23 July 2021

Myanmar Strategic Holdings Ltd.

("MSH" or the "Company")

 

Interim Results for the six months ended 31 March 2021

 

The Board of Myanmar Strategic Holdings Ltd. (LSE: SHWE), the independent developer and operator of consumer businesses located in Myanmar and Vietnam, is pleased to announce its unaudited interim results for the six-month period ended 31 March 2021. 

 

FINANCIAL HIGHLIGHTS

 

All dates refer to the six-month financial period ended 31 March 2021, unless otherwise stated. The six-month financial period from 1 October 2019 to 31 March 2020, is referred to as "6M'20".

 

·    Group revenues for the six-month financial period ended 31 March 2021 increased 175% year-on-year ("YOY") to US$7.6 million, of which 65% derived from Education and 35% from Services (6M'20: 70% derived from Services, 28% from Education and 2% from Hospitality). The increase in the Group's revenue is due to (i) the consolidation of Wall Street English Vietnam ("WSE Vietnam") since the completion of its acquisition on 14 July 2020 and (ii) the growth of the Wall Street English Myanmar ("WSE Myanmar") owned business following the review and amendment of the existing management agreements.

 

·    The Group's net loss for the six-month financial period ended 31 March 2021 amounted to US$2.9 million (6M'20: US$1.6 million), primarily due to (i) the continued impact of COVID-19 on the Myanmar and Vietnam operations, (ii) the disruption linked to the military takeover initiated in Myanmar on 1 February 2021 (the "State of Emergency"), (iii) a subdued tourism market impacting the Hospitality division and (iv) the increase in amortisation of right-of-use assets arising from the consolidation of the WSE Vietnam leases and four new leases entered in respect of the WSE Myanmar language centres.

 

·    The Group's net comprehensive loss for the six-month financial period ended 31 March 2021 was US$3.1 million (6M'20: US$1.6 million).

 

·    As a result of cost control and cash flow management initiatives, financial resources were carefully administered and operating cash outflow for the six-month financial period ended 31 March 2021 amounted to US$1.1 million (6M'20: US$0.9 million), a limited increase considering the Group's considerable growth in size.

 

·    Underlying revenues, an indicator of the volume of business generated by the managed and owned businesses, increased 71% YOY to ca. US$8.2 million (6M'20: US$4.8 million) for the six-month financial period ended 31 March 2021, of which 67% derived from Education and 33% from Services.

 

·    The COVID-19 pandemic continues to significantly affect the Group's operations resulting, among others, in (i) temporary closures of in-person operations across both its Education and Hospitality divisions and (ii) higher operating costs in its Services division. The global COVID-19 response remains fluid as countries adopt different COVID-19 restrictions and vaccination policies. Therefore, the Group cannot reasonably project the full extent of the COVID-19 impact going forward.

 

·    As a result of Myanmar's State of Emergency, since 1 February 2021 Yangon American International School ("Yangon American"), WSE Myanmar and Auston College ("Auston") were subjected to temporary closures and shifted to online service delivery due to the general unrest and worsening security environment. Conversely, EXERA continued to operate and registered a marked increase in the demand for security, secured logistics and risk management services. Operations across all divisions have stabilised since May 2021.

 

·    The diversification of the Group's operations between Myanmar and Vietnam mitigates the overall COVID-19 and single-country exposure of the Group.

 

·    The Company maintains a loan facility of up to US$7.0 million with MACAN, the Company's corporate shareholder, and has drawn down US$5.0 million at the date of this report (US$4.5 million as at 31 March 2021). Management has assessed that there are sufficient mitigating actions within the control of the Group, such as the significant reduction of operational activities of non-profitable business segments, re-negotiation of lease contracts with landlords to secure lease concession and unutilised credit facilities for its working capital requirements for the next 12 months from the date of this report.  

 

OPERATIONAL HIGHLIGHTS

 

Education

 

·    Through its Education division, the Group is currently active in (i) English language learning (Wall Street English Myanmar and Vietnam), (ii) higher education (Auston College Myanmar) and (iii) K-12 international school (Yangon American International School).

 

·    As a result of the COVID-19 outbreak affecting the education sector, the Group renegotiated the key terms of its operating and management agreements with its related party, TED Limited ("TED"). Effective 1 October 2020, E Partners, a wholly owned-subsidiary of the Group, leased four language centres from TED to operate and manage its own Wall Street English language learning centres and Auston College in Myanmar. These education businesses will therefore be owned businesses and contribute to the Group's revenues.

