Welcome to the Humana Q1 2023 Report Presentation. For the first part of the presentation, participants will be in listen-only mode. During the Q&A 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, and welcome to Humana's Q1 2023 Earnings Call. My name is Ewelina Pettersson, and I'm the Head of IR. With me today, I have Fredrik Larsson, our CFO, and Johanna Rastad, our CEO. We will, in a regular manner, present the quarterly events, a result summary, and then open up for questions. With that, I hand over to you, Johanna.
Thank you, Ewelina. Good morning. Before we go into the quarterly events, I want to highlight that never before has Humana's ambition and strategy been clearer . This quarter, we have had full focus on our operations in all our business areas, while at the same time managing a crisis within personal assistance in Sweden. This has been possible through clear division of labor, solid leadership in our business areas and support functions, together with the result orientation. At Humana, we have since many years outlined our vision to safeguard everyone's right to a good life. We continuously improve our processes and way of working. The personal assistance industry is going through change. We work hard on trying to secure its future. Simultaneously, we continue to drive Nordic care forwards and making social impact by expanding the areas we include in our social outcome measurements.
We're also in the phase of outlining our first social outcome contract linked to family care. Now over to the quarterly events. We continue to drive the process linked to the revoked permit within personal assistance. We're preparing for an oral hearing in the administrative court in the end of May. We're also reviewing our place in the market, outlining how we can amend our service offering to meet the new market circumstances. Despite the around 15% client loss in personal assistance since the IVO decision, we achieved organic growth of 5.5% for the group and a 50% increase in profitability, with EBIT reaching SEK 117 million, 4.8% margin in the quarter. Adjusting for one-off items, we reach an EBIT of SEK 100 million, corresponding to 4.1% margin.
The improved profitability has been achieved through focus on performance, clear division of crisis management and other operations, and the strength in having solid leadership in our operations. In the quarter, we see continued high inflation, which on the cost side, excluding salaries, has a negative effect of about SEK 22 million in the quarter. Over the period, we had data intrusion, which we immediately reported to the police and relevant authorities. The incident did not have any substantial impact on our ability to carry out our operations. We have in the quarter included further business segments that measure social outcomes and continued working towards getting our first social outcome contract in place. Now a few words on the revenue and EBIT split. The speed of growth continues to be high, and Finland and individual and family gains ground, while personal assistance has a natural reduction to 35% of revenues.
Turning to share of adjusted EBIT, personal assistance share decreased to about 1/4, while INF climbs up to over 50%, and Finland increases its share to close to 1/5. Over to you, Fredrik, for more details on group financial performance.
Thank you, Johanna. I'm very pleased to notice that our organic growth for the second consecutive quarter exceeds our target of 5% and reached 5.5%. Reaching 5.5% is very satisfying, even though personal assistance has a negative organic growth of 5.1%. The organic growth, excluding personal assistance, exceeds record high 11%. Net revenues increased with 13% from Q1 last year to SEK 2,435 million. This is on par with the Q4 revenues. EBIT increased from SEK 77 million to SEK 117 million, with an operating margin of 4.8%. EBIT includes positive non-recurring items of approximately SEK 18 million, and suggested EBIT for the quarter is SEK 100 million, with an adjusted EBIT margin of 4.1%.
I will come back to the non-recurring items. Even though net debt has increased since year-end due to negative cash flow and increased lease liabilities, leverage has decreased to 5.4 times due to improved profitability. The new elderly care facility in Täby that we opened in February has increased our leasing liability and net debt by SEK 145 million. During the quarter, we had non-recurring items that contributed positively to our profit. The first item is a remeasurement of the continuing consideration to be paid for the acquisition of Assistansens Dag. The remeasurement amounts to some SEK 32 million, and this is a similar remeasurement as in Q4 last year, which also amounted to SEK 32 million.
In the individual and family, there is an adjustment of the purchase price for an old acquisition amounting to SEK 4 million. During the quarter, we have recognized non-recurring incremental consultancy costs related to the data breach of almost SEK 3 million. Consultancy costs linked to IVO's re-revocation of the permit in Humana Assistans AB amount to some SEK 8 million. The net non-recurring items amount to almost SEK 18 million. Adjusted EBIT increased with 30% from SEK 77 million to SEK 100 million. This improved profit is driven by significant improvements in INF and Finland. Personal assistance contribution declined by SEK 24 million. Elderly care, Norway, and the headquarters only reported minor deviation. Our acquisitions have contributed to EBIT in INF, Finland, and personal assistance. In the quarter, we have been able to see important price increases, mainly in INF and Finland.
