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Edited Transcript of AMBEA.ST earnings conference call or presentation 20-Aug-19 8:00am GMT

Q2 2019 Ambea AB (publ) Earnings Call

SOLNA Sep 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Ambea AB (publ) earnings conference call or presentation Tuesday, August 20, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel Warnholtz

Ambea AB (publ) - Deputy CEO & CFO

* Fredrik Gren

Ambea AB (publ) - CEO & President

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Conference Call Participants

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* Karl-Johan Bonnevier

DNB Markets, Research Division - Analyst

* Kristofer Liljeberg-Svensson

Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's Ambea Interim Report Second Quarter 2019. (Operator Instructions) I must advise you that this conference is being recorded today, Tuesday, the 20th of August 2019.

And I would now like to hand the conference over to your speaker today, Fredrik Gren. Please go ahead, sir.

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Fredrik Gren, Ambea AB (publ) - CEO & President [2]

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Thank you, and good morning, everyone, and welcome to Ambea's second quarter interim report presentation. Speaking is Fredrik Gren, CEO. And presenting with me today is CFO, Daniel Warnholtz; and IR Manager, Jacob Persson.

I'm very happy with Ambea's development during the second quarter. We are ahead of plan regarding the Aleris integration. Our organic growth is strengthening both from strong development in Own Management, but also high win rates in outsourcing tenders, and we see a significant improvement in Norway where we took major actions in Q1. So good progress on many fronts in the second quarter that I will share some more details around in today's presentation. Daniel will then take you through the financials for the group, and I will describe the financial development for the segments and conclude with some quality highlights. And after the formal presentation, we open up for questions.

So starting with some highlights. Profitability and growth developed strongly in the second quarter. I would share more details on each segment later, but I want already now to highlight the strong performance in all Ambea segments in Sweden where like-for-like units are performing well, thanks to continued good occupancy and cost control. The acquisition of Aleris is, of course, the major driver of sales growth of 90% versus last year, and we continue to strengthen our mix with 73% of sales coming from Own Management.

Strong development in our growth activities where we opened 142 beds in the quarter, and still have a strong pipeline supporting future growth. We also see continued trough from municipalities, resulting in high win rates in outsourcing markets where Ambea continued to perform strongly in quality assessment.

Also, the integration and synergy capture of Aleris is ahead of plan where we now have finished the hard integration. All Aleris units are now integrated in our system platform, our organization and performance management model. This means that we can now turn all attention to capturing the operational synergies to bring the performance of Aleris units to the same margin level as Ambea.

In Norway, we took major actions in quarter 1 with leadership and organizational changes to kickstart the turnaround program. I am pleased to see the positive effects of these actions already in quarter 2.

Over to some financial highlights. Net sales reached SEK 2.877 billion, up 90% in the quarter, of course, driven by the acquisition of Aleris. Positive organic growth in the quarter driven by good development in newly started own managed units. Adjusted EBITDA in the quarter reached SEK 175 million versus last year's SEK 114 million, up 54%. Solid performance in all existing Ambea businesses and strong focus now on integration and lifting margins in the acquired units. As expected, given the lower margin of the acquired Aleris units, Ambea adjusted EBITDA margin is down 1.4%, reaching 6.1%. Excluding positive effects of IFRS 16, adjusted EBITDA margin was 5.3%.

In the second quarter, we reported Aleris-related integration and synergy capture costs amounting to SEK 57 million, and EPS is, therefore, down in the quarter reaching SEK 0.16 per share post the rights issue.

Ambea operates with a strong cash conversion on average around 90%, but we see fluctuations during the year depending on if the quarter ends on a weekday or on a weekend. In Q2, the cash conversion amounted to 99%. Daniel will soon share some details around the financials.

Starting with Aleris. As I mentioned in introduction, we are ahead of our integration plan. We have communicated that 2019 will be focused on hard integration activities, and 2020 will be the year where focus is turned towards improving operational performance. Now 6 months since we closed the transaction, the hard integration is concluded, and we can confirm the capture of SEK 19 million in administrative synergies on an annualized basis. Focus is now on closing the margin gap between Aleris units and Ambea. The pipeline on new units from Aleris will open using Ambea's greenfield concept, and we opened the first Aleris home, Villa Östergård, in Q2 using Ambea's model. During the autumn, we will also review operations in each Aleris unit including leadership, organization, procurement, to set new KPI targets for each unit and start to make the necessary changes and training of staff to ensure both cost effectiveness and good quality.

