Morning, everyone, and welcome to this conference call where we will present Attendo's results for the second quarter of 2019. My name is Andreas Scott. I'm Communication and IR Director at Attendo. Today's presentation is hosted by our CEO, Martin Tivéus, our CFO, Fredrik Lagercrantz. After the presentation, we will open up for questions. By that, over to you, Martin.
Thank you, Andreas. It's been, to say the least, a very challenging first half of the year for Attendo. The result for the second quarter is heavily affected by the situation in our operations in Finland. I do understand and acknowledge that this is a challenging time also for our shareholders. Having said that, there are no shortcuts in the process of restoring profitability in our Finnish operations. As a leading care company, our long-term success is dependent on our ability to deliver high-quality care and customer satisfaction while delivering value to society and keeping operations compliant. The underlying demand for our services is stable and long-term market trends are favorable. With the measures that we communicated in mid-June, I'm confident that we will be able to increase occupancy and restore profitability in Attendo Finland and hence Attendo as a group over the next couple of years.
I'll now turn to the presentation, and then Fredrik Lagercrantz, our CFO, will take you through the numbers in more detail. Next slide, please. We report continued high growth in Q2 as a result of the high number of openings in the past 12 months in Finland, and also due to selected M&A activity related to home care in Sweden. While our other segments in Sweden have shown stable development, outsourcing has continued to decrease, and the outsourcing business is now only around 15% of group sales. We report a significant drop in profit in our Finnish operations, mainly as an effect of higher costs related to the earlier communicated action program and more empty beds. Sales of beds have slowed down in Q2 due to problems to recruit staff.
After the Finnish national election in April, the public debate as well as political pressure around care for older people has been calming down. Focus is now shifting from specific private operators towards more overall industry challenges, such as overall public spending on elderly care and a potential increase in national staffing standards. The past month, we've seen both regulatory inspections and media debate returning to a somewhat normal state. Still, the scarcity of staff is an issue for the entire sector and will likely remain for a long time. During the past three years, we have more than tripled our opening base and more than doubled our operations in Finland. We still view Finland as an attractive care market where we can add long-term value, but it is obvious that we need to decrease and balance our growth base going forward to secure both quality and profitability.
Our Scandinavian Operations displayed underlying stable results in most segments. Home care is continuing to improve, and we see a stable situation in own operations as well as in individual and family care. At the same time, outsourcing continues to be very challenging. In Q4, some large and profitable contracts ended, and our new as well as other existing contracts has been struggling with profitability. We are addressing that problem, but there is no improvement to be expected in the short term. Next slide, please. Turn to some key financial and non-financial KPIs in the quarter. As I mentioned, we reported a strong top-line growth in the quarter, up 8% YoY, excluding currency. Growth in Finland was 20% in local currency due to the high number of openings, while we still have a slight net loss of sales from current operation in Scandinavia.
This is an effect of the ended outsourcing contracts and to some extent closures of home care and individual and family care units over the past year. Reported EBITDA amounted to SEK 121 million, corresponding to a margin of 4%. In old GAAP, that translates to an EBITDA of SEK 42 million and 1.4% margin. Profit were just above zero in Finland and in fact loss-making in Adjusted EBITDA. Profit in Scandinavia was relatively stable, but lower versus last year, adjusted for non-recurring items last year as an effect of the ended outsourcing contract. Our debt in absolute terms and debt to EBITDA ratio is lower compared to a year ago. Given the current low run rate in profit, we still see a need to improve cash flows towards the end of the year, something Fredrik will talk more about shortly.
Quality index was 84% in the second quarter and remains on a high and stable level. We are putting much emphasis to further improve both technical and perceived quality in all of Attendo, and that is a vital part of our strategy for rebuilding confidence in Finland. We have now more than 16,000 beds in own operations. In Q2, we opened additional 625 beds and started establishment of 527 beds, a number that will drop as we are sharply reducing the number of new projects going forward. The high opening pace will continue to build the foundation for future growth, but is now pressuring the result significantly. We also see a drop in total occupancy from 80% in Q1 to 79% in Q2. Next slide, please. As we communicated in mid-June, we are taking forceful actions to restore trust and profitability in our Finnish Operations.
