Terveystalo Oyj
OMXH:TTALO
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Good morning, everybody, and welcome to Terveystalo's Q3 Results Call and Webcast. My name is Kati Kaksonen. I'm responsible for Terveystalo Investor Relations and Sustainability.
As usual, we'll go through the results with the presentation by our CEO, Ville Iho and our CFO, Juuso Pajunen, and we'll follow that with a Q&A. First, we'll take questions from the phone lines and then from the webcast as well.
But without further ado, over to you, Ville.
Thank you, Kati. So I'm not able to change the slide, so. Okay, now it works. So strong Terveystalo journey continues. The performance was again boosted, especially by Healthcare Services, which is improving and is still growing as a business as we had planned. We have seen and saw also encouraging signs in portfolio business, where profitability is improving against fairly tough market conditions, both in public side and consumer businesses that portfolio business is running.
Sweden is not yet showing bottom line results. But the turnaround is progressing and is going to deliver results as we have seen in Finland during the course of next spring.
As you can see from the numbers, we will reach our financial targets in profitability 1 year ahead of the plan. And if you actually look at the LTM numbers, we have already crossed the line that we set early on, so 12% EBITA margin target.
While we have -- for the past 24 months, focused on profitability, we have maintained and even improved our customer satisfaction and medical quality, which is a very encouraging sign of a strong company, a strong culture, and robust operations.
So in numbers, Q3, we were growing more than 5%. The EBITA is EUR 24.3 million and margin 11.6%. Cash flow is strong as per usual and also EPS is showing almost a quantum leap forward. As said, customer satisfaction is on a high level, again, at all-time high. So no matter how you slice and dice this slide, the performance is solid and still improving.
Looking deeper into the businesses, Asset Healthcare Services continues to deliver, continues to perform, continues to progress, a clear uptake in profitability, and also in revenue. Portfolio businesses revenue going down, because of the termination of outsourcing contracts and some headwind in consumer businesses.
But the important thing here is that, we have been able to improve profitability with the actions that we are taking and will take in portfolio businesses. And in that domain, we are getting ready for health care districts to open a new market opportunity for us.
Sweden still lagging behind. But as said, turnaround program has been initiated early during the year and is going as planned and will deliver a similar results as we have seen in Finland going forward.
LTM figures here, as I said, as a group, we have crossed the line that we set 24 months ago for the turnaround. So now we are in LTM figures, we are 12.3% EBITA, well done by the team. Now, the group is strong. It's stronger than ever. And we'll concentrate on the next phase of the company, which is focusing on, or more focusing on growth, focusing on customer value, focusing on medical quality.
Storyline in graph, this is the journey. So we set the targets for turnaround 24 months ago. We have been consistently delivering on the promises. We have been consistently delivering on performance improvement. Our Alpha program is completed. The targets have been reached and a new phase in the company will start.
We have a lot of things that we can still improve. And now since we are stronger than ever, we have the cash flow. We have the capacity to invest. We are, of course glad to take the next step and next phase in the journey.
We'll invest in data superiority prevention, ultimate smoothness and fluency in primary care and in specialist care building best outpatient hospitals in the world, a lot of things that we can still improve. The improvement has been material and it has been a great journey thus far, but there's a lot of potential still inside the company.
And the next phase of the journey will be discussed in detail in Helsinki, 4th of December in our Capital Markets Day.
With that one, over to you, Juuso.
Thank you, Ville. Good morning all. I'm extremely happy to be here today to present you these numbers. Our Q3 is a strong one. It is the strongest Q3 in the company's history, if we exclude one COVID test supported quarter back in the days. So we are delivering. And we are delivering at LTM 12.3%, 1 year ahead of the schedule.
And it's not only that one, but if you look throughout all of our numbers, this is the sixth consecutive quarter that we improved 62% up on EBITA year-on-year, EPS 4x and net debt standing at 2.3x, which is probably all-time low for this group. So not only delivering adjusted EBITA, delivering EPS, delivering cash flow and seeing very strong NPS numbers. And we have basically effective medical care. So we are not doing this at cost of something. We are doing it, because we are disputed.
If we then look at the numbers, the Finnish segments, they are clearly delivering Healthcare Services, both growing and improving margin materially. Portfolios' not showing growth in revenues, but improving the margin exactly as we have planned. Sweden profit improvement program is on schedule, but we don't yet see the numbers going to right direction.
But if you look and slice and dice a bit of the numbers, you can already see some very modest sequential improvement. And with all of this one, the guidance range has been narrowed. Now, our full year guidance for adjusted EBITA margin is between 12% and 12.5%. So we have cut down the lower end of the margin range given in summer.
