Welcome to the Karnov Group Q1 Report 2020. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question- and- answer session. Today, I am pleased to present CEO Flemming Breinholt and CFO Dora Brink Clausen. Please begin your meeting.
Thank you very much. Welcome, everyone, to this earnings conference for Karnov Group, where we're going to present the outcome of our Q1 of 2020. Next slide, please. I'm Flemming Breinholt, President and CEO of the company. With me, I have our CFO, Dora Brink Clausen. Calling in is our IR specialist, Erik Berggren. Dora and I will present the outcome of the Q1 using a few slides. Then we'll open up for questions. Those of you who have called in can ask questions verbally, while those of you who are participating via webcast can send questions in written form via the webcast. With that said, let's get started with the presentation of Q1. Let's turn the page and go to next slide.
We have started off 2020 with good results, also considering that the COVID-19 pandemic reached our markets in Denmark and Sweden in the quarter. Despite of this, the financial results are in line with our expectations. The Q1 of the year is typically our strongest quarter, with a high number of offline sales. Sales grew by 3%, organic growth was 2%, margin almost 42%, and leverage well in line with our targets of not more than three times. Next slide, please. During March, we have started to provide regulatory information related to the COVID-19 pandemic on our online platform, both in Sweden and Denmark, in a special section. This section has driven good traffic to our platform and has been very well appreciated among customers and users. We have also succeeded in further expanding our business by investments in both Denmark, Sweden, and our new market, Norway.
These investments will bring more value to our customers when launched and opened up for entering Norway. We have also strengthened our management team by recruiting new local CEOs for Norstedts Juridik and Karnov Group Denmark. This will enable us to focus even more on our future growth. Turning the page. During the Q1 of 2020, we have concluded three new investments, as I just mentioned. In the beginning of the year, we invested in the Danish legal tech startup, Endeav. Endeav is developing new technologies as a standalone offering, but it's also expected to be implemented in our platform to provide additional relevance and efficiency for our customers. The second investment, we formed a joint venture, 64% in our favor, with LEX247, called LEXNordics.
LEX247 is a cloud-based legal enterprise practice management solution that represents a way for us of delivering even more value to the customers. Further, the joint venture will operate in the whole Nordic region. Our third and latest acquisition this year will be our way of entering the Norwegian market with an agreement to invest in Strawberry Law. This company has now been renamed Karnov Group Norway. Our legal research solution in Norway will be based on a platform collaboration between Karnov Group Norway and Lovdata. This collaboration with Lovdata is an important milestone for us, as Lovdata is the most widely used legal information solution in the Norwegian market. The new company, Karnov Group Norway, is expected to launch its offering in the H2 of 2021 with a focus on commentaries, annotations, and EU material. Turning the page.
Our Danish sales have continued to grow in the Q1 . Based upon our market research in the Q4 last year, we have now started to intensify our developments of new solutions to support future growth. We will launch an updated online platform in H2 of 2020. Our new case preparation tool, which we launched during Q1, is up and running and has had a successful rollout. The feedback has been good, and the product is appreciated by the users who confirmed the new work tool brings them more value. Already now we have a few hundred users for this service. We have also recruited a new CEO of Karnov Group Denmark. Up till now, I have held the position in addition to being CEO for the whole Karnov Group, but by strengthening our management resources, we will have further focus on growth for the future.
Next slide, please. Our Swedish business has had a good start of the year. The organic growth was 3%, driven by good online sales and upselling to existing customers. We have published a new edition of the classical law book, Svensk Regelsamling, which was well, again, received as lawyers continue to use it as an important work tool. During the Q1, we have continued developing and deploying enhancements to the JUNO platform based on feedback from our users. This was continued during the Q2 as we informed at our Q4 earnings conference. Next slide, please. Speaking about the pandemic, we have taken several precautionary measures. For instance, by letting our employees working from home. We are, of course, strictly adhering to the regulations and recommendations from the authorities. We need to ensure that our employees stay healthy despite the pandemic.
Their health and well-being are our overriding concern currently. We have set up a special section on our platform in Denmark and Sweden, where we have collected all legal and regulatory information about the COVID-19 pandemic. Currently, this section comprises more than 60 new laws and law changes and numerous guidelines and advice related to the pandemic in Denmark and Sweden. This service has been well received and there have been many searches on our platform related to the COVID-19 pandemic. We have chosen not to use any of the support programs that government have introduced to mitigate the financial consequences for companies of the COVID-19 pandemic. We believe and are confident that Karnov can do without these subsidies. Therefore, the board of directors of Karnov is still proposing a dividend to be decided at our annual general meeting later today.
