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

Welcome to the AcadeMedia Q3 report. [Operator Instructions] Now I will hand the conference over to the speakers Marcus Strömberg CEO; Katarina Wilson, Deputy CEO; and Petter Sylvan, CFO. Please go ahead.

Good morning, everybody, to a fantastic day in Stockholm. We have a great spring day, and finally, we see the sun. And welcome to this presentation of the third quarter and the new year of AcadeMedia. And together with me, I'm very happy also to introduce our new CFO, Petter Sylvan, and I will hand over to him in just a few minutes. But first, if we change page, we have a short update, and I must say that we have started the new year in a very good way. The number of students has growth in a stable way. And if we look at the revenue, it's more than 10% up, and it's mainly driven by organic growth and the international expansion. And we also continued to increase our international growth with an acquisition in Finland. So we run now 113 preschools in Finland, and it has a revenue of around SEK 1 billion. So AcadeMedia now have all different sort of education in 5 countries, and we also have small businesses also in Poland and in U.K. And we have also invested a lot in quality. We have increased the number of teachers that have academic results. We have also invested a lot in our school buildings and also the grade has also been a debate in Sweden, and I must say that no organization has done so much as AcadeMedia when it comes to quality. And we continue also our campus strategy with the new campus in Malmo. And in August 2025, we will have 1,000 students entering a really fantastic building. So we -- if you look at the campuses in Stockholm, we have 2 campuses and also in Gothenburg, in Örebro and in Uppsala and now also in Malmo, and that will be really, really great. And we also have some exams results when it comes to the PISA. And we're also very proud that the independent schools performed very well when it comes to the results of PISA and it also been announced a report around that. So the overall picture: good growth, good development, and we also have invested in quality, and that is also a stable platform to continue to develop AcadeMedia into the future. And then if I hand over to Petter, and he will go through the numbers.