To me, it's clear that our growth strategy in Finland the past three years has been too aggressive and that the organization has not been equipped to handle the complexity with strong organic growth and the large acquisition at the same time. To manage that situation, we're now taking a number of measures. First, we're strengthening the management team. We have recruited Virpi Holmqvist to become the new Business Area Director for Finland starting in November.
Virpi has a solid background from the sector. For management and complex organization, and has previously worked with Attendo for many years. We also start to recruit a new Finance Director for Finland. Our current Business Area Director, Pertti Karjalainen, will enter a new role with responsibility for sales and contacts with municipalities. Secondly, we're taking actions to improve the occupancy situation. From mid-2020, we have sharply reduced the number of new establishments in Finland.
We will remain at a lower level until we reach a better balance between sales of beds and new openings. We are also putting large effort to improve access to qualified care staff, and this is key to be able to accept new customers and is currently the main bottleneck for improving occupancy in newly opened units. We have more resources to support recruitment. We are putting more efforts to attract care personnel to Attendo, and we will increase our recruitment efforts for nurses in the Philippines.
We are also improving the sales organization and put more support to our local managers and sales contacts, especially new openings. In some projects where we see limited prospects for high occupancy, we are seeking options to change operations or terminate the rental agreements to avoid further losses. The third area concerns pricing. Price negotiations is key to get compensation for sharpening staffing requirements.
In existing contracts, the possibilities for compensations are limited, Attendo has the possibility to establish a new price level in re-tenders when contracts are expiring. This is a gradual process, and it will take until the end of 2021 before we have renegotiated the vast majority of contracts. With these actions, combined with the already running quality improvement program, we are confident that we will improve both reputation and profitability in the Finnish market over the coming years. Now turning to quality and NPS. Our ambition is to be a leader in quality of care in all countries where we operate and to have the most satisfied customers in each location where we operate.
In Q2, we continued the long-term work to further strengthen both the technical and perceived quality of care, and this feeds into the action program that Attendo has launched in Finland in order to meet the increased demand on care that followed political discussions during the spring. As part of the project, Attendo's quality index will be updated to better reflect how individual units performs in terms of, for example, safety, compliance, reporting to authorities, customer satisfaction, handling of complaints and feedback. A new self-control procedure has been launched, and both internal and external channels for feedback on the operations have been established. Our Norwegian operations received attention for the successful work on animal therapy at nursing homes in the Oslo area, which according to one study, have had a positive health effect and reduced the need for medication for our customers.
During the quarter, our home care service was awarded the Täby municipality's quality prize, which is based on the customer's influence and satisfaction with care. Next slide, please. As I mentioned earlier, we now have more than 16,000 beds in all operations, an increase by more than 10% from the corresponding period last year. In Q2, we started construction of 12 new units that will add 527 new beds. These projects are a result of decisions taken in 2018. In total, we had 2,300 beds under construction by end of Q2. As you can see in the chart, we are in the process of decreasing our pipeline in Finland. In Scandinavia, we continue to identify attractive opportunities, even if we, in general, are more cautious on our risk assessments in all geographies. Next slide, please. This chart shows the rolling 12 months opening pace and openings per quarter.
The high number of openings have had a clear negative impact on profit and margins in the quarter. We have taken down estimates for openings slightly versus what we communicated in the first quarter. We're now seeing around 1,800 beds being opened in 2019, 1,700 beds in 2020, and significantly lower number in 2021. The majority of openings this year will still be in Finland, although there will be a more equal balance with Scandinavia next year. Next slide, please. Last quarter, we increased transparency on margins in mature and start-up units, as well as occupancy per vintage. The top chart is key to understand the drop in margin, but also the potential for our start-ups. The chart displays the profit margin rolling 12 months, stated in old GAAP for the group in total and for mature units. We have also excluded Mikeva units for comparability.
