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AcadeMedia AB
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Welcome to the AcadeMedia Audiocast with Teleconference Q1 2021-2022. [Operator Instructions]. Today, I'm pleased to present CEO, Marcus Strömberg; and CFO, Katarina Wilson. Speakers, please begin.
So good morning, everybody, and welcome to this presentation of AcadeMedia's first quarter. And I will just start to make a short introduction and then hand over to Katarina.And as you see, and it has also been announced in the report, we had a very good start of our new fiscal year. A lot of students have entered our different schools. And I must say that we have the highest demand ever when it comes to our schools. And the increase in Upper Secondary has been really fantastic. The number of children and students increased with 6.8%. And what is also interesting now that we start to go back to more normal situation in Germany. And the demand of new places in Germany is still very high. We increased the number of new starts. We started 8 preschools in Germany first quarter. And we will increase now the pace, and we will start a lot of new preschools. And we have a very good team and a good pipeline also when it comes to our preschools in Germany.And we have also started new schools in Sweden. And we are already now preparing for next August, where we start our big campus in Stockholm, and that is what we're really looking forward to. And already in October, in fact, we start with open houses and talk about these new starts next August.Then if we look at the Adult Education, we have already announced that we have the highest number when it comes to vocational training in the Adult segment. We have more than 10,000 students. And for the moment, I would like to say that AcadeMedia is really the leading vocational educator in Sweden. It's a high demand. The politician talks a lot about vocational training. And we really have the top position, with more than 15% of these markets. And we have very strong brands, both in nursing and also different sort of vocational program and on-the-job training programs.We have also announced something that is very interesting for us, that we have developed our brand strategy when it comes to our Compulsory Schools. And the last puzzle is to announce in [ Innovitaskolan ] schools that we did just a few weeks ago. And we think that this development when it comes to our Compulsory Schools will increase the attractiveness and also the quality. And both the principals and the staff has been very positive to this. And we have now around one year to the election in Sweden. It's a lot of political debate. The school and the independent provider is something that is debated in the Swedish context. What is very important to keep in mind, that we have been working in this environment. AcadeMedia has been working in this sort of environment in more than 15 years. And we have a very strong model that handle different sort of political changes. And what we see now it's -- that it's more debate than real suggestions. So if the situation is the same as now, everything will continue as it is today. But I understand that it can affect people to listen to all these political noise.But you should keep in mind that AcadeMedia is now the leading provider of education in Northern Europe. It's more than 400,000 students that started independent schools in Sweden. Every [ 10 ] upper secondary student go to AcadeMedia school. So this sector is very big and important for the society. And today, we also announced our annual report. And we have one page where we sum up the quality results for last year. And if you look at that page, it's not always that you have the good numbers on all different parts. But in fact, I think we have increased the quality results in all parts of AcadeMedia last year.So Katarina, can you please update us now when it comes to the numbers?
Yes. Thank you, Marcus. I'm Katarina Wilson, CFO of AcadeMedia. Moving on to Page #3, highlights quarter 1 of our financial year '21-'22. And quarter 1 is usually our smallest quarter when it comes to EBIT. It's the beginning of the school year, and what really matters more than anything else is the number of students in our classrooms. And we've had a good start, like Marcus said, with strong student growth in the School segments. Student numbers grew by 6.8%, with over 10% increase in the upper secondary school segment. But student numbers were negatively impacted in Norway by the loss of 2 preschools in Oslo, and we talked about that already last year.Net sales increased by 10.2%, with organic growth in all segments. Swedish Education Group, the acquisition last year, contributed 3.3 percentage points to the growth. And adjusted for acquisition and a small positive currency translation effect of SEK 3 million, the organic growth was 6.8%. The adjusted EBIT increased to SEK 194 million and the adjusted margin increased from 5.7% to 6.7%. So this year, similar to last year, in fact, had a rather large positive effect from vacation. Our employees took more vacation in this quarter, and that gave a positive effect of about SEK 35 million in total. And like last year, this positive effect will even out over the course of the year.So moving on to Page 4, showing an adjusted EBIT bridge that illustrates that all segments are contributing to the EBIT growth in the quarter. We had somewhat higher group cost due to higher activity levels compared to last year. Items affecting comparability of minus SEK 30 million relates to the fire we had in a compulsory school in July. And we are expecting to get insurance compensation at the latest time to most of this cost.Moving on to Page 5. Net sales rolling 12 months now amounts to SEK 13.6 billion; adjusted EBIT to SEK 976 million; and the adjusted EBIT margin is still above 7% at 7.2%. So let's go through each segment, starting with the Preschool segment, Page #8. Like Marcus said, in Germany, we are now back really to full speed. 