Earnings Call: Q1 2021

May 6, 2021

Thank you, and good morning and welcome to this presentation of Humana's Q1 2021. As always, I will start by giving you some financial and operational highlights, and I will then hand over to Asifon Novra, who will take us through the details in the quarter. Next slide, please. A key takeaway from the Q1 is the operational situation with regards to handling the pandemic. It does remain our key focus. And throughout the Q1, we have continued to have low transmission of the virus. We have also witnessed that first hand the positive back phone vaccinations of both residents and staff across the Nordics. Demand in Nordic elderly care is still dampened, but we do an improvement in Sweden towards the end of the Q1. We are also pleased to see that our steady performance and momentum continues where we see positive development in 4 out of 5 business areas. In the Q1, Humana continued to grow organically despite the leap year effect on the comparative quarter. As commented earlier, we have finalized the acquisition of Tyninhildsson during the Q1 and integration is progressing well. And finally, the strong cash flow and improved performance allowed for additional repurchases of loan shares. All in all, a solid start to the New Year. Next slide, please. In the Q1, our operating revenues increased with 2% to SEK 1,990,000,000. The organic growth in the quarter was 2.4% compared to 3.8% last year. However, as we adjust for the leap year effect, the organic growth was 3 point 5% compared to 2.7% last year, thus the positive underlying development. Our operating profit in the quarter was SEK 1 SEK112,000,000, an improvement of 14% compared to SEK 98,000,000 in the corresponding quarter of last year. The resulting operating margin was 5.7%, an improvement versus last year's 5.1%. In the quarter, we had a strong operating cash flow of SEK 197,000,000, an improvement versus last year, and we have further reduced our net debt SEK 3,700,000,000 Our leverage was at SEK 4.4 times, which is in line with our financial targets and down significantly compared to last year. Next slide, please. As mentioned in the beginning, we continue to handle the pandemic well with low transmission of the virus, and we are also pleased to see the positive impact from vaccinations across our operations. In the Q1, the Humana quality index remained on the high 94%. We continue to see high customer satisfaction and few serious deviations, but we also note that the challenging times are reflected in our employee satisfaction surveys. During the quarter, the group reported a total of 4 series deviations in the Nordics. Next slide, please. During last year, we did accelerate our work on sustainability. And in our annual and sustainability report for 2020, you can read more about our work. For instance, that the Mana Quality Index reached an all time high and that we said Nordic taxpayers approximately SEK 1,000,000,000. We were again recognized for our work on equal opportunities, and we also implemented the carbon dioxide index. We reduced our emissions in 2020. Last but not least, we've just recently also implemented a code of conduct for nearly 10,000 suppliers of Emana. Our work and important area of sustainability will continue and much remains. But it is encouraging to see that our efforts are paying off as the synonymous ranked the most sustainable brand and company in the health care category from Sustainable Brand Index. Next slide, please, and over to our segments, starting with Personal Assistance. In personal assistance, we saw yet another stable quarter. We continue to grow in the quarter with 5%, of which 2.5% was organic. The continued strong momentum is due to both organizational changes as well as the digitalization efforts. We also received high grades on our quality measurements with very high employee and customer satisfaction. We continue to be positive to the future little personal assistance. And during the Q1, this segment actually grew for the first time in many years. Moving on to the next slide, please, and Individual and Family. In our individual and family care segment too, the performance was strong, driven by positive organizational stable demand in all segments. We are also pleased to see yet another step towards stronger organic growth renewing established units, primarily in the adult and LSS segments contributes. And as mentioned previously, we also completed acquisition of Knutsen during the quarter. With revenues of approximately EUR 90,000,000 and EUR 120 new colleagues, it is the first acquisition in INS since 2017, and our journey together has started off well. All in all, a strong quarter for IMS. Next slide, please. In our elderly care segment, the focus, of course, remains on handling the pandemic still. Safety for clients and staff is top priority. Whereas the situation has stabilized significantly following the vaccinations, we still see negative impact on occupancy. Towards the end of the Q1, however, we did see demand picking up, but we still expect a dampened demand in the coming quarters. Just after the end of the quarter, we opened up our new own managed unit in Falkenberg. The opening has been very successful so far and already during the first around 40 customers have moved in, corresponding to utilization already at 65%. In May June, we also plan to open all managed units in Engenhorn, Ball and Tuna and Nautelje. Next slide, please. In Finland, we continue to see underlying operational improvements. But as mentioned earlier, the pandemic has had a negative impact on both revenues and costs. Our individual and family segment continues to be stable. During the quarter, new national regulations around institutional care were implemented, which will have a negative impact on our capacity. At the same time, we saw an end of