Attendo AB (publ) (ATT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this conference call. We will present Attendo's results for the third quarter. My name is Andreas Koch. I'm Communication and IR Director at Attendo. Today's presentation is hosted by our CEO, Martin Tiveus; and our CFO, Fredrik Lagercrantz. After the presentation, we'll open up for questions. And we'll focus this on the financial report. And for media question on other topics, please contact us afterwards. But by that, over to you, Martin.

Thank you, Andreas. Good morning, everyone. Before we start the presentation, let me make a short comment on the media attention in Sweden in the past week related to one of our care homes. We have initiated a number of immediate actions in response to what has been reported. We also started the comprehensive work on learnings from the pandemic and to more in-depth investigate what has happened related to the media criticism in order to take necessary actions, learn and improve going forward. With this, let me now turn to the presentation, and then Fredrik Lagercrantz will take you through the numbers in more detail. Next slide, please. Overall, we have a mixed situation in the group, while Finland continues to improve occupancy, margins from a low level and corona impact is relatively limited. Scandinavia is severely affected by the corona pandemic and has negative development year-on-year. In Finland, the turnaround development continues. Occupancy and margins are positively impacted by natural deaths and relatively few beds in the start-up phase. As we previously have communicated, price negotiations for 2021 are finalized. And for the framework contracts, we achieved over 10% increase. All in all, we have obtained more than 3% increase of total net sales. These are largely offset by increased costs due to the new elderly care law in Finland implemented late last year as well as annual cost inflation. Given the new elderly care law, prices in Finland are still structurally too low, and we will continue to push higher prices over the next few years. In Scandinavia, we entered the year with a low occupancy due to the pandemic, and inflow of customers has continued to be low in Q1, but increasing. The low occupancy levels have affected margins during the quarter. On group level, negative corona effects have been largely compensated by public reimbursement for some of the additional corona-related costs that were incurred in 2020. Furthermore, in relation to the comparison quarter, Attendo's profits were negatively affected by leap day of SEK 20 million and legal costs of SEK 70 million. Throughout the quarter, our employees have been committed to provide us good care situation as possible, and our customer service shows that their hard work has been appreciated by the customers. The customer survey Attendo carried out during the quarter indicate high and increased customer satisfaction in both Scandinavia and Finland. Slide 2, please. We reported top line growth in the quarter of 1% year-on-year. The organic growth adjusted for last year's leap day -- leap year effects amounted to 3% despite negative effect of the corona pandemic. Lease-adjusted EBITDA amounted to SEK 75 million, corresponding to a margin of 2.4%. Fredrik will provide more details on the financial development shortly. Quality remains at a high level, but we are continuously working with improving quality through various activities and audits. Next slide, please. This chart shows the opening per quarter and rolling 12-month opening pace. The development is a result of the strategic shift we decided on 2 years ago to decrease establishment of new units in Finland and return to a more balanced expansion pace. In Q2, we will plan to open 200 beds in Scandinavia and 30 in Finland. For 2021, we expect gross opening pace to roughly 800 beds, with the majority is in the Scandinavian business area. Next slide, please. In the upper chart, we present the number of beds in operation. As for Q1 2021, we're presenting the number of beds in all Attendo's units, including outsourcing. We increased the number of beds in operation by 2% from the corresponding period last year. During Q1, we opened 250 new beds, added 480 acquired beds and closed or ended roughly 200 beds owned and outsourced. As you can see indicated in the chart, the share of own operated units in Scandinavia have increased during the period. In line with our strategy, we continue to reduce the number of openings. And by end of Q1, we had close to 800 owned beds under construction, the majority in Scandinavia. In Finland, our focus is to fill the units that we have established in recent years and continue to deliver improved occupancy in coming quarters. Next slide, please. Now turning to occupancy in our homes. As of Q1, we present an occupancy for all Attendo's home. As previously mentioned, the occupancy situation is mixed. Finland is improving occupancy through more sold beds and lower opening pace, while Scandinavia has a negative development due to the corona situation. Newly opened units in Q1 explain the drop on Scandinavia since Q4. Compared to the comparison quarter, Finland has improved overall occupancy by 3 percentage points, but Scandinavia has lost roughly 10 percentage points occupancy. We expect net inflow of new customers to gradually normalize during the second half of 2021 as municipalities' own capacity situation improves and general anxiety about COVID subside. Slide 7 please. This chart presents the occupancy development of own operated units by opening year. We have excluded the larger acquisitions, Mikeva and the recent UMSK so that we can isolate the development of our own initiative projects over time and present how fill up in openings are proceeding. It's clear that openings in 2016 and earlier are decreasing as a result of the corona pandemic, while occupancy in more recently introduced were continuously improving. Going forward, we expect occupancy to gradually increase during the year as the corona situation improves, at least during the second half of the year. Slide 8, please. This chart presents, on a group level, net sales and margins divided into mature units and start-up units. We have historically presented the mature margin, including all administration costs. To give a better view on the mature margin, we now calculated margin for the mature unit with a proportionate share of the administration costs. As you can see from the yellow line, mature margin is stable despite the corona situation. Improved margin in Finland almost offset lower margin in nursing homes in Scandinavia. Let's take a closer look into the financials for the quarter. Please go ahead, Fredrik.

