Welcome to the AcadeMedia Q3 report 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to the speakers, CEO Marcus Strömberg and CFO Katarina Wilson. Please go ahead. This call is being recorded.
Good morning, everybody, to this presentation of AcadeMedia's quarter three result. We have a very good morning here in Stockholm, and it's me, Marcus Strömberg, CEO, and Katarina Wilson, CFO. I will just start with a short introduction, and Katarina will go through the numbers. This quarter is the first quarter where we have full impact of the inflation and the cost in AcadeMedia result. It's about the lease contracts and other costs that also, of course, has increased. Due to good preparations, cost reductions, mainly at administrative costs, we have managed to have a quite stable result this quarter. We also see a very good growth number. The revenue is growing with more than 10%, and we also have a student increase and children increase of more than 6%.
We are also very pleased to see the international preschool segment growth, where the revenue is growing more than 20% and the number of children is up with 15%. We still see a huge demand of new preschool places, mainly in Germany. We are also very happy to see the interest when it comes to vocational training. This is an area where AcadeMedia has invested, developed, worked every year, and now we see the result of these investments. The interest of vocational training now in Sweden is quite high, and our brand, Praktiska, is very popular among the people that is applying for upper secondary school this August. We have also continued to work with our campuses.
That is also a very important part of our strategy. We see now a quite high interest to work on and to apply to our campuses. When it comes to Norway, where we run preschool, we have been struggling a bit. Now we see an increase of the voucher with around 9%. This is caused by the model that we are working with in Germany where the voucher is increasing two years after the cost, and we are very pleased to see that we now can have a more stable development in Norway. The overall view when it comes to this quarter is stable, and we will continue now to develop AcadeMedia with the strategy that we have been working with the recent years.
Thank you, Marcus. I'm Katarina Wilson, CFO of AcadeMedia. Moving on to page three, highlights, quarter three of our financial year 2022-2023. As Marcus just mentioned, continued good demand in the school segments. The number of children and students grew by 6.4%, with growth in all segments and in all geographies. Growth in the preschool segment was as high as 14.9%, where we're also including the acquisition from last quarter, FAWZ, in Germany with about 1,800 children. Net sales increased by 10.3% with growth in all segments, except in the adult education segments, where volumes are continuing to come down in the municipal business area. Organic growth, including smaller bolt-on acquisitions, as well as growth in the Netherlands, was 7.5%.
The acquisitions of Sandviks in Norway in quarter four last year, as well as the acquisition of FAWZ in this quarter, contributed 2.8% points to the growth. Changes in currency had no effect in the quarter. Adjusted EBIT was higher than last year at SEK 277 million, and adjusted margin decreased to 6.6%. Also, as Marcus was saying, in this quarter, we're seeing the full effect of inflation, including increased rent cost. Rent in Sweden increased from January the 1st by 10.85% due to indexation. We're estimating that cost for electricity, school meals, and rent altogether increased by almost SEK 60 million in this quarter. The annual school voucher revisions, also from January, are partially offsetting this cost increase.
In the quarter, the negative impact from lower volumes in parts of the adult education segment is declining due to cost-cutting measures that are now in place. In the upper secondary school segment, where we have invested in capacity expansion, campuses, and new schools, the profitability is temporarily reduced due to lower capacity utilization. Items affecting comparability, - SEK 6 million in the quarter is related to fire at a compulsory school in January this year, and we will receive insurance compensation in the coming quarters. Higher free cash flow in the quarter to some extent due to higher operating profit, but mainly due to less negative working capital, a calendar effect from previous quarters. Moving on to page five. Net sales rolling 12 months continue to increase and now exceeds SEK 15 billion.
