Welcome to Attendo Q4 Report 2022. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now I will hand the conference over to CEO Martin Tivéus and CFO Fredrik Lagercrantz. This call is being recorded.
Thank you and good morning, everyone. In line with the previous quarter, we'll pay most attention to Finland due to the fact that this is the market where we have the largest swing factor for profitability going forward. We'll also highlight the cost inflation and other factors that are influencing our short-term performance. Also, we'll giving an update of the overall development and direction of Attendo in the quarter. Fredrik will take you through the numbers in more detail. Page two, please. Operationally as well as financially, we've had a tough second half in handle 2022. It's clear that the complexity and cost of the new elderly care law in Finland has been even more challenging than we anticipated entering 2022, especially given the increasing shortage of qualified labor and the dynamic effects it has had on salary inflation and staff turnover.
This autumn and winter, we've seen sick leave rising to similar levels as last year's Omicron peak. Unlike last year, this peak seems more condensed, and we can see sick leave numbers already falling back somewhat in January. The resulting operational staffing challenges have been costly and have, together with the high inflation and challenges in Swedish home care, had a clear impact on our Q4 result. From a profitability point of view, the fourth quarter was a disappointment. The underlying factors explaining the weak results are the same as we outlined in the Q3 report, but the magnitude has been a bit higher than expected. In both business areas, we suffered from high personnel costs, where high sick leave numbers are a key explanation. The cost inflation continues to impact year-over-year heavily.
While last year's result was a disappointment, we have achieved good progress in a number of areas that makes me much more positive about 2023 beyond. In Finland, the most important progress is of course the pricing of 24/7 elderly care from this year and onwards, also our huge efforts in managing the staffing situation. We have not only integrated Silkkitie as part of our recruitment toolbox, overall, we've managed to recruit and onboard several thousands of employees in Finland during the last year. Hence managed to deliver on the new staffing requirements and prepare ourselves for the next step of the reform in April 2023.
In Scandinavia, the most important achievement is our strong sales momentum in nursing homes, improving occupancy in own operated nursing homes from 72%-83%, which will help counter the cost price deficit in Scandinavia in the coming year as we expect to be undercompensated by municipalities for inflation and salary cost this year. In the beginning of 2021, we set a midterm financial target to achieve an adjusted EPS of at least SEK 4 per share for the full year 2023. As you previously mentioned, the challenging staffing situation in Finland affects our estimated timing for when the profit target will be met. We're also entering 2023 with high inflation-related costs in both business areas. On the positive side, we see good progress in price negotiations in Finland and a favorable occupancy trend in Scandinavia.
All in all, we expect to be able to reach our SEK 4 per share with a delay of a few quarters from our original plan. Given last year's weak result, the board proposes no dividend for 2022. Slide three, please. Turning to the fourth quarter again, we achieved organic growth of 6% in the quarter, mainly due to more sold beds in Scandinavia and higher prices in Finland from past pricing adjustments. Lease-adjusted EBITDA amounted to SEK 80 million, SEK 57 million lower versus the corresponding period last year. Overall occupancy remained at 85% versus last quarter in spite of positive customer inflow in Scandinavia. Slide four, please. In 2022, Attendo has continued to work on quality development with the aim to lead our industry to the next level of quality work.
The starting point for this has been a reworked and more holistic quality framework that brings in new aspects of quality to guide our daily working routines. Traditionally, quality work in our industry has focused on process quality. This measure puts focus on the existence of routines and guidelines in the day-to-day operation, like the KPIs reported in the Swedish unit survey from the National Board of Health and Welfare, where Attendo scores higher than the national average in these surveys. More than a decade ago, we started focus on subjective measures of customer satisfaction and relative satisfaction, such as those measured in the yearly user survey from the National Board of Health and Welfare. Last year, we have moved this work forward by measuring NPS, Net Promoter Score, among customers and relatives on a regular basis.