But let's go a bit more into the details. So revenue growth is driven by strong supply, improved sales mix, successful commercial actions, and early flu season start. So we see clearly in the Healthcare Services, both Appointments and Diagnostics are delivering solid sales.
Other service sales, is slightly wobbling downwards, but there's nothing materially to worry about on that one. There's a bit of seasonality. And then we have been renewing, for example, our operating theaters in Kampi, which has an impact to our operations, obviously.
Then, if we think about a bit further on the growth, we are up in visits. We are roughly 3% up in the visits. And at the same time, we had 1 working day more. But even taking that one into account, we are still a couple of percentage points upwards. And the early flu season start, it contributes to that one, but it's not the only explanation. We are also growing organically now on the appointment levels, which is very positive for our business.
And then at the same time, it's not only appointments; diagnostics, it's through all customer groups. So positive performance from Healthcare Services when it comes to revenues.
In portfolio businesses, we can say that basically, we have by choice, decline in revenue in the public sector part of that one. Outsourcing, we know very well. And at the same time, then the staffing continues to storyline from the first 6 months that we have already told.
So we have deliberately chosen that we don't bid for everything. We want to have our margin structure in a healthy base. And thus, we have also some revenue reduction.
Consumer market, dental massage continues to be on a lower level. Like I said earlier, it has probably bottomed out in February. But at the same time, we don't see any material improvement during the quarter on the demand level. It is low and continued low level.
Sweden, we have some ended customer contracts, partly by choice, partly in the public sector tendering. And the demand environment continues to be weak. There are some hints that it could get more positive. But at the same time, it is a fragile environment from a demand perspective.
But with all of this one, we delivered EUR 296 million of revenues in Q3 compared to EUR 281 million previous year.
Then if we go into the profitability part, Healthcare Services, we have the cost measures. We have the efficiency program. We have a robust sales mix. But what is very important to understand on that one that we have now a far more balanced margin mix.
So we are now after all of the efficiency actions that we have taken. We can deliver solid margins throughout our different services, whether its appointments, diagnostics or operations and so on. We deliver margin. And that basically derisks our seasonality and supports our margin delivery.
Then, the early flu season has a positive impact. It's roughly 2,000 appointments per week from somewhere around mid-August onwards that we have gained compared to previous year.
Then if we look at the portfolio businesses, we have positive development, especially in the public sector, because we have been able to gain efficiencies. And we had some loss-making old contracts that supports us or at least low-margin contracts. And when those are out of the system, it supports the relative profitability, but it's not only that one. It's also in absolute terms growing.
In Sweden, we have the reduced revenue and cost inflation that are hitting us. But once again, I reiterate, we are progressing as planned in the profit improvement program. You already start to see very modest hints on that part. If you think about now our Q3 revenues are declining a bit less than our year-to-date revenues.
So now we are stabilizing out in there. And at the same time, if you look at our number of people, if you look at the cost structure, we have taken some hard measures that start to be visible in the numbers. So step-by-step, we are going forward. But having said that one, Q4 will be difficult and we will, in '25, be in a better position to make profits in Sweden.
This picture you have seen. You will continue seeing it in the future, but what can I say? Story continued. There's materially nothing new in this one.
In Healthcare Services, all customer groups or payer groups are growing in revenues. There's a hefty 5 percentage point improvement in margin. Also, portfolio businesses are almost doubling their margin, but the revenue is going downwards. And Sweden, as explained, we are getting forward in there, but it takes still further time.
Year-to-date, we have the substantial improvement. Our big machine is ticking. And also in here, I would like to highlight the consistency. We have been delivering these numbers now 6 quarters in a row. And we have been progressing consistently quarter-by-quarter to get here. And now we are on a 12.6% year-to-date adjusted EBITA margin of 12.3% on the last 12 months.
Then, if we think about the balance sheet side of things and our cash position, we are ticking almost EUR 200 million of operating cash flow during the quarter. This correlates basically with our operating margin improvement. The more we deliver EBITA, the more we deliver cash. And that ticks like a clock.
Then the other part is good to note that, now the gross CapEx is at EUR 37 million on the last 12 months basis. That is a low number. We have been repeatedly saying that, it should be between 4 to 4.5 percentage points from the revenue. And at the same time, our eyes are turning more and more into organic growth and that will require investments.
So we would foresee that we have positive business cases to invest in organic growth and potentially the CapEx level will get higher in the future. But we will come back to that one also in CMD in 4th of December.
Net debt to adjusted EBITA at 2.3x. As said, I think that, it's all-time low during the history of this group, highlighting the cash generation, but also reminding all of us and all of you that, we have capability to invest, if there are positive cases.
