Lumi Gruppen Presentation Q421

Q4 2021 Presentation CEO Erik Brandt and CFO Martin Prytz

Lumi Gruppen - a leading private education provider in Norway Both local presence with campuses and online offering

Attractive market position and financial characteristics

#1

Top 3

Undisputed market leader within private candidate exams

National survey for student satisfaction for higher education 2021

NOK 532m

25%

Revenue 2021

Adj. EBIT margin 2021

Sonans ~ 8,000 students

Tromsø

~ 40% online students Bodø

~93%

33%

Adj. Cash conversion 2021

Online revenue share in 2021

Online

15 Campuses

+

139 FTEs

Lumi currently operates in two different market segments in Norway High school private candidate exam preparation courses in Norway

Trondheim

ONH ~ 2,800 students ~ 70% online students

Private university college with strong online offering Hamar Bergen

Oslo

Lillestrøm Oslo Campus Bjørknes Høyskole Ski Fredrikstad Tønsberg

1 Campus

2011 2012 Sandvika

Drammen

Stavanger

Porsgrunn

128 FTEs

Kristiansand

2

Executive Summary Q4’21 - In line with expectations, stable demand and continued online migration Q4`21 Revenue (NOKm)

134 (-2%)

•

Revenue: shift to online studies for Sonans, continued growth for new programmes at Oslo Nye Høyskole

•

Adj. EBIT: fixed campus cost structure short term for Sonans and ramp-up of costs for Oslo Nye Høyskole

•

Cost measures totalling NOK 10-12 mill. implemented to reflect the online shift o

Q4`21 Adj. EBIT (NOKm)

•

24 (-23%) Proposed dividend

•

Sonans o

Spring intake in line with expectations

o

New digital campus offering under implementation in response to the online shift

o

Marit Aamold Trysnes appointed new Managing Director to drive the digital transformation

Oslo Nye Høyskole o

NOK 1 per share •

Operational efficiency, rightsizing organisation and closing 3 campuses from second half of 2022, reducing operating expenses further by NOK 14 mill. annually

Solid spring `22 student intake and positive outlook with full marketing launch in autumn intake

Proposed dividend of NOK 1 per share equal to 60% of Profit for the year 2021 3

Executive Summary Q4’21 - In line with expectations, stable demand and continued online migration Adj. EBIT & Adj. EBIT margin in NOKm and %

Q4 and 2021 Revenue (NOKm)

-15% 3%

-2% 136.0

133.7

518.4

157.5 532.0

133.4

-23% 31.3 24.0

30.4% 25.1%

23.0% Q4’20

Q4’21

2020

2021

Q4’20

18.1% Q4’21

2021

2022

4

New board members and Managing Director in Sonans New board members to the board of directors

Lumi Gruppen – officially renamed from 14 January

Sylvie Milverton •

CEO and co-founder of Lynx Educate

•

Lynx Educate is a platform that provides a broad range of education offerings from leading learning institutions

•

15+ years experience in global education companies

Lumi Gruppen AS

Bente Sollid Storehaug •

CEO in Digital Hverdag AS

•

Extensive experience as board member in listed companies

•

Extensive experience as senior management of several companies

•

Lecturer at Norwegian Business School (BI)

Marit Trysnes appointed Managing Director in Sonans •

Marit Aamold Trysnes has been the Chief Strategy & Marketing Officer of Lumi Gruppen since 2015.

•

Previous experience: Director of Strategy and Projects at Høyskolen Kristiania, Management Consultant at Qvartz (now Bain & Company) and PA Consulting Group.

•

Lumi Services AS (Shared Services)

Sonans Privatgymnas AS

Oslo Nye Høyskole AS

Norwegian School of Technology AS

ONH Education AS

Master of Business Administration from BI Norwegian School of Management and graduated with honours.

