Welcome to the AcadeMedia Audiocast with Teleconference Q2 2021/2022. For the first part of this call, all participants are in listen-only mode, and afterwards there will be a question and answer session. Today, I am pleased to present CEO Marcus Strömberg and CFO Katarina Wilson. Speakers, please begin.
Thank you very much, and, good morning, everybody. Marcus Strömberg here, and I will just give you a short CEO introduction, and then I will hand over to Katarina, our CFO, that will bring you through our quarter two report. Just to sum up this first six months of our school year, the development in the company is still very strong, and it's a strong demand. We have a revenue growth of 10%, the number of students and increased with 7.5%, and the underlying organic growth was six percent. Of course, this is very good to hear, and we also have a good development when it comes to the adult education and vocational programs. We have had a quarter with high infection among the staff.
It has been really a lot of trouble to arrange the school activities. This, of course, has impacted the operation, and we will update you more how it has impacted operation later on. What we're very happy to see, is that the primary school voucher in Sweden, has increased with 2.6%. We see that the municipalities in Sweden have invested in school, and keep on investing in school. We see that they invest in compulsory schools, but we also see some improvements when it comes to upper secondary schools. In this quarter, we also have done two very interesting, small but important investments. We have invested in a company that is called Sandviks AS in Norway, which are a customer base both in Sweden and in Norway.
This is a company that is focused on educational training for small children. It's a subscription business model with both physical products as books and so on, and also online platforms. We have also increased our investment in Hypocampus. That is a part of our ed-tech and digital strategy. This Hypocampus, is a tool that you can work with different artificial intelligence tools to take your study in doctorate. We have a success when it comes to France, and we also try to implement this in other countries. To just sum up, it is a strong, stable quarter, and we continue our development, and we are looking forward now to start some new campuses after the summer and to keep developing AcadeMedia's new strategy.
I will take some questions after the presentation that Katarina will give. Please go ahead, Katarina.
Thank you, Marcus. I'm Katarina Wilson, CFO of AcadeMedia. Moving on to page three, highlights quarter two of our financial year 2021/2022. Student numbers grew by 7.5%, with the continued strong growth in the upper secondary school segment, close to 10%, but also strong growth in Germany, including three new units in the quarter. Net sales, increased by 9.8%, with organic growth in all segments, except in the adult education segment, where volumes are beginning to return to more normal levels. The acquisition of Swedish Education Group contributed 2.1 percentage points to the growth, and we have now seen a full 12-month impact from that acquisition. In the quarter, we also had some smaller revenue adjustments from several municipalities, amounting in total to SEK 15 million, and where costs related to this were taken in previous periods.
Adjusted for the acquisition and the positive currency translation effect of SEK 25 million, the organic growth was 6%. Adjusted EBIT increased to SEK 263 million, and the adjusted margin increased to 7%. Moving on to page four, showing adjusted EBIT in quarter two, going from SEK 224 million last year to SEK 263 million this year. Volume increase, both organic and acquired, is the main explanation to the EBIT growth, as well as lower costs in Sweden in the Swedish school segment, partly due to the pandemic. We've seen increased levels of absence in the quarter due to sickness, and also due to employees staying at home to care for their own sick children. In Swedish, we call that VAB, Vård av sjukt barn.
Absence in combination with difficulties in recruiting temporary staff, they were also affected by the pandemic, resulted in lower personnel costs. In addition, some activities had to be postponed. In total, the effect of the pandemic was about SEK 50 million this quarter in lower costs. To remind you, last year in this same quarter, we had a similar financial effect from the pandemic. Items affecting comparability of SEK 7 million includes insurance compensation SEK 18 million from the fire in a compulsory school in July and VAT expenses of SEK 11 million related to the adult education segment. Moving on to page 5. Net sales rolling 12 months amounts to SEK 13.9 billion. Adjusted EBIT now above SEK 1 billion and the adjusted EBIT margin is still above seven at 7.2%. Moving on to page eight, development by segment and starting with the preschool segment.
In Germany, three further units opened in the quarter, which gives a total of 11 units so far this financial year, and we now have 68 units in total in Germany. The plan to open 15 units in total this financial year remains. Four preschools were acquired in the quarter, three in Norway and one in Sweden, with a total of 240 children. The number of children increased by 4.8%, driven mostly by new starts in Germany, but also, acquisitions in Sweden and Norway. Net sales increased by 10.7% compared to last year, and adjusted for a positive currency effect of SEK 25 million, sales grew by 7.9%. The growth is mostly coming from Germany, but also partly from Norway due to higher compensation that we saw last year.
