Ambea AB (publ)

Good morning everyone and welcome to AMBEA's first quarter 2024 report presentation. Speaking as Mark Jensen, CEO of AMBEA and presenting with me today is Benoît Liasson, CFO. I will give you an introduction to the quarter, then I will talk about AMBEA's Quality Award, the launch of our new digital workplace, and I will take you through some of AMBEA's sustainability targets and how these affect interest rates in our credit agreement. Benoît will then describe the development of the financials for the group and for the different business areas in AMBEA. After that, I will summarize the quarter and compare to our financial targets before we open for questions. I would like to begin with a brief overview of AMBEA. AMBEA is the leading Scandinavian care provider. We have over 30,000 employees across Sweden, Norway and Denmark and revenues of 13.5 billion SEK. We offer a full range of services within elderly care, social care, staffing and competency solutions. We have more than 450 municipalities as our clients and we are an important partner in solving challenges in the welfare system. Let's have a brief look at some of the reasons to invest in AMBEA. AMBEA delivers value to society and we aspire to be the most attractive investment in the care sector. From a distance, care providers can look somewhat similar, but at a closer look, there are distinct differences as you see on this slide. Today, I would like to talk about one of the reasons to invest in AMBEA, which is the growing need. The population in Scandinavia is growing and the oldest age groups are growing fastest in relative terms. Due to longer life expectancy and the baby boom in the 1940s, the number of people aged 80 plus is projected to increase by about 50% between 2020 and 2030. To meet this growing need, the supply of elderly care services will have to be expanded both through nursing homes and home care services. According to a new report from the Association of Private Care Providers in Sweden, an additional 28,000 nursing home beds will be needed by 2032. This corresponds to about 460 new residential facilities. The situation is similar in Denmark, where there is an estimated need for 13,000 new nursing home beds towards 2030. The need for social care is also expected to increase in the coming years due to a growing population in the Scandinavian countries, rising prevalence of mental illness and increasingly complex diagnosis. This could be mental illness combined with substance abuse or specialized elderly care, such as geriatric psychiatry. It is often difficult for smaller municipalities to offer proper care services for people with complex care needs. Here, AMBEA have an important role to help society with this challenge. Meanwhile, we create growth and development for AMBEA and our shareholders. To contribute and overcome the challenge, AMBEA has developed the largest pipeline of new care homes among the Nordic operators in the sector. We are ready to expand the pipeline of new care homes and welcome more municipalities with freedom of choice for the care receivers. We will now turn to care quality. Quality ultimately arises in the interaction between our care receivers and our employees. We always want to make it easy for employees to do the right thing in any given situation so that they can spend their time on things that create quality and value. We have a systematic approach to quality and sustainability where we carefully follow up all our units every month. In the quality report, we highlight some of the activities that we carried out during the last quarter and relevant KPIs. Four winners received AMBEA's quality award during the quarter. The prize is awarded each year to a care unit within each business area that has distinguished itself through good quality work in accordance with AMBEA's values and common working methods. The quality award is our internal award to highlight and draw attention to units that have taken a holistic approach to quality and obtain sustainable success. The prize has been awarded annually since 2015. In addition to the winners, two honorary prizes are awarded in each business area. All nominated units are lighthouses for consistent and high care quality. They are also some of our best performing units from a financial