There have been ramp- ups in all business areas except personal assistance. Our utilization has increased in many businesses, but is offset by the fewer assistance hours. Inflation in terms of rent, electricity, and food has increased our cost base by some SEK 22 million. Increased working capital reduced cash flow from operating activities, and we had increases in trade receivables in Finland and in personal assistance. Cash collection in personal assistance is approaching more normal levels. In May, we will introduce digital invoicing directly to the individual clients. We have one item of shareholders' contributions of SEK 10 million, which is related to our four real estate subsidiaries in Finland, where we have minority shareholders that, jointly with Humana, have injected equity during the quarter.
Some deeper insights into the business areas. Johanna, please.
Well, thank you, Fredrik. Individual and Family continues to improve in the quarter, and as you can see, achieves organic growth of 11%, driven by continued solid underlying demand in the core business and price adjustments. Occupancy increased slightly on the total level, carried by increases in the young division, but also strong performance in the adult. Division Healthcare expands according to plan in the quarter, and we welcome our new colleagues at Solstenen i Skåne. Also that in the quarter, the medical-assisted treatment business adding almost SEK 50 million in annual turnover. Profitability also increases remarkably, more than doubling margins year-on-year, reaching 8.3% in the quarter. The most significant reason for the increase is the high occupancy that enables efficient resource management and price increases. Turning to Personal Assistance, we have substantial one-offs in the quarter, mainly relating to the revaluation of a contingent consideration.
Following the decision by IVO to revoke the permit at 31st of January, client losses have reached net 15% and a negative organic growth in the quarter. Profitability reaches SEK 57 million, 6.7%, although adjusted profits reaches SEK 26 million corresponding to a 3% margin. Profitability is negatively affected by increased staff costs, the cost for assistance, and fewer assistance hours delivered. Given the decision by Försäkringskassan to pay directly to clients, we have worked to reduce the friction in the payment flows. Towards the end of the quarter, we are approaching more normal levels as Fredrik indicated. In the Elderly Care segment, occupancy improves year-over-year and organic growth reaches 10%. In the quarter, we opened a new unit in Täby, which, during the period, gradually welcomed new clients.
Underlying profitability is better than last year, but actual performance is burdened by startup costs for Täby of SEK 4.5 million. To that, we have an inflation effect of negative SEK 3 million and a reduction in government grants. In Finland, we see continued solid underlying demand and high organic growth of 14%. This is due to achieved price increases and increased occupancy. Profitability improves mainly as a consequence of price adjustments and decreased sick leave. Higher attendance clearly improves our ability to both take on clients and reduce costs. Inflation hits also here, particularly on rental costs, but also other. We continue to build and fill our capacity for specialized clients where we see a strong demand. Parliamentary elections were held in Finland on the 2nd of April. The opposition's National Coalition Party won the election with 20.8%.
The effect on our business is still difficult to predict, but overall, this is likely to be positive for the private sector. Norway continues to see good demand for our services. Net client inflow continues to be positive, and organic growth reaches 9%. Profitability is somewhat more challenged, mainly due to increased personnel costs. There are currently clear negative political overtones in the country and challenging discussions around employee conditions. Now a few lines on quality management. We apply a system we call the Humana Quality Model, which in essence finds its basis within the old controls that are performed regularly within all our operations. To assist technically, our units use a system for follow-up and monitoring. Internal controls are added systematically over the year to secure all quality aspects are conducted properly.
A natural part of operations is also external reviews conducted regularly by various authorities. 95% of external reviews conducted in the quarter have concluded without remark. We have, of course, a whistleblowing function available should our employees or other stakeholders perceive us to be engaging in unlawful or immoral activity. Using evidence-based methodologies as well as our efforts to measure care results are vital parts of our quality work. In Q1, Humana Quality Index reaches 75, stable versus last year. Our yearly employee survey, we can proudly conclude that our employees continue to be highly satisfied. In the quarter, we're also very pleased to introduce social outcome measurements for Norway relating to institutional care for young people.
This quarter, 44% of concluded placements within HVB in Sweden have resulted in a lower level of care, and the corresponding figure for Norway is approximately 50%. When it comes to reaching targets in the care plan, levels in Sweden increased slightly to 63%, while the same numbers for Norway reached around 80%. Now a few lines on the near-term future. Of course, our focus is continued delivery in all our business areas, as well as securing the future for personal assistance. We have managed to achieve substantially improved results in both individual and family, as well as Finland in the quarter. It's highly important that we continue in the same manner throughout the year. This will be done by continuing specialization, price negotiations, solid occupancy levels, and of course, maintained cost awareness.
The upcoming salary process in the Nordic region will be essential for our possibility to manage personnel cost in an environment with high inflation. Social outcome measurements clearly represent the future of care, and we will continue to work on both introducing more measurements and improving the use of analysis in our work with individual clients to improve their life situation. Never before has Humana's ambitious strategy been more clear. With that, thank you very much for listening, and please feel free to ask any questions you may have.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Kristofer Liljeberg from Carnegie Investment Bank. Please go ahead.
