Humana AB (publ)

Good morning and welcome to Humana's Q3 presentation. My name is Evelina Pettersson, I'm the head of IR at Humana. With me today I have our CEO, Natalie Bullas-Nilsson, and our CFO, Kristoffer Herro. Please go ahead, Natalie.

Thank you. So, having a look at, my name is Natalie and I started in July, so I've been here almost a quarter now, so this is the first quarterly report from me and Kristoffer together. And looking at some of the highlights from Q3, we improved and managed to have a record high adjusted operating profit of 203 million. The team Olivia Integration in Norway is performing according to plan. And we also have stable performance in Finland and performing at the high level there, although we see some declining demand in open care services. And we have some positive developments for the personal assistance in Sweden for the first time in a long time as regards price adjustments, where we have now a 3% price adjustment from 1st of January next year. And in addition, there's been an announcement on research or looking into having a wage related index as a yearly, connected to the yearly price adjustments, which will give us better foreseeability in the conditions and moving forward a more stable development. There's also been a reduction announced on the parent deduction in Sweden, which should amount to more hours for the children within personal assistance. So there are actually several signs of positive developments moving forward in this area now on the market. As I mentioned, I've been here for a few months and it's been an interesting and fun month. I've been able to visit units and get to know some of the Humana family and getting into the business. And after a few months here, I must say it's quite evident that we the Humana rests on a strong foundation. There's been substantial investments over the past few years in several areas and a lot of focus on ensuring that we have a value based culture. There's a very strong focus on satisfied customers and employees. We are in the forefront of research. I'm very proud of that. And we do continuously work with method and service development to ensure that we have the best possible outcomes in our services for the individuals that we that are entrusted within our care. We measure the outcomes so we can see the changes and take action when needed and also to continue to improve for the clients and customers we have. We also work hard on improving the conditions for our customers and society at large. And we'll get back to that a little bit. There's also a solid specialization strategy within Humana, which positions us in the forefront in many areas. To give a few examples of that work, we have improved our KPIs in three out of four areas from Q3 last year. We have improved on satisfied customers. We've improved on safe service. We have improved on high quality training and we have a continued high level of satisfaction for our employees, even if we haven't specifically improved that. We can also see the improvement in the social impact where we have increased the proportion of completed placements that actually lead to a lower level of care after they have been entrusted to us with 3%. This is a huge benefit from the individuals and for society at large. We've also increased the number of the care residential homes with 5% that reach their targets. Looking at Humana, we can also see that we have a strong growth through acquisitions. Just over the last six years, we have acquired 19 companies of various sizes. Looking at the strong foundation we actually have coupled with the fairly large number of acquisitions that we've made. I don't think you will be very surprised by my short term agenda. We will focus on consolidation within the Humana group moving forward. There are some low hanging fruits here on many levels, both on a company structure level, but also on a system level and a shared service support level. We will put a lot of effort into consolidating our group moving forward. We will also continue to work on efficiency and as we consolidate, that will become easier and focus on cost control on that. Humana is also a very decentralized company in general. We will add a layer of internal governance and control to that, which will be another focus area. The target of that is to increase the predictability of our business and making it somewhat more stable moving forward. In addition, we will then also look into and do some deep dives in some of the areas within our specialization strategy. For phase one, we will primarily focus on individual and family in Sweden. We will focus on open care services in Finland and also on mental health in Finland. Once that's completed, we will move over and do a phase two and focus on the elderly care. When we look at the growth development and the EBIT development during Q3, we can see that we've had a nice development of 11% year on year on the revenues. We actually, for the first time, reached 10 billion SEC revenue LPM, which we are quite proud of, of course. We also have a healthy underlying organic growth of 5.7%, excluding TA. If we look at the different countries, we can see all of the countries are contributing positively to the adjusted EBIT margin. And the strong performance in Sweden within individual and family and the increased occupancy within elderly care are outweighing the somewhat lower margins in within personal assistance. And looking at the adjusted EBIT development, we reached 499 million SEC in Q3, which is also a record. We have an adjusted operating margin of 5%. The main contributors to the EBIT increase is, of course, the acquisition of T-Molivia in Norway, coupled with the strong performance of individual and family in Sweden on both price increases and cost control and also the elderly care