 

·    E Partners will continue to provide operating, management and technical support services for TED's existing student contracts for a fee over the next 24 months. Therefore, these legacy businesses will continue to be treated as managed businesses and generate management fees to the Group.

 

·    Group revenues from the owned and managed education businesses for the six-month financial period ended 31 March 2021 amounted to US$7.3 and US$1.0 million (6M'20: US$2.2 and US$2.6 million), respectively. The increase is mainly due to (i) the consolidation of WSE Vietnam since the completion of its acquisition on 14 July 2020 and (ii) the growth of the WSE Myanmar owned business following the review and amendment of the existing management agreements.

 

·    As at 31 March 2021, the number of Wall Street English centres and students by country are as follows:

 

	Number of WSE retail centres		Number of WSE students ('000)
	6 months ended	6 months ended	6 months ended	6 months ended
	31 March 2021	31 March 2020	31 March 2021	31 March 2020
Vietnam (Owned business)	7	N/A	4.8	N/A
Myanmar (Owned and managed businesses)	4	4	1.6	1.8
Total	11	4	6.4	1.8

 

·    The Group continues to seek opportunities to expand its WSE centres as the sole franchisee in Vietnam and with its remaining exclusive franchise rights of six years in Myanmar.

 

·    MSH owns and operates the Yangon American International School ("Yangon American"), a Myanmar Investment Commission-approved international school operating on a campus of over 3,000 sqm. Its planned capacity is 400 students and its enrolment for academic year 2020-2021 was ca. 70 students (6M'20: 50 students).

 

·    In July 2021, Yangon American was recognised as an official International Baccalaureate Primary Years Programme ("IB PYP") school by the International Baccalaureate Organization. The IB PYP programme, which was established by the International Baccalaureate Educational Foundation in 1997 and is now taught in 109 countries, is designed for students aged 3 through 12 and focuses on the child as an "inquirer", developing their natural curiosity, both in and out of the classroom. Yangon American is the only IB PYP school in Myanmar.

 

·    During the six-month financial period ended 31 March 2021, the education businesses generated underlying revenues of US$5.5 million (6M'20: US$2.2 million). Due to COVID-19 and the State of Emergency, movement restrictions and school closures were experienced, which in turn resulted in slower recruitment of students and delivery of classes through home-based learning. The State of Emergency also lead to certain foreign investors and operators re-assessing their investments in Myanmar and to the suspension of leading international schools within Yangon American's vicinity, which will provide opportunities for student recruitment.

 

Services

 

·    EXERA is an internationally-managed provider of security and risk management services, operating exclusively in Myanmar. As at 31 March 2021, EXERA has an experienced workforce of over 1,700 (6M'20: 1,300) security officers and provides a range of integrated security, guarding, protective services, journey management, training, and nationwide risk consulting, to a wide range of international and local clients.

 

·    Its customer base includes multi-national corporations, large oil and gas companies, established local businesses and governmental bodies and international organisations such as WFP, UNHCR, UNICEF, the Embassy of the Republic of Singapore and the EU mission. EXERA's services are essential to the continued presence of these organisations in Myanmar throughout the current political and economic instability.

 

·    The Group's revenues arising from the rendering of services for the six-month financial period ended 31 March 2021 were US$2.7 million (6M'20: US$2.0 million). Revenue growth was attributable to (i) the successful renegotiation of certain key contracts and (ii) the renewed demand for high quality integrated security and risk management services, particularly following the State of Emergency in Myanmar. The ability to secure new customers is mainly due to EXERA's competitive advantage as the only company in Myanmar with ISO 18788 Management System for Private Security Operations, ISO 9001, OHSAS 18000, and ANSI/ASIS PSC 1 accreditation.

 

Hospitality

 

·    Under the Hospitality division, the Group manages four boutique hostels with 474 beds and 108 rooms in four locations across Bagan, Mandalay and Nyaung Shwe, the most popular tourist destinations in Myanmar.

 

·    Management and technical assistance fees contributed to the Group for the six-month financial period ended 31 March 2021 were US$6,800 (6M'20: US$45,000), a significant decrease due to the continued COVID-19 restrictions where domestic and international travel in Myanmar remains limited.