8 new units opened in the quarter, which gives a total of 65 preschools in Germany and 278 preschools in total in this segment. The number of children increased by 1.6%, driven almost entirely by Germany. And as I said, was negatively impacted by the termination of the contracts in Oslo with 310 children.Net sales increased by 7% compared to last year, and adjusted for a small positive currency translation effect, sales grew by 6.6%. And this increase is mostly coming from Germany, but also partly due to higher compensation in Norway. So although this is a very small quarter, adjusted EBIT was somewhat higher than last year at SEK 9 million, and was positively affected by the recovery in Germany and continued efficiencies in Sweden.So looking ahead, we are well on track to open 15 new preschools in Germany. We will acquire one preschool in Sweden in the next few days. And we are planning to start one new preschool in Sweden in the third quarter of this financial year. And just recently, a few days ago, the salary increases in Norway for 2021 were decided and landed on 4.1%. And this will be applied retroactively from May 2021. And this means that we will have increased salary costs in the next quarter by about SEK 10 million and for the second half of the year by another SEK 5 million per quarter. So in total, SEK 20 million. Now how much this actually will impact our EBIT? It's really too early to say since we don't know what the voucher increases will be for 2022. We will know that late December.Moving on to Compulsory Schools, Page 9. We continued to see solid growth in this segment. The number of students increased by 5.8%. And sales grew by 10.7%, where the acquisition of Swedish Education Group and Stockholms Internationella Montessoriskola last financial year contributed 3.9 percentage points to the revenue growth. Also, one school with 190 students was acquired in this quarter. State subsidies are increasing. For example, subsidies to ensure that all children and students have access to the same standard of education. In Swedish, we call that [Foreign Language]. And this is also contributing to the revenue growth. But as with all subsidies, we have [ unequal ] costs.Adjusted EBIT amounted to SEK 54 million, which was significantly higher than last year, and the margin was 7.6%. Volume growth and lower personnel costs, SEK 15 million, caused by more vacation days in the quarter was the main explanation. And the positive vacation effect is expected to even out over the year. And costs related to the fire in July of SEK 30 million was reported as items affecting comparability. And this gives an EBIT and EBIT margin below last year. However, as I said, we expect to be compensated for most of this cost related to the fire, but at the later time. So moving on to Upper Secondary School, Page 10. Student numbers increased by as much as 10.1%, where Swedish Education Group contributed 6.2 percentage points to the growth. And the organic student growth was 4%. And it's coming from the 3 new starts this autumn as well as the previous 18 schools that opened over the last 5 years. Net sales increased by 12.6%. Adjusted EBIT margin was higher than last year at SEK 87 million, and the margin increased to 9%. Volume growth and lower personnel costs, SEK 15 million, caused by more vacation in the quarter was the main explanation. And I reiterate, the positive vacation effect is expected to even out over the year. And just to remind you, we also, last year, had a positive vacation effect, and it was SEK 10 million in this segment last year.So Adult Education, Page 11. High unemployment impacted us all through our last financial year and created very high demand for Adult Education, with exceptional volumes and high capacity utilization. And we're now beginning to see an improved job market where volumes are starting to go back to more normal levels. Long-term unemployment is still rising, however. Net sales increased by 10.9%. And the growth was entirely coming from the Higher Vocational Education, where the acquisition of Swedish Education Group under the brand name [Foreign Language] [ KYH ], contributed 6.3 percentage points to the total growth. EBIT increased to SEK 67 million and the margin was 15.7%.Demand for Higher Vocational Education remains high, and this business area now represents 33% of the total segments. And this increase is partly due to the acquisition, but also, as I mentioned, good growth in our existing business. The Municipal Adult Education is beginning to see a decline in number of participants, especially within SFI, Swedish for Immigrants. This gave a lower capacity utilization and profitability in the quarter. And this is a trend that we expect to see continuing for the next few quarters. However, we have a very solid contract portfolio in this area. And our contract portfolio is covering many of the areas that the government has directed additional resources to.The labor market services business was in line with last year, both regarding revenue and margin, but still only constitutes 12% of the total segment revenue. The transition to a new matching service is still slower than we had expected.The Swedish Tax Agency has revised its interpretation regarding VAT on subcontractors providing educational services. And this means for us that we are expecting increased costs by about SEK 15 million in the second quarter, affecting the Higher Vocational Education business. The Swedish National Agency for Higher Vocational Education is working on a compensation model that is expected to come into place in January 2022. So we are expected to get compensated for this cost increase for the second half of our financial year.And to remind you, we still have a relatively young contract portfolio in this segment, and no major changes are expected for the coming year. However, we are expecting the margins to come down somewhat to more normal levels. And we've said this many times before, that it's between 9% and 11%.Moving on to Page 13, free cash flow and investments. The free cash flow, defined as cash flow before investing in expansion, was negative, at minus SEK 99 million compared to minus SEK 42 million last year. And cash flow is normally negative at the beginning of the full year related to working capital. Rolling 12 months, the free cash flow was SEK 1.1 billion. And maintenance CapEx, to the right on this page, as a percentage of sales is increasing somewhat, or rather coming back to normal levels, I would say. Page 14. The financial position improved even further. Net debt, excluding IFRS 16, is significantly lower than last year at about SEK 1.5 billion. And the leverage ratio is lower than last year at 1.1, which is well below the financial target of below 3. The increase in property-related lease liabilities, that's mainly due to the recent acquisitions.And to conclude, we are -- if we move on to Page 15. We are for the fourth quarter running meeting all of our financial targets, including our profitability target.And with that, I would like to open up for questions.
