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Edited Transcript of AMBEA.ST earnings conference call or presentation 8-Nov-19 9:00am GMT

Q3 2019 Ambea AB (publ) Earnings Call

SOLNA Nov 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Ambea AB (publ) earnings conference call or presentation Friday, November 8, 2019 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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* 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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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Ambea Interim Report Third Quarter Conference Call.

(Operator Instructions)

I must advise you that this conference is being recorded today, Friday, the 8th of November 2019. I would like now to hand the conference over to your speaker today, Fredrik Gren, CEO. Please go ahead, sir.

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

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

Ambea delivered a strong third quarter in many aspects. Key topics to cover in today's call are the status of the Aleris integration, the turnaround work in Norway and also the development in our Own Management growth. I will cover all this in some detail and also status on other fronts. 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 of our quality highlights. After the formal presentation, we open up for questions.

Starting with a little summary of quarter 3. Profitability and growth developed well in the seasonally strong and important third quarter, of course, driven mostly by the Aleris transaction. But also, Ambea also continues to improve the organic growth rate, which in the third quarter amounted to 1.5%. Adjusted EBITA growth of 52% in the third quarter, amounting to SEK 312 million or 11% EBITA margin. Like-for-like development in Sweden continues to develop well, thanks to continued good occupancy and cost control. Our own managed growth continues with 126 new beds opening in the quarter and also a few new construction projects signed during the third quarter, continuing the growth of our pipeline amounting now to 2,252.

Integration of Aleris has been completed during the quarter, ahead of the original time plan. Communicated synergies of SEK 90 million has been extracted and is starting to materialize with full year effect going into 2020. Our turnaround program in Norway has the full focus of the new leadership group, in Norway, and the activities are showing continued improvement in the quarter.

So over to some financial highlights. Net sales reached SEK 2,843 million, up 84% in the quarter, of course, mostly driven by the acquisition of Aleris. Adjusted EBITA in the quarter reached SEK 312 million versus last year's SEK 205 million, up 52%. As expected, given the lower margin of the acquired Aleris units, Ambea's adjusted EBITA margin is down 2.3%, reaching 11%. Excluding positive effects of IFRS 16, EBITA margin was 10%. Solid performance in like-for-like Ambea Care units and a strong focus now on lifting margins in the acquired units. Ambea operates with a strong cash conversion of, on average, 90%. Q3 is seasonally affected every year by the vacation pay and cash conversion, and it is in line with prior year. In Q3, the cash conversion amounted to 62%, and free cash flow was SEK 190 million.

Daniel will soon share some details around the financials. As I mentioned in introduction, we have now finalized the integration of Aleris. The communicated SEK 90 million in synergies started to materialize already in Q2 and almost full run rate of synergies in Q3 and Q4, with some additional final integration and synergy realization costs in this quarter and also in the last Q4. Efforts are well underway to fully understand and plan for how to lift the profitability in the acquired units. It will be a combination of smaller and larger changes covering both review of overhead costs, procurement savings, occupancy unit reviews and also review on savings out in the operation.

In the ongoing budget process, we set new financial targets for each Aleris unit going into 2020, and are planning for multiple activities over the coming quarters. A few weeks ago, we communicated an extension of our management group and have now also included central function directors that will take the full Scandinavian leadership in implementing a common Ambea operational model across all countries and segments; and thereby, further contribute to closing the performance gap. The Aleris nursing homes that were under development at the time of the transaction is opening up with Vardaga's operational model. In the quarter, Villa Maria in Helsingborg is an example of that.

In Norway, we saw a disappointing start in Q1 and took decisive action in March. Already in Q2, we saw some improvements, and the improvements continues in the third quarters. Margins are improving also when excluding the seasonally high vacation pay. Efforts in Norway needs to continue since we are far from satisfied with the current situation, and we will continue to report progress and activities taken also in the coming quarters.

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 2 new units in the south of Sweden. We also had an opening in Nytida and in total 126 beds. We now have more units on the ramp-up than ever before, and also the largest pipeline of new units in the industry. We signed contracts for 211 new beds, bringing the pipeline to a record high number of 2,252, or 27% of our total base of Own Management unit. This pipeline will be opened during the coming 2 to 3 years, building a strong foundation for organic growth.

