Q3 20/21

May 6, 2021

So good morning, everybody. Markus Dember here, CEO of Academia together with Katrina Wilson, our CFO. And I will just start with a short introduction in from this rainy Stockholm this morning. And if you look at into our presentation, you can say that you at the first page, you meet some of our upper secondary students that has developed their own robot bores carrier. So we have a lot of vocational program with I. The profile and it's really nice to see all these students. And then if we go to Page number 2, you can say that this Quarter, we continue our stable development. The demand of education of our different programs is still very high. We have a growth of more than 9%. Our organic revenue growth is 7.3%. And it's also very happy to say that we have now started to make bigger acquisitions again. And the Swedish Education Group is now a part of the group and we have 2,500 students that contribute to the growth in this quarter. And operating profit has also increased. What is also to mention in this quarter is that we have continued our campus strategy. And we are very proud and happy to say that we have now announced the biggest campus in Stockholm. It's a big investment for us. It's one of the biggest school that we will see in Stockholm. 4 of our different brands will be in this campus. Around 2,300 students will start in this school 2022. And this campus strategies It's very important for us. We see a great need on new school places both in Stockholm, Gothenburg, Uppsala, Malmo And to build this campus with different brands under the same roof is very good for both the students and our employees. We have also continued to develop our digitalization and EdTech strategy. We mentioned in this report that we are really already today the leading online trainer with more than 50,000 students in our different platforms. Of course, we have this situation with the pandemic. It's now five Quarters that we have been working in this very, very hard situation for all our staff and the impact in Germany has been quite high. It has developed a number of new starts, but after the summer, we hope that will be more normal. In this quarter, we have also announced our employee survey. And still we have the situation with pandemic, we have very positive result. So both our leaders, our different staff and also together with the parents, it has been quite good results. And then we go to Page number 3. We will also give you a short picture of what we do when it comes to digitalization. So and we think that we are really now trying to develop Academia into the future. And it's both an international view of things and we also have this digitalization and EdTech. And we work in different part of the digitalization and EdTech market. To start with, we work with marketplaces. So we help students, parents to find the right educations. And we just announced that we have made a small acquisition of a company that we call Studer Pungdessi, And they have around 50,000 different courses in their different programs, and we think that this could be a good opportunity for us in the future. We have also invested in a company called Hippocampus, and this is medical programs. And we have also started to move this into France. And to work with an artificial intelligence medical program has been really interesting and a lot of doctors and training campus that work with medical training program are interested in this. We have also developed Educational services, and it's a way to support the teachers and the schools with different sort of services. And for instance, we have where you can take your lessons at home online with service from a teacher. So very interesting to see this development. And in fact also Academia also have some digitalization platforms that we have developed ourselves. And for what we have done the recent year, we have been developing this platform for many, many years, but now we have taking them out and giving them a name and that is also possibility to make new business and to take it into other areas. So ad tech and digitalization is a really great new business opportunity for Akeri Media. And then I hand over to you to go through the numbers, Katharina. Thank you, Mikus. I'm Katharina Wilson, CFO of Akeri Media. Moving on to Page number 4, highlights quarter 3 of our financial year. Student numbers grew by 8.1% Including the acquisition of Swedish Education Group that contributed, like Markus said, with just over 2,500 students. Stockholm Internationale, Montessori Sola, Inc. And 3 new preschools in Germany in the quarter also contributed to the growth. Net sales increased by 9.3% with organic growth in all segments. Swedish Education Group contributed 3.1 percentage points to the growth, and we classify this acquisition as acquired growth. Adjusted for the acquisition and a negative currency translation effect, mainly related to Norway of SEK 31,000,000, The organic growth was 7.3%. Adjusted EBIT increased to NOK 278,000,000 compared euros 224,000,000 last year. And the adjusted margin increased to 7.7%. The increase also in this Quarter was driven mainly by the adult education segment, but all segments showed positive development. Moving on to Page number 5, showing an adjusted EBIT bridge illustrating that all segments are contributing to the growth. Adult education is the main driver of the increased profit. Again, like we have seen both in quarter 1 and 2, The solid increase in number of students in the compulsory and upper secondary school segment, both through acquisitions but also organic growth, is having a positive impact On the operating profit. And we have also this quarter, due to the pandemic and the restrictions caused by the pandemic, had to cancel and pursue activities, reducing costs by about NOK 15,000,000 in this quarter, mainly in the other segment, but also somewhat in the compulsory coal segment and group function. EBIT adjusted for IFRS 16 amounted to SEK 284,000,000 and items affecting comparability