In Norway, we saw a disappointing start in Q1 and took decisive actions in March. The new Acting CEO and CFO, together with the newly formed leadership group, have done a remarkable job in kickstarting this effort. We have simplified the organization, strengthened unit-level performance reviews, closed down unprofitable units and started the journey to introduce Ambea's operating model for quality, HR, IT, et cetera. In addition to this, we have succeeded to decrease the level of consultant staffing to about 5% share of total staff in the Norwegian business. A lot of work remains, but I am pleased to see that the work has got off to a very good start.

Over to growth. I will, as every quarter, take you through the developments for our 3 main growth drivers: greenfield, Contract Management and acquisition. Starting with Own Management. During the quarter, Vardaga opened 3 new units in Stockholm, Göteborg and Staffanstorp. We have also had openings in Nytida, in Stendi and in Altiden. In total, 198 beds and 21 placements. We have also signed contracts for 142 new beds, bringing the pipeline to 2,167 or 26% of our total base of own managed units. This pipeline will be opened during the coming 2 to 3 years, building a strong foundation for organic growth.

In 2019 so far, we have opened 4 new nursing homes, and we see that their progress is meeting our expectation. We have spent significant time during the last few years to create the start-up organization and processes to ensure successful start of new units. Our support team handle all practical aspects of the opening so that the newly appointed unit manager and his or her team can focus on recruiting and giving quality care to new clients.

Another reported aspects for successful organic growth is HR and Recruiting. Our HR strategic work is focused on building Ambea's attractiveness as an employer, and we have also digitalized our recruiting processes. We see now how these efforts and investments are paying off. All new nursing homes have had success in recruiting new staff. The number of job applications to new units have exceeded all expectations. Our new unit, Villa Solhem in Spånga, for example, had 1,200 applications for 60 jobs. On our website, this is also possible for individuals to sign up for potential jobs at new not opened care homes. And currently, approximately 500 individuals have flagged their interest. So we are continuously reviewing and strengthening our processes to ensure that the coming openings also meet our ramp-up plan.

Contract Management. As I mentioned in our Q1 presentation, Ambea had strong win rates in 2018, and the trend continues into 2019. Year-to-date, we have had a net win of SEK 112 million in annual revenues. In Sweden, the outsourcing market has improved during the last years. In 2018 and '19, we have seen fewer pure price tenders and an increase in quality and price/quality mix tenders. Ambea's win rates are stronger in quality tenders, and this is the main driver for the increase in net wins lately. With the strong win rates in Sweden, we will start to see organic growth also in the Contract Management business towards the second half of 2019.

In Norway, the outsourcing market in elderly care is very limited, and we have seen municipalities taking back units, which also impacts Stendi in the second quarter.

Acquisitions. In the quarter, our focus has naturally been on the integration of Aleris and securing the rights issue that was concluded in May. Our plan has been to resume our smaller bolt-on acquisition activities as soon as possible. And in July, we made a smaller acquisition of an LSS specialty school, Pusselbitens, in the South of Sweden. The school will complement our already strong presence with many LSS group homes and daily activities in the South of Sweden.

So Daniel will take over for some financials.

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [3]

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Thank you, Fredrik. In total, as we said, we grow our sales by 90% in the quarter compared to the same period last year. The key driver being, of course, the acquisition of Aleris Care. In addition, a bit of over 1% of organic growth, 1.4% to be specific.

Vardaga experienced growth of 84% in Own Management and 31% in Contract Management, leaving overall sales up 58% versus a year ago. And in total, 59% of net sales is now coming from Own Management in Vardaga versus 50% a year ago.

Nytida grew 26% versus the same period last year. Own Management grew 32% whilst smaller Contract Management segment grew 2% versus last year. In total, 87% of our net sales in Nytida is now coming from Own Management versus 83% last year.

Stendi, our Norwegian business, grew 551% versus same period last year, and we also had a small positive impact from currency of SEK 3 million in the quarter.

Altiden, our Danish business, is in total new to the group as a result of the completed acquisition of Aleris Care.

Klara, our Staffing segment, was 8% lower in sales versus last year, partly due to shift we made ahead of the introduction of VAT on the Staffing services starting as of Q3.

Let's now look at the sales from the perspective of the different contracting models. Asset net sales increased in total by 90% versus last year. Own Management in all of our segments continues to be our focus for growth, and in the quarter, increased by 102% including the impact from the acquisition of Aleris. Own Management represent in the quarter 72% of net sales versus 68% -- 73% versus 68% last year.

