Welcome to the AcadeMedia Audiocast with Teleconference Q1 2021-2022. For the first part of this call, all participants are in a listen-only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present CEO Marcus Strömberg and CFO Katarina Wilson. Speakers, keep digging.
Good morning, everybody, and welcome to this presentation of AcadeMedia's first quarter. I will just start to make a short introduction and then hand over to Katarina. As you see, and it has also been announced in the report, we had a very good start of our new fiscal year. A lot of students have entered our different schools, and I must say that we have the highest demand ever when it comes to our schools, and the increase in upper secondary has been really fantastic. The number of children and students have increased with 6.8%. What is also interesting now that we start to go back to more normal situation in Germany. The demand of new places in Germany is still very high. We increase the number of new starts.
We started eight preschools in Germany first quarter, and we will increase now the pace and we will start a lot of new preschools. We have a very good team and a good pipeline also when it comes to our preschools in Germany. We have also started new schools in Sweden, and we are already now preparing for next August, where we start our big campus in Stockholm. That is what we're really looking forward to. Already in October, in fact, we start with open houses and talk about these new starts next August. Then if we look at the adult education, we have already announced that we have the highest number when it comes to vocational training in the adult segment. We have more than 10,000 students.
For the moment, I would like to say that AcadeMedia is really the leading vocational educator in Sweden. It's in high demand. The politician talks a lot about vocational training, and we really have the top position with more than 15% of this market. We have very strong brands, both in nursing and also different sort of vocational program and on-the-job training programs. We have also announced something that is very interesting for us, that we have developed our brand strategy when it comes to our compulsory schools. The last puzzle is to announce Innovitaskolan schools that we did just a few weeks ago. We think that this development, when it comes to our compulsory schools, will increase the attractiveness and also the quality. Both the principals and the staff has been very positive to this.
We have now around one year to the election in Sweden. It's a lot of political debate. The school and the independent provider is something that is debated in the Swedish context. What is very important to keep in mind is that we have been working in this environment. AcadeMedia has been working in this sort of environment in more than 15 years, and we have a very strong model that handle different sort of political changes. What we see now is that it's more debate than real suggestions. If the situation is the same as now, everything will continue as it is today. I understand that it can affect people to listen to all this political noise. You should keep in mind that AcadeMedia is now the leading provider of education in Northern Europe.
It's more than 400,000 students that started independent schools in Sweden. Every tenth upper secondary student go to a AcadeMedia school. This sector is very big and important for the society. Today, we also announced our annual report, and we have one page where we sum up the quality results for last year. If you look at that page, it's not always that you have the good numbers on all different parts. In fact, we think, I think we have increased the quality results in all parts of AcadeMedia last year. Katarina, can you please update us now when it comes to the numbers?
Yes. Thank you, Marcus. I'm Katarina Wilson, CFO of AcadeMedia. Moving on to page three, highlights quarter 1 of our financial year 2021-2022. Quarter one is usually our smallest quarter when it comes to EBIT. It's the beginning of the school year, and what really matters more than anything else is the number of students in our classrooms. We've had a good start, like Marcus said, with strong student growth in the school segment. Student numbers grew by 6.8%, with over 10% increase in the upper secondary school segment. But student numbers were negatively impacted in Norway by the loss of two preschools in Oslo, and we talked about that already last year. Net sales increased by 10.2% with organic growth in all segments.
Swedish Education Group, the acquisition last year, contributed 3.3 percentage points to the growth. Adjusted for acquisition and a small positive currency translation effect of SEK 3 million, the organic growth was 6.8%. Adjusted EBIT increased to SEK 194 million, and the adjusted margin increased from 5.7% to 6.7%. Volume increase is one explanation to the EBIT growth, but we have also this year, similar to last year in fact, had a rather large positive effect from vacation. Our employees took more vacation in this quarter, and that gave a positive effect of about SEK 35 million in total. Like last year, this positive effect will even out over the course of the year.
Moving on to page four, showing an adjusted EBIT bridge that illustrates that all segments are contributing to the EBIT growth in the quarter. We had somewhat higher group costs due to higher activity levels compared to last year. Items affecting comparability of -SEK 30 million relates to the fire we had in a compulsory school in July. We are expecting to get insurance compensation at a later time to most of this cost. Moving on to page five. Net sales rolling 12 months now amounts to SEK 13.6 billion. Adjusted EBIT to SEK 976 million, and the adjusted EBIT margin is still above 7% at 7.2%. Let's go through each segment starting with the preschool segment at page eight. Like Marcus said, in Germany, we are now back really to full speed.