perspective in their peer groups as there is a strong correlation between high quality and healthy financial results. During the quarter, we launched a new digital workplace in our business areas, New Tita and Stendi. The purpose of the digital workplace, which has been named AMBEA Insight, is above all to simplify and reduce workload for managers and employees and to enable competent sharing and collaboration across countries and business areas. AMBEA Insight will be introduced in all remaining business areas during quarter two. The rollout has been accelerated through solid project work and positive initial results. Over to sustainability. Our focus on sustainability has been further reinforced during quarter one. AMBEA's credit agreement is linked to three strategically selected sustainability indicators. These relate to increased employee engagement, the reduction of greenhouse gas emissions, increased employment and improved care receiver satisfaction. We achieved two of these challenging goals for 2023. Even though results for care receiver satisfaction were strong, we missed the goal with a narrow margin. Employee engagement, however, increased from an already strong level and we reduced greenhouse gas emissions in line with our highly ambitious target, aiming towards a 50% reduction in emissions in 2025 versus 2019. These results meant a marginal reduction in our This was great for our credit facility, thus increasing shareholder value. Twice per year we ask employees to rate leadership, how their leaders engage and motivate them, the quality of feedback and coaching they get, and how well work is organized. The result in the latest survey increased to 78. Leadership is of great importance to AMBEA and we continue to work across the group to improve leadership at all levels, as well as ensuring that results of our employee surveys are discussed by all leaders with their teams in the spirit of continuous improvement. You can read more about our quality and sustainability work in the quality report as well as in our 2023 annual report recently published. Now, let's look at our organic growth. In quarter one, the own management pipeline remains stable and we have 1,233 beds and placement in our pipeline, most of them in In Norway and in Denmark, we continue to build our pipeline in segments with good potential and fair commercial terms in line with our strategy. The pipeline increased compared to the previous quarter due to newly signed contracts in New Tita, Vodogge and Stendi. We have an active pipeline in all three markets and we'll be pleased to see more municipalities welcome private operators to support the much needed capacity expansion. With several years' time for planning, building permits and construction, the pace in establishing new care homes must increase to avoid a care crisis approaching 2030. We remain positive that the urgent need for increased supply will lead to more opportunities going forward. Now, let's have a look at our revenue growth. The organic growth showed in the purple bars increased once again this quarter. As you can see in the graph, we have a growing trend since quarter four, 2022. The total organic growth in the quarter is 8% and stronger than previous quarters. We remain positive about our overall growth potential in the coming quarters where both price, mix and volume is expected to contribute. We are also seeking for quality acquisitions that will contribute to total growth and we see more opportunities for M&A ahead. And now to the highlights of the first quarter. In the first quarter, Beya continued to improve our results. We reached a high organic growth of 8%. The beta increased by 29% versus last year. Our group beta margin improved significantly to .0% compared to .0% in quarter one last year. Our free cash flow increased by 70% this quarter due to the strong earnings and positive change in working capital. The cash flow gives opportunities for continued active capital allocation such as acquisitions and debt reduction. After the end of the quarter, Nytid assigned a bold acquisition of the company Alcliftern that operates residential care homes for children and youth in Gothenburg and with annual net sales of 25 million SEK. And now over to you, Beno, for a presentation of the financial summary.

