Earnings Call: Q1 2021

May 4, 2021

Good morning, everyone, and welcome to Ambea's First Quarter 2021 Report Presentation. Speaking is Mark Jensen, CEO of Ambea and presenting with me today is Benno Eliasen, CFO. I will start today's presentation by giving an overview of the quarter and the status around COVID-nineteen and its effects on our business. I will also cover the status of our growth drivers. Ben will then describe the development of the financial for the groups and go through the financial development for the different segments in Ambea. I will then summarize the quarter and compare to our financial targets before we open up for questions. But before we start, a quick overview of the Ambea Group. Ambea is the leading care provider in Scandinavia with focus on residential care in a number of segments. We have a leading position in all our geographies with total revenues of around SEK 11,000,000,000. So let's start with highlighting some important events from the quarter. COVID-nineteen continues to negatively affect the quarter even though the situation in our operations has stabilized as the vaccination program rolled out. The negative effects from COVID-nineteen in the Q1 was in line with our estimates in the quarter 4 2020 report at minus SEK 40,000,000 on EBITDA. As occupancy has yet to show material improvements, the estimated effect on sales came in at SEK 100,000,000 in the Q1. Sales was down 3% compared to quarter 1 last year, driven by lower occupancy in Borodaugher and currency effects in Stenia and Alceden. Termination of contracts also pressured sales growth. Adjusted EBITDA was down 19% versus last year and came in at SEK 152,000,000. Margin decreased to 5.5% from 6.7% versus same quarter last year. COVID-nineteen pressured earnings as occupancy was lower than during the same quarter last year. Stendi saw increased costs due to the pandemic as the Norwegian society experienced an increased spread of the coronavirus. During the quarter, Nootjitter closed the acquisition of 6 care units from LSS OMSOJEN. After the quarter ended, EcoFonden's Care Operations in Denmark was acquired by Alcide. More on that later. First, let's look at an update on the COVID-nineteen situation. We can conclude that the spread of the virus has been substantially lower in our nursing homes than in the Swedish society during the Q1. The situation in our nursing homes has stabilized and operations returned to an almost normal state again. We continue to be careful and ensure that previously the routines on place to ensure our caretakers and their relatives can feel secure in our nursing homes. The vaccination program is completed in our nursing homes with all residents and a majority of staff given the 2nd dose of vaccine. Even though the stability has returned to our units, the financial impact remains due to a lower occupancy. Both Vodog and Stendi had increased negative financial effects in the quarter. As Norway experienced the highest level of COVID-nineteen spread today, our cost for keeping residents and employees safe increased. The negative EBITA effect from COVID is minus $40,000,000 in quarter 1 and is predominantly shown in Vodaf against Endy. Occupancy continued to be lower than normal, but at the same time, we cause we focus to lower operating costs to mitigate the loss in revenues. The negative impact of COVID-nineteen on the Q2 to SEK 90,000,000 to SEK 100,000,000 on sales SEK 40,000,000 to SEK 50,000,000 on EBITA, primarily due to lower occupancy. Moving on to the next slide where we compare the development of nursing home residents in Sweden. We have summarized publicly available data on the number of residents living in nursing homes from January 2020 until February 2021, which is the latest public data available. If we compare the development of Sweden and the Stockholm region to the development of the mature and unmanaged units in Vodogar, there are a number of interesting conclusions that can be drawn. The COVID-nineteen pandemic initially hit harder in the Stockholm region than in the rest of Sweden. A vast majority of our own managed mature units are in the Stockholm region, while the occupancy followed the same trend as Stockholm. With the completion of the vaccination program within elderly care, the situation has stabilized and the everyday life returned to normal in our nursing homes, including opportunities to receive visits for relatives and the daily activities for residents. In parallel, we carefully keep our implemented routines in place. The market generally works in the way that municipalities aim to fill vacancies in their own nursing homes first, then nursing homes on contract management and as a 3rd step nursing homes in the private sector where the municipalities pay per resident on a