Then, let's talk about the guidance. So basically, the first part of guidance, you know, we are expecting the revenues to grow. Now, we have narrowed the range to 12% to 12.5%. Then, if you look for the first 5 bullets, they are pretty much the same as they have been continuously excluding the fifth bullet last statement.
So now if you put this guidance into context, let's say that, you would calculate the implied range for Q4 from here. Year-to-date, 12.6%, ending up to 12% to 12.5%, in the full year, you pretty much get into mid-10%s on the lower end and basically low 12%s in the higher end of the guidance range. And that would indicate that Q4 would not be operationally great.
But then, you need to read the fifth bullet final statement. We have some one-time items, not as an adjustment items, but items that are now coming in, in the fourth quarter. We have the collateral labor agreement where we have the one-time impact, EUR 500 per employee that will be paid in December.
And then we have a one-off payment to all staff that will be paid out in the fourth quarter, which will also decline the performance of the fourth quarter.
And even with all of this one, it is fair to say that, the scenarios that point to the upper end of the range seem to be more likely than any scenarios that we'd point out to the lower end of the range. So we are doing well also in Q4.
But with these ones, I think it's time for Q&A and still one commercial CMD 4th of December.
Excellent. Thanks. I think that, we are now ready for questions. Do we have any questions on the phone lines?
[Operator Instructions] The next question comes from Anssi Raussi from SEB.
And firstly, congratulations again, strong quarter. I start with the demand picture, and of course, a lot of flu and influenza type epidemics in Finland right now. But how is the demand and growth picture in early Q4? Like, do you see a clear impact here?
Well, if I start, so basically, like iterated earlier that the flu season started somewhere around mid-August. And we have seen, give or take 2,000 appointments more per week for upper respiratory diseases. And at least, the first part of October, it has continued on the same manner.
And you can actually very transparently follow that one out in our Terveystalo open data. So just book put to Google Terveystalo open data, and you will see that part very transparently. It has a couple of days' delays until it updates, but you get the visibility on that one.
Then, on the other part of the demand, we see continued positive demand like you see from our numbers in the corporate customers. We see insurance customers in a positive development. Also, what comes then to out-of-pocket customers and public sector, I think that out-of-pocket customers, consumers are still slightly feeling now already going down interest rates and their purchase power.
So that one is, I would say, more up and coming than in as healthy development as with the corporate customers and the insurance part.
And then finally, public sector, you know the story. We have chosen our part in that sense, and it has been down throughout the year.
That's clear. Then, you have been clear about your focus turning on growth from now on. So can you maybe give us already some examples, what kind of actions you're planning? Or do we have to wait until CMD?
So in a big picture, yes, you will need to wait a couple of weeks until CMD. But one indication of the growth aspirations and initiatives came in Juuso's comments around the investments. So we have already started accelerating growth targeted investments in our portfolio.
You will see that one in our numbers, both in growth and in CapEx. That's one thing. Then maybe the other one is that, we have reorganized now the portfolio businesses, public offering. Actually, yesterday, we came out with the new brand. And we are really getting geared up for that market opening up in the future.
Yes, maybe just to elaborate that the focus remains on profitable and EPS enhancing growth, of course, going forward as well.
Absolutely.
And the last one about your employees and the employee NPS. Like have you seen anything unusual in, let's say, employee churn, for example? Or how has this developed?
So the attrition rate, we don't see any dramatic changes there. There's a, I would say, normal fluctuation there. The most important thing, which Juuso mentioned already, is that supply has been developing positively all the time and continues to be very strong.
Of course, this has been a fairly tough journey for our team during the last 24 months. And we, of course, want to give big thanks to the team for delivering and at the same time, keeping the customer satisfaction on a high level.
The next question comes from Sami Sarkamies from Danske Bank.
I have 3 questions. We'll take this one by one. Firstly, regarding your financial leverage, you were commenting that, its' all-time low. Are you planning to keep it that way also going forward? Or was this a comment that you were hinting for future acquisitions?
Well, I wouldn't take it as a hint. I would take it as what it says, all-time low. So what it means is that we have powder should we find positive growth investments. And we will come to the capital allocation and investment questions in the CMD.
But as I said, we have powder to do positive organic growth investments or inorganic growth investments should we see opportunities emerging.
Okay. Then moving on to Sweden. I think you have previously indicated that we could see some early signs of recovery already in Q4. Now you're calling it a tough quarter. What is delaying the turnaround? And does a top line turnaround require macro tailwinds?
Well, I think that comes with 2 different topics. I think that both are true. It will be a tough quarter, but we will also see improvement. I would think that we will continue seeing sequential improvement. That is not the improvement against comparable numbers. So then we need to be clear on that part.
