Q2 20/21

Feb 3, 2021

So thank you very much. Markus Lundberg here from snowy Stockholm. And we have a lot of very happy children at our preschools and schools that are enjoying all the snow that there are for the moment. So welcome to this presentation of our Q2 report. And I will just start and make a short introduction and then hand over to Katerina Wilson. She's sitting next to me. And I think this report is very, very stable. And we see a positive development now in almost all of Academia's different segments. What we are very happy to see is that we have an organic revenue growth of more than 7%. And that is a result of all our good schools, good quality schools and of course also the development in the adult education. And I must say that we see a demand in the adult education that we maybe never have seen before. And of course, it's driven by a lot of people that want to retrain. But we see also development where a lot of students go into online training. And maybe you think of Academia as a traditional education company. But in fact, Academia is really an EdTech company. We train more people online than any other operator. So driven by the advertising, we see improving results. We see very stable and improving and good results. And of course, we also have this pandemic situation in the whole organization. And this has been for a long time. We have a lot of our upper secondary schools that is taking care of the students now online, but they are starting to go back to the schools again. But we have developed a model that is working very, very well. But of course, it's a lot of work for the staff. And I also want to mention that in Sweden, there has been a lot of government inquiries going on. And we are quite positive to a lot of these sort of different inquiries. When we look at the development when it comes to compulsory schools, the question is that to make the school choice more open for all people. And the penetration in secondary school. It's very high in Sweden. Every 10 students go to an Akademieja school. And in the biggest cities, 50% go to an independent school. And if we see that the school choice even in compulsory school will open up in a better way, I think the market shares that would go to independent schools also will increase. We also when it comes to Q2, we report the preliminary school voucher increasement. And we have mentioned before that we see a little lower than the year before. Now we report the preliminary number is 1 0.7%. And it should be compared with 2.1% last year. And but we will also see that the state will invest some extra money that will go into the different school operators during the year. And I can come back later on and answer your questions, but I will leave over now to Katharina to go through the results. Thank you, Mikael. I'm Katharina Wilson, CFO of Aker Media. Moving on to Page number 3, highlights quarter 2. Student numbers grew by 4.4%, including 3 new preschools that opened in Germany in the quarter. Net sales increased by 5.5 percent with organic growth in all segments. We had also this quarter negative currency translation effect, mainly related to Norway, of €54,000,000 And adjusted for that, sales grew by 7.3%. And this is what we refer to as organic growth. I would like to point out That the acquisition of Swedish Education Group in late December is not yet included in the numbers, not in the number of students or in the P and L, and that will be included as of the next quarter 3. Adjusted EBIT increased to SEK 2 SEK 24,000,000 compared to SEK 150,000,000 last year, and the adjusted margin increased to 6.5%. The increase also in this quarter was driven mainly by the adult education segments, but also the compulsory and at the secondary school segments contributed. The preschool segment was affected negatively in Germany by the pandemic. Moving on to Page number 4, showing an adjusted EBIT bridge illustrating that The adult education segment is the main driver of the profit growth. And again, like last quarter, the solid increase in number of students is also having a positive impact in the compulsory and after secondary school segments. We have, due to the pandemic And the restrictions caused by the pandemic had to cancel and postpone activities, which reduced costs by about SEK 20,000,000 in this quarter. And this is mainly affecting the upper secondary school segment, but also the compulsory school and the group functions. EBIT adjusted for IFRS 16 at SEK 214,000,000 includes items affecting comparability of minus SEK 9 related to the acquisition of Swedish Education Group. And IFRS 16 impacted EBIT with a further €59,000,000 positive, giving an EBIT of SEK 273,000,000 Moving on to Page number 5. Net sales rolling 12 months continues to increase and now amounts to SEK 12,600,000,000 adjusted EBIT to SEK 878,000,000 and the adjusted EBIT margin to 7%, Which means that we are now reaching our financial profitability target of 7% to 8%. Although it must be reiterated that the margin is somewhat inflated due to the pandemic and the lower costs That we have seen in this quarter. Moving on to Page number 8, development in the quarter by segment, starting with the preschool segment. This segment includes preschools in Sweden, Norway and Germany. And in this Q2, despite the