Terveystalo Oyj
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Hi. Good morning, everybody, and welcome to Terveystalo's Q1 2020 Conference Call and Webcast. As usual, our CEO, Ville Iho; and our CFO, Ilkka Laurila, will have the presentation of the results, and we'll follow that with a Q&A. We'll take questions from the phone lines and through the webcast after the presentation. But without further ado, I'll give the speech over to Ville.
So good morning from Piazza Terveystalo Helsinki. Q1 in brief, of course, the big headline is the COVID impact on our business. We will give a fairly detailed flavor on how the impact has been thus far. And then it's easier to also model and discuss and forecast how we see the future going forward. Key takeaways here. Of course, this COVID response by the government and exceptional measures taken by the government has basically significant impact on our business in short term. We can see it especially during last part of Q1 and then during Q2. However, during Q1, still revenue was fairly flat when it comes to corporate and a private revenue. The biggest reason is actually for the revenue decrease was ending outsourcing contracts on our public business. We are, of course, looking at Q2 how the impact is going to continue. It's going to have a significant impact still going forward during this quarter, but then how we have sort of structured our management and plans inside the company, there's -- we have clear steps. So we see Q2 as a COVID impact quarter and then half 2 as a recovery already. We are very active in responsing this -- in responding to this crisis. We are not sort of victims of this crisis. We are active player. We are helping society. We are helping individuals. We are helping corporates to tackle this crisis and continue as normal living as possible. We have been very active in adjusting our services and ramping up the services needed to tackle this crisis, mainly testing capabilities. Here, we have a fairly detailed view on COVID-19 impact on our revenue going quarter-by-quarter. And as said, impact started during latter part of Q1. Basically, Q1 up until COVID crisis was still on growth path. We had -- we were executing according to our plan. But then basically, overnight when the crisis hit Finland, then, of course, the situation changed rapidly. The impact, if you look at the different payer groups, corporate, private and public, for corporate and private customer groups or payer groups, the impact is fairly similar. Non-acute medical care has been scaling down. At the same time, of course, remote services have been scaling up on public side. The demand has been steady. Service sales have actually increased during this period. As said, we are seeing the biggest impact from this crisis during Q2. The data point that we are giving for everybody at this stage is sort of locked down revenue run rate, which we say is minus 30% from our top line for corporate and private payer groups. And this is really the lockdown revenue run rate. So when the lockdown was still in effect, if you look at April, full measures in place, then revenue hit or haircut was minus 30%. Of course, going forward, then you can model and forecast how the easing of the measures will then improve our revenues. We are not giving any precise forecast on that one, but of course, we say that our revenue development is going to be directly and clearly linked with the easing of the measures and then, hence, the consumer behavior. If we look at the mitigation and really the operational impact risks and what we have been doing during the crisis, everybody is, of course, aware of the mitigation done by government, the protective measures and lockdown measures, sort of detailed impact in health care services not so widely known. We have been scaling down on our non-acute care especially in dental and then nose, throat and ear surgeries. All in all, the consumer behavior has changed due to the fear factor especially in the capital area, and that has had a clear impact on our revenue. The risk that we have been discussing and contemplating, of course, is that during the -- this Special Powers Act by the government, they have mandated to basically take our resources to their use, but this risk is really, really low. We can see actually, based on this period, utilization rate for health care services nationwide is, I would say, record low at this stage, and there's no need for anybody to really borrow still any resources from our side. And there's -- we don't see any change in this one. Our mitigation activities, there have been many, and we have been very active in scaling down, of course, the businesses or the services that are not needed. We have been mitigating our costs as fast as we can. We have been scaling up our remote services. They have multiplied. We have been, I would say, fastest in Finland scaling up our testing capabilities and keeping up our services on as high level as possible because the need for health and medical services, they -- it has not vanished anywhere. During Q2, the mitigation activities will continue. We can see right now a gradual dismantling of restrictions. We can start ramping up certain services that we scaled down early on, like non-acute dental services to a certain extent. And of course, we are reacting in agile manner in the -- to the need of our different customer groups. We have a special focus in corporate segment because this is the time really when we need to normalize operations and behaviors and working life as much as possible because this is not going to go away anytime soon. Our sort of obligation basically is to help corporates to live as normal life as possible. We have a good package in place for testing, tracking, risk mitigation, which by we can help corporates to go on and sort of normalize as far as possible. When it comes to mitigating profitability impact, of course, the