Ladies and gentlemen, welcome to the AcadeMedia Q4 report. Today, I am pleased to present speakers, CEO Marcus Strömberg and CFO Katarina Wilson. For the first part of this call, all participants will be in listen-only mode, and afterwards, there'll be a question and answer session. Speakers, please begin your meeting.
Good morning, everybody, and welcome to this year-end presentation of AcadeMedia's results and also the Q4 results. Me myself, Marcus Strömberg, and Katarina Wilson, our CFO, will make this presentation together, and I will soon hand over to Katarina to give you all the numbers and the details. This time of the year, if we go to the CEO introduction page, it's really a great time for AcadeMedia. We start a lot of new schools. We have a lot of new students coming to our schools. Behind us, we have very special times where all our upper secondary students and adult students have been working online, and now they are really longing to go back to school. We have seen some fantastic pictures that students that maybe don't usually like the schools really love to go to school.
It's a great time for AcadeMedia, and we can sum up a year that has been quite strange for us. A lot of people have done great work. If we look at this situation that we have had, the COVID-19 situation has had a continued large operational impact but limited financial effect on the organization. We have prepared ourselves well. We have invested a lot in digitalization and our digital infrastructure. It has worked out quite well. A lot of employees, teachers, leaders have done a fantastic work. If we just make a short outlook of the situation right now, in Norway, as a lot of people know, you know, the schools, the preschools were closed, but they are now back in normal, and they try to start up the year as normal as possible.
In Germany, maybe we have had the toughest situation. A lot of regulations, a lot of different rules in different Bundesländer and different municipality. In Germany, we have also seen the financial effect on AcadeMedia. We have tried to support our fantastic team and the employees as much as we had possible to do, and they have also done a fantastic work, and we are taking step by step back to normal. The underlying situation in Germany is still very strong. The demand of preschool is really high, and we are still planning to start a lot of new preschools in Germany, and we have a great team that is preparing it. Maybe some of the new starts will take a little longer time. If we take in Sweden our preschools and our compulsory schools, they have been open during all this time.
It has been a lot of work, of course, but we have handled the situation as good as we possibly had. The upper secondary and other adult education has worked with online, and we also see a huge demand for online training. Maybe you don't know that all of you, that AcadeMedia has really the biggest and the greatest online platform in Sweden. The investment that we have done, we really now see the result of that. If we look at the operating profit, it has improved, but the real driver behind this is the adult education. I also would like to say thank you for your patience.
We have been working a lot with this, but I must say also that the team and we have done great work when it comes to adult education, and the position that we have now is better than ever. Now we have an important task to help the society to bring people back to work, and that is really what the adult education is all about. As I mentioned, the underlying demand is very high of AcadeMedia's educational service. We see a revenue growth and organic growth that is over 5%, and the margin has also improved, mainly due to the result of the adult education. We have a good year behind us, a very special year behind us, and the demand of AcadeMedia's service is great. I will pass over now to Katarina to go through the numbers. Thank you.
Thank you, Marcus. My name is Katarina Wilson, CFO of AcadeMedia, and moving on to page number three, highlights for the fourth. Student numbers grew by 3.8%, including two new units in Germany and the acquisition of a compulsory school in Stockholm with just over 500 students. Net sales increased by 2.1% with organic growth in all segments. We had a negative currency translation effect in the quarter of SEK 57 million, and adjusted for that, sales grew by 3.9%. Adjusted EBIT increased to SEK 279 million, and the margin increased to 8.6%, driven by the adult education segment and the upper secondary school segment. Moving on to page number four, this is what the graph is showing. No item affecting comparability in the quarter, thus EBIT adjusted for IFRS 16 amounted to SEK 279 million compared to SEK 218 last year, which is an increase of 28%.
Moving on to page number five, highlights for the full financial year. It is very positive to remind ourselves that we have in total added 26 new units during this year, 20 new starts, and six acquisitions. We started the year with opening four new upper-secondary schools, and during the year we started 13 new preschools in Germany. This gave a solid growth in the number of students of 3.7%, and net sales increased by 4.7% with growth in all segments. Adjusted for negative currency, the organic growth was 5.4%, which concludes that we are meeting our financial targets when it comes to organic growth. Moving on to page number six. Adjusted EBIT increased to SEK 728 million, and the margin increased to 5.9%.
