Ambea AB (publ) (AMBEA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Ambea Interim Report First Quarter 2022 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Mark Jensen. Please go ahead.

Good morning, everyone, and welcome to Ambea's First Quarter 2022 report presentation. Speaking is Mark Jensen the CEO of Ambea. And together with me today is Benno Eliasson, CFO. Last quarter, we provided an overview of Nytida's segments and the business. Today, I will give an introduction to Vardaga before presenting an overview of the first quarter. Benno will then describe the development of the financials for the group and for the different segments in Ambea. After that, I will summarize the quarter and compare to our financial targets before we open up for questions. I would like to begin with a brief overview of Ambea. Ambea is the leading Scandinavian care provider. We have about 26,000 employees across Sweden, Norway and Denmark, and revenues of almost SEK 12 billion. We offer a full range of services within elderly care, disability care, psychosocial support and staffing solutions. We have more than 350 municipalities as our clients, and we have an important partner in solving challenges in the welfare system. Nytida, Vardaga and Klara all operates in Sweden, where Nytida offers social care, Vardaga provides elderly care and Klara offers various staffing solutions. Stendi in Norway and Altiden in Denmark both primarily operates within social care. On the next slide, we will turn to the Swedish market for elderly care. Sweden is facing a major demographic change with an aging population. In 2030, the group of people aged 80 plus is expected to increase with 250,000 according to Statistics Sweden. This means that more elderly will need home care and residential care. Based on the Swedish Ministry of Finance report in 2019, the think tank Timbro estimated last year that there will be a shortage of 480 nursing homes by 2030. This is a huge challenge for society where Vardaga and Ambea can help. The pace in construction must increase quite rapidly as political decisions, planning processes and construction takes time. Building new residential facilities is a complex process that requires knowledge and capital. Over the past 5 years, Ambea has created a dynamic start-up process. Because we start up many new facilities, we also acquire extensive knowledge for common projects. That is a major difference and advantage compared to small and medium-sized municipalities that do not have the same opportunity to accumulate knowledge from scale. Overall, this gives us ideal conditions to plan and establish sustainable, attractive and purpose-built facilities, and thereby help municipalities meet requirements for effective and high-quality elderly care. The municipality decides if the individual is entitled to elderly care, either due to dementia or edge-related weakness. The service for care is paid by the local municipality, whereas the care receiver pays monthly rent for the apartment at the nursing home. All care receivers live in their own apartment with a barroom and a kitchenet and all nursing homes have common facilities for the care receivers to use, where joint activities are taking place and where meals are prepared and served. A typical Vardaga-managed nursing home has 60 apartments of beds. Within a nursing home, the care receiver was provided around the clock care. During the last 12 months, Vardaga opened 427 care placements in new residential facilities, and in pipeline Vardaga has more than 1,100 new elderly care placements. We continue to expand the pipeline with priority to municipalities with a stable freedom of choice model in place, which gives the residents the right to choose their preferred nursing home. Now, we will turn more specifically to Vardaga's business segments. Vardaga is one of the 2 largest private elderly care providers in Sweden operating approximately 100 residential facilities across Sweden with a certain concentration to the Stockholm region. Home care services are offered in selected locations concentrated to the cities of Stockholm and Linkoping. In Sweden, the 290 municipalities are responsible for providing elderly care to its residents. The Swedish market for elderly care is 80% of its total capacity in public care homes operated by the municipalities and 20% with private operators operating the care homes on terms set out by the individual municipality. There's basically no market for private pay solutions. The 20% private share can be split into 2 segments. The first segment is contract managed where the municipalities public tender the operation of the nursing home and the municipalities premises on contracts with a typical duration of 4 to 6 years and where we take over existing staff. The other segment is own managed where private operators build and operate nursing homes and municipalities where freedom of choice is prioritized under the act on system of choice in the public sector, also known as LOB or local freedom of choice model. Their placements under own management offered in premises that Vardaga rents from private property companies on long-term contracts, usually 10 to 15 years. Due to the non-duration, the premises can be customized to suit Vardaga's working methods and concepts, and we recruit the staff. On a national basis, the total number of contract managed homes is relatively stable. The number of private or not-for-profit operated or managed nursing homes is increasing. Vardaga is active in both contracts managed and own managed. Vardaga also run facilities including geriatric psychiatry and for people with young onset dementia. In addition to permanent residential placements, Vardaga offer short-term placements. Within home care, Vardaga has 12 home care units that offer home care for approximately 2,400 customers. Our home care team carries out individual services such as cleaning, washing, shopping, private nursing, cooking, walks and above all companionship. Homecare can be either public operated by the municipalities, be contract managed through public tenders or privately operated in a freedom of choice setting. Now, let's look at a brief introduction to Vardaga's scalable model on the next slide. At Vardaga's nursing homes, every care receiver should be able to live a dignified and meaningful life based on their own preferences. To achieve this high quality of care, The Good Day concept is applied comprising a range of promises related to various aspects of care and to ensure the quality. Let me explain some of the elements. Our goal is that every day will be filled with quality of life and meaningful activities for each individual. All of Vardaga's residential facilities have at least one employee who is overall responsible for organizing activities. Also young people visit many facilities on weekends and school holidays, which is highly appreciated by our care receivers. In addition, some residents receive regular visits from therapy and pet dogs who spread joy and support exercise and medical treatment. About 50% of our care receiver suffers from dementia, and the overall number of people with dementia is forecasted to double by 2050. Vardaga has the dementia academy, which is a staff training program provided by Lara, Ambea standard for commerce and development. The program involves both staff and relatives and takes about a year to conclude. The purpose of the program is to offer high-quality tailored dementia care. We also believe that the meal time should be the highlight of the day. Vardaga applied a food like home concept and food is prepared in the open kitchens on each floor. Our food generally receives high marks. We also know that a goodnight sleep is a vital component of care. Together with each care receiver, we draw up a plan to help them sleep better at night. An important