EBIT was somewhat higher than last year at SEK 22 million, higher salary costs in Norway of SEK 10 million, as communicated in the last quarter, was offset by Germany returning to pre-pandemic capacity utilization and continued efficiencies in Sweden. The pandemic reduced personnel costs in Sweden by about SEK 5 million, and in Norway, costs for temporary staff increased. A net zero financial effect from the pandemic in this segment. Preliminary school voucher increases in Norway for 2022 amounts to 2.8% compared to 4.4% last year. Last year's higher increase reflects the staff density norm that was introduced two years earlier in August 2019. The way the model works in Norway is that any changes in the cost structure will be compensated with a two-year delay.
We will also see changes from January 2022, to the pension part of the compensation in Norway, and this is outside of the school voucher that I just mentioned. This will decrease revenue with about NOK 35 million annually from January 2022. Moving on to the next page, compulsory school, page nine. We continue to see solid growth in this segment. The number of students increased by 6.4%, and sales grew by 10.1%, where the acquisition of Swedish Education Group and STIMS, Stockholms Internationella Montessoriskola, as it was called, when we acquired it, contributed 3.9 percentage points to the revenue growth. Several smaller revenue adjustments from municipalities, related to previous periods in total SEK 10 million also contributed to the increase.
Adjusted EBIT amounted to SEK 74 million, which was significantly higher than last year, and the margin was 7.9%. Volume growth, but also lower personnel costs, due to absence, as I mentioned earlier, caused by the pandemic and limited access to temporary staff were the key drivers. We have now, as I mentioned, received the first insurance compensation related to the fire in July, and it amounts to SEK 18 million. We have reported that in items affecting comparability. We still expect that the full cost of SEK 30 million reported in the last quarter will be covered by the insurance. Moving on to upper secondary school, page 10. Student numbers increased by as much as 9.7%, where SegAB acquisition contributed 6.2 percentage points to the growth.
The organic student growth was 3.5% and mainly coming from the 21 new schools that started over the last five years. Net sales increased by 11.9%, driven by volume growth, but also to a smaller extent to some revenue adjustments from municipalities due to SEK 5 million. EBIT was higher than last year at SEK 118 million, and the margin increased to 9.2%. Volume growth again, and lower costs of about SEK 10 million caused by staff absence and canceled activities were the key drivers. Depending on the development of the pandemic, some of these costs might impact latter part of the year, but that's too early to say right now.
To remind you, in the same period last year, we also had about SEK 15 million in lower costs due to canceled and postponed activities caused by the pandemic. Looking ahead in this segment, the plan as it stands now is to open a further three schools in autumn 2022. Also, preparations to move eight existing schools into our two brand new campuses in Stockholm, as Marcus mentioned, are well underway. Adult education, page 11. Last year, high unemployment created very high demand for adult education with exceptional volumes and high capacity utilization in our programs. We are now seeing an improved job market and volumes returning to more normal levels. Net sales increased by 2.9% and the growth was entirely coming from the higher vocational education, where the acquisition of Koho contributed 5.4 percentage points to the growth.
Adjusted EBIT declined somewhat to SEK 71 million and the margin to 14.3%. Demand for higher vocational education remains high, and revenue in this business area increased by 31%, both through acquisition, but also organically. High capacity utilization and fewer student dropouts had a positive effect on the earnings. VAT on subcontractors amounted to SEK 11 million and was reported as items affecting comparability, since it's now been decided that compensation for VAT costs will be paid from January 2022. Good allocation of vocational programs for the autumn 2022, start will proceed when the Swedish National Agency for Higher Vocational Education announced allocation in January, and this means that current volumes will be maintained in this business area.
The municipal adult education has seen a decline in number of participants, and especially within SFI, Swedish for immigrants, and revenue declined by 9%, and this gave lower capacity utilization and profitability in the quarter. Volumes in the labor market services business are also declining somewhat but from a very low level. This area constitutes only about 10% of the total segment revenue. The transition to the new matching service continues, and is expected to be in place by the beginning of 2022. Moving on to page 13, free cash flow and investment. Free cash flow, and we define that as cash flow before investing in expansions, amounted to SEK 606 million compared to SEK 572 million last year. Rolling twelve months free cash flow amounts to SEK 1.1 billion.
Moving on to page 14, the financial position improved even further. Net debt, excluding IFRS 16, is significantly lower than last year at about SEK 1.2 billion. The leverage ratio is lower than last year at 0.9, which is well below the financial target of below three. Increases in property-related lease liabilities, mainly due to the recent acquisition. Finally, moving on to the last page, 15, the financial performance versus target. To conclude, we are for the fifth quarter running, meeting all of our financial targets, including profitability. With that, I would like to open up for questions.
Ladies and gentlemen, if you have a question for our speakers, please press 0 and 1 on your telephone keypad now to enter the queue. The first question is from Johan Sundén, Carnegie. Your line is now open. Please go ahead. Your line is now open, sir. You can ask your question.
