Annual Report for the twelve months ended 31 August … Report for the twelve months ended 31 August 2012 Nord Anglia Education (UK) Holdings PLC (the “Issuer”) 7 December 20122

Annual Report for the twelve months ended 31 August 2012

Nord Anglia Education (UK) Holdings PLC (the “Issuer”)

7 December 2012

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Introduction

On 28 March 2012, Nord Anglia Education (UK) Holdings plc (the “Issuer”) issued its 10.25% Senior Secured Notes due 2017 (the “Notes”) pursuant to an indenture dated 28 March 2012 among the Issuer, Citicorp International Limited as Trustee and Security Agent, Citibank N.A. London Branch as Paying Agent and Transfer Agent and Citigroup Global Markets Deutschland AG as Registrar (as amended or supplemented, the “Indenture”). Capitalised terms used herein that are not otherwise defined have the meanings given to such terms in the Indenture. Section 4.03(a)(1) of the Indenture requires, so long as any Notes are outstanding, the Issuer to furnish to the Trustee (who at the Issuer’s expense will furnish by mail to the Holders) and post on the website https://sf.citidirect.com, within 120 days following the end of the fiscal year beginning with the fiscal year ended 31 August 2012, annual reports containing: (i) information that is substantially comparable in all material respects to the sections in the Offering Memorandum entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business” and “Description of Other Material Indebtedness and Certain Financing Arrangements”; (ii) the audited consolidated balance sheet of the Issuer as of the end of the most recent fiscal year and audited consolidated income statements and statements of cash flow of the Issuer for the most recent two fiscal years, including appropriate footnotes to such financial statements, for and as of the end of such fiscal years and the report of the independent auditors on the financial statements and (iii) calculations of Consolidated EBITDA and Consolidated Interest Expense, in each case, for such fiscal year. This Annual Report as of and for the twelve months ended 31 August 2012 and the audited consolidated financial statements of the Issuer for the year ended 31 August 2012 included at Appendix 1 are published to comply with the reporting requirements in the Indenture. In this Annual Report, references to “FY2011”, “FY2012” and “FY2013” refer to the twelve month periods ended 31 August 2011, 31 August 2012 and 31 August 2013, respectively.

Forward-Looking Statements

This Annual Report may include forward-looking statements. All statements other than statements of historical fact contained in the Annual Report, including, without limitation, those regarding the future financial position and results of operations, strategy, plans, objectives, goals and targets, future developments in the markets in which the Issuer and its consolidated subsidiaries (together “Nord Anglia Education”) participate or seek to participate, and any statements preceded by, followed by or that include the words “believe”, “expect”, “aim”, “intend”, “will”, “may”, “anticipate”, “seek”, “should” or similar expressions or the negative thereof, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of Nord Anglia Education, which may cause actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These forward-looking statements are based on numerous assumptions regarding present and future business strategies and the environment in which Nord Anglia Education will operate in the future. Actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. All forward-looking statements in this document are based on information available to Nord Anglia Education as of the date of the Annual Report and Nord Anglia Education assumes no obligation to update any such forward-looking statements.

Presentation of Financial Information The selected consolidated financial information of the Issuer presented in this Annual Report has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”) and International Financial Reporting Interpretations Committee interpretations applicable to companies reporting under IFRS. However, please note that this Annual Report does not necessarily include all disclosure required by IFRS. The consolidated financial information included herein does not include all the information and disclosure required in the annual consolidated financial statements, and should therefore be read in conjunction with the Issuer’s annual consolidated financial statements as at 31 August 2012. Detailed information regarding the accounting policies used for preparing the financial information included in this Annual Report is provided in Note 1 to the Issuer’s annual consolidated financial statements for the year ended 31 August 2012.

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In this Annual Report, reference is made to “EBITDA”, “Adjusted EBITDA” and “Adjusted Revenue”. EBITDA, Adjusted EBITDA and Adjusted Revenue are non-GAAP measures and are not required by or presented in accordance with IFRS. EBITDA is defined as operating profit plus depreciation, amortisation, impairment of assets and exceptional expenses. Adjusted EBITDA is defined as EBITDA adjusted for the impact of acquisitions and dispositions (i.e. assuming that the acquisition or disposition occurred at the beginning of the relevant period) and to exclude certain items that we believe are not related to our normal operations. Adjusted Revenue is defined as Revenue adjusted for the impact of acquisitions and dispositions (i.e. assuming that the acquisition or disposition occurred at the beginning of the relevant period). We use EBITDA, Adjusted EBITDA and Adjusted Revenues as supplemental financial measures of our operating performance. EBITDA, Adjusted EBITDA and Adjusted Revenue should not be considered in isolation or construed as an alternative to cash flows, net income or any other measure of financial performance or as an indicator of our operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities. EBITDA, Adjusted EBITDA and Adjusted Revenues presented herein may not be comparable to similarly titled measures presented by other companies and Investors should also note that EBITDA and Adjusted EBITDA presented are calculated differently from “Consolidated EBITDA” as defined and used in the Indenture governing the Notes.

Important Note This Annual Report has been prepared exclusively by us for any holder of the Notes or any prospective investor in accordance with Section 4.03 of the Indenture. You are authorised to use this Annual Report solely for the purpose of evaluating your investment in the Notes. Neither the delivery of, nor access to, this Annual Report implies that any information set forth in this Annual Report is correct as of any date after the date of this Annual Report, in whole or in part, and you may not disclose any of the contents of this Annual Report or use any information herein for any purpose other than evaluating your investment in the Notes. You agree to the foregoing by accepting delivery of, or access to, this Annual Report.

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1. BUSINESS

Overview

We are a leading global operator of premium private schools for K-12 students in Asia,

Switzerland, Central Europe and the Middle East (“Premium Schools”). We operate in markets

characterised by strong wealth creation, significant FDI and economic growth. The two main

drivers of our business are increasing globalisation and a growing emphasis by parents on high

quality education for their children. In addition to our Premium Schools, we provide educational

services to governments in the Middle East, the United Kingdom and Asia (“Learning

Services”).

In FY2012, our Premium Schools accounted for 84.7% and 88.6% of our Adjusted Revenues

and Adjusted EBITDA before central and regional expenses, respectively. Learning Services

accounted for 15.3% and 11.4% of our Adjusted Revenues and Adjusted EBITDA before central

and regional expenses, respectively.

Premium Schools

We own and operate 13 premium schools in 11 locations in Asia, Switzerland and Central

Europe. In addition, we operate the British International School Abu Dhabi (“BISAD”) in the

Middle East, 49% of which is owned by an affiliate of our parent company. On 28 September

2012, we signed a definitive agreement to acquire the 49% interest in the school from the affiliate

of our parent company. Completion of the acquisition, which is subject to the satisfaction of

several conditions precedent, is expected before the end of 2012.1

In FY2012, our schools in China, Switzerland and Central Europe contributed approximately

67.8%, 18.8% and 13.4% of our Premium Schools’ Adjusted EBITDA, respectively.

Our schools in China primarily serve expatriates and our schools in Thailand, Switzerland,

Central Europe and the Middle East serve both expatriates and affluent local families. Our

overall student mix is 78% expatriates and 22% local students. Our Premium Schools are not

directly exposed to government funding risk as all of their revenues are derived from private

sources, of which employers contribute approximately 58%.

As of 18 November 2012, our enrolment was 9,747 students and our capacity was 12,472

places representing a utilisation rate of 78%.

Learning Services

We provide targeted education-related services to governments, government agencies,

regulatory bodies and related educational authorities in the Middle East, the United Kingdom, and

Asia. During FY2012 we did not enter into any new Learning Services contracts and we expect

to continue to see a reduction in the size of our Learning Services operations going forward.

1 In this report, information and statements relating to FY2012 do not include our schools in Chonburi,

Thailand and Abu Dhabi, UAE. Commentary on FY2013, for example current student numbers, capacity and other information on our schools, includes our schools in Chonburi, Thailand and Abu Dhabi, UAE.

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Our Family of Schools

The following map shows the geographic coverage of our Premium Schools (including

BISAD):

Our Strengths

Diversified Platform with Benefits of Scale

Nord Anglia Education is one of the world’s largest K-12 premium school operators owning and/or operating fourteen schools in twelve locations and eight countries across Asia, Switzerland, Central Europe and the Middle East. No single school in our geographically diverse network accounted for more than 15% of total Adjusted Revenues in FY2012. This platform allows us to leverage expertise and resources across our entire network to enhance the quality of education and create significant operating benefits, including:

• strong brand equity supported by a reputation for quality, which enables us to drive

enrolment growth and set tuition fees at the higher end of the market;

• credibility with our stakeholders, including educational authorities, teachers, parents,

developers, landlords and sellers of premium schools;

• implementation of best practices including cost management and control through

benchmarking;

• creating global citizens of students through initiatives such as the Global Classroom,

which enhances the value proposition of our schools to parents and prospective

students; and

• training and development of principals and teachers through initiatives such as Nord

Anglia University.

Robust and Highly Attractive Business Model

Resilient Performance Across Economic Cycles

Total enrolment in our schools has grown at a CAGR of 23.5% from the end of FY2008 through 18 November 2012. Of this increase in enrolment, 2,700 new student enrolments were

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through strategic acquisitions and 3,037 were organic.1 We are well positioned to deal with

negative national or regional trends due to our geographically diverse operations across key education markets.

Price Inelasticity

The private-pay nature of our model helps ensure that our schools are not directly exposed to any government funding risk. Approximately 58% of our tuition fees are paid by employers, who are less sensitive to moderate pricing increases as education allowances typically represent only a small percentage of an expatriate’s total compensation. In addition, self-funding expatriates and affluent local families, who contribute approximately 42% of our tuition fees, are also able to afford moderate price increases. We have been able to increase our tuition fees across our markets at an average of 4-6% per annum over the last four years (the weighted average increase from FY2012 to FY2013 was 5.2%), whilst continuing to generate organic enrolment growth.

Strong Business Visibility with Predictable Revenue Streams

We have good visibility on future enrolments through our high persistence rates and average student tenure of 3.6 years. Further, our policy to require a full term’s notice for any potential leavers enhances in-year visibility as we are entitled to receive a full-year of tuition if we are notified of a student’s intention to leave after the start of Term 2 (January).

Our ability to measure student re-enrolment rates among existing students and to estimate new enrolments for subsequent periods provides revenue predictability and enables us to plan student capacity.

Favourable Working Capital Dynamics and a Capital Efficient Approach to Growth

We have historically received approximately 60% of our annual tuition fees in advance of the school year, which starts in late August/early September. We have generally received an additional 20% of our tuition fees prior to the start of Term 2 (January), and the remainder prior to Term 3 (April). In FY2012, approximately half of our students paid the full annual tuition fees in advance of the school year in exchange for a small average discount. As a result, our working capital needs are principally sourced from tuition fees.

Our expansion strategy is based on an “asset-light” model and is focused on securing high quality purpose-built facilities through long-term leases. The capital expenditure for capacity expansion at our existing, new and acquired schools has been primarily funded by the owners of the real estate. Accordingly, we are generally able to expand capacity at our existing schools and secure capacity at new schools without incurring major capital expenditure. Our capital expenditure is generally limited to furniture, equipment and other materials for classroom, sports and extra-curricular activities. In the case of our acquired schools, we have structured the transactions so that we acquire the operating businesses and typically negotiate long-term leases from the sellers who retain ownership of the real estate.

Premium Quality Education and Leading Reputation

Our commitment to quality drives the strong operating performance of our Premium Schools as evidenced by overall enrolment growth and high levels of re-enrolment. We focus on the needs of individual students and offer high quality education across multiple curricula. Our proprietary IT platform supports this by tracking each student’s performance against personalised targets and drawing our attention to the requirements of the individual learner. Through this highly individualised system we are better able to maximise each student’s potential. In addition, the platform allows us to set clear expectations of learning objectives for a classroom, class year or entire school and intervene as required.

Our principals and teaching staff are highly-qualified and experienced, having been through a rigorous recruitment process. We are able to attract highly-qualified staff due to our international scale, long track record and competitive compensation packages. Further, we have an organisation-wide emphasis on the retention of teachers through on-going professional development initiatives and a policy to promote from within wherever suitably capable candidates are identified. Initiatives such as Nord Anglia University, which provides comprehensive professional training programs for teachers and principals, underscore our commitment to professional development.

1 Organic enrolment growth includes the school in Abu Dhabi, which we opened as a greenfield site in

2009.

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Our students consistently outperform their peers in standardised examinations. In the last five academic years, our students’ average examination results were higher than the average in the United Kingdom for the International General Certificate of Secondary Education (IGCSE), which students take at the age of 16, and globally for the International Baccalaureate Diploma (IBD), which students take at the age of 18. For the 2012 academic year, 86.2% of our students gained 5 A* to C grades compared to 85.6% in the 2011 academic year and the provisional UK average for 2012 of 81.1%. The average IBD score achieved by our students was 33.3 points compared to 32.6 points in the 2011 academic year and a global average score in 2012 of 29.8 points. In addition, 17% of our graduates in 2012 went to the world’s top 30 universities and 75% went to the world’s top 600 universities.

1 Given that our admissions approach is not based upon

academic ability, and the fact that for a large portion of our students English is their second language, we believe our students’ examination results and university destinations demonstrate the quality and effectiveness of our approach to education.

Superior Operational Capabilities

We emphasise operational efficiency and adopt a data-driven approach to managing our business. Our global, regional and school teams track and analyse KPIs on a weekly basis and refine our operating strategy accordingly.

We focus on the following key areas of our operations:

• Student recruitment: We have a systematic approach to student recruitment. Our comprehensive recruitment strategies are adapted to each of our specific markets and executed by each school’s principal, admissions team and marketing manager. We use a relationship management system that enables us to monitor an applicant’s file at every stage, from initial enquiry through enrolment.

• Pricing: We monitor market trends taking into consideration historic and regional economic trends and supply and demand dynamics to set our tuition fee levels.

• Cost management: We use metrics-based management throughout our school operations to enhance efficiencies. We achieve operational efficiencies through various means, including efficient class scheduling and optimising our teaching resources.

• Capacity planning: We have developed expertise in planning and adding capacity to meet demand. This enables us to manage growth by efficiently utilising capacity at existing schools and expanding as necessary. We also work with architectural consultants who specialise in optimising school configurations. Our approach to growing our network of schools is highly analytical and includes the use of demographic and economic models, when identifying opportunities for expansion.

• Cash and financial management: We have a centralised finance team that enables us to monitor and manage our business more effectively. We have a track record of robust cash management and have historically had few instances of bad debt.

Partner of Choice

Our scale and reputation make us a desirable partner for sellers, developers and landlords. We believe that sellers of schools are often focused on the operating track record, financial stability and the reputation of potential buyers. Our acquisitions of schools in Beijing, Switzerland and Thailand resulted from exclusive discussions with sellers who were primarily concerned with these matters. Similarly, developers and landlords seek to attract a recognised operator of schools with a reputation for quality in order to enhance the value of their adjacent residential real estate.

Experienced Management Team

Our senior management team, led by CEO Andrew Fitzmaurice, combines seasoned executives with experience in running publicly-listed companies and strong operational expertise as well as leading academic thinkers. Andrew Fitzmaurice has been with the company for almost ten years and was CEO when Nord Anglia Education was a publicly-listed company in the United Kingdom. Since going private in 2008, we have further invested in building a highly qualified management team, including our CFO and our COO, both of whom have prior public company experience.

1 Top universities as defined by www.topuniversities.com

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Our Strategies

Continue to increase student enrolments at our existing schools

We have been successful at driving enrolment growth and aim to continue this growth by applying our systematic processes for enquiry generation, converting enquiries to enrolment and retention of existing students. Our school principals lead the recruitment effort with dedicated admissions and marketing teams. We generate enquiries and visits through referrals, web-based strategies and other marketing activities.

Maintain price leadership at our existing schools

We have made significant investments in our schools which enable us to consistently provide high-quality premium education. We intend to leverage our superior quality and reputation to maintain price leadership in each of our markets and realise pricing growth in excess of inflation.

Improve the efficiency and enhance quality and consistency of our teaching resources

Our teaching costs are the largest component of our cost structure and therefore a key driver of margins. We focus on driving teaching efficiencies through class scheduling and effective deployment of our teaching resources. We optimise our teaching resources by minimising the amount of administrative responsibilities allocated to our teachers to ensure that each teacher spends more time focused on teaching.

Incremental capacity addition

Where opportunities arise, we may increase capacity by expanding our current schools, opening new school campuses or acquiring schools. In addition, we may opportunistically enter new markets primarily in Asia, Europe and the Middle East, where we believe there is or could be strong demand and subsequent expansion opportunities for premium schools.

Our Approach to Academic Quality

Our philosophy is to help all our students to be the best that they can be. Our schools are inclusive in that they accept students with a wide range of academic ability. Through our “High Performance” approach we ensure that high academic performance is the goal for all students. The key elements that we focus on to promote a high level of academic quality are:

An academically rigorous educational program

Our curricula meet internationally recognised requirements and are adapted to meet local regulatory requirements, culture and customs. The majority of our schools teach the National Curriculum of England and Wales (the “National Curriculum”).

We utilise a highly customised IT platform designed around each student. It enables us to track performance of students on an individual basis as well as benchmark within and across our schools. We believe that this maximises student learning and performance by giving each student and faculty an accurate gauge on individual progress. In addition, this platform allows us to set clear expectations of learning objectives at a classroom, class year or school level and intervene as required. Further, our IT platform creates accountability among faculty members and drives consistency in instruction by applying comparable metrics across our network.

In addition to our rigorous approach to classroom-based learning, we have a supplementary informal online learning environment which operates across all our schools that we call the Global Classroom. The Global Classroom is an internet-based system which allows our students to learn with other students in our schools throughout the world. This innovative and distinctive learning environment introduces students to a new learning style, which creates independent learners, preparing them well for future university study and turning them into global citizens.

Highly qualified principals, teachers and administrative staff

We demonstrate our commitment to premium quality education by hiring and retaining highly qualified principals, teachers and administrative staff. We require all our teachers to be fully qualified and have significant teaching experience in national or international schools. The minimum credentials we require include formal teacher qualifications, such as a Post Graduate Certification in Education (“PGCE”) or its equivalent and at least two years teaching experience.

Our principals and teachers also benefit from the centralised support and experience of our educational team led by Professor Deborah Eyre. In addition, we have in place various

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continuing professional development initiatives, including Nord Anglia University which is designed to prepare some of our best teachers for career progression and help continuously improve all of our teaching staff. We regularly and rigorously review the performance of our principals and teaching staff to ensure that their performance meets our high standards.

Class sizes

We restrict classes to a maximum of 22 students, with a few exceptions, in order to provide each student with close teacher interaction and individual attention and support. This benefits students, and provides a rewarding environment for our teachers and promotes staff retention.

High quality school facilities

Our school facilities, such as science laboratories, music and theatre resources, swimming pools and other high quality sports facilities enhance the educational experience of our students. In addition, the majority of classrooms utilise interactive computerised white boards that facilitate students’ participation in learning. We use internationally-recognised architectural consultants specialised in school design to direct the development of new facilities and the expansion or refurbishment of our existing schools in order to promote the efficient use of our facilities by staff and students.

Premium Schools

We own and operate 13 premium co-educational schools in 11 locations across Asia, Switzerland and Central Europe. In addition, we operate the British International School Abu Dhabi (“BISAD”) which is owned 49% by an affiliate of our parent company. On 28 September 2012, we signed a definitive agreement to acquire the 49% interest in BISAD owned by the affiliate of our parent company. Completion of the acquisition, which is subject to the satisfaction of certain conditions precedent (including regulatory approval), is expected before the end of 2012.

The following table sets forth certain information about each of our schools and their educational programs:

School Date Founded

Date Acquired/ Founded Curriculum Qualification

China Sanlitun Beijing, China 2003 2009 National Curriculum

(1)

Shunyi Beijing, China 2009 2009 National Curriculum IGCSE/A levels Pudong Shanghai, China 2002 2002 National Curriculum IGCSE/IBD Puxi Shanghai,China 2005 2005 National Curriculum IGCSE/IBD Asia (non-China)

Chonburi, Thailand 1994 2012 National Curriculum IGCSE/IBD Switzerland Beau Soleil, Villars 1910 2011 French and Swiss Curriculum IBD or French Bac College Champittet, Lausanne 1903 2011 French and Swiss Curriculum French/Swiss Bac/IBD College Champittet, Nyon 2007 2011 French and Swiss Curriculum IBD La Cote, Gland 2008 2011 National Curriculum IBD Central Europe Prague, Czech Republic 1995 1995 National Curriculum IGCSE/IBD Warsaw, Poland 1992 1992 National Curriculum IGCSE/IBD Bratislava, Slovakia 1998 1998 National Curriculum IGCSE/IBD Budapest, Hungary 2002 2002 National Curriculum IGCSE/IBD Middle East Abu Dhabi, UAE 2009 2009 National Curriculum IGCSE (1)

This school educates students from age three to 13, which are pre-qualification years.

Our Four Schools in China

The British International School Shanghai—Pudong, China

We opened this school in 2002, our first school in China, with an initial capacity of 100 places and the school now has a capacity of 1,500 places. The school is located within a large scale residential development in Pudong, approximately five miles from the centre of Shanghai. Its facilities include science laboratories, computer suites, art, music and physical education

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rooms, libraries, a 1,000 seat state of the art theatre, a new secondary school building, three indoor sports halls and a 25 metre indoor swimming pool. The school experienced good growth in student numbers in FY2012.

As of October 31, 2012, nearly all of the students at this school were expatriates.

The British International School Shanghai—Puxi, China

We opened this school in 2005 with an initial capacity of 500 places. The school is adjacent to several high-end residential developments popular with expatriate families. The school’s facilities include two gymnasiums, two swimming pools of 15 and 25 metres, a dance studio, a fitness suite, outdoor basketball courts, four tennis courts, one astro-turf football field and playing fields. Other facilities include two libraries, a 250 capacity auditorium, a 500 capacity auditorium, a new IB suite, an internet café, science laboratories, music rooms and two cafeterias. We have since expanded capacity to a total of 2,000 places. The expansion to this school was officially opened by His Royal Highness Prince Andrew in 2011. This school had strong student number growth in FY2012.

As of 31 October 2012, nearly all of the students at this school were expatriates.

The British School of Beijing—Shunyi, China

We acquired this school in 2009 with a capacity of 400 places and moved it to new custom built facilities with 1,500 places one mile from its original location. The school is located in a large residential area containing many expatriate developments in suburbs on the outskirts of Beijing. The school’s campus includes outdoor and indoor sport facilities gymnasiums, fitness suites, a football field and tennis and basketball courts, along with an indoor swimming pool and dance studio. In addition, we have two theatres, dedicated music rooms, computer music suites, a recording studio, ICT suites, a Lego robotics lab, science laboratories and art studios. The school was officially opened by His Royal Highness Prince Andrew in 2010. We have recently signed contracts to expand the capacity by up to 300 places. This expansion is expected to be completed in time for September 2013. This school experienced strong student number growth in FY2012.


The British School of Beijing—Sanlitun, China

We acquired this school in 2009 with a capacity of 280 places. The school is located in the heart of the Embassy district of Beijing and educates students from age three to age 13. Its facilities include a football pitch, a full size gym, an assembly hall, tennis and basketball courts and an astroturf play area with climbing frames. The school now has a capacity of 360 places. We have recently signed contracts to expand the capacity of this school by approximately 200 places. The expansion will include additional facilities and a new entrance from the main road in Sanlitun and is expected to be completed in time for September 2013. Student numbers at this school were stable in FY2012.


Our One School in Thailand

The Regent’s School — Chonburi, Thailand

We acquired our school in Chonburi, Thailand on 1 August 2012 with a capacity of 1,200 places. The school is located in the Eastern Seaboard region of the Gulf of Thailand, 120km southeast of Bangkok and 16km north-east of Pattaya. The Eastern Seaboard in general and Chonburi in particular include many of Thailand’s largest industrial developments. The facilities at the school include a 25-metre swimming pool with audience seating, a full sized rugby and football pitch (with two additional, smaller football pitches), a double gymnasium with basketball facilities and tennis courts, a 400 seat theatre and a brand new early-years building for younger children. The boarding houses are home to more than 100 students and are equipped with modern fingerprint security technology.

As of 31 October 2012, 75% of the students at this school were expatriates.

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Our Four Schools in Switzerland

Collège Champittet—Lausanne

An affiliate of our parent company acquired this school in 2009 and it was acquired by Nord Anglia Education in February 2011. The school has a capacity of 944 places and is located near the banks of Lake Geneva in Lausanne. The school includes high quality academic and recreation facilities including, sports fields, playgrounds, library, science laboratories, chapel, dining hall and cafeteria and computer suites. The school also has boarding accommodation for up to 100 students. Founded by Dominican monks in 1903, we believe that Collège Champittet is one of the best known private schools in Switzerland. The school experienced a reduction in student numbers in FY2012, which we believe was due to a combination of reduced expatriate flows into Switzerland and increased competition. We have taken a number of actions to improve the school’s competitive positioning in the market so that it is in a position to capture future expatriate flows.


Collège Champittet—Nyon

This school was opened in 2007 and was acquired by an affiliate of our parent company in 2009. It was acquired by Nord Anglia Education in February 2011 in conjunction with the acquisition of Collège Champittet-Lausanne. The school has a capacity of 220 places and is located near the banks of Lake Geneva between Geneva and Lausanne. Its facilities include playgrounds, dining hall and a computer lab. Student numbers at this school were stable in FY2012.


Collège Alpin Beau Soleil—Villars-sur-Ollon

We acquired this boarding school in January 2011 with a capacity of 220 places. The school now has a capacity of 240 places and is located in the Alpine region not far from Lake Geneva. The school’s facilities include an astroturf pitch with seating, premium boarding facilities, a recently renovated art centre, a fitness centre, two restaurants, a theatre and a private ski slope. Founded in 1910, Beau-Soleil is one of the oldest Swiss educational establishments. This school experienced good growth in student numbers during FY2012.


La Cote International School—La Cote

This school was founded in 2008 and we acquired it in September 2011. The school has a capacity of 220 places and is located near Lake Geneva in Gland. The school experienced a reduction in student numbers in FY2012, primarily due to market conditions and a delay in announcing a potential new campus for this school as current capacity is limited. We intend to move the school to a new purpose built facility with 850 place capacity, expected to complete in September 2014.


Our Four Schools in Central Europe

The British International School Bratislava, Slovakia

We opened this school in 1998 with an initial capacity of 100 places. The school is operated out of two locations, with one allocated for the kindergarten and Year 1 students and the other for students in Years 2 to 13. The location for younger students has its own library, information and communication technology room, music area, and a playground. The second building has three well-equipped science labs, three ICT rooms, two specialist music rooms, and a computer-equipped library. The campus also enjoys two gymnasiums, one of which has a climbing wall, a dance studio, basketball courts, a 200 meter athletics track, and a half-size football field. In response to increasing demand, we opened the second building in 2006 bringing the school to its current capacity of 770 places. The new facilities were formally opened by His Royal Highness Prince Andrew. Student numbers at this school were stable in FY2012.


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The British International School Budapest, Hungary

We assumed operations of this school in 2002 with a capacity of 420 places. In 2005, we relocated the school to new custom built facilities in its current location in Budapest’s third district. Its facilities include two science labs, music rooms equipped with computers, a dance and drama studio, an amphitheatre and a library. Its outdoor facilities include an organic wild garden for science lessons as well as an outdoor pavilion classroom. Its sporting facilities include a half-size football pitch, a 220 meter track, outdoor basketball court, and a large indoor gymnasium. The school’s current capacity is 590 places. Student numbers at this school were stable in FY2012.


The English International School Prague, Czech Republic

We opened this school in 1995 on a site that we converted for educational use near the centre of the city. In September 2007, we moved the school to a new custom built campus, with a capacity of 550 places. The campus includes modern facilities in two buildings including a sports field, gymnasium, two libraries, art and music rooms and a dance studio. The classrooms are all networked, utilising interactive whiteboard technology and each section of the school is equipped with its own computer suite. The new campus was formally opened by Her Royal Highness Princess Anne. The school experienced a reduction in student numbers in FY2012, which was caused by increased competition in the market. We have taken a number of actions to improve the school’s position in the market and its performance.


The British School Warsaw, Poland

Founded by Nord Anglia Education in 1992 in association with a local family, this was our first international school. In 2004, we opened a new building by converting a former electrical engineering college into high quality academic facilities and this building has been further expanded and upgraded on a number of occasions. The school has a capacity of 878 places and its facilities include a sports field, gymnasium, and art and music rooms. The new building was formally opened by His Royal Highness Prince Andrew. The school had good student number growth in FY2012.


Our One School in the Middle East

The British International School Abu Dhabi

We opened the British International School Abu Dhabi in September 2009 and in August 2010 sold our 49% equity interest in the school to our parent company and entered into an agreement to manage the school. On 28 September 2012, we entered into a definitive agreement to re-purchase the 49% equity interest held by our parent company in the school. The school has a capacity of 1,500 places. The school’s facilities include dedicated music rooms, a music technology suite, a drama studio with the latest media technology, gardens and outdoor learning areas as well as a wide range of indoor and outdoor sports facilities catering for swimming, rugby, cricket, hockey, netball and athletics. This school experienced strong growth in student numbers in FY2012.


Marketing Our Schools

Our marketing strategy is designed to develop brand awareness among prospective parents and students and brand loyalty and advocacy amongst existing parents and students. We seek to build brand awareness in each of our existing and new markets, with respect to our individual schools and the “Nord Anglia Education” name. We believe that this brand building approach also contributes to the recruitment and retention of quality teachers and principals.

We believe that a school’s attractiveness to parents and students is based largely upon its reputation. Accordingly, our marketing strategy is focused on the communication and enhancement of the excellent reputation that our schools enjoy within their respective markets. The effective deployment of our marketing strategy is executed at each school by our principals and the admissions and marketing teams. Our marketing strategy is based upon our online

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presence, reputation and referrals from existing parents as opposed to costly media campaigns. Accordingly, we achieve our enrolment results in a highly cost effective manner.

We have developed a systematic approach to student recruitment and retention and we ensure that enquiry generation and conversion into new student enrolments is prioritised and well managed.

Student Recruitment

The student recruitment process has three stages:

• Enquiries: parents considering enroling their child at one of our schools register their child’s details and request further information.

• Visits: parents personally visit the school campus often accompanied by the child/children.

• Enrolments: parents register their child with the school, specify a start date and pay a non-refundable application fee. Almost all applicants enrol either within the academic year in which they applied or in the subsequent academic year.

