8/28/2023

speaker
Marcus Strömberg
Chief Executive Officer

Good morning, everybody. I will start. Marcus Strömberg is the CEO here. Stockholm today has fantastic weather and Academiedia has started the new school year in a really good way. We increased the number of children with 8% and that is a result of the efforts and investments that we have done, both international and also in the Swedish education part. So we think that we sum up a very good year and a good quarter with strong demand. We have increased the number of school places, but we have also increased the capacity utilization. The net sales grow with more than 15%, of which around half was organic. And the profitability also increased a lot. And the result of the international development that really has increased the profitability. We have now 50% growth international, and we also see that 40% of Academedia is adult education and international education. And our target, that is 50%, so we are on a good road to reach the target and get a good balance between Swedish education and international education. We have had a lot of efforts on reading skills, vocabulary, early age programs and that has also given us very good quality results this year. We have worked a lot with the grades and equivalents between the national tests and the grades and I would like to say that Academedia is really the leader in the way that we work with our quality development. The board has decided to continue to keep the dividend at the same level as last year and they will also propose a program of share redemption to the annual meeting in November. So with that short introduction, I will hand over to Petter and he will bring you through the numbers and I will gladly answer questions after that.

speaker
Petter
Chief Financial Officer

Thank you, Marcus, and good morning, everyone. So to start with, as Marcus said, we end this year with a very strong quarter. I'm very glad to be part of that in my second quarter's presentation in this company. As Marcus outlined earlier, we achieved a good growth of 15.6%. And that was with contributions from the acquisitions of Tula in Finland and Winford College in the Netherlands. And they amounted to 8.7%. Additionally, our adjusted profit margin increased to 8.5%. compared to last year's 7.9%, which means that we were reaching 415 million in absolute terms, up from 333 million. And we have for long had a stable and profitable Swedish operation. And I'm glad to say that now we manage also to increase the profitability in the national operation, mainly an effect of that Germany and Norway are better compensations for inflational costs. And finally, this increased profit has translated into correspondingly higher free cash flow. Now turn to page four, please. The improved adjusted EBIT are evident across all segments. Apart from the better compensation through annual increases in school vouchers, which now adequately account for inflation, the positive change is most notable in the preschool and international segments. where in addition to better school voucher compensation, the acquisitions ought or has contributed an additional 30 million. As we mentioned in previous quarters, the increase in group overhead costs is a natural outcome of our growth. Some of our staff functions are adding extra resources to accommodate our expanding operations. Let's look at the quarter's development within each segment. And we start with the preschool segment at page seven. The number of children increased by an impressive 33%, with growth witnessed across all countries except Sweden. And in Sweden, we had six preschools that were closed in the past 12 months, which are affecting the year-over-the-year numbers. Our growth was primarily driven by the acquisitions of Windford in the Netherlands and Tula in Finland, along with new preschool openings in Germany. As Marcus mentioned, the international operations now account for a little bit more than 30% of the growth total sales this quarter. Net sales increased by 35% compared to last quarter, with organic growth at 8.3%. Adjusted EBIT and margin improved compared to the previous year's quarter. This quarter margin reached 8% up from last year's 6.8% and the operating profit was 151 million compared to last year's 95. These improvements are attributed to better compensation for inflational costs through annual school voucher increases in Germany and Norway and the contributions from acquisitions. Moving on to compulsory school on page eight, we note a 1.6% increase in the student numbers. Net sales rose by 6%, driven by increased number of students and the positive impact of the annual school voucher revision in January of 5.5%. Adjusted EBIT and margin improved compared to the previous period. This quarter's margin reached 9.1% up from last year's 8.6% and the operating profit was 99 million compared to last year's 88. These improvements attributed to better compensation through the school voucher revision, now better compensating for inflation costs. Now turn to upper secondary school on the next page. We observe a 2.9% increase in student numbers The sales growth of 5.9% were driven by more students, as well as the annual school voucher revision of 3.8%. Although it's worth noting that this revision hasn't been sufficient to offset inflation cost increases. Even so, the adjusted margin increased this quarter 12.2% compared to last year's period of 11.6%. due to higher capacity utilization and lower energy costs. Moving to adult education, we see a 6.5% increase in sales driven by a higher number of students in higher vocational education and the acquisitions of Bergs. In the municipality business, our implemented capacity adjustments and cost-cutting measures from last year's continued to yield positive effects. Adjusted EBIT increased to 23 million from previous quarter's 20, with a margin of 5.4% compared to 5.0 last year. For the fiscal year, the profitability was 9.4% compared to last year's 7.7%. Continue to the next page, free cash flow and investments. Free cash flow for the year was 332 million higher than last year, attributed to higher profits. and a more faithful network in capital development. Maintainance capex as a percentage of sale has slightly declined to 1.56%. The significant increase in other expansion capex is associated with the acquisitions of Winford and Tula. Proceeding to page 13, the financial position. Net debt excluding IFRS 16 increased by 1 billion compared to last year, with a leverage ratio excluding IFRS 16 at 0.6, which is well below the financial target of less than 3. Including property-related lease liabilities, net debt was higher due to growth, the acquisitions of Tula, and the share redemption program. And Let's continue to next page 14. I will now summarize the financial year in total. Number of students grow 6.2%, mainly through the 30 newly established preschools in Germany and the acquisitions of Winford in Netherlands and Tula in Finland. In other words, this was an effect of the planned international expansion, according to our strategy. Net sales increased by 11.5% compared to last year, with organic growth at 7.3%. Adjusted EBIT and margin improved compared to the previous year. This year's margin reached 6.3%, which is up from last year's 6.2%, and the operating profit was 1,097,000,000 compared to last year's 964,000,000. These improvements are attributed, as reflected in the quarter, to better compensation for inflation costs through annual school voucher increases in Germany and Norway, and contributions from acquisitions, but reduced by the lower compensation in upper secondary schools that not fully compensate for inflation costs. If we move on to slide 15. And looking at the increase of EBIT over the years, we see that it's obvious that preschool and international just as in the quarter isolated contributed most to this year's profit increase.