As I mentioned in our prior reports, Ambea have strong win rates in Contract Management. Actually, I cannot remember that we had a stronger win rate in Ambea since I started 8 years ago. But market growth will be in Own Management rather than in Contract Management. In the third quarter, a few homes were taken back by municipalities and, therefore, not coming out for new tenders. And in Oslo, the municipality continues to in-source contracted nursing homes. This negative trend was well-known at the time of the transaction.

And in Sweden, we lost a few tenders in the quarter where we decided not to participate due to misalignment between the maximum price and the staffing requirement. So a negative net win in the quarter, but still a year-to-date positive net win for Contract Management.

So over to acquisition. One acquisition completed in the quarter, as we announced, the transaction of Pusselbiten in the Q2 report. Pusselbiten is a special needs school in Southern Sweden that complements our existing businesses in the region. After the close of the quarter, we have completed 2 smaller divestitures: one treatment unit in Northern Sweden and one smaller home service unit in a geography with subscale presence, as our strategy is to operate home services where we have sufficient scale to operate profitably. The divestitures are expected to have a marginal impact on Ambea's sales and profitability.

Mr. Daniel is ready to take over the financials.

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

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Thank you, Fredrik. In total, we grow our net sales by 84% in the quarter compared to the same period last year. The key driver is, of course, the acquisition of Aleris Care, but also, in addition, 1.5 percentage points of organic growth. Vardaga experienced growth of 89% in Own Management and 35% in Contract Management, leaving overall sales up 62% versus a year ago. In total, 59% of net sales is now coming from Own Management in Vardaga versus 51% a year ago. Nytida grew 22% versus same period last year. Own Management grew 25%, while the smaller Contract Management segment was just a hint on the last year, minus 1%. In total, 87% of our net sales in Nytida is now coming from Own Management versus 84% last year.

Stendi, our Norwegian business grew 473% versus same period last year. We had a small positive impact from currency of SEK 2 million in the quarter and 87% of sales is now from Own Management.

Altiden, our Danish business, is in total new to the group as a result of the completed Aleris acquisition and 13% of sales is in Own Management.

Klara, our Staffing solution segment was 12% lower than last year. This was the first quarter where VAT had to be short on the Staffing services, and we have successfully managed to shift business over to more public sector customers as well as continue to drive our contract -- Staffing solution services business, but it had an overall negative impact on sales while strengthening margins.

Let's now look at sales from the perspective of the different contracting models. As said, net sales increased by 84% versus last year. Own Management in all of our segments continues to be our focus for growth and in the quarter increased by 95%, including the impact from the acquisition of Aleris. Own Management represents in the quarter, 73% of net sales versus 68% last year, same period. Contract Management increased in total due to the acquisition of Aleris Care by 74%, while Staffing solution decreased by 12% versus the same period, last year. And total organic growth was hence 1.5% in the quarter.

Overall, adjusted EBITA was SEK 312 million versus last year SEK 205 million, representing 52% bottom line growth. SEK 27 million of the increase versus last year is explained by the implementation of IFRS 16. But profit growth has been good across the different businesses with good occupancy in like-for-like units in the quarter. Adjusted EBITA margin was 11% in the quarter, down 230 basis points versus last year's 13.3%. The corresponding margin in the quarter, excluding the positive impact from IFRS 16, was 10%. The Aleris business has substantially lower margins compared to our existing Ambea segments, and that has had an impact on overall margins, although we are starting to benefit from the realization of synergies.

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

Generally good and stable occupancy in our established units with good margins in like-for-like units. Ramp-up of greenfields had, in total, a negative impact in the quarter of SEK 9 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 and which are starting to have a positive contribution. As we are now 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 costs for opening up of new units, while at the same increasing organic growth in the next few quarters.

Turning to items affecting comparability. We had in the quarter SEK 15 million of integration and synergy realization costs, fully attributable to the integration of Aleris Care. This is due to personnel reductions in overhead function as part of the synergy capture, but also costs due to the integration and rollout of new IT systems, et cetera. We confirmed the SEK 90 million overhead synergies with full year effect in 2020, but with the effect already coming this and coming quarters. As we are now finalizing the integration on synergy realization, we do expect some further costs in Q4, but less than in the current quarter, before the full integration costs have been taken, approximately SEK 10 million in Q4.