Thank you. Good morning, and thank you. I have three questions. Hope that's okay. The first one is on the working capital situation. You sound pretty positive, but I wonder here, how much higher was working capital in personal assistance here in Q1, and what do you expect for the full year with the new digital payment module? That's the first question. Secondly, I'm surprised by the very high margin in individual and family. Naturally, how sustainable would you say the current profitability is there? Finally, the improvement you see in Finland, how much of the better earnings year-over-year was from a normalization of the sick leave situation? Thank you.
Thank you very much, Kristofer. Regarding the working capital question, I'll hand over that to you, Fredrik.
Yeah. Thanks. The working capital or trade receivables in personal assistance is some SEK 50 million higher in per end of end of March compared to what it would have been if the invoicing had been directly to us instead. We have seen a better collection in April than in March. I think on the long term, it will be slightly better.
With that digital tool or what do you call it, how many more payment days do you expect versus previously?
It, I mean, it's very difficult. I mean, it's, The invoicing we made in February related to the services that we provided in January, the first time we sent out invoices there. As of end of April, we have collected 96% of those receivables. If, if we send electronic invoices, I think we will have a more internal better process or the collection process will be smoother.
Yeah.
Hopefully, we will gain some time also. It's difficult to say if it's one day or.
Yeah, of course. Yeah, I understand.
Two days. I mean-
Yeah, that's fine. Thanks.
Mm-hmm.
And then-
Good. Relating to your margin question, individual and family. We have a solid high occupancy in the important areas of young and adult. We also, as we sort of expected, have been able to increase prices as well. That's why we can also balance the inflation effect in a good manner. I don't see really any reason for why occupancy should come down. I mean, there could always be events during the spring and summer that, you know, is unexpected. There is nothing on the horizon that says we should be substantially lower, at least, on that occupancy side.
Could I follow up on the...
Of course.
Sorry, on the occupancy. Is it Humana that does things much better, or would you also say that, it's a more balanced market than maybe two years ago?
I haven't really checked how Ambea is doing on Nytida, for instance. I think we have substantially improved our way of working with occupancy over the last couple of years. I think that's clear. That's, you know, it's a lot about working with overlapping clients, for instance. If you know someone is moving out, you have to be quick on replacements. I think probably a combination, I would say. Your question on Finland. It's our estimation is that it's roughly $5 million of EBIT effect in the quarter that relates to about two percentage points improved sort of sick leave levels. A rough estimate.
Okay. Yep. Thank you. Thank you.
The next question comes from Victor Forssell from Nordea. Please go ahead.
Thank you, good morning. I'll start with a question on the assistance side. Thanks for updating us again here with the number of lost clients that you've seen since the revoked permit. What can you say about the trajectory of losing clients here in the beginning of the second quarter? We can obviously understand that it's around three percentage points lower than your last update. Please in any sort of qualitative manners, if you could explain the situation for you right now, that would be interesting to hear.
Yes. Good morning, Victor. Of course, it's difficult to predict, but we do believe that there would be a slight net outflow during the process. It's clearly that it's, you know, the pace has gone down in terms of the net outflow over the recent weeks. We have also clearly improved customer gains over the recent weeks too. There's a natural outflow of clients, and we've also gained 22 clients since the revoked permit. That over the last few weeks has clearly sort of improved. I think we during the uncertainties, it's difficult for us to balance the negative outflow.
There is one thing that could of course, have a positive effect, that's this Direct Contracting initiative, where the expectation is that there will be more clients as of somewhere around the summer that will be granted personal assistance. Of course, it's a tricky situation for us to gain at a high speed new clients under these circumstances.
Sure. Understood. Thanks for that. Anything here in the timeline after the oral hearing that you've mentioned, in late May, what can we expect from the outside here in terms of communication? What do you think will happen in the timeline you foresee from that event and onwards?
I would say, our expectation is that it won't take very long for the courts to make the judgment. We haven't been into this process previously, so it's a lot of caveats on that, on this as a projection. I would guess we will get some sort of verdict during the early parts of the summer. It's very likely that irrespective of outcome, this will be appealed to the next instance. This process is likely to continue, is what we're preparing for. When we, you know, get up to the next level, that's also hard to predict, but maybe at some point during the autumn is reasonable to assume.
Great. Just coming back, a last follow-up on your answer. What does that mean for you as a provider in the various outcomes that you foresee here in the first instance? Whether you would lose or win, what does that mean or what implications does that have for your operations in the meantime until it's, well, being or held in the second instance as well? That sort of gap that could be created, what will you do or what can you do in any of those scenarios?
