Lumi Gruppen AS
OSE:LUMI
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Good morning. Welcome, and thank you all for joining this Q4 presentation by Lumi Gruppen. My name is Erik Brandt, I'm the CEO, and I'm joined by Martin here, our CFO. We will, as usual, do our best to give you an accurate status of the business and the financial results. But perhaps most importantly, an update on the measures we are implementing to improve the performance going forward.
Please feel free to ask questions online, and we will try to answer as many as possible at the end of this session. Just a brief introduction to the group with updated figures for the full year 2021. Lumi Gruppen has a solid education platform, both on campus and online, with a strong market position and contributes to the society with solid student outcome. The underlying market drivers are still positive with increasing demand for higher education. Sonans is still the clear #1 in the private candidates market and maintained its dominant market share in 2021 despite the market shift that we saw. Oslo Nye Høyskole, ONH, high quality is proven through its top 3 in student satisfaction in the 2021 official national student survey.
Even if the results decreased in 2021, the group is still in a strong financial position. Revenues ended at NOK 532 million, 25% EBIT margin and 93% adjusted cash conversion. The online share of the revenues increased from 25% in 2020 to 33% in '21, which is a result of the online migration, which we have previously informed. Campus revenues still represent a clear majority of the revenues for the group.
This slide summarizes the highlights of the fourth quarter, and we will come back to the details later. But just to summarize, total revenues in Q4 ended at NOK 134 million, in line with our expectations, and a slight decline from last year. Adjusted EBIT ended at NOK 24 million, also in line with our expectation, which is a decline of 23% compared to last year. And Martin will come back to the reasons and more details later.
To manage the online shift, cost measures totaling to NOK 10 million to NOK 12 million has been implemented with effect from January '22. And we are planning on reducing the cost base further by reducing number of physical campuses from the summer.
When looking at the operations, Sonans experienced a spring intake, in line with expectations. We have developed a new digital campus, which we are piloting this semester as a response to the digital shift. And in addition, we have strengthened the management in Sonans. ONH just completed a strong spring intake, and the outlook is positive with expected growth in the autumn intake with a strong marketing campaign and a broad portfolio of attractive bachelor programs.
Finally, the Board proposes a dividend of NOK 1 per share, equal to 60% of profit in 2021. For the year, the revenues ended at NOK 532 million, as I already said, a 3% growth compared to last year, and the adjusted EBIT ended at NOK 133.4 million, a reduction of 15% compared to last year.
Lumi has strengthened the Board and made structural changes in the management to support our growth ambitions. 2 new Board members have been elected by the General Assembly, which will increase the Board's industry and digital competence. Sylvie is French and has extensive experience from international education, and Bente has a solid digital track record in addition to broad Board experience from listed companies. Aamold Trysnes, Marit has been an important part of the group for several years as Chief Strategy and Marketing Officer and has taken on her new role as Managing Director for Sonans late last year with a clear mandate to drive the digital transformation and implement necessary changes to Sonans. Several initiatives have already been planned and implemented, which will be presented later in the presentation.
Next, Martin will go through the financials before I continue with the strategy and operational part.
Thank you, Erik. I'll move on to the financials. We will look into the growth numbers and also for the segments Sonans and ONH. You can say that financially, Q4 is in line with Q3 when it comes to revenue as we are doing most of our sales in Q3, and it's completed, and there are not much sales during Q4. And as we see and as we presented in Q3 as well, we see the decline of campus continues and online is growing across. ONH is delivering revenue growth for the quarter and for the year as well, and that is due to the programs that we launched. However, we have lower revenues than we expected due to the late marketing launch, and we are expecting a much better performance when we have the opportunity to market programs for a full intake this autumn. So as Erik said, the revenues, NOK 134 million for the quarter and NOK 532 million for the year.
When we look at the EBIT for the quarter, we see a decline compared to the last quarter last year. The development is also, again, similar to Q3. We see the decline in Sonans revenue from the net effect from migration to online. We have flat OpEx for the quarter -- for OpEx. For ONH, we have a positive, again, revenue for the quarter, but we have also the ramp-up costs for the programs that had been launched. And as we presented last time, we have additional employees, FTEs, in ONH to be able to launch those programs this -- last year.
Otherwise, the other item is quite flat. So we ended at NOK 24 million for the quarter compared to NOK 31.3 million. And we also discussed last time, again, this was the revenue recognition for online as well, and that is also part of the reason why we see the decline. When we're looking at the numbers for online, it's a positive strong development, but the average value per student is lower. And we will comment more on that in the later slides as well.
