Welcome to the Humana Q1 2024 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing *5 on their telephone keypad. Now I will hand the conference over to the speakers, CEO Johanna Rastad and CFO Fredrik Larsson. Please go ahead.
Good morning. Welcome to Humana's first quarter results presentation. My name is Ewelina Pettersson, I'm the head of IR. With me today I have Johanna Rastad, our CEO, and Fredrik Larsson, our CFO. I will hand the word over to you, Johanna, please go ahead.
Thank you, Ewelina, and good morning. In this quarter, we continue showing that our specialization strategy is successful, with good performance in Finland, largely due to our units within child welfare targeting individuals with highly complex care needs, as well as the 16% organic growth in Norway, also that partly due to specialization. Financial effects from the revocation of the personal assistance permit last year was mainly seen from Q2 onwards, and in that light, Humana's group performs well in this quarter, with adjusted earnings in line with last year of SEK 100 million. One of the costs of SEK 13 million in the quarter mainly relates to the acquisition of Team Olivia's Norwegian operations, a transaction signed in the beginning of April.
In 2023, Team Olivia Norway generated an annual turnover of just over SEK 900 million and SEK 47 million in EBITDA, and we expect this transaction to close in the end of the second quarter this year. So in this quarter, we see solid performance in Finland, high growth, stable performance in Norway, continued improvements in Elderly Care. We also see good potential in improving collaboration within the Swedish businesses, why we have established a Swedish leadership team to continue driving the development in the country further. So this is expected to both improve our service offering and client value in Sweden, as well as enhance efficiency over time. And excluding personal assistance, organic growth in the quarter reached 7.1%, and including personal assistance, that number is -1%. The Swedish operations are negatively affected by personal assistance, while both INF and Elderly Care are contributing positively.
Finland has organic growth of 9%, and Norway, as I said, comes in strong at 16%. Adjusted EBIT margin in Sweden reached 3.8%, and Norway grows quickly, but margins can't really keep up in the quarter, reaching a total margin of 4.3%. For the first quarter in Humana's history, we now consider Sweden as one combined reporting segment, and our ambition with this is to ensure we work wholeheartedly on achieving economies of scale in Sweden. This entails developing customer-centered offerings across the business areas in Sweden and ensuring our central functions efficiently and effectively work towards giving the best possible support to our care employees. The efficiency improvements already announced of approximately SEK 13 million annually will gradually come into effect during the year, with no material one-offs in the quarter. Additional efficiency improvements are expected but are yet to be finally concluded.
The organic growth for Sweden reached -6%, which is due to the volume drop in personal assistance that is only partly mitigated by the other businesses in Sweden. All businesses increased prices in the quarter. State compensation in personal assistance increased with 2.5% from January. OPI in Sweden was concluded in April at 5%. Now for some short comments on each business within Sweden. Individual & Family has weaker organic growth and operating profits, mainly due to a decline in occupants in division young. That said, occupants in young does improve sequentially from Q4, reaching an average of around 80%. A shortage of staff is now less of a challenge, and we have highly competent colleagues that are ready to take care of young people in need. The requests for institutional and family placements within young are increasing, and we have a good offering ready to service municipality requests.
Although still relatively slow demand for placements, adult improves both revenue and profitability in the quarter, and occupants have reached around 81%. The 2.1% organic growth for INF as a whole comes from price increases that balance the negative volume effect. Now over to personal assistance that's going through adaptation following the changing market conditions. The net client outflow continues. However, the gap towards a positive inflow is clearly decreasing versus Q4. Gladly, we also win the battle versus competitors, where more customers join us from competitors than leave us to the same. Organic growth is -16%, with a negative volume effect, only partly mitigated by the 2.5% price increase. Simultaneously, the efforts to decrease admin costs continue to give results, and adjusted EBIT margin reached 2.1% in the quarter. Elderly Care shows organic growth of 7% to about 30% occupancy increase, and the remaining is price effects.
