Welcome to the AcadeMedia Q3 Report 2024 and 2025. For the first part of the conference call, the participants will be in listen-only mode. During the Q&A session, participants are able to ask questions by dialing #5 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 welcome to this presentation that I will have together with Petter Sylvan. I will make the introductory remark and tell you a little about how the quarter has developed on page two. This third quarter, I must say, we're very proud of the quarter. It's a stable quarter. We are improving the growth, the profitability, and all our segments. It's a part of the stronger financial development. We have also invested in quality and increased the teacher qualifications. We have had a lot of efforts to improve reading and maths. We have also developed the international strategy. We have set a target that by 2030 should grow in Germany to 200 units and be the leading operator in Germany. We have also made, just after the end of this quarter, two important acquisitions.
One in the Netherlands that is called Yes! and one in Germany. This is important steps, and that shows also that we have the possibility to go ahead and achieve our strategy and our targets. If we continue to the next slide, we have made efforts to improve the qualification system, and now we are aiming at improving the teacher certificate. As you see at this slide, we improved it in both our segments. We have a history where we have had other competence in our schools, and we are really now at a positive track, and we have quite easy also to recruit good teachers. If we should look at the key subjects like maths, we have almost 100% when it comes to these key subjects, teacher certification. As I mentioned, we have this continued journey when it comes to the international development.
For the moment, we just opened our 100th preschool in Germany, and now we are aiming for 200 preschools in Germany. We have around 50 units coming up, and we think that we could grow when it comes to the preschool organically. If we look at the roadmap when it comes to the international schools in Germany, we want to be the leading operator. We have to three-double our revenue, and what we did now is a good first step with the acquisition of Potsdam, that is a school with more than 1,000 students. We also have improved our footprint in the Netherlands with more than 20 preschools, and we have now a platform of more than 30 preschools in the Netherlands and 10 schools. Two important acquisitions support our international roadmap.
If we look at AcadeMedia and the historic development, as you have followed the company, you see that we have a strong financial performance with 19% CAGR EBIT development over year, stable year out, year in. This is a result of the strategy of diversification and growth and also acquisition. We have now a footprint of more than 40% outside the Swedish voucher system, and we have a target to reach 50% when it comes to this development. A strong historical development, and as Petter will show you in a few minutes, we also have a strong balance sheet that will also support that we could make acquisition and go ahead with our plan. With that introduction, I will hand over to you, Petter, and go through the numbers, and I can take also some questions afterwards.
Thank you, Marcus, and good morning everyone. Delighted to see that we continue now our international growth. As Marcus outlined, we achieved a good growth of 9.2% with contributions from the acquisitions of Tula in Finland, that amounting to 4.6%. Additionally, our adjusted profit margin increased to 7.2%, and that was to compare last year's 6.9%. That means that we were reaching SEK 377 million in absolute terms, up from SEK 327 million. If we flip to the next page, the improved adjusted EBIT are evident across all segments. In the preschool and international segment, the increase of SEK 13 million is driven by positive contribution from the acquisition of Tula. In the compulsory and upper secondary segment, we have a stable situation with an increased efficiency in upper secondary. Adult education continued to report strong results, driven by high unemployment and better utilization rates.
Let's look at the quarter development within each segment, and we start then with the preschool and international segment on page 12. The number of children increased by 18.3%, with growth witnessed across all countries, excluding Sweden. Our growth was primarily driven by the acquisition of Tula in Finland, along with new preschool openings in Germany. The international operations account for approximately 30% of the group's total sale. Net sales increased by 16.6% compared to last year, with organic growth at 6.9%. Adjusted EBIT and margin was slightly reduced compared to the previous year. This year's margin, 6.5%, was down from last year's 6.7%. Last year's result was positively affected by retroactive revenues amounting to SEK 10 million. If adjusted for these retroactive revenues in the quarter, the margin was improved by 0.4%. The operating profit increased to SEK 121 million compared to last year's SEK 108 million.
