Edited Transcript of AMBEA.ST earnings conference call or presentation 13-May-20 8:00am GMT

Sick leaves almost tripled the first couple of weeks and have since gone down but still remain on a higher-than-normal level. We were fortunate to have digitalized our recruiting process since a few years back and have therefore been able to find, screen and train candidates and thereby been able to provide our units with good supply of candidates.

Communication efforts have, of course, been extensive and done through a wide range of channels. We have also done more than 150 external media interviews, not to mention extensive communication to our caretakers and their relatives. We just completed an employee survey regarding our corona work, and of approximately 8,000 that responded, only 4% were dissatisfied and 16% saw improvement needs in our corona handling, but a vast majority were satisfied with our work. There have, of course, been several instances where we could have done more or acted quicker or provided better leadership, but in general, I’m very impressed by the fantastic work that has been done. The biggest heroes are, of course, all our employees in almost our 1,000 care units. I wish I could meet and thank everyone of them personally, but with the coronavirus still all around us and limitation to travel, it will unfortunately take time before we can travel and meet personally in the organization again.

Over to financial impact. The coronavirus had only minor effect on Ambea’s overall financials in the first quarter. We estimate that the negative effect on profitability — on profits were minus SEK 5 million. However, in the second quarter, we expect significant impact on revenues and profits. Our best estimate is a negative impact on sales in the second quarter amounting to minus 3% and an impact on profitability in the range of SEK 40 million to SEK 60 million.

We saw an infection peak in Sweden in the first 2 weeks of April. But since then the number of homes with ongoing infection has gone down. And in Norway and Denmark, we have no infected cases in our nursing homes. Last week, [social citizen] in Sweden presented the impact on mortality from COVID-19 and concluded that just over 1% mortality among COVID — from COVID-19 among Swedish nursing home residents. That number of 1% should be compared with a normal average of approximately 4% mortality per month in Swedish nursing home residents.

So Ambea see no long-term structural impact on demand, and we see very limited risk for our future sales and profit level. But in the short term, it is elderly care in Sweden, representing approximately 1/3 of our sales, where we will have most of the negative impact.

We will, of course, answer more questions on COVID in the Q&A session later, but let us now turn over to the financials of the quarter.

With the Aleris Care acquisition, we took on a challenge and, of course, an opportunity to bring up the margin of Aleris Care closer to what Ambea were delivering before the acquisition. As we stated in the acquisition announcement, there were significant administrative synergies to be captured, and we already see the impact in profitability from these savings, both in Vardaga and Nytida. But the larger potential is to bring up the operational performance in all 3 countries. In Nytida, we already have captured most of the potential, both from the administrative synergies in Sweden but also from the program announced last spring, where we took out overlapping capacity. The financial impact has been demonstrated by several quarters of margin improvements.

In Vardaga, we saw a larger improvement potential using our Elderly Care concept. That implementation was started in January this year and made significant progress during the first month of this year. And we are already in the first quarter seeing profit improvement, but the full potential might be delayed given that COVID is now taking almost all attention in our Swedish elderly care operation.

In Stendi, Norway, we have a broader program running to address the administrative costs, strengthen the operating model but also ensure appropriate pricing and staffing models. In Q1, we see some progress versus last year and versus last quarter 4, but significant work remains and effects are likely to be seen in the second half of 2020. Altiden in Denmark should be viewed more as a longer-term growth option, and we have scaled up overhead and leadership costs to be able to grow, both through acquisition and organic residential care.

Over to organic growth. In the first quarter, we continued our effort to — for future organic growth. We opened 2 new elderly care units and 1 disabled care unit in Sweden. We also opened 2 nursing homes in Q4 and additional 2 in Q3. So we now see ramp-up costs in a higher number of units. We are likely to see delays in ramp-up due to COVID, but I will comment more on that later.

Our strong win rates in first 6 months of 2019 in Swedish contract management are giving effect in the first quarter, and we saw contract management sales improvement both in Vardaga and Nytida. And in the first quarter, we saw strong win rates with a net win for Vardaga of SEK 157 million of annual sales. The 3 nursing homes wins have, however, been legally challenged, so still some uncertainty, since they are not yet signed.

