Attendo AB (publ)

Good morning, everyone. Today, we're presenting the Q1 results. We'll also present updated financial targets as we're approaching the end of the turn-around program we initiated in the beginning of 2021. With the acquisition of Tim O'Livia's care business in Sweden, sustainable terms in Finland, and a stronger financial position, Atand is well positioned to create value for customers, payers, and shareholders in the ERC camp. I'll start by giving you an update on the development in the first quarter, together with our CFO, Mikael Malmgren. In the second part of this presentation, we'll move into the updated financial targets. Slide two, please. Atand has had a positive momentum during the past year, reflecting the outcome of the turn-around program that we launched in 2021. In the first quarter, organic growth was 8%, and the beta increased with 39% -over-year. Both sales and the beta improvements are entirely attributable to the improvements in our operations in Finland. Improvement in Finland is mainly driven by the contractual changes we achieved last year, primarily within elderly care. Still, I'm not entirely happy about the results. Sales in Q1 was somewhat lower than we had anticipated. As we recruited for slightly higher occupancy, and during the quarter, this also had a negative impact on staffing efficiency and personal costs. In Scandinavia, our own operations in Sweden continue to improve -on-year, while the overall result was negatively affected by losses in Denmark and ended outsourcing contracts. We've taken a number of actions to turn the situation in Denmark, something that should have a positive impact from the second half of the year. A key factor to strengthen the trend of Scandinavia is the acquisition of team Olivia Care, which will be consolidated now from the second quarter. This will give us a leading position in the attractive segments of disabled care, as well as individual and family care. With this acquisition, we also further strengthen our home care operations. Overall, we're achieving a better balance between our service offerings in Sweden and creating a stronger platform for further growth. As a result of the overall improvement in earnings as a group, we have significantly strengthened our financial position, and as a result, lowered our net debt to WTA. This allows for active capital allocation and selective M&A, and it's an important part of our revised equity story that we'll come back to shortly. Slide three, please. So now some comments on the progress of our sustainability work and non-financial KPIs. Over the past few years, we have gradually been implementing new evidence-based methods to measure quality of life of individual nursing home residents. While we have been piloting these methods since 2021, we have now implemented them in the majority of our nursing homes. In Sweden, we have introduced a method called ASKOT, while we use a method called RAI in Finland. The purpose is to measure and improve the health and wellbeing of our nursing home residents. The result of the ASKOT and RAI assessments helps our staff to better understand what to focus on to impact quality of life for each individual resident. It also provides the data to understand if the residents experiences a positive impact from the care, food, and services that we provide. The first broader results indicate that this way of working with improving quality of life is having a positive impact on our customers. While it's too early to draw more detailed conclusions from the measurements, we will, as we get more data, be able to compare development over time. This would also help us to build more knowledge about what actions that have the most impact on customer health and wellbeing to further develop our care operations for the future. Next slide, please. Let's now turn to the development of occupancy, a key factor for our long-term profitability. Group occupancy at the end of the first quarter was 86%, essentially unchanged from the fourth quarter. In Finland, we succeeded with our 2023 targets to maintain occupancy despite increasing staffing density requirements and a strained labor market. For the first quarter of this year, occupancy remained essentially unchanged as sales were slightly slower than we had expected. For 2024, however, our target is to increase occupancy again with two to three percentage points as the labor market stabilizes. In Scandinavia, occupancy has developed flat to slide positive over the past quarters. And while we recognize that some of our payers have financial constraints or have limited access to private providers for political reasons, like in Gothenburg, we believe that we will continue to increase occupancy in 2024. We see growing unemployment in the United States and a large need in society, and we continue to see increased number of customers that would like to get an apartment in one of our nursing homes. Next slide, please. The top chart shows sales on a rolling 12-month basis, both for the group and for each business area. The most significant factor for sales development over the past 12 months is improved conditions in Finland. The bottom chart shows a rolling 12-month lease adjusted at beta margin, but the group margin continues to increase driven by the performance in the Finnish elderly care segment. In Finland, we received a full year effect in Q1 of the improved terms established last year. We expect normal seasonal effects during the year, with Q2 generally being our weakest quarter. In Scandinavia, we've had a margin pressure over the last couple of years, initially due to a sharp drop in occupancy during the pandemic, and later due to issues in Denmark, less than fair compensation for inflation and ended our forcing contracts. From this point, we expect margins to start improving, mainly driven by the Timo Livi acquisition, improvements in Denmark, and occupancy. Let's take a closer look at the financial for the quarter, and please go ahead, Mikael.