Thank you, Marcus, and good morning, everyone. As a new CFO to the company, I'm so honored to present my first quarter report. And I'm delighted to kick off with such a strong quarter. As Marcus outlined earlier, we achieved a good growth of 10%, with contributions from the acquisitions of Touhula in Finland and Winford College in Netherlands, amounting to 3.6%. Additionally, our adjusted profit margin increased to 7.1% compared to last year's 6.6%, which means that we were reaching SEK 327 million in absolute terms, up SEK 50 million from last year. This increase in adjusted EBIT reflects the growth across all our segments. Most segments experienced also improved profitability except for Upper Secondary where the revision of school vouchers still isn't sufficient to compensate for higher costs. Moreover, this increased profit has translated into a correspondingly higher free cash flow. Now turn to Page 4, please. The improved adjusted EBIT are, as I mentioned, evident across all segments, as you see in the picture. Apart from the better compensation through annual increases in school vouchers, which now adequately account for inflation, the positive change is most notable in the Preschool and International segment, where in addition to better school voucher compensation, the acquisitions also contributed an additional SEK 8 million. As we have mentioned in previous quarters, the increase in group overhead cost is a natural outcome of our growth. So some of our staff functions are adding extra resources to accordinate our expanding operations. Move to Page 5, please. Our rolling 12-month net sales have now reached SEK 16.7 billion. Adjusted EBIT has climbed to SEK 975 million, while we maintain a stable margin. Once again, we observe a very positive trend in free cash flow development. Now let's look at the quarter's development within each segment, and we start with Preschool and International segment on Page 8. The number of children increased by an impressive 13.2% with growth witnessed across all countries except Sweden, where preschools were closed in the past 12 months, affecting the year-over-year numbers. Our growth was primarily driven by the acquisitions of Winford in the Netherlands and Touhula in Finland, along with new preschool openings in Germany. The international operations account now for 27% of the group's total sales this quarter and 30% pro forma. Net sales increased by 15.8% compared to last year with organic growth at 6% and acquisitions contributing 10.9%. Adjusted EBIT and margin improved compared to the previous year. This year's margin reached 6.7%, up from last year's 5.5%. And the operating profit was SEK 108 million compared to last year's SEK 76 million. These improvements are attributed to better compensation for inflation costs through annual school voucher increases, reduced energy costs and contributions from acquisitions. The item affecting comparability in this year is the cost of acquisition of Touhula. Moving on to Compulsory School on Page 9. We noted 2.2% increase in student numbers. Net sales rose by 8.3%, driven by increased number of students, the positive impact of the annual school voucher revision in January of 5.5% and higher government grants. The school voucher revision was in line with our previous estimate in Q2. Adjusted EBIT and margin improved compared to the previous year. This year's margin reached 7.1%, up from last year's 6.8%, and the operating profit was SEK 78 million compared to last year's SEK 69 million. These improvements attributed to better compensation through the school voucher revision, increased capacity utilization and decreased energy cost. Now turning to Upper Secondary School on Page 10. We there observed 2.8% increase in student numbers. The sales growth of 6.5% is driven by more students as well as the annual school voucher revision of 3.8%. Although it's worth noting that this revision has been insufficient to offset inflation cost increases. Consequently, the adjusted margin was somewhat below last year's 8.4%, despite improved EBIT in absolute numbers due to higher capacity utilization and lower energy costs. Moving to Adult Education on Page 11. We see a 6.7% increase in sales, driven by a higher number of students in higher vocational education and the acquisitions of Berghs. In the municipality business, our implemented capacity adjustments and cost cutting measures from last year continue to yield a positive effect. Adjusted EBIT increased to SEK 43 million from previous year's SEK 33 million with a margin of 9.7% compared to 8% last year. We anticipate the full year EBIT margin within the lower range of 9% to 11% given the seasonally weaker fourth quarter. Continue to Page 13, free cash flow and investments. Free cash flow for the quarter was SEK 200 million higher than last year, attributed to higher profits and a more favorable net working capital development. Maintenance CapEx as a percentage of sales has slightly declined to 1.6%. The significant increase in other expansion CapEx is associated with the acquisitions of Winford and Touhula. Proceeding to Page 14, the financial position. Net debt, excluding IFRS 16, increased by SEK 1.5 billion compared to last year with a leverage ratio, including IFRS 16, at 1, well below the financial target of less than 3. Including property-related lease liabilities, net debt was higher due to growth, the acquisition of Touhula and the share redemption program. And finally, on Page 15, our financial performance against targets. Our organic growth, including small bolt-on acquisitions stands at 7.4%, exceeding our financial target of 5% to 7% growth. Our adjusted EBIT margin of 6.1% fall below the target range of 7% to 8%, but in the quarter, we delivered 7.1%, worth notice. Our leverage ratio of 1 remains comfortably below the required threshold of 3. And with these words, we end this presentation and open up for questions.

[Operator Instructions] The next question comes from Karl-Johan Bonnevier from DNB Markets.

First of all, Marcus, good to have you back in, in good shape again.

Thank you. I'm a little bit dangerous for the moment that I tell the rest of the staff to know when I'm fixed.

Excellent, excellent. So good to see that since also the business momentum seems to be good out there for you. Two questions really for me. Looking at the Finnish acquisition of Touhula, I know that's an acquisition target you have been looking at a number of times historically and walked away from. What made you convince that there was the right time to go for it now and what kind of opportunities do you see there?

We looked at this 2016 and then in fact, we gave a bid on the company at the right level, but the price then for the one who acquired the company was very, very high. And now this has been a development in Finland, where they have to -- they grow too much and they have to restructure the company and we think that this is the right time, it's a good management, it's the right price, it's the right profitability, and it also got a lot of opportunities coming when it comes to Finland. So the right price, the right management and the right development, and they have also fixed some of the growth issues that they had.

And when you look at the opportunity as it stands today, what are the main opportunities there?

In Finland, it's, of course, to increase the profitability of the company through the management's efforts and action plans and also to make bolt-on acquisitions.