pandemic, 3 new units opened in Germany, which gives a total of 267 units in the segment. In all three countries, all preschools have remained opened in the quarter, but recommendations in December from authorities in Germany Was to keep children at home whenever possible. The number of children increased by 1.4% and is impacted by slower growth in Germany as a direct result of the pandemic. And there are really three reasons for this slowdown. Firstly, the pandemic has delayed our new starts, and we've spoken about this before. The plan is unchanged from the last quarter, which is to open 11 units in total this financial year. We opened 1 unit in the first quarter 3 units in this second quarter and 2 further units open in January, Which means that another 5 units will open during the spring. Also, during the pandemic, we are experiencing that it's more difficult to recruit staff, which means that we cannot run at full capacity. And the last reason to this lower capacity The utilization is that parents and carers are delaying preschool starts now during the pandemic. Net sales in this segment declined compared to last year, but adjusted for negative currency effects, sales grew by 3.3%. Adjusted EBIT and margin decreased entirely related to Germany due to the low capacity utilization, as I just explained, caused by the pandemic. And moving on to compulsory schools, Page 9. All compulsory schools have remained open this quarter. We've had only limited number of schools implementing distance education for shorter periods following the spread of the virus. We continue to see good growth in the segment. The number of students increased by 4.8%. And adjusted for the 2 acquisitions at the end of the last year, The growth was 1.9%, and sales increased by 6.2%. Good volume growth contributed to the increased adjusted EBIT and margin in the quarter. And in addition, canceled and postponed activities due to the pandemic, reduced costs by about SEK 3,000,000 in the quarter. Adjusted EBIT amounted to SEK 52,000,000 and the margin was 6.1%. We have launched new educational profiles. And after the quarter, we acquired Stockholm Internationala Montessori Skola, one of Sweden's leading Montessori schools with about 800 children and students. And this will strengthen our Montessori profile. Moving on to the upper secondary school, Page number 10. During the quarter, as the second wave of the pandemic intensified, more and more schools transition to distance education. And in December, this was the recommended form for all upper secondary schools in Sweden. Student numbers grew by 5.8 percent and net sales by 6.5% as a result of the now 18 new schools that in total have opened over the last 4 years, of which 4 opened at the start of this year. The plan as it stands now is to open a further 2 or 3 schools in the autumn of 2021. Adjusted EBIT and margin was higher at NOK 97,000,000 compared to NOK 76,000,000 last year due to volume growth as well as lower cost of about SEK 14,000,000 following canceled and postponed activities caused by the pandemic. The acquisition of Swedish Education Group was completed in December and will impact the numbers from next quarter. And just to remind you, the Swedish Education Group had a turnover last year of about EUR 360,000,000 And EBITDA of about €35,000,000 And this acquisition will mainly strengthen the upper secondary school segment, But also the compulsory school and the adult education segments. Moving on to the next Page, adult education, Page 11. Also in this segment, the pandemic impacted the operations teaching to place both in classrooms in smaller groups but also as distance education. Rising unemployment has continued to create high demand for adult education with continued volume increase and net sales increased just over 20% in the quarter with growth in all business areas. In the high vocational education, student numbers grew by 30%. And as we announced a couple of weeks ago, we have also been awarded a record number of training programs for the autumn 2021 start, and we are gaining market share in this area. In the labor market services business, The number of participants grew even though we now have actually terminated the previously loss making contract, vocational and preparatory modules. And we are seeing a shift from this contract to other contracts with the Swedish Public Employment Service. EBIT increased from €31,000,000 to €75,000,000 and the margin increased to 15.5%. And this very high margin is caused by the large volume growth driven by high unemployment during the pandemic, which in turn has increased our capacity utilization. But I would like to reiterate But we still believe that over a longer period, this segment will have a margin of around 9% to 11%. Moving on to Page number 13, free cash flow and investments. The free cash flow in the quarter was EUR 572,000,000 compared to EUR 260,000,000 last year. And as you know, free cash flow is defined as cash flow before investing in expansion. The strong operating profit in the quarter and favorable working Don't explain the increase. And working capital was impacted by high trade payables, which was a calendar effect. The acquisition of Swedish Education Group was impacting the total cash flow with SEK 171,000,000. Moving on to the next