Humana AB (publ)

Good morning. Welcome to Humana's Q2 2024 presentation. My name is Evelina Pettersson. I'm the head of IR at Humana. With me today I have Johanna Rastad, our CEO, and Fredrik Larsson, our CFO. Over to you, Johanna.

Thank you, Evelina, and good morning to all listeners. We continue with a high pace of change also in the second quarter. and at the same time improving our existing business performance substantially. The adjusted operating profit increased by 40%, reaching 107 million up from 77 million last year. This is primarily due to the improvements seen in elderly care, where the reinforced change program we initiated about a year ago has continued to give positive effects, but also due to the activities in personal assistance targeting increased efficiency. In elderly care, the improvements in occupancy, as well as reduced staff turnover, and sick leave in the segment is both satisfying and also promising for the future. In Finland, we execute on a specialization strategy and sign an agreement to divest 21 elderly care units to an enterprise value of 25 million euros. The transaction is subject to approval by the Finnish competition authorities and is expected to be completed during the second half of the year. And in the quarter, we also close the transaction of Timo Lidia Norway and integrate the business and accounts from June onwards The integration is going according to plan. Team Olivia Norway contributes with sales of 88 million and an EBIT of 4 million in the second quarter. And we use existing cash and new share issue to finance the acquisition. And after almost six years in Denmark, we decided to exit the country through the sale of our small subsidiary. Denmark is not a focus area for Humana going forward, hence this strategic decision. I want to direct my warm thanks to Luna Hansen and her great team for all these years. Being on my seventh year in Omana, this will be my final quarterly report. And I have over the last weeks handed over to Nathalie Bolas-Nilsson, who takes over the role as president and CEO from this coming Monday. So it's pleasing to see that the performance curve heads upwards with net revenues improving with 5%. Organic growth reaches 1.3%, just above 5% excluding personal assistance, which still suffers from the wrongly revoked permit by the authorities in January last year. and the subsequent legal process. Adjusted operating profits, as I said, reach 107 million in the quarter, corresponding to a margin of 4.2%. That is 5.4% excluding personal assistance. Now over to Sweden, so the country out first, where we see continued clear performance improvements in elderly care following the reinforced change program initiated last summer, where occupancy reaches about 92%, which is up another percentage points from Q1 with organic growth of 6%, about 50-50 due to price volume. Both owned managed units and contracts improved profitability in the quarter. And after a few quarters with clear improvements in occupancy levels, reduced staff costs and staff turnover, as well as lower sick leave, we now conclude a more formal program. And that said, we're far from satisfied and we'll continue working on improving our operations. offering to clients and also payers as well as improve our efficiency in this coming phase. We've learned a lot in the process and it's comforting to know that the individual family and the Lilycare team are fully working together and they can continue striving towards further improvements to secure continued progress in the course to come. And although operating profitability improving personal assistance nets customers out from continuous in the quarter, we are working intensely on the so-called net journey which is to create a positive net client inflow through a number of activities. And simultaneously, the adaptation of overhead costs continues, and we do see effect from that in the quarter. However, as the net client outflow persists, the actual P&L effect is smaller than we would like it to be. A substantial improvement from Q1 is seen in individual and family, with occupancy levels, which occupancy levels increase about a percentage points as a total. And notably, the child and youth segments with family care leading the way, making the largest improvement from the first quarter, and is now on an operating profitability perspective in line with last year. And that said, we still have lower occupancy than in the second quarter of 23, but significantly higher than in Q1, and continue to increase also into July. Operating profits in INF moved sequentially closer to last year for INF as a whole. And now turning over to Finland, where we, as announced in the quarter, are taking another step in our specialization journey by signing an agreement to divest the leading care units. Growth continues, however, at a lower speed, with organic growth reaching 4% in the quarter. And in June, we pay a one-time salary payment according to our collective agreement, which totals 11 million SEK. Despite this one-off payment, adjusted profitability increases and reaches 28 million, or 5.6%. In Norway our like-for-like business continues to grow with 12% while actual operating profits remain stable. The main event in the quarter is of course the acquisition of Team Bolivia Norway which in June adds 88 million in turnover and 4 million operating profits. Full quarter consolidation will take place in the third quarter. Focus from the team has of course been to prepare for and take the first steps in the integration process and so far This has proceeded according to plan. It's very pleasing to have welcomed so many confident employees from Team Bolivia over the last month. And now over to you, Fredrik, for a summary of the financials.