fully variable model. Over the last 2 months, we have seen a slight positive trend in occupancy for our own managed mature nursing homes as seen in the graph. It is uncertain how the trend will continue to develop, but our weekly data from April shows a continued slight positive trend. With the details. So short term, we have intensified our marketing and sales efforts to fill up the vacant capacity. Midterm, we we will open additional capacity as we see the demand continue to increase and long term the demographic trend continues to be favorable. Turning to our profitability development where the EBITDA margin was 7.7% on a rolling 12 month basis. As previously noted, the profitability is negatively affected by COVID-nineteen. Board augers margin decreased due to continued low occupancy and added costs for newly opened units. We keep initiating new measures and operational improvements to optimize costs as we see a positive occupancy trend. With the new sales force. New Zealand shows a lower margin in the Q1 due to a decreased occupancy in the individual and family segment and a shift towards more contract management. All in all, the total rolling 12 month EBITA margin decreased by 0.2 percentage points compared to the Q4 in 2020. Moving on to the greenfield development. We continue to experience a challenging environment regarding opening of new nursing homes in Sweden. Many municipalities still have empty beds in their own nursing homes. Ambea takes a cautious approach, and we will only open up and staff new nursing homes if we feel comfortable that they have a high likelihood of filling up within a 12 to 18 months time frame. If not, we initiate discussions with our real estate owners to delay construction or just keep them empty with no staff costs until occupancy situation is back to normal again in the local market. We currently have 5 to 10 such situations. In Q1, we opened up 2 group accommodation units. Nutsider Open 1 in Stockholm with 5 beds and Altider Open 1 in Yueland with 5 beds. In quarter 2, we plan to open 3 new nursing homes, 2 in Sweden and 1 in Denmark. Vodag will open Villa Stalgong in Eskilstuna and Villa Nez in Oostokur situated north of Stockholm with a total of 120 beds. And finally, we are very excited about the opening of Vripohealde, Altiden's first own management unit late quarter 2. With the Q4. Let's turn to acquisitions. Nootida closed the acquisition of 6 CARE units from LSS Aumsoven in the quarter. We're happy to see the units continue to perform well after the acquisition. After the quarter ended, Altairn closed the acquisition of EcoFondents Care Operations in Denmark. EcoFondance Care Operations offers residential accommodation within disabled care and has about SEK330,000,000 in annual sales. The Aco acquisition is in line with our strategy for the Danish market, where we focus to shift business mix to segments with better long term profitability, meaning Own Management Residential Care for elderly and individuals with disabilities. Now let's look at the financial development of the quarter. Beno, over to you. Thank you, Mark. If we look into how the different business areas have affected the group number, we can see on next slide that total sales declined by 3% or SEK 74,000,000. Last year had one day more, which represents SEK 31,000,000 in sales. And starting with Faraga, sales was down SEK 50,000,000. And important to remember that most of the SEK 100,000,000 that we report as corona effect was in Varadaga, where occupancy was lower than normal. In total, the decline in sales was minus 5% versus last year. New contract started. Contract management grew by 19%, which the company's share of the company's share of the company's share of the company's share of the company's share of the company's share of the company's share of the company's share of the company's share of the company's share of the company's share of the company's share of the company's share of the company's share of the company's share of the company's share of the company's share. With the company. In Stenby, currency effect continues to affect the reported SEC numbers. The average NOK SEC rate is down 3% versus Q1 last year, which means that sales in local currency is minus 1% versus last year, but down SEK 30,000,000 reported in SEK. We have returned 1 nursing home to a municipality, which represents around 3% of sales. In Altria, we have started to leave the Home Care business and have returned 2 contracts to the municipalities as well as 1 nursing home. We had a small growth of own management driven by higher occupancy. Currency effect was unfavorable by 4%. And at last Clara. We saw now reported good growth in both external and internal sales. The increased external sales affected the group numbers by SEK 