Ladies and gentlemen, welcome to the Humana Q1 report for 2019. Today, I am pleased to present CEO Rasmus Nerman and CFO Ulf Bonnevier. For the first part of this call, all participants will be in listen-only mode. Afterwards, there will be a question and answer session. Speakers, please begin.
Thank you. Good morning, everyone. Welcome to this presentation of Humana's first quarter in 2019. As always, I will start by giving you some of the financial and operational highlights before handing over to Ulf Bonnevier, who will take us through the more detailed financials of the quarter. Let's move on to the first slide, please. In the first quarter, our operating revenue increased with 4% to SEK 1.7 billion. The organic growth in the quarter was 1.5%. Our operating profits in the quarter were SEK 77 million, down 5% compared to last year. However, if we exclude for the effects of IFRS 16, our operating profits were SEK 70 million in the first quarter. The resulting operating margin was 4.5%, or 4.1% when excluding the effects from IFRS 16. In the quarter, operating cash flow was SEK 33 million.
Excluding for the effects of IFRS 16, the operating cash flow was minus SEK 24 million, a slight improvement versus the corresponding quarter in 2018. Our leverage at the end of the quarter was 5.7 times or 3.2 times excluding IFRS 16 effects. Next slide, please. On April 15th, we completed the acquisition of Coronaria Hoiva following the approval from the Finnish Competition and Consumer Authority. As expected, the approval did not require any special conditions or concessions from Humana's side. Also in the rest of the group, the first quarter was characterized by a number of growth initiatives. In the quarter, we opened a new own-managed elderly care home in Staffanstorp in southern Sweden. We have opened a number of new units within I&F in Sweden and Finland, primarily within housing units for individuals with disabilities, LSS.
We've also signed a contract for a new own-managed elderly care unit in Vallentuna. After the end of the quarter, we've also signed two additional contracts for own-managed elderly care units in Falkenberg and Norrtälje. We recently also published our annual quality report. We are pleased to see that our investment in quality and systematic measurement is paying off. The Humana Quality Index increased from 89 to 92 for 2018, and the improvement was primarily driven by increased customer satisfaction and improved educational efforts. Moving on to the next slide, please. In our individual and family care segment, the weak demand, especially in the segments for children and youths that we experienced towards the end of last quarter, continued into the first quarter of 2019.
Demand and occupancy rates within I&F typically go down somewhat towards the end of the year and then recovers in the beginning of next year. This year, the fall in demand was steeper, roughly 10%-15% compared to the same period last year, and the recovery started later compared to what we've seen in previous years. Needless to say, our focus during the quarter has been on measures to improve utilization, and we have also seen a clear improvement towards the end of the quarter. Improvement potential certainly remains, but we do start the second quarter on better levels compared to how we started the first quarter. During the quarter, we've also opened none less than eight new units, primarily within LSS and adult psychiatry. The ramp-up of these new units are progressing according to plan.
We expect the challenging markets within parts of I&F to continue in 2019, but we do expect an improvement from here going forward. With recent changes to management and an ongoing action program, we do maintain the view that the outlook for I&F is positive in the mid to long term. Next slide, please. In personal assistance, we do continue to see small but important steps to restore the right to personal assistance and improve conditions for the different stakeholders in the market. Furthermore, there is a clear political consensus to defend the LSS reform and ensure the right to personal assistance. There is also government ambition to widen legislation to allow for personal assistance for more individuals. We do, however, not believe that the legislation will change before the summer as previously communicated by the government.
After several years of attempting to cut down state expenditures, we do now see SEK 500 million in additional funding for personal assistance in 2019. In the quarter, we've also seen last year's acquisitions contributing positively to revenues, and we are pleased to see that we've also managed to improve performance in the acquired companies. The focus for 2019 remains on growth, and we do foresee Humana continuing to take an active role in the consolidation of the market. Next slide, please. In our elderly care segment, the good momentum continues, and we continue to see strong organic growth driven both by new openings as well as very high capacity utilization in our units. In the middle of March, we opened a new own-managed elderly care unit in Staffanstorp in the south of Sweden.
The ramp-up has exceeded our plans, and utilization is already at 75% less than two months after opening. We have also started preparations for the Q3 start of the unit in Kungsängen. In the quarter, we signed a contract to open an own managed elderly care unit in Vallentuna, and after the end of the quarter, we signed contracts for two additional units in Falkenberg and in Norrtälje. The contract for Falkenberg is both rather unique and attractive, as it comes with a long-term utilization guarantee for 50 of the 60 apartments. Next slide, please. In the other Nordics business area, we continue to see healthy growth, primarily due to the opening of new units. Our rather good performance in Norway continues, and we see high demand for our solutions, especially for personal assistance as well as for care for individuals with disabilities.
