Earnings Call: Q4 2020

Feb 16, 2021

Thank you. Good morning, everyone, and welcome to Rambia's 4th Quarter Report Presentation. Speaking is Benoit Liaison, CFO and acting CEO. And presenting with me today is Jacob Persson, Ambea's Head of Group Business Control and Investor Relations. I will start today's presentation by giving an overview of the quarter and the status around corona and its effect on our business. I will also cover the status of our growth drivers and will take you through the financial for the group. Then Jacob will describe a bit more the financial development for different segments, and I will summarize the quarter before we open up for questions. So starting off with some highlights from the quarter. The 2nd wave of corona hit the Scandinavian countries in November. This time, we saw the virus spread more in Denmark and Norway and in southern and western part of Sweden compared to what we experienced in the spring. We, as well as society in general, were better prepared than in March, and mortality has not increased as much as it did in the spring. The negative EBITDA effects from corona in the 4th quarter is in line with what we estimated in our Q3 report, around SEK 35,000,000 on EBITDA, a little bit less than expected in Sweden and a bit more in Denmark and Norway. The small uptick we saw in occupancy in the beginning of the quarter was slightly down again later in the quarter and the negative effect on revenues were around SEK 100,000,000 Sales was down 1% versus Q4 last year, driven by currency effects in Norway a lower occupancy in Vartharga, but also due to a few contracted units that came to an end. In the 4th quarter, we opened up 166 new beds. Adjusted EBITA came in on SEK 200,000,000, which is 30% above last year, and EBITA margin strengthened from 5.5% to 7.3% versus same quarter last year despite the negative effects from corona. During the quarter, we have been active on the M and A side, and we signed 2 acquisitions in January. One of them, LSS OMSOJEN in Niztida, we have already closed as of 1st February. And the second one, EcoFunden, is waiting for approvals from Danish authorities, which hopefully will happen during Q2. Then COVID-nineteen. Varga, elderly cabin in Sweden, is still where we see the most operational and financial impact. In mid November, we only had a few homes with infected residents, but then spread of the virus increased rapidly in society. We then, of course, also got more of our homes infected. But this time, we benefited from the routines established during late spring in preventing the virus to come into our homes. And together with more effective testing and tracing capacity from the regions, we could limit the effects for our residents once the virus got inside as well. We have seen with more testing that residents as well as staff with no symptoms could carry and spread the virus. And with that knowledge, we could now more efficiently limit the spread wounds inside our homes. As of today, in all our nursing homes in Denmark and Norway, have the residents received a second dose? And in Sweden, that will probably be the case during sometime next week. And vaccination for our staff is ongoing according to the national plan. A large part of our staff have got the first dose of vaccine, and sometimes next month will most of our staff receive the second dose as well. The willingness to have the vaccine have increased the last weeks. The financial impact is, of course, predominantly in Vargas Sweden. We now got the extra cost for sickness pay and protecting equipment covered by the government program, but we do not get any compensation for lower occupancy or lost revenue. This quarter, we estimate the loss of revenue to around $100,000,000 EBITDA effect was limited to minus $35,000,000 due to cost savings and some retroactive cost compensation. This quarter, we also saw a negative effect in Norway and Denmark, where the government do not compensate fully for our extra costs. The market for our services in elderly care has made a dip in 2020 due to the COVID-nineteen situation. But long term, demand is still there, and we see no structural impact on sales or profitability. COVID-nineteen will, of course, affect our business in 2021 as well. The ongoing vaccine program will help the demand to pick up again, but how fast this will happen is hard to tell. We estimate that we will still had a negative effect in Q1 of $90,000,000 to $100,000,000 on sales and $30,000,000 to $40,000,000 on EBITDA, and we do not give an estimate further away. But when Bar Doga's occupancy starts to improve again, we expect that efficiency measures taken in 2020 will help to speed up our margin recovery. Turning over to our profitability development, where we continue to deliver improvements despite the negative effects on corona and BEA's total EBITA margin improved. Nietsdira had yet another strong quarter and completed an exceptionally strong year. Important measures have been taken in Vargas to generate savings in former Alaris units and operational improvements in other units as well. Stendi Norway has improved EBITDA significantly versus last year, cost improvements, implementation of Ambea's operating model and strong local leadership are behind these improvements. Despite the fact as we in the later part of the quarter saw negative effects regarding sick leave and cost for protective equipment. But our efforts to continue to get