INTERNATIONELLA ENGELSKA SKOLAN INTERIM REPORT 1 JULY-31 MARCH 2019/2020

Third quarter (January-March)

• Operating income increased 15.4% to MSEK 857.6 (743.1), of which organic growth amounted to 8.7%
• The number of students in the Swedish schools at the end of the quarter was 26,760 (25,555)
• The number of registrations in the queue in Sweden at the end of the quarter was approximately 218,500 (199,700)
• EBIT amounted to MSEK 162.6 (64.2). Excl. IFRS 16, EBIT amounted to MSEK 141.1 (64.2)
• EBIT adjusted for non-recurring items of MSEK 53.8 (-6.2) related to the Spanish acquisitions and excl. IFRS 16 amounted to MSEK 87.3 (70.4)
• The adjusted EBIT margin excluding IFRS 16 was 10.2% (9.5)
• Profit for the quarter after tax totalled MSEK 122.0 (47.9) and excl. IFRS 16 to MSEK 134.3 (47.9)
• Cash flow from operating activities for the quarter was MSEK 44.5 (6.9)
• Earnings per share before and after dilution amounted to SEK 3.04 (1.19)
• In January, Colegio Joyfe, a private school in Madrid, Spain, with about 2,000 students was acquired
• In February, the acquisition of Colegio Inglés Zaragoza, a private school in Zaragoza, Spain, with 270 students, was completed
• Lars Jonsson was appointed the new CFO and a member of Group management in February. He will assume his position on 17 August 2020
• Rental contracts were signed for two new F-9 schools in Vårby and Växjö scheduled to open in 2023 and 2022, respectively
• As a result of COVID-19, the Spanish schools have only conducted distance learning since mid-March, while the Swedish compulsory schools have been open the entire time

First nine months (July-March)

• Operating income increased 12.2% to MSEK 2,271.8 (2,024.7), of which organic growth amounted to 8.6%
• EBIT amounted to MSEK 303.5 (137.6). Excl. the effects of IFRS 16, EBIT amounted to MSEK 245.7 (137.6)
• EBIT adjusted for non-recurring items of MSEK 78.5 (-6.4) related to the sale and acquisitions of Spanish schools and excl. IFRS 16 amounted to MSEK 167.2 (144.0)
• The adjusted EBIT margin excluding IFRS 16 was 7.4% (7.1)
• Profit for the period after tax totalled MSEK 183.8 (100.3) and excl. IFRS 16 to MSEK 219.9 (100.3)
• Cash flow from operating activities for the period was MSEK 293.1 (200.0)
• Earnings per share before and after dilution amounted to SEK 4.58 (2.50)

After the end of the period

• A rental contract was signed in April for a F-9 school in Trelleborg scheduled to open in 2022

CEO’s comment

SCHOOL IS A SOCIETAL FUNCTION

Seldom have the conditions for individuals and the economy changed so drastically as in the past quarter. Schools were also impacted by the pandemic, but through commitment and creativity and by working together, our employees, students and their parents have made sure that educational activities can continue. Schools in Spain closed completely from mid-March, while Swedish compulsory schools remained open. Although coronavirus has left its mark on everyday school life, most of the quarter was not affected and we continued to grow with two new acquisitions in Spain. Third-quarter operating income increased 15.4% to MSEK 857.6 (743.1) year-on-year, of which 8.7% was attributable to organic growth. EBIT rose to MSEK 87.3 (70.4), excl. IFRS 16 and non-recurring effects, corresponding to an adjusted EBIT margin of 10.2% (9.5). The higher EBIT was due to more students in Sweden and the acquisitions carried out in Spain.

Coronavirus challenging for schools
In mid-March, the Swedish government decided that upper secondary schools would close and move to distance learning, while compulsory schools would remain open. Compulsory schools were also given the option of conducting some distance learning if special reasons existed. We decided at an early stage that we would keep our schools open as much as possible. Education is just as important now as it has always been, and schools also serve an important role in ensuring that society continues to function. Some schools have partly used distance learning at certain times due to the severely strained staffing situation, but most of our schools have remained open as usual. Measures we took included more thorough cleaning, new procedures in canteens and for dropping off and picking up students, and more outdoor activities. 

A state of emergency has been declared in Spain and society has been in complete lockdown since mid-March. Students are being entirely taught through distance learning. The transition was successful since the digital infrastructure was already in place. We have not been charging fees for food, transport or after-school activities since mid-March. From May, we will also offer discounts on monthly fees for the grades for which digital solutions cannot fully compensate for classroom teaching, and this will mainly apply to the youngest students. Our assessment is that schools will mostly remain closed for the remainder of the academic year, which means that revenue will be about MSEK 65 lower than planned for this year. We have temporarily laid off all staff who are not required for distance learning and can offset lower revenue by about 50%.

The impressive efforts of our staff in Sweden and Spain have meant that teaching could continue and staff were available to students, which is more important than ever in times of unease.

Despite these challenges, particularly in the health services sector, it is gratifying that large parts of society are pooling their resources and working together. Employees, companies, private individuals and public initiatives are all doing their utmost to ensure that essential societal functions are continuing to operate. We are participating in the Skill Shift Initiative (Beredskapslyftet) under which we arranged two rounds of fast-track training for about 40 SAS staff members and employees of other companies, who have been temporarily laid off or made redundant, to provide support in schools. It is tremendously rewarding to be able to harness this competence and to use it where it is needed.

