INTERNATIONELLA ENGELSKA SKOLAN INTERIM REPORT 1 JULY-30 SEPTEMBER 2019/2020

First quarter (July-September)

• Operating income increased 8.1% to MSEK 600.7 (555.8), of which organic growth amounted to 7.0%
• The number of students in the Swedish schools at the end of the quarter amounted to 26,828 (25,582)
• The number of registrations in the queue in Sweden at the end of the quarter was approx. 204,700 (185,300)
• EBIT amounted to MSEK 54.6 (23.3). Excluding the effects of the introduction of IFRS 16, EBIT amounted to MSEK 36.5 (23.3)
• The EBIT margin was 9.1% (4.2). Excluding the effects of IFRS 16, the EBIT margin was 6.1% (4.2)
• On 5 July 2019, IES sold its 50% shareholding in Colegio IALE to the co-owners, the Monzonis family, for MEUR 3.9, generating a capital gain and item affecting comparability of approx. MSEK 24.7 for IES
• Adjusted for items affecting comparability, EBIT totalled MSEK 29.9 (23.5). Excluding the effects of IFRS 16, adjusted EBIT amounted to MSEK 11.8 (23.5) and the adjusted EBIT margin was 2.0% (4.2)
• Profit for the quarter totalled MSEK 17.1 (12.0) Excluding the effects of IFRS 16, profit for the quarter amounted to MSEK 29.3 (12.0)
• Earnings per share totalled SEK 0.43 (0.30)
• Cash flow from operating activities for the quarter was MSEK 132.0 (96.1)

After the end of the period

• On 18 October 2019, IES received permission from the Swedish Schools Inspectorate to start an international school in Skellefteå that follows the Cambridge Assessment curriculum
• On the same date, IES signed rental contracts pertaining to the construction of two new schools – Sigtuna and Värmdö – that are scheduled to open for the start of the 2021/22 academic year
• CFO Fredrik Åkerman will leave IES in early 2020 or as soon as an alternative solution is in place. The recruitment process to find a new CFO has commenced

  
CEO’s comment

A good START TO THE YEAR

We began the new school year by opening our new school in Skellefteå and welcoming a total of 26,800 students to our 37 schools in Sweden and 2,500 students to our five schools in Spain as they embarked on a new academic year. The year started well and proceeded according to plan, with operating income increasing 8.1% year-on-year, while EBIT declined to MSEK 11.8 (23.5), excluding the effects of IFRS 16 and the capital gain generated by the divestment of the jointly owned school Colegio IALE. This decrease in earnings was entirely attributable to the fact that the seasonally weak first quarter in Spain has a greater negative impact as the number of schools we have in the country increases. However, on a full-year basis, Spain is expected to continue to deliver strong earnings.

Continued growth
August is always a special month in the school world. It marks a new start and warm welcome to all schoolchildren. Full of anticipation, they start the new school year with a sense of curiosity and excitement to see if they will have any new classmates or teachers.

This year, we started a brand new school in Skellefteå. It is always an incredible feeling to open a new school as it means so much to the local community: to the municipality, the business community and the residents themselves. This is particularly true in Skellefteå, which is now becoming a growth municipality and focusing on education as an important cornerstone of an attractive residential area and business location.

In autumn 2018, we opened IES Sundbyberg on a small scale, with only six classes as we waited for the building to be fully renovated. In August of this year, we were finally ready to open the entire school and welcome ten more classes, which essentially means that we opened an entire new school. Parents in both Skellefteå and Sundbyberg have shown considerable interest and the schools are developing according to plan.

We also continued to attract major interest from parents and municipalities in other locations across Sweden and have so far announced our plans to open eight new schools in the next three years. This is the first time we have had such good visibility in terms of the number of new schools. Along with our queue, this provides us with a stable foundation when it comes to planning the future of our operations.

We are also evaluating several acquisition candidates in Spain and at the beginning of the quarter, we completed the simplification of ownership that began in 2018, when we sold the last jointly owned school to our co-owners. This divestment generated a capital gain of MSEK 24.7, which was recognised during the quarter. We now have five schools in Spain, which are all IES subsidiaries.

Seasonal effects putting pressure on earnings
The year got off to a good start and as expected. The Swedish operations have a better balance this year between the increase in voucher funding and the increase in teacher salaries than in the past couple of years. During the quarter, revenues per student in Sweden increased 3.4%, personnel expenses per student increased 2.7% and total costs per student increased 3.1% compared with the year-earlier quarter.

In Spain, the first quarter is always seasonally weak since the school year does not start until early September. Since we have more schools in Spain than in the preceding year, this negative seasonal effect was amplified. The full-year plan for the Spanish operations for 2019/2020, without any additional acquisitions and excluding the capital gain, is to generate operating income of approximately MEUR 21.6 (about MSEK 230), EBITDA of approximately MEUR 3.9 (about MSEK 41) and EBIT of approximately MEUR 2.2 (MSEK 23). The outcome for the first quarter was in line with this plan.