Eight new units opened in the quarter, which gives a total of 65 preschools in Germany and 278 preschools in total in this segment. The number of children increased by 1.6%, driven almost entirely by Germany and, as I said, negatively impacted by the termination of a contract in Oslo with 310 children. Net sales increased by 7% compared to last year and adjusted for a small positive currency translation effect, sales grew by 6.6%. This increase is mostly coming from Germany, but also partly due to higher compensation in Norway. Although this is a very small quarter, adjusted EBIT was somewhat higher than last year at SEK 9 million and was positively affected by the recovery in Germany and continued efficiencies in Sweden.
Looking ahead, we are well on track to open 15 new preschools in Germany. We will acquire one preschool in Sweden in the next few days. We are planning to start one new preschool in Sweden in the third quarter of this financial year. Just recently, a few days ago, the salary increases in Norway for 2021 were decided and landed on 4.1%, and this will be applied retroactively from May 2021. This means that we will have increased salary costs in the next quarter by about SEK 10 million, and for the second half of the year by another SEK 5 million per quarter. In total, SEK 20 million. Now, how much this actually will impact our EBIT is really too early to say since we don't know what the voucher increases will be for 2022.
We will know that in late December. Moving on to compulsory schools, page nine. We continue to see solid growth in this segment. The number of students increased by 5.8%, and sales grew by 10.7%, where the acquisition of Swedish Education Group and Stockholm International Montessori School last financial year contributed 3.9 percentage points to the revenue growth. Also, one school with 190 students was acquired in this quarter. State subsidies are increasing. For example, subsidies to ensure that all children and students have access to the same standard of education. In Swedish, we call that likvärdighetsbidraget, and this is also contributing to the revenue growth. As with all subsidies, we have an equal cost. Adjusted EBIT amounted to SEK 54 million, which was significantly higher than last year, and the margin was 7.6%.
Volume growth and lower personnel costs, SEK 15 million caused by more vacation days in the quarter, was the main explanation, and the positive vacation effect is expected to even out over the year. Costs related to the fire in July of SEK 30 million was reported as items affecting comparability. This gives an EBIT and EBIT margin below last year. However, as I said, we expect to be compensated for most of this cost related to the fire, but at a later time. Moving on to upper secondary school, page ten. Student numbers increased by as much as 10.1%, where Swedish Education Group contributed 6.2 percentage points to the growth.
The organic student growth was 4%, and it's coming from the three new starts this autumn, as well as the previous 18 schools that opened over the last five years. Net sales increased by 12.6%. Adjusted EBIT and margin was higher than last year at SEK 87 million, and the margin increased to 9%. Volume growth and lower personnel costs, SEK 15 million caused by more vacation in the quarter, was the main explanation. I reiterate the positive vacation effect is expected even out over the year. Just to remind you, we also last year had a positive vacation effect, and it was SEK 10 million in this segment last year. Adult education, page 11.
High unemployment impacted us all through our last financial year and created very high demand for adult education with exceptional volumes and high capacity utilization. We're now beginning to see an improved job market where volumes are starting to go back to more normal levels. Long-term unemployment is still rising, however. Net sales increased by 10.9%, and the growth was entirely coming from the higher vocational education, where the acquisition of Swedish Education Group under the brand name KYH contributed 6.3 percentage points to the total growth. EBIT increased to SEK 67 million and the margin was 15.7%. Demand for higher vocational education remains high, and this business area now represents 33% of the total segment. This increase is partly due to the acquisition, but also, as I mentioned, good growth in our existing business.
The municipal adult education is beginning to see a decline in number of participants, especially within SFI, Swedish for immigrants. This gave a lower capacity utilization and profitability in the quarter. This is a trend that we expect to see continuing for the next few quarters. However, we have a very solid contract portfolio in this area, and our contract portfolio is covering many of the areas that the government has directed additional resources to. The labor market services business was in line with last year, both regarding revenue and margin, but still only constitutes 12% of the total segment revenue. The transition to a new matching service is still slower than we had anticipated. The Swedish Tax Agency has revised its interpretation regarding VAT on subcontractors providing educational services.
This means for us that we're expecting increased costs by about SEK 15 million in the second quarter, affecting the higher vocational education business. The Swedish National Agency for Higher Vocational Education is working on a compensation model that is expected to come into place in January 2022. We are expected to get compensated for this cost increase for the second half of our financial year. To remind you, we still have a relatively young contract portfolio in this segment, and no major changes are expected for the coming year. However, we are expecting the margin to come down somewhat to more normal levels. We've said this many times before that, it's between 9%-11%. Moving on to page 13, free cash flow and investments.
