Welcome to the Humana Q2 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. I will hand the conference over to the speakers, CEO Johanna Rastad and CFO Fredrik Larsson. Please go ahead.
Good morning, and welcome to this earnings call. My name is Ewelina Pettersson. I'm Head of IR at Humana, and with me today, I have Fredrik Larsson, our CFO, and Johanna Rastad, our CEO. They will walk you through the main events of the quarter, and then we will open up for questions. Over to you, Johanna.
Thank you, Ewelina. I start this call making the same note as in the first quarter, namely, that never has Humana's ambition been more important than clear. We have, in this quarter, successfully concluded the permit process for Humana Assistans, which is a highly important achievement, not only for Humana, but for the well-being of the Swedish Disability Act, the LSS reform, which was introduced to guarantee good living conditions for people with severe disabilities. We won in the first legal instance, IVO decided not to take the process further. I will revert to this when we walk through the developments in the Personal Assistance business area.
It's important to stress that this had not been possible without the trust from individuals that have chosen Humana as their care provider, the extremely dedicated work of our employees, as well as the important user movement and other stakeholders that have believed in us from the very beginning. To all of you, thank you for being a part of securing not only Humana Assistans' future, but also safeguarding the freedom of choice in Personal Assistance. In the quarter, we also take steps to further digitalize in Elderly Care, in essence, to increase time spent with our clients rather than with administration, and the work towards starting our first social outcomes contract continues, and we aim at concluding it during the H2 of this year.
On the 21st of June, the administrative court ruled in our favor, granting Humana Assistans the permission back to provide personal assistance. Shortly thereafter, the insurance board approved us as payee again. In the beginning of July, IVO announced that it would not appeal the administrative court's decision. This was an extreme relief for all our dedicated customers and all staff that have stood by us during this process. Despite this, Personal Assistance has, of course, suffered a lot during the spring, both operationally and financially. Organic growth has been - 15% in the quarter, and underlying profitability has reduced to zero. Despite this, Humana, as a group, stands strong and continues to grow organically with 2% in line with last year and improves adjusted profitability substantially with 20%. A strong achievement during, to say the least, turbulent times.
With the concluded salary negotiations, we now have improved predictability forwards. Salary increases are overall higher than usual, but with predictability, it's also easier to manage, at least for parts of our business. We continue to act in a high inflation environment, which we try to balance in the best possible way through price increases. social outcomes measurements work continues, and we aim at signing our first contract during the H2 of 2023. Over to net revenues and EBIT contribution and development over the quarter. Despite challenges with the permit process, INF and Personal Assistance continues to be close to in par when it comes to group share of revenues, around 1/3. Due to strong performance in Finland, its share of revenues reaches 1/5. Organic growth is strong in all business areas, apart from Personal Assistance.
Excluding Personal Assistance, organic growth reaches record high 12% in the quarter. Profitability is also relatively stronger in the quarter, with adjusted EBIT reaching SEK 77 million, corresponding to a margin of 3.2%. Finland and Individual and Family improve substantially. Norway is relatively stable, while Personal Assistance and analytic care do not reach expectations. Now to specifics on each business area, starting with Individual and Family. INF continues its satisfactory performance, clearly improving versus last year and growing net revenues with 11%, of which organic growth of 8%, while simultaneously improving profitability margins to 8.4%, and that is up from last year's 6%. Underlying demand continues to be strong on both placements for young as well as adults. The established healthcare division continues to grow well in line with expectations.
Occupancy is also well managed in the quarter, which, together with achieved price increases, can balance negative effects from high personnel costs, partly driven by staff shortage. Over to Personal Assistance. It was, of course, very pleasing to receive the positive verdict from the administrative court. As said, shortly thereafter, the insurance board announced that it was directing payments back to us, which is also welcomed as it enables us to give a better service to our customers. Financially, IVO's revocation of the permit has had a substantial negative impact, mainly caused by the uncertainty our customers and staff have lived through, causing about 70% of our client base to choose other alternatives.