Adjusted EBITDA was up significantly from SEK 220 million to SEK 517 million, the key driver is IFRS 16 that impacted the quarter by SEK 200 million. Adjusted EBITDA, excluding IFRS 16, increased from SEK 220 million to SEK 317 million. CapEx increased to SEK 26 million in the quarter, due to the rollout of new greenfields, which also negatively impacts working capital now and going forward due to a larger share of Own Management, which also means more prepaid rent versus prior years. Integration costs taken in Q3 had a negative impact on reported EBITDA and partly also on cash flow. Financial items were SEK 67 million in the quarter, of which SEK 46 million is due to IFRS 16, but also an increase versus last year from SEK 16 million to SEK 21 million from the higher leverage and new financing put in place to fund the acquisition. There was, in 2018, a SEK 4 million impact of phasing of the financial net between Q2 and Q3, which negatively impacted Q3 2018.

Acquisitions relates to the acquisitions of Pusselbiten and taxes paid SEK 15 million in the quarter versus SEK 8 million same period last year.

Cash conversion, excluding the impact of IFRS 16 was similar as last year at 37.2%. As in prior years Q3, you see similar quarter with low cash conversion due to the payment of vacation pay in the quarter.

Net debt in the quarter was SEK 8,387 million. Leverage was 6.4x adjusted EBITDA. Excluding the impact of IFRS 16, leverage was 4.6% versus 5.2% adjusted EBITDA last quarter.

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

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

IFRS 16 will be applied as of 2019, and we provide further disclosures on how we will apply the new accounting standard in the report, and I would direct you to note 1 in the report. The table shows Q3 2019, with current GAAP applied, the change from IFRS 16, and Q3 2019 excluding IFRS 16 adjustment. Total assets increased by SEK 4.8 billion and a corresponding increase in equity and liabilities. EBITDA is positively impacted by SEK 200 million, whereas EBITA is impacted by SEK 27 million, and net result has a negative impact from IFRS 16 of SEK 15 million.

With that, over to you Fredrik, for the business overview 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 904 million in the quarter, up 62% versus last year's -- last year. This is, of course, driven mostly by the acquisition of Aleris. Own Management grew with 89%, reaching SEK 533 million or 59% of the share of sales in the quarter. The growth is driven by newly acquired units, but also from greenfield units started in 2018 and first half of 2019. Contract Management sales reached SEK 371 million, up from SEK 275 million with same quarter last year, up 35%, driven by new Aleris units. During the third quarter, Vardaga reported a net loss of contract worth SEK 123 million. The absolute majority concerned contracts, where price and stipulated staff requirements did not match, and we decided not to submit tenders. We also had a net volume loss in the quarter of SEK 20 million from contracts started or lost -- or taken back by the municipality during the third quarter. Details of contract development is like before, well described in our report.

EBITA growth for Vardaga of 44%, reaching SEK 82 million versus last year's SEK 57 million. Including a positive effect from IFRS, the margin is 9.1% versus last year's 10.2%. The lower margin versus last year is driven by low profitability of the Aleris unit and also an increase in the number of units in ramp-up. We see continued strong development and performance of existing like-for-like mature units, as you can see on the chart dotted blue line. The positive trend is driven by good occupancy and the shift towards higher share of Own Management, but also IFRS, which impacts approximately 2 percentage points for Vardaga in the quarter. So underlying, like-for-like mature units improved from 10.8% to 13.5% versus last year, 2.7 percentage points, excluding IFRS 16.

Over to Nytida, where total sales reached SEK 933 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 25%, reaching SEK 809 million in the quarter driven primarily by newly acquired units and also Nytida new units. Nytida now has 87% of sales from Own Management units. Contract Management sales reached SEK 123 million, down from SEK 124 million last year. As you can see in our quarterly report, in the third quarter, Nytida continues its very strong win rates, with net wins of SEK 69 million annual sales in the quarter. EBITA growth for Nytida of 36% reaching SEK 174 million versus last year SEK 128 million. And EBITA margin strengthened during the quarter from 16.7% to 18.6%, partly driven by IFRS 16. But if you exclude IFRS 16, margin was 17.9%. So excluding IFRS 16 effects, the margin in Nytida increased by 1.2 percentage points compared to previous year. Improvements of margin is driven by strong development in our like-for-like mature units during the quarter and also improvements in individual and family, children and youth segment versus last year.