of €6,000,000 was included in that number. IFRS 16 impacted EBIT with a further €61,000,000 positive giving a negative of euros 345,000,000 Moving on to Page 6. Net sales rolling 12 months continues to increase and is getting close now to SEK 13,000,000,000. Adjusted EBIT rolling 12 is at SEK 933,000,000 and adjusted EBIT margin 7.2%. And the adjusted EBIT margin has now improved for the 8th consecutive quarter, and we are meeting our financial Profitability target for the 2nd quarter running. Although I would like to remind you that the margin is somewhat inflated due to lower costs at the confidence of restrictions during the pandemic. But of course, the main driver of This improvement is the development in the adult education segment. Moving on to Page number 9, development in the quarter by segment, starting with the preschool segment. Despite the pandemic, we successfully opened 3 new units in Germany in the quarter, which gives a total of 270 units in this segment. We're now 56 units in Germany. In all three countries, all preschools have remained open in the quarter. However, sometimes temporary closures had to be imposed during corona outbreak. The number of children increased by 2.7%, driven mainly by Germany, but the growth is slower than planned For negative currency effects of €31,000,000, sales grew by 4.5%. Adjusted EBITDA margin increased somewhat to SEK 75,000,000 to SEK 71,000,000 due to positive developments in Sweden and Norway. In Norway, the school voucher increase was 4.4% compared to last year's 3.7%, which means that the staff density norm is now better compensated. And in Sweden, continued focus on Efficient staff planning is contributing to the higher earnings. And the average voucher increase in Sweden is 1.9%, which is Higher than last year, 1.4%. But in Germany, the situation is still difficult. Our new Stocks are delayed. We have so far this year started 7 units in Germany and 2 more are planned in this last quarter of this year, which then gives a total of 9 units. And this is 2 units less than what we previously communicated and Significantly less than our initial plan to open 15 to 20 units this financial year. Another consequence of the pandemic In Germany is that we have to follow strict schooling in rules, allowing only one child at a time, which means that it takes longer to fill our new preschools, which in turn gives us a low capacity utilization. We believe that this situation will remain for a while And as long as the pandemic is ongoing. But we are positive, and we have a plan for next year to open 15 new units Next financial year. Also next financial year, sales and EBIT in the preschool segment will By the termination of a contract that we have with the Oslo municipality to run 2 units with about 310 children in total. Moving on to the next page, compulsory school, Page 10. All compulsory schools have remained open in the quarter. Only a limited number of schools were forced To implement distance education for shorter periods following significant spread of the coronavirus, We continue to see good growth in this segment. The acquisition of Swedish Education Group and Teams added 4 new units And just over 1,000 children and students. And in total, the number of students increased by 6.7% And sales by 9.5%. Adjusted EBIT amounted to EUR 50,000,000 compared to EUR 40,000,000 last year and the margin was 5.7%. Good volume growth contributed to the high earnings and, in addition, canceled and postponed activities due to the pandemic reduced costs somewhat, not that much. The average school voucher The increase is 2.6%, which is higher than last year, 2.3%. Moving on to the upper secondary call, Page 11. The upper secondary schools have now for almost 9 months conducted distance education in Part or in full? The national recommendations on business education ended on April 1. And from this date, it is now the decision of the principal organizer, Hugetmann in Swedish. And the acquisition of Swedish Education Group added 4 new units to this segment and about 2,300 students. Student numbers grew in total by 12.3%, where Swedish Education Group contributed with 6 0.4 percentage points. Net sales increased by 13% as a result of the acquisition as well as 18 new schools that we have opened over the last 4 years. And the plan as it stands now is to open a further three Schulz in the autumn of 2021. Adjusted EBIT and margin was higher at SEK 116,000,000 compared to SEK 98,000,000 last year due to volume growth, including the acquisition as well as lower costs of about NOK 10,000,000 following canceled and postponed activities caused by pandemic. Items affecting comparability amounted to SEK 6,000,000, and this was related to retroactive revenue from previous years of SEK 11,000,000 and a restructuring expense of SEK 5,000,000. And the average voucher increase is 1% in the upper secondary school segment, which is lower than last year's 2.3%. Moving on to the next page, adult education, Page 12. The pandemic is still Requiring education to take place as distance education and when in classrooms in smaller groups. Rising unemployment has continued to create high demand for adult education with continued volume increase and high Capacity utilization. Net sales increased by 19% in the quarter, where the acquisition of Swedish Education Group under the brand name Corie Hoa in this segment, contributed 5.2 percentage points. EBIT increased to SEK 64,000,000 and the margin was 13.1%. And all business areas contributed to the improvement. Demand for higher vocational education remains Hi. And we now also see that dropout rates are lower than normal. Academia's municipal Adult education continues to grow and the contract portfolio covers many of the areas with increased demand. And the labor market services business is also growing, and volumes are now at the same level as before the termination of the loss making Contract Vocational and Preparatory Modules. The Swedish Public Employment Service has initiated the