Thank you, Johanna. Revenues are up 5% compared to last year. Personal assistance has lost 54 million in revenues that have been compensated by the good organic growth in all other businesses. In addition, the acquisition of Team Olivia contributed with $88 million from June 3rd. The adjusted operating profit increased by 40% from $77 million to $107 million compared to last year. This is our highest adjusted operating profit in actual terms ever in Q2. Both Q2 this year and last year were impacted by non-recurring items. I will elaborate more on those later. The profit increase by 30 million is primarily explained by the recovery in elderly care in Sweden that contributed 20 million and personal assistance that contributed with 8 million from that last year. In the second quarter net debt increased with roughly 150 million, where over 216 million is related to the payment for the purchase price for the acquisition of Team Olivia. Our leverage has increased 0.2 times during the second quarter to 3.8. This is primarily due to the acquisition of Team Olivia that increased our leverage with 0.4 times. Excluding requisition of Team Olivia, leverage would be 3.4. Operating cash flow of 172 million in the quarter was even stronger than in Q1. This is explained by our good profit generation. There were only minor effects in this quarter from changes in working capital. This is explained by the fact that both Q1 and Q2 ended on non-business days. During the quarter, we had negative items affecting comparability, reducing our operating profit with 27 million. This amount includes 9 million related to IVOS revocation of the permit in Humana Assistance and the subsequent claim. related to an acquisition of Team Olivia Norway. It was included with 9 million, and we had the 10 million for remesherment of contingent consideration to be paid for the acquisition of assistance a day. In 2022, personal assistance acquired assistance a day. A major part of the consideration was deferred and based on 2023 multiples. In Q2, the final contingent consideration amount has been established And the difference of 10 million between the previous estimate and the final consideration amount is recognized as an expense. This is consistent with previous adjustments of contingent consideration that have been recognized as positive items affecting comparability of in total 106 million in previous quarters. Q2 last year included 12 million positive items affecting comparability, including a positive adjustment on the continued consideration of 42 million. offset by costs linked to IWAS permit of 29 million. And finally this quarter is compared to last year partly impacted by Easter. We have estimated Easter had a positive impact on EBIT with some 20 million due to lower personnel costs. Easter effect is of course neutral on the half year period. Now some final words from you Johanna.

Thank you, Fredrik. Well, as a monomere society, we have also in this quarter seen an increase in requests for placements of high complexity. Individuals with substantial care and treatment needs puts pressure on employees' ability to offer a solution that will enable our clients to move to a better position in life. So the care sector needs to improve its ability to measure output of treatment and over time also be rewarded for the actual outcome of our treatment. In the quarter, 42% of concluded treatments in Sweden has led to a lower level of care while 58% of clients in all residential care homes reached their targets in their care plan. It is astonishing that Humana still only can compare to itself when it comes to these numbers. I really wish this will change over time and more companies and public institutions will start to deliver social outcomes to bring up the debate. And why do we do this? To secure young individuals such as Frans to get a better life. A Swedish client's portrait of a time. A 15-year-old that comes into our care with a criminal background, with drug abuse and numerous failures behind him, totally swamped up into a criminal environment. Frans has seen abuse, violence, carried weapons, seen people become murdered and become murderers. Frans is lucky enough to understand that he wants another life for himself. That's why he comes into Humana's care. We can offer a solution for Frans, the V12 treatment program aimed at getting children and adolescents into a place in life without drugs and criminality. Throughout the BioHumana developed program, Frans can get control of his own impulses, identify and modify his way of thinking, as well as give him a proper chance to choose a long-term sustainable behavior in risky situations. In short, give him his life back. And that's why we exist. That's why we strive towards measuring output in care, because at Humana we do care. So now over to what happens next. Personal assistance is of utmost focus for us, mainly to get the net positive client inflow, but also to adapt the cost base according to new volumes. The solid occupancy developed into 9F during the quarter builds were promising profit momentum in 9F also in the coming quarter. The turnaround achieved in elderly care is pleasing. However, we do need to continue taking steps to further improve the business. For Norway, integration of Team Olivia is absolutely key, of course, to realize the outline synergies. And our specialization strategy continues, and we will also continue to develop social outcome measurements. This is the only way for us to properly describe how important our work is. And with that, we open up for questions.

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. 6 on your telephone keypad. The next question comes from Christopher Liljeberg from Carnegie. Please go ahead.

