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

Thank you and good morning everyone. Today we present Attendo's results for the first quarter of 2025 before diving into the development of the quarter, so just let me zoom out to make some comments on Attendo's status and strategy going forward. Slide 2 please. As a private welfare company our mandate to do business and keep growing is closely linked to our ability to deliver a more appreciated and specialized care with higher stakeholder satisfaction at a lower cost to society than public sector. Last year we completed the acquisition and integration of Team Olivia in Sweden and strengthened operational efficiency in Finland. Hence, we entered 2025 with the more diversified operations. From an operational point of view, we have made strong progress in terms of stakeholder satisfaction among both customers, relatives, employees, and payers. Last year according to national satisfaction surveys we reached both higher satisfaction scores among care customers in both markets while delivering care at a clearly lower cost than public providers, hence making room for increased availability to care services. This goes hand in hand with our long-term vision to deliver better care to more people. Next slide please. In the first quarter, we grew top line with around 8% mainly driven by the acquisition of Team Olivia and more sold beds. Underlying adjusted EBITA improved by SEK 71 million or 44% to SEK 234 million, an effect of both underlying operational improvements, increased occupancy in nursing homes and the Team Olivia acquisition. In Finland, we had positive effects from more sold beds in combination with continued improved operational efficiency both in general and related to new lower staffing requirements that came into effect January 1st. In Scandinavia, we delivered expected earnings growth related to the integration of Team Olivia and improvements in own nursing home operations, mainly from inflow of new customers. Having said that we also had some negative headwind from home care and slightly higher cost base due to new openings in recent quarters. Leased adjusted EBITA per share continued to improve to SEK 4.63, an improvement by 46% compared to the first quarter last year. Our strong EPS growth is mainly linked to higher earnings but also an effect of our share buyback program reducing number of outstanding shares. All in all we're well on track towards our adjusted EPS goal of minimum SEK 5.50 per share in 2026. Nothing to comment on the progress of our sustainability work and non-financial KPIs. Over the past few years we've gradually been implementing new evidence-based methods to measure quality of life of individual nursing home residents. While we've been piloting these methods since 2021 we've now implemented them broadly in all of our nursing homes. In Sweden we've introduced a method called ASCOT while we use a method called RAI in Finland. The purpose is to measure and improve the health and well-being of our nursing home residents. The results of the ASCOT and RAI assessments helps our staff to better understand what to focus on to impact quality of life for each individual resident. It also provides the data to understand if the residents experiences a positive impact on the care, food and services that we provide. The results indicate that this way of working with improving quality of life is having a positive impact on our nursing home residents. While it's still too early to draw more detailed conclusions from the measurements we will as we get more data be able to compare development over time. This will also help us to build more knowledge about what actions that have the most impact on our resident's health and well-being to further develop our care operations for the future. Next slide please. So let's turn to occupancy development. In Scandinavia we saw solid inflow on new customers early in the quarter. Hence occupancy remained almost flat in Scandinavia at 87% despite the opening of a new 60-bed nursing home in Stockholm during the quarter. Finland showed a more distinct improvement in the quarter bouncing back from the seasonal effect that brought occupancy down over the Christmas holidays. During the quarter, we also made two acquisitions with a total of 200 beds up 90% occupancy which in combination with the close down of a few low occupancy units also impacted the occupancy level positively. This graph shows rolling 12 months sales growth and lease adjusted EBITA margin. Sales continue to improve -- in the quarter mainly driven by the acquisition of Team Olivia in Sweden and more sold beds. Sales in Finland remained strong despite flat prices versus last year as a result of the lower staffing requirements valid from January 1st. If we look at the Group margin we continue to improve as more sold beds and higher staffing efficiency in Finland drives earnings recovery. In Scandinavia we improved margins due to improved operational efficiency in all nursing homes and the Team Olivia acquisitions. Slightly offset by weak development in the home care segment. As part of our strategy we have terminated a few selected home care contracts with unsustainable business terms during the quarter. So let's take a look at the financials for the quarter and please go ahead Mikael. Next slide please.

