Earnings Call: Q4 2020

Feb 11, 2021

Thank you, and good morning. Welcome to this presentation of Humana's 4th Quarter and Full Year of 2020. As always, I will start by giving you some of the financial and operational highlights. I will then hand over to Assifio Nora, who will take us through the more details of the performance in the quarter as well as for the full year. Let's move on to the next and first slide please. In summary, 2020 was an all time high, both when it comes to challenges as well as achievements. Needless to say, the year was marked by COVID-nineteen, a pandemic which has impacted all aspects of life and has been the focus for the group during the year. It does, however, give both energy and hope that vaccinations now are given to both clients and staff across our operations. 2020 was also a year in which we made significant progress in our digitalization efforts. And I am pleased to say that we already now start to see the benefits in the form of better stability and predictability. We did one acquisition during the year and one just after the quarter. Important is also that we enter '21 with new and fairly long collective bargaining agreements in Sweden, we avoided a conflict and we now have clear terms going forward. Next slide please. So looking at the full year of 2020, financially we took a clear step in the right direction during the year and we are closing in on our medium term financial targets. Worth highlighting during the year is the organic growth of 4.1 percent, the improvement in operating profit of 27% and also the operating margin of 6%, up from 4.9%. We also had a strong operating cash flow and leverage well in line with our target. Next slide is for some more details on the Q4. In the 4th quarter, our operating revenues increased with 2% to SEK 1,950,000,000. The organic growth in the quarter was 3.1%, an improvement versus the 0.7% prior year. Our operating profit in the quarter was $101,000,000 an improvement of 42% compared to the corresponding weak quarter of last year. The resulting operating margin was 5.2%, an increase compared to last year's 3.7%. In the quarter, we had a strong operating cash flow of SEK 296,000,000. This is an improvement versus last year and we have further reduced our net debt to 3,500,000,000 our leverage was 4.3 times, which is well in line with our financial target and down significantly compared to last year. Next slide, please. Moving over to quality. In the Q4, the Humana quality index remained on a high 95 percent in spite of challenging times. The improvement seen over the year continues to be driven by improved satisfaction and fewer series deviations. During the quarter, the group reported a total of 8 series deviations and we had no reported data incidents, the customer satisfaction was 85% compared to 82% prior year. Next slide, please. Needless to say, managing the pandemic remains our key focus and we continue to stand up well to the challenge with low transmission of the virus, good availability of protective equipment and no shortage of staff despite the higher sickles. During the quarter, we also ran an extensive survey to both employees and clients to better understand how we can improve our crisis management work even further. Results are very encouraging with the absolute majority of both clients and employees being confident in the way Humana has handled the pandemic. Based on the many hundreds of comments, there are a few critical takeaways though. The compliance to returns cannot be taken for granted but must to reinforce over time all the time. Preparedness for sudden and high increases in sick leave can be improved. And it is, of course, important to address mental health aspects for both clients and staff continuously. But again, overall, very good results. Next slide, please. Let's start with our segment, starting with Personal Assistance. In personal assistance, we saw yet another stable quarter in the market, which is still fairly challenging with number of individuals titled to assistance down 2% year on year. As mentioned before, we also acquired Roo Omsori, a quality provider of personnel systems in Teb, just north of Stockholm. During the quarter, we also invested in and implemented a new digital for our 10,000 personal assistants. The ambition is to move decisions and tasks closer to our customers whilst also improving quality. We continue to be positive to Personal Systems and the solid performance of 2020 coupled with the increase in reimbursement gives us confidence for 2021. Moving on to the next slide please and individual and family. In I and F, the performance was fairly strong during the quarter. We're also pleased to see a step towards stronger organic growth in the quarter and for the full year as a result of stable occupancy in all segments and the opening of 10 new units during the year, primarily within our LFS segment. Just after the quarter, we also acquired and welcomed Tundeisson to Humana. Syndusen is a well reputed provider of specialized care in Jansschaoping in Sweden. With revenues of