Acquisitions. In Denmark, our strategy is to shift sales mix towards own management and towards disabled care. As we communicated in our last report, we did 2 acquisitions in residential care for autism during Christmas. The larger of the 2 called Vivamus were finalized in the beginning of January. In addition, as communicated earlier, we are repositioning our home care operation towards more attractive regions and completed a divestiture of 1 smaller home care operation during the quarter.

So to sum up financial development. Our growth target is 8% to 10% through a combination of acquired and organic growth. Given the size of the Aleris Care acquisition, we exceeded the growth target in 2019 and also some effect going into Q1. Our pipeline of new homes and good development in contract management will gradually also increase our organic growth rate. Profitability wise, we have a mid-term adjusted EBITDA target of 9.5%. Acquisition, of course, diluted our margin, but an important sign during Q1 is that we are turning around the negative rolling 12-month trend, but still a lot of work to fully realize our margin potential. And finally, leverage, we have seen a gradual drop of leverage since the acquisition and the rights issue. We will be cautious with our cash position also in the coming quarters to bring down our leverage towards our financial goal of 3.25.

And with that, over to you, Benno, to take us through some more detailed financials.

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Benno Eliasson, Ambea AB (publ) – CFO [3]

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Thank you, Fredrik. When we compare this quarter to the first quarter last year, we, of course, must remember that the acquisition of Aleris Care were finalized on 21st of January. So in total, that has affected the net sales by 13%. And the weak Norwegian krone has affected the net sales by minus 1%, and the underlying organic growth is, therefore, more or less flat.

When we look into the — how the different business areas have affected the group numbers, starting with net sales, we can see that Vardaga was the largest contributor to the group by SEK 130 million, driven by the Aleris effect full year and the ramp-up of the unit that started in late 2019 and early 2020. Nytida was less affected by the Aleris acquisition, but has grown through some minor add-on acquisitions and some new contracts won.

In Stendi, Norway, the rapid weakening Norwegian krone in March affected Q1 sales by 4%, but still contributed to the group numbers by SEK 90 million, driven by growth in the own management portfolio.

In Altiden, Denmark, we have made, as you heard, 2 acquisitions lately, which, together with the full quarter effect of Aleris, is adding on SEK 72 million to the group’s net sales.

And at last, Klara was hurt by the new Swedish VAT regulation for health care services in mid-2019, which cooled down the market for these services significantly. So that was the reason for the drop in Klara. We have, of course, had a positive calendar effect because of the 29th of February in Q1, which added an extra day of invoicing, and this has, of course, affected all numbers.

Turning to the profit numbers. Our business in Nytida and Stendi has both delivered SEK 26 million more than last year, by both growing sales and profit margin at the same time. Nytida from an already high base helped by the cost savings program we had in the first half of 2019 and adjustment of the overlapping capacity after the Aleris Care acquisition. Stendi saw better occupancy levels and implementation of a more efficient steering model. I think Fredrik will tell you more about that later on. Altiden in Denmark is in a buildup phase, and we are improving our capacity and competence for further growth. Vardaga profitability is short-term hurt by the high number of newly started units and profits were down by SEK 4 million. But given the fact that we have gone from 7% to 20% of total number of own management beds under ramp-up, this is a strong performance in the quarter.

One of the best profitability improvements percentage-wise in the quarter came from Klara. Despite the drop in sales by 24%, the profit went up and the profit margin were now at 10%.

So to summarize, the net EBITDA — the adjusted EBITDA, it was up 28% versus last year and positively affected by 1 extra invoicing day, of course, and slightly negative by the COVID-19 disease in the quarter.

Turning into the IFRS 16 effect. We have, as all companies since the beginning of 2019, been reporting, including the new leasing standard, IFRS 16. That means that all reported quarterly and year-to-date data 2020 are comparable with the reported numbers for 2019. However, data that includes quarter from back in 2018, like rolling 12 data up to Q3 2019, is still affected by the different reporting standards. So in this slide, you can see the effect of this new reporting standard.

