Earnings Call: Q1 2021

May 5, 2021

Good morning, everyone, and welcome to this conference call, where we will present attendance results for the Q1. My name is Henry Scott. I'm a Communication and IR Director at Atento. Today's presentation is hosted by our CEO, Martin Teus and our CFO, Fredrik Larke Kraus. After the presentation, we'll open up for questions, and We'll focus this on the financial report. And for media question on other topics, please contact us afterwards. But by that, over to you, Martin. Thank you, Andreas. Good morning, everyone. Before we start the presentation, let me make a Short comment on the media attention in Sweden the past week related to one of our care homes. We have initiated a number of immediate actions in response to what has been reported. We also started the comprehensive work on learnings from the pandemic and to more in-depth investigate what has happened related to the media criticism in order to take necessary actions, learn and improve going forward. With this, let me now turn to the presentation, and then Fredrik Kjalvikans will take you through the numbers in more Detail. Next slide please. Overall, we have a mixed situation in the group. While Finland continues to improve occupancy, Margins from a low level and corona impact is relatively limited. Scandinavia is severely affected by the corona pandemic and has negative development year on year. In Finland, the turnaround development continues. Occupants and margins are positively impacted by net sold bets and relatively few bets in the start up phase. As we previously have communicated, price negotiations for 2021 are finalized. And for the framework contracts, we achieved over 10% increase. All in all, we have obtained more than 3% increase of total net sales. These are largely offset by increased costs due to the new elderly care law in Finland implemented late last year as well as annual cost inflation. Given the new elderly Care law prices in Finland are still structurally too low, and we will continue to push for higher prices over the next few years. In Scandinavia, we entered the year with a low occupancy due to the pandemic and inflow of customers has continued to be low in Q1 but increasing. The low occupancy levels have affected margins during the quarter. On group level, negative krona effects have been largely compensated by public reimbursement for some of the additional kroner related costs that were incurred in 2020. Furthermore, in relation to the comparison quarter, Atento's profits were negatively affected by LEAP Day of SEK 20,000,000 and legal costs of SEK 20,000,000. Throughout the quarter, our employees have been committed to provide a good care situation as possible. And our customer service shows that their hard work has been appreciated by the customers. The customer survey Atento carried out during the quarter indicate high and increased customer satisfaction in both Scandinavia and Finland. Slide 2 please. We reported top line growth in the quarter of 1% year on year The organic growth adjusted for last year's lead year effects amounted to 3% despite negative effect of the corona pandemic. Lease adjusted EBITDA amounted to NOK 75,000,000 corresponding to a margin of 2.4%. Fredrik will provide more details on the financial development shortly. Quality remains at a high level, but we are continuously working with improving quality to various activities and audits. Next slide please. This chart shows the opening per quarter and rolling 12 month opening days. The development is a result of the strategic shift we decided on 2 years ago to decrease establishment of new units in Finland and return to a more balanced expansion base. In Q2, we will plan to open 200 beds in Scandinavia and 30 in Finland. For 2021, We expect cross opening pace to roughly 800 wells where the majority is in the Scandinavian business area. Next slide, please. In the upper chart, we present a number of wells in operation. As of Q1 2021, we're presenting the number of wells in all Atento's units, including outsourcing. We increased the number of beds in operation by 2% from the corresponding period last year. During Q1, we opened 2 50 new beds, added 480 acquired beds and closed or ended roughly 200 beds owned and outsourced. As you can see indicated in the chart, the share of all operated units in Scandinavia have increased during the period. In line with our strategy, we continue to reduce Number of openings and by end of Q1, we had close to 800 own beds under construction, the majority in Scandinavia. In Finland, our focus is to fill the units that we have established in recent years and continue to deliver improved Opitons in the coming quarters. Next slide, please. Now turning to occupancy in our homes. As of Q1, we're presenting occupancy for all Atender Somz. As previously mentioned, the occupancy situation is mixed. Finland is improving occupancy through more sold beds and lower opening pace, While Scandinavia has a negative development due to the corona situation, newly opened units in Q1 explained the drop in Scandinavia since Q4. Compared to the comparison quarter, Finland has improved overall occupancy by 3 percentage points, while Scandinavia has lost roughly 10 percentage points of Santander. We expect net inflow on new customers to gradually normalize during the second half of twenty twenty one as municipalities own capacity situation improves And general anxiety about COVID subsides. Slide 7, please. This chart presents the occupancy development of own operated units by opening year. We have excluded the larger acquisitions Mikkva and the recent UMSK so that we can isolate the development of