increased occupancy in Sweden. As

I mentioned, in Sweden, we have a strong performance from individual and family. We have opened four new units during the quarter. We have also increased the occupancy within the elderly care, which is giving a good contribution and are making up for the continued net loss of customers within personal assistance. Comparing to Q2, we are continuing to reduce the net loss of customers within personal assistance, and we are also continuing with reducing the costs related to personal assistance. So all in all, we have improved profitability in Sweden to 6.7%, which is almost a one percentage unit increase since last quarter, although we have not grown on the total. In Finland, we have a very strong performance of .7% adjusted EBIT. It is slightly lower than last year, but that's mainly because last year was an all time record high quarter as regards profitability. We haven't grown significantly or at all actually in Finland, but we have grown in our target areas. So we are growing within child welfare services and disability, and we are also continuing to convert those units into more intensive care units, which is giving us a higher margin, all according to the strategy and plan. The open care services have seen a decline in demand from the social regions, and this is primarily due to large saving requirements, and we are expecting this area to continue to decrease until the end of 2026. But it is, however, only 30% of our total business in Finland, so we are doing well in our areas of target. The elderly care is still thought to be divested by the end of the year. We're expecting that to go through. We can say also that if you look year on year on the elderly care, the proportion of elderly care in our business in Finland has decreased from 25 to 21% all according to plan and due to the growth in our target areas. In Norway, it's been all about the integration of Timo Livia, of course. We're almost doubling our business year on year compared to the quarter last year, as you can see, and a large part of that is due to the Timo Livia integration. We have a healthy margin of .5% here, which is somewhat lower than last year, but still a healthy margin considering the large integration efforts during this period. The somewhat lower margin is primarily driven by the change regulations within scheduling the medleverturnos, for those of you who understand Norwegian. But it's important to notice that even if we are working very much with integration, we also have a very healthy organic underlying growth of around 12%, which I think is quite impressive

considering the integration work. So,

Kristoffer, over to you now for some financial highlights.

Thank you, Natalie. Good morning. My name is Kristoffer Hörro, and I started as CFO here at Humana two months ago. I have received a very warm welcome, and I'm happy to be here this morning to report Humana's third quarter. During the quarter, Humana has taken further steps improving our financial position. Regarding our growth target of 5% organic growth and 2 to 3% additional growth from M&A activities, we reached an 11% nominal growth during the quarter. Our organic growth was 1.5%. If we allow ourselves to exclude the personnel assistants, the organic growth was 5.7%, as Natalie previously mentioned. The adjusted EBIT of 203 million SEK is an improvement of 16% compared to last year, and the adjusted EBIT margin was 7.6%. Also, the capital structure is improving, and our leverage ratio is again down to 3.4. It is satisfying to see this development already during the first full quarter after the Team Olivia Norway acquisition. When it comes to our operating cash flow, there are some seasonal trends and patterns depending on different details. For instance, Q3 last year was affected by the fact that the last day of September was on a Saturday, and hence many customer payments were recorded on our bank account just after quarter end. Q3 this year was characterized by a strong EBITDA, neutral change in working capital, but at the same time quite some complex investments, with a further investment in our elderly care real estate project in Strängnäs as the major item. During the quarter we had one adjustment in our adjusted operating profit, which was the capital loss linked to the divestment of our subsidiary in Denmark, as previously communicated in July. And with that, back to you again, Natalie.

