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

Welcome to the AcadeMedia Q4 report 2024/2025. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Marcus Stromberg; and CFO, Petter Sylvan. Please go ahead.

So good morning everybody, and thank you very much for your time. And we will spend now a few minutes to introduce you and present our Q4 report, and it will be me, Marcus, and Petter that will make this presentation. And this time of the year, it's really a great year for -- time for AcadeMedia. We meet a lot of new students. We start our schools. It's a very exciting and very good time. And when we sum up this year, we can say that we have had a very good and very stable development in AcadeMedia during '24-'25. And the end of the year, Q4, was in the same line as overall this year. We have kept on growing. We had made a lot of international expansion. All the segments are developing in a positive way, and that is very positive also when we look into the future. We have also focused on quality, and we have made a lot of investment to also handle the demographic challenges in our mature markets. And when we look at the preschool, where we have entered swimming lessons for free, we have traffic lessons for free, a lot of focus on reading and all of these quality efforts have created this growth. When we look at -- the number of students has grown about 7% the year we have behind us. And when we look at the start, we think that the start of this new school year has also been very stable with a growth of around 3%. When we look now at this year, the Board also will propose an increased dividend to SEK 2.25 per share. And the Board also intends to propose a voluntary share redemption program or buyback program to the annual meeting that will be in November. And we also want to highlight some of our quality efforts, and we look at specific on reading. So in Sweden, we measure the results in -- when they are at Level 3. But we have focused on year -- Level 1. And if we look at this number, our early efforts are training programs on the teachers. Our focus on new methods has really improved the way that the children learn how to read. And when we look at the numbers now, of course, we have the target to achieve 100%, but we are now at 90% of the children in first grade that can read. And that is a good step for us, and we attempt to continue this development. And if you look at AcadeMedia, so a lot of company talks about the future, we could also show our history. And to have focus on stability, to grow profitability, to increase the profit to make the company more stable, that has really been core for us. And as we look at this number, we have increased 19% CAGR EBIT over these years. And one important strategy for us is to continue to develop the international part of AcadeMedia. And we have announced this target that it should be 50% of the revenue that should be outside Sweden, including the Adult Education. And we made 2 acquisitions just before summer, both in Germany and in the Netherlands. And we think that we have a good list of prospects. We have a strong balance sheet that we could continue to grow and go toward this target. And with this introduction, I also want to comment a little bit about politics. And we are very used to handle the politic situation in the different countries, both in Finland and Norway and Germany and so on. And this is a picture that just shows the situation in Sweden because we have had a lot of different proposals, I think it's around 10 proposals that is on the table for the government in Sweden now. And it's 3 proposals that is focused on the situation that we are in independent sectors: it is the profit inquiry, it is the school voucher inquiry and it's also the principle of publicity to be more transparent as a sector. And if we look at these 3, we have made a picture that tries to explain where in the political phase is these different inquiries. And if we look at the first one, we are just after the phase that we have had the information for what has been the comments from different sort of organizations. And now it's about to be negotiated, and we think that the profit inquiry will have a proposal to the government around springtime 2026. That is our best guess for the moment. If we look at the school voucher, we are not still in this consultation phase. So it's nothing new information to talk about. And it's very important also to say that even if the government will talk about the profit inquiry during the spring, it will be operating in 2028. So the timetable in these inquiries are quite long. And we can see the same we have also comment on the principles of publicity, and here, we also are in the same phase as the profit inquiry. So it's a long process. It takes a lot of time and it will be -- some of these, we think, will be proposed to the government and Parliament in the spring. And we could answer some questions if you have any questions around this after Petter's presentation.