our own initiative projects over time and present how fill up in openings are proceeding. It's clear that openings 2016 and earlier are decreasing as a result of the corona pandemic, while occupancy in more recent entities are continuously improving. Going forward, we expect occupancy to gradually increase during the year as the corona situation improves at least during the second half of the year. This chart presents on a group level net sales and margins divided into mature units and start up units. We have historically presented the mature margin, including all administration costs. To give a better view on the mature margin, We now calculated margin for the mature units with a proportionate share of the administration costs. As you can see from the yellow line, Mature margin is stable despite the corona situation. Improved margin in Finland almost offset lower margin in nursing homes in Scandinavia. Let's take a closer look into the financials for the quarter. Please go ahead, Jarek. Thank you, Martin. So let's turn to Page 9. Net sales decreased somewhat to NOK 3,100,000,000 down by 2% compared to the corresponding quarter last year. The exit from Norway impacted the comparison with about NOK 90,000,000. Keryn said a negative impact with 2.9 percent And last year's LEAP Day impacted comparison with about 1%. Adjusted for last year's LEAP Day, the organic growth was about super spend, despite the negative impact on loss revenue due to the corona situation. In Finland, we continue to see growth across all service offerings. Our growth in Scandinavia is still negative, affected by ended outsourcing contracts, exited home care areas and lost occupants in nursing homes due to corona. List adjusted EBITDA amounted to NOK 75,000,000, down from NOK 84,000,000 last year. The negative effects from corona are estimated to around NOK 50,000,000, which have been offset by received government reimbursement of in total NOK 50,000,000, but relating to additional costs in 2020. The comparison between the years are further impacted by the lease day last year with about NOK 20,000,000 And we also had a negative one time cost of SEK 20,000,000 related to real estate following a legal proceeding stemming from 2017. The IFRS 16 effect on reported EBITDA was larger than last year due to new openings. Financial net was negative SEK 164,000,000 compared to negative SEK 146,000,000 in the Q1 of 2020. IFRS 16 related interest expenses increased by NOK 7,000,000, while interest expenses for our borrowing from banks decreased by NOK 4,000,000. Currency effects on financial costs were negative by SEK 4,000,000 while positive with SEK 10,000,000 last year. Income tax for the quarter was positive SEK 1,000,000 and the adjusted earnings per share for the quarter was SEK 0.26,000,000, down from 0.37 last year. Next slide please. The Scandinavia business area is clearly impacted by corona. Net sales for the business area decreased as we have exited Norway and corona's impacted sales. Lease adjusted EBITDA decreased from SEK 125,000,000 to SEK91,000,000. Adjusted for late day effect of NOK 10,000,000, government cost reimbursements of NOK 36,000,000 and negative NOK 1,000,000 also NOK 20,000,000. The result is down by SEK 40,000,000. This is fully driven by negative corona effects. During the quarter, we have been tendering processes won, but yet not started contracts with an annualized revenue of SEK 25,000,000. Next slide please. Growth continues to be high for Atento Finland and amounts to 5% reported and 11% in local currency. And adjusted also for lease day growth was 12%. The growth primarily comes from more occupied beds and units opened since 2019, price increases as well as acquisitions. Price increases amount to more than NOK 3%. Lease adjusted EBITDA improved from negative NOK 22,000,000 last year to positive NOK 2,000,000. Price increases and improved occupancy was partially offset by set by high cost in operations, largely due to the implementation of the new law. By the end of the quarter, the number of empty beds was lower than 1 year ago. Atender received reimbursements for some kronor related costs that occurred in 2020, which resulted in that kronor related supportive measures more than offset the costs for the isolated quarter. Compared to the Q1 in 2020, calendar effects were negative at about Santander. The acquisition of UMSK had a very marginal impact in March as the profit generated from the nursing homes were offset by transaction costs. Before we turn slide, I just want to give a few comments on the coming quarters for both Finland and Scandinavia. The corona pandemic will impact the coming quarters, although the magnitude is still uncertain. The net The net sales in Scandinavia will continue to be impacted negatively as Operating with a significantly lower average occupancies than normal, at the same time, the cost level in Scandinavia will continue to be higher than normal due to protective measures and absorption issues. We expect corona reimbursements to be much lower in the second quarter. The acquisitions we made during the quarter will contribute positively for the second half of the year with an accretive effect on adjusted earnings per share. Next slide please. Free cash flow was positive with NOK 138,000,000, somewhat lower than last year. The positive working capital development in the Q1 is mostly related to employee operations and due to seasonal effects. Net cash flow from acquisitions was higher than normal in the quarter. Adjusted net debt amounted to SEK 1,600,000,000, which equals an adjusted net debt to adjusted EBITDA ratio of 2.8, a clear improvement to last year and well below our