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Edited Transcript of AMBEA.ST earnings conference call or presentation 14-Feb-20 9:00am GMT

Q4 2019 Ambea AB (publ) Earnings Call

SOLNA Feb 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Ambea AB (publ) earnings conference call or presentation Friday, February 14, 2020 at 9:00:00am 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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* Carolina Elvind

Danske Bank Markets Equity Research - Analyst

* Karl-Johan Bonnevier

DNB Markets, Research Division - Analyst

* Klas Pyk

Nordea Markets, Research Division - Research 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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Ladies and gentlemen, thank you for standing by, and welcome to the Ambea Interim Report Fourth Quarter 2019 Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today, Friday, 14th of February 2020. And I would now like to hand the conference over to first speaker today, Fredrik Gren. Thank you. Please go ahead, sir.

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

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

Ambea has delivered a strong fourth quarter in most business segments, both when it comes to sales and profitability. However, as we mentioned in the Q3 report, Norway will require a combination of initiatives during 2020, and I will cover this later in more detail.

As usual, Daniel will take you through the financials for the group, and I will describe the financial development for the segments, and we will conclude with some quality highlights as well. And after the formal presentation, we will open up for questions.

In the fourth quarter, Ambea showed significant growth driven by the Aleris acquisition. Our own management operation continues to develop well with extensive ramp-up activities, but that growth is diluted somewhat by the weaker contract management sales. Profitability in the quarter increased with 28% versus last year, and we had integration costs amounting to SEK 9 million in the quarter. Like-for-like development in both Nytida and Vardaga are continuing to perform strongly, while several newly started units in quarter 4 and earlier during 2019 are in ramp-up phase.

In the fourth quarter, we opened another 133 new own management beds. And we also signed a few new contracts, so the pipeline reached 2,309 beds at the end of the quarter. Integration of Aleris has been completed, and all focus is now on margin improvements in the formal Aleris businesses.

Where we have good progress in Sweden. In Norway, we saw weakened demand in the [Svalov] segment on the back -- end of year public budget squeeze, as we mentioned in the Q3 report. This trend is similar to what we saw last year. And then as now, we see demand picking up again as we move into the new year. We also initiated a restructuring program in Norway to create further savings and also strengthen the local leadership.

The Board has decided to confirm Ambea's existing financial targets, and the Board also proposed a dividend of SEK 0.8 per share to be finally decided on the AGM.

Over to some financial highlights. Net sales reached SEK 2.804 billion, up 81% in the quarter, of course, mostly driven by the acquisition of Aleris. Adjusted EBITDA in the quarter reached SEK 154 million, up 28%. As expected, given the lower margin of the acquired Aleris units, Ambea's adjusted EBITDA margin is down 2.2%, reaching 5.5% in the seasonally weak fourth quarter.

Solid performance in like-for-like Ambea Care units and strong focus now on lifting margins in the acquired units.

Ambea operates with strong cash conversion on around 90%. Q4 was exceptionally strong with 166% cash conversion driven by favorable cutover date. Free cash flow reached SEK 471 million, bring down our leverage to 4.0 in the quarter. But Daniel will soon share more details around these financials.

As I mentioned in the introduction, we have finalized the integration of Aleris. The communicated SEK 90 million in synergies are captured, and all focus is now on bringing up the margin in the [former] Aleris businesses.

We have good progress in both Vardaga and Nytida, but as we communicated in the Q3 report, we need to strengthen our efforts in Norway with a combination of larger initiatives and unit performance improvements.

A few weeks ago, we initiated a larger effort to review administration and the broader management organization. We have decided to significantly bring down our local office space, taking staffed local offices down from 22 down to 4 regional offices. Our local leaders should work and demonstrate leadership on-site together with our staff and caretakers, which gives less need for office space.

We will also make significant savings in local administration, staff, system and processes while at the same time, we are strengthening central capabilities around controlling, HR and sales. We're also taking further measures to improve our ability to gradually adjust costs with fluctuating quarterly demand. The total annual savings amount to SEK 30 million, which will be captured gradually during the year with full effect towards the end of 2020. Total restructuring costs for staff redundancy and closure of local rental contracts amount to SEK 45 million.