6,000,000. Then to the profit numbers. With the details. As said, we are facing both negative calendar effects of around SEK 30,000,000 as well as negative corona effects compared to the Q1 2020. Regarding the Q4. VAR DAGA decreased EBITDA by SEK 23,000,000 or margin by 2.4 percentage points. Due to corona, we saw lower occupancy in mature units as well as longer ramp up times in new units. The net income margin was hurt by change in mix between own management and contract management as well as slightly lower occupancy as said in the individual and family segment. In Stendi, the restructuring program completed earlier this year, now earlier last year, now had full effect, that we saw more corona related costs than in previous quarters. The hard quarantine rules in the 3rd wave in combination with lower cost coverage from the government has negatively impacted the EBITDA in the quarter. With Alterym had a good quarter with solid occupancy levels. We are starting then to close down the Home Care business and prepare for further planned strategic initiatives in the Q2. Enclara continues to deliver stable margins. All in all, and decreased from SEK 187,000,000 SEK to SEK 152,000,000 or margin down from 6.7% to 5.6%. Cash flow. The strong operating cash flow continued. The first quarter is normally the weakest quarter from a cash flow perspective, in Q1 was slightly weaker than last year, dollars 276,000,000 versus $298,000,000 last year, the revolving 12 cash conversion is still above 100%. If we exclude the IFRS 16 effect, we are at the operating cash flow at €45,000,000 in the quarter or €860,000,000 at Rolling 12, which also is above 100% of EBITDA excluding IFRS Steve. Financing. The leverage of the group was at 3.5 times EBITDA, which is 0.5 times lower than 1 year ago, but 0.4 times higher than the last quarter. The seasonal lower cash flow together with lower EBITDA this quarter has, of course, affected the numbers in the quarter. With the Q2 last year, we have decreased our net debt by almost SEK 500,000,000 and come from a net debt ratio of 4.0 to 3.5 as of now. The increase in lease debt is of almost SEK 1,200,000,000 since last year reflects the fact that we have had a number of start ups of new units under own management. And these units, they come with longer rental conditions than the average portfolio. And then a short overview of the business areas, starting with Bar Daga, where total sales reached SEK 859,000,000 in the quarter what was down 5% versus last year, and this is mostly driven by lower occupancy in mature units, but also a decline in contract management to UTC's contracts. New units in ramp up have affected the sales positively versus last year, but not as much as expected. We continue to see a slower ramp up pace in these new units due to the COVID-nineteen situation. EBITDA for Varaga reached SEK 25,000,000 versus SEK 48,000,000 last year. Most of the negative corona effect of the SEK 100,000,000 in sales and SEK 40,000,000 that we reported in the group hit Vargas. However, we also saw overall operational improvements, which compensated for some of the lost occupancy. That indicates that the margin improvement can come rapidly when the occupancy rates are increasing again in our own management portfolio. The quarterly earnings was also positively affected by retroactive compensation for COVID-nineteen cost by SEK 20,000,000. EBITDA margin for mature units decreased to 7.2% in Q1 and from 9.8% last year, and this decline was, of course, driven by the lower occupancy. The benefit from all experience drawn in the pandemic, we are in the final stages of our COVID-nineteen analysis of BARDA. In our report, which will be presented in a few weeks. From now, we will discuss and present potential improvements to strengthen and secure an individually adapted elderly care in Sweden. We also aim to accelerate our efforts to decrease the risk of society building a social care debt on the backside of the pandemic. Many relatives have taken a larger responsibility during the pandemic as their loved ones in need of care a stay at home. It's now time to get the professional care needed. And as an important partner to the municipalities, Ambea can provide a secure and individually adapted high quality care. Over to New Tierra, where total sales reached SEK 990,000,000 2nd in the quarter, up 1% versus last year. Our own management sales were slightly down, reaching SEK 764,000,000 in the quarter. This was an effect of lower the key focus on individual and family care, our disabled care business, which is the core segment of NITIRA, continues to be stable. With the company's contract management sales reached SEK 155,000,000 that is up 19% versus last year. Strong win rates during 2020 have turned around the negative