Welcome to Attendo Q2 report 2023. 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. I will hand the conference over to CEO Martin Tiveus and CFO Mikael Malmgren. Please go ahead.
Thank you. Good morning, everyone. Today, we will present a report that shows strong bottom line improvement from our turnaround program in Finland. As usual, we will also highlight the current situation related to occupancy, cost inflation, sustainability, and other factors that are influencing our total group performance. I'm happy to welcome our new CFO, Mikael Malmgren, to our team. Mikael has a solid background, great analytical capabilities, and experience from operating distributed service businesses. I am confident that Mikael will make a significant contribution to Attendo in the coming years. I'll start by giving you an update of the overall development and direction of Attendo in the quarter. Mikael will then take you through the numbers in more detail.
Starting with the top line development in Q2, we display a growth rate of 22% year-on-year, driven by adjusted prices, occupancy improvement, and M&A, as well as currency effects. Looking to operating profit, we report an adjusted EBITDA of SEK 147 million, to be compared to a loss of SEK 11 million corresponding period last year. The significant bottom line improvement is driven by Finland. We will now see the effect to our turnaround program. Just before the start of Q2, we concluded renegotiation of our payer contract within the elderly care segment, as staffing density requirements increased from 0.6 to 0.65 care personnel per customer from April 1. The transition to the new staffing levels has been well executed, and we have managed to attract enough qualified nursing staff to maintain our customer base.
After intense lobbying efforts from the industry as well as the new welfare , the government is now expected to postpone the last step of the reform to 0.7, and this will ease the strain in the Finnish labor market for qualified care staff, and will enable us to improve occupancy again in 2024. In Scandinavia, we are somewhat disappointed about the development in the quarter. On the positive side, we have continued to attract customers in own-operated nursing homes, and we report higher profit year- over- year. On the negative side, we have had continued challenges within home care in Sweden and report losses in Denmark. We also see signs of municipalities holding back on welfare spend as a way to counter inflation and poor economy.
The challenges in Swedish home care are mainly linked to tougher contract terms in to welfare area, following change of local political leadership, as well as termination costs, altogether impacting our profitability and efficiency. We have initiated both local action programs and an overall program around best practice. We have also had losses in our Danish operations in Q2, linked to higher operating costs. We have taken actions to improve the situation, including change of leadership and governance of our Danish operations. We expect some quarters' lag until we see impact in the financials. Overall, however, the strong earnings improvement strengthens our financial position. The guidance from last quarter regarding our ability to reach a midterm target of 4 SEK per share is unchanged. Next slide, please. In Q1, we started to report sustainability metrics on a quarterly basis in order to show progress throughout the year.
For us at Attendo, the focus areas for sustainability lies primarily within the social dimensions, with a focus on our customers' well-being, quality, accessibility, and our employees' work environment. I'd like to mention a few highlights during Q2. The full selection of data points is found in the report. One of our most important measures of how well we succeed in engaging and developing our almost 30,000 employees is the willingness to recommend Attendo as an employer. Outcome in the second quarter shows an increased degree of recommendation in both Scandinavia and Finland, and group aggregated eNPS has increased from six to 11 in Q2. While we have higher ambition, this is a signal that we are in a positive trend.
I believe that key drivers for the positive result is our structured work with onboarding, education, and leadership development, together with new ways of working to increase employee participation and accountability in each local unit. In the context of sustainability, I'd also like to mention two recent studies that shows that privately operated care is more cost-efficient versus public sector operated. These are important proof points that private operators could give more care for tax money spent and still provide care to similar or higher quality compared to public operations. Finally, I'd like to mention that Attendo was ranked number seven in an evaluation of 361 listed companies in Sweden with regard to equality in leadership teams. Gender equality is critical, not at least in the care sector, where the vast majority of employees and first-line managers are women.
We need female leaders that are role models and show that there are no limits from managerial positions in our company or in private business in general. Next slide, please. Let's turn to occupancy development. Total occupancy for the group amounted to 86% by the end of the quarter, in line with Q1, and 2 percentage points higher versus last year. We've had a positive occupancy development in Sweden compared to Q1, but also a slight decline in Finland, mainly related to the increase in mandatory staffing density from April 1st. I'd like now to introduce the sales numbers in recent quarter more in detail. This slide displays the net sold beds recent months, meaning the net of new customers moving into nursing homes and residents that have moved out or passed away.
In Scandinavia, statistics from the National Board of Health and Welfare show that several municipalities have mitigated increased inflation and strained finances by reducing access to care services. While we have been able to increase our market shares in several geographies, it's clear that fewer citizens have been granted a placing at the nursing home during the first few months of the year. For Attendo, the first half of the year started slow, but in June, number of placements increased again, and we totaled 107 net new beds for the quarter. Beginning of Q3 has also been positive. In Finland, we expected a pronounced occupancy drop initially in Q2, given the increased staffing requirements from April 1st.
