Ambea AB (publ) (AMBEA) Earnings Call Transcript

Thank you all for standing by, ladies and gentlemen. Welcome to today's Ambea Interim Report Fourth Quarter 2020 Conference Call. [Operator Instructions] Please be advised, the call is being recorded. I would now like to hand the call over to your speaker, Mr. Benno Eliasson.

Thank you. Good morning, everyone, and welcome to Ambea's fourth quarter report presentation. Speaking is Benno Eliasson, CFO, and acting CEO; and presenting with me today is Jacob Persson, Ambea's Head of Group Business Control, and Investor Relations. I will start today's presentation by giving an overview of the quarter and the status around corona and its effect on our business. I will also cover the status of our growth drivers, and we'll take you through the financials for the group, then Jacob will describe a bit more the financial development for the different segments, and I will summarize the quarter before we open up for questions. So starting off with some highlights from the quarter. The second wave of corona hit the Scandinavian countries in November. This time, we saw the virus spread more in Denmark and Norway and in Southern and Western part of Sweden compared to what we experienced in the spring. We, as well as society in general, were better prepared than in March, and mortality has not increased as much as it did in the spring. The negative EBITDA effects from corona in the fourth quarter is in line with with what we estimated in our Q3 report, around SEK 35 million on EBITDA, a little bit less than expected in Sweden, and a bit more in Denmark and Norway. The small uptick we saw in occupancy in the beginning of the quarter was slightly down again later in the quarter and a negative effect on revenues were around SEK 100 million. Sales was down 1% versus Q4 last year driven by currency effects in Norway and lower occupancy in Vardaga, but also due to a few contracted units that came to an end. In the fourth quarter, we opened up 166 new beds. Adjusted EBITDA came in on SEK 200 million, which is 30% above last year, and EBITDA margin strengthened from 5.5% to 7.3% versus same quarter last year despite the negative effects from corona. During the quarter, we have been active on the M&A side, and we signed 2 acquisitions in January, one of them, LSS on LSS Omsorgen in Nytida. We have already closed as of first of February. And the second one, EKKOfonden, is waiting for approvals from Danish authorities, which hopefully will happen during Q2. Then COVID-19. Vardaga, elderly care in Sweden, is still where we see the most operational and financial impact. In mid-November, we only had a few homes with infected residents, but then spread of the virus increased rapidly in society. We then, of course, also got more of our homes infected. But this time, we benefited from the routines established during late spring in preventing the virus to come into our homes and together with more effective testing and tracing capacity from the regions, we could limit the effects for our residents once the virus got inside as well. We have seen with more testing that the residents as well as staff with no symptoms could carry and spread the virus. And with that knowledge, we could now more efficiently limit the spread of virus inside our homes. As of today, in all our nursing homes in Denmark and Norway have the residents received a second dose. And in Sweden, that will probably be the case during sometimes next week. And vaccination for our staff is ongoing according to the national plan. A large part of our staff have got the first dose of vaccine. And sometimes next month, will most of us start receive the second dose as well. The willingness to have the vaccine have increased the last week. The financial impact is, of course, predominantly in Vardaga, Sweden. We now got the extra cost of sickness pay and protective equipment covered by the government program, but we do not get any compensation for lower occupancy or lost revenue. This quarter, we estimate the loss of revenue to around SEK 100 million. EBITDA effect was limited to minus SEK 35 million due to cost savings and some retroactive cost compensation. This quarter, we also saw a negative effect in Norway and Denmark, where the government do not compensate fully for extra cost. The market for our services in elderly care has made a dip in 2020 due to the COVID-19 situation but long term, demand is still there, and we see no structural impact on sales or profitability. COVID-19 will, of course, affect our business in 2021 as well. The ongoing vaccine program will help the demand to pick up again, but how fast, this will happen is hard to tell. We estimate that we will still have a negative effect in Q1 of SEK 90 million to SEK 100 million on sales and SEK 30 million to SEK 40 million on EBITDA. And we do not give any estimates further away. But when Vardaga's occupancy starts to improve again, we expect that efficiency measures taken in 2020 will help to speed-up our margin recovery. Turning over to our profitability development, where we continue to deliver improvements. Despite the negative effects on corona, Ambea's total EBITDA margin improved. Nytida had yet another strong quarter and completed an exceptionally strong year. Important measures have been taken in Vardaga to generate savings in formal Aleris units and operational improvements in other units as well. Stendi, Norway has improved EBITDA significantly versus last year, cost improvements, implementation of Ambea's operating model and strong local leadership are behind these improvements. Despite the fact that we're in the later part of the quarter, saw negative effects regarding sick leave and cost of protective equipment, but our efforts to continue to get stand up to their full potential. Altiden in Denmark had a quarter with weak