The free cash flow defined as cash flow before investing in expansion was negative at -SEK 99 million compared to -SEK 42 million last year. Cash flow is normally negative at the beginning of the school year related to working capital. Rolling twelve months, the free cash flow was SEK 1.1 billion. Maintenance CapEx to the right on this page as a % of sales is increasing somewhat or rather coming back to normal levels, I would say. Page 14, the financial position improved even further. Net debt, excluding IFRS 16 is significantly lower than last year at about SEK 1.5 billion, and the leverage ratio is lower than last year at 1.1, which is well below the financial target of below 3.
The increase in property-related lease liabilities, that's mainly due to the recent acquisitions. To conclude, we are if we move on to page 15, we are for the fourth quarter running, meeting all of our financial targets, including our profitability targets. With that, I would like to open up for questions.
Thank you. If you have a question for the speaker, please press zero one on your telephone keypad. The first question comes from Stefan Knutsson from ABG. Sir, please go ahead.
Good morning, and thank you for the presentation. I have a question regarding the margins in the school in Sweden. Even if you adjust for the vacation effect, you still was up year-over-year compared to last year. I just wondered that is against my logic with increased activity levels in the schools. I also had a look at your smaller peer, Atvexa, which saw a drop in margin here in their quarter. Can you just comment on how you were able to increase the margins this quarter?
You can say that we have worked a lot. You mean the compulsory school now, or do you mean upper secondary?
Yeah. It was especially in the compulsory school segment. I think you were also up in the upper secondary.
First of all, the first quarter is a small quarter for us. That is important to keep in mind, so you shouldn't look so much at this, just this quarter. I must say that we have done a very good job when it comes to our compulsory schools. We have increased attractiveness. We have made a lot of good acquisitions when it comes to this, the segments. We have also you know, you have always a pipeline of not so good working schools, and we have also worked a lot with that. To say the most lost profit the units that lost a lot of money. That is really the explanation. Maybe you shouldn't look so much at this, just this quarter.
We are very proud of the team that is working with our compulsory schools, and it's developing quite well for the moment.
Perfect. Also a follow-up on the adult education, which continues to see elevated margins compared to your guidance of 9%-11%. My question is, shouldn't the COVID-19 effects sort of be priced in here or start to decline? Or why do you still see 15% EBIT margins in that segment?
It's as Katarina said, it's the same explanation. It's a small quarter, and you also have the July effect with we have really high demand over the summer, and that is combined with vacation that increased the margin. You shouldn't look so much at the quarter. What you should look at is that the vocational training is performing very well for the moment, and we have a very strong position. What we will see now, I think that we will have not so much online that we had before the coming year and also this migration program, they will not be at the same level as last year. It's a good start. We have a strong position, but I think you should focus on the target that we have mentioned with Katarina.
Of course, we are very happy to see how we develop the vocational side of the programs.
Perfect. My last question is just regarding the working capital. It was almost negative or year-over-year more negative SEK 100 million compared to last year. Is that something that you expect to catch up for full year?
Well, working capital is usually negative this early on in the year. Most of the time it's just calendar effects that is impacting the working capital. Of course, we had a very, very favorable position at the end of last year, comparing if you compare the cash flow. It's hard for me to say, but I wouldn't perhaps expect you know a big positive effect.
Nothing has happened when it comes to regulation around how the municipalities pays and so on. It's much more calendar effect.
Absolutely.
Didn't we have the sale in Norway last year also?
Yes, Yeah. In the cash flow, yes.
Perfect. We just look at a couple of more quarters then. Thank you for answering my questions. That was all for me.
The next question comes from Karl-Johan Bonnevier from DNB. Sir, please go ahead.
Yes, good morning. Just to detail this strong strange effects in the quarter. The vacation effect, Katarina, when you look at it, would you say that this year is more normal compared to history than previously or, given where we stand or so it's back to normal or is there some sort of specific effect you expect to reverse in the other direction next year?
No, I think this positive effect is larger than I had anticipated, but it's hard to say what normal is actually, Karl-Johan Bonnevier. I mean, we had a similar positive effect last year, so, of SEK 20 million in total, and this year it's SEK 35 million. It's hard for me to say.
The best guess now is that will even out, as you mentioned previously.
Yeah, this year.
Uh.
That 35 will even out. We will see a negative effect of SEK 35 for the next three quarters. That we know.
That is the best guess. You could also, you know, because during this COVID, some people, maybe they didn't use the vacation so much, and then they took a lot of vacation this summer.
Yeah.
Our best guess, that is, that it will even out, but it has been strange times.
Going into next year, I guess then, and everything is all else equal, we would see that the same kind of of Q1 effects, so to say, that this will be the new norm, so to say, that we should compare with.
I think that's hard to say actually, because COVID, like you said, could have impacted how we take holiday.
Because we saw that not so much people used vacation during the COVID, and maybe some more of them took vacation over the summer. The normal trend is that they use more vacation over the year. The normal is that when we grow like this, we have this sort of vacation effect.
