The Tellus Group shares information from the live Q&A session on October 30 at 5:30 p.m.
Published: October 30, 2023
Tomorrow, Tuesday, October 31, the recorded presentation will be posted on the Tellus Group’s website, www.tellusgruppen.noboxdesign.se.
How have inflation and economic conditions affected your business, and are the municipalities compensating you sufficiently?
“In our assessment, we have been compensated for a large portion of inflation, but not fully. This shows that our industry is better protected against inflation than most other sectors. Demand for our services, with the exception of childcare, is not sensitive to economic cycles. Good preschools and schools are always needed, especially during periods of economic hardship.”
How do you view the company’s political risks?
“Political risks can be viewed from different perspectives. In the short term, things are fairly calm now and will remain so until 2025, when the report on independent schools is expected to be released. The following year, the independent school issue will likely become a hot topic again as the government is set to present proposals based on these reports and internal negotiations. These changes could be both positive and negative. Then the election campaign will begin, and the issue will be debated again. Our main safeguard against significant deterioration is that the half a million households that use independent schools—and the other voter groups who, after all, value choice—will not appreciate political decisions that lead to the closure of independent schools. I therefore expect only marginal deterioration and symbolic gestures. In the long term, I believe the public sector needs private actors to deliver welfare services; this trend will continue. The public sector can barely manage its core operations, so it cannot afford to ignore private alternatives.”
In which areas do you plan to focus your growth going forward?
“We have invested heavily in establishing new preschools. Over the past four years, we have doubled the number of preschools, which has been the primary driver of our organic growth. The preschools we’ve opened since 2019 now generate approximately SEK 90 million in revenue. We’ll be reducing the number of new preschool openings because we’ve reached the critical mass needed to run a high-quality and profitable business. However, the units we’ve opened will continue to generate strong organic growth. The focus for growth will gradually shift to elementary schools and educational resources. We are analyzing and evaluating additional new segments to enter if the forecasts prove accurate.”
You have opened three more preschools this year. Isn’t the growth rate too fast? What have the results of these openings been so far?
“Establishing new locations is a long-term process. That’s why it’s difficult to micromanage it to ensure a steady flow year after year. Furthermore, with one exception, we see a significant need in the areas where we’ve already opened locations in recent years. This makes a new opening cost-effective.”
For example, the preschool that opened in Vega this spring already has an 82 percent occupancy rate. From fall 2019 to fall 2021, we opened seven new preschools with 745 spots. In 2022–2023, we opened five new preschools with 415 spots. The pace of new openings has thus slowed down. We are heading toward a period with fewer new preschool openings, which is positive for future profitability and cash flow.”
“Start-up investments in new preschools are relatively small. We rent the premises, so our investment costs consist of the preschool’s equipment, and the pace of investment can therefore be adjusted to some extent to match the preschool’s rate of establishment. The major financial challenge with new establishments is the operating losses incurred during the period while the preschool is building up its enrollment. In the very best-case scenarios, positive results are achieved within 3–4 months, and the startup investment and operating losses are recouped within a year. In the most difficult cases, on the other hand, it can take several years before the preschool reaches break-even in terms of occupancy. Establishing a new preschool is a long process, and a lot can happen between the planning stage and the actual launch.”
“We have become more selective when it comes to deciding on new projects and are doing our utmost to ensure that there is a genuine need in the areas where we open our preschools, as evidenced by our most recent projects.”
Why did you acquire another company in the native language sector?
“There are synergies between Omniglot and Språkservice 24 that are relatively easy to achieve. The companies have different types of customers, and together they can develop their products and enrich each other’s working methods.”
What’s happening with your AI initiative?
“We’re working on developing the first applications that will streamline various school administrative processes. My guess is that the first products will be ready for use in a few months. We’ll let the market know when that happens.”
The nanny business is struggling this year. What are your thoughts on that?
“The nanny business used to be one of our most profitable segments, even though it’s a very small operation in terms of volume. Now the company is being hit hard by the economic downturn. We’re implementing a cost-cutting plan to adapt the central unit to the new situation. The industry will likely continue to struggle for another year or two.”
Why are you looking for investors with nerves of steel?
“Generally speaking, we want to attract more new investors and shareholders to broaden the ownership base and increase market liquidity. However, we are interested in the right kind of investors. Stability is key here, especially when political headwinds are blowing. We want to attract investors who see the long-term benefits of the education sector. It is an industry that is not sensitive to economic cycles and can withstand high inflation and high interest rates well.”
Why isn’t the Tellus Group suitable for short-term investors?
“We are also interested in short-term investors because they contribute to the stock’s liquidity and reduce short-term over- and undervaluations. However, the industry is not for those looking for quick profits. We neither can nor want to generate quick profits at the expense of the quality of our operations. Another aspect here is that social benefit and shareholder value go hand in hand. If you run a good, high-quality business, shareholder value will eventually materialize through a good reputation, a strong brand, and positive attitudes from municipalities and authorities.”
As an investor, when can I expect a return or dividend?
“We avoid making specific promises or forecasts. However, as we see it, it is desirable that we be able to deliver returns in the form of dividends going forward.”
What is the company’s debt and cash flow situation, and what are the outlook and plans for the future?
“At the end of the second quarter, the Group’s net interest-bearing debt amounted to SEK 40.9 million, corresponding to 2.7 times EBITDA, which can be considered somewhat on the high side, and our goal is to reduce debt. In this context, it is worth noting that SEK 29.4 million of the Group’s long-term liabilities relates to a contingent additional purchase price to be paid in the fall of 2025; alternatively, the additional purchase price may be converted into a loan with a 12-month term at that time. This obviously needs to be addressed, but there is plenty of time to do so.
Our most recent acquisitions are companies that generate strong cash flows, and we are seeing an improvement in cash flows from operating activities.
“With a slower pace of new business development and lower investment levels going forward, we can expect an improvement in cash flow and a reduction in debt.”
About the Tellus Group's initiative
The Tellus Group’s email address, investerarfraga@tellusgruppen.noboxdesign.se, is provided to improve accessibility for existing shareholders and new stakeholders. Submitted questions will be compiled and answered in connection with upcoming shareholder meetings or quarterly reports. Please note that questions sent to the email address investerarfraga@tellusgruppen.noboxdesign.se will not be answered via email but will only be addressed in connection with upcoming quarterly reports or at separate shareholder meetings. Questions submitted that concern insider information or information that has already been communicated will not be addressed.
For more information
Bijan Fahimi, CEO of Tellusgruppen AB
bijan.fahimi@tellusgruppen.noboxdesign.se
+46 707 167 453
About Tellusgruppen AB (publ)
The Tellus Group is a long-term owner of well-managed companies in the education and childcare sectors. The Group currently operates 28 preschools and seven elementary schools, and also provides childcare and educational services.
The Tellus Group was founded in 2012 as the parent company of Tellusbarn (Tellusbarn was founded in 2007) and as a platform for future expansion in the education and childcare sector.
The Tellus Group’s business concept is to establish, operate, and develop profitable and growing subsidiaries that offer high-quality, innovative, and in-demand services within their respective fields.
