Welcome to the Humana Audiocast with Teleconference Q3 2021. Today, I am pleased to present CEO Rasmus Nerman and CFO Noora Jayasekara. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Speakers, please begin.
Thank you. Good morning, and welcome to this presentation of Humana's third quarter of 2021. As always, I will start by giving you some of the financial and operational highlights, and I will then hand over to our CFO, Noora, who will take us through the financial details of the quarter. Next slide, please. During the third quarter, we continued to see good overall progress and steady financial development. The pandemic remains under control, thanks to vaccinations and continued preventing efforts. During the quarter, the Nordic countries are starting to open up again. As we return slowly to a new normality, we are pleased to see an increase in demand and occupancy rates, especially in the Elderly Care. During the quarter and after the end of the quarter, we have closed a number of accretive acquisitions in our Individual & Family and Personal Assistance segment.
We're now dedicating resources to the integration and support in their future plans. As I'm now leaving Humana after eight years, the board has appointed fantastic Johanna Rastad as new CEO. Johanna will take office on December 17th. Titti Lilja will become the new Business Area Manager for I&F. Titti is currently the head of the adult division in I&F. This is the largest division in our Individual & Family, and Titti has successfully grown and developed it over the past years. Next slide, please. In the third quarter, our operating revenues increased with 5.3%. The organic growth in the quarter was 3%. Our operating profit in the quarter was SEK 192 million, an improvement of 11.5% compared to the SEK 172 million in the corresponding quarter of last year.
The operating margin was 9.4%, an improvement versus last year's 8.9%. LTM, our margin is now 6.4%, thus moving towards our financial target of 7%. In the quarter, we had a strong operating cash flow of SEK 108 million, and our net debt is at SEK 4.2 billion. Our leverage was at 4.6x, which is basically in line with our financial targets. Next slide, please. As mentioned at the beginning, the pandemic is better under control in the Nordics, with very low transmission of the virus in our operation. We continue to see a positive impact from vaccinations, but we do still, of course, keep to strict procedures in all operations. In the second quarter, the Humana Quality Index remained on 94% with a customer satisfaction of 85%.
Finally, we are conducting a comprehensive program on quality assurance and method development in parts of our Individual & Family segment. Next slide, please. Over to our segments, starting with Personal Assistance. In Personal Assistance, the performance again was solid, both from an operational as well as financial perspective. In the budget proposal for 2022, the Swedish government proposes an increase of 1.5% in reimbursement for Personal Assistance. This stresses the importance of continuing lobbying efforts to align changes in reimbursement to changes in salary costs. On the positive side, in the same budget proposal, the government incorporates the implementation of the public inquiry in statligt stöd. This would allow for some 2,000 more individuals to be entitled to Personal Assistance come 2023. After the end of the quarter, we also acquired and welcomed Enigheten and Personlig assistans.
Moving on to the next slide, please, on Individual and Family. In our Individual and Family Care segment, the performance was stable. We continue to see a healthy growth of 5%, although the organic growth was negative in the quarter due to closed units and lower occupancy. In the quarter, we acquired Fideli Omsorg, operating 10 units in Sweden. Together with them, we do look forward to realizing a rather ambitious growth agenda. After the end of the quarter, we also finalized the acquisition of Balans Behandling, which gives us a stronger foothold in the northern part of Sweden. As mentioned earlier, we welcome Titti Lilja as the new Business Area Manager as Johanna Rastad takes on the role as CEO for Humana.
Our focus going forward will be on finalizing the quality assurance activities in parts of I&F, improving utilization, and integrating three fairly sizable acquisitions into our operations. In addition, I&F is also preparing for 10 new unit openings come 2022. Next slide, please. Now over to our Elderly Care. In our Elderly Care segment, we're of course pleased to see demand and occupancy improving after almost 18 months of negative impact from the pandemic. During the quarter, we also opened up two additional new elderly care units, a new own managed unit in Norrtälje and a tendered contract in Örebro. Needless to say, we're also still in the process of ramping up the four own managed units we opened earlier this year. As mentioned earlier, the pandemic is under control with very limited transmission of the virus in our operation. Next slide, please.