For the year, the development then is quite similar as we see for the quarter. Of course, the numbers are slightly different, we end at NOK 133 million. Again, it's the campus sales that we -- affect our numbers. As I said, the OpEx for Sonans was flat for the quarter, but we see -- we had additional costs this year due to COVID-19, and we also have new campuses opening up. That has obviously brought new revenue to us as well. But for the EBIT calculation on this presentation or this way of presenting it, it still represents an increase in the OpEx base.
For ONH, we have NOK 26.2 million in revenue from the new programs, but we have invested then again the ramp-up costs for launching the new programs by NOK 24.5 million. And in total, this brings us down to NOK 133 million for this year in EBIT.
We will look at closer to one of our segments, Sonans. We see that there's a stable number of students for the last quarter, in line with Q3, and that's -- related to that, we are actually making most of our sales during Q3. As we've said as well, we believe that COVID-19 is obviously a reason for the development we see in Sonans, but we also believe that the COVID-19 has also kind of started the online migration, and that we expect it to continue as well. And Erik will talk more about that later on as well in your part.
As we said also, the online course revenue has a different recognition method due to the commercial terms, and that also has resulted in online not compensating for the decline in campus sales. We also have limited flexibility in the OpEx space short-term for Sonans. And I think the key challenge, at least in 2021, for us has been that there has been a decline in average for all campuses. It has not been one specific campus or a specific region, and the challenge is that when you lose 10% of the students. As an example, for each campus, we still need to keep the premises, and it's not a one-to-one relationship between a teacher -- or an FTE and the students. That makes it a bit difficult actually making a rapid cost-cut for the business, and it needs to be planned in a proper way.
And therefore, I'm happy that we're announcing today this digital campus that we're launching, the new offering because I think that's an important tool or mechanism for us to deal with short-term and long-term changes in volume for the campuses. And I think that's -- it was important for us to have that kind of tool or a way of solving this challenge for Sonans by offering a third product, actually combining the best from the campus experience and also the online as well.
And also, we believe, as we presented in Q3, we see that the online platform has a very strong reception among students. And it's -- and the quality seems to be -- or not seems to be, it is the same as the campus experience. And that, also, we believe we are able to adjust prices accordingly to reflect the quality of that offering as well.
So for you today, we also presented more specifically what we're doing with Sonans. As Erik said, we are -- our ambition is still heading towards 30% in EBIT. And I think also now we have the necessary measures in place also to get back on this level. We want to be clear on that today. First of all, on average, we will increase prices for online studies, as we said, and this is also to reflect the quality of the product as it has a very good rating among our students.
We will adjust the commercial terms for our online students to better reflect the underlying performance of the business. It will be a more similar model to the campus. And for us as a business, it will be a better balance when we actually -- the students are following the courses and when we are having the resources in place to serve the students as well. And I think that's important for us because for us, we see and we've done a lot of investigations around this. And what we see is that students follow the semester in most cases, even though they study online compared to campus.
We are introducing the digital campus. As I said, an important measure for us, first of all, bringing out great product to the students but also for us to offer a product that is aligned with the campus when it comes also to pricing. We are also implementing cost measures. And what we have said now is that we are implementing measures in the size of NOK 10 million to NOK 12 million. Please keep in mind that this is net, and that means that we also have made additional savings, but this is net of inflation for this year. So the gross savings is in the size of NOK 16 million to NOK 18 million for this year, but NOK 10 million to NOK 12 million is what we expect to see in the P&L.
At last, we are also removing what we say, structural cost and liability by closing down 3 campuses from the second half of 2022, and that will also reduce the annual OpEx base by NOK 14 million. And from what we see in the development in the market, we believe that the students in these regions will migrate to online offerings or other campuses, and we think that this will give also a positive net effect for the P&L and the profits of the business. And I think it's also, when it comes to cost cuts for us, it's been important to try to make this as cost-neutral or cash-neutral as possible to avoid too much additional cost for us closing down campuses because it's better for us, I think -- or better for all of us, I think, to keep the campuses open as long as it's cash-positive compared to paying out a lot of additional costs for closing them down. So that has been also an important consideration when considering the cost cuts for the business this year as well.
And also, we are preparing for what that might come in the future as well. We have done a first step, I think, a combination of adjusting the cost base, but also working with the product offering. But we have additional measures in place to work with. But I also think it's -- as we write here as well, that it is key not to -- to move at the right pace, not to jeopardize the market share for Sonans. But for campuses, we are now working on negotiation and looking into how we can optimize the campuses in terms of size and also negotiate pricing on existing campuses when we renew the agreements. And we see that we have several campuses that is -- has an expiring contract that -- where we will be able to renegotiate and improve the terms for those.
