Earnings Call: Q2 2021

Jul 23, 2021

Good day, and thank you for standing by. Welcome to the Ambea Interim Report Second Quarter 2021. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand over the call to your first speaker today, Mr. Mark Jensen. Thank you. Please go ahead. Thank you so much. Good morning, everyone, and welcome to Ambea's Q2 2021 report presentation. Speaking is Marc Jensson, CEO of AMBIA and presenting with me today is Benoit Eliason, CFO. I'll start today's presentation by giving an overview of the quarter, Learnings from the pandemic and overall status and occupancy for Vodafone Sweden. I will also cover the status of our growth drivers and some of our business fundamentals. Ben will then describe the development of the financials for the group and for the different segments in EMEA. After that, I will summarize the quarter and compare to our financial targets So starting off with a brief overview of Ambea. As you probably know already, MBS is the leading Scandinavian care provider. We have about 26,000 employees across Sweden, Norway and Denmark And revenues of about SEK 11,000,000,000. We have a complete service offering within elderly care, disability care, psychosocial support and staffing solutions. We have more than 350 municipalities as our clients and our important partner in the solution of the welfare challenge. Boarddog and Nootseed and Klar all operates in Sweden, Bear War Dog offers elderly care, Nootseed offers disabled care and finally Klara offers starving solutions. Over to the highlights of the quarter. The coronavirus continues to have a negative impact on our business and affected EBITDA by minus SEK 40,000,000 in quarter 2. Even though occupancy increased during the quarter, which I will come back to later in the presentation, sales was negatively impacted by SEK 85,000,000. In total, sales grew 3% compared to quarter 2 last year, driven by our active M and A agenda. Keeping in mind that termination of contracts pressured sales growth affecting SEK 37,000,000 plus 3 percent of the solid figure. Adjusted EBITDA came in at SEK 146,000,000, a decrease of 16%. The decrease was mainly explained by Stenia and Neutritt. Both business areas received less government support than same quarter last year and saw a slightly lower occupancy trend. As we will see later in the presentation, Borraga showed positive occupancy development and we're happy to report that this has continued after the quarter ended. As quality is at the heart of everything we do and also our license to operate, I would like to begin by talking taking some time to describe our well developed quality model. Through clear concepts and concrete guidelines, we make it easy for employees to make the right choices and provide high quality efficient care in accordance with the current regulations and our BSK model. Our quality system provides measurable results, which are closely monitored and continuously evaluated. These results are the basis for improvement projects and business development. Every month, we analyze the results on a unit by unit basis. Weaker units are followed even more meticulously every other week and receives a detailed action plan. The quality and HR department then works together with the business area unit manager to ensure neither activities are carried out to deliver the improvements targeted. Our quality and HR index focuses on 4 main areas: Care receivable satisfaction, routines and processes, systematic efforts on improvement and lastly a number of HR KPIs. We're happy to report that the index showed improving results in quarter 2. Based on a scale from 1 to 10, it reached 7.37 in quarter 2 compared to 7.28 in quarter 1. With 900 units for elderly and disabled care, of course, we from time to time have units where lift and quality is needed. With a quality system in place, aim to identify these units fast and put measures in place that will take the units to the quality level we want. We flagged them for follow-up. We put support in place. We raise it at our internal quality boards. We communicate with our stakeholders to keep them informed. We measure impact and we follow-up until we're satisfied. We also have a whistleblower function in place and take every whistleblower seriously. Quality is in focus at all our operations and has been the most important area when fighting the So here are some of the important lessons learned after more than 1 year with the pandemic. We have through a detailed analysis of our elderly care business in Sweden identified the following areas As examples of potential improvements. 1st, the Swedish society was neither ready nor prepared for pandemic. As example, there was a shortage of personal protection equipment, lack of national guidelines from authorities and insufficient COVID testing. As an example from the business, there was a lack of contingency plans high levels of sick leaves across multiple units. To avoid repeating mistakes within areas we control, our crisis management systems are being improved. We have clarified responsibility for how we plan and prepare ourselves, which will help us manage similar situations better. Examples are regional storages of Protective equipment and regular crisis management practices. 