Humana AB
STO:HUM
Humana AB
STO:HUM
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Ladies and gentlemen, welcome to the Humana Q2 Report 2020. Today, I'm pleased to present CEO, Rasmus Nerman. [Operator Instructions] Rasmus, please begin.
Thank you very much, and good morning, and welcome to this presentation of Humana's second quarter in 2020, a quarter where Humana has stood up well to the pandemic, whilst also making good overall progress. As always, I will start by giving you some of the financial and operational highlights of the quarter before I hand over to Ulf Bonnevier, who will take us through the details of the quarter. Of course, we will have a Q&A session towards the end.Let's move on to the next and first slide, please. The utmost focus for the group in the second quarter has been on minimizing the effects of the pandemic, ensuring a safe work environment and preventing the transmission of the virus in all our operations as well as society as a whole. Thanks to heroic efforts from our staff, Humana has stood up well to the pandemic. We have had very low transmission of the virus in all business areas and countries, and we have successfully ensured both staffing as well as access to personal protective equipment, PPE.Financially, the pandemic has had an effect on both revenues and costs, but the net effect is marginal. We have seen negative effect on demand and occupancy in our operations primarily in Sweden and Finland. And we have also seen increasing costs for higher sick leaves as well as Personal Protective Equipment. Due to the business and geographical mix, state subsidies and internal measures, the net effect is, however, marginal. The effect on revenues remain though.Moving on to the next slide, please. In times of distress, the quality of operations have never been more important. In the second quarter, the Humana Quality Index remains at the high 94% in spite of challenging times. The expected increase in sick leaves was compensated by an increase in customer satisfaction primarily in I&F. Thanks to the efforts from our staff, we have also registered the same amount of serious deviations as last year despite the pandemic.One of the key quality indicators to combat the pandemic is the compliance with basic hygiene routines. And a recent study from the Swedish Association of Local Authorities and Regions pointed out that the compliance within municipalities is around 59%; and for hospitals, it is around 83%. The compliance for Humana is very high. An ongoing internal control study indicates a compliance as high as 95%, which helps explain the low transmission in our units.During the quarter, we have prioritized education and trainings, where the number of training through the Humana Academy has doubled compared to the first quarter this year and tripled versus last year.Next slide, please, for some additional operational highlights in the quarter. During the quarter, we have signed a new contract for an own managed elderly care home in Täby. And as communicated earlier, our fantastic CFO, Ulf Bonnevier, will soon leave Humana after almost 9 years in the company. Ulf, your contribution to Humana can never be overstated. Thank you. I am, however, also very happy to welcome Noora Jayasekara, our current Group Finance Director, into the role as new CFO for Humana. Moreover, we continue our important work with improving stability and performance of the group, and we are pleased with the progress made during this quarter.Moving on to the next slide, please, for some financial highlights in the quarter. In the quarter, our operating revenue amounted to SEK 1.98 billion, an increase by 3%. The organic growth in the quarter was 3.4%, up from previous year. Our operating profit in the quarter was SEK 100 million, an improvement versus last year. The adjusted operating profit was SEK 83 million, as we exclude capital gains from the sale of properties.The operating margin was 5.1%, up from 2.3% last year. In the quarter, our operating cash flow was a strong SEK 221 million, an improvement versus the corresponding quarter in 2019. And finally, our leverage at the end of the quarter was 4.6x, which is close to the financial target of 4.5x and down significantly from the 7.1x prior year.Moving on to the next slide, please, in our segments, starting with Individual & Family, I&F. In I&F, we still encounter rather weak demand in our children and youth segment, and the COVID-19 pandemic has had an additional negative effect on demand and occupancy, with delayed and prolonged placement processes. Our adult and LSS segments are, however, coping well. This, combined with an overall strong operational efficiency, offset the weaknesses in demand in the youth segment. As a result, we see a strong performance in I&F with a healthy improvement in operating profit versus last year. All in all, a strong quarter for I&F.Next slide, please. In Personal Assistance, we see yet another stable and steady performance. The number of individuals entitled to Personal Assistance has gone down with