Thank you, Martin. So let's turn to page six. Net sales in the quarter increased to 4.4 billion SIG, which is up 8% compared to the quarter last year. The organic growth for the quarter was also 8%, excluding foreign exchange. Organic growth was left in Antenna, Scandinavia, where we saw a continued organic growth in own operating units. This was offset by ended outsourcing contracts. In Finland, the organic growth was 343 million, or 15%, and primarily driven by improved terms. Currents effects had a minor effect on sales with 20 million. Slide seven, please. Report to the Bita increased by 51 million to 292 million kronor, and lease adjusted to Bita increased from 116 to 161 million kronor. Lease adjusted to Bita in Scandinavia decreased year over year, while in Finland, the lease adjusted to Bita grew with 64 million. IFRS-related effects was 5 million, and foreign exchange effects contributed slightly positive to a Bita this quarter as well. The Bita was also a major economic growth Next slide, please. As mentioned, growth for a time in Finland amounts to 15% reported and in local currency. Lease adjusted to Bita increased from 73 million to 138 million. The positive development is mainly an effect of price adjustments that are now catching up to historical cost development. Occupancy remained unchanged in the quarter, and was also impacted by higher than expected customer outflow around Easter. We target to improve occupancy in the following quarters. To note, the Finnish government announced that staffing requirements and care for older people will be reduced from 0.65 to 0.60 care staff per resident from 2025. Our in-going view is that this will not have a material effect on profitability. And please note that Q2 and Q3 will be impacted by higher salary increases compared to last year. Slide nine, please. Turning to a Tendo Scandinavia, the net sales was flat. Underlying growth in own homes driven by price and net new sold beds was offset by lower revenues and ended outsourcing contracts. We report lower profit year over year in Scandinavia. On a segment level, Denmark and outsourcing showed lower results year over year, while we report higher results from own operations in both elderly care and disabled care. As part of our turnaround program in Denmark, we exited loss-making home care operations in Copenhagen in April. In addition, we have changed the local leadership, we've improved the staff turnover and quality measures. Slide 10, please. Cash flow, on a rolling 12-month basis, our free cash flow remains strong at 736 million. And the free cash flow in the quarter was slightly better than previous year, driven by our profit improvement. However, in the quarter, working capital was impacted by end of month Easter close and a one-time payment of historical accrued vacation days. CapEx was also slightly higher and is expected to be higher than last year from a historical perspective low level. During the quarter, we also repurchased shares as announced to a value of 45 million. And in April, we have continued to repurchase additional 40 million kroner so far. Next slide, please. So let's start at the top left. The adjusted earnings per share improved too, and due to improved lease adjusted EBITDA, and was as expected slightly offset by increasing financing costs and increased income tax. On the top right, we note that the lease adjusted EBITDA margin continued to improve during the quarter and is now at .5% on a rolling 12 month basis. On the bottom left, lease adjusted net debt to EBITDA remained at historically low 1.2 and down from 3.6 last year. In Q2, and due to primarily the acquisitions concluded in April, the ratio is expected to increase to approximately two. The net interest expense in the quarter was similar level compared to the last quarters. And on a rolling 12 month basis, the net interest expense also remains relatively stable compared to last quarters, but higher compared to one year ago. The increase compared to last year is due to the interest rate increases in 22 and 23. Going forward, the net interest expense will increase. This is primarily driven by the now finalized team Olivia care acquisition, and which was acquired beginning of April at a purchase price of 950 million kroner on a debt and cash free basis. With that, I hand over to you, Martin.

Thank you, Mikael. Before turning to the financial targets and the Q&A session, let me just briefly summarize the latest development. The return run in Finland was a driving factor behind the group's sales and profitability improvement in the first quarter. The trend in Scandinavia has been slightly downwards for some time, but we believe that we are now past the turning point and that we'll see an improvement going forward. In addition, we'll get a positive contribution from the acquisition of team Olivia out from Q2 and onwards. Our focus for this year is to increase occupancy, work with operational efficiency, complete the turnaround in Denmark, and integrate team Olivia in the Swedish operations. Financially, we expect to achieve our previously communicated financial target of four sec per share in 2024. This concludes the Q1 presentation. I can now continue to present the next phase for Atendo and our new financial targets. Next slide,

please.