[Operator Instructions]. The first question comes from Stefan Knutsson from ABG.
I have a question regarding the margins in the school in Sweden. Even if you adjust for the vacation effect, you still was up year-over-year compared to last year. I just wondered, that is against my logic with increased activity levels in the schools. And I also had a look at your smaller peer, [ Apexa ], which saw a drop in margin here in their quarter. Can you just comment on how you were able to increase the margins this quarter?
You can say that we have worked a lot. You mean the Compulsory School now or do you mean that...
Yes. It was especially in the Compulsory School segment, but I think you were also up in the Upper Secondary...
First of all, the first quarter, it's a small quarter for us. That is important to keep in mind. So you shouldn't look so much at this -- just this quarter. But I must say that we have done a very good job when it comes to our compulsory schools. We have increased attractiveness. We have made a lot of good acquisitions when it comes to these segments. And we have also -- you have always a pipeline of not so good working schools. And we have also worked a lot with that, so to say, the most loss profiting -- the units that lost a lot of money. So that is really the explanation. So -- but maybe you shouldn't look so much at this -- just this quarter. But we are very proud of the team that is working with our compulsory schools, and it's developing quite well for the moment.
Perfect. And then also a follow-up on the Adult Education, which continues to see elevated margins compared to your guidance of 9% to 11%. My question is, shouldn't the COVID-19 effects sort of be priced in here or start to decline? Or why do you still see 15% EBIT margins in that segment?
As Katarina said, it's the same explanation, it's a small quarter. And you also have the July effect with the -- we have really high demand over the summer, and that is combined with vacation. That increased the margin. So you shouldn't look so much at the quarter. But what you should look at is that the vocational training is performing very well for the moment. And we have a very strong position. What we will see now, I think that we will have not so much online that we have before the coming year. And also, this migration program, they will not be at the same level as last year. So it's a good start. We have a strong position. But I think you should focus on the target that we had mentioned with Katarina. And then -- but of course, we are very happy to see the development -- how we develop the vocational side of the programs.
Perfect. And then my last question is just regarding the working capital. It was almost negative or -- year-over-year, more negative, SEK 100 million, compared to last year. Is that something that you expect to catch up for full year?
Well, working capital is usually negative this early on in the year. And most of the time, it's just calendar effects that is impacting the working capital. But of course, we had a very, very favorable position at the end of last year comparing -- if we compare it with the cash flow. So it's hard for me to say. But I wouldn't perhaps expect a big positive effect.
But nothing has happened when it comes to regulation around how the municipalities pay it and so on. So it's much more calendar effect.
Absolutely.
And didn't we have the sale in Norway last year, also.
Yes, yes. Yes. In the cash flow, yes.
Perfect. So we'll just look at a couple of more quarters then.
The next question comes from Karl-Johan Bonnevier from DNB.
Yes. Just to detail this strange effects in the quarter. The vacation effect, Katarina, when you look at it, would you say that this year is more normal compared to history than previously or -- given where we stand or -- so it's back to normal? Or is there some sort of specific effect you expect to reverse in the other direction next year?
No. I think this positive effect is larger than I had anticipated. But it's hard to say what normal is actually, Karl-Johan. But then -- I mean we had a similar positive effect last year, so -- of SEK 20 million in total and this year is SEK 35 million. So it's hard for me to say.
But the best guess now is that will even out, as you mentioned.
Yes. This year, that SEK 35 million will...
Even out.
Even out. So we will see a negative effect of SEK 35 million for the next 3 quarters. That we know.
That is the best guess. But you could also -- because during the -- this COVID, some people, maybe they didn't use the vacation so much, and then they took a lot of vacation this summer. So but our best guess that is, but it will even out. But it has been strange times.
And going into next year, I guess then everything is equal, we will see that the same kind of Q1 effect, so to say. That is -- this will be the new norm, so to say that we should compare with?