Before Q3 2017, we opened roughly as many beds as the number of beds that went into mature state. The recent two years, we have accelerated openings, which means that we have many more units in start-up phase. Also, the time to fill new units have been prolonged, as we have previously stated. Please also note that the total group margins have also been affected by one-offs in 2018 and low-margin Mikeva business from Q4 2017 and onwards. The profitability in mature business has historically been rather stable around the level of 10%. The downward trend that you can see in 2019 relates to the higher cost level in Finland, something that will continue to pressure margins in 2019. Margins will start to recover when we reach a balance between new openings and ability to fill up empty beds. Next slide, please.
Now turning to occupancy per vintage. As you can see on the green line, the occupancy is clearly above 90% level for units started in 2016 and earlier. We target most of our new projects to reach mature occupancy of 90% within 18 months of operation. The actual average time to reach 90% is best observed by looking at each vintage. As you can see in the 2017 and 2018 unit, the first year of our accelerated pace of openings, we are far below the targeted level, and it will take a lot longer than the 18 months to reach mature occupancy in these vintages. Units acquired from Mikeva have a significantly lower occupancy than mature units in Attendo. This is very unsatisfactory, and it's a sign that we have not been able to manage organic expansion and integration of Mikeva at the same time.
Improving Mikeva performance will be a critical task for the new management in Finland. It's too early to judge how the 2019 vintage will develop over time. It's all clear that the filling rate so far is low, especially in Q2. As I mentioned, a major reason has been difficulties to find qualified staff for newly opened units. Another negative factor to 2019 vintages is that the time to get permits for newly opened units has increased from earlier a couple of weeks to now several months. This means a significant delay as well. Now it's time for Fredrik to explain the quarterly numbers more in detail.
Thank you, Martin. Our reported numbers are based on IFRS 16, unless stated otherwise, and previously reported numbers have been restated. All profit and loss items presented for 2018 refer to continuing operations without the divested healthcare operations in Finland, unless other information provided. Let's turn to page 10. You can see that net sales continue to be strong. Total net sales amounted to SEK 3 billion, up by 9% compared to the corresponding quarter last year. Adjusted for currency, net sales increased by 7.6%. Acquisitions contributed with approximately 6%, and organic growth amounted to 1.4% in the quarter, lower than previous quarters. We see continued strong organic growth for our own nursing homes, but this was offset by negative effects in other areas. The quarter was negatively impacted by outsourcing contracts that ended earlier.
Net sales are also still negatively affected by closed units within the individual and family care business and some exited home care districts. Reported EBITDA amounted to SEK 121 million in the quarter, in line with the communicated forecast for the quarter, but down significantly from the SEK 199 million reported for the second quarter 2018. I will come back with more details on the underlying EBITDA development. Financial net was negative SEK 137 million compared to negative SEK 134 million in the second quarter of 2018. IFRS 16-related interest expenses increased by SEK 23 million, while interest expenses for our borrowing from banks decreased by SEK 17 million. The lower bank-related interest expenses are explained mainly by lower debt following the repayment we did in January, but also lower interest margins.
Income tax for the quarter was a positive SEK 12 million, which equals a tax rate of 25% for the first half of the year. We have a positive tax since we booked deferred tax on the loss in Finland. We will be able to utilize the tax deficits in the future. Net profit amounted to a loss of SEK 39 million in the quarter, which equals an earnings per share after dilution of a negative SEK 0.24. Next slide, please. From 2019, Attendo is applying the new accounting standard IFRS 16. We also show restated numbers for 2018. On this slide, we show summary effects on the financial statements. On the balance sheet, we see continued increase for IFRS 16 related items on both assets and liabilities due to our opening pace.
For the profit and loss statement, the effect is smaller this quarter compared to the first quarter of 2019. In the first quarter, we had accounting effects from discontinued contracts and annual indexation of other contracts. The profit effect from IFRS 16 in the second quarter is a better representation of Attendo's current run rate. Next slide, please. Based on our segment reporting, I will now comment a bit more on Attendo Scandinavia, Attendo Finland separately. Overall, our Scandinavian business area is very stable with similar trends as in the first quarter. In summary, a good development for home care business, but more demanding for outsourcing. A bit more in detail. Revenue for the business area decreased somewhat as acquisitions and more sold beds in own homes could not fully compensate for the ended units within primarily outsourcing and individual and family care.
