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

Good day, and thank you for standing by. Welcome to the Ambea Interim Report First Quarter 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mark Jensen, President and CEO. Please go ahead.

Thank you so much, and welcome, everyone. Today, we will review Ambea's performance for the first quarter of 2025. My name is Mark Jensen, I'm CEO of Ambea, and I'm joined by our CFO, Benno Eliasson. Together, we will walk you through our results and highlights and the key developments during this period. After that, I will summarize the quarter and compare Ambea's performance to our financial targets before we open for questions. I would like to begin with a brief overview of Ambea. Ambea remains the leading care provider in Sweden, Norway and Denmark. And with the market entry in Finland, we offer high-quality care and support for over 16,000 care receivers across more than 1,000 units in the 4 largest Nordic countries. And with that in mind, let's look at the acquisition of the Finnish business and Validia. The acquisition of Validia was closed according to plan on April 1. Validia will be reported as a new business area and be consolidated in Ambea's accounts with full effect in the second quarter. The reception to Ambea's acquisition has been positive for Validia employees and customers alike, and we are impressed with the quality and engagement of the local team. The integration of Validia is proceeding according to plan. Validia has a platform acquisition in a new market for Ambea, and the integration is, therefore, in some parts lighter than what we are used to when acquiring in existing markets. A key part of the integration is to pave the way for leveraging Ambea's shared knowledge and best practices across all our markets, contributing to a stronger Nordic welfare model. Most of the integration is expected to be completed in 2025, but the full integration will complete in 2026 with the establishment of Ambea's IT platform in Finland. The acquisition gave Ambea access to a sizable care services market with a healthy growth. Concurrently with the integration, the key focus of Validia is to deliver continued growth, which we're optimistic about and maintain good quality of care to our Finnish customers. The market for M&A within care services in Finland is quite active. We are currently evaluating M&A opportunities and will continue to do so going forward. So let's go straight to some of the important achievements within care quality. As we continue to grow, it remains just as important that we deliver safe, high-quality care every single day. We follow a systematic approach to quality and sustainability with monthly follow-ups of all our care units. During the quarter, we presented Ambea's Quality Award, an annual recognition given to one care unit within each business area. These units stand out through their exceptional quality work closely aligned with Ambea's values and shared working methods. Notably, they're also among the top financial performers in their peer groups, reflecting the strong correlation that we have between high quality and healthy financial outcomes. With over 1,000 units spread across various regions where employees provide daily care and support, local leadership plays a critical role in ensuring consistent quality. This quarter, we conducted our first Leadership Index survey of the year, resulting in a score of 78 out of 100. This is a stable and encouraging result, underscoring our long-term commitment to present and supportive leadership. Leadership remains a cornerstone at Ambea, and we continue to support leaders at every level. A key part of this effort is ensuring that all employee survey results are discussed in the local teams and important improvement areas to each team are identified and agreed upon. This foster a culture of continuous improvement and improved work environment. Finally, attracting the right talent is vital to our continued success, but recruitment can be time consuming. This quarter, we introduced a new AI-based recruitment tool in Vardaga. It's appreciated by candidates and managers and is already helping to streamline the hiring process, allowing our managers to spend more time focusing on care and on leadership. You can read more about our quality and sustainability work in the quarterly report as well as in our 2024 annual report that we have recently published. Now I would like to highlight some of Ambea's future growth opportunities. We remain focused on expanding our services to meet the growing demand for care, fueled by an aging population and increasing care needs. In Q1, both Nytida and Stendi signed new contracts, adding 15 care places in total to the pipeline. Our pipeline is by far the strongest in the Nordic care sector. We have 1,285 beds and care places in our own management pipeline, most of them in Vardaga. The pipeline decreased slightly compared to the previous quarter due to newly opened units in the first quarter. We plan to open 280 beds in Vardaga, 81 care places in Nytida and 49 beds in Stendi during the coming 12 months. We are not only opening new care units, but also expanding existing units. We signed a contract to increase capacity by 30 beds at a planned nursing home in Täby, Stockholm. Looking at Ambea as a whole, more units under construction, positioning us for future organic growth in our markets. Acquisitions are an important part of our growth agenda, too, and we will now have a look at the acquired growth. As you can notice, we made acquisition in almost all business areas between 2021 and 2025, except for Stendi. Nytida was most active in bolt-on acquisitions, expanding our footprint within social care in Sweden. This is a part of our strategy to strengthen our service offering through qualitative bolt-on acquisitions. On April 1, 2025, Ambea acquired Validia in Finland, making us the only care provider with a strong presence in the 4 largest Nordic countries. Validia runs operations in residential care and support for people with disabilities and thereby adding approximately SEK 1.4 billion in annual net sales. After the quarter ended, we acquired AvAsta, which operates care units in both Vardaga's and Nytida's operational areas with annual sales of approximately SEK 145 million. AvAsta operates a nursing home and 4 care units for adults with lifelong disabilities and psychosocial problems. Control of the company was transferred on May 5. Further bolt-on acquisitions are expected in the coming quarters in several business areas as we continue to identify strategic opportunities for growth in all Nordic markets. Therefore, we foresee a continued active year within M&A. Let's look at total revenue growth. The organic growth illustrated in the purple bars continues to show the strong trend observed since 2022. The total organic growth in this quarter was 4.2%. Acquired growth was 1.9%. We saw negative currency effects of minus 1.5%, which affected overall growth. So summing up the highlights of the first quarter. In conclusion, the first quarter of 2025 has been another successful quarter for Ambea, marked by strong financial performance, continued organic growth and improved occupancy. Net sales increased by 5%, driven by 4% organic growth. Group EBITA rose by 10%, reaching a margin of 8.4%. Altiden Denmark continues to see profitability improvements from higher occupancy and strengthen operations and showed positive earnings again this quarter. Ambea entered into agreement to acquire Validia in Finland, making us the only care provider with a sizable platform in all 4 large Nordic countries and a strong position for growth. And now I will hand over to Benno, who will provide a financial overview of our performance this quarter.