expansion of the new matching service, Gustav Matcha. And we are now preparing to participate in the coming tender program. Moving on to Page number 14, free cash flow and investment. Free cash flow, defined as cash flow before investing in expansion, was SEK 246,000,000 compared to SEK 107,000,000 last year. Changing in changes in working capital had a somewhat negative effect On the cash flow in this quarter. This is a normal calendar effect. Total CapEx to the right on this page is increasing, but that's mainly due to the recent acquisitions. Moving on to Page 15. Our financial position improves even further. Net debt is significantly lower than last year at about SEK 1,600,000,000 and the cash Position has improved. And the leverage ratio is lower than last year at 1.2, which is well below our financial target of below 3. Property related lease liabilities increased. Also this is mainly through the recent acquisition. And finally, moving on to the last page, Page 16, the financial performance versus target. And to conclude, we are, for the Q2 running, meeting all our financial targets, including our profitability target. And with that, I would like to open up for questions. Thank The first question comes from the line of Karl Johan Bonelli from DNB Markets. Please go ahead. Your line is open. Yes. Good morning. Thanks for the presentation. A question on the Tech side to start with that, you started off with that. Is it possible to say how much revenue that are driven through this At this stage? Or is it just a way of mitigating costs? Or how should we see the current kind of structure of that business? So you can see it from few 2 different views. If you take the revenue of this EdTech investment But we are doing they are very small. It's nothing to talk about. But if you talk the revenue online education, for instance, in our Adult Education, it has developed quite well. So it depends on how you look at it. But hopefully, the EdTech revenue in the coming years will increase, of course. But as I mentioned, it's very important. If you look at The EdTech Industry, it's a lot there's a lot much talking, but not so much revenue if you look at the different companies that exist in this market. But if you look at Academia, we have really developed an online platform that we train our students on today. And if you look at the Advent Education, if you're a student there, you can learn wherever you are, Wherever you want. If you're a student in our schools in upper secondary, you can now study where you wherever you are, but you have to follow the lessons. So it's a very, very interesting development. And we have developed these sort of platforms in many, many years. You have to keep in mind that Hermods has existed in 100 years. So if you look here from practical reasons, you can say that basically all students you have in upper secondary and other Education programs in some way come in contact with your digital platforms? When it comes to other dedication, I would like to say most of them have some sort of contact with this sort of platform. Then not all of them are in totally online training. But if you look at the upper secondary, when it comes to the last year, All of the students has had some sort of online training. Excellent, excellent. When I look at this Rustom Match opportunity of a matching services under adult education, is that a big business or Big, big operation already now for you or this is a new service that you will add to the platform, so to say? That's a very good question for because we have developed or the management team when it comes to other dedication has really made a turnaround. So for the moment, the services from the employment agency is very small part of the adult education. So now we are working with vocation programs and the municipality training program. And this has really it has been a great success for us. But The coming 2 to 5 years, the Employment Services will open up a new market. That is Rustam Maccha. And here we are, we are a very good player in this market, but there is no revenue for the moment. So this is a market that we will enter the coming years. And when I look ahead to the next school year 2021, 2022, I see that the demographic support seems to be helping you in all age groups Going into the next year, have you any idea about, say, how the demand will look for you going into the next year looking at, say, preliminary Listings with your different schools and so on? So we have one of the main if you look at Academia that we have this recurring revenue and we have this foresight. Of course, we have this recruitment process It's moving on very, very, very as we are speaking, but we cannot announce it. We announced it after the summer. But if we talk about the overall market, I would like to say that the demographic development is very positive. The need of new School places in the bigger cities is very high and the municipalities, they don't create so many new school places for the moment. And if you also look at the penetration of the private player, I think that we see that the private operators take market shares also. That is at least what I see when I look how the market developed. And for the moment, we have 384,000 Some children and students in private schools in Sweden and that is all time high for the moment. And I think we will see all time high after the summer also. If you not if you look at Academia, because I can't say anything about Academia, But if we look at the overall market. And when you look at the new openings that you are now doing for the next school year, Are those in existing facilities? Or are you taking a lot on a lot of new property assets in that expansion? So we make some new starts after the summer, but I would like to say that the main driver is that we have increased the capacity at existing schools and that we have made new starts. But what is very interesting is what will happen 2020 too. Because then we opened 2 big new campuses in Stockholm and we also create