Our marketing strategy has been very successful in generating enquiries, visits and applications. The table below shows an increase in enquiries and visits and the rate at which they have been converted into new enrolments for the past three fiscal years (excluding Abu Dhabi and Chonburi):

FY2010 FY2011 FY2012 Enquiries. 4,305 6,516 7,040 Visits 3,236 4,463 5,284

Enrolments 1,438 2,343 2,579

Percentage Visits to Enrolments 44% 52% 49%

As at 18 November 2012, the number of enquiries and visits year to date (excluding Abu Dhabi and Chonburi) were respectively 17% and 14% less than the enquiries and visits of the same period last year. The largest decrease in enquiries and visits has been experienced by our schools in Beijing. We believe that this is due to a slowing in the growth of the Beijing market compared to the growth experience in 2011 in the lead up to the Communist Party Congress in November 2012 and the change in Communist Party leadership. Excluding the Beijing schools, the number of enquiries and visits as at 18 November were 13% and 8% less respectively than the same period last year. Despite the reduction in the enquiries and visits to 18 November 2012, our in-year starters (excluding Abu Dhabi and Chonburi) as at 18 November 2012 were 25% more than those as at 18 November 2011.

Generation of Enquiries

The majority of our enquiries are generated through the following methods.

Digital Marketing

In our experience, when considering overseas assignments, parents’ first step is often to thoroughly research schools online. We recognise that online marketing is a critical means of communication with prospective parents and students and a key part of our strategy is to prioritise online tools. We ensure that our websites are optimised to deliver important information to prospective parents in a concise and user friendly manner. This enables them to make informed decisions when evaluating our schools.

• Corporate and School Websites: We have designed our corporate website to introduce parents to our company’s commitment to education, network of schools and history. Our corporate website contains direct web links to each individual school and provides details of the innovative educational work undertaken by our educational team. Our school websites inform prospective parents about each individual school’s curriculum, facilities, admissions process and why parents should choose the school for their children. Our websites include publications such as proprietary city guides and educational magazines which are only available to parents who register their interest with the school via the website.

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• Search Engine Optimisation/Web Advertising: We have tailored each school’s website to maximise effectiveness and ease of use. Our search engine optimisation techniques generate a substantial number of visits to our website. We also identify and advertise on popular websites used by our target families.

Parent Referrals

Parent referrals are important for generating enquiries. We believe that prospective parents seek out parents of current and former students for their opinions on our schools, helping to convert enquiries to visits and applications. We encourage the parents of current and former students to speak positively about our schools and achieve this by providing high quality education, communicating with and involving parents in our schools and seeking to place each of our schools at the centre of its community.

We create parental endorsement by making sure each of our schools is at the centre of their community in three ways:

• Inclusive events for parents: Each school holds regular events, which parents are encouraged to attend and at which they are able to interact with other parents. This is particularly important to the majority of our parents who are expatriates as the school becomes their primary route to social activities and inclusion in a new and often alien environment.

• Community events: Each school runs events such as musical concerts and sports competitions which are open to the parents and students of other schools. We also invite influential individuals such as government officials, relocation agents and diplomatic staff to attend. These events demonstrate educational leadership and showcase our schools to prospective parents and influential leaders in the community.

• Charitable activities: We use initiatives such as our Nordstar community investment programme to involve parents, teachers and students in local charitable activities. These activities demonstrate the school’s role as a leader in the community as well as providing social opportunities for expatriate and local families.

In our most recent parental surveys, over 92% of our parents said that they would be

happy to recommend our school.

Relocation Agents

Relocation agents who settle expatriate families in cities in which our schools are located are an important source of enquiries. We develop close relationships with these relocation agents through a variety of initiatives, such as hosting school visits, providing quality information on our schools and producing user-friendly materials they can share with their clients.

In addition, we invite relocation agents to participate in the community events that the schools run. These events are a useful networking opportunity for relocation agents and also provide us with an excellent opportunity to showcase our schools.

Employers

In each of our markets, we have established relationships with major employers, such as multinational corporations and embassies. From our research, we know that parents consult their employers for school recommendations and information. In addition, we ensure these key personnel participate in the community events the school runs, providing us with an excellent

opportunity to showcase our schools.

Other Marketing Activities

We supplement our marketing strategy with other targeted activities to further enhance our schools’ reputation, promote awareness and generate enquiries, including:

• Promotional materials: We use promotional materials such as school brochures, educational magazines and other publications to enhance the schools’ reputation as high quality and leading academic institutions.

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• Public Relations: We create and distribute news stories such as our strong academic results and high quality school facilities to promote our schools’ profiles in the media.

• Conferences: We demonstrate leadership in the world of education by speaking at conferences and sponsoring our own events. Nord Anglia Education employees speak at over 100 conferences worldwide annually, while our executives speak at over 50 conferences annually. Most active as public speakers are Andrew Fitzmaurice, our CEO and Professor Deborah Eyre our Education Director who together speak at over 30 events per year.

Converting Enquiries

Parents will typically draw up a shortlist of schools for their child and then physically visit these school campuses. Parents generally visit two or three different schools and usually undertake these visits with an open mind as to which school they will eventually select. Research conducted by an independent education consultancy with respect to our schools in China found that approximately 70% of parents did not have a clear first choice. Management of the school visit is therefore important and we have designed our systems carefully to help maximise the conversion ratio between visit and application.

Each of our schools has a dedicated admissions and marketing team who work closely with our principals during the student recruitment process in order to maximise the conversion of enquiries and visits to enrolments. Our marketing and admissions teams typically have prior education industry experience and are chosen through a highly selective hiring process. In order to ensure that we achieve high conversion rates, our admissions managers participate in proprietary training programs which provide them with the necessary skills to maximise their effectiveness.

Retention

We are focused on retaining our students. Once a student has enroled at one of our schools, the school’s teaching staff and principal are responsible for ensuring that the student receives a premium education and remains enroled.

To this end, we track the number of students who leave for reasons other than those outside of our control such as graduation or family relocation. In FY2012, the percentage of students who left our schools for reasons other than those outside of our control was only 2%, resulting in a persistence rate of 98%. We monitor the number of students leaving on a weekly basis and take immediate corrective action on any weaknesses identified for each school.

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Teaching and Learning, Administrative, Regional and Central Support Staff

As at 31 October 2012, we had 2,391 full time equivalent employees. Our Premium Schools had 2,026 full time equivalent employees, of whom 1,440 were teaching staff, 563 were school administration and management and 23 were regional support. Our Learning Services business employed 240 education professionals and 83 administrative/regional support staff. In addition, we had 42 Group Central Support staff. The full time equivalent employee numbers as at October 31, 2012 are listed in the table below.

Full time

equivalent

employees

Group Central Support (Globally) . . . . . . . . . . . . .. . . . . . . . . . . . . . .

. . . . . . .

42

Premium Schools

- Teachers and Teaching Assistants . . . . . . . . . . . . . . . . . . . . . . . . . 1,440

- School Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563

- Regional Support . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23

Learning Services

- Education Professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . .

240

- Learning Services Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

- Regional Support . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . .

2,391

Outstanding Teachers for Outstanding Schools

Candidates are attracted to our reputation, commitment to high quality education, established international presence and financial strength. In addition we offer a compensation package that is typically equivalent to the remuneration of similarly qualified personnel in the United Kingdom and is, in most cases, highly competitive.

In our drive to position Nord Anglia Education’s recruitment practices to match our desire to be the leading global premium education company, we launched the Outstanding Teachers for Outstanding Schools project (“OTOS”) across the group in August 2012. The scope of the OTOS project includes: 1. Premium Candidate Attraction, 2. Outstanding Recruitment Process and Administration, 3. Quality Selection, 4. Enhanced Induction. The project will drive improvement and best practice in each of these areas.

Staff Development

Nord Anglia Education is committed to supporting our teachers to be the best that they can be. Through our Nord Anglia University, we provide on-going professional development for our principals and teachers, in the form of online and classroom based training. This programme is vital to ensure that we attract and retain the best possible academic faculty. Nord Anglia Education University offers the following:

• Executive Leadership Programme: an online and classroom based comprehensive

executive leadership programme for all school principals which develops academic and

commercial capabilities. The programme includes individual mentoring and is

independently accredited by the Windsor Leadership Trust, a leading organisation

dedicated to providing opportunities for leaders to develop their own leadership wisdom

and insight.

• Senior Leadership Programme: currently in development and will offer bespoke

development for Vice Principals and Heads of Schools to enable their career progression

and development to more senior posts.

• Management and Leadership Development Programme: an online and classroom based

programme to develop current high potential middle leaders, such as academic department

heads for future senior leadership posts.

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• Global Staffroom: a proprietary online portal for the development of all our teaching staff.

Both external experts and our own staff, with relevant expertise, are used to enhance high

quality teaching and to share best practice teaching methods throughout the organisation.

Information Technology Systems and Management

We believe that we have a comprehensive and reliable information technology infrastructure that supports our data driven approach to the management of our Premium Schools. This platform enables our executive team, regional management, school principals and teachers to monitor and engage in timely decision-making based on data relating to key operating metrics. We use project management and Information Technology Information Library (“ITIL”) systems to support the high quality and timely delivery of our IT services across the schools and offices of Nord Anglia Education. Our information technology platform is scalable and is able to support the growth of our Premium Schools.

In our Premium Schools, we use a proprietary information technology platform to track students’ academic progress, our student recruitment process and to manage billing. We have tailored a platform initially designed by Serco to meet our own specific requirements. This platform is designed to deliver the best outcomes for each individual student by tracking performance at a student and subject specific level. We believe that the key benefits of this platform include the ability to:

• maximise individual student performance;

• implement accountability at a student, teacher, year group, subject group and overall school level;

• encourage parental involvement and ownership of students’ academic objectives; and

• maintain comprehensive benchmarking within and between schools.

In addition, we use a commercial project management software application to support our planning and oversight of the design, development and construction of new schools and expansion of capacity at existing schools.

All of our information technology platforms are managed internally by dedicated IT professionals. We manage the availability of our networks and wireless through the use of well-resourced and modern technology. We monitor our systems on a real-time basis to verify the robustness and availability of our servers, network and data storage. Our server infrastructure uses resilient data storage and backup technology located in data centres, one in the United Kingdom and one in Hong Kong.

Intellectual Property

We are the applicant or registrant of trademarks relating primarily to our logos and the name “Nord Anglia Education” covering as many as 39 regions, including the ones in which we operate. We do not own the rights to the name “British International School”, which may be used by any organisation subject to meeting certain accreditation requirements.

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Properties

Our headquarters are located at Worldwide House, Des Voeux Road, Central in Hong Kong where we lease 3,153 square feet. We continue to operate in eight locations in the United Kingdom for our Learning Services business. We believe that these facilities currently meet our needs and that, to the extent necessary, replacement space is or would be available on acceptable terms.

We lease all of our current school facilities under long term leases. For additional information concerning our school facilities, please see “—Premium Schools” above. The table below summarises the main operating leases for each of our schools:

School Termination Date

* Rent Review Guarantee by Nord

Anglia Education Limited/Issuer to the

Landlord Sanlitun Beijing 2023 None None

Shunyi Beijing 2029 None None

Pudong Shanghai 2022 2.5% p.a. None

Puxi Shanghai 2025/2036 None None

Regent’s, Chonburi 2037 Annual CPI None

College Beau Soleil, Villars 2035 Annual CPI Yes

College Champittet, Lausanne & Nyon 2017/2026 Annual CPI None

La Cote International, Gland 2015 Annual CPI None

Prague, Czech Republic 2032 Annual CPI None

Warsaw, Poland 2025 Review 2015 None

Bratislava, Slovakia 2016/2039 None None

Budapest, Hungary 2014/2034 Annual CPI None

Abu Dhabi, UAE 2014/2019 None None

* More than one date indicates the termination date of multiple leases.

The prior owner of the shares of Beau-Soleil has a right for a period of ten years from the date we acquired the shares to purchase, and require us to sell, Beau-Soleil at fair market value, as determined by an independent accounting firm selected by the parties, if (i) we do not pay rent under our lease for the main school building for three months or (ii) the prior owner terminates our lease for the main school building for cause.

Litigation

We may be subject to legal or administrative proceedings or claims arising in the ordinary course of our business. We are not currently subject to any such claims that we believe could reasonably be expected to have a material and adverse effect on our business, results of operations or financial condition.

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2. SELECTED CONSOLIDATED FINANCIAL DATA

Nord Anglia Education’s fiscal year is based on the twelve month period ending 31 August.

The tables below set out selected consolidated financial information of the Issuer as of and for

the twelve months ended 31 August 2012 (“FY2012") and 31 August 2011 (“FY2011"). All the

information shown is extracted from our audited consolidated financial statements for the twelve

months ended 31 August 2012, included as Appendix 1 to this Annual Report.

Selected consolidated statement of comprehensive income

Twelve Months Ended

31/08/2012 31/08/2011

$m $m

Revenue 264.6 219.3

Cost of sales (118.4) (99.8)

Gross Profit 146.2 119.5

Selling, general and administrative expenses (79.1) (71.8)

Depreciation (8.0) (5.8)

Amortisation (3.4) (2.8)

Impairment of goodwill (10.7) (16.7)

Exceptional expenses 1.4 (9.4)

Total expenses (99.8) (106.5)

Operating profit 46.4 13.0

Finance income 103.0 10.1

Finance expense

- Shareholder loan notes accrued interest (22.1) (35.5)

- Notes, bank loans and overdrafts (22.9) (13.0)

- Other finance expenses (4.7) (3.2)

Total finance expenses (49.7) (51.7)

Net finance income/(expense) 53.3 (41.6)

Share of profit in joint venture - -

Profit/(loss) before income tax 99.7 (28.6)

Income tax expense (16.4) (12.5)

Profit/(loss) for the period 83.3 (41.1)

Foreign exchange translation differences (20.7) 9.3

Actuarial losses on defined benefit pension plans (16.3) (1.1)

Other comprehensive (loss)/income for the

period, net of income tax (37.0) 8.2

46.3 (32.9) Total comprehensive income/(loss)

for the period

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Selected consolidated balance sheet

As at As at

31/08/2012 31/08/2011

$m $m

Property, plant and equipment 30.3 28.4

Intangible assets 454.9 458.8

Deferred income tax assets 6.1 5.6

Derivative financial instruments - 0.2

Trade and other receivables 11.3 12.1

Total non-current assets 502.6 505.1

Tax receivable 0.3 -

Trade and other receivables 47.0 47.1

Cash and cash equivalents 108.2 88.0

Total current assets 155.5 135.1

Total assets 658.1 640.2

Share capital 67.5 67.5

Share premium 131.1 0.1

Other reserves 6.8 27.5

Retained earnings (152.3) (219.9)

Total equity 53.1 (124.8)

Other interest bearing loans and borrowings 21.8 13.0

Shareholder loans - 16.4

Trade and other payables 206.8 178.7

Provisions for other liabilities and charges 3.1 3.1

Current income tax liabilities 5.0 3.3

Total current liabilities 236.7 214.5

Other interest bearing loans and borrowings 318.9 179.1

Shareholder loan notes - 328.7

Other non-current liabilities 49.4 42.7

Total non-current liabilities 368.3 550.5

Total liabilities 605.0 765.0

Total equity and liabilities 658.1 640.2

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Selected consolidated statement of cash flows

31/08/2012 31/08/2011

$m $m

Cash generated from operations 74.5 56.8

Interest paid (6.8) (10.9)

Tax paid (15.9) (13.9)

Net cash from operating activities 51.8 32.0

Net cash (used in) investing activities (27.1) (11.6)

Net cash from/(used in) financing activities (2.2) (20.4)

Net increase

in cash and cash equivalents 22.5 -

Cash and cash equivalents at beginning of period 88.0 81.8

Exchange (losses)/gains on cash

and cash equivalents (2.3) 6.2

Cash and cash equivalents at end of period 108.2 88.0

Twelve Months Ended

22

3. OPERATING DATA AND NON-GAAP FINANCIAL INFORMATION

The tables below show certain non-GAAP financial information for the twelve months ended

31 August 2012 and 31 August 2011.

Key Performance Indicators

31/08/2012 31/08/2011

Capacity (average for the period)(1)

China 5,360 4,860

Switzerland 1,604 1,374

Central Europe 2,738 2,678

9,702 8,912

Full time equivalent students (average for the period)(2)

China 3,622 3,070

Switzerland 1,437 1,222

Central Europe 2,338 2,190

7,397 6,482

Utilisation (average for the period)(3)

China 68% 63%

Switzerland 90% 89%

Central Europe 85% 82%

76% 73%

Adjusted Revenue per full time equivalent student

(in US$ thousands)(4)

China 30.8 27.9

Switzerland 47.1 47.1

Central Europe 18.6 19.8

Average 30.1 28.8

Twelve Months Ended

(1) We measure average capacity at the measurement date as the total number of FTEs that can be accommodated in a school based on its existing classrooms at each academic calendar month divided by the number of months in such period. (2) We calculate average full time equivalent students (“FTEs”) for a period by dividing the total number of FTEs at each academic calendar month end in such period by the number of academic calendar months in such period. (3) We measure utilisation during a period as a percentage equal to the ratio of average FTEs for the period enroled at that school divided by average capacity. (4) We calculate Adjusted Revenue per student by dividing our total Adjusted Revenue for a relevant period by the average FTEs for such period. See “Calculation of Adjusted Revenue” on page 23.

23

Segment Analysis

31/08/2012 31/08/2011

$m $m

Adjusted Revenue (Segment)

China 111.5 85.6



Premium Schools 222.7 186.5

Learning Services 40.1 59.9

Other - 0.6

Adjusted Revenue 262.8 247.0

Twelve Months Ended

8/31/2012 8/31/2011

$m $m

Adjusted EBITDA (Segment)

China 53.8 40.8



Discontinued - (0.4)

Premium Schools 79.4 63.1

Learning Services 10.2 13.7

Regional & Central Costs (15.6) (16.9)

Adjusted EBITDA 74.0 59.9

Twelve Months Ended

Calculation of Adjusted Revenue

31/08/2012 31/08/2011

$m $m

Calculation of Adjusted Revenue

Revenue 264.6 219.3

Full year impact of acquisitions(4) - 29.5

Other (1.8) (1.8)

Adjusted Revenue 262.8 247.0

Twelve Months Ended

24

Calculation of EBITDA and Adjusted EBITDA

31/08/2012 31/08/2011

$m $m


Add back:

Exceptional expenses/(income), net(1) (1.4) 9.4

Impairment of goodwill(2) 10.7 16.7

Amortisation 3.4 2.8

Depreciation 8.0 5.8

EBITDA 67.1 47.7

Loss on disposal of property,

plant and equipment and intangible assets 0.3 1.0

Exchange loss/(gain)(3) 4.6 (3.5)

Full year impact of acquisitions (4) - 6.4

Pre-acquisition and business

integration costs (5) 0.6 3.2

Reduction in management charge

to a related party - 1.8

School and contract closure costs (6) - 1.8

Share based payments (7) 0.6 0.3

Others (8) 0.8 1.2

Adjusted EBITDA 74.0 59.9

Capital Expenditures

Capacity Related(9) 4.6 6.7

Non-capacity related(10) 6.1 5.0

Total capital expenditure 10.7 11.7

Adjusted EBITDA after non-capacity

related capital expenditures 67.9 54.9

Twelve Months Ended

(1) In the twelve months ended 31 August 2012, exceptional expenses comprise costs incurred in connection with

the Notes issue and the acquisition of schools. (2) FY2012 comprises the non-cash impairment charge on the remaining balance of the goodwill relating to Learning Services in the Middle East. FY2011 comprises the non-cash impairment charge on the goodwill associated with the UK Learning Services business. (3) Primarily associated with foreign currency translational gains/losses on our inter-company loan balances and bank accounts denominated in foreign currencies as well as actual transactional gains/losses. . (4) Incorporates the full fiscal period historical financial results of the schools we acquired during the relevant fiscal period as if those acquisitions had been completed as of the first day of such period. We acquired College Alpin Beau Soleil SA on 14 January 2011 and College Champittet Lausanne and College Champittet Nyon on 25 February 2011. No adjustment has been made in the twelve months ended 31 August 2012 for the acquisition of our school in Thailand because, even though it was acquired on 1 August 2012, no revenue or costs were recognised during the twelve months ended 31 August 2012. (5) Represents costs associated with legal, tax and accounting advice in relation to the conversion of our US dollar shareholder loans from pound sterling, as well as costs associated with changes to our corporate structure and lending arrangements to enable us to acquire our schools in Switzerland. (6) Represents the costs associated with the closure of our school in Nanxiang, Shanghai in the twelve months ended 31 August 2011. (7) These non-cash charges are associated with the equity investments in the Group by members of our management. (8) Various fees and expenses and redundancy costs relating to the switch in the mix of business from Learning Services to Premium Schools that are one-off in nature and non-recurring. (9) Capacity related capital expenditure means expenditures related to the expansion of student capacity at our existing schools such as fixtures, equipment and related expenses. (10) Non-capacity related capital expenditure means total capital expenditure less capacity related capital expenditure.

25

4. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our audited consolidated

financial statements as of and for the periods ended August 31, 2011 and 2012 and in each

case the related notes. For the purposes of this discussion, references to “FY2011” and

“FY2012” refer to the periods ended 31 August 2011 and 31 August 2012 respectively.

Recent Developments

On 28 March 2012, the Issuer issued the Notes and made available $182.5 million of the proceeds of the Notes to repay the senior and mezzanine facilities outstanding at the time and close out the hedging arrangements in connection with those facilities and $120.0 million of the proceeds to repay outstanding shareholder loans and loan notes held by NAE Inc. NAE Inc. then capitalised all remaining shareholder loans and loan notes owed by the Issuer to it in exchange for additional ordinary shares in the Issuer.

On 21 March 2012, the Issuer entered into a Senior Secured Revolving Credit Facility which provided for borrowings up to an aggregate of $20.0 million and subsequent increases of up to a further $20.0 million. On 23 July 2012, Barclays Bank PLC increased its commitment under the Senior Secured Revolving Credit Facility from $20.0 million to $30.0million.

On 1 August 2012, Nord Anglia Education completed the acquisition of The Regent’s School, a K-12 school in Chonburi Thailand. Nord Anglia Education purchased 49% direct and indirect interests in the share capital of the Thai company formed to hold the acquired school’s business.

On 28 September 2012, Nord Anglia Education entered into a definitive agreement to acquire the 49% interest owned by its parent in the British International School Abu Dhabi. The acquisition is subject to a number of conditions and there is no assurance that these conditions will be satisfied and the transaction will complete. Subject to the foregoing, the acquisition is expected to close before the end of December 2012.

Factors affecting our results of operations and financial condition

Macroeconomic Conditions

Our results of operations are directly affected by our ability to recruit additional students in our

schools, which in turn can be affected by general economic conditions in each of the countries in

which we operate. As a result of the importance of education spend in the markets in which we

operate and the relative resilience shown by expatriate flows during the recent difficult economic

conditions, we believe our revenue and profitability are resilient to fluctuations as a result of macro-

economic conditions.

Acquisitions

In the twelve months ended 31 August 2012, we acquired La Cote International School,

Switzerland and The Regent’s School, Chonburi Thailand. We continue to look for future potential

acquisition opportunities and we may acquire schools in the future which impact our results of

operations.

Currency Translation

We conduct our business on a global basis in several major currencies, most notably the

Chinese renminbi, Swiss franc, Polish zloty, pound sterling, U.A.E dirham, Euro, Thai baht and

Malaysian ringgit, while our reporting currency is the US dollar. During the period under review,

almost all of our revenue was recorded in currencies other than the US dollar. Fluctuations in

exchange rates between the US dollar and our operating currencies affect the translation of our

results and the net assets or liabilities of our overseas entities into US dollars.

In FY2012, most of our operating currencies except the Chinese renminbi weakened against the

US dollar which negatively influenced our results for this period.

Substantially all of our revenues and costs associated with our Premium Schools are

denominated in the local currency of the countries in which we operate and are not denominated in

US dollars. We recognise translational gains and losses primarily upon the conversion of our foreign

currency denominated earnings into US dollars through other comprehensive income.

26

Increased Focus on Premium Schools

Since FY2009, we have shifted our focus toward the operation of our Premium Schools. As a

result, our Premium Schools revenues, as a percentage of our total revenues, have grown

significantly. For FY2009, FY2010, FY2011 and FY2012, revenues from our Premium Schools

represented 49.8%, 62.3%, 75.5% and 84.7% of our total Adjusted Revenues, respectively. Since

FY2009 we have acquired schools in Switzerland, China and Thailand and we have also expanded

capacity in our schools in China post acquisition. We expect in the future to maintain our focus on the

continued expansion of our Premium Schools to continue to see a reduction in our Learning Services

operations.

Key Operating Metrics

In addition to financial performance, we use the following key operating metrics to manage our

Premium Schools: tuition fees; the number of FTEs; capacity; utilisation; and average annual revenue

per student. We monitor these operating metrics on a weekly, monthly, quarterly and annual basis as

we believe that they are the most reliable measures for accurately measuring and predicting the

current and future profitability of our Premium Schools.

Tuition Fees. Approximately 60% of our tuition fees are paid for by expatriate employers who are

less sensitive to moderate pricing increases as education allowances typically represent only a small

percentage of an overall expatriate’s total compensation. Self-funding expatriates and affluent local

families, are also typically less sensitive to moderate price increases. As a result, we have been able

to increase our tuition across our markets at an average of 4-6% p.a. over the last three years

(approximately twice the median rate of inflation in the markets where our schools are located),

without materially impacting enrolment growth.

Full-Time Equivalent Students. We monitor the number of average FTEs at any given time. The

number of FTEs fluctuates throughout the academic year as new students enrol or as current

students depart.

Our average FTEs have grown from 4,292 in FY2009 to an average of 7,397 in FY2012 (not

including our school in Thailand which was acquired on 1 August 2012 or our school in Abu Dhabi).

This increase in FTEs has been primarily due to enrolment growth in our existing schools and

acquisitions of new schools.

Average Capacity. We monitor our average capacity at any given time. We increased our

average capacity from 5,513 places in FY2009 to 9,702 places in FY 2012. This increase in capacity

was primarily due to the acquisition of new schools in Switzerland and capacity expansion at our

schools in China. Between FY2011 and FY2012 we increased our capacity from 8,912 to 9,702.

Utilisation. We measure utilisation at any given time. Our average utilisation increased from

73% in FY2011 to 76% in FY2012. This increase was primarily due to increased enrolment across

our schools in China.

Average Adjusted Revenue per Student. We calculate average Adjusted Revenue per student

as total revenues from our Premium Schools Division for the relevant period divided by the average of

the month-end FTEs throughout the academic year. Our average Adjusted Revenue per student has

steadily increased from FY2009 to FY2012 reflecting tuition fee increases and the impact of the

movement of our foreign operating currencies against the US dollar.

Principal Components of Our Results of Operations

Revenue

Revenue is recognised net of indirect taxes, returns, rebates and discounts. Sales of services

which have been invoiced but not yet recognised as revenue are included on the balance sheet as

deferred income and accounted for within trade and other payables.

School fee income

School fee income comprises tuition fees and income from ancillary sources including

registration fees, examinations, school trips, bus transportation, lunch fees and the tuition fee

insurance scheme. School fee income is generally recognised over the school terms from September

to June and is generally payable in advance on or before the first day of each term and recognised

27

across the months of each term. Where fees are received in advance for more than one term, the

income is recognised over the months in the terms for which payment has been made. Our refund

policy requires a full term’s notice for a refund. Therefore, we are entitled to a full year of tuition fees

if we receive a withdrawal notice after the start of Term 2 in January.

Service contracts

Learning Services contract revenue is recognised proportionally as we provide the services

under each contract. Some degree of judgement is exercised where contracts have an element of

revenue earned based on the delivery of contract milestones. Contract revenue and performance are

regularly monitored and any revisions to estimated revenue recognition are recorded in the period in

which they are identified.

Cost of Sales

Cost of Sales represents primarily direct educational costs and consultancy costs. Direct

educational costs primarily consist of salary and benefits for school principals and teaching staff and

lecturers employed in our Premium Schools Division and the costs of teaching materials, provision of

school lunches, bus services and certain after school activities.

Consultancy costs include the cost of independent consultants we use in the delivery of our

Learning Services contracts.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of compensation and

associated costs for our management, finance, human resources, marketing, education policy staff

and administrative personnel at our corporate headquarters as well as regional teams in China,

Switzerland, the Middle East and Central Europe and legal fees, audit fees and fees for tax advisory

work (in FY2011, these fees were included in cost of sales and have been reclassified for FY2012

and FY2011 in this report). In addition, these expenses will include compensation and associated

costs for our admissions and marketing personnel and other support staff in our schools as well as

outside professional fees, property costs including the rent costs of our schools and other corporate

expenses. Unrealised foreign exchange gains and losses due primarily to retranslation of currencies

on our inter-company balances are also included in our selling, general and administrative expenses

but are added back or deducted when calculating our Adjusted EBITDA.

Other Operating Expenses

Other expenses consist primarily of amortisation and impairment charges on intangible assets,

depreciation costs and other non-operating costs.

Finance Income

Finance income primarily consists of interest on bank deposits.

Finance Costs

Finance costs represent interest on borrowings and financial leases, shareholder loan notes and

certain other miscellaneous interest costs.

Income Tax Expense

Income tax expense consists of corporate income tax in the jurisdictions in which we operate as

well as withholding taxes on dividends from our non-UK subsidiaries. In addition, the tax expense

includes a charge or credit for deferred tax. Fluctuations in our effective tax rate are primarily

attributed to changes in the operating results of our subsidiaries, which are subject to various tax

rates and tax concessions in their respective jurisdictions.

Critical Accounting Policies

Critical accounting policies are those that require application of our management’s most difficult,

subjective or complex judgments often as a need to make estimates about the effects of matters that

are inherently uncertain and may change in subsequent periods. Certain accounting estimates are

particularly sensitive because of their significance to the financial statements and because of the

28

possibility that future events affecting the estimate may differ significantly from management’s current

judgments.

We have described below the critical accounting policies that our management believes are the

most significant judgments and estimates used in the preparation of our consolidated financial

statements.

Revenue Recognition

We recognise revenues from our Premium Schools over the 10 months of the academic year

from September to June. Hence no revenue is recognised in July or August except for some summer

schools in China and Switzerland and any income earned where the academic year begins before 1

September. This means that for the months of July and August, we normally incur an EBITDA loss as

we recognise the vast majority of the revenue and direct costs of our schools over 10 months but their

overheads over twelve months.

The revenue and costs of our Learning Services contracts and the costs of our central and

regional support teams are recognised over twelve months. A degree of judgment is exercised where

contracts have an element of revenue earned based on the delivery of contract milestones. Contract

revenue and performance are constantly monitored and any revisions to estimated revenue

recognition are recorded in the period in which they are identified.

Goodwill and Intangible Assets

For the purpose of assessing impairment, assets are grouped at the lowest levels for which

there are separately identifiable cash flows. Intangible fixed assets that are not subject to

amortisation are tested annually for impairment. Goodwill and brand name are tested for impairment

but are the only intangible asset that are not subjected to amortisation. Assets that are subject to

amortisation or depreciation are reviewed for impairment whenever events or changes in

circumstances indicate that the carrying amount may not be recoverable.