Thank you, Martin. So let's turn to Page 9. Net sales decreased somewhat to SEK 3.1 billion, down by 2% compared to the corresponding quarter last year. The exit from Norway impacted the comparison with about SEK 90 million. Currency had a negative impact with 2.9%. And last year's leap day impacted comparison with about 1%. Adjusted for last year's leap day, the organic growth was about 3% despite the negative impact from lost revenue due to the corona situation. In Finland, we continue to see growth across all service offerings, while growth in Scandinavia is still negative, affected by ended outsourcing contract, exited home care areas and lost occupancy in nursing homes due to corona. Lease-adjusted EBITDA amounted to SEK 75 million, down from SEK 84 million last year. The negative effects from corona are estimated to around SEK 50 million, which have been offset by received government reimbursement of total SEK 50 million, but relating to additional cost in 2020. The comparison between the years are further impacted by the leap day last year with about SEK 20 million. And we also had a negative onetime cost of SEK 20 million related to real estate following a legal proceeding stemming from 2017. The IFRS 16 effect on reported EBITDA was larger than last year due to new openings. Financial net was negative SEK 164 million compared to negative SEK 146 million in the first quarter of 2020. IFRS 16-related interest expenses increased by SEK 7 million, while interest expenses for our borrowing from banks decreased by SEK 4 million. Currency effects on financial costs were negative by $4 million, while positive with SEK 10 million last year. Income tax for the quarter was positive SEK 1 million. And the adjusted earnings per share for the quarter was SEK 0.26, down from SEK 0.37 last year. Next slide, please. The Scandinavia business area is clearly impacted by corona. Net sales for the business area decreased as we exited Norway and corona's impacted sales. Lease-adjusted EBITDA decreased from SEK 125 million to SEK 91 million. Adjusted for leap day effect of SEK 10 million, government cost reimbursements of SEK 36 million and negative one-off of SEK 20 million, the result is down by SEK 40 million. This is fully driven by negative corona effects. During the quarter, we had tendering processes won, but yet not started contracts with an annualized revenue of SEK 25 million. Next slide, please. Growth continues to be high for Attendo Finland and amounts to 5% reported and 11% in local currency. And adjusted also for leap day, growth was 12%. The growth primarily comes from more occupied beds in units opened since 2019, price increases as well as acquisitions. Price increases amount to more than 3%. Lease-adjusted EBITDA improved from negative SEK 22 million last year to positive SEK 2 million. Price increases and improved occupancy was partially offset by higher cost in operations, largely due to the implementation of the new law. By the end of the quarter, the number of empty beds was lower than 1 year ago. Attendo received reimbursements for some corona-related costs that occurred in 2020, which resulted in that corona-related support measures more than offset the costs for the isolated quarter. Compared to the first quarter in 2020, calendar effects were negative with about SEK 10 million. The acquisition of UMSK had a very marginal impact in March as the profit generated from the nursing homes were offset by transaction costs. Before we turn slide, I just want to give a few comments on the coming quarters for both Finland and Scandinavia. The corona pandemic will impact the coming quarters, although the magnitude is still uncertain. The net sales in Scandinavia will continue to be impacted negatively as we're operating at a significantly lower average occupancy than normal. At the same time, the cost level in Scandinavia will continue to be higher than normal due to protective measures and absorption issues. We expect corona reimbursements to be much lower in the second quarter. The acquisitions we made during the quarter will contribute positively for the second half of the year with an accretive effect on adjusted earnings per share. Next slide, please. Free cash flow was positive with SEK 138 million, somewhat lower than last year. The positive working capital development in the first quarter is mostly related to [ employee creations ] and due to seasonal effects. Net cash flow from acquisitions was higher than normal in the quarter. Adjusted net debt amounted to SEK 1.6 billion, which equals an adjusted net debt to adjusted EBITDA ratio of 2.8, a clear improvement to last year and well below our maximum target. With that, I hand back over to you, Martin.