Contract Management increased in total due to the acquisition of Aleris Care by 79% while Staffing solution declined by 8% versus the same period.

Total organic growth was down to 1.4% in the quarter. We continue to expect gradually improving organic growth throughout 2019 and into 2020 as both Contract Management has improved while at the same time, we bring into operation a large number of new Own Management units from our pipeline.

Turning to adjusted EBITA. Our overall adjusted EBITA was SEK 175 million versus last year SEK 114 million, representing 54% bottom line growth. SEK 24 million of the increase versus last year is explained by the implementation of IFRS 16. The profit growth has been good across the different businesses with good occupancy throughout the quarter.

Adjusted EBITA margin was 6.1% in the quarter, down 140 basis points versus last year's 7.5%. The corresponding margin in the quarter excluding the positive impact from IFRS 16 was 5.3%. The Aleris business has substantially lower margins compared to our existing Ambea segment, and that has had an impact on overall margins.

M&A is almost exclusively driven by the Aleris acquisition. We had in total SEK 3 million of positive contribution from acquisitions outside of Aleris completed in 2018. The other segment is overhead costs that we have taken on from Aleris. And while we confirm that we will be able to take out on an annualized basis SEK 90 million of costs as we exit 2019 and with full effect into 2020.

Generally good and stable occupancy in our established units with a good margin in like-for-like units. The decline that you see in the reported like-for-like business is partly due to a shift of customers from existing units into the new greenfield units as we optimize occupancy and sellable places, in particular, in Stendi. There is also an impact versus last year due to the phasing between Q1 and Q2 of Easter, which we estimate is approximately SEK 5 million to SEK 6 million negative in the quarter.

Ramp-up of greenfield had in total a negative impact in the quarter of SEK 5 million primarily on Vardaga. This is a mix of start-up and ramp-up costs, partly being offset by the contribution from the greenfield that opened earlier and which are starting to have a positive contribution.

Turning to items affecting comparability. We had in the quarter SEK 57 million of integration and synergy realization costs fully attributable to the integration of Aleris Care. The majority is due to personnel reduction in overhead function as part of the synergy capture, but also costs due to the integration and rollout of IT systems, et cetera.

As Fredrik commented on the integration, we have now completed the vast majority of the hard integration. And while there's still some minor activities to be completed during autumn, we should expect to see substantially lower integration costs in the coming quarters.

Adjusted EBITDA was up significantly from SEK 129 million to SEK 340 million in the quarter. The key driver is IFRS 16 that impacted the quarter with SEK 170 million. Adjusted EBITDA excluding IFRS 16 increased from SEK 129 million to SEK 170 million. CapEx increased from SEK 11 million to SEK 40 million in the quarter due to the planned rollout of new greenfield both in the quarter and coming quarters. Integration costs taken in Q1 had a negative impact on reported EBITDA and partly also cash flow. Both Q1 and Q2 has ended on a Sunday, which had some negative impacts on working capital year-to-date, but we expect that to reverse in the coming quarter.

Financial items was SEK 63 million in the quarter, of which SEK 38 million is due to IFRS 16. There's also an increase versus last year from SEK 3 million to SEK 25 million from the higher leverage and new financing put in place to fund the acquisition including the SEK 1.2 billion bridge facility through equity that we paid back in the quarter, just at the end of the quarter after the rights issue was completed. Please note that there was also in 2018 a SEK 4 million impact of phasing of the financial net between Q2 and Q3.

Taxes paid for SEK 30 million in the quarter versus SEK 6 million in the same period last year at 22% effective cost tax rate and a cash conversion of 99% in the quarter.

Net debt in the quarter was SEK 7.848 billion, down from SEK 8.970 billion last quarter as we completed the rights issue and repaid the bridge loan facility. Leverage was then 7.8x adjusted EBITDA. Excluding the impact of IFRS 16, leverage was 5.2x adjusted EBITDA versus 7.4x adjusted EBITDA last quarter.

Underlying short-term interest-bearing liabilities, you have both our Commercial Paper Program as well as short-term parts of the lease obligations. Those parts falling deal within 12 months. Focus now during the autumn and spring 2020 will be to further deleverage the company on the back of a strong cash conversion.