speaker
Moderator
Investor Relations

Let's move on to the financial targets and financial performance.

speaker
Petter
Chief Financial Officer

Our organic growth, including small Bolton acquisitions, stands at 7.3%. exceeding our financial target of 5 to 7% growth. Our adjusted EBIT margin of 6.3% falls below the target range of 7.8%, but in the quarter we reached 8%. The leverage ratio of 0.6% remains comfortably below the required threshold of 3. If we continue to the next page, So, as we have described, the board intent to propose a voluntary share redemption program and to further emphasize what has been agreed to be intended to be proposed at this time is the mechanism for the share redemption program, the fact of how it will be intended to be perceived, The timing of the program in the Q3 of 2025, but has not been decided to be recommended is the amount, the specific amount. And that is intended to later be proposed during the autumn. And with these words, I end the presentation and we open up for questions.

speaker
Operator
Conference Operator

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Johan Lankvist Sundin from Carnegie. Please go ahead.

speaker
Johan Lankvist Sundin
Analyst, Carnegie

Good morning. Thank you for taking my question. I have one first on the preschool business where you show quite impressive margins. And just curious to get some comments on how much of this that should be extrapolated going into next year. You made first one quite big acquisition during the spring, which should be margin dilutive. for the segment. Is there or should there be enough with the kind of better compensation for the inflationary environment to hold up margin or how should we think about margins in preschools for next year?

speaker
Petter
Chief Financial Officer

We believe that overall the margins we represent now is I think is translated to next year. You have to look at the whole year to represent the margin development. It differs a bit between the different quarters. Q1 is significantly different in terms of margin than the other quarters. But generally speaking, I think what we see in Q4 and what we have seen in Q3 combined for the preschool segment is a fairly good representation of the level we expect going forward. Now, we are not only better compensated in the quarters, international segments, but we also see that that better compensation better represent our expectations of the compensation level going forward.

speaker
Johan Lankvist Sundin
Analyst, Carnegie

Okay so at least the 4.8 reported this year should be achieved next year despite the dilutive links.

speaker
Petter
Chief Financial Officer

Yeah if everything else equal if nothing else is changed in the compensation framework from what we know right now that should be relevant expectations.

speaker
Moderator
Investor Relations

Excellent. That was the first one. I'll get back in line and see if there's more questions on the call.

speaker
Operator
Conference Operator

The next question comes from Carl Johan Bonnevier from DNB Markets. Please go ahead.

speaker
Carl Johan Bonnevier
Analyst, DNB Markets

Yes, good morning, Marcus and Petter. Good development, no doubt, in the fiscal year. And looking at the student growth numbers you alluded to, Marcus, the 109,000, could you give us some idea about how it looks across the segments at this stage?