Thank you, Fredrik. A few words before the Q&A session to summarize. So we have now closed another quarter affected by the corona pandemic, which have impacted both operations as well as financials. Financially, the development in the business areas is mixed. Scandinavia is deeply affected by the corona pandemic, which has led to clearly reduced occupancy margins. Meanwhile, we see continued progress in Finland as a result of the turnaround program. Operationally, we have, during the quarter, completed the vaccinations of residents in our nursing homes. And as the vaccination program in society continues, we expect general anxiety about the pandemic to gradually subside. We expect this, in combination with a steady improvement of the public sector capacity situation to lead to a gradual normalization of customer inflow during the second half of 2021. With regards to the past week's criticism in media in Sweden, we also started the comprehensive work, both on learnings from the pandemic and to investigate what has happened related to the criticism in order to take necessary actions, learn and improve going forward. Thank you for listening, and over to you, Andreas.

Yes, we will now open up for questions. And operator, please go ahead.

[Operator Instructions] Our first question comes from the line of Kristofer Liljeberg of Carnegie.

First, on the occupancy levels in Sweden, have you changed the definition here versus before?

Yes, we have. We'll -- before we looked at own management units only, but now we included all type of units, also the outsourcing units. And it's clear that also occupancy in outsourcing has been impacted by the COVID situation.

Okay. And is this the way you're going to continue to do it?

Yes, it is.

Okay. Okay. And when it comes to the occupancy rate in -- I guess it's the average you report. Can you say anything about the run rate when you ended the quarter and whether you have seen any gradual improvements there?

Yes, we have. So the situation has gradually improved during the quarter.

And is it possible to quantify what occupancy rate was when you ended the quarter?

The reported occupancy rate is the average for the last month. And we see a gradual -- as Martin said, we see a gradual improvement of the inflow of customers. But then, of course, if you discuss occupancy in percentage, it's also impacted on exactly when we open new capacity. But overall, there's a gradual improvement in terms of customer inflow.

Okay. And given the discussion or debate in Swedish media, have you seen that impacting the moving rate in any way the last 2 weeks?

No, that's too early to be visible.

Okay. And last question, the financial net seems to be done quite a lot now year-over-year when you adjust for the lease effects. You mentioned about the SEK 4 million improvement. I guess there's some moving quarter as well. But what do you think is a normalized level now for net financials if we remove the lease effects by quarter?

I think this quarter is a good representation of a normalized level. But if we look at our bank borrowings, it's -- the main driver is the size of our net debt. And that in combination of costs with our leverage ratio, the higher leverage we have, the higher interest margin we pay. But it is -- the cost for the quarter is quite representative, but we always get some currency effects that can impact the financial net.

Our next question comes from the line of Hans Bostrom of Trinity Delta.

Two questions, please. Maybe this relates to Kristofer's question on the inclusion of the outsourced business. But the occupancy in the pre-2016 units, is this a reflection of the -- relative to the other vintages, I mean, is this related to lacking competitivity of these units? Or is it the geographic location of them, in particular, corona areas? Could you elaborate on that, why that is going in the wrong direction relative to other vintages? And secondly, on the Norway exit, what would be the cost impact from that in the quarter?

For the first question, Hans, this is Martin, we're seeing on mature units, which you're referring to as 2016 and earlier, we can see that the occupancy effect is related to the corona pandemic, whereas in generally in the market, a lower inflow to nursing homes based on general anxiety about the corona situation.

And the difference between the mature units and the start-up business, more recent vintages have a kind of inherent ramp-up effects, because they are new, and then, of course, we try to open units where we see there is a demand in the market. But of course, we think that the ramp-up of the more recent units could have been better without the corona effect. So they are also negatively impacted, but it's not visible when we track it over time. And the profitability effect on Norway; your second question, that is much more marginal effect because the Norwegian business wasn't that profitable.

