Attendo AB (publ)

STO:ATT

Earnings Call Transcript

[Andreas Koch, Communications & IR Director]

Good morning, everyone, and welcome to this conference call. We will present Attendo's results for the third quarter. My name is Andreas Koch, Communication and IR Director at Attendo. Today's presentation is hosted by our CEO, Martin Tivéus; and our CFO, Fredrik Lagercrantz. And after the presentation, we'll open up for questions. Over to you, Martin.

[Martin Folke Tivéus, CEO & President]

Thank you, Andreas, and good morning, everyone. First, some comments on the corona pandemic and its status right now. After a very challenging spring, number of cases fell shortly during the summer. After 10 weeks, there's no infections in our nursing homes across Nordics. We now see a few cases, again, as a general transmission and society shows signs of increasing. Consequently, we maintain high alert and all protective actions to continue to protect our customers and employees. I will now turn to the presentation, and then Fredrik will take you through the numbers in more in detail. Next slide, please. In spite of the ongoing pandemic, we delivered a stable result on group level. On a market level, we kept delivering on our turnaround plan in Finland while the pandemic continued to pressure our Scandinavian operations. Organic growth was 3% during the quarter, driven by more sold beds and positive price effects in Finland. Sales of new beds in Finland has normalized during the quarter, combined with a sharp reduction in opening pace and closure of some units with poor prospects. We managed to increase occupancy and deliver solid results given circumstances in our Finnish operations. Our Scandinavian operations have faced a more challenging quarter. Attendo has a large exposure to the Stockholm region, the region in the Nordics, most affected by COVID-19. The ban on nursing home visits, combined with anxiety about the pandemic, led to lower net sold beds and a slight decline in occupancy for the Scandinavian business area as a whole. The occupancy and margin pressure in Scandinavia was further fueled by many openings in the past 12 months. Towards the turn of the third quarter, we have seen a stabilization in occupancy in Scandinavia and somewhat better inflow of new customers since the start of October. Having said that, the situation may change quickly depending on the development of the pandemic. Our current best guess is that we will experience a negative effect of around SEK 20 million per month for the remainder of the year related to the corona situation. This is mainly due to lower-than-expected sales in Sweden, and we based this estimate on a scenario with unchanged occupancy in Scandinavia during Q4, which means no pickup in demand. Next slide, please. We reported a top line growth in the quarter of 1% year-on-year in local currency, which translates to the organic growth of 3%. Reported EBITDA amounted to SEK 269 million, corresponding to a margin of 9%. The result in Q3 numbers includes a negative impact from the pandemic estimated at SEK 40 million. Profits in Finland were double versus last year while Scandinavia was down for reasons explained earlier. Quality remains at a high level according to our quality index. And in the latest survey of customer satisfaction by the Swedish National Board of Health and Welfare, we increased our average score and 6 Attendo units reached a customer satisfaction score of 100%. Still, we have a lot of work ahead of us to reach our long-term ambition of reaching highest customer satisfaction in every city where we operate. Total occupancy is up 1 percentage point sequentially. I'd like to provide some color on the underlying development. In Finland, net inflow was normalized in Q3 after a challenging Q2. As planned, we halted the strong opening pace of new units after Q2 and achieved an improvement in local occupancy rate in Q3 of 2 percentage points versus end of Q2. Furthermore, we have continued to strengthen management and quality work in both central and local level in Finland. In Scandinavia, anxiety about corona and increasing number of empty beds in public operations has continued to dampen demand and occupancy during Q3, leading to a decline in local occupancy of 1 percentage point versus last quarter. Year-over-year, however, local occupancy in Scandinavia is down 13 percentage points and effect of corona-related pressure on sales and increase in mortality during the spring, combined with an increased number of openings during the year. Next slide, please. This chart shows the rolling 12-month opening pace and openings per quarter. We're now seeing clear effects of the strategic shift to decrease establishment of new units in Finland that we decided on in Q4 2018. Next quarter, we will have around 200 open beds, equally split between Finland and Scandinavia, and the opening pace going into 2021 is roughly 900 beds, but the majority is in the Scandinavian business area. Next slide, please. We increased number of own beds in operation by 6% from the corresponding period last year. It's a slight decline versus Q2, as we continue to balance our footprint and close more beds than we open. Most of the residents from the closed units have been transferred to other more modern Attendo units. We will continue to selectively close units where we have limited prospects, increased occupancy, mainly in Finland. But you can expect pace of closures going forward to be lower than the numbers we have reported in the past 12 months. In the third quarter, we started construction of 3 nursing homes, adding 140 new beds in Finland. These units will replace old units that local authorities will close down. As you can see, we have reduced the total number of beds under construction by more than 40% since the same period last year. And by the end of Q3, we had 1,200 beds under construction, the majority in Scandinavia. Our pipeline in Finland is now only around 300 beds, which is a historically low level compared to last year's. Our focus is to fill the units that we have established in recent years and continue to deliver improved occupancy in Finland coming quarters. Next slide, please. This chart explains group margins in mature and start-up units and sales. The downward trends since 2017 is primarily an effect of the aggressive opening pace that started in 2017 in Finland. Early 2019, sharpened staffing requirements were introduced in Finland, increasing cost of operations and further pressured margins. In Q2 and Q3 this year, we also see the impact of the corona pandemic, excluding the estimated corona impact and real estate gains. As indicated in the dotted line, you see that we are all at an inflection point. We should see a stabilization and margin improvement going forward. However, given the fact that we're still affected by the pandemic, we expect the recovery to be slightly delayed. The key drivers to regain margins are higher prices, reflecting a new cost base in Finland and to regain occupancy. Prices started to increase in Finland from beginning this year, and we're now entering price negotiations for 2021. Occupancy in Finland will also increase as we sharply reduce opening pace from Q3, combined with gained momentum in sales. So short term, it's mainly Scandinavia that are hampering the occupancy and margin improvement as we experienced lower inflow of customers on the back of the pandemic, fueled by many openings also in the coming 12 months. Next slide, please. So turning to the occupancy development. As you can see on the top green line, the occupancy in mature units has continued to drop in Q3, something very unusual and related to lower sales of beds in Sweden. In spite of corona, we have increased total occupancy with 1 percentage point versus previous quarter, mainly as an effect of good customer inflow as units started up in Finland recent years. Since July, we have had a normalized inflow of residents in Finland. We connect this to the fact that the visitors' ban was lifted during the summer and level of transmission has stayed at lower levels in the Nordic perspective. In Sweden, inflow was low during the quarter but has slightly improved so far in October. With that, we move into the financials for the quarter. Please go ahead, Fredrik.