speaker
Marcus Strömberg
Chief Executive Officer

No, you know, we are really early on that. So we are quite, we're taking it, as a total. But we will comment on that in the next quarterly report.

speaker
Carl Johan Bonnevier
Analyst, DNB Markets

But I guess if you look at particularly the upper secondary school segments, do you still see growth in year one students year on year? I guess that's the most important kind of indication.

speaker
Marcus Strömberg
Chief Executive Officer

What I mentioned is that we will comment on that. I understand the question, of course, and we are focused on that all the time. But we will comment on that after quarter one here. It's very early and it has been more movements. Over a year, we see that the number one students move a lot between different schools. So we would like to wait a few more weeks before we say how things are developing.

speaker
Carl Johan Bonnevier
Analyst, DNB Markets

That's fine. Looking at the growth case for you in preschool Germany, what kind of ambitions do you have for this year of new openings? What is the extended pipeline for new openings in Germany?

speaker
Petter
Chief Financial Officer

Our intention is to open another 10 more schools this year, and that is to compare to, I think, the 13 we opened this year. So, as you recognize, there is intended a little bit lower pace of growth in the new establishments, but that's also both a consequence of that we're focusing on increase the capital utilizations of the schools who already have established and also focus on profitability. And as you have seen, that's an important part of the results in Q4. But we see further room for further improvements.

speaker
Marcus Strömberg
Chief Executive Officer

And we have just worked with organic growth in Germany and maybe we will have some opportunities now to also make acquisition in the preschool segment in Germany. So because you know how it works when you make acquisition, you get full capacity schools at one up and running. So we will continue to grow organically. The need for new school places are really high, but I think that we will also see some opportunities now to make acquisitions.

speaker
Carl Johan Bonnevier
Analyst, DNB Markets

Excellent. And when you look at the acquisition pipeline, is there any new areas you would suggest or is it digging deeper where you are?

speaker
Marcus Strömberg
Chief Executive Officer

I think we still try to dig deeper in Germany. We see potential when it comes to schools in Germany. We think that they have developed quite well. And if we grow with schools in Germany, it will be through acquisitions. And we see when we come to Netherlands, the preschool market in Netherlands is quite big. And we have a small group and it's quite immature so far. So we see also opportunities to grow in the Netherlands. And then hopefully we also could look into Poland. You know, we run added education in Warsaw with our IT programs and gaming programs. And it's growing. It's small business, but it's growing. So that is a country that we want to know more about.

speaker
Carl Johan Bonnevier
Analyst, DNB Markets

excellent and when tool has now been part of your operation for a period then I guess the management team there is driving more of a profit margin expansion recoveries case for it do you feel better confidence that in that's the case now when you have been owner of it for a while or how do you see that case developing

speaker
Marcus Strömberg
Chief Executive Officer

We must say that they are coming. We have looked at this company for many, many years and we see improvement when it comes to financial results. And we think it's a really professional management. They have focus on really creating margin quality and try to make a big and strong group. Hopefully, we will see some opportunities also in the future to make acquisition because The sector is growing and a lot of the municipality need more places in municipality that is growing. And there are also movement from taking your children, care of your children at home to go to professional operators. So it's an underlying movement towards ordinary preschool and we would like to be a part of that development. But the focus now is to keep up the improvement of the profitability in the business.

speaker
Carl Johan Bonnevier
Analyst, DNB Markets

Excellent. And one final for me, looking at adult education, good move in the continued underlying margin recovery. If you look at the backlog and the tender kind of situation that you are now exposed to in this fiscal year, do you see still an opportunity for a margin expansion or should we expect it to be more stable at the current level?

speaker
Marcus Strömberg
Chief Executive Officer

We would like to keep it in the target range that we have. But what is very positive when it comes to the other dedication is that we are not so depending on the tenders anymore because we have this higher vocational training that is very, very good. We have a good market share and we are very professional. And here is more like a school voucher system. So it's up to the student to choose our schools. And we are very hopeful on that coming here, because when we see that the unemployment increase, we see that more students and people go to the adult education. So we have less big contracts and more focus on the school voucher part of the adult education. But maybe one thing we could comment on, and that is the online training that the added education have. And we have really have focused to develop our own platform. It's called Omniway, it has its own website. So we have developed a platform that we are working with in the total municipality training programs, the online training, and also the higher vocational training. So we have an effective machine when it comes to added education.

