Welcome to the AcadeMedia Q4 Report 2023, 2024. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to the speakers, CEO Marcus Strömberg, and CFO Petter Sylvan. Please go ahead.
Good morning, everybody, and I will start. Marcus Strömberg, CEO here, and I just must say that Stockholm today has fantastic weather, and AcadeMedia has started the new school year in a really good way. We increased the number of children with 8%, and that is a result of the efforts and investments that we have done, both international and also in the Swedish education parts. We think that we sum up a very good year and a good quarter with strong demand. We have increased the number of school places, but we have also increased the capacity utilization. The net sales grow with more than 15%, of which around half was organic, and the profitability also increased a lot and the result of the international development that really has increased the profitability.
We have now 50% growth international, and we also see that 40% of AcadeMedia is adult education and international education. And our target, that is 50%, so we are on a good road to reach the target and get a good balance between Swedish education and international education. We have had a lot of efforts on reading skills, vocabulary, early age programs, and that has also given us very good quality result this year. We have worked a lot with the grades and equivalence between the national tests and the grades, and I would like to say that AcadeMedia is really the leader in the way that we work with our quality development. The board has decided to continue to keep the dividend at the same level as last year, and they will also propose a program of share redemption to the annual meeting in November.
So with that short introduction, I will hand over to Petter, and he will bring you through the numbers, and I will gladly answer questions after that.
Thank you, Marcus, and good morning, everyone. To start with, as Marcus said, we end this year with a very strong quarter. I'm very glad to be part of that in my second quarter's presentation in this company. As Marcus outlined earlier, we achieved a good growth of 15.6%, and that was with contributions from the acquisitions of Touhula in Finland and Winford College in the Netherlands, and they amounted to 8.7%. Additionally, our adjusted profit margin increased to 8.5% compared to last year's 7.9%, which mean that we were reaching SEK 450 million in absolute terms, up from SEK 333 million.
We have for long had a stable and profitable Swedish operation, and I'm glad to say that now we manage also to increase the profitability international operation, mainly an effect of that Germany and Norway are better compensations for inflationary costs. Finally, this increased profit has translated into correspondingly higher free cash flow. Now, turn to page four, please. The improved adjusted EBIT are evident across all segments. Apart from the better compensation through annual increases in school vouchers, which now adequately account for inflation, the positive change is most notable in the preschool and international segment, where, in addition to better school voucher compensation, the acquisitions ought or has contributed an additional SEK 30 million. As we mentioned in previous quarters, the increase in group overhead costs is a natural outcome of our growth.
Some of our staff functions are adding extra resources to accommodate our expanding operations. Let's look at the quarter's development within each segment, and we start with the preschool segment at page seven. The number of children increased by an impressive 33%, with growth witnessed across all countries except Sweden. And in Sweden, we had five, or, sorry, six preschools that were closed in the past twelve months, which are affecting the year over the year numbers. Our growth was primarily driven by the acquisitions of Winford in the Netherlands and Touhula in Finland, along with new preschool openings in Germany. As Marcus mentioned, the international operations now account for a little bit more than 30% of the group total sales this quarter. Net sales increased by 35% compared to last quarter, with organic growth at 8.3%.
Adjusted EBIT margin, EBIT, and margin improved compared to the previous year's quarter. This quarter, margin reached 8%, up from last year's 6.8%, and the operating profit was SEK 151 million compared to last year's SEK 95 million. These improvements are attributed to better compensation for inflation costs through annual school voucher increases in Germany and Norway, and the contributions from acquisitions. Moving on to compulsory school on page eight, we note a 1.6% increase in the student numbers. Net sales rose by 6%, driven by increased number of students and the positive impact of the annual school voucher revision in January of 5.5%. Adjusted EBIT and margin improved compared to the previous period.