Intangible assets acquired as part of an acquisition of a business are capitalised separately from

goodwill if those assets are identifiable and their fair value can be measured reliably. The initial

identification of intangible assets requires considerable judgement in respect to the classification of

the assets and in the assessment of their life. In addition, when assessing the values of the intangible

assets, management is required to exercise judgement in determining the future profitability and cash

flows of those assets, royalty rates, life of customer base and the appropriate weighted average cost

of capital.

Pensions

We maintain three defined benefit plans in the UK and similar arrangements in our schools in

Switzerland, for which we have recorded a pension liability. This liability is based upon an actuarial

valuation that requires a number of assumptions including discount rate, mortality rates and actual

returns on plan assets which may necessitate material adjustments to the liability in the future. The

assumptions used by the actuary are the best estimates chosen from a range of possible actuarial

assumptions. Details of the principal actuarial assumptions used in calculating the recognised liability

for the plans are given in note 19 of the audited financial statements for FY2012.

Taxation

We are subject to income and other taxes in the various jurisdictions in which we operate.

Judgements are required in determining the consolidated provision for income and other taxes.

During the ordinary course of business, there are transactions and calculations for which the ultimate

tax determination is uncertain. As a result, we recognise tax liabilities for anticipated issues arising

from tax audits based on our estimates of whether additional taxes might become due. The amount

of such liabilities is based on an assessment of several factors, including experience of previous tax

audits and differing interpretations of local tax law. This assessment relies on estimates and

assumptions on future possible events and involves a series of complex judgements. To the extent

that the final outcome is different from the amounts recognised, such differences will impact the

income tax and deferred tax provisions in the period in which such determination is made.

The recognition of deferred tax assets is based upon whether it is probable that sufficient and

suitable taxable profits will be available in the future against which the reversal of temporary timing

29

differences can be deducted. Where the temporary differences relate to losses, the availability of the

losses to offset against future forecast taxable profits is also considered. Recognition therefore

involves judgement regarding the future financial performance of the particular legal entity or tax

group in which the deferred tax asset has been recognised.

Results of Operations

The twelve months ended August 31, 2012 compared to the twelve months ended August 31, 2011

Revenue

Revenue increased 20.7% from $219.3 million in FY2011 to $264.6 million in FY2012. The rise

was due to increased revenue from Premium Schools, partly offset by a decrease in revenue from

Learning Services.

Revenue from our Premium Schools increased 41.4% from $158.8 million in FY2011 to $224.5

million in FY2012. This increase was primarily due to the acquisition of our four schools in

Switzerland, increased enrolment at our schools in Beijing and Shanghai and increased tuition fees

across all our schools. Between FY2011 and FY2012: our average FTEs increased from 6,482 to

7,397 and our average Adjusted Revenue per student increased from $28.8 thousand to $30.1

thousand due primarily to an increase in tuition fees.

Revenue from Learning Services decreased 33.7% from $60.5 million in FY2011 to $40.1 million

in FY2012. This decrease was largely due to the completion of certain contracts in Abu Dhabi, the

UK and Saudi Arabia.

Cost of Sales

Cost of sales increased by 18.6% from $99.8 million in FY2011 to $118.4 million in FY2012.

This increase was primarily due to the direct costs associated with the number of teachers added

as a result of the acquisition of our four schools in Switzerland and the increased student

numbers at our Beijing and Shanghai schools.

This cost of sales increase was partially offset by a decrease in the cost of sales associated

with Learning Services due to the completion of certain contracts which directly reduced the

number of consultants employed by us.

Gross Profit

Our gross profit increased 22.3% from $119.5 million in FY2011 to $146.2 million in FY2012

resulting in a gross profit margin of 54.5% in FY2011 and 55.3% in FY2012. The increase in our

gross profit margin was mainly due to the higher margin Premium Schools being a much greater

percentage of the total in FY2012 compared to the prior year. We note the reclassification in

FY2012 and FY2011 of certain expenses from cost of sales to selling, general and administrative

expenses referred to above in ‘Principal Components of Our Results of Operations’.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses increased by 10.2% from $71.8 million in

FY2011 to $79.1 million in FY2012. This increase was primarily due to a foreign exchange loss

of $4.6 million (primarily due to unrealised foreign exchange losses on intercompany loans) in

FY2012 compared to a gain of $4.2 million for FY2011, the inclusion of the selling, general and

administrative expenses of our schools in Switzerland for FY2012 which were acquired during

FY2011 and additional costs (mainly rent) associated with the capacity expansion of our

Shanghai Puxi school over the summer of 2011.

Other Operating Income/(Expenses)

Our other operating expenses decreased from $34.7 million in FY2011 to $20.7 million in

YTD FY2012. This was mainly due to a reduced goodwill impairment charge of $10.7 million in

FY2012 (this charge wrote off the remaining goodwill against the Learning Services division)

compared to a charge of $16.7 million in FY2011, increased amortisation charges from FY2011 to

FY2012 of $0.6 million and an increase in depreciation of $2.2 million from FY2011 to FY2012

due mainly to the acquisition of our schools in Switzerland. These increases in other expenses

30

were partly offset by exceptional income of $1.4 million in FY2012 compared to exceptional

expenses of $9.4 million for FY2011. The gain in FY2012 primarily relates to non-cash

adjustments made on the previously outstanding shareholder loan notes and related party

balances in preparation for conversion of the Issuer to a PLC whilst the exceptional expense

charged in FY2011 was primarily due to the cost of relocating the head office to Hong Kong from

the UK.

Finance Income

Finance income of $10.1 million for FY2011 included a one-time $9.5 million foreign

exchange gain recognised on the translation of foreign currency borrowings as a result of the

change in our presentational currency. Finance income for FY2012 of $103.0 million included a

waiver of $101.0 million of interest on the shareholder loan notes in connection with the

conversion of the Issuer to a PLC.

Finance Expenses

Our finance expense decreased 3.9% from $51.7 million in FY2011 to $49.7 million in

FY2012 mainly due to the reduced interest on the shareholder loan notes of $13.4 million

following the removal of all outstanding shareholder loan notes during FY2012. This saving was

partly offset by the higher outstanding amount under the Notes and the higher interest charged

on the Notes compared to the previous bank facility.

Income Tax Expense

Our income tax expense increased from $12.5 million in FY2011 to $16.4 million in FY2012,

primarily due to higher profits in China and the tax due on the profits of our schools in Switzerland

and Poland.

Profit for the Period

As a result of the foregoing, our profit increased from a loss of $41.1 million in FY2011 to a

profit of $83.3 million in FY2012.

Adjusted EBITDA

Our Adjusted EBITDA increased 23.5% from $59.9 million in FY2011 to $74.0 million for

FY2012 and Adjusted EBITDA as a percentage of Adjusted Revenue increased from 24.3% in

FY2011 to 28.2% for FY2012. This improvement was primarily due to increased enrolment which

filled existing capacity and increased tuition fees and the higher margin Premium Schools division

being a greater percentage of the total for FY2012 compared to FY2011.

Other comprehensive (loss)/income for the period

Other comprehensive (loss)/income decreased from an income of $8.2 million in FY2011 to

a loss of $37.0 million in FY2012. This was mainly due to an increase of $30.0 million in foreign

exchange translation differences caused by the strengthening of the US dollar against the

currencies in which our assets are valued, and an increase of $15.2 million in actuarial losses on

defined benefit pension plans as a result of a decrease in corporate AA bond yields and an

increase in liabilities due to higher inflation.

Liquidity and Capital Resources

Our on-going operations require the availability of cash to service debt, fund working capital

needs, maintenance and capacity expansion capital expenditure and any costs associated with

the acquisition of schools.

We believe that our operating cash flows and available amounts under our Senior Secured

Revolving Credit Facility will be sufficient to fund our working capital requirements, anticipated

capital expenditures and debt service requirements for the foreseeable future. Our ability to

generate sufficient cash, however, is subject to certain general economic, financial, industry,

legislative, regulatory and other factors beyond our control.

31

Net Cash from Operating Activities

Net cash generated from operating activities was $51.8 million in FY2012, primarily due to

an operating profit before tax and non-cash expenses of $62.9 million and a cash inflow from

working capital changes of $11.6 million, partly offset by tax paid of $15.9 million and interest

paid of $6.8 million. This represents an increase of $19.8 million from the $32.0 million

generated in FY2011. The main reason for the improvement in cash generated from operations

was the growth in FTE’s and hence revenue from our Premium Schools and a reduction in

interest paid ($4.1 million), which was partly offset by an increase in tax paid ($2.0 million).

Net Cash (used in) Investing Activities

Net cash used in investing activities increased from $11.6 million in FY2011 to $27.1 million

for FY2012, an increase of $15.5 million. The main reason for this was cash used in the

acquisition of The La Cote School ($3.9 million) and The Regents School, Thailand ($22.1 million)

offset by cash acquired on these schools of $2.9 million and $5.4 million respectively and a $1.1

million reduction in capital expenditure. The FY2011 charge included a large part of the capital

expenditure costs of our 1,000 place expansion of our school in Puxi.

Net Cash (used in) Financing Activities

Net cash (used in) financing activities improved from an outflow of $20.4 million in FY2011

to an outflow of $2.2 million in FY2012, a change of $18.2 million. This change was primarily due

to increased proceeds from new loans and reduced repayment of borrowings for FY2012

compared to FY2011.

Capital Expenditure

Our capital expenditures relate primarily to capacity expansion related capital expenditures

and non-capacity related or maintenance capital expenditures. We intend to fund our planned

capital expenditures from within our existing financial resources and operating cash flow. We

may also raise additional funds through debt or equity offerings or sales or other dispositions of

assets in the future to finance all or a portion of our future development or for other purposes.

Operating Leases and Contractual Commitments

Our contractual commitments in connection with our Premium Schools relate primarily to our

obligations under our long-term leases of the property upon which our schools are located. Our

contractual commitments in connection with Learning Services relate primarily to performance

guarantees under our Learning Services contracts.

The following table summarises our operating leases and capital commitments as of 31

August 2012.

US$ millions

Less than

one year

Between

one and five

years

More than

five years

Land and Buildings 27.0 93.5 300.0

Other 0.7 0.4 0.0

Total 27.7 93.9 300.0

Our operating leases are payable at market rates and are not subject to any restrictions

other than those that would normally be expected to apply to such leases. Agreements in respect

of properties may be subject to renewal according to the landlord’s terms. There are no new

terms of renewal applicable to any other operating lease agreements.

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss related to adverse changes in market prices, including interest

rates and foreign exchange rates, of financial instruments. We are exposed to various types of

market risk, including changes in interest rates and foreign exchange rates, in the ordinary course of

32

business. We face foreign exchange risk to the extent that our business’s revenue, costs, assets and

liabilities are denominated in currencies other than the US dollar. Our interest rate risk arises from

changes in interest rates which may affect the cost of our financings. We do not hold or issue

derivative or other financial instruments for trading purposes.

Foreign Currency Risk

We have significant and expanding international operations trading in non US dollar currencies.

Movements in global exchange rates can cause currency exposures to our consolidated US dollar

financial results. The majority of our trade is conducted in local currencies and where appropriate,

borrowings are matched in that currency to mitigate the risk of exposure to our assets and liabilities

from exchange rate movements. In countries of operation where currency trading zones are

considered to be weaker, some transactions are conducted in US dollars and euros to try to minimise

exchange fluctuation risks.

In consideration of benefits against cost, we do not hedge our translation exposure, but will

consider managing transactional exposures by using forward cover instruments where significant

transactions are involved.

Our Premium Schools hold significant non-US dollar cash balances in overseas operations

which arise from fee income and which represent a combination of working capital and trading profits.

These balances are held in operations which include countries where exchange control restrictions

may prevent full repatriation of funds to the UK parent undertakings. We utilise these funds through a

combination of reinvestment in the expansion or improvement of existing overseas operations or by

repatriation to the UK through management contracts including royalty agreements, management

charges and dividends. Through these means we believe that satisfactory distribution of these funds

can be achieved. For further information relating to our foreign currency risk exposure please see

note 22 of our audited consolidated financial statements for FY2012.

Interest Rate Risk

Our interest rate risk arises from our existing long-term borrowings. Borrowings issued at

variable rates expose us to cash flow interest rate risk. Borrowings issued at fixed rates expose us to

fair value interest rate risk. Our policy is to maintain approximately 50% of our variable rate secured

borrowings in a position which is shielded by swap and cap arrangements. During FY2012 and

FY2011, our borrowings at variable rates were denominated in US dollars. For further information

relating to our interest rate risk exposure please see note 22 of our audited consolidated financial

statements for FY2012.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements. We are sometimes required to

provide bid or performance bank guarantees on certain of our Learning Service contracts. These

bank guarantees provide legal evidence of our liability to our client or financial institution acting on

their behalf, so that if we should default, the third party can require payment directly from the bank

and we would be liable for the debt. As of 18 November 2012, the Group had $1.0 million in such

guarantees.

Recent Accounting Pronouncements

As of the date of authorisation of our audited financial statements for FY2012, the following

standards were in issue and have been endorsed by the EU. The Group has not applied these

standards in the preparation of the financial statements:

• IAS 19 (Amended) ‘Employee benefits’ is effective from periods commencing on or after 1 January 2013. It eliminates the corridor approach and requires immediate recognition of all actuarial gains and losses in the other comprehensive income, immediate recognition of all past service costs and the replacement of interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability/asset.

• IFRS 7 (Amended) ‘Financial instruments: Disclosures’ and IAS 32 (Amended) ‘Financial instruments: Presentation’ are effective from 1 January 2013 and 2014 respectively. The IAS 32 amendment clarifies some of the requirements for offsetting financial assets and financial

33

liabilities on the statement of financial position while the IFRS 7 amendment will require more extensive disclosures than are required under IFRS.

As of the date of authorisation of these financial statements, the following standard were in issue

but not yet effective and not yet endorsed by the EU. The Group has not applied these standards in

the preparation of the financial statements:

• IFRS 9 ‘Financial instruments’ is effective from periods commencing on or after 1 January 2015. It is the first standard issued as part of a wider project to replace IAS 39. It retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: i) amortised cost and ii) fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset.

• IFRS 10 ‘Consolidated financial statements’ is effective from periods commencing on or after 1 January 2013. It builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. It also provides additional guidance to assist in the determination of control where this is difficult to assess.

• IFRS 12 ‘Disclosures of interest in other entities’ is effective from periods commencing on or after 1 January 2013. It includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles.

• IFRS 13 ‘Fair value measurement’ is effective from periods commencing on or after 1 January 2013. It aims to improve consistency and reduce complexity by providing precise definition of fair value and single source of fair value measurement and disclosure requirements for use across IFRSs.

• IAS 27 (Amended) ‘Separate financial statements’ is effective from periods commencing on or after 1 January 2013. It includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10.

• IAS 28 (Amended) ‘Associates and joint ventures’ is effective from periods commencing on or after 1 January 2013. It includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11.

Management does not anticipate that the adoption of the above standards and interpretations

will have a material impact on the Group’s financial statements in the period of initial application.

34

5. CERTAIN CALCULATIONS

This section should be read in conjunction with the section titled ‘PRESENTATION OF

FINANCIAL INFORMATION’ in this Annual Report.

The following table sets forth the reconciliation from Adjusted EBITDA to Consolidated EBITDA

(as defined in the Indenture) for the twelve months ended 31 August 2012:

(Unaudited) Twelve months

ended 31/08/2012

$m

Adjusted EBITDA 74.0

Realised exchange loss (1.0)

Interest Income 1.4

Consolidated EBITDA 74.4

For the twelve months ended 31 August 2012, Consolidated EBITDA and Consolidated Interest

Expense1 on a pro-forma basis would have been as follows:

(Unaudited) Twelve months

ended 31/08/2012

$m

Consolidated EBITDA 74.4

Full year impact of acquisitions(2) 4.6

Consolidated EBITDA (Adjusted for the full year impact of acquisitions) 79.0

Consolidated interest expense (pro forma) 35.0

Consolidated Fixed Charge Coverage Ratio(3) 2.26

1 Consolidated Interest Expense is pro forma assuming the issue of the Notes and repayment of the

previously outstanding debt facilities using the proceeds of the Notes at the beginning of the twelve months ended 31 August 2012 plus actual interest and fees paid during the twelve months ended 31 August 2012 which will continue following the issue of the Notes. 2.

Incorporates the full fiscal period historical financial result of The Regent’s School, Chonburi Thailand which we acquired during the relevant fiscal period as if the acquisition had been completed as of the first day of the period 3.

“Consolidated Fixed Charge Coverage Ratio” means, for any period, the ratio of (1) Consolidated EBITDA to (2) Consolidated Interest Expense

35

6. DESCRIPTION OF OTHER MATERIAL INDEBTEDNESS AND CERTAIN FINANCING ARRANGEMENTS

The following is a summary of the material terms of our principal financing arrangements.

The following summaries do not purport to describe all of the applicable terms and conditions

of such arrangements and are qualified in their entirety by reference to the actual agreements.

Senior Secured Revolving Credit Facility

General

On 21 March 2012 we entered into a Senior Secured Revolving Credit Facility which

provided for borrowings up to an aggregate of $20.0 million but allows for subsequent

increases (by the existing lenders or by acceding new lenders) of up to a further $20.0 million.

On 23 July 2012, Barclays Bank PLC increased its commitment under the Senior Revolving

Credit Facility from $20.0 million to $30.0 million. Loans may be borrowed, repaid and re-

borrowed at any time.

Maturity

The Senior Secured Revolving Credit Facility matures on 28 September 2016.

Borrowings must be repaid in full on or prior to that date.

Interest Rate

Borrowings under the Senior Secured Revolving Credit Facility bear interest at

LIBOR/EURIBOR plus an applicable margin. The margin is fixed for the first twelve months but

thereafter may vary based on the Total Net Leverage ratio.

Security

The Senior Secured Revolving Credit Facility is guaranteed by substantially the same

guarantors guaranteeing the Notes and is secured by substantially the same collateral, subject

to certain agreed security principles. The Security is subject to an inter-creditor agreement.

See “—Inter-creditor Agreement”. Security is given by the Obligors over their ownership

interests in each Guarantor and over the material assets of each Guarantor, subject to agreed

security principles. Note Guarantees and security may at the option of the Issuer be released

in the circumstances set forth in the Notes and such releases shall be binding on the Lenders

under the Revolving Credit Facility. The Issuer shall ensure that other companies in the

Restricted Group accede, subject to the Security Principles, as Guarantors so that the

aggregate EBITDA of the Guarantors (tested annually) shall amount to at least 90% of the

Restricted Group’s consolidated EBITDA (the “Coverage Test”).

Covenants

The Senior Secured Revolving Credit Facility contains customary affirmative, restrictive

and financial covenants. The Senior Secured Revolving Credit Facility contains, subject to

certain modifications, certain of the incurrence covenants and restrictive covenants that are

contained in the Indenture for the Notes.

The affirmative covenants require:

(a) obtaining, compliance with and maintenance of all authorisations;

(b) compliance with laws and regulations including as to environmental and

pensions matters;

(c) payment of taxes;

(d) maintenance of pari passu ranking;

(e) preservation of assets;

(f) providing access;

(g) maintenance of insurances;

(h) preservation and maintenance of intellectual property;

36

(i) requirement that certain financial ratios are satisfied;

(j) the creation of the security; and

(k) further assurance provisions.

The restrictive covenants include restrictions, among others, relating to:

(a) the Company carrying on other business and the carrying on of business by

dormant subsidiaries;

(b) change of business;

(c) treasury transactions (limited to non-speculative interest rate and/or foreign

exchange risk hedging in the ordinary course of business);

(d) certain acquisitions, unless certain requirements are fulfilled;

(e) centre of main interests of Guarantors incorporated in Europe; and

(f) compliance with certain Swiss 10/20 non-bank rules.

The restrictive covenants also include a restriction on any Group company purchasing or

redeeming the Notes or any other debt replacing the Notes following a refinancing or any other

financial indebtedness with a maturity of twelve months or more (“Relevant Debt” where this

would reduce the aggregate amount of Relevant Debt to less than $216.67 million) without

making a pro rata cancellation and, if applicable, prepayment of the Senior Secured Revolving

Credit Facility (for these purposes distinguishing between mandatory purchase or redemption,

in which case the principal amount offered in respect of such purchase or redemption shall be

used as the basis for such pro rata calculation, and voluntary purchase or redemption, in which

case the aggregate amount actually accepted and applied thereto shall be used as the basis

for such calculation).

Financial Covenants

Under the Senior Secured Revolving Credit Facility Agreement, we are obliged to comply

with a drawn super senior secured gross debt financial covenant. Under this covenant, the

ratio of Drawn Super Senior Gross Debt (as defined therein) to EBITDA (as defined therein)

must not exceed 0.75 to 1.00 for each relevant quarter (the “Drawn Super Senior Gross

Leverage Ratio”). This financial covenant is calculated and tested quarterly on a rolling

twelve month basis by reference to our consolidated annual financial statements and our

consolidated quarterly financial statements.

In addition, utilisations of the Senior Secured Revolving Facility are only be permitted to

the extent that the amount of utilisation, when aggregated with the then-outstanding amount of

Drawn Super Senior Gross Debt, would not result in a notional pro forma non-compliance with

the Drawn Super Senior Gross Leverage Ratio calculated for such purposes using such

aggregated amount of Drawn Super Senior Gross Debt and EBITDA as at the end of the

immediately preceding quarter date.

The Senior Secured Revolving Credit Facility Agreement provides for customary events of

default (subject to materiality thresholds, grace periods and other exceptions and

qualifications), including:

(a) non-payment;

(b) breach of the financial covenants and failure to deliver a compliance certificate

as required;

(c) breach of other covenants and other obligations;

(d) misrepresentation;

(e) cross default;

(f) insolvency;

(g) insolvency proceedings;

37

(h) creditor’s process;

(i) unlawfulness and invalidity;

(j) breach by a party to the Senior Secured Revolving Facility Agreement) of the

intercreditor agreement and failure by other parties thereto (other than a Finance

Party or an Obligor) to comply in any material respect with their obligations under

the intercreditor agreement;

(k) cessation of business;

(l) change of ownership of Obligor other than the Company;

(m) audit qualification;

(n) expropriation;

(o) repudiation/rescission;

(p) litigation; and

(q) material adverse change.

Governing Law

The Senior Secured Revolving Credit Facility Agreement is governed by and construed

and enforced in accordance with English law except that provisions carried across from the

Notes Indenture, including restrictive covenants and related definitions, shall be interpreted in

accordance with New York law. Any security documents in relation to assets sited in a

jurisdiction other than England and Wales are governed by the lex situs of these assets.

Intercreditor Agreement

In connection with entering into the Senior Secured Revolving Credit Facility and the

Indenture, the Issuer, the Guarantors and certain other subsidiaries of the Issuer and, the

security agent entered into the Intercreditor Agreement to govern the relationships and relative

priorities among: (i) the lenders under the Senior Secured Revolving Credit Facility (the “RCF

Lenders”); (ii) any persons that accede to the Intercreditor Agreement as counterparties to

certain hedging agreements (collectively, the “Hedging Agreements” and any persons that

accede to the lnter-creditor Agreement as counterparties to the Hedging Agreements are

referred to in such capacity as the “Hedge Counterparties”); (iii) the Trustee, on its behalf

and on behalf of the holders of the Noteholders (iv) intragroup creditors and debtors; and (v)

the direct or indirect shareholder of the Issuer in respect of certain structural debt that the

Issuer has or may incur in the future (including any subordinated shareholder loans) among

other things, in connection with the documents in respect of the debt that will share in the

Collateral (the “Secured Debt Documents”). In addition, the Intercreditor Agreement

regulates the relationship between the Issuer and its Restricted Subsidiaries, on the one hand,

and shareholders of the Issuer and related parties, on the other hand.

The Issuer and each of its Restricted Subsidiaries that incurs any liability or provides any

guarantee under the Senior Secured Revolving Credit Facility or the Indenture are each

referred to in this description as a “Debtor” and are referred to collectively as the “Debtors.”

In this description “Group” refers to the Issuer and its Restricted Subsidiaries.

The Intercreditor Agreement sets forth:

• the relative ranking of certain indebtedness of the Debtors;

• the relative ranking of certain security granted by the Debtors;

• when payments can be made in respect of certain indebtedness of the Debtors;

• when enforcement actions can be taken in respect of that indebtedness;

• the terms pursuant to which that indebtedness will be subordinated upon the

occurrence of certain insolvency events;

• turnover provisions; and

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• when security and guarantees will be released to permit a sale of any assets

subject to Security (the “Security”).

The Intercreditor Agreement contains provisions relating to future indebtedness that may

be incurred by the Issuer and the Guarantors that is permitted by the Senior Secured Revolving

Credit Facility and the Notes to rank pari passu with the Senior Secured Revolving Credit

Facility and the Notes and be secured by the Collateral, subject to the terms of the Intercreditor

Agreement, such debt being “Pari Passu Liabilities” and the creditors of such debt being “Pari

Passu Creditors.” Each lender of a credit facility which shares security in accordance with the

key terms of the Intercreditor Agreement is a “Credit Facility Lender” and the liabilities of the

Debtors to the Credit Facility Lenders are the “Credit Facility Lender Liabilities”.

Unless expressly stated otherwise in the Intercreditor Agreement, in the event of a conflict

between the terms of the Senior Secured Revolving Credit Facility, any hedging agreement,

pari passu debt document, any security document, any intra-group debt document or

shareholder debt document or the Indenture and the Intercreditor Agreement, the provisions of

the Intercreditor Agreement will prevail.

By accepting a Note, holders of the Notes shall be deemed to have agreed to, and

accepted the terms and conditions of, the Intercreditor Agreement.

The following description is a summary of certain provisions, among others, contained in

the Intercreditor Agreement. It does not restate the Intercreditor Agreement in its entirety, and

we urge you to read that document because it, and not the description that follows, defines

your rights as holders of the Notes.

Ranking and Priority

The Intercreditor Agreement provides, subject to the provisions in respect of permitted

payments described below, that the Credit Facility Lender Liabilities and the liabilities of the

Debtors with respect to the Revolving Credit Facility and the hedging agreements to the extent

designated as having a super senior mark-to-market limit (and the aggregate amount of the

super senior hedging mark-to-market limits may not (and therefore the exposure of the Debtors

thereunder that rank super senior cannot) exceed $10 million at any one time) (the “Super

Senior Hedging Liabilities”; together with the Credit Facility Lender Liabilities, the “Super

Senior Liabilities”), the liabilities of the Debtors in respect of the Notes (the “Senior Secured

Notes Liabilities”), the liabilities of the Debtors with respect to the hedging agreements to the

extent such hedging liabilities are not Super Senior Hedging Liabilities (the “Hedging

Liabilities”), the liabilities of the Issuer in respect of the Notes (the “Senior Notes Issuer

Liabilities”), the liabilities of the Debtors under the Note Guarantees (the “Senior Notes

Guarantee Liabilities”), the liabilities of the Debtors to the Trustee (the “Trustee Liabilities”),

and certain other unsecured liabilities rank in right and priority of payment in the following

order:

• first, the Super Senior Liabilities, the Senior Secured Notes Liabilities, the Hedging

Liabilities, the Trustee Liabilities and the Pari Passu Liabilities pari passu and

without any preference between them;

• second, certain intercompany obligations of the Issuer and the Guarantors (the

“Obligors”) to the Issuer and its Restricted Subsidiaries (the “Intra-Group

Liabilities”) and investor debt (which consists of certain liabilities owed by any

Obligor to any shareholder, direct or indirect, of the Issuer,) (the “Shareholder

Liabilities” and together with the Intra-Group Liabilities, the “Subordinated

Liabilities”).

The parties to the Intercreditor Agreement agree in the Intercreditor Agreement that the

security provided by the Debtors and the other parties for the Super Senior Liabilities, the

Hedging Liabilities, the Pari Passu Liabilities and the Senior Secured Notes (together the

“Secured Liabilities”) rank and secure the Super Senior Liabilities, the Senior Secured Notes

Liabilities, the Hedging Liabilities and the Pari Passu Liabilities pari passu and without any

preference between them (but only to the extent the security is expressed to secure those

Liabilities) except as provided below.

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Permitted Payments of Subordinated Debt

The Intercreditor Agreement permits, inter alia, payments to be made by the Debtors

under the Revolving Credit Facility, the Senior Secured Notes Indenture and the Pari Passu

Liabilities and payments by the Issuer of Senior Notes Issuer Liabilities and does not in any

way limit or restrict any payment by any Debtor of them in the ordinary course of business.

The Intercreditor Agreement also permits payments from time to time when due to lenders

owed any Intra-Group Liabilities (“Intra-Group Liabilities Payments”) if at the time of

payment no acceleration event has occurred in respect of a Credit Facility, the Pari Passu

Liabilities, the Senior Secured Notes Liabilities or the liabilities of the Debtors under the Senior

Notes (the “Senior Notes Liabilities”) (an “Acceleration Event”). The Inter-creditor

Agreement permits Intra-Group Liabilities Payments if such an Acceleration Event occurs if (i)

prior to the date on which all Secured Liabilities are discharged (the “Secured Liabilities

Discharge Date”), with the consent of an Instructing Group, see “—Manner of Enforcement,”

or (ii) that payment is made to facilitate payment of the Secured Liabilities.

Payments may be made on shareholder debt from time to time when due if: (i) the

payment is not prohibited by the Revolving Credit Facility and the Senior Secured Notes

Indenture and the instruments governing the Pari Passu Liabilities (the “Pari Passu Debt

Documents”); (ii) prior to the date on which all Super Senior Liabilities are discharged (the

“Super Senior Discharge Date”), the Instructing Group gives written consent to such

payment being made; (iii) on or after the Super Senior Discharge Date but prior to the Senior

Secured Notes Discharge Date, the Majority Senior Secured Creditors (i.e. more than 50% of

the total Senior Secured Credit Participation) give written consent to such payment being

made.

Creditor Representative

Under the Inter-creditor Agreement, the parties appoint various creditor representatives.

“Creditor Representative” means:

(a) in relation to the RCF Lenders, the Revolving Credit Facility agent (the “RCF

Agent”);

(b) in relation to the Credit Facility Lenders under any other Credit Facility, the

facility agent in respect of that credit facility (an “Additional Credit Facility

Agent”, and, together with the RCF Agent, a “Credit Facility Agent”);

(c) in relation to the Senior Secured Noteholders, the Senior Secured Notes

Trustee;

(d) in relation to the Pari Passu Creditors, the creditor representative for the Pari

Passu Creditors (the “Pari Passu Debt Representative”); and

(e) in relation to any Hedge Counterparty, such Hedge Counterparty which shall be

its own Creditor Representative.

Permitted Senior Secured Notes Payments

The Debtors may make payments of the Senior Secured Notes Liabilities at any time in

accordance with the Senior Secured Notes Documents and to the extent such payments are

not prohibited under the terms of the Credit Facility.

Decision Making

Certain key terms are used in relation to the decision making under the Inter-creditor

Agreement.

