2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
1/219
Table of Contents
fv
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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
For the transition period from to
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)
Junwei Chen, Chief Executive Officer
1508 Binsheng Road, Binjiang District,
Hangzhou City, Zhejiang 310051People’s Republic of China
Tel: (+86-571) 58121974
Fax: (+86-571) 58121974
E-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:
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
2/219
Table of Contents
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which
Registered
American Depositary Shares, each
representing 16
ordinary shares, par value
US$0.0001 per
share
HLG
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:
None
(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, 2021.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
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 the Securities Exchange Act of
1934. Yes
No
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 1934 during 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 filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
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. See definition of “large
accelerated filer,” accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
☒
Non-accelerated filer
Emerging growth company
☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards* provided pursuant to Section 13(a) of the Exchange Act. ☐
●
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification
after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
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 by
the International Accounting Standards Board
Other
*
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. 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 ☒
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
3/219
Table of Contents
TABLE OF CONTENTS
INTRODUCTION
1
PART I
6
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
6
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
6
ITEM 3.
KEY INFORMATION
6
ITEM 4.
INFORMATION ON THE COMPANY
45
ITEM 4A.
UNRESOLVED STAFF COMMENTS
91
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
91
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
114
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
120
ITEM 8.
FINANCIAL INFORMATION
125
ITEM 9.
THE OFFER AND LISTING
125
ITEM 10.
ADDITIONAL INFORMATION
125
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
138
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
139
PART II
141
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
141
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
141
ITEM 15.
CONTROLS AND PROCEDURES
141
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
142
ITEM 16B.
CODE OF ETHICS
142
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
143
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
143
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
143
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
143
ITEM 16G.
CORPORATE GOVERNANCE
143
ITEM 16H.
MINE SAFETY DISCLOSURE
143
ITEM 16I.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
144
PART III
144
ITEM 17.
FINANCIAL STATEMENTS
144
ITEM 18.
FINANCIAL STATEMENTS
144
ITEM 19.
EXHIBITS
145
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
4/219
Table of Contents
1
INTRODUCTION
Unless the context otherwise requires, in this annual report on Form 20-F references to:
●
“15 Baishu schools” are to 15 managed schools sponsored or operated by “Nanchang Baishu Technology”, in Jiangxi province, namely, (i) Nanchang East Lake
Sijihuacheng Kindergarten, (ii) Jiulixianghucheng Kindergarten, (iii) Nanchang Baishu Angel City&Fenghuang Kindergarten, (iv) Nanchang Foreign Language
Jiulixianghucheng School, (v) Nanchang Foreign Language Gaoxin School, (vi) Nanchang Maqiu Senior Middle School, (vii) Nanchang Baishu School, (viii) Yichun
Baishu Foreign Language School, (ix) Yichun Baishu Foreign Language School Xuefulu Campus, (x) Yichun Baishu Angel City&Bilingual Kindergarten, (xi) Yichun
Baishu Angel City&Bilingual Kindergarten Xuefulu Campus, (xii) NanChang Baishu Xingfu Shiguang Kindergarten, (xiii) Nanchang Hualian Foreign Language
Experimental School, (xiv) Nanchang Xihu District Baishu Education Group Teaching Staff Kindergarten, and (xv) Jingdezhen Baishu School;
●
“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, 25 companies controlled by Hailiang Management and Haishan Development, before we lost control of affiliated entities providing compulsory
education on September 1, 2021, including (i) Zhejiang Hailiang Mingxin Education Technology Co., Ltd., (ii) Hangzhou Hailiang Education Management Co., Ltd.,
(iii)Zhejiang Mingxin International Travel Co., Ltd., (iv) Shaoxing Sihai International Travel Co., Ltd., (v)Hangzhou Mingyou Training School Co., Ltd., (vi) Zhuji Tianma
Boya Training Center Co., Ltd., (vii) Jinhua Hailiang Education Technology Co., Ltd., (viii) Zhuji Mingyou Training Center Co., Ltd., (ix) Lanzhou Hailiang Education
Consulting Co., Ltd., (x) Wuhu Hailiang Education Management Co., Ltd., (xi) Wenzhou Hailiang Juxian Education Technology Co., Ltd., (xii) Shanghai Yunhan
Education Technology Co., Ltd., (xiii) Ninghai Hailiang Education Management Co. Ltd., (xiv) Zhuji Hailiang Mingyou Chengzhong Training Center Co., Ltd., (xv)
Xinchang Nanrui Hailiang Education Technology Co., Ltd., (xvi) Zhejiang Hailiang Mingyou Education Technology Co., Ltd., (xvii) Ninghai Hailiang Education
Development Co., Ltd., (xviii) Feicheng Hailiang Education Investlsment Co., Ltd., (xix) Hailiang Mingyou Future (Zhejiang) Education Technology Co., Ltd. (previously
named Zhuji Yuesheng Enterprise Management Consulting Co., Ltd., (xx) Xinchang Mingyou Cultural Development Co., Ltd., (xxi) Hangzhou Hailiang Mingyou Online
Education Technology Co., Ltd., (xxii) Zhuji Mingyou Lechuang Education Technology Co., Ltd., (xxiii) Xinchang Mingyou Education Training Center Co., Ltd., (xxiv)
Ninghai Yipin Education Training Co., Ltd., and (xxv) Suqian Leqi Training Co., Ltd., and 17 affiliated schools owned and operated by Hailiang Management; are to, 6
companies controlled by Hailiang Management, after we lost control of affiliated entities providing compulsory education on September 1, 2021 and as of the date of this
annual report, including (i) Zhejiang Hailiang Mingxin Education Technology Co., Ltd., (ii)Zhejiang Mingxin International Travel Co., Ltd., (iii) Shaoxing Sihai
International Travel Co., Ltd., (iv) Shanghai Yunhan Education Technology Co., Ltd., (v) Xinchang Nanrui Hailiang Education Technology Co., Ltd., (vi) Ninghai Hailiang
Education Development Co., Ltd., and 6 affiliated schools owned and operated by Hailiang Management.
●
“affiliated entities providing compulsory education services” are to 7 companies, namely (i) Ninghai Hailiang Education Management Co., Ltd., (ii) Wenzhou Hailiang
Juxian Education Technology Co., Ltd., (iii) Hangzhou Hailiang Education Management Co., Ltd., (iv) Jinhua Hailiang Education Technology Co., Ltd., (v) Lanzhou
Hailiang Education Consulting Co., Ltd., (vi) Wuhu Hailiang Education Management Co., and (vii) Feicheng Hailiang Education Investment Co., Ltd.; and 11 affiliated
schools, namely (i) Zhejiang Zhuji Hailiang Primary School, (ii) Zhejiang Zhuji Hailiang Junior Middle School, (iii) Zhejiang Zhuji Hailiang Foreign Language School,
(iv) Zhejiang Zhuji Tianma Experimental School, (v) Ninghai Future School, (vi) Hailiang Overseas Chinese School, (vii) Xianghu Future School, (viii) Jinhua Hailiang
Foreign Language School, (ix) Lanzhou Hailiang Experimental School, (x) Wuhu Hailiang Experimental School, and (xi) Feicheng Hailiang Foreign Language School;
●
“affiliated schools” are to 17 schools that are owned and operated by Hailiang Management and Haishan Developmen before we lost control of affiliated entities providing
compulsory education on September 1, 2021, including (i) Zhejiang Zhuji Hailiang Primary School, (ii) Zhejiang Zhuji Hailiang Junior Middle School, (iii) Zhejiang Zhuji
Hailiang Senior Middle School, (iv) Zhejiang Zhuji Hailiang High School of Art, (v) Zhejiang Zhuji Tianma Experimental School, (vi) Zhejiang Zhuji Hailiang
Experimental High School, (vii) Zhejiang Zhuji Hailiang Foreign Language School, (viii) Zhuji Hailiang Foreign Language High School Co., Ltd., (ix) Zhenjiang Jianghe
High School of Art Co., Ltd., (x) Lanzhou Hailiang Experimental School, (xi) Wuhu Hailiang Experimental School, (xii) Jinhua Hailiang Foreign Language School, and
(xiii) Feicheng Hailiang
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
5/219
Table of Contents
2
Foreign Language School, (xiv) Hailiang Overseas Chinese School, (xv) Xianghu Future School, (xvi) Ninghai Future School and (xvii) Ninghai Ninghai Hailiang Senior
Middle School; are to 6 schools that are owned and operated by Hailiang Management, since September 1, 2021, including (i) Zhejiang Zhuji Hailiang Senior Middle
School, (ii) Zhejiang Zhuji Hailiang High School of Art, (iii) Zhejiang Zhuji Hailiang Experimental High School, (iv) Zhuji Hailiang Foreign Language High School Co.,
Ltd., (v) Zhenjiang Jianghe High School of Art Co., Ltd., and (vi) Ninghai Ninghai Hailiang Senior Middle School.
●
“Art Joint Examination” are to art university and college entrance examinations administered in China. Student enrolled in art education program are required to attend
both Art Joint Examination and Gaokao;
●
“Beize Group” are to “Zhejiang Beize Group Co., Ltd.” (previously named “Zhejiang Zhongyida Investment Co., Ltd.”) a PRC company controlled by Mr. Feng and is a
0.1% record shareholder of Hailiang Management;
●
“compulsory education” are to the nine years of education mandated by the PRC, consisting of six years of primary education and three years of secondary education;
●
“Dual first-class universities” are to the outstanding universities recognized jointly by the Ministry of Education, the Ministry of Finance, and the National Development
and Reform Commission. This recognition aims to promote the development of higher education for the establishment of world-class universities and world-class
disciplines;
●
“Feicheng Education Investment” are to “Feicheng Hailiang Education Investment Co., Ltd., a PRC company we acquired as a wholly owned subsidiary from Hailiang
Investment on April 26, 2021;
●
“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;
●
“Hailiang After-school” are to Zhuji Hailiang After-school Service Co., Ltd., a PRC corporation incorporated on August 2, 2018 as a wholly owned subsidiary of Ningbo
Haoliang;
●
“Hailiang Consulting” are to “Zhejiang Hailiang Education Consulting and Services Co., Ltd.,” a wholly foreign-owned subsidiary of Hailiang Education (HK) Limited
incorporated on December 7, 2011 in PRC;
●
“Hailiang Finance” are to Hailiang Group Finance Co., Ltd., a PRC corporation and a related party;
●
“Hailiang Group” are to Hailiang Group Co., Ltd., a PRC corporation and a related party;
●
“Hailiang Inc.” are to “Hailiang Education Group Inc.,” our listed entity or parent company incorporated in the Cayman Islands;
●
“Hailiang International Studying” are to “Hailiang Education International Studying Service Limited,” Hailiang HK’s wholly owned subsidiary incorporated on
September 26, 2018 in Hong Kong;
●
“Hailiang Investment” are to “Hailiang Education Investment Group Co., Ltd.”, a PRC corporation controlled by our ultimate controlling shareholder, Mr. Feng.
Hailiang Investment previously was named “Hailiang Education Management Group Co., Ltd.”;
●
“Hailiang Management” are to “Hailiang Education Management Group Co., Ltd.,” (previously named “Zhejiang Hailiang Education Investment Group Co., Ltd.”), a
PRC corporation and an entity in which we do not hold any equity interests but which we control through various contractual arrangements;
●
“Hailiang Mingxin” are to “Zhejiang Hailiang Mingxin Education Technology Co., Ltd.,” Hailiang Management’s wholly owned subsidiary incorporated on August 9,
2017 as a PRC corporation;
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
6/219
Table of Contents
3
●
“Hailiang Sports” are to “Ningbo Hailiang Sports Development Co., Ltd.,” incorporated on May 18, 2018, as a wholly owned subsidiary of Hailiang Consulting;
●
“Haishan Development” are to “Zhejiang Haishan Education Development Co., Ltd,” a PRC corporation and an entity in which we do not hold any equity interests but
which we control through various contractual arrangements;
●
“HIEG” are to “Hailiang International Education Group Pte. Ltd.,” Hailiang Inc.’s wholly owned subsidiary incorporated on April 29, 2020 as a Singapore corporation;
●
“Jinhua Education Technology” are to “Jinhua Hailiang Education Technology Co., Ltd.,” Hailiang Management’s wholly owned subsidiary incorporated on May 21,
2020 as a PRC corporation;
●
“Juxian Technology” are to “Wenzhou Hailiang Juxian Education Technology Co., Ltd,” a PRC corporation incorporated on May 18, 2020, which is 51% owned by
Hailiang Management;
●
“K-9 schools” are to 11 affiliated schools, namely (i) Zhejiang Zhuji Hailiang Primary School, (ii) Zhejiang Zhuji Hailiang Junior Middle School, (iii) Zhejiang Zhuji
Hailiang Foreign Language School, (iv) Zhejiang Zhuji Tianma Experimental School, (v) Ninghai Future School, (vi) Hailiang Overseas Chinese School, (vii)
Xianghu Future School, (viii) Jinhua Hailiang Foreign Language School, (ix) Lanzhou Hailiang Experimental School, (x) Wuhu Hailiang Experimental School, and
(xi) Feicheng Hailiang Foreign Language School;
●
“K-12” are to primary (beginning at age 6), middle and high schools for the fiscal year ended June 30, 2019, 2020 and 2021;
●
“K-12 educational services” are to K-12 student management services, including accommodation and after-school enrichment services, high school curriculum
education services and K-9 compulsory curriculum education services.
●
“Lanzhou Hailiang Consulting” are to “Lanzhou Hailiang Education Consulting Co., Ltd.,” incorporated on August 7, 2019 as a PRC corporation;
●
“managed schools” are to schools we operate by providing operation and management services, but do not own or sponsor, as of June 30, 2021, including (i) Nanchang
East Lake Sijihuacheng Kindergarten, (ii) Jiulixianghucheng Kindergarten, (iii) Nanchang Baishu Angel City & Fenghuang Kindergarten, (iv) Nanchang Foreign
Language Jiulixianghucheng School, (v) Nanchang Foreign Language Gaoxin School, (vi) Nanchang Maqiu Senior Middle School, (vii) Nanchang Baishu School,
(viii) Yichun Baishu Foreign Language School, (ix) Yichun Baishu Foreign Language School Xuefulu Campus, (x) Yichun Baishu Angel City & Bilingual
Kindergarten, (xi) Yichun Baishu Angel City & Bilingual Kindergarten Xuefulu Campus, (xii) NanChang Baishu Xingfu Shiguang Kindergarten, (xiii) Nanchang
Hualian Foreign Language Experimental School, (xiv) Nanchang Xihu District Baishu Education Group Teaching Staff Kindergarten, (xv) Jingdezhen Baishu School,
(xvi) Xinchang Nanrui Experimental School, (xvii) Xiantao No.1 Middle School, (xviii) Sihong Second Experimental School, (xix) Xiaoshan District Wenyan Primary
School, (xx) Xiaoshan District Wenyan No. 2 Primary School, (xxi) Xiaoshan District Wenyan Middle School, (xxii) Hangzhou Chunhui Primary School, (xxiii)
Hailiang Kindergarten, (xxiv) Zhuji Hailiang Jinshan Kindergarten, (xxv) Tianma Kindergarten, (xxvi) Xiamen Road School, and (xxvii) Fumin Avenue School;
●
“MOE” are to “Ministry of Education of the People’s Republic of China”, and branches of education bureaus established in regions at all levels;
●
“Mr. Feng” are to Mr. Hailiang Feng, our founder and ultimate controlling shareholder. Mr. Feng served as the chairman and chief executive officer of our group, held
directorships and management roles in our subsidiaries and affiliated entities until November 2014. Mr. Feng is the founder of Hailiang Group;
●
“Nanchang Baishu Technology” are to Nanchang Baishu Technology Co., Ltd., a PRC corporation;
●
“Ningbo Haoliang” are to “Ningbo Haoliang Information Consulting Co., Ltd.,” a PRC corporation incorporated on June 20, 2017, as a wholly owned subsidiary of
Hailiang Consulting;
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
7/219
Table of Contents
4
●
“Ningbo Hailiang” are to “Ningbo Hailiang Education Logistics Management Co. Ltd.,” a PRC corporation incorporated on June 22, 2017, as a wholly owned
subsidiary of Hailiang Consulting;
●
“our company,” “the Company,” “we,” “us,” “our” or “our group” are to Hailiang Inc. and, unless the context otherwise requires, all of their subsidiaries and affiliated
entities;
●
“our schools” are to our affiliated schools;
●
“PHIC company” are to “Pate’s - Hailiang International College Company Limited,” a PRC corporation and Hailiang International Studying’s wholly owned
subsidiary incorporated on October 9, 2018 in United Kingdom;
●
“PRC” are to the People’s Republic of China, excluding Taiwan and the special administrative regions of Hong Kong and Macau for the purposes of this annual report
only;
●
“RMB” or “Renminbi” are to the legal currency of China;
●
“school year” are usually to the period from September 1 of each calendar year to June 30 of the following calendar year;
●
“Shanghai Yunhan” are to “Shanghai Yunhan Education Technology Co., Ltd.,” incorporated on September 8, 2020, as a wholly owned subsidiary of Hailiang
Management;
●
“shares” or “ordinary shares” are to our ordinary shares, par value US$0.0001 per share;
●
“student attendances” are to the cumulative total number of courses and/or services enrolled in and paid for by our students during a certain period, including multiple
courses and/or services enrolled in and paid for by the same student;
●
“US$,” “U.S. dollars,” or “dollars” are to the legal currency of the United States;
●
“Wuhu Management” are to “Wuhu Hailiang Education Management Co., Ltd.,” a PRC corporation incorporated on January 21, 2020 as a PRC corporation;
●
“Xiantao Logistics” are to “Xiantao Hailiang Education Logistics Management Co., Ltd,” a PRC corporation incorporated on July 23, 2020, which is 90% owned by
Ningbo Hailiang;
●
“Zhejiang Mingxin International Travel” are to “Zhejiang Mingxin International Travel Co., Ltd.,” a PRC corporation incorporated on August 2, 2018, as a wholly
owned subsidiary of Hailiang Management;
●
“Zhenjiang Jianghe High School of Art” are to “Zhenjiang Jianghe High School of Art Co., Ltd.,” a PRC corporation acquired on October 31, 2018, which is 51%
owned by Hailiang Management;
●
“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.,” a PRC corporation incorporated on August 28, 2018, as a
wholly owned subsidiary of Hailiang Management;
●
“Zhuji Hailiang Logistics” are to “Zhuji Hailiang Logistics Service Co., Ltd.,” Ningbo Hailiang’s wholly owned subsidiary incorporated on September 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 on September 26,
2018 as a PRC corporation; and
●
“Zhuji Nianxin Lake Hotel” are to “Zhuji Nianxin Lake Hotel Co. Ltd.,” Hailiang Consulting’s wholly owned subsidiary was incorporated on September 22, 2017 as a
PRC corporation.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
8/219
Table of Contents
5
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, 2020 and 2021 and each of the three years ended June 30, 2019, 2020 and
2021.
This annual report on Form 20-F contains translations of certain Renminbi amounts into U.S. dollars at specified rates. Unless otherwise stated, the translation of Renminbi into U.S.
dollars has been made at RMB6.4566 to US$1.00, the noon buying rate in effect on June 30, 2021 as set forth in the H.10 Statistical Release 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 foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign
exchange and through restrictions on foreign trade. On November 5, 2021, the noon buying rate was RMB6.3961 to US$1.00.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
9/219
Table of Contents
6
A ouThrough SPart 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 profit or loss and other comprehensive income data for the years ended June 30, 2019, 2020 and 2021, and the selected
consolidated statements of financial position data as of June 30, 2020 and 2021, have been derived from our audited consolidated financial statements included elsewhere in this
annual report. Our selected consolidated statements of profit or loss and other comprehensive income data for the years ended June 30, 2017 and 2018 and the selected consolidated
statements of financial position data as of June 30, 2017, 2018 and 2019 are based on the financial data derived from our consolidated financial statements not included in this
annual report and adjusted to conform to the re-presentation of comparative figures as a result of discontinued operations and the restatement of comparative figures as a result of the
business combination between entities under common control.
On May 14, 2021, the PRC State Council announced the issuance of the 2021 Implementation Rules for Private Education Laws (“2021 Implementation Rules for Private Education
Laws”), which became effective on September 1, 2021. The 2021 Implementation Rules for Private Education Laws prohibit social organizations and individuals from controlling a
private school that provides compulsory education by means of merger, acquisition, contractual arrangements, etc., and a private school providing compulsory education is
prohibited from conducting transactions with its related party. The 2021 Implementation Rules for Private Education Laws may challenge the validity of our Contractual
Arrangements (see”Item 4. Information on the Company—A. History and Development of the Company” and “Item 4. Information on the Company —C. Organizational Structure.”)
that establish the corporate structure for operating compulsory education business. In the event we are unable to enforce these Contractual Arrangements, we may not be able to
exert effective control over the affiliated entities providing compulsory education. In particular, under the 2021 Implementation Rules for Private Education Laws, a private school
providing compulsory education is prohibited from conducting transactions with its related parties, and this significantly affects the enforceability of the Consulting Services
Agreements with affiliated entities providing compulsory education. Therefore, we re-assessed our control over the affiliated entities providing compulsory education. According to
IFRS 10 - Consolidated Financial Statements, we concluded that we lost control of the affiliated entities providing compulsory education services on September 1, 2021, in view of
the significant uncertainties and restrictions the 2021 Implementation Rules for Private Education Laws impose on our ability to direct the range of ongoing activities that would
most significantly impact the returns of those entities and to be exposed to returns that are commensurate with a controlling interest, and that such uncertainties and restrictions
already had a significant impact on our ability to direct and its economic exposure from involvement with such entities. Further, we have considered the ancillary nature of the
activities and the insignificance of the costs related to the K9 compulsory education business while the related schools were closed between June 30, 2021 and date of loss of control
of September 1, 2021. We have determined that, in substance, we have ceased all revenue-generating activities related to that business and have discontinued that business by June
30, 2021. As the compulsory education business represents an operating segment, we have also classified the historical financial results of compulsory education business as
discontinued operations in the Company’s Consolidated Statements of Profit or Loss and Other Comprehensive Income for all periods presented. The Company will continue to
offer K-12 student management services and high school curriculum education services, operation and management services and ancillary educational services in the future.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
10/219
Table of Contents
7
The consolidated financial statements are prepared and presented in accordance with International Financial Reporting Standards, or IFRSs, as issued by the International
Accounting Standards Board. Historical results are not necessarily indicative of the results for any future periods.
Years Ended June 30,
2017
2018
2019
2020
2021
2021
RMB
RMB
RMB
RMB
RMB
USD
(In thousands, except per share data)
Selected consolidated statements of profit or loss and other
comprehensive income Data:
Continuing operations
Revenue
295,719
604,264
1,022,795
1,027,373
1,375,790
213,083
Cost of revenue
(220,986)
(340,684)
(613,780)
(580,260)
(728,586)
(112,844)
Gross profit
74,733
263,580
409,015
447,113
647,204
100,239
Other income, net
2,858
450
20,927
67,070
46,630
7,222
Selling expenses
(5,241)
(6,047)
(11,796)
(13,944)
(29,737)
(4,606)
Administrative expenses
(5,124)
(33,865)
(36,495)
(45,118)
(51,321)
(7,949)
Operating profit
67,226
224,118
381,651
455,121
612,776
94,906
Gain on disposal of affiliated entities
—
3,666
—
—
—
—
Finance income
3,531
8,286
16,596
16,037
35,840
5,551
Finance costs
—
—
—
(3,435)
(1,151)
(178)
Profit before tax
70,757
236,070
398,247
467,723
647,465
100,279
Income tax expenses
—
(66,288)
(108,713)
(121,924)
(165,355)
(25,610)
Profit from continuing operations
70,757
169,782
289,534
345,799
482,110
74,669
Profit/(loss) from discontinued operations, net of tax
96,986
60,780
23,058
24,205
(243,337)
(37,688)
Net profit
167,743
230,562
312,592
370,004
238,773
36,981
Profit attributable to the Company’s shareholders
167,743
222,248
290,233
374,238
235,092
36,411
Profit from continuing operations
70,757
161,468
267,175
349,983
483,049
74,815
Profit/(loss) from discontinued operations
96,986
60,780
23,058
24,255
(247,957)
(38,404)
Profit/(loss) attributable to non-controlling interests
—
8,314
22,359
(4,234)
3,681
570
Profit/loss from continuing operations
—
8,314
22,359
(4,184)
(939)
(145)
Profit/(loss) from discontinued operations
—
—
—
(50)
4,620
715
Earnings per share
Basic and diluted earnings per share
0.41
0.54
0.70
0.91
0.57
0.09
Earnings per share – Continuing operations
Basic and diluted earnings per share
0.17
0.39
0.65
0.85
1.17
0.18
Net profit
167,743
230,562
312,592
370,004
238,773
36,981
Other comprehensive income/(loss), net of nil income tax
2,202
(2,542)
3,310
2,326
(6,248)
(968)
Total comprehensive income
169,945
228,020
315,902
372,330
232,525
36,013
Total comprehensive income/(loss) attributable to non-controlling interests
—
8,314
22,359
(4,234)
3,681
570
Total comprehensive income attributable to the Company’s shareholders
169,945
219,706
293,543
376,564
228,844
35,443
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
11/219
Table of Contents
8
2017
2018
2019
2020
2021
2021
RMB
RMB
RMB
RMB
RMB
USD
Selected consolidated Statements of Financial Position Data:
Cash and cash equivalents
77,801
815,306
271,538
516,446
279,420
43,277
Total assets
1,399,010
1,887,536
2,532,516
2,839,466
3,270,783
506,579
Total equity
1,101,613
1,335,473
1,687,719
2,037,641
2,216,860
343,347
Current liabilities
297,397
552,063
837,527
775,310
1,018,534
157,751
Total liabilities
297,397
552,063
844,797
801,825
1,053,923
163,232
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons for the Offer and Use of Proceeds
Not Applicable.
D. Risk Factors
Significant uncertainties exist in relation to the interpretation and implementation of, or proposed changes to, the PRC laws, regulations and policies regarding the private
education industry. In particular, our compliance with the 2021 Implementation Rules for Private Education Laws has materially and adversely affected and may materially
and adversely affect our business, financial condition, results of operations and prospect in the future.
On May 14, 2021, the State Council promulgated the 2021 Implementation Rules for Private Education Laws, which became effective on September 1, 2021, imposes restrictions on
the operation and management of private schools and the capital operation of private education. Pursuant to the 2021 Implementation Rules for Private Education Laws, (1) foreign-
invested enterprises established in China and social organizations whose actual controllers are foreign parties shall not sponsor, participate in or actually control private schools that
provide compulsory education, (2) social organizations or individuals shall not control any private school that provides compulsory education or any non-profit private school that
provides pre-school education by means of merger, acquisition, contractual arrangements, etc., and (3) private schools providing compulsory education shall not conduct any
transaction with any related party. Such 2021 Implementation Rules for Private Education Laws have had significant impacts on our business operations and our operations results.
The 2021 Implementation Rules for Private Education Laws may challenge the validity of our Contractual Arrangements (see”Item 4. Information on the Company—A. History and
Development of the Company” and “Item 4. Information on the Company —C. Organizational Structure.”) that establish the corporate structure for our operating compulsory
education business. In particular, under the 2021 Implementation Rules for Private Education Laws, a private school providing compulsory education is prohibited from conducting
transactions with its related parties, and this significantly affects the enforceability of the Consulting Services Agreements with affiliated entities providing compulsory education.
Therefore, we concluded that we lost control of the affiliated entities providing compulsory education services on September 1, 2021. Further, considering the ancillary nature of the
activities and the insignificance of the costs related to the K-9 compulsory education business while the related schools were closed for summer break between June 30, 2021 and
September 1, 2021, we have concluded that, in substance, we ceased all revenue-generating activities related to that business and discontinued that business as of June 30, 2021. As
a result of the foregoing, we recognized an impairment loss of approximately RMB 252.3 million (US$39.1 million) in the last quarter of our fiscal year ended June 30, 2021.
The Company will continue to offer K-12 student management services and high school curriculum education services, operation and management services and ancillary educational
services in the future.
We face risks related to health pandemics, natural disasters, or terrorist attacks in China.
COVID-19, a disease caused by a novel and highly contagious form of coronavirus, first appeared in December 2019, and was later classified as a pandemic in March 2020 by the
World Health Organization. As of the date of this annual report on Form 20-F, COVID-19 is still spreading in communities in some parts of the world. The pandemic resulted in
travel restrictions, massive closure of businesses and schools, and quarantine measures imposed by governments across the world. Because substantially all of our operations are
conducted in China and our students had to remain home from February 2019 to April 2020, the COVID-19 pandemic has caused a
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
12/219
Table of Contents
9
substantial disruption to our business. In April 2020, we resumed in-person lecturing across our schools. Most of our students, teachers and educational staff, returned to schools
after taking nucleic acid tests or respecting mandatory quarantine, with the exception of some of our foreign teachers who were unable to return to China due to international flight
restrictions. Although China has temporarily controlled the outbreak, we currently are unable to predict the duration and severity of the COVID-19 pandemic, the responses thereto,
and their impact on our business and operations, our results of operations, financial condition, cash flows and liquidity, as these depend on rapidly evolving developments, which are
highly uncertain and will be a function of factors beyond our control. Such factors include, among others, the continued spread or recurrence of contagion, the implementation of
effective preventative and containment measures, the development of effective medical solutions, and the extent to which governmental restrictions on travel, public gatherings,
mobility and other activities remain in place or are augmented. The COVID-19 pandemic will be likely, to some extent, to have a continued adverse impact on our results of
operations through 2022.
Additionally, our business could be materially and adversely affected by natural disasters, such as earthquakes, floods, landslides, tornados and tsunamis, and other outbreaks of
health epidemics such as avian influenza and severe acute respiratory syndrome, or SARS, and Influenza A virus, such as H5N1 subtype and H5N2 subtype flu 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. If any of these occur, our schools and
facilities may be required to temporarily or permanently close and our business operations may be suspended or terminated. Our students, teachers and staff may also be negatively
affected by such event. Our physical facilities may also be affected. In addition, any of these could adversely affect the Chinese economy and demographics of the affected region,
which could cause significant declines in the number of our students in that region and could have a material adverse effect on our business, financial condition and results of
operations.
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 and services. We charge tuition and/or service fees based on a student’s grade level and whether the
student attends our basic educational program, international program or other ancillary educational services. Tuition and/or service fees we charge are applied to 1) the provision of
the curriculum education services, after-school enrichment services, accommodations, transportation services and other ancillary school activities, 2) the delivery of educational
books and related materials, and 3) meal catering services. Subject to the applicable regulatory requirements, we generally determine tuition based on the demand for our educational
programs, the cost 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 in the past,
there is no guarantee that we will be able to maintain tuition at present levels or increase our tuition in the future.
Furthermore, the tuition we charge is subject to a number of other factors beyond our control, such as the perception of our brand, the academic success of our students, our ability to
hire qualified teachers and economic conditions generally and particularly in Zhuji city, Zhenjiang City, Lanzhou City, Jinhua City, Wuhu City, Wenzhou City and Feicheng City,
where, as of June 30, 2021, our affiliated schools are located. Any significant deterioration in these factors could have a material adverse effect on our ability to charge tuition at a
sufficient level for us to be profitable.
In addition, the tuition we charge for some of our educational programs is subject to regulatory restrictions. See “Item 3 Key Information – D. Risk Factors - The tuition charged by
our affiliated schools and student enrollment at these affiliated schools are subject to regulation by the Chinese government, and our revenue is highly dependent on the level of
these fees and the number of students enrolled.”
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 affiliated schools and in any new schools we may establish or acquire in the 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 our schools is critical to the continued
success and growth of our business. The success of our efforts to enroll students will depend on several factors, including without 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;
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
13/219
Table of Contents
10
●
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 recruit students. Our business,
financial condition and results of operations could be materially and adversely affected if we cannot maintain or increase our enrollment 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 and improving the quality of our educational programs and services, and to supporting the expansion of our affiliated school network and
educational programs and services, thus maintaining our brand and reputation. We must continue to attract qualified teachers who have a strong command of their subject matters
and who meet our qualifications. Currently, there is a well-publicized nationwide shortage of teachers and other educational professionals in the PRC. There is also a limited number
of teachers in China with the necessary experience, expertise and qualifications that meet our requirements. We also must provide competitive compensation packages to attract and
retain qualified teachers.
Our teacher retention rates as of June 30, 2019, 2020 and 2021 were 93.3%, 88.8% and 87.6%, respectively. “Retention rate” is calculated as 100% minus the 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 including teachers hired during that period). In addition, we
plan to increase the proportion of students enrolled in our international program and increase course offerings. Doing so will require a greater number of foreign teachers. As the
market for qualified foreign teachers is extremely competitive, we cannot guarantee that we can maintain or increase our number of foreign teachers. Shortages of qualified teachers,
or significant decreases in the quality of our educational 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 adverse effect on our business and our reputation. In addition, we may not be able to hire and retain enough qualified teachers to maintain consistent teaching quality in
different locations, should we establish and/or acquire additional schools as anticipated. Further, any inability to retain teachers may adversely affect our Hailiang 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. Our schools may not be able to
meet students’ and parents’ expectations for academic performance or help them achieve their college admissions goals. A student may 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 our services may decline. We may also experience negative publicity or a decrease in
word-of-mouth referrals. In addition, we cannot ensure that our students will be 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 gain admission to universities. Any such negative developments could result in a student’s withdrawal from our schools. Although we have
not experienced any significant 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.
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 our management of a new
additional school in recent fiscal years. In addition, our growth in the past three fiscal years was primarily driven by the increase in levels of tuition fees we charged 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, our ability to maintain and
increase our profitability and to enhance our operational efficiency, increased competition and market perception and acceptance of any newly introduced educational programs in
any given year. In addition, while we plan to
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
14/219
Table of Contents
11
increase the proportion of our students enrolled in our international program, there is no guarantee that we will be able to do so successfully. Furthermore, we may not be successful
in continuing to increase the number of students admitted to the schools we operate, and we may not be as successful as we expect in identifying and acquiring or sponsoring
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 historical results, growth rates and
profitability may not be indicative of our future performance. Our ADSs could be subject to significant price volatility should our earnings 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 our international 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, especially in the United States,
Canada, Australia and the United Kingdom, reflecting the growing demand for higher education in overseas countries by Chinese students. As such, any restrictive changes in
immigration policy, terrorist attacks, geopolitical uncertainties and any international conflicts involving these countries could increase the difficulty for Chinese students to obtain
student visas to study overseas, or decrease the appeal of studying in such countries to Chinese students. Any significant change in admission standards adopted by overseas
educational institutions could also affect the demand for overseas education 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 could significantly increase, which could in turn negatively affect the demand for overseas education by Chinese students. Additionally, Chinese students may also become
less attracted to studying abroad due to other reasons, such as improving domestic educational or employment opportunities associated with increased economic development in
China. These factors could cause declines in the demand for our international program, which may adversely affect our revenue and profitability.
The tuition charged by our affiliated schools and student enrollment at these affiliated schools are subject to regulation by the 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 charged by K-12 schools as well
as the student enrollment levels at these schools. As a result, new regulations could adversely impact the tuition we may charge for our school programs and the level of student
enrollment at our schools. In particular, the regulatory authorities impose a maximum ceiling on the amount of tuition we can charge. The international program of our affiliated
schools is not currently subject to ceiling limitation on the amount of tuition we can charge as long as the tuitions we charge for our international program are record-filed with local
authorities and approved. Pursuant to the registration documents filed with local authorities for the 2020/2021 school year, we can charge RMB102,000 to RMB220,000 for our
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—2016 Private Education Law and The 2021 Implementation Rules for Private Education Laws.” In addition, the Zhejiang
provincial government has set a maximum number of high school students we can admit from cities other than Zhuji in Zhejiang province to our basic educational program, after
consultation with us. In the 2020/2021 school year, the maximum number of such high school students was set at 550 for Zhejiang Zhuji Hailiang Experimental High School, 140
for Zhejiang Zhuji Hailiang Senior Middle School and 190 for Zhejiang Zhuji Hailiang High School of Art. 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 admit for our international program. In light of the significant increase in tuition and other education-related fees in
recent years, regulatory authorities may impose stricter price control on educational charges in the future. As part of their efforts to regulate the private education industry, regulatory
authorities may also impose 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 student
enrollment at our affiliated schools were otherwise restricted, our business, financial condition and results of operations may be materially and adversely affected.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
15/219
Table of Contents
12
On January 21, 2020, the Zhejiang Provincial Development and Reform Commission, Zhejiang Provincial Department of Education, Zhejiang Provincial Department of Human
Resources and Social Security and Zhejiang Provincial Market Supervision Administration promulgated the Administrative Measures for Private Education Fees and on August 17,
2020, the MOE and other four ministries and commissions promulgated the Opinions on Further Standardization of Education Fee, which further strengthen the regulation of private
education fees. If we cannot meet the requirements of these regulations, our operations may be adversely and materially affected. For example, the Opinions on Further
Standardization of Education Fee stipulates that private schools must publicize the itemized fees and standards at a prominent location in the school and indicate the itemized fees
and standards in the admissions brochures and admission notices. If fees that should be publicized are not publicized, or the content of the publicity is not in compliance with the
relevant policies, students are entitled to refuse the payment of the fees. In addition, the Opinions on Further Standardization of Education Fee emphasizes that the service fees must
be charged based on voluntary and non-profit principles. If the regulatory authorities deem otherwise, our operations may be adversely affected.
On June 23, 2019, the Communist Party of China (“CPC”) Central Committee and the State Council of the People’s Republic of China published the Opinion on Deepening
Education and Teaching Reform and Comprehensively Improving the Quality of Compulsory Education, which stipulates that private schools that carry out compulsory education
shall enroll students within the jurisdiction of the examining and approving authority, and such enrollment shall be incorporated into the unified administration at the place where the
examining and approving authority is located. In addition, private schools shall enroll students at the same time as that required by public schools. On May 14, 2021, the State
Council promulgated the 2021 Implementation Rules for Private Education Laws, which became effective on September 1, 2021 and which further stipulates that a private school
that carries out pre-school education or education for academic credentials has the same right as the public school of the same grade and category to enroll students with the
autonomy of setting its own admission standards and procedures within the enrollment quota approved by the examining and approving authority and shall enroll students at the
same time as that by public schools. Further, the private school that carries out compulsory education shall only enroll students within the jurisdiction of its examining and approving
authority, the process of which should be integrated into the unified administration of such examining and approving authority. The private school that carries out ordinary senior
high school education shall enroll students mainly from the city divided into districts where the school is located, and may enroll students from other regions if it complies with the
relevant provisions of the administrative department for education of the people’s government of a province, autonomous region or municipality directly under the central
government. These regulations may have negative impacts on our enrollment plans and may further adversely affect our business operations and our operations results.
Presently, the service fees we charge to our managed schools are partially dependent upon the overall operating performance of such schools, the indicators of which include the
student enrollment, tuition fees, financial performance, etc. Our revenues could be negatively impacted in the event that the local governments of our managed schools were to
impose limitations on the capacity of student enrollment, tuition cap, etc.
We are exposed to concentration risks as most of the affiliated schools we own are currently located in a single city.
Most of the affiliated schools we own are currently located in Zhuji city in Zhejiang province. While we anticipate continued expansion into other cities in the future, we expect 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 and adversely affected if new regulations relating to
the private K-12 education business were adopted in Zhejiang province or Zhuji city that placed additional restrictions 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 and enhancing the Hailiang
brand is critical to our competitive advantage and to the growth of our business. The consistency and quality of our educational programs 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 be more challenging to maintain the quality and consistency of our services. Any
negative publicity about our programs, services or schools, regardless of its veracity, 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 qualified teachers, 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 brand
promotion plan and as a result, our reputation and business may be materially and adversely affected.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
16/219
Table of Contents
13
Any significant cybersecurity incident or a leak of student data could damage our reputation, limit our ability to retain students and increase student enrollment or give rise to
financial or legal consequences.
Our internal information technology systems store and process important information including, without limitation, class schedules, registration information and student data and
could be vulnerable to interruptions or malfunctions due to events beyond our control, such as natural disasters and technology failures. In addition, computer hackers may attempt
to penetrate our network security. We may be required to invest significant resources in protecting against the security breaches, and to remediate problems and damages caused by
such incidents, which could increase the cost of our business and in turn affect our financial conditions and results of operations. Unauthorized access to our proprietary business
information or customer data may be obtained through break-ins, sabotage, breach of our secure network by an unauthorized party, computer viruses, computer denial-of-service
attacks, employee theft or misuse, breach of the security of the networks of our third-party providers, or other misconduct. Because the techniques used by computer programmers
who may attempt to penetrate and sabotage our network security or our website change frequently and may not be recognized until launched against a target, we may be unable to
anticipate these techniques. We would suffer economic and reputational damages if a technical failure of our systems or a security breach compromises student data, including
identification or contact information, although there has not been any material compromise in the past.
The private for-profit high school education business is relatively new and may not gain wide acceptance in China.
As a private high school education provider, we charge relatively higher fees for our affiliated schools in comparison with public schools. The development of this market has been
accompanied by significant press coverage and public debate concerning the management and operation of private for-profit high schools. Significant uncertainty remains in China
as to public acceptance of this business model. If this model fails to gain wide acceptance among the general public, especially among students and their parents, our results of
operations will be adversely affected.
We may fail to successfully develop and introduce new educational programs and services.
One of our growth strategies is to continue to maintain and introduce diversified educational programs and services to our students. We may also need, from time to time, to
introduce additional educational programs and services and to meet market demand. The future success of our business depends partly on our ability to develop new educational
programs and services. The planned timing or introduction of new educational services and programs is subject to risks and uncertainties. Actual timing may differ materially from
any originally proposed timeframes. Unexpected operational, technical or other issues could delay or prevent the introduction of one or more of our new educational programs and
services. In addition, significant investment of human capital, financial resources and management time and attention may be needed based on a particular feature of our newly
introduced educational programs. If we fail to manage the expansion of our portfolio of educational programs efficiently and cost-effectively, our business could be negatively
affected. Moreover, we cannot assure you that any of our new programs and services will achieve market acceptance or generate incremental revenue or that our operation of such
new programs and services will comply with our business scope or applicable licensing requirements. If our efforts to develop, market and sell our new educational programs and
services 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 student needs 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 is characterized by rapid
pedagogical innovations, evolving teaching 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 evolving student 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 of the subjects and
questions tested on standardized tests, such as the Zhongkao and the Gaokao, the two most significant tests for Chinese students. These tests are administered by local government
authorities and are critical in determining admission into high school, in the case of the Zhongkao, and college, in the case of the Gaokao. The format of these tests and the manner
in which such standardized tests are administered may change from year to year. In addition, on a national level, some top universities in China, including Tsinghua University and
Peking University, have been allowed to recruit a certain percentage of students through Strengthening Basic Disciplines Program’s tests and admission procedures in recent years.
The “Strengthening Basic Disciplines Program” was launched by the MOE in 2020 and covers 36 universities that mainly select students who are interested in serving the
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
17/219
Table of Contents
14
country’s major educational strategy and have excellent comprehensive qualities or excel in basic disciplines, such as mathematics and physics. While college applicants 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 in the admission process.
These changes require us to continually update and enhance our curriculum, educational materials and our teaching methods. Any inability to track and respond to changes in the
educational field in a timely and cost-effective manner would make our educational services and programs less attractive to students, 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 programs and services are delayed
or are not aligned with changes in market expectations, needs or preferences, we may lose market share, and our business, financial condition 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 and intensify. See “Item 4.
Information on the Company—B. Business Overview—Competition” for more information relating to the competitive landscape of the 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 and respond more quickly than we can to changes in student demands and market needs. Our student enrollment and
retention may decrease due to intense competition. We may be required to reduce tuition and other fees or increase spending in response to competition in order to attract or retain
students or pursue new market opportunities. As a result, our revenue, profit and profit margin may decrease. With respect to the services we provide to our managed schools, we are
one of the pioneers in the industry to provide operation and management services but we also compete with specialized education and non-education service providers who provide
services in their respective specialized fields, such as admission, financial, human resources, IT and internal audit. As such, we may not be able to compete effectively and
efficiently. We cannot assure you that we will be able to compete successfully against current or future competitors, and subject to PRC laws, either party of the operation and
management service agreement has the right to dissolve the contract at any time. If we are unable to maintain our competitive position or otherwise fail to respond to competitive
pressures effectively, we may lose market share, including, among other things, the number and student enrollments of our managed schools, and our business, financial condition
and results of operations may be materially and adversely affected.
We have limited experience generating net income from some of our newer service offerings providing operation and management services to schools and may not achieve
expected results from these newer service offerings.
We have been engaged to provide various operation and management services to our managed schools, and have expanded to provide education and non-education, ancillary
educational services to our affiliated schools. But we have limited experience providing operation and management services at a mass level. We may devote significant resources to
our newer service offerings, but fail to achieve expected results from such newer service offerings. If such newer service offerings are not well accepted, we may not achieve our
expected expansion to service offerings. As a result, our overall business and results of operations, including, among other things, the number and student enrollments of our
managed schools, may be materially 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, affiliated school network and
operation and management services increase faster than our revenues. In addition, new investments and acquisitions may cause our margins to decline before we successfully
integrate the acquired businesses into our operations and realize the full benefits of these investments and acquisitions. In recent years, we have experienced fluctuations in our
margins, there can be no assurance that our margins will not continue to decline in the future.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
18/219
Table of Contents
15
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 selectively acquire schools or companies that are complementary to our core business to expand our network coverage and/or businesses expansion. We cannot assure
you that we will be able to integrate the acquired businesses with our existing operations, and we may need to devote significant financial resources to streamline the operation of the
acquired businesses under our internal control requirements and divert substantial management attention to the transition of the acquired businesses before achieving full integration.
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 general administrative infrastructure;
●
ensuring and demonstrating to our students and their parents that the acquisitions will not result in any adverse changes to our brand name, reputation, service quality or
standards;
●
preserving important business relationships of acquired entity; and
●
minimizing the diversion of our management’s attention from ongoing business concerns.
In addition, the companies and schools we acquire may have operational deficiencies or have existing liabilities or other risks that we may not be able to effectively manage or may
not be aware of at the time of our acquisition, which may impact our ability to realize the expected benefits from the acquisition or our financial performance. If we fail to integrate
the acquired businesses in a timely manner or at all, we may not be able to achieve the anticipated financial results or synergy from the 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 and expansion under the asset-light approach and strategic acquisitions. In particular, to support our continued
growth and to strengthen our market share in the region in which we currently operate, we need to establish or acquire new schools, and obtain rights to operate new schools. We
also need to establish or acquire new schools in other regions to expand geographically. Expansion has resulted, and will continue to result, in substantial demands on our
management and on our operational, technological and other resources. We intend to expand our asset-light approach, where we operate and manage K-12 schools pursuant to
consulting and management agreements, or act as these schools’ sponsor without acquiring ownership of land and facilities in such schools. However, such expansion is also
associated with substantial risks and uncertainties, including our ability to generate sufficient revenue to offset the costs and expenses of operating and managing the schools,
including the possibility of failure to achieve the intended revenue and other benefits expected from the asset-light model, our business partners’ capability of procuring lands and
constructing facilities as expected for us to establish additional schools under the asset-light approach, and the diversion of resources and management attention from our existing
businesses.
To manage our expected growth, we will be required to expand our existing managerial, operational, technological and financial systems. We also need to expand, train, manage and
retain our growing employee base. Significant financial resources may also be needed to support our planned growth. We cannot assure you that our current and planned managerial,
operational, technological and financial systems will be adequate to support our future operations, or that we will be able to effectively and efficiently manage the growth of our
operations or recruit and retain qualified personnel to staff our expanded operations. There is no assurance that we will 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 to effectively and efficiently manage our expansion may materially and adversely affect our
ability to capitalize on new business opportunities, which in turn may 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 of acquired entities. Our
strategic acquisitions involve substantial risks and uncertainties, including:
●
our ability to identify and acquire targets in a cost-effective manner;
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
19/219
Table of Contents
16
●
our ability to obtain approval from relevant government authorities for the acquisitions and to comply with applicable rules and regulations for acquisitions, 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 intended revenue and other
benefits expected from the acquisitions;
●
potential ongoing financial obligations in connection with the acquisitions, including any expenses in connection with impairment of goodwill recognized in connection
with the acquisitions and potential unforeseen or hidden liabilities of any acquired entity, such as litigation claims or tax liabilities;
●
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.
In addition, pursuant to the 2021 Implementation Rules for Private Education Laws, which became effective on September 1, 2021, social organizations or individuals shall not
control any private school that provides compulsory education or any non-profit private school that provides pre-school education by means of merger, acquisition, contractual
arrangements, etc., which rules may adversely affect our businesses expansion and further adversely affect our business operations and our operation results. However, the relevant
authorities have yet to promulgate any detailed implementation rules and regulations under the 2021 Implementation Rules for Private Education Laws, therefore, there still remain
uncertainty as to when and how such implementation rules will become specifically applied to our business.
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 acquisitions may not be beneficial to
us and may have a material adverse effect on our business, 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 educational resources for our international program. We derive direct
benefits from these relationships such as the ability to offer more diverse programs and classes, the ability to charge a premium for the programs we teach with other education
service providers and the progress of establishing additional schools cooperated with international educational service providers. We also derive indirect benefits from these
relationships such as enhancement of our Hailiang brand and reputation, and exposure to overseas educational methods and experiences.
If our relationship with any of these education service providers deteriorates or is otherwise damaged or terminated, or if the benefits we derive from these relationships diminish,
whether as a result of our own actions, actions of any third-party, including our competitors, or of regulatory authorities or other entities 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 volatility and 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 service days and student
enrollments. We recognize revenue from the delivery of curriculum education services over the service period based on the estimated progress of courses delivery, and recognize
revenue from accommodations and transportation services over time evenly over the period with service provided. However, our costs and expenses vary significantly and do not
necessarily correspond with our revenue recognition. We expect quarterly fluctuations in our revenue and results of operations to continue. These fluctuations could result in
volatility and adversely affect the price of our ADSs.
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 their services.
Our future success depends heavily upon the continuing services of the members of our senior management team. Competition for experienced management personnel in the private
K-12 education market is intense, the pool of qualified candidates is very limited, and
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
20/219
Table of Contents
17
we may not be able to retain the services of our senior 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 executives or 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 a
cost-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 or forms a competing
company, we may lose teachers and we may not be able to maintain or recruit students. If any such negative development occurs, our business 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 or obtain leases for our affiliated schools and companies at reasonable terms.
We operate our affiliated schools under an asset-light approach, where we sponsor our affiliated schools without having to own or acquire the land and facilities of such schools.
Instead, we enter into campus management agreements or lease agreements with our affiliated schools. We may not be able to renew these agreements at a preferable price or at all
at the expiration of a school year or the expiration a lease term, and thus may be forced to relocate the affected operations to a new location, which could result in substantial rent
increases and material business interruption. For our continuing operations, we lease real properties used by our affiliated schools and companies with a total floor area of
approximately 615,390 million square meters as of June 30, 2021, among which, approximately 590,583 million square meters are rented from Hailiang Investment which is
controlled by Mr. Feng, our ultimate controlling shareholder. See “Item 4. Information on the Company—D. Property, Plants and Equipment” for more information.
The terms of our current leases for campuses in Zhuji city rented from Hailiang Investment are for nineteen years from July 1, 2018. The leases contain priority renewal provisions
which provide that we have the right of first refusal to renew each lease upon the expiration of the lease, provided we notify lessor six months in advance. Under the lease
agreements, we can terminate the lease at any time without cause, provided we notify the lessor in writing three months in advance. Hailiang Investment may only terminate the
agreements upon 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 for more than
60 days or use of the properties for illegal activities. To terminate the leases for other causes, Hailiang Investment would have to give us written notice one year in advance and
obtain our consent to such termination. We and Hailiang Investment entered into a series of lease supplemental agreements, pursuant to which, on September 12, 2019, we made
lease prepayments of RMB525.0 million (VAT exclusive) regarding the school buildings and the related facilities on three campuses in Zhuji, China from Hailiang Investment for
the remaining lease period until June 30, 2037. However, there is no assurance that Hailiang Investment 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 continue to lease the properties. We may be forced to relocate the affected operations to a new location, which could involve
substantial rent increases and material business interruption.
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 to lease the properties. In
particular, for our continuing operations, Hailiang Investment has failed to provide title certificates to properties associated with part of Hailiang Education Park that has an
aggregate gross floor area of approximately 367,856 square meters, representing 59.78% of all of our leased properties as of the date of this annual report. If any of our leases were
terminated as a result of challenges by third-parties or governmental authorities, we may be forced to relocate the affected operations and incur significant expenses. We might also
be liable or incur costs associated with potential defects in the properties 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 suitable replacement 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 governmental authorities 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—D. Property, Plants and Equipment” 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 in connection with our
school facilities or employees. We could also face claims alleging that we were negligent, provided inadequate maintenance to our school facilities or supervision to our employees
and therefore should be held liable for accidents or injuries suffered by our students or other people at our schools. In addition, if one of our students commits acts of violence, we
could face allegations that we failed to provide adequate security or were otherwise responsible for his or her actions. For example, there is a shooting range on the campus of
Hailiang Education Park. Although the guns used for practice are air guns and the shooting range is
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
21/219
Table of Contents
18
staffed with professional coaches and restricted by tight security, accidents or intentional misuse of these air guns may still occur. 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. See “Item 4. Information on the Company—B. Business Overview—Insurance” for more information. In addition, we may 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 adversely affect our reputation and student enrollment and retention.
Even if unsuccessful, such a claim could create unfavorable publicity, cause us to incur substantial expenses and divert the time and attention of our management.
There are risks associated with our use of Hailiang Education Park.
On November 18, 2015, we entered into a lease agreement with Hailiang Investment regarding Hailiang Education Park. The term of the lease is twenty years and the rental fee in
the first year is RMB20.0 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.
In September 2016, Hailiang Investment completed the construction of Hailiang Education 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 “Item 4. Information on the Company—B. Business Overview—Hailiang Education Park.”
On December 29, 2017, we and Hailiang Investment mutually terminated the above-mentioned lease agreement and entered into five new lease agreements with Hailiang Investment
regarding Hailiang Education Park, in order to allocate lease fees to each school occupying the Hailiang Education Park according to their respective gross floor areas.
On April 28, 2019, we and Hailiang Investment mutually terminated the above-mentioned lease agreement and entered into eight new lease agreements with Hailiang Investment
regarding Hailiang Education Park, in order to allocate lease fees to the respective schools and subsidiaries according to their used gross floor area.
Our affiliated schools and subsidiaries entered into eight supplemental agreements to the respective lease agreements with Hailiang Investment regarding Hailiang Education Park,
effectively as of July 1, 2019, pursuant to which our eight affiliated schools and subsidiaries prepaid the rental fee for the remaining 18 years within 30 days from the date of such
supplemental agreements. See “Item 4. Information on the Company—B. Business Overview—Hailiang Education Park.”
There are certain other risks associated with the utilization of the Hailiang Education Park, including:
●
construction quality issues;
●
greater investment may be required to utilize Hailiang Education Park than we currently estimate;
●
any dissatisfaction with Hailiang Education Park on the part of our students, teachers or parents could lead to lower student enrollment or teacher retention in the future;
and
●
the possibility that if there is no increase in enrollment or tuition, our profitability may be impaired.
In addition, the provision of the 2021 Implementation Rules for Private Education Laws on private schools conducting transactions with any related party may limit our use of
Hailiang Education Park. Limitations imposed upon our use of Hailiang Education Park may adversely affect our business expansion and further adversely affect our business
operations and our operation results. See “Based on the recent development of PRC law, there is significant uncertainty about the application and interpretation of the 2016 Private
Education Law, the 2021 Implementation Rules for Private Education Laws and detailed implementation rules and regulations of 2016 Private Education Law and its
Implementation Rules. We may be subject to significant limitations on our ability to engage in the private education business, acquire private schools, or receive payments from our
affiliated entities and may otherwise be materially and adversely affected by changes in PRC laws and regulations.”
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 enroll in our educational
programs due to the capacity constraints of our current school facilities. Furthermore, absent additional acquisitions, we may not be able to expand our capacity at our current
campuses or relocate to other facilities in the local area
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
22/219
Table of Contents
19
with more space. If we fail to expand our physical capacity as quickly as the demand for our services grows, or if we otherwise fail to grow by establishing or acquiring additional
schools and campuses, we could lose potential 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 and trade secrets laws to
protect our intellectual property rights. Nevertheless, third-parties may obtain and use our intellectual property without due authorization. The practice of intellectual property rights
enforcement action by Chinese regulatory authorities is in its early stage of development and is subject to significant uncertainty. We may also need to resort to litigation and other
legal proceedings to enforce our intellectual property rights. Any such action, litigation or other legal proceedings could result in substantial costs and diversion of our management’s
attention and resources and could disrupt our business. In addition, there is no assurance that we will be able to enforce our intellectual property rights effectively or otherwise
prevent others from the unauthorized 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 of third-parties. As of
June 30, 2021, and as of the date of this annual report on Form 20-F, except as disclosed in “Item 4. Information on the Company – B. Business Overview – Legal Proceedings”
below, we have not experienced any claims for intellectual property infringement. However, there is no guarantee in the future that third-parties will not claim that we have infringed
on their proprietary rights. For example, our educational materials may include test questions that are developed based on actual questions of tests administered by third-parties or
regulatory authorities, who may allege that our test questions infringe their copyrights. We may also use educational materials designed in conjunction with our overseas partners
and we cannot guarantee that disputes will not arise over 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 licensing agreements with the owners of intellectual property rights, we may find that
the terms are not commercially acceptable and we may finally lose the ability to use 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 of operations.
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 the Company—B. Business
Overview—Insurance” for more information. We are exposed to risks including, but not limited to, accidents or injuries in our schools, loss of key management and personnel,
business interruption, natural disasters, terrorist attacks and social instability or any other events beyond our control. The insurance industry in China is still at an early stage of
development. Insurance companies in China offer limited business-related insurance products. While we maintain director and officer liability insurance for our executive officers
and directors, we do not have any business disruption insurance, product liability insurance or key-man life insurance. Any business disruption, litigation or legal proceeding or
natural disaster or other events beyond our control could result in substantial costs and diversion of our resources. Our business, financial condition and results of operations may be
materially and adversely affected as a result.
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 other holders of our
ordinary shares and ADSs.
As of June 30, 2021, Mr. Feng beneficially owned approximately 87.28% of our total outstanding ordinary shares. As a result, Mr. Feng has significant influence in determining the
outcome of any corporate transactions or other matters submitted to our shareholders for approval. These matters include mergers, consolidations and the sale of all or substantially
all of our assets, election of directors and other significant corporate actions. This concentration of ownership may also discourage, delay or prevent a change in control of our
company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
23/219
Table of Contents
20
and might result in substantial reduction of the price of our ADSs. These actions may be taken even if they are opposed by our other shareholders. Our founder, Mr. Feng, is also the
founder and a major shareholder of Hailiang Group and its subsidiaries, with which we have entered into related party transactions. Mr. Feng may from time to time make strategic
decisions that he believes is in the best 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. We may 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 an unaffiliated
party.
As a “controlled company” within the meaning of the Nasdaq listing rules, we may follow certain exemptions from certain corporate governance requirements that could
adversely affect our public shareholders.
As of June 30, 2021, Mr. Feng beneficially owned approximately 87.28% of our total outstanding ordinary shares. Under the Nasdaq listing rules, a company of which more than
50% of the voting power is held by an individual, group, or another company is a “controlled company” and is permitted to phase in its compliance with the independent committee
requirements. Although we do not intend to rely on the “controlled company” exemptions even if we are deemed a “controlled company,” we could elect to rely on these exemptions
in the future. If we were to elect to rely on the “controlled company” exemptions, a majority of the members of our board of directors might not be independent directors and our
nominating and corporate governance and compensation committees might not consist entirely of independent directors. Accordingly, if we rely on the exemptions, during the
period we remain a controlled company and during any transition period following a time when we are no longer a controlled company, you would not have the same protections
afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.
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 private education business with
Hailiang Finance, a related party finance company controlled by Hailiang Group, in order to earn interest at market rates with flexible withdrawal terms on our deposits. Since
September 2014, Hailiang Group and Mr. Feng have entered into a guarantee agreement with us to irrevocably and jointly guarantee the timely return of our deposits on behalf of the
finance company, and the guarantee has been renewed annually. As of June 30, 2021, the balance of cash and term deposits we had with Hailiang Finance amounted to RMB2,098.3
million (approximately US$325.0 million). To control our credit exposure with Hailiang Finance, based upon our current policy effective since October 26, 2021, we have set an
upper deposit budget maintained by Hailiang Finance at any given time in fiscal 2022 to be approximately RMB2.5 billion (approximately US$387.2 million), and any amount
above the upper 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 Hailiang Finance 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 the guarantee granted by Hailiang Group or Mr. Feng in
the event such the finance company defaults on the return of such deposits. The credit profile of the finance company and guarantors may deteriorate and their ability to return such
deposits may be impaired due to various reasons beyond our control, such as a slowdown in the PRC, regional or local economies, a material decrease of profitability or significant
tightening of liquidity with respect to their respective businesses, loss or material deterioration of relationships with their respective key customers or suppliers, natural disasters or
other force majeure events. Our financial condition and liquidity position could be materially and adversely affected if any of these occur and, as a result, our business and prospects
would be materially and adversely affected.
In addition, pursuant to the 2021 Implementation Rules for Private Education Laws, which became effective on September 1, 2021, private school providing compulsory education
shall not conduct any transaction with any related party; any other private school conducting any transaction with any related party shall follow the principles of openness, fairness
and impartiality, fix the price reasonably and regulate the decision-making, and shall not damage the interests of the state and the school or the rights and interests of the teachers and
students, which may impose restrictions on the above-mentioned related party transactions. Our business and financial condition may be adversely affected as a consequence of any
violation of the foreging. See “Based on the recent development of PRC law, there is significant uncertainty about the application and interpretation of the 2016 Private Education
Law, the 2021 Implementation Rules for Private Education Laws and detailed implementation rules and regulations of 2016 Private Education Law and its Implementation Rules.
We may be subject to significant limitations on our ability to engage in the private education business, acquire private schools, or receive payments from our affiliated entities and
may otherwise be materially and adversely affected by changes in PRC laws and regulations.”
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
24/219
Table of Contents
21
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 has been negatively affected
by various subsequent events, including the European sovereign debt crisis. The growth of the Chinese economy also slowed down significantly in 2009 and may slow down again
in the future. Since we derive substantially all of our revenue in China, any prolonged slowdown in the Chinese economy, 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 a result, we may experience difficulty in recruiting and retaining students, or expanding our student base for our
newly established or acquired schools. We may 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 which we operate. The general economic downturn affecting the Chinese or global economy may also affect the attractiveness of our international program, which
typically charges a higher level of fees for services associated with advanced studies in overseas educational institutions. Any such negative development could have a material and
adverse effect on our business, financial condition and results of operations.
Failure to maintain effective internal control over 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.
Our management has concluded that our internal control over financial reporting was effective as of June 30, 2021. 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 financial reporting in the future, our management may
not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. Moreover, effective internal controls over financial reporting
are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, while we have incurred and anticipate that we will continue to incur
considerable costs, management time and other resources in an effort to continue to comply with Section 404 and other requirements of the Sarbanes-Oxley Act of 2002, any failure
to maintain effective internal controls over financial reporting could in turn result in the 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 firm must attest to and report
on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even
if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent
testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it
interprets the relevant requirements differently from us.
During the course of documenting and testing our internal control procedures in the future, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we
may identify weaknesses and deficiencies in our internal control over financial reporting, and we may not be able to conclude on an ongoing 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 to achieve and maintain an effective internal control environment, we
could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported
financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our ADSs. Additionally,
ineffective internal control over financial reporting 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 we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.
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 arrangements that establish our corporate
structure for operating our business do not comply with applicable PRC laws and regulations, we could be subject to severe penalties.
Our private education service business is subject to extensive regulations in China. The Chinese government regulates various aspects of our business and operations, such as
curriculum content, educational materials, standards of school operations, student recruitment activities and tuition and other fees. The laws and regulations applicable to the private
education sector are subject to frequent changes,
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
25/219
Table of Contents
22
and new laws and regulations may be adopted, some of which may 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 services through strict licensing
requirements. In particular, PRC laws and regulations currently prohibit foreign ownership of companies and institutions providing compulsory educational services at primary and
middle school levels, and restrict foreign investment in educational services businesses at the high school level. We are a company incorporated in the Cayman Islands. Our PRC
subsidiary, Hailiang Consulting, is a foreign owned enterprise and is currently ineligible to apply for and hold licenses to operate, or otherwise own equity interests in, our schools
with K-12 educational programs. Due to these restrictions, we conduct our continuing operations, i.e. private education business in China primarily through contractual arrangements
among (i) Hailiang Consulting, our operating subsidiary 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 (which
holds a 0.1% equity interest in Hailiang Management and is controlled by Mr. Feng). We hold the required licenses and permits necessary to conduct our private education business
in China through the schools controlled and held by Hailiang Management. We have been, and expect to continue to be, dependent on our affiliated entities to operate our private
education business.
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 but failed to obtain any of the
permits or approvals for our private education business, the relevant PRC regulatory authorities, including the MOE, which regulates the education industry in China, the Ministry of
Commerce, or MOFCOM, which regulates the foreign investment in China, and the Civil Affairs Bureau, 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 and regulations;
●
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
●
taking 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 companies listed overseas,
including a number of education companies listed in the United States. To our knowledge, none of the fines or punishments listed above have been imposed on any of these public
companies, including companies in the education industry. However, we cannot assure you that such fines or punishments 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.
In addition, pursuant to the 2021 Implementation Rules for Private Education Laws, (1) foreign-invested enterprises established in China and social organizations whose actual
controllers are foreign parties shall not sponsor, participate in or actually control private schools that provide compulsory education, (2) social organizations or individuals shall not
control any private school that provides compulsory education or any non-profit private school that provides pre-school education by means of merger, acquisition, contractual
arrangements, etc., and (3) private schools providing compulsory education shall not conduct any transaction with any related party. Where any other private school conducts any
transaction with any related party, it shall follow the principles of openness, fairness and impartiality, fix the reasonable tuition and fees and regulate the decision-making, and shall
not damage the state interests, the interests of the school or the rights and interests of the teachers and students, otherwise, there is a risk of being ordered to make corrections within
a time limit, and the illegal gains, if any, shall be confiscated after the fees collected are returned; if the circumstances are serious, the sponsor, actual controller and member of the
decision-making body or supervisory body shall not become the sponsor, actual controller or member of the decision-making body or supervisory body of other private school
within one to five years; if the circumstances are especially serious
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
26/219
Table of Contents
23
with adverse social impact, the sponsor, actual controller and member of the decision-making body or supervisory body shall not become the sponsor, actual controller and members
of the decision-making body or supervisory body of other private school permanently; if a violation of public security administration is constituted, the public security organ shall
impose a public security administration punishment according to law; if a crime is constituted, criminal responsibility shall be investigated in accordance with the law.
These regulations may challenge the validity of our contractual arrangements that establish our corporate structure for operating our business, for example, the clause or provision of
the Consulting Services Agreement, one of the Contractual Arrangements, in relation to related party transactions between a private school providing compulsory education and
Hailiang Consulting and its affiliated entities, are not legally enforceable since September 1, 2021. Furthermore, our contractual arrangements may not be enforceable in the PRC if
the PRC government authorities take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event we are
unable to enforce these contractual arrangements, for our continuing operations, we may not be able to exert effective control over Hailiang Management and its shareholders, and
our ability to conduct our business may be materially and adversely affected. We are continuously assessing the impact of relevant regulations on our business and making necessary
measures and efforts to comply with the requirements under these regulations and implementations, including restructuring corporate structure or unwinding contractual
arrangements, etc. However, the relevant authorities have yet to promulgate any detailed implementation rules and regulations under the 2021 Implementation Rules for Private
Education Laws, it is still unclear whether the above provisions have any retrospective effect for contractual arrangements over private compulsory education schools existing before
September 1, 2021, therefore, there remains uncertainty as to when and how such implementation rules will become specifically applied to our business.
The newly-enacted Foreign Investment Law proposes sweeping changes to the PRC foreign investment legal regime and will likely to have a significant impact on businesses 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 invested projects 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 same time, MOFCOM
published an accompanying explanatory note of the Draft Foreign Investment Law, or the Explanatory Note, which contains important information about the Draft Foreign
Investment Law, including its drafting philosophy and principles, main content, plans to transition to the new legal regime and treatment of business in China controlled by foreign
invested enterprises, or FIEs, primarily through contractual arrangements. The Draft Foreign Investment 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 Chinese companies listed or to be
listed overseas. The Draft Foreign Investment Law would regulate FIEs the same way as PRC domestic entities, except for those FIEs that operate in industries deemed to be either
“restricted” or “prohibited” in a “negative list”. The Draft Foreign Investment Law also provides that only FIEs operating 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 the entry clearance and approvals, certain FIE’s operating in industries on the negative list
may not be able to continue to conduct their operations through contractual arrangements. It also states that entities established in China but controlled by foreign investors will be
treated as FIEs, while entities set up outside of China which are controlled by PRC persons or entities, would be treated as domestic projects after completion of market entry
procedures.
