Welcome to the Humana Q3 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.
Thank you. Good morning, and welcome to Humana's Q3 results presentation. My name is Ewelina Pettersson, and I'm the Head of Investor Relations. With me today, I have our CEO, Johanna Rastad, and CFO, Fredrik Larsson. After the presentation, you will be able to ask questions. I will now turn over to you, to Johanna. Go ahead.
Good morning. The revocation of the permit in Humana Assistans in the spring and the subsequent regain of the permit towards the summer had a highly negative impact on our group. In the Q3, Personal Assistance had a negative organic growth of 18% and reduced its profitability with 73% versus last year. And thankfully, the other business areas weigh up, and as a group, we managed to reach an adjusted EBIT in line with last year. This is feasible because of the substantial increase in both organic growth and profitability in Finland, as well as a solid performance in both Norway and Individual and Family. Organic growth is partly driven by price adjustments received earlier in the year, while salary adjustments imposed during the Q3 impact profitability negatively.
In the quarter, we have extraordinary consultancy costs linked to IVO's revocation of the permit in Humana Assistans, as well as central costs related to a review of our organization and governance concerning quality and care compliance and elderly care's change program, totaling SEK 13 million. Our strategic ambition to create a new standard of care remains unchanged. In the strategic plan, we include the recovery plan of Personal Assistance and the retake on turnaround for Elderly Care. Personal Assistance remains our largest business area, although INF is coming closer and Finland is gaining ground. All business areas, apart from Personal Assistance, grows organically. Elderly Care, Finland, and Norway all show double-digit organic growth, while INF has slowed down somewhat, mainly due to slightly lower occupancy levels. Excluding Personal Assistance, organic growth would have been above 9% for the group.
From an adjusted profitability margin perspective, INF and Finland stands out with double-digit margin, and Norway not far behind from that. Now over to respective business areas. First out, Individual and Family. INF grows with 4% in the quarter, although the organic portion of that reaches just below 2%. The growth comes mainly from price adjustments. Occupancy levels have been relatively lower than last year, partly due to higher specialization and a more careful buying behavior for some municipalities as budgets are becoming tighter. The healthcare segment is growing more rapidly, and the need for highly specialized placements in Division Young remains a fact. Increasing criminality amongst young people is a terrible trend seen across Sweden, and here INF plays an important role with, amongst others, a dedicated criminality treatment program and several acknowledged methodologies related to clients within family care.
Although margins have come down somewhat versus last year, they still remain high, reaching 11.6%. This is mainly because of lower occupancy in some units, increased salary levels coming into effect first of July, and a continued prevalence of staff shortages. Since the permit in Personal Assistance was regained in June, the business area has stabilized, and net client outflow clearly slowed down. We continue to have a small net client outflow in the Q3, and compared to last year, a net negative organic growth of 18%. A recovery program and an energized management team is in place with a clear agenda of change activities to create new ways of working to regain volume and profitability, while at the same time working closely with the authorities and other stakeholders to improve quality in the personal assistance service.
A new salary agreement, totaling 4.1% increase, came into effect per first of July, and the government announced price increases per year end 2023/24 of 2.5%. Elderly Care has organic growth of 11% in the quarter. Disregarding the start-up of Täby in February, profitability is in line with last year. This is still unsatisfactory, why we have accelerated a change program, including but not limited to increased specialization in certain units, increasing support to local managers, and centralizing some processes linked to key cost KPIs. After several months of negative profitability in the care home in Ängelholm, it was disposed to Ängelholm Municipality in September.
The sale cost a small net loss of SEK 1.2 million in the business area, Elderly Care, and a positive IFRS effect at group level of SEK 2.8 million. Finland has a rocket quarter with record high organic growth and EBIT margin. Price increases and strong demand in our units, as well as regained capacity in open care services due to lower absence rates, lay behind the growth of 18%. Profitability of 11.2% comes mainly from price adjustments and high-end stable occupancy within Young and Adult, balancing increased salaries coming into effect from first of September. The strategic shift towards more specialized care within Young has paid off, and we continue in that direction. Norway has a solid quarter, with organic growth reaching 14% and EBIT margins increasing year-on-year to 8.9%.