This was driven mainly by the strong improvement in the adult education segment, where both the higher vocational education and the municipal adult education delivered profitable growth. Also the compulsory school segment contributed to the improved results through more students and higher capacity utilization. In the upper secondary school segment, work on quality, digitization, and new units continued, which impacted the results. The preschool segment was affected mainly by higher personnel expenses in Norway. About SEK 40 million, as we previously communicated, related to the new staff density regulation, the higher pension cost. COVID-19 also impacted Germany temporarily through lower parental fees, with a net EBIT effect of minus SEK 8 million. Items affecting comparability for the full year amounted to SEK 36 million positive, this is from quarter three, when we had a one-time effect from moving to a defined contribution pension plan in Norway.
EBIT amounted to SEK 763 million compared to SEK 635 million last year, an increase of 20%. Moving on to the development in quarter four by segment, starting with the preschool segment, page nine. This segment includes preschools in Sweden, Norway, and Germany, in the fourth quarter, two new units opened in Germany, which gave a total of 262 units. The preschools in Norway and Germany closed back in March due to COVID-19 and opened again during the spring. In Germany, some preschools still have somewhat reduced opening hours to manage the pandemic. In Sweden, all preschools have remained open during this pandemic. The number of children increased by 0.4%, if we adjust for the 12 units in Sweden that were divested or closed last year, the organic volume growth was 4.2%.
As you know, we include both acquisitions and new establishments in our definition of organic growth. Net sales decreased by 4.5%, adjusted for the negative currency, sales grew by 1.1%. Sales was also impacted negatively SEK 12 million in Germany due to lower parental fees during the closed COVID-19 period. The impact for the full year was SEK 16 million on sales. Adjusted EBIT and margin declined as a result of increased cost in Norway due to the new staff density regulation as well as higher pension cost. Some of the loss of revenue in Germany was compensated by somewhat lower costs, for example, food, as well as some staff being furloughed, giving a negative EBIT impact of SEK 5 million.
Our plan in Germany to start new units have been revised down somewhat, as Marcus mentioned, due to the pandemic, now stands at 10-15 units during the new financial year. I would like to say that this is truly a delay. We still have the same strong pipeline going forward. Moving on to compulsory schools, page ten. We continue to see good growth in this segment. We have in total made two acquisitions in the year, one in quarter two and one in this last quarter four. This last acquisition counts actually as two units because it includes an integrated preschool as well as a compulsory school. The number of students increased by 5% and sales by 3.7%. The sales increase is related to an increased number of students and the annual school voucher adjustment.
Organic growth is generating a high capacity utilization, leading to an improved margin, and the adjusted EBIT margin increased to 9.3% in the quarter. We had no financial impact from COVID-19 in this segment. Moving on to upper secondary schools, page 11. Student numbers grew by 5% and net sales increased by 6%, as a result of the 14 new schools that in total have opened in the last year. Which four opened one year ago. Adjusted EBIT was higher than last year at SEK 121, and as we indicated earlier, mainly because we took mark-to-market last year. Also due to somewhat lower costs as a result of distance education during the pandemic. Again, I would like to emphasize that our strategic efforts in this segment on quality enhancement, digitization, and new starts are driving costs.
Because we have the technical infrastructure in place, the distance education works well. We are happy to announce that an additional four new schools have just opened for the autumn 2020, and that classroom teaching has been resumed. Moving on to the adult education, page 12. Also in this segment, all teaching in the quarter took place through distance education. Net sales increased by 6%, which is an increase now compared to last year for the fourth quarter running. Increases primarily within the higher vocational education, but also in the municipal adult education. The labor market services now account for 10% of the segment's total sales, compared to 16% last year. EBIT increased to SEK 35 million and the margin increased to 8.6%, and all business areas contributed to this increase. Quality enhancing measures in the higher vocational education also resulted in fewer dropouts and improved profitability.
The volume sensitive contract with the Swedish Public Employment Service will be terminated in the second quarter of this financial year, which is very positive for us. Contracts for the municipal adult education with the City of Stockholm have now been signed after the appeal was rejected. The new signed contract will run for up to four years, starting in January 2021, and it will give us continued stable revenue and a maintained market-leading position. AcadeMedia's higher vocational education was awarded about 1,500 additional educational spaces, which means that we are taking market share in this area. The number of applicants for the autumn start are also at a record high. Going forward, we think that rising unemployment will create an even higher demand for adult education.
