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

Good morning, and welcome to Humana's Q1 2025 presentation. With us today we have our CEO, Nathalie Boulas Nilsson; and our CFO, Christoffer Herou. Please go ahead, Nathalie.

Thank you. So let's start off with some highlights from quarter 1. For the fourth quarter in a row, we saw a profitability improvement within our businesses with an adjusted EBIT improvement of 8% compared to last year. We also saw an adjusted EBIT improvement in Sweden of 11%, which was nice for us. We are continuing to have a good profitable organic growth in Norway. During Q1, we had a growth of 7.6% in Norway. We have finalized the divestments of the elderly care units in Finland within the quarter. And we are leading the elderly care by doing that in Finland, and we are supporting during a 3-month period the buyer. And after that, we will continue to adjust the overheads. And we are also investing in child welfare services and disability, and have done that during the quarter and opened new units. We have seen a strong cash flow during the period with -- also with a net debt decrease to 2.6. And we have repurchased our own shares with an amount of SEK 55 million during the quarter. The initiatives launched during the second half of 2024, aiming at increasing the cost efficiencies, synergies, and the consolidation of our legal structure is well underway, moving as they should, and they have begun to give effect during Q1. The effects have partly been offset, though, by the system investments that we're making in order to further increase our efficiencies moving forward. And despite of what you may have seen the last few days in the media around Personal Assistance being overtaken by criminal gangs, we don't see that in our business and there are several positive signs. But just to make a small comment on the media that has been underway stating, for example, that we have had around 22 staff employed with criminal connections in our operations. It's nothing that we know anything about. No one has been informing us about this. And if it is true, we are not sure what criminal connections mean. And also, it would mean that it's about 0.2% of the staff that we have employed within Personal Assistance, and I believe that you will see that in any business that you actually look at the staff. So we are not too worried about that in our area. The positive signs that we have seen within the Personal Assistance market, however, during the quarter is that for the first time in a long time, we can see a small increase of new customers entering the market. We can also see a small increase in the number of hours on the market. And there's also been an indication that the index clause will be included in the budget proposition for next year, which for us will be very beneficial. So maybe we should end the positive signs within Personal Assistance by noting that for the first time, even if the quarter as a whole had a net outflow of customers, the last month of the quarter we actually had our first month for a very long time with a net 0 customer outflow, which is a positive indication in that area. As we've talked a lot about also in previous presentations, we do operate within areas requiring specialized competence. We know that this works for us because we have very high client satisfaction in these areas. And we have a well-filled toolbox in order to be able to do this. We invest in research and development. We have evidence-based methods, both our own that we have developed and that external partners have developed, that we use. We have an active internal competence transfer. We have our Humana Academy, where our employees can continuously develop their competencies. And we have a very strong value-based culture to build from. To give you one example of how we use these methods, I'd like to point out, as you can see in this picture, the unit, it's called Torpvillan. It's one of the units where we work with young boys, 15 to 20 years of age, that have criminal behaviors. And the whole point of the operations is to get the young boys and men out of the criminal behavior and into being productive citizens again. We have good success in this area, and we are using a method called B12 in this area where -- which we have developed ourselves, and there has been research done on this method as well. And we know that it's working. So when you see in the debate sometimes in the media that the HVB homes or the residential care units, that they are also called, is a growing ground for criminal gangs, it is quite the contrary. The HVB homes in Sweden are a part of the solution in breaking these negative trends. And how do we know that then? Well, we know that by keeping -- measuring the social impact of our services. We can see that we have had a slight decline in Q1 of the number of completed placements that led to a lower level of intervention. And this is partly due to the fact that we have fewer people actually leaving us during Q1 this year compared to last year, but it's also a sign of that we're getting more complex placements and that we are receiving placements that are waiting for assist placement. So they are actually meant to move into a higher level of care after us. But we do, however, see that more than half of the clients in the residential care homes actually achieve the targets in their implementation plans. And the target, for example, can be going back to school or being able to reunite with families. So we are definitely making a positive impact in society by working within this area.