IFRS 16 is applied as of 2019, and we provide further disclosure on how we will apply the new accounting standard in the report note #1. The table shows Q2 2019 with current gap applied, the change from IFRS 16 and Q2 2019 excluding IFRS 16 adjustment. Total assets increased by SEK 4.3 billion and a corresponding increase in equities and liabilities.

EBITDA is positively impacted by SEK 170 million whereas EBITA is impacted with SEK 24 million, and net result had a net negative impact of SEK 11 million. We intend, as we said in the quarterly reports throughout 2019, to include comparison between the reported GAAP numbers including IFRS 16 and the corresponding numbers excluding IFRS 16 to enable a transparent reporting.

And with that, from a technical note, over to you, Fredrik, for the business reviews per segment.

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Fredrik Gren, Ambea AB (publ) - CEO & President [4]

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Thanks, Daniel. Starting with Vardaga where total sales reached SEK 879 million in the quarter, up 58% versus last year's first -- second quarter. This is, of course, driven mostly by the acquisition of Aleris, but also from organic growth. Own Management grew with 84%, reaching SEK 517 million or 58% of sales in the quarter. The growth is driven by newly acquired units, but also from greenfield units started in 2018 and early 2019.

Contract Management reached SEK 362 million, up from SEK 276 million, up 30%, driven by new Aleris units and with growth slightly reduced from earlier contract losses.

During the second quarter, Vardaga defended contracts with an annual sales of SEK 22 million. So EBITDA growth for Vardaga of 3% or SEK 34 million versus last year's SEK 33 million. Including the positive effect from IFRS 16, the margin is 3.9% versus last year's 5.9%. The lower margin versus last year is driven by lower profitability of the Aleris units and an increase in the number of units in ramp-up. We do see continued strong performance of existing like-for-like units. As you can see on the chart and the dotted blue line, the positive trend of the margin is driven by good occupancy and a shift towards higher share of Own Management.

Over to Nytida where total sales reached SEK 940 million in the quarter, up 26% versus last year. And this is, of course, driven mostly by the acquisition of Aleris, but also from new units. Own Management growth of 32% reaching SEK 818 million in the quarter, driven predominantly by newly acquired units. And Nytida now has 87% of sales from Own Management.

Contract Management reached SEK 122 million down from SEK 125 million. As you can see in the quarterly report in the second quarter, Nytida won contracts worth SEK 9 million in annual sales. Municipality to back contract was 4, but we also defended important contract with annual sales of SEK 65 million in the quarter. So EBITDA growth from Nytida of 44%, reaching SEK 115 million versus last year's SEK 80 million, driven by mostly IFRS 16.

EBITDA margin strengthened during the quarter from 10.7% to 12.2%. So strong development again in like-for-like units during the quarter compared to earlier year, but we also see improvements in individual and family, children and youth segment versus last year. If you exclude the IFRS 16 effect, the margin of Nytida actually increased by 0.6 percentage points compared to last year. The program to address overlapping units after the Aleris acquisition continued as planned during Q2, and we expect to see more impact from that during the second half of 2019.

Over to Norway and Stendi. Net sales of SEK 853 million, up from SEK 131 million last year. There's a small currency effect of SEK 3 million, 87% of sales from own managed operations. The Norwegian outsourcing market for nursing home has been weak for several years where the municipality of Oslo, led by a leftwing majority, has taken back several nursing homes.

In the quarter, Stendi lost 2 nursing homes with an annual sales of SEK 144 million. These expirations -- the expiration of these contracts was well known to Ambea at the time of the Aleris transaction and will have minimal impact on Stendi's profitability.

Our first quarter 2019 for Stendi was exceptionally weak with a negative margin of 2.8%. As I mentioned earlier, we have done significant effort to address this weakness. And already in Q2, we see effects of that work. The turnaround program has also been supported by a strong occupancy development in Stendi.

EBITDA reached positive 1.2% in the quarter, still below last year's 4.6%, which, of course, excludes Aleris. There's still a lot of work remains to bring Stendi to our target margins, but the segment is off to a good start. As we said in our last report, we believe the full program will take 12 to 18 months to have full effect. One component of the program concerns a shift from consultant staffing to 6 employees, and Stendi has made major changes over the last years to bring down the share of consultants, and that work continues.