[Fredrik Lagercrantz, Chief Financial Officer]

Thank you, Martin. So let's turn to Page 8. Net sales decreased somewhat to SEK 3 billion, down by 1% compared to the corresponding quarter last year. The exit from Norway impacted the comparison with about SEK 100 million, and currency also had a negative impact with 1.6%. Organic growth was 3% despite the negative impact on growth from lost revenue due to the corona situation. In Finland, we still see growth across all service offerings while growth in Scandinavia is clearly hampered in elderly care nursing homes and in home care. Reported EBITDA amounted to SEK 269 million in the quarter, and I will come back with the details on the underlying EBITDA development. The positive SEK 10 million reported as items affecting comparability is only currency effects on the write-down we did in the second quarter this year. Financial net was negative SEK 166 million compared to negative SEK 137 million in the third quarter of 2019. IFRS 16 related interest expenses increased by SEK 18 million while interest expenses for our borrowing from banks increased by SEK 1 million. Income tax for the quarter was SEK 19 million, which corresponds to a tax rate of 22%. Profit for the period amounted to SEK 64 million in the quarter, which equals an earnings per share after dilution of SEK 0.40. From this year, we also report adjusted EPS. This is earnings per share adjusted for FX from IFRS 16, acquisition-related amortization, items affecting comparability and the corresponding tax effects. The adjusted EPS for the quarter was SEK 0.64, down from SEK 0.90 last year. Next slide, please. The Scandinavian business area is clearly impacted by corona. Net sales for the business area decreased as we have exited Norway and corona's impacted sales. EBITDA decreased from SEK 252 million to SEK 163 million. Capital gain on sold real estate contributed positively with SEK 31 million in prior year while corona impacted negatively with about SEK 45 million this year. Own care homes opened in 2019 and 2020 had a large negative impact on operating profit from start-up costs as expected while underlying profit increased for home care. During the quarter, we have been tendering processes lost but yet not exited contracts with an annualized revenue of SEK 61 million. Next slide, please. Growth continues to be high for Attendo Finland and amounts to 10% reported and 13% in local currency. The growth primarily accounts for more occupied beds in units opened in 2019 and 2020 as well as price increases and acquisitions. Price increases amounted to around 3%. EBITDA increased from SEK 60 million to SEK 121 million this year. Price increases and improved occupancy among mature unit was only partially offset by start-up costs from units opened in 2019 and 2020 as well as high cost in operations. By the end of the quarter, the number of empty beds was lower than 1 year ago. Corona-related increased costs were offset by reduced pension payment. Before we turn the slide, I also want to give a few comments on the coming quarters for both Finland and Scandinavia. The corona pandemic will impact the coming quarters, although the magnitude is uncertain. Revenue in Scandinavia will continue to be impacted negatively as we enter the fourth quarter with a lower occupancy. Our best estimate is that the profit effect for lost revenue during the fourth quarter will be around SEK 20 million per month. We have, in Sweden, applied for government grants to cover for corona-related extra costs. Those applications are sent to every municipality individually to take them forward to the national government. Timing and to which extent our applications will be covered is currently unclear, but it may impact the fourth quarter. Besides corona, we can anticipate the normal seasonality effect in the fourth quarter. From a seasonality perspective, the fourth quarter is similar to the second quarter regarding profitability. Also, as mentioned before, we will open around 200 beds in the fourth quarter. Next slide, please. On this slide, you can see the complete cash flow statement. Cash flow is always softer in the third quarter related to vacation payments. Adjusted net debt amounted to SEK 2.1 billion, which equals an adjusted net debt to adjusted EBITDA ratio of 3.8%. It still has substantial unutilized credit lines and no maturities until early 2022. With that, I hand back over to you, Martin.