development in the home care segment and COVID-19-related costs in other segments as well. All in all, the total LTM margin is continuing to climb upwards, and which is now 7.9% adjusted EBITDA. Organic growth. It's fair to say that opening up new nursing homes in Sweden is challenging as many municipalities have empty beds at the moment. And Ambea takes a cautious approach, and we will only open up and staff new nursing homes if we feel comfortable that they have a high likelihood of filling up within a 12- to 18-month time frame. If not, we are taking discussions with our real estate owners to delay construction or just to keep them empty with no staff cost until the occupancy situation is back to normal again in the local market. We currently have a handful of such situations and will have a few more in 2021. In Q4, we opened up 2 new nursing homes, 1 in Salem, South of Stockholm and 1 in Tierp, and both have started off well. We also opened up 4 new units in Nytida in the municipalities of Ånestad, Linköping, [indiscernible] and Stockholm. In Q1 next year, we do not have any planned openings. Acquisitions. We had a lot of acquisition activity in the quarter, but nothing shown in the numbers, but that will come in 2021. LSS Omsorgen is 6-well-run LSS units clustered in 2 regions of Sweden. That we, of course, will integrate in our Nytida business. The other acquisition EKKOfonden is more of a strategic platform acquisition where we will integrate Denmark's largest operator in residential care for others with our existing business in that segment. This is the next important step in our strategy to shift the business mix in Denmark to segment with more long-term profitability, meaning own management residential care for elderly and individuals with disabilities. If we look into how the different business areas have affected the group numbers, we can see that in net sales, total sales declined 1% to SEK 40 million. And starting with Vardaga, sales was down SEK 48 million. And important to remember that most of the SEK 100 million that we reported as corona effect was in Vardaga where the occupation was lower than normal and rather flat throughout the quarter. In total, the decline in sales was 5% versus last year. Nytida sales increased by SEK 27 million or 3% mainly related to new contracts started. Sales in Nytida is only marginally affected by corona. In Stendi, currency effects continues to affect the reported SEK numbers. The average NOK-SEC rate is down 10% versus last year, which means that the sales in local currency was actually up 4% versus last year, but down SEK 44 million reported, in SEK. In Altiden, we made 2 acquisitions in the beginning of 2020, which have added on SEK 41 million in sales in the quarter, but contract management decreased by SEK 9 million. And at last Klara, who is still hurt by the new Swedish VAT regulation for health care starting services from 2019. And by that charging to the profit numbers, as said, we are pleased that we managed to increase our EBITDA margin under these challenging circumstances in 4 out of 5 business areas as well as for the group in total. Vardaga increased by SEK 2 million or margin by 0.5 percentage points despite [ hurt ] by most of the negative corona effect of SEK 35 million. The Nytida margin was still benefiting from the capacity adjustments made in 2019 as well as productivity increases and some positive effects of government reimbursements. In Stendi, the restructuring program completed earlier this year now had full effect, but we saw more corona-related costs than in previous quarter. Altiden was as said, this quarter's disappointment where our home care business had a weak development in combination with more corona-related costs. And Klara continues to deliver stable margins. All in all, an increase from SEK 154 million to SEK 200 million or margin up from 5.5% to 7.3%. IFRS 16. We have since the beginning of 2019 been reporting, including the new leasing standard, IFRS16, this means that all reported quarterly and year-to-date data 2020 are comparable with the reported number for 2019. However, data that includes quarters from 2018, like rolling 12 data up to Q3 2019 is still affected by the different reporting standards. And this slide, you can see the effect of this. And then we can see also that the rolling 12 margins, excluding IFRS 16, is increasing as well for 4 quarters in a row and are on a rolling 12 basis, up from 6.3% end of last year, to 6.9% this year. The strong operating cash flow continued in the quarter. This was the sixth consecutive quarter then that we increased versus last year now to SEK 568 million versus SEK 562 million last year. If we exclude the IFRS 16 effect, we were an operating cash flow at SEK 367 million in the quarter versus SEK 382 million last year. Q2 and Q3 was slightly positive, affected by government program in Norway, where tax payments were moved into Q4. And that means, of course, that the Q4 cash flow was in the same way, negatively affected. If we measure our cash conversion rate, which is the operating cash flow versus the EBITDA on a rolling 12 basis, we see that for third quarter in a row, we were above 100%. Finally, the deleveraging of the group is continuing, of course, in line with the good cash flow that we all saw. If we look back and compare with the same quarter last year, we have decreased our net debt by more than SEK 500 million and come down from a net debt ratio of 4.0 to 3.1 as of now. The increase in lease debt of more than SEK 1 million -- SEK 1 billion in the year reflects the fact that we have increased the number of start-ups of new units under own management, and these units comes with longer rental conditions than the average portfolio. And with that, over to Jacob, who will take us through the business areas a bit more in detail.