Turning to cash flow. Operating cash flow in the quarter was SEK 298 million versus SEK 214 million Q1 last year. If we exclude IFRS 16 effect, we are at the operating cash flow level at SEK 106 million this quarter versus SEK 53 million in the same quarter last year. Quarterly cash flow is always hard to analyze due to the dependence of a few customer payments in a very last day of the quarter. So often the long-term trend is more relevant. So if we look into that trend, measuring the cash conversion rate, which is the operating cash flow in relation to the EBITDA on a rolling 12 basis, we can see that we are now above 96%, and the trend is growing.

Turning to the financing situation. The leveraging of the group is continuing at a slower pace this quarter. In the quarter, between 50% and 70% of the financing has been done through our commercial paper program and the rest through our committed bank facility. In the later part of the quarter, the market for unrated commercial papers like ours more or less vanished, which means that we will shift the financing to more traditional bank financing going forward, and this will, of course, affect the financial net in the coming quarters.

The increase in lease debt from last year is more than SEK 600 million, and that reflects the fact that we have increased the pace in startups of units under own management, and these units often come with much longer rental conditions than the average portfolio, and that is the reason for the growth in the leasing debt.

And then back to you, Fredrik, for more about the different segments.

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Fredrik Gren, Ambea AB (publ) – CEO & President [4]

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Yes. Thanks, Benno. Starting with Vardaga, where total sales reached SEK 909 million, up — the quarter was up 14% versus last year’s first quarter. This is, of course, driven mostly by the acquisition of Aleris, but also from ramp-up of new units. Own management growth with 23%, reaching SEK 561 million or 62% of sales. Contract management was sales of SEK 348 million, which is up from SEK 339 million, which gave a positive impact given the new wins last year. So during the quarter, Vardaga continued strong win rates and, as I mentioned before, we won 3 new nursing homes, total sales of SEK 157 million per year.

EBITDA for Vardaga reached SEK 48 million versus last year’s SEK 52 million. And newly started unit and ramp-up units now representing 20%, as Benno said, of total Vardaga own management capacity. So that affects profitability negative. So the limited impact on profitability in total versus last year is driven by other positive improvements, and that includes both administrative Aleris synergies but also early impact on margin improvement in former Aleris units as we are introducing our care concepts in these units.

The EBITDA margin of mature units went from 10.4% last year to 9.8%. That’s a slight decline. And the reason for this is that from this quarter, we include all former Aleris mature units in the population.

Over to Nytida, where total sales reached SEK 912 million, up 4%. Own management growth of 3%, reaching in total SEK 781 million in the quarter, driven mostly by Aleris acquisition and some newly started units. Contract management improved, reached SEK 131 million, which is up 11% versus last year. And we had very strong win rates during 2019, and we are now clearly turning around the negative sales trend in contract management for Nytida.

EBITDA growth for Nytida up 25%, reaching SEK 129 million versus last year’s SEK 103 million. We see effects from the Aleris synergy realization but also from taking out the overlapping capacity after the acquisition. We also see improvement in the individual and family segment, which is performing better than last year. So adjusted EBITDA margin of 14.1% in the quarter, which is 2.3% better than last year.

Over to Norway in Stendi, where sales improved 13%, up to SEK 761 million. We had some negative currency effect, which had major impact in the quarter and reduced sales growth with 4 percentage points compared to growth in local currency. Own management sales increased 18% to SEK 686 million, and contract management sales reached SEK 75 million, which is down from SEK 92 million last year. The decline in contract management is explained by the return of nursing home contracts in — during 2019.

EBITDA reached a positive SEK 13 million, which is a margin of 1.7% in the quarter versus last year. And last year, we had minus 1.8%. And that improvement is mainly driven by lower personnel costs, both for fixed employees and for rental staff, but also improved occupancy.

The announced program to reduce administrative costs and strengthen the operational leadership in the organization continued as planned in the first quarter, with annual savings of SEK 30 million realized by the year-end. Looking ahead, Stendi will continue with the ongoing initiative during the seasonally weak second quarter. Stendi recorded SEK 14 million in realization costs in this first quarter, but the total restructuring cost is expected to be SEK 45 million.

