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

Thank you, and good morning, everyone. Sorry to keep you waiting a few minutes. We had some issues with the financial hearings line. Today, we present Attendo's Q3 results showing continued improvements, both financially and operationally. Before diving into the development in the quarter, let me just take a few moments to reflect on what company we are today and where we're going. Slide 2, please. Today, we serve almost 30,000 people with different care needs daily with more than 34,000 employees across almost 800 care units. Thanks to a strong focus on both the financial and operational turnaround over the past few years, we have grown net sales to well over SEK 18 billion on a rolling 12-month basis and recovered our profitability significantly compared to where we were just a few years ago. We've also become more diversified, dedicating to serving an increasing amount of people in not only elderly care, but also in Disabled Care, Individual & Family and Social Psychiatry, segments which needs a stronger specialization for those with more complex care needs. And maybe most important, I'm happy to see strong progress in terms of customer satisfaction in our Nursing Home operations. This was confirmed during the quarter in the national user surveys from both THL in Finland and Socialstyrelsen in Sweden, where Attendo scores higher than both the industry average and public sector. At the same time, recent study shows that we are providing care at a clearly lower cost to society than public sector, hence, creating value to both customers, society and shareholders. Next slide, please. Strategically, we believe that this makes us well positioned for further long-term value creation. Demographic trends will support long-term growth in the Elderly Care segment for the foreseeable future. And in the Disabled Care and Individual & Family care segment, we see a trend that public payers need increasing support with taking care of more complex care needs. Hence, our recent acquisition of Team Olivia not only adds valuable competence and footprint in these segments, it also provides the necessary volume to enable increased investments in competence, quality and methodology development. Investments that are needed to capture the future growth opportunities within more complex care needs in these segments. With the new financial and long-term plan for 2024 to '26, a clear path for value creation, I'm happy to present our Q3 results. I'll start with giving you an overview of the development during the quarter, followed by a more detailed financial analysis from our CFO, Mikael Malmgren. Next slide, please. So let's look at the Q3 highlights. In the quarter, we showed a rolling 12-month growth in sales of 9%, mainly driven by the integration of Team Olivia in our Scandinavian business area. Underlying adjusted EBITA improved by 21% or SEK 74 million to SEK 420 million, an effect of the Team Olivia acquisition in combination with underlying operational improvements. In Finland, we had a positive impact from lower cost of care staff during the summer months and higher price effects in Disabled Care and Social Psychiatry. These improvements were partly offset by the timing of price and wage increases in the fall of '23. Scandinavia continues to show a steady progress in earnings growth, mainly attributed to the integration of Team Olivia and continued improvements in our own Nursing Home operations. As in previous quarters in 2024, the result was hampered by one-off costs related mainly to integration, exit costs in Denmark and ended outsourcing contracts. Cash flow was slightly lower than the comparison quarter, mainly due to higher vacation salary payout. Still, we see a positive trend in working capital, and we maintained a strong balance sheet after the acquisition of Team Olivia, with net debt-to-EBITDA improving slightly to 2.1x. Consequently, we still have ample headroom to continue with active capital allocation with share buybacks, investments in own operations as well as selective bolt-on acquisitions. All in all, this quarter shows that we're heading firmly towards our operational and financial targets. Slide 5, please. After Q3, I'm happy to announce that the effects of our long-term work to improve customer satisfaction is now also visible in external surveys. In the national survey from Socialstyrelsen in Sweden, our customer satisfaction score for nursing homes this year was 81%, 3 points above publicly run nursing homes in the geographies where we operate. Six of our units were awarded 100%, one more unit than last year. The national THL survey for nursing homes in Finland shows a similar trend. This survey uses Net Promoter Scores to find out to which degree customers would recommend the services provided. The NPS for 2024 came in at 40, 9 points above last survey and a significant rise above the national average that remained unchanged at 36. Moreover, recent study shows that private providers run nursing homes more cost effectively. According to a new study from industry organization, HALI, private care costs 23% less than public care in Finland. And a study from Vårdföretagarna in Sweden shows that privately financed new nursing homes in Sweden cost 8% less than the average cost for the public sector owned nursing homes. This proves that there is a strong case for increased cooperation between the public sector and private providers to meet future demand for care. Next slide, please. So let's turn to the development of occupancy, a key factor for our long-term profitability. Group occupancy at the end of the third quarter was 86%, stable compared to last year. Scandinavia shows a slightly lower occupancy, which is mainly a temporary effect related to the openings of 3 new homes with 112 beds in the quarter. In Finland, underlying development is slightly stronger since we have added around 170 beds net since Q3 last year. As visible in the graph, occupancy in Finland has been flat the past years, while staffing density requirements has been steadily increasing. With the recent political shift and the return to lower staffing density requirements from 2025, we believe that the supply-demand balance on the labor market for qualified care staff will improve. We also believe that this will lead to better opportunities to increase occupancy going forward. Next slide, please. This graph shows rolling 12-month sales growth and lease adjusted EBITA margin. The most significant factor for sales development over the past 12 months has been the acquisition of Team Olivia in Sweden and improved terms in our Finnish operations. Group margin improvement in the past 18 months was mainly driven by the performance in the Finnish Elderly Care segment, and now we start to see clear improvements in Scandinavia as well. Let's take a closer look at the financials for the quarter. Please go ahead, Mikael.