The demand for placements of highly complex clients continues to increase, and so is the number of clients within personal assistance. Slightly burdened by highest salaries, price increases still balance this effect well. Clients within with high complexity levels have relatively high margins, but also possesses a higher risk profile. The Humana Quality Index in the quarter increases slightly to 74. The number of serious deviations reaches 79 in the quarter, which is in line with previous quarter. Nine serious deviations within care and one data incident have been reported to the authorities. The number of own controls continue to increase, so also internal controls, and no whistle blows in the quarter. Now over to you, Fredrik.
Thank you, Johanna. The organic growth in the quarter is negative, with 1.3%. We had stable double-digit growth in elderly care, Finland and Norway, and a low single-digit growth in individual family that did not fully compensate for the negative growth in personal assistance. If we exclude personal assistance, the other business areas together have an organic growth of above 9%. Adjusted profitability is on par with last year, even though reported profitability is down with 5% compared to Q3 last year. In nominal terms, adjusted EBIT is unchanged, with SEK 175 million, with an adjusted operating margin of 7.3%. Reported EBIT has decreased SEK 9 million, from SEK 171 million to SEK 162 million, with an operating margin of 6.8%.
This quarter include non-recurring expenses of SEK 13 million, which is an increase from last year's 4 million. I will come back to those items later. These results are clearly scheduled by personal assistance performance, which is outbalanced by the great performance in Finland. Thankfully, our leverage continues to decrease to 5 x, and getting closer to our target to be below 4.5 x. Net debt has decreased almost SEK 100 million in the quarter, thanks to reduced lease liabilities, which is mainly explained by the disposal of the elderly care home in Ängelholm. During the quarter, we had negative non-recurring items, reducing our operating profit. In 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 5 million.
In addition, the operating profit has been affected by central costs related to a review of the group's organization and governance concerning quality and care compliance, and elderly care change program totaling SEK 8 million. The total non-recurring items amounted to SEK -13 million in the quarter. The cash flow in the quarter was weak, mainly due to the increase of working capital of some SEK 250 million. The working capital increase is partly explained by increase to accounts receivables due to calendar effects, and partly due to reduced employee-related accruals, such as vacation payments in the quarter. EBITDA of SEK 289 million is in line with last year, and net CapEx slightly lower than last year due to some disposal of fixed assets in the quarter. Now, some final words from you, Johanna.
Well, thank you, Fredrik. So in the Q3 every year, we revisit our strategic direction together with the board of directors, so also this year, and I'm happy to conclude that our broad ambition to create a new standard of care remains unchanged. We have continued to disclose social outcome measurements from placements within Young, and can now proudly, as promised, also offer our first social outcome contract to municipalities in Sweden, together with Utfallsfonden. This ticks several of our impact boxes, as this is clearly an example of social innovation with a dedicated focus on quality and price competition. And financially, personal assistance weighs down in the quarter, and even if it will take time to recover, we have a clear focus set of making sure our acceleration plan holds.
The re-energized and partly new management team has the capability to secure quality development and improve insight into the assistant service without compromising integrity. From the group perspective, we still need to be successful in the turnaround in elderly care. We have a solid strategic direction set out that we will implement. A part of that is, of course, to create a new standard of care, partly driven by social outcomes and its associated contracts forwards. With that, we're happy to answer any questions you might 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. Please go ahead.
Yeah, hi, it's Kristofer from Carnegie. I have four or five questions, maybe take them one by one. First, I would like to start with cash flow, and, and if you could give some more detailed explanation what happened with the working capital here in the quarter and what we should expect for the full year?