Okay. Thank you, Marcus. Good morning, everyone. I will talk about the financial development. And as Marcus started to explain earlier, we achieved a good growth of 5.4% and this is with contributions from the acquisitions Yes! in the Netherlands amounting to 1.1%. Additionally, our adjusted profit margin increased to 9.1% compared to last year's 8.5%, reaching SEK 467 million in absolute terms, up from SEK 415 million. And finally, this increased profit has translated into higher free cash flow. So let's continue and turn to next page. The improved adjusted EBIT are evident across all segments. And in the Preschool and International Segment, the increase of SEK 19 million is driven by positive contribution from the mentioned acquisition of Yes!. In the Compulsory and Upper Secondary Segment, we have a stable situation. And in Adult Education, continue to report strong results driven by high unemployment rate, and in particular, increased volumes in Higher Vocational Education. So that's the total overview. Let's jump to Page 11 and look at the quarter's development within each segment, and we start with the Preschool and International Segment. The number here of children increased by 6.5%. Our growth was primarily driven by new preschool openings in Germany. The International operations account now for approximately 30% of the group's total sales. The net sales increased by 4.5% compared to last year's. And we had an organic growth of 5.8%. And the difference there is the currency effect. Adjusted EBIT and margin increased compared to the previous year. This year's margin 8.6% was up from last year's 8%. The adjusted operating profit increased to SEK 169 million compared to last year's SEK 151 million. And the improved result was mainly a positive effect from the acquisition of Yes! in the Netherlands as well as more children and higher compensation in Germany. Move on to the Compulsory School on Page 12. We now note a 4.8% increase in student numbers. Net sales rose by 9.7% driven by increased number of students and the positive impact of the annual school voucher revisions. Adjusted EBIT and margin increased compared to the previous year. This year's margin reached 9.5%, up from last year's 9.1%. And the operating profit was SEK 114 million compared to last year's SEK 99 million. The results and margins for the quarter were positively affected by acquisitions and expansion units. Now we turn to Upper Secondary School on the next page, and we there observed a 0.6% increase in student numbers. The sales grew by 2.7% and this was driven by more students as well as the annual voucher revision. The adjusted margin was stable and last year's 12.2% is maintained this year. And we -- last segment move on to the Adult Education, Page 14, and there is a 7.3% increase in sales and this is attributed to higher number of students in Higher Vocational Education, in particular. Adjusted EBIT increased to SEK 34 million from previous year that was SEK 23 million and with a margin of 7.5% compared to 5.4% last year. The improvement in results was mainly attributable to increased volumes in Higher Vocational Education. And surveys conducted by SCB, the Swedish Statistics [ report ] indicate that the unemployment rate in Sweden was 9% in May, which is historically high and is expected to maintain high at the time being. And the growth here is highly correlated to higher unemployment rate in the segment. Okay. Let's continue to Page 16 and free cash flow and investments. Free cash flow for the last 12 months was close to last year in absolute terms. The free cash flow as a percentage of EBITDA, 62%. And the lower ratio compared to last year is mainly an effect of change in net working capital. The last 4 years, maintenance CapEx as a percentage of sales, as we see in the picture to the right, has declined and this is a consequence of fewer new openings and fewer expansion units. Proceed to Page 17, the financial position. Net debt, excluding IFRS 16, decreased by SEK 67 million compared to last year with a leverage ratio excluding IFRS 16 as 0.5, obviously well below the financial target of less than 3. And even including property-related lease liabilities, the net debt including is lower than last year, and this is due to low indexation, low number of new entry contracts in the quarter and FX effects. In the period, new loan agreements were signed with 3 banks, securing financing until 2028 with a possibility to extend until 2030. And obtaining long-term financing is essential for AcadeMedia to successfully pursue its acquisition strategy that Marcus talked about. And this approach aligns with our objective to secure 50% of revenues from other sources than the Swedish school voucher. Okay. Let's continue to next page and we now look at the overview of the full year. And for the full year, we achieved a good growth of 9.7% with contributions from the acquisitions amounting to 4.7%. Additionally, our adjusted profit margin increased to 6.7% compared to last year's reaching 6.3% reaching SEK 1.281 billion in absolute terms, and this is up from SEK 1.097 billion. And all segments contributed to the improvement of operating margin and profit. And now turning to next page on the full year results visually. As I mentioned, the improved adjusted EBIT is evident across all segments. In the Preschool and International segment, the increase of SEK 57 million is driven by new openings and acquisitions, along with better school voucher compensation in Germany. And in the Compulsory School, there has been a stable development with increase of EBIT, SEK 27 million, driven by contributions from the acquisition and expansion units. The Upper Secondary School has managed to increase its capital utilization and improve its cost controls, leading to an improved EBIT of SEK 47 million. And Adult Education finally improved by SEK 54 million, and this was mostly driven by higher volumes in Vocational Education. And finally, on next page, our financial performance against targets. Our organic growth, including small bolt-on acquisitions, stands at 9.2%, exceeding our financial target of 5% to 7% growth. Our adjusted EBIT margin of 6.7% falls below the target range of 7% to 8%, but we are slowly improving, rolling 12, and are getting closer to our targets. The leverage ratio of 0.5 remains well below the required threshold of 3 and leaves further room for acquisitions when opportunities occur as long as share redemption and/or buyback programs. And with these words, I end the presentation and we open up for questions.