I will, as every quarter, take you through the developments for our 3 main growth drivers: greenfield, contract management and acquisitions. Starting with own management. During the quarter, Vardaga opened 2 new units, 1 in Sigtuna, Northern Stockholm; and one in Hovås, Southern part of Gothenburg. We also had 2 openings in Nytida. Total new beds in the quarter was 133. We now have more units on the ramp-up than ever before which has a negative short-term effect on margin, while, of course, securing our future profitability growth.

We also signed contracts for 160 new beds, bringing the pipeline to a record high number of 2,309 or 27% of our total base of our management units. This pipeline will be opened during the coming 2 to 3 years, building a strong foundation for organic growth. In 2020, we will start more new units than ever before. We will have more units on the ramp-up as well.

Occupancy development varies for these new start-ups, where we see the most favorable development in the Stockholm area, where there is a well-developed freedom of choice system. Whereas in the rest of Sweden, ramp-up times are slightly longer. A positive sign is that more municipalities are planning freedom of choice reform, where the most important is the City of Gothenburg, which has sent out freedom of choice reform proposal for a formal review. That is very important change for Ambea, as we have 3 units on the ramp-up and 2 more under construction in Gothenburg.

I should also mention some news from Denmark where Altiden and our construction partner a few weeks ago were awarded to build a new own management nursing home in the Municipality of Greve, outside Copenhagen in Denmark. Details will be reported in the Q1 report.

Contract management. In the fourth quarter, we won SEK 66 million worth of new contracts and deferred sales of SEK 164 million. We also lost contract worth SEK 70 million. And SEK 24 million annual turnover were taken back by municipality. Year-to-date, our total net win volume was SEK 54 million positive in 2019. And the net impact of started and closed contracts in the fourth quarter amounted to a positive SEK 6 million.

Acquisitions. We have kept our acquisition activities low for some quarters to focus on the Aleris integration and also to bring down our leverage. We are still cautious regarding new larger acquisitions, but have recently been more active on the smaller M&A front. Firstly, in Denmark, where our strategy is to shift sales from contract management, nursing homes and home care towards own management and disabled care. In the quarter, we have acquired 2 high-quality businesses with a focus on residential care for autism, both for younger and adults, located in the greater Copenhagen area. In addition, after a strategic review of the Swedish home care business, we have divested 2 underperforming units and have also acquired 1 home care provider on St. Malm to build density in Central Stockholm. We also divested 1 smaller Nytida treatment unit in the northern part of Sweden.

So with that, over to you, Daniel.

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

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Thank you, Fredrik. In total, we grew net sales by 81% in the quarter compared to the same period last year. The key driver is, of course, the acquisition of Aleris Care in addition to 1% of organic growth.

Vardaga experienced growth of 94% in own management and 32% in contract management, leaving overall sales up 63% versus year ago. In total, 61% of net sales is now coming from own management in Vardaga versus 51% a year ago.

Nytida grew 22% versus the same period last year. Own management grew 23% whereas our smaller contract management segment grew 18% due to strong win rate in earlier periods. In total, 86% of our net sales in Nytida is now coming from own management versus 85% last year.

Stendi, our Norwegian business, grew 403% versus same period last year, and we had a small positive impact from currency of SEK 1 million.

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

Klara, our Staffing solutions segment, was 17% lower versus last year. This is due to weaker demand for staffing service from the private segment as the VAT is now charged on the staffing services, but we have successfully managed to shift the business over to more public sector customers as well as continue to drive our staffing solutions services business but had overall a negative impact on sales.

Let's now look at the sales from the perspective of the different contracting models. As said, net sales increased by 81% versus last year. Own management continues to be the key focus for growth in all segments and in the quarter increased by 89% including the impact from the acquisition of Aleris. Own management represents in the quarter 73% of net sales versus 70% last year same period.

Contract management increased in total due to the acquisition of Aleris Care by 79%, while Staffing solution declined 17% versus same period last year.

Total organic growth was [up] 1% in the quarter.

Moving to adjusted EBITDA. Overall, adjusted EBITDA was SEK 154 million versus last year of SEK 120 million, represent 28% bottom line growth. SEK 24 million of the increase versus last year is explained by the implementation of IFRS 16.

Adjusted EBITDA margin was 5.5% in the quarter, down 220 basis points versus last year's 7.7%. The corresponding margin in the quarter, excluding the positive impact from IFRS 16, was 4.6%.