Thank you, Martin, and good morning, everyone. Let's turn to Page 8, please. Net sales in the quarter increased to SEK 4.8 billion, up 9% compared to quarter last year. The organic growth for the quarter was 2%. Organic growth was slightly negative in Attendo Scandinavia, where we saw continued organic growth in our own nursing homes. However, growth was as previously impacted by outsourcing contracts that ended end of last year. Including acquisitions, Scandinavia grew 18%. In Attendo Finland, the organic growth was 6% and primarily driven by improved terms. Currency had a negative effect in the quarter. Slide 9, please. Excluding one-offs of SEK 18 million, the reported result improved to SEK 554 million, and correspondingly, the lease adjusted EBITA increased from SEK 346 million to SEK 420 million. As is visible in the graph, occupancy in Finland has been -- lease adjusted EBITA in Scandinavia, excluding one-offs, improved by SEK 48 million year-over-year, while Finland lease adjusted EBITA improved SEK 32 million year-over-year. Currency had a SEK 4 million negative effect on lease adjusted EBITA. Next slide, please. Growth for Attendo Finland amounts to 3% reported and 6% in local currency. Lease adjusted EBITA, including currency effect, improved by SEK 28 million versus last year to SEK 277 million. The quarter was impacted by higher personnel costs due to the annual salary increase effective as of August versus September last year. However, the negative impact was more than offset by continued improved terms in Social Psychiatry and Disabled Care year-over-year as well as better operational efficiency during the important vacation period. Occupancy rate was also slightly positive. As mentioned earlier, the Finnish government announced in April that staffing requirements will be reduced from 0.65 to 0.6 for care staff per resident from January 2025. The negotiations with welfare regions are ongoing or about to start, and it's still early days as the law has only been presented but not yet passed in the parliament. However, we are well prepared for the expected change, and we believe that the reform will ease the balance on the Finnish labor market going forward. Slide 11, please. Organic growth in Scandinavia was slightly negative. We saw continued underlying growth in own nursing homes and welcomed more net new customers to home care. However, growth was offset by lower revenue due to the outsourcing contracts that ended end of last year. Acquisitions had a considerable effect on sales and in total, Scandinavia grew 18%. Lease adjusted EBITA, excluding one-off costs relating to the Danish exit and integration costs increased by SEK 48 million to SEK 164 million. The improvement was primarily driven by Team Olivia acquisition and improved results from our own nursing homes. Improved result was partially offset by ended outsourcing contracts, which had a SEK 20 million impact versus Q3 last year. Ended outsourcing contracts will continue to impact the result, while gradually less in Q4 as the majority of contracts ended in December last year. Please note that we expect Q4 to be impacted by a minor nonrecurring Team Olivia integration cost of up to SEK 5 million. Finally, I would like to highlight that we recently, and as part of the integration of Team Olivia, introduced 2 new brands to bring together our businesses in Disabled Care and I&F in Sweden, Unika and Viljan. With 2 distinct brands, we believe we will have a better opportunity to build a leading player in these 2 important segments. When we look at the cash flow, the rolling 12 months, as previously communicated, has been affected by 2 one-off items in Q1 and Q2. But still, our free cash flow remains healthy at SEK 714 million. In the quarter, working capital due to better vacation planning and which now also includes Team Olivia, was impacted by higher vacation payout. CapEx was also slightly higher, and we will, as previously communicated, continue to normalize this at more historical levels compared to last year's low. During the quarter, we repurchased SEK 86 million worth of share. And in October, we have repurchased almost SEK 30 million more worth of shares. And today, we can announce that we will continue our repurchases in Q4 under a new program. The new program aims to repurchase up to SEK 150 million up until next report and will be executed under safe harbor regulation. Next slide, please. Over the course of the last 12 months, we have utilized our free cash flow to do a dividend according to policy. And in February, we also initiated continued share buybacks. These 2 elements make up more than 50% of our free cash flow utilization to date. In addition, we've made a transformative acquisition with Team Olivia, and which was financed by own cash and additional debt. Next slide, please. Let's look at the top left chart. The adjusted earnings per share improved by SEK 0.41 per share or SEK 0.46 per share when excluding integration costs, which is equal to more than 30% uplift versus last year. Improvement primarily due to higher lease adjusted EBITA and continued share buybacks and was as expected, slightly offset by increased income tax. Now let's turn to the top right figure. Adjusted for nonrecurring items, we continue to improve the lease adjusted EBITA margin. In Q3, the 12-month margin amounted to 4.9%, which is up from 4.6% last quarter and up from 4.3% end of last year. The figure at the bottom left shows the lease adjusted net debt-to-EBITDA ratio, which decreased, a trend we continue and expect to gradually continue. As indicated in the figure to the bottom right, the net interest expense in the quarter was SEK 42 million. The increase in Q2 and Q3 is explained by higher financing costs due to the recent acquisitions. Going forward, we expect our interest rates to gradually come down as our loans gradually roll over to the new and now lower stable Euribor market interest rates. Next slide, please. I would like to briefly recap on our adjusted EPS development. In 2022, our adjusted EPS was SEK 0.68 per share. In 2023, we made a significant turnaround based on the plan we set out in 2021, and we achieved an EPS of SEK 3.02 per share. Since then, our reported adjusted EPS has continued to improve and now amounts to SEK 3.65 on a rolling 12-month basis when we include integration costs. And when we exclude the integration costs of Team Olivia of SEK 20 million year-to-date, our EPS is actually at SEK 3.76 per share. And if we also adjust the EPS with our continued share buybacks to date, I divide with the outstanding shares at the end of the Q3 in the run rate, we are actually now at SEK 3.84 per share. With that, I hand over to you, Martin.

