Good morning and welcome to the AcadeMedia Q1 2022/2023 earnings call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to CEO Marcus Strömberg and CFO Katarina Wilson. Please go ahead.
Thank you very much, and we say good morning to you all to this presentation of the Q1 result of AcadeMedia. I will make a short introduction, and then I will hand over to Katarina. If we look at this Q1, we can say that we have started in a good and stable way with a good growth, and the demand in the education sector is strong, and we believe it will continue to be strong. We have grown a lot. We have grown the preschool segment with more than 8%. In Germany, that has been a focus market for us. We have grown with more than 20%. In Germany, we have added, according to the plan, 50 new units, and we have also entered a new country, that is the Netherlands, and we have started to acquire a platform of maybe 10 units.
We have acquired five new units this quarter. The total revenue growth in the company this quarter was 6.6%, and I think that is quite okay for us in this situation. As you all know, we have a very specific economic situation with the cost inflation. We have high cost for electricity and food, and that has impacted the quarter a lot. We have also taken measure to taking down the cost and to reduce the cost and to keep up delivering good quality. What is important to take when you look at AcadeMedia is that we are inflation-proof over time. We can't increase the prices, but we have a high demand. The statutory school voucher funding model is intended to maintain equal condition, ensuring that AcadeMedia remains inflation-proof over time.
We think because this situation is new for all of us, it could take until 2024 until we see the school voucher increasing in the same way as the inflation. If we look at upper secondary, the growth has been really fantastic. We have grown the theoretical program more than 10%, and our new campuses have started in a very good way. Now we have five campuses in Stockholm with the possibility to increase the number of students with more than 1,000 in next August. If you look at the Adult Education, it has been quite a strange situation because the demand in the municipality program has gone down a lot because of the high need in the labor market. But we still see a very good growth and profitability in the vocational program.
We think we have good contracts, and we think that this will be back, but it will take some time because we have to handle the situation when it comes to the municipality programs. Over these quite challenging times, AcadeMedia is strong and well-positioned to seize opportunities, and we see, as I mentioned in the beginning, quite high demand over time. Then maybe Katarina could take us through the numbers, and I can answer questions afterwards.
Thank you, Marcus. I'm Katarina Wilson, CFO of AcadeMedia. Moving on to page three, highlights quarter one of our new financial year 2022/2023. As Marcus mentioned, the year started well with strong demand in the school segment. The number of children and students grew by 4.8%, with increase in all segments and in all geographies. Growth in the preschool segment was as high as 8.1%. Net sales increased by 6.6%, with growth in all segments except in the adult education segment, where volumes are continuing to come down, mainly as a result of a very strong labor market. The organic growth, including smaller bolt-on acquisitions, including the Netherlands, was 4.5%.
The acquisition of Sandviks AS in Norway last year is reported in the preschool segment, and that contributed 0.9 percentage points to the growth. Adjusted EBIT was lower than last year at SEK 151 million, and the adjusted margin decreased to 4.9%. The main explanations to this decrease are lower volumes in the adult education segment, capacity expansion in the upper secondary school segment that is temporarily reducing the capacity utilization, and in Norway, continued effect from lower pension compensation and increased personnel costs, and also general pressure from inflation. EBIT, however, was on par with last year at SEK 157 million and includes items affecting comparability of SEK 6 million, that's insurance compensation related to the fire in 2021.
Last year, EBIT was affected by costs of SEK 30 million for that same fire. Free cash flow in the quarter was less negative than last year at -SEK 64 million. Moving on to page five, net sales rolling twelve months amounts to SEK 14.5 billion, adjusted EBIT to SEK 958 million, and adjusted EBIT margin 6.6%, which is now just below our financial target of 7%. EBIT rolling twelve months is on par with last year at SEK 929 million. Jumping to page number eight, development by quarter, by segment, with quarter one, starting with the preschool segment. 11 units were added to this segment in the quarter, one new start in Sweden, five new units opened in Germany, and five units were acquired in the Netherlands at the very end of the quarter.
We now have more than 300 preschools, and to be exact, 303 in four countries, of which 78 in Germany and seven in the Netherlands. The number of children increased by as much as 8.1%, and net sales increased by 18.3% compared to last year. Organic growth was 10.4% adjusted for a positive currency development and the acquisition of Sandviks AS. EBIT and margin was lower than last year entirely due to continued lower pension compensation and higher salary costs in Norway in total SEK 13 million. Also, somewhat high cost due to inflation, specifically, electricity cost was going up. The lower pension compensation will also impact the next quarter, and the total 12 months impact from this will then have been SEK 35 million.