Now over to Segment, where the performance was stable in the third quarter, and our operating margin was 8.4%. Similar to our other markets, we're also pleased to see improvements in both demand and occupancy in segments that were previously impacted by the pandemic. Going forward, we will put additional focus on organic growth in these new I&F openings. Similar to our I&F segment in Sweden, the plan is to open at least 10 new units in 2022 in Finland. Next slide, now over to Norway, please. In Norway, we continue to see a strong performance, both operational as well as financial. Pleasing to see in the quarter was again the strong organic growth of 11%, driven by high demand in our disabled care segment, as well as a strong customer inflow in Personal Assistance. We also have stable occupancy in our I&F segment.
Promising for our future organic growth is also that Humana continues to win smaller tenders in many parts of Norway. Finally, we have a new government in Norway, where Jonas Gahr Støre leads a coalition between the Labour Party and the Centre Party. Another solid quarter in Norway. With this said, I will now hand over to you, Noora.
Thank you, Rasmus. I will now give you a summary of the detailed performance of Humana in the third quarter of 2021. Turning to slide 10. From a financial perspective, our main objectives remain increasing predictability and stability. We are making continuous improvements regarding digitalization, supporting growth in assistance in Norway, to mention one prioritized area. In September, Humana used 769,000 shares as valuable consideration in the acquisition of Fideli Omsorg. Subsequently, the holdings of own shares now amount to 8% of total outstanding shares. In the future, the own shares may ultimately be used as payment for or to finance acquisitions of companies and/or other assets. They may also be canceled. Next slide, please. On slide 11 in the presentation, you can see the operating revenue for the group.
In the third quarter 2021, our operating revenue increased with 5.3% from last year's SEK 1.931 billion to SEK 2.34 billion this year. Most business areas contribute. Revenue is somewhat negatively impacted by the COVID-19 pandemic, largely due to lower occupancy in Elderly Care in Sweden and Finland. Organic growth in the quarter was 3%, up from 2.2% last year. Strong organic growth in Norway and Elderly Care are the main drivers. Next slide, please. Now moving to slide 12 for more information on our results in the third quarter. Operating profit for the quarter came in at SEK 192 million, versus SEK 172 million last year, an increase of 11.5%. The pandemic has had a very marginal financial effect on the profitability for the group in the quarter.
Our continued assessment is also that the effect is manageable going forward. The margin increased slightly from 8.9% last year to 9.4% in the third quarter. Personal Assistance, Norway, and Finland contribute to the increase. LTM, our margin is at 6.4%, closing in on our financial target. Next slide, please. On slide 13 and the segment performance, starting with Personal Assistance. Revenues for the third quarter are up 4.3% to SEK 767 million, compared to last year of SEK 736 million, with an organic growth of 2.4%. Higher reimbursements, partly offset by fewer assistance hours and acquired operations drive the improvement. Operating profit for the quarter increased to SEK 66 million, up from SEK 57 million last year.
The margin increased to 8.6% versus 7.7% last year. The increase in margin is mainly due to increased efficiency, higher reimbursements, and lower social security contributions for Jan. Acquired operations contributed as well. A strong performance from Personal Assistance. Next slide, please. Now moving to slide 14 with Individual & Family. Revenues for the quarter reached SEK 548 million compared to SEK 522 million last year. Organic growth in the quarter was -1.2%, up from last year's -1.4%. New units partly compensate the effect from discontinued units and somewhat lower utilization. Acquisitions contribute to the increase of revenue. Operating profit came in at SEK 69 million, versus SEK 70 million last year, and the margin decreased to 12.7% compared to 13.4% last year.
Discontinued units have had a negative effect that was partly compensated by newly acquired operations. Individual & Family delivers still a stable third quarter. Next slide, please. Elderly Care on slide 15. Revenues grew in the quarter with 16.7% organically and reached SEK 173 million, versus SEK 150 million last year. The five new own managed units naturally contribute. COVID-19 is still impacting occupancy negatively. Operating profit was SEK 3 million versus SEK 5 million last year, and the operating margin was 1.9% versus 3.3% last year. The startup costs for the new Elderly Care homes under own management are affecting the quarter. Opening the new units has been main focus in Elderly Care. Next slide, please. Finland on slide 16.