Gladly, our Elderly Care units break the record in number of clients at the end of the quarter, and occupancy is on average over the quarter up another percentage points to 91% from Q4. Elderly care has gone through change and has shown sequential improvements since the initiation of the change program last summer. In this quarter, Elderly Care reached a profitability margin of 2% due to improved occupancy and cost control. We still have some way to go, but are moving in the right direction. In Finland, organic growth reached 9%, mainly driven by price increases and a shift towards more complex clients. Profitability is increasing more than two percentage points to 6.5% this quarter. This is mainly due to high demand for placements for young people with extensive care needs, improved prices, and us being able to manage costs better.
Norway continues to deliver, growing organically with 16% also here through the high demand for specialized care and personal assistance. In the quarter, growth to about 20% comes from volume and remaining from general price increases and mixed effects. During the quarter, we see a small net inflow of clients. Norway has a relatively higher staff cost in the quarter. We have, during the last month, reviewed the opportunity to acquire Team Olivia Norway, and the transaction was signed in the beginning of April. It's currently under review by the competition authority, and we are aiming for closing during the second quarter. Thereafter, a diligent and careful integration will begin. Now over to you, Fredrik, for some total financials.
Thank you, Johanna. Revenues are roughly in line with last year. Personal assistance has lost SEK 138 million in revenues, which is almost compensated by increases in the other businesses in Sweden, plus SEK 32 million, Finland, SEK 45 million, and Norway, SEK 30 million. Excluding personal assistance, Humana delivers an organic growth of 7%, which is above our organic growth target of 5%. In Q2, the comparables for personal assistance is for the first time impacted by the full year true quarter effect after IVO's revocation of the permit. Hence, the negative growth in personal assistance should continue to be less negative. Adjusted operating profit is on par with last year, even though personal assistance is down SEK 11 million. Both Q1 this year and last year were impacted by non-recurring items, which I will elaborate more on later.
As the specialization journey in Finland continues to have a positive impact on margins, INF's occupancy rates improve, and personal assistance adapts to more normal circumstances, we will move closer to our profitability target. As you can see in the financial report, we will from now on disclose some additional key metrics, excluding lease accounting effects under IFRS 16. Those measures include EBIT and EBITA, but also adjusted EBIT, adjusted EBITA, and leverage. Worth noting is our business segments are and have always been presented excluding lease accounting effects. Hence, all lease accounting effects are presented under the heading other. As of 2024, we present net debt and leverage without the IFRS 16 lease accounting effects to make the measures more transparent and useful. As a consequence, we have restated our leverage target from 4.5 times including lease liabilities to 3 times excluding lease liabilities.
Our net debt and leverage have improved over the last 12-month period. Net debt is down more than SEK 200 million, and leverage is down 0.6 times, getting closer to the restated target of three times. In the first quarter, net debt increased with roughly SEK 100 million, where half of the amount is explained by negative cash flow after financing activities, and the other half is due to weakened Swedish kronor against euros, increasing the value of our euro-denominated loans. We have, during the quarter, extended the maturity date of our financing agreement until Q3 2026. Scheduled repayments of some SEK 350 million in Q3 2024 have therefore been deferred, and repayments are going to be made quarterly with SEK 50 million kronor from Q1 2025.
Under the new financing agreement, interest margins are somewhat higher, and our interest expense should increase with SEK 30 million per year from April 1st at the current leverage. The annual interest expense amounts to some SEK 250 million, where SEK 150 million is interest on loans, and the remainder is interest on the lease liabilities. Our target is to reduce leverage, and as a consequence, interest margins will be lower going forward. Operating cash flow is SEK 110 million in the quarter, which was a strong number. This is explained by our profit generation, which has been reduced by the working capital effects of -SEK 60 million, which is mainly due to build-up of trade receivable over Easter. Worth noting is that we collected some SEK 91 million in trade receivables the first business day in April after Easter.
During the quarter, we had negative items affecting comparability, reducing our operating profit with SEK 30 million. This amount includes costs relating to IVO revocation of the permit in Humana Assistans, over SEK 3 million, and costs related to the acquisition of Team Olivia of SEK 10 million. And we expect to incur approximately SEK 5 million in additional transaction costs in Q2 related to the acquisition. Q1 last year included SEK 18 million in positive items. The largest item last year was the positive adjustment of contingent consideration of SEK 32 million, offset by costs linked to IVO revocation of the permit. This quarter is compared to last year impacted both by the leap day and Easter.