Germany is seeing the impact of inflation, but this was in the quarter offset by positive vacation effects. To mitigate the increased inflation, the new start plan in Germany will temporarily be slowed down, and we are now planning to open 12 units in Germany instead of the earlier communicated 15 units. As I mentioned, we have already this year opened five units. Moving on to compulsory schools, page nine. Continued solid growth in the compulsory school segment. The number of students increased by 2.6%, and that is more than 700 students, and sales grew by 4.6%. One new school started this autumn with 130 students. Adjusted EBIT was somewhat lower than last year at SEK 51 million, and the margin decreased to 6.8%.
The new start, higher electricity cost and inflation in general, as well as initiatives to strengthen student health impacted the adjusted EBIT. We have received further insurance compensation related to the fire, SEK 6 million, and in total, we have now received SEK 30 million over last year and this year, and this has been reported as items affecting comparability. And as I mentioned, last year in Q1 , we reported cost of SEK 30 million related to that same fire. Therefore, EBIT was much above last year at SEK 57 million compared to SEK 24 million last year. Moving on to the upper secondary school, page ten. Student numbers increased organically by 4.6%, and that is nearly 2,000 more students than last year.
The growth is coming from three new schools that started this autumn and the previous 21 new schools that have started over the last six years. All in all, they're taking in more than 1,250 additional students. Growth is also coming from expanding capacity in our two-brand new state-of-the-art campuses in Stockholm opened in August. Net sales increased by 6.3%, driven by volume growth and the annual voucher revision. Adjusted EBIT was lower than last year at SEK 74 million, and the margin decreased to 7.2%. Capacity expansion is causing temporarily lower capacity utilization, which decreased to just over 85% compared to 88% last year. As we have communicated earlier, this effect will remain until the new campuses have reached full capacity utilization in about two years' time.
Higher electricity prices and generally high cost levels impacted EBIT also by SEK 7 million. Moving on to Adult Education, page 11. Just to remind you, last year, high unemployment created very high demand for Adult Education with exceptional volumes and high capacity utilization. By the end of last financial year, the job market improved, which was reflected in lower number of participants in our programs. Over the summer and the autumn, this development has continued, and the number of participants has decreased further, especially in the municipal Adult Education. In total, net sales decreased in this segment by 11.7%. Net sales in the municipal Adult Education decreased by 28%, resulting in lower capacity utilization and profitability. The SFI operation in Stockholm saw lower volumes already last year, and the capacity adjustments that was initiated last year has now been completed.
We have now also started to adjust capacity in other parts of this business area. This will be completed in the next quarter. Sales in the labor market services business also declined by 37%, but from a very low level. This is a conscious decision to reduce exposure to this business area. The volumes in the new matching contract, Krom, are still very low. On a happier note, demand for higher vocational education remains high, and sales continued to increase by 11% with stable margins. The acquisition of Futuregames, a leading game education provider, is included in this business area and contributed three percentage points to the growth. All in all, adjusted EBIT decreased to SEK 45 million, and the margin was 11.9%.
Looking ahead in this segment, in the next quarter, we expect the volumes in the municipal business area to continue to be low. We therefore anticipate the margin in the next quarter to be significantly lower than the range of 9%-11%. For the full financial year, we expect the margin in this segment to stay in the lower end of this range. However, the development of the economy can lead yet again to higher unemployment, as well as the new transition study grant in Swedish Omställningsstudiestöd from January can in the longer term lead to higher demand for adult education. Moving on to page 13, free cash flow and investments. Cash flow is usually negative at the beginning of the school year. This is a normal seasonal effect related to the working capital. Usually, we have higher accounts receivables.
Free cash flow was somewhat less negative compared to last year at SEK -64 million. The working capital was positively impacted by a calendar effect, increasing accounts payables. The net effect to the working capital from this calendar effect was about SEK 150 million positive. Maintenance CapEx to the right of this page as a percentage of sales was 2.2%. Moving on to page 14, the financial position is still strong. Net debt excluding IFRS 16 was lower than last year at SEK 1.3 billion, and the leverage ratio was lower than last year at one, which is well below the financial target of below three. However, if we look at net debt including property-related lease liabilities, that was higher than last year, and this is due to expansion in capacity and growth.
With that, I would like to conclude on page 15, the financial performance versus targets. Organic growth and profitability of all in 12 months is now just below our financial targets. I would like now to open up for questions.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Johan Lönnqvist Sundén from Carnegie. Please go ahead.