The Aleris business has substantially lower margins compared to our existing Ambea segment. And that has had an impact on overall margins, although we are benefiting from the realization of synergies.

M&A is almost fully driven by the Aleris acquisition, whereas other is overhead cost that we take on with the acquisition of Aleris.

Generally good and stable occupancy in our established units with continuing good margins in like-for-like units. Ramp-up of greenfield had in total a negative impact in the quarter of SEK 13 million. This is a mix of start-up and ramp-up costs partly being offset by the contribution from the greenfields that they opened earlier in the year and which are starting to have a positive contribution. As we now are in a phase with several units in the early ramp-up stage as well as opening new units in the coming quarters, we should expect to see an increase in the cost for opening up new units during the next few quarters.

Turning to items affecting comparability. We had in the quarter SEK 9 million of integration and synergy realization cost, fully attributable to the integration of Aleris Care. The majority is due to personnel reductions in overhead functions, but also due to integration and rollout of IT systems, et cetera. Last year, we had transaction costs of SEK 35 million relating to the acquisition of Aleris Care.

As we now enter 2020, we have closed our central integration program for Aleris, and hence, expect no further integration costs. We announced today a program to strengthen profitability in Stendi and should expect SEK 45 million of restructuring costs, majority coming in Q1 and Q2 2020.

Moving over to cash flow. Adjusted EBITDA was up significantly from SEK 132 million to SEK 338 million. The key driver is IFRS 16, which impacted the quarter by SEK 182 million. Adjusted EBITDA, excluding IFRS 16, increased from SEK 132 million to SEK 156 million.

CapEx was SEK 11 million in the quarter due to the rollout of new greenfields, which also negatively impacts working capital, now are going forward due to a larger chunk of own management, which means more prepaid rent versus last year.

Working capital was positive in the quarter with SEK 273 million due primarily to positive cutover effect, but also some gradual and structural improvements made during the autumn on working capital in the acquired Aleris business.

Integration costs taken in the Q4 had a negative impact on reported EBITDA and partly cash flows.

Financial items were SEK 61 million in the quarter, of which SEK 41 million is due to IFRS 16, but also an increase versus last year from SEK 8 million to SEK 20 million from the higher leverage and new financing put in place to fund the acquisition. Acquisition relates to the net of the announced acquisitions and divestitures.

Taxes paid of SEK 7 million in the quarter versus SEK 9 million same period last year. And hence, cash conversion was strong due to the positive cutover effect, 166%. And excluding IFRS 16, 244%. We usually have strong cash conversions in Q4 due to positive trend on both DSO and DPO as well as the cutover.

Net debt in the quarter was SEK 7.917 billion, leverage was 5.3x adjusted EBITDA. Excluding the impact of IFRS 16, leverage was 4.0x adjusted EBITDA versus 4.6x adjusted EBITDA last quarter, continuing our deleveraging.

In the short-term interest-bearing liabilities, you have both for Commercial Paper Program as well as short-term parts of the lease obligations, falling due within 12 months.

During the quarter, we exercised an option to prolong our existing financing agreement with 1 year to 2022. There is another option for an additional 1-year extension remaining.

Focus during the autumn and spring 2020 will be to further deleverage the company on the back of our strong cash conversion, while enabling us to complete smaller add-on acquisitions as we approach our financial target of 3.25x adjusted EBITDA.

IFRS 16 is applied throughout 2019, and we provide further disclosure on how we will apply the new accounting standard in the report, note 1. The table shows Q4 2019 with current GAAP applied, the change from IFRS 16 and Q4 2019, excluding IFRS 16 adjustment.

Total assets increased by SEK 4.7 billion and a corresponding increase in equities and liabilities. EBITDA is positively impacted by SEK 182 million, whilst EBITDA is impacted with SEK 24 million. And the net result has a negative impact of SEK 12 million.

With that note, over to you, Fredrik, for the business overview for segments.

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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 915 million in the quarter, up 63% versus last year's fourth quarter. This is, of course, driven mostly by the acquisition of Aleris. Own management sales almost doubled in the quarter versus last year, reaching SEK 554 million or 61% of total sales for Vardaga. The growth is driven by newly acquired units, but also from greenfield units started up during the last year. Contract management sales reached SEK 361 million, up from SEK 274 million same quarter last year, 32% up, driven by new Aleris units

During the fourth quarter, Vardaga reported a net loss of contracts worth SEK 36 million. Details on contract development is like before, well described in our report.