page, Page 14. The financial position continuing to improve even further. Net debt is significantly lower than last year, and the cash position has improved. And the leverage ratio is lower than last year at 1.4, which is well below our financial target or below 3. Property related lease liabilities increased by SEK 273,000,000 through the acquisition of Swedish Education Group. And finally, moving on to the last page, Page 15, the financial performance versus target. And just to conclude, we are now meeting all our financial targets, including our profitability targets. But we must remember that we are experiencing an unprecedented situation right now caused by the pandemic. And with that, I would like to open up for questions. Thank you. And we appreciate the first question. It is from Dale Fonchanson of ABGAD. Your line is now open. Please go ahead. Hi. Thank you for This is Stefan from ABG. It's regarding the Adult Education segment. 1st, congrats on a good report. But obviously, you're trading at or posting better margins than you expect long term. On the other hand, You see a rapid increase in digital education following the pandemic. How do you view that The shift long term and shouldn't that be also a positive thing for the margin development going forward? So hopefully, we hope for that. What we see now is that some parts of the vocational training is also operated online. But what we see now when it comes to adult education is that we have improved our market share when it comes to municipality training and also vocational training. And on top of that, we have our online platforms. So we have a very good platforms. So we have a very good situation and we have a positive development and good demand. But if you look also in the future, we will see that the labor market programs will also be open for us. We see that the deregulation of the employment services will be a new market for us, where we can enter and improve the profit and our market shares. So the adult education has a lot of opportunities in the future. And also the new regulations when it comes to how the labor market should work, that's also one part where the different companies has to invest in education. So if we look at this segment when it comes to academia, we operate at a very good level for the moment. That is driven by online training, but also by a lot of different contracts. This is at the long term levels, as Katarina have mentioned, but we see a lot of opportunities when it comes to the future of adult education also. And we are really the true market leader here in Sweden. And just a follow-up. You saw an increased activity from the Swedish employment urgency now in the quarter. How long do you expect that peak to continue, so to say? I wouldn't mention that to be a peak. I think they are moving from a very small numbers. So I think that will continue, but that is still a very small part of our added dedication. But what I'm talking about when you look maybe 6 for 12 months ahead, we will see that the new service, the deregulation of the labor market service will be a new market, where some of the employment services will be run by private operators. And this market will be a big market. It will be a reality for us. Up, then we may maybe have to wait 12 months or something like that, 12 to 18 months maybe. So for the moment, we operate at a very good level, and we see a lot of opportunities also in the future. Okay. Perfect. And just Lastly, on the 2 acquisitions that you announced, are they consolidated from 1st January? Or did you mention that? Yes, that's correct. And that's good that you asked for that because that is maybe a little bit new. We have been working a lot with organic growth in Academia, the recent quarters. But this is really this is big acquisitions. It will improve the number of students with up 4% or something like that. And so it's quite interesting that we do this sort of acquisition again. Okay. Thank you. That was all for me. Thank you. The next question is from Guhaan Sonlian of Carnegie. Your line is now open. Please go ahead. Thank you. Jan, this is Joao from Carnegie. And thank you for taking my question. First, a few questions from my side. First one all regarding the voucher increases. You touched upon it during the presentation, but I think it would be good if you clarify. Do you think that this 1.7% in voter increase will be enough to compensate for the salary inflation for the next year? We think so. If you also take the part that the state will invest in different subsidies directly to the operators. But it's a little different between the different segments. And we will report that more in detail when we have all the numbers. Then we can say also these are preliminary numbers. We haven't received all the increases yet, and we are analyzing this continuously. So as soon as we know more, we will let you know. Perfect. And then on the question regarding the this kind of temporary cost savings in the upper secondary and compulsory segments. You mentioned SEK 17,000,000 being of somewhat temporary effect or canceled or will be postponed. How much of that do you think should come back during the second half of this year? Or how should we think about those costs? Well, I think we can only really speculate here. I think as long