Stenvy up to their full potential. Altium in Denmark had a quarter with weak development in the Home Care segment and COVID-nineteen related costs in other segments as well. All in all, the total LTM margin is continuing to climb upwards and reaches now 7.9% adjusted EBITDA. Organic growth. It's sad to say that opening up new nursing homes in Sweden is challenging as many municipalities have empty beds at the moment. And 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 month time frame. If not, we are taking discussions with our real estate owners to delay construction or just to keep them empty with no staff costs until the occupancy situation is back to normal again in the local market. We currently have a handful of such situations and will have a few more in 2021. In Q4, we opened up 2 new nursing homes, 1 in Saalem, south of Stockholm and 1 in Tijerd, and both have started off well. We also opened up 4 new units in Nizhira in the municipalities of the Jugstad, Niskoping, Klippan and Stockholm. In Q1 next year, we do not have any plant openings. Acquisitions. We had a lot of acquisition activity in the quarter, but nothing shown in the numbers, but that will come in 2021. LSS on Sohjan is 6 well run LSS units clustered in 2 regions of Sweden that we, of course, will integrate in our Nitiara business. The other acquisition, EcoFounder, is more of a strategic platform Cision, where we will integrate Denmark's largest operator in residential care for adults with our existing business in that segment. This is the next important step in our strategy to shift the business mix in Denmark to segments with more long term profitability, meaning own management residential care for elderly and individuals with disabilities. If we look into how the different business areas have affected the group numbers, we can see that In net sales, total sales declined 1% to SEK 40,000,000. Starting with Vardaga, sales was down SEK 48,000,000 and important to remember that most of the SEK 100,000,000 that we reported as corona effect was in Baraga, where the occupation was lower than normal and rather flat throughout the quarter. In total, the decline in sales was 5% versus last year. Netira sales increased by $27,000,000 or 3%, mainly related to new contracts started. Sales in Netira is only marginally affected by corona. In Spend D, currency effects continues to affect the reported SEK numbers. The average NOK SEK rate is down 10% versus last year, which means that the sales in local currency was actually up 4% versus last year, but down SEK 44,000,000 reported in SEK. In Altirren, we made 2 decisions in the beginning of 2020, which have added on SEK 41,000,000 in sales in the quarter, but contract management decreased by SEK 9,000,000. And at last Clara, who is still hurt by the new Swedish VAT regulation for Health Care Starting Services from 2019. And by that, turning to the profit numbers. As said, we are pleased that we managed to increase our EBITA margin with these challenging circumstances in 4 of our 5 business areas as well as for the group in total. Baraga increased by €2,000,000 or margin by 0.5 percentage points despite hurt by most of the negative corona effect of €35,000,000 The netira margin was still benefiting from the capacity adjustments made in 2019 as well as productivity increases and some positive effects of government reimbursements. In spending, the restructuring program completed earlier this year now at full effect, but we saw more Cardona related costs than in previous quarter. Altira also said this quarter's appointment where our Home Care business had a weak development in combination with more corona related costs. And Klara continues to deliver stable margins, all in all, an increase from SEK 154,000,000 to SEK 200,000,000 or margin up from 5.5 percent to 7.3 IFRS 16. We have since the beginning of 2019 been reporting including the new leasing standard IFRS 16. This means that all reported quarterly and year to date data 2020 we are comparable with the reported number for 2019. However, data that includes quarters from 2018, like rolling 12 data up to Q3 2019 is still affected by the different reporting standards. In this slide, you can see the effect of this. And then we can see also that the rolling 12 margins, excluding IFRS 16, is increasing as well for 4 quarters in a row and are on a rolling 12 basis, up from 6.3% end of last year to 6.9% this year. The strong operating cash flow continued in the quarter. This was the 6th a consecutive quarter than that we increased versus last year now to SEK 568,000,000 versus SEK 562,000,000 last year. If we exclude the IFRS 16 effect, we were at an operating cash flow at SEK 367,000,000 in the quarter versus SEK 382 million last year. Q2 and Q3 were slightly positive affected by government program in Norway, where tax payments were moved into Q4, and that means, of course, that the Q4 cash flow was in the same way negatively affected. If we measure our cash conversion rate, which is the operating cash flow versus the EBITDA on a rolling 12 basis, we see that for Q3 in a row, we were above 100%. Financing. The deleveraging of the group is continuing, of course, in line with the good cash flow that we have saw. If we look back and compared with the same quarter last year, we have decreased our net debt by more than SEK 500,000,000 and come down from a net debt ratio of SEK 4.0 to SEK 3.1 as of now. The increase