Good morning, everyone, and welcome to this conference call, where we'll present Attendo's results for the fourth quarter of 2021. My name is Andreas Koch. I'm Communications and IR Director at Attendo. Today's presentation is hosted by Attendo's CEO, Martin Tivéus, and our CFO, Fredrik Lagercrantz. After the presentation, we will open up for questions from investors and analysts. If there are media requests, we'll take them separately after the call. With that, over to you, Martin.
Thank you, Andreas, and good morning, everyone. Before we start the presentation, I'd like to give you a short update on the COVID situation. During the past year, completed vaccination programs among residents in Attendo, in combination with the normal protective measurements in our operations, has proven effective to protect our elderly from the pandemic. Since last spring, we had only a limited number of cases of infection, and very few clients have experienced severe illness. The fast transmission of Omicron since mid-December has led to high sick leave numbers among our staff with the strict quarantine regulations in our market. In terms of sickness among our caretakers, things have still been fairly calm with very few cases of severe illness. I'll now turn to the presentation, and then Fredrik will take you through the numbers in more detail. Next slide, please.
Adjusted for currency, we reported 10% top-line growth year-over-year, driven by strong organic growth in both business areas as well as from acquisitions. During the quarter, we finalized renegotiations of selected framework agreements in Finland for 2022. We achieved around 12% average price adjustments, translating to around 5% increase on total net sales in Finland. Our focus in Finland is to further increase occupancy while continuing to renegotiate our payer agreements to get compensation, both for past and upcoming higher staffing requirements. In Scandinavia, sales were stable throughout the quarter, and we have started the long journey back towards healthy occupancy levels. The fast transmission of Omicron since mid Q4 has led to record high sick leave numbers in all our markets.
This has led to higher personal costs during the quarter, especially in Finland, where there is no state reimbursement for sick leave costs and sick leave replacement is costlier. At current levels, we expect a negative effect on profits of approximately SEK 15 million-SEK 20 million per month in Attendo Finland. We expect sick leave to remain at this level until end of February, and we expect Omicron transmission to gradually subside. Next slide, please. We reported top-line growth in the quarter of 10% year-on-year. Organic growth amounted to 5%, mainly due to price in Finland and more sold beds in both Finland and Scandinavia. Lease adjustments amounted to SEK 65 million, corresponding to margin of 2%.
Overall occupancy improved slightly during the quarter in spite that we have opened around 100 beds in the quarter, bringing total capacity up to over 21,000 beds. Slide four, please. This chart shows the openings per quarter and rolling twelve-month opening pace. Prior to 2020, we had a strong pipeline of new projects to meet expected demand for new nursing homes in Scandinavia. Since the start of the pandemic in Q2 2020, we have opened around 1,000 new beds. We do expect this to be successful over time, even though the hampered demand for Attendo care during the pandemic has had a clear impact on the fill-up pace. In the initial phase of the pandemic, we adjusted our expansion plans. We now plan to open around 400 beds in 2022, equally split between Scandinavia and Finland.
In line with our strategy, our current focus up to 2023 is to improve occupancy and margins in current footprint rather than seeking expansion. In all 2023, we expect to return to a phase of higher number of openings on the back of the upcoming elderly boom. Next slide, please. In the upper chart, we present the number of beds in operation. We increased number of beds in operation by 4% from the corresponding period last year. During Q4, number of beds in operation was up at around 160 beds versus Q3. In line with our strategy, we continue to reduce number of new projects, and by the end of Q4, we had around 400 own beds under construction, a reduction of close to 60% from 2020. Slide 16. Turning to occupancy development.
In spite of new openings, we managed to lift total occupancy with more than 1 percentage point during the quarter. In Scandinavia, we have lost more than 10 percentage points in total occupancy since the start of the pandemic. The past two quarters, we have seen the demand and sales in nursing home placements increasing again, and we expect the positive sales and occupancy trend to continue in 2022. In Finland, demand for nursing home beds remains on a healthy level. During the quarter, we have struggled to translate this into higher occupancy as we have had challenges to find substitutes for staff on sick leave. As Omicron subsides, we expect to see the situation gradually normalizing. Next slide, please. This chart presents the occupancy development of own openings for opening year.
We see a slight positive development versus last quarter in mature units, while occupancy in the more recent vintages all clearly continues improving. Over time, we target a mature occupancy of at least 90% in all vintages. Slide 18. This chart presents on a group level net sales and margins divided into mature unit and startup units. Please note that the development of net sales in the lower chart, which shows that we continue to grow top line on a rolling twelve-month basis. As you can see from the upper chart, the margin decreased slightly in the fourth quarter. This is mainly a consequence of ended government reimbursement and state support related to corona, while corona-related costs in Q4 still being high. Let's take a close look into the financials for the quarter. Please go ahead, Fredrik.