speaker
Carl Johan Bonnevier
Analyst, DNB Markets

Excellent. And just on that, with the voucher part of that business increasing, so to say, I guess that should fit your business model even better to some extent.

speaker
Moderator
Investor Relations

Yes, that is the short answer.

speaker
Carl Johan Bonnevier
Analyst, DNB Markets

Excellent. Thank you very much.

speaker
Moderator
Investor Relations

I'll go back.

speaker
Operator
Conference Operator

The next question comes from Beltran Palazuelo from DLTV. Please go ahead.

speaker
Beltran Palazuelo
Analyst, DLTV

Good morning, Marcus, Peter. Congratulations on the strong results.

speaker
Beltran Palazuelo
Analyst, DLTV

I have a couple of questions, if I may. Maybe if you can comment on, first of all, on the cost for next fiscal year, and let's say salaries and rents, and maybe you could give us, let's say, light on that. Then the second question I have is regarding acquisitions. I know you just commented in the previous question, but maybe, let's say, apart from the things you mentioned, let's say the amount that you're willing to spend, how aggressively, let's say, the opportunities arise there. And then without, of course, we don't know, let's say, what would the vouchers be, but how do margins look for next fiscal year? Do you think that, let's say, with higher utilizations, we can, let's say, keep on going to the target margins? And my last question is regarding the redemption program. I know it's not decided exactly the amount, but what type of amount do you think that the balance sheet can have? And then, The last question about the redemption. Why redemption? It's quite weird that you do the redemption. Why not a normal buyback? Because the redemption creates a lot of, let's say, admin work. So maybe, why not a buyback?

speaker
Marcus Strömberg
Chief Executive Officer

Perfect. We try to remember the question. Thank you very much, Beltran, for the question. The first is on the salary and the rental increase. And we have seen quite high salary increase two years back and also the rental because it reflects the inflation. If we look at the coming year, it will be much lower, you know, because the inflation affects the rental costs. And it's the inflation in October that is the increase of the rental cost 1st of January. So if you look at the forecast, it's difficult to say, but my guess is between 2% and 3%, maybe even less. But who knows? It's better to make your own forecast. If we look at the salaries, I think we will see quite low salary increase also the coming year because we have had quite high salaries. And that is also a result of the inflation. But we will see. And when it comes to the school voucher, that will also be reflected by the inflation. We saw two years back that we have a higher school voucher. And that is because of that we had high inflation. Now we will have lower inflation. And then the school voucher also will be lower. And we are following this very closely. We ask the municipality what they think about the coming year. We try to plan. in the best way, and we always plan for the worst and work for the best. That is our strategy when it comes to school vouchers. And if you look at the possibility to make acquisitions, we will, I think, make a lot of acquisitions in Sweden in the coming time. We have a good pipeline on that, but that is not our main focus. So I would like to say that I mentioned before, our focus when it comes to acquisition now, that is, schools in Germany, it is preschools in the Netherlands, and maybe also preschools in Germany, but that depends on the prices. We have seen a really high valuation when it comes to schools in Europe, and we don't want to pay too much. That is the strategy for the moment. And if you take the last question on the redemption program, it's up to the board. And we had this discussion also last year. And the board really want to have this voluntary program that it's up to each shareholder to decide what they want to do. And so they want to continue with that program. And we think that it worked out quite well last year. And now we think that people understand how it works and it's good to continue with the same model. And when it comes to the amount, as Petter mentioned, the board has not decided the amount. But they will tell that in good time before the annual meeting. But if we look at the financial situation in the company, it's stronger than last year at the same time.

speaker
Beltran Palazuelo
Analyst, DLTV

Understood.

speaker
Beltran Palazuelo
Analyst, DLTV

So maybe the redemption last year was 266 million and the net results have gone up, let's say, 9.3%. It is, let's say, likely that is higher. It can be a good estimate.

speaker
Marcus Strömberg
Chief Executive Officer

I'm very sorry to say, but I can't estimate that, but I tried to be as clear as I could on that point. But we will know that in a few months, I think.

speaker
Beltran Palazuelo
Analyst, DLTV

Okay, thank you very much, and all the support from our side, and thank you for your hard work.

speaker
Moderator
Investor Relations

Thank you very much.

speaker
Operator
Conference Operator

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

speaker
Marcus Strömberg
Chief Executive Officer

Thank you very much for your interest and we wish you all a good day. Thank you very much.

speaker
Moderator
Investor Relations

Thank you very much.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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