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

Welcome to Attendo Q3 Report 2025. [Operator Instructions] Now I will hand the conference over to CEO, Martin Tivéus; and CFO, Mikael Malmgren. Please go ahead.

Thank you, and good morning, everyone. Today, we present Attendo's results for the third quarter, Attendo's strongest quarter to date. I'll start by giving a general update on the development in the quarter, then our CFO, Mikael Malmgren, will take you through the financials in more detail. Next slide, please. So let's start with the highlights from the quarter. Again, this is our strongest quarter to date. The development continues to be positive, mainly driven by strong momentum in our Finnish operations and by increased occupancy in nursing homes in both Finland and Scandinavia. Our strong results enables continued investments in quality, technology and method development to further improve our ability to solve complex care needs in a society where more and more people are living longer. Attendo plays an important part of the solution to both current and future care challenges, and we are a close partner to municipalities and welfare regions in the Nordics. Net sales in the quarter was SEK 4.8 billion, a decrease of 2%, while underlying growth, excluding currency effects and ended and exited contracts was positive with 3.5%. During the quarter, we increased our occupancy by more than 1 percentage point in both business areas, mainly due to more sold beds in the Nursing Home segment. Furthermore, we increased our lease adjusted EBITA by 20% to SEK 482 million, mainly driven by Finland. As earlier communicated, we expect margins to gradually pick up in Scandinavia, supported by ongoing actions to improve performance. Free cash flow in the quarter was very strong, SEK 981 million on a rolling 12-month basis, up SEK 267 million compared to last year. With a 12-month rolling earnings per share of SEK 5.34 after Q3, we are well on track to beat our current 2026 EPS target of at least SEK 5.50 already this year. Hence, we will present new financial targets in conjunction with our year-end report in February. Next slide, please. If we move to occupancy, we see an upward trend in both business areas. And after Q3, we're at 87%, which is the highest average occupancy level in 8 years. The increase is mainly due to more sold beds in nursing homes in both Finland and Scandinavia. Key drivers being rising demand in Elderly Care and a good cooperation with municipalities and welfare regions. During the quarter, we opened 1 new Nursing Home and 2 new units with -- in Disabled Care. Next slide, please. During the quarter, we managed to accelerate margin improvement led by strong development in Finland. Total average lease adjusted EBITA margin came in at 6.2% for the quarter. Finland has a very strong momentum, and we expect margins to gradually pick up in Scandinavia from Q4, supported by ongoing actions to improve performance. And with that, I hand over to Mikael Malmgren, CFO. Please go ahead, Mikael.

