AcadeMedia AB (publ) ($ACAD)

Welcome to AcadeMedia Q3 2026 Conference Call. [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 welcome to this call that we will present our interim report of the third quarter, and we are in the middle of the preparation in the last time of the school year. So it's really a fantastic time for us. And we also now deliver a strong report with a stable development, focus on the future that we could do with AcadeMedia. And I will take a few starting notes, and then I will hand over to Petter to present the financial results. . And if we try to sum up the third quarter, as I mentioned, it is a strong and stable quarter. We have followed our strategic focus, and we have delivered a lot of acquisitions. We have this target where we should be 50% out of the Swedish schools. And we have really, really worked with this during this quarter, just during the quarter and also after the quarter. We have announced 5 different acquisitions in the international strategy and 1 in Sweden. And if you look at the number, we continue to grow in a good way and also the financial stability has also performed in a good way. And we see good positive performance from the international operation from the Adult and from Primary schools. We could continue. And of course, one key for us is the quality in the business. And one way to look at this is to look at the Swedish School Inspectorate quality reviews. And I must say that AcadeMedia performs very well if we compare with the total sector. We see strong activities from the Swedish school inspection, and we think that, that is very positive for the schools in Sweden. But as you see from this slide, we perform in a very good way. And if we continue then and look at what have AcadeMedia done in the history. So this is not really what I talk a lot about. I've been working with the company for 20 years. But we have been, as you all know, very good to develop brands, to create organic growth, to give trust to the parents and the children but we are also a very good company to make acquisitions. And if we look back around 15 years, we have made 75 acquisitions, a lot of them in Sweden, but also a lot of acquisitions international. And I must say that I don't want -- I want to be humble. That's part of my person, but I must say that we are maybe the best to acquire education companies in Europe. And if you look at all of these companies that we have acquired, we also have the performance to develop the quality, the growth in the different brands. So AcadeMedia is a strong company when it comes to acquisitions. And then we also have expanded in different countries. So it's not so easy as to start the business in other countries. We see a lot of Swedish and other companies try to build up markets in other countries. And we build our ability to start with strong relations. If we look at the management team that we have in Germany and the Netherlands, we have known them for many, many years, and then we start with this platform acquisitions. And over the year, we have developed a very strong business now in 4 different countries. And we also have focused both in Poland and in the Netherlands. And what we think is the right thing to do now when we have built up this strong management teams, then it's time to grow. Then it's time to make more acquisitions. And that is what you see now in Germany, in the Netherlands because we have a strong presence. We have a strong platform to continue to grow from. And then we -- of course, we have focused on the international. That is our road map, but we have also made one acquisition in Sweden. This is a company that I personally know for 20 years. It has been some illness among the owners and they wanted to find a new owner, and we are very happy that AcadeMedia is the new owner of Prolympia, very well-performing schools. They have 10 schools, more than 4,000 students, a long queue in all of their schools. So they are really good schools. But they also have this profile that is missing at AcadeMedia when it comes to sports and health. And we think that, that is the right focus to build a group of schools with this platform. And we hope that this could be the base of this. We want to maybe change some of our scores in this profile, and we think that this will create also attractiveness. We see that it will be more challenging when it comes to demographic development in some of the cities in Sweden. And we think that these schools, they really have the right position. And if you look at the long-term development when it comes to AcadeMedia, we are so proud to see that we have stable financial performance, we continue to grow, we continue to follow our strategy when it comes to the international development, and all of our segments now have a very strong position. You can see -- on the next slide, you can see the performance when it comes to the number of -- the percentage of the companies that is outside Swedish schools, and we have also a strong pipeline when it comes to make acquisitions. And our focus here now is to enter Poland, U.K. and also to continue to grow in existing markets. So thank you very much, and I will hand over to our political expert now, Petter.

