AcadeMedia’s interim report July – March 2018

Third quarter (January– March 2018)

• Net sales increased by 16.8 percent to SEK 2,967 million (2,540). Organic growth including bolt-on acquisitions amounted to 6.1 percent.
• Operating profit (EBIT) increased by 7.2 percent to SEK 209 million (195). Adjusted for items affecting comparability, operating profit was SEK 214 million (197).
• Net profit was SEK 152 million (132) in the period.
• Cash flow from operating activities amounted to SEK 153 million (123).
• The average number of children and students in pre-, compulsory, and upper secondary schools during the third quarter was 76,188 (66,299), representing an increase of 14.9 percent.
• Earnings per share was SEK 1.45 (1.40) before dilution and 1.44 (1.40) after dilution.
• Contract transition in the adult segment generates a decline in earnings.

First nine months (July 2017 – March 2018)

• Net sales increased by 13.2 percent to SEK 7,818 million (6,909). Organic growth including bolt-on acquisitions amounted to 6.4 percent.
• Operating profit (EBIT) increased by 12.3 percent to SEK 455 million (405). Adjusted for items affecting comparability, operating profit was SEK 463 million (408).
• Net profit for the period amounted to SEK 320 million (262).
• Cash flow from operating activities amounted to SEK 552 million (514).
• The average number of children and students in pre-, compulsory and upper secondary school amounted to 72,410 (65,691), which was an increase of 10.2 percent.
• Earnings per share was SEK 3.25 (2.79) before dilution and SEK 3.24 (2.78) after dilution.

Significant events after the end of the reporting period

AcadeMedia can now commence signing of contracts with the Swedish Public Employment Agency for the new contract Vocational and Preparatory modules (YSM). The contracts are expected to start during May and June.

The City of Malmö has filed a formal police report due to the faulty reporting of certified teachers at Hermods SFI operation in Malmö and communicated a demand for a price reduction of at least SEK 4.7 million for the period of August to October 2017. AcadeMedia anticipates that the size of the price reduction can be material, but this will depend on various factors in the contract, therefore, the amount cannot be estimated at this point in time.

The complete report will be made available at https://corporate.academedia.se/en/financials/reports-presentations/ 

Comments from CEO Marcus Strömberg

AcadeMedia’s third quarter entailed several positive events, but has also been challenging. The annual employee satisfaction survey continues to show good results and the number of children/students has increased by 15 percent in the quarter. Demand for both preschool and school places is increasing in all our markets and we are facing a strong growth phase in Germany. AcadeMedia’s Adult Education is now entering a major transition period, which will have a negative impact on earnings in this segment.

Employees continue to be satisfied

AcadeMedia in Sweden conducts an annual employee survey. This year’s survey shows stable and high results. Our employees clearly enjoy working for AcadeMedia. 84 percent are proud of their workplace, and 75 percent see good opportunities for professional development. These results are important for us considering the competition for labor in our industry. Being an attractive employer is crucial for us.

High potential in Germany

The “Institut der deutschen Wirtschaft" (German Economic Institute) recently reported a shortage of more than 300,000 preschool places in Germany. It is a major problem for society when young people, especially women, struggle to be able to maintain their professional lives while starting a family. AcadeMedia has built a good base through several acquisitions in Germany. The most recent addition, KTS with six preschools in the Munich area, was acquired on March 1. During the quarter three new preschools also opened, which means that AcadeMedia now has a total of 28 preschools in Germany. The German business will now enter a phase of high organic growth.

Major transition of contract portfolio for Adult Education segment

As we previously reported and planned, a major transition is currently underway in the contract portfolio for the Adult Education segment. The Vocational Swedish (“YS”) contract, which admitted the last students under the old contract in December 2017, is being replaced by the new contract (new locations). The transition entails a decline in volumes, as well as lower margins. In addition, the Basic Modules (“GM”) contract, which has had high sales and margins, is now being discontinued. The replacement contract Vocational and Preparatory modules (“YSM”) was delayed because of appeals, but the contracts can now be signed. Education is expected to start late in the fourth quarter. The phasing out of GM, the delay of YSM, and finally the implementation of YSM, will entail a major transition with higher than normal expenses. To sum up, this means that the Adult Education segment will have weak earnings over the next quarters, which is part of the normal segment volatility. Measures are being undertaken to reduce the negative effects.