Organic growth reaches a - 15% in the quarter, and adjusted EBIT reaches zero, and of course, mainly, because of overhead costs not being adjusted as quickly to the net client dropout. Going forwards, we need to dedicate all our efforts on our acceleration plan, so the way to get personal assistance back on track. This entails total focus on our existing clients, new clients, our employees, and to take further steps in our quality assurance work. We want to stay close to the authorities, of course, and develop our business and the industry in a way that's sustainable, both for the individual and the broader society. Over to elderly care, which is actually represents the largest financial disappointment in the quarter.
Elderly Care has not reached the anticipated occupancy levels and suffers from shortage of staff, which clearly drives staff costs up in a non-sustainable manner. The quarter also continues to carry a start-up cost for the new unit in Täby, totaling close to SEK 5 million. An accelerated change plan has started, with several new initiatives we have taken, including increasing the degree of specialization in some units, increasing local support, and also centralizing some processes linked to key KPIs. Looking at Finland, it has a very solid performance in the Q2 , and organic growth reaches a record high 17%, and also profitability margin improves remarkably year-on-year, from almost 0% last year up to 5.2% in this quarter.
We see a successful increase in occupancy in the newly started units, and also price increases in housing services, paying off. Our specialization strategy is clearly providing results, allowing us to turn high demand into placements and also getting paid for a specialized offering. With reduced sick leave, we clearly have an improved staffing situation, too. In Finland, we divest four property companies in the quarter, and overall, we have a very strong performance in Finland. Over to Norway, the positive news for Norway is that the conditions for placements within young is improving, and recently, the Ministry of Children and Families clearly stated that they want to increase the use of private alternatives due to severe shortage of placement in the country. That's really good news in an otherwise rather negative political climate in Norway.
Net client intake continues to gradually increase, and organic growth reaches 12%, and we also managed to pick up slightly on margins, so closing in on previous year, but not really getting there. This despite Personal Assistance being challenged by higher salaries. Before handing over to you, Fredrik, for details on group financial performance, a few words on the quality development in the quarter. For those of you that follow us, Humana, we have Humana Quality Index, that in this quarter increased to 73, with all business areas improving year-over-year. Personal Assistance has been negatively affected by the relatively lower customer satisfaction, and that's primarily due to issues arising from change in payment process.
Employee satisfaction is also coming down somewhat, also that mostly related to the permit process and the challenges and the uncertainty. Sick absence is decreasing, notably in Finland and Elderly Care, and we also improve education efforts across the group. The number of data incidents reported to IMY increased mainly in Personal Assistance, also that due to the change in payment flows. The process has improved, and in a few months, payments will be directed back to us following the decision from the insurance board, as I mentioned previously. As we announced earlier in the spring, we had a data breach in March that was reported to IMY, which decided to close the case without further actions, so that's also very pleasing. Now over to you, Fredrik.
Thank you, Johanna. The organic growth is in line with last year. If we exclude Personal Assistance, the other business areas together have an organic growth of close to 12%, which is great. Profitability improves with 38% compared with Q2 last year. Adjusted profitability with 20%. In nominal terms, EBIT increased from SEK 65 million- SEK 89 million, with an operating margin of 3.7%. EBIT includes a positive non-recurring items of approximately SEK 12 million, hence adjusted EBIT for the quarter is SEK 77 million, with an adjusted EBIT margin of 3.2%. I will come back to the non-recurring items. These results are clearly shadowed by Personal Assistance. Thankfully, our leverage is coming down. Net debt has decreased roughly with SEK 100 million during the quarter, thanks to good cash flow.
Leverage decreased to 5.1x , getting closer to our target of 4.5x . This is explained by both the improved profitability and reduced net debt. 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 Assistans for dig. The remeasurement amounts to some SEK 42 million. This is a similar remeasurement as we did in Q1 and Q4, amounting to SEK 32 million each. The remeasurements are made because the negative recent development in personal assistance. During the quarter, we have recognized non-recurring incremental consultancy costs linked to IVO's revocation of the permit in Humana Assistans AB, amounting to some SEK 29 million, including the non-deductible VAT. The net non-recurring items amounted to SEK +12 million in the quarter.