sales a trend we have previously had in contract management. EBITDA reached $114,000,000 in the quarter corresponding to a 12.4% margin. This is a decrease by 1.7 percentage points and is mainly explained by shift towards more contract management and decreased occupancy in the individual and family segment. Rolling 12 EBITA margin reached 15.9 percent, that is down 0.4 percentage points versus Q4 last year. And then over to Norway and Stendi. Sales decreased 4% and reached SEK 731,000,000. Currency effect had a negative impact in the quarter and sales in local currency decreased by 1% versus same quarter last year. In local currency, the own management sales increased by 2%, but in Czech sales decreased by SEK 674,000,000. Contract Management sales reached SEK 57,000,000 versus SEK 7 V last year, and that decline is explained by return of a nursing home back in Q2 2020. Quarterly earnings was positively affected by the ongoing efforts to implement AMBEA's care model in combination with synergies from the previously completed restructuring program. Costs for COVID-nineteen related sick leave, strict quarantine rules and cost for protective equipment continue to increase compared to previous quarter, which had a negative effect on EBITDA in the quarter. Adjusted EBITDA reached SEK 15,000,000 or a margin of 2.1% in the quarter versus 1.7% last year. That profit increase mostly comes from the cost improvement program that we launched in Q1 2020. Adjusted rolling 12 EBITDA margin increased by 0.1 percentage points from Q4 and are now at 4.7%. Over to Denmark and Alti Ren. Sales amounted to SEK 151,000,000 and that is down 11% versus last year, explained mainly by the return of low margin contracts in LD Care. In local currency, the sales decreased by 7%. With the Q1, Altria had an EBITDA of SEK 1,000,000 and EBITDA was positively affected by the higher occupancy compared to the same quarter last year. And there is also COVID-nineteen related cost of negative effective profitability. And at Last Clara, net sales were up 17%, reaching SEK 89,000,000 in the quarter, SEK 13,000,000 up versus last year. The positive development the sales of the business, where the demand for our nurses have increased. And Cloudera continues to perform well with an EBITDA of SEK 6,000,000 in line with the same quarter last year. Volley 12 EBITDA margin now reached 7.9% in the 4th quarter. And on that note, back to you, Marc. Thank you so much, with Benno. Then time for concluding remarks. First to sum up our financial development versus our targets. Our growth target is 8% to 10% through a combination of acquired and organic growth. 2021 shows the negative effects from COVID-nineteen, but we have announced 2 acquisitions in the Q1 2021, LSS OMSOIN in Sweden and EcoFond and Care Homes in Denmark. We continue to actively explore attractive M and A possibilities in all our markets and pursue new greenfield opportunities in relevant locations. Profitability wise, we have a mid term adjusted EBITA target of 9.5%. Q1 2021 was the 1st rolling 12 month period where we had full effects from the pandemic. We are well positioned, we believe, to meet an increase in demand post the pandemic. And finally, regarding leverage, where cutoff effects in quarter 1 as well as a lower profitability resulted in a higher leverage, but our solid cash conversion will reduce leverage over time. So summarizing on a one pager here the Q1 of 2021. COVID-nineteen is still affecting operations and our financials and we are still in a pandemic, we should not forget that. What with vaccination programs progressing rapidly in society overall and concluded within elderly care, we expect to see a slightly more positive occupancy trend in the coming quarters. The financials were negatively affected from COVID-nineteen by SEK 100,000,000 on sales and SEK 40,000,000 on EBITDA in the quarter. And for the Q2, we expect the negative impact on the pandemic for the pandemic to be SEK 90,000,000 to SEK 100,000,000 on sales and SEK 40,000,000 to SEK 50,000,000 on EBITA. Our COVID-nineteen report regarding the elderly Care segment in Sweden will be presented in the coming weeks. It aims to draw conclusions and suggest improvement measures. Make sure to visit our website to read it. We continue to be active in M and A and have completed 2 new acquisitions as per today, 1 in Nootheda and 1 in Altiden. We believe Ambea is well positioned to capture the growth in demand we expect to see when our society slowly returns to normal. As a partner to the municipalities, we are ready to support and deliver quality solutions for Residential Care. So with that, I conclude our presentation and open up for questions. Operator, can we have the first question, please? Thank you. The first question comes from