I will now hand over to Dora, who will tell us more about our financial performance in the Q1. Next slide, please.
Thank you, Flemming. I will now present and discuss the financial outcome. Let's start with an overview, which is slide number 10. The Q1 is typically our strongest quarter of the year, both on top line and on margin. The top-line growth was 3% compared to the same quarter last year. Net sales were SEK 212 million. Adjusted EBITA was improved by 3% to SEK 88 million, with a high and stable adjusted EBITA margin of 41.6%. Next slide, please. Looking more specifically at our sales growth, organic sales was a little above 2%, while currency effects were approximately 1%. The online business continued its steady growth, while the offline market continued its predicted decline, which was further accelerated by the COVID-19 pandemic. The COVID-19 pandemic is assessed to have reduced overall sales growth by slightly more than one percentage point.
Both the Swedish and Danish segments contributed to the increased sales. Next slide, please. In the Q1, adjusted EBITA increased by 3.4% and adjusted EBITA margin was 41.6%, which is unchanged from last year. Numbers of FTEs have declined to 240, even though personal expenses have increased compared to last year. The reason for this is that we, in 2020, are back to normal level of split on internal hours between maintenance and capitalization. Next slide, please. On slide 13, you see the net sales development with two different views, and you see that the long-term trend in our sales continued also in the Q1 of 2020. First, to the left, you see that the online business increased its shares of our group's sales by four percentage points to 72%. Some of this shift in sales is probably temporary as the corona effect reduced the offline sales.
The higher share of subscriptions in our sales that you can see from the graph on the right is also partially a reflection of the effect of the pandemic. Here, the increase was three percentage points from 77 in Q1 2019 to 80% in Q1 2020. Move on to the next slide, where we have one of our two segments. In Denmark, adjusted EBITA improved by 8% to adjusted EBITA margin by two percentage points to 42.5%. This improvement was due to a combination of higher sales, good product mix, and good cost control. Here, sales increased by almost 4%. A little less than half of this increase came from organic growth, and the rest from currency effects. Organic growth was driven by upselling to existing customers. The COVID-19 pandemic has further enhanced the long-term declining trend in the offline market.
Sales were negatively impacted by the corona pandemic as bookstores were closed during most of March. Next slide, please, which is the Swedish segment. Net sales in Sweden increased by 3%, which was in line with expectations. All of the net sales increase are organic growth since our reporting currency is SEK. Adjusted EBITA in Sweden declined a little compared to last year due to higher consultancy costs and higher personal expenses in this quarter. As I explained before in connection with slide number 12, this is not a real increase in the FTEs, but a reflection that we're now back to normal degree of split between maintenance and development. Next slide, please. Here we have our cash flow slide. As expected for the Q1, adjusted operating cash flow was strong or up by 4% and in line with expectations.
This is a seasonality effect as the great majority of subscription are renewed in December. In the Q1 of this year, the cash conversion was 173%, up a little from 168 for the same quarter last year. The leverage of 2.3 times is well in line with our target of not more than three times. As to our balance sheet, you may have noted that we have drawn SEK 300 million from our unutilized credit facilities. This is nothing special, but just a way to be prepared and have the possibility to act fast if, in these turbulent times, a good opportunity arises for an acquisition. I'm now handing over to Flemming again, who will present our last slides.
Thank you, Dora. Please switch next slide. I just want to conclude this presentation by presenting a summary of the highlights during the Q1 . We have had a good start of the year despite the COVID-19 pandemic, which has affected the whole society. The financial results are in line with our expectations. We have made three new exciting investments, one in LEXNordics, one investment in Endeav, and a geographic expansion to Norway. We have recruited new local CEOs for Norstedts Juridik and Karnov Group Denmark. This will make it possible for us to focus even more on our growth moving forward.
We are focused on taking care of our employees in the COVID-19 pandemic and ensure their safety and wellbeing. We have also set up a special section on our platform in Denmark and Sweden, where we have collected all legal and regulatory information about the COVID-19 pandemic. This has been very appreciated. By this, I end our presentation, and we're now ready to take questions. I'll hand over the conference again to Alexandra.