Adjusted EBIT is just above SEK 900 million, and Adjusted EBIT margin is 6%. Let's jump ahead to page eight and development quarter three by segment and starting with the preschool segment. The number of children increased by nearly 15% with growth in all countries, also including last quarter's acquisition, FAWZ, with 1,800 children. Net sales increased by nearly 23% compared to last year, and the organic growth was 5.5% adjusted for the acquisitions of FAWZ and Sandvik. Currency, as I mentioned, had no impact in this quarter. Adjusted EBIT was higher than last year, but the margin decreased. Higher costs in all countries due to inflation were somewhat offset by the annual school voucher revision, as well as increased capacity utilization in Sweden and in Norway.
The school voucher increase in Sweden was 5.3%. In Norway, the voucher increased by 9%, and this is reflecting the municipality's higher cost in 2021 during the pandemic. We have a two-year lag. In Germany, we estimate that it will take up to a year before the preschool operators are fully compensated for inflation. Our growth plans remain unchanged, and we plan to open 15 new units in Germany next year. Moving on to compulsory school, page nine. The number of students increased by 2.7%, and that is 750 students, and sales grew by 7.2%. One new school with 130 students started this autumn, and one school with 230 children was acquired this quarter.
The annual school voucher revision was 5.3% compared to last year's revision, 3.1%, to reflect inflation. Adjusted EBIT was higher than last year at SEK 69 million. The margin remained stable. Inflation continued to impact operating costs. Energy, school meals, and rents increased by about SEK 20 million compared to last year. Also, continued initiatives to strengthen student health impacted profit. As I mentioned, items affecting comparability is related to a fire in January, and we will receive insurance compensation later on. Moving on to upper secondary school, page 10. Student numbers increased by 4.3%. Net sales increased by 8.2%. I've mentioned this many times, growth is coming from the three new schools that started this autumn and 21 schools that have started over the last six years.
Those schools are now adding 1,250 additional students compared to last year. Growth is also coming from capacity expansion with two new campuses that opened in Stockholm this last autumn. Revenue increased and is also coming from the annual school voucher revision. That was 3.9% compared to last year's increase of 2.3%. Capacity expansion continues to temporarily lower capacity utilization, which decreased by 2.9% - 83.9%. This effect will remain until the campuses and the new schools have reached full capacity utilization. Inflation continued to impact operating costs. Energy, school meals, and rent increased by about SEK 30 million compared to last year.
To summarize this segment, Adjusted EBIT was on par with last year, SEK 116 million, and the margin decreased to 8.4%. Moving on to adult education, page 11. Volumes continued to come down, and sales decreased by 7.8%, mainly due to continued contracting volumes in the municipal adult education, where in this business area, sales decreased by 24%. Capacity adjustments in this business area and cost-cutting measures are now showing an effect, and the margin in this business area increased somewhat. We believe that the volume decrease in this business area is now stabilized.
Sales in the labor market services business also declined 7%, but from a very low level, and this is a conscious decision to reduce exposure in this business area. The volume decrease is coming from the Storm contract and the vocational Swedish contracts that are now fully closed. The volumes in the new matching contract, KROM, are increasing, but are still below the Swedish Public Employment Service's own forecast. Demand for higher vocational education remained high and revenue increased by 8%. Capacity utilization is slightly lower than last year in this business area, and this is somewhat affecting the margin. Last year, the capacity utilization was very high in the light of the pandemic. In total, Adjusted EBIT in this segment decreased to SEK 33 million, and the margin was 8%.
Looking ahead in this segment, we accept, expect that the volumes in the municipal business area has stabilized, and we anticipate the margin in the next quarter will remain below the range 9%-11%. As always, the development of the economy can lead to higher unemployment and increased demand for adult education. Free cash flow and investments, moving on to page 13. Free cash flow in the quarter was higher than last year, mainly due to a calendar effect from last quarter, as well as higher operating profits. Maintenance CapEx as a percentage of sales was stable at 2.2%. Moving on to page 14. The financial position still very strong. Net debt, excluding IFRS 16, was lower than last year at SEK 1.2 billion.