The leap day contributed to revenues of approximately SEK 25 million, and we estimate that the leap day had a positive effect on EBIT with some SEK 14 million, but Easter had a negative impact of SEK 24 million due to higher personnel cost over Easter. The calendar day effect is therefore net negative of SEK 10 million on EBIT level. The Easter effect is to be reversed in the second quarter. Now some final words from Johanna.
Well, thank you, Fredrik. So in the first quarter, we have formed a group-wide spanning compliance function to make sure the increasingly challenging regulatory pressure is met while maintaining our competitiveness. The compliance function is combined with the ever-so-important quality and improvement activities around the group. In the quarter, both our employee and client satisfaction improves. We also improve the share of clients within institutional care for young in Sweden that leaves our units to a lower level of care. Individuals that completed treatment in institutional care for young in Norway are too few in the quarter, hence not stated. And in the first quarter, we do dedicate resources and time to prepare for a change of IT platforms due in the second quarter. We do this to improve our IT security, productivity, and reduce costs, but also over time to enable better social innovations.
The demand for our services continues to be strong, and despite constrained public budgets, the need for care placements continues to be present. The specialization strategy includes offering placements for individuals where the municipality or region cannot themselves meet the need. In this quarter, Finland is an example of where the specialization strategy within child and youth pays off, a client segment where we have purpose-built facilities targeting complex clients. Demand is high, and we have high confidence in our units to provide good care. And in April, as we have mentioned, we signed this agreement to acquire Team Olivia Norway, which closely doubled our volume in the country to a price of 5x EBITDA post synergies. And then over to our focus going forwards. Of course, is it to persistently continue to rebuild personal assistance and implement the plan put in place early autumn 2023.
The young division within individual and family in Sweden is a clear focus as well. The area is not only vital for society but also an important contributor to the financial development of Humana as a whole. The Swedish country organization is starting to take shape, and although it will take time before we are fully up and running, it's an important step to increase collaboration, improve client offering, and streamline the Swedish support system. We will continue working actively with our portfolio to offer specialized care where demand is high, and social outcome measurements will always continue to be an ever more increasing part of what we do. As the acquisition goes through competition authorities process, we will do our utmost to give our new colleagues a warm welcome in the second quarter. With that, we open up for questions.
If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. If you are listening to the presentation through the webcast, you can ask written questions by using the form on the webcast page. The next question comes from Kristofer Liljeberg from Carnegie. Please go ahead.
Yeah, hi, good morning. Three questions. First, if you just could comment on your work to adjust cost in personal assistance, how much more you could do there to better streamline that with the actual lower number of customers now. Then, very nice to see the improvement for individual and family earnings in Sweden this quarter. Maybe you could comment on the occupancy situation for the start of the second quarter if we could expect further improvements and normalization in the LSS segment. And then finally, given the strong margin here in Finland, would you be able to maybe position Q1 from a seasonal effect perspective, how we should think about Finland going forward? Thank you.
Well, thank you, Kristofer. Let's start with your first question regarding personal assistance. I mean, we do continuously adapt costs. And as mentioned, we still have a net negative client inflow, which means that we are also continuing our efforts and further adding to the streamlining of the whole operations. What we can say in the quarter is that previous quarters we have had between 7%-8% of admin costs. We are at around 10% now. And we think during the course of this year, we should be able to come not to the 7% rates, but come down to at least somewhere around 8%-9%. An example of this is how many clients we have per client lead. Comparable numbers, we had around 14.3 clients per client lead in October. And now that same figure is about 16 clients per client lead.
So that, I think, corresponds to somewhere around $30 million overhead reduction versus the same quarter last year. What we're doing is.
Could I ask you there? Is the reason you can't come down to 7% again is that from a geographical perspective, that the clients are not as optimal as it was before this legal situation?