Overall solid result for first nine months
The performance for the third quarter and first nine months of the year was largely as expected for both Sweden and Spain since most of the third quarter was unaffected by corona. Municipal finances are strained, which had led to lower increases in school voucher funding for the 2020 calendar year compared with 2019. The preliminary announcements indicated an increase of just over 2% for the 2020 calendar year, but now that all decisions have been finalised the increase will be 1.5% compared with 3% in 2019. Compensating for this even lower level will be challenging. We will not take any measures that will adversely impact our quality.

For the first nine months revenues per student in Sweden increased 4.0%, personnel expenses per student 3.8% and total costs per student 3.1% compared with the year-earlier period.

Spain also performed well for most of the third quarter, which, combined with the non-recurring effects related to the acquisitions, was the reason for the very strong earnings for the quarter. The integration of the two most recent acquisitions, Colegio Joyfe in Madrid and Colegio Inglés Zaragoza, is proceeding according to plan. Before the corona pandemic broke out, we had also held exciting meetings with several schools that want to become part of IEP.

For the Group as a whole, operating income increased 12.2% to MSEK 2,271.8 for the first nine months, of which organic growth amounted to 8.6%. Adjusted EBIT excl. IFRS 16 amounted to MSEK 167.3 (144.0), corresponding to an adjusted EBIT margin of 7.4% (7.1). The full effects of corona will be seen in the fourth quarter and both operating income and margins in Spain will be negatively impacted.

Ten new schools in the next three years
Growth in Sweden is continuing at a high pace, and since the last interim report we have announced three new schools and now have a total of ten new schools that we will open in the next three years. We regularly receive inquiries from several municipalities that want to strengthen integration and view IES as one element in solving this challenge. Our well-defined educational profile and quality attract students from many areas – something that few other schools can do.

We currently have 218,500 registrations in the queue for our schools and our goal is to offer a place to as many as possible. We will open two new schools, one in Upplands Väsby and one in Östersund, in the autumn. The admissions process has almost been completed and only a small number of places are still available.

A number of opinion-formers are intensively debating establishments of our schools in the media, and I would like to clarify that we are subject to the same conditions as all other operators, both municipal and free operators, that want to build new schools. We actively work together with municipalities to be part of the solution for creating more places at school, enhancing quality and increasing integration, and we only establish schools in locations where we are wanted.

Whitepaper proposes increased school bureaucracy and lottery
The Swedish government whitepaper (the Whitepaper) that for almost two years has worked towards the commendable aim of increasing equality and reducing segregation in Swedish schools published its proposals at the end of April. We can conclude that the Whitepaper has missed the mark and instead presented proposals that entail a huge increase in bureaucracy without essentially addressing matters of quality. The Whitepaper focuses on students’ background and address as the reason behind poor school results, instead of analysing the underlying reasons for successful schools – both independent and municipal – that have managed to improve learning outcomes for students regardless of their background.

It is proposed that freedom of choice be reduced by introducing quotas to create more mixed schools and parents will no longer be able to register their children in a queue. Changes to admission principles will not affect our ability to fill our schools. However, we can see that it significantly restricts the individual’s right to choose and the proposal means that a lottery will instead determine who is admitted to popular schools. Freedom of choice is widely supported by parents in Sweden and, to encourage more parents to actively choose a school, this should be made compulsory and information should be made available in more languages. We also do not consider that the Whitepaper has put forward proposals which would reduce segregation. Good schools and social integration are important matters for IES and areas where we have been successful. 38% of our students have a foreign background, compared to a national average of 24%. Our 36 elementary schools welcome students travelling from 160 different municipalities, meaning we counter segregation every day.

The Whitepaper also looked at financing of schools, both government grants and school voucher funding. It claims that independent schools are over compensated if the principles of equality are applied. The Whitepaper does not provide any evidence for this and the claim has been rejected in previous papers. The Whitepaper proposes that a municipality can make an arbitrary deduction from school voucher funding for exercising its public authority. This not only lacks legal certainty since not all municipali-ties are able to present calculations for school voucher funding, deductions of the municipality’s responsibility are already currently made when calculating the voucher. Above all, it reduces equality since students attending a free school risk being disadvantaged. It is not the ownership model that determines the quality of a school – it is determined in the classroom. Accordingly, the solutions should focus on improving or closing poor schools and political positioning should be made in another arena.  

We can all agree that quality is a problem for the Swedish school system, and the government, municipalities and independent schools need to solve this together. More school bureaucrats is not the solution. In IES’s 27 years, we have clearly proven that the answer is found in leadership, setting high expectations for all students and creating a safe and orderly classroom environment. Other schools that have succeeded in bucking the trend can also testify to this. We anticipate intense debate in the future, and together with the Swedish Association of Independent Schools, we will take an active role in presenting better alternatives. The municipalities in which we operate, our students and the parents that have chosen our schools know what they want – and we are here for them!

To conclude, the times are strange but we know how important it is that everyday life for students is as normal as possible, and that they can continue to learn new things and meet their classmates. I want to extend a warm thank you to all of our employees who are doing a fantastic job every day in educating and supporting our students and helping each other during this challenging and critical time.

Anna Sörelius Nordenborg
CEO

FÖR YTTERLIGARE INFORMATION KONTAKTA:
Emma Rheborg, Head of Communications, tel. +46 (0)768-511 540
Anna Sörelius Nordenborg, VD, tel. +46 (0)709-90 38 21
 

TELECONFERENCE IN CONNECTION WITH PUBLICATION OF
THE QUARTERLY REPORT:
CEO Anna Sörelius Nordenborg and Head of IR Emma Rheborg will be holding a teleconference today, Friday 15 May, at 10:00 a.m. CEST 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 79939929#. 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 15 May 2020 at 8:00 am. CEST.

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