Leverage ratio, including, excluding, sorry, IFRS 16, was on par with last year, 0.9, which is well below the financial target of less than three. 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. Lease liabilities has increased from the last quarter with just over SEK 400 million due to indexation of rental agreements. As I mentioned, rent of existing contracts increased by 10.85% from January. With that, I would like to conclude page 15, financial performance versus target. Organic growth, rolling 12 months, 5% is now back on target. Profitability at 6% is below target, while the target on capital structure is met.
With that, I would like to open up for questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Stefan Knutsson from ABG. Please go ahead.
Morning, Marcus and Katarina. Just a question regarding Germany first. Can you talk a little bit more about the compensation cost balance that you currently experience and how you think it will play out in the coming quarters?
Hello, Stefan. It's a little bit too early to actually say. We don't yet know how this will pan out in the next year. We do believe that we will have a time lag like we've had in Norway. We are pretty certain that we will have compensation within the next 12 months.
Maybe we should mention that the demand is still very high, and we fill up these units very fast. It's not a matter of capacity utilization. It's more about that the model should work in an inflation environment. We are also better in Sweden to negotiate salaries. You know, we have this system now in two years quite stable. In Germany, it's more volatile, you could say.
How about, do you face any bottlenecks in terms of, getting hold of preschool teachers there in Germany, because of the rapid expansion?
You can say in the, in the north part where we the main part of our expansion is we don't have this sort of problem. In Bayern, we there is still a lack of staff. We started our expansion in Bayern, but the main of the new starts are in the north parts of Germany. There, we don't see any lack of staff.
Okay, thank you. Then also a follow-up on inflation here. You said that we saw full impact of inflation here in Q3. I'm just curious how you think about the salary increases year- over -year because I think they will be higher than they were last year starting from Q4. Just a comment on how you see those effects and if you see any offsetting effects to bottom or to fight that.
It depends if I understand the question right. You know, when it comes to adult education, the salary increase will be before the summer, but the teacher increase will happen after summer. When it comes to the big number of staff, and that is the teachers, it's not totally clear how high the increase in salary will be. My guess is that they will follow the model in Sweden with 4.1% this year and 3.7% the coming year. To be honest, if we look at what we hear now from the negotiations with the municipalities, they don't want to spend 4.1%. We will see what will happen. We are planning for 4.1% and then 3.7%.
I think that in an environment that we are in Europe is quite good. We you know also that we have already received the school voucher this year. Of course, if we see a raise in salaries of 4%, it will, the school voucher will continue to increase next year.
Okay.
But-
Thank you very much for the clarification.
If I answered the question in a good way. Katarina says it was okay, so then it's okay. We have a good situation in Sweden when it comes to salaries. I think we should really be proud of what we have done, what the different parties in Sweden have negotiated. If we see the situation in Europe, it's much more difficult in France, for instance, as well.
Okay. Thank you very much.
The next question comes from Karl-Johan Bonnevier from DNB Markets. Please go ahead.
Yes. Good morning, Marcus and Katarina. Not bad to get all names in the presentation. Coming back to the expansion of the franchise, looking at the inflationary environment and everything, how do you see new openings, say, coming this autumn and going into the next couple of years? Are you more reluctant doing organic new openings in this kind of environment than you were before?
I think we will continue our planned growth in Germany the coming year. Of course, we are looking very closely what happened with the cost development and the increase of the voucher. In Germany, more than 50% of the preschool sector is private, so they have to change the model. We are totally convinced that the compensation will be there. When it comes to Sweden, we have created capacity the recent years when it comes to our campuses, our investment in vocational schools, so we will continue to fill up existing schools. Maybe we will do some new starts, but the main of the growth will be organic and will be to fill up capacity.
When you look at Germany, I remember you postponed some openings, earlier. Are those now back in opening mode, or have you decided to do something else with them?