”Majority Senior Secured Creditors” means Senior Secured Noteholders and Pari

Passu Creditors whose outstandings under the Senior Secured Notes or Pari Passu Debt

Documents, and the Hedging Liabilities of any Senior Secured Creditor, together exceed 50%

of the aggregate of all such amounts.

”Majority Super Senior Creditor” means Credit Facility Lenders whose drawn and

undrawn commitments under the Credit Facilities, and the Super Senior Hedge Counterparties

whose Hedge Liabilities, together exceed 662⁄3% of the aggregate of all such amounts.

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”Senior Secured Notes Required Holders” means Noteholders holding Notes in the

amount required to approve the relevant matter under the Indenture, or if no such amount is

specified, at least the majority of outstanding Notes (disregarding those held by Debtors).

”Pari Passu Debt Required Holders” means Pari Passu Required Holders (defined in a

similar way to Senior Secured Notes Required Holders).

”Instructing Group” means, prior to the discharge of Super Senior Liabilities, the Notes

Liabilities and the Pari Passu Liabilities (the “Priority Debt Discharge Date”), the Majority

Super Senior Creditors and the Majority Senior Secured Creditors except for in the case of

enforcement, certain additional provisions as discussed below.

Entitlement to Enforce Collateral

The Security Agent may refrain from enforcing the Collateral unless otherwise instructed

by the relevant instructing group. See “—Manner of Enforcement.” The Security Agent may

disregard any instructions from any other person to enforce the Collateral and may disregard

any instructions to enforce any Collateral if those instructions are inconsistent with the

Intercreditor Agreement. The Security Agent is not obligated to enforce the Collateral if they

are not appropriately indemnified by the relevant creditors.

Enforcement Instructions-Consultation Periods

If either of the Majority Super Senior Creditors or the Majority Senior Secured Creditors

wish to instruct the Security Agent to commence enforcement of any Collateral, such group of

Creditors must deliver a copy of the proposed instructions as to enforcement (the

“Enforcement Proposal”) to the Security Agent and the Creditor Representative for each of

the Super Senior Creditors and/or the Senior Secured Creditors (as appropriate) at least 10

Business Days prior to the proposed date of issuance of instructions under such Enforcement

Proposal (the “Proposed Enforcement Instruction Date”).

Until the Super Senior Discharge Date and subject to the paragraphs below, if the

Security Agent has received conflicting enforcement instructions, the Security Agent shall

promptly notify the Creditor Representative for each of the Super Senior Creditors and the

Senior Secured Creditors and such Creditor Representatives will consult with each other and

the Security Agent in good faith for a period of not less than twenty (20) days (or such shorter

period as the relevant Creditor Representatives may agree) (the “Initial Consultation

Period”) from the earlier of (i) the date of the latest such Conflicting Enforcement Instruction

and (ii) the date falling 10 Business Days after the date the original Enforcement Proposal is

delivered in accordance with paragraph above, with a view to co-ordinating instructions as to

Enforcement.

The Creditor Representatives for each of the Super Senior Creditors and the Senior

Secured Creditors shall not be obliged to consult (or, in the case where the Creditor

Representatives are in agreement with regard to any proposed enforcement action, no Initial

Consultation Period or such shorter consultation period as determined by the Creditor

Representatives shall apply) in accordance with paragraph above or paragraph below, if

(i) the Collateral has become enforceable as a result of an Insolvency Event;

(ii) the Majority Super Senior Creditors or the Majority Senior Secured Creditors

determine in good faith (and notifies the Creditor Representatives of the other

Super Senior Creditors and the Senior Secured Creditors in writing) that to enter

into such consultations and thereby delay the commencement of enforcement of

the Collateral could reasonably be expected to have a material adverse effect

on:

(A) the Security Agent’s ability to enforce any of the Collateral; or

(B) the realisation proceeds of an enforcement of the Collateral in any

material respect; or

(iii) the Senior Secured Notes Trustee, the Senior Secured Hedge Counterparties,

the Pari Passu Debt Representative, the RCF Agent and the Creditor

41

Representative of each other Super Senior Creditor agree not Initial Consultation

Period is required.

If consultation has taken place for at least 20 days as set out in paragraph above (or such

shorter period as determined above) (or was not required to occur as provided for in the

paragraph above) there shall be no further obligation to consult, the Security agent may act in

accordance with the instructions as to enforcement then or previously received from the

Instructing Group and the Instructing Group may issue instructions as to enforcement to the

Security Agent at any time thereafter.

If the Majority Super Senior Creditors or the Majority Senior Secured Creditors (acting

reasonably) consider that the Security Agent is enforcing the Collateral in a manner which is

not consistent with the Security Enforcement Principles (set out below), subject to the

paragraphs above, the Creditor Representatives for the relevant Super Senior Creditors or the

Senior Secured Creditors shall give notice to the Creditor Representatives for the other Super

Senior Creditors and the Senior Secured Creditors (as appropriate) after which the Creditor

Representatives for the other Super Senior Creditors and the Senior Secured Creditors shall

consult with the Security Agent for a period of 10 days (or such lesser period as the relevant

Creditor Representatives may agree) with a view to agreeing the manner of enforcement

provided that such Creditors Representatives shall not be obliged to consult under this

paragraph more than once in relation to each enforcement action.

A Creditor Representative may only give enforcement instructions that are consistent with

certain security enforcement principles (the “Security Enforcement Principles”), including

that:

The Collateral will be enforced and other action as to enforcement will be taken such that

either:

(a) all proceeds of enforcement are received by the Security Agent in cash for

distribution in accordance with the Intercreditor Agreement; or

(b) sufficient proceeds from enforcement will be received by the Security Agent in

cash to ensure that when the proceeds are applied in accordance with the

Intercreditor Agreement, the Super Senior Liabilities are repaid and discharged

in full (unless the Majority Super Senior Creditors agree otherwise).

The enforcement action must be prompt and expeditious it being acknowledged that

subject to the Intercreditor Agreement, the time frame for the realisation of value from the

enforcement of the Collateral or Distressed Disposal pursuant to enforcement will be

determined by the Instructing Group provided that it is consistent with the Security Enforcement

Objective.

On:

(a) a proposed enforcement of any of the Collateral over assets other than shares in

a member of the Group, where the aggregate book value of such assets exceeds

a specified amount (or its equivalent); or

(b) a proposed enforcement of any of the Collateral over some or all of the shares in

a member of the Group over which Collateral exists,

the Security Agent shall (unless it is incompatible with enforcement proceedings in a

relevant jurisdiction) appoint a “big four” accounting firm, Grant Thornton, BDO, any reputable

and independent internationally recognised investment bank or other reputable and

independent professional services firm with experience in restructuring and enforcement in

each case selected by the Security Agent acting reasonably and in good faith (a “Financial

Advisor”) to opine as expert on:

(i) the optimal method of enforcing the Collateral so as to achieve the Security

Enforcement Principles and maximise the recovery of any such enforcement

action;

42

(ii) that the proceeds received from any such enforcement are fair and reasonable

from a financial point of view after taking into account all relevant circumstances

at that time; and

(iii) that such sale is otherwise in accordance with the Security Enforcement

Objective,

(“Financial Advisor’s Opinion”).

The Security Agent shall be under no obligation to appoint a Financial Advisor or to seek

the advice of a Financial Advisor, unless expressly required to do so by the Security

Enforcement Principles or under the Intercreditor Agreement.

Where the Instructing Group is the Majority Senior Secured Creditors, the Majority Senior

Secured Creditors may waive the requirement for a Financial Advisor’s Opinion where

sufficient proceeds from enforcement will be received by the Security Agent in cash to ensure

that when the proceeds are applied in accordance with the Intercreditor Agreement, the Super

Senior Liabilities are repaid and discharged in full.

The Financial Advisor’s Opinion (or any equivalent opinion obtained by the Security Agent

in relation to any other enforcement of the Collateral in accordance with the Indenture that such

action is fair from a financial point of view after taking into account all relevant circumstances)

will be conclusive evidence that the Security Enforcement Objective has been met.

In the event that an enforcement of the Collateral is over assets and shares referred to

above and such enforcement is conducted by way of public auction (or private auction involving

a competitive process) or other competitive bid process, any equity investors of the Group, the

Super Senior Creditors and the Senior Secured Creditors shall be entitled to participate in such

auction on the basis of equal information and access rights as other bidders and financiers in

the auction. Nothing in this principle shall require enforcement of Collateral to take place by

way of public auction.

In the absence of written notice from a Secured Party or group of Secured Parties that are

not part of the relevant Instructing Group that such Secured Party(ies) object to any

enforcement of the Collateral on the grounds that such enforcement action does not aim to

achieve the Security Enforcement Objective (an “Objection”), the Security Agent is entitled to

assume that such enforcement of the Collateral is in accordance with the Security Enforcement

Objective.

If the Security Agent receives an Objection (and without prejudice to the ability of the

Security Agent to rely on other advisers and/or exercise its own judgement In accordance with

the Intercreditor Agreement), a Financial Advisor’s Opinion to the effect that the particular

action could reasonably be said to be aimed at achieving the Security Enforcement Objective

will be conclusive evidence that the requirement to aim to achieve the Security Enforcement

Objective has been met.

Manner of Enforcement

The Instructing Group entitled to give instructions to the Security Agents in respect of

enforcement of Collateral comprises the Majority Super Senior Creditors and the Majority

Senior Secured Creditors (in each case acting through its respective Creditor Representative)

unless a bankruptcy event occurs in which ease the instructions of the Majority Super Senior

Creditors shall prevail. However, if before the Super Senior Discharge Date, and no

bankruptcy event has occurred, any Security Agent has received conflicting enforcement

instructions from the Creditor Representatives then, provided that the instructions from the

Majority Senior Secured Creditors (to the extent given) comply with the initial consultation

requirements described above and the Security Enforcement Principles, the relevant Security

Agent will comply with the instructions from the Majority Senior Secured Creditor provided that

if the Super Senior Liabilities have not been fully discharged, or no enforcement has occurred,

within six months of the date on which the first such enforcement instructions were first issued,

then the instructions of the Majority Super Senior Creditors will prevail.

Turnover

43

The Intercreditor Agreement also provides that if any Super Senior Creditor, Senior

Secured Notes Creditor, Senior Secured Hedge Counterparty or Pari Passu Creditor receives

or recovers the proceeds of any enforcement of any Collateral and in addition or any creditors

of Subordinated Liabilities receive or recover any payment or distribution not permitted under

the Intercreditor Agreement or applied other than in accordance with “—Application of

Proceeds” below that it shall:

• in relation to receipts or recoveries not received or recovered by way of set-off, (i)

hold that amount in trust for the relevant Security Agent and separate from other

assets, property or funds and promptly pay that amount or an amount equal to that

amount to the relevant Security Agent for application in accordance with the terms

of the Intercreditor Agreement; and (ii) promptly pay an amount equal to the

amount (if any) by which receipt or recovery exceeds the relevant liabilities owed

to such creditor to the relevant Security Agent for application in accordance with

the terms of the Intercreditor Agreement; and

• in relation to receipts and recoveries received or recovered by way of set-off,

promptly pay an amount equal to that recovery to the Security Agent for

application in accordance with the terms of the Intercreditor Agreement.

Application of Proceeds

The Intercreditor Agreement provides that amounts received from the realisation or

enforcement of all or any part of the Collateral will be applied in the following order of priority

(subject to certain country specific limitations):

• first, in payment of the following amounts in the following order: (i) pari passu and

pro rata any sums owing to any Security Agent, Receiver, Delegate and any

Senior Secured Notes Trustee payable to a Senior Secured Notes Trustee, as the

case may be; and then (ii) pari passu and pro rata to each Creditor Representative

(to the extent not included in (i) above and excluding any Hedge Counterparty as

its own Creditor Representative) of the unpaid fees, costs, expenses and liabilities

(anti all interest thereon as provided in the relevant finance documents) of each

Creditor Representative and any receiver, attorney or agent appointed by such

Creditor Representative under any Collateral document or the Intercreditor

Agreement (to the extent that such Collateral has been given in favour of such

obligations);

• second, pari passu and pro rata in or towards payment of all costs and expenses

incurred by the holders of Super Senior Liabilities in connection with any

realisation or enforcement of the Collateral taken in accordance with the terms of

the Intercreditor Agreement or any action taken at the request of any Security

Agent;

• third, in or towards payment to, on a pro rata basis, (i) the Credit Facility Agent on

its own behalf and on behalf of the Lenders for application towards the discharge

of the Credit Facility Lender Liabilities; and (ii) the relevant Super Senior Hedge

Counterparties for application towards the discharge of the Super Senior Hedging

Liabilities;

• fourth, pari passu and pro rata to the Senior Secured Notes Trustee on behalf of

the Senior Secured Creditors, and the representative of the Pari Passu Creditors

on behalf of the Pari Passu Creditors for application towards any unpaid costs and

expenses incurred by or on behalf of any Senior Secured Noteholders or Pari

Passu Creditors in connection with any realisation or enforcement of the Collateral

taken in accordance with the terms of the Collateral documents and the

Intercreditor Agreement or any action taken at the request of any Security Agent;

• fifth, pari passu to the Hedge Counterparties for application towards the discharge

of the Hedging Liabilities (other than the Super Senior Hedging Liabilities) to the

Senior Secured Notes Trustee on behalf of the Senior Secured Noteholders for

application towards the discharge of the Senior Secured Liabilities, and to the Pari

44

Passu Creditor Representative on behalf of the Pari Passu Liabilities Creditors far

application towards the discharge of the Pari Passu Liabilities; and

• sixth, after the discharge of all Secured Liabilities, in payment of the surplus (if

any) to the relevant Debtor or other person entitled to it.

Additional Indebtedness

In the event that any Debtor incurs any additional indebtedness that is permitted to be

designated as Super Senior Liabilities under the terms of the Notes and the Revolving Credit

Facility and is entitled to be secured by the Collateral, the liabilities in respect of such

additional Super Senior Liabilities will share in the proceeds of any enforcement of Collateral

on a pro rata basis with the existing Super Senior Liabilities.

In the event that any Debtor incurs any additional indebtedness that is pari passu in right

of payment with the Senior Secured Notes and that is entitled to be secured by the Collateral,

the liabilities in respect of such pari passu indebtedness will share in the proceeds of any

enforcement of the Collateral on a pro rata basis with the Senior Secured Notes Liabilities.

Release of the Guarantees and the Security

Non-distressed Disposal

In circumstances where a disposal is not being effected (i) by enforcement of Collateral,

(ii) after the Collateral has become enforceable or (iii) in the case of a disposal to a person

outside the Group, after an Acceleration Event in respect of Secured Liabilities has occurred (a

“Distressed Disposal”) and is otherwise not prohibited by the Secured Debt Documents, the

lntercreditor Agreement will provide that the Security Agent is instructed and authorised (i) to

release the Collateral where permitted to do so by the Secured Debt Documents; and (ii) if the

relevant asset consists of shares in the capital of a Debtor, to release the Collateral or any

other claim in respect of the Secured Liabilities over the assets of that Debtor and the shares in

and assets of any of its subsidiaries.

Distressed Disposal

Where a Distressed Disposal of an asset is being effected, the Intercreditor Agreement

provides that each of the Security Agent is instructed and authorised: (i) to release the

Collateral, or any other claim over that asset; (ii) if the asset which is disposed of consists of

shares in the capital of a Debtor, to release (a) that Debtor and any subsidiary of that Debtor

from all or any part of its liabilities as borrower under the liabilities governed by the Intercreditor

Agreement (“Liabilities”) other than those owed by the Company to a holder (a “Primary

Creditor”) of the Super Senior Liabilities, the Senior Secured Notes Liabilities, the Hedging

Liabilities, the Senior Notes Liabilities, the Trustee Liabilities and the Pari Passu Liabilities, its

liabilities as a guarantor of the Secured Debt or the Senior Notes or otherwise in connection

with the Transaction (“Guarantee Liabilities”) or other liabilities it may have to an Intra-Group

Lender or Debtor (“Other Liabilities”); (b) any Collateral granted by that Debtor or any

subsidiary of that Debtor over any of its assets; and (c) any other claim of a lender of Intra-

Group Liabilities (an “Intra-Group Lender”), or another Debtor over that Debtor’s assets or

over the assets of any subsidiary of that Debtor; (iii) if the asset which is disposed of consists

of shares in the capital of any holding company of a Debtor, to release (a) that holding

company and any subsidiary of that holding company from all or any part of its liabilities as

borrower under the Liabilities other than those owed by the Company to a Primary Creditor, its

Guarantee Liabilities and Other Liabilities; (b) any Collateral granted by any subsidiary of that

holding company over any of its assets; and (c) any other claim of an Intra-Group Lender or

another Debtor over the assets of any subsidiary of that holding company; and (iv) if the asset

which is disposed of consists of shares in the capital of a Debtor or a holding company of a

Debtor provides for the disposal of liabilities and/or the transfer of liabilities to another Debtor.

In certain circumstances described in the Intercreditor Agreement, the Security Agents

may, instead of releasing a borrowing claim against a Debtor (other than the Issuer), transfer

that claim to the direct or indirect acquirer of that Debtor.

45

Enforcement of Collateral in respect of a Distressed Disposal shall be consistent with the

Security Enforcement Objective.

Amendment

In addition to customary minor, technical or administrative matter amendments by the

Security Agent, the Intercreditor Agreement provides that it may be amended with only the

consent of the Majority Super Senior Creditors, the Senior Secured Notes Required Holders,

the Pari Passu Debt Required Holders, the Senior Notes Required Holders, the Issuer and the

Security Agents unless it is an amendment, waiver or consent that has the effect of changing or

which relates to any amendment to the order of priority or subordination set out in the

Intercreditor Agreement or certain provisions relating to the giving of instructions to the

Security Agent or the exercise of discretion by the Security Agent or the amendments

provisions in the Intercreditor Agreement which shall not be made without:

(i) the Credit Facility Lenders;

(ii) the Senior Secured Notes Trustee;

(iii) the Senior Notes Trustee;

(iv) the Pari Passu Debt Representative;

(v) each Hedge Counterparty (to the extent that the amendment or waiver would

materially and adversely affect the Hedge Counterparty); and

(vi) the Issuer.

If however an amendment, waiver or consent affects only one class of secured party and

could not reasonably be expected to materially and adversely affect the interests of the other

classes, only agreement from the requisite affected class is required.

Subject to the paragraphs above and certain other exceptions, no amendment or waiver

of the Intercreditor Agreement may impose new or additional obligations on or withdraw or

reduce the rights of any party to the Intercreditor Agreement without the prior written consent of

the party.

In addition the Intercreditor Agreement provides that if and to the extent (i) the Debtors (or

any of them) wish to incur incremental borrowings or guarantees thereof or to refinance and

thereof, which in any such case is intended to rank pari passu with any Liabilities and/or share

pari passu with any existing security interest and/or to rank behind any existing Liabilities

and/or to share in any existing security behind such existing Liabilities, and (ii) it is permitted by

the terms of the Revolving Credit Facility, the Hedging Agreements, the Senior Secured Notes

Indenture and the Pari Passu Debt Documents at that time, than the creditors party to the

Intercreditor Agreement will (at the cost of the Issuer) co-operate with the Debtors with a view

to enabling such financing or refinancing and such sharing of the security to take place. In each

case the Super Senior Creditors, the Hedging Counterparties, the Senior Secured Creditors

and the Senior Note Creditors authorise and direct its Representatives to execute any

amendment to the Intercreditor Agreement and the other Debt Documents required to reflect

such arrangements to the extent so permitted.

Option to Purchase: Senior Secured Noteholders and Pari Passu Creditors

The Senior Secured Notes Trustee and the Pari Passu Debt Representative may, after an

Acceleration Event in respect of the Secured Liabilities or any enforcement of Collateral, by

giving not less than 10 days’ notice to the Credit Facility Agent, and if appropriate the Hedge

Counterparties, require the transfer to them (or to a nominee or nominees), of all, but not part,

of the Credit Facility Lenders and Hedge Counterparties.

Any such purchase will be on terms which will include, without limitation, payment in full in

cash of an amount equal to the Liabilities purchased then outstanding, including in respect of

any broken funding costs, as well as; certain costs and expenses (including legal fees) of the

Secured Creditors; after the transfer, no Credit Facility Lender or Hedge Counterparty will be

under any actual or contingent liability to any Debtor.

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Governing Law

The Intercreditor Agreement is governed by and construed in accordance with English

law. In addition, certain limitations on obligations of certain Group members provided for in the

Intercreditor Agreement are expressed to be governed by the applicable local law.

47

7. RISK FACTORS

An investment in our Notes involves significant risks. This Annual Report does not include a

detailed discussion of these risks. Existing and prospective investors should refer to the risk factors

set forth in the Offering Memorandum dated 21 March 2012 relating to the Notes.

Prospective investors should consider those risks carefully before making a decision to invest in

the Notes. If any of those risks actually materialise, then our business, financial condition and results

of operations would suffer. In addition, there may be risks of which we are currently unaware or that

we currently regard as immaterial based on the information available to us that may later prove to be

material. These risks may adversely affect our business, financial condition and operating results. As

a result, you may lose all or part of your original investment in the Notes.

Appendix 1

Nord Anglia Education (UK) Holdings PLC

(Formerly known as Premier Education (UK) Holdco Limited)

Annual report and financial statements

Registered number 06590752

31 August 2012

Nord Anglia Education (UK) Holdings PLC (Formerly known as Premier Education (UK) Holdco Limited)

Annual report and financial statements 31 August 2012

Contents

Pages

Directors’ report for the year ended 31 August 2012 3-8

Independent auditors’ report to the members of Nord Anglia Education (UK) Holdings PLC 9

Consolidated Income Statement for the year ended 31 August 2012 10

Consolidated Statement of Comprehensive Income for the year ended 31 August 2012 11

Consolidated Balance Sheet as at 31August 2012 12

Company Balance Sheet as at 31 August 2012 13

Consolidated Statement of Changes in Equity for the year ended 31 August 2012 14

Consolidated Cash Flow Statement for the year ended 31 August 2012 15

Notes to the Financial Statements for the year ended 31 August 2012 16-83



3

Directors’ report for the year ended 31 August 2012

The directors present their annual report and the audited consolidated financial statements of the Group and Company for the year ended 31 August 2012.

Principal activities The principal activities of the Group and its subsidiaries are the operation of Premium Schools worldwide and the delivery of a wide range of education and training contracts both in the UK and overseas. The principal activity of the Company is that of a holding company. Business review and future developments The Group’s results reflect a year of continued strong trading, most notably in its Premium School’s division. The Group’s profit before interest, tax, depreciation and amortisation, impairment charges and exceptional items was $67.1m (2011 - $47.7m). The profit on ordinary activities before interest and taxation and before exceptional items was $45.0m (2011 - $22.4m). Exceptional administrative costs incurred in the year are detailed in note 4, Exceptional income/(expenses). The major elements of the charge relates to the impact of non-cash adjustments made on the shareholder loan notes and related party balances in preparation for conversion to a PLC in March 2012 as well as costs related to the acquisition of schools. Included within total expenses are costs totalling $6.9 million (2011 - $5.9 million) which the directors believe are not related to the normal trading of the Group. This amount includes a foreign exchange loss of $4.6 million, pre-acquisition and business integration costs ($0.6 million) and share based payments ($0.6 million). These costs fall outside the definition of exceptional costs for statutory purposes but it is the view of the directors that these costs should be highlighted in order that the underlying profit of the Group can be fully evaluated. On 28 March 2012, the Company issued $325.0 million of 10.25% Senior Secured Notes due 2017 (the “Notes”) pursuant to an indenture dated 28 March 2012 between the Company, Citicorp International Limited as Trustee and Security Agent, Citibank NA. London branch as Paying Agent and Citigroup Global Markets Deutschland AG as Registrar. During the year, the Company and its direct parent, Nord Anglia Education Inc. undertook various restructuring steps to facilitate the issuance of these Notes, including changing the name of the company from Premier Education (UK) Holdco Limited, converting the Company to a public limited company (“PLC”) and transitioning the shareholder capitalisation of the Issuer to 100% ordinary equity.

To convert the Company to a PLC, on 29 February 2012, NAE Inc. waived all accrued interest and a sufficient amount of principal of the then outstanding shareholder loans and loan notes between NAE Inc. and the Company in order to meet the distributable reserve requirement to enable the Issuer’s re-registration as a PLC. On 2 March 2012, the Company re-registered as a PLC.

On 28 March 2012, the Company issued the Notes. On issuance of the Notes, the Company made available $120.0 million of the proceeds to repay outstanding shareholder loans and loan notes held by NAE Inc. All remaining shareholder loans and loan notes owed by the Company to NAE Inc. were then capitalised in exchange for additional ordinary shares in the Issuer. Premium Schools In the year ended 31 August 2012, the results of the Premium School’s division benefited from strong growth in student numbers both at the start of the first term as well as during the 2011/12 academic year. In addition, the Company completed the acquisition and successful integration of an additional school in Switzerland (La Cote International School) and a school in Thailand (The Regent’s School, Chonburi) which have helped to continue the better balancing of the cash generating regions of the Group (see note 2, Acquisitions of subsidiaries). Full-time equivalent pupil numbers increased to an average of 7,397 for the year, from an average of 6,482 for the previous year (both excluding the pupil numbers of the school acquired in August 2012 in Thailand). The increase in pupil numbers in 2012 reflects the positive impact of the addition of one new school, along with the effects of management’s decision to drive the maximisation of classroom space through architectural-based initiatives and from continued and targeted marketing. Average consolidated school occupancy rates for 2012 were 76% compared to 73% in 2011.



4

Directors’ report for the year ended 31 August 2012 (continued) Business review and future developments (continued) Learning Services In the year ended 31 August 2012, the results of the Learning Services division reflected a year of continuing consolidation in light of very difficult trading conditions in all the markets served. The directors believe that this trend will not change in the near future and have therefore taken the decision to impair fully the remaining goodwill associated with the Learning Services division. Corporate developments The Group remains committed to both the expansion of its Premium Schools’ base and to the development of its existing schools. Within the Learning Services division, the Group has decided to reduce the resources dedicated to developing the division but will continue to manage the existing contracts which contribute to the profitability of the business. Debt On 28 March 2012, the Company issued $325.0 million of Notes due 2017 pursuant to a debenture dated 28 March 2012. The proceeds were used to repay the outstanding senior and mezzanine facilities and to close out the hedging arrangements in connection with those facilities ($182.5 million) and to repay $120.0 million of the outstanding shareholder loans and loan notes owed by the Company in exchange for additional ordinary shares in the Company. The balance relates to fees incurred and cash that remained in the business for working capital purposes. Strategy The Group will continue to promote its strategy of growth across its Premium Schools division whilst maintaining the existing contracts within the Learning Services division. Both the quality of educational delivery and the quality of people resources are at the core of the Group’s performance and provide the foundation for expansion. Financial outlook Whilst the economic environment in the markets in which the Company operates remain difficult, the prospects for the Group remain good. The Group has been internationally established for a number of years and in recent years has added to its international base. The multi-territory trading base provides the Group with the ability to balance its trading risks and to manage the impact of individual territory recessionary pressures and governmental changes within the education sector. Results and dividends The profit for the year, after taxation, amounted to $83.3 million (2011 – loss of $41.1 million). During the year no interim dividend was paid (2011 - $nil). The directors do not recommend the payment of a final dividend (2011 - $nil). Directors The directors who served during the period and up to the date of the signing of the financial statements were:

K Kalliarekos J Hennessy A Fitzmaurice (appointed 3 March 2012) G Halder (appointed 3 March 2012) A Kelsey (appointed 3 March 2012) Principal risks and uncertainties The board is responsible for establishing a coherent framework for the Group to manage risk, which is designed to identify, manage and mitigate business risk. Summarised below are what the board consider to be potential risks to the Group.



5

Directors’ report for the year ended 31 August 2012 (continued) Principal risks and uncertainties (continued) Corporate reputation and brand recognition The diversification of brands and products within the operating divisions mitigates the potential exposure the Group may have as a result of adverse effects on consumer confidence and continuity of supply. Overseas operations Some of the Group’s operations are domiciled in global overseas economies and are therefore subject to local legislative and taxation risks and regulatory development. Such operations are closely monitored enabling the Group to respond and adapt the business to address local issues. Government contracts The Learning Services division has several contracts working in partnership with government bodies. These contracts have strict guidelines and clauses which, if not adhered to, may result in the cancellation of such agreements or the application of financial penalties. The Group mitigates these risks by effective project management of agreed KPIs, regular internal audit of operations and review of procedures to ensure compliance. Health and safety Due to the nature of the Group’s operations, health and safety is subject to regular internal audit and external review, which assess and monitor health and safety risks related to customers and staff and ensures that government and group guidelines on such policies are adhered to. Where necessary the Group also engages the services of independent parties to advise on such matters. The board reviews health and safety performance within the Group at each monthly board meeting and the Group has a health and safety committee which places great importance on health and safety matters.

Staff The Group aims to recruit and retain high calibre staff to ensure that corporate business objectives are delivered. Procedures are in place to ensure that Criminal Record Bureau reports are obtained for all members of staff having exposure to children during the course of business. In respect of overseas employees, such checks, equivalent to those performed in the UK, are obtained from relevant local authorities. These checks are audited annually by internal audit. Disaster recovery policy The board has an Information and Communications Technology (“ICT”) disaster recovery procedure and reviews the adequacy of this at appropriate intervals. Other operational areas of the business are also reviewed and improvements recommended where identified. Key performance indicators Key measures used by the board to gauge performance within the Group include revenue, EBITDA (note 3) and net income. On a divisional basis measures include pupil numbers and occupancy rates for Premium Schools. 2012 2011 Capacity (average for the year) (1) 9,702 8,912 Full time equivalent students (average for the year) (2) 7,397 6,482 Utilisation (average for the year) (3) 76% 73% Adjusted Revenue per full time equivalent student ($’000) (4) 30.1 28.8 (1) We measure average capacity at the measurement date as the total number of FTEs that can be accommodated in a school based on its existing classrooms at each academic calendar month divided by the number of months in such period. (2) We calculate average full time equivalent students (“FTEs”) for a period by dividing the total number of FTEs at each academic calendar month end in such period by the number of academic calendar months in such period. (3) We measure utilisation during a period as a percentage equal to the ratio of average FTEs for the period enrolled at each school divided by average capacity. (4) We calculate Adjusted Revenue per student by dividing our total Adjusted Revenue for a relevant period by the average FTEs for such period. Adjusted Revenue, being Revenue adjusted for management charges made to The British International School Abu Dhabi LLC.



