Attendo's report for the second quarter of 2020 - Corona situation greatly improved but clear financial impact in the quarter
Attendo sees a marked improvement of the covid-19 situation in its operations at the end of the second quarter. The underlying business is showing a positive development, but the handling of the Corona-situation has had a negative effect on the result. Furthermore, write-downs of goodwill and IFRS16-related right-of-use assets in Finland has a significant impact on the result for the period.
President and CEO Martin Tivéus comments on the report
“The second quarter of 2020 was marked by the ongoing corona pandemic. A large part of Attendo's customers belong to the risk groups for covid-19, and thus the entire organization has since the beginning of the pandemic been focused on preventing infection, for both customers and employees. Our employees do an outstanding job of performing compassionate care under extraordinary circumstances.
We took resolute measures early in the pandemic to prevent the virus from entering our units and stop the spread of transmission. Some of the measures we introduced in addition to national guidelines were visitor stop and daily health checks of all employees before every shift. In spite of this, we saw in late March that the virus was still spreading at some of our nursing homes for older people in Sweden, particularly in the Stockholm area, where community transmission was most widespread. Our conclusion was that the virus was probably being transmitted via infected but asymptomatic employees or new customers and that we needed to further elevate the level of protection to protect older people.
In May, after having secured adequate volumes of personal protective equipment (PPE), we made masks mandatory for all employees engaged in providing care services, regardless of whether or not infection was present. Since then, we have seen a significant reduction in the number of infected in our nursing homes for older people. At present, all 37 of our homes for older people in the Stockholm region are covid-free and we have only a few infected customers in the rest of Sweden. All of our care units in Finland, Norway and Denmark have been covid-free for several weeks. The sharp reduction in the infection rate is most likely due to multiple factors, but we have assessed our heightened protective measures as having had a clearly positive effect.
Financial performance in the second quarter
Sales and profit have clearly been affected by the pandemic, although the effects have been partially offset through government measures and support. Despite serious impact of lower number of new customers and thus occupancy, net sales increased in the second quarter of 2020 by about 4 percent to SEK 3,112 million. Organic growth was 3.9 percent, associated with an increase in the number of occupied beds in Finland and positive price effects.
The reported EBITA, excluding the capital gain on the sale of real estate, amounted to SEK 112 million for the second quarter, down 7 percent compared to the preceding year. This is due to the corona situation, which has reduced profits by approximately SEK 60 million during the quarter, mainly due to the costs of purchasing PPE, employee-related costs and lower occupancy. Our current assessment is that known government support measures are expected to fully offset corona related additional costs in the second half of 2020. However, we expect to have a continuous negative impact on sales with a profit impact of SEK -10m on a monthly basis during the remaining part of the year. In our assessment, we expect sales to normalize, but that there will be no catch-up of lost occupancy during the second quarter.
In addition to the real estate gain and the negative profit effects from the corona situation, better profitability in outsourcing and home care as well as higher prices in Finland have affected profits positively, while new units and higher operating costs in Finland have had a negative impact.
Due to the corona situation and in accordance with applicable accounting standards we have carried out an updated impairment test of recorded goodwill. Attendo has used the same long-term profitability assumption as before, but with a higher discount rate in the calculation. The test resulted in a goodwill impairment relating to Finland in the balance sheet. As the time to fill new beds increases during the pandemic, we have also made a write-down of IFRS16-related right-of-use assets in Finland.
Clear impact on occupancy in Scandinavia
Despite the clear impact of the corona pandemic, our Scandinavian business demonstrated relatively stable development in the second quarter. Net sales declined by about 3 percent, primarily as an effect of fewer occupied beds in nursing homes in the Stockholm region. It has been more difficult to fill beds during the pandemic and early in the quarter we observed higher mortality than in past years. Attendo has selectively withdrawn from home care in certain areas and there was consequently a moderate decrease in net sales in home care.
Operating profit in Attendo Scandinavia excluding the capital gain from real estate, was 3 percent higher than profit in the second quarter of 2019, which was mainly an effect of improved profits in outsourcing and home care. The improvement was offset by lower occupancy and costs related to corona, combined with more openings during the first half of the year. We opened 185 new beds in Sweden during the second quarter, mainly in care for older people.
Early effects of the turnaround programme in Finland
We are starting to see positive effects from our turnaround efforts in Finland. We have more occupied beds than in the previous year, positive price effects from negotiations in 2019 and the rate of openings will drop significantly as of mid-year, thus providing better conditions for a positive occupancy trend.
