Welcome to the Humana Q4 2023 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 star five 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. My name is Ewelina Pettersson. I'm the Head of IR at Humana. I would like to welcome you to today's conference call. We're gonna talk about the Q4 and full year report of 2023. Our CEO, Johanna Rastad, and CFO, Fredrik Larsson, will take you through the main events, and after that, we will open up for questions. Over to you, Johanna.
Thank you very much, Ewelina. 2023 was turbulent for Humana, following the revoked permit in personal assistance in the beginning of the year, the subsequent legal process, and the final win in the administrative court. The personal assistance business was largely affected by this, losing about a fifth of its volume during the year and a substantial part of its profits. The total direct costs incurred due to that event reached close to SEK 50 million over the year, in addition to lost profit in personal assistance, following lost annual revenues of around SEK 600 million. And despite that, Humana as a group, over the year, grew total net revenues with 5%, maintained positive total organic growth, improved operating profits with 3%, and adjusted operating profit with 9%.
Excluding personal assistance, organic growth reached 10%, which is a historically high level, and adjusting that operating margin came in close to 6%. This is an increase with over 60%. Moreover, we improved operating cash flow year- on- year with 21%. This is very clear proof of resilience in challenging times. The personal assistance change journey, initiated in 2023, continues into 2024. The court verdict was very clear and gave directional input and clarification to the expectations of us as assistance coordinators going forward. Clear guidance and transparency make it much easier for all serious care providers to operate in the market. The transformation achieved in Finland is a fact, and the specialization strategy has paid off, with 14% organic growth in the fourth quarter, driven by both occupancy improvements and price increases.
Simultaneously, Adjusted EBIT margins improved from 1.3% to 4.9% in the fourth quarter. Challenging in the quarter is the relatively tight municipality budgets in the Swedish INF market, illustrated by a drop in Individual and Family placement requests of up to 50% in parts of our core business in Adult and Young. And despite this, we increased the percentage of requests turned into placements, and we managed to balance up total occupancy levels in December in Division Adult, but not in Division Young. The volume drop is partly compensated by price increases, but EBIT still drops around 25% in the quarter. We continue keeping up to speed with implementing our strategic plan.
The spring eve events caused us to postpone a few activities, which we're now implementing, and one aspect of this is continuing to work with our portfolio according to the specialization strategy. We're also working internally to improve robustness and local business support. In this development, we're integrating elderly care into Individual and Family, as well as consolidating parts of business support functions across Sweden. Increased robustness being one purpose of this, but also enable better collaboration between nearby businesses, as well as improve efficiency. The total yearly direct effect of these initial organizational changes within INF and elderly care is expected to reach approximately SEK 13 million, but further efficiency gains are anticipated. We're also clearly progressing work with our social outcome measurements. We've designated internal resources to drive the work forwards and finally start to receive significant interest from municipalities on our outlined social outcome contract.
This truly drives Nordic care forward with the ambition to improve the everyday lives of people in need of care. Finland and elderly care provide the most significant improvements in the quarter. Finland grows organically, with 14%, reaches an operating margin of close to 5%. Elderly care also improves, mainly through hard work with occupancy levels, particularly in the relatively newly established units, but also takes steps towards improving steering and control. Personal assistance continues to have a challenging time, although the initiative started in the autumn after the legal win, is carefully starting to give effect. INF has temporary occupancy challenges, which for the Adult division, comes back to more normal levels in the end of December. The final placements are important contributors to the margin, and they are temporarily weighed down in the quarter.
Norway continues its stable performance, as we've seen over the last years. An overall strong performance from the group, where weaker performance in personal assistance is compensated by improvements in our other business areas. And in this picture, we illustrate the relatively strong group performance in 2023, despite the major hiccup caused by the revoked permit in the beginning of the year. Removing personal assistance from the group equation, we have a good performance for the full year, with organic growth of 10% and Adjusted EBIT margin of 5.9%. Personal assistance will come back over time, and then we're well-placed to perform substantially better at group level. In 2023, the total group reaches an Adjusted EBIT of SEK 441 million corresponded to margin of 4.6%. And now over to some insight for each of Individual business area.
