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Why Overseas Education Profits Plummeted 96% In FY2025 · Investor Exchange

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Welcome back to The Deep Dive. We are really thrilled to have you with us today.
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Whether you are prepping for a major meeting or maybe evaluating your portfolio,
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or you're just intensely curious about how specific businesses navigate shifting
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global currents, you are in exactly the right place.
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That's right. It is great to be here. Today, we're opening up the books on a
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highly revealing set of financial documents.
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We are looking at the unaudited condensed to infirm financial statements for
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the full year ended December 31st, 2025.
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This is for a company called Overseas Education Limited.
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But just for the sake of keeping things moving smoothly today,
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we're just going to refer to them by their initials, OEL. Exactly, OEL.
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And to give you a bit of essential background right up front,
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OEL operates a major foreign system school located over in Singapore.
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It is, well, it's vital to understand their operational structure before we
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get into the numbers. Right, because they aren't some massive conglomerate. No, not at all.
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Substantially, all of their revenue, their expenses, and their physical assets
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are tied to this single educational operation.
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They're what you'd call a pure play on the premium international education market
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in that region. And our mission for you today is very clear.
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We are going straight into these documents purely from an investor's perspective.
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We want to assess the overall financial health of this company.
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We are going to find out exactly why their recent profit took a massive hit,
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and I mean massive, and we're going to evaluate their outlook for the future
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based on their own internal commentary.
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Spot on. Though I should quickly clarify what we mean by unaudited condensed interim statements.
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Essentially, these are preliminary figures. They're released by the company's
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management, and they have not yet been fully signed off by external auditors
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for the final annual report. Right, but they still give us the goods.
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Yeah, they provide the market with the first really comprehensive look at how
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the business performed over the full 2025 financial year.
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Okay, let's unpack this, because looking at a company's financial statements
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requires looking past the raw numbers to find the actual strategy at play. It absolutely does.
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Financial reports can be incredibly dense.
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They often bury the lead, quite frankly.
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So our goal today is to maintain a clear, neutral and informative tone.
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We're going to strip away the complex financial jargon or at the very least,
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explain any technical terms the first time we use them.
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We want to give you a crystal clear picture of what is actually happening under the hood of OEL.
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Let's start at the top of the income statement, the top line,
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the revenue. The first major takeaway you need to know from the full year 2025
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report is that OEL's total revenue dropped by 5.2%. They brought in S83.89 million Singapore dollars.
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Which is down from S88.52 million dollars in the previous year, 2024.
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Yeah. Now, a 5% drop in revenue might not immediately trigger alarm bells for a casual observer.
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But in a business modeled around high fixed costs, it really requires serious
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scrutiny. It absolutely requires scrutiny.
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To understand why this contraction happened, we have to look at the core driver
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of their business model.
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The primary revenue engine for any premium school is, of course,
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tuition fees. Right, the tuition.
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And for OEL, tuition revenue fell by 4.8%. It landed at roughly $80.78 million.
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The financial documents cite a very specific operational reason for this decline,
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lower-than-expected new student enrollment for the financial year.
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They simply did not get as many new students walking through the doors as they had projected.
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Exactly. And the context around this shortfall is what I found most revealing.
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It is not just a random fluctuation. No, it's not.
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What's fascinating here is the company's own admission about the broader market dynamics.
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They state very clearly in their performance review that the operating environment
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for student enrollment remains highly challenging. Because of the competition, right?
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Precisely. The specific headwind is heightened competition from other foreign system schools.
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These competitors are aggressively targeting the exact same,
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highly specific pool of prospective students.
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When you are running a premium international school, your addressable market is relatively finite.
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You are catering mostly to expatriate families. So right now,
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OEL is fighting much harder to secure every single new enrollment.
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And while tuition is obviously the main event, it provides the lion's share
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of the cash flow, I do want to look at the other revenue buckets just to get
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a comprehensive picture of that top line. because the pain wasn't isolated to just tuition.