Within home care, we have also exited some geographical areas. Both reported and Adjusted EBITDA was up since we last year had a closure cost of about SEK 53 million for units within individual and family care. For the largest service offering, own care homes, operating profit was stable as increased profits in homes opened in 2017 was offset by startup losses in homes opened 2018 and 2019. We have a positive trend in home care based on our increased customer concentration and improved planning and routing. We are actively acquiring smaller companies and exiting areas without the right prerequisites. Denmark continues to be loss-making but at stable levels. The largest home care contract in Denmark ends in the fourth quarter this year. Individual and family care increased profits as several loss-making units have been closed since last year.
The improved profits in home care and individual and family care were offset by lower profits from our outsourcing hubs. The lower profits are primarily a consequence of the contract that has ended since last year. In addition to the lost contracts, we also experienced margin pressure in existing and new contracts. This is a trend we think will continue. During the quarter, we have not lost or won any new contracts. In the quarter, we had negative calendar effects from Easter across all service offerings. Next slide, please. The growth continues to be high for Attendo Finland and amounts to 24% reported and 20% in local currency. The growth primarily comes from more occupied beds in units opened in 2018 and 2019, as well as acquisitions. The special situation in Finland has impacted the quarter with close to SEK 70 million in additional costs.
Startup losses from units opened in 2018 and 2019 and more empty beds in general are also impacting negatively, together with some increased overhead costs following the healthcare divestment. We also had the negative Easter effect in the quarter compared to the second quarter 2018. The negative development is partly offset by more occupied beds. There are no short-term solutions to the profitability issue in Finland. This means that the reported numbers of the group for the second quarter is a good representation of Attendo's current run rate. We expect the third quarter this year to have the normal positive seasonality effects on earnings. In order to restore margins in Finland, we need to adjust prices and improve occupancy. Price increases will be gradual and take several years, as most contracts are at least three years. During the agreement period, we are contractually only allowed to take cost index-based increases.
To increase occupancy and reduce the number of empty beds, we will, as Martin mentioned, slow down our opening rate, strengthen our recruitment capabilities, and increase focus on incremental sales in existing units. Next slide, please. On this slide, you can see the complete cash flow statement. First, bear in mind that 2018 cash flow includes the healthcare operations in Finland. Free cash flow is lower this quarter as operating profit is down and the divestment of the cash flow-positive healthcare operations in combination with higher rent payments. The rent payments are reported as IFRS 16 items. Cash flow from acquisitions and divestments were positive with SEK 53 million as a consequence of lower acquisition activity and the reversal of a previous acquisition in Norway. Adjusted net debt amounted to SEK 2.6 billion, which equals an adjusted net debt to Adjusted EBITDA ratio of 3.3.
As our profitability level has declined, our leverage target of being below 3.75 will be challenged during the second half of 2019, by that, also our covenants in our financing agreement. In parallel to the initiatives we are taking to improve profitability, we are also reviewing and taking actions on multiple initiatives to improve cash flow. This includes, for example, the possibility to sell some properties and to stop investing in assets held for sale. We also have close and constructive dialogues with our financing banks. Our current financing agreement terminates in December 2020, we plan to negotiate the new finance agreement before this year ends. With that, I hand back over to you, Martin.
Thank you, Fredrik. I'd like to make a quick summary before we enter the Q&A session. We have reported a very poor financial development this quarter, it is and has been a testing period for both the company and all our shareholders. For a company like Attendo, this is not an acceptable profitability level over time, we take actions on a broad scale to turn the Finnish operations around. At the same time, we need to acknowledge that many of the actions will take time to get full impact. Operationally, we continue to deliver quality care on a stable level, we do not see a fundamental change in the market. Our mature units in all geographies are having high occupancy, Attendo Scandinavia is performing on a stable level.
Most important for the long-term value creation is to deliver high-quality care to the benefits of customers and local authorities. I'm as convinced as before that Attendo has an important role to play in the Nordic care market. I'm also convinced that after we resolve this situation, we are even better equipped to deliver value in Finland for local authorities, customers, and shareholders. Thank you for your attention. With that, I hand back over to you, Andreas.
