Good morning, and welcome to the AcadeMedia Q2 2023 Earnings Conference 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 Mr. Marcus Strömberg, CEO. Please go ahead.
Thank you very much, and good morning, everybody. I will just give you some short introduction and then hand over to Katarina Wilson. She will go through the Q2 report of AcadeMedia. If we look at page number two. Look at AcadeMedia. We have started this new year in a very good way. The demand is very high. We are now approaching 100,000 children in our schools. We have had a continued strong demand. The number of students are up almost 6%. If we look at the preschools, it's around 13%. We are now running schools in four countries. We have developed also the compulsory schools in the upper secondary in Germany through the acquisition of FAWZ. What is very important also in this quarter that we also announce the school voucher for 2023.
This is of course, very important. When we looked in Sweden and we look at the different municipalities, it's very important that they still continue to invest in school. School is important. They try to handle the inflation. The voucher increase is about 4% in Sweden. That should be compared with last year, 2.6%. In the quarter two, we haven't had these school vouchers. Of course, the inflation has affected the result with around SEK 20 million. That if we look at the adult education, we also have seen a continuous strong demand when we look at the vocational program. We are now really the market leader. We have also increased the market share when it comes to what we call Yrkeshögskola.
The challenge is the municipality training program because the unemployment rate is still low. In January, the number of people that could be unemployed has increased with three times. We are prepared. We have the contracts, we have the possibilities, but we haven't seen the students yet. If we look at the upper secondary, this is an important period of our marketing and information, and we have seen a lot of interest of our schools, put it to the start in August. When we look at our campuses, we are in all-time high. With that, I would like to hand over to Katarina, and she will give a deeper presentation of the result.
Thank you, Marcus. I'm Katarina Wilson, CFO of AcadeMedia. Moving on to page three, highlights quarter two of our financial year 2022, 2023. Continued good demand in the school segments. The number of children and students grew by 5.9%, with increase in all segments and in all geographies. Growth in the preschool segment was as high as 13%, where we are now including the acquisition of FAWZ in Germany with about 1,800 children. Net sales increased by 7.1%, with growth in all segments except in the adult education segment, where volumes are continuing to come down in the municipal business area. Organic growth, including smaller bolt-on acquisitions, including the Netherlands, was 4.3%. The acquisition of Sandvik in Norway last year, as well as the acquisition of FAWZ, this reducing capacity utilization.
General cost increase, as Marcus was saying, from inflation, mainly higher electricity costs also impacted. We estimate that inflation increased costs in this quarter by about SEK 20 million. Items affecting comparability of -SEK 21 million includes additional insurance compensation related to the fire we had in 2021, SEK 3 million. Transaction costs related to the acquisition of FAWZ, SEK 11 million, and restructuring expenses in the compulsory school segment, SEK 13 million. Free cash flow in the quarter was lower than last year, mainly due to working capital effect related to last quarter when we saw unusually high accounts payables, about SEK 200 million, but also due to, of course, lower operating income. Moving on to page 5. Net sales rolling 12 months continues to increase and now amounts to SEK 14.8 billion.
Adjusted EBIT is decreasing to just below SEK 900 million and adjusted EBIT margin to 6.1%. I'm jumping to page 8, development quarter two by segment. I'm starting with the preschool segment. The number of children increased by 13% with growth in all countries, and the acquisition of FAWZ is now included in the preschool segment. Net sales increased by 18.1% compared to last year, and the organic growth was 8.1%, adjusted for the acquisitions, including, of course, Stepke's from last year, and a positive currency development of EUR 37 million. Adjusted EBIT was higher than last year, and margin remained stable. Continued low pension compensation in Norway and in general, high cost due to inflation in all countries were offset by increased capacity utilization in Sweden and in Norway, and reduced cost for temporary staff in Norway, which last year was high due to the pandemic.
The acquisitions contributed SEK 4 million in the quarter. Lower pension compensation in Norway has now impacted 4 quarters with SEK 35 million in total. Items affecting comparability, SEK -11, is related to the acquisition of FAWZ. Preliminary school voucher increase in Norway for 2023 amounts to 9% compared to last year's increase of 2.8%. This increase is reflecting the actual costs in the municipalities 2 years ago. The way the model in Norway works, any changes in the cost structure are compensated with a 2-year delay. Moving on to compulsory school, page 9. Number of students increased by 2.3%, sales grew by 5.2%, 1 new school started this autumn with 130 students. Adjusted EBIT was lower than last year at SEK 63 million, the margin decreased to 6.4%. Inflation increased cost, mainly electricity and school meals, by in total SEK 7 million.
