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Internationella Engelska Skolan: Internationella Engelska Skolan 2016/2017

Interim Report - first quarter (1 July - 30 September 2016)

Progress of operations in the quarter

· The number of students in the Swedish operation as of 30 September
was 21,463 (19,789)

· There were around 122,000 registrations of students to the school
queues at the end of the quarter, an increase of about 10,000
registrations (9%) compared to June 30th 2016

· Total income per student increased by 2.8% compared to the
corresponding quarter of the previous year. As the grant for
Lärarlönelyftet, a government initiative to boost teacher salaries
introduced on 1 July, first half of 2016/17 has not been decided and
will not be paid until the second quarter no grant revenues have been
recognised during the first quarter

· Total operating expenses excluding items affecting comparability
per student were up by 2.5% on the corresponding quarter of the
previous year. Personnel expenses represented the highest cost
increase, mainly due to the implementation of Lärarlönelyftet and
continued wage creepage on teacher salaries in Sweden

· A new school, IES Älvsjö, opened in August with 12 classes and
some 360 students

Financial performance in the quarter

· Total operating income increased by 11.4% on the corresponding
quarter of the previous year, mainly due to increased student
numbers, amounting to SEK 414.4 (371.8) m

· Operating earnings (EBIT) adjusted for items affecting
comparability for the period increased by 15.0% on the corresponding
quarter of the previous year, to SEK 36.1 (31.4) m. The adjusted
operating margin was 8.7% (8.4%)

· Profit for the period was SEK 23.0 (23.1) m
· Earnings per share were SEK 0.58 (non-comparable)
· Investments in operations were SEK 38.4 (40.8) m
· Cash flow from operating activities amounted to SEK 87.8 (47.4) m
· The equity/assets ratio at the end of the quarter was 67.1% (56.6)
CEO's statement
In August, IES opened its doors to 21,400 students, an increase of 8%
compared to the previous year. This occurred simultaneously with
preparing for our listing on Nasdaq Stockholm, which was completed on
29 September.

During the ownership changes we've made, it has been particularly
reassuring to know that our operations are founded on solid values,
with a focus on quality as a growth driver, and schools that achieve
high academic results in a Swedish context. Step by step, we're all
contributing to the progress of our Swedish schools, which parents
and students both appreciate. As of 30 September 2016, the waiting
lists for a place at one of our schools in coming years had 122,000
prospective students for our 29 grade 1-9 schools.

Our financial performance in the first quarter was in line with IES's
financial targets. Total operating income increased by 11.4% to SEK
414.4 m on the corresponding period of the previous year, and
adjusted EBIT increased by 15% to SEK 36.1 m. This corresponds to an
adjusted EBIT margin of 8.7%. Items affecting comparability resulting
from our listing and the acquisition of Elians in Spain reduced
profit for the period by 0.4% to SEK 23.0 m. We invested SEK 38.4 m
in IES's operations in the period, and are pleased to conclude that
around half of our highly qualified teachers will benefit from the
Lärarlönelyftet government initiative to boost teacher salaries,
effective 1 July.

Stable growth
We started a total of 51 new classes in August, opened a new school in
Älvsjö for students in years 4-9 with 12 new classes, and are
planning to open a further four schools in Årsta, Landskrona,
Södertälje and Helsingborg in August 2017 as well as a school in
Huddinge (Länna) and one in Sundbyberg in August 2018. We've also
decided to extend our school in Sundsvall, and are considering
relocating our school in Borås.

Expansion outside Sweden presents IES with another opportunity on
markets where bilingual education is in demand, with English being
one of the languages apart from the local language. The acquisition
of 50% of the shares of the three Spanish school companies
constituting Grupo Educativo Elians secured regulatory approval after
the end of the quarter.

This means that we've taken a small but significant step onto the
promising Spanish market for bilingual education.

Over the last three years, we've successfully rationalized IES's
central administration, limiting the need for expanding it further
despite opening 11 schools in the period. However, our current and
future growth means that we've now reached a point where we will need
to strengthen some central functions so we can manage our continued

Equal terms are key
A public inquiry into school costs published in the quarter
(Skolkostnadsutredningen) offered a great deal of important
information and clarification. One of its key conclusions emphasized
the principle of equal terms for free schools and municipal schools,
which we welcome. This means that the long-term potential is assured.
In line with the already published public inquiry into school
ownership (Ägarutredningen), the report also concluded that
profitability is an important factor, and that there is a clear and
direct link between long-term quality and operations that generate a

In contrast to the school costs enquiry, the Reepalu inquiry, which
was presented after the end of the quarter, appears to be
ideologically motivated. Its view on profit contrasts sharply with
those put forward in the two aforementioned enquiries. We can only
re-emphasize the long-term view we take compared to the time horizon
of the political debate. Our undertakings in the form of rental
agreements for properties in many cases span up to 20 years. It's
important that our equity/assets ratio provides the right conditions
to meet them.