[Operator Instructions] The next question comes from Johan Lonnqvist Sunden from DNB Carnegie.

The first one, it's on the Adult business. And you highlighted, Petter, in the presentation the projected unemployment rate in Sweden for the coming year. Could you give some kind of guidance or comment about your visibility on volumes and what that impact could have on margins during, say, the coming 6 to 9, 12 months?

We don't give any forecast overall, but there is public data that you can also take part of that the unemployment rate is expected to be on similar levels for the coming year. And that should be, yes, everything equal, should be equally positive compared to the year that we have had. So we don't see any major factors that are negative to the segment for the coming business year. It's a general statement. From a margin perspective, we've come from a year where we have significantly ramped up the volume, not the least in [indiscernible] education. And we are at historically very high margin, close to 12% last year, which is a bit higher than the range -- expected range of 9% to 11%. And of course, we continue -- if we would continue to have high volumes, driven by higher unemployment rate, I think that most correlates to continuous high margin. But on the other hand, it's probably not sustainable to be at this high level like 12% over time, even though they are high unemployment rate because we also have a need to secure the quality, which always increase the additional cost of investments when we ramp up relatively quickly.

I understand. And if you go back to -- you have the slide with the financial targets and you have pushed towards your margin target a bit during this year. What is needed to be achieved to reach the kind of corridor from where you stand today?

For the financial targets, all targets or you meaning for the.

Margin specifically.

Margin specifically. Generally speaking, as many of you probably know, for the 4 segments we have, 3 of the segments are within the margin range of 7% to 8% or higher. I mean, Adult Education is higher and Compulsory School is at 7% or slightly higher. And the Upper Secondary School is a little bit above, 8% . So I mean, all of these are at or higher of the range and they need to sustain the margin. I mean, it's positive also if they slightly can improve the margin, but we don't necessarily expect them to contribute that much. The main changes that is needed is to continue to improve margin in the Preschool and International segment. And we have a slight improvement this year that has been behind us. It would have improved further if it wouldn't have been that we had added the acquisition of Touhula that came in with a lower margin. We have a lower margin -- and we have a margin improvement in the segment in Touhula in this last year, but still they are lower than the rest of the segment. So it continues up the year to come in the Preschool and International, that is a necessity to reach our margin goal.

And specifically the Finnish acquisition you referred to where you are working to improve margins, where are you in the progress of improving margins? Are you halfway done? Or if you just could ballpark how much is done and how long time it can take...

We are kind of halfway.

And the other half, is that a quick fix? Or will it take many years to achieve or...

We happen to reach the full -- the segment margin potential within perhaps 2 years or so.

Perfect. My final topic is the kind of buyback or redemption comment in the report. Is there any kind of ballpark range that has been discussed? Do you think the last year's levels are a good kind of level to look at? Or will the kind of volume of the program be significantly different compared to what we've seen last year?

So we don't obviously give any specific guidance at the time being, but we can conclude that the cash flow at the time -- the cash flow for the year that has been has been strong despite all the acquisitions we have made according to our strategic agenda. And despite the dividend we made and the share buyback program in the last year, we end up with a net debt leverage position that is even stronger than the year before. So I mean, we have good start in the year to come. We have planned for continued growth according to our financial targets. And there is nothing changed in our cash flow generation model. So with all that said, I mean, we have all the possibilities to even have a similar size or better in the share buyback or redemption program, combined with an acquisition agenda that we find decent or have a more aggressive acquisition agenda than we had the year before. So it's either way.