Thank you, Kyrtofa. So, if you want to know why you should invest in the care business in general, and Humana specifically, then there are many good reasons to do that. The care business is a growing non-cyclical market with an increased demand for specialized services. Humana is in the forefront of delivering specialized services, so we're very well positioned for this. We have in the past delivered on our strategy for growth, and we will continue in the future to deliver on our growth. And as examples, we have acquired growth for the period of 10% at the group level, and organic growth in Norway of almost 12% during Q3. This will continue. We are focusing a lot on the sustainable value creation, and we are very proud of the results and the increasing results in this area. As an example from Q3, we see that 46% of all the children and young people that are placed within our care at HVB units in Sweden are actually transferred to a lower level of care after they have been with us. This means that these children with very complex needs and issues who are not suitable for family home placements are actually returning to school and being able to go back to their families in many cases. And this is a huge profit for the individual and also a huge cost reduction for society when we achieve this. We are also continuing to improve on our financial standing. We have an attractive cash flow and we have reduced our net debt 4% year on year, despite the large acquisition we have made during this year. So, summing this all up, focus moving forward, we will continue to ensure that we perform on the integration of Team Olivia in Norway, according to business plan. This is going very well now and we expect it to continue delivering according to plan. We will focus quite a lot on consolidation and cost control in the near future and we do believe that there are some low hanging fruit here by doing that, considering our history. We will deep dive in a few areas within the specialization strategy, as I mentioned before, to continue to optimize the mix of our services so we can improve a little bit on the foreseeability and stability in our business. And we will continue, of course, to stabilize the personal assistance in Sweden. We do see continuous improvements here, but they are fairly slow. And we will continue to feel proud about and to measure our outcomes and to make sure we actually make a difference and that we develop our services in order to meet the need of our clients and customers. So that we can make a real difference on many levels in society and to the individual.

Thank you. And now we open up for questions.

Thank you. And good morning.

I have three questions. The first one on Norway and Lueber Marlin, you talked here about the change regulation around scheduling. I guess this must come from you having renegotiated with the unions about how long personnel, individual and family are allowed to stay in homes before having to have a day off. Maybe if you could give some more details about that and maybe if you could also quantify what the financial effects are. That's my first question. And then on the second one on personal assistance. Just wondering your view how difficult it will be for you to adjust cost levels to reflect the lower run rate for revenues now. And finally, Finland outpatient. Did you say it was 40% of sales? And is that before or after divesting LLK? I'm also wondering now how different the margin for LLK is compared with what will remain in Finland and therefore what the impact on margins will be when that's divested. Thank you.

Can you repeat the second question, please?

On personal assistance, whether it's still a potential here for you to adjust the cost base for the lower number of customers that you have.

Okay, okay. Maybe I should just start with that then. Yes, there is continued potential and we are working on that. There's been continuous reductions in costs, but there's always a lag. So when we lose customers, we have about a one month lag in costs. So yes, there's further potential and we are continuing to make also some restructuring as regards becoming more efficient. For example, we will now in Q4 move all our businesses into the same operating system, which will facilitate and make our admin much more efficient. Of course, that will be a little bit lag as well before we see those effects. And so the staff is going through training and moving into this. But yes, for sure, there's further potential to improve the profit. And once we reach the level of a stable number of customers, then immediately we will have a higher margin because there's this lag in cost reduction. So as long as we're on a little bit of a downward slope, there is a lower margin. As soon as it stabilizes, the margin goes up immediately because the lag is no longer there. So

yes,

we do expect that to improve. It's also... And when

do you think you will have a more stable development for customers?

That's a very good question. We see the positive signs, as we mentioned during the presentation, that there will be most likely increased numbers of hours for children, for example. In general, the market as a whole has not grown in the number of customers. There's fewer customers receiving decisions than customers actually being... Getting withdrawn decisions or actually leaving the market altogether. So as a whole, the market is not growing a lot. There's a small growth in hours within the remaining customers, but it's very small. But interesting to note also that the personal assistance market is extremely stagnant. There's several companies with issues around permits. There's also very many companies with large amounts of reclaims from the insurance company. And that together means that these companies, many companies, are not able to leave the market even if they want to leave the market because no one is acquiring their companies currently. And I believe if we can find a way to get that market moving, then there will be movement and potential for growth on the market again. So I think it will take some time. As regards to the potential internally with the current customer base, I think sometime next year we should see the flattening out of the customers. And as regards to the movement in the market, we are looking at the potential and see how we can get that moving again because there are a lot of companies, we believe, that would like to exit the market. If I move over to Norway, as moving over to Norway, there's a couple of different impacts. One is of course the union negotiations and the increased costs of labour in general in Norway. There has been tough negotiations. And as regards to the medleevartunus, it's exactly what you say. It's how much you stay in the unit and when you have time off and that you stay in the unit a longer period of time. And there's a different reimbursement for that. The exact quantification of the effect I don't have in my head, I'm not sure if maybe Kristoffer or Frerec can comment on that.