service of Vardaga and also ethical issue is end-of-life per care. Vardaga has been focusing on training teams of representatives from various professions within the nursing home to palliative care officers. We want to provide the best possible tailored end-of-life care for our residents, including professional support for the relatives. To sum up, The Good Day is an important approach for employees to be able to provide good and high-quality care will focus on each individual in an efficient and scalable model. Now to our update on our general work within quality. Our quality management aims at consistently meeting regulatory requirements as well as expectations of our customers, meaning the care receivers, their relatives and the municipalities. High quality and continuous quality improvement is fundamental to Ambea. On this slide, I will like to give you examples on 4 of the elements we think are of importance for improving quality. Twice a year, all units performed self-assessments with about 200 questions to identify areas for improvement. The result of the assessment is reported in our quality system and used for action planning and further follow-up. Lately, we have updated the questionnaire to improve focus and ensure that the self-assessment questionnaire is better tailored to specifics and needs of each segment and type of care. Each month, we follow up all our units on 8 selected quality and HR metrics. This gives us an overview of the situation in the units and the ability to identify higher risks at an early stage. Monitoring of risk is based on existing data, for example, for employee engagement and sick leave as well as our self-assessments. Together, this data generates a quality and HR index score. This is one of the cornerstones within our quality management and the purpose is to identify units with a negative trend at an early stage and provide adequate support to achieve consistent quality across the organization. We flag and follow-up units that need closer support, and this includes all new units. The start-up phase of a new home care -- of a new care home implies higher risk when it comes to insuring quality. To reduce the risk, we put a lot of resource into a startup process. Over the last months, Vardaga made an extra investment in the start-up process, and have selected and trained a number of project managers to be able to further focus and improve the process. In parallel, we transferred the gained knowledge to Altiden, Denmark to achieve further group synergies within quality. When it comes to whistle blowing, our employees should always feel safe to reports expected deviations of our court of conduct. Report should initially be made through the line manager for quick response and action, but it's also possible to make anonymous reports through our whistleblowing function. Our whistleblowing function is in line with the new EU directive and all deviations are investigated. As a further improvement in this area, we will in June this year, implement an external whistleblowing channel for all our business areas. A consistent high-quality care has always delivered through a lot of smaller and larger actions and activities. Through attention to both detail and the bigger picture and through constant work and priority on organizational culture, we strive to foster an open and transparent environment where reporting of deviations are prioritized and welcomed. This will help us to learn and capture smaller issues before they become big and to avoid repetitions of similar deviations. We know on quality we can never rest, but need to work with compassion and determination every day across the entire organization. Feel free to ask questions regarding our call to work later in the session. Now, let's turn to the growth and revenue over the last quarters. At the start of the pandemic, overall group revenue was impacted negatively as occupancy dropped, especially within elderly care in Sweden. Since quarter 2, 2021, the trend is reversed and we can see an increase in number of care receivers, high occupancy rates and increased revenue year-on-year. Over the last 4 quarters, the growth has been increasing substantially and amounted to 13% in the first quarter of 2022. With a higher commercial focus to fill vacancies in existing facilities, new facilities opened in 2022 and a normal flow of roll-on acquisitions, we look positively at our overall growth potential although comparables will be tough of next quarter. On the next slide, we will have a look at organic growth. We see an ongoing occupancy improvement in most of our Board over units improving, and we opened 3 new units with 247 beds in the quarter, which is by the way, a record for new beds in Vardaga in one quarter. Nytida opened 3 new units with a total of 18 beds and more openings are planned year to go. As the demographic change requires construction of more nursing homes and care facilities, we continue to actively seek opportunities for organic growth within elderly care in Sweden and Denmark and within social care in all 3 markets. Since the beginning of 2020, we have added more than 1,000 new beds and placements, and as partners through the municipalities, we will continue to work to further develop good access to new care homes to meet the increasing demand. Let's look at acquisitions. In 2022, we have made 4 acquisitions so far. We have already presented 2 acquisitions in the first quarter. Nytida acquired Christinagarden i Lindesberg and its subsidiary Yxe Herrgard. The acquisition was closed 1st of Feb, 2022. Furthermore, Vardaga acquired Hannas Hemtjanst & Assistans that operates in the home care segment. The acquisition was closed 1st of March, 2022. And we are glad to present 2 more acquisitions made after the first quarter ended. Nytida acquired the Alternatus Familia, which provides family care in Sweden. Revenue for the financial year 2020-2021 was SEK 24 million. The acquisition was closed on May 2, 2022. Further, Klara acquired SkolPool. SkolPool is market leader in the student health service with care provider responsibility. Through the acquisition, the 2 leading actors merged into one operation under Klara. The revenue of SkolPool during the financial year 2020-2021 amounted to SEK 68 million. The acquisition was closed on May 2. Strong cash generation gives us the opportunity to seek a bolt-on acquisitions, which we see as an essential part of our strategy. We are active in all our markets, evaluating potential opportunities for future value creation and continue to see M&A as a key driver of growth. Now to the summary of the quarter. In local currency, all segments apart from Stendi delivered net revenue growth in the quarter compared to last year. And total sales grew by 13% compared to Q1 last year, primarily driven by organic growth but also M&A activities. Adjusted EBITA amounted to SEK 195 million, an increase of 28% versus last year. The increase was mainly driven by Vardaga's positive occupancy trend and strong operational performance. Altiden also had a positive effect on the result, including in a one-off effect -- including a one-off effect of SEK 7 million. In Stendi, we continue the efforts to strengthen profitability and a program we started in the last quarter and where the positive effects will start to materialize gradually during the second half of 2022. We continue to see positive development in Altiden in Denmark. Our strategic focus on social care and nursing homes delivered solid net revenue growth in the quarter. The positive occupancy development within Vardaga has continued month on month throughout the quarter. We will continue our increased commercial investments behind relevant information and activities within Vardaga to reach future care receivers and their relatives. Now over to you, Benno, for a presentation of the financial summary.