2nd, working as a nurse at a care home is a challenging task under normal circumstances, On the epidemic even more so. We must therefore improve our ability to attract and retain nurses qualified within elderly care and give them the right support to perform the role. For this, we have established a specific program. As further examples, this means representation of the responsible nurse in the management team of every unit And access to tailor made and specialized training and competence development. 3rd, for basic employment or employee competency and language skills, we rely on Swedish system for public education. We see an internationally develop and streamline education for assistant nurses to ensure that all employees have the right competence. We intend to formalize the general language training in accordance with the European language scale. For this, we have initiated 4 pilots already ongoing. But it will be highly beneficial for all if the authorities will put more emphasis on language introduction for people not being native Swedes. And lastly, we aim to evaluate and set a plan for the development of enhanced mobile and digital tools for operational staff. This as a part of a general ongoing effort to improve the digital workplace. With this, we will increase efficiency and also operational excellence. We have during the quarter started to execute our post analysis action plan for Vodafone Sweden and will going forward include the activities in our operational business plans. All of this said, I'm proud of our employees and want to extend my sincere thanks to all of them who day after day have worked in the best interest of our caretakers During a pandemic that has brought very challenging conditions. The dedication and commitment shown are admirable. Moving on to the next slide, where we show updated figures for the occupancy development of nursing residents in Sweden. This is publicly available data on the number Living and nursing homes from January 2020 until April 2021. This is the latest public data available. We showed this graph in our quarter 1 presentation and I want to comment on the continued development this quarter as well. The positive development have continued both on a national and regional level in Sweden as well as in our nursing homes where the trend has been strongest in our mature units. The recently started units have shown improvement occupancy although at a somewhat slower pace. From Stockholm municipality statistics, see that the positive trend continues into May June, which is promising. It is important to remember that most municipalities aim to fill vacancies in their own nursing homes first, Then nursing homes on contract management and lastly nursing homes in the private sector. We continue to focus on marketing and sales efforts to fill up the vacant capacity. And finally, I want to stress the fact that the demographic trend continues to be favorable. Now over to the greenfield development. As the municipalities continue to fill the best at their own nursing homes, we see an improving occupancy in most of our open units. We continue to be cautious about opening new units and want to ensure that we have a high likelihood of filling up a unit within 12 to 18 months time frame once opened. If we do not see the condition being met, we initiate discussions with the real estate owners to delay construction or decide to keep them empty with no staff cost until the The situation is back to normal again in the local market. We currently have 8 to 10 such situations. In quarter 2, Vodoger opened 2 nursing homes with 60 beds each, 1 opened in Eskilstuna and 1 opened in Oostokan, north of Stockholm. Altice opened their first own management nursing home, Wipohalde. The nursing home has 72 beds and has got off to a good start with many seniors showing interest in moving in. Looking ahead, Nootcita will open 5 new units with a total of 30 beds in quarter 3. We're really excited about the continued organic growth of Nutsider and are looking forward to opening the units in North Scherpping, Elsin Boy, Jotter Boy, Munggedal and Singhswood. Let's turn to acquisitions. Altice closed the acquisition of EcoFond and Skipperations in Denmark. EcoFond and Skipperations has 1 166 beds in total and offers residential accommodation within adult disabled care and has about SEK330 1,000,000 in annual sales. The AGCO acquisition is in line with our strategy for the Danish market where we focus to shift the business mix to segments with better long term profitability, Meaning, own management residential care for elderly and individuals with disabilities. I'm happy to report that the acquisition has continued to perform well in line with our expectations. Strong cash generation gives us the opportunity to seek for bolt on acquisitions, which we see as an essential part of our strategy. We're active in all our markets evaluating potential opportunities for future value creation. For Ambiya, social sustainability as a national part of Our value driven care business. In 2020, however, a major approach was taken in the area of sustainability with ambitious goals In the environmental area that among other things are aimed at the industry's lowest climate footprint to lead the way and hopefully inspire others to follow. In 2020, we reduced our