way it has been on cost side, we have basically put the brakes on anything total sort of uncritical spending. And we are giving -- or we are mitigating personnel cost with temporary layoffs. The impact of that one can be seen fully during May, and we started the process so that the impact started kicking in late April. We cannot see the full impact yet, but we will see it during May. We are, of course, looking very closely on our cash flow and liquidity. Our situation is very good due to our measures taken. We have the very good liquidity and also capability to improve the situation if needed. But as I said, we are in a very firm position with that one. As to our activities, we can be very proud on the fact that we have been the fastest mover and sort of fastest scaler when it comes to testing capabilities, as I mentioned already. We are helping corporates and we have already many use cases where we are together with the company, building sort of a COVID-19 response plan so that a company can scale up their services and operations as fast as possible. Core of that one is testing capability, tracking capability and risk analysis done in the companies. We have, as I said, been the fastest one to come up with meaning full scale when it comes to virus testing. Yesterday, we announced that we are coming to the market with the best available, globally best available antibody test, and that will be a -- that will have a significant impact in sort of ability of this society to tackle this crisis. Revenue split and development during Q1, as said already, fairly flat when it comes to corporate and private payer groups. Early part of the Q1 up until last few weeks of March, we were still on growth path as said, but then the impact of COVID-19 made this one flat. Public revenue from outsourcing decreased due to ending outsourcing contracts. But as I said already, service sales increased due to a certain extent. A couple of highlights from sort of more operational side. The number of remote appointments multiplied to more than 100,000 visits, which is big hike on that one. We are very well geared to do this, if somebody wants to call this one, a new normal. Our digital platform is well in place. We can reach our customers and professionals with our platform. And we are, I would say, one of the best positioned, at least in Europe, to be ready for truly omnichannel health care services and providing that one with good customer experience. So we'll see where the new normal will land. Of course, some of this will stick. And one can say that after this crisis, we truly are in omnichannel environment. And it's a positive thing for us due to the fact that we were very early movers and have been investing in this area for a long time already. Impact on our profitability. Adjusted EBITA, 30% down to EUR 22.9 million, and again, the impact was mainly from a latter part of March. Drivers behind this one, in addition to COVID crisis or in sort of link with COVID crisis was sales mix and heavy investments in digital, which is, in a way, good and bad. Of course, we have been investing heavily, as I said on digital. When we go to the omnichannel environment, it's a very positive thing going forward and in long term, but obviously, there's a certain burden right now when the revenues are dropping. We have a new proposal for dividends. The earlier one was 2 times payment, 2 times EUR 0.13 per share. Now the proposal is one time EUR 0.13 per share. So we do have means, and we do have reason to pay dividend. But of course, also, our owners are chipping in, in this crisis, so they are scaling down their dividend from last year. So outlook from -- basically for Q2 and onwards. As said, we are giving this one very detailed data point from April. So the revenue cut is 30% during a sort of full lockdown situation. And we are saying, and we believe that revenues will improve in line with the lockdown measures being lifted. We are not giving any precise prediction how it will play out, but then it's fairly straightforward to model that one down. So full lockdown impact, 30%. Going forward, revenues will improve as the special measures are being lifted. Public sector, as a special case, worth mentioning that one, it has been fairly steady during the crisis. Service sales have been actually increasing. There's a potential that the backlog of services not being delivered during this crisis, will have a positive impact going forward on our revenues. So as said, the need for health care services have not gone down. There's underlying demand and public services, obviously, they have scaled down their non-acute services, and we are building queues and we are building backlog. At certain point during H2, most probably, we will see signs -- positive signs from that backlog. And we are part of the solution when sort of dismantling this backlog and queues. We have said earlier and update it on our strategy process. We have not basically stopped the process. We have been doing the work as planned. We are, I would say, ready with analysis, but there are discussions still to be made due to the sort of logistics reasons. And that's why we are not giving sort of detailed information on strategy update just yet. But we are able to do that during the course of month of June. One thing which is certain in our updated strategies is that our mission will remain the same. We are still going to fight for healthier life. There's going to be a lot of focus on individual consumer. We are best geared, I would say, among the health care players to really have the data of individual consumer, have digital platform to reach consumer digital platform to have a meaningful dialogue with the consumer. No matter what the system is, what the payer group is, always end user is individual consumer. And if we are able to serve more, well, we will endure and be successful in any system. And now over to Ilkka.
