Earnings Call: Q3 2020

Nov 6, 2020

Quarter in 2020. This is a quarter where we continue to stand up well to the pandemic, whilst also making good overall progress. As always, I will start by giving you some of the financial and operational highlights of the quarter, and I'm not alone. I will then hand over to our CFO, Nora Jensikara, who will take you through the business of the quarter. Towards the end, we will address any questions that you might have. Next and first slide, please. The focus for the group in the Q3 continues, of course, to be on minimizing the effect of the pandemic, ensuring a safe work environment and preventing the transmission of the virus in our operations as well as into site as a whole. We continue to stand up well to the pandemic with control over the situation and very low transmission of the virus. We also monitor the situation closely and frequently revise our recommendations and guidelines for all Mana staff. During the quarter, we're also pleased to see Humana making important progress in sustainability areas such as quality and equal opportunities. In the Q3, we record an all time high in our Humana quality index. We also improved our already high customer satisfaction in personal assistance. And we received high grades in the National Board of Health and Welfare's National Quality Survey. We're also very proud to again be distinguished for our work on equal opportunities ranking top 3 among all listed companies in Sweden. On September 1, Nora Jasekala was appointed CFO for Emana. Prior to this, Nora held a position as Group Finance Director. During the quarter, we also welcomed the proposal for a satisfactory increase in reimbursement for Personal Assistants. It further confirms our belief that personal assistance is an attractive segment for Humana to build. And after the quarter, we acquired provider of assistance in Stockholm. Moving on to the next slide, please, and the financial summary. In the Q3, our operating revenue amounted to SEK 1,930,000,000. This is in line with previous year. The organic growth in the quarter was 2.2%, slightly down from previous year and the operating profit in the quarter was SEK 172,000,000 down slightly compared to last year. The adjusted operating profit was SEK 172,000,000. This was in line with last year. And the operating margin was 8.9%. In the quarter, our operating cash flow was SEK 146,000,000 and our net debt was SEK 3,500,000,000. And finally, our leverage at the end of the quarter was 4.5x in line with the financial target and down significantly from 6.0x prior year. Moving on to the next slide, please, and a few words on our work on quality. Our focus during the quarter has, of course, been on handling the pandemic. We continue to prioritize education and training. Compliance to routines remains very high and we continue to revise guidelines, routines and recommendations. In the Q3, the demand quality index improves to 95% in spite of challenging times. This is an all time high and is primarily driven by improved customer satisfaction and fewer serious deviations. I am truly grateful for the work and endurance of our fantastic staff. Next slide, please, and over to our segments, starting with Personal Assistance. In Personal Assistance, the performance in the quarter was strong. Seating was also to see that we improved our already high customer satisfaction. The net promoter score, which is a measure of customer loyalty, is a remarkable plus 4 to 5. After many years of insufficient increases in the reimbursement for personal assistance, we're now glad to see that the Swedish government proposes an increase of 3.5% in the budget for 2021. Whereas we do not yet know the increase in salaries, our assessment is that this should at least offset pressure on margins. This is important for Ramana as well as for the sector as a whole. We continue to be positive for the future prospects of personal assistance. And on November 2, we acquired LEW, I'm sorry, a small but qualitative provider of personal assistance in the northern parts of Stockholm. Moving on to the next slide please and individual and family, INF. In our INF Care segment, we continue to sorry, we encounter a rather stable demand, although weaknesses in the youth segments remain. The COVID-nineteen situation continues to dampen the overall demand. Thanks to good overall efficiency, we do see a stable development, however, and the weaknesses in the youth segment are compensated by strong performance in the adult and LFS segments. Our efforts to improve operations have seen results in increasingly we are focusing on organic growth. During the quarter, we opened 3 new home managed LFS units. All in all, a stable quarter for INF. Next slide, please. In our elderly Care segment, the focus remains on handling the COVID-nineteen pandemic