Over to Denmark in Altiden, where sales reached SEK 169 million, up 74% versus last year. The 2 acquisition, Vivamus and Casablanca, performed in line with expectations in the first quarter and contributed positively on profitability. In the quarter, Altiden had an EBITDA of minus SEK 3 million or an EBITDA margin of minus 1.6%. We have invested in overhead, both for building up our own support organization as an independent company in Denmark after the carve-out through an Aleris former organization. But we also have strengthened both disabled care management and resources to support organic growth. We plan to continue our strategy to grow in more profitable segments of disabled care and own-managed nursing homes.

In Klara, total sales were down 24%, reaching SEK 60 million in the quarter. Sales decline is predominantly in the staffing business towards private customers impacted by the VAT reform introduced last summer. But we, at the same time, saw continued growth of our team services with favorable mix development and administrative savings. We continued to improve margin in the quarter, reaching 10% versus last year’s 6.3%.

So with that, summarizing the first quarter. As stated initially, COVID-19 were, of course, the main focus towards the later part of the first quarter. We have continued growth driven by full quarter effect of Aleris Care acquisition and new units. We continue our focus on organic growth and 2 new nursing homes opened in the quarter. Greenfield pipeline is still a high level, representing 25% of total own-managed beds. Margin improving efforts in Vardaga, Nytida and Stendi progressing according to plan, and we see Ambea’s margin trend turning up again after the Aleris Care acquisition.

Restructuring program in Norway to strengthen margins recorded one-off costs of SEK 14 million in the quarter. Full year one-off costs of SEK 45 million is to be expected and yearly savings of about SEK 30 million to come in — fully come in at the year-end.

And finally, the Board decided to withdraw the previous proposal of dividend as a result of increased uncertainty related to COVID-19. Ambea’s financial position remains stable going forward.

So with that, I conclude our presentation and open up for questions. So operator, please, could we have the first question?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from the line of Carolina Elvind at Danske Bank.

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Carolina Elvind, Danske Bank A/S, Research Division – Analyst [2]

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My first question is, could you give some color on how you view the negative impact of the coronavirus between the different business segments? So is the loss — estimated loss of sales in EBITDA mainly related to Vardaga? Or should we expect the other segments to be impacted as well?

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Benno Eliasson, Ambea AB (publ) – CFO [3]

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Yes. The most — the segment that is most affected by corona is, of course, the elderly care in Sweden. So we see most of the effect there, but we see some effects throughout the other segments as well. But majority of the negative effects, both in revenue and costs, are on the elderly in Vardaga in Sweden.

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Carolina Elvind, Danske Bank A/S, Research Division – Analyst [4]

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Okay. And the additional cost adjustment in Q2, is this from the level that you are now? Or is it year-over-year in Q2, SEK 40 million to SEK 60 million on EBITDA?

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

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What we have done is to — it’s — compared to where we — our run rate right now.

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Carolina Elvind, Danske Bank A/S, Research Division – Analyst [6]

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Okay. Also, I’ve been hearing that private providers are asked to take in new patients from hospitals as they want to free up space for coronavirus patients. Is this something that you have seen? Or do you think it will potentially help occupancy during this period?

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Fredrik Gren, Ambea AB (publ) – CEO & President [7]

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We have — we were very early to open up a special unit. Since we had 1 completely new nursing home opened up sort of in March, we said immediately to dedicate that to only kind of COVID-infected patients. So for a few weeks in the beginning of April, we saw some demand from hospitals, but that was not big numbers. We have opened up similar kind of service in [Spånga] and in (inaudible), but it seems like the hospital and the kind of newly formed places in hospitals are meeting the demand. So we see some effect on that, and we would like to be kind of a good service to our customer, but it’s not going to be big numbers.

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Carolina Elvind, Danske Bank A/S, Research Division – Analyst [8]

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Okay. And just one last question for me. So looking at Norway, how should we view the margin development there considering the coronavirus? Do you still have resources to work on and build the efficiency there? Or is this a case of initiatives put on hold?

