Attendo’s report for the third quarter 2019: Stable performance despite challenges

Thu, Oct 24, 2019 08:00 CET

Attendo shows good growth but continued pressure on margins in the third quarter of 2019. The quarter was marked by a more stable cost development and increased new sales. In Finland, a number of measures have been taken to strengthen the operations long-term, increase satisfaction and restore profitability. During the quarter, Attendo has agreed on a new long-term loan financing with more flexible terms.

President and CEO Martin Tivéus comments on the report

“Attendo delivers good growth and stable results, given challenging conditions. We have initiated the turn-around programme in Finland, costs have stabilised, sales of net new beds improved slightly and we have reached an agreement with a group of banks regarding a new long-term credit facility. However, profitability in Finland remains very low and we are taking several actions to strengthen the business for the long term, improve occupancy and increase satisfaction among customers and local authorities.

Net sales increased by 8 percent during the third quarter to SEK 3,013m. Organic growth from care homes in own operations remains positive, while we are seeing a decline elsewhere, primarily in outsourcing. EBITA excluding capital gains from the sale of real estate amounted to SEK 263m, about 30 percent lower than in the preceding year. Costs have increased structurally in 2019 as a consequence of higher staffing requirements in Finland and, at the same time, the strong expansion of recent years has led to more empty beds in our Finnish operations.

We opened a total of more than 400 new beds in own operations during the quarter and the total number of beds at the end of the quarter was around 16,500. We have sharply reduced the establishment pace in Finland, but given the long lead times in already ongoing projects, the opening pace is expected to remain high until the middle of next year. We estimate approximately 1,800 openings in 2019 and about 1,600 openings in 2020. The net increase in total beds will not be as high, however, because we are discontinuing certain units that have not been assessed as attractive in the long term. We are also carrying out a gradual shift towards more openings in Scandinavia and fewer in Finland. Average occupancy is currently 80 percent, while mature units are demonstrating occupancy of around 90 percent.

During the quarter, Attendo renegotiated its financing and we have agreed with three banks of a new long-term credit facility. In accordance with the agreement, Attendo will undertake customary financial commitments, including that Attendo must fulfil certain covenants. These covenants are more flexible compared to the present agreement. Other terms are similar to the previous agreement.

Attendo Scandinavia - focus on growth and quality of care

Our Scandinavian operations demonstrated continued stable development. Profits excluding capital gains were marginally lower than profits in the comparison quarter. Sales and occupancy for own care homes improved slightly and home care operations are continuing to show positive development. Likewise, revenues and profits stabilised in outsourcing, although at a low level. Attendo won new outsourcing contracts of SEK 45m in annual income during the quarter. We are continuing to identify new opportunities to open nursing homes in own operations in Scandinavia and construction of one new nursing home began during the quarter. An active effort is in progress to continue developing Attendo’s quality position in Scandinavia through improved methods, new digital tools and the roll-out of an enhanced culinary concept.

Attendo Finland - some signs of stabilisation
In the aftermath of the turbulence in the Finnish care market, Attendo Finland reported very weak financial performance in relation to the comparison quarter in the preceding year. This was caused by higher staffing costs due to higher staffing requirements, a large number of units in the start-up phase, a low pace of net sold beds and weak development in the acquired business Mikeva. Some stabilisation has occurred in relation to the second quarter of 2019. In addition to positive seasonal effects, costs have stabilised and sales of new beds have increased somewhat. The opportunity to recruit new employees has improved, although we expect this to be a limiting factor in being able to take in new customers in future quarters as well.

The government also announced a proposal in the third quarter to further increase the staff ratio in certain parts of care for older people by 2023. It is too early to assess the impact of this proposal as all details have not yet been clarified.

As previously communicated, our strong measures to reverse the trend in Finland are continuing:

We have strengthened the management with a new business area director, Virpi Holmqvist and a new Finance Director, Henna Plit.
We carried out a reorganisation in the third quarter, in which we increased the number of regional / area managers to improve the operations.
We have reinforced our central and regional recruitment support functions and are stepping up the recruitment of Filipino nurses to Finland.
As our contracts in Finland expire, we are seeking compensation for the higher demands in negotiations with the contracting local authorities.
To increase occupancy more quickly, we sharply reduce the number of new establishment projects and we close down units where the opportunities to fill beds are considered unsatisfactory.
We have an ongoing action programme aimed at further improving quality, employee commitment and customer satisfaction in Finland.