There is an ongoing, in some aspects of the Norwegian business, there are ongoing negotiations with the union since April. So it's still not agreed upon what the coming labour costs will be.

So ask us next time again and we'll probably have a clearer view of how that will impact moving forward.

The fact that you haven't negotiated or that negotiations are not completed yet, does this mean we will see an even further negative impact in the coming quarters?

No, we have booked the cost provisions for that.

Okay, but is

that taken in this quarter so that we have had a larger impact, sort of a one-off here? No, it has been taken

month by month from April going forward.

Which

is the period of

time the

salary will

be. Okay, okay, okay, okay, I understand. Thanks.

There may be a small up or downside when of course the negotiation is finalised, but we believe that we are fairly on target on the bookings. Then as it comes to Finland, 30% of the business is the open care services that I mentioned. And for the elderly care it's about 21% of the business in Finland currently. So that gives you a little bit the size of the business. As it comes to the margins, we have a slightly higher, I think it's like 0.3 or something, but slightly higher margin within elderly care. But it's very marginal. So we don't expect there to be a big change in the margin. And at the same time now we do see that our margin within our target areas, child welfare services and disability, is going up because we are continuously converting units to more intensive care units. So we don't expect there to be a large impact on margins from the elderly care divestment. And we are also expecting the elderly care to continue to be a smaller part of our business, continue to be reduced due to the growth in the other areas that we are targeting.

Okay, thank you.

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

Hi and good morning. My first question is on individual and family. And I'm wondering if you've observed any improvement in municipalities willingness to place clients here in the quarter?

Within the adult segment, we have a stable occupancy. The outlook is looking pretty much as it has in the past. So it's stable and no surprises. Within the child segment, youth segment, we have a, just like last year, there's been a small decline over the summer and moving into the early fall. And then we do see that we have more requests for placements over the past few weeks. So it's following fairly, pretty much the trend from last year within the occupancy within young. And for elderly care, we have filled up our units fairly well and are at 95%, something like that around occupancy. So it's looking good

within the elderly care.

Okay, then I have a follow up on the margin for Finland going forward. Given that there's a lot of moving parts with the weakness in open care and the improvement in other areas, do you see potential to improve margins in Finland next year or what profiles should be expected?

That's a very good question. I would say I'm expecting during next year to have fairly stable margins. We will improve within child welfare services and disability. That's my best take on it. And at the same time, we are expecting a continued decrease in the open care services. But we also have opening of new units coming up during next year within our target area. So I would say I would expect stable margins within the within the Finnish operation. But as I mentioned, we are also going to deep dive a little bit within open care services to see how we work with the mix of those services and also within the mental health, which is a very profitable area for us today.

Okay, and then you commented on adding another layer of governance to the organization. I'm just wondering if this will incur any sort of material additional costs.

No, we don't foresee that it will be material.

Okay, and lastly on elderly care. I mean, before you entered, there has been a good uplift here in profitability and looking forward. I'm wondering a bit on what your thoughts are on the elderly care business. Is it perhaps does not fit in with your specialization strategy?

That's a good question. And as I as I mentioned, we will look more into the elderly care. We are happy and proud of the elderly care that we have today. We are doing well. We are performing well. And we are delivering a good service in nice units. So that we will look into how we will view this market in phase two of our optimization of the sharpening of the specialization strategy. And this is primary. It's a very large segment. The elderly care on the market in general, it's a growing, growing need in the market as well. And what are taken niche and segments will be moving forward and how we will focus. And what are the things we will decide and get back to during

next year. Okay, that's all for me. Thank you very much.

The next question comes from Carl Johan Bonneville from D&B Markets. Please go ahead.

Yes, good morning, Natalie, Christopher and Evelina. One just follow up for me and then maybe getting some more color. Looking at the elderly care in Finland, the 21 percent you mentioned, is that in the quarter or for the last 12 months or the size of the operation?

It's currently.

So last quarter?

Yeah,

approximately.

Yeah. Excellent. And then thank you very much for the short term agenda kind of reasoning. And you're giving a lot of color here. But maybe we could give a slightly more color here as well. Looking at you mentioned under the first continued consolidation of the human group, you saw a lot of low hanging fruits. Could you describe what that is and see how quickly you can extract it? And maybe when you talk about the short term agenda, is that the next six months, next 12 months or what kind of time frame are you talking about?

