AcadeMedia AB (publ) (ACAD) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the AcadeMedia Audiocast Teleconference Q4 2020/2021. [Operator Instructions] Today, I'm pleased to present CEO, Marcus Strömberg; and CFO, Katarina Wilson. Speakers, please begin.

Well, thank you very much, and welcome to everybody to the presentation of our interim report for the quarter 4 and also our full year results. And I will start with just an introduction through the quarter and the full year, and Katarina will, after me, go through the numbers and deep dive in some things. And it's a fantastic time for us now in August when we start all the schools. It has been a very strange year, but things are now going back to normal. And if we go to Page #2, we must say that this year, 2021, even if it was a strange year, it has been a very fantastic year for AcadeMedia. That's been a strong year. We have had a very stable quality results, and the organic revenue was a growth of 8%. And it's the best year ever in AcadeMedia history, with an operating profit of SEK 934 million and also a margin of 7%. And the key driver was the Adult Education, and we had seen a combination of online training and also an increased demand of vocational training. That has been the key driver of the development of the Adult Education. And a lot of people have tried to retrain and go to new jobs and to try to use this time during the pandemic to get to [ New York ]. And AcadeMedia has been very important in that development. And in the last quarter, we have seen an ease when it comes to the restrictions, and the capacity utilization in Germany has improved, and we are going back more to normal when it comes to the situation in Germany. And in the fourth quarter, the growth was very strong. It was 10% -- more than 10%, and we have had a number -- or the number of children have increased to 8.5%. Adjusted operating profit was in line with last year, but it has been affected by higher activity levels and personnel costs. Of course, we had postponed some activities in the quarter 3 and quarter 2, and that has affected the result in quarter 4. We had also tried to prepare us for the school start now in August. That is the best school start that we have ever done. The growth will continue. We have a lot of possibilities, both with organic growth and continue with acquisition, as we have mentioned in the reports. And we plan to start 8 (sic) [ 18 ] new units, and we're going back to normal in Germany with 15 new schools that we have planned to start. And we have also announced the preliminary student numbers for the next school year, and it indicates a growth of 7%. And we had the largest-ever intake when it comes to Upper Secondary School segment. So it's a very good start of the new school year. And then I will hand over to Katarina to go through the details. Thank you.