in lease steps for more than SEK 1,000,000 SEK 1,000,000,000 in the year reflects the fact that we have increased the number of start ups of new units under our management, and this unit comes with longer rental conditions than the average portfolio. And with that, over to Jacob, who will take us through the business areas a bit more in detail. Thank you, Benno. Starting with Varadaga, where total sales reached SEK 867,000,000 in the quarter, down 5% versus last year. This is mostly driven by lower occupancy rates in mature units, but also a decline in contract management due to ceased 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. The 4th quarter showed improving occupancy in our contract management care homes. Since the beginning of Q4, we have seen several of our homes under contract management showing almost the same occupancy levels as before the COVID-nineteen situation. Our Home Care business continues to perform well and are less affected than the nursing homes. EBITDA for VAR DAGA reached EUR 42,000,000 versus last year, SEK 39,000,000. Most of the negative krona effect of SEK 100 and 1,000,000 in sales and SEK 35,000,000 in EBITDA hit Varga. However, we also saw overall operational improvements, especially in the former Alaris Care Unit. That indicates that the margin improvements 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 costs by SEK 20,000,000. The EBITA margin for mature units decreased to 10.7% in Q4 from 11.1% last year. This decline is both driven by lower occupancy and the fact that we this year report the former Aleris Care Unit has matured. These units are operating with lower profitability in average, which is important to note. Over to Nussida, where total sales reached SEK 946,000,000 in the quarter, up 3% versus last year. Own management sales were flat, reaching SEK 786,000,000 in the quarter. This was an effect of the adjustment of the capacity that we did in mid-twenty 19 and relatively few new start ups. Contract management sales reached SEK 160,000,000, up 19% versus last year. Strong win rates during 2019 have turned around the negative sales trend we previously had in contract management. EBITDA reached SEK 159,000,000 in the quarter, corresponding to a 16.8% margin. This is an increase by 3.7 percentage points, and it's actually the 8th consecutive quarter that we see the EBITDA margin growing in Nitsida. We saw its effects from the Alaris synergy realization as well as taking out the overlapping capacity after the acquisition in 2019. Government reimbursements had a positive impact on profitability in the quarter. Nooteta's rolling 12 EBITA margin reached 16.3%, up 0.1 percentage points versus Q3. Over to Norway and Stenvi. Sales decreased 6% and reached SEK 726,000,000. Currency effects had a major impact in the quarter, and sales in local currency actually increased 4% versus last year. In local currency, the own management sales increased by 6%. In SEK, the own management sales decreased 2% and reached SEK 672,000,000. Contract management sales reached SEK 53,000,000 versus last year's SEK 81,000,000, where the decline is explained by a return on nursing home contract in late 2019 and Q2 2020. Quarterly earnings were positively affected by the ongoing efforts to implement Ambev Care model in combination with synergies from previously completed restructuring program. Costs for COVID-nineteen related sickness and protective equipment increased compared to Q3, which had a negative effect on EBITDA. Adjusted EBITDA reached SEK 15,000,000 or a margin of 2% in the quarter versus minus 0.3% last year. We saw better sales mix, but mostly the profit increase comes from the cost improvement program that we launched in Q1 2020. The adjusted rolling 12 EBITA margin increased by 0.6 percentage points from Q3 and are now at 4.6%. Over to Denmark and Altsiden. Sales amounted to EUR 158,000,000, up 21% versus last year, explained by the 2 acquisitions It's made in beginning of 2020. In local currency, the sales increased by 24%. The acquisitions, Virameth and Casablanca, have performed well in line with expectations and contributed positively on profitability. In the Q4, Altice and had an EBITA of minus SEK 16,000,000. EBITA was negatively by weak development in Home Care Services, where costs for termination of contracts were also taken in the quarter. The second wave of COVID-nineteen hit Denmark harder than the first wave, which in turn affected Altudan. Increased costs for COVID-nineteen related sickness and protective equipment pressured earnings compared to previous quarters in 2020. As previous quarters in 2020, the investments we've made in building the Danish overhead organization also pressured margins in Q4. We plan to continue our strategy to grow in more profitable segments of disabled care and own managed nursing homes. We are starting our 1st greenfield nursing home in Q2 2021 in the municipality of Holte. Finally, over to Clara. In Clara, net sales were down 3%, reaching SEK 67 SEK 1,000,000 in the quarter, SEK 2,000,000 down versus last year. The decline versus last year is predominantly in the staffing business, which is explained by the changed VAT regulations toward private operators introduced in July 2019. Total revenue, which includes internal sales, were slightly up versus Q4 last year. Clara continues to perform well, And due to growth in Clara team services and administrative savings, EBITDA was stable compared to last year at SEK 7,000,000. The rolling 12 EBITA margin on total revenues reached 7.3% in the 4th quarter. And on that note, back to you, Benno. Thank you, Jakob. Then to sum up our financial development versus our targets. Our growth target is 8% to 10% through a combination of acquired and organic growth. 