AcadeMedia AB (publ) (V8T.F) Q1 FY2026 Earnings Call Transcript & Summary

Welcome to AcadeMedia Q1 Earnings Call for 2025-2026. [Operator Instructions] [Operator Instructions] Now I will hand the conference over to the speakers CEO, Marcus Strömberg; and CFO, Petter Sylvan. Please go ahead.

So thank you very much, and good morning to this report of AcadeMedia first quarter. And the first quarter, it is a small quarter, but it is an important quarter in AcadeMedia. And we are very pleased with the results of the first quarter. When we look at our numbers, a lot of students have attended our different schools. And I will just start to make some updates, and then, I will hand over to Petter Sylvan, and he will continue to go through the numbers. And if you first look at the net sales, it's around 7% up, and most of it is organic. And what we look a lot of is the number of students. And last year, it was 7% up, and we continue with a good growth of 3.5%, and most of all, we are very pleased with the development when it comes to upper secondary where we have a record result when it comes to number of students. And we also had this focus on quality and to act early. So the focus on reading, the focus on quality has also resulted in these good numbers. And we also have a proposal to the general assembly of the Annual General Meeting from the Board of Directors to make this -- continue with this voluntary share redemption programs of totally maximum SEK 400 million. We have also revised our financial targets. It's very small changes, but I will update you on that in a few slides. So please continue. And this is something that we are really, really satisfied to talk more about, and it's our focus on reading. And we have always had a lot of focus on this, but we have really increased our efforts. We have trained teachers and a lot of collaboration with different parts to improve the reading in early ages. And if we look at this number, this is a way to look how many of our students in year 1 is available to read according to the school authorities systems. And we are now at the level of 90%, and that is very pleased to see this. We, of course, want to achieve 100%, but this is a very good step at the right direction. And then, if we continue to look at the next slide, please. So -- and this is when we talk about the revised and financial targets, and this is something that we have done to clarify the development of AcadeMedia. And if we look at the sales growth, we keep the target with 5% to 7%, and we are now at that range. When it comes to profitability, we want to make a clarification that we will talk about EBITA instead of EBIT. And that's why we are really a company that is growing through acquisitions. And if we look at the companies that is working a lot with acquisitions, they have this target EBITDA. And the difference between the EBITDA and EBIT in AcadeMedia is very small. And we don't want to see this that we are decreasing our target. We are increasing the target, and we have a very strong pipeline when it comes to profitability. And when it comes to the capital structure, we keep the target. And maybe Petter could also comment on that a little bit more. And on this slide, you see the different changes in the profitability, and we look at the first quarter. And if you look at the first quarter, you can see that we have improved the profitability compared with last year. And you can also see the differences in these 2 measures. And as I comment on, they are very, very small, and we will keep the target to be in the range of 7% to 8%. And then, if we continue to look at our historical development, we really like to look at this picture because it shows that we have continued to grow our EBIT year-by-year in a very good way. And if you see this development, we want to keep it up through acquisitions and through improvement also in our mature market. So we have a long-term record of improving the profitability and the EBIT in the company. And one of our most important targets now is to continue the international development. And during this quarter, we opened 500 new places in Germany. And what is fantastic with these places is that they are almost full at once. So the capacity utilization is 100%, almost less -- in less than 1 year. And if we look at what we did just before the summer, we continued with acquisitions, both in Netherlands and in Germany. And for the moment, we have a quite strong pipeline where we want to continue with these international acquisitions. And we also have power to do these acquisitions because we have a low debt. It's around 0.6 to 0.7 of EBITDA, and Petter will comment on that in the coming slides. And of course, in Sweden, we have this regulatory environment, and we are also moving into the election period in Sweden, where you get a lot of different proposals from different parties, but we just want to comment on the 3 important acquisitions -- 3 important proposals that is in Sweden for the moment. It is the profit inquiry, the school voucher inquiry and also the principle of the public. So it's about looking into the company in different ways. And we think that there will be a proposal during the spring in 2026. And they have these steps that we show in these pictures. And if you want to have any more explanation around this, you can ask us a question when we have this session with questions.