Thank you, Marcus. Moving on to Page #3, highlights quarter 4 of our financial year ending in June. Continued good growth. Student numbers grew by 8.5%, including the acquisition of Swedish Education Group that contributed with just over 2,500 students. In the quarter, 2 new units opened in Germany, and one acquisition in Norway also contributed to the growth. Net sales increased by 13.8%, with organic growth in all segments. And Swedish Education Group contributed 3 percentage points to the growth. And adjusted for the acquisition and the positive currency translation effect of SEK 8 million, the organic growth was 10.4%. Adjusted EBIT was in line with last year, SEK 280 million, and the adjusted margin decreased to 7.6%. And while the Adult Education segment continued to show strong growth, we saw some higher costs in the school segments. And the main reason for this was that some of the COVID-related restrictions were lifted in the quarter, which increased activity levels and also cost by about SEK 30 million. And this should be compared to quarter 2 and 3 where many activities had to be postponed or even canceled due to the pandemic and where we also, in those quarters, to reduced costs of a similar magnitude. And it should be noted also that in quarter 4 last year, all education, especially in the upper secondary school, was distance education, leading to somewhat lower cost in the comparable quarter. And also, as I was highlighting already in the beginning of this year, we were expecting a negative effect from vacation, fewer number of vacation days in the quarter, giving higher personnel costs of SEK 25 million. And this was also offsetting the lower cost that we had in the first quarter of this year. So moving on to Page #4, showing an adjusted EBIT bridge that illustrates the continued strong performance in the Adult Education segment, which is offsetting the higher cost and activity levels in the other segments, giving an adjusted EBIT in line with last year. Items affecting comparability of minus SEK 14 million related to restructuring in the Upper Secondary School and integration expenses of Swedish Education Group. Moving on to Page #5, highlights for the full year. We have had a very strong year, mainly due to an exceptional year for the Adult Education segment but also solid growth in the school segments. Student numbers grew by 6.5%, driven by acquisitions and organic growth. And we added 26 new units during the year, 17 new starts whereof 9 new preschools in Germany, and 9 units were acquired with the Swedish Education Group and Stims. Net sales increased by 8.7% and now exceeds SEK 13 billion at SEK 13.3 billion, and the organic revenue growth was 8.1%. Adjusted EBIT was SEK 934 million, which is an increase of 28%, and the adjusted EBIT margin was 7%. We are meeting our financial performance targets for the third quarter running. I can also mention free cash flow amounted to SEK 1.1 billion for the year. So to summarize, a very strong year. Moving on to Page #9, and let's go back to development in quarter 4 by segment and starting with the Preschool segment. So despite the pandemic, 2 preschools opened in Germany in the last quarter, which gives the total now of 58 preschools in Germany. And I would like to highlight that 35 of those actually were started organically over the last 2 years. And we have 273 preschools in total in this segment. The number of children increased by 4%, driven mainly by Germany, where we have seen signs of recovery. Net sales increased by 10.8% compared to last year, and the adjusted -- adjusted for positive currency effect of SEK 8 million, sales grew by 9.9%. And this increase is partly due to higher school vouchers in Norway. The increase was 4.4%, but also due to recovery in volume growth in Germany. Adjusted EBIT was in line with last year at SEK 79 million and was affected by higher pension costs in Norway, about SEK 6 million, and high maintenance costs in Sweden of SEK 7 million related to improvements of the outdoor environment, something which is even more important now when children during the pandemic have been spending more time outdoors. In all 3 countries, all preschools have remained open in the quarter, and we're very happy to see increased capacity utilization in Germany. And looking ahead, we are planning to start 15 new preschools in Germany during the next financial year and as many as 8 units in this first quarter of next year. So moving on to the Compulsory School, Page #10. We continue to see good growth in this segment. The number of students increased by 6.5%, and sales grew by 9.8%, where the acquisition of Swedish Education Group and Stims, Stockholms Internationella Montessoriskola, added just over 1,000 children and students. Adjusted EBIT amounted to SEK 63 million, which was lower than last year, and the margin was 7.1% compared to 9.3% last year. And as expected, we saw higher personnel costs caused by a fewer number of vacation days in the quarter, and this effect amounted to SEK 15 million. We also had higher costs related to our new educational profiles as well as somewhat higher activity levels, increasing cost by SEK 10 million. And also in this segment, some of the cost increase was related to improvement of outdoor environment. And very recently, yesterday, in fact, we acquired a compulsory school in Sweden with 175 students. Moving on to the Upper Secondary School segment, Page 11. Student numbers increased by 12.6%, where Swedish Education Group contributed with 2,300 students or 6.4 percentage points, and the organic growth was 6.2%. Net sales increased by 16.6%. The upper secondary schools in Sweden had, really up until March this year, conducted distance education for almost a year. But on April 1, the national recommendations on distance education ended, which meant that more classroom education could be introduced. Adjusted EBIT and margin was lower than last year at SEK 102 million, and the adjusted EBIT margin dropped to 9.2%. Due to the easing of COVID restrictions, some of the early canceling of distance activities could take place to a greater extent, and this increased cost by about SEK 10 million in the quarter. Overall, for the full year, the restrictions and canceled activities have reduced costs in this segment by about SEK 15 million. Also, the number of vacation days were less than last year, leading to higher personnel costs in the last quarter of SEK 10 million. And for this new autumn start, we have opened 3 new upper secondary schools. So moving on to the Adult Education segment, Page 12. Rising unemployment has also, this year, created a very high demand for Adult Education with exceptional volume increase and high capacity utilization. Net sales increased by 21.5% in the quarter, where the acquisition of Swedish Education Group under the brand name KYH contributed 5.3 percentage points. EBIT increased to SEK 59 million, and the margin was 12%. And all business areas contributed to the improvements. Demand, like Marcus said, for Higher Vocational Education remains high, and this business area now represents 26% of the total segment from earlier 20%. And this increase is partly due to the acquisition of KYH, but also good allocation of new educational places from January 2021. The Labour Market Service business constitutes now 13% of the total segment. During the year, the loss-making contract Vocational and Preparatory modules was terminated, and we're now seeing a transition to new matching service, but this transition is slower than we have anticipated. The Municipal Adult Education is also growing but now makes up a smaller part of the total segment at 58%. We have, in this area, solid contract portfolio that covers many of the areas that the government has directed resources to. So if we're looking ahead, we have a relatively young contract portfolio, and no major changes are expected for this coming year. We are, however, expecting the margin to come down somewhat to more normal levels. Then moving on to Page #14, free cash flow and investments. The free cash flow, defined as cash flow before investing in expansion, amounted to SEK 1.1 billion for the full year compared to SEK 805 million last year. And free cash flow in the quarter amounted to SEK 341 million, which was lower than last year, explained by calendar effects. That had a negative impact on the working capital, especially in Norway. And to the right on this page, total CapEx is increasing mainly due to the recent acquisitions. Moving on to Page 15. The financial position improves even further. Net debt is significantly lower than last year. It's about SEK 1.2 billion, and the leverage ratio is lower than last year at 0.9, which is well below the financial target of below 3. And property-related lease liabilities increased, mainly due to the recent acquisitions. So finally, moving on to the last page, Page 16, the financial performance versus targets. And to conclude, we are, for the third quarter running, meeting all of our financial targets, including our profitability targets. And with that in mind, the Board is proposing a dividend of SEK 1.75 per share. And with that, I would like to open up for questions.