Over the past three years, we have achieved a turnaround in Finland, recovering much of the occupancy lost during the pandemic in Scandinavia while strengthening employee engagement and our operating model. During this period, we have implemented a care model with stronger focus on quality of life, strength and operational leadership through new leadership training for local managers, introduction for group managers in nursing homes, both in Finland and in Sweden. We've also taken several steps forward in our digitalization journey. The result is a more robust daily operation with higher satisfaction among customer relatives, employees and payers. Also financially, we're now in a much stronger position that gives us better options for the future development of Atendo. Now moving into our focus for the next three years. First and foremost, we still have plenty of opportunities to grow and improve our elderly care operations. We still have around 3000 empty nursing home beds in both business areas and hence operating on a significantly lower occupancy level than historically. The shortage in nursing homes is already evident in many geographies and give the current low level of new establishments and constraints in public finances is opens up growth opportunities for private operators in both existing and new geographies. In addition, as overall demand increases and people are getting healthier for longer, demand for home care services is likely to increase faster over the years to come. Secondly, we see great opportunities for further growth in disabled care and individual and family care, both organically and through M&A. The acquisition of Timo and Livia will strengthen our capabilities in complex care needs in Sweden. Together, we'll form a wider and stronger platform within disabled care and individual family care. Combined, we'll provide an expertise in these segments that no local authority can build on their own and we'll become a better partner and care provider for both society and individuals. Thirdly, we still have room to improve efficiency as we increase occupancy and continue our digitalization journey. Overall, we're into achieve adjusted earnings per share of at least five Kronor and 50 in 2026. Mikael will now walk you through how we built up this target. Mikael, please go ahead. Thank you.

So as Martin mentioned, we target to achieve at least 550 sec per share in 2026. And as you can see in the chart, we had the earnings per share of 70 over in 2022. And during 23, we achieved an earnings per share of three sec, which was mainly related to the turnaround program. From this level, we have several factors that can enable us to reach the target of at least 5.5 sec. The first building block is Timo Livia, which we mentioned and where we expect a positive contribution of at least 50 euro from 2025 onwards when fully integrated. The mid bar shows improvement in EBITDA. And on the next slide, I'll give you some more details on the underlying factors that add up to this improvement. Thirdly, we see good opportunities to increase shareholder value through active capital allocation. We will continue to seek a mandate from the AGM for annual buyback programs. Next slide, please. So let's look at the EBITDA growth opportunities that we have identified. Starting with organic growth through green fills, there are plenty of opportunities across geographies and segments. And we expect to be able to add around 2% on average of new capacity per year with less capacity in the beginning, more at the end of 2026 and a corresponding addition to EBITDA growth. The second component is same to higher price compensation versus cost development. We have been under compensated during the past years of higher than usual cost inflation. And we expect to recover some of that over the next two years. As Martin points out, occupancy is a key driver of improved profitability. The assumption is that we will be able to increase occupancy by on average at least one percentage point per year in the coming years, which will contribute to EBITDA growth by at least the same amount. With higher occupancy, we also have better process and planning capabilities. This together with improvements from new tools and common ways of working will contribute to growth. Growth also means scaling in many overhead functions, something that will be a bit of creative. And excluding team Olivia, we estimate that we will continue to do additional acquisitions. And this should contribute to EBITDA growth of two percentage points per year. All of this adds up to EBITDA growth of at least 10% annually. Next slide, please. So we've now taken you through the path over to reach at least 550 sec in 2026. I would like to now also comment a little bit on the other financial targets. The net debt target measured as adjusted net debt to adjusted EBITDA is to between 1.5 and 2.5. We could temporarily exceed two and a half times, for example, in connection with a larger acquisition. The old target was 3.75. The reason for the lower target is to signal financial prudence, but also our ambition to deliver on a sustainable profitable growth over time. And it also reflects the fact that the old target was set in a zero interest rate environment. This range allows us to maintain a more active capital allocation. We maintain our current dividend target of 30% of adjusted net profit. Our intention is to combine the dividend program with a recurring share by program. Overall, our customer focus combined with our ability to provide local authorities with cost-effective care and solve more complex care needs means that we are well positioned for the future. With that, we now turn to the Q&A.

Thank you, Michael. We're now turning to Q&A, so I'll start with a conference call and of course we'll take questions on the chat. So operators, please go ahead.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Christopher Liljeberg from Carnegie. Please go ahead.

Yeah, three questions. First one is on price increases, if you could give an indication how much that was here in Q1 year over year in Scandinavia and Finland separately. Yeah,

thanks. The price increase was approximately 4% in both business areas.