Thank you, Marcus, and good morning, everyone. Before I specifically about -- inform about the Q1 financials, I would like to inform about that we, a couple of days ago, launched our new podcast, which has the purpose to engage Swedish investors and other stakeholders through short, focused episodes delivering inside in just 10, 15 minutes. So it's AcadeMedia's investor pod. The podcast host is Charlotte Stjerngren, who is former Editor in Chief at EFN and analyst at DNB Carnegie in the past. This fall, we released 2 episodes, which first is Initiation of AcadeMedia with me as the podcast guest. And second is Behind the Political Statements with Henrik von Sydow, which is external affairs strategist at DNB Carnegie and a former member of the Swedish Parliament. The purpose of the podcast is to offer transparent and accessible insights into AcadeMedia and helping investors to understand what are the opportunities and challenges for AcadeMedia going forward. So let's continue to next slide. As Marcus outlined earlier, we achieved a good growth of 6.7% this quarter. And it's important to emphasize that this first quarter is a seasonally low quarter for AcadeMedia. And this is because part of the business are closed during the summer, which has an impact on net sales and profit. All segments, except the Upper Secondary School segment contributed to the positive development. Additionally, our adjusted EBITA margin increased to 4.4% compared to last year's 4.3%, reaching SEK 182 million in absolute terms, up from SEK 166 million. And the increase in profit has translated into higher free cash flows. Now turn to Page 10. The improved adjusted EBITA are evidenced across all segments, except the Upper Secondary School segment, as I mentioned. And in the Preschool and International segment, the increase of SEK 7 million is driven by a positive contribution from the acquisition of Yes! in Netherlands. In the Compulsory School segment, it's up SEK 5 million year-over-year, and it's stable. The Upper Secondary School segment, we saw a lower earnings of minus SEK 5 million due to higher costs following new reforms for designation and including increased costs for libraries. And some of these costs are expected to persist throughout the financial year. Adult Education continues to report strong results, driven by high unemployment, and in particular, increased volumes in higher vocational education. Let's move on to the next slide and the 12-month rolling results. The net sales continued to grow and amount to SEK 19.3 billion. The rolling 12-month adjusted EBITA amounted to SEK 1.3 billion, corresponding to a margin of 6.9%, just below our profitability target of 7% to 8%. We continue to have a solid free cash flow. Next slide, and we can continue to the segment that's a couple of slides ahead, that's the first. And let's first look at the Preschool and International segment. The number of children increased by 8%, and our growth was primarily driven by new preschool openings as well as more school students in Germany and the acquisition of Yes! in the Netherlands. The international operations account for more than 30% of the group total sales. The net sales increased by 9% year-over-year, and currency changes had a negative impact, minus 2%, and the organic growth was 7.5%. Adjusted EBITDA was 0, and the improvement reflecting -- the results reflect the segment's seasonal low. The positive effect from the contribution from the acquisition of Yes!. On the 27th -- sorry, 25th of September, we announced the decision to establish over 500 new preschool places in Germany across 7 new units. We now have a pipeline of 2,000 to 2,500 new preschool places over the coming 3 years. Okay. Let's move on to Compulsory School, and we note a 2.5% increase in student numbers. Net sales rose by 5.1%, driven by increased number of students and the positive impact of the annual school voucher revision. Adjusted EBITA grew by 11.4% year-over-year, reaching SEK 49 million, corresponding to an adjusted EBITA margin of 5.4%. We move on to next page, and Upper Secondary School segment, and the number of students grew by 0.8%. We saw a stable growth in sales, while profitability was somewhat lower over the year with an adjusted EBITA of SEK 65 million compared with SEK 70 million in the same period last year. The adjusted EBITA margin was 5.4%. And as I mentioned earlier, the earnings were negatively affected by initially higher costs for teaching materials due to new reforms, the so-called GY25 and libraries, and some of these are expected to persist throughout the financial year. Okay. We continue to next slide, and we there see a continuously strong performance from the Adult Education segment with profitability now improving for the ninth consecutive quarter. Sales increased by 7.7% to SEK 421 million, and this was mainly attributed to higher volumes in Higher Vocational Education and also from revenue perspective, Labor Market Services. Adjusted EBITA came in at SEK 79 million, up 12.9% year-over-year, and this resulting in a record high margin of 18.8%. And during the quarter, the Swedish economy showed early signs of stabilization, although the recession persists and unemployment remains elevated. Okay. Continue to the next page, one more page, and we are at the free cash flow and investments. And free cash flow for the last 12 months amounts to SEK 1.222 billion. The free cash flow as a percentage of EBITDA was 67%. Maintenance CapEx as a percentage of sales continues to decline. This is a consequence of fewer new openings and expansion. Next, the financial position. Net debt -- and you can move to the next page. Yes, you are right. Net debt, excluding IFRS 16, decreased by SEK 222 million compared to last year with a leverage ratio excluding IFRS 16 at 0.7x, well below the financial target of less than 3. Even including property-related lease liabilities, the net debt is lower than last year. This is due to low indexation, low number of new entry contracts in the quarter and FX effect. You can continue to next. Finally, on Page 21, our financial performance against targets. We are -- for the last 12 months organic growth, including small bolt-on acquisitions, standing at 5.8% growth, and this is within the financial target that we have of 5% to 7%. Our adjusted EBITA margin of 6.9%, just short of our target range of 7% to 8%, but we are slowly getting closer. The leverage ratio of 0.7x remains, which is well below the required threshold of 3x. And as Marcus mentioned, leaving further room for acquisitions when opportunities occur. And with these words, I end the presentation, and we open up for questions.

