Terveystalo Oyj
OMXH:TTALO
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Good afternoon, everyone, and welcome to Terveystalo's First Quarter 2021 Results Conference Call and Webcast. My name is Liisa-Maija Seppanen, and I've started here as an Investor Relations Manager this spring. So hopefully, I will get to meet some of you later on. But today, we have our CEO, Ville Iho; and CFO, Ilkka Laurila, who will go through the Q1 results. And after the presentations, we will take the Q&A session, and you can ask questions either via the teleconference lines or you can also post questions through the webcast throughout the presentations. So please, Ville, go ahead.
I know this is a very busy day for most of you. So let's go straight to the business. Key takeaways from our first quarter. Main takeaway, obviously, is that this was a very strong start for Terveystalo for this year. Revenue grew with some 8% to almost EUR 280 million. Especially pleasing is the development with our profitability. Adjusted EBITA at EUR 38 million, and that's obviously a record Q1 for us. But then some underlying drivers behind these nice numbers. First of all, NPS, our customer satisfaction today at a record high level. The latest figure is 84.3, and I said its all-time high. The development has been positive for us for 3 years basically, and now we are here at world-class figures. Obviously, Q1 was partly boosted by activity with COVID-related business. More than 120,000 COVID tests are conducted during Q1. And very important underlying factor is continuous positive development, a strong development with our digital offering and the digital visits at 0.25 million during Q1. Deep dive into our customer groups. This is, again, across the board, a positive picture. All of our customer groups gained during Q1. Especially positive was corporate customers. That was driven by preventive care and partly boosted by COVID-related testing activity.Also, private group grew. Early part of Q1 was slightly slower due to the partly lockdown in Finland, but the latter part of Q1 was very strong for private customers. Public remains in our eyes to be positive. Demand was stable, slightly growing in all of the businesses except the staffing, which was still slightly supply restricted. But view on that business is still positive. Again, a couple of underlying facts behind the growth. Well-being services are still growing strongly with double-digit figures and most probably continue to do so going forward. And as already noted, volumes of digital appointments are still growing, and we continue investing in this part of our offering. As you all know, we updated our strategy, well, last summer, basically. And the value levers that we presented back then were threefold. We are building the smartest platform in the industry. With that one, we are winning in supply. We are winning in efficiency. We are winning in pricing. We are winning in a smooth services for our customers regardless of what channel they choose to use. The other lever, customers health partner, we are strengthening the relationship with our customers with new type of offering and new type of -- more active dialogue. And that's obviously to grow the share of wallet. And with these 2 strong levers, we can then accelerate the growth with directed selective M&A. That's, well, easier said than done. Anybody can talk the talk, but who can walk to walk. We are already in the implementation phase with all of the initiatives. A couple of KPIs just demonstrating that we are making headway in both the smart platform and health partner levers. We have been able to grow the volumes to our channels, and that has been, regardless of the situation, with better optimization of searches, et cetera. At the same time, we have been able to improve the conversion rates in our platform. So more often than in the history, customers are finding the right services instantly and, hence, making the booking. And then they are in the care chain with Terveystalo. One KPI demonstrating the efficiency of the platform is a self-service rate. And that has been developing nicely during the year; and Q1, it's up by 18%. These are not -- of course, not only things that we are looking when looking at the smart platform but nice demonstrations that we are making a good progress there. As to customers' health partner, as we have said, we are building new type of relationship with the customers, building loyalty. And through that one, we are able to provide more precise services to our strong customer base. As one example of this development, we disclosed a new strategic partnership with a Finnish tech -- health tech company, Nightingale. With the partnership, we are offering through our platform to our customer base embedded Nightingale offering and coupling that without on well-being related services. And a new type of offering with a subscription model will be offered later during the year. This is obviously not the only thing that we are doing in this area. This is just one example and one first concrete step into this field, which is going to be, for sure, exciting. As said, when we are able to build platform, when we are able to strengthen the relationship with our customer base, that can be then boosted with M&A. It has been, let's say, slow season for Terveystalo with M&A during COVID-19 for various reasons, but the pipeline all in all in M&A area is