Hello, good morning, and welcome to this presentation of Humana Q2 2022 results. In the room today, I have Johanna Rastad, CEO, and myself, Ewelina Pettersson from Investor Relations. Johanna will walk through the presentation, and then we will open up for questions. Over to you, Johanna, and next slide, please.
Thank you, Ewelina. During Q2 of this year, we see a high and stable demand for our services. We achieved a solid total growth with an organic contribution by elderly care in Norway and Finland. Although slowly, we are pleased to see some recovery in occupancy in individual and family and elderly care as the quarter passes. The staffing situation continues to be highly challenging in the post-pandemic time, with an evident shortage of personnel. This causes major strains on our business, hampers growth, and substantially increased costs for overtime compensation, temporary staffing, and introduction and training. That said, in the quarter, it's pleasing to see sick leave is approaching normal levels for most business areas, although slower recovery in Finland and elderly care.
I'm extremely thankful for the dedicated work our colleagues do to make sure our clients get the help they need in a safe and secure way. With what we perceive to be a challenging market environment, we do find opportunities, and in the quarter, we welcome three acquisitions to the Humana Group. To improve profitability, we have several activities in place, price negotiations, sales activities, staff initiatives tailored to modernize recruitment and improve retention, as well as procurement efforts to combat general price increases. Next page, please.
Financially, we grow with 8.9% compared to last year, of which 2.2% organic. Revenue contribution from acquisitions was SEK 140 million. The organic growth comes mainly from the new elderly care homes opening in 2021 and new units in child welfare service in Finland and a high net client inflow in Norway. Individual & Family has a flat organic growth, where newly opened units and increased occupants in mature units balance the negative effect from previously closed. Operating profit reaches SEK 65 million, with Finland and Individual & Family deviating most versus last year, mainly due to staffing shortage. Inflation also affects profitability negatively. The three acquisitions made in the quarter contribute to revenue increase, but with integration costs, not yet the positive contribution on profitability. Over time, we expect our acquisitions to deliver margins in line with our financial targets.
Considering the above, operating margin reaches 2.9%. From a cash flow perspective, we're slightly below last year, and net debt to EBITDA increases to 5.1 times. Next page, please. The Humana Quality Index reached 71, marginally lower than in Q1, mainly due to the acquisitions adjusting to our way of working. Even more employees complete training in Humana Academy, our tool to improve quality through education. We also reduced the number of repeated deviations, indicating we learn from our mistakes. The relatively high activity by regulatory bodies continues, particularly in personal assistance in Individual and Family. We welcome inspections and maintain an active dialogue with the authorities. We also dedicate more focus on social outcome measurements in order to deliver the best possible service to our clients and value to society as a whole. An overall very exciting new way of thinking.
Now, over to financials on page 5, please. We're not satisfied with the performance in Q2, mainly on profitability. Performance is dampened by the shortage of staff and growth efforts not yet contributing to profitability. Although total growth is high, organic growth and profits are below our targets. This is due to shortage of staff driving unusually high staff costs, inflation pressure, and costs relating to newly opened units and recent acquisitions. Over time, units under ramp up and new acquisitions should contribute more on profitability, getting us closer to our financial targets. At the same time, market conditions have fast-forwarded M&A activity, resulting in us acquiring three new companies in the quarter. Next page, please. Here we see a steady revenue increase of 8.9% year-on-year, an organic portion of that reaching 2.2%.
Acquisitions contribute with SEK 140 million in Q2. Elderly care in Norway, and to some extent Finland, contribute positively to organic growth, while closed units in I&F and fewer assistance hours in personal assistance contribute negatively. Next page, please. Profitability is a disappointment, reaching SEK 65 million in the quarter, corresponding to a margin of 2.9%. The main reason for the deviation is lack of staff, which is affecting all business areas to various degrees. Finland is worse off and continues to have high absence rates, a picture shared to some degree with elderly care. Staff shortage increases costs for overtime, temporary staff, and education training. Inflation effects in the quarter are mainly seen on food, fuel, and electricity. We have started several new units over the last year with relatively slower ramp-up times. Acquisitions made in the quarter affect margins negatively.
With that, over to the business areas. Next page, please. Personal assistance has a solid quarter with profitability in line with last year. In June, we concluded the acquisition of Assistans för dig, welcoming approximately 2,000 new amazing colleagues to Humana. The underlying business sees a decrease in assistance hours, partly offset by higher reimbursement. Personal assistance is also experiencing staff shortage, which has a negative impact on organic growth. Over the past year, we see a significant increase in inspections from authorities in personal assistance relating to reclaim issues and company permits. We follow the situation closely. Page 9, please. Here's an illustration of the financial development. Increased revenue of 6.5%, although negative organic contribution of 1.9%. Assistans för dig complement the business area as per June, adding another SEK 600 million in annual turnover.