[Operator Instructions] Our first question comes from the line of Stefan Knutsson from ABG.

My first question is regarding the outlook for the Adult Education segment. It was a special year this year with high unemployment. Can you just talk us through the different segments and what you expect now going into a more normal year next year?

So a lot of students have tried this online. So we think that this -- the level of online training will still be high. But from what we can see so far is that the interest to retrain is still high. But as Katarina mentioned, we think it will be more normal levels because the number of students in some of the vocational program has been really high, and now the labor market is starting to working more normal, and some of them will also go back to ordinary job, so to say. So we think that we have a very strong position, but that it will be a little bit more normal than we have seen this year. And then we can focus a little bit -- a bit about the labor market development of the labor market programs. And we have seen that this has also improved in quarter 4, and the labor market agency is still working a lot to try to develop this new market for private operators. So that is a possibility for us in the coming years, not the coming months but the coming years. So more normal levels, still a high interest, still high levels when it comes to online training. But I don't think we will see the same situation that we saw some quarters, the year that we have behind.

Perfect. And then also on the OpEx levels in the school segments, obviously, you were -- had lower OpEx in Q2 and Q3, and some of that you recouped here in Q4. If you just look at the full year profitability in the Swedish schools, how would you say that -- you will summarize this year?

Well, as I mentioned, I think we've had, all in all, somewhat lower cost in the Upper Secondary School segment. We didn't catch up the full effect we saw in quarter 2 and 3. But in the Compulsory School segment, I would say it's a normal level all in all.

[Operator Instructions] We have another question from the line of Karl-Johan Bonnevier from DNB Markets.

I wonder if you could start just helping us to see how these timing effects will impact, say, the upcoming year. If you're looking at vacation costs, is that going to be the same pattern for this year that maybe Q1 is going to be stronger and where you have a release of vacation pays? And also looking at the new setup of the pension cost and maybe also elaborate a little on how the timing effects in the delayed payments in Norway is going to catch up during this year compared to last year.

Thank you, Karl-Johan. I can start with the vacation pay. I think we will see a pattern going forward that we will have a positive effect in Q1 and a negative effect in Q4, and that's just a normal mechanism from us growing. But saying that, this is hard to really forecast. But I think that's what I'm expecting at least. Pension costs in Norway, I don't see that we will see a continued increase. We saw the increase this year. So I think that will not cause another increase next year. And I think you had a third question, Karl-Johan. What was that?

Yes. Obviously, the Norwegian payment system, is this kind of 2-year delay from when you really see the cost impact? And I guess, it was 2 years ago now that you really saw the big cost impact in Norway. So would you expect to see the full catch up for that in the coming year?

Yes, that's correct. We are expecting to see full compensation, if you say that, from 1st of January now coming. So we have another 6 months where we're not fully compensated. That's what we're expecting.

And Marcus, very good that you started to reveal this to -- at least preliminary student numbers. And it seems like you have a good uptake in the schools for this year. How could you describe it compared to the previous years?

I'd like to say that if it comes to the upper secondary, as we mentioned, we have worked a lot to make our profiles more stronger. We have developed new services when it comes to support the students and the family when it comes to the school choice. And we have also developed campus in the bigger cities. So we used to have every 10% student when it comes to upper secondary that was in the AcadeMedia school. This year, when it comes to year 1, it will be much more than 10%. So we have a high intake of students this year, and AcadeMedia will be a very important -- will be very important to deliver upper secondary school places in the coming years in Sweden. So we will be the absolute top player in all segments. And we have this theoretical programs that develops very well. And we also have our vocational program that is also developing very well. We have one new start, for instance, in [indiscernible], and that is more than 100 students that has applied to that school, and that's, I must say, some sort of record. And then we have 2022, we have our 2 big Stockholm campus that will also open. So I hope that we will continue this positive development when it comes to upper secondary. When it comes to the compulsory schools, we have now done the same things that we have done in the upper secondary. We have developed our profiles. We now have 5 different profiles when it comes to compulsory school, and we are also very positive that this will also help us to keep up the growth and also the quality. So that is what we can mention. And we also have a very positive demographic development when it comes to upper secondary in Sweden.

And when you look at those 16,000 that you now see starting with you in year 1, how does that number compare to last year?

Higher.

When I look at the average of 7% growth, at least what I had in my -- I'm not sure if that's a confirmed number for you, but I think I had a number that suggests that you have a, say, 10%, 11%, 12% growth in the year -- number, year 1, students or something like that. So...

I think it's at least 2,000 more, maybe 2,500 more than last year.

Excellent. Yes. No. That's a nice carryover number for you as well, I guess, so because I guess most of those are entering, say, 2- to 3-year programs as well at least. Or...