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

So perhaps just start with a short elaboration on the rationale for the new targets and perhaps also a clarification on the new -- or what you call the new dividend policy. To me, it doesn't really sound like it changed, but could you just clarify that slightly?

Yes. Yes. We have done what we call the -- called small revisions, basically to either clarify what we find most important, EBITA, the fact that we are -- is an acquisition-driven company or with the dividend policy reflecting what we are doing and what we continue to aim to do. And if I explain that further for EBITA, as Marcus described, the difference between EBIT and EBITA is very little for AcadeMedia, 0.1% to 0.2%, depending on what time and measures. And it's basically only that we find EBITA the absolute most used metrics for a company that is acquisition-driven at AcadeMedia. And therefore, long term, we find that more relevant to follow. And I think that would it have been a greater difference in the change, then we also would have changed the target of 7% to 8%. Now, the difference is so small. So it doesn't make it relevant to change it to 7.1% to 8.1%, those kind of minor adjustments. So that's the reason behind that. For the dividend policy, we can conclude that we have basically only strike over a few sentences in the current policy. We have had the policy that we make dividends of 30%, and that distribution could also be done using share redemption or buybacks and as part of fulfilling this 30%. But in reality, for a number of years, we have always -- or for a number of years now done the dividends at 30% or something around that on profit. And in addition to that, we have done the share redemptions for a couple of years. And the total distribution we have done isn't reflecting what we say in the targets, so -- but changing this, we changed the language that we believe is common for most companies that do share buybacks or redemption programs that you have a dividend expressing the financial distribution we aim to do with dividends, i.e., the 30% of the profit. And then, of course, the dividend is only made after we have secured the quality and after we have secured that we are having our maximum growth agenda for sales and financed. But then we continue as the same we have done now, that we make distribution of the dividend. And if there's still after that is excess capital available, then we will continue to do share redemptions or buyback programs. So it's basically just reflecting what we have done the last year, we aim to continue to do the years ahead.

Sounds more than reasonable. And then, just to kind of touch on politics here for a bit. I think we all appreciate your kind of time line of the proposals that are kind of set right now. But could you comment on what you're seeing in the sort of the start of the election year? We've seen the liberals being out stating that they want to ban profits in schools. Could you just comment slightly on that, please?

So if we start with the liberal party, of course, we are a little bit surprised of that because the liberal party has done very good things for the school system in Sweden. If we look at Björklund, who was a very good education minister, made a lot of good things, and now, they have one new proposal every day, so we are a little bit surprised of that, that is maybe a part of the election year. But we look at reality, and reality is what we believe that the Tidö parties will make sort of agreement. It will come with proposal next year. And we think that it will be some tough regulations. It will be when it comes to this, what we call, profit regulation, and it is something that we are quite used to working with in Norway and Germany. But we think it's possible to handle from our side, and we are well prepared to handle it. But we think that the Tidö government, they will give some proposals, the spring 2026, according to the slide that we showed you.

Sounds good. And then finally, maybe coming back a bit to the operational side of things, so in Upper Secondary School, I understood as kind of the costs are up due to more supplies. And Petter, if I quote you correctly, that is set to continue throughout the year. Could you specify that a bit and perhaps can you give some guidance on how much it will impact the remaining of the year?

We don't make specific forecast, but what we want to clarify is that the cost -- the reforms that are in place pretty much start to have the effect from the start of the school year, meaning now this quarter. And these are costs for instance for fulfilling the requirements on libraries, which means that you need to further develop libraries and higher personnel and similar. And then, there are reforms for GY25, that is the program for how you set the grades. And this -- all of this will require resources that will persist during the year. I mean, it will not have a dramatic cost effect overall. But it will mean that we don't expect -- even if we would increase the efficiency in the upper secondary school, we don't think that will translate into further higher profitability during the year. We are -- we will be happy if we can try to defend or have a similar margin as last year.

Just a few words about up secondary because we had a fantastic year last year. As Petter mentioned now, we may make some investments. Some of them are one-off, you could say the investment in the new core system is a sort of one-off. But what you have to keep in mind when you look at Upper Secondary is that we have fantastic student numbers this August. And we are, in fact, at the all-time high level. So even if we invest a little bit more, we also have a lot of students. And I think our strategy when it comes to Upper Secondary are different brands, and they are performing very well. And we also see an increase in number of students going to vocational programs, and that is also very positive. So it's sort of more investment, but we also see results of what we have done.