picking up, and it is strong. We have some examples to demonstrate already during Q1 we were able to close deals in this area. Looking forward, we are doing M&A and acquisitions in 3 categories. We are still strengthening our scalable capabilities. One good example of this type of acquisition is Evalua, which we acquired some 1.5 years ago. Now when the new capability related to medical question is in our portfolio, we are then able to fast distribute new service to our customer base and through our strong channels. Then we are going to still grow in adjacencies, and we have opportunities there. We have -- in our portfolio, we have still services where our market share is not as strong as in our core services. Take for example dental, physio and mental health, in these areas, we see opportunities for continuing M&A activities. Then there are some new specialties that we see that can fit into our platform. That has been visible especially in public business. During first quarter of the year, we closed the deal with Attentio and Nuorten Sutela. This new type of services don't mean that we are sort of exiting our medical core. There are clear criteria through which we then assess different opportunities. But when there's a clear and strong link with our core capabilities and our services and when medical is still in the core, we can and will execute these type of acquisitions as well. Outlook. Looking forward, we are still obviously in abnormal market conditions. We are in this what we have been calling a mixed scenario. COVID-related business is still strong, but underlying demand is picking up. And H1 continues to be with the same pattern. Looking at different customer groups, corporate customers -- with the corporate customers, demand for preventive care will develop positively. Then looking at sickness care, the recovery depends on the activity and mobility of the society. And of course, depending on how the recovery of Finnish economy goes and how the number of employed personnel develops, that, of course, will have an impact on the underlying market size. For the private customers, early part of Q1 was, as I said earlier, a little bit slow due to the lockdown measures but then has been picking up, and that will develop positively. Of course, there's going to be a lot of variation between regions and most probably a lot of volatility also in the demand. But all in all, it's going to -- according to our view, it's going to develop positively. Public sector, as we have been commenting earlier, the market is active, and our pipeline is strong. We see a stable demand and new opportunities also rising from that, strengthening our pipeline. That's the view for the next 6 months compared to year-on-year period. And with that one, I'll give floor to Ilkka.
Good afternoon on my behalf as well. And like usually, we will then go through a couple of the financial highlights. Starting from the revenue development. Like Ville already explained, the overall development -- overall sales increase was at 8.3%. Good development especially in the corporate segment mainly driven by COVID-related services as well as preventive services, especially those legally required occupational health care services, which the year started especially well in those, good development in well being services as well and digital appointments. Then on the other hand, as you can see, 46% growth in service sales in public sector. That is driven by several different sort of smaller categories and items, also driven by COVID-related services as well as increased amount of the occupational health care end customers or end users. There's also other sort of services that are increasing. However, not so much sort of pent-up demand from the public queues yet, some smaller agreement but nothing sort of material or major deriving from those. So overall, I would say, sort of normal level of demand in those services or normal type of services that are -- of EBIT demand has increased. Then if you look -- take a sort of further down and take again a look about the wellbeing services and digital visits, as you can see, especially in the well-being sales, even though that we are still on a quite sort of low level, EUR 25 million per quarter, you can see that actually the increase has been now higher than during the previous quarters. It's now at 16% increase in well-being sales compared to 10% and 9% for the previous quarters, so good development in there and has also -- is also related to those sort of mental health and that type of services, of which we have seen increasing demand overall through the COVID-19 situation. Digital visits still up by that 96%. Obviously, we are now facing in Q2 and Q3 tougher comparison period. And it's interesting to see how those will develop going forward. Then the relative profitability, as you can see, very sort of high level of both EBITDA as well as EBITA relative to historical development. If we compare to earlier is Q1, we are on a sort of record high level. Obviously, we have had higher EBITDA margin levels in some quarters, but in Q1 comparing to Q1 result, that was an excellent result during '21. And if we then take a closer look at how the costs have developed within that cost structure, you can see that actually the purchase of the materials has now declined. That 4.7%, even though that the surgery still has developed quite nicely and even though that