The improved result was mainly a positive effect from the acquisitions of Tula, while the rest of the operation remained stable. The 2025 preliminary school voucher increase in Sweden is estimated to be 2.5%, or is confirmed, rather. In Norway, it has been 4.5%. After the end of the reporting period, we completed, as Marcus mentioned, two acquisitions. In April, we acquired Yes! Kinderopvang with 22 preschools. In May, we acquired the international schools in Germany with 1,250 students. Let's move on to the compulsory school on page 13. We now note a 4.9% increase in student numbers. Net sales rose by 8.2%, driven by increased number of students and the positive impact of the annual school revision. Adjusted EBIT and margin increased slightly compared to the previous years. This year's margin reached 7.2%, which is up from last year's 7.1%.
The operating profit was SEK 85 million compared to last year's SEK 78 million. The 2025 school voucher increase in Sweden is estimated to be 3.1%. Now we move further to upper secondary school on page 14. Here we observe a 0.6% increase in student number. The sales growth of 3.1% was driven by more students, as well as annual voucher revision. The adjusted margin increased this year's 9.1%, which is to be compared with last year's 8.2%. This was achieved because of good cost control in the quarter and increased retroactive revenues. The 2025 preliminary school voucher increase in Sweden is estimated to be 2.6%. If we move on to adult education on page 15, there is a 5% increase in sales, which is attributed to a high number of students, in particular higher vocational education.
Adjusted EBIT increased to SEK 53 million from previous year's SEK 43 million, with a margin of 11.4% compared to 9.7% last year. Let's continue to page 17, and there we talk about free cash flow and investments. The free cash flow for the last 12 months was closed last year in absolute terms. The free cash flow as percentage of EBITDA is, as expected, around 70%, and this quarter a little bit lower. If we then continue to maintain this CapEx, sorry, if we continue to the next slide, page 18, the financial position, net debt excluding IFRS 16 decreased by SEK 40 million compared to last year, with a leverage ratio excluding IFRS 16 at 0.7, which of course is well below the financial target of less than three. Even including property-related lease liabilities, the net debt is lower.
This is due to low indexation, low number of new entry contracts in the quarter, and FS effects. After the end of the reporting period, new loan agreements were signed with three banks, which is securing financing until 2028, with the possibility to extend until 2030. Securing future financing for a longer horizon is vital for AcadeMedia to be able to execute on its acquisition agenda that Marcus talked about. This will be important to lead to our goal that 50% of revenues should be financed from other sources than the Swedish school vouchers. Let's move on to page 19, our financial performance against targets. Our organic growth, including small bolt-on and acquisition, stands at 6.1%, which meets our financial target of 5.27%.
Our adjusted EBIT margin of 6.6% falls below the target range of 7.8%, but we are slowly improving quarter by quarter and rolling 12 and are getting closer to the target. The leverage ratio of 0.7 remains well below the required threshold of 3, leaving further room for acquisitions when opportunities occur. With these words, I end the presentation, and we open up for questions.
If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Johan Lönnqvist Sundén from Carnegie. Please go ahead.
Hi, Marcus and Petter. Thank you for taking my questions. First one for me is when reading through the CEO comments in the beginning, you highlight, Marcus, the kind of ongoing view of the Swedish independent school system and that you're analyzing the outcomes and are open to adjust your operations. It would be very useful to give some more color on what you see is changing and how you are to kind of adjust your operation for this potential change in the market setting.
When it comes to that comment, first of all, we are talking about inquiries. Nothing is really done, nothing is decided, and this is now going out to let different organizations also comment on these different sorts of inquiries. When it comes to this transparency inquiry, we have to increase the way that we take care of emails, report different structures, financial documents to prepare to make it more transparent for media or public persons and so on. That is what we are talking about. That is a quite easy step for us as a big organization, but we really do not know if this will happen yet. It is about the transparency question.
Have you made some kind of over back of the envelope calculation what it would cost for you? So you can have some kind of overview, or do you think that?
What we see so far, it will not affect us. As I mentioned, we are talking about something that will happen in one or two years, and it's not decided yet. That is important. Nothing is decided, of course, we always prepare. When it comes to the cost, I think they will not be high because we have a big organization. It is more about the sector and how it will affect the sector.
