Mr Yu looks back on undertaking: Radical expansion regrets making new Oriental so big

Today, Mr Yu no longer has to post enrollment ads on the school poles. As Chairman and chief executive officer of the new Oriental board, he has helped many students who dream of studying abroad to realize their dreams.

However, the past, the "poor boy" in the face of the troubles are still many. Rising corporate costs, driven by the cost of expansion, offset the rise in earnings and the boost to performance, bringing a "worried" two-quarter earnings report to the new Oriental. Meanwhile, the company's thousand-person redundancy plan is underway.

Thousands of people laid off plans to rein in costs

"Until May this year, the company will close 15 to 25 poor-earning teaching centers, which are expected to lay off 1000 to 1500 people." The average severance cost is 6000 to 10000 USD/person. "In a recent conference call, new Oriental President and C-FO Shedong said that, as the new Oriental expansion in the past four quarters was much higher than expected, the future of New Oriental will consider the start of layoffs plan." And in the next 3-5 years, will strictly control the new school and teaching Center.

In recent years, the rapid expansion of the new Oriental has also made its costs continue to climb, and the rapid expansion of the past year, the new oriental cost of a sharp rise in the loss of net profits. In the new Oriental, the net profit loss is summed up as the high labor cost, the industry off-season and the harvesting policy, and the industry analysis points out that the new Oriental's long-term expansion strategy has brought high human cost burden and restricted its profitability. With the increasingly fierce competition in the training market, enrollment more and more difficult, in the expansion of teaching outlets, the enrollment situation has not improved, resulting in higher operating costs.

Layoffs are the most direct way to reduce costs. The company's latest earnings show that two quarters of layoffs reversed the company's three consecutive quarterly increase in staff. In the first quarter, new Oriental revenue grew 25.8% year-on-year, and the number of employees grew 40%. However, the results also showed that the new Oriental two quarterly administrative costs increased by 62.1%, the revenue share soared to 46.86%.

"Although through expansion we have captured the market and achieved the desired goal." But we've opened 238 learning centers in the last four quarters, which is too much! Previously, new Oriental planned to open 80 to 100 learning centres a year. In fact, we have opened 238 learning centers in a year, which obviously seriously affects profits. Shedong said in a conference call.

As a result, new Oriental will make a series of moves in the future to increase profits, including visiting and evaluating the profitability of teaching centers, cutting 800 to 1500 employees and closing 15 to 25 unprofitable teaching centers. The news has been confirmed by new Oriental officials, who said it would not go too fast in order not to widen the impact. The main cut is the administrative staff, the Beijing Teaching Center headed. And for the closure of the teaching center, the official said, because of blind expansion, some teaching center enrollment dissatisfaction, resource utilization ratio is low. For such a teaching center would be considered closed.

The total layoffs are the largest in the history of the new Oriental. New Oriental spokesman Kong Jianrong explained that this is because of the current increase in the number of reasons, in fact, this year and the year-end assessment of the proportion of layoffs similar. According to the new Oriental performance management system and evaluation adjustment mechanism, each organization will have 5% to 10% of the staff assessment results of C. For the person who evaluates the result to C, will pay a salary, adjust hillock or dismiss.

Kong Jianrong further stated that, "The New Oriental 2013 fiscal year in the second quarter of the loss, so we have increased the elimination of unqualified administrative support staff to better and greater extent to motivate the backbone of the outstanding teachers." At present, the new Oriental administrative support staff of 15000 people, in accordance with the ratio of 5% to 10%, is 800 to 1500 people. We will be in a scientific and reasonable range, and constantly for employees, especially administrative support staff to carry out orderly streamlining and structural optimization. ”

According to US investment company T. H. According to a study published by C Apital, the third quarter of New Oriental's fiscal year 2013 is expected to be weak due to the apparent weakness of winter schooling. The winter holiday season usually begins in early January until the end of February, and based on the study's tracking of its online enrolment as at January 23, only about 35% of the total courses are enrolled in the full class. As the main source of New Oriental cities (Beijing, Shanghai, Guangzhou, Wuhan) still have a large number of courses available for enrollment.

Radical expansion was the first loss of 4 years

Behind the rise in costs, investors saw the "radical expansion" of new Oriental in recent years, and the company itself acknowledged it.

January 29, New Oriental released its financial results for the second quarter of fiscal year 2013 as at November 30, 2012. According to earnings reports, the two-quarter net loss of 15.8 million U.S. dollars, this distance from the last financial loss of 4 years.

