Hello, welcome to the Humana Q1 Report 2018. Today, I'm pleased to present CEO Rasmus Nerman and CFO Ulf Bonnevier. For the first part of this call, all participants will be in a listen-only mode. Afterwards, there will be a question and answer session. I will now hand you over to Rasmus. Please begin.
Thank you, operator. Good morning, everyone, welcome to this presentation of Humana's first quarter of 2018. As always, I will start by giving you some of the financial and operational highlights of the quarter. Then hand over to our CFO, Ulf Bonnevier, who will take us through the more detailed financials of the quarter. Next slide, please. In the quarter, our operating revenue was flat at SEK 1.648 billion. Home care operations, now divested, contributed with SEK 67 million to revenues the corresponding quarter last year. In the quarter, Humana also returned to positive organic growth of 2.3%. Our operating profits in the quarter were SEK 81 million, compared to SEK 66 million last year. This is an increase of 24%. The operating margin improved to 4.9%, compared to 4% last year.
In the quarter, our operating cash flow declined somewhat to minus SEK 32 million, compared to minus SEK 16 million last year. This is due to calendar effects in the quarter resulting in higher working capital. Our net debt was lowered to SEK 1.5 billion, down 11% from SEK 1.7 billion last year. Our leverage improved from 4.1 in the first quarter of 2017 to 3.8 in the first quarter of 2018. Next slide, please. In I&F, we continue to see the positive trend from end of last year continuing into 2018. As a result of implemented measures, we see a clear improvement in profitability in the first quarter, with the operating profit in the important I&F segment increased with 29% compared to the first quarter of 2017. With a lowered cost base, we will now increasingly shift our focus to growth, both organically as well as through acquisitions.
From a methodology perspective, we are also very pleased to see that the Swedish Agency for Health Technology Assessment and Assessment of Social Services, SBU, has presented a national study on the Tivzo methodology. This study shows very good treatment results and societal cost savings. Humana is the responsible license holder for Tivzo in the Nordics. Next slide, please. In personal assistance, the market conditions remain challenging with the number of individuals entitled to personal assistance declining with 1.3% in the quarter. We have, however, reason to believe that there will be a certain stabilization in the market going forward as there have been a number of positive developments in the beginning of this year. On April 1st, there was a temporary stop to two-year reviews. The Supreme Administrative Court has ruled in favor of personal assistance for individuals with certain somatic needs.
Finally, the Swedish government in April decided to remove the directives for cost savings from the ongoing LSS investigation. Due to high quality and efficiency, Humana continues to gain market share, and our ambition is to return to growth in a challenging market, but where we also see consolidation opportunities increasing. Next slide, please. In our elderly care segment, the revenue development in the quarter is still negatively impacted by the divestment of the home care services that contributed with SEK 67 million the first quarter last year. We do, however, see a solid organic growth of 25%, primarily driven by our newly started own managed units.
We also continue to see an impact on profitability in the first quarter from the ramp-up of Bäcksjön and Åkersberga, but as we see utilization improving steadily, we are quickly approaching the point of break even, and from then on, we will see an increasingly positive impact from these investments. For the elderly care segment, we have a clear ambition to be profitable in 2018, despite all ongoing investments. On top of the two new openings planned for next year, we also have a very promising pipeline. Next slide, please. In Norway, we saw a clear improvement in the first quarter as a result of our reinforced cost efficiency program. On top of a lower cost base, we also see improved processes and planning capabilities, as well as an increased demand in several parts of the business throughout the quarter.
In Finland, we continue to see very good momentum and high demand for our services. Work on the SOTE reform in Finland continues, and a vote in parliament is expected in June. Next slide, please. In summary, here you can see on the graphs on page seven and eight, the improvement and the positive development we do see manifested in the numbers throughout the latest quarters, both in terms of organic growth as well as profits versus prior year. With this said, I will now hand over to you, Ulf, and page number nine.