The cash flow from the in the quarter was very strong, the decrease in working capital of close to SEK 200 million is the key contributor to the solid cash flow. The main explanation to the to the decrease in working capital is the increase of employee-related accrued expenses and trade payable. Worth mentioning is that Personal Assistance, trade receivable balances is slightly lower than as per end of both Q1 and Q4, even though the payments are made via the clients. In the quarter, we had some other cash payments that had no or only in much minor impact on the net debt, such as the payment of the continued consideration of SEK 91 million.
They sold properties in Finland in a sale and leaseback transaction of SEK 113 million, some borrowing of SEK 150 million, and the repayment of lease liabilities of SEK 102 million. Now, some final words from you, Johanna.
Thank you, Fredrik. Over to focus going forward. That, of course, needs to be set on making sure that we can accelerate Personal Assistance back on track. It has been a very turbulent time, and we need to revert to growth and secure that we have a strong and energized team in place to cater for ramp-up in client base and conclusion of the quality initiatives planned for. We are in a rebuilding phase, and we will work on coming out of this in an even stronger and better place. Elderly Care is a disappointment, and I'm fully aware of the fact that the financial performance in this segment has not been satisfactory for a long time. Hence, we now need to take further steps in creating other solutions that will secure a proper turnaround.
Given that we're still in a high-cost environment, and collective agreements show relatively high salary adjustments in the foreseeable future, we need to find ways to become more efficient in both operations and central admin. Then, of course, close to our hearts, developing the Nordic care for the Nordic citizens. That work will continue to be on our agenda. We will strive to safeguard freedom of choice, work with quality and price competition, and social innovation. Further social outcomes measurements will come, and we will also strive to improve our ability to standardize treatments and incorporate new learnings to improve our treatments and care, because that's the future. With that, we open for questions.
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, and good morning. I have three questions. First, do you have any view on whether there's a possibility to get financial compensation from IVO for the destroyed value in the Personal Assistance business? Secondly, also related to Personal Assistance and the poor profitability right now. Could you talk a little bit more about the possibility and also about the likely timing of turning around that segment, and how you're thinking about the overhead cost now? Finally, Finland, this massive impressive turnaround this quarter, would you say that's sustainable, or would you say it's an exceptionally good quarter for Finland? Thank you.
Well, thank you, Kristofer, and good morning. Well, first, to your question on the claims, the possibility of, sort of getting compensation. I mean, our main focus is, of course, on our clients and employees, because both groups have suffered substantially in this process. But that said, the revocation of the permit and this process has had a large impact on our business with, both, of course, you know, lost revenues to a yearly amount of slightly north of SEK 600 million, and then the direct costs specified in the report. What we're doing, we are very much in a sort of evaluation phase, so we haven't landed in any conclusion yet.
I mean, It's really important that we have a sustainable relationship to the authorities and that we can have a dialogue. I think, so in the long term, we really want that to improve. That said, you know, we have to investigate it further before we can give any conclusions on it. On to the second question on the Personal Assistance turning around. I mean, there are some... Of course, we will be burdened by the salary agreements that come in sort of close to the mark or the market of 4%. That will be sort of a bit challenging.
At the same time, it's not for all employees, and we have had a fairly large shift in our employee base over this period. That balances that effect. We have had. When this process started, we had about 330 admin personnel, of which about 50 admin personnel have chosen to leave. That will also then have an effect at starting off post the summer. There is a natural sort of relief in overhead costs that will come into effect in the autumn. Finally, you know, like minutes after we got the positive verdict from the administrative court, we also received sort of calls back from clients that had left us due to that process.
Over the last weeks, we've had a net positive inflow of clients. There are a few sort of positives on Personal Assistance too, towards the Q3 period.
Do you have any, sorry, follow-up there on clients coming back? What do you think is realistic? If you lost 17% of clients, would you believe 1/2 of them could get back, or is that?