Starting with Individual and Family, that has a financially challenging quarter, driven by relatively more careful buying behavior by municipalities, which in turn is driven by tight year-end budgets. Organic growth was 0.8%, of which most of the positive effect is weighed down by the volume drop in both the Adult and Young divisions. The Adult division reaches on average occupancy of 82% in the quarter, which is slightly lower than in Q3, and Young, 79%, which is about 3 percentage points lower than the previous quarter. We start and take over a total of seven new units in the quarter, which together with the three closed units, contribute negatively to profitability compared to the prior year. Among the new units, we find five new LSS units in Skarpnäck, with 100% placement guarantee.
In the end of the quarter, volumes in the Adult division return to more normal levels, while Young, towards the end of the quarter, completes treatment of 12 adolescents, who then leave our units before Christmas. A large part of these young people leaves our institutions to a lower level of care, such as family placements or moving back home again. Over 2023, a relatively larger share of our clients within Young leave to a lower level of care. A win for the Individual and, of course, to society as a whole. Now on to personal assistance, where the transformation continues. The reorganization and new ways of working have started to give small effects, carefully lowering administrative costs and substantially improve quality. Volumes are continuing, continued to be net negative, although at relatively lower levels. Returning clients and new clients cannot compensate for the partly natural outflow.
We have a negative organic contribution of 22% in the quarter. Positive adjustments for pension costs contribute to the result with around SEK 10 million. Operating profitability decreases significantly, mainly due to the decreased volumes. Operating margin decreases to 1.5%, and we continue to work towards adapting central costs to the relatively lower volumes. Admin costs in the quarter reach above 10%, which is well above historical levels. Activities to further streamline support operations are ongoing. As first of January, the state compensation increases to a half percent, and we will persistently continue with the change program, and we expect it to give increasing effect over time. Then a few words on elderly care that improves their business in the fourth quarter. Organic growth reaches 6.4%. Occupancy increases 1 percentage point to 90% from Q3.
EBIT more than doubled to SEK 14 million, and improvements is mainly driven by the revenue increase, that's in turn related to price increases and higher occupancy. Higher efficiency in staffing and administration offsets the relatively higher property cost. EBIT margin reaches 6%. This even though we've opened a new unit in Täby in February, with associated start-up costs of approximately SEK 2.5 million in the quarter. Over the last half year, an extensive focus has been set at increasing local business support and centralizing key KPIs. To that, some units have increased specialization through a collaboration with INF. Occupancy improved somewhat over the quarter, and key to forward success is continued occupancy improvements and cost control tied to the key central KPIs. Then over to Finland.
Finland ends the year on a good note with a strong organic growth of 14% and substantially improved profitability. The organic growth is to 70% driven by price increases, relating to both a service shift mix towards more specialized services, as well as general price increases, with the remaining 30% being volume growth. The main reasons for the profitability uptick relates to growth. Inflation-related costs partly offset the positive revenue effects, so does relatively high cost for sick leave. The specialization journey, of course, continues, and we're now the market leaders in our main segments, child and welfare services and open care services. Now, finally, over to Norway, where the underlying business continues to perform well with an organic growth of 16%. Approximately 70% of the growth is generated by volume increase, and the remaining 30 by price.
Norway has managed to get steady inflow of new customers, which serves them well. This, however, does not come for free. The Norwegian management team is working extremely hard and focused to maintain a solid performance month by month, quarter by quarter. And over the years, they've managed to continuously improve to meet the market, as well as incorporate new regulatory standards and agreements. The new collective agreement within personal assistance that came into effect this spring has pressed margins, so has new scheduling arrangements in the institutional care, but the team has met the challenges by further operational improvements and innovation. Particularly good profitability improvement is seen within the young division. So thank you, Norway, for another year with solid delivery. And now over to you, Fredrik, for more details on the group financial performance.