Sorry, I was muted. Hope this is on. So a few questions on my side. The first one is on, your EdTech initiatives during the quarter. You mentioned that you have increased your ownership in the Hypocampus venture. Can you, if it's possible that you can comment about the valuation of that venture when you increased your ownership there? The second one is on the cost level. A lot has changed during the last two years. You have cut down your OPEX cost by some SEK 35 million in two years time. How much of this should swing back when the world normalize and what will be some long-term efficiency gains from that? I stop there.
Thank you very much. I will take the first question. Maybe then you can take the other one. If you take this Hypocampus, this is a digital platform that you can use as a self-study tool to learn different subjects. The main focus now is to train doctors. If you go to the doctor program in Sweden, for instance, you can use this tool to help you to go through your studies. It has been very popular in Sweden, and we have translated it into French. We have a lot of subscribers now in France, and we are planning to take it also. I can't mention the countries, but we are planning to go to other countries.
What we have done now, I can't comment on the valuation, but we have taken different owner parts in step when it comes to this investment. We started at a very low level, but for the moment, some of the EdTech companies are high value, and we hope and think that this will be a very valuable company. What we have done, is that we have invested into the company both to increase our owner parts, but also to give the money, give the company money to expand in new countries. We think this is a very interesting platform, and we think that we also can take this into other areas. Now we have focus on these doctoral programs.
We think that we can look at the law sector, and also other segments where it's very important for the students to have a good tool to train inside the program. If you take for instance in France, you have to take a specific exam after your doctor program, and this exam in France is very, very important for you when it comes to your future career. That's why this tool has been so important because it helps the student to handle this exam test in a very good way. We own now 36% of Hypocampus, and we hope that this could be an important tool both inside our own company but also as a part of our international e-expansion.
Yes. I will try to answer your second question related to the cost structure. I agree with you, Johan. It's difficult to really analyze the cost structure right now. We're trying to call out the specific pandemic effects to you to make it easier. Of course, we are working continuously with efficiencies. We have in Sweden, in the preschool segment, work on efficient staff planning. We are looking at our units that aren't contributing. A couple of years ago, we were telling you that we had a handful of units that weren't contributing. I would also like to point out that our support functions are working continuously with efficiencies and trying to use digitization in that work.
I would say that some of this effect is pandemic, but a big part of it is also continuous efficiency.
If I may, with follow-up to you Marcus, on the Hypocampus venture. Is it possible to give any comments on revenue from the EdTech portfolio at this point, or where are we there? We can have something to do some calculations on.
We can say that we are working on that to give you more information. One key KPI that we use and all the other companies use is the number of subscribers. We have some thoughts how we could report this in a better way to give you more information. For the moment, we don't just have Hypocampus. We have a small portfolio with five, six different platforms. Maybe the most profitable platform for the moment is the one that we use inside our adult education, and that is called Omniway. This is a really fantastic tool. We don't just have Hypocampus, but we will give you more information.
We will give you the total portfolio that we work with when it comes to our EdTech tools, and try to give you as much information as possible.
Mm-hmm. Yeah, perfect. That was all for me. Thanks so much.
The next question is from Karl-Johan Bonnevier at DNB Markets. Your line is now open. Please go ahead, sir.
Yes. Good morning. First of all, congrats to fantastic development in the quarter. Good to hear that you're looking to maybe expose the EdTech operations a little more, say, ambitiously towards us as well. I think that would be a key event. On that, obviously, you added educational products now also in the third quarter going after this Norwegian company. Could you elaborate a little on what your ambitions are in educational material? Is this a standalone thing? Will you report it separately? Is there a lot of other opportunities for you to say, consolidate this market and then make it more of a larger business unit for you?
You can say that we have worked just with the preschool operation for a long time, but we have a lot of pedagogical staff that has developed pedagogical tools. For instance, we work with something that we call Forskarfabriken, that is a sort of science program for small children, which they can use inside our preschools. We also have our own in Norway, we call it Espiria-parken
We first worked with one company, I can't mention the name now, but then we found this Sandviks. They have the same vision that they want to help small children to start to read early. They have a subscription program, where you can have books that is related to a different age stage. They have some pedagogical digital tools. They help families in different ways. They have 40,000 subscribers, both in Sweden and in Norway. They also have an e-commerce business, and they sell some small part also to Finland. Our idea is to take what we have done inside our own company and to sell it through this e-commerce platform. The overall vision is to start the development progress when it comes to children at the early stage.
