Ambea AB (publ)

Good morning, everyone, and welcome to Ambea's second 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 some of our efforts within quality and sustainability before Benno will describe the development of the financials for the group and for the different business areas. 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 13.7 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 highlight our growth potential in own managed elderly care. Due to an increase in aging population in all Scandinavian countries, we'll see a steep rise in care needs towards 2030. The rise will materialize gradually over the coming years, and therefore society has an urgent need to expand the number of modern care facilities. In Scandinavia, the municipalities are so responsible for providing elderly care to their citizens. New municipal construction is far from meeting the total need, and political reforms are needed to boost public investments, as well as inviting the private sector to further contribute. Alternatively, we will face a steadily increasing undersupply of care homes. The risk of not having access to high-quality care when citizens are in need will be a major problem for society and will challenge citizens' trust in the welfare state. So this is an important topic, but there are signs of hope. In Denmark, we have seen political will to open the market as politicians on national level have realized all good forces, including private operators, are needed to catch up with the undersupply of nursing homes. New legislation is expected next year, and assuming our Danish business is in good shape, where we plan it to be, This provides a good growth opportunity. In Sweden, there are 290 municipalities who can decide if they want to include private operators to supply elderly care besides the municipal's own care services. The most common way is through adapting the Freedom of Choice legislation in Swedish LOV. Regarding private nursing homes, 25 municipalities have applied LOV, and here supply and demand is imbalanced, as an open market will normally cater for that. Many of the remaining municipalities have supply issues of varying degree and where the tough economic situation makes it difficult to invest sufficiently in new nursing homes. TIA and BEA and our industry organizations argue for reforms on national level to ensure municipalities secure sufficient supply of nursing homes, and we believe the Danish example is worth following. A Swedish national reform could secure the elderly will be able to get the care service they expect and have taxed for. Together with construction companies and property owners, Ambea stands ready to rapidly expand investments in new and modern nursing homes with the opportunity arise. With our expertise in designing sustainable nursing homes to both quality and cost, we would also provide a cost-effective alternative to public construction. I will come back to organic growth and new care homes later in the presentation, but for now, let's turn to care quality. Quality ultimately arises in the interaction between 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. Employee satisfaction is incredibly important to us. and we measure whether employees would recommend us as a workplace to people who trust them. We therefore measure ENPS, Employee Net Promoter Score, twice per year in May and December, where we ask the question, how likely are you to recommend us as an employer to a friend or acquaintance? The results from May shows that the proportion of employees who recommend Ambea is increasing every year. In this survey, the Ambea Group's ENPS was plus 26, which is an increase of plus 4 compared to the previous survey. The long-term target for 2024 is above plus 19, and the scale range from minus 100 to plus 100. A high E&PS is generally important in the care sector. As a sector, we need to attract thousands of new skilled employees over the coming years, while recommendable good workplaces on a broad base are extremely important. At the beginning of the year, we introduced an AI solution that helps our managers to see patterns and trends in employee views. AI now allows us to listen to employees' feedback and suggestions in a more efficient and structured way. Twice per year, each care unit completes a self-assessment comprising around 200 questions. The questions are mainly related to compliance with care regulations as well as Ambea's concepts and procedures. The self-assessment helps employees and managers identify any areas that need to be improved. Action plans are drawn up and monitored each month. As well as being able to address issues at care unit level, we are also able to aggregate the data at regional and business unit level to understand what wider issues and trends exist, allowing us to take measures at the right place in the business. And now over to sustainability. Our focus on sustainability has been further reinforced during quarter two. In May, we placed extra focus on diversity and inclusion during the European Diversity Month. and both Nytida and Vårdager became official supporters of Stockholm Pride, the largest Pride festival in the Nordic region. In our operations, everyone should feel welcome and included. It is a fundamental human right and an important part of our mission and values. During the month of May, we drew extra attention to diversity and inclusion in various ways. In August, we encouraged our businesses around the country to celebrate Pride and put extra focus on how we can raise awareness and talk about norms, sexuality and sexual identity. We believe that Joy of Movement and physical activity are important for all people based on individual circumstances, and we therefore strive to inspire movement in our activities with several collaborations focusing exercise and health. We also continue to support Ukraine and Ukrainian refugees. 