Thank you. Good morning, Katarina and Marcus. One or a few questions on the margin profile I had here. Can you please share with us a little bit more color on your own kind of planning assumptions for the new fiscal year regarding margin and how big of a negative impact this kind of inflation pressure could have? You have historically been quite good at offsetting cost pressure from making cost savings, et cetera. It would be very helpful if you can give some more color on the kind of magnitude on the pressure.
Hello, Johan. I mean, this is a very difficult question to answer. I mean, this really depends on the school voucher levels from the first of January. We saw in this Q1 about SEK 10 million impact from inflation, and I don't see that will disappear. Right now, Johan, I think that's a really hard question to answer. As we mentioned, we are now working on programs to reduce capacity, et cetera. I don't know.
Maybe it's important if you look at the different countries, Johan Lönnqvist Sundén, if you look in Sweden, for instance, we don't so far have a wage inflation. The salaries is according to plan this year. Also when we look at next year, I think the unions and it's negotiating in a good way. We see that the risk for a wage inflation in Sweden is quite low. Of course, we have cost inflation when it comes to food, electricity, and also the rent cost that is according to index. The municipalities, they have the same situation. We don't use to see this sort of high cost development during a year that has happened now.
The problem now for the municipalities is that they have cost developments in all parts of the different areas of the municipality, and how should they handle the situation? That's why we also take cost programs because we are safe to inflation over time. It's important to see that in Sweden, that is our biggest market, it's not a problem with the wages. If you look in Norway, we have a component in the school voucher that is related to the inflation. Hopefully we will have a positive development when it come to the school voucher in Norway. In Germany, it's a little different situation because in Germany, we also have wage inflation.
I think you have seen the different European countries that they increase the wages because they have some parts of the labor market that has quite low wages. We have a system in Germany that is also that we get the same costs as the municipalities have the same way in Sweden, but we think in Germany it could take some time. You have all seen the problem with the gas prices in Germany, and that's why we try to postpone some of the new starts. If you look at the market in Germany, it's very important to understand that the underlying demand is still very high, and the regulation that the municipality has to pay a fee if they don't arrange school places is still in place.
Demand is high, but we have to handle the situation in the short term. In the long term, we look very positive at the development in Germany. We also take, as Katarina mentioned, a very interesting step now also in other markets in Germany with the compulsory schools and adult education that we think is very interesting if we look at Germany in the future.
If we just come back to your comment, Marcus, on the union negotiations and potential salary increases for next year, what is your current, kind of expectation when you make your own budget for next year on salary increases?
You can say that if you take the next autumn this year, it will not be a problem. This year for us is from August to next summer. As our fiscal year is not a problem because we have already settled the negotiation this year. Next year in all Sweden, this is an open question. As it works in Sweden, it is the industry and union that takes the first step. If you read in the paper what they say, they understand the situation, and I think that the Swedish Union will not act in the same way as they do in Europe. What I'm saying is that the wage inflation is not the real problem.
When it comes to the other costs, we have a platform, we have a centralized purchase department. We can negotiate with the landlords in different way. The municipalities, they have the same situation or even, to be honest, a worse situation than we have for the moment. That's why I say that we are inflation safe over time. The problem is, what will the municipalities do in the short term? They will not do anything this year. First of January, the first step will be taken, and we think that they really understand the full situation for the first of January 2024.
Our focus is now to take care of the demand, to fill up existing places, to take central cost programs because we want to keep the quality in the organization very high and to be the best supplier of education over this year. We are totally convinced that we will leave this situation in a stronger position because we have the best position in the education market in the Northern Europe. I think we will leave this situation in a very good way. If we look at the Adult Education, we have really left the labor market programs. If you look at this, that is called Yrkeshögskola, the numbers are fantastic, the profitability is high, the growth is high, the students are still there.
Something has happened in the municipality program because the people that go to municipality program, they are now going into the labor market force. Of course, that is positive. We also see now that a lot of companies also take action to take out people from their businesses. We think that this part will also grow, and we have contracts until 2024. We have to handle this for maybe three, four, five months, and then we think that more of the demands will be back. Bottom of that education, we have the vocational program, and they are still performing very good. I'm very happy that we have made this change in the adult education because we have now market share of 18%-19% of the vocational markets.
Excellent. I'm good for now. I get back in line. Thank you.
Again, if you have a question, please press star then one. The next question comes from the line of Petter Sylvan from DNB Markets. Please go ahead.
Yes, good morning, Marcus and Katarina. I also need to come back to this for the inflationary pressure. You indicated, Katarina, about SEK 10 million in the quarter. If you take, say, the full impact of how it looked towards the end of the quarter and take it forward, is that a hugely escalating number going into your Q2 and into the early part of next year?
