Attendo’s year-end report 2018 - Strong growth in own operations affects margins
Attendo continues to show strong growth in own operations, with a record number of new nursing home openings in the full year 2018. The combination of a high pace of openings and costs related to closing down other operations puts pressure on profitability. The possibilities to increase margins from current level is deemed limited during the current year and 2020.
CEO and President Martin Tivéus comments on the report:
“Continued growth in own operations
Attendo demonstrated high growth in the fourth quarter and for the full year of 2018, a result of a record-high number of new homes in own operations and acquisitions. Still, the results in the fourth quarter and full year have not been satisfactory. We have seen a significant margin impact of the many openings in combination with high costs related to closure of units.
Net sales in the contract model Own operations continued to increase through acquisitions and openings of new nursing homes during the last few quarters. We opened 11 homes during the fourth quarter, providing 396 beds, and a total of 2,409 beds were opened during the full year of 2018. We also began construction of 10 new homes and at the end of the year, Attendo had 2,462 beds under construction. Attendo’s organic growth was 4.5 percent for the fourth quarter and 3.6 percent for the full year 2018.
Net sales in Outsourcing were lower compared to the fourth quarter of 2017, as a consequence of contracts ending during the latter part of 2018. We assess the outsourcing market as generally stable but challenging and, measured in contract volume, we gained as much as we lost during 2018 overall.
Continued margin pressure and increased provisions
In the fourth quarter, underlying operating profit was lower compared to the same quarter in the preceding year. Profits from units that were in a start-up phase during the comparison period, improvements in the home care operations and acquisitions had positive impact on profits. These items could however not compensate for start-up costs, unusually high project and facility related costs and lower profits from outsourcing operations. In addition, we increased provisions during the fourth quarter of 2018 by SEK 60 million related to a few individual units that we are closing down and units expected to be loss-making in upcoming period.
Operating profit and margin for the full year of 2018 were considerably lower than for 2017, primarily as a consequence of costs for units in the start-up phase and non-recurring costs.
The high rate of openings will continue in 2019 and 2020. However, the pace is lower than the peak during the 12-month period July 2017 until June 2018 when we opened approximately 2,900 beds. Our mature units in own operations continues to demonstrate stable development related to occupancy and profitability and we predict a good profit growth during the coming years. However, given the ongoing expansion and expected lower contribution from outsourcing, we expect the possibilities to increase the margins from the existing level to be limited during this period.
The increased expansion pace recent years has led to longer start-up times and thus higher costs than historically. We are carefully assessing the balance between growth opportunities and the increased exposure that the expansion entails. Going forward, we are reducing the risk exposure in connection with new projects. The constructions of new units are however long projects and units that we are currently opening are based on decisions taken years ago.
Later in 2019, we will update our long-term financial targets based on Attendo's strategic plans and reflecting the new accounting standard IFRS 16.
Continued debate about care for older people in Finland
An intense debate in media and in politics has emerged in Finland regarding the conditions of care for older people, mainly related to private providers. The debate is primarily focused on staffing ratios and quality. In recent days, Attendo has received critique relating to a newly opened nursing home, Attendo Pelimanni in Alavus. The new unit received about 50 new residents with intensive care needs in only a few weeks. The unit has temporarily got its permit suspended by the local supervisory authority in western Finland. We take this event very seriously and relevant measures have been taken.
Attendo Finland provides good and appreciated care and we are operating according to the Attendo model. This implies continuous internal quality monitoring at every single unit, a value driven culture and clear accountability on all levels. Attendo has about 400 care homes in Finland and has historically had fewer cases of criticism in relation to our size than the care sector as a whole.
New accounting standard
As of 2019, we will implement the new accounting standard, IFRS 16 Leases. This will have material impact on Attendo’s income statement and balance sheet. On page 22 in this report and in appendix, we provide a description of Attendo’s implementation of the standard and pro forma presentations of income statements and balance sheets for 2018 in accordance with the new standard.
Attendo will continue to contribute to increased access and developing the quality of care services. We base our strategy on three main objectives: we will offer individualized, high-quality care, we will continue to establish new and modern nursing homes and in so doing increase access and we will offer local authorities more care for every krona spent. When we reach these goals, I am convinced that we will remain the number one provider of new nursing homes at the same time as we deliver good growth in shareholder value. “
Summary of the fourth quarter of 2018
- Net sales increased by 15 percent to SEK 2,818m (2,457). Adjusted for currency effects, net sales increased by 12 percent.
- Operating profit (EBITA) amounted to SEK 98m (188).
- Operating profit in the fourth quarter was reduced by increased provisions of SEK 60m referring to discontinuing operations and operations expected to be loss-making in coming periods.
- Operating profit (EBITA) adjusted for non-recurring items amounted to SEK 158m, corresponding to an operating margin of 5.6 percent (7.7).
- Profit for the period amounted to SEK 18m (98) corresponding to a profit margin of 0.6 percent (4.0) and diluted earnings per share of SEK 0.11 (0.61).
- Operating cash flow (including the Finnish health care operations) was SEK 155m (252).
- The number of new beds opened in own operations was 396. The total number of beds in own operations amounted to 15,684 (13,262), an increase by 18 percent. The number of beds under construction in own operations was 2,462 across 55 homes.
- The divestment of the health care operations in Finland was finalised.
Summary of the period January–December 2018
- Net sales increased by 22 percent to SEK 10,987m (8,977). Adjusted for currency effects, net sales increased by 19 percent.
- Operating profit (EBITA) amounted to SEK 711 (890), corresponding to an operating margin of 6.5 percent (9.9).
- Operating profit (EBITA) adjusted for non-recurring items amounted to SEK 844m (890), corresponding to an operating margin of 7.7 percent (9.9).
- Profit for the period decreased to SEK 321m (542), corresponding to a profit margin of 2.9 percent (6.0). Diluted earnings per share amounted to SEK 2.00 (3.38).
- Operating cash flow (including the Finnish health care operations) was SEK 709m (763).
- The board of directors is proposing a dividend of SEK 0.60 (1.27) per share, equal to 30 percent of net profit from continuing operations in accordance with Attendo’s dividend policy.
- Attendo is expecting profit growth during coming years, but given the ongoing pace of expansion, the possibilities to increase the margin from the existing underlying level are expected to be limited in 2019 and 2020.
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 8 566 42 705
FI: +358 981 710 522
UK: +44 3 333 009 262
The presentation and the conference can be reached on the following page:
https://tv.streamfabriken.com/attendo-q4-2018
The quarterly report and other information material are published 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 set out above, at 08.00 am CET on 14 February 2019.
___________________________________________
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