AcadeMedia’s Year-end Report 2017/18

Fourth quarter (April – June 2018)

Full year (July 2017 – June 2018)

Significant events after the end of the reporting period

AcadeMedia signed a new loan agreement with its financiers which will result in improved financial flexibility and approximately SEK 10 million less in interest expenses per year. The agreement came into effect on 6 July 2018.

Veronica Rörsgård joined AcadeMedia in August as head of Preschools in Sweden. She most recently worked at Skanska, where she held the position of HR and IT Director. Veronica Rörsgård is a member of AcadeMedia’s Executive Management.

The complete report will be made available at https://corporate.old.academedia.duvadev.se/en/financials/reports-presentations/ 

Comments from CEO Marcus Strömberg

2017/18 has been an important year for AcadeMedia marked by improved earnings but also by cost-cutting and restructuring activities driven by contract transitions in adult education. The year has entailed continued strong growth of 13.6 percent of which 5.8 percent was organic growth. However, margins are trailing last year’s levels. The Upper Secondary School Segment has had a strong year and grew both organically and through acquisitions which was also true for AcadeMedia’s German operations. The Swedish Parliament (Riksdagen) voted against regulating profits in the welfare sector. This was expected, but is important nevertheless.

Strong year for Upper Secondary School

The Upper Secondary School segment has had a strong year with a total revenue growth of 27.8 percent. This was largely generated by the acquisition of Vindora which brought 36 new schools into the segment as of November 1, 2017. The start of seven new schools in the fall term of 2017 contributed to 6.0 percent organic growth. The margin improved to 8.5 percent (7.8) through the addition of Vindora which had a higher margin, but also as a result of the use of existing school premises for the new school openings.

Praktiska upper secondary schools, which are part of Vindora, have a large apprenticeship component. This form of education is becoming increasingly important both to individuals who otherwise risk unemployment and exclusion, as well as for society as a whole. The process of integrating Vindora into the business segment and into the staff and support functions has largely been completed and integration expenses of SEK 17 million have been charged for the fourth quarter. Following these efforts AcadeMedia will profit from some synergies and also have a more stable and professional support structure for the Vindora business.

High growth in Germany

During 2017/18 AcadeMedia has opened six new units in Germany and has acquired KTS, with six units. In total, there are now 29 preschools in Germany. This has contributed to the growth of the International Preschool segment of 15.8 percent. Demand for new preschools and preschool places is high. During the next year, 2018/19, 10-15 new preschools are expected to open in Germany. The total number of preschools is then anticipated to be just over 40 in the summer of 2019.

Restructuring in Adult Education

As previously communicated, the Adult Education segment is in a contract transition period and is also facing weakened market conditions. AcadeMedia has now taken tough measures to reduce costs and thereby ensure adjustment to the new market conditions and new contracts. Restructuring charges are included in the fourth quarter. AcadeMedia has also agreed on a settlement with the City of Malmö regarding deficiencies in the SFI contract. It was very important for AcadeMedia to take proactive responsibility in this situation and thus maintain good continued relationship with the City of Malmö.

Tendering within adult education often leads to appeals which results in delays for the winning provider. This was the situation for the Vocational and Preparatory modules (“yrkes- och studieförberedande moduler, YSM”) contract that AcadeMedia was awarded in July 2017. It took until April 2018 for the Administrative Court to reject the appeal so that contracts could be signed. The start of these new contracts was delayed yet again due to the summer period. This contributed to a weak result in the fourth quarter.

In total the Adult Education segment has taken expenses of SEK 61 million in the quarter. This is settlement compensation and expenses regarding the SFI contract with the City of Malmö of SEK 23 million. In addition, restructuring charges of SEK 38 million related to staff, premises and excess capacity required in current agreements following lower market volumes.

AcadeMedia is the leading provider of adult education in Sweden but the business is characterised by tendering and periods of contract transition. We feel that we have now taken the necessary measures to adjust to the new conditions. Long term, after contract transitions and capacity adjustments, AcadeMedia believes that the EBIT margin in the Adult Education segment will be 9-11 percent. The lower margin is a consequence of new contracts with lower margins as well as lower capacity utilization following reduced volumes in the market.

Pre- and Compulsory school

The Pre- and Compulsory School segment is currently experiencing lower margins caused by salary inflation being higher than increases of the school vouchers. A review from an audit firm shows that the municipalies are not following the equal terms law (“lika villkorslagen”) which stipulates that the municipalites must pay the same amount to independent schools as they spend on municipal schools. AcadeMedia will, together with other companies in the industry, continue to work to ensure fair voucher levels as this is an important measures for improving margins.

The segment also has a number of weak units. Efforts have been made during 2017/18 to turn these units around which has required extra resources in the form of personnel, during the third and fourth quarters. AcadeMedia takes a great responsibility to develop all schools, especially those experiencing problems.

Politics and regulations

At the end of May, the Norwegian Parliament (Stortinget) decided to impose regulations on staff density in preschools as of August 1, 2019. This is in addition to the new regulation on teacher density which come into effect already on August 1, 2018. The new regulations apply to both municipal and independent preschools. This will affect Norwegian voucher levels to the extent that the municipalities need to increase their staffing and costs. The parliamentary resolution clearly states that transitional rules should not put independent providers at a disadvantage.

As expected, the Swedish Parliament (riksdagen) voted in June against regulating profits in the welfare sector but for reinforced ownership and management assessment. The outcome of the Swedish election in September is far from clear.

Passion for improving education

There are many challenges in the societies in which we operate, including immigrant integration, improving education for the needs of society in the future, and equality in the workplace. AcadeMedia takes pride in not only running high quality education units, but also in contributing constructively to developing the education system in the societies in which we operate. In Sweden, for instance, we are very active in discussing the overall issues and areas of improvement for the education system as a whole. Some important development areas that we are suggesting are a common school selection procedure and a common municipal queueing system for compulsory schools.

It is with pride that I thank all AcadeMedia employees for the past year and for their passion for improving education

Marcus Strömberg
President and CEO
AcadeMedia AB (publ)

Presentation of the report

A web-cast telephone conference will be held at 09:30 CET today, where CEO Marcus Strömberg and CFO Eola Änggård Runsten will present the report

To participate in the conference call, and thereby be able to ask questions, call one of the following numbers ten minutes before the start of the call:
UK: +442030089806
SE: +46856642662
US: +18557532235

You can follow the presentation and the conference on the following page: https://tv.streamfabriken.com/academedia-q4-2017-18 

The presentation material will be available before the conference begins on AcadeMedia web via https://corporate.old.academedia.duvadev.se/finansiell-information/finansiella-rapporter/. It will also be possible to access the recorded version of the webcast after it is finished on this page.

For more information, please contact:
Marcus Strömberg, CEO
Telephone: +46 8 794 4200
E-mail: marcus.stromberg@old.academedia.duvadev.se

Eola Änggård Runsten, CFO
Telephone: +46 8 794 4240
E-mail: eola.runsten@old.academedia.duvadev.se

About AcadeMedia
AcadeMedia creates opportunities for people to develop. The 16,300 employees at our 650 preschools, compulsory schools, upper secondary schools and adult education centres share a common focus on quality and development. Our 176,000 children and students are provided with a high quality education, giving them the best conditions to attain both learning objectives and their full potential as individuals. AcadeMedia is Northern Europe ́s largest education company, with locations/facilities/presence in Sweden, Norway and Germany. Our size gives us the capacity to be a robust, long term partner to the communities we serve. More information about AcadeMedia is available on www.old.academedia.duvadev.se.

This information is information that AcadeMedia AB is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, at 08:00 CET August 29, 2018.