Thank you, Mark. The good organic growth we have seen in the recent quarters continues. In Q1, we achieved 5% growth in net sales, driven by acquired and start-up units in Nytida and the increased occupancy in our care units in Vardaga and Altiden. Stendi had negative growth in SEK in local currency, net sales growth was positive. Klara saw a decline in sales due to a weak external market. Turning to the EBITA development. This slide shows how the different business areas have contributed to the adjusted EBITA of the group. The first quarter last year was affected both positively by an extra invoicing day and negatively by the Easter holiday. This has, of course, affected the comparison for this quarter. This effect was negative for the Swedish business area, Vardaga and Nytida and positive for Stendi and Altiden. Adjusted EBITA increased by 10% and our margin improved to 8.4% driven by strong results in Vardaga and Stendi, and of course, the positive earnings in Altiden. Nytida's EBITA was lower than last year, down 1.5 percentage points, mainly due to the occupancy challenges in individual and family care segment. Stendi's EBITA increased by 1.3 percentage points, reflecting a favorable demand that has contributed to the stable occupancy. Altiden's EBITA increased significantly by 5.3 percentage points compared to the same quarter last year, reflecting the good occupancy growth together with operational improvements, specifically in social care. And now to the cash flow development. Our operating cash flow amounted to SEK 425 million with a stable cash conversion in the quarter. The decrease compared to the same quarter last year is mainly explained by an increase in working capital. This is attributable to our normal fluctuations in payment flows related to the beginning and the end of the different quarters and the underlying cash flow remains strong. This slide shows the way from the adjusted EBITA down to the free cash flow post tax of SEK 713 million, excluding IFRS 16. We can see that we have invested SEK 129 million in fixed assets. We have paid SEK 141 million in interest and SEK 144 million in taxes rolling 12. We had a negative effect from working capital of SEK 43 million. Over time, we think that the net working capital contribution to the cash flow will be neutral to slightly positive. Utilization of the high free cash flow, I will show on the next slide. So this is how we have used the generated SEK 713 million. SEK 130 million was distributed to our shareholders as dividend, SEK 254 million was spent on the 4 acquisitions we made in 2024 and SEK 534 million was spent on the 2 share buyback programs. As you can see here, our net debt has increased by SEK 169 million since the same quarter last year. This quarter, we can also look at the free cash flow development over a longer period of time, having a slide that shows the last 3 years of free cash flow. Comparing this, we can conclude a strong increase of almost 25% in terms of annual growth rate. This strong growth speaks for the good cash flow development across our businesses. High free cash flow allowed us to maintain the financial flexibility, supporting both dividend payments and strategic investments, including acquisitions and share buybacks and as well as reducing debt. Now a look at the different business areas, starting with Nytida. Sales increased by 8%, which is driven both by acquired operations as well as newly opened business, Nytida opened 3 new assisted living facilities with a total of 29 care places. As an offsetting effect, we saw continued lower occupancy in some parts of the Individual and family care segment. Nytida is working actively and adjusting its service portfolio and selected units aiming to increase occupancy and improve margins over time. This also follows the new Social Services Act that Nytida welcomes and will come into force on July 1, 2025. EBITA decreased by SEK 7 million compared to the same quarter last year and landed at SEK 118 million. The decrease in earnings was partly due to occupancy challenges within the Individual and family segment and that last year was positively impacted by calendar effects. EBITA margin in the quarter was 10.5% and at 12.3% rolling 12. After the quarter ended, Nytida acquired AvAsta, adding 4 care units with 64 care places and approximately SEK 62 million in annual sales. Then turning to our Swedish elderly care, Vardaga. In Vardaga, net sales increased by 7% year-on-year, driven by higher occupancy in new and mature own managed nursing homes as well as new contract management units. EBITA amounted to SEK 111 million, which was higher than last year, thanks to the higher occupancy, and last year was also positively impacted by calendar effects. Mature units showed an improved margin of 9.9%, which is 1.4 percentage points higher than the average margin for Vardaga's total portfolio. During the quarter, Vardaga decided to open a previously completed nursing home in Norrköping in the third quarter of 2025. And after the quarter ended, Vardaga acquired AvAsta adding 1 nursing home in Gothenburg with 90 beds and approximately SEK 82 million in annual sales. And then turning to Norway and Stendi. Net sales in Stendi decreased by 2% in SEK, but increased by 1% in local currency. And sales in own management rose 5% in local currency. Last year, Stendi terminated all contract management operations, which were exclusively within elderly care. EBITA increased to SEK 68 million, driven by favorable demand that has contributed to a stable occupancy and the improvement was also an effect of the last year was negatively impacted by calendar effects. The EBITA margin in the quarter increased by 1.3 percentage points to 8.3% and the rolling 12 margin increased to 10.3%, thanks to the good earnings development over the last quarters. Stendi now performs at a consistent high level supporting the Norwegian society with high-quality social care. We see good opportunities to expand operations going forward through organic and acquired growth. And then taking a closer look of Altiden. Our Danish business area, Altiden, continues to improve earnings this quarter, who also saw higher occupancy. Net sales in Altiden increased by 6% in SEK, increase in own management sales increased by 12% in local currency, thanks to the higher occupancy in both elderly and social care. The decrease in contract management sales was mainly due to 1 large elderly care contract that expired in the first quarter of 2024. Altiden once again delivered a strong profitability improvement. EBITA was up SEK 17 million compared to the same quarter last year, thanks to the good occupancy growth with operational improvement in social care. First quarter last year was also negatively impacted by calendar effects. EBITA margin in the quarter was 2.4%. And now turning to Klara. In Klara, net sales decreased by 5% due to a continued weak demand for staffing services. EBITA decreased by SEK 1 million to SEK 8 million due to the lower net sales. Klara has adjusted its cost base to a structurally lower market demand, but remains well positioned to respond if demand should increase again. EBITA margin was 8%, which is a robust margin given the situation with the public health care regions limitations of the use of temporary nurses. Klara's EBITA margin is still significantly above staffing competitors' margins, thanks to Klara's diversified portfolio consisting of different welfare services for example, mobile nursing teams and student health services. This diversity in Klara services and adaptability to change market conditions is our core strength, of course. And with that, back to you, Mark.