quarter normalization of demand in Open Care services that has been dampened during the entire pandemic. The elderly Care segment remains challenging, but our new management team has closed in on the problems and is focusing on the corrected measures. Next slide, please. And over to Norway. In Norway, we continued to see a steady development. Pleasing to see in the quarter was the strong organic growth, driven by both high demand in our Disabled Care segment as well as strong customer inflow in Personal Assistance, paper. Due to improvements in our operating model, we also managed to convert top line growth into profitability faster than before. By the end of last year, the 600 page Hagen report was published after 2 years of work. This government report acknowledges the role played by private welfare providers, and it is well worth reading by anyone interested in the future welfare in the Nordics. From a Mana perspective, another solid quarter in Norway. And with this said, I will now hand over to you, Nora. Thank you, Rasmus. I will now give you some details to our financial performance in the Q1 of 2021. Turning to Slide 11. From a financial perspective, our main objectives remain increasing predictability and stability. We are making continuous improvements regarding digitalization. In the quarter, we have piloted system support within sales in personal systems, both in Sweden and Norway. During the Q1, Humana made further repurchases of shares. Total holding is now 9.44 percent of total shares to an acquisition value of SEK 313,000,000. Financially, it has been another stable quarter with leverage in line with target and strong operating cash flow. Next slide, please. On Slide 12 on the presentation, you can see the operating revenue for the group. In the Q1 of 2021, our operating revenue increased with 2% from last year's SEK 1,938,000,000 to SEK 1,986,000,000 this year. Revenue is negatively impacted by the COVID-nineteen pandemic, largely due to lower occupancy in elderly care in Sweden and Finland and Open Care Services in Finland. Organic growth in the quarter was 2.4% compared to 3.8% last year. Adjusted for the lead day effect in 2020, There is underlying improvement. Growth in Individual and Family and Norway contributes to the improvement in the quarter. Next slide, please. Now moving to Slide 13 for more information on our results in the Q1. Operating profit for the quarter came in at a strong SEK 112,000,000 versus SEK 98,000,000 last year, an increase of 14%. The margin increased from 5.1% last year to 5.7% in the Q1. All business areas contribute to the increase, except from Finland, a stable first quarter. The COVID-nineteen pandemic has affected profits from several aspects: lower occupancy, increased sickness absences and increased use of protective equipment. Increased costs are partly offset by government subsidies, but The pandemic has had a very marginal financial effect on the profitability for the group in the quarter. Our assessment is also But the effect is manageable going forward. Next slide, please. On Slide 14 and the segment performance, starting with Personal Assistance. Revenues for the Q1 are up 5% euros 751,000,000 compared to last year of SEK 719,000,000 With an organic growth of 2.5% versus 2.9% last year, higher reimbursements and acquired operations drive the improvement despite the negative impact from the pandemic. Operating profit for the quarter increased to SEK 50,000,000, up from SEK 40,000,000 last year. Also the margin increased to 6.6% versus 5.6% last year. The increase in margin is mainly due to increased efficiency, another well managed quarter from Personal Assistance. Next slide, please. Now moving to Slide 15 with individual and family. Revenues for the quarter reached SEK 553,000,000 compared to SEK 519,000,000 last year. Organic growth in the quarter was 3.6%, up from last year's 1.4%. More stable occupancy in children and adolescents, increased occupancy in adults as well as new units and acquisitions drive the improvement. Some negative occupancy effects can be attributed to COVID-nineteen. Operating profit came in at 41,000,000 versus SEK 33,000,000 last year and the margin increased to 7.5% compared to 6.4% last year. Improved control and efficiency are the key elements behind the increase as well as new units. Acquisitions contributed only marginally. Individual and family delivers a strong Q1. Next slide please. Tenderly care on Slide 16. Revenues grew in the quarter with 3% organically and reached SEK 151,000,000 versus SEK 146,000,000 last year. The increase is due entirely to contracted operations. Dampening the growth. COVID-nineteen is still impacting occupancy negatively. Operating profit was €5,000,000 versus €0,000,000 last year, And the operating margin was 3.6% versus minus 0.3% last year. Driving the increase are improvements in new units. The pandemic affected the results from lower occupancy and higher cost facilities and protective equipment, partially offset by government grants. Handling the pandemic has still been main focus in Endonic Care. Next slide, please. Finland on Slide 17. Revenues for the Q1 in Finland came in at SEK 316,000,000 compared to SEK 350,000,000 last year, a decrease of 10% and organic decline of 4.6% versus growth of 10.2% last year. The decrease is due to exits from nonperforming outsourcing contracts negative utilization effects from the pandemic. Operating profit decreased to €11,000,000 versus €17,000,000 last year with a margin of 3.6% versus 4.7% last year. The decrease is partly explained by the negative effect of the pandemic on occupancy and increased costs specifically. The Q1 was not in line with expectations, but progress is being made. Next slide, please. Norway on Slide 18. Revenues increased with 8% to 210,000,000 versus SEK194,000,000 last