Oh, excuse me. Yes, good afternoon and welcome to the Karnov Group Second Quarter 2022 Earnings Call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing star and 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 Pontus Bodelsson, CEO. Please go ahead.
Welcome again everyone to this earnings conference for Karnov Group. We are going to present the outcome of the second quarter of 2022. Please go to slide two. I am Pontus Bodelsson, President and CEO of the company. With me I have our CFO, Jonas Olin , and our Head of Investor Relations, Erik Berggren. Jonas and I will present the outcome of the second quarter using a few slides and then open up for questions. With that said, let's get started with the presentation. Please go to slide three. In the second quarter, we have delivered on an increased demand for our services with strong growth coming from both our segments. Net sales grew by 13% in the second quarter and organic growth was 9%. We have during the quarter invested resources in preparing for the transformative acquisitions in France, Spain, and Portugal.
We are expecting a decision from the Spanish antitrust authority in September and are ready to complete the acquisitions. The adjusted EBITDA margin was 33%, which is a little lower than the previous year, mainly due to our preparations for the European expansion. We will address the margin more closely in the financial section presented later by Jonas. Our leverage is still on the extraordinary level ratio of 0.9x at the end of the quarter as we are prepared to complete the transformative acquisitions in Spain and France. Let's move over to slide four. In the second quarter, our organic growth was 8.5%. The growth is a result of selling more licenses to new customers and to existing customers. Further, our standalone emphasis with EHS and workflow tools are delivering in line with expectations. Society in general is becoming increasingly legalized.
This also increases the need for legal information and compliance. Our customers need fast access to deep knowledge and our content and network of authors and experts provide our customers the needed trust and efficiency. With customers interested in innovation and deep content, we enable our customers to make better decisions faster. It's all about investing in solutions to our customer challenges of today and possibilities of tomorrow. Not to forget continuously strengthening our legal platforms with more content, features, and tools. Please go to slide five. I will now comment a little on our segments, starting first with Denmark. Our Danish businesses continue to perform well. The organic growth was 4.9% and the adjusted EBITDA margin was 35.5% in the second quarter.
Our municipality solution, which was launched in Denmark in Q3 last year, has been well received in the market. In the second quarter, we have received additional orders and more than 10 municipalities now use our platform with the related products. The municipality solution is a cross-border initiative as the product is appreciated among our customers on the Swedish market. To promote the rule of law and tax, we have during the second quarter held our annual event, Karnov Skattepris. This year was the twenty-fourth time the award was given. We have paid tribute to those who has made a significant contribution to the promotion of tax law in Denmark. This year, the Danish Tax Minister, Jeppe Bruus, awarded the winners. Bent Ramskov received the Tax Award of the Year, and Laura Fredslund and Asta Naja Helms received a Special Award of the Year. Turning the page to slide six.
In Sweden, Norway, our strong growth trend continues. In the second quarter, organic growth was 11.9% and the adjusted EBITDA margin was 13.1%. The growth drivers are in line with the previous quarters, the public sector, municipalities and EHS. We see a market trend with increased demand for our services, both from law firms and the public sector, which we are able to deliver on. Our Norwegian business, DIBkunnskap , released a document management solution called df low in Norway and had their first sales of the solution. They are able to continue its launch with the EHS service on the Swedish market. In the second quarter, we soft launched the new feature Events Overview Analysis on the JUNO platform.
It's an add-on where our experts select some of the most important legal events in different areas of law. We announced that we have signed a binding offer to acquire cloud legal information-based businesses in France, Spain, and Portugal. The acquisition is transformative for Karnov Group, in line with our ambition to become a European player. Through the acquisitions, we will get a strong market presence on the Spanish and French markets, increasing the total addressable market by a little more than 9 x. We have during the first 6 months focused on a merger plan to ensure a successful integration. As part of the workstream process, we have invested in our organization for European expansion. We expect the decision from the Spanish antitrust authorities during September, and we are ready to complete the acquisition both financially and on an operational level. Please go to slide number eight.