No. No. As we have now... Is it 83 units up and running? 83, 84 units up and running. We have a contract portfolio of more than 20 more units. I think it's 30 more. We will start 15 new... Our plan is to start 50 new units the coming year. Of course, something could happen when it comes to new starts and construction and so on, but that is the plan.
It's good that you mentioned Praktiska in your initial note because I remember when you acquired that operation, it was quite a tarnished brand name, and you were having problem with the regulator when you took it over. Could you just elaborate on what you have been able to do to create that solid base that you now describe?
If you look at, you know, we've working with upper secondary for many, many years. What happened seven, eight years ago, they changed the model in Sweden. If you went to a vocational program, you weren't allowed to go to university. That made a decline when it come to the interest in vocational programs. Now the government has changed this coming year. I would like to say that we are the only one still running vocational program in all of Sweden, and that's why we see huge demand when it comes to the interest in Praktiska. We have also invested in quality. For the moment I... It's hard to work because we are working with some of the most tough students here. We don't have any quality remarks from Skolinspektionen.
We have also invested in our buildings. If you go around and look at our vocational schools, in many places in Sweden now, they are really, really great. I think that this will be a key driver when it comes to AcadeMedia's organic growth the coming five years. We have now a leading position when it comes to vocational training in upper secondary. In fact, also we really have developed our theoretical program. If you look in Stockholm, for instance, it's the interest of some of our brands now is really, really great. If you look three, four years ago, we weren't among the top in Stockholm, but now we have Sjölins with more than 700 applying to the school.
We have our campuses. We have moved the ProCivitas from south of Sweden to Stockholm. I think it's a really great job that our managers has done to develop the different brands. Our portfolio with different brands is something that really will be a possibility for AcadeMedia the coming years.
That very quickly moved me into my next question, looking at your feeling for the school start next year. Obviously, we are still preliminary stages, it sounds on your remarks there that we should expect a new record intake in your first year and for the first-year students looking at upper secondary.
We don't comment on that, but it's easy to look at the public numbers. You could say that one important thing to keep in mind is that the immigration has changed a lot in Sweden, so the overall demographic development had changed to a little bit more negative situation. That is something that you have to keep in mind when you look at the numbers. When we look at our market share, it looks quite okay. It's easy to look into the numbers. If you look, for instance, Gothenburg and Stockholm, that is public figures, so it looks quite okay.
A final one from me. Looking at all these pressures going on in the markets, and have you seen any opportunities for you to step up acquisitions in this environment, making use of your strong balance sheet?
Absolutely. Our main focus is international to move and develop the international part of AcadeMedia. We have a lot of contacts now for the moment. In fact, I think it's quite a key valuation. The problem is that the valuation of AcadeMedia is still very low, but I think that we could make quite good possibilities when it comes to the international market. We will also see some bolt-on acquisitions in Sweden. We would like to continue develop our Montessori concept, and that is in fact quite unique in Sweden that we have now created the leading Montessori concept in Sweden. If you look at, for instance, in Stockholm, we have our Montessori school at Kungsholmen.
It's more than 5,000 people that want to go to that school. I really think that that could be one thing that we could continue to grow also in Sweden. We will not grow in Norway, and we will try to increase organically. It's quite positive, the number of children, but we also see a negative demographic development in Norway. Then maybe we will continue also to develop the business in the Netherlands. We have met a lot of people and companies in the Netherlands, and we think that that could be an interesting market for us.
Sounds like you have a lot on the table.
Maybe also we should mention about our game education work and we have now created contacts. You know, the game developers, they work with different studios all over the world, and we have now found out that there are a lot of education studios also, and some of them could be possibility for us to acquire. Now we in fact started also organically in the U.K. It's very small, but it's called Apprenticeship, and that is a sort of Yrkeshögskola but in the U.K. way. I think we have a lot of possibilities in the future to develop our different brands and them to be more international.
Excellent. Thank you for all the color and good luck and all the best out there.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you very much for interest, and we wish you all a good day. Thank you very much. Goodbye.
Bye-bye.