approximately 90,000,000 and it is the 1st acquisition in INF since 2017 and a signal of confidence for the future. All in all, a strong quarter and year for INES. Next slide please. In our elderly care segment, the focus of course remains on handling the COVID-nineteen pandemic where safety for clients and staff is our top priority. In the light of this, it is of course very positive that vaccinations now have started for all our clients as well as for employees. We are encouraging as many as possible to vaccinate. The vaccine though will not solve all challenges, but it does provide a welcome return to more normal life for many elderly. Elderly care is the segment which is the most affected by the pandemic and we still experience a lower demand and utilization in our elderly care homes. Finally, Our focus on growth continues with intense preparations for our 5 own managed openings during 2021. We are sticking to our original plan with one exception, where we have moved one opening to early Q3 instead of Q2. Next slide, please. In Finland. In Finland, we continue to see an underlying improvement. But as mentioned earlier, the pandemic has had a negative impact on both revenues and costs during the quarter year. Our individual family segments continue to be stable, but demand for Open Care services is negatively impacted. Also in the Ambarella segment, we see dampened demand as a consequence. We are pleased with the progress made during the full year, but Q4 leads for improvement and our work will and must continue. Next slide please. In Norway, we continue to see a steady performance, positive development and strong organic growth. We also note the high interest in choosing Emana service provider within personal assistance as well as disabled care. Finally, I'm also very pleased to see the improvements in Norway when it comes financial and operational control where we now have established a new normal, a very strong year in our Norwegian operations. With this said, I will now hand over to you, Nora. Thank you, Rasmus. I will now give you a summary of the detailed Performance of Humana in the Q4 2020. Turning to Slide 12. From a financial perspective, Our main objectives remain increasing predictability and stability. Our digitalization journey continues. For example, we are developing modern tools for documentation in collaboration with an external partner. In December, Humana repurchased shares in accordance with the authorization from the 2020 AGM. Financially, Hemona had a good quarter with leverage in line with target, strong cash position and strong operating cash flow. Next slide please. On Slide 13 in the presentation, you can see the operating revenue for the group. In the Q4 2020, our operating revenue increased with 2% from last year's SEK1912 million to SEK1948 1,000,000 this year. Full year revenue increased with 4% to SEK7797 1,000,000 from SEK 7,467,000,000. 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. Also the strength in Swedish krona has reduced revenue. Organic growth in the quarter was 3.1% compared to 0.7% last year. In the full year, organic growth was 4.1% compared to 2.0% last year. Growth in individual and family, Norway and personal assistance contributes to the improvement in the quarter and the full year. Next slide please. Now moving to Slide 14 for more information on our results in the 4th quarter. Operating profit for the quarter came in at a strong NOK101 1,000,000 versus NOK71 1,000,000 last year. For the full year, operating profit increased to SEK 471,000,000 from SEK 369,000,000. The margin increased from 3.7% last year to 5.2% in the 4th quarter. Margin for the full year was 6% compared to 4.9% last year. Stabilized occupancy in individual and family, Increased efficiency in Norway and personnel systems, improvements in Finland and lower central costs all contribute to the increase. A strong quarter, but the comparative quarter last year was also weak. The COVID-nineteen pandemic has affected both revenues and costs. Lower occupancy, increased sickness absences and increased use of protective equipment. Increased costs are partly offset by government subsidies. Thus, the pandemic has had a marginally negative financial effect on the profitability for the group, both in the quarter and the full year. Next slide, please. On Slide 15 and the segment performance starting with Personal Assistance. Revenues for the Q4 are up 5% to SEK 7,300,000 compared to last year of SEK 707,000,000 with an organic growth of 3.8% versus 0.3% last year. Higher assistance allowance and increased number of hours drive the improvement despite the negative impact from the pandemic. Operating profit for the quarter decreased to SEK 34,000,000, down from SEK 37,000,000 last year. Also the margin decreased somewhat to 4.5% versus 5.2% last year. The quarter was negatively impacted by slightly increased Costs associated with the introduction of a new operational system and negative impact of COVID-nineteen. All in all, a strong performance from personal systems. Next slide please. Now moving