Yeah, those are good questions. And we are actually setting the targets and we are reviewing this. And I believe that we will have our internal target set around the year end. And then how long it will take to implement depends on what our findings and our targets will be during this period of time. But it's actually just looking at the number of companies. We have a few hundred companies within our group. Of course, that drives a lot of costs, both both in system implementations and in revision costs. And it drives a lot of cost and inefficiencies in salary runs and all sorts of processes that we have today. What we're doing right now is reviewing all these companies. Where do we have the permits? Which permits can be reapplied or merged into other companies? Where do we have employed staff? Where do we have our contracts and what type of contracts? And then based on that information, we will make the OK, so then we can merge in this way and we will reapply for those. These companies we will keep as they are today for various reasons. And so we will. The purpose is to reduce complexity and have much more efficient processes. And we will save a lot of money by doing that.

That really ties into to your next point in the short term agenda, the efficiency of cost control in a natural way, I guess.

And we have just mentioning a couple of examples. We have a few huge system projects that we just moved into. For example, the salary system, just to mention one where we will move in and start working with one salary system in Sweden. That will make a big difference. We're merging the salary organisation, for example, so we can work with more unified processes and making that process much simpler, etc, etc. So this is the type of internal efficiency projects that you will see coming from us over the next year or two. And we have when we're looking at this, it's also setting the Sweden organisation and shared service centres and how we can work through that to make our processes and services more efficient. And we believe that there will be effects of this running up until three years from now.

And I guess when you look at Norway and Finland, you've probably already set that organisation with the kind of integration that has been going on during previous management teams.

This is true. In Finland, there is an organisation in place with shared service centres and so on. In Norway, we just moved into a new organisation from 1st of October with a joint organisation with team Olivia. So those organisations are pretty much set. As regards to consolidation, though, we are doing exactly the same in both Norway and Finland. We are looking at merging and reducing the number of companies in order to decrease complexity and save cost.

And coming in new to the company, looking at the third point, strengthen internal governance and control. Do you feel the structure is up to scratch or is that a lot of holes that you need to fill?

I would say we need to add a layer of this. Humana has a strong history and tradition of being very decentralised, which I think is a very good thing in general. So I'm not looking at all at changing the levels of power of attorney or anything like that. But what we do need to ensure is that we have a yearly annual wheel that ties into all the different activities and that we follow up on the goals that we set in a structured way and at the right levels. And that in itself will help us to have better stability and more being able to predict looking forward a little bit more than what we have been able to do today.

Good, good. And Fange, you mentioned in the optimisation, specialisation strategy that you are going through the INF operation in Sweden and going through the open care and mental health in Finland. Is that also something you would be able to share, say, coming up towards year end early next year? What you can see, what kind of outcomes and how you would prefer your game plan to be, so to say, going into next year?

Yeah, absolutely. On a level where we talk about which areas we will focus most on moving forward. Absolutely. We have a very broad portfolio within individual and family in Sweden. I think we have the broadest portfolio maybe of all of our competitors, I'm guessing, without knowing theirs in detail. We have 14 different service lines that we work with and they're all high quality services, but they have different sizes, different focuses, different CAPEX needs, different political risk and different margins. So the whole purpose of this is to going through them and making sure we have conscious decisions on how and where we allocate our CAPEX and where we want to grow specifically and how we want to have our mix a few years from now. Considering political risks and stability and so on, but I don't see that there will be any huge or major changes. We have a good portfolio today. We're very good at this, specifically tougher customers and clients with very complex needs. And that is our profile and that's where we are the best. So we're not going to stop doing that. We will continue to work with that. So no major profile changes. We are optimizing the mix and ensuring we're allocating and getting the best margins out of this.

And in that kind of work, have you identified any areas where you want to be that you are not in for the moment?

I would say preliminary. I see some areas where we would want to grow, but that we are already in. And I leave it at that.

Excellent. Thank you very much for the extra calories and all the best out there.

Thank you. There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Well, in that

case, maybe we should just sum up and say we are happy to have delivered just another actually improved for the third quarter in a row, improved quarterly results. And we look forward to having a continued improvement quarter by quarter moving forward. So thank you, everybody.