Continued initiatives to strengthen student health also impacted profit. The new school that opened this autumn and schools that have extended their capacity will temporarily lower capacity utilization, which is still well above 90%, but this is impacting the margin temporarily. We have received further insurance compensation related to the fire. Last year, SEK 3 million reported as items affecting comparability, and in total, we have now received SEK 33 million. We have also taken a restructuring cost in the quarter of SEK 13 million. Last year in quarter two, we reported insurance compensation of +SEK 18 million related to the fire. Therefore, EBIT was, therefore, much below last year at SEK 53 million compared to SEK 92 million last year. Moving on to the upper secondary school segment, page 10. Student numbers increased by 4.5%. Net sales increased by 6.3%.
The growth is coming from the 3 new schools that started this autumn and 21 schools that have started over the last 6 years, taking in a total of 1,250 additional students compared to last year. Growth is also coming from capacity expansion with our 2 new campuses that opened in Stockholm this autumn. I've said this many times, capacity expansion is causing temporarily lower capacity utilization, and this decreased capacity utilization by 2.7 percentage points to 84.9. This effect will remain until the new campuses have filled up in about 2 years' time. Inflation increased cost by about SEK 6 million in the quarter. Adjusted EBIT was lower than last year at SEK 107 million, and the margin decreased to 7.9%. Moving on to page 11, adult education. Volumes continue to come down, and sales decreased by 12%.
As you recall, a year ago, high unemployment created very high demand for adult education, and by the end of the last financial year in the spring of 2022, the job market improved, which was reflected in lower number of participants. This development has continued over the summer and also into the autumn and winter, especially in the municipal business area. Net sales in the municipal adult education decreased by 28%, which is the main reason for the decreased EBIT in this segment. Efforts to adjust capacity in the business area is continuing and should be completed in the fourth quarter this financial year. Sales in the labor market services business also declined 25%, but from a very low level, and this is a conscious decision to reduce exposure to this business area.
The STOM contract and the vocational Swedish contract are now fully closed, and the volume in the new matching contract, KROM, are increasing, but are still much below the Swedish Public Employment Service' own forecast. Demand for higher vocational education remains high, and sales continue to increase by 15% with stable margins. Higher vocational education is now actually the largest business area in this segment. All in all, adjusted EBIT in this segment decreased to 28% and the margin was 6.4%. Looking ahead in the adult education segment, we expect to see continued lower volumes in the municipal business area, and we anticipate the margin in the next quarter to stay significantly lower than the range 9%-11%. However, the development of the economy can lead to higher unemployment and increased demand for adult education.
Moving on to page 13, free cash flow and investments. Free cash flow in the quarter was lower than last year, and as I mentioned, mainly due to calendar effect from the last quarter. Accounts payables were unusually high, about SEK 200 million, but also due to lower operating income. Maintenance CapEx as percentage of sales stable at 2.2%. Moving on to page 14, the financial position is still strong. Net debt, excluding IFRS 16, was somewhat higher than last year at SEK 1.3 billion. Leverage ratio excluding IFRS 16 was slightly above last year at 1, which is well below the financial target of less than 3. Net debt, including property-related lease liabilities, was higher than last year due to expansion in capacity and growth. Leverage, including lease liabilities, was 3.4.
It can be noted that lease liabilities are expected to increase by about SEK 500 million in the next quarter due to indexation of rental agreements. Rent on existing contracts will increase by 10.9% from January 1st. Debt ratio defined as net debt divided by total assets excluding cash remained stable, including and excluding lease liabilities. With that, I would like to conclude on page 15, financial performance versus target. Organic growth and profitability rolling 12 months are both below target, while the target on capital structure, as mentioned, is met. With that, I would like to open up for questions.
Thank you. 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 are 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. Your first question comes from Steffen Knutsen from ABG. Please go ahead.