The next question comes from Johan Lönnqvist Sundén from DNB Carnegie.

First one from my side, it's a little bit docking into Phil's question earlier on the kind of new targets. And just curious to hear, given your kind of new -- your new margin definition, the margin target definition, should we anticipate that PPA amortization should increase significantly ahead, i.e., that you will ramp up your M&A activity quite significantly compared to what we've seen over the last few years?

You can say, if we go back in history, we made a lot of acquisitions. But the reason is we have done acquisitions, of course, but we have also a lot of focus on organic growth when it comes to Germany and when it comes to Sweden investing in campus and so on, so -- but what we see now is that we have a low real debt. We have a lot of firepower. We have a good pipeline of acquisitions. So, of course, we would like to increase the acquisition pace. And that is also a signal that we want to send. So that's why we changed this from EBIT to EBITA. And it doesn't -- it's not about the numbers because the difference is very small. It's more about the single that we want to increase the pace when it comes to acquisition.

When you look at the pipeline, give some color on kind of split between smaller bolt-on acquisitions versus bigger platforms, potential geographies? What do you want to do? And what could be expected for us to see during, say, in the coming 6 months?

So what we would like to see is that we continue the growth in Germany when it comes to acquiring schools because we think that is the right thing to do in Germany. We will continue to open up new schools, but that is not the question you asked. So more schools in Germany. And we also see a very interesting development now in the Netherlands with a lot of different proposals that is coming to us. And we also look -- I think we mentioned that before that we look into Poland, and we look into U.K. So -- but the main focus, that is Germany and in the Netherlands. And of course, we also look in the countries that we have spoken about. . And we have also spent some time together with the bigger operators in Europe, and Petter and I also spent a few days in the U.S. meeting some of the big operators over there. So what we have learned is that AcadeMedia, in fact, has a very interesting position at the international education market with a low debt. So the problem for a lot of our competitors is that they have high debt. So we think that the opportunities that will open up now is really something for AcadeMedia. We will be in key positions. So that's why we do these changes.

Okay. It sounds promising. And you not have any specific kind of target you want to deploy x amount of your cash flow this year to acquisitions or something like that.

No. No.

Okay. Cool. Then, if we go to a few nitty-gritty questions, maybe that's competitive to answer. Q1 tends to be impacted about kind of calendar effects and vacation outtake. It's possible to give some kind of comment on how that impacted Q1 and if that was a bigger headwind than normally in this year and how to kind of think about that as a kind of a reversal thing for the rest of the year?

No. We didn't have any unusual distribution of vacation effects this quarter compared to last year, so -- and that's the reason why we haven't even talked about it in the report.

Okay. And looking at the Adult Education business, now you're starting the year in a quite good way. You have earlier said that you should take on a little bit more cost in the Adult Education business during this year, which should give some headwind on the margin. What should be achievable this, year margin-wise? Maybe you were a little bit above trend in last year. But if you continue to have a high number of short courses, then margin should be high, right?

We would expect something lower than last year's margin. I mean, volume, hopefully, will increase in line with our growth target. And if we can have -- and if we had some costs for quality work, then margin will be somewhat lower. But surely, it could be a scenario where if it continues as it has opened up now in the first quarter, it could be a scenario where the margin is slightly above the long-term margin we have between 9% to 11%. So I can't be more specific than that right now, but it's kind of range indication of expectations. And then, also, I mean, the little note we make that there are small positive signs, and you can read about them yourself, about more positive development of unemployment rates the last week in Sweden, a few positive signs for quite a long time, I mean, that might be a start of a change of the unemployment rate. And I wouldn't think if it looks -- as it looks like now, I wouldn't think it has that much effect here now this year, but within a year or so, this can, of course, have a major impact for the Adult Education.

Makes sense. And then on Preschools, where we had an uptick now in a quite small quarter, but you have this kind of improvement program in the Finnish platform acquisition and the vouchers has been lagging for some time in both Germany and Norway. Where do you expect your margin to end up during this year? And how much of an improvement could be kind of taken out?

We aren't specific about that. But I hope that we can reach our margin target for 7% to 8% this year. That's the hope, at least. And I think that the major positive contribution if that will happen, then will come from the Preschool and International. And that will probably be a summary effect from several countries to improve margin in Germany, Norway, Finland for various reasons, as you mentioned.

[Operator Instructions] 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, and we wish you all a good day. Thank you very much.