5

Q4 2021 Financials Martin Prytz, CFO

Online shift affects revenue for the school year ’21/22 • Revenues ends at NOK 134 mill. for the quarter

• Q4 revenue in line with expectations as sales for autumn courses is completed during Q3 • Solid intake for Oslo Nye Høyskole, but late marketing launch of new bachelor programmes resulted in a lower first year intake compared to plan and expectations

136,0

Q4’20

133,3

Q1’21

Revenue (NOKm)

Revenue (NOKm)

Revenue (NOKm)

-1,7%

-1,7%

2,6%

134,1

Q2’21

130,8

Q3’21

133,7

Q4’21

136,0

Q4’20

133,7

-13,3

5,5

Sonans Campus

Sonans Online

5,5

ONH*

Q4’21

532,0

518,4

2020

-37,6

24,1

Sonans Campus

Sonans Online

27,1

ONH*

2021

*Incl. reclassification of public grant

7

Mix & late marketing launch of bachelor programmes affects profitability • Adj. EBIT ends at NOK 24 mill.

• Decline in Sonans campus sales not fully offset by online migration • Online price level ~25% below campus and need more volume to balance out the decline in EBIT • Different method for revenue recognition for online vs. campus with impact on EBIT short term -23.3%

-23%

47.5

31.3 -7.8

31.3

-4.6

0.0

32.3

29.6

4.9

-0.7

1.1

-0.2

Bad Debt

Group Function

D&A

24.0

24.0 35.5% 23.0%

Q4’20

24.7%

22.2%

Q1’21

18.0% Q2’21

Q3’21

Q4’21

Q4’20

Sonans Revenue

Sonans OpEx

ONH Revenue

ONH OpEx

Q4’21

Adj. EBIT % Adj. EBIT

8

Mix & late marketing launch of bachelor programmes affects profitability • Adj. EBIT ends at NOK 133 mill. for the year • Decline in Sonans campus sales, not offset by online migration

• Late launch of marketing of ONH bachelor programmes resulted in a small profit for the new programmes in 2021, financing the ramp-up cost in the period of NOK 25 mill.

-15%

-15% 157.5

157.5

-1.3 -13.4

133.4

0.2

-3.5

26.2

-24.5

-4.9

0.6

0.0

-3.5

Bad Debt Group

Group Function

D&A

133.4

33.0% 25.1%

2020

YTD’20

2021 Adj. EBIT %

Sonans Sonans Sonans Revenue Other OpEx Covid-19 OpEx

Sonans New Campuses

ONH ONH Other ONH Revenue OpEx Ramp-Up

YTD’21

Adj. EBIT

9

# of students stable, but online shift affects revenues & margins • Slower market likely due to COVID-19 pandemic •

2 years w/o exams in high school and students preferring online lecturing vs. campus during the Covid 19 pandemic

•

Online course revenue deferred over 12 months from contract date while campus is deferred over 4 or 6 months (spring/autumn)

• Adj. EBIT margin ends at NOK 15.9 mill. / 18% in Q4’21 •

Limited flexibility in OpEx base short term, cost measures implemented from Jan `22

• Online sales has higher margin per student, but prices are lower •

Additional volume needed to maintain same level of p

Adj. EBIT margin ( in NOKm / %)

Revenues (NOKm) -8%

-4% 377

363

94.4

95.0

# Students enrolled

-18% 111

95.2 86.4

86.6

8,492

8,492

5,834

5,834

2,658

2,658

Q1’21

Q2’21

8,437

8,437

4,911

4,911

3,526

3,526

Q3’21

Q4’21

7,580

91 -36% 34.8 24.8

5,837 20.4

19.6 37% 26% YTD’20

YTD’21

Q4’20

Q1’21

Q2’21

Q3’21

Q4’21

2020

2021

Q4’20

21% Q1’21

Q2’21

15.9

24%

18%

1,743

Q3’21

Q4’21

Q4’20

Campus

Online

10

EBIT margin towards 30% is still the financial ambition, and necessary measures are in place to get back to this level • On average, up to 10% price increase for online studies to better reflect the quality of the product.

Adjustment of campus prices in line with previous years (CPI) • Adjusting commercial terms for online studies to align revenue recognition for campus and online. This will allow distribution of revenue from 12 months to in average 6-9 months to better reflect the underlying performance of the business (i.e. strong performance for online)

• Introducing Digital Campus to adapt to the online shift, increasing average revenue from the online platform with equal pricing as for campus courses • Cost measures implemented with effect from January 2022 in the amount of NOK 10-12 mill.

