Internationella Engelska Skolan Interim Report 1 July-31 December 2018/2019

Second quarter (October-December)

• Operating income increased by 18.3% to MSEK 725.7 (613.2), of which organic growth amounted to 11.2%
• The number of students in the Swedish operation at the end of the quarter was 25,608 (24,000)
• The number of registrations in the queue in Sweden at the end of the quarter was about 188,000 (161,400)
• Operating profit (EBIT) rose 36.7% to MSEK 50.3 (36.8)
• The operating margin was 6.9% (6.0)
• Profit for the quarter totalled MSEK 40.4 (28.2)
• Earnings per share were SEK 1.01 (0.70)
• Cash flow for the quarter was MSEK 87.8 (-1.3)

First half-year (July-December)

• Operating income increased by 16.1% to MSEK 1,281.6 (1,104.2), of which organic growth amounted to 9.6%
• Operating profit (EBIT) for the period increased by 2.3% year-on-year to MSEK 73.6 (72.0)
• The operating margin (EBIT) was 5.7% (6.5)
• Profit for the period totalled MSEK 52.5 (54.2) and earnings per share were SEK 1.31 (1.35)
• Cash flow for the period was MSEK 51.3 (-23.7)

After the end of the period

• Cecilia Marlow was appointed Interim CEO in January, when the previous CEO left her position
• A decision was made in January to postpone the opening of the new school in Luleå, which was scheduled to open in autumn 2019

CEO’s comment

Better Conditions
The first half-year showed strong growth, up 16% year-on-year, due to an acquisition in Spain and more students in Sweden. While the margin is still under pressure from both rapidly rising teacher salaries and a school voucher that does not reflect this reality, the school voucher decisions we have received for 2019 to date are somewhat more closely aligned with the costs of operating a school. On average, school voucher funding is rising preliminary by 2.8% compared with 2018.

Greater clarity
The “January Agreement” has created greater clarity in regard to the basic conditions for independent schools, which we welcome. It is positive that a consensus has now been reached on “a diversity of operators and favourable conditions for privately managed operations that widen the range of choice for individuals.” Quality will be the guiding principle, regardless of operating model. Quality standards must be linked to school results, not the resources put in.

It is also positive that curricula and syllabuses will be revised “to strengthen the emphasis on knowledge and factual knowledge and to encourage diligence and ambition.” Clearer syllabuses are a prerequisite for more uniform grading practices. The new value words and emphasis on a peaceful classroom have been IES’s values for more than 25 years. In our schools, mobile phones are completely banned – not just in classrooms.

We would have preferred even stronger action to improve the supply of high-quality teachers. Sweden will need many more teachers in the coming years. IES’s contribution has been to actively recruit about 800 (at present) highly qualified and dedicated teachers from other countries.

We are now looking forward to a concrete follow-up of the January Agreement and hope that we can contribute.

Equal terms are critical
A key issue for us is equal terms for both public and privately managed operations. This principle has now been re-established but making it a reality requires clearer national regulation of rental compensation, demands for greater transparency in municipal financial reporting, more closely aligned administration compensation and that additional funding is actually paid out for students with significant special needs. The rules for government contributions should also be revised.

We are receiving more and more requests to open schools, because municipalities can see the value generated by an IES school. However, the increased voucher funding for independent schools in recent years has not reflected the rising costs. In the current situation, we are forced to turn down some desirable establishments. Opening a new school is a multi-decade commitment and requires fair and predictable terms.

Favourable first half-year
Overall, we had a good second quarter and first half-year. In the first half-year, operating income rose 16.1% to MSEK 1,281.6, of which organic growth amounted to 9.6%. The reported operating margin (EBIT) declined to 5.7% (6.5). As in preceding quarters, the teacher shortage impacted profitability because school voucher funding does not fully offset the wage drift.

In Sweden, revenues per student rose 2.6% in the first half-year, while personnel costs per student rose 4.9%. These increased costs include salary increases, but also improved student health and support for children with special needs.

However, due to a more balanced trend in teachers’ salaries and school voucher funding that largely offsets the salary increases, the margin pressure is expected to ease somewhat in 2019.

Unchanged strategy
Due to my appointment as Interim CEO, IES is now under new leadership. In my role as a board member over the years, I have also been involved in decision-making in regard to IES’s long-term plans, and these remain firm. We will continue to focus on growth – by increasing the number of classes in existing schools, and by opening new schools in Sweden and Spain. The fundamental principle of our operation also remains firm: In a safe and caring learning environment, enable all students to reach their full potential and learn to command the English language.

Cecilia Marlow
Interim CEO

FOR MORE INFORMATION, PLEASE CONTACT:
Emma Rheborg, Head of Communication & IR, 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 February, at 10:00 a.m. CET in connection with publication of the quarterly report. The conference will be held in English. To participate in the teleconference, call the following number: +46 (0)8-566 426 51 and then press 79585901#. The presentation material is available on IES’s website: http://corporate.engelska.se.

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 21 February 2019 at 08:00 a.m. CET.

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