protection gearing expenses are still on a quite high level, we have been able to sort of develop a cost efficiency in purchase of material purchase and such. Then on the other hand, employee-related expenses as well as IT expenses, are increasing. Employee-related expenses are mainly driven by COVID-19-related services. So those services, like discussed earlier, require additional employees, and therefore, we can also see because the demand of those services were higher, we can also see that in the employee expenses. On the other hand, IT expenses, like historically as well has increased. Sort of one factor there is obviously that during the comparison period, we were not yet fully on a sort of remote mode, so there's sort of infrastructure-related expenses on that. But on the other hand, there's a continuous increase in sort of software-related expenses. As we provide new services to the market, obviously, there is sort of maintenance expenses related to those new services always. Other operating expenses declined by 10% and driven -- that's sort of lump sum of several different cost items. Obviously, like I think, in all companies, compared to previous quarter, we are still benefiting from lower traveling expenses, as an example, and also being quite sort of cost cautious with other sort of expenses on fixed cost categories. Then on the balance sheet side, the liquidity position is strong, is stronger than earlier. And the leverage ratio is coming down. Like you can see, it's now on a level of 2.7, down from 3.4 during the Q3 2020, and so good development in there. And we are in a good position if we would need to sort of move or do any sort of sizable acquisitions or so. Stable development in working capital and not so much improvement at the moment. That also actually relates to COVID-related services. Those are sort of new processes to us. And when you have new processes, that causes some sort of additional work and burden to the back-office work and, therefore, some sort of increase in the sales receivables for the COVID-19-related tests and sort of services. There's a sort of DSO and DPO. You can see that quite stable sort of development still there. both actually are in a good level also compared to the historical levels. CapEx, one slide on CapEx. As you can see, we are still in a declining trend. However, like we have communicated earlier, we have not anymore sort of freezed any CapEx and investments but continued our sort of earlier plans. However, it's quite typical actually that from the decision-making up until the bookkeeping, it takes time when you order a new medical equipment or start sort of repairment or improvement of your premises. That's why it's -- you can see decline in machine and equipment and improvement to the premises, even though that we have continuously invested in intangible assets, meaning digital sort of development. That has remained quite stable all the time during the COVID-19 situation as well. Then that concludes the financial section, and then I think that we have plenty of time for Q&A.
I think we can take the questions first from the teleconference lines. So please, operator?
[Operator Instructions][Operator Instructions] Our first question comes from Alex Gibson from Morgan Stanley.
Great. I have 3. I'd like to go through them one by one. The first one is just on around telehealth and your digital visits. So just thinking forward and where we are today, what percentage of your total appointments are digital today versus digital pre-pandemic? And how do you think that percentage is going to change in a post-COVID world? Now I'm thinking about this around are you changing any formal best practices to recommend certain patients go digital first rather than visiting a center. That would be my first line of question.
Shall you take the numbers and...
I actually haven't what sort of the percentage of the revenue in Q1 was last year, out of the total appointment, it was at 26%. But in Q1, I haven't actually take a look at it. But like you can see from the numbers, it has obviously increased and -- from the previous or the comparison period.
Yes. Okay. And as to the future and how we see that one, how we are building that one, of course, 26% of remote is not the upper limit. There are different type of assessments in our line of business, what could it be, up to 50%, 60%. But what we are doing internally is that we are building the platform, we are building smooth channels. And most importantly, when we are creating and strengthening medical protocols and care chains, they are -- from the start, they are built for hybrid, so for both professionals and then consumers. They can both navigate in hybrid world easily and smoothly. And it's going to require some more investments further into our platform, but we are well on that way. And platform starts to be quite smooth already even for the hybrid navigation. But that's what we are building, and then it's up to the customer and up to the professional, how they choose to use our services.
Maybe it's still worth to highlight that, that should be taken, should we note that clear majority of the digital visits are still related to corporate services. And our out of the digital appointments, clear maturities actually related to preventive services or preventive occupation and health care-related services is the most typical one that is currently operated remotely.