In Finland, we do see continuously high demand for our services overall. In the middle of April, we did finalize the acquisition of Coronaria Hoiva following the approval from the Finnish competition authorities. Our operations in Finland have now almost doubled in size, and we do have a strong platform for future growth. In the short term, of course, our focus will be on integration. In Finland, there has been an intense debate following the discovery of some quality deficiencies amongst a few private providers. This after rather extensive inspections carried out by regulatory authorities. Humana has had inspections at most of our units, including the units at Coronaria Hoiva, and no inspections have yet resulted in requirements for increased staffing or similar measures. Next slide, please. A few words on the markets and political situation.
In Sweden, the political climate continues to be stable. We do see positive political signals with regards to personal assistance, as commented earlier. In Norway, an ongoing lawsuit could have implications for the care sector and all sectors that use temporary staffing on a consultant basis. Regardless of the outcome, this will have no effect on Humana, however, as we do not have this structural setup in our operations. In Finland, there are ongoing negotiations to form a new government following the general elections. These negotiations are led by Antti Rinne from the Social Democratic Party, and as commented previously, the Finnish regulatory authorities have intensified inspections, and Humana too has had numerous inspections that so far none have resulted in demands for increased staffing. Moving on to the next slide, please. Finally, we are very pleased to see improvements in our important HQI metric.
HQI or Humana Quality Index consists of seven key quality indicators that are common for all operations and countries within the group. In 2018, the HQI improved from 89 to 92. This improvement was primarily driven by higher customer satisfaction and investments in educational efforts. From Q1 onwards, we will now publish the results on a quarterly basis, and we are equally pleased to see the continuous improvement also in the first quarter of 2019, where HQI achieved a very good index of 94. On top of the two drivers already mentioned, the improvement to Q1 was also driven by very low absence due to illness. I think with this said, I will now hand over to you, Ulf.
Thank you, Rasmus. I will now give a brief summary of some more details about the numbers, performance overall and per business area, as well as balance sheet and cash flow-related information. Operating revenue. First of all, we turn to page 10 in the presentation where we see the operating revenue. In the first quarter 2019, our operating revenue grew to SEK 1,708 million, up 4% from SEK 1,648 million previous year. Acquired growth contributed SEK 34 million to revenue, and the organic growth was 1.5% compared to 2.3% previous year. The slower organic growth in the quarter is due to the decreased demand we saw at the end of last year that has continued into the beginning of this year in the I&F business area. Next page, please. Organic growth.
As you can see on the graph on page 11, Humana has had a good development all the way through 2018 when it comes to organic growth. In quarter one this year, the growth dampened to 1.5% overall for the group compared to prior year's 2.3%. This was driven by the negative growth in I&F of -7% coming from the decreased demand continuing into the beginning of the year. With the exception of I&F, we actually have an overall strong growth performance in our business areas. The positive organic growth is driven for the quarter by new opening and contract wins and better occupancy in elderly care, new openings in Finland, improved occupancy in Norway. Also personal assistance contributed, but that was mainly driven by reimbursement levels. Next page, please. Profitability. Moving to page 12 for more details and graphs on our profitability development.
Our operating profit decreased 5% in the quarter, SEK 77 million down from SEK 81 million in quarter one last year. Excluding the effects of IFRS 16, the operating profit decreased 13% to SEK 70 million for the quarter. The effect on operating profit from IFRS 16 is +SEK 7 million, and this you will find as a reduction of the central costs. The components of the SEK 7 million are decreased rental costs of SEK 58 million and an increase in depreciation of SEK 51 million. The margin ended up on 4.5%, 4.9% last year in the quarter, and excluding IFRS 16, the margin decreased to 4.1% compared to 4.9% previous year. The decline in profit for the quarter compared to last year is fully attributable to I&F and the decrease in demand continuing from last year into the beginning of this year, and subsequently to low occupancy levels.
Adjustments in I&F are ongoing to compensate for the profit decline. For our other business areas, we've seen a very satisfactory development in the quarter with profit improvement and better margins. Next page, please. Individual and family. Moving to page 13 and the segment performance, starting with individual and family. Revenues for the quarter reached SEK 512 million, a decrease of 7% versus prior year's SEK 551 million, with negative organic growth of -7% versus -0.4% prior year. The decrease is due to low demand, especially at the beginning of the year, for care solutions for children and adolescents. Operating profit decreased with 41% to SEK 28 million, compared to SEK 48 million for the first quarter prior year, and the margin was 5.5% for the quarter compared to 8.7% prior year. The lower demand has subsequently led to low occupancy in our treatment homes, reducing profits.