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No, it was pretty broad. Yeah, revenue from their enrichment programs,
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these are the extracurricular.
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Optional offerings dropped nearly 21%. That brought it down to $0.89 million.
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To me, that suggests a secondary effect of lower enrollment.
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Fewer students means fewer kids signing up for after-school sports or arts programs.
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It is a domino effect. Exactly.
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Furthermore, their interest income dropped to nearly 37% down to $0.45 million.
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That drop in interest income is a great example of macroeconomic factors creeping
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into a localized business statement.
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They recorded less interest income simply because of lower prevailing interest
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rates in the broader economy during 2025 compared to 2024.
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Right. So when global and regional bank deposit rates fall, the return on the
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cash that OEL is holding in its bank accounts naturally falls with it. Exactly.
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It is completely out of management's control, but it's still dense the top line.
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So across the board, the top line is feeling the squeeze.
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But this brings us to the bottom line, which is where the numbers get truly stark.
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We just established that total revenue dropped about 5%, but their net profit
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after tax plummeted an astonishing 96.7%. A massive hit.
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Net profit went from $6.27 million in 2024 down to just S$206,000 for the entirety of 2025.
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It is a breathtaking contraction in profitability. And to give you even more
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granular detail on how the year progressed, if you isolate just the second half
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of the year, the company actually operated at a net loss.
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Wow. Yeah, specifically, they lost $974,000 in those final six months alone.
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That near-million-dollar loss in the second half is what really caught my attention as an investor.
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Think of it like running a household or maybe a small business.
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Imagine your paycheck shrinks just a little bit, maybe 5%.
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But suddenly, your rent spikes, your grocery bill shoots up,
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and all of those rising costs completely wipe out your savings at the end of the month.
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That is a perfect analogy. It perfectly illustrates the extreme operating leverage
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inherent in the premium school model because your fixed costs are so rigid.
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I mean, you cannot simply lay off 20 percent of your teaching staff halfway
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through the semester just because your enrollment missed the mark by five percent.
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You still have to heat the building, pay the insurance, staff the classrooms.
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Right. That is the core issue.
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A five percent miss on revenue does not translate to a five percent drop in
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profit. It means the revenue fell beneath the break-even threshold for those
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specific months, wiping out the margin entirely. And we see that dynamic clearly
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in the operating expenses. Let's talk about those expenses.
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Well, total operating expenses. Before we factor in depreciation and amortization,
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actually climbed 3.2% to S$69.19 million.
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So the cost of running the business went up while the money coming in went down.
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I really want to dig into that 3.2% increase in expenses Because if I am an
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investor and I see enrollment is down, my immediate expectation is that management
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would try to aggressively freeze spending to protect the bottom line.
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But the biggest chunk of their expenses personnel actually went up 4.2% to S, $52.68 million.
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Yes, they did. The documents state they had to hire additional academic staff
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to support new school initiatives.
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I have to ask, is hiring more staff a sustainable strategy when your student
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body is shrinking? That is a very critical question.
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On the surface, it looks completely counterintuitive. But in the premium education
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sector, you are engaged in an arms race. An arms race. Yes. Yes.
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Cannot cut your way to growth. If enrollment is falling due to heightened competition,
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slashing your teaching staff or cutting programs will only accelerate the decline.
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Parents will simply move their children to a competitor, offering a better student-to-teacher
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ratio or more specialized programs.
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So they have to spend money just to tread water. Exactly.
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They are spending money to stay competitive. They are investing in those new
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initiatives precisely because they need to retain current students and attract
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those hard to get new enrollments.
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I see the logic, though. It is a brutal position to be in financially.
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You make less money, but you are forced to spend more money just to defend your market share.
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And beyond personnel, they also got hit by general inflation,
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just like every other business. Oh, absolutely.
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Other operating expenses rose nearly 9% to $8.66 million.
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The report explicitly calls out higher insurance costs, higher property taxes,
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and general cost inflation across their supply chain.
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However, looking through these expenses, While almost everything is trending
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upward, there is one line item moving in the opposite direction.