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Fredrik Gren, Ambea AB (publ) – CEO & President [9]

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I think, first, elderly care is where we see impact. I mean that’s where we have the most vulnerable clients. And elderly care is a very, very small portion of sales in Norway. And we have, at the moment or, hopefully, we’ll continue like that, we have no infected customers or clients at all in Norway. So in general, we have, of course, introduced a lot of new routines, et cetera. So a lot of efforts has been on that. So when it comes to sort of our focus on efforts, we can still focus on doing other type of changes. That said, there is, of course, an impact from corona also in Norway, given the restriction on traveling, and given kind of slower handling of new clients moving in, given that also municipality staff are working from home, et cetera. So we are — we will see some impact in Q2 also in other business segments and also in Norway. And on top of that, Q2 is the seasonally weakest quarter, as you probably know, with a largest number of red days in Norway. So there’s a lot of things impacting quarter 2, of course. But our work to improve margin long term is, of course, still very active.

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Operator [10]

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Your next question comes from the line of Kristofer Liljeberg at Carnegie.

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

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When it comes to the comment about the negative effects from COVID-19 and saying that’s from the current run rate rather than year-over-year, could you help us what type of seasonal effects we should expect second quarter versus first quarter this year? And also if there was anything else that might have inflated the Q1 numbers?

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Benno Eliasson, Ambea AB (publ) – CFO [12]

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We have, of course, the effect of the extra invoicing day in Q2 — in Q1. So the number of invoicing days between Q1 and Q2 is not as big as normal year. We have also — as Fredrik just said, majority of the banking holidays are in Q2, especially in Norway, but also in Sweden, and that affects the Q2 profitability, of course.

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

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Yes. I took that. But could you quantify what the seasonal effect will be on earnings second quarter versus first quarter, just an approximate figure?

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Fredrik Gren, Ambea AB (publ) – CEO & President [14]

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And we’ll have to come back to that. But in addition, we have the SEK 5 million of negative effect in Q1 from corona as well — impact — and probably going to have an impact on Q1.

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

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Yes. So ballpark, do you think, assuming seasonal effect, would be SEK 20 million, SEK 25 million negative second quarter versus first quarter? Do you think that’s a reasonable number?

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Fredrik Gren, Ambea AB (publ) – CEO & President [16]

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We’ll have to come back to that to give you such a precise number. But if you see our Q1 numbers, that’s basically where — the SEK 40 million to SEK 60 million negative impact on profit on that, but then the other effects — the other seasonal effects probably should be based on what you…

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

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Yes. The reason I’m asking — it’d be very good maybe if you could come back because the seasonality here, of course, makes it a little bit difficult to follow the underlying improvements, which I guess is underlying margin better now than a year ago.

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

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Yes.

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

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But never mind. The second question relates to Norway. So of course, again, there is definitely some seasonality here, but could you explain a little bit more in detail what has been driving improvement from loss in the fourth quarter, which I think surprised everyone negatively to the profit of SEK 30 million you had in Q1?

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

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I think that the loss in the fourth quarter was due to the reduction in occupancy in the child and youth segment. And it was it was kind of not a huge number, but the number of individuals taken back by — to municipality care or to — from us, we’re basically losing that revenue. And given that, that was sort of often the difference between 100% occupancy and a 75% or 60% occupancy in a handful of units and quite high kind of daily remuneration rate, it had a significant impact on profit.

And as we said in the Q4 report, we — that was sort of a seasonality effect during the last 3 months every year, and that we saw some of that volume coming back during the first quarter. So part of the effect of the sequential improvement is just seeing some of that volume coming back. But if you compare to last year, we also have some effect coming from higher cost-efficient — that we’re more cost-effective and sort of personnel cost is slightly lower this first quarter than last year’s first quarter.

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

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So when — so if you look at the current run rate, would you say — if the market were the same in Q4 with those lower numbers, would you have been profitable as the business is running now?

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

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If the market is the same, you mean the…

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

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I guess, yes. If you — as the business is running now in Norway, would you be able to compensate those lower volumes in Q4 typically and still be — do a profit as the business looks now with the improvements we have done?