EBITDA reached SEK 39 million versus last year's SEK 34 million, including a positive effect from IFRS 16. The margin is 4.3% versus last year's 6.1%. The lower margin versus last year is driven by lower profitability of the Aleris units and an increase in number of units in ramp-up.

We see continued strong performance of existing like-for-like mature units as you can see on the lower right charts, dotted blue line. The positive trend is driven by good occupancy and the shift towards higher share of own management, but also IFRS 16. However, the underlying like-for-like EBITDA margin, excluding FX from IFRS, is still improved by 2.8 percentage points.

Over to Nytida. Total sales reached SEK 919 million in the quarter, up 22% versus last year. This is, of course, driven mostly by the acquisition of Aleris, but also from new units. Own management growth of 23%, reaching SEK 787 million in the quarter driven by new acquired units. And Nytida now has 86% of sales from own management. Contract management sales reached SEK 132 million versus last year's fourth quarter SEK 112 million. As you can see in our quarterly report, Nytida continues its strong win rate with net wins of SEK 32 million annual sales in the fourth quarter.

EBITDA growth for Nytida of 43%, reaching SEK 120 million versus last year's EUR 84 million. EBITDA margins strengthened during the quarter from 11.1% to 13.1% partly driven by IFRS 16. But if you exclude IFRS 16 impact, margin was still a strong 12.1%. So excluding for IFRS 16, the margin increased by 0.9 percentage points compared to last year. Margin improvements are driven by strong development in like-for-like units during the quarter, but also effects from the restructuring activities that we've communicated during spring, where we have taken out some redundant capacity after Aleris acquisition. And in the quarter, we finalized a divestiture of another noncore treatment unit in the northern part of Sweden.

Over to Norway and Stendi. Sales amounted to SEK 770 million, up 150 -- up from SEK 153 million. 89% of sales come from own management. During the quarter, we saw a weakened occupancy in the [Svalov] segment as expected and commented in the Q3 report. The Norwegian Director for Children and Youth and Family Affairs announced year-end cost savings following the same behavior as last year. Occupancy has picked up somewhat as we move into January.

EBITDA in the quarter was a negative 0.8% or minus SEK 6 million, driven by decreased demand, not compensated with lower staffing costs. We still need to improve Stendi's ability to mitigate as occupancy declines.

In our efforts to bring Stendi towards our target margin, we just launched a savings program focused on local administration, and we are also taking measures to adjust for fluctuating demand. Savings will amount to SEK 30 million as expected to improve profits gradually during 2020. Onetime costs to realize savings are estimated to SEK 45 million impacting Q1 and Q2.

Denmark. Altiden, sales SEK 131 million where 12% of sales is own management and the rest is outsourcing contract. In the quarter, Altiden had an EBITDA margin of positive 0.1%, somewhat impacted by acquisition costs. Several activities lately to improve the business mix in Denmark. 2 acquisitions in disabled care with attractive margin levels and also signing of a new own management elderly care home outside Copenhagen.

In Klara, total sales were down 17%, reaching SEK 69 million, an EBITDA level of SEK 7 million in quarter. Sales decline is, as Daniel said before, predominantly in the Staffing business towards private customers impacted by the VAT reform. But favorable mix developments and administrative savings continue to improve margin in the quarter, which reached 10.1% versus last year's full campaign.

And Ambea continues to receive praise and awards. In the quarter, we were happy to receive an innovation price in Norway for our new operations software solution, helping unit manager to better control Staffing costs as the solution is rolled out. This is much awaited system and needed for our efforts in Norway.

In Denmark, Altiden's annual survey continued to see strong appreciation from our residents with 98.3% recommendation levels.

In Sweden, Ambea continue to support integration of immigrants. Since 2016, we have offered care-focused internships to approximately 1,000 immigrants, and 46% has been offered an employment or decided to start care-related education.