We have also now decided to move the headquarters of Lumi, meaning that Sonans Oslo, the campus in Oslo, will have a reduced lease as the HQ is moving down to the same location as well. Personnel for us, it's important to state that we -- it's very important for us with a motivated and stable work [ chore ] to ensure the right quality of the courses to our students. That is a key priority. But however, we need to look into how we can work with flexibility, at least for short term, to handle and deal with changes in student volume. And we have to continue to utilize the online shift to see how we, in the best way, can use tools and processes to optimize the way we work internally in Lumi Gruppen.
When it comes to other OpEx, we will, of course, look into that as well, but the majority of our cost base is campuses, leasing cost and personnel. And other OpEx is, to some extent, a result of the number of campuses we run. And well, of course, if we have fewer campuses, we will have a lower OpEx -- other OpEx base as well. And we are trying to do as much other than measures as possible there as well.
Okay. So that was Sonans. I believe we have come down to a good solution for Sonans and you will also explain more on the products and the changes in the offering there, Erik.
Okay. So moving on to ONH. We are happy to see the numbers for ONH, taking into account the late marketing launch for the new programs. We have grown the revenues by 90% this -- last year, and we also have a growth for the quarter as well. In the case for ONH, the campus prices and online prices are aligned, so there is no changes or consequences of whether the student chooses -- whether they choose campus or online. And we are -- we see a solid spring intake for ONH, and we are also looking forward now to the automatic, where we're able, as I said, to launch the programs in the full cycle compared to last year.
So all in all, a strong performance of ONH. However, we have, of course, invested a lot of money in ONH, and we are now having -- and now we are looking forward to see that we also are able to grow the volumes for this year as well. And I think that leads me -- yes, sorry, we have to stop by the cash before we move on to the summary, Erik, as well. So just for the cash, it's line -- so the heading here, in line with the expected seasonality. We have a solid cash position, additional funds available for the business. We also see that net cash flow from operations was negative for the quarter. That's due to how we invoice our revenues, and it's NOK 128 million for the year. It's an adjusted cash conversion of 93% for the year as well. And as Erik said, we have proposed a dividend -- the Board will propose a dividend of NOK 1 for the year 2021 per share.
So the final slide, just to shortly summarize. For Sonans, it's about executing on the reduction -- cost reduction plan, protecting profits, prepare for additional measures and continue to work with the product offerings and also how to see -- how we can adapt as an organization to the online shift. For ONH, return on investments for the new programs. That means we're looking forward to working now hard with the automatic and the sales cycle. And for the group, it's all about best serving our segments and operating segments, and to absorb as much the cost of -- the administrative costs for our segments as well.
So then I'll pass on to you, Erik, to go more into details on strategy and operations.
Thank you, Martin. Well done. I think this section, I think, the 4 key messages for you to remember are the following: First of all, obviously, we are strengthening the online value proposition to grow the online part of the business for Sonans further. And we are also doing quite significant work to rightsize the cost base and also adjust the operations after the online shift.
When looking at ONH, I mean, they have a solid platform for growth with a broad and attractive portfolio of programs, both campus and online, and it's also important to remember that the growth is coming from bachelor programs, which increases the revenue visibility going forward.
So with that in mind, we start with Sonans. And as you all know, Sonans has seen a setback as a result of the market change in 2021, which we believe is a consequence of the COVID-19 pandemic. However, it is important to understand that Sonans has a solid platform for growth, it has strong market position, campuses in attractive regions, well-established online platform and new digital product coming. So I believe Sonans has significant opportunities going forward, and we have done several initiatives to respond to the market shift, as you can see on this slide.
So I think this is a backdrop. I'm here to introduce to you the digital campus. And this is a product that combines the high quality of our campus offering with student involvement and interaction in real time, with the possibilities in our technology and online platform. This is a product that brings the quality of Sonans' teachers and content home to you instead of meeting up in a campus. The classes followed a set timetable and focuses on high-quality student interactions. Students are also divided into peer groups, and test exams and everything are given in a structured way to make sure that they succeed on their exams.
So we started this pilot in January. So this is the first semester with the 4 classes to test the concept. And we also filled those 4 classes without marketing, just through our sales channels. So we will use this pilot period to improve and develop the concept further, and we aim for us to launch for the autumn intake for this product. I believe there are significant opportunities, market opportunities for this product. First of all, the offering increases our market reach by expanding our geographical market penetration without establishing a campus by offering the full Sonans experience online at home to the students. I think the also -- the product would also be an important add-on for smaller campuses, allowing them to offer the whole range of courses by combining classroom and digital campus. The product also supports the digital transformation due to its scalability and efficiency. And we could potentially merge small classes across campuses into digital classes and, hence, improve efficacy. We also see digital campus as a tool to regain students in regions where we closed physical campuses.