Highest customer satisfaction will lead to long-term success

We have a long journey ahead to re-establish trust and profitability in our Finnish operations. But we can already see that our actions are effective and financial performance is starting to stabilize in the third quarter. We have had the ambition to present updated financial targets in 2019, but considering the uncertainties in the Finnish market, we believe it makes sense to delay new commitments.

There are no shortcuts in the work going forward. For a company like Attendo, the prerequisite for long-term success is the capacity to deliver high and stable quality to satisfied customers, which has been the hallmark of the company since the beginning. Customer surveys show that our care is appreciated and that we are the preferred provider in several locations. But we will not be content until we have the highest level of satisfaction in every location in which we operate - can deliver more care for money spent by local authorities, and at the same time create value for our shareholders.“

Summary of the third quarter 2019

Net sales increased by 8 percent to SEK 3,013m (2,802). Adjusted for currency effects, net sales increased by 6 percent.
Operating profit (EBITA) amounted to SEK 294m (375). Excluding capital gains from the sale of real estate in Attendo Scandinavia, EBITA amounted to SEK 263m (375), corresponding to an operating margin of 8.7 percent (13.4).
Adjusted EBITA, i.e., EBITA according to the previous accounting standard, was
SEK 204m (297).
Profit for the period amounted to SEK 94m (149), corresponding to a profit margin of 3.1 percent (5.3). Diluted earnings per share were SEK 0.58 (0.93).
Free cash flow amounted to SEK 51m (153).
The total number of beds in operation in Attendo’s own homes amounted to 16,470 (14,889), an increase by 11 percent. Occupancy in own homes was 80 percent (81).
After the end of the quarter, Attendo reached an agreement with a bank syndicate of three banks regarding a new long-term credit facility. This replaces existing credit facilities and provides greater flexibility linked to covenants.
During the quarter, Attendo has tested goodwill for potential impairment. The test shows that there is no need for an impairment. See page 16.

Summary of the period January–September 2019

Net sales increased by 9 percent to SEK 8,881m (8,169). Adjusted for currency effects, net sales increased by 7 percent.
Operating profit (EBITA) amounted to SEK 673m (832), corresponding to an operating margin of 7.6 percent (10.2). The third quarter of 2019 was affected by a capital gain of SEK 31m arising from the sale of real estate, while EBITA in the comparison quarter was reduced by non-recurring costs of SEK 73m.
Adjusted EBITA, i.e., EBITA according to the previous accounting standard IAS 17, was SEK 406m (613).
Profit for the period amounted to SEK 121m (248), corresponding to a profit margin of 1.4 percent (3.0). Diluted earnings per share were SEK 0.75 (1.54).
Free cash flow amounted to SEK 55m (476).

Invitation to teleconference

Investors, analysts and journalists are hereby invited to participate in a teleconference at 10:00 am (CET), hosted by Attendo’s CEO Martin Tivéus and CFO Fredrik Lagercrantz. The presentation will be held in English.

To participate in the conference, please dial in on any number below at least ten minutes before the start of the call:

SE:                 +46 8 505 583 55
FI:                    +358 981 710 521
UK:                 +44 333 300 9266

You can follow the presentation and the conference on the following page:
https://tv.streamfabriken.com/attendo-q3-2019

The quarterly report and other information material will be made public on:
https://www.attendo.com/investor-relations

Attendo AB (publ)

For further information, please contact:

Andreas Koch, Communications and IR-Director Attendo
Phone: +46 705 09 77 61
E-mail: andreas.koch@attendo.com

Stefan Svanström, Head of Community Communications Attendo
Phone: +46 708 67 38 07
E-mail: stefan.svanstrom@attendo.com

This is information that Attendo AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person(s) set out above, at 08.00 am CET on 24 October 2019.

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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 around 24,000 employees and is locally anchored with close to 700 operations in more than 200 municipalities in Sweden, Finland, Norway and Denmark. www.attendo.com