So summarizing the fourth quarter for Ambea. Continued high growth driven by the acquisition of Aleris; organic growth in strong focus with 2 Vardaga and 2 new Nytida homes opening in the quarter, and also a record size pipeline of new home; restructuring program in Norway initiated with planned savings of SEK 30 million to be gradually realized during the year, and corresponding cost of SEK 45 million, majority of that will be taken in Q1 and Q2; M&A activities in Denmark to improve business mix towards the higher-margin disabled care segment and also divestiture of weaker performing units, both in Vardaga home care and Nytida treatment segment; and a Board decision to maintain our current financial targets; a proposal to the AGM of a dividend of SEK 0.8 per share.

And that concludes our presentation, and operator, we are now ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Carolina Elvind.

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Carolina Elvind, Danske Bank Markets Equity Research - Analyst [2]

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Just wondering if you could elaborate a bit more on the negative effects in Norway. You said it was similar trends as the last year, but would you say it's worse this year? And why, if so? And if we should view this as temporary?

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Fredrik Gren, Ambea AB (publ) - CEO & President [3]

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I think that we didn't own Aleris at the time -- same time last year. But we, of course, saw the numbers from Q4 as we kind of closed the transaction on January 21. That time, it looked bad, predominantly in the [Tyreso] segment where that -- kind of government body who financed that had announced a cut, a budget cut during the fall. This year, it was -- it came as expected. It's a bit strange if you think that's sort of the need for all the children needing care is impacted in a way like that that they are actually taking back placement towards the end of the year. It's hard to say if they will sort of figure out the way for not having needing to do that in the future. And then we have to make sure that we have a better ability to handle kind of a possible Q4 decline as this year and last year. So it's very hard for me to -- we cannot assume that they actually will get this on a better control next year. We just have to make sure that we can adapt much better on the cost side, and as we should expect the same thing to happen next year.

Regarding if it was worse or better this year, I don't have the exact data on to support that. It probably follows the same trend as last year.

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Carolina Elvind, Danske Bank Markets Equity Research - Analyst [4]

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Okay. And also on the Norwegian business. Since you've been making improvements sequentially during the year, I guess, you could say underlying margin should be higher now compared to in the beginning of 2019. Is it possible for you to give any indication of where you see yourselves on full year run rate in terms of margins in a way?

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Fredrik Gren, Ambea AB (publ) - CEO & President [5]

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Yes. No. I should probably comment it this way. We were happy to see more, now presenting their report yesterday, with a pretty strong development in Norway. I think they had a 7.2% margin on the year. I also know that Ambea last year, without the acquisition of Aleris, had a 6% margin. And now with Stendi, we are the clear market leader and we are performing at -- I think the year's number is like 1.4%. That is clearly not good enough. There should be opportunity to improve that. And we are, as you said, have done a lot of things during the year. And we continue to implement actions. One, we presented kind of this quarter, which is probably one of the larger ones. But continuously, we also need to work sort of on the ability, on the unit level to make sure that sort of costs are under control. So it is -- it should be in our own hands to be able to improve profitability in Norway during the year. But we are going to need the full year to get all these actions in place.

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Operator [6]

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Your next 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 [7]

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One on Norway and then Sweden, but starting with Norway. In the next few quarters, how do you think that will play out? I believe volumes will be a little bit higher, but do you see a risk that you could continue to have losses in Norway in the first and second quarter before they see similar strong third quarter?

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Fredrik Gren, Ambea AB (publ) - CEO & President [8]

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I mean we are taking all measures that we can right now. And I think that one thing is to bring down the fixed cost level. I think that is necessary to get us to a more sort of stable profitability level in Norway. And the second thing is to go unit-by-unit to make sure that all units that are meeting their contracts, but not exceeding the staffing levels in the contracts, and that will, of course, take longer time given that we have 400, 500 units. But it's hard for me to communicate exactly the impact of that in the coming quarters.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [9]

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But I guess volumes are coming back now as are -- seasonally during third quarter. So that should help or is there something else going on in Norway as well?

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Fredrik Gren, Ambea AB (publ) - CEO & President [10]

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We saw that last year that volumes were coming back after sort of -- as we move into a new year, and we see a bit of that trend as well. We're early in the year, of course, and we hope that we'll continue as it did last year. But we also have to act on the cost side. So I think it's good that sales will sort of come back, but it's -- we also need to address the cost item.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [11]

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Okay. Understand. Turning to Sweden. And I think when it comes to Nytida that just continues to get on. Do you agree it will be difficult to continue to improve over a very high margins there? And then on Vardaga, looking into 2020, how we should see this -- the net effect from more openings, but at the same time, you should have savings effect positive year-over-year and also efficiency gains from integrating the Aleris unit. So what do you think would be the net effect from these 2 factors in 2020 full year and also first half of 2020?