Hi, Marcus and Katarina. First question regarding the school voucher. Do you deem that it will be enough to offset the inflationary pressure? Can you also break it down on segments in Sweden a bit more, since we saw some headlines in the Stockholm region for upper secondary being lower than other regions?
If we look at this, we haven't divided it in different segments because we are still waiting for some of the municipality to report the numbers. The first question, will this be enough? I think we would have needed some more, but I think with our own efficiency program, we think that this is still a positive signal and some of the municipality has the right level. You can say that we just had one problem, and that is the biggest center of Stockholm, that they are still in upper secondary. They are still at a low level. We have a discussion with them, and I think in the future it will change. That will, of course, affect us in the short term.
On the other hand, we have a very high demand of new upper secondary students in Stockholm. I think it's no logic in this decision, but the decision is still there. The overall picture is that this looks quite good except for the area of Stockholm.
Perfect. Also a follow-up on the adult education segment. Can you give some more details on the profitability in the different segments given the rapid change in mix from municipality education to higher vocational? How are the two, yeah, lining up in terms of profitability?
It's difficult for us to give you the exact number. If you look at this from this perspective, if we look at the vocational program that is called Yrkeshögskola, we have a big market share now. We are increasing the market share. The number of students are very stable. The profitability is also very stable. I would like to say that the profitability is high and stable. The problem for us now is the municipality program, because we have the contracts, we have everything in place, but the unemployment rate is still low. We have to keep the contracts, we have to keep the buildings and some of the staff, but we are working on it. This municipality program is affecting the adult education very much at the moment, at this moment.
The unemployment program, the labor market program, that is a small part of the total revenue and the profitability so far is okay, but this is not so important for us. The key problem for us is the municipality program. We should really keep in mind that we have transformed the adult education and the number of vocational program and profitability that is profitable is very high. I think we have a good position, but the problem is the municipality program.
Just to follow up, is it a conscious decision to keep the municipality readiness, so to say, as you might expect a weaker job market and also that this new restructuring, or that you talked about, the new?
That is what we are thinking of a lot. We are thinking of that because we have taken down costs during Q2. The question now, what should be the next step? Should we wait for the market to grow, or should we take the next step? That is what we are working with right now. Hopefully, I think that we could help a lot of people that will be unemployed because you have seen what has happened in January now. So we think that they will come. The question is pace when. We are very good at helping people to new jobs and improving the possibility to take a new job. So that is the key question for us in the short term.
Okay. Thank you very much.
Thank you. The next question is from Johan Sandson from Carnegie. Please go ahead.
Good morning. I think we touched upon my question, but it was on the voucher. When you write 4% for the Swedish segment, are the Stockholm region included in those numbers, or are those in the missing 30%? Just to get that clear.
They are included. Because if we didn't have that, it would be higher.
Excellent. Maybe when you summarize everything, it could be higher than 4% then.
I think, you know, I think that Stockholm will be on 1.8% of this 1.9% that they have decided. The question is it will be impossible for them to keep this level over time. The question is, will they have to pay us when they have made deficit or will they change? For the moment, we think that it will be this 1.9%. If you put it into the total numbers, we are a little bit above 4%. It's also public information to see what has Malmo announced, what has Uppsala announced, what has Gothenburg announced. It's quite easy to look at that number, and they are at total other levels than the Stockholm one.
Perfect. That was my question. I get back in line. Thank you.
Thank you. Once again, if you have a question, please press star then one. Your next question comes from Karl-Johan Bonnevier from DNB Markets. Please go ahead.
Yes. Good morning, Marcus and Katarina. Coming back to the school voucher once more, maybe you could allude a little what do you see in Germany for the moment, and how do you see the increase in Norway? Is that getting you back to on track in Norway? Obviously, that operation has been under pressure for some time.
If we look at Norway, the number is 9%. As we have mentioned in the report, we have also had some differences in the system that has pressed the margin. Of course, this is a good signal that the system is working. That is the positive signal. You who had follow us, you know that 9%, that is a good number, but it should be 9% to get back on track, as you mentioned. When we look at Germany, it's a little bit difficult to give you a number because it's a different system. It's more immature. It's different in the different Bundesländer. It's difficult to give you a number in Germany.
We are still struggling with the cost development in Germany.
In Germany, when do you think you will have a better view on how to balance it and get back on track there as well?