as we have the pandemic, we are forced to cancel activities as we all are. But of course, we're hoping that we will be able to get back to a normal way of operating with the conferences and travel. But we can only speculate about that. But if the pandemic Continues as it is right now. We will see lower cost even in the next quarter. But As I say, we can only speculate. But those kind of costs are related to conferences and travels and so there's no kind of marketing that you postpone and then this will come in Q4. So there's been some No, no. Okay. Exactly, yes. Good. And another follow-up on the Swedish employment agency. Previous and Oscar can touch upon this. So have you come to this far with the public and front agency that this new market of putting out new more services to private companies as that's been agreed upon now. So we should expect that this canopy markets will open within the next 6 to 12 months. I don't think that is a short time. Sorry if I wasn't really clear on that. But what is happening is that the traditional training program that the unemployment agency runs, they have increased but from a low level. And we are not so depending on that part because we are running other vocational program and municipality program. That is really driving the profitability for the moment. But the this market this new market will open up. And it has started in a very small scale for the moment, and we are running some programs there now. And but if we look some years ahead, this will be a big market. Of course, it would not just be Academia on this market, but it is a big market and we are really a good operator. And that is community for us in the coming, I would like to say 12 to 18 months. Okay. That's a good clarification. Yeah, that was all from my side. All right, go back in line. Thank you. Thank you. The next question is from Karl Johan Vommergeier of BNP Markets. Please go ahead. Your line is now open. Yes, good morning. First of all, congratulations to another fantastic quarter. Just to come back To the previous question about these canceled and delayed effects, Catherine, is it fair to say that you would expect these kind of costs to say mature, come again in the similar quarter next year rather than something that should impact this year. Is that how to interpret your answer? Yeah. This is completely an effect of restrictions that we're all facing now during the COVID pandemic. So next year, we're hoping that we will have a back to normal. So yes, it's all caused by the pandemic. Excellent. And when you look now into, I guess, the next quarter is really in the quarters where you, say, market yourself to new students. And I guess you must have learned a lot about how to do that as we had the pandemic in the similar period last year. Is this has this changed your way of doing these kind of activities to a large degree and in a more cost efficient way as well. Is that something we should have in our minds? It's difficult to talk about it when you talk about cost effective way. But of course, we have been making information and marketing in a totally new way because it has been online open houses, online meeting with the families and students. So and you have to keep in mind that last year, the recruitment period was normal because it was the year which year was it now? 2019, it must have been. So it's a new way that we have been marketing this year. And when you're looking at opening 2 to 3 new schools This autumn, has that been impacted that there is more, say, more difficult to market new kind of schools rather than existing schools in this new set for you? Or is that just looking at where you have seen opportunities before that you are now there to go for, so to say? And when it comes to upper secondary, we have a lot of new plans and we have a lot of capacity to increase existing capacity. So I don't think that the pandemic has affected the number of schools that we start. And I think we also mentioned that we will open a new campus in 2022. So we have a lot of plans to increase our capacity when it comes to upper secondary education. So next year, it will be 3 schools. But you have to also keep in mind that we made this big acquisition of Scandinavian Education Group and they also have capacity that we can use to other schools and programs. So I don't think the pandemic has affected the number of schools that we start. Excellent. And looking at, as you said, capacity utilization still being an opportunity, And I guess that also fits into, say, a slightly lower increase in the voucher price still being very possible for you to mitigate from a cost perspective, so to say. Of course, that is our focus and our plan. But as we mentioned before, we will see a boom when it comes to the number of students in upper secondary if you have focus on the bigger cities. So we want to take a big market share of that because we will help the municipality here. We will help the society. And we have very good programs. So in Stockholm, Gothenburg and Malmo, we are working a lot to create new places for the students. Excellent. You mentioned that the free cash flow was maybe a little exaggerated on the working capital side. Do you see there is there any, say, temporary things we should see go out already in Q3 here because I guess that