It's a positive sign that we already in June could stabilize occupancy again, which is a result of a successful transition, where we managed to attract qualified nursing staff in a very difficult labor market. We have assumed flat occupancy for the remaining part of 2023 in Finland to start increasing occupancy again in 2024. Next slide, please. The top chart presents sales on trailing 12 months basis on a group level, as well as for the business areas. With new agreements and improved terms in Finland, we will continue to show good organic growth during the coming quarters. The lower chart displays a trailing 12 months lease-adjusted EBITDA margin.
You can see on the chart, we now finally see the beginning of the recovery and normalization of margins in Finland, that has been heavily under pressure since the overexpansion prior to 2018 and the changed staffing requirements. In Scandinavia, we've had a continued margin decline after the pandemic, initially due to occupancy drop during the pandemic, and later due to inflation that have not been fully compensated by price adjustments. Our ambition going into 2023 was to compensate higher cost with occupancy improvement, hence maintaining 2022 profit level. In light of the recent challenges in Swedish home care operations and losses in Denmark, this seems more challenging today. On a group level, however, the significant improvement in Finland will prevail. Let's take a closer look for the financial for the quarter, and please go ahead, Mikael.
Thank you, Martin. Before going through the numbers, I'd like to make a quick introduction of myself. I joined beginning of June, and I'm looking forward to working with the team and Martin. I most recently joined from McKinsey, where I focused on longer change management engagement, and before that, as a CFO background from operating distributed services business. Let's turn to the next page. Net sales in the quarter increased to SEK 4.3 billion, up almost 22% when compared to the quarter last year. The organic growth for the quarter was 13.9%, excluding FX and acquisitions. Organic growth was SEK 58 million or 3.5% for Attendo Scandinavia, driven primarily by prices and more customers in nursing homes.
In Attendo Finland, the organic growth was SEK 435 million, or 22.7%, primarily driven by higher prices. Acquisitions also contributed positively with SEK 69 million in growth, with the largest contribution from the rehab hospital, Kangasala, that was acquired in June last year. Currency effects had a positive effect on sales as well, with SEK 227 million. Next slide, please. EBITDA development. Reported EBITDA increased by SEK 177 million to SEK 283 million, lease-adjusted EBITDA increased from a - SEK 11 million to +SEK 147 million . Lease-adjusted EBITDA in Scandinavia decreased SEK 46 million and down SEK 16 million year-over-year, adjusting for last year's non-recurring items, while EBITDA grew significantly in Finland, mainly due to the mentioned adjusted price levels.
The positive FX-adjusted IFRS 16 effect of SEK 11 million increased mainly as a consequence of capital gains on terminated contracts. Currency also contributed to a stronger reported EBITDA this quarter. Next slide, please. Attendo Scandinavia. Net sales for Attendo Scandinavia increased by 4%. The growth is driven by more customers in our nursing homes for older people and by price adjustments, partly offset by lower revenues within home care and outsourcing. Lease-adjusted EBITDA decreased from SEK 84 million to SEK 36 million. Adjusting for last year's communicated SEK 30 million non-recurring items, which were mainly pension-related, lease-adjusted EBITDA was still lower than previous year. We continue to be negatively, and as previously communicated, affected by the price cost development. Despite the negative price cost development, elderly care nursing homes in Sweden increased the results due to higher occupancy.
However, home care and Denmark developed negatively, while rest of business developed in line with previous year. Denmark negative result is driven by challenging manning situation, with high external services purchases, and we've changed management and appointed dedicated resources now to resolve the situation. During the last few quarters, we have lost a number of outsourcing contracts, and for some contracts, the local authority has decided to insource. This has resulted in us now having a net of SEK 350 million in annual turnover, with higher than average profitability in currently ongoing contracts that we know will be terminated. It will only have a marginal effect in 2023, but will have a full effect in 2024.
To note that the annual agreed salary increase took effect first of June, with full effect in Q3, and will be gradually reflected in price level agreements in 2024. Next slide, please. For Attendo Finland, the growth was 37% reported and 26% in local currency. Acquisitions contributed with around 3%. The high organic growth of 23% is mainly due to price adjustments of around 19%. lease-adjusted EBITDA increased from - SEK 75 million to + SEK 131 million. The positive development is mainly an effect of price adjustments now catching up to the historic cost development and the increased staff ratio. We have been also able to execute transition in a controlled way for the staff index increase, effective April 1st.