year, and the organic growth was 11.2% versus 4.6% last year. The growth development this quarter is due to new units and more customers, especially in Personal Systems. Operating profit increased to SEK 17,000,000 from SEK 13,000,000 last year, and the margin improved to 7.9% from 6.7% last year. High operational efficiency and a more favorable revenue mix drive the improvement. We are, again, pleased with the steady performance in Norway. Next slide, please. Moving on to Slide 19 and central costs. Underlying central costs are at the same level as last year. Sale of real estate affected the comparative period positively. Next slide, please. On Slide 20, you can see our financial position. Interest bearing debt decreased by CHF 110,000,000 to SEK 3,688,000,000 compared to Q1 2020, and leverage decreased to 4.4x from 5.2x, things still below our financial targets. Interest bearing debt is up slightly compared to Q4 2020, partly due to higher IFRS 16 that's related to the new elderly care unit. Next slide, please. Operating cash flow for the quarter on Slide 21 amounted to €197,000,000 versus €95,000,000 last year. The increase due to higher profit and decreased working capital and lower investments. The strong cash position allowed us to continue repurchase shares in the quarter. Next slide, please. In the Q1 2020, Humana has made good progress and continues to increase stability and predictability. Details words. Back to you. Thank you, Nogja. So the Q1 what 2021 was characterized by stability and also gradual improvements the way we see it. Vaccinations have improved operational situation across the Nordics. We also continue to grow, both organically as well as through value adding acquisitions. And we also continue to see improvements, both in terms of profitability as well as financial situation with a strong operating cash flow. Our priorities going forward remain the same, to handle, of course, the pandemic in a good way, to focus on value creation and also stability and predictability, continue to drive organic growth and also further accelerate our efforts in the area of sustainability. We can now open up for questions. Thank you very much. And our Question comes from the line of Christophe Lillebee of Carnegie. Please go ahead. Your line is open. Yes. Thank you, and good morning. Any first, I just wonder if you had any sort of cost compensation in the quarter for early excessive costs from the pandemic last year. And also wondering, individual family, I'm a bit surprised by the strong margin here and how you managed to keep these levels. Then I guess positive government grants that we saw last year. They should be gone now. So I guess this is just pure positive underlying trend. If you could explain what you're doing there? That's my two questions. Thank you. Yes, good morning, Christopher. As we say in the report, the net effect from government grants as well as the impact from business marginal on Yamana as a whole, and that also goes for individual families. So the improvement that you do see now is basically underlying. In the elderly care segment, we did have some retroactive payments based on cost we had earlier in the quarter and also during last a little bit during last year. It's not magnitude, however, it's €1,000,000 or €2,000,000 basically. So the financial impact on Pimana is marginal and we also foresee it being so in the coming quarters. And as you do say, the grants have disappeared, not only in Sweden, but also Norway and Finland gradually. It is an underlying development we're looking at. Could I just add a question? Could I just had a question on elderly care and the openings now you will have in the second quarter, how you feel about them? Very successful start for the 1 in Q1, but I guess that's where you had an agreement already with the municipality. We're sticking to our guns. We're opening according to plan with one small exception that we communicated earlier, we have postponed that opening to after summer, mainly because of construction delays due to the pandemic, and that's second one in hotelier. I mean, the market is still slightly volatile. I think we, as well as other providers, have seen somewhat of a normalization in demand in the course of the Q1. It's still not overall where we're used to this. It was down basically 8% across the board in Sweden. But we do get some confidence in the utilization development past over the past months. And we also have in the first one in Engenhallm, we have a good collaboration with the municipality there. So we do expect a good start there as well. I mean, that said, I mean, of course, it will cost a lot of money in the Q2 for us to open basically 4 units. Okay. Thank you very much. Thank you. And our next question comes from the line of Victor Forschel of ABG. Please go ahead. Your line is open. Thank you, and good morning. I hope you hear me well. Just starting off, I think, Erasmus, I think you stated in the presentation here that on the occupancy trend for Lille Care in Sweden that you see an improved amount towards the end of the quarter, but you will have a negative effect for the coming quarter. So I'm just trying to get some more granularity on how you things that this will progress perhaps more towards the second half of the year, if you think that you will see normalized customer inflows towards that period in time. Yes, so there are a number of factors that I'd say, Victor, good morning. I mean, the first one, vaccine vaccinations and comity being restored to these units. The second one being public opinion and media also. So slides now should feel safe into moving to Swedish elderly care homes. I think one of our colleagues said that it's probably one of the safer places you can still be. And both staff as well as clients have all been vaccinated. We have no COVID transmission