6

Directors’ report for the year ended 31 August 2012 (continued) Financial risk management The Group assesses and manages its potential exposure to financial risks, including price risk, credit risk, interest rate volatility, foreign currencies and exchange control restrictions, counterparty performance, liquidity risk and going concern as follows: Cash flow and interest rate risks On 28 March 2012, the Company issued $325.0 million of 10.25% Senior Secured Notes due 2017, part of the proceeds of which were used to repay the senior and mezzanine facilities outstanding at the time and to close out the hedging arrangements in connection with those facilities. Given the certainty provided by a fixed rate and the very low level of current interest rates, the Company has decided not to hedge its’ existing fixed rate at this time. Price risk The Group is not exposed to commodity price risk as a result of its operations. The Company has no exposure to equity securities price risk as it holds no listed or other equity investments other than wholly owned subsidiaries of the parent.. Credit risk The Group has implemented policies that ensure appropriate credit checks on potential customers. The amount of any exposure to any individual counter party is subject to a limit which is assessed regularly by the board. Foreign currency and exchange controls The Group converted to a US dollar functional currency on 31 August 2011 and the Group has significant and expanding international operations trading in non-dollar currencies. Movements in global exchange rates can cause currency exposures to the Group’s consolidated US dollar financial results. Trade is conducted in local currencies and, where appropriate, borrowings are matched in that currency to mitigate the risk of exposure to the Group’s assets and liabilities from exchange rate movements. In consideration of benefits against cost, the Group does not hedge its translational exposure. The Group will consider managing transactional exposures by using forward cover instruments where significant transactions are involved. The Group’s Premium Schools division holds significant non-dollar cash balances in overseas operations which arise from fee income and represent a combination of working capital and trading profits. These monies are held in operations in countries which include those where exchange control restrictions may prevent full repatriation of funds to the UK parent undertaking. The Group utilises these funds through a combination of reinvestment in the expansion or improvement of overseas operations, or by repatriation to the UK through management contracts, including royalty agreements, management charges and dividends. Through these means the directors believe that satisfactory distribution of these funds can be achieved. Counterparty risk The Group employs local advisers in each of its major countries of operation to provide professional advice and enhance local business knowledge in understanding compliance with local operating laws and regulations. The Group acknowledges that there are risks of ownership and in the control and safeguarding of assets in operations outside the European zone and has taken measures to reduce these risks by ensuring cash held, particularly in China, is deposited with secure national institutions that are also favoured by other western companies. Increasing the number of overseas countries in which the Group operates should reduce reliance on any one significant country of operation going forward.

Liquidity risk The Group aims to maintain a flexible borrowing structure by combining the certainty afforded by the fixed rate Notes with additional leasing and credit facilities including a Senior Revolving Credit Facility with Barclays Bank PLC. The initial facility on issuance of the Notes was $20.0 million but this was subsequently increased to $30.0 million on 23 July 2012 in order to provide the Company with greater flexibility to pursue its growth strategy. The Group monitors its future funding requirements over the short and medium term such that it can take actions to supplement its operating cash flows to service future debt obligations where appropriate. The Group must comply with a set of covenant restrictions as outlined in the Indenture, such as the ability of the Company to incur or guarantee additional debt, declare dividends or sell capital stock or assets. These restrictions are monitored on a regular basis by the board.



7

Directors’ report for the year ended 31 August 2012 (continued) Financial risk management (continued) Going concern The Group and Company balance sheets as at 31 August 2012 show that assets exceed liabilities by $53.1 million and $189.0 million respectively. The issuance of the Notes and the related write-off’s on the shareholder loan notes has significantly improved the net asset position of the Company (the prior year Group Balance Sheet showed a deficit of $124.8 million of liabilities over assets) The directors have reviewed the latest guidance relating to going concern and, having made all relevant enquiries, have formed a judgement at the date of the approval of the financial statements that the Group has adequate resources at its disposal to continue its operations for the foreseeable future. This judgement is based on a review undertaken of the current business forecast to 31 August 2014 and the projected cash requirements over that period to assess the likelihood of the Group being able to continue as a going concern. Suitable sensitivities were run for the periods up to 31 August 2014 to assess the headroom available. This review concluded that there were no material uncertainties that potentially could give rise to a significant doubt about the business continuing as a going concern. Qualifying third party indemnity A qualifying third party indemnity provision is in place for the directors of the Company during the financial year and also at the date of approval of the financial statements. This covers liability for the actions of directors and officers of the Company and associated costs, including legal costs. Subsequent events Subsequent to the balance sheet date, the Group entered into an agreement to purchase the 49% equity interest held by its ultimate parent in The British International School Abu Dhabi (“BISAD”) for $19.5 million. The acquisition which is pending regulatory approval, is expected to be completed before the end of calendar year 2012. The consideration of $19.5 million is all deferred with the first payment of $5.0 million being due in August 2013 followed by two further payments in August 2014 and August 2105 of $7.0 million and $7.5 million respectively. This will bring the total number of schools managed by the Group to fourteen. Employees The directors recognise the benefits that accrue from keeping employees informed of the progress of the business and involving them in the Group’s performance. Each Company within the Group adopts such employee consultation as is appropriate in individual circumstances and the executive directors make presentations to the divisional staff following annual announcements. The Group gives consideration to applications for employment from disabled persons where the requirements of the job may be adequately covered by a disabled person. Disabled employees are employed under the normal terms and conditions and are given the same access to training, career development and promotion as able-bodied employees. In the event of a staff member becoming disabled every effort is made to ensure that their employment with the Company continues and the appropriate training is arranged. The Group strives towards achieving equality of opportunity in all of its employment practices and service provision. The executive board is committed to ensuring that every employee is treated fairly and consistently in respect of day to day work activity. The Group aims to eliminate inadvertent and unlawful discrimination practices in order to enable all employees to have access to opportunities to realise their own potential and to build a diverse and socially inclusive workforce that is responsive and appropriate to all our service users. The Group takes the necessary steps to ensure all employees are aware of the financial and economic factors affecting the Group’s performance and also encourages employee participation in the Group’s performance by way of remuneration and for selected employees a cash bonus scheme. All employees in the Group are expected to avoid personal activities and financial interests which could conflict with their responsibilities to the Group. Employees must not seek gain for themselves or others through misuse of their positions. Donations Charitable donations made in the year totalled $0.3 million (2011 - $nil). There were no political donations (2011 - $nil).



8

Directors’ report for the year ended 31 August 2012 (continued)

Payment of suppliers The Group’s policy is, wherever practical, to:-

i) negotiate terms of payment with suppliers up front; ii) ensure that the suppliers are made aware of the terms of payment; and iii) abide by the terms of payment.

The Group’s average creditor payment period at 31 August 2012 was 62 days (2011 – 64 days). The Company had trade creditors amounting to $0.3 million at 31 August 2012 (2011 - $nil). The Company’s average creditor payment period at 31 August 2012 was 60 days (2011 – nil). Statement of directors’ responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of Nord Anglia Education (UK) Holdings PLC and the Group for that period. In preparing those financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed,

subject to any material departures disclosed and explained in the Group and parent Company financial statements

respectively; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Statement of disclosure of information to auditors In the case of each director in office at the date the directors’ report is approved, the following applies:

• so far as the director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and

• they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Company and Group auditors are aware of that information.

On behalf of the Board, G Halder Nord Anglia Education (UK) Holdings PLC Director The Old Vicarage, Market Street,

Castle Donington, 7 December 2012 Derbyshire,

DE74 2JB



9

Independent auditors’ report to the members of Nord Anglia Education (UK) Holdings PLC We have audited the Group and parent Company financial statements (the ‘‘financial statements’’) of Nord Anglia Education (UK) Holdings PLC for the year ended 31 August 2012 which comprise the Consolidated Income Statement, the Consolidated and Company Balance Sheets, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and the related notes. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent Company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 8, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Directors’ Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion In our opinion:

• the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 August 2012 and of the Group’s profit and cash flows for the year then ended;

• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

• the parent financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in

our opinion:

• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent Company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit. Andrew Lyon BSc FCA (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors East Midlands 7 December 2012



10

Consolidated Income Statement for the year ended 31 August 2012

Reclassified* Note 2012 2011 $m $m

Revenue 3 264.6 219.3 Cost of sales (118.4) (99.8)

Gross profit 146.2 119.5 Selling, general and administrative expenses (79.1) (71.8) Depreciation 10 (8.0) (5.8) Amortisation 11 (3.4) (2.8) Impairment of goodwill 11 (10.7) (16.7) Exceptional income/(expenses) 4 1.4 (9.4)

Total expenses 5 (99.8) (106.5)


Finance income 8 103.0 10.1 Finance expense 8 (49.7) (51.7)

Net financing income/(expense) 53.3 (41.6) Share of profit of jointly controlled entity 0.0 0.0

Profit/(loss) before tax 99.7 (28.6) Income tax expense 9 (16.4) (12.5)

Profit/(loss) for the year 83.3 (41.1)

Attributable to: Equity holders of the parent 83.3 (41.1)


* See Note 1 Accounting policies for details of reclassification

The notes on pages 16 to 83 form an integral part of these financial statements.



11

Consolidated Statement of Comprehensive Income for year ended 31 August 2012

Note 2012 2011 $m $m


Other comprehensive (loss)/income Foreign exchange translation differences (20.7) 9.3 Actuarial losses on defined benefit pension plans 19 (16.3) (1.1)

Other comprehensive (loss)/income for the period, net of income tax (37.0) 8.2

Total comprehensive profit/(loss) for the period 46.3 (32.9)

Attributable to: Equity holders of the parent 46.3 (32.9)

Total comprehensive profit/(loss) for the period 46.3 (32.9)




12

Consolidated Balance Sheet as at 31 August 2012 Note 2012 2011

$m $m

Non-current assets Property, plant and equipment 10 30.3 28.4 Intangible assets 11 454.9 458.8 Investments in jointly controlled entities 13 0.5 0.5 Derivative financial instruments 22 - 0.2 Trade and other receivables 15 10.8 11.6 Deferred tax assets 14 6.1 5.6

502.6 505.1

Current assets

Tax receivable 0.3 - Trade and other receivables 15 47.0 47.1 Cash and cash equivalents 16 108.2 88.0

155.5 135.1

Total assets 658.1 640.2

Current liabilities

Other interest-bearing loans and borrowings 17 (21.8) (29.4) Trade and other payables 18 (206.8) (178.7) Provisions for other liabilities and charges 20 (3.1) (3.1) Current tax liabilities (5.0) (3.3)

(236.7) (214.5)

Non-current liabilities

Other interest-bearing loans and borrowings 17 (318.9) (507.8) Other payables 18 (6.2) (2.0) Derivative financial instruments 22 - (6.4) Retirement benefit obligations 19 (30.4) (14.6) Provisions for other liabilities and charges 20 (2.3) (6.9) Deferred tax liabilities 14 (10.5) (12.8)

(368.3) (550.5)

Total liabilities (605.0) (765.0)

Net assets/(liabilities) 53.1 (124.8)

Equity attributable to equity holders of the parent

Share capital 21 67.5 67.5 Share premium 21 131.1 0.1 Other reserves 6.9 6.9 Currency translation reserve (0.1) 20.6 Shareholder deficit (152.3) (219.9)

Shareholders’ equity 53.1 (124.8)

Total shareholder surplus/(deficit) 53.1 (124.8)

The notes on pages 16 to 83 form an integral part of these financial statements. These financial statements set out on pages 10 to 83 were approved by the board of directors on 7 December 2012 and were signed on its behalf by:

A Fitzmaurice G Halder Director Director Company registered number: 06590752



13

Company Balance Sheet as at 31 August 2012

Note 2012 2011 $m $m

Fixed assets Investments 29(iii) 321.8 321.6

Current assets Debtors 29(iv) 427.8 13.4 Cash at bank and in hand 0.4 -

428.2 13.4

Creditors: Amounts falling due within one year 29(v) (250.5) (16.4)

Net current assets/(liabilities) 177.7 (3.0)

Total assets less current liabilities 499.5 318.6

Creditors: Amounts falling due after more than one year

29(vi) (310.5) (331.1)

Net assets/(liabilities) 189.0 (12.5)

Capital and reserves

Called up share capital 21* 67.5 67.5 Share premium account 21* 131.1 0.1 Other reserves 29(ix) (0.9) (0.9) Profit and loss account 29(x) (8.7) (79.2)

Total shareholder surplus/(deficit) 29(xi) 189.0 (12.5)

These financial statements set out on pages 10 to 83 were approved by the board of directors on 6 December 2012 and were signed on its behalf by: A Fitzmaurice G Halder Director Director

Company registered number: 06590752

*Note reference refers to consolidated financial statements note.



14

Consolidated Statement of Changes in Equity for the year ended 31 August 2012

Share capital

Share premium

Other reserves

Currency translation

reserves Shareholders’

deficit

Total parent equity

$m $m $m $m $m $m

Balance at 1 September 2010 1.6 0.2 6.6 12.6 (179.0) (158.0)

Total comprehensive income/(loss) for the year Loss for the year - - - - (41.1) (41.1)

Currency translation differences 0.1 - 0.3 8.0 0.9 9.3 Actuarial losses on defined benefit pension schemes - - - - (1.1) (1.1)

Total comprehensive income/(loss) for the year 0.1 (0.0) 0.3 8.0 (41.3) (32.9)

Transactions with owners, recorded directly in equity

Contributions by and distributions to owners Issue of shares 30.4 35.3 - - - 65.7 Issue of preference shares (note 21) 35.4 (35.4) - - - - Equity-settled share based payment transactions - - - - 0.4 0.4

Total contributions by and distributions to owners 65.8 (0.1) - - 0.4 66.1

Balance at 31 August 2011 and 1 September 2011 67.5 0.1 6.9 20.6 (219.9) (124.8)

Total comprehensive income/(loss) for the year

Profit for the year - - - - 83.3 83.3

Currency translation differences - - - (20.7) - (20.7) Actuarial losses on defined benefit pension schemes - - - - (16.3) (16.3)

Total comprehensive income/(loss) for the year - - - (20.7) 67.0 46.3

Transactions with owners, recorded directly in equity

Issue of shares (note 21) - 131.0 - - - 131.0 Equity-settled share based payment transactions - - - - 0.6 0.6

Total contributions by and distributions to owners - 131.0 - - 0.6 131.6

Balance at 31 August 2012 67.5 131.1 6.9 (0.1) (152.3) 53.1




15

Consolidated Cash Flow Statement for year ended 31 August 2012

Note 2012 2011 $m $m

Cash flows from operating activities Profit/(loss) for the year before taxation 99.7 (28.6)

Adjustments for: Depreciation, amortisation and impairment 22.1 25.3 Bond issuance income, net 4c (6.3) - Other non-cash item 0.4 - Difference between pension contribution paid and amounts recognised in the consolidated income statement

(0.6)

-

Pension deficit taken directly to reserves - 0.3 Loss on sale of property, plant and equipment and intangible assets 0.3 1.1 Net financial (income)/expense (53.3) 41.6 Share of profit of equity-accounted investees 0.0 (0.0) Equity settled share-based payment expenses 0.6 0.4

62.9 40.1

Decrease in trade and other receivables 2.9 39.7 Decrease in inventories - 0.5 Increase/(decrease) in trade and other payables 8.7 (23.5)

Cash generated from operations 74.5 56.8

Interest paid (6.8) (10.9) Tax paid (15.9) (13.9)

Net cash generated from operating activities 51.8 32.0

Cash flows from investing activities Proceeds from sale of property, plant and equipment and intangible assets 0.1 0.0 Purchase of intangible assets (0.6) (0.4) Acquisition of subsidiary 2 (26.0) (0.7) Cash acquired with subsidiaries 2 8.3 0.7 Acquisition of property, plant and equipment (10.7) (11.8) Interest received 1.8 0.6

Net cash used in investing activities (27.1) (11.6)

Cash flows from financing activities Proceeds from the issue of share capital 21 - 4.9 Proceeds from new loan 25.7 18.0 Proceeds from issue of 10.25% Senior secured notes 325.0 - Proceeds from issues of loan notes - 7.4 Repayment of borrowings (326.9) (50.7) Payment of bond issuance expenses (26.0) - Payment of finance lease liabilities (0.0) (0.0)

Net cash used in financing activities (2.2) (20.4)

Net increase in cash and cash equivalents 22.5 0.0 Cash and cash equivalents at 1 September 88.0 81.8 Effect of exchange rate fluctuations on cash held (2.3) 6.2

Cash and cash equivalents at 31 August 16 108.2 88.0

The notes on pages 16 to 83 form an integral part of these financial statements



16

Notes to the financial statements for the year ended 31 August 2012

1 Accounting policies

General information

Nord Anglia Education (UK) Holdings PLC (“the Company”) is a public limited company incorporated and domiciled in the United Kingdom under Companies Act 2006 (Registration number 06590752). The address of the registered office is The Old Vicarage, Market Street, Castle Donington, Derbyshire, DE74 2JB, United Kingdom.

The main activities of the Company and its subsidiaries (together “the Group”) are the operation of Premium Schools worldwide and the delivery of a wide range of education and training contracts both in the UK and overseas.

1.1 Basis of preparation

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”) and equity account the Group’s interest in jointly controlled entities. The parent Company financial statements present information about the Company as a separate entity and not about its Group.

The Consolidated Financial Statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The Company has elected to prepare its parent Company financial statements in accordance with UK GAAP.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 1.28, Critical judgements and accounting policies.

The information reflects the consolidated results of the Group and in the case of acquisitions and disposals, from or to the date control passes or ceases.

All transactions between the Group’s businesses have been eliminated in the preparation of the consolidated financial information. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

The Group’s jointly controlled entity has an accounting year end which is coterminous with the Group. However, due to timing of statutory accounts preparation, management accounts are used at 31 August 2012 for consolidation purposes.

The financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments classified as fair value through profit or loss.

The Consolidated Income Statement has been reclassified in order to more adequately reflect the way management views the results of the business. Consequently, the Consolidated Income Statement is presented on a function of expense basis.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

Recent accounting pronouncements

The Group considers that there are no relevant standards or relevant interpretations mandatory for the current accounting period that have not been applied.

As of the date of authorisation of these financial statements, the following standards were in issue and have been endorsed by the EU. The Group has not applied these standards in the preparation of the financial statements:

• IAS 19 (Amended) ‘Employee benefits’ is effective from periods commencing on or after 1 January 2013. It eliminates the corridor approach and requires immediate recognition of all actuarial gains and losses in the other comprehensive income, immediate recognition of all past service costs and the replacement of interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability/asset.



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Notes to the financial statements for the year ended 31 August 2012 (continued)

1 Accounting policies (continued)

1.1 Basis of preparation (continued)

Recent accounting pronouncements (continued)

• IFRS 7 (Amended) ‘Financial instruments: Disclosures’ and IAS 32 (Amended) ‘Financial instruments: Presentation’ are effective from 1 January 2013 and 2014 respectively. The IAS 32 amendment clarifies some of the requirements for offsetting financial assets and financial liabilities on the statement of financial position while the IFRS 7 amendment will require more extensive disclosures than are required under IFRS.

As of the date of authorisation of these financial statements, the following standards were in issue but not yet effective and not yet been endorsed by the EU. The Group has not applied these standards in the preparation of the financial statements:

• IFRS 9 ‘Financial instruments’ is effective from periods commencing on or after 1 January 2015. It is the first standard issued as part of a wider project to replace IAS 39. It retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: i) amortised cost and ii) fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset.

• IFRS 10 ‘Consolidated financial statements’ is effective from periods commencing on or after 1 January 2013. It builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. It also provides additional guidance to assist in the determination of control where this is difficult to assess.

• IFRS 12’ Disclosures of interest in other entities’ is effective from periods commencing on or after 1 January 2013. It includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles.

• IFRS 13 ‘Fair value measurement’ is effective from periods commencing on or after 1 January 2013. It aims to improve consistency and reduce complexity by providing precise definition of fair value and single source of fair value measurement and disclosure requirements for use across IFRSs.

• IAS 27 (Amended) ‘Separate financial statements’ is effective from periods commencing on or after 1 January 2013. It includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10.

• IAS 28 (Amended) ‘Associates and joint ventures’ is effective from periods commencing on or after 1 January 2013. It includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11.

Management does not anticipate that the adoption of the above standards and interpretations will have a material impact on the Group’s financial statements in the period of initial application.

1.2 Revenue recognition

Revenue represents the fair value of the consideration received during the year and is stated net of sales taxes and discounts.

Sales of services which have been invoiced but not yet recognised as revenue are included on the balance sheet as deferred income and accounted for within trade and other payables.

School fee income

School fee income comprises tuition fees and income from ancillary sources including examinations, school trips, bus transportation, lunch fees and the tuition fee refund scheme.

School fee income is recognised over the school terms, Term 1 being September to December, Term 2 January to March and Term 3 April to June. School fees are payable in advance on or before the first day of each term and are recognised across the months of each term. Where fees are received in advance for more than one term, the income is recognised over the months in the terms for which payment has been made.



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1.2 Revenue recognition (continued)

Service contracts

Revenue is proportionally recognised as we provide services, however, when there are performance criteria that may adjust the total revenue earned attached to the contract under which we provide services, we do not recognise revenue until it is probable that the performance criteria have been met. Amounts recoverable on contracts, disclosed within trade and other receivables, is the amount by which revenue recognised exceeds payments on account received. Services which have been invoiced but not yet provided are included on the balance sheet as deferred income and are accounted for within trade and other payables.

The method of revenue recognition requires an element of judgment to be applied to estimating total revenue and costs including assumptions relative to the performance of contract Key Performance Indicators (“KPI”) and contractual deliverables. Contract revenue and performance are continually monitored over the term of the contract and are subject to revision as each contract progresses. When revisions in estimated contract revenue are determined, such adjustments are recorded in the period in which they are identified. Anticipated claims against contracts are recognised in the period they are deemed probable and can be reasonably estimated.

1.3 Expenses

Cost of sales

Cost of sales consist principally of salary and benefits for school principals and teaching staff and lecturers employed in our Premium Schools and Learning Services businesses, plus the costs of teaching materials as well as expenses for the provision of school lunches, bus services and athletics programmes. For the Learning Services businesses the costs are recognised as incurred. For the Premium Schools business these costs are spread over the school year and matched against the relevant fee income. This cost also includes the cost of independent consultants we use in the delivery of our Learning Service contracts, which can be a material cost under some of these contracts.

Selling, general and administrative expenses

Selling, general and administrative expenses consist of several cost categories including salary and benefits for our senior management team and other personnel engaged in finance, human resources, education policy and quality, legal compliance, information systems and infrastructure and other corporate functions at our corporate headquarters. In addition, this category of expense encompasses salary and benefits for regional personnel supporting our operations in Asia, United Kingdom, Europe and Switzerland. Additionally, this category includes business travel costs, advertising and promotion expenses, conference costs, general liability insurance premiums, communication costs, bad debt expense, training costs and other. Travel costs are a significant component as this expense category includes costs of our own internal staff and realised and unrealised foreign currency gains and losses recognised on intercompany transactions and on external third-party transaction not denominated in the local operating currency of a member of the Group. Finally, this category includes property costs which comprise all property-related costs associated with the operation of our business, including rent, service charges, repair and renewal costs, property taxes and utilities costs paid under leases for our corporate headquarters, regional offices, school facilities used in our Premium Schools business and office space used in our Learning Services business.

1.4 Pre-contract costs

The Group expenses all pre-contract costs unless it is probable that a contract will be obtained and the contract is expected to result in future net cash inflows with a present value greater than the amount recognised as an asset. Costs previously expensed are not subsequently reinstated when a contract award is achieved.



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1.5 Foreign exchange

Functional and presentational currency

Items included in the financial statements of each of the Group’s subsidiary undertakings are measured using the currency of the primary economic environment in which the subsidiary undertaking operates (the ‘functional currency’).

The Group financial statements are presented in US Dollars.

Transactions and balances

Transactions in currencies other than the functional currency of each entity are converted into the functional currency at the rate of exchange ruling at the date of the transaction or valuation where items are re-measured. Foreign exchange gains and losses arising from the settlement of such transactions, and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within ‘finance income or cost’. All other foreign exchange gains and losses, if any, are presented in the income statement within other expenses.

Translation differences on non-monetary financial assets and liabilities such as financial instruments held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss.

Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

(b) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

(c) all resulting exchange differences are recognised in other comprehensive income.

Goodwill and intangible assets and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

1.6 Pension costs

Pensions are accounted for under IAS 19, ‘Employee benefits’. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. In the case of a defined benefit plan, the Group has legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to the employee service in the current and prior periods. For defined benefit schemes, obligations are valued using the projected unit credit method and measured at discounted present value whilst scheme assets are recorded at fair value. The assets of such schemes are held separately from those of the Group.

The service and financing costs of such schemes are recognised separately in the income statement. Current service costs are spread systematically over the lives of employees, and financing costs are recognised in the periods in which they arise. Actuarial gains and losses are recognised immediately in the statement of other comprehensive income.

Payments to defined contribution schemes are charged as an expense as they fall due.



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1.7 Share based payments

The Group operates a share based compensation plan under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense over the vesting period. The total amount to be expensed is determined by reference to the fair value of the options granted and estimation of the number of options that expect to vest.

Fair value is calculated using the Black Scholes Option Pricing Model, the details of which are disclosed in Note 19.

1.8 Exceptional items

Exceptional items are those significant items which are separately disclosed by virtue of their size or incidence to enable a full understanding of the Group’s financial performance. Transactions which may give rise to exceptional items are principally early termination of debt instruments, restructurings, costs related to the acquisition of subsidiaries and other significant transactions not expected to occur as part of normal operating activities.

1.9 Borrowings and borrowing costs

All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest rate method.

Borrowing costs are expensed in the period in which they are incurred, except for issue costs, which are amortised over the period of the borrowing. Any initial differences between book value and the fair value of the loan due to the parent company are adjusted to equity to the extent they represent capital transactions with the parent.

1.10 Taxation

The taxation charge is based on the Group profit or loss for the period and takes into account current and deferred taxation. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In those cases the tax is also recognised in other comprehensive income or directly in equity, respectively.

Current taxation is calculated on the basis of the tax laws enacted or substantially enacted and relates to the amounts payable to tax authorities in respect of the Group’s taxable profits and is based on an interpretation of these tax laws.

Deferred taxation is recognised on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base at tax rates that are expected to apply when the asset is realised or the liability settled, based on tax rates that are enacted or substantially enacted at the balance sheet date. Deferred tax assets are only recognised when it is probable that taxable profits will be available against which the deferred tax asset can be used. Deferred tax liabilities are not provided for in respect of the distribution of profit retained by overseas subsidiary undertakings and joint venture undertakings to the extent that the reversal of the temporary difference is controlled by the Group and is not expected to reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.



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1.11 Consolidation

Joint ventures

Jointly controlled entities are those entities where the Group and another party jointly share control per the terms of a contractual agreement. Jointly controlled entities are accounted for using the equity method and are initially recognised at cost. The results and assets and liabilities are stated in accordance with Group accounting policies. Where jointly controlled entities do not adopt Group accounting policies, their reported results are restated to comply with these policies. The Group share of the jointly controlled entities profit or losses are recognised in the income statement and its share of movements in reserves is recognised in reserves. The cumulative movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in a jointly controlled entity equals or exceeds its interest in the entity the Group does not recognise further losses unless it has incurred obligations or made payments on behalf of the jointly controlled entity. Unrealised gains on transactions between the Group and its jointly controlled entity are eliminated up to the value of the Group’s interest in the jointly controlled entity. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transfer.

Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. The group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control.

De-facto control may arise from circumstances where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases.

Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

1.12 Dividends

Dividends are recorded in the financial statements in the period in which they are approved by the Group’s shareholders.

1.13 Segmental reporting

The Group’s reportable segments, which are those reported to the Chief Operating Decision Maker (“CODM”), are the two distinct product lines, Premium Schools and Learning Services. Each reportable segment derives its revenue from a separate business activity; school fees (Premium Schools) and service contracts (Learning Services).

The main geographic regions in which the Group operates are Asia, United Kingdom, Central Europe, Switzerland and the Middle East.

The Group’s business is not highly seasonal and its customer base is diversified, with no individually significant customer.

1.14 Goodwill

Goodwill arising on consolidation represents the carrying value of goodwill held under a previous GAAP at the date of transition to IFRS and, for business combinations subsequent to the date of transition, the excess of the cost of acquisitions over the Group’s interest in the fair value of the identifiable assets and liabilities at the date of acquisition. Fair values are attributed to the identifiable assets, liabilities and contingent liabilities that existed at the date of acquisition, reflecting their condition at that date.



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1.14 Goodwill (continued)

Goodwill is carried at cost less accumulated impairment losses and is recognised as an asset. It is not subject to annual amortisation but is assessed for impairment at least annually or more frequently if there are indications of impairment. Goodwill is allocated to cash generating units which are expected to benefit from the business combination on which the goodwill arose. The recoverable amounts of goodwill are calculated on a discounted cashflow basis by applying appropriate long term growth rates and discount rates, based on historic trends adjusted for management’s estimates of future prospects, to the cash generating units on an individual basis. Impairment losses are recognised immediately in the income statement.

Upon disposal of a subsidiary the attributable goodwill is included in the calculation of the profit or loss arising on disposal.

1.15 Intangible assets

Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if those assets are identifiable and their fair value can be measured reliably.

Intangible assets acquired separately from the acquisition of a business are capitalised at cost. Intangible assets which have been recognised due to acquisition in the current year are detailed in note 2, Acquisitions of subsidiaries.

The initial identification of intangible assets requires considerable judgment in respect of the classification of the assets and in the assessment of their life. In addition, when assessing the values of the intangible assets, management is required to exercise judgment in determining the future profitability and cash flows of those assets, royalty rates, life of customer base and the appropriate weighted average cost of capital. The subsequent impairment reviews equally require continuing assessment of the above factors as well as continuous assessment of the assets’ lives.

Brand name

Legally protected or otherwise separable brand names acquired as part of a business combination are capitalised at fair value on acquisition. Management’s expectation is to retain brand names within the business for an infinite life due to the nature and premium associated with the brand names that the Group has acquired, as such they are not amortised and are therefore subject to an annual impairment review.

Customer relationships

Contractual and non-contractual customer relationships acquired as part of a business combination are capitalised at fair value on acquisition and amortised on a straight line basis over 6 to 10 years, based on management’s estimates of the average lives of such relationships.

Contractual rights

Contractual rights acquired as part of a business combination are capitalised at fair value on acquisition and amortised on a straight line basis over the life of the contract.

Computer software

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Computer software licenses are held at cost and are amortised on a straight line basis over 3 years.



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1.16 Property, plant and equipment

Property, plant and equipment are stated at historic cost less accumulated depreciation and any provision for impairment in value. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is provided at rates calculated to write-off the cost, less the estimated residual value, of property, plant and equipment over their estimated useful lives. Estimated useful lives and depreciation rates are as follows:

Freehold and long leasehold buildings ..............2% straight line Short leasehold land and buildings ....................The unexpired term of the lease on a straight line basis Computer equipment .........................................162/3%–331/3% straight line Motor vehicles ...................................................20-25% on reducing balance Fixtures and fittings ...........................................15% on reducing balance/141/2%–331/3% straight line Residual values and economic useful lives are reviewed annually. Depreciation is charged on all additions to, or disposals of, depreciating assets in the year of purchase or disposal, other than on assets held for sale. Any impairment is charged to the income statement. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘Selling, general and administration’ expenses in the income statement.