Thank you, Mark. This quarter, we see increased growth numbers from last quarter's 8% year-on-year to this quarter at 13%. Growth versus the last quarter was 3%. And if we consider the 2 fewer invoicing days in Q1, the growth was above 5%. Then if we look into how the different business areas have affected the group numbers, we can see that in this quarter all business areas contributed to the group through growth. Vardaga increased 15% versus last year. We have opened 6 new nursing homes since the beginning of Q2 last year and have had increasing occupancy throughout this quarter. Nytida is up 5% and Stendi as well shows growth in SIC, but has had negative growth in local currency by 2% as we are adjusting the capacity. Altiden is up 87% as an effect of the acquisition of EKKO as well as strong underlying growth in both social care and elderly care. And the Klara increased 19% with growth in all subsegments, which is really strong. Going to EBITDA. This shows how the different business area have affected the EBITDA of the group. In Vardaga, we see that the improved occupancy and operational improvements have generated a high profitability than previously, despite the fact that last year was positively affected by retroactive government reimbursement and this quarter start-up costs for 3 new units. In Nytida, we kept a strong margin from last year and increased EBITDA by SEK 5 million and Stendi, we were affected by the high sick leave cost in the quarter and were not able to match last year's numbers. So we were down SEK 3 million. In Altiden, we saw profit improvement in both elderly care and social cars, where the acquired EKKO business contributed well. EBITDA was, as said, also positively affected by revaluation of additional purchase price for the EKKO acquisition. All in all, the adjusted EBITDA grew by 28%. Operating cash flow increased by 24%, in line with the strong earnings growth. Q1 is normally one of the weakest quarters from a cash flow point of view. This puts the rolling 12 operating cash flow just below 100% of EBITDA, but seen in a longer perspective, still very strong. This slide shows -- you can say that cash flow statements, including the new leasing standard, IFRS 16, are sometimes a bit quicker to follow. So this slide is right to show the way from the rolling 12 reported EBITDA of SEK 754 million to the SEK 670 million in EBITDA, excluding IFRS 16, and down to the free cash flow post tax. We can see, for example, that we have paid SEK 141 million in taxes, SEK 70 million in interest and invested SEK 86 million in fixed assets. We can also see that we have had a negative effect on working capital rolling 12 by SEK 165 million. We have generated SEK 337 million in free cash flow post tax based on the old accounting standard. And on this slide, we can see how we have used that money. We have invested -- no, we have SEK 109 million distributed to our shareholders as dividend and SEK 230 million was spent on the 3 acquisitions that we have made in the last 4 quarters. And coming to the financial position, the strong EBITDA in the quarter has affected the leverage ratio and we are at 3.3x now, excluding IFRS 16. We can also see that our leasing debt is increasing as we have signed new nursing home contracts as well as prolonged some other contracts. As you can see in the graph, financing from our commercial paper program has come down a bit the last quarter as the credit spreads have increased the last month. Macroeconomics. In the fast-changing world, we have seen higher inflation rate in the Scandinavian countries lately. This will affect most companies and, of course, also Ambea. Our largest cost is, of course, salaries and benefits for our staff. Short term, these are not direct affected by higher inflation. The same goes for our rental agreement for our premises. These are determined on a yearly basis and will be affected from 2023 adjusted with index according to our rental contracts. Other costs, which represent around 15% of our cost base, are in some areas more impacted short-term. We have already, for example, seen high energy prices and gradually we have seen higher price increases for food and different types of consumables as well. In some cases, we can mitigate part of increase by sales behavior or renegotiation, but in most cases, not. In other cost areas, for example, for different professional services, we see very low impact. A vast majority of our flying contracts are regulated on a yearly basis by different types of index. The most common ones includes expected salary increase and historical inflation rates in a basket model. This