The MOFCOM, and the National Development and Reform Commission, or NDRC, promulgated the Catalogue of Industries for Guiding Foreign Investment, or the 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 on July 28, 2017 (the “2017 Catalogue”). On
June 28, 2018, the MOFCOM and NDRC promulgated the Special Measures for Foreign Investment Access (2018 version), or the 2018 Negative List, terminating the 2017
Catalogue. On June 30, 2019, the MOFCOM and NDRC promulgated the Special Measures for Foreign Investment Access (2019 version) and on June 23, 2020, the MOFCOM and
NDRC promulgated the Special Measures for Foreign Investment Access (2020 version). According to the 2019 version and 2020 version, preschool education, general senior high
schools and institutions of higher education can be set up through cooperation only and controlled by the Chinese party (with principals or principal administrators with Chinese
nationality, and the council, Chinese members in the board of directors or the joint management committee accounting for not less than one half of the total members). Investment in
institutions offering compulsory education and religious educational institutions
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
27/219
Table of Contents
24
is prohibited. We conduct our private education business in China primarily through contractual arrangements among our operating subsidiaries in China and Hailiang Management
and our affiliated schools owned and operated by Hailiang Management and the shareholders of Hailiang Management and through contractual arrangements among our operating
subsidiaries in China and Haishan Development and our affiliated schools owned and operated by Haishan Development and the shareholders of Haishan Development. We hold the
required licenses and permits necessary to conduct our private education business in China through the schools owned and operated by Hailiang Management and Haishan
Development. As of the date of this annual report, the sponsors of our current affiliated schools are in compliance with the requirements of the above regulations, and we control and
operate our affiliated schools through contractual arrangements that do not violate the above regulations.
On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, or the FIL, which took effect on January 1, 2020, and replaced the existing laws
regulating foreign investment in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, or
Existing FIE Laws, together with their implementation rules and ancillary regulations. The FIL embodies an expected PRC regulatory trend to rationalize its foreign investment
regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. See
“Item 4. Information on the Company—B. Business Overview—Regulation— Provisions on Foreign Investment.”
However, uncertainties still exist in relation to interpretation and implementation of the FIL, especially in regard to, including, among other things, the nature of variable interest
entities contractual arrangements and specific rules regulating the organization form of foreign-invested enterprises within the five-year transition period. While FIL does not define
contractual arrangements as a form of foreign investment explicitly, we cannot assure you that future laws and regulations will not provide for contractual arrangements as a form of
foreign investment. Therefore, there can be no assurance that our control over our VIEs through contractual arrangements will not be deemed as foreign investment in the future. In
the event that any possible implementing regulations of the FIL, any other future laws, administrative regulations or provisions deem contractual arrangements as a way of foreign
investment, or if any of our operations through contractual arrangements is classified in the “restricted” or “prohibited” industry in the future “negative list” under the FIL, our
contractual arrangements may be deemed as invalid and illegal, and we may be required to unwind the variable interest entity contractual arrangements and/or dispose of any
affected business. Also, if future laws, administrative regulations or provisions mandate further actions to be taken with respect to existing contractual arrangements, we may face
substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Furthermore, under the FIL, foreign investors or the foreign investment enterprises
should be imposed legal liabilities for failing to report investment information in accordance with the requirements. In addition, the FIL provides that foreign invested enterprises
established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within a five-year transition period, which means that
we may be required to adjust the structure and corporate governance of certain of our PRC subsidiaries in such transition period. Failure to take timely and appropriate measures to
cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business
operations.
We rely on contractual arrangements with Hailiang Management, Haishan Development and their shareholders for our operations in China, which may not be as effective in
providing control as direct ownership.
We have relied, and expect to continue to rely, on the contractual arrangements with Hailiang Management, Haishan Development and their 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 “Item 4.
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, Haishan Development and our affiliated schools. Any
failure by our affiliated entities, including Hailiang Management, Haishan Development and our affiliated schools controlled and held by Hailiang Management and Haishan
Development, and the shareholders of Hailiang Management and Haishan Development, to perform their obligations under the contractual arrangements would have a material
adverse effect on the consolidated financial position and consolidated financial performance of our company. For example, the contractual arrangements are governed by PRC law
and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance 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 as some other jurisdictions, such as the United States. As a result, uncertainties
in the PRC legal system could limit our ability to enforce these contractual arrangements. In addition, if the legal structure and the contractual arrangements were found to be in
violation of any existing or future PRC laws and regulations, we may be subject to fines or other legal or administrative sanctions.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
28/219
Table of Contents
25
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 benefits 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 no longer be able to consolidate the financial
results of our affiliated entities.
Furthermore, we are a holding company incorporated in the Cayman Islands. As a holding company with no material operations of our own, we conduct a substantial majority of our
operations through our subsidiaries established in China, our VIE, and its subsidiaries in China. We control and receive the economic benefits of our VIE and its subsidiaries’
business operations through certain contractual arrangements. Our ADSs listed on Nasdaq Global Market represents shares of our offshore holding company instead of shares of our
VIE or its subsidiaries in China. We may not be able to continue to satisfy the applicable requirements and rules with respect to such structure. If we are unable to satisfy the Nasdaq
Capital Market criteria for maintaining our listing, our securities could be subject to delisting.
If the PRC government determines that the contractual arrangements constituting part of our VIE structure do not comply with PRC regulations, or if these regulations change
or are interpreted differently in the future, we may be unable to assert our contractual rights over the assets of our VIE, and our ADSs or ordinary shares may decline in value
or become worthless.
Investors in the ADSs are not purchasing equity securities of our subsidiaries that have substantive business operations in China but instead are purchasing equity securities of a
Cayman Islands holding company. Hailiang Education Group Inc. is a Cayman Islands holding company that conducts all of its operations and operates its business in China through
its PRC subsidiaries and consolidated affiliated entities, in particular, Zhejiang Hailiang Education Consulting and Services Co., Ltd.and its subsidiaries, as well as Hailiang
Education Management Group Co., Ltd and its subsidiaries through contractual agreements. Such structure involves unique risks to investors in the ADSs.
Recently, the PRC government adopted a series of regulatory actions and issued statements to regulate business operations in China, including those related to VIEs and private
schools, which may challenge the validity of our contractual arrangements. For further details, refer to “Risks Relating to Our Corporate Structure”. In the event that the PRC
government determines that the contractual arrangements constituting part of our VIE structure do not comply with PRC regulations, or if these regulations change or are interpreted
differently in the future, we may be unable to assert our contractual rights over the assets of our VIE, and our ADSs or ordinary shares may decline in value or become worthless.
On May 14, 2021, the PRC State Council announced the issuance of the 2021 Implementation Rules for Private Education Laws (“2021 Implementation Rules for Private Education
Laws”), which became effective on September 1, 2021. The 2021 Implementation Rules for Private Education Laws prohibit social organizations and individuals from controlling a
private school that provides compulsory education by means of merger, acquisition, contractual arrangements, etc., and a private school providing compulsory education is
prohibited from conducting transactions with its related party. The 2021 Implementation Rules for Private Education Laws may challenge the validity of our Contractual
Arrangements (see “Item 4. Information on the Company—A. History and Development of the Company” and “Item 4. Information on the Company —C. Organizational
Structure.”) that establish the corporate structure for operating compulsory education business. In the event we are unable to enforce these Contractual Arrangements, we may not be
able to exert effective control over the affiliated entities providing compulsory education. In particular, under the 2021 Implementation Rules for Private Education Laws, a private
school providing compulsory education is prohibited from conducting transactions with its related parties, and this significantly affects the enforceability of the Consulting Services
Agreements with affiliated entities providing compulsory education. Therefore, we re-assessed our control over the affiliated entities providing compulsory education. According to
IFRS 10 - Consolidated Financial Statements, we concluded that we lost control of the affiliated entities providing compulsory education services on September 1, 2021, in view of
the significant uncertainties and restrictions the 2021 Implementation Rules for Private Education Laws impose on our ability to direct the range of ongoing activities that would
most significantly impact the returns of those entities and to be exposed to returns that are commensurate with a controlling interest, and that such uncertainties and restrictions
already had a significant impact on our ability to direct and its economic exposure from involvement with such entities.
Except for the affiliated entities providing compulsory education as mentioned above, the Contractual Arrangements provide the Company, through Hailiang HK and Hailiang
Consulting, the following: (i) the power to control the Affiliated Entities; (ii) the exposure or rights to variable returns from its involvement with the Affiliated Entities; and (iii) the
ability to affect those returns through its power over the Affiliated Entities. Therefore, we are able to consolidate the financial results of Hailiang Management and Affiliated Entities
in our consolidated financial statements.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
29/219
Table of Contents
26
The majority shareholder of Hailiang Management and Haishan Development, Mr. Feng, our founder and our ultimate controlling shareholder, may not act in the best
interests of our company.
Mr. Feng is the majority shareholder of Hailiang Management and Haishan Development. He is also the founder and ultimate controlling shareholder of our company. We cannot
assure you 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 Hailiang Management and Haishan Development
to breach or refuse to renew the existing contractual arrangements that allow us to effectively exercise control over our affiliated entities and to receive economic benefits from them.
If Mr. Feng does not honor his contractual obligations with respect to our affiliated entities, we may exercise our exclusive option to purchase, or cause our designee to purchase, all
or part of the equity interest in Hailiang Management or Haishan Development to the extent permitted by PRC law. If we cannot resolve any disputes between us and the
shareholders of Hailiang Management or Haishan Development, we would have to rely on legal proceedings, which could result in disruption of our business and substantial
uncertainty as to the outcome of any such legal proceedings.
Contractual arrangements between our affiliated entities and us may be subject to scrutiny by the PRC tax authorities and a finding that we or our affiliated 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 challenge by the PRC tax
authorities. We could face material adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among our subsidiary in the PRC, our affiliated
entities and the shareholders of Hailiang Management or Haishan Development are not conducted on an arm’s-length basis and adjust the income of our affiliated entities through
the transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in, for PRC tax purposes, increased tax liabilities of our affiliated entities. In addition,
the PRC tax authorities may require us to disgorge our prior tax benefits, and require us 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. To date, 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 imposed on 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 found to 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 such entity, 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 and Haishan Development.
As part of these arrangements, most of our education-related assets that are important to the operation of our business are held by our affiliated entities. 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 to continue some or all of our business activities, which could
materially and adversely affect our business, financial condition and results of operations. If any of our affiliated entities undergoes a voluntary or involuntary liquidation
proceeding, its equity owners or unrelated third-party creditors may claim rights relating to some or all of these assets, which would hinder our ability to operate our business and
could materially and adversely affect our business, our ability 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 to make loans or
additional capital contributions to our PRC subsidiary and affiliated entities, which could harm our liquidity and our ability to fund and expand 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 capital contributions to our PRC
subsidiaries, (iii) establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, and (iv) acquire offshore entities with business operations in China
in an offshore transaction. However, most of these uses are subject to PRC regulations and approvals. For example:
●
loans by us to our wholly-owned subsidiary in China, which is a foreign-invested enterprise, cannot exceed statutory limits and must be registered with the State
Administration of Foreign Exchange of the PRC, or SAFE, or its local counterparts; and
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
30/219
Table of Contents
27
●
loans by us to our affiliated entities, which are domestic PRC entities, over a certain threshold must be approved by the relevant government authorities and must also be
registered with SAFE 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 capital contribution in foreign currency
into Renminbi. The notice requires that the capital of a foreign-invested company settled in Renminbi converted from foreign currencies shall be used only for purposes within the
business scope as approved by the applicable governmental authorities. Such loan may not be used 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 foreign currencies. 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 the proceeds of such loans have not otherwise been used. Violations of Circular 142 will result in severe penalties including heavy fines. In order to
further reform the foreign exchange administration system, SAFE issued the Circular on Reform of Administration Model of the Settlement of Foreign Currency Capital of Foreign-
Invested Enterprises on March 30, 2015, or Circular 19, which took effect from June 1, 2015 and replaced the SAFE Circular 142. Circular 19 allows foreign invested enterprises to
settle their foreign exchange capital on a discretionary basis according to the actual needs of their business operations and provides procedures by which a foreign-invested company
may convert and use equity investments made in foreign currencies. Circular 19 also reiterates, however, the principle that Renminbi converted from the foreign currency-
denominated capital of a foreign-invested company may not be used, either directly or indirectly, for purposes beyond its business scope.
Furthermore, SAFE has promulgated Notice of the State Administration of Foreign Exchange on Policies for Reforming and Regulating the Control over Foreign Exchange
Settlement under the Capital Account, on June 9, 2016, hereinafter referred to as Circular 16, which emphasizes the unified policies for discretionary settlement of foreign exchange
receipts under the capital account by domestic institutions. Circular 16 also reiterated the principle that Renminbi converted from the foreign currency-denominated capital of a
foreign-invested company may not be used, either directly or indirectly, for purposes beyond the company’s business scope. Circular 16 requires SAFE’s local counterparts to unify
and regulate the control over discretionary settlement and payment of foreign exchange receipts under the capital account, with the purpose of better serving and facilitating
domestic enterprises’ needs in business and capital operations. Circular 16 stipulates that a domestic enterprise, when using its capital account foreign exchange income and
Renminbi funds obtained from foreign exchange settlements, shall abide by the principle of truthfulness and only apply such funds for use in its own operations, and will comply
with the following: (1) such receipts and funds shall not, directly or indirectly, be used for the expenditures beyond the business scope of domestic institutions or the expenditures
prohibited by laws and regulations of the State; (2) unless otherwise provided, such receipts and funds shall not, directly or indirectly, be used for investment in securities or other
investments than banks’ principal-secured products; (3) such receipts and funds shall 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
(subject to certain exceptions for real estate enterprises).
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 to obtain 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 in China. If we fail to receive such registrations or
approvals, our ability to capitalize our PRC operations may be negatively affected, which could adversely affect 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 overall economy in China or the
educational services market, which could harm our business.
Substantially all of our operations are conducted in China, and most 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 a planned economy to a more
market-oriented economy since the late 1970s, the PRC government continues to play a significant role in regulating the industry.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
31/219
Table of Contents
28
The PRC government has significant oversight and discretion over the conduct of our business and may intervene with or influence our operations as the government deems
appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the
education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our
business, financial condition and results of operations. For example, under the Private Education Laws promulgated in 2004 and its implementing rules, a private school should elect
to be either a school that does not require “reasonable returns” or a school that requires “reasonable returns.” A private school must consider factors such as the school’s tuition, ratio
of the funds used for education-related activities to the course fees collected, admission standards and educational quality when determining the percentage of the school’s net
income that would be distributed to the investors as reasonable returns. However, pursuant to the 2016 Private Education Law, sponsors are not permitted to register for-profit
schools that provide compulsory education services, which applies to grades one to nine and applies to a significant portion of our for-profit K-12 education business. For our
affiliated schools, Zhuji Hailiang Foreign Language High, Zhenjiang Jianghe High School of Art, and Ninghai Hailiang Senior Middle Schoo are registered as for-profit schools, and
Zhejiang Zhuji Hailiang Senior Middle School and Zhejiang Zhuji Hailiang High School of Art, that are registered before the promulgation of 2016 Private Education Law, are re-
registered as non-profit status in fiscal year 2021. All K-9 schools are registered or re-registered as non-profit status by fiscal year 2021. Furthermore, the PRC government has
recently indicated an intent to exert more oversight and control over overseas securities offerings and other capital markets activities and foreign investment in China-based
companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors
and cause the value of such securities to significantly decline or in extreme cases, become worthless.
While the PRC economy has experienced significant growth in the past two to three decades, growth has been uneven, both geographically and among various sectors of the
economy. Demand for our educational services depends, in large part, on economic conditions in China. Any significant slowdown in China’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. In addition, 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.
Furthermore, our Company, our VIE and its subsidiaries, and our investors may face uncertainty about future actions by the government of China that could significantly affect the
VIE and its subsidiaries’ financial performance and operations, including the enforceability of the contractual arrangements. As of the date of this report, neither our Company nor
our VIE has received or has been denied permission from Chinese authorities to list on U.S. exchanges. However, there is no guarantee that our Company or VIE will receive or not
be denied permission from Chinese authorities to list on U.S. exchanges in the future.
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 cited as reference but have
limited precedential value. Since 1979, newly introduced PRC laws and regulations have significantly enhanced the protections of interest relating to foreign investments in China.
However, since these laws and regulations are relatively new and the PRC legal system continues to evolve rapidly, the interpretations of such laws and regulations may not always
be consistent, and enforcement of these laws and regulations involves significant uncertainties, any of which could limit the available legal protections.
In addition, the PRC administrative and judicial authorities have significant discretion in interpreting, implementing or enforcing statutory rules and contractual terms, and it may be
more difficult to predict the outcome of administrative and judicial proceedings and the level of legal protection we may enjoy in the PRC than under some more developed legal
systems. These uncertainties may affect our decisions on the policies and actions to be taken to comply with PRC laws and regulations, and may affect our ability to enforce our
contractual or tort rights. In addition, the regulatory uncertainties may be exploited through unmerited legal actions or threats in an attempt to extract payments or benefits from us.
Such uncertainties may therefore increase our operating 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 a significantly higher tax
burden or the disgorgement of any benefits we enjoyed in the past, which could in turn negatively affect our business, financial condition 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 enjoy preferential tax treatment. As of
the date this annual report, three of our affiliated schools, namely Zhenjiang Jianghe High
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
32/219
Table of Contents
29
School of Art, Zhuji Hailiang Foreign Language High School, and Ninghai Hailiang Senior Middle School, elected to register their statuses as for-profit. Taxation policies regarding
preferential tax treatment for for-profit private schools following the effectiveness of the 2016 Private Education Law, still remain unclear, as more specific provisions have not been
introduced. For-profit schools by the end of 2021 fiscal year end have enjoyed preferential tax policies for VAT as permitted by the Notice of the Ministry of Finance and the State
Administration of Taxation on Full Launch of the Pilot Scheme on Levying Value-added Tax in Place of Business Tax and are subject to unified 25% enterprise income tax rate.
Other affiliated schools elected to register as non-profit private schools and will be entitled to the same tax benefits as public schools.
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. The discontinuation of any
preferential tax treatments currently available to us will cause our effective tax rate to increase, which will increase our income tax expenses and in turn decrease our net income. In
addition, we may not be granted preferential tax treatment by the local governments of additional regions into which we may expand. Any such negative development could have a
material and adverse effect on our business, financial condition and results of operations.
Under the New EIT Law, we may be classified as a “resident enterprise” of China. Such classification could result in unfavorable tax consequences to us and our non-PRC
shareholders.
The PRC Enterprise Income Tax Law (“New EIT Law”) and its implementing rules provide those enterprises established outside of China whose “de facto management bodies” are
located in China are considered “resident enterprises” under PRC tax laws. The implementing rules promulgated under the New EIT Law define the term “de facto management
bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. The State Administration of Taxation,
or SAT, promulgated Notice of the State Administration of Taxation on Issues Concerning the Determination of Chinese-Controlled Enterprises Registered Overseas as Resident
Enterprises on the Basis of Their Bodies of Actual Management on April 22, 2009, referred to as Circular 82; Circular 82 formulates specific criteria for determining “de facto
management body:” (1) its premises where its officers and management departments in charge of routine production and operation management perform their duties are mainly
located inside China; (2) its financial decisions (such as borrowing, loan, financing and financial risk management) and personnel decision (such as appointment, dismissal and
remuneration) 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 1/2 of its directors or officers with voting rights
customarily reside inside China. However, SAT promulgated Announcement of the State Administration of Taxation on Issues Concerning the Determination of Resident Enterprises
on the Basis of Their Actual Management Bodies on January 29, 2014, referred to as Circular 9. Pursuant to these regulations, once we meet the above criteria, we shall file an
application for determination of resident enterprise with the competent tax authorities at the place where its main investor is located in China. The competent local tax authorities
will, upon preliminary judgment of the enterprise’s resident status, report the same from local, to municipal, to the provincial tax authorities for confirmation. Therefore, until we
make such filing application, 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 subsidiaries which we may establish from time to time could be exempt from the PRC
dividend withholding tax due to our PRC “resident recipient” status. This could have a material and adverse effect on our overall effective tax rate, our income tax expenses and our
net income. Furthermore, dividends, if any, paid to our shareholders and ADS holders may 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 pay with 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 from sources 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 the price of our ADSs.
Any actions by the Chinese government, including any decision to intervene or influence the operations of our PRC subsidiaries or our VIE or to exert control over any offering
of securities conducted overseas and/or foreign investment in China-based issuers, may cause us to make material changes to the operations of our PRC subsidiaries or our
VIE, may limit or completely hinder our ability to offer or continue to offer securities to investors, and may cause the value of such securities to significantly decline or be
worthless.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The
ability of our subsidiaries and VIE to operate in China may be impaired by changes in its laws and regulations, including those relating to education, taxation, land use rights,
foreign investment limitations, and other matters.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
33/219
Table of Contents
30
The central or local governments of China may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on
our part to ensure our PRC subsidiaries and our VIE’s compliance with such regulations or interpretations. As such, our PRC subsidiaries and our VIE may be subject to various
government actions and regulatory interference in the provinces in which they operate. They could be subject to regulation by various political and regulatory entities, including
various local and municipal agencies and government sub-divisions. They may incur increased costs necessary to comply with existing and newly adopted laws and regulations or
penalties for any failure to comply.
Furthermore, it is uncertain when and whether we will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such
permission is obtained, whether it will be later denied or rescinded. Although we believe that our Company, our PRC subsidiaries, and our VIE, are currently not required to obtain
permission from any Chinese authorities, and none of them has received any notice of denial of permission to list on the U.S. exchange, our operations could be adversely affected,
directly or indirectly, by existing or future laws and regulations relating to our business or industry, particularly in the event permission to list on U.S. exchanges may be later
required, or withheld or rescinded once given.
Accordingly, government actions in the future, including any decision to intervene or influence the operations of our PRC subsidiaries or our VIE at any time, or to exert control
over an offering of securities conducted overseas and/or foreign investment in China-based issuers, may cause us to make material changes to the operations of our PRC subsidiaries
or our VIE, may limit or completely hinder our ability to offer or continue to offer securities to investors, and/or may cause the value of such securities to significantly decline or be
worthless.
There are significant uncertainties under the New EIT Law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our 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 its immediate holding
company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong and the 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 current PRC subsidiary, Hailiang Consulting is wholly-owned by our Hong
Kong subsidiary. Hailiang Consulting also wholly owns the remaining of our PRC subsidiaries. Moreover, under the Notice of the State Administration of Taxation on Issues
regarding the Administration of the Dividend Provision in Tax Treaties promulgated on February 20, 2009, the tax payer needs to satisfy certain conditions to enjoy the benefits
under a tax treaty. These conditions include: (1) the taxpayer must be the beneficial owner of the relevant dividends, and (2) the corporate shareholder to receive dividends from the
PRC subsidiaries 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 certain detailed factors in determining the “beneficial owner”
status. Further, the State Administration of Taxation promulgated the Notice on How to Recognize the “Beneficial Owner” in Tax Treaties on June 29, 2012, which replaced the
Notice on How to Understand and Recognize the “Beneficial Owner” in Tax Treaties. Furthermore, the State Administration of Taxation promulgated Announcement of the State
Administration of Taxation on Issues Relating to “Beneficial Owner” in Tax Treaties (“Circular 9”) in February 3, 2018, which took effect on April 1, 2018, replaced the Notice on
How to Understand and Recognize the “Beneficial Owner” in Tax Treaties and provides guidance for determining whether a resident of a contracting state is the “beneficial owner”
of an item of income under China’s tax treaties and tax arrangements.
Under applicable tax laws and regulations, we are required to apply for approvals from local tax authorities before we can enjoy any benefits under such taxation treaties relating to
the 5% withholding tax rate which we have not undertaken. Hailiang Consulting will apply for such approvals when it intends to declare and pay dividends, but there is no assurance
that the PRC tax authorities will approve the 5% withholding tax rate on dividends received from Hailiang Consulting.
Based on the recent development of PRC law, there is significant uncertainty about the application and interpretation of the 2016 Private Education Law, the 2021
Implementation Rules for Private Education Laws and detailed implementation rules and regulations of 2016 Private Education Law and its Implementation Rules. We may be
subject to significant limitations on our ability to engage in the private education business, acquire private schools, or receive payments from our affiliated entities and may
otherwise be materially and adversely affected by changes in PRC laws and regulations.
Pursuant to the 2016 Private Education Law, sponsors of private schools may choose to establish schools as either non-profit or for-profit schools. Sponsors are not permitted to
establish for-profit schools that provide compulsory education services, which covers
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
34/219
Table of Contents
31
grades one to nine and which accounts for a significant portion of our students as well as revenue during the reporting period. Sponsors of for-profit private schools are entitled to
retain the profits from their schools and any operating surplus may be allocated to the sponsors pursuant to the PRC company law and other relevant laws and regulations. Sponsors
of non-profit private schools are not entitled to any distribution of profits from their schools and all revenue must be used for the operation of the schools. For further details, refer to
“Item 4. Information on the Company–B. Business–Regulations on Private Education–2016 Private Education Law and The 2021 Implementation Rules for Private Education
Laws.”
As a holding company, our ability to generate profits, pay dividends and other cash distributions to our shareholders under the 2016 Private Education Law and relevant laws and
regulations are affected by many factors, including whether our schools are characterized as for-profit or non-profit schools, the profitability of our schools, and our ability to receive
dividends and other distributions from our PRC subsidiary, Hailiang Consulting, which in turn depends on the service fees paid to Hailiang Consulting from our affiliated schools
and other service and management fees paid to Hailiang Consulting by our other PRC managed schools. Hailiang Consulting has respectively entered into exclusive management
services and business cooperation agreements with Hailiang Management and Haishan Development, pursuant to which we provide service to our schools in exchange for the
payment of service fees. As advised by our PRC counsel, as of June 30, 2021, our right to receive the service fees from our schools and other affiliated entities does not, to our
knowledge, contravene any PRC laws and regulations currently in force. Likewise, the payment of service fees under our contractual arrangements should not be regarded as the
distribution of returns, dividends or profits to the sponsors of our schools under the PRC laws and regulations currently in force.
However, according to 2021 Implementation Rules for Private Education Laws, which came into force and effect beginning September 1, 2021, (1) foreign-invested enterprises
established in China and social organizations whose actual controllers are foreign parties shall not sponsor, participate in, or actually control private schools that provide compulsory
education, (2) social organizations or individuals shall not control any private school that provides compulsory education or any non-profit private school that provides pre-school
education by means of merger, acquisition, contractual arrangements, etc., and (3) private schools providing compulsory education shall not conduct any transaction with any related
party. Where any other private school conducts any transaction with any related party, it shall follow the principles of openness, fairness and impartiality, fix reasonable tuition and
fees and regulate the decision-making, and shall not damage the state and the school or the rights and interests of the teachers and students, otherwise, there is a risk of being ordered
to make corrections within a time limit, and the illegal gains, if any, shall be confiscated after the fees collected are returned; if the circumstances are serious, the sponsor, actual
controller and member of the decision-making body or supervisory body shall not become the sponsor, actual controller or member of the decision-making body or supervisory body
of other private school within one to five years; if the circumstances are especially serious with adverse social impact, the sponsor, actual controller and member of the decision-
making body or supervisory body shall not become the sponsor, actual controller and members of the decision-making body or supervisory body of other private school
permanently; if a violation of public security administration is constituted, the public security organ shall impose a public security administration punishment according to law; if a
crime is constituted, criminal responsibility shall be investigated in accordance with the law.
Therefore, a private school providing compulsory education is prohibited from conducting transactions with its related party, including the consulting service under the Contractual
Arrangements between private schools providing compulsory education and Hailiang Consulting and its affiliated entities. As a result, the clause or provision of the Consulting
Services Agreement, in relation to related party transactions between a private school providing compulsory education and Hailiang Consulting and its affiliated entities, are not
legally enforceable since September 1, 2021. Since September 1, 2021, we have stopped providing services to the affiliated entities providing compulsory education. However, to
keep these private schools providing compulsory education open, there are still ongoing transactions between K-9 schools and their related parties, such as cash and deposits placed
with Hailiang Finance, campus lease from Hailiang Investment and etc., which are related to the key issues of these schools’ operation, but may be subject to risk of violation. In
order to cope with the risks, Hailiang Investment has issued a promise that K-9 schools are able to continue to use the campus, even if the lease Agreements are not legally
enforceable. As date of this annual report, K-9 schools have not received any further rectification requirements or penalty notices from the relevant competent authority, and the
possibility and impact of illegal risks are still unable to be assessed clearly. We are continuously assessing the impact of relevant regulations on our business and making necessary
measures and efforts to comply with the requirements under these regulations and implementations, including restructuring corporate structure or unwinding contractual
arrangements, etc.
In particular, the validity of our contractual arrangements may be challenged and our corporate structure may need to be restructured to comply with the new regulations, which may
be time-consuming and expensive and impose additional restrictions on our business expansion and may further adversely affect our business operations and results of operations.
For further details, refer to “Our private educational service business is subject to extensive regulation in China. If the PRC government finds that the contractual arrangements
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
35/219
Table of Contents
32
that establish our corporate structure for operating our business do not comply with applicable PRC laws and regulations, we could be subject to severe penalties.”
In July 2021, the General Office of the Chinese Communist Party and the General Office of the State Council of the People’s Republic of China published the Opinion on Further
Easing the Workload and Burden of After-school Tutoring for Students in Compulsory Education (the “Opinion”). The Opinion proposes certain measures intended to ease the
workload of students in compulsory education and regulate the relevant after-school tutoring services that aim at students in compulsory education in the PRC, including
(i) institutions providing after-school education service on academic subjects in China’s compulsory education system, or academic training institutions, need to be registered as non-
profit, no approval will be granted to new academic training institutions, and an approval mechanism will be adopted for online academic training institutions; (ii) foreign ownership
in academic training institutions is prohibited, including through contractual arrangements, and companies with existing foreign ownership need to rectify such status; (iii) listed
companies are prohibited from raising capital to invest in businesses that teach academic subjects in compulsory education; (iv) academic training institutions are prohibited from
providing tutoring services on academic subjects in compulsory education during public holidays, weekends and school breaks; and (v) academic training institutions must follow
the fee standards to be established by relevant authorities. The Opinion also provides that institutions providing after-school tutoring services on academic subjects in high schools
(which do not fall within China’s compulsory education system) shall take into consideration the Opinion when conducting activities. If our corporate structure and the business of
well-rounded education services and academic subject tutoring services are deemed to be in violation of the Opinion by relevant authorities, our corporate structure and business
operations may be adversely affected and may need to be restructured to comply with the Opinion.
We face uncertainties with respect to indirect transfers of the equity interests in PRC resident enterprises by their non-PRC holding companies.
The State Administration of Taxation has promulgated the Announcement of the State Administration of Taxation on Several Issues Relating to Enterprise Income Tax on Transfer of
Assets between Non-resident Enterprises, on February 3, 2015, hereinafter referred to as Circular 7. Under the Circular 7, where a non-resident enterprise makes indirect transfer of
assets such as the equity of a Chinese resident enterprise through arrangements which do not have a reasonable commercial objective to circumvent enterprise income tax payment
obligation, the indirect transfer shall be redefined pursuant to the provisions of Article 47 of the new EIT Law as direct transfer of assets such as equity of Chinese resident
enterprises. The Circular 7 defined the term “Indirect Transfer” as transfer by a non-resident enterprise of 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 has identical or similar substantial results as direct transfer of taxable assets in China, including restructuring of a non-resident
enterprise which causes changes in shareholders of an overseas enterprise. The non-resident enterprise which makes the indirect transfer of taxable assets in China is 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 and format 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 7 provide guidance on how to determine whether a
foreign investor has adopted an abusive arrangement in order to reduce, avoid or defer PRC tax. Under Circular 7, the tax authorities in charge need to set up a case for investigation
into, and making adjustment to, the transaction of indirect transfer of taxable assets in China, should a violation of the EIT Law be suspected, in which case, the relevant provisions
prohibiting tax anti-avoidance will be applied.
On October 17, 2017, the State Administration of Taxation (“SAT”) promulgated the Announcement of the State Administration of Taxation on Issues Relating to Withholding at
Source of Income Tax of Non-resident Enterprises (“SAT No.37”), which took effect on December 1, 2017. The SAT No.37 applies to the handling of matters relating to withholding
at source of income tax of non-resident enterprises pursuant to the provisions of Article 37, Article 39 and Article 40 of the New EIT Law. Specifically, the SAT No.37 cancels the
requirement for contract filing, but the tax authorities in charge still have the right to require the taxpayer, the withholding agent and other relevant parties who are informed, to
provide contract(s) and other relevant materials relating to the tax withholding. In addition, according to the SAT No.37, where the income subject to withholding at source derived
by a non-resident enterprise is equity investment income, such as dividends, bonuses etc., the date of occurrence of withholding obligation for the relevant payable amount of tax
will be the date of actual payment of such equity investment income and where the same asset transfer income subject to withholding at source is derived by a non-resident
enterprise by way of instalments, the instalments may first be treated as recovery of costs of previous investments. Upon recovery of all such costs, the tax amount to be withheld
will then be computed and withheld. If the non-resident enterprise does not declare and pay tax pursuant to the provisions of Article 39 of the New EIT Law, the tax authorities may
order the enterprise to make payment within a stipulated period, and the non-resident enterprise is required to declare and pay tax within the
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
36/219
Table of Contents
33
period determined by the tax authorities. If the non-resident enterprise has declared and paid tax before the tax authorities order it to make payment within a stipulated period, the
enterprise will be deemed to have paid tax on time.
According to the New EIT Law, where business dealings between an enterprise and its interested parties fail to comply with the independent transaction principle, and reductions are
made to the taxable income or the amount of income of the enterprise or its interested parties, or where the taxable income or amount of income of an enterprise is reduced as a
result of arrangements with no reasonable commercial objectives implemented by the enterprise, the tax authorities have a right to make adjustments according to a reasonable
method. Where the tax authorities have made tax adjustments and the taxpayer is required to make up outstanding tax payments, the additional tax amount is levied and collected
with interest pursuant to the provisions of the State Council.
As a result, we and our non-resident investors may have the risk of being taxed according the regulations referenced above and may be required to spend valuable resources to
comply with such regulations or to establish that we or our non-resident investors should not be taxed according to such regulations, which may have a material adverse effect on our
financial condition and results of operations or on such non-resident investors’ investments in us.
Restrictions on currency exchange may limit our ability to receive income and allocate or reinvest effectively.
Most of our income is denominated in Renminbi. As a result, restrictions on currency exchange may limit our ability to use income generated in Renminbi 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 exchange transactions and dividend distributions. However, Renminbi is not freely
convertible for direct investment or loans or investments in securities outside China, unless such use is approved by SAFE. For example, foreign exchange transactions under our
subsidiary’s capital account, including principal payments in respect of foreign currency-denominated obligations, remain subject to significant foreign exchange controls and the
approval requirement of SAFE. 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 and remit to its shareholder
outside of the PRC. In addition, in the event that Hailiang Consulting liquidates, proceeds from the liquidation may be converted into foreign currency and distributed outside of
China to our overseas subsidiary holding its equity interest. Furthermore, in the event that Hailiang Management or Haishan Development liquidates, Hailiang Consulting may,
pursuant to a power of attorney it has entered into with Mr. Feng and Beize Group, require Hailiang Management and Haishan Development to pay and remit the proceeds from such
liquidation to Hailiang Consulting. Hailiang Consulting then may distribute such proceeds to us after converting them into foreign currency and remit them outside of China in the
form of dividends or other distributions. Once remitted outside of the PRC, dividends, distributions or 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, any conversion of the
Renminbi-denominated income generated by our affiliated entities for direct investment, loan or investment in securities outside China will be subject to the limitations discussed
above. To the extent we need to convert and use any Renminbi-denominated income generated by our affiliated entities not paid to Hailiang Consulting and income generated by
Hailiang Consulting not declared and paid as dividends, the limitations discussed above will restrict the convertibility of, and our ability to directly receive and allocate or reinvest,
such income. Our business and financial condition may be adversely affected as a consequence of the forging. In addition, there is no assurance that the PRC regulatory authorities
will not impose more stringent restrictions on the convertibility of Renminbi in the 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 cash distributions to our
shareholders to the extent we choose to do so, servicing any debt we may incur and paying our operating expenses. Hailiang Consulting and its subsidiaries’ income depends on the
service fees paid by our affiliated entities and managed schools. Current PRC regulations permit our subsidiary in China to pay dividends to us only out of its accumulated profits, if
any, determined in accordance with Chinese accounting standards and regulations. Under the applicable requirements of PRC law, Hailiang Consulting may distribute dividends only
after it has made allowances to fund certain statutory reserves. These reserves are not distributable as cash dividends. Pursuant to the 2016 Private Education Law, sponsors of for-
profit private schools are entitled to retain the profits from their schools and the operating surplus may be allocated to the sponsors pursuant to the PRC company law and
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
37/219
Table of Contents
34
other relevant laws and regulations. Sponsors of non-profit private schools are not entitled to any distribution of profits from their schools and all revenue must be used for the
operation of the schools. According to 2021 Implementation Rules for Private Education Laws, a non-profit private school should allocate no less than 10% of its audited annual
non-restricted net asset increase, or a for-profit private school should allocate no less than 10% of its audited annual net income, to its development, respectively. In addition, prior to
the specific Implementation Rules of 2016 Private Education Law being promulgated by the State Council and other relevant regulations promulgated by other local 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% of their annual net income to its development
fund for the construction or maintenance of the school properties or for the purchase or upgrade of school facilities. However, the relevant authorities have yet to promulgate any
detailed implementation rules and regulations under the 2021 Implementation Rules for Private Education Laws. We remain uncertain as to the timing and substance of the rules
under the 2016 Private Education Law and 2021 Implementation Rules for Private Education Laws to 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–2016 Private Education Law and The 2021 Implementation
Rules for Private Education Laws.” Furthermore, if our subsidiaries or our affiliated entities 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 other payments 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 and economic 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. Under such policy, the Renminbi was permitted to
fluctuate within a narrow and managed band against a basket of certain foreign currencies. Later on, the People’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 when the U.S. dollar has appreciated against the Renminbi as well. There remains significant international pressure on the PRC
government to adopt a more flexible currency policy, which could result in a further and more significant adjustment of the Renminbi against the U.S. dollar.
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 in foreign currency terms.
More specifically, if we decide to convert our Renminbi into U.S. dollars, appreciation of the U.S. dollar against the Renminbi would have 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 offering or that we will receive from future offerings or financings into
Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. In
addition, appreciation or depreciation in the exchange rate of the Renminbi 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 our business 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 on the Nasdaq Global
Market.
On August 8, 2006, six PRC regulatory authorities, including the MOFCOM, the State Assets Supervision and Administration Commission, the State Administration of Taxation,
State Administration for Industry and Commerce of PRC, or SAIC, CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by
Foreign Investors, or the M&A Rules. This regulation, among other things, requires that the listing and trading on an overseas stock exchange of securities in an offshore special
purpose vehicle formed for purposes of holding direct or indirect equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals be
approved by the CSRC. On September 21, 2006, the CSRC published on 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 approval procedures 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 the CSRC was not required
for our initial public offering because we are not a special purpose vehicle formed or controlled by PRC companies or PRC individuals as defined under the M&A Rules. However,
we cannot assure you that the relevant PRC regulatory authorities, including the CSRC, would reach the same conclusion as our PRC counsel. If the CSRC or other PRC regulatory
authorities subsequently determines that we needed to obtain the CSRC’s approval for our initial public offering, we may face sanctions by the CSRC or other PRC regulatory
authorities. In such event, these regulatory authorities may, among other things,
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
38/219
Table of Contents
35
impose fines and penalties on or otherwise restrict our operations in the PRC or delay or restrict any remittance of the proceeds from our initial public offering into the PRC. Any
such or other actions taken could have a material adverse effect on our business, financial condition, results of operations, 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 which could 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 more time-consuming and
complex. For example, the MOFCOM must be notified in the event a foreign investor takes control of a PRC domestic enterprise. In addition, certain acquisitions of domestic
companies by offshore companies that are related to or affiliated with the same entities or individuals of the domestic companies, are subject to approval by the MOFCOM. In
addition, the Implementing Rules Concerning Security Review on Mergers and Acquisitions by Foreign Investors of Domestic Enterprises, issued by the MOFCOM in August 2011,
require that mergers and acquisitions by foreign investors in “any industry with national security concerns” be subject to national security review by the MOFCOM. In addition, any
activities attempting to circumvent 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. In addition, complying
with these requirements could be time-consuming, and the required notification, review or approval process may materially delay or affect our ability to complete merger and
acquisition transactions in China. As a result, our ability to seek growth through acquisitions may be materially and adversely affected.
In addition, if the MOFCOM determines that we should have obtained its approval for our entry into contractual arrangements with our affiliated entities and the shareholders of
Hailiang Management or Haishan Development, we may be required to file for remedial approvals. There is no assurance that we would be able to obtain such approval from the
MOFCOM. We may also be subject to administrative fines or penalties by the MOFCOM that may require us to limit our business operations 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 have material 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 ability to 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-Trip Investment through Special
Purpose Vehicles, or SAFE Circular No. 37, effective on July 4, 2014, and its appendices, that require PRC residents, including PRC institutions and individuals, to register with
local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC
residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular No. 37 as a “special purpose vehicle”. SAFE
Circular No. 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of
capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special
purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore
parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into
its PRC subsidiaries. Further, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for foreign exchange
violation.
These regulations apply to our direct and indirect shareholders who are PRC residents and may apply to any offshore acquisitions or share transfers that we make in the future if our
shares are issued to PRC residents. However, in practice, different local SAFE branches may have different views and procedures on the application and implementation of SAFE
regulations, and since SAFE Circular No. 37 was recently issued, there remains uncertainty with respect to its implementation. We have requested PRC residents who we know
currently hold direct or indirect interests in our company to make the necessary applications, filings and amendments as required under SAFE Circular No. 37 and other related
rules. As advised by AllBright Law Offices, our PRC legal counsel, 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 by SAFE Circular No. 75, the predecessor regulation of SAFE Circular No. 37. Such applications, filings and amendments were made pursuant to
SAFE Circular No. 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 the
effective date of SAFE Circular No. 37. As of the date of this annual report on Form 20-F, to
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
39/219
Table of Contents
36
the best of our knowledge, Mr. Feng is not required to make any amendment under SAFE Circular No. 37. However, we cannot assure you that Mr. Feng or any other direct or
indirect shareholders or beneficial owners of our company who are PRC residents will be able to successfully complete the registration or update the registration of their direct and
indirect equity interest as required 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 could
restrict our cross-border investment activities and our foreign exchange activities, including restricting our PRC subsidiaries’ ability to distribute dividends to, or obtain loans
denominated in foreign currencies from, our company, or prevent us from paying dividends. As a result, our business operations and our ability to make distributions to you could be
materially and adversely affected.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management named in the
prospectus based on foreign laws. It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China.
As a company incorporated under the laws of the Cayman Islands, we conduct a majority of our operations in China and a majority of our assets are located in China. In addition, all
of our senior executive officers reside within China for a significant portion of the time and are PRC nationals. As a result, it may be difficult for you to effect service of process
upon those persons inside mainland China. It may be difficult for you to enforce judgements obtained in U.S. courts based on civil liability provisions of the U.S. federal securities
laws against us and our officers and directors, as none of them currently resides in the U.S. or has substantial assets in the U.S. In addition, there is uncertainty as to whether the
courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the
securities laws of the U.S. or any state.
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in
accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of
reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the United States that provide for the reciprocal recognition and
enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and
officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what
basis a PRC court would enforce a judgment rendered by a court in the United States.
It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China. For example, in China, there are significant legal and other
obstacles to obtaining information, documents, and materials needed for regulatory investigations or litigation outside China. Although the authorities in China may establish a
regulatory cooperation mechanism with its counterparts of another country or region to monitor and oversee cross border securities activities, such regulatory cooperation with the
securities regulatory authorities in the Unities States may not be efficient in the absence of practical cooperation mechanism. Furthermore, according to Article 177 of the PRC
Securities Law, or “Article 177,” which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities
within the territory of the PRC. Article 177 further provides those Chinese entities and individuals are not allowed to provide documents or materials related to securities business
activities to foreign agencies without prior consent from the securities regulatory authority of the PRC State Council and the competent departments of the PRC State Council. While
detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or
evidence collection activities within China may further increase difficulties faced by you in protecting your interests.
Failure to comply with governmental regulations and other legal obligations concerning data protection and cybersecurity may materially and adversely affect our business, as
we routinely collect, store and use data during the conduct of our business.
We routinely collect, store and use data during our operations. We are subject to PRC laws and regulations governing the collecting, storing, sharing, using, processing, disclosure
and protection of data on the Internet and mobile platforms as well as cybersecurity. On April 13, 2020, the Office of the Central Cyberspace Affairs Commission and ten other
government authorities jointly promulgated the Measures for Cybersecurity Review, effective from June 1, 2020. On July 10, 2021, the Office of the Central Cyberspace Affairs
Commission published for public comment the Draft Amended Measures for Cybersecurity Review (the “Draft Measures”), which, when formally promulgated and come into
effect, will repeal the current effective Measures for Cybersecurity Review. The Draft Measures provide that critical information infrastructure operators purchasing network
products and services and data processors carrying out data processing activities, which affect or may affect national security, shall apply for cybersecurity review to the cyberspace
administrations in accordance with the provisions thereunder. On August 17, 2021, the state council promulgated the Regulations on Protection of Critical Information
Infrastructure, which became effective on September 1, 2021. Pursuant to the Regulations on
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
40/219
Table of Contents
37
Protection of Critical Information Infrastructure, critical information infrastructure shall mean any important network facilities or information systems of an important industry or
field, such as public communication and information service, energy, communications, water conservation, finance, public services, e-government affairs and national defense
science, which may endanger national security, peoples’ livelihoods and public interest in the event of damage, function loss or data leakage. In addition, relevant administration
departments of each critical industry and sector, or Protection Departments, shall be responsible to formulate eligibility criteria and determine the critical information infrastructure
operator in the respective industry or sector. The operators shall be informed about the final determination as to whether they are categorized as critical information infrastructure
operators. As of the date of this annual report, no detailed rules or implementation have been issued by any Protection Departments and we have not been informed that we are
identified as a critical information infrastructure operator by any governmental authorities. Furthermore, since the final version of Draft Measures is subject to significant
uncertainty, there is the possibility that the PRC government authorities may require us to apply for the cybersecurity review. We will closely monitor the rule-making process and
will assess and determine whether we are required to apply for the cybersecurity review when and once the Draft Measures are formally promulgated. See “Item 4. Information on
the Company—B. Business Overview—Regulation—Regulation Related to Internet Information Security and Privacy Protection.”
On August 20, 2021, the Standing Committee of the National People’s Congress, or, the SCNPC, promulgated the Personal Information Protection Law, which will take effect on
November 1, 2021. The Personal Information Protection Law aims at protecting the personal information rights and interests, regulating the processing of personal information,
ensuring the orderly and free flow of personal information in accordance with the law, and promoting the reasonable use of personal information. According to the Personal
Information Protection Law, personal information includes all kinds of identified or identifiable information related to natural persons recorded by electronic or other means, but
excludes de-identified information. The Personal Information Protection Law also specified the rules for handling sensitive personal information, which includes biometrics,
religious beliefs, specific identities, medical health, financial accounts, trails and locations, and personal information of teenagers under fourteen years old and other personal
information, which, upon leakage or illegal usage, may easily infringe the personal dignity or harm safety of livelihood and property. Personal information handlers shall bear
responsibility for their personal information handling activities, and must adopt necessary measures to safeguard the security of the personal information they handle. Otherwise, the
personal information handlers will be ordered for rectification or suspension or termination of provision of services, confiscation of illegal income, subject to fines or other penalties.
See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation Related to Internet Information Security and Privacy Protection.”
The opinions recently issued by the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council may subject us to
additional compliance requirement in the future.
Recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely
Cracking Down on Illegal Securities Activities According to Law,” or the “Opinions,” which were made available to the public on July 6, 2021. The Opinions emphasized the need
to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. These Opinions proposed to take effective
measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for
cybersecurity and data privacy protection. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirement in
the future. As the Opinions were recently issued, official guidance to act upon, and interpretation of the Opinions, remain unclear in several respects at this time. Therefore, we
cannot assure you that we will remain fully compliant with all new regulatory requirements of the Opinions or any future implementation rules on a timely basis, or at all. See
“Item 4. Information on the Company—B. Business Overview—Regulation—Regulation Related to Internet Information Security and Privacy Protection.”
Recent joint statement by the SEC and the Public Company Accounting Oversight Board (United States), or the “PCAOB,” proposed rule changes submitted by Nasdaq, and an
act passed by the U.S. Senate all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors,
especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to us.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks
associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack
of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
41/219
Table of Contents
38
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market,” (ii) adopt a
new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an
applicant or listed company based on the qualifications of the company’s auditor.
On May 20, 2020, the U.S. Senate passed an act requiring a foreign company to certify it is not owned or manipulated by a foreign government if the PCAOB is unable to audit
specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditor for three consecutive years,
the issuer’s securities are prohibited to trade on a national exchange.
On June 4, 2020, the U.S. President issued a memorandum ordering the President’s working group on financial markets, or the “PWG,” to submit a report to the President within
60 days of the date of the memorandum that should include recommendations for actions that can be taken by the executive branch and by the SEC or PCAOB to enforce U.S.
regulatory requirements on Chinese companies listed on U.S. stock exchanges and their audit firms.
On August 6, 2020, the PWG released a report recommending that the SEC take steps to implement the five recommendations outlined in the report. In particular, to address
companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfill its statutory mandate, or “NCJs”, the PWG recommends enhanced listing standards on
U.S. stock exchanges. This would require, as a condition to initial and continued exchange listing, PCAOB access to work papers of the principal audit firm for the audit of the listed
company. Companies unable to satisfy this standard as a result of governmental restrictions on access to audit work papers and practices in NCJs may satisfy this standard by
providing a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to
conduct an appropriate inspection of the co-audit firm. The report permits the new listing standards to provide for a transition period until January 1, 2022 for listed companies, but
would apply immediately to new listings once the necessary rulemakings and/or standard-setting are effective.
On August 10, 2020, the SEC announced that the SEC chairman had directed the SEC staff to prepare proposals in response to the report of the PWG, and that the SEC was
soliciting public comments and information with respect to the development of these proposals. If we fail to meet the new listing standards before the deadline specified thereunder
due to factors beyond our control, we could face possible de-listing from Nasdaq, deregistration from the SEC and/or other risks, which may materially and adversely affect, or
effectively terminate, our ADRs trading in the United States.
On December 18, 2020, the “Holding Foreign Companies Accountable Act” (“HFCAA”) was signed by President Donald Trump and became law. This legislation requires certain
issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the PCAOB is unable to audit
specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the PCAOB. Furthermore, if the PCAOB is unable to inspect the
issuer’s public accounting firm for three consecutive years, the issuer’s securities are banned from trade on a national exchange or through other methods. On March 24, 2021, the
SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the Holding Foreign Companies Accountable Act. On June
22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection years
required for triggering the prohibitions under the Holding Foreign Companies Accountable Act from three years to two. On September 22, 2021, the PCAOB adopted a final rule
implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the Board is unable to inspect or
investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The SEC
approved such rule on November 5, 2021.
The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result,
investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate
the effectiveness of these accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections,
which could cause investors and potential investors in our Ordinary Shares to lose confidence in our auditor’s audit procedures and reported financial information and the quality of
our financial statements.
Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report on Form 20-F, as an auditor of companies that are
traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to
assess its compliance with the applicable
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
42/219
Table of Contents
39
professional standards. Our auditor is located in China, a jurisdiction where PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, and
hence, our auditor is not currently inspected by the PCAOB. However, the recent developments would add uncertainties to our listing on Nasdaq and we cannot assure you whether
Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control
procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach, or experience as it relates to our audit. Furthermore, the Holding Foreign Companies
Accountable Act, which requires that the PCAOB be permitted to inspect the issuer’s public accounting firm within three years, may result in the delisting of our Company in the
future if the PCAOB is unable to inspect our accounting firm at such future time.
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 and amended on
December 28, 2012. 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 and cost-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 of Statistics of China, the
consumer price index in China increased by 2.1%, 2.9% and 2.5% in 2018, 2019 and 2020, respectively. China’s overall economy and 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 may materially 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, the trading price of our
ADSs has ranged from US$7.02 to US$88.92 per ADS, and the last reported trading price on November 11, 2021 was US$ 29.5 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.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
43/219
Table of Contents
40
In addition, the securities markets in the United States, China and elsewhere have from time to time experienced significant price and volume fluctuations that are not related to the
operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of the ADSs.
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 price of our ADSs to decline.
All of our outstanding ADSs are freely transferable without restriction or additional registration under the Securities Act and are available 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 and operations.
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 more than the next
twelve months. We may, however, require additional cash resources due to changed business conditions or other future developments. If our resources 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 securities could result in dilution to our shareholders. The incurrence of
indebtedness would result in increased debt service obligations and could result in operating and 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 a variety 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 sufficient amounts 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 our ADSs, 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 not have 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 of these analysts cease coverage of our
company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the 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 it deems necessary or
advisable in connection with the performance of its duties, or at our reasonable written request. In addition, the depositary may refuse to deliver, 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 it necessary or advisable to do so in good faith, because of any
requirement of law or of any government or governmental body or commission or securities exchange 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 of public 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 to the JOBS Act. An emerging growth company
may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the
auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
44/219
Table of Contents
41
Compliance with these rules and regulations has increased and will continue to increase our legal and financial compliance costs and has made and will continue to make some
corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” we expect to incur significant expenses and devote substantial
management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 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 the fiscal 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 initial public 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) the date 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 find qualified persons to serve on
our board of directors or as executive officers. We expect these rules and regulations to increase our legal and financial compliance 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 that company’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 from our business and operations, which could harm our
results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, 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 made against us, we may be required to pay significant damages, which could have a material adverse effect
on our financial condition and results of operations.
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 to U.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 Exchange Act. 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 as U.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 do not 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 US domestic issuers, and we will incur significant legal, accounting and other expenses that we would not incur as a
foreign private issuer.
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 in control 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.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
45/219
Table of Contents
42
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 articles of 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 timely requested the depositary to solicit your instructions but
no instructions are received by the depositary from an owner with respect to any of the deposited securities 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 the manner 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 person designated by us with respect to such deposited securities, and the depositary shall give a discretionary proxy to a person
designated by us to vote such deposited securities. However, no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter if
we inform the depositary, we do not wish such proxy given, substantial opposition exists or the matter materially and adversely affects the rights of holders of the ordinary shares.
The effect of this discretionary proxy is that if you do not give voting instructions, you cannot prevent the ordinary shares underlying your ADSs from being voted, except in the
circumstances described above. This may make it more difficult for shareholders to influence the management of our company. 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 right to 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 provisions of the deposit
agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. In order to give you a reasonable opportunity 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 the depositary 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, there is 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 ADSs through 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 other things, a statement as to
the manner in which your voting instructions may be given, including an express indication that, subject to limited exceptions, such instructions 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 the depositary 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, the depositary will not offer
those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are either registered under 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 a registration statement with respect to any such rights or underlying
securities or to endeavor to cause such a registration statement to be declared effective. In addition, we may not be able to take advantage of any exemptions from registration under
the Securities Act. Accordingly, holders of our ADSs may be unable to participate in a right offering we make and may experience dilution in their holdings as a result.
You may not receive distributions on our ordinary shares or any value for them if such distribution is illegal or if any required government approval cannot 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 other deposited securities underlying
our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is
not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders 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 the Securities Act but that are not properly registered or distributed under an applicable exemption from
registration. In these cases, the depositary may determine not to distribute such property. We also have no obligation to take any other action to permit the distribution of ADSs,
ordinary shares, rights or anything else 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
impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
46/219
Table of Contents
43
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 we are incorporated in the
Cayman Islands, we conduct a majority of our operations in China, and the majority of our directors and officers reside outside the United 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 States and 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 against us 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 securities laws 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 to enforce 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 corporations incorporated 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, as consolidated and
revised) of the Cayman Islands and by the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and
the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the
Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from English common law. Decisions of the Privy Council (which is the
final Court of Appeal for British Overseas Territories such as the Cayman 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 Appeal are generally of persuasive authority but are not binding in the courts of the Cayman Islands. The rights of our shareholders and the
fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In
particular, the Cayman Islands has a less developed body of securities laws relative to the United States. Therefore, our public shareholders may have more difficulty protecting their
interests in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
Legislation enacted in the Cayman Islands as to Economic Substance may affect our operations.
Pursuant to the International Tax Cooperation (Economic Substance) Law, 2018 of the Cayman Islands (“Cayman ES Law”) that came into force on January 1, 2019, a “relevant
entity” is required to satisfy the economic substance test set out in the Cayman ES Law. A “relevant entity” includes an exempted company incorporated in the Cayman Islands
(such as the Company); however, it does not include an entity that is tax resident outside the Cayman Islands. Accordingly, for so long as the Company is a tax resident outside the
Cayman Islands, including in the U.S., it is not required to satisfy the economic substance test set out in the ES Law. If we ceased to be a tax resident outside the Cayman Islands,
and failed to satisfy the economic substance test set out in the Cayman ES Law, we may initially be subject to penalty in accordance with the Cayman ES Law.
We may be classified as a passive foreign investment company, or a PFIC, which could result in adverse United States federal income tax consequence to U.S. holders of 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 tax purposes 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 that produce 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 active conduct 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 ordinary shares, the U.S. taxpayer
may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
47/219
Table of Contents
44
Depending on the assets held for the production of passive income, it is possible that, for our 2020 taxable year or for any subsequent year, 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 income tax purposes, not only because we control their management decisions, but also
because we are entitled to the economic benefits associated with Hailiang Management 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 share of 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 any stock in Hailiang Management, because of our control of management decisions of Hailiang Management, our entitlement to economic benefits associated with Hailiang
Management, and the inclusion of Hailiang Management as part of the consolidated group, there is a risk that our interest in Hailiang Management might be considered a deemed
stock interest. Therefore, the income and assets of Hailiang Management and its subsidiaries should be 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 than the statute itself (Internal Revenue Code Section 1297(c)) and analogous portions of the code,
treasury regulations and other accepted authorities and as such it 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 a PFIC.
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 unbooked intangibles 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). A material 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 year for 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.”
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
48/219
Table of Contents
45
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 subsidiaries and affiliated entities in China. We owned
and operated 14 affiliated schools offering curriculum education of primary, middle, and high schools in Zhejiang province, Jiangsu province, Gansu province, Anhui province and
Shandong province of China, during fiscal year 2021. Upon the issuance of The 2021 Implementation Rules for Private Education Laws, we optimized our operating structure, and
will continue to offer K-12 student management services and high school curriculum education services to K-12 school students and high school curriculum education services. As
of June 30, 2021, we managed and operated, but did not own or sponsor, an additional 27 private and public schools that offer curriculum education of primary, middle, and high
schools in the Jiangxi, Hubei, Jiangsu and Zhejiang provinces of China. Due to the promulgation of 2021 Implementation Rules for Private Education Laws, commencing with fiscal
year 2022, we have ceased providing operation and management services to our managed schools sponsored by related parties, i.e., Xiantao No.1 Middle School and Nanrui
Experimental School in order to comply with relevant laws and regulations.
We started our operations in 1995 when Zhejiang Zhuji Hailiang Foreign Language School, our first private school, was founded by Mr. Feng. Our second private school, Zhejiang
Zhuji Hailiang Experimental High School, was founded by Mr. Feng and Mr. Zhanghuan Meng in 2001. At the time of Zhejiang Zhuji Hailiang Experimental High School’s
founding, Mr. Feng owned 60% of the equity interest in the school and Mr. Zhanghuan Meng held the remaining equity interest in the school. In November 2011, Mr. Feng
purchased the remaining 40% equity interest in Zhejiang Zhuji Hailiang Experimental High School from Mr. Zhanghuan Meng and became the sole sponsor of Zhejiang Zhuji
Hailiang Experimental High School. Our third private school, Zhejiang Zhuji Tianma Experimental School, was jointly acquired by Mr. Feng and Mr. Zhanghuan Meng in
July 2009. At the time of the acquisition, Mr. Feng and Mr. Zhanghuan Meng beneficially owned 80% and 20% of the equity interest in the school, respectively. In November 2011,
Mr. Feng acquired the 20% equity interest in the school from Mr. Zhanghuan Meng and became the sole sponsor of Zhejiang Zhuji Tianma Experimental School.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
49/219
Table of Contents
46
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 in the 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 newly issued 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-owned by Mr. Feng, as the
holding company to hold equity interests in our affiliated schools in China and transferred his equity interests in our three schools 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 previously transferred 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.
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 affiliated entities 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 23, 2018, Hailiang Management, Hailiang Consulting, Mr. Feng and Beize Group entered into a series of contractual arrangements (the “Second Amended and Restated
Contractual Arrangements”), including the Second Amended and Restated Call Option Agreement, Second Amended and Restated Powers of Attorney, Second Amended and
Restated Consulting Services Agreement and Second Amended and Restated Equity Pledge Agreement.
On August 10, 2021, Hailiang Management was divided and separated into Hailiang Management and Haishan Development for the purpose of the adjustment of our business
structure. On August 10, 2021, Haishan Development, Hailiang Consulting, Mr. Feng and Beize Group entered into a series of contractual arrangements (the “August 2021 VIE
Agreements”).
We have been advised by AllBright Law Offices, our PRC legal counsel, that, as of August 31, 2021:
●
The ownership structures of Hailiang Consulting and our affiliated entities complied with all current PRC laws and regulations in effect as of August 31, 2021; however,
the current variable interest entity structure, or the VIE structure, established by the Second Amended and Restated Contractual Arrangements and the August 2021 VIE
Agreements may not be as effective in providing control as direct ownership;
●
The Second Amended and Restated Contractual Arrangements and the August 2021 VIE Agreements are valid, binding and enforceable under PRC laws and regulations,
and are not in violation 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 affiliated entities have all necessary
power to conduct its business as described in its business scope under its business license, and to enter into the contractual arrangements described in this annual report on
Form 20-F.
We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations.
Accordingly, PRC regulatory authorities may in the future take a view that is contrary to the opinion of our PRC legal counsel. We have been further advised by our PRC legal
counsel that if the PRC government finds that the contractual arrangements and agreements that establish the structure for operating our educational services business in China do
not
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
50/219
Table of Contents
47
comply with relevant PRC government restrictions on foreign investment or relevant laws and regulations in the education industry, we could be subject to severe penalties,
including being prohibited from continuing operations. For a detailed description of the risks associated with our corporate structure, see “Item 3. Key Information—D. Risk Factors
—Risks Relating to Our Corporate Structure” and “Item 3. Key Information—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 the symbol “HLG.”
In September 2015, Zhejiang Zhuji Hailiang Foreign Language School and selected programs from Zhejiang Zhuji Tianma Experimental School and Zhejiang Zhuji Hailiang
Experimental High School relocated to Hailiang Education Park. Zhejiang Zhuji Tianma Experimental School’s and Zhejiang Zhuji Hailiang Experimental High School’s remaining
programs continue to operate on their existing respective campuses. As of June 30, 2021, our affiliated schools and subsidiaries operating in Hailiang Education Park include
Zhejiang Zhuji Hailiang Primary School, Zhejiang Zhuji Hailiang Junior Middle School, Zhejiang Zhuji Hailiang Senior Middle School, Zhejiang Zhuji Hailiang Foreign Language
School, Zhuji Hailiang Foreign Language High, Hailiang After-school, Zhuji Hailiang Logistics, Hailiang Sports and Zhuji Nianxin Lake Hotel. See “Item 4. Information on the
Company—B. Business Overview—Hailiang Education Park.”
In November 2016 and February 2017, certain schools were separated from Zhejiang Zhuji Hailiang Foreign Language School and Zhuji Private High School (currently named
Zhejiang Zhuji Hailiang Experimental High School) and established as separate legal entities, with all of their equity interests held by Hailiang Management. Hailiang International
Kindergarten, Zhejiang Zhuji Hailiang Primary School, Zhejiang Zhuji Hailiang Junior Middle School and Zhejiang Zhuji Hailiang Senior Middle School became independent from
Zhejiang Zhuji Hailiang Foreign Language School, and Zhejiang Zhuji Hailiang High School of Art became independent from Zhejiang Zhuji Hailiang Experimental High School.
We remained owners of 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. (“Hailiang
Preschool”), a related party ultimately controlled by Mr. Feng, for a consideration of RMB20.0 million pursuant to a purchase agreement. An independent third-party appraisal entity
provided an appraisal opinion valuing the Hailiang Kindergarten at RMB20.0 million. The Hailiang Kindergarten was operating at a loss in recent years.
On February 28, 2018, we sold all the assets and liabilities related to the kindergarten business unit of Zhejiang Zhuji Tianma Experimental School (“Tianma Kindergarten”) to Zhuji
Hailiang Preschool Education Investment Co., Ltd., a related party ultimately controlled by Mr. Feng, for a consideration of RMB1.7 million pursuant to an asset restructuring
agreement. An independent third-party appraisal entity provided an appraisal opinion valuing the Tianma Kindergarten at RMB1.7 million.
As a result, Hailiang Kindergarten and Tianma Kindergarten are no longer part of our operations.
We initially acquired right to operate Chuzhou Hailiang Foreign Language School on July 19, 2017. Pursuant to an amendment to the operator agreement in June, 2018, we
transferred our operating right to Chuzhou Zhengxu Education Information Consulting Co., Ltd., a subsidiary controlled by Hailiang Group, for a consideration of RMB1.8 million
(the “Chuzhou School Transfer Transaction”) based upon the appraised value determined by an independent third-party evaluator. The Chuzhou School Transfer Transaction was
conducted based on our business assessment in response to current market conditions.
On August 28, 2018, Hailiang Management incorporated Zhuji Hailiang Foreign Language High as the first for-profit school of our Group. As of June 30, 2021, 2,049 students are
enrolled in Zhuji Hailiang Foreign Language High.
On September 28, 2018, we entered into an Investment Cooperation Agreement to acquire a 51% controlling interest in Zhenjiang Jianghe High School of Art from three founders of
the school. The transaction was completed on October 31, 2018. As of June 30, 2021, Zhenjiang Jianghe High School of Art’s student body consists of 764 students. It offers various
art education programs including but not limited to painting, music and media, with a variety of specialized modules and seminars.
On July 16, 2019, we signed a cooperation agreement with the People’s Government of Chengguan District, Lanzhou City, Gansu Province, pursuant to which, it’s free for us to
lease part of the existing land, facilities, equipment and other assets that were previously used by a public school to sponsor a new school, which provides primary and middle school
courses of basic education program. As of June 30, 2021, 719 students are enrolled in Lanzhou Hailiang Experimental School.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
51/219
Table of Contents
48
On December 28, 2019, Hailiang Group signed a cooperative school operating agreement with the Wuhu Municipal People’s Government of Anhui Province to establish and operate
a new affiliated school named Wuhu Hailiang Experimental School, which provides middle and high school courses of basic education program. As of June 30, 2021, 421 students
are enrolled in Wuhu Hailiang Experimental School.
On April 15, 2020, Hailiang management signed a cooperative school operating agreement with Zhejiang Juxian Education Technology Co., Ltd. to establish and operate a new
school named Hailiang Overseas Chinese School. Juxian Technology will lease the land, facilities, equipment and other assets for free to sponsor the affiliated school by August 31,
2026. Hailiang Overseas Chinese School provides primary and middle school programs. As of June 30, 2021, 924 students are enrolled in Hailiang Overseas Chinese School.
Additionally, the school plans to build a new site in the next few years, which will increase the school’s capacity.
On April 29, 2020, we established a wholly owned subsidiary, Hailiang International Education Group Pte. Ltd. (“HIEG”), our international education headquarter located in
Singapore, to promote our K-12 educational services and ancillary educational services to create a cooperative operations system between our domestic and international
headquarters, and to provide high quality and diversified service offerings to improve the Company’s strategic global education portfolio.
On July 15, 2020, we entered into a sponsorship transfer agreement with Hailiang Investment to acquire 100% sponsorship of Jinhua Hailiang Foreign Language School, with a total
consideration of RMB34.0 million (approximately US$5.3 million). The school is located in Jinhua City, Zhejiang Province. As of June 30, 2021, the school has an aggregate of 727
enrolled students. On September 16, 2020, we obtained the relevant administrative approval and completed all the required process to obtain the sponsorship of the school. The
transaction was accounted for as a business combination between entities under common control.