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Utility costs actually dropped by 6.4% to S1.26 million dollars.
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Yes, and the notes provide a great operational detail on why that happened.
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Alongside lower average tariffs in the market, the school is actively generating
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its own power using solar renewable energy installations on the campus. Which is fantastic.
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It is a smart structural move. When your top-line pricing power is limited by
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fierce competition, finding ways to permanently lower your fixed operational
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costs is one of the few levers management can actually pull to defend their
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margins over the long term.
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It really shows management is looking for structural efficiencies.
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But I want you, the listener, to consider this overarching dynamic for a moment.
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Think about how inflation and
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rising labor costs are impacting all service-based businesses right now.
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OEL is a textbook case study for the current economic climate.
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They really are. Their pricing power is capped by fierce competition.
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But their bottom line costs are being forced relentlessly upward by inflation
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and the fundamental need to retain top talent.
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The inevitable result is the massive margin squeeze we are seeing in this report.
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It really is the classic margin squeeze.
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Now, as we come further through this financial report, there is a specific line
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item under the expenses that might confuse some investors, and I want to make
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sure we address it clearly.
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Okay, what's the line item? There is a charge listed as a, quote,
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fair value loss on derivatives, end quote, to the tune of S1.13 million dollars for the full year.
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Can we explain the mechanics of this without getting bogged down in accounting jargon? Gladly.
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Let's rewind the clock a few years to establish the context.
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Back in 2019, OEL needed to refinance and pay off some older bonds.
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To accomplish this, they took out a substantial 10-year bank term loan.
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Originally, that loan was for S117.75 million dollars.
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That's a hefty loan. It is. Now, this specific loan carried a variable or floating interest rate.
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That means if global central banks raise interest rates, OEL's monthly debt payment goes up.
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Which introduces a massive amount of volatility and risk if you are a corporate
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treasurer trying to manage a tight annual budget.
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Exactly. So to protect themselves from the risk of interest rates skyrocketing,
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in 2022, they entered into a financial agreement called an interest rate swap.
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In simple terms, OEL made a contractual deal with a financial institution to
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trade their unpredictable floating interest rate for a predictable fixed interest rate.
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So it functions essentially as an insurance policy against rising borrowing costs.
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That is exactly right. So they locked in a fixed rate to create certainty.
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But if they did that to be safe, why does it currently show up as a S1.13 million
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dollar loss on the 2025 income statement? Because accounting standards require
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companies to report the current market value of these financial instruments every single year.
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It's a concept known as fair value. Because overall market interest rates shifted
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during 2025, the underlying accounting value of that specific swap agreement
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decreased compared to its value the previous year. I see.
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Therefore, on paper, it is recorded as a S1.13 million dollar loss.
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That makes a lot of sense. So it is crucial for an investor to understand that
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this S1.13 million dollars didn't physically leave the company's bank account
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this year because of a bad trade. it is a paper loss reflecting the shifting
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market value of their interest rate hedge.
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Right. If we connect this to the bigger picture, the real story regarding OEL's
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debt is actually quite positive, which should be reassuring. How so?
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Despite the highly challenging operating environment and the margin squeeze
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we discussed, OEL is actively and consistently paying down the principal on
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this massive loan. Right.
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Looking at the balance sheet, the outstanding balance of that bank loan has
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been reduced to $77.79 million.
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And because they are steadily paying down that principal balance,
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because prevailing rates came down slightly, their actual finance costs,
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meaning the real cash interest they pay to the bank to service that debt,
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dropped by over 22% this year. That is a significant drop.
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It is. They paid S3.27 million in actual finance costs in 2025,
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down from S$4.21 million in 2024.
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So their core debt health and their interest burden are actually improving significantly,
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even though the accounting adjustment for the swap creates an ugly line item
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on the income statement.
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Which leads perfectly to the ultimate question any investor asks when they see
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a company's profit drop by 96%. Are they running out of money?
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Does this business have the liquidity to survive this downturn?