maximum target. With that, I hand back over to you, Martin. Thank you, Pritik. A few words before the Q and A session to summarize. So we have now closed another quarter affected by the corona pandemic, which have impacted both operations as well as financials. Financially, the development in the business areas is mixed. Scandinavia has deeply affected by the corona pandemic, which has led to clearly reduced occupancy margins. Meanwhile, we see continued progress in Finland as a result of the turnaround program. Operationally, we have during the quarter completed the vaccinations of residents in our nursing homes. And as the vaccination program in society continues, we expect general anxiety about the pandemic to gradually subside. We expect this in combination with the steady improvement of the public sector capacity situation to lead to a gradual normalization of customer inflow during the second half of twenty twenty one. With regards to the past week's criticism in media in Sweden, we also started the comprehensive work, both on learnings from the pandemic and to investigate what has happened related to the criticism in order to take necessary actions, learn and improve going forward. Thank you for listening and over to you, Andreas. Yes. We will now open up for questions. And operator, please go ahead. Santo. Santander. Santo. Santander. Our first question comes from the line of Christopher Liljenberg of Carnegie. Please go ahead. Your line is now open. Yes. Thank you and good morning. First on the occupancy levels in Sweden, Have you changed the definition here versus before? Yes, we have. Before we looked at own management units only, but now we included all type of units, also the Outsourcing Units. And it's clear that also occupancy in outsourcing has been impacted by the COVID situation. Okay. And is this the way you're going to continue to do it? Yes, it is. Okay. And when it comes to the occupancy rate in Insoo, and I guess it's the average you report. Did you say anything about the run rate when you ended the quarter and whether you have seen any gradual improvements here? Yes, we have. So the situation has gradually improved during the quarter. And is it possible to quantify what the occupancy rate for the remainder of the quarter? The reported occupancy rate is the average for the last month. Okay. And we see a gradual As Martin said, we see gradual improvement of the inflow of customers. But then, of course, if you discuss occupancy in percentage is also impacted on Exactly when we open new capacity. But overall, there's a gradual improvement in terms of customer inflow. Okay. And given the discussion or debate in Swedish media, have you seen that impact The move in rate in any way the last 2 weeks? No, that's too early to be visible. Okay. And last question, the financial net seems to be down quite a lot now year over year when you adjust for the lease effects. You mentioned about the SEK 4,000,000 improvements. I guess there's some moving parts as well. But what do you think is a normalized Level now for net financials, if we remove the lease effects by quarter. I think this quarter is a good representation of a normalized level. But If we look at our bank borrowings, it's the main driver is the size of our net debt. And that In combination of cost with our leverage ratio, the higher leverage we have, the higher interest margin we pay. But it is the cost for the quarter is quite representative, but we always get some Currency effects that can impact the financial debt. Okay, great. Thank you very much. Thank you. Our next question comes from the line of Hans Vostrom of Trinity Delta. Please go ahead. Your line is now open. Good morning. Two questions, please. Maybe this relates to Christophe's question on the Inclusion of the outsourced business, but the occupancy in the pre-twenty 16 units, is this a reflection of the Well, relative to the other vintages, I mean, is this related to lacking compatibility of these Units or is it the geographic location of them, in particular corona areas? Could you elaborate on that, why that is Going in the wrong direction relative to other vintages. And secondly, on the Norway exit, what would be the cost impact from that in the quarter. Thank you. So the first question, Hans. Hi, this is Martin. We've seen on mature units, which is you're referring to as 2016 and earlier, We can see that the occupancy effect is related to the corona pandemic, where we've seen generally in the market a lower inflow to homes, Nargenhouse, based on general anxiety about the corona situation. And the difference between the mature units and the starts of the vessel, the recent vintages have a kind of inherent ramp up effect Yes. And of course, we try to open units where we see there is a demand in the market. But of course, We think that the ramp up of the more recent units could have been better without the corona effect. So they are also negatively impacted, but it's not visible when we track it over time. And the profitability effect on Norway, your second That is much more marginal effect because the Norwegian business wasn't that profitable. And can I go back to the first point? I mean, obviously, your mature units are likely the most Profitable unit, so this would have a disproportionate impact on your profitability. I mean, are there any particular measures you will be taking to shore up The occupancy in these units, is there anything you particularly can do to that? As I said earlier, this is in our view the effect of the Corona situation. And we have looked The total inflow to the market, not only Atento's inflow. And you can see that we are the inflow to