30 out of our 130 Ukrainian employees in Ny Tida and Vordoga are now undergoing education to care assistance. The education is an initiative conducted and financed by AMBEA, together with the organizations Beretskopslyftet and Svea International, with the aim of strengthening the position of Ukrainians in the Swedish job market. Ambeja and Bredskapslyftet will also finance training for those who want to continue their studies to become assistant nurses. The education, which includes Swedish language studies, are conducted besides practical work within Vårdokker and Utida, and we are impressed by the participants' progress. Turning to organic growth. In quarter two, the old management pipeline was growing. We have 1,272 beds or care places in pipeline, most of them in Sweden. In Norway, we continue to build our pipeline in segments with good potential in line with our strategy. The pipeline increased compared to the previous quarter due to new signed contracts in Ny Tida, Vårdag and Stendi. In all three markets, we could open new beds and care places this quarter. Vårdag opened two new nursing homes with 80 beds each in Uppsala and in Spånga, Stockholm. Vårdag also signed two new nursing homes during the quarter with a total of 240 beds that is planned to open in 2027. New Thieden increased the pipeline with three new assisted living facilities with a total of 52 beds and expanding an existing daily activity unit by 30 additional care places. Stendi opened two new assisted living facilities with a total of nine beds and signed four new contracts with a total of 25 beds. And Elthieden opened a new assisted living facility with a total of five beds. Now let's have a look at acquisitions. In 2022 and in the years before, Ambea had a very active M&A agenda and significant experience has been gained from the large number of acquisitions that Ambea concluded over the past decade. We have a structured acquisition process, which is supported by internal and external expertise. And in addition, Ambea has a detailed process to follow up and learn from previous acquisitions. In 2022, five Bolon acquisitions with annual net sales of 263 million SEG were closed. Newtida closed two acquisitions and Vårdager, Altid and Klar closed one acquisition each. However, no acquisitions were closed in 2023 due to lower levels of M&A activity in the market. And these activities started to increase again in 2024. In the second quarter of 2024, Newtida acquired two companies with total annual net sales of 65 million SEK. Alpkløften, a company that runs homes for care or residence for children and young people in central Gothenburg. The operations includes 24 care places and 19 employees. Annual net sales in 2023 amounted to 25 million SEK. And the acquisition was closed on May 2nd. And the second company was Ivos Omsorg. This company consists of three assisted living facilities and two daily activity units, which are in five different municipalities outside Stockholm. The operations include 51 care places and 31 employees. Annual net sales in 2023 amounted to 40 million SEK. and this acquisition was closed on June 3rd. A third Bolon acquisition was signed after the quarter ended. Nytid acquired Sorbus Wortbonde operating an assisted living facility specializing in care for individuals with Huntington's disease and younger people with dementia. Annual net sales in 2023 amounted to 22 million SEK and the acquisition was closed on July 1st. We remain active in seeking for quality Bolon acquisitions that will contribute to total growth and see more opportunities for M&A ahead. Let's look at total revenue growth. The organic growth, shown in the purple bars, follows the positive trend we have seen since Q1 2022. The total organic growth in this quarter was 5.9%. We remain positive about our overall growth potential in the coming quarters, where volume, price, price mix and acquisitions are expected to contribute. And now to the highlights of the second quarter. In the second quarter, Ambea continued to improve EBITDA and profitability. Moreover, Ambea has a strong financial position with high free cash flow generation. EBITDA increased by 42% versus last year. Our group EBITDA margin improved significantly to 7.7% compared to 5.8% in Q2 last year. Our free cash flow increased by 24% this quarter due to the strong earnings. The high cash flow generation enabled for continued active capital allocation through dividend payout, acquisitions, and share buybacks. Ambea completed the previous share buyback program under which 3 million shares for 187 million SEC were repurchased during the first half of the year. Shortly thereafter, we initiated a new share buyback program of another 3 million shares with repurchased shares for an additional 98 million SEC by the end of the second quarter. And you can always follow the progress of our share buyback programs via the investor relations page at our website And Benno will also provide more detailed information on cash flow generation and utilization later in the presentation. Nuttida acquired two companies in quarter two and closed the third bull on acquisition after the quarter ended. The three companies complement Nuttida well and are in line with our strategy to acquire quality companies contributing to our service offering and profitability target. 