Thank you, Mark. The good organic growth we have seen in the last quarters continue into this year. Vardaga, Stendian and Ytira contribute to the growth whereas Alcliftern and Clara had negative growth. In Q1, there was a minor effect from the leap day with one extra invoicing day. The quarter net sales grew in total by 8% and Vardaga accounted for more than half of the growth and increased net sales by 13%. Like in previous quarters, there is an increased occupancy trend and higher prices have also contributed to the revenue growth. Further, Vardaga started several new contract management units the last quarters. Ytira has opened a new own management and contract management units. That as well as higher prices led to growth in net sales by 5%. Stendian increased revenue by 10% in SEK but showed growth in local currency by 13% due to higher demand in children and youth care and due to higher prices. Alcliftern decreased revenue by 2% in SEK which was mainly driven by one elderly contract that expired. And Clara decreased revenue by 9% due to a lower demand within the staffing solutions. This slide shows how the different business areas have affected the EBITDA group. EBITDA in total grew by 29% compared to the same quarter last year. EBITDA was both affected by the leap day and Easter holidays which combined had a slightly negative effect on personal costs. Two of the business areas are particularly strong this quarter. First, Vardaga. Vardaga was up 37 million SEK from improved occupancy, particularly in mature units, higher prices and lower starting costs for new nursing homes and positive effects from previous actions of handing back rental contracts. And the EBITDA margin was up 2.4 percentage points. Stendis EBITDA margin was up 2.2 percentage points due to higher occupancy and higher prices. Q1 was also positively affected by property disposal gains of 4 million. This strong improvement resulted totally in 22 million SEK higher EBITDA compared to last year. EBITDA, alltiden, showed some improvement of 2 million SEK compared to last year. The operational improvements were offset by the Easter holidays and higher sick leave. Clara was down 4 million or minus 2.6 percentage points due to the lower net sales. All in all, the group EBITDA was up 63 million SEK compared to Q1 last year and EBITDA margin was strengthened to 8.0 percent. Cash flow. Operating cash flow and cash conversion increased substantially compared to the first quarter of the last year. Q1 is normally a weaker quarter from a seasonality perspective. The good development reflects the strong EBITDA and positive working capital development in this quarter. Also, the cutoff of the Easter holiday was better than expected, which of course can affect the Q2 cash flow slightly downwards. The Rolling 12 operating cash flow is at over 100 percent of EBITDA. This slide shows the way from the Rolling 12 reported EBITDA of ,000,000 SEK to the ,000,000 SEK in EBITDA, excluding IFR 16 down to the free cash flow post-tax of ,000,000 SEK. We can see that we have invested 76 million in fixed assets. We have paid 142 million SEK in interest and 110 million in taxes. We now have a positive effect from working capital of 46 million SEK, even though the quarter ended in the Easter holiday. On this slide, we can see how we have used the generated 767 million SEK in free cash flow. 112 million was distributed to our shareholders as dividends. 10 million was spent on acquisitions and 116 million was spent on the share buyback program. Based on our strong cash flow, we continue this quarter to reduce our debts, rolling 12 by 514 million SEK. And now over to the overview of the different business areas. We can start with Nytyda. Sales increased by 5 percent, which is driven by the new operations in both contract management and own management, as well as higher prices. Nytyda also increased their own management pipeline with 35 beds and 30 placements during the quarter. EBITDA was higher than last year and increased by 5 percent to 125 million SEK due to increased occupancy and higher prices. And the EBITDA margin in the quarter is stable and landed at 12.0 percent, and rolling 12 EBITDA now trends at 13.6. After the end of Q1, Nytyda did a qualitative vote on acquisition of a company named Altkristan operating three residential care homes for children and youth. Annual net sales amount to 25 million SEK. In vardaga, net sales increased by 13 percent. We have driven by a higher occupancy, new contract management units, and higher prices. Their own management portfolio increased net sales by 9 percent, and the contract management portfolio increased net sales by 22 percent, which is a result of commenced operations of previously won tenders. EBITDA amounted to 103 million SEK, which was significantly higher than last year, up 56 percent. Vardaga continues to show higher occupancy, particularly in mature units, and further we saw lower startup costs of new homes and also due to previous measures of handing back rental contracts. Mature units showed a margin of 9.7 percent. That was 1.3 percentage points higher than the average margin for Vardaga's total portfolio. Vardaga had at the end of Q1 balanced contracts of 76 million in upcoming annual net revenue, which will further contribute to future revenue and EBITDA growth. On the next slide, we turn to the business area in Norway, and at sales, net sales increased by 10 percent in SEK and by 13 percent in local currency due to the higher occupancy and higher prices. All segments showed growth. SDE opened six new assisted living facilities with a total of 19 beds and signed one new contract with a total of 11 beds in the quarter, and a strong demand in the previous quarters for children and youth care remains. At the end of the quarter, all the remaining elderly care contracts were handed back to the municipalities, and SDE has now left the elderly care segment. As a result, SDE is only operating in own management, which has a higher margin potential. EBITDA in the quarter increased by 22 million SEK to 59 million SEK, and the EBITDA margin in the quarter increased by 2.1 percent to 7 percent, thanks to higher occupancy and higher prices. EBITDA also includes property disposal gains of amounting to 4 million SEK, and rolling 12 EBITDA margin increased to 7.3 percent. Then turning to Denmark and Alteiden, Net sales in Alteiden fell by 2 percent in SEK. In local currency, net sales was flat. The decrease in SEK is mainly due to one elderly care contract that was handed back. In Q1, the EBITDA was minus 9 million SEK, that is 2 million better than last year, thanks to capacity adjustments and operational improvements. EBITDA and Q1 was impacted by high staffing costs due to the high sick leave and due to the Easter holidays. Improvement measures are on track and are gaining effect to turn around the financial performance and to drive profitability going forward. We expect these improvement measures will generate -on-year financial performance improvement in the coming quarters. Now over to Clara. In Clara, net sales decreased by 9 percent because of weaker demand in staffing solutions for nurses again this quarter. However, there has been stable demand within the mobile teams and the student health services. EBITDA decreased by 4 million to 9 million due to the lower net sales. The rolling 12 EBITDA margin is at 11.3 percent. And