[Martin Folke Tivéus, CEO & President]

Thank you, Fredrik. Next slide, please. I'd like to make a quick round up before going into the Q&A session. Q3 was a rather stable quarter looking from the group numbers. But below the group numbers, we see that Finland is in a positive trend while Scandinavia experienced the opposite situation. It remains to be seen when the demand for beds pick up again in Sweden. The long-term underlying demand for care has obviously not changed, but still psychological factors matters a lot in the short-term. In the meantime, our staff is doing a great job to keep the virus out of our units. We maintained all safety measures from the spring, and with the experiences we have met, we're better equipped to handle potential new cases of infections. From October 1, we, once again, welcomed visits from relatives. We apply the same safety procedures for visitors as we have for our employees to prevent the virus from entering our facilities. Finally, let me, once again, express my heartfelt thanks to all our incredible employees who made huge contributions in very challenging circumstances. Before going into the Q&A session, I'd like to mention a few words about the much appreciated TV show that was filmed before the pandemic in one of our nursing homes, north of Stockholm. The idea was to let a group of 4-year-old children from a nearby kindergarten spend time at the nursing home with our residents and work together in daily activities during 6 weeks. Meanwhile, experts measured changes in health status of the participants, both physically and mentally, and the results were striking. After the project, all participants showed clear improvements in health status, cognitive as well as physical strength. And most important, the residents clearly felt improved life satisfaction. Attendo already had cooperation with kindergartens at several locations. Based on the evidence from the project, we will intensify the type of interaction as per the concept to more units where possible. Thank you for your attention, and over to you, Andreas.

[Andreas Koch, Communications & IR Director]

Okay. Thank you, Martin, and we will now open up for questions. Operator, please go ahead.

[Operator]

[Operator Instructions] We have our first question from Thomas Graf, Handelsbanken.

[Thomas Graf, Research Analyst]

I just -- if you could give some more details regarding -- you've increased now profit effect from you stated earlier SEK 10 million per month for the remainder of the year and now SEK 20 million. Of course, it's regarding the occupancy and so -- but can you just say what has changed in your estimates to get to that number? What has happened during the Q3?

[Fredrik Lagercrantz, Chief Financial Officer]

Yes. Going into Q2, we saw that when the visitor ban was lifted in Finland, we saw new sales and occupancy coming back to more normalized level already early summer. And we had expected a similar situation to happen in Sweden as the pandemic calmed down. That is something that we haven't seen in the Swedish operations. The visitor ban was held throughout the entire quarter. And anxiety among customers was still high who were reluctant to move into elderly care homes as a consequence. So what we see is a softer occupancy development than we have expected going into Q3.

[Thomas Graf, Research Analyst]

All right. And could you just also give some details -- there was less occupancy due to, of course, less inflow of patients, as you said, and also increased number of openings in Sweden. How is the split between that?

[Martin Folke Tivéus, CEO & President]

It's about 50-50.

[Thomas Graf, Research Analyst]

Okay. 50-50. Okay. And also now regarding the government grants, have you got any in Q3? And especially now in Q4, when will they be decided? Can you expect -- because you sent in everything that should be covered from the pandemic. But when will it be decided?

[Martin Folke Tivéus, CEO & President]

It's sort of fragmented in all the process because the government gives grants to the municipalities, and the municipalities, they're sending in their requirements to the state. We are sending in our demand calculations to each and every municipality where they treat that as part of the entire demand from both private and their own operations in the sector and then send it further to the government. So it's a fairly slow process. We have very poor insight in the way that it's handled at municipality level. So there is -- we have a little uncertainty, both in terms of when money will be paid out and how much of it will be paid out.