Thank you, Martin. Let's turn to page 9. Net sales increased to SEK 3.3 billion, up by 9% compared to the corresponding quarter last year. The organic growth for the quarter was 5.4%. In Finland, we continue to see growth across all service offerings. Also Scandinavia shows organic growth, primarily driven by improved moving rates in our elderly care homes following the pandemic. Lease-adjusted EBITDA amounted to SEK 65 million, down from SEK 87 million last year. The negative net effects from corona are estimated to around SEK 40 million this quarter compared to net zero in the comparison quarter. In the comparison quarter, the negative corona effects were offset by public retroactive subsidies of more than SEK 50 million. Underlying operating profit increased in both Finland and Scandinavia. The IFRS 16 effect on reported EBITDA increased somewhat driven by new openings.
Financial net was negative SEK 159 million compared to negative SEK 164 million in the fourth quarter of 2020. IFRS 16-related interest expenses increased by SEK 4 million while interest expenses for our borrowing from banks decreased by SEK 7 million. Income tax for the quarter was negative SEK 8 million. The adjusted earnings per share for the quarter was SEK 0.21, down from SEK 0.31 last year. Next slide, please. The Scandinavia business area continues to attract more and more customers, although average occupancy is still below historic levels. Net sales for the business area increased by 7%. The strong growth is to a large extent driven by more customers in nursing homes for elderly people. As Martin mentioned, our new units opened over the last two years have successfully attracted customers. We have also seen an overall increase in market demand.
Further, during the quarter taking over responsibility for four new outsourcing contracts. In the quarter, occupancy increased by more than 1 percentage point to 80%. Acquisitions has also contributed to growth. Lease-adjusted EBITDA decreased from SEK 112 million to SEK 105 million. Adjusted for differences between the years in corona support, profits are up despite the pressure from units opened in 2020 and 2021. By the end of the quarter, sick leave numbers rose sharply with the Omicron wave. The related direct costs are well covered by state subsidies in Sweden. Replacement staff is however more expensive as they have to pay overtime rates for utilized rental staff. Hence, cost levels increased somewhat. In tendering processes during the quarter, Attendo won one contract and lost two contracts with the future annual net impact on sales of negative SEK 86 million kronor.
Looking ahead, one should note that in the first quarter of 2021, we received retroactive corona subsidies of SEK 36 million, but we also reported a cost of SEK 20 million related to a court case. Although direct costs for sick leaves are covered by the Swedish state, we expect some additional indirect costs and lost revenues as long as the abnormal high percentage of absent staff remain. Units started during 2021 with close to 600 beds and then another 150 beds in the beginning of 2022 will have a negative impact on the result, while we expect a continued positive customer inflow. Next slide, please. Growth continues to be high for Attendo Finland and amounts to 10% reported and 12% in local currency. The growth primarily comes from more occupied beds, acquisitions, and price increases.
Price increases have been valid since the beginning of 2021 and amount to more than 3%. Occupancy increased from 85% in the third quarter of 2021 to 86% as Attendo has been able to exit some empty capacity. Our ability to welcome new customers is constrained due to shortage of staff. lease-adjusted EBITDA decreased from SEK -50 million to SEK -24 million. Negative corona effects, in particular high sick leave costs, impacted operating profit in the quarter negatively with an estimated SEK 10 million. In comparison, the net effect in the fourth quarter of 2020 from corona was positive by SEK 20 million due to retroactive public support. Adjusted for differences in corona effects, lease-adjusted EBITDA increased. Price increases and improved occupancy was partially offset by higher cost operations from high staffing costs. Staffing costs increased due to several reasons.
Overall, the Finnish labor market for nurses is constrained. New staffing requirements were put in place from 2021, and they have also stepped up to some extent ahead of the second increase in staffing ratio that took place now in January 2022. Lastly, sick leave numbers rose sharply by the end of the quarter. In Finland, there's no public support to cover for the cost increases related to high sick leave. With current sick leave levels, we estimate the cost impact of SEK 15 million-SEK 20 million per month. From January 2022, the care staffing ratio in the Nordic elderly care increased from 0.55- 0.60. Most of our units are already at 0.6 or higher, but for material share of our units, the law change means more personnel.