I will now hand over the floor to our CFO, Jonas Olin, who will tell us more about the financial results in the second quarter.
Thank you, Pontus. Let's start with an overview of the group net sales, switching to slide nine. Net sales in the second quarter was SEK 227 million, corresponding to a top-line growth of almost 30%. The organic growth was, we had another quarter with organic growth as strong as 8.5%. The acquired growth and currency effects were both just about 2% each. The organic growth drivers were mainly sales to new customers and upselling to existing customers within public sector municipalities and the EHS vertical, as Pontus mentioned.
The Swedish and Norwegian segment was the main driver of the organic growth, with growth in all units, both Norstedts Juridik , but also Notisum as well as DIBkunnskap grew strongly. Also, the acquired companies performed in line with expectations in the fourth quarter, mainly driven by Echoline, who is active in the EHS vertical. Let's move to slide 10, please. On this slide, you see the net sales development in two different views, and you can see that also in the second quarter, both the online and the subscription-based sales grew. This is typical for our normal seasonal pattern, where the second quarter is very strong in both online sales and subscription-based sales. First, to the left, you can see that the online business increased the share of our sales by 2 percentage points to 91%.
The share of subscriptions in our sales, visible to the right, increased to 94% in the second quarter which is 1 percentage point higher than the previous year. Moving on to slide 11. In the second quarter, adjusted EBITDA was SEK 74 million. This is an increase of SEK 4 million or approximately 6% compared to previous year. Adjusted EBITDA margin amounted to 32.6%, which is slightly below previous year's 39%. The lower margin is fully explained by two factors totaling SEK 7 million. The first one is additional operational expenses of SEK 3 million relating to the investment and optimization of the organization. We are preparing for the European expansion, which requires some increased overhead as the group overall 150% in net sales following the completion of the acquisition in Spain and France.
The second factor is relating to the long-term incentive program, LTIP 2019, which was completed in May. As the outcome was more successful than earlier expected, the adjustment was booked in the second quarter, giving a non-recurring effect of SEK 4 million. If we exclude these two factors of total SEK 7 million, the underlying adjusted EBITDA margin would have been just about as the level of previous year. In the second quarter, we had items that affected comparability of SEK 20 million, and this is due to the planned and transformative acquisitions in France, Spain, Portugal. The merger integration work has proceeded as planned, as well as we had legal expenses and support during the competition authorities process in Spain. Let's move over to our segments and go to slide number 12. We start with Denmark. In Denmark, we continue to grow.
In the second quarter, sales growth grew 9.5%, of which organic growth was almost 5% and the acquired growth amounted to 1.2% from the companies BELLA and Ante, which were acquired in Q4 last year. Currency effect had a positive impact of 3.4% on the net sales due to the weaker Swedish krona. Organic growth was driven by online sales, where we see an increased demand for our solutions. As Pontus mentioned earlier, we received additional orders relating to our new view startup solution, which have now onboarded more than 10 municipalities in Denmark. Adjusted EBITDA decreased by 3%, and adjusted EBITDA margin was 35.5% in the second quarter.
The lower margin is due to what I mentioned earlier, which is the invested resources in preparing for European expansion as well as some costs relating to LTIP 2019 also affecting the same expense. There was also a slight marginal effect in Denmark following consolidation of the legal tech startups acquired in Q4 last year, BELLA and Ante that I mentioned before. Let's move to Sweden on slide 13. Organic growth comes from good online sales to new customers and upselling to existing customers. We are proud to say that we continue to gain market shares in the public sector, municipalities, and in our EHS vertical. DIBkunnskap have launched the new product , dflow, in Norway, and it has been well received in the market.