On January 25, 2021, we obtained the relevant administrative approval and completed the required process to obtain the sponsorship of Xianghu Future School, which provides
primary and middle school programs. Prior to that, Hailiang Group entered into a cooperation agreement for a term of 20 years with the Education Bureau of Xiaoshan District, City
of Hangzhou, National Tourism Resort Management Committee of Xianghu, Zhejiang Province, Wenyan Sub-district Office of People’s Government of Xiaoshan District, City of
Hangzhou, and Xianghu Travel Holding Company. Pursuant to the agreement, Xianghu Travel Holding Company is responsible for the construction of the school and owns the
assets, and we defray an asset usage fee every year. We started operating Xianghu Future School in September 2021.
On April 26, 2021, we acquired from our affiliate, Hailiang Investment, 100% equity interests in Feicheng Education Investment, for a total consideration of RMB 22.9 million
(approximately USD$ 3.5 million). Feicheng Education Investment has been the sole sponsor of Feicheng Hailiang Foreign Language School since 2018. On April 26, 2021, we
obtained the relevant administrative approval and completed the required process to obtain the sponsorship of the school. The transaction was accounted for as a business
combination between entities under common control.
On June 19, 2021, we entered into a strategic cooperation framework agreement with Ruijie Networks Co., Ltd. (“Ruijie Networks”) to accelerate the development of our smart
campus operation system.
On July 1, 2021, we entered into a strategic cooperation agreement with Hangzhou Hikvision Digital Technology Co., Ltd (“Hikvision”), to further develop our smart campus
system.
On August 26, 2021, we obtained the relevant administrative approval and completed all the required process to obtain the sponsorship of Ninghai Hailiang Senior Middle School
which provides high school programs, and Ninghai Future School, which provides primary and middle school programs.
On October 9, 2021, we entered into an agreement with Hailiang Investment, a related party ultimately controlled by Mr. Feng, to sell 100% equity interest of Hailiang Mingyou
Future (Zhejiang) Education Technology Co., Ltd. (formerly known as “Zhuji Yuesheng Enterprise Management Consulting Co., Ltd.”), the parent of 9 companies that operates the
academic subjects tutoring business (together the “academic subjects tutoring business”), for a consideration of RMB6.5 million (approximately US$1.0 million). An independent
third-party appraisal entity provided an appraisal opinion valuing the academic subjects tutoring business at RMB6.5 million. The revenue derived from Mingyou Future for each of
the fiscal years ended June 30, 2019, 2020 and 2021 was less than 1%. The spin-off of Mingyou Future was due to the promulgation of “The Opinion on Further Easing the
Workload and Burden of After-school Tutoring for Students in Compulsory Education” in July 2021. For further details, refer to “Item 4. Information on the Company–B. Business–
Regulations on Private Education–2016 Private Education Law and The 2021 Implementation Rules for Private Education Laws.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
52/219
Table of Contents
49
Our principal executive offices are located at No. 1508 Binsheng Road, Binjiang District, Hangzhou City, Zhejiang Province, 310051, People’s Republic of China. 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 is located at the offices of Conyers Trust
Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands. Investors should submit any inquiries to the address and
telephone number of our principal executive offices. Our Investor Relations website is http://ir.hailiangedu.com. The information contained on our website is not a part of this
annual report on Form 20-F. Our agent for service of process 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 Capital Resources—Capital
Expenditures.”
B.
Business Overview
Overview
We are an education and management services provider in the PRC, offering K-12 student management services and high school curriculum education services, operation and
management service, and ancillary educational services. See “Item 4. Information on the Company—B. Business Overview—Ancillary Educational Services.”
Pursuant to the 2021 Implementation Rules for Private Education Laws, (1) foreign-invested enterprises established in China and social organizations whose actual controllers are
foreign parties shall not sponsor, participate in or actually control private schools that provide compulsory education, (2) social organizations or individuals shall not control any
private school that provides compulsory education or any non-profit private school that provides pre-school education by means of merger, acquisition, contractual arrangements,
etc., and (3) private schools providing compulsory education shall not conduct any transaction with any related party. We concluded that according to IFRS 10-Consolidated
Financial Statements, we lost control of the affiliated entities providing compulsory education services on September 1, 2021, in view of the significant uncertainties and restrictions
the 2021 Implementation Rules for Private Education Laws impose on our ability to direct the range of ongoing activities that would most significantly impact the returns of those
entities and to be exposed to returns that are commensurate with a controlling interest, and that such uncertainties and restrictions already had a significant impact on our ability to
direct and its economic exposure from involvement with such entities. Further, we have considered the ancillary nature of the activities and the insignificance of the costs related to
the K9 compulsory education business while the related schools were closed between June 30, 2021 and date of loss of control of September 1, 2021. We have determined that, in
substance, we have ceased all revenue-generating activities related to that business and have discontinued that business by June 30, 2021. As the compulsory education business
represents an operating segment, we have also classified the historical financial results of compulsory education business as discontinued operations in the Company’s Consolidated
Statements of Profit or Loss and Other Comprehensive Income for all periods presented.
K-12 student management services and high school curriculum education services include accommodation and after-school enrichment services to K-12 school students and high
school curriculum education services, which are offered through our affiliated high schools and wholly owned service companies, such as Zhuji Hailiang Logistics, Ningbo Haoliang
and Hailiang After-school. During the fiscal year ended June 30, 2021, we provided K-12 student management services to 27,972 students which were enrolled in our affiliated high
schools and K-9 schools, and we provided high school curriculum education services to 10,402 student which were enrolled in our affiliated high schools. As of June 30, 2021, for
our continuing operations, we employ an aggregate of 948 teachers and educational staff; for our discontinued operations, we employ an aggregate of 1,643 teachers and educational
staff. We are dedicated to hiring teachers and educational staff who hold the required academic credentials, are dedicated and active professionals in their field, and are committed to
improving their students’ academic performance.
Our Cayman Islands holding company does not have any substantive operations other than indirectly holding Hailiang Consulting, which have entered into contractual arrangements
with Hailiang Management and Haishan Development, to control and hold our schools.
We used to offer our basic educational program at the primary and middle school levels, which covers grades one to nine, the compulsory education. The basic educational program
offers curricula with courses both mandated by the PRC regulatory authorities and developed through internal research.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
53/219
Table of Contents
50
For continuing operations, we offer our basic educational program at the high school levels, which covers grades ten to twelve, and an international program at high school level,
which covers grades ten to twelve. Our international program offers curricula mandated by the PRC regulatory authorities with a focus on preparing students to study abroad. As
most of the students in our international program plan to study abroad after they graduate from high school, we have designed our international program to specifically address the
linguistic and academic needs of these students. In addition, we provide courses designed to help students become eligible to U.S., U.K. and Australian undergraduate programs in
high school, including as A-levels courses for U.K. universities, AP courses for U.S. universities, or Victorian Certificate of Education (“VCE”) courses for Australian universities,
International Baccalaureate (“IB”) courses for many countries in the world, and language courses such as Japanese, Korean, Spanish.
With respect to our international program, we have continued to develop new courses with our partners or collaborators to strengthen the competitiveness of the programs offered by
our affiliated schools. These programs are intended to provide an efficient international education pathway to students who wish to study abroad for their undergraduate degrees. On
February 25, 2017, Zhejiang Zhuji Hailiang Foreign Language School, Hailiang Education and Thomas Carr College in Australia entered into a collaboration agreement (“TCC
Agreement”) to deliver the VCE program, as authorized by the Victorian Curriculum and Assessment Authority (“VCAA”), in addition to Chinese high school curriculums for
students aiming at studying in Australian higher education institutions. On September 8, 2017, Zhejiang Zhuji 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 language certificates issued by ELS in the
United States without completing IELTS/TOEFL examinations.
On September 23, 2017, we entered into a cooperation agreement, as further supplemented on September 18, 2018, with Pate’s Grammar School, a premier co-ed state schools in the
UK, to develop new curriculum based on the same principles of educational philosophy that Pate’s Grammar School and we shared. Accordingly, in September 2018, we
commenced a new class in Zhejiang Zhuji Hailiang Foreign Language School based on Pate’s curriculum to provide our Zhuji students with a full British education. In June 2018,
Zhejiang Zhuji Hailiang Foreign Language School became a candidate school for the International Baccalaureate Primary Years Programme, or IB PYP, an educational program for
students aged three to twelve managed by the International Baccalaureate Organization, or IBO, an international educational foundation headquartered in Geneva, Switzerland. In
December 2020, the IBO has conducted a IB PYP consultation visit to Zhejiang Zhuji Hailiang Foreign Language School; it is temporarily expected that in December 2021,
Zhejiang Zhuji Hailiang Foreign Language School will enter the IB PYP verification visit phase. In July 2021, Zhejiang Zhuji Hailiang Foreign Language School became a
candidate school for the International Baccalaureate Middle Years Programme, or IB MYP, an educational program for students aged eleven to sixteen managed by the IBO. In
May 2019, Zhejiang Zhuji Hailiang Foreign Language School became a candidate school for the International Baccalaureate Diploma Programme, or IB DP, a two-year educational
program for students aged between sixteen to nineteen and managed by the IBO. In May 2021, Zhejiang Zhuji Hailiang Foreign Language School (school code: 061001)
successfully passed the program standards and implementation requirements of the IBO, obtained the IB DP authorization, and officially became a member of the global IB School.
In June 2019, Zhejiang Zhuji Hailiang Foreign Language School entered into an Education Cooperation Agreement with Canada Kent School located in Ontario, Canada to jointly
offer Canadian high school courses. Accordingly, a “2+1” model is applied, in which students will be studying at Hailiang Education campus for 2 years and at Canada Kent School
for 1 year. The high school diploma issued by Canada Kent School will also be granted to the students participating in this course. In June 2019, Zhejiang Zhuji Hailiang Foreign
Language School also entered into an Education Cooperation Agreement with Australia Deakin University to open preparatory programs in our school. In March 2020, Zhejiang
Zhuji Hailiang Foreign Language School was authorized by the American College Board to be an American Advanced Placement Program (“AP”) accredited school (CEEB code
694166), and included in the list of high schools offering AP courses. In September 2020, Zhejiang Zhuji Hailiang Foreign Language School began to offer AP courses. For students
who are interested in applying to reputable universities, AP courses are expected to enhance their application competitiveness. In June 2021, Zhejiang Zhuji Hailiang Foreign
Language School introduced the Extended Project Qualification, or EPQ, research learning certification program recommended by the British Ministry of Education and the
Universities and Colleges Admissions Service (“UCAS”). EPQ as an extensible program outside the A-Level’s standardization program, provides students the opportunity to
achieve breakthroughs in academic performance in a short period of time.
We provide operation and management services to schools that we do not own or sponsor (“managed schools”), including but not limited to branding, academic management, basic
and international education resources, school culture, admission, finance, human resources, procurement, IT, internal audit, property and logistics management services. We may
provide additional services in the future, as needed, to our managed schools. As of June 30, 2021, we provided operation and management services to 27 managed schools. Due to
the promulgation of 2021 Implementation Rules for Private Education Laws, commencing with fiscal year 2022, we have ceased providing operation and management services to
our managed schools sponsored by related parties, i.e., Xiantao No.1 Middle School and Nanrui
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
54/219
Table of Contents
51
Experimental School in order to comply with relevant laws and regulations. For more detailed information on our managed schools, see “Item 4. Information on the Company – B.
Business Overview –Services Provided to Our Managed Schools”.
For continuing operations, our total revenue slightly increased by 0.4% to RMB1,027.4 million in the 2020 fiscal year. Since early 2020, the COVID-19 pandemic has impacted our
business. Revenue from study trips decreased due to restrictions on travel domestically and internationally. Revenue from accommodation and transportation services decreased due
to the suspension of physical classes from February to April 2020 during a nationwide lockdown in China. Our total revenue increased by 33.9% to RMB 1,375.8 million
(approximately US$213.1 million) in the 2021 fiscal year, primarily due to the growth in revenue from K-12 student management services and high school curriculum education
services and ancillary educational services. The increase of revenue from K-12 student management services and high school curriculum education services was driven by an
increase in the average tuition or fee charged per student and the number of students.
For continuing operations, our gross profit increased by 9.3% to RMB447.1 million in the 2020 fiscal year, and increased by 44.8% to RMB647.2 million (approximately US$100.2
million) in the 2021 fiscal year.
For continuing operations, our net profit attributable to our shareholders increased by 31.0% to RMB350.0 million in the 2020 fiscal year, and increased by 38.0% to RMB483.0
million (approximately US$74.8 million) in the 2021 fiscal year.
We are a holding company incorporated in the Cayman Islands. As a holding company with no material operations of our own, we conduct a substantial majority of our operations
through our subsidiaries established in China, our VIE, and its subsidiaries in China. We control and receive the economic benefits of our VIE and its subsidiaries’ business
operations through certain contractual arrangements. Our ADSs listed on Nasdaq Global Market represent shares of our offshore holding company instead of shares of our VIE or its
subsidiaries in China.
Asset-Light Model
Prior to fiscal year ended June 30, 2018, we provided educational services in the PRC through the traditional model of owning and having legal sponsorship in each of the schools
we launched or acquired. Beginning in 2017 and predominantly in the fiscal year ended June 30, 2018, we made a strategic shift to develop our asset-light expansion strategy, where
we operate and manage K-12 schools pursuant to consulting and management agreements, or act as these schools’ sponsor without acquiring ownership of land and facilities in such
schools.
With this asset-light approach, we are able to sponsor additional schools without having to own or acquire the land and facilities of such schools. By leasing land and facilities to
sponsor additional schools, we can avoid significant capital expenditure. While considering the adoption of IFRS 16 commencing July 1, 2019, we are required to recognize a right-
of-use asset representing the right to use the leased campuses and a lease liability representing the obligation to make lease payments. See “Item 4. Information on the Company—D.
Property, Plants and Equipment” for more information.
By entering into consulting and management agreements with affiliated schools, we provide operation and management services to these schools in exchange for services fees.
Services we provide include, but are not limited to branding, academic management, basic and international education resources, school culture, admission, finance, human
resources, procurement, IT, internal audit, property and logistics management services. To expedite the asset-light model, we entered into a cooperation agreement, the 2017 Group
Strategic Cooperation Agreement, with our related parties, Hailiang Group and Hailiang Investment. Both Hailiang Group and Hailiang Investment plan to establish additional
schools through construction, merger and acquisition, and cooperation with third-parties. Pursuant to the 2017 Group Strategic Cooperation Agreement, all of these schools are
expected to be operated through entrusted management and we have a priority right to operate and manage such schools. In addition, we also cooperate with governments and third
parties to provide operation and management services to both public and private schools. As of June 30, 2021, we operated and managed 27 schools located in the Jiangxi, Hubei,
Jiangsu and Zhejiang provinces, with a total of 43,897 enrolled students.Due to the promulgation of 2021 Implementation Rules for Private Education Laws, commencing with fiscal
year 2022, we have ceased providing operation and management services to our managed schools sponsored by related parties, i.e., Xiantao No.1 Middle School and Nanrui
Experimental School in order to comply with relevant laws and regulations. We may provide additional services in the future, as may be needed, to our managed schools.
We have established several subsidiaries in the PRC to facilitate our strategic asset-light approach in acquiring rights to operate and manage new schools, and providing operation
and management services. On June 20, 2017, Ningbo Haoliang was incorporated as
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
55/219
Table of Contents
52
Hailiang Consulting’s wholly-owned subsidiary to provide consulting and management services. On September 26, 2018, Zhuji Hailiang Logistics and Zhuji Hailiang Supply were
incorporated as Ningbo Hailiang’s wholly-owned subsidiaries to provide logistic services and procurement services respectively.
Our Schools and Programs
We have experienced significant growth since 1995. Since the commencement of operation of our first Hailiang school in 1995, an aggregate number of more than 45,000 students
have graduated from our high school programs offered at our affiliated schools. As of June 30, 2021, for our continuing operations, we had an aggregate number of 10,402 students
in the high schools, and our schools employed an aggregate number of 948 teachers and educational staff as of June 30, 2021.
According to school policy, substantially all of our students live in our boarding facilities. We provide student dormitory and cafeteria services to K-12 students. Each student
dormitory building houses 144 to 1,636 students. Students who want to commute, rather than board at our affiliated schools, are reviewed and admitted on a case-by-case basis. We
charge students basic accommodation fees, and accommodation standard upgrade fees generally range from RMB2,400 to RMB12,000 per school year, for students who wish to
upgrade their dormitory accommodation. During the time our students are boarding, each accommodation building is equipped with a certain number of life coaches who are
responsible for taking care of student living, and cafeterias offer students breakfast, lunch and dinner. Apart from cafeteria staff, we also engaged dietitians to guarantee a balanced
and nutritious diets to our students. At each of our cafeterias we also adopt rigorous management and quality control beginning from standardized menus preparation, raw materials
procurement to dishes cooking and offering, and are striving to build a one-stop and high-quality catering service system. Our boarding facilities provide an attractive option to
parents who want their children to experience living outside the home before attending college in China or overseas.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
56/219
Table of Contents
53
The following table sets forth the basic information of our affiliated schools and K-9 schools currently in operation as of June 30, 2021:
Number of
Teachers
Number
Number
and
Year
Educational
of
of
Educational
School (Continuing Operations) ****
Opened/Acquired
Programs
Students
Classes
Staff
Zhejiang Zhuji Hailiang Experimental High School
2001
High School
4,366
95
298
Sub-total
4,366
95
298
Zhejiang Zhuji Hailiang Senior Middle School **
2016
High School
1,571
35
161
Sub-total
1,571
35
161
Zhejiang Zhuji Hailiang High School of Art **
2017
High School
1,652
40
156
Sub-total
1,652
40
156
Zhuji Hailiang Foreign Language High
2018
High School
2,049
82
260
Sub-total
2,049
82
260
Zhenjiang Jianghe High School of Art
2018
High School
764
24
73
Sub-total
764
24
73
Ninghai Hailiang Senior Middle School***
2021
High School
—
—
—
Sub-total
—
—
—
Total (Continuing operations)
10,402
276
948
School (Discontinued Operations) ****
Zhejiang Zhuji Hailiang Foreign Language School
1995
Primary School
1,468
70
215
Middle School
1,550
65
197
High School
300
19
59
Sub-total
3,318
154
471
Zhejiang Zhuji Hailiang Primary School **
2016
Primary School
2,845
84
226
Sub-total
2,845
84
226
Zhejiang Zhuji Hailiang Junior Middle School **
2016
Middle School
3,314
74
210
Sub-total
3,314
74
210
Zhejiang Zhuji Tianma Experimental School
2009*
Primary School
1,777
50
167
Middle School
2,806
62
185
Sub-total
4,583
112
352
Lanzhou Hailiang Experimental School
2020
Primary School
377
13
39
Middle School
342
9
47
Sub-total
719
22
86
Hailiang Overseas Chinese School
2020
Primary School
704
23
52
Middle School
220
7
23
Sub-total
924
30
75
—
—
—
Wuhu Hailiang Experimental School
2020
Middle School
161
4
15
High School
260
7
34
Sub-total
421
11
49
Jinhua Hailiang Foreign Language School
2020
Primary School
140
7
16
Middle School
587
20
66
Sub-total
727
27
82
Feicheng Hailiang Foreign Language School
2021
Primary School
389
18
32
Middle School
177
6
24
High School
153
6
22
Sub-total
719
30
78
Xianghu Future School***
2021
Primary School
—
—
8
Middle School
—
—
6
Sub-total
—
—
14
Ninghai Future School***
2021
Primary School
—
—
—
Middle School
—
—
—
Sub-total
—
—
—
Total (Discontinued operations)
17,570
544
1,643
Total
27,972
820
2,591
(*) Zhejiang Zhuji Tianma Experimental School commenced its operations in 1995, and we acquired Tianma in 2009.
(**) Zhejiang Zhuji Hailiang Primary School, Zhejiang Zhuji Hailiang Junior Middle School and Zhejiang Zhuji Hailiang Senior Middle School became independent from Zhejiang
Zhuji Hailiang Foreign Language School. Zhejiang Zhuji Hailiang High School of Art became independent from Zhejiang Zhuji Hailiang Experimental High School.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
57/219
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
58/219
Table of Contents
54
(***)Xianghu Future School, Ninghai Hailiang Senior Middle School, and Ninghai Future School started operating in September 2021, and the students of these three schools were
enrolled in September 2021.
(****)These affiliated entities have been reclassified as continuing operations and discontinued operations in this form.
The following table sets forth the numbers of students, classes and teachers and educational staff of our affiliated schools and K-9 schools as of June 30, 2019, 2020 and 2021.
Number of
Teachers and
Number of Students*
Number of Classes
Educational Staff
June 30,
June 30,
June 30,
June 30,
June 30,
June 30,
June 30,
June 30,
June 30,
2019
2020
2021
2019
2020
2021
2019
2020
2021
Primary School
6,068
6,582
7,700
205
208
265
575
615
755
Middle School
7,405
8,032
9,157
190
194
247
557
578
773
High School
9,790
10,112
11,115
271
275
308
930
960
1,063
Total
23,263
24,726
27,972
666
677
820
2,062
2,153
2,591
(*) We entered into a sponsorship transfer agreement with Hailiang Investment to acquire 100% sponsorship of Jinhua Hailiang Foreign Language School on July 15, 2020, and we
acquired Feicheng Hailiang Foreign Language School from Hailiang Investment, 100% equity interests in Feicheng Education Investment on April 26, 2021. Since the
Company, Jinhua Hailiang Foreign Language School, and Feicheng Hailiang Foreign Language School were under common control of Mr. Hailiang Feng, both before and after
the acquisition and the control was not temporary, the transaction was accounted for as a business combination between entities under common control. Therefore, the numbers
of students of fiscal year 2019 and fiscal year 2020 were also restated.
Our affiliated schools are managed by the senior management and principals of each school. They meet on a regular basis to discuss major policy decisions, personnel changes,
student recruitment, and operation adjustments; other meetings may be held from time to time to discuss safety, human resource, IT, and student management. We believe effective
and timely exchange of knowledge and expertise among them ensures consistent quality in our educational services and efficient management of schools.
Additionally, as of June 30, 2021, we have provided operation and management services to 27 managed schools in the PRC that we did not own or sponsor, either directly or through
our affiliated entities in the PRC. Due to the promulgation of 2021 Implementation Rules for Private Education Laws, commencing with fiscal year 2022, we have ceased providing
operation and management services to our managed schools sponsored by related parties, i.e., Xiantao No.1 Middle School and Nanrui Experimental School in order to comply with
relevant laws and regulations. For more detailed information on our managed schools, see “Item 4. Information on the Company – B. Business Overview –Services Provided to Our
Managed Schools.”
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
59/219
Table of Contents
55
Curriculum Education
Students enrolled in our affiliated schools can choose between enrolling in our basic educational program and international program. The key differences between 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 school faculty
Curricula with a focus on preparing students to study abroad, such as
mandatory language courses and subjects addressed in A-levels courses, VCE
courses, AP courses and IB courses
Examinations taken
Gaokao (China s standardized college entrance
examination)
In addition to Gaokao which is optional, examinations for purposes of
entering into overseas universities and colleges, such as A-levels, VCE and
related language tests
The tuition fee depends among a number of factors, including the schools and educational programs that the students are enrolled in, the level of the accommodation chosen by the
students, and the students’ grade level.
As for managed schools, since we provide operation and management services to these schools, such as educational, managerial, logistics, supporting and operational services, and
the curriculum education offered at these schools are not part of our products and hence, not ultimately determined by us, we have not included programs offered at our managed
schools hereunder.
Basic educational program
The basic educational program offered by our affiliated high schools are composed of compulsory courses required by the PRC regulatory authorities and a variety of elective
courses to develop student interests, strength and comprehensive ability.
High school students in our basic educational program generally prepare for and take Gaokao, a standardized annual admission test administered by local authorities at a provincial
level and the result is critical in determining student admission into undergraduate programs in universities in China.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
60/219
Table of Contents
56
As of June 30, 2021, for continuing operations, our affiliated schools offered approximately 392 courses. These courses include 14 compulsory courses, and a total of 377 elective
courses in our affiliated schools. The compulsory courses are guided by detailed and demanding government standards that specify what students should know and be able to do at
the end of each school year. As for the course materials for our basic educational program, we primarily use materials designated by the governmental authorities while
complementing materials designed by our teachers based on their research and experience. Our elective courses are designed to develop the students’ interests, strength and
comprehensive ability. Students can choose courses freely, such as career planning, baking, photography. We also offer characterized sports training services, including swimming,
NBA Academy, fencing and shooting to enhance students’ physical health, and after-school courses based on our students’ interest and demand, such as workshops for science
competitions in middle school, promotion classes for building a solid foundation in high school, etc. Among these elective courses, we have some school-based courses, which are
based on the compulsory curriculum, and actively expands the courses that combine Hailiang Education’s characteristics, such as the Olympiad Competition courses, inventor
courses, Chinese traditional culture courses.
In addition, we offer an art educational program under our basic educational education. The curricula for the art educational program are composed of compulsory courses required
by the PRC regulatory authorities and a variety of art courses. Students enrolled in the art educational program generally prepare for and take Gaokao, Art Joint Examination and/or
Art school-level examination. Apart from being able to apply for art universities, students in the art education program can also apply for a comprehensive university majoring in art.
Our art educational program consists of art, music and media courses, with a variety of featured modules. For instance, art courses consist of sketch, watercolor painting, and other
elective courses, such as art appreciation, calligraphy, and sculpture; music courses consist of singing, listening, vocal music, instrumental music, and other elective courses, such as
music theory and music appreciation. Media courses consist of physique, performance, and other elective courses, such as broadcasting and hosting. In addition, we offer a selection
of specialized public courses to the entire student body to fully satisfy the diversified talent development, such as social morality, art literacy, and elegant life courses. The art
education program offers students a turnkey development platform in art, music, media, dance, performance, and drama, which integrates art and culture education.
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 our international program
which is geared towards students who wish to study abroad. As most of the students in our international program plan to study abroad after they graduate from our high school
programs, we have designed our international program to specifically address the needs of these students in terms of both language and academics. In our high schools, we offer A-
level courses, VCE courses, AP courses and Canadian high school courses. In addition, we obtained IB DP authorization in May 2021, and became a member of global IB school.
PRC students in our international program could also take courses required by the PRC regulatory authority and earn a PRC school diploma. Students can acquire the PRC
graduation certificate after passing a graduation test upon completion of basic modules, and at the same time learn foreign languages to be better prepared for education abroad. For
example, we provide IELTS, TOEFL training courses, and other foreign language courses, including Korean, Japanese, and Spanish. Students who want to study in Japan, Korea,
and Spain can take other foreign language tests instead of English in Gaokao and acquire an international certificate.
In addition to preparing Chinese students for studying abroad, we also offer the HSK (Hanyu Shuiping Kaoshi) program for our foreign students to learn Chinese 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 admission to PRC universities. Our HSK program offers a variety of academic and
non-academic subjects featuring Chinese culture, such as Chinese History, Chinese Geography, Martial Arts and Chinese Painting and Calligraphy, with varied optional modules
including guitar, piano, dance, handwork, ceramics, badminton, football and basketball. In addition, we provide students with activities to practice the Chinese language and short
trips each academic year. We have accumulated more than ten years of teaching experience in our HSK program. All of our Chinese teachers have acquired the International Chinese
Teacher Qualification Certificate issued by Education Commission of the PRC. In November 2019, Zhuji Hailiang Foreign Language High became an HSK test center certified by
Hanban (“
”) of China, also known as the Office of Chinese Language Council International, originally called the China National Office for Teaching Chinese as a Foreign
Language, established in 1987.
In January 2020, Zhuji Hailiang Foreign Language High started operating the International Student College, which was formally established and developed from the original HSK
program into a separate college for international students. In the 2020 school year, in order to teach our students in accordance with their aptitude, the International Students College
continued to further accurately plan the
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
61/219
Table of Contents
57
curriculum system according to age, learning ability, and cognitive ability of the students. For international students interested in applying for Chinese domestic universities, the high
school program offered at the International Student College offers them an academic track, preparing them for examinations, such as the HSK level test, necessary for applying for
China’s top universities. For students interested in applying for international universities, the high school program offers IGCSE and A-Level courses designed to increase students’
competitiveness in applicant pools and prepare them to enter top universities in the world. In the fall semester of 2020, foreign students could not come to China due to the COVID-
19 pandemic. The International Students College took several measures to reduce the adverse impact caused by the COVID-19 pandemic, including, re-arranging its orientation and
enrollment direction in time to recruit overseas Chinese students from Italy, Spain, France and other countries, so as to expand a new market for overseas Chinese students. Profiting
from this measure, the number of students in the International Students College has achieved a new breakthrough. As of June 30, 2021, the number of students enrolled in the
International Students Institute has reached 107.
Our students
Student recruitment and admission
It has been 26 years since our initial school was established. We are confident that with the improvement of our education quality, education brand and teaching ability, there may be
more students attracted by our affiliated schools in the future. Our target students are from families with medium to high levels of household income as well as students who want to
study abroad after graduating from our schools.
Due to the improvement of the academic results of our affiliated schools, our recognized brand and social influence, we no longer send out our recruiters to most regions. Our
schools and programs are publicized through social media, teachers and educational staff’s promotion and parents’ recommendations. We encourage our teachers and educational
staff to actively participate in the recruitment process and offer incentive-based payments to employees who make a significant contribution to student recruitment.
As of June 30, 2021, for our continuing operations, we had 6,023 students from Zhejiang province and 4,379 students from other regions in China. We also have 32 foreign students
from 9 foreign countries.
We require applicants to our high schools to meet certain minimum scores on the Zhongkao to ensure they have the necessary academic ability to succeed. In addition to academic
requirements, the admission and 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 to contribute to a positive classroom dynamic. In addition, we launched a ‘Creative Talent’ project in December 2017 to recruit exceptional middle and high school students
in China. In July 2018, we also launched “The Belt and Road International Talents Program” to increase our efforts to recruit outstanding talents from disadvantage communities
from countries along the Belt and Road to study in China. In August 2020, we established the “Hailiang Top-notch Talent Training Academy,” featuring the cultivation of five
discipline competitions and adhering to the training concept of “discovering talents and diversified cultivation,” and providing comprehensive training programs for talented students
with expertise across the country, to help participating students seeking admission to prestigious universities.
Academic performance and educational results
We routinely monitor students’ progress in our affiliated schools according to academic standards. We set our standards and instructional programs based on international, national
and local standards published by the regulatory authorities. We believe our students are well prepared for international tests, such as A-level and VCE, and national and provincial
tests, such as Gaokao and Zhongkao. We require our teachers to regularly evaluate their students and set specific goals for them. Our students take all standardized tests required by
international, provincial and local authorities, and we also administrate/manage our own annual tests calibrated to our academic standards. Our students have achieved outstanding
academic performance, as measured by these external assessments. For example, over 97.0% of our students from our affiliated schools in the 2022 graduate classes passed the Joint
Graduation Exam, an annual provincial test administered to each graduating class.
For the 2020/2021 Gaokao, 2,458 students from our affiliated schools surpassed admission cut-off of universities and colleges, and 212 students were admitted into dual first-class
universities, among which, eight students were admitted to Peking University and Tsinghua University, and 17 students were admitted to top-tier domestic universities such as
Shanghai Jiao Tong University through the 2021 “strengthening basic disciplines plan” and “the trinity system”, and four students of grade two in high school were admitted into the
“Innovation Experimental Class” of the Junior Class of the University of Science and Technology of China with strict selection and excellent college entrance examination results in
the Gaokao. Furthermore, our students from Zhejiang Zhuji Hailiang High School of
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
62/219
Table of Contents
58
Art also made outstanding achievements in university entrance examinations for art students. For example, two students received the admission of the China Academy of Art, one
received the admission of the Central Academy of Drama, and others also received admissions from Xiamen University, Chongqing University and other first-class universities.
In the 2021 graduating classes of our international program from our affiliated schools, 323 students applied for overseas universities, among which 261 students have received
offers, 40% of these students received offers from global top 100 universities, such as University College London and University of Edinburgh. For Hailiang Foreign Languages
School, 87% of the graduates received offers from global top 100 universities, 60% of these students were admitted to global top 30 universities, and 7% were admitted to global top
10 universities. It is worth mentioning that 100% of students in the 2021 graduating class of our A-level courses in Hailiang Foreign Languages School have been admitted to global
top 100 universities. These universities include University College London, The University of Edinburgh, The University of Melbourne, or The University of Manchester, among
others. In addition, students in our HSK program achieved outstanding academic performance. They received admission notices from top domestic universities, such as Peking
University, Fudan University, Shanghai Jiao Tong University, Renmin University of China, Zhejiang University, Nanjing University, and Tongji University. This is the second time
our students were admitted to Peking University and Renmin University of China since this program was founded. Our middle schools, which provides compulsory education from
grade 7 to 9, have always been one of the popular choices for local parents.
Students from our affiliated schools have also achieved excellent results in various academic competitions at the international, national and provincial levels, including competitions
in mathematics, geography, physics, chemistry, biology and computer science. In the 2020/2021 school year, our students won more than 200 provincial, national, and international
level academic competition awards. For example, our students won one gold medal in 2021 international Asian and Pacific Informatics Olympic Competition (international level),
four gold medals and one bronze medal in the 2020 Chinese Mathematical Olympiad (national level), one gold medal, two bronze medals, and two silver medals in the Second
National Middle School Students Geoscience Competition of “Hailiang Cup” (national level), one silver medal in the 2020 37th National Middle School Physics Competition Finals
(national level), and four silver medals and one bronze medal in the 2021 38th National Youth Informatics Olympiad (national level). We value our students’ mental and physical
health, demonstrated by multiple physicals activate offered by us and our principle of encouraging students to participate in athletic contests. In the 2020/2021 school year, our
students won the championship of the 2020 National U15 Basketball Championship Finals (national level), and won 1 first place and 4 second places in different swimming
categories in the 2021 Chinese Middle School Students Swimming Challenge (Jinjiang Station) (national level). Our students also won the National Second Prize of the 2020
“Luohe Cup” National Youth U-series 7-a-side Rugby Championship (national level).
Student retention
Pursuant to the relevant laws and policies, eligible students can apply for admission to enroll in our affiliated schools. With the improving recognition of our educational quality and
brand reputation, we may continue to attract more students with outstanding academic achievements or excellent comprehensive quality to enroll in our affiliated schools.
From time to time, students may experience declining academic performance. Our teachers provide advice and assistance to students on academic and personal matters, and provide
additional practice materials and guidance to students with academic difficulties and to maximize student retention. Our average net annual student retention rate for all students,
which measures the percentage of students enrolled at the beginning of the year who move on to the next grade level, was approximately 92.1% for the 2018/2019 school year,
91.7% for the 2019/2020 school year, and 94.4% for the 2020/2021 school year.
Our teachers
Our affiliated schools seek to hire teachers and educational staff that hold the required academic credentials, are dedicated and active professionals in their field, and are committed
to improving their students’ academic performance. As of June 30, 2021, for our continuing operations, the number of our teachers and educational staff in our affiliated schools
reached 948, and approximately 16.1% of our teachers and educational staff hold a master’s degrees or above.
We have built a team of experienced teachers with an average of over five years of educational experience for our affiliated schools. We also require teachers in our affiliated schools
to possess the qualifications required by PRC regulatory authorities. As of June 30, 2021, for our continuing operations, 6 of our teachers and educational staff were recognized as
“Exceptional Teachers” (
), a national award given by the MOE to teachers who have made significant contributions to their schools and profession. In addition, we have 15
golden Olympiad competition training coaches, and 144 teachers with masters or doctoral degrees. And for our continuing operations,
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
63/219
Table of Contents
59
we had 15 full-time foreign teachers, approximately 26.7% of whom hold master’s degrees or above, and they come from 7countries, contributing to an international environment
that inspires 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, and art. Depending on the service agreements, we provide teacher recruitment counseling services and/or hire teachers on behalf of our
managed schools.
The following table lists information about our teachers and educational staff from our affiliated schools at each school and each educational program as of June 30, 2021.
Number
Number
of
Number
of
Teachers
with
Teachers
with
Master’s
and
“Advanced
Degree
Educational
Teaching
or
Staff
Qualifications”
Above
School (Continuing operations)
Zhejiang Zhuji Hailiang Senior Middle School
161
32
22
Zhejiang Zhuji Hailiang Experimental High School
298
27
43
Zhejiang Zhuji Hailiang High School of Art
156
6
20
Zhuji Hailiang Foreign Language High
260
16
52
Zhenjiang Jianghe High School of Art
73
4
16
Ninghai Hailiang Senior Middle School*
—
—
—
Sub-total
948
85
153
School (Discontinued operations)
Zhejiang Zhuji Hailiang Foreign Language School
471
6
75
Zhejiang Zhuji Hailiang Primary School
226
11
4
Zhejiang Zhuji Hailiang Junior Middle School
210
23
19
Zhejiang Zhuji Tianma Experiment School
352
19
20
Lanzhou Hailiang Experimental School
86
2
21
Hailiang Overseas Chinese School
75
3
2
Wuhu Hailiang Experimental School
49
9
5
Jinhua Hailiang Foreign Language School
82
5
7
Feicheng Hailiang Foreign Language School
78
5
11
Xianghu Future School*
14
—
13
Ninghai Future School*
—
—
—
Sub-total
1,643
83
177
Total
2,591
168
330
(*) Xianghu Future School, Ninghai Hailiang Senior Middle School, and Ninghai Future School started operating in September 2021.
Our schools are staffed with three levels of teachers and educational staff: senior teachers, mid-level teachers and junior teachers. Senior teachers are outstanding teachers chosen by
our schools, with the most advanced K-12 teacher’s qualification available in China. Mid-level teachers are teachers with nationally-qualified first degree teaching qualifications.
Junior teachers are teachers with nationally-qualified second- and third-degree teaching qualifications. We believe this three-tier seniority system provides an attractive career path
and allows new teachers to be mentored by more experienced teachers. As of June 30, 2021, for our continuing operations, our team of teachers and educational staff in our affiliated
schools consists of 85 senior teachers, 215 mid-level teachers and 384 junior teachers.
It is crucial for us to maintain a robust group of distinguished teachers and managements for us to improve education quality and expand our scale. We follow a specific process for
faculty hiring which we have developed over the years. The recruitment of school principals and managements mainly relies on headhunting, internal resource recommendation and
campus recruitment. We will conduct multiple rounds of interviews for candidates through professional interviewers and executives, and focus on investigating whether candidates
have a broad international vision, outstanding educational achievements, leadership skills, and management experience. The recruitment of teachers is conducted through
professional teacher recruitment websites and campus recruitment. Teachers are assessed through a series of hiring procedures, including, without limitation, written examination,
interviews, mock lectures, expertise in their specific
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
64/219
Table of Contents
60
subject areas, ability assessment (IBA), and psychological risk evaluation. We expect teachers to have or will develop excellent communication and teaching skills, the ability to
mentor other teachers and the ability to develop innovative curriculum. As of June 30, 2021, for our continuing operations, we had 203 teachers and managements graduated from
dual first-class universities, 17 of which were from Tsinghua University and Peking University.
We launched in-depth school-enterprise cooperative relationships with many universities in China, allowing us to invite outstanding university graduates to intern at our schools, and
attempt to recruit those who show outstanding performance during the internship. In addition, we launched the “Full Life Cycle Talent Training Plan” in fiscal year 2021 to establish
an integrated pre-talent training system and supporting courses. We have cooperated with Beijing Normal University, Nanjing University and other top-tier universities to set up the
“Hailiang College,” to provide enterprise courses in such universities to ensure that the candidates will be qualified “employees for Hailiang Education” after graduation. We also
have the recommendation policy that encourages our educational staff to recommend excellent teachers and offer reward accordingly. Moreover, we have achieved remarkable
results in deepening the reward system of internal recommendation for outstanding employees. Our faculty members are encouraged to utilize their own social resources to
recommend principals and teachers to us, contributing to the rapid development of Hailiang Education. In the post-pandemic era, we expect to utilize technology with the
“contactless” recruitment, to seek excellent talent.
We have established a comprehensive training and management system for our staff. For new teachers, we will develop teachers’ evaluation tools according to the laws regarding
professional development of teachers, and set teachers’ training goals and arrange for them to undergo a training program consisting of teaching skills and techniques. For our
current in-service teachers, we offer continued professional knowledge and skills training designed to improve teaching ability and educational creativity. In the 2020 school year,
we established the professional rank and title system of Hailiang Education teachers, to foster our teachers’ professional growth and satisfaction.
Hailiang Education Cadre Army Academy (“Cadre Army Academy”) was founded in April 2019 to strengthen the training and cultivation of our management team. Our
experienced tutors have implemented personalized and targeted trainings, developed online and offline training projects. The training projects include both practical activities and
theoretical studies. The practical activities include school operations simulation, and theoretical studies include star teacher lectures, management standard learning, value sharing,
micro salon, and management research, etc. In addition, we launched a post secondment system to help our management staff to obtain experience. As of June 30, 2021, 86 middle-
level managers, 22 vice president-level cadres, 10 principal-level cadres, and 22 cadres for secondment benefited from our training projects and secondment system.
In August 2019, we further established the Hailiang Education Excellent Teacher Development Academy (“Excellent Teacher Development Academy”) to improve our teachers’
teaching and researching capability through initiatives such as mentor-apprentice pairing model and trainees’ three-year planning. Since December 2020, the Excellent Teacher
Development Academy has successively held “Exceptional Teacher Incubation Camp” and “Seminars for Excellent Teachers of Mental Health education”. As of June 30, 2021, the
Excellent Teacher Development Academy has in total 41 mentors, including 15 external mentors and a total of 89 selected trainees, including 32 new trainees. Mentors and trainees
from the Excellent Teacher Development Academy won the first prize of Zhuji city level or above in the municipal excellent course, project and paper competitions for 37 times.
Mentors and trainees have published 6 textbooks or monographs and have published more than hundreds of papers in various journals.
We emphasize the professionalism of our teachers, thereby providing them with a wide platform and comfortable living environments. Teachers can be promoted through
improvement of management and professional skills. We encourage our newly hired teachers to split their time between work and study, allowing them time for their development.
Teachers that have taught in Hailiang for a certain time receive the opportunity to study abroad, work on research materials and enhance their professional skills. We have a
competitive compensation package. Our teachers’ salary increased by 7.7% in 2021. In addition, we offer a variety of bonuses, subsidies and welfare to increase our teachers’
enthusiasm and initiative. We conduct monthly evaluations of our teachers’ performance, set workload management systems, clear targets, and form a transparent, well-organized,
fair, and just system to ensure the stability of our teaching team. We also pay for health insurance for our teachers, and provide for paid vacation, free accommodation and other
benefits. In the 2019 school year, we worked with Ping An Insurance of China to jointly create an “Excellent Teacher Welfare Guarantee Plan” for benchmarking public schools,
targeting outstanding teachers and other employees who have made special contributions to the company. In the 2020 school year, 94 outstanding teachers and other employees who
have made special contributions to the Company have joined the plan, so that they can enjoy pensions and medical insurance equal to or better than that of public teachers. We
expect that more employees will join the plan each year.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
65/219
Table of Contents
61
Each year, we have to terminate teachers and educational staff who do not meet our teaching standards. Our teacher retention rates, as of June 30, 2019, 2020 and 2021 were 93.3%
88.8%, and 87.6% respectively.
Services Provided to Our Managed Schools
In the process of implementing our asset-light strategy, we may provide a wide range of services, as needed, to public and private schools, including but not limited to, educational,
managerial, logistics, supporting and operational services. We do not own or sponsor our managed schools; such schools are owned or sponsored by our related parties, Hailiang
Group or Hailiang Investment, and local governments. Instead, we provide services to such schools in exchange for a management fee or service fee. As of June 30, 2021, we
provided various services to 27 managed schools, with an aggregate of approximately 43,897 students. For the fiscal year ended June 30, 2021, operation and management services
we provided to our managed schools including but not limited to branding, academic management, basic and international education resources, school culture, admission, finance,
human resources, procurement, IT, internal audit, property and logistics management services. We may provide additional services in the future, as needed, to our managed schools.
Due to the promulgation of 2021 Implementation Rules for Private Education Laws, commencing with fiscal year 2022, we have ceased providing operation and management
services to our managed schools sponsored by related parties, i.e., Xiantao No.1 Middle School and Nanrui Experimental School in order to comply with relevant laws and
regulations. For further details, refer to “Item 4. Information on the Company–B. Business–Regulations on Private Education–2016 Private Education Law and The 2021
Implementation Rules for Private Education Laws.”
On January 1, 2018, we entered into service agreements with the following schools 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 Language School, Yichun Baishu Foreign Language School Xuefulu Campus, Yichun Baishu Angel City&Bilingual Kindergarten, Yichun Baishu Angel
City&Bilingual Kindergarten Xuefulu Campus, Nanchang Baishu Xingfu Shiguang Kindergarten. On May 1, 2018, we entered into service agreements with Nanchang Hualian
Foreign Language Experimental School, Nanchang Xihu District Baishu Education Group Teaching Staff Kindergarten and Jingdezhen Baishu School. On December 25, 2018, we
entered into a service agreement with Nanchang East Lake Sijihuacheng Kindergarten. On September 30, 2019, we entered into a master management service agreement for a term
of 5 years with these 15 Baishu Schools, which replaced and terminated the previous agreements we entered with them. Pursuant to the agreement, we receive management fees
based upon the provision of services related to education, management and logistics. As of June 30, 2021, 15 Baishu Schools have approximately 21,567 students and 1,348 teachers
in total, offering kindergarten, primary, middle and high school programs.
On April 1, 2018, we entered into a service agreement with Xiantao No.1 Middle School (the “Xiantao School”) in Hubei province, China. Pursuant to such agreement, we receive
management fees based upon the provision of operation and management services, including, but not limited to services related to human resources, financial management and
information technology. Founded in 1958, with an area of about 378,666 square meters, Xiantao School is a private school that provides middle and high school education required
by the PRC regulatory authority in Xiantao City, Hubei Province. In the 2020/2021 school year, the total number of students reached 7,878 and the number of teachers was 453. The
tuition fee is approximately 13,960 RMB per year.
On April 1, 2018, we entered into a service agreement (the “NanRui Agreement”) with Nanrui Experimental School in Xinchang County (the “NanRui School”). Pursuant to the
NanRui Agreement, we receive management fees based upon the provision of operation and management services, including, but not limited to services related to human resources,
financial management and information technology. Founded in 2004, with an area of about 50,000 square meters, 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 2020/2021 school year, the total number of students in such school is
approximately 2,740, and the number of teachers is approximately 226. The tuition fee ranges from 20,000 RMB to 37,000 RMB annually.
On August 28, 2018, we entered into a cooperation agreement with the Education Bureau of Binjiang district in Hangzhou for a term of six years. Pursuant to the cooperation
agreement, we provide operation and management services to two existing public schools, Hangzhou Chunhui Primary School and Hangzhou Xixing Middle School. Due to the
adjustment of the development and operating strategy of Hangzhou Xixing Middle School by the Education Bureau of Binjiang district, we terminated the cooperation agreement
with Hangzhou Xixing Middle School in fiscal 2021. As of June 30, 2021, there were 794 students enrolled in Hangzhou Chunhui Primary School.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
66/219
Table of Contents
62
On October 10, 2018, we entered into a service agreement with Jinhua Hailiang Foreign Language School in Jinhua City. Pursuant to such agreement, we received management fees
based upon the provision of operation and management services, including, but not limited to services related to human resources, financial management and information
technology. Jinhua Hailiang Foreign Language School is a non-profit private school that provides compulsory education required by the PRC regulatory authority. The campus of
Jinhua Hailiang Foreign Language School covers an area of approximately 13 acres. On July 15, 2020, we entered into a sponsorship transfer agreement with Hailiang Investment to
acquire 100% sponsorship of Jinhua Hailiang Foreign Language School, terminating the service agreement. On September 16, 2020, we obtained the relevant administrative
approval and completed all the required process to obtain the sponsorship of the school.
On October 10, 2018, we entered into a cooperation agreement for a term of ten years with the Education Bureau of Xiaoshan District, City of Hangzhou, National Tourism Resort
Management Committee of Xianghu, Zhejiang Province, and Xianghu Travel Holding Company. Pursuant to the partnership program, Hailiang Investment is to be the sponsor and
legal operator of one new school located in Xianghu, and we started to provide operation and management services at the beginning of 2019 to three existing public schools located
in Wenyan District, Hangzhou City, namely the Wenyan Primary School, Wenyan No. 2 Primary School, and Wenyan Middle School. As of June 30, 2021, these three schools had
an aggregate of 3,824 enrolled students.
On October 10, 2018, we entered into a service agreement with Feicheng Hailiang Foreign Language School in Feicheng City. Pursuant to such agreement, we receive management
fees based upon the provision of operation and management services, including, but not limited to services related to human resources, financial management and information
technology. Feicheng Hailiang Foreign Language School is a non-profit private school that provides primary, middle and high school education required by the PRC regulatory
authority. On April 26, 2021, we acquired from our affiliate, Hailiang Investment, 100% equity interests in Feicheng Education Investment. Feicheng Education Investment has been
the sole sponsor of Feicheng Foreign Language since 2018. On April 26, 2021, we obtained the relevant administrative approval and completed the required process to obtain the
sponsorship of the school.
On April 28, 2019, we entered into logistics service agreements with Hailiang Kindergarten, Zhuji Hailiang Jinshan Kindergarten and Tianma Kindergarten, respectively. Zhuji
Hailiang Preschool Education Investment Co., Ltd., a related party ultimately controlled by Mr. Feng, along with its subsidiaries, are sponsors of these three kindergartens. These
agreements are renewable annually and are currently in effect.
On July 9, 2019, we entered into a cooperation agreement for a term of ten years with the Education Bureau of Sihong County of Jiangsu Province to manage and operate Sihong
Second Experimental School. Sihong Second Experimental School is a public school and provides a basic education program ranging from primary to middle school classes. As of
June 30, 2021, there were 4,401 students enrolled in Sihong Second Experimental School.
On January 12, 2020, we entered into a cooperation agreement for a term of ten years with the Management Committee of Suqian Economic and Technological Development
District of Jiangsu Province National Development District, pursuant to which the Company acquired the right to manage and operate two public schools named Xiamen Road
School and Fumin Avenue School. These two schools have composed of primary and middle school programs. As of June 30, 2021, these two schools had an aggregate of 1,785
enrolled students.
On August 21, 2021, we entered into a cooperation agreement for a term of five years with the Education Bureau of Longkou City of Shandong Province to manage and operate
Longkou No.1 Middle School (Chongshi Department) (West Campus) (“Chongshi Department”), beginning September 1, 2021. Longkou No.1 Middle School is one of the earliest
public secondary schools in the Jiaodong area, with over a century of history. Chongshi Department is a high school department established by Longkou No.1 Middle School in
2013 to practice the “small class” strategy and implement the “individualizing” teaching model.
On August 28, 2021, we entered into a management agreement for a term of six years with the Education Bureau of Jingdong Yi Autonomous County of Pu’er City of Yunnan
Province to manage and operate Jingdong Yi Autonomous County No.1 Middle School, beginning September 1, 2021. Founded in 1924, Jingdong Jingdong Yi Autonomous County
No.1 Middle School is a public school with a long cultural legacy and includes a middle school department and a high school department.
For further details of the capacity of these managed schools, please refer to the “Item 4. Information on the Company—C. Organizational Structure.”
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
67/219
Table of Contents
63
Ancillary Educational Services
We also provide ancillary educational services, including well-rounded education services and academic subject tutoring services, study trip services and overseas study consulting
services, with the objective of improving the learning experience and advancing academic outcomes for students enrolled in both our affiliated and managed schools.
Well-rounded Education Services and Academic Subject Tutoring Services
With the aim of offering quality education services both on- and after-class, we provide well-rounded education services and academic subject tutoring services in China. Well-
rounded education services provide our students with one-stop education solutions, such as after-school care and the promotion and expansion of students’ overall quality. In
addition, we have set up international headquarters in Singapore, facing Southeast Asia, Europe and countries along the “Belt and Road”, expecting to integrate Chinese and
international education resources to expand our footprints overseas through mergers and acquisitions and endogenous growth. For the 2020/2021 school year, we have provided
well-rounded education services and academic subject tutoring services to 131,832 student attendances. On October 9, 2021, we spined off academic subject tutoring business by
selling 100% of the equity interest of Hailiang Mingyou Future (Zhejiang) Education Technology Co., Ltd., due to the promulgation of “The Opinion on Further Easing the
Workload and Burden of After-school Tutoring for Students in Compulsory Education”. For further details, refer to “Item 4. Information on the Company– A. History and
Development of the Company”.
On January 26, 2018, Ningbo Haoliang acquired a 56% equity interest in Jiangxi Haibo Education Management Co., Ltd. (“Haibo Education”). Haibo Education was primarily
engaged in providing educational training services, and was liquidated in the 2020 fiscal year.
On August 2, 2018, Zhuji Hailiang After-school Service Co., Ltd. (“Hailiang After-school”) was incorporated as Ningbo Haoliang’s wholly owned subsidiary and is primarily
engaged in providing academic tutoring and well-rounded education.
Overseas Study Consulting Services
Overseas study consulting services focus on providing a full range of guidance services for our students. It aims to provide high school students with consulting and planning
services for applying to enter the universities, including services such as, pre-planning, admission and visa application, and overseas placement. We also provide one-to-one
personalized overseas study consulting services, including background evaluation, studying abroad plan customization, professional assessment, background improvement,
application and other services, so as to help high school graduates to apply for admission to global universities. For the 2020/2021 school year, we provided overseas study
consulting services to 1,412 students.
During the spread of the COVID-19 pandemic, our overseas study consulting business segments have deployed multiple channels for further studies. For example, we successfully
introduced Sino-foreign cooperative education programs that have been approved by national MOE from well-known domestic universities, such as Xi’an Jiaotong-Liverpool
University 4+0 program, University of Shanghai for Science and Technology Sino-British International College 4+0 program, Jimei University and U.S. Cook University 4+0
program, etc. By introducing these Sino-foreign cooperative education programs, we provide our students with alternatives to study abroad during the pandemic. Compared with
last year, more students have chosen to study in China for the Sino-foreign cooperative education programs and to postpone their overseas study plans.
On August 9, 2017, Hailiang Mingxin was incorporated as Hailiang Management’s wholly owned subsidiary and is primarily engaged in the provision of after-school enrichment
services and overseas study consulting services.
On September 26, 2018, Hailiang International Studying was incorporated as Hailiang HK’s wholly owned subsidiary and is primarily engaged in providing overseas study
consulting services.
On October 22, 2018, Hangzhou Hailiang International Studying was incorporated as Hailiang Consulting’s wholly owned subsidiary and is mainly engaged in providing overseas
study consulting services.
Study Trip Services
Our study trip business segment strives to create holistic education courses and high-quality study trip activities by focusing on study trips and camping. Relying on our international
campsites and collaborations with diverse universities and colleges, we operate our
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
68/219
Table of Contents
64
study trip programs in more than 30 countries, such as UK, U.S. and Australia, and several provinces in China. We offer our students the opportunities to visit reputable foreign
universities and experience local culture. To date, we have provided more than 200 study trips and camp programs, operated domestically and globally, to our students. For the
2020/2021 school year, 46,991 student attendances have participated in study trips and camp education.
Due to the COVID-19 pandemic, the operation of international study trips has been restricted. For this reason, we have increased our investment in domestic camp education
programs, which has laid a foundation for the diversification of the Company’s business. From January to March 2021, we have successively entered into strategic cooperation
framework agreements with camping companies to conduct Hongzehu Camp in Jiangsu Province, the Xianghu Camp in Zhejiang Province and the Xiazhu Lake Camp in Zhejiang
Province, utilizing the advantages of the Company and those camping companies to develop personalized high-quality education courses during the camping.
At the same time, we carry out brand promotions, government linkage and other activities to comprehensively enhance the competitiveness of our study trip brand and the popularity
of these camp brands.
On August 2, 2018, Zhejiang Mingxin International Travel was incorporated as Hailiang Management’s wholly owned subsidiary and is mainly engaged in the provision of
international and domestic study trip services for students enrolled in both our affiliated and managed schools.
On December 3, 2018, Hangzhou Hailiang Study Trip was incorporated as Hailiang Consulting’s wholly owned subsidiary and is primarily engaged in international and domestic
study trip services.
On February 20, 2019, Shaoxing Sihai International Travel Co., Ltd. (“Sihai Travel”) was acquired by Hailiang Mingxin as its wholly owned subsidiary and is primarily engaged in
providing international and domestic study trip services.
Hailiang Education Park
Hailiang Investment, a company controlled by our ultimate controlling shareholder, Mr. Feng, has completed the construction of the Hailiang Education Park, which has a total site
area of approximately 850,000 square meters (9,149,323.85 square feet) and a floor area of approximately 550,000 square meters (5,920,150.73 square feet). Hailiang Education
Park commenced operation 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, Zhejiang Zhuji Hailiang Foreign Language School and selected programs from Zhejiang Zhuji Tianma Experimental School and Zhejiang Zhuji Hailiang
Experimental High School relocated to the Hailiang Education Park. Zhejiang Zhuji Tianma Experimental School’s, and Zhejiang Zhuji Hailiang Experimental High School’s,
remaining programs continue to operate on their existing respective campuses. As of June 30, 2021, for our continuing operations, our affiliated schools and subsidiaries operating in
Hailiang Education Park were (i) Zhejiang Zhuji Hailiang Senior Middle School, (ii) Zhuji Hailiang Foreign Language High, (iii) Hailiang After-School, (iv) Zhuji Hailiang
Logistics, (v) Hailiang Sports, and (vi) Zhuji Nianxin Lake Hotel, (vii) Hailiang Mingxin.
Hailiang Education Park has six educational buildings, one administrative building, six dining halls, six track fields, one landmark tower, one school hospital, 20 student dormitory
buildings and 10 dormitory buildings for teachers and staff. In addition, there is a multi-function sports center with basketball courts, an indoor swimming pool, a student activity
center, and a hotel that not only provides convenience for students and parents, but also operates publicly. Hailiang Education Park is designed to accommodate a maximum of
12,000 students and 2,000 teachers. The school facility contains a number of modern and distinctive buildings such as the main administration and educational building, the
landmark tower, and the new kindergarten department building with a distinctive trumpet shell-shaped architectural design. In September 2018, a license plate identification and
facial recognition system was installed and activated on the three main gates of Hailiang Education Park in order to improve security. In June 2020, we fully launched the safety
management system to trace the results of safety checking and follow-up solutions. In June 2020, the school-bus line system was launched to optimize the shuttle route and upgrade
the shuttle mode. In December 2020, we launched the emergency command center, which aims to establish an intelligent command system that integrates emergency handling, real-
time monitoring of hidden danger areas, and multi-point synchronization inspections, and becomes the nerve center for the overall coordination and command of the safety
management of schools in various places.
On April 28, 2019, the Company entered into eight new lease agreements with Hailiang Investment regarding Hailiang Education Park, in order to allocate lease fees to the
respective schools and subsidiaries according to their used gross floor area. The term of the lease is for nineteen years from July 1, 2018 and the rental fee in the first year was
RMB22.3 million and is subject to a 5% annual increase
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
69/219
Table of Contents
65
from fiscal year 2020 to 2022. The rental fees commencing from the fiscal year 2023 will be subject to further negotiation between the Company and Hailiang Investment. For
continuing operations, the leases cover the properties and facilities of Hailiang Education Park with a total combined gross floor area of approximately 367,856 square meters.
On September 6, 2019, our affiliated schools and subsidiaries entered into eight Supplemental Agreements with Hailiang Investment respectively, effective as of July 1, 2019,
regarding Hailiang Education Park, pursuant to which our eight affiliated schools and subsidiaries prepaid the rental fee for the remaining 18 years within 30 days from the date of
agreements.
There are certain risks associated with utilization of the Hailiang Education Park. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—
There are risks associated with our use of the Hailiang Education Park.”
Innovations and Education Technology
Continuous and high-quality research and development capabilities are the foundations and driving forces for us to provide high-quality educational services. Therefore, we have
invested a lot of resources to develop education technology to establish the “smart campus” and “smart classroom,” to improve education quality and management efficiency. Based
on the cooperation with Hailiang Education Research Institute, a related party controlled by Mr. Feng, we developed various education technology products and courses. We
established the “Hailiang Education Smart Campus Global Alliance” project in fiscal year 2021, and have entered into agreements with Hikvision and Ruijie Networks to jointly
develop the construction of the “Smart Campus System.”
The idea of establishing the smart campus is to make our schools smarter, safer, and more efficient. In fiscal year 2021, we have integrated the smart campus project into student
management, security management, fee management, etc. For example, we utilized the technology of IOT (“Internet of Things”) to integrate students’ attendance and morning
health check-ups, and realized that one check-up can simultaneously generate both attendance and health data, which improves staff efficiency, and ensures students’ health and
safety. We have established a one-stop registration fee system to help school administrators improve work efficiency and to help improve our students’ parents’ admission
experience. The Company’s logistics and supply chain departments also carried out systematic information construction this fiscal year. We have built a new catering service system
to help canteens with menus, food processing, and nutrition analysis issues. The safety management system has strengthened the safety of students at school. We purchased an SRM
procurement management platform to increase supply chain efficiency. In addition, in order to promote a harmonious home-school co-education environment for all schools of
Hailiang Education, we focused on building and launching the Home-School Co-education Platform (“Hai Home-School”), which aims to guide students and parents in establishing
a smart home education system, by regulating home-school communications and enriching applications in the Hai Home-School. Through the gradual construction of Smart Campus
System, we have increased the satisfaction of faculty, students and parents with the education service system, and maintained a good campus brand image.
Establishing a smart classroom will help young teachers quickly improve the quality of teaching and students improve learning efficiency. The smart classroom will enable us to
render high-quality educational resources to our students in different regions, and to protect the company’s intellectual property. In order to improve the efficiency of selecting test
questions, automatically correct answering results, and efficiently analyze students’ academic performance, we have developed a Cloud Exercise databased application that can
provide a personalized teaching plan for each student. We have also invested a lot of resources in education standardization to support teaching activities. We have cooperated with
Hailiang Education Research Institute to develop the “Star Classroom” and the “Star Teacher Training”. The “Star Classroom” platform is based on improving the quality and
efficiency of teacher preparation and teaching. It gathers experienced teachers to jointly develop the courseware of the main subjects of all teaching grades. Through the guidance of
famous teacher resources and the creation of teacher personalized content, it helps teachers to prepare and teach easily in one stop. The “Star Teacher Training” platform builds a
teacher training system by providing comprehensive, systematic and targeted teacher development plans and teacher training courses, helping new teachers grow quickly, achieving
cascading development of backbone teachers, and training top-level educational experts.
We believe that excellent education services are the basis for Hailiang Education to further develop while offering high-quality education services. Therefore, we will continue to
invest a substantial amount of resources in educational technology, to improve our educational services through educational technology, and to build on such competitive advantage.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
70/219
Table of Contents
66
Growth Strategies
Our goal is to strengthen our position as a premiere education and management services provider in China’s private education market. We intend to leverage our market position and
brand in pursuing the following strategies:
●
Focus on the asset-light model, continue to expedite the expansion of our school network, especially our managed schools, through providing operation and management
services to public and private schools in rural areas;
●
Continuously invest resources to attract, cultivate and retain teaching and management talents, utilizing our “Invigorating Education with Talents” strategy;
●
Continuously invest in the application of educational science and technology to support the rapid and high-quality asset-light expansion utilizing our “Revitalizing
Education through Technology” strategy”;
●
Diversify business model, and increase the proportion of ancillary educational services; and
●
Steady promotion of our international expansion efforts, to build a global education group.
Competition
According to the Ministry of Education of the PRC, the total number of student enrollments in private K-12 education in China has increased steadily, from 40.1 million in 2016 to
44.6 million in 2020. The proportion of students in private K-12 schools against the total number of students in K-12 schools increased slightly from 17.7% in 2016 to 18.1% in
2020. The private K-12 education market in China is highly fragmented, competitive, and relatively small. Positioned as an education and management service provider, offering K-
12 student management services and high school curriculum education services, operation and management services, and ancillary educational services, we may face competitions
from other public and private high schools, ancillary education services providers, and other relevant education institutions. We expect competition to persist and intensify. However,
we believe that we are able to compete effectively because of our strong brand recognition, quality teaching team, outstanding academic and well-rounded performance, and
premiere services. 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 governmental support in forms of government subsidies and other payments or fee reductions. See “Item 3. Key Information—D. Risk Factors—
Risks Relating to Our Business and Industry—We face significant competition and we may fail to compete effectively.”
Marketing
We selectively and systematically employ a variety of marketing tools to enhance the brand recognition of the school programs offered by our affiliated schools. We intend to
establish a standard corporate identity across all our schools. We take measures to increase word-of-mouth referrals, which are critical in attracting new students and building our
brand. We advertise in media and organize various promotional events, recruitment fairs and workshops to assist students and families to better understand our service and enhance
our brand.
Referrals. Word-of-mouth referrals by former and current students and their families have historically been a significant source of student enrollment. In particular,
recommendations made by our middle and high school graduates who have been successful in the Zhongkao or Gaokao or were admitted into overseas educational institutions are
particularly persuasive for prospective students. We actively work with our alumni and current students to encourage them to recommend our programs to potential students. We
believe that our student enrollment will continue to benefit from referrals from our extensive network of alumni and their families, many of whom have enjoyed pleasant and
satisfactory learning experiences and achieved their study goals at our schools.
Promotional events. From time to time, we organize promotional and recruiting events to provide real-time, on-site opportunities for our prospective students to learn more about our
services and programs and meet our teachers and staff. We also organize events specifically for our international program so that prospective students interested in studying abroad
can meet with teachers and recruiting personnel from overseas institutions and learn more about our international program. Our promotional events included visits from Kawhi
Leonard, NBA player, visit of The Yale Alley Cat, a world-renowned all-men a cappella singing group from Yale University, an environment-protection speech by Nobel Peace
Prize winner Mr. Rajendra Shende, a visit and speech by Dr. Robert Easton, Executive Vice Principal of the University of Oxford, a visit and speech by an astronomy professor the
University of Oxford, the host of China
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
71/219
Table of Contents
67
National Education Development Summit Forum, and visits of delegations from the Indonesian Islamic University Student Union and French students, as well as holding campus
experience days and other activities. In addition, in September 2020, the 25th anniversary celebration of Hailiang Management was held in Zhuji Hailiang Education Park. The
experts and scholars from 15 universities, such as Peking University and Zhejiang University, as well as hundreds of Hailiang alumni from all over the world and Hailiang education
teachers and students, celebrated this anniversary and participated in the grand ceremony together. Furthermore, we innovated the idea of organizing events. In the 25th anniversary
celebration, 3,118 teachers and students successfully challenged the Guinness World Records of “the most people holding the abdominal plank position simultaneously.”
Media advertising. We actively promote the Hailiang Education brand through media advertising. We place advertisements or launch events in national and global media platform,
such as People’s Daily, PR Newswire, XinhuaNet, “Learning Power” learning platform and CCTV Chanel 5. Moreover, we explore marketing via WeChat, television media, print
media, and other off-line activities to promote our brand.
Employees
We had 4,183, 4,164 and 5,171 employees as of June 30, 2019, 2020 and 2021, respectively. As of June 30, 2021, for continuing operations, we had 2,252 employees. The majority
of our employees is full-time and has signed employment agreements for one to three years, which will be renewed with substantially the same terms upon the employee passing the
end-of-contract evaluation. In addition to teachers and educational staff for our affiliated schools, we also have employees in marketing, information technology and general
administration who provide services to both our affiliated schools and our managed schools. As of June 30, 2021, depending on the service agreements with our managed schools,
we also provide teacher recruitment counseling services and/or hire teachers on behalf of our managed schools. The following table sets forth the numbers of our employees,
categorized by function as of June 30, 2021.
Employees of Continuing
Total Employees of Continuing and
operations
Discounted Operations
Teachers and educational staff
948
2,591
Cafeteria and dining hall staff
390
764
Student living staff
188
684
Security and safety staff
71
100
Administrative staff
433
684
Other staff
222
348
Total
2,252
5,171
As required by PRC laws and regulations, we participate in various employee social security plans for our employees that are administered by local governments, including housing
pension, medical insurance and unemployment insurance. We compensate our employees with base salaries as well as performance-based bonuses. None of our employees are
represented by any collective bargaining arrangements, and we consider our relations with our employees to be good.
Intellectual Property
To protect our intellectual properties, we rely on a combination of trademark, copyright and trade secret laws. Our schools hold copyrights to various course materials that have been
developed internally and provide a basis for improving the quality of our educational services. Generally, we require most of our teachers to devote certain portion of their time into
the development of course and teaching materials, essays, education research, and publications. Our strategic plan calls for continued and extensive investment in maintaining and
expanding these assets. From time to time, we are required to obtain licenses with respect to course materials owned by third parties for our educational services, in particular for our
international program which requires foreign-language educational materials.
In addition, we have registered 17 domain names with the China Internet Network Information Center, such as www.hailiangedu.com, or en.hailiangedu.com. We have registered the
Hailiang Education trademark in the PRC.
