRC, we may face sanctions by the CSRCor other PRC regulatory agencies. In such event, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operatingprivileges in the PRC, delay or restrict the repatriation of the proceeds from our initial public offering into the PRC, or take other actions that could have amaterial adverse effect on our business, financial condition, results of operations, and prospects, as well as the trading price of our ADSs. 48Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Regulations on Loans to and Direct Investment in the PRC Entities by Offshore Holding Companies According to the Provisional Regulations on Statistics and Supervision of Foreign Debt promulgated by SAFE on September 24, 1997 and the InterimProvisions on the Management of Foreign Debts promulgated by SAFE, the National Development and Reform Commission and the Ministry of Finance andeffective from March 1, 2003, loans by foreign companies to their subsidiaries in China, which accordingly are foreign-invested enterprises, or FIEs, areconsidered foreign debt, and such loans must be registered with the local branches of SAFE. Under the provisions, these FIEs must register with the localbranches of SAFE within 15 days from the date on which the loan agreements for the foreign debt are executed. In addition, the total amount of theaccumulated foreign debt borrowed by an FIE is not allowed to exceed the difference between the total investment and the registered capital of the FIE. Inaddition, the total amount of accumulated foreign debt borrowed by an FIE is limited to the difference between the total investment and the registered capitalof the FIE. Total investment of an FIE is the total amount of capital that can be used for the operation of the FIE, as approved by the MOFCOM or its localcounterpart, and may be increased or decreased upon approval by the MOFCOM or its local counterpart. Registered capital of an FIE is the total amount ofcapital contributions made to the FIE by its foreign holding company or owners, as approved by the MOFCOM or its local counterpart and registered at theSAIC or its local counterpart. According to applicable PRC regulations on FIEs, capital contributions from a foreign holding company to its PRC subsidiaries, which are considered FIEs,may only be made when the approval by the MOFCOM or its local counterpart is obtained. In approving such capital contributions, the MOFCOM or itslocal counterpart examines the business scope of each FIE under review to ensure it complies with the Catalogue (as amended by the Negative List) lists theindustries and economic activities in which foreign investment in the PRC is encouraged, restricted or prohibited. Any industry not listed in the Catalogue isa permitted industry. Pursuant to the Catalogue (as amended by the Negative List), real estate service section falls within the permitted catalogue. None of ourPRC subsidiaries is engaged in any businesses related to the industries listed in the Catalogue (as amended by the Negative List). Our PRC subsidiaries, Hailiang Consulting, Ningbo Hailiang Education Logistics Management Co., Ltd., Zhuji Nianxin Lake Hotel Management Co., Ltd.,Ningbo Hailiang Sports Development Co., Ltd., Ningbo Haoliang Information Consulting Co., Ltd., Jiangxi Haibo Education Management Co., Ltd., JiangxiHaibo Logistics Management Co., Ltd., Zhuji Hailiang Logistics Service Co., Ltd., Zhuji Hailiang After-school Service Co., Ltd., and Zhuji Hailiang SupplyChain Management Co., Ltd. are FIEs subject to the regulations discussed above but are not engaged in any businesses listed in the Negative List. C. Organizational Structure The following diagram illustrates our corporate structure as of the date of this annual report on Form 20-F: Note: Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(1) According to PRC laws and regulations, entities and individuals who establish private schools are commonly referred to as “sponsors” instead of“owners” or “shareholders.” The economic substance of “sponsorship” with respect of private schools is substantially similar to that of ownership withregard to legal, regulatory and tax matters. However, the differences between sponsorship and equity ownership can be found in the specific provisions ofthe laws and regulations applicable to sponsors and owners, such as provisions regarding the right to receive returns on investment and the right to thedistribution of residual properties upon termination and liquidation. Each of our affiliated schools has been registered as a private school that requires“reasonable returns.” Under the currently effective 2004 Private Education Laws and other PRC laws and regulations, although private education ismainly treated as a public welfare undertaking, sponsors of schools may choose to require reasonable returns from the annual earnings of the school afterdeduction of certain costs, expenses, donations, subsidies and required contributions to development funds. Hailiang Management is the sponsor of eachof the 7 schools we currently operate as registered pursuant to applicable PRC laws and regulations. However, following September 1, 2017 when the2016 Private Education Laws came into effect, and subject to the promulgation of the Implementing Rules of the 2016 Private Education Laws, ouraffiliated schools will be required to register as private non-profit schools that are permitted to provide compulsory education services, and we willregister our affiliated schools accordingly. The State Council and certain provinces including the Zhejiang province have promulgated implementingrules (in the form of Opinions) for the 2016 Private Education Law. Zhejiang province has promulgated implementing rules that all schools located inZhejiang province are required to re-register and/or change their for-profit or non-profit statuses before 2022. We intend to maintain the current statusesof our affiliated schools (as re-registration is not required at this time under 2004 Private Education Laws currently effective) until we have obtainedbetter clarity on the application of the 2016 Private Education Law. For more information regarding the nature of schools requiring reasonable returnsunder relevant laws and regulations, school sponsorship and difference between sponsorship and ownership under relevant laws and regulations, see “—B. Business Overview—Regulations—Regulations on Private Education—The Law for Promoting Private Education (2016) and the ImplementationRules for the Law for Promoting Private Education (2004).” 49Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following table sets out the details of our subsidiaries and affiliated entities that are significant to us: Subsidiaries CountryofIncorporation OwnershipInterest Hailiang Education (HK) Limited Hong Kong 100%Hailiang Education International Studying Service Limited Hong Kong 100%Pate's - Hailiang International College Company Limited United Kingdom 100%Zhejiang Hailiang Education Consulting and Services Co., Ltd. China 100%Ningbo Hailiang Education Logistics Management Co., Ltd China 56%Ningbo Haoliang Information Consulting Co., Ltd China 56%Zhuji Nianxin Lake Hotel Management Co., Ltd. China 100%Ningbo Hailiang Sports Development Co,. Ltd. China 100%Jiangxi Haibo Logistics Management Co., Ltd. China 100%Jiangxi Haibo Education Management Co., Ltd. China 100%Zhuji Hailiang After-school Service Co., Ltd. China 100%Zhuji Hailiang Logistics Service Co., Ltd. China 100%Zhuji Hailiang Supply Chain Management Co., Ltd. China 100% Affiliated Entities Country ofIncorporation Hailiang Education Management Group Co., Ltd. ChinaHailiang Foreign Language School ChinaHailiang Experimental High School ChinaTianma Experimental School ChinaHailiang Primary School ChinaHailiang Junior Middle School ChinaHailiang Senior Middle School ChinaHailiang High School of Art ChinaZhejiang Hailiang Mingxin Education Technology Co., Ltd ChinaZhuji Youer Network Technology Co., Ltd. ChinaZhuji Mingrui Business Information Consulting Co., Ltd. ChinaZhuji Shangzhuo Enterprise Management Consulting Co., Ltd. ChinaZhuji Hongda Trade Co., Ltd. ChinaHangzhou Hailiang Education Management Co., Ltd. ChinaZhejiang Mingxin International Travel Co., Ltd. ChinaZhuji Hailiang Foreign Language High School Co., Ltd. China Contractual Arrangements with our affiliated entities and their Shareholder Hailiang Inc. is a holding company with no substantive operations. We had previously, on December 31, 2013, through our PRC subsidiary, HailiangConsulting, entered into a series of contractual arrangements with Hailiang Management which enabled us to: ·exercise the power over our affiliated entities; ·have the exposure or rights to variable returns from our involvement with our affiliated entities; and ·exercise the ability to affect those returns through use of its power over our affiliated entities. On June 30, 2017, we, through our PRC subsidiary, Hailiang Consulting, entered into a series of revised and amended contractual arrangements (the “FirstAmended and Restated Contractual Arrangements”) with Hailiang Management. On February 8, 2018, Beize Group, controlled by Mr. Feng and his wife,became a 0.1% record shareholder of Hailiang Management by contributing additional capital to Hailiang Management. As of the date of this annualreport on Form 20-F, Mr. Feng and Beize Group hold a 99.9% and 0.1% equity interest in in Hailiang Management, respectively. On February 23, 2018, eachof the First Amended and Restated Contractual Arrangements were further amended and restated, whereby Hailiang Management, Hailiang Consulting, Mr.Feng and Beize Group entered into a series of contractual arrangement (the “Second Amended and Restated Contractual Arrangements”), including theSecond Amended and Restated Call Option Agreement, Second Amended and Restated Powers of Attorney, Second Amended and Restated ConsultingServices Agreement and Second Amended and Restated Equity Pledge Agreement. The recording process for the Second Amended and Restated ContractualArrangements with the local government was completed on March 15, 2018. 50Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following is a summary of the material provisions of the Second Amended and Restated Contractual Arrangements with our affiliated entities and theshareholders of Hailiang Management: Second Amended and Restated Call Option Agreement Pursuant to the Second Amended and Restated Call Option Agreement among Hailiang Consulting, Hailiang Management, Mr. Feng and Beize Groupentered into on February 23, 2018, Mr. Feng and Beize Group unconditionally and irrevocably granted Hailiang Consulting or its designee an exclusiveoption to purchase, to the extent permitted under PRC laws and regulations, in certain cases, including but not limited to the cancellation of any of theSecond Amended and Restatedment Contractual Arrangements or liquidation or dissolution of Hailiang Management, all or part of the equity interest inHailiang Management at the lowest consideration permitted by PRC laws and regulations. Hailiang Consulting has the sole discretion to decide when toexercise the option, and whether to exercise the option in part or in full. In the event that the exercise price is higher than the registered capital of HailiangManagement, Mr. Feng and Beize Group agreed to return any consideration paid in excess of such registered capital to Hailiang Consulting or any third partyit designates. Without Hailiang Consulting’s written consent, Hailiang Management, Beize Group or Mr. Feng may not sell, transfer, pledge or otherwisedispose of or create any encumbrance on any of Hailiang Management’s assets, businesses or equity interests or merge with or acquire other businesses.Without Hailiang Consulting’s written consent, Hailiang Management may not enter into any material contracts, incur any indebtedness or provide any loanor guarantee to a third party, or alter the nature or scope of its business. The Second Amended and Restated Call Option Agreement may not be terminated byHailiang Management, Beize Group or Mr. Feng, nor can it be terminated by Hailiang Consulting without cause. Unless terminated, the Second Amendedand Restated Call Option Agreement shall remain in full force and effect until Hailiang Management’s term of operations expires in April 2042. Second Amended and Restated Power of Attorney On February 23, 2018, Mr. Feng and Beize Group executed an irrevocable Second Amended and Restated Power of Attorney appointing HailiangConsulting, or any person designated by Hailiang Consulting, as their attorney-in-fact to (i) exercise on their behalf all their rights as shareholders ofHailiang Management, including those rights under PRC laws and regulations and the articles of association of Hailiang Management, such as appointing,replacing or removing directors, declaring dividends and making decisions on operational and financial matters, (ii) act as the representative of HailiangManagement in its business operations, and (iii) unconditionally assign the shareholder rights of each of Mr. Feng and Beize Group to Hailiang Consulting,including dividends or other benefits associated with being a shareholder that Mr. Feng and Beize Group each receives from Hailiang Management. Second Amended and Restated Consulting Services Agreement Pursuant to the Second Amended and Restated Consulting Services Agreement among Hailiang Consulting, Hailiang Management, Beize Group and Mr.Feng, entered into on February 23, 2018, Hailiang Consulting (or its controlled affiliate) has the exclusive right to provide comprehensive technical andbusiness support services to Hailiang Management’s affiliated entities. In particular, such services include developing curriculum, conducting marketresearch and offering strategic business advice, providing information technology services, providing public relations services, providing support for teacherhiring and training and providing other services that the affiliated entities may need from time to time. Without the prior written consent of HailiangConsulting, none of Hailiang Management’s affiliated entities may receive such services from any third party. Hailiang Consulting owns the exclusiveintellectual property rights created despite the changes of the performance of services under this Second Amended and Restated Consulting ServicesAgreement. Hailiang Management’s affiliated entities agree to pay annual service fees, calculated as a percentage of their total revenue, to HailiangConsulting (or its controlled affiliate). At the sole discretion of Hailiang Consulting, the service fees may be adjusted from time to time based on thecomplexity of the services provided, the time and resources committed by Hailiang Consulting (or its controlled affiliate) and the commercial value of theservices. The Second Amended and Restated Consulting Agreement enables Hailiang Consulting (or its controlled affiliate) to charge an annual service fee,the maximum of which equals the net income of Hailiang Management’s affiliated entities after deducting the mandatory development reserve fund and othernecessary costs prior to the payment of such service fees. As part of the Second Amended and Restated Consulting Agreement, Hailiang Management, BeizeGroup and Mr. Feng agree that each of them will not take any actions, such as incurring indebtedness, disposing of material assets, materially changing thescope or nature of the business of Hailiang Management’s affiliated entities, disposing of their equity interests in Management’s affiliated entities, or payingdividends to Mr. Feng or Beize Group without the written consent of Hailiang Consulting. The Second Amended and Restated Consulting Agreement maynot be terminated by Hailiang Management, Beize Group, or Mr. Feng, nor can it be terminated by Hailiang Consulting without cause. Unless terminated, theSecond Amended and Restated Consulting Agreement shall remain in full force and effect during the term of operations of Hailiang Management’s affiliatedentities. Second Amended and Restated Equity Pledge Agreement Pursuant to the Second Amended and Restated Equity Pledge Agreement among Hailiang Consulting, Beize Group, Mr. Feng and Hailiang Managemententered into on February 23, 2018, each of Mr. Feng and Beize Group unconditionally and irrevocably pledged all of their respective equity interests inHailiang Management to Hailiang Consulting to guarantee performance of the obligations of Hailiang Management’s affiliated entities under the SecondAmended and Restated Call Option Agreement, the Second Amended and Restated Power of Attorney, and the Second Amended and Restated ConsultingAgreement, each as described above. Beize Group and Mr. Feng each agreed that without prior written consent of Hailiang Consulting, they shall not transferor dispose of the pledged equity interests, commence any bankruptcy or liquidation process of Hailiang Management or create or allow any encumbrance onthe pledged equity interests. The Second Amended and Restated Equity Pledge Agreement may not be terminated by Hailiang Management, Beize Group orMr. Feng, nor can it be terminated by Hailiang Consulting without cause. Unless terminated, the Second Amended and Restated Equity Pledge Agreementremains in full force and effect until all of the obligations of Hailiang Management’s affiliated entities under the consulting services agreement have beenduly performed and related payments are duly paid. The pledge of equity interests in Hailiang Management by Mr. Feng and Beize Group has been dulyregistered with the local branch of SAIC and becomes effective upon such registration. 51Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. D. Property, Plant and Equipment Our principal executive offices are located at 1508 Binsheng RD, Binjiang District, Hangzhou City, Zhejiang Province, 310051, People’s Republic of China.We lease all real properties used by our schools, including approximately 833,000 square meters of the Hailiang Education Park, with a total combined grossfloor area and site area of approximately 0.80 million square meters, and approximately 1.10 million square meters from Hailiang Investment which iscontrolled by Mr. Feng, our controlling shareholder. In September 2015, Zhuji Hailiang Foreign Language School and selected programs from Tianma Experimental School and Hailiang Experimental HighSchool relocated to the Hailiang Education Park, which has a total site area of approximately 850,000 square meters and a gross floor area of approximately550,000 square meters. Tianma Experimental School’s and Hailiang Experimental High School’s remaining programs continue to operate on their existingrespective campuses. As of June 30, 2018, our affiliated schools operated in Hailiang Education Park are Hailiang Primary School, Hailiang Junior MiddleSchool, Hailiang Senior Middle School and Hailiang Foreign Language School. On November 18, 2015, the Company entered into a lease agreement withHailiang Investment regarding Hailiang Education Park. The term of the lease is for twenty years starting in September 2015, and the rental fee in the firstyear is RMB20.0 million (approximately US$3.0 million) and is subject to a 5% increase in the next three years. The rental fee commencing from the fifthyear is subject to further negotiation between the Company and Hailiang Investment. The lease covers the properties and facilities of Hailiang EducationPark with a total gross floor area and site area of approximately 550,000 square meters and 850,000 square meters, respectively. On December 29, 2017, theCompany entered into an agreement to terminate the property lease agreement between Hailiang Foreign Language School and Hailiang Investment datedNovember 18, 2015, effective as of December 29, 2017. On December 29, 2017, each of our 4 affiliated schools, namely Hailiang Primary School, Hailiang Junior Middle School, Hailiang Senior Middle School andHailiang Foreign Language School, entered into lease agreements with Hailiang Investment respectively regarding Hailiang Education Park. The term ofeach lease is for twenty years and the rental fee in the first year is RMB4.1 million, 4.1 million, 4.6 million and 8.6million respectively (approximatelyUS$0.6 million, US$0.6 million, US$0.7 million and US$1.3 million respectively) and is subject to a 5% increase in the next three years. The rental feecommencing from the fourth year is subject to further negotiation between the Company and Hailiang Investment. The lease covers the properties andfacilities of Hailiang Education Park with a total gross floor area and site area of approximately 540,000 square meters and 833,000 square meters,respectively. See “Item 4. Information on the Company—B. Business Overview—Our Schools and Programs—Hailiang Education Park.” Item 4A. UNRESOLVED STAFF COMMENTS None. Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidatedfinancial statements and their related notes included in this annual report on Form 20-F. This annual report on Form 20-F contains forward-lookingstatements. See “—G. Safe Harbor” in this Item. In evaluating our business, you should carefully consider the information provided under the caption “Item 3.Key Information—D. Risk Factors” in this annual report on Form 20-F. We caution you that our businesses and financial performance are subject tosubstantial risks and uncertainties. A. Operating Results Overview According to the Frost & Sullivan Report, Hailiang Education is the largest K-12 education and management service provider in China. As of June 30, 2018,we owned and sponsored 7 affiliated schools, and managed and operated 16 managed schools that were not owned or sponsored by us, with an aggregatenumber of 23 schools and 54,684 students across China. We have experienced significant growth in our business. Our total revenue increased by 30.5% toRMB853.3 million in the 2017 fiscal year and further increased by 37.0% to RMB1,169.3 million (approximately US$176.7 million) in the 2018 fiscal year.Our gross profits increased by 32.0% to RMB204.8 million in the 2017 fiscal year and further increased by 78.1% to RMB364.7 million (approximatelyUS$55.1 million) in the 2018 fiscal year. Our net profits increased by 68.7% to RMB167.7 million in the 2017 fiscal year and further increased by 37.7 % toRMB230.9 million (approximately US$34.9 million) in the 2018 fiscal year. In our affiliated schools, with the goal of providing distinguished, specialized, and internationalized education, we offer a broad range of basic andinternational education programs designed to facilitate students’ different characters, optimize their learning outcomes, and prepare them for highereducation overseas. For a list of our programs and curriculums, see “Item 4. Information on the Company — B. Business Overview – Basic EducationalProgram & International Program.” As of June 30, 2018, 22,110 students were enrolled in our schools. Our revenue from tuition fees increased by 28.2% toRMB 1,093.9 million (approximately US$165.3 million) in the 2018 fiscal year, representing 93.6% of total revenue. This increase in revenue was driven bya combination of an increase in the average tuition charged per student and an increase of students enrolled during the same periods. 52Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In particular, in line with our strategy to develop international education, we increased enrollment in our international program and raised the tuition feeaccordingly. Our total student enrollment in international program increased from an aggregate of 1,913 students for the fiscal year 2016, to an aggregate of2,825 students for the 2017 fiscal year and further to an aggregate of 3,860 students for the 2018 fiscal year. The tuition fee of our international program rosefrom an average of RMB63,962 for the 2016 fiscal year, to an average of RMB69,161 for the 2017 fiscal year and further to an average of RMB83,170(approximately US$12,569) for the 2018 fiscal year. We have increased the proportion of revenue derived from students enrolled in our international programfrom 18.7% of revenue in the 2016 fiscal year to 22.9% of revenue in the 2017 fiscal year, and 28.2% of revenue in the 2018 fiscal year. In the process of implementing our asset-light strategy, we expanded our services by providing education and management service to private and publicschools across China. In the second half of fiscal year 2018, we started providing management and operation services to 16 private schools in Zhejiang,Hubei and Jiang Xi provinces. The management service fees recognized from these 16 schools amounted to RMB12.3 million (approximately US$1.9million) in the 2018 fiscal year. The rest of revenue from management services amounted to RMB6.7 million (approximately US$1.0 million) for the yearended June 30, 2018, which was mainly derived from the operating support services for supermarkets owned by Ming Kang Hui Health Food Group Co., Ltd.(“Ming Kang Hui Supermarket”), a related party ultimately controlled by Mr. Feng. We believe that our successful expansion demonstrated our well-knownbrand reputation, outstanding educational management ability, strong potential to increase profitability and increase market penetration. In addition, between June 30, 2018 and the date of the annual report, we established one additional for-profit private school which we also own (ZhujiHailiang Foreign Language School Co., Ltd.), operated and managed additional seven schools not owned or sponsored by us, including two private schoolsnamely Jinhua Hailiang Foreign Language School and Feicheng Hailiang Foreign Language School, and five public schools namely Xiaoshan DistrictWenyan Primary School, Xiaoshan District Wenyan No. 2 Primary School, Xiaoshan District Wenyan Middle School, Hangzhou Chunhui Primary School,Hangzhou Xixing Middle School in Zhejiang province. Factors Affecting Our Results of Operations We believe that our results of operations are affected by general factors affecting China’s private K-12 education industry and company-specific factors,including the following: ·Demand for private K-12 education in China. We have benefited from an increasing demand for private K-12 education in China in the lastdecade. This increase was driven by the overall economic growth, the rise in household disposable income and household spending on education, aswell as an improvement in the education system and policies relating to K-12 education in China. According to the Frost & Sullivan Report, thetotal number of student enrollments of private K-12 education in China has increased steadily, from 33.1 million in 2013 to 42.7 million in 2017,and the proportion of student in private K-12 schools against the total number of students in K-12 schools also increased from 16.5% to 19.9%during the same period. We anticipate that the demand for private K-12 education in China will continue to grow which we expect will provide uswith significant opportunity to expand our business. ·Demand for an international education in the PRC market. The demand for international and bilingual private K-12 education in China isincreasing at a fast pace. According to the Frost & Sullivan Report, the total number of student enrollments of international and bilingual privateschools in China has increased from 83.9 thousand in 2013 to 160.5 thousand in 2017, realizing a fast increase with a CAGR of 17.6%. This quickgrowth can mainly be attributed to the strong demand of Chinese students wanting to study abroad, the rising income and wealth of Chinesehouseholds and the rising recognition of the quality of higher education overseas. As a result of the huge demand and increasing studentenrollments, the total revenue of international and bilingual private schools increased from RMB8.0 billion in 2015 to RMB12.5 billion in 2017 atan increase rate of 25.7%, and is expected to grow at 20.4% in the following five years (according to the Frost & Sullivan Report). With high-qualityteachers, well-known brand, and strong management team, we are determined to deliver well-designed curriculums and facilitate comprehensivedevelopment of our students. ·Ability to manage and operate schools. We aim to develop our asset-light strategy in diversified ways through providing education andmanagement service to both public and private schools. As of June 30, 2018, we entered into service agreements with 16 private schools, includingXiantao No. 1 Middle School, XinChang NanRui Experimental School and other 14 Baishu Schools to provide education and management service.For these services, we earn fees based on the types, scale and costs of the services provided. We expect to enter into cooperation arrangements withadditional public and private schools in the future to reach students across China and promote the Hailiang Education brand both domestically andinternationally, which we expect would then lead to an increase in our profitability and market penetration. ·Level of student enrollment. As of June 30, 2016, 2017 and 2018, we had a total of 18,673, 20,950 and 22,110 students, respectively. While weexpect the number of students to be relatively stable in the next two fiscal years, we plan to increase the proportion of students enrolled in ourinternational program because our international program charges a tuition fee that is significantly higher than that of our basic educational program.We have already begun making this transition. For example, the number of students enrolled in the international program increased from 1,913students as of June 30, 2016 to 2,825 students as of June 30, 2017 and 3,860 students as of June 30, 2018, with the proportion of our studentsenrolled in the international program increasing from 10.2% to 13.5% and 17.5% during the same period, respectively. We intend to continue togrow our international program to take advantage of the growing demand for international education. Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.·Pricing of educational programs. Our results of operations are affected by the pricing of our educational programs. We generally charge tuitionbased on a student’s education phase (primary, middle, high school) and whether the student attends our basic educational program or internationalprogram. Tuition includes boarding, school services and books. The tuition we may charge for some of our education programs is subject toregulatory restrictions. For example, the most recent ceiling on the amount of tuition and boarding expenses we can charge was set out by the Zhujibranch of the MOE in August 2016, which sets forth the maximum amounts of tuition and boarding expenses for the basic education program ofprimary school, middle school and high schools as RMB60,000 per student, RMB65,000 per student and RMB70,000 per student, respectively.There is currently no maximum amount set for our international program. Pursuant to the registration documents filed with local authorities for the2016/2017 school year, we are approved to charge RMB73,000 to RMB136,000 for our international program. The tuition limitation is reviewed bythe regulatory authority on a periodic basis. See “Item 4. Information on the Company–B. Business–Regulations on Private Education–The Law forPromoting Private Education (2016) and the Implementation Rules for the Law for Promoting Private Education (2004).” Subject to applicableregulatory requirements, we generally determine tuition based on the demand for our educational programs, the cost of our educational services andthe tuition and the fees charged by our competitors, and seek to increase tuition by approximately 5% to 15% each year. For example, in the 2016,2017 and 2018 fiscal years, the average tuition for primary, middle and high schools, including both our basic educational program and ourinternational program, was RMB35,027, RMB40,730 and RMB48,280 (approximately US$7,296), respectively. The increase was also due to agreater proportion of students enrolled in the international program which charges higher tuition. In the 2016, 2017 and 2018 fiscal years, tuitioncharged for students in our international program was approximately twice as high as tuition charged for students in our basic educational program.The increase of average tuition fee was also driven by the raise in pricing for both basic and international programs. 53Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·Ability to control costs and expenses. Our ability to maintain and increase profitability also depends on our ability to effectively control our costsand expenses. Cost of revenue. Our cost of revenue mainly consists of labor cost, student-related costs, depreciation expenses and to a lesser extent, transportationcosts, utility costs and leasing fees. Our cost of revenue as a percentage of our total revenue was 76.3 %, 76.0% and 68.8% for fiscal years 2016,2017 and 2018, respectively. In the near future, we expect our cost of revenue to increase as we will continue to hire additional teachers to supportour growing international program. Selling expenses and administrative expenses. For the 2016, 2017 and 2018 fiscal years, our total selling expenses and administrative expenses as apercentage of our total revenue were 8.1%, 5.9%, and 7.5% respectively. We expect our expenses will also increase as we incur additional expensesassociated with our overall growth. We expect, however, that we will benefit from economies of scale as we continue to grow our business andincrease our student base, so we expect our total selling expenses and administrative expenses as a percentage of our total revenue to decrease. Overview of Financial Results We evaluate our business using a variety of key financial measures. Revenue During the fiscal year ended June 30, 2016, 2017 and 2018, we generated net revenue of RMB654.1 million, RMB853.3 million and RMB1,169.3 million(approximately US$176.7 million), respectively. Net revenue was derived from the following sources: K-12 educational services, which accounted for 100%, 100% and 93.6% of total net revenue in the fiscal year 2016, 2017 and 2018; Management services, which accounted for nil, nil and 1.6% of total net revenue in the fiscal year 2016, 2017 and 2018; Others, which accounted for nil, nil and 4.8% of total net revenue in the fiscal year 2016, 2017 and 2018. Other services include educational trainingservices, overseas study consulting services and hotel management. The following table sets forth the sources of our revenue by amount and as a percentage of total revenue for the periods indicated: Year Ended June 30, 2016 2017 2018 RMB (inthousands) % ofrevenue RMB (inthousands) % ofrevenue RMB (inthousands) US$ (inthousands) % ofrevenue K-12 educational services 654,060 100.0 853,295 100.0 1,093,933 165,319 93.6 Management services — — — — 19,021 2,875 1.6 Others — — — — 56,394 8,522 4.8 Total revenue 654,060 100.0 853,295 100.0 1,169,348 176,716 100.0 Revenue from K-12 educational services represents tuition charged to our students. Tuition includes charges for enrollment in our academic programs, whichvary based on grade levels and whether the student attends our basic educational program or our international program, as well as charges in relation to after-school enrichment program, accommodations, meals and transportation services. Tuition increased during the fiscal years 2016, 2017 and 2018 primarily due to increases in pricing of our educational programs, especially the internationalprogram, and, to a lesser extent, the level of student enrollment. We expect our revenue to continue to increase going forward, reflecting our plan to continueto increase tuition at an annual rate of 5% to 15%, and our efforts to increase our student enrollment especially for international program. Our internationalprogram has expanded to include a variety of different program, including A-level courses, preparation courses designed for the U.S. SAT examinations,Australia’s dual-diploma VCE programs, and Chinese language and cultural programs for non-Chinese students. Tuition fees are paid in two installments for newly enrolled students. When new students sign up for enrollment in the following academic year, we generallyrequire a tuition deposit of approximately RMB2,000 for our basic education program and RMB5,000 for international education program, with theremainder of the tuition fee to be remitted in August or September, both prior to the commencement of the academic year. We generally do not refund thetuition deposit unless a student cannot enroll due to restrictions imposed by the regulatory authority pursuant to applicable laws and regulations. 54Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following tables compare revenue generated from our basic educational program and our international program and as a percentage of total revenuegenerated from K-12 educational services for the periods indicated, as well as the number of students and average tuition. Average tuition is calculated by thetotal revenue derived from a particular program or grade level divided by the total number of students enrolled in that program for a particular academic year.Our basic educational program offers curricula and coursework mandated by the PRC regulatory authorities. Our international program also offers curriculamandated by the PRC regulatory authorities and in addition provides curricula with a focus on preparing students to study abroad. Tuition for ourinternational program covers tuition for basic education classes, language classes and special international classes. The higher tuition charged for ourinternational program reflects the higher cost of certain course materials, the need to hire foreign teachers with higher salaries and a higher teacher to studentratio in our international program. The following table sets forth revenue generated from each program, both in absolute amount and as a percentage of total revenue from K-12 educationalservices for the years indicated: 2016 Year Ended June 30,2017 2018 Revenue(inRMBthousands) % ofrevenue Students AverageTuition(inRMB) Revenue(inRMBthousands) % ofrevenue Students AverageTuition(inRMB) Revenue*(inRMBthousands) Revenue*(inUSDthousands) % ofRevenue Students* AverageTuition(inRMB) Basiceducationalprogram 531,702 81.3% 16,760 31,724 657,915 77.1% 18,125 36,299 764,165 115,483 69.9% 18,693 40,880 Internationalprogram 122,358 18.7% 1,913 63,962 195,380 22.9% 2,825 69,161 329,768 49,836 30.1% 3,965 83,170 Total 654,060 100.0% 18,673 35,027 853,295 100.0% 20,950 40,730 1,093,933 165,319 100.0% 22,658 48,280 * Hailiang International kindergarten and Tianma Kindergarten were carved out from the Group in February, 2018. To keep the consistency of presentation,548 students at the kindergarten level, 443 students enrolled in basic program and 105 students enrolled in international program are included in the numberof students respectively. The related revenue derived from basic program and international program at the kindergarten level as of February 2018 wasincluded as well, representing RMB9.1 million (approximately US$1.4 million) and RMB3.7 million (approximately US$0.6 million), respectively. Revenue from our basic educational program increased by RMB126.2 million, or 23.7% from the 2016 fiscal year to 2017 fiscal year, and further increasedby RMB106.3 million (approximately US$16.1 million), or 16.1% from the 2017 fiscal year to 2018 fiscal year. This was driven primarily by an increase inthe average tuition charged per student during the same periods. In addition, revenue derived from tuition of students enrolled in our international programcompared to our total revenue increased by RMB73.0 million or 59.7% from the 2016 fiscal year to 2017 fiscal year, and further increased by RMB134.4million (approximately US$20.3 million), or 68.8% to 2018 fiscal year. This was mainly due to an increase in the number of students enrolled in ourinternational program as well as an increase in the average tuition charged in our international program. The following table sets forth revenue generated at the kindergarten, primary, middle and high school levels as well as the number of students and averagetuition. The table includes both our basic educational program and our international program. 2016 Year Ended June 30,2017 2018 Revenue(inRMBthousands) % ofrevenue Students AverageTuition(inRMB) Revenue(inRMBthousands) % ofrevenue Students AverageTuition(inRMB) Revenue(inRMBthousands) Revenue(inUSDthousands) % ofrevenue Students AverageTuition(inRMB) Kindergarten* 9,896 1.5% 423 23,394 14,689 1.7% 510 28,802 12,761 1,929 1.2% 548 23,286 Primary school 163,826 25.0% 4,539 36,093 194,154 22.8% 4,798 40,466 252,688 38,187 23.1% 5,320 47,498 Middle school 168,060 25.7% 5,008 33,558 242,176 28.4% 6,200 39,061 334,841 50,602 30.6% 6,905 48,493 High school 312,278 47.8% 8,703 35,882 402,276 47.1% 9,442 42,605 493,643 74,601 45.1% 9,885 49,939 Total 654,060 100.0% 18,673 35,027 853,295 100.0% 20,950 40,730 1,093,933 165,319 100.0% 22,658 48,280 *The number of students and related revenue at the kindergarten level is as of February 28, 2018. Since then, the Company does not offer kindergartenprograms. Management services mainly represent the provision of services including but not limited to logistic, management and consulting services. During the 2018fiscal year, most of the revenue from management services was derived from the services provided to the 16 managed schools. Pursuant to our asset-lightstrategy, we expanded our business to provide management services to private and public schools across the Southeast coast of China. On November 8, 2017,we entered into a Strategic Cooperation Agreement (the “Agreement”) with our related parties, Hailiang Group and Hailiang Investment. Pursuant to theAgreement, we have a right of first refusal to provide education and management services for schools owned, acquired and operated by Hailiang Group orHailiang Investment. During the year ended June 30, 2018, we provided various management services including logistics, catering, consulting to 14 BaishuSchools, Hubei Xiantao No.1 Middle School and Zhejiang Xinchang Nanrui Experimental School, which were acquired by Hailiang Investment.Management service fees derived from the above mentioned 16 managed schools was RMB12.3 million (approximately US$1.9 million) in the 2018 fiscalyear. The rest of revenue from management services amounted to RMB6.7 million (approximately US$1.0 million) for the year ended June 30, 2018, whichwas mainly derived from operating support services for Ming Kang Hui super markets. We expect to enter into more services agreements where we willprovide education and management services to various private and public schools and cooperate with local governments, in line with our asset-light strategy. 55Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Other revenue mainly represents revenue derived from the provision of educational training services, overseas study consulting services and hotelmanagement, amounting to RMB56.4 million (approximately US$8.5 million) in total during the year ended June 30, 2018. Cost of Revenue Our cost of revenue primarily consists of labor costs, which are compensation to our teachers and educational staff, student-related costs, depreciationexpenses and, to a lesser extent, transportation, utility and lease payment for our schools. For the years ended June 30, 2016 and 2017, RMB0.9 million andRMB3.4 million of depreciation cost, lease fee and information service fee have been reclassified from cost to administrative expenses, and RMB2.7 millionand RMB6.1 million of maintenance fees have been reclassified from administrative expenses to cost to conform to current year presentation. Our cost ofrevenue increased from the 2016 fiscal year to the 2017 fiscal year and further to the 2018 fiscal year; this was primarily due to an increase in labor costsresulting from an increase in the total number of our teachers and educational staff and a general increase in our compensation levels, an increase in student-related costs resulting from the increase in the number of students enrolled and the increased cost of our student canteen service. Furthermore, our study tripbusiness and study abroad consulting business newly launched in the 2018 fiscal year resulted in an increase of other costs. We expect our cost of revenue toincrease in line with our increase in revenue, driven in large part by a planned increase in the number of teachers to support our growing internationalprogram. The following table sets forth the components of our cost of revenue by amount and as a percentage of total revenue for the periods indicated: Year Ended June 30, 2016 2017 2018 RMB (inthousands) % ofrevenue RMB (inthousands) % ofrevenue RMB (inthousands) US$ (inthousands) % ofrevenue Cost of Revenue: Labor costs 239,170 36.6 305,214 35.8 407,053 61,515 34.8 Student-related costs 100,633 15.4 116,273 13.6 133,308 20,146 11.4 Transportation 24,729 3.8 31,823 3.7 35,447 5,357 3.0 Depreciation 64,642 9.9 109,755 12.9 112,039 16,932 9.6 Utilities 19,652 3.0 23,286 2.7 25,783 3,896 2.2 Lease fee 25,114 3.8 29,432 3.5 31,041 4,691 2.7 Other costs 25,004 3.8 32,699 3.8 60,003 9,068 5.1 Total cost of revenue 498,944 76.3 648,482 76.0 804,674 121,605 68.8 Operating Expenses Our operating expenses consist of selling expenses, administrative expenses and disposal loss of leasehold improvements. The following table sets forth the components of our operating expenses in absolute amount and as a percentage of revenue for the periods indicated. Year Ended June 30, 2016 2017 2018 RMB (inthousands) % ofrevenue RMB (inthousands) % ofrevenue RMB (inthousands) US$ (inthousands) % ofrevenue Operating Expenses Selling expenses 16,753 2.6 21,902 2.6 24,539 3,708 2.1 Administrative expenses 36,153 5.5 28,385 3.3 63,374 9,577 5.4 Disposal loss of leasehold improvement 10,286 1.6 — — — — — Total operating expenses 63,192 9.7 50,287 5.9 87,913 13,285 7.5 Selling expenses Our selling expenses consist of advertisement expenses, recruiting expenses and amortization related to intangible assets. Our overall selling expenseincreased from 2016 fiscal year to the 2017 fiscal year and further to 2018 fiscal year. Our overall selling expenses in the 2018 fiscal year increased by 12.0%primarily due to the increase in recruiting expenses as we have increased student enrollment rewards on recruitment to attract outstanding students. Weanticipate that our overall selling expenses may increase steadily in the near future to build our brand name and keep our outstanding academic performance,and therefore, attract growing student enrollment. Administrative expenses Our administrative expenses consist primarily of salary for our office and administrative staff and consulting fee. Our administrative expenses also include, toa lesser extent, office expenses and other miscellaneous fees. Our overall administrative expenses in the 2018 fiscal year increased by 123.3% primarily dueto (i) the increase in labor cost resulting from an increase in the total number and compensation level of our office and administrative staff; (ii) increase inprofessional service fees; (iii) increase in other general operational expenses generated from newly established subsidiaries and affiliated entities. Our overalladministrative expenses in the 2017 fiscal year decreased by RMB7.8 million or 21.5% which was primary due to the reversal of over accrued legal fee in2016 fiscal year amounting to RMB4.0 million in the 2017 fiscal year. If the legal fees had been recorded in the correct periods, our overall administrativeexpenses in the 2017 fiscal year would have remained stable compared to the 2016 fiscal year. We expect that our overall administrative expenses willremain relatively stable in the near future. 56Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Disposal loss of leasehold improvement In September 2015, Zhuji Hailiang Foreign Language School and selected programs from Tianma Experimental School and Hailiang Experimental HighSchool relocated to the Hailiang Education Park. As a result, in the year ended June 30, 2016 we incurred a loss on the disposal loss of leaseholdimprovements for the aforementioned programs incurred. Other Income, Net Other income consists of government grants and other miscellaneous income. Government grants are amounts provided by the local government on anunconditional basis and are awarded at the discretion of the local government based on certain criteria in relation to our high school operations, such as thenumber of students participating in the Gaokao examination, test results and student performance. Other miscellaneous income primarily consists of non-operating expense and income from disposal of property and equipment. Other income decreased by RMB2.6 million (approximately US$0.4million) compared with the fiscal year 2017 primarily due to the increase of one-time extraordinary expenses and disposal fixed assets in the 2018 fiscal year.Other income increased by RMB4.8 million from the 2016 fiscal year to the 2017 fiscal year, mainly due to the increase of government grants we received. The following table sets forth the components of income derived from the aforementioned sources in absolute amount and as a percentage of revenue for theperiods indicated. Year Ended June 30, 2016 2017 2018 RMB (inthousands) % ofrevenue RMB (inthousands) % ofrevenue RMB (inthousands) US$ (inthousands) % ofrevenue Other income, net Government grants 1,434 0.2 6,253 0.7 5,832 881 0.5 Others 322 0.1 72 0.1 (2,143) (324) (0.2)Total other income, net 1,756 0.3 6,325 0.8 3,689 557 0.3 Gain on Disposal of Affiliated Entities In February 2018, we transferred all the sponsorship and 100% equity interest in our kindergartens to Hangzhou Hailiang Preschool Education Group Co.,Ltd and its wholly controlled subsidiary, which entities are controlled by Hailiang Group, and recognized RMB3.2 million (approximately US$0.5 million)and RMB1.7 million (approximately US$0.2 million) from a gain on the disposal of Hailiang Kindergarten and the kindergarten business of TianmaExperimental, respectively. In June 2018, we entered into a Change of Operator Agreement with Chuzhou Zhengxu Education Information Consulting Co., Ltd. and transferred thesponsorship and 100% equity interest in Chuzhou School to Chuzhou Zhengxu Education Information Consulting Co., Ltd., a wholly owned subsidiary ofHailiang Group, and recognized a RMB0.4 million (approximately US$0.1 million) gain on the disposal of Chuzhou School. Net Finance Income Our net finance income is related to interest income derived from deposits placed with a related party finance entity. See “Item 7. Major Shareholders andRelated Party Transactions—B. Related Party Transactions—Transactions with Certain Related Parties”. Net finance income increased by 19.8% in 2017fiscal year primarily due to the increase in the amount of fund we deposited with the related party. Net finance income increased by 65.3% in 2018 fiscal yearprimarily due to the increase in the amount of fund we deposited with the related party. Net finance income was 0.9%, 0.8%, and 1.0% of our total revenue inthe 2016, 2017 and 2018 fiscal years, respectively. Taxation Cayman Islands We are an exempted company incorporated in the Cayman Islands and conduct our primary business operations through our subsidiaries and affiliatedentities in the PRC. We also have a wholly-owned subsidiary in Hong Kong. Under the current laws of the Cayman Islands, upon payments of dividends toour shareholders, no Cayman Islands withholding tax will be imposed. The Cayman Islands currently has no exchange control restrictions. The Cayman Islands currently levies no taxes on individuals or corporations based uponprofits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material tous levied by the government of the Cayman Islands, save certain stamp duties which may be applicable, from time to time, on certain instruments executed inor brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not a party to any double tax treaties. 57Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Pursuant to section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor in Cabinet: (a)that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us orour operations; and (b)in addition, that no tax levied on profits, income, gains or appreciation or no tax which is in the nature of estate duty or inheritance tax shall bepayable by us: (i)on or in respect of the shares, debentures or our other obligations; or (ii)by way of withholding in whole or in part of any relevant payment as defined in section 6(3) of the Tax Concession Law (2011 Revision). The undertaking is for a period of 20 years from January 27, 2015. Hong Kong and China Under Hong Kong tax laws, the statutory income tax rate is 16.5%. Subsidiaries in Hong Kong are exempted from income tax on their foreign-derived incomeand there are no withholding taxes in Hong Kong on remittance of dividends. Under the New EIT Law, domestic enterprises and foreign investment enterprises, or FIE, are subject to a unified 25% enterprise income tax rate, except forcertain entities that are entitled to tax holidays or exemptions. According to the Implementation Rules for the Law for Promoting Private Education in 2004,or the 2004 Implementing Rules, private schools, whether requiring reasonable returns or not, may enjoy preferential tax treatment. The 2004 ImplementingRules provide that the relevant authorities under the State Council may introduce preferential tax treatments and related policies applicable to privateschools requiring reasonable returns. For the years ended June 30, 2016, 2017 and 2018, our affiliated schools have historically benefited from the corporateincome exemption treatment from the date of their respective establishments. As confirmed by local tax authorities, the schools we currently sponsor are exempt from income taxes for the years ended June 30, 2016, 2017 and 2018. According to the 2016 Private Education Law effective as of September 1, 2017, private schools, whether non-profit or for-profit, may enjoy preferential taxtreatment, and non-profit private schools will be entitled to similar tax benefits as public schools. However, taxation policies for for-profit private schools arestill unclear as more specific provisions are yet to be introduced. As of June 30, 2018, our affiliated schools that we sponsor had not elected to change or re-register their statuses. As such, we are not able to determine the overall taxation impact of the 2016 Private Education Law on our net revenues andprofitability in future fiscal years. For the year ended June 30, 2018, our subsidiaries and consolidated affiliated companies in PRC, which mainly provide logistic services, management andconsulting services, educational training services, after-school enrichment program and overseas study consulting services are subject to a unified 25%enterprise income tax rate. As the abovementioned business has been operated since the fiscal year of 2018, no income tax expense was recognized for theyears ended June 30, 2016 and 2017, and current income tax expenses of RMB66.3 million (approximately US$10.0 million) was recognized for the yearended June 30, 2018. As at June 30, 2018, we had unused tax loss of RMB2.5 million available for offset against future taxable profits, which will begin to expire as of June 30,2019. No deferred tax assets have been recognized in respect of such tax losses due to the unpredictability of future taxable profit streams. Under the New EIT Law, dividends paid by an FIE to any of its foreign non-resident enterprise investors are subject to a 10% withholding tax. Thus, thedividends, if and when payable by our PRC subsidiaries to its offshore parent entities, would be subject to a 10% withholding tax. A lower tax rate will beapplied if such foreign non-resident enterprise investor’s jurisdiction of incorporation has signed a tax treaty or arrangement for the avoidance of doubletaxation and the prevention of fiscal evasion with respect to taxes on income with China. There is such a tax arrangement between the PRC and Hong Kong.Thus, the dividends, if and when payable by our PRC subsidiary to the offshore parent entity located in Hong Kong, would be subject to a 5% withholdingtax rather than the statutory rate of 10%, provided that the offshore entities located in Hong Kong meet the requirements stipulated by relevant PRC taxregulations. Furthermore, pursuant to the applicable circular and interpretations of the New EIT Law, dividends from earnings created prior to 2008 butdistributed after 2008 are not subject to withholding income tax. We have not provided for deferred income tax liabilities on the PRC entities’ undistributedearnings of RMB789.7 million and RMB1,032.0 million (approximately US$156.0 million) as of June 30, 2017 and 2018, respectively, because we controlthe timing of the undistributed earnings and it is probable that the earnings will not be distributed. We plan to reinvest those earnings in the PRC indefinitelyin the foreseeable future. Critical Accounting Policies, Estimates and Judgments We prepare our consolidated financial statements in accordance with IFRSs as issued by the IASB, which requires us to make judgments, estimates andassumptions that affect: (i) the reported amounts of our assets and liabilities, (ii) the disclosure of our contingent assets and liabilities at the end of eachreporting period, and (iii) the reported amounts of revenue and expenses during each reporting period. Significant items subject to such estimates andassumptions include the useful lives and the recoverability of the carrying amounts of property and equipment and intangible assets (including goodwill),the collectability of other receivables and term deposits placed with a related party finance entity, and the assessment of contingent liabilities and incometax. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain andunpredictable. Actual results may differ from those estimates. Information about assumptions and estimation uncertainties that have a significant risk ofresulting in a material adjustment within the next financial year are included in Note 2 to the financial statements included in this annual report on Form 20-F. 58Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We continually evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, ourexpectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments aboutmatters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actualresults could differ from those estimates. We believe that any reasonable deviation from those judgments and estimates would not have a material impact on our financial condition or results ofoperations. To the extent that the estimates used differ from actual results, however, adjustments to the statement of comprehensive income andcorresponding statement of financial condition accounts would be necessary. These adjustments would be made in future financial statements. When reading our financial statements, you should consider (i) our critical accounting policies, (ii) the judgment and other uncertainties affecting theapplication of such policies, and (iii) the sensitivity of reported results to changes in conditions and assumptions. We believe the following accountingpolicies involve the most significant judgment and estimates used in the preparation of our financial statements. We have not made any material changes inthe methodology used in these accounting policies during the past two years. Consolidation We have, through Hailiang Consulting, entered into a series of contractual arrangements with our affiliated entities. Although we do not have any equityinterest in our affiliated entities, we control our affiliated entities as a result of these contractual arrangements. We have consolidated the results of ouraffiliated entities in our consolidated financial statements included elsewhere in this annual report on Form 20-F in accordance with IFRSs. Revenue Recognition We recognize revenue when persuasive evidence of an arrangement exists, delivery of the goods or services has occurred, the sales price reflects theconsideration to which we expect to be entitled in exchange for those goods or services. The primary sources of our revenues are as follows: Educational programs and services We derive revenue principally from the rendering of educational services to students which include boarding services. We offer our basic educationalprogram and international program at primary school, middle school and high school levels. Our basic educational program offers curricula and courseworkmandated by the PRC regulatory authorities. Our international program prepares our students to earn their PRC school diplomas and for admissions tooverseas educational institutions. We receive tuition fees at the beginning of each school year. Each school year is comprised of two semesters. The first semester starts in September and endsin January. The second semester starts the following month in February and ends in June. Tuition fees contain multiple components consisting of the delivery of education, after-school enrichment program, accommodations, meals andtransportation services, or educational services and delivery of educational books and related materials, or education materials. We allocate the total tuitionfees into educational services and educational materials based on their relative fair value. The components within education services were not furtherseparated since revenue recognition for these components occurs at the same time and these components belong to the same category of revenue, which isservice revenue. Revenue attributable to educational services is recognized on a straight-line basis over the school year since the services are performed by an indeterminatenumber of acts over a specified period of time and there is no evidence that some other method better represents the stage of completion. Revenueattributable to educational materials is recognized upon the delivery of the products to the students, which is when the risks and rewards have beentransferred to the students. Tuition fees not yet earned are recorded as deferred revenue. For the periods presented, revenue recognized for the delivery of educational materials was insignificant and occurred during the same year that revenue forthe delivery of education services was recognized. Management services We also provide education and management services to schools, including but not limited to logistic, management and consulting services. We recognizerevenue upon the delivery of service. Others We mainly include others of revenues derived from educational training services, overseas study consulting services and hotel management. Educational training services. We provide various extracurricular courses to arouse students’ interest and broaden their both academic and nonacademicoutlook. We generally collect tuition in advance and initially record it as deferred revenue. Revenue derived from providing educational training services isrecognized on a straight-line basis over the period of the courses. 59Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Overseas study consulting services. It represents revenue from the provision of study trip and consulting services for overseas studies. We recognize revenueupon the delivery progress of services. Hotel management. We provide accommodation service for students’ parents, visitors, and event participants to our education park, and recognize revenuewhen the service is provided to customers. Impairment of non-financial assets, including goodwill and trademark with indefinite useful lives The carrying amounts of our non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any suchindication exists, then the asset’s recoverable amount is estimated. Goodwill and indefinite-lived intangible assets are tested annually for impairment. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largelyindependent of the cash inflows of other assets or cash-generating units, or CGUs. Goodwill arising from a business combination is allocated to CGUs (cash-generating units) or groups of CGUs that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or a CGU is the greater of its value in use and fair value less costs to sell. In assessing value in use, the estimated futurecash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risksspecific to the asset or CGU. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuinguse that are largely independent of the cash inflows of other assets or CGUs. Goodwill acquired in a business combination is allocated to groups of CGUs thatare expected to benefit from the synergies of the combination. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds itsestimated recoverable amount. Impairment losses are recognized in profit or loss. An impairment loss in respect of goodwill is not reversed. In respect of other non-financial assets, impairment losses recognized in prior periods are assessedat each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in theestimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed thecarrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Our trademark and goodwill arose from the acquisition of Tianma Experimental School on July 1, 2009. Mr. Feng and Mr. Meng acquired 80% and 20% ofthe registered capital equity interest in Tianma Experimental School for a total cash consideration of RMB114.0 million. The goodwill recognized on theacquisition is mainly attributable to the synergies expected to be achieved from integrating Tianma Experimental School into our existing business. For the purpose of impairment testing, goodwill and trademark are allocated to a group of CGUs which represents the lowest level within our group at whichthe goodwill and trademark are monitored for internal management purpose. The recoverable amount of goodwill is estimated based on discounted cashflows forecast, which is based upon a combination of long term trends, industry forecasts and in house estimates. For the purpose of impairment testing, the carrying amounts of goodwill and trademark are allocated to Tianma Experimental School, which is the lowestlevel for which the assets are monitored for internal management purpose. The aggregated carrying amounts of goodwill and trademark are as follows: Year Ended June 30, 2016 2017 2018 RMB RMB RMB US$ Goodwill 62,046 62,046 61,640 9,315 Trademark 16,540 16,540 16,540 2,500 Total 78,586 78,586 78,180 11,815 The recoverable amount of this CGU was based on fair value less costs of disposal, which was estimated using discounted cash flow projections. The fairvalue measurement was categorized as a Level 3 fair value based on the inputs in the valuation technique used. The key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key assumptions representedmanagement’s assessment of future trend in the relevant industry and were based on historical data from both external and internal sources. Year Ended June 30, 2016 2017 2018 Discount rate 24% 24% 15%Terminal value growth rate 3% 3% 3% The discount rate was a post-tax measure estimated based on the historical industry average weighted-average cost of capital, with a possible debt leveragingof 0%. The cash flow projections included the following specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate wasdetermined based on management’s estimate, consistent with the assumption that a market participant would make. ·Revenue growth was projected considering the average growth levels experienced over the past five years and the estimated student headcount andtuition growth for the next five years. It was assumed that tuition would increase in line with forecast inflation over the next five years. 60Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·Growth of cost of sales, selling expenses and administrative expenses were projected considering inflation and estimated student headcount for thenext five years. The estimated recoverable amount of the CGU exceeded its carrying amount as of June 30, 2016, 2017 and 2018, respectively. The recoverable amount of trademark is determined using the relief from royalty method, which was based on post-tax cash flow projections for five yearsbased on financial budgets approved by management, including royalty rate of 3%, terminal growth rate of 3% and the applicable discount rate of 15%.Management determined expected growth rates and operating results based on past performance and its expectations in relation to market developments. Thediscount rate used is post-tax and reflects specific risks relating to us. Based on management’s assessment results, there was no impairment of goodwill and trademark as of June 30, 2016, 2017 and 2018, and no reasonablechange to the assumptions would lead to an impairment charge. Results of Operations Year Ended June 30, 2016 2017 2018 RMB (inthousands) % ofrevenue RMB (inthousands) % ofrevenue RMB (inthousands) US$ (inthousands) % ofrevenue Revenue 654,060 100.0 853,295 100.0 1,169,348 176,716 100.0 Cost of revenue (498,944) (76.3) (648,482) (76.0) (804,674) (121,605) (68.8)Gross profit 155,116 23.7 204,813 24.0 364,674 55,111 31.2 Other income, net 1,756 0.3 6,325 0.8 3,689 557 0.3 Selling expenses (16,753) (2.6) (21,902) (2.6) (24,539) (3,708) (2.1)Administrative expenses (36,153) (5.5) (28,385) (3.3) (63,374) (9,577) (5.4)Disposal loss of leasehold improvement (10,286) (1.6) — — — — — Operating profit 93,680 14.3 160,851 18.9 280,450 42,383 24.0 Gain on disposal of affiliated entities — — — 5,349 808 0.4 Net finance income 5,752 0.9 6,892 0.8 11,391 1,721 1.0 Profit before tax 99,432 15.2 167,743 19.7 297,190 44,912 25.4 Income tax expenses — — — — (66,288) (10,018) (5.7)Profit 99,432 15.2 167,743 19.7 230,902 34,894 19.7 Total comprehensive income 107,869 16.5 169,945 19.9 228,360 34,510 19.5 Year Ended June 30, 2017 Compared to Year Ended June 30, 2018 Revenue Our revenue increased by 37.0% from RMB853.3 million in the 2017 fiscal year to RMB1,169.3 million (approximately US$176.7 million) in fiscal year2018, primarily due to the following aspects: K-12 educational services. Our revenue from K-12 educational services increased by 28.2% from RMB853.3 million in the 2017 fiscal year to RMB1,093.9million (approximately US$165.3 million) in the 2018 fiscal year. The increase was mainly due to a 18.5% increase of the average tuition fees from RMB40,730 to RMB48,280 (approximately US$7,296) and a 5.5% increase in the total number of enrolled students from 20,950 as of June 30, 2017 to 22,110 asof June 30, 2018. Our revenue increase was also attributable to having a greater proportion of our students enrolled in our international program whichcharges higher tuition than our basic educational program. Between the 2017 and 2018 fiscal years, the percentage of students enrolled in internationalprogram increased from 13.5% to 17.5%. Management services. Our revenue from management services increased by 100% from nil in the 2017 fiscal year to RMB19.0 million (approximatelyUS$2.9 million) in the 2018 fiscal year, mainly due to the provision of various management services including logistic service, catering service, consultingservice for schools acquired by Hailiang Investment. Others. Other revenue increased by 100% from nil in the 2017 fiscal year to RMB56.4 million (approximately US$8.5 million) in the 2018 fiscal year. Theincrease was mainly due to the provision of educational training and overseas study consulting services. Cost of revenue Our cost of revenue increased by 24.1% from RMB648.5 million in the 2017 fiscal year to RMB804.7 million (approximately US$121.6 million) in the 2018fiscal year. The increase in cost of revenue was primarily due to a) a 33.4% increase in labor costs due to (i) an increase in the total number of our teachers andeducational staff, and (ii) a general increase in our employees’ compensation levels; b) a 14.7% increase in student-related costs, primarily due to the increasein the number of students enrolled and the increased cost of our student canteen service; c) a 83.5% increase in other costs, primarily due to the launch ofstudy trip business and study abroad consulting service business in the 2018 fiscal year. 61Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Gross profit As a result of the foregoing, our gross profit increased by 78.1% from RMB204.8 million in the 2017 fiscal year to RMB364.7 million (approximatelyUS$55.1 million) in the 2018 fiscal year. Our gross margin was 24.0% in the 2017 fiscal year, compared to 31.2% in the 2018 fiscal year. Other income, net Other income decreased by 41.7% from RMB6.3 million in the 2017 fiscal year to RMB3.7 million (approximately US$0.6 million). Gain on disposal of affiliated entities On February 28, 2018, we entered into agreements with Hailiang Preschool Education Group Co., Ltd, and transferred Tianma Kindergarten and thesponsorship and the entire equity interest in Hailiang Kindergarten. The consideration for disposing of Tianma Kindergarten and Hailiang Kindergarten wasRMB1.7 million (approximately US$0.3 million) and RMB20.0 million (approximately US$3.0 million), respectively. On the disposal date, the carryingamount of the net liabilities of Tianma Kindergarten was RMB17 thousand (approximately US$2.6 thousand), and the carrying amount of the net assets ofHailiang Kindergarten was RMB16.8 million (approximately US$2.5 million). The Group recognized a gain of RMB1.7 million (approximately US$ 0.2million) and RMB3.2 million (approximately US$0.5 million) on the disposal of Tianma Kindergarten and Hailiang Kindergarten, respectively. In June, 2018, Hailiang Management entered into a Change of Operator Agreement with Chuzhou Zhengxu Education Information Consulting Co., Ltd. andtransferred the sponsorship and 100% equity interest in Chuzhou School to Chuzhou Zhengxu Education Information Consulting Co., Ltd., a wholly ownedsubsidiary of Hailiang Group. The consideration was RMB 1.8 million (approximately US$0.3 million), and the carrying amount of its net assets was RMB1.4 million (approximately US$0.2 million) on disposal date. The Company recognized a gain of RMB 0.4 million (approximately US$0.1 million) on thedisposal. These transactions were not strategic shifts in our business and will not have major impact on the Group’s business, therefore the transactions were notqualified as discontinued operation. Operating expenses Our operating expenses increased by 74.8% from RMB50.3 million in the 2017 fiscal year to RMB87.9 million (approximately US$13.3 million) in 2018fiscal year. The increase was primarily due to the following reasons: ·Selling expenses. Our selling expenses increased by 12.0% from RMB21.9 million in the 2017 fiscal year to RMB24.5 million (approximatelyUS$3.7 million) in the 2018 fiscal year. The increase was primarily due to increased student enrollment rewards on recruitment. ·Administrative expenses. Our administrative expenses increased by 123.3% from RMB28.4 million in the 2017 fiscal year to RMB63.4 million(approximately US$9.6 million) in the 2018 fiscal year. The increase was primary due to (i) an increase in labor cost due to an increase in the totalnumber and compensation level of our office and administrative staff; (ii) an increase in professional service fees; (iii) an increase in other generaloperational expenses generated from newly established subsidiaries. ·Disposal loss of leasehold improvement. In September 2015, Zhuji Hailiang Foreign Language School and selected programs from TianmaExperimental School and Hailiang Experimental High School relocated to the Hailiang Education Park. As a result, disposal loss of leaseholdimprovement for the aforementioned programs amounting to RMB10.3 million incurred in the year ended June 30, 2016. Net finance income Our net finance income increased by 65.3% from RMB6.9 million in the 2017 fiscal year to RMB11.4 million (approximately US$1.7 million). This increasewas primarily due to an increase in interest income caused by more funds deposited with the related party in the 2018 fiscal year compared to the 2017 fiscalyear. Income tax expenses We had nil and RMB66.3 million income tax expenses (approximately US$10.0 million) for the 2017 and 2018 fiscal years, respectively. See “Item 10.Additional Information— E. Taxation—People’s Republic of China Taxation”. Net profit As a result of the foregoing, our net profit increased by 37.7% from RMB167.7 million in the 2017 fiscal year to RMB230.9 million (approximately US$34.9million) in the 2018 fiscal year. 62Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year Ended June 30, 2016 Compared to Year Ended June 30, 2017 Revenue Our revenue, which is principally derived from the rendering of boarding school education services to students, increased by 30.5% from RMB654.1 millionin the 2016 fiscal year to RMB853.3 million. This increase was primarily due to a 16.3% increase in average tuition from RMB35,027 to RMB40,730 andto a lesser extent, a 12.2% increase in the total number of students from 18,673 to 20,950 during the same period. Our revenue increase was also attributableto having a greater proportion of our students enrolled in our international program which charges higher tuition than our basic educational program.Between the 2016 and 2017 fiscal years, the percentage of students enrolled in our international program increased from 10.2% to 13.5% Cost of revenue Our cost of revenue increased by 30.0% from RMB498.9 million in the 2016 fiscal year to RMB648.5 million in the 2017 fiscal year. The increase in cost ofrevenue was primarily due to (a) a 27.6% increase in labor costs due to (i) an increase in the total number of our teachers and educational staff, and (ii) ageneral increase in our employees’ compensation levels; (b) a 15.5 % increase in student-related costs, primarily due to the increase in the number of studentsenrolled and the increased cost of our student canteen service, and (c) the increase of depreciation by 69.8% due to the completion of leaseholdimprovements and purchase of education facilities during the year. Gross profit As a result of the foregoing, our gross profit increased by 32.0% from RMB155.1 million in the 2016 fiscal year to RMB204.8 million in the 2017 fiscal year.Our gross margin was 23.7% in the 2016 fiscal year, compared to 24.0% in the 2017 fiscal year. Other income, net Other income increased by 260.2% from RMB1.8 million in the 2016 fiscal year to RMB6.3 million. The increase was primarily due to government grants ofRMB6.3 million for student enrollment and reward for public company. Operating expenses Our operating expenses decreased by 20.4% from RMB63.2 million in the 2016 fiscal year to RMB50.3 million in 2017 fiscal year. The decrease wasprimarily due to the following reasons: ·Selling expenses. Our selling expenses increased by 30.7% from RMB16.8 million in the 2016 fiscal year to RMB21.9 million in the 2017 fiscalyear. The increase was primarily due to increased student enrollment rewards on recruitment. ·Administrative expenses. Our administrative expenses decreased by 21.5% from RMB36.2 million in the 2016 fiscal year to RMB28.4 million in the2017 fiscal year. The decrease was primary due to the reversal of over accrued legal fee in 2016 fiscal year amounting to RMB 4.0 million in 2017fiscal year. If the legal fees had been recorded in the correct periods, our overall administrative expenses in 2017 fiscal year would have remainedstable compared to 2016 fiscal year. ·Disposal loss of leasehold improvement. In September 2015, Zhuji Hailiang Foreign Language School and selected programs from TianmaExperimental School and Hailiang Experimental High School relocated to the Hailiang Education Park. As a result, a loss on disposal of leaseholdimprovement of aforementioned programs amounting to RMB10.3 million incurred in the year ended June 30, 2016. Net finance income Our net finance income increased by 19.8% from RMB5.8 million in the 2016 fiscal year to RMB6.9 million. This increase was primarily due to an increasein interest income caused by more fund we deposited with the related party in the 2017 fiscal year compared to the 2016 fiscal year. Income tax expenses We had no income tax expenses for the 2016 and 2017 fiscal years. See “Item 10. Additional Information— E. Taxation—People’s Republic of ChinaTaxation”. Net profit As a result of the foregoing, our net profit increased by 68.7% from RMB99.4 million in the 2016 fiscal year to RMB167.7 million in the 2017 fiscal year. B. Liquidity and Capital Resources Historically, we have financed our operations through internally generated cash. As of June 30, 2016, 2017 and 2018, we had approximately RMB291.0million, RMB77.8 million and RMB812.6 million (approximately US$122.8 million), respectively, in cash and cash equivalents. Our cash primarily consistsof cash on hand, bank deposits and deposit in related party finance entity, which are unrestricted as to withdrawal and use and are deposited with banks andfinance institution in China. We intend to finance our future working capital requirements and capital expenditures from our cash and cash equivalents andcash generated from operating activities. 63Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Although we consolidate the results of our affiliated entities and their respective subsidiaries, we do not have direct access to the cash and cash equivalents orfuture earnings of our affiliated entities or their respective subsidiaries. However, a portion of the cash balances of our affiliated entities and their respectivesubsidiaries will be paid to us pursuant to our contractual arrangements with our affiliated entities and their respective subsidiaries. See “Item 7. MajorShareholders and Related Party Transactions—B. Related Parties Transactions—Contractual Arrangements with our Affiliated Entities and theirShareholder”. We historically had recorded significant related party transactions involving loans made to, and repayments received from, such related parties as well as termdeposits placed with a finance company owned by Hailiang Group. As part of our cash management policy, we expect to continue to deposit a certain amountof cash generated from our private education business with a related party finance company owned by Hailiang Group. To reduce our credit exposure withHailiang Finance, based upon our current policy effective September 12, 2017, we have set an upper deposit budget maintained by Hailiang Finance at anygiven time in fiscal 2018 to be approximately RMB1.2 billion, and any amount above the upper deposit budget must be transferred to a commercial bankwithin seven business days. Effective from October 10, 2018, the upper deposit budget in 2019 fiscal year changed to RMB1.9 billion (approximatelyUS$287.1 million). As of June 30, 2018, we had demand deposits and term deposits of RMB944.7 million (approximately US$142.8 million) at HailiangFinance. Hailiang Finance is a non-bank financial institution licensed by the China Bank Regulatory Commission. It was incorporated in February 2013. Itcurrently has a registered capital of RMB1.5 billion and has been approved by the relevant authorities to conduct business with other entities within HailiangGroup, including, among other things, receiving deposits, borrowing, lending and providing guarantees, providing accounting and financing consultancy,and providing trade settlement and insurance brokerage services. We believe that Hailiang Finance provides interest at market rates with flexible withdrawalterms on our deposits. Based on our review of relevant documents provided by Hailiang Finance, we believe that Hailiang Finance has satisfactory assetquality, liquidity position and internal control environment. In addition, since September 2014, Hailiang Group and Mr. Feng have entered into an annualguarantee agreement with us to irrevocably and jointly guarantee the timely return of such deposits on behalf of the finance company in the event that thefinance company defaults on the return of such deposits or payment of the interest, and the guarantee was renewed annually. After considering the termsprovided by Hailiang Finance, coupled with its financial condition as well as the guarantee provided by Hailiang Group and Mr. Feng, our board approvedthe arrangement in October 2018 and our audit committee reviews our related party transactions, including the deposit arrangement from time to time. We,however, recognize that there are risks involved in the cash deposit arrangement. See “Item 3. Key Information—D. Risk Factors—Risks Relating to OurBusiness and Industry—We deposit a certain amount of cash with a related party and are subject to credit risks of such related party”. We have not encountered any difficulties in meeting our cash obligations to date. When considering our liquidity position and our future capital resourcesand needs, we take into account price controls set by local governments that may affect the tuition fees we are able to charge to students in our K-12 schools,annual enrollment numbers approved for our schools, the economic benefits we have received from our affiliated entities attributable to the provision ofservices to these entities and the economic benefits we may receive from our affiliated entities directly through payments under our consulting servicesagreement. We believe that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cashneeds for the next 12 months. The following table sets forth a summary of our cash flows for the periods indicated: As of June 30, 2016 2017 2018 RMB RMB RMB US$ (In thousands) Net cash from operating activities 216,189 286,953 587,931 88,850 Net cash (used in)/from investing activities (282,568) (602,251) 131,145 19,819 Net cash from financing activities 114,525 99,603 18,609 2,812 Net increase/(decrease) in cash 48,146 (215,695) 737,685 111,481 Cash and cash equivalents at beginning of the year 233,379 291,011 77,801 11,758 Effect of movements in exchange rates on cash held 9,486 2,485 (2,866) (433)Cash and cash equivalents at the end of the year 291,011 77,801 812,620 122,806 Operating Activities Net cash provided by operating activities amounted to RMB587.9 million (approximately US$88.9 million) in the 2018 fiscal year. The net cash provided byoperating activities in the 2018 fiscal year was primarily attributable to net profit of RMB230.9 million (approximately US$34.9 million), adjusted for (i)depreciation of RMB113.1 million (approximately US$17.1 million), primarily relating to our furniture, equipment and leasehold improvements, (ii) gain ondisposal of affiliated entities of RMB5.3 million (approximately US$0.8 million), (iii) interest income of RMB11.7 million (approximately US$1.8 million),primarily from a related party and (iv) income tax expenses of RMB66.3 million (approximately US$10.0 million) derived from the subsidiaries andconsolidated affiliated companies in the PRC, which are subject to a unified 25% enterprise income tax rate. Adjustments for changes in working capitalprimarily included (i) an increase in trade and other payables due to third parties of RMB30.4 million (approximately US$4.6 million), primarily reflecting anincrease in accrued labor costs and business tax and other tax payable; (ii) an increase in other payables due to related parties of RMB18.0 million(approximately US$2.7 million), primarily reflecting decreases in payables for the purchase of healthy food products due to a related party and in rentalpayables due to a related party, respectively; (iii) an increase in deferred revenue of RMB165.6 million (approximately US$25.0 million) caused by theincrease of student enrollment, (iv) an increase in other current asset of RMB13.7 million (approximately US$2.1 million), primarily reflecting increase inexpense prepaid for overseas study consulting services and advances to employees, and (v) an increase in prepayment to third parties of RMB2.2 million(approximately US$0.3 million), offset by income tax paid of RMB8.9 million (approximately US$1.4 million). 64Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Net cash provided by operating activities amounted to RMB287.0 million in the 2017 fiscal year. The net cash provided by operating activities in the 2017fiscal year was primarily attributable to net profit of RMB167.7 million, adjusted for (i) depreciation of RMB110.5 million, primarily relating to ourfurniture, equipment and leasehold improvements and (ii) interest income of RMB6.7 million, primarily from a related party. Adjustments for changes inworking capital primarily included (i) an increase in trade and other payables due to third parties of RMB23.3 million, primarily reflecting an increase inaccrued labor costs; (ii) a decrease in other payables due to related parties of RMB27.6 million, primarily reflecting decreases in payables for the purchase ofhealthy food products due to a related party and in rental payables due to a related party, respectively; (iii) an increase in deferred revenue of RMB17.7million caused by the increase of student enrollment and (iv) an increase in prepayment due to third party suppliers of RMB2.2 million. Net cash provided by operating activities amounted to RMB216.2 million in the 2016 fiscal year. The net cash provided by operating activities in the 2016fiscal year was primarily attributable to net profit of RMB99.4 million, adjusted for (i) depreciation of RMB65.0 million, primarily relating to our leaseholdimprovements, (ii) disposal loss of leasehold improvement of RMB 10.3 million and (iii) interest income of RMB4.9 million, primarily from related parties.Adjustments for changes in working capital primarily included (i) an increase in trade and other payables due to third parties of RMB21.8 million, primarilyreflecting an increase in labor costs and student-related costs; (ii) an increase in other payables due to related parties of RMB26.1million, primarily reflectingincreases in payables for the purchase of healthy food products due to a related party and in rental payables due to a related party, respectively; (iii) andecrease in other current assets of RMB2.1 million, primarily charging deferred IPO cost to share premium upon completion of our IPO; and (iv) an increasein prepayment to third party suppliers of RMB4.4 million, primarily prepaid for summer campus. Investing Activities Net cash provided by investing activities amounted to RMB131.1 million (approximately US$19.8 million) in the 2018 fiscal year. The net cash provided byinvesting activities in the 2018 fiscal year was primarily attributable to (i) cash withdrawn upon the maturity of term deposits placed with Hailiang Finance ofRMB401.0 million (approximately US$60.6 million); (ii) interest income of RMB10.7 million (approximately US$1.6 million) mainly received fromHailiang Finance; (iii) proceeds of RMB18.0 million (approximately US$2.7 million) received from the disposal of kindergartens and Chuzhou School and(iv) proceeds of RMB1.0 million (approximately US$0.2 million) from sales of property and equipments; partially offset by (i) term deposits of RMB204.0million (approximately US$30.8 million) placed with Hailiang Finance; (ii) cash used in purchase of property and equipment of RMB89.4 million(approximately US$13.5 million) relating to the renovation of school buildings and purchase of furniture and equipment and (iii) cash payment inacquisition of Haibo Logistics and Haibo Education amounting to RMB6.2 million (approximately US$0.9 million). Net cash used in investing activities amounted to RMB602.3 million in the 2017 fiscal year. The net cash used in investing activities in the 2017 fiscal yearwas primarily attributable to (i) term deposits of RMB1,953.6 million placed with Hailiang Finance; (ii) cash used in purchase of property and equipment ofRMB109.0 million relating to the renovation of school buildings and purchase of furniture and equipment; (iii) loan made to a related party of RMB 98.2million; partially offset by cash withdrawn upon the maturity of term deposits placed with Hailiang Finance of RMB1,552.6 million. Net cash used in investing activities amounted to RMB282.6 million in the 2016 fiscal year. The net cash used in investing activities in the 2016 fiscal yearwas primarily attributable to (i) term deposits of RMB1,212.4 million placed with Hailiang Finance; (ii) cash used in purchase of property and equipment ofRMB346.6 million relating to Hailiang Education Park; partially offset by cash withdrawn upon the maturity of term deposits placed with Hailiang Financeof RMB1,272.4 million. Financing Activities Net cash provided by financing activities amounted to RMB18.6 million (approximately US$2.8 million) in the 2018 fiscal year, which was attributable tothe receipt of loan from a related party of RMB7.6 million (approximately US$1.1 million) and capital contribution from former shareholder of RMB11.0million (approximately US$1.7 million). Net cash provided by financing activities amounted to RMB99.6 million in the 2017 fiscal year. We generated RMB99.6 million from the loan proceed froma related party. Net cash provided by financing activities amounted to RMB114.5 million in the 2016 fiscal year. We generated RMB122.3 million from the proceeds fromour initial public offering, and offset by the cost of our initial public offering at RMB7.8 million. Capital Expenditures We incurred capital expenditures of RMB346.6 million, RMB109.0 million and RMB89.4 million (approximately US$13.5 million) in the 2016, 2017 and2018 fiscal years, respectively. The capital expenditure in 2018 fiscal year primarily related to the renovation of school buildings and classrooms in HailiangExperimental High School and Tianma Experimental School and the purchase of furniture and equipment for Hailiang Education Park. The capitalexpenditure in 2017 fiscal year primarily related to the renovation of school buildings and classrooms in Hailiang Experimental High School and TianmaExperimental School and the purchase of furniture and equipment for Hailiang Education Park. The capital expenditure in the 2016 fiscal year primarilyrelated to furniture, equipment, and leasehold improvement of our new campus, Hailing Education Park. 65Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Recent Accounting Pronouncements Up to the date of issue of our consolidated financial statements, the IASB has issued a number of amendments, new standards and interpretations, which arenot yet effective for the year ended June 30, 2018 and which have not been adopted in our consolidated financial statements. These include the followingwhich may be relevant to us. Effective foraccounting periodsbeginning on or after IFRS 9, Financial Instruments January 1, 2018 IFRS 15, Revenue for Contracts with Customers January 1, 2018 IFRS 16, Leases January 1, 2019 Amendments to IFRS 9, Prepayment Features with Negative Compensation January 1, 2019 Amendments to IFRS 3, Business combinations January 1, 2019 Amendments to IFRS 11, Joint Arrangements January 1, 2019 Amendments to IAS 12, Income Taxes January 1, 2019 Amendments to IAS 19, Employee Benefits January 1, 2019 Amendments to IAS 28, Investments in Associates and Joint Ventures January 1, 2019 IFRS 9 “Financial Instruments” addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rulesof hedge accounting and a new impairment model for financial assets, and should be applied in an entity’s IFRS financial statements for annual reportingperiods beginning on or after January 1, 2018. Earlier application is permitted. We will adopt IFRS 9 in the financial reporting period commencing July 1,2018. We have completed our review of IFRS 9 and do not expect the new guidance to have a significant impact on the reclassification and measurement ofits financial assets. In May 2014, IASB issued IFRS15-“Revenue from Contracts with Customers”. The core principle of IFRS 15 is that an entity will recognize revenue to depictthe transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange forthose goods or services. To achieve the principle, we should follow five steps: 1. Identify the contract with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) the entity satisfies a performance obligation The standard should be applied in an entity’s IFRS financial statements for annual reporting periods beginning on or after 1 January 2018. Earlier applicationis permitted. We will adopt IFRS15 in the financial reporting period commencing July 1, 2018 and elect to apply the "modified retrospective" transitionapproach to implementation. We have completed review of the requirements of IFRS15 against the existing accounting policy and concluded that theadoption of IFRS 15 will not have significant impact on the timing of our revenue recognition nor on our equity. For those new standards with effective date beginning on/after January 1, 2019, we are in the process of assessing what the impact of these amendments, newstandards and interpretations is expected to be in the period of initial application. C. Research and Development, Patents and Licenses, etc. Research and Development We have strong research and development capabilities and have devoted significant resources to develop our academic courses and innovative teachingmethods and materials. We continue to improve our teaching quality through the following measures: (i) establish Basic Education Institute to do research onteaching content, methods and management standard and model; and establish Education College to do research as well as train teachers and ourmanagement team; (ii) continue to improve the teaching quality through the introduction of master teachers, excellent teachers and golden Olympiadcompetition training coaches globally; (iii) adopt a system where we let go of teachers who rank the lowest in the assessment processes; and continue toimprove the average salary of teachers to attract more outstanding teachers to join Hailiang. For each senior teacher, we have a senior teacher workshop, which consists of that teacher and five to ten mid-level or junior teachers who teach the samegrade and subject. The workshop regularly organizes meetings to discuss and exchange ideas on teaching instruction methods. Teachers in the senior teacherworkshop are given opportunities to publish articles on pedagogical methods and teaching techniques with guidance from the senior teachers. In addition, we encourage our teachers to develop, update and improve our curricula and course materials based upon the latest official government curriculafor each of our subjects as well as on students’ needs and preferences. The development process for our curricula and course materials typically starts with areview of the latest examination requirements to analyze new educational needs and trends. As our students’ academic ability levels vary widely, ourcurricula are designed with the flexibility to address a specific class or a specific student’s strengths and weaknesses. Our senior teachers in charge of thecurriculum for a specific subject also work with other teachers to prepare or update course curricula. Our teachers also implement and revise the curriculabased on feedback from the students. 66Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Leveraging our research and development capabilities, we have developed teaching methods and courses for certain subjects that are not generally offered byother similar private education providers. We have supplemented various government-mandated coursework with our self-developed courses. For example,we expanded the traditional chemistry coursework with a supplementary course called “Chemistry in Our Lives,” which demonstrates how chemistryprinciples and theories are applied in people’s daily lives. We believe students’ exposure to such real-world examples helps them to learn. We have alsodeveloped a supplemental mathematics course called “History of Mathematics”, which exposes our students to the cross-disciplinary approach of learningabout the history of how certain mathematical principles were discovered or formulated, which, we believe, generates greater interest in the subject matter.We also offer a local geography course called “Hometown Geography—Zhuji and Shaoxing ‘Tantou’” for purposes of getting students to apply thegeographical approaches and principles they learn to local cities, towns and rural areas. We are also in the process of developing new courses to strengthen our international academic program. We have entered into a cooperation agreement withPate’s Grammar School, a K-12 co-educational institution in London, UK, where we will develop new curriculum, teaching materials and principles ofeducational philosophy, in collaboration with Pate’s Grammar School. At the end of each semester, we evaluate, update and improve course materials based upon student performance and feedback from teachers, students andparents. We believe our strong research and development capabilities differentiate us from our competitors in the private K-12 education industry. Intellectual Property Our schools hold copyrights to various course materials that have been developed internally and provide a basis for improving the quality of our educationalservices. Our strategic plan calls for continued and extensive investment in maintaining and expanding these assets. To protect our intellectual properties, werely on a combination of trademark, copyright and trade secret laws. From time to time, we are required to obtain licenses with respect to course materialsowned by third parties for our educational services, in particular for our international program which requires foreign-language educational materials. We have one registered trademark in the PRC. We have also registered nine domain names with the China Internet Network Information Center,www.hailiangedu.com, www.hailiangeducation.com, www.hlcis.com, www.hlschool.com.cn, www.hlcjzx.com, www.zjhlgz.com, www.hailiangschool.com,www.hailiangart.com and www.tmschooledu.com. D. Trend Information Other than as disclosed elsewhere in this annual report on Form 20-F, we are not aware of any trends, uncertainties, demands, commitments or events for theperiod from July 1, 2017 to June 30, 2018 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity orcapital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition. E. Off-Balance Sheet Arrangements We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have notentered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our consolidated financialstatements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity ormarket risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market riskor credit support to us or engages in leasing, hedging or research and development services with us. F. Contractual Obligations The following table sets forth our contractual obligations as of June 30, 2018: Payments Due by Period Total Less than 1 Year 1-5 Years More than 5 Years Capital Commitments (1) 14,988 14,988 — — Operating Lease Commitments (2) 676,248 33,764 145,016 497,468 Total 691,236 48,752 145,016 497,468 (1)Includes payments to be made to Heng Zhong Da, a company affiliated with Hailiang Group, relating to the renovation of school buildings in HailiangForeign Language School, Tianma Experimental School and Zhejiang Experimental High School, and payments to be made to certain third partyvendors for the purchase of equipment and leasehold improvements. (2)Includes payments to be made to Hailiang Investment, a company affiliated with Hailiang Group, relating to the lease payments for the three campuses:Hailiang Education Park, Tianma Experimental School and Zhejiang Experimental High School, and payment to Nanchang Hongtou PropertyManagement Co., Ltd, a related party owned by our non-controlling shareholder relating to the office lease payment for Haibo Education. G. Safe Harbor This annual report on Form 20-F contains forward-looking statements that are based on our management’s beliefs and assumptions and on informationcurrently available to us. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results,performance or achievements to be materially different from those expressed or implied by the forward-looking statements. 67Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,”“believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. We have based these forward-looking statements largely on our currentexpectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, businessstrategy and financial needs. These forward-looking statements include, among other things, statements relating to: ·our business strategies and initiatives as well as our business plans; ·our future business development, results of operations and financial condition; ·expected changes in our revenue and certain cost or expense items; ·growth of and trends and competition in the education industry in China; ·PRC governmental policies and regulations relating to the education industry in China; and ·general economic and business conditions in China. You should thoroughly read this annual report on Form 20-F and the documents that we refer to in this annual report on Form 20-F with the understandingthat our actual results in the future may be materially different from or worse than, what we expect. We qualify all of our forward-looking statements by thesecautionary statements. Other sections of this annual report on Form 20-F include additional factors which could adversely affect our business and financialperformance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for ourmanagement to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, orcombination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Important risks and factors thatcould cause our actual results to be materially different from our expectations are generally set forth in “Item 3. Key Information—D. Risk Factors” andelsewhere in this annual report on Form 20-F. This annual report on Form 20-F also contains third-party data related to macroeconomic data and the education industry as well as related projections andanalyses based on a number of assumptions. These market data, including statistical data extracted from the Frost & Sullivan Report, include projections thatare based on a number of assumptions. The projected growth may not materialize at the rates suggested by the market data, or at all. The failure of thesemarkets to grow at the projected rates may have a material adverse effect on our business and the market price of our ADSs. In addition, the changing natureof the education industry subjects any projections or estimates relating to the growth prospects or future condition of our market to significant uncertainties.If any one or more of the assumptions underlying the market data turns out to be incorrect, our actual results may differ from the projections based on theseassumptions. Although we believe that the publications, reports and surveys are reliable, we have not independently verified the data. You should not placeundue reliance on these forward-looking statements. The forward-looking statements made in this annual report on Form 20-F relate only to events or information as of the date on which these statements aremade in this annual report on Form 20-F. We undertake no obligation to update or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise, after the date of this annual report on Form 20-F. You should not rely upon forward-looking statements as predictionsof future events. 68Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management The following table sets forth information regarding our directors and executive officers as of the date of this annual report. The business address of all of ourdirectors and executive officers is 1508 Binsheng road, Binjiang District, Hangzhou City, Zhejiang province, 310051, People’s Republic of China: Name Age Position/title Ming Wang 57 Chairman and chief executive officerCuiwei Ye 59 Director and principal generalKen He 38 Independent directorXiaohua Gu 46 Independent directorXiaofeng Cheng 43 Independent directorJian Guo Yu 45 Chief financial officerLitao Qiu 52 Board secretaryPing Huang 47 Executive vice principal (Operation of all schools in Zhuji city, HR, Partyoffice, Branding, Hailiang college of Education Management)Jin Xie 52 Vice principal (Discipline, Strategic development)Honggang Xu 60 Vice principal (Hailiang College of Education Research)Jianjun Jiang 51 Vice principal (teaching administration of middle school basic educationprogram, enrollment status management)Bailian Jin 46 Vice Principal (operation of all schools in Hangzhou city, overallsupervision)Weifeng Zhang 46 Vice principal (Logistic support, Sports, Security)Haoqiang Zhu 43 Assistant to principal general (Student Affair, Information Technology) Mr. Ming Wang has served as the chairman of the board of directors and chief executive officer of Hailiang Inc. since 2014. He has also served as thechairman of Hailiang Consulting, our wholly-owned subsidiary in China, since 2011. He has also served as vice president of Hailiang Group, a related party,since 2004. Mr. Wang is also a director of Bank of Ningxia Co., Ltd since February 2011. Mr. Wang was named to the Forbes China 2018 Top 50 "Best CEOsof Chinese Public Companies" List in September 2018 and was also named as "2017 China Education Industry Outstanding Contributor" by Sina ChinaEducation Ceremony - 10th Anniversary in November, 2017. Mr. Wang received an MBA degree from the University of Management and Technology and anEMBA degree from Zhongnan University of Economics and Law. Mr. Wang is also a Senior Economist certified by the Zhejiang provincial government. Mr. Cuiwei Ye has served as a director and principal general of Hailiang Inc. since November 3, 2017. With the accumulation of 17 years of experience beingthe principal of Hangzhou No.2 High School, Mr. Ye is a seasoned school principal with high reputation and rich experience in education. Mr. Ye received aBachelor of Science Degree in Biology from Hubei University, a Master’s Degree in Education Leadership from the University of Canberra in Australia, andis currently a PhD candidate from East China Normal University. As a nationally renowned principal, Mr. Ye has been awarded with several honorary titles byeducation organizations and media, such as Person of the Year of Chinese Brands in 2017, Contemporary Education Master, one of China’s Top 10 PopularPrincipals selected by China Education Newspaper, China’s Good Principal selected by China Education Website, initiator of high school principal’s real-name recommendation system of Peking University, Adjunct professor of high school principal training center of Ministry of Education, Adjunct professor ofSouthwest University, Adjunct professor of Zhejiang Normal University, National Education Advanced Worker, Zhejiang Merit Teacher. Mr. Ken He has served as our independent director since June 2015. Mr. He is currently serving as the vice president of Racing Capital Management (HK)Limited, an asset management company, where he oversees its asset management and financial activities. From August 2011 to September 2015, Mr. Heserved as the chief financial officer of China Shengda Packaging Group Inc., or China Shengda, where he oversaw China Shengda’s financing and investmentactivities, accounting practices and investor relations. Before joining China Shengda, Mr. He served as an investment director of Wealthcharm InvestmentsLimited, a private investment company, from September 2009. Prior to that, Mr. He spent five years at PricewaterhouseCoopers Australia and China. Havingseveral years of experience in the financial and accounting field, Mr. He is experienced and familiar with Chinese accounting standards, Hong Kongaccounting standards, Australian accounting standards, international accounting standards and U.S. GAAP, as well as the differences among them. Mr. Heholds a master’s degree in applied finance from Macquarie University, Australia. Mr. He is a U.S. Certified Public Accountant, and he also holds a CertifiedPublic Accountant designation from the Chinese Institute of CPA, a Certified Public Accountant designation from the Hong Kong Institute of CPA, aCertified Practicing Accountant designation from the CPA Australia and a Chartered Financial Analyst designation from the CFA Institute. Mr. Xiaohua Gu has served as our independent director since June 2015. Since March 2012, Mr. Gu has been the vice president of Zhongxingcai GuanghuaCertified Public Accountants LLP, Shanghai Office, where he is responsible for the audit, tax compliance and book-keeping services of the firm. Since 2011,Mr. Gu has been an independent director of China Education Alliance, Inc., a reporting company with common stock traded on the OCTQX marketplace.From March 2010 to February 2012, Mr. Gu has been a partner at Beijing Jiafucheng International Investment Corporation, which is a financial serviceinstitution providing investment banking services and managing private equity investments. Starting from 2014, Mr. Gu has also been lecturing andorganizing case studies in finance and auditing at Fudan University. From 2006 to 2010, Mr. Gu worked in KPMG as an associate, providing tax planningservices. Mr. Gu obtained his master’s degree in accounting from Leeds Metropolitan University, the United Kingdom, in 2004, and he also received amaster’s degree in business administration from Newcastle University, the United Kingdom, in 2001. 69Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Mr. Xiaofeng Cheng has served as our independent director since October 2016. Since July 2012, Mr. Cheng has served as a partner at Jingtian & Gongchenglaw firm in Beijing. Previously, Mr. Cheng served in various positions at several international law firms. In addition, Mr. Cheng has served as adjunctprofessor at Peking University Law School since September 2011. Mr. Cheng received his master’s degree in Law from Columbia University in 2003, master’sdegree in Criminology from the University of South Florida in 2002 and bachelor degrees in both Law and Economics from Peking University in 1999. Mr. Jian Guo Yu Mr. Jian Guo Yu has served as our chief financial officer since November 3, 2017. Before 2006, Jian Guo Yu worked withPricewaterhouseCoopers LLP. From 2006 to 2017, Mr. Yu was a Senior Internal Auditor Manager with Sunrider International. Mr. Yu received a Bachelor ofScience degree in Accounting and Finance Emphasis (dual degrees) from California State University, Long Beach and is a member of AICPA, a licensedCertified Public Accountant, in the State of California as well as a Certified Internal Auditor with Institute of Internal Auditors. Mr. Litao Qiu has served as our Secretary since August 2017 and as a director of Hailiang Consulting since September 2018. Mr. Qiu has a bachelor’s degreein applied computer science and graduate diploma in computer education from Edith Cowan University, a master’s degree in system management fromSunderland University, and an EMBA degree from Fudan University. Mr. Qiu has served as Vice chairman and director of the board of Hailiang ManagementFinancial Leasing Co. Ltd. since June 2016; as Assistant to CEO of Hong Kong Leonit Ltd., a related party of the Company, since March 2016; as a directorof the board of Hailiang Australian Agriculture Development Pty Ltd. since December 2014; as a director of the board of Hailiang Australian AgricultureLand Trust since December 2014; as a director of the board of Hailiang Australian Land Investment Company Pty Ltd. since December 2014; and asAssociate Vice President of Hailiang Group Co. Ltd. since July, 2012. Mr. Ping Huang has served as the Vice President of Hailiang Management since September 2018 and executive vice principal (Operation of all schools inZhuji city, HR, Party office, Branding, Hailiang college of Education Management) of Hailiang Inc. since May 2017 and vice principal of Hailiang Inc. fromMarch 2016 to May 2017. Mr. Huang has also served as the principal of Hailiang Elementary School from August 2015 to present. From August 2011 to July2015, Mr. Huang served as the principal of the Elementary School of Tianma Experimental School. Mr. Huang has worked in Hailiang Inc. since 1995 invarious functions. Mr. Huang received a bachelor’s degree from Central Broadcast and Television University in 1989. Mr. Huang has won various honorawards in the PRC education section including Outstanding Teacher of Zhejiang’s Private Education Elementary and Secondary School Chapter andChunchan Award of Zhejiang Province. Mr. Jin Xie has served as the vice principal (Discipline, Strategic development) of Hailiang Inc. since 2014 and has been responsible for human resources andstudent affairs of our affiliated schools since 2000. Mr. Xie also served as our director from November 2014 to October 10, 2015. Mr. Xie currently teaches inthe Hailiang Experimental High School and has served as its dean of academic and student affairs, its office manager of administration and its principal sincehe joined us in August 1998. Previously, Mr. Xie taught at No.1 Middle School of Baihe Town, Shaanxi province, from 1985 to 1997 and at ZhongenExperimental School of Fuqing City, Fujian province from 1997 to 1998. He was awarded the Advanced Teaching Qualification for secondary education in2000. Mr. Xie received his bachelor’s degree in Biology Education from Shaanxi University of Technology in 1985. Mr. Honggang Xu has served as the vice principal (Hailiang college of Education Research) of Hailiang Inc. since 2014 and is responsible for HailiangExperimental High School. Mr. Xu has also served as the principal of Hailiang Experimental High School since 2011 and as the vice principal from 2006 to2011. Mr. Xu has almost 30 years of experience in primary and secondary education. From 1980 to 2001, he served in a number of positions, includingprincipal, vice principal, assistant to the principal, and group leader responsible for teaching and research, in various schools in Zhuji city. Mr. Xu receivedhis bachelor’s degree from Zhejiang Normal University in 1991. Mr. Jianjun Jiang has served as the vice principal (Teaching Administration of Middle School Basic Education Program, Enrollment Status Management) ofHailiang Inc. since 2014 and is responsible for Tianma Experimental School. Mr. Jiang has also served as the principal of Tianma Experimental School since2009, prior to which, he served as vice principal of Hailiang Experimental High School from 2008. Prior to joining us, Mr. Jiang served as the principal ofZhuji Paitou Middle School from 2004 to 2007 and a vice president of Caota Middle School from 1999 to 2004. Before that, he worked in Zhuji SecondHigh School from 1996 to 1999 and in Zhuji Chengguan Middle School from 1987 to 1996. Mr. Jiang was awarded several honor awards including the“Distinguished Education Professional,” “Distinguished Class Teacher,” “Distinguished Principal” and “Top Ten Distinguished Teachers of Zhuji City” byZhuji branch of the MOE, and was also awarded the “Top ten Distinguished Young People” by the Zhuji local government. He received his bachelor’s degreein biology from Zhejiang Normal University in 1982. Mr. Bailian Jin has served as the assistant principal and the vice principal (Operation of all schools in Hangzhou city, Overall supervision) of Hailiang Inc.since August 2015. Before joining us, Mr. Jin has served as the principal of Zhuji Huanjiang Primary School Education Group from 2010 to July 2015. Mr.Jin served as the principal of Zhuji Huanjiang Primary School from 2006 to 2010. He served as the principal of Zhuji Huansha Primary School from 2004 to2006. He also served as the vice-principal of Zhuji Experimental Primary School from 2002 to 2004. Before that, he worked first as a teacher and then as thePrincipal of Zhuji Diankou Town School from 1990 to 2002. Mr. Jin studied at Shangyu Normal School from 1987 to 1990 and studied at ZhejiangEducation School from 1993 to 1996. Mr. Jin received his bachelor’s degree in pedagogy from Zhejiang University in 2004. Mr. Jin received numerousawards, including the “Zhejiang Provincial Exceptional Teachers” by the Zhejiang Province MOE in 2014 and the “National Model Worker in Educationwith Unique Features” by the Chinese Foundation for Teacher Development of the MOE in July 2012. 70Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Mr. Weifeng Zhang has served as the vice principal (Logistic support, Sports, Security) of Hailiang Inc. since August 2017. From September 2016 to August2017, Mr. Zhang served as the executive assistant to the principal general of Hailiang Inc. From August 2015 to September 2016, Mr. Zhang served as theminister of logistics department of Hailiang Inc. During 2013 to 2015, Mr. Zhang served as the vice principle of Tianma Experiment school. Mr. Zhangstudied at Shaoxing Teachers College from 1984 to 1986 and received bachelor’s degree from Zhejiang Normal University in 1996, and received an MBAfrom Macao University of Science and Technology in 2004. Mr. Haoqiang Zhu has served as Assistant to the principal general (Student Affair, Information Technology) of Hailiang Inc. since 2017 and is responsiblefor moral and ethical education. Mr. Zhu has over 20 years of experience in secondary education. From 2006 to 2017, Mr. Zhu served as Executive VicePrincipal of XinChang High School. And from 1997 to 2005, Mr. Zhu served in a number of positions, including Vice Principal, Assistant to the Principal,Director of Moral Education Office in XinChang High School. Mr. Zhu has been awarded the “Top Ten Young Teachers” in Shaoxing City and “TenOutstanding Young People” in Xinchang County. Mr. Zhu received his Bachelor of Science degree from Zhejiang Normal University in 1997. B. Compensation of Directors and Executive Officers Compensation of Directors and Executive Officers For the year ended June 30, 2018, we paid an aggregate amount of RMB8.2 million (approximately US$1.2 million) in cash compensation to our directorsand executive officers, including the compensation we paid to one of our former executive officers who is still working at our company in a non-executiverole. Our PRC subsidiaries are required by PRC laws and regulations to make contributions equal to certain percentages of each employee’s salary for his or herretirement benefit, medical insurance benefits, housing funds, unemployment and other statutory benefits. Our PRC subsidiaries paid retirement and similarbenefits for our officers and directors in the year ended June 30, 2018. C. Board Practices Board of Directors Our board of directors consists of five directors. A director is not required to hold any shares in our company to qualify to serve as a director. Subject to anyseparate requirement for Audit Committee’s (as defined in our articles of association) approval under applicable law or the listing rules of our DesignatedStock Exchange (as defined in our articles of association), a director may vote with respect to any contract, transaction or arrangement in which he or she ismaterially interested provided the nature of the interest is disclosed prior to its consideration and as long as he has not been disqualified by the chairman ofthe relevant board meeting. Our board of directors may exercise all of the powers of our company to borrow money, to mortgage or charge its undertaking,property and uncalled capital, or any part thereof, and to issue debentures, debenture stock or other securities whether outright or as security for any debt,liability or obligation of our company or of any third-party. None of our directors has a service contract with us that provides for benefits upon termination ofservice. Committees of the Board of Directors We have established three committees under the board of directors, namely the audit committee, the compensation committee and the corporate governanceand nominating committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below. Audit Committee Our audit committee consists of Mr. Ken He, Mr. Xiaofeng Cheng, and Mr. Xiaohua Gu and is chaired by Mr. He. Mr. He, Mr. Cheng, and Mr. Gu satisfy the“independence” requirements of Section 5605(a)(2) of the NASDAQ Listing Rules as well as the independence requirements of Rule 10A-3 under theExchange Act. Our board also has determined that Mr. He qualifies as an audit committee financial expert within the meaning of the SEC rules and possessesfinancial sophistication within the meaning of the NASDAQ Listing Rules. The audit committee oversees our accounting and financial reporting processesand the audits of the financial statements of our group. The audit committee is responsible for, among other things: ·selecting our independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed byour independent registered public accounting firm; ·reviewing with our independent registered public accounting firm any audit problems or difficulties and management’s response; ·reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K. In particular, our audit committee willreview and approve our cash management policy in regard to depositing cash generated from our school operations with related parties, includingthe maximum amount of such deposits based on our financial condition from time to time; ·discussing the annual audited financial statements with management and our independent registered public accounting firm; ·annually reviewing and reassessing the adequacy of our audit committee charter; ·meeting separately and periodically with the management and our independent registered public accounting firm; ·reporting regularly to the full board of directors; and ·such other matters that are specifically delegated to our audit committee by our board of directors from time to time. 71Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Compensation Committee Our compensation committee consists of Mr. Ken He, Mr. Xiaofeng Cheng, and Mr. Xiaohua Gu, and is chaired by Mr. Cheng. Mr. He, Mr. Cheng, and Mr. Gusatisfy the “independence” requirements of Section 5605(a)(2) of the NASDAQ Listing Rules. Our compensation committee assists the board in reviewingand approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors andexecutive officers. Members of the compensation committee are not prohibited from direct involvement in determining their own compensation. Our chiefexecutive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsiblefor, among other things: ·reviewing and approving to the board with respect to the total compensation package for our most senior executive officers; ·approving and overseeing the total compensation package for our executives other than the most senior executive officers; ·reviewing and recommending to the board with respect to the compensation of our directors; ·reviewing periodically and approving any long-term incentive compensation or equity plans; ·selecting compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to that person’s independencefrom management; and ·programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans. Corporate Governance and Nominating Committee Our corporate governance and nominating committee consists of Mr. Ken He, Mr. Xiaofeng Cheng, and Mr. Xiaohua Gu and is chaired by Mr. Gu. Mr. He,Mr. Cheng and Mr. Gu satisfy the “independence” requirements of Section 5605(a)(2) of the NASDAQ Listing Rules. The corporate governance andnominating committee assists our board of directors in identifying individuals qualified to become our directors and in determining the composition of theboard and its committees. The corporate governance and nominating committee is responsible for, among other things: ·identifying and recommending nominees for election or re-election to our board of directors or for appointment to fill any vacancy; ·reviewing annually with our board of directors its current composition in light of the characteristics of independence, age, skills, experience andavailability of service to us; ·identifying and recommending to our board the directors to serve as members of committees; ·advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliancewith applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on anycorrective action to be taken; and ·monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures toensure proper compliance. Duties of Directors Under Cayman Islands law, our directors have a duty of loyalty to act honestly, in good faith and with a view to our best interests. Our directors also have aduty to exercise skills they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. Infulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and re-stated from timeto time. Our company has the right to seek damages if a duty owed by our directors is breached. Terms of Directors and Officers Our directors hold office until such time as they are removed from office by ordinary resolution or the unanimous written resolution of all shareholders. Adirector will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition withhis creditors; or (ii) dies or is found by our company to be or becomes of unsound mind. Officers are selected by and serve at the discretion of the board ofdirectors. The compensation of our directors is determined by the board of directors. There is no mandatory retirement age for directors. Our officers areelected by and serve at the discretion of the board of directors. 72Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Employment Agreements We have entered into employment agreements with our executive officers. Each of our executive officers is employed for a specified time period, which willbe renewed upon both parties’ agreement thirty days before the end of the current employment term. We may terminate the employment for cause, at anytime, without notice or remuneration, for certain acts of the executive officer, including but not limited to the commitments of any serious or persistent breachor non-observance of the terms and conditions of the employment, conviction of a criminal offense, willful disobedience of a lawful and reasonable order,fraud or dishonesty, receipt of bribery, or severe neglect of his or her duties. An executive officer may terminate his or her employment at any time with a one-month prior written notice. Each executive officer has agreed to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to anyperson, corporation or other entity without written consent, any confidential information. Each executive officer has also agreed to assign to our group all hisor her all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs,databases, mask works, concepts and trade secrets. D. Employees We had 2,826, 3,240, and 4,129 employees as of June 30, 2016, 2017 and 2018, respectively. The majority of our employees are full-time and have signedemployment agreements for one to three years, which will be renewed with substantially the same terms upon the employee passing the end-of-contractevaluation. In addition to teachers and educational staff, we also have employees in sales and marketing, information technology and general administration.The following table sets forth the numbers of our employees, categorized by function as of June 30, 2018. Function Number ofEmployees Teachers and educational staff 1,856 Cafeteria and dining hall staff 639 Student living staff 552 Security and safety staff 105 Administrative staff 349 Other staff 628 Total 4,129 As required by PRC laws and regulations, we participate in various employee social security plans for our employees that are administered by localgovernments, including housing, pension, medical insurance and unemployment insurance. We compensate our employees with base salaries as well asperformance-based bonuses. None of our employees are represented by any collective bargaining arrangements, and we consider our relations with ouremployees to be good. E. Share Ownership The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of October 17, 2018 by: ·each of our directors and executive officers; and ·each person known to us to beneficially own more than 5% of our ordinary shares. 73Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The calculations in the table below are based on there being 412,450,256 ordinary shares outstanding as of October 17, 2018. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by aperson and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through theexercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of thepercentage ownership of any other person. OrdinaryShares beneficiallyowned Name Number % Directors and Executive Officers: Ming Wang — — Cuiwei Ye — — Ken He — — Xiaohua Gu — — Xiaofeng Cheng — — Jian Guo Yu — — Litao Qiu — — Ping Huang — — Jin Xie — — Honggang Xu — — Jianjun Jiang — — Bailian Jin — — Weifeng Zhang — — Lunguo Lu — — Principal Shareholder: Hailiang Feng(1) 360,000,000 83.61 (1)Includes 223,200,000 shares held by Jet Victory International Limited, 100,800,000 shares held by Brilliant One Development Limited, 18,000,000shares held by Fame Best International Limited and 18,000,000 shares held by Gain Success Group Limited. Jet Victory International Limited, Fame BestInternational Limited and Gain Success Group Limited are British Virgin Islands companies wholly-owned by Mr. Feng. Brilliant One Development Limited is a British Virgin Islands company wholly owned by Hailiang Group. As of October 17, 2018, Hailiang Group iscontrolled by Mr. Feng and is held 43.6% by Mr. Feng, 40.3% by Ningbo Zhetao Investment Holdings Co., Ltd. and 9.3% by Ningbo Dunshi InvestmentCo., Ltd. Ningbo Zhetao Investment Holdings Co., Ltd is controlled by Mr. Feng and is held 58.8% by Mr. Feng and 31.6% by Beize Group. BeizeGroup is controlled by Mr. Feng and is held 90% by Mr. Feng and 10% by his spouse. Ningbo Dunshi Investment Co., Ltd. is controlled by Mr. Feng andis held 66.7% by Mr. Feng. All the remaining minority equity interests in such shareholding entities are held by Mr. Feng’s relatives and/or independentthird parties. As of the date of this annual report on Form 20-F, none of our outstanding ordinary shares are held by record holders in the United States. None of ourexisting shareholders have different voting rights from other shareholders as of the date of this annual report on Form 20-F. We are currently not aware of anyarrangement that may, at a subsequent date, result in a change of control of our company. Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” B. Related Party Transactions Contractual Arrangements with our Affiliated Entities and their Shareholder We have entered into a series of contractual arrangements with Hailiang Management which controls and holds our affiliated schools, and the shareholders ofHailiang Management, Mr. Feng and Zhejiang Beize Group Co. Ltd. Such contractual arrangements provide us with: (i) the power over HailiangManagement, (ii) the exposure or rights to variable returns from our involvement with Hailiang Management, and (iii) the ability to affect those returnsthrough use of our power over Hailiang Management to affect the amount of our returns. Therefore, we control Hailiang Management and its subsidiaries. Fora description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.” 74Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Transactions with Certain Related Parties Loans to/from related parties Our controlling shareholder, Mr. Feng, owns or controls other non-educational service businesses that from time to time require short-term financing tosupport their business operations and working capital needs. After considering our cash on hand and forecasted cash flows to fund our operations, weprovided financing to certain companies owned or controlled by Mr. Feng, during the periods presented. On October 31, 2016, we provided an interest-free loan in the amount of US$14,500,000 (the “Leonit Loan”) to Hong Kong Leonit Limited, a related party ofthe Company (“Leonit”), due on October 9, 2017. On October 10, 2016, Hailiang Group, controlled by Mr. Feng and a related party of the Company, provided an interest-free loan in the amount ofUS$14,500,000 (the “2016 Hailiang Loan”) to Hailiang Consulting, our PRC WOFE, due when the Leonit Loan is paid off. On October 9, 2017, we and Leonit agreed to extend the due date of the Leonit Loan to October 30, 2018 with automatic renewal. Similarly on October 9, 2017, Hailiang Group and Hailiang Consulting agreed to extend the due date of the 2016 Hailiang Loan to October 30, 2018 withautomatic renewal. Separately, on December 5, 2017, Leonit provided an interest-free loan in the amount of US$1,150,000 (the “2018 Leonit Loan”) to us, due on December 4,2018 with an automatic renewal. Deposits Starting from the 2014 fiscal year, we deposited a certain amount of cash generated from our private education business with Hailiang Finance, a related partyfinance company owned by Hailiang Group. Hailiang Finance may provide funds and financing to entities within the Hailiang Group. As of June 30, 2016, 2017 and 2018, we had held cash at a related party finance entity of RMB171.7 million, RMB61.7 million, and RMB740.7 million(approximately US$111.9 million), respectively. During the years ended June 30, 2016 and 2018, net amount of RMB81.7 million and RMB679.0 million(approximately US$102.6 million) were placed with Hailiang Finance, respectively. During the year ended June 30, 2017, net amount of RMB 110.0 millionwere withdrawn from Hailiang Finance. As of June 30, 2016, 2017 and 2018, we had term deposits with maturities greater than three months but less than twelve months amounting to nil,RMB401.0 million, and RMB204.0 million (approximately US$30.8 million) that were placed at Hailiang Finance, respectively. During the year ended June30, 2016, term deposits of RMB1.2 billion were placed with Hailiang Finance, of which RMB1.3 billion matured. During the year ended June 30, 2017, termdeposits of RMB2.0 billion were placed with Hailiang Finance, of which RMB1.6 billion matured. During the year ended June 30, 2018, term deposits ofRMB204.0 million (approximately US$30.8 million) were placed with Hailiang Finance, of which RMB401.0 million (approximately US$60.6 million)matured. The interest income from the deposits during the years ended June 30, 2016, 2017 and 2018 amounted to RMB2.7 million, RMB5.9 million, and RMB11.5million (approximately US$1.7 million), respectively. As part of our cash management policy, we expect to continue to deposit a certain amount of cashgenerated from our private education business with Hailiang Finance. To reduce our credit exposure with Hailiang Finance, based upon our current policyeffective September 2017, we have set an upper deposit budget maintained by Hailiang Finance at any given time in fiscal 2018 to be approximately RMB1.2 billion (approximately US$181.3 million), and any amount above the upper deposit budget must be transferred to a commercial bank within 7 businessdays. In August 2018, Hailiang Group and Mr. Feng entered into a guarantee agreement with us to irrevocably and jointly guarantee timely return of suchdeposits on behalf of the finance company in the event that the finance company defaults on the return of such deposits or payment of the interest. As of June30, 2018, the balance of deposits we had with Hailiang Finance amounted to RMB740.7 million (approximately US$111.9 million) in cash and RMB204.0million (approximately US$30.8 million) in term deposits, respectively. During the year ended June 30, 2018, our deposits with the finance company aregenerally made in the form of demand deposits or term deposits with terms ranging from three months to six months. The demand deposits are held for thepurpose of meeting short-term cash commitments, such as to pay for our operating expenses at any time. The term deposits are held for investment purposesand can be withdrawn prior to their maturity without incurring significant penalties. We are subject to credit risks associated with the term depositarrangement. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—We deposit a certain amount of cash withrelated parties and are subject to credit risks of such related parties.” 75Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Lease agreements with related parties We lease the school buildings and the related properties and facilities for schools sponsored by us from Hailiang Investment, a company controlled by ourcontrolling shareholder, Mr. Feng. On November 18, 2015, the Company entered into the lease agreement with Hailiang Investment regarding Hailiang Education Park. The term of the lease isfor twenty years and the rental fee in the first year is RMB20.0 million (approximately US$ 3.0 million) and is subject to a 5% increase in the next three years.The rental fee commencing from the fifth year is subject to further negotiation between the Company and Hailiang Investment. The lease covers theproperties and facilities of Hailiang Education Park with a total gross floor area and site area of approximately 550,000 square meters and 850,000 squaremeters, respectively. For the 2016 fiscal year, our total rental expenses increased to RMB25.4 million. For the 2017 fiscal year, our total rental expensesamounted to RMB30.0 million. On December 29, 2017, we terminated above mentioned lease agreement and entered into 4 new lease agreements with Hailiang Investment regardingHailiang Education Park, in order to allocate lease fees to respective schools according to gross floor area. For the 2018 fiscal year, our total rental expensesamounted to RMB31.0 million (approximately US$4.7 million). The terms of our leases are for twenty years. All of our current leases contain priority renewalprovisions which provide that we have the right of first refusal to renew the lease upon the expiration of the lease. Under the lease agreements, we canterminate the lease at any time without cause, provided we notify the lessor in writing three months in advance. The lessor may only terminate the agreementsupon a written notice to us one year in advance for any unapproved sublease by the lessee, unapproved modification to the premises, failure to pay rent formore than 60 days or use of the properties for illegal activities. To terminate the leases for other causes, the lessor would have to give us written notice oneyear in advance and obtain our consent to such termination. However, there is no assurance that the lessor will observe its obligations under these leasingagreements. As a result, at the end of each year or the term of the lease, we may fail to reach an agreement for a rental price or otherwise fail to continue tolease the properties. We may be forced to relocate the affected operations to a new location, which could involve substantial rent increases and materialbusiness interruption. We also lease the office and the related properties and facilities for Jiangxi Haibo Education Management Co., ltd. from Nanchang Hongtou PropertyManagement Co., Ltd., a related party controlled by our non-controlling shareholder. The rental fee amounted to RMB1.5 million (approximately US$0.2million) for the 2018 fiscal year, and is subject to a 3% annual increase in next four years. Leasehold improvement contracts On November 13, 2014, Hailiang Experimental High School entered into three leasehold improvement contracts with Heng Zhong Da, a company affiliatedwith Hailiang Group, for outfitting services and related improvements for student dormitories, educational buildings, dining halls, administrative building,sports stadiums, welcoming center and the school hospital of Hailiang Education Park. Pursuant to the three leasehold improvement contracts, HailiangExperimental High School agreed to pay a total consideration of approximately RMB291.7 million (or RMB223.7 million, RMB12.2 million and RMB55.8million under each of the contracts) to Heng Zhong Da. Heng Zhong Da commenced outfitting and improvements on November 13, 2014 and completed therelevant work prior to June 30, 2016. After a final inspection by Hailiang Experimental High School, the parties of the contracts agreed on the final paymentamount to be based on the actual costs incurred which were approximately RMB291.7 million (or. RMB223.7 million, RMB12.2 million and RMB55.8million under each of the three leasehold improvement contracts). Additionally, we also entered into a series of leasehold improvement contracts with Heng Zhong Da for the leasehold improvement of educational buildings,dining halls, student dormitories of Hailiang Experimental High School and Tianma Experimental School, and amount of the contracts was RMB 34.6million and RMB23.2 million (approximately US$3.5 million) during the years ended June 30, 2017 and 2018, respectively. As of June 30, 2018 and as ofthe date of this annual report on Form 20-F, work related to a certain number of the leasehold improvement contracts have completed and payments remitted,while other contracts are open and payments are expected to be remitted upon work completion. We have paid RMB 22.7 million, RMB 29.4 million, and RMB24.3 million (approximately US$3.7 million) to Heng Zhong Da during the years ended June30, 2016, 2017 and 2018, respectively. Purchase of healthy food products and information service We purchased healthy food products from Ming Kang Hui Health Food Group Co., Ltd., and Ming Kang Hui Ecological Agriculture Group Co., Ltd, twocompanies owned by Hailiang Group, amounting to RMB48.5 million, RMB48.3 million, and RMB38.3 million (approximately US$5.8 million) during theyears ended June 30, 2016, 2017 and 2018, respectively. We received information service from Hangzhou Mingxin Information Technology Co., Ltd, a related company owned by Hailiang Group, amounting toRMB6.9 million (approximately US$1.0 million) during the year ended June 30, 2018. Sales of products and services We provided educational management service to schools acquired by Hailiang Investment, including Xinchang Nanrui Experimental School, Xiantao No.1Middle School and 14 Baishu Schools amounting to RMB12.3 million (approximately US$1.9 million) during the year ended June 30, 2018. We sold products and provide other services such as operation support to other related parties including but not limited to Ming Kang Hui supermarket,amounting to RMB2.0 million, RMB3.8 million and RMB5.0 million (approximately US$0.8 million) during the years ended June 30, 2016, 2017 and 2018. Disposal of affiliated entities to related parties We transferred our 100% equity interest in Tianma Kindergarten and 100% equity interest in Hailiang Kindergarten to Hailiang Preschool Education GroupCo., Ltd, a related party of the Company controlled by Hailiang Group, and transferred the sponsorship and 100% equity interest in Chuzhou School toChuzhou Zhengxu Education Information Consulting Co., Ltd., a related party of the Company controlled by Hailiang Group, and recognized an aggregategain on disposal of RMB5.3 million (approximately US$ 0.8million) during the year ended June 30, 2018. See “Item 5. Operating and Financial Review andProspects—A. Operating Results—Gain on disposal of affiliated entities.”Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Acquisition of Haibo Education and Haibo Logistics In August 2017, Haibo Education and Haibo Logistics were incorporated by Xinyu Baishu Technology Service Co., Ltd. (“Xinyu Baishu”), an entityultimately controlled by Mr. Feng. The contributed capital from Xinyu Baishu was RMB6.0 million and RMB5.0 million, respectively. In January 2018,Xinyu Baishu transferred 56% equity interests in Haibo Education and Haibo Logistics to Ningbo Haoliang with considerations of RMB3.4 million andRMB2.8 million, respectively. The considerations were equivalent to the cost of 56% of the contributed capital since Haibo Education and Haibo Logisticshad no substantive operation as of the acquisition date. Haibo Education and Haibo Logistics were under common control with us both immediately beforeand after the acquisition, and we recognized the assets and liabilities of Haibo Education and Haibo Logistics at historical cost. In January 2018, Xinyu Baishu also transferred the remaining 44% equity interest in Haibo Education and Haibo Logistics to Nanchang Baishu Technology,a related party of us. The 44% equity interests owned by Nanchang Baishu were reocorded as non-controlling interests 76Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Employment Agreements See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Employment Agreements.” C. Interests of Experts and Counsel Not applicable. Item 8. FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information We have included consolidated financial statements filed as part of this annual report on Form 20-F. Please see “Item 18. Financial Statements.” B. Significant Changes Except as disclosed elsewhere in this annual report on Form 20-F, we have not experienced any significant changes since the date of our audited consolidatedfinancial statements included in this annual report on Form 20-F. Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financialstatements included in this annual report. Item 9. THE OFFER AND LISTING A. Offering and Listing Details. Our ADSs are listed on the NASDAQ Global Market under the symbol “HLG.” Each ADS represents 16 of our ordinary shares. For the period from June 30,2017 to June 30, 2018, the trading price of our ADSs on the NASDAQ Global Market has ranged from US$8.55 to US$88.92 per ADS. 77Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following table provides the high and low trading prices for our ADSs on the NASDAQ Global Market for the periods specified. Sales Price (US $) High Low Annual High and Low 2016 (from July 7, 2015) 12.50 7.34 2017 10.51 7.02 2018 (from July 1, 2017) 88.92 8.55 Quarterly High and Low Third Quarter 2018 82.22 63.67 Fourth Quarter 2018 (through October 17, 2018) 71.56 57.33Monthly High and Low May 2018 83.15 67.40 June 2018 87.56 75.01 July 2018 82.17 74.42 August 2018 82.22 64.13 September 2018 76.65 63.67 October 2018 (through October 17, 2018) 71.56 57.33 B. Plan of Distribution Not applicable. C. Markets Our ADSs, each representing 16 of our ordinary shares, have been listed on the NASDAQ Global Market since July 7, 2015 under the symbol “HLG.” D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the Issue Not applicable. Item 10. ADDITIONAL INFORMATION A. Share Capital Not applicable. B. Memorandum and Articles of Association We incorporate by reference into this annual report our amended and restated memorandum of association filed as Exhibit 3.1 to our F-1 registrationstatement (File No. 333-201263) and amended and restated articles of association filed as Exhibit 3.3 to our F-1 registration statement (File No. 333-201263),as amended, initially filed with the SEC on December 24, 2014. C. Material Contracts We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on theCompany” or elsewhere in this annual report on Form 20-F. D. Exchange Controls See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Foreign Exchange” and “Item 4. Information on theCompany—B. Business Overview—Regulations—Regulations on Dividend Distribution.” 78Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. E. Taxation Cayman Islands Taxation The Cayman Islands currently has no exchange control restrictions. The Cayman Islands currently levies no taxes on individuals or corporations based uponprofits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material tous levied by the government of the Cayman Islands, save certain stamp duties which may be applicable, from time to time, on certain instruments executed inor brought within the jurisdiction of the Cayman Islands.. Pursuant to section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor in Cabinet: (a)that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us orour operations; and (b)in addition, that no tax levied on profits, income, gains or appreciation or no tax which is in the nature of estate duty or inheritance tax shall bepayable by us: (i)on or in respect of the shares, debentures or our other obligations; or (ii)by way of withholding in whole or in part of any relevant payment as defined in section 6(3) of the Tax Concession Law (2011 Revision). The undertaking is for a period of 20 years from January 27, 2015. People’s Republic of China Taxation Hailiang Inc. is a holding company incorporated in the Cayman Islands and its income depends primarily on dividends from our PRC subsidiaries. The NewEIT Law and its implementation rules provide that an income tax rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprise shareholders unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government andgovernments of other countries or regions. Under the Double Tax Avoidance Arrangement, dividends paid by a foreign-invested enterprise in the PRC to itsdirect holding company, which is considered a Hong Kong tax resident and is determined by the PRC tax authority to have satisfied relevant requirementsunder the Double Tax Avoidance Arrangement between China and Hong Kong and other applicable PRC laws, will be subject to withholding tax at the rateof 5%. Entitlement to a lower tax rate on dividends according to tax treaties or arrangements between the PRC central government and governments of othercountries or regions is subject to approval of the relevant tax authority. Furthermore, the State Administration of Taxation promulgated Circular 601 inOctober 2009, which provides guidance for determining whether a resident of a contracting state is the “beneficial owner” of an item of income under China’stax treaties and tax arrangements. Under Circular 601, a beneficial owner generally must be engaged in substantive business activities. An agent or conduitcompany will not be regarded as a beneficial owner and, therefore, will not qualify for tax benefits under the treaties or arrangements. The conduit companynormally refers to a company that is set up for the purpose of avoiding or reducing taxes or transferring or accumulating profits. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Our subsidiaries and affiliated entities in China are subject to restrictions on makingdividends and other payments to us.” Under the New EIT Law, enterprises established under the laws of jurisdictions outside China with their “de facto management body” located within Chinamay be considered to be PRC tax resident enterprises for tax purposes and therefore subject to PRC enterprise income tax at the rate of 25% on theirworldwide income. The New EIT Law Implementation Regulations define the term “de facto management body” as a management body that exercises full orsubstantial control and management authority over the production, operation, personnel, accounts and properties of an enterprise. The State Administrationof Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises onthe Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “defacto management body” of a Chinese-controlled offshore incorporated enterprise is located in China, which include all of the following conditions: (i) thesenior management and core management departments in charge of daily operations are located mainly within the PRC, (ii) financial and human resourcesdecision are subject to determination or approval by persons or bodies in the PRC, (iii) major assets, accounting books, company seals and minutes and filesof board and shareholders’ meeting are located or kept within the PRC, and (iv) at least half of the enterprise’s directors with voting rights or seniormanagement reside within the PRC. Although Circular 82 explicitly provides that the above standards apply to enterprises which are registered outside thePRC and funded by PRC enterprises or PRC enterprise groups as controlling investors, the determining criteria set forth in Circular 82 may reflect the generalposition of the State Administration of Taxation on how the “de facto management body” test should be applied in determining the tax resident status ofoffshore enterprises, regardless of whether they are controlled by PRC enterprises or PRC enterprise groups or by PRC or foreign individuals. We currently donot believe that we or our Hong Kong subsidiary meet all of the conditions above and thus we do not believe that we are, or our Hong Kong subsidiary is, aPRC resident enterprise but there can be no assurance in this regard. If we and/or our Hong Kong subsidiary were considered to be a PRC tax residententerprise, we and/or our Hong Kong subsidiary would be subject to a PRC enterprise income tax on our and/or its worldwide income at a tax rate of 25% andto certain reporting obligations. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Under the New EIT Law, wemay be classified as a “resident enterprise” of China. Such classification could result in unfavorable tax consequences to us and our non-PRC shareholders. The implementation rules of the New EIT Law provide that, (i) if the enterprise that distributes dividends is domiciled in the PRC, or (ii) if gains are realizedfrom transferring equity interests of enterprises domiciled in the PRC, then such dividends or capital gains are treated as China-sourced income. It is not clearhow “domicile” may be interpreted under the New EIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident. Any dividendswe pay to our overseas shareholders or ADS holders as well as gains realized by such shareholders or ADS holders from the transfer of our shares or ADSs maybe regarded as China-sourced income, if we are considered a PRC tax resident enterprise for tax purposes, and as a result, such dividends and capital gainspaid to overseas shareholders or ADS holders that are non-PRC resident enterprises may become subject to PRC income tax at a rate of up to 10.0%, unlessotherwise exempted or reduced under relevant tax treaties or arrangements between the PRC and relevant foreign jurisdictions. Under the PRC IndividualIncome Tax Law promulgated on September 10, 1980, as amended in 1993, 1999, 2005, 2007 and 2011 and its implementation rules, dividends from sourceswithin the PRC paid to foreign individual investors who are not residents of the PRC are ordinarily subject to a PRC withholding tax at a rate of 20% andPRC source gains realized by such investors on the transfer of ADSs or shares would be subject to 20% PRC income tax, in each case, subject to anyreduction or exemption set forth in applicable tax treaties and PRC laws. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Businessin China—Under the New EIT Law, we may be classified as a “resident enterprise” of China. Such classification could result in unfavorable tax consequencesSource: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.to us and our non-PRC shareholders.” Under PRC laws, payers of the PRC sourced income to non-PRC-resident enterprises are generally obligated to withhold PRC income taxes from thepayment. In the event of failure to withhold, the non-PRC-resident enterprises are required to pay such taxes on their own. Failure to comply with the taxpayment obligations by the non-PRC-resident enterprises will result in penalties, including full payment of taxes owed, fines, and default interest on thosetaxes. 79Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. United States Federal Income Taxation The following discussion describes the material United States federal income tax consequences to a United States Holder (as defined below), under currentlaw, of an investment in our ADSs or ordinary shares. This discussion is based on the federal income tax laws of the United States as of the date of this annualreport, including the United States Internal Revenue Code, as amended, or the Code, existing and proposed Treasury regulations promulgated thereunder,judicial authority, published administrative positions of the IRS and other applicable authorities, all as of the date of this annual report. All of the foregoingauthorities are subject to change, which change could apply retroactively and could significantly affect the tax consequences described below. We have notsought any ruling from the IRS with respect to the statements made and the conclusions reached in the following discussion and there can be no assurancethat the IRS or a court will agree with our statements and conclusions. This summary does not discuss the so-called Medicare tax on net investment income,any federal non-income tax laws, including the federal estate or gift tax laws, or the laws of any state, local or non-United States taxing jurisdiction. This discussion applies only to a United States Holder (as defined below) that holds ADSs or ordinary shares as capital assets for United States federal incometax purposes (generally, property held for investment). The discussion neither addresses the tax consequences to any particular investor nor describes all ofthe tax consequences applicable to persons in special tax situations, such as: ·banks;·certain financial institutions;·insurance companies;·regulated investment companies;·real estate investment trusts;·brokers or dealers in stocks and securities, or currencies;·persons who are required to use a mark-to-market method of accounting;·certain former citizens or residents of the United States subject to Section 877 of the Code;·entities subject to the United States anti-inversion rules;·tax-exempt organizations and entities;·persons subject to the alternative minimum tax provisions of the Code;·persons whose functional currency is other than the United States dollar;·persons holding ADSs or ordinary shares as part of a straddle, hedging, conversion or integrated transaction;·persons holding ADSs or ordinary shares through a bank, financial institution or other entity, or a branch thereof, located, organized or residentoutside the United States;·persons that actually or constructively own 10% or more of the total combined voting power of all classes of our voting stock;·persons who acquired ADSs or ordinary shares pursuant to the exercise of an employee stock option or otherwise as compensation; or ·partnerships or other pass-through entities, or persons holding ADSs or ordinary shares through such entities;or ·beneficiaries of a trust holding ADSs or ordinary shares. If a partnership (including an entity or arrangement treated as a partnership for United States federal income tax purposes) holds our ADSs or ordinary shares,the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A partner in apartnership holding our ADSs or ordinary shares should consult its own tax advisors regarding the tax consequences of holding our ADSs or ordinary shares. The following discussion is for informational purposes only and is not a substitute for careful tax planning and advice. Investors considering thepurchase of ADSs or ordinary shares should consult their own tax advisors with respect to the application of the United States federal income tax laws totheir particular situations, as well as any tax consequences arising under the Medicare tax on net investment income, any federal non-income tax laws,including the federal estate or gift tax laws, or the laws of any state, local or non-United States taxing jurisdiction and under any applicable tax treaty. 80Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. For purposes of the discussion below, a “United States Holder” is a beneficial owner of our ADSs or ordinary shares that is, for United States federal incometax purposes: ·an individual who is a citizen or resident of the United States;·a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of theUnited States, any state thereof or the District of Columbia;·an estate, the income of which is subject to United States federal income taxation regardless of its source; or·a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more United States personshave the authority to control all of its substantial decisions or (ii) in the case of a trust that was treated as a domestic trust under the law in effectbefore 1997, a valid election is in place under applicable Treasury Regulations to treat such trust as a domestic trust. The discussion below assumes that the representations contained in the deposit agreement and any related agreements are true and that the obligations insuch agreements will be complied with in accordance with their terms. ADSs If you own our ADSs, then you should be treated as the owner of the underlying ordinary shares represented by those ADSs for United States federal incometax purposes. Accordingly, deposits or withdrawals of ordinary shares for ADSs should not be subject to United States federal income tax. The United States Treasury Department and the IRS have expressed concerns that intermediaries in the chain of ownership between the holder of an ADS andthe issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying security (forexample, a pre-release of ADSs to persons that do not have beneficial ownership of the securities underlying the ADSs). Such actions may be inconsistentwith the claiming of the reduced rate of tax applicable to certain dividends received by non-corporate United States Holders of ADSs, including individualUnited States Holders, and the claiming of foreign tax credits by United States Holders of ADSs. Accordingly, among other things, the availability of foreigntax credits or the reduced tax rate for dividends received by non-corporate United States Holders, each discussed below, could be affected by actions taken byintermediaries in the chain of ownership between the holder of an ADS and our company, if as a result of such actions, the holders of ADSs are not properlytreated as beneficial owners of ordinary shares. Passive Foreign Investment Company We are unable to determine whether we were a passive foreign investment company for U.S. federal income tax purposes, or a PFIC, for our taxable yearending on June 30, 2018. For U.S. federal income tax purposes, an entity is a PFIC for any taxable year if applying applicable look-through rules, either (i) atleast 75% of its gross income for such year is passive income, or (ii) at least 50% of the value of its assets (determined based on a quarterly average) duringsuch year is attributable to assets that produce or are held for the production of passive income. The determination of PFIC status is based on an annualdetermination that cannot be made until the close of a taxable year, involves extensive factual investigation, including ascertaining the fair market value ofall of our assets on a quarterly basis and the character of each item of income that we earn, and is subject to uncertainty in several respects. We have not beenable to determine the fair market value of all of our assets on a quarterly basis with sufficient certainty to determine whether we were a PFIC for our taxableyear ending on June 30, 2018. Additionally, we have a significant amount of cash, which is a passive asset, and consequently the determination of our PFICstatus for our current taxable year ending on June 30, 2018 will depend primarily on the trading price of our ADSs and the rate at which we use our cash(including cash raised in our initial public offering) and other liquid assets to acquire non-passive assets during the remainder of the current taxable year.Accordingly, we cannot confirm that we will be treated as a PFIC for our current taxable year or for any future taxable year or that the United States InternalRevenue Service, or IRS, will not take a contrary position. A non-United States corporation such as ourselves will be treated as a PFIC, as defined in Section 1297(a) of the Code, for United States federal income taxpurposes for any taxable year if, applying applicable look-through rules, either: ·at least 75% of its gross income for such year is passive income; or ·at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets thatproduce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties, and rents (other than certain royalties and rents derived in the activeconduct of a trade or business and not derived from a related person). We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own,directly or indirectly, more than 25% by value of the stock. The determination of whether we are or will become a PFIC for any taxable year may depend inpart upon the value of our goodwill and other unbooked intangibles not reflected on our balance sheet (which may be determined based upon the marketvalue of our ADSs or ordinary shares from time to time). A material decline in the trading price of our ADSs relative to their current trading price may result inus becoming a PFIC. Based on our operations and the composition of our assets we do not expect to be treated as a PFIC under the current PFIC rules. We however, must make aseparate determination each year as to whether we are a PFIC, and there can be no assurance with respect to our status as a PFIC for our current taxable year orany future taxable year. Depending on the assets held for the production of passive income, it is possible that, for our 2018 taxable year or for any subsequentyear, more than 50% of our assets may be assets which produce passive income. We will make this determination following the end of any particular tax year.Although the law in this regard is unclear, we are treating Hailiang Management and its subsidiaries as being owned by us for United States federal incometax purposes, not only because we control their management decisions, but also because we are entitled to the economic benefits associated with HailiangManagement and its subsidiaries, and as a result, we are treating Hailiang Management as our wholly-owned subsidiary for U.S. federal income tax purposes.For purposes of the PFIC analysis, in general, according to Internal Revenue Code Section 1297(c), a non-U.S. corporation is deemed to own its pro rata shareof the gross income and assets of any entity in which it is considered to own at least 25% of the equity by value. Although we do not technically own anystock in Hailiang Management, because of our control of management decisions of Hailiang Management, our entitlement to economic benefits associatedwith Hailiang Management, and the inclusion of Hailiang Management as part of the consolidated group, there is a reasonable risk that our interest inHailiang Management might be considered a deemed stock interest. Therefore, the income and assets of Hailiang Management and its subsidiaries should beSource: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.included in the determination of whether or not we are a PFIC in any taxable year. It is important to emphasize that there is little to no guidance other thanthe statute itself (Internal Revenue Code Section 1297(c)) and analogous portions of the code, treasury regulations and other accepted authorities and as suchit is possible for the IRS to challenge the argument that the look through rule would apply in this case, especially since the statute explicitly says “stock.”Thus, if we are not treated as owning Hailiang Management and its subsidiaries for United States federal income tax purposes, we would likely be treated as aPFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affectedby how, and how quickly, we spend our cash and other liquidity assets. We are under no obligation to take steps to reduce the risk of our being classified as aPFIC, and as stated above, the determination of the value of our assets will depend upon material facts (including the market price of our ADSs or ordinaryshares from time to time) that may not be within our control. If we are a PFIC for any year during which you hold our ADSs or ordinary shares, we willcontinue to be treated as a PFIC for all succeeding years during which you hold our ADSs or ordinary shares. However, if we cease to be a PFIC and you didnot previously make a timely “mark-to-market” election as described below, you may avoid some of the adverse effects of the PFIC regime by making a“purging election” (as described below) with respect to our ADSs or ordinary shares. 81Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. If we are a PFIC for any taxable year (which we are currently unable to determine) during which you hold ADSs or ordinary shares, then, unless you make a“mark-to-market’’ election (as discussed below), you generally will be subject to special and adverse tax rules with respect to any ‘‘excess distribution’’ thatyou receive from us and any gain that you recognize from a sale or other disposition, including a pledge, of the ADSs or ordinary shares. For this purpose,distributions that you receive in a taxable year that are greater than 125% of the average annual distributions that you received during the shorter of the threepreceding taxable years or your holding period for the ADSs or ordinary shares will be treated as an excess distribution. Under these rules: ·the excess distribution or recognized gain will be allocated ratably over your holding period for the ADSs or ordinary shares, as applicable;·the amount of the excess distribution or recognized gain allocated to the current taxable year, and to any taxable years in your holding period priorto the first taxable year in which we were treated as a PFIC, will be treated as ordinary income; and·the amount of the excess distribution or recognized gain allocated to each other taxable year will be subject to the highest tax rate in effect forindividuals or corporations, as applicable, for each such year and the resulting tax will be subject to the interest charge generally applicable tounderpayments of tax. The tax liability for amounts allocated to years prior to the year of disposition or excess distribution cannot be offset by any net operating losses for suchyears, and gains (but not losses) from a sale or other disposition of the ADSs or ordinary shares cannot be treated as capital, even if you hold the ADSs orordinary shares as capital assets. A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election under Section 1296 of the Code for such stock to electout of the tax treatment discussed above. If you make a mark-to-market election for first taxable year which you hold (or are deemed to hold) our ADSs orordinary shares and for which we are determined to be a PFIC, you will include in your income each year an amount equal to the excess, if any, of the fairmarket value of our ADSs or ordinary shares as of the close of such taxable year over your adjusted basis in such ADSs or ordinary shares, which excess willbe treated as ordinary income and not capital gain. You are allowed an ordinary loss for the excess, if any, of the adjusted basis of our ADSs or ordinary sharesover their fair market value as of the close of the taxable year. However, such ordinary loss is allowable only to the extent of any net mark-to-market gains onour ADSs or ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well asgain on the actual sale or other disposition of our ADSs or ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to any lossrealized on the actual sale or disposition of our ADSs or ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-marketgains previously included for such ADSs or ordinary shares. Your basis in our ADSs or ordinary shares will be adjusted to reflect any such income or lossamounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply todistributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “— Dividends and OtherDistributions on the ADSs or Ordinary Shares if we are not a PFIC” generally would not apply. The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 daysduring each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including theNasdaq Capital Market. If our ADSs or ordinary shares are regularly traded on the Nasdaq Capital Market and if you are a holder of our ADSs or ordinaryshares, the mark-to-market election would be available to you were we to be or become a PFIC. Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election under Section 1295(b) of the Code with respect to such PFIC toelect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally includein gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electingfund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicableU.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election.If you hold our ADSs or ordinary shares in any taxable year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 ineach such year and provide certain annual information regarding such ADSs or ordinary shares, including regarding distributions received on our ADSs orordinary shares and any gain realized on the disposition of our ADSs or ordinary shares. If you do not make a timely “mark-to-market” election (as described above), and if we were a PFIC at any time during the period you hold our ADSs orordinary shares, then such ADSs or ordinary shares will continue to be treated as stock of a PFIC with respect to you even if we cease to be a PFIC in a futureyear, unless you make a “purging election” for the year we cease to be a PFIC. A “purging election” creates a deemed sale of such ADSs or ordinary shares attheir fair market value on the last day of the last year in which we are treated as a PFIC. The gain recognized by the purging election will be subject to thespecial tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, you will have a newbasis (equal to the fair market value of our ADSs or ordinary shares on the last day of the last year in which we are treated as a PFIC) and holding period(which new holding period will begin the day after such last day) in our ADSs or ordinary shares for tax purposes. A United States Holder that holds our ADSs or ordinary shares in any year in which we are classified as a PFIC (which we are currently unable to determine)will be required to file an annual report containing such information as the United States Treasury Department may require. You should consult your own tax advisor regarding the application of the PFIC rules to your investment in our ADSs or ordinary shares and theavailability, application and consequences of the elections discussed above. 82Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Dividends and Other Distributions on the ADSs or Ordinary Shares if we are not a PFIC Subject to the passive foreign investment company rules discussed above, the gross amount of any distribution that we make to you with respect to our ADSsor ordinary shares (including any amounts withheld to reflect PRC or other foreign withholding taxes, if any) will be taxable as a dividend, to the extent paidout of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Such income (including any withheld taxes) will be includable in your gross income on the day actually or constructively received by you, if you own theordinary shares, or by the depositary, if you own ADSs. Because we do not intend to determine our earnings and profits on the basis of United States federalincome tax principles, any distribution paid will generally be reported as a “dividend” for United States federal income tax purposes. Such dividends will notbe eligible for the dividends-received deduction allowed to qualifying corporations under the Code. If we are not a PFIC, dividends we distribute to a non-corporate United States Holder may qualify for the lower rates of tax applicable to “qualified dividendincome,” if we are paid by a “qualified foreign corporation” and other conditions discussed below are met. A non-United States corporation is treated as aqualified foreign corporation (i) with respect to dividends paid by that corporation on shares (or American depositary shares backed by such shares) that arereadily tradable on an established securities market in the United States or (ii) if such non-United States corporation is eligible for the benefits of a qualifyingincome tax treaty with the United States that includes an exchange of information program. However, a non-United States corporation will not be treated as aqualified foreign corporation if it is a PFIC for the taxable year in which the dividend is paid or the preceding taxable year. Under a published IRS Notice, common or ordinary shares, or ADSs representing such shares, are considered to be readily tradable on an established securitiesmarket in the United States if they are listed on the Nasdaq Global Market, as are our ADSs (but not our ordinary shares). Based on existing guidance, it isunclear whether the ordinary shares are considered to be readily tradable on an established securities market in the United States, because only the ADSs, andnot the underlying ordinary shares, are listed on a securities market in the United States. We believe, but we cannot assure you, that dividends we pay on theordinary shares that are represented by ADSs, but not on the ordinary shares that are not so represented, are, subject to applicable limitations, eligible for thereduced rates of taxation if we are not a PFIC. In addition, if we are treated as a PRC resident enterprise under the PRC tax law (see “—People’s Republic ofChina Taxation”), then we may be eligible for the benefits of the income tax treaty between the United States and the PRC. If we are eligible for such benefits,then dividends that we pay on our ordinary shares, regardless of whether such shares are represented by ADSs, would, subject to applicable limitations, beeligible for the reduced rates of taxation, if we are not a PFIC. Even if dividends would be treated as paid by a qualified foreign corporation and we are not a PFIC, non-corporate United States Holders will not be eligiblefor reduced rates of taxation if they do not hold our ADSs or ordinary shares for more than 60 days during the 121-day period beginning 60 days before theex-dividend date or if such United States Holders elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code. Inaddition, the rate reduction will not apply to dividends of a qualified foreign corporation if the non-corporate United States Holder receiving the dividend isobligated to make related payments with respect to positions in substantially similar or related property. You should consult your own tax advisors regarding the availability of the lower tax rates applicable to qualified dividend income for any dividends that wepay with respect to the ADSs or ordinary shares, as well as the effect of any change in applicable law after the date of this annual report. PRC or other foreign withholding taxes, if any, imposed on dividends paid to you with respect to ADSs or ordinary shares generally will be treated as foreigntaxes eligible for credit against your United States federal income tax liability, subject to the various limitations and disallowance rules that apply to foreigntax credits generally. For purposes of calculating the foreign tax credit, dividends paid to you with respect to the ADSs or ordinary shares will be treated asincome from sources outside the United States and generally will constitute passive category income. The rules relating to the determination of the foreigntax credit are complex, and you should consult your tax advisors regarding the availability of a foreign tax credit in your particular circumstances. Disposition of the ADSs or Ordinary Shares if we are not a PFIC You will recognize gain or loss on a sale or exchange of ADSs or ordinary shares in an amount equal to the difference between the amount realized on the saleor exchange and your tax basis in the ADSs or ordinary shares. Subject to the discussion under “—Passive Foreign Investment Company” above, such gain orloss generally will be capital gain or loss if we are not a PFIC. Capital gains of a non-corporate United States Holder, including an individual, that has heldthe ADS or ordinary share for more than one year currently are eligible for the reduced tax rates. The deductibility of capital losses is subject to limitations. Any gain or loss that you recognize on a disposition of our ADSs or ordinary shares generally will be treated as United States-source income or loss forforeign tax credit limitation purposes. However, if we are treated as a PRC resident enterprise for PRC tax purposes subject to PRC taxation as a resident fortreaty purposes and PRC tax is imposed on gain from the disposition of ADSs or ordinary shares (see “—People’s Republic of China Taxation”), then aUnited States Holder that is eligible for the benefits of the income tax treaty between the United States and the PRC may elect to treat the gain as PRC-sourceincome for foreign tax credit purposes. If such an election is made, the gain so treated will be treated as a separate class or “basket” of income for purposes of the foreign tax credit under Section865(h) of the Code. You should consult your tax advisors regarding the proper treatment of gain or loss, as well as the availability of a foreign tax credit, inyour particular circumstances. 83Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Information Reporting and Backup Withholding Dividend payments with respect to our ADSs or ordinary shares and proceeds from the sale, exchange or redemption of our ADSs or ordinary shares may besubject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding under Section 3406 of the Code with at a currentflat rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any otherrequired certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required toestablish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their taxadvisors regarding the application of the U.S. information reporting and backup withholding rules. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, andyou may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. InternalRevenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders. Transactions effected throughcertain brokers or other intermediaries, however, may be subject to withholding taxes (including backup withholding), and such brokers or intermediariesmay be required by law to withhold such taxes. Under the Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to our ADSs or ordinaryshares, subject to certain exceptions (including an exception for ADSs or ordinary shares held in accounts maintained by certain financial institutions), byattaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which theyhold our ADSs or ordinary shares. Information on Foreign Financial Assets Under legislation enacted in 2010, United States Holders who are individuals generally will be required to report our name, address and such informationrelating to an interest in the ADSs or ordinary shares as is necessary to identify the class or issue of which your ADSs or ordinary shares are a part. Theserequirements are subject to exceptions, including an exception for ADSs or ordinary shares held in accounts maintained by certain financial institutions andan exception applicable if the aggregate value of all “specified foreign financial assets” (as defined in the Code) does not exceed certain specified thresholds.United States Holders should consult their tax advisors regarding the application of these information reporting rules. F. Dividends and Paying Agents Not applicable. G. Statement by Experts Not applicable. H. Documents on Display We have previously filed with the SEC our registration statements on Form F-1 (File Number 333-201263), as amended. We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reportsand other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. Copies ofreports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilitiesmaintained by the SEC at Judiciary Plaza, 100 F Street, N.E., Washington, D.C. 20549, and at the regional office of the SEC located at Citicorp Center, 500West Madison Street, Suite 1400, Chicago, Illinois 60661. The public may obtain information regarding the Washington, D.C. Public Reference Room bycalling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov that contains reports, proxy and information statements, andother information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from therules of the Exchange Act prescribing, among other things, the furnishing and content of proxy statements to shareholders, and our executive officers,directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In accordance with Rule 5250(d) of the NASDAQ Listing Rules, we will post this annual report on Form 20-F on our website www.hailiangschool.com. Inaddition, we will provide hardcopies of our annual report free of charge to shareholders and ADS holders upon request. I. Subsidiary Information For a listing of our subsidiaries, see “Item 4. Information on the Company—C. Organizational Structure.” Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Exchange Risk Our financial statements are expressed in Renminbi, and substantially all of our revenue, costs and expenses are denominated in Renminbi. Additionally, ourcash and cash equivalents are held in both Renminbi and U.S. dollars. As a result, fluctuations in the exchange rates between the U.S. dollar and Renminbimay affect our results of operations and financial condition. 84Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Renminbi’s exchange rate with the U.S. dollar is affected by, among other things, changes in China’s political and economic conditions and China’sforeign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar.Under such policy, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Later on, thePeople’s Bank of China has decided to further implement the reform of the RMB exchange regime and to enhance the flexibility of RMB exchange rates.Such changes in policy have resulted in a significant appreciation of the Renminbi against the U.S. dollar since 2005 though there have been periods whenthe U.S. dollar has appreciated against the Renminbi as well. There remains significant international pressure on the PRC government to adopt a moreflexible currency policy, which could result in a further and more significant adjustment of the Renminbi against the U.S. dollar. To the extent that we need to convert U.S. dollars we receive from financing activities into the Renminbi for our operations or other uses within the PRC,appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. On theother hand, a decline in the value of the Renminbi against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results, the value ofyour investment in our company and the dividends we may pay in the future, if any, all of which may have a material adverse effect on the prices of ADSs. Asof June 30, 2018, we had U.S. dollar-denominated cash balances of US$2.0 million. Assuming we had converted the US$2.0 million into the Renminbi at theexchange rate of US$1 for RMB6.6171 as of June 30, 2018, this cash balance would have been RMB13.5 million. Assuming a 1% appreciation of the RMBagainst the U.S. dollar, this cash balance would have decreased by RMB135,000 (approximately US$20,000). In addition, very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into anyhedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in thefuture, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, ourcurrency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency. Credit Risk Our credit risk is primarily attributable to cash in banks, cash and term deposits held at a related party finance entity, other receivables due from relatedparties and other current assets. All of our cash is denominated in RMB, which is held by financial institutions located within the PRC. Financial institutions in the PRC do not haveinsurance similar to that provided by the Federal Deposit Insurance Corporation in the United States of America. We have historically made deposits withHailiang Finance. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Transactions with Certain RelatedParties—Deposits.” Hailiang Finance, a subsidiary of Hailiang Group, is a finance company that is licensed to provide intra-group financing arrangementswithin Hailiang Group subsidiaries and other related party companies. The establishment of Hailiang Finance was approved by the China BankingRegulatory Commission, or CBRC, as a non-banking financial institution to solely facilitate Hailiang Group’s internal financing transactions includingissuing loans to and accepting cash deposits from its subsidiaries and other related party entities. Pursuant to the license issued by CBRC, Hailiang Finance isnot permitted to make any loans or accept any deposits from any parties that are unrelated to Hailiang Group, except for inter-bank transactions with otherunrelated commercial banks. Hailiang Group and Mr. Feng have provided a guarantee on our deposits with Hailiang Finance. Based on one recent PRC creditrating organization, Hailiang Group has been rated AA+ which indicates strong ability to make payments on debts as they become due. Management believesthat the credit risk on our deposit is low considering Hailiang Group’s guarantee and credit rating. To reduce our credit exposure with Hailiang Finance,based upon our current policy effective from October 10, 2018, we have set an upper deposit budget maintained by Hailiang Finance at any given time infiscal 2019 to be approximately RMB1.9 billion (approximately US$287.1 million), and any amount above the upper deposit budget must be transferred to acommercial bank within 7 business days. As of June 30, 2018, we had cash and term deposits of RMB944.7 million (approximately US$142.8 million) atHailiang Finance which represented 83.8% of our consolidated current assets as of June 30, 2018. In order to minimize the credit risk on other receivables due from related parties and other current asset, our management makes periodic collectiveassessments on the recoverability of receivables based on historical settlement records and past experience. Our management believes that there is no materialcredit risk on our other receivables due from related parties in the amount of RMB95.1 million (approximately US$14.4 million) and other current assets ofRMB15.2 million (approximately US$2.3 million), as of June 30, 2018. Liquidity Risk Liquidity risk is the risk that we will encounter difficulty in meeting the obligations associated with our financial liabilities that are settled by deliveringcash or other financial assets. Our approach to managing liquidity is to ensure, as far as possible, that we will always have sufficient liquidity to meet ourliabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation. The following are the contractual maturities of financial liabilities, including estimated interest payments: June 30, 2018 Non-derivativefinancialinstruments Carryingamount Contractual cashflows 1 year or less Trade and other payables RMB279,719 RMB279,719 RMB279,719 (US$42,272) (US$42,272) (US$42,272) 85Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Interest Rate Risk The interest rates of cash held in bank and deposits placed with Hailiang Finance ranged from 0.35% to 1.43% per annum for the year ended June 30, 2017,and ranged from 0.35% to 1.82% for the year ended June 30, 2018. We do not have any financial assets that were designated at fair value through profit orloss. We have not used derivative financial instruments to hedge interest risk. Interest-earning instruments carry a degree of interest rate risk. We have notbeen exposed, nor do we anticipate being exposed to material risks due to changes in market interest rates. However, our future interest income may fall shortof expectations due to changes in market interest rates. Inflation Risk In recent years, inflation has not had a material impact on our results of operations. According to the National Bureau of Statistics of China, the consumerprice index in China increased by 1.4%, 2.0%, and 1.6% in 2015, 2016, and 2017, respectively. Although we have not in the past been materially affected byinflation since our inception, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China. If inflation rises, itmay materially and adversely affect our business. Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES A. Debt Securities Not applicable. B. Warrants and Rights Not applicable. C. Other Securities Not applicable. D. American Depositary Shares Fees Paid by Our ADS Holders Our ADS holders will be required to pay the following service fees to the depositary bank, Deutsche Bank Trust Company Americas, and certain taxes andgovernmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented byany of your ADSs): Service Fees · To any person to which ADSs are issued or to any person to which a distribution is made in respect of ADS distributions pursuant to stock dividends orother free distributions of stock, bonus distributions, stock splits or other distributions (expect where converted to cash) Up to US$0.05 per ADS issued · Cancellation of ADSs, including the case of termination of the deposit agreement Up to US$0.05 per ADS cancelled · Distribution of cash dividends Up to US$0.05 per ADS held · Distribution of cash entitlements (other than cash dividends) and/or cash proceeds from the sale of rights, securities and other entitlements Up to US$0.05 per ADS held · Distribution of ADSs pursuant to exercise of rights Up to US$0.05 per ADS held · Depositary services Up to US$0.05 per ADS held on the applicable record date(s) established by the depositary bank The fees described above may be amended from time to time. 86Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our ADS holder will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges (inaddition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs) suchas: ·Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in the Cayman Islands (i.e.,upon deposit and withdrawal of ordinary shares). ·Expenses incurred for converting foreign currency into U.S. dollars. ·Expenses for cable, telex and fax transmissions and for delivery of securities. ·Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding taxes (i.e., whenordinary shares are deposited or withdrawn from deposit). ·Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit. ·Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements applicable toordinary shares, deposited securities, ADSs and ADRs. ·Any applicable fees and penalties thereon. The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients)receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank forcancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADSholders and the depositary services fee are charged by the depositary bank to the holders of record of ADSs as of the applicable ADS record date. The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property topay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADS record dateholders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in directregistration), the depositary bank sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts(via the Depository Trust Company, or the DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is theregistered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold theirclients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks. In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service untilpayment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. Fees and Payments from the Depositary to Us Our depositary has agreed to reimburse us for a portion of certain expenses we incur that are related to establishment and maintenance of the ADR program,including investor relations expenses. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount ofreimbursement available to us is not related to the amounts of fees the depositary collects from investors. Further, the depositary has agreed to reimburse uscertain fees payable to the depositary by holders of ADSs. For the year ended June 30, 2018, we did not receive any payment from the depositary inreimbursements relating to the establishment and maintenance of the ADS program. 87Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Part II Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged. Use of Proceeds The following “Use of Proceeds” information relates to the registration statement on Form F-3 (the “Shelf Registration Statement”), filed on December22, 2017 and declared effective on January 5, 2018 (File Number 333-222271) for our shelf offering of $10,000,000 of our ordinary shares, includingordinary shares represented by ADSs, or warrants to purchase ordinary shares or ADSs in any combination from time to time in one or more offerings, at pricesand on terms described in one or more supplements to prospectus as part of the Shelf Registration Statement. As of the date of the annual report on Form 20-F,we have not received any proceeds from our shelf offering as we have not made any takedown in connection with the shelf offering. Item 15. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we carried out anevaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of June 30, 2018. Basedon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of June 30, 2018 wereeffective. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with international financial reporting standards (“IFRSs”). Becauseof its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree ofcompliance with policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our chief executiveofficer and chief financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of June 30, 2018. Theassessment was based on criteria established in the framework Internal Control—Integrated Framework (2013), issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was effectiveas of June 30, 2018. Attestation Report of the Registered Public Accounting Firm This annual report on Form 20-F does not include an attestation report of our registered public accounting firm due to rules of the SEC where domestic andforeign registrants that are “emerging growth companies” which we are, are not required to provide the auditor attestation report. Changes in Internal Control Over Financial Reporting We believe we have fully remediated the material weakness of insufficient resources for financial information processing and reporting and lack ofappropriate IFRSs knowledge, as previously identified and disclosed in the annual reports on Form 20-F for the years ended June 30, 2016 and June 30, 2017. During the fiscal year ended June 30, 2018, we employed a new Chief Financial Officer, Mr. Jian Guo Yu, a Certified Public Accountant with the state ofCalifornia and a member of AICPA, who worked with PricewaterhouseCoopers LLP for years before joining the Company. He has extensive knowledge inSOX404 compliance and is familiar with U.S. GAAP and IFRSs. In addition, key employees within the Company’s accounting department have previousworking experiences with Big 4 Accounting Firms and are familiar with both the IFRSs and Chinese GAAP. As such, our new Chief Financial Officer and ouraccounting staff were able to enhance the Company’s ability to deal with complex accounting issues and timely response to significant events incurred. 88Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In addition , an independent advisory agency was engaged to assist our management in evaluating the design of key controls and conduct internal controltesting, and the identified control deficiencies and assess the impact on financial reporting. The independent advisor directly reported and communicatedwith the Audit Committee. However, we cannot assure you that we will not identify additional material weakness or significant deficiencies in the future. In addition, the process ofdesigning and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our businessand the economic and regulatory environments and to employ significant resources to maintain a financial reporting system that satisfies our reportingobligations. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Failure to maintain effective internal controlover financial reporting could cause us to inaccurately report our financial results or fail to prevent fraud and have a material adverse effect on our business,results of operations and the trading price of ADSs”. As a result, we may be subject to a number of risks, including increased risks that we have or may not fileour financial statements and related reports with the SEC on a timely basis and that there are errors in our reported financial statements and materialmisstatements in our reports and other documents filed with the SEC.” Other than as set forth above, based on an evaluation under the supervision and with the participation of our management, including our chief executiveofficer and chief financial officer, there has been no change in our internal control over financial reporting during the period covered by this annual report onForm 20-F that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT Mr. Ken He qualifies as an “audit committee financial expert” as defined in Item 16A of Form 20-F. Mr. He, Mr. Xiaofeng Cheng, and Mr. Xiaohua Gu satisfythe “independence” requirements of Section 5605(a)(2) of the NASDAQ Listing Rules as well as the independence requirements of Rule 10A-3 under theExchange Act. Item 16B. CODE OF ETHICS Our board of directors has adopted a code of ethics that applies to our directors, officers and employees, including certain provisions that specifically applyto our chief executive officer and chief financial officer. We have filed our code of business conduct and ethics as Exhibit 99.1 to our registration statementon Form F-1 (file No. 333-201263) filed with the SEC on December 24, 2014 and posted the code on our website http: www.hailiangschool.com. We herebyundertake to provide to any person without charge, a copy of our code of business conduct and ethics within ten working days after we receive such person’swritten request. Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by our principalexternal auditors, for the periods indicated. For the year ended June 30, 2017 2018 (In thousand) Audit fees(1) RMB1,424 RMB1,561 US$240 Audit related fees(2) RMB— RMB312 US$48 Tax fees(3) RMB— RMB— US$— All other fees(4) RMB— RMB— US$— TOTAL RMB1,424 RMB1,873 US$288 (1)“Audit fees” means the aggregate fees billed for each of the fiscal years for professional services rendered by our principal accountant for the audit of ourannual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagementsfor those fiscal years. (2)“Audit related fees” means the aggregate fees billed for each of the fiscal years for assurance and related services by our principal accountant that arereasonably related to the performance of the audit or review of our financial statements and are not reported under paragraph (1). (3)"Tax Fees" represents the aggregate fees billed in each of the fiscal years listed for the professional tax services rendered by our principal auditors. (4)"All Other Fees" represents the aggregate fees billed in each of the fiscal years listed for services rendered by our principal auditors other than servicesreported under "Audit fees," "Audit-related fees" and "Tax fees." The policy of our audit committee is to pre-approve all audit and non-audit services provided by our independent auditor including audit services, audit-related services, tax services and other services. Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS None. Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT None. Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.89Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Item 16G. CORPORATE GOVERNANCE As a Cayman Islands company listed on the NASDAQ Global Market, we are subject to the NASDAQ Global Market corporate governance listing standards.However, NASDAQ Global Market rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certaincorporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NASDAQ Global Market corporategovernance listing standards. Nasdaq Listing Rule 5605(b)(1) requires listed companies to have, among other things, a majority of its board members be independent. As a foreign privateissuer, however, we are permitted to, and we may follow home country practice in lieu of the above requirements, or we may choose to comply with the aboverequirement within one year of listing. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our boardto consist of independent directors. Currently, a majority of our board members are independent. Other than those described above, there are no significantdifferences between our corporate governance practices and those followed by U.S. domestic companies under NASDAQ Global Market corporategovernance listing standards. Item 16H. MINE SAFETY DISCLOSURE Not applicable. 90Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Part III Item 17. FINANCIAL STATEMENTS We have elected to provide financial statements pursuant to Item 18. Item 18. FINANCIAL STATEMENTS The consolidated financial statements of Hailiang Education Group Inc. and its subsidiaries are included at the end of this annual report on Form 20-F. Item 19. EXHIBITS Exhibitnumber Description of document1.1 Amended and Restated Memorandum of Association of the Registrant (incorporated by reference to Exhibit 3.1 of our RegistrationStatement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 1.2 Amended and Restated Articles of Association of the Registrant (incorporated by reference to Exhibit 3.3 of our Registration Statement onForm F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 2.1 Form of the Registrant’s American depositary receipt (included in Exhibit 2.3) 2.2 Registrant’s Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.2 of our Registration Statement on Form F-1(file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 2.3 Form of Deposit Agreement between the Registrant, the depositary and holders and beneficial owners of the American depositary shares(incorporated by reference to Exhibit 4.3 of our Registration Statement on Form F-1 (file No. 333-201263), as amended, filed with theSecurities and Exchange Commission on March 20, 2015) 4.1 Form of Employment Agreement between the Registrant and the executive officers of the Registrant (incorporated by reference to Exhibit10.1 of our Registration Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December24, 2014) 4.2 Form of Indemnification Agreement between the Registrant and each of its directors and executive officers (incorporated by reference toExhibit 10.2 of our Registration Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission onDecember 24, 2014) 4.3 English translation of Equity Pledge Agreement among Hailiang Consulting, Mr. Feng and Hailiang Management, dated December 31,2013 (incorporated by reference to Exhibit 10.3 of our Registration Statement on Form F-1 (file No. 333-201263) filed with the Securitiesand Exchange Commission on December 24, 2014) 4.4 English translation of Call Option Agreement among Hailiang Consulting, Hailiang Management and Mr. Feng, dated December 31, 2013(incorporated by reference to Exhibit 10.4 of our Registration Statement on Form F-1 (file No. 333-201263) filed with the Securities andExchange Commission on December 24, 2014) 4.5 English translation of Power of Attorney from Mr. Feng, dated December 31, 2013 (incorporated by reference to Exhibit 10.5 of ourRegistration Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.6 English translation of Consulting Services Agreement among Hailiang Consulting, Hailiang Management, Hailiang Management’saffiliates and Mr. Feng, dated December 31, 2013 (incorporated by reference to Exhibit 10.6 of our Registration Statement on Form F-1(file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.7 English translation of Property Lease Agreement between Hailiang Management Group Co., Ltd. and Zhuji Hailiang Foreign LanguageSchool, dated June 30, 2009 (incorporated by reference to Exhibit 10.7 of our Registration Statement on Form F-1 (file No. 333-201263)filed with the Securities and Exchange Commission on December 24, 2014) 91Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibitnumber Description of document 4.8 English translation of Property Lease Agreement between Hailiang Management Group Co., Ltd. and Hailiang Experimental High School,dated June 30, 2005 (incorporated by reference to Exhibit 10.8 of our Registration Statement on Form F-1 (file No. 333-201263) filed withthe Securities and Exchange Commission on December 24, 2014) 4.9 English translation of Supplemental Agreement to Property Lease Agreement between Hailiang Management Group Co., Ltd. and HailiangExperimental High School, dated June 30, 2012 (incorporated by reference to Exhibit 10.9 of our Registration Statement on Form F-1 (fileNo. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.10 English translation of Property Lease Agreement between Hailiang Management Group Co., Ltd. and Tianma Experimental School, datedJune 30, 2009 (incorporated by reference to Exhibit 10.10 of our Registration Statement on Form F-1 (file No. 333-201263) filed with theSecurities and Exchange Commission on December 24, 2014) 4.11 English translation of Property Lease Cooperation Agreement among Hailiang Management Group Co., Ltd., Hailiang Experimental HighSchool. Hailiang Group and Mr. Feng, dated November 13, 2014 (incorporated by reference to Exhibit 10.11 of our Registration Statementon Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.12 English translation of Decoration and Renovation Project Execution Contract between Hailiang Experimental High School and HengZhong Da Construction Limited Company, dated November 13, 2014 (incorporated by reference to Exhibit 10.12 of our RegistrationStatement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.13 English translation of Guarantee Letter made by Hailiang Group, dated September 29, 2014 (incorporated by reference to Exhibit 10.13 ofour Registration Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.14 English translation of Guarantee Letter made by Mr. Feng dated September 29, 2014 (incorporated by reference to Exhibit 10.14 of ourRegistration Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.15 Amended and Restated Escrow Agreement among the Registrant, Network 1 Financial Securities, Inc. and Continental Stock Transfer &Trust Company, dated June 2, 2015 (incorporated by reference to Exhibit 10.15 of our Registration Statement on Form F-1 (file No. 333-201263), as amended, filed with the Securities and Exchange Commission on June 2, 2015) 4.16 English translation of Amended and Restated Call Option Agreement among Hailiang Consulting, Hailiang Management and Mr. Feng,dated June 30, 2017 (incorporated by reference to Exhibit 10.2 of our Form 6-K filed with the Securities and Exchange Commission onJune 30, 2017) 4.17 English translation of Amended and Restated Power of Attorney from Mr. Feng, dated June 30, 2017 (incorporated by reference to Exhibit10.3 of our Form 6-K filed with the Securities and Exchange Commission on June 30, 2017) 4.18 English translation of Amended and Restated Consulting Services Agreement among Hailiang Consulting, Hailiang Management,Hailiang Management’s affiliates and Mr. Feng, dated June 30, 2017 (incorporated by reference to Exhibit 10.4 of our Form 6-K filed withthe Securities and Exchange Commission on June 30, 2017) 4.19 English translation of Amended and Restated Equity Pledge Agreement among Hailiang Consulting, Mr. Feng and Hailiang Management,dated June 30, 2017 (incorporated by reference to Exhibit 10.1 of our Form 6-K filed with the Securities and Exchange Commission onJune 30, 2017) 4.20 English Translation of Second Amended and Restated Call Option Agreement among Hailiang Consulting, Hailiang Investment, Mr. Fengand Zhejiang Zhongyida Investment Co., Ltd., dated February 23, 2018 (incorporated by reference to Exhibit 10.1 of our Form 6-K filedwith the Securities and Exchange Commission on March 30, 2018) 4.21 English Translation of Second Amended and Restated Powers of Attorney among Mr. Feng, Zhejiang Zhongyida Investment Co., Ltd. andHailiang Consulting, dated February 23, 2018 (incorporated by reference to Exhibit 10.2 of our Form 6-K filed with the Securities andExchange Commission on March 30, 2018) 4.22 English Translation of Second Amended and Restated Consulting Services Agreement among Hailiang Consulting, Hailiang Investment,Mr. Feng and Zhejiang Zhongyida Investment Co., Ltd., dated February 23, 2018 (incorporated by reference to Exhibit 10.3 of our Form 6-K filed with the Securities and Exchange Commission on March 30, 2018) 4.23 English Translation of Second Amended and Restated Equity Pledge Agreement among Hailiang Consulting, Hailiang Investment, Mr.Feng and Zhejiang Zhongyida Investment Co., Ltd., dated February 23, 2018 (incorporated by reference to Exhibit 10.4 of our Form 6-Kfiled with the Securities and Exchange Commission on March 30, 2018) 8.1* Subsidiaries and Affiliated Entities of the Registrant. 11.1 Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 of our Registration Statement on FormF-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 12.1* Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) 12.2* Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 92Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibitnumber Description of document 13.1** Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002 15.1* Consent of Registered Independent Accounting Firm 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* XBRL Taxonomy Extension Label Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document *Filed with this annual report on Form 20-F **Furnished with this annual report on Form 20-F 93Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT INDEX 1.1 Amended and Restated Memorandum of Association of the Registrant (incorporated by reference to Exhibit 3.1 of our RegistrationStatement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 1.2 Form of Amended and Restated Articles of Association of the Registrant (incorporated by reference to Exhibit 3.3 of our RegistrationStatement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 2.1 Form of the Registrant’s American depositary receipt (included in Exhibit 2.3) 2.2 Registrant’s Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.2 of our Registration Statement on Form F-1(file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 2.3 Form of Deposit Agreement between the Registrant, the depositary and holders and beneficial owners of the American depositary shares(incorporated by reference to Exhibit 4.3 of our Registration Statement on Form F-1 (file No. 333-201263), as amended, filed with theSecurities and Exchange Commission on March 20, 2015) 4.1 Form of Employment Agreement between the Registrant and the executive officers of the Registrant (incorporated by reference to Exhibit10.1 of our Registration Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December24, 2014) 4.2 Form of Indemnification Agreement between the Registrant and each of its directors and executive officers (incorporated by reference toExhibit 10.2 of our Registration Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission onDecember 24, 2014) 4.3 English translation of Equity Pledge Agreement among Hailiang Consulting, Mr. Feng and Hailiang Management, dated December 31,2013 (incorporated by reference to Exhibit 10.3 of our Registration Statement on Form F-1 (file No. 333-201263) filed with the Securitiesand Exchange Commission on December 24, 2014) 4.4 English translation of Call Option Agreement among Hailiang Consulting, Hailiang Management and Mr. Feng, dated December 31, 2013(incorporated by reference to Exhibit 10.4 of our Registration Statement on Form F-1 (file No. 333-201263) filed with the Securities andExchange Commission on December 24, 2014) 4.5 English translation of Power of Attorney from Mr. Feng, dated December 31, 2013 (incorporated by reference to Exhibit 10.5 of ourRegistration Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.6 English translation of Consulting Services Agreement among Hailiang Consulting, Hailiang Management, Hailiang Management’saffiliates and Mr. Feng, dated December 31, 2013 (incorporated by reference to Exhibit 10.6 of our Registration Statement on Form F-1(file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.7 English translation of Property Lease Agreement between Hailiang Management Group Co., Ltd. and Zhuji Hailiang Foreign LanguageSchool, dated June 30, 2009 (incorporated by reference to Exhibit 10.7 of our Registration Statement on Form F-1 (file No. 333-201263)filed with the Securities and Exchange Commission on December 24, 2014) 4.8 English translation of Property Lease Agreement between Hailiang Management Group Co., Ltd. and Hailiang Experimental High School,dated June 30, 2005 (incorporated by reference to Exhibit 10.8 of our Registration Statement on Form F-1 (file No. 333-201263) filed withthe Securities and Exchange Commission on December 24, 2014) 4.9 English translation of Supplemental Agreement to Property Lease Agreement between Hailiang Management Group Co., Ltd. and HailiangExperimental High School, dated June 30, 2012 (incorporated by reference to Exhibit 10.9 of our Registration Statement on Form F-1 (fileNo. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.10 English translation of Property Lease Agreement between Hailiang Management Group Co., Ltd. and Tianma Experimental School, datedJune 30, 2009 (incorporated by reference to Exhibit 10.10 of our Registration Statement on Form F-1 (file No. 333-201263) filed with theSecurities and Exchange Commission on December 24, 2014) 94Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 4.11 English translation of Property Lease Cooperation Agreement among Hailiang Management Group Co., Ltd., Hailiang Experimental HighSchool. Hailiang Group and Mr. Feng, dated November 13, 2014 (incorporated by reference to Exhibit 10.11 of our Registration Statementon Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.12 English translation of Decoration and Renovation Project Execution Contract between Hailiang Experimental High School and HengZhong Da Construction Limited Company, dated November 13, 2014 (incorporated by reference to Exhibit 10.12 of our RegistrationStatement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.13 English translation of Guarantee Letter made by Hailiang Group, dated September 29, 2014 (incorporated by reference to Exhibit 10.13 ofour Registration Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.14 English translation of Guarantee Letter made by Mr. Feng dated September 29, 2014 (incorporated by reference to Exhibit 10.14 of ourRegistration Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 4.15 Amended and Restated Escrow Agreement among the Registrant, Network 1 Financial Securities, Inc. and Continental Stock Transfer &Trust Company, dated June 2, 2015 (incorporated by reference to Exhibit 10.15 of our Registration Statement on Form F-1 (file No. 333-201263), as amended, filed with the Securities and Exchange Commission on June 2, 2015) 4.16 English translation of Amended and Restated Call Option Agreement among Hailiang Consulting, Hailiang Management and Mr. Feng,dated June 30, 2017 (incorporated by reference to Exhibit 10.2 of our Form 6-K filed with the Securities and Exchange Commission onJune 30, 2017) 4.17 English translation of Amended and Restated Power of Attorney from Mr. Feng, dated June 30, 2017 (incorporated by reference to Exhibit10.3 of our Form 6-K filed with the Securities and Exchange Commission on June 30, 2017) 4.18 English translation of Amended and Restated Consulting Services Agreement among Hailiang Consulting, Hailiang Management,Hailiang Management’s affiliates and Mr. Feng, dated June 30, 2017 (incorporated by reference to Exhibit 10.4 of our Form 6-K filed withthe Securities and Exchange Commission on June 30, 2017) 4.19 English translation of Amended and Restated Equity Pledge Agreement among Hailiang Consulting, Mr. Feng and Hailiang Management,dated June 30, 2017 (incorporated by reference to Exhibit 10.1 of our Form 6-K filed with the Securities and Exchange Commission onJune 30, 2017) 4.20 English Translation of Second Amended and Restated Call Option Agreement among Hailiang Consulting, Hailiang Investment, Mr. Fengand Zhejiang Zhongyida Investment Co., Ltd., dated February 23, 2018 (incorporated by reference to Exhibit 10.1 of our Form 6-K filedwith the Securities and Exchange Commission on March 30, 2018) 4.21 English Translation of Second Amended and Restated Powers of Attorney among Mr. Feng, Zhejiang Zhongyida Investment Co., Ltd. andHailiang Consulting, dated February 23, 2018 (incorporated by reference to Exhibit 10.2 of our Form 6-K filed with the Securities andExchange Commission on March 30, 2018) 4.22 English Translation of Second Amended and Restated Consulting Services Agreement among Hailiang Consulting, Hailiang Investment,Mr. Feng and Zhejiang Zhongyida Investment Co., Ltd., dated February 23, 2018 (incorporated by reference to Exhibit 10.3 of our Form 6-K filed with the Securities and Exchange Commission on March 30, 2018) 4.23 English Translation of Second Amended and Restated Equity Pledge Agreement among Hailiang Consulting, Hailiang Investment, Mr.Feng and Zhejiang Zhongyida Investment Co., Ltd., dated February 23, 2018 (incorporated by reference to Exhibit 10.4 of our Form 6-Kfiled with the Securities and Exchange Commission on March 30, 2018) 8.1* Subsidiaries and Affiliated Entities of the Registrant. 11.1 Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 of our Registration Statement on FormF-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014) 12.1* Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) 12.2* Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) 13.1** Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002 15.1* Consent of Registered Independent Accounting Firm 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* XBRL Taxonomy Extension Label Linkbase DocumentSource: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document *Filed with this annual report on Form 20-F **Furnished with this annual report on Form 20-F 95Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to signthis annual report on its behalf. Hailiang Education Group Inc. By:/s/ Ming Wang Name: Ming Wang Title: Chairman and Chief Executive Officer Date: October 18, 2018 96Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Index to Consolidated Financial Statements Page HAILIANG EDUCATION GROUP INC. Reports of Independent Registered Public Accounting FirmF-2 Consolidated Statements of Profit or Loss and Other Comprehensive IncomeF-3 Consolidated Statements of Financial PositionF-4 Consolidated Statements of Changes in EquityF-5 Consolidated Statements of Cash FlowsF-6 Notes to the Consolidated Financial StatementsF-7 F-1 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors ofHailiang Education Group Inc. Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial position of Hailiang Education Group Inc. (the “Company”) as of June 30, 2018 and2017, the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the three years in theperiod ended June 30, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements presentfairly, in all material respects, the financial position of the Company as of June 30, 2018 and 2017, and the results of its operations and its cash flows for eachof the three years in the period ended June 30, 2018, in conformity with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financialstatements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations ofthe Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, norwere we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding ofinternal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financialreporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Marcum Bernstein & Pinchuk LLP Marcum Bernstein & Pinchuk LLP We have served as the Company’s auditor since 2016. New York, New York October 18, 2018 NEW YORK OFFICE • 7 Penn Plaza • Suite 830 • New York, New York • 10001Phone 8620.3877.0819 • Fax 8620.8072.0039 • www.marcumbp.com F-2 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. HAILIANG EDUCATION GROUP INC. CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEARS ENDED JUNE 30, 2016, 2017 AND 2018(Amounts in thousands except per share data) Note 2016RMB 2017RMB 2018RMB Revenue 654,060 853,295 1,169,348 Cost of revenue 6(ii) (498,944) (648,482) (804,674) Gross profit 155,116 204,813 364,674 Other income, net 4 1,756 6,325 3,689 Selling expenses 6(ii) (16,753) (21,902) (24,539)Administrative expenses 6(ii) (36,153) (28,385) (63,374)Disposal loss of leasehold improvement 9 (10,286) — — Operating profit 93,680 160,851 280,450 Gain on disposal of affiliated entities 6(iv) — — 5,349 Net finance income 6(i) 5,752 6,892 11,391 Profit before tax 99,432 167,743 297,190 Income tax expenses 7 — — (66,288) Net Profit 99,432 167,743 230,902 Profit attributable to: Net Profit attributable to non-controlling interests 16 — — 8,314 Net Profit attributable to the Group’s shareholders 99,432 167,743 222,588 99,432 167,743 230,902 Earnings per share Basic and diluted earnings per share 8 0.24 0.41 0.54 Net Profit 99,432 167,743 230,902 Other comprehensive income/(loss) 8,437 2,202 (2,542) Total comprehensive income 107,869 169,945 228,360 Comprehensive income attributable to: Comprehensive income attributable to non-controlling interests 16 — — 8,314 Comprehensive income attributable to the Group’s shareholders 107,869 169,945 220,046 107,869 169,945 228,360 The accompanying notes are an integral part of these consolidated financial statements. F-3 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. HAILIANG EDUCATION GROUP INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONAS OF JUNE 30, 2017 AND 2018(Amounts in thousands) Note 2017RMB 2018RMB Assets Property and equipment, net 9 720,619 679,081 Intangible assets and goodwill, net 10 79,599 78,747 Prepayments to third party suppliers 11 5,692 92 Non-current assets 805,910 757,920 Other receivables due from related parties 19(b) 112,773 95,128 Other current assets 12 1,526 15,182 Term deposits held at a related party finance entity 19(b) 401,000 204,000 Cash and cash equivalents 13/19(b) 77,801 812,620 Current assets 593,100 1,126,930 Total assets 1,399,010 1,884,850 Equity Share capital 15 267 268 Share premium 15 134,584 134,583 Contributed capital 15 235,895 235,895 Reserves 15 278,044 312,667 Retained earnings 452,823 638,246 Total Hailiang Education Group Inc. shareholders' equity 1,101,613 1,321,659 Non-controlling interests 16 — 13,154 Total equity 1,101,613 1,334,813 Liabilities Trade and other payables due to third parties 17 113,863 141,504 Other payables due to related parties 17/19(b) 124,841 138,215 Deferred revenue 58,693 212,969 Income tax payable — 57,349 Current liabilities 297,397 550,037 Total liabilities 297,397 550,037 Total equity and liabilities 1,399,010 1,884,850 The accompanying notes are an integral part of these consolidated financial statements. F-4 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. HAILIANG EDUCATION GROUP INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED JUNE 30, 2016, 2017 AND 2018(Amounts in thousands) SharecapitalRMB SharepremiumRMB ContributedcapitalRMB TranslationreserveRMB Statutory reserve RetainedearningsRMB Total HailiangEducation GroupInc. shareholders’equityRMB Non-controllinginterestsRMB Total equityRMB Note 15 Note 15 Note 15 Note 15 Note 15 Note 16 Balance atJune 30, 2015 239 18,628 225,895 47 195,011 257,995 697,815 — 697,815 Totalcomprehensiveincome Profit — — — — — 99,432 99,432 — 99,432 Othercomprehensiveincome — — — 8,437 — — 8,437 — 8,437 Totalcomprehensiveincome — — — 8,437 — 99,432 107,869 — 107,869 Transfer tostatutoryreserve — — — — 28,398 (28,398) — — — Initial publicoffering(“IPO”) 28 122,341 — — — — 122,369 — 122,369 Shares issuancecost — (9,551) — — — — (9,551) — (9,551)Share basedpayment (Note14) — 3,166 — — — — 3,166 — 3,166 Balance atJune 30, 2016 267 134,584 225,895 8,484 223,409 329,029 921,668 — 921,668 Totalcomprehensiveincome Profit — — — — — 167,743 167,743 — 167,743 Othercomprehensiveincome — — — 2,202 — — 2,202 — 2,202 Totalcomprehensiveincome — — — 2,202 — 167,743 169,945 — 169,945 Transfer tostatutoryreserve — — — — 43,949 (43,949) — — — Contributedcapital — — 10,000 — — — 10,000 — 10,000 Balance atJune 30, 2017 267 134,584 235,895 10,686 267,358 452,823 1,101,613 — 1,101,613 Totalcomprehensiveincome Profit — — — — — 222,588 222,588 8,314 230,902 Othercomprehensiveloss — — — (2,542) — — (2,542) — (2,542) Totalcomprehensive(loss)/income — — — (2,542) — 222,588 220,046 8,314 228,360 Transfer tostatutoryreserve — — — — 37,165 (37,165) — — — Establishment ofsubsidiariesunder commoncontrolled byultimateshareholder(Note 19(a)(x)) — — 11,000 — — — 11,000 — 11,000 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Transfer ofequity interestsin subsidiariesunder commoncontrolled byultimateshareholder tothe Companyand non-controllinginterests (Note19(a)(x)) — — (11,000) — — — (11,000) 4,840 (6,160)Exercise ofwarrant (Note14) 1 (1) — — — — — — — Balance at June30, 2018 268 134,583 235,895 8,144 304,523 638,246 1,321,659 13,154 1,334,813 The accompanying notes are an integral part of these consolidated financial statements. F-5 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. HAILIANG EDUCATION GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED JUNE 30, 2016, 2017 AND 2018(Amounts in thousands) Note 2016RMB 2017RMB 2018RMB Cash flows from operating activities Profit for the year 99,432 167,743 230,902 Adjustments for: Depreciation 6(iii) 65,038 110,485 113,128 Disposal loss of leasehold improvement 10,286 — — Gain on disposal of affiliated entities 6(iv) — — (5,349)(Gain)/loss on sale of other property and equipment (157) (41) 371 Amortization of intangible assets 6(iii) 948 662 446 Share based payment 1,459 — — Net foreign exchange (gain)/loss 6(i) (1,049) (282) 324 Interest income 6(i) (4,906) (6,709) (11,715)Income tax expenses 7 — — 66,288 171,051 271,858 394,395 Change in other current assets 2,126 (530) (13,681)Change in prepayment to third party suppliers (4,424) 2,235 2,157 Change in trade and other payables due to third parties 21,789 23,313 30,416 Change in amount due to related parties 26,136 (27,636) 18,000 Change in deferred revenue (489) 17,713 165,583 Cash generated from operating activities 216,189 286,953 596,870 Income tax paid — — (8,939) Net cash from operating activities 216,189 286,953 587,931 Cash flows from investing activities Interest received 3,265 5,873 10,677 Proceeds from sale of property and equipment 762 64 1,015 Purchase of property and equipment (346,595) (108,959) (89,369)Term deposits placed with a related party finance entity 19(a)(ii) (1,212,430) (1,953,600) (204,000)Maturity of term deposits placed with a related party finance entity 19(a)(ii) 1,272,430 1,552,600 401,000 Loans made to a related party 19(a)(i) — (98,229) — Acquisition of subsidiaries 19(a)(x) — — (6,160)Net proceeds from disposal of affiliated entities — — 17,982 Net cash (used in)/from investing activities (282,568) (602,251) 131,145 Cash flows from financing activities Proceeds from issue of ordinary shares 122,369 — — Payment of new shares issuance cost (7,844) — — Loan made from related parties 19(a)(i) — 99,603 7,609 Capital contribution from former shareholder 19(a)(x) — — 11,000 Net cash from financing activities 114,525 99,603 18,609 Net increase/(decrease) in cash and cash equivalents 48,146 (215,695) 737,685 Cash and cash equivalents at beginning of the year 233,379 291,011 77,801 Effect of movements in exchange rates on cash held 9,486 2,485 (2,866) Cash and cash equivalents at the end of the year 291,011 77,801 812,620 Non cash transaction: Share based payment 14 3,166 — — Capital transaction 15(a)(iii) — 10,000 — The accompanying notes are an integral part of these consolidated financial statements. F-6 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(AMOUNTS IN THOUSANDS) 1Reporting entity and organization Hailiang Education Group Inc. (the “Company”) is a holding company and is majority-owned by Mr. Hailiang Feng (“Mr. Feng”). The Company, its wholly-owned subsidiaries and consolidated affiliated entities are collectively referred to as the “Group”. The Group is principally engaged in the provision of education and management services in People’s Republic of China (“PRC”). The Group mainly offersprivate K-12 educational services in schools located in Zhuij, Zhejiang Province, China, management services, educational training services and overseasstudy consulting services. The Group originally operated three schools, namely Hailiang Foreign Language School (“Foreign Language”), Zhuji Tianma Experimental School(“Tianma Experimental”) and Hailiang Experimental High School (“Experimental High”, previously named “Zhuji Private High School”). In November 2016and February 2017, certain schools were separated from Foreign Language and Experimental High as legal entities, with all their equity interest held byHailiang Education Management Group Co., Ltd. (“Hailiang Management”). Hailiang International Kindergarten (“Hailiang Kindergarten”), HailiangPrimary School, Hailiang Junior Middle School, and Hailiang Senior Middle School were divided from Foreign Language, and Hailiang High School of Artwas divided from Experimental High. The separation of affiliates did not have financial impact on the consolidated financial statements of the Group. In June 2017, Hailiang Consulting set up Ningbo Hailiang Education Logistics Management Co., Ltd. (“Ningbo Hailiang”) and Ningbo HaoliangInformation Consulting Co., Ltd. (“Ningbo Haoliang”) in Ningbo City, Zhejiang province in the PRC. In July 2017, Hailiang Management and Hailiang Group, a related party of the Group, entered into an Educational Cooperative Partnership Agreement withthe Nanqiao government in Chuzhou city, Anhui Province, and started the operation in Chuzhou Hailiang Foreign Language School (“Chuzhou School”). In February 2018, the Group disposed the ownership and equity interest in Hailiang Kindergarten and the kindergarten business unit of Tianma Experimental(“Tianma Kindergarten”) since the kindergartens had been at a loss and the Group decided to focus on providing educational services for primary, middle andhigh school students. In June 2018, the Group disposed the ownership in Chuzhou School, which was mainly based on the Group’s business assessment inresponse to current market conditions. Several subsidiaries and affiliated entities were set up for the practice of asset-light strategy during the 2018 fiscal year. In January 2018, Ningbo Haoliangacquired 56% equity interests in Jiangxi Haibo Education Management Co., Ltd. (“Haibo Education”) and Jiangxi Haibo Logistics Management Co., Ltd(“Haibo Logistics”), respectively, from Xinyu Baishu Technology Service Co., Ltd. (“Xinyu Baishu”), an entity ultimately controlled by Mr. Feng. HaiboEducation and Haibo Logistics were incorporated in August 2017, and had no substantive business as of the date of acquisitions. The acquisitions wereconducted under common control (see note 19(a)(x)). Ningbo Haoliang, Haibo Education and Haibo Logistics are mainly engaged in the provision ofmanagement consulting services, educational training services and logistic services, respectively. As of June 30, 2018, the Group managed and operated 16schools, including Xinchang Nanrui Experimental School, Xiantao No.1 Middle School and fourteen schools sponsored or operated by Nanchang BaishuTechnology Co., Ltd., an entity controlled by Hailiang Investment Group Co. Ltd (“Hailiang Investment”). In August 2017, Hailiang Management incorporated Zhejiang Hailiang Mingxin Education Technology Co., Ltd. (“Hailiang Mingxin”) as its wholly ownedentity. Hailiang Mingxin’s business scope includes after-school enrichment program and overseas study consulting services. In September 2017, HailiangConsulting incorporated Zhuji Nianxin Lake Hotel Management Co., Ltd. (“Zhuji Hotel”) as its wholly owned entity. Zhuji Hotel is mainly engaged in theprovision of hotel management service. In November 2017, Zhuji Youer Network Technology Co., Ltd. (“Zhuji Youer”), Zhuji Mingrui Business Information Consulting Co., Ltd. (“Zhuji Mingrui”),Zhuji Shangzhuo Enterprise Management Consulting Co., Ltd. (“Zhuji Shangzhuo”) and Zhuji Hongda Trade Co., Ltd. (“Zhuji Hongda”) were established asHailiang Management’s wholly controlled subsidiaries. In May, 2018, Zhejiang Hailiang Consulting and Services Co., Ltd. (“Hailiang Consulting”)incorporated Ningbo Hailiang Sports Development Co., Ltd. (“Hailiang Sports”) as its wholly owned subsidiary. In June 2018, Hangzhou Hailiang EducationManagement Co., Ltd (“Hangzhou Hailiang”) was established by Hailiang Management as its wholly owned entity. As of June 30, 2018, there was nosubstantive operations in Zhuji Youer, Zhuji Mingrui, Zhuji Shangzhuo, Zhuji Hongda, Hailiang sports and Hangzhou Hailiang. As of June 30, 2018, the Company’s subsidiaries and consolidated affiliated entities are as follows: Subsidiary Place and year ofestablishment Legal ownership Principle activitiesHailiang Education (HK) Limited (“Hailiang HK”) Hong Kong, China, 2011 100% Investment holdingHailiang Consulting Zhejiang, China, 2011 100% Investment holding and school managementNingbo Hailiang Zhejiang, China, 2017 100% School logistics managementNingbo Haoliang Zhejiang, China, 2017 100% School managementZhuji Hotel Zhejiang, China, 2017 100% Hotel managementHailiang Sports Zhejiang, China, 2018 100% Sports activities consultingHaibo Education Jiangxi, China, 2018 56% Educational trainingHaibo Logistics Jiangxi, China, 2018 56% School management Consolidated affiliated entities Place and year ofestablishment Legal ownership Principle activitiesHailiang Management (previously named “Zhejiang Hailiang EducationInvestment Group Co., Ltd.”) Zhejiang, China,2012 N/A* Investment holdingHailiang Mingxin Zhejiang, China,2017 N/A* Educational consulting, after-school enrichment programSource: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Hangzhou Hailiang Zhejiang, China,2018 N/A* School managementZhuji Youer Zhejiang, China,2017 N/A* TechnologyZhuji Mingrui Zhejiang, China,2017 N/A* ConsultingZhuji Shangzhuo Zhejiang, China,2017 N/A* ConsultingZhuji Hongda Zhejiang, China,2017 N/A* TradingForeign Language Zhejiang, China,1995 N/A* K-12 educational servicesExperimental High Zhejiang, China,2002 N/A* K-12 educational servicesTianma Experimental Zhejiang, China,1995 N/A* K-12 educational servicesHailiang Primary School Zhejiang, China,2016 N/A* K-12 educational servicesHailiang Junior Middle School Zhejiang, China,2016 N/A* K-12 educational servicesHailiang Senior Middle School Zhejiang, China,2016 N/A* K-12 educational servicesHailiang High School of Art (previously named “Hailiang Art Middle School”) Zhejiang, China,2017 N/A* K-12 educational services * These entities are controlled by the Company pursuant to the contractual arrangements disclosed below. F-7 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 2Basis of preparation (a)Statement of compliance The consolidated financial statements of the Group as of June 30, 2017 and 2018 and for each of the years in the three-year period ended June 30, 2018comprise the accounts of the Company, its subsidiaries and consolidated affiliated entities, in which all intercompany balances and transactions havebeen eliminated. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) asissued by International Accounting Standards Board (“IASB”). The consolidated financial statements were authorized for issue by the Company’s board of directors on October 18, 2018. (b)Basis of presentation Since laws of PRC prohibit foreign ownership of companies and institutions in compulsory educational services at primary and middle school levels, andrestrict foreign investment in educational services businesses at the high school level, the Group’s offshore holding companies are not allowed todirectly own and operate schools in China. Thus, Hailiang Consulting, the Company’s wholly owned PRC subsidiary, entered into a series of contractualarrangements (“Contractual Agreements”) with Hailiang Management and its affiliated subsidiaries and schools and respective shareholder Mr. Feng onDecember 31, 2013. The contractual arrangements include Power of Attorney, Call Option Agreement, Equity Pledge Agreement, and ConsultingServices Agreement. The key terms of the Contractual Agreements are as follows: Call Option Agreement: Pursuant to the Call Option Agreement, Mr. Feng unconditionally and irrevocably granted Hailiang Consulting or its designeean exclusive option to purchase, to the extent permitted under PRC laws and regulations, in certain cases, including but not limited to the cancellation ofany of the other agreements under the contractual arrangements or liquidation or dissolution of Hailiang Management, all or part of the equity interest inHailiang Management at the lowest consideration permitted by PRC laws and regulations. This agreement may not be terminated by HailiangManagement or Mr. Feng, nor can it be terminated by Hailiang Consulting without cause. This agreement shall remain in full force and effect untilHailiang Management’s term of operations expires in April 2042. Power of Attorney: In December 2013, Mr. Feng executed an irrevocable power of attorney appointing Hailiang Consulting, or any person designatedby Hailiang Consulting, as his attorney-in-fact to (i) exercise on his behalf all his rights as a shareholder of Hailiang Management, including those rightsunder PRC laws and regulations and the articles of association of Hailiang Management, such as appointing, replacing or removing directors, declaringdividends and making decisions on operational and financial matters, (ii) act as the representative of Hailiang Management in its business operations,and (iii) unconditionally assign Mr. Feng’s shareholding rights to Hailiang Consulting, including dividends or other benefits that Mr. Feng receives fromHailiang Management as a shareholder. Consulting Services Agreement: Hailiang Consulting has the exclusive right to provide comprehensive technical and business support services to theAffiliated Entities. The Affiliated Entities agree to pay annual service fees, calculated as a percentage of their total revenue, to Hailiang Consulting. Theservice fees could be up to 100% of the profits of the Affiliated Entities. This agreement may not be terminated by Hailiang Management or Mr. Feng,nor can it be terminated by Hailiang Consulting without cause. The Consulting Services Agreement shall remain in full force and effect during the termof operations of the Affiliated Entities. F-8 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Equity Pledge Agreement: Pursuant to the Equity Pledge Agreement, Mr. Feng unconditionally and irrevocably pledged all of his equity interests inHailiang Management to Hailiang Consulting to guarantee performance of the obligations of the Affiliated Entities under the Call Option Agreement,Power of Attorney and Consulting Services Agreement. Mr. Feng agreed that without prior written consent of Hailiang Consulting, he shall not transferor dispose of the pledged equity interests, commence any bankruptcy or liquidation process of Hailiang Management or create or allow anyencumbrance on the pledged equity interests. This agreement may not be terminated by Hailiang Management or Mr. Feng, nor can it be terminated byHailiang Consulting without cause. The Equity Pledge Agreement shall remain in full force and effect until all of the obligations of the AffiliatedEntities under the Consulting Services Agreement have been duly performed and related payments are duly paid. The Contractual Agreements provide the Company, through Hailiang HK and Hailiang Consulting, the following, (i) the power over the AffiliateEntities; (ii) the exposure or rights to variable returns from its involvement with the Affiliated Entities; and (iii) the ability to affect those returns throughits power over the Affiliated Entities. The Company has the power over the Affiliated Entities by virtue of the Power of Attorney, pursuant to which Hailiang Consulting has rights that give itthe current ability to direct the activities that significantly affect the returns of the Affiliated Entities. Hailiang Consulting has the rights to appoint,replace or remove directors of Hailiang Management, as well as to make decisions on all operational and financial matters of the Affiliated Entities. The Company has the exposure or rights to variable returns from its involvement with the Affiliated Entities by virtue of the Power of Attorney andConsulting Services Agreement. Hailiang Consulting’s returns from its involvement with the Affiliated Entities have the potential to vary as a result ofthe performance of the Affiliated Entities. Pursuant to the Power of Attorney, Hailiang Consulting is the only party that can share in the distributed andundistributed earnings of the Affiliated Entities. Pursuant to the Consulting Services Agreement, Hailiang Consulting has the exclusive right to provideconsulting, support and services to the Affiliated Entities in return for a fee that could be up to 100% of the profits of the Affiliated Entities. The Company has all decision-making rights over the Affiliated Entities to affect the amounts of its returns. By virtue of the Power of Attorney, HailiangConsulting is the principal and is the only party that has the decision-making authority on all relevant activities of the Affiliated Entities. There are nosubstantive rights held by other parties that may affect or restrict Hailiang Consulting’s ability to direct the relevant activities of the Affiliated Entities.The Power of Attorney is irrevocable and no party can remove Hailiang Consulting without cause. Hailiang Consulting also has exposure to variabilityof returns of the Affiliated Entities from the Call Option Agreement. The Company, Hailiang HK and Hailiang Consulting are either investment holding companies or companies that have not carried out any business sincetheir respective dates of incorporation, apart from acquiring control of the Affiliated Entities through the Contractual Agreements. The Company and theAffiliated Entities are controlled by the same person both before and after the Reorganization on December 31, 2013. In substance, the Reorganizationinvolves no business combination and is merely a reorganization of entities under common control. Accordingly, the assets and liabilities of theAffiliated Entities are measured and recognized at their historical carrying amounts. In addition, the accompanying consolidated financial statementspresent the results of the Group as if the Reorganization had been consummated as of the beginning of the earliest period presented. That is, theCompany’s consolidated financial statements include the financial position and the results of operations of the Affiliated Entities as of the earliestperiods presented. On June 30, 2017, Hailiang Consulting entered into a series of amended and restated contractual arrangements with Hailiang Management andMr. Hailiang Feng, the controlling shareholder of the Company (collectively, the “Amended and Restated Contractual Agreements”). The purposes ofthe Amended and Restated Contractual Agreements were to revise the original contractual arrangements among the said parties entered into in December2013 in order to (i) reflect and accommodate additions of new affiliated entities of Hailiang Management since December 2013 as well as any futurechanges thereto, and (ii) to allow for potential arrangements, if any and when applicable, to be entered into by controlled affiliate(s) of HailiangConsulting. Notwithstanding the aforementioned revisions, the Amended and Restated Contractual Agreements continue to enable the Company to: F-9 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. •exercise the power over its affiliated entities; •have the exposure or rights to variable returns from its involvement with its affiliated entities; and •exercise the ability to affect those returns through use of its power over its affiliated entities The following is a summary of the material provisions of the Amended and Restated Contractual Agreements. Amended and Restated Call Option Agreement. Pursuant to the amended and restated call option agreement between Hailiang Consulting, HailiangManagement and Mr. Feng entered into on June 30, 2017, Mr. Feng unconditionally and irrevocably granted Hailiang Consulting or its designee anexclusive option to purchase, to the extent permitted under PRC laws and regulations, in certain cases, including but not limited to the cancellation ofany of the other agreements under the contractual arrangements or liquidation or dissolution of Hailiang Management, all or part of the equity interest inHailiang Management at the lowest consideration permitted by PRC laws and regulations. Hailiang Consulting has the sole discretion to decide when toexercise the option, and whether to exercise the option in part or in full. In the event that the exercise price is higher than the registered capital ofHailiang Management, Mr. Feng agreed to return any consideration paid in excess of such registered capital to Hailiang Consulting or any third party itdesignates. Without Hailiang Consulting’s written consent, Hailiang Management and Mr. Feng may not sell, transfer, pledge or otherwise dispose of orcreate any encumbrance on any of Hailiang Management’s assets, businesses or equity interests or merge with or acquire other businesses. Withoutobtaining Hailiang Consulting’s written consent, Hailiang Management may not enter into any material contracts, incur any indebtedness or provide anyloan or guarantee to a third party, or alter the nature or scope of its business. This agreement may not be terminated by Hailiang Management orMr. Feng, nor can it be terminated by Hailiang Consulting without cause. Unless terminated, this agreement shall remain in full force and effect untilHailiang Management’s term of operations expires in April 2042. Amended and Restated Power of Attorney. On June 30, 2017, Mr. Feng executed an irrevocable amended and restated power of attorney appointingHailiang Consulting, or any person designated by Hailiang Consulting, as his attorney-in-fact to (i) exercise on his behalf all his rights as a shareholderof Hailiang Management, including those rights under PRC laws and regulations and the articles of association of Hailiang Management, such asappointing, replacing or removing directors, declaring dividends and making decisions on operational and financial matters, (ii) act as the representativeof Hailiang Management in its business operations, and (iii) unconditionally assign Mr. Feng’s shareholding rights to Hailiang Consulting, includingdividends or other benefits associated with shareholding that Mr. Feng receives from Hailiang Management. Amended and Restated Consulting Services Agreement. Pursuant to the amended and restated consulting services agreement between HailiangConsulting, Hailiang Management and Mr. Feng, as the shareholder of Hailiang Management, entered into on June 30, 2017, Hailiang Consulting (or itscontrolled affiliate) has the exclusive right to provide comprehensive technical and business support services to Hailiang Management’s affiliatedentities. In particular, such services include developing curriculum, conducting market research and offering strategic business advice, providinginformation technology services, providing public relations services, providing support for teacher hiring and training and providing other services thatthe affiliated entities may need from time to time. Without the prior consent of Hailiang Consulting, none of Hailiang Management’s affiliated entitiesmay accept such services provided by any third party. Hailiang Consulting owns the exclusive intellectual property rights created as a result of theperformance of this agreement. Hailiang Management’s affiliated entities agree to pay annual service fees, calculated as a percentage of their totalrevenue, to Hailiang Consulting (or its controlled affiliate). At the sole discretion of Hailiang Consulting, the percentage ratio for calculating the servicefees may be adjusted from time to time based on the complexity of the services provided, the time and resources committed by Hailiang Consulting (orits controlled affiliate) and the commercial value of the services. The consulting services agreement enables Hailiang Consulting (or its controlledaffiliate) to charge an annual service fee, the maximum of which equals the net income of Hailiang Management’s affiliated entities after deducting themandatory development reserve fund and other necessary costs prior to the payment of such service fees. As part of the consulting services agreement,Hailiang Management and Mr. Feng agree that they will not take any actions, such as incurring indebtedness, disposing of material assets, materiallychanging the scope or nature of the business of Hailiang Management’s affiliated entities, disposing of their equity interests in Hailiang Management’saffiliated entities, or paying dividends to Mr. Feng without the written consent of Hailiang Consulting. This agreement may not be terminated byHailiang Management or Mr. Feng, nor can it be terminated by Hailiang Consulting without cause. Unless terminated, the agreement shall remain in fullforce and effect during the term of operations of Hailiang Management’s affiliated entities. F-10 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Amended and Restated Equity Pledge Agreement. Pursuant to an amended and restated equity pledge agreement between Hailiang Consulting,Mr. Feng and Hailiang Management entered into on June 30, 2017, Mr. Feng unconditionally and irrevocably pledged all of his equity interests inHailiang Management to Hailiang Consulting to guarantee performance of the obligations of Hailiang Management’s affiliated entities under the calloption agreement, power of attorney and consulting services agreement, each as described above. Mr. Feng agreed that without prior written consent ofHailiang Consulting, he shall not transfer or dispose of the pledged equity interests, commence any bankruptcy or liquidation process of HailiangManagement or create or allow any encumbrance on the pledged equity interests. This agreement may not be terminated by Hailiang Management orMr. Feng, nor can it be terminated by Hailiang Consulting without cause. Unless terminated, the equity pledge agreement remains in full force and effectuntil all of the obligations of Hailiang Management’s affiliated entities under the consulting services agreement have been duly performed and relatedpayments are duly paid. The pledge of equity interests in Hailiang Management has been duly registered with the local branch of SAIC and is effectiveupon such registration. On February 8, 2018, Zhejiang Beize Group Co., Ltd. (“Beize Group”), a PRC company 100% owned by Mr. Feng and his wife, subscribed 0.1%registered capital of Hailiang Management. Accordingly, On February 23, 2018, Hailiang Consulting, Hailiang Management, Mr. Feng and Beize Groupentered into a series of contractual arrangement (the “Second Amended and Restated Contractual Agreements”), including the Second Amended andRestated Call Option Agreement, Second Amended and Restated Powers of Attorney, Second Amended and Restated Consulting Services Agreementand Second Amended and Restated Equity Pledge Agreement. The Second Amended and Restated Contractual Agreements were signed to reflect theabovementioned increase of shareholders while the terms of these agreements remained unchanged. The recording process for the Second Amended andRestated Contractual Agreements with the local government was completed on March 15, 2018. The following financial statement balances and amounts of the affiliated entities were included in the Group’s consolidated financial statements after theelimination of intercompany balances and transactions. 2017RMB 2018RMB Total current assets 376,729 848,028 Total non-current assets 805,910 710,464 Total assets 1,182,639 1,558,492 Total current liabilities 197,473 396,238 Total liabilities 197,473 396,238 2016RMB 2017RMB 2018RMB Net revenue 653,753 853,247 1,110,470 Profit before tax 112,571 165,300 221,057 The affiliated entities contributed an aggregate of 100%, 100% and 95.0% of the Group’s consolidated revenue for the years ended June 30, 2016, 2017and 2018, respectively. As of June 30, 2017 and 2018, the affiliated entities accounted for an aggregate of 84.5% and 82.7%, respectively, of theconsolidated total assets, and 66.4% and 72.0%, respectively, of the consolidated total liabilities. (c)Risks and uncertainties Risks and uncertainties of the Contractual Arrangements: The Company relies on the Contractual Agreements to control the Affiliated Entities.However, these contractual arrangements may not be as effective as direct equity ownership in providing the Company with control over the AffiliatedEntities. Any failure by Hailiang Management, Mr. Feng, the nominee shareholder of Hailiang Management or Beize Group, to perform the obligationsunder the Contractual Agreements would have a material adverse effect on the financial position and financial performance of the Company. Therefore,the enforceability of the Contractual Agreements represents a significant judgment and assumption. All the Contractual Agreements are governed byPRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these agreements would be interpreted in accordancewith PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as someother jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce thesecontractual arrangements. In addition, if the legal structure and the Contractual Agreements were found to be in violation of any existing or future PRClaws and regulations, the Company may be subject to fines or other legal or administrative sanctions. F-11 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In the opinion of management, based on the legal opinion obtained from the Company’s PRC legal counsel, the above contractual arrangements arelegally binding and enforceable and do not violate current PRC laws and regulations. However, there are uncertainties regarding the interpretation andapplication of existing and future PRC laws and regulations. Accordingly, the Company cannot be assured that PRC regulatory authorities will notultimately take a contrary view to its opinion. If the current ownership structure of the Company and the contractual arrangements are found to be inviolation of any existing or future PRC laws and regulations, the PRC government could: •require the Company to restructure its ownership structure and operations in the PRC to comply with the existing or future PRC lawsand regulations; •revoke the Affiliated Entities’ business and operating licenses; •require the Affiliated Entities to discontinue or restrict operations; •block the Affiliated Entities’ websites; •impose additional conditions or requirements with which the Affiliated Entities may not be able to comply; or •take other regulatory or enforcement actions against the Affiliated Entities that could be harmful to the Affiliated Entities’ business. If the imposition of any of these government actions causes the Company to lose its right to direct the activities of the Affiliated Entities or to lose itsright to the variable returns from its involvement with the Affiliated Entities and the Company is not able to restructure its ownership structure of theAffiliated Entities (such as acquiring controlling equity interests), the Company would not be able to consolidate the financial results of the AffiliatedEntities in the Company’s consolidated financial statements. Substantially all assets, liabilities and results of operations reported in the accompanyingconsolidated financial statements comprise the assets, liabilities and results of operations of the Affiliated Entities. The Company and its wholly ownedsubsidiaries, Hailiang HK and Hailiang Consulting are investment holding companies with no substantial operations and hold minimal amount of assets.In the opinion of management, the likelihood of loss in respect of the Company’s current ownership structure or contractual arrangements is remotebased on current facts and circumstances. The equity interests of Hailiang Management are legally held by Mr. Feng and Beize Group on behalf of the Company. Mr. Feng is also a majorshareholder of the Company. The Company cannot assure that Mr. Feng and Beize Group will act in the best interests of the Company. The Companyrelies on Mr. Feng and Beize Group to comply with the terms and conditions of the Contractual Agreements. If Mr. Feng and Beize Group is in breach ofhis contractual obligations under the Contractual Agreements and the Company cannot resolve any dispute between the Company, Mr. Feng and BeizeGroup, the Company would have to rely on legal proceedings, which could result in disruption of the Company’s business and subject the Company tosubstantial uncertainty as to the outcome of any such legal proceedings. (d)Functional and presentation currency The functional currency of each of the Group’s entities is the currency of the primary economic environment in which the entity operates (the “functionalcurrency”). The Company’s functional currency is the United States dollar (“USD”), whereas the functional currency of Hailiang HK and the PRC entitiesof the Group are the HKD and RMB, respectively. The Group’s presentation currency is RMB. All financial information presented has been rounded to the nearest thousands, except when otherwiseindicated. (e)Use of estimates The preparation of the consolidated financial statements in conformity with IFRSs requires management to make a number of estimates and assumptionsrelating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financialstatements, and the reported amounts of revenue and expenses during the period. Significant items subject to such estimates and assumptions include theconsolidation of the Affiliated Entities, the useful lives and the recoverability of the carrying amounts of property and equipment and intangible assets(including goodwill), the collectability of other receivables and term deposits placed with a related party finance entity, income tax and the assessmentof contingent liabilities. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but areinherently uncertain and unpredictable. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which theestimates are revised and in any future periods affected. F-12 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financialyear are included in the following notes: •Note 2(c), risks and uncertainties (the enforceability of the Contractual Agreements) •Note 7, income tax expenses •Note 9, property and equipment •Note 10, intangible assets and goodwill •Note 12, other current assets •Note 18(a), credit risk Measurement of fair values A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets andliabilities. Management regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricingservices, is used to measure fair values, then management assesses the evidence obtained from the third parties to support the conclusion that suchvaluations meet the requirements of IFRSs, including the level in the fair value hierarchy in which such valuations should be classified. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorized into differentlevels in a fair value hierarchy based on the inputs used in the valuation techniques as follows. Level 1: inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2: inputs are inputs, other than quoted prices included within Level 1, those are observable for the asset or liability, either directly or indirectly;and Level 3: inputs are unobservable inputs for asset or liability. If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair valuemeasurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entiremeasurement. The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about assumptions made in measuring fair values is included in the following notes: •Note 10, intangible assets and goodwill •Note 18(d), fair value F-13 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 3Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements, and have beenapplied by each of the entities comprising the Group. (a)Basis of consolidation (i)Business combinations The Group accounts for business combinations (except entities acquired under common control) using the acquisition method when control is transferredto the Group (see 3(a)(ii)). The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired.Any goodwill that arises is tested annually for impairment (see 3(f)(ii)). Any gain on a bargain purchase is recognized in profit or loss immediately.Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized inprofit or loss. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets thedefinition of a financial instrument is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, othercontingent consideration is re-measured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration arerecognized in profit or loss. If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards), thenall or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination.This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awardsand the extent to which the replacement awards relate to pre-combination service. (ii)Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from itsinvolvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries areincluded in the consolidated financial statements from the date on which control commences until the date on which control ceases. (iii)Entities acquired under common control Entities acquired under common control or transactions accounted for in a manner similar to a pooling-of-interests (for example, a reorganization ofentities under common control) are accounted under the “book value” accounting, where the Company recognizes the assets acquired and liabilitiesassumed using the book values of the transferor. When the consolidated financial statements are issued for a period that includes the date the commoncontrol transaction occurred, the Company’s consolidated financial statements of all prior periods are retrospectively revised to the earliest datepresented. (iv)Non-controlling interests Non-controlling interests are measured initially at the proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. F-14 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (b)Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates ruling at the dates of thetransactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date.Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange ratewhen the fair value was determined. Foreign currency differences are generally recognized in profit or loss. Non-monetary items that are measured basedon historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into RMB at theexchange rates at the reporting date. The income and expenses of foreign operations are translated into RMB at the exchange rates at the dates of thetransactions. Foreign currency differences are recognized in other comprehensive income and accumulated in the translation reserve. (c)Financial instruments The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturityfinancial assets, loans and receivables and available-for-sale financial assets. The Group classifies non-derivative financial liabilities into the following categories: financial liabilities at fair value through profit or loss and otherfinancial liabilities. (i)Non-derivative financial assets and financial liabilities – Recognition and de-recognition The Group initially recognizes loans and receivables and debt securities issued on the date when they are originated. All other financial assets andfinancial liabilities are initially recognized on the trade date when the entity becomes a party to the contractual provisions of the instrument. The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive thecontractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neithertransfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in suchderecognized financial assets that is created or retained by the Group is recognized as a separate asset or liability. The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Groupcurrently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liabilitysimultaneously. (ii)Non-derivative financial assets – Measurement A financial asset is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition.Directly attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fairvalue and changes therein, including any interest or dividend income, are recognized in profit or loss. Held-to-maturity financial assets are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition,they are measured at amortized cost using the effective interest method. Loans and receivables are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they aremeasured at amortized cost using the effective interest method. F-15 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Available-for-sale financial assets are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition,they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on debt instruments, are recognized inother comprehensive income and accumulated in the fair value reserve. When these assets are derecognized, the gain or loss accumulated in equity isreclassified to profit or loss. (iii)Non-derivative financial liabilities – Measurement A financial liability is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition.Directly attributable transaction costs are recognized in profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured atfair value and changes therein, including any interest expense, are recognized in profit or loss. Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initialrecognition, these liabilities are measured at amortized cost using the effective interest method. (d)Property and equipment (i)Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses (Note 3(f)). Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materialsand any other costs directly attributable to bringing the asset to a working condition for its intended use. Construction in progress represents property under construction and equipment pending installation, and is stated at cost less impairment losses (Note3(f)). Capitalization of these costs ceases and the construction in progress is transferred to property and equipment when the asset is substantially readyfor its intended use. No depreciation is provided in respect of construction in progress. Gains or losses arising from the retirement or disposal of an item of property and equipment are determined as the difference between the net disposalproceeds and the carrying amount of the item and are recognized in profit or loss on the date of retirement or disposal. (ii)Subsequent costs The cost of replacing a component of an item of property and equipment is recognized in the carrying amount of the item if it is probable that the futureeconomic benefits embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying amount of the replacedcomponent is derecognized. The costs of the day-to-day servicing of property, and equipment are recognized in profit or loss as incurred. (iii)Depreciation Items of property and equipment are depreciated from the date that they are available for use or, in respect of self-constructed assets, from the date thatthe asset is completed and ready for use. Depreciation is calculated to write off the cost of items of property and equipment less their estimated residualvalues using the straight-line basis over their estimated useful lives. Leasehold improvements are depreciated over the shorter of the lease term or theiruseful lives. The estimated useful lives for the current and comparative years of significant property and equipment are as follows: Motor vehicles 5~10 yearsFurniture, fixtures and other equipment 5~10 yearsLeasehold improvements Shorter of the remaining lease terms or estimated useful lives Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. F-16 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (e)Intangible assets (i)Goodwill Goodwill is presented with intangible assets and is measured at cost less accumulated impairment losses (Note 3(f)). (ii)Trademark Trademark is not amortized when its useful life is assessed to be indefinite, which is reviewed annually to determine whether events and circumstancescontinue to support the indefinite useful life assessment. The change in the useful life assessment from indefinite to finite is accounted for prospectivelyfrom the date of change and in accordance with the policy for amortization of intangible assets with finite lives. (iii)Other intangible assets Other intangible assets that have finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses (Note3(f)). Other intangible assets are student relationships that arose from the acquisition of Tianma Experimental. (iv)Amortization Amortization of intangible assets with finite useful lives is recognized in profit or loss on a straight-line method to reflect the expected departure rateover the remaining useful life of the asset, other than goodwill, from the date that they are available for use. The estimated useful lives of studentrelationships are 1~15 years. Amortization methods and useful lives are reviewed at each reporting date and adjusted if appropriate. (f)Impairment (i)Non-derivative financial assets A financial asset not classified as at fair value through profit or loss, including an interest in an equity-accounted investee, is assessed at each reportingdate to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as aresult of one or more events that occurred after the initial recognition of the asset, and that loss event had an impact on the estimated future cash flows ofthat asset that can be estimated reliably. Objective evidence that financial assets are impaired includes: •default or delinquency by a debtor; •restructuring of an amount due to the Group on terms that the Group would not consider otherwise; •indications that a debtor or issuer will enter bankruptcy; •adverse changes in the payment status of borrowers or issuers; •the disappearance of an active market for a security because of financial difficulties; or •observable data indicating that there is a measurable decrease in the expected cash flows from a group of financial assets. The Group considers evidence of impairment for financial assets measured at amortized cost (other receivables) at both a specific asset and collectivelevel. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specificallyimpaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significantare collectively assessed for impairment by grouping together receivables with similar risk characteristics. In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred,adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lessthan suggested by historical trends. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the presentvalue of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in anallowance account against receivables. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss isreversed through profit or loss. F-17 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (ii)Non-financial assets The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment.If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and indefinite-lived intangible assets are tested annually forimpairment. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largelyindependent of the cash inflows of other assets or cash-generating units (“CGU”s). Goodwill arising from a business combination is allocated to CGUs orgroups of CGUs that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or CGU is the greater of its value in use and fair value less costs to sell. In assessing value in use, the estimated futurecash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and therisks specific to the asset or CGU. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverableamount. Impairment losses are recognized in profit or loss. An impairment loss in respect of goodwill is not reversed. In respect of other non-financial assets, impairment losses recognized in prior periods areassessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been achange in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amountdoes not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. (g)Cash and cash equivalents Cash and cash equivalents in the consolidated statements of financial position comprise cash at banks and on hand and cash equivalents with an originalmaturity of three months or less, which are subject to an insignificant risk of changes in value. (h)Term Deposit Term deposits comprise highly liquid investments with original maturities of greater than three months, but less than twelve months. (i)Employee benefits (i)Defined contribution plan Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the period duringwhich services are rendered by employees. Pursuant to the relevant labor rules and regulations in the PRC, the Group participates in defined contributionretirement schemes (the “Schemes”) organized by the relevant local government authorities for its eligible employees whereby the Group is required tomake contributions to the Schemes at 34.4% to 41.4% of the deemed salary rate announced annually by the local government authorities. The Group has no other material obligation for payment of pension benefits associated with those schemes beyond the annual contributions describedabove. (ii)Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognized for the amount expected to be paid under short-term cash bonus or other short-term benefits if the Group has a present legal orconstructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. F-18 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (j)Provisions and contingent liabilities A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it isprobable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected futurecash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of thediscount is recognized as finance cost. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed asa contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed bythe occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economicbenefits is remote. (k)Revenue The Group recognize revenue when persuasive evidence of an arrangement exists, delivery of the goods or services has occurred, the sales price reflectsthe consideration to which the Group expects to be entitled in exchange for those goods or services. The primary sources of the Group’s revenues are asfollows: Educational programs and services The Group’s revenue is principally derived from the rendering of boarding school education services to students. The Group offers basic educational andinternational programs at the primary school, middle school and high school grades. The basic educational program provides curricula and courseworkmandated by the PRC government. The international program provides students the opportunity to earn both their PRC school diplomas and to preparefor admissions to overseas educational institutions. Tuition fees are received at the beginning of each school year. Each school year is comprised of two semesters. The first semester starts in September andends in January. The second semester starts the following month in February and ends in June. Tuition fees contain multiple components consisting of the delivery of education, after-school enrichment program, accommodations, meals, andtransportation services (collectively, “education services”) and delivery of educational books and related materials (“education materials”). The Groupallocates the total tuition fees into educational services and educational materials based on their relative fair value. The components within educationservices were not further separated since revenue recognition for the components occurs at the same time and the components belong to the samecategory of revenue, which is service revenue. Revenue attributable to education services is recognized on a straight-line basis over the school year since the services are performed by anindeterminate number of acts over a specified period of time and there is no evidence that some other method better represents the stage of completion. Revenue attributable to educational materials is recognized upon the delivery of the products to the students, which is when the risks and rewards havebeen transferred to the students. Tuition fees not yet earned are recorded as deferred revenue. For the periods presented, revenue recognized for the delivery of educational materials was insignificant and occurred during the same year that revenuefor the delivery of education services was recognized. Management services The Group also provides education and management services to schools, including but not limited to logistic, management and consulting services.Revenue is recognized upon the delivery of service. Others Others mainly include revenue derived from educational training services, overseas study consulting services and hotel management. Educational training services. The Group provides various extracurricular courses to arouse students’ interest and broaden their both academic andnonacademic outlook. Tuition is generally collected in advance and is initially recorded as deferred revenue. Revenue derived from providingeducational training services is recognized on a straight-line basis over the period of the courses. Overseas study consulting services. It represents revenue from the provision of study trip and consulting services for overseas studies. Revenue isrecognized upon the delivery progress of services. Hotel management. The Group provides accommodation service for students’ parents, visitors, and event participants to the Group’s education park, andrevenue is recognized when the service is provided to customers. (l)Government grants Government grants are recognized in the statements of profit or loss and other comprehensive income when the grants are unconditional and becomereceivable. Grants that compensate the Group for expenses incurred are recognized as income in profit or loss on a systematic basis in the same periods inwhich the expenses are incurred. (m)Lease payments Payments made under operating lease are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received arerecognized as an integral part of the total lease expenses over the term of the lease. Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(n)Finance income and finance costs Finance income comprises interest income. Interest income is recognized on accrual basis during the interest-bearing deposits period. Finance costs comprise interest expense on borrowings. Borrowing costs that are not directly attributable to the acquisition, construction or productionof a qualifying asset are recognized in profit or loss. Foreign currency gains and losses are reported on a net basis as either finance income or finance expense depending on whether foreign currency changesare in a net gain or net loss position. F-19 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (o)Income tax expense Income tax expense comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets andliabilities are recognized in profit or loss except to the extent that they relate to a business combination, or items recognized directly in equity or in othercomprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and anyadjustment to tax payable in respect of previous years. Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carryingamounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused taxcredits. Deferred tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill; theinitial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, anddifferences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and itis probable they will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future. The amount of deferred tax recognized is measured based on the expected manner of realization or settlement of the carrying amount of the assets andliabilities, using tax rates enacted or substantively enacted at the reporting date. Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets areoffset against current tax liabilities, and deferred tax assets are offset against deferred tax liabilities, if there is a legal enforceable right to offset currenttax assets and current tax liabilities, and in the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to realize theasset and settle the liability simultaneously, or in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxauthority on the same taxable entity. Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable thatfuture taxable profits will be available against which they can be utilized. The carrying amount of a deferred tax asset is reviewed at each reporting dateand is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilized. Anysuch reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available. In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain tax positions and whether additional taxesand interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. Newinformation may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to taxliabilities will impact tax expense in the period that such determination is made. (p)Earnings per share Basic earnings per share (“basic EPS”) is calculated by dividing the profit by the weighted-average number of ordinary shares outstanding during theperiod. Diluted earnings per share (“diluted EPS”) is similar to basic earnings per share but presents the dilutive effect on a per share basis of potentialordinary shares (e.g. warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. (q)Related parties For the purposes of these consolidated financial statements, a person or entity is considered to be related to the Group if: (a)A person, or a close member of that person’s family, is related to the Group if that person: (i)has control or joint control over the Group. (ii)has significant influence over the Group; or of a parent of the Group. (iii)is a member of the key management personnel of the Group or of a parent of the Group. F-20 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (b)An entity is related to the Group if any of the following conditions applies: (i)the entity and the Group are members of the same Group (which means that each parent, subsidiary and fellow subsidiary is related to theother). (ii)one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of the Group of which the otherentity is a member). (iii)both entities are joint ventures of the same third party. (iv)one entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v)the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group. (vi)the entity is controlled or jointly controlled by a person identified in (a). (vii)a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of aparent of the entity). Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealingswith the entity. (r)Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended June 30, 2018 Up to the date of issue of these consolidated financial statements, the IASB has issued a number of amendments, new standards and interpretations whichare not yet effective for the year ended June 30, 2018 and which have not been adopted in these consolidated financial statements. These include thefollowing which may be relevant to the Group. Effective foraccounting periodsbeginning on or afterIFRS 9, Financial Instruments January 1, 2018IFRS 15, Revenue for Contracts with Customers January 1, 2018IFRS 16, Leases January 1, 2019Amendments to IFRS 9, Prepayment Features with Negative Compensation January 1, 2019Amendments to IFRS 3, Business combinations January 1, 2019Amendments to IFRS 11, Joint Arrangements January 1, 2019Amendments to IAS 12, Income Taxes January 1, 2019Amendments to IAS 19, Employee Benefits January 1, 2019Amendments to IAS 28, Investments in Associates and Joint Ventures January 1, 2019 IFRS 9 “Financial Instruments” addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces newrules of hedge accounting and a new impairment model for financial assets, and should be applied in an entity’s IFRS financial statements for annualreporting periods beginning on or after January 1, 2018. Earlier application is permitted. The Group will adopt IFRS 9 in the financial reporting periodcommencing July 1, 2018. The Group has completed the review of IFRS 9 and does not expect the new guidance to have a significant impact on thereclassification and measurement of its financial assets. In May 2014, IASB issue IFRS15-“Revenue from Contracts with Customers”. The core principle of IFRS 15 is that an entity will recognize revenue todepict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled inexchange for those goods or services. To achieve the principle, a company should follow five steps: 1.Identify the contract with a customer 2.Identify the performance obligations in the contract 3.Determine the transaction price 4.Allocate the transaction price to the performance obligations in the contract 5.Recognize revenue when (or as) the entity satisfies a performance obligation The standard should be applied in an entity’s IFRS financial statements for annual reporting periods beginning on or after 1 January 2018. Earlierapplication is permitted. The Group will adopt IFRS15 in the financial reporting period commencing July 1, 2018 and elect to apply the "modifiedretrospective" transition approach to implementation. The Group has completed review of the requirements of IFRS15 against the existing accountingpolicy and concluded that the adoption of IFRS 15 will not have significant impact on the timing of the Group’s revenue recognition nor on the Group’sequity. For those new standards with effective date beginning on/after January 1, 2019, the Group is in the process of making an assessment of what the impactof these amendments, new standards and interpretations is expected to be in the period of initial application. (s)Reclassification Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The comparative figures have been reclassified to conform to current year presentation. F-21 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 4Other income, net 2016 RMB 2017 RMB 2018 RMB Unconditional government grants 1,434 6,253 5,832 Others 322 72 (2,143) 1,756 6,325 3,689 Others mainly include worker’s compensation of RMB1,031, disposal loss of non-current assets of RMB425 during the year ended June 30, 2018. 5Employee benefit expenses 2016 RMB 2017 RMB 2018 RMB Wages and salaries 230,516 280,786 388,238 Contributions to defined contribution plans 27,038 44,884 52,898 257,554 325,670 441,136 The Group participates in pension funds organized by the PRC government. According to the respective pension fund regulations for its employees, theGroup is required to pay annual contributions for its employees. The Group remits all the pension fund contributions to the relevant local governmentauthorities, which are responsible for the payments and liabilities relating to the pension funds. The Group has no obligation for payment of retirementand other post-retirement benefits of employees other than the contributions described above. 6Profit before tax (i)Net finance income 2016RMB 2017RMB 2018RMB Interest income 4,906 6,709 11,715 Net foreign exchange gain/(loss) 1,049 282 (324)Other expenses (203) (99) — Net finance income 5,752 6,892 11,391 Interest income was mainly generated from deposits placed with a related party finance entity (Note 19(a)(ii)). F-22 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (ii)Expenses by nature 2016RMB 2017RMB 2018RMB Employee benefit expenses (Note 5) 257,554 325,670 441,136 Students related cost 100,633 116,273 133,308 Transportation 24,729 31,823 36,110 Marketing and promotion 15,806 21,240 24,019 Depreciation 65,038 110,485 113,128 Utilities 19,652 23,286 26,100 Amortization of intangible assets 948 662 446 Operating lease charges 25,592 30,030 33,290 Share based payment 1,459 — — Cost related to overseas consulting business — — 14,263 Others 40,439 39,300 70,787 Total cost of revenue, selling expenses and administrative expenses 551,850 698,769 892,587 Students related costs are mainly comprised of costs for text books, uniforms, dining services and living accommodations. (iii)Depreciation and amortization 2016RMB 2017RMB 2018RMB Included in cost of revenue Depreciation 64,642 109,755 112,039 Included in G&A expenses Depreciation 396 730 1,015 Included in selling expenses Amortization 948 662 446 Depreciation — — 74 (iv)Gain on disposal of affiliated entities On July 10, 2017, the Group entered into an Educational Cooperative Partnership Agreement (the “Chuzhou Agreement”) with Nanqiaogovernment. Pursuant to the Chuzhou Agreement, Hailiang Management shall launch and operate Chuzhou School for 30 years beginning onSeptember 1, 2017. In June, 2018, Hailiang Management entered into a Change of Operator Agreement and transferred the sponsorship and 100% equity interest inChuzhou School to Chuzhou Zhengxu Education Information Consulting Co., Ltd., a wholly owned subsidiary of Hailiang Group. Theconsideration was RMB1,793, and the carrying amount of its net assets was RMB1,412 on disposal date. The Group recognized a gain of RMB381on the disposal. In addition, on February 28, 2018, the Group entered into agreements with Hailiang Preschool Education Group Co., Ltd (“Hailiang Preschool”),transferred the Tianma Kindergarten and the sponsorship and 100% equity interest in Hailiang Kindergarten. The consideration of disposing TianmaKindergarten and Hailiang Kindergarten was RMB1,666 and RMB20,049, respectively. On the disposal date, the carrying amount of the netliabilities of Tianma Kindergarten was RMB17, and the carrying amount of the net assets of Hailiang Kindergarten was RMB16,764. The Grouprecognized a gain of RMB1,683 and RMB3,285 on the disposal of Tianma Kindergarten and Hailiang Kindergarten, respectively. The deals were not strategic shifts of the business and these transactions will not have major impact on the Group’s business, therefore thetransactions were not qualified as discontinued operation. F-23 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 7Income tax expenses The Company is incorporated in the Cayman Islands and conducts its primary business operations through its subsidiaries and consolidated affiliated entitiesin the PRC. It also has a wholly-owned subsidiary in Hong Kong. Under the current laws of the Cayman Islands, the Company is not subject to tax on incomeor capital gains. Additionally, upon payments of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed. Hong Kong Under the Hong Kong tax laws, the statutory income tax rate is 16.5%. Subsidiaries in Hong Kong are exempted from income tax on their foreign-derivedincome and there are no withholding taxes in Hong Kong on remittance of dividends. China Under the Enterprise Income Tax (“EIT”) Law, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are subject to a unified 25% enterpriseincome tax rate, except for certain entities that are entitled to tax holidays or exemptions. According to the Implementation Rules for the Law for Promoting Private Education in 2004, or the 2004 Implementing Rules, private schools, whetherrequiring reasonable returns or not, may enjoy preferential tax treatment. The 2004 Implementing Rules provide that the relevant authorities under the StateCouncil may introduce preferential tax treatments and related policies applicable to private schools requiring reasonable returns. For the year ended June 30,2018, the Company’s affiliated schools have historically benefitted from the corporate income exemption treatment since their respective establishments. Confirmed by the local tax authorities, the schools sponsored by the Group are exempt from income taxes for the years ended June 30, 2016, 2017 and 2018.The Company’s PRC counsel has confirmed that this tax exemption is not contrary to PRC tax laws. According to the 2016 Private Education Law effective as of September 1, 2017, private schools, whether non-profit or for-profit, may enjoy preferential taxtreatment, and non-profit private schools will be entitled to similar tax benefits as public schools. However, taxation policies for for-profit private schools arestill unclear as more specific provisions are not yet to be introduced and all the schools sponsored by the Group had not elected to change or re-register theirstatuses as of June 30, 2018. As such, the Group is unable to determine the overall taxation impact of the 2016 Private Education Law on the net revenuesand profitability in future fiscal years. For the year ended June 30, 2018, the Company’s subsidiaries and consolidated affiliated companies in PRC, which mainly provide logistic services,management and consulting services, educational training services, after-school enrichment program and overseas study consulting services, are subject to aunified 25% enterprise income tax rate. Thus, no income tax expense was recognized for the years ended June 30, 2016 and 2017. The Group recognized current income tax expenses of RMB66,288 for the year ended June 30, 2018. The PRC tax system is subject to substantial uncertainties. There can be no assurance that changes in PRC tax laws or their interpretation or their applicationwill not subject the Company’s PRC entities to substantial PRC taxes in the future. As of June 30, 2018, the Group had unused tax loss of RMB2,516 available for offset against future taxable profits, which will begin to expire as of June 30,2019. No deferred tax assets have been recognized in respect of such tax losses due to the unpredictability of future taxable profit streams. Under the current EIT Law, dividends paid by an FIE to any of its foreign non-resident enterprise investors are subject to a 10% withholding tax. Thus, thedividends, if and when payable by the Company’s PRC subsidiaries to their offshore parent entities, would be subject to 10% withholding tax. A lower taxrate will be applied if such foreign non-resident enterprise investor’s jurisdiction of incorporation has signed a tax treaty or arrangement for the avoidance ofdouble taxation and the prevention of fiscal evasion with respect to taxes on income with China. There is such a tax arrangement between PRC and HongKong. Thus, the dividends, if and when payable by the Company’s PRC subsidiaries to the offshore parent entities located in Hong Kong, would be subjectto 5% withholding tax rather than statutory rate of 10% provided that the offshore entities located in Hong Kong meet the requirements stipulated byrelevant PRC tax regulations. Furthermore, pursuant to the applicable circular and interpretations of the current EIT Law, dividends from earnings createdprior to 2008 but distributed after 2008 are not subject to withholding income tax. The Company has not provided for deferred income tax liabilities on thePRC entities’ undistributed earnings of RMB789,749 and RMB1,032,048 as of June 30, 2017 and 2018, respectively, because the Company controls thetiming of the undistributed earnings and it is probable that such earnings will not be distributed. The Company plans to reinvest those earnings in the PRCindefinitely in the foreseeable future. Moreover, the current EIT Law treats enterprises established outside of China with “effective management and control” located in China as PRC residententerprises for tax purposes. The term “effective management and control” is generally defined as exercising overall management and control over thebusiness, personnel, accounting, properties, etc. of an enterprise. The Company, if considered a PRC resident enterprise for tax purposes, would be subject tothe PRC Enterprise Income Tax at the rate of 25% on its worldwide income for the period after January 1, 2008. During the years ended June 30, 2016, 2017and 2018, the Company did not carry out any substantial business operations and therefore was not subject to PRC taxes. Reconciliation between the provision for income tax computed by applying the PRC EIT rates of 25% in fiscal year 2016, 2017 and 2018 to income beforeincome taxes and the actual provision for income tax was as follow: F-24 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 2016 2017 2018 RMB RMB RMB Net income before provision for income tax 99,432 167,743 297,190 PRC statutory tax rate 25% 25% 25%Income tax at statutory tax rate 24,858 41,936 74,298 Effect of expenses that are not deductible in determining taxable profit — — 373 Effect of incomes that are not taxable in determining taxable profit — — (956)Unrecognized tax losses 133 2 70 Utilization of tax losses previously not recognized — (579) (46)Effect of income tax exemptions (24,991) (41,359) (7,451)Income tax expense recognized in profit or loss — — 66,288 8Earnings per share The calculation of basic EPS has been based on the following profit attributable to ordinary shareholders and weighted-average number of ordinary sharesoutstanding. The calculation of diluted EPS has been based on the following profit attributable to ordinary shareholders and weighted-average number of ordinary sharesoutstanding after adjustment for the effects of all dilutive potential ordinary shares. (i)Profit attributable to ordinary shareholders 2016RMB 2017RMB 2018RMB Profit attributable to ordinary shareholders (basic and diluted) 99,432 167,743 222,588 (ii)Weighted-average number of ordinary shares 2016 2017 2018 Weighted average number of ordinary shares for basic EPS 410,439,562 411,208,000 411,878,478 Effects of dilution from Warrants 12,144 — 638,292 Weighted average number of ordinary shares adjusted for the effect of dilution 410,451,706 411,208,000 412,516,770 (iii)Earnings per share 2016 2017 2018 Basic and diluted earnings per share 0.24 0.41 0.54 F-25 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 9Property and equipment MotorvehiclesRMB Furniture,fixturesand otherequipmentRMB LeaseholdimprovementRMB Constructionin progressRMB TotalRMB Cost Balance at June 30, 2015 19,108 32,318 182,884 97,184 331,494 Additions 828 75,039 — 558,760 634,627 Transferred from construction in progress — 59,609 524,857 (584,466) — Disposals (1,885) (699) (78,494) — (81,078)Balance at June 30, 2016 18,051 166,267 629,247 71,478 885,043 Additions 464 17,626 10,266 62,396 90,752 Transferred from construction in progress — 60,383 64,613 (124,996) — Disposals — (87) — — (87)Balance at June 30, 2017 18,515 244,189 704,126 8,878 975,708 Additions 4,454 22,331 21,415 48,209 96,409 Transferred from construction in progress — 5,098 45,446 (50,544) — Disposals (1,566) (8,584) (23,446) (1,013) (34,609)Balance at June 30, 2018 21,403 263,034 747,541 5,530 1,037,508 Accumulated depreciation Balance at June 30, 2015 (5,537) (21,152) (123,128) — (149,817)Depreciation for the year (3,714) (19,799) (41,525) — (65,038)Disposals 1,470 509 68,208 — 70,187 Balance at June 30, 2016 (7,781) (40,442) (96,445) — (144,668)Depreciation for the year (2,098) (41,746) (66,641) — (110,485)Disposals — 64 — — 64 Balance at June 30, 2017 (9,879) (82,124) (163,086) — (255,089)Depreciation for the year (4,476) (33,414) (75,238) — (113,128)Disposals 338 4,340 5,112 — 9,790 Balance at June 30, 2018 (14,017) (111,198) (233,212) — (358,427) Net book value At June 30, 2017 8,636 162,065 541,040 8,878 720,619 At June 30, 2018 7,386 151,836 514,329 5,530 679,081 In September 2015, Foreign Language and selected programs from Tianma Experimental and Experimental High relocated to the newly constructed HailiangEducation Park. Tianma Experimental’s and Experimental High’s remaining programs continue to operate on their existing respective campuses. As ofJune 30, 2016, the Group has ceased the lease of original campus site of Foreign Language, therefore, the leasehold improvement of the original campus ofForeign Language was written off, and the net book value of RMB10,286 was recognized as disposal loss of leasehold improvement in the statement of profitor loss and other comprehensive income. During the 2018 fiscal year, property and equipment with net book value of RMB23,433 were transferred out by the Group due to the disposal of HailiangKindergarten, Tianma Kindergarten and Chuzhou School. F-26 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10Intangible assets and goodwill GoodwillRMB StudentrelationshipRMB TrademarkRMB TotalRMB Cost Balance at July 1, 2015, June 30, 2016, 2017 62,046 45,037 16,540 123,623 Disposals of component (406) — — (406)Balance at June 30, 2018 61,640 45,037 16,540 123,217 Accumulated Amortization Balance at June 30, 2015 — (42,414) — (42,414)Amortization for the year — (948) — (948)Balance at June 30, 2016 — (43,362) — (43,362)Amortization for the year — (662) — (662)Balance at June 30, 2017 — (44,024) — (44,024)Amortization for the year — (446) — (446)Balance at June 30, 2018 — (44,470) — (44,470) Net book value At June 30, 2017 62,046 1,013 16,540 79,599 At June 30, 2018 61,640 567 16,540 78,747 Intangible assets and goodwill arose from the acquisition of Tianma Experimental on July 1, 2009. In February 2018, the Group entered into an asset restructuring agreement, pursuant to which all the assets and liabilities related to the CGU of TianmaKindergarten was sold to Zhuji Hailiang Preschool Investment Co., Ltd, a related party of the Group. Thus, the goodwill with an amount of RMB406allocated to Tianma Kindergarten was spin off from the Group. Student relationship The amortization of student relationship is included in “selling expenses”. No impairment loss of the student relationship intangible asset was recognized inthe statements of profit or loss and other comprehensive income for the years ended June 30, 2016, 2017 and 2018. Goodwill and trademark with indefinite useful lives For the purpose of impairment testing, goodwill and trademark are allocated to a group of CGUs which represents the lowest level within the Group at whichthe goodwill and trademark are monitored for internal management purpose. The recoverable amount of goodwill is estimated based on discounted cashflows forecast, which is based upon a combination of long term trends, industry forecasts and in house estimates. For the purpose of impairment testing, the carrying amounts of goodwill and trademark are allocated to Tianma Experimental, which is the lowest level forwhich the assets are monitored for internal management purpose. The aggregated carrying amounts of goodwill and trademark are as follows: 2017RMB 2018RMB Goodwill 62,046 61,640 Trademark 16,540 16,540 Total 78,586 78,180 F-27 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The recoverable amount of this CGU was based on fair value less costs of disposal, which was estimated using discounted cash flow projections. The fairvalue measurement was categorized as a Level 3 fair value based on the inputs in the valuation technique used (see Note 2(e)). The key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key assumptions representedmanagement’s assessment of future trends in the relevant industry and were based on historical data from both external and internal sources. In percent 2016 2017 2018 Discount rate 24% 24% 15%Terminal value growth rate 3% 3% 3% The discount rate was a post-tax measure estimated based on the historical industry average weighted-average cost of capital, with a possible debt leveragingof 0%. The cash flow projections included the following specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate wasdetermined based on management’s estimate, consistent with the assumption that a market participant would make. •Revenue growth was projected considering the average growth levels experienced over the past five years and the estimated student headcountand tuition growth for the next five years. It was assumed that tuition would increase in line with forecast inflation over the next five years. •Growth of cost of sales, selling expenses and administrative expenses were projected considering inflation and estimated student headcount forthe next five years. The estimated recoverable amount of the CGU exceeded its carrying amount as of June 30, 2016, 2017 and 2018, respectively. The recoverable amount of trademark is determined using the relief from royalty method, which was based on post-tax cash flow projections for 5 years basedon financial budgets approved by management, including royalty rate of 3% (2017 and 2016: 3%), terminal growth rate of 3% (2017 and 2016: 3%) and theapplicable discount rate of 15% (2017 and 2016: 24%). Management determined the expected growth rates and the operating results based on the pastperformance and its expectations in relation to market developments. The discount rate used is post-tax and reflects specific risks relating to the Company. Based on management’s assessment results, there was no impairment of goodwill and trademark as at June 30, 2016, 2017 and 2018 and no reasonablechange to the assumptions would lead to an impairment charge. 