Let's go into the Q&A session. Please state one question at a time. Operator, please go ahead.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. The first question comes from the line of Kristofer Liljeberg from Carnegie. Please go ahead.
A question related to the occupancy level and then on mature units. First, on the decline you saw in the quarter for the 2019 vintage, is that relating to the units that open in the quarter, or does it also relate to Q1 openings? Could you comment what the trend is for the openings in Q1? Is that just flattish or so?
Yeah. The challenge in Q2 is mainly related to the Q2 openings. We've seen a number of effects. During the spring, all the players in the market, those private operators, has been staffing up to fulfill the sharpened staffing requirements. Meaning that, I think this sector as a whole has recruited around 1,000 care staff or FTEs. It means that we've seen difficulties to recruit in Q2 for new openings. That is one major reason. Another thing is that the regulator has also been stretched with all the inspections that they made. Normally when we open a new unit, we get the permit to operate that unit within a very short period of time. It's a formality. What we see now is quite a heavy delay at many units. It can take two to three months to get the actual permit to open the house.
The Q2 openings, we've seen a severe impact on occupancy development in those units.
Is it more difficult for you given all the media attention that the brand reputation has taken a severe hit? Or is this something? What are you hearing from your competitors? Are they having the same problem as you?
Everyone has challenges on recruiting currently. Of course, with the amount of openings that we see that we still have, say we have an extra challenge on it.
Okay. Makes sense.
I will also add that just before the summer is not the best period of time of the year to recruit. There are a lot of graduates from nursing schools coming out, but they're looking for job after summer, not in April, May, and June. It also has an effect.
Well, let's say if it would have been possible for you to hire as many people as you wanted, how much better would it have been? Because I guess there's also maybe a problem from municipalities don't want to use you to the same extent as before, given what has been written in the press, et cetera.
We still have good relationship with the municipalities, and we still see demand from municipalities for our services. I think that effect is not that big. I spent time with all the regional managers in Finland, and they all state that recruiting is the main issue to fill up more beds currently.
Okay. That's good. I just wanted to take the opportunity to also ask you about this margin in the mature units. You mentioned that's of course down to the higher cost in Finland. Isn't it so also that your definition on mature isn't really mature because it's impacted by
Yeah. That's correct.
startups in recent years. If you look in units that's really mature, where you have the 90% occupancy level-
Yeah.
How much are those, the margins there down?
Yeah. If you look at the 2016 vintages and backwards, the real mature units, we still see margins around 10%.
Okay. Even in Finland?
Even in Finland.
Okay. Thank you very much.
The next question comes from the line of Victor Forssell from ABG Sundal Collier. Please go ahead.
Thank you very much for taking my questions. I'll start off with the first one. Is it possible for you to give some indication on the outlook for July in terms of either empty beds or further decreasing occupancy in the beginning of quarter three for primarily your 2019 vintage, please?
Yeah, I understand that you asked the question. We don't give any forecast on July.
Okay. Yeah.
Just to be clear on the 2019 vintage, that the lower reported occupancy percentage is an effect of more openings. It's not that we have lost clients sequentially in units that opened in Q1.
Yeah. Absolutely. What indicates that you now have Given the profit run rate that you're giving us, that you have a better forecasting ability in Finland now than you've previously had?
We have taken multiple actions to address those issues, both operational but also our forecasting and analytical capabilities. We are working both with new methods. I'm personally more closer to the situation and we are also looking at new tools on how to collect and analyzing data. It's not one single thing, but we are working differently and more focused on making sure that we get the better ability in this.
Okay. There won't be sort of a transition period here up until November, so to say? Until Virpi arrives in the Finnish operation.
No, I think we can do things before Virpi arrives, clearly. And we have already done.
Yeah. Okay. Just the last one from my side. Now looking at your cash flows and given that you expect this SEK 120 million to be your new run rate, while at the same time having this leasing cash outflows of roughly SEK 300 million each quarter, could you explain in a bit more detail what type of financing solution you are reviewing with the banks? It seems to me as if the short term at least, you could potentially breach any covenants if this trend continues.