Good morning on my behalf as well, and then still a few words of the financial performance during the Q1. Like Ville already explained, our sort of top line and as well as the relative profitability and the absolute profitability slightly down during the Q1. Here is the slide that we have always shown. And there, you can see that the margin -- EBITDA margin relative to earlier period declined from that 17.9% to 14.8%. There's 3 key drivers on that. First is the decline in the revenue, mostly, like Ville said, deriving from the discontinued outsourcing contracts, but also the impact was so that the sort of -- during the first 2.5 months of the quarter, we see -- saw quite steady increase in revenue when it came to -- came into private and corporate segment, we were quite good speed with those. But then suddenly within the hours when the top line declined during the last 2.5 weeks, we ended up having a situation where the private was basically flat during the Q1 and a slight decline even in corporate segment. Then the second element regarding the profitability is the sales mix impact, which means that like earlier, our sort of relative to earlier periods, our appointments business and sales related to appointments will develops better than diagnostics as an example. What it means that during this kind of crisis, when top line rapidly declines, as we know, the most of the specialty care, both in the corporate segment and in the private care -- private business, are taken care by private practitioners. So if the top line declines, the cost structure for appointments also declines quite straightforward. But when it comes to the diagnostics, which is taken care by our own facilities, the cost structure is not that flexible. And that -- when that declines, that will have impact on the profitability as well. The third element is then on -- regarding the cost structure. And here, we can actually see more precise sort of impact on that. So here is sort of 3 circulated numbers there. And if we first take the bottom one, now we have sort of taken or shown separately the IT expenses development. You can see that it has increased that 38% a year-on-year change. And like I said earlier, it's mainly deriving from when you invest in digitalization. It typically has the rule of thumb that EUR 1 million invested in digitalization will have EUR 200,000 roughly to sort of the maintenance expense level. So more you invest in digitalization, more you have sort of the maintenance expenses. And this cost line item only includes the sort of the external services or the personnel expenses are included in the employee benefit expenses. Also, the impact which we can see, which is the sort of, I would say, global situation that there has been quite sort of turmoil situation in the global market of the personal protection equipments, that has also been case with us. However, we have quite professional or very professional own procurement team, so we have been able to supply all necessary protection equipments, and we don't have any scarcity on those. But of course, the consumption of those as well as the prices have multiplied. And therefore, even though that the top line declined, the purchase of the materials increased by almost that 9% versus year ago. Then a few words regarding the balance sheet. As Ville already told, our cash situation is good. We have liquid assets of that EUR 51 million as well as we have undrawn facilities as well as sort of a credit limit of EUR 8 million. And we have, of course, more capacity to agree additional funding, if needed, or if we want to further sort of secure the liquidity. When it comes to the net debt situation, you can see that it's -- the sort of the amount of the net debt is lower than a year ago, declined from EUR 575 million to EUR 530 million, including EUR 173 million of rental liabilities. And there you can see what is then sort of the net debt requirement from the financial institution. That's, obviously, significantly lower. But the net debt to adjusted EBITDA has developed in a -- such way that now the multiple is that 3.2. That includes now those IFRS 16 liabilities, and our target is to be below 3.5, like I said earlier. Still, we are below that, although it has slightly increased versus previous quarter. And of course, the reasoning for that is -- the main reasoning for that is the decline in the profitability. Then regarding the investments, like you can see, we are still -- we have still a slightly increased number when it comes to the total gross CapEx, EUR 46 million, up from EUR 45 million. But the sort of the speed of the increase has decreased considerably, as you can see, from EUR 38 million to EUR 41 million, and EUR 41 million to EUR 45 million, and then only EUR 46 million. And like Ville already explained, one of the mitigating factors has been that we have basically freezed all non-necessary investments or postponed all non-necessary investments. And that had already slight impact for Q1 numbers, but obviously, the bigger impact can then be seen in the later quarters. And that's only because of sort of the securing cash flow in the short term. But obviously, we will -- we -- in a longer term, we will continue sort of investing in digitalization and other sort of facilities as well. But also, you can see that the sort of the increase in investments that, again, derived from the intangible assets, meaning IT and digital investments. Then I think that's it on my behalf as well. And then we have time for the Q&A.