Thank you, Benno. Starting with Vardaga, where total sales reached SEK 867 million in the quarter, down 5% versus last year. This is mostly driven by lower occupancy rates in mature units, but also a decline in contract management due to ceased contracts. New units in ramp-up have affected the sales positively versus last year, but not as much as expected. We continue to see a slower ramp-up pace in these new units due to the COVID-19 situation. The fourth quarter showed improving occupancy in our contract management care homes. Since the beginning of the fourth quarter, we have seen several of our homes under contract management, showing almost the same occupancy levels as before the COVID-19 situation. Our home care business continues to perform well and are less affected than the nursing homes. EBITDA for Vardaga reached SEK 42 million versus last year's SEK 39 million. Most of the negative corona effect of SEK 100 million in sales and SEK 35 million in EBITDA hit Vardaga. However, we also saw overall operational improvements, especially in the former Aleris Care units. That indicates that the margin improvements can come rapidly when the occupancy rates are increasing again in our own management portfolio. The quarterly earnings was also positively affected by retroactive compensation for COVID-19 costs by SEK 20 million. The EBITDA margin for mature units decreased to 10.7% in Q4 from 11.1% last year. This decline is both driven by lower occupancy and the fact that we this year, report the former Aleris Care units as mature. These units are operating with lower profitability in average, which is important to note. Over to Nytida, where total sales reached SEK 946 million in the quarter, up 3% versus last year. Own management sales were flat, reaching SEK 786 million in the quarter. This was an effect of the adjustment of the capacity that we did in mid-2019 and relatively few new startups. Contract management sales reached SEK 160 million, up 19% versus last year. Strong win rate during 2019 have turned around the negative sales trend we previously had in contract management. EBITDA reached SEK 159 million in the quarter, corresponding to a 16.8% margin. This is an increase by 3.7 percentage points, and it's actually the eighth consecutive quarter that we see the EBITDA margin growing in Nytida. We saw its effects from the Aleris synergy realization as well as taking out the overlapping capacity after the acquisition in 2019. Government reimbursements had a positive impact on profitability in the quarter. Nytida's rolling 12 EBITDA margin beat 16.3%, up 0.1 percentage points versus Q3. Over to Norway and Stendi. Sales decreased 6% and reached SEK 726 million. Currency effects had a major impact in the quarter, and sales in local currency actually increased 4% versus last year. In local currency, the own management sales increased by 6% in SEK. The own management sales decreased 2% and reached SEK 672 million. Contract management sales reached SEK 53 million versus last year's SEK 81 million, where the decline is explained by a return of nursing home contracts in late 2019 and Q2 2020. Quarterly earnings were positively affected by the ongoing efforts to implement Ambea's care models in combination with synergies from previously completed restructuring program. Costs for COVID-19-related sickness and protective equipment increased compared to Q3, which had a negative effect on EBITDA. Adjusted EBITDA reached SEK 15 million or a margin of 2% in the quarter versus minus 0.3% last year. We saw better sales mix, but mostly the profit increase comes from the cost improvement program that we launched in Q1 2020. The adjusted rolling 12 EBITDA margin increased by 0.6 percentage points from Q3 and are now at 4.6%. Over to Denmark and Altiden. Sales amounted to SEK 158 million, up 21% versus last year, explained by the 2 acquisitions made in beginning of 2020. In local currency, the sales increased by 24%. The acquisitions, Vivamus and Casablanca have performed well in line with expectations and contributed positively on profitability. In the fourth quarter, Altiden had an EBITDA of minus SEK 16 million. EBITDA was negatively affected by weak developments in home care services, where costs for termination of contracts were also taken in the quarter. The second wave of COVID-19 hit Denmark harder than the first wave, which in turn affected Altiden. Increased cost for COVID-19-related sickness and protective equipment pressured earnings compared to previous quarters in 2020. As previous quarters in 2020, the investments we've made in building the Danish overhead organization also pressured margins in Q4. We plan to continue our strategy to grow in more profitable segments of this disable care and own managed nursing homes. We are starting our first greenfield nursing home in Q2 2021 in the municipality of [indiscernible]. Finally, over to Klara. In Klara, net sales were down 3%, reaching SEK 67 million in the quarter, SEK 2 million down versus last year. The decline versus last year is predominantly in the staffing business, which is explained by the changed VAT regulations what private operators introduced in July 2019. Total revenue, which includes internal sales were slightly up versus Q4 last year. Klara continues to perform well. And due to growth in Klara team services and administrative savings EBITA was stable compared to last year at SEK 7 million. The rolling 12 EBITDA margin on total revenues reached 7.3% in the fourth quarter. And on that note, back to you, Benno.