However, it's important to remember that the financial impact for AcadeMedia will not happen until we have recruited students to our programs, and in some instances, not until the students have completed their education. I would also like to remind you that the first quarter of our financial year is a seasonally weaker quarter with less number of educational days, which you can see if you look at the diagram on page 12. Moving on to page 14, free cash flow and investment. Free cash flow is defined as cash flow before investing in expansion, and as you know by now, AcadeMedia has strong free cash flow. In the quarter it was SEK 560 million compared to SEK 362 last year. For the full year, the free cash flow amounted to SEK 805 million compared to SEK 356 last year.
I want to remind you that swings between years and between quarters can happen, and there may be an effect of changes in net working capital as a result of calendar effects. CapEx is lower than last year, both in the quarter and for the full year, mainly due to lower investment in property in Norway. Moving on to page 15, the financial position continues to improve. Net debt is lower than last year and the cash position is unchanged. The leverage ratio is lower than last year at 1.7, which is well below the financial target of below three. A property in Oslo was sold in the quarter and the cash flow will impact the first quarter of this new financial year. Finally, moving on to the last page 16, the financial performance versus targets.
We are meeting the growth target while profitability is still below target, even if it is increasing for the now fifth quarter running. Leverage, as I said, at 1.7 is well meeting the target of below three. The board has proposed a dividend of SEK 1.50 per share, which corresponds to 29% of net profit adjusted for IFRIC. With that, I would like to open up for questions.
Thank you. If you wish to ask a question, please dial 01 on your telephone keypads now to enter the queue. Once your name has been announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial 02 to cancel. Once again, that's 01 to ask a question or 02 if you need to cancel. There'll be a brief pause now whilst we register your questions. Our first question comes from the line of Thomas Graf of Handelsbanken. Please go ahead, your line is open.
Thanks for taking my call. Just wanted to get some more highlight of the voucher impact that you're referring to in the report. You mentioned that some are discussing smaller school voucher increases than would have been implemented. Could you just explain who are these, or just what have you heard about that? That your assessment is that municipalities will not be able to cut costs. Could you just explain some of that would be great. Thank you.
It's Marcus here. Of course, we understand now that the situation for many of the municipalities is very tough. You also see that the government in Sweden is preparing, they will give the municipalities a lot of money, and they will announce that in the budget process coming. They announced SEK 100 billion that will be extra invested in the budget. I think a lot of these money will go to the municipalities. That's why it's a little bit difficult to really talk about this because we don't know what will happen. What we think that we don't see that the costs among the municipalities, that they will go down. The municipalities, they don't do a lot of cost-effective programs and so on.
The schools, that is really important for the society, and that's why we still believe that the municipality has to increase the voucher. Of course, it's some signals from some municipalities that they will have a lower budget next year, but it's a little bit early to say. When it comes to our situation, I would like to say that we are very well prepared. We have worked a lot to digitalize and also make an organization more effective. We are prepared to follow the development of the municipalities. As you all know, it's a clear law in Sweden that it should be equal terms, and we also follow this very closely. We follow it, but it's difficult to say so much more about it for the moment.
All right. Moving ahead now, for the autumn now. As you've in the Upper Secondary Schools now have been doing online education and would it be possible to continue some of that in the autumn or will you go back to normal? Will you experiment some of that from the changes in early spring?
You can say that in Upper Secondary, we are going back to normal. That is the overview point. The government has also opened up a regulation that we can, in specific situations, use online education. We have decided that it's up to each principal to have some of their education online, and all the systems are in place. Before it was 100%, now maybe it will be between 10% or 20%, but it will be different in different schools. Of course, we will follow also development when it comes to the pandemic situation, and we can very fast move into total online education. The students, they really want to go back to school, so that's why it's very good that we now can open also our Upper Secondary Schools. The answer is that we will continue to work online, maybe 10%-20%.
All right. Thanks for that.
Thank you. Next question comes from the line of Stefan Knutsson of ABG. Please go ahead. Your line is open.
Hi, and thank you for taking my questions. First up, for the compulsory schools, I might have missed this explanation, but I saw that the number of children is growing faster than the revenues, and I'm wondering why is that the case?