Thanks, Ilkka and Ville. I think we are ready to take questions from the phone lines.
[Operator Instructions] And we have the first question come from Panu Laitinmäki from Danske Bank.
I wanted to ask about this backlog of services that are not being delivered both in your own business and on the public sector. Just to clarify, so you think this will kind of be beneficial for you already in the second half of this year and not next year? And then if it happens in the second half of this year, do you kind of expect this to lead to year-on-year growth in revenues or just that it will be kind of better in the second half compared to what you see in the first half? And then finally, in terms of the public sector backlog clearing and you're helping that, what in practice have you seen with the public sector? Have you kind of signed any contracts? Would that be voucher-based services? Or what is the kind of mechanisms? How this will benefit you?
A long list of different questions without a pen. But starting from the sort of from the view regarding the queues, it's really difficult to estimate when that backlog will sort of start to sort of open. It's actually quite impossible to say because it's also -- it's really dependent on also how the restrictions are developing? And what is the situation regarding the epidemic situation? And what development regarding the epidemic situation? Because the public sector sort of closes the non-acute care because of the sort of the epidemic situation. So if the epidemic situations sort of will remain rather stable, like it has been nowadays, even though that we are opening the restrictions, then they will most likely also open the non-acute care more. And what that will have impact for the private sector, we really don't know because this is quite a unique situation. The only thing that we know for sure is that even this lockdown that has already taken place has lengthened the queues for the public sector, non-acute care quite significantly, that's the only thing that we know for sure. It can sort of even out from 2 different sort of ways, I would say. One is, like you said, is the service voucher, it's in our case can be seen then -- or it's a 3 ways, actually. One is the service voucher, which can be seen in our business in the public sales. Second is that direct sort of contract with the public sector so that we take -- we have a contract regarding the certain amount of the episode, be it MRI scanning, be it cataract surgeries, et cetera, et cetera. And the third element is, which is most difficult to estimate in this kind of situation, is that how many people opt out -- how many private people opt out the public queue and comes with their own money, which can then be seen in our private business and buys sort of the private services because they sort of are not willing to wait anymore their hip surgery, as an example, or knee surgery, as an example. And that is probably most difficult part and probably actually might be the most significant part because -- but it's really hard to estimate. At the moment, it really depends on, like Ville said, that development of the fear factor as well because now, in many cases, people or the private individuals are -- without no rational reason, they are afraid of coming to health care facilities. But how that sort of develops and that's -- then it comes to psychology. And even though I have 2 master degrees in, first, science and in economics, I'm not a psychologist and that -- for that, I can't answer. Maybe there's some psychologists in the lines and can answer how the fear factor develops.
Just to add on that one, there was a question about the examples of, if any. And yes, we do have examples when the public side has been directly purchasing services from us during this crisis. It has been testing as sort of a bulk service but then non-acute surgeries in certain regions as well. So there are ways and there are examples already.
Our next person is Sami Sarkamies from Nordea Markets.