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. In addition, we maintain property insurance for
our school facilities and vehicles. We do not
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
72/219
Table of Contents
68
maintain business interruption insurance, product liability insurance or key-man life insurance. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and
Industry—We have limited insurance coverage with respect to our business and operations.” We consider our insurance coverage to be in line with that of other private K-12
education providers of a similar scale in China.
Legal Proceedings
On May 21, 2019, we filed a lawsuit in the People’s Court of Zhuji City of China against Ronghuai Education Group and Zhuji Ronghuai School (collectively, “Ronghuai”),
asserting claims of infringement of registered trademarks and unfair competition under the Trademark Law and Anti-Unfair Competition Law of the PRC (collectively, “Case I”).
This case was transferred to the Intermediate People’s Court of Shaoxing City of China for acceptance. We alleged in our claims that Ronghuai manipulated settings of certain
popular search engines in China, such as www.360.cn, hao.360.com and www.so.com, which caused confusion for our potential clients/students. Ronghuai’s alleged misconduct
directed these students to Ronghuai’s website instead of our websites when the students searched key terms such as “Hailiang”, “Hailiang education”, “Hailiang senior middle
school”, and “Hailiang primary school”. Therefore, we claimed damages of RMB 3.0 million against Ronghuai. Based on new evidence we collected through discovery, we
subsequently amended our claims and increased the amount of damages claimed to RMB 7.51 million. On April 8, 2020, the court entered into a judgement of first instance,
ordering Ronghuai to immediately stop manipulating settings of certain search engines, and to publish statements on its official platform to eliminate the negative impact of the case
within 10 days from the effective date of the judgement and compensate us for economic loss and reasonable expenses amounting to RMB3.0 million within 30 days from the
effective date of the judgement. Ronghuai did not agree with the judgement and subsequently appealed to the Higher People’s Court of Zhejiang Province of China. On
December 31, 2020, the Higher People’s Court of Zhejiang Province of China entered into a judgement of second instance (the “Second Instance Judgement”), ordering Ronghuai to
publish statements on its official website and official WeChat account to eliminate the negative impact of the case within 10 days from the effective date of the judgement, and stop
using “Hailiang” in the promotion of relevant websites. The Second Instance Judgement also ordered Ronghuai to compensate us for economic losses and reasonable expenses
amounting to RMB 500,000. Neither we nor Ronghuai agreed with the judgement and we subsequently appealed to the Supreme People’s Court of the PRC (the “Supreme Court”).
As of the date of this annual report, this case is in the process of filing and examination by the Supreme court.
On July 8, 2019, Ronghuai filed a lawsuit in the People’s Court of Zhuji City of China against Hailiang Group, our related party, and Zhejiang Zhuji Hailiang Senior Middle School,
one of our affiliated schools, asserting claims of infringement of registered trademarks and unfair competition under the Trademark Law and Anti-Unfair Competition Law of the
PRC (collectively, “Case II”). This case was transferred to the Intermediate People’s Court of Shaoxing City of China for acceptance. Ronghuai alleged, in a way similar to our
original claims as described above, that we employed manipulative measures to direct potential clients/students to our websites instead of theirs and requested monetary damages in
the amount of RMB 3.01 million. Based on new evidence Ronghuai claimed to have collected through discovery, Ronghuai later amended their claims to increase the amount of
damages to RMB 7.51 million. On May 19, 2020, the court rejected the request filed by Ronghuai. Ronghuai did not agree with the judgement and subsequently appealed to the
Higher People’s Court of Zhejiang Province of China. On December 31, 2020, the Higher People’s Court of Zhejiang Province of China entered into a judgement of second instance,
ordering us to publish statements on our official website to eliminate the negative impact of the case within 10 days from the effective date of the judgement, and stop using
“Ronghuai” in the promotion of relevant websites. This judgement also ordered us to compensate Ronghuai for economic losses and reasonable expenses amounting to RMB
100,000 within 10 days from the effective date of the judgement. We did not agree with the judgement and subsequently appealed to the Supreme Court. As of the date of this annual
report, this case is in the process of filing and examination by the Supreme court.
On July 18, 2019, Ronghuai filed a separate lawsuit in the People’s Court of Zhuji City of China against the Company’s seven affiliated entities and three of the Company’s related
parties, including Hailiang Group, Hailiang Investment and Zhejiang Hailiang Limited, alleging defamation. Ronghuai alleged that our public announcement regarding our filing of
claims against Ronghuai contained defamatory remarks against Ronghuai and affected its reputation, and requested monetary damages in the amount of RMB10 million
(collectively, “Case III”). This case was transferred to the Intermediate People’s Court of Ningbo City of China for acceptance. On September 29, 2021, the court rejected the request
filed by Ronghuai. Ronghuai did not agree with the judgement and subsequently appealed to the Higher People’s Court of Zhejiang Province of China and subsequently appealed to
the Higher People’s Court of Zhejiang Province of China. As of this annual report, this case is still in the process of second instance.
After consultation with our external legal counsel, we assessed the probability of the potential liability of Case II to be more than remote but not probable, and the probability of the
potential liability of Case III to be remote. As a result, we did not record any liabilities pertaining to the lawsuits filed by Ronghuai.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
73/219
Table of Contents
69
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, the State 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 (“MCA”) and their respective local offices. This section summarizes the principal 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 (2018) (“2016 Private
Education Law”), the 2021 Implementation Rules for Private Education Laws, which came into force from September 1, 2021 and replaced the 2004 Implementation Rules for
Private Education Laws, and the Regulations on Chinese-Foreign Cooperation in Operating Schools. Below is a summary of the relevant provisions of these laws and regulations.
Education Law of the PRC
On March 18, 1995, the National People’s Congress enacted the Education Law of the PRC, which was amended on August 27, 2009 and December 27, 2015, and further amended
on April 29, 2021. The Education Law sets forth provisions relating to the fundamental education system of the PRC, including a system of preschool, primary, secondary (including
middle and high schools) and higher education and 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 are
encouraged to operate schools and other types of educational organizations in accordance with PRC laws and regulations.
2016 Private Education Law and the 2021 Implementation Rules for Private Education Laws
The Decision of the Standing Committee of the National People’s Congress on Amending the 2016 Private Education Law, or the Amendment, has been promulgated by Order
No. 55 of the President of the PRC on November 7, 2016 and became effective on September 1, 2017. On December 29, 2018, the Decision of the Standing Committee of the
National People’s Congress on Amending the Seven Laws of the Labor Law of the People’s Republic of China was promulgated by Order No.24 of the President of the PRC and
took into effect on the same date. The Amendment made two minor adjustments to Article 26 and Article 64 of the 2016 Private Education Law. The 2021 Implementation Rules for
Private Education Laws became effective on September 1, 2021. 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 other
education shall be subject to approval by the education authorities at or above the county level, while private schools engaging in occupational qualification training and
occupational skill training shall be subject to approvals from the authorities in charge of labor and social welfare at or above the county level. A duly approved private school will be
granted a Permit for Operating a Private School, and will be registered as either a private non-enterprise institution with the MCA of the PRC or its local counterparts, or a company
with the Administration for Industry & Commerce. Each of our affiliated schools has obtained the Permit for Operating a Private School and has been registered with the relevant
local counterpart of the MCA or the Administration for Industry & Commerce. We have been informed by our managed schools that they have obtained necessary school operating
permits and have obtained the operating permit from the local bureau of MOE and MCA.
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 above regulations. For example, pursuant to the 2016 Private
Education Law, sponsors of private schools may choose to establish schools as either non-profit or for-profit schools, but sponsors are not permitted to establish for-profit schools
that provide compulsory education services. The types and amounts of fees charged by a non-profit private school will be decided by the provincial government or its counterpart
authorities. Both non-profit and for-profit private schools are required to publicly disclose 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 of shareholder’s ownership with respect to
companies in terms of legal, regulatory and tax matters. For example, the name of the sponsor shall be entered into the private schools’ articles of association and Permit for
Operating
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
74/219
Table of Contents
70
a Private School, similar to that of shareholders where their names shall be entered into the company’s articles of associations and corporate records filed with relevant authority.
From the perspective of control, the sponsor of a private school also has the right to exercise ultimate control over the school by various means such as adopting the private school’s
constitutional documents, electing the school’s decision-making bodies, including the school’s board of directors and principals. The sponsor can also profit from the private schools
by disposing of its sponsorship interests in the schools for economic gains. However, the rights of sponsors vis-à-vis private schools also differ from the rights of shareholders vis-à-
vis companies. For example, under the PRC laws, a company’s ultimate decision-making body is its shareholders, while for private schools, it is the board of directors, though the
members of which are substantially appointed by the sponsor. The sponsorship interest also differs from the ownership interests with regard to the right to the distribution of residual
properties upon liquidation of a private school, mainly because non-profit private education is treated as a public welfare undertaking under the current regulations. Non-profit
private schools are entitled to the same preferential tax treatment as public schools.
In addition, the 2016 Private Education Law also provides that private schools providing certifications or diplomas, pre-school education, other culture education (including K-12
education) and self-study aids are subject to approval by the education authorities, while private schools engaging in occupational 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 the following:
●
Right to receive a return on investment. Under the PRC Company Law, a company is required to allocate 10% of its after-tax profits to statutory reserve funds. The 2016
Private Education Law requires private schools to register as either for-profit or non-profit schools. The sponsor of a non-profit private school shall not profit from school
operation, and the sponsor of a for-profit private school may profit from school operation, provided the cash surplus of the school shall be disposed of in accordance with
the PRC Company Law and other relevant laws and administrative regulations. Pursuant to the 2021 Implementation Rules for Private Education Laws, in the case of a
non-profit private school, 10% or more of its audited annual increase in non-restricted net assets shall be set aside as the development fund for the development of the
school; while for a for-profit private school, 10% or more of its audited annual net profits shall be set aside as the development fund for the development of the school;
●
Right to the distribution of residual properties upon termination and liquidation. With respect to a school, the 2016 Private Education Law provides that the property of a
private school shall be liquidated in the following order: (1) tuition fees and extras and other expenses paid by students that should be returned; (2) wages payable to the
teachers and staff members and the social insurance premiums that should be paid; and (3) other debts that should be repaid. The remaining property of a non-profit private
school after the debts mentioned above are settled will continue to be used for the running of other non-profit schools, while the remaining property of a for-profit private
school, after the debts mentioned above are settled, will be disposed of according to relevant provisions of the PRC Company Law. Under the PRC Company Law, the
remainder properties, after payment of relevant fees, compensations and required repayments upon termination and liquidation of a company, will 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 the 2016 Private Education
Law through controlling the executive council or board of directors of such school, which is the decision-making body of the school. Through the school’s decision-making body, the
sponsor exercises a broad range of powers, including (i) the appointment and dismissal of the school principal, (ii) the amendment of articles of association of the school and
formulation of rules and regulations of the school, (iii) the adoption of development plans and approval of annual work plans, (iv) raising funds for school operations and adoption of
budgets and final accounts, (v) making decisions on the size and compensation of the staff, (vi) making decisions on the division, merger or termination of the school, and
(vii) making decisions on other important matters of the school. In addition, through controlling the decision-making body, the sponsor also has the power to use and manage the
properties of the school in accordance with relevant laws and regulations.
A duly approved private school will be granted a private school operating permit, and the non-profit private school will be registered with the MCA or its local bureaus as a private
non-enterprise institution. A for-profit private school will be registered with the Administration for Industry & Commerce. As of the date of this annual report, all of our affiliated
schools have obtained and maintained the private school operating permits.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
75/219
Table of Contents
71
Besides the 2016 Private Education Law and the above regulations, the following and other specific implementation rules of the 2016 Private Education Law as applied to the
operation requirement of non-profit schools and for-profit schools have not yet been introduced:
●
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 the province(s) in which our
schools are located, including but not limited to the specific requirements for authenticating various parties’ property rights and payment of taxes and fees of for-profit
private schools, taxation policies for for-profit private schools, measures for the collection of non-profit private 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 schools established with donated
funds; private schools that require reasonable returns and private schools that do not require reasonable returns. While private education is treated as a public welfare undertaking
under the regulations, in the case of private schools choosing to require “reasonable returns,” sponsors of these schools may choose to require “reasonable returns” from the annual
net balance of the school after deduction of costs, donations received, government subsidies, 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 to the 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 surplus of 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 to the 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 benefits as public schools.
Taxation policies for for-profit private schools after the 2016 Private Education Law taking effect are still unclear as more specific provisions 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 allocation by the government as a
preferential treatment. Where there is construction or expansion of a for-profit private school, the school may acquire the required 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 remaining assets 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 and scholarships, and leases or
transfers of unused state assets. The governments may further take such measures as government subsidies, bonus funds and 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 and Promoting the Healthy
Development of Private Education, or the State Council Opinions, which requires the government to facilitate access to the operation of private schools and encourages social forces
to enter the education industry. The State Council Opinions also provide that each level of the People’s governments shall increase 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’s governments to improve its local policies on government support to for-profit and non-profit private schools by
ways of preferential tax treatments. In addition, the State Council Opinions require the strengthening of the Chinese Communist Party, or the CCP. Under the State Council
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
76/219
Table of Contents
72
Opinions, local governments are required to consider the school CCO organization and the CCP’s leadership as important factors in the annual inspections of private schools.
On May 14, 2021, the State Council promulgated the 2021 Implementation Rules for Private Education Laws, which became effective on September 1, 2021. Pursuant to the 2021
Implementation Rules for Private Education Laws, (1) foreign-invested enterprises established in China and social organizations whose actual controllers are foreign parties shall not
sponsor, participate in or actually control private schools that provide compulsory education, (2) social organizations or individuals shall not control any private school that provides
compulsory education or any non-profit private school that provides pre-school education by means of merger, acquisition, contractual arrangements, etc., and (3) private schools
providing compulsory education shall not conduct any transaction with any related party. Where any other private school conducts any transaction with any related party, it shall
follow the principles of openness, fairness and impartiality, fix the reasonable tuition and fees and regulate the decision-making, and shall not damage the state interests, the interests
of the school or the rights and interests of the teachers and students, otherwise, there is a risk of being ordered to make corrections within a time limit, and the illegal gains, if any,
shall be confiscated after the fees collected are returned; if the circumstances are serious, the sponsor, actual controller and member of the decision-making body or supervisory body
shall not become the sponsor, actual controller or member of the decision-making body or supervisory body of other private school within one to five years; if the circumstances are
especially serious with adverse social impact, the sponsor, actual controller and member of the decision-making body or supervisory body shall not become the sponsor, actual
controller and members of the decision-making body or supervisory body of other private school permanently; if a violation of public security administration is constituted, the
public security organ shall impose a public security administration punishment according to law; if a crime is constituted, criminal responsibility shall be investigated in accordance
with the law.
Supporting regulations of 2016 Private Education Law
On December 30, 2016, the MOE, MCA, SAIC, the Ministry of Human Resources and Social Welfare and the State Commission Office of Public Sectors Reform jointly issued the
Implementation Rules on the Classification Registration of Private Schools to reflect the new classification system for private schools as set out in the 2016 Private Education Law.
Generally, if a private school established before promulgation of the 2016 Private Education Law chooses to register as a non-profit school, it shall amend its articles of association,
continue its operation and complete the new registration process. If such private 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 a Private School, re-register as for-profit schools and continue its operation. On April 4, 2018, Zhejiang province promulgated implementing rules on Classification
Registration of Existing Private Schools, which took into effect on June 1, 2018. These supporting rules provided the procedure regarding the new registration procedures of the
Existing Private Schools. However, more specific provisions regarding the above registrations are yet to be promulgated, such as the specific requirements for authenticating various
parties’ property rights and payment of taxes and fees of for-profit private schools, taxation policies for for-profit private schools and so on.
On December 30, 2016, the MOE, SAIC and the Ministry of Human Resources and Social Welfare jointly issued the Implementation Rules on the Supervision and Administration
of For-profit Private Schools, pursuant to which the establishment, division, merger and other material changes of a for-profit private school shall first be approved by the education
authorities or the authorities in charge of labor and social welfare, and then be registered with the competent branch of SAIC.
As such, starting from September 1, 2017, when the 2016 Private Education Law took effect, compulsory education services from first grade to ninth grade are required to register as
non-profit schools, where revenues generated by school operations are required to remain within the school and used for school operation, and cannot be disbursed to the sponsor or
owner of the school. Additionally, 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, schools providing compulsory education services could not be registered as for-profit schools. The supporting
regulations of 2016 Private Education Law (in the form of Opinions) promulgated by the State Council and the provincial governments have not provided details regarding the new
registration procedures of schools. In addition, the amendment to the Implementation Rules for 2016 Private Education Law has not provided details regarding the registration
procedures, 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 are uncertain about the tax
regulations for for-profit private schools under the 2016 Private Education Law since specific provisions have not been introduced. Additionally, the 2016 Private Education Law
does not provide for a definitive timeline for existing schools to re-register/change their for-profit or non-profit status. Moreover, Zhejiang province has promulgated implementing
opinions that all schools located in Zhejiang province are required to re-register and/or change their for-profit or non-profit statuses before 2022. For our affiliated schools registered
after the promulgation of 2016 Private Education Law, except for Zhuji
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
77/219
Table of Contents
73
Hailiang Foreign Language High, Zhenjiang Jianghe High School of Art, and Ninghai Hailiang Senior Middle School, which are registered as for-profit schools, Lanzhou Hailiang
Experimental School, Wuhu Hailiang Experimental School, Hailiang Overseas Chinese School, Jinhua Hailiang Foreign Language School, Feicheng Hailiang Foreign Language
School, Xianghu Future School and Ninghai Future School, are registered as non-profit schools. For our affiliated schools that were registered before the promulgation of 2016
Private Education Law, namely Zhejiang Zhuji Hailiang Primary School, Zhejiang Zhuji Hailiang Junior Middle School, Zhejiang Zhuji Hailiang Senior Middle School, Zhejiang
Zhuji Hailiang High School of Art, Zhejiang Zhuji Tianma Experimental School, Zhejiang Zhuji Hailiang Experimental High School, Zhejiang Zhuji Hailiang Foreign Language
School, such schools were changed to non-profit status in fiscal year 2021.
In the future, we may continue to redefine and evolve our business model in response to further changes in law, which may include, without limitation, an increased emphasis on
leveraging our knowledge and expertise in school operations by providing managerial and consulting services to various schools we operate or partner with.
The Opinion on Further Easing the Workload and Burden of After-school Tutoring for Students in Compulsory Education
In July 2021, the General Office of the Chinese Communist Party and the General Office of the State Council of the People’s Republic of China published the Opinion on Further
Easing the Workload and Burden of After-school Tutoring for Students in Compulsory Education (the “Opinion”). The Opinion proposes certain measures intended to ease the
workload of students in compulsory education and regulate the relevant after-school tutoring services that focus on students in compulsory education in the PRC, including
(i) institutions providing after-school education service on academic subjects in China’s compulsory education system, or academic training institutions, need to be registered as non-
profit, no approval will be granted to new academic training institutions, and an approval mechanism will be adopted for online academic training institutions; (ii) foreign ownership
in academic training institutions is prohibited, including through contractual arrangements, and companies with existing foreign ownership need to rectify the situation; (iii) listed
companies are prohibited from raising capital to invest in businesses that teach academic subjects in compulsory education; (iv) academic training institutions are prohibited from
providing tutoring services on academic subjects in compulsory education during public holidays, weekends and school breaks; and (v) academic training institutions must follow
the fee standards to be established by relevant authorities. The Opinion also provides that institutions providing after-school tutoring services on academic subjects in high schools
(which do not fall within China’s compulsory education system) shall take into consideration the Opinion when conducting activities.
For a detailed discussion on how the 2016 Private Education Law and the above regulations will affect our schools, see “Risk Factors—Risks Related to Business and Industry—We
may be subject to significant limitations on our ability to engage in the private education business or make payments to our subsidiaries and may otherwise be materially and
adversely affected by changes in PRC laws and regulations”.
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 to seek prior approvals
from or report to the 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.
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 own tuitions and other
miscellaneous fees according to the market conditions. However, pursuant to the 2016 Private Education Law, for our compulsory education 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 Human Resources 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, accommodation fees and the registration fees from their students. In addition,
when setting tuition and accommodation fee standards, schools should properly contemplate reasonable returns for the private schools. The registration fees standard should be in
accordance with the principle of “voluntary payment, accurate calculation of expenses, timely settlement and regular disclosure.” Specifically, textbook fees cannot exceed RMB365
for grade 10 and grade 11 and cannot exceed RMB265 for grade 12.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
78/219
Table of Contents
74
On January 21, 2020, the Zhejiang Provincial Development and Reform Commission, Zhejiang Provincial Department of Education, Zhejiang Provincial Department of Human
Resources and Social Security and Zhejiang Provincial Market Supervision Administration promulgated the Administrative Measures for Private Education Fees, which applies to
non-profit private schools for academic education in Zhejiang province. The Administrative Measures for Private Education Fees stipulate, among other provisions, that: (1) the fee
policy for private primary and secondary schools is determined by governments in accordance with the direction of marketization; (2) for the convenience of students’ study and life
and under the precondition of students’ willingness, private schools can provide services and charge service fees, or collect and pay related services fees for the third service
provider, who provide services. In addition, the service fee must be charged according to the fact, be settled timely and be published regularly.
On August 17, 2020, the MOE and other four ministries and commissions promulgated the Opinions on Further Standardization of Education Fee, which stipulate, among other
provisions, that:
(1) The measures for the collection of fees by non-profit private schools shall be formulated by the people’s governments of various provinces, autonomous regions and centrally-
administered municipalities; the charging criteria of for-profit private schools are subject to market regulation and shall be determined by the schools themselves. The private
schools established before November 7, 2016 which have not complete their registration procedures of their for-profit or non-profit statuses must be managed according to the non-
profit private schools’ charging policy;
(2) In addition to completing education and teaching tasks, private schools can provide related convenient services for students, and organize research trips, after-school services,
social practice and other activities, but the parts of service fees borne by the students or parents must be charged based on voluntary and non-profit principles. If related services are
provided by the third party outside the school, the school may collect and pay related services fees for the third service provider;
(3) Private schools must publicize the charging items and standards in a prominent location in the school and indicate the charging items and standards in the admissions brochure
and admission notice. If fees that should be publicized were actually not publicized, or the contents of the publicity are not in compliance with the related policies, students are
entitled to refuse the payment of the fees;
(4) Strengthen the audit for non-profit private schools, and strictly prohibit the sponsor of a non-profit private school from gaining proceeds from school running in any way.
The 2021 Implementation Rules for Private Education Laws, stipulates that a private school or the founder thereof shall not, under sponsor fee or any other item, collect or collect in
disguised form any fees related to the enrollment from students or their parents. Private schools shall establish a cost accounting system for running schools, and reasonably
determine the charging items and standards on the basis of the school operational costs, market demands and other factors, in compliance with the principles of fairness, lawfulness
and good faith and in consideration of the economic benefits and social benefits. The people’s governments of provinces, autonomous regions and municipalities directly under the
Central Government may set a ceiling for the fees charged by non-profit private schools that the government-run schools participate in the establishment thereof, that use state-
owned assets, or that receive government subsidies per student. Non-profit private schools shall use the account filed with the relevant competent authorities for the record when
collecting fees or carrying out activities. The relevant competent authorities shall supervise the account. All the income of for-profit private schools shall be incorporated into the
bank settlement account opened by the schools, and the distribution of school operating balance shall be made after the annual financial settlement. Moreover, it stipulates that a
private school providing compulsory education shall not conduct any transaction with any related party. Where any other private school conducts any transaction with any related
party, it shall follow the principles of openness, fairness and impartiality, fix the price reasonably and regulate the decision-making, and shall not damage the state interests, the
interests of the school or the rights and interests of the teachers and students. Private school shall establish an information disclosure system for their transactions with interested
related parties.
As such, these rules and regulations will impact our operation and business model from the perspective of tuition and other education-related fees. For example, the ceiling on tuition
and accommodation expenses we can charge for our basic educational program was set out by the Education Bureau of Zhuji City in August 2019, which are RMB74,000 per
student for high schools. Pursuant to the registration documents filed with local authorities for the 2020/2021 school year, we are approved to charge RMB102,000 to RMB220,000
for our international program.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
79/219
Table of Contents
75
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 amended in 2013 and 2019, and the Implementing Rules for the Regulations on Operating Chinese-foreign Schools, or the Implementing Rules were issued by
the MOE in 2004.
The regulations on Operating Chinese-foreign Schools and its Implementing Rules encourage substantive cooperation between overseas educational organizations with relevant
qualifications and experience in providing high-quality education and Chinese educational organizations to jointly operate various types of schools in the PRC, with such
cooperation in the areas of higher education and occupational education being encouraged. Chinese-foreign cooperative schools are not permitted, however, to engage in compulsory
education and military, police, political and other kinds of education that are of a special 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 and social welfare in the PRC.
To date, none of our schools is being operated under a Chinese-foreign cooperation project, and therefore we are not governed by the Regulations on Operating Chinese-foreign
Schools.
Foreign investment in educational service industry
On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law or the FIL, which took effect on January 1, 2020, and replaced the existing laws
regulating foreign investment in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, or
Existing FIE Laws, together with their implementation rules and ancillary regulations. The FIL embodies an expected PRC regulatory trend to rationalize its foreign investment
regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. The
Foreign Investment Law defines foreign investment as the investment activities conducted by foreign investors directly or indirectly in the PRC and sets forth the situations that
should be regarded as foreign investment. Meanwhile, it introduces pre-establishment national treatment with a negative list for foreign investment. Foreign investors shall not invest
in any field prohibited by the negative list for foreign investment, while for any field with investment restricted by the negative list, foreign investors shall meet the investment
conditions stipulated under the negative list. Any field that does not fall within the negative list shall be administered under the principle of equal treatment to domestic and foreign
investment.
However, uncertainties still exist in relation to interpretation and implementation of the FIL, including, among other things, the nature of variable interest entities contractual
arrangements and specific rules regulating the organization form of foreign-invested enterprises within the five-year transition period (as discussed below). While the FIL does not
define contractual arrangements as a form of foreign investment explicitly, we cannot assure you that future laws and regulations will not provide for contractual arrangements as a
form of foreign investment. Therefore, there can be no assurance that our control over our VIEs through contractual arrangements will not be deemed as foreign investment in the
future. In the event that any possible implementing regulations of the FIL, any other future laws, administrative regulations or provisions deem contractual arrangements as a way of
foreign investment, or if any of our operations through contractual arrangements is classified in the “restricted” or “prohibited” industry in the future “negative list” under the FIL,
our contractual arrangements may be deemed as invalid and illegal, and we may be required to unwind the variable interest entity contractual arrangements and/or dispose of any
affected business. Also, if future laws, administrative regulations or provisions mandate further actions to be taken with respect to existing contractual arrangements, we may face
substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Furthermore, under the FIL, foreign investors or the foreign investment enterprises
should be imposed legal liabilities for failing to report investment information in accordance with the requirements. In addition, the FIL provides that foreign invested enterprises
established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within a five-year transition period, which means that
we may be required to adjust the structure and corporate governance of certain of our PRC subsidiaries in such transition period. Failure to take timely and appropriate measures to
cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business
operations.
On June 30, 2019, the National Development and Reform Commission and the Ministry of Commerce promulgated the Special Administrative Measures (Negative List) for Foreign
Investment Access (2019 version), which took effect on July 30, 2019, and on June 23, 2020, the National Development and Reform Commission and the Ministry of Commerce
promulgated the Special Administrative Measures (Negative List) for Foreign Investment Access (2020 version), which took effect on July 23 2020. Under the
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
80/219
Table of Contents
76
Negative List, preschool education, general senior high schools and institutions of higher education can be set up through cooperation only and controlled by the Chinese party (with
principals or principal administrators having Chinese nationality, and the council, Chinese members in the board of directors or the joint management committee accounting for not
less than a half of the total members). Investment in institutions offering compulsory education and religious educational institutions is prohibited.
On June 30, 2019, the National Development and Reform Commission and the Ministry of Commerce promulgated the Catalogue of industries in which foreign investment is
encouraged, which took effect on July 30, 2019. On December 27, 2020, the National Development and Reform Commission and the Ministry of Commerce promulgated the
Catalogue of industries in which foreign investment is encouraged (2020 version), which took effect on January 27, 2021. Under the Catalogue (2020 version), foreign investment is
encouraged in non-academic vocational training institutions and non-academic language training institutions (except for those for pre-school education, compulsory education and
senior high school education).
We conduct our private education business in China primarily through contractual arrangements among our operating subsidiary in China and Hailiang Management, Haishan
Development, and our affiliated schools owned and operated by Hailiang Management and Haishan Development and the shareholders of Hailiang Management and Haishan
Development. We hold the required licenses and permits necessary to conduct our private education business in China through the schools owned and operated by Hailiang
Management and Haishan Development. As of the date of this annual report, the sponsors of our current affiliated schools are in compliance with the requirements of the above
regulations, and we control and operate our affiliated schools through contractual arrangements that do not violate the above regulations.
Regulation Related to Internet Information Security and Privacy Protection
Pursuant to the PRC Cyber Security Law issued by the SCNPC on November 7, 2016, effective as of June 1, 2017, “personal information” refers to all kinds of information recorded
by electronic sources or otherwise that can be used to independently identify or be combined with other information to identify individuals’ personal information, including but not
limited to: individuals’ names, dates of birth, ID numbers, biologically identified personal information, addresses and telephone numbers, etc. The PRC Cyber Security Law also
provides that: (i) to collect and use personal information, network operators shall follow the principles of legitimacy, rightfulness and necessity, disclose rules of data collection and
use, clearly express the purposes, means and scope of collecting and using the information, and obtain the consent of the persons whose data is gathered; (ii) network operators shall
neither gather personal information unrelated to the services they provide, nor gather or use personal information in violation of the provisions of laws and administrative regulations
or the scopes of consent given by the persons whose data is gathered; and shall dispose of personal information they have saved in accordance with the provisions of laws and
administrative regulations and agreements reached with users; (iii) network operators shall not divulge, tamper with or damage the personal information they have collected, and
shall not provide the personal information to others without the consent of the persons whose data is collected. However, if the information has been processed and cannot be
recovered and thus it is impossible to match such information with specific persons, such circumstance is an exception.
The Office of the Central Cyberspace Affairs Commission, the Ministry of Industry and Information Technology, or the MIIT, the Ministry of Public Security, or the MPS, and the
State Administration for Market Regulation, or the SAMR jointly issued an Announcement of Launching Special Crackdown Against Illegal Collection and Use of Personal
Information by Apps on January 23, 2019, to implement special rectification works against mobile Apps that collect and use personal information in violation of applicable laws and
regulations, where business operators are prohibited from collecting personal information irrelevant to their services, or forcing users to give authorization in a disguised manner. On
November 28, 2019, the Cyberspace Administration of China, the MIIT, the MPS and the SAMR further jointly issued a notice to classify and identify illegal collection and use of
personal information.
On August 22, 2019, the Cyberspace Administration of China issued the Provisions on the Cyber Protection of Children’s Personal Information, which took effect on October 1,
2019. The Provisions on the Cyber Protection of Children’s Personal Information apply to the collection, storage, use, transfer and disclosure of the personal information of children
under the age of fourteen via the Internet within the territory of the People’s Republic of China. The Provisions on the Cyber Protection of Children’s Personal Information require
that network operators shall establish special rules and user agreements for protection of personal information for children under the age of fourteen, inform their guardians in a
noticeable and clear manner, and shall obtain the consent of their guardians. When obtaining the consent of the guardians of such children, network operators shall provide the
option of rejecting explicitly disclose several matters, including, without limitation, the purpose, method and scope of collection, storage, use, transfer and disclosure of such
personal information, and methods for correcting and deleting such personal information. Provisions on the Cyber Protection of Children’s Personal Information also require that
when collecting, storing, using, transferring and disclosing such personal information, network operators shall comply with certain regulatory requirements, including, without
limitation, that network operators shall designate specific
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
81/219
Table of Contents
77
personnel to take charge of the protection of such personal information and shall strictly grant information access authorization for their staff to such personal information under the
principle of minimal authorization.
On April 13, 2020, the Cyberspace Administration of China, the MIIT and certain other government authorities jointly promulgated the Measures for Cybersecurity Review, which
took effect on June 1, 2020. The Measures for Cybersecurity Review requires that critical information infrastructure operators purchasing network products and services, which
affects or may affect national security, shall apply for cybersecurity review to the Cybersecurity Review Office in accordance with the provisions thereunder. On July 10, 2021, the
Office of the Central Cyberspace Affairs Commission published on its official website the Draft Amended Measures for Cybersecurity Review to solicit comments from the public,
which, when formally promulgated and come into effect, will repeal the current effective Measures for Cybersecurity Review. The Draft Amended Measures for Cybersecurity
Review provide that critical information infrastructure operators purchasing network products and services and data processors carrying out data processing activities, which affect
or may affect national security, shall apply for cybersecurity review to the Cybersecurity Review Office in accordance with the provisions thereunder. The Draft Amended Measures
for Cybersecurity Review were released for public comment only and the final version and effective date of such Draft Amended Measures for Cybersecurity Review may be subject
to change with substantial uncertainty.
Pursuant to the Notice on Promulgation of the Rules on the Scope of Necessary Personal Information for Common Types of Mobile Internet Applications, which was promulgated
by Cyberspace Administration of China, or the CAC, the MIIT and certain other government authorities on March 12, 2021 and became effective on May 1, 2021, “necessary
personal information” refers to the personal information necessary for ensuring the normal operation of an App’s basic functional services, without which the app cannot achieve its
basic functional services. For learning and education Apps, the basic functional services are “online tutoring, online classes, etc.” and the necessary personal information is mobile
phone numbers of registered users.
Further, the SAMR promulgated the Measures for the Supervision and Administration of Online Transactions, which became effective from May 1, 2021. The measures require that
online transaction operators shall not force customers, whether or not in a disguised manner, to consent to the collection and use of information not directly related to their business
activities by means of one-off general authorization, default authorization, bundling with other authorizations, or the suspension of installation and use. Otherwise, such
noncompliant online transaction operators may be subject to fines and consequences under related laws and regulations, including without limitation suspension of business for
rectification and revocation of permits and licenses.
On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law, which will take effect on November 1, 2021. The Personal Information Protection Law aims
at protecting the personal information rights and interests, regulating the processing of personal information, ensuring the orderly and free flow of personal information in
accordance with the law, and promoting the reasonable use of personal information. According to the Personal Information Protection Law, personal information includes all kinds
of identified or identifiable information related to natural persons recorded by electronic or other means, but excludes de-identified information. The Personal Information Protection
Law also specified the rules for handling sensitive personal information, which includes biometrics, religious beliefs, specific identities, medical health, financial accounts, trails and
locations, and personal information of teenagers under fourteen years old and other personal information, which, upon leakage or illegal usage, may easily infringe the personal
dignity or harm of safety of livelihood and property. Personal information handlers shall bear responsibility for their personal information handling activities, and adopt necessary
measures to safeguard the security of the personal information they handle. Otherwise, the noncompliant personal information handlers will be ordered for rectification or
suspension or termination of provision of services, confiscation of illegal income, subject to fines or other penalties.
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 The Ministry of Industry and
Information Technology and obtain registration certificates from such registration agencies. A registered domain name owner has an exclusive use right over its domain name.
Unregistered domain names may not receive proper legal protections and may be misappropriated by unauthorized third parties.
As of June 30, 2021, we registered 17 domain names relating to our websites, with the Internet Corporation for Assigned Names and Numbers and the China Internet Network
Information Center.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
82/219
Table of Contents
78
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 international conventions on intellectual
property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon its accession to the World Trade Organization in
December 2001.
Copyright
The National People’s Congress amended the Copyright Law in 2001, in 2010 and in 2020 to widen the scope of works and rights that are eligible for copyright protection. The
amended Copyright Law extends copyright protection to Internet activities, products disseminated over the Internet and software products. In addition, there is a voluntary
registration system administered by the China Copyright Protection Center. To address the problem of copyright infringement related to the content posted or transmitted over the
Internet, the National Copyright Administration and the Ministry of Information Industry jointly promulgated the Administrative Measures for Copyright Protection Related to the
Internet on April 29, 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 the Internet 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 and 2019, protects the proprietary rights to registered trademarks. The Trademark Office
under the SAIC handles trademark registrations and grants a term of ten years to registered trademarks and another ten years to trademarks as requested upon expiry of the prior
term. Trademark license agreements must be filed with the Trademark Office for record. We had five registered trademarks in 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 current regulations, 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 investment and loans, however, is still generally subject to the prior approval of or
registration with SAFE.
Under current PRC regulations, foreign-invested enterprises such as our PRC subsidiary are required to apply to the Banks that meet the requirements of SAFE, for a Foreign
Exchange Registration of Foreign-Invested Enterprise. With such Registration, a foreign-invested enterprise may open foreign exchange bank accounts at banks authorized to
conduct foreign exchange business by SAFE and may buy, sell and remit foreign exchange through such banks, subject to documentation and approval requirements. Foreign-
invested enterprises are required to open and maintain separate foreign exchange accounts for capital account transactions and current account transactions. In addition, there are
restrictions on the amount of foreign currency 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 by Domestic Residents
through offshore Special Purpose Company (the “Notice” or “Circular No. 37”), which was promulgated by SAFE and became effective on July 14, 2014, requires a PRC individual
resident to file a “Registration Form of Offshore Investments Contributed by Domestic Individual Residents” and register with the local SAFE branch before he or she contributes
assets or equity interests in an offshore special purpose company, that is directly established or controlled by the PRC resident for the purpose of conducting investment or financing.
Following the initial registration, the PRC resident is also required to register with the local SAFE branch for any major change includes, among other things, any major change of
the offshore special purpose company’s PRC resident shareholder, name of the offshore special purpose company, term of operation, or any increase or reduction of the offshore
special purpose company’s registered capital, share transfer or swap, and merger or division. Failure to comply with the registration procedures of Circular No. 37 may result in
penalties, including the imposition of restrictions on the ability of the offshore special purpose company’s PRC subsidiary 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 Company had registered with SAFE
as to his offshore investments in accordance with the predecessor regulation of SAFE Circular
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
83/219
Table of Contents
79
No. 37, namely the Notice of the State Administration of Foreign Exchange on the Administration of Foreign Exchange Involved in Financing and Return Investments Conducted by
Domestic Residents via Special Purpose Vehicles (“Circular No. 75”), which was replaced by SAFE Circular No. 37 on July 14, 2014 but still effective when the relevant PRC
resident shareholder made his investments. Therefore, as of the date of this annual report on Form 20-F, to the best of our knowledge, our PRC resident shareholder has duly made
such applications, 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 least 10% 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 not distributable as cash dividends except in the event of liquidation. Each
wholly-owned subsidiary in China must comply with the foregoing regulations.
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 or maintenance 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 cash dividends. In particular, as of June 30, 2021, our 14 affiliated
schools are required to allocate no less than 25% of their annual net income for such purposes. In addition, pursuant to the 2016 Private Education Law, sponsors of non-profit
private schools are not entitled to any distribution of profits from their schools and all revenue must be used for the development of the schools.
As of June 30, 2021, Hailiang Consulting had not paid any dividends to our offshore entities from its accumulated profits. No dividends were declared and paid during the 2019,
2020 and 2021 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 State Administration of Taxation, SAIC,
CSRC and SAFE, jointly adopted the M&A Rules which became effective on September 8, 2006 and was amended on June 22, 2009. This M&A Rules purport to require, among
other things, offshore special purpose vehicles, or SPVs, formed for the purpose of acquiring PRC domestic companies and controlled by PRC companies or individuals, to obtain
the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. While the application of the M&A Rules remains unclear, we believe, based on the
advice of our PRC counsel, that CSRC approval was not required in the context of our initial public offering as we are not a special purpose vehicle formed for the purpose of
acquiring domestic companies that are controlled by our PRC individual shareholders, as we acquired contractual control rather than equity interests in our domestic affiliated
entities. However, we cannot assure you that the relevant PRC government agency, including the CSRC, would reach the same conclusion as our PRC counsel. If the CSRC or other
PRC regulatory agency 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 CSRC or
other PRC regulatory agencies. In such event, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges 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 a material adverse effect on our business, financial
condition, results of operations, and prospects, as well as the trading price of our ADSs.
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 Interim Provisions on the
Management of Foreign Debts promulgated by SAFE, the National Development and Reform Commission and the Ministry of Finance and effective from March 1, 2003, loans by
foreign companies to their subsidiaries in China, which accordingly are foreign-invested enterprises, or FIEs, are considered foreign debt, and such loans must be registered with the
local branches of SAFE. Under the provisions, these FIEs must register with the local branches 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 accumulated foreign debt borrowed by an FIE is limited to the difference between the total investment and the registered capital of
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 local counterpart, and may be
increased or decreased upon approval by the MOFCOM or its local counterpart. Registered capital of an FIE is the total amount of capital contributions made to the FIE by its
foreign holding company or owners, as approved by the MOFCOM or its local counterpart and registered at the SAIC or its local counterpart.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
84/219
Table of Contents
80
According to the FIL and its implementation regulations, which took effect on January 1, 2020, Foreign investors shall not invest in any field with investment prohibited by the
negative list for foreign investment access. Foreign investors shall meet the investment conditions stipulated under the negative list for any field with investment restricted by the
negative list for foreign investment access. For the fields not included in the negative list for foreign investment access, management shall be conducted under the principle of
consistency for domestic and foreign investment. Registration of foreign investment enterprises shall be handled pursuant to the law by the market regulatory authority of the State
Council or the market regulatory authorities of local People’s Governments empowered thereby. When performing their duties pursuant to the law, the relevant administrative
authorities shall not process licensing, enterprise registration etc. for proposed investments by foreign investors in the fields set out in the Negative List if the investment does not
comply with the provisions of the Negative List; where approval for fixed asset investment projects is involved, the relevant approval shall not be processed.
Our PRC subsidiaries, Hailiang Consulting, Ningbo Hailiang, Zhuji Nianxin Lake Hotel, Hailiang Sports, Ningbo Haoliang, Hangzhou Hailiang International Studying, Hangzhou
Hailiang Study Trip, Zhuji Hailiang Logistics, Zhuji Hailiang Supply, Haibo Education, Jiangxi Haibo Logistics Management Co., Ltd. (“Haibo Logistics”) and Hailiang After-
school 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:
(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 with regard to legal, regulatory and tax matters. However,
the differences between sponsorship and equity ownership can be found in the specific provisions of the laws and regulations applicable to sponsors and
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
85/219
Table of Contents
81
owners, such as provisions regarding the right to receive returns on investment and the right to the distribution of residual properties upon termination and liquidation. We
restructured our corporate entities to better prepare for the potential impact from the 2021 Implementation Rules for Private Education Laws. For more information, refer to “B.
Business Overview—Regulations—Regulations on Private Education—2016 Private Education Law and The 2021 Implementation Rules for Private Education Laws.”
(2) As of the date of this annual report, Hailiang Management or its subsidiaries is the sponsor of 6 affiliated schools and Haishan Development or its subsidiaries is the sponsor of
11 affiliated schools, we currently operate as registered pursuant to applicable PRC laws and regulations. However, following September 1, 2017, when the 2016 Private
Education Laws came into effect, and subject to the promulgation of the Implementing Rules of the 2016 Private Education Laws, our affiliated schools will be required to
register as private non-profit schools that are permitted to provide compulsory education services. For our affiliated schools, Zhuji Hailiang Foreign Language High, Zhenjiang
Jianghe High School of Art, and Ninghai Hailiang Senior Middle Schoo are registered as for-profit schools, and Zhejiang Zhuji Hailiang Senior Middle School and Zhejiang
Zhuji Hailiang High School of Art, that are registered before the promulgation of 2016 Private Education Law, are re-registered as non-profit status in fiscal year 2021. All K-9
schools are registered or re-registered as non-profit status by fiscal year 2021.
(3) The sponsorship of Zhejiang Zhuji Tianma Experimental School and the equity ownership of Wenzhou Hailiang Juxian Education Technology Co., Ltd. are in the process of
being transferred to Haishan Development from Hailiang Management as of the date of this annual report.
(4) Pursuant to the 2021 Implementation Rules, social organizations and individuals are prohibited from controlling a private school that provides compulsory education by means
of merger, acquisition, contractual arrangements, etc., and a private school providing compulsory education is prohibited from conducting transactions with its related party.
Thus, we concluded that according to IFRS 10-Consolidated Financial Statements, we lost control of the affiliated entities providing compulsory education services on
September 1, 2021, in view of the significant uncertainties and restrictions the 2021 Implementation Rules for Private Education Laws impose on our ability to direct the range
of ongoing activities that would most significantly impact the returns of those entities and to be exposed to returns that are commensurate with a controlling interest, and that
such uncertainties and restrictions already had a significant impact on our ability to direct and its economic exposure from involvement with such entities. However, as of the
date of this annual report, we still include these entities under our organizational structure for presentation purpose.
The following table sets out the details of our subsidiaries and affiliated entities that are significant to us, as of the date of this annual report:
Ownership
Subsidiaries
Place of Incorporation
Interest
Hailiang International Education Group Pte. Ltd.
Singapore
100 %
My Campus Study Centre PTE Ltd.
Singapore
100 %
Hailiang Education (HK) Limited
Hong Kong, PRC
100 %
Hailiang Education International Studying Service Limited
Hong Kong, PRC
100 %
Pate’s – Hailiang International College Company Limited
United Kingdom
100 %
Hangzhou Hailiang International Studying Service Co., Ltd.
China
100 %
Hangzhou Hailiang Study Trip Co., Ltd.
China
100 %
Hangzhou Hailiang Youcai Education Technology Co., Ltd.
China
100 %
Ningbo Hailiang Education Logistics Management Co., Ltd.
China
100 %
Ningbo Hailiang Sports Development Co., Ltd.
China
100 %
Ningbo Haoliang Information Consulting Co., Ltd.
China
100 %
Ninghai Hailiang Education Logistics Management Co., Ltd
China
100 %
Xiantao Hailiang Education Logistics Management Co., Ltd.
China
90 %
Zhejiang Hailiang Education Consulting and Services 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 %
Zhuji Nianxin Lake Hotel Co., Ltd.
China
100 %
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
86/219
Table of Contents
82
Consolidated Affiliated Entities (Continuing operations)
Place of Incorporation
Hailiang Education Management Group Co., Ltd.
China
Ninghai Hailiang Education Development Co., Ltd
China
Ninghai Hailiang Senior Middle School
China
Shanghai Yunhan Education Technology Co., Ltd.
China
Shaoxing Sihai International Travel Co., Ltd.
China
Xinchang Nanrui Hailiang Education Technology Co., Ltd.
China
Zhejiang Hailiang Mingxin Education Technology Co., Ltd
China
Zhejiang Haishan Education Development Co., Ltd.
China
Zhejiang Mingxin International Travel Co., Ltd.
China
Zhejiang Zhuji Hailiang Experimental High School
China
Zhejiang Zhuji Hailiang High School of Art
China
Zhejiang Zhuji Hailiang Senior Middle School
China
Zhenjiang Jianghe High School of Art Co., Ltd.
China
Zhuji Hailiang Foreign Language High School Co., Ltd.
China
Consolidated Affiliated Entities (Discontinued operations*)
Feicheng Hailiang Education Investment Co., Ltd.
China
Feicheng Hailiang Foreign Language School
China
Hailiang Overseas Chinese School
China
Hangzhou Hailiang Education Management Co., Ltd.
China
Jinhua Hailiang Education Technology Co., Ltd
China
Jinhua Hailiang Foreign Language School
China
Lanzhou Hailiang Education Consulting Co., Ltd.
China
Lanzhou Hailiang Experimental School
China
Ninghai Future School
China
Ninghai Hailiang Education Management Co. Ltd.
China
Wenzhou Hailiang Juxian Education Technology Co., Ltd
China
Wuhu Hailiang Education Management Co., Ltd
China
Wuhu Hailiang Experimental School
China
Xianghu Future School
China
Zhejiang Haishan Education Development Co., Ltd.
China
Zhejiang Zhuji Hailiang Foreign Language School
China
Zhejiang Zhuji Hailiang Junior Middle School
China
Zhejiang Zhuji Hailiang Primary School
China
Zhejiang Zhuji Tianma Experimental School
China
* Pursuant to the 2021 Implementation Rules, social organizations and individuals are prohibited from controlling a private school that provides compulsory education by means of
merger, acquisition, contractual arrangements, etc., and a private school providing compulsory education is prohibited from conducting transactions with a related party. Thus, we
concluded that according to IFRS 10-Consolidated Financial Statements, we lost control of the affiliated entities providing compulsory education services on September 1, 2021, in
view of the significant uncertainties and restrictions the 2021 Implementation Rules for Private Education Laws impose on our ability to direct the range of ongoing activities that
would most significantly impact the returns of those entities and to be exposed to returns that are commensurate with a controlling interest, and that such uncertainties and
restrictions already had a significant impact on our ability to direct and its economic exposure from involvement with such entities. However, as of the date of this annual report, we
still include these entities under our organizational structure for presentation purpose. We are continuously assessing the impact of relevant regulations on our business and making
necessary measures and efforts to comply with the requirements under these regulations and implementations, including restructuring corporate structure or unwinding contractual
arrangements, etc. For further details, refer to “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure” and “Item 3. Key Information—D. Risk
Factors—Risks Relating to Doing Business in China.”
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
87/219
Table of Contents
83
The following table sets out the details of our affiliated and managed schools as of the date of this annual report on Form 20-F:
Number of
Students
Fiscal Year of
As of
Commencement
June 30,
of
Schools
Location
2021
Capacity
Operating or Managing
Sponsorship
Affiliated Schools (Continuing Operations)
Zhejiang Zhuji Hailiang Experimental High School
Zhuji, Zhejiang Province
4,366
4,450
2002
Affiliated Schools
Zhejiang Zhuji Hailiang Senior Middle School
Zhuji, Zhejiang Province
1,571
1,642*
2017
Affiliated Schools
Zhejiang Zhuji Hailiang High School of Art
Zhuji, Zhejiang Province
1,652
1,700
2018
Affiliated Schools
Zhuji Hailiang Foreign Language High
Zhuji, Zhejiang Province
2,049
2,139*
2019
Affiliated Schools
Zhenjiang Jianghe High School of Art
Zhuji, Zhejiang Province
764
920
2019
Affiliated Schools
Ninghai Hailiang Senior Middle School
Ningbo, Zhejiang Province
—
1,850
2022
Affiliated Schools
Sub-total
10,402
12,701
Affiliated Schools (Discontinued Operations)
Zhejiang Zhuji Hailiang Foreign Language School
Zhuji, Zhejiang Province
3,318
3,374*
1996
Affiliated Schools
Zhejiang Zhuji Hailiang Primary School
Zhuji, Zhejiang Province
2,845
2,856*
2017
Affiliated Schools
Zhejiang Zhuji Hailiang Junior Middle School
Zhuji, Zhejiang Province
3,314
3,350*
2017
Affiliated Schools
Zhejiang Zhuji Tianma Experimental School
Zhuji, Zhejiang Province
4,583
3,599
2010
Affiliated Schools
Lanzhou Hailiang Experimental School
Lanzhou, Gansu Province
719
2,200
2021
Affiliated Schools
Hailiang Overseas Chinese School
Wenzhou, Zhejiang Province
924
1,705
2021
Affiliated Schools
Wuhu Hailiang Experimental School
Wuhu, Anhui Province
421
1,680
2021
Affiliated Schools
Jinhua Hailiang Foreign Language School
Jinhua, Zhejiang Province
727
900
2021**
Affiliated Schools
Feicheng Hailiang Foreign Language School
Feicheng, Shandong Province
719
800
2021**
Affiliated Schools
Xianghu Future School
Hangzhou, Zhejiang Province
—
1,152
2022
Affiliated Schools
Ninghai Future School
Ningbo, Zhejiang Province
—
2,670
2022
Affiliated Schools
Sub-total
17,570
24,286
Managed Schools
15 Baishu Schools
Jiangxi Province
21,567
29,341
2018
Managed Schools
Hangzhou Chunhui Primary School
Hangzhou, Zhejiang Province
794
1,600
2019
Managed Schools
Xiaoshan District Wenyan Primary School
Hangzhou, Zhejiang Province
2,594
3,000
2019
Managed Schools
Xiaoshan District Wenyan No. 2 Primary School
Hangzhou, Zhejiang Province
338
400
2019
Managed Schools
Xiaoshan District Wenyan Middle School
Hangzhou, Zhejiang Province
892
1,920
2019
Managed Schools
Hailiang Kindergarten
Zhuji, Zhejiang Province
322
400
2019
Managed Schools
Zhuji Hailiang Jinshan Kindergarten
Zhuji, Zhejiang Province
245
249
2019
Managed Schools
Tianma Kindergarten
Zhuji, Zhejiang Province
341
350
2019
Managed Schools
Sihong Second Experimental School
Suqian, Jiangsu Province
4,401
5,500
2020
Managed Schools
Xiamen Road School
Suqian, Jiangsu Province
1,172
4,600
2021
Managed Schools
Fumin Avenue School
Suqian, Jiangsu Province
613
3,200
2021
Managed Schools
Jingdong Yi Autonomous County No.1 Middle
School
Jingdong, Yunnan Province
—
3,500
2022
Managed Schools
Longkou No.1 Middle School (Chongshi
Department)
Longkou, Shandong Province
—
400
2022
Managed Schools
Sub-total
33,279
54,460
Total
61,251
91,447
(*) The capacity of each school in Hailiang Education Park may be adjusted according to the students enrollment every school year.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
88/219
Table of Contents
84
(**)We obtained the sponsorship of Jinhua Hailiang Foreign Language School and Feicheng Hailiang Foreign Language School in fiscal year 2021.
Contractual Arrangements with our affiliated entities and their shareholders
Hailiang Inc. is a holding company with no substantive operations. We had previously, through our PRC subsidiary, Hailiang Consulting, entered into a series of contractual
arrangements with Hailiang Management on December 31, 2013, and with Haishan Development on August 10, 2021.
On June 30, 2017, we, through our PRC subsidiary, Hailiang Consulting, entered into a series of revised and amended contractual arrangements (the “First Amended and Restated
Contractual Arrangements”) with Hailiang Management.
On February 8, 2018, Beize Group, controlled by Mr. Feng, became a 0.1% record shareholder of Hailiang Management by contributing additional capital to Hailiang Management.
As of the date of this annual report 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, each of 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 the Second Amended and
Restated Call Option Agreement, Second Amended and Restated Powers of Attorney, Second Amended and Restated Consulting Services Agreement and Second Amended and
Restated Equity Pledge Agreement. The recording process for the Second Amended and Restated Contractual Arrangements with the local government was completed on March 15,
2018.
On May 14, 2021, the State Council promulgated the 2021 Implementation Rules for Private Education Laws, which became effective on September 1, 2021 and further stipulate the
operation and management of private schools and the capital operation of private education. Such 2021 Implementation Rules for Private Education Laws may have negative
impacts on our business operations and our operations results. Pursuant to the 2021 Implementation Rules for Private Education Laws, (1) foreign-invested enterprises established in
China and social organizations whose actual controllers are foreign parties shall not sponsor, participate in or actually control private schools that provide compulsory education,
(2) social organizations or individuals shall not control any private school that provides compulsory education or any non-profit private school that provides pre-school education by
means of merger, acquisition, contractual arrangements, etc., and (3) private schools providing compulsory education shall not conduct any transaction with any related party.
On August 10, 2021, Hailiang Management was divided and separated into Hailiang Management and Haishan Development for the purpose of the adjustment of our business
structure and the better preparation for the potential impact from the 2021 Implementation Rules for Private Education Laws.
On August 10, 2021, we, through our PRC subsidiary, Hailiang Consulting, entered into a series of contractual arrangements (the “August 2021 VIE Agreements”), with Haishan
Development, as designated to be the sponsor or parent of discontinued operation entities.
The following is a summary of the material provisions of the Second Amended and Restated Contractual Arrangements with our affiliated entities and the shareholders 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 Group entered into on February 23,
2018, Mr. Feng and Beize Group unconditionally and irrevocably granted Hailiang Consulting or its designee an exclusive option to purchase, to the extent permitted under PRC
laws and regulations, in certain cases, including but not limited to the cancellation of any of the Second Amended and Restatement Contractual Arrangements or liquidation or
dissolution of Hailiang Management, all or part of the equity interest in Hailiang Management at the lowest consideration permitted by PRC laws and regulations unless a valuation
of the equity is required by the PRC laws. Hailiang Consulting has the sole discretion to decide when to exercise the option, and whether to exercise the option in part or in full.
Without Hailiang Consulting’s written consent, Hailiang Management, Beize Group or Mr. Feng may not sell, transfer, pledge or otherwise dispose 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 loan or guarantee to a third party, or alter the nature or scope of its business. The Second Amended
and Restated Call Option Agreement
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
89/219
Table of Contents
85
may not be terminated by Hailiang Management, Beize Group or Mr. Feng, nor can it be terminated by Hailiang Consulting without cause. Unless terminated, the Second Amended
and 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 Hailiang Consulting, or any person
designated by Hailiang Consulting, as their attorney-in-fact to (i) exercise on their behalf all their rights as shareholders of Hailiang 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 Hailiang Management 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 and business support services to Hailiang
Management’s affiliated entities. In particular, such services include developing curriculum, conducting market research and offering strategic business advice, providing
information technology services, providing public relations services, providing support for teacher hiring and training and providing other services that the affiliated entities may
need from time to time. Without the prior written consent of Hailiang Consulting, none of Hailiang Management’s affiliated entities may receive such services from any third party.
Hailiang Consulting owns the exclusive intellectual property rights created despite the changes of the performance of services under this Second Amended and Restated Consulting
Services Agreement. Hailiang Management’s affiliated entities agree to pay annual service fees, calculated as a percentage of their total revenue, to Hailiang Consulting (or its
controlled affiliate). At the sole discretion of Hailiang Consulting, the service fees may be adjusted from time to time based on the complexity of the services provided, the time and
resources committed by Hailiang Consulting (or its controlled affiliate) and the commercial value of the services. 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 other necessary costs prior to the payment of such service fees. As part of the Second Amended and Restated Consulting
Agreement, Hailiang Management, Beize Group and Mr. Feng agree that each of them will not take any actions, such as incurring indebtedness, disposing of material assets,
materially changing the scope or nature of the business of Hailiang Management’s affiliated entities, disposing of their equity interests in Management’s affiliated entities, or paying
dividends to Mr. Feng or Beize Group without the written consent of Hailiang Consulting. The Second Amended and Restated Consulting Agreement may not be terminated by
Hailiang Management, Beize Group, or Mr. Feng, nor can it be terminated by Hailiang Consulting without cause. Unless terminated, the Second Amended and Restated Consulting
Agreement shall remain in full force and effect during the term of operations of Hailiang Management’s affiliated entities.
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 Management entered into on
February 23, 2018, each of Mr. Feng and Beize Group unconditionally and irrevocably pledged all of their respective equity interests in Hailiang Management to Hailiang
Consulting to guarantee performance of the obligations of Hailiang Management’s affiliated entities under the Second Amended and Restated Call Option Agreement, the Second
Amended and Restated Power of Attorney, and the Second Amended and Restated Consulting Agreement, each as described above. Beize Group and Mr. Feng each agreed that
without prior written consent of Hailiang Consulting, they shall not transfer or dispose of the pledged equity interests, commence any bankruptcy or liquidation process of Hailiang
Management or create or allow any encumbrance on the pledged equity interests. The Second Amended and Restated Equity Pledge Agreement may not be terminated by Hailiang
Management, Beize Group or Mr. Feng, nor can it be terminated by Hailiang Consulting without cause. Unless terminated, the Second Amended and Restated Equity Pledge
Agreement remains in full force and effect until all of the obligations of Hailiang Management’s affiliated entities under the consulting services agreement have been duly performed
and related payments are duly paid. The pledge of equity interests in Hailiang Management by Mr. Feng and Beize Group has been duly registered with the local branch of SAIC
and becomes effective upon such registration.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
90/219
Table of Contents
86
The following is a summary of the material provisions of the August 2021 VIE Agreements with our affiliated entities and the shareholders of Haishan Development:
Call Option Agreement
Pursuant to the Option Agreement, Mr. Feng and Beize Group unconditionally and irrevocably granted Hailiang Consulting or its designee, an exclusive option to purchase, to the
extent permitted under PRC laws and regulations, in certain cases, including but not limited to the cancellation of any of the other agreements under the contractual arrangements or
liquidation or dissolution of Haishan Development, all or part of the equity interest in Haishan Development at the lowest consideration permitted by PRC laws and regulations,
unless a valuation of the equity is required by the PRC laws. Hailiang Consulting has the sole discretion to decide when to exercise the option, and whether to exercise the option in
part or in full. Without Hailiang Consulting’s written consent, Haishan Development and Mr. Feng and Beize Group may not sell, transfer, pledge or otherwise dispose of or create
any encumbrance on any of Haishan Development’s assets, businesses or equity interests or merge with or acquire other businesses. Without obtaining Hailiang Consulting’s written
consent, Haishan Development may not enter into any material contracts, incur any indebtedness or provide any loan or guarantee to a third party, or alter the nature or scope of its
business. This agreement may not be terminated by Haishan Development or Mr. Feng or Beize Group, nor can it be terminated by Hailiang Consulting without cause. Unless
terminated, this agreement shall remain in full force and effect until the expiration of Haishan Development’s term of Haishan Development’s term of operations.
Power of Attorney
Mr. Feng and Beize Group each executed an irrevocable Power of Attorney appointing Hailiang Consulting, or any person designated by Hailiang Consulting, as their attorney-in-
fact to (i) exercise on their respective behaves all their respective rights as shareholders of Haishan Development, including those rights under PRC laws and regulations and the
articles of association of Haishan Development, such as rights appointing, replacing or removing directors, declaring dividends and making decisions on operational and financial
matters, (ii) act as the representative of Haishan Development in its business operations, and (iii) unconditionally assign Mr. Feng and Beize Group’s shareholding rights to Hailiang
Consulting, including dividends or other benefits that Mr. Feng and Beize Group receive from Hailshan Development as shareholders.
Consulting Services Agreement
Pursuant to the Consulting Services Agreement between Hailiang Consulting, Haishan Development and Mr. Feng and Beize Group, as the shareholders of Haishan Development,
Hailiang Consulting (or its controlled affiliate) has the exclusive right to provide comprehensive technical and business support services to Haishan Development’s affiliated entities.
In particular, such services include developing curriculum, conducting market research and offering strategic business advice, providing information technology services, providing
public relations services, providing support for teacher hiring and training and providing other services that the affiliated entities may need from time to time. Without the prior
consent of Hailiang Consulting, none of Haishan Development’s affiliated entities may accept such services provided by any third party. Hailiang Consulting owns the exclusive
intellectual property rights created as a result of the performance of this agreement. Haishan Development’s affiliated entities agree to pay annual service fees, calculated as
a percentage of their total revenue, to Hailiang Consulting (or its controlled affiliate). At the sole discretion of Hailiang Consulting, the percentage ratio for calculating the service
fees may be adjusted from time to time based on the complexity of the services provided, the time and resources committed by Hailiang Consulting (or its controlled affiliate) and
the commercial value of the services. The Consulting Services Agreement enables Hailiang Consulting (or its controlled affiliate) to charge an annual service fee, the maximum of
which equals the net income of Haishan Development’s affiliated entities after deducting the mandatory development reserve fund and other necessary costs prior to the payment of
such service fees. As part of the Consulting Services Agreement, Haishan Development and Mr. Feng and Beize Group agree that they will not take any actions, such as incurring
indebtedness, disposing of material assets, materially changing the scope or nature of the business of Haishan Development’s affiliated entities, disposing of their equity interests in
Haishan Development’s affiliated entities, or paying dividends to Mr. Feng or Beize Group, without the written consent of Hailiang Consulting. This agreement may not be
terminated by Haishan Development or Mr. Feng or Beize Group, nor can it be terminated by Hailiang Consulting without cause.
Due to the promulgation of 2021 Implementation Rules for Private Education Laws, the clause or provision of the Consulting Services Agreement, one of the August 2021 VIE
Agreements, in relation to related party transactions between a private school providing compulsory education and Hailiang Consulting and its affiliated entities, are not legally
enforceable since September 1, 2021. For further details, refer to “Our private educational service business is subject to extensive regulation in China. If the PRC government finds
that
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
91/219
Table of Contents
87
the contractual arrangements that establish our corporate structure for operating our business do not comply with applicable PRC laws and regulations, we could be subject to
severe penalties.”
Equity Pledge Agreement
Pursuant to the Equity Pledge Agreement between Hailiang Consulting, Mr. Feng and Beize Group, and Haishan Development, Mr. Feng and Beize Group unconditionally and
irrevocably pledged all of their equity interests in Haishan Development to Hailiang Consulting, to guarantee performance of the obligations of Haishan Development’s affiliated
entities under the Call Option Agreement, Power of Attorney and Consulting Services Agreement, each as described above. Mr. Feng and Beize Group agreed that without prior
written consent of Hailiang Consulting, they shall not transfer or dispose of the pledged equity interests, commence any bankruptcy or liquidation process of Haishan Development
or create or allow any encumbrance on the pledged equity interests. This agreement may not be terminated by Haishan Development or Mr. Feng or Beize Group, nor can it be
terminated by Hailiang Consulting without cause. The Equity Pledge Agreement remains in full force and effect until all of the obligations of Haishan Development’s affiliated
entities under the Consulting Services Agreement have been duly performed and related payments are duly paid. The pledge of equity interests in Haishan Development has been
duly registered with the local branch of State Administration for Industry and Commerce of PRC (“SAIC”) and is effective upon such registration.
As of June 30, 2021, the Contractual Agreements provide Hailiang Inc., through Hailiang HK and Hailiang Consulting, the following: (i) the power to control the Affiliated Entities;
(ii) the exposure or rights to variable returns from its involvement with the Affiliated Entities; and (iii) the ability to affect those returns through its power over the Affiliated
Entities.
Pursuant to the 2021 Implementation Rules for Private Education Laws, a private school providing compulsory education is prohibited from conducting transactions with its related
parties, and this significantly affects the enforceability of the Consulting Services Agreements with affiliated entities providing compulsory education. Therefore, we re-assessed our
control over the affiliated entities providing compulsory education and concluded that according to IFRS 10-Consolidated Financial Statements, we lost control of the affiliated
entities providing compulsory education services on September 1, 2021, in view of the significant uncertainties and restrictions the 2021 Implementation Rules for Private Education
Laws impose on our ability to direct the range of ongoing activities that would most significantly impact the returns of those entities and to be exposed to returns that are
commensurate with a controlling interest, and that such uncertainties and restrictions already had a significant impact on our ability to direct and its economic exposure from
involvement with such entities.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
92/219
Table of Contents
88
Financial Information Related to the VIEs
The following table presents the condensed consolidating schedule of financial position for our VIEs and other entities as of the dates presented.