For the moment now, this is just a company with a turnover of NOK 100 million, but it has a good profitable profit. It's just private money. It's paid by families and parents that want to invest in this. We see potential to take new ideas and concepts into this platform. We also have ideas to take the platforms also to other countries. That is the idea. For the moment, it's small, but it's. I think we also made this acquisition at a good level, and we see potential to develop it into the future.
Going forward, will you look to be reporting this as a separate unit, or will it be in some sort of other function in your accounting or in your reporting towards us?
You can say for the moment we have two business units that of course we follow up inside the company, and that is AcadeMedia EdTech, and now we have this AcadeMedia Educational Services. AcadeMedia EdTech is reported in the adult segment. Our idea when it comes to AcadeMedia Educational Services, it is to report it in the preschool segment. Hopefully, this will be their own segment in the future. I think when it's so small, I think this is a good starting point. Maybe we could help you to give you some KPIs to give you a view how this is developing. One very important KPI is, of course, the number of subscribers. That is also key when it comes to these platforms, EdTech platforms.
That is one idea that we have to give you information about the number of subscribers.
Excellent. It sounds like a good idea if you highlight to us, maybe on an annual basis what the size are of the operation or something like that, so we can see the development over time. Looking at your investment in the quarter, you acquired some more preschools in Norway. If you just could elaborate a little on the investment case going after Norway for the moment, where it seems to be the sub-market where you have the highest wage pressure and the lowest compensation levels coming through from authorities. How do you work that together?
You can say that the Norway investment has been much smaller and will be also much smaller in the future. We have a very professional organization. We have a strong concept. That is really the base where we take a lot of things that we want to develop into other countries. We take it from Norway. I think you will not see that sort of investment in Norway in the coming year. I think when I talk about the Sandviks and maybe bring this into other markets, into Germany and so on, we have a lot of competence in the Norwegian business. We will try to use it in that development instead. When we make, you know, acquisitions, we will do it in Sweden.
If we see very good investments, we will do it in Sweden. Our main focus is to be more international. As we mentioned before, we have now a map of the different countries in Europe, and we have a lot of context and discussion about how the education market is developing in Europe and where we could be a part.
Good. Katarina, maybe you could explain to me the NOK 35 million in additional pension costs you see in Norway. You talk about it as a revenue impact. What is the profitability impact of it? Why should that maybe be different?
Yes. It's too early to say how big the you know EBIT impact will be, but obviously it will impact EBIT. We are working as we have done for quite some time in Norway to reduce costs, and that will continue. You know, we did that very successfully when we introduced the staff density norm. I'm sure we can do that, but right now it's too early to say. I think you have to take into account that this will impact the results.
When you look at the normal compensation system in Norway, getting compensated basically indexed for the first two years and then on budget in year three. Is this amount something that should come back in 2024, 2025 or how will it work?
You mean the pension?
Yeah, both the pension and the wage inflation you see for the moment.
The wage inflation, yes. Absolutely. The model works like I explained, that you have increased costs and then we will be compensated with a two-year delay. Now, the pension, that's not a change in the cost structure, that's a change in the revenue model. That will not change.
If you compare with Sweden, for instance, we have a lot of costs now when it comes to the absence of staff and sick people being sick. We have some compensation in Sweden. You also have this problem now in Norway where the municipalities have a better situation in Norway than they have in Sweden. I think that will be compensated, but it will take this two-year problem. They also have changed the overall model. One part of the model is this pension cost, and there are also other components. The problem is how will the other components develop. That is the key question for the moment now.
We have been aware of this discussion when it comes to the pensions cost. As you see, this demand is normal. We were compensated last year, and it's a case that this year also.
One final for me. You highlight these 1,100 students that have been enrolled in the 21 schools in the upper secondary segments that you've started in the last five years. How has capacity utilization been built up in these units? Is there still a lot of, say, spare capacity that you could grow into, so to say, in that part?
When it comes to upper secondary?
Exactly.
Yeah. We took a good step last August. You know, I think if you go back two years, we have a decline in capacity utilization because we took a lot of new schools, but they were not full, they hadn't full capacity. It was a big step last year. Now this August, we will take a very big step again, and we start these new campuses, and we have also some ideas in Gothenburg. What we have seen is that the municipalities, they don't create so many school places because they don't have money, they don't want to invest, they have problem to make it as an acceptable investment.
We have developed a good relationship with different landlords, and I think we will create a lot of new school places both in Stockholm and in Gothenburg and in Malmö the coming years. For the moment, we have increased the capacity utilization. I think in August it will little bit be declined because of this big campus. I think that it will be very good development the coming year because this will be really high-class schools in the center of Stockholm and Gothenburg.
Excellent. Thank you very much.
There are no further questions at this point, so I hand back to the speakers.
Thank you very much. Yes, give us a call if you have any more questions. Thank you very much and goodbye.
Thank you. Bye-bye.