footprint with 26% versus 2019, which is promising. Our 2025 target is more ambitious than the target agreed in the Paris agreement or recently among the EU members. We see it as possible to reach our target and work after the principal to take responsibility for the climate footprint we generate and take action to lower it. For our 3 defined specific focus areas activities are progressing as planned. Examples are the rollout of the new feed management model for our company cars and adjustments of our food concept to ensure it meets the preferences of our care receivers, but with a lower total carbon footprint. To further accelerate the work, we have assigned sustainability to our HR Director, now Director of HR on Sustainability. We are recruiting ahead of sustainability and preparing for 2022, where targets will be broken down to each business area and corresponding activities cascaded down the line. As for most companies, we have the vast majority of our emissions in the so called Scope 3, I. E. The result of activities from assets not owned or controlled by us, but where we can impact. As we are progressing well, reducing Emissions in scope 1 and 2, we will allocate more focus to scope 3 as an example by raising demands on our suppliers and work closer with them to reach ambitious targets. Now let's look at the financial development in the quarter, Benno. Over to you. Thank you, Marc. If we look at the net sales then, next This quarter, we are, as I said, back to growth again. We are plus 3% or SEK 75,000,000, Helped of course by the acquisitions made this year earlier. If we look into how the different business areas have affected the group numbers, we can see that VARAGA is up 4% or SEK 33,000,000 versus last year. We have opened 5 new nursing homes since Q2 last year And have had an increase in occupancy throughout the quarter. This year, that's rather flat versus last year. Stendi has a negative growth of 1 We have returned 1 nursing home contract to a municipality as well as reduced our capacity in our own managed portfolio in the quarter. In local currency, the decline is 4%. Altidin is affected by the acquisition of Eco on the positive side by SEK 64,000,000 And on the negative side, by exiting home care contracts and returning 1 nursing home contract, totaling SEK 26,000,000. Clara is continuing to expand geographically and has won several new contracts in the first half of this year and is up $10,000,000 versus last year. Turning to EBITDA. If we look into how EBITDA in the different business area have affected the group, one must remember how COVID hit the different business areas in Q2 last year. We then saw a rapid decrease in occupancy in WarDaga, but very small effects from revenue in the other business areas. It took some time in Varadaga to adapt the cost base to the lower occupancy. Government program with reduced payroll tax Certain compensation of sickness costs were at that point much more generous than later in the year and affected especially in EBITDA but also steady positively in that quarter. In Norway, we have in this quarter more costs connected to COVID related absence than previously and Antti then was Affected negatively by SEK 5,000,000 in transactions cost, but improved EBITDA by SEK 3,000,000 even so. The item other includes a gain from a real estate sale of SEK 9,000,000. Turning to cash flow. The strong cash flow continued in the quarter with plus SEK 500,000,000 in operating cash flow. We have on a rolling twelve basis Generated more than SEK1.7 billion and SEK849 million if we exclude the IFRS 16 effect. This is still more than 100 percent of EBITDA in the same period. Despite the good cash flow, the leverage increased to 3.7 times in the quarter. The dividend paid out of SEK 109,000,000 and the closing of the EcoTrader acquisition in Denmark temporarily increased the net debt, Together with slightly weaker EBITDA in the quarter, the leverage increased 0.2 times. As you can see in the graph, we are financing around 2 thirds of our debt by our own commercial paper program, where credit spreads now are back to the levels they were in early 2020. Then turning to the different business areas, Starting with Parloga. Net sales increased as said by 4%. We have opened 5 new nursing homes since Q2 last year. Occupancy in mature units were on average in the quarter still a bit lower than last year, but shows a month on month good trend. Many of these units are located in the Stockholm region where LUB, the freedom of choice legislation, are in place in most municipalities. In the more newly opened units, which are located in various other positions locations in Sweden, the trend is yet not as positive as in the mature units. EBITDA increased from SEK 15,000,000 to SEK 25,000,000. Q2 last year was harder impacted by COVID And now we have adjusted our cost base in units with decreased occupancy in a better way. To further improve the occupancy, we are increasing our marketing It is based on the local needs and opportunities we see. Turning to Nitira. Nitira sales was in line with last year. Contract management was up 4%, but own management slowly slightly lower occupancy than last year. We continue to win new contracts. In this quarter, the net win was SEK 61,000,000 in annual turnover, And