means that, for example, high inflation in 2022 will be reflected in price that's invoiced to our customers from 1st of January, 2023. So to summarize, we will see some effects in the coming quarters, but we are working on mitigating actions. And long term from 2023, we expect that we will be covered by revenue indexation. Then turning to the different business areas. Nytida, sales increased by 5% asset, as said. We started up several new contracts in Q1 and added on acquisition of Christinagarden from 1st of February. Our management homes show slightly lower occupancy than last year. We opened 3 new assisting living facilities with 18 beds in the quarter and have the last 4 quarters opened up 10 new units with a total of 66 beds. EBITDA increased with sales and margins was stable in the quarter at 12.4%. And on a rolling 12 basis, EBITDA is still at the high 14.2%. In Vardaga, net sales increased by 15% year-on-year or 2% versus last quarter. And if we take the 2 less invoicing days in consideration, the quarter-on-quarter growth was over 4%. We have opened up 3 new nursing homes in the quarter and 6 since the beginning of Q2 last year. Occupancy in mature units, which now also includes units started in 2019 and '20, we were in the quarter at a higher than last year occupancy and shows a month-on-month good trend throughout this quarter. In the national elderly care statistics for December, we can see that the number of elderly living in nursing homes are still 3%, 4% less than before the pandemic, which means that we think that there's still an expected strong demand ahead of us. EBITA increased with 96% to SEK 59 million, driven by both high occupancy and strong operational performance. EBITA was negatively affected by start-up costs for the 3 new units in the quarter. We have, at the moment, around 10 nursing homes that we not yet have opened up for care receivers. We evaluate the local markets very carefully and are ready to open most of them within a short period of time. We opened up 2 of this in this quarter in the city of Gothenburg, where a local political decision gave the care receivers freedom of choice from February 1. To improve -- to further improve occupancy, we continue to do some communication and marketing activity based on the local needs and opportunities we see. And to Stendi, net sales increased by 5% in SEK, but decreased by 2% in local currency. We saw stable demand, but we have reduced our capacity in our managed portfolio. EBITA was down SEK 3 million to SEK 12 million. Q1 is normally on a good quarter, but this year we once again were hit by strict Norwegian COVID downtown rules and high cost for sick leave. In Norway, we are working on different profit improvement measures, both to adapt our capacity to the demand in the market and other programs such as staff reductions on an entity level, renegotiation of contracts and relocation of units. This work has been ongoing since Q4 and have been slightly delayed because of the mentioned high sick leave rates and focus on managing the pandemic. The effects of the improvement measures will be shown gradually from the second half of this year. Altiden. The repositioning of Altiden is progressing according to plan in the quarter. Net sales grew by 87% and was affected positively by the acquisition of EKKO by SEK 105 million and on the negative side on the planned exit of home-care contracts by SEK 23 million. In the elderly care segment, we saw increased occupancy in our own managed home and we started off one new contract at nursing home in the beginning of the quarter, which also contributed positively to the growth. EBITA was up SEK 30 million to SEK 40 million, and this includes a one-off regulation of the additional purchase price by SEK 7 million. The acquired equity units are performing well, but our own managed nursing home is still loss-making. The new nursing home opened in 2021 in June and normally it takes 8 to 12 months until the newly open nursing not reach breakeven. And at last Klara, net sales increased by 19%, and we are growing a business towards both external public and private operators as well as towards our own company's Vardaga and Nytida. Compared to last year, we have extended our nursing patrols geographically to 3 new cities in Sweden and expanded our business in several existing geographies as well. The business model of Klara delivering different nursing services on site when needed in evenings and weekends has proven to be very attractive for different types of care givers. EBITA margin was improved to 7.5% and in rolling 12 to 7.7%. So with that, back to you, Mark.