1.17 Impairment of non-financial assets

Assets that are not subject to amortisation are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which an asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell, and value-in-use. Cash generating units (“CGUs”) are defined at the lowest level at which cash inflows are separately identifiable. For the purpose of goodwill impairment testing, CGUs are grouped at the level at which operating cash flows can be separately determined, which is at a level below our operating segments, as disclosed in note 11, Intangible assets.

1.18 Assets held under finance and operating leases

Where assets are financed by leasing agreements where the risks and rewards are substantially transferred to the Group (“finance leases”) the assets are treated as if they had been purchased outright and are depreciated in accordance with the policy stated above. The assets which are held under finance leases and similar hire purchase contracts are recorded in the balance sheet as non-current assets on the lease commencement date at the lower of fair value and present value of minimum lease payments. The obligation to pay future rentals has been shown as a liability. The interest charged on finance leases is charged to the income statement over the lease period at a constant periodic rate of interest. Rentals applicable to operating leases, where substantially all the benefits and risks of ownership remain with the lessor, are recognised in the income statement using the straight line basis over the lease term. Incentives from lessors are recognised as a systematic reduction of the charge over the periods benefiting from the incentives.

1.19 Receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the entity that owes the receivable, probability that the entity that owes the receivable will enter bankruptcy or financial reorganisation, and default or delinquency in payments (which is 60-75 days overdue depending on the nature of the invoice) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement. When a receivable is uncollectible, it is written-off against the allowance account for receivables.



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1.20 Cash and cash equivalents

Cash and cash equivalents include cash in hand, term and call deposits held with banks and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts with a right of set off are included within the balance sheet as cash and cash equivalents.

1.21 Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

1.22 Derivative financial instruments and hedging activities

Derivative financial instruments are recognised at fair value, generally being the cost at the date a contract is entered into, and are subsequently re-measured at their fair value. Depending on the type of the derivative financial instrument, fair value calculation techniques include, but are not limited to, quoted market value and present value of estimated future cash flows (of which the valuation of interest rate instruments is an example).

Derivative assets and liabilities are classified as non-current unless they mature within one year from the balance sheet date.

Changes in fair value of interest rate swaps are charged to net financing costs over the period of the contracts, together with the interest differentials reflected in foreign exchange contracts.

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

1.23 Provisions

Provisions are recognised when:

– the Group has a present legal or constructive obligation as a result of past events; and

– it is more likely than not that an outflow of resources will be required to settle the obligation; and

– the amount has been reliably estimated.

Property provisions relate to the future costs of properties no longer utilised by the Group and include onerous lease costs, dilapidation expenses and other costs specifically associated with the property. Other provisions predominantly relate to restructuring provisions and other significant costs that meet the definition of a provision.

Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as an interest expense.

Where the Group expects amounts to be received in relation to a provision, the reimbursement is recognised as a separate asset when its receipt is considered virtually certain.



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1.24 Loss contingencies

The Group is subject to various claims and contingencies which are in the scope of ordinary and routine litigation incidental to the business, including those related to regulation, litigation, business transactions, employee-related matters and taxes, among others. When a claim or potential claim is identified, the likelihood of any loss or exposure is assessed. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, a liability for the loss is recorded in the income statement. The liability recorded includes probable and estimable legal costs incurred to date and future legal costs. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the claim is disclosed if the likelihood of a potential loss is reasonably possible and the amount of the potential loss could be material. For matters where no loss contingency is recorded, legal fees are expensed as incurred.

1.25 Share capital

Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

1.26 Equity instruments

Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:

(a) they include no contractual obligations upon the Company (or Group as the case may be) to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company (or Group); and

(b) where the instrument will or may be settled in the company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the company’s own equity instruments or is a derivative that will be settled by the company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares.

1.27 Business combinations

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition- by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

Deferred consideration is accounted as a liability in the balance sheet and discounted at an appropriate rate where applicable. The discount is recognised in the income statement.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.



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1.28 Critical judgments and accounting policies

The Group and Company balance sheets as at 31 August 2012 show that assets exceed liabilities by $53.1m and $189.0m respectively. The issuance of the Notes and the related write-off’s on the shareholder loan notes has significantly improved the net asset position of the Company (the prior year Group Balance Sheet showed a deficit of $124.8 million of liabilities over assets). The directors have reviewed the latest guidance relating to going concern and, having made all relevant enquiries, have formed a judgement at the date of the approval of the financial statements that the Group has adequate resources at its disposal to continue its operations for the foreseeable future. This judgement is based on a review undertaken of the current business forecast to 31 August 2014 and the projected cash requirements over that period to assess the likelihood of the Group being able to continue as a going concern. Suitable sensitivities were run for the periods up to 31 August 2014 to assess the headroom available. This review concluded that there were no material uncertainties that potentially could give rise to a significant doubt about the business continuing as a going concern. Management has made certain judgments in the process of applying the Group’s accounting policies set out above that have a significant effect on the amounts recognised in the Group financial statements. Revenue recognition

Service contracts

Service contract revenue represents a material income stream for the Group. Under certain contracts, the revenue, or an element of the revenue, is only receivable if Key Performance Indicators, “KPIs”, built into the contract terms have been met and the services have been delivered in line with the contract terms. A KPI is a measurable performance condition, for which documentary evidence can be supplied, agreed between the Group and its customers, and which is used as a basis to recognise income. Therefore revenue is only recognised as and when services are performed, if the Group can estimate that it is probable that KPIs and contract deliverables have been met. Where it has not been determined whether KPIs have been met, the element of the revenue relating to meeting these terms is deferred.

Contract revenue and performance are continually monitored over the term of the contract and are subject to revision as each contract progresses. KPIs are such that they can be measured internally, although in certain cases may require validation by the customer. When revisions in estimated contract revenue are determined, such adjustments are recorded in the period in which they are identified.

The Group has sufficient history of monitoring KPI performance to understand the accuracy of its monitoring procedures, and as a result few adjustments arise to estimates that have been made other than to recognise revenue that has previously been deferred, due to the probable recognition criteria not yet being met. Furthermore the nature of the Group’s contracts and their alignment to the academic year mean that the level of estimation required at a fiscal year end is considerably less than at any interim period.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisitions over the Group’s interest in the fair value of the identifiable assets and liabilities at the date of acquisition. Fair values are attributed to the identifiable assets, liabilities and contingent liabilities that existed at the date of acquisition, reflecting their condition at that date.

Goodwill is recognised as an asset. It is not subject to annual amortisation, but is assessed for impairment at least annually or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the goodwill are calculated on a discounted cash flow basis by applying appropriate long-term growth rates and discount rates, based on historic trends adjusted for management’s estimates of future prospects, to the cash generating units on an individual basis. Both the calculated recoverable value of goodwill and any impairment adjustment could vary significantly if different long-term growth rates and discount rates were applied.

For the purpose of determining potential goodwill impairment, recoverable amounts are determined from value-in-use calculations using cash flow projections covering a five-year period. The growth rate assumptions used in the projections were based on past performance and management’s expectations of market developments. In the interests of prudence, the annual growth rate used to determine the cash flows beyond the five-year period has been set at 1.5% across the European and Swiss markets, and 2% in the Asia market. When testing for impairment the Group applies a discount rate commensurate to each cash generating unit. The discount rate that was used for this testing as of 31 August 2012 was 13.2% (2011 - 12%).



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1.28 Critical judgments and accounting policies (continued)

Intangible assets

Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if those assets are identifiable and their fair value can be measured reliably.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level and are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

The initial identification of intangible assets requires considerable judgment in respect of the classification of the assets and in the assessment of their life. In addition, when assessing the values of the intangible assets, management is required to exercise judgment in determining the future profitability and cash flows of those assets, royalty rates, life of customer base and the appropriate weighted average cost of capital. The subsequent impairment reviews equally require continuing assessment of the above factors as well as continuous assessment of the assets’ lives.

Gains and losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

Share based payments

The Group operates an equity settled share based compensation plan.

The fair value of the employee services received under share based payment plans is recognised as an expense in the income statement. Fair value is calculated by using the Black Scholes Option Pricing Model for share option schemes and the Binomial method for long term incentive plans. The amount charged over the vesting period is determined by reference to the fair value of share incentives excluding the impact of any non-market vesting conditions. Non-market vesting conditions are considered within the assumptions to estimate the number of share incentives that are expected to vest. The impact of the revision of original estimates, if any, is recognised in the income statement over the remaining vesting period with corresponding adjustments made to equity. For cash settled share-based payment transactions for which there was no obligation to settle in cash, the cash payment is accounted for as a reduction to shareholders’ equity, except when the cash settlement exceeds the fair value of the equity instruments that would have been issued, for which such amount is recorded to expense.

The application of both the Black-Scholes Option Pricing Model and the Binomial method require the application of a number of judgments including, the following; volatility, risk free interest rate, expected life to exercise. Accordingly the recognition of the fair value expense of the employee services received under share based payment plans could vary if significantly different assumptions were applied to the valuation models.



28


2 Acquisitions of subsidiaries

The Group made two acquisitions during the year, the details of which are shown below.

Acquisitions in the current period

Acquisition 1

On 30 September 2011, Nord Anglia Education (UK) Holdings PLC acquired the entire share capital of La Côte International School for a total consideration of CHF 3.5 million, satisfied in cash.

The company is a Premium School located in Switzerland. The business combination occurred as a result of the directors’ decision to strengthen the Group’s existing portfolio of Premium Schools within Europe, and in particular Switzerland. If the acquisition had occurred on 1 September 2011, Group revenue would have been an estimated $0.5 million higher and the Group’s net profit would have been an estimated $0.1 million higher. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 September 2011.

Effect of acquisition

The acquisition had the following effect on the Group’s assets and liabilities: Recognised

values on acquisition

$m Acquiree’s net assets at the acquisition date: Intangible assets - Brand 0.5 - Customer relationships 0.5 Property, plant and equipment 0.5 Trade and other receivables 2.1 Cash and cash equivalents 2.9 Trade and other payables Retirement benefit obligations

(6.3) (0.4)

Deferred tax liability (0.0)

Net identifiable assets and liabilities (0.2)

Consideration paid: Cash price paid 3.9

Total consideration transferred 3.9

Goodwill on acquisition

4.1



29


2 Acquisitions of subsidiaries (continued)

Acquisition 2

On 1 August 2012, Nord Anglia Education (UK) Holdings PLC acquired the entire share capital of EEE Enterprise Limited for a total consideration of THB960 million (of which THB260 million is deferred consideration where THB150 million is due over one year), satisfied in cash.

The entity is a non-trading holding company with a 49% ownership of The Regent’s School, a Premium School located in Chonburi, Thailand. 51% of the share capital is comprised of preference shares owned by two Thai shareholders. The preference shares are entitled to 1 vote per 10 shares and the ordinary shares are entitled to 1 vote per share, thus giving the Group an effective control of the business. The business combination occurred as a result of the directors’ decision to strengthen the Group’s existing portfolio of Premium Schools within Asia, and in particular gain presence within Thailand. In the period to 31 August 2012 the subsidiary contributed turnover and net profit of $nil and $nil respectively to the consolidated result for the year. If the acquisition had occurred on 1 September 2011, Group revenue would have been an estimated $15.9 million higher and the Group’s net profit would have been an estimated $3.6 million higher. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 September 2011. Due to the proximity of the acquisition of The Regent’s School to the end of the period, the fair values listed below and subsequent goodwill calculation are provisional for the purposes of these financial statements as the necessary market valuation and other calculations have not been finalised.

Effect of acquisition

The acquisition had the following effect on the Group’s assets and liabilities:

Recognised

values on acquisition

$m Acquiree’s net assets at the acquisition date: Intangible assets - Brand 4.8 - Customer relationships 5.0 Property, plant and equipment 0.5 Trade and other receivables 3.3 Cash and cash equivalents 5.4 Trade and other payables (8.5)

Net identifiable assets and liabilities 10.5

Consideration paid: Cash price paid 22.1 Deferred consideration 8.4

Total consideration 30.5

Goodwill on acquisition 20.0

The goodwill arising from both acquisitions is based on the anticipated synergies existing within the acquired businesses and also the synergies expected to be achieved as a result of combining the two schools with the rest of the group. None of the goodwill recognised is expected to be deductible for income tax purposes.

All transaction costs incurred in relation to the acquisitions has been expensed to the income statement and not deducted for tax purposes.



30


3 Operating segmental information

Management has determined the operating segments based on the reports reviewed by the strategic steering committee (which has been identified as the CODM) that are used to make strategic decisions. For management purposes, the Group is currently organised into two business segments for reporting to the CODM, Premium Schools and Learning Services. These segments are the basis on which the Group reports its segment information. The Group has four geographical regions of operation in the Premium Schools division, being, Asia, Central Europe, Switzerland and the Middle East. The Learning Services division is split by contract and managed by each country of operation, namely the United Kingdom, Saudi Arabia, UAE and Malaysia. The reportable operating segments derive their revenue primarily from school fees (Premium Schools segment) and service contracts (Learning Services segment). Revenue includes a management fee from The segment information provided to the strategic steering committee for the reportable segments is as follows: 2012 – Divisional analysis Premium

Schools Learning

Services Unallocated Total

$m $m $m $m

Revenue 224.5 40.1 - 264.6

Adjusted EBITDA before exceptional items 79.4 10.2 (15.6) 74.0

Statutory exceptional items (note 4) (3.6) (0.5) 5.5 1.4 Non statutory exceptional items (0.8) (0.1) (1.1) (2.0) Exchange loss - - (4.6) (4.6) Loss of disposal of property, plant and equipment - - (0.3) (0.3) Depreciation (7.8) (0.1) (0.1) (8.0) Amortisation (2.6) (0.2) (0.6) (3.4) Impairment of goodwill - (10.7) - (10.7) Finance income - - 103.0 103.0 Finance expense - - (49.7) (49.7) Share of profit of jointly controlled entity - - 0.0 0.0 Tax (13.4) (1.1) (1.9) (16.4)

Profit/(loss) for the year attributable to equity holders of the parent 51.2 (2.5) 34.6 83.3

Adjusted EBITDA before exceptional expenses represents earnings before interest, tax, depreciation, amortisation, impairment and management accounts and statutory exceptional items and is the profit measure reviewed by the CODM.



31


3 Operating segmental information (continued)

2012 – Geographical analysis

Asia United Kingdom

Europe(excluding UK

and Switzerland)

Middle East Switzerland Total

$m $m $m $m $m $m

Revenue 125.2 17.4 43.5 10.8 67.7 264.6

Goodwill and intangible assets 281.9 0.1 51.7 0.0 121.2 454.9Property, plant and equipment 18.3 0.5 5.8 0.0 5.7 30.3Other non-current assets 15.9 - - - 1.5 17.4

Total non-current assets 316.1 0.6 57.5 0.0 128.4 502.6

2011 – Divisional analysis Premium Schools Learning

Services Unallocated Total

$m $m $m $m

Revenue 158.8 60.5 - 219.3

Adjusted EBITDA before exceptional items 56.7 13.7 (16.8) 53.6

Statutory exceptional items (3.3) - (6.1) (9.4) Non statutory exceptional items (4.5) (0.4) (4.2) (9.1) Exchange gain - - 4.2 4.2 Loss of disposal of property, plant and equipment - - (1.0) (1.0) Depreciation (5.3) (0.3) (0.2) (5.8) Amortisation (2.1) (0.1) (0.6) (2.8) Impairment of goodwill - (16.7) - (16.7) Finance income - - 10.1 10.1 Finance expense - - (51.7) (51.7) Share of profit of jointly controlled entity - - 0.0 0.0 Tax (9.5) (1.1) (1.9) (12.5)

Profit/(loss) for the year attributable to equity holders of the parent 32.0 (4.9) (68.2) (41.1)



32


3 Operating segmental information (continued)

2011 – Geographical analysis

Asia United

KingdomEurope

(excluding UK and Switzerland)

Middle East Switzerland Total

$m $m $m $m $m $m

Revenue 86.1 17.8 43.3 44.5 27.6 219.3

Goodwill and intangible assets 249.7 0.9 60.5 11.2 136.5 458.8Property, plant and equipment 13.8 3.7 6.5 0.1 4.3 28.4Other non-current assets 15.7 0.7 - - 1.5 17.9

Total non-current assets 279.2 5.3 67.0 11.3 142.3 505.1



33


4 Exceptional income/(expenses), net

2012 2011 $m $m

Exceptional administrative expenses

a Corporate restructure (1.4) (6.0) b Profit share buy out (0.7) (2.4) c Bond issuance income, net 6.3 - d Acquisition related costs (2.8) (1.0)

1.4 (9.4)

a On 10 July 2011, the Group announced its intention to relocate its central services function to Hong Kong and

subsequent to the balance sheet date this proposal was confirmed. The associated restructuring costs of $6.0m relate predominantly to the onerous lease cost of the building that housed the head office function, along with both statutory and enhanced redundancy costs payable to affected employees. In the year to 31 August 2012, a further provision was created to cover additional expenses amounting to $0.8 million, bringing the total cost of the project to $6.8 million. The balance of the charge in 2012 of $0.6 million relates to the closure of the Learning Service divisional team in the Middle East.

b The $0.7 million cost (prior year additional costs of $2.4 million) incurred during the year was as a result of the Group purchasing any past and all future rights under a profit sharing agreement and under an employment profit share agreement in the prior year. None of the costs relating to this transaction are considered to be tax deductible. Full details of this arrangement are documented in note 26, Related party transactions.

c During the year ended 31 August 2012, net exceptional income of $6.3 million was recognised due to the issuance of the Senior secured notes. The $6.3 million is comprised of several components, charges of $1.2 million relating to marketing costs, consultants costs and legal and professional fees which are not capitalised. Furthermore, a charge of $9.2 million and a credit of $16.7 million relates to the writing-off of the related party balance and the principle value of loan notes respectively. Full details of the bond are documented in note 17, Other interest-bearing loans and borrowings.

d During the year the Group acquired two new subsidiaries to complement its existing portfolio of Premium Schools, as detailed in note 2, Acquisitions of subsidiaries. Acquisition related costs in 2012 related to the acquisition of the La Côte International School, Switzerland and The Regent’s School, Chonburi in Thailand, including legal fees and fees payable to advisors in relation to variousaspects of the acquisitions, as well as final costs incurred on the acquisitions made in 2011. The prior year costs related to the two subsidiaries acquired during the year ended 31 August 2011.



34


5 Expenses and auditors’ remuneration

Included in profit/(loss) are the following: 2012 2011 $m $m Hire of plant and machinery - 0.4 Impairment loss on goodwill 10.7 16.7 Staff costs (excluding share based payments) 107.5 94.0 Share based payments 0.6 0.4 Foreign exchange loss/(gain) 4.6 (4.2) Loss on disposal of property, plant and equipment and intangible assets 0.3 1.0 Operating lease rentals:

Land and buildings 24.7 23.8 Other 0.7 0.7

Depreciation – owned assets 8.0 5.8 Amortisation of intangible assets 3.4 2.8

Auditors’ remuneration: 2012 2011 $m $m Fees payable to Company’s auditor for the audit of parent Company and consolidated financial statements

0.2 0.1

Disclosure below based on fees payable in respect of services to the company and its

subsidiaries

Fees payable to Group’s auditors and their associates in respect of: Audit of financial statements of subsidiaries and associates pursuant to legislation (including that of countries and territories outside Great Britain)

0.3 0.4

Other services relating to taxation 0.1 - Services relating to corporate finance transactions entered into or proposed to be entered into by or on behalf of the Company or the Group or any of its associates

-

-

All other services 0.5 0.2

6 Staff numbers and costs

The monthly average number of persons employed by the Group (including directors) during the year, analysed by category, was as follows: Number of employees 2012 2011 Administration and management 653 693 Teaching 1,321 1,190 Advisors and guidance officers 239 180

2,213 2,063



35


6 Staff numbers and costs (continued)

The aggregate payroll costs of these persons were as follows:

2012 2011 $m $m

Wages and salaries 94.8 85.0 Share based payments (See note 19) 0.6 0.4 Social security costs 9.9 7.3 Contributions to defined contribution plans (See note 19) 1.2 0.5 Expenses related to defined benefit plans (See note 19) 1.6 1.2

108.1 94.4

During the year ended 31 August 2012, an amount of $0.7 million (2011 - $2.4 million) was paid as a result of the Group purchasing any past and all future rights under a profit sharing agreement and under an employment profit sharing agreement. This is in addition to aggregate payroll costs above and the amounts paid to key management personnel, as shown below.

7 Key management personnel

2012 2011 $m $m

Fee, salaries and other short term employment benefits 5.8 4.7Termination benefits - 0.3Other benefits 0.3 0.1

The key management personnel are the directors and senior managers who received emoluments, as noted above.

Other short term employment benefits relate to medical insurance premiums and rental benefit paid. Other benefits relate to contributions to defined contribution schemes. 2012 2011 Number of key management personnel accruing benefits under:

- Defined benefit schemes 1 -



36


8 Finance income and expense

Recognised in profit or loss 2012 2011 $m $m

Foreign exchange gains recognised on the retranslation of foreign currency borrowings - 9.5 Derivative financial instruments 0.2 - Interest waived on loan notes from parents, senior management and related party:

- prior year 81.2 - - current year 19.8 -

Bank interest 1.8 0.6

Total finance income 103.0 10.1

2012 2011 $m $m

Net loss on financial instruments designated as fair value through profit or loss: Derivative financial instruments 0.8 1.1 Total interest expense on financial liabilities measured at amortised cost: Loan notes from parent, senior management and related party 22.1 35.5 10.25% Senior secured notes due 2017 15.0 - Bank loans and overdrafts 7.9 13.0 Interest on defined benefit pension plan obligation 0.6 0.3 Amortisation of loan costs 3.3 1.3 Interest payable to parent undertaking - 0.5

Total finance expense 49.7 51.7

Net finance income/(expense) 53.3 (41.6)

During the prior year ended 31 August 2011, the Group recognised a gain of $9.5 million relating to foreign exchange movements arising on the remeasurement of its US dollar debt, $nil in the year ended 31 August 2012.



37


9 Income tax expense

Recognised in the consolidated income statement 2012 2011 $m $m

Current tax expense United Kingdom current year corporation tax charge - - Adjustment for prior years UK corporation tax charge - - Overseas current tax charge 18.1 14.0 Adjustment for prior years overseas tax charge (0.3) (1.2)

Current tax expense 17.8 12.8

Deferred tax expense Origination and reversal of temporary differences (1.3) (1.2) Adjustment in respect of prior years (0.1) 0.9

Deferred tax expense (1.4) (0.3)

Total tax expense 16.4 12.5

Reconciliation of effective tax rate

The tax assessed for the period differs from the standard rate of Corporation tax in the United Kingdom of 25.16% (2011: 27.16%) per the explanation below:

2012 2011 $m $m

Profit/(loss) for the year 83.3 (41.1) Total tax expense 16.4 12.5

Profit/(loss) before tax 99.7 (28.6)

Tax using the UK corporation tax rate of 25.16 % (2011: 27.16%) 25.1 (7.8) Effect of tax rates in foreign jurisdictions (0.9) (0.3) Non-deductible expenses 3.8 1.6 Interest waived (25.4) - Losses not deductible 5.0 5.2 Withholding tax paid on overseas dividends for which no relief is available 2.1 1.9 Timing difference for which no deferred tax was recognised (2.5) 1.6 Amortisation and impairment of goodwill 2.7 4.5 Current year losses for which no deferred tax asset was recognised 6.9 6.0 Over provided in prior years (0.4) (0.2)

Total tax expense (including tax on joint venture) 16.4 12.5

Tax charged to other comprehensive income*

* Included within Actuarial losses on defined benefit pension schemes

(0.2)

-



38


9 Income tax expense (continued)

Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Group did not recognise deferred tax assets of $33.2 million (2011 - $40.3 million). This includes an unprovided deferred tax asset of $24.8 million (2011 - $35.6 million) which relates to UK losses which have no expiry date for which relief is not anticipated to be available in the foreseeable future. It also includes an unprovided deferred tax asset of $5.8 million (2011 - $2.7 million) in relation to the deficit in the UK pension scheme and an unprovided deferred tax asset of $1.0 million (2011 - $nil) which relates to losses in overseas entities.

Factors affecting future tax charges

The Budget in March 2012 announced a reduction in the UK Corporation tax rate from 26% to 24% effective from 1 April 2012, and a further reduction in the UK corporation tax to 23% effective from 1 April 2013. These changes were substantively enacted in July 2012.

In addition to the changes in rates of Corporation tax disclosed above a further change to the UK Corporation tax system was announced in the March 2012 UK Budget Statement. A further reduction to the main rate is proposed to reduce the rate to 22% effective from 1 April 2014. This further change had not been substantively enacted at the balance sheet date and, therefore, is not included in these financial statements.

The proposed reduction in the main rate of corporation tax to 22% by 1 April 2014 is expected to be enacted in a future Finance Bill. The overall effect of the further change from 23% to 22%, if these applied to the deferred tax balance at the balance sheet date, would have no impact on the deferred tax liabilities and assets recognised.



39


10 Property, plant and equipment

Land and

buildings Fixtures and

fittings Computer equipment

Motor vehicles Total

$m $m $m $m $m Cost Balance at 1 September 2010 19.1 4.4 4.4 0.2 28.1 Acquisitions through business combinations 0.5 1.1 0.3 0.7 2.6 Additions 8.6 1.9 1.1 0.1 11.7 Transfer of assets - (0.1) 0.1 - - Disposals (3.3) (0.4) (0.2) (0.0) (3.9) Effect of movements in foreign exchange 2.1 0.8 0.8 0.1 3.8

Balance at 31 August 2011 27.0 7.7 6.5 1.1 42.3

Balance at 1 September 2011 27.0 7.7 6.5 1.1 42.3 Acquisitions through business combinations 0.1 0.9 - - 1.0 Additions 5.5 1.7 3.2 0.3 10.7 Disposals (0.1) (2.0) (2.8) - (4.9) Effect of movements in foreign exchange (1.4) (1.0) (0.3) (0.1) (2.8)


Accumulated depreciation and impairment Balance at 1 September 2010 6.1 1.7 1.7 0.0 9.5 Depreciation charge for the year 2.8 1.3 1.5 0.2 5.8 Disposals (2.6) (0.2) (0.1) (0.0) (2.9) Effect of movements in foreign exchange 0.7 0.3 0.5 0.0 1.5


Balance at 1 September 2011 7.0 3.1 3.6 0.2 13.9 Depreciation charge for the year 3.9 1.6 2.0 0.5 8.0 Disposals (0.1) (1.7) (2.7) - (4.5) Effect of movements in foreign exchange (0.5) (0.5) (0.3) (0.1) (1.4)


Net book value At 1 September 2010 13.0 2.7 2.7 0.2 18.6

At 31 August 2011 and 1 September 2011 20.0 4.6 2.9 0.9 28.4

At 31 August 2012 20.8 4.8 4.0 0.7 30.3



40


11 Intangible assets

Goodwill Brand name

Customer relationships Contracts

Computer software Total

$m $m $m $m $m $m Cost Balance at 1 September 2010 333.4 - - - 2.5 335.9 Acquisitions through business combinations 77.8 18.8 24.5 0.7 - 121.8 Additions - - - - 0.4 0.4 Effect of movements in foreign exchange 36.3 2.6 3.4 0.0 0.2 42.5

Balance at 31 August 2011 447.5 21.4 27.9 0.7 3.1 500.6

Balance at 1 September 2011 447.5 21.4 27.9 0.7 3.1 500.6 Acquisitions through business combinations 24.1 5.3 5.5 - - 34.9 Additions - - - - 0.6 0.6 Disposals - - - - (2.5) (2.5) Effect of movements in foreign exchange (20.0) (2.7) (3.5) (0.0) - (26.2)

Balance at 31 August 2012 451.6 24.0 29.9 0.7 1.2 507.4

Accumulated amortisation and impairment

Balance at 1 September 2010 20.0 - - - 1.2 21.2 Amortisation for the year - - 1.8 0.2 0.8 2.8 Impairment charge 16.7 - - - - 16.7 Effect of movements in foreign exchange 1.2 - (0.1) 0.0 0.0 1.1

Balance at 31 August 2011 37.9 - 1.7 0.2 2.0 41.8

Balance at 1 September 2011 37.9 - 1.7 0.2 2.0 41.8 Amortisation for the year - - 2.6 0.2 0.6 3.4 Disposals - - - - (2.4) (2.4) Transfers - - - - 0.0 0.0 Impairment charge 10.7 - - - - 10.7 Effect of movements in foreign exchange (1.0) - - (0.0) 0.0 (1.0)

Balance at 31 August 2012 47.6 - 4.3 0.4 0.2 52.5

Net book value At 1 September 2010 313.4 - - - 1.3 314.7

At 31 August 2011 and 1 September 2011 409.6 21.4 26.2 0.5 1.1 458.8

At 31 August 2012 404.0 24.0 25.6 0.3 1.0 454.9



41


11 Intangible assets (continued)

Goodwill is allocated to the Groups Cash Generating Units (CGU’s) identified according to operating segment. A summary of the goodwill allocation is shown below:

2012 2011 Premium

schools Learning

services Total Premium

schools Learning services

Total

$m $m $m $m $m $m Asia 271.0 - 271.0 249.6 - 249.6 Europe 51.7 - 51.7 60.5 - 60.5 Switzerland 81.3 - 81.3 88.8 - 88.8 Middle East - - - - 10.7 10.7

404.0 - 404.0 398.9 10.7 409.6

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a 5 year period discounted using pre-tax discount rates. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed the long-term average growth rate for the education industry in which the CGU operates. The key assumptions used for value-in-use calculations in 2012 are as follows: Premium Schools

Asia Europe Switzerland Growth in pupil numbers (over 5 years) 30.0% 15.2% 21.4% Long term growth rate 2.0% 1.5% 1.5% Discount rate 13.2% 13.2% 13.2%

The key assumptions used for value-in-use calculations in 2011 are as follows: Premium Schools

Asia Europe Switzerland Growth in pupil numbers (over 5 years) 31.3% 13.6% 13.3% Long term growth rate 2.0% 1.0% 1.0% Discount rate 12.0% 12.0% 12.0%

Learning Services

UK Middle East Long term growth rate 1.5% 1.0% Discount rate 12.0% 12.0%

Premium Schools In the year ended 31 August 2012, the results of the Premium School’s division benefited from strong growth in student numbers both at the start of the first term as well as during the 2011/12 academic year. In addition, the acquisition and successful integration of two schools in Switzerland and Thailand (La Côte International School and Regent’s School Chonburi) respectively bodes well for the future as regards pupil numbers.