Thank you. Thank you, Johanna. Organic growth in the quarter is negative with 2.5%. The stable double-digit growth continues within Finland and Norway. However, this does not fully compensate for the negative growth in personal assistance of 20%. If we exclude personal assistance, the other business areas together have an organic growth of solid 8%. Adjusted operating profit is on par with last year, even though reported profitability is down with 33% compared to Q4 last year, mainly related due to large non-recurring item in Q4 last year. In nominal terms, Adjusted EBIT is unchanged with SEK 89 million and a margin of 3.7%. Reported EBIT has decreased SEK 42 million from SEK 127 million to SEK 85 million, with an operating margin of 3.6%.
This quarter include costs related to IVO's revocation of the permit in Humana Assistans of SEK 4 million, and last year included a positive adjustment of continuing considerations of SEK 38 million . Thankfully, our leverage continues to decrease to 4.8x , getting closer to our target to be below 4.5x . Net debt has been reduced due to good operating cash flow in the quarter, which is offset by increase of lease liability, lease liabilities due to the year-end rent increases. Operating cash flow in the quarter was strong. This is explained by our profit generation during the quarter, but also, the reduction of working capital of almost SEK 200 million , explained by good cash collection of receivables. Capital expenditures have been reduced since last year. And now some final word from you, Johanna.
Thank you, Fredrik. Well, the Humana Quality Index for the quarter improved from the third quarter, with all business areas, apart from Norway, increasing their total score. Worth noting is the employee side, where an even larger share of our employees complete accurate training within Humana Academy and receives continuous professional development. This is one part of our offering to our employees that also causes our eNPS to improve from 14 to 17 this year. That's noteworthy, given our tough experience early in the year with in-person assistance. Eight serious deviations were reported to the authorities, three in INF, two in personal assistance, and one each in Finland and Norway. And on top of these, one data incident was reported to the data authorities. This quarter, we continued to extend our social outcomes even further, including personal assistance regulated by the LSS Act.
The purpose of the law and the effort stemming from it is that people covered by the law achieve equality in living conditions and full participation in social life. Individuals must be able to get the help they need in their daily life and to be able to influence the support and service they receive. Individuals in our personal assistance care have serious and long-lasting functional impairments, and despite this, 78% of our clients to see that they can impact their life situation. This is an example of how we at Humana proudly make positive impact. And that's only possible through the social innovation our employees show every day when performing the direct care, and of course, through the trust from our owners. And we really mean to make sure that this market continues to develop, and for that, we need capital.
This market is non-cyclical and dependent on people, not products. With a clear legal verdict received in personal assistance this summer, our regulatory environment is more certain and predictable. Transparency and predictability are important for operating environment, and we're placed where the societal need is the highest. We've managed to grow substantially over the years, being a part of a continuous consolidation and development, managing through the spring events, and at the same time, improving adjusted operating profit with 9%, clearly demonstrates the strength of the group portfolio. Investing in Humana means being a part of developing society to enable support at the right time to those who need it. The importance of investing in sustainable value creation, particularly on the social side, will be clear advantage in the years to come. In that transition, don't forget where you first heard the concept of social outcomes.
Now to the focus forward. Of course, personal assistance and the acceleration activities is of utmost relevance and focus for us, and ensuring we stick to the plan that's starting to give effect and continue to drive development. The same goes for elderly care and the turnaround program. The team needs to to find its place in the arms of an Individual and Family, and I'm sure they will. We will continue working on establishing a Swedish organization to further strengthen the robustness and support to our operations within elderly care, Individual and Family, and personal assistance, as well as ensure efficiency across support functions within the country. And finally, we will never stop driving positive change to the Nordic care receivers. Our contribution will focus on establishing and deepen social outcome measurements. And with that, we're happy to answer any questions you may have.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Kristofer Liljeberg from Carnegie. Please go ahead.
Thank you, and good morning. I have four questions. Hope that's okay. First, could you maybe give a figure for the one-off cost you had in Norway?
The figure for the one-off cost in Norway?
Yeah, you mentioned there were some cost of extraordinary nature. I guess you haven't adjusted for that?
No, no.
No.
It was a few million SEK.
Okay. Good. And then, could you also, just a housekeeping question, if you could repeat what you said about occupancy rates for Individual and Family?
Yes. So there are different, depending on which part you look at in Individual, Individual and Family.
