Humana AB (publ) (HUM) Earnings Call Transcript & Summary

Well, hello, and welcome to this web conference, where we will provide insights on today's news regarding our acquisition of Team Olivia's operations in Norway. My name is Johanna Rastad, and I'm the CEO of Humana. With me today, I have our country manager in Norway, Mona Lien; and our CFO, Fredrik Larsson. At the end of this presentation, you're welcome to dial in enough questions. However, since we are in a quiet period prior to our first quarter '24 report, we will answer the questions solely relating to the acquisition and will not provide any projections. Next page, please, Lien. So we are very happy to announce that we have today signed an agreement to acquire Team Olivia's operations in Norway and that we're now expanding and strengthening our well-managed, and actually since many years, well-performing business in Norway. The acquisition has a perfect fit within Humana's current service portfolio and will double the size of our Care Service division in Norway, including personal assistance, disability care homes, youth homes, open care and family services. This will enable us to specialize even more and strengthen our services within complex care needs. Team Olivia has been able to grow fast by building strong care concepts, which is something that we can further leverage within Humana. The acquisition will clearly further strengthen Humana's footprint in Norway. And Team Olivia provides a very good strategic fit, not only implementing specialization, but we will also have a complementary service offering providing better geographical coverage, adding strong competence, and we will be able to sharpen our offering to clients and payers. Both Team Olivia Norway and Humana Norway have seen stable and high growth in the last couple of years. And together, we are better suited to benefit from this momentum. Humana has also historically delivered a higher margin than Team Olivia in Norway, and we see that the operational excellence we can implement in the combined entity as well as the identified synergies of merging 2 similar operations will provide a strong foundation for profitable growth. Expected synergies are estimated to just above SEK 20 million in 2025, including operational improvements and direct cost synergies. The purchase price of SEK 341 million corresponds to 7.2x EBITDA, EBITDA before synergies and 5x after expected synergies. Next page, please. So looking at Team Olivia's contribution to the group, revenue will increase by 9% to about SEK 10.5 billion. The combined entity in Norway will have a turnover of just above SEK 2 billion, corresponding to close to 1/5th of the total turnover of the group. The combined entity will generate EBITDA of SEK 122 million, representing EBITDA margin of 6% based on '23 figures. So that's ex-synergies. And the transaction is expected to be EPS accretive from 2025. That said, the acquisition will contribute to underlying positive EPS already in '24. I will now leave the word for our country manager in Norway, Mona Lien.

Thank you, Johanna. I really share your enthusiasm for today's news. As you know, we have worked hard in Norway to provide a strong qualitative offer to other clients, which has resulted in strong organic growth. And for a long time now, we have sought to complement our operations with an acquisition. So, therefore, I'm happy to share with you today is that the Team Olivia's operations in Norway, we have found an organization with strong values, strong competence, and the same prioritization to build the organization around the clients' and customers' need. Team Olivia will complement our existing operations, and we have good potential for a successful integration. Team Olivia provides personal assistance all over Norway, under the brand of AssisterMeg, covering about 120 municipalities. Moreover, they provide disability care homes under the brand BoHab and institutional use care through Solhaugen. In 2023, they reached a revenue of SEK 913 million and EBITDA of SEK 47 million, corresponding to an EBITDA margin of 5.2%. We are confident that the acquisition will be positive for our operations in Norway and that we will be able to achieve the outlined synergies. The acquisition strengthens Humana's position on the Norwegian care market, which I strongly believe will benefit the clients and the customers at the end. Our combined operations will provide a higher level of security and stability while the personal service remains. Cooperation benefits mean good opportunities to improve the quality of the offers to both customers and users as more resources can be allocated to the operational activities. And with that, I will leave the word over to our CFO, Fredrik Larsson.

Thank you, Mona. The agreed purchase price is SEK 341 million on a cash and debt-free basis. The purchase price will be paid partly with existing cash amounting to SEK 236 million and by issuing a fixed number of 4 million new shares in Humana AB. The value of the new shares is equal to SEK 105 million at the share price of SEK 26.30 provided. The transaction is subject to competition authority approval, and we are expecting to receive such approval. And that approval is expected to make sure that we can close the transaction during the second half of this quarter. At closing, the cash purchase price will be paid and the 4 million shares will be issued. The shares to be issued corresponds to 7.7% of the total number of shares after the share issue. The share issue will be resolved by the Board of Humana AB based on its authorization from the Annual General Meeting in 2023. To summarize, we expect the transaction to positively contribute to EBIT and cash generation in the second half of 2024 and to be EPS accretive from day 1, excluding nonrecurring items. Today, we have a strong financial position and the acquisition has limited impact on Humana's net debt to EBITDA. With that, back to you, Johanna.

Thank you very much, Frederic. So for the group as a whole, we see great potential in expanding in Norway. We've had good leadership and a solid organization to be able to integrate and benefit from the combined operations in the best possible manner. And with that, we open up for questions.