• Removing structural cost and liability by closing down 3 campuses from second half 2022, reducing OpEx further by NOK 14 mill. annually. Students expected to migrate to online digital campus / online courses

EBIT towards 30% is still the financial ambition, and necessary measures are in place to get back to this level, cont.

• Sonans will implement additional cost measures if needed. However, its key to move forward at the right pace not to jeopardize the market share for Sonans Campuses (leasing cost)

Personnel

Other OpEx

• Additional savings when negotiating new contracts / finding new locations for existing campuses

• Highly important with a motivated and stable workforce to ensure the right quality of the courses to our students

• Several campuses with expiring contracts in near future, where 8 out of 15 contracts that expire no later than in `23

• However, higher flexibility is key going forward to deal with short term changes in student volume

• Limited additional flexibility, but other OpEx* will decrease with fewer campuses and other efficiency measures that will be implemented

• Decided to move HQ for Lumi Gruppen to Sonans Oslo, potentially reducing annual lease cost by NOK 1-2 mill. for Sonans and the Group

• Continue to utilize the online shift to optimize front and back office, and using online tools to optimize the sales process and administration

• Strong cost control implemented in the company in order to protect margins

*Other OpEx includes marketing cost, bad debt, IT expenses etc.

New programmes successfully started. EBIT margin affected by ramp-up in cost • ONH delivering on its growth plan - sales growth of 12% for Q4`21 and 19% for the year • Slightly behind target due to late marketing launch of new bachelor programmes • Lower revenues from ONH Education due to Covid-19, revenue growth at 14.5% when excluding ONH Education

• Ramp-up of costs affected EBIT • Adj. EBIT margin 23% in Q4’21 vs. 28% in Q4’20 • OpEx in line with plan and ramp-up required for launching the new bachelor programmes

• Campus prices aligned with online prices and same method for revenue recognition Adj. EBIT margin (in NOK / %)

Revenues (NOKm) +12%

+19% 168 41.2

141

44.6 38.3

-7%

-5%

46.0

47

12.5 45

11.5

38.6

28%

YTD’20

YTD’21

Q4’20

Q1’21

Q2’21

Q3’21

Q4`21

YTD’20

# Students enrolled

YTD’21

Q4’20

10.7

10.8

2,513

2,415

2,415

965

877

877

23%

1,548

1,538

1,538

Q4`21

Q4’20

Q1’21

Q2’21

10.7

28%

28%

28%

Q1’21

Q2’21

Q3’21

2,798

2,798

938

938

1,860

1,860

Q3’21

Q4`21 Campus

Online

13

Q4`21 cash flow in line with expected seasonality • Leverage ratio (NIBD / Adj. EBITDA): 2.9x • Cash position as at 31 December: NOK 64 mill. + available RCF of NOK 70 mill. (in total NOK 134 mill.)

• Net cash flow from operations: NOK -19 mill. in Q4’21 and NOK 128 mill. for the year • Cash conversion: 93% for 2021 (Free cash flow in relation to adj. Profit)

Cash Position

Net Working Capital

Net CF from Operations & Capex

233

178

163

134 107

88

159

130

108

89

64

-46 -70

-75

-76

37

18 2020A

-32

-41

128

Q1’21

Q2’21

Q3’21

Q4’21

-13

2020

-2

Q1’21

-2 -73 Q2’21

-9

Q3’21

-19

-5

Q4`21

-18

Q4`20

-140 Q1’21

Q2’21

-84

-74

Q3’21

-75

Q4’21

2021

Cash

Cash Flow

Incl RCF

Capex

NWC NWC LTM

14

Financial focus: operational improvement, margin protection and return on investment in new bachelor programmes • Sonans: • Execute on cost reduction plan to protect profit and prepare for additional measures if needed

• Make business model more flexible and adapt along with the digital transformation and migration to online