Thank you, Benno. So to sum up our financial development versus our targets, our growth target is 8% to 10% through a combination of acquired and organic growth. In 2022, we have announced 4 acquisitions already, and that together with strong organic growth have improved our opportunities to fulfill our financial revenue growth target in 2022. Profitability-wise, we have a mid-term adjusted EBITA target of 9.5%. Since Q2, 2021, we have seen improving occupancy, which in turn will support an increased margin going forward. Also, the efforts to improve profitability in Norway is expected to positively contribute to the margin development during second half of 2022. And finally, leverage is unchanged from the last quarter and still slightly above target. That said, our solid cash conversion will reduce leverage over time. If we need to choose between reaching our growth target and our debt target, we will choose growth. So summarizing the first quarter of 2022. Ambea is showing good organic growth in the quarter and see an ongoing positive occupancy trend in our elderly care segment in Sweden. Stendi Norway continue to adjust capacity and focus on social care, where we have scale, high competence and growth opportunities. The strategic repositioning in Denmark follows plan. In 2022, we will see a different structure of the business with a higher proportion of own managed care homes and an exit of the large remaining home care contracts. In the quarter, LTL added 18 new placements into the own management pipeline. Every new strategy is co-created with fit managers across all countries are finalized, now being rolled out internally and incorporated into the annual short and midterm planning processes. The strategy builds on our strengths and will guide us to capture new opportunities. The new strategy will be communicated on a wider scale later in the year. I had the chance to visit our teams and several care facilities in all 3 markets during the quarter. It has been a tough win on the care sector with a mutating coronavirus, renewed restrictions and high sick leaves. Our teams have managed to balance their focus once again and have prioritized our care receivers' health and well-being 24/7. Simultaneously, we have started to execute the development plans we agreed for the year and have accelerated the growth. This means we are now providing care to more care receivers than ever, and my colleagues have delivered an excellent performance in a challenging environment. The war in Ukraine and the humanitarian suffering it creates has affected all of us deeply. We have in various ways tried to support the Ukrainian people the little we can through rapid and concrete actions. Our actions as examples include donations from our staff and from Ambea to organizations on ground, the Red Cross as well as Save the children and UNHCR. We have offered our support to the authorities in terms of housing for refugees and we have shifted the products and services away from approximately 10 suppliers that have chosen to stay active in Russia. Through relevant actions, we will continue to support the Ukraine people the best we can. In a constantly changing environment, adaptability and agility is important. At Ambea, we continue to look optimistic at the opportunities to support our clients, 350 municipalities across 3 countries. And together with them, we will follow a vision to make the world a better place one person at a time. And with that, I conclude our presentation and open up for questions.