Thank you, Jacob. Then to sum up our financial development versus our targets. Our growth target is 8% to 10% through a combination of acquired and organic growth. 2020 shows only marginal growth given the corona effect on Vardaga occupancy, negative currency effects, low M&A activities and a cautious approach to greenfield openings. But we expect that number to grow again from 2021. Profitability-wise, we have a midterm adjusted EBITDA target of 9.5%. We have seen EBITDA margin improvements 4 quarters in a row despite the corona pandemic. We will have some margin pressures in -- margin pressure in 2021 as well. That we are, of course, hoping to have the negative effects from corona, behind us soon. And we also need improvement in both Norway and Denmark coming from delivering on the plans that have put in place in both these countries to reach the midterm target level. And finally, regarding leverage, we have seen improvements in many consecutive quarters, and we are now in line with the target. Strong cash flow throughout the whole year has put us in a position where we, again, can be more active in looking at potential M&A activities. So summarizing the last quarter of 2020. COVID-19 is still affecting operations and our financials. We are, of course, hoping that, that effect will gradually become lower from the second quarter as the vaccination program continues. But in the first quarter, we see roughly the same effect as in Q4. Despite the corona difficulties, Ambea delivered a profitability improvement in 4 business units out of 5, and totally 30% increased EBITDA. And thanks to Ambea's high cash conversion, our debt position has improved a lot, and we are now in line with our financial targets. The Board proposes a dividend of SEK 1.15, which are in line with the dividend policy. And on the eighth of March, Mark Jensen has the position of the CEO of Ambea. So with that, I conclude our presentation and open up for questions. Operator, could you please have the first question?

[Operator Instructions] The first question is from the line of Kristofer Liljeberg from Carnegie.

Let's see. I have a few questions. First, on Norway, we get a better understanding of the underlying improvement, which I think is so important for the group margin. Could you explain what the COVID impact was on earnings in the quarter?

I think that the most difference versus the fourth quarter last year is the program that we run with SEK 40 million yearly, which means SEK 10 million in a quarter -- per quarter. The COVID situation is not affected that much, but we have a single-digit lower number if that will guide you something.

So you said COVID impact single-digit on EBITDA?

Yes.

Okay. So even adjusted for that, it's not a very impressive quarter, I guess, you agree with, in Norway?

I think we have much more things to do in Norway, but we are pleased with the quarter as it is right now, given the circumstances with the corona situation.

Okay. And then on Nytida, of course, fantastic margin improvement. The only question is how sustainable this is. Maybe you could give us some indication how much the margins have benefited from government support in 2020? Or I don't know, I guess there have been a positive impact actually on margin for Nytida due to the pandemic.

Yes. You are right there. We have a positive, especially in Q2. But also in Q4, we have some retroactive cost compensation that has benefited Nytida in this quarter.

But as supposed for the full year? Is it -- if we're assuming a percentage point? Or is it even more the positive impact? Just to make sure we get expectations right for 2021.

Yes. Something like 1 percentage point of margin, you can say.

For the full year?

Yes.

Okay. And then on home care in Denmark, when will you be out of this business? And -- yes. First, will there be additional negative impact on earnings from one-off like things like you had in Q4 before that happened? And when you are out, what will be the positive impact on earnings?

We -- the earnings historically, home care has been more or less nothing or flat. But in this quarter, we saw losses in the operational business as well as starting to have closedown costs. We have right now 10 different agreements -- 10 different municipalities where we run home care business for. And 4 out of them is turning out in Q4 -- sorry in Q1, as we have already started. And as they come closer to closing down, of course, staff are getting to look for other jobs. And we had much more sickness, both COVID-19 and not COVID 19-related. So we have had more cost in the quarter than we estimated, but we hope that this will cover the closedown on the -- of the cost that adjustment that we did in Q4. But of course, we have still 10 contracts that we are running in the beginning of 2021.

And when will the rest be terminated?

We have agreement of 6 of them to close in 2021, and we are in discussions with other municipalities as well when to close.

Okay. So you have 4 terminated in Q1?