No, I wouldn't see it that way. Obviously, our quarter one is the smallest quarter, and it's been over the summer. I mean, you have to have a realistic view on that. As Marcus mentioned, we are working really, really hard with our central purchasing department now to really try and negotiate better deals.
To be clear on this, you know, if you see the food cost, we have seen a lot of the cost impact already. We have our own catering group, and we also buy some catering. That is what is in our own control. Also some of the things that we are purchasing is also in our own control. A little problem for us now is the electricity, the power costs. You know, we use a lot of power in our schools and electricity. We have made some saving programs to take down the usage of electricity. But it's very difficult to understand how will this affect us in Q2 and Q3. Because if you look in October, the costs were lower than we expected.
If you look at the forecast now for January and February, it's still high. We have hedged some of our costs. It could be positive, but to be honest, in September, it was negative to be hedged because the underlying cost was now lower. That is a key question for us. The other key question that you all understand when you read the financial press in Sweden is that the rent, the cost for the lease contracts, it's going to go up, not all contracts, but a lot of them will increase with around 10%. That is, of course, a problem. We also take discussions with the different landlords to find a situation to handle this.
If you look in the municipalities, they will have the same situation, but it could take longer time until that affect the school voucher. We have a quite good picture, but it's some uncertain points that is out of our control, and we try to do the best. What you have to keep in mind, and that is very important, is that the underlying demand is very strong. To have this sort of centralized organization that we have developed is also very positive. We have a lot of capacity to take in new students in August 2024 because nobody will increase capacity now. The municipality is postponing a lot of building of new schools because of the cost situation.
I'd like to say that we have 2020, 2023, 2024, a unique position in the education markets.
I fully appreciate the fluidity of the situation you need to manage. If you look at it, I guess voucher prices for 2023 is gonna, I guess, is negotiated in a lot of the municipalities for the moment with new political constellations and these kind of things after the election and so on. If you take your perspective of this, to get fully compensated, how much would you expect vouchers to need to go up, even though it might not happen this year?
It's a little bit difficult to answer that, to be honest. I think I've said that if we get 3%, I will be very happy. I think we will not be fully compensated then, but 3% is what I hope for from first of January. Then they will understand some more, and hopefully, it will be higher in 2024. The question is what will happen? Is this an inflation high position that will go down or will it continue? That is, of course, a key question. Because you have to understand that the municipalities, they have a tough situation also. I think they will also take some actions for it to take cost reduction or at least try to take cost reductions.
I hope for 3% that it will not fully compensate us, but we have other programs that will compensate for the cost development.
Excellent. That's a very good addition to it. When you look at the challenge you see in the municipality related adult education programs, how much more or how difficult is it for you to adjust capacity in that segment? Are you free to do that in the agreements you have with the municipalities and or are you stuck with certain costs that you can't get out, so to say, in this kind of environment?
This is, to be honest, to adapt Adult Education, that is core of our business. The problem is that we have seen a unique. They're going down in this market. Some of the people that has been working for this for many years has not seen so much. It's around 25% down in this market. What has happened is that you had the pandemic situation, and then everybody wanted to retrain and re-educate, and they entered the municipality programs. Now they have gone into jobs. You see that in Stockholm and Gothenburg and Malmö, it is really a lot of people going back to jobs, and that is positive for the society, but it has affected us.
What is the situation now that we want to keep the contracts because we think that the demand will be back in 2023, and so we can take down some of the cost, but we can't take it all the way down because we want to keep some of the contracts. That's why we see that we will have the vocational program will continue very good in Q2 when it comes to Adult Education, but the municipality will have a weak quarter in quarter two, and then we will have taken out all the costs in first of January 2023. Then I think that we will see increasing volumes.
We know from the history when it comes to Adult Education, that if you get back to the demand and you are at a low cost position, it will develop very well. That is the strategy for the moment, to keep the contract, take down as much cost as you can, and then take the demand that we think will come in 2023.
Excellent. On the labor market service side, have you been able to downsize that operation to where the volumes is for the moment? Or is that still also an excess capacity that you need to balance out?
In Q1, it's quite profitable, to be honest. It's developing quite well. We think that the new government, to be honest, they don't like labor market programs. That's why we have prepared for this. Now it's 10%-12% of the total revenue. Eight, Katarina says it. That is 8% of the total revenue. I think we have a good position now. The big markets when it comes to Adult Education will be Yrkeshögskola. We have the best position. Then it will be the municipality market, and it's divided in two parts. It's the vocational program that is also part of the municipality market, and we have a very good position and strong brands there.