We estimate that the combination of new staffing ratio, salary increases, and other cost increases will lead to an overall cost level increase of more than 4% in 2022. In comparison, we estimate the total pricing effect on all revenue for the business area to be around 5%. For majority of contracts, price adjustments follow an index logic, while for subsequent contracts, a proper renegotiation that was conducted. On the renegotiated contracts, we issued on average 12% pricing increase. The decided increase of staffing ratio from 0.6- 0.7 planned for April 2023 will impact virtually all elderly care homes, which means that almost all prices need to be renegotiated. Next slide, please. Free cash flow was positive by SEK 153 million in the quarter and SEK 249 million for the full year 2021.
Adjusted net debt amounted to SEK 1.6 billion, which equals an adjusted net debt to adjusted EBITDA ratio of 2.6. Looking strictly to our financial situation, there would be room for dividend for 2021. However, given the fact that 2021 was a challenging year for Attendo and characterized by COVID pandemic, the board of directors has proposed to the annual general meeting that no dividend should be distributed for the 2021 fiscal year. With that, I hand back over to you, Martin.
Thank you, Fredrik. Slide 14, please. In the beginning of last year, we presented new financial targets for 2023. I'd like to start with a quick update given that we're now 1 year in. Our midterm profit target is achieving adjusted EPS of at least SEK 4 by 2023, calculated according to IAS 17 accounting standard. Our dividend policy is to distribute 30% of the company's adjusted net profit. Our capital structure target is based on financial stability and the capacity to execute long-term decisions, and our target is to be below 3.75, measured as adjusted net debt in relation to EBITDA.
As many of you have commented, if we achieve EPS targets, the leverage will go down rapidly, and this could open up for further M&A opportunities as well as higher capital distribution to shareholders as we start to see more progress in the turnaround. Next slide, please. To deliver on our financial targets for 2023, we need to see improvement in a number of areas. The first area of improvement is the turnaround program in Finland. With a return to a balanced opening base, fair price adjustments, and increased focus on sales and quality, we expect both occupancy and margins in Finland to increase over the coming years. During 2021, we have gradually been able to increase occupancy in Finland, and during the fourth quarter, we closed the price negotiations for the coming year. We made good progress going into 2022.
The prices are still structurally too low in many regions given the new regulations. Hence, price negotiations in second half of this year will be critical for us and the whole industry to get compensated for the last step of the staffing reform taking place in 2023. The second area of improvements is to recover from the pandemic period in Scandinavia, where we have experienced a good demand while having had a record high number of openings. The result is a historically low occupancy level in our nursing home business in Sweden. Since last summer, we've seen a normalization of customer inflows in nursing homes, and we expect this positive occupancy trend to continue.
While restoring profitability, we will also continue to refine our operational model and strengthen our competitive advantage to be ready for a new period of higher growth from 2024 onwards with the coming elderly boom. Next slide, please. Adjusted earnings per share increased from SEK 1.43 in 2020 to SEK 1.48 in 2021. A slight improvement driven by the initial turnaround in Attendo Finland. Attendo Scandinavia's profits continue to be pressured by low occupancy following the pandemic. During both 2020 and 2021, our result has been heavily pressured by the pandemic. Looking ahead, we're still on a road to reach the SEK 4 per share target for 2023, although 2021 was more impacted by the corona situation than we anticipated when the target was set. The profitability improvement will come from several factors. Firstly, we will continue to grow within existing capacity.
There are more than 3,000 empty beds to sell, and we also expect to grow in home care, both organically and through small acquisitions. Secondly, prices for elderly care in nursing homes in Finland must come up. Overall, current average prices in the sector does not reflect the cost development over the last years. It's also clear from official data that prices to private providers are 20%-30% below the production cost of public sector. On average, prices for Attendo will increase by more than 5% for 2022. An important step that for 2023 with the new staffing ratio increasing to 0.7 impacting all nursing homes, prices need to be revised substantially through our contract. Thirdly, with corona hopefully behind us and a lower opening pace going forward, we believe average occupancy in Sweden can increase materially.
As some costs are fixed or semi-fixed, like property costs and night staff, this will lead to improved efficiency and margins. All things equal, our leverage situation would improve with expected improvements in profitability. This additional capacity will be used either for increased M&A activity or adjustments to the capital structure. With the worst of corona hopefully behind us, we believe that we are on track to reach the SEK 4 per share target for 2023. A few closing words before the Q&A session. Financially, we've been through a tough quarter, mainly due to the impact of Omicron with the following record high sick leave numbers. This is something that also will have a clear negative impact in Q1. On a positive note, we have achieved anticipated price increases in Finland for 2022.
We have a positive moving pace to nursing homes, and we expect this trend to continue. This in combination with a low number of openings will result in continued positive occupancy development in 2022. Although the effects of the pandemic have lasted longer than we expected, we believe we are on track to reach our financial targets for 2023. Thank you for listening, and over to you, Andreas.