Operating profits are in line with last year, reaching SEK 34 million. With acquisitions and relatively high staff costs, margins come down somewhat to 4.2%. A continued efficient cost management is partly offset by increased overhead costs for assistance and acquisition integration costs. Overall continued stable performance in personal assistance. Over to page 10 in Individual & Family. During Q2, we see a small recovery after a period of challenges, partly relating to closed units and the pandemic. Occupancy is slowly increasing, and there is a positive trend in organic growth as we continue to focus on filling the newly started units over the last month. In line with our strategy, we open two new units in the adult division and expand capacity in the family care segment, targeting more complex clients.
Staff shortage also affects INF with increased costs to cover for given shifts. Costs relate mainly to overtime compensation, temporary staff, and education training. In the quarter, we welcome Vinstgatan to Humana, adding an HVB and supported housing operations to complement our offering to adults. Actions targeting improved occupancy, securing capacity and competence, as well as cost management continue with full force. Over to financials on page 11. Growth reached 3.7% in the quarter, with flat organic development year-on-year, slowly recovering from the first part of the year. Operating profits also gradually improved during the quarter as the net effects of closed units abate. The results of quality investments and dedicated sales activities are slowly paying off, and occupancy rates are gradually improving.
In the quarter, performance is negatively affected by shortage of staff that increase personnel costs substantially, expansion in family care, and ramp-up costs for new units. Next page, please. Elderly care contributes to growth, although slowly increasing occupancy. There is a negative contribution to operating profits, mainly due to the too slow ramp-up pace and shortage of staff driving high personnel cost. Year-on-year, contracts burden profitability due to costs for a new contract in Kalmar. In the quarter, we signed a contract to open up 100 spaces in Strängnäs in 2025 with a guaranteed occupancy. Although financially it is a pain point in performance, the team is not resting and have several actions ongoing to improve profitability. Among them, we have sales activity, staffing initiatives, strengthening of leadership, and cost control measures. Next page, please. Organic growth of 29%, as illustrated in the upper left chart.
Profitability is not where we want it to be, negatively affected by too slow ramp-up times and high personnel cost, mainly driven by the challenges in finding sufficient staff. New own managed units contribute most to the negative performance. Now over to Finland. Next page, please. In Finland, we experience severe market conditions driven by shortage of staff due to continued high sick leave and regulatory requirements on staffing and COVID-19 vaccinations. In the quarter, we opened three new units within child welfare services and concluded an acquisition that complements our geographical and segmental reach in the open care service field. Although of course a challenged business area, we take local and central actions to improve profitability. Among the most important, we find price negotiations, securing staffing through a modernized recruitment process, system support, and measures to reduce sick leave. We're also adapting the cost base.
Over to financials on page 15. Here, financial development is illustrated with growth coming in at close to 15%, with organic portion of that of 2.2%. Occupancy is relatively flat, some seasonal effects seen in June. Weak profitability also in this quarter, mainly due to the severe staff shortage situation, driving high costs in all divisions, although causing the largest deviation in open care service. Significant actions tailored to improve the situation is in place. Now finally, over to Norway on page 16. Norway continues to perform well with net client increase continuing and organic growth in all divisions apart from Young. In Young, we are adapting to the increased educational requirements with weaker performance than last year. In the quarter, we improved systems and tools, as well as strengths and admin organization to support continued growth and efficiency going forwards.
Focus in Norway is also at ensuring employee attractiveness and secure staffing across all divisions. Next page, please. Financially, Norway continues to grow steadily and has a solid profitability in line with previous quarter, but somewhat lower year-on-year. Overall, a good performance in Norway. That concludes the business area reviews, and now over to financial position on page 18. Interest-bearing debt increases by SEK 475 million to SEK 4.4 billion. Net debt increases due to acquisitions, lease liabilities related to investments in new units and share buybacks. We have a subsequent increase in leverage to 5.1x. Next page, please. Operating cash flow reached SEK 237 million, slightly lower than last year, mainly due to decreased operating profit offset by improved working capital and relatively smaller investments in new units.