Thank you, Marcus, and good morning, everyone. Yes. So let's start to talk a bit about the political situations and investigations that we have at hand right now. As we mentioned in the last earnings call, the Swedish government presented a legislative proposal to extend the principle of publicity to include all independent educational providers in January, and the legislation is now expected to be adopted in January 2027, the beginning of next year. And under this proposal, the public will have the right to request access to documents from our operations on essentially the same basis as for public authorities. And all requested documents will be subject to confidentiality assessment and formal decisions will be required in cases where information is not disclosed. So we are closely monitoring the legislative process, and we are preparing for implementation to meet the requirements in January 2027. And at this stage, we estimate that the implementation will result in a one-off cost of approximately SEK 25 million. The ongoing implications, however, are assessed to be manageable within existing financial frameworks and it's not expected to have any material impact on the operating margins. And then there is some update regarding the profit inquiry. There has been recent negotiations between the ruling parties and still ongoing as far as we know. We expect the legislative proposal in June followed by parliamentary vote before the election with the new rules expected to enter into force in 2028. So that's the update about the investigation, and we can continue to next Page 10. And then I, once again, would like to highlight our investor podcast, which is available wherever you get your podcast. And for instance, in the latest episode, we look further into our international business together with Kristofer Hammar, who is Director of International Operations, and in the pod, he developed his thoughts on our international M&A. The purpose of the podcast is to engage with Swedish investors and other stakeholders through short, focused episodes, delivering clear insights in just 10 to 15 minutes. And this far, we have released about -- or 8 episodes. So please continue. Let's talk about the financials now. As Marcus outlined earlier, we achieved a solid growth of 6.6% year-on-year. Preschool and international segment together with Primary schools and Adult Education contributed to the positive development. In Secondary had a softer performance where extended library staff following new legislation had a negative impact on the result. Additionally, our adjusted EBITA margin increased to 8.2% compared to last year's 7.7%. And this means that we were reaching SEK 438 million in absolute terms up from SEK 386 million. The increase in profit has translated into higher free cash flow. Now turn to Page 12. In the Preschool and international segment, the increase of SEK 44 million was positively impacted by increased volumes and revenue in Germany and a temporary lower cost in Norwegian operations. The Compulsory School segment is up SEK 10 million year-over-year, and the Upper Secondary School segment saw a decrease in earnings of SEK 12 million, and this was primarily attributable to increased personnel costs due to expanded LIBOR staff following this new legislation and lower rental cost and improved capacity utilization had, on the other hand, a positive effect. Adult Education continues to report strong results driven by increased volumes in higher vocational education and labor market services and group cost increase compared to the same period last year. Nonrecurring items affecting comparability amounted to SEK 3 million. And there was acquisitions and integration costs of SEK 30 million and there was a reversal of provision for contingent consideration amounted to SEK 27 million plus. So please continue. The 12-month rolling net sales continued to grow and amounted to SEK 19.8 billion. The rolling 12-month adjusted EBITA amounted to SEK 1.440 million and corresponding to a margin of 7.3% within our profitability target of 7% to 8%. And we continue to have a solid free cash flow. Slide 14, please, and let's look at the quarter's development with each segment. So let's go to the Preschool first and International on Page 16. So the number of children increased by 11.3%, and our growth was primarily driven by international expansion. The international operations account for more than 30% of the group total sales. The net sales increased by 11.3% year-over-year, positively affected by acquisitions. Currency changes had a negative impact of 3.5% and the organic growth was 10.4%. Adjusted EBITA was SEK 169 million compared to SEK 125 million last year. And this improvement was largely driven by increased volumes and higher school voucher funding in the German operation as well as temporarily lower cost levels in the Norwegian operations. If we now move on to Compulsory Schools on next page. We note a minus 1.4% decrease in student numbers. Adjusted for units that are to be closed, the number of students decreased by 0.7%. And corresponding figure for the country as a whole is 1.0%. Net sales rose by 3.4%, primarily explained by the annual school voucher additions and adjusted EBITA grew by 11.6% year-over-year, reaching SEK 96 million. This is corresponding to an adjusted EBITA margin of 7.9%. Please move on to Page 18 for Upper Secondary School segment. The number of students grew here by 0.5%. We saw a stable growth in sales, while profitability was somewhat softer year-over-year, with an adjusted EBITA of SEK 127 million compared with last year's SEK 139 million. Adjusted EBITA margin was 8.1%. The decrease is primarily attributable to higher costs related to the purchase of literature and the expansion of library staff, partly offset by lower rental costs and improved capacity utilization, which then had a positive effect. And then we continue to Adult Education segment, where we continue to see strong performance with profitability now improving for the 11th consecutive quarter. Sales increased by 6.7% to SEK 495 million, up from SEK 465 million, mainly attributable to higher volumes in higher vocational education and labor market services. Adjusted EBITA came in at SEK 67 million, up 19.6% year-over-year. The adjusted EBITA margin amounted to 13.5%, up from 12% in the same period last year. And just to remind, the second half year includes more courses that are completed, resulting in a lower capacity utilization. This mainly affects the fourth quarter to come. Please continue to next page, financial position, and we look at the free cash flow and investments on Page 21. The free cash flow for the last 12 months amounts to SEK 1.444 million. The free cash flow as a percentage of EBITDA is 74%. Maintenance CapEx as a percentage of sales continued to decline. This is a consequence of fewer new openings and expansion units. We continue to next page, 22, the financial position. Net debt, excluding IFRS 16, increased by SEK 508 million compared to last year with a leverage ratio, excluding IFRS 16 at 0.9x, still well below the financial target of less than 3x. Increase in net debt-to-EBITDA is mainly explained by the acquisitions made during the quarter. And finally, on Page 23, our financial performance against targets. Our last 12-month organic growth, including small bolt-on acquisitions, stands at 5.6%, within our financial target of 5% to 7% growth. Our adjusted EBITA margin amounted to 7.3% within our target range of 7% to 8%, and our former profitability target of adjusted EBIT, which is typically 20 basis per lower than adjusted EBITA, this would also have been within the target range. The leverage ratio of 0.9x remains well below the required threshold of 3x, leaving further room for acquisitions when opportunities occur. And with these words, we end the presentation, and we open up for questions.