2020 shows only shows only marginal growth given the corona effect on Varvarga occupancy, negative currency effects, low M and A activities and a cautious approach to greenfield openings, but we expect that number to grow again from 2021. Profitability wise, we have a midterm adjusted EBITDA target of 9.5%. We have seen EBITDA margin improvements 4 quarters in a row despite the corona pandemic, we will have some margin pressure in 2021 as well, that we are, of course, hoping to have the negative effects come from corona, the hangars, soon. And we also need improvement in both Norway and Denmark coming from delivering on the plans that are put in place in both these countries to reach the midterm target level. And finally, regarding leverage, we have seen improvements in many consecutive quarters, and we are now in line with the target. Strong cash flow throughout the whole year has put us in a position where we again can be more active in looking at potential M and A activities. So summarizing the last quarter of 2020. COVID-nineteen is still affecting our operations and our financials. We are, of course, hoping that, that effect will gradually become lower from the Q2 as the vaccination program continues. But in the Q1, we see roughly the same effect as in Q4. Despite the corona difficulties, Ambea delivered profitability improvement in 4 business units out of 5 and totally 30% increased EBITA. And thanks to Ambea's high cash conversion, our debt position has improved a lot, and we are now in line with our financial targets. The Board proposes a dividend of SEK 1.15, which are in line with the dividend policy. And on the 8th March enters Marc Jenssen as the position of CEO of Ambea. So with that, I conclude our presentation and open up for questions. Operator, could you please have the first question? On. The first question is from the line of Christopher Okeberg from Carnegie. You may ask your question. Yes. Thank you. Good morning. Let's see. I have a Few questions. First on Norway, to get a better understanding on the underlying improvement, which I think is so Important for the group, Maarten, could you explain what the COVID impact was on earnings in the quarter? I think that the most difference versus the Q4 last year is the program that we run with SEK 40,000,000 yearly, which means SEK 10,000,000 in a quarter by quarter. The COVID situation is not affected that much, but we have a single digit lower number, if that will guide you something. So you said COVID impact single digit on EBITDA? Yes. Okay. So even adjusted for that, it's not a very Impressive quarter, I guess, you agree with in Norway. I think we have much more things to do in Norway, but we are pleased with the quarter as it is right now, given the circumstances with the corona situation. Okay. And then on Nootilda, of course, fantastic margin improvement. The only question is how sustainable This is maybe you could give some indication how much the morning have benefited from government support In 2020 or I don't know, I guess there have been a positive impact actually on Mardif on Nooteba due to the pandemic. Yes, you're right there. We have a positive, especially in Q2 and but also in Q4, we have some retroactive cost compensation that has benefited Netira in this quarter. But is it possible for the full year? Is it if we assume percentage point? Or is it even more, the positive impact? Hear us on? Yes, to make sure we get the expectations right for 2021. Yes, something like a percentage point of margin, you can say. For the full year? Yes. Okay. And then on Poomkering in Denmark, when will you be out of this business? And yes, First, will there be additional negative impact on earnings from one off like things like you had in Q4 before that happened and when you are out, what will be the positive impact on earnings? We the earnings historically in Home Care has been more or less nothing or flat. But in this quarter, we saw losses in the operational business as well as starting to have closed down costs. We have right now 10 different agreements, 10 different municipalities where we run the Home Care business for, and 4 out of them is turning out in Q4 sorry, in Q1, as we have already started. And as they come closer to closing down. Of course, staff are getting to look for other jobs, and we have much more sickness, both COVID-nineteen and not COVID-nineteen related. So we have had more costs in the quarter than we estimated, but we hope that this will cover the close down of the cost that adjustment that we did in Q4. But of course, we have still 10 contracts that we are running in the beginning of 2021. And when will the rest be terminated? We have agreement of 6 of them to close in 2021, and we are in discussions with other municipalities as well when to close. Okay. So you have 4 terminated in Q1. 