 

·    To address the continued underperformance of Myanmar's tourism and to offset the currently challenging operating environment in Myanmar, the Group's remains focused on reducing operating costs and generating operational synergies. It is worth noting that through its boutique hostels the Group provides livelihood for hundreds of individuals in developing communities in Bagan and Inle Lake. Management takes great pride and acknowledges its role as a responsible long-term investor in these communities.

 

New Business Development

 

·    MSH continues to develop its business network and expand its pipeline within the Group's existing sectors (e.g. Services, Education and Hospitality) and new sectors (e.g. Technology). As the Group gradually builds a stronger presence on-the-ground in Vietnam, the Group intends to seek new opportunities throughout Asia to diversify the Group's geographical exposure.

 

·   Management also routinely conducts in-depth studies of new sectors (e.g. Healthcare, Retail and Financial Services) to determine whether to allocate additional human and financial resources to selected initiatives.

 

The Group's minority investments include, among others:

 

·    Myanmar Investments International Limited ("MIL"): in September 2020, MSH purchased a minority stake of 897,500 shares in MIL at an average price of US$0.68 per MIL ordinary shares for a total consideration of US$0.61 million, of which US$0.46 million was satisfied in cash and US$0.15 million through the issuance of 7,629 new MSH shares. MIL is a Myanmar-focused investment company listed on the AIM market of the London Stock Exchange with investments in the telecommunications and financial sectors. As at 31 March 2021, the quoted share price was US$0.61 per share and the unaudited net asset value reported by MIL was US$0.74 per share.

 

Myanmar Macro-Economic Highlights

 

·    According to the World Bank, Myanmar's economy is estimated to have grown by 1.7% in 2020, a significant decrease from the growth rate of 6.8% achieved the previous year.¹

 

·    In 2021, COVID-19 and the State of Emergency have resulted in a material shock to GDP growth; long-term effects of which are yet to be ascertained. In March 2021, the World Bank revised its forecast for Myanmar's GDP to contract 10% in 2021 - a sharp reversal from the World Bank's previous economic update in October 2020 when it predicted Myanmar's economy would grow by 5.9%.¹

 

·    The Myanmar kyat has depreciated against the US dollar which resulted in an increase in prices of fuel and some other basic items. The economic outlook is highly uncertain, with a wide range of possible scenarios. Any future recovery in domestic activity will likely be contingent on a rebound in mobility and the restoration of key services, including financial services. The trade and foreign investment outlook will depend on the reactions of international investors and governments. Furthermore, the extent of the recovery will also be dependent on the efforts to control and tackle the pandemic by increasing the speed of its vaccination programme.

 

Vietnam Macro-Economic highlights

 

·    Vietnam is experiencing rapid demographic and social change. Its population currently at 98 million is expected to expand to 120 million by 2050. Based on the 2019 Population Census Report, 55.5% of the population is under 35 years of age, with a life expectancy of 76 years, the highest among countries in the region at similar income levels. Vietnam's emerging middle class is approximately 13% of the population and is expected to reach 26% by 2026. ²

 

·    Vietnam's human capital index ("HCI") is at 0.69, representing that a child born in Vietnam today will be 69% as productive when fully grown. ² This figure is higher than the average for East Asia and the Pacific region and lower middle-income countries. There is also a need to upgrade the skills of the workforce to create productive jobs at a large scale in the future, as Vietnam positions itself as an alternative manufacturing hub to China.

 

·    When COVID-19 hit Vietnam in early 2020, the World Bank worked with Vietnam in its national response strategy from health crisis management to fostering a resilient recovery. The World Bank Group also provided a grant to Vietnam which enables the country to increase its COVID-19 testing capacity to 84 laboratories nationwide reducing the turnaround time for COVID-19 test from 24-48 hours to 4-6 hours. This contributed to Vietnam's successful containment of the COVID-19 outbreak at the end of 2020. For a country of 98 million people, it only registered 1,465 infected cases with 35 deaths while managing to post a positive GDP growth.² A surge in cases has been recorded in June and July 2021, leading to lockdowns in Hanoi and Ho Chi Minh, among other cities.

 

·    The Asian Development Bank forecasts 6.7% GDP growth in 2021 and 7.0% in 2022, one of the fastest growth rates across ASEAN. Inflation is forecasted at 3.8% and 4.0% respectively.

¹ _{https://pubdocs.worldbank.org/en/537621563917606875/mpo-mmr.pdf}

^{2 https://www.worldbank.org/en/country/vietnam/overview} 

 

 

Enrico Cesenni, Chief Executive Officer of Myanmar Strategic Holdings, said:

"I am very pleased to report that over the six-month financial period ended 31 March 2021, Myanmar Strategic Holdings has continued to grow, notwithstanding the complex social, economic and political environment in both Myanmar and Vietnam.