[Operator Instructions] The next question comes from Philip Ekengren from ABGSC.

First of all, Norwegian operations were again flagged as benefiting from, I think you write, temporarily lower cost levels. Could you please quantify the size of this effect in Q3 and then also perhaps comment a bit on when that is set to normalize?

Yes. There is a mix of cost that is temporarily lower. There is slightly lower expansion than expected. There is significantly lower sickness leave rates, which we think -- which is good, but we don't think that it's on a sustainable level. And there are some cost on maintenance that we think will be delayed and would rather be in the fourth quarter. So the margin improvement compared to last year for the [indiscernible] segment is 1.4%. And roughly, as we described in the last quarter, we expect that the underlying profitability increase is rather like 1%. So 0.4%, 0.5% is more temporary effect and phasing effect and mainly attributed to Norway. And most of that effect will come negatively in next quarter.

That's helpful. And then perhaps on German volumes. So both German volumes and vouchers continue to drive the segment growth here or at least margin improvement. How should we think about the run rate margin in Germany once acquisitions are fully integrated and perhaps a year or 2 out?

Could you repeat the question, please?

Yes, sorry. So how should we think about the run rate margin in Germany a few years out when recent acquisitions are fully integrated? Yes, perhaps a comment on German margins underlying.

We have done an uplift in margin in several of the countries and not the least in Germany. And we separate the operations in the Preschool German operation and the School operation. In school, mostly of the acquisitions we make are margin positive to the segment. And we also see potentially good integration improvements within 1, 2 years for these acquisitions. For the Preschool, there has been a significant part of the uplift during this year. So we don't -- yes, we think it will probably -- we will sustain the margin, but we don't expect similar uplift next year as we have had this year. .

The next question comes from Jonny Jin from SEB. .

I want to start with a quick clarification of Philip's previous question on a temporary lower cost in the quarter. Is SEK 10 million fair to assume? Is that the magnitude we are talking about in the quarter? .