No, I think it's more an adaptation of what we see happening in the market as a whole, where we increase our efforts to improve insight in the assistance and making sure we have proper support to also the client leads to make sure that we fill everything that we're supposed to do, all the requirements. And we do see that changing. And it's not only us being affected by that. It's the whole industry. So I think that that's one thing. What we can also say is that we will have a more streamlined system support, which should also improve our margins going forward. So I think maybe we won't reach the levels that we've seen five, six, seven years ago, but we should definitely be able to stabilize that at a higher level. So it's significantly higher level than we have today.
From a structural perspective, margins in personal assistance with the current reimbursement should be 1%-2% lower than historically?
Well, I think now we know this is 2.5%. It's a very ongoing debate about the price increases. And I really believe that the whole society will recognize this service as an important part of also coming, I should say, the alternative use of healthcare resources is well placed. It's better placed in personal assistance than somewhere else in the healthcare system. So I don't think we will come back to the 1.5% price increases that we have seen during several years, but rather the 2.5% also going forward. So I think that's a fair assumption to make. And in that way, we'll also see an improved margin situation over time. And just with the key actions going forwards to reach there, it's the further adaptation of the relatively lower client base. It's one operating system. It's also diversification within personal assistance.
Of course, the net client journey. So make sure that we have a positive net inflow. Then over to your second question about INF earnings, occupancy. What we can see, I mean, what's been, what we've seen in the first quarter is that the adult division is sort of flattish in occupancy from the fourth quarter. But they have a slightly better position to also adapt costs to it, which is why they also manage to balance the results easier. That's not the situation in young. They need their final placements. And what's really nice during the quarter is that from the 1st of January up to the end of the quarter in division young, we see a good improvement. It's a steady inflow of clients, which is really nice to see. They also improve in their occupancy rates.
In Young separately, we can see from the 1st of January to the end of quarter, we improve with about 50 clients in Young division, which is, it's clearly leaving the quarter on a better note than we entered into the quarter. Of those, we have about 20 net clients coming into our institutions, which is also very important for margins.
Could I just follow up on that? Have you seen any changes to occupancy after the Easter holidays?
Change in occupancy from the Easter holidays?
No, after.
No, not really.
After the Easter holidays.
Yeah, not really. No, we have a nice net inflow of clients. Sometimes there are hiccups around the larger holidays, but no major there. What we see is that we complete treatments and our clients end up in a good position, which is also very promising for the requests coming forwards that you want also to use us as a collaboration partner also going forwards. And then, Kristofer, can you repeat the third question regarding seasonal effect in Finland?
Yeah, I just note Finland was quite a bit better than what I expected here on the margin. So I'm just wondering, you know, the margin improvement you saw in Finland Q1 versus Q4, is that the seasonal effect or?
No, if we look at.
It's more underlying improvements?
No, I mean, we don't see the significant seasonal effect from an Easter perspective in Finland. I mean, the largest seasonal effects we see in the quarter for the group as a whole relates to personal assistance and Norway, actually. So Finland is almost net zero from that perspective.
Okay. Thank you.
Thank you.
The next question comes from Jakob Lembke from SEB. Please go ahead.
Hi, and good morning. My first question is on individual and family. I'm wondering here, with the better trend in occupancy you're talking about here in the quarter, do you see that you could return to improving earnings year-over-year in Q2?
Hi. Well, I think we, as I sort of mentioned, we're ending the first quarter at a significantly better note than in Q4. We are still a bit in the first quarter last year versus this quarter, we are still a few percentage points behind in occupancy, both in adult and young. Second quarter was fairly strong for individual and family, but I think from Q3 onwards, we should be able to match up the results.
Okay. That sounds promising. And then more of a general question. I mean, also in 2024 here, we will have quite high salary increases. I'm just wondering how you see this impact in the margin here throughout the year and the coming quarters.
Yeah, there are different points in time when these effects come in. I think as a general aspect versus last year, the salaries are not increasing at the same rates across the group, which eases our situation. I think it's also good from the OPI, so the adjustment perspective for the Swedish operations, where the preliminary figure of 4.7% stated toward the autumn has now been confirmed to 5%, which is a fair level given what we have from a salary perspective. So I think on the balance, we should not be worse off than last year.