Total cash flow reaches SEK 73 million, where investment activities contribute with a negative SEK 66 million and financing activities with a negative SEK 93 million. Page 20, please. In terms of targets, we're climbing up on growth, although not in line with organic growth targets. We're not satisfied with profitability in the quarter and are working intensively in all business areas and centrally to change that. The external environment, with shortage of staff in the care sector as well as inflation pressure, is a reality we work with every day. It pressures us to continuously make improvements and find new ways of working that are more simple and efficient. Next page, please. To sum up, we had a quarter marked by strong growth and investments that with our dedicated actions over time should bear fruit in terms of improved profitability.
Going forward, our focus is clear: increasing occupancy, secure price increases, ensure we have both sufficient staff as well as staff with the right competence. We need to manage costs well to combat inflation. We also aim high by working to implement the measurement of social outcomes to show a positive contribution to society. With that, we open up for questions.
We will now begin the question- and- answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question is from the line of Kristofer Liljeberg with Carnegie. Please go ahead.
Thank you, and good morning. I have three questions. First, on this improved profitability in the Swedish Individual & Family business quarter-on-quarter, if you could maybe explain a little bit more if this is mainly related to better occupancy rates or if costs are coming down also. Related to that, I wonder if you are willing to comment maybe how you expect that margin to evolve in Q2. We expect continued gradual improvement. How soon could you realistically be back at historic margins for Individual & Family? My second question relates to, I think you define as other costs or overhead costs. Because if I adjust for the leasing effect on that line, they seem to be about SEK 10 million higher than normal.
I wonder if you have some extraordinary items or anything in there. Finally, related to Finland, if you're willing to comment on how price negotiations are going there for 2023, and whether you see that as the most important factor to improve margins or if it's more related to trying to adjust the cost base. Thank you.
Thank you, Kristofer. Well, the first question is relating to INF. I'll start there. The profitability improvement has up to a certain degree related to occupancy development. We have been burdened by the closures over quite some time. We see an increase in occupancy in our most important segments. INF should over time, in at least what we're working towards, get back to the levels that we've seen historically. In terms of Finland and price negotiations, that is definitely a part of a strategy. We have worked most intensively with price negotiations in the child welfare service sector.
There we can see, at least for the new clients coming in, that we are successful in those negotiations. That is definitely something that we use in the toolbox to improve margins going forward and to also combat the general price increase that we see. That's for Finland. In terms of the other cost, that's a relevant question. We've had a sale of a property. That is partly explaining those tens.
Okay. You had a loss of that.
Yes.
Earnings loss of selling that property or?
Yes. Exactly. To a net loss.
Okay. Thank you. I'm sorry, is it possible?
Kristopher?
Thank you. We move to the next question. The next question is from the line of Victor Forssell with Nordea. Please go ahead.
Thank you and good morning. I'll start with one on Individual and Family as well. Given the trajectory that you've seen in occupancy improvements in Q2, could you please spend a minute and elaborate a bit on how that has started in Q3 as well? Also, in what sub-segments you're seeing the largest improvements in... I think you alluded to that it was at least in some of them.
Absolutely. Thank you, Victor. W e have worked with substantial activities to improve occupancy over quite a few months. Over the summer, we generally see a seasonal effect both in the Young division as well as the adult division, for various reasons. What we have seen over the quarter is an increase in occupancy across both Young and Adult, which is very pleasing to see. We will have some seasonal effect over the summer, but it's still moving clearly in the right direction.
If we exclude the seasonal effect, is it possible to explain a little bit about the organic growth than what you foresee into the second half of the year? Is it feasible already by Q3 to see a positive contribution in organic growth, given the momentum that you're seemingly having?
Yes, that's also a good question. We've seen in the beginning of the year, we had a negative organic growth. We are flat this quarter. With the improvements in occupancy, that should be improved even a bit further in Q3. W e're really expecting Individual and Family to some degree get back to organic growth as also the effect of the closed units in 2021 about.
Right. Thank you for that. Two more, if I may. Starting with sick leave rates, you talk about them normalizing further at least, b ut we have also seen a wider spread here during the summer months as well with COVID spread in various regions. What is the latest here? Have they been moving up again during Q3? Secondly, I would also like to get the impact of inflation in this quarter, how much that impacted year-over-year, if you could, please.
Yes, sure. In terms of sick leave, we are clearly coming down from the extreme levels in the beginning of the year. We still have relatively high levels in Finland, and to a certain degree, elderly care. Over the summer, it's fairly flat. We, however, see now a bit more outbreaks of COVID in our units, and of course, also affecting staff to some degree. If we look at inflation, in terms of the cost base and other costs, we are looking at, in the quarter, slightly high single- digit effect, and that relates to fuel, electricity, and food.