Okay. I will go through the -- some financial slides. In the quarter, we see a growth rate in the revenues of 5% compared to last year. The decrease from the previous quarter comes primarily from the divestment of the Finnish Elderly Care business as per end of January as well as that the current quarter contains 2 days less compared to the previous quarter. I would like to highlight the adjusted EBIT contribution between our business areas. Only 2 years ago, Personal Assistance contributed with 40% of Humana's EBIT. The contributions in today's portfolio has changed a lot, and we have been able to compensate for the decrease in Personal Assistance profitability. This shows strength in Humana's diversified portfolio. Also during Q1, there was a continued profit improvement compared to previous quarters, both in absolute and relative numbers with an adjusted EBIT margin reaching 5.1%. The EBIT development compared to last year shows a mix between the segments with improvements in Sweden and Norway, while Finland had a weaker quarter where a major part of the decreased EBIT comes from that Elderly Care in Finland contributed with SEK 7 million in Q1 last year. We see a slight decrease in revenues for Sweden, both compared to last year as well as previous quarter. Main reason for this is the continued decrease in revenues within business area Personal Assistance during the quarter even though Nathalie, as she mentioned, that March showed a promising sign. Even though the decrease in revenues, we were able to compensate for this and reached an increase in adjusted EBIT of 11%. The main driver for the increased EBIT was the business area elderly Care with very good occupancy. Norway continues to perform in most aspects. The revenue increase of 95% is, of course, primarily driven by the Team Olivia acquisition, but also supported by an organic growth of 7.6%. The decrease in revenues from the previous quarter is mainly related to less number of days in Q1 and also a weakening of the Norwegian pound. On the operational side, we have so far been able to meet increased personnel costs with price increases and organic growth. Finland is in transition. This quarter, the divestment of Elderly Care business was completed, and is the main driver behind the drop in revenues. But we also see a decrease in revenues as well as the profitability coming from low demand within some areas of child welfare services as well as open care services. We have an increased focus on finding growth opportunities and to work actively with our current portfolio. On the coming 2 slides, I want to highlight some of the major items within our cash flow for the last 12-month period. From the starting point of the reported EBIT of SEK 523 million, we do adjustments to come to the EBITDA excluding IFRS-16. We have a positive effect from the change in working capital of SEK 113 million. We have CapEx-related investments of almost SEK 100 million in our units. And on top of this, we have invested in the construction of an elderly care home amounting to SEK 120 million. This property is now finalized. Paid interest as well as paid income tax takes us down to a free cash flow for the period of SEK 219 million. During the last 12 months, we have divested the Elderly Care business in Finland and at the same time acquired Team Olivia, Norway. On top of this, we have conducted repurchase of shares amounting to a paid amount of SEK 55 million per quarter end. Finally, we have an FX rate effect, leading to our change in net debt of SEK 222 million for the last 12-month period. As you probably know, our Board has suggested to the AGM in early May a dividend of SEK 1 per share, amounting to approximately SEK 50 million. When it comes to our financial targets, we are not where we want to be when it comes to our organic growth. We reached a total growth rate of 8%, but the organic growth rate suffers from the development within Personal Assistance and also the last quarter's development in some areas in Finland. Our adjusted EBIT has continuously improved in the last quarters. And for the current quarter, we reached an adjusted EBIT of 5.1% for the last 12 months to be compared with 4.6% 1 year ago. Our capital structure continues to improve, and we are now at a leverage ratio of 2.6x. The reason for the positive development during the quarter is both an improved EBITDA as well as a decrease in net debt, mainly due to the divestment of the Elderly Care in Finland. And now back to you, Nathalie.

Thank you. So looking a little bit at the focus going forward, we will continue to deliver on the efficiency synergies and consolidation programs that we have initiated during last year. They will run until the end of next year. So it's a 2-year effort here before we see full impact. We will continue to execute on our specialization strategy, where we will invest in child welfare services and disability services in Finland. We will invest within LSS and the HVB care chain in Sweden. And we have also, as of yesterday, decided that we will continue to invest within the Elderly Care segment in Sweden at a moderate pace. We will continue to ensure the transition in Finland, leaving Elderly Care and investing in the targeted areas. And we will continue to secure the customer inflow and the profitability in Personal Assistance in Sweden, where we have many initiatives running. And of course, last but not least, since we have had quite a long period investing now in programs to increase our efficiency and consolidation, we are now turning our eyes again to the growth. And we will target, of course, organic growth and growing healthy pipelines and partnerships in our different countries in the targeted areas as well as reviewing the M&A options in our targeted areas. And with that, we thank you from us.

[Operator Instructions] The next question comes from Kristofer Liljeberg from Carnegie.

Given what you said about the Personal Assistance volumes, do you expect a stable development now from the second quarter? Or do you expect this could even start to increase a little bit later in the year? That's my first question. And then I wonder about Norway and the sequentially lower earnings there, if there's anything special explaining that besides seasonality?

If we start with the Personal Assistance, for Q2, we know we will have an impact looking at the profitability of Easter coming in Q2 this year compared to previous year. But we do have a more positive view on the customer flow. So yes, from that perspective, we do believe that it will improve and flatten out, hopefully, during the year, which has been the target and the goal for that.

And then your question -- your second question regarding the -- if I understood you correctly, you were asking about the margin in Norway in this quarter compared to the previous quarter in Q4, right?

Yes.

Yes. So we have a margin this quarter in Norway of 5.2%. And in Q4, it was 7.1%. So yes, this, we have some calendar effects with 1 day less in this quarter in February and then also 1 other day less due to, yes, the composition of the month. So that hurts, impacts our profitability in Norway. Otherwise than that, that we say that we are a little bit under pressure on the cost side in Norway, but we have been able to compensate for that so far, and we will also continue to compensate for that going forward.