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The short, objective answer based on these documents is no, they are not running out of money.
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They remain a cash-generative business. Okay, good. When you examine their statement
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of cash flows, they actually brought in S15.49 million dollars in net cash from
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operating activities in 2025.
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And just to clarify for the listener, the reason they can generate S15.49 million
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dollars in cash while only reporting S206,000 dollars in net profit is largely
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due to depreciation, correct?
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Yes, exactly. They recorded over S-12 million dollars in depreciation charges,
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which drags down the reported net profit.
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But depreciation is an accounting measure of asset wear and tear.
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It is not actual cash leaving the company's bank account. That is entirely correct.
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Depreciation is a non-cash expense. Yeah. So from a purely operational standpoint,
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they are bringing in plenty of cash to cover their day-to-day operations and
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service their debt. And they have cash in the bank, too.
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Yes. When you look at their balance sheet, they possess a massive financial
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cushion. They are sitting on S-48.28 million dollars in cash and cash equivalents.
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Here's where it gets really interesting.
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When I was digging through the historical context in the back pages of this
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report, I found a fascinating detail regarding their capital management. Oh, yeah.
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What did you find? OEL went public, meaning they had their initial public offering,
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or IPO, on the Singapore Exchange way back in February 2013.
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During that IPO, they raised just over S-68 million dollars in net proceeds.
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That is a very substantial injection of capital for an educational institution. Absolutely.
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And they stated at the time that the primary purpose of those funds was the
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construction of a brand new school campus.
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Well, the 2025 documents confirm they eventually utilized about $65.6 million
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of that original IPO money to build their massive Passaris Heights campus.
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But 12 years later, they still have S$2.39 million of that original IPO money sitting in the bank.
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It is officially wing-fenced and earmarked for future capital expenditure and
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upgrades for that exact same campus. Wow.
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It highlights a highly disciplined, conservative approach to capital allocation
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over more than a decade. It really does.
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However, we do need to address the direct impact this year's financial performance
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has on the current shareholders, because ultimately an investor holds equity
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to realize a return on their capital. And that brings us to the dividend,
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which is where the rubber meets the road.
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With a 96% drop in net profit and an actual net loss in the second half of the
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year, I would have fully expected management to suspend the dividend entirely to preserve cash.
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They didn't suspend it, but they did slash it aggressively.
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The proposed final dividend was cut down to 0.7 cents per share.
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Down from 1.2 cents per share last year.
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In their commentary, management frames this decision as an exercise in prudent capital management.
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It seems like a very delicate balancing act. On one hand, you have S-48 million
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dollars in cash reserves, so mathematically you can afford to authorize the payout.
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But on the other hand, paying out a dividend when your core operations just
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ran a near million dollar loss for six months feels like a risky move designed
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mostly to appease retail shareholders.
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That is the exact tension boardrooms face. You are trying to weather a severe
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competitive storm, and you need capital to invest in new academic programs to win back market share.
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But OEL has established a reputation as a dividend-paying stock over the years.
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So cutting it to zero would send a bad signal? Exactly.
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Cutting the dividend to absolute zero might signal a level of internal panic
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to the institutional market that management desperately wants to avoid.
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By reducing the payout but keeping it alive, they are collectively leveraging
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their historical cash buffer to bridge the gap between their current operational
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struggles and their future strategic goals.
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Okay, so we have thoroughly analyzed the past year.
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We know revenue contracted due to a finite pool of students and fierce competition.
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We know costs climbed due to inflation and the strategic necessity of hiring more staff.
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We know profits plunged. But we also see that the balance sheet is anchored
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by a massive cash buffer and improving debt metrics.
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Right. So let's look forward. What are the macro risks?
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What is OEL's own forecast for the coming 12 months based on these documents?
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The forward-looking commentary provided by management in the final section of
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the report is incredibly telling.
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They do not attempt to sugarcoat the situation at all. No, they don't.
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They explicitly note that the global economic environment remains highly uncertain and volatile.