4, 4 terminated in Q1. And then another 6. Another 2. Yes. That's already decided that we will leave. Okay, great. Thank you very much. Thank you. The next question is from the line of Karl O'Moren from Danske and Matt. Thank you. So two questions for me. First, on the opening of new homes within Vardagja During 2021, on your side, it seems to be around 300. Is that roughly a good estimate for openings in 2021? And can you also say anything about you mentioned that some homes will probably be put on hold and just pay the rent and Have no staffing at the homes. Around how many homes are these kind of homes? And another question on the on. Now we have seen that starting on. Have you seen any changes during Q1 in the trends in occupancy and applications for Moving into an elderly care home in home management. Thanks. Okay. I think that was a little bit more than 2 questions, but we try to take them 1 by 1. We plan to start as right now 5 new homes, around 300 beds in in Varadagas, not anyone in Q1, but in Q2 and Q3 and Q4. We have right now 5 homes that we have not staffed and there will be some more during 2021 probably it's not included in the 5 I just mentioned. So we have 5 right now and a few to come in 2021, while we as we plan right now, plan to postpone them into 2022. And the second the last question was? And the last question was on the vaccination. Yes, vaccination. And the question once again was that? Yes. If you've seen any kind of changes in the trends in occupancy? No, I think it's a little bit too early, too early yet. We know that we have to wait until the 2nd dose and a couple of weeks after that to have the full coverage. So I think it's a little bit too early yet to see anything. Okay. Thank you. Thank you. Our next question is from the line of Magnus Burynett from Direct News. Hello. I wanted to ask a little bit about the COVID-nineteen impact in the Q2 Q3 report. You stated that the impact was estimated to be EUR 70,000,000 to EUR 80,000,000 on the sales. And outcome was minus EUR 100,000,000 in the 4th quarter. So could you tell me a little bit About the deviation and also for Q1, you say that the pandemic will affect €30,000,000 to €40,000,000 on EBITA and €90,000,000 to €100,000,000 on sales. Which assumptions Have you made to state this are you calculating for a 3rd wave? Okay. Thank you for the question. To start with our guidance was SEK 70,000,000 to SEK 80,000,000 on sales, which we reported SEK 100,000,000. When we did that estimation, it was the 1st week of November when we reported our Q3 report. And then just the same week or the next week, the second wave hit us. And we have seen uptick in the occupancy, which we hoped that, that would be the case in November December, but it happened to be the other way around. So that's why the estimated SEK 70,000,000 to SEK 80,000,000 was SEK 100,000,000 instead. But we estimated the SEK 30,000,000 to SEK 40,000,000 in EBITDA, that was a little bit more than we then estimated in Norway and Denmark because of the second wave, but because of the retroactive cost compensation in Varaga, they were hit a little bit less than we then expected. And given for Q1, we estimate that we are on a run rate now in occupancy in the first half of the quarter like we have in Q4, and we hope that in later part of Q1, there will be maybe some up tick in the occupancy, and that's why we said the range for NOK 90,000,000 to NOK 100,000,000 and the EBITDA as effect the same as in Q4. Thank you very much. Next question is from the line of Christopher Kjelltenberg again. Yes, the question on this retroactive cost compensation. How much more do you expect to get in 2021? It's very hard to tell. We have applied for in the 2 rounds of application, and there is still money to get from 2020. But it's very uncertain how much we will have for that, and I cannot give you a number, but it's less than what we already received. That's for sure. Okay. Thanks. Okay. The next one is from Klas Pijke from Nordea. Hi. Thank you for taking my questions. Most of them has already been answered really, but it would be useful If you can help us formulate the long term equity story for Altered and Denmark, Should we view it as a structural growth story like in VAR DAGA or more like a margin story like the other 2 segments the other 2 big segments? If you could just put Some more long term color on how we should profile that segment, please. Thank you. Yes. We are right now changing the business mix in Alpida, where we are closing down our Home Care business, which have been like 20%, 25% of the business, and we are investing in residential care for disabled people. And that's for sure, will be a larger part of the Altir and business mix going forward. Today, it's around 40%, and I think that will be bigger going forward. We are also now building our 1st new greenfield own management run nursing home we open up next quarter. And I think we will open up more of these, and that will be a part of the essential part of the business mix going forward, but we're also still running a lot of elderly care homes on contract management, and this is a sector that we will be management, and this is a sector that we will be part of going forward as well. We don't know long term if that is going to be a big portion of the Danish model or not because now it's a lot of talk about own management versus municipality driven, but there are still some contracts out for contract management as well, and we will be part of that as well. Okay. Thank you very much. There are no further questions at this time. Please continue. Okay. So if there is no more question, thank you for calling in. Our Q1 report will be published on May 4. Have a nice day, everyone.