approximately 2% since end of 2019. Therefore, we are pleased to see that Humana continues to grow organically despite the decreasing market and the negative effects of canceled hours as a result of the pandemic. Despite structural challenges in the market, we do continue to be positive to the future prospects of Personal Assistance.Moving on to the next slide, please. In our Elderly Care segment, the focus has, of course, been on handling the COVID-19 pandemic, where the safety of our clients and staff has been top priority. Thanks to heroic efforts from our staff, the strategy and measures taken continue to be effective. We have had very limited transmission of the virus in all our units. And currently, we do not have the virus present in any of our Nordic elderly care units. One of the reasons for this is the very high compliance with our routines. Another testament to the way we have handled the pandemic is the fact that none of our units are listed as in need of additional inspections in the national IVO elderly care review conducted earlier this year.Finally, we continue to see good organic growth with a revenue increase in line with our plan. And our focus on growth continues with a new unit in Täby and a tendered contract win in Kalmar.Next slide, please. In Finland, we are pleased with the development in the quarter, especially given the COVID-19 situation with its both operational and financial impact. Our Individual & Family segments in Finland continue to perform well, and we do see our improvement program continuing to move in the right direction. We still expect a slight delay in progress as well as a slight negative impact from COVID-19, though. The ambition to strengthen margins and propel organic growth further remains, however.Next slide, please. Moving on to Norway, where we have seen another steady development and performance. Main drivers for growth are disabled care housing services and personal assistance. Similar to all other operations, the pandemic has been handled well, and we are pleased with the performance in our Norwegian operations, with a strong organic growth and earnings improvement in local currency.With this said, over to you, Ulf.
Thank you, Rasmus. This is my last webcast, and I will now give my final presentation of the detailed performance of Humana in the second quarter, including, of course, cash flow and leverage information. First of all, we turn to Page 11 in the presentation where we see the operating revenue for the group. In the second quarter, our operating revenue grew 3% to SEK 1,980 million from SEK 1,918 million previous year. Acquired growth contributed SEK 16 million to revenue, but also the capital gains of selling real estate of SEK 17 million is included here. The strengthening of the Swedish krona has reduced revenue, and the organic growth was 3.4% compared to 2.5% previous year.Next page, please. On Page 12, you can see in the graph, Humana's development with regards to organic growth, now at 3.4% versus 2.5% prior year. Personal Assistance, Elderly Care in Norway grew well in the quarter. Some parts of the I&F market are still weak, coupled with occupancy impact from COVID-19, leaving I&F with a small organic decline. In Finland, Coronaria Hoiva is now included in the organic number. And although we are growing well in some areas, we have left some unprofitable outsourcing contracts, dampening the overall growth, leaving Finland flat at 0% for the quarter.Next page, please. Now moving to Page 13 for more information on our profitability in the second quarter. Operating profit came in at SEK 100 million versus SEK 45 million prior year, and the margin increased to 5.1% compared to 2.3% prior year. Operating profit adjusted for the capital gain of selling real estate was SEK 83 million versus SEK 45 million prior year, with an adjusted margin of 4.2% versus 2.3%. All business areas contributed to the improvement.Overall, the COVID-19 pandemic has had a marginal effect on the profitability for the group. Of course, we see increased staff costs, higher sickness absence and higher usage and cost for PPE. But although the state subsidies vary between business areas and countries, the net financial effect of extra costs and subsidies are well in balance for the group as a whole.Further to costs, we have seen negative volume effects, like occupancy in I&F, fewer performed hours in Personal Assistance as well as a slow market in Greater Stockholm for our elderly care units there. So far, these negative effects have also been manageable.Next page, please. Now moving to Page 14 and the segment performance, starting with Individual & Family. Revenues for the quarter reached SEK 532 million versus SEK 535 million prior year, a small organic decrease of minus 0.7%. However, this is an improvement in organic growth versus last year's minus 3.6%. Underlying, there is a decrease in occupancy in the children/adolescent segment, which is nearly fully compensated by an increase in occupancy in the adult segment. Some negative occupancy effects can