I would also like to highlight that our first quarter 2018 comparable numbers were strong. Obviously we are far from pleased with the performance in the quarter. However, during the end of the quarter, we've seen a more stable demand and better occupancy in our units. Going forward, we're focusing our work to continue to adapt our operations accordingly to the current market conditions. Next slide, please. Personal assistance. We've now moved to page 14, another solid quarterly performance from personal assistance. Revenues for the first quarter were up 5% to SEK 684 million compared to prior year of SEK 653 million. SEK 21 million was added to revenue from acquisitions, and organically the growth was 1.5%, up from previous year's 0.7% and reflects the price increase of 1.5% from the beginning of the year.
Operating profit for the quarter increased with 13% to SEK 39 million, up from SEK 35 million last year. This comes mainly from the price increase. The margin squeeze on staff cost increases versus reimbursement levels is still there. It will be visible later in the year. The margin ended up at 5.8% versus 5.3% prior year for the quarter. Next page, please. Elderly care on page 15. Revenues grew well in the quarter with 24% organically and reached SEK 134 million versus SEK 108 million prior year. This comes from recent contract wins, good occupancy, especially in our own managed units. Operating profit reached SEK 4 million versus SEK -1 million prior year. The operating margin was 2.8% versus -1.2% prior year. A continued improvement in performance. That's very pleasing. It is also, of course, coming from the good occupancy in our units.
We also opened our own managed home in Staffanstorp during the quarter. This has had a small negative effect on the results so far, naturally. We're currently increasing occupancy in the unit well, following or even exceeding our plan, which strengthens our pipeline for the unmanaged projects going forward. We are well on track. We have announced projects in Vallentuna and Åsele as you might have seen. Next slide, please. Other Nordics. On page 16, we now move to other Nordics. Revenues for the first quarter came in at SEK 378 million compared to SEK 336 million prior year, an increase of 12%. Organically at constant currencies, the growth was 8.5%, a good performance. Operating profit increased by 34% to SEK 24 million versus SEK 18 million prior year, with a margin of 6.4% versus 5.3% prior year. We're very pleased with this performance.
The Finnish operations showed continued growth, organic and acquired, and stable margins. Norway has improved well versus prior year, which was a weak comparable quarter in profitability since we were still running the improvement program then. Overall, a solid quarter in performance for other Nordics. Next slide, please. Central costs. We now move to slide 17, central costs. Here we can see the items affecting comparability. In Q1 2019, we had SEK 2 million acquisition-related costs in the overheads. Nothing prior year. We also have the net effect of the IFRS 16 as a reduction of SEK 7 million. The underlying quarterly central costs are SEK 23 million versus SEK 18 million prior year in the quarter. The increased central costs relate somewhat to strengthen central functions. They are mainly project costs taken early for our future organic growth. Moving on to page 18 and our cash flow.
Cash flow from operating activities for the quarter was SEK 95 million versus SEK -16 million last year. The improvement was due to positive changes in working capital. This relates to calendar effects between quarters where Easter last year pushed payments post-quarter end. This year, cash flow was rather normal. Our CapEx investments are higher than last year. They are driven by real estate investments for new units in other Nordics, mainly Finland, individual and family. They are also for elderly care with the new unit in Staffanstorp. The IFRS 16 effect on cash flow you see in a separate table in the report. It's also in the appendix of the presentation. Moving to my last page, which is page 19, where you can see our financial position. In the graph, we see our leverage moving just above our target level, which is 3 to 3.2 times excluding IFRS 16.
Including IFRS 16 effects, our leverage would have been 5.7 times. The leverage will of course change in quarter two when we will report on Coronaria Hoiva. With the joy of explaining IFRS 16 financial, back to you, Rasmus.
Thank you, Ulf. To summarize, the start of the year has been characterized by various growth initiatives and testaments to the progress we're making concerning quality development. In revenues and profits, Q1 was weaker than expected as the overall positive start to the year was clouded by the performance of parts of I&F. Going forward, our ambition is of course to maintain the positive momentum that we do see in personal assistance, elderly care, and the other Nordic business area, whilst improving the performance of Individual and Family. An improvement we have already started to see towards the end of the first quarter. With this said, we can now open up for questions. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Please note that you are limited to one question per round. There will be a brief pause while questions are being registered. Our first question comes from the line of Kristofer Liljeberg from Carnegie. Please go ahead. The line is now open.