Yes. Yes. Okay. Great. And maybe a slightly related question is just around your footprint of the business and maybe COVID shifting to digital visits as well or shifting the way practice is done. Of your, I think, it's 280 centers or so, do you think that number is -- has reached maturity? Or do you think you need to grow the footprint much from that level? Or is it now more about capturing share within your catchment areas that you already exist in?
Well, as to the physical network, there are very, very few white spots in the map which we would still like to sort of fill in the future. There are some sort of isolated opportunities in geographical terms, but it's more a capturing share and boosting digital channels.
Maybe still commenting on that one. It is like -- like Ville said, so we don't really have material white spots anymore in Finland. However, it should be noted that especially when it comes to those therapy services and such, actually, the number of the units might increase because sometimes it's much more cost efficient to have a therapy clinic separate from the sort of normal medical center because the sort of the premise-related requirements are much lower in therapy segment compared to sort of doctor appointment rooms, where you would need to have a water basin and such. So in that sense, a number of the units might increase even though that there's no geographical white spots anymore or less that much.
Okay. That's helpful. And I guess the last one would be I think a lot of people would like to see you move abroad and broaden your reach. It seems that might be quite slow if you have to use your own capital or cash flow, so I guess, if you are thinking about doing that more aggressively, would you consider merging with another company or even being bought by another company? Or do you just think it will be a slow expansion?
Well, as to the sort of management plans and how we see the optimal progress of Terveystalo, we are still firm believers of our hybrid model. And if we are to expand abroad, the model would look quite the same as in Finland today. It would be a combination of digital offering, offering scalable capabilities but then also coupled with the physical network. And yes, it is not going to grow organically, it's going to require acquisitions, but we have been earlier commenting optimal approach being a low risk, and we remain in that view.
Our next comes from Sami Sarkamies from Nordea.
I also have a couple. Starting from the public segment, do you see any reason why the current growth rate would not prevail throughout the year or even pick up in case you will be able to sign new contracts?
Well, they are not sort of underlying negative developments as we see today. But of course, its a market which can be easily flipped due to a couple of single decisions. It's a different type of market than our B2B and B2C market. But as we speak, looking at the market, we have earlier said that the pipeline looks strong. It's active. It's more positive than we saw last year. And as I said, we don't see negative underlying trends there today.
Okay. Then moving on to the corporate segment, you did emphasize preventive care and COVID-19-related services as drivers for Q1 growth. You see risk on the downside in the coming quarters in case preventive activities would come to a lower level for COVID-19-related services decline, as you suggest will be the case from Q3 onwards?
Well, there, I would say that the biggest uncertainty lies in recovery of sickness care related to our corporate deals and corporate customers.
Yes. Maybe adding on that, so like communicated, we see actually quite positively at the moment the sort of the development of the preventive services also going forward. The uncertainty, like Ville said, is related to -- mainly on sickness care, obviously. There might be also some turbulence in preventive care. Like it used to be last year, but I think we all hope that we will not anymore have to go to similar situation that we went through last year. But I think the bigger uncertainty relates to sickness care and the demand on that side. Maybe further elaborating on that on the sort of the logic is pretty similar actually to private health care. Like we have said, that because there's a lot less all kinds of infections at the moment, that has also impact for sickness care and occupational health care. On the other hand, these long-term diseases are developing quite stably. And actually comparing the previous quarters in private segment, as an example, there were certain sort of ICD codes that were completely shut off during the second half of March last year, like eye-related services and such and orthopedic and such. And like communicated now, we saw actually quite a positive development in those services as well, which is actually quite encouraging. And hopefully, it's a sort of a positive sign for people, life normalizing as well.
Okay. And then moving on to the private segment. You were complaining that lockdowns and nonexistent flu season did burden growth in Q1. On the other hand, you mentioned that growth rates improved towards the end of the quarter. Just curious what sort of growth rates were we talking about in March, April time frame.
