Q1 20/21

Oct 23, 2020

And good morning, everybody, and thank you for your time. Markus Stonberg here, and together with me, I have our CFO, Katrina Wilson. I will start to give a short introduction to this start of the new year, And we must say that we have had a fantastic start of this year, and we will try to give you a good presentation as possible. So I go to Page number 2, the CEO introduction. And of course, the focus for us is to the overview and see how our student numbers develop. And we can see that we are now 5% up when it comes to our Schools segment, and the organic revenue growth is more than 7%. And that is really, really good numbers, and that is key for us to focus on the student number and the organic growth. We have also made a lot of new starts. This August, we started 9 new units. A lot of them was upper secondary schools but also pre schools. And you can also see that operating profit has increased a lot. And the main reason for that is the great development of the adult education. We have a huge demand of students coming into our programs in all of different parts of added education. And of course, we have times now when we see a lot of unemployment and a lot of people try to find new programs and new futures and new education programs. And we see also that we have a development to online training and that is what we have developed for many years in Academia. And we think that, that will be part of the new normal that more of the allied education will be online. We also have a high demand of new places in Germany. The pandemic situation has affected us more in Germany, but the demand is very, very high and the demand of new places is higher than when we started our development in Germany. So Germany will be an important market for us many years ahead, but we have now the situation with the pandemic and we follow the development very closely. The most of our different schools have started in a normal way, but we have very high we are alert and follow the development if we have to go online in some of our schools. But so far, we think it has been a good start of the New Year. And that's something that we have worked a lot with is to develop also our compulsory schools. Academia has a lot of different brands and the idea behind this is to be focused even if we have a broad portfolio. But now we have started the development also in our compulsory school segments, and we have launched new educational profiles and we think that this will be something that will bring Academia stronger into the future. And with this introduction, I hand over to Katarina to go through the different numbers. So please go ahead, Katarina. Thank you, Mikael. I'm Katarina Wilson, CFO of Aker Media. Moving on to Page number 3 highlights quarter 1, our Q1 this new financial year. Students numbers grew by 5.1%, including, as Markus said, 9 new starts, 4 preschools, 2 in Sweden, 1 in Norway and 1 in Germany, 1 integrated preschool included in the compulsory school segment and 4 upper secondary schools. Net sales increased by 5.6% with organic growth in all segments, And we had in this quarter a negative currency translation effect of EUR 43,000,000. And if we adjust for that, sales grew by 7.4%. Adjusted EBIT increased significantly to CHF 151,000,000 compared to CHF 70 5,000,000 last year and the adjusted margin increased to 5.7%. And this is driven mainly by the adult education segment, but all segments contributed to the growth in the quarter. Moving on to Page 4. As this graph is showing, adjusted EBIT has doubled compared to last year. Quarter 1 is usually our smallest quarter. It is the beginning of the school year and what really matters is early on in the year is the number of students and participants in our classrooms. And we have had a very good start to the year with strong student growth in the school segments and a significant volume growth in the adult education segment. But we have also had a positive effect from more vacation days, in total impacting €20,000,000 positive, €10,000,000 in the upper secondary school, €5,000,000 in the compulsory school segment and some smaller effects in the rest of the organization. This is a normal effect of growth when we have more employees and we saw this also to some extent last year in quarter 1. However, we can expect this positive effect to even out over the course of the year. Items affecting comparability of SEK10 1,000,000 in the quarter is related to retroactive income, giving an adjusted EBIT, adjusted for IFRS 16 of SEK 162,000,000 compared to SEK 75,000,000 last year. And IFRS 16 impacted EBIT with a further €59,000,000 positive. Moving on to Page 5. Net sales rolling 12 months now amounts to €12,400,000,000 adjusted EBIT to just over €800,000,000 and the adjusted EBIT margin to 6 0.5%, which means that we are moving closer towards meeting our profitability target of 7% to 8%. Moving on to Page number 8, development in the quarter by segment, I think with the preschool segment. This segment includes preschools in Sweden, Norway and Germany. And this Q1, 4 new units opened in total, 1 in Germany, 1 in Norway and 2 in Sweden, which gives us a total of 266 units. The preschools in all three countries are now again opened. In Germany, some preschools still have somewhat reduced opening hours to try to minimize the spread of the virus. The number of children increased by 3.2%. The pandemic has delayed our new start in Germany and the plan now for the full year is to open an additional 10 units, giving 11 in total this financial year. And this should be compared to quarter 1, the 2 previous years where we opened 6 units in the Q1. Net sales remained flat, but adjusted for the negative currency translation effect, sales grew by 6%. Adjusted EBIT and margin increased partly as an effect of higher compensation for the staff density regulation in Norway. However, this is somewhat offset by higher pension costs due to the new pension plan implemented in January as of this year. And we've said before that the pension costs will increase annually about €10,000,000 In Sweden, we can see that our efforts to increase capacity utilization and to work with staff planning is also contributing towards improved operating profit. Moving on to the next page, compulsory school, Page 9. We continue to see good growth in this segment. The number of students increased by 6%. And if we adjust for the 2 acquisitions at the end of last year, the growth was 2.6%. Sales increased by 