Lumi Gruppen AS
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Good morning, and welcome to the Lumi Q2 quarterly presentation. The presentation will today be held in English, and we will be happy to answer any questions after the presentation today.
So please, Erik, the stage is yours for the introduction of the presentation.
Thank you, Martin. Welcome, everybody, to this presentation. We look forward to presenting the results of the second quarter for 2023 and also perhaps a little bit more importantly, some trading update for this coming school year. And as Martin said, we will answer any questions you might have by the end of the presentation.
As you all know, we are a leading education provider. We have now currently two operating segments, [ along ] Sonas, ONH, but we are pleased to announce that we're adding a third segment, NTech, Norwegian School of Technology to the group now. So combined, we have more than 8,000 students enrolled in the quarter and 57% of the students are attending online programs, Sonas at 48% online students whilst ONH had 74% online students in the quarter.
So I think first, just a brief summary of the quarter. I think it's fair to say that the market development for our two segments, Sonas and ONH are a mixed bag. Now ONH is growing and gaining market share and have also stabilized the cost development, resulting in an improved EBIT margin in the quarter and the first half.
Sonas experienced revenue decline in the quarter because of the intake for the last school year in the post COVID market set back. Sonas has successfully implemented a cost program with a total saving of NOK 36 million in the first half. An additional NOK 10 million is expected in savings from the autumn.
NTech is launched and target students to attend its programs for upskill and reskill in the coming school year. The first school year will be a pilot to build the brand, test the concept, develop more programs and also increase the collaboration with the industry.
Later in the presentation, we will give you an update on the autumn intake. We see that the private candidate market is still soft and more cost measures is planned for the third quarter. The ONH intake is solid with significant growth in applicants and contracts.
So Martin, before we go to further, I'll leave it to you to go through the financials in more details.
Thank you, Erik. So we are moving on to the financials. And as we say in the heading here, revenue in Q2 was as expected. And I think also then the revenues for the first half is also in line with what we presented in the outlook last time as well. The operating revenue was NOK 104.7 million in the quarter, a decline of 22%. For Sonas, the revenue was NOK 54.6 million, a decline of 38%. And as we have said earlier as well, this is due to kind of the post COVID market setback. And by that, we mean the market dynamics following the pandemic, that includes a stronger labor market and what we see a growth in the applicants to higher education. .
In the quarter, NOK 4.5 million was not recognized in the second quarter as a result of students with full year contracts demonstrating a low payment ability. A total of NOK 9 million has not been recognized for the first half of 2023. This has obviously reduced the bad debt expenses as well, but the net effect is negative for the quarter as we will see on the EBIT comments as well.
For ONH, the revenue ended at NOK 50 million for the quarter, a plus 8% growth, which has been driven by new study programs, primarily online.
As we can see on the graph on the right-hand side, we see that the development is quite similar for Q1 and Q2 for Sonas and ONH. And we see that, in total, Sonas has a decline of NOK 65 million in revenue throughout the first half of the year. ONH grew by NOK 10 million, and other revenues in the group was plus NOK 0.6 million, ending up in NOK 212.4 million for the quarter.
For the EBIT margin, and as you can see, we are now presenting this, excluding the impairment, we have announced a goodwill of NOK 270 million. We will not specifically comment on the goodwill. We have commented on that specifically in the report. But we can also have us answer, questions related to that after this presentation. But excluding the impairment, the EBIT was NOK 16.1 million compared to NOK 30.7 million in the quarter Q2 last year. And the margin was negatively affected by the revenue adjustment, as I said on the previous slide of NOK 4.5 million in the quarter and a total of NOK 9 million for the first half of 2023.
And as I said, it's obviously lower bad debt expenses as a result of this adjustment or not recognized in the revenue, but there is a net negative effect for the business of this.