42


11 Intangible assets (continued) Premium Schools (continued) Growth rates are declining year on year due to existing capacity becoming more utilised. The figures do not include growth as a result of proposed campus expansion. Management therefore consider that no impairment is required to any of the goodwill or indefinite life of intangible assets regions allocated to the Premium Schools division. Learning Services Middle East

During 2012, the results of the Learning Services division reflected a year of continuing consolidation in the light of very difficult trading conditions in all the markets served. Based on the latest available forecasts, the directors believe that this trend will not change in the near future and which resulted in an impairment of goodwill associated with the remaining Middle East Learning Services Division. A charge of $10.7 million has accordingly been made to the Group’s income statement in the year ended 31 August 2012. UK In May 2010, the new UK government announced its intention to dramatically reduce government spending from previous levels. The budget published in July 2010 by the government contemplates sizable reductions in spending by the government across all of its sectors in the remaining months of the current fiscal year ending 31 March 2011 and beyond, including expenditures for outsourced educational services. Although the details of which national and local government authorities’ programmes would be affected by these spending cuts were not known at the time, the directors predicted a substantial decline in the pipeline of revenues from the UK portion of its Learning Services business in the year ending 31 August 2011 and possibly beyond. During 2011, potential new Learning Service contracts in the UK which had remained in the Group’s budget following the prior year review did not materialise due to the continued reduction in government spending. Based on the latest available forecasts the directors believe that this policy by the government will not change in the near future which resulted in an impairment of the goodwill associated with the UK Learning Services division. A charge of $16.7 million has accordingly been made to the Group’s income statement in the year ended 31 August 2011.



43


12 Subsidiaries

The Group had the following interests in subsidiaries:

Country of Incorporation

Class of shares held

Ownership 2012 2011Holding companies

Premier Education (UK) Bidco Limited*SG

UK Ordinary 100% 100%

Premier Education (UK) Midco Limited+SG UK Ordinary 100% 100%

Nord Anglia Education Limited*SG


NAE Hong Kong Limited*dSG%

Hong Kong Ordinary 100% 100%

Nord Anglia Education Development Services Limited*SG


Nord Anglia Middle East Holding SPC*dSG

Bahrain Ordinary 100% 100%

Nord International Schools Limited*SG


Nord Anglia (Beijing) Consulting Limited* China Ordinary 100% 100%

EEE Enterprise Limited*SG

BVI Ordinary 100% -

Broad-Asia (Shanghai) Business Consultation Co., Ltd.* China Ordinary 100% 100%KG (Beijing) Investment Consultant Co., Ltd.^ KG Investments Limited^ KG Investments Limited (UK Branch)^

Rice Education Hong Kong Limited*SG

Regent Pattaya Campus Management Co., Ltd.S

ABET International Limited*SG

NA Educational Services Limited*SG

NA Schools Limited*SG

Nord International Nurseries Limited* Emile Woolf International Pte Ltd.

China Jersey

UK Hong Kong

Thailand UK UK UK UK

Singapore

Ordinary Ordinary

n/a Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary

100%100%100%100%

49%100%100%100%100%

51%

100%100%100%

--

100%100%100%100%51%

Premium Schools English International School Prague, s.r.o.^ S Czech Republic Ordinary 100% 100%

The British School Sp. z o.o.* dSG

Poland Ordinary 100% 100%

British International School Bratislava^ Slovakia Ordinary 100% 100%

British International School Bratislava, s.r.o.^ S

Slovakia Ordinary 100% 100%

British International School Kindergarten, Primary and Secondary School*

British International School Foundation*dG

Hungary

Hungary

Ordinary

Ordinary

100%

100%

100%

100%

The British International School, Shanghai* China Ordinary 100% 100%British School of Beijing^ China Ordinary 100% 100%

Collège Champittet S.A.*dSG

Switzerland Ordinary 100% 100%

Collège Alpin Beau-Soleil SA*dSG

Switzerland Ordinary 100% 100%

La Côte International School SA*dSG

Switzerland Ordinary 100% -

The Regent’s School Thailand Ordinary 49% - Learning Services

Nord Anglia Lifetime Development Limited*SG

Nord Anglia Lifetime Development North East Limited*dSG

UK UK

Ordinary Ordinary

100%100%

100%100%

Nord Anglia Lifetime Development North West Limited*&


Nord Anglia Lifetime Development London and South East

Limited*&


Nord Anglia Lifetime Development South West Limited*SG


Nord Anglia Vocational Education and Training Services Ltd*SG


Nord Anglia eLearning Limited*&


Nord Anglia Education Improvement Services Limited* &


Nord Anglia Recruitment Limited*&


Nord Anglia Education Partnerships Limited*dSG


Nord Anglia Middle East Holding SPC (Abu Dhabi Branch)* n/a n/a 100% 100%Nord Anglia Middle East Holding SPC (Malaysia Branch)* n/a n/a 100% 100%Nord Anglia Educational Consultancies Saudi Arabia Limited^ KSA Ordinary 100% 100%

Brighton Education Learning Services Sdn. Bhd.*dSG

Malaysia Ordinary 100% 100%



44


12 Subsidiaries (continued)

Country of Incorporation

Class of shares held

Ownership 2012 2011 Nord Anglia Education Sdn. Bhd.* Malaysia Ordinary 100% 100%

* Investment held indirectly by 100% owned subsidiary of Group’s parent company

^ Investments held 100% within the Group by more than one subsidiary of the Group’s parent company

+The Companies denoted are direct subsidiaries of the parent Company, Nord Anglia Education (UK) Holdings PLC

d Material assets of subsidiary form part of security arrangement for borrowings (see note 17)

S Share capital of subsidiary is pledged as security for borrowings (see note 17)

G Subsidiary is a guarantor under the security arrangement for borrowings (see note 17)

% Formerly known as Eduasia Limited

& In liquidation status



45


13 Investments in jointly controlled entities

Joint Venture

EduAction (Waltham Forest) Limited, a company which provided education services to the London Borough of Waltham Forest, is owned 50% each by Nord Anglia Education Limited and Amey PLC. The company has ceased trading.

A summary of the aggregated financial information for EduAction (Waltham Forest) Limited is shown below:

2012 2011 $m $m Revenue - -

Interest receivable and other income 0.0 0.0

Profit on ordinary activities before tax 0.0 0.0

Foreign exchange (0.0) (0.0)

2012 2011 $m $m Current assets 1.2 1.2

1.2 1.2

Current liabilities (0.7) (0.7)

(0.7)

(0.7)

0.5 0.5

There are no capital commitments or contingent liabilities in EduAction (Waltham Forest) Limited.



46


14 Deferred tax assets and liabilities

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities 2012 2011 2012 2011 $m $m $m $m Property, plant and equipment 0.3 0.1 (0.7) (0.8) Intangible assets - - (9.2) (11.1) Financial liabilities - 0.7 - (0.1) Interest-bearing loans and borrowings

- - - (0.6)

Employee benefits 1.2 1.0 - - Tax value of loss carry-forwards 1.0 0.6 - - Provisions and accruals 3.6 3.2 - - Goodwill - - (0.6) (0.2)

Tax assets / (liabilities) 6.1 5.6 (10.5) (12.8)

Net tax (liabilities) - - (4.4) (7.2)

Movement in deferred tax during the year 1

September2011

Recognised in income

Recognised in comprehensive

income

Foreign exchange

movements

Acquired in business

combination 31 August

2012 $m $m $m $m $m $m

Property, plant and equipment (0.7) 0.3 - - - (0.4)Intangible assets (11.1) 0.6 - 1.5 (0.2) (9.2)Financial liabilities 0.6 (0.6) - - - -Interest-bearing loans and borrowings (0.6) 0.6 - - - -Employee benefits 1.0 0.1 0.2 (0.2) 0.1 1.2Tax value of loss carry-forwards utilised 0.6 0.3 - (0.1) 0.2 1.0Provisions and accruals 3.2 0.5 - (0.2) 0.1 3.6Goodwill (0.2) (0.4) - - - (0.6)

(7.2) 1.4 0.2 1.0 0.2 (4.4)



47


14 Deferred tax assets and liabilities (continued)

Movement in deferred tax during the prior year

1 September 2010

Recognised in income

Foreign exchange

movements

Acquired in business

combination 31 August

2011 $m $m $m $m $m

Property, plant and equipment 0.1 (0.8) 0.0 - (0.7) Intangible assets - 0.5 (1.5) (10.1) (11.1) Financial liabilities 1.3 (0.8) 0.1 - 0.6 Interest-bearing loans and borrowings (1.2) 0.7 (0.1) - (0.6) Employee benefits - - 0.1 0.9 1.0 Tax value of loss carry-forwards utilised - 0.5 0.1 0.0 0.6 Provisions and accruals 2.6 0.4 0.2 - 3.2 Goodwill - (0.2) 0.0 - (0.2)

2.8 0.3 (1.1) (9.2) (7.2)

Deferred income tax liabilities of $1.6 million (2011: $0.2 million) have not been recognised for the withholding tax and other taxes that would be payable on the unremitted earning of certain subsidiaries. Such amounts are permanently reinvested. Unremitted earnings totalled $17.4 million at 31 August 2012 (2011: $2.3 million).



48


15 Trade and other receivables

2012 2011 $m $m Trade receivables 25.3 24.6 Less: Provision for impairment of trade receivables (See note 22) (0.8) (1.1) Net trade receivables 24.5 23.5 Prepayments 9.0 6.9 Accrued income 0.6 8.4 Amounts due from related undertaking (See note 26) 0.9 5.4 Other receivables 12.0 2.9

47.0 47.1

Non-current Other receivables 10.8 11.6

Amounts due from related undertakings are unsecured and interest free. Non-current receivables mainly relate to cash deposits that cannot be drawn until at least 12 months after the balance sheet date and a deposit on a Premium school site which is not recoverable for at least 12 months from this date.

16 Cash and cash equivalents/ bank overdrafts

2012 2011 $m $m Cash and cash equivalents 167.3 155.6 Bank overdrafts (59.1) (67.6)

Cash and cash equivalents per cash flow statements 108.2 88.0



49


17 Other interest-bearing loans and borrowings

This note provides information about the contractual terms of the Group and Company’s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group’s exposure to interest rate and foreign currency risk, see note 22, Financial instruments.

2012 2011 $m $m

Current liabilities Current portion of secured bank loans and bank overdrafts

6.8 13.0

Current portion of 10.25% Senior secured notes due 2017

15.0 -

Loan from parent undertaking (See note 26) - 16.4

21.8 29.4

Non-current liabilities Secured bank loans and overdrafts 8.3 179.1 10.25% Senior secured notes due 2017 310.6 - Loan notes owed to parent (See note 26) - 323.9 Loan notes owed to senior management (See note 26) - 3.0 Loan notes owed to related party (See note 26) - 1.8

318.9 507.8

All borrowings are secured by a debenture creating fixed and floating charges over all of the material current and future assets of certain Group entities. The material subsidiaries which are party to this arrangement are detailed in note 12, Subsidiaries, along with details of certain entities whose share capital has also been pledged as part of the security arrangement.

In addition to the above, specific registered pledges have been made over certain bank accounts, assignment of receivables and assignment of insurance. At 31 August 2012, the carrying value of the bank accounts and receivables which have been pledged were $15.5 million (2011: $13.9 million) and $2.6 million (2011: $2.7 million) respectively.



50


17 Other interest-bearing loans and borrowings (continued)

Terms and debt repayment schedule

Currency

Nominal interest

rateYear of

maturity Face valueCarrying

amount Face valueCarrying

amount 2012 2012 2011 2011

$m $m $m $m Senior A facility+ US $ 3.43% 2015 - - 32.8 32.8Senior B facility+ US $ 3.69% 2015 - - 63.2 63.2Working capital facility+

US $ 3.44% 2015 - - 30.5 30.5

Mezzanine financing facility+

US $ 10.52% 2015 - - 55.4 55.4

Loan notes owed to parent

US $ 12% 2038 - - 323.6 321.2


US $ 4.5% 2038 - - 1.1 1.1


US $ 2.5% 2038 - - 1.6 1.6

Loan notes owed to senior management

US $ 12% 2038 - - 3.0 3.0

Loan notes owed to related party

US $ 12% 2038 - - 1.8 1.8

Finance leases GBP 2013 - - 0.0 0.0Working capital facility

RMB 6.8% 2013 15.0 15.0 10.1 10.1

Business loan CHF 4.5% 2013 - - 0.1 0.1Business loan HUF 23% 2012 - - 0.0 0.0Loan from parent undertaking

CHF 4.5% n/a - - 7.5 7.5

Loan from parent undertaking

US $ 2.5% n/a - - 8.9 8.9

10.25% Senior secured notes

US $ 10.25% 2017 340.0 325.6 - -

Business loan CHF 3.61% 2013 0.1 0.1 - -

355.1 340.7 539.6 537.2

+ Interest rate represents the average rate for the year as the facility incurs interest at LIBOR plus a margin.

All interest is settled by cash payments on the required date, with the exception of 5.5% of the 10% of the mezzanine facility was rolled forward.

On 28 March 2012, the Company issued $325.0 million of 10.25% Senior Secured Notes due 2017 (the “Notes”) pursuant to an indenture dated 28 March 2012 between the Company, Citicorp International Limited as Trustee and Security Agent, Citibank NA. London branch as Paying Agent and Citigroup Global Markets Deutschland AG as Registrar.



51


17 Other interest-bearing loans and borrowings (continued)

The exposure of the Group’s borrowings to interest rate changes is as follows: 2012 2011 $m $m Less than one year 15.0 198.2Between one and five years 325.7 10.3More than five years - 328.7

340.7 537.2

18 Trade and other payables

2012 2011 $m $mCurrent Trade payables due to third parties 4.3 4.3Other taxes and social security 0.4 1.2Amounts owed to parent undertaking 0.3 0.5Other payables 32.0 18.4Accrued expenses 10.2 17.1Deferred income 159.6 137.2

206.8 178.7

Non-current Other payables 6.2 2.0

Non-current payables predominantly relate to deferred consideration for the acquisition of The Regent’s School, Chonburi, Thailand, due to a third party.



52


19 Employee benefits

Pension plans

The Group operates a variety of post-employment benefit arrangements, covering both funded defined contribution and funded and unfunded defined benefit schemes. The most significant of these are the funded defined benefit pension schemes for the Group’s employees in the UK and Switzerland.

Defined contribution plans

The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the current year was $1.2 million (2011 - $0.5 million), recognised in the Consolidated income statement.

Defined benefit plans

A summary of the defined benefit plans operated by the Group:

UK Switzerland Total

2012 2011 2012 2011 2012 2011

$m $m $m $m $m $m

Present value of funded defined benefit obligations (56.8) (41.5) (24.2) (23.4) (81.0) (64.9)

Fair value of plan assets 31.4 31.1 19.2 19.2 50.6 50.3

Liability for defined benefit obligations recognised in the balance sheet (25.4) (10.4) (5.0) (4.2) (30.4) (14.6)

UK The Group operates three defined benefit pension schemes in the UK. In each case the assets of the scheme are held separately from those of the Group in independently administered funds. The current service costs of the schemes are charged to the income statement so as to spread the cost of pensions over the employees’ working lifetimes with the Group.

A defined benefit scheme was established for Lifetime Careers employees (employed by a Group subsidiary). Contributions are determined by independently professionally qualified actuaries on the basis of triennial valuations. The most recent formal actuarial valuation of the scheme was performed at 31 August 2008. A new actuarial valuation is in the process of being performed and is expected to be completed shortly.

The Nord Anglia Joint Pension Scheme is a closed scheme and therefore under the projected unit method the current service costs will increase as members of the scheme approach retirement. The most recent formal actuarial valuation of the scheme was performed at September 1, 2007 using the aggregate method which assesses the adequacy of the fund to meet the minimum funding requirement and calculates contributions on the level of pensionable payroll to provide the retirement benefits for the members.

The Wyburn School Limited Pension and Life Assurance Scheme (1985) is a closed scheme and therefore under the projected unit method the current service costs will increase as the members of the scheme approach retirement. The most recent actuarial valuation of the scheme was performed at September 1, 2007 using the aggregate method which assesses the adequacy of the fund to meet the minimum funding requirement and calculates contributions on the level of pensionable payroll to provide the retirement benefits for the members.

Actuarial valuation reports have been requested by the Group for both the Nord Anglia Joint Pension Scheme and The Wyburn School Limited Pension and Life Assurance Scheme (1985). Given the underlying size of these schemes (0.8% of the consolidated pension assets and liabilities), any movement as a result of changes reported in the actuarial valuation is unlikely to be material.



53


19 Employee benefits (continued)

Pension plans (continued)

The Company information disclosed below is in respect of the whole of the plans for which the Company is either the sponsoring employer or has been allocated a share of cost under an agreed Group policy throughout the periods shown.

2012 2011 2010 2009 2008 $m $m $m $m $m

Present value of funded defined benefit obligations

(56.8) (41.5) (37.0) (34.4) (40.4)

Fair value of plan assets 31.4 31.1 27.6 26.6 29.2

Liability for defined benefit obligations recognised in the balance sheet (25.4) (10.4) (9.4) (7.8) (11.2)

Closure of schemes

At 31 August 2011, all three schemes closed to future accruals and active members became deferred pension members. Whilst the Group will continue to make future employer contributions to the schemes, member contributions will no longer be made.

Movements in present value of defined benefit obligation

2012 2011 $m $m

At 1 September (41.5) (37.0) Current service cost - (0.5) Interest cost (2.1) (2.0) Curtailment gain - 0.4 Actuarial losses (16.6) (0.8) Contributions by members - (0.3) Benefits paid 2.5 0.6 Exchange adjustments 0.9 (1.9)

At 31 August (56.8) (41.5)

Movements in fair value of plan assets 2012 2011 $m $m

At 1 September 31.1 27.6 Expected return on plan assets 1.6 1.7 Actuarial gains/(losses) 1.2 (0.3) Contributions by employer 0.8 0.9 Contributions by members - 0.3 Benefits paid (2.5) (0.5) Exchange adjustments (0.8) 1.4

At 31 August 31.4 31.1



54



Expense recognised in the income statement 2012 2011 $m $m

Current service cost - (0.5) Interest on defined benefit pension plan obligation (2.1) (2.0) Expected return on defined benefit pension plan assets 1.6 1.7 Curtailment gain - 0.4 Exchange adjustments (0.0) (0.0)

Total (0.5) (0.4)

The expense is recognised in the following line items in the income statement: 2012 2011 $m $m

Cost of sales - (0.1) Finance expense (0.5) (0.3) Exchange adjustments (0.0) (0.0)

(0.5) (0.4)



55

Notes to the financial statements for the year ended 31 August 2012 (continued) 19 Employee benefits (continued)


Actuarial gains and losses recognised directly in equity in the statement of comprehensive income since 1 September 2009, the transition date to IFRSs:

2012 2011 $m $m

Cumulative amount at 1 September 3.8 4.9 Recognised in the year (15.4) (1.1)

Cumulative amount at 31 August (11.6) 3.8

The fair value of the plan assets and the return on those assets were as follows:

2012 2011 Fair value Fair value $m $m

Equities 25.8 24.8 Diversified Growth Assets 3.0 - Corporate bonds 1.3 1.3 Cash 0.6 4.3 With profits funds 0.7 0.7

31.4 31.1

Actual return on plan assets 2.8 1.4

Principal actuarial assumptions (expressed as weighted averages) at the year-end were as follows:

2012 2011 % %

Investment/discount rate 3.90 5.40 Inflation 3.10 3.00 Future salary increases n/a n/a Future payment increases 3.10 3.00

The expected return on plan assets is 5.6% (2011 – 4.6%; 2010 – 4.6%).



56

Notes to the financial statements for the year ended 31 August 2012 (continued) 19 Employee benefits (continued)


The assumptions relating to longevity underlying the pension liabilities at the balance sheet date are based on standard actuarial mortality tables and include an allowance for future improvements in longevity. The assumptions are equivalent to expecting a 65-year old to live for a number of years as follows:

• Current pensioner aged 65: 22.1 years (2011 and 2010 – 22.1 years) (male), 25 years (2011 and 2010 - 25 years) (female).

• Future retiree upon reaching 65: 23.2 years (2011 – 23.2 years and 2010 – 23.2 years) (male), 26 years (2011 – 26 years and 2010 – 26 years) (female).

History of plans

The history of the plans for the current and prior periods is as follows:

Balance sheet 2012 2011 $m $m

Present value of the defined benefit obligation (56.8) (41.5) Fair value of plan assets 31.4 31.1

Deficit (25.4) (10.4)

Experience adjustments 2012 2011 $m $m

Experience adjustments on plan liabilities (0.8) (0.1) Experience adjustments on plan assets 1.2 (0.3)

Experience adjustments 2012 2011

Experience adjustments on plan liabilities as a percentage of plan liabilities 1.42% 0.02% Experience adjustments on plan assets as a percentage of plan assets 3.84% 0.94%

The Group expects to contribute approximately $1.0 million to its defined benefit plans in the next financial year.



57




Switzerland

Following the acquisition of College Alpin Beau Soleil, College Champittet and La Côte International School, the Group has acquired additional defined benefit pension schemes. The assets of each scheme are held separately from those of the Group in independently administered funds. Contributions to the schemes are charged to the income statement so as to spread the cost of pensions over the employees working lifetime within the Group. Under Swiss GAAP, there is no requirement for company pension schemes to be valued and therefore an IAS 19 valuation has been prepared at the date of acquisition and as at 31 August 2012 for all of these subsidiaries. Under IAS 19 the net pension deficit has been recognised in the Group financial statements.

2012 2011 $m $m

Present value of funded defined benefit obligations (24.2) (23.4) Fair value of plan assets 19.2 19.2

Liability in the balance sheet (5.0) (4.2)

Movements in present value of defined benefit obligation 2012 2011 $m $m

At 1 September (23.4) - Acquisition through business combination (1.2) (18.7) Current service cost (1.6) (0.7) Interest cost (0.6) (0.3) Actuarial losses (0.8) - Contributions by members (1.2) (0.6) Benefits paid 0.8 0.0 Exchange adjustments 3.8 (3.1)

At 31 August (24.2) (23.4)

Movements in fair value of plan assets 2012 2011 $m $m

At 1 September 19.2 - Acquisition through business combination 0.8 15.1 Expected return on plan assets 0.5 0.2 Actuarial (losses)/gains (0.1) 0.0 Contributions by employer 1.4 0.7 Contributions by members 1.2 0.7 Benefits paid (0.8) (0.0) Exchange adjustments (3.0) 2.5

At 31 August 19.2 19.2



58




Expense recognised in the income statement 2012 2011 $m $m

Current service cost (1.6) (0.7) Interest on defined benefit pension plan obligation (0.6) (0.3) Expected return on defined benefit pension plan assets 0.5 0.2 Exchange adjustments 0.0 (0.0)

Total (1.7) (0.8)

The expense is recognised in the following line items in the income statement: 2012 2011 $m $m

Management, administrative and support staff expense (1.6) (0.8) Finance expense (0.1) (0.0) Exchange adjustments 0.0 (0.0)

(1.7) (0.8)

Actuarial gains and losses recognised directly in equity in the statement of comprehensive income since the date of acquisition: 2012 2011 $m $m

Cumulative amount at 1 September 0.0 - Recognised in the year (0.9) 0.0

Cumulative amount at 31 August (0.9) 0.0

The fair value of the plan assets and the return on those assets were as follows:

2012 2011 Fair value Fair value $m $m

Insurance assets 19.2 19.3

Actual return on plan assets (0.4) 0.3



59




Principal actuarial assumptions (expressed as weighted averages) at the year-end were as follows:

2012 2011 % %

Investment/discount rate 2.20 2.50 Inflation 1.50 1.50 Future salary increases 1.00 n/a Future payment increases 1.50 1.50

The expected return on plan assets is 2.50% (2011 – 2.50%).

The assumptions relating to longevity underlying the pension liabilities at the balance sheet date are based on standard actuarial mortality tables and include an allowance for future improvements in longevity. The assumptions are equivalent to expecting a 65-year old to live for a number of years.

History of plans

The history of the plans for the current and prior periods is as follows: 2012 2011 $m $m

Present value of defined benefit obligation (24.2) (23.4) Fair value of plan assets 19.2 19.2

Deficit (5.0) (4.2)


$m $m

Experience adjustments on plan liabilities 0.4 -

Experience adjustments on plan assets (0.0) -



60





Experience adjustments on plan liabilities as a percentage of plan liabilities 1.65% - Experience adjustments on plan assets as a percentage of plan assets 0.00% 0.38%

Share-based payments

The Group operates an equity settled share based compensation plan. During the year the Issuing entity was changed from Nord Anglia Education (UK) Holdings PLC to its immediate parent undertaking Nord Anglia Education Inc. The employing entity also changed from NAE Limited to NAE Hong Kong Limited. There are no other changes to the terms of the scheme. Management has reassessed the vesting conditions of the awards, the awards will now vest at the earlier of February 2015 or a complete exit by Baring Private Equity Asia. None of the awards vested in the period.

Management has been issued shares based on their level of seniority. When vesting conditions are met the number of shares held by management will multiply in accordance with the ratchet attached to that class of shares. The vesting of shares will be satisfied by adjusting the ownership of the equity between the parent company and management. If the full IRR is satisfied, the stake owned by the employees would be 11.7%. The ratchet by class of share is noted below:

2012 & 2011:

IRR B shares C shares D shares E shares

Less than 18% 3.514 3.347 3.606 Not applicable 18% to 25% 4.514 4.347 4.606 2 25% to 35% 5.514 5.347 5.606 3 35% + 6.514 6.347 6.606 4

A fair value for the shares issued was calculated using the Black-Scholes Option Pricing Model incorporating the following assumptions; the terms and conditions of the grants are as follows:

Shares issued

2012 Shares issued

2011 Shares issued

2010 Shares issued

2009

Exercise price $0.016281 $0.016281 $0.01551 $0.0163 Equity price $0.1791 $0.1791 $0.1160 $0.1219 Volatility 100% 100% 100% 100% Dividend yield 0% 0% 0% 0% Risk free interest rate 5% 5% 5% 5% Expected life to exercise >0.5years 1.5 years 2.5 years 3.5 years Number of shares exercised - 360,145 1,059,414 2,919,837

The fair value of each share was calculated as $0.1791 (2011 - $0.1791; 2010 - $0.1160; 2009 - $0.1017).



61


20 Provisions for other liabilities and charges

Property Other Total $m $m $m Balance at 1 September 2010 3.0 1.6 4.6 Provisions made during the year 4.6 2.1 6.7 Provisions used during the year (1.1) (0.3) (1.4) Provisions reversed during year - (0.2) (0.2) Foreign exchange 0.2 0.1 0.3

Balance as at 31 August 2011 6.7 3.3 10.0

Balance at 1 September 2011 6.7 3.3 10.0 Provisions made during the year 0.1 19.4 19.5 Provisions used during the year (3.0) (18.2) (21.2) Provisions reversed during the year (2.9) - (2.9) Foreign exchange (0.0) (0.0) (0.0)

Balance at 31 August 2012 0.9 4.5 5.4

Non-current 0.3 2.0 2.3 Current 0.6 2.5 3.1

0.9 4.5 5.4

Provisions for property at the beginning of the year related to lease dilapidations and future lease costs resulting from the restructuring of the business within the Learning Services division. An element of the provision in excess of that utilised during the year has been released as a result of a settlement on one of these leases subsequent to the balance sheet date. The majority of these provisions are expected to be utilised over the period to 2014.

Other provisions relate to the costs associated with the issuance of the senior notes, additional costs associated with the relocation of the head office function and costs related to overseas employees. The overseas employees provision is likely to be utilised over several years, although the timing of utilisation is uncertain. The remaining balance is classified as current at the year end.



62


21 Capital and reserves

Group and Company

Share capital Redeemable preference shares of $1.00 each Ordinary shares In thousands of shares 2012 2011 2012 2011 On issue at 1 September 65,246 - 140,980 103,843Share consolidation (65,246) - (140,980) -Share conversion - - 67,542 -Debt for equity swap - - 0 -Issued in consideration for business combination - 29,764 - 37,137Share premium used to issue preference shares - 35,482 - -

On issue at 31 August – fully paid - 65,246 67,542 140,980

In thousands of shares 2012 2011 Number $m Number $m Allotted, called up and fully paid Ordinary shares of $1.00 each

67,542

67.5

-

-

Deferred share of $0.19 each 0 0.0 - - A Ordinary shares of $0.016281/£0.01 each - - 136,641 2.2 B Ordinary shares of $0.016281/£0.01 each - - 842 0.0 C Ordinary shares of $0.016281/£0.01 each - - 210 0.0 D Ordinary shares of $0.016281/£0.01 each - - 273 0.0 E Ordinary shares of $0.016281/£0.01 each - - 2,212 0.1 F Ordinary shares of $0.016281/£0.01 each - - 802 0.0 Redeemable preference shares of $1.00 each - - 65,246 65.2

67,542 67.5 206,226 67.5



63


21 Capital and reserves (continued)

2012 2011 $m $m Shares classified as liabilities - - Shares classified in shareholders’ funds 67.5 67.5

67.5 67.5

With effect from 21 February 2012, Premier Education (UK) Holdco Limited redenominated the “Class A” portion of its share capital into Sterling in order to meet the Sterling share capital requirement for re-registration as a PLC. On 2 March 2012, the Company re-registered as a PLC and was renamed to “Nord Anglia Education (UK) Holdings PLC”. With effect on 15 March 2012, the Company redenominated the “Class A” portion of its share capital back into US Dollars, and pursuant to the same documents (Articles of Association), the Company adopted new articles to simplify its capital structure such that the Company has a single class of ordinary shares. Furthermore, the Company converted it’s A, B, C, D, E and F Ordinary shares together with its Redeemable Preference shares into one Ordinary share. The share carried the same aggregate nominal value as previous Ordinary and Preference shares. The one ordinary share was subsequently sub-divided and converted into 67,541,354 ordinary shares of $1.00 each and one deferred share of $0.19.

On 28 March 2012, 200 shares with an aggregate nominal value of $200 were issued at $1.00 each with a share premium of $654,929 per share and a total share premium of $131.0 million. The shares were issued to Nord Anglia Education, Inc. (immediate parent company) for the conversion of $131.0 million of senior and junior loan notes. The remaining $120.0 million of senior and junior loan notes was settled during the year using part of the proceeds of the senior secured loan notes issued in March 2012. The ordinary shares and preferred shares have full rights to vote, to any dividend or other distribution and to any return of capital. The deferred share has no right to vote or to participate in a dividend or other distribution and only being entitled to a return of its nominal value on a return of capital. Before the share consolidation preference shares were redeemable at any time at the option of the Company. The amount payable on redemption was the “Aggregate Value”. For the purposes of the redemption or conversion of the preference shares, the term “Aggregate Value” has the meaning given to it by the current articles of association of the Company. The holders of the preference shares were not entitled to receive dividends and were not entitled to vote at meetings of the Company. The preference shares were convertible at the option of the Company into such number of A ordinary shares in the Company as had a market value equal to the “Aggregate Value”.

Currency translation reserve

The currency translation reserve comprises all foreign exchange differences arising since 1 September 2009, the transition date to IFRSs, from the translation of the financial statements of foreign operations.

Other reserves

Other reserves relate to the capital contributions reserve created upon the settlement of loan notes issued to the parent company and senior management.