Yeah.
It’s also related to the growth. Now we have high growth, and then you get a little lower valuation in the first quarter and little bit more the rest of the year.
In terms of number of employees.
Yeah.
The fact that the salaries increase every year. Yeah.
Yeah. As you point out, I guess for a fiscal year of 12 months, it doesn't really matter that much anyway, so.
It doesn't. No, it doesn't.
Just to understand this VAT change to the tax authorities. Is that some sort of retroactive sum that ends up to SEK 50 million? Or if you wouldn't get compensated, so to say, in compact, would this be a regular kind of quarterly kind of impact?
I don't think so. You know, this is more like a one-off in quarter two. If we take the schools, we have the situation that we have a compensation of 6% from the state on the voucher that compensates us for the VAT. Because when you have education, you can't even out the VAT as you do in a normal limited company. Now we have the same situation when it comes to adult education, the vocational program, and it hasn't been like this before. The authorities have been very clear that they will compensate us, but they will compensate us from the first of January.
When it comes to this sector, we have a lot of what you call them, consultants that do this sort of training because it should be integrated with the different sort of on-the-job training. We will be compensated, but I'm very sorry that we will not be compensated during Q1 and Q2. We have taken cost in Q1, but we will also announce that it will be a one-off in Q2.
Excellent.
We don't.
Good way of detailing it.
We don't have so many contractors during the summer months, so Q1 is, you know, Q2 and Q3 would be the
Yeah.
the months with the highest cost.
I think it's important to look at that number as a one-off.
Yeah.
As you say, from January 2022, then basically you would just see this as an increase in the voucher amount you get for these kind of students, but not the contribution from them on a net level.
No, that's correct. This is the whole sector, and this is from the political view, a very important sector. They have full focus on this situation. They are a little bit, sometimes they are a little bit slow movers, the politicians. They have been very clear that they will compensate from first of January.
Excellent. Final one. Good to see that you are getting Germany back onto the growth track again with these 8 units that you opened. Can you elaborate a little on how you've been able to staff them and how they have ramped up so far?
Perfect so far. You know, they are on profit levels after one year. The demand is still very high. We have focus on the northern part of Germany with the Stepke brand that has the best returns. We have a great pipeline for the moment.
Yeah. Could you elaborate a little how the pipeline looks for going into next year? Do you already have a similar kind of net new openings, or how has that developed?
It will continue. We have mentioned that we will start 15-20, and I think it will be at the higher number.
Sounds promising. Thank you very much.
I think we will have on the high number. We have a board meeting. This is not that affects the overall of AcadeMedia, but we took a lot of decisions yesterday, and we will continue, and we have a very good pipeline.
Sounds promising.
What is very important for us also, because when you grow that like this, it also costs you a little bit in the first year. That you have to keep in mind. We see it like it's a little bit of a moment of opportunity. Maybe we also should mention that we in fact have now taken one of our Edtech products also. It is small product to France. In fact, AcadeMedia is now in four countries. We could talk about that on another occasion. That has been very nice to see the development also when it comes to our new Edtech segment.
Excellent. Sounds promising. Yes, to go on further on Germany. I saw that you continue to increase the book value of your properties. Is that related to that bigger share of what's going on in Germany is done now in owned properties or?
That is very important that you mentioned this because when it comes to Germany, you have very long lease contracts, and that is a part of how the German model is. Then of course you increase the lease contracts according to IFRS.
That's 16.
Sixteen.
I was alluding to the property ownership, so to say the ones that you own.
We don't own anything in Germany.
No.
Okay. That's really just related to Norway. Perfect.
Yes.
Yes.
Thank you very much.
Ladies and gentlemen, I would like to remind you that if you wish to ask a question, please press zero-one on your telephone keypad. Please press zero-one if you wish to ask a question. We have a new question from Johan. Sir, please go ahead.
Yeah. Thank you. Johan Sundén for Carnegie here. Just a follow-up. We touched upon it earlier. It's the kind of vacation effect that it impacted this quarter. We saw a little bit higher than expected effect in Q4 last year. Are you seeing any kind of catch-up from that during this quarter? Or, so is it basically the 35 that should be the kind of full year level that should normalize during the coming three quarters?
Yes. Yes. That's my assumption. Yeah.
There's basically a risk that there could be a smaller normalization or a bigger normalization, which we saw last year giving out vacation outtake layout.
I would say that this SEK 35 million will even out this year. You will see a negative effect in the next three coming quarters.
Mm-hmm. That's perfect. Yeah. I think we covered my other questions earlier here, so thank you so much.
There are no further questions at this time.
Perfect. Thank you very much then. Thank you so much for your time. I wish you all a good day.
Thank you. Bye-bye.
Bye.