And finally, I mean, the pricing of the product is equal to the campus price, which will reduce the financial effect from online migration. So after the launch of the [ digital ] campus, Sonans will have 3 products or 3 delivery models that attract different segments of the market and respond to different students' needs. And -- but bear in mind that the characteristics of all 3 products are high quality with outstanding teachers and content. Three products will increase our market penetration and strengthen our position. And finally, they give their students more flexibility and options how to reach their goals.
Measures to improve financial performance. And I think Martin has been through most of this. So I mean, we have been working in parallel with growth initiatives, but we have also been working on efficiency measures to reflect the online shift we have seen and also to improve the performance. We have talked about the cost cut we have done with the effect from January, and also that we, unfortunately, have decided to close 3 small campuses due to the limited market potential in these regions. And it's also important for us to balance and reduce the campus exposure or the risk.
So -- and also another issue we have raised with you previously is the difference in pricing for online courses compared to campus courses. I'm not talking about the digital campus now, but traditional online courses that we have. So we have completed a price elasticity project this autumn, and the results showed that the quality and student outcome of the online offering allow an online price increase of up to 10%, which will be implemented this winter or spring.
And as Martin also said, we have also changed the commercial terms for online studies to become aligned with campus revenue distribution to better reflect the underlying performance. And when we have done this, that all 3 products will follow the semesters, so you won't have any difference in revenue recognition, whether people are on online digital campus or campus.
That's great, Martin?
Yes.
More less.
More or less.
Thank you. Yes, the shift to online continued. We have a supplementary spring intake. And that is completed for Sonans, the number of new added students after churn -- because we have more contracts, but people tend to also withdraw from contracts as previous years -- ended up 2,580 added students. So as we expected, due to the market conditions we saw in the autumn, we see a decline in campus students also for this intake and continued growth in a number of online students. So I think the market situation that we saw in the autumn intake has continued through the school year.
At this early stage, we have limited visibility for the autumn intake, but I think recovery from the pandemic, cost-cutting measures and efforts to increase revenues through digital campus will contribute positively to the future development of Sonans. So our first trading update on the intake for the autumn will be given in Q1.
Let's move on to ONH. ONH continued its growth trajectory with a solid spring intake, which is only limited to online programs and courses only. I think ONH is one of the few colleges or universities in Norway that actually has a spring intake. Most peers only accept students in the autumn.
I think the most important thing here is to look at the growth in bachelor students. And bear in mind, this is a small intake, but still you have a 55% growth rates compared to last year when it comes to number of bachelor students, and annual programs also developed positively.
So I think the student intake will also contribute to the long-term growth plan for ONH. And I think also we can say that this intake is a proof of a successful rebranding of the college that we did in the fall.
When looking in the future for ONH, I think we have planned for a significant increase in marketing efforts for the autumn intake to fully achieve the potential for both new and existing programs. And we see a potential for more than NOK 30 million in new gross sales in '22 for the new programs we launched in 2021. ONH has a very scalable business model. And margins will improve with increased growth in students, both on campus and online. And I think even if we launched 5 new programs last year, an important part of the growth strategy going forward is to continue to launch new multiyear programs. But no new bachelor programs will be launched before 2023. We need to absorb the programs that we launched last year first.
And we also see that the online solution is state of the art, and it will be a priority to further strengthen our online offering. And I think it's been great pleasure in showing you this because when we are talking about our online solution, we see that in the recently published Student Barometer, which is the national study survey that is done by the education authorities, ONH is #1, as you can see on the right bar there, is #1 in Norway when it comes to technical solution for online teaching. 85% of our students ranked our solution better than 4 in a scale from 1 to 5.
And when you look at the peers being the second-best with 65% of the students ranking the platform better than 4. And in addition, the results from Student Barometer shows that on ONH has the third most satisfied students in the country, the same exceptional result as last year. I think we can say that the quality is undisputed. And obviously, this quality, with happy students and satisfied students, is also a very important driver for further growth for ONH.
And then we talk about the visibility of the business, as we mentioned earlier. And as you can see on the middle bar here, the number of bachelor students increased with 43% in 2021 compared to last year. And that's number of enrolled students in total, first year, second year and third year.
And when you look at the start of this year in '22, the value of the order backlog, which is existing students, so to say, to be distributed as revenues in 2022 is close to 75% of the total revenues recognized in 2021. And the backlog last year amounted to 50% of the revenues in 2021. So we have a significant increase in our backlog. In other words, ONH is a solid business with a high degree of visibility going forward. Yes, we are approaching the end soon.