Thank you so much, Benno. So to sum up our financial development versus our targets, we aim for an annual growth rate of 8% to 10%, driven by both organic and acquired growth. Total growth rolling 12.6%, driven by solid organic growth. Going forward, we will see more growth coming from acquisitions and of course, through the acquisition of Validia, which will further boost our overall growth level. In terms of profitability, our target is to reach an adjusted EBITA margin of 9.5% in the medium term. We reached our profitability target again at 9.8% rolling 12. On leverage, we target the net debt-to-EBITDA ratio to be below 3.25x. As of quarter 1, we remain well below this target at 1.8x, thanks to the strong EBITDA and cash flow development. After completion of the acquisition of Validia, Ambea's leverage ratio is expected to be approximately 2.8x. These financial targets underscore our commitment to delivering sustainable financial performance while investing in our long-term growth. We have reached 2 out of 3 financial targets and are close to the third with more growth coming from acquisitions. We are committed to consistently deliver on all 3 financial targets. And before we open for questions, I would like to provide an outlook post quarter 1, 2025. In the beginning of April, we closed the acquisition of Validia in Finland, adding approximately SEK 1.4 billion in annual revenue. This marks a significant milestone for Ambea, as we now have a strong presence in all 4 major Nordic countries. Our entry into the Finnish market is not only a strategic expansion. It enables increased scale and fuels future Nordic growth. I would like to welcome our new colleagues, our care receivers and customers at Validia. After the end of the quarter, we also completed a bolt-on acquisition within Vardaga and Nytida. The deal adds around SEK 145 million in annual sales and further strengthens our positions in elderly and social care in Sweden. And looking ahead, we have several planned openings across our business areas in the coming quarters of 2025. We will open new units in Nytida, Vardaga and in Stendi, supporting continued organic growth across the Nordics. We expect further profitability improvements in Altiden following ongoing operational enhancement and increased occupancy in Denmark and a very strong performance by the local team. Finally, investing in our employees, our leadership technology and innovation to improve care quality going forward is paramount to our continued success and our core priority. I would like to thank all of our employees having done the utmost for our care receivers again this quarter. Their daily work is a constant inspiration to me and the entire group management team. And this concludes our presentation, and we will now open for questions. So can we have -- please, the first question, please?