• ONH: • Return on investment from the new programmes • Ramp-up cost for new programmes mostly taken in 2021 • Additional bachelor programmes not planned to be launched before 2023

• Lumi Group: • Group functions to absorb increased back-office cost on behalf of the brands

15

Q4 2021 Strategy and Operations Erik Brandt, CEO

Well positioned in strong markets & with a competitive edge

• Strengthening online value proposition

Sonans • Rightsizing cost base & optimize operations after online shift • New programmes successfully launched and solid platform for growth

Oslo Nye Høyskole • Shift towards multi-year studies increases revenue visibility

17

Sonans – our key priority in Q4 have been to identify and implement measures to improve performance for Sonans

Strengthened the management in Sonans with a new appointed MD to drive the digital transformation

Updated strategy – focus on digital transformation, but maintain a strong campus offering

Sonans Digital Campus – pilot, full launch in autumn 2022

Optimized digital marketing to improve reach and conversion

Measures implemented to improve financial performance

Sonans – Digital Campus as a response to the online shift

• New and unique learning concept • Utilise technology to drive student experience • Live online classes • Digital assistance

• Utilise existing teaching capacity • Courses aligned with campus courses

• Facilitating interactions crucial • Between student and teacher

• Among students

Combining campus structure with online convenience

Sonans – Digital Campus as a response to the online shift • Digital campus expands student reach • Expands the geographical market in Norway • Offering the campus experience online @home to the student • Add-on for the smaller campuses, allowing them to offer the whole course range by combining campus and digital

• Supporting the digital transformation • More scalable and efficient • Merge small classes across campuses • Digital campus replacing campuses if closed down

• Pricing structure aligned with campus • Limited financial effect from online migration

Combining campus structure with online convenience

Sonans – product development enable Sonans to be a full scale educational provider and adjusting to meet student demand

Campus

Digital Campus

Online

• Safe & reliable schedule

• Safe & reliable schedule

• Flexible: Choose time and place

• Concentrated work over time

• Flexible location

• More individual focus

• Group discussions - social

• Group discussions - social

• Valuable for product development

21

Sonans – measures to improve financial performance • Improved classroom efficiency and teacher utilization

Cost savings implemented and planned

• Digital counselling streamlined and merged customer center and Oslo sales to establish a strong central sales unit

26

• Rightsizing of organisation and cost cut in the amount of NOK 10-12 mill. annually 19

• Further cost measures will be implemented • Three campuses will be closed in H2 2022 with annual gross cost savings of NOK 14 mill.

• Price experiment for online courses completed and show that the quality of the online offering could allow a price increase up to 10%

7 13 7 6

• Campus prices adjusted inline with previous years

• Change in commercial terms for online studies – align with campus course revenue distribution to better reflect the underlying performance

14

6

6

H1 2022

H2 2022

12

12

2022

2023 Closing Campuses Cost Savings

Sonans - shift to online continued during the spring `22 intake Total added new students* for the spring intake 2,929

• Number of students signed up ended at 2 580 • In line with expectations

2,580 1,251

• Significant shift partly caused by Covid-19 1,302

• 4% increase for students signed up for online courses • 24% decrease for students signed up for campus courses

• Rapid shift affects profitability

1,678

• Current prices online courses below campus

1,278

2021

2022 Online

Campus

* Including Churn

Spring 2022 intake reaches a new all time high Total added new students spring `22 intake +16%

• Spring intake only for digital programmes/courses 442

• 16% growth compared to last year • Strong growth for bachelor and annual programmes

381

• Student intake will drive growth for several years • Strongest growth in multiyear programmes

+55%

• Bachelor programmes with highest value pr student

171

• Sales & marketing efforts continuously improved

-6%

110

• Prices adjusted approximately 3%, in line with CPI

84 56

• Oslo Nye Høyskole successfully re-branded Total

Bachelor

171 161

+50%

Annual

-41% 44

26

Other

Spring intake 2021

Single subject Spring intake 2022

Positive outlook with full marketing launch in coming autumn intake

• Significant increase in marketing efforts for the autumn intake • Potential of more than NOK 30 mill. in new Gross Sales in 2022 for new programmes