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. Vardaga, Stendige and Nytida contributed to the growth, whereas Altiden and Clara had a negative growth. This quarter, net sales grew by 6% in total. Vardaga accounted for most of the growth and increased net sales by 12%. Like in the previous quarters, there is an increased occupancy trend. Higher prices also have contributed to the revenue growth. Further, Vardaga started several new contract management units the last quarter. Nytida has opened new own management units and started several contract management units last quarter together with higher prices. The net sales growth was offset by a lower demand in parts of the segment, individual and family care. Net sales growth was 3%. Standard increased revenue by 10% in SEC and 9% in local currency due to stable and high demand and a better price mix. Altiden decreased revenue by 5% in SEC which was mainly driven by one large elderly care contract that expired. Clara decreased revenue by 10% due to continued lower demand for staffing solutions. And now turning to the EBITDA development. This slide shows how the different business areas have affected the EBITDA of the group. EBITDA in total grew by 42% compared to the same quarter last year. EBITDA was positively impacted by lower staffing costs as most of the Easter bank holidays were in Q1 this year. Last year's EBITDA was also impacted by two non-recurring items of minus 16 million SEK. Two of Ambea's business areas were particularly strong also this quarter. Vardaga's EBITDA was up 37 million SEK thanks to improved occupancy and operational efficiency, higher prices and positive effects on earlier measures related to handed back rental contracts. And the EBITDA margin was up 2.3 percentage points. The second one is Stendi. Stendi's EBITDA margin was up 4.8 percentage points due to higher occupancy and prices, as well as operational improvements. The strong improvement resulted in 42 million SEC higher EBITDA compared to last year. EBITDA ultimately showed improvement of 5 million SEC compared to last year, despite a high sick leave rate and lower occupancy. Nytidas EBITDA decreased by 10 million SEC, or 1.3 percentage points, Nytida had an exceptionally strong Q2 last year, which we could not fully match this quarter, but the underlying profitability is still very strong. Clara's EBITDA was down 8 million SEC, or minus 6.4 percentage points, due to lower net sales, which could not be fully offset by lower costs. All in all, and excluding the two non-recurring items of total minus 16 million from last year, their group EBITDA was up 64 million SEC. EBITDA margin was strengthened by 1.9 percentage points to 7.7%. And turning to the cash flow development, operating cash flow increased substantially compared to the same quarter last year. Cash conversion continues to be above 100%. The continued good cash flow development reflects the strong EBITDA and also a positive working capital effect in this quarter. Also, the better cutoff from the Easter holidays of last quarter was not affecting the Q2 cash flow in any material way, which confirms that we continue to show strong underlying cash flow development. And this slide shows the way from the rolling 12 reported EBITDA of 1,219,000,000 SEC to the 1,101,000,000 in EBITDA excluding IFRS 16. and down the way to the free cash flow post-tax of 840 million SEK. This is 228 million or 37% higher than the full year 2023 number we reported just two quarters ago. We can see that the last 12 months have invested 77 million in fixed assets. We have paid 135 million in interest and 109 million in taxes. We also have a small positive effect from working capital of 33 million SEK. Utilization. On this slide, we see how we have used the generated 804 million in free cash flow. 130 million was distributed to our shareholders as dividend. 72 million was spent on the two acquisitions, and 285 million was spent on the two share buyback programs. Based on our strong cash flow, we continue to reduce our debts, rolling 12 by 375 million SEK. And now to the overview of the business area. We can start with Nytida. Sales increased by 3%, which is driven by new operations in both contract management and loan management, as well as higher prices. As an offsetting effect, we had lower occupancy in some parts of the segment, individual and family care, which can be seen as natural fluctuations in demand. NITIDA increased their own management pipeline with 52 beds and expanded one existing unit by 30 additional care places during the quarter. EBITDA was lower than last year and decreased by 7% to 124 million SEK. The decrease is due to low occupancy, as said, in part of the individual and family care, where we were not fully able to offset staffing costs. EBITDA has also been negatively impacted by acquisition costs and by some startup costs and termination costs of several management contracts. EBITDA margin in the quarter landed at 11.9%, and rolling 12, the EBITDA now trend at 13.3%. Vardaga. In Vardaga, net sales increased by 12% year-on-year, driven by higher occupancy, new contract management units, and higher prices. Baraga opened two new nursing homes with 160 beds during the quarter. Own management portfolio increased net sales by 9% and contract management portfolio increased by 17%, which is a result of commenced operations of previously won tenders. EBITDA amounted to 105 million, which was significantly higher than last year, up 54%. Baraga continues to show higher occupancy and prices