Despite the additional staffing requirements, we occurred marginal customer net flow during the first two months of the quarter and noted a stabilization in June. The June 2022 acquisition of the rehab hospital, Kangasala, also contributed positively to profit development. To note that the annual agreed salary increase will take effect the 1st of September and will gradually be reflected in price level agreements in 2024. This is the table that shows our cash flow development. Free cash flow was lower than expected, despite stronger operating profit and lower than last year, due to both increased interest rate paid as well as negative working capital effects. Working capital is still somewhat negatively affected by the administrative routines, also harmonized terms, and finalizing late some contract negotiations in the recently formed welfare areas in Finland.
Our judgment is that some part of that negative working capital effect is temporary and will reverse. The result, as it improves and working capital normalizes, we expect the cash flow to also improve. Next slide, please. This is an updated chart showing the development for some financial items. As you can see, the adjusted earnings per share improved due to the improved lease-adjusted EBITDA, but was slightly offset by increased financing costs and a normalized tax rates versus previous year. The tax rate for the quarter was 23% on a reported basis and 21% on an adjusted basis. While slightly inflated in the quarter due to losses in Denmark, tax rates are now normalizing as we are making tax profits in Finland.
If we shift to the second slide on the upper right, to the lease-adjusted EBITDA, we see a clear and positive trend during the last quarter, and now at 2.8% on a rolling 12-month basis. As a result of that, we continue to improve our leverage. It's now down from 4 end of year to 2.7, and which is below our financial target. A trend, all else equal, we expect to continue during the rest of the year. Both the reported financial net and the finance net, excluding effects from IFRS, increased compared to the second quarter last year. Interest costs from borrowing from banks increased by SEK 24 million, which was partly offset by positive currency effects. We expect interest risks to continue to increase somewhat due to increasing market rates.
With that, I hand over to you, Martin.
Thank you, Mikael. To summarize this quarter, we present strong growth and a continued bottom-line recovery, driven by the significant improvements in our Finnish operations. In Scandinavia, all nursing homes deliver higher profitability year-over-year. This has not been enough to fully compensate it for price cost gap and the recent development in home care and the Danish operations. All in all, we've been able to turn profitability after a long period of decline, and the improvement strengthens our financial positions and makes Attendo better equipped to continue investing to the benefits of customers, payers, and employees. Before we go into Q&A, I'd like to go through our focus for the coming period. Next slide, please. In Finland, our top focus is still to ensure access to qualified staff, which is a prerequisite for us to improve occupancy in 2024.
Long term, we target above 90% occupancy in all our business areas. In disabled care and social psychiatry in Finland, we are currently negotiating terms for 2024. These segments have not previously been compensated for inflation. We also see overall potential in Finland to improve the operational excellence into 2024, when the staffing situation has been stabilized. For Scandinavia, our top priority is to continue the journey towards 90% occupancy in nursing homes and influence local authorities to meet increasing care needs from citizens. We will also work intensively with local authorities to get compensation for inflation and hence reach sustainable terms. A key focus coming period is also to conclude the actions necessary to stop the losses in Denmark and to also improve and stabilize our home care operations in Sweden.
Overall, our guidance from last quarter regarding our ability to reach our midterm target of SEK 4 per share is unchanged. We will continue in both business areas to improve the quality of life for our residents and to ensure that we are a trusted partner for our payers. Thank you for listening, and over to you, Andreas.
Okay, thank you. We'll now open up for questions. 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 Kristofer Liljeberg from Carnegie Investment Bank. Please go ahead.
Thank you. Two things I would like to ask you about. First, when it comes to Finland, nice to see this sequential further improvement, of course, in the quarter. How should we think about seasonality now going into the fourth quarter? Would it be the normal improvement, or will the rather late in the year salary increase in September have any meaningful impact on how we should think about seasonality? Maybe you could start there.
Sure, happy to. I mean, you're right about the salary increase not having an effect in Q2. We expect similar to slightly lower in absolute level improvement year-over-year. However, Q2 is slightly better due to salary increases postponed to September on a like-to-like basis.
You expect sequential improvement, but not to the same extent as historically?
Yep.
Before the fourth quarter. Okay.
Yeah, absolute terms, it will be improved in the same level as first half year.
I don't sure I understand. What do you mean? Up improvement from what?
From last year's result to first half year improvement
Okay
In absolute terms.
Okay, okay. Thank you. In Scandinavia, if you adjust for the non-recurring items last year, I think the decline in lease-adjusted EBITDA was almost 20 million SEK. How much of that is due to the weakness in home care Sweden and the problems in Denmark?
As Martin there, so home care Sweden and losses in Denmark, they were about SEK 10 million-SEK 15 million each.
Versus last year?
Versus last year.
Okay, the nursing home segment in Sweden improved earnings year-over-year, correct?
Yes.
