Ambea AB (publ)

Good morning everyone and welcome to Ambea's first quarter 2024 report presentation. Speaking is Mark Jensen, CEO of Ambea, and presenting with me today is Benno Eliasson, 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. Benno 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 obtained 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 Ny Tida and 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. Ambeer's credit agreement is linked to three strategically selected sustainability indicators. These relate to increased employee engagement, the reduction of greenhouse gas emissions, 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 interest rate 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 the 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 old management pipeline remains stable, and we have 1,233 beds and placements in our pipeline, most of them in Sweden. 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 Ny Tida, Vårdagge 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, Ambea continued to improve our results. We reached a high organic growth of 8%. The beta increased by 29% versus last year. Our group EBITDA margin improved significantly to 8.0% compared to 6.0% in Q1 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 bolder acquisition of the company Altklyftan 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, Benno, for a presentation of the financial summary.

Thank you, Mark. The good organic growth we have seen in the last quarter continues into this year. Bardag, Astendi and Nytida contributed to the growth, whereas Altiren 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%, 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 in the last quarter. Nytida has opened new own contract management units. That, as well as higher prices, led to the growth in net sales by 5%. Stendi increased revenue by 10% in SEC, but showed growth in local currency by 13% due to higher demand in children and youth care and due to higher prices. Altiren decreased revenue by 2% in SEC, 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 of the 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. Standard 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 SEC higher EBITDA compared to last year. EBITDA showed some improvement of 2 million SEC 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 SEC compared to Q1 last year, and EBITDA margin was strengthened to 8.0%. 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% of EBITDA. This slide shows the way from the rolling 12 reported EBITDA of 1 billion 139 million SEK to the 1 billion 22 million SEK in EBITDA excluding IFRS 16 down to the free cash flow post tax of 767 million 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 a 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 dividend, 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 debt. Rolling 12 by 514 million SEK. And now over to the overview of the different business areas. We can start with Nytida. Sales increased by 5%, which is driven by the new operations in both contract management and own management, as well as higher prices. Nytida 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% 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% and rolling 12 EBITDA now trend at 13.6. After the end of Q1, Nytida did a qualitative bolt-on acquisition of a company named Alpkliftan operating three residential care homes for children and youth. Annual net sales amounted to 25 million SEK. Vardaga. In Vardaga, net sales increased by 13% year-on-year, driven by a higher occupancy, new contract management units, and higher prices. The own management portfolio increased net sales by 9%, and the contract management portfolio increased net sales by 22%, 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%. 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%. That was 1.3 percentage points higher than the average margin for Vardaga's total portfolio. Bardaga 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, Estendi. Net sales in Estendi increased by 10% in SEC and by 13% in local currency due to the higher occupancy and higher prices. All segments showed growth. Then they 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 the strong demand in the previous quarters for children and youth care remains. At the end of the quarter, all the remaining elderly care contacts were handed back to the municipalities, and Stendi has now left the elderly care segment. As a result, Stendi 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 percentage points to 7%, thanks to higher occupancy and higher prices. EBITDA also includes a property disposal gains of amounting to 4 million SEK. And rolling 12 EBITDA margin increased to 7.3%. Then turning to Denmark and Altiden. Net sales in Altiden fell by 2% in SEC. In local currency, net sales were flat. The decrease in SEC is mainly due to one elderly care contract that was handed back. In Q1, the EBITDA was minus 9 million SEC. That is 2 million better than last year, thanks to capacity adjustments and operational improvements. EBITDA in 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 year-on-year financial performance improvement in the coming quarter. Now over to Clara. In Clara, net sales decreased by 9% 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%.

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% 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% in quarter one. We closed one Bolon acquisition in Utida 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 mid-term adjusted EBITDA target of 9.5%, which we have not yet reached. But we are on our way with an increased EBITDA margin of 8.4%, 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 EBDA in quarter one, which is much below our financial target, thanks to increased EBDA 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, hold 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 Q2 and beyond. We also expect to conclude qualitative Bolon 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 Q2. Vårdokker 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. Nytida 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.