11Prepayments to third party suppliers 2017RMB 2018RMB Prepayments to third party suppliers 5,692 92 The amount mainly represents the down payments made to certain third party vendors for the purchase of equipment and leasehold improvements. 12Other current assets 2017RMB 2018RMB Other receivables due from third parties 1,526 15,182 The amount mainly represents expense prepaid for overseas study consulting services and advances to employees. F-28 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 13Cash and cash equivalents 2017RMB 2018RMB Cash on hand 21 30 Cash at bank 16,065 71,857 Cash held at a related party finance entity 61,715 740,733 Total 77,801 812,620 Cash at bank consists of demand deposits and call deposits with term less than one month, and is held by third party financial institutions located in the PRC(including Hong Kong). Cash held at a related party finance entity represents cash demand deposits, 7-day call deposits and term deposit of three months orless held at Hailiang Finance Co., Ltd. (“Hailiang Finance”) (see Note 19(b)(ii)). As of June 30, 2017 and 2018, the cash and cash equivalents of the Group denominated in RMB amount to RMB62,030 and RMB799,147, respectively. 14Share-based payment In conjunction with the IPO financing completed in July 2015, the Company agreed to issue to Network 1 Financial Securities, Inc. (“the Underwriter”) andits designees a warrant for the purchase of 142,900 ADSs, equal to 5% of the aggregate number of ADSs sold in the IPO. The Underwriter’s warrant shall beexercisable, in whole or in part, during a period commencing on a date that is six months after the closing of the Company’s IPO, which is January 6, 2016,and expiring on the three-year anniversary of the closing of the Company’s IPO at an initial exercise price per ADS of US$8.75, which is equal to 125% of theIPO price of the ADSs. The fair value of the warrant provided by an independent appraiser was approximately RMB1,707 (USD279), which was charged toshare premium. As of June 30, 2017, none of the warrants was exercised. In December 2017, all the warrants were exercised into common shares in cashlessmethod. The fair value of these warrants was estimated on the basis of the Black-Scholes option pricing model with the following assumptions: Issuance Date Expected volatility 50.96%Risk-free interest rate 0.96%Expected dividend — Expected life of the warrant 3 years Fair value of conversion share US$7.0 On September 14, 2015, the Company entered into a Business Consulting Service Agreement with a consultant which provided the Company advice,consultation, information and service that is consistent with the expertise of the consultant. In conjunction, the Company agreed to pay and deliver to theconsultant and its designees or nominees 480,000 ordinary shares, par value USD0.0001 per share, of the Company, with restricted period of 6 months. Thefair value of the restricted shares provided by an independent appraiser was approximately RMB1,459 (USD229), which was charged to share capital andshare premium. The fair value of these restricted shares was estimated on the basis of the Black-Scholes option pricing model with the following assumptions: Issuance Date Expected volatility 55.56%Risk-free interest rate 0.293%Expected dividend — Expected life of the restricted shares 0.5 year Hypothetical fair value of conversion share US$1.0 F-29 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 15Capital and reserve (a)Share capital and share premium 2016 2017 2018 At June 30 par value USD0.0001-authorized 1,000,000,000 1,000,000,000 1,000,000,000 -issued and outstanding 411,208,000 411,208,000 412,450,256 All ordinary shares rank equally. (i)Ordinary shares Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. In March 2012, in connection with a private placement by a third party investor, the Board resolved to increase the authorized ordinary shares from360,000,000 shares to 365,000,000 shares. Concurrently, 5,000,000 newly authorized ordinary shares were issued to Maxida International Company Limited(“Maxida”). The Company received cash proceeds of USD3,000 (equivalent to RMB18,867) from Maxida in exchange for 1.4% equity interest in theCompany. In December 2014, the Board resolved to increase the authorized ordinary shares from 365,000,000 shares to 1,000,000,000 shares. In July, 2015, the Company completed an IPO in the US market, in which the Company issued 2,858,000 American depositary shares, or ADSs (equal to45,728,000 ordinary shares), at a public offering price of US$7 per ADS. Each ADS represents 16 ordinary shares, par value USD0.0001 per share. In September, 2015, the Company granted 480,000 restricted shares to a consultant as a consideration for its service rendered. Per valuation of the restrictedshares, the fair value of 480,000 shares is USD229 (equivalent to RMB1,459). On December 15, 2017, all the warrants issued to the Underwriter were exercised into 77,641 ADSs (equal to 1,242,256 ordinary shares). (ii)Share premium Share premium relates to the following issuances of the Company’s ordinary shares: (1)Share deficit of RMB236 for ordinary shares issued by the Company to Mr. Feng for nil consideration upon the Company’s incorporationin 2011. (2)The capital contributed by Maxida in excess of the par value of the ordinary shares issued in the private placement of RMB18,864 in 2012. (3)The gross proceeds of RMB122,369 received from IPO deducting the issuance cost of RMB9,551 and par value of ordinary shares issued topublic of RMB28, with net proceed of RMB112,790 in July, 2015. (4)The fair value of warrant issues to the Underwriter of RMB1,707 upon completion of IPO. (5)The fair value of restricted shares issued to consultant in September, 2015, in excess of par value of ordinary issued of RMB1,459. (6)On December 15, 2017, all the warrants issued to the Underwriter were exercised into 77,641 ADSs (equal to 1,242,256 ordinary shares). (iii)Contributed capital Contributed capital represented the following capital transactions with the Company’s shareholders: (1)The contributions of the registered capital of 100% of Foreign Language and 60% of Experimental High made by Mr. Feng totalingRMB82,800. (2)The consideration of RMB110,000 made by Mr. Feng for the acquisition of 80% equity interest in Tianma Experimental. F-30 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (3)The share capital of HKD10 (equivalent to RMB9) contributed by Mr. Feng upon incorporation of Hailiang HK. (4)RMB32,906 arising from acquisition of non-controlling interests. In November 2011, Mr. Feng acquired 40% registered capital equityinterest in Experimental High and 20% registered capital equity interest in Tianma Experimental from Mr. Meng, the non-controllingshareholder of both schools for cash considerations of RMB35,000 and RMB6,000, respectively. Upon the acquisitions, Mr. Feng becamethe sole sponsor of Experimental High and Tianma Experimental and owned 100% registered capital equity interest in each of the twoschools. The non-controlling interests’ proportionate shares of the net identifiable assets of Experimental High and Tianma Experimentalon the date of the acquisitions were RMB28,790 and RMB4,116, respectively. The aggregate cash consideration of RMB41,000 paid byMr. Feng for the acquisitions was recorded in contributed capital. The difference between the cash consideration paid of RMB41,000 andthe total carrying amount of the non-controlling interests of RMB32,906, which amounted to RMB8,094, was charge to deduct contributedcapital within equity. (5)The capital contributions of RMB139,980 paid by Mr. Feng upon incorporation of Hailiang Management. (6)Cash consideration of RMB139,800 paid to Mr. Feng for the transfer of 100% registered capital equity interest in each of the ForeignLanguage, Experimental High and Tianma Experimental. (7)Capital contribution of RMB10,000 from Hailiang Education Investment Group Co., Ltd. (previously named “Hailiang EducationManagement Group Co., Ltd.”), a related party controlled by Mr. Feng Hailiang, through waiving liability. (b)Reserves (i)Statutory reserve As stipulated by relevant PRC laws and regulations, the Company’s subsidiaries and affiliated entities in the PRC must take appropriations fromafter-tax profit to non-distributive funds. These reserves include general reserve and the development reserve. The general reserve requires annual appropriation 10% of after-tax profits at each year-end until the balance reaches 50% of the PRC company’sregistered capital. The other reserve is set aside at the Company’s discretion. These reserves can only be used for general enterprise expansionand are not distributable as cash dividends. The general reserve as of June 30, 2017 and 2018 was nil and RMB20,096, respectively. Each of the schools is required to appropriate 25% of its after-tax profits to a non-distributable education development reserve for theconstruction or maintenance of the school or procurement or upgrading of educational equipment. In accordance with the Law of PromotingPrivate Education, this reserve can only be used for school construction, maintenance and upgrade of education equipment. The developmentreserve is restricted net assets of the schools which are un-distributable to the Company in the form of dividends or loans. The educationdevelopment reserve as of June 30, 2017 and 2018 was RMB267,358 and RMB284,427, respectively. (ii)Translation reserve The translation reserve comprises foreign currency differences arising from the translation of the financial statements of the Company’ssubsidiaries into the presentation currency. 16Non-controlling interests Non-controlling interests represent 44% equity interest in Haibo Education and Haibo Logistic, which are held by Nanchang Baishu EducationGroup (“Nanchang Baishu”), a related party of the Group. The following table summarizes the changes in non-controlling interests from June 30, 2017through June 30, 2018. Haibo Education Haibo Logistic Total RMB RMB RMB Balance at June 30, 2017 — — — Transfer of equity interests to non-controlling interest shareholders (19(a)(x)) 2,640 2,200 4,840 Net profit attributed to non-controlling interest shareholders 6,750 1,564 8,314 Balance at June 30, 2018 9,390 3,764 13,154 F-31 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 17Trade and other payables 2017RMB 2018RMB Trade payable 22,662 22,309 Accrued payroll 50,013 68,351 Amount due to third parties 41,188 50,844 Trade and other payables 113,863 141,504 Amount due to related parties (Note 19 (b)) 124,841 138,215 Total 238,704 279,719 As of June 30, 2018, the amount due to third parties is mainly comprised of accrued service balances such as summer campus travel agent, bus transportation,books material, etc, and deposit collected from students for miscellaneous consumption in the campus, business tax and other taxes payable, as well asquality guarantee deposit received from leasehold improvement service vendors. The Group’s exposure to liquidity risk related to trade and other payables is disclosed in Note 18. 18Financial risk management and fair values The Group has exposure to the following risks from financial instruments: •credit risk •liquidity risk •market rate risk This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring andmanaging risk, and the Group’s management of capital. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. (a)Credit risk The Group’s credit risk is primarily attributable to cash at bank, cash and term deposits held at a related party finance entity, other receivables due fromrelated parties and other current assets. The carrying amount of financial assets represents the maximum credit exposure. Cash at bank All of the Group’s cash at bank is held by third-party financial institutions located in the PRC (including Hong Kong). Financial institutions in the PRC donot have insurance similar to that provided by the Federal Deposit Insurance Corporation in the United States of America. Cash and term deposit placed with a related party finance entity As of June 30, 2018, the Group had cash of RMB740,733 and term deposit of RMB204,000 at Hailiang Finance, which represented 84% of the Group’sconsolidated current assets as of June 30, 2018. Hailiang Group, an entity controlled by Mr. Feng, established a finance Group, namely, Hailiang Finance, which is licensed to provide intra-Group financingarrangements within Hailiang Group’s subsidiaries and other related party companies. The establishment of Hailiang Finance was approved by the ChinaBanking Regulatory Commission (“CBRC”) as a non-banking financial institution to solely facilitate Hailiang Group’s internal financing transactionsincluding issuing loans to and accepting cash deposits from its subsidiaries and other related party entities. Pursuant to the license issued by CBRC, HailiangFinance is not permitted to make any loans or accept any deposits from any parties that are unrelated to Hailiang Group, except for inter-bank transactionswith other unrelated commercial banks. Since September 2014, Hailiang Group and Mr. Feng provided an annual guarantee on the Group’s deposits with Hailiang Finance, and the guarantee wasrenewed annually. Based on one most recent PRC credit rating organizations, Hailiang Group has been rated AA+ which indicates strong ability to makepayments on debts as they become due. Management believes that the credit risk on the Group’s cash of RMB740,733 and term deposit of RMB204,000 is low considering HailiangGroup’s guarantee and credit rating. To reduce its credit exposure with Hailiang Finance, the Group provided an annual budget for the aggregate amount deposit with Hailiang Finance asRMB1,200,000 based on current policy effective September 2017. Other receivables due from related parties and other current assets In order to minimize the credit risk on other receivables due from related parties and other current asset, the management of the Group makes periodiccollective assessments on the recoverability of receivables based on historical settlement records and past experience. Management believes that there is nomaterial credit risk on the Group's other receivables due from related parties of RMB95,128 and other current assets of RMB15,182.Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (b)Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled bydelivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficientliquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’sreputation. F-32 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following are the contractual maturities of financial liabilities, including estimated interest payments: June 30, 2017 Non-derivative financial instruments Carryingamount Contractualcash flows 1 year or less RMB RMB RMB Trade and other payables 238,704 238,704 238,704 June 30, 2018 Non-derivative financial instruments Carryingamount Contractualcash flows 1 year or less RMB RMB RMB Trade and other payables 279,719 279,719 279,719 (c)Market rate risk Interest rate risk The interest rates of cash held in bank and deposits placed with Hailiang Finance ranged from 0.35% to 1.43% per annum for the years ended June 30, 2017,and ranged from 0.35% to 1.82% per annum for the years ended June 30, 2018. The Group does not have any fixed-rate or variable-rate financial instrumentother than cash and cash equivalent, and term deposits placed with a related party finance entity. A change of 10 basis point in interest rate would have increased or decreased the Group’s post-tax profit and equity by RMB479 and RMB1,016 as ofJune 30, 2017 and 2018, respectively. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant. Currency risk Currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group’sexposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operation in Cayman Island that the currencies in which thesetransactions are primarily denominated USD. The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible change in the exchange rate of RMB against USD,with all variables held constant, of the Group’s profit before tax and the Group’s equity. Change in USD rate Effect on profit before tax Effect on equity June 30, 2018 +5% — 5,393 -5% — (5,393)June 30, 2017 +5% — 6,046 -5% — (6,046) (d)Fair value The carrying amounts of financial assets and liabilities approximate their respective fair values as at June 30, 2017 and 2018, respectively, due to their short-term maturities. (e)Capital management The Group actively and regularly reviews and manages its capital structure to maintain a balance between higher shareholders’ return that might be possiblewith higher levels of borrowings, and makes adjustments to the capital structure in light of changes in economic conditions. The Group is not subject to externally imposed capital requirements. F-33 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 19Related parties transactions The Group entered into significant transactions with related parties during each of the years in the three-year period ended June 30, 2018. (a)The significant related party transactions are summarized as follows: 2016 2017 2018 Note RMB RMB RMB Loans made from a related party (i) — 99,603 7,609 Loans made to a related party (i) — 98,229 — Interest income from deposits placed with a related party finance entity (ii) 2,683 5,847 11,464 Net deposits/(withdrawals) of cash at a related party finance entity (ii) 81,716 (109,998) 679,018 Term deposits placed with a related party finance entity (ii) 1,212,430 1,953,600 204,000 Maturity of term deposits placed with a related party finance entity (ii) 1,272,430 1,552,600 401,000 Rental expenses (iii) 25,433 30,030 32,486 Expenses paid by a related party on behalf of the Group (iv) 3,356 3,836 4,612 Repayment of expenses paid by a related party on behalf of the Group (iv) 1,782 4,536 4,124 Expenses paid by the Group on behalf of a related party (iv) 11,567 — 9,401 Repayment of expenses paid by the Group on behalf of a related party (iv) — — 8,794 Payments of leasehold improvement to a related party (iv)(v) 22,661 29,406 24,280 Purchase of healthy food from a related party (vi) 48,517 48,298 38,323 Product sale revenue and service fee from a related party (vii) 1,962 3,766 17,247 Service fee paid to a related party (viii) — — 6,884 Waive of liability to a related party (iii) — 10,000 — Gains from disposal of affiliated entities to a related party (ix) — — 5,349 Acquisition payment to a related party (x) — — 6,160 (b)The significant related party balances are summarized as follows: 2017 2018 Note RMB RMB Amount due from a related party (i)(ii)(iii)(iv) 112,773 95,128 Cash held at a related party finance entity (ii) 61,715 740,733 Term deposits placed with a related party finance entity (ii) 401,000 204,000 Amount due to related parties (i)(iii)(iv)(v)(vi) 124,841 138,215 The Company’s majority shareholder, Mr. Feng owns or controls other non-educational services businesses (“Related Party Companies”) that from timeto time require short-term financing to support their business operations and working capital needs. After considering the cash on hand and forecastedcash flows to fund its operations, the Group issued financing to Related Party Companies during the periods presented. F-34 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (i)On October 31, 2016, the Company provided a one-year-period loan to Hong Kong Leonit Limited (“Leonit”) amounting to USD14,500,approximately RMB98,229 (“USD Loan”). On the same date, Hailiang Consulting made a one-year-period loan from Hailiang Group Co.,Ltd amounting to RMB99,603 with interest free (“RMB Loan”). On October 9, 2017, the Company agreed to extend the loan with Leonit,pursuant to which the USD Loan’s due date was extended to due October 30, 2018. Similarly, Hailiang Group and Hailiang Consultingagreed to a loan extension pursuant to which the RMB Loan was due on October 30, 2018. Through an understanding among theaforementioned parties, the USD Loans are “secured” by the RMB Loan. It is the understanding among the parties that when the USD Loanis repaid, the RMB Loan will similarly be repaid. On December 5, 2017, the Company made a one-year-period loan from Leonit amounting to USD1,150, approximately RMB7,609, for theneed of US Dollars. The loan of RMB98,229 made to Leonit and loan of RMB7,609 made from Leonit were recognized in “Amount due from related parties”,and the loan of RMB99,603 made from Hailiang Group was recognized in “Amount due to related parties” as of June 30, 2018. (ii)As at June 30, 2017 and 2018, the Group has cash in a related party finance entity of RMB61,715 and RMB740,733, respectively. Duringthe years ended June 30, 2016 and 2018, net amount of RMB81,716 and RMB679,018 were placed with Hailiang Finance, respectively.During the year ended June 30, 2017, net amount of RMB109,998 were withdrawn from Hailiang Finance. The cash in a related partyfinance entity are held for the purpose of meeting short-term cash commitments, such as to pay for the Group’s operating expenses at anytime. As at June 30, 2017 and 2018, the Group has term deposits with maturities ranging from three months to less than one year amounting toRMB401,000 and RMB204,000 that are placed at Hailiang Finance, respectively. During the years ended June 30, 2016, 2017 and 2018,term deposits of RMB1,212,430, RMB1,953,600 and RMB204,000 was placed with Hailiang Finance, of which RMB1,272,430,RMB1,552,600 and RMB401,000 matured, respectively. The term deposits are held for investment purpose and can be withdrawn prior totheir maturity without incurring significant penalties. Such amounts have been presented as investing activities in the statements of cashflows. The interest income from the deposits during the years ended June 30, 2016, 2017 and 2018 amounted to RMB2,683, RMB5,847 andRMB11,464, respectively. (iii)Each of the schools leases the school buildings and the related facilities from Hailiang Investment, a related party controlled by Mr. Feng.Haibo Education leases the office space from Nanchang Hongtou Property Management Co., Ltd, a related party owned by the Group’s non-controlling shareholder. The leasing term and rental amount of each of the three campuses and office space is as follows: 2016 2017 2018 Leasing Period RMB RMB RMB Foreign Language July 1, 2009 ~ September 1, 2015 166 — — Experimental High July 1, 2017 ~ June 30,2037 7,000 7,350 7,718 Tianma Experimental July 1, 2015 ~ June 30,2035 1,600 1,680 1,764 Hailiang Education Park September 1, 2017 ~ August 31, 2037 16,667 21,000 21,483 Haibo Education July 1, 2017 ~ June 30,2022 — — 1,521 Total 25,433 30,030 32,486 During the years ended June 30, 2016, 2017 and 2018, the Group paid rental fees of RMB25,783, RMB27,300 and RMB15,956,respectively. Hailiang Investment waived the 2013 and 2014 rental fees with an amount of RMB10,000 in the year ended June 30, 2017. Amount due to Hailiang Investment was RMB739 as of June 30, 2018, which was included in the “Amount due to related parties”. Theprepaid rental fee to Hailiang Investment as of June 30, 2017 was RMB14,270 which was included in the “Amount due from relatedparties”. F-35 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (iv)During the years ended June 30, 2016, 2017 and 2018, Hailiang Group paid professional service fees and other expenses of RMB3,356,RMB3,836 and RMB4,612 on behalf of the Group, respectively. Such amount is due and payable on demand, and the Group repaidRMB1,782, RMB4,536 and RMB4,124 to Hailiang Group during the years ended June 30, 2016, 2017 and 2018, respectively. As of June 30, 2016, the Group paid RMB11,567 on behalf of Hailiang Hospital for leasehold improvement, the balance has been fullyreturned to the Group on September 21, 2016. During the year ended June 30, 2018, the Group paid expenses of RMB4,259, RMB2,764, RMB1,016 and RMB1,181 on behalf of HailiangPreschool, Hailiang Kindergarten, Hailiang Investment, Hailiang Hospital, respectively. Such amounts are receivable on demand, and therelated parties aforementioned repaid RMB4,422, RMB3,135, RMB1,014 and RMB163 during the year ended June 30, 2018, respectively. The unpaid expenses due to related parties and the uncollected amount due from related parties was included in “Amount due to relatedparties” and “Amount due from related parties” as of June 30, 2016, 2017 and 2018, respectively. (v)The Group entered into a series of leasehold improvement contracts with Heng Zhong Da for the leasehold improvement of classroombuildings, dining halls, student dormitories and amount of the contracts was RMB19,680, RMB34,626 and RMB23,174 for the years endedJune 30, 2016, 2017 and 2018, respectively. As of June 30, 2018, Heng Zhong Da has provided service and improvement of RMB352,287 (RMB285,958, RMB37,231 and RMB29,098in fiscal year 2016, 2017 and 2018), which was recorded in “Property and Equipment”. The Group has paid RMB22,661, RMB29,406 andRMB24,280 to Heng Zhong Da during the years ended June 30, 2016, 2017 and 2018, respectively. The accumulate payment included thepayment of RMB11,567 on behalf of Hailiang Hospital (see Note 19 (a)(iv)) in the 2016 fiscal year. The unpaid balance of RMB19,508 asof June 30, 2018 was recognized in “Amount due to related parties”. (vi)The Group purchased healthy food products from Ming Kang Hui Health Food Group Co., Ltd. and Ming Kang Hui Ecological AgricultureGroup Co., Ltd. (collectively referred as “Ming Kang Hui”), two companies owned by Hailiang Group, amounting to RMB48,517,RMB48,298 and RMB38,323 during the years ended June 30, 2016, 2017 and 2018, respectively. The amount due to Ming Kang Hui wasRMB30,005, RMB6,876 and RMB5,386 as of June 30, 2016, 2017 and 2018, respectively. (vii)The products sold, services provided to related parties are as follow: 2016 2017 2018 RMB RMB RMB Management Service Fee (1) — — 12,275 Service fee from Ming Kang Hui Supermarket (2) 1,962 3,766 4,556 Hotel Service Fee — — 268 Product Sale — — 148 Total 1,962 3,766 17,247 (1)Pursuant to the strategic cooperation agreement signed with Hailiang Group and Hailiang Investment, the Group provided managementservices to schools acquired by Hailiang Investment, including Hubei Xiantao No.1 Middle School, Zhejiang Xinchang NanruiExperimental School and 14 schools sponsored or operated by Nanchang Baishu Technology Co., Ltd., which is controlled byHailiang Investment. Service fees of RMB12,275 was charged from the abovementioned schools during the year ended June 30, 2018. (2)The Group charged service fee from supermarkets, which are operated by Ming Kang Hui in campuses, amounting to RMB1,962,RMB3,766 and RMB4,556 during the years ended June 30, 2016, 2017 and 2018, respectively. (viii)The Group paid information service fee to Hangzhou Mingxin Information Technology Co., Ltd., a related party controlled by HailiangGroup, amounting to RMB6,884 during the year ended June 30, 2018. (ix)The gains were recognized from disposal of Hailiang Kindergarten, Tianma Kindergarten and Chuzhou School (see Note 6 (iv) foradditional details), amounting to RMB3,285, RMB1,683 and RMB381 during the year ended June 30, 2018, respectively. (x)In August 2017, Haibo Education and Haibo Logistics were incorporated by Xinyu Baishu, an entity ultimately controlled by Mr. Feng.The contributed capital from Xinyu Baishu was RMB6,000 and RMB5,000, respectively. In January 2018, Xinyu Baishu transferred 56%equity interests in Haibo Education and Haibo Logistics to Ningbo Haoliang with considerations of RMB3,360 and RMB2,800,respectively. The considerations were equivalent to the cost of 56% of the contributed capital since Haibo Education and Haibo Logisticshad no substantive operation as of the acquisition date. Haibo Education and Haibo Logistics were under common control with theCompany both immediately before and after the acquisition, and the Company recognized the assets and liabilities of Haibo Education andHaibo Logistics at historical cost. In January 2018, Xinyu Baishu also transferred the remaining 44% equity interest in Haibo Education and Haibo Logistics to NanchangBaishu, a related party of the Company. The 44% equity interests owned by Nanchang Baishu were reocorded as non-controlling interests(see note 16). F-36 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (c)Transactions with key management personnel Remuneration of the directors and key management personnel of the Group for the years ended June 30, 2016, 2017 and 2018 are as follows: 2016 2017 2018 RMB RMB RMB Compensation 6,383 7,614 8,162 Total remuneration is included in “employee benefit expenses” (Note 5). 20Segment information The Group’s chief operating decision maker (“CODM”) has been identified as Mr. Ming Wang, the chief executive officer of the Group, who reviewed thefinancial information of operating segments when making decisions to allocate resources and assess performance of the Group. For the years ended June 30,2016 and 2017, the Group identified one operating segment, which was the provision of private K-12 educational services. During the year ended June 30,2018, the Group identified seven segments, including K-12 educational program, after-school enrichment program, management consulting services, logisticservices, educational training, overseas study consulting services and hotel management. K-12 educational program and after-school enrichment programwere aggregated as a reporting segment “K-12 educational services”, since both segments offer educational services to students in schools sponsored by theGroup and are regulated by local education bureau. Management consulting services and logistic services were aggregated as a reporting segment“management services”, considering that both segments provide services to schools sponsored and managed by the Group and the business nature is similar.Educational training, overseas study consulting services and hotel management were aggregated as others since individually they do not exceed 10%quantitative threshold of combined revenue, profit or assets. The revenue and operating results by segments were as follows: For the year ended June 30, 2016 K-12 educational services Management services Others Unallocated* Consolidated RMB RMB RMB RMB RMB Segment revenue 654,060 — — — 654,060 Consolidated revenue 654,060 — — — 654,060 Segment profit/(loss) before tax 112,944 — — (13,512) 99,432 Consolidated profit (loss) before tax 112,944 — — (13,512) 99,432 Interest income 4,900 6 4,906 Depreciation and amortization 65,986 — — — 65,986 For the year ended June 30, 2017 K-12 educational services Management services Others Unallocated* Consolidated RMB RMB RMB RMB RMB Segment revenue 853,295 — — — 853,295 Consolidated revenue 853,295 — — — 853,295 Segment profit before tax 165,353 — — 2,390 167,743 Consolidated profit before tax 165,353 — — 2,390 167,743 Interest income 5,980 729 6,709 Depreciation and amortization 111,147 — — — 111,147 For the year ended June 30, 2018 K-12 educational services Management services Others Unallocated* Consolidated RMB RMB RMB RMB RMB Segment revenue 1,093,933 117,057 71,332 — 1,282,322 Elimination of inter-segment transactions — (98,036) (14,938) — (112,974)Consolidated revenue 1,093,933 19,021 56,394 — 1,169,348 Segment profit/(loss) before tax 209,407 67,180 29,977 (9,374) 297,190 Elimination of inter-segment transactions 112,974 (98,036) (14,938) — — Consolidated profit/(loss) before tax 322,381 (30,856) 15,039 (9,374) 297,190 Interest income 7,059 24 270 4,362 11,715 Depreciation and amortization 104,225 29 9,320 — 113,574 *Unallocated expenses are primarily related to corporate administrative costs and other miscellaneous items that are not allocated to individual segments. Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The Group’s CODM does not review the financial position by operating segments, thus no total assets of each operating segment presented. 21Commitments and contingencies (a)Capital commitments Capital commitments, which are primarily related to the campus decoration are as follows: 2017 2018 RMB RMB Contracted, but not provided for: Leasehold improvement 17,821 14,988 F-37 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (b)Operating lease commitments, which are primarily with a related parties, are as follows: 2017 2018 RMB RMB within one year 31,515 33,764 one year to five years 132,884 145,016 Five years thereafter 436,819 497,468 601,218 676,248 F-38 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 22Subsequent events (a)Establishment of new subsidiary and affiliated entity On August 2, 2018, Zhuji Hailiang After-school Service Co., Ltd. (“Hailiang After-school Service”) was incorporated as Ningbo Haoliang’s whollyowned subsidiary. Hailiang After-school Service’s mainly engaged in the provision of after-school enrichment program. On August 2, 2018, HailiangManagement incorporated Zhejiang Mingxin International travel Co., Ltd (“Mingxin International Travel”) as its wholly owned entity. MingxinInternational Travel is mainly engaged in the provision of overseas study trip for students in the Group’s affiliated and managed schools. In September26, 2018, Zhuji Hailiang Logistics Service Co., Ltd. (“Zhuji Hailiang Logistics”) and Zhuji Hailiang Supply Chain Management Co., Ltd. (“ZhujiHailiang Supply”) were incorporated as Ningbo Hailiang’s wholly controlled subsidiaries. Zhuji Hailiang Logistics is mainly engaged in providinglogistic services for the Company’s affiliated schools. Zhuji Hailiang Supply is engaged in the provision of purchasing and transportation services foraffiliated schools. In September 26, 2018, Hailiang Education International Studying Service Limited (“Hailiang International Studying”) wasestablished as Hailiang HK’s wholly owned subsidiary and planned to provide consulting services for oversea studies. On October 9, 2018, Pate's-Hailiang International College Company Limited (“PHIC company”) was incorporated in United Kingdom, as Hailiang International Studying’s whollyowned subsidiary. PHIC company is mainly engaged in the operation of international study programs. (b)Establishment and acquisition of for-profit schools On August 28, 2018, Hailiang Management incorporated Zhuji Hailiang Foreign Language High School Co., Ltd. (“Zhuji Hailiang Foreign Language”)as the first for-profit school of the Group. As of the reporting date, nearly 1,500 students enrolled in Zhuji Hailiang Foreign Language, among which,about 1,200 students were transferred from the high school level of Hailiang Foreign Language School. In order to expand the network coverage and/or businesses that are complementary to the Group’s core expertise in K-12 educational services, HailiangManagement entered into an Investment Cooperation Agreement to acquire 51% equity interest in Zhenjiang Jianghe High School of Art Co., Ltd. onSeptember 28, 2018. Zhenjiang Jianghe High School of Art Co., Ltd. is a for-profit high school specializing in the arts education. (c)Provision of education and management services to another seven schools Between June 30, 2018 and the date of annual report, the Company started to provide education and management services to another two private schoolsnamely Jinhua Hailiang Foreign Language School and Feicheng Hailiang Foreign Language School, and five public schools namely Xiaoshan DistrictWenyan Primary School, Xiaoshan District Wenyan No. 2 Primary School, Xiaoshan District Wenyan Middle School, Hangzhou Chunhui PrimarySchool and Hangzhou Xixing Middle School in Zhejiang province. F-39 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 23Parent company financial statement The following presents Hailiang Education Group Inc. or parent only financial information. HAILIANG EDUCATION GROUP INC. CONDENSED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSSFOR THE YEARS ENDED JUNE 30, 2016, 2017 AND 2018(Amounts in thousands) 2016 2017 2018 RMB RMB RMB Revenue — — — Cost of revenue — — (2,299) Gross profit — — (2,299)Other income, net — — — Selling expenses — — — Administrative expenses (10,195) (4,148) (9,124) Operating loss (10,195) (4,148) (11,423) Net finance expenses (7) (8) (17) Loss before tax (10,202) (4,156) (11,440)Income tax expense — — — Loss (10,202) (4,156) (11,440)Other comprehensive income (loss)-foreign currency translation differences 9,980 2,643 (3,016) Total comprehensive loss (222) (1,513) (14,456) F-40 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. HAILIANG EDUCATION GROUP INC. CONDENSED STATEMENTS OF FINANCIAL POSITIONAS OF JUNE 30, 2017 AND 2018(Amounts in thousands) 2017RMB 2018RMB Assets Other receivables from subsidiaries 20,178 20,330 Other receivable from related parties 98,229 86,997 Cash 2,508 526 Current assets 2,508 107,853 Total assets 120,915 107,853 Shareholders’ equity Share capital 267 268 Share premium 134,584 134,583 Translation reserve 12,126 9,110 Accumulated losses (26,063) (37,503) Total shareholders’ equity 120,914 106,458 Liabilities Other payables due to third parties — 1,393 Other payables due to related parties 1 2 Current liabilities 1 1,395 Total liabilities 1 1,395 Total shareholders’ equity and liabilities 120,915 107,853 F-41 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. HAILIANG EDUCATION GROUP INC. CONDENSED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED JUNE 30, 2016, 2017 AND 2018(Amounts in thousands) 2016 2017 2018 RMB RMB RMB Cash flows from operating activities Loss for the year (10,202) (4,156) (11,440)Adjustments for: Share based payment 1,459 — — Change in other payables due to third parties (7,141) (1,851) 1,393 Change in other payables due to a related party (2,087) (651) 1 Change in other receivable due from subsidiaries (1,487) (347) (152)Change in other receivable due from related parties — — 3,623 Net cash used in operating activities (19,458) (7,005) (6,575) Cash flows from investing activities Loan made to a related party — (98,229) — Net cash used in investing activities — (98,229) — Cash flows from financing activities Proceeds from issue of ordinary shares 122,369 — — Payment of new shares issuance cost (7,844) — — Loan made from related parties — — 7,609 Net cash from financing activities 114,525 — 7,609 Net foreign exchange loss/(gain) 9,980 2,642 (3,016)Net increase/(decrease) in cash 105,047 (102,592) (1,982)Cash at the beginning of the year 53 105,100 2,508 Cash at end of the year 105,100 2,508 526 F-42 Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 8.1 List of Subsidiaries Subsidiaries Name Jurisdiction of IncorporationHailiang Education (HK) Limited Hong KongHailiang Education International Studying Service Limited Hong KongPates’s- Hailiang International College Company Limited United KingdomZhejiang Hailiang Education Consulting and Services Co., Ltd. People’s Republic of China (“PRC”)Ningbo Hailiang Education Logistics Management Co., Ltd. PRCNingbo Haoliang Information Consulting Co., Ltd. PRCZhuji Nianxin Lake Hotel Management Co., Ltd. PRCNingbo Hailiang Sports Development Co., Ltd. PRCJiangxi Haibo Education Management Co., Ltd. PRCJiangxi Haibo Logistics Management Co., Ltd. PRCZhuji Hailiang Logistics Service Co., Ltd. PRCZhuji Hailiang After-school Service Co., Ltd. PRCZhuji Hailiang Supply Chain Management Co., Ltd. PRC Affiliated Entities Name Jurisdiction of IncorporationHailiang Education Management Group Co., Ltd. PRCZhejiang Hailiang Mingxin Education Technology Co., Ltd. PRCHangzhou Hailiang Education Management Co., Ltd. PRCZhuji Youer Network Technology Co., Ltd. PRCZhuji Mingrui Business Information Consulting Co., Ltd. PRCZhuji Shangzhuo Enterprise Management Consulting Co., Ltd. PRCZhuji Hongda Trade Co., Ltd. PRCHailiang Foreign Language School PRCHailiang Primary School PRCHailiang Junior Middle School PRCHailiang Senior Middle School PRCHailiang Experimental High School PRCHailiang High School of Art PRCTianma Experimental School PRCZhuji Hailiang Foreign Language High School Co., Ltd. PRCZhejiang Mingxin International Travel Co., Ltd PRC Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 12.1 Certification by the Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a)as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Ming Wang, certify that: 1.I have reviewed this annual report on Form 20-F of Hailiang Education Group Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4.The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered bythe annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financialreporting; and 5.The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internalcontrol over financial reporting. Date:October 18, 2018 /s/ Ming Wang Name:Ming Wang Title:Chief Executive Officer (Principal Executive Officer) Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 12.2 Certification by the Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a)as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Jian Guo Yu, certify that: 1.I have reviewed this annual report on Form 20-F of Hailiang Education Group Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4.The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered bythe annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financialreporting; and 5.The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internalcontrol over financial reporting. Date:October 18, 2018 /s/ Jian Guo Yu Name:Jian Guo Yu Title:Chief Financial Officer(Principal Financial Officer) Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 13.1 Certifications Pursuant to 18 U.S.C. Section 1350 Pursuant to U.S.C. Section 1350 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), eachof the undersigned officers of Hailiang Education Group Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that: The Annual Report on Form 20-F for the year ended June 30, 2018 of the Company fully complies, in all material respects, with the requirements of Section13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financialcondition and results of operations of the Company. Dated: October 18, 2018 /s/ Ming Wang Ming Wang Chief Executive Officer(Principal Executive Officer) Dated: October 18, 2018 /s/ Jian Guo Yu Jian Guo Yu Chief Financial Officer(Principal Financial Officer) Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 15.1 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT We consent to the incorporation by reference in the Registration Statement of Hailiang Education Group Inc. on Form F-3 (file No. 333-222271) of our reportdated October 18, 2018, with respect to our audits of the consolidated financial statements of Hailiang Education Group Inc. as of June 30, 2018 and 2017and for each of the three years in the period ended June 30, 2018, which report is included in this Annual Report on Form 20-F of Hailiang Education GroupInc. for the year ended June 30, 2018. /s/ Marcum Bernstein &Pinchuk llp Marcum Bernstein & Pinchuk llpNew York, New YorkOctober 18, 2018 NEW YORK OFFICE • 7 Penn Plaza • Suite 830 • New York, New York • 10001Phone 646.442.4845 • Fax 646.349.5200 • www.marcumbp.com Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: Hailiang Education Group Inc., 20-F, October 18, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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