Thank you. If you would like to ask a question, please press zero one on your telephone keypad. If you wish to withdraw a question, you may do so by pressing zero two to cancel. That is zero one, if you would like to ask a question. Our first question is from Daniel Lavén from Nordea. Please go ahead. Your line is open.
Yes. Hello. Thank you for letting me ask questions. First question, you mentioned here that there were some negative impacts from the COVID-19, and you talked about one percentage point impact on sales. I just wonder if you would look at the adjusted EBITA. Is that a similar impact or higher or lower? You mentioned here that due to timing; you expect to recoup that. Would that already be in Q2, or do you see that being recouped later during the year? That's the first question.
The impact on the adjusted EBITA margin or the adjusted EBITA is, of course, the gross profit on the top line. As it is offline, you can say that it's normally a little lower than the online gross profit. Due to your question around if we will catch this up already in Q2, first of all, we have said that we expect this to be partly catched up during the year. I think that all of us are waiting for societies, especially in Denmark, to open up again, but also in Sweden. When during the year that will be, I think that we need all nine months to do that.
Okay. Thank you. Another thing, we also discussed before the quarter here that you have some one-off trade last year, and that were both for Q4 2019, but also Q1 2020. I just wonder, can you quantify in any way how much that one-off trade benefited the Q1 2020?
Trade is normally with also a pretty good gross profit as all our different parties. I think that you can take our gross profit and say that that's what we are missing on the trade in average.
Okay. All right. Final question here then from me, that is when I look at the different segments on comparing Denmark and Sweden now, it seems like your margin then rebounded in Denmark from Q4, the organic growth came down or seems to be a bit lower than. You also mentioned here that you have done some step-up investments or to enhance investment in Denmark. I just wonder, is that something that you expect also going forward, that you need to invest a little bit more in Denmark to see organic growth coming back to your target level?
I think two answers to your question. First of all, take into account in Q1, of course, that the bookshops in Denmark were closed, which meant that the offline was completely stopped for a period. We have initiative and as it has been outlined also since you could say the IPO, that we knew we were using a lot of resources for actually doing the integration, the launch of JUNO in Sweden. There is a rebound coming up in Denmark, and we will of course see of how to provide those changes as also said later this year for our online service in Denmark. Of course, also looking into which initiative can bring at a later stage more growth in the Danish segment. We are in the process of identifying where and which areas to put more focus on combined to those we already have announced.
Okay, perfect. That's all questions from me. Thank you.
Just as a reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. At the moment, there are no more audio questions. I will hand over back to you for any other questions.
All right. I have a question here from Claus Engberg that is directed to Flemming. Flemming, in the report, there is an extreme focus to talk about the success with serving legal customers and about new products for legal. Is it part of the strategy of Karnov Group to focus on these customer types for the longer run?
I didn't get which customer type. Sorry.
Please repeat the question.
In the report, there is a focus to talk about the success with several legal customers and about new products for legal.
Is it part of the strategy for Karnov to focus on these customer types for the longer run and defocus on other customer types?
First of all, you can say that the DNA on the background and the core of what we're doing is actually to have with legislation or related matters to do so. It goes without saying that, of course, our focus is on all what is related to, you could say, legal customers. Beyond that, it is, of course, the nature also of us to look into other areas in those markets we are in, where you could say we can actually get use of our experience in other verticals or other segments, and thereby actually getting a increased part of the area of the market. A good example is, of course, in Sweden, where we have a full up and running vertical from municipalities, and you could also expect to see us in other areas in the future ahead of us.
The answer is yes; it is in that field we will be involved also going forward.
Okay, thank you. We have another question from Peter Nichols of Vor Capital. He asks, "How much of the organic growth this quarter that was driven by increases in unit pricing?
It's a question which we actually cannot explain clearly, because what is important for us is to measure the number of users and thereby also to look into which package they actually chose to get. We, of course, very focused on where we see upgrades and downgrades also in terms of which package customers are entering in. We still see a good trend that customers actually are interested in the more advanced packages from Karnov Group, both in Denmark and in Sweden. Next question.
Thank you. We have no more outstanding questions that have been sent in from the web currently.
We have no further audio questions, so I will hand right back to the speakers for any final comments.
Thank you very much. Thank you everyone for listening and your questions. We will report our Q2 report on August 26th, and I hope to hear from you then. If not,
Pleasure.
Thank you very much.
You're back in the private speaking area.
Okay. That's good. Very good.