Thank you Martin and good morning everyone. Net sales in the quarter increased to 4.7 billion up 8% compared to quarter last year. The organic growth for the quarter was 2%. Organic growth was flat in Attendo Scandinavia where we see continued organic growth in primarily owned nursing homes. However, growth was also impacted by outsourcing contracts that ended last year. Including acquisitions Scandinavia grew 19%. In Attendo, Finland the organic growth was 2% and primarily driven by increase in net new customers with several of our key segments showing positive growth. Adjusting for leap day and the exited rehab business end of last year the underlying growth was approximately 4%. Currency had no material effect in the quarter however we do expect currency effects in Q2 since last year the Euro to SEK was at a higher rate than currently trading. Next slide please. The reported result improved to SEK 381 million and correspondingly the lease adjusted EBITA increased from SEK 161 million to SEK 234 million up 45% versus same period last year. Lease adjusted EBITA in Scandinavia improved by SEK 26 million year-over-year while Finland lease adjusted EBITA improved SEK 52 million year-over-year. Currency had no material effect on lease adjusted EBITA. Next slide please. Growth for Attendo Finland amounts to 1% reported and 2% in local currency. As earlier mentioned, adjusting for leap day and exited rehab business December last year the underlying organic growth was approximately 4%. Lease adjusted EBITA was SEK 189 million an improvement of SEK 52 million compared to last year. The Finnish parliament announcement of change staffing requirements and care for older people from 0.65 to 0.60 care staff per resident took effect from 1st of January 25 and the team delivered an implementation better than the base plan. The quarter improved by and seen already in the last quarter from better staffing and manning. Occupancy rate improved when adjusting for seasonality with more sold beds and from exiting a few low or no occupancy units. In the quarter we also opened a new nursing home and acquired 2 quality nursing home businesses which added an additional 200 placements. Next slide please. In Scandinavia the organic growth was flat. We saw an underlying growth in own nursing homes. However, growth was offset by ended outsourcing contracts. Acquisitions had a considerable effect on sales and in total Scandinavia grew 19%. Lease adjusted EBITA increased by SEK 26 million to SEK 68 million. The improvement was primarily driven by Team Olivia acquisition and improved results on nursing homes. In the quarter we opened a new nursing home in Stockholm and closed down 1 unit which together had a negative SEK 10 million impact versus Q1 last year. Next quarter will also be impacted by startup costs as we're opening a new home in Denmark and we carry ramp up costs from March opening. In addition, a weak home care impacted the result negatively in the quarter. Finally, as part of our strategy we terminated a few selected home care contracts where sustainable conditions mainly no longer exist. In Q2, we expect exits to impact our results by SEK 10 million to SEK 15 million in onetime exit costs. Next slide, please. If we look at our cash flow, our cash flow improved to SEK 752 million on a rolling 12-month basis, where Q1 free cash flow was SEK 40 million versus SEK 20 million last year. CapEx was higher and as previously communicated, is continuing to normalize at more historical levels compared to last year's low. During the quarter, we also had a strong share repurchase program, buying back a total of SEK 162 million worth of shares. The cash flow was further impacted by recent acquisitions, which totaled SEK 125 million in the quarter. Next slide, please. Over the course of the last 12 months, in line with our financial plan for '24 to '26, we initiated a more active capital allocation. As a result, we have utilized more than 80% of our free cash flow for dividend and continued share buybacks. In addition, we made a transformative acquisition with Team Olivia in April and which was followed up by 2 quality bolt-on acquisitions in Finland in this quarter. Next slide, please. Let's have a look at our key financial metrics, and I'm happy to share that our key metrics continue to move in the right direction. If we start at the top left, the adjusted earnings per share improved by SEK 0.56 per share, almost doubling the EPS versus last year. Improvements primarily due to higher lease adjusted EBITA, but also lower financial costs and our share buybacks, which continue to support the improvement. If we turn to the top right figure and our lease adjusted margin in percent, adjusted for non-recurring items, we continue to improve our lease adjusted margin. In Q1, the rolling 12-month margin was 5.7%, up from 5.4% last quarter and up 1.2 percentage points compared to Q1 last year. If we direct our attention to the figure at the bottom left, we maintain our lease adjusted net debt-to-EBITA ratio versus last quarter, which is in line with our target range of 1.5 to 2.5 ratio. And finally, when we look at the figure on the bottom right, net interest expenses in the quarter was SEK 31 million. The increase in Q2 and in Q3 is explained by mainly higher financing costs due to the recent acquisitions, while in Q4 and in Q1, we see the effect of improved market interest rates. With that, I hand over to you, Martin.