new campuses and develop new campuses in other cities. So this August, we start a new campus in Orebro. And I think that is a very good strategy. We will see How it will develop? We started a campus in Uppsala. And I must say, it's really the development when it comes to the brands that exists in this campus has been fantastic so far. So I really believe in this strategy. It's positive for the students. It's good for the employees. It's very good for the city because we create good places at a lower cost. And so that is the main driver that will help us into the future. Excellent. And just two questions on Norway and Germany. Looking at the contract that you that the Oslo municipality is taking back now, Looked to be an extremely profitable contract. Is there was there something special with that contract or? You know, it is when you look at them, It's this sort of contract that when you drive it in your as we do in Sweden, we run both we have our own buildings, we have those contracts and so on. In this contract, it was just running the schools because we didn't pay any rent, so on, in this schools. Because it was part of the how we did it with Oslo Health. So you can say that it was profitable contracts. Excellent. And when I look at the rollout plan for Germany, You seem to as I understood it, for next fiscal year, you had a slightly more ambitious plan for rollouts. Is there anything Happening in the marketplace that there are that's let's say, earlier I think you suggested that would be a catch up of units that You wouldn't be able to open this year during next year, but now that seems to be postponed? It has been postponed. And what we say now about the future is in new new starts. And so to be honest and clear about Germany, the demand of new school places is higher than ever, But it has been very tough. It's difficult for us to understand in Sweden how tough it has been in Germany. And the parents, they are waiting because if you don't go to work, you don't leave any school place, you don't want to pay the extra food. And So I think we have to wait until after the summer, but I'm convinced that the positive development and need of preschool places will be very Hi. And how many new starts we can start? It's very difficult to answer, but Our best view for the moment is €15,000,000 But if you look at the pipeline you used to have, say, where you were quite Specific on where you were opening units and so on. You haven't lost any of those. It's more like they are in the wait and see mode, so to say, when do you think it's logical to drive them? Yes. That's correct. The construction workers hasn't been able to work in Germany. It has been very tough for the people. And what is what I think is positive that we have started 3 new units this quarter. So They are working very, very, very hard. And the Step Group is they are the best preschool management team we have ever met. So they will take all opportunities, but it has been a tough situation in Germany, and it will take some time. Thank you. Thanks for the extra color. Thank you. The next question comes from the line of Johan Sundien from Carnegie. Please go ahead. Your line is open. Yes. Good morning. Thank you for taking my question. I think Karl Johan asked a lot of good questions before me. So Many of my questions have already been answered. But I think we can stop a bit on the Rustom Macha part. I think that is pretty interesting. Can you give some more light on kind of timeline, how the tender process will work and kind of the market potential? This is it will be a $1,000,000,000 not a dollar, dollars 1,000,000,000 market. So it will be a big market. But we don't really trust in the development Because sometimes when it comes to employment services, it's 1 step forward and then it's 2 step backwards and 1 step aside. So but it is a big €1,000,000,000 market that will be opened. And it's not that sort of Tender price process, it's more that you get a license to act on the market. And we really already had this sort of license. And if you See on our history, we are really good in taking care of this sort of services because A lot of the people that will enter this market is people that will be very far from the labor market. So I think it will be a good opportunity for us. We will also enter this market with a more digital view. In the for a few years, we had to have Physical places in different cities in Sweden. So now we will have smaller offices. We will use our existing buildings and have a more Digital online approach when we enter this market. And that is a way also to be more flexible Of course, we know that the labor market program is more volatile. Yes. So just that's what I heard right, EUR 1,000,000,000. Sorry, more than EUR 1,000,000,000. Yes. So they say EUR 5,000,000,000. They mentioned that numbers. But I would take it a little bit careful, to be honest. But they talk quite high numbers, quite high numbers. Yes. Because if we just take 10% of that market, it will be a lot of money. But We don't want to talk so very much about it because we have seen in the history that it changed a lot. But it is opportunity for Akeri Media in the future. But what is very important when you look at the added dedication that we have a fantastic development both in municipality programs and vocational program and the contract Portfolio is for the moment perfect. Great. Another question on the ad tech side from me as well. It's maybe a bit visionary, but How do you see it? What kind of efficiency improvement could that lead to for your own operations, Maybe say in 3 to 5 years' time. You're now in the middle of your margin corridor margin target corridor, Maybe a bit high margin in the adult business for compared to normalized level. But if you Speak freely of kind of the potential there. What we hope for is that we will give the students more opportunity to move between physical learning and online learning. Because today, all schools are mainly focused on the physical learning where