Yes, we believe in delivery according to our plan during the year.

Yes. And when we compare to the Q1 last year, we go up with almost 1%. And we see an improvement in -- actually in all subsegments in Norway in the EBIT percentage this quarter compared to Q1 last year. So we see a good development in Norway.

Yes.

Can I ask also, it seems the impact from the IFRS 16 lease accounting is smaller sequentially. Is that only a factor of divesting Elderly Care in Finland?

Yes, exactly as we write in the report on a pretty detailed level, but -- that we have a write-down of right-of-use assets of SEK 11 million connected to the divestment of Elderly Care in Finland. So that is what you pick up on that difference is a bit smaller than normal, so to speak.

Okay. But the breakdown have -- is that adjusted for in the earnings reported, the SEK 90 million you report in IFRS-adjusted EBIT.

No. So that effect is in the other segment.

Okay. Maybe I could come back to that afterwards.

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

Just to start off, just to get a feeling for how do you see the willingness from the local municipalities to send, say, customers to you, given the heat they're getting for what's going on in the HVB segment and so for the moment?

Yes. The HVB, we do see that it's a slow inflow on the HVB segment in Sweden. And our belief is that there's still a big need. We don't see a change in the need, but that the municipalities are more careful in placing their clients due to the political debate. The municipalities are a little bit afraid of placing and getting criticism and so on. So I think it's so important to actually highlight the fact that we are not part of the problem in welfare crime or -- the other way around. We are part of the solution to the organized crime and the criminal gangs. This is where the children come to become more productive parts of the society again. So yes, it's been a slow quarter, Q1, as partly also previous quarter was a little bit slow. But we don't see a change in the need and we also get increasing amount of requests for clients waiting for seat placements. And we are adjusting our permits in order to be able to take a higher degree of those. And then there's slow process with IVO in approving permits. It takes a little bit of time to do that.

And I think you mentioned during last year sometime that with all the focus being towards the, say, youth criminality and so on, a lot of the other segments also saw, say, less of, let's say, new customers coming in because the municipalities were then basically focusing on the criminality segment. Is that -- has that neutralized again? So we're back to more of a normal kind of situation in the other segment?

Well, within Personal Assistance, as you just saw in Sweden, there was a lot of media over the past few days saying that the Personal Assistance has been taken over by criminal gangs, which is, of course, not true. So that is a sad development. But we don't see on the market that it's making a difference, at least not yet and I don't expect that it will either. I believe that this is more of a political debate. It's a very large part of the market that is taken care of by the private operators. So even if there is a debate there about criminality, I don't believe it will make an impact on us. And we are a large secure provider in this area. And in the Elderly Care, we are -- there's not been any impact at all. We are, of course, doing really well in that segment and have a very high occupancy, and see continuous improvements in that area. Within LSS and other areas, I do believe that the LSS has gone down a little bit on the market as a total, but we haven't seen it in our units specifically. And we will watch and see the reports from our competitors, but that's the signals we've been picking up on from others.

Good to hear, good to hear. Just if you could elaborate a little on maybe now when you're also talking about keeping the Swedish Elderly Care segment, which sounds logical to me at least. Looking at your financial targets and closing the gap up between the 5% to 7% on profitability, how do you see the building blocks? What are the different operations supposed to contribute with to be able to close that gap?

Yes. So that target is on medium term, so to speak. So we see promising signs, as Nathalie mentioned, in the Personal Assistance business area, which has a very pressured profitability for the last period, as you know. So there we see a potential to contribute from that. And then we also have the ongoing, as Nathalie also mentioned, savings program that we are executing on that will also contribute quite substantially. And then, of course, we are looking very actively on our portfolio all of the time and see also potential for further operational efficiencies in, yes, our different business areas. And we will also focus a lot on our organic growth, which has been a bit behind, as mentioned in the presentation. So we will put a lot of focus there as well and to make good and sound investment decisions, and so we will get some profitability contribution also from these activities going forward.

So when we think about organic growth, we should think about coming out of the higher margin mix in your portfolio, so to say?

In Finland, it will be very much focused on higher margin growth, the organic growth, since we are investing in disability and child welfare services and conversion of child welfare services into higher intensive care units. So yes, for sure, higher margins. Around the HVB care chain, that also will contribute to higher margins. The LSS, the same there. It's, in general, slightly higher margins than HVB. So yes, we are investing in more profitable areas.

[Operator Instructions] There are no more questions from the phone lines at this time. So I hand the conference back to the speakers for any written questions and closing comments. Please go ahead.

Well, in that case, we will thank you for the attention today during the presentation, and look forward to seeing you next quarter again.