Thank you, Martin. We will now open up for questions. Operator, please go ahead.
Thank you. If you have a question for the speakers, please Press zero-one on your telephone keypad to register your question. The first question comes from the line of Kristofer Liljeberg from Carnegie. Please go ahead.
Hi, good morning. I have two questions. First, I wonder about this negative effect from the pandemic of SEK 40 million in the quarter. Is it possible to quantify how much of that was sick leave costs? I think you mentioned SEK 10 million in Finland about what the split is from sick leave costs and lower occupancy in Scandinavia. My second question is related to the EPS target in 2023. Of course it would be fantastic if you're able to reach that. But how much price increases would you need to do in Finland in 2023 to be able to reach that? Is that possible to say?
If you take the corona effect of around SEK 40 million, and as you said, I mentioned SEK 10 million for sick leave. It was only, you know, the Omicron wave hit us in December. Then roughly half of the SEK 40 million is due to lower occupancy in Sweden. It's the, you know, negative absorption effect of running on a lower occupancy than we would like to see. Then there is roughly SEK 10 million left, which is the cost for extended uses of protective gear.
Kristofer, thank you for
Sorry. You have no sick leave costs in Sweden, really, or Scandinavia? There is some, but there is, as you know, some subsidies in. There is public subsidies in place that covers the direct costs. But as I mentioned, you know, getting a replacement in, you know, the person that needs to be there instead of the person sick is often more expensive. But for December it's not, you know. It came so late, so it's not material for the quarter. It will have some effect in the first quarter probably because it also, you know, for example in home care, it impacts also our ability to to do all the care instances as we should do in or as we could do according to schedule when we have people on sick leave.
It has some revenue impact, effect, and some cost effect. For the fourth quarter, that's not material in Sweden.
Could I ask you about the quarantine rules in Finland? Like, I guess in Sweden now, all those regulations have been stopped. I guess sick leave should come down quite rapidly. What's the situation in Finland?
We expect sick leave to subside in Finland as well during the course of the first quarter as transmission of Omicron also subsides.
Okay.
Going to your second question there, Kristofer, Martin here. On EPS target 2023 and what we expect or need to expect from Finland in terms of price increases for this year. That was the question, right?
Yeah.
So, um-
What you need to do for 2023.
Yeah. All of that is related to the increase in staffing ratio regulation that comes in place in 2023, where staffing ratio requirement goes up from 0.6- 0.7 on care staff, which is not all the staff, but it's a majority of staff. Given that, staff cost is around 70% of cost, that should give you a fairly good idea on what is needed to cover to get the increase in requirements.
Of course, we are targeting some somewhat higher number given that we also believe that there is a catch-up to be made and the fact that public sector production cost is so much higher than the current prices in Finland.
What's your impression about willingness among the payers to increase prices? You were more successful in 2022 than in 2021. I guess that's a positive signal. Do you feel that they are prepared to give you this?
Yeah. The thing is you, as you noted yourself, going into 2022 and the negotiations that we had during the past one to two quarters, we have fought for the pricing increases that we wanted for 2022. I think that the 12% increase shows that there is a willingness to pay up. Attendo is not alone in this process. All the private players and the nonprofit players, they all need to get pricing increases based on both the increasing staff requirements in Finland, but also just the fact that prices have been structurally a bit too low. I think with the 12% increases that we achieved, we're not an outlier.
I think that shows that there is an understanding within public sector that prices are going to go up.
Okay. For you to reach the EPS target, do you only need to increase prices to cope with the higher cost, or do you need, you know, extra compensation above that?
We need some extra compensation above that.
Sure. Okay, great. Thank you.
The next question comes from the line of Hans Bostrom from Trinity Delta. Please go ahead.
Good morning. I had a couple of questions, please. First, would you mind repeating the net impact from your outsourced business? I think there was a figure of SEK 86 million, and I think I had negative. At the same time, you did mention about four units of all contracts having won in a quarter, which sounded quite positive. The second question I had relates to the suggested negative impact from protective equipment. My understanding was that the cost of protective equipment is actually coming down quite considerably, and there have been suggestions that actually costs are below what they were even in 2019. I'm quite confused by that. Thank you.
Okay. Thank you, Hans. I mentioned two different things. One is that in the quarter we started or took over responsibility for four new outsourcing contracts, and those have of course been won earlier. Often there is a 12- 9 month lead time between the decision and the actual takeover. That's the four contracts that we kind of took over this quarter. I also mentioned that during the quarter in tendering processes, we have lost two contracts and won another contract, and the net annual impact of that combined is a future negative effect of SEK 86 million on revenue.