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

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What we are doing now is a couple of different things. So I mean, one is lowering our administrative costs. The full effect of that will be seen, of course — or effect of that will be seen in Q4. So that will kind of — coming Q4 will, of course, be improved by those savings that we have announced. The second thing is, of course, to continue and build sort of efficiency in our contribution margin, and that includes kind of probably closing down some smaller units that are — we’re not seeing the right occupancy level, but also reviewing staffing and kind of getting to the right schedule in all these units.

And we have seen — or we have put a lot of these efforts in place during the first quarter, and we see some impact of it. So by the coming quarter 4, we should, hopefully, see sort of more impact where that should have improved in Q4 2020 versus 29 (sic) [2019], of course.

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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. Sounds good. And the last question, when it comes to openings for Vardaga next coming quarters, how many will there be in the second, third and maybe fourth quarter?

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

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I see we have — so the total number this year — there will be — so in the second quarter, which we are sort of right now, we have openings already done in — 2 units have been opened in April, and a third unit will be opened before we close quarter 2. And then we have an additional 7 — 6 to 7 units, depends a little bit on kind of exactly when one of them will open in the end of the year. But we will have — during the year, we will have 3 in Q2, 3 in Q3, 3 or 4 in Q4.

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Operator [27]

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Your next question comes from the line of Thomas Graf at Handelsbanken.

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Thomas Graf, Handelsbanken Capital Markets AB, Research Division – Research Analyst [28]

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Can you hear me?

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Fredrik Gren, Ambea AB (publ) – CEO & President [29]

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Yes.

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Thomas Graf, Handelsbanken Capital Markets AB, Research Division – Research Analyst [30]

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Great. Great. I’m just a bit curious about the potential risk effects with the COVID-19 and so on. What are your views about the sort of the media landscape, if it will potentially blow up or any elderly care scandals or whatnot? Any comments on that? And also — yes, yes, start with that one.

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Fredrik Gren, Ambea AB (publ) – CEO & President [31]

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Okay. I think that, first of all, there was a — I think there was a very healthy debate around elderly care in Sweden. This sort of fall, where you for the first time in a long — quite long period actually discussed the real questions. We are more and more elderly. Do we have enough nursing homes? How will we handle kind of lack of staffing? And what do we need to do in terms of digitalization, improvements, et cetera? And that debate started, and I would have liked that debate to be higher on the political agenda than it actually was. Then came COVID-19. And of course, that put elderly care again much higher on the political discussion. Right now, I think we — right now, of course, there’s a lot of focus on numbers. And I think one number that we tried to come up with is the fact that in a normal year, 40% of everyone who dies in Sweden live in a nursing home. So it’s quite normal that you have a high mortality rate in our nursing homes. And all of a sudden, in media, it seems to be a lot of surprise that I think the number now is 30% of everyone who has died in COVID-19 live in a nursing home. But the normal number is actually higher.

So I think right now that focus will be there. I think that after summer, it’s time to kind of a little bit more deeper reflection on elderly care and what the impact be long term. So far, there’s been some kind of small effort to be expected that they try to see if there’s kind of a logic of private versus municipality-driven nursing home, that one is better than the other. There is no fact saying — that states that. So I hope that we can have a discussion on the real need and the real need for change and efforts and investments on nursing home. And we, as a company, and also through our industry organization will certainly try to be part of that discussion. So we’ll see where it goes, but we actually welcome an increased political focus on elderly care.

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Thomas Graf, Handelsbanken Capital Markets AB, Research Division – Research Analyst [32]

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Okay. And if potential unemployment will go up and so on and less tax to be gained by the government, so to speak. Any worries about that for the municipality financing? How that will affect you?

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Fredrik Gren, Ambea AB (publ) – CEO & President [33]

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Yes. I think what all the big sort of structural difficulties that we — were expected and given that there would be more elderly to take care of, already before COVID-19, we expected that to put a lot of pressure on municipality financials. What we have seen, historically, is that when sort of there is a lack of funding in municipality, the obvious solution is to increase outsourcing because then you know you can get some savings. So there is — one scenario of this is that this might actually push privatization higher. That said, we will also, at the same time, see — likely to see price pressure, and with price pressure also kind of push for new development, new ways of building homes, new ways of introducing digital technology, et cetera. And one important factor there is, of course, for us as a private sector and for Ambea as a large player there is to be on the forefront of driving that development and, hopefully, sort of take advantage of kind of bringing potential solution to that early into the market.