All right. Thank you so much for that. I'll get back to queue.
Thank you.
Thank you. The next question is from the line of Johan Berggren with Kepler Cheuvreux. Please go ahead.
Hello. I was wondering if you could quantify the startup cost of new units and acquisitions in Finland, and also the same for ramp-up costs of new units in I&F.
I would say in Finland, we have now in the quarter opened three child welfare service units, and they have a slight negative effect. In individual and family, we opened two new units in the quarter. That is also, let me say, from a ramp total ramp-up perspective, they also have a few million SEK in negative effect in the quarter. We also have some integration costs for the acquisitions that we made in the quarter, and then particularly related to the Assistans för dig acquisition. That also burdens the profitability.
Okay. Thank you.
Thank you. The next question is from the line of Kristofer Liljeberg with Carnegie. Please go ahead.
Sorry, it has been answered. Sorry.
Okay, thank you.
Again, if you have a question, please press star then one. The next question is from the line of Karl-Johan with DNB Markets. Please go ahead.
Yes, good morning, Johanna. It seems like the personnel staffing situation is a recurring phenomenon across your business units. Is it possible to quantify, say, how you see the total understaffing for the moment? How many individuals would you need to hire to basically get up to the level where you want to be?
That's a good question. I actually don't have the exact figures on the people that's required. It also varies, I would say, across the business areas. In terms of the profit deviation, it still represents almost half of the deviation we see versus last year. I t has a substantial effect on us. Just very touch up on briefly in terms of the various areas. Individual & Family, they are to a certain degree affected. I would say the worst effect we see actually in Finland that is severely hurt by a combination of both shortage and increased regulatory pressure.
That's also relating to the staffing ratio requirements, as well as the requirements for vaccinations among staff. Personal assistants and Finland Individual and Family are severely off.
When you look at it, is it more your ability to retain people or is it... Because I guess most of these models are based on that you have a quite high degree of personnel turnover. Has there been any change there or where can you work and basically get back to normal, if you put it like that, so you can secure all the sales growth initiatives that you have?
I n terms of retaining the staff we have, we're fairly good at that. We also have high satisfaction among employees in general, and that's also increasing even during the pandemic. We're very pleased by being able to keep important people with us. It's the inflow where we see the largest challenges. We have that has been materially different over the last months. It's a way smaller pool of people to search in. That's why we also need to partly shift the way we recruit staff.
That's my next question, really. How are you trying to do that? What actions are you taking? How can you play this shortage if that's a general market phenomenon rather than something that you are just seeing?
It is really a general market phenomenon. I'm confident that we will be able to take a share of that that we can at least, fill the gaps that we have. Well, it's about modernizing the recruitment, the way of recruiting. We have been very well off, having actually quite a lot of applicants turning to us without a major effort. O ver the last months, we've shifted that way of working. Changing us reaching out to people rather than waiting for people to get to us. It's making that process way simpler.
That's an important way of working with it. It's also taking care of the applicants that come in. For given roles, we have had a substantial amount of people applying over quite some time. Maybe it's also something about offering them, asking if they don't get a certain position, also offering them other roles in the company. There is plenty to do, and that's what we're also doing because we know that the o verall staffing challenges in the care and healthcare sector will be challenging in the years to come.
If you look at the actions that you now have in place, do you see this situation normalizing, so to say, or during the second half of this year o r is it a two to three-year process to get things organized and getting it right here?
Yes. I think our internal process, we can shift fairly quickly, but the shortage will be something that we will battle over some time.
Good luck. Thank you.
Thank you.
Thank you. The next question is from the line of Tobias Kastenhuber with Discover Capital. Please go ahead.
Yes. Hello, good morning. Actually, most of my questions were just answered. I just have one little bit follow-up on this. We just discussed that the staff shortage and so on will continue for a while, probably the inflationary pressure will as well. You already mentioned that it's not so easy to offset that, but do you have anything in the back of your mind that can help restore profitability a little bit even though you probably will face higher sick rates in winter again, inflationary pressure will continue, and so on? Do you have something to offset that besides just higher occupancy rates, or is that all you can do at the moment? Thank you.