where safety for our clients as that is, of course, top priority. Swedish Elderly Care is the segment which is the most affected by the pandemic, both from an operational as well as financial perspective. Throughout the pandemic, the ban on visitors in Elderly Care units has been challenging for both elderly as well as their loved ones. We see positively on lifting the ban, but it does also come with an increased responsibility for all stakeholders, especially now when we see an increase in the transmission of the virus across the Nordics and in Sweden. The National Board of Health and Welfare has just published a national and annual quality survey, and Hermann again receives very high quality grades coming in better than both public and other private providers. Finally, our focus on growth continues with 3 new units opened in Falkenberg on October 1 and intense preparations for our 5 home managed openings in early 2021. Next slide, please. Moving over to Finland. In Finland, we continue to fend off the negative impact of the pandemic, but whilst also making progress in improving our operations. Our individual and family segments continue to perform well and we increasingly turn our focus to organic growth in these segments. In our housing services segment, our improvement program continues to move in the right direction, but we do still expect a delay in progress due to COVID-nineteen. Overall, we see a steady and improving performance in Finland during the quarter. Next slide, please. Moving over to Norway, where we continue to see a stable demand, a stable development and strong organic growth. Just after the quarter, Humana won also an important tender within BPA, so Personal Assistance in Norway. In 16 Norwegian municipalities, there will be a total of 4 eligible providers and Humana ranks as the number 1. Similar to other operations, the pandemic has been handled well and we'll continue investments to reap the benefits of future growth in Norway. With this said, I will now hand over to you, Laura. Thank you, Rasmus. I will now give you a summary of the detailed performance of Humana in the Q3 2020. Turning to Slide 10. I would like to start by saying that I'm very glad to be here and continue the work on increasing predictability and stability. A lot of work is being done on digitalization and automation, work that of course will continue in coming periods. We are also working on our real estate portfolio to better suit the business needs. For Mana overall, financial focus during the quarter has been on improving operational efficiency and thus profitability. I am pleased to present the financially stable quarter with the leverage in line with target and a strong cash. Flow. Next slide, please. On Slide 11 in the presentation, you can see the operating revenue for the group. In the Q3 2020, our operating revenue was in line with last year at SEK 1931,000,000 from SEK 1928,000,000. Revenue is negatively impacted by the COVID-nineteen pandemic through lower occupancy and lower number of hours performed in personal assistance. Also the strength in Swedish kroner has reduced revenue. In the interim period, revenue increased with 5% to SEK 5849,000,000 from SEK 5,554,000,000. Organic growth in the quarter was 2.2% compared to 3.2% last year. Personal assistance and Norway grew well in the quarter. Organic growth for the interim period was 4.0% compared to 2.4% last year, Personal Assistance and Norway being the main drivers. Next slide, please. Now moving to Slide 12 for more information on our results in the 3rd quarter. Operating profit came in at SEK 172,000,000 versus SEK 176,000,000 last year and the margin was in line with last year, 8.9% compared to 9.1%. The adjusted operating profit is SEK 172,000,000 versus SEK 172,000,000 last year. The challenges in elderly care are compensated by improvements in Finland to reach this stability in total. The COVID-nineteen pandemic has affected profit from several aspects: lower occupancy, increased thickness absences and increased use of protective equipment. Although the state subsidies vary between business areas and countries, the net financial effect of extra costs and subsidies is well imbalanced for the group as a whole. Thus, the pandemic has had a marginal financial effect on the profitability of for the group. Next slide, please. On slide 13, the segment performance starting with Personal Assistance. Revenue for the 3rd quarter are up 4% to SEK 736,000,000 compared to last year of SEK 708,000,000 with organic growth of 3.9% versus 1.3% last year. Higher assistance allowance and increased number of hours drive the improvement. Operating profit for the quarter increased to SEK 57,000,000 up from SEK 52,000,000 last year and the margin improved somewhat to 7.7% versus 7.4% last year. The increased margin, although