This quarter's margin reached 9.1%, up from last year's 8.6%, and the operating profit was SEK 99 million compared to last year's SEK 88 million. These improvements attributed to better compensation through the school voucher revision, now better compensating for inflation costs. Now, turn to upper secondary school on next page. We observe a 2.9% increase in student numbers. The sales growth of 5.9% were driven by more students, as well as the annual school voucher revision of 3.8%. Although it's worth noting that this revision hasn't been sufficient to offset inflation cost increases. Even so, the adjusted margin increased this quarter, 12.2% compared to last year's period of 11.6%, due to higher capacity utilization and lower energy costs.
Moving to adult education, we see a 6.5% increase in sales, driven by a higher number of students in higher vocational education and the acquisitions of Biks. In the municipality business, our implemented capacity adjustments and cost-cutting measures from last year continued to yield positive effects. Adjusted EBIT increased to SEK 23 million from previous quarters, 20, with a margin of 5.4% compared to 5.0% last year. For the fiscal year, the profitability was 9.4% compared to last year's 7.7%. Continue to next page, free cash flow and investments. Free cash flow for the year was SEK 332 million higher than last year, attributed to higher profits and a more favorable net working capital development. Maintaining CapEx as a percentage of sales has slightly declined to 1.6%.
The significant increase in other expansion CapEx is associated with the acquisitions of Winford and Touhula. Proceeding to page 13, the financial position. Net debt, excluding IFRS 16, increased by SEK 1 billion compared to last year, with a leverage ratio excluding IFRS 16 at 0.6, which is well below the financial target of less than 3. Including property-related lease liabilities, net debt was higher due to growth, the acquisitions of Touhula, and the share redemption program. Let's continue to page 14. I will now summarize the financial year in total. Number of students grow 6.2%, mainly through the 30 newly established preschool in Germany and the acquisitions of Winford in the Netherlands and Touhula in Finland. In other words, this was an effect of the planned international expansion according to our strategy.
Net sales increased by 11.5% compared to last year, with organic growth at 7.3%. Adjusted EBIT and margin improved compared to the previous year. This year's margin reached 6.3%, which is up from last year's 6.2%, and the operating profit was SEK 1,097 million compared to last year's SEK 964 million. These improvements are attributed, as reflected in the quarter, to better compensation for inflation costs through annual school voucher increases in Germany and Norway, and contributions from acquisitions, but reduced by the lower compensation in upper secondary schools that not fully compensate for inflation costs.
If we move on to slide fifteen, and, looking at the, the increase of EBIT, over the years, we see that it's obvious that preschool and international, just as in the quarter isolated, contributed most to this year's profit increase. Let's move on to the financial targets and financial performance. Our organic growth, including small bolt-on acquisitions, stands at 7.3%, exceeding our financial target of 5-7% growth. Our adjusted EBIT margin of 6.3% falls below the target range of 7.8%, but in the quarter, we reached 8%. The leverage ratio of 0.6% remains comfortably below the required threshold of 3. If we continue to next page.
So, as we have described, the board intend to propose a voluntary share redemption program, and to further emphasize what has been agreed at or has been agreed to be intended to propose at this time, is the mechanism for the share redemption program. The fact of how it will intended to be proceed, the timing of the program in the Q3 of 2025, but was not has been decided to be recommended is the amount, the specific amount. And with these words, I end the presentation, and we open up for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Johan Sundén from Carnegie. Please go ahead.
Good morning. Thank you for taking my question. I have one first on the preschool business where you show quite impressive margins, and just curious to get some comments on how much of this that should be extrapolated going into next year. You made one acquisition, the quite big acquisition during the spring, which should be margin dilutive for the segment. Is there should or should there be enough with the kind of better compensation for the inflationary environment to hold up margin? Or how should we think about margins in preschools for next year?
We believe that overall the margins we represent now is, I think, is translated to next year. And I mean, you have to look at the whole year to represent the margin development. As you know, it differ a bit between the different quarters. Not the least, the Q1 is significantly different in terms of margins than the other quarters, but generally speaking, I think what we see in Q4 and what we have seen Q3 combined for the preschool segment is a fairly good representation of what the level we expect going forward. Now, when we are not only better compensated in the quarters, international segments, but we also see that that better compensation better represent our expectations of the compensation level going forward.
Okay, so at least the four point eight reported this year should be achievable next year, despite the dilutive effects?