[Operator Instructions] The first question comes from the line of Mattias Vadsten from SEB.

Few questions from me. If we start with Stendi, quite surprising on the upside in Q1 in my view, I mean given the high sustained number of COVID cases we have seen through January and March. Given the sharp reduction of infections going into Q2, can you elaborate a little bit on the scope for sequential improvements? And also the efficiency program that is expected to gradually help you in H2, can you give some flavor about the magnitude of that and about the sort of practical improvement that you expect to be able to implement? That's my first question.

Okay. We can see in Stendi that we have had extra costs in the quarter for high sick leave rates and the COVID affected currently. We have seen some small effects of the restructuring program that we are doing, and we will see more of that gradually from Q2 and Q3, especially in Q3 and Q4. To see the sequential improvement is a little bit tricky in Norway because Q2 is where we have all the bank holidays. So it's a little bit harder to do -- to look quarter-on-quarter sequentially. But we will see more effect, of course, in Q2 than in Q1, but have that in mind that there is a calendar effect in Q2 that is different from Q1.

And on the macroeconomic impact that you're referring to here, I appreciate the flavor. But can you just try to clarify what kind of efficiency you're experiencing now and for the remainder of the year. Maybe at what rate does the overall group cost increase. Can you give some flavor here? It would be helpful.

As we stated in that slide, we have around 85% of our cost base is not affected at all short term. And in the 15% of other costs, I will say maybe between 5% and 10% of the cost base is affected. So it's a relatively limited part of our cost that are affected. But of course, as all other companies, we see higher energy costs, higher food costs and higher costs for some kind of supplies. I cannot give a number of what the total will be of that. But we have a total cost base of almost SEK 1 billion amount in SEK, and it's only 10% of that that are between 5% and 10% that are affected in different ways. And so it's a little bit hard for us to make predictions because we don't really see what the energy prices will go and how fast the food prices will increase because there is signals on saying that the food price will increase during the summer, but we haven't seen that in our books yet. But it's a little bit hard to make a forecast on that part.

Understood. The last one from me here. Another quarter here with working capital tie up. I know this is a lonely effect. But we also note the negative effect on a rolling 12-month basis here. I guess some reverse trend from what we saw early on in the pandemic, but how do you expect this to develop going forward? What should we think of that would be helpful.

I think that we have, for example, now in the rolling 12 slide, we see on working capital effect has a negative of SEK 165 million that's affected the full-year cash flow. I think that will, over time, be more neutral. We have seen that going up and down in different cutoffs between the quarters. So over time, we will see that be around neutral. And that will, of course, then increase the cash flow with the same amount.

The next question comes from the line from Kristofer Liljeberg from Carnegie.

Three questions. First, coming back to commentary about cost inflation. You mentioned energy cost, for example. I guess that's mainly for eating. So is it fair to assume that negative effect should have been larger in the first quarter than what we will see for second, third and fourth quarter?

Yes. I mean, I think it's important that we do not overexaggerate the impact of the cost inflation on Ambea. Actually, we have as Benno explained the 85% of cost not impacted short term. And I think this is impacting other companies much more than it's impacting us, but we want to be transparent with it. So I appreciate the question. And when it comes to energy, I mean there are different ways, of course, different sources that we are procuring. So one is, of course, heating. Another one is electricity. And the third one is fuel for cars, where we have quite a few with 900 care homes spread across 3 markets. So we have seen, of course, increased the heating costs during the winter and also increased prices for electricity. We have seen these costs coming down somewhat, but also we see high volatility in this market. And we're, of course, working on various mitigating activities. So energy efficiency programs, as an example, we're looking at converting our fleet to electrical cars, which we will accelerate now during -- from Q3 and onwards. So it's not like we're just sitting and watching it. We're actually working on quite many areas in order to mitigate these effects. But short term, they are there. And then when we will have the indexation of our revenue contracts renewed 1st of January, of course, that will capture the inflation that we have seen this year. So it's not like we will not be compensated for it. We will just be compensated for it a little later. So there will be a delay in compensation because we have index regulations in our revenue contracts. So it's important to understand how this impacts various industries, and we hope we have clarified the picture and not kind of painted it too negative because we just want to be transparent and open about it. And then of course, it's impacting us as it is impacting everyone else.

And that's very clear. Another question I had about -- is it possible to quantify the negative affects you had from higher sick leave in the quarter?

I don't think it is really -- I don't think it is because we have had -- I mean if we look at the 3 markets, we have had relatively good government support in Sweden. We have had also government support in Denmark a little shorter only until the end of February, whereas Norway has had hardly any government support to compensate for the high sick leave and actually the highest sick leave we have seen in Norway of the 3 markets. Also because the spread of the Omicron was faced a little different between the 3 countries and between different parts of the country. So I mean, to a large extent, we have been able to work around that. And with the government programs, we have been compensated in the 2 out of 3 markets. So there has been impact, but it's difficult to quantify.

But if we take Norway then, for example, how much better would earnings have been with the normal type of sick leave in the quarter?

I don't know if we can put a number to that, I don't know. How would I do that? It's a little bit prejudice to tell actually.

Okay. But if we then assume sick leave will be lower in the second quarter than in the first quarter, and you also have some positive effect from the restructuring. Do you expect second quarter earnings should be better in Norway than in the first quarter despite the calendar effects?