I have a couple of questions. Firstly, I'd like to get a bit more granularity on sales development for corporate and private segments. You're saying that this went down by 30% in April. Can you say if we are already on an improving trend if you look at the situation on a weekly basis?
Not really because during the April, the lockdowns were quite stable, and that's the lockdown number. And we are only seeing since mid-May the opening of the restrictions, which, of course, would then ease in the situation, most likely.
Just the bottom line.
But most likely the sort of the impact of that, it's difficult to estimate.
Okay. Secondly, I would like to understand the impact from the various cost-saving measures that you're outlining for Q2, including layoffs and the temporary closures of that unit. What kind of savings run rate are you targeting on a monthly level from these measures?
Like earlier, we don't sort of -- typically, we don't target any specific numbers. We try to -- like Ville said, we try to adjust our cost structure with the sort of operating environment, should be taken into account that most of those closures of the units have been related to sort of the demand issue regarding the dental services. And that's the sort of the key reason for those closures. And when the demand and the restrictions regarding the non-acute dental services will ease or even out or will be sort of opened, obviously, we will open those facilities as well. The second element regarding the cost-saving actions is that I think the best way to sort of have granularity on that is that you can see from that -- from the interim report, from the personnel section, you can see that we completed our negotiations 3rd of April. And at the end of April, you can see how many people were laid off as well as temporary laid off. And sort of that have your estimate on the impact from those should be taken into account that during the first half of April, there's a certain notice period before you are able to sort of lay off people. And then on the second half of April, it gradually increases the number of the laid off people. And I think that it's quite stable at the moment. And obviously, we hope that rent will improve, and we are able to sort of decrease the number of the temporary laid off of people. But it should also be taken into account that like we have seen that our Net Promoter Score has been best in ever and it has been sort of a record high, and that has been also sort of our purpose. So we are not cutting costs that dramatically so that we will -- we would sort of jeopardize our customer service and sort of our opportunities to serve all our customers in this sort of middle of the crisis and this development. We want to sort of have open time slot and availability as high as possible and only sort of decrease that capacity, which is basically restricted. And therefore, they are not sort of adjusting costs either in a full sort of way during the sort of the short period of lockdown. If the situation will continue longer, then we will -- we are, of course, ready to do more, if needed. But I think we all hope that there is no need for that.
My final question would be on the public segment where you will benefit from a new contract from Q2 onwards. How does the size of this contract compare against the business that you lost after Q4?
How the sort of the size compares, it's -- the sort of the contracts with the public sector in this kind of -- it's coming to the sort of -- in the service sales, which we have now specified in the interim report. So to not even -- even though the number of the contract is high, the sort of the euro amount per contract is low. It's rather EUR 100,000 per contract than million euros per -- millions euros per contract. That's -- so those are small sort of typically quite small contracts, but the number of the contract can be quite high.
I think he was referring to that Tapiola contract.
Regarding the Tapiola contract, that is the contract that the Hartola municipality discontinued with Mehiläinen. So it's the same contract that the Mehiläinen operated last year. So they were not satisfied with the Mehiläinen service, and they sort of discontinued that contract, and we took it over. And I think sort of the cost level of that, at the time of the tender was roughly EUR 6 million per year or something like that, 6 point something.
Did Ville have something to add on the previous question?
Maybe just to add on Ilkka's comment around the cost-saving measures, just to repeat the fact that at this stage, we are not taking any view on structural changes. If we would do that, then we, of course, would need to take a view on the scenario related to COVID-19. And I think the best way to go forward, and that's our choice is to be flexible. So as Ilkka said, we are not, in that sense, taking a firm view on any sort of new normal. We will see H2 as recovery and keeping our flexibility and ability to serve our customers is the key. And as Ilkka pointed out, we have been very successful with that one with NPS at a record level. We are breaking records by the day.
Our next question is from Olli Vilppo from Inderes.
You said that non-necessary investments are postponed. So does this include also acquisitions?
Includes what?
Acquisitions.
Acquisitions.