Would you be able to give an estimate of what the impact from these four gain contracts would be in the long term?
No, I don't have that in front of me. I need to come back on that. Then your second question was around protective equipment. It's correct that prices have come down since the peak, you know, peak levels. Usage, so how much we use is still quite a bit higher or significantly higher than pre-pandemic times, especially now, Omicron started to come in with a bit higher, yeah, a bit more disease or transmission in the society. It's much higher volume of consumption of protective gears still than what we used to see pre-pandemic times.
Would you agree with the suggestion that prices per unit are below what they were in 2019, or is that not something that ties in with what you see?
I wouldn't say it's below what it was pre-pandemic, but it has come down a lot since the peak levels since 2020, during 2020.
Okay. On a wider note, if I may, I'm sure you haven't escaped it. What's happened to your big peer in France or peer regarding the, you know, the reporting of abuse in units, et cetera, which is obviously an endemic risk in the sector. I've also been reading about some disgruntlement with customers in Gotland and Linköping in the last few months. I'm just wondering what type of additional measures or Attendo might be putting in place in order to avert any type of, should we say, wider reputational risk for the business that obviously can have a very negative impact overall, if you have any further thoughts on that. Thank you.
Thank you, Hans. Yeah, Martin here. Yeah. Yes, of course. I think just illustrates the importance in this line of business to have a clear focus on quality, but also on building and fostering a culture of transparency and reporting internally. That is something that we have worked hard with over the course of the past year to strengthen, and we're continuing to doing that to strengthen both on terms of internal audits, but quality reporting and constantly working with educating and training staff on transparency and reporting.
Have there been any changes to how the group is, should we say, monitored by the board in this regard in terms of management monitoring? I mean, these have been some of the suggested failings in the Orpea case, but I'm just curious what might have changed at Attendo in the past year.
I mean, what have changed in the past year in Attendo is that we have strengthening our work on culture and values. We are strengthening our quality work in terms of quality monitoring. We're also monitoring units on a number of different quality related KPIs more closely.
Okay. Thank you very much. Happy to follow up on this.
Thank you. Just to remind you, ladies and gentlemen, if you would like to ask a question, please press zero one on your telephone keypad. The next question comes from the line of Jakob Lembke from ABG. Go ahead.
Hi. Good morning. My first question is based on Finland and just to understand if I heard you correctly, do you expect a limited customer inflow in Finland during the year? On that, the cost increase that you guided for, is that assuming a sort of, yeah, muted customer inflow?
No, you did not hear us correctly. We do not expect a muted or limited customer inflow to Finland this year. We're expecting a bit somewhat more limited inflow. We had more limited inflow in Q4 and might be in Q1 as well, given the amount of sick leave based on the back of Omicron in Finland as we need staff to accept new clients.
Just to clarify on the more than 4% cost level increase, as mentioned, at the cost level, it's not taking into account volume effects in terms of customers or new nursing homes. It's kind of on a comparable volume, the cost is going up with a bit more than 4%.
Okay. Thank you. Just on the sort of price renegotiations, you mentioned that you still think that prices are structured too low. These contracts that you have increased prices with 12% now in this round, how much more do you want to increase them the next time around to reach a more fair price level?
Well, I think as I stated just earlier on, what we're doing now is preparing for the negotiations for new prices coming into 2023, where staffing requirements will go up even further to 0.7. Of course, that would have mathematically an impact on the price increase that we expect. Looking overall on the market, that will raise cost of operation for everyone, both private and public sector, with about the same amount. Public sector production cost is still 20%-30% higher than the prices the private player gets.
There is an imbalance in the market, and we believe that we should be able to start closing some of it, some of that gap over the next couple of years, on top of sort of what's required to cover for the regulation change.
Okay. My final question is just on the sort of board not proposing a dividend and your capital structure. Sort of your leverage levels are decreasing. Are you open to buybacks ahead?
Yeah. That's definitely in our discussions. Of course, as Martin mentioned, when the profitability increases over time, leverage would go down and that capacity will be used in some way or another. Either we find good investments in M&A opportunities or we adjust the capital structure, for example, through dividends, to make sure that we have a leverage that is value creating for the shareholders.
Buybacks. Yeah.
Okay. That was all of my questions. Thank you very much.
Thank you, Jakob.
Once again, if you would like to ask a question, it's zero one on your telephone keypad. There are currently no further questions. I'll hand the conference back to your speakers.
Okay. Thank you, Annika. Well, we'll now conclude this Conference Call, and please don't hesitate to contact us directly if you have any further questions. Thank you for your participation.