Well, turbulence and uncertainty is never good for this type of trust-based business. We have had turbulent periods before in a similar manner, but then we were much more unprepared. Now we know there will be an oral hearing, and we are in keeping all our customers and our employees, of course, highly informed of how that, how that works, and when we expect the verdict, etc. For us to work with communication and make sure that people feel safe during this process is really important. There is one vital aspect here, and that's about the suspension.
If, you know, if we don't win in the first instance, we will ask for a suspension immediately, of course, to be able to continue our business during the full court process. That's also something, you know, it's very difficult to predict and oversee. We need to be prepared for all the various routes here.
Mm-hmm.
I guess that could be a sort of a lag of a week or so if you from filing that suspension until, you know, getting that approved or not.
Yeah. I think, I mean, the courts have been very, how you say, reliable and understanding the importance of being quick when it comes to the suspension. I think, they will continue to be quick. They understand that it's this is a decision that affects a lot of people that also are partly very, vulnerable.
Yeah. No, perfect. Thanks a lot for your answers.
Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Jakob Lembke from SEB. Please go ahead.
Hi. Good morning. I have a few questions. I'll take them one by one. First of all, is it possible to comment a bit more on the level of the price increases you have achieved here in Q1, and also the outlook for price increases for the remainder of the year?
Let's start with there are two evident areas where we have been able to achieve price increases, and that's in individual and family in Finland. I'll stick to commenting on those. For the individual and family, it's about 3% of the organic growth portion, I should say, that relates to price increases. The rest is volume. When it comes to Finland, I would say it's about 50/50 of the organic growth that comes from volume and price. Just a bit of granularity there , too. In individual and family, of course, it's slightly different depending on which segment we're looking at.
It's the segments where you have a relatively higher turnover of clients that, where we can manage price increases in an easier way. In Finland, the child welfare segment where we have, you know, clearly delivered on our specialization strategy , where we can achieve higher price increases because we have a different service offering. And then in the elderly care segment, that's, you know, still a fairly small part of our business, but it makes a difference for us.
Okay.
Something, something else that I think is important that the OPI in Sweden was confirmed to 4.6% now. Coming up from the estimate that we received in December of 3.5, we now land at 4.6. That could be interesting for you to also know from a price perspective , going forward.
Yes. That sounds good. Just with the upcoming salary increases, then, do you still believe you can sort of increase the margins throughout the remaining quarters of this year?
Yeah. I guess that's the $5 million question, right? I think. Of course, the salary agreements will be really vital for us. We have sort of indications when you look at Finland's, for instance, negotiations, you know. On our side, we suggest about 10% over a two-year period. The other side is suggesting 13%. You know, probably land somewhere in the middle, but there might be a conflict before that happens. You know, the labor unions will start an overtime and change of shifts prohibition from May 2. You know, there will be fairly tough discussions there. In Norway, as for the 2023 settlement, that ended with a conflict, now in April.
Then fortunately, that strike was sort of short-lived. I think it was three or four days. It was over on the 19th of April I recall. The framework for the wage settlement there ended up at 5.2%. Then of course it's the Swedish operations, where, I mean, the union, where we generally traditionally follow the market. With the new salaries of 1st of July. If we follow that, okay, from April 2023, that's 4.1%, and then in 2024 it is 3.3%.
you know, given those figures, parts of the areas will be more challenging than others, but it's not, you know, unbearable if we continue in the same manner when it comes to price increases.
Okay. Sounds good.
A long answer to your question, Jakob.
Yeah. Yeah. It sounds good. Just a follow-up, can you know, say like what's the key date when you expect salaries to higher salaries to kick in in Norway and Finland?
well, I think at some point in the second quarter.
lastly, is that there was an article out this week, I believe, that said that you will receive SEK 140 million if you wind down the operations in personal assistance. Just if you can comment on this and also if this is cash that has already been paid out or will be paid out?
Yeah. Of course, I mean, that the article refers to the time bank. Some of our customers have a positive time bank and some has a negative time bank. The customer offering has changed over several years. Since 2014. This relates to assistance costs then. Assistance cost can be saved in two years. When during the pandemic when so very few of our clients could travel, we let our clients, of course, you know, save that possibility for later. It's money that is used for assistance. That's very much in accordance with the insurance board and tax regulations. According to those, you can't move them between different companies in a sense.
What happens if we wind down? Yeah. Well, that's, yeah, that's also regulated that those that capital will be used for, you know, winding down salaries. It's not due to be paid out or anything. It's not a liability from that sense.
Mm.
We will not get any money. If you read some of our some comment, it sounded like that we are going to receive SEK 140 million if we close the assistance business.
Mm.
And that's-
That's not true.
That's not true.
Okay, thanks. That was all for me today.
Thank you, Jakob.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Well, thank you very much for listening, and have a good day.