Continuing to the EBITDA margin, the adjusted EBITDA margin was unchanged at 30.1%, and this is although we had the impact of SEK 3 million from the completion of the LTIP 2019 program. Let's move to slide 14, please. This is where we see our cash flow and the leverage. In the second quarter, adjusted operating cash flow and cash conversion was negative. This is due to timing of royalty payments, Carl-Henrik explained that, as payment of 37 million SEK was done in the second quarter compared to the third quarter the previous year. I would like to point out that this has no effect on the annual cash flow as it is a pure timing effect between Q2 and Q3 compared to the previous year.
The leverage was 0.9 x at the end of June, and as mentioned before, the bridge financing for the acquisitions have been in place since the intended acquisitions were announced in December. This means that we're not only operationally prepared, but also financially prepared for the transformative acquisition with France, Spain, and Portugal. I'm now handing it over to you again, Pontus, who will present the last few slides.
Thank you, Jonas. Please switch to slide 15. I just want to conclude this presentation by presenting a summary of the highlights of Q2. We deliver on an increasing market demand with net sales growth of 13% and organic growth of 9%. We see growth in both our segments. In the second quarter, we have prepared our organization to grow into a European player with related operational costs.
We've chosen to optimize our business for the European expansion in collaboration with third parties so that our Nordic businesses focus on growth. We are ready to execute the transformative acquisitions in France, Spain, and Portugal, and expect the decision from the Spanish and the French authorities in the course of September. Next slide, please. By this, I'll end our presentation, and we are now ready to take questions. I'll hand over the conference again to our host.
Thank you. We will now begin the question and answer session. To ask a question, press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star two. At this time, we will pause momentarily to assemble our roster. The first question comes from Daniel Ovin with Nordea. Please go ahead.
Yes. Good morning, Pontus and Jonas. Thank you for taking my questions. First question is around the extra expenses here of SEK 7 million that's still included in the adjusted EBITDA. I wonder how to think about this going forward. As I understood it on the call, it seems like this savings program that's also going to come back. How about the other expenses for the organizational development? Is that something that we should expect to see also in Q3? That's the first question. Thank you.
Yes. Hi, Daniel. I can take this one. I agree with you. It's completely clear that the LTIP adjustment is a one-time effect, which is non-recurring. When it comes back to the SEK 3 million in operational development, that is on a level that will continue going forward as we are preparing for the expansion in Europe.
Okay, so that's Q3, Q4 also, and then also wondering why is this not the adjustment like the other SEK 7 million that is related to the acquisition, basically? What is the difference here?
We are increasing the organization a little bit, to support the new structure going forward. We are growing 150% on net sales and we'll grow 4x when it comes to the number of employees in groups. We need a little bit of additional overhead costs going forward to support the new organization.
Okay, so I understood correctly that it's probably gonna be a Q4 also, or do you think it's a Q3 where we're gonna see these SEK3 million?
Yes. You will see a little bit higher level going forward in the future .
Yeah. Okay. Perfect. All right. I also have another question here on the organic growth that actually seems to accelerate a bit more than what we have seen in the last few quarters. I understand you talk a lot about the environmental health and safety and the municipalities. Can you maybe elaborate a bit if that is what is driving this? Also now when you're taking this to the Danish segment, do you think that the organic growth in the Danish segment could approach the levels seen in Sweden and Norway? That's the second question.
Well, you're right that the EHS vertical is really important for us going forward, and it's also providing us with really good growth . As you know, the EHS verticals are presented together with the Swedish results, so to say. Included in the Swedish result, we see the results from Notisum, our first EHS company, but also Echoline. Echoline is a French company delivering in France and the Benelux countries, among other countries as well, actually. We see that we are getting a foothold in the European markets, and therefore we have great hopes for the EHS vertical going forward .
We are also trying to get into the EHS in Denmark and working hard on that . Maybe in the future, we also could see EHS as not just in France, Sweden, the Benelux countries, but also in other countries. The other point as well as what I said on it was the reflection on the municipality service that we've got. We've been in the municipality sector in Sweden for quite some years, and the brand is strengthening all the time, as we can see it, in Sweden.