small, is mainly due to increased efficiency, another well managed quarter from Personal Systems. Next slide please. Now moving to Slide 14 with Individual and Family. Revenues for the quarter reached NOK522,000,000 an organic decrease of 1.3% versus last year's SEK 5,900,000 with a negative organic growth of 1.7%. All in all, a more stable occupancy, with the decrease in occupancy in the children and adolescent segment nearly fully compensated by an increase in occupancy in the adult segment. Some negative occupancy effects can be attributed to COVID-nineteen as well. Operating profit came in at SEK 70,000,000 versus SEK 72,000,000 last year and the margin decreased somewhat to 13.4% compared to 13.7% last year. Quarter 3 was last year was very strong. More stable occupancy and efficiency improvements enabled to meet last year's performance. Everything considered, we are pleased with the quarter. Next slide please. Air Liquide on Slide 15. Revenues grew in the quarter with 3% organically and reached SEK 150,000,000 versus SEK 146,000,000 last year. The positive impact comes from the ramp up of Kunstengen. But dampening the growth, we also see COVID effects in weakened occupancy and withheld price indexing. Operating profit was SEK 5,000,000 versus SEK 8,000,000 last year, and the operating margin was 3.3% versus 5.6% last year. Weak revenue, higher personnel costs, higher thickness absences and higher cost for protective equipment are behind the lower profitability. Start up cost of SEK 1,000,000 related to Kontangen has impacted the quarter, a challenging quarter but well managed given the situation. Next slide please. Finland on Slide 16. Revenues for the Q3 in Finland came in at SEK 318,000,000 compared to SEK 336,000,000 last year, a decrease of 6% and organic decline of 1.3% versus growth of 9.6% last year. There is underlying growth in the I and F area, but this is driven by exits from unprofitable outsourcing contracts. Operating profit increased to SEK 24,000,000 versus SEK 19,000,000 last year with a margin of 7.6% versus 5.7% last year. The improvement resulting from the turnaround program in the acquired operation. We are moving in a positive direction under the new management and our improvement efforts will continue in a tough market. Overall, a strong quarter for Finland. Next slide please. Norway on Slide 17. Revenues increased with 3% to SEK 200,000,000 versus SEK 194,000,000 last year, and the organic growth was 11.9% versus 2.1% last year. The growth development this quarter is due to unit openings and more customers. Operating profit was flat at SEK 21,000,000 and the margin nearly the same, 10.5% versus 10.7% last year. In local currency, operating profit improved due to high operational efficiency. We are again pleased with the stability in Norway. Next slide please. Moving on to Slide 18 and central costs. Underlying central costs are stable. In Q3 2019, capital gain from sale of real estate and revaluation for earn outs were impacting central costs. Next slide please. On Slide 19, you can see our financial position. Interest bearing debt decreased by SEK 305,000,000 to SEK 3549,000,000 and leverage decreased to 4.5 times from 6.0 times last year, being now in line with our financial target. Next slide please. Operating cash flow for the quarter on Slide 20 amounted to SEK 1.6000000 versus SEK 206,000,000 last year, the decrease due to an increase in working capital, the drivers being slightly slow to collection and us paying our dues a bit early. This will even out in Q4. Next slide please. To summarize, much work remains, but I would say that we are on the right path. Our organic growth is moving in the right direction, so is profitability. And we are pleased with our leverage being in line with the financial targets. With those words, back to you, Graf. Thank you, Nogura, and very pleased to have you on board. So to summarize the Q3 for Emana, we do continue to stand up well to the pandemic, thanks to the efforts of our fantastic staff. We also believe that the impact will be manageable going forward. I am also pleased with the stable operational and financial performance in the quarter, especially in the light of the situation. Where we do see some weaknesses is, of course, in our elderly Care segment, which is heavily impacted by the pandemic. We are also very pleased with the positive news for personal assistance. Going forward, our focus is on and will be on handling the pandemic in a good way, continuing to drive organic growth potentially coupled with accretive add on acquisitions and driving excellence and execution with a focus on INS and Finland. I think with that said, we can now open up for questions. Thank you. Thank Our first question comes from the line of Christopher Liddeba from Carnegie. Please go ahead. Your line is