that will, together with the 5 new assisting living facilities that we plan to start in Q3, increase the growth going forward. EBITDA was down 18% or SEK 25,000,000 to SEK 113,000,000. Q2 last year was Positively affected by government support program, which were in place at that time, and this is the most important factor to the low EBITDA this quarter compared to last year. On a rolling 12 basis, EBITDA is down from last quarter, but still at 15.2%. Stand in Norway then. Net sales decreased by 1% in SEK or 4% in local currency. We, as I said, returned 1 nursing home to a municipality in 2020 and reduced the capacity in our own managed portfolio in the quarter. EBITDA was down from the SEK 31,000,000 to SEK 4,000,000. Last year was highly affected by the temporarily lowered Payroll taxes in May June. This year, we have had have been infected by the strict Norwegian quarantine rules Well, we have had 100 of employees not been able to go to work, but still on our payroll. And for our operational staff, working from home is, of course, not an option. We saw at the end of the quarter, however, that the impact from COVID was lower as the vaccination program has been rolled out in Norway. The Q2 is normally the weakest quarter profitability wise in Norway with the majority of the yearly bank holidays. Having said that, We are not pleased with underlying profitability in Stemdi. We are now rolling 12 at 3.8% and will in the 2nd part of the year increase our efforts Altiran. The repositioning of Altiran is progressing according to plan in the quarter. Net sales were affected positively By the acquisition of Eco by SEK64 1,000,000 and on the negative side of closing down home care contracts and returning 1 nursing home adding to minus SEK26 In the later part of the quarter, we opened up our 1st home managed nursing home, Freebe Holte, and took over the first of 2 large contracts on the municipality of Both these are developing well and will over time contribute to the profitable growth of Altidens. EBITDA increased SEK53 1,000,000 to versus last year to minus SEK4 1,000,000. This number includes SEK5 1,000,000 in onetime transaction Costs related to the Echo acquisition, which means that we would have had a small profit in the quarter without that transaction cost. And last, Klara. Net sales increased by 13%. We are growing our business towards external public and private operators As well as towards internal AMEA units, compared to last year, we have expanded our nursing portfolio geographically to 3 new cities in Sweden And expanded our business in several existing universities as well. The business model of Clara delivering nursing Services on-site in evenings and weekends only when needed has proven to be very attractive for smaller care units. EBITDA margin was modestly stable at 6.7 percent and rolling 12% we are now above 8%. And with that back to you Marc. Thank you, Benno. So 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 first half of the year, LSS Onso in Sweden and Ecofond and Care Homes in Denmark. Acquisitions are an important growth driver and we continue to actively explore attractive M and A possibilities in all our markets. We also pursue new greenfield opportunities in relevant locations. Profitability wise, we have a midterm adjusted EBITDA target of 9.5%. In quarter 2 2021, we saw clear signs of improving Which in turn will support an increased margin going forward. We are well positioned to meet an increase in demand post the pandemic and Q3 has started well. And finally regarding leverage due to acquisitions dividend payout and a somewhat weaker profitability we had a higher leverage in quarter 2, But our solid cash conversion will reduce leverage over time. So summarizing the Q2 of 2021. It was another challenging quarter, but we're happy to see the continued positive occupancy trend in Borrdoga. The continued fast rollout of the vaccination program Across the Nordic countries also helps us. As we move out of the pandemic, we maintain our constant focus on quality and employee engagement to make sure our care receivers given the best possible quality of care. We will also use our learnings from the pandemic to strengthen our everyday operation and ensure we are better prepared for other major future crisis. Based on my field visits and conversations so far, I'm impressed by the way our employees have handled the pandemic and the engagement they show for our care receivers. The strategic repositioning of Alstin is moving on according to plan. We are happy to see the acquisition of EcoFund and performing in line with our expectations And that the newly opened Fribourg Halt had filled up faster than anticipated. The development in Stendi is addressed and efforts to improve the profitability will be intensified after the summer. The initiatives will strengthen Stendid's market leading position and improve profitability. But as Benoit explained, the initiatives will first show up in the P and L next year. There's work to be initiated also within the extended management team to develop and update the long term strategy during the second half of this year To successfully meet the new normal post the pandemic. Finally, as we now see the business recover from the pandemic, guidance on impact from the