If you do the math, I think 0.4%, 0.5% in the segment as more temporary positive effect. I think that would be something around SEK 10 million, yes. .

Okay. Just wanted to clarify. Then on the Upper Secondary School segment, that margin took a rather big leg down here on the EBITA margin. It's down 110 bps year-over-year, and you are currently running at an 8.4% EBITA margin rolling 12-month basis here. So is that sort of a representable level going forward ahead? Or can we expect a further decline?

See, on an LTM level, we don't expect a further decline. I think that if we look at it year-to-date, we have talked about for the last -- yes, for the quarter since the beginning of the year that there will be a margin pressure due to the reforms in Upper Secondary. We have also said that Upper Secondary comes from a long history of profitability in the range between 8% and 9% and they are at a high utilization rate and high efficiency rate. So they come from our view from a relatively high level. So we have had expectations that we should be able to hopefully sustain the margin compared to last year, if we look for the full year. But realistically, I've said that perhaps it will be a couple of percentage points lower. That's what -- we might end for the year. We will see. And then for the next year to come, our best expectation is that we will sustain the margin from this level going forward. We don't have any additional known reforms or so at the time being that will put further pressure.

Good. Then moving to the...

So I love Upper Secondary. So we have really performed fantastic when it comes to Upper Secondary over 20 years. So we are the biggest operator in Sweden. We have 25% of the students in Stockholm, Malmö and Gothenburg. And we have handled a lot of different challenges. But if you look at the coming year, I think the key driver will be vocational training because we see a higher number of students going into vocational training. And if you look at what the municipality has done, so they have shut down a lot of the vocational schools but we have kept these schools. We have Praktiska, we have Drottning Blanka. We increased the number of students and these schools are more profitable. So -- and if you look at the coming year, I have the strong belief that we will take benefit of that we have kept our vocational brands. So the portfolio that AcadeMedia have for the moment is very strong because we have a vocational program. And the other thing that we are doing is that we are investing in our campuses. And this is really among the best Upper Secondary schools that we see in Sweden. We invest now in Stockholm. We invest in Malmö, we invest in Gothenburg. And this will also take us into the future because the students want to go to these schools. So even if we always had to handle challenges, regulations and so on, we have done this all over the years. But for the moment, I think we have a strong portfolio of brands.

Understood. Then moving to the Adult segment here. I want to ask a question about organic growth. Organic growth start to uptick here in the quarter sequentially, what is driving that, would you say? And how should we think about the sort of longevity of that growth level? .

So if you look at adult education, you have to think what is the key driver? What is driving the adult education. And I would like to say that the main thing that is driving the adult education is the change in the workforce in Sweden. And we have changes when it comes to very people that is high educated because of AI. We have people that is unemployed. So a lot of things is taking us to create growth when it comes to adult education. And if you look at the applications now to university and high schools in Sweden, it's all-time high. And when you have all-time high university, you also have all-time high vocational programs that we are running. So the overall picture is that we are really performing good. We are taking advantages of the changes that is in the labor force, and we have the right brands, and we have also developed our online platform. So we are very positive when it comes to the adult education in the coming years. But of course, you always have to struggle with tenders. You have to win that trust among the students, but we have a very, very strong position.

Okay. Just one final from my end, and that's a clarification on the cost relating to the publicity principle here. I think you said SEK 25 million, if I could catch you correctly, when is that expected to hit your numbers? And will you charge everything in a single quarter? Or will it be a split between the coming quarters?

We expect that the absolute majority or absolute significant part of that amount will be made as investments in system, so that will be activated and will be depreciated over a couple of years or a number of years. So you won't have any single quarter where we have any substantial effect.

Okay. So will the capitalization of development costs starting next quarter then or...

Exactly. No, we -- it hasn't started as capitalized costs. We have started that cost we extend that is very minor. But probably the capitalization will start in Q1 or so -- or Q1 after summer.

[Operator Instructions] The next question comes from Johan Lönnqvist Sundén from DNB Carnegie.