You're correct in that if the trend continues, our covenants will be challenged. One thing we're doing is that we're looking at what can we do to improve our cash flow. There are things we can do there. For example, as you may have seen in our balance sheet, we have assets held for sale, and we are stopping to invest in new such assets. That means that we can free up cash over roughly SEK 300 million when these assets are sold. There are other similar or, not similar, but that's an example of how we can improve our cash flow over time. Exactly how we take the discussions with banks and other parties that needs to be done in a smaller group and not in the public domain. That we need to revert to once we have a solution.
As stated, we foresee that we will be able to have a new solution in place during 2019.
Okay. Thank you very much.
The next question comes from the line of Hans Boström from Credit Suisse. Please go ahead.
Good morning. A couple of questions. Could you elaborate on your comments regarding margin pressure and existing outsourcing contracts and how that comes about? I presume that's related to the Scandinavia business. Connected to that, just looking at your Q2 EBITA, the unadjusted in your statement for Scandinavia seems to be down a reported SEK 26 million year-on-year. Then there is a comment about SEK 53 odd million of restructuring costs. How should we think about the comparability of those numbers? Are they truly comparable or are the one burdened by costs, non-recurring costs and the other one not? Just to get an understanding of how significant this outsourcing margin pressure is to explain that deterioration. Thank you.
Yeah. In Q4, we ended a number of outsourcing contracts that were quite large and quite profitable. That has a clear effect and that's the main part of the effect on outsourcing. We've seen a gradual increase in price pressure in tenders on outsourcing in Scandinavia over the past one to two years. We also see that some existing contracts that we have, we have to really work and fight for margins. The main reason is the loss of the ended outsourcing contracts that were very profitable.
Okay. You're not saying that you're effectively having to change the terms of existing contracts, which I suppose could be one way you deal with this price pressure?
No, it's not possible to change the terms on existing contracts while they're running. You tender for a contract and then you sit with it and try to improve it as much as you can during the contract period. Normally, outsourcing contracts are toughest in the beginning, and then it takes time over the contract period to improve the business gradually and install our best practice methods and so forth.
You go on to talk about the second half of the year seeing an increase in outsourcing opportunities. Could you guide us through what type of volume of business that is and what type of reasonable market share you could get out of that, just to get a sense of how significant that opportunity is? Also tying in with your statement about the new government budget and effectively reneging on promises made during the election campaign, I just wonder what the implications are of the absence of additional resources for older people are and the equal conditions in welfare services that you make a comment about.
When it comes to the outsourcing market, if you look at number of tenders, it has been fairly stable. We don't have a super clear visibility on new tenders that will come out. Given the political situation in the Swedish municipalities, we have a positive view on that it will come up more tenders during this mandate period. Having said that, as I stated, we have seen an increased price pressure in tenders, and if price is too low, we choose not to participate. We still want to go into contract where we can make a decent margin. That's also a reason why we have not been winning that many tenders over the past period, as we found price points not attractive enough.
That's your comment regarding the national situation, and what should we read from your comments there?
Could you repeat that question?
Well, there is a statement in your press release talking about the Effectively, as I read it, the government in place has effectively made promises about changing terms for the better for the elderly care, but has effectively not delivered.
Yeah, that reflects to Finland.
Oh, Finland. Okay. I thought that was a Swedish issue. Okay. Fair enough. Okay, I'll go back.
In Sweden, the political landscape here, according to the agreement that was made between the political parties in January, was that there was strive for equal terms between public and private sector. That is something that we view as positive. We're still yet to see what comes out of that political promise or agreement, because we haven't seen anything yet. The overall idea with equal terms is, of course, very positive and that is something that we view as good. In Finland, there has been a political discussion regarding the situation for elderly in Finland and the investment level that the Finnish government seeks for elderly, where staffing requirements and investments in Finland are significantly lower currently than the other Nordic markets. They're looking to increase national guidelines for staffing. That is something that we foresee will take a long time until it comes into effect.