Thank you, Mikael. Next slide, please. So before we move on to Q&A, let -- just let me briefly summarize. So we started this year with the same strong trajectory as we ended last year. Improvements in financial performance stems mainly from our Finnish business, where quick adoption to new staffing requirements and operational improvements have led to continued solid earnings growth. We also made 2 bolt-on acquisitions during the quarter and continue to optimize our footprint through closing some non-performing units. We maintain a positive outlook for the year ahead as lower staffing requirements also gives regions financial relief that can transform into higher demand for nursing home placements. In Sweden, the Team Olivia acquisition has strengthened our operations and contributed positively to our financial development. We expect to further improve operational efficiency post the integration period and build a stronger platform for growth within both -- disabled care and IOF. I'm also happy to see more sold beds in our own nursing homes and that our newly opened nursing homes added in late 2024 and early 2025 is filling up quickly. All in all, we're well on track towards our adjusted EPS target of at least SEK 5.50 per share in 2026. So that concludes our presentation, and let's turn to the Q&A session. So operator, please go ahead.

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

I have 3, please. So first one in Finland. It seems like the efficiency improvement is well underway now with the changed staffing regulation. So would you say now that we have seen the full effect of that adjustment now in Q1? Or perhaps if there are further efficiencies expected from staffing also for Q2? And of course, the occupancy has picked up nicely as well. So if you could bridge those 2 together and how we should think about the margin outlook going forward? That would be helpful.

Yes. So as you can see, this -- both this quarter and I mean, following the trend from Q4 last year, I think we have a very strong staffing efficiency now in Finland. Staffing efficiency was slightly decreased in the first part of the quarter in January, but we managed to transition quite fast this time. So it had some effect in -- early in the quarter. But as I say, 2/3 of the quarter was on par where we should be going forward. So you should expect sort of a similar staffing efficiency in the quarters ahead in Finland. In terms of occupancy, we did see a positive effect on selling more beds in the first quarter. We had expected somewhat of a sales effect as prices has been flat year-over-year due to the new staffing regulations. So it should improve conditions for the welfare regions in Finland to do more placements. Then it's, of course, early days. So we're still a bit conservative in terms of our plan forward. So in terms of the financial plan, we have a conservative outlook of improving occupancy with at least 1% per year. And I think that we'll keep that for now until we see how things turn out, but a promising start.

Okay. That's encouraging. And in terms of, I think, seasonal effects, could you remind us of that impact and how that looks for Q2 for both divisions?

Yes. So for -- if we start with Q1, obviously, we had the leap day effect. On the other hand, we had no Easter. So we had 1 Red Day less. So I say for Q1, the seasonal impact was fairly limited in both business areas. Obviously, there will be a somewhat seasonal effect from Easter this year as we're adding 1 day of Red Day for Q2.

All right. But if you sort of looking between the divisions, would you say the impact is larger in Finland or in Scandinavia? Or how should we think about that?

I mean it's slightly larger in Finland than in Scandinavia as it's a bigger market for us.

All right. Then the last question for me. Looking at the home care business now after phasing out the home care contracts in Västerås and Linköping. So do you anticipate any sort of extraordinary cost of that nature from this beyond the SEK 10 million to SEK 15 million exit cost, I think you alluded to? And have you seen this affecting other areas of the home care business or your dialogue with customers in any way?