Acquisitions.
No. But I would say that, of course, in this kind of situation, the M&A market typically also freezes so that both the seller and the buyer, quite typically, would like to see the impact of the COVID-19 before sort of closing at least any sort of significant acquisitions.
And we have a next question from Alex Gibson from Morgan Stanley.
I just wanted to follow up on 2. And one, just thinking about the capacity of physicians to recoup pent-up appointments? And how do you think about the competitiveness to try to get those physicians to recoup any demand later in the year once things start to open up again? That's my first question. And I'll follow-up with a second.
During the start of the Q1 and situation at the moment is such that, actually, it's been quite interesting to see that still our utilization rates are rather high. But the reason for that is that, especially when it comes to the private practitioners, they sort of -- the amount they offer for open sort of times is slower and then for sort of the -- sort of -- they also sort of take sort of vacation if possible. But when it comes to the sort of the second half of the year, I don't believe that the situation has changed that dramatically since the first 2.5 months of the year. The only change is that, of course, we continue our own development for the digital tools especially so that we are better able and our time booking engine, et cetera, et cetera, and our sort of omnichannel approach so that we are better able to serve in different kind of situation and optimize the capacity and the offering already during the second half of the year if that kind of positive thing would happen, and we will have a high utilization rates there.
Yes, just to confirm, we don't see any signs that we would have -- let's say, we wouldn't have the capacity available as needed during the H2S as well.
Okay. Great. And more on the midterm strategy and the mid-term opportunity to make investments. How will this impact your capability to either do M&A, expand organically within the country or expand abroad either organically or through M&A? Is this going to delay your strategic thinking midterm? And how do you think about your use of capital now?
Well, of course, organic growth has a link to overall demand situation in our payer groups. And that has a clear link then to COVID-19 situation. But as to our sort of agility and our thinking around the strategy, this crisis has not changed basically our view on way forward. We have a means -- of course, we need to adjust the baseline to a certain extent, but we have in our strategic thinking the ways to increase our market share and, thus, grow organically in relative terms. And also when it comes to M&A, you said that, of course, these processes might hit some bumps during this crisis, but really our thinking and rationale when it comes to M&A has not changed. We have a clear view, clear process how we go about those. And whenever suitable opportunity arises, then we are active, and we are there, and our capability to execute is still there.
Okay. And when do you think you'll be comfortable to communicate that kind of new midterm strategy update that we were expecting from you around this time, maybe a bit later. Is that still going to be delivered before the summer or later in the year? Or is this something that we need to look at early 2021?
Well, as I said earlier, we have basically concluded all the analysis needed for our strategy update. We have had a couple of discussions already with our Board already around this one. But simply the logistics don't allow, let's say, the engagement needed for this type of a sort of final conclusion. So what we are looking at right now is that we would be able to conclude the strategy process early June and then be able to inform you in more detail.
Okay. Thank you. There are no further questions at this time. I'll pass it back to the speaker.
Thank you. We have a few questions through the webcast. First, there was a couple of questions around the public sector sales in Q1 and the impact of the outsourcing agreements that were expired in the end of 2019. You can see the revenue split, including the part of outsourcings on Page 6, so I won't address that further. And as discussed earlier, in the public sales, there will be a new outsourcing contract in the beginning of the second quarter that would have a positive impact on that line. But then we discuss the strategy as well. I won't repeat that question. But then regarding the corporate business, there's a question from Utah Rahikainen from SEB. If the Finnish unemployment grows materially in the aftermath of this coronavirus, what's the volume outlook? And possible sales mix impact for us?
Yes. If I start, you can continue. So out of the payer groups corporate when it comes to underlying demand, of course, there's a link between underlying demand and unemployment rate or employment rate. So we're going to have to wait and see what the impact is going to be for the personal number of people employed that then is sort of our market base and it's going to have a certain impact, of course, for the full market size on corporate segment. Then within that market, we will, of course, compete and be competitive and continue to fight for market share. Sales mix in that segment, what kind of services corporates are buying. I don't think there's any sort of difference between our conclusion right now. And earlier, there's a, in a way, a mixed bag, certain companies are buying price that they are sticking to very simplified service package, but then the other companies are, in a way, building services and providing services for their personnel from a business case point of view and performance point of view, and we see increase in that one as well.