New Oriental's last quarterly net loss was in fiscal year 2007, the fourth quarter. For why there are 15.8 million of dollars of losses in 5 years, "in the last four quarters we have had a net increase of more than 200 teaching centers and we have only increased 80 in the four quarters before November 30, 2011, which has put a lot of pressure on our costs," said New Oriental Board Chairman and C E. He also said that part of the loss this quarter was due to the cost of the SE C survey that led to New Oriental's internal investigation and regulatory procedures.

In this respect, analysts point out that the main reason for the new Oriental losses this quarter is the company's most lucrative business and regional weakness, and fast-growing regions (two or three-line cities) and business profitability is relatively weak. As the most lucrative school in New Oriental, the two-quarter performance of Beijing and Shanghai continued to weaken. Mr Yu pointed out that the Beijing-Shanghai quarter revenue growth of only 20%, net profit fell more than 50%, study abroad business is facing increasingly fierce competition. "According to the needs of the market, we continue to reduce team capacity." In the second quarter, the number of students enrolled in business fell 7%, and revenue grew 22%. "

Behind the rapid expansion, pressure from investors is also irrelevant. Market participants pointed out that the pursuit of high return on investment and education itself has a gradual pattern of contradictions appear incompatible. How to meet the high requirements of investors, the simple way is rapid expansion, but now the training market only by expansion does not guarantee a positive proportion of students growth. As a result, the new Oriental into the more loss of expansion, the more expansion of the loss of the circle.

The problems of the new Oriental are under pressure from investors, and they begin to show up at different campuses. A senior executive at Chengdu's New Oriental said he sees the new oriental decline as a frequent replacement of principals. After the Chengdu market share from more than 20 million yuan to do billion, and headquarters seems dissatisfied, and repeatedly replaced the headmaster. And the management of the new headmaster, so that employees are not too comfortable, some executives have left. A departing person admits that the leader is not very knowledgeable about operation and market operation, which is also the reason for the loss of many talents.

After the IPO in New Oriental, Mr Yu has been showing remorse on several occasions. As a listed educational institution, while maintaining the continuous growth of the performance, but also to ensure the quality of teaching, which makes Mr Yu pressure quite large. In the interest of investors in the short-term, the new Oriental has to embark on the expansion of brand support, to expand the support of P/E, to strengthen the brand by high P/E. "But education is not a standardized product, it is a special long-term commodity with high user experience, and excellent teachers are the core competitiveness, not marketing expansion." Although ' Miss Yu ' knows the importance of teaching quality, but under the pressure of investors, the road must be quantity and quality can not be both, so that he felt very tired. "said one analyst.

In addition to its own reasons, the education and training industry increasingly competitive environment, from the University of International programs and a group of new oriental Teachers of the small group of study abroad training groups, has begun to pose a threat to the core business of New Oriental. Shedong said, "from international classes and small competitors do have a negative impact on the company's study business." But as of last weekend enrollment increased by 15%, cash income grew 37% year-on-year, so I think profits can keep healthy growth. "The data on the number of Chinese students attending the exams are slowing, according to the Ministry of Education, where about 390,000 people went abroad last year and only 15% per cent, but over the past few years this growth has been over 20%." So I think these are the challenges we face in our study abroad business. ”

Data show that the current sending children abroad to study the trend from the university quickly to the spread of primary and secondary schools, from the whole market, overseas study consulting business income growth of 60% to 80% Year-on-year. Arguably, this is conducive to the expansion of the new Oriental business, but market analysts pointed out that in fact, the increase in competitors, to some extent, diverted the new Oriental market. Public schools are launching international classes on weekends or evenings to compete with new Oriental businesses. This is particularly true in the new Oriental region of Shanghai. To this end, the new Oriental has replaced the Shanghai President and management, but this problem is not one or two quarters can be resolved.

In addition, the new Oriental is facing the impact of web-based education. New Oriental officials said that the enterprise has already joined the online competition, in 2000 set up the new Oriental on-line. Online education has been increasing investment over the past few years, especially in the first-tier cities such as the north. In China's two or three-line cities, due to the network coverage and many other reasons, the next few years will continue to develop mainly under the line. Currently, the new Oriental has 58 branches and more than 700 teaching centers in 49 cities nationwide.

In fact, another group in the education sector has slowed its expansion plans and closed some teaching centers. As of November 30, 2012, the number of operating centers was 259, up from the 257 operating centers on August 31, 2012 only two, but still less than the 275 peak on November 30, 2011.