with that, back to you Mark. Thank you Benno. To sum up our financial development versus our targets, our growth target is 8 to 10 percent through a combination of organic and acquired growth. We are on good way to reach the growth target with a strong organic growth of 8 percent in quarter one. We closed one bowl on acquisition in Nytita after Q1 and we remain active when it comes to acquisitions. Over time, we are confident that the growth target can be reached as a combination of organic and acquired growth. Looking at the profitability target, we have a midterm adjusted EBITDA target of 9.5 percent, which we have not yet reached. But we are on our way with an increased EBITDA margin of 8.4 percent rolling 12. Half of the gap we saw after Q3 last year is now closed by two very strong quarters and we expect further improvement going forward. The leverage level is 2.1 times EBITDA in quarter one, which is much below our financial target thanks to increased EBITDA and reduced debt by more than 500 million SEC versus the same quarter last year. We expect our solid cash conversion to continue, which gives us potential to grow and leads to financial flexibility. Free cash flow will be used for dividends according to our policy, bowl on acquisitions, debt reduction and share buyback. Before we open for questions, I would like to provide an outlook post-quarter one 2024. Ambea's organic growth is expected to continue through higher demand, new openings and price increases. We will open more beds and placements during quarter two and beyond. We also expect to conclude qualitative bowl on M&A opportunities as we are in ongoing discussions with several potential acquisition targets. We expect the underlying profitability to remain strong, although we have an increased number of openings in quarter two. Vordorger opens two new nursing homes with a total of 160 beds. The first of them actually opened in Uppsala yesterday and the first care receiver moved in. Nytter opens five new facilities in quarter two with a total of 73 beds and placements and Stendi are planning to open several units as well. We continue to invest in leadership development and additional competency development for operational staff. A new group-wide digital workplace is being rolled out and we also continue to invest in energy efficiency initiatives to lower both operating costs and CO2 emissions. Investing in our people is an important priority to us and we are increasing activities and investments to make Ambea an even better place to work. The increasing demand can only be met if we have well-trained and motivated staff ready to cater for it. As the shortage of care workers are forecasted to increase, we find it important to show the importance and positive impact of what we do and how meaningful it is to work in the care sector. I see this all the time, being out visiting our care homes, meeting our employees and care receivers, and it gives me tremendous energy and hope for the future. I would like to close the presentation by thanking our more than 30,000 employees for their hard work and commitment to make the world a better place one person at a time. And with that I conclude our presentation and open for questions.