We also set an operational target to have the highest customer satisfaction in all cities where we operate. The new framework also brings a completely new element to our quality work: health outcomes and quality of life. This sets new focus on the actual outcomes and effects of our care efforts for each individual. In Finland, we use the Resident Assessment Instrument, RAI, where we evaluate the resident's individual strengths and support needs according to the defined protocol. This includes KPIs of the quality of life and physical function of our customers. In Sweden, we have introduced a similar method called ASCOT, Adult Social Care Outcomes Toolkit, which measures the improvement provided by our care in eight different aspects, including social interaction, hygiene, nutrition, and wellbeing. This way of working is currently piloted in several units and will be broadly introduced starting 2023.
For both RAI and ASCOT, these results serve as a basis for individual care plans for our customers, which focus on how to improve their mental and physical health. We believe that the combination of process quality, customer satisfaction, and quality of life will provide us with the most comprehensive way of working with quality and care, and will become a part of our care model Attendo Way. The new framework represents our ambition to provide better care for more people. Slide five, please. Turning to Finland and the progress of price negotiations. Since the so-called care crisis in Finland in 2019, staffing requirements in the Finnish care system have been increasing. In 2020, a new elderly care law was announced, increasing staffing density requirements gradually from 2021 to 2023, something that has dramatically increased production costs for all providers.
Since 2019, private care providers have not been compensated in accordance with the sharper requirements. This has led to a situation in which compensation from municipalities to private providers is today significantly lower than the municipality's own production cost. The industry organization HALI has collected data from larger municipalities and welfare areas and compared their own production costs with what they pay to private providers. Data available from 2021, as you can see on this slide, shows huge differences, up to 50%, and on average, around 30%, and this difference is even greater today. Our assessment is that there today is a better understanding among the new welfare areas for how the regulation has impacted the cost level, both historically and with what is ahead of us. Next slide, please. The retender and renegotiation processes of contracts for our nursing homes in Finland is ongoing.
The staffing requirements for 24/7 nursing home care will increase from 0.6 to 0.65 care workers per resident from April 1st. Today, about a third of our contracts have been finalized ahead of the change and according to the 0.65 level. As the amendment to the original staffing law passed parliament on January 25th, only a few weeks ago, we expect the remaining volumes to be subject to tendering process starting the next few weeks in order to conclude by end of March. The contracts negotiated so far based on the new staffing law entail an average price adjustments of close to 30% compared to the 2022 price level. Please note that the negotiations relate to 24-hour care in nursing homes and care for older people, and this constitutes approximately 50% of the total turnover in Finland.
To cover general cost inflation, we have already from January 1st secured inflation-related price adjustment of close to 10% on total sales in Attendo Finland. Even with these price hikes, private operators will still be given substantially lower compensation compared to the public operations' own production costs. Slide seven, please. This chart shows the openings per quarter and rolling 12-month opening base. Prior to 2020, we had a strong pipeline on new projects to meet expected demand for new nursing homes in Scandinavia. During the pandemic, we adjusted and lowered our expansion plans, and during 2022, we opened less than 300 beds. In Q1 this year, we expect to open 170 new nursing home apartments. In terms of new projects, we had 325 owned beds under construction by end of Q4.
We still have opportunity to grow through occupying empty beds in current operations. Beyond 2024, we expect to return to a phase of higher number of openings again. Slide eight, please. Top chart presents sales on trailing 12 months basis on a group level as well as for the business areas. Trend is positive. We expect higher prices to accelerate this trend during the coming year. The lower chart displays trailing 12-month lease adjusted EBITDA margin. The past year reported development is heavily impacted by the high personnel costs related to high sick leave that is no longer compensated by state support and inflation. In addition to the above-mentioned factors, Finland has been impacted by higher staffing demands since 2019. We expect margin turnaround in Finland from Q1 this year and onwards as we will receive the first price adjustments.
Slide nine, please. Turning to occupancy development in Scandinavia, we have increased net sold beds in Q4. Occupancy did increase, but was partly hampered as a short-term contract with the Swedish Migration Agency regarding Ukrainian refugees was ended during the quarter. During 2022, we have had solid sales momentum in Scandinavia and attracted around 700 net new customers throughout the year. In our own op-operated nursing homes, we have lifted occupancy from 72%-83%. In Finland, we haven't been able to increase occupancy last year due to lack of staff. Towards the end of the year, the situation improved somewhat, and we have had a small positive inflow to nursing homes again. Occupancy remained at 85%. Let's take a closer look into the financials for the quarter. Please go ahead, Fredrik.