you are on a present school. And but we have now shown that you can take online learning everywhere. And the next step, I hope, will be that we could combine these two models because the meeting with the teachers to be at the Schools, that is very important. And maybe in the future, this is from one of The municipality managers, he said that maybe in the future we can have schools with 4 place for 400 students, But we run them with 600 students because some of them are online. And I think that is what we will see in the future, that it's possibility to have more students at the same schools. I don't think that the schools will disappear. We need to have this physical meeting between teachers and students. So that is what we hope. And if you compare the adult education with the upper secondary training, you can say that The cost is a factor 1 to 10. And that is very easy to understand because if you run a course online, it's much more effective. But of course, you can't use that full potential. It's not possible to implement, but that shows the potential. But I would also say that the main driver for us is also the quality part of this, because we have to develop The quality it will be a lack of teachers. This is also a way to develop the quality and educational program and give the students, better courses and better training programs. And as you mentioned, many of these platforms you have developed by yourself during the last Few years. If you compare kind of your platform and to your competitors, both public and other private actors, How do that differ? Is this a new kind of competitive advantage for you? And will this kind of because the voucher will So I think it should be the same. So it would be more about how much more efficient you can be than your competitors. That's correct. And I must say that we have looked at a lot of different platforms. And I must say that our The platforms that we have developed when it comes to added dedication, OmniWay and Nova, they have really good quality. And what is good with this platform is that They really have focused to help the students into the next step. So they are really fantastic. And then when if we look at this Cortexio a platform that we also have developed in we just own, I think, it's 25% or 30% of that company. And that is a way to make The books to be more to adapt to the students and we have The medical program, we have made a book of that. And now we also have it for the nurseries and we look for other programs. So we have a lot of interesting platforms. And What is so interesting, I think, that our team, they have developed services at a quite low cost. And I think they could compete at a in a good way with the companies that had invested a lot of money in their platforms. And that is maybe this is the time where you can take this step into digitalization, maybe at a lower cost. If you take this instance for this service that we have developed called Slackom Lexan, It's a sort of Doctor. Punt Essie. But as a teacher, I give home lessons to my students after schools. Maybe they invested SEK 500,000. It's nothing. And the service is working quite well. So I think it will be very interesting development for Academia the coming year. We have 2 different departments that work with this. We have one department that we call Academia Digital. And we have one department that we call Academia EdTech, which has a more focused on investment to see opportunities in outside Karim Media. So I hope that we will talk more about this in the future. And just one final question From my side, I think it's likely most better to ask it to Katarina, but it's related to this temporary cost savings. You now reported some SEK 50,000,000 in temporary cost savings this quarter. Now on the upper secondary schools should return more to fiscal education during your Q4, How should we think about this? Should this remain at this level? Or should they go back to a normal run rate level? Or I would say that you should assume that we now get back to normal levels. I mean, that's what we're hoping. We're really hoping that we also can catch up With some of these activities. So I don't think you should assume a lot further cost savings. Good. And just one final question is on the Aker and Secular side. You mentioned a few new openings Coming up, you have the campus in Erudu and a few openings in Stockholm from 2022 as well. Kind of the margin profile, how should we think there? If you see I guess this year is very special, but if you take out kind of the short term cost savings, should we expect that margin take a hit during the coming 2 years Yes. On that as well? That's correct. I think you should see our campus, so the Mallemaaten new start. It will be a margin impact From that. I think it's too early to actually say exactly how much. We're not talking about a lot, but you should take that into account. You can also say that when we made new starts a few years ago, we were really up and running much faster. Now we invest a little bit more in year 1 because we want to make a solid new start. And what we see is that the accelerated development is much faster after that 1st year if we invest a little bit more year 1. And that is what we have seen now in Uppsala, for instance, that we if we invest in the buildings. And you can see in fact that we have a movie now that shows this campus, the Malmo. You can see that we really, really invest a lot. And because if we can create a school with 2,300 students, it will be fantastic for Academia the coming 50 years. So that is our focus when it comes to these new starts to invest a little bit more in the beginning. But to be clear, the main impact will be seen from 2022 coming 2 years from the Sodermalm project. Exactly correct. Good. That was all for me. Thank you so much. Thank you. We have no further questions. So I will pass back for any closing comments. So then we say thank you very much for your questions, and we wish you all a good day. Thank you very much. Thank you.