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Operator [34]

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Your next question comes from the line of Klas Pyk at Nordea.

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Klas Pyk, Nordea Markets, Research Division – Research Analyst [35]

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So I might be partly repeating previous questions, but I’ll ask them anyway just to make sure I get it right. So first, on the impact on sales [of minus] 3%, could you once again clarify how we should think of this, considering that you opened up a couple of units in Q1 and will open up an additional 3 in Q2? So should we see the drop in relation to Q1 sales or rather like how sales would have been in Q2 if COVID-19 did not happen? That’s my first question.

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Benno Eliasson, Ambea AB (publ) – CFO [36]

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Yes. I think you said the answer yourself, the last sentence, if the COVID-19 wouldn’t have happened, then we would have had 3% higher sales in Q2. So that is how it affects the run rate. It’s not more difficult than that. And that’s how it’s calculated. And the same with the profit — with EBITDA, it’s SEK 40 million to SEK 60 million, and that is compared to if the COVID-19 wouldn’t have happened. So that is — it’s all compared to the run rate that we have compared these numbers.

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

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And just to add on the third profitability impact, that is, of course, then a combination of lower occupancy predominantly in nursing homes. It’s all the increased costs that we have for protective material and sick leaves minus — or also included is the positive contributions from the different state programs, and we have only included state programs that have been kind of confirmed and decided, so — announced and decided in those numbers as well.

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Klas Pyk, Nordea Markets, Research Division – Research Analyst [38]

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Okay. And just a follow-up on that. So can you split out how much direct costs are related such as protective gears? Or was it increased sick leave, the net effect from increased sick leave?

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Fredrik Gren, Ambea AB (publ) – CEO & President [39]

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It varies a lot by country-by-country, of course, with the different — and also by segment-by-segment. It’s difficult to do here now.

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Operator [40]

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Your next question comes from the line of Karl-Johan Bonnevier at DNB Markets.

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Karl-Johan Bonnevier, DNB Markets, Research Division – Analyst [41]

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Just on — I understand your earlier answer to the pipeline that you are not really looking at delaying any openings as such for the moment due to the current situation. Is that the right way to interpret it?

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Fredrik Gren, Ambea AB (publ) – CEO & President [42]

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I think it’s fair to say that the difficulties we have in occupancy and kind of the reluctance for new clients to move in, of course, also have an impact on kind of new ramp up. But what actually we have seen is that some of the new ramp-ups, where everyone knows that there is no existing infection in the home, it’s been easier to kind of convince relatives and elderly to actually move in. So it has been kind of a mixed experience from this. A few of the homes that we have opened up recently, like the one in Karlstad and Stockholm has actually kind of ramped up quite well. But then there are others that opened in Q1 that has been more sort of slower to open. So it varies a little bit by the sentiment in what region it has opened. But you should expect sort of ramp-up times will, of course, be negatively affected by corona. And that’s included in the 3%.

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Karl-Johan Bonnevier, DNB Markets, Research Division – Analyst [43]

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So if you split that effect on — within the 3%, so to say, would you say half is related to slower ramp-ups and half is related to, say, reluctancy from local municipalities to place, say, new clients into existing homes? Or how should we see it?

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Fredrik Gren, Ambea AB (publ) – CEO & President [44]

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I think that actually almost all municipalities are communicating. No — very, very few, at least, municipalities have had to stop for new intake. It’s more driven by sort of fear from relatives. But I — and that is that the like-for-like is where you have the most impact on that. So it’s not a 50-50, it’s more based on, like we said before, 20% of our entire portfolio of own management is new or ramp-up units, and that probably correlates with sort of the impact as well. So it’s evenly split between all units.

