Internationella Engelska Skolan 2017/2018

Interim Report - (1 July - 31 December 2017)

Progress of operations in the second quarter (October-December)

• Total operating income increased by 12.6% year on year, mainly due to a larger student base, and amounted to MSEK 613.2 (544.4)
• The number of students in the Swedish operation at the end of the quarter was 24,000 (21,407)
• There were around 161,000 registrations on waiting lists at the end of the quarter, an increase of some 6,000 (5%) on 30 September 2017, and an increase of some 28,000 (21%) on the corresponding point of the previous year
• Adjusted EBIT for the quarter decreased by 35.0% on the corresponding quarter of the previous year, amounting to MSEK 36.8 (56.6). Accordingly, the adjusted operating margin was 6.0% (10.4)
• Profit for the quarter was MSEK 28.2 (42.6) and earnings per share were SEK 0.70 (1.06)
• Readers should note that comparisons of total operating income, adjusted EBIT and profit for the quarter against numbers for the corresponding quarter of the previous year include applicable parts of central government subsidies for Lärarlönelyftet (teacher salary boost) and Karriärtjänster (career positions) of MSEK 13.0 recognized as early as in Q1 this year, while they were not recognized until Q2 in the previous year (please also see the explanatory table on page 3)
• Cash flow from operating activities amounted to MSEK 56.1 (114.6)
  

Progress of operations in the period (July-December)

• Total operating income increased by 15.2% year on year, and amounted to MSEK 1,104.2 (958.7)
• EBIT adjusted for items affecting comparability for the period decreased by 16.8% year on year, to MSEK 74.6 (92.6). Accordingly, the adjusted EBIT margin was 6.8% (9.7)
• Profit for the period was MSEK 54.2 (65.6) and earnings per share were SEK 1.35 (1.64)
• Cash flow from operating activities amounted to MSEK 100.0 (202.3)
  

Significant events after the end of the reporting period 

• At the turn of January/February, IES filed two new applications with the Swedish Schools Inspectorate to start up and operate pre-school and compulsory school operations, with earliest start in 2019. These applications are for grades F-9 in Gothenburg and Solna stad, near Stockholm. The company is also applying to extend its current compulsory school operation with grades F-3 at Täby, Södertälje, Västerås and Örebro, and grades F-2 at Sundsvall, with earliest start in 2019 
• In February, the Swedish National Agency for Education decided that IES will not receive central government subsidy for homework support for the calendar year 2018
    
  

CEO’s statement

The demand for entry into IES’s schools increased once again in the second quarter of 2017. The number of waiting list registrations rose by 6% on 30 September, and by 21% compared to the corresponding point of the previous year, to around 161,000 at the end of the quarter. This is a show of strength in a year when we opened four new schools. It’s clear that parents and students in Sweden appreciate the safe and orderly school environment we offer, high academic expectations and aspirations, the opportunity to command English and the high academic results our students achieve. There is also very substantial interest in the two new schools we will be opening in August 2018 in Länna (Huddinge) and Sundbyberg, both near Stockholm  

Total operating income increased by 12.6% in the second quarter compared to the corresponding quarter of the previous year, primarily due to the larger student base, and amounted to just over MSEK 613. This increase was offset by MSEK 13 of government subsidies for Lärarlönelyftet and Karriärtjänster, which were recognized in Q2 in the previous year, being posted as early as Q1 in the current financial year. For the full period July-December, total operating income increased by 15.2%.

The adjusted EBIT margin for the second quarter was 6.0%, and for the July-December period 6.8 %, compared to 10.4% and 9.7% respectively for the corresponding periods of the previous year. Almost half of the lower EBIT margin year to date is due to increased start-up costs due to us opening four new schools compared to only one school in autumn 2016, and that earnings participations in our Spanish operation are now recognized as EBIT, whereas in the previous year, they were recognized as a financial item. On page 3 in this report, the financial effects are specified in an explanatory table. Readers should also note that margins are generally impacted negatively by new schools usually being loss-making in their first year, to then become profitable in following years.

However, just over half of the lower EBIT margin is due to total revenues per student for the period July-December increasing by only 3.1%, while personnel expenses per student rose by 8.2%, mainly because of a shortage of qualified teachers in Sweden, and thereby, higher teacher salaries.

Sweden’s municipalities have now reached almost all school voucher funding decisions for the calendar year 2018, and the average increase per student for IES is some 2.5%, which is low in relation to the average historical yearly increase over the past 20 years, of nearly 4%. Moreover, the increase does not come close to reflecting the increase to teacher salaries on the schools market in 2017. Because high wage creepage for teachers affects municipally operated schools equally, it should be reflected subsequently in school voucher funding, given correct application of lika villkor, or “equal terms,” as defined in the legislation. We also note a trend towards an increasing number of students with special needs applying to IES in order to benefit from our safe and orderly school environment, and these students require additional resources. This greater need results in higher expenses for student and teaching assistants, which municipalities are only compensating for through top-ups to a limited extent. In practice, this means that in our view, municipalities are not complying with the principle of equal terms as defined in legislation.

We have appealed against several school voucher funding decisions and will also be scrutinizing municipal accounts for 2017 to determine whether there are any deficits implying entitlement to compensation. School voucher funding should reflect the consumption of resources in municipal schools, and if the municipalities have generated a deficit, then according to the principle of equal terms, free schools should be compensated. In spring 2018, Sweden’s parliament will get an opportunity to tighten up the standards ensuring municipalities interpret equal terms correctly, during its consideration of the government school costing enquiry findings entitled Mer lika villkor, or “more equal terms.”

After the end of the period, we applied to the Swedish Schools Inspectorate to open and operate new schools in Gothenburg and Solna, starting in 2019 or later. Both these applications are for F-9 grades. We also applied for a permit to expand downwards through the grades to the F-3 grades at our existing schools in Täby, Södertälje, Västerås and Örebro, and the F-2 grades in Sundsvall, from 2019 onwards. An application to open a new school, or expand into new grades, is merely the first stage in the process of planned expansion to address the substantial demand for education by IES. It does not imply that any decisions to actually start operations have yet been taken.

We undertake extensive activities for homework support. We do this since we want to offer our students, with over 200 nationalities and different backgrounds, the opportunity to reach their full potential. This motivated full central government subsidy for homework support for the calendar year 2016 of MSEK 18 and 2017 of MSEK 21. We can only conclude that the Swedish National Agency for Education, despite this, has decided not to award IES the government subsidy for homework support for the calendar year 2018.

Finally, I would like to take this opportunity to wish Annette Brodin Rampe a warm welcome as our new CEO, who joins us on 1 March 2018.

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 Thursday 22 February 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: 81876408#. 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
Interim Report Q3 2017/18 – 25 May 2018
Year-End Report 2017/18 – 29 August 2018
Interim Report Q1 2018/19 – 20 November 2018
Annual General Meeting 2017/18 – 20 November 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 22 February 2018 at 08:00 a.m. CET.

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