in any of our Nordic Care, elderly Care units as of today, and we haven't had it for a while. Now a pattern that we see is that municipalities prioritize their own units. Secondly, they prioritize tender contracts. Thirdly, the prioritized, what we call, the own managed units. And we've seen an increase in utilization, primarily in the tender contracts, but now also slowly in the managed contract. So the situation today, as I see it, is better compared to last year, but there is still some room to go before we are at pre corona levels. Yes, that sounds fair. Thanks, Rasmus. And just moving on to your margin improvement in Personal sense. If you just could remind us of the wage increase that you foresee for 2021 and how the net effects of the reimbursement increase compared to these wage cost increases have played out in this specific quarter to understand where you are underlying it. So I mean, the reimbursement we all know was 3 point percent. The way we look at the cost increases in the new collective bargaining agreement, it was basically 3.3%. There was one change this year and that is that the new wages kicked in, in February. So we had sort of a month for free, if you so may. I would say, reimbursement obviously helps, but so does the digitalization efforts that we saw the effects of already last year. And so does thirdly also the changes that we've made in the organization. So we now have kind of we have a more efficient organization where decisions also are made closer to our customers, and we see a fantastic impact from that already in terms of customer satisfaction and fleet satisfaction and also quality. So there are a number of factors that actually give us quite a lot of confidence in our personal systems. Okay. Thanks. And just finally on Norway and the continuously strong performance there. Just trying to the reminder about how much new capacity you will have in 2021 compared to last year in terms of disabled care from current levels that is. Sure. I mean, our disabled care in Norway works very differently compared to what it does in Sweden. In Sweden, we build all managed LSS units. They typically have 6 capacity of fixed beds. In Norway, it's very different. It's oftentimes a one to one dialogue with the municipality, where you open up a unit, particularly for that client, and you build the home care service around that particular client. So it's a much longer negotiation. So it is very different. We do not look upon the disabled care operations like in Sweden, where we increase capacity. That said, we have won a number of tendered contracts in Norway, basically, Rama, Mt. Paul in Oslo and many other municipalities. So we do foresee a strong organic growth in that segment also going forward, but it's different as you can hear compared to Sweden. Have those contracts already kicked in, in this quarter. Some of them have others all kicking in later during the year. Okay. Thanks a lot. Thank you. And as we have one further question in the queue, I'll just remind participants if you wish to ask a question, please dial one on your telephone keypads now. The next question comes from the line of Karl Johan Bonadier of GMB Markets. Please go ahead. Your line is open. Yes. Good morning. It's really good to see how you're increasing the predictability and the stability of The operations and giving us, say, easier comps to follow and lesser moving parts, great efforts. And on that topic, Nora, it would be great if you could describe how you see the use of share buybacks so we can understand how that plays into your financial targets. When are you looking to do it? Is that dependent on how you lie on in relation to your capital structure goals? Or is it relative to what kind of hurdle rates you see on potential acquisitions out there. Any clarity on how we could look for, say, share buybacks being a natural part of your development business model forward would be great. Yes. Good morning. When it comes to the own shares, obviously, the use of the shares is a board decision. There are, as you mentioned, multiple options for us. So it remains to be For the time being, the shares are on our balance sheet in share capital. But there is no, say, you are not looking to say also in this area, I talked about predictability, stability. So we know when you might be using this as a tool. And obviously, you're now coming close to a 10% threshold, but that will not make a possibility to the same degree as it's been over the last two quarters. I think the way we look upon it, I mean, for instance, I mean, they can be used as part when we acquire companies, we could immaculate them, we could release them to the market. But at the end of the day, a company doesn't become cheaper just because we buy it through shares. It is a discussion being held. As you say, we have the right tone, 10%, and we're very close to that right now. So I mean, we cannot simply buy more shares as it is today. We'd be interested in doing so. Then, of course, we would need to use the shares somehow. It is a discussion being held, and I don't want to preempt that right now. But what we are, of course, pleased with this is that this has improved the capital structure of the company. And depending on how we look at it, it is a hidden asset of quite a lot of money, which we have, which is good. Excellent. I think it's a very practical way of as a capital allocation And then any clarity how you will use it going forward. I think, yes, we'll, say, add to the attraction of your company's development. Thank you. Very good input. Thank you very much. Thank you. And there seems to be no further questions on the line at this time. So I'll hand back to our speakers closing comments. Thank you all for dialing in. Thank you all for very good questions, and I hope you have a fantastic day. Thank you very much.