our own It's much in line with the overall market. We do expect that there will be a gradual improvement of customer seeking placement in nursing home. As anxiety of corona subsides, The vaccination program for residents in nursing homes has been completed during Q1, not only at Atento, but overall in the market In combination with the municipality, the capacity situation also improves. And we expect a gradual normalization from the second half this year, because we also expect that Municipality operations also have a lot of free capacity at the moment. So it would be a delayed effect, that's our expectation at the moment. Okay. Thank you very much. Our next question comes from the line of Victor Forsal of ABG. Please go ahead. Santander. Just starting off For the question, Martin, I think that you mentioned this in the report, but you've seen or you estimate The number of people that were eligible for or actually seek the grounds To enter elderly care in Sweden was down by some 8%, if I understand it correctly, last year. Just to understand the dynamics, Is this including the people that actually declined that position or that grant? I think that figure represents people seeking grounds, because there is no reason to Believe that a less proportion of people seeking grant has been not granted. Okay. So that would perhaps include all the dynamics in that question then? Yeah. I mean, if you look at general statistics, what is available is number of people being granted support. But is your view that perhaps people were a bit more hesitant to actually assess that as well and have declined their opportunity throughout And if so, how do you see that play out? That might be the case. I mean, there has been A general anxiety in society, given all the media reporting, but also given the situation within Aldelikar during the pandemic. So I think it's not surprising that we see We've seen lower demand for these services during the corona year. That was also a situation going into the quarter, We're Sweden was in the middle of the second wave of the pandemic. With the vaccination program that started Around Christmas time, almost ended. In Atento units, we ended the vaccination program in February. Of course, that's that is something that would ease and we're seeing is easing in general anxiety about moving into Narsenome as well. So we have seen a gradual improvement during Q1, but from a low level. Okay. That's fair enough. And just finally from my side, in terms of the grants you received here In Q1, around SEK 35,000,000 in Sweden or Scandinavia. Is that what you expect for Q2 as well? I I think that's a figure you alluded to previously. And also if you see those grants that you had in Finland coming back in Q2 as well, please. Yeah. As with these processes, There's many parties involved. It's both the governments and the municipalities and the rules are different. But as I said, we expect a Significant lower number for the Q2, both in Sweden and in Finland. Okay. Thank you very much. Our next question comes from the line of Kristofer Nielsen of Aftonbladet. Please go ahead. Your line is now open. Good morning and thank you. My question is directed to Martin Tevijs. Atento has received financial aid for corona related expenses like cohort care. Still, you admit you haven't succeeded in full. Meanwhile, you and other top executives have been awarded with high bonuses. Do you intend to pay back the bonus? Conversation for management is something that is not decided by the Board and Mobile Management results. And for further questions around that, You're welcome to contact us after this call, which is a financial call. Okay. But this is a financial related question, If you intend to pay back the bonus? As we said, I think you have talked to our Chairman and we will talk to we can Answer your question for it. Okay. For this quarter, you have received more financial aid due to corona. Will you still have the Same bonus system relates to this year's results for topics executed? That is not a question for management. It's a question for the Board. So, yes, okay. Next question please. How much have you paid out in bonuses for operations and under shares for 2020? And Will you have the same system for this year as we solve? I think this type of question we said we can ask you afterwards. So we'll go on a little bit with questions related to the financial report right now. Okay. In a state that goes on with the financial report now, you address The reprisal from employees and more employees are telling about reprisal, how do you see your own responsibility? And can you promise that no More employees will be subjected to reprisal. Atento is a large company where People work with people. We have 25,000 employees in Sweden, and I think that And about 1,000 managers. When and if Wrong things happen. It's our duty to make sure that we do all that we can to make sure that this doesn't happen again. This single event that has been reported, we take very seriously and we have set forth a number of actions to make sure That this doesn't happen again. But it is an ongoing work. Yes. Okay. Thank you. Operator, we need to move to the next questions. Our next question comes from the line of Victor Jantzen of Swedish Radio. Please go ahead. Your line is now open. Thank you. First, I would like to ask you if you think that the recent criticism can affect the financial results in the future? My focus now is to make sure that we take the criticism seriously and that we set forth The actions necessary, both to investigate what has happened and make sure that we take the necessary actions going forward. And how are you going to make