Internationella Engelska Skolan 2017/2018 Interim Report - (1 July - 30 September 2017)

Progress of operations in the quarter (July-September)

• Four new schools opened in August—IES Helsingborg, IES Landskrona, IES Södertälje and IES Årsta—with 55 classes and some 1,600 students.
• The number of students in the Swedish operation at the end of the quarter was 23,911 (21,463), an 11.4% increase on the corresponding point of the previous year.
• There were around 154,000 registrations on waiting lists at the end of the quarter, an increase of some 32,000 registrations on the corresponding point of the previous year.
• Total operating income increased by 18.5% year on year, mainly due to a larger student base.
• Adjusted EBIT for the quarter increased by 4.9% on the corresponding quarter of the previous year, amounting to MSEK 37.9 (36.1). Accordingly, the adjusted operating margin was 7.7% (8.7).
• MSEK 13.0 of the change in total operating income and adjusted EBIT is due to a revised assessment, whereby the applicable components of central government subsidies for Lärarlönelyftet and Karriärtjänster were recognized in Q1 this year, while they were not recognized until Q2 in the previous year.
• Profit for the quarter was MSEK 26.0 (23.0) and earnings per share were SEK 0.65 (0.58).
• Cash flow from operating activities amounted to MSEK 43.9 (87.8).
• Ralph Riber left his position as CEO and President effective 7 August. IES’s CFO Fredrik Åkerman became Interim CEO and President effective the same date.

Significant events after the end of the reporting period 

• Subsequent to appeal at administrative court and addenda to the original application, on 4 October, IES received new permits from the Swedish Schools Inspectorate to start up and operate another five schools with F-9 preschool and compulsory school operations, and new permits to extend current operations at two existing compulsory schools with F-3 grades. 
• On 16 October, IES was informed that its largest shareholders had decided to reorganize their collective shareholdings in IES on the same date. After this reorganization, according to the information IES has received, TA Associates LLP would indirectly hold some 49.89%, Barbara Bergström would indirectly hold 19.23%, members of the current and previous managements would hold 2.13%, while other shareholders would hold 28.75% of the shares and votes of IES.

CEO’s statement

The first quarter began as planned with our four new schools in Helsingborg, Landskrona, Södertälje and Årsta opening to 1,600 students. Accordingly, including the expansion of our other schools, we increased the number of classes from 711 in the previous academic year to 798 in the current one, and our student base by over 11%.

Total operating income was up by 18.5%, mainly as a result of this larger student base, but also because for accounting reasons to some extent, where the Lärarlönelyftet and Karriärtjänster government subsidies in Q1 were allocated differently in the corresponding quarter of the previous year.

This accounting change also affected adjusted EBIT, which rose by 4.9% to MSEK 37.9, equivalent to an adjusted EBIT margin of 7.7%. Excluding the effects of the above accounting change, revenue per student increased by 3.5%.

Total personnel expenses per student adjusted for the expense affecting comparability for the former CEO’s departure, increased by 7.3%. Current progress on the labor market, where the shortage of qualified teachers is causing increased wage creepage, could reasonably be assumed to affect municipal school budgets, and thus put upward pressure on school voucher funding, retroactively for 2017, and in tandem with each municipality setting its school voucher funding for the forthcoming calendar year. This is something we will be monitoring closely and carefully to ensure that municipal costs for compulsory school operations are fully reflected in school voucher funding.

Meanwhile, it is positive that our expenses per student excluding personnel expenses were unchanged year on year, excluding start-up costs for our new schools. Here, the positive effects of economies of scale are clearly apparent in our business, with centralized contracts and efficient central administration.

It is a relief to finally put the issue of IES’s application for new school permits behind us. After having appealed against the Swedish Schools Inspectorate’s rejection and supplemented our applications, all of our permits have now been granted. The two planned schools, in Sundbyberg and Huddinge (Länna), are scheduled to open in August 2018, and based on a large number of permits, we are maintaining concrete dialogues on future start-ups with the large number of municipalities that want IES’s profile and quality.

Our joint venture in Spain is continuing to make positive progress, with somewhat larger student cohorts this year. However, revenues are low for seasonal reasons in our first quarter, which caused a small loss in this business. We are now working actively on plans for acquisition-led expansion in Spain to supplement Elians’ three current schools.

Our two COOs, with management responsibility for our schools, took up position at the beginning of the term. Their focus is on quality, but they are not responsible for profitability. Both have successful backgrounds as IES principals. In their new roles, they will be supporting our school principals in continuing to enhance the quality of our operations, serving as sounding boards and a link between the rest of our Group Management and operations.

The fact that the number of waiting list registrations rose in the period, and now stands at 154,000, is satisfying. It shows that students and parents that want to give their children the opportunity of attending a high-quality bilingual school with high ambitions and an orderly environment appreciate our work focused on quality. We’re also delighted that so many new municipalities, in a period of high-growth in youth populations in Sweden’s urban areas, are showing an interest in offering their residents IES schools as an alternative to their other schools.

Fredrik Åkerman
CEO

For more information, please contact:

Johan Hähnel, Investor Relations, tel. +46 (0)70 605 6334, Fredrik Åkerman, Interim CEO, tel. +46 (0)70 415 2365.

Teleconference in connection with publication of the quarterly report:

On Friday 17 November at 10:00 a.m. CET, Fredrik Åkerman, Interim CEO, will hold a conference call for the publication of the quarterly report. The call will be held in English. To participate, please call the following number: +46 (0)8 566 42651 and enter the code: 98067875#. The presentation will be uploaded to IES’s website before the conference call, at: http://corporate.engelska.se/financial-information/reports-and-presentations. 

Reporting schedule  

Annual General Meeting 2016/17 – 17 November 2017
Interim Report Q2 2017/18 – 22 February 2018
Interim Report Q3 2017/18 – 25 May 2017
Year-End Report 2017/18 – 29 August 2018

Internationella Engelska Skolan i Sverige Holdings II AB discloses the information provided herein pursuant to the EU’s Market Abuse Regulation. The information was submitted for publication, through the agency of the above contacts, on 17 November 2017 at 08:00 a.m. CET.

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