Thank you, Martin, and good morning, everyone. In the quarter, we saw underlying growth in both business areas of around 3% to 4%. However, growth was offset by ended outsourcing contracts, home care exits and FX headwind, which resulted in reported net sales decreasing 2% to SEK 4.8 billion. In Scandinavia, the growth was down 4.9% reported, while underlying growth, excluding exiting home care contracts and ending contracts in outsourcing was plus 3.1%. We see continued growth in own nursing homes with more sold beds at the end of the quarter. However, growth was offset by ending outsourcing and exiting home care contracts. Ending and exiting contracts will continue to weigh on sales with a similar impact as this quarter for the subsequent quarters and then gradually weigh less and less throughout the remainder of '26. In Finland, excluding the divested rehab business December last year and currency, underlying growth was plus 3.7%, improvement largely driven by an increase in net new customers with an especially strong development in our own nursing homes during the quarter. Currency had, as expected, a negative net sales effect of close to 2%. Based on current trading, we should expect similar to slightly higher effect in the coming quarter. Next slide, please. The reported result improved to SEK 648 million. Correspondingly, the lease adjusted EBITA increased from SEK 402 million to SEK 482 million, up 20% versus same period last year and our strongest Q3 result to date. Lease adjusted EBITA in Scandinavia was slightly higher than last year. Result was negatively impacted by home care exits, which had a SEK 15 million year-over-year effect, equaling to approximately SEK 10 million in nonrecurring losses. Finland lease adjusted EBITA improved SEK 85 million year-over-year. Currency had a SEK 13 million reported and a SEK 10 million negative effect on lease adjusted EBITA. Next slide, please. Growth for Attendo Finland was plus 3% in local currency and adjusting for the exited rehab business in December last year, the underlying growth was close to 4%. Lease adjusted EBITA was SEK 351 million, an improvement of SEK 74 million or SEK million excluding currency effect compared to last year. The quarter improved by more sold beds in primarily owned nursing homes due to strong collaboration with welfare regions as well as continued improved manning with investments in staff development, working conditions and support systems. In the quarter, we opened 2 new units and exited 2 no or low occupancy units. In Q4, we expect to exit a few more no or low occupancy units, which will lead to further improved occupancy and productivity. Finally, we see a strong possibility to continue our growth with more than 400 new beds under construction. Next slide, please. In Scandinavia, underlying net sales growth was plus 3.1%, driven by growth in own nursing homes. However, growth was offset by ended outsourcing and exiting home care contracts. Lease adjusted EBITA was SEK 150 million, a slight improvement versus last year's, with both periods impacted by nonrecurring one-off effects. Ending outsourcing contracts had no material impact on results. However, as mentioned, the result was negatively affected by home care exits, which had a SEK 15 million year-over-year negative effect equal to approximately SEK 10 million of nonrecurring losses. Going forward, we still foresee less but still some negative effect in Q4 and Q1 next year from the home care exits. We also expect the Q4 result to be slightly impacted by onetime integration costs linked to the recent Främja acquisition. While we delivered a result in line with last year when adjusting for one-offs, we are not fully satisfied with the result. Scandinavia has more to give and ongoing actions, which includes central support function adjustments are expected to improve performance gradually going forward. Finally, in Scandinavia, which has had a higher rate of openings in the last 12 months, has a further 130 beds under construction. And worth noting is that our total pipeline of both units under construction and signed lease agreements for both business areas combined amounts to close to 1,050 beds and which are expected to open during 2026 and 2027. Next slide, please. Our free cash flow was strong and improved to SEK 981 million on a rolling 12-month basis, equal to 37% increase versus last year. Our free cash flow to firm, i.e. free cash flow, excluding interest paid on bank debt of SEK 144 million was SEK 1.125 billion on a rolling 12-month basis, supported by a strong Q3 free cash flow versus same period last year. During the quarter, we finalized the Främja acquisition and repurchased SEK 101 million worth of shares. And today, we can report that we reached our target mandate of buying back SEK 150 million worth of shares at the time of this report. Finally, we're happy to announce our next repurchase program, which aims to repurchase an additional SEK 200 million worth of shares until next quarterly report in February. Next slide, please. Over the last 12 months, we continued to deliver on our '24 to '26 financial plan and a more active capital allocation. As a result, we have utilized about 60% of our free cash flow for dividend and continued share buybacks. In addition, we have continued to add high-quality value-accretive bolt-ons, firstly in Finland in Q1 this year and in Sweden during Q3. We aim to continue adding further value-accretive bolt-ons going forward, in line with our financial plan of at least 2% to 3% of additional EBITA growth per year from M&A. Also worth mentioning is that with our agreed and increased revolving credit facility of additional SEK 600 million and our strong free cash flow generation, we have the financial flexibility to continue to deliver on both strategic initiatives and share buybacks. Next slide, please. So let's have a look at our key financial metrics, which continue to move in the right direction. If we start at the top left, the adjusted earnings per share improved by SEK 0.51, up 28% versus last year, improvement primarily due to higher lease adjusted EBITA and further supported by both reduced financing costs and continued share buybacks. If we turn to the top right figure and our lease adjusted margin in percent adjusted for nonrecurring items in 2024, we continue to improve our lease adjusted EBITA margin. In Q3, the rolling 12-month margin was 6.2%, up 1.3 percentage points compared to Q3 last year. If we instead look at the figure at the bottom left, our lease adjusted net debt-to-EBITDA ratio was 1.5x and down 0.6x compared to same quarter last year. And finally, if we look at the figure on the bottom right, net interest expenses in the quarter was SEK 30 million, an improvement of SEK 12 million versus same period last year and in line with last quarters, where we see the effects of improved market interest rates. With that, I hand over to you, Martin.