Over to Denmark and Altiden. Sales of SEK 129 million where 13% of sales is Own Management and the rest is outsourcing contract. In the quarter, Altiden had an EBITDA margin of minus 3.9%. The margin was impacted from buildup of new independent organization to drive operations and growth in line with Ambea's strategy for Denmark. We also had start-up costs for a new disabled care units with 5 beds opening in the quarter. We also signed 1 unified bed unit in the quarter, which will open in August and now have a total of 77 beds in pipeline. Our growth strategy includes both acquisitions and greenfield growth focused on growing the Own Management share of sales and thereby, improving margins in Denmark.

In Klara, total sales were down 8% reaching SEK 76 million, an EBITDA of SEK 6 million in the quarter. Sales decline is predominantly in the Staffing business towards private customers impacted by the VAT reform. But favorable mix development and administrative savings continued to improve margin in the quarter, and margin reached 7.9% versus last year's 4.8%. The decision regarding VAT on Staffing rental between private companies has been decided and will be -- and was implemented in July 2019, and Klara now has about 2/3 of sales towards public customers that are able to deduct VAT. But sales to private customers is likely to see continued weakness.

And Ambea continues to receive awards in the quarter. Ambea was included in Allbright's list of most gender-equal listed companies. In Denmark, a survey of Altiden's residents in nursing homes showed an impressive result, 97% of residents recommend Altiden nursing homes. But most of our quality team's focus is now on implementing Ambea's quality system and our quality governance model across all Aleris units and across all countries. We believe this will further strengthen quality and performance.

So summarizing, a strong quarter for Ambea. Integration of Aleris is progressing faster than planned, and we can confirm reaching the SEK 90 million in administrative synergies towards the end of the year. The turnaround of Norway is off to a good start, implementing a program that will gradually improve margin over the coming 12 to 18 months. Ambea continues to show high growth up to now, predominantly driven by acquisition, but the future prospects for greenfield growth has never been stronger. And opening of Own Management units are progressing well, and we continue to build our pipeline for growth in our market. We also see an improving market for outsourcing in Sweden in both 2018 and '19, and Ambea had very strong win rates in quality and mix standards.

So with that, I conclude our presentation and open up for questions. Operator, please, could we have the first question?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Kristofer Liljeberg.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [2]

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Three questions. I hope that's okay, otherwise I will take the last one afterwards. First on the Vardaga margin, you provide the like-for-like figure. I guess that's including IFRS changes. Or is that the true underlying improvement versus Q2 last year? That's the first one. Then -- maybe you want to answer that one first, yes.

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [3]

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I can answer that one first. It's not excluding IFRS 16. So it's just fair to say that if you look at the last part of the curve, that one is a bit inflated due to the IFRS 16. If you take that one out, you still have a very flat figure on the Vardaga margins.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [4]

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Okay. That's good. Then on the contribution from Aleris on -- to EBITDA, I refer now to Page 11, it seems M&A has added SEK 96 million in the quarter. I think you said something about besides Aleris, it's a very minor figure. So if I do the math correct, that would imply like a 7% more for Aleris in the second quarter. Is that correct?

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [5]

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I don't think that's the right way of looking at it because you need also to adjust for the other...

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Fredrik Gren, Ambea AB (publ) - CEO & President [6]

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(inaudible)

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [7]

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Because that's also the overhead costs that we take in with Aleris.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [8]

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Okay. So is it possible to give any sort of indicate what type of margins Aleris business have right now? I understand it's difficult as we integrated it. But if you compare with what you said at the time of the acquisition and comparing with the first quarter when I think you said it was close to 0 contribution.

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [9]

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I think we see gradually that in Sweden, we have improved margins. And Norway, obviously, is area where we have still a bit of -- and I think you get a pretty good number from the slide. If you take the SEK 96 million, deduct in essence all the SEK 37 million and then the SEK 3 million that we had in contribution from other M&A. That should be a relatively good picture for the Q2.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [10]

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Okay. That's very good. And then my last question, if that's okay, this lost order contracts in Norway that was retaken by municipalities. First of all, timing of that and is it still that margins on those contracts are -- the contribution from the contracts are very low. Is that why it shouldn't have any big impact?

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Fredrik Gren, Ambea AB (publ) - CEO & President [11]

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Yes. They have already been ended. So during Q2, basically, were handed back to the municipalities. And you're right in the sense that it's basically 0 profitability.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [12]

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Okay. So they don't continue then -- compensates for any overhead costs? It's 0 profitability also in the contribution margin level.

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Fredrik Gren, Ambea AB (publ) - CEO & President [13]

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Yes.