We don't predict that -- I think the underlying will be better because we don't expect that high see sick leave cost, and we will see it gradually effect from the cost savings program. But if that will compensate for calendar effects in all bank holidays, I cannot just today.

Okay. And what's the reason for being so difficult to quantify the sick leave costs?

In some parts, we can go short in a few parts. In some parts, we can replace the sick persons with ordinary staff and sometimes we have to pay 100% over time. In some parts, we have to take in staffing companies, and it's a little bit tricky to see all the direct and indirect effects of this as a mix. There has been high sick leave than usually and has been higher cost. But exactly what the net effect of all these are -- it's not so easy to track actually.

Okay. Final question, the acquisition you have done in the Klara segment. Could you say anything about profitability there? We can say that this sector are a profitable sector, this type of services that we are also providing in the Klara segment where we are nursing patrols. This is a service that we are selling to schools with more of a prescription service where we take care of the responsibility for homes. And that is not like an order at restarting service that you sell hour by hour. So there's possibilities to have higher profitability in this kind of services than in general in the Klara consolidated, I can say.

[Operator Instructions] The next question comes from the line of Karl Noren from Danske Bank.

So I have a couple of questions. But if we start with the cash flow, I'm just wondering a bit, as Matti has alluded to on the free cash flow in the quarter as I look at it, it's a negative SEK 24 million compared to a negative SEK 2 million in the first quarter last year despite significantly higher earnings. And I know you have some negative working capital effects. But I'm just wondering, is there any other one-off effects that impact this quarter or related this mainly due to the higher leasing costs due to more new homes?

No, there is no specific one-offs that is. But bear in mind that we have each month around SEK 1 billion invoiced and a due date the very last day of the month. So how the cutoff is done and how our customers pay the very last day could differ SEK 50 million, SEK 100 million. And that is -- so it's a little bit tricky to overanalyze the short-term effect on a specific quarter.

Okay. And then maybe a question on the government support. Is it possible to quantify maybe how much government support you got in the quarter?

We can say that we have got in Sweden, government support to cover all our extra sickness cost in Sweden. And that's -- that rule is no longer there for 1st of April. So there is no government compensation in Sweden since 1st of April. And we have -- you can say that we have had normal sickness cost in Sweden because of that compensation. And that sickness rates in Sweden are coming down, so we are close to normal sickness right now in Sweden as well. But it has gradually come down in March and April due to the more normal level, we work very high level in January and February.

Okay. So the net effect there shouldn't really -- that should be closer to 0.

No, in the Swedish business area, that shouldn't be any net effect of the sickness.

Okay. And did you receive any compensation in Norway or Denmark?

In Norway, more or less none in Denmark less in January and February, where we have the highest sickness rate, but we have still higher sickness rates in Denmark than we usually have. So there will be some costs coming also into the second quarter higher than normal.

Okay. And then on the -- you mentioned there in the ending of the call, the financial targets and the new strategy, I think you've been speaking about that for a while. And should we expect any financial targets or not? And maybe if not, should we read it as you believe your current financial targets are within reach?

So, we have the financial targets that we have communicated here. We don't have, of course, any other financial targets than the one we communicate. And the strategy is more to kind of lead us the way through to those targets. That's how we see it now. And as I said also, we are rolling it out internally and graduating -- gradually implementing and into a short-term and midterm planning processes, and that work is ongoing. But the financial targets we have presented today are the financial targets we have and those are the financial targets we strive to meet.

Okay. And then just the last question on getting back to Stendi again in Norway. Just on Kristofer's question there on the -- whether EBIT or profit should be better in Q2. But I mean, just looking at the historical figures, I mean it seems like the margin has been quite okay, at least in 2018 and 2019 in Q2. So I'm just wondering there, is there really any reason to believe that the margin should be lower in Q2 than in Q1. I mean, of course, the seasonality may be worse. But I guess you have a lot of other positive contributors as well supporting earnings in Q2.

I won't make any forecast for Q2 earnings in Norway. But I can say we haven't had so many normal quarters in Norway lately. So if you look at the calendar effect, there are, I think, 7 or 8 bank holidays in the second quarter and that was one in the first. So, Norway is by far the country where we have the toughest Q2 compared to have the cost base in Q2. So that's how it is. And sometimes that have been a little bit not seen so clearly because I think that happened in Q1 and Q2 over the last years.

The next question comes from the line of Karl-Johan Bonnevier from DNB.

Just would be interesting if you could elaborate a little on how your new opening ambitions in Vardaga and Nitta that looks for the rest of the year and into 2023. And if you see any of the units that you have, say, not disclosed any opening days for in Vardaga is now coming into, say, an opening time framework, if you put it like that.