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Fredrik Gren, Ambea AB (publ) - CEO & President [12]

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First, a comment on Nytida. Nytida performs strongly and has done that for many years. And we are continuously, of course, taking measures, making sure that we are performing well in all units. The thing that might be important to note is that in 2020, we are scaling up the number of start-up units of new LSS group homes. So that's 140 beds, something like that opening up. And I think we have 60, 70 beds or something like that open up in 2019. So this is -- in terms of the whole scope of Nytida, these are pretty small numbers. But that's the -- that might have a slight effect on margin that you should be aware of, but it's also important for us to secure organic growth in the Nytida segment. But we believe like-for-like should be able to perform well.

On Vardaga, as you said, I mean it's now, as we move into quarter 1, that the major changes are taking place to sort of adjust the operating model in the Aleris unit. So now we're implementing our food solutions, we're implementing our consumables, storage model, we are getting into a new management model, we are adjusting staffing to our model, et cetera. So that has kicked started as we moved into January. And perhaps it will be a little turbulent in the very first month here, but that should gradually start to have impact. And we assume that an impact will start to show before summer. At the same time, we are going from -- I think we opened 9 homes last year.

To this year, we're going to open 12 or even 13 homes, it depends a little bit on the opening towards the end of the year, 1 might go over to 2021. But it's going to be a record-high number of units on the ramp-up and also record-high numbers in start-up phase. So it is a little bit difficult to exactly kind of time these things and fully kind of understand when we will actually see the total margin of Vardaga picking up again. That was not the answer of your question, but I tried to lay out well the situation.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [13]

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Okay. And I think you understand if we were to expect Vardaga margin to be higher in 2020 than in 2019. Is that still the case?

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [14]

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I think that's still the case when you look at how we will be coming out of 2020, and also when you look at it...

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [15]

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Okay.

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [16]

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Yes.

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Operator [17]

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Your next question comes from the line of Klas Pyk.

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Klas Pyk, Nordea Markets, Research Division - Research Analyst [18]

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So mine are also related to Norway. So even if you achieve the SEK 30 million in annual savings in Norway, you still have some way to go before you reach the level of profitability in the Norwegian Aleris assets as they had before you acquired them. So apart from these restructuring efforts, what explains the gap between the historical performance of the Norwegian Aleris assets and its long-term potential? Is it a number of units that are substantially underperforming or -- and others are doing quite well? Or is it more of a general issue? That's my first question.

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Fredrik Gren, Ambea AB (publ) - CEO & President [19]

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Yes. I think that Aleris in Norway performed very strongly, I think, 3 or 4 years ago. And there are 2 things that happened that changed the sort of the situation. One was sort of a larger tender process on the [Svalov] segment, a framework agreement that promised a lot of growth with the impact that Aleris opened up a lot of capacity to meet that growth. In the end, that growth never materialized. So there was a lot of overcapacity in the structure. And we have done a lot of things to sort of take out that overcapacity during the year. And I'm not sure that we are fully ready with sort of adjusting the capacity.

The second thing that happened was that there was a big sort of -- there was a staffing model, very much built on consultant staffing, basically 1-person firms that did work in our different units. That was heavily criticized. And during the last year, we have sort of ended the absolute majority of all consultants and only used consultants when it comes to very special knowledge, psychiatrists or sort of a very short time. And we have instead replaced it with fixed employees, and to a minimal extent and gradually declining extents to staffing agencies. And that transition -- well, that's the model that we have -- are used to working with Ambea.

But that model actually sort of requires a lot of skills and also a lot of system support for the unit manager to make sure that they are kind of planning the schedule in the right way. What we have seen during the year that we are actually having too many hours versus our contracts in the units, and we have too low profitability also on kind of fully occupied units. So those are sort of -- both gives you an insight into sort of what has changed, but also in terms of what needs to be done.

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Klas Pyk, Nordea Markets, Research Division - Research Analyst [20]

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And also a quick question on the low demand in -- or seasonal demand in Norway. You say that demand is up sequentially just on the -- for the first 6 weeks, now in 2020. But can you say anything about the improvements or decline year-over-year?

