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

Welcome to the AcadeMedia Q1 Report 2024/2025. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Marcus Strömberg; and CFO, Petter Sylvan. Please go ahead.

So good morning, everybody, and thank you very much for your time and when we will present our quarter 1 interim report for 2024. And I will do this together with Petter Sylvan, that is the CFO, and I will give you a short update about the business development in the first quarter and also some comments on the quality development in the company. And the first quarter in AcadeMedia is a small quarter when it comes to the revenue and the profit, but it's an important quarter for AcadeMedia as a company. And we think that we have started this year very stable with a growth of 12%, where 6% is organic and the international development is still strong in the company. And we are now reaching for 100 units in Germany. We are at 98 units for the moment, and we see a strong development when it comes to our international business. And the government in Sweden, they really invest now in vocational training. I think it will be more than 100,000 students. The budget for this year is very important that to go ahead with the supply of skills. And AcadeMedia, we are really the leading vocational trainer in Sweden. We are the leading actor when it comes to skill supply. And that's why we also see this very positive development when it comes to the adult education. We also have reported our 13th quality report, and we focus a lot on reading, and we see now a positive result, and we have seen this over many years, but this year is really, really positive. And the next step for us is my favorite subject, that is mathematics. That is really a challenge for the Nordic countries and also in Sweden, but we really focus on that for the moment. And I will just give you some short information from our quality report. And as I mentioned, this is the 13th year that we report -- you can continue to the next page, where we report the quality result. And our model that we call the AcadeMedia, the quality model is really top of the line. It's a role model for a lot of other companies. And one very important subject in Sweden is that we should have the best conformity when we compare our grades with the national average. And we are very proud to announce these numbers now that we are really a role model when it comes to grading, both in compulsory schools and as this picture shows the up in secondary schools. And if you go to the next page, same as the finance sector, we are really watched out when it comes to the school inspection. They do a lot of inspections. I would like to say that they do more inspection when it comes to the private schools than the public schools. And if you look at these numbers, we are also really outperforming the rest of the schools in Sweden. We have really good results when it comes to leadership, when it comes to quality development and also the order in school. So if you look at the most objective quality result, that is the school inspections result, we also perform very well. And then, when it comes to the absolute number, I just put this slide, which shows the result in the compulsory schools. And we are very sorry to say that some of the schools in Sweden is now performing a little bit weaker. But the positive development when it comes to AcadeMedia is still good. We have a higher result than the national average, and we are at a stable level. And you should keep in mind that this is also, if you look at the comparability, with the national test. So the quality development in AcadeMedia is strong, and that is something that we continue to invest a lot in. And now I hand over to Petter that could comment on the financial results.