And can I go back to the first point? I mean, obviously, your mature units, I like to say, the most profitable units, so this would have a disproportionate impact on your profitability? I mean are there any particular measures you will be taking to shore up the occupancy in these units? And is there anything you particularly can do to that?

As I said earlier, this is, in our view, the effect of the corona situation. And we have looked at the total inflow to the market, not only at tenants inflow. And you can see that we are -- the inflow to our own is pretty much in line with the overall market. We do expect that it would be a gradual improvement of customers seeking placement in nursing home as anxiety of corona subsides. The vaccination program for residence in nursing homes has been completed during Q1, not only at Attendo, but overall in the market, in combination with the municipality capacity situation also improves. And we expect a gradual normalization from the second half of this year because we also expect that municipality operations also have a lot of free capacity at the moment. So it would be a delayed effect. That's our expectation at the moment.

Our next question comes from the line of Victor Forssell of ABG.

Just starting off with the question. Martin, I think that you mentioned this in the report, but you've seen or you estimate that the number of people that were eligible for or actually seek a grant to enter elderly care in Sweden was down by some 8%, if I understand it correctly, last year. Just to understand the dynamics, is this including the people that actually declined that position or that grant?

I think that, that figure represents people seeking grants because there is no reason to believe that a less proportion of people seeking grants has been not granted.

Okay. So that would perhaps include all the dynamics in that question then?

Yes. I mean if you look at general statistics, what is available is number of people being granted support.

But it's your view that perhaps people were a bit more hesitant to actually access that as well and have declined their opportunity throughout the year. And if so, how do you see that play out?

That might be the case. I mean there has been a general anxiety in society, given all the media reporting, but also given the situation within elderly care during the pandemic. So I think it's not surprising that we see a -- we've seen a lower demand for these services during the corona year. There was also a situation going into the quarter where Sweden was in the middle of the second wave of the pandemic with the vaccination program that started around Christmas time and was ended. In Attendo units, we ended the vaccination program in February. Of course, that is something that would ease, and we've seen easing general anxiety about moving into nursing homes as well. So we have seen a gradual improvement during Q1, but from a low level.

Okay. That's fair enough. And just finally, from my side, in terms of the grants you received here in Q1, around SEK 35 million in Sweden or Scandinavia, is that what you expect for Q2 as well? I think that's a figure you alluded to previously. And also, if you see those grants that you had in Finland coming back in Q2 as well, please?

Yes. As with these processes, it's many parties involved. It's both the governments and the municipalities, and the rules are different. But as I said, we expect a significant lower number for the second quarter, both in Sweden and in Finland.

Our next question comes from the line of Christoffer Nilsson of Aftonbladet.

My question is direct to Martin Tiveus. Attendo has received financial aid for corona-related expenses like cohort care. Still, you admit that you haven't succeeded in full. Meanwhile, you and other top executives have been awarded with high bonuses. Do you intend to pay back the bonus?

Compensation for management is something that is decided by the Board and not on management results. And for further questions around that, you're welcome to contact us after this call, which is a financial call.

Okay. But this is a financial-related question, if you intend to pay back the bonus?

As I said, I think you have to talk to our Chairman, and we will talk there. We can answer your question for it.

Okay. For this quarter, you have received more financial aid in corona. Will you still have the same bonus system related to this year to results for top executives?

That is not a question for management. This is a question for the Board.

So, yes. Okay. Next question, please.

How much have you paid out in bonuses for operations managers for 2020? And will you have the same system for this year's results?

I think these type of questions, we said we can answer you afterwards. So we'll go on with questions related to financial report right now.

Okay. In the state that goes on with the financial report now, you addressed the reprisals from employees, and more employees are telling about reprisals. How do you see your own responsibility? And can you promise that no more employees will be subjected to reprisal?

Attendo is a large company where people work with people. We have 25,000 employees in Sweden. And I think that -- and about 1,000 managers. When and if wrong things happen, it's our duty to make sure that we do all that we can to make sure that this doesn't happen again. These single events that have been reported, we take very seriously, and we have set forth a number of actions to make sure that this doesn't happen again. But it is an ongoing work.

Okay. Thank you. Operator, we need to move to the next question.

Our next question comes from the line of Victor Jensen of Swedish Radio.