Yeah, but I think you said 82% for Adults, yes? And that was down some from-
Just a little bit down on average over the quarter. So and that's sort of really thanks to December, where we lift up levels where the first two months are relatively lower. So December is sort of we're ending the quarter on a good note in Adult, but relatively low in Q3. And in Young, we are three percentage points lower on average versus the third quarter. So, that those are the main.
What was the figure in Young in absolute term?
79.
Sorry.
79. Yeah.
Okay. Could you comment on the occupancy situation for these two segments now in Q1?
Yeah, I think we can say that we sort of follow the same pattern as we do in December, where Adult is sort of holding up their levels, and even slightly increasing in January. Whereas, the Young division, the Young division actually sort of picks up towards the mid of December, just before Christmas, and then drops about 20, 20+ placements, because they are sort of completed their their treatments. And now we're sort of moving around the same levels as we end December in Young.
Okay. So that's... But if you compare year-over-year, then how's the situation right now for Young?
It's slightly lower for Young. It's better for Adult.
Okay, and if this remains now in Q1, what would that mean for earnings year-over-year? Will this be another quarter with declining earnings then for the Swedish Individual and Family business?
Well, I think it is really important that the Division Young picks up. I mean, if the Adult continues to improve, as they've done sort of, during the fourth quarter and also a bit into the first quarter, then they would be able to compensate partly for the Young, the drop in Young. So that's the sort of... Yeah, I think we if we are, yeah, if we manage to build up well in Adult, we would be able to compensate for the drop in Young, alternatively, then, and pick up in Young. But I think, I mean, the belief is that, you know, the requests will sort of steer how much we can place.
In terms of requests, we can see that coming back somewhat in January. So then that's sort of that puts us in a better position. It's easier for us to make placements when we have more requests to work with, let's say.
Okay, great. And finally, from me, how we should think about profitability or earnings here in personal assistance in 2024? It seems difficult to regain a positive net inflow of customers. So how much could you do on in cost, and what and when could we expect this business to start earning money again? Thanks.
Yeah, I think I'll start on the, sort of the client side. I mean, we had, we lost about 330 clients post the EVA decision. And out of these, we targeted about 200 that we thought were suitable to approach to come back to us. But we have a relatively lower number of returning clients. It's not easy for clients to move. And so we see that, you know, the returners are lower than we expected. And then I think, sort of the net, the net loss in volume, you know, the target is to make that, sort of to compensate with the price increase we get from the beginning of the year.
So we end up in maybe ±0 on organic growth. That's sort of where we stand right now. And I think from a profitability point of view, we've done some good initiatives on streamlining the central overhead costs. We're still at somewhere around, so slightly north out of ten, so 10.7, in the on average in the quarter, which is way well higher than the around eight that we've had historically. And I think that's what we will target as we don't see the growth sort of returning.
Because I guess, yeah, but even if the number of clients are smaller now, I guess if you go back a few years, you had the same amount of clients, much better profitability, of course, you know, you have had inflation, et cetera.
Yeah.
But I guess it should be possible to do, you know, much better margins and earnings than what you do right now.
Yeah.
Isn't it just to be pretty aggressive on, on cost here, or is that more difficult than it sounds?
Yeah, I think it's a bit more difficult. But I think, you know, I think you're right. Over time, it will be doable, but I think we've been a bit careful with the organization because, you know, it's been such a turbulent time, and now we've done a bit more in terms of reorganization. We've reduced the number of districts. We have sort of consolidated other central overhead functions. So, and we also have, you know, a good chance of streamlining based on sort of the digital infrastructure. So there's definitely more, there's definitely more to do. And I also so think that over time, this is definitely doable. I mean, 10.7% of admin cost is way higher than it has to be.
It just takes a little bit of time. It's a large organization.
Would you be willing to give any sort of indication what type of or margin we could expect for this business in 2024?
I'm also, like, generally really careful with giving predictions, but I think as the fourth quarter is still not fairly good, and I think it's somewhere there and slightly north out of the fourth quarter that I think we can expect.
Yeah, but, I mean, the fourth quarter includes SEK 10 million of non-recurring pension liabilities.