the line of Karl Noram from Danske Bank. Please ask your question. If we can start on the Nitsida segment and maybe if you could explain a bit more what was the driver or the reason behind the lower demand that you saw within individual and family care. And do you see it as a more of a one off effect? Or do you should we expect lower demand to remain for the upcoming few quarters? We saw the lower demand in the individual and family segment, predominantly in the subsegment of children and youth. And we don't really know if that is a direct or indirect effect of the pandemic or not, but we have seen that for a few quarters and we see it still in the Q1. And that's it, the profitability a little bit more in the Q1 than previous. So it's hard to say really if that is a continuing trend for that we'll be back to normal when we are a little bit out of the pandemic. Okay. And then my question is here to try to figure out the underlying development The EUR 20,000,000 that you received in government support, can you say how much you have calculated the impact of that to be in Q2. When you calculate the impact or when you estimate the impact to be EUR 40,000,000 to EUR 50,000,000 in Q2, just to to figure out the underlying development here. The $20,000,000 we got in Varaga was the last a portion of the 2020 government program that we didn't know when we closed our books for 2020 if we should get or not. Now we know that we got it and we booked it in the Q1. We have not anticipated yet any subsidiaries from the government, Swedish government program in Q2. And we are not really sure how the program would work in 2021. We know that the municipalities haven't yet got that kind of money that they got in 2020. So we are a little bit cautious in our estimates there. If there will be some money that will be, of course, affect the guidance that we just made. Okay, Perna. And just the last question here. Can you quantify maybe the negative impact from COVID in Stendi? How much was it in Q1, if you could estimate it? No, I don't have an exact number of that, but that is more than just a couple of 1,000,000, you can say. But that so it's more than just marginal that you can say. Yes. Thank you. Thank you. The next question comes from the line of Christopher Liljeberg from Carnegie. Please ask your question. Yes. Thank you. Just to follow-up on the last one here, the split of the COVID the impact in Norway and Swedish elder care. If you could come back with the figure there, it would be very helpful to understand the underlying trend, maybe particularly so in Norway since much of the story is about improving margins long term in Norway. Besides that, could you say something more about what you see for occupancy rates and the trend in Do you see any type of acceleration order from small levels? Or is it as slow as we saw in you saw from the graph that we showed in the presentation that we have seen in February March a slight positive trend. That trend continues what we can see from our weekly data in April. So it's not accelerating, but it's continued to be slightly positive. And I think it's also important to notice here that the way it works, as I tried to explain on the slide, is that the municipalities will normally fill up their own nursing homes first, then go to contract management and then to the private sector in the 3rd step. To be kind of positioned at step 3, you could say, in filling up the vacant capacity again. But we see definitely the same positive trend from on our weekly dates in April. And is this the trend you see throughout Sweden? Or is it more so in different geographies. So as we have our own managed homes concentrate in the Stockholm region. It's predominantly from here, we see it, and it's from municipalities where you have the opportunity to make a free choice of where you want to stay. This where areas where we see we have the strongest development. Okay. And how soon do you think you will be Have occupancy levels in Sweden above last year? And also best Yes. Now when do you think occupancy levels could get back to pre COVID levels? Or do Do you think it will be difficult to get back to pre COVID levels in the next coming years or so? We don't think it will be difficult to come back long term, but it's very hard to say where how fast it will come back short term. I think we have all been a little surprised by this pandemic from time to time. First, the second wave and then the 3rd wave in society overall. I don't mean now Ambea, but society overall and the impact of that. Also the impact of the 3rd wave in Norway, I think, to the Norwegian Society was quite impactful. So we cannot today which quarter we will be above last year, how fast we'll be back to pre COVID levels. But long term, that the underlying trend