First, I would like to ask you if you think that the recent criticism can affect the financial results in the future?

My focus now is to make sure that we take the criticism seriously and that we set forth the actions necessary, both to investigate what has happened and make sure that we take the necessary actions going forward.

And how are you going to make sure that, that happens?

We have started a comprehensive work in the company as we speak, both the last couple of days with both trainees education, but also talks with both managers and employees. And -- but as I said, we have started the comprehensive work on these topics. This is a learning organization, and we have to work for things to become better if we find problems in the organization. That's our responsibility.

The fact that employees have said that they've been subject to what they call retaliation after sounding alarm about problems in the elder care, do you think that you have a problem with the corporate culture?

One of these reports is one too many. I mean those kind of reports is, of course, unacceptable in this organization. That's my fore-view. And this is something that we're now working with. But I've been -- in the past few years since I've been there, not during the corona because of natural reasons. But then when I've been out in the organization, I also met with a lot of amazing, both employees and managers and have a lot of engagement in this company. As I said before, this is a large company. We talked to 5,000 employees with more than 1,000 managers. If you look in operations this large, we will find situations where things have not been done or handled correctly. But what is important to me now is that we do all that we can to make sure that these kind of situations is not repeated.

And one last question, in which way have the pandemic still affect the financial results. Can you give a concrete example of that?

Absolutely.

Okay. This is Fredrik. I can give more details on the financial impact on that. So we have several type of impacts. We have had extra cost related to buying protective gear. We have had extra cost to sometimes change our facilities to make them a more -- better from a disease prevention perspective. We have also had extra cost for personnel because we need a higher staff ratio in many instances. But then we have also seen effects like home care customers who wants to have less support because they've been afraid. And also we have had a lower occupancy. So there are a number of types of negative impact. Then that has partly been reimbursed through public systems.

Okay. Operator, we'll take the next question.

[Operator Instructions] Our next question comes from the line of Johanna Cederblad from SvD.se.

I wonder about the impact on your business because of the pandemic. You talked a lot about numbers on lower occupancy. But how many people died, and how big is that impact in your homes? How many people died in your homes?

So this is Fredrik. Inherently in our -- what we do is that we provide a nursing home, which is the last home for many of our clients. So it's a very -- it's a very normal part of what we do, that, unfortunately, people decease. We don't have the responsibility to define what is the reason that they passed away. That's something from the health care regions to find out. But we have seen during some time periods over the last 1.5 years that number of people who deceased in our nursing homes have been higher than normal. And we can see -- so that, of course, is an indication that this has had an impact, but we can't give then an exact number, and I don't think we are allowed to give it either.

So how -- do you think that -- the pandemic will have an impact on your business. But how much will it impact your business in the future? And how much media [ assert ] about the weaknesses? And so how much will it impact your business in the future?

That's an impossible question to answer. What we can do now is take the -- what has been reported in media seriously, and we do. We are running 700 units, as we said. This is a large operation. And there are a lot of the good things that we are doing and that our employees are doing on a day-to-day basis in operation. When individual mistakes happen, we need to be able to tackle them, find out what has gone wrong and then make sure that we do better going forward. That, I think, is our clear responsibility.

But your -- Attendo, your finance, the money comes from taxpayers. It's our taxpayers' money. And you are not -- your revenue is all from tax money. What's your thoughts about the bonus you got because of satisfied employees now that they are not so satisfied everywhere?

Generally, the -- both customer satisfaction and employee satisfaction has been going up over the past -- not only for the past year, but also the past 3 years. We've seen that staff attrition has gone down significantly and employee engagement has also been moving up, which is something, of course, I am glad to see because it's an indication that all our efforts in these areas are having an effect. Then if there are -- if we find individual examples of like things have been reported, we need to make sure that we tackle those and learn and improve. When it comes to the remuneration system of management, which has a long history in this company, that is something for the Board decide on.

And Johanna, please be aware that Attendo is present in 3 countries and last year in 4 countries. And of course, this is a mix of all countries. And especially, the turnaround on Finnish situation has been a big contributor to this. As we talked about very much, the turnaround program has been very successful throughout 2020. So that's actually the vast majority. It's about what's happening in our Finnish operations as Attendo is a big company.

Operator, so with that, conclude the call. Please don't hesitate to contact us directly if you have -- there are any further questions, and thank you for this participation this time. Thank you.