8.4% and the sales increase is related to an increased number of students and the annual school voucher adjustment. We have also had some positive one offs in the quarter and we had an insurance compensation of 7,000,000 where costs related to this was reported last year when we occurred. And we have also had a positive effect on more vacation days impacting €5,000,000 positive. Good volume growth and some one offs contributed to the increased adjusted EBIT and margin in the quarter. And adjusted EBIT amounted to €33,000,000 and the margin was 5.1%. Moving on to the next page, upper secondary school, Page 10. All after secondary schools have returned to normal classroom teaching this quarter. However, some distance education is still taking place to try to limit the spread of the virus and to follow the recommendations of the local health authorities. Some schools have for limited periods also fully moved to distance education and to stop the spread of the virus at that specific school. Student numbers grew by 5.6% and net sales by 5.2% as a result of the now 18 new schools that in total have opened over the last 4 years, of which 4 opened in this quarter. Adjusted EBIT was higher than last year, euros 73,000,000 compared to €60,000,000 last year and this was due to good volume growth as well as positive effect of vacation €10,000,000 We also had items affecting comparability of €8,000,000 related to retroactive revenue for previous years. Moving on to the next page, adult education, Page 11. Also in this segment, all teaching has gradually returned to normal compared to the distance education we saw during the spring. Rising unemployment has created a high demand for adult education and a rapid volume increase giving a net sales growth of nearly 14%, 13.6 percent to the effect. And all business areas are growing. In the high vocational education, we have had a record number of applicants this autumn and the number of students increased by 16%. In the municipal adult education, we've had fewer dropouts during the summer because of the pandemic contributing to growth both in sales and earnings. And the labor market services business is also growing as a consequence of the higher unemployment. The volume sensitive contract for vocational and preparatory modules will be terminated in the next quarter, but we are now seeing a shift from this contract to other contracts with the Swedish Public Employment Service. EBIT increased from €22,000,000 to €57,000,000 and the margin increased to 14.8%. This improvement is mainly an effect of the sharp volume increase, but also an effect of expenses lagging during this rapid growth phase, which is enhancing the margin temporarily. We still believe that over a longer period, this segment should have a margin around 9% to 11%. We have also said in the past that this Q1 normally is a smaller quarter for the adult education segment, but because of the rapid volume increase, fewer dropouts and the cost lagging, this has not so much been the case this year. Looking ahead, we see that the demand for more flexible and digital teaching is increasing. We have a long experience from this and we are well prepared to scale up the digital business when needed. Moving on to Page 13, and investments. Free cash flow is defined as cash flow before investing in expansion and academia has a strong free cash flow. However, cash flow is normally negative at the beginning of the school year related to working capital and the free cash flow in this quarter was minus 40 €2,000,000 compared to minus €122,000,000 last year. The strong operating profit in the quarter reduced the negative impact somewhat. Cash flow was also positively impacted by the sale last quarter of a property off flow. Moving on to Page 14, the financial position improves even further. Net debt is significantly lower than last year and the cash position has improved. The leverage ratio is lower than last year at 1.6, which is well below the financial target of below 3. And finally, moving on the last page, Page 15, the financial performance versus targets. We are meeting the growth targets, while profitability is still below target even if it is increasing now for the 6th quarter running. And leverage, as I said, at 1.6% as well meeting the target of below 3%. And with that, I would like to open up for questions. Our first question comes from the line of Stefan Knudsen of ABG. Please go ahead. Hi, Markus and Katarina. Thank you for the presentation. My question is regarding the margin development. And even if we exclude the vacation effects that you mentioned in the report, we see the EBIT margin strengthening in all the school segments. Is that what you expect full year? Or was there some other explanation towards the year over year improvement in Q1 that is not relevant for the full year? Well, thank you for your question. We did mention that we have some one offs, especially in the compulsory goods segment. But I would also like to state that this first quarter is a small quarter and the effects can be somewhat crude or so what really is important is the number of students that we have, and that's very good. So we're very happy with that development. Okay. Perfect. And then also on the adult education, Obviously, a very high margin here, but you say that costs are lagging. You maintain your range of 9% to 11% long term. But when do you expect costs to start ramping up? Well, I mean, this is really we are somewhat understaffed, I would say. When we have this rapid volume increase, we are ramping up the cost as well. It's very hard for us to say exactly when we will reach the 9% to 11%, But you need to see this really on a rolling basis and the longer term. Okay. Thank you. Our next question comes from the line of Johan Sundin of Carnegie. Please go ahead. Hi. One question from my side. I was a bit late into the call. Just a clarification regarding insurance compensation. Can you give a clarification on that once again? I had a hard time catching up on that during the presentation. Yes. We've had a compensation in the quarter of SEK 7,000,000 and that's related to 2 insurance cases we've had over the last few years. And we've taken the cost related to this when they occurred. So it's a net zero effect, but because we have the revenue or the compensation this quarter, it stands out in the quarter. Yes. Okay. Well, that's perfectly clear. That was all for me. Thank you. Our next question comes from the line of Karl Johan Bonhoeffer of