Yes, just shortly adding on that. Like we have said earlier that we have seen, that like it used to be historically when it was quite straight correlation between the sort of employment level and sort of the corporate business and development, it hasn't been that way during the last, say, quarters or even years. And our analysis that the -- is that the key reason for that is, first of all, is the reason what Ville has explained regarding the sort of the polarization of the customer groups. And the second element is that most of the new working perplexes during the late last years have been developed for the small enterprises and for the service sector. Now that sector that now is under the biggest pressure. So it's the service sector and small corporates that are in a most turmoil situation during this crisis. So from that, you can argue that the sort of if that would happen so that the employment -- unemployment rate would increase through the service sector and through the SMEs, in which our market share has been the lowest, it will not have sort of relative straight correlation to our sales. That has been historically when the employment situation has improved. And if the sort of the downturn happens to be the same way, most likely, the sort of impact would be quite similar during the downturn.
Thanks. I'll take a couple of more questions before we run out of time. There's a question from LBV Asset Management that given your -- given our Q1 and our outlook together with our actions to cut CapEx, is it more likely that our net debt at the year-end 2020 will be higher or lower versus last year?
We don't give any exact guidance regarding the net debt situation. Like I said, we have postponed investments. So our plan is still the same. We have only postponed, and we will see then how this sort of situation will even out. And then hopefully, we can continue doing all the plans and complete all the plans that we have.
Then the same person is further asking if we could give some color on what are the additional hygiene measures and changes in processes that we needed to put in place regarding the COVID-19? And if there are any meaningful costs related to that?
So basically, it's a -- it is a fairly straightforward. Ilkka actually already explained the cost hike related to protective gear. Other than that, we have put in place special sort of cohorts for COVID-19 patients, which are in our biggest units. 30-plus units are providing that type of service for COVID-19 patients. Or if there's a suspicion that a person or patient would have COVID-19, then there are some other more sort of in-service detailed protective measures taking in how the physicians are operating, then there are some holistic flexes giving for service personnel so that they are protected. But fairly straightforward, and you can see the cost impact in our numbers.
Yes. Just adding on that, obviously, that -- those cohorts will have some impact for the personnel expenses because of the -- you need additional resources for that. And obviously, just adding one more thing that we have increased sort of the magnitude of the cleaning services as well and the sort of the -- that will have some impact for the cleaning expenses as well.
Then there's a question regarding the materiality of the new contracts starting in April. Could you just repeat the magnitude of the Hartola contract that's beginning?
Between EUR 6 million and EUR 7 million annually.
Can I just put one sort of data point in -- for this hygiene and protective measures taken by Terveystalo. Of course, it has been a big headline in many sort of companies and areas how to protect personnel and also customers. Just one data point, we -- even though our services and our people are highly exposed to COVID-19, if there's that one out there in any of the regions, we have 8,700 employed people in our payroll. Today, we don't have a single person on sick leave due to the coronavirus. We have one person staying home due to quarantine measures. So just giving a flavor how effective our measures have been thus far.
Thanks. And then maybe as a last question regarding the staffing services, presumably the pandemia increases the need to support the public sector through the staffing services, and can we comment anything on the margins? Are we currently performing the staffing services in like a normal margin level?
We don't specify the margin for the staffing services, but those are in a healthy level, I would say so. And maybe adding some flavor on that, that during the crisis, actually, when public sector also sort of decreases the capacity for non-acute care, that will also sort of have sort of impact for the required staffing services. And quite the opposite, when they start to open their facilities, then the sort of demand for those staffing services obviously increases. So that's the logic and how it typically goes.
Thank you. We don't have any further questions at the time being. So I thank you all for your time, and stay healthy.
Thank you.
Thank you.