First one from my side, it's on the earn-out revaluations that you're doing in the quarter. Can you give some color, what kind of unit they are referring to? And if there's any particular kind of acquisition that hasn't performed according to plan that we should be aware of?

So the earnout re-evaluation is related to the acquisition we made of Winford, the school company we acquired in Netherlands a couple of years ago. And what we are -- what it's relating to, they are following their plan or slightly better than the plan from an organic perspective. But part of this earn-out was related to significantly higher acquisition agenda, which hasn't been the focus in the business they have been. Thay have been much more organic focused and focused on the margin improvement. And therefore, we constituted that they will not repeat that stretched target, and therefore, we made that revaluation.

That's clear. And you've been talking a lot about the Adult business throughout this call, and it seems pretty optimistic regarding both the -- at least for a long-term outlook for the segment. But regarding short-term visibility, how much do you know and see for the fall as of now?

Here and now, we don't see any change in demand of courses. So we continue to have a good momentum, which yes, we're hopeful to bring that with us in the beginning of the fall, we will see. As you probably know, when we talked about before, in January, we were allotted a 20% increase of the programs for the autumn. So we have a good foundation for good program starts. That's what we know so far.

And you should also -- you should really keep in mind when you look at the dedication that we have made a strategic shift when it comes to the different markets since 10 years ago. So for the moment, our most important market is that what we call occasional program, like university courses but short. And we think that a lot of students will move over to this sector, and we are the market leader here. And as I mentioned before, if you look at application to ordinary university in Sweden, I think it's 430,000 students applying to universities. And then it always is a spillover to these shorter courses. So if you look at the macro, it's very positive. And the next driver is the focus on vocational program. And we see that the labor market authorities are performing better now. They invest more in vocational training. And some of our competitors has done a quite poor job. So we take the tenders. And I think the focus on vocational program on adults that is from the labor market authorities will increase next year. And we have a very strong position when it comes to our brand that is called Movant, really good performing.

Excellent. And you have, for a few years now, talked about the margin corridor in the adult business being 9% to 11%, and you have been performing a bit above that for a time. Where do you think we should anticipate adult business perform next year if we don't see any big kind of swings either to the downside or upside on volumes?

I think if we continue to have a stable growth in line with what we have had this year, we don't see any significant risks for the margin being depressed. So we've seen on a rolling 12 months, this is the level we are at roughly within these volumes so we don't necessarily see a significant change in volumes, the downfall will, of course, have an effect.

And maybe we should just comment short also on -- so we really believe in this more short-term MBA or university education program. So -- and we just want to make clear that we have invested in 2 very interesting acquisitions. First in K4 -- [ Kompetanse K2. ] And it's not the skiing brand. It's an education brand in Norway. And we have also invested in IVA. And this is schools that is like [indiscernible] in Sweden. So we are starting our cluster with these sort of schools, and that is acquisitions. And we have also announced that we will invest in organic growth in Warsaw and in Liverpool. So we have high ambition when it comes to be more international when it comes to the adult education also. And you can look at the company in France like Galileo that has worked with this for a few years. So we believe that here we see potential for AcadeMedia.

Excellent. And the final question from my side, it's on the Prolympia acquisition. When do you anticipate to have kind of approval from Swedish competition authorities for that acquisition to be closed?

So I think, in fact, that we have already got it, but I don't think that -- we don't announce it. I look at Ludwig now. But I spoke with the owners, and I think it's clear, but I don't think that we are regulated to announce it when we get this approval. I think don't think so. So it's continued to work according to plan.

Because you're write in the report that it's still subject to approval.

I'm looking at it. But from my knowledge, we have got the approval, but maybe I should check it up, so I don't have dreamt about it at night. So but I'm quite convinced that we have got this approval, but maybe we should comment on that, if we just check it up. But it should not be on a problem because we have a very small part of this compulsory segment. So we have never been concerned that we shouldn't get this okay from the authorities. .

Yes. That's clear. We can take that offline afterwards.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you very much for your questions. You can call us if you have any updated questions, and we wish you all a very good day. Thank you.