also be attributed to COVID-19. Operating profit came in well at SEK 49 million versus SEK 41 million prior year, and the margin increased to 9.3% compared to 7.6% prior year. And the increase is explained by more stable occupancy overall and improved efficiency. We've managed the pandemic situation operationally very well. And financially, our extra sick leave, PPE and other costs are well covered. In total, a good quarter.Next slide, please. Personal Assistance. We now move to Page 15, and another well-managed quarter from Personal Assistance. Revenues for the quarter are up 7% to SEK 733 million compared to prior year of SEK 685 million, with organic growth of 5.4% versus minus 0.1% prior year. Despite a negative effect on the number of hours due to COVID-19, the total number of performed hours increased anyway. Also a higher assistance allowance and the impact of earlier acquisitions contributed to revenue. Operating profit for the quarter increased to SEK 29 million, up from SEK 26 million last year, and the margin increased somewhat to 4.0% versus 3.7% per year. The increase in margin, although small, is due to increased efficiency.Elderly Care on Page 16. Revenues during the quarter with 9% organically and reached SEK 155 million versus SEK 142 million prior year. The positive impact comes from the ramp-up of the recent openings of Staffanstorp and Kungsängen, but dampening the growth, we also see weakened occupancy in Stockholm and surrounding areas. Operating profit was SEK 1 million versus SEK 0 million prior year, and the operating margin was 0.7% versus 0.3% prior year. Start-up costs of SEK 3 million impact the quarter and relates to our opening of Kungsängen in late last year. COVID-19 has financially impacted the Elderly Care business area, where we see higher costs for sick leave, more staff and personal protective equipment, only partly compensated for by state subsidies. The operational reality for our staff and unit managers in the front line of the pandemic continues, of course, to be quite tough. Overall, an okay development in the Elderly Care business area, given the situation.Next slide, please. Finland on Page 17. Revenues for the second quarter came in at SEK 338 million compared to SEK 341 million prior year, decrease of 1%. And organically at constant currencies, the growth was 0.0% versus 10.1% prior year. There is underlying growth in the I&F area, but this is dampened by exiting unprofitable outsourcing contracts, a part of the profitability improvement program we are running. Operating profit increased to SEK 11 million versus SEK 5 million prior year, with a margin of 3.2% versus 1.4%. We are moving in a positive direction under the new management, but the prior year comparable numbers were weak and included initial losses from Coronaria Hoiva. Our improvement efforts will continue in a tough market. Overall, a good second quarter.Next slide, please. Norway on Page 18. Revenues were down 4% in reporting currency, SEK 201 million versus SEK 210 million for prior year. And the organic growth was positive 9.5% versus 6.2% prior year. The growth development this quarter is due to unit openings and more customers. Operating profit was flat in reported currency at SEK 16 million versus SEK 16 million last year, and the margin strengthened to 7.9% from 7.5% prior year. The better operating profit in local currency was due to the very healthy organic growth and good efficiency. Good development in Norway in the quarter again.Next slide, please. Now moving on to Page 19 and 20, and our financial position and cash flow. In the graph on Page 19, we see our leverage continue to move in the right direction and now at 4.6x, actually being very close to our financial target of 4.5x. Cash flow in the quarter improved from prior year, as you can see on Page 20, and there were several reasons for the improvement contributing, improved profits, of course, good working capital, reduced CapEx investments and sale of real estate.The COVID-19 pandemic has had quite some operational impact on our business, especially for our managers and staff in our care units to minimize risk of transmission for our clients. But from a financial point of view, we've done well. Our profits are stable. With marginal impact from COVID-19 and with strong cash flow and improved leverage, we're in good financial shape. However, the pandemic will continue to be present and impact our business at least for the near future, and it will probably be the most important external factor to manage well in the quarters to come.On a personal note, I'm pleased that we are now in a good place operationally and financially. When I now hand over the responsibility to my successor, Noora, I'm convinced Humana's finances will be in good hands. I'm leaving shortly, but will, of course, continue to follow Humana with great interest as a shareholder. And after 18 quarterly reports, looking -- I'm looking forward to maybe asking the questions instead of answering them. So for the very, very last time, over to you, Rasmus.