open. Yeah, thank you. Three questions. First on the Personal Assistant margin. If I go back historically, most of them margin is down year over year in Q3 due to timing of the salary increases. This year, it was up quite a bit. So wonder if there's anything specific here or if you could explain what you're doing in Personal Assistance. Rasmus, you mentioned also this tender in Norway. Is that significant? And if so, could you give the size of it or at least the potential? And then I wonder about the situation with lower occupancy rates in Swedish elderly care and if that makes you consider delay maybe some of the openings planned for next year? That's all for me. Thank you. Thank you, Christopher. Let's start with elderly Care. I mean, we as all other providers do see a lower demand, a lower utilization within Elden Care across the Nordics, not only in Sweden. And we do not see a huge difference now compared to October 1, for instance, when the ban was lifted. And we think that obviously there is unfortunately now a second wave, which probably impacts this as well. We have a slight increase in utilization, but it's not huge compared to where we were a month ago. So to your question, no, we do not foresee any changes in the schedule in which we open our own managed units next year. There is I mean, we feel fairly confident about these openings. In one of the units, we have a utilization guarantee. And in another one, the municipality is closing down a few of their old premises. And the other ones are located in areas where you have big demand and also big municipalities nearby. So we will open according to plan. We feel fairly confident about it. We will, however, of course, monitor the situation. As you do know, of course, a ramp up of an elderly care unit is a year long process where you open floor by floor and you take on more and more staff as you open the floors. We will, of course, monitor the development, the utilization and that we kind of decide the pace in which we open. The tender in Norway, your second question, yes, it is a fantastic win. It's the largest tender in Norway. Is it how big is it? It's hard for us to say. Looking at the total size of the tender, substantial is roughly NOK 350,000,000 per year, 6 year long tender, which equals more than NOK 2,000,000,000 in total contract value. We are already strong in 16 municipalities. And to say what the impact would be, it's still a customer choice market. They can choose us or any of the other three providers. And we will, of course, know better in the weeks to come. It does depend a little bit on how these municipalities now structure the tender as it goes out. But it is a positive wind sorry, it is a positive thing and we do expect it to give some tailwind to our BDA in Norway, which is already performing fairly strong. To the third question or the first actually, which was within Personal Assistance, it is a strong quarter in Personal Assistance, and we acknowledge that. We do typically see most of the salary effects coming in, in the Q4 though, Christopher, so that you will see the next quarter. But it is a strong quarter, very strong operational efficiency, also slightly lower cost. The Q3 is typically a quarter where we have huge customer events that for good reasons, obviously, we're not able to have now. So that drove the efficiency slightly. But all in all, a very good quarter. Could you ask those customer events roughly how much are we talking about in less than normal cost for that? I would reckon, in total, maybe SEK 1,000,000 to SEK 2,000,000 compared to a year where we technically have it. Okay. Yes. Thank you very much. Thank you. Thank you. Okay. Our next question comes from Victor Forso from ABG. Please go ahead. Your line is open. Hello. Our next question comes from Victor Versal from ABG. Hello. The line is open. Please go ahead. Sorry, I was muted. Sorry for that. And thanks for taking my question. I have one in regards of Finland. It's positive to see and hear from you that you're making good progress in the acquired Coronaria Hoiva as I read it at least. Just touching upon that and comparing Coronaria today versus 1 year ago, where you are in terms of margins as well as the underlying Ariessa margins as well, just to get a sense of the dynamics between those two units today, perhaps compared to 1 year ago, where you also had some pressure in Ariessa due to a high number of new units that you started. So any flavor here and any comments would be much appreciated. Thank you. Good morning, Victor. We managed to uphold the margins within the old Alies business fairly well. I mean, as you do remember correctly, we had a large number of startups roughly 1 year ago. But there were also some legislative and regulatory changes in Finland. I do think we spoke about, for instance, that there was a small limit on the number of clients that you can have in units. So the old ADS part of the business is doing fairly well. I wouldn't say that we've expanded margins. So the performance improvement that we do see now sequentially over a number of quarters is 100% driven by the acquisition with the operations pertaining from the acquisition of Cornaria Hoivant. We are, of course, not yet where we would like Kornania Hoiva to be as a total. And of course, there are 2 main things that we need to work on besides the internal efficiency. 