Over to Norway and Stendi. Net sales amounted to SEK 813 million, up from SEK 142 million. 89% of sales comes from Own Managed operations. During the quarter, the Norwegian Directorate for Children and Youth and Family Affairs announced cost savings, and we have initiated the dialogue to understand the consequences of those savings going forward. EBITA reached 17 -- 7.3% in the quarter, still below last year's exceptionally high 14.8%, which of course excludes Aleris. Vacation pay effect strengthened in the third quarter on amounts to somewhere between SEK 40 million and SEK 45 million. But excluding vacation effects, we continue also in the third quarter to see sequential quarter-by-quarter improvement in Stendi margin. But still a lot of work remains to bring Stendi to our target margin. During the quarter, additional loss-making units were closed. We will continue to identify and implement cost savings initiatives in the coming quarter. Margin improvements will be the key priority in the coming quarters before we renew -- resume growth activities.

Over to Denmark and Altiden. Sales amounted to SEK 127 million, when 10% of sales is Own Management and the rest outsourcing contracts. In the quarter, Altiden had an EBITA margin of minus SEK 8 million, but cost of SEK 5 million coming from provision for loss-making contracts that impacts this quarter. Profitability is also impacted by both the buildup of a new independent administration after the separation from Aleris Health Care in Denmark, and also from new greenfield start-ups in disabled care home management. So our growth strategy in Denmark includes both acquisition and greenfield growth, and it is focused on growing Own Management sales and improving margin. These changes are necessary to bring our Danish segment to attractive profitability.

In Klara, total sales were down 12%, reaching SEK 68 million and EBITA of SEK 7 million with a very strong 10.3% margin versus last year's 6.5% in the quarter. Sales decline is predominantly in the Staffing business towards private customers, impacted by the VAT reform. But we are now above 90% of sales in the Staffing segment to public customers. We have a higher share of private customers in the nurse patrol services, where we continue to see growth despite the VAT reform. Favorable mix development and administrative savings is key drivers to the good margin development. And Ambea continues to receive awards in the quarter. Ambea was included in Allbright's most gender equal listed companies. We were ranked the seventh most equal company listed on the Stockholm NASDAQ, which is best in the sector. Meal experiences in our nursing home continues to receive awards at the last quarter's White Guide win. We, in this quarter, saw Vardaga receive the (foreign language) prize for best senior meal in SPES. And the result from the annual quality service done by Socialstyrelsen was made public after the quarter close. Vardaga continues to do well in the survey with stable and good overall score.

So with that, summarizing a strong quarter for Ambea. Aleris Care integration completed ahead of plan with synergy extraction on target at SEK 90 million in annual effects by the end of 2019. The restructuring program in Stendi continued to show a positive trend with sequentially increasing margins during the year. Continued high growth due to Aleris Care acquisition, but we also see improved sales from all greenfield units that have opened in the last year. And we continue a high opening pace of new unit, as 2 new nursing homes opened in the quarter. A record size greenfield pipeline, representing 27% of Own Management beds in operation.

So that concludes today's presentation. Over to a Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

And the first question comes from the line of Kristofer Liljeberg from Carnegie.

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

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The first question I have relates to Aleris. First, is it possible for you to provide the Aleris margin. In comparison, I think, you said it was back at 4% in the second quarter. Then I wonder a little bit now about the next phase in the integration. So how quickly do you think you will be able to improve the operational efficiencies? And related to that, have you already identified at the individual units what needs to be done? Or is that work still ongoing?