[Operator Instructions] And now we're going to take our first question and it comes from the line of David Johansson from Nordea.

Okay. Three questions from me, please. First one, if you could elaborate a bit more on the weaker margin, I think, in Nytida and some of the restructuring work you seem to be doing there to adapt your services? I think you commented on weak demand in some areas there. And then just on your margin expectations for Nytida looking at the full year. I think it seems to be sliding a bit here. So just wondering about some of the puts and takes here that we should consider for the coming quarters?

Yes. Thank you so much. I can start with your first question on Nytida. I mean, it's mainly driven by slower occupancy in individual and family segment. And we have seen that for a few quarters now. There's a new Social Securities Act (sic) [ Social Services Act ] coming into play in Sweden from 1st of July. And it provides a good opportunity for Nytida as it is basing the municipalities demand more on knowledge and on the methods that are used, and that plays well to the quality segment of Nytida. So we expect that with the tweaks we are doing and supporting the municipalities and getting into this new legislation that we will see better occupancy going forward and also that the Nytida's margin will strengthened somewhat. So it's absolutely our belief that Nytida is in good shape. And it's a big business with almost 500 care units. So of course, over time, there will be a need for changes and adaptations to demand and also to new legislation coming in. But we remain comfortable on the both short, mid- and long-term outlook for Nytida and are positive about the opportunities also going forward this year.

Okay. That was helpful. Then my second question is on your pipeline. So perhaps if you could quantify the impact to organic growth? I think, first, given the new openings and contracts that was signed during Q1, I think you believe is a total of 33 care places in Nytida and Stendi and another 30 in Vardaga. And also your planned openings for the 12 months, if you could quantify the organic growth there?

Yes. So I mean the contracts that we signed in a quarter is for -- is normally not for opening within the next 12 months because there is construction time or time to refurbish if it is an existing facility. So it's adding to the future pipeline, so to speak. And what we have done this quarter is that we have quantified the planned openings during the coming 12 months for both Vardaga and Nytida and Stendi that are the 3 units where we have plans to open -- own construction in the coming 12 months. It's 5 nursing homes in Vardaga and 280 beds there. It's 7 care units and 81 care places in Nytida, and it's 4 units and 49 beds in Stendi in Norway. And they are spread across the next 4 quarters and thereby, of course, decreasing the pipeline going forward. But as we are constantly looking for new opportunities, we will sign and add more volume to the pipeline also in the coming quarters. Was that an answer to your question?

I was hoping that maybe if you could quantify sort of the organic growth implication of that current pipeline.

You can say that in short term, these openings don't affect the 2025 organic growth so much because most of the large one in Vardaga will be opened in the fourth quarter. But gradually, it will, of course, help the organic growth going forward. But if you are opening the ones, for example, in Q4, normal nursing home has taken 12 to 24 months to fill up, so it will gradually affect the organic growth, but not so much short term.

Okay. That's clear. And then maybe just a last question and perhaps a general update on Stendi and where the demand situation is that? It seems to me that demand for special care needs in Norway have remained at the high level, so would you say it's starting to tail off now or should we expect it to remain at a stable level also for the coming quarters?

So with the visibility we have, I mean, the level is stable. It has been again this quarter. And with the outlook we have into the coming quarters, it looks the same, so to speak. So with the visibility we have now, the demand looks stable at a good level.

Now we're going to take our next question and it comes from the line of Kristofer Liljeberg from Carnegie Investment Bank.

Two questions. The first one, just coming back to the Nytida margin. Is it possible to quantify how big of a seasonal effect was on the margin if we compare with Q1 last year? And the second question relates to Denmark. And if you could talk a little bit about your strategy for expansion there now with the new legislation?

I can start with margin and seasonality of Nytida. There was 2 effects of the seasonality last year that was a little bit different from a normal year. The first one was that there was an extra invoicing day last year and that the Easter was in the first quarter instead of normal in the second quarter. The total of these 2 were last year positive for Nytida. It wasn't very much, but there were some positive effects of that and that will be reversed this year, of course, especially when coming into the second quarter. So it's the total decrease in EBITA is not because of this effect. So there was this effect as well as the lower occupancy within Individual and family care that contributed to the lower EBITA.