to Slide 16 with individual assembly. Revenues for the quarter reached NOK 528,000,000 compared to NOK 518,000,000 last year. Organic growth in the quarter was 2.2%, up from last year's decline of 3.8%. A more stable occupancy in children and adolescents, increased occupancy in adults as well as new units drive the improvement. Some negative occupancy effects can be attributed to COVID-nineteen. Operating profit came in at SEK 38,000,000 versus SEK 27,000,000 last year and the margin increased to 7.1% compared to 5.1% last year. Increased utilization and improved steering are the key elements behind the improvement. Increased costs due to the pandemic are partly compensated by government subsidies. Individual and family delivered a strong Q4. Next slide please. Elderly Care on Slide 17. Revenues grew in the quarter with 10% organically and reached SEK 157,000,000 versus NOK143,000,000 last year. Driving the increase are both units under own management as well as contract. In the Q4, revenues also include retroactive price index increases. Dampening the growth, we still see COVID-nineteen effects in weekend occupancy. Operating profit was SEK 4,000,000 versus SEK 0,000,000 last year and the operating margin was 2.8% versus 0.3% last year. There are positive effects from the price index increases and retroactive COVID-nineteen compensation in the quarter. Handling the pandemic has been the main focus in Endelicare. Next slide please. Finland on Slide 18. Revenues for the Q4 in Finland came in at SEK 321,000,000 compared to SEK 348,000,000 last year, a decrease of 8% an organic decline of 4.1% versus growth of 10.7% last year. The decrease is due to from nonperforming outsourcing contracts and to negative utilization effects from the pandemic. Operating profit increased to SEK 10,000,000 versus SEK 9,000,000 last year with a margin of 3.1% versus 2.7% last year. Main drivers are improvement in elderly care and good performance in individual and family care. There are also negative effects on profits from the pandemic. Although the Q4 was not in line with expectations, small improvements can be seen. Next slide please. Norway on Slide 19. Revenues decreased by 2% to SEK193,000,000 versus SEK 196,000,000 last year and the organic growth was 9.8% versus minus 0.7% last year. The growth development this quarter is due to new units and more customers. Operating profit increased to SEK 19,000,000 from SEK 13,000,000 last year and the margin improved to 9.9% from 6.8% last year. High operational efficiency and more favorable revenue mix drive the improvement. We are again pleased with the stability in Norway. Next slide please. Moving on to Slide 20 and central costs. Underlying central costs are slightly lower. Improved performance in our Danish operations and lower other costs, partly due to COVID-nineteen are the main drivers. Next slide please. On Slide 21, you can see our financial position. Interest bearing debt decreased by SEK 201,000,000 to SEK3511 million and leverage decreased to 4.3 times from 5.4 times last year, being now below our financial targets. Next slide please. Operating cash flow for the quarter on Slide 22 amounted to NOK296,000,000 versus NOK 220,000,000 last year, increased due to higher profits and lower capital expenditure. The strong cash position allowed us to both repurchase shares and prepay external debt during the Q4. Next slide please. In the Q4, Pimana took a clear step in the direction of achieving our financial targets. Organic growth of 4.1%, operating margin of 6%, both at the highest levels as a listed company and the leverage below the target. With those words, back to you. Thank you, Norga. To try to sum up 2020 in the Q4, 2020 was obviously a challenging year, forever marked by the pandemic. I think Humana as a company has stood up well to the test and we have also taken an important step forward as a company. All of this, of course, due to our fantastic staff. The Q4 was no exception with continuously good handling on COVID-nineteen and stable operational and financial performance. Going forward, we must continue to ensure the safety for our clients and the employees. The vaccines will help. We will also continue our focus on value creation and improving stability and predictability. The foundation that we made during 2020 makes has entered 2021 with confidence. We want to continue to drive organic growth coupled with accretive acquisitions. And during 2021, we will also accelerate our efforts in the area of sustainability. With that said, we can now open up for questions. Thank you very much. Thank The first question comes from Christopher Miliberg from Carnegie. Please go ahead. Your line is open. Thank you and good morning. Some questions related to the Swedish individual and family business. Very nice to see this improved stability. And my first question is how confident you are in this being a new sustainable trend. I also wonder the margin improvement you had in individual and family in 2020, almost The percentage point or so, how much of this is underlying improvement and how big were the Positive impact from different type of financial compensation related to the pandemic. And the reason I'm asking is just to Make sure we have expectations right for next year or for this year. Thank you, Christopher. 