Okay, great. And then two questions here on Martin, if we start with Scandinavia first. How much sequential underlying improvements could we expect in earnings in Scandinavia in Q2 versus Q1 before adding Timo Livia or do you expect it to be underlying rather flat here?

We expect it to be slightly better than Q1 underlying.

Okay, and I think you've said before that Timo Livia haven't leased the after the beat of 130 million annually. How should we see that being split between quarters? We think that that

split is fairly evenly between the quarters with a slightly more positive in Q3 versus the other

quarters. Okay, but less seasonal effects than the current Scandinavian business.

Yes,

slightly less seasonal effect. Okay, and in Finland, my first question relates to how you were able to improve margins sequentially despite unchanged occupancy. And I guess there should have been a negative impact here from the early Easter holiday also in Q1.

So there was a slight negative impact from the seasonality of the Easter, but also Easter was, one day was in April. The sequential improvements in profitability is primarily related to the Q1 price increase that if we compare quarter versus quarter last year.

Okay, and then you talked about Q2 being the weakest quarter in Finland. Does that refer to Easter timing effects because that shouldn't be the case this year? Or are you referring to the salary increases? Because I thought salary increases in Finland will kick in from August.

Yes, so the new salary increases kick in as of August, but we have higher salary increases last year compared to the price increases year over year in Q2.

Okay, but does this mean that Q2 in Finland should have lower earnings than in Q1? Yes, slightly lower. Okay, thank you.

The next question comes from Jacob Lemke from SEB. Please go ahead.

Hi and good morning everyone. I'll start with the question just on the impact of Easter and leap year here in the quarter. Can you quantify the effects in the two segments?

So I think as we mentioned to Christopher there, in the end the effect was just slightly negative, so we don't really see that we need to comment on it.

Okay, and the leap year, nothing material or?

So the leap year was positive, but that was offset by the Easter holiday being in March versus normally all of it is in April.

Okay, and then my next question relates to the new targets. Firstly on the operational side, is it possible to break down the sort of drivers between occupancy, new openings and price adjustments and so on, what you see?

So I mean, if we take the new capacity, 2% is generally equivalent to 400 beds on average, and we believe that we will have a slightly lower new openings in 2024 and that will increase during the period, so we will have a slightly higher occupancy openings in 2026, but on average, then the 400. And if we talk about occupancy, we do target to go at least a 2% up in 2024, which will take us from 86 to 88 and then another additional 1% point would take us then to 90 by 2026, which is on average 1.3 and rounded then is 1%. And what was your final question?

And then also on the price adjustments you're seeing and if I can extend that question, just do you expect to do any meaningful recovery from the sort of price cost gap you lost during this high inflation environment?

I mean, obviously our ambition is to recover price versus cost, but we also need to be prudent in our approach, and so we have taken that from inflation to price in this scenario of 2%.

Okay, it's because the reason I'm asking is that, I guess if you get back to about 90% occupancy here during this three year period, if you were to have prices more similar to before, you should be able to make more than the sort of .5% that is implied by this target, right?

If we go back to historical occupancy, yes, when we put up a financial target, we want to set the financial target that we are confident in reaching. So we said that we also say that we're gonna do at least 550, we're not saying that we're gonna do exactly 550, but at least 550 in 2026.

Okay, that's fair, I guess, and that's all for me. Thank you. Thank you.

There's always amazing.

The next question comes from Ronnie Purenheimo from Endiers. Please go ahead.

Hi, this is Ronnie Purenheimo from Endiers. I follow healthcare companies in Finland, Telvestil and P-Veline, and I was wondering about the Finnish market. So about the price hikes, you have done quite significant price hikes in the last few years. So how large price hikes are you expecting in the future years? Are you able to elaborate that?

The price hikes we've done in Finnish end of the care, they are basically aligned with the change of regulation in Finland and the new staffing requirements. So that's basically realigning price with requirements. We've been

off

for a number of years. So we're happy to manage to do that last year. Then of course, we see that we're still been a bit behind in disabled care and social psychiatry, which is two important segments for us. So there we need to catch up with still a bit from the past year's inflation. On elderly care, having reached this level, we don't see that we are behind price anymore. That there would be more inflation-based price changes over the years to come. So the main levers for driving profitability in Finland, from this point onwards, will be occupancy and efficiency, not price.

Okay, yeah. You mentioned about the price-cost gap. Is that mainly related to Scandinavia or is it both in Finland and Scandinavia, equally large?

In Finland, it's mainly related to disabled care and social psychiatry segments. And in Sweden, it's related to the elderly care segments.