 

"Since its inception MSH has targeted sectors that positively contribute to the overall development of the countries in which we operate, creating jobs and alleviating poverty. Within these sectors we aim to build businesses that embody the best terms of business, environmental, social and governance practices.

 

"The recent political upheaval has once again brought to light the importance of responsible business dealings. Since its inception, the Group has not worked with sanctioned individuals or companies. Before engaging with any customer, the Group conducts extensive diligence checks on the counterpart's activities, ownership and business associates. Group-wide know-your-client ("KYC") and anti-bribery trainings are conducted routinely and for all employees.

 

"Throughout the COVID-19 pandemic and most recently the military takeover in Myanmar, our team remained on the ground and implemented several initiatives aimed at containing any potential pandemic spread and ensuring continued services across more than 200 sites.

 

"Our employees have shown incredible resilience and ingenuity through a series of disruptions which included, among others, movement restrictions, the imposition of martial laws and the temporary suspension of internet and mobile services. Most employees have agreed to voluntary material reductions in salaries to support the Group's businesses and protect the surrounding communities, hence the disruption to our employees' livelihood was limited.

 

"MSH's core portfolio of operating businesses in multiple industries in Myanmar and Vietnam has enabled the Group to diversify and protect itself from several external shocks. While our operating loss for the period has widened due to the temporary closure of our education businesses in Myanmar in February and March 2021, all businesses were fully operational from the end of April 2021 and were experiencing the positive effect of pent-up demand in June and July 2021.

 

"Myanmar's continued State of Emergency is of great concern to Management and shareholders. We remain very concerned about the use of violence against any individual and condemn, to the greatest extent, the use of lethal force against the people of Myanmar.

 

"While we are acutely aware of the complex political and social environments that MSH operates in, we continue to maintain an optimistic stance on Southeast Asia's economic prospects, and we are confident of our ability to drive sustainable and responsible investments in the region. As economic development continues, Management will increasingly focus on businesses targeting the population's primary needs such as education, security and healthcare.

 

"At its core, MSH has always focused on the delivery of services that can improve the livelihoods of the populations it serves and acting as a responsible sustainable operator and investor in the markets in which it works. We believe that our responsible engagement with local communities and the relevant stakeholders is more important now than ever before.

 

"Our permanent capital structure backed by truly patient capital positions MSH as a trusted long-term partner in emerging economies.

 

"We would like to take this opportunity to thank shareholders for their continued support and all members of staff across the Group for their hard work and sacrifices through these challenging, uncertain and upsetting times.

 

"We look forward to updating shareholders on our progress in due course."

 

For more information please visit www.ms-holdings.com or contact:

 

Myanmar Strategic Holdings Ltd. Richard Greer, Independent Non-Executive Chairman Enrico Cesenni, Founder and CEO	richardgreer@me.com enrico@ms-holdings.com
Allenby Capital Limited (Broker) Nick Athanas Nick Naylor	+44 (0)20 3328 5656
Yellow Jersey PR (Financial PR) Henry Wilkinson Matthew McHale	+44 (0)20 3004 9512

 

 

 

		Unaudited	Unaudited
		6 months ended	6 months ended
		31 March 2021	31 March 2020
		US$	US$
Revenue		7,647,891	2,781,116
Other income		6,766	93
Employee benefits expense		(6,202,746)	(2,557,346)
Other expenses		(2,170,454)	(1,123,492)
Adjusted EBITDA		(718,543)	(899,629)
Amortisation expense on right-of-use assets		(1,331,375)	(187,240)
Interest expense on lease liabilities		(355,685)	(142,654)
Adjusted EBITDA after Impact of Right-of-Use Assets		(2,405,603)	(1,229,523)
One-off expenses pursuant to deal-related expenses and loss on write-off		-	(68,577)
Depreciation expense		(246,594)	(161,798)
Finance cost		(93,945)	(78,124)
Impairment of trade and other receivables		(103,207)	-
Amortisation expense		(113,270)	(62,550)
Loss before income tax		(2,962,619)	(1,600,572)
Income tax		17,611	10,383
Loss for the financial period		(2,945,008)	(1,590,189)
Loss for the period attributable to:
Owners of the Company		(2,885,464)	(1,587,660)
Non-controlling interests		(59,544)	(2,529)
		(2,945,008)	(1,590,189)
Loss per share attributable to owners of the    Company (US$)
-  Basic and diluted (US$)		(1.03)	(1.28)

 

FINANCIAL REVIEW

 

·    The underlying revenues generated by the Group in relation to the owned and managed businesses grew to US$8.2 million for the six-month period ended 31 March 2020 (6M'20: US$4.8 million), an increase of ca. 71% YOY.