Thank you dear participants. As a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 11 again. Please stand by, we'll compile a Q&A roster. This will take a few moments. Now we're going to take our first question and it comes from David Hohensen from Nozir Markets. Your line is open, please ask your question.

Hi, good morning. Thank you for taking my questions. First one was if you could quantify the earnings contributions from youth care in STEM in the quarter. That was one question I had. And then in terms of the longevity of this business, you have previously maybe talked about this being a more temporary boost, but now it seems like this will be a more permanent opportunity at least looking at the rental contracts for 25. So some help in this regard I think would be appreciated and maybe also how you see this developing now over the coming quarters. Thank you.

Thank you for your questions. So if we start with the contribution from children and youth in Stendhi, it has been strong again in quarter one and a bit stronger than expected. We see that the high need or high demand for placements in this segment has continued into quarter one. And we also see that it continues into quarter two. It's difficult to say in this segment how long lasting it is as placements naturally are shorter than they are in social care for adults. But as there is a high demand, continued high demand in the Norwegian society, and as our team in Stendhi is doing a fantastic job in this segment to cater for the needs and provide very high quality care in this segment, we hope that the kind of trend can continue into the remaining parts of 2024. But we are a little cautious to kind of deem whether it will be long lasting or whether the visibility is shorter, so to speak. So a strong quarter one is looking favorable also into quarter two. But naturally, I mean, these types of placements are a little more volatile than in other segments.

Okay, great. Thank you. Thank you for that. And then looking at your full year guidance around breakeven for all tiden, if you look at the wage increases that have come in now in Denmark specifically, were these sort of in line with your previous assumptions or do you see it getting perhaps more difficult now given that you posted another weak quarter for all tiden? Thank you.

We don't see it would be more difficult. And the wage increases are more or less in line with our expectations. We have a slight improvement in the result in all tiden versus the same quarter last year, as we have also communicated. And we will continue to see quarter on quarter improvements for the remaining part of the year. And also we see all tiden will turn to positive results for the full year. So year quarter three is vitally important as seasonally is the strongest quarter in Denmark. So that will be the proof point, so to speak. But we are looking at else in the same way as we have communicated the last couple of quarters.

Okay, thank you for that. And then the last one from me, if you could comment on the overall seasonality impacts from Easter on earnings in the quarter and perhaps if there are some regional differences that are important to highlight. Thank you.

Yeah, there are some regional differences in Norway and Denmark. There are a little bit higher extra payment for this inconvenient working hours. So the effect of Easter days is a little bit higher in Norway and Denmark. And that is also have effect in Sweden, but in Sweden the effect relatively seen is lower. And we have also the leap day, which is a positive effect in Q1, of course. But the net effect of these two are negative in all four or five business areas.

Okay, thank you for that. That was all from me.

Thank you.

Thank you.

Now we're going to take our next question. Just give us a moment. And the question comes to the line of Jakob Lempke

from SCB. Your line is open. Please ask your question.

Hi and good morning. I have a few questions, so I'll take them one by one. Starting with Vardaga, when you now talk about opening a few units here in Q2, when do you believe groups will reach sort of a mature or break even occupancy?

We will open in Uppsala and in Stockholm. These are two municipalities with a freedom of choice. And normally we have seen 12 to 18 months of time to fill them up. And we hope that these will have a similar ramp up period. But it's hard to say, of course, but that is what we are planning for.

Okay, and given that you now plan openings here in more of your segments, how should we think about the CAPEX increase in here going forward?

The CAPEX short in Q2 will of course be affected by the openings. But for the full year it will be more like the previous years, because we have a very concentrated opening pace now in Q2 and not so much in Q1 and Q3, for example.

Okay, and then on the margin improvements you have done here in Vardaga and Stanley over the past years, I would say. I mean, it's quite impressive. But when we look forward now, do you still see potential to improve margins from this level, or is it increasingly harder from this level?

So when we communicated in Q3 last year in terms of the building blocks to reach our EBITDA target of 9.5%, there were three kind of major blocks. So one was Vardaga and one was Stanley and the third one was Altidan. And Vardaga and Stanley have performed really well since then. We still see that there is some room for improvement in both business areas, but of course the pace will not be similar to the last couple of quarters, as we are also meeting stronger comparables, but still some room for improvement in both business areas. The big swing has to come from Altidan turning that business area profitable, and that is the third major building block in our way to reaching the EBITDA target of 9.5%. So that is where we will see the largest kind of remaining part of the improvement potential to the 9.5%.

And a follow-up on that, would you say that given the strong modern improvement you have seen here in Q4 and Q1, would you say that your mid- to long-term expectations for Vardaga and Stanley have increased since then, or is it in line with your expectations?

I would say they are in line with our expectations.

Okay, and then just lastly on M&A, which we talked about here today. The companies you are looking at, is it more of this type of smaller companies, or are there also a bit larger ones you are looking at?