is still very strong and we will get there, but we cannot say exactly when. But based on your sales guidance for or the COVID impact on sales guidance for the Q2, it seems you Yes, that's correct. Okay. Last question. Is it possible to get the IFRS 16 lease effect on in the financial net. I see that you give it out on the EBIT a line, but to get the impact on net profit, that would be helpful as well. Well, I don't have that figure right now, but we'll see if we can add that later on in the future presentation. Okay. Thank you. Thank you. The question. The next question comes from the line of Paul Jovan Bonadier from DNB Markets. Please ask your question. Yes, good morning. Just to continue on Baldag, having 5 to 10 units, as you say, in the not ready, but not in ramp up, so to say. Is that a very high cost burden for you in the short term having it like that, so you really would like to get into normalization and also ramping them up quickly or how much of the cost have you been able to mitigate? In these 5 to 10 units, we have the rent cost, of course, in our books, but we don't have any staff for other costs. So and rent cost is normally maybe 20% of the total cost for having a full nursing home or something like that. Of course, it hurts our margin, the new investment in the portfolio. But over time, we think we can bear that volume. And I think it's more important that we fill up our existing homes and our ramp up homes than if it's 5 or 6 of these units. Excellent. And when you look at turning those units into ramp up, how quickly can it go if the occupancy levels start to materially improve again. We have them ready. So we say that staff up And the start the business is around a 3 month period of time or something like that. So rather quickly if we see that the local market is coming back. And Mark, if It would be very interesting to hear your take on the landscape the company is now facing looking at opportunity and risk and maybe particularly talking about how you see the heightened political rhetoric about, say, private carrier service providers and what they contribute to the sector. And I noticed your discussions the Care debt and operational improvements suggest in these kinds. It sounds like you're going after this a little more proactively. With the the outlook. Overall, we know we have the demographic with us long term. We see definitely a need for high quality professional care solutions in all our markets. What we have been kind of trying to convey here over the last few weeks is that it's important that the society does not build up a social care depth here on the backside of the pandemic because we know that many relatives have been looking after the loved ones staying at home now during the pandemic, and that has been for more than a year now. And many of these elderly people or it could be also younger people with need of social care should get Professional Care now. And what we are stating is that it's now safe and secure to return. The vaccination program is concluded within elderly care. The overall vaccination program in society is rolling out now very fast in all Nordic markets, and simply the relatives, should now with, of course, our partners, the municipalities, think of what is the right next step for the loved ones that are in need of professional care. If we don't fix that, we will end up with a care debt longer term that will be expensive for society overall. And that is not that would not be a good outcome of the pandemic where we have other debts to deal with, so to say. And I think this is an important point to highlight because we see in some areas relative low activity in the municipalities because simply loved ones are being looked after by their relatives and that has been now the situation for quite some time. And there's really no need for that anymore. So that's one perspective. But overall, I will say that the long term outlook, I believe, is still very favorable. All data I've looked into shows that in our segments. We have well positioned business units in all the Nordic markets. I think we have a solid plan also for the Danish market, the Norwegian market. We, of course, impacted by the pandemic, and everyone had hoped that we would have been accelerating a little faster out of the pandemic than what we are, but that's the situation we're in and we will deal with it and we will get out of it also in a good way. Excellent. Thank you for the extra color. Thank you. There are no further questions at this time. I would like to hand the conference over to the speaker for the closing remarks. Thank you so much. Thanks for today's call. No more questions. Thank you for calling in. The quarter 2 report will be published on July 23. Have a nice day, everyone. Stay safe and healthy.