Net savings was NOK 20 million for the group in Q2 when we then exclude the transaction cost related to the [ Hanover ] voluntary cash offer. And as we presented in Q1 as well, we have now reported -- the numbers are reported, and we have not made any adjustments to the numbers. So that means that the OpEx is including also nonrecurring items in the quarter and the first half of 2023.
Otherwise, bad debt expenses is slightly now below last year, and we also see a significant improvement from Q4 '23 -- 2022, where we had really high bad debt expense loans. And now, we are back to normal levels. We have implemented credit control measures during this year and this -- the end of last year, and we see a very positive impact on credit quality for the business. This will obviously reduce online sales. But when we look at the numbers, we believe there should be a net positive or at least net neutral effect on profit for the coming quarter from these measures on credit.
And on the right-hand side, again, we see the development in EBIT for the quarter and also then for the first half of 2022. And as you can see, the majority of the decline in the EBIT is related to the Sonas revenue, compensated partly then by the cost program in Sonas of NOK 36 million, higher revenue in ONH by NOK 10 million, savings in ONH OpEx of NOK 3 million. And then we have the last item, which is related to the transaction costs for we Hanover voluntary cash offer of close to NOK 6 million, ending up with NOK 22 million in EBIT for the quarter.
Sorry. Okay. Just for commenting also on the expenses for Sonas, we had net savings of NOK 16 million in Q2. And in total, the savings ended at NOK 36 million for the first half of 2023. We expect a further -- or a further reduction of NOK 10 million is actually implemented and will yield impact directly from Q3 and the second half of 2023 from consolidating the Greater Oslo region and closing three campuses. And from the intake numbers we see now, we see that the Oslo campus has a good performance, meaning that we have -- means that the consolidation so far has been successful.
More cost measures is obviously, and Erik will comment on the NTech, is being prepared for Sonas based on the expected result of the 2023, 2024 intake. We are still a couple of weeks left of the NTech, but as we present now, we are in a size of decline, which will require more measures for the business.
Cost levels at ONH is stabilizing and reduced compared to Q2 last year and the first half of last year as well and this leads to a margin expansion. And we see that we are now back actually to the levels prior to the ramp-up we had in OpEx and expansion of study programs at ONH the last years.
On the right-hand side, we just -- then prior -- would like to present the numbers then for Sonas, the development, how it's been the last school year. As we see, the revenue had declined by 27% from NOK 348 million to NOK 255 million from the school year '21/'22 to the school year '22/'23. And as we presented in the report and the presentation today, we expect our revenue in the size of NOK 270 million for this year. This is only an estimate still because there are still at least 3 weeks left of the intake that before we can actually conclude on the actual sales number or the revenue for full year. And this also includes an estimate for the spring NTech, which takes place later on.
And as we can see then for Sonas, quarter-by-quarter, we 'e able now to reduce the expenses in the business. And on the right side in the graph, we see that our indicative level now for the expenses for Sonas, excluding depreciations and impairments or -- and the [ precision ] in IFRS 16 leasing, we are now at NOK 164 million in expenses for Sonas. And this is an indicative level now based on what we have made of savings throughout the last school year and the NOK 10 million already and implemented that will yield effect from Q3 this year. And also the number NOK 164 million is then before any additional and new cost measures for Sonas.
Lastly, on the cash side and the cash flow of the business. The cash flow from operation was minus NOK 80.5 million in the period compared to NOK 71.9 million last year. And as we have commented in previous reports and presentation as well, the Q2 cash flow is negative also due to the fact that the students are paying their tuition fees in the first quarter of the year.
The cash position was NOK 62 million at the end of the quarter. And in addition, we had [ RCF ] available of NOK 70 million.
New leverage covenants was agreed for Q1 and Q2 this year, and the reported covenant was 2.9. The agreed covenant going forward is 3.5.
We signed a new financing agreement with [ Nordea ] in Q2 '23, following the private placements and subsequent offering, and we did a repayment of the debt of NOK 130 million in the quarter.