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Karl-Johan Bonnevier, DNB Markets, Research Division – Analyst [45]

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And I heard you mentioned that in Vardaga, you now moved the Aleris homes into the mature base. Can you just confirm the number of — what kind of number of beds you see as mature with the new kind of calculation?

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Fredrik Gren, Ambea AB (publ) – CEO & President [46]

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That will mean that 8 — given that 20% now is new or ramp-up, so that would mean 80% of the homes are now calculated as mature. And you should probably think of the average size being around 55, 60. So I don’t have the number of beds, but 80%-20%.

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Karl-Johan Bonnevier, DNB Markets, Research Division – Analyst [47]

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Excellent. Good to see that you also get new contracts within Vardaga to get off to a higher pace. And when do you see those contracts you now signed in Q1 coming into operation?

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Fredrik Gren, Ambea AB (publ) – CEO & President [48]

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Typically, it is a delay of 9 months. I think that’s what we have stated before as kind of an average. So we’re likely to take them over right before Christmas.

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Karl-Johan Bonnevier, DNB Markets, Research Division – Analyst [49]

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Excellent. And could you just indicate how much of your employees for the moment are on these kinds of government finance, temporary redundancy programs?

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Fredrik Gren, Ambea AB (publ) – CEO & President [50]

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We have no employees in temporary redundancy program. On the contrary, we are looking — or at least the first couple of weeks, we had like 2 or 3x as high sick leaves. That number is now coming down significantly after 6, 7 weeks after. So we had big recruiting efforts in the first weeks that have scaled back now. So right now we have — we feel pretty certain that we have enough staff to take us also through the normal kind of vacation period of summer and make sure that our staff can take sort of appropriate vacation this summer, but no one in redundancy program.

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Karl-Johan Bonnevier, DNB Markets, Research Division – Analyst [51]

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Excellent. So the contribution from state programs that you mentioned in the different components of the SEK 40 million to SEK 60 million is really related to that you are not paying the first 14 days of the sick leaves anymore for your employees, so to say?

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Fredrik Gren, Ambea AB (publ) – CEO & President [52]

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Exactly. It is likely — there are a little bit of a variation on program. In Sweden, there is the sick leave, and that we also see in Norway and Denmark. There is sort of a slight sort of discount or reduction on social charges in Sweden. There is talk in a similar kind of program in Norway, but that has not finally been decided in (inaudible). So that’s not in the number if that program materializes. It varies a little bit in the different countries, but a lot of it is sick leave and a little bit is also social charges.

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Karl-Johan Bonnevier, DNB Markets, Research Division – Analyst [53]

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Finally, looking at the restructuring program in Norway, I think you earlier indicated that most of the cost for implementing that would hit the first half of the year. Is that a certain delay to the phasing of that as well now?

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Fredrik Gren, Ambea AB (publ) – CEO & President [54]

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I think you should — given corona, that is one of the things that will probably be pushed to right after the summer. So you — corona will probably move a portion of that from Q2 to Q3.

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Operator [55]

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You have further question 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 [56]

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Just a quick one. You talked about higher financial costs now, and you will rely more on traditional bank lending. Could you quantify what that would be on the financial net?

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Benno Eliasson, Ambea AB (publ) – CFO [57]

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We have been paying 40 to 60 basis points on the — as a margin on the commercial paper program. And of course, our banking financing program is way higher than that. So if that’s — I think you are — I think you’re now around the range what is normal for our type of business. So I think you can calculate that from those numbers.

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Kristofer Liljeberg-Svensson, Carnegie Investment Bank AB, Research Division – Head of Health Care & Financial Analyst [58]

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And what was the size of the commercial program before?

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Benno Eliasson, Ambea AB (publ) – CFO [59]

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We have a relatively short duration. So it will be more or less coming down to 0 in the end of this quarter. So we have a lot of these for 30 days or up to 90 days.

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Operator [60]

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There are no further questions. Please continue.

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Fredrik Gren, Ambea AB (publ) – CEO & President [61]

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So no further questions. Thank you all for today. The Q2 interim report will be published on August 19. So with that, have a nice day, everyone.

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Operator [62]

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