Could I just follow up on that before you turn to the next question? But how quickly do you expect to turn margins around again in Nytida? I guess, you won't see it in the second quarter because of the Easter effects, but...

No, exactly. In the second quarter, we will have a negative calendar effect compared to last year, but we hope that we the margin dilution we have seen for a couple of quarters, we hope that we can turn that around in the second half of the year, that is absolutely our target to do that. Okay. And then turning to Denmark and your question there. So the new legislation, which is coming into force in 1st of July in elderly care, we have spoken about that also in the previous quarters. It opens new opportunities for establishment of own managed nursing homes in Denmark, and we are looking and in process with several developers and municipalities at new project development in Denmark. So far, no contracts are signed, but it's absolutely our target to do that going forward and to leverage the opportunity that we have now in Denmark with the free rights to establishment and also the new remuneration model in Denmark. So we believe that the reform is positive and will give us a better opportunity to grow Danish elderly care going forward, which we will actually pursue.

[Operator Instructions]. Now we're going to take our next question and the question comes the line of Jakob Lembke from SEB.

Yes. My first question is on Stendi. If you can sort of elaborate a bit more on the previous question that -- or I guess my question is, do you expect -- or should we interpret it as that you expect the current earnings level to persist for the remainder of the year based on what we're seeing now?

There is in Stendi there are -- you can say there are larger seasonality effects going forward than in the other business areas. So the second quarter, we have the full Easter effect, which were in the first quarter last year. So now we have a rolling 12 that consists of no Easter holiday, and that is an extra cost in Stendi. Beside of that, we think that the margin level in the second half of the year underlying will be still at a good level, so we said the last quarter that we are not foreseeing the level of 2024 to be the long -- in the long run that we can keep that level probably and that is still our best estimate. But in the -- we think that it will be on a rather high level during the year anyhow.

Okay. That's clear. And then I have a question on Vardaga. Now that you have relatively more openings ahead, I'm wondering if you can -- you think that you can offset the sort of negative earnings impact from new openings with higher earnings from the existing units?

We see that -- we think there is still a potential for the mature units to increase profitability slightly. But of course, in the later part of the third quarter and the fourth quarter with a lot of openings, that will, of course, hurt our margins shorter term. And probably that won't be compensated at the mature units. That is our best prediction as of now.

And then finally, if you can talk a bit about the development for Validia here in the start of 2025 and how they're tracking versus the margin they did in full year 2024?

We have not so far come into the details of the Validia's number going forward. We will come back on that in the next quarter. So we are not making any new estimates or forecast on Validia, besides what we said when we made the deal in March.

Now we're going to take our next question and the question comes from line of Karl-Johan Bonnevier from DNB Markets.

Yes. Congrats to a solid start to the year and a solid development for the operation. I saw your comment, Mark, on that you managed now to get one of the units that have been, say, built ready but not opened yet in to be open or adding to the pipeline in the second half. Any news on opportunities for the other remaining units that you have in that category?

We are working, of course, with all of them. There are 4 left after Norrköping. And we are working with them as we have been doing all along. There's no kind of concrete plans yet for any of them. But it is things that can change relatively fast also. So let's see how it looks going forward. But for now, only concrete plans for 1 of the 5 being Norrköping.

Good start. Good start. And just on Validia as well. How much of an organic pipeline do you see Validia adding to your opportunities?

So we're not adding any numbers, of course, yet on Validia, but there is organic opportunities also in Finland. Of course, this has to be considered carefully also with the regions in Finland and also based on their needs for new capacity. But we are evaluating a number of organic growth opportunities also in Finland, and we expect that we can add some Finnish organic growth to the pipeline also in the second or in the third quarter this year.

And maybe also on the regions in Finland, have you feel that -- or you feel that you are in a good discussion with them, so to say, given the change of ownership of the operation and what that might imply from that perspective?

We have a very strong team in Finland that we are impressed with and the team has been a good dialogue with all the regions, all the customers in Finland. And the acquisition has been received well. I mean we have the existing team running full steam in Finland. So it's the same counterparts and no changes to that. And we are doing a soft integration of the Finnish business into Ambea. It's progressing well. So we think it has been well received, both internally and externally in Finland.

Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Mark Jensen, for any closing remarks.

So thank you all for calling in. The report for the second quarter will, for the first time, include the results of Validia and Finland, as we have discussed, and will be published on 19th of August 2025. So thank you all. Have a nice day. Stay safe and healthy.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.