And at last, yesterday, Hanover also announced that they passed the 50% ownership in [ Lounge ] on 11th August of 2023. [ A little result ] that the group has to pay a change of control waiver fee of [ NOK 5 billion ] to Nordea and the group is now obliged to [ renew ] on new financing terms before 31st of August 2023.
And I think by that, we conclude the financial presentation, and we're happy to ask the questions after Erik's section, and then we move on now to operations. Erik?
Thank you, Martin. I think this section will mainly focus on the autumn NTech. Just some brief update, I think the priority for Sonas has been to complete the cost program this school year. And as you can see from the figures, this has been successful. But I think also very importantly, Sonas has delivered a school year with all-time high student satisfaction and high quality. So I think that has been reassuring in a period of huge changes for the business.
And the key focus during this summer have been to secure the best possible NTech. Unfortunately, you'll see that the private candidate market is still soft and the intake will end significantly lower than last year. But it's also important to say that Sonas has kept its market position.
As I previously also said, ONH is in a different substitution last month, continue to grow and deliver improved margin. And ONH is strengthening its position as a leading online player in the higher education market.
The intake is not completed yet, but as of now, we have solid growth in new students for the coming school year.
ONH has developed several new programs in the last couple of years and the investments are starting to pay off. And we also see several growth opportunities ahead for ONH.
For NTech, we now have a tech school platform with a 2-year program and three flexible short courses for upskill and reskill, and the first school will be a pilot to establish the brand and improve the product portfolio. It takes time to establish a new school, and we don't expect any significant -- student volumes, first school year, but the school year foundation for growth in the years ahead.
So let's go through the Sonas intake and a little bit more details about that. The private candidate market has declined in the last 2 to 3 years and continues to be soft for the school year '23, '24. And we now expect the intake to end around 30% behind last year, with a total sale of around NOK 150 million compared to NOK 209 million last year.
In addition, we expect around NOK 20 million in sales for the spring, just estimate so far. And then revenues for the school year is expected to around NOK 170 million, as Martin also showed you previously. But it is important to say that the decline in Sonas sales is a result of the decline in the product candidate market.
So when you look at the graph to the right, you see the number of private candidate exams in the school year 2021 to '22, '23 as of last school year. The number of exams declined by 45.5% in the period. And in the same period, the Sonas sales declined by 35%.
So I think it's fair to say the Sonas market position is still strong and we have maintained its position with a lower decline than the overall market.
We expected the market to slightly improve in 2023 driven by the reintroduction of high school exams, a softer labor market and increased number of applicants to higher education. But when you look at the results now, the result was that several exams was canceled due to technical issues in the high schools. The labor market is still exceptionally strong and the number of applicants to higher education ended at the same level as last year.
So we are confident that the market will start to recover since the underlying market fundamentals are still strong, but it will take longer time than expected.
And we also included just this graph on the next page because despite the challenging year, Sonas student satisfaction was at all-time high in the last school year. More students will recommend Sonas, more students are satisfied with the grades and the grade improvement is significantly higher than last year with 1.3 in average improvement, which is exceptionally high compared to last year and also previous year. So Sonas has not -- is not in this trouble due to quality problems, which is reassuring.
And then we can move on to ONH. ONH is in a strong position now with 12% growth in signed contracts for new students so far in the cycle. There is still 4 more weeks in the intake where we accept students, especially online students since the -- and the campus students start this week and next week. So we have completed more or less 80% to 90% of the intake. And as we'll say that the prospects for the school year looks positive.
So when you look at applicants, they are up with 22% by far outperforming the market, which only grew by around 1%. And signed contracts are up with 12% compared to last year. And just a reminder that last year, the intake was flat.
We see exceptional growth in demand for online programs where ONH has a solid offering and also a very strong position. And this summer, we launched one new bachelor and several new 1-year programs, all online. And the new programs are an important driver for the growth we see in student numbers for this school year.