1, of course, is COVID-nineteen, which is the change in regulation with regards to staffing and the prices were paid by the municipalities. So we need to negotiate prices. Those discussions have been delayed, obviously, also because of COVID-nineteen. It is more difficult to visit municipalities and sit down with them and discuss future pricing. So but we are making progress. We're making good progress, but we're not yet where we want to be. Okay. Thank you, Rasmus. And just a follow-up before I head back to the queue. If I have my numbers correct, I think that Orest has been seeing some double digit margins, at least historically. Is that the case for the We do not foresee any major changes in the margins for the I and F segment, Victor. No, they are stable. Okay. Thank you very much. Thank you. Our next question comes from the line of Karl Johan Bolida from BNP Markets. Please go ahead. Your line is open. Yes. Good morning, Rasmus and Nora. Congratulations to a very stable and good performance. Looking at the challenge you must have in elderly care, looking at this huge ramp up that is now coming within the next 6 months, do you feel that you have the staffing and everything that you can have under control yourself in place at this stage? I mean, it's obviously a huge undertaking. We are, of course, very familiar with opening new units. We do it on a weekly basis. But yes, of course, opening 5 new managed units within the quarter basically is a big undertaking. Where we stand today, we have been very successful in recruiting fantastic unit managers as well as staff for the units. We also have units already located quite close to the units where we open. And so we obviously use experienced staff and experienced unit managers to help out in these openings. We have also beefed up a little bit centrally in our elderly care segment with strong resources focusing entirely on these openings because they're obviously very important to us. So I mean, with a lot of respect of the quarter next year when we open them, we feel that we're in good shape, yes. Excellent. Sounds promising. Looking at your financial targets, I guess, with the boost you're now getting from on patient fees in the personal assistance area and how you highlight Norway and then obviously, Zelle Volley Carebun, I guess at least the organic growth rate should be well taken care of when I look at those financial targets for Nexi. But it would be good to hear your comments on how you see that if the volumes are there for you already now to be confident on organic growth? And then maybe also elaborate a little on what is needed for you to get up to your financial target also on margins? Okay. It's a fairly big question. I mean, the reimbursement reimbursement personal systems, yes, that obviously helps, right? It does help. But on the other hand, we do see a kind of a slower demand, right, not only in elderly care, but also in individual family care. So that must be offset should the pandemic impact continuing last year. But we've set 5% organic growth, obviously, because we do feel that that's where we should and need to be in the medium term. Now we're year to date at 4%, and we haven't ever really been in modern time at 5%. But obviously, Personal Systems helps. But the major part in achieving the organic growth is, of course, the growth in Ambulikare. In terms of margins, I think we are taking obviously step in the right direction this quarter, but more importantly year to date. What needs to happen in us to really achieve the margin target is, of course, successfully ramping up our elderly Care segment. It's obviously not something we will do next quarter. We will need some time to do that. And it's also to drive continuous improvements in Finland, maintain stability in Norway and I and F actually compared to where we stand today. So there is a lot to do, but it's certainly within our grasp. And that's why we stand behind the financial targets still. Excellent. Sounds promising. Good luck out there and stay well. Likewise. Thank you. We have no more questions from the line. I will hand it back to our speaker for closing comments. Well, no more comments from us. Thank you all for participating. Thank you all for good and valid questions, and have a fantastic day and stay safe. Bye.