Mr Yu's spit business: Regret making the new Oriental so big

"China Entrepreneur Network" Today, Mr Yu no longer has to put on the school poles to post enrollment ads. 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" know the importance of teaching quality, but under the pressure of investors, to embark on this road must be quantity and quality can not be both, so 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.

Muddy water "aggravating" overseas listing is not smooth

In addition to the impact of the expansion, Mr Yu noted that part of this quarter's losses were due to the SE C survey, which resulted from the shorting of muddy water, which allowed the company to pay for internal investigations and regulatory procedures.

In this connection, Shedong stressed, "As of August 31, the associated costs accumulated more than 5 million U.S. dollars, is expected to complete the total will be between 8 million-10 million U.S. dollars, which does not include any class action." I think the two-quarter operating profit rate will be affected because of the US Securities and Exchange Commission's investigation and other expenses.

The Chinese listed companies in the US are in for a disastrous loss in the face of Muddy Waters, while the opposite muddy waters will be fruitful and the new Oriental is no exception.

The muddy Water Agency released a research report on new Oriental to all the registered readers of the NYSE on July 18, 2012. Muddy water, in its 90-page report, details the investigation of Muddy Waters, questioning the "material". From disguised as investors to the new Oriental staff dialogue hope to join, to various financial data and comparative statements, even with the new Oriental C fo in the United States dialogue details, even some "lace" and "gossip" news, are acquisition detailed.

The biggest accusation is about "fraud", which claims that new Oriental has reported more than 60% per cent of its gross profit margin in the past, as it has argued with other unlisted companies that gross profit margins will be around 20% to 30%, and the data for new Oriental are much higher. The muddy Waters also claim that the school facilities owned by the new Oriental are state assets and are sceptical about the combined assets.

The muddy Water report said Shedong in June 2012 when asked if it existed to join partners, denying that "650 of the company's teaching centers are 100% wholly owned assets". But the 6-month investigation found that new Oriental lies to shareholders in joining, and there is evidence that the franchise in new Oriental involves dozens of cities, but the company has not disclosed any information about franchising. In addition, the new Oriental claims the 2011 fiscal year revenue of 207.7 million U.S. dollars, but business tax is zero, muddy water that the new Oriental tax relief unreasonable.

Muddy Water Report that the new Oriental will store performance as a direct shop to whitewash the report, that the new Oriental profit margins far higher than peers, high not normal and so on. And said the new Oriental problem is far more serious than an unstable v IE structure. While the report was released, Muddy Waters uploaded a recording of the call to the new Oriental C-FO in June 2012 to its website as evidence of support for the report's findings.

After the report, many institutional investors and individuals to sell shares the first time, set off a foreign investors to sell new Oriental stock frenzy. Only two trading days, the new Oriental fell by as much as 57.32%, the share price reached a 5-year low, the market value evaporated nearly 2 billion U.S. dollars (about 12.7 billion yuan), the share price dropped to 9 $5. By its influence, most of the shares in the U.S. listed stocks followed a slump, the United network fell more than 30%, Connaught International decline also 18%.

If you choose to be listed overseas, you must be prepared to face short companies such as muddy water and citron, and this path is doomed to be bumpy. According to a new study by professors such as Stanford University's C Harles Lee, Chinese companies that have been listed by reverse takeovers have accounted for 34% of all the reverse-listed companies in the US, accounting for 85% of the reverse takeover of foreign companies. Using the regulatory loopholes, many Chinese companies have been able to borrow their shells in the event of many problems. Most of the retired companies in the stock market are such companies.

The troubles after the wealth

September 7, 2006 9:25 P.M., the new Oriental Education Technology Group in the NYSE sounded the stock market clock. With the slogan "Looking for hope in desperation, life will be brilliant", Mr Yu finally set out on his own new Oriental listing. The new Oriental listing has refreshed China's education industry's 0 record in the US market. From a primary school registered in 1993 to the financing of billions of listed companies, the new Oriental "Look for Hope" road is not easy to go. On the day of the listing, the opening price of 22 U.S. dollars, up 46.7% higher than the IPO, but also holding the company's 31.18% stake in the chairman Yu Yu assets of more than 1.8 billion yuan. Yu, chairman and president of the new Oriental Education Technology Group, was born in 1962, Jiangyin, Jiangsu, graduated from the Spanish department of Peking University, and founded the New Oriental School in 1993, and established the new Oriental Education Technology Group in 2003.

Looking back on the past more than 10 years of entrepreneurship, Mr Yu said the first thought was to regret making the new east so big. He said that the original can be made at Peking University annual income of 1 million or 2 million boutique institutions, the essence of the people are concentrated there, limited development. Small range can also achieve the ideal, regardless of transition or give up, it is easier. "I made myself a cage, unable to drill outside, or when the cage tightened, I was hanged." He had said so self-deprecating.

Speaking of his own entrepreneurial process, Mr Yu himself once confessed: "The ambition is too big, now leave me is unbearable weight." When you find yourself setting a goal that you cannot bear, the pain and suffering will roar. Especially tired, I would like to turn off the new Oriental, did not do, because I found to be responsible for 4000 employees, for shareholders, responsible for their own. New Oriental is a one-way road, so I have to go down. ”

Many people are asking: The new Oriental is not lack of money, also need not circle money. Why go public? According to Mr Yu, he wants to use the strict rules of American listed companies to regulate the internal, to the system to speak, to avoid the previous emergence of human feelings and interests of entanglement, so as to achieve their own redemption, so that enterprises smooth development. "In the new Oriental, it is easy for the backbone to cross the rules to talk about feelings. After the listing, the external rules are stronger and stronger than the internal rules. ”

However, after the listing of Mr Yu, seems to have added a lot of trouble. He has pointed out that as a good listed company, to achieve income growth, profit growth, and the number of growth. But for an educational institution, the guarantee of its greatest sustainable development lies in the quality of its teaching, not the increase in the number of students each year, which is contradictory and difficult to balance. "I prefer to do something leisurely," he said. This, was listed to be destroyed. After the listing, my status has not been right, not the kind of state I want. I am in fact a random person, but now for the benefit of others, must do a lot of things, their own space is getting smaller. ”