Thank you, Rasmus. Page nine. We are here looking at the quarter one operating revenue, which was flat at SEK 1,648 million. The now-divested home care operations contributed with SEK 67 million in the corresponding prior quarter in 2017. The underlying organic growth is 2.3%, driven by a very strong organic growth in elderly care, positive contribution from the growth we're seeing in the startups in Finland, and a slightly higher reimbursement level within personal assistance. We move to page 10, operating profit. As you can see on the graph, the operating profit was SEK 81 million versus SEK 66 million in the prior quarter. The increase was 24%. This is driven by lower costs in individual and family in Norway. We also see some improvements in utilization in the Norwegian operations contributing to stability, but also Finland is doing well.
However, we do still have improvement potential in parts of I&F and Norway with regards to utilization, and we still have, of course, a negative impact from the startups in Elderly Care. But overall, a profit development we are pleased with. Moving on to page 11, and a little bit more detail on the segments and how we have been performing. Individual and Family first, operating revenue flat at SEK 551 million. Still an organic decrease, but only 0.4%. This is explained by low utilization within some areas. The operating profit, however, has improved and increased by 29% to SEK 48 million from SEK 37 million. The margin is 8.7% and the profitability increase is fully explained by the ongoing efficiency program resulting in a lower cost base. Needless to say, we are pleased with the profit development in Individual and Family. Moving on to page 12, Personal Assistance.
Marginal higher revenue for the period to SEK 653 million from SEK 648 million. The operating profit decreased somewhat marginally to SEK 35 million versus SEK 36 million, with an operating margin of 5.3%. We see an effect from the margin squeeze here. Personal Assistance coming out pretty much as we have expected. Moving on to page 13, Elderly Care. Here we see the operating revenue decreasing by 30%, but organic growth of 24.9%. The organic growth obviously driven by our own managed units and the ramp-up of them, and the total revenue decrease explained by the sale of home care operations of SEK 67 million. Operating loss of SEK 1 million versus SEK 2 million. It is improving, and utilization is improving. So we have a directional improvement where we are pleased with, and our ambition is to return to profit in this area. Moving on to page 14, Other Nordics.
We have a revenue increase by 15% to SEK 336 million, driven by our organic expansion in Finland, but also some acquisitions. Our organic increase at constant currency is 4.2%. Operating profit increased to SEK 18 million versus SEK 13 million, with a margin of 5.3%. So it is going in the right direction, and the increase is fully explained by solid development and good revenue demand in Finland. Very pleased with our performance in Finland, and we are pleased that our efforts in Norway are starting to pay off financially. So moving on from Other Nordics to our cash flow. Cash flow from operating activities for the quarter was minus SEK 17 million versus plus SEK 23 million last year. The investments we have in the quarter was driven mainly by Other Nordics and Finland. And of course, what we have to talk about is the decrease in working capital.
This is fully explained by the negative calendar effect of Easter, where the end of the month fell within the Easter period, and customer payments were delayed and were paid on Tuesday after Easter. So pretty much cash flow under good control and the calendar effect obviously will change and with us going forward. With that said, I think I am done with the numbers. Back to you, Rasmus.
Thank you, Ulf. Well, to summarize, we have entered 2018 a stronger company and in a better position compared to 2017. The change management efforts during last year are paying off, and we see improvements in all parts of the business. Although work remains, especially in Norway and elderly care, the directional trend is clear, both in terms of organic growth as well as in earnings. Going forward, we will increasingly shift our focus to growth, both organically as well as through acquisitions. With that said, I think we can now open up for questions. Thank you all very much.
Thank you. Ladies and gentlemen, if you do have an audio question for the speakers, please press 01 on your telephone keypad and you will enter the queue. After you are announced, please ask your question. Please ask one question at a time. Our first question comes from the line of Carl Mellby from Nordea. Please go ahead, your line is open.
Yes. Hi, thank you for taking my questions. My first one relates to personal assistance. Have you already by now seen any positive effects from the temporary stop to the two-year reviews in Q2? Then also on the cash flows and the working capital buildup in Q1. We should expect this to reverse fully in Q2? Thank you.
Carl, I'll take the first question. No, we haven't seen any real effects in the data or statistics yet, and that's due to lagging of the data that comes from Stockholms Kassan. We would expect stabilization going forward, perhaps starting even in April. We'll see those numbers in a couple of weeks now.
Right. I guess the cash flow question is mine, right?