That's well spotted, and that's correct. We had some retroactive revenue in quarter four last year, which makes that number look a little odd. Yes, that's correct.
Thank you. Moving on to the Upper Secondary School. Can you just elaborate a little bit on the decrease in new openings? I know that you said in Q2 that you marketed six new schools for this school year, but now four will open. I just want to hear your reason why this is decreased?
To be honest, we had some problem with the school buildings in some of the cities, we have postponed it to next year. We have opened now four schools, one big new school in our campus in Malmö, one new building in Nacka, and we have also opened a new campus in Uppsala. We must say that this campus strategy that we have has been really great and a lot of interest from the students. So that is also a strategy that we would continue to work with. We also have one more new start in other place that I just now forgot. I have everything in my head, but I forgot that one. Maybe you remember it, Katarina. It's one more. So four starts this year.
Okay. That's perfect. My last question is on the margin development in the Adult Education segment. Obviously, you had a strong recovery here in this fiscal year. How should we view the development going into next year? Because you also said that you will exit the contract with the Public Service Agency, will that have a material effect on the margin going forward?
In this quarter, we have had some help from the employment services. We have struggled with that a lot. You can say the key driver in Q4 is also the online training. As I mentioned, maybe you don't know about it because we have so many physical schools, but we are really leading the online education. A lot of students is now moving into online training, and they really like it. I think that will also continue to drive the margin. When we look ahead, it's difficult to talk so much about it, because we don't give any forecast in Adult Education. What we can say is that the demand is strong, of course, that we now leave this contract will also help us because this has diluted the margin a lot during this year that we leave behind us now.
Perhaps I can add to that. We have previously said that we believe that the margin in Adult Education should be between 9% and 11%, and that's still our target. That's pretty true.
Okay. Thank you.
Thank you. Our next question comes from the line of Karl-Johan Bonnevier of DNB. Please go ahead. Your line is open.
Yes, good morning. First of all, congratulations to an excellent development. Looking at the preschool segment, I wonder if you could give us some more color to the underlying profitability across the countries, given that there are so many moving items, looking at COVID-19, and you already detailed the labor cost in Norway and so on.
We don't leave the numbers between the different countries. That is maybe important that we keep to what we officially report. What we should keep in mind is that we have struggled a lot in Norway and in Sweden. In Sweden, we've had the schools open, in Norway they have been closed. Maybe the overlying in the report is that the financial effects of what has happened in Norway and Sweden is very low, but we have worked hard. When it comes to Germany, we have seen an effect, and that's because in Germany, we have more private pay than we have in Norway and in Sweden. In Germany, we have some of our brands where the parents pay a parental fee that is higher, and of course, they don't pay that when the schools are closed. In Germany also, we have supported our staff.
The regulation when it comes to support the staff, it's important for us to keep up the mood when it comes to the staff. We have also taken some costs, because it's a key question for us to keep the staff. That is the key resource in Munich. It's very difficult to recruit the staff. We have made some investments that we think will pay in the long term when it comes to the situation in maybe Munich.
Sounds reasonable. Looking at Germany, you are still making, I guess, even on these kind of market conditions, making a profit in the German operation during last year or during the fiscal year you ended.
Yes.
Excellent.
The overhead costs are higher than it is in Norway and in Sweden. That is because we start 15 to 20 new schools. Over time, we think that the overhead cost will be almost the same in the different countries. For the moment, we invest in new starts. What is, of course, so good in Germany is that the preschools, they are full in year 1, and they don't cost so much in CapEx to start. Financially, the situation in Germany is very good. The backside is that you have to take long-term contracts when it comes to the school buildings, but the market situation is very favorable.
Excellent. Looking at what's going on in the adult education area with the Swedish Public Employment Service, was that a loss-making contract for you, the one you're going away from now, if you're looking at the impact on the full fiscal year ?
Yes, they were. It was very specific situation when we won this contract because it was a condition that was promised from the Swedish Public Employment Service, and they didn't fulfill their promises. It has been a lot of different locations with low capacity utilization. It has not been a good contract when it comes to this situation. We had some other contracts, and we hope that the Swedish Public Employment Service will use these contracts now.
Out of the 10% that I think I heard Katarina saying related to the Swedish Public Employment Service of the volumes during last year, how big is this contract that you're now walking away from? I guess it's not all of the volumes.