Thanks. So first question, yes, it will be -- we have a onetime cost of SEK 10 million to SEK 15 million for -- which is more related to exit costs of primarily for Västerås contract. I think as we also commented in the release, I mean, we exited a few selected contracts due to unsustainable terms. Västerås was one of them, but also the largest one. So it is connected with some exit costs, but limited. Going forward, we don't expect that effect to spread. I think we have a very solid and good home care business overall. And normally, we also have we're very long term about our home care contracts. These were 3 contracts we have had discussions over the past, I'll say, the past 1 to 2 years around terms and conditions, and we haven't managed to get to better terms and then we decided to exit. But that as part of our normal strategy, so to speak.

The next question comes from Jakob Lembke from SEB.

My first question on Scandinavia. It would be interesting to hear the outlook for earnings improvements here in the coming quarters, given that you don't have the Team Olivia data anymore.

Yes. No, we still remain positive if we exclude the extraordinary cost that we will continue to see a margin improvement in Scandinavia. We are still positive about earnings improvements for Denmark and the synergies as well from the Team Olivia integration that we expect to see in the coming quarters.

Okay. And do you think that it's possible to improve margin in Q2 also when you have the negative Easter effect?

I mean we don't comment on the exact numbers, but we still remain confident that we can improve margins slightly in the coming of Easter as well.

Then on Finland, with the occupancy increase we see here now in Q1, would you say that there is sort of a trend shift behind that, that you're now seeing more customer inflow?

One quarter is no trend, but it was a positive start, a promising start, I would say.

Okay. And if I can rephrase then, has it continued into the beginning here of Q2 as well?

We don't comment on that. We normally don't do that. But it was a promising start. And then as I said, we are a bit conservative after a few years of flat development in Finland. So looking forward to keep commenting on it in the next coming quarters when we see a trend for 2025.

Okay. I guess that's fair enough. Then just a question regarding share repurchases. I noticed that you did not announce a new program here this morning. So why that is and what expectation we should have going forward?

Yes. When we have the AGM later today, so we don't have a mandate for a new share buyback program until after the Annual General Meeting, which is this afternoon. So any such announcement would come later. But then we're also looking at capital allocation as such. And you saw we've made a few acquisitions earlier this quarter. And we're looking at other potential opportunities as well. We are true to our long-term strategy in continuing to continue share buybacks, but we are evaluating options short term for the next 1 to 2 quarters.

Okay. And then a final question, just a technical one. I noticed there was a quite large tax cash outflow here in Q1. And what is behind that? And how we should think about tax in the coming quarters?

Yes. So we made an extraordinary payment for the full year of 2024, so to say, [indiscernible] in Finland for the 2024. We expect the normalized average tax rate otherwise to be around the previously 20% to 22%.

The next question comes from Kristofer Liljeberg from Carnegie.

Just wondering about the Scandinavian margin and whether it would be possible maybe to talk a little bit and explain the dilutive effects now from home care and Denmark and whether the margin in the residential living segment is more similar to what you have in Finland? And related to that, I also wonder if the higher occupancy in residential living were able to offset the start-up costs you had in the quarter.

Okay. So I mean, as we communicated before, we are close to breakeven or breakeven in Denmark, and we've said that we expect that to deliver a SEK 20 million positive impact for the full year. The residential living is doing well and is offsetting -- the improvement is offsetting and somewhat more the cost of starting up new units.

And the home care business, is that loss-making right now for you?

No, it's not loss-making. However, it was weaker, as you can anticipate from this quarter than last year.

Okay. And when you said that underlying improvement in residential were able to offset the start-up cost, is that also adjusted for the M&A contribution from the Olivia acquisition?

Yes, that's separate.

[Operator Instructions] No more phone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

Well, there seems to be no question that we haven't yet answered. We had a question from Giulio Antonello at Auriga Partners on the share buyback program, but I think that we already answered that in the previous question from SEB. So with that, if no further questions, then thank you. You know where to reach us if you want to reach out further questions. Otherwise, have a great day, and thank you for calling in. Thank you very much.