Okay. Sounds good. That's all from me. Thank you.
Thank you.
The next question comes from Karl- Johan Bonnevier from DNB Markets. Please go ahead.
Yes. Good morning, Johanna, Fredrik, and Ewelina. Good to see that you continue to clean up the number for the IFRS 16 effect. Fredrik, just to understand it certainly, the change of the net target from 4.5 including IFRS 16 to three excluding it, does that imply any change to the underlying target?
No. What we have done is that at year-end, the old target was 4.8. The old leverage was 4.8, and the target was 4.5. So you had a difference of 0.3. Then if we calculate the leverage at the new method, we have 3.4, and then minus 0.3 is then rounded to 3.0. So it's just.
That's what I get to as well. It's like for like, pretty much the same, basically, so.
Yeah. Yeah. Exactly.
Excellent. And when you look at how you report IFRS 16 in the business areas, there is no change to that? You do the adjustment on the other levels rather than trying to push out the IFRS 16 effect in the business areas?
No. No. We have always reported excluding IFRS 16 effect on the business areas, and that has not changed at all.
Excellent. Good to hear. When I look at the new Swedish organization and reaching a margin target on group level of 7%, Johanna and Fredrik, do you think it's reasonable to think about it like that given the underlying mix of the different operations?
I actually do think that we over time will get there. That's why we also maintain that target. I mean, we have a clear specialization strategy in Sweden and across the group. And the reason for that is not only where we see the demand, but also where we have an ability to come higher up in the margin. And I think from a personal assistance perspective, we're working a lot with the cost side. So we should be able to both come down from the levels we see now in admin. And as I said previously, maybe not to the 7%-8%, but sort of coming closer to that from what we see now of about 10%. But at the same time, it's very clear that the 1.5% price increase over the last years has not been sufficient.
I think it's clear now from the discussion that's ongoing in the market that that has to be adjusted. Personal assistance is good from a societal point of view, and the alternative for these individuals is way more costly than the personal assistance service. So I think both from an income perspective or from a price perspective and from a cost perspective for us internally, I think that personal assistance has potential going forwards. From individual and family, the margins in INF have, of course, a larger potential to come up far above the 7% target. But that really has to do with the occupancy levels and our ability to manage costs and do that also in a sensible way. So we make sure that there are no shortcuts or anything taken.
So we've worked actually persistently over a few years to make sure we have an adapted offering that have high quality and can also offer highly specialized service to relatively higher prices that we also can work together with the municipalities to also make sure that we end up in a good way. So we have better pricing ability with a higher specialized care and also higher margins. From Elderly Care, I mean, 2% is better than what we've seen before, but it's far from what we believe Elderly Care has an ability to do. So we just need to continue with full speed on the change program and sort of continue with the incremental improvements that we have been able to achieve. So that's for the three areas in Sweden.
I think from Norway and Finland was really part of your question, but both Finland and Norway have a specialization strategy that should be able to come up to those levels over time.
I'm just listening how you describe it, Johanna. It sounds like the Sweden organization, so to say, the way now you're going to start having the main reporting from, it's really going to be to reach the margin target is really going to be basically driving the model in a similar way as you've done historically on the business area levels of the three, say, operational levels in Sweden.
Yeah, definitely. And I think, I mean, why we also arrange and sort of make sure that the Swedish team can really work together is both to make sure we have an even better offering. And so from a revenue perspective, we should be able to position ourselves well, also make sure we have a customer-centered way of looking at our service, for instance, around certain client groups that today also move between sort of current business areas. But also, of course, from an admin perspective, that we're able to achieve central efficiency. That's really a key to also make sure that we have good support to our employees so they can focus on delivering care rather than administration.
Makes sense. Thank you very much, and all the best out there.
Thank you very much.
As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.
Thank you. We have received a written question from Anton Lund at Kepler Cheuvreux. I will read it out. Can we expect Team Olivia to follow the same margin trend as your current Norwegian operations before Synergy?
That's the expectation. Yes.
Okay. Thank you. Thank you very much. Have a good day.
Bye-bye.