Yeah, if everything else equal, if nothing else is changed in the compensation level or compensation framework from what we know right now, that should be relevant expectations.
Excellent. Well, that was the first one. I, I'll get back in line and see if there's more questions on the call.
The next question comes from Carl-Johan Bonnevier from DNB Markets. Please go ahead.
Yes, good morning, Marcus and Petter. Good development, no doubt, in the fiscal year. Looking at the student growth numbers you alluded to, Marcus, the 109,000. Could you give us some idea about how it looks across the segments at this stage?
No, we, you know, we are really early on that, so we are quite. We're taking it as a total, so, but we will comment on that in next quarterly report.
But, I guess, if you look at the, particularly, the upper secondary school segments, do you still see growth in year one students year on year? I guess that's the most important kind of indication.
What, what I mentioned is that we will comment on that, but I understand the question, of course, and we are focused on that all the time. But we will comment on that after quarter one here. When we see the numbers.
I find that-
It's very early and-
Excellent.
There has been more movement. You know, over a year, we see that the number of students move a lot between different schools. So we would like to wait a few more weeks before we say how things are developing.
That's fine, that's fine. Looking at the growth case for you in preschool Germany, what kind of ambitions do you have for this year of new openings, and what is the extended pipeline for new openings in Germany?
So, our intention is to open another 10 more schools this year, and that is to compare to, I think, the 13 we opened this year. So as you can recognize, there is intended a little bit lower pace of growth in the new establishments, but that's also both a consequence of that we're focusing on increasing the capital utilizations of the schools we already have established, and also focus on profitability. And as you have seen, and that's an important part of the results in Q4, but we see further room for further improvements.
And we have just worked with organic growth in Germany, and maybe we will have some opportunities now to also make acquisition in the preschool segment in Germany. So, because you know how it works, when you make acquisition, you get full capacity schools at once, up and running. So we will continue to grow organically. The need for new school places are really high, but I think that we will also see some opportunities now to make acquisitions.
... Excellent. And when you look at the acquisition pipeline, is there any new areas you would suggest, or is it digging deeper where you are?
I think we still try to dig deeper in Germany. Yeah, we see potential when it comes to schools in Germany. We think that they have, that there's, it's a group that we've developed quite well. And if we grow with the schools in Germany, it will be through acquisitions. And we see when we come to Netherlands, the preschool market in Netherlands is quite big, and we have a small group, and it's quite immature so far. So we see also opportunities to grow in the Netherlands. And then hopefully, we also could look into Poland. You know, we run adult education in Warsaw with our IT programs and gaming programs, and it's growing. It's small business, but it's growing. So that is a country that we want to know more about.
Excellent. When Touhula has now been part of your operation for a period, then I guess the management team there is driving more of a profit margin expansion recoveries case for it. Do you feel better confidence that in that's the case now when you have been owner of it for a while? Or how do you see that case developing?
You know, we must say that, you know, they are coming. We have looked at this company for many years, and we see improvement when it comes to financial results. We think it's a really professional management. They have focused on really creating margin, quality, and try to make a big and strong group. Hopefully, we will see some opportunities also in the future to make acquisition, because the sector is growing and a lot of the municipality need more places in municipality that is growing. There are also movement from taking your children, care of your children at home to go to professional operators. So it's an underlying movement towards ordinary preschool, and we would like to be a part of that development.
But the focus now is to keep up the improvement of the profitability in the business.
Excellent. And one final for me, looking at adult education, good move in the continued underlying margin recovery. If you look at the backlog and the tender kind of situation that you are now exposed to in this fiscal year, do you see still an opportunity for margin expansion, or should we expect it to be more stable at the current level?
We would like to keep it in the margin in the target range that we have, but what is very positive when it comes to the adult education is that we are not so depending on the tenders anymore because we have this higher vocational training that is very, very good, and we have a good market share, and we are very professional, and here is more like a school voucher system, so it's up to the students to choose our schools, and we are very hopeful on that coming here, too, because when we see that the unemployment increase, we see that more students and people go to the adult education, so we have less big contracts and more focus on the school voucher part of the adult education.