Thank you, Martin. Let's turn to page 10. Net sales increased to SEK 3.8 billion, up by 14% compared to the corresponding quarter last year. The organic growth for the quarter was 5.7%. Organic growth was 5% for Attendo Scandinavia, driven primarily by more customers in nursing homes. In Attendo Finland, organic growth was above 6%, driven by higher prices. Lease-adjusted EBITDA amounted to SEK 8 million, down from SEK 65 million last year. The IFRS 16 effect on reported EBITDA increased somewhat, partly due to one-time items and currency effects. Financial net was - SEK 170 million compared to - SEK 159 million in Q4 2021. IFRS 16-related interest expenses increased by SEK 4 million, while interest expenses for our borrowing from banks increased by SEK 30 million.
Other financial fees and currency effects had a positive impact on the comparison. The increased interest expenses on bank loans is mainly consequence of higher market rates. During the fourth quarter, the average interest cost was close to 4% compared to less than 2% one year ago. Income tax for the quarter was positive SEK 9 million. The adjusted earnings per share for the quarter was - SEK 0.07, down from positive SEK 0.21 last year. Slide 11, please. Net sales for the Attendo Scandinavia business area increased by 7%. The growth is to large extent driven by more customers in nursing homes for elderly people, partly offset by lower revenue within home care. Lease-adjusted EBITDA decreased from SEK 105 million - SEK 80 million.
The development is similar to last quarter, with an improvement from more customers and better occupancy in nursing homes, offset by cost inflation estimated at close to SEK 15 million and efficiency issues, especially in home care. As Martin mentioned, high sick leave is at least partly behind the efficiency problems. Looking ahead, recently started units continue to having to have a negative impact on profitability in the beginning of 2023, but expected to turn positive later in the year. From January 2023, there will also be a larger rent increase corresponding to roughly SEK 20 million quarterly, as most rental contracts are linked to Consumer Price Index. The current salary agreement is valid until June 2023. We expect the outcome to be close to the industrial benchmark set during the spring. General cost inflation will continue to drive costs, although expected at a diminishing pace.
The index clause for revenue pricing we have in many but not all contracts is balanced over time, not designed for the current rapid increase in cost inflation. In the majority of contracts where we do not have index clauses, it's clear that municipalities will not adjust prices at the level needed to offset cost inflation. All in all, the consequence is that cost inflation is estimated to be 2 - 3 percentage points higher than price increases. Slide 12, please. Growth for Attendo Finland amounts to 20% reported and 11% in local currency. Acquisitions contributed with close to 5% growth and organic growth was 6%. Leased adjusted EBITDA decreased from - SEK 24 million to - SEK 55 million. The negative development is primarily driven by higher personnel costs, other cost inflation, as well as somewhat fewer customers, only partly offset by higher prices.
Net customer inflow was neutral during the quarter. The abnormal cost inflation is estimated to impact the quarter with around SEK 50 million. The June acquisition of the rehab hospital Kauniala contributed positively to profit development. Significant increase in personnel costs comes from both increased staffing due to new regulations and higher hourly costs due to labor market shortage. As mentioned earlier this year, we have also lost some efficiency in scheduling due to the new regulation being more rigid and inflexible. The new cost level needs to be absorbed by higher prices in 2023. When discussing and negotiating new prices, we also consider the high cost inflation impacting both food, consumables, rents, and salaries. Some more inflation-related price adjustments will be seen from January 2023 in the range of 10%.