Thank you, Marcus, and good morning, everyone. It's -- I'm glad to have the ability to present the financial outcome that is great, while we, at the same time, have such a quality improvement. So if we start at this page, as Marcus mentioned earlier, we achieved a good growth of 12% with contributions from the acquisitions of Touhula in Finland and Winford College in the Netherlands, amounting to 7.1%. Our adjusted profit increased from SEK 151 million to SEK 157 million in absolute terms. And as Marcus mentioned briefly, the first quarter is a seasonally small quarter as part of the business are closed, and this impacts the net sales, profit and thereby margin development. Our newly Finnish preschool business that we acquired, Touhula, follow this seasonal pattern. And in addition, last year's net sales and profitability was positively affected by energy grants of SEK 15 million. So furthermore, the free cash flow development of minus SEK 225 million was more negative than last year's SEK 127 million, and this was because of unfavorable net working capital development. Now turn to next page, please. Adjusted EBIT increased in Upper Secondary School and Adult Education segment, whereas it decreased on Preschool and International and Compulsory School segment. The positive change is most notable in the Adult Education of plus SEK 20 million, and this is driven by increased demand in higher vocational education, which is countered by the SEK 11 million negative effect in Preschool and International business. And this seasonal is foremost driven of the seasonality effect of the acquired Touhula. As we mentioned in the previous quarters, the increase in group overhead cost is a natural outcome of our growth and the increase in this quarter of SEK 1 million was marginal, but more vacancies are to be filled in the coming quarters. So let's continue to a couple of page, I think Page 11. So if we look at the quarter's development within each segment, and then we start with the Preschool and International segment. The number of children increased by an impressive 29.6% with growth witnessed across all countries except Sweden. And there, we had 6 units that were closed last year. Our growth was primarily driven by the acquisitions of Winford in the Netherlands and Touhula in Finland, along with new preschool openings in Germany. This quarter, the total sales in the quarter of the group constituted 31% of International business. Net sales increased by 24.6% compared to last year with organic growth of 7.1%. Adjusted EBIT margin and EBIT decreased compared to the previous year. This year's margin was minus 0.8%, down from last year's 0 result, and the operating profit was minus SEK 11 million compared to last year's 0. And as mentioned, it was this acquisition of Touhula that amplified the seasonal pattern of the first small quarter of the preschools are closed. Higher school vouchers in Germany compensated to a larger extent with higher cost levels. Please move on to next slide. At Compulsory School, we noted 2.3% increase in student numbers. Net sales rose by 7.6%, driven by increased number of students and the positive impact of the annual school voucher revision. Adjusted EBIT and margin decreased compared to the previous year, and this year's margin reached 5.1%, down from last year's 6.4% and the operating profit was SEK 44 million compared to last year's SEK 51 million. The somewhat lower result was a consequence of higher personnel and maintenance costs. And part of that cost of high personnel was related to efforts in quality improvements. Last year, net sales and EBIT was positively affected by an energy grant by SEK 5 million. Please move on to Upper Secondary School on the next page. And then we observed a 0.4% increase in student numbers. The sales growth of 3.4% was driven by more students as well as the annual school voucher revision, although it's worth noting that this revision hasn't been sufficient to offset from inflation cost increases. Even so, the adjusted margin increased this year to 6.0% compared to last year's 5.7% due to higher capacity utilization and temporary lower costs. Move on to Adult Education. We see a 7.1% increase in sales, driven by a higher number of students in higher vocational education. Adjusted EBIT increased to SEK 67 million from previous year's SEK 48 million with a margin of 17.1% compared to last year's 13.2%. The first quarter is like last year a strong quarter, affected by lower personnel costs due to vacation. Unemployment is forecasted to increase during 2024 before it decreases in 2025. And even though this quarter in Q1 used to be strong for the Adult Education margin-wise, it's worth to notice that for the last 12 months, the profitability has been 10.4%. So over time, a slightly lower margin. Let's continue to next page, where I think it's Page 16. We talk about the free cash flow and investments. Free cash flow for the last 12 months was SEK 98 million, which was lower than last year, attributed to more unfavorable net working capital development. Maintenance CapEx as a percentage of sales has slightly declined to 1.6% and the significant increase in other expansion CapEx is associated with the acquisitions of Winford and Touhula. Proceed to Page 17, the financial position. Net debt, excluding IFRS 16, increased by SEK 146 million compared to last year with a leverage ratio, including IFRS at 0.9%, [ 0.9x, ] well below the financial target of less than 3x. Including property-related lease liabilities, net debt was SEK 1.5 billion higher due to growth, the acquisitions of Touhula and the indexation of risk. So continue to finally, Page 18 and our financial performance against targets. Our organic growth, including small bolt-on and acquisitions, stands at 7.0%, and this is exceeding our financial target of 5% to 7% growth. Our adjusted EBIT margin of 6.2% fall below the target range of 7% to 8% and the leverage ratio of 0.9x remains comfortably below the required threshold of 3x. And with these words, I end the presentation, and we open up for questions.

[Operator Instructions] The next question comes from Stefan Knutsson from ABG.