number was exceptional. Well, we've said many times that we have swings between years and quarters due to the working capital, And it's related to calendar effect. So yes, I would expect to see it swing back now in this next quarter. It's nothing extraordinary apart from that. Fantastic. And just finally, following up on the acquisitions as well. It sounds like, Markus, when you talk about That you feel that you have, say, your ongoing business structure so well in place that you can spend more time looking for these opportunities again. Is that a way of looking at it? Or and also do you see similar opportunities outside the Swedish footprint? So you can say we are very we are looking very closely when we make this sort of acquisition. We want them to fit in our strategy. And for instance, if you take this Montessori school, it has been a lot of interest from other operators, we must say. But they really wanted to be a part of Academia, because we have made a move in the Montessori concept and created the concept. So we want to make acquisitions that fit in. Of course, we are a very professional company to make a decision. That is our tradition. What we have done the recent years is that we have also improved our organic growth, and that is very important also. So we will see acquisitions. We will see organic growth. But what is very interesting when we look at the future now is our investments in digitalization and EdTech. So we are really taking Ursa Akademieredia into the future. And I really want to make it clear that we are the leading online training company for the moment. There is no one that trains so many people online. We have the best platforms. We have invested a lot in education services. And we believe that some of these services is also services that we can bring and make it international. So it's a lot of things that's going on in Academia for the moment. Interesting, interesting. I'll definitely come back to you and discuss that in more detail with you. And one final for me. Looking at adult education, if we annualize, say, the Q2 revenue base slightly below SEK 500,000,000. Is that where you basically have this operation running now? It's close to SEK 2,000,000,000 in revenues. Is that a good way of looking at it? Well, I yes, I guess you can look at it that way. I think it's I can't really comment on those details, but yes. There is no exceptional programs in this quarter that is going away, say, in coming quarters. It's rather more programs that are coming into that structure still. I mean, we have a very stable contract portfolio going forward, but it all depends on the participants. We can have contracts, but if we don't have the participants, we're not going to have the revenue. So you have to keep that in mind. No, it's stable. And but the pandemic is affecting us now. And if you look at added education, when you make this sort of turns, when you have we had the downturn when it comes the labor market service programs. But now we see this upturn. And then it affects the profitability a lot. And then we also have good contracts and we also win market share. So when we have this sort of turns, it affects the profitability a lot. So you have to take that when you look into the future. And that's why Katrina mentioned what she believes is the normal rate for the added education. But I must say also that our team that is working with added clavocations. They do a fantastic job. So if you look at the vocational program now, we increased our market share when it comes to licenses to 20%. So we are really doing a very good job for the moment. Exactly. Just on adult, I guess, it's hard to give, say, a rule of thumb for it. But When you have listed a student in the program, what's the average duration that a student remain in the program? So that differs a lot between different part of the elder dedication. If you take this state vocational programs. They are 1 to 2 years and they are school like, they are voucher price like. And if you look at the municipality programs, they could be 3 months to 6 months and sometimes 1 year. And when you take the labor market programs, they could be much shorter. So it differs a lot between different parts of the adult education. And finally on adult education. Looking at the ramping up the activity to this new high level, you have been able to find and secure, say, quality staff to drive the operation? Of course, that is very difficult when it comes to this sort of turn to recruit staff. But we a lot of the volume has now entered online training. And as I mentioned in the municipality training program. We have the 2 leading platforms, but we have also moved one of these platforms into this state based vocational training. So we have a lot of vocational training that is around online for the moment. So that is why we have managed to handle these sort of volumes. I think that we have to recruit more people, and that it will be a quick question to us, okay, when it comes to the adaptation. But I hope that this online also will be a sort of new normal in the future. Excellent. Thank you very much. Thank you. There are no further questions at this time. Please go ahead. Okay. Then thank you very for your interest, and we wish you all a good day. Thank you very much. Thank you very much. Bye.