Thank you, Mikael. Next slide, please. Since the end of 2022, we have improved our adjusted earnings per share significantly. After our first phase of our turnaround plan, which was 2021 to 2023, we announced a new financial plan at the beginning of 2024 with an ambitious target to deliver more than 80% of earnings per share growth by 2026. As you can see in the graph, we're currently at SEK 5.34 per share, and if we divide adjusted earnings last 12 months with number of shares outstanding end of Q3, we are at SEK 5.43, well on track towards beating our 2026 adjusted EPS target of at least SEK 5.50. Next slide, please. To summarize, we delivered our strongest quarter to date, mainly driven by our operations in Finland, supported by increased occupancy in all markets. Our strong results enables continued investments in quality, technology and method development to further improve our ability to solve complex care needs in a society where more and more people are living longer. In Finland, we continued the positive development over the past couple of quarters with strong operational efficiency, improved occupancy and a well-planned summer period. In Scandinavia, the strong development in own operated nursing homes were offset by exited home care and outsourcing contracts and margin pressure in the Home Care segment. With the current initiatives, we expect to gradually improve performance and margins in Scandinavia from Q4 and onwards. Looking ahead, we have a strong pipeline of new projects to support our organic growth targets for the upcoming next 3 years. Cash flow was very strong during the quarter, and we will continue with share buybacks entering Q4. All in all, we're well on track to beat our 2026 adjusted EPS target already this year. Hence, we're looking forward to presenting updated financial targets in conjunction with our year-end report in February. With that, we open up for Q&A. Operator, please go ahead.

[Operator Instructions] The next question comes from Jakob Lembke from SEB.

My first question is on Scandinavia, where I believe you in Q2 said you expected to improve profitability in the second half of the year. Do you still think that is possible?

Yes.

Okay. And then on Finland, you seem to have quite good customer inflow here in Q3. So I'm wondering a bit sort of what drove the shift here from Q2 and also if it's mainly in existing units or newly opened units?

Mainly in existing units. We have seen a strong inflow of new customers during Q3, actually mainly in the -- better in the end of Q3. And that is something that we've seen both in Finland and Scandinavia. And I mean the underlying reason is we are in a period with a growing demographic demand.

But do you know why -- or do you have any sense of why there was a sudden uptick then sort of later in the quarter? What's changed?

I mean normally, we -- the inflow is fairly slow during the summer months, mainly based on that welfare regions are on vacation. So what we've seen is a stronger inflow after summer. But we've seen waiting lists for residential Elderly Care increasing in many welfare regions gradually over the past year. So this is also a sign that public sector capacity is getting fuller in several regions and then they buy more seats at private operators.

Okay. And then another question on occupancy and sort of customer inflow. I'm wondering if you can give us sort of a general update on the occupancy environment or sort of demand environment you see for 2026 across the 2 business areas.

Jakob, can you please repeat the last part of that question?

Yes, the sort of demand situation you see or potential for customer inflow across the 2 business areas for 2026?

We foresee a continued demand growth. If we look at the demographic situation in both Finland and Sweden, it's been coming a bit earlier in Sweden. I mean the demand -- if you look at number of people above 8 years old in Sweden has been growing quite a lot over the past 5 years and will continue over the next 5 years. If you look at Finland, we are just in a period of rising demographic needs. So we foresee that the demographic push will continue into 2026 actually over the next 5 years.

And that the sort of willingness to place clients will also be high?

Yes, we still have an advantage that we can deliver a stronger quality of care with higher customer satisfaction in general than public sector at a lower cost than public sector capacity. So of course, we think that we have a strong value proposition towards municipalities and welfare regions.

Okay. And then just a final more technical question. The lease effects on reported figures seems to be higher in this quarter in both segments. I'm wondering if these are sort of one-offs or the new sort of normal level.

Yes, we had a positive lease effect in Scandinavia, not impacting lease adjusted but reported due to -- we were able to exit one empty house.

Okay. So that will go back then to a lower level?

Yes. I think it was around SEK 6 million or so in impact.

But it seems to also be a bigger impact than normal in Finland.

I think it's just an accounting effect. There's no big reserves or anything like that, that has been...

The next question comes from Kristofer Liljeberg from Carnegie.

First, I just wanted to have a clarification what you said about the impact on earnings from Home Care. So is it correct that you said ending home care contracts had a negative SEK 15 million effect year-over-year in the third quarter?