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

My first question is regarding the margin here for the Team Olivia Norway business, around 5% in 2023. Would you say that, that is sort of representative of what this business should do? Or is it sort of pressured in any way or inflated? Or what can you see?

No, what we can say it has been stable of around 5.2% in 2022 and 2023.

Okay. And I mean, just looking at your Norwegian business, it has historically had a higher margin, and also, looking at your individual and family business in Sweden, for example. Is this the way we should see that you could do a higher margin in this also, I mean, not accounting for the synergies?

Yes, definitely. I mean that's one part of why we also find this very attractive that we see that the combined entity in Norway will be very strong. I mean we have seen both Team Olivia Norway and our own Norwegian business has grown sort of rapidly, and we also see a potential to lift margins over time. So there is no reason why not, sort of disregarding synergies, the Team Olivia and Norway operations should be able to reach the levels we see at Humana Norway. And for that, then you add synergies to that. So it's -- we see very positively on that potential.

Okay. Then I'm just wondering a bit regarding the timing of this acquisition. I mean given that you are departing here, Johanna, how you think about that performance?

Yes, I think that -- I mean this is something that we've been waiting for quite some time. We have looked at opportunities in Norway for many years. We have had a very stable operations, well-managed operations over many years, which is why we also think Norway is very good and we are in a very good position to make this kind of acquisition. So -- and of course, it will be -- that's why we also bring in Mona Lien into this call because she is also someone that's been working in -- with our team for many years. Mona, how many years have you been with us now?

I think it's since 2015 in the January.

Yes. So you see she's been a long-standing person in the team. She knows the organization very well. She's been managing Humana Norway in a standard manner. So this will not be a problem. And it's not going to be sort of any difference me being in this position or someone else.

Okay. Sounds good. And just finally, if I recall correctly, I think Team Olivia also has a quite sizable personal assistance business in Sweden, and I guess that is also up for sale perhaps. It will be interesting to hear your thoughts about this and if that could be something for you.

Yes. I think for right now, we're going to make sure that this project sort of comes into place sort of in a smooth manner. And I think that would be the priority. On the other hand, of course, Team Olivia is a well-managed company. So we've seen 1 part being divested to Attendo and now this part. So who knows what happens in the future. But I think for us, this is something that we've been working on for a long time. It's a very good market for us to expand our operations into. So we're going to make sure that, that is completed in a very good way.

The next question comes from Karl-Johan Bonnevier from DNB Markets.

Just continuing on Jakob's questions. Looking at the other parts of Team Olivia, is that something that -- obviously, it's a Danish operation that could elevate you slightly and so on. Is there anything that could be coming out of that?

Well, Karl-Johan, we don't know. That is really a question that you should ask the owners of Team Olivia. What we are very pleased about is that this asset has come out. It's a large business. It's a large acquisition for us, also from a historical point of view. So we're going to make sure that this turns out in an even better way than we have sort of counted on. So we're going to focus on that in the near coming future. So we haven't done larger acquisitions for some time, partly due to the leverage, but also because we have felt that we've done -- we need to do some work internally. And now we feel that we are in a very good position to make this kind of acquisition. And Norway is very well placed to integrate this sort of asset.

Yes. Looking closer at the Norwegian operation, both of you and Team Olivia seem to have had -- or have had a very good growth profile over the last couple of years. Has it been the same kind of growth drivers for you?

Yes, partly. I mean we have -- it's actually a very sort of well-fitted organization from that point of view. They have activities in all the areas that we have. And they've also grown sort of rapidly in a similar manner to us, so -- which is also in fairly similar areas, too. So that is -- we're in good sort of synchronize there. And then I think on the cost side, we have been good at -- in Humana Norway to be very clear on our cost management and also been able to maintain sort of relatively high margins in this type of industry or this type of parts of the care in Norway. So I think it's a very good fit from that perspective.

And will the combination -- would you say you have a full national coverage now with this combination?

Yes. It's a broader geographical coverage. We will be stronger in some of the areas, for instance, the Oslo-Stavanger region. So that's beneficial for us because it's larger areas. But apart from that, it is complementary in a fairly broad context.

And I guess you in your own operations have been doing some cost rationalization and so on. Is that the similar kind of idea with generating these synergies that you are implementing it now on a broader base?

Yes, absolutely. I mean, this is something that the Norwegian team has been sort of extremely well at doing so driving what we call operational excellence, being careful with both the buying pattern and how we organize our business to be able to make sure that we do it carefully and can maintain high margins. From a synergy perspective, it is primarily in central functions where we see the synergies for instance, in the form of fewer offices, other overlapping overhead and central costs.

Excellent. And just one final for me. I'm not sure if it was already in the press release. Do you have any assumption or calculation for how the net debt of the EBITDA would look post the transaction or from a basis maybe?

It will be roughly the same.

Roughly the same.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Well, thank you very much for listening. If you have any further questions, please feel free to reach out to either Ewelina, Fredrik or myself, and have a nice continuing day.