Yeah, I think that's at least what we are aiming for. I mean, there is a... It's not going to be an instant process. I mean, it takes a little while. First of all, we are in a summer period where it's challenging to move. It's a sort of in a vulnerable period from that perspective, and also, the actors that the clients have left to also have different sort of resignation times. You know, it's, it will take a little bit of time before we can see that type of movement for some of our clients. I think it's fair to believe that, it's, you know, we will target about 1/2 that will come back.
Yeah.
I also think-
Do you think it will happen already this year, before year-end, or?
I think it's definitely possible. I also think it's, I mean, it's still some uncertainty in the industry as a whole. It's a lot of companies that are sort of exposed to similar type of processes that we've been through. I shouldn't say that we're a safe haven, but I think we will be sort of perceived as a relatively safe place to be in during a turbulent period. I think it's fair to believe. As I also said, I mean, there will be a relief in overhead costs towards the autumn, but we also need to make sure that we have a team that can also cater for a sort of fairly rapid increase in volume.
It's a very fine balance that we're walking in the towards the autumn.
Okay. Finland.
Your final question on Finland, whether it's sustainable. The price increases that we have achieved, I believe are sustainable. I also think from a ramp-up perspective, we should be able to keep the volumes that we've had. There will be, you know, as the salary increases that will kick in towards September might affect us slightly, of course, but there is nothing major on the horizon that should sort of send any signals that we should not be able to uphold a fairly reasonable profitability level going forwards.
Just a final one on Finland. Have you quantified how large price increases you received on average?
Yes, it's, I mean, we, it's about the in the quarter, 75% roughly, that relates to price and about 25% that relates to volume. Within the price segment, we also have, you know, a degree of specialization, sort of increase. That's a part of our strategy that we can also get higher prices because we offer a more advanced service in a sense, but somewhere there.
Thank you very much.
Thank you.
The next question comes from Jakob Lembke from SEB. Please go ahead.
Okay. Hi, and good morning. I have three questions. I'll take them one by one. First on Personal Assistance, good comments here earlier on the call. I'm wondering a bit on the cost base, how much of costs are related to overhead and how much are, you know, assistance?
The burden, or how do you mean with increased costs?
No, the cost based in Personal Assistance.
Yeah.
How much that is overhead and how much that is related, directly related to the care?
Yeah, that's a good question. I probably have to revert on that. I can't really say that sort of directly. I mean, what you, what you can say is that, so we have the I mean, the assistants have a very sort of short, a relatively shorter, resignation time, so to say. They got about two weeks to leave, when the volume leaves. That's, you know, that's when we reduce the volume, we also, you know, it's a fairly large part of the costs that fairly quickly sort of leave us to. Then we have, from an administrative point of view, about, yeah, 300 and...
We had about 330 people, and about 50 people have left, and they have between three months-six months, resignation times. That will sort of be, that's why we expect the overhead costs to be relieved from September, sort of onwards, September, October onwards. If that gives you a bit of guidance, and we don't have much other costs. I mean, it is really personal costs.
Okay, good. My next question is on Elderly Care.
Yes.
If you have any sense of when these measures will start to sort of give any effect, and how long it will take to get back to positive earnings?
Yeah, that's. I mean, it's, it was towards the latter part of the quarter where we saw the largest sort of negative effect, partly driven by the salary agreements, and so it's, so I think that's, it's, it is partly related to that. But I think, looking overall, I mean, we have, we need to get the occupancy levels up. And if we do that, we will be in a lot better position to manage our costs. And if you look at the, what are the key aspects of this program, I mean, we will monitor the staffing a bit more sort of closely.
We will, we have other units in sort of the near vicinity of our Elderly Care facilities, that sort of within INF and also Personal Assistance, but INF primarily, where we can also balance our staffing in a better way. That's something that fairly quickly will, we can sort of turn to, I should say. From some increase with the degree of specialization or diversification of some of the units, that will take longer time because it means, sort of, applying for a license to do something else in parts of our facilities. That probably takes sort of six months- nine months to get, and then it's the startup phase is slightly longer.
I think there are a few short-term measures that will that we will be able to manage quickly, it's a longer-term aspects that where you see sort of six months- nine months before you see an effect.