Thank you, Ulf. I will surely miss this conversation. So to summarize this quarter, the pandemic continues to put Humana, like the whole of society, to a difficult test. But we have stood up well, and I continue to be very proud of the difference we make for our clients as well as for society as a whole. We do not expect the pandemic to bring about any changes in the long-term demand for our services. And we also believe that the impact will be manageable going forward as well. Finally, I am pleased with the progress made during the quarter with steady growth, earnings improvement and a stronger financial position. We can now open up for questions. Thank you.
[Operator Instructions] Our first question comes from the line of Kristofer Liljeberg from Carnegie.
Wondering about the underlying performance for the Swedish Individual & Family business. Another solid quarter, but I guess, this is business where you have had most positive impact maybe from the state support programs. So could you talk a little bit about the underlying performance, whether you had a positive impact from other external factors and also what the status is for the efficiency program? Has that ended or continued? Does it continue? What's the next step, et cetera?
I can comment a little bit on the underlying performance. And we are certainly in a better place in I&F compared to where we were last year. I think one of the differences we see is that we have a strong momentum in both our adult as well as LSS divisions. They are growing organically at a steady pace, and they've also expanded the margin. We have a better overall control. I think looking at the youth segment, so both institutional care as well as family and outpatient care, we do still experience the same weak-ish market that we've seen for quite some time, but we have also increased operational efficiency also there. So all in all, we are in a much better place. And I think when we talk about an improvement program, the formal program is closed per se, but there's certainly a lot of things to be done still, and the management in I&F continues to improve the operations on a daily basis. So I&F is at a better place today, and we are pleased with the performance. In I&F, there has been a small positive impact from the corona -- financial impact. But for the group, it's very marginal.
So sounds that we could trust that this business should now be more stable than it has been even before. Of course, you know about the lumpiness in recent years between quarters.
I mean there are a couple of factors that will support that idea. I mean certainly, we do not have the volatility in demand as we surely had in '15, '16 and beginning of '17. We have a much better operational control and, I would say, a structured way of approaching things. But I mean at the same time, the essence of the business remains the same, right? 140, 150 very small units that are sensitive to local changes in demand. But net-net, I would surely hope that we are looking at a more stable Individual & Family Care business in Sweden now and going forward.
Just one short additional question. Overhead cost seems to be a bit higher quarter-over-quarter. Anything special there?
Yes, Kristofer, we have some nonrecurring costs in the center, a few millions. So the underlying cost rate hasn't really changed. But this quarter, the costs were slightly higher, but they were nonrecurring.
And the next question comes from the line of Karl-Johan Bonnevier from DNB Markets.
Just on looking at the occupancy levels across the footprint and your plans for, say, organic new unit additions, have you changed your timing for when new units are going to come into operation on the back of what you are seeing out there in the market? Or is the time line, for example, in the Elderly Care segment, still the same looking at all the units coming in, in the early parts of next year, late this year?
I think looking at the overall footprint and the organic plans, it obviously varies between the countries and the segments, right? I mean if we look at Elderly Care, I mean, yes, we have done some postponements of the openings that we had due to the pandemic, of course. The expectation is to open 5 new own managed units next year. Though, I think the original plan was maybe to open a few of those towards the end of this year. But due to the situation and uncertainty, we have postponed that. Now we feel it's the right time to actually start those processes. In Finland, I think we have said also before that the key focus for our Finnish management is taking care and improving what we have, and we like what's happening in Finland. We hope to be in a place very soon when we can start focusing more on organic growth in all of Finland. There are bits and pieces in Finland where organic growth still is very important. For instance, the I&F segments, those are not heavily affected by the COVID pandemic.