Thanks, Kristofer. Half of the working capital, you can say, is related to employees. Since we pay out the vacation salaries during the summer, the accruals for vacation reserves always decrease in the Q3, so that's roughly half of it. The other half can be explained by an increase in accounts receivables. The fact that September thirtieth was on a Saturday rather than a workday, many of the invoices we send out have a due date on the last day in the month. In Sweden, for example, you should pay invoices that are maturing on the weekend on the day before.
But in Finland, the law is different, that then you should pay it on the first business day after the quarter. And regarding the accounts receivable, we have the same sort of calendar effect in December, when the last business day is the 29th of December. So it’s a risk that we will not collect all the receivables in December that we usually collect in the quarter. For example, in June, we had the last business day in or last day, June 30th, was on a Friday.
Okay. But I'm a bit surprised because if you take Attendo, for example, with half of the business in Finland, they delivered a surprisingly good working capital in for the quarter. So is this something that's particularly impacting you in Finland, or I don't know if you have any further view on that?
I can't comment on their accounts receivables, but our agreements, at least, when we discussed it with the Finnish management, they, their invoices are due on the last business day, or not, not last business day, the last day in each month, and then it has fallen over to October rather than September.
Okay. The other question I had is when it comes to individual and family occupancy, how we should think there going forward, and also, whether you expect you would be able to continue to adjust prices there into 2024?
Well, I'll, I'll just take that. I think, you know, what we have seen in INF is that it's literally two effects. The adult division has a relatively lower occupancy than they had the same quarter last year. So the last quarter or the Q3 last year was very strong in adults. At the same time, I think that's where we see also a slightly slower demand due to the municipalities buying behavior. And then in Division Young we have seen a slightly slower sort of recovery from the sort of seasonally low summer period. That's however sort of changing now as we sort of soon are approaching sort of the end of October.
I think, you know, from a municipality buying behavior, young people are generally prioritized when it comes to constrained budgets. Yeah.
Okay, so adjusted for seasonality, you expect a stronger Q4 than the Q3 because of this pickup in demand in the child segment?
Yeah, it should be higher, particularly in Division Young.
Okay. Maybe I stop with one more question. If you could comment on the work yet to regain volumes in personal assistance and whether you still expect to get back the number of clients as you have talked about before.
Yeah. I mean, we have lost about 330 clients within personal assistance since the revocation of the permit. We have identified and sort of gone through all those clients, and we still have the target to regain about 50% of the lost clients over time. We have already now sort of between 10 to 15 returning clients since we regained our permit in June. So, we still believe it's feasible to take back parts of that, parts of that group.
Do you expect Personal Assistance to grow sequentially than in Q4 versus Q3?
Well, I think it, I mean, we also have. Of course, it's not just the returning clients, it's also sort of the original client base that sort of also leave for natural reasons, in a sense. But I think it is likely that we will be able to, I mean, we have a sort of a double effect in a sense, that we can regain the clients lost, while at the same time working to gain also clients, not only based on the fact that the stance initiative, but also from the market as a whole, as we are perceived as a safe place to be, given that we passed through IVO review, et cetera. So I think I mean, our target is definitely to come back to organic growth.
Okay. But, but I mean, in Q4, has this negative outflow, could you confirm that has stopped now?
It's slowed down. We still have a slight negative effect in the Q3. And I think what speaks for having a slightly positive organic growth in the Q4 is that the clients resign from other personal assistance or caregivers, and they have up to three months of resignation time. So I think we should probably see a bit higher returning rate in Q4 onwards.
Great. Thank you. Thank you.
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 Kristofer Liljeberg from Carnegie. Please go ahead.
Okay. So if there's no other question, I could continue two more. If you could comment on the restructuring program in elderly care, and then I also wonder, this pickup, the improved margin we saw in Norway this quarter versus the first half of the year. Give some more explanation if that was driven by something particular that you would like to highlight, and how sustainable this better margin level sequentially. Thank you.