As of June 30,
2020
2021
Subsidiaries
Consolidated
Elimination
Consolidated
Subsidiaries
Consolidated
Elimination
Consolidated
Parent
of Parent
VIE
adjustments
totals
Parent
of Parent
VIE
adjustments
totals
RMB
RMB
Consolidating Schedule of Financial
Position
Assets
Property and equipment, net
—
44,434
615,417
—
659,851
—
43,249
422,485
—
465,734
Intangible assets and goodwill, net
—
1,495
96,311
—
97,806
—
659
17,641
—
18,300
Right-of-use assets
—
252,334
265,275
—
517,609
—
256,492
246,321
—
502,813
Contract costs
—
—
11,161
—
11,161
—
—
12,438
—
12,438
Prepayments to third party suppliers
—
16
126
—
142
—
—
—
—
—
Term deposits held at a related party
finance entity
—
—
—
—
—
—
993,182
427,757
—
1,420,939
Deferred tax assets
—
64
504
—
568
—
64
795
—
859
Other receivables due from
intercompany (1)
27,237
—
—
(27,237)
(1)
—
5,077
—
—
(5,077)
(1)
—
Investment in subsidiaries (2)
—
—
—
—
—
10,091
—
—
(10,091)
(2)
—
Non-current assets
27,237
298,343
988,794
(27,237)
1,287,137
15,168
1,293,646
1,127,437
(15,168)
2,421,083
Other receivables due from related
parties
69,591
1,580
6,271
—
77,442
42,830
7,637
3,401
—
53,868
Other current assets
225
8,108
28,183
—
36,516
1,233
6,442
30,110
—
37,785
Term deposits held at a related party
finance entity
—
88,500
833,101
—
921,601
—
24,141
453,162
—
477,303
Restricted bank deposits
—
—
324
—
324
—
—
1,324
—
1,324
Cash and cash equivalents
891
218,870
296,685
—
516,446
23,244
74,216
181,960
—
279,420
Other receivables due from
intercompany (1)
—
—
7,660
(7,660)
(1)
—
—
—
283,561
(283,561)
(1)
—
Current assets
70,707
317,058
1,172,224
(7,660)
1,552,329
67,307
112,436
953,518
(283,561)
849,700
Total assets
97,944
615,401
2,161,018
(34,897)
2,839,466
82,475
1,406,082
2,080,955
(298,729)
3,270,783
Equity
Share capital
268
8
140,120
(140,128)
268
268
10,099
140,120
(150,219)
268
Share premium
134,583
—
—
—
134,583
134,583
—
—
—
134,583
Contributed capital
—
—
112,906
140,128
253,034
—
—
57,856
140,128
197,984
Reserves
16,161
34,014
345,878
—
396,053
8,343
58,331
376,279
—
442,953
Retained earnings
(55,739)
374,255
924,390
—
1,242,906
(60,796)
784,791
700,855
—
1,424,850
Total Hailiang Education Group Inc.
shareholders' equity (2)
95,273
408,277
1,523,294
—
2,026,844
82,398
853,221
1,275,110
(10,091)
(2)
2,200,638
Non-controlling interests
—
—
10,797
—
10,797
—
404
15,818
—
16,222
Total equity
95,273
408,277
1,534,091
—
2,037,641
82,398
853,625
1,290,928
(10,091)
2,216,860
Liabilities
Contract liabilities
—
—
3,159
—
3,159
—
—
132
—
132
Deferred tax liabilities
—
—
4,607
—
4,607
—
—
4,736
—
4,736
Lease liabilities
—
3,385
15,364
—
18,749
—
2,456
28,065
—
30,521
Non-current liabilities
—
3,385
23,130
—
26,515
—
2,456
32,933
—
35,389
Trade and other payables due to third
parties
2,669
58,676
210,667
—
272,012
75
93,685
282,987
—
376,747
Other payables due to related parties
2
71,171
85,536
—
156,709
2
51,336
83,644
—
134,982
Contract liabilities
—
9,172
286,807
—
295,979
—
64,765
380,100
—
444,865
Income tax payable
—
29,823
19,034
—
48,857
—
50,728
5,979
—
56,707
Lease liabilities
—
—
1,753
—
1,753
—
849
4,384
—
5,233
Other payables due to intercompany
(1)
—
34,897
—
(34,897)
(1)
—
—
288,638
—
(288,638)
(1)
—
Current liabilities
2,671
203,739
603,797
(34,897)
775,310
77
550,001
757,094
(288,638)
1,018,534
Total liabilities
2,671
207,124
626,927
(34,897)
801,825
77
552,457
790,027
(288,638)
1,053,923
Total equity and liabilities
97,944
615,401
2,161,018
(34,897)
2,839,466
82,475
1,406,082
2,080,955
(298,729)
3,270,783
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
93/219
Table of Contents
The following table presents the condensed consolidating schedules of profit or loss and other comprehensive income and cash flows for our VIEs and other entities for the periods
presented.
For the Year Ended June 30,
2019
2020
2021
Subsidiaries
Consolidated
Elimination
Consolidated
Subsidiaries
Consolidated
Elimination
Consolidated
Subsidiaries
Consolidated
El
Parent
of Parent
VIE
adjustments
totals
Parent
of Parent
VIE
adjustments
totals
Parent
of Parent
VIE
ad
RMB
RMB
RMB
Condensed
Consolidating
Schedule of
Profit or Loss
and Other
Comprehensive
Income
Continuing
operations
Revenue
—
478,284
613,975
(69,464) (3)
1,022,795
—
509,570
598,275
(80,472)
(3)
1,027,373
—
962,141
510,200
Cost of revenue
—
(231,401)
(441,705)
59,326 (3)
(613,780)
—
(229,516)
(418,213)
67,469
(3)
(580,260)
—
(367,163)
(441,717)
Gross profit
—
246,883
172,270
(10,138)
409,015
—
280,054
180,062
(13,003)
447,113
—
594,978
68,483
Other income, net
—
20,028
899
—
20,927
—
31,024
36,046
—
67,070
—
28,096
18,534
Selling expenses
—
(5,947)
(6,484)
635 (3)
(11,796)
—
(5,794)
(8,150)
—
(13,944)
—
(16,366)
(13,737)
Administrative
expenses
(8,176)
(33,568)
(4,254)
9,503 (3)
(36,495)
(10,060)
(32,563)
(15,498)
13,003
(3)
(45,118)
(5,057)
(54,957)
(7,198)
Operating profit
(8,176)
227,396
162,431
—
381,651
(10,060)
272,721
192,460
—
455,121
(5,057)
551,751
66,082
Finance income
—
3,116
13,480
—
16,596
—
2,758
13,279
—
16,037
—
27,233
8,607
Finance costs
—
—
—
—
—
—
(1,513)
(1,922)
—
(3,435)
—
(74)
(1,077)
Net finance
income
—
3,116
13,480
—
16,596
—
1,245
11,357
—
12,602
—
27,159
7,530
Profit before tax
(8,176)
230,512
175,911
—
398,247
(10,060)
273,966
203,817
—
467,723
(5,057)
578,910
73,612
Income tax
expenses
—
(59,269)
(49,444)
—
(108,713)
—
(69,276)
(52,648)
—
(121,924)
—
(145,223)
(20,132)
Profit from
continuing
operations
(8,176)
171,243
126,467
—
289,534
(10,060)
204,690
151,169
—
345,799
(5,057)
433,687
53,480
Profit/(loss) from
discontinued
operations, net
of tax
—
—
23,058
—
23,058
—
—
24,205
—
24,205
—
—
(243,337)
Net Profit
(8,176)
171,243
149,525
—
312,592
(10,060)
204,690
175,374
—
370,004
(5,057)
433,687
(189,857)
For the Year Ended June 30,
2019
2020
2021
Subsidiaries
Consolidated
Elimination
Consolidated
Subsidiaries
Consolidated
Elimination
Consolidated
Subsidiaries
Consolidated
Parent
of Parent
VIE
adjustments
totals
Parent
of Parent
VIE
adjustments
totals
Parent
of Parent
VIE
RMB
RMB
RMB
Condensed
Consolidating
Schedule of Cash
Flows
Net cash generated
from/(used in)
operating activities
(12,154)
65,542
658,774
—
712,162
(11,424)
275,088
180,706
—
444,370
(8,499)
569,634
332,257
Net cash generated
from/(used in)
investing activities
12,412
(95,102)
(1,171,193)
—
(1,253,883)
11,850
(94,807)
(66,560)
—
(149,517)
11,558
(933,632)
(369,223)
Net cash generated
from/(used in)
financing activities
—
—
(1,343)
—
(1,343)
—
(34,884)
(15,498)
—
(50,382)
22,000
217,926
(78,308)
Net
increase/(decrease)
in cash and cash
equivalents
258
(29,560)
(513,762)
—
(543,064)
426
145,397
98,648
—
244,471
25,059
(146,072)
(115,274)
Cash and cash
equivalents at
beginning of the
year
526
102,983
711,797
—
815,306
390
73,113
198,035
—
271,538
891
218,870
296,685
Effect of movements
in exchange rates
on cash and cash
equivalents
(394)
(310)
—
—
(704)
75
360
2
—
437
(2,706)
1,418
549
Cash and cash
equivalents at the
end of the year
390
73,113
198,035
—
271,538
891
218,870
296,685
—
516,446
23,244
74,216
181,960
(1) It represents the elimination of intercompany balances among the Parent, its subsidiaries and the consolidated VIE.
(2) It represents the elimination of the investment in its subsidiaries by the Parent.
(3) It represents the elimination of intercompany transactions including selling products and providing management and logistic services to the consolidated VIE by the subsidiaries
of Parent.
(4) It represents the elimination of cash paid by the Parent to its subsidiaries as investment or capital increase, the loans provided to the Parent by its subsidiaries and the loans
provided by the consolidated VIE to the subsidiaries of the Parent
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
94/219
89
Cash Flows through Our Organization
We are a holding company with no business operations of our own. We conduct our operations primarily through our PRC subsidiaries and VIEs in China. As a result, our ability to
pay dividends and to service any debt we may incur and pay our operating expenses principally depends on dividends paid by our PRC subsidiaries.
Under applicable PRC laws and regulations, our PRC subsidiaries are permitted to pay dividends to us only out of their accumulated profits, if any, determined in accordance with
PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to allocate at least 10% 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 not distributable as cash dividends except in the event of liquidation.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
95/219
Table of Contents
90
If we intend to distribute dividends through the Parent, we will transfer the dividends to Hailiang Education (HK) Limited (“Hailiang HK”) in accordance with the laws and
regulations of the PRC, and then Hailiang HK will transfer the dividends to the Parent, and the dividends will be distributed from the Parent to all shareholders respectively in
proportion to the shares they hold, regardless of whether the shareholders are U.S. investors or investors in other countries or regions. For the fiscal years of 2019, 2020 and 2021, no
dividends were declared and paid by our PRC subsidiaries.
For the years ended June 30, 2019, 2020 and 2021, the subsidiaries of the Parent provided loans of nil, nil and RMB22.0 million (approximately US$3.4 million) to the Parent,
respectively. The related cash flows were classified as investing activities of the subsidiaries of the Parent and financing activities of the Parent.
For the years ended June 30, 2019, 2020 and 2021, the Parent invested in its subsidiaries of nil, nil and RMB10.1 million (approximately US$1.6 million), respectively. The related
cash flows were classified as investing activities of the Parent and financing activities of the subsidiaries of the Parent.
For the years ended June 30, 2019, 2020 and 2021, the subsidiaries of the Parent borrowed loans of nil, nil and RMB230.0 million (approximately US$35.6 million) from the
consolidated VIE with free interest rate, respectively. The related cash flows were classified as investing activities of the consolidated VIE and financing activities of the Parent’s
subsidiaries. For the years ended June 30, 2019, 2020 and 2021, no assets other than the above cash transactions were transferred between the subsidiaries of the Parent and the
consolidated VIE.
D.
Property, Plants and Equipment
Lease Agreements
Our principal executive offices are located at 1508 Binsheng RD, Binjiang District, Hangzhou City, Zhejiang Province, 310051, People’s Republic of China. For continuing
operations, we lease real properties used by our affiliated schools and companies with a total floor area of approximately 615,390 square meters (approximately 6,623,131 square
feet) as of June 30, 2021, among which, approximately 590,583 square meters (approximately 6,356,983 square feet) are rented from Hailiang Investment, which is controlled by
Mr. Feng, our ultimate controlling shareholder, approximately 24,807 square meters (approximately 267,020 square feet) are rented from local government.
The terms of each of our current leases for campuses in Zhuji city rented from Hailiang Investment is for nineteen years from July 1, 2018. These leases contain priority renewal
provisions which provide that we have the right of first refusal to renew the lease upon the expiration of the lease, provided, that we notify the lessor six months in advance. Under
each of these lease agreements, we can terminate the lease at any time without cause, provided, that we notify the lessor 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 unapproved sublease 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. To terminate these leases for other causes, the lessor is required to give us written notice one year in advance and
obtain our consent to such termination.
On April 28, 2019, the Company entered into eight new lease agreements with Hailiang Investment regarding Hailiang Education Park, in order to allocate lease fees to the
respective schools and subsidiaries according to their used gross floor area. The term of each of these leases is for nineteen years from July 1, 2018 and the rental fees in the
first year was RMB22.3 million in the aggregate and is subject to a 5% annual increase from fiscal year 2020 to 2022. The rental fees commencing from the fiscal year 2023 will be
subject to further negotiation between the Company and Hailiang Investment. The leases cover the properties and facilities of Hailiang Education Park with a total combined gross
floor area and site area of approximately 489,225 square meters (approximately 5,265,974 square feet) and 833,000 square meters (approximately 8,966,337 square feet),
respectively. For continuing operations, the leases cover the properties and facilities of Hailiang Education Park with a total combined gross floor area of approximately 367,856
square meters (approximately 3,959,569 square feet).
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.
Leasehold improvement
On November 13, 2014, Zhejiang Zhuji Hailiang Experimental High School entered into three leasehold improvement contracts with Heng Zhong Da Construction Co.,Ltd. (“Heng
Zhong Da”), a company over which Mr. Feng has significant influence, for outfitting services and related improvements for student dormitories, educational buildings, dining halls,
administrative building, sports stadiums,
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
96/219
Table of Contents
91
welcoming center and the school hospital of Hailiang Education Park. Under the contracts, Zhejiang Zhuji Hailiang Experimental High School will pay a total contract consideration
of approximately RMB291.7 million (or RMB223.7 million, RMB12.2 million and RMB55.8 million under each of the contracts, respectively) to Heng Zhong Da. The outfitting
and improvements began on November 13, 2014 and were completed as of June 30, 2016. After a final inspection by Zhejiang Zhuji Hailiang Experimental High School, the parties
of the contracts fixed the final contract payment based on the actual costs incurred which were approximately RMB291.7 million (or RMB223.7 million, RMB12.2 million and
RMB55.8 million under each of the contracts, respectively).
Additionally, we also entered into a series of leasehold improvement contracts with Heng Zhong Da for the leasehold improvement of classroom buildings, dining halls and student
dormitories of our affiliated schools., and the amount of the contracts was RMB136.8 million and RMB 14.1 million (approximately US$2.2 million) during the years ended
June 30, 2020 and 2021, respectively. As of June 30, 2021, and as of the 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 purchased leasehold improvement service of RMB38.5 million, RMB118.7 million and RMB68.1 million (approximately US$10.5 million) from Heng Zhong Da during
the years ended June 30, 2019, 2020 and 2021, respectively.
We have paid RMB37.9 million, RMB85.3 million, and RMB70.4 million, (approximately US$10.9 million) to Heng Zhong Da during the years ended June 30, 2019, 2020 and
2021 respectively.
Item 4A. UNRESOLVED STAFF COMMENTS
None.
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results is on a continuing operations basis unless otherwise stated, which is based upon and should be read in conjunction
with our consolidated financial statements and their related notes included in this annual report on Form 20-F. This annual report on Form 20-F contains forward-looking statements.
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 to substantial risks and uncertainties.
Since the announcement of the 2021 Implementation Rules for Private Education Laws, management began to continuously assess the impact of the 2021 Implementation Rules for
Private Education Laws and whether we continue to control the affiliated entities providing compulsory education services. According to IFRS 10 - Consolidated Financial
Statements, we concluded that we lost control of the affiliated entities providing compulsory education services on September 1, 2021, in view of the significant uncertainties and
restrictions the 2021 Implementation Rules for Private Education Laws impose on our ability to direct the range of ongoing activities that would most significantly impact the
returns of those entities and to be exposed to returns that are commensurate with a controlling interest, and that such uncertainties and restrictions already had a significant impact on
our ability to direct and its economic exposure from involvement with such entities. Further, we have considered the ancillary nature of the activities and the insignificance of the
costs related to the K9 compulsory education business while the related schools were closed between June 30, 2021 and date of loss of control of September 1, 2021. We have
determined that, in substance, we have ceased all revenue-generating activities related to that business and have discontinued that business by June 30, 2021. As the compulsory
education business represents an operating segment, we have classified the historical financial results of compulsory education business as discontinued operations in the Company’s
Consolidated Statements of Profit or Loss and Other Comprehensive Income for all periods presented.
Operating Results
Review of operating segments
We are an education and management service provider located in China. We determined our operating segments based on financial information utilized by our chief operating
decision maker to allocate resources and assess performance.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
97/219
Table of Contents
92
We identified four operating segments for the years ended June 30, 2019 and 2020, including K-12 educational and management services, well-rounded education services and
academic subject tutoring services, study trip and overseas study consulting services and hotel management services.
For the year ended June 30, 2021, we optimized our management structure due to the impact of Implementation Rules announced on May 14, 2021, and restructured into three
operating segments, including K-12 student management services and high school curriculum education services and operation and management services, K-9 compulsory
curriculum education services and ancillary educational services for efficient resource allocation and high-quality management for affiliated and managed schools and students.
The following discussion summarizes the three operating segments:
K-12 student management services and high school curriculum education services and operation and management services
For the year ended June 30, 2021, we provided K-12 student management services and high school curriculum education services for 27,972 students. We also managed and
operated 27 managed schools that were not owned or sponsored by us, and provided various services including but not limited to branding, academic management, basic and
international education resources, school culture, admission, finance, human resources, procurement, IT, internal audit, property and logistics management services to our managed
schools, with an aggregate 43,897 students enrolled as of June 30, 2021.
K-9 compulsory curriculum education services
As disclosed in “Item 3. Key information”, we lost control of the affiliated entities providing K-9 compulsory education on September 1, 2021 according to IFRS 10 - Consolidated
Financial Statements. We have classified the historical financial results of K-9 compulsory education as discontinued operations.
Ancillary educational services
Ancillary educational services primarily include well-rounded education services, academic subject tutoring services, study trip and overseas study consulting services.
For the 2020/2021 school year, we have attracted 131,832 student attendances of well-rounded education services and academic subject tutoring services.
As of the date of this annual report, due to the promulgation of “The Opinion on Further Easing the Workload and Burden of After-school Tutoring for Students in Compulsory
Education” in July 2021, we have adjusted the scope of this operating segment. For further details, refer to “Item 4. Information on the Company—B. Business Overview—
Ancillary Educational Services–Well-rounded Education Services and Academic Subject Tutoring Services”.
Through cooperation with other education service providers and self-developed study trip and camp courses, we offer students in our affiliated and managed schools a variety of
study trip and camp education programs operated domestically and globally. For the 2020/2021 school year, we have attracted 46,991 student attendances in these programs.
We also provide high school students with consulting and planning services for applying to enter the universities, and provide one-to-one personalized overseas study consulting
services, so as to fully help high school graduates to apply for admission to global universities. For 2020/2021 school year, we provided overseas consulting services to 1,412
students.
We provide lodging, meals and other guest services at the Zhuji Nianxin Lake Hotel, located in Hailiang Education Park.
Review of operations
Revenue from K-12 student management services and high school curriculum education services increased by 29.0% to RMB 1,111.6 million (approximately US$172.2 million) in
the 2021 fiscal year, due to an increase in the number of students and an increase in the annualized average tuition and fees. Revenue from ancillary educational services increased
by 67.8% to RMB204.2 million (approximately US$31.6million) in the fiscal year 2021, due to the growth in the number of students enrolled in the well-rounded education services
and students of international education program who received overseas study consulting services. Revenue from
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
98/219
Table of Contents
93
operation and management services increased by 37.0%, to RMB60.0 million (approximately US$9.3 million) in the fiscal year 2021 mainly due to two new managed schools in
Suqian City and the expansion of our service scope to some of our managed schools.
Our total revenue increased by 0.4% to RMB 1,027.4 million, gross profits increased by 9.3% to RMB447.1 million and net profit attributable to our shareholders increased by
31.0% to RMB350.0 million in the 2020 fiscal year. Our total revenue increased by 33.9% to RMB 1,375.8 million (approximately US$213.1 million) and gross profits increased by
44.8% to RMB647.2 million (approximately US$100.2 million), net profit attributable to our shareholders increased by 38.0% to RMB483.0 million (approximately US$74.8
million) in the 2021 fiscal year.
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 last decade. This increase was
driven by the overall economic growth, the rise in household disposable income and household spending on education, as well as an improvement in the education system
and policies relating to K-12 education in China. According to Ministry of Education of the PRC, the total number of student enrollments of private K-12 education in
China has increased steadily, from 40.1 million in 2016 to 44.6 million in 2020, and the proportion of student in private K-12 schools against the total number of students in
K-12 schools also increased from 17.70 % to 18.13% during the same period.
●
Demand for international education in the PRC market. The demand for international and bilingual private K-12 education in China is growing. According to a report
prepared at our request by Sansheng Consulting, an independent market research firm, or the Sansheng Report, the total number of students enrolled in international and
bilingual private schools in China has increased from 216.1 thousand in 2016 to 480.4 thousand in 2020, realizing a fast increase with a CAGR of 22.1 %. This growth can
mainly be attributed to the rising recognition of the quality of higher education overseas by Chinese students, and the rising income and wealth of Chinese households. As a
result of the demand and increasing student enrollments, the total revenue of international and bilingual private schools in China increased from RMB21.4 billion in 2016
to RMB52.6 billion in 2020 at an increase CAGR of 25.2% (according to the Sansheng Report). With high-quality teachers, well-known brand, and strong management
team, we are determined to deliver well-designed curriculums and facilitate comprehensive development of our students.
●
Ability to successfully expand our school and managed school network through an asset-light approach efficiently. We facilitate the development of our school and
managed school network by employing an asset-light approach, which allows us to manage and operate additional schools, or act as these schools’ sponsor without
acquiring ownership of land and facilities in such schools. For schools we sponsor but do not own the land and facilities, we can avoid significant capital expenditure by
leasing land and facilities. For schools we manage and operate but do not act as sponsor, we aim to provide operation and management services to both public and private
schools. As of June 30, 2021, we entered into service agreements with 27 private and public schools to provide operation and management services. For these services, we
earn fees based on the types, scale and costs of the services we rendered. We expect to provide operation and management services to additional public and private schools
in the future to reach students across China and promote the Hailiang Education brand both domestically and internationally, which we expect would then lead to an
increase in our profitability and market penetration.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
99/219
Table of Contents
94
●
Level of student served. For the year ended June 30, 2019, 2020 and 2021, we had a total of 23,263, 24,726, and 27,972 students, respectively.
●
Pricing of educational programs and service fees. We provide K-12 student management services and high school curriculum education services. Our results of
operations are affected by the pricing of service fees, which was based on a student’s education phase and whether the students attend basic or international program.
●
Ability to control costs and expenses. Our ability to maintain and increase profitability also depends on our ability to effectively control our costs and expenses.
Cost of revenue. Our cost of revenue mainly consists of labor cost, student-related costs, depreciation expenses and to a lesser extent, transportation costs, utility costs and
leasing fees. Our cost of revenue as a percentage of our total revenue was 60.0%, 56.5%, and 53.0% for fiscal years 2019, 2020 and 2021, respectively.
Selling expenses and administrative expenses. For the 2019, 2020 and 2021 fiscal years, our total selling expenses and administrative expenses as a percentage of our total
revenue were 4.7%, 5.7%, and 5.9% respectively.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
100/219
Table of Contents
95
Overview of Financial Results
We evaluate our business using a variety of key financial measures.
Revenue
During the fiscal years ended June 30, 2019, 2020 and 2021, we generated revenue of RMB1,022.8 million, RMB 1,027.4 million and 1,375.8 (approximately US$213.1 million),
respectively.
Revenue from K-12 student management services and high school curriculum education services include accommodation and after-school enrichment services to K-12 school
students and high school curriculum education services, which accounted for 73.8%, 83.9% and 80.8% of total revenue in the fiscal years 2019, 2020 and 2021, respectively;
Revenue from ancillary educational services primarily include well-rounded education services, academic subject tutoring services, study trip and overseas study consulting services,
which accounted for 22.5%, 11.8% and 14.8% of total revenue in the fiscal years 2019, 2020 and 2021, respectively;
Revenue from operation and management services mainly represent the provision of services to managed schools that we did not own or sponsor, including but not limited to
branding, academic management, basic and international education resources, school culture, admission, finance, human resources, procurement, IT, internal audit, property and
logistics management services. Pursuant to the 2017 Group Strategic Cooperation Agreement, we have a right of first refusal to provide operation and management services for
schools constructed, merged and acquired by Hailiang Group or Hailiang Investment. We also entered into services agreements where we will provide operation and management
services to private and public schools and cooperate with local governments, in line with our asset-light strategy. Revenue from operation and management services accounted for
3.7%, 4.3% and 4.4% of total revenue in the fiscal years 2019, 2020 and 2021, respectively.
The following table sets forth the sources of our revenue by amount and as a percentage of total revenue for the periods indicated:
Year Ended June 30,
2019
2020
2021
RMB (in
% of
RMB (in
% of
RMB (in
US$(in
% of
thousands)
revenue
thousands)
revenue
thousands)
thousands) revenue
K-12 student management services and high school curriculum education
services
754,493
73.8
861,923
83.9
1,111,585
172,163
80.8
Ancillary educational services
230,510
22.5
121,611
11.8
204,221
31,630
14.8
Operation and management services
37,792
3.7
43,839
4.3
59,984
9,290
4.4
Total revenue
1,022,795
100.0
1,027,373
100.0
1,375,790
213,083
100.0
Cost of Revenue
Our cost of revenue primarily consists of labor costs, which are compensation for our teachers and educational staff, student-related costs (such as cost of books, uniforms, and
cafeteria food), depreciation of owned property and equipment and amortization expenses, depreciation of right-of-use assets and, to a lesser extent, transportation, utility and short-
term lease payments for our schools and companies. Our cost of revenue slightly decreased from the 2019 fiscal year to the 2020 fiscal year. Our cost of revenue increased from the
2020 fiscal year to the 2021 fiscal year, and this was primarily due to the increase in labor costs resulting from the increase in the total number of our teachers and educational staff
and a general increase in our compensation levels.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
101/219
Table of Contents
96
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,
2019
2020
2021
RMB (in
% of
RMB (in
% of
RMB (in
US$(in
% of
thousands)
revenue thousands)
revenue thousands) thousands)
revenue
Cost of Revenue:
Labor costs
351,053
34.3
337,833
32.9
477,378
73,936
34.7
Student-related costs
123,888
12.1
125,789
12.2
125,536
19,443
9.1
Transportation
25,696
2.5
23,689
2.3
20,393
3,159
1.5
Depreciation of owned property and equipment and amortization
37,922
3.7
41,328
4.0
43,757
6,777
3.2
Depreciation of right-of-use assets
—
—
23,817
2.3
26,225
4,062
1.9
Utilities
19,571
1.9
15,188
1.5
20,163
3,123
1.5
Operating lease charges
26,018
2.5
—
—
—
—
—
Other costs
29,632
3.0
12,616
1.3
15,134
2,344
1.1
Total cost of revenue
613,780
60.0
580,260
56.5
728,586
112,844
53.0
Operating Expenses
Our operating expenses consist of selling expenses and administrative expenses.
The following table sets forth the components of our operating expenses in absolute amount and as a percentage of revenue for the periods indicated.
Year Ended June 30,
2019
2020
2021
RMB (in
% of
RMB (in
% of
RMB (in
US$(in
% of
thousands)
revenue thousands)
revenue thousands) thousands)
revenue
Operating Expenses
Selling expenses
11,796
1.1
13,944
1.3
29,737
4,606
2.2
Administrative expenses
36,495
3.6
45,118
4.4
51,321
7,949
3.7
Total operating expenses
48,291
4.7
59,062
5.7
81,058
12,555
5.9
Selling expenses
Our selling expenses consist of advertisement expenses, recruiting expenses, student enrollment rewards and amortization related to student relationship. Our overall selling
expenses increased from the 2019 fiscal year to the 2020 fiscal year and further to the 2021 fiscal year. Our overall selling expenses in the 2021 fiscal year increased by 113.3%,
primarily due to the revenue increase of the well-rounded education services, which resulted in the increase of the student enrollment rewards.
Administrative expenses
Our administrative expenses consist primarily of salary for our office and administrative staff and consulting fee, and also, to a lesser extent, office expenses and other miscellaneous
fees. Our overall administrative expenses in the 2021 fiscal year increased by 13.7%, primarily due to the increase in labor cost resulting from an increase in our office and
administrative staff and in the compensation level of our office and administrative staff. We expect our overall administrative expenses to increase steadily in the near future.
Other Income, Net
Other income consists of government grants and other miscellaneous income (expense). Government grants are subsidies we received from local government authorities. Other
miscellaneous income (expense) primarily consists of non-operating expense and income from disposal of property and equipment. Other income in the 2021 fiscal year decreased
by 30.5%, while increased by 220.5% in the 2020 fiscal year, which was primarily related to the government grants of subsidies we received from local government.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
102/219
Table of Contents
97
The following table sets forth the components of income derived from the aforementioned sources in absolute amount and as a percentage of revenue for the periods indicated.
Year Ended June 30,
2019
2020
2021
RMB
% of
RMB
% of
RMB
US$
% of
(in thousands) revenue (in thousands) revenue (in thousands) (in thousands) revenue
Other income, net
Government grants
21,121
2.0
68,682
6.7
46,343
7,178
3.4
Other
(194)
0.0
(1,612)
(0.2)
287
44
0.0
Total other income, net
20,927
2.0
67,070
6.5
46,630
7,222
3.4
Finance Income
Our finance income mainly derived from deposits placed with a related party finance entity. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party
Transactions—Transactions with Certain Related Parties”. Finance income increased in the 2021 fiscal year and slightly increased in the 2020 fiscal year, primarily due to the
increase in the amount of fund we deposited with the related party. Finance income was 1.6%, 1.6% and 2.6% of our total revenue in the 2019, 2020 and 2021 fiscal years,
respectively.
Finance Cost
Our finance cost mainly derived from interest expenses for lease liabilities and interest on loans, amounting to RMB1.2 million (approximately US$0.2 million) in the 2021
fiscal year, and amounting to RMB3.4 million in the 2020 fiscal year.
Taxation
Cayman Islands
We are an exempted company incorporated in the Cayman Islands and conduct our primary business operations through our subsidiaries and affiliated entities in the PRC. We also
have two wholly-owned subsidiaries in Hong Kong. Under the current laws of the Cayman Islands, upon payments of dividends to our 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 upon profits, 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 to us levied by the government of the Cayman
Islands, save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The
Cayman Islands is not a party to any double tax treaties.
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 or our 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 be payable 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.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
103/219
Table of Contents
98
Hong Kong
Under the Hong Kong tax laws, subsidiaries in Hong Kong are subject to the Hong Kong profits tax rate at 16.5% and they are exempted from income tax on their foreign-derived
income and there are no withholding taxes in Hong Kong on remittance of dividends. A two-tiered profits tax rates regime was introduced in 2018 where the first HK$2 million of
assessable profits earned by a company will be taxed at half of the current tax rate (8.25%) while the remaining profits will continue to be taxed at 16.5%. There is an anti-
fragmentation measure where each group will have to nominate only one company in the group to benefit from the progressive rates.
Singapore
Under the Singapore tax laws, subsidiaries in Singapore are subject to the Singapore profits tax rate at 17%.
China
Under the New EIT Law, domestic enterprises and foreign investment enterprises, or FIEs, are subject to a unified 25% enterprise income tax rate, except for certain entities that are
entitled to tax holidays or exemptions.
According to the 2016 Private Education Law effective as of September 1, 2017 and the 2021 Implementation Rules for Private Education Laws effective as of September 1, 2021,
private schools, whether non-profit or for-profit, may enjoy preferential tax treatment, and non-profit private schools will be entitled to same tax benefits as public schools. In
addition, taxation policies for for-profit private schools are still unclear as more specific provisions are not yet introduced. For Zhenjiang Jianghe High School of Art and Zhuji
Hailiang Foreign Language High, two private schools incorporated in 2018, we elected to register their statuses as for-profit. Accordingly, these two schools are subject to unified
25% enterprise income tax rate.
As of the date of this annual report, and except for Zhenjiang Jianghe High School of Art, Zhuji Hailiang Foreign Language High School, which are registered as for-profit schools,
other affiliated schools registered as non-profit schools, which are be entitled to the same tax benefits as public schools, are exempt from income taxes.
We recognized income tax expenses of RMB108.7 million for the year ended June 30, 2019, RMB121.9 million for the year ended June 30, 2020, and RMB165.4 million
(approximately US$25.6 million) for the year ended June 30, 2021.
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 but sponsors are not permitted
to register for-profit schools that provide compulsory education. Non-profit private schools will be entitled to the same tax benefits as public schools, while for-profit private schools
may be subject to 25% enterprise income tax rate. Up to June 30, 2021, no separate policies, regulations or rules have been introduced by the authorities in this regard.
We evaluate whether it is probable that tax authority will accept the tax treatment for each uncertain tax position (including the potential application of interest and penalties) based
on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of June 30, 2019, 2020 and 2021, we did not have any significant unrecognized
uncertain tax positions.
As of June 30, 2021, we had unused tax loss of RMB36.9 million (approximately US$5.7 million) available for offset against future taxable profits, of which RMB3.5 million
(approximately US$0.5 million) will expire as of June 30, 2023, RMB6.1 million (approximately US$0.9 million) will expire as of June 30, 2024, RMB6.9 million (approximately
US$1.1 million) will expire as of June 30, 2025, RMB15.3 million (approximately US$2.4 million) will expire as of June 30, 2026. No deferred tax assets have been recognized in
respect of such tax losses, because it is not probable that future taxable profit against which the losses can be utilized will be available in the relevant tax jurisdiction.
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, the dividends, 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 be applied if such foreign non-resident enterprise
investor’s jurisdiction of incorporation has signed a tax treaty or arrangement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on
income with China. Furthermore, pursuant to the applicable circular and interpretations of the New EIT Law, dividends from earnings created prior to 2008 but distributed after 2008
are not subject to withholding income tax. We have not provided for deferred income tax liabilities on the PRC entities’ undistributed earnings of RMB1,425.9 million
(approximately US$220.8 million) as of June 30, 2021, because we control the 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 in the foreseeable future.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
104/219
Table of Contents
99
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with IFRSs as issued by the IASB, which requires us to make judgments, estimates and assumptions relating to the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of
revenue and expenses during the period.
We continually evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the
future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other
sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates and assumptions.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such
estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically
could materially impact the consolidated financial statements. We believe the following critical accounting policies reflect the more significant estimates and assumptions used in the
preparation of our consolidated financial statements. The following descriptions of critical accounting policies should be read in conjunction with our consolidated financial
statements and other disclosures included elsewhere in this annual report.
Consolidation
The Contractual Arrangements provide us, through Hailiang HK and Hailiang Consulting, the following, (i) the power to control the Affiliate Entities; (ii) the exposure or rights to
variable returns from our involvement with the Affiliated Entities; and (iii) the ability to affect those returns through our control over the Affiliated Entities.
We have control over the Affiliated Entities by virtue of the Power of Attorney, pursuant to which Hailiang Consulting has rights that give it the 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.
We have the exposure or rights to variable returns from our involvement with the Affiliated Entities by virtue of the Power of Attorney and Consulting Services Agreement. Hailiang
Consulting’s returns from its involvement with the Affiliated Entities have the potential to vary as a result of the performance of the Affiliated Entities. Pursuant to the Power of
Attorney, Hailiang Consulting is the only party that can share in the distributed and undistributed earnings of the Affiliated Entities. Pursuant to the Consulting Services Agreement,
Hailiang Consulting has the exclusive right to provide consulting, 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.
We have all decision-making rights over the Affiliated Entities to affect the amounts of our returns. By virtue of the Power of Attorney, Hailiang Consulting is the principal and is
the only party that has the decision-making authority on all relevant activities of the Affiliated Entities. There are no substantive 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 variability of returns of the Affiliated Entities from the Call Option Agreement.
Leases
On July 1, 2019, we adopted IFRS 16, Lease, using the modified retrospective transition approach resulting in the recognition of right-of-use assets of RMB411,115 and lease
liabilities of RMB411,090 upon adoption. Therefore, comparative information continues to be reported under IAS 17 and related interpretations. Additionally, the disclosure
requirements in IFRS 16 have not been applied to comparative information.
On transition to IFRS 16, we elected to apply the practical expedient to grandfather the assessment of which transactions are leases. We applied IFRS 16 only to contracts that were
previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease under IFRS 16. Therefore, the
definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after July 1, 2019.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
105/219
Table of Contents
100
Policy applicable from July 1, 2019
We have adopted IFRS 16 in the financial reporting period commencing July 1, 2019 and elected to use the modified retrospective approach. Therefore, comparative information has
not been restated.
Prior to the adoption of IFRS 16, we determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 (determining whether an arrangement
contains a lease). On transition to IFRS 16, we elected to apply the practical expedient to grandfather the assessment of which transactions are, or contain leases. Therefore, the
definition of a lease under IFRS 16 is applied only to contracts entered into or changed on or after July 1, 2019. In addition, we elected not to recognize right-of-use assets and lease
liabilities for leases of low-value assets and short-term leases.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located,
less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of
the underlying asset to us by the end of the lease term or the cost of the right-of-use asset reflects that we will exercise a purchase option. In that case the right-of-use asset will be
depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
In determining the lease term, we consider all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option.
Extension options and periods after termination options are only included in the lease term if the lease is reasonably certain to be extended or not terminated.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the incremental borrowing rate. We
determine the incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type
of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
– – fixed payments, including in-substance fixed payments;
– – variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
– – amounts expected to be payable under a residual value guarantee; and
– – the exercise price under a purchase option that we are reasonably certain to exercise, lease payments in an optional renewal period if we are reasonably certain to exercise an
extension option, and penalties for early termination of a lease unless we are reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an
index or rate, if there is a change in our estimate of the amount expected to be payable under a residual value guarantee, if we change our assessment of whether it will exercise a
purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured by discounting the revised lease payments using a revised discount rate to reflect changes to the lease payments, a corresponding adjustment is
made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Policy applicable before July 1, 2019
We classified leases as operating leases under IAS 17, which are recognized in profit or loss on a straight-line basis over the term of leases.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
106/219
Table of Contents
101
Credit losses from financial instruments
Loss allowances for trade receivables are always measured at an amount equal to lifetime expected credit losses (ECLs). ECLs on trade receivables are estimated using a provision
matrix based on our historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic
conditions at the reporting date.
For all other financial instruments, we recognize a loss allowance equal to 12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since
initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs.
In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, we compare the risk of default occurring on the financial instrument
assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, we consider that a default event occurs when (i) the borrower is
unlikely to pay its credit obligations to us in full, without recourse by us to actions such as realizing security (if any is held); or (ii) the financial asset is 90 days past due. We
consider both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without
undue cost or effort.
In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:
-
failure to make payments of principal or interest on their contractually due dates;
-
an actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if available);
-
an actual or expected significant deterioration in the operating results of the debtor; and
-
existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to us.
We consider evidence of impairment for financial assets measured at amortized cost (other receivables) at both a specific asset and collective level. All individually significant
receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that
has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk
characteristics.
In assessing collective impairment, we use 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 less than suggested by historical trends.
Revenue Recognition
We recognize revenues when control of promised goods or services is transferred to our customers in an amount of consideration to which we expect to be entitled to in exchange for
those goods or services. We follow the five steps approach for revenue recognition under IFRS 15: (i) identify the contract(s) with a customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or
as) we satisfie a performance obligation.
K-12 educational services
Revenue from K-12 educational services include revenue from K-12 student management services and high school curriculum education services and revenue from K-9 compulsory
curriculum education services. The revenue from K-9 compulsory curriculum education services has been re-presented to discontinued operations.
Tuition fees are generally collected before the beginning of each school year. Each school year is comprised of two semesters. Generally, the first semester starts in September and
ends in January next year. The second semester starts the following month in February and ends in June. Due to the impact of COVID-19, the second semester of 2019/2020 was
extended to July.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
107/219
Table of Contents
102
Each contract with a student in respect of the educational programs contains multiple performance obligations consisting of the provision of the curriculum education services, after-
school enrichment services, accommodations, transportation services, other ancillary school activities, delivery of educational books and related materials, and meal catering
services. These performance obligations are distinct in the context of the contract. The consideration expected to be received is allocated at contract inception among the
performance obligations based on their stand-alone selling prices.
We generally utilize the portfolio approach to estimate the amount of revenue to recognize for its contracts and groups contracts together that have similar characteristics. Significant
judgment is used to determine which contracts are grouped together to form a portfolio. The portfolio approach is utilized only when the result of the accounting is not expected to
be materially different than if applied to individual contracts.
Revenue attributable to the provision of the curriculum education services, after-school enrichment services, accommodations, transportation services and other ancillary school
activities is recognized over time, based on a straight-line basis over the school year, as customers simultaneously receive and consume the benefits of these services throughout the
service period, and the control of curriculum education services, after-school enrichment services, accommodations, transportation services and other ancillary school activities is
transferred evenly over the school year. Revenue attributable to the delivery of educational books and related materials, and meal catering services is recognized at point in time,
respectively, when the control of the educational books and related materials or underlying goods is transferred to customers. We consider that we are acting as the principal in the
transaction and recognizes revenue from sales of the educational materials on a gross basis.
During the year ended June 30, 2020, in response to the COVID-19 pandemic, between February 2020 and April 2020, we temporarily stopped providing offline curriculum
education services, accommodations and transportation services to students, instead it offered online curriculum education services to students during the period. Revenue
attributable to the curriculum education services is recognized over the service period based on the estimated progress of courses delivery, and revenue attributable to the
accommodations and transportation services is recognized over time evenly over the period with service provided. The amount of considerations relating to accommodations and
transportation service to students between February and April, which were not provided, has been recorded as refund liability in trade and other payables to third parties.
We consider contract modifications to exist when the parties to a contract approve a modification that either creates new or changes the existing enforceable rights and obligations of
the parties to the contract. The effect of a contract modification on a change in the transaction price is accounted for as if it was a termination of existing contract and the creation of
a new contract when the remaining goods or services are distinct from those transferred on or before the date of the contract modification, and on a cumulative catch-up basis when
the remaining goods or services are not distinct.
Operation and management services
We also provide operation and management services to schools, including but not limited to branding, academic management, basic and international education resources, school
culture, admission, finance, human resources, procurement, IT, internal audit, property and logistics management services.
The promised services in each operation and management service contract are combined and accounted as a single performance obligation, as the promised services in a contract are
not distinct and are considered as a significant integrated service. The revenue is recognized on a straight-line basis over the period of the operation and management service, as
customers simultaneously receive and consume the benefits of these services throughout the service period. Invoices are usually settled within 30 days from billing date.
Ancillary educational services
i) Well-rounded education and academic subject tutoring
We provide various extracurricular courses to arouse students’ interest and broaden their both academic and nonacademic outlook. Each contract of well-rounded education and
academic subject tutoring contains a single performance obligation. Tuition fee is generally collected in advance and is initially recorded as contract liability. Revenue from well-
rounded education and academic subject tutoring is recognized over time, proportionately as the tutoring sessions are delivered, as customers simultaneously receive and consume
the benefits of these services throughout the service period. We are the principal in providing well-rounded education and academic tutoring as it controls such services before the
services are transferred to the customer.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
108/219
Table of Contents
103
ii) Study trip services
We provide overseas study tours and summer and winter camps to students. Each contract of study strip service contains a single performance obligation. Study trip service fee is
generally collected in advance and is initially recorded as contract liability. Study trip service revenue is recognized on a straight-line basis over the period of the study trip services,
as customers simultaneously receive and consume the benefits of these services throughout the service period.
iii) Others
Others mainly include revenue derived from overseas study consulting services and hotel management services. Revenue is recognized when control of promised services is
transferred to the customers in an amount of consideration to which we expect to be entitled to in exchange for those services. VAT collected from customers is excluded from
revenue. Our PRC subsidiaries and affiliated companies are subject to VAT. The deductible input VAT balance is reflected in the other current assets, and VAT payable balance is
recorded in the trade and other payables due to third parties.
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 such indication 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 largely independent 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 future cash 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 risks specific to the asset or CGU. For
impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use 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 that are 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 its estimated recoverable amount. Impairment losses are recognized in profit or loss.
In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis
based on the carrying amount of each asset in the unit or the group of CGUs. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal
(if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other
assets of the unit or the group of CGUs.
An impairment loss in respect of goodwill is not reversed. In respect of other non-financial assets, impairment losses recognized in prior periods are assessed 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 a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying 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 Zhejiang Zhuji Tianma Experimental School on July 1, 2009. Mr. Feng and Mr. Zhanghuan Meng acquired 80% and 20%
of the registered capital equity interest in Zhejiang Zhuji Tianma Experimental School for a total cash consideration of RMB114.0 million. The goodwill recognized on the
acquisition is mainly attributable to the synergies expected to be achieved from integrating Zhejiang Zhuji Tianma Experimental School into our existing business.
For the purpose of impairment testing, goodwill and trademark are allocated to the CGU which represents the lowest level within our group at which the goodwill and trademark are
monitored for internal management purpose. The recoverable amount of goodwill is estimated based on discounted cash flows forecast, which is based upon a combination of long-
term trends, industry forecasts and in-house estimates.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
109/219
Table of Contents
104
For the purpose of impairment testing, the carrying amounts of goodwill and trademark are allocated to business related to Zhejiang Zhuji Tianma Experimental School, which is the
lowest level 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,
2019
2020
2021
RMB
RMB
RMB
US$
Goodwill
61,640
61,640
61,640
9,547
Trademark with indefinite useful lives
16,540
16,540
16,540
2,562
Less: impairment loss recognized in profit or loss
—
—
(78,180)
(12,109)
Total
78,180
78,180
—
—
For the years ended June 30, 2019 and 2020, the recoverable amount of this CGU was based on value in use, which was estimated using discounted cash flow projections.
The key assumptions used for the years ended June 30, 2019 and 2020 in the estimation of the recoverable amount are set out below. The values assigned to the key assumptions
represented management’s assessment of future trend in the relevant industry and were based on historical data from both external and internal sources.
2019
2020
Discount rate
15.5 %
15.5 %
Revenue growth rates over the next five fiscal years
3-5 %
5 %
Terminal value growth rate
3 %
3 %
The discount rate was a pre-tax measure estimated based on the historical industry average weighted-average cost of capital, with a possible debt leveraging of 0%.
The cash flow projections included the following specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate was determined 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 and 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 for the next five years.
The estimated recoverable amount of the CGU exceeded its carrying amount as of June 30, 2019, 2020, respectively.
The recoverable amount of trademark is determined using the relief from royalty method, which was based on pre-tax cash flow projections for 5 years based on financial budgets
approved by management, including royalty rate of 3%, terminal growth rate of 3% and the applicable discount rate of 15.5% for the years ended June 30, 2019 and 2020.
Management determined expected growth rates and operating results based on past performance and its expectations in relation to market developments. The discount rate used is
pre-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, 2019, 2020.
For the year ended June 30, 2021, upon the release of the Implementation Rules, we identified impairment indicators relating to the non-financial long-term assets associated with
the cash generating units (the “CGUs”) relating to the affiliated entities providing compulsory education, considering the impending loss of control and the uncertainties associated
with the ability to recover from the net assets arising from the impact of the Implementation Rules. We performed an impairment assessment on its non-financial long-term assets as
at June 30, 2021 which included property and equipment, right-of-use assets, and intangible assets and goodwill relating to the affiliated entities providing compulsory education.
The estimates of the recoverable amounts of the CGUs were based on the fair values less costs of disposal of the respective CGUs, taking into consideration of the asset-specific sale
restrictions and uncertainties under the relevant laws and regulations, the relevant publicly available information, replacement cost, remaining useful lives, newness rates and early-
termination clauses in leases. A cost approach has been applied as no comparable market transactions have been identified and estimates
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
110/219
Table of Contents
105
of future income from the CGUs are not readily available given the significant uncertainties over profitability under the new regulatory regime. The fair value on which the
recoverable amounts are based on are categorized as level 3 fair value measurement. Based on the result of the assessment, impairment losses of RMB174.0 million (approximately
US$26.9 million) and RMB78.2 million (approximately US$12.1 million) have been recognized against the carrying amount of property and equipment, and intangible assets and
goodwill, respectively. Nil impairment loss has been recognized against the carrying amount of right-of-use assets.
Results of Operations
Year Ended June 30,
2019
2020
2021
RMB
% of
RMB
% of
RMB
US$
% of
(in thousands) revenue (in thousands) revenue (in thousands) (in thousands) revenue
Revenue
1,022,795
100.0
1,027,373
100.0
1,375,790
213,083
100.0
Cost of revenue
(613,780)
(60.0)
(580,260)
(56.5)
(728,586)
(112,844)
(53.0)
Gross profit
409,015
40.0
447,113
43.5
647,204
100,239
47.0
Other income, net
20,927
2.0
67,070
6.5
46,630
7,222
3.4
Selling expenses
(11,796)
(1.1)
(13,944)
(1.3)
(29,737)
(4,606)
(2.2)
Administrative expenses
(36,495)
(3.6)
(45,118)
(4.4)
(51,321)
(7,949)
(3.7)
Operating profit
381,651
37.3
455,121
44.3
612,776
94,906
44.5
Finance income
16,596
1.6
16,037
1.6
35,840
5,551
2.6
Finance costs
—
—
(3,435)
(0.4)
(1,151)
(178)
(0.1)
Profit before tax
398,247
38.9
467,723
45.5
647,465
100,279
47.0
Income tax expenses
(108,713)
(10.6)
(121,924)
(11.9)
(165,355)
(25,610)
(12.0)
Profit from continuing operations
289,534
28.3
345,799
33.6
482,110
74,669
35.0
Profit/(loss) from discontinued operations, net of tax
23,058
2.3
24,205
2.4
(243,337)
(37,688)
(17.6)
Net Profit
312,592
30.6
370,004
36.0
238,773
36,981
17.4
Profit attributable to the Company’s shareholders
290,233
28.4
374,238
36.4
235,902
36,411
17.1
Total comprehensive income
315,902
30.9
372,330
36.2
232,525
36,013
16.9
Year Ended June 30, 2020 Compared to Year Ended June 30, 2021
Revenue
Our revenue increased by 33.9% from RMB1,027.4 million in the 2020 fiscal year to RMB1,375.8 million (approximately US$213.1 million) in fiscal year 2021, primarily due to
the following:
K-12 student management services and high school curriculum education services. Our revenue from K-12 student management services and high school curriculum education
services increased by 29.0% from RMB861.9 million in the 2020 fiscal year to RMB1,111.6 million (approximately US$172.2 million) in the 2021 fiscal year. The increase was
mainly due to a 14.1% annual increase in the average tuition and fee charged per student and a 13.1% annual increase in the number of students.
Ancillary educational services. Our revenue from ancillary educational services increased by 67.8% to RMB204.2million (approximately US$31.6million) for the fiscal year 2021,
from RMB121.7 million for the same period of last year. This was mainly due to the growth in the number of students enrolled in the well-rounded education services and students
of international education program who received overseas study consulting services.
Operation and management services. Our revenue from operation and management services increased by 37.0% from RMB43.8 million in the 2020 fiscal year to RMB60.0 million
(approximately US$9.3 million) in the 2021 fiscal year, mainly due to two new managed schools in Suqian City and the expansion of our service scope to some of our managed
schools.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
111/219
Table of Contents
106
Cost of revenue
Our cost of revenue increased by 25.6% from RMB580.3 million in the 2020 fiscal year to RMB728.6 million (approximately US$112.8 million) in the 2021 fiscal year. The
increase in cost of revenue was primarily due to the increased compensation levels of employees and an increase in the number of employees.
Gross profit
As a result of the foregoing, our gross profit increased by 44.8% from RMB447.1 million in the 2020 fiscal year to RMB647.2 million (approximately US$100.2 million) in the
2021 fiscal year.
Other income, net
Other income decreased by 30.5% from RMB67.1 million in the 2020 fiscal year to RMB46.6 million (approximately US$7.2 million) in the 2021 fiscal year. The decrease in other
income was primarily due to the decrease of government grant.
Operating expenses
Our operating expenses increased by 37.2% from RMB59.1 million in the 2020 fiscal year to RMB81.1 million (approximately US$12.6 million) in the 2021 fiscal year. The
increase was primarily due to the following reasons:
●
Selling expenses. Our selling expenses increased by 113.3% from RMB13.9 million in the 2020 fiscal year to RMB29.7 million (approximately US$4.6 million) in the
2021 fiscal year. The increase was primarily due to the revenue increase of the well-rounded education services and academic subject tutoring services, which resulted in
the increase of the student enrollment rewards.
●
Administrative expenses. Our administrative expenses increased by 13.7% from RMB45.1 million in the 2020 fiscal year to RMB51.3 million (approximately US$7.9
million) in the 2021 fiscal year. The increase was primary due to the increase in labor cost resulting from an increase in our office and administrative staff and in the
compensation level of our office and administrative staff.
Finance income and finance costs
Our finance income increased by 123.5% from RMB16.0 million in the 2020 fiscal year to RMB35.8 million (approximately US$5.6 million) in the 2021 fiscal year. Our finance
costs decreased from RMB3.4 million in the 2020 fiscal year to RMB1.2 million (approximately US$0.2 million) in the 2021 fiscal year.
Income tax expenses
We had RMB121.9 million and RMB165.4 million income tax expenses (approximately US$25.6 million) for the 2020 and 2021 fiscal years, respectively. The increase was mainly
driven by the growth of taxable profits. The effective tax rate for the fiscal year 2021 was 25.5%, compared with 26.1% for the same period of last year. See “Item 10. Additional
Information— E. Taxation—People’s Republic of China Taxation.”
Profit/(loss) from discontinued operations, net of tax
Our loss from discontinued operations, net of tax for the 2021 fiscal year was RMB243.3 million (US$37.7 million), compared to a profit of RMB24.2 million in the prior period.
The change was primarily because we recognized an impairment loss of RMB 252.3 million (approximately US$39.1 million) for the year ended June 30, 2021.
Net profit
As a result of the foregoing, our net profit from continuing operations increased by 39.4% from RMB345.8 million in the 2020 fiscal year to RMB482.1 million (approximately
US$74.7 million) in the 2021 fiscal year.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
112/219
Table of Contents
107
Net profit attributable to the Company’s shareholders
As a result of the foregoing, net profit attributable to our shareholders from continuing operations increased by 38.0% from RMB350.0 million in the 2020 fiscal year to RMB483.0
million (approximately US$74.8 million) in the 2021 fiscal year.
Year Ended June 30, 2019 Compared to Year Ended June 30, 2020
Revenue
Our revenue slightly increased by 0.4% from RMB1,022.8 million in the 2019 fiscal year to RMB1,027.4 million in fiscal year 2020, primarily due to the following:
K-12 student management services and high school curriculum education services. Our revenue from K-12 student management services and high school curriculum education
services increased by 14.2% from RMB754.5 million in the 2019 fiscal year to RMB861.9 million in the 2020 fiscal year. The increase was mainly due to a 7.4% annual increase of
the average tuition fees, despite the COVID-19 pandemic and a 6.3% annual increase in the total number of enrolled students.
Ancillary educational services. Our revenue from Ancillary educational services decreased by 47.2% from RMB230.5 million in the 2019 fiscal year to RMB121.7 million in the
2020 fiscal year. The decrease was mainly due to the liquidation of Haibo Education and the COVID-19 pandemic in the fiscal year 2020.
Operation and management services. Our revenue from operation and management services increased by 16.0% from RMB37.8 million in the 2019 fiscal year to RMB43.8 million
in the 2020 fiscal year, mainly due to the increase in number of managed schools and management fees of 15 Baishu Schools in the 2020 fiscal year.
Cost of revenue
Our cost of revenue decreased by 5.5% from RMB613.8 million in the 2019 fiscal year to RMB580.3 million in the 2020 fiscal year. The decrease in cost of revenue was primarily
due to a steep decrease in transportation costs related to K-12 educational services and study trip services resulting from the COVID-19 pandemic, and to a slight decrease in labor
costs of our teachers and teaching staff.
Gross profit
As a result of the foregoing, our gross profit increased by 9.3% from RMB409.0 million in the 2019 fiscal year to RMB447.1 million in the 2020 fiscal year.
Other income, net
Other income increased by 220.5% from RMB20.9 million in the 2019 fiscal year to RMB67.1 million in the 2020 fiscal year. The increase in other income was mainly due to an
increase in government grants of subsidies we received from the local government.
Operating expenses
Our operating expenses increased by 22.3% from RMB48.3 million in the 2019 fiscal year to RMB59.1 million in the 2020 fiscal year. The increase was primarily due to the
following reasons:
●
Selling expenses. Our selling expenses increased by 18.2% from RMB11.8 million in the 2019 fiscal year to RMB13.9 million in the 2020 fiscal year. The increase was
primarily due to increased student enrollment rewards on recruitment.
●
Administrative expenses. Our administrative expenses increased by 23.6% from RMB36.5 million in the 2019 fiscal year to RMB45.1 million in the 2020 fiscal year. The
increase was primary due to the increase in legal fees related to the lawsuit against Ronghuai and an increase in labor cost of our office and administrative staff.
Finance income and finance costs
Our finance income decreased by 3.5% from RMB16.6 million in the 2019 fiscal year to RMB16.0 million in the 2020 fiscal year.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
113/219
Table of Contents
108
Income tax expenses
We had RMB108.7 million and RMB121.9 million income tax expenses for the 2019 and 2020 fiscal years, respectively. The increase was mainly driven by the growth of taxable
profits. The effective tax rate for the fiscal year 2020 was 26.1%, compared with 27.3% for the same period of last year. See “Item 10. Additional Information— E. Taxation—
People’s Republic of China Taxation.”
Profit from discontinued operations, net of tax
Our profit from discontinued operations, net of tax increased by 5.0% from RMB23.1 million in the 2019 fiscal year to RMB24.2 million in the 2020 fiscal year. The increase was
primarily due to the increase in government grants received from the local government.
Net profit
As a result of the foregoing, our net profit from continuing operations increased by 19.4% from RMB289.5 million in the 2019 fiscal year to RMB345.8 million in the 2020
fiscal year.
Net profit attributable to the Company’s shareholders
As a result of the foregoing, net profit attributable to our shareholders from continuing operations increased by 31.0% from RMB267.2 million in the 2019 fiscal year to RMB350.0
million in the 2020 fiscal year.
A.
Liquidity and Capital Resources
Historically, we have financed our operations through our own capital. As of June 30, 2020 and 2021, we had approximately RMB516.4 million and RMB279.4 million
(approximately US$43.3 million), respectively, in cash and cash equivalents. Our cash primarily consists of cash on hand, bank deposits and deposit in related party finance entity
with an original maturity less than three months and are held for the purpose of short-term cash commitments. We intend to finance our future working capital requirements and
capital expenditures from our cash and cash equivalents and cash generated from operating activities.
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 or future earnings of our
affiliated entities or their respective subsidiaries. However, a portion of the cash balances of our affiliated entities and their respective subsidiaries will be paid to us pursuant to our
contractual arrangements with our affiliated entities and their respective subsidiaries. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Parties
Transactions—Contractual arrangements with our Affiliated Entities and their Shareholder.”
We historically had recorded significant related party transactions involving loans made to, and repayments received from, such related parties as well as term deposits placed with
Hailiang Finance, a finance company owned by Hailiang Group. As part of our cash management policy, we expect to continue to deposit a certain amount of cash generated from
our private education business with a related party finance company owned by Hailiang Group. To reduce our credit exposure with Hailiang Finance, based upon our current policy
effective September, 2020, we have set an upper deposit budget maintained by Hailiang Finance at any given time in fiscal year 2021 to be approximately RMB2.5 billion, and any
amount above the upper deposit budget must be transferred to a commercial bank within seven business days. Effective from October 26, 2021, the upper deposit budget in 2022
fiscal year maintained RMB2.5 billion (approximately US$387.2 million). As of June 30, 2021, we had demand deposits and term deposits of RMB2,098.3 million (approximately
US$325.0 million) at Hailiang Finance. Hailiang Finance is a non-bank financial institution licensed by the China Bank Regulatory Commission. It was incorporated in
February 2013. It currently has a registered capital of RMB1.9 billion and has been approved by the relevant authorities to conduct business with other entities within the Hailiang
Group, 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 withdrawal terms on our deposits. Based on our review
of relevant documents provided by Hailiang Finance, we believe that Hailiang Finance has satisfactory asset quality, liquidity position and internal control environment. In addition,
since September 2014, Hailiang Group and Mr. Feng have entered into an annual guarantee agreement with us to irrevocably and jointly guarantee the timely return of such deposits
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, and the guarantee was renewed annually.
After considering the terms provided by Hailiang Finance, coupled with its financial condition as well as the guarantee provided by Hailiang Group and Mr. Feng, our board
approved the arrangement in October 2021 and our audit committee reviews our related party transactions, including the deposit arrangement from time to time. We, however,
recognize that
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
114/219
Table of Contents
109
there are risks involved in the cash deposit arrangement. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business 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 resources and 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 of services to these entities and the economic benefits we may receive from
our affiliated entities directly through payments under our consulting services agreement. 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 the next 12 months.
The following table sets forth a summary of our cash flows for the periods for both continuing operations and discontinued operations indicated:
For the year ended June 30,
2019
2020
2021
RMB
RMB
RMB
US$
(In thousands)
Net cash from operating activities
712,162
444,370
893,392
138,369
Net cash used in investing activities
(1,253,883)
(149,517)
(1,029,206)
(159,404)
Net cash used in financing activities
(1,343)
(50,382)
(100,473)
(15,561)
Net (decrease)/increase in cash and cash equivalents
(543,064)
244,471
(236,287)
(36,596)
Cash and cash equivalents at beginning of the year
815,306
271,538
516,446
79,987
Effect of movements in exchange rates on cash held
(704)
437
(739)
(114)
Cash and cash equivalents at the end of the year
271,538
516,446
279,420
43,277
Operating Activities
Net cash provided by operating activities amounted to RMB893.4 million (approximately US$138.4 million) in the 2021 fiscal year. The net cash provided by operating activities in
the 2021 fiscal year was primarily attributable to net profit of RMB238.8 million (approximately US$37.0 million), adjusted for impairment loss for non-financial long-term assets
relating to the affiliated entities providing compulsory education of RMB252.3 million (approximately US$39.1 million), depreciation of RMB167.1 million (approximately
US$25.9 million), primarily relating to our furniture, equipment, leasehold improvements and right-of-use assets and income tax expenses of RMB167.0 million (approximately
US$25.9 million), mainly derived from the subsidiaries, affiliated for-profit schools and consolidated affiliated companies in the PRC, which are subject to a unified 25% enterprise
income tax rate, and offset against interest income of RMB42.8 million (approximately US$6.6 million), primarily from a related party finance entity. Adjustments for changes in
working capital primarily included (i) an increase in trade and other payables due to third parties of RMB111.2 million (approximately US$17.2 million), primarily reflecting an
increase in accrued labor costs; (ii) an increase in deferred revenue and contract liabilities of RMB145.9 million (approximately US$22.6 million) caused by earlier collection of
tuition fee for the next school year; and (iii) an offset against income tax paid of RMB152.1 million (approximately US$23.6 million).
Net cash provided by operating activities amounted to RMB444.4 million in the 2020 fiscal year. The net cash provided by operating activities in the 2020 fiscal year was primarily
attributable to net profit of RMB370.0 million, adjusted for depreciation of RMB167.2 million, primarily relating to our furniture, equipment, leasehold improvements and right-of-
use assets and income tax expenses of RMB121.9 million, mainly derived from the subsidiaries, affiliated for-profit schools and consolidated affiliated companies in the PRC, which
are subject to a unified 25% enterprise income tax rate, and offset against interest income of RMB24.9 million, primarily from a related party finance entity. Adjustments for
changes in working capital primarily included (i) an increase in trade and other payables due to third parties of RMB48.9 million, primarily reflecting an increase in advances from
students and other accrued expenses, while partially offset by the decrease of business tax and other tax payable; (ii) a decrease in contract liabilities of RMB121.5 million caused by
later collection of tuition fee for the next school year; and offset against income tax paid of RMB135.6 million.
Net cash provided by operating activities amounted to RMB712.2 million in the 2019 fiscal year. The net cash provided by operating activities in the 2019 fiscal year was primarily
attributable to net profit of RMB312.6 million, adjusted for depreciation of RMB133.3 million, primarily relating to our furniture, equipment and leasehold improvements and
income tax expenses of RMB108.7 million, mainly derived from the subsidiaries, affiliated for-profit schools and consolidated affiliated companies in the PRC, which are subject to
a unified 25% enterprise income tax rate, and offset against interest income of RMB24.5 million, primarily from a related party.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
115/219
Table of Contents
110
Adjustments for changes in working capital primarily included (i) an increase in trade and other payables due to third parties of RMB99.6 million, primarily reflecting an increase in
accrued labor costs; (ii) an increase in deferred revenue and contract liabilities of RMB204.1 million caused by earlier collection of tuition fee for the next school year and offset
against income tax paid of RMB111.3 million.
Investing Activities
Net cash used in investing activities amounted to RMB1,029.2 million (approximately US$159.4 million) in the 2021 fiscal year. The net cash used in investing activities in the 2021
fiscal year was primarily attributable to (i) term deposits of RMB4,180.6 million (approximately US$647.5 million) placed with Hailiang Finance and (ii) cash used in purchase of
property and equipment of RMB120.2 million (approximately US$18.6 million) relating to the renovation of school buildings and purchase of furniture and equipment, partially
offset by (i) cash withdrawn upon the maturity of term deposits placed with Hailiang Finance of RMB3,233.3 million (approximately US$500.8 million); (ii) repayment of loans
from Hong Kong Leonit Limited (“Leonit”) of RMB21.6 million (approximately US$3.4 million); and (iii) interest income of RMB18.0 million (approximately US$2.8 million)
mainly received from Hailiang Finance.
Net cash used in investing activities amounted to RMB149.5 million in the 2020 fiscal year. The net cash used in investing activities in the 2020 fiscal year was primarily
attributable to (i) term deposits of RMB3,816.8 million placed with Hailiang Finance; (ii) cash used in purchase of property and equipment of RMB128.3 million relating to the
renovation of school buildings and purchase of furniture and equipment; and (iii) prepayment of right-of-use assets amounting to RMB525.0 million, partially offset by (i) cash
withdrawn upon the maturity of term deposits placed with Hailiang Finance of RMB4,282.2 million; (ii) repayment of loans from Leonit of RMB11.9 million; and (iii) interest
income of RMB25.3 million mainly received from Hailiang Finance.
Net cash used in investing activities amounted to RMB1,253.9 million in the 2019 fiscal year. The net cash used in investing activities in the 2019 fiscal year was primarily
attributable to (i) term deposits of RMB4,709.7 million placed with Hailiang Finance; (ii) cash used in purchase of property and equipment of RMB99.8 million relating to the
renovation of school buildings and purchase of furniture and equipment; partially offset by (i) cash withdrawn upon the maturity of term deposits placed with Hailiang Finance of
RMB3,526.6 million; (ii) repayment of loans from Leonit of RMB12.4 million; and (iii) interest income of RMB20.6 million received from Hailiang Finance.
Financing Activities
Net cash used in financing activities amounted to RMB100.5 million (approximately US$15.6 million) in the 2021 fiscal year, which was mainly attributable to the repayment of
loans to Hailiang Group and Hailiang Investment of RMB42.0 million (approximately US$6.5 million) and cash used in acquisition of affiliated schools under common control
amounting to RMB56.9 million (approximately US$8.8 million).
Net cash used in financing activities amounted to RMB50.4 million in the 2020 fiscal year, which was mainly attributable to (i) dividends paid to non-controlling shareholders of our
subsidiaries amounting to RMB21.1 million and (ii) repayment of loans to Hailiang Group and Hailiang Investment of RMB34.1 million.
Net cash used in financing activities amounted to RMB1.3 million in the 2019 fiscal year, which was attributable to (i) dividends paid to non-controlling shareholders of our
subsidiaries amounting to RMB7.5 million and (ii) loans borrowed from Hailiang Investment of RMB 9 million.
Capital Expenditures
We incurred capital expenditures of RMB99.8 million, RMB128.3 million and RMB120.2 million (approximately US$18.6 million) in the 2019, 2020 and 2021 fiscal years,
respectively. The capital expenditure in 2019 fiscal year primarily related to the renovation of school buildings and classrooms in Zhejiang Zhuji Hailiang Experimental High School
and Zhejiang Zhuji Tianma Experimental School and the purchase of furniture and equipment for Hailiang Education Park. The capital expenditure in 2020 fiscal year primarily
related to the renovation of school buildings and classrooms and the purchase of furniture and equipment for Lanzhou Hailiang Experimental School, Zhejiang Zhuji
Hailiang Experimental High School and Zhenjiang Jianghe High School of Art. The capital expenditure in 2021 fiscal year primarily related to the renovation of school buildings
and classrooms and the purchase of furniture and equipment for Lanzhou Hailiang Experimental School and Wuhu Hailiang Experimental School.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
116/219
Table of Contents
111
Recent Accounting Pronouncements
Up to the date of issue of these consolidated financial statements, the IASB has issued a number of amendments, new standards and interpretations which are not yet effective for
the year ended June 30, 2021 and which have not been adopted in these consolidated financial statements. These include the following which may be relevant to the Company.
Effective for
accounting periods
beginning on or after
Amendments to IFRS 3, Reference to the Conceptual Framework
January 1, 2022
Amendments to IAS 37, Onerous Contracts – Cost of Fulfilling a Contract
January 1, 2022
Amendments to IAS 16, Property, Plant and Equipment: Proceeds before Intended Use
January 1, 2022
Amendments to IFRS 3, Reference to the Conceptual Framework
Amendments to IFRS 3 are intended to replace a reference to the previous Framework for the Preparation and Presentation of Financial Statements with a reference to the
Conceptual Framework for Financial Reporting issued in March 2018. The amendments also add to IFRS 3 a requirement that, for transactions and other events within the scope of
IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 to identify the liabilities it has assumed in a business combination instead of referring to the Conceptual Framework.
Furthermore, the amendments clarify that contingent assets do not qualify for recognition at the acquisition date. The Company expects to adopt the amendments prospectively from
July 1, 2022.
Since the amendments apply prospectively to business combinations for which the acquisition date is on or after the date of first application, we will not be affected by these
amendments on the date of transition.