You can say what is this focus in Germany is now to take care of the acquisition that we made in. I think that's a quite value creative acquisition and to be in compulsory and upper secondary, as far we've said, and that is also, it's SEK 200 million in revenue. It's a quite big acquisitions. When it comes to preschool, we will continue to start new pre-preschool according to our pipeline. As we mentioned before, we have postponed some of them to 2023, 2024, we will start a lot of new preschool because we have already taken the decision. The key question is: How will the voucher develop? How can we negotiate with the municipalities? What will happen with the cost development?
we can't give you a clear answer. What we know is that the demand is still very, very high. It's 400,000 places that are needed. We fill up our preschool at once, so we are on good numbers in one year. The key question for us is how can we really create profitability in the long term? This has been affected by the pandemic situation and also the inflation. We are convinced that this will clear up because the need of new private operators is so big, so they have to handle the situation. It's quite immature, as I mentioned before. When this will be, it's difficult to say.
You mentioned two things that I would be happy to, if you could allude a little more to. Looking at the expansion, obviously it has been the labor market shortage to some extent that has affected you there as well. Is that still present, or are you able to gear new units to the operating level that you wish when you open them?
You can say that when it comes to capacity utilization, it's not a problem in the north of Germany at all. We are developing what we call Stepke quite good. We have this that we have postponed some of the new starts to 2023, 2024. When it come to Munich and Bayern, we still have some problem to recruit people, and that is a problem for us. We are working on that, and maybe could the overall situation help us a little bit. As you've seen also in Germany, they increased the salaries more than we have done in Sweden because we have another tradition in Sweden. It's easy to see what is happening in the industry in Germany, and that will also, what we think, affect this industry. We are positive.
We are convinced that this is a very good market. We know that it's profitable. We have shown that it's profitable when we look at our mature market. We have this issue, and it's quite unique with the situation with high inflation, and they are not used to this and don't know how they should handle it. We have now several regions in Germany. We have good relations with the municipalities and the Bundesländer, and we are negotiating as we are sitting here now.
Excellent. The second part of that, when you look at both Germany and you alluded to that you have postponed some units for opening into 2023, 2024. How do you look at new units in 2023, 2024 overall? Yeah, please for the Swedish operation.
Maybe just Germany, you know, the exact number is difficult to say, but it will be in the range that we mentioned in the last quarter report. When it comes to 2023, 2024, we will be back on track in Germany when it comes to new start. That is at least what we think for the moment. When we look in Sweden, in upper secondary, we have focus on organic growth. We have built capacity, we have created the campus strategy, we have our brands. The focus there is organic growth. When it comes to compulsory, we will make some bolt-on acquisitions. We also have increased the capacity and built out some of our schools that we will fill up. We will see some bolt-on acquisitions.
We will also make bolt-on acquisitions when it comes to vocational programs because we think that this Yrkesvux skola is very important. For the moment, it's around 35,000 students that is in this market. We think that the government will increase this a lot the coming years. We will be prepared and continue to build a strong position.
It sounds like when we look at 2023, 2024 for Sweden compulsory and upper secondary, it's more a question of yielding what you have than starting new organic units or greenfield operations.
We will start some new units, you know, we have very much possibilities when it comes to our campuses, both in Stockholm and in Uppsala and in Örebro and in Gothenburg and in Malmö. I think that is also where we can create more value because we have prepared for this for many years now, and I think this is the right step to take now.
There are a lot of cities where you could spread the campus strategy towards?
Absolutely. We already have campuses in these different, in these different cities. If you look, for instance, in Uppsala, we haven't spoken so much about it because. We have moved our schools very clear to the university campuses, and this has been really a success. Now we're trying to develop this to a campus, also move some of our other schools to this area. Then we will have three schools in a sort of campus in Uppsala. I think that that's a good strategy because more children and students creates more students, and we can also work together in a better way.
Thank you very much. I'll pass that. I hope I come back into the queue.
Thank you. There are no further questions at this time. That does conclude our question and answer session. I would now like to turn the conference back over to Mr. Strömberg for closing remarks.
Thank you very much for your time, and you can keep contact with us if you have any further questions. We wish you all a good day. Bye-bye.
Thank you. Bye-bye.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.