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But they specifically highlight two massive macroeconomic trends that they are monitoring.
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First, elevated geopolitical tensions. And second, crucially,
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they explicitly state that the rapid advancement of artificial intelligence
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is driving significant job displacement worldwide. So what does this all mean?
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Why is a localized physical business a single school campus in Singapore citing
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global artificial intelligence job displacement as a core risk to their operations?
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We have to connect the dots regarding their target demographic.
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OEL operates a foreign system school. The vast majority of families who send
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their children to a foreign system school in Singapore are expatriates.
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Right, expats. These are highly skilled professionals who have been relocated
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by multinational corporations.
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Okay, I see where this is going. If multinational global corporations are increasingly
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leveraging artificial intelligence to automate or displace white-collar jobs,
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the exact type of mid-to-senior-level roles that traditionally command generous, family-inclusive,
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expat relocation packages, well, that's a problem for OEL. Because the expats stop coming.
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Exactly. Or if those companies are simply hesitating to relocate staff internationally
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due to broader economic and geopolitical volatility, then the overall pool of
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expatriate families moving to Singapore physically shrinks.
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And if that global talent pool shrinks, OEL's localized target arc,
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it shrinks right alongside it.
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It is a direct structural hit to their potential enrollment base. It is.
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That is a fascinating and frankly quite sobering macroeconomic observation coming
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from a local school operator.
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It shows how interconnected the global economy has become. It demonstrates that
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management is acutely aware of the existential macro-level threats to their business model.
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But importantly for an investor to note, they are not just identifying the risk
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and retreating. No, they're fighting back.
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Despite these severe headwinds, their stated strategy moving forward is highly proactive.
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Right. They stated they remain committed to investing heavily in their core
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education services. They are clearly not planning to implement mass layoffs
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or program cuts just to artificially inflate next year's profit margin. Precisely.
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They plan to actively refresh and expand their service offerings.
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They specifically mentioned expanding competitive sports programs and introducing
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new enrichment initiatives.
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Which makes sense if you are trying to stand out from the competition.
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And furthermore, they are heavily leaning into community-driven marketing.
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The documents note they're strengthening their engagement with the Parents Association
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to drive word-of-mouth marketing and support new student enrollment.
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They understand that in a shrinking, highly competitive market,
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your most effective salespeople are your current satisfied parents.
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It is a classic defensive strategy. You aggressively bolster the quality of
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the product and you lean heavily on your existing community to defend your market
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share from competitors.
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It is going to be very interesting to see how this plays out for them over the next year. It will.
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And this raises an important question, one that I want you, the listener,
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to really think about as you analyze your own investment portfolios. Lay it on us.
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Are premium international schools
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actually the ultimate early warning indicator for the global economy?
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Think about the timeline. Long before we see massive shifts in broad macroeconomic
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labor data or quarterly corporate earnings reports.
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Multinational companies are quietly adjusting their expat relocation budgets
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based on geopolitical risks and the internal efficiencies they are finding through AI.
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That makes a lot of sense. By meticulously tracking the localized enrollment
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numbers of foreign schools like OEL,
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an astute investor might be able to spot shifts in global corporate migration
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and the real-world tangible impact of AI job displacement well ahead of the broader market curve.
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That is a brilliant perspective to close on. The enrollment data of a school
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in Singapore serving as a localized canary in the coal mine for massive global corporate trends.
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Thank you for joining us on this deep dive. It's been a pleasure.
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As you go about your day, we want you to consider how these massive macroeconomic
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forces like artificial intelligence,
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inflation and changing interest rates are impacting these specific,
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seemingly localized businesses in your own investment portfolios.
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Are the companies you invest in getting squeezed by these forces,
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or do they have the structural resilience and management foresight to adapt?
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Until next time, keep digging into the numbers. Thanks for listening.
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This content is intended to serve strictly and only as an informational,
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independent, objective summary of recent events and should in no way be interpreted,
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construed, or relied upon by any party as inside information or financial advice.