pandemic will cease our build back activities will be reflected as ordinary events. So with that, I conclude our presentation and open up for questions. Operator, can we have the first question please? Thank you. Our first question is from the line of Christopher Lichtberg from Carnegie. Thank you. Please ask your question. Yes. Hi, good morning. I was a bit late, so sorry if you have described this. But I'm interested to hear a little bit what's going on in In Norway, you had a pretty good earnings trend there. But after the cost savings and efficiency work, of course, now you have the negative COVID impact. But it seems To be not that can't be the only explanation for the weak results. So what has happened and what can you do now to improve profitability and reach the full potential in Norway? Thank you. Yes. So first of all, Our Norwegian business has been heavily impacted by the pandemic in this quarter. It has developed very differently across our Scandinavian markets. And Especially the quarantine rules have hit us hard in Norway where we have had at times more than 200 employees in quarantine, which we've had to pay for and then also have pay for temporary staff to replace them. That said, of course, also the pandemic has taken out a lot of resource and attention from our Norwegian management, Which means that some of the improvement efforts that were in place and we were working on when we entered the pandemic has been somewhat Put on hold simply because we have had to put a lot of attention and focus to the pandemic. We need to bring back these activities to the table. We need to accelerate them. [SPEAKER STEPHEN ROBERT BINNIE:] It is addressed, and we are working already now very hard to do so. Some examples are full implementation of Ambea's operating model across the Norwegian business. We're also looking at some slight organizational changes. And we're looking in general also what we can do in order to Improve our mix in Norway towards more profitable contracts and business segments. So of the SEK 40,000,000 negative impact from COVID in the quarter. How much of that was Norway? We are not specifying that business area by business area, but it was not A rather big part of it you can say. Okay. But was it almost half of it or? No, it wasn't. Okay. It's still most effect from COVID. It's lower occupancy in Vargas. Then we have had extra costs in standard. That is the 2 main drivers for the COVID effect. Okay. Thank you. Thank you. Our next question is from the line of KJ Bonadir from DNB Markets. Thank you. Please ask your question. To balance the development in Vardag, you previously moved a lot of units from say being timed when they were Posed to be open now to be unspecified. But I guess with occupancy now starting to come back at least even if you're not back to normal, How do you see, say, those units that have been put on hold and then putting put in, say, in sleeping mode or what you Call it coming back into being open and being able to support growth? It's very different from unit to unit. In some units, we do not see a potential right now And we don't see in the coming couple of quarters either. In some other municipalities, we hope that we will Maybe later this year or beginning of 2022 open these units as if the occupancy level Improves in the municipality driven care homes. So it's a little bit different from municipality to municipality, you can say. It's a local very local market. But it can't be as quick to basically be a question already for second half of this year. Yes. We say that we have 3 or 4 months from decision made until open to staff them and to make them ready. So something like that. Excellent. And just on Altiden in Denmark as well. Looking at the reshaping of the business portfolio, How much of say businesses that you want to get out of is still say generating revenues in this quarter? Where are you in the phase out? We had when we ended last year, we had 10 municipality contracts in Home Care. We have now ended 4 of them. We still have still 6. We have decision made to end 2 of them. We have still 4 that we are negotiating with the local municipalities to end. So right now, it's 6 out of 10 that we still have revenues in. And when you look at the success of the of your own unit in Denmark, so to say on the elderly care side, Do you see any good opportunities for speeding up the opportunity to find more projects in Denmark? Yes. That's absolutely an opportunity. I mean we it's still early days with Fribourg Hald that we only opened mid June. But the start has been good. [SPEAKER KARL HENRIK SUNDSTROM:] And obviously, we are looking for other opportunities in the Danish market to establish more own managed care homes, Absolutely. We have one signed contract that we will open in late 2022. So it's of course From decision to start, there is a time frame, of course. Excellent. Thank you very much and good luck out there. Thank you. Thank you. Looks like there are no further questions. Please continue. Okay. Thank you so much. No more questions. Thank you all for calling in. The quarter 3 report will be published on November 4. I wish you all a nice day. Stay safe and healthy. So that does conclude our conference for today. Thank you all for participating. You may all disconnect.