From an elderly care perspective, I mean, we have formed sort of a more extensive program than we had previously, and it's targeting both sort of occupancy increases in sort of a handful of units that have been lagging behind. And there we can, as of now, see an actually fairly good progress. So we've picked up occupancy from a total perspective from 1.5% up to 2%. And the other activities centers around cost management, partly relating to scheduling. We have also centralized so some processes linked to KPIs that we need to be better, so need to be better steered centrally, but also need to be given more support locally.
So, I mean, our target here is to over time, of course, reach profitability in line with the market as a whole, and also beat that. And then the second question-
Sorry, but how quickly could you return to profitability or just break even?
Well, yeah, that's a good question. I mean, I think we're looking into 2024. I mean, from the full year perspective, it's difficult to reach, of course, but also as-
But if for the Q4, do you think you could break even in Q4?
I think it's feasible. I think it's feasible. I mean, we still had a positive, positive operating profit in the Q3. It's generally better due to the salary payments or the, so there's a seasonality in a sense, but I think it's feasible. The second question related to Norway, whether it's sustainable margins, right?
Yeah, yeah, I just noticed that margin were down year-over-year in both first and Q2. At least I was surprised that you managed to improve the margin here in the Q3.
Yeah. No, but definitely. I mean, we have had a steady increase in complex clients over the quarter. We also managed to be efficient centrally and price increases. I mean, we have a really nice organic growth of 14%, so that really sort of helps us. And I think we are well-placed to also maintain relatively higher margins. There will be. It's always for the salary cost. There will be a slight negative effect from sort of local agreements relating to scheduling, but I think it's definitely feasible to maintain relatively high margins.
Okay, great. Thank you.
Thank you.
The next question comes from Karl-Johan Bonnevier from DNB Markets. Please go ahead.
Yes, good morning, Johanna and Fredrik. Just want to come back to the working capital headwind you're seeing, and obviously the implication that has for the cash flow and the gearing. Looking at, say, as you highlighted, maybe working capital will be something that is a headwind in Q4, and then maybe delaying the gearing of the balance sheet and so on. You have to confirm that this is not affecting any, say, refinancing profile that you might have or anything and put you in breach of any covenants or anything like that? Just to confirm that the only problem you might have for the moment is the high gearing then affecting your interest rate margins?
Mm. Yes, that's right. And maybe I should say that, I mean, I said on Kristofer's question regarding the working capital and the accounts receivable, this calendar effect, of course, have an impact on the working capital levels. But I expect then if we have the same working capital levels, the cash flow should be neutrally in Q4, of course. So I,
Correct me if I'm wrong, Q4 is normally a very strong cash flow quarter for you, isn't it, to start with, so?
Yeah, but I was just commenting on this calendar effects, that the fact that we have the last day before New Year's Eve is on the twenty-ninth. I think it was
Yeah
in, yeah, another day last year.
But then, just to reconfirm, no, no refinancing, problems or challenges for the moment, and, it's basically just a cost, cost question for you?
Yes. Yes, yes.
Perfect. Well, thank you very much, and all the best out there.
Thanks.
Thank you.
The next question comes from Kristofer Liljeberg from Carnegie. Please go ahead.
I don't know. Just to clarify, on this cash flow issue, how much do you expect working capital to increase in 2023 versus 2022 when the year ends?
I don't have any number on that one.
We can come back to that, Kristofer.
Yeah, but I think it's, it's kind of relevant, right?
Yes.
Yeah. Okay, thanks.
The next question comes from Kristofer Liljeberg from Carnegie. Please go ahead. There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.
Well, thank you very much for the questions. I think to summarize, I mean, we have a quarter with accepting personal assistance and organic growth reaching above 9%. We have an adjusted EBIT in line with last year, despite the events in the first half of the year in personal assistance. We have a really good development in Finland. The other business areas, except PA, is also delivering stable results. We have Social Outcome Contract in place, so I think all in all, a good quarter.