We are sorry to note that the subsidiary Hermods is involved in a dispute with the City of Malmö due to a breach of contract in its Swedish for Immigrants (SFI) operation in Malmö. This deficiency, which AcadeMedia discovered and reported, may result in a material price reduction, though it is still too early to say how large it will be. I consider this matter to be extremely serious and we have launched an external independent investigation to clarify facts. Concurrently, major efforts are being made to increase the proportion of certified teachers in the unit.

15 percent volume growth for the quarter

The number of children and students increased by 15 percent during the quarter as a result of acquisitions and a focus on organic growth. Organic sales growth was 6.1 percent for the quarter and total sales rose 16.8 percent. AcadeMedia continues to pursue its strategy of small bolt-on acquisitions and is also focusing on strengthening its position in practical vocational training.

Operating profit for the quarter was satisfactory, but has been substantially impacted by the contractual change currently underway in the Adult Education segment. Meanwhile, the school segment is substantially more stable and has progressed according to plan regarding both student numbers and earnings. The acquisitions also contribute to the improved profit in other segments.

Politics and regulations

The Norwegian Parliament (Stortinget) has decided to impose regulations on teacher density as of August 1, 2018. A new bill was also proposed to increase staff density. It is expected that both regulations will be implemented simultaneously. Since the Norwegian voucher system is based on the municipalities’ economic outcome from two years earlier plus an index adjustment, an initiative is currently underway to formulate reimbursement rules over a two-year transition period. There is broad support for finding transitional rules that do not put independent providers at a disadvantage

The Swedish government is now approaching the end of its mandate period. Two bills that are crucial for AcadeMedia’s operations have been proposed for a vote in the Riksdag. One bill addresses ownership and management assessment in the welfare sector, the other would impose a cap on profit for companies in the welfare sector. The Riksdag will vote on both proposals on June 7. The center-right parties, as well as the Sweden Democrats, who together have the majority in the Riksdag, have announced that they will vote against the bill to cap profits

Increased demand for school places

In closing, it can be concluded that according to the Swedish Association of Local Authorities and Regions, and Friskolornas Riksförbund, the need for school places will increase sharply over the next few years. To meet this need we must find ways to increase both the quality and the capacity of the education system by taking advantage of the opportunities offered by digitization among other things.

Marcus Strömberg
President and CEO
AcadeMedia AB (publ)

Presentation of the report
A web-cast telephone conference will be held at 09:30 CET today, where CEO Marcus Strömberg and CFO Eola Änggård Runsten will present the report

To participate in the conference call, and thereby be able to ask questions, call one of the following numbers ten minutes before the start of the call:
UK: +44 2030 089 808
SE: +46 8 5664 2662
UK: +1 8 557 532 235

You can follow the presentation and the conference on the following page: https://tv.streamfabriken.com/academedia-q3-2017-2018

The presentation material will be available before the conference begins on AcadeMedia web via https://corporate.academedia.se/finansiell-information/finansiella-rapporter/. It will also be possible to access the recorded version of the webcast after it is finished on this page.

For more information, please contact:

Marcus Strömberg, CEO
Telephone: +46 8 794 4200
E-mail: marcus.stromberg@academedia.se

Eola Änggård Runsten, CFO
Telephone: +46 8 794 4240
E-mail: eola.runsten@academedia.se

About AcadeMedia

AcadeMedia creates opportunities for people to develop. The 15,800 employees at our 650 preschools, compulsory schools, upper secondary schools and adult education centres share a common focus on quality and development. Our 176,000 children and students are provided with a high quality education, giving them the best conditions to attain both learning objectives and their full potential as individuals. AcadeMedia is Northern Europe ́s largest education company, with locations/facilities/presence in Sweden, Norway and Germany. Our size gives us the capacity to be a robust, long term partner to the communities we serve. More information about AcadeMedia is available on www.academedia.se.

This information is information that AcadeMedia AB is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, at 08:00 CET May 4, 2018.