Okay, that's helpful. Just a final question, now that these legal proceedings seems to be over, do you expect to sort of not have any more of these non-recurring items in the coming quarters?
I think there would be an, of course, the absolute majority of the costs relates to the legal process and, you know, the oral hearings, for instance, and preparing for all of that. That will not be in the same manner in the Q3 . Definitely, it might be a bit that comes into the Q3 , too, but it's very, very little compared to the Q2 .
Okay. That's all for me. Thank you very much.
Thank you.
The next question comes from Stefan Knutsson from ABG. Please go ahead.
Morning, Johanna and Fredrik. I have a couple of questions. First, regarding the Personal Assistance, do you have any sense who is gaining market share when you and your public peers are losing clients here?
Yes, I mean, it's a lot of the smaller actors that have received. It's a sort of a scattered picture in a sense. It's not a single actor that has taken, sort of been a safe place for our clients. I mean, it's very much a scattered picture.
Okay. Secondly, also, before all this happened, you talked about the possibility of, you know, an increased market where more people were granted access to personal assistant during 2023. Has that played out?
Well, actually, the Stärkt Assistans initiative started in the beginning of 2023, and the estimates from the insurance board is that somewhere around the mid, sort of somewhere around the summer, sort of June, July, that's when we would see an effect in volume. I think we, you know, that if we listen to them, then that's at least an effect that will probably come now. Then I, you know, we have, during this process, also gained clients, and it's been clients that have actually chosen us despite the fact that we've been under this sort of legal process. I think that's a really sign of strength in many ways.
I think that Stärkt Assistans initiative, the effect is likely to come here in the near term.
Perfect. Then lastly, on the working capital, now you recouped some working capital here in Q2, but do you foresee additional collections as Försäkringskassan now will grant you money again?
I mean, yes, the process will be smoother. As I said in the call, we have actually a lower accounts receivable balance in Personal Assistance as of today, compared to both Q1 and Q4. The number we are talking about is, I mean, it's like SEK 50 million, I think, compared with year-end.
... and that is partly, of course, explained by the fact that, the revenue in Personal Assistance has reduced. I mean, if we have the same, it will have some minor impact, but, I mean, it will not be SEK hundreds of millions, it will be SEK tens of millions.
Okay, perfect. My last question is regarding the salary increases that you, that you write about in the report. Have you had any effect of them here in Q2, or when do they start? Secondly, how much do you think ballpark that you are able to offset with pricing?
Let me say like this: I mean, we have parts of the salary agreements have kicked in as per June 1st. It, of course, differs depending on each individual contract in the different sort of three main jurisdictions. Just looking at the Sweden and the Personal Assistance agreement has been settled for 27 months. That agreement will cost us from July 1st, that's definitely going to be an effect on that.
It's also, it's a bit difficult for us to really estimate because of the shifting in our employee base that has taken place over this latter part of the spring. Because the contract, of course, it depends on which type of employee we're looking at in terms of salary adjustments. And I would say the other agreements with the other unions, they traditionally will follow sort of the mark with new salaries starting July 1st. So that's for Sweden. I mean, from a Norwegian perspective, that's sort of already clear. That's, yeah, it's already settled in a sense. In Finland, that the new agreement will start in September.
That's also spanning for a longer period of time. How much it is really difficult for us to sort of estimate, right? It, as, you know, it's also important to know that there are a few of our business areas that can balance price increases in a better way than others. I mean, from a Personal Assistance perspective, we have the 1.5% increase, or the yearly adjustments, starting from January 1st, and then we have the salary increases as July 1st. It's very important for us that we can get a reasonable price increase by the year end.
Of course, when we see the so all other prices in society increasing, it's I mean, one could expect also the politicians to believe that 1.5% is a low uptick in this type of climate. That's difficult for us to manage. Elderly Care is also slightly more difficult. It's linked to contracts in a different way. It's easier for the business areas, Finland, Individual and Family, and partly Norway, where it's a bit higher turnover in client base, and you can adjust as you go.
Perfect. Thank you very much.
Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Well, thank you very much for this. If you have any further questions, don't hesitate to give us a ring. Okay, bye-bye.