Yeah, and I think that's why-
So adjust for that, you make zero margin.
Yeah, that's why I think we can, you know, come back to—if you, if you count that 10 as the regular margin, I mean, we should be able to deliver 0.5%+ , if you look on the, on—for this year. That's, that's it, you know, what I, what I, what I see now. We should be able to incorporate that into the underlying business in a sense.
Okay. That's very helpful. Thank you very much.
Thank you.
The next question comes from Jakob Lembke from SEB. Please go ahead.
Hi and good morning. I have two questions. Starting on Individual and Family, I'm not sure that I heard it correctly, but this caution as from municipalities to place clients, has that sort of improved, or do you expect that to continue in 2024?
Well, it did improve in the Adult division during the quarter, and then we've sort of entered into January on a good note for Adult. We also have slightly higher requests in Young, but we haven't, you know, in the beginning of the year, managed to build up any sort of large occupancy improvement in Young.
Okay, but you think that it will get back to normal during the year, and what sort of reason for that?
Yeah. I mean, it's we believe this is a temporary dip. We are well-placed in our offering, so I don't, I don't expect this to continue a long time, but it takes. You know, we have to also make new placements sort of carefully, and we in Division Young, for instance, we, it's about a bit more than 20 clients completed treatment towards the end of the year, and that makes a difference for our occupancy levels. And then we need to sort of bring in new clients in a careful way and really make sure that we match properly, with the sort of underlying resources that we have to take care of the people, because we are in a highly specialized environment. So, you know, we, we need to be do that carefully.
So I don't expect us to bounce up with 15, 20 clients over a week. I think it will take a little bit of time for Young. Adult is slightly better than last year. So I think we should. It will take a bit of time, but over time, we will be able to balance that.
Okay, and then on elderly care, good to see the rebound here in Q4. Would you say the margin in the quarter is sort of representative of the current run rate, or what would you say?
Well, I think we are sort of a bit helped with the government support that is retroactive. It's not to any large degree, but a bit helped. But of course, it's clearly that occupancy levels have increased, so that's a benefit for us, and we've also managed to, you know, get price increases that are, you know, sufficiently to cover for cost increases. So, given that, I think it's, yeah, slightly more maybe than the underlying, but I still think it's, you know, it's still a good performance in the fourth quarter.
Okay, that's all for me. Thank you very much.
Thank you.
The next question comes from Karl-Johan Bonnevier from DNB Markets. Please go ahead.
Yes, good morning, Johanna and Fredrik. First of all, it would be good to just hear your take across the divisions, how you see the, the potential for price adjustments this year compared to cost inflation and how they, they balance for you to, say, going into 2024.
Yes, hi, Karl-Johan. Well, I would say the price adjustments in the Swedish market, we have personal assistance of 2.5% as of first of January. That will sort of help us until we get the adjustments on the collective agreements in the summer. So that's for PA, it's really transparent. It's sort of one price tag there. For elderly care and INF, it's a slightly more complex picture. What we know now is that we have the preliminary OPI of 4.7%, sort of adjusted as of first of January. So that's generally, the sort of preliminary rates are at the level of the confirmatory rates towards the April time when that's set. So I think that's...
You know, that's a relevant figure given what we've seen on the cost increases. And then, of course, not all of our contracts and our placements are tied to OPI, but it's still used as a reference, even for the individually negotiated price. For Finland, I think we have, I mean, parts of the price increase effect comes from the specialization strategy, where we have more severe clients, and hence, also can charge higher prices for them. And then partly relates to price increase within the housing services, where the price increase were relatively sort of beneficial for us, from the beginning of the year.
So I think for Finland, given that we continue on the specialization journey, I think we should be able to get good compensation for that specialization strategy. And again, it's the final placements that make the most of the profitability. So it's really vital that we are placed right in the market, and I believe the specialization and that sort of aspect of the Finnish journey is clearly giving good effect. And then for Norway, it's I mean, we have the largest increase. We've got the 16% organic growth, which is the largest impact. There it comes from volume increase rather than price. But I think, you know, the political headwind that we have within the Young division has changed somewhat, I would say, from the summer.