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Operator [14]

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Your next question comes from the line of KJ Bonnevier.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [15]

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Congratulations, first of all, to turning around Norway so quickly. And a couple of follow-ons on that. Given I guess the court case in Oslo is now coming, it has been closed, but we haven't seen the decision yet. If you get the wrong decision of that, is there any reason to see any negative consequences of your ongoing operations in Norway if you get something negative out of that?

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Fredrik Gren, Ambea AB (publ) - CEO & President [16]

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First of all, the court case in Norway is regarding consultant staffing. And over the last, let's say, year, 1.5 years, Aleris have sort of probably taken the lead in the Norwegian market in bringing down number of consultants and changing them towards own employees, and we are now below 5% of whole hours in consultant. So I think, operationally, we have already on a kind of very good trajectory in kind of changing to a model that is more stable and more in line with what we have in Sweden since long. And regarding the actual court case, that will come, I think, on Thursday morning will be public, and we'll see where that ends. But there is a -- that -- since that was well known in the Aleris transaction. This is regulated between us and the sellers in the FDA. So we have -- we don't see a large risk financially on that and the year.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [17]

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Excellent. And basically, no impact on ongoing operations independent of the outcome. I understand. But have you seen any, say, Norwegian municipalities taking a more cautious view towards Own Management and placings during this period or you still see a good business flow?

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Fredrik Gren, Ambea AB (publ) - CEO & President [18]

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I've been very happy to see during -- I think that the turnaround that we have done from Q1 to Q2, a lot of the activities has been on the cost side, but that also has then on the back of a very strong development on occupancy. So we've also been helped by the fact that municipalities have kind of asked us to do more and more services. So we don't see any kind of impact on sales or occupancy from that process.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [19]

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Excellent. Looking at Denmark, obviously, it's a small unit. But just looking at the loss in the quarter, I understand you're building the organization. How do you see the Danish operation being able to cover their own costs during, say, the rest of the year? Is that this kind of structural cost something we should think about also looking over the next couple of quarters?

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Fredrik Gren, Ambea AB (publ) - CEO & President [20]

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Yes. I think that what's important in Denmark is probably take a little longer view. Today, 13% of sales is Own Management. That is, of course, much lower than the 73% Ambea has in total. So that will take some time for old contracts taken years ago to run out and over time shifted towards Own Management, which has potential to deliver high margin. So these are small numbers. Our focus will be on both gradually improving mix. And over time, I think we have built the overhead structure that we need to kind of continue with our strategy, but it will take some quarters before we see the margins turning positive and kind of upwards on that and have a meaningful contribution. But I think Denmark, again, is interesting long term, but it will take some years before it has sort of a larger part of Ambea.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [21]

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Excellent. And a final one for me. Looking at Vardaga, obviously, you have done now the integration of Aleris to some extent and you indicate that you're now starting to review on the old Aleris business from -- on a unit level. Do you see a lot of, say, low-hanging fruits in that area? Or is it more a structural thing that you need to do to really capture the margin potential in the gap between your old units?

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Fredrik Gren, Ambea AB (publ) - CEO & President [22]

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It's fair to say that going as fast as we did with the integration, and we plan to take a little bit more time but we did it in the 6 months. Has taken some effort from the leadership team, et cetera, and it's good to have that behind us now to focus on kind of bringing the margin up. That said, I think that what is promising there is that we see that the units from Aleris are running with high quality and very high occupancy, so there's no structural reasons why we should not be able to bring a -- each unit up to our margin. So I think that work, it's about getting the right management structure in each units, ensuring you have the right staffing, getting them into our procurement models for doing care. What is a little bit time-consuming is, of course, that there's a mix shift that has to happen as well. So they have a current -- currently, they have -- or they had 10 units in pipeline to be opened up in Own Management. They also had a quite large number of outsourcing contracts that over time will end. And so the whole mix will shift towards Own Management, and I think we need both the operational improvement and the gradual shift towards Own Management to bring them all the way to our target margin. So it will take a couple of years before we are fully there, but a lot of things will start to happen during this.

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Operator [23]

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There are no further question at this time. Please continue.

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Fredrik Gren, Ambea AB (publ) - CEO & President [24]

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So all right. If no more questions, thank you all for calling in. The Q3 interim report will be published on November 8. And with that, have a nice day, everyone.

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Operator [25]

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This does conclude our conference for today. Thank you for participating. You may all disconnect.