Just a brief update on the Norwegian School of Technology. NOKUT did respond to our application just before Christmas, and they requested more information before they could grant accreditation to us. So they gave us a deadline of February 10, a couple of days ago, and all additional information and improvements have been set. So we expect to receive feedback during the spring, and we are ready to launch immediately when we receive an accreditation. And we have everything in place. As you can see here, just to show you that the marketing platform is ready and it's just to press the button and then we will be able to go to market. And we also believe that the market for IT studies is still strong, and we expect the demand to increase further in 2022.
Yes. So before we finish, I'll take some questions. Martin will go through the outlook.
Yes. Just before we start with the questions, I just want to spend some minutes on the outlook of the business. So overall, what we say is that we expect an EBIT margin on par with 2021. And I think the question now is we're presenting a lot of measures for Sonans, new products, offerings, price adjustments. We are talking about a stronger intake for ONH. And it's obvious that those measures and the sum of all we're doing should bring a positive effect on the financials as well. So there, there's no doubts.
However, I think it's important to keep in mind that we have a weaker spring for Sonans compared to spring last year. And we also have higher cost base going into '22 for ONH. Yes, we had a spring intake. However, that is just a small portion of sale of the total sales. So that means that we will have a slight weaker margin in the first half of the year, but we will see a stronger margin materializing during the second half of the year.
We also have, as we have said now sometimes, they've done some changes in our terms for online sales, and that will result that we will have a higher share of online revenue each month, and that will be bringing up kind of a positive effect. It's not a nonrecurring, but it's a kind of an additional effect for this year. For all sales made up to last year will be distributed as previously. So no changes with what have been sold previously, but it will have an effect on the new sales this year. And that will contribute to also for this year, in particular, improve the margin.
When we then look at Sonans, we see that revenues, including this change in commercial terms then, will be in line with second half. However, we have kind of limited visibility on sales for the second half as sales are made mostly between July and August. We still believe there is a stable foundation for Sonans, there's stable demand, but we are still -- we are still not sure on how we expect the market then to develop in light of COVID-19 and the online shift, et cetera. So I think a bit too early for us to say on the clear expectation. We will now get more indication later on, on the market development.
And we have done a lot of measures for Sonans as well when it comes to both cost and revenue measures. And obviously, we are structuring to improve the margin further. But I think the sales for the second half is an important aspect of -- we're looking at the business in total for this year. For ONH, it's about, as I said, increasing volumes for the new programs. We are targeting revenues in the area of NOK 200 million. Also for the ONH, we look at the EBIT margin on par with '21, and that also, as I said, will bring in a higher cost base in the first half. So we will also here see a strong margin development during the autumn. But still, we have the first half with a higher cost base going in and the increase in revenue is not that high as we have just a spring intake during the first half.
So overall, I think it's a very positive outlook. I think that we have the measures in place. We are doing the right things to move this business in the right direction going forward. And we strongly believe that we will be able to improve our margins. But we -- as an educational business, we bring kind of the intake from the autumn into the spring. That's the school year. But we have the opportunity to gain more sales and grow the business again when we come to the second half of this year with the new intake for Sonans and for ONH.
Okay. So that will conclude our presentation, and we will answer your questions if there are any from the audience.
Okay. So I will try to...
We have 1 question. There is a question that says, when will the 10% price hike for online courses have effect?
Yes. Good question. The pricing adjustments will be done shortly, but you can say that, as we said in the presentation, most of our sales was made during July and August. And that is also then financially when we will see the effect of the price adjustments for the business.
We have another question. For ONH, revenues will be up materially given your guidance, but margins unchanged versus 2021. This means higher costs. Is the cost increase for ONH in 2022 mainly driven by higher marketing costs? Or do you still need to hire more staff?
Well, it's a -- to say, a combination for ONH, it's the full year effect of the FTEs brought in, in 2021 and the investments done during 2021, then we will have a full cost effect for 2022. We, of course, will spend some more money on marketing to secure the best possible intake for ONH. And there are always -- not always, but there will also be some additional investments needed to fully maintain the programs for 2022.
I think -- but I think we will -- we expect to see a margin improvement of ONH during the year. And I think the student intake for the second half will also show that we will start moving up the margin of that business as well.
[Operator Instructions] So it looks like it was quite clear. If you have any more questions, I'm sure you can contact the Lumi Gruppen directly, and they will answer any questions that you might have. Thank you for the presentation.
Thank you.
Thanks.
Bye.
Bye.