Focus on quality
We endeavor to offer our students the opportunity of a good education
and character building for life in a school environment characterized
by good order, discipline, hard work and safety. We endeavor for 100%
of our students to feel safe at school, and that all students who
graduate from grade 9 should qualify for upper secondary school. In
this context, it's pleasing to see that of all the students who
graduated from year 9 in IES's schools in the spring of 2016, 98%
qualified for onward education in upper secondary schools.

Alongside all our Principals we continue work to improve quality
further. Last year, our efforts were focused on assuring the quality
of grading. Our annual quality conference at the beginning of
September adopted the theme of "Back to Basics," aimed at delivering
a safe and orderly school environment across all our schools within
the framework of an international English school culture that
encompasses all students regardless of background, and which is
characterized by high expectations for all students.

As part of the Swedish Schools Inspectorate's regular reviews, we
expect all our schools to be inspected in the calendar year 2017.

Future challenges
IES is helping to counter housing segregation in Sweden. Many of our
new schools are located in areas that are usually classified as
`non-privileged.' Of the 3,000 students that completed year 9 in
spring 2016, 33% had a foreign background, compared to 22% in
municipal schools. 70% of students in some of our more recently
established schools have a foreign background.

Many families that have immigrated to Sweden harbor very high
ambitions for their children. IES's focus on a structured school
environment and adults with clear values are a big factor in them
achieving optimal outcomes, despite their circumstances.

Our major challenge looking ahead is to keep finding and nurturing
skilled teachers, and attracting the best professionals in a market
subject to teacher shortages. Although our well-established
international recruitment processes remain an asset, we're also
continuing to sharpen and improve our recruitment of qualified
Swedish teachers.

Access to attractive school premises in growth regions is another
challenge. Success in this requires close and fruitful partnership
with municipalities that perceive the unique value of establishing
quality schools of international character. The construction of our
new school in Landskrona is an excellent example of such a

Overall, IES is in a phase where we're confidently anticipating
continued growth with clear values and a focus on quality. Recent
research and experience clearly corroborate the viability of the
foundations that IES has been building on from the start.

Ralph Riber
1 July - 30 September 2016
Total operating income and operating earnings
Total operating income increased by 11.4% to SEK 414.4 (371.8) m. The
growth is due to the new school IES Älvsjö starting up, and a higher
number of classes in existing schools compared to the previous year.
The total number of classes increased to 711 (660). At the end of the
quarter, there were 21,463 (19,789) students.

Total income per student increased by 2.8%. The income includes SEK
1.8 m in government subsidies for homework support.

Personnel expenses per student increased by 6.5% on the previous year.
Personnel expenses include SEK 8.4 m for costs associated with the
Lärarlönelyftet government initiative to boost teacher salaries. The
government subsidy due under this initiative in the first half-year
2016/17 will not be determined and paid out until the second quarter,
which means that no subsidies were posted to income in the first
quarter. We estimate that close to 90% of the costs associated with
Lärarlönelyftet will be covered by the government subsidy. The supply
of qualified teachers on the Swedish schools market is currently
below demand, contributing to higher wage creepage on the market.
Additionally, the discount on social security expenses for younger
staff was abolished on 1 June 2016.

In the first quarter, IES items affecting comparability relating to
the costs associated with listing on NASDAQ and the Spanish
acquisition totaled SEK 6.1 (-) m. Total costs per student adjusted
for items affecting comparability increased by only 2.5% as a result
of improved purchasing agreements and economies of scale achieved due
to the rapid growth of the number of schools and classes.

EBIT operating earnings decreased by 4.5%, amounting to SEK 30.0
(31.4) m.

EBIT operating earnings adjusted for items affecting comparability
increased by 15.0%, to SEK 36.1 (31.4) m. Adjusted operating margin
EBIT amounted to 8.7% (8.4%)

Total operating income in Sweden was SEK 414.2 (371.5) m, and EBIT
operating earnings were SEK 30.1 (31.4) m.

Total operating income in the UK was SEK 0.1 (0.3) m, and EBIT
operating earnings were SEK -0.1 (0.0) m.

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