The additional price effects for elderly care will however come in April 2023 in connection to the next step in the staffing law. Slide 13, please. This table shows our cash flow development. Free cash flow was positive by SEK 106 million in the quarter and by SEK 24 million for the last 12 months. Adjusted net debt amounted to SEK 1.9 billion, which equals an adjusted net debt to adjusted EBITDA ratio of 4.4. Both our net debt and our leverage ratio is impacted negatively by the Swedish currency decreasing in value. The leverage is temporarily somewhat above our long-term financial target, but in line with our financing agreement. We expect leverage to decrease during 2023 as profitability improves. With that, I hand back over to you, Martin.
Thank you, Fredrik. Slide 14, please. A few closing words before the Q&A session. Financially, we're delivering solid growth but a rather weak result. Both business areas are impacted by high inflation and high personnel costs. The coming quarters will be the most important for our turnaround. To succeed, we must conclude the price adjustments in Finland and continue to drive positive occupancy development in own-operated nursing homes in Scandinavia. I'm confident that we have the prerequisites to turn the profitability this year and to achieve our financial target, although with some delay from the original timeline. In contrast to many industries, we look forward to many years with increasing demand, and we have the capabilities to deliver better care to more people, thereby becoming a preferred partner to local authorities and a highly appreciated provider to the customers. Thank you for listening. Over to you, Andreas.
Thank you, Martin. We will now open up for question. Please state one question at a time. Operator, please go ahead.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Victor Forssell from Nordea. Please go ahead.
Yeah, thank you and good morning, everyone. Housekeeping question firstly on Scandinavia. If you could comment whether with this occupancy development in own nursing homes of now 83%, has that led not only to increased earnings for that isolated subdivision but also margin improvements here in 2022?
Sorry, I didn't hear the second half of the que-.
Mm-hmm.
Has it led to improved earnings?
margins as well for.
Yes
... sort of-
It's, yeah.
... subdivision isolated.
It's yeah. Yes, yes.
Okay, perfect. Now the price costing balance of course will be quite negative here in 2023, and appreciate your sort of, your outlook there. How much, if at all, would you anticipate that the occupancy improvements in Scandinavia can offset, I know, parts of this imbalance? Any thoughts here or sort of comments around that, how you see that proceeding?
Yes. Yes. I mean, if we can continue the occupancy development pace that we've had in 2022 during 2023, we believe it's possible to compensate this price cost deficit with occupancy development.
Is that isolated for own nursing homes or for the whole sort of Scandinavian Division?
For the entire Scandinavian division.
Okay.
Mm-hmm.
Okay.
For the entire Scandinavian division.
That would mean, like, flat-ish margins if that succeeds well?
Yes.
Okay. Thank you. And moving on to Finland, just curious to hear your thoughts. Obviously, new sort of decisions here in the last couple of weeks. What is your own certainty or how do you view the remaining parts of the contracts here that you can get them at this favorable price uplift that you seek? Any data points or any sort of things that happened here in the last week or two that strengthens your view in achieving that?
I mean, as we mentioned during the call, there was a proposed law amendment to the staffing law that came last autumn to change the staffing density requirement increased from 0.7 in April 1st to 0.65. It took all the way to January 25th for the parliament to pass that through voting. Of course that has sort of paused some of the new, you know, tenders coming out. Now the decision is out, and now the tenders are flowing out again to the market.
I think to me, and to us in our Finnish organization, as I said, we know about 1/3 of contracts we have already negotiated, we have hit around or close to 30% price increases. We feel confident about that we will achieve the price increases that we need also for the remaining contracts so far. We have nothing that points against it currently.
Okay, thanks. Final one before I head back to the queue. That is on your target of SEK 4 in EPS. I understand the sort of qualitative reasons and discussions around how to hit those, but I would guess it would be helpful to have a more also quantitative discussion here as well, especially with Scandinavia having a tougher year ahead and also heightened interest rates, et c. You know, any sort of comments regarding perhaps EBITA margins, interest expectations, etc. , for you to end that at around SEK 4 in 2024? Thank you.
Yeah, I appreciate that you want that. We're not disclosing any margin forecast and I'm not gonna start that now. That we are, we're trying to guide you fairly, you know, fairly well anyway by saying that we are, we think it's, you know, it's fully possible for us to reach a 4 SEK per share with a few quarters delay, meaning, during 2024, given what we see ahead both in Scandinavia and Finland, currently.