And as also previously said, we see several growth opportunities going forward for ONH. We're developing new programs is priority #1.
And then we can also look at just some brief comments on NTech. It is launched, and we now have four programs in the portfolio. We had the 2-year program that was approved earlier this year, but we saw earlier that we also needed to develop shorter programs for upskill and reskill. So we have spent the summer doing that derived from the 2-year program.
So I think the first school year will be a pilot to build the brand, enhance the collaboration with the industry and testing the product, both online and physical. It is important to test the concept thoroughly.
After the feedback we have received so far in the campaign, the ambition this year is to start the three shorter programs for upskill and reskill to pilot the concept. And the programs will start during the school year at September, November and January. And the 2-year program will start in 2024, both online and on-campus. I think it takes time to establish a new brand, but the long-term prospects for NTech are still positive.
I think that concludes the comments on this part, and Martin can go through the outlook. And then obviously, we will be happy to answer any questions you might have afterwards. Martin?
Thanks, Erik. Sorry. Yes, just to conclude our presentation and a few comments then on the outlook of the business.
I think, first of all, we could say that the business model has been transformed during the last year. And we believe we now have a more flexible and scalable business model with a lower share of fixed cost in the business. However, we see that we have to continue to work with the Sonas business to adapt additionally to the market situation even though we are positive on the future prospects of Sonas.
For ONH, the trend is, as we say, positive, with applicants trending clearly higher than last year, and that was also in line with the indication we gave in the first quarter presentation.
For Sonas, as we said, we are expecting now the intake to end around 30% below the automatic last school year. And as a result, not surprisingly, the profitability for Sonas will be weak for coming full year '23, '24 while we expect the ONH profitability to improve the coming full year.
And as Erik said, we have now launched NTech with the marketing campaign, the two program and the courses. But as we're right here, there will be limited kind of financial impact in the school year, the coming school year for NTech.
We have also chosen to present revenue estimates for this coming school year as well. As we say, and just to make sure everyone has the same information is that we are now -- we're now presenting the numbers per week 32. As Erik said, there are close to 3 weeks left of the intake for the autumn intake. These numbers also include the spring intake, which takes place from 1st of September to 1st of February, and the numbers that include an estimate based on the development so far in the intake for both Sonas and ONH. So that means that they are -- we presented the range in this case, what we believe is a fair estimate for each of the businesses in the coming year.
And lastly then, and as I said previously in the presentation as well, we are now working also to look into some [ time]. We are able to adjust this even more in line with the current market situation for Sonas.
So I think that was our presentation for today. We are happy to answer your questions. [Operator Instructions] Otherwise, we can call on for some few minutes more, if there are any questions. [Operator Instructions]
Yes. Then we have one question on the expectations on students for NTech for the coming school year. Would you like to comment, Erik?
Yes, I think we will start -- we plan to start three courses, one in September and one in November and one in January and possibly another one in there. So I guess, I mean, a fair estimate would be maybe 50 to 100 students in total during the -- of course, participant during the school year.
Yes. So there's a question on pricing for NTech comparable to ONH.
I think we could say that NTech's pricing is in line with the industry in general on pricing. I think what we -- the prices are presented now is currently in line with the [ type ] courses we are offering basically, but the pricing is in line with what the market levels for [ bases ], so to say.
The prices for trade schools like these, tech schools are a little bit higher than for Higher Education, also a comment.
Yes. Okay. Thank you, if there are not any questions, we close the presentation. That just last we could then say that as we did last year, we sell [ stock lots ] on the final result of the intake. We have now presented our estimates for week 32. And then around 1st of September, we will have to present the actual result of the intake for Lumi and for Sonas and ONH and then we have the final figure, so to say.
Okay. Thanks for joining today. We are happy to answer more questions, just reach out to us either by mail or phone, and have a nice day everyone. Thanks.
Thank you. Bye-bye.