We haven't obviously communicated that precisely, but you can say that there's a few percentage improvement in the underlying demand that we are sort of seeing, so nothing major but slightly positive. And I believe that the key driver there is that when the sort of the COVID-19 situation is easing and society is opening, that will have at least some positive development for the underlying demand.
Okay. And then my final question would be on COVID-19 vaccinations. Can you please talk about your role in those? And can you say anything about the vaccination volumes by yourself so far?
Well, first of all, the system in Finland still is such that municipalities are controlling and managing the vaccinations. And we are partnering locally with the municipalities. And based on their choice and decisions, we are then vaccinating people either as a direct partner to public sector or then through our occupational health care contracts. We are not in mass vaccinations as yet. We are very close to that one. But it's -- vaccinations will not be a sort of a silver bullet for Terveystalo. We are part of the vaccinations campaign, but the volumes will not rock the boat significantly.
The vaccination data is actually available in open reporting of Terveystalo. And those municipalities that we have agreement with is also available in our Internet pages. If I recall it correctly, last Monday, I think it was -- we had 25 contract with municipalities out of 300 Finnish municipalities. So that sort of draws some kind of magnitude at this stage where we are.
Our next question comes from Panu Laitinmäki from Danske Bank.
Yes. So I just try to understand what -- how much did you benefit from the COVID test? And what will happen in a more normal situation? And I guess there are many ways of asking this question, but let's put it this way that if I look at your corporate business, the revenue in Q1 was about EUR 10 million higher than it was 2 years ago. And if I do the math, it seems that you got maybe EUR 17 million to EUR 20 million revenue from the COVID tests. And then the underlying business, that was still at a lower level. The sickness care and the infection-related appointments, that was probably much lower margin than the, I don't know, EUR 20 million that you get from the COVID tests. So the question is really that is there any reason not to expect this business profitability decline when we go out from the pandemic and test volumes come down. That's the first question.
Maybe first commenting to your sort of assumption is that you're probably now taking sort of the list prices. And then doing the math, obviously, especially when it comes to those mass tests, those are open sort of tender processes and not following the list prices, so therefore, on the other hand, the impact for the top line is smaller, but so is for the bottom line as well, even though that those are sort of scaling better than separate tests. But If I would sort of describe it in such a way that as we had a good development, it's actually really -- that's an excellent question and a question that we are actually, let's say, thinking almost every day because you could argue that some of those -- or actually, as we know, there's a very small percentage of those COVID tests that are positive. So all kind of infections are now tested with the COVID tests. So in that sense, you could argue that in a sort of more normal situation, that would be a part of normal infection-related sickness care development and sickness care demand. So therefore, it's sort of too harsh to compare just removing all the COVID test and comparing that way the underlying demand and compare it to -- as an example, to 2020 or '19 numbers. So it's sort of a mixed picture. But like I said, overall, the preventive services developing well, and sickness care is more sort of, let's say, risks related to that.
Yes. Since you asked this in a way that you did, if there are any reason to believe, then the reason would be operating leverage. Why the COVID-related business or COVID tests are high with margin relates to operating leverage. When the volumes are high, then, of course, margins are high. But that same applies to a lot of the sickness care, especially the lab volumes.
So if part of that will be in the future sort of transferred to normal laboratory services, like normal CRP or sort of infection-related laboratory services, there's the same kind of logic there. Now the volume on that end is actually quite low or is actually very low, and therefore, profitability is also quite low. On the other hand, COVID test's profitability is high, like said. And most likely in the future, it will go the way around. So if the normal infections start to increase, profitability in that segment is increasing, and a sort of normal diagnostic starts to increase again and vice versa.
Okay. This is helpful. I understand it's difficult to note this or comment this in advance. The second question is about the public sector demand. So you have commented it more positively, but then I understood that the growth in the service sales mostly came from COVID-related services and then from kind of success in occupational health care in public side, which is maybe not related to kind of public sector being more active with the private company. So the question is, I guess, that like what kind of pipeline do you see in the public sector? Do you see outsourcing, big care growth in service sales? What should we expect going forward for this business?