The other kind of topics raised in this review regarding forbidding paying a dividend during the first few years, there were also discussions about looking over the kind of voucher system. The kind of initial take from your side on those two topics, potential impact on your business?
You can say the voucher system is not presented yet, and there has been a lot of discussion around it, so it's difficult to comment on that. Our view is, and our report says that we are undercompensated and have been that under many, many years. We will see what will be the outcome of that. When it comes to the dividend question, we don't take dividend from units that we have started because it will take us three, four years to make it profitable. That's not an important question. When it comes to the dividend, if you make acquisition, that is not really an important question either. I think that there will be changes from this inquiry because I think they understand that to talk about many years is a long time.
Hopefully, it will be a shorter time, and it's about making trust among the public organizations. The dividend, we don't think that that's the right thing to do if you want to regulate the sector. If they have to do it, it will be, of course, more complicated for us, but we will handle it.
Is there a time frame, best guess, from today to implement into a new kind of market structure? How long are we talking?
We are talking first about the period of inquiry and discussion between the political party, and that will be maybe this will be on the parliament table just before the election, but I'm not sure. When they decide about it, it will take maybe one to one and a half years to implement it. It is important to understand that nothing is decided. Nothing is decided. It will be up to discussions. Even if things will be decided, it will be decided maybe just before the election next year and implemented 2027-2028.
Very clear. My second topic I wanted to discuss is margin expectation in the adult education business, which has performed well recently. You're highlighting in the report that the Swedish government are investing into adult education. If we assume that volumes hold up or even grow in the coming year, do you think it would be possible for you to maintain the kind of margin level seen this year, or should we still expect margins to kind of come down to, say, long-term average?
We believe that as long as unemployment rate stays at the level that it is now, that's the fundamental for continuous demand. The current forecast supporting that to some degree, but I mean, that's public data, so that's up to everyone to make the estimations. That should normally mean that we should be in the higher part of the interval of the 9-11% or even exceeding that, as we might do currently trading. That's how it has looked historically also. The main reason if we wouldn't be able to achieve such high margin going forward is if there is a change in unemployment rate, if the unemployment rate is starting to fall. Of course, sooner or later that will happen, but we don't know, no one knows when it will happen.
Excellent. Final question from my side. It's on the cost levels on the compulsory side. I note there was a little bit of a pickup in cost here in Q3. How kind of temporary or how temporary are the pickup here?
The cost of a compulsory school, one should view it for a longer period, year to date or so, I would say. Having said that, the margin is stable. As you see, we're increasing with one percentage point. The reason why it's not increasing but is staying stable is fundamentally that in compulsory school is where we're investing most in quality initiatives. Quality initiatives correlate to a high degree of more specialists in supporting skills of teaching mathematics and Swedish mathematics. We don't expect a margin reduction, but we don't expect any major margin improvement from where we are now either.
Great. I just have one final question. It's on the retroactive revenue part, which is where we are quite in the dark for forecasting. How should we expect that to impact your profitability in coming quarters? Any extraordinary that we should be aware of that are to come?
It's a little bit difficult question to answer. Just to give a little bit more flavor, we always have retroactive revenues. It's part of the compensation system that compensation is done afterwards when it's calculated in municipalities. If we look for Sweden, for instance, but it's similar in the other countries, that they had higher costs than they had anticipated in the budget. There always is the delay of compensation. The key question is, is there any major changes in a period compared to the other period for comparative reasons? That's what we try to explain in reporting if there is a significant deviation for comparative reasons.
Having said that, and just to explain for this quarter, for instance, if we looked at the preschool segment, in the preschool segment and international, we had last year, and you can read that in the report, we expressed that we had SEK 10 million more in retroactive revenue while we had no retroactive revenue this quarter. On the other hand, we had more retroactive revenue in Q2 in the preschool segments. If you look at it year to date, the preschool and international segment, there is a margin improvement. A higher degree of that margin improvement is in the international business than the Swedish part of the preschool segment. Rather long answer to we are a little bit in the dark ourselves.