As there aren't enough qualified staff on the market to support such change of regulation now. It has to take a number of years before they can install it.
Okay. Thank you.
Once again, ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. The next question comes from the line of Carolina Elvind from Danske Bank. Please go ahead.
Hi. Good morning. Just one question from me. You say you will decrease the opening pace from second half of 2020. Can you quantify that? What should we expect for 2021?
We have chosen not to quantify it, as the decision we're taking now is that we will significantly take down opening pace in Finland. What we're doing now is we're fulfilling already existing contracts in terms of openings. That means that we need to fulfill contracts which runs basically for openings up to first half 2020. From second half 2020, we can choose our opening pace. As it is now, we're significantly taking down opening pace from that point. If situation stabilizes, meaning that if we see a better balance between in sales and recruitment, then we can reevaluate that. We have chosen not to present an exact number as of today.
Okay. Thank you.
The next question comes from the line of Victor Forssell from ABG Sundal Collier. Please go ahead.
Yes. Thank you. Just the last one for me. When could we expect any news regarding an update of your financial targets, both in terms of implementation of IFRS 16 or perhaps operationally as well?
Before the end of the year. Had we not had the situation in Finland, we would have done it earlier. Now we want to present long-term targets that we can live with. Meaning that we want to see where we're heading in the second half of the year before we do anything else, before we communicate it.
Within this calendar year, so to say?
Within this calendar year, that's our ambition.
Yeah. Okay. Thank you very much.
The next question comes from the line of Kristofer Liljeberg from Carnegie. Please go ahead.
Yes. I just wanted to hear you about the risk of oversupply in the Swedish market. Where do you see that being very different from the situation in Finland? Of course, you're not as aggressive as in Finland, the number of new beds will increase more than in the past.
Swedish market is vastly different than Finland. It's also a much bigger market. Demand is about double the demand in Finland. If you look at how much our opening pace in Sweden compared to Finland, it's a much lower share of the total market, even if we're increasing openings next year in Sweden. To some extent in Denmark as well. Over the coming years in this mandate period, we hope to see more municipalities in Sweden opening up for private operators. That's a trend we have been seeing historically, where we've seen less influence from left-wing parties in municipalities, which is something we see now after this mandate period. I think our risk level in Sweden is very balanced. I don't see a risk for overcapacity in Sweden. In Finland, it's been different. It's a smaller market.
The wholesale market has been opening up due to the SOTE reform over the past couple of years, there's been a learned grad phase over the past couple of years, where we have been inside building too aggressively. It's on a completely different scale than what we're opening in Sweden.
Thank you very much. That is helpful.
Once again, ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. We have a follow-up question from Hans Boström from Credit Suisse. Please go ahead.
Hi again. The SEK 70 million that you had stated were extra costs in Finland in Q2, this obviously would be at a higher annualized rate than the SEK 200 million you have stated. How should we marry those two? Is it just a one-off particular in Q2 that will then come down a bit in the coming quarters? Or are you changing your view on the total investment that you announced in late March? The second question I have relates to the surprisingly large, certainly from my standpoint, contribution acquisitions of 6%. Could you just remind us where these acquisitions have taken place? Because obviously, most of us cannot be a contributor to that.
It is not really SEK 70 million. It is a bit less than SEK 70 million in the quarter, and the first quarter was low, where it was a bit below SEK 50 million. The current trend is that we will probably come in a higher cost than the SEK 200 as stated for a bit higher than the SEK 200, approximately SEK 200 that we stated for 2019. I also think the annual effect is a bit more slightly above the SEK 200, but some of the parameters of the extra cost we are taking is still too early to say if they are long-term sustainable at a high level. The majority will stay of the SEK 70 that we see in the quarter.
We have roughly SEK 50 million that is related to staff costs. Then we have some other costs of managing the situation in Finland.
There are some costs that are also temporary in nature.
While we're on the topic of costs, this SEK 53 million that you specified as non-recurring costs, is this breach of leases, or what are these costs, and are they particular in Scandinavia or Finland?