I think that's hard to say, actually, because COVID, like Marcus said, could have impacted how we take holiday. But then...
Because we saw that not so much people used the vacation during the COVID and maybe some more of them took vacation over the summer. So the normal trend is that they use more vacation over the year. So -- but the normal is that when we grow like this, we have this sort of vacation effect.
Yes.
So it's also related to the growth. And now we have high growth. And then you get a little lower vacation in the first quarter and a little bit more the rest of the year.
In terms of number of employees, and the fact that we -- the salaries increase every year, yes.
Yes. And as you point out, I guess, for fiscal year, 12 months, it doesn't really matter that much anyway.
It doesn't. No, it doesn't. No, it doesn't.
And just to understand this VAT change to the legal -- the tax authorities. Is that some sort of retroactive sum that ends up to SEK 15 million? Or if you wouldn't get compensated, so to say, in contract, will this be a regular kind of quarterly kind of impacts?
I don't think so. It is more like a one-off in quarter 2. And if we take the schools, we have this situation that we have a compensation of 6% from the State on the voucher that compensate us for the VAT. Because when you have education, you can't even out VAT as you do as a normal limited company. And now we have the same situation when it comes to added education, the vocational program. And it hasn't been like this before. And authorities have been very, very clear that they will compensate us, but they will compensate us from the 1st of January. And when it comes to this sector, we have a lot of, what do you call them, consultants that do this sort of training because it should be integrated with the different sort of the job -- on the job training. So we will get be compensated. But I'm very sorry that we will not be compensated during Q1 and Q2. So we are taking cost in Q1, but we will also announce that it will be a one-off in Q2.
We don't have so many contractors during the summer months. So Q1 is -- Q2 and Q3 would be the -- it might be the high end costs.
But I think it's important to look at that number as a one-off.
Yes.
And as you say, from January '22, then basically, you would just see this as an increase in the voucher amount you get for these kind of students, but not the contribution from them on a net level.
Now that's correct. And this is the whole sector. And this is from the political view a very important sector. So they have full focus on this situation. But they are a little bit -- sometimes, they are a little bit slow movers, the politicians. But they have been very clear that they will compensate from 1st of January.
Excellent. And final one. Good to see that you are getting Germany back onto the growth track again with these 8 units that you open. Can you elaborate a little on how you've been able to staff them and how they have ramped up so far?
Perfect, so far. So you -- they are on profitable levels after one year. The demand is still very high. We have focused on the northern part of Germany with the Stepke brand that is -- that has the best returns. So -- and we have a great pipeline for the moment.
And could you elaborate a little how the pipeline looks for going into next year? Do you already have a similar kind of net new openings? Or how has that developed?
It will continue. We have mentioned that we will start 15 to 20, and I think it will be at the higher number. So I think we will have a high number. We have a Board meeting. This is not that affects the overall AcadeMedia, but we took a lot of decisions yesterday, and we will continue and we have a very good pipeline. What is very important for us also, because when you grow like this, it also costs you a little bit in the first year. So that you have to keep in mind. But we see it like it's a little bit of a moment of opportunity. And maybe we also should mention that we, in fact, have now -- we have taken one of our EdTech products also, it's a small product to France. So in fact, AcadeMedia is now in 4 countries. But we could talk about that on another occasion. But it has been very nice to see the development also when it comes to our new EdTech segment.
Excellent, sounds promising. Just to -- one further then on the -- on Germany. I saw that you continue to increase your -- the book value of your properties. Is that related to that bigger share of what's going on in Germany is done now in owned properties or...
That is very important that you mentioned this, because when it comes to Germany, you have very long lease contracts. And that is a part of the -- how the German model is. And then, of course, you increase the lease contracts according to IFRS 16.
But I was alluding to the property ownership, so to say, the ones that you own.
We don't own anything in Germany.
No.
Okay. That's still just related to Norway. Perfect.
Yes, yes.
Yes.
[Operator Instructions]. We have a new question from Johan.
Johan Sunden from Carnegie here. Just a follow-up, we touched upon it earlier. It's the kind of vacation effect that we -- that is impacted this quarter. We saw a little bit higher than expected effect in Q4 last year. Are you seeing any kind of catch-up from that during this quarter? Or is it basically the SEK 35 million that should be the kind of full year level that should normalize during the coming 3 quarters?
Yes, yes. That's my assumption. Yes.
So there's basically a risk that there could be a smaller normalization or a bigger normalization, which we saw last year, given how can [indiscernible] the lay out.
I would say that this SEK 35 million will have even out this year. So you will see a negative effect in the next 3 coming quarters.
There are no further question at this time.
So perfect. Thank you very much then. Thank you very much for your time, and wish you all a good day.
Thank you. Bye-bye.