Amendments to IAS 37, Onerous Contracts – Cost of Fulfilling a Contract
Amendments to IAS 37 specify that the cost of fulfilling the contract comprises the costs that relate directly to the contract. Costs that relate directly to a contract can either be the
incremental costs of fulfilling that contract (e.g., direct labor and materials) or an allocation of other costs that relate directly to fulfilling that contract (e.g., an allocation of the
depreciation charge for an item of property, plant and equipment used in fulfilling the contract as well as contract management and supervision costs). General and administrative
costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract.
We expect to adopt the amendments from July 1, 2022. And the amendments are not expected to have any significant impact on the Company’s financial statements.
Amendments to IAS 16, Property, Plant and Equipment: Proceeds before Intended Use
Amendments to IAS 16 prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the
location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling any such items, and
the cost of those items, in profit or loss. The amendments are effective for annual periods beginning on or after January 1, 2022 and shall be applied retrospectively only to items of
property, plant and equipment made available for use on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the
amendments. Earlier application is permitted.
The amendments are not expected to have any significant impact on our financial statements
B.
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 teaching methods and materials. We
have taken the following measures to continuously improve the quality of our education: (i) establish the Cadre Army Academy, so as to further our training of school management
talents, and conduct research on methods, management standards and models; (ii) establish the Excellent Teacher Development Academy, so as to steadily promote the mentor-
apprentice pairing model, and implement the lifelong mentoring system to help young teachers grow rapidly; (iii) integrate educational
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
117/219
Table of Contents
112
technology, analyze students’ learning situation and psychological emotion by collecting students’ study situation data, life data and mental health status, to help teachers carry out
effective diagnosis and counseling. Assist teachers to complete classroom review and classroom reflection according to the quantitative real-time analysis of classroom effect by
relying on the deployment of Smart Classroom; and (iv) encourage our teachers to develop, update and improve our curricula and course materials based upon the latest official
government curricula for each of our subjects as well as on students’ needs and preferences. The development process for our curricula and course materials typically starts with a
review of the latest examination requirements to analyze new educational needs and trends. At the end of each semester, we evaluate, update and improve course materials based
upon student performance and feedback from teachers, students and parents. We believe our strong research and development capabilities differentiate us from our competitors in the
private K-12 education industry.
Leveraging our research and development capabilities, we have developed teaching methods and courses for certain subjects that are not generally offered by other similar private
education providers. We have supplemented various government-mandated coursework with our self-developed courses. For example, we offered an interdisciplinary course called
“STEAM”, which teaches Science, Technology, Engineering, Arts and Mathematics, with the aim of developing our students the ability to deal with complicated situations. We also
offer a local geography course called “Local history——Hangzhou” for purposes of getting students to apply the geographical approaches and principles they learn to local city. In
addition, we cooperate with educational research institutions to develop various educational technology courses, such as National Leadership Courses, which aim to cultivate
students’ nine qualities of self-cognition, self-regulation, communication, cooperation, systematic thinking, creative thinking, critical thinking, cross-cultural understanding and civic
awareness, as well as Anti-bullying Courses, AI Robot Courses, and Designing and Thinking Courses. These courses are designed to lay a solid foundation for students’ all-round
development in the future.
We are also in the process of developing new courses to strengthen our international program. We have entered into a cooperation agreement with Pate’s Grammar School, a K-12
co-educational institution in London, UK, where we will focus on the mutual learning of teaching materials and mutual communication of teachers, in collaboration with Pate’s
Grammar School.
C.
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 the period from July 1,
2018 to June 30, 2021 that are reasonably likely to have a material adverse effect on our revenue, income, profitability, liquidity or capital resources, or that caused the disclosed
financial information to be not necessarily indicative of future operating results or financial condition.
D.
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 not entered into any
derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our consolidated financial statements. Furthermore, we do not
have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not
have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and
development services with us.
E.
Contractual Obligations
The following table sets forth our contractual obligations as of June 30, 2021:
Payment Due by Period
Less than 1
1-3
3-5
More than
Total
Year
Years
Years
5 Years
Capital Commitments (1)
Leasehold improvement
23,495
23,495
—
—
—
Furniture, fixtures and other equipment
4,143
4,143
—
—
—
Lease Obligations (2)
44,563
6,801
12,627
7,703
17,432
(1) Includes payments to be made to Heng Zhong Da, a company over which Mr. Feng has significant influence, relating to the renovation of school buildings in Wuhu Hailiang
Experimental School, Zhenjiang Jianghe High School of Art, Zhejiang Zhuji
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
118/219
Table of Contents
113
Hailiang High School of Art and Zhejiang Zhuji Hailiang Experimental High School, and payments to be made to certain third-party vendors for the purchase of furniture and
equipment.
(2) Mainly represent lease obligations for the lease of Zhenjiang Jianghe High School of Art, Xiantao Logistcs, the land use right of Zhejiang Zhuji Tianma Experimental School
and the lease of Mingyou educational training schools.
F.
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 information currently 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.
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 current expectations and projections about future events
and financial trends that we believe may affect our financial condition, results of operations, business strategy 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;
●
the development of the COVID-19 pandemic in China and elsewhere;
●
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 understanding that 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 these cautionary statements. Other sections of this
annual report on Form 20-F include additional factors which could adversely affect our business and financial performance. Moreover, we operate in an evolving environment. New
risk factors and uncertainties emerge from time to time and it is not possible for our management 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, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item 3. Key Information—D.
Risk Factors” and elsewhere 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 and analyses based on a
number of assumptions. These market data, including statistical data extracted from Ministry of Education of the PRC and the Sansheng Report, include projections that are 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 these markets 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 nature of 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 these assumptions. Although we believe that the publications, reports and surveys are reliable, we have not
independently verified the data. You should not place undue 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 are made in this annual report
on Form 20-F. We undertake no obligation to update or revise any forward-looking
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
119/219
Table of Contents
114
statements, whether as a result of new information, future events or otherwise, after the date of this annual report on Form 20-F. You should not rely upon forward-looking
statements as predictions of future events.
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
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 our directors and executive
officers is 1508 Binsheng road, Binjiang District, Hangzhou City, Zhejiang province, 310051, People’s Republic of China:
Name
Age
Position/title
Junwei Chen
30
Chairman and chief executive officer
Cuiwei Ye
62
Director and principal general
Ken He
41
Independent director
Xiaohua Gu
49
Independent director
Xiaofeng Cheng
46
Independent director
Deborah Lee (aka Weixin Xie)*
62
Chief financial officer
Litao Qiu
55
Board secretary
Ping Huang
50
Vice President
Lei Peng
50
Vice President
Zhougang Zhu
42
Vice President
Guan Huang*
34
Vice President
*
Ms. Deborah Lee took office in her capacity as chief financial officer of the Company on March 1, 2021. Mr. Guan Huang took office in his capacity as vice president of
Hailiang Management on August 1, 2021.
Mr. Junwei Chen has served as the chairman of the board of directors and chief executive officer of Hailiang Inc. since June 2020, as the vice president of Hailiang Group Co., Ltd.
since January 2019, and as the president of Hailiang Education Management Group Co., Ltd. since March 2019. Mr. Chen received a doctorate degree in Energy and Resource
Engineering from Peking University in 2019. While pursuing his doctorate degree, he served as the 38th president of the postgraduate student union, and organized many social
undertakings, including the Peking University Doctoral Services Group. He was invited to the Great Hall of the People to receive commendation for his active participation in
poverty alleviation. Mr. Chen holds multiple personal patents and has published several influential academic papers in international journals. In 2020, Mr. Chen was selected as the
“Excellent Manager” of Hailiang Group Co., Ltd., and he received the “Outstanding Chinese Youth” Award at the 2020 (Fourth) China Brand Bo’ao Summit.
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 being the principal of
Hangzhou No.2 High School, a century-old historical school. Mr. Ye is esteemed for his management ability and performance in school operations. Mr. Ye received a Bachelor of
Science Degree in Biology from Hubei University, a Master’s Degree in Education Leadership from the University of Canberra in Australia, and is currently a PhD candidate from
East China Normal University. As a nationally renowned principal, Mr. Ye has been awarded with several honorary titles by the Ministry of Education of PRC, Zhejiang Provincial
People’s Government and national mainstream media, such as Person of the Year of Chinese Brands in 2017, Contemporary Education Master, one of China’s Top 10 Popular
Principals 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 of Southwest University, Adjunct professor of
Zhejiang Normal University, National Education Advanced Worker, Zhejiang Merit Teacher. In addition, Mr. Ye was appointed by the Zhejiang Provincial People’s Government as a
special researcher of the Provincial Government in August 2020.
Mr. Ken He has served as our independent director since June 2015. Mr. He is also serving as independent director of the board of directors and chairman of the audit committee of
Ebang International Holdings Inc. since June 2020. Additionally, Mr. He is currently serving as a senior partner of JK Asset Management (HK) Limited, an asset management
company, where he oversees its asset management and financial activities. From September 2015 to February 2021, he was the director, vice president and responsible officer of
Racing Capital Management (HK) Limited, a company principally engaged in asset management, and was mainly responsible for overseeing its asset management and financial
activities. Mr. He is currently serving as the vice president of Racing Capital Management
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
120/219
Table of Contents
115
(HK) Limited, an asset management company, where he oversees its asset management and financial activities. Mr. He has also served as independent director of Ebang
International Holdings Inc. since June 2020. From August 2011 to September 2015, Mr. He served as the chief financial officer of China Shengda Packaging Group Inc., or China
Shengda, where he oversaw China Shengda’s financing and investment activities, accounting practices and investor relations. Before joining China Shengda, Mr. He served as an
investment director of Wealthcharm Investments Limited, a private investment company, from September 2009. Prior to that, Mr. He spent five years at PricewaterhouseCoopers
Australia and China. Having several years of experience in the financial and accounting field. Mr. He is experienced and familiar with Chinese accounting standards, Hong Kong
accounting standards, Australian accounting standards, international accounting standards and U.S. GAAP, as well as the differences among them. Mr. He holds 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 Certified Public Accountant designation from the Chinese
Institute of CPA, a Certified Public Accountant designation from the Hong Kong Institute of CPA, a Certified 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 August 1, 2016, Mr. Gu has served as the Chief Financial Officer for Dragon Victory International
Limited (Nasdaq: LYL). From July 2006 to February 2010, Mr. Gu was the Hangzhou branch manager of the KPMG Consulting (China) CO., Ltd. From March 2010 to
February 2012, Mr. Gu Xiaohua was the partner of RichLink International Investment Co., Ltd. From March 2012 to present, Mr. Gu has been a Director of China Education Group,
Associate Director of HEP CPA Shanghai Branch. Mr. Gu holds a Master’s Degree in Newcastle University and a Master’s Degree in Finance in Leeds Metropolitan University.
Mr. Xiaofeng Cheng has served as our independent director since October 2016. Since July 2012, Mr. Cheng has served as a partner at Jingtian & Gongcheng law firm in Beijing.
Previously, Mr. Cheng served in various positions at several international law firms. In addition, Mr. Cheng has served as adjunct professor at Peking University Law School since
September 2011. Mr. Cheng received his master’s degree in Law from Columbia University in 2003, master’s degree in Criminology from the University of South Florida in 2002
and bachelor degrees in both Law and Economics from Peking University in 1999.
Ms. Deborah Lee has served as the chief financial officer of Hailiang Inc. since March 2021, and as the chief tax officer of Hailiang Group since 2019. Previously, Ms. Lee was a
partner of PricewaterhouseCoopers LLP, Los Angeles Office where she specialized in providing cross-border investment strategy consultation and tax planning to the Chinese
companies, including transactions such as mergers and acquisitions, joint ventures, intangible property, transfer pricing, and negotiations and defenses with tax authorities. Ms. Lee
is a C.P.A. and received her Bachelor of Laws from National Taiwan University and Master of Professional Accounting from the University of Texas at Arlington. Ms. Lee has also
served as the Executive Vice President of Ascend, Los Angeles Chapter, a national non-profit organization that is dedicated to the advancement of Pan-Asians in management and
leadership via mentorship. Ms. Lee was awarded one of the Outstanding 50 Asian Americans in Business in 2019 by the Asian American Business Development Center.
Mr. Litao Qiu has served as our Board Secretary since August 2017 and as a director of Hailiang Consulting since September 2018. Mr. Qiu has a bachelor’s degree in applied
computer science and graduate diploma in computer education from Edith Cowan University, a master’s degree in system management from Sunderland University, and an EMBA
degree from Fudan University. Mr. Qiu has served as Vice chairman and director of the board of Hailiang Management Financial 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 director of the board of Hailiang Australian Agriculture Development Pty Ltd. since
December 2014; as a director of the board of Hailiang Australian Agriculture Land Trust since December 2014; as a director of the board of Hailiang Australian Land Investment
Company Pty Ltd. since December 2014; and as Associate Vice President of Hailiang Group Co. Ltd. since July, 2012.
Mr. Ping Huang has served as the Vice President of Hailiang Management since August 2018 and vice principal general since March 2019, and as the president of Hailiang
Preschool Education Group since March 2020. Before these current positions, Mr. Huang has served as the chairman of the board of Hailiang Preschool Education Group from
November 2019 to October 2020, as the executive vice principal of Hailiang Inc. from 2017 to 2018 and vice principal of Hailiang Inc. from March 2016 to May 2017. Mr. Huang
has also served as the principal of Hailiang Elementary School from August 2015 to August 2019. From August 2011 to March 2016, Mr. Huang served as the principal of the
Elementary School of Zhejiang Zhuji Tianma Experimental School. Mr. Huang has worked in Hailiang Inc. since 1995 in various functions. Mr. Huang received a bachelor’s degree
from Central Broadcast and Television University in 2006. Mr. Huang has won various honor awards in the PRC education section including Outstanding Teacher of Zhejiang’s
Private Education Elementary and Secondary School Chapter and Chuncan Award of Zhejiang Province.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
121/219
Table of Contents
116
Ms. Lei Peng has served as the vice president of Hailiang Management since May 2019. Ms. Peng joined the company since August 2000, and has been awarded with several
honorary titles, such as National Outstanding Private teacher, Shaoxing City’s Famous Principle, First Prize of Zhejiang High School Geography Course. Ms. Peng received a
bachelor degree in geography education from Xinjiang Normal University in 1992. From 1993 to 2000, Ms. Peng worked with Grain Corporation Futures Trading Department in
Zhuji.
Mr. Zhougang Zhu has served as the vice president of Hailiang Management since May 2019 and the principal of Xinchang Nanrui Experimental School and Hailiang Overseas
Chinese School. Mr. Zhu joined Hailiang Group since 1998, but he left to work in other companies for a few years and returned to Hailiang Group in August 2016. During this
period, Mr. Zhu has served as the vice principal of Huangshan Middle School and the principal of Donghe Middle School. Mr. Zhu received a bachelor degree in music education
from Zhejiang Normal University, and is currently pursuing a master degree in mathematics at East China Jiao Tong University. Mr. Zhu has won honor awards in the PRC
education including the National First Prize of Mathematics Course and Famous Principle of Zhejiang Province.
Mr. Guan Huang has served as the vice president of Hailiang Management since August 2021. Mr. Huang joined Hailiang Education in December 2019. Prior to that, he worked at
Peking University as a member of the cadre of the Youth League Committee from July 2014 to November 2019. Mr. Huang obtained a master degree in economics from Peking
University in July 2014, and a bachelor degree in management from Peking University in July 2010.
Compensation of Directors and Executive Officers
Compensation of Directors and Executive Officers
For the year ended June 30, 2021, we paid an aggregate amount of RMB 5.9 million (approximately US$0.9 million) in cash compensation to our directors and executive officers,
that were disclosed in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management”. Since some directors and executive officers also held
multiple management positions in our related parties, we recognized and paid part of the compensations within the scope of their job functions in our group.
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 her retirement benefit,
medical insurance benefits, housing funds, unemployment and other statutory benefits. Our PRC subsidiaries paid retirement and similar benefits for our officers and directors in
the year ended June 30, 2021.
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 any separate requirement for
Audit Committee’s (as defined in our articles of association) approval under applicable law or the listing rules of our Designated Stock 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 is materially 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 of the 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 of service.
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 governance and 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
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
122/219
Table of Contents
117
requirements of Rule 10A-3 under the Exchange Act. Our board also has determined that Mr. He qualifies as an audit committee financial expert within the meaning of the SEC
rules and possesses financial sophistication within the meaning of the NASDAQ Listing Rules. The audit committee oversees our accounting and financial reporting processes and
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 by our 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 will review and approve our
cash management policy in regard to depositing cash generated from our school operations with related parties, including the 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.
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. Gu satisfy the
“independence” requirements of Section 5605(a)(2) of the NASDAQ Listing Rules. Our compensation committee assists the board in reviewing and approving the compensation
structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. Members of the compensation committee
are not prohibited from direct involvement in determining their own compensation. Our chief executive officer may not be present at any committee meeting during which his
compensation is deliberated. The compensation committee is responsible for, 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 independence from 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 and nominating committee assists our board of directors in
identifying individuals qualified to become
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
123/219
Table of Contents
118
our directors and in determining the composition of the board 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 and availability 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 compliance with applicable laws and
regulations, and making recommendations to our board of directors on all matters of corporate governance and on any corrective action to be taken; and
●
monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure 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 a duty to exercise skills
they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors
must ensure compliance with our memorandum and articles of association, as amended and re-stated from time to 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. A director will be removed
from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his 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 of directors. The compensation of our directors is determined by the
board of directors. There is no mandatory retirement age for directors. Our officers are elected by and serve at the discretion of the board of directors.
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 will be renewed upon both
parties’ agreement thirty days before the end of the current employment term. We may terminate the employment for cause, at any time, without notice or remuneration, for certain
acts of the executive officer, including but not limited to the commitments of any serious or persistent breach or 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 any person, corporation or other
entity without written consent, any confidential information. Each executive officer has also agreed to assign to our group all his or her all inventions, improvements, designs,
original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works, concepts and trade secrets.
Employees
We had 4,183, 4,164 and 5,171 employees as of June 30, 2019, 2020 and 2021, respectively. For continuing operations, we had 2,252 employees as of June 30, 2021. The majority
of our employees are full-time and have signed employment agreements for one to three years, which will be renewed with substantially the same terms upon the employee passing
the end-of-contract evaluation. In
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
124/219
Table of Contents
119
addition to teachers and educational staff, we also have employees in marketing, information technology and general administration. The following table sets forth the numbers of
our employees, categorized by function as of June 30, 2021.
Employees of Continuing
Total Employees of Continuing
operations
and Discounted Operations
Teachers and educational staff
948
2,591
Cafeteria and dining hall staff
390
764
Student living staff
188
684
Security and safety staff
71
100
Administrative staff
433
684
Other staff
222
348
Total
2,252
5,171
As required by PRC laws and regulations, we participate in various employee social security plans for our employees that are administered by local governments, including housing,
pension, medical insurance and unemployment insurance. We compensate our employees with base salaries as well as performance-based bonuses. None of our employees are
represented by any collective bargaining arrangements, and we consider our relations with our employees to be good.
Share Ownership
The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of November 5, 2021 by:
●
each of our directors and executive officers;
●
each person known to us to beneficially own more than 5% of our ordinary shares; and,
●
officers and directors as a group.
The calculations in the table below are based on there being 412,450,256 ordinary shares outstanding as of November 5, 2021.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage
ownership of that person, we have included shares that the person has the right to
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
125/219
Table of Contents
120
acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the
computation of the percentage ownership of any other person.
Ordinary
Shares beneficially
owned
Name
Number
%
Directors and Executive Officers:
Junwei Chen
—
—
Cuiwei Ye
—
—
Ken He
—
—
Xiaohua Gu
—
—
Xiaofeng Cheng
—
—
Deborah Lee (aka Weixin Xie)
—
—
Litao Qiu
—
—
Ping Huang
—
—
Lei Peng
—
—
Zhougang Zhu
—
—
Guan Huang
—
—
Directors and Officers as a group (11 persons)
—
—
Principal Shareholder:
—
—
Hailiang Feng(1)
360,000,000
87.28
(1) Includes 223,200,000 shares held by Jet Victory International Limited, 100,800,000 shares held by Brilliant One Development Limited, 18,000,000 shares held by Fame Best
International Limited and 18,000,000 shares held by Gain Success Group Limited. Jet Victory International Limited is a British Virgin Islands, or BVI company wholly-owned
by Jet Victory Group Limited, a BVI company wholly owned by Jet Victory Holdings Limited, a BVI company that is wholly owned by an irrevocable trust controlled by
Mr. Feng, the settlor of the trust. Gain Success Group Limited is a BVI company wholly-owned by Candid Group Limited, a BVI company wholly owned by Candid Holdings
Limited, a BVI company that is wholly owned by an irrevocable trust controlled by Mr. Feng, the settlor of the trust. Fame Best International Limited is a BVI company wholly
owned by Mr. Feng. Brilliant One Development Limited is a BVI company wholly owned by Hailiang Group. As of the date of this annual report on Form 20-F, Hailiang Group
is controlled 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 Investment Co., 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. Beize Group is controlled by Mr. Feng and is held
99.8% by Mr. Feng and 0.2% by his brother-in-law. Ningbo Dunshi Investment Co., Ltd. is controlled by Mr. Feng and is held 96.6% by Mr. Feng. All the remaining minority
equity interests in such shareholding entities are held by Mr. Feng’s relatives and/or independent third parties.
As of the date of this annual report on Form 20-F, none of our outstanding ordinary shares are held by holders of record in the United States. None of our existing 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 any arrangement that may, at a subsequent date, result
in a change of control of our company.
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
126/219
Table of Contents
121
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 of Hailiang Management,
Mr. Feng and Beize Group. Such contractual arrangements provide us with: (i) the power over Hailiang Management, (ii) the exposure or rights to variable returns from our
involvement with Hailiang Management, and (iii) the ability to affect those returns through use of our power over Hailiang Management to affect the amount of our returns.
Therefore, we control Hailiang Management and its subsidiaries. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational
Structure.”
Transactions with Certain Related Parties
Loans to/from related parties
Our ultimate controlling shareholder, Mr. Feng, owns or controls other non-educational service businesses that from time to time require short-term financing to support their
business operations and working capital needs. After considering our cash on hand and forecasted cash flows to fund our operations, we provided financing to certain companies
owned or controlled by Mr. Feng, during the periods presented.
On October 31, 2016, we provided a one-year-period interest-free loan in the amount of US$14.5 million (the “Leonit Loan”) to Leonit, a related party of the Company. On the same
date, Hailiang Group, controlled by Mr. Feng and a related party of the Company, provided an interest-free loan in the amount of US$14.5 million (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 renewal option of both parties agree.
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 with renewal option if both
parties agree.
Separately, on December 5, 2017, Leonit provided an interest-free loan in the amount of US$1.15 million (the “2018 Leonit Loan”) to us, due on December 4, 2018 with renewal
option if both parties agree. The loan of US$1.15 million was offset against the Leonit loan per the agreement between the Company and Leonit.
During the year ended June 30, 2019, Leonit repaid part of the Leonit Loan, amounting to US$1.82 million.
During the year ended June 30, 2020, Leonit repaid part of the Leonit Loan, amounting to US$1.70 million, while Hailiang Consulting repaid part of the 2016 Hailiang Loan,
amounting to RMB32.1 million to Hailiang Group.
During the year ended June 30, 2021, Leonit repaid part of the Leonit Loan, amounting to US$3.20 million, while Hailiang Consulting repaid part of the 2016 Hailiang Loan,
amounting to RMB22.0 million to Hailiang Group.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
127/219
Table of Contents
122
During the years ended June 30, 2019, 2020 and 2021, Jinhua Hailiang Foreign Language School and Feicheng Hailiang Foreign Language School borrowed loans amounted to
RMB9,000, RMB13,000 and RMB4,000 at an interest rate of 5.145% from Hailiang Investment. a related party controlled by Mr.Feng.
During the years ended June 30, 2019, 2020 and 2021, Jinhua Hailiang Foreign Language School and Feicheng Hailiang Foreign Language School repaid of the loans amounted to
RMB 4,000, RMB2,000 and RMB20,000 to Hailiang Investment. As of June 30, 2021, the loans and interests have been all repaid to Hailiang Investment.
Deposits
Starting from the 2014 fiscal year, we deposited a certain amount of cash with Hailiang Finance, a related party finance company owned by Hailiang Group. Hailiang Finance may
provide funds and financing to entities within the Hailiang Group.
As of June 30, 2020 and 2021, we had held cash at a related party finance entity of RMB502.3 million and RMB 200.0 million (approximately US$31.0 million), respectively.
During the year ended June 30, 2019, net amount of RMB509.1 million were withdrawn from Hailiang Finance. During the years ended June 30, 2020, net amount of RMB267.9
million were placed with Hailiang Finance. During the years ended June 30, 2021, net amount of RMB302.3 million (approximately US$46.8 million) were withdrawn with
Hailiang Finance.
As of June 30, 2020 and 2021, we had term deposits which are held for the purpose of investment amounting to RMB921.6 million and RMB1,898.2 million (approximately
US$294.0 million) placed at Hailiang Finance. During the year ended June 30, 2019, term deposits of RMB4.7 billion were placed with Hailiang Finance, and RMB3.5 billion
matured. During the year ended June 30, 2020, term deposits of RMB3.8 billion were placed with Hailiang Finance, and RMB4.3 billion matured. During the year ended June 30,
2021, term deposits of RMB4.2 billion (approximately US$647.5 million) were placed with Hailiang Finance, and RMB3.2 billion (approximately US$500.8 million) matured.
The interest income from the deposits during the years ended June 30, 2019, 2020 and 2021 amounted to RMB24.3 million, RMB24.8 million, and RMB42.8 million (approximately
US$6.6 million), respectively. As part of our cash management policy, we expect to continue to deposit a certain amount of cash generated from our private education business with
Hailiang Finance. To reduce our credit exposure with Hailiang Finance, based upon our current policy effective September 2020, we have set an upper deposit budget maintained by
Hailiang Finance at any given time in fiscal 2021 to be approximately RMB2.5 billion, and any amount above the upper deposit budget must be transferred to a commercial bank
within 7 business days. Effective from October 26, 2021, the upper deposit budget in 2022 fiscal year maintained RMB2.5 billion (approximately US$387.2 million). In July 2020,
Hailiang Group and Mr. Feng entered into a guarantee agreement with us to irrevocably and jointly guarantee timely return of such deposits 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 June 30, 2021, the balance of cash and deposits we had with Hailiang Finance
amounted to RMB200.0 million (approximately US$31.0 million) in cash and RMB1,898.2 million (approximately US$294.0 million) in term deposits, respectively. During the year
ended June 30, 2021, our deposits with the finance company are generally made in the form of demand deposits or term deposits. The demand deposits are held for the purpose of
meeting short-term cash commitments, such as to pay for our operating expenses at any time. We are subject to credit risks associated with the term deposit arrangement. See
“Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—We deposit a certain amount of cash with related parties and are subject to credit risks
of such related parties.”
Lease agreements with related parties
We lease school buildings and related facilities for campuses in Zhuji city from Hailiang Investment, a company controlled by our ultimate controlling shareholder, Mr. Feng.
On December 29, 2017, we and Hailiang Investment mutually terminated the lease agreements and entered into new lease agreements in order to allocate lease fees to respective
schools according to gross floor area.
On April 28, 2019, we and Hailiang Investment mutually terminated the above-mentioned lease agreements and entered into new lease agreements, in order to allocate lease fees to
respective schools and subsidiaries according to gross floor area. The term of the lease is for nineteen years since July 1, 2018 and the rental fee is subject to a 5% annual increase
from fiscal year 2020 to 2022. The rental fee commencing from the fifth year is subject to further negotiation between the Company and Hailiang Investment. For the 2019
fiscal year, we recognized rental expenses amounted to RMB31.5 million.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
128/219
Table of Contents
123
We also lease some office spaces from Hailiang Real Estate, a related party controlled by Mr. Feng, which incurred rental expenses of RMB0.7 million during the year ended June
30, 2019. In addition, Haibo Education and Haibo Logistics leased the office space and warehouse from Nanchang Hongtou Property Management Co., Ltd, (“Nanchang Hongtou”),
a related party before October 30, 2019 and owned by Mr. Honggen Min, who is the controlling shareholder of Nanchang Baishu, which incurred rental expenses of RMB1.6 million
during the year ended June 30, 2019. On September 6, 2019, we terminated the lease contract with Nanchang Hongtou due to the liquidation of Haibo Education and Haibo
Logistics.
On September 6, 2019, we entered into a series of supplementary contracts with Hailiang Investment regarding the school buildings and the related facilities in three campuses in
Zhuji, China from Hailiang Investment, pursuant to which, on September 12, 2019, we made lease prepayments of RMB525.0 million (VAT exclusive) regarding the school
buildings and the related facilities in three campuses in Zhuji, China from Hailiang Investment for the remaining lease period until June 30, 2037.
Regarding other lease contracts with Hailiang Investment, Hailiang Real Estate and Xiantao Tiancheng Education Investment Co., Ltd., a related party controlled by Hailiang
Investment, we purchased right-of-use assets of RMB4.4 million and RMB3.5 million (approximately US$0.5 million) respectively during the years ended June 30, 2020 and 2021.
During the years ended June 30, 2020 and 2021, we recognized interest expenses of RMB3.6 million and RMB0.2 million (approximately US$0.04 million) on lease liabilities,
respectively, and settled lease liabilities of RMB529.4 million and RMB1.0 million (approximately US$0.2 million) relating to the lease contracts with Hailiang Investment and
Hailiang Real Estate, respectively.
Leasehold improvement contracts
We entered into a series of leasehold improvement contracts with Heng Zhong Da for the leasehold improvement of classroom buildings, dining halls and student dormitories of our
affiliated schools.
We purchased leasehold improvement service of RMB38.5 million, RMB118.7 million and RMB68.1 million (approximately US$10.5 million) from Heng Zhong Da during the
years ended June 30, 2019, 2020 and 2021, respectively.
We have paid RMB46.2 million, RMB85.4 million and RMB70.4 million (approximately US$10.9 million) to Heng Zhong Da during the years ended June 30, 2019, 2020 and
2021, respectively.
Purchase of healthy food products and information service
We purchased Ming Kang Hui E-Commerce Co., Ltd., a company controlled by Mr. Feng, amounting to RMB70.0 million during the year ended June 30, 2019. We purchased
healthy food products from Ming Kang Hui Ecological Agriculture Group Co., Ltd. and Zhuji Hailiang Food Co., Ltd., a related party controlled by Mr. Feng, totally amounting to
RMB75.7 million and RMB111.8 million (approximately US$17.3 million) during the years ended June 30, 2020 and 2021.
We received IT services, student’s physical examination services, travel services and other services from related parties controlled by Hailiang Group, amounting to RMB23.7
million, RMB20.4 million and RMB23.6 million (approximately US$3.7 million) during the year ended June 30, 2019, 2020 and 2021, respectively.
Sales of products and services
For the years ended June 30, 2019, we provided operation and management services to Hailiang Kindergarten, Zhuji Hailiang Jinshan Kindergarten and Tianma Kindergarten, which
were controlled by Hailiang Group, and other 17 schools controlled by Hailiang Investment, including Xiantao No.1 Middle School, Xinchang Nanrui Experimental School and 15
Baishu Schools. Operation and management service fees of RMB25.2 million were charged to the above-mentioned schools for the fiscal year 2019.
For the year ended June 30, 2020, we provided operation and management services to Hailiang Kindergarten, Zhuji Hailiang Jinshan Kindergarten and Tianma Kindergarten, which
were controlled by Hailiang Group, and other 2 schools controlled by Hailiang Investment, including Xiantao No.1 Middle School, Xinchang Nanrui Experimental School.
Operation and management service fees of RMB4.6 million were charged to the abovementioned schools for the 2020 fiscal year.
For the year ended June 30, 2021, we provided operation and management services to Hailiang Kindergarten, Zhuji Hailiang Jinshan Kindergarten and Tianma Kindergarten, which
were controlled by Hailiang Group, and other 2 schools controlled by Hailiang
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
129/219
Table of Contents
124
Investment, including Xiantao No.1 Middle School, Xinchang Nanrui Experimental School. Operation and management service fees of RMB11.5 million (approximately US$1.8
million) were charged to the abovementioned schools for the 2021 fiscal year.
On October 30, 2019, Hailiang Investment disposed all of the equity interest in Xinyu Baishu Technology Service Co., Ltd. (“Xinyu Baishu”) and hence Xinyu Baishu is not
considered as a related party since then.
We provided property and logistics management services to Ming Kang Hui supermarkets located on our campuses. These supermarkets are operated by Zhejiang Ming Kang Hui
Food Co., Ltd., controlled by Mr. Feng. The services we provided amounted to RMB4.9 million, RMB3.4 million, and RMB 6.4 million (approximately US$1.0 million) during
the years ended June 30, 2019, 2020 and 2021.
We sold products and other services to our related parties, amounting to RMB3.2 million, RMB3.2 million, RMB 4.6 million (approximately US$0.7 million) during the years ended
June 30, 2019, 2020 and 2021.
Acquisition of subsidiaries or affiliated entities from related parties
In November 2018, Haibo Education and Haibo Logistics declared and fully paid dividends amounting to RMB6.1 million and RMB1.4 million to Nanchang Baishu Education
Group (“Nanchang Baishu”), respectively.
In September 2019, Haibo Education and Haibo Logistics declared and fully paid dividends amounting to RMB17.7 million and RMB3.5 million to Nanchang Baishu, respectively.
In December 2019, net assets attributable to Nanchang Baishu was paid upon the liquidation of Haibo Education and Haibo Logistics, totally amounting to RMB3.7 million.
In July 2019, we acquired 100% shares of Zhuji Tianma Boya Training Center Co., Ltd. with the consideration of RMB0.1 million from Hailiang Investment.
In May 2020, the Company acquired 100% shares of Zhuji Yuesheng Management Consulting Co., Ltd. with the consideration of RMB0.1 million from Hailiang Investment.
In July 15, 2020, the Company entered into a sponsorship transfer agreement with Hailiang Investment to acquire 100% sponsorship of Jinhua Hailiang Foreign Language School,
with a total consideration of RMB34.0 million (approximately US$5.3 million).
In April 2021, we acquired from Hailiang Investment, 100% equity interests in Feicheng Education Investment, for a total consideration of RMB 22.9 million (approximately
US$3.5 million).
Contributed Capital
Mr. Feng made capital contribution of RMB15 million to us through payment of awards to outstanding teachers of our schools to recognize their outstanding performance and
contributions during fiscal year 2019.
During the fiscal year 2021, we acquired 100% sponsorship of Jinhua Hailiang Foreign Language School and acquired 100% equity interests in Feicheng Education Investment from
our affiliate Hailiang Investment, for a total consideration of RMB34.0 million (approximately US$ 5.3 million) and RMB22.9 million (approximately US$ 3.5 million),
respectively. The assets and liabilities of Jinhua Hailiang Foreign Language School and Feicheng Education Investment was recognized with book value at the combination date.
The consideration paid was adjusted to “contributed capital”, which amounted to RMB56.9 million (approximately US$ 8.8 million).
Non-controlling shareholders of Zhenjiang Jianghe High School of Art made a contribution of RMB3.6 million (approximately US$ 0.6 million) through waiving liability during
fiscal year 2021.
Employment Agreements
See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Employment Agreements.”
Interests of Experts and Counsel
Not applicable.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
130/219
Table of Contents
125
Item 8. FINANCIAL INFORMATION
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.”
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 consolidated financial 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 financial statements included in this
annual report.
Item 9. THE OFFER AND LISTING
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, 2020 to June 30, 2021,
the trading price of our ADSs on the NASDAQ Global Market has ranged from US$38.63 to US$66.22 per ADS.
Plan of Distribution
Not applicable.
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.”
Selling Shareholders
Not applicable.
Dilution
Not applicable.
Expenses of the Issue
Not applicable.
Item 10. ADDITIONAL INFORMATION
Share Capital
Not applicable.
Memorandum and Articles of Association
We are a Cayman Islands exempted company with limited liability and our affairs are governed by our memorandum and articles of association, as amended and restated from time
to time the Companies Law of the Cayman Islands (2018 Revision), which is referred to as the Companies Law below, and the common law of the Cayman Islands.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
131/219
Table of Contents
126
The following are summaries of the material provisions of our amended and restated memorandum and articles of association and the Companies Law insofar as they relate to the
material terms of our ordinary shares. This summary is not complete, and you should read our amended and restated memorandum and articles of association, which has been filed
as Exhibit 3.1 to our Form F-1 (File No. 201263), as amended, filed with the SEC on December 24, 2014.
Registered Office and Objects
Our registered office in the Cayman Islands is located at the offices of Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman,
KY1-1111, Cayman Islands. As set forth in article 3 of our amended and restated memorandum of association, the objects for which our company is established are unrestricted.
Board of Directors
See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees of the Board of Directors” and “Item 6. Directors, Senior Management and
Employees—C. Board Practices—Terms of Directors and Officers.”
Ordinary Shares
General Our authorized share capital is US$100,000 consisting of 1,000,000,000 ordinary shares with par value US$0.0001 each. All of our issued and outstanding ordinary shares
are fully paid and non-assessable. Our ordinary shares are issued in registered form, and are issued when registered in our register of members. Our shareholders who are non-
residents of the Cayman Islands may freely hold and vote their ordinary shares. Under our amended and restated memorandum and articles of association, our company may issue
only non-negotiable shares and may not issue bearer shares.
Dividends The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. In addition, our shareholders may by ordinary resolution
declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, our company may declare and pay a dividend only out of
funds legally available therefor, namely out of either profit or our share premium account, provided that in no circumstances may we pay a dividend if this would result in our
company being unable to pay its debts as they fall due in the ordinary course of business.
Voting Rights Holders of our ordinary shares vote as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. In respect of
matters requiring shareholders’ vote, on a poll each ordinary share is entitled to one vote. At any general meeting a resolution put to the vote of the meeting shall be decided by a
show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one or more shareholders who together hold not less than 10% of the
votes attaching to all issued and outstanding shares of our company entitled to vote at general meetings.
An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes attached to the ordinary shares cast by those shareholders
entitled to vote who are present in person or by proxy at a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attached to
the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting. A special resolution is required for important matters such
as a change of name or any amendment to our memorandum and articles of association. Holders of our ordinary shares may effect certain changes by ordinary resolution, including
increasing the amount of our authorized share capital, consolidating all or any of our share capital into shares of larger amount than our existing shares, sub-dividing our shares or
any of them into shares of an amount smaller than that fixed by our memorandum, and cancelling any unissued shares. Both ordinary resolution and special resolution may also be
passed by a unanimous written resolution signed by all the shareholders of our company, as permitted by the Companies Law and our amended and restated memorandum and
articles of association.
Appointment and Removal of Directors Our board of directors may, by the affirmative vote of a simple majority of the directors present and voting at a board meeting, appoint any
person as a director, to fill a casual vacancy on the board or as an addition to the existing board. Directors may be removed by ordinary resolution of our shareholders.
General Meetings of Shareholders and Shareholder Proposals as a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders’ annual
general meetings. Our amended and restated memorandum and articles of association provide that we may, but are not obliged to, in each year hold a general meeting as our annual
general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be
determined by our directors.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
132/219
Table of Contents
127
Shareholders’ annual general meetings and any other general meetings of our shareholders may be convened by a majority of our board of directors or the chairman of the board.
Advance notice of at least ten clear days is required for the convening of our annual general shareholders’ meeting and any other general meeting of our shareholders. A quorum
required for a general meeting of shareholders consists of one or more shareholders present in person or by proxy or, if a corporation or other non-natural person, by its duly
authorized representative, who hold in aggregate not less than one-third of the votes attaching to all issued and outstanding shares of our company entitled to vote at general
meetings.
Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a
general meeting. However, these rights may be provided in a company’s articles of association. Our amended and restated memorandum and articles of association allow any two or
more of our shareholders holding in the aggregate not less than one-third of the votes attaching to the issued and outstanding shares of our company entitled to vote at general
meetings, to requisition an extraordinary general meeting of the shareholders, in which case our directors are obliged to call such meeting and to put the resolutions so requisitioned
to a vote at such meeting; however, our amended and restated memorandum and articles of association do not provide our shareholders with any right to put any proposals before
annual general meetings or extraordinary general meetings not called by such shareholders.
Transfer of Shares Subject to the restrictions of our amended and restated memorandum and articles of association set out below, as applicable, any of our shareholders may transfer
all or any of his or her ordinary shares by an instrument of transfer in the usual or ordinary form or any other form approved by our board of directors.
Our board of directors may, in its sole discretion, decline to register any transfer of any ordinary share which is not fully paid up. Our directors may also decline to register any
transfer of any ordinary share unless (a) the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other
evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; (b) the instrument of transfer is properly stamped, if required;
(c) in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; (d) the share to be transferred is free of
any lien in favor of us; (e) a fee of such maximum sum as NASDAQ may determine to be payable, or such lesser sum as our board of directors may from time to time require, is
paid to us in respect thereof; and (f) the instrument of transfer is in respect of only one class of shares.
If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the
transferee notice of such refusal. The registration of transfers may, after compliance with any notice required of NASDAQ, be suspended and our register of members closed at such
times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register of
members closed for more than 30 days in any year as our board of directors may determine.
Liquidation On a winding up of our company, if the assets available for distribution among our shareholders shall be more than sufficient to repay the whole of the share capital at
the commencement of the winding up, the surplus shall be distributed among our shareholders on a pro rata basis in proportion to the par value of the shares held by them at the
commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or
otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in
proportion to the par value of the shares held by them.
The liquidator may, with the sanction of a special resolution of our shareholders, divide amongst the shareholders in species or in kind the whole or any part of the assets of our
company and may for that purpose value any assets and determine how the division shall be carried out as between our shareholders or different classes of shareholders.
We are an exempted company with limited liability incorporated under the Companies Law, and under the Companies Law, the liability of our members is limited to the amount, if
any, unpaid on the shares respectively held by them. Our memorandum of association contains a declaration that the liability of our members is so limited.
Calls on Shares and Forfeiture of Shares Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice
served to such shareholders at least 14 calendar days prior to the specified time and place of payment. The ordinary shares that have been called upon and remain unpaid on the
specified time are subject to forfeiture.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
133/219
Table of Contents
128
Redemption, Repurchase and Surrender of Shares We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders, on such
terms and in such manner as may be determined by our board of directors, before the issue of such shares, or by a special resolution of our shareholders. Our company may also
repurchase any of our shares provided that the manner and terms of such purchase have been approved by our board of directors or by ordinary resolution of our shareholders, or are
otherwise authorized by our memorandum and articles of association. Under the Companies Law, the redemption or repurchase of any share may be paid out of our company’s
profits or out of the proceeds of a fresh issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital
redemption reserve) if the company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies
Law no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding, or (c) if the
company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.
Variations of Rights of Shares If at any time, our share capital is divided into different classes of shares, all or any of the special rights attached to any class of shares may be varied
either with the written consent of the holders of two-thirds in nominal value of the issued shares of that class, or with the sanction of a special resolution passed at a separate general
meeting of the holders of shares of that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights will not, unless otherwise
expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of
shares.
Inspection of Books and Records Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our
corporate records. However, at the discretion of our board of directors, we intend to provide our shareholders with annual audited financial statements.
Changes in Capital Our shareholders may from time to time by ordinary resolution:
●
increase our share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe;
●
consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;
●
sub-divide our existing shares, or any of them into shares of a smaller amount, provided that in the subdivision the proportion between the amount paid and the amount, if
any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; or
●
cancel any shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of our share capital by
the amount of the shares so cancelled.
Our shareholders may, by special resolution and subject to confirmation by the Grand Court of the Cayman Islands on an application by our company for an order confirming such
reduction, reduce our share capital and any capital redemption reserve in any manner authorized by law.
Issuance of Additional Shares Our amended and restated memorandum and articles of association authorizes our board of directors to issue additional ordinary shares from time to
time as our board of directors shall determine, to the extent there are available authorized but unissued shares.
Our amended and restated memorandum and articles of association authorizes our board of directors to establish from time to time one or more series of convertible redeemable
preferred shares and to determine, with respect to any series of convertible redeemable preferred shares, the terms and rights of that series, including:
●
designation of the series;
●
the number of shares of the series;
●
the dividend rights, conversion rights and voting rights; and
●
the rights and terms of redemption and liquidation preferences.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
134/219
Table of Contents
129
The issuance of convertible redeemable preferred shares may be used as an anti-takeover device without further action on the part of the shareholders. Issuance of these shares may
dilute the voting power of holders of ordinary shares.
Anti-Takeover Provisions Some provisions of our memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that
shareholders may consider favorable, including 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
●
limit the ability of shareholders to requisition and convene general meetings of shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our amended and restated memorandum and articles of association
for a proper purpose and for what they believe in good faith to be in the best interests of our company.
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 the Company” or elsewhere
in this annual report on Form 20-F.
Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Foreign Exchange” and “Item 4. Information on the Company—B. Business
Overview—Regulations—Regulations on Dividend Distribution.”
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 upon profits, 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 to us levied by the government of the Cayman
Islands, save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or 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:
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 or our operations; and
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 be payable by us:
on or in respect of the shares, debentures or our other obligations; or
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 New EIT 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 and governments of other countries or regions. Under the Double Tax
Avoidance
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
135/219
Table of Contents
130
Arrangement, dividends paid by a foreign-invested enterprise in the PRC to its direct holding company, which is considered a Hong Kong tax resident and is determined by the PRC
tax authority to have satisfied relevant requirements under the Double Tax Avoidance Arrangement between China and Hong Kong and other applicable PRC laws, will be subject to
withholding tax at the rate of 5%. Pursuant to the Administrative Measures on Entitlement of Non-residents to Treatment under Tax Treaties, non-resident taxpayers which satisfy
the criteria for entitlement to tax treaty benefits may, at the time of tax declaration or withholding declaration through a withholding agent, enjoy the tax treaty benefits, and be
subject to continuous administration by the tax authorities. On August 27, 2015, the State Administration of Taxation promulgated Announcement of State Taxation Administration
on Promulgation of the Administrative Measures on Non-resident Taxpayers Enjoying Tax Treaty Benefits, which took effect on November 1, 2015 and replaced the Administrative
Measures on Entitlement of Non-residents to Treatment under Tax Treaties. On October 14, 2019, the State Administration of Taxation promulgated Announcement of State
Taxation Administration on Promulgation of the Administrative Measures on Non-resident Taxpayers Enjoying Treaty Benefits, which took effect on January 1, 2020 and replaced
the Announcement of State Taxation Administration on Promulgation of the Administrative Measures on Non-resident Taxpayers Enjoying Tax Treaty Benefits. According to the
Announcement of State Taxation Administration on Promulgation of the Administrative Measures on Non-resident Taxpayers Enjoying Treaty Benefits, non-resident taxpayers
claiming treaty benefits shall be handled in accordance with the principles of “self-assessment, claiming benefits, retention of the relevant materials for future inspection”. Where a
non-resident taxpayer self-assesses and concludes that it satisfies the criteria for claiming treaty benefits, it may enjoy treaty benefits at the time of tax declaration or at the time of
withholding through the withholding agent, simultaneously gather and retain the relevant materials for future inspection, and accept follow-up administration by the tax authorities.
Furthermore, the State Administration of Taxation promulgated Announcement of the State Administration of Taxation on Issues Relating to “Beneficial Owner” in Tax Treaties
(“Circular 9”) in February 2018, which took into effect on April 1, 2018 and provides guidance for determining whether a resident of a contracting state is the “beneficial owner” of
an item of income under China’s tax treaties and tax arrangements. Under Circular 9, to determine the “beneficial owner” status of a resident of the treaty counterparty who needs to
enjoy the tax treaty benefits, a comprehensive analysis shall be carried out in accordance with the factors set out in Article 2 and actual conditions of the specific case shall be taken
into account. According to the Article 2 of Circular 9, generally speaking, if the business activities undertaken by the applicant do not constitute substantive business activities, it
will be unfavorable for determination of the applicant’s “beneficial owner” status. Substantive business activities shall include manufacturing, sales and marketing and management
activities of a substantive nature. Determination of whether the business activities undertaken by the applicant are of a substantive nature shall be based on the functions actually
performed and the risks borne. Investment holding management activities of a substantive nature undertaken by the applicant may constitute substantive business activities; where
the applicant undertakes investment holding management activities which do not constitute substantive business activities and simultaneously undertakes other business activities, if
such other business activities are not significant enough, the applicant’s business activities shall not constitute substantive business activities. Therefore, an agent or conduit
company will normally not be regarded as a beneficial owner and not qualify for tax benefits under the treaties or arrangements. The conduit company normally 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 making dividends 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 China may 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 their worldwide income. The New EIT Law implementation
regulations define the term “de facto management body” as a management body that exercises full or substantial control and management authority over the production, operation,
personnel, accounts and properties of an enterprise. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore
Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific
criteria for determining whether the “de facto management body” of a Chinese-controlled offshore incorporated enterprise is located in China, which include all of the following
conditions: (i) the senior management and core management departments in charge of daily operations are located mainly within the PRC, (ii) financial and human resources
decision are subject to determination or approval by persons or bodies in the PRC, (iii) major assets, accounting books, company seals and minutes and files of 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 senior management reside within the PRC. Although
Circular 82 explicitly provides that the above standards apply to enterprises which are registered outside the PRC and funded by PRC enterprises or PRC enterprise groups as
controlling investors, the determining criteria set forth in Circular 82 may reflect the general position of the State Administration of Taxation on how the “de facto management
body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or PRC enterprise groups or
by PRC or foreign
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
136/219
Table of Contents
131
individuals. We currently do not 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, a PRC 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 resident enterprise, 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% and to certain reporting obligations. See “Item 3.
Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Under the New EIT Law, we may 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 realized from transferring equity
interests of enterprises domiciled in the PRC, then such dividends or capital gains are treated as China-sourced income. It is not clear how “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 dividends we 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 may be 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 gains paid 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%, unless otherwise exempted or reduced under relevant tax treaties or arrangements between the PRC and relevant foreign jurisdictions.
Under the PRC Individual Income Tax Law promulgated on September 10, 1980, as amended in 1993, 1999, 2005, 2007, 2011 and 2018 and its implementation rules, dividends
from sources within 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% and PRC 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 any reduction or exemption set forth in
applicable tax treaties and PRC laws. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Under the New EIT Law, we may be classified
as a “resident enterprise” of China. Such classification could result in unfavorable tax consequences 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 the payment. 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 tax payment obligations by the non-PRC-resident enterprises
will result in penalties, including full payment of taxes owed, fines, and default interest on those taxes.
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 current law, 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 annual report, 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 foregoing authorities are subject to change, which change could apply retroactively and could
significantly affect the tax consequences described below. We have not sought any ruling from the IRS with respect to the statements made and the conclusions reached in the
following discussion and there can be no assurance that 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 income tax purposes
(generally, property held for investment). The discussion neither addresses the tax consequences to any particular investor nor describes all of the tax consequences applicable to
persons in special tax situations, such as:
●
banks;
●
certain financial institutions;
●
insurance companies;
●
regulated investment companies;
●
real estate investment trusts;
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
137/219
Table of Contents
132
●
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 resident outside 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 a partnership 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 the purchase of ADSs or
ordinary shares should consult their own tax advisors with respect to the application of the United States federal income tax laws to their 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.
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 income tax 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 the United 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 persons have 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 effect before 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 in such agreements will be
complied with in accordance with their terms.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
138/219
Table of Contents
133
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 income tax 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 and the issuer of the
security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying security (for example, a pre-release of ADSs to persons that
do not have beneficial ownership of the securities underlying the ADSs). Such actions may be inconsistent with the claiming of the reduced rate of tax applicable to certain
dividends received by non-corporate United States Holders of ADSs, including individual United States Holders, and the claiming of foreign tax credits by United States Holders of
ADSs. Accordingly, among other things, the availability of foreign tax credits or the reduced tax rate for dividends received by non-corporate United States Holders, each discussed
below, could be affected by actions taken by intermediaries 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 properly treated 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 year ended on June 30, 2020.
For U.S. federal income tax purposes, an entity is a PFIC for any taxable year if applying applicable look-through rules, either (i) at least 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) during such 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 annual determination that cannot be made until the close of a taxable year, involves extensive factual
investigation, including ascertaining the fair market value of all 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 been able 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 taxable year ended on June 30, 2020. Additionally, we have a significant amount of cash, which is a passive asset, and consequently the determination of our PFIC status for
our current taxable year ended on June 30, 2020 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 Internal Revenue 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 tax purposes 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 that produce 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 active conduct 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 in part upon the value of our goodwill and other
unbooked intangibles 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). A material
decline in the trading price of our ADSs relative to their current trading price may result in us 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 a separate 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 or any future taxable year. Depending on the
assets held for the production of passive income, it is possible that, for our 2020 taxable year or for any subsequent year, 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
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
139/219
Table of Contents
134
is unclear, we are treating Hailiang Management and its subsidiaries as being owned by us for United States federal income tax purposes, not only because we control their
management decisions, but also because we are entitled to the economic benefits associated with Hailiang Management 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 share of 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 any stock in Hailiang Management, because of our control of management decisions of Hailiang Management, our entitlement to
economic benefits associated with Hailiang Management, and the inclusion of Hailiang Management as part of the consolidated group, there is a risk that our interest in Hailiang
Management might be considered a deemed stock interest. Therefore, the income and assets of Hailiang Management and its subsidiaries should be 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 than the statute itself (Internal Revenue Code Section 1297(c))
and analogous portions of the code, treasury regulations and other accepted authorities and as such it 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 a PFIC. 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 affected by 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 a PFIC, 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 ordinary shares
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 will continue 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 did not 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.
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” that you 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 three preceding 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 prior to 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 for individuals or corporations,
as applicable, for each such year and the resulting tax will be subject to the interest charge generally applicable to underpayments 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 such years, 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 or ordinary 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 elect out 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 or ordinary 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 fair market 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 will be 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 shares over 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 on our 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 as gain 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
loss realized 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-market gains previously
included for such ADSs or ordinary shares. Your basis in
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
140/219
Table of Contents
135
our ADSs or ordinary shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by
corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “—
Dividends and Other Distributions 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 days during each calendar
quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including the Nasdaq 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 ordinary shares, 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 to elect 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 include in 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 electing fund election is available only if such PFIC provides such U.S.
Holder with certain information regarding its earnings and profits as required under applicable U.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 in each such year and provide certain annual information regarding such ADSs or ordinary shares, including regarding
distributions received on our ADSs or ordinary 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 or ordinary 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 future year, 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 at their 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 the special 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 new basis (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 the availability, application
and consequences of the elections discussed above.
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 ADSs or 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 paid out 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 the ordinary 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 federal income tax principles, any distribution paid will
generally be reported as a “dividend” for United States federal income tax purposes. Such dividends will not be 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 dividend income,” if we are paid
by a “qualified foreign corporation” and other conditions discussed below are met. A non-United States corporation is treated as a qualified foreign corporation (i) with respect to
dividends paid by that corporation on shares (or American depositary shares backed by such shares) that are readily 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 qualifying income tax treaty with the United States that
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
141/219
Table of Contents
136
includes an exchange of information program. However, a non-United States corporation will not be treated as a qualified 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 securities market 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 is unclear whether the ordinary shares are
considered to be readily tradable on an established securities market in the United States, because only the ADSs, and not 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 the ordinary shares that are represented by ADSs, but not on the ordinary shares that are
not so represented, are, subject to applicable limitations, eligible for the reduced 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 of China 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, be eligible 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 eligible for 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 the ex-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. In addition, the rate reduction will not apply to dividends of a qualified
foreign corporation if the non-corporate United States Holder receiving the dividend is obligated 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 we pay 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 foreign taxes eligible for credit
against your United States federal income tax liability, subject to the various limitations and disallowance rules that apply to foreign tax 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 as income from sources outside the United States and generally will
constitute passive category income. The rules relating to the determination of the foreign tax 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 sale or exchange and your
tax basis in the ADSs or ordinary shares. Subject to the discussion under “—Passive Foreign Investment Company” above, such gain or loss 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 held the 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 for foreign 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 for treaty purposes and PRC tax is imposed on gain
from the disposition of ADSs or ordinary shares (see “—People’s Republic of China Taxation”), then a United 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-source income 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 Section 865(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, in your particular circumstances.
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 be subject 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 current flat rate of 24%. Backup withholding will not
apply, however, to a U.S. Holder who
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
142/219
Table of Contents
137
furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup
withholding. U.S. Holders who are required to establish 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 tax advisors 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, and you 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. Internal Revenue Service and furnishing any required
information. We do not intend to withhold taxes for individual shareholders. Transactions effected through certain brokers or other intermediaries, however, may be subject to
withholding taxes (including backup withholding), and such brokers or intermediaries may 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 ordinary shares, subject to certain
exceptions (including an exception for ADSs or ordinary shares held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service
Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold 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 information relating 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. These requirements are subject to exceptions, including an
exception for ADSs or ordinary shares held in accounts maintained by certain financial institutions and an 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.
Dividends and Paying Agents
Not applicable.
Statement by Experts
Not applicable.
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 reports and 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 of reports and other information, when so filed,
may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained 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, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The public may obtain information
regarding the Washington, D.C. Public Reference Room by calling 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, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are
exempt from the rules 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 http://ir.hailiangedu.com. In addition, we will provide
hardcopies of our annual report free of charge to shareholders and ADS holders upon request.
Subsidiary Information
For a listing of our subsidiaries, see “Item 4. Information on the Company—C. Organizational Structure.”
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
143/219
Table of Contents
138
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
Our financial statements are expressed in Renminbi, and most of our revenue, costs and expenses are denominated in Renminbi. Additionally, our cash 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 Renminbi may affect our results of operations and financial condition.
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 the other 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 of your 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.
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 any hedging transactions in
an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, 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, our currency 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, receivables due from related parties.
We had cash held by third-party financial institutions located in the PRC, Hong Kong SAR. The bank deposits with financial institutions in the PRC are insured by the government
authority for up to RMB500. The bank deposits with financial institutions in the Hong Kong SAR are insured by the government authority for up to HK$500. We have not
experienced any losses in uninsured bank deposits and do not believe that it is exposed to any significant risks on cash held in bank accounts. To limit exposure to credit risk, we
primarily place bank deposits with large financial institutions in the PRC, Hong Kong SAR with acceptable credit rating. We have historically made deposits with Hailiang Finance.
See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Transactions with Certain Related Parties—Deposits.” Hailiang Finance, a
subsidiary of Hailiang Group, is a finance company that is licensed to provide intra-group financing arrangements within Hailiang Group subsidiaries and other related party
companies. The establishment of Hailiang Finance was approved by the China Banking Regulatory Commission, or CBRC, as a non-banking financial institution to solely facilitate
Hailiang Group’s internal financing transactions including issuing loans to and accepting cash deposits from its subsidiaries and other related party entities. Pursuant to the license
issued by CBRC, Hailiang Finance is not permitted to make any loans or accept any deposits from any parties that are unrelated to Hailiang Group, except for inter-bank transactions
with other unrelated commercial banks. Hailiang Group and Mr. Feng have provided a guarantee on our deposits with Hailiang Finance. Based on one recent PRC credit rating
organization, Hailiang Group has been rated AA+ which indicates strong ability to make payments on debts as they become due. Management believes that 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 26, 2021, we have set an upper deposit budget maintained by Hailiang Finance at any given time in fiscal 2022 to be approximately RMB2.5 billion (approximately
US$387.2 million), and any amount above the upper deposit budget must be transferred to a commercial bank within 7 business days. As of June 30, 2021, we had cash and term
deposits of RMB2,098.3 million (approximately US$325.0 million) at Hailiang Finance which represented 64% of our consolidated total assets as of June 30, 2021.
Receivables due from related parties primarily represent loan receivables due from Leonit, which has been guaranteed by a related party, incorporated in British Virgin Island and
controlled by Hailiang Group. We conclude that the credit risk arising from the receivables is low considering the guarantee.
Liquidity Risk
Liquidity risk is the risk that we will encounter difficulty in meeting the obligations associated with our financial liabilities that are settled by delivering cash or other financial
assets. Our approach to managing liquidity is to ensure, as far as possible, that we will
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
144/219
Table of Contents
139
always have sufficient liquidity to meet our liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our
reputation.
The following are the contractual maturities of financial liabilities, which are based on contractual undiscounted cash flows and the earliest date we can be required to pay:
June 30, 2021
Carrying
Contractual
more than 5
amount
cash flow
1 year or less
1-2 years
2-5 years
years
Non-derivative financial instruments
Trade and other payables due to third parties
RMB
376,747
RMB
376,747
RMB
376,747
—
—
—
US$
58,350
US$
58,350
US$
58,350
—
—
—
Other payables due to related parties
RMB
134,982
RMB
134,982
RMB
134,982
—
—
—
US$
20,906
US$
20,906
US$
20,906
—
—
—
Lease liabilities
RMB
35,754
RMB
44,563
RMB
6,801
RMB
6,544
RMB
13,786
RMB
17,432
US$
5,538
US$
6,902
US$
1,053
US$
1,014
US$
2,135
US$
2,700
Interest Rate Risk
The interest rates of cash held in bank and cash and term deposits placed with Hailiang Finance ranged from 0.30% to 2.1% per annum for the year ended June 30, 2020, and ranged
from 0.30% to 3.85% for the year ended June 30, 2021, respectively. We do not have any financial assets that were designated at fair value through profit or loss. We have not used
derivative financial instruments to hedge interest risk. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed, nor do we anticipate being exposed
to material risks due to changes in market interest rates. However, our future interest income may fall short of 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 consumer price index in China
increased by 2.1%, 2.9% and 2.5% in 2019, 2020 and 2021, respectively. Although we have not in the past been materially affected by inflation 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, it may 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
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
145/219
Table of Contents
140
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 and governmental charges (in
addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any 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 or other 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.
Our ADS holder will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges (in addition to any applicable
fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs) such as:
●
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., when ordinary 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 to ordinary shares, deposited
securities, ADSs and ADRs.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
146/219
Table of Contents
141
●
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 for cancellation. The brokers in turn charge these
fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders 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 to pay 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 date holders concurrent with the distribution. In the
case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), 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 the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers
and custodians who hold their clients’ 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 until payment 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 of reimbursement available to us is not related to the
amounts of fees the depositary collects from investors. Further, the depositary has agreed to reimburse us certain fees payable to the depositary by holders of ADSs. For the year
ended June 30, 2020, we did not receive any payment from the depositary in reimbursements relating to the establishment and maintenance of the ADS program.
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
None.
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 an evaluation 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, 2021. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of June 30, 2021 were effective.
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 Act Rule 13a-15(f). Our
internal control over financial reporting is a process designed to provide reasonable
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
147/219
Table of Contents
142
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with international financial reporting
standards (“IFRSs”), as issued by the International Accounting Standards Board. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions or because the degree of compliance with policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of June 30, 2021. The
assessment was based on criteria established in the framework Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was effective as of June 30, 2021.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness of our
internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies and procedures may deteriorate.
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 and foreign 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
There are no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the year ended June 30, 2021 that have
materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
It should be noted that while our management believes that our disclosure controls and procedures provide a reasonable level of assurance, our management does not expect that our
disclosure controls and procedures or internal financial controls will prevent all errors or fraud. A control system, no matter how well conceived or operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met.
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 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 the Exchange 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 apply to 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 statement on Form F-1 (file No. 333-201263) filed with
the SEC on December 24, 2014 and posted the code on our website http://ir.hailiangedu.com. We hereby undertake 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’s written request.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
148/219
Table of Contents
143
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 principal external auditors, for the
periods indicated.
For the year ended June 30,
2020
2021
(In thousand)
Audit fees(1)
RMB
4,239
RMB
4,486
US$
670
Audit-related fees(2)
RMB
1,100
RMB
—
US$
—
Tax fees(3)
RMB
—
RMB
—
US$
—
All other fees(4)
RMB
—
RMB
—
US$
—
TOTAL
RMB
5,339
RMB
4,486
US$
670
(1) “Audit fees” are defined as the audit that needs to be performed each year in order to issue opinions on our consolidated financial statements and limited procedures performed
in relation to interim financial information. We paid or accrued expenses of RMB4,239 and RMB 4,486 to KPMG Huazhen LLP related to its audit of our annual financial
statements for the years ended June 30, 2020 and 2021, respectively, and limited procedures performed in relation to interim financial information.
(2) “Audit-related fees” means the aggregate fees billed for each of the fiscal years for assurance and related services and due diligence services relating to acquisitions by our
principal accountant that are reasonably 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 services reported 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.
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. Certain corporate governance practices in the Cayman
Islands, which is our home country, may differ significantly from the NASDAQ Global Market corporate governance listing standards. To date, we have followed and intend to
continue to follow the applicable corporate governance standards under the Nasdaq Listing Rules, including having a majority of our board members be independent.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
149/219
Table of Contents
144
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
150/219
Table of Contents
145
Item 19. EXHIBITS
Exhibit
number
Description of document
1.1
Amended and Restated Memorandum of Association of the Registrant (incorporated by reference to Exhibit 3.1 of our Registration Statement 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 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 the Securities and Exchange Commission on
March 20, 2015)
2.4*
Description of Securities
4.1
Form of Employment Agreement between the Registrant and the executive officers of the Registrant (incorporated by reference to Exhibit 10.1 of our
Registration Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014)
4.2
Form of Indemnification Agreement between the Registrant and each of its directors and executive officers (incorporated by reference to Exhibit 10.2 of our
Registration Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 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 Securities and 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 and Exchange 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 our Registration 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’s affiliates 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 Zhejiang Zhuji Hailiang Foreign Language School, 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 Zhejiang Zhuji 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 with the Securities and
Exchange Commission on December 24, 2014)
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
151/219
Table of Contents
146
4.9
English translation of Supplemental Agreement to Property Lease Agreement between Hailiang Management Group Co., Ltd. and Zhejiang Zhuji Hailiang
Experimental High School, dated June 30, 2012 (incorporated by reference to Exhibit 10.9 of our Registration Statement on Form F-1 (file No. 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 Zhejiang Zhuji Tianma Experimental School, dated
June 30, 2009 (incorporated by reference to Exhibit 10.10 of our Registration Statement on Form F-1 (file No. 333-201263) filed with the Securities and
Exchange Commission on December 24, 2014)
4.11
English translation of Property Lease Cooperation Agreement among Hailiang Management Group Co., Ltd., Zhejiang Zhuji Hailiang Experimental High
School. Hailiang Group and Mr. Feng, dated November 13, 2014 (incorporated by reference to Exhibit 10.11 of our Registration Statement on Form F-1 (file
No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014)
4.24
English translation of Decoration and Renovation Project Execution Contract between Zhejiang Zhuji Hailiang Experimental High School and Heng Zhong Da
Construction Limited Company, dated November 13, 2014 (incorporated by reference to Exhibit 10.12 of our Registration Statement on Form F-1 (file
No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014)
4.25
English translation of Guarantee Letter made by Hailiang Group, dated September 29, 2014 (incorporated by reference to Exhibit 10.13 of our Registration
Statement on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014)
4.26
English translation of Guarantee Letter made by Mr. Feng dated September 29, 2014 (incorporated by reference to Exhibit 10.14 of our Registration Statement
on Form F-1 (file No. 333-201263) filed with the Securities and Exchange Commission on December 24, 2014)
4.27
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)
4.28
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 on June 30, 2017)
4.29
English translation of Amended and Restated Power of Attorney from Mr. Feng, dated June 30, 2017 (incorporated by reference to Exhibit 10.3 of our Form 6-
K filed with the Securities and Exchange Commission on June 30, 2017)
4.30
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 with the Securities and Exchange Commission on
June 30, 2017)
4.31
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 on June 30, 2017)
4.32
English Translation of Second Amended and Restated Call Option Agreement among Hailiang Consulting, Hailiang Investment, Mr. Feng and Zhejiang
Zhongyida Investment Co., Ltd., dated February 23, 2018 (incorporated by reference to Exhibit 10.1 of our Form 6-K filed with the Securities and Exchange
Commission on March 30, 2018)
4.33
English Translation of Second Amended and Restated Powers of Attorney among Mr. Feng, Zhejiang Zhongyida Investment Co., Ltd. and Hailiang
Consulting, dated February 23, 2018 (incorporated by reference to Exhibit 10.2 of our Form 6-K filed with the Securities and Exchange Commission on
March 30, 2018)
4.34
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)
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
152/219
Table of Contents
147
4.35
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-K filed 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 Form F-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-14/15d-14
12.2*
Certification of Chief Financial Officer Pursuant to Rule 13a-14/15d-14
13.1**
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
iXBRL Instance Document
101.SCH
iXBRL Taxonomy Extension Schema Document
101.CAL
iXBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
iXBRL Taxonomy Extension Definition Linkbase Document
101.LAB
iXBRL Taxonomy Extension Label Linkbase Document
101.PRE
iXBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
Filed with this annual report on Form 20-F.
**
In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibit 13.1 and Exhibit 13.2 herewith are deemed to
accompany this Form 20-F and will not be deemed filed for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference
into any filings under the Securities Act or the Exchange Act.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
153/219
Table of Contents
148
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 sign this annual report on its
behalf.