Good quarter and good luck to you Johanna in the future. Any questions? First of all, Finland earning seems surprisingly good when we adjust for this one-off salary payment. So I just wonder how much of this is driven by the segment that will be divested and how much of this is what will remain with Humana, if that's possible to comment on. Secondly, I'm just interested to get some more details about the occupancy development in Swedish social care. You talked about an improvement here, so particularly interesting to hear how the end of the quarter is and the outlook for the third quarter. And then if you could comment a little bit more about the client outflow in personal assistance and when you think this will start to even out. Thank you.

Well, thanks a lot, Christopher. I'm starting with your number one in Finland. You are absolutely right. That is a good quarter. And primarily that comes from child welfare services, which is an area that we will continue to have. Actually, the performance in the units that will be divested is sort of approximately what we have described in the press release previously. So no major changes there. And I think going forward, Child Welfare Service, we're approaching to be the largest provider of that. So we will have a dominating position in Child Welfare Services that will continue. And then, of course, there are also other segments particularly the open care service that can still have room for improvements where it has been more challenging than in child welfare. But overall, we are pleased with the development in Finland and there is no clear sign that that should change in any way. In terms of, so moving to your second question, occupancy in INF, And that is really something that we've had our eyes on because when that goes well, it sort of carries a lot of the performance for the group. And INF as a whole has shown an improvement in the quarter of about a percentage point. But to really understand and grasp the actual dynamic, we have to come a bit further, dig deeper down into INF. And I think the largest contributor to bridge the gap that we've seen in performance on the bottom line has been the young segment. And that's, they've had a really good development during the quarter, sort of ending the quarter in a positive note. So going from 79% in the beginning of the quarter up to 82 plus percent over the quarter. And without promising too much, I think the seasonality effects in the young segment Generally, it tends to drop in June, and we haven't seen that drop yet, which is good. So can we continue, maybe not upwards, but at least maintain this throughout the summer? We should be well off. So that's for the young segment.

Did you say 82% of the quarter?

Yeah.

Okay.

So that's it, which is... I'm not saying that that should continue the whole third quarter, but those levels in June is good to have.

But could I ask, because last third quarter, the drop during the summer was larger than normal.

Yeah, that was the case. It's actually quite, I mean, it's more common that we see a drop in June when the schools close. But we haven't seen that drop this year. And it might be that it's a bit later, but I think the challenge for last year was that it dropped and it didn't come back properly. But now we haven't seen that type of drop in June, which we generally do. And it is carried a lot by both family care and the HVB segment. it is overall positive when we sort of end the second quarter on these levels. And then for the adult segment, it's really no major change from the first quarter, sort of maintained occupancy levels and maintained performance. And I would say the gap now versus last year is sort of fairly evenly spread out, but it comes a bit from the healthcare segment. So the large carrier of the results and the young and the adult segment are performing well. So I think that it's a promising road ahead for individual and family, we believe. And then it's the client outflow in personal assistance, which of course have been in the quarter you know, it's not where we want it to be. But I think what's the, you know, there will be at some point in time, this will, as you also mentioned, sort of level out. We are doing a large sort of change program in personal assistance, sort of both working on the net client inflow, as well as adjusting the overhead costs sort of according to new volumes. So it is very much a balance. And I think... What we have seen in this quarter is that we have relatively lower inflow than we saw in Q1. But we have also had to turn down a few clients due to insight and quality aspects. A bit higher turn down rate than we generally have. So we still have requests, the demand for coming into us remains stable. We also have MAP. We map all our clients and sort of map out risk clients and so on. So I think we have a fairly good idea of the risks in a continued net outflow. And I think it's hard to tell. It will depend on how much clients we can get in over the coming quarters. But somewhere sort of towards the year end, maybe in the beginning of Q1, we should be able to see a positive net client inflow. At least we're working towards that. And I think that, of course, will change the whole game for personal assistants.

Is it fair to say that you're turning down more requests than in the past?

Yeah it is fair to say definitely we are turning down more requests and we're also we have to also conclude some of the placements we have due to insight restrictions a primary not only but but also due to that which is something that we have not done previously And that's, you know, we're not alone in doing that. I think that's the whole segment is doing the same. So it's a lot of, it's a big shift going on in personal assistance. But there are also positive signs. I mean, it's discussed through the index, the possible indexation of the prices, for instance, that's something that is highly debated and that is also sort of rumored to come into this autumn budget proposal, which will be a massive change for us, that it's not just a 1.5% uptick in price, but rather tied to cost doubles, which will be, for us, it's way much more predictable in terms of performance. But also, actually, the fact that the market has slowly, from a volume perspective, the number of people with granted personal assistance has gone down for several years. But that has actually had a couple of months where those volumes have turned, when more people are granted personal assistance, which also, you know, maybe it's not a huge turn right now, but over time, it should be promising. If that answers your questions.