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

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Why don't I start with the second question, and I'll come back to the first one later. Yes, we have -- in Sweden, we have identified down to each individual unit exactly what needs to be done. And that has now worked into the budget, and that process is just concluding. So we have sort of a very strong focus on, kind of, exactly the plans and exactly the changes that need to be done on a unit level. So I think that in Sweden, we will start to see impact materializing slightly earlier in 2020 on, kind of, closing the profit gap. When it comes to Norway, I think we will need further time and they will sort of probably not, you would see, gradual improvement during 2020. But I think in Norway, we'll have a combination of, sort of, larger changes with unit-by-unit actions, but it will take a little bit longer time, and we are not, sort of, as specific down to the -- we have a number of units where we know exactly what to do, but the total program is not that concrete and specific as you see in the Swedish market. In Denmark, I think -- the major thing in Denmark is, of course, the mix shift and start growing the right, sort of, segment with a higher profitability. So there's a few changes to be done also in Denmark, but they are smaller.

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [4]

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On your first question, Kristofer, on Aleris margin. We don't specifically report Aleris margin as such, since we are now integrating it very tightly into our own structure; however, I think if you look at the EBITA bridge on Page 11, and you take the net from M&A and other, I think you get a pretty good sense of the margin development because for all material reasons that is only Aleris in M&A and in the cost increase on overhead. So if you look at it, I think...

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [5]

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Okay. Yes, that's very helpful. So going back to this -- the timing here, so you said we will start to see effects in Sweden early in 2020. But how quickly will it take to close the margin gap on the like-for-like basis in Sweden? Should the old Aleris units be on a same margin level as Ambea when we start 2021?

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

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I think when it comes to the Swedish market, there is a good proportion of the closing of the gap, comes from the new units -- the new nursing homes when they open up -- the new nursing homes that were in the pipeline from Aleris. When they open up, they will open up in our model. And since many of these units, I think there were about 10 coming as pipeline, are going to open gradually in 2020 and actually some in 2021. It will take time. It will not be finalized by the end of 2020. It will take more time for the new units to kind of develop accordingly. So I think it's a like-for-like units, you'll see effect during the first -- starting to see effect during the first half of 2020. But the full GAAP closure, we have to wait for the new units to be started.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [7]

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Okay. And just finally on this topic. If you look at this margin gap adjusting for the mix effect with home care, is it possible to give an indication, how much is Sweden versus Norway? Can you say what I mean?

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

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No, not really. I mean...

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

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Yes, maybe, it's -- was it so that Aleris margin was significantly below what you think it should be also in Sweden? Or was this mostly a Norwegian issue?

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

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Yes, absolutely. The margins were significantly below our margin also in the Swedish market. A part of that was driven by the fact that there were home services, but home services were only kind of a smaller share of the Swedish market. So there is absolutely potential to improve margins also in the Swedish part.

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Operator [11]

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And the next question comes from the line of Klas Pyk from Nordea.

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Klas Pyk, Nordea Markets, Research Division - Research Analyst [12]

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Sorry, I was muted. I have few questions on the cost savings program in Norway. I understand it's early stage, but as you have closed down units in Norway, the risk of closing down further units, depending on the outcome from the -- from your dialogue? And also, if you could elaborate a bit on the pricing level in Contract Management in Vardaga? Was this quarter an outlier? Or is it pricing pressure in January?

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

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I think on Norway, it is a consistent work to make sure that you have the right capacity and the right type of units in the right regions. So I think we had a larger number of units closed down in second and third quarter. Going forward, we envision that this is probably going to continue. There will be some units that we will adjust and we like to consolidate smaller homes into larger ones. So not likely to be a big bang or a lot of things happening at the same time, but a gradual shift going forward.

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

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One thing that helps us also in Norway that it's comparably shorter rental agreement, which creates a bit more flexibility.

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Fredrik Gren, Ambea AB (publ) - CEO & President [15]

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And the other thing is that we are reviewing, sort of -- we're reviewing all other costs as well. And since the margin is not to the standard we like to see, I think we will continue and look for other opportunities as well. And that will also be sort of a gradual program coming into 2020. I'm not sure if that answers your question, but more to come in short.

And the second question regarding Vardaga pricing? I think what happens and varies a little bit quarter-by-quarter is the amount of tenders that are decided, but also if the tenders predominantly are quality tenders or pricing tenders. So if you look from a sort of 12 months back and also actually 24 months back, we have seen an increase in share of quality tender, and that has sort of favored our win rate strongly. So very strong win rates for both Vardaga and Nytida, especially Nytida, I should say, in the last 24 months. In the third quarter, there were quite a lot of price tenders. And as I mentioned, a few of them that we use to run were -- had sort of maximum price levels that didn't match the contractual obligation on staffing, and we decided not to submit there. Regarding price pressure, I don't think there is sort of more or less price pressure now than it's been before and certainly no difference from our margin strategy. It's been very consistent for many, many years.