Hailiang Education Group Inc.
By:
/s/ Junwei Chen
Name: Junwei Chen
Title: Chairman and Chief Executive Officer
Date:
November 12, 2021
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
154/219
Table of Contents
F-1
Index to Consolidated Financial Statements
Page
HAILIANG EDUCATION GROUP INC.
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Statements of Profit or Loss and Other Comprehensive Income
F-3
Consolidated Statements of Financial Position
F-4
Consolidated Statements of Changes in Equity
F-5
Consolidated Statements of Cash Flows
F-6
Notes to the Consolidated Financial Statements
F-7
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
155/219
Table of Contents
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Hailiang Education Group Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Hailiang Education Group Inc. and subsidiaries (the “Company”) as of June 30, 2021 and 2020,
the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended June 30,
2021, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30,
2021, in conformity with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board.
Changes in Accounting Principle
As discussed in Note 4(o) to the consolidated financial statements, the Company has changed its method of accounting for leases due to the adoption of IFRS 16, Leases on July 1,
2019.
Related Party Transactions
As discussed in Note 22 to the consolidated financial statements, the Company entered into significant transactions with related parties for each of the years in the three-year period
ended June 30, 2021.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
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 of the 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 audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were 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 of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG Huazhen LLP
We have served as the Company’s auditor since 2018.
Hangzhou, China
November 12, 2021
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
156/219
Table of Contents
F-3
HAILIANG EDUCATION GROUP INC.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED JUNE 30, 2019, 2020 AND 2021
(Amounts in thousands except per share data)
2019
2020
2021
Note
RMB
RMB
RMB
Continuing operations
Revenue
5
1,022,795
1,027,373
1,375,790
Cost of revenue
8(ii)
(613,780)
(580,260)
(728,586)
Gross profit
409,015
447,113
647,204
Other income, net
6
20,927
67,070
46,630
Selling expenses
8(ii)
(11,796)
(13,944)
(29,737)
Administrative expenses
8(ii)
(36,495)
(45,118)
(51,321)
Operating profit
381,651
455,121
612,776
Finance income
8(i)
16,596
16,037
35,840
Finance costs
8(i)/13(b)
—
(3,435)
(1,151)
Net finance income
16,596
12,602
34,689
Profit before tax
398,247
467,723
647,465
Income tax expenses
10
(108,713)
(121,924)
(165,355)
Profit from continuing operations
289,534
345,799
482,110
Profit/(loss) from discontinued operations, net of tax
9
23,058
24,205
(243,337)
Net Profit
312,592
370,004
238,773
Profit attributable to the Company’s shareholders:
Profit from continuing operations
267,175
349,983
483,049
Profit/(loss) from discontinued operations
23,058
24,255
(247,957)
290,233
374,238
235,092
Profit/(loss) attributable to non-controlling interests:
18
Profit/(loss) from continuing operations
22,359
(4,184)
(939)
Profit/(loss) from discontinued operations
—
(50)
4,620
22,359
(4,234)
3,681
Earnings per share
Basic and diluted earnings per share
11
0.70
0.91
0.57
Earnings per share – Continuing operations
Basic and diluted earnings per share
11
0.65
0.85
1.17
Net Profit
312,592
370,004
238,773
Other comprehensive income/ (loss)
Items that will not be reclassified to profit or loss
Exchange differences on translation of financial statements of the Company
4,086
2,966
(7,818)
Items that are or may be reclassified subsequently to profit or loss
Exchange differences on translation of financial statements of overseas subsidiaries
(776)
(640)
1,570
Other comprehensive income/(loss), net of nil income tax
3,310
2,326
(6,248)
Total comprehensive income
315,902
372,330
232,525
Total comprehensive income attributable to the Company’s Shareholders
293,543
376,564
228,844
Total comprehensive income/(loss) attributable to non-controlling Interests
18
22,359
(4,234)
3,681
Total comprehensive income
315,902
372,330
232,525
Note:
The Group has restated the comparative information as a result of the business combination between entities under common control. See note 21 for further details.
The results of compulsory education business have been reclassified to discontinued operations and the prior year comparative results have been re-presented throughout the
consolidated financial statements. See note 9 for further details.
The Group has initially applied IFRS 16 as of July 1, 2019 using the modified retrospective approach. Under this approach, comparative information is not restated. See note 4(o).
The accompanying notes are an integral part of these consolidated financial statements.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
157/219
Table of Contents
F-4
HAILIANG EDUCATION GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF JUNE 30, 2020 AND 2021
(Amounts in thousands)
2020
2021
Note
RMB
RMB
Assets
Property and equipment, net
12
659,851
465,734
Intangible assets and goodwill, net
14
97,806
18,300
Right-of-use assets
13(a)
517,609
502,813
Contract costs
11,161
12,438
Prepayments to third party suppliers
142
—
Term deposits held at a related party finance entity
22(b)
—
1,420,939
Deferred tax assets
10
568
859
Non-current assets
1,287,137
2,421,083
Other receivables due from related parties
22(b)
77,442
53,868
Other current assets
15
36,516
37,785
Term deposits held at a related party finance entity
22(b)
921,601
477,303
Restricted bank deposits
324
1,324
Cash and cash equivalents
16/22(b)
516,446
279,420
Current assets
1,552,329
849,700
Total assets
2,839,466
3,270,783
Equity
Share capital
17
268
268
Share premium
17
134,583
134,583
Contributed capital
17
253,034
197,984
Reserves
17
396,053
442,953
Retained earnings
1,242,906
1,424,850
Total Hailiang Education Group Inc. shareholders’ equity
2,026,844
2,200,638
Non-controlling interests
18
10,797
16,222
Total equity
2,037,641
2,216,860
Liabilities
Contract liabilities
5(c)
3,159
132
Deferred tax liabilities
10
4,607
4,736
Lease liabilities
13(d)
18,749
30,521
Non-current liabilities
26,515
35,389
Trade and other payables due to third parties
19
272,012
376,747
Other payables due to related parties
19/22(b)
156,709
134,982
Contract liabilities
5(c)
295,979
444,865
Income tax payable
48,857
56,707
Lease liabilities
13(d)
1,753
5,233
Current liabilities
775,310
1,018,534
Total liabilities
801,825
1,053,923
Commitments and contingencies
23
—
—
Total equity and liabilities
2,839,466
3,270,783
Note:
The Group has restated the comparative information as a result of the business combination between entities under common control. See note 21 for further details.
The Group has initially applied IFRS 16 as of July 1, 2019 using the modified retrospective approach. Under this approach, comparative information is not restated. See note 4(o).
The accompanying notes are an integral part of these consolidated financial statements.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
158/219
Table of Contents
F-5
HAILIANG EDUCATION GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED JUNE 30, 2019, 2020 AND 2021
(Amounts in thousands)
Total Hailiang
Education Group
Share
Share
Contributed
Translation
Statutory
Retained
Inc. shareholders’
Non contro
Capital
Premium
Capital
Reserve
Reserve
Earnings
Equity
Interests
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
Note 17 Note 17
Note 17
Note 17
Note 17
Note 18
Previously reported balance at June 30, 2018
268
134,583
235,895
8,144
304,523
638,246
1,321,659
13,
Business combination under common control (note 17(a)(iii))
—
—
1,000
—
—
(340)
660
Adjustment on initial application of IFRS 15, net of income tax
—
—
—
—
—
18,279
18,279
Restated balance at July 1, 2018
268
134,583
236,895
8,144
304,523
656,185
1,340,598
13,
Total comprehensive income
Profit for the year
—
—
—
—
—
290,233
290,233
22,
Other comprehensive income
—
—
—
3,310
—
—
3,310
Total comprehensive income
—
—
—
3,310
—
290,233
293,543
22,
Transfer to statutory reserve
—
—
—
—
44,958
(44,958)
—
Acquisition of business with non-controlling interests
—
—
—
—
—
—
—
9,
Contributed capital (note 17(a)(iii))
—
—
15,139
—
—
—
15,139
Business combination under common control (note 17(a)(iii))
—
—
1,000
—
—
—
1,000
Dividends
—
—
—
—
—
—
—
(7,
Restated balance at June 30, 2019
268
134,583
253,034
11,454
349,481
901,460
1,650,280
37,
Total comprehensive income
Profit for the year
—
—
—
—
—
374,238
374,238
(4,
Other comprehensive income
—
—
—
2,326
—
—
2,326
Total comprehensive income
—
—
—
2,326
—
374,238
376,564
(4,
Liquidation of subsidiaries (note 18)
—
—
—
—
(2,364)
2,364
—
(3,
Transfer to statutory reserve
—
—
—
—
35,156
(35,156)
—
Contribution from a non-controlling shareholder (note 18)
—
—
—
—
—
—
—
2,
Dividends paid to a non-controlling shareholder of subsidiaries (note 18)
—
—
—
—
—
—
—
(21,
Restated balance at June 30, 2020
268
134,583
253,034
13,780
382,273 1,242,906
2,026,844
10,
Total comprehensive income
Profit for the year
—
—
—
—
—
235,092
235,092
3,
Other comprehensive income
—
—
—
(6,248)
—
—
(6,248)
Total comprehensive income
—
—
—
(6,248)
—
235,092
228,844
3,
Transfer to statutory reserve
—
—
—
—
53,148
(53,148)
—
Waiving liabilities from non-controlling shareholders (note 17(a)(iii))
—
—
1,816
—
—
—
1,816
1,
Cash consideration paid for the acquisition of affiliated entities under common control (note 17(a)(iii))
—
—
(56,866)
—
—
—
(56,866)
Balance at June 30, 2021
268
134,583
197,984
7,532
435,421
1,424,850
2,200,638
16,
Note:
The comparative amounts in the consolidated financial statements are presented as if the entities or businesses had been consolidated at the earliest balance sheet date presented or when
they first came under common control, whichever is later. See note 21 for further details.
The Group has initially applied IFRS 15 at July 1, 2018. Under the cumulative effect method, comparative information is not restated. See note 4(m).
The Group has initially applied IFRS 16 as of July 1, 2019 using the modified retrospective approach. Under this approach, comparative information is not restated. See note 4(o).
The accompanying notes are an integral part of these consolidated financial statements.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
159/219
Table of Contents
F-6
HAILIANG EDUCATION GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2019, 2020 AND 2021
(Amounts in thousands)
2019
2020
2021
Note
RMB
RMB
RMB
Cash flows from operating activities
Net profit for the year
312,592
370,004
238,773
Adjustments for:
Impairment loss on property and equipment
9
—
—
174,026
Impairment loss on intangible assets and goodwill
9
—
—
78,233
Depreciation of owned property and equipment
12
133,316
136,693
133,420
Depreciation of right-of-use assets
13(a)
—
30,485
33,649
Gain on derecognition of a lease contract
13(b)
—
(39)
—
Gain on lease modification
13(b)
—
—
(82)
Loss on the disposal of property and equipment
342
693
515
Amortization of intangible assets
14
1,494
2,694
2,659
Net foreign exchange gain
(465)
(287)
(397)
Interest income
(24,489)
(24,870)
(42,834)
Interest expenses
208
4,803
1,584
Income tax expenses
10
108,713
121,924
166,969
531,711
642,100
786,515
Changes in operating assets and liabilities, net of effect of acquisitions and disposals:
Other current assets and contract costs
(8,933)
2,033
(9,437)
Trade and other payables due to third parties
99,642
48,854
111,180
Other payables due to related parties
(3,080)
8,503
11,386
Contract liabilities
204,139
(121,524)
145,859
Cash generated from operating activities
823,479
579,966
1,045,503
Income tax paid
(111,317)
(135,596)
(152,111)
Net cash generated from operating activities
712,162
444,370
893,392
Cash flows from investing activities
Interest received
20,592
25,308
17,990
Proceeds from sale of property and equipment
—
737
—
Purchase of property and equipment
(99,810)
(128,263)
(120,160)
Purchase of intangible assets
(1,743)
(935)
(366)
Purchase of right-of-use assets
13(c)
—
(524,996)
—
Payments of restricted bank deposits
(1,613)
—
(1,000)
Collection of restricted bank deposits
—
1,289
—
Term deposits placed with a related party finance entity
22(a)(iii)
(4,709,697)
(3,816,762)
(4,180,615)
Maturity of term deposits placed with a related party finance entity
22(a)(iii)
3,526,603
4,282,255
3,233,296
Repayment of loans from a related party
22(a)(i)
12,412
11,850
21,649
Acquisition of an affiliated entity, net of cash acquired
(627)
—
—
Net cash used in investing activities
(1,253,883)
(149,517)
(1,029,206)
Cash flows from financing activities
Loans borrowed from a related party
22(a)(ii)
9,000
13,000
4,000
Repayment of loans to related parties
22(a)(i)(ii)
(4,000)
(34,079)
(41,981)
Repayment of interest on loans to a related party
22(a)(ii)
—
—
(853)
Acquisition of affiliated entities under common control
21
—
—
(56,866)
Capital contributions
18
1,139
2,450
—
Payments to a non-controlling shareholder upon the liquidation of Subsidiaries
18
—
(3,713)
—
Capital element of lease rentals paid
13(c)
—
(2,721)
(3,829)
Interest element of lease rentals paid
13(c)
—
(4,174)
(944)
Dividends paid to a non-controlling shareholder of subsidiaries
18
(7,482)
(21,145)
—
Net cash used in financing activities
(1,343)
(50,382)
(100,473)
Net (decrease)/increase in cash and cash equivalents
(543,064)
244,471
(236,287)
Cash and cash equivalents at beginning of the year
815,306
271,538
516,446
Effect of movements in exchange rates on cash and cash equivalents
(704)
437
(739)
Cash and cash equivalents at the end of the year
271,538
516,446
279,420
Non-cash transaction:
Deemed capital contribution for awards paid to the Group’s teachers by the controlling shareholder
17(a)(iii)
15,000
—
—
Payables for purchase of property and equipment
21,930
53,803
47,600
Note:
The Group has restated the comparative information as a result of the business combination between entities under common control. See note 21 for further details.
The Group has initially applied IFRS 16 as of July 1, 2019 using the modified retrospective approach. Under this approach, comparative information is not restated. See note 4(o).
The accompanying notes are an integral part of these consolidated financial statements.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
160/219
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
161/219
Table of Contents
F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
1 Reporting entity and organization
Hailiang Education Group Inc. (the “Company”) is a holding company and is ultimately controlled by Mr. Hailiang Feng (“Mr. Feng”). The Company, its 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 the People’s Republic of China (“PRC”). The Group mainly offered K-12 student
management services, including accommodation and after-school enrichment services, high school curriculum education services and K-9 compulsory curriculum education services
(collectively referred to as “K-12 educational services”) in schools located in 5 provinces of China, operation and management services and ancillary educational services.
On May 14, 2021, the PRC State Council announced the issuance of the Implementation Regulations of the People’s Republic of China on the Law Regarding the Promotion of
Private Education (the “Implementation Rules”), which became effective on September 1, 2021. Among other things, the Implementation Rules prohibit social organizations and
individuals from controlling a private school that provides compulsory education by means of merger, acquisition, contractual arrangements, etc., and a private school providing
compulsory education is prohibited from conducting transactions with its related parties. Compulsory education in this context means the nine years of curriculum education
mandated by the PRC, consisting of six years of primary education and three years of secondary education.
The Implementation Rules impose significant uncertainties over the validity of Contractual Arrangements (see below note 2(b)) that establish the corporate structure for operating
compulsory education business. In the event the Group is unable to enforce these Contractual Arrangements, the Group may not be able to exert effective control over the affiliated
entities providing compulsory education. In particular, under the Implementation Rules a private school providing compulsory education is prohibited from conducting transactions
with its related parties, and this significantly affects the enforceability of the Consulting Services Agreements with affiliated entities providing compulsory education. Therefore, the
Group re-assessed its control over the affiliated entities providing compulsory education. It is of the view that the Implementation Rules impose significant uncertainties and
restrictions on the Group’s ability to direct the range of ongoing activities that would most significantly impact the returns of those entities and its ability to be exposed to returns
that are commensurate with a controlling interest, and that such uncertainties and restrictions already had a significant impact on the Group’s ability to direct and its economic
exposure from involvement with such entities as from September 1, 2021. Accordingly, the Group has concluded that it lost control of the affiliated entities providing compulsory
education on September 1, 2021.
As of June 30, 2021, the Company’s subsidiaries and consolidated affiliated entities are as follows:
Place and year of
Legal
Subsidiaries
Establishment
Ownership
Principal activities
Hailiang Education (HK) Limited (“Hailiang HK”)
Hong Kong, China, 2011
100 % Investment holding
Zhejiang Hailiang Education Consulting and Services Co., Ltd. (“Hailiang Consulting
“or “WOFE”)
Zhejiang, China, 2011
100 % Investment holding
Ningbo Hailiang Education Logistics Management Co., Ltd.
Zhejiang, China, 2017
100 % Operation and management service
Ningbo Haoliang Information Consulting Co., Ltd. (“Ningbo Haoliang”)
Zhejiang, China, 2017
100 % Operation and management service
Zhuji Nianxin Lake Hotel Co., Ltd.
Zhejiang, China, 2017
100 % Hotel management service
Ningbo Hailiang Sports Development Co., Ltd.
Zhejiang, China, 2018
100 % Well-rounded education
Zhuji Hailiang Supply Chain Management Co., Ltd.
Zhejiang, China, 2018
100 % Procurement and transportation services
Zhuji Hailiang Logistics Service Co., Ltd.
Zhejiang, China, 2018
100 % Accommodation service
Zhuji Hailiang After-school Service Co., Ltd.
Zhejiang, China, 2018
100 %
After-school enrichment service Well-rounded
education
Hailiang Education International Studying Service Limited
Hongkong, China, 2018
100 % Overseas study consulting service
Hangzhou Hailiang International Studying Service Co., Ltd.
Zhejiang, China, 2018
100 % Overseas study consulting service
Hangzhou Hailiang Study Trip Co., Ltd
Zhejiang, China, 2018
100 % Study trip service
Pate’s-Hailiang International College Company Limited
United Kingdom, 2018
100 % Overseas study consulting service
Hailiang International Education Group Pte. Ltd.
Singapore, 2020
100 %
Investment holding
My Campus Study Centre PTE Ltd.
Singapore, 2021
100 % Ancillary educational services
Hangzhou Hailiang Youcai Education Technology Co., Ltd.
Zhejiang, China, 2021
100 % Investment holding
Ninghai Hailiang Education Logistics Management Co., Ltd
Zhejiang, China, 2021
100 %
Operation and management service
Xiantao Hailiang Education Logistics Management Co., Ltd. (“Xiantao Logistics”)
Hubei, China, 2021
90 % Operation and management service
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
162/219
Table of Contents
F-8
Place and year of
Legal
Consolidated affiliated entities
Establishment
ownership
Principal activities
Hailiang Education Management Group Co., Ltd. (“Hailiang Management”,
previously named “Zhejiang Hailiang Education Investment Group Co., Ltd.”)
Zhejiang, China, 2012
N/A * Investment holding
Zhejiang Hailiang Mingxin Education Technology Co., Ltd.
Zhejiang, China, 2017
N/A * Overseas study consulting service
Zhejiang Zhuji Hailiang Experimental High School (“Experimental High”)
Zhejiang, China, 2002
N/A *
K-12 student management services and high school
curriculum education services
Zhejiang Zhuji Hailiang Senior Middle School
Zhejiang, China, 2016
N/A *
K-12 student management services and high school
curriculum education services
Zhejiang Zhuji Hailiang High School of Art (Previously named “Hailiang Art Middle
School”)
Zhejiang, China, 2017
N/A *
K-12 student management services and high school
curriculum education services
Zhuji Hailiang Foreign Language High School Co., Ltd. (“Zhuji Hailiang Foreign
Language High School”)
Zhejiang, China, 2018
N/A *
K-12 student management services and high school
curriculum education services
Zhenjiang Jianghe High School of Art
Jiangsu, China, 2018
N/A *
K-12 student management services and high school
curriculum education services
Zhejiang Mingxin International Travel Co., Ltd.
Zhejiang, China, 2018
N/A * Study trip service
Shaoxing Sihai International Travel Co., Ltd. (“Sihai International Travel”)
Zhejiang, China, 2010
N/A * Study trip service
Zhuji Tianma Boya Educational Training Center Co., Ltd.
Zhejiang, China, 2019
N/A * Academic subject tutoring
Hangzhou Mingyou Educational Training School Co., Ltd.
Zhejiang, China, 2019
N/A * Academic subject tutoring
Hailiang Mingyou Future (Zhejiang) Education Technology Co., Ltd. (previously
named “Zhuji Yuesheng Management Consulting Co., Ltd.”)
Zhejiang, China, 2018
N/A *
Investment holding
Shanghai Yunhan Education Technology Co., Ltd.
Shanghai, China, 2020
N/A *
Investment holding
Xinchang Nanrui Hailiang Education Technology Co., Ltd.
Zhejiang, China, 2020
N/A *
Investment holding
Ninghai Hailiang Education Development Co., Ltd.
Zhejiang, China, 2021
N/A *
Investment holding
Zhuji Mingyou Training Center Co., Ltd.
Zhejiang, China, 2020
N/A *
Academic subject tutoring
Zhuji Hailiang Chengzhong Mingyou Training Center Co., Ltd.
Zhejiang, China, 2020
N/A *
Academic subject tutoring
Zhejiang Hailiang Mingyou Education Technology Co., Ltd. (“Zhejiang Hailiang
Mingyou”)
Zhejiang, China, 2020
N/A *
Investment holding
Xinchang Mingyou Cultural Development Co., Ltd.
Zhejiang, China, 2021
N/A *
Academic subject tutoring
Xinchang Mingyou Education Training Center Co., Ltd.
Zhejiang, China, 2021
N/A *
Academic subject tutoring
Zhuji Mingyou Lechuang Education Technology Co., Ltd.
Zhejiang, China, 2021
N/A *
Academic subject tutoring
Ninghai Yipin Education Training Co., Ltd.
Zhejiang, China, 2021
N/A *
Academic subject tutoring
Suqian Leqi Training Co., Ltd.
Jiangsu, China, 2021
N/A *
Academic subject tutoring
Hangzhou Hailiang Mingyou Online Education Technology Co., Ltd.
Zhejiang, China, 2021
N/A *
Academic subject tutoring
Hangzhou Hailiang Education Management Co., Ltd.
Zhejiang, China, 2018
N/A *
Investment holding
Zhejiang Zhuji Hailiang Foreign Language School (“Foreign Language”)
Zhejiang, China, 1995
N/A *
K-9 compulsory curriculum education services
Zhejiang Zhuji Tianma Experimental School (“Tianma Experimental”)
Zhejiang, China, 1995
N/A *
K-9 compulsory curriculum education services
Zhejiang Zhuji Hailiang Primary School
Zhejiang, China, 2016
N/A *
K-9 compulsory curriculum education services
Zhejiang Zhuji Hailiang Junior Middle School
Zhejiang, China, 2016
N/A *
K-9 compulsory curriculum education services
Lanzhou Hailiang Education Consulting Co., Ltd.
Gansu, China, 2019
N/A *
Investment holding
Lanzhou Hailiang Experimental School
Gansu, China, 2020
N/A *
K-9 compulsory curriculum education services
Wuhu Hailiang Education Management Co., Ltd.
Anhui, China, 2020
N/A *
Investment holding
Wuhu Hailiang Experimental School
Anhui, China, 2020
N/A *
K-9 compulsory curriculum education services
Jinhua Hailiang Education Technology Co., Ltd.
Zhejiang, China, 2020
N/A *
Investment holding
Wenzhou Hailiang Juxian Education Technology Co., Ltd. (“Juxian Technology”)
Zhejiang, China, 2020
N/A *
Investment holding
Hailiang Overseas Chinese School
Zhejiang, China, 2020
N/A *
K-9 compulsory curriculum education services
Jinhua Hailiang Foreign Language School
Zhejiang, China, 2018
N/A *
K-9 compulsory curriculum education services
Ninghai Hailiang Education Management Co., Ltd.
Zhejiang, China, 2021
N/A *
Investment holding
Xianghu Future School
Zhejiang, China, 2021
N/A *
K-9 compulsory curriculum education services
Feicheng Education Investment
Shandong, China, 2018
N/A *
Investment holding
Feicheng Hailiang Foreign Language School
Shandong, China, 2018
N/A *
K-9 compulsory curriculum education services
* These entities are controlled by the Company pursuant to the contractual arrangements disclosed below in note 2(b).
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
163/219
Table of Contents
F-9
2 Basis of preparation
(a) Statement of compliance
The consolidated financial statements of the Group as of June 30, 2020 and 2021 and for each of the years in the three-year period ended June 30, 2021 comprise the accounts of
the Company, its subsidiaries and consolidated affiliated entities, in which all intercompany balances and transactions have been eliminated. The consolidated financial
statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by International Accounting Standards Board (“IASB”).
The consolidated financial statements were authorized for issue by the Company’s board of directors on November 12, 2021.
(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, and restrict foreign
investment in educational services businesses at the high school level, the Group’s offshore holding companies are not allowed to directly own and operate schools in China.
Thus, Hailiang Consulting, the Company’s wholly owned PRC subsidiary, entered into a series of contractual arrangements with Hailiang Management and the shareholder of
Hailiang Management, Mr. Feng, on December 31, 2013. These contractual agreements were subsequently amended on June 30, 2017, to revise the original contractual
arrangements among the said parties entered into in December 2013 in order to (i) reflect and accommodate additions of new affiliated entities of Hailiang Management since
December 2013 as well as any future changes thereto, and (ii) to allow for potential arrangements, if any and when applicable, to be entered into by controlled affiliate(s) of
Hailiang Consulting.
On February 8, 2018, Zhejiang Beize Group Co., Ltd. (“Beize Group”), a PRC company controlled by Mr. Feng, subscribed 0.1% registered capital of Hailiang Management.
Accordingly, on February 23, 2018, Hailiang Consulting, Hailiang Management, Mr. Feng and Beize Group entered into a series of contractual arrangement (“Contractual
Agreements”) to reflect the abovementioned increase of shareholders while the terms of these agreements remained unchanged. The Contractual Arrangements include Call
Option Agreement, Power of Attorney, Consulting Services Agreement, and Equity Pledge Agreement.
The key terms of the Contractual Agreements are as follows:
Call Option Agreement: Pursuant to the Call Option Agreement, Mr. Feng and Beize Group unconditionally and irrevocably granted Hailiang Consulting or its designee an
exclusive option to purchase, to the extent permitted under PRC laws and regulations, in certain cases, including but not limited to the cancellation of any of the other
agreements under the contractual arrangements or liquidation or dissolution of Hailiang Management, all or part of the equity interest in Hailiang Management at the lowest
consideration permitted by PRC laws and regulations unless a valuation of the equity is required by the PRC laws. Hailiang Consulting has the sole discretion to decide when to
exercise the option, and whether to exercise the option in part or in full. Without Hailiang Consulting’s written consent, Hailiang Management and Mr. Feng and Beize Group
may not sell, transfer, pledge or otherwise dispose of or create any encumbrance on any of Hailiang Management’s assets, businesses or equity interests or merge with or acquire
other businesses. Without obtaining Hailiang Consulting’s written consent, Hailiang Management may not enter into any material contracts, incur any indebtedness or provide
any loan or guarantee to a third party, or alter the nature or scope of its business. This agreement may not be terminated by Hailiang Management or Mr. Feng or Beize Group,
nor can it be terminated by Hailiang Consulting without cause. Unless terminated, this agreement shall remain in full force and effect until Hailiang Management’s term of
operations expires in April 2042.
Power of Attorney: Mr. Feng and Beize Group each executed an irrevocable Power of Attorney appointing Hailiang Consulting, or any person designated by Hailiang
Consulting, as their attorney-in-fact to (i) exercise on their respective behalf all their respective rights as shareholders of Hailiang 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 Hailiang Management in its business operations, and (iii) unconditionally assign Mr. Feng and
Beize’s shareholding rights to Hailiang Consulting, including dividends or other benefits that Mr. Feng and Beize Group receive from Hailiang Management as shareholders.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
164/219
Table of Contents
F-10
Consulting Services Agreement. Pursuant to the Consulting Services Agreement between Hailiang Consulting, Hailiang Management and Mr. Feng and Beize Group, as the
shareholders of Hailiang Management, Hailiang Consulting (or its controlled affiliate) has the exclusive right to provide comprehensive technical and business support services
to Hailiang Management’s affiliated entities. In particular, such services include developing curriculum, conducting market research and offering strategic business advice,
providing information technology services, providing public relations services, providing support for teacher hiring and training and providing other services that the affiliated
entities may need from time to time. Without the prior consent of Hailiang Consulting, none of Hailiang Management’s affiliated entities may accept such services provided by
any third party. Hailiang Consulting owns the exclusive intellectual property rights created as a result of the performance of this agreement. Hailiang Management’s affiliated
entities agree to pay annual service fees, calculated as a percentage of their total revenue, to Hailiang Consulting (or its controlled affiliate). At the sole discretion of Hailiang
Consulting, the percentage ratio for calculating the service fees may be adjusted from time to time based on the complexity of the services provided, the time and resources
committed by Hailiang Consulting (or its controlled affiliate) and the commercial value of the services. The Consulting Services 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 other necessary costs prior to the payment of such service fees. As part of the Consulting Services Agreement, Hailiang Management and Mr.
Feng and Beize Group agree that they will not take any actions, such as incurring indebtedness, disposing of material assets, materially changing the scope or nature of the
business of Hailiang Management’s affiliated entities, disposing of their equity interests in Hailiang Management’s affiliated entities, or paying dividends to Mr. Feng or Beize
Group without the written consent of Hailiang Consulting. This agreement may not be terminated by Hailiang Management or Mr. Feng or Beize Group, nor can it be
terminated by Hailiang Consulting without cause. Unless terminated, the agreement shall remain in full force and effect during the term of operations of Hailiang Management’s
affiliated entities.
Equity Pledge Agreement. Pursuant to the Equity Pledge Agreement between Hailiang Consulting, Mr. Feng and Beize Group, and Hailiang Management, Mr. Feng and Beize
Group unconditionally and irrevocably pledged all of their equity interests in Hailiang Management to Hailiang Consulting to guarantee performance of the obligations of
Hailiang Management’s affiliated entities under the Call Option Agreement, Power of Attorney and Consulting Services Agreement, each as described above. Mr. Feng and
Beize Group agreed that without prior written consent of Hailiang Consulting, they shall not transfer or dispose of the pledged equity interests, commence any bankruptcy or
liquidation process of Hailiang Management or create or allow any encumbrance on the pledged equity interests. This agreement may not be terminated by Hailiang
Management or Mr. Feng or Beize Group, nor can it be terminated by Hailiang Consulting without cause. Unless terminated, the Equity Pledge Agreement remains in full force
and effect until all of the obligations of Hailiang Management’s affiliated entities under the Consulting Services Agreement have been duly performed and related payments are
duly paid. The pledge of equity interests in Hailiang Management has been duly registered with the local branch of State Administration for Industry and Commerce of PRC
(“SAIC”) and is effective upon such registration.
The Contractual Agreements provide the Company, through Hailiang HK and Hailiang Consulting, the following, (i) the power over the Affiliated Entities; (ii) the exposure or
rights to variable returns from its involvement with the Affiliated Entities; and (iii) the ability to affect those returns through its 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 it the 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 and Consulting Services
Agreement. Hailiang Consulting’s returns from its involvement with the Affiliated Entities have the potential to vary as a result of the performance of the Affiliated Entities.
Pursuant to the Power of Attorney, Hailiang Consulting is the only party that can share in the distributed and undistributed earnings of the Affiliated Entities. Pursuant to the
Consulting Services Agreement, Hailiang Consulting has the exclusive right to provide consulting, 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, Hailiang Consulting is the
principal and is the only party that has the decision-making authority on all relevant activities of the Affiliated Entities. There are no substantive rights held by other parties that
may affect or restrict Hailiang Consulting’s
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
165/219
Table of Contents
F-11
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 variability of returns of the Affiliated Entities from the Call Option Agreement.
The following financial statement balances and amounts of the affiliated entities were included in the Group’s consolidated financial statements after the elimination of
intercompany balances and transactions.
2020
2021
RMB
RMB
Total non-current assets
988,794
1,127,437
Total current assets*
1,172,224
953,518
Total assets
2,161,018
2,080,955
Total non-current liabilities
23,130
32,933
Total current liabilities
603,797
757,094
Total liabilities
626,927
790,027
* Intercompany receivables due from the WOFE and its subsidiaries have been eliminated upon consolidation.
2019
2020
2021
RMB
RMB
RMB
Revenue from continuing operations
613,975
598,275
510,200
Revenue from discontinued operations
490,542
489,699
618,653
Profit before tax from continuing operations
175,911
203,817
73,612
Profit/(loss) before tax from discontinued operations (note 9)
23,058
24,205
(241,723)
Net profit from continuing operations
126,467
151,169
53,480
Net profit/(loss) from discontinued operations (note 9)
23,058
24,205
(243,337)
The affiliated entities contributed an aggregate of 60.0%, 58.2% and 37.1% of the Group’s consolidated revenue from continuing operations for the years ended June 30, 2019,
2020 and 2021, respectively. As of June 30, 2020 and 2021, the affiliated entities accounted for an aggregate of 76.1% and 63.6%, respectively, of the consolidated total assets,
and 78.2% and 75.0%, respectively, of the consolidated total liabilities.
Creditors do not have recourse to the general credit of the Company for the liabilities of the respective consolidated affiliated entities. There is currently no contractual
arrangement that would require the Company to provide additional financial support to the consolidated affiliated entities. As the Group is conducting certain businesses in the
PRC through the consolidated affiliated entities, the Group may provide additional financial support on a discretionary basis in the future, which could expose the Group to a
loss.
(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 Affiliated Entities. Any failure by Hailiang Management,
Mr. Feng or Beize Group, the nominee shareholders of Hailiang Management to perform the obligations under 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 by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these agreements
would be interpreted in accordance 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 as some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce these
Contractual Arrangements. In addition, if the legal structure and the Contractual Agreements were found to be in violation of any existing or future PRC laws and regulations,
the Company may be subject to fines or other legal or administrative sanctions.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
166/219
Table of Contents
F-12
In the opinion of management, based on the legal opinion obtained from the Company’s PRC legal counsel, the above Contractual Arrangements are legally binding and
enforceable and do not violate current PRC laws and regulations. However, there are uncertainties regarding the interpretation and application of existing and future PRC laws
and regulations. Accordingly, the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to its opinion. If the current ownership
structure of the Company and the Contractual Arrangements are found to be in violation 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 laws and 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 its right to the variable returns
from its involvement with the Affiliated Entities and the Company is not able to restructure its ownership structure of the Affiliated Entities (such as acquiring controlling equity
interests), the Company would not be able to consolidate the financial results of the Affiliated Entities in the Company’s consolidated financial statements. A substantial part of
the assets, liabilities and results of operations reported in the accompanying consolidated financial statements comprise the assets, liabilities and results of operations of the
Affiliated Entities. In the opinion of management, the likelihood of loss in respect of the Company’s current ownership structure or Contractual Arrangements is remote based
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 the ultimate controlling shareholder of
the Company. The Company cannot assure that Mr. Feng and Beize Group will act in the best interests of the Company. The Company relies on Mr. Feng and Beize Group to
comply with the terms and conditions of the Contractual Agreements. If Mr. Feng and Beize Group are in breach of their contractual obligations under the Contractual
Agreements and the Company cannot resolve any dispute between the Company, Mr. Feng and Beize Group, the Company would have to rely on legal proceedings, which
could result in disruption of the Company’s business and subject the Company to substantial 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 “functional currency”). The
Company’s functional currency is the United States dollar (“USD”), whereas the functional currency of the entities located in Singapore is the Singapore dollar (“SGD”) and the
PRC entities of the Group is the Renminbi (“RMB”), respectively.
The Group’s presentation currency is RMB. All financial information presented has been rounded to the nearest thousands, except when otherwise indicated.
(e) Use of estimates
The preparation of the consolidated financial statements in conformity with IFRSs requires management to make a number of estimates and assumptions relating to the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue
and expenses during the period.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
167/219
Table of Contents
F-13
Significant items subject to such estimates and assumptions include the consolidation of the Affiliated Entities, assumptions used to determine the fair value of the favorable
lease acquired, the useful lives and the recoverability of the carrying amounts of property and equipment and intangible assets (including goodwill), the collectability of a loan
made to a related party and cash and term deposits placed with a related party finance entity, income tax, the assessment of contingent liabilities, and incremental borrowing rate
to measure lease liabilities. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently 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 the estimates are revised and
in any future periods affected.
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the
following notes:
●
Note 2 (c), risks and uncertainties (the enforceability of the Contractual Agreements)
●
Note 9, Discontinued operations
●
Note 10, income tax expenses
●
Note 12, property and equipment
●
Note 13, Leases
●
Note 14, intangible assets and goodwill
●
Note 20(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 and liabilities.
Management regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to
measure fair values, then management assesses the evidence obtained from the third parties to support the conclusion that such valuations 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 different levels 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 value measurement is
categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
168/219
Table of Contents
F-14
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 20(d), fair value
3 Changes in accounting policies
The IASB has issued several amendments to IFRSs that are first effective for the current accounting period of the Group and the Company. None of the developments have had a
material effect on how the Group’s financial statements for the current or prior periods have been prepared or presented. The Group has not applied any new standard or
interpretation that is not yet effective for the current accounting period as set out in note 4(u).
4 Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements, and have been applied 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 the acquired set of activities and assets
meets the definition of a business and control is transferred to the Group. In determining whether a particular set of activities and assets is a business, the Group assesses
whether the set of assets and activities includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs.
The consideration transferred in the acquisition is generally measured at fair value, as well as the identifiable net assets acquired. Any goodwill that arises is tested annually for
impairment (see note 4(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.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial
instrument is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, other contingent consideration is re-measured at fair value
at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.
(ii) Subsidiaries and consolidated affiliated entities
Subsidiaries and consolidated affiliated entities are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries and consolidated affiliated
entities are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. When the Group loses control
over a subsidiary or a consolidated affiliated entity, it derecognizes the assets and liabilities of the entity, and any related NCI and other components of equity. Any resulting
gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary or consolidated affiliated entity is measured at fair value when control is lost.
(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 of entities under common
control) are accounted under the “book value” accounting, where the Company recognizes the assets acquired and liabilities assumed using the book values of the transferor.
When the consolidated financial statements are issued for a period that includes the date the common control transaction occurred, the Company’s consolidated financial
statements of all prior periods are retrospectively revised to the earliest date presented.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
169/219
Table of Contents
F-15
(iv) Non-controlling interests
Non-controlling interests (“NCI”) are measured initially at the proportionate share of the acquiree’s identifiable net assets at the date of acquisition, or at the fair value at the
date of acquisition, on a transaction by transaction basis. Profit or loss and each component of other comprehensive income (“OCI”) are attributed to the owners of the parent
and to non-controlling interests in proportion to their ownership interests in the subsidiary. Losses applicable to the non-controlling interests in a subsidiary (including
components of OCI) are allocated to the non-controlling interests even if this causes the non-controlling interests to have a deficit balance.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
(b) Foreign currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates ruling at the dates of the transactions.
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 rate when the fair value was determined. Foreign
currency gains and losses are reported on a net basis as either finance income or finance expense depending on whether foreign currency changes are in a net gain or net loss
position. Non-monetary items that are measured based on 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 the exchange rates at the
reporting date. The income and expenses of foreign operations are translated into RMB at the exchange rates at the dates of the transactions.
Foreign currency differences are recognized in other comprehensive income and accumulated in the translation reserve.
(c) Financial instruments
(i)
Recognition and initial measurement
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the
Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair
value through profit or loss (“FVTPL”), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is
initially measured at the transaction price.
(ii) Classification and subsequent measurement Non-derivative financial assets
On initial recognition, a financial asset is classified as measured at: amortized cost; Fair value through other comprehensive income (“FVOCI”) - debt investment; FVOCI -
equity investment; or FVTPL.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected
financial assets are reclassified on the first day of the first reporting period following the change in the business model.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
170/219
Table of Contents
F-16
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:
- It is held within a business model whose objective is to hold assets to collect contractual cash flows; and
- Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interests on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value on OCI.
This election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial
recognition, the Group may irrevocably designate a financial asset that, otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so
eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Non-derivative financial assets - Business model assessment
The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is
managed and information is provided to management. The information considered includes:
- The stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focused on earning
contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected
cash outflows or realizing cash flows through the sale of the assets;
- how the performance of the portfolio is evaluated and reported to the Group’s management;
- the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;
- how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and
- The frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.
Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group’s continuing
recognition of the assets.
Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.
Non-derivative financial assets - Assessment whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of
money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk
and administrative costs), as well as a profit margin.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
171/219
Table of Contents
F-17
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes
assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In
making this assessment, the Group considers:
- contingent events that would change the amount or timing of cash flows;
- terms that may adjust the contractual coupon rate, including variable-rate features;
- prepayment and extension features; and
- terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features).
A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and
interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract.
Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially
represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated
as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.
Non-derivative financial assets - Subsequent measurement and gains and losses
Financial assets at amortized cost are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest
income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Non-derivative financial liabilities - Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or
it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in
profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses
are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
(iii) Derecognition
Non-derivative financial assets
The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash
flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains
substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
The Group enters into transactions whereby it transfers assets recognized in its statement of financial position, but retains either all or substantially all of the risks and rewards of
the transferred assets. In these cases, the transferred assets are not derecognized.
Non-derivative financial liabilities
The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognizes a financial liability when its
terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair
value.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
172/219
Table of Contents
F-18
On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or
liabilities assumed) is recognized in profit or loss.
(iv) Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally
enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
(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 4(f)).
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and 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 (Note 4(f)). Capitalization of
these costs ceases and the construction in progress is transferred to property and equipment when the asset is substantially ready for 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 disposal proceeds 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 future economic benefits
embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced component 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 that the asset is completed
and ready for use. Depreciation is calculated to write off the cost of items of property and equipment less their estimated residual values using the straight-line basis over their
estimated useful lives. Leasehold improvements are depreciated over the shorter of the lease term or their useful lives. The estimated useful lives for the current and
comparative years of significant property and equipment are as follows:
Motor vehicles
5 years
Furniture, fixtures and other equipment
3~5 years
Leasehold 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.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
173/219
Table of Contents
F-19
(e) Intangible assets and goodwill
(i) Goodwill
Goodwill is presented with intangible assets and represent the excess of:
(i)
the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the Group’s previously held
equity interests in the acquiree; over
(ii) the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.
When (ii) is greater than (i), then this excess is recognized immediately in profit or loss as a gain on a bargain purchase.
Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating
units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note 4(f)).
On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of profit or loss on disposal.
(ii) Trademark
Trademark is not amortized when their useful life is assessed to be indefinite, which is reviewed annually to determine whether events and circumstances continue to support the
indefinite useful life assessment. The change in the useful life assessment from indefinite to finite is accounted for prospectively from 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 (Note 4(f)). Other intangible
assets include software, student relationships that arose from the acquisition of Tianma Experimental, favorable lease that arose from the acquisition of Zhenjiang Jianghe High
School of Art.
(iv) Amortization
Amortization of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. The following intangible assets
with finite useful lives are amortized from the date they are available for use and their estimated useful lives are as follows:
Student relationships
1~15 years
Favorable lease
20 years
Others
3 years
Amortization methods and useful lives are reviewed at each reporting date and adjusted if appropriate.
(f) Impairment
(i) Non-derivative financial assets
The Group recognizes loss allowances for ECLs on financial assets measured at amortized cost.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
174/219
Table of Contents
F-20
The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs:
-
debt securities that are determined to have low credit risk at the reporting date; and
-
other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased
significantly since initial recognition.
Loss allowances for trade receivables are always measured at an amount equal to lifetime ECLs.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and
supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the
Group’s historical experience and informed credit assessment and including forward-looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.
The Group considers a financial asset to be in default when:
-
the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realizing security (if any is held); or
-
the financial asset is more than 90 days past due.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
12- month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of
the instrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to
the entity in accordance with the contract and the cash flows that the Group expects to receive).
ECLs are discounted at the effective interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortized cost are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events
that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
-
significant financial difficulty of the borrower or issuer;
-
a breach of contract such as a default or being more than 90 days past due;
-
the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
175/219
Table of Contents
F-21
-
it is probable that the borrower will enter bankruptcy or other financial reorganization; or
-
the disappearance of an active market for a security because of financial difficulties.
Presentation of allowance for ECL in the statement of financial position
Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is
recognized in OCI and accumulated in the fair value reserve (recycling).
(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 for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash
inflows of other assets or cash-generating units (“CGU”s). Goodwill arising from a business combination is allocated to CGUs or groups 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 future cash 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 risks specific to the asset or CGU. An
impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss.
In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata
basis based on the carrying amount of each asset in the unit or the group of CGUs. The carrying amount of an asset is not reduced below the highest of its fair value less costs of
disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro
rata to the other assets of the unit or the group of CGUs.
An impairment loss in respect of goodwill is not reversed. In respect of other non-financial assets, impairment losses recognized in prior periods are assessed 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 a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortization, if no impairment loss had been recognized.
(g) Contract costs
Contract costs are either the incremental costs of obtaining a contract with a customer or the costs to fulfil a contract with a customer which are not capitalized as inventory,
property and equipment or intangible assets.
Incremental costs of obtaining a contract are those costs that the Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been
obtained (e.g. an incremental sales commission). Incremental costs of obtaining a contract are capitalized when incurred if the costs relate to revenue which will be recognized
in a future reporting period and the costs are expected to be recovered. Contract costs are amortized over the expected customer relationship period, generally from one to six
years. Other costs of obtaining a contract are expensed when incurred.
The Group applies the practical expedient in paragraph 94 of IFRS 15 and recognizes the incremental costs of obtaining contracts as an expense when incurred if the
amortization period of the assets that the Group otherwise would have recognized is one year or less from the initial recognition of the asset.
Capitalized contract costs are stated at cost less accumulated amortization and impairment losses. Impairment losses are recognized to the extent that the carrying amount of the
contract cost asset exceeds the net of (i) remaining amount of consideration that the Group expects to receive in exchange for the goods or services to which the asset relates,
less (ii) any costs that relate directly to
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
176/219
Table of Contents
F-22
providing those goods or services that have not yet been recognized as expenses. Amortization of capitalized contract costs is charged to “selling expenses” in the consolidated
statements of profit or loss and other comprehensive income when the revenue to which the asset relates is recognized.
(h) Contract liability
A contract liability is the obligation to provide services or goods to a customer for which the Group has received consideration from the customer. If a customer pays the
consideration before the Group provides services or goods to the customer, a contract liability is recognized when the payment is made or the payment is due.
(i) 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 original maturity of
three months or less that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value and are held for the purpose of
meeting short-term cash commitments rather than for investment or other purposes.
(j) Term deposits
Term deposits comprise highly liquid investments with original maturities of three months or greater than three months, which are held for the purpose of investment.
(k) Employee benefits
(i) Defined contribution plan
Obligations for contributions to defined contribution plans, pursuant to which certain pension benefits, medical care, employee housing fund are provided to employees, are
recognized as an employee benefit expense in profit or loss in the period during which services are rendered by employees. Pursuant to the relevant labor rules and regulations
in the PRC, the Group participates in defined contribution plans (the “Plans”) organized by the relevant local government authorities for its eligible employees whereby the
Group is required to make contributions to the Plans at 25.3% to 38.64% of the deemed salary rate announced annually by the local government authorities.
The Group has no other material obligation associated with those Plans beyond the annual contributions described above.
(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 or constructive obligation
to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
(iii) Long-term employee benefits
The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and
prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.
(l) 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 is probable that an outflow
of economic benefits will be required to settle the obligation. Provisions are determined
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
177/219
Table of Contents
F-23
by discounting the expected future cash 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 the discount 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 as a contingent liability,
unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or
more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.
(m) Revenue recognition
The Group has adopted IFRS 15 using the cumulative effect method, with the effect of initially applying this standard recognized at the date of initial application (i.e. July 1,
2018). Additionally, the disclosure requirements in IFRS 15 have not generally been applied to comparative information. As allowed by IFRS 15, the Group has applied the new
requirements only to contracts that were not completed before July 1, 2018.
Upon the adoption of IFRS 15 on July 1, 2018, the Group capitalized sales commissions related to the acquisitions of new K-12 educational service contracts of RMB18,279 as
contract costs, which would be amortized over the expected student relationship period. At the same time, the Group increased retained earnings by the same amount.
Revenue is recognized when control of promised goods or services is transferred to the Group’s customers in an amount of consideration to which the Group expects to be
entitled to in exchange for those goods or services. The Group follows the five steps approach for revenue recognition under IFRS 15: (i) identify the contract(s) with a
customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the
contract, and (v) recognize revenue when (or as) the Group satisfies a performance obligation. The primary sources of the Group’s revenues are as follows:
K-12 educational services
The Group’s revenue is principally derived from the provision of boarding school educational services to students. The Group offers basic educational and international
programs at the primary school, middle school and high school. Revenue from K-12 educational services include revenue from K-12 student management services and high
school curriculum education services and revenue from K-9 compulsory curriculum education services. K-9 compulsory curriculum education services revenue has been
included in the discontinued operations.
Tuition fees are generally collected before the beginning of each school year. Each school year is comprised of two semesters. Generally, the first semester starts in September
and ends in January next year. The second semester starts the following month in February and ends in June. Due to the impact of COVID-19, the second semester of 2019/2020
was extended to July.
Each contract with a student in respect of the educational programs contains multiple performance obligations consisting of the provision of the curriculum education services,
after-school enrichment services, accommodations, transportation services, other ancillary school activities, delivery of educational books and related materials, and meal
catering services. These performance obligations are distinct in the context of the contract. The consideration expected to be received is allocated at contract inception among
the performance obligations based on their stand-alone selling prices.
The Group generally utilizes the portfolio approach to estimate the amount of revenue to recognize for its contracts and groups contracts together that have similar
characteristics. Significant judgment is used to determine which contracts are grouped together to form a portfolio. The portfolio approach is utilized only when the result of the
accounting is not expected to be materially different than if applied to individual contracts.
Revenue attributable to the provision of the curriculum education services, after-school enrichment services, accommodations, transportation services and other ancillary school
activities is recognized over time, based on a straight-line basis over the school year, as customers simultaneously receive and consume the benefits of these services throughout
the service period, and the control of curriculum education services, after-school enrichment services, accommodations, transportation services and other ancillary school
activities is transferred evenly over the school year. Revenue attributable to the delivery of educational books and related
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
178/219
Table of Contents
F-24
materials, and meal catering services is recognized at point in time, respectively, when the control of the educational books and related materials or underlying goods is
transferred to customers. The Group considers that it is acting as the principal in the transaction and recognizes revenue from sales of the educational materials on a gross basis.
During the year ended June 30, 2020, in response to the COVID-19 pandemic, between February 2020 and April 2020, the Group temporarily stopped providing offline
curriculum education services, accommodations and transportation services to students, instead it offered online curriculum education services to students during the period.
Revenue attributable to the curriculum education services is recognized over the service period based on the estimated progress of courses delivery, and revenue attributable to
the accommodations and transportation services is recognized over time evenly over the period with service provided. The amount of considerations relating to accommodations
and transportation service to students between February 2020 and April 2020, which were not provided, has been recorded as refund liability in trade and other payables to third
parties.
The Group considers contract modifications to exist when the parties to a contract approve a modification that either creates new or changes the existing enforceable rights and
obligations of the parties to the contract. The effect of a contract modification on a change in the transaction price is accounted for as if it was a termination of existing contract
and the creation of a new contract when the remaining goods or services are distinct from those transferred on or before the date of the contract modification, and on a
cumulative catch-up basis when the remaining goods or services are not distinct.
Operation and management services
The Group also provides operation and management services to schools, including but not limited to branding, academic management, basic and international education
resources, school culture, admission, finance, human resources, procurement, IT, internal audit, property and logistics management services.
The promised services in each operation and management service contract are combined and accounted as a single performance obligation, as the promised services in a
contract are not distinct and are considered as a significant integrated service. The revenue is recognized on a straight-line basis over the period of the operation and
management service, as customers simultaneously receive and consume the benefits of these services throughout the service period. Invoices are usually settled within 30 days
from billing date.
Ancillary educational services
i)
well-rounded education and academic subject tutoring
The Group provides various extracurricular courses to arouse students’ interest and broaden their both academic and nonacademic outlook.
Each contract of well-rounded education and academic subject tutoring contains a single performance obligation. Tuition fee is generally collected in advance and is initially
recorded as contract liability. Revenue from well-rounded education and academic subject tutoring is recognized over time, proportionately as the tutoring sessions are
delivered, as customers simultaneously receive and consume the benefits of these services throughout the service period. The Group is the principal in providing well-rounded
education and academic tutoring as it controls such services before the services are transferred to the customer.
ii)
Study trip services
The Group provides overseas study tours and summer and winter camps to students.
Each contract of study strip service contains a single performance obligation. Study trip service fee is generally collected in advance and is initially recorded as contract liability.
Study trip service revenue is recognized on a straight-line basis over the period of the study trip services, as customers simultaneously receive and consume the benefits of these
services throughout the service period.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
179/219
Table of Contents
F-25
iii) Others
Others mainly include revenue derived from overseas study consulting services and hotel management services. Revenue is recognized when control of promised services is
transferred to the customers in an amount of consideration to which the Group expects to be entitled to in exchange for those services.
VAT collected from customers is excluded from revenue. The Company’s PRC subsidiaries and affiliated companies are subject to VAT. The deductible input VAT balance is
reflected in the other current assets, and VAT payable balance is recorded in the trade and other payables due to third parties.
(n) Government grants
Government grants are recognized in the statements of profit or loss and other comprehensive income when the grants are unconditional and become receivable. Grants that
compensate the Group for expenses incurred are recognized as income in profit or loss on a systematic basis in the same periods in which the expenses are incurred. For
government grant in the form of non-monetary assets, the Group records those assets and grant at a nominal amount.
(o) Leases
On July 1, 2019, the Group adopted IFRS 16, Lease, using the modified retrospective transition approach resulting in the recognition of right-of-use assets of RMB411,115 and
lease liabilities of RMB411,090 upon adoption. Therefore, comparative information continues to be reported under IAS 17 and related interpretations. Additionally, the
disclosure requirements in IFRS 16 have not been applied to comparative information.
On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Group applied IFRS 16 only to
contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease under
IFRS 16. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after July 1, 2019.
Policy applicable from July 1, 2019
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of
an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the
definition of a lease in IFRS 16.
(i)
As a lessee
Right-of-use assets and lease liabilities
The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial
amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership
of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-
of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-
use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination
option. Extension options and periods after termination options are only included in the lease term if the lease is reasonably certain to be extended or not terminated.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
180/219
Table of Contents
F-26
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the Group’s incremental
borrowing rate. The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect
the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
–– fixed payments, including in-substance fixed payments;
–– variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
–– amounts expected to be payable under a residual value guarantee; and
–– the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to
exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an
index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether
it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured by discounting the revised lease payments using a revised discount rate to reflect changes to the lease payments, a corresponding
adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Short-term leases and leases of low-value assets
The Group has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Group recognizes the lease payments
associated with these leases in profit or loss on a straight-line basis over the lease term.
Policy applicable before July 1, 2019
(i)
Leased assets
Leases of property and equipment that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are
measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are
accounted for in accordance with the accounting policy applicable to that asset.
Assets held under other leases are classified as operating leases and are not recognized in the Group’s statement of financial position.
(ii)
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 are recognized as an integral
part of the total lease expenses over the term of the lease.
(p) Finance income
Finance income comprises interest income.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
181/219
Table of Contents
F-27
Interest income is recognized using the effective interest method. The ‘effective interest rate’ is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument to the gross carrying amount of the financial asset.
In calculating interest income, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired). However, for financial assets
that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortized cost of the financial
asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.
(q) 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 and liabilities 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 other comprehensive 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 any adjustment 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 carrying amounts of assets and
liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.
Deferred tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill; the initial recognition of
assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries
to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is 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 and liabilities, 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 are offset against current
tax liabilities, and deferred tax assets are offset against deferred tax liabilities, if there is a legal enforceable right to offset current tax 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 the asset 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 tax authority 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 that future taxable profits will
be available against which they can be utilized. The carrying amount of a deferred tax asset is reviewed at each reporting date and 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. Any such reduction is reversed to the extent that it becomes probable that
sufficient taxable profits will be available.
(r) 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 the period. Diluted earnings
per share (“diluted EPS”) is similar to basic earnings per share but presents the dilutive effect on a per share basis of potential ordinary shares (e.g. warrants) as if they had been
converted at the beginning of the periods presented, or issuance date, if later.
(s) Discontinued operation
A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
182/219
Table of Contents
F-28
–– represents a separate major line of business or geographic area of operations;
–– is part of a single co-ordinated plan to dispose of a separate major line of business or geographic area of operations; or
–– is a subsidiary acquired exclusively with a view to resale.
Classification as a discontinued operation occurs at the earlier of when an operation meets the criteria to be classified as held-for-sale, when a group of assets ceases to be used
or when the Group disposes of an operation.
When an operation is classified as a discontinued operation, the comparative statement of profit or loss and OCI is re-presented as if the operation had been discontinued from
the start of the comparative year.
(t) 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.
(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 the other).
(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 other entity 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 a parent of the entity).
(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the Group’s parent.
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 dealings with the entity.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
183/219
Table of Contents
F-29
(u) Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended June 30, 2021
Up to the date of issue of these consolidated financial statements, the IASB has issued a number of amendments, new standards and interpretations which are not yet effective
for the year ended June 30, 2021 and which have not been adopted in these consolidated financial statements. These include the following which may be relevant to the Group.
Effective for
accounting periods
beginning on or after
Amendments to IFRS 3, Reference to the Conceptual Framework
January 1, 2022
Amendments to IAS 37, Onerous Contracts – Cost of Fulfilling a Contract
January 1, 2022
Amendments to IAS 16, Property, Plant and Equipment: Proceeds before Intended Use
January 1, 2022
For those other new standards with effective date beginning on or after January 1, 2021, the Group is in the process of making an assessment of what the impact of these
amendments is expected to be in the period of initial application.
Amendments to IFRS 3 are intended to replace a reference to the previous Framework for the Preparation and Presentation of Financial Statements with a reference to the
Conceptual Framework for Financial Reporting issued in March 2018. The amendments also add to IFRS 3 a requirement that, for transactions and other events within the scope
of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 to identify the liabilities it has assumed in a business combination instead of referring to the Conceptual
Framework. Furthermore, the amendments clarify that contingent assets do not qualify for recognition at the acquisition date. The Group expects to adopt the amendments
prospectively from July 1, 2022. Since the amendments apply prospectively to business combinations for which the acquisition date is on or after the date of first application,
the Group will not be affected by these amendments on the date of transition.
Amendments to IAS 37 specify that the cost of fulfilling the contract comprises the costs that relate directly to the contract. Costs that relate directly to a contract can either be
the incremental costs of fulfilling that contract (e.g., direct labor and materials) or an allocation of other costs that relate directly to fulfilling that contract (e.g., an allocation of
the depreciation charge for an item of property, plant and equipment used in fulfilling the contract as well as contract management and supervision costs). General and
administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The Group expects to adopt
the amendments from July 1, 2022. The amendments are not expected to have any significant impact on the Group’s financial statements.
Amendments to IAS 16 prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the
location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling any such items,
and the cost of those items, in profit or loss. The amendments are effective for annual periods beginning on or after January 1, 2022 and shall be applied retrospectively only to
items of property, plant and equipment made available for use on or after the beginning of the earliest period presented in the financial statements in which the entity first
applies the amendments. The Group expects to adopt the amendments prospectively from July 1, 2022. The amendments are not expected to have any significant impact on the
Group’s financial statements.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
184/219
Table of Contents
F-30
5 Revenue and segment reporting
(i)
Revenue
(a) Disaggregation of revenue from contracts with customers by major revenue stream is as follows:
2019
2020
2021
RMB
RMB
RMB
Revenue from continuing operations
K-12 student management services and high school curriculum education services*
754,493
861,923
1,111,585
Ancillary educational services**
230,510
121,611
204,221
Operation and management services
37,792
43,839
59,984
Total
1,022,795
1,027,373
1,375,790
Revenue from discontinued operations
K-9 compulsory curriculum education services
490,542
489,699
618,653
Total
490,542
489,699
618,653
*
K-12 student management services and high school curriculum education services include accommodation and after-school enrichment services to K-12 school students and
high school curriculum education services.
**
Ancillary educational services primarily include well-rounded education and academic subject tutoring, study trip and overseas study consulting services.
(b) Disaggregation of revenue from contracts with customers by timing of revenue recognition is as follows:
2019
2020
2021
RMB
RMB
RMB
Revenue from continuing operations
Timing of revenue recognition
Revenue recognized over time
940,108
932,102
1,223,868
Revenue recognized point in time
82,687
95,271
151,922
Total
1,022,795
1,027,373
1,375,790
Revenue from discontinued operations
Timing of revenue recognition
Revenue recognized over time
375,012
384,371
463,543
Revenue recognized point in time
115,530
105,328
155,110
Total
490,542
489,699
618,653
(c) Contract liabilities
The following table provides information about contract liabilities from contracts with customers.
2020
2021
RMB
RMB
Current liabilities
Contract liabilities
295,979
444,865
Non-current liabilities
Contract liabilities
3,159
132
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
185/219
Table of Contents
F-31
The contract liabilities primarily relate to payments received related to unsatisfied performance obligations for the K-12 student management services and high school
curriculum education services, K-9 compulsory curriculum education services and ancillary educational services as of June 30, 2020 and 2021, included in current and non-
current contract liabilities in the Group’s consolidated statements of financial position.
(d) Transaction price allocated to the remaining performance obligation
The Group has applied the practical expedient in IFRS 15 such that the Group does not disclose the information about revenue that the Group will be entitled to when it satisfies
the remaining performance obligations under all sales contracts that had an original expected duration of one year or less.
(ii) Segment reporting
The Group’s chief operating decision maker (“CODM”) has been identified as the chief executive officer of the Group, who reviews the financial information of operating
segments when making decisions to allocate resources and assess performance of the Group.
The Group identified four operating segments for the years ended June 30, 2019 and 2020, including K-12 educational and management services, educational training services,
study trip and overseas study consulting services and hotel management services.
For the year ended June 30, 2021, the Group optimized its management structure due to the impact of Implementation Rules announced on May 14, 2021, and restructured to
three operating segments, including K-12 student management services and high school curriculum education services and operation and management services, K-9 compulsory
curriculum education services, and ancillary educational services for efficient resource allocation and high-quality management for affiliated and managed schools and students.
K-12 student management services and high school curriculum education services and operation and management services, K-9 compulsory curriculum education services, and
ancillary educational services were identified as reportable segments, respectively.
The Group updated the presentation of segment information for prior years to conform to the current year’s presentation.
As disclosed in note 21, as the comparative financial information was restated due to the business combination under common control, the comparative segment information
was also restated.
As disclosed in note 9, the Group has classified the historical financial results of compulsory education business as discontinued operations, and has updated the presentation of
segment information for prior years to conform to the current year’s presentation.
Although intra-group transactions have been fully eliminated in the consolidated financial results, when presenting the results of continuing and discontinued operations,
management has attributed the elimination of transactions between the continuing operations and the discontinued operation in a way that reflects the continuance of these
transactions, because management believes this is useful to the users of the financial statements. To achieve this presentation, management has eliminated the results of the
inter-segment sales and cost thereof made that the continuing operations providing to K-9 compulsory education.
(a) Segment results
The revenue and operating results by segments were as follows:
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
186/219
Table of Contents
F-32
For the year ended June 30, 2019
K-12 student management
K-9 compulsory
services and high school
curriculum
curriculum education services
education
Ancillary
and operation and
service
educational
management services
(discontinued)**
services
Unallocated*
Total
RMB
RMB
RMB
RMB
RMB
Revenues from external customers
792,285
490,542
230,510
—
1,513,337
Inter-segment revenues
287
135
8,590
—
9,012
Total segment revenues
792,572
490,677
239,100
—
1,522,349
Segment income/(loss) before income tax
299,459
23,058
105,427
(6,639)
421,305
Interest income
13,374
7,889
1,629
1,597
24,489
Interest expenses
—
208
—
—
208
Depreciation and amortization
31,173
95,793
7,844
—
134,810
* Unallocated income (expenses) are primarily related to corporate administrative costs and other miscellaneous items that are not allocated to individual segment.
** See Note 9.
For the year ended June 30, 2020
K-12 student management
K-9 compulsory
services and high school
curriculum
curriculum education services
education
Ancillary
and operation and
service
educational
management services
(discontinued)**
services
Unallocated*
Total
RMB
RMB
RMB
RMB
RMB
Revenues from external customers
905,762
489,699
121,611
—
1,517,072
Inter-segment revenues
711
418
18,002
—
19,131
Total segment revenues
906,473
490,117
139,613
—
1,536,203
Segment income/(loss) before income tax
459,875
24,205
16,948
(9,100)
491,928
Interest income
14,352
8,827
476
1,215
24,870
Interest expenses
3,040
1,368
395
—
4,803
Depreciation and amortization
59,306
102,345
8,221
—
169,872
*
Unallocated income (expenses) are primarily related to corporate administrative costs and other miscellaneous items that are not allocated to individual segment.
** See Note 9.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
187/219
Table of Contents
F-33
For the year ended June 30, 2021
K-12 student
management services
and high school
curriculum education
K-9 compulsory
services and
curriculum
operation and
education
Ancillary
management
service
educational
services
(discontinued)**
services
Unallocated*
Total
RMB
RMB
RMB
RMB
RMB
Revenues from external customers
1,171,569
618,653
204,221
—
1,994,443
Inter-segment revenues
1,824
465
12,466
—
14,755
Total segment revenues
1,173,393
619,118
216,687
—
2,009,198
Segment income/(loss) before income tax
566,434
(241,723)
90,285
(9,254)
405,742
Interest income
35,026
6,843
956
9
42,834
Interest expenses
278
433
873
—
1,584
Depreciation and amortization
62,086
96,393
11,249
—
169,728
Impairment loss
—
252,259
—
—
252,259
* Unallocated income (expenses) are primarily related to corporate administrative costs and other miscellaneous items that are not allocated to individual segment.
** See Note 9.
2019
2020
2021
RMB
RMB
RMB
Revenue
Total segment revenues
1,522,349
1,536,203
2,009,198
Elimination of inter-segment revenues
(9,012)
(19,131)
(14,755)
Elimination of discontinued operations
(490,542)
(489,699)
(618,653)
Consolidated revenues
1,022,795
1,027,373
1,375,790
Profit before tax
Segment income before income tax
421,305
491,928
405,742
Elimination of discontinued operations
(23,058)
(24,205)
241,723
Consolidated profit before tax from continuing operations
398,247
467,723
647,465
Note:
The Group has initially applied IFRS 16 as of July 1, 2019 using the modified retrospective approach. Under this approach, comparative information is not restated. See note 4(o).
The Group’s customer base is diversified and no customer with whom transactions have exceeded 10% of the Group’s revenues.
The Group’s non-current assets are all located in mainland China. The geographical location of the Group’s non-current assets is based on the physical location of the asset, in the
case of property and equipment, the location of the operation to which they are allocated, in the case of intangible assets and goodwill.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
188/219
Table of Contents
F-34
6 Other income, net
2019
2020
2021
RMB
RMB
RMB
Government grants
21,121
68,682
46,343
Others
(194)
(1,612)
287
20,927
67,070
46,630
7 Employee benefit expenses
2019
2020
2021
RMB
RMB
RMB
Wages and salaries
336,605
316,513
438,170
Contributions to defined contribution plans
31,877
44,370
57,006
Long-term employee benefits
—
—
9,831
368,482
360,883
505,007
The total employee benefit expenses in connection with discontinued operations was RMB313,421 (2020: RMB207,796 and 2019: RMB219,601).
8 Profit before tax
(i) Net finance income
2019
2020
2021
RMB
RMB
RMB
Interest income
16,131
15,748
35,991
Others
465
289
(151)
Finance income
16,596
16,037
35,840
Interest on lease liabilities (Note 13(b))
—
(3,435)
(1,151)
Finance costs
—
(3,435)
(1,151)
Net finance income
16,596
12,602
34,689
Interest income was mainly generated from deposits placed with a related party finance entity (Note 22(a)(iii)).
Net finance income relating to discontinued operations are disclosed in note 9.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
189/219
Table of Contents
F-35
(ii) Expenses by nature
Expenses by nature from continuing operations include:
2019
2020
2021
RMB
RMB
RMB
Employee benefit expenses (Note 7)
368,482
360,883
505,007
Students related cost
123,888
125,789
125,536
Transportation
25,696
23,689
20,393
Marketing and promotion
11,761
13,897
29,590
Depreciation of owned property and equipment
37,781
40,321
42,989
Depreciation of right-of-use assets
—
24,675
27,778
Utilities
19,698
15,247
20,189
Amortization of intangible assets
1,235
2,531
2,567
Operating lease charges
28,252
—
—
Others
45,278
32,290
35,595
Total cost of revenue, selling expenses and administrative expenses
662,071
639,322
809,644
Students related costs are mainly comprised of costs for textbooks, uniforms, dining services, living accommodations and other educational service costs.