2 pretty tricky questions, of course. Starting with the confidence. And I mean, individual family has and is and has for a long time been a very important area. By nature, Sure, it is a little bit more volatile than the other business areas. We're talking almost 200 operations, many of them being very small and many of them being, of course, sensitive to changes in utilization. And given the nature of the clients that we work where there are volatility utilization in INF. That said, I have quite great confidence in what we are doing right now in INF, my feeling is that we're working differently with the tasks at hand. We work at things more systematically. We permanently close things. So I'm pretty confident to what we're seeing in I and F. That said, there will always be an element of volatility in I and F. I think what we have seen during the year, which leads me into your second question, It's also an increased stability, not only in how we steer it from an operational but also the sophistication from the support functions, how we analyze deviations and how we can try to make forecasts for the future. So clearly, a step in the right direction, although there's still room for improvement. As Nora alluded to, the impact for the group in Q4 as well as the full year from the COVID-nineteen pandemic is actually negative. But it varies, of course. I would say INF is perhaps the only business area which has had a slightly positive impact financially, whereas it has been negative in Enveli Care in Finland, Personal Systems in Norway, particularly breakeven. It's not material, I would say, there may be $5,000,000 to $10,000,000 tops and but then it really depends on how you estimate back on revenues as well. We've had we've seen especially during the beginning of pandemic, we saw a negative pressure on utilization in parts of the operation, especially the Open Care services that we also see in Finland. So it's not material, Christopher. Okay. So you would say still most of the Margin improvement is underlying trend. Yes. If I take the SEK10 1,000,000 effect, that would be kind of 0.5 percentage point on on the margin. Yes. The absolute majority of the improvement that we During the year, it's also driven by what I alluded to in my words. The first one, we see more stability in our utilizations in the youth segments, we've also seen towards the end of the year an increase in utilization in unaddled and LFS. And that is partly driven to the fact that we have opened roughly 15 new units over the past 18 months and they are now slowly becoming sort of immature or up and running. That makes a big difference, of course. And how would you characterize The IMF market in Sweden, is this only into Hemana internal improvements or do you also see better markets done a few years ago. No, I would say the market hasn't changed that much. I think We have been worse than the marketing periods, but this time, I think we're performing better than the market. I would say the market is fairly stable. Okay. Thank you very much. Thank you. The next question comes from Karl Johan Bonevio from DNB Markets. Please go ahead. Your line is open. Yes, good morning. And from me as well, congratulations on managing a stable operation in this Strange world we have for the moment with COVID-nineteen and all these extra challenges. To continue on Christophe's question, if you have now opened 18 new 15 new units in the last 18 months in I and F. How does the pipeline look? Do you still have that kind of growth pipeline in the book, so to say? Or We have quite high growth ambitions for 2021 as well, primarily within the adult and MFS segment. Karl, you know that we come from a couple of years unfortunately where we have wanted to focus on efficiency and stability and improving the operating margin. Hopefully, now we can put additional focus on organic growth with the first time now in the Q4. I think we have the solid pipe line, hopefully we will be able to expand that pipeline going forward. If we are supposed to achieve the organic growth target of 5 And INF, of course, must deliver. Exactly. No, that sounds encouraging. And looking at the challenges You will have during this year of ramping up the elderly care units. Obviously, it's a massive undertaking you are taking on now. What can you do to, say, mitigate the short term financial impact of it then? And then also at the same time, hopefully, drive these units to its full occupancy, say, quicker than the general market seems to be allowing for the moment? As you say, it's a massive undertaking. It's unlike anything we've ever done before, opening up 4 new 5 new units, 320 beds in a very short time span. I mean, obviously, we need to look at the situation in each and in every one of the geographies where we're opening. I mean, we've looked at the pipeline for a