It's clearly a very strong need for that type of placements. But I still think the volume effect will probably be the highest even in the sort of near coming months in Norway. So if that gives you some sort of direction, at least.
Yeah, no, it's good. You answer a lot of different questions with that. But if you look at, say, how you see now standing at the start of 2024, the balance between, say, your price adjustment you see and the cost inflation you see, well, is this a year where you can regain some lost territory, or is it a balance year, or is it a year where you will see continued headwind? I understand what's happening in personal assistance, but the other areas, mainly.
Yeah, no, and that's really right. When we look sort of in the backward mirror and look at sort of the inflation effect across the group, I think we anticipated when the sort of high inflation environment started that we would sort of net out over time. And I think when we look at the 2023 figures, it's—that's actually the case. It has sort of netted out with a sort of a larger effect in the beginning of the year and less so in the latter part of the year. And that's, of course, partly driven by... It's slightly skewed, the price increases versus the cost increases in the different areas.
But I think, and I would say also one sort of complicating factor is that, you know, strategically, we have placed ourselves in the sort of higher specialization, you know, area. So it, and it's like, it's not always so easy to, you know, separate out what's the general price increase and what's the price for us actually providing more specialized service. But I think, you know, on average, we managed to balance it out, and I think that, yeah, the rearview mirror maybe speaks a bit for the coming road, too.
Excellent. Thank you for the color. And, and Fredrik, I see that you had a good release on working capital norm in, in Q4. I guess, a normalization over the year. Is that how we should see it, or is there more opportunities to come there?
I think we should look at this over the full year, where the working capital was, if I could recall the number correctly, it was -SEK 29 million over the full year. So I would say it's a normalization. We have normalized the level.
Yeah, and I guess you normally say that about 4% of sales, negative-
Mm.
is a good assumption as well, where I see you ended up. So, that is how it should be, basically.
Yeah, yeah. And we managed. I mean, you remember that in Q3, I commented on the calendar effect, where we had September 30th on a Saturday, and now we had the year end, of course, also on a year on a holiday, which we managed pretty good. And then we should remember that in March, then the last business or the 29th is what do you call it?
Sunday.
It's a Friday, a light day. So we might have the same problem, but the cutoff problem with the Q1. But year-over-year, it should be fine for the full year 20-
Good to hear. And looking at the gearing level of 4.8 at the end of the year, is it fair to assume that also 2024 will be a year where, say, the primary capital allocation will be to gear the balance sheets?
Yeah, that's our expectation.
Thank you very much, and all the best out there.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five 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.
We have two written questions, so I will read them up to you. The first one comes from Johan Lindgren: When do you expect the quarter -and -quarter adjusted operating results within assistance is not affecting the overall results within the group negatively? In Q year, this year, or in later quarters?
Well, I think unfortunately, I mean, we've lost about SEK 600 million in yearly turnover from personal assistance, and those, you know, SEK 600 million will take a long time to get back. So it has sort of impacted us substantially with, you know, a profit loss of course, and so on. And I think what we won't take with us is the, you know, all the costs that incurred during the spring from, like, a process perspective. But I think it will take time. So that's why we're also working intensively to try to balance up the performance with the other business areas.
As we also actually spoke about a bit earlier with Kristofer, I mean, we should be able to balance up the margins in personal assistance over time, but it will take a bit of time. It's a large organization, so.
Thank you. The next question comes from Octopus Scott Holding. What does the new Swedish organization mean in terms of cost savings in administration?
Well, there are literally two things that have happened this quarter. One being the integration of elderly care within Individual and Family. That direct event is expected to reach about SEK 13 million in annual savings. And then two, that we're also streamlining the central functions across all the three business areas in Sweden. And that's also expected to give some effect. We will have, you know, one-off costs related to that in the first quarter to also sort of get that gain. But over time, you know, I think the largest win will be the increased collaboration between the Swedish business areas. That's where we will see the real benefit, and that will be, should be, will contribute more than those SEK 13 million.
We have no further questions. Thank you, everyone, for listening. Have a good day.
Bye.