[Operator]

Our next question comes from Karl Norén, Danske Bank.

[Karl Norén, Analyst]

Just a couple of questions. Firstly, if we look at the Scandinavian segment, the lower occupancy rates, how do you see that developing into 2021? Because, I mean, that will have a pretty large impact on the profit. If you can't -- if you don't really see that going up, I mean, how -- could you say anything about how it has been changing going now into Q4 and -- yes, some comment on that would be helpful.

[Martin Folke Tivéus, CEO & President]

Yes. We can see that the occupancy development in -- is primarily Sweden that we're talking about, that it started to stabilize towards the end of Q3 and we have had a somewhat sort of positive development in the first weeks of October. But it's -- and this has a lot to do with general anxiety in society. It's also dependent on the upcoming development of the pandemic. So it's difficult to forecast occupancy development in the current situation.

[Karl Norén, Analyst]

Yes, yes, of course. But I mean if you don't see really any -- a large increase in occupancy, would it be fair to expect that some of this, what do you say, the increased -- or decreased profits will continue maybe into H1 2021 as well?

[Martin Folke Tivéus, CEO & President]

Yes. The SEK 20 million per month, that is assuming unchanged occupancy level in Sweden.

[Karl Norén, Analyst]

Okay. And also, you have around 900 beds under construction in Sweden or Scandinavia. How do you think this will affect occupancy going forward? And what is like the opening, if you could put it out like a schedule?

[Martin Folke Tivéus, CEO & President]

Yes. What we said was that we have -- we expect around 900 total openings next year, where around 600 in Scandinavia and 300 in Finland.

[Karl Norén, Analyst]

Yes. And how do you think that will impact profitability? Or how -- when you now see a pretty slow demand, I mean how will that -- do you think you can fill up those beds quite quickly or how do you view that?

[Martin Folke Tivéus, CEO & President]

Of course, that opening more beds in Scandinavia will -- this always has a pressure on margins because we have a start-up phase during where we fill new units. And pending the pandemic -- and of course, that might take longer time pending the development of the pandemic.

[Karl Norén, Analyst]

Yes. And also, can you just comment just anything on in price increases and price negotiations in Finland, how is that developing? And when can we -- on -- yes, can you just say anything how that is developing going forward? Or how we should expect that?

[Martin Folke Tivéus, CEO & President]

Yes. Last year, we achieved price increases of around totally 3% of total sales in Finland. We expect around the same, but it's actually -- it's going to be decided in Q4. So we have now very little visibility. So we will report that in the Q4 report how that's been going. What we saw last year is that it seems like everyone -- last year, demand was around the same price increases. Everyone is affected similarly for the other staff requirements. The good thing going into this year's negotiation is that now we have a firm law on staff increases over the next couple of years. So it's -- the prerequisites for negotiations, both from a municipal point of view and our point of view, is clearer this year than they were last year.

[Operator]

Our next question comes from -- we don’t have any further questions. [Operator Instructions] There are no further questions at this time. Dear speaker, please go ahead. We have a follow-up question, sorry.

[Martin Folke Tivéus, CEO & President]

Okay. Go ahead.

[Operator]

We have a question from Mr. Karl Norén, Danske Bank.

[Karl Norén, Analyst]

Yes. Just a follow-up on the financial aid, which you have applied for. I mean how much of this can -- how much of your -- what do you say, expected negative impact of corona? Because I mean the negative impact right now seems to be more kind of demand driven than like cost driven. So can you -- can we expect to get any kind of aid for this? Or will that more be in line of supportive gear materials? Or how do you view that one?

[Fredrik Lagercrantz, Chief Financial Officer]

Thank you, Karl. This is Fredrik. So it's very clear from the government instructions that you cannot -- you can only get coverage for increased costs, not for lost revenue. But the way the process works is 2 different applications. So first, we applied by the end of August, and then there's a second round in -- by the end of November. In August, we have applied for in total SEK 65 million, and that is roughly 2/3 of our total corona impact for Sweden.

[Operator]

[Operator Instructions] We have a question from [ Mattias Vadsten ]

[Unknown Analyst]

Just a quick one. Can you just repeat the number of expected openings in Q4 and the split?

[Martin Folke Tivéus, CEO & President]

It's roughly 200 in Q4 and the split is roughly 50-50, in Sweden and Finland.

[Operator]

[Operator Instructions] There are no further questions at this time. Dear speakers, back to you.

[Andreas Koch, Communications & IR Director]

Okay. Sure. Well, we'll then conclude the conference call, and thank you for participating this time as well. And please contact us directly afterwards if you have any further questions. Thank you for your participation.