64


22 Financial instruments

22 (a) Fair values of financial instruments

Trade and other receivables

The fair value of trade and other receivables, is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material.

Trade and other payables

The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material.

Cash and cash equivalents

The fair value of cash and cash equivalents is estimated as its carrying amount where the cash is repayable on demand. Where it is not repayable on demand then the fair value is estimated at the present value of future cash flows, discounted at the market rate of interest at the balance sheet date.

Interest-bearing borrowings

Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date. For finance leases the market rate of interest is determined by reference to similar lease agreements.

Derivative financial instruments

The fair value of interest rate swaps is determined through the use of valuation techniques which maximise observable market data as the instruments are not traded in an active market.



65


22 Financial instruments (continued)

22 (a) Fair values of financial instruments (continued)

Fair values

The fair values of all financial assets and financial liabilities by class together with their carrying amounts shown in the balance sheet are as follows:

Carrying amount

Fair value

Carrying amount

Fair value

2012 2012 2011 2011 $m $m $m $mIAS 39 categories of financial instruments Financial assets held for trading (including all derivatives) Derivative financial instruments - - 0.2 0.2

Total financial assets at fair value through profit or loss - - 0.2 0.2 Loans and receivables Cash and cash equivalents (note 16) 108.2 108.2 88.0 88.0Other loans and receivables 47.6 47.6 43.4 43.4

Total loans and receivables 155.8 155.8 131.4 131.4

Total financial assets 155.8 155.8 131.6 131.6

Financial liabilities designated as fair value through profit or loss

Financial liabilities held for trading (including all derivatives) Derivative financial instruments - - (6.4) (6.4)

Total financial liabilities at fair value through profit or loss - - (6.4) (6.4) Financial liabilities measured at amortised cost Other interest-bearing loans and borrowings (note 17) (340.7) (358.0) (208.5) (208.5)Trade and other payables (53.0) (53.0) (44.0) (44.0)Loan notes owed to parent company - - (323.9) (326.3)Loan notes owed to senior management - - (3.0) (3.0)Loan notes owed to related party - - (1.8) (1.8)

Total financial liabilities measured at amortised cost (393.7) (411.0) (581.2) (583.6)

Total financial liabilities (393.7) (411.0) (587.6) (590.0)

Total financial instruments (237.9) (255.2) (456.0) (458.4)



66



22 (a) Fair values of financial instruments (continued)

Fair value hierarchy

The table below analyses financial instruments measured at fair value, into a fair value hierarchy based on the valuation technique used to determine fair value.

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

2012 Level 1 Level 2 Level 3 Total $m $m $m $m Financial liabilities designated at fair value through profit and loss

Derivative financial assets - - - - Derivative financial liabilities - - - -

- - - -

2011 Level 1 Level 2 Level 3 Total $m $m $m $m Financial liabilities designated at fair value through profit and loss

Derivative financial assets - 0.2 - 0.2 Derivative financial liabilities - (6.4) - (6.4)

- (6.2) - (6.2)

The fair value of interest rate swaps is determined through the use of valuation techniques which maximise observable market data as the instruments are not traded in an active market.



67



22 (b) Credit risk

Financial risk management

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers, cash and bank balances, and derivatives. This credit risk is minimised by a policy under which the Group only enters into such contracts with companies, governments, banks and financial institutions with strong credit ratings within limits set for each organisation. In respect of derivatives, dealing activity is closely controlled and counterparty positions are monitored regularly. No credit limits were exceeded during the year and the Group does not anticipate that any losses will arise from non-performance by these counterparties.

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. Therefore, the maximum exposure to credit risk at the balance sheet date was $47.6 million (2011 - $43.4 million) being the total of the carrying amount of financial assets.

Financial assets

The maximum exposure to credit risk for financial assets at the balance sheet date by currency was:

2012 2011 $m $m

Sterling 2.7 2.8 Dollar and dollar peg currencies 5.9 7.0 Chinese renminbi 16.2 10.7 European currencies (excluding sterling) 4.9 5.1 Malaysian ringgit 3.0 3.5 Swiss franc 11.4 14.3 Thai Baht 3.5 -

47.6 43.4

The maximum exposure to credit risk for financial assets at the balance sheet date by type of counterparty was:

2012 2011 $m $m

School fees 15.4 15.1 Amounts receivable through learning services contracts 9.1 8.5 Cash deposit accounts 15.0 10.1 Others 8.1 9.7

47.6 43.4



68



22 (b) Credit risk (continued)

Credit quality of financial assets and impairment losses

The ageing of trade receivables at the balance sheet date was:

Gross Net after

impairmentGross Net after

impairment 2012 2012 2011 2011 $m $m $m $m

Not past due 6.2 6.2 6.5 6.5Less than 1 month past due 8.7 8.7 10.0 10.01 – 3 months past due 9.2 9.2 6.1 5.9More than 3 months past due 1.2 0.4 2.0 1.1

25.3 24.5 24.6 23.5

The Group defines impaired trade receivables to include those in legal hands or unrecoverable due to financial difficulties. The trade receivables that are past due but not impaired relate to customers for whom there is no history of default.



69



22 (b) Credit risk (continued)

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

2012 2011 $m $m

Balance at 1 September 1.1 2.9 Impairment loss recognised 0.2 0.8 Impairment loss reversed (0.3) (2.6) Effect of foreign exchange movements (0.2) 0.0

Balance at 31 August 0.8 1.1

22 (c) Liquidity risk


Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

The Group aims to maintain a flexible borrowing structure by combining committed bank borrowing facilities with additional overdraft and capital facilities. The Group monitors its future funding requirements over the short to medium term such that it can take actions to supplement its operating cash flows to service future debt obligations where appropriate.

Management monitors rolling forecasts of the Group’s liquidity resources (comprising the undrawn borrowing facility, and cash and cash equivalents) on the basis of expected cash flow. This is carried out at both Group level and local level in the operating companies of the Group in accordance with practice and limits set by the Group. These limits vary by location to take into account the liquidity of the market in which the entity operates. In addition, the Group’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements, and maintaining debt financing plans.

The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

The financial statements are prepared on the going concern basis. The balance sheet shows that assets exceed liabilities by $53.8 million. The directors have considered the future forecasts and on-going strategy when assessing the needs of the Group and consider the Group has adequate resources at its disposal to continue its operations for the foreseeable future. Further details are included in note 1.

The Group has complied with all covenants included in the various debt facilities and instruments.

Borrowing facilities

The Group has $30.0 million of borrowing facilities of which $2.5m was drawn down as overdraft facilities and $5.0m was drawn down as a bond facility. There were undrawn borrowing facilities at the balance sheet date of $22.5 million (2011 - $7.5 million).

For the year ended 31 August 2011, the Group was committed to a $31.0m (2010 - $31.0m) cap-ex facility and utilised $nil of the revolving line of credit. Both these facilities were repaid on 28 March 2012.

(Formerly known as Premier Education (UK) Holdco Limited) Annual report and financial statements

31 August 2012

70

Notes to the financial statements for the year ended 31 August 2012 (continued) 22 Financial instruments (continued)

22 (c) Liquidity risk (continued)

Liquidity risk – Group

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effect of netting agreements:

2012 2011 Carrying

amount of contractual cashflows

1 yearor less

1 to <2years

2 to <5years

5years and over

Carrying amount of

contractual cashflows

1 year or less

1 to <2years

2 to <5years

5years and over

$m $m $m $m $m $m $m $m $m $m Non-derivative financial liabilities Borrowings 490.6 23.8 41.9 424.9 - 234.8 27.1 30.3 177.4 - Finance lease liabilities - - - - - 0.0 0.0 0.0 - - Trade and other payables 53.0 46.8 6.2 - - 44.0 42.0 2.0 - Loan notes owed to parent company - - - - - 6,907.0 - - - 6,907.0 Loan notes owed to senior management

- - - - - 63.1 - - - 63.1

Loan note owed to related party - - - - - 39.0 - - - 39.0 Other loans due to related party 0.3 0.3 - - - 17.3 - 17.3 - - Derivative financial liabilities Interest rate swap - - - - - 6.4 - - 6.4 -

543.9 70.9 48.1 424.9 - 7,311.6 69.1 49.6 183.8 7,009.1



71

Notes to the financial statements for the year ended 31 August 2012 (continued) 22 Financial instruments (continued)

22 (d) Market risk


Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments

Market risk - Foreign currency risk The Group has significant and expanding international operations trading in non US dollar currencies. Movements in global exchange rates can cause currency exposures to the Group’s consolidated US dollar financial results. Where stable currencies exist, trade is conducted in local currencies and where appropriate, borrowings are matched in that currency to mitigate the risk of exposure to the Group’s assets and liabilities from exchange rate movements. In countries of operation where currency trading zones are considered to be weaker, some transactions are conducted in US dollars and euros to try to minimise exchange fluctuation risks. In consideration of benefits against cost, the Group does not hedge its translation exposure, but will consider managing transactional exposures by using forward cover instruments where significant transactions are involved.

The Group’s Premium Schools division holds significant non US dollar cash balances in overseas operations which arise from fee income and which represent a combination of working capital and trading profits. These balances are held in operations which include countries where exchange control restrictions may prevent full repatriation of funds to the UK parent undertakings. The Group utilises these funds through a combination of reinvestment in the expansion or improvement of existing overseas operations or by repatriation to the UK through management contracts including royalty agreements, management charges and dividends. Through these means the directors believe that satisfactory distribution of these funds can be achieved.

The Group’s exposure to foreign currency risk is as follows. This is based on the carrying amount for monetary financial instruments except derivatives when it is based on notional amounts.

31 August 2012 Sterling European

currenciesUS dollar

and US dollar peg

Chinese renminbi

Swiss franc Malaysian ringgit

Thai Baht

Total

$m $m $m $m $m $m $m $m Cash and cash equivalents 3.5 43.7

(26.6) 84.4

(2.5)

0.5 5.2

108.2

Trade receivables 2.6 2.9 4.5 0.3 9.7 2.0 2.5 24.5 Other receivables 0.1 2.0 1.1 7.6 0.2 1.0 0.9 12.9 Other non-current receivables - -

0.4 8.3

1.5

- -

10.2

Secured bank loans and overdrafts - -

(325.6) (15.0)

(0.1)

- -

(340.7)

Trade and other payables (2.0) (7.7)

(2.3) (21.1)

(6.9)

(1.3) (11.7)

(53.0)

Balance sheet exposure 4.2 40.9 (348.5) 64.5 1.9 2.2 (3.1) (237.9)



72



22 (d) Market risk (continued)

Market risk – Foreign currency risk (continued)

31 August 2011 Sterling European

currencies US dollar and US dollar peg

Chinese renminbi

Swiss franc Malaysian ringgit

Total

$m $m $m $m $m $m $m Cash and cash equivalents

(38.9)

40.7

7.9

50.7

26.6

1.0

88.0

Trade receivables 2.7 4.7 2.4 0.0 10.3 3.4 23.5 Other receivables 0.1 0.4 4.6 0.7 2.4 0.1 8.3 Other non-current receivables

-

-

-

10.1

1.5

-

11.6

Secured bank loans and overdrafts

-

(0.2)

(181.7)

(10.1)

-

-

(192.0)

Trade and other payables

(15.9)

(8.5)

(4.1)

-

(13.3)

(2.2)

(44.0)

Derivative financial instruments

-

-

(6.4)

-

-

-

(6.4)

Loan notes owed to parent undertaking, senior management and related parties

-

-

(328.7)

-

-

-

(328.7) Other loans due to related party

-

-

(8.9)

-

(7.5)

-

(16.4)

Balance sheet exposure (52.0) 37.1 (514.9) 51.4 20.0 2.3 (456.1)

Sensitivity analysis

A 1% strengthening of the following currencies against the US dollar at 31 August would have increased/(decreased) equity and profit or loss by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date.

This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant. The analysis is performed on the same basis for the year ended 31 August 2011. Profit or loss Equity 2012 2011 2012 2011 $m $m $m $m Sterling 0.0 (0.2) 0.5 (1.5) Swiss Franc (0.1) (0.3) (1.0) (0.1) Chinese Renminbi (0.5) (0.3) (2.5) (0.0) Polish Zloty (0.1) (0.1) (0.3) (0.1) Thai Baht 0.0 - (0.3) -

A 1% weakening of the above currencies against the US dollar at 31 August would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.



73




Market risk – Interest rate risk

Profile

At the balance sheet date the interest rate profile of the Group’s interest-bearing financial instruments was: 2012 2011 $m $m Fixed rate instruments Financial liabilities 325.7 347.7

Variable rate instruments Financial liabilities 15.0 195.2

The Group does not apply hedge accounting for any of its derivative financial instruments. As such the Group recognises changes in fair value in respect of any of its derivatives immediately in its income statement. The valuations of the interest rate swap and interest rate cap are sensitive to changes in future interest rates. In 2011, if interest rates increased by 1% the interest rate swap would be valued at $(4.2) million and the interest rate cap at $0.5 million and if interest rates decreased by 1% then the interest rate swap would be valued at $(8.3) million and the interest rate cap at $nil. The swap and cap agreement were cancelled during the year.

Two interest rate derivative financial instruments were established in October 2008 and were held over the Group’s US dollar loan facility. The hedging instruments fixed the US$ LIBOR rates that the Group could experience in relation to its US$ loans. The two interest rate instruments had a penalty free break clause that was exercisable on or before 31 August 2010 which the Group elected to utilise.

On 15 July 2010, the Group restructured its existing agreements into one swap and into one cap agreement effective from 15 July 2010. The swap agreement extended to 28 February 2015 and provided the Group with a series of fixed US$ LIBOR rates on its US$ loans across the life of the agreement. The cap agreement extended to 31 August 2015 and places a cap of 3.00% on the US$ LIBOR rate the Group can experience on a secondary portion of the value of the loans. Both the swap and the cap were cancelled following the repayment of the bank facility on the issuance of the Notes. On 28 March 2012, following the issue of the 10.25% Senior secured notes the swap and cap agreements have been settled.

The nominal value of the swap and the cap agreements at 31 August 2011 were $73.8 million and $49.2 million respectively.

The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The interest rate profile of the Group’s debt following the issue of the $325.0 million senior secured notes in March 2012 is predominately fixed. At the 31st August 2012, approximately 96% of its borrowings have been issued at a fixed interest rate.

The interest periods on the Senior A and B facilities, the Working Capital facility and Mezzanine facility are selected by the borrower and may be a period of one, two or three months, or any other period agreed between the borrower and the lenders. The interest rate is set at the beginning of the interest period. On 28 March 2012, following the issue of the 10.25% Senior secured notes the swap and cap agreements have been settled.

The Group analyses its interest rate exposure on a regular basis.



74




Market risk – Interest rate risk (continued)

The impact of a 1% increase in interest rates on the Group’s variable interest rate debt not covered by the derivative financial instruments would be to increase the Group’s interest charge by approximately $0.2 million.

22 (e) Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may issue new shares or sell fixed assets to reduce debt.

The Group monitors capital on the basis of the debt:equity ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet plus net debt.

Prior to the issuance of the notes and the repayment of the bank debt, the Group’s strategy was to monitor its debt:equity ratio, as well as to ensure in respect of each quarter ending, that cash flow cover to total debt servicing was not less than the ratio of 1.1. Post the issuance of the notes, the Group’s strategy is to monitor the fixed charge cover ratio (“FCCR”) (Consolidated EBITDA divided by Consolidated Interest Expense as defined in the Indenture to the Senior secured notes due 2017). The debt equity ratios and FCCR at 31 August 2012, 2011 and 2010 were as follows:

2012 2011 2010 $m $m $m Total borrowings 340.7 537.2 443.9 Less cash and cash equivalents (108.2) (88.0) (81.8)

Net debt 232.5 449.2 362.1 Total equity 53.8 (124.8) (158.0)

Total capital 286.3 324.4 204.1

Net debt to total equity ratio 4.3:1 (3.6:1) (2.3:1)

Fixed charge coverage ratio* 2.26 - -

The issuance of the Senior secured notes dated 2017 and the waiver of the loan notes owed to parent means that the net debt to total equity ratio has become positive and will continue to be monitored going forward. The focus has also now been switched from monitoring not just EBITDA but net income as well.

* FCCR only monitored from 28 March 2012



75


23 Operating leases

Future aggregate minimum lease payments are as follows:

2012 2011 $m $m

Land and Buildings Less than one year 27.0 25.9 Between one and five years 93.5 97.9 More than five years 300.0 335.7

420.5 459.5 Other Less than one year 0.7 0.9 Between one and five years 0.4 0.5 More than five years - -

1.1 1.4

421.6 460.9

Operating leases are payable at market rates and are not subject to any restrictions other than those that would normally be expected to apply to such agreements. Agreements in respect of properties may be subject to renewal according to the landlord’s terms. There are no new terms of renewal applicable to any other operating lease agreements.

24 Commitments

Capital commitments 2012 2011 $m $m

Contracted but not provided for 2.4 2.7 Authorised but not contracted or provided for 2.4 0.0

4.8 2.7

All capital commitments relate to tangible assets.

25 Contingencies

In 2012 all borrowings are secured by a debenture creating fixed and floating charges over Group assets and by a fixed charge over specified Group bank accounts. In addition, specific registered pledges have been made by certain overseas subsidiaries (see note 12 for further details of these arrangements).

The Group has provided the following bank guarantees:

To SCTAI Anglo Iskola KFT for €0.3m ($0.4m) in respect of a 30 year lease of school premises in Budapest. The annual payments under this lease are €0.4m ($0.6m) and the guarantee expires on 18 January 2013.

To Abu Dhabi Education Council for AED0.9m ($0.2m) expiring 30 June 2013 and AED1.3m ($0.3m) which is open ended.



76


26 Related party transactions

Included within loans and borrowings are the following inter-company balances resulting from transactions with Premier Education Holdings s.a.r.l., the former immediate parent company of Nord Anglia Education (UK) Holdings PLC: Loan type Balance at

31 August 2012 ($m)

Balance at 31 August 2011 ($m)

Senior and Junior loan notes - 323.9 Loans to parent undertaking - 16.4

Part of the proceeds from the issuance of the 10.25% Senior Secured Notes due 2017 were used to repay the senior and mezzanine facilities. During the year $16.7 million of the principle value of loan notes were written off. Additionally, remaining amounts after a waiver of interest amounting to $101.0 million were converted to equity. Included within amounts owed to Parent undertaking is an amount of $0.3 million due to Nord Anglia Education Inc. The immediate parent company owns 100% of the ordinary shares (note 21) in Nord Anglia Education (UK) Holdings PLC. Also included in the consolidated financial statements are the following balances resulting from transactions with Senior Management of Nord Anglia Education (UK) Holdings PLC and shareholdings held by Senior Management: Loans Balance at

31 August 2012 ($m)

Waived ($m)


New loans($m)

Interest charge ($m)


Senior and Junior loan notes - (3.0) 3.0 0.6 0.3 2.1

Shareholdings Number of shares held

at 31 August

2012

Converted during

the year

Value ($m) Number of shares held

at 31 August

2011

Shares issued

during the year

Value ($m)

Number of shares

held at 31 August

2010 Ordinary ‘B’ shares - (841,623) - 841,623 - 0.0 841,623 Ordinary ‘C’ shares - (210,406) - 210,406 - 0.0 210,406 Ordinary ‘D’ shares - (273,527) - 273,527 - 0.0 273,527 Ordinary ‘E’ shares - (1,213,746) - 1,213,746 366,287 0.0 847,459

Details of the share conversion is disclosed in note 21. As a result of this Senior Management now hold shares in the immediate parent of Nord Anglia Education (UK) Holdings PLC, Nord Anglia Education, Inc. Remuneration of senior management is disclosed in note 7 of the consolidated financial statements. Included within loans and borrowings are the following balances resulting from transactions with the Parthenon Group LLC, an entity in which a director of Nord Anglia Education (UK) Holdings PLC has a shareholding. Details of the shareholdings held by this related party are also detailed below. Loans Balance at

31 August 2012 ($m)

Repayment ($m)

Balance at 31 August 2011

($m)

New loans ($m)

Interest charge

($m)

Balance at 31 August 2010

($m)

Junior loan notes - (1.8) 1.8 0.4 0.2 1.2



77

Notes to the financial statements for the year ended 31 August 2012 (continued) 26 Related party transactions (continued) Shareholdings Number of

shares held at 31 August

2012

Converted during the

year

Value ($m)

Number of shares held

at 31 August 2011

Shares issued of

during the year

Value ($m)

Ordinary ‘F’ shares - (801,653) - 801,653 201,505 0.0

Details of the share conversion is disclosed in note 21. Included within amounts due from related undertakings is the following balances resulting from transactions with The British International School Abu Dhabi LLC, an entity held under common control. Counterparty Balance at

31 August 2012 ($m)


Nord Anglia Middle East Holdings S.p.c. (Abu Dhabi branch) 0.9 4.0 College Alpin Beau Soleil - 1.4

0.9 5.4

Within the amount owed to Nord Anglia Middle East Holdings S.p.c (Abu Dhabi) is a fee of $1.8 million (2011: $1.8 million) in respect of management charges made to The British International School Abu Dhabi LLC. During the year an amount due from Nord Anglia Middle East Holdings S.p.c. of $9.2 million was waived by the Company. The Group holds a 50% shareholding in EduAction Waltham Forest Limited through its 100% owned subsidiary Nord Anglia Education Limited. At the balance sheet date the jointly controlled entity was owed an amount of $1.1 million (2011 – $1.1 million) by the Group which is included within other creditors due less than one year. During the year ended 31 August 2012, consistent with 31 August 2011 financial statements, the Swiss schools continue to rent premises from companies which are controlled by a key member of management. Balance at

31 August 2012 ($m)

Rental charge for the period

($m)


Rental charge for the period

($m) Lesolais SA nil 3.1 nil 1.9 Hunters SA nil 0.8 nil 0.5 Toumim SA nil 0.3 nil 0.2 Delphim SA 0.1 3.3 nil 1.7 La Renardières Service SA nil 0.3 nil -

There is a rental guarantee made to Delphim SA for CHF1.2m in respect of a 14 year lease of school premises in Switzerland. The annual payments under this lease are CHF3.1m ($3.3m) and the guarantee expires on 31 August 2026.

In addition to the above, the vendor was also paid a consultancy fee of $0.3 million (2011: $0.3 million), reimbursement of temporary staff costs $0.5 million (2011: $nil) and $0.4 million of non-cash consideration for the acquisition of the Swiss schools during the year (2011: $nil).



78

Notes to the financial statements for the year ended 31 August 2012 (continued) 26 Related party transactions (continued) Included within other creditors due in greater than one year is an amount of $1.2 million relating to deferred consideration due to the vendor for the initial purchase of College Champittet by Premier Education Holdings s.a.r.l.. The repayment date for this deferred consideration is 1 September 2013. These amounts relate to the original purchase of the trade and assets of College Champittet by the corporate vehicle (Cime Services SA) used to purchase College Champittet. Included within exceptional items for the year ended 31 August 2010 is an amount of $28.2 million incurred as a result of the Group purchasing any past and all future rights under a profit share agreement. On 23 December 2009, Nord Anglia Education Limited, the British International School Shanghai, Ms. Tang and her affiliates entered into an agreement in respect of the purchase of any past and all future rights under the profit share agreement among those parties. This agreement was amended by the parties on August 23, 2010. Under the amended profit share buyout agreement, the Group agreed to purchase any such past and all future rights under the profit share agreement and that payment for these rights would be made in two tranches. The first payment tranche of $9.4 million (RMB64 million) was made on 1 September 2010. The Group had accrued a further $7.5 million for final payment on 31 December 2010. Thus an amount of $16.9 million was included in exceptional items. However, the payment was delayed until 12 January 2011 thus incurring a late penalty fee and uplift in the exchange rate between the RMB and US $, therefore the amount paid was $8.2 million. On 24 February 2010, Nord Anglia Education Limited, the British International School Shanghai and Ms. Tang entered into an agreement in respect of the buyout of any past and all future rights under her employment profit share agreement. This agreement was amended by the parties on 23 August 2010. Under the amended employment profit share buyout agreement, the Group agreed to purchase any such past and all future rights under the employment profit share agreement in two tranches. The first payment tranche of $4.6 million (RMB 31.2 million) was made on 1 September 2010. The Group had accrued for a further $3.6 million for final payment on 31 December 2010. Thus an amount of $8.2 million was included in exceptional items. The payment was however delayed until 12 January 2011, thus incurring a late penalty fee and uplift in exchange rate between the RMB and US$, therefore the amount paid was $3.9 million. A completion fee was also paid to Ms Tang and her affiliates and to Ms Tang under each of the profit share agreement respectively, which was equal to the amount of profit share due under each such agreement for the fiscal year ending August 31, 2010 less any amounts that had been paid before completion. A charge equal to the completion fees totalling $2.9 million was made to the consolidated income statement in 2010.

In addition to the above, the Group is obliged to pay deferred consideration in respect of the second tranche to the value of $1.3 million, of which 50% was payable within 30 days after 31 August 2011 and 50% is payable 30 days after 31 August 2012. Each of these payments is conditional upon Ms Tang still being employed by the British International School Shanghai at the relevant date. Ms Tang will however be entitled to the deferred consideration in the event the British International School Shanghai terminates her employment (other than for serious or gross misconduct or wilful neglect) at any time prior to 31 August 2012. The deferred consideration component can also be adjusted for specified variations in the $/Chinese renminbi exchange rate between 23 August 2010 and the date the payments are made. Thus for 31 August 2011 and 31 August 2012, the actual payment made was $0.7 million which is reflected in exceptional items.

During the year ended 31 August 2012, a consultancy fee of $0.3 million (2011 - $0.3 million) was paid to a close family member of senior management for consultancy purposes.

During the year ended 31 August 2012, $0.1 million was paid to Barings Private Equity Asia for the reimbursement of travelling expenses. Furthermore, an amount of $1.1 million of legal related expenses in relation to acquisitions were passed down from Barings Private Equity Asia to the Group.

During the year ended 31 August 2012, $0.5 million was paid to Parthenon Group LLC for consultancy purposes.



79


27 Ultimate parent company

Nord Anglia Education (UK) Holdings PLC is controlled by its immediate parent company Nord Anglia Education, Inc. Nord Anglia Education (UK) Holdings PLC is the smallest and largest Group for which consolidated financial statements are prepared. The ultimate controlling party is Baring Private Equity Asia.

28 Subsequent events

Subsequent to the balance sheet date, the Group entered into an agreement to purchase the 49% equity interest held by its ultimate parent in The British International School Abu Dhabi (“BISAD”) for $19.5 million. The acquisition pending regulatory approval is expected to be completed before the end of calendar year 2012. The consideration of $19.5 million is all deferred with the first payment of $5.0 million being due in August 2013 followed by two further payments in August 2014 and August 2105 of $7.0 million and $7.5 million respectively. This brings the total number of schools managed by the Group to fourteen.



80


29 Notes to the Company financial statements

29(i) Principal accounting policies of the Company

(a) Accounting principles

The Company balance sheet has been prepared on the going concern basis under the historical cost convention in accordance

with applicable United Kingdom accounting standards and the Companies Act 2006.

(b) Basis of preparation

No profit and loss account is presented for the Company as permitted by Section 408(2) of the Companies Act 2006. The profit

recognised in the accounts of the Company was $70.3m (2011: loss of $34.3m).

(c) Employee numbers

The Company does not have any employees other than 5 directors (2011 – 2).

(d) Investments

Investments in subsidiaries are carried at historical cost less provision for impairment. Impairment reviews are performed by the

directors when there has been an indication of potential impairment.

(e) Cash flow statement

As the parent Company of the Group and therefore included in the consolidated financial statements which are publicly available,

the Company has relied upon the exemption in FRS 1 (Revised 1996) not to present a cash flow statement as part of its financial

statements.

(f) Related parties

Under FRS 8 “Related party disclosures” the Company is exempt from the requirement to disclose related party transactions with

other Group undertakings as they are all wholly owned within the Group and are included in the Nord Anglia Education (UK)

Holdings PLC consolidated financial statements.

(g) Foreign currency

Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the date of

the balance sheet or at an agreed contractual rate.

All exchange differences are taken to the profit and loss account.



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29 Notes to the Company financial statements (continued)

29 (ii) Directors remuneration

2012 2011

$m $m

Emoluments - -

––––––––––––––– –––––––––––––––

The amounts in respect of the highest paid director are as follows:

2012 2011

$m $m

Emoluments - -

––––––––––––––– –––––––––––––––

29 (iii) Investments

Shares in Group

undertakings Cost $m At 1 September 2011 321.6 Additions 0.2

31 August 2012 321.8

The directors believe that the carrying value of the investments is supported by their underlying net assets.

Investments represent 100% of the issued ordinary share capital of Premier Education (UK) Midco Limited, a company

incorporated in the United Kingdom. The principle activity of this subsidiary is that of a holding company.

Details of investments indirectly held by the Company are disclosed in note 12 of the consolidated financial statements.

29 (iv) Debtors 2012 2011 $m $m Amounts owed by parent undertaking 0.0 - Amounts owed by group undertakings 426.8 13.2 Other debtors 1.0 0.2

427.8 13.4

Amounts owed by group undertakings are unsecured, interest free and repayable on demand.

Amounts falling due after more than one year included above are: 2012 2011 $m $m Other debtors 0.6 -



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29 (v) Creditors: Amounts falling due within one year

2012 2011 $m $m Bank overdraft 32.9 - Trade payables 0.3 - Amounts owed to parent undertaking 0.0 16.4 Amounts owed to group undertakings 199.5 - Other creditors 17.8 0.0

250.5 16.4

Amounts owed to group undertakings are unsecured, incur interest at either 4.5% or 2.5% (2011: 4.5% or 2.5%) and are repayable on demand.

29 (vi) Creditors: Amounts falling after more than one year

2012 2011 $m $m Amounts owed to parent undertaking - 326.3 Other creditors - 4.8 10.25% Senior secured notes due 2017 310.5 -

310.5 331.1

Details of creditors due after more than one year are disclosed in note 18 of the consolidated financial statements.

29 (vii) Share based payments

Details of share based payments are disclosed in note 19 of the consolidated financial statements.

29 (viii) Share capital

Details of share capital are disclosed in note 21 of the consolidated financial statements.

29 (ix) Other reserves

Other reserves relate to the foreign exchange revaluation reserve.

29 (x) Profit and loss account 2012 2011 $m $m Opening balance for the year (79.2) (45.4) Profit/(loss) for the financial year 70.3 (34.3) Share based payments 0.2 0.5

Closing balance for the year (8.7) (79.2)



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29 (xi) Reconciliation of movement in total shareholders’ surplus/(deficit) 2012 2011 $m $m Opening balance for the year (12.5) (42.2) Profit/(loss) for the financial year 70.3 (34.3) New shares issued in the year Debt for equity swap Conversion of share premium to preference shares Foreign exchange movement on shares

0.0 131.0

- -

65.8 -

(0.1) 0.0

Share based payments 0.2 0.5 Foreign exchange movement - (2.2)

Closing balance for the year 189.0 (12.5)