DNB Markets. Please go ahead. Yes, good morning. A couple of questions. First, on the upper secondary school side, you had a good student growth. Could you elaborate a little how you saw the growth in Tier 1 students within that? Yes. I think it's we don't report that question, but we would like to say it's positive because otherwise, we wouldn't have that sort of total growth. So the growth in India and MAP01 is positive. We don't give the exact numbers, but we wouldn't have the total number of 5% if the growth in year 1 wasn't positive. For the year. But you would agree to that it's fair to assume that you are taking your part of the demographic growth, which I think was 2% for the student year or something like that. Is that Yes. We are taking market share for the moment. So and the biggest development is quite positive for our upper secondary schools. And we've been working with them to give them strong pedagogical profile. We have a very good communication and marketing and also good quality results. So I think we have a very strong position now over the coming years when it comes to after secondary education. Turning to adult education. Could you give us some sort of feeling for the average length of these programs that you are now in startup of, so to say? Is this something that we'll keep with you for the next 6 months? Or is it yearly programs? Or how does it work in the different segments? I'd like to say it's yearly programs. We have changed the mix from labor market programs into multivality programs and vocational training and also a lot of online training. And for the moment, we will win a lot of tenders. So I would like to say the contracts portfolio is quite positive for the moment. And I think we have a portfolio for the coming years. So the question is, will the students be there? And I think they will be there because we have a lot of unemployment and a lot of people want to invest in education. And if you look at the vocational training, we have 45,000 applications to our vocation programs, and I think we started 7,000 places or something like that. So we have never seen that sort of numbers. So for the moment, I would like to say that portfolio contracts when it comes to asset dedication is the best we have had for many years. So can we just for purpose of say guidance going forward and so on, how relevant is a Q1 performance in adult education as guidance for coming quarters? Is there some sort of guideline for that? It's difficult as Katerina mentioned, it's difficult to look too much on the margin. But as we mentioned, we have very strong growth. We have never seen such demand before. And now we you maybe you should look at our historical numbers when it comes to margin in the asset allocation, but you can't look at this quarter because it's a small quarter. But I would like to say that we are back on track when it comes to our other dedication. Sounds promising. And on top of that, we have this very high demand from the markets. And the key question here is to win the contracts, and that is what we have done the recent contracts on Tenderfruzso that has that we have seen. We have mentioned in the report about the Stockholm contract, for instance, and we have a lot of other contracts also. But one also key driver is the development when it comes to online training also. Of course, a lot of classroom education has moved into online, and that's positive for the margin. And we think it's also positive for the quality and the results and the convenience for the students. And is there any overall, say, rule of thumb, how much of the adult education lines or curriculums that can be done online at this stage? Or how many of your students that can be with BSA handled online rather than in classrooms? I don't think we have any numbers for that. We still the overall picture is that we have a lot of people going to classrooms. I think it will they will keep on going to classroom. But we also have this blend learning that we have some of your lessons in the classroom and some online. And we have also started, as you maybe know, academia EdTech, and we have invested a lot in different sort of platforms. So now we have moved and left some of the external platform that we have our different programs to use our own learning platforms. And of course, that will also improve the profitability. So we have a lot of different areas in the asset allocation that is developing positive at the moment. And you should also keep in mind that labor market program, they are just around 10% of our revenue for the moment. But if you look at the coming year, we will see a big market coming when it comes to the labor markets. The agency of unemployment will be deregulated and open for private operators. And that is a €1,000,000,000 market coming, and we are ready to take part of that market also. And I guess the other side of this strong development in adult education is that and that partly benefit you is the ramping of employees, so to say, the staffing and teacher. Do you have good access to qualified teachers? Is that a limiting factor the moment that is putting you under constraints? No, not when it comes to the other dedication. It's more difficult in Germany or other parts, but not when it comes to add the dedication in Sweden. Excellent. And what are your expectations for the upcoming wage negotiations in Sweden? What kind of guidance would you give? Where do you take the voucher? No, the wage negotiations. Yes, sorry, sorry. Yes, it's very difficult. They negotiating now for the moment and you see that everybody wants to take the numbers down, but the union wants to bring it a little bit up. I think we will it's I don't mention the number, but I think it will be a little lower than it has been in the recent years. That is what I guess. And what you should keep in mind is that we, in fact, see now that the municipalities have had a very good development of their finance during this year. And that may be quite strange, but they have got a lot of money from the state. So I think we have money in the system, but where the wages will land finally, it's difficult to answer that. Excellent. Thank you very much and congratulations to a good start to the year. And there are no further questions at this time. Please go ahead, speakers. So thank you very much for your time, and we wish you all a good day, and we are here to answer any questions if you want to contact us. So thank you very much. Thank you very much. Bye bye.