Thank you. Good morning.
Good morning.
First on personal assistance, this margin improvement we see now similar to last year, I think you benefit of course from increased reimbursement the beginning of the year while the annual salary increase comes after the summer. Do you think it's possible now that the market has stabilized so much that you could see margins also stabilizing more for the full year? That's my first question. On the Swedish individual and family business continues to be volatile between quarters. Are there anything you could do to improve visibility and lower the quarterly variation in that type of business? Thank you.
Kristofer, I'll start the personal assistance question. I think what we do start to see now are very clear signals of improvements. We still have the fact that there's a negative squeeze when we compare remuneration increase to salary increases. I think for now, we feel that we have a very solid performance in personal assistant and good momentum. We will still stick to our guns that we did towards the end of last year that our ambition is to grow profits in absolute numbers in 2019. With regards to individual and family, it certainly is rather volatile within parts of individual and family, we do of course have a lot of work ongoing in order to increase visibility and stabilize performance across the quarters.
What we did see now in the first quarter is not something that we've really seen in the past, it has a fairly logical explanation. We typically see, as I said, a downturn in demand towards the end of a year, an increase in demand when the next year has begun. This year, the fall was much steeper. The overall demand in Sweden fell 10%-15% depending on which segment you look at. When we have these very steep falls in a short time, we do not have the possibility to adjust staff and cost, et cetera. We have, however, seen a clear improvement also during the first quarter. It's pretty natural that in a sense that this happens because we had the parliamentary situation, which was difficult in Sweden.
Many municipalities did not have the municipality politicians in place or the governance or the municipality. They did not have the budgets, and they did not know of the state funding, which you typically would do after an election year. I think that's the key explanation. We do see demand stabilizing and also being very much more in line to what we saw last year. That is of course the key work we need to do now to stabilize profitability and revenues over quarters, even though there will always be an element of variation and volatility within the individual family segment. It is all managed operations. These are very small units that are sensitive to utilization in a completely different way compared to LSS or elderly care. We've seen it in the past, but we're working on it.
Most importantly, I'd like to emphasize that again, that we're certain and not pleased with the performance in the first quarter. We do see improvements throughout the quarter and also beginning of the second quarter.
Okay, that sounds good. I guess it's too early for you to have any qualified forecast for the year for individual and family, and whether you could make up for the shortfall there at the beginning of the year.
We certainly have a lot of thoughts around that. There are too many moving parts in parts of individual and family that would make us comfortable to provide a guidance in a sense. We'd rather look at facts. Fact is that we had a terrible start to the year in terms of utilization in parts of I&F. We have improved during the quarter. We come in in the second quarter on better levels. Also actions taken in 2019, throughout the first quarter will have better effects in the second quarter. You have calendar effects, Easters, et cetera, happening in the Q2 this year, which happened partly in Q1 last year. We'd rather look at facts for now.
Could I have two follow-ups on that? The calendar effects, are they possible to quantify how much that will impact earnings year-over-year? Also when it comes to occupancy or utilization level in the individual family business now beginning of the second quarter, is that only sequential improvement or is it also up or flat year-over-year?
It's a sequential improvement compared to the first quarter of last year. I would say we're right now basically in line with where we were in the fourth quarter on average. Fourth quarter of 2018. We had a very strong quarter Q1 in 2019, so we're now in line with what we saw in the fourth quarter of 2018. The calendar effect, we don't have to set a number, but it's a few million SEK, not many million SEK.
Okay. Rasmus, sorry, you said sequentially versus Q1 last year. You mean the year-over-year is better than Q1 last year? Or better than second of last year?
No. Sequential improvement we've seen throughout the first quarter of 2019. We're not yet really at levels where we were in the Q2 of 2018. We are pretty much in line with what we had Q4 2018.
Okay. Very clear. Thank you so much.
Thank you.
Thank you.
Our next question comes from the line of Karl-Johan Bonnevier from DNB Markets. Please go ahead. Your line is now open.
Thank you very much. Just to continue on Kristofer's question on the child and youth segment and the discussion, it sounds like you're not really looking to do any major structural changes. It's more as you described, it adapts into market volatility. Is that how we should see it? Or is that possible to do something more structural in that segment to maybe decrease the exposure or increase the flexibility in the exposure?