Okay, yeah. One more question about the Finnish government decision to reduce staffing requirements and you don't expect it to have a significant profit impact. Could you maybe elaborate this a little bit more since I would imagine it would have some impact.

Yeah, but if you look at it, I mean, there's a change down now from 0.65 to 0.6. We think that that, partly, I mean, it would be good for the market because it will take down the pressure on a strained labor market. It will hold back further salary inflation outside agreements, which is also good for stability and for the labor market as such. It can also be good for occupancy development because then it holds back cost development in Finnish elderly care. Having said that, this change was part of a larger budget savings package for public finances in Finland, as you're probably aware, where this change within elderly care was a smaller part of it. There was also a change of VAT, for example. So if you look at the items affecting cost per capita in Finland for 2024, we have the staffing requirements for care staff, non-care staff unchanged, which has lowered a bit. But then we have cost drivers, which is higher VAT, which will take the price up. We have general inflation, and then we have the salary movement for next year. So, of course, we expected that there was a number of items affecting cost per capita that will be reflected in the price discussions for next year. But we see that the margins in Finland, in terms of viewers, we expect them to be fairly intact.

Okay, yeah, makes sense. All right, thank you for your answers. No more questions from me.

The next question comes from Christopher Liljeberg from Carnegie. Please go ahead.

Yeah, thank you. Two follow-up questions. First on this discussion about Finland and staffing regulations. Given what you said, do you expect this to have any impact on price, all else equal in Finland 2025?

Yes, of course it would. But if you look at these different cost items, we can see that it's, they basically sum, for next year, they would basically sum up to the cost per capita and the price per capita, that's quite similar to the one we have. On the other hand, if it wasn't for this regulation, the price would go up sort of with inflation and salary movement. So- Okay, but

do you think that you could argue for, with your, with the payers, that cost per capita is similar, so this shouldn't impact the price?

Yes.

Okay. But it is early days, Christopher, and we will, of course, this was one and a half week ago. So we will, of course, come back to commenting on the situation the following quarterly report. Okay.

But most likely, as it looks now, you will continue to increase price in Scandinavia to get compensation for, for under compensation in previous year and then flat prices in Finland, I guess.

Yes, well, for elderly care. Then of course, for social, and disabled care, it's a normal situation.

Yeah. And then on future buybacks, and how we should think about that, best guess here, is it, you know, similar size that you have been doing this year, or do you want to increase that further?

Well, now I mean, the board was talking about the limit on a quarterly basis. That's how it's going to work. But, I mean, we're dedicated to, to continuously work with buybacks as one of our mechanism. And given, you know, there's a limit on how much you can buy almost every day, and I think that now we're basically buying our share, so to speak, per trade in day. This is volume-wise.

And obviously, if we will always compare with any attractive M&A during that period as well.

Okay, so we shouldn't expect you to think maybe buying back 5% of the shares a year.

Well, you were pretty close to that in terms of what you've been buying back now up till the AGM.

Yeah, okay.

It's pretty close to that, right? Yeah, okay. Thank you.

The next question comes from Stefan Nutsen from ABG. Please go ahead.

Morning, gentlemen. Just a follow up on team Olivia and what you see in terms of potential to grow that business in the coming years. I mean, supposedly there is a pricing component, but do you also have a volume driver that is similar to what you see in your elderly care business?

Yes, we also see a volume component, and we are expecting to open six new houses this year in team Olivia. So we could be on a slightly higher volume growth in that part.

Thank you. And then also on your, I mean, you did a pretty good breakdown on the beta growth target that you have. Just if you can comment anything about the differences between Finland and Scandinavia there with Finland now, having the full pricing effects into the numbers. Is it mainly Scandinavia that you see potential to drive profitability up until 2026, or how do you view that?

Oh, we see good potential in both business areas. Also in Finland, there is strong potential for growth. We still have around 1800 empty beds to sell in Finland, which is, of course, that's a big growth asset, both in terms of growth and profitability. It's also the fact that over the past few years, we've been hunting the increasing staffing requirements, which has been a hunt for staff. Now we're going into different rhythm, which is more of a work on occupancy and efficiency. So those two are two strong levers for both top line and bottom line growth in Finland as well.

Okay, thank you very much for those answers.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

Okay, I can see that we haven't got any questions in the chat, so then we conclude this call. Thank you for listening in, and please feel free to leave a comment or please don't hesitate to contact us directly if you have any further questions afterwards. Thank you for listening in.

Thank you.

Thank you.