Net sales in Attendo Finland increased by about 12 percent in the second quarter compared to the comparison quarter in 2019, driven primarily by more sold beds and positive price effects. Net sales growth was offset by lower new sales of beds linked to concerns about the pandemic. Profit was lower than in the second quarter of 2019 due to corona related costs, higher staffing and higher overhead. Price effects had a positive effect on profits.
Lessons learnt ahead of the next phase in the pandemic
The lives and health of our customers and our employees are always our first concern, a stance that becomes even more critical during a pandemic. One lesson learnt from the pandemic is that it is imperative that society as a whole takes responsibility for restraining the virus and reducing its negative impact. We have positive experiences of cooperation and the effects of government measures in Denmark, Finland and Norway. This is apparent both in official statistics and in our units.
With regard to care for older people in Sweden, we believe that government measures have been inadequate. We are therefore sharing our Nordic experiences with the pandemic with public authorities and politicians in Sweden so that we, as a society, will be better able to protect human lives and health in the next phase.
I am incredibly proud of our care staff, managers and colleagues in support functions, especially of their outstanding efforts during the first months of the pandemic.”
Summary of the second quarter 2020
- Net sales increased by 4 percent, before and after currency effects, to SEK 3,112m (2,990).
- Operating profit (EBITA)* amounted to SEK 153m (121), corresponding to an operating margin of 4.9 percent (4.0). The financial impact of the corona situation during the quarter is estimated to SEK -60m. A capital gain of SEK 41m on the sale of real estate in Attendo Scandinavia had a positive impact on EBITA in the current quarter.
- Adjusted EBITA*, i.e. EBITA according to the previous IAS 17 accounting standard, was SEK 42m (42), corresponding to an adjusted operating margin of 1.3 percent (1.4).
- Attendo reported items affecting comparability of SEK -971m for the quarter. Consequent upon the corona situation, Attendo carried out an updated impairment test of recorded goodwill, resulting in a need to write down goodwill related to the Finnish operations with an amount of SEK 834m. In addition, Attendo has made a write-down of right-of-use assets of SEK 137m for the Finnish operations.
- Attendo is reporting a loss of SEK -975m (-39) for the period. Diluted earnings per share amounted to SEK -6.06 (-0.24). Adjusted earnings per share* after dilution amounted to
SEK 0.11 (0.13).
- Free cash flow amounted to SEK 198m (36).
- The total number of beds in operation in Attendo’s own homes was 17,650 (16,216), an increase by 9 percent. Occupancy in own homes was 78 percent (79).
- Attendo’s current assessment of impact from the pandemics is that known government support measures are expected to fully offset corona related additional costs in the second half of 2020. The corona situation is though expected to have a negative impact on sales, with an estimated impact on operating profit of SEK -10m per month during the remaining part of year.
Summary of the period January–June 2020
- Net sales increased by 6 percent, before and after currency effects, to SEK 6,240m (5,868).
- Operating profit (EBITA)* amounted to SEK 335m (379), corresponding to an operating margin of 5.4 percent (6.5). The financial impact of the corona situation is estimated at
SEK -80m. EBITA was improved by a capital gain of SEK 41m.
- Adjusted EBITA*, i.e. EBITA according to the previous IAS 17 accounting standard, was SEK 126m (202), corresponding to an adjusted operating margin of 2.0 percent (3.4).
- Attendo is reporting a loss of SEK -972m (27) for the period. Profit was affected by impairment of goodwill in the amount of SEK 834m and of right-of-use assets of SEK 137m. Diluted earnings per share were SEK -6.04 (0.17). Adjusted earnings per share* after dilution amounted to SEK 0.48 (0.77).
- Free cash flow amounted to SEK 424m (4).
* Excluding items affecting comparability
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This is information that Attendo AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Market Act. The information was submitted for publication, through the agency of the contact persons set out above at 08.00 CET on 23 July 2020.
Attendo - the leading care company in the Nordics
Attendo is the leading private provider of publicly financed care services in the Nordic region. The company was founded in 1985 and was first to provide outsourced care for older people in Sweden. In addition to care for older people, Attendo provides care for people with disabilities and social care for individuals and families. Attendo has approximately 25,000 employees and is locally anchored with more than 700 operations in around 300 municipalities in Sweden, Finland and Denmark. www.attendo.com