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Operator [16]

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And we've got another question from Kristofer Liljeberg.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [17]

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I have 2 more questions. I hope that's okay. First one, coming back to Contract Management and how we should view volumes here going forward? Of course, you talked about the high win rates, but we also see public sector taking back contracts, primarily in Norway. So if you look into 2020, 2021, do you see Contract Management sales increasing, flat, decreasing?

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

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I think in Norway, where it's predominantly on elderly care, we have a few contracts left there. That is going to decline. The municipality of Oslo, which had kind of a number of homes outsourced have communicated that they will take back those contracts. So Norway elderly care is likely to further decline. It is a very small part of our business and very, very, kind of, insignificant part of our profitability in Norway, but that slightly decline. Contract Management...

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [19]

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Sorry, could you just quantify those -- how much that is that you have in elderly care in Norway now in Swedish krona?

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

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In sales, I don't think we have given it out. But it is a very -- it's a small share of -- like I said, insignificant, almost no impact on profitability and -- so it's kind of low 2-digit percentage point of sales, but it's -- and regarding Sweden, it's a little bit difficult to forecast. It's going up and down. We have seen that more, kind of, in general growth -- most of the growth is coming from Own Management as many municipalities like to see someone helping them both build and operate. That said, when you go into slightly more kind of tougher time for the municipality financially, it is not unlikely that they will start to look for savings that they can achieve through outsourcing. So we are continuing to keep a good eye on the outsourcing market and try to be competitive there as well. But it is actually, sort of -- it's a little bit hard to judge whether -- how the market will develop in the next 2 years.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [21]

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Okay. And then my final question relates to margins. There's a lot of moving parts here, which makes it a bit difficult to forecast. Of course, it has been down since acquisition of Aleris because of that negative impact. And I guess that will continue in the fourth quarter, maybe in the first quarter. But how soon do you think -- when do you think margins will bottom out if you take the net effect from cost synergies, the efficiency improvements we will start to see now in 2020? But on the other hand, you have start-up costs, primarily in the Swedish elderly care business.

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

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I'm not sure if we can give you a specific quarter. But I think the way to think about it is if you look at the Own Management, when we go from 3 openings of nursing home last year to 9 this year to 11 next year, I mean that means that we are increasing the negative effect from start-up costs. Of course, in the long run, this is building the long-term profitability and value creation of our business, but it will have sort of a slight dilution on margins until we are at a stable level where we perhaps open 10 per year. So it will take a little bit more time for that to level out on sort of margin level. And on the Aleris side, I think, as we have stated before, you need to see towards the end of 2020. We have said that we should be kind of -- have completed most of the operational synergies as well. So 1 to 2 years depending on those 2 factors, I guess.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [23]

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But if you take the net effect from those 2 factors in 2020 versus 2019...

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [24]

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You will get better comparability next year when we have both IFRS 16 and Aleris acquisition in the full year which means that when you look at the net of the synergy realization and the actual ramp-up cost, they will have an offsetting effect on each other. So there is a little bit of timing issues that I think will impact. But when you move into the second half of 2020, I think you will see the both bottoming out.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [25]

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Okay. Do you think that the IFRS 16 adjusted margin to be higher in '20 than in 2019?

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [26]

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Correct.

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Fredrik Gren, Ambea AB (publ) - CEO & President [27]

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Yes.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division - Head of Health Care & Financial Analyst [28]

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So that was a yes?

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Daniel Warnholtz, Ambea AB (publ) - Deputy CEO & CFO [29]

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Yes.

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

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Yes.

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Operator [31]

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(Operator Instructions) We have no further questions at this time. Please continue. .

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Fredrik Gren, Ambea AB (publ) - CEO & President [32]

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Okay. If no more questions, thank you all for calling in. The quarter 4 interim report will be published on February 14. Have a nice day. Thanks.

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Operator [33]

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