So we have in the pipeline for Vardaga one more opening this year, for sure. Then of course, as Benno explained, we still have a number of homes where we haven't opened yet. And maybe some of them will come into play also, but that's a little too early to say. What we can see is that we can see there is an increased activity in the municipalities and quite many municipalities because they also see that the demand is coming back and in some places, quite rapidly. So maybe there will be some openings over the next quarters for some of the homes that we have received the keys too but not yet open. In terms of Nytida, we also have a few openings to come this year group homes. They are not that big. I mean, a normal group home will 6 beds. So we need quite a few of them to impact the Nytida in a material way, but they are also a pipeline there. And we also have a pipeline in Denmark on organic growth with 18 placements coming in during the remaining part of the year. So I think the organic pipeline is looking relatively good in those 3 segments, whereas we intend will continue to work on optimizing the capacity to the demand in the market.

When you look at extending the pipeline, are you looking at adding new units to say to it because I guess that's been pretty constant over the last couple of quarters? Is it time to looking for new opportunities? Yes, absolutely. We are there. And we are looking for organic growth opportunities in all markets. And we can also see that there are opportunities that are very interesting in both Nytida and Vardaga that we're working on currently. So our aim is absolutely to continue to fill the pipeline with more projects for sure. We also want to do that in Denmark. And when time comes, and the time is right, in Norway, we will also look to organic growth in Norwegian market. But that's not on the table for now in Norway. And then when you look at there's good activity in terms of filling the pipeline. But when you look at filling the pipeline, do you think it's logical to see that -- I see you have had a good flow of acquisitions of late. Is it easier to fill the pipeline by taking on already existing units, so to say, than looking for new Greenfields?

Depends on the business segment, I would say. I mean if you look to Altiden Sweden, there's not that much to acquire, if anything at all. So here organic growth is basically the key to growth. If we look to Nytida and to Altiden, there's still a good opportunity for acquired growth, and we will continue to focus on that, but also to do that in a good balance with organic growth. Then with acquisitions, it's always like sometimes, I mean, you kind of get a few of them in a very short time, and then it takes a little longer before the next ones will come. But we will, of course, look -- continue to look for high-quality companies that we believe can be a good fit to our business areas and where we can use a proven model to bring in quality and take out synergies when we do that. So it's not always easier to acquire. And we believe that acquired growth and organic growth must go hand in hand. So it's not one or the other. But I'll be very clear that for [indiscernible] Sweden, acquisition is not really in focus.

Good. And just finally, also coming back to that internal rollout of the renewed strategy. Could you just elaborate a little of where you see -- is it an evolution or revolution of the old strategy? What are the main points that you are now, say, trying to implement in the different units and so on?

Yes, we have said earlier, it's definitely an evolution, so no revolution at all. I mean this business is not for -- the care business is not for revolution. It's more like an evolutionary business. And what we are trying to do is, of course, to build on the strength and also to take the opportunity now coming out of the pandemic to see what lies ahead and how can we help the municipalities actually to create care homes that will meet the demand because the demand is coming. We will see both within elderly care and social care that the demand will increase quite rapidly. And when we see the generations that are born in the later part of the '40s that we'll get into elderly care home age, so to speak. In 5 to 10 years, there's definitely a need to get going on constructing new facilities because otherwise society will not be able to provide proper care for these people. When we get towards 2027, 2028 and planning processes, and these things take time. So we need to be able to work on improving and expanding capacity and do that hand-in-hand with our customers to municipalities and to make sure that we really build good quality care concepts also making sure that we have motivated and trained staff to take care of our care receivers because more staff will be needed. So some of these challenges we are addressing in the strategy and they are not new, but we are trying to do it in slightly new ways and with an evolution, not a revolution. And we will elaborate more on this a little later in the year, but we focus on the internal efforts at this point in time.

And you elaborated indirectly on it in your cost inflation discussion before about 85 -- the majority of your cost obviously being employee related. And I guess, this year, we are still looking at quite modest kind of wage increases. But I guess the risk is that we're going to get into a much more inflationary environment than that in 2023 as well. Is there ways for -- through which you can balance this or would that be covered by the indexation clauses to a large extent, upfront?

That will be covered by the indexation clauses to a large extent. That's the way it works. So in that perspective, we are well covered.

Thank you. [Operator Instructions]. Dear speaker there are no further questions.

Thank you so much. Thank you for today, and thank you for calling in. The quarter 2 report will be published on August 18. Have a nice day. Stay safe and healthy. Thank you.

That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.