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Fredrik Gren, Ambea AB (publ) - CEO & President [21]

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I think we are -- I should probably come back to that. We are very early in January. So I think I would like to see a few more months before we feel that we are sort of back on the same trend. And I shouldn't give you a sort of full comfort on that we are sort of following exactly the same trend going into 2020 as we did in 2019.

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Operator [22]

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Your next question from the line of KJ Bonnevier.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [23]

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Just to follow on Vardaga and the start-up of new units and the occupancy development. I appreciate your comments about Stockholm freedom of choice, making it easy to ramp-up the units and the variability in other municipalities. But Fredrik, if you look at the average time for the moment to get to the occupancy levels you are striving for in newly open units and start-ups, do you feel it's stretching out there on average? Or is it stable?

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

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I think it's fair to say that we've always have -- we have a target of 12 months. We typically reach that target and then sometimes beat the targets when we open homes in Stockholm, and we are slightly behind that target when it comes to homes outside Stockholm. And the ones outside Stockholm is typically where we sort of have difficulties with the municipalities to come to a sort of a framework agreement or something like that. So when that is in place, the ramp-up is going according to plan. But to sum it up, as we have more units outside of Stockholm right now in ramp-up, I would say that we are above the 12 months on average right now.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [25]

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And when you look at, say, the municipality's variability in that are, say, good cases and bad cases, if you look at outside Stockholm, how does it look?

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Fredrik Gren, Ambea AB (publ) - CEO & President [26]

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Well, if anything from like a situation in Helsingborg, where we have a full home and a lot of people in queue in the municipality. But we only have sort of 10 places that we have a framework agreement in place for. So that is sort of a big political discussion. And almost every second week, there's a new article in the newspaper, but that is just political. They just have to agree that they can fill that home. That's the kind of home that are stuck. In many other instances, it's filling up gradually because we're also finding measures to attract elderly, not only from the home municipality, but also from neighboring municipality. So we have another example of that being the one we have flagged that we opened a year ago in Enkoping that we felt it's going to be an 18-month ramp-up. We have almost no customers at all from Enkoping, but it's still ramping up okay from demand from neighboring municipalities. But it's still a slow one. So I think we have sort of the range on different cases.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [27]

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And when you look at staffing needs to open up and ramp-up units, you've still managed to secure qualified staff. So that's not a limitation for you?

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Fredrik Gren, Ambea AB (publ) - CEO & President [28]

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No. That's not -- actually, we have -- every time we open up new units, we have sort of many times kind of good applicants for every position. The real challenge that we are working with is to time the start of this personnel with the occupancy development. So we have developed a model where we kind of opened up department by department, floor by floor to make sure that we are not overstaffed during sort of a period versus sort of the income that we have. So we're getting better and better in making sure that sort of minimize the negative EBITDA in the start-up.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [29]

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Excellent. Looking at Denmark, with the acquisitions, you now concluded, and the contract you signed, agreeing and then so on. What is the pro forma revenue base in Denmark with all these things?

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Fredrik Gren, Ambea AB (publ) - CEO & President [30]

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It's fair to say that the own management contract, that is still several years out. But I'm going to hand over to Daniel to comment on the revenue on the acquisition.

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [31]

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I think you have it quite well described in the acquisition out earlier one. The 1 that we did before Christmas, we actually consolidated end of December. And then the 1 we did just off the -- I think 8th of December is the consolidation date.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [32]

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So looking at it for -- you should be up towards SEK 700 million in revenue base in Denmark at this stage.

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [33]

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Somewhere along those lines. I think (inaudible) you need to recognize that that will not have an impact on the later.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [34]

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Yes. Then just on the reconfirmation of the financial targets, how are you treating IFRS 16 when you look at the profitability target and the gearing targets?

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [35]

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We have -- the margins are including IFRS 16 whereas when we express the gearing targets, it's on figures adjusting for IFRS 16.

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Operator [36]

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(Operator Instructions) There are no further questions. Please continue.

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Fredrik Gren, Ambea AB (publ) - CEO & President [37]

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Okay. So no more questions. Thank you all for calling in. Q1 interim report will be published on May 13, and everyone, have a nice day.

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Operator [38]

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