We have this more learning math and Swedish and taking up the secondary grades that is also part of the municipality. That will come when the unemployment rate goes up. It's very interesting to see what will happen now with the labor market program, because I think they could be moved into Yrkeshögskola. I'm very happy that we have this position for the moment. We also have this new market that will be created in Sweden that is negotiated with the union. That it's possible if, for instance, I, as an employee, want to retrain to teacher, it could be a good idea for me to be a teacher, then I could be paid by the municipality to retrain. This is a SEK 1 billion market that is opening now.
I think we have very interesting brands to take a good position in this market. I believe that a lot of people will take the time to retrain during 2023 and 2024.
Interesting. Looking at the school segment, just could you give us a flavor of the experience you have had about opening these kind of huge new campuses in Stockholm? Has it been well received? You are able to, say, cater for growth in the market in the way that you describe?
To be honest, of course, I'm a part of this, so maybe you should listen to the teachers and the students. It has been fantastic. We have been here many times. We have been there with the unions, we have been there with politicians, we have been there with investors. I think this is the best thing that we have ever done. It's. You should go there and look for yourself. One of them is full capacity for the moment, Campus Vasastan. If you look at Campus Södermalm, we still have possibility to grow 700 or 800 more students. It has been a very positive start from the student. They are very satisfied, and I think this is the best schools in Stockholm for the moment.
We also have our campus in Nacka that is performing quite well. We have our campus in Solna, in Tomtebodavägen, and we also have a campus in Sandbacken that is the other part of Södermalm. We also have a campus at Blåsut, and we have a campus now also in Uppsala and in Gothenburg and in Malmö. I think this campus strategy is a very good step for AcadeMedia, and we'll also continue to keep this position that we have in that secondary school market.
If you look then, say, maybe three to five years forward, how many cities in Sweden could say cater for a campus strategy?
I think the bigger cities is our focus. What is so. We still have a possibility in Norrköping. We can do more in Linköping, maybe Jönköping, and also in Växjö. We could continue this strategy. What is so good with this way is that we could keep our different brands. As a student, you can follow your dream and go to the right brand, but you will be a part of a bigger school, and we can be more effective because we can use our central organization in a better way to support the school so it is an effective way to be a small school but also big school at the same place.
We have also another strategy that we have developed is to have these campuses in the central parts of the city, but we can also have it close to the university campus, and that is what we have tried now in Uppsala. It has been very good to be close to the university. In Uppsala, we have a campus maybe just a few hundred meters from the central part of the university. Then you have the good transportation possibilities, and you can use some of their facilities also. That is also. We have some schools that we are trying to do the same in Gothenburg. That is also something that could be an important part of this strategy when you move into other cities.
Excellent. Yeah, just on that theme, we have seen, say, in the news things coming out of Sweden that schools have been basically closed down at the start of this fiscal year, this education year, so to say, because there has been lack of teachers or qualified teachers. Have you been impacted in that by some way, or have you been able to cater for the openings you have done in a good way and the accessibility to qualified personnel?
Absolutely. This has been in Kiruna. I know the union talks a lot about this. In fact, we had board meeting yesterday, and one of the topics was to go through all the teachers and how many teachers that has exams and so far. So far, so good. If you're a teacher, and if you want to work somewhere, I think a lot of teachers will work in our campuses. It's a good environment. You have good possibilities as a teacher. You get good support, good food. I think the campus strategy is also a way to recruit good teachers.
Excellent. That sounds promising. It will be interesting to follow that. One final from me. I noticed from the notes that the board is sending out inviting to the AGM that you finally are looking to at least have share buybacks as a proposal to the AGM. I also note that was a proposal from one of the shareholders rather than from the board, and the board hasn't communicated its stance on the idea of share buybacks. How should we view that? Are the board not on top of this, or are they actively working against it, or given this kind of writing in the invitation?
The situation is that one of the biggest shareholders has made a proposal to this AGM, and now the board will give their view in time. They have, I think it should be three or four weeks before the AGM. The board will give their view on the situation in the company and this proposal three or four weeks before the AGM.
We have to wait and see for that part of it, so.
That's right.
At least good to see that it is on the agenda for the AGM. It's gonna be an interesting discussion to follow. Thank you very much.
Thank you.
This concludes our question and answer session. I would now like to turn the conference back over to AcadeMedia for any closing remarks.
Yes, thank you very much. We say thank you very much for listening, and we wish you all a good day.
Thank you. Bye-bye.
Bye-bye.