That's yours.
Well, we expect it certainly to improve in the second quarter. End of the month, the 30th of June is actually on Saturday, so we'll see how this falls. I'm certain it's going to improve, but if it's going to improve fully, we'll see.
Okay.
We'll try and manage that as best we can. We do have a calendar to adhere to.
Okay. Thank you.
Thank you. Our next question comes from the line of Stefan Andersson from SEB. Please go ahead, your line is open.
Thank you. A few questions. I'll start with, on the Individual & Family, low organic growth there. You mentioned that it's because of low utilization. To me, that's the effect that you get when you're not selling. Could you maybe elaborate a little bit more on why the slowness of getting those people in there and filling these, your facilities up?
Stefan, the main complexity we faced last year was, as you know, within the youth division, residential and housing services for younger people, which is by far the biggest division in the Individual & Family care segment. That segment has stabilized significantly over the end of last year, as well as the beginning of this year. However, there is improvement potential in there still. What we are now facing is a more, I would say, a bit more normalized situation. As you say, now we need to focus on our sales efforts. How do we approach municipalities? How do we market our offering, and how do we communicate the specialty that we have in our different units? What we do see is a slightly lower demand within parts of the family home and outpatient care segment, which is another division.
Overall, it's quite a big improvement versus last year.
Okay, thank you. On Easter effects on the margin, I guess you've had a little bit higher costs this year than last year. Is it material or anything to mention at all? How should we think about this going into Q2?
Stefan, I think you can think about that this is, for us, totally insignificant in the quarter. Very little financial effects.
Okay
Easter, because you have beginning of the quarter, there's some days that goes in favor of you, and then it goes against you and because of Easter. Net, it's a very small minute effect.
Thank you. On the elderly care, you mentioned in the report that SEK 4 million is the costs relating to new openings. Just so I understand that correctly, is that one-off cost in the quarter, or is that the impact, the running losses for these two entities during the quarter?
This is the running losses for the two entities during the quarter.
Thanks. On the financial costs has been high in Q4 and Q1 now. It looks like interest rates is very high. I guess there's revaluations in there.
Yes. That I can answer that straight away. This is a FX effect of SEK 8 million.
Okay. Thanks. I think, well, the last thing you mentioned about, you talked about M&A. I guess that you're thinking about that during 2018. That we have a pipeline and something could happen. How do you view that, and also in relation to your balance sheet where you're a little bit above your debt target?
Stefan, we are certainly above our debt target, and our ambition is surely to close that gap and get closer to the longer-term target that we have. We see more M&A activity. We see interesting candidates. We are being increasingly approached in basically all segments and countries. Our ambition is to become more active on the M&A side this year with respect for the debt situation, of course.
What you're saying is some smaller deals could be closed. That's how we should see it?
Yes.
That's all from me. Thank you very much.
Thank you. Our next question comes from the line of Kristofer Liljeberg from Carnegie. Please go ahead, your line is open.
Yes, thank you. Four questions, I think. First of all, is it possible to quantify a little bit more how Norway did improve versus the fourth quarter and how Norway did year-over-year? The second question relates to the Individual & Family business. Nice to see the improvement, but you're still on the margins from 1%-2% below the peak. Is that difference fully explained by utilization, and what could you do then to improve that? You talked about more marketing, being out selling to municipalities, et cetera. On the Easter effect, I don't think you answered the previous question, what the impact would be sequentially in the second quarter versus the first quarter, if that's possible. Finally, the comment you had about personal assistance volumes being down 1% something. Was that market related or Humana specific? Thank you.
Kristofer, I can take question one, two, and four. Thank you by the way for asking one question at a time. Norway, I'm not going to quantify it for you. We see a significant improvement in the first quarter versus the fourth quarter of last year. We do see an improvement also versus the first quarter of 2017. It's more the direction that we see and also the initiatives that are to be materialized in the financials. We are pleased with the trend. We're not pleased with the results yet in Norway. In terms of Individual & Family, I would say that we are well on track to achieve our expectations for I&F as a whole for this year of 9%-10%. Looking at the first quarter, taking into consideration calendar effects and the length of the quarter, et cetera.