But maybe one thing we could comment on, and that is the online training that the adult education have, and we have really focused to develop our own platform. It's called Omniway. It has its own website. So we have developed a platform that we are working with in the total municipality training programs, the online training, and also the higher vocational training. So we have an effective machine when it comes to adult education.
Excellent. And, just on that, with the voucher part of that, that business increasing, so to say, I guess that should fit your business model even better to some extent?
Yeah. Yes, that's, that is the short answer.
Excellent. Thank you very much. I'll go back.
The next question comes from Beltrán Palazuelo from DLTV. Please go ahead.
Good morning, Marcus, Petter. Congratulations on the strong results. I have a couple of questions, if I may. Maybe if you can comment on, first of all, on the cost for next fiscal year, let's say, salaries and rents, so maybe you could give us a, let's say, light on that. Then the second question I have is, regarding acquisitions. I know you just commented it in the previous question, but maybe, let's say, apart from the things you mentioned, the, let's say, the amount that you're willing to spend, how aggressively is the, let's say, if the opportunities arise there. And then, without, of course, we don't know, let's say, what would the vouchers be, but, how do margins look for next fiscal year?
You think that the, let's say, with high utilizations, we can, let's say, keep on going to the target margins. And my last question is regarding the redemption program. What I know it's not decided exactly the amount, but the, what, let's say, what type of amount, you think that the balance sheet can have? And then the last question about the redemption, why redemption? It's quite weird that you do the redemption. Why not a normal buyback? Because the redemption creates a lot of, let's say, admin work, so maybe why not a buyback?
... Perfectly. We try to remember the question. Thank you very much, Beltrán, for the question. The first is on the salary and the rental increase, and we have seen quite high salary increase two years back, and also the rental, because it reflects the inflation. If we look at the coming year, it will be much lower, you know, because the inflation affects the rental costs, and it's the inflation in October that is the increase of the rental cost first of January. So if you look at the forecast, it's difficult to say, but my guess is between 2% and 3%, maybe, maybe even less. But who knows? It's better to make your own forecast.
If we look at the salaries, I think we will see quite low salary increase also the coming year because we have had quite high salaries, and that is also a result of the inflation, but we will see, and when it comes to the school voucher, that will also be reflected by the inflation. We saw two years back that we have a higher school voucher, and that is because of that, we had high inflation. Now we will have lower inflation, and then the school voucher also will be lower, and we are following this very closely. We ask the municipality what they think about the coming year. We try to plan in the best way, and we always plan for the worst and work for the best. That is our strategy when it comes to school vouchers.
If you look at the possibility to make acquisitions, we will, I think, make a lot of acquisitions in Sweden in the coming time. We have a good pipeline on that, but that is not our main focus, so I would like to say that I mentioned before, our focus when it comes to acquisition now, that is schools in Germany, it is preschools in the Netherlands, and maybe also preschools in Germany, but that depends on the prices. We have seen really high valuation when it comes to schools in Europe, and we don't want to pay too much. That is a strategy for us at the moment, and if you take the last question on the redemption program, it's up to the board.
You know, we had this discussion also last year, and the board really want to have this voluntary program, that it's up to each shareholder to decide what they want to do. So they want to continue with that program. And we think that it worked out quite well last year, and now we think that people understand how it works, and it's good to continue with the same model. And when it comes to the amount, as Petter mentioned, the board has not decided the amount, but they will tell that in good time before the annual meeting. But if we look at the financial situation in the company, it's stronger than last year at the same time.
Understood. So maybe the redemption, if last year it was SEK 266 million, and the net results have gone up, let's say, 9.3%, it is, let's say, likely that the... That is higher, no? It can be a good estimate.
I'm very sorry to say, but I can't estimate that, but I tried to be as clear as I could on that point. But we will know that in a few months, I think.
Okay. Thank you very much, and all the support from our side, and thank you for your hard work.
Thank you very much.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you very much for your interest, and we wish you all a good day. Thank you very much.
Thank you. Thank you very much.