A couple of questions from me. First, on the Preschool profitability. I know that you commented last time around that you saw that you were on a higher level in terms of profitability in H2 and that you expected that level sort of to be the new level. Just to comment here, because now you came in lower in Q1, it might be an effect of the acquisition in Finland. But just if you still see the same full year effect that you alluded to on the previous call.

Yes, correct. I actually said at that call that my view was also to be adjusted with the normal seasonal effect. And we have this normal seasonal effect that's which we clarify in Q1, that it is for the preschools, particularly a weak quarter since they are closed to a high degree. So this is in line with our expectations, and it's in line with the view I communicated in Q4 for the full year.

Touhula wasn't in the number last year.

Yes. Touhula wasn't in the number. So that's the major change.

That is the big change.

Perfect. Then on Compulsory profitability as well, just to get an understanding what should be the expectation here? Because here, we shouldn't have any different seasonality effects. But yes, just a comment because you are 1.3 percentage points lower this quarter compared to last year in terms of profitability here.

The significant part of the costs we see are related to more temporary costs in terms of maintenance and other spendings. And some of it are related to later periods in the year and some of it related to efficiency measures that we expect to be lower. So we see the major part of these costs to be temporarily, and we withhold our expectations for the full year.

It is important to keep in mind that this is really a small quarter. And if you buy a little more books or if you compare it with last year, it affects the margin. So you have to keep in mind that this is a really, really small quarter.

And in addition to that, you had the SEK 5 million grant in the Compulsory School, you also had it in the Upper Secondary School. But in the Compulsory school, where you look closer in this small quarter, we also have a significant comparison effect. So we had the grant, but we didn't have the cost last year.

Perfect. And then lastly, just on the student intake in the Upper Secondary School segment. And if you are happy with the development, I mean, you increased the capacity utilization somewhat, but there is still some way to go, I suspect, given that you have opened a couple of new schools here in the last couple of years.

Yes. We are happy with that we have a growth of students in all our segments, although I mean, this is a mature business, the significant growth we have in our international markets. But we do have growth of children in all our segments, and we are happy with that development. The only part of segment where we see a decline of children is in the Swedish Preschool business. And that is mostly an effect of the demographic development.

Yes. Is it like -- if we think a bit more long term, is it comparable to see what you have in terms of capacity utilization in the Compulsory schools versus Upper Secondary? Or can you comment anything on that?

You mean long term, if they are comparable in terms of future?

I mean, what's the -- yes, the target level because I think you are at 93%, 94% somewhere in the Compulsory schools.

Maybe we can't reach that level when it comes to Upper Secondary. What we see now when it comes to Upper Secondary is that the vocational program is really developing very well. And we have really made a lot of effort in that area. We have also developed our campus. They are also performing quite well. What is a little bit more challenging now when it comes to Upper Secondary is the technical program. If you -- that is a specific program in Sweden, and we see a decline in that in both Compulsory schools and in our schools. So that is -- there, we have a little weaker capacity utilization. So it's a potential for the future. But we also know that the students, they could change between different years. So this year, the economic program is very popular and the technical program is a little bit less popular. So we have worked a little with the unit management when it comes to Compulsory schools. But the overall picture is stable and good, and we have a very good portfolio when it comes to the Upper Secondary Schools.

The next question comes from Karl-Johan Bonnevier from DNB Markets.

Just a couple of questions from me. Looking at Touhula, you have now owned it for a while and obviously, the seasonality you pointed to is similar to a lot of the other operations. When you look at it now, does it seem to have the potential you were looking for when you acquired it? And how would you compare it maybe to the Swedish operation or the Norwegian operation in their margin potential?

It absolutely have the potential that we see in Sweden. But as we have commented on, they are coming from a tough situation. We made -- I think, we made a good acquisition, and we are taking step-by-step. So -- but the potential is still there.

And as we have communicated earlier, our expectations that they will have -- that they will deliver the margin this year of the range of 3% to 4% is still what we expect and have no other view on. And then from there, we want to take it higher, but it will take longer time.

But mid long term, it should be up towards maybe the group average for the preschool or something like that?