No, it's not all of the volumes, it's small.
Excellent.
If you look at adult education now, the labor market programs are quite low. The key driver now is the municipality program and also the vocational training programs. We have never seen such numbers when it comes to wanting to start this sort of program. We have really turned around the total adult education. If we see some volumes when it comes to the labor market programs, of course, we will take a part of it, but we are not depending on that.
You discussed this opportunity of using distance learning also in the upper secondary, maybe having 10%-20% of things being done online going forward. Could you elaborate a little on what that means for the financial model within this segment? Obviously that must be an opportunity for you if you can either increase the school classes or, say, maybe over time decrease the size of the units you need, or how should we look at that?
I think in the short term, we will have the same cost because we keep up the classes the same way the teacher take the lessons according to the team and so on. In the short term, we don't see any margin effects of that. In the long term, as you mentioned, of course, it's a lot of opportunities we think to both improve quality, what is the most important to develop the quality in the education, but also to improve the profit. We see this when we compare to the adult education because we have the same training programs when it comes to young people in upper secondary and when it comes to adult education. The cost when it comes to adult education is much, much, much lower.
For the moment, you should not count in any profitability margin improvement because of this, because we have the same infrastructure.
Excellent. I guess it would strengthen your market position compared to some, say, municipality schools that might not have the same opportunity.
I think they also try to do it. Now the students really want to go back to school and meet their teachers. That is also very important because to meet this teacher that can inspire them and so on, that is very important. Not the least when it comes to the first-grade students. There it's very important that they can meet their teachers. We have invested a lot in this infrastructure, as I mentioned before, it has worked out so fantastic, well, better than I ever could think. I think that this will, in the long term, affect the upper secondary education, not because I'm saying it, but because the teachers want to change the way they educate.
Excellent. Looking at the new school year that just started, I know you don't want to elaborate on what kind of student intakes you have had already at this stage. Given that we are seeing, say, positive demographics across all the age groups for this school year, is there any reason to believe that you are not going to be at least getting that kind of benefit through your system during this school year start?
As you mentioned, we don't give that sort of numbers, but I think you talk about it in a good way.
Excellent. Katarina, just on the financial side, looking working capital, as you mentioned, it was a good boost in the quarter. Is there a lot of temporary effects in that, or was this a normal quarterly end, or how should we see that?
It followed the normal trend actually, if you look back historically.
You can say in upper secondary, we took some costs before, so if you compare the year before when it comes to upper secondary.
Excellent. Finally, the Oslo property that you are now selling and getting the benefit from in Q1 from a cash flow perspective. Do you have a lot of those kinds of things? It sounds like a fantastic asset that you disposed of.
No, we don't have a lot of that sort of building.
That was a special situation?
Yes, it was.
Thank you very much.
Thank you. Our next question comes from the line of Johan Sundén of Carnegie. Please go ahead. Your line is open.
Hi. Thank you for taking my question. There's been a lot of questions ahead of me. Many of my questions have been covered. If I just could add something on the international preschool business. There's been a lot of talk about the teacher density norm in Norway this year, and I guess that the pandemic and the lower pressure on volume from units has helped to cope with that. How should we think about next year? Could there be some kind of backlash during the later part of next year? As I understand, the voucher hasn't fully compensated yet for the cost. There should be one more year of lagging there. Am I correct?
That's correct. As we mentioned, the quality and the situation among the preschools in Norway and in Sweden is very stable. We have developed fantastic concepts, good quality, stable situation when it comes to the school, but the growth will come in Germany. We are using our concept in Sweden and Norway and our knowledge to develop our preschools in Germany. We will struggle one more year in Norway. I must say also that the management and the team has done a fantastic work, even if we have had this very difficult situation. They have handled it in a better way than we could expect. We have a very attractive preschools in Norway. Of course, the situation will affect the margin.
Yeah. That was all from me. Thank you.
Thank you. Once again, if there are any further questions, please dial 01 on your telephone keypads now. Okay, there seems to be no further questions at this time, I'll hand back to our speakers for the closing comments.
We say thank you very much. We have a fantastic day now in Stockholm, we have a lot of meetings this day, Katarina and I. Wish you all a good day. Thank you very much for your questions. Bye-bye.
Thank you very much. Bye-bye.