year. We've looked at the COVID, the impact on utilization, etcetera. Our decision is still to go ahead with the original plan with one exception of postponing one opening a couple of months to the beginning of Q3. What we can do to minimize cost is, of course, to be efficient in marketing, be really efficient in rolling out vaccine, But also the way we open them, I mean, cautiously open floor after floor not to have over cost in terms of staff, etcetera. I think in some of these openings, we have very good relationships Well, we have good relationships with the municipalities in all the openings, but in some of the openings, there are also fundamentals that will allow for a good opening. For instance, in Gimbali, we have it's a hybrid contract where we have a utilization guarantee already starting from day 1. In the when the units we open In Aengenholm, we hope to have a kick start following the fact that the unit is closing down 1 or 2 units. So I mean, it's a massive undertaking, but our decision is still to stick to the original plan despite COVID. And you still have managed to secure the staffing you need for doing, say, the safe opening? I mean, we're currently in that process, but last year alone, Himana received 97,000 job applications. So we are fairly confident in our ability to recruit. Excellent. On the Personal Assistance side, you alluded to the new labor bargaining agreement. And then obviously, you have It's a nice increase in the list price if you are looking at this year. How do you see the balance between those 2? But it's obviously the best balance that we've seen for 6 or 7 years now. However, the new collective bargaining Agreement contains a number of components that each and every one of them drives costs. I mean, there are changes to the overtime, there are changes Don't call the change in the pension ages, etcetera. But even with that, it is certainly the best balance we've seen for a couple of years. Our rough estimate is that if you add all of this together, we're looking at a cost increase for salaries of roughly 3.2 percent. And you know the reimbursement is 3.5%. So I mean, obviously, we our ambition is to expand the margin somewhat come 2021. Excellent. And finally for me, on Finland, Have you managed to get Coronara Hoiva towards breakeven now? Or where are you on if you look at that vertical so compared to your old operation in Finland? I mean, if you look at the Totaletokornaya Hoiva, I would say that they are breakeven, even It's slightly positive. I mean, the key challenge in Finland as a whole similar to Sweden is the elderly care segment, of course, where our utilization, very much similar to Sweden, is below what we are used to and that obviously hits our margins. Excellent. One final, final. I noticed that you didn't come with a dividend decision. Have you have the Board Switched around looking at share buyback as being the main capital allocation kind of tool if you have excess resources rather than dividend? Or Is there anything else behind that? No. I mean, dividend is still part of a target that We have to actually do dividends of 30%. But for reasons of the pandemic still being over us, it's still a high uncertainty. We felt that for this year 2020, it wouldn't be appropriate or good for Humana to do a dividend. We have repurchased own shares instead in order to increase value for shareholders, but it also gives us a bit more security as we maintain an asset, of course. Exactly. No, perfect. So it sounds very logical to me at least. Good luck. Thank you. Thank you. The next question comes from the line of Victor Forschel from ABG. Please go ahead. Your line is open. Thank you very much and congratulations on a stable 2020. I have a few questions about the Norwegian market and Your performance and opportunities in that. Firstly, on the overall performance this year and what you highlighting this quarter as a revenue mix supporting margins and profitability. Could you please elaborate a bit on that revenue mix. And if those margins that you saw during the full year, let's say, are a bit To support by the current mix that you think will normalize in 2021? I mean, the it's nice word revenue mix, etcetera. What we actually are doing is growing pretty fast in segments where the margins are slightly higher, which for us is personal assistance as well as disabled care housing. Going forward, that is also where we want to continue to grow and that's currently where we see growth. So we Snook, I think these margins that we'll see in 2020 are sustainable. And just a follow-up on that. Where do you see the current Personal Assistance margins compared to your Swedish operations at the moment? In Norway, they are slightly higher, but it's quite a different operating model, not to be compared to the Swedish ones. Absolutely. Then also on the, I mean, overall market, where are you feeling that you are strengthening your positions? Would you say that it's in BPA and also disabled care and also the pipeline you have for capacity increases and so forth in the coming years? No, definitely. I