Revenues for the third quarter in Finland came in at SEK 314 million compared to SEK 318 million last year. Organic growth was positive at 0.4% versus -1.3% last year. The improvement is due to improved utilization and new units. Operating profits increased to SEK 26 million versus SEK 24 million last year, with a margin of 8.4% versus 7.6% last year. The increase is explained by improved contractual terms in Elderly Care and better operational efficiency. We continue to show signs of improvement in the third quarter. Next slide, please. Norway on slide 17. Revenues increased with 12.6% to SEK 225 million versus SEK 200 million last year, and the organic growth was 10.8% versus 11.9% last year.
The growth development this quarter is due to new units and more customers in Personal Assistance and the care home segment. Operating profit increased to SEK 31 million from SEK 21 million last year, and the margin improved to 13.8% from 10.5% last year. High operational efficiency and more customers drive the improvement. We are again pleased with our performance in Norway. Next slide, please. Moving to slide 18 and central costs. Underlying central costs are slightly lower than last year. The effect of IFRS 16 is up some due to new lease contracts. Next slide, please. On slide 19, you can see our financial position. Interest-bearing debt increased by SEK 604 million to SEK 4.153 billion compared to Q3 2020, and leverage increased slightly to 4.6 x from 4.5 x.
Interest-bearing debt is up slightly compared to Q4 2020, partly due to higher IFRS 16 that's related to the new Elderly Care units. Next slide, please. Operating cash flow for the quarter on slide 20 amounted to SEK 180 million versus SEK 146 million last year. The increase is due to higher profits and decreased working capital. Next slide, please. While we have some way to go to reach the set target for organic growth, our LTM margin has nearly doubled in approximately two years, and our leverage is in line with our targets. Yet another steady quarter for Humana. With that, back to you, Rasmus.
Thank you, Noora. Thanks to outstanding efforts from all of the teams in the Nordics, we are proud to present one more stable quarter with fairly good overall progress. This was also a quarter where the Nordic countries open up again, and we see demand improving in many segments that previously were impacted by the pandemic. Humana continues to grow, both organically as well as through acquisition. As we heard, we also see improvements both in terms of profitability, where the LTM margin is 6.4%, approaching the financial target, as well as in a strong operating cash flow. Following my decision to leave Humana after a fantastic year, this will be my last quarter report for a while. I am, however, delighted to see Johanna Rastad taking office in December. I couldn't imagine a better successor.
Finally, this year's strategy discussion with the board confirms that the strategic direction set up a few years ago, which also included new financial targets, still holds. There is a clarity around the priorities and activities that will drive Humana's future development, how to create sustainable value in all of our business areas. The drivers for organic growth coupled with continued add-ons and come 2022, even higher ambition when it comes to quality and sustainability, digital transformation and our important work with values. We can now open up for questions. Thank you.
Ladies and gentlemen, if you have an audio question for the speakers, please press zero one on your telephone keypad now. Please note that you are limited to one question per round. Once again, if you have an audio question for the speakers, please press zero one on your telephone keypad now. Our first question comes from the line of Kristofer Liljeberg from Carnegie. Please go ahead. Your line is now open.
Yeah, thank you and good morning. First I wonder about the sequentially lower sales in Norway versus the second quarter, if you could explain that. I'm pleased to see the stable margin in Individual & Family despite the negative organic growth. If you could explain how you managed to do that. Was it so that you mentioned that you closed some units. Was that unprofitable or units with low margin? That is the explanation. Finally, you mentioned the plans to open new units in Finland in 2021. Is it possible to indicate what the sales contribution for these units or if you could describe the size of the units you're planning to open? Thank you.
Good morning, Kristofer. Starting with the question on Norway, I think if I interpret correctly, it was about the organic growth in Norway compared to last year, there hasn't been any systematic change.
No, it's actually. No. When it comes to Norway, I just wonder why sales were lower, quite a bit lower in the third quarter versus the second quarter in Norway.