For the Group as a whole, operating income increased 8.1% to MSEK 600.7 during the quarter, of which organic growth amounted to 7.0%. The EBIT margin amounted to 9.1% (4.2) and excluding IFRS 16 and the capital gain from the sale of the Spanish school, the EBIT margin was 2.0% (4.2).

Major impact on financial statements due to the introduction of IFRS 16
In Sweden, we rent 37 schools from municipalities and property companies. We are a long-term operator and therefore undertake long-term commitments for our school properties. Our rental contracts can extend for up to 25 years. We dare to make these commitments since our school operations are stable, with our queues and the demographic trend of a growing number of school-age children providing us with predictable revenues and thus an opportunity to accurately plan our operations. However, the introduction of IFRS 16 entails that our lease expenses are to be recognised as a right-of-use asset and lease liability in the balance sheet, which means that our total assets have increased SEK 3.4 billion, while part of our lease expenses have been moved from EBIT to net financial items, which resulted in higher EBIT. Although this did not result in any changes in terms of how we conduct our operations, it had a significant impact on our financial statements and thus on our key figures. In the tables and notes in this report, we have attempted to make it as clear and simple as possible to interpret our figures both excluding and including this accounting effect.

Strategically important permission for an international school
In October, the Swedish Schools Inspectorate announced that we had been given permission to start an international school in Skellefteå that follows the Cambridge Assessment curriculum. Our aim is to supplement the F-9 compulsory school that we opened in August 2019 to allow us to offer students who previously studied abroad an opportunity to continue studying their international curriculum. The international school is scheduled to open in autumn 2020 alongside IES’s existing operations in the same school building. We are pleased to be able to contribute to the development of Skellefteå and make it easier for companies in the municipality to attract international employees by offering an internationally recognised education in the area.

There are many municipalities and companies that need to attract an international workforce in Sweden, and we will now be able to evaluate the possibility, in close dialogue with these municipalities and companies, for more of our schools to offer education according to an international curriculum.

An orderly school environment crucial to good results
Progress has been slow when it comes to initiatives to improve the quality of Swedish schools, and 16% of all students who complete compulsory school in Sweden are not qualified to begin upper secondary school. There are, however, certain bright spots and there are school leaders across Sweden who are taking on these problems and deciding to take a different approach to achieve results. I am therefore delighted when I read in the newspaper about schools that have succeeded in reversing this trend and improving their rate of qualification for upper secondary school. Clear feedback to the students and an orderly school environment are also common denominators for many of these schools. The importance of having a clear structure and an orderly school environment cannot be overstated, particularly for those students who have not learnt good study habits at home.

However, a number of investigations and reviews are being carried out in the field of education to deal with the issue of quality. One such initiative is a revision of the national curriculum, which needs to be carried out at regular intervals – although not too often since this shifts the focus from student learning to teachers learning the new curriculum. The new proposal from the Swedish National Agency for Education to revise the curriculum is a small step in the right direction, with greater focus placed on factual knowledge and understanding and less focus on abilities. This is something we are pleased with and for which we have advocated for a long time. But, there is also a need for clearer grading criteria, which the new national curriculum will make possible, and more national tests – more frequent tests in more subjects which should be graded centrally in order to increase transparency, predictability and confidence in Swedish students’ knowledge.

This is my last report before I hand over the reins to Anna Sörelius Nordenborg next week. I would like to thank the students, parents, employees, municipalities, the Board of Directors and our shareholders for being part of development of this outstanding company.
  

Cecilia Marlow
Interim CEO
  

FOR MORE INFORMATION, PLEASE CONTACT:
Emma Rheborg, Head of Communications, tel. +46 (0)768-511 540
Cecilia Marlow, Interim CEO, tel. +46 (0)73-414 61 28
Fredrik Åkerman, CFO, tel. +46 (0)70-415 23 65

TELECONFERENCE IN CONNECTION WITH PUBLICATION OF THE QUARTERLY REPORT:
Interim CEO Cecilia Marlow and CFO Fredrik Åkerman will be holding a teleconference today, Thursday 21 November, at 10:00 a.m. in connection with publication of the quarterly report. The teleconference will be held in English. To participate in the teleconference, call the following number: +46 (0)8-566 426 51 and then press 76635134#. The presentation material is available on IES’s website: http://corporate.engelska.se
 

 
This is a translation of the Swedish original. In case of any inconsistency between the Swedish and the English version, the Swedish version shall prevail.

This information is such information that Internationella Engelska Skolan i Sverige Holdings II AB (publ) is obligated to publish in accordance with the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact people set out above, on 21 November 2019 at 8:00 a.m. CET

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