Last year, we had SEK 53 million, and it was related to closure of units within individual and family care. It was a combination of it was closure costs. It's both personnel and property related, mainly. That affects both the, what we call then the reported EBITDA and the Adjusted EBITDA that is in the old GAAP with the same amount, SEK 53 million for last year, 2018. On your other question on acquisitions, this is mainly related to all nursing homes we acquired during 2018 in Finland. It can be both smaller companies, but also real estate asset deals from municipalities. Secondly, it's home care companies within Sweden.
Okay. Just going back to the first point. It seems you do have a new, more, should we say, policy of weeding out the least profitable or contracts that aren't likely to ever become particularly profitable. I imagine there might be some lease cessations that are required from that, and I just wonder how much of costs that might be incurred and how you're going to specify those costs on an ongoing basis.
Yeah, it might be that every contract, of course, is a single and individual decision on if they lack the long-term prerequisites to be healthy there can be penalty or breakup fees to get out of it. Part of that was the extra provisions we took in the fourth quarter of 2018 to handle such situations. We have not seen or indicated that there is a
Of any significant or material amounts in this area.
Okay. For the rest of 2019, you wouldn't expect any additional costs for that particular aspect over and above what you already provided for?
Not to any material level.
It can be cost in the P&L, but no provisions.
Yeah. It could be.
Okay.
We don't expect any material effects from that.
Okay. Thank you.
The next question comes from the line of Carina Endren from Handelsbanken. Please go ahead.
Yes, good morning. I have one question regarding Finland. As I understand it now you guide for a stabilization of losses going forward. Could you just summarize the main factors impacting this that now are different than before or has changed, and that will help turn this negative trend? Also, when would you expect a sequential improvement regarding the profits in Finland if excluding all seasonal variations?
I guess I say that there is no quick fix in Finland. We need to reduce number of empty beds that we have in Finland, i.e. increase occupancy levels. We need to renegotiate contracts for the next couple of years to get compensation for the increased cost level related to the sharpened staffing requirements. Those are the major things that we need to get in place. If you look at the occupancy levels or decreasing empty beds, whereas now we are still in the process of opening a lot of beds, but we need to secure that we get back on a healthy fill-up rate or net sales level, which has been dropping significantly in Q2 versus previous trend. We didn't see any effect in Q1 on the topic. The main reason for that has been challenges to recruit.
Of course, also partly that regulator has taken a very long time to give us permits for newly open homes. They sit there with cost, and we can't open them for a number of months before we start. A lot of work is now into how to make sure that we do our utmost to improve recruitment situation. Of course, we believe it will be slightly eased by the fact that there should be more graduates available after summer break. There is a number of things that we need to focus on to secure recruitment situation. Another part is that if you look at sales efforts, we see a tail effect of the crisis in Finland, is that local managers have been very focused on just securing staff.
In some cases, been a bit afraid of accepting new clients because they're afraid of an inspection. They, in some cases, want to be a bit overstaffed to make sure that there isn't a sick leave when the inspection comes and so forth. We also see a tail effect on that side that there's been a less focus on sales and actually filling the empty beds, which is normally part of everyday work as a local manager. That is also something that we need to reinstate, that attitude and way of working. Another part is with the sales efforts on openings, is that during we've been opening this many beds.
Normally before an opening, we do a lot of sales efforts towards the municipalities to make sure that we start the new home with a decent occupancy level and get the municipality to close down an outdated facility when we open. That is also work that hasn't been as effective over the past six months. There are a lot of things that we need to improve and we work on to improve going forward.
Looking a bit more into the near term, should we expect things to get a bit worse before you can actually see the benefit from all these measures?
We're seeing that the performance in our Finnish operations has been stabilizing during Q2. That's also what we're trying to state with that the Q2 results represents the current run rate of financial performance in Finland.
Okay. Very clear. Thank you.
There are no further questions at this point. I'll hand the conference back to you.
Okay. Well, thank you all for listening in. We appreciate that you're listening in and are engaged in the middle of the summer. I hope you have a great summer holiday in front of you, and we're looking forward to additional calls. Of course, if you have any further questions, you're always welcome to send us a mail or give us a phone call. We will be available during the day all the time. Thank you for listening in.