as well as operational improvement And the EBITDA increase is also driven by earlier measures related to handed-back rental contracts. The earnings increase was somehow offset by startup costs for the two newly opened nursing homes. Material units showed a margin of 9.8%, that is 1.5 percentage points higher than the average margin for Vardaga's total portfolio. Badaga has, at the end of Q2, balanced contracts net of 63 million SEK in upcoming annual net revenue, which will further contribute to future revenue and EBITDA growth. Two new nursing homes with a total of 240 beds were signed in a quarter with a planned opening in 2027. And during this year, 2024, two rental contracts with no operations have been handed back. On the next slide, we turn to our business area in Norway, Stendi. In Stanley, net sales increased by 10% in SEC and by 9% in local currency due to stable and high occupancy and better price mix. All segments continue to show growth like in previous quarters. The increased demand for care services for children and youth with complex needs remains. As Stanley has exited the elderly care segment, the underlying increase in net sales was in fact 14% in local currency. In the quarter, Stendi opened two new assisting living facilities with a total of nine beds and signed four new contracts with a total of 25 beds. EBITDA increased by 42 million SEK to 61 million SEK due to the positive occupancy and price growth, as well as operational improvements. Earnings were also positively impacted by fewer public holidays compared to the same quarter last year. Debit margin in the quarter increased by 4.8 percentage points to 7.3%. Golden 12 margin increased to 8.4% thanks to the good earnings development over the last quarter. Altiden. Net sales in Altiden fell by 5%. During the quarter, Altiden opened one new assisted living facility with a total of five beds. The decrease in contract management sales by 19% was mainly due to one large elderly care contract that expired, which also explained the rise in management share to 71% of Altidens total net sales. In Q2, the EBITDA was minus 13 million SEK, that is 5 million better than last year, thanks to the continued structural profitability improvement measures regarding capacity and organization. Our improvement measures are gradually gaining effect, improving the financial performance despite a high sick leave rate and lower occupancy in the quarter. The turnaround takes time, but we expect further profitability improvements during the year. And now over to Klara, our smallest segment. In Klara, net sales decreased by 10% because of continued weak demand due to the public healthcare region's limitations on the use of temporary care workers and the subsequent effect on the other staffing services as well. EBITDA decreased by 8 million to 5 million SEK due to the lower net sales, which could not be fully offset by lower costs. Rolling 12 margin is now at 9.7%. And with that, back to you, Mark.

Thank you so much, 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 expect continued good organic growth and maintain an active M&A agenda. Over time, the growth target can be reached through a combination of organic and acquired growth. Looking at the profitability target, we have a mid-term adjusted EBITDA target of 9.5%. We are on our way to reach the target with an increased EBITDA margin amounting to 8.9%, rolling 12. Most of the gap we have seen in the previous years is now closed thanks to three very strong quarters, and we expect further improvements going forward. The leverage level is again at 2.1 times EBDA, which is well below our financial target, primarily thanks to the strong EBDA. We expect our solid cash conversion to continue, which gives us potential to grow and provides financial flexibility. Free cash flow will be used for bulldog acquisitions, future dividends according to our policy, for the share buyback program, and eventually for debt reduction. Before we open for questions, I would like to provide an outlook post for Q2 2024. Ambea's growth is expected to continue through a higher demand, driving increased occupancy. We will also see effects from price adjustments versus last year. New Tita and Stanley plan to open several new units and care places in the coming quarters. New openings together with acquisitions will contribute to New Tita's growth going forward, and more bolt-on acquisitions are expected this year. We expect the profitability to improve, and we will continue to close the gap versus our profitability target. We have bought back more than half of the 3 million shares of the current share buyback program, which we will continue. As of today, the company owns 5.03% of Ambea's total shares. The board has a mandate from the annual general meeting to buy back shares up to a maximum of 10% ownership before the next AGM. To which degree the mandate will be utilized is up to the board to decide. Finally, I would like to highlight the contribution of our employees. We provide care to 15,000 care receivers, many of them with complex needs and where the efforts that goes in to provide quality care for better and more independent lives are truly impressive. The job done ensures a society where we look after and provide care and support to those in need. It is an integrated part of the Nordic welfare model and close to our hearts and minds when we strive to make the world a better place, one person at a time. For that, I express my gratitude to every employee at Ambea. And this concludes our presentation, and we will now open for questions.