The Group has initially applied IFRS 16 using the modified retrospective approach to recognize right-of-use assets relating to leases which were previously classified as operating
leases under IAS 17. After initial recognition of right-of-use assets at July 1, 2019, the Group as a lessee is required to recognize the depreciation of right-of-use assets, instead of the
previous policy of recognizing rental expenses incurred under operating leases on a straight-line basis over the lease term. Under this approach, the comparative information is not
restated. See note 4(o).
9 Discontinued operations
On May 14, 2021, the PRC State Council announced the issuance of the Implementation Regulations of the People’s Republic of China on the Law Regarding the Promotion of
Private Education (the “Implementation Rules”), which became effective on September 1, 2021. The Implementation Rules prohibit social organizations and individuals from
controlling a private school that provides compulsory education by means of merger, acquisition, contractual arrangements, etc., and a private school providing compulsory
education is prohibited from conducting transactions with its related parties. As stated in note 1, the Group has considered that it lost control over affiliated entities providing
compulsory education as from September 1, 2021.
Further, the Group has considered the ancillary nature of the activities and the insignificance of the costs related to the K9 compulsory education business while the related schools
were closed between June 30, 2021 and date of loss of control of September 1, 2021. The Group has determined that, in substance, it has ceased all revenue-generating activities
related to that business and has discontinued that business by June 30, 2021. As K9 compulsory education business represents an operating segment and a separate major line of
business of the Group, the Group has presented the results of K-9 compulsory education business as discontinued operations. The comparative
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
190/219
Table of Contents
F-36
Consolidated Statements of Profit or Loss and Other Comprehensive Income have been represented to show the discontinued operations separately from continuing operations.
Details of the results from discontinued operations are set out below:
2019
2020
2021
RMB
RMB
RMB
Revenue
490,542
489,699
618,653
Cost of revenue
(437,393)
(445,286)
(582,755)
Gross profit
53,149
44,413
35,898
Other income, net
4,650
6,571
6,096
Selling expenses
(13,990)
(14,107)
(14,509)
Administrative expenses
(28,900)
(20,424)
(23,907)
Impairment loss on property and equipment
—
—
(174,026)
Impairment loss on intangible assets and goodwill
—
—
(78,233)
Operating profit
14,909
16,453
(248,681)
Finance income
8,357
9,122
7,391
Finance costs
(208)
(1,370)
(433)
Net finance income
8,149
7,752
6,958
Profit/(loss) before tax
23,058
24,205
(241,723)
Income tax expenses
—
—
(1,614)
Profit/(loss) from the discontinued operations, net of tax
23,058
24,205
(243,337)
Upon the release of the Implementation Rules, the Group identified impairment indicators relating to the non-financial long-term assets associated with the cash generating units (the
“CGUs”) relating to the affiliated entities providing compulsory education, considering the impending loss of control and the uncertainties associated with the ability to recover from
the net assets arising from the impact of the Implementation Rules. The Group performed an impairment assessment on these non-financial long-term assets as at June 30, 2021,
which included property and equipment, right-of-use assets, and intangible assets and goodwill relating to the affiliated entities providing compulsory education. The estimates of
the recoverable amounts of the CGUs were based on the fair values less costs of disposal of the respective CGUs, taking into consideration of the asset-specific sale restrictions and
uncertainties under the relevant laws and regulations, the relevant publicly available information, replacement cost, remaining useful lives, newness rates and early-termination
clauses in leases. A cost approach has been applied as no comparable market transactions have been identified and estimates of future income from the CGUs are not readily
available given the significant uncertainties over profitability under the new regulatory regime.
The fair values on which the recoverable amounts are based on are categorized as level 3 fair value measurement. Based on the result of the assessment, impairment losses of
RMB174,026 and RMB78,233 (FY2020: nil and nil) have been recognized against the carrying amounts of property and equipment, and intangible assets and goodwill, respectively.
Nil impairment loss has been recognized against the carrying amount of right-of-use assets (FY2020: nil).
The condensed cash flows of these affiliated entities were as follows:
2019
2020
2021
RMB
RMB
RMB
Net cash generated from operating activities
324,206
190,049
118,311
Net cash used in investing activities
(229,228)
(389,915)
(48,770)
Net cash generated from / (used in) financing activities
6,000
12,421
(74,258)
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
191/219
Table of Contents
F-37
10 Income taxes
The Company is incorporated in the Cayman Islands and conducts its primary business operations through its subsidiaries and consolidated affiliated entities in the PRC. It also has
a wholly-owned subsidiary in Hong Kong and Singapore. Under the current laws of the Cayman Islands, the Company is not subject to tax on income or 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, subsidiaries in Hong Kong are subject to the Hong Kong profits tax rate at 16.5% and they are exempted from income tax on their foreign-derived
income and there are no withholding taxes in Hong Kong on remittance of dividends. A two-tiered profits tax rates regime was introduced in 2018 where the first HK$2 million of
assessable profits earned by a company will be taxed at half of the current tax rate (8.25%) while the remaining profits will continue to be taxed at 16.5%. There is an anti-
fragmentation measure where each group will have to nominate only one company in the group to benefit from the progressive rates.
Singapore
Under the Singapore tax laws, subsidiaries in Singapore are subject to the Singapore profits tax rate at 17%.
China
Under the Enterprise Income Tax (“EIT”) Law, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are subject to a unified 25% enterprise income tax rate, except
for certain entities that are entitled to tax holidays or exemptions.
According to the Law on the Promotion of Private Education (“2016 Private Education Law”) effective as of September 1, 2017, sponsors of private schools may choose to register
their schools as either non-profit or for-profit schools but sponsors are not permitted to register for-profit schools that provide compulsory education. Non-profit private schools will
be entitled to the same tax benefits as public schools, while for-profit private schools may be subject to 25% enterprise income tax rate. For Zhenjiang Jianghe High School of Art
and Zhuji Hailiang Foreign Language High School, the Group elected to register their statuses as for- profit. Accordingly, these two schools are subject to unified 25% enterprise
income tax rate.
Except for Zhenjiang Jianghe High School of Art and Zhuji Hailiang Foreign Language High School registered as for-profit schools, other affiliated schools within the Group
registered as non-profit schools as of June 30, 2021, which are be entitled to the same tax benefits as public schools, are exempt from income taxes.
The Group evaluates whether it is probable that tax authority will accept the tax treatment for each uncertain tax position (including the potential application of interest and
penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of June 30, 2020 and 2021, the Group did not have any
significant unrecognized uncertain tax positions.
As of June 30, 2021, the Group had unused tax loss of RMB36,861 available for offset against future taxable profits, of which RMB3,501 will expire as of June 30, 2023,
RMB6,079 will expire as of June 30, 2024, RMB6,915 will expire as of June 30, 2025, RMB15,327 will expire as of June 30, 2026 (As of June 30, 2020, the Group had unused tax
loss of RMB20,496 available for offset against future taxable profits, of which RMB3,501 will expire as of June 30, 2023, RMB6,994 will expire as of June 30, 2024, RMB9,924
will expire as of June 30, 2025). No deferred tax assets have been recognized in respect of such tax losses, because it is not probable that future taxable profit against which the
losses can be utilized will be available in the relevant tax jurisdiction.
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, the dividends, if and when
payable by the Company’s PRC subsidiaries to their offshore parent entities, would be subject to 10% withholding tax. A lower tax rate will be applied if such foreign non-resident
enterprise investor’s jurisdiction of incorporation has signed a tax treaty or arrangement for the avoidance of double taxation and the prevention of fiscal evasion with respect to
taxes on income with China. Furthermore, pursuant to the applicable circular and interpretations of the current EIT Law, dividends from earnings created prior to 2008 but
distributed after 2008 are not subject to withholding income tax. The Company has not provided for deferred income tax liabilities on the PRC entities’ undistributed earnings of
RMB1,080,372 and RMB1,425,882 as of
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
192/219
Table of Contents
F-38
June 30, 2020 and 2021, respectively, because the Company controls the timing of the undistributed earnings and it is probable that such earnings will not be distributed. The
Company plans to reinvest those earnings in the PRC indefinitely in the foreseeable future.
(i)
Income tax expenses in the consolidated statements of profit or loss and other comprehensive income represents:
2019
2020
2021
RMB
RMB
RMB
Current
—PRC income tax expenses
108,545
122,576
165,517
Deferred
—PRC income tax expenses
168
(652)
(162)
Income tax expenses on continuing operations for the year
108,713
121,924
165,355
Note: Income tax expenses of RMB1,614 (2020: nil and 2019: nil) arises on the profit from discontinued operations (see note 9).
(ii) Reconciliation between the provision for income tax computed by applying applicable tax rates:
Reconciliation between the provision for income tax computed by applying applicable tax rates in fiscal year 2019, 2020 and 2021 to profit before income taxes and the
actual provision for income tax was as follow:
2019
2020
2021
RMB
RMB
RMB
Profit before tax from continuing operations
398,247
467,723
647,465
Notional tax on profit before taxation, calculated at the applicable rates in the tax jurisdictions concerned
101,560
119,221
159,998
Effect of expenses that are not deductible in determining taxable profit
524
519
654
Unrecognized tax losses
2,054
1,955
4,660
Utilization of tax losses previously not recognized
(486)
(964)
(676)
Effect of income tax exemptions
5,061
1,193
719
Income tax expense recognized in profit or loss
108,713
121,924
165,355
(iii) Deferred tax assets and liabilities recognized:
Right-of-
Capitalized
use assets
contract
Favorable
and lease
costs
lease
liabilities
Total
Deferred tax liabilities
At June 30, 2019
(328)
(4,363)
—
(4,691)
(Charged)/credited to profit or loss
(156)
240
—
84
At June 30, 2020
(484)
(4,123)
—
(4,607)
(Charged)/credited to profit or loss
(369)
240
—
(129)
At June 30, 2021
(853)
(3,883)
—
(4,736)
Deferred tax assets
At June 30, 2019
—
—
—
—
Credited to profit or loss
—
—
568
568
At June 30, 2020
—
—
568
568
Credited to profit or loss
—
—
291
291
At June 30, 2021
—
—
859
859
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
193/219
Table of Contents
F-39
11 Earnings per share
The calculation of basic EPS has been based on the following net profit attributable to the Company’s shareholders and weighted-average number of ordinary shares outstanding.
The calculation of diluted EPS has been based on the following net profit attributable to the Company’s shareholders and weighted-average number of ordinary shares outstanding
after adjustment for the effects of all dilutive potential ordinary shares.
(i)
Net profit attributable to the Company’s shareholders
2019
2020
2021
RMB
RMB
RMB
Net profit from continuing and discontinued operations attributable to shareholders of the
Company (basic and diluted)
290,233
374,238
235,092
Net profit from continuing operations
267,175
349,983
483,049
Net profit/(loss) from discontinued operations
23,058
24,255
(247,957)
(ii) Weighted-average number of ordinary shares
2019
2020
2021
Weighted average number of ordinary shares
412,450,256
412,450,256
412,450,256
(iii) Earnings per share
2019
2020
2021
Basic and diluted earnings per share
0.70
0.91
0.57
- Continuing operations
0.65
0.85
1.17
- Discontinued operations
0.05
0.06
(0.60)
There were no dilutive potential ordinary shares for each of the fiscal years ended June 30, 2019, 2020 and 2021, therefore, diluted earnings per share are equivalent to
basic earnings per share.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
194/219
Table of Contents
F-40
12 Property and equipment
Furniture,
fixtures and
Motor
other
Leasehold
Construction
vehicles
equipment
improvement
in progress
Total
RMB
RMB
RMB
RMB
RMB
Cost
Balance at June 30, 2019 (restated)
21,593
312,905
782,840
8,404
1,125,742
Additions (restated)
1,134
23,163
13,923
121,076
159,296
Transferred from construction in progress (restated)
—
559
110,404
(110,963)
—
Transferred to intangible assets (Note 14)
—
—
—
(223)
(223)
Disposals (restated)
(68)
(3,939)
(2,011)
—
(6,018)
Balance at June 30, 2020 (restated)
22,659
332,688
905,156
18,294
1,278,797
Additions
2,119
22,402
22,514
66,809
113,844
Transferred from construction in progress
—
1,771
78,212
(79,983)
—
Disposals
(58)
(2,400)
—
—
(2,458)
Balance at June 30, 2021
24,720
354,461
1,005,882
5,120
1,390,183
Accumulated depreciation and impairment
Balance at June 30, 2019 (restated)
(17,686)
(168,977)
(300,186)
—
(486,849)
Depreciation for the year (restated)
(1,354)
(60,980)
(74,359)
—
(136,693)
Disposals (restated)
40
3,617
939
—
4,596
Balance at June 30, 2020 (restated)
(19,000)
(226,340)
(373,606)
—
(618,946)
Depreciation for the year
(1,296)
(48,274)
(83,850)
—
(133,420)
Disposals
53
1,890
—
—
1,943
Impairment loss recognized in profit or loss (note 9)
—
(15,322)
(158,704)
—
(174,026)
Balance at June 30, 2021
(20,243)
(288,046)
(616,160)
—
(924,449)
Net book value
At June 30, 2020 (restated)
3,659
106,348
531,550
18,294
659,851
At June 30, 2021
4,477
66,415
389,722
5,120
465,734
The depreciation charge for the year includes RMB90,431 (2020: RMB96,372) in respect of discontinued operations of which RMB1,240 relating to motor vehicles (2020:
RMB1,340), RMB32,726 relating to furniture, fixtures and other equipment (2020: RMB45,652) and RMB56,465 relating to leasehold and improvement (2020: RMB49,380).
13 Lease
(a)
Right-of-use assets
As of June 30, 2021, the Group leases office spaces and several campuses. The Group generally enters into lease agreements with initial terms of 3 to 20 years. Most of the lease
agreements contain termination options that permit the Group to terminate the lease agreement early at any time without cause, provided the Group notifies the lessor in writing
within certain period in advance. The Group generally has extension options for the leases. Such extension options are accounted for only when it is reasonably certain that the
Group will exercise the options. The rent under lease agreements is payable with fixed payments including a fixed escalation.
The Group entered into certain long-term cooperative arrangements with local governments in areas where some of the schools are located. Pursuant to such arrangements, the
government agreed to provide the existing land, buildings and equipment free of charge for the Group to carry out the cooperative education throughout the whole period of
cooperative arrangements. The Group recognizes the asset and the relevant grants at their nominal amounts, which is zero.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
195/219
Table of Contents
F-41
The movements in right-of-use asset are as follows:
RMB
Leasehold buildings held for own use, carried at depreciated cost:
As at July 1, 2019
411,115
Additions-new leases
9,571
Lease modification*
131,634
Deprecation charge for the year
(30,485)
Derecognition of a lease contract due to termination
(4,226)
As at June 30, 2020
517,609
Additions-new leases
19,809
Lease modification**
(956)
Deprecation charge for the year
(33,649)
As at June 30, 2021
502,813
The depreciation charge for the year includes RMB5,871 (2020: RMB5,810) in respect of discontinued operations.
* Lease modification for the year ended June 30, 2020 was related to the supplementary contracts with the lessor, Hailiang Education Investment Group Co., Ltd. (“Hailiang
Investment”), a related party controlled by Mr. Feng, regarding the lease of campuses in Zhuji, China signed on September 6, 2019.
** Lease modification for the year ended June 30, 2021 was related to a contract with the lessor, Hangzhou Hailiang Real Estate Co., Ltd, (“Hailiang Real Estate”), a related party
controlled by Mr Hailiang Feng regarding the lease of office in Hangzhou, China.
(b) Amounts recognized in profit or loss
The analysis of expense items in relation to leases recognized in profit or loss from continuing operations is as follows:
2020
2021
RMB
RMB
Depreciation charge of right-of-use assets
24,675
27,778
Interest on lease liabilities
3,435
1,151
Expense relating to short-term leases
53
565
Expense relating to leases of low-value assets, excluding short-term leases of low-value assets
511
342
Gain on derecognition of a lease contract due to termination
39
—
Gain on lease modification
—
82
(c) Amounts recognized in statement of cash flows
Amounts included in the statement of cash flow for leases comprise the following:
2020
2021
RMB
RMB
Within operating cash flows
826
2,054
Within investing cash flows
524,996
—
Within financing cash flows
6,895
4,773
532,717
6,827
In the consolidated statements of cash flows, the Group as a lessee is required to split rentals paid under capitalized leases into their capital element and interest element. These
elements are classified as financing cash outflows, similar to how leases previously classified as finance leases under IAS 17 were treated, rather than as operating cash outflows, as
was the case for operating leases under IAS 17. Although total cash flows are unaffected, the adoption of IFRS 16 therefore results in a change in presentation of cash flows within
the statement of cash flow.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
196/219
Table of Contents
F-42
On September 6, 2019, the Group entered into a series of supplementary contracts with Hailiang Investment regarding the school buildings and the related facilities in three
campuses in Zhuji, China from Hailiang Investment, pursuant to which, on September 12, 2019, the Group made lease prepayments of RMB524,996 regarding the school buildings
and the related facilities in three campuses in Zhuji, China from Hailiang Investment for the remaining lease period until June 30, 2037. The Group classified the lease prepayments
within investing cashflows.
The amounts recognized in statement of cash flows for the year includes RMB1,665 (2020: RMB109,517) in respect of discontinued operations of which RMB907 relating to within
operating cash flows (2020: RMB564), Nil relating to investing cash flows (2020: RMB103,813) and RMB758 relating to financing cash flows (2020: RMB5,140).
(d) Lease liabilities
The carrying amount of lease liabilities and the movements during the year are as follows:
2020
2021
RMB
RMB
As at July 1
411,090
20,502
New leases
9,571
19,684
Lease modification
131,634
(1,038)
Accretion of interest recognized during the year
4,363
1,379
Payments
(531,891)
(4,773)
Derecognition of a lease contract due to termination
(4,265)
—
As at June 30
20,502
35,754
Analyzed into:
Current portion
1,753
5,233
Non-current portion
18,749
30,521
The accretion of interest recognized during the year charge for the year includes RMB228 (2020: RMB928) in respect of discontinued operations.
The following table shows the remaining contractual maturities of the Group’s lease liabilities at the end of the current year and at the date of transition to IFRS 16:
June 30, 2020
June 30, 2021
Present
Total
Present
Total
value of the
minimum
value of the
minimum
minimum
lease
minimum
lease
lease
payments
lease
payments
payments
payments
RMB
RMB
RMB
RMB
Within 1 year
1,753
2,687
5,233
6,801
After 1 year but within 2 years
2,623
3,442
5,225
6,544
After 2 years but within 5 years
6,222
7,999
11,179
13,786
After 5 years
9,904
13,228
14,117
17,432
20,502
27,356
35,754
44,563
Less: total future interest expenses
6,854
8,809
Present value of lease liabilities
20,502
35,754
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
197/219
Table of Contents
F-43
14 Intangible assets and goodwill
Student
Favorable
Goodwill
Trademark
relationship
lease
Others
Total
RMB
RMB
RMB
RMB
RMB
RMB
Cost
Balance at June 30, 2019
61,640
16,540
45,037
18,091
4,181
145,489
Addition
—
23
—
—
729
752
Transferred from construction in progress
—
—
—
—
223
223
Balance at June 30, 2020
61,640
16,563
45,037
18,091
5,133
146,464
Addition
—
—
—
—
1,386
1,386
Balance at June 30, 2021
61,640
16,563
45,037
18,091
6,519
147,850
Accumulated Amortization and impairment
Balance at June 30, 2019
—
—
(44,730)
(640)
(594)
(45,964)
Amortization for the year
—
(4)
(162)
(961)
(1,567)
(2,694)
Balance at June 30, 2020
—
(4)
(44,892)
(1,601)
(2,161)
(48,658)
Amortization for the year
—
(19)
(92)
(961)
(1,587)
(2,659)
Impairment loss recognized in profit or loss (note 9)
(61,640)
(16,540)
(53)
—
—
(78,233)
Balance at June 30, 2021
(61,640)
(16,563)
(45,037)
(2,562)
(3,748)
(129,550)
Net book value
At June 30, 2020
61,640
16,559
145
16,490
2,972
97,806
At June 30, 2021
—
—
—
15,529
2,771
18,300
The amortization charge for the year includes RMB92 (2020: RMB163) in respect of discontinued operations.
Student relationship, goodwill and trademark with indefinite useful lives arose from the acquisition of Tianma Experimental on July 1, 2009.
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 which the goodwill and
trademark are monitored for internal management purpose. The recoverable amount of goodwill is estimated based on discounted cash flows 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 the business relating to Tianma Experimental, which is the lowest level for
which the assets are monitored for internal management purpose. The aggregated carrying amounts of goodwill and trademark with indefinite useful lives are as follows:
2020
2021
RMB
RMB
Goodwill
61,640
61,640
Trademark with indefinite useful lives
16,540
16,540
Less: impairment loss recognized in profit or loss
—
(78,180)
Total
78,180
—
For the years ended June 30, 2019 and 2020, the recoverable amount of this CGU was based on value in use, which was estimated using discounted cash flow projections. For the
year ended June 30, 2021, please see note 9 for details.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
198/219
Table of Contents
F-44
The key assumptions used for the years ended June 30, 2019 and 2020 in the estimation of the recoverable amount are set out below. The values assigned to the key assumptions
represented management’s assessment of future trends in the relevant industry and were based on historical data from both external and internal sources.
In percent
2019
2020
Discount rate
15.5 %
15.5 %
Revenue growth rates over the next five fiscal years
3%-5 %
5 %
Terminal value growth rate
3 %
3 %
The discount rate was a pre-tax measure estimated based on the historical industry average weighted-average cost of capital, with a possible debt leveraging of 0%.
The cash flow projections included the following specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate was determined 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 and 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 for the next five years.
The estimated recoverable amount of the CGU exceeded its carrying amount as of June 30, 2019 and 2020, respectively.
The recoverable amount of trademark is determined using the relief from royalty method, which was based on pre-tax cash flow projections for 5 years based on financial budgets
approved by management, including royalty rate of 3%, terminal growth rate of 3% and the applicable discount rate of 15.5% for the years ended June 30, 2019 and 2020.
Management determined the expected growth rates and the operating results based on the past performance and its expectations in relation to market developments. The discount
rate used is pre-tax and reflects specific risks relating to the Company.
Based on management’s assessment results, there was no impairment of goodwill and trademark as of and for the years ended June 30, 2019 and 2020.
Student relationship
The amortization of student relationship is included in “selling expenses”. No impairment loss of the student relationship intangible asset was recognized in the statements of profit
or loss and other comprehensive income for the years ended June 30, 2019 and 2020.
For the year ended June 30, 2021, the Group recognized impairment loss of RMB53 relating to the student relationship intangible assets in the statements of profit or loss and other
comprehensive income. For details, please see note 9.
Favorable lease
Favorable lease arose from the acquisition of Zhenjiang Jianghe High School of Art in October 2018. The amortization was recognized in “cost of revenue” over the period of
leasing.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
199/219
Table of Contents
F-45
15 Other current assets
2020
2021
RMB
RMB
Prepayments
3,571
8,070
Trade receivables
4,473
11,265
Contract costs
9,201
11,194
Advances to employees
2,187
1,270
Deductible VAT and prepaid income tax
14,988
4,920
Other receivables due from third parties
2,096
1,066
Total
36,516
37,785
Contract costs represented the capitalized sales commissions relating to the acquisitions of new contracts, which would be amortized over the expected student relationship period.
The amount of capitalized costs recognized in profit or loss from continuing operations and discontinued operations during the years ended June 30, 2019, 2020 and 2021 was
RMB13,302, RMB13,439 and RMB13,906, respectively.
The current portion of capitalized sales commissions that is expected to be amortized within one year is included in “other current assets” and the non-current portion is included in
“contract costs”.
16 Cash and cash equivalents
(i)
Cash and cash equivalents comprise:
2020
2021
RMB
RMB
Note
Cash at bank
8,709
44,255
Cash held at a related party finance entity
22(b)
502,289
200,023
Cash held at other financial institutions
5,448
35,142
Total
516,446
279,420
As of June 30, 2020 and 2021, the cash and cash equivalents of the Group denominated in RMB amount to RMB511,569 and RMB247,355, respectively.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
200/219
Table of Contents
F-46
(ii) Reconciliation of liabilities and equity arising from financing activities
Liabilities
Equity
Loans due to
Contributed
Non-controlling
related parties
Lease liability
capital
interests
Total
RMB
RMB
RMB
RMB
RMB
(Note 19)
(Note 13(d)) (Note 17(a)(iii))
(Note 18)
At June 30, 2019(Restated)
104,811
—
253,034
37,439
395,284
Impact on initial application of IFRS 16
—
411,090
—
—
411,090
At July 1, 2019(Restated)
104,811
411,090
253,034
37,439
806,374
Changes from financing cash flows:
Loans borrowed from a related party
13,000
—
—
—
13,000
Repayment of loans to related parties
(34,079)
—
—
—
(34,079)
Capital contributions
—
—
—
2,450
2,450
Payments to NCI upon liquidation of subsidiaries
—
—
—
(3,713)
(3,713)
Capital element of lease rentals paid
—
(2,721)
—
—
(2,721)
Interest element of lease rentals paid
—
(4,174)
—
—
(4,174)
Dividends paid to a non-controlling shareholder of subsidiaries
—
—
—
(21,145)
(21,145)
Total changes from financing cash flows
(21,079)
(6,895)
—
(22,408)
(50,382)
Other changes:
New leases
—
9,571
—
—
9,571
Interest on lease liabilities
—
4,363
—
—
4,363
Termination of a lease contract
—
(4,265)
—
—
(4,265)
Lease modification
—
131,634
—
—
131,634
Leases prepayments
—
(524,996)
—
—
(524,996)
Interest on loans borrowed from a related party
440
—
—
—
440
Net loss and total comprehensive loss attributable to NCI
—
—
—
(4,234)
(4,234)
Total other changes
440
(383,693)
—
(4,234)
(387,487)
At June 30, 2020(Restated)
84,172
20,502
253,034
10,797
368,505
Changes from financing cash flows:
Loans borrowed from a related party
4,000
—
—
—
4,000
Repayment of loans to related parties
(41,981)
—
—
—
(41,981)
Repayment of interest on loans to a related party
(853)
—
—
—
(853)
Acquisition of affiliated entities under common control
—
—
(56,866)
—
(56,866)
Capital element of lease rentals paid
—
(3,829)
—
—
(3,829)
Interest element of lease rentals paid
—
(944)
—
—
(944)
Total changes from financing cash flows
(38,834)
(4,773)
(56,866)
—
(100,473)
Other changes:
New leases
—
19,684
—
—
19,684
Lease modification
—
(1,038)
—
—
(1,038)
Interest on lease liabilities
—
1,379
—
—
1,379
Interest on loans borrowed from a related party
205
—
—
—
205
Net loss and total comprehensive loss attributable to NCI
—
—
—
3,681
3,681
Waving liabilities from non-controlling shareholders
—
—
1,816
1,744
3,560
Total other changes
205
20,025
1,816
5,425
27,471
At June 30, 2021
45,543
35,754
197,984
16,222
295,503
17 Capital and reserve
(a) Share capital and share premium
2019
2020
2021
At June 30 par value USD0.0001 authorized
1,000,000,000
1,000,000,000
1,000,000,000
-issued and outstanding
412,450,256
412,450,256
412,450,256
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
201/219
Table of Contents
F-47
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 from 360,000,000 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 the Company.
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 to 45,728,000 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 restricted shares, 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 incorporation in 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 to public of RMB28,
with net proceed of RMB112,790 in July, 2015.
(4) The fair value of warrants issued to the underwriter of RMB1,707 upon completion of IPO. On December 15, 2017, all the warrants issued to the underwriter were
exercised into 77,641 ADSs (equal to 1,242,256 ordinary shares).
(5) The fair value of restricted shares issued to consultant in September, 2015, in excess of par value of ordinary shares issued of RMB1,459.
(iii) Contributed capital
Contributed capital represented the following capital transactions with the Company’s shareholders:
(1) Upon completion of the IPO restructure in October 2014, contributed capital arose from below transactions:
- The contributions of the registered capital of 100% of Foreign Language and 60% of Experimental High made by Mr. Feng totaling RMB82,800.
- The consideration of RMB110,000 made by Mr. Feng for the acquisition of 80% equity interest in Tianma Experimental.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
202/219
Table of Contents
F-48
- The share capital of HKD10 (equivalent to RMB9) contributed by Mr. Feng upon incorporation of Hailiang HK.
- RMB32,906 arising from acquisition of non-controlling interests. In November 2011, Mr. Feng acquired 40% registered capital equity interest in Experimental High
and 20% registered capital equity interest in Tianma Experimental from Mr. Meng, the non-controlling shareholder of both schools for cash considerations of
RMB35,000 and RMB6,000, respectively. Upon the acquisitions, Mr. Feng became the sole sponsor of Experimental High and Tianma Experimental and owned
100% registered capital equity interest in each of the two schools. The non-controlling interests’ proportionate shares of the net identifiable assets of Experimental
High and Tianma Experimental on the date of the acquisitions were RMB28,790 and RMB4,116, respectively. The aggregate cash consideration of RMB41,000
paid by Mr. Feng for the acquisitions was recorded in contributed capital. The difference between the cash consideration paid of RMB41,000 and the total carrying
amount of the non-controlling interests of RMB32,906, which amounted to RMB8,094, was charge to deduct contributed capital within equity.
- The capital contributions of RMB139,980 paid by Mr. Feng upon incorporation of Hailiang Management.
- Cash consideration of RMB139,800 paid to Mr. Feng for the transfer of 100% registered capital equity interest in each of the Foreign Language, Experimental High
and Tianma Experimental.
(2) Capital contribution of RMB10,000 from Hailiang Investment, a related party controlled by Mr. Feng, through waiving liability during the year ended June 30, 2017.
(3) Capital contribution of RMB139 from Beize Group through subscribing 0.1% registered capital of Hailiang Management during the year ended June 30, 2019.
(4) Deemed capital contribution of RMB15,000 from Mr. Feng, through payment of awards to the Group’s outstanding teachers to recognize their outstanding performance and
contributions during the year ended June 30, 2019.
(5) As mentioned in note 21, the consolidated financial statements of the Group have been restated as a result of the business combinations involving the entities under common
control during the year ended June 30, 2021, and the total cash consideration of RMB56,866 was recorded as deduction of contribution capital within total shareholders’ equity.
The share capital of the combining entities amounting to RMB1,000 for each of combining entities was recognized in contributed capital for the relevant period from the earliest
date presented or since the date when combining entities or businesses first came under common control.
(6) Waiving liabilities from non-controlling shareholders of RMB1,816 represent liabilities waived by non-controlling shareholders of Zhenjiang Jianghe High School of Art,
therefore, the Group recorded an increase to “contributed capital” during the year ended June 30, 2021.
(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 from after-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’s registered capital. Other
reserve is set aside at the Company’s discretion. These reserves can only be used for general enterprise expansion and are not distributable as cash dividends. The general
reserve as of June 30, 2020 and 2021 was RMB63,239 and RMB93,983, respectively.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
203/219
Table of Contents
F-49
Each of the schools is required to appropriate 25% of its after-tax profits to a non-distributable education development reserve, which could only be used for school
construction, maintenance and upgrade of educational equipment in accordance with the Law of Promoting Private Education. The development reserve is restricted net
assets of the schools which are un-distributable to the Company in the form of dividends or loans. The education development reserve as of June 30, 2020 and 2021 was
RMB319,034 and RMB341,438, respectively.
(ii) Translation reserve
The translation reserve comprises foreign currency differences arising from the translation of the financial statements of the Company and its subsidiaries into the
presentation currency.
(c) Dividends
No dividends were declared or paid by the Company during the years ended June 30, 2019, 2020 and 2021.
18 Non-controlling interests
Non-controlling interests (“NCI”) represent 44% non-controlling interests in Jiangxi Haibo Education Management Co., Ltd. (“Haibo Education”) and Jiangxi Haibo Logistics
Management Co., Ltd. (“Haibo Logistics”), which are held by Nanchang Baishu Education Group (“Nanchang Baishu”), a related party of the Group before October 30, 2019,
49% non-controlling interests in Zhenjiang Jianghe High School of Art,49% non-controlling interests in Juxian Technology and 10% non-controlling interests in Xiantao
Hailiang Education Logistics Management Co., Ltd., which are held by third parties. In the fiscal year of 2020, the Group ceased the operation of Haibo Education and Haibo
Logistics. The following table summarizes the changes in non-controlling interests from June 30, 2019 to June 30, 2021.
Haibo
Haibo
Zhenjiang Jianghe High
Juxian
Xiantao
Education
Logistics
School of Art
Technology
Logistics
Total
RMB
RMB
RMB
RMB
RMB
RMB
Balance at June 30, 2019
22,850
6,165
8,424
—
—
37,439
Capital contribution from NCI
—
—
—
2,450
—
2,450
Net loss and total comprehensive loss attributable to NCI
(3,478)
(679)
(27)
(50)
—
(4,234)
Dividends paid to NCI
(17,670)
(3,475)
—
—
—
(21,145)
Payments to NCI upon liquidation of Haibo Education and Haibo Logistics
(1,702)
(2,011)
—
—
—
(3,713)
Balance at June 30, 2020
—
—
8,397
2,400
—
10,797
Net profit/(loss) and total comprehensive loss attributable to NCI
—
—
(1,343)
4,620
404
3,681
Waving liabilities from non-controlling shareholders
—
—
1,744
—
—
1,744
Balance at June 30, 2021
—
—
8,798
7,020
404
16,222
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
204/219
Table of Contents
F-50
19 Trade and other payables
2020
2021
RMB
RMB
Trade payables
18,808
22,821
Accrued payroll
141,231
238,690
Other taxes payable
5,688
13,532
Advances from students
61,897
36,260
Deposits
9,958
7,226
Others
34,430
58,218
Trade and other payables due to third parties
272,012
376,747
Loans due to related parties
84,172
45,543
Amounts due to related parties
72,537
89,439
Other payables due to related parties
156,709
134,982
Total
428,721
511,729
The Group’s exposure to liquidity risk related to trade and other payables is disclosed in Note 20.
20 Financial 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 and managing 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, and receivables due from related parties. The carrying
amount of financial assets represents the maximum credit exposure. The Group does not provide any other guarantees which would expose the Group to credit risk.
Cash at bank
All of the Group’s cash at bank is held by third-party financial institutions located in the PRC and Hong Kong SAR. The bank deposits with financial institutions in the PRC are
insured by the government authority for up to RMB500. The bank deposits with financial institutions in the Hong Kong SAR are insured by the government authority for up to
HK$500. The Company has not experienced any losses in uninsured bank deposits and does not believe that it is exposed to any significant risks on cash held in bank accounts. To
limit exposure to credit risk, the Company primarily places bank deposits with large financial institutions in the PRC and Hong Kong SAR with acceptable credit rating.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
205/219
Table of Contents
F-51
Cash and term deposits placed with a related party finance entity
As of June 30, 2021, the Group had cash of RMB200,023 and term deposits of RMB1,898,242 at Hailiang Group Finance Co., Ltd. (“Hailiang Finance”), which represented 64% of
the Group’s consolidated assets as of June 30, 2021.
Hailiang Group, an entity controlled by Mr. Feng, established a finance group, namely, Hailiang Finance, which is licensed to provide intra-group financing arrangements within
Hailiang Group’s subsidiaries and other related party companies. The establishment of Hailiang Finance was approved by the China Banking Regulatory Commission (“CBRC”) as
a non-banking financial institution to solely facilitate Hailiang Group’s internal financing transactions including issuing loans to and accepting cash deposits from its subsidiaries
and other related party entities. Pursuant to the license issued by CBRC, Hailiang Finance is not permitted to make any loans or accept any deposits from any parties that are
unrelated to Hailiang Group, except for inter-bank transactions with 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 was renewed annually. Based
on one most recent PRC credit rating organizations, Hailiang Group has been rated AA+ which indicates strong ability to make payments on debts as they become due.
Management believes that the credit risk on the Group’s cash of RMB200,023 and term deposits of RMB1,898,242 is low considering Hailiang Group’s guarantee and credit rating.
Receivables due from related parties
Receivables due from related parties primarily represent loan receivables due from Hong Kong Leonit Limited (“Leonit”), which has been guaranteed by a related party,
incorporated in British Virgin Island and controlled by Hailiang Group. The Group concludes that the credit risk arising from the receivables is low considering the guarantee.
(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 by delivering cash or another
financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The following are the contractual maturities of financial liabilities, which are based on contractual undiscounted cash flows and the earliest date the Group can be required to pay:
June 30, 2020
Carrying
Contractual
1 year or
More than
Non-derivative financial instruments
amount
Cash flow
less
1-2 years
2-5 years
5 years
RMB
RMB
RMB
RMB
RMB
RMB
Trade and other payables due to third parties
272,012
272,012
272,012
—
—
—
Other payables due to related parties
156,709
156,709
156,709
—
—
—
Lease liabilities (Note 13(d))
20,502
27,356
2,687
3,442
7,999
13,228
June 30, 2021
Carrying
Contractual
1 year or
more than
Non-derivative financial instruments
amount
cash flow
less
1-2 years
2-5 years
5 years
RMB
RMB
RMB
RMB
RMB
RMB
Trade and other payables due to third parties
376,747
376,747
376,747
—
—
—
Other payables due to related parties
134,982
134,982
134,982
—
—
—
Lease liabilities (Note 13(d))
35,754
44,563
6,801
6,544
13,786
17,432
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
206/219
Table of Contents
F-52
(c) Market rate risk
Interest rate risk
The interest rates of cash held in bank and cash and term deposits placed with Hailiang Finance ranged from 0.30% to 2.1% per annum for the year ended June 30, 2020, and ranged
from 0.30% to 3.85% for the year ended June 30, 2021, respectively. The Group does not have any fixed-rate or variable-rate interest bearing financial instrument other than cash
and cash equivalent, term deposits placed with a related party finance entity and lease liabilities.
A change of 10 basis point in interest rate would not be expected to have a significant impact on the Group’s financial condition or results of operations.
(d) Fair value
The carrying amounts of financial assets and liabilities approximate their respective fair values as of June 30, 2020 and 2021, respectively, due to their short-term maturities.
As of June 30, 2020 and 2021, the Group did not have financial instruments carried at fair value.
During the years ended June 30, 2020 and 2021, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3.
Further, the fair value disclosure of lease liabilities is not required for the year ended June 30, 2020 and 2021.
(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 possible with 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.
21 Acquisition of affiliated entities
Acquisition of Jinhua Hailiang Foreign Language School and Feicheng Education Investment
During the year ended June 30, 2021, the Group acquired 100% sponsorship of Jinhua Hailiang Foreign Language School and 100% equity interests in Feicheng Education
Investment (referred to as “combining entities”) from Hailiang Investment controlled by Mr. Feng at a cash consideration of RMB34,000 and RMB22,866 respectively. Since the
Company and the combining entities are under common control of Mr. Feng both before and after the acquisitions and the control is not transitory, the acquisitions have been
accounted as a business combination involving entities under common control. The cash consideration of RMB56,866 was recorded as deduction of contribution capital within total
shareholders’ equity.
Since the Company, Jinhua Hailiang Foreign Language School and Feicheng Education Investment were under common control of Mr. Hailiang Feng, both before and after the
acquisition and the control was not temporary, the transactions were accounted for as a business combination between entities under common control. The assets and liabilities of
Jinhua Hailiang Foreign Language School and Feicheng Education Investment acquired by the Company have been accounted for at existing book value and the financial statements
of the Company for period prior to the combination have been restated to include the balance sheet and results of operation of Jinhua Hailiang Foreign Language School and
Feicheng Education Investment on a combined basis. The consideration of RMB56,866 has been recorded as deduction of contribution capital within total shareholders’ equity.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
207/219
Table of Contents
F-53
Consideration transferred
RMB
Cash consideration paid to Hailiang Investment
56,866
Total consideration transferred
56,866
The following table summarizes the aggregate amounts of the assets and liabilities of the combining entities recognized at the carrying value based on the transferor’s financial
statements (i.e. Hailiang Investment) which had been incorporated into the comparative figures of the Group’s consolidated financial statements:
June 30,
2020
RMB
Property and equipment, net
31,312
Contract costs
395
Prepayments to third party suppliers
67
Non-current assets
31,774
Other receivables due from related parties
15
Other current assets
705
Term deposits held at a related party finance entity
5,000
Cash and cash equivalents
13,425
Current assets
19,145
Total assets
50,919
Trade and other payables due to third parties
7,222
Other payables due to related parties
20,715
Contract Liabilities
21,104
Current liabilities
49,041
Net assets acquired
1,878
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
208/219
Table of Contents
F-54
The following tables summarize the aggregate results and cash flows of the combining entities from the earliest date presented or since the date when combining entities first came
under common control, where this is a shorter period, regardless of the date of the common control combination:
2019
2020
RMB
RMB
Revenue
17,463
38,951
Cost of revenue
(18,069)
(34,003)
Gross (loss)/profit
(606)
4,948
Other income, net
476
864
Selling expenses
(800)
(1,090)
Administrative expenses
(2,068)
(915)
Operating (loss)/profit
(2,998)
3,807
Finance income
19
37
Finance costs
(208)
(440)
Net finance costs
(189)
(403)
(Loss)/profit before tax
(3,187)
3,404
Net (loss)/profit
(3,187)
3,404
Net cash generated from operating activities
21,845
13,357
Net cash (used in) investing activities
(19,677)
(21,786)
Net cash generated from financing activities
6,000
11,000
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
209/219
Table of Contents
F-55
22 Related party transactions
Except for related party transactions disclosed in other notes of the financial statements, the Group entered into the following significant transactions with related parties during the
years ended June 30, 2019, 2020 and 2021.
(a) The significant related party transactions are summarized as follows:
2019
2020
2021
(Restated)
(Restated)
Note
RMB
RMB
RMB
Repayment of loans to related parties
(i)(ii)
(4,000)
(34,079)
(41,981)
Repayment of loans from a related party
(i)
12,412
11,850
21,649
Loans borrowed from a related party
(ii)
9,000
13,000
4,000
Interest on loans borrowed from a related party
(ii)
208
440
205
Repayment of on loans borrowed from a related party
(ii)
—
—
853
Interest income from deposits placed with a related party finance entity
(iii)
24,331
24,835
42,820
Net (withdrawals)/ deposits of cash at a related party finance entity
(iii)
(509,067)
267,937
(302,266)
Term deposits placed with a related party finance entity
(iii)
4,709,697
3,816,762
4,180,615
Maturity of term deposits placed with a related party finance entity
(iii)
3,526,603
4,282,255
3,233,296
Rental expenses
(iv)
33,814
—
—
Purchase of right-of-use assets
(iv)
—
529,406
3,509
Interest on lease liabilities
(iv)
—
3,624
227
Payments of lease liabilities
(iv)
—
529,377
976
Payments of expenses by the Group on behalf of related parties
(v)
6,750
10,253
14,748
Payments of expenses by related parties on behalf of the Group
(v)
2,731
2,958
4,852
Collection of fees by the Group on behalf of related parties
(v)
46,922
34,936
61,764
Purchase of leasehold improvement from a related party
(vi)
38,520
118,718
68,070
Purchase of food products from related parties
(vii)
70,045
75,654
111,835
Operation and management service provided to related parties
(viii)
30,081
8,045
17,822
Other service and product provided to related parties
(ix)
3,165
3,181
4,641
Service provided by related parties
(x)
23,669
20,364
23,573
Acquisition of affiliated entities
(xi)
—
200
56,866
Dividends paid to a non-controlling shareholder of subsidiaries
(xi)
7,482
21,145
—
Payments to a non-controlling shareholder upon the liquidation of subsidiaries
(xi)
—
3,713
—
Capital contribution
(xii)
15,000
—
3,560
(b) The significant related party balances are summarized as follows:
2020
2021
(Restated)
Note
RMB
RMB
Other receivables due from related parties
(i) (iii) (iv) (vii) (viii) (ix)
77,442
53,868
Cash held at a related party finance entity
(iii)
502,289
200,023
Term deposits placed with a related party finance entity
(iii)
921,601
1,898,242
Other payables due to related parties
(i) (iv) (v) (vi) (ix) (x)
156,709
134,982
Lease liabilities
(iv)
3,628
5,554
– Current portion
1,338
1,504
– Non-current portion
2,290
4,050
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
210/219
Table of Contents
F-56
The Company’s majority shareholder, Mr. Feng owns or controls other non-educational services businesses (“Related Party Companies”) that from time to time require short-term
financing to support their business operations and working capital needs. After considering the cash on hand and forecasted cash flows to fund its operations, the Group issued
financing to Related Party Companies during the periods presented.
(i) On October 31, 2016, the Company provided a one-year-period interest-free loan to Leonit, which is controlled by Hailiang Group, amounting to USD14,500
(equivalent to RMB98,229) (“USD Loan”). On the same date, Hailiang Consulting borrowed a one-year-period interest-free loan from Hailiang Group amounting to
RMB99,603 (“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 on October 30, 2018 with renewal option if both parties agree. Similarly, Hailiang Group and Hailiang Consulting agreed to a loan extension pursuant to which
the RMB Loan was due on October 30, 2018 with renewal option if both parties agree. Per the agreement among the four parties mentioned above, when the USD
Loan is repaid, the RMB Loan will similarly be repaid.
On December 5, 2017, the Company borrowed a one-year-period interest-free loan from Leonit amounting to USD1,150 (equivalent to RMB7,609). The loan of
USD1,150 was offset against the USD loan per the agreement between the Company and Leonit.
During the year ended June 30, 2019, Leonit settled part of the USD loan in cash, amounting to USD1,820 (equivalent to RMB12,412) to the Company.
During the year ended June 30, 2020, Leonit settled part of the USD loan in cash, amounting to USD1,700 (equivalent to RMB11,850) to the Company, while
Hailiang Consulting repaid part of the RMB loan, amounting to RMB32,079 to Hailiang Group.
During the year ended June 30, 2021, Leonit settled part of the USD loan in cash, amounting to USD3,200 (equivalent to RMB21,649) to the Company, while
Hailiang Consulting repaid part of the RMB loan, amounting to RMB21,981 to Hailiang Group.
As of June 30, 2020 and 2021, the USD loan made to Leonit of USD9,830 (equivalent to RMB69,591) and USD6,630 (equivalent to RMB42,830) was included in
“Other receivables due from related parties”, respectively, and the RMB loan borrowed from Hailiang Group of RMB67,524 and RMB45,543 was included in “Other
payables due to related parties”, respectively.
(ii) During the years ended June 30, 2019, 2020 and 2021, Jinhua Hailiang Foreign Language School and Feicheng Hailiang Foreign Language School borrowed loans
amounted to RMB9,000, RMB13,000 and RMB4,000 at an interest rate of 5.145% from Hailiang Investment. a related party controlled by Mr.Feng.
During the years ended June 30, 2019, 2020 and 2021, Jinhua Hailiang Foreign Language School and Feicheng Hailiang Foreign Language School repaid of the
loans amounted to RMB 4,000, RMB2,000 and RMB20,000 to Hailiang Investment. As of June 30, 2021, the loans and interests have been all repaid to Hailiang
Investment.
(iii) As of June 30, 2020 and 2021, the Group has cash held at a related party finance entity of RMB502,289 and RMB200,023, respectively. During the year ended June
30, 2020, net amount of RMB267,937 were placed with Hailiang Finance. During the years ended June 30, 2019 and 2021, net amount of RMB509,067 and
RMB302,266 were withdrawn from Hailiang Finance, respectively. The cash held at a related party finance entity is held for the purpose of meeting short-term cash
commitments, such as to pay for the Group’s operating expenses at any time.
During the years ended June 30, 2019, 2020 and 2021, term deposits of RMB4,709,697, RMB3,816,762 and RMB4,180,615 were placed with Hailiang Finance, and
RMB3,526,603, RMB4,282,255 and RMB3,233,296 were matured, respectively. The term deposits are held for investment purpose and can be withdrawn prior to
their maturity without incurring significant penalties. Such amounts have been presented as investing activities in the consolidated statements of cash flows.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
211/219
Table of Contents
F-57
As of June 30, 2020 and 2021, the Group has term deposits with maturities more than three months to RMB921,601 and RMB1,898,242 that are placed at Hailiang
Finance, respectively.
The interest income from the deposits during the years ended June 30, 2019, 2020 and 2021 amounted to RMB24,331, RMB24,835 and RMB42,820, respectively.
Interest income that can be collected but not yet collected from the due term deposits as of June 30, 2020 amounted to RMB4,478 was included in “Other receivables
due from related parties”. As of June 30, 2021, the Group had interest income receivable from undue term deposits amounted to RMB29,322, which was included in”
Term deposits held at a related party finance entity”.
(iv) The Group leases the school buildings and the related facilities in three campuses in Zhuji, China from Hailiang Investment, a related party controlled by Mr. Feng,
which incurred rental expenses of RMB31,504 during the year ended June 30, 2019. The Group also leases some office spaces from Hailiang Real Estate, a related
party controlled by Mr. Feng, which incurred rental expenses of RMB730 during the year ended June 30, 2019. In addition, Haibo Education and Haibo Logistics
leased the office space and warehouse from Nanchang Hongtou Property Management Co., Ltd, (“Nanchang Hongtou”), a related party before October 30, 2019 and
owned by Mr. Honggen Min, who is the controlling shareholder of Nanchang Baishu, which incurred rental expenses of RMB1,580 during the year ended June 30,
2019. On September 6, 2019, the Group terminated the lease contract with Nanchang Hongtou due to the liquidation of Haibo Education and Haibo Logistics.
The Group has initially applied IFRS 16 using the modified retrospective approach and adjusted the opening balances at July 1, 2019 to recognize right-of-use assets
relating to leases which were previously classified as operating leases under IAS 17. After initial recognition of right-of-use assets at July 1, 2019, the Group as a
lessee is required to recognize the depreciation of right-of-use assets, instead of the previous policy of recognizing rental expenses incurred under operating leases on
a straight-line basis over the lease term. Under this approach, the comparative information is not restated. See note 4(o).
On September 6, 2019, the Group entered into a series of supplementary contracts with Hailiang Investment regarding the school buildings and the related facilities in
three campuses in Zhuji, China from Hailiang Investment, pursuant to which, on September 12, 2019, the Group purchased right-of-use assets of RMB524,996
regarding the school buildings and the related facilities in three campuses in Zhuji, China from Hailiang Investment for the remaining lease period until June 30,
2037. Regarding other lease contracts with Hailiang Investment, Hailiang Real Estate and Xiantao Tiancheng Education Investment Co., Ltd., a related party
controlled by Hailiang Investment, the Group purchased right-of-use assets RMB4,410 and RMB3,509 respectively during the years ended June 30, 2020 and 2021.
During the years ended June 30, 2020 and 2021, the Group recognized interest expense of RMB3,624 and RMB227 on lease liabilities, respectively, and settled lease
liabilities of RMB529,377 and RMB976 relating to the above lease contracts with Hailiang Investment and Hailiang Real Estate, respectively.
As of June 30, 2020 and 2021, the above unsettled balances of RMB3,628 and RMB5,554 were recognized in “Lease liabilities”, respectively.
(v) During the years ended June 30, 2019, 2020 and 2021, the Group paid expenses, which mainly include staff related expenses and other miscellaneous expenses, of
RMB 6,750, RMB10,253 and RMB14,748 respectively on behalf of the related parties. Such amount is receivable on demand, and the related parties repaid
RMB6,656, RMB9,180 and RMB9,925 to the Group during the years ended June 30, 2019, 2020 and 2021, respectively.
During the years ended June 30, 2019, 2020 and 2021, the related parties paid expenses, which mainly include staff related expenses and other miscellaneous
expenses, of RMB2,731, RMB2,958 and RMB4,852 respectively on behalf of the Group. Such amount is due and payable on demand, and the Group repaid
RMB4,663, RMB2,510 and RMB4,807 to the related parties during the years ended June 30, 2019, 2020 and 2021, respectively.
During the years ended June 30, 2019, 2020 and 2021, the Group collected amounts of RMB46,922, RMB34,936 and RMB61,764, mainly on behalf of Ming Kang
Hui supermarkets, which are operated by Zhejiang Ming Kang Hui Food Co., Ltd., a related party controlled by Mr. Feng. Such amount is due and payable on
demand, and the Group repaid
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
212/219
Table of Contents
F-58
RMB47,858, RMB33,011 and RMB58,405 to related parties during the years ended June 30, 2019, 2020 and 2021, respectively.
The above unsettled balances were included in “Other payables due to related parties” and “Other receivables due from related parties” as of June 30, 2020 and 2021,
respectively.
(vi) The Group entered into a series of leasehold improvement contracts with Heng Zhong Da Construction Limited Company (“Heng Zhong Da”), a company over which
Mr. Feng has significant influence, for the leasehold improvement of classroom buildings, dining halls and student dormitories.
During the years ended June 30, 2019, 2020 and 2021, the Group purchased leasehold improvement service from Heng Zhong Da of RMB38,520, RMB118,718 and
RMB68,070 respectively.
As of June 30, 2020 and 2021, the above unsettled balances of RMB45,293 and RMB41,554 were recognized in “Other payables due to related parties”.
(vii) The Group purchased food products from Zhejiang Ming Kang Hui E-Commerce Co., Ltd. and Ming Kang Hui Ecological Agriculture Group Co., Ltd. (collectively
referred as “Ming Kang Hui”), two companies controlled by Mr. Feng, amounting to RMB70,045 during the year ended June 30, 2019, respectively. The Group
purchased food products from Ming Kang Hui Ecological Agriculture Group Co., Ltd. and Zhuji Hailiang Food Co., Ltd., two related parties controlled by Mr. Feng,
totally amounting to RMB75,654 and RMB111,835 during the years ended June 30, 2020 and 2021.
As of June 30, 2020 and 2021, the above unsettled balances of RMB11,977 and RMB22,262 were recognized in “Other payables due to related parties”.
(viii) Operation and management service provided to related parties are as follow:
2019
2020
2021
RMB
RMB
RMB
Operation and management service provided to managed schools
25,203
4,622
11,452
Service provided to Ming Kang Hui
4,878
3,423
6,370
Total
30,081
8,045
17,822
Pursuant to the strategic cooperation agreement signed with Hailiang Group and Hailiang investment, the Group provided operation and management services to
Hailiang Kindgarten, Zhuji Hailiang Jinshan Kindgarten and Tianma Kindgarten, which were controlled by Mr Hailiang Feng, and other 17 schools controlled by
Hailiang Investment, including Xiantao No.1 Middle School, Xinchang Nanrui Experimental School, and 15 schools controlled by Xinyu Baishu Technology Service
Co., Ltd. (“Xinyu Baishu”). Operation and management service fees of RMB25,203, RMB4,622 and RMB11,452 were charged to the abovementioned schools
during the years ended June 30, 2019, 2020 and 2021, respectively.
On October 30, 2019, Hailiang Investment disposed all of the equity interest in Xinyu Baishu and hence Xinyu Baishu is not considered as a related party to the
Group since then.
The Group provided service to Ming Kang Hui supermarkets, which are operated by Zhejiang Ming Kang Hui Food Co., Ltd., controlled by Mr. Feng, in the Group’s
campuses, amounting to RMB4,878, RMB3,423 and RMB6,370 during the years ended June 30, 2019, 2020 and 2021, respectively.
(ix) Other service and product provided to related parties mainly include daily consumables sold to related parties, hotel services and etc.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
213/219
Table of Contents
F-59
(x) The Group received IT services, physical examination services, travel services and other services from related parties controlled by Hailiang Group, amounting to
RMB23,669, RMB20,364 and RMB23,573 during the years ended June 30, 2019, 2020 and 2021.
As of June 30, 2020 and 2021, the above unsettled balances of RMB9,160 and RMB15,021 were recognized in “Other payables due to related parties”.
(xi) In November 2018, Haibo Education and Haibo Logistics declared and fully paid dividends amounting to RMB6,075 and RMB1,407 to Nanchang Baishu,
respectively.
In September 2019, Haibo Education and Haibo Logistics declared and fully paid dividends amounting to RMB17,670 and RMB3,475 to Nanchang Baishu,
respectively.
In December 2019, net assets attributable to Nanchang Baishu was paid upon the liquidation of Haibo Education and Haibo Logistics, totally amounting to
RMB3,713.
In July 2019, the Company acquired 100% shares of Zhuji Tianma Boya Training Center Co., Ltd. with the consideration of RMB100 from Hailiang Investment.
In May 2020, the Company acquired 100% shares of Zhuji Yuesheng Management Consulting Co., Ltd. with the consideration of RMB100 from Hailiang
Investment.
In July 15, 2020, the Company entered into a sponsorship transfer agreement with Hailiang Investment to acquire 100% sponsorship of Jinhua Hailiang Foreign
Language School, with a total consideration of RMB34,000.
In April 2021, the Company acquired from Hailiang Investment, 100% equity interests in Feicheng Education Investment, for a total consideration of RMB 22,866.
(xii) Mr. Feng, paid awards of RMB15,000 to the Group’s outstanding teachers to recognize their outstanding performance and contributions during the year ended June
30, 2019. The transaction is accounted for as a deemed contribution from a controlling shareholder.
Capital contribution of RMB3,560 from non-controlling shareholders of Zhenjiang Jianghe High School of Art, through waiving liability during the year ended June
30, 2021.
(c) Transactions with key management personnel
Remuneration of the directors and key management personnel of the Group for the years ended June 30, 2019, 2020 and 2021 are as follows:
2019
2020
2021
RMB
RMB
RMB
Short-term benefits
5,713
5,549
5,861
Total remuneration is included in “employee benefit expenses” (Note 7).
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
214/219
Table of Contents
F-60
23 Commitments and contingencies
(a) Capital commitments
Capital commitments, which are primarily related to the campus decoration are as follows:
2020
2021
RMB
RMB
Contracted, but not provided for:
Leasehold improvement
47,813
23,495
Furniture, fixtures and other equipment
2,826
4,143
24 Subsequent events
(a) Loss from loss of control of the affiliated entities
Pursuant to the effectiveness of the Implementation Rules from September 1, 2021, a private school providing compulsory education is prohibited from conducting transactions
with its related party, including the consulting service under the Contractual Agreement with these affiliated entities providing compulsory education. As a result, the Group has
considered that the clauses or provisions of the Consulting Services Agreement, in relation to related party transactions between a private school providing compulsory
education and Hailiang Consulting and its affiliated entities, are not legally enforceable since September 1, 2021. The Group concluded that it lost control of the following
affiliated entities on September 1, 2021, considering the significant restrictions and uncertainties the Implementation Rules impose on the Company’s ability to direct the range
of ongoing activities that would most significantly impact the returns of those entities and to be exposed to returns that are commensurate with a controlling interest. Since
September 1, 2021, the Group has stopped providing services to the affiliated entities providing compulsory education.
Consolidated affiliated entities
Place and year of establishment
Principal activities
Hangzhou Hailiang Education Management Co., Ltd.
Zhejiang, China, 2018
Investment holding
Zhejiang Zhuji Hailiang Foreign Language School
(“Foreign Language”)
Zhejiang, China, 1995
K-9 compulsory curriculum education services
Zhejiang Zhuji Tianma Experimental School
(“Tianma Experimental”)
Zhejiang, China, 1995
K-9 compulsory curriculum education services
Zhejiang Zhuji Hailiang Primary School
Zhejiang, China, 2016
K-9 compulsory curriculum education services
Zhejiang Zhuji Hailiang Junior Middle School
Zhejiang, China, 2016
K-9 compulsory curriculum education services
Lanzhou Hailiang Education Consulting Co., Ltd.
Gansu, China, 2019
Investment holding
Lanzhou Hailiang Experimental School
Gansu, China, 2020
K-9 compulsory curriculum education services
Wuhu Hailiang Education Management Co., Ltd.
Anhui, China, 2020
Investment holding
Wuhu Hailiang Experimental School
Anhui, China, 2020
K-9 compulsory curriculum education services
Jinhua Hailiang Education Technology Co., Ltd.
Zhejiang, China, 2020
Investment holding
Wenzhou Hailiang Juxian Education Technology Co., Ltd. (“Juxian
Technology”)
Zhejiang, China, 2020
Investment holding
Hailiang Overseas Chinese School
Zhejiang, China, 2020
K-9 compulsory curriculum education services
Jinhua Hailiang Foreign Language School
Zhejiang, China, 2018
K-9 compulsory curriculum education services
Ninghai Hailiang Education Management Co., Ltd.
Zhejiang, China, 2021
Investment holding
Xianghu Future School
Zhejiang, China, 2021
K-9 compulsory curriculum education services
Feicheng Education Investment
Shandong, China, 2018
Investment holding
Feicheng Hailiang Foreign Language School
Shandong, China, 2018
K-9 compulsory curriculum education services
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
215/219
Table of Contents
F-61
The following table summarizes the consolidated financial position of these affiliated entities as of June 30, 2020 and 2021.
June 30, 2020
June 30, 2021
RMB
RMB
Property and equipment, net
460,245
268,479
Intangible assets and goodwill, net
78,325
—
Right of use assets
103,143
97,053
Contract costs
9,826
10,021
Prepayments to third party suppliers
126
—
Non-current assets
651,665
375,553
Other receivables due from related parties
43,065
44,206
Other current assets
11,286
17,618
Term deposits held at a related party finance entity
385,000
362,265
Cash and cash equivalents
123,061
118,344
Current assets
562,412
542,433
Total assets
1,214,077
917,986
Lease liabilities
4,881
4,325
Non-current liabilities
4,881
4,325
Trade and other payables due to third parties
117,426
162,410
Other payables due to related parties*
423,430
444,635
Income tax payable
—
992
Contract Liabilities
235,399
290,860
Lease liabilities
133
159
Current liabilities
776,388
899,056
Total liabilities
781,269
903,381
Net assets**
432,808
14,605
Net assets attributable to the Company’s shareholders
430,408
7,585
Non-controlling interests
2,400
7,020
*
Other payables due to related parties mainly include payables arising from the payments settled by related parties on behalf of these affiliated entities and services and
materials provided to these affiliated entities by related parties.
**
The difference between the loss from the discontinued operations, net of tax of RMB243,337 for the fiscal year ended June 30, 2021 and the movement of net assets of
RMB418,203 during the fiscal year end June 30, 2021 was due to the elimination of intra-group transactions when presenting the financial results of discontinued
operations as mentioned in note 5(ii) and the deduction of contribution capital arising from business combinations under common control as mentioned in note 21.
For the results of operations and cash flows of discontinued operations during the year ended June 30, 2019, 2020 and 2021, please see note 9.
Notwithstanding the above, after September 1, 2021 there are still other ongoing transactions between these schools providing compulsory education, which the Group lost
control September 1, 2021, and their related parties, such as cash and deposits placed with Hailiang Finance, campus lease from Hailiang Investment. These ongoing
transactions may be subject to risk of violating the Implementation Rules. In accordance with the Implementation Rules, there is a risk of being ordered to rectify violations
within a time limit, and any illegal gains shall be confiscated after the fees collected are returned; if the violations are serious, the sponsor, actual controller and member of the
decision-making body or supervisory body shall not become the sponsor, actual controller or member of the decision-making body or supervisory body of any other private
schools within one to five years; and if the violations are especially serious with adverse social impact, the sponsor, actual controller and member of the decision-making body
or
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
216/219
Table of Contents
F-62
supervisory body shall not become the sponsor, actual controller and members of the decision-making body or supervisory body of other private schools permanently; if there is
a violation of public security administration, the public security authority shall impose a public security administrative penalty; if a crime is committed, criminal responsibility
shall be investigated.
As of the date of this report, these schools providing compulsory education have not received any further rectification requirements or penalty notices from the relevant
competent authority. Considering there still remain uncertainty as to when and how such Implementation Rules will become specifically applied, it is uncertain whether the
Group is subject to risk of violating the Implementation Rules. Overall, in the view of the Group the possibility of a material loss is less than probable. However, the Group is
unable to estimate reliably the range of loss, if any, that could result if the Group was considered as being violating the Implementation Rules by the relevant competent
authority. The relevant authorities have yet to promulgate any detailed implementation rules and regulations under the Implementation Rules, therefore, the Group and these
schools providing compulsory education will continue to monitor the developments and evaluate the possible impact of the Implementation Rules.
(b) Disposal of Mingyou Future
On October 9, 2021, the Group disposed Hailiang Mingyou Future (Zhejiang) Education Technology Co., Ltd, (“Mingyou Future”) and its subsidiaries to Hailiang Investment, a
related party controlled by Mr. Feng, for a consideration of RMB6,534. The revenue proportion of Mingyou Future has been immaterial to the business, and the total revenue
derived from Mingyou Future for each of the fiscal years ended June 30, 2019, 2020 and 2021 was less than 1%.
25 Comparative figures
The Group has initially applied IFRS 16 at July 1, 2019. Under the cumulative effect method, comparative information is not restated. See note 4(o).
As mentioned in note 21, as a result of business combinations under common control, the financial statements of the Group for period prior to the combinations have been
restated to include the financial statements items of Jinhua Hailiang Foreign Language School and Feicheng Education Investment as if the entities or businesses had been
consolidated at the earliest balance sheet date presented or when they first came under common control, whichever is later.
As mentioned in note 9, the Consolidated Statements of Profit or Loss and Other Comprehensive Income has been represented to show the discontinued operation separately
from continuing operations.
26 Immediate and ultimate controlling party
At June 30, 2021, the Directors consider the immediate parent of the Group to be Jet Victory International Limited, which is incorporated in British Virgin Island, and the
ultimate controlling party to be Mr.Feng. Neither of the parties produce financial statements available for public use.
27 Parent company financial statement
The following condensed parent company financial information of Hailiang Education Group Inc. has been prepared using the same accounting policies as set out in the
accompanying consolidated financial statements.
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
217/219
Table of Contents
F-63
HAILIANG EDUCATION GROUP INC.
CONDENSED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
FOR THE YEARS ENDED JUNE 30, 2019, 2020 AND 2021
(Amounts in thousands)
2019
2020
2021
RMB
RMB
RMB
Cost of revenue
—
—
—
Gross loss
—
—
—
Administrative expenses
(8,176)
(10,060)
(5,057)
Operating loss
(8,176)
(10,060)
(5,057)
Net finance expenses
—
—
—
Loss before tax
(8,176)
(10,060)
(5,057)
Loss
(8,176)
(10,060)
(5,057)
Items that will not be reclassified to profit or loss
Exchange differences on transaction of financial statements of the Company
4,086
2,966
(7,818)
Total comprehensive loss
(4,090)
(7,094)
(12,875)
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
218/219
Table of Contents
F-64
HAILIANG EDUCATION GROUP INC.
CONDENSED STATEMENTS OF FINANCIAL POSITION
AS OF JUNE 30, 2020 AND 2021
(Amounts in thousands)
2020
2021
RMB
RMB
Assets
Other receivables due from subsidiaries
27,237
5,077
Long-term investment
—
10,091
Non-current assets
27,237
15,168
Other receivables due from related parties
69,591
42,830
Other current assets
225
1,233
Cash
891
23,244
Current assets
70,707
67,307
Total assets
97,944
82,475
Shareholders’ equity
Share capital
268
268
Share premium
134,583
134,583
Translation reserve
16,161
8,343
Accumulated losses
(55,739)
(60,796)
Total shareholders’ equity
95,273
82,398
Liabilities
Other payables due to third parties
2,669
75
Other payables due to related parties
2
2
Current liabilities
2,671
77
Total liabilities
2,671
77
Total shareholders’ equity and liabilities
97,944
82,475
2021/11/13 上午7:15
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
https://www.sec.gov/Archives/edgar/data/1596964/000141057821000168/hlg-20210630x20f.htm
219/219
Table of Contents
F-65
HAILIANG EDUCATION GROUP INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2019, 2020 AND 2021
(Amounts in thousands)
2019
2020
2021
RMB
RMB
RMB
Cash flows from operating activities
Loss for the year
(8,176)
(10,060)
(5,057)
Adjustments for:
Change in other payables due to third parties
887
389
(2,594)
Changes in other current assets
—
(225)
(1,008)
Change in other receivable due from subsidiaries
(4,664)
(1,528)
160
Change in other receivable due from related parties
(201)
—
—
Net cash used in operating activities
(12,154)
(11,424)
(8,499)
Cash flows from investing activities
Repayment of loans from a related party
12,412
11,850
21,649
Investment in a subsidiary
—
—
(10,091)
Net cash generated from investing activities
12,412
11,850
11,558
Cash flows from financing activities
Loan borrowed from a subsidiary
—
—
22,000
Net cash generated from financing activities
—
—
22,000
Effect of movements in exchange rates on cash
(394)
75
(2,706)
Net (decrease) / increase in cash
(136)
501
22,353
Cash at the beginning of the year
526
390
891
Cash at end of the year
390
891
23,244