I am delighted to present this Annual Report for FY2009 which marks our 20th year of operations and sets the next phase of RafflesEducationCorp’s growth. Over the past 20 years, especially during the last seven years as a publicly listed company, the Group has grown manifold and created tremendous value for our loyal shareholders. We have made excellent progress: we grew from five colleges at the time of our listing seven years ago to our current portfolio of 33 colleges of higher education in 31 cities across 11 countries in the Asia-Pacific.

Provided Shareholders A Return Of More Than 66x Since IPO
Our success is clearly seen in our shareholders’ returns. Even at current depressed share price levels, shareholders who have held our shares since our IPO would have been rewarded with a handsome return of more than 66 times, based on share price appreciation alone.

For the next 20 years, we will build on the strong foundations that have been laid and focus on growing and strengthening our college network across the Asia-Pacific region. The enhanced returns made possible by the deep, extensive experience of our management team will enable us to continue rewarding our shareholders for their loyalty in the years ahead.

Strengthening Presence in Two Asian Giants
FY2009 was a watershed year, global economies went through an unprecedented meltdown. In the face of this crisis, we focused our energy to expand organically. Six new colleges were added to our regional footprint in FY2009 – three in China, two in India and one in Indonesia.

In China, we opened colleges in Tianjin, Kunming and Langfang to strengthen our presence and capitalise on the rapidly growing Chinese market. Our group income has up till now been derived from the direct provision of education services. The acquisition of Oriental University City (“OUC”) in 2007 will add an additional value-creation dimension in the years ahead. OUC will provide us with the capacity to develop and expand into new fields of education, through new colleges of our own, joint ventures with reputable local and foreign institutions in the campus and acquisition of strong franchised colleges. This year, we have established two new colleges in OUC and they will certainly contribute to revenue growth from higher education going forward.

India is our next key market. Through the joint venture with our partner, Educomp Solutions Ltd, we have established two new colleges, one in New Delhi and another in Bangalore. With our pioneer college in Mumbai which was opened in 2004, we are now firmly established in three of India’s most populous cities. They will become our springboard to capitalise on India’s large youth population of over 600 million with a strong appetite for learning.

We remain optimistic of the long-term prospects of the education industry in China, India and Southeast Asia. As the region’s economies continue to grow rapidly, so will demand for our programmes, especially in design, management and hospitality – niche areas in which we have already built up our reputation and brand.

Our Financials
In FY2009, we registered our first net profit decline since our listing in 2002. Net profit in FY2009 fell 48.1% to S$51.6 million as a result of prudent provisions for bad debt, higher taxes and increased personnel and set-up costs for six of our new colleges. The major impact came from the S$33.1 million allowance for impairment of investment in an associate company, Oriental Century Limited, as well as the loss of equity accounting arising from this investment. FY2009 revenues increased by a modest 6.3% to S$202.0 million, primarily due to the global financial meltdown which intensified and peaked during our financial year. We believe that the worst is behind us but a return to pre-crisis operating levels will take several quarters.

Excluding the one-off impairment of investment allowance, the decline in our net profit would have been 14.6% from S$98.8 million in FY2008 to S$84.2 million in FY2009 and this is due to higher provision of debts and taxes. However, adjusted EBITDA increased 8.1% from S$121.2 million in FY2008 to S$131.0 million in FY2009 reflecting the inherent strength of our business even in the midst of the crisis.

Proactive Capital Management
As we enter our next phase of growth, we will focus on strengthening our balance sheet, to better position us to take advantage of new business opportunities over the next 20 years.

We conducted two successful private share placements in April and June 2009, raising a total of approximately S$130.9 million in net proceeds and effectively reducing our gearing to 2% as at end June 2009. The enthusiastic response of investors to our share placements is a clear indicator that the investing public values RafflesEducationCorp and is willing to continue to invest in us.

In May this year, we had successfully negotiated for the deferment of RMB1.5 billion (approximately S$300 million) of outstanding payment for OUC. We have since paid off another S$60.2 million of the outstanding purchase consideration utilising part of the net proceeds from the share placement completed in June 2009. The final two instalments of approximately S$100 million and S$79 million will be due only in December 2012 and December 2013 respectively. This will free management to focus on executing and growing OUC over the next few years.

With a stronger balance sheet, we are poised to emerge a stronger education player and with the experience learned we are confident of maximising the return on our assets
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Our Strategy Provides for Clarity of Growth and Value Creation
As a first-mover in the local design education arena, the strong brand name of RafflesEducationCorp is now synonymous with quality design education and is widely accepted by creative industries in the region. But we do not intend to be complacent. We are determined to grow the group further and we are confident that the following four strategic growth drivers will maintain RafflesEducationCorp as the premier education provider in Asia-Pacific.

First, we will build depth at our existing colleges and increase operational efficiencies to improve the quality of our programmes and our operating margins. Our efforts will also be focused on driving enrolments to boost same college sales. Secondly, we will further expand our college network in China, India and Southeast Asia.

Our third growth driver is to strengthen our academic credibility. We will continue to develop and improve our intellectual property through curriculum development, strengthen our accreditation and ensure that stringent and consistent quality assurance systems are employed throughout the entire network of colleges. The fourth growth driver will see us realize the true value of OUC. We will significantly increase the fee revenue from higher education by operating more of our own colleges.

Our growth targets will enlarge our portfolio to 36 colleges of higher education over 34 cities in 13 countries by end FY2010, and provide us with a platform to position RafflesEducationCorp as a key player in global education in the years ahead.

Our Next Chapter: Entrepreneurship, Innovation and Empowerment
Since our listing in 2002, we have consistently delivered value to our loyal shareholders by managing the Group focused on the development of entrepreneurship, innovation and empowerment. We urge you to stay invested in us and enjoy the returns we will deliver in our next phase of growth.

I would also like to take this opportunity to welcome three new directors to our Board. Dr Tan Chin Nam, Mr John Teo Cheng Lok and Mr Christopher Lim Tien Lock are all notable professionals in their respective fields and we believe that they will bring to the Board wise counsel and invaluable contributions as we embark on the second phase of our growth.

In conclusion, I would like to express my appreciation to my fellow Board members, management and staff, business associates and loyal shareholders. I look forward to embarking on Our Next Chapter together.

Chew Hua Seng
Chairman and CEO
October 2009