We do structural changes as well. We phase a number of units. We've always done that, converting units to content where we see high demand. There is an overall tendency now that, so to say, less complex cases are handled by municipalities given the somewhat increased capacity they have. We need to improve our abilities in terms of quickly matching for very complex cases. The cases that we today get within individual family, children, and youth are very complex cases, often what we would call comorbidities. It's a mix between neuropsychiatric disorders, but also drug abuse behavior. We are continuously doing structural changes, and we are continuously also adapting the organization. For instance, within parts of I&F, we're reducing the number of regions to allow for more local and present leadership, et cetera.
We would say that's business as usual to continuously adapt the organization for the needs.
As you said, you compare individual family with quite a good quarter in Q1 last year. Obviously you opened up eight new units in this quarter. How much is it related, say, in the year-on-year comparison relation to these new units that is coming in and the ramp up of those?
These eight new units are all open in segments where we actually have a strong momentum. We cannot forget about that. These new units have opened and ramped up successfully. Of course, they've had an economic negative impact on the quarter if you open up eight new units, of which at least one is a fairly big one within adult psychiatric. Net, they've had a negative impact on the quarter, of course. It isn't huge. A few SEK million maybe.
Excellent. Final one from me. Looking at the turnaround you did last year of the Norwegian operation, do you see that you are on a firmer footing in Norway now? It sounds like that, listening to your comments, at least.
We certainly feel that we are on a better footing in Norway. I think as we commented last quarter, we see actually no signals of deterioration or change in the momentum that we do have. We also feel that we want to grow in Norway because the market is fairly different from Sweden, whereas we in Sweden have thousands of clients. In Norway, we count them in the hundreds, so we're obviously sensitive to changes there. There are no signals of a deterioration in the Norwegian momentum, which we're very pleased to see.
Excellent. Thank you very much.
Thank you. Just to remind you, ladies and gentlemen, if you wish to ask a question, please press zero or one on your telephone keypad. There will be a further pause while questions are being registered. Our next question comes from the line of Victor Forssell from ABG. Please go ahead. Your line is now open.
Thank you. Good morning. I just have a quick one on the acquisition here of Coronaria Hoiva. How has the integration process been here in the beginning? What should we expect in terms of non-recurring acquisition-related costs or any other types of costs into the next quarter, please?
We've now formally owned it for a bit less than a month. So far integration is going well. Obviously, we had time during the phase one competition authority trial to start the integration planning and pre-structuring. Now we're actually working on it. Coronaria Hoiva is in a sense a carve-out from the larger Coronaria Oy group. We are taking over basically all supporting functions, putting them directly onto our system and structure in Finland. I think we have a very clear way, a very clear view on what we need to do. There is just a lot of work that needs to happen now the coming six months. A good start. A very good start, I must say.
In terms of any costs?
I could just fill in here. We're 3 weeks down the line of taking over, so we're early in the integration process, so lots of work that we're doing, obviously, and visibility isn't when these costs will play out exactly. We're looking at anywhere between SEK 20 million-SEK 30 million on an annual basis for integration one-off costs related to Coronaria Oy , but exactly how that's going to play out through the quarters, we'll have some obviously in the second quarter and then we'll have some in the third, et cetera. That's roughly what we see right now.
Thank you very much. That was helpful.
Thank you. Our next question comes from the line of Carl Mellerby from SEB. Please go ahead. Your line is now open.
Hi, good morning, and thank you for taking my questions. I have a question related to Finland. You mentioned that you had inspections in your unit there, and that they were all cleared from increased amounts of staffing. Are you still awaiting more feedback from regulatory authorities, or would you say that you're fine? Thank you.
In our line of business, you can never say you're fine because you're never better than you are at the present day. We do get immediate feedback from these inspections, and they are in a sense closed without any requirements for additional staffing, et cetera. No, we don't expect to see any changes in that.
Okay, thank you.
Thank you. Actually, Kristofer Liljeberg has now registered for a question. Please go ahead, Kristofer.
Yeah. Follow-up on what you're saying about Finland and the regulatory authorities. Do you have a sense if your staffing levels are higher than for the other bigger private providers in Finland?
I would rather not comment, perhaps, on other providers, but I can only say that we have sufficient staffing levels in our units.
Okay. Thank you.
Okay. Thank you. There doesn't seem to be any more questions registered at this time. I'll give the call back to you speakers for your closing comments.
I think we have nothing more to add from our side. Thank you all for very good questions and your attention, we wish you all a fantastic day. Thanks and bye.
Thank you. Bye.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines. Thank you.