Okay, fair enough. Thanks a lot.
The next question comes from Albert Möller Bruk from ABG Sundal Collier. Please go ahead.
Hi. Just a clarification and follow-up on Victor's last question there. In Q2, you formulated the EPS target that it would be somewhat delayed, now you changed the wording to delayed a few quarters. Should we view this as like a downgrade or something on the guidance? Thank you.
No. I mean, we don't see it as a downgrade. I mean, Q2, which is, you know, that was quite some time ago. I think we're just, you know, a bit more certain today. I mean, we're closer to the time period. We have better visibility on 2023 now than we had in Q2 last year, obviously, because, I mean, now we've come further on price negotiations in Finland. We've already secured the first 10% in, from January 1st. We have more visibility on Scandinavia. So, I think we're just a bit more certain now than we were in Q2.
All right. Thank you. Another clarification question regarding the price increases in Finland. Are the 10% price increases in addition to the 30% price increases?
No.
-for the-
No.
They would be included.
Uh-
in the 30%?
They'll be included. The close to 30% that we have achieved so far, that relates to about half the turnover in Finland, which is the 24/7 elderly care. The 10% that we have secured already from January 1st is on the entire turnover in Finland, where of course, half of that will be included in the 30% from April.
When we say 30% is compared to 2022 cost or price level?
Yes.
All right. Perfect.
If you measure it from the January prices, it will be a lower percentage point.
All right, brilliant. Another question. The 24/7 nursing homes constitute 50% of turnover, and you have elderly care constituting 70% in Finland. I was asking about the remaining 20% there. Are they, like, affected by the same staffing requirements? Will the cost level be similar there, but you will receive a lower compensation?
No. No, it's not. Partly it's something what they call the lighter care model, which is not regulated in terms of staffing density requirements, but then it's also other parts of cost that is not included in price negotiations, such as rent. We have both rental income and rental costs, right? For the facilities and so forth. So it's other costs. When we negotiate price, we negotiate care, the care part of the care operation, not rent.
All right.
That's on top.
All right. All right. Thank you so much. Just a question, relating to the recent news about Humana. I did some digging in your latest annual report and saw that you had some incidents, with both IVO and AVI in Finland.
Do you have any worries about some similar repercussions from, well, from the worsen political climate in Sweden?
No. I mean, yeah, first of all, we don't have any operations within personal assistance at all. We also don't have any connection to Försäkringskassan at all. When in terms of open case with IVO, I mean, typically in this business, which is a regulated business, it's a regulated business both in Scandinavia and Finland. Typically, we would have about 20-30 matters every year, which is part of our self-reporting process on Lex Maria and Lex Sarah cases, for example, in Sweden and similarly in Finland. We have an obligation to self-report and then IVO or Valvira in Finland would start or open a case and then we go through it. That's a regular part of being in this business.
We typically report those number of incidents also in our annual reports every year. That's fully transparent. Then we have a dialogue with IVO on these individual cases. Having said that, we have no information about any wide scope investigation around Attendo as a company or any whole segments as we know.
All right.
This is more around investing.
Yeah. That was everything from me. Thank you so much.
Okay. Thank you.
The next question comes from Kristofer Liljeberg from Carnegie. Please go ahead.
Hi, good morning. If I come back here to the potential to compensate the Scandinavia with higher occupancy or compensate the inflation pressure with higher occupancy, is it possible to quantify how much you need to improve occupancy levels? You said similar improvement as in 2022, I think you phrased it. What does that mean really?
I said that before and also in the last quarterly report that, if we can continue with the current sale pace or the sale pace that we had during 2022, we will reach around 90% occupancy levels during 2023. If we can do that, then it is possible to also compensate for the cost price effect.
That's a gradual improvement to 90%. We don't need to be 90% already mid-2023 or something like that.
No, it's a gradual improvement towards 90%.
Okay. That's helpful. In Finland, you sound a little bit more positive about your own staffing situation here end of the year. What potential do you see for improved occupancy rates in Finland in 2023 and take on additional customers?