Well, it is probably due to the way we ramped up a couple of new contracts within our Personal Assistance segment. That's part of the reason. We've also made some changes to our Individual & Family segment, where some units were closed and others opened. I think that is the basic underlying reason in Norway.
Okay. Thank you.
In terms of margin in Individual & Family, we have decided to close and pause a number of units. Some of them were profitable, but as you also said, some of them were not profitable. I think the overall thing in the Q3, of course, is you have the vacation effect which can strike somewhat differences between the years. I think over the past two years, you know, we have been fairly good at having a stable margin despite some changes in revenues. I think that's part of the systematic work that Johanna has been doing for quite a few years now. We do, however, see somewhat of a challenge with utilization, which I mentioned now.
Going forward now looking into the fourth quarter, our focus is now very much towards improved utilization in parts of the youth segment. To your third question, the units in Finland. Well, the units, we have an ambition to open 10 units over the year. They're typically what we call child welfare services units, like an HVB-hem. They're fairly small units. When they're fully up and running, we would estimate a sales contribution of maybe EUR 1 million per unit, roughly, when fully up and running. In Finland, at least historically, we have been able to ramp up units faster than in Sweden because of the high demand and the relationship we have with municipalities. All in all, 10 units, EUR 1 million at least, basically when up and running.
Great. Thank you very much.
Thank you.
Our next question comes from the line of Jakob Lembke from ABG Sundal Collier. Please go ahead. Your line is now open.
Hi, good morning, and thanks for taking my questions. My first question relates to Elderly Care and how the ramp up of the newly started units are going?
I mean, they're all in different stages. They open at different times during this year, of course. One we just opened. I would say on an overall level, they're progressing according to plan, according to the plan that we did have. There is some variation within the units though, where at least two of them are progressing significantly faster compared to what we had hoped for, whereas we are seeing slightly lower demand in two of them. Looking at the five in total, they're progressing according to plan.
My next question is on Individual & Family. I'm just wondering sort of if you're expecting an organic decline to continue here in the near-term quarters?
I think in the short term, we would expect the organic decline to continue in the fourth quarter. We have quite an ambitious organic growth plan for 2022 though. For the next quarter, we would expect a small but organic decline.
Okay. My last question is just on if there's any impact of the incident in Platea on the results in INF in this quarter?
I mean, the impact that we saw is obvious that we closed that operation, and that has an impact in the third quarter. But besides that, no, we don't see any indirect impacts from it.
Okay. That was all for me. Thank you for your answers.
Thank you very much.
Ladies and gentlemen, once again, I remind you, if you do wish to ask an audio question, please press zero one on your telephone keypad now. Our next question comes from the line of Karl-Johan Bonnevier from DNB Markets. Please go ahead. Your line is now open.
Yes. Good morning, Rasmus, Noora. I heard you mentioned, Rasmus, when you talked about Fideli Omsorg, that you have a quite, say ambitious growth plan together with them. I noticed that at least the implied price you seem to be paying for that acquisition is quite dramatically higher than what I've seen you pay historically. Maybe if you could elaborate a little on how ambitious that growth plan is to get some feel for that price tag.
Fideli Omsorg is a fantastic company led by people who have worked in the social care services basically all of their lives. They have a fantastic experience in building qualitative companies in Sweden. Fideli has been around only for a couple of years, and they've managed to grow up to where they are today on their own merits. Taking the next step is obviously a bit more difficult for them because it requires a lot of capital investment and a bigger, you know, bandwidth, so to say. We partnered with them and acquired them and integrated them fully into our I&F operations. I wouldn't like to quantify it, but of course, we have a very ambitious plan with them, where we together with them will open up quite a few number of units over the coming years.
That is reflected in the purchase price and also in the structure of the purchase price for that acquisition.
To think about the ambition for that acquisition to more than double over the next two or three years, that is how we should think about it?
Yeah. You should think about it as we pay the typical margins that we would pay for the Fideli up and running and with the earn out.