Just looking at the normal pipeline, that's what we are looking when we are commenting or thinking about the activity. Of course, COVID-19-related business is a separate matter altogether. We, of course, have not disclosed the sort of size of the pipeline, but it's way stronger than it was. For example, 1 year ago, as to what type of services that they are in that bucket, there are outsourcing contracts which typically are smaller than we have seen but higher in numbers and then different type of partnership deals, new type of services as well.
Yes. Like Ville said, it's sort of typical, I would say, normal. It starts to be a sort of normal market, I would say. So there's a more different kind of services and products and innovation and such and less sort of those typical historical large outsourcing. So the variance of the different kind of contracts and agreements and the services is going to increase in the future. And we will see quite innovative solution because the demand from the municipalities and the public sector is still increasing and is huge. But how that sort of will be sold out, that the sort of future will so. And I think we all sort of service providers are developing our own solution to municipalities and for the public sector. And there's definitely going to be other services than just big complete outsourcing. But one example is that, that sort of specialty care services that we provide the city of Nokia, in which we sort of take care of the referral of of the Nokia city to specialty care. And so we sort of act as a certain -- you can call it the sort of the broker or gatekeeper to the specialty care services. So that's one sort of example of the sort of, let's put it that way, new innovations of services to the public sector.
Okay. Maybe just a quick follow-up related to that. So you have a target of growing at least 5% annually. Would you expect the public sector to kind of contribute more to the goal like growing much more than 5%?
Well, at least looking at the market, forecasted market growth, public sector is bound to grow more. The underlying demand is, as Ilkka said, it's very strong. Whereas in private and corporate, we are -- the growth stems more from gaining market share further.
[Operator Instructions] Our next question comes from Jon Berggren from Kepler Cheuvreux.
So you emphasized well-being services a lot today and that you see strong growth for these services. And you also mentioned during the presentation partnership with Nightingale. So could you please elaborate a bit on your expectations for this specific partnership with Nightingale? Do you believe that they will have a central role in continued growth for well-being services?
Well, if we pick Nightingale as an example, as I said in the presentation, that should be taken as an example and the first step in the new field. And we are -- with our strategy, we are strengthening the relationship with our customers, with our customer base. And to be able to do that, we need new type of services, continuous services, services with low entry barrier, and this is one example of that one. Also, this sort of rides with megatrends of people being more interested in the well-being and also being active part in that journey, measuring themselves and taking active role and responsibility of their health. As a sort of revenue stream early on, we don't expect this one, again, to rock the boat, but it's an important first step to demonstrate that this type of service is viable. It can be sold to the customers, and customers like it, they accept it and use the service. It's to be the last this type of service. Ilkka?
It's actually really exciting to see how it will develop because it's something completely new to the market.
Great. That's my only question.
Thank you. There appears to be no further questions registered, so I'll hand back to the speakers.
Okay. Thank you. So we have one more question from the webcast, and it comes from Anssi Raussi, OP Markets. Sorry if I missed this, but could you please explain a bit this quite high gross margin and reasons behind the improvement versus Q1 '20?
Our CFO.
Profitability development. Well, there's a sort of -- obviously, like I said, there's -- if you want to put it that way, there's 3 elements on that. There's a positive development in the sales mix. Like I explained, there's these COVID tests. There's surgeries have developed quite nicely and certain other sort of specialty care services, which improves the sales mix. Obviously, the second is that when the top line overall develops positively, we have the operating leverage impact for the fixed costs and as well as for the -- in this case, also for the variable cost. And the third element is that we are still sort of -- have had quite sort of tight cost control especially when it comes to the fixed costs. But also, like you can see, we have been able to sort of improve our purchase terms when it comes to the material cost and purchases in those areas as well. So 3 elements: sales mix, top line growth and tight cost control.
Okay. Thank you. I think it seems as we don't have any further questions today, so thank you, everyone, a lot for participating our event, and have a great rest of the day.
Thank you.
Thank you.
[Foreign Language] as we say it in Finnish.
[Foreign Language]
Cheers.