For a particular quarter, it could happen that there is a deviation that we didn't really forecast would happen in that quarter because we don't really know when they come. But seen over a couple of quarters, this typically evens out compared to when you compare the years.
Okay. Thanks for that answer. I'll get back in line.
The next question comes from Karl- Johan Bonnevier from DNB Markets. Please go ahead.
Yes, good morning, Marcus and Petter. Just to continue on your last answer, Petter, when you look at the retroactive payments in this quarter compared to the quarter last year, on the ones you detailed, it sounded like it was basically at the same level that was affecting you this year as last year. Was there a different interpretation I should make to it?
Yeah. If you look at this particularly this quarter, and if you pick the values that we write in the report, in total, it's relatively similar retroactive revenues between the quarter years, as you said. There is a variation in preschool and international; there is less than last year's quarter. In the upper secondary school, it's more. Roughly, they even out.
Yeah. Group level is basically unchanged when you're looking at it.
But then, as you said, you're not detailing all of what is coming in as retroactive.
No. What is important to understand is the deviation, that's what we write out. Also, I clarify again that, and you may already have understood that, but typically, if you look for a full year and compare, the retroactive revenues in total make typically very little difference between the years. It's normally facing.
No, no. I appreciate that you detail it to understand the quarterly variability on margins and similar kind of things. Looking at also your comment about adult education, what kind of momentum do you see in the business going into the second half, into Q4, and the slightly more high season and this kind of thing?
Q4 is always, as you know, the smallest quarter with the lowest revenue. We expect the same pattern this year.
There is no change. We typically have shorter courses in that quarter, and there is also part of the vacation and so that start there. So no change in expectations from a phasing perspective.
Going into—sorry, should I phrase it other ways? Going into the next high season, if I mean it like that, have you added a lot of new programs to keep it going, so to say, on the current growth level as well?
We have a good amount of programs. We have good demand, and there is an underlying need there in the labor market. You can complement those markets if you know. From what I've seen in the labor market, there are still expectations for the full 2025 of high unemployment. Based on such data, if that continues, we would estimate that the coming year we have the fundamentals for that after the summer will continue to be strong. I think the key question is what will happen after that with the unemployment rate.
You have the election year 2026, and the ordinary pattern is that the politician and the parliament invest more in education an election year. This year, we also have unemployment. I think they will continue to invest more when it comes to what we call yrkeshögskola. The market will grow, and what we want to achieve is, of course, to grow with the market and maybe even try to take some market share. If it follows the ordinary pattern, we should have a good season the coming one and a half year.
Thank you very much. Looking at the school voucher indications that you're now giving in the report, do you see those playing out when it comes to the cost inflation that you see?
Yeah. As you know, we had low indexations of rents, 1.6% about, which is good. Of course, it comes down to the expected salary increases, and the major revisions we have in Sweden are in September. Generally speaking, we consider this to be neutral and cost-compensative-wise.
I guess looking at Norway, we're also looking at slightly higher probably wage negotiations than we do in Sweden. Should you see a balance in Norway as well?
Yeah. We have also a higher voucher increase of this. We expect to be in balance.
Exactly. Exactly. Good to hear. Just pick your brain a little as well on the margin target, given the 7-8% given that you're now going for more of an international growth to hit in that 50% target. Do you still feel the 7-8% is a valid target, or is that something that probably is going to be slightly more delayed due to the international expansion and maybe the focus on that being in, say, lower margin preschools?
No, we still see that margin 7-8% to be valid. Part of the—while, of course, that segment in general has a lower margin than the other segments, we can, one, conclude that we're already within that margin target in the Swedish preschool operation. That is the operation which we have been able to develop for the longest time, of course, and learn how to optimize. We see that there are further possibilities to further improve our margins and operational efficiencies in international operation. While we want to grow internationally, we also spend the resources to improve the efficiency.
Excellent. Thank you very much and all the best out there.
Thank you.
Yes. Just maybe as a short remark on the acquisitions that we make, they are on the target level.
Yeah, that's good to mention.
When we make this sort of acquisition international, they will, of course, support the target.
There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Thank you very much for your time, and we wish you all a good day. Thank you.