Excellent. When I look at INF, obviously, not a lot happened on the client side when I look at it in the year perspective, but quite a lot more employees in the segment. Is that, say, a change to the underlying mix of the client base that requires you to have more employees, or is that staffing-
Yeah.
of the new units that hasn't come really into operation yet, or what is happening there?
That's a very good observation, Karl-Johan, and that exactly reflects the reality right now. I think over the past years, we've seen a tendency in I&F for more and more complex clients. I think all of us are in agreement that the clients that we receive today are extremely complex, suffering oftentimes from a multiple number of, you know, challenges, and that is also reflected in the staffing intensity of our units, obviously also in the clients that they need to charge. I guess you could see our I&F as an extension of some of the challenges that we face in society, but we take care of the absolutely biggest challenges. You're absolutely right.
The complexities of clients have increased dramatically in I&F over the past 18 months, I would say.
Well, I shouldn't say good to hear, but it's good to see that at least you can cope with the challenge that represent because I guess that's what we hear from a lot of other players in the sector is that there is somewhat of a challenge to get qualified staffing. Do you feel that you're ahead of that curve?
Well, this is something that we talk a lot about, of course. We've known about the future challenges of staffing in all care segments. I would actually say that we're fairly well off today. You always have pockets in geography where it is more difficult to recruit, of course. On an overall level, we're coping really well. I mean, looking now five years from now, that is the key challenge for all operators, public or private, in all care segments, Elderly Care, Personal Assistance, or Individual & Family. I mean, there is a lack of hundreds of thousands of people in Sweden alone, and you have exactly the same demographic trends in the rest of the Nordics.
That is the key challenge, and therefore, also, you know, a big focus area for 2022, for us would be, you know, let's call it the employee value proposition. I mean, what can we offer to our staff and have them stay with us and develop together with us?
Excellent. Just one final. I noticed that on Personal Assistance there is still a challenge to get the hours going, so to say, in the existing base. Is there any chance you see of that coming into a better kind of momentum going forward? Or should we expect basically hours per user to continue to be pretty flat to slightly down?
Pardon. We are very happy with the overall performance in Personal Assistance. But again, you're spot on, the thing where we would like to improve is obviously the development of hours. What you see now in the third quarter is a little bit different though, because for various reasons, our hit rate was down a little bit in the third quarter, which basically means that we don't use the same percentage of hours that we could. That's due to various reasons. The Nordic countries open up. People started to travel again. People started to do activities and maybe not using their full allocation of Personal Assistance. That tends to normalize over time. I mean, for our Personal Assistance management team, that is their focus, to grow the number of hours.
Our hope and belief is that we will do slightly better in the future.
Excellent. Thank you very much for the extra color, and all the best in your new role.
Thank you.
Our next question comes from the line of Mattias Vadsten from SEB. Please go ahead. Your line is now open.
Hi there. Mattias Vadsten from SEB. Many of my questions already been asked here, but also one on Norway. You state you won several small procurements during the quarter, and you have multiple organic growth projects ongoing. Can you elaborate a little bit here? With keeping in mind, you know, comps on a year-on-year basis getting a bit tougher, how do you think we should view this sort of growth potential in coming quarters, given the momentum you've had over the past few quarters?
No. The Norwegian market is structured slightly different compared to the rest of the Nordic markets. I mean, you have quite a few number of municipalities in Norway. Population is half the size of that in Sweden. The tenders and the contracts are typically smaller in Norway. Also Elderly Care is not an area where we are present, and basically no kind of provider is present in Elderly Care. The way to grow in Norway really is through these smaller tenders as well as, you know, your own occupancy and then price mix, et cetera. Comps will become more difficult. Norway keeps surprising us positively each quarter, but our expectation is not that we will see, you know, this kind of organic growth going forward.
We have an organic growth target for the company, which is 5%. We would expect Norway to be slightly above that in order for the group to achieve it. We are also positively surprised by the momentum we have in Norway. We do not put those requirements on our Norwegian operations going forward.
That's very clear. Thank you very much.
Thank you. At this stage, we have no further audio questions. I will hand back to the speakers for any further remarks.
I guess no further remarks from our side. Thank you all very much, and have a pleasant day. Goodbye.