And if you look at the market opportunity out there for the moment, is there some areas where you feel that you could step up the organic growth already now on the back of opening new units?
I mean there are certain market opportunities. But yes, as -- and I would say maybe all in all, the competition might be lower looking at the Nordic care landscape. But there are external factors. I mean we all know the challenges in the Finnish elderly care market. And in Stockholm, like demand is down 8%, 9% due to the COVID pandemic. We are a bit cautious in opening youth institutional care units in Sweden. So I would say, the opportunities probably are more, but we need to be more selective on where and how we open the units. There are certain opportunities for us out there. And therefore, we have an organic growth target of 5%, which is slightly higher compared to what we have today. So yes.
Makes full financial sense being prudent for the moment. And just one, and I'll be not asking another question. On the property side, with all the arrangements you have with -- on the, say, the portfolio sale that is still ongoing, how much properties do you still have on your own balance sheet after this execution?
It's not a significant amount, Karl-Johan. This Sommarsol sale was a substantial project that we were part owning, but directly in our balance sheet, we have very little property left, insignificant, very tiny bit, but not significant.
And we have one follow-up question from the line of Kristofer Liljeberg.
Thinking about the Personal Assistance, very solid organic growth. So what's driving this? And how sustainable do you think it is? Is this mostly more hours? Or are you also gaining more customers versus competitors?
It's a combination of those 2 factors. We are obviously very pleased with the organic growth in the quarter. Given the market development, perhaps -- I mean we would love to have 5-plus percent organic growth, but we don't think it's maybe sustainable given how the market is developing. It's a combination. We are much better versus competition this year as well as last year. So we have a net positive intake compared to all of the other companies. And we are also quite successful in making sure that our clients get the right decision from the insurance board. On top of that, you have small marginal changes, such as the changes in legislation for breathing assistance, et cetera, gavage, that has assisted somewhat in this year as well. But we are pleased with the performance of Personal Assistance. It remains stable and steady.
What's the status for the annual salary increases this autumn?
Those negotiations will now start. So there is no more information, of course. I mean we do expect, as always, a kind of a fierce discussion and negotiation between us as well as the unions. And I think we all have the same desire here that salaries should be increased. Our people within Personal Assistance as well as the rest of the group are doing, have always done, but especially this year have done a fantastic job. But in order for us or any provider to increase salaries, there needs to be an adjustment in the remuneration for Personal Assistance. And obviously, if we don't see that, we cannot afford higher salaries. So therefore, we are pleased with the announcement from the Labor Party yesterday that LSS and the remuneration within Personal Assistance will be one of the biggest questions for them in the upcoming budget negotiations. It will be a tough negotiation starting this autumn, of course.
And we have one more question from the line of Klas Pyk from Nordea.
Two follow-up on Kristofer's questions. On Personal Assistance, have you seen any increased uptick in the number of hours during the latter part of summer, given that was negatively impacted due to the pandemic during spring? And also, if you could please remind us of the split between adult and LSS versus children and youth in I&F.
Yes, we've seen a small uptick in the number of hours in the second quarter compared to the first quarter. We have also seen, towards the end of the quarter, a higher hit rate, as we call it. So the percentage of hours that we are providing compared to like kind of a theoretical maximum, if you saw, 1 or 2. And regarding your second question, the youth segments in I&F represents basically 70% -- or 65% of the total in I&F.
[Operator Instructions] And as there are no further questions, I'll hand it back to the speakers.
Well, I guess from Ulf and my side, thank you very much for listening in and have a fantastic day. Thank you very much.
This now concludes the conference call. Thank you all for attending. You may now disconnect your lines.