Internationella Engelska Skolan 2018/2019 Q1 Interim Report (1 July – 30 September 2018)

Progress of operations in the quarter (July-September)

• Note that comparisons of total operating income, EBIT and profit for the quarter with the corresponding period of the previous year should allow for the fact that as a consequence of the adoption of IFRS 15, a revenue item in Sweden of MSEK 10.9 will not be recognized until in Q2 in the current year, while the corresponding revenue item in the previous year of MSEK 10.4 was recognized in Q1.
• Total operating income increased by 13.2% year on year, mainly due to a larger student base in Sweden and acquisitions in Spain at the beginning of July, and amounted to MSEK 555.8 (491.1).
• Total operating income in Sweden increased by 7.5% to MSEK 528.1 (491.1). The number of students in the Swedish operation at the end of the quarter was 25,582 (23,911).
• Two new schools in Sweden—IES Länna and IES Sundbyberg—opened in August, with in total 19 classes and some 600 students.
• There were around 185,000 registrations on waiting lists in Sweden at the end of the quarter, an increase of some 31,000 (20%) on the corresponding point of the previous year. 
• Total operating income in Spain was MSEK 27.7 (-). The student base in the wholly owned Spanish operation was 1,856 (-) at the end of the quarter.
• EBIT for the quarter decreased by 34.0% on the corresponding quarter of the previous year, amounting to MSEK 23.3 (35.3). Accordingly, the EBIT margin was 4.2% (7.2%).  
• EBIT for the Sweden segment amounted to MSEK 30.4 (40.9).
• EBIT for the new Spain segment was MSEK -6.9 (-). In Q1 2017/18 Spain was not a segment and the share in profits from the joint venture was then MSEK -5.6. Operations in Spain, most of which have been wholly owned since the beginning of July 2018, have progressed as planned. However, due to the summer break, the first quarter is seasonally weak. 
• Profit for the quarter was MSEK 12.0 (26.0) and earnings per share were SEK 0.30 (0.65).
• Cash flow from operating activities before changes in working capital amounted to MSEK 33.0 (54.7).
    
  

CEO’s comment 

”Overall, we had a good quarter. Total operating income was up by over 13% and the EBIT-margin, adjusted for new accounting policies, no grants for homework support and seasonal effects in Spain, is at about the same level as the previous year.”

Our August term start is always full of expectation. This year, 25,582 eager and curious students in Sweden, 1,800 in Spain and 500 in the UK started their academic year in our 40 schools.

The excitement was even greater at our two new schools at Länna and Sundbyberg, both near Stockholm, when they opened their doors to a total of 19 classes and some 600 students.

Demand for high-quality education still strong
There are 185,000 waiting list registrations for our schools, up by 20% on the corresponding period last year. That’s why we’re working continuously on trying to increase the number of places in our current schools, while starting up new ones. Regardless of political leanings, there is severe pressure from many municipalities for us to start up, and we’re currently in several discussions. Demand is based on the fact that there is a pressing need for more schools—1,000 new schools over ten years is the estimate often mentioned —as more children start school each year, but it’s also because IES is an excellent complement to municipal schools and is contributing to increased integration (38% of IES students have foreign origins, against the national average in all schools of 25%), and enhances a municipality’s attractions.

Good education is a critical contributor to where in Sweden multinational corporations establish a presence, and for municipalities to attract more residents. A lot of municipalities also want to improve control over school expenditure. We offer the potential for clear monitoring and transparency into how resources are allocated. We are delighted that the municipalities view us as a part of the solution to Sweden’s school system.

A great start to the year
Overall, we had a good quarter. Total operating income was up by over 13% to MSEK 556 (including Spain, which contributed 5.6% of our growth). However, the teacher shortage is still causing pressure on salaries and are not fully compensated by the school voucher.

The EBIT margin decreased to 4.2% (7.2%). First-quarter earnings were affected by new accounting policies for how revenues are allocated over the year, no grants for homework support and the seasonal effect in Spain. Adjusted for these items, profitability is at about the same level as the previous year.

In July, we became sole owner of three of four new schools in Spain. Demand for bilingual education is also high in Spain, and IES, with our tried-and-tested model for teaching and operating bilingual schools, has created a solid platform for continued growth in Spain through these acquisi-tions. The first quarter is seasonally weak due to the summer holiday, although operations perfor-med as planned and on a full-year basis 2018/ 2019, are estimated to contribute total operating income of MSEK 160 and EBIT of MSEK 21.

Equal terms critical
Everyone agrees that all children in Sweden should enjoy equal opportunities. Accordingly, an issue of principle is school voucher funding being allocated equitably across all Sweden’s schools. Deloitte’s report from August this year, Gransk-ning av lika villkors-principen och ersättning till kommunala och enskilda skolor (Audit of the Principle of Equal Terms and Compensation of Municipal and Independent Schools), reveals that no-one could assert that equal terms prevail. Nor is this a sustainable position, because there has been structural shift in a short period, with more employees being needed in school, specifically to deal with students with special needs, while only a minority of the expenses for additional resources are covered by supplements from municipalities. Also, we are no longer receiving funding for Läxhjälp (homework support). This is during a period where the need for new schools in Sweden is urgent. For IES, revenues per student in Sweden, adjusted according to the above, increased by 2.5% during the first quarter, while personnel expenses per student increased by 5.8%.

Continued expansion
We are continuing to reinforce our organization to maintain our high quality and continue our expansion in Sweden and in Spain, and to increase efficiency across the group as a whole. In the short term, this does generate some cost increases, which combined with the aforementioned factors, is pressuring our margins. Now that we are unable to rely on the principle of equal terms for school voucher funding, we must continuously attempt to manage our operations more efficiently so that we can retain our historical profitability, and to keep growing and offer more students a good education. 

We’re part of the solution to Sweden’s school system and are now building an organization capable of opening even more high-quality schools over many years to realize our children’s dreams for the future.

Annette Brodin Rampe
CEO
  

For more information, please contact: 

Johan Hähnel, Investor Relations, tel. +46 (0)70 605 6334, or
Annette Brodin Rampe, CEO, tel. +46 (0)73 852 4231.

Teleconference in connection with publication of the quarterly report:
Today, Tuesday 20 November, Annette Brodin Rampe, CEO, will hold a conference call for the publication of the quarterly report at 10:00 a.m. CET. The call will be held in English. To participate, please call the following number: +46 (0)8 566 426 51 and enter the code: 57390531#. The presentation is available at IES’s website: http://corporate.engelska.se/financial-information/reports-and-presentations. 

Reporting schedule 
Annual General Meeting 2017/18 – 20 November 2018
Interim Report Q2 2018/19 – 21 February 2019
Interim Report Q3 2018/19 – 17 May 2019
  

Internationella Engelska Skolan i Sverige Holdings II AB (publ) 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 20 November 2018 at 08:00 a.m. CET.

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