So it will be a tough quarter. But at the same time, we would -- I would expect that we see some improvement month-on-month basis. So that's the first part. Then the other part is that Sweden macro is difficult. We would benefit from revenue growth and taking further revenues in there. But our plan is built in a manner that also in a lower end of revenues. We are capable of delivering satisfactory results, not great results, but satisfactory results at least.
Okay. And then finally, on the Finnish public sector as a customer, looking at ongoing savings, are you assuming growth from the public sector next year?
Well, it's very difficult to estimate that one because it's -- for any health care district, it's like a binary type of thing for many, many areas. But there are some signs that the activities are actually materializing. For example, Pirkanmaa decision just a couple of days ago was one indication that things are moving. But we are not yet forecasting anything.
We are getting ready and geared up, as I said, for ultimate sort of eventual growth that will emerge and market will open up. But it's -- as we have discussed earlier, very difficult to forecast.
The next question comes from Joni Sandvall from Nordea.
Congrats for the good results. I have a couple of questions. Firstly, on personnel expenses, this declined clearly year-over-year. So were there any extraordinary behind the decline? And secondly, have you seen any increase in sickness leave due to the flu season? And how should we expect this to compare now against last year in Q4?
First of all, the personnel expenses last year, the CLA additional payment was paid in third quarter, if I recall correctly. So that one means that there was a excess impact of, I'd say, a couple of million euros in the comparable numbers previous year.
And then on the sickness leaves, we see some small growth. So we are not living in a bubble as a company from the surrounding environment. So the extended flu season shows us some small impact on the sickness leaves, but nothing material at the moment.
And I think that, we have been quite good now during the profit improvement program to also improve our rostering. So we are quite well prepared for kind of normal volatility that sicknesses may cause.
Okay. Then maybe a question on organic growth going into '25. I know that, you will give more information in the CMD. But how it looks now when thinking on maybe pricing and volumes taking into account the current inflation environment, what kind of underlying growth in the market we should expect?
Well, at the moment, I would not like to comment too much on the '25 growth environment. We have materially -- the market environment is stable from most of the macro perspectives. There are open components, obviously, that, if we see more favorable macroeconomic environment. It should probably be visible a bit in our consumer-driven demand, especially. And of course, the employment rates would potentially start increasing in Finland with those ones.
But this is all guessing. But I would say that, from an organic growth perspective, we have a solid and good visibility for '25 or we would expect to see organic growth.
Pricing, obviously, we are living in time. We have past couple of years. We have been living in a high inflation environment. And now we are coming into a stable inflation environment. And of course, that will have an impact in our pricing also.
Okay. Okay. And lastly, maybe about changes in Kela reimbursements. I think, there has been, at least proposals to change this more towards more selective care. How you see these proposals? And could this actually be more supportive to you than the current change what happened early this year?
Well, starting point is that the proposal that is now on the table is smarter than the previous one for many different aspects. First of all, it's a phased approach, which is very important for this type of complicated system. So you are progressing in phases. Then it's more focused. So basically, reimbursements are focused in areas which are maybe the most cog-nested and where private sector can -- with the highest power help public sector.
So those are welcomed changes to the proposal. Then, the trial or pilot for citizens over 65 is a good pick. I think it's a very, very viable idea. Typically in that segment, people fall off from occupational health care. And there's a segment that we can serve with our private offering, so many positive things in the proposal.
Of course, then when you scratch the surface, the questions around how we do then develop this system into a freedom of choice type of model, which is sort of a background for the pilot.
Then you have many, many questions around pricing and pricing mechanism, et cetera, et cetera. But we are very, very supportive and glad to see this type of thinking first happening and this type of proposal put into the table.
One caveat, though, is that since we are moving ahead in phases, any material impact would take time. So this is hopefully beginning of something new where we can serve new segments with our private offering, new opening for freedom of choice model, but it will take time to materialize.
Okay. Good answer.
There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Thank you, operator. At the moment, we don't have any questions from the chat. So as a reminder, if you're watching and you have questions, do send them over. Maybe just a couple of words going back to the results.
Now, we are turning a bit focus from the turnaround to a new phase. Any teasers before our Capital Markets Day, what does it mean in practice?
So we have -- as a company, there has been a lot of things to fix inside our operations during the last 24 months. This has been for that reason, although, the results have been great. This has been a very much internally focused company for good reasons.
Now, the job on that front is done. We will turn our focus to external work to the markets, to the customers, to the patients, to the quality, due to organic growth and that's the key for the next phase. But we'll discuss that one in detail in our Capital Markets Day.
Excellent. We don't have any questions from the audience at the moment. So we thank you for your time and have a great weekend.
Thank you.
Thank you.