Absolutely.

And thanks a lot for your comment. Thanks a lot for that.

Thanks. Bye-bye.

Bye. The next question comes from Jacob Lemka from SEB. Please go ahead.

Hi, and good morning. My first question is on individual and family. Based on what you see today, when do you expect occupants to start to improve year over year?

We are still a bit behind in terms of occupancy, but what we can see is that the mix effects are also very evident. So we have relatively fewer clients, but a higher turnover per client. So the mix effects are balancing that occupancy sort of gap. And it is hard to say, but I think what we see in particularly in the young segment is very promising. I think adult is still static, and I think that partly relates to the ability to pay for those type of placements that we have from the municipality side. If we can continue to maintain the development in the young division and then gradually over the year also try to start to improve the adult, we will be in a good position.

Okay. And then on elderly care, I mean, it has been a very strong improvement here over the past quarter. But can you sort of update us on how much empty capacity you have left to fill here?

Yeah, sure. And absolutely, it's been, you know, we've seen a massive improvement with sort of on the profitability side of improving the 20 million on a quarter by quarter basis. That said, you know, we had a terrible Q2 last year. So, you know, even if we're really happy about the improvement, it still comes from a fairly bad level. So we really do believe that there is a significant potential left in there. And in order to really answer your question, we need to look at the two different segments, one being the own managed units and the other one being the contracts. And I think from a contract perspective, they have sort of performed fairly evenly during all this period. What's been the challenge has been our own managed units that have ramped up for a long time. And there is still room for improvement in that area. in that segment. So with sort of several percentage points from where we are today. Whereas the contracts are, you know, they move around the levels that we think is sort of reasonable. But there is still, you know, the utilization levels still have several percentage points to improve.

Okay. Is the profitability in your own units below the average for Alilakel?

Yeah, they still are.

Okay. And then finally, just on this re-measurement of the contingent consideration for AfriStance for Day, just trying to understand, does this mean that it developed sort of materially better than you anticipated, or what is driving this?

It's not materially better. Remember that we did the last adjustment in June last year, and then it has been six months of estimate, and it's very small numbers because it's a multiple that we are working with. So it's slightly better, but not huge. You have to look at it from the perspective of 106 million against 96, not 10 million against 20. That was the adjustment of the amount.

Okay, very clear. That's all for me. Good luck in the future, Johanna.

Thank you very much, Jacob.

The next question comes from Karl Johan Bonnevier from DNB Markets. Please go ahead.

Yes, good morning Johanna, Fredrik and Evelina. Fredrik, maybe you can help me with one thing. Looking at the capital structure and the gearing of 3.8 at the end of the quarter, what would it have been if the Finnish deal would have been concluded here at this stage or perform a basis for that?

I would say it would be roughly, now I'm just taking numbers from my head. I'm making a comparison with the Team Olivia acquisition that cost us 200 million in cash payment and that one increased leverage with 0.4%. And now when we're selling the Finnish business, we are getting 25 million euros or close to 300. So roughly it will be 0.5 percentage points.

So you will be substantially closer at least to the financial side. And I guess Denmark, I understand, doesn't really change the needle in any way here.

No, no, no. Denmark's profit is roughly zero and net debt It has no impact on method at all.

Excellent. I'm not sure if it's possible, but could you give us some idea on the timeline for the EVO damage process? When do you think there could be any key dates in that process?

Well, I think it's very much purely a legal process from now on. And we would guess it takes a year, a year and a half for that to conclude. That's our best guess at the moment.

So second half, 25, is the most logical part, basically.

Yeah, somewhere around there, yeah.

Excellent. Thank you very much. And Johan and Fredrik, all the best out there with your new efforts.

Thanks a lot. Thank you very much.

There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

Do we have any written? So no written questions. So this was my final quarterly reports presentation before leaving Humana. And I'm happy that we in actual terms could present the best adjusted operating profit Humana delivered in the second quarter. And thank you very much for all your support, particularly during the tougher quarters. That was extremely valuable to the whole team here at Humana and to me personally. So have a very good summer.