 

·    This was driven primarily by the increase in the student fees arising from the Owned Business for Wall Street Myanmar and the consolidation of Wall Street Vietnam's results. The increase in revenue was partially mitigated by a significant decline in technical support service fees in the Hospitality division due to the COVID-19-related domestic and international travel restrictions. 

 

RESULTS OF OPERATIONS

 

·    The Group registered revenue growth of 175% against the previous period and correspondingly, employee benefits expenses and other expenses grew respectively at 143% and 93% YOY.

 

·    The Group's Adjusted EBITDA loss shows a clearer picture of the performance of the operations, reduced to US$0.7 million for the six-month financial period ended 31 March 2021 (6M'20: US$0.9 million).

 

·    Including the amortisation of right-of-use assets and the interest expense on lease liabilities, the Group's Adjusted EBITDA loss amounted to US$2.4 million for the six-month financial period (6M'20: US$1.2 million). The significant increase is mainly due to the four new retail WSE Myanmar leases entered with related party (TED Limited) for the operations of the WSE Myanmar Owned Business and the consolidation of the WSE Vietnam language centres.

 

·    Direct and indirect Full Time Employees ("FTEs") increased to over 2,200 (ca. 1,700 as at 31 March 2020), of which ca. 60 FTEs (Mar'20: 400) were employed within the operations under management and ca. 2,140 FTEs (Mar'20: 1,300) were employed in the owned operations. The growth was mainly due to the expansion of EXERA's operations, consolidation of WSE Vietnam and the Owned Business for WSE Myanmar.

		Unaudited	Unaudited
		6 months ended	6 months ended
		31 March 2021	31 March 2020
Underlying revenues		US$	US$
Managed businesses
Hospitality (Ostello Bello)		18,595	617,633
Education (Legacy: WSE, Auston)		951,302	1,962,072
Total managed businesses		969,897	2,579,705
Owned Businesses
Services (EXERA)		2,707,920	1,957,985
Education (WSE, Auston, Yangon American)		4,567,955	284,165
Total owned businesses		7,275,875	2,242,150
Total underlying revenues		8,245,772	4,821,855

 

UNDERLYING REVENUES

 

·    The Underlying Revenues are an indicator of the total volume of business generated in each division. The operating businesses managed and owned by the Group generated revenues ("Underlying Revenues") of US$8.2 million for the six-month period ended 31 March 2021 (6M'20: US$4.8 million), an increase of ca. 71% YOY. The significant revenue growth is mainly due to (i) the re-negotiation of the operating and management agreements with its related party (TED Limited) which resulted in a significant contribution in the owned business for Wall Street Myanmar and a concurrent decrease in the WSE managed business and (ii) the half-year effects arising from the consolidation of Wall Street Vietnam's results.

 

·    Additionally, the State of Emergency declared in Myanmar led to an increase in demand for high-quality integrated security and risk management services, which contributed to the 39% revenue growth rate from the Services division.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As at 31 March 2021, the Group's cash and cash equivalents amounted to US$2.5 million, compared to US$0.2 million as at 31 March 2020, an increase of US$2.3 million.

 

Net cash used in operating activities amounted to US$1.1 million (6M'20: US$0.9 million) increased marginally, considering the Group is significantly larger than the previous financial period following the consolidation of WSE Vietnam and the WSE Myanmar Owned business.

 

The Group advanced US$0.3 million to the owners of the relevant managed operations to fund refurbishment expenses, improvements and general working capital mainly for the Managed Hospitality business. Such advances are unsecured and interest free and there is a risk that the Group may not be repaid some or all of these monies.

 

Financing activities recorded a net cash outflow mainly due to repayments of lease liabilities, which increased due to the four new WSE Myanmar language centres leased from a related party and lease payments for the language centres leased for WSE Vietnam. The increase in outflow was mitigated by an additional loan from Macan Pte. Ltd., a corporate shareholder, of US$1.5 million.