The companies we are looking at are predominantly smaller mid-size companies, bold ones, predominantly for the Nytida segment in Sweden. This is where we see the highest activity level right now, and this is also our priority. We are not ruling out other acquisition opportunities, so we are active and we are looking on a wide variety of opportunities, but short-term it is small and mid-size companies predominant in social care in Sweden.

Sounds good, and that is all for me. Thank you.

Thank

you. Thank you. Now we are going to take our next question. And the question comes from Carl-Johan Bonnevier from BNB Markets. So the line is open, please ask your question.

Yes, good morning Mark and Ben. First of all, congratulations to Solid Development in Q1. A couple of questions, if I may. Looking at contract management, you still seem to have a very good win rate there. Is that, say, what is driving it? Is it you, the only one that seems to be focusing it on it out there for the moment, or what is the opportunity here?

Thank you. I think that we have had a really good success the last, say, two years in both Vardaga and Nytida in winning new contracts. I think there have been more contracts out that is, you can say, a mixed evaluation or there is a quality evaluation and not the lowest price. And we seem to have much higher win rate in these kind of tenders because we are known for having a very good quality standard in both Vardaga and Nytida. So I think that has affected the win rate positively the last two years.

And when you look at the pipeline of contract discussion, is it still good out there, or has it dried up?

No, it hasn't dried up. But there is still a number of contracts coming out, more or less, not every week, but every month at least. And we are foreseeing that our strong win rate can continue this year going forward as well.

Excellent to hear. Looking at the pipeline of all managed units, good to see that that's back to growth again. And I also noticed that it seems like you have improved the quality of the pipeline with a few of these no-date kind of things going out of it, basically not having more than, as I understand it, three units left there now. Is that a challenge to the profitability in Vardaga now, basically neutralized, or is there still an opportunity coming out of that?

There is still an opportunity to increase EBITDA in Vardaga by reducing the number of care homes that we haven't still opened. So there is still a few that we can, so to speak,

cut the costs for. And when you look at those three remaining units with no date, is there an opportunity to get them into the active pipeline, or should we see them as potential hand-back kind of contract situations?

It's a little bit mixed, differs a bit. We don't have any opening plans in the next coming quarters for the ones, but we are looking at different solutions for every one of them.

But is something hopefully that could neutralize already during 2024 that you get them back into active mode, or is it something sliding into next year, you think?

It's very hard to say. It's different solutions in place in the different units. So most probably we will have them in a couple of quarters still.

And Mark, you mentioned your favorite kind of capital allocation thinking, and I noticed that share buybacks came last in the latter, so to say, and you still have about a million shares to go in the program coming up to the AGM. I guess it's going to be hard to close that program before the AGM, getting up to the three million shares. How do you see, is that a mandate that you will continue to work on after the AGM, or should we be able to, is that more or less now finished, and we shouldn't expect anything more coming out of it?

No, we will work actively to try to conclude the program before the AGM, and that's the mandate we have, and that's the mandate we are working on. So let's see how far we will get, but we are working on it. A couple of busy days,

Tom. Thank you very much, and all the best out there. Thank you. Thank you.

Thank you. Dear participants, just a quick reminder, if you wish to ask a question, please press star, 1-1, or telephone keypad. And now we're going to take our next question. And the question comes to the line of David Johansson from No Dear Markets. The line is open. Please ask your question.

Hi again. Just a quick follow-up on your capital allocation. Do you expect to do more buybacks in 2024 after the AGM, or do you see allocation being more maybe tilted towards reducing debt and M&A?

Thanks. The AGM, there is a proposal that the board get the mandate for the next period as well. And if we do not do any major M&A, there is, of course, a room for a share buyback program in later 2024, but nothing is decided, of course.

Okay, thank you. Thank you.

There are no further questions for today. I would now like to hand the conference over to your speaker, Mark Jensen, for any closing remarks.

So thank you so much, and thank you all for calling in. The Quarter 2 report for 2024 will be published on August 16. So I wish you all a nice day. Stay safe and healthy.