sure that, that's happened? We have started a comprehensive work in the company, as we speak, both the last couple of days with both trainees and education, but also talks with both managers and employees. And but as I said, we have started the comprehensive work on these topics. This is a learning organization. And we have to work for things to become better if we find problems in the organization. That's our responsibility. The fact that employees have said that they've been subject to what they call retaliation after Sounding alarm about problems in the elder care. Do you think that you have a problem with the corporate culture? One of these reports is 1 too many. I mean, was it those kind of reports It's of course unacceptable in this organization. That's my firm view. And this is something that we're now working with. But I've been there the past few years since I've been there, Not in the good morning, but because of natural reasons. But then when I've been out in the organization, I also met with a lot of amazing both employees and managers. And I found a lot of engagement in this company. As I said before, This is a large company with 35,000 employees and with more than 1,000 managers. If you look in an operations this large, we will find situations where things have not been done We're handled correctly. What is important to me now is that we do all that we can to make sure That these kind of situations is not repeated. And one last question. In which way have the pandemic Still affect the financial results. Can you give a concrete example of that? Absolutely. Okay. This is Fredrik. I can give more details on the financial impact on that. So we have several type of impacts. We have had Extra cost related to buying protective gear, we have Had extra cost to sometimes change our facilities to make them More better from a disease prevention perspective, we have also had extra cost for personnel, Because we need a higher staff ratio in many instances, but then we've also seen effects like home care Customers who wants to have less support because they've been afraid. And also we have had lower occupancy. So there are a number of types of Negative impacts then that has partly been reimbursed through public systems. Okay. Operator, we'll take the next questions. Our next question comes from the line of Johanna Siedelblad from TT. Please go ahead. Your line is now open. Hello. I wonder about the impact on your business because of the pandemic. You talk a lot about numbers and lower occupancy. But how many people died and how Biggest test impact in your homes? How many people died in your homes? So this is Fredrik. Inherently in our What we do is that we provide a nursing home, which is the last home for many of our clients. So it's a very It's a very normal part of what we do that unfortunate people disease. We don't have the responsibility to define what is the reason that they passed away. That's something from the healthcare Regions to find out. But we have seen during some time periods over the last one and a half years that number of people who deceased in our nursing homes have been higher than normal. And we can see So that, of course, is an indication that this has had an impact, but we can't give them exact number. And I don't think we are allowed to give it either. So how you think that the pandemic will have an impact On your business, but how much will it impact your business in the future? And how much The media affairs about the weaknesses and so how much will it impact your Business in the future? That's an impossible question to answer. What we can do now is take the what has been reported in Asia seriously, and we do. We are running 700 units. As I said, this is a large operation. And I'm proud of a lot of the good things that we are doing and that our employees are doing on the day to day basis in operation. When individual mistakes happen, we needed to be able to tackle them, find out what has gone wrong and then make sure that we do better going forward. That's I think is our clear responsibility. But your Atento, your finance, the money comes from taxpayers. It's our taxpayers' money. And You are not your revenue is all from tax money. What is what's your thoughts about this bonus you got because of Satisfied and pleased. And now it's been known that they are not so satisfied everywhere. Generally, the both customer satisfaction and employee satisfaction has been going up Over the past not only for the past year, but also the past 2 years, we've seen that Staff attrition has gone down significantly and MP engagement has also been moving up, which is something, of course, I am glad to see because It's an indication that all our efforts in these areas are having an effect. Then if there we find individual examples of like things have been reported, we need to make sure that we tackle those and Lorne and Groot. When it comes to the remuneration system of management, which has a long history in this company. That is something for the Board to decide on. And Jan, please be aware that Atender is present in 3 countries in last year in 4 countries. And of course, this is a mix of all countries and especially the turnaround and Finnish situation has been Big contributor is, as we talked about very much, the turnaround program has been very successful throughout 2020. So that's actually the vast majority is about what's happening in our Finnish operations. Atento is a big company. Okay, thank you, Janard. Thank you. Thank you. Operator, So we now conclude the call. Please don't hesitate to contact us directly if you have further questions. And thank you for this For this time, thank you.