We base the municipality count of communal service in Denmark much on the experiences that we had from the Swedish market. When we launched it in Denmark in September last year, we started from a, I'd say, better position than we had in Sweden. The 10 municipalities that we've got on board now is, I'd say, a very good start. We hope to see a quicker development on the municipality markets in Denmark than we had from the beginning in Sweden. That's about it. EHS is promising, and the municipalities also. EHS in a wider geographical reach, and the municipality still only in Sweden than Denmark.
Okay. Just to understand the potential for Denmark here, perhaps how much of the growth in Sweden and Norway is driven by the Benelux area? Maybe if you could just comment if it's a big part or a smaller or maybe even marginal part of the organic growth we've seen in Sweden and Norway.
The Benelux part is connected to Echoline completely. That is the acquired part in the Swedish segment.
Okay. All right. I understand. Final question here also on the acquisition of the Spanish and the French assets here. Previously, we've discussed that you have then been aiming towards the end of the summer, basically. Now you're saying that this is progressing according to plan. Is that still your best estimate that this will come through end of the summer?
Yeah. The end of the summer, autumn, I'd say. It is to us, of course, kind of a black box. We don't actually know because it's antitrust authorities in Spain and they respect the process, of course, in depth. It has, our communication with the antitrust authorities has been going as expected. We can't promise any deadline for a clearance, but we still hope for a clearance in September.
All right. Those are all my questions. Thank you very much.
Thank you.
Again, i f you have a question, please press star, then one. The next question comes from Erik Moberg with Berenberg. Please go ahead.
Morning, gents. Thank you for taking my questions. The first one quickly on Sweden and Norway. Obviously, you've outgrown the market for the past years, and you mentioned upselling to one aspect of it. If you just look at your current customer base, for how long do you think that upselling can continue to drive growth, for you here?
Well, I'd say that in Sweden we are continuously strengthening and trying to deliver even more value to our existing customers. We are also adding new features and trying to keep the EHS vertical, of course. I'd say that the new product, the main products and the new capacity product is definitely helping. The new capacity product is, as I mentioned before, quite new. It's definitely driving big growth. Also we've got one more pilot launch in Denmark, which is a valuable product that's coming up. I'd say that we have engaging products that's driving the growth. More stable-
Understood. If we look at two years down the road, is that a long way. You see that you start to be sort of tapped out or you have potential there if you look solely at your current customer base?
Well, I would say that the answer is best described by looking at the society as a whole. What we can see is that the legal sector, and therefore also the society as a whole, is getting even more complicated year on year. By saying that, we will see that the consultants need to be more skilled before. Our group of experts are even more so than before. Since then we can see that we haven't seen really any lack of instructions. As a consequence, our services are more and more needed every year. That's as you see, more a general answer than into any specific services that we have. It's definitely true.
The society is getting more and more complicated based on regulation, legislation, and we are there to help solve those kinds of concerns.
Understood. Just to follow up on that, and on the underlying revenue drivers, is it possible for you to sort of break down and percentage-wise, how much of the growth comes from new customers versus upselling?
That's a number that we don't disclose.
Okay. Just one last question for me, just on the cash flow and the working capital. If I read this correctly, SEK 37 million stem from the timing of the payables. If I just look through the working capital area, you also had an increase in receivables. If you perhaps could break down the moving parts and also elaborate a bit, I want to think regarding Q3 and Q4. It would be really helpful.
I can mention the end of June, where we have somewhat higher receivables, and that is connected to, one thing is the acquisition, and the other thing is the development we had in the quarter with a little bit of higher sales. That was the reason, organic growth in the period .
Okay. Excellent. Thank you. That's all from me.
There are no further audio questions. I would like to turn the conference back over to Pontus Bodelsson, CEO, for any final remarks.
Thank you. Thank you everyone for listening and for your questions. We will disclose our Q3 report on the 9th of November, and we hope to hear from you then if not earlier. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.