mean, 80% of our growth Or 85% of our growth comes from BPA and disabled care. That said, we still have growth Prospecting in the adult institutional care segment as well, we simply need to be a bit more selective on where we open. Also family home and outpatient care, it's a relatively small operation in Humana Norway, but it's also an area where we're looking into growth. We have no plans right now to expand into new segments. There's plenty to do in the segments in which we are. All right. Thank you. And just lastly, on the municipality side in Norway as well, how are they, I mean, if at all, Changing their behavior towards private actors in these various segments also. I mean, How has the freedom of choice regulations changed perhaps? Any behavior in terms of using your services? And how the overall market has reacted to these changes? Peter hasn't been similar to Sweden a Years ago, there's a lot of noise, but there's not really much happening. I think there are segments in Norway, in the Norwegian market that are not attractive for private providers such as elderly care, etcetera, there is also a bit of the Activity of the youth institutional care is not what it was 4 or 5 years ago. But in disabled And also personal assistance, I would say the tendency is actually the opposite where you actually roll out freedom of choice, not to the pace that we would like nor the clients themselves. But I mean, Surely, there hasn't been any changes during the year and nothing that we can foresee in 2021 either. Okay. Thank you very much. Thank you. The next question comes from the line of Christopher Nilleberg from Carnegie. Please go ahead. Your line is open. Yes. Thank you. A few follow-up questions. First in Finland, could you just remind us a little bit about the sales split between the various segments? And I don't know if it's possible to quantify how big the impact was from the pandemic. I think it would be helpful as it's a bit difficult to understand How much underlying improvements you have continued to deliver there? Then yes, the bookkeeping question. The shares that were Acquired, they haven't been canceled, right? And also, yes, to make sure I understand heard you correctly, You talked about margin improvements 2021. Was that for elderly care despite all the openings or for the group? Thank you. Okay. Let's take them on my one. No, the shares have not been canceled, Christopher. When you talk about margin improvement for 2021, I'm not sure what you're referring to there. I think you said when yes, when discussing all the openings that you still expect the margin to improve a little bit. But I might misunderstand. In elderly Care. Yes. I mean, let's put it this way. Our ambition, subject to COVID, of course, the ambition for 2021 is to improve profitability in absolute terms, but it's not going to be by much. Obviously, the openings of 5 units are going to cost a lot in the short term, but ambition is to come in stronger in 'twenty one compared to 2020 even those opening, but it's not going to be a magnitude change. Okay. But that's okay. For elderly care, you mean? Despite all the volatility there. Yes. Swedish Helsinki. Okay. In Finland, I mean, we do have a very to simplify a lot, I mean, let's say, 40% of our Finnish operations is housing services, which is primarily elderly care and then 60% is what we call individual family care services, which is both institutional care as well as the family owned and outpatient care. Where we have an impact in Finland is in the Open Care segment, where we have thousands of clients literally where many have decided to pause the services. And also in some instances, the municipality due to restrictions in Finland have decided to pause services. We have managed to mitigate Quite a lot of that by going digital. So we do provide the services digitally rather than physically. But of course, all services cannot is performed over 10 or whatever solutions you have. In the Ambulance Care segment, Very much similar to Sweden, I mean, we're used to having an occupancy north of 95% or that's at least where once the day currently is just below '19 has been for the year and that obviously stops a lot of the improvement, we need to increase utilization both in Open Care Services as well as in the elderly care segment in Finland. I would say those 2 combined represent maybe 60% of the Finnish operations. So in total, what do you think the pandemic impact on earnings in Finland in 2020? It is a difficult question to answer, Kristofer, because since You have the direct impact, which is negative in Finland, so costs exceeding any reimbursements. But also you have the revenue impact. I would say, Looking at the deal conservatively, dollars 5,000,000 to $10,000,000 that would be a guess, to be honest. Okay. That's fair. Thank you very much. Thank you. We now have no further questions. So I will pass back for any closing comments. No additional comments from our side. Thank you all for listening in and thank you all for your question and have a fantastic day. Thank you and bye.