Thank you for your question. There's always plenty to do. W e are not the victim of the circumstances, so this is a reality, so we have to work with them. That's what all the business areas are doing, depending on the degree of challenge. Start from a staff shortage perspective, we're taking measures in all our business areas. That's also tailored to where we see the shortage hitting us the worst. If it's post gymnasium capacity or if it's on the higher educational side. We need to combat the challenge in different ways depending on where we see the shortage.
I definitely think that we have 20,000 plus people working in our organization. Given a natural turnover, it's definitely something that is doable, if we get our mind to it. We should be able to combat it. Of course, we have with the inflation pressure and the shortage of staff, we will have the salary negotiation process mainly happening towards the spring, but also partially now during the autumn, will be absolutely vital for us, of course, going forwards.
Also to meet inflation and generally price increases, in inflation, of course, we need to work on our revenues, and that's why we're also looking at lifting prices for our services. In several business areas, we have offerings to complex clients. Some of them we can change fairly quickly in terms of if our cost base change. There are definitely actions that we can use in the toolbox to combat it. Right now, of course, we don't know the relative success of each initiative.
C an you maybe quantify the inflationary effect of electricity, food, and so on the profitability compared to, let's call it normal inflationary scenario?
Yes, sure. We've estimated that to a high single digit in the quarter.
On EBIT or EBITDA?
Yes.
Okay. Thank you.
Thank you. The next question is from the line of Karl-Johan Bonnevier with DNB Markets. Please go ahead.
Hi again. I guess it's still coming back to the personnel challenge. If you look at personal assistance, I saw that you mentioned fewer assistance hours, mainly due to your personal challenges, so to say, in the area. If you had the sufficient number of personnel there, would say you have had growth in the number of hours you had produced per caretaker, or would it have been stable? How do you see that? Just to get a flavor for how this challenge plays out in the different areas.
Yes. Well, I think if we had the proper staffing, we will be probably slightly positive, flat-ish or slightly positive organic growth in the quarter.
There, I guess we are coming back to that, this mainly post secondary school level people that you have. Is it similar challenge in the less qualified staff here than this is for the qualified staff with the university degrees for you to find them and hire them?
Yes. That's a good question. The largest challenge we see in the less educated group. I think that's also something that will continue in the years to come. We know that there will be less of a shortage for at least in certain qualifications. That does not include nurses. Nurses also tend to be very difficult to find b ut the less qualified group as a total for us is most challenged.
Sorry for going on about this because I think...
No
It's obviously valid for understanding how quickly you can recover. How can you work in that segment to find people more effectively? Because I guess there you have historically been quite good at having a good pipeline. I remember at least historically, there was about two people for every work or something like that you offered or something like that in the ratio. Has that changed very much?
That's an interesting figure that I haven't heard before, but I think we have been fairly successful over the years, and we are also perceived as being an attractive employer in this group. I f there is a change, but we can see definitely that people from abroad come into the country and can contribute in the care sector very well. For us, it's also about having a good offering for people to come in to get their first job. Like language training, for instance, making sure that they can help in a good way from a communicative point of view. It's taking care of people that come into our country in a good way, and there we can help out. We make a contribution not only to Humana, but also to the society as a whole.
Exactly. Now, just looking at the gearing level, you're obviously now above the financial targets that you have on that. With the normal free cash flow in the second half, and how do you see that playing out, getting back in order there? Then obviously, you have been quite opportunistic when it comes to capital allocation, buying back your own shares rather than looking at dividends when there has been room for it. Is that the proxy we should expect for the future as well?
Yes, that's a good question. I'm not going to comment on the share buyback plans, but I can say from an overall leverage point of view, we have made quite some investments in new units over some time. We also made acquisitions. To that, the share buybacks, which has pushed our leverage slightly. To that, we also don't have the profitability yet. It's not where we want it to be. Going forwards, I mean, we've had from an acquisition point of view, we've had substantial activity in recent quarters. Now it's time for us to focus on integration and also delivery of those acquisitions. We've also built a lot and that now we need to secure the growth in those units.
Of course, we will continue to open up new units, but focus now in the coming period is to really make sure that we take care of what we have and fill the capacity we have. Finally, from a profitability point of view, it's dedicated activities on lifting occupancy, the price negotiations. I would also say, winning the war for talent, as we talked about, will be absolutely vital for us, as well as, of course, cost management.
Good mix. Thank you.
Thank you.
Thank you. A reminder to all participants, if you have a question, please press star then one. Again, if you have a question, please press star then one. This concludes our question- and- answer session. I would like to turn the conference back over to Johanna Rastad for any closing remarks.
Well, thank you very much. Thank you for the call, and have a continuing good day.