Thank you, Mikael. Before we move on to the questions and answers, let me just briefly summarize the quarterly development. We continue to see an overall stable growth in both sales and profits quarter-on-quarter. The improvement was driven by the acquisition of Team Olivia in combination with underlying positive development in Scandinavia. In Finland, we managed to increase profit year-over-year despite continued headwind from strained public finances. We have many opportunities in the years ahead, and we're both well equipped and committed to solving society's complex care needs while empowering even more individuals. So now let's turn to the Q&A session. Operator, please go ahead.

[Operator Instructions] The next question comes from David Johansson from Nordea Markets.

First one I had was on Scandinavia. Are you able to say anything on the underlying profit development in the quarter and also the contribution from Team Olivia? And then on that business, Team Olivia then specifically, if you strip out the integration costs you talked about, do you see this business tracking better on profitability against the -- I think it was at 9.6% from when you acquired it?

Yes. So in regards to the underlying profitability in Scandinavia, as we mentioned, the outsourcing had a SEK 20 million negative. Team Olivia contributed around SEK 40 million, and then the rest is a mix of slightly positive from Denmark as well as the elderly care providing the rest of the upside. And in terms of tracking versus original estimates, we hold the same as we have said before, we see underlying performing in line with our expectations for Team Olivia.

Understood. Then I was also curious on the development then for Denmark. What can you say about Q3 specifically on an underlying basis? And would you also say you track -- how do you say you track, I guess, versus your profitability target from Q4 on a run rate basis? I think you talked about profitability entering 2025.

Yes, we talked about reaching breakeven during Q4, and that is still our plan.

Okay. Perfect. And then just a last one for me on Finland. Maybe the result in Elderly Care wasn't what you hoped for. But also, you also say you have an elevated staffing situation against the current regulation there. So with the staffing change that could take place beginning next year, would you say this change the dynamic at all for Elderly Care in Finland and your ability to receive new customers?

Yes. I mean it's still early days, but we are overall positive towards the new lowering staffing requirement. It's actually not just decided in parliament yet, but we expect it to be very shortly. A few things around that. One thing is lower staffing requirements in the market, it will ease the pressure on the labor market for care staff, which is important. It will also make it less costly for welfare regions to give more people access to care services. So we are overall long-term positive to this change. For us, it's also more easy to adopt to a lower staffing ratio than to a higher one. So we think that this will be good for the market and also positive for long-term occupancy development.

Okay. Maybe just a follow-up there. Would you say this is sort of the main lever for improving profitability in Finland? I think previously, I think you sounded more cautious on more compensation in previous telcos.

Yes. I mean we -- it's still early days on the conversation because given that the parliament has not decided yet on the law change, it also means that very few welfare regions have actually come out to start tendering the 0.6. So we still have limited visibility on the outcome of those negotiations, which we expect will be ready by the time of the Q4 report. But having said that, we think it will be positive for future possibilities of increasing occupancy in Finland, which is, of course, the main long-term lever for profitability.

The next question comes from Kristofer Liljeberg from Carnegie Investment Bank.

Given your commentary that you expect to be breakeven in Denmark in Q4, could you maybe tell us how large the losses has been in Denmark this quarter and in recent quarters? And then I just wonder about Finland, you talked about lower cost for summer employees there. But given the year-over-year trend, it also seems that you are handling costs better in Finland versus recent quarters. Do you agree on that? And what's the reason behind that? And then you talked about the new staffing regulations in Finland being positive for occupancy rates going forward. What about Scandinavia? And what do you think will drive occupancy there into 2025?

Yes. Thank you, Kristofer. Let me start with the first question, and then I'll hand over to Martin for the second and third. So I think we've mentioned earlier an estimate of around SEK 30 million for Denmark on negative losses. We improved, as we mentioned in the last quarter, by SEK 5 million, and we improved by another SEK 5 million in this quarter, and we expect similar development then going forward as well.

Then coming to the...