Maybe Ulf, do you want to go ahead with the third?
No, sorry. On Individual and Family. You have lowered the cost, now it's all about filling up the units. Is that correct?
It's about filling up the units, also focus increasingly on ramping up new units and building new capacity.
Of course, you said the market is better, have you or Humana become less good? Has competition increased versus before? I don't fully understand. If the market is better, why utilization is not picking up more than that?
When we say the utilization, the organic decrease of 0.4% is quite a big improvement versus Q4 and especially versus Q3 last year, Kristofer. We see an improvement in the market. It's basically what we said during last year as well. There certainly is more competition, we also believe that that will wash out over time, I think that's what we are seeing. We're seeing more companies actually closing down. We see them attempting to sell operations. I think we also have improved our own operations. We are filling up the units that we converted last year. They are now basically all at satisfactory utilization. With that said, there is certainly more improvement potential in the different areas. We have one division which we call the LSS division, where we are investing heavily in organic growth, ramping up a number of new LSS homes in Sweden.
We are more confident and more positive to the I&F segment as a whole compared to last year. We have some work to do still.
Thanks.
Kristofer, before I hand over to Ulf on question number 3 there. When I said that the number of individuals entitled to personal assistance decreased with 1.3%, I was talking about the overall market.
Okay. Do you want me to move into Easter? When I say Easter effect is insignificant, I really mean insignificant. We're talking about a very small number, if any number at all. It's between the quarters.
Okay. You won't have any big impact in the second quarter either, just to be clear on.
That would be the consequence, yes. Correct.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Karl- Johan Bonnevier from DNB Markets. Please go ahead, your line is open.
Good morning. First of all, congratulations how well all your efforts that you implemented during 2017 seems to be playing out now, getting back to, say, where you should be, I guess. Looking at the strong development you've seen in I&F and also the other Nordic in the quarter, and you already alluded to that the 9%-10% is well within reach in Sweden. Do you see the same thing for Norway now? I think you earlier talked about the hope for getting maybe up to 6% already during this year, but I think you also postponed that slightly at some stage.
Karl-Johan, our absolute ambition is for Norway to be at least in line with the group target of 6%. I think we did see a worse development towards the end of last year, and then we reinforced our improvement efforts in Norway. We do see that paying off as well as materializing. We're not at all giving up the hopes for Norway to achieving at least 6% for the full year, but we certainly have more work to do.
Looking at Norway from an organic point of view, I guess it was still negative numbers in Q1. Are you seeing that, say now, I guess you are also coming up to slightly easier comps in that respect with, say, all the challenges in the numbers when we look at, say, last year's comparisons. Is that something that you believe can start to grow from here on?
Last year we saw a challenging market in Norway, and I think we communicated that fairly well as well. It was a challenging market in basically all segments and for all providers active in Norway. We have seen higher demand in the Norwegian market in several segments during and throughout the first quarter. This is obviously very pleasing to see, but it's a little bit too early to say whether that's really a lasting change, so to say. We are still a little bit cautious with organic growth initiatives in Norway. As you know, we did convert a number of units last year, and our focus in the near term is simply to fill those up before we start a new journey, so to say.
You're absolutely right, Carl Johan, about the effects of the migration washing out of the system-
Yes
making the comparables more like for like going forward.
Yes.
The strong growth we saw in Finland in Q1, if I calculate backward, it must have been up to towards 20% organic growth rate there. Is that some particular thing happening in Q1, or is that the kind of impact you're seeing from all the organic initiatives you're taking there?
It's a combination of the organic initiatives we're taking. As we said previously, we have no spare capacity in Finland, so we're investing heavily in new capacity. It's also a result of actually all business areas in Finland performing according to plans right now.
Excellent. Just one final question to Ulf as well. Have you done any early calculation on what IFRS 16 could mean for you?
No.
We'll come back to that. Thank you.
Okay.
Thank you. Ladies and gentlemen, as a reminder, if you do have a question, please press 01 on your telephone keypad now. As we have no further telephone questions at this time, I'll return the conference to our speakers.
Well, again, thank you all for listening in to the presentation of Humana's first quarter, and I wish you a fantastic day wherever you are. Thank you very much.