I think it's hard to say. Any improvement in occupancy rates would be an upside. I mean, Last year when we went from 0.6 .5 to 0.6, it created a turmoil in the labor market. It took us quite some time to reach a new balance in terms of staff, in terms of staffing and labor market, which we did in the end of the year. As I said, you know, we saw some slight improvement again in occupancy towards the end of the year. I think we are well-prepared for April.
Having said that, we expect another, you know, turmoil in the labor market during after April. It will take some time to rebalance again. Any occupancy development during 2023, that would be an upside.
For you it's more about trying to defend the current occupancy level.
Yes.
rather than improving.
Exactly.
Okay. Okay.
Yes.
Great.
Of course, as this settles down, we will reach a new balance again. We expect. I would expect us to be able to increase occupancy again next year.
If we go back to the period before you started to open so much new homes in, in Finland, was the occupancy levels there in line with what you historically had in Scandinavia?
Yeah.
Okay. Thank you.
The next question comes from Jakob Lembke from SEB. Please go ahead.
Hi, good morning. I have a few questions. My first one relates to Finland and sort of why other than the change from going to 0.7 to 0.65, have you not been able to negotiate a larger proportion of the contract yet?
I mean, we're dependent on the pace of the welfare areas, because they have to submit the tender documents before we can submit our tender, so to speak, the tender price. We are not steering the pace other than that. Of course, last autumn we terminated all agreements to force a renegotiation, it's up to every welfare area to come with their tender documents and start the process. Having said that, all the welfare areas in Finland, they mean they need to have everything in place by April. We say no.
Of course, quite a large portion of them are now, you know, they're, they're a bit late in the process or they're coming a bit late on the hour. That is because the prerequisites, meaning the 0.65, the uncertainty requirements that was decided by the parliament that so late, I mean January 25th. Now we're seeing that they're coming out. We expect the remaining part to come out within a few weeks. Some of them has already come out, of course, since January 25th. I think it's also worth to note that the welfare area was formally formalized only on January 1st. They have not been operational for that long time.
Yeah, that's fair enough, I guess. Just a follow on, sort of this tender process that you expect to conclude now in March. Is that similar to what you have done here over the past couple of months? Maybe if you foresee any additional risks here in your ability to achieve those prices or losing volumes?
No. Those are similar processes as the ones we have already been through.
Okay. I'm also wondering about this 10% price increases you expect now in Finland in general from Q1. Is that enough to bridge the segment to a positive lease-adjusted EBITDA?
We will not guide on that specifically, but our expectations on cost development is somewhat lower than 10%.
Okay. Understood. Just finally on the Scandinavia. It would be interesting to hear a bit more about, sort of what speaks for you achieving, the occupancy improvements needed to offset the inflation effect.
The fact that with that, we have had a very strong and stable pace of occupancy development for the past four consecutive quarters or five. It's not about achieving anything that we haven't already achieved. It's about continuing a strong pace. That means that we believe it's possible to do it.
Okay. Thank you. That's all for me.
The next question comes from Victor Forssell from Nordea. Please go ahead.
The follow-up, which is actually a follow-up on previous questions here. If you at April 1st have not reached an agreement on existing sort of premises that you have in operation already, what will happen if we end up at a case like that from April 1st?
If we don't have a contract or if a welfare area hasn't, you know, been ready or we have a refuse to sign. If we have refused to sign it because we think the price is not at the right level, we are out. We don't have a contract, meaning that then we set the prices that we want in that area. On the other hand, it might cost us occupancy in that area. If the welfare area then still want to put residents in the nursing homes, they have to pay us what we need or what we want.
Okay. Thanks a lot.
It'll likely be a trade-off with slightly lower. We likely get lower occupancy, but at the price that we want until we can agree on a contract.
Sounds fair. Okay, thanks a lot.
There are no more questions at this time, so I hand the conference back to Martin and Fredrik.
Okay. Thank you for listening in. We will now conclude this conference call, and if you have any further questions, feel free to contact us directly afterwards. Thank you and have a good day.