• Scalable business model • Profitability will improve with increased number of students

• ONH will continue to launch new programs • Focus on multiyear programs • Single subject programs derived from multi-year programs

• Expand geographical reach • Online education will be strengthened further

25

High student satisfaction and leading in online teaching Top 3

Oslo Nye Høyskole among top 3 in the annual national student survey “Studietbarometeret”

#1

Steinerhøyskolen

Oslo Nye Høyskole ranked #1 with best technical solution for online teaching

4.7 Oslo Nye Høyskole

Baratt Due Musikkinstitutt

4.6 Handelshøyskolen BI

Oslo Nye Høyskole

Politihøyskolen

65.0%

4.5

MF Vitenskapelig Høyskole

Arkitektur- og designhøyskolen

85.0%

62.0%

4.4 NMBU

60.0%

Lovisenberg diakonale høyskole

60.0%

4.4

Student Satisfaction Score (1-5)

Student score 4 or higher (1-5)

Source: https://www.studiebarometeret.no/no/

26

In 2021, Bachelor and Annual programmes amounted to NOK 153 million, equal to 90% of revenue • Revenue from bachelor and annual programmes, those with the highest value per student, constituted 90% of revenue in `21 • Single subjects is a low-cost initiative to boost growth, but still not a significant share of revenues in `21 • Increased number of bachelor students leads to increased revenue visibility for ONH. At start of this year, the value of the order backlog (to be distributed as revenue in `22) is close to a 75% share of the revenues recognized in 2021

Share of Revenue in %

Enrolled bachelor students per year-end

58%

114.7%

75%

+42.6% 1,561

36% 727

Revenue visibility

892

973

2018

2019

50%

1,095

6% Bachelor

Annual Programmes

Other

2017

2020

2021

2021

2022

Aiming for launch autumn `22

Marketing platform in place to launch NTech

• NOKUT* requested more information before approval • Extensive additional information sent February 10

• Execution plan completed • Launch one new 2 year program each year

• Capacity unlimited online, campus easily expanded

• Close collaboration with the tech industry • Accelerating growth in demand for IT consultants • Strong growth also for new institutions

* Norwegian Agency for Quality assurance in Education

28

Summary / Outlook • Lumi Gruppen (consolidated) • Expect EBIT margin for 2022 to be on par with 2021

• Changes in commercial terms for online is expected to improve margin slightly in 2022 due distribution of revenue in line with the campus model and not 12 months linear from the time of sale. This will result in a higher share of revenue per month in each semester • Sales made up to December 31 2021 (deferred revenue) will not be affected by this and will be distributed over the remaining months, in total 12 months

• Sonans • 1H 2022 revenues expected to be in line with 2H 2021 revenue when including the changes in commercial terms for online • Limited visibility on 2H `22 sales as most sales are made between July and August • The aggregated effect from cost- and revenue measures could potentially improve the EBIT margin in `22 compared to `21

• Oslo Nye Høyskole • Focus on increasing volumes in new bachelor programmes, spring and autumn • Growth in line with 2021 (in per cent), targeting NOK 200 mill. in revenues • EBIT margin on par with `21, but potentially stronger given higher volumes

29

Disclaimer This report includes forward-looking statements which are based on our current expectations and projections about future events. Statements herein, other than statements of historical facts, regarding future events or prospects, are forwardlooking statements. All such statements are subject to inherent risks and uncertainties, and many factors can lead to actual profits and developments deviating substantially from what has been expressed or implied in such statements. As a result, you should not place undue reliance on these forward-looking statements The Group reports its financial results in accordance with accounting principles IFRS. However, management believes that certain alternative performance measures (APMs) provide management and other users with additional meaningful financial information that should be considered when assessing the Group’s ongoing performance. These APMs are nonIFRS financial measures, and should not be viewed as a substitute for any IFRS financial measure. Management, the board of directors and the long term lenders regularly uses supplemental APMs to understand, manage and evaluate the business and its operations. These APMs are among the factors used in planning for and forecasting future periods, including assessment of financial covenants compliance