Okay. How easy it is to improve earnings in Denmark and the home care? Do you see a potential to restore margins in Scandinavia again in 2024?
Denmark is more of a shorter term issue. We started a new operation a few, many years. Denmark is very small. We only have five units, where one is a new startup, which is, of course, driving a lot of costs, which were planned. Apart from that, we've had higher than expected costs of staffing, especially going, you know, entering the summer. I think those are more shorter term problems, and we expect to turn the losses in Denmark around year-end within a few quarters.
I think the home care might take a few more quarters to stabilize, as it has to do with adapting the operations to new terms, so in a number of welfare reform.
Great. Thank you.
The next question comes from Jakob Lembke from SEB. Please go ahead.
Hi, and good morning. I have three questions. I'll take them one by one. If we start with Finland, just wondering a bit on sort of what proportion of contracts you expect to be able to offset salary inflation already in this year?
This year, we already negotiated the prices for this year, so there will be no further changes to terms in 2023. The negotiations that are currently ongoing for the other segments, which is sort of psychiatry and disabled care, that's for 2024. Same goes for the elderly care and inpatient adjustments for 2024, that's for next year. This year, prices are set.
Okay, understood. And then on the cost base here in Finland, in Q2, I'm wondering a bit if there are any, like, temporary costs relating to the upstaffing, or would you say that the cost base here in Q2 is sort of representative for the new level here going forward? Of course...
Yes, it is.
accounting for the higher salaries. Yeah.
Yeah. Q2 costs should be representative. Yeah.
Okay, great. Then just on salaries then into 2024, do you expect to get sort of full compensation, for higher salaries next year?
Yeah.
Okay, great. All the questions from my end. Thank you very much.
Thank you.
The next question comes from Stefan Knutsson from ABG. Please go ahead.
Morning, Martin and Mikael. Congrats on the improvements in Finland. I have first a question: Have you finalized all the contracts in Finland, or do you have clients that have transitioned to the new prices without signing agreements?
We have finalized all agreements in Finland for 2023 on elderly care. As we reset that, all elderly care contracts, which is about 2/3 of the business, are negotiated. We still have a lag on the other two important segments in Finland, where we foresee price adjustments from 2024 and onwards.
Okay, perfect. Then my second question is regarding Scandinavia and what levers you can pull there in order to improve performance as you are now at 87% utilization rates in the nursing homes?
Yeah. you know, foremost is about continuing occupancy improvement. 87% is clear improvement from where we were, yeah, two years ago, but it's we should still move upwards, clearly above 90%. That is something that we need to continue to work on. We also have certain regions in Scandinavia, where we have a number of fairly newly started units, like Gothenburg, where occupancy is still far below where it should be. We think that there is additional potential for sure.
Are you optimistic about the occupancy rates improving further in H2, given the positive trends you had in both segments this quarter?
I mean, first half of the year started slow. We have seen, as we said, in Sweden, particularly, municipalities trying to counter inflation and, poor economy by spending less on welfare services. Been basically granting less new placements to elderly care than normally, quite significantly so the first few months of the year. That, of course, has affected our occupancy improvement rate in the first half, which has been lower than it was in 2022. That we saw a clear improvement in June. Also, the first two weeks of July has been promising. Of course, that, eventually, they need to fulfill the needs of citizens.
Proof is in the pudding, but we hope to see a stronger sales rhythm in H2 than in H1.
Perfect. Thank you very much for the answers.
The next question comes from Kristofer Liljeberg from Carnegie Investment Bank. Please go ahead.
Thank you. Two follow-up questions. First on the seasonality in Finland, just to make sure I understand it correctly here. I think you, on average, per quarter, had an year-over-year improvement of SEK 150 million in the first half. Based on what you said, that would take Finland third quarter lease-adjusted EBITDA to around SEK 200 million. Am I thinking right here or missing something?
Finland in the first two quarters was around SEK 200. Around SEK 300 in-
You had a loss of almost SEK 100 million.
Yeah.
First half last year.
The improvement rate was about 300-
Yeah.
in, first half.
Yeah.
Yeah, that's SEK 150 per quarter?
Yeah.
Okay. Yeah, okay. financial net, you mentioned there were some positive effects, balance sheet revaluation items in the quarter. Is it possible to quantify them or give an underlying figure for net financials?
Financial net increased by SEK 31 million. SEK 24 million of that was related to our interest rate expenses on the loans. Another SEK 13 million was relating to IFRS interest expenses. We had a SEK 7 million positive impact on FX, mainly driven by FX on internal loans.
Okay, great. Thank you.
There are no more questions at this time. I hand the conference back to the speakers.
Okay. Thank you very much for participating. We'll now conclude this conference call, and, please don't hesitate to contact us directly afterwards if you have any further question. Thank you for your participation.