Terveystalo Oy Ord

Good morning, everybody, and welcome to Terveystalo's first quarter results call and webcast. My name is Kati Kaksonen. I'm responsible for Terveystalo investor relations, sustainability and communications. Today, as usual, we'll have the brief results presentation held by our CEO, Ville Iho, and our CFO, Juuso Pajunen. And after the presentation, we'll take questions through the phone lines as well as the webcast. So without further ado, over to you, Ville.

Thanks, Kati. And good morning from my behalf from Helsinki Sanomatalo. Q1, briefly, highlights from the quarter, very strong start for Terve Stala as a group. Strong performance, especially in healthcare services, the biggest business, which drove top line and margin growth. Also, even though the revenue decreased in portfolio businesses, the EBITDA margin improved, and it goes to show that the independent profitability measures taken in respective independent businesses are delivering. As we have discussed earlier, Swedish macro is not helping us, so we have headwind in our Swedish business, but we have launched, as discussed earlier, a profitability improvement program similar to Alfa, which has been a great success in Finland, and it's going to deliver results in 2025. We are not only improving our profitability and finances, we continue to deliver extremely high quality medical quality customer satisfaction, which is of course key to what we do. We fight for healthier lives. Q1, briefly in numbers, so revenue grew by some 3%, driven by healthcare services. Our EPS earnings per share more than doubled, which is, of course, a very strong development. EBITDA on absolute terms, 47.2, a strong number. EBITDA margin, 13.5, on track in our plan. to reach the targets in 2025. And as everybody remembers, the target is 12% on an annual basis. As said, quality continues to be on world-class level, NPS 86.4. And as per our business model, we are not only reporting profitability, we are delivering cash. Segment view from Q1 as discussed, healthcare services, extremely strong performance and rapid prompt development, both in revenue and EBITDA. Very, very good turnaround since the launch of the Alpha program. Portfolio businesses, as said, decreased in revenue, but despite that one and despite some headwinds in commercial or consumer-driven businesses and fairly muted demand in public services, EBITDA margin continued to improve. So good work done in independent respective businesses. Sweden, as said, decreased to basically a flat break-even result But as I said, we have a situation well in control in the heels of the Alpha program. We have launched a profitability improvement program, Gamma, for Sweden, and it starts to deliver later this year. We have a really good and strong roadmap, and it's executed by a new team in Sweden. We continue to deliver value to our customers. We fight for healthier lives. And of course, in this call, the focus is in finances, but we are fighting for healthier lives. We need to improve the value for our customers. We have earlier discussed the mental health care paths and what type of services we have been able to innovate to that space, which is an unfortunate trend in the society and working life. On individual diagnosis level, we have been able to prove great effectiveness of our care parts, our low-barrier services, early intervention and cooperation with customer companies. Now looking at the full population level data from last year, we have another proof point. So what we are seeing today is that number of diagnoses in the populations which we care they are increasing, but at the same time, the full or accumulated sickness days, they are actually decreasing. So more diagnosis, so lower barrier to enter into our services, more effective care paths and hence decreased number of sickness days for the organisations. So our model really works and delivers value for our customers. Our focus going forward, we have, of course, been very clear on the Alpha program and its targets. We reached the minimum targets already by the end of last year. Looking at the trends where we are going with the EBITDA, of course, we can be even more confident that we'll reach 12% next year. Thinking about the face of the company, we have made a strong turnaround We continue to deliver the tail of the turnaround during H1. We are shifting the company into continuous development mode, and that shift is key for this year. We'll reach 12% next year and continue from that base. as a renewed and more effective, more efficient company. With that one, over to you, Juuso.

Thank you, Ville. So, let's talk about numbers, couple of words. So, I'm Juuso Pajonen, CFO of Terveystalo. Let's hit it. So what has happened in Q1? I think that the biggest message is that no matter how you look at the numbers, the efficiency improvement flows through. Our EBITDA is increasing 30 percent, our EPS is over doubling, our deleverage is coming via the operating cash flow that Ville mentioned also, we are at 2.7. So the efficiency improvement flows through. It comes through the income statement, it converts to cash and benefits then, of course, the whole company and stakeholders. We delivered 13.5% EBITDA during the quarter. It's especially supported by healthcare services, revenue growth and the efficiency improvements and the commercial actions. But at the same time, relative profitability grew also in portfolios. Sweden didn't perform within a satisfactory range, but we have the profit improvement program ongoing there and we will turn that one also back on track. So with these ones we have been able to narrow our guidance range and we are progressing swiftly towards our EBITDA margin target of 12 in 25. So all in all a solid quarter driven by efficiency. If we then look on the top line, healthcare services growing, it's continuously good to note that we had one working day less compared to previous year first quarter, and we were 1% down in the appointments, but despite this one, we are growing. We are growing throughout the appointments, diagnostics and other service sales. And this is coming from our commercial actions and we have been capable of really delivering on the top line. In portfolio businesses, our outsourcing contracts continue to decline. The top line decline is not as rapid. as we have communicated but this is normal volatility between q4 and q1 so there are certain items that depend on how the cost split for example in specialty care goes between different municipalities or welfare districts and so on so there's nothing abnormal as such on that one and it it's not a profit driver it's simply brings a bit of volatility on the top line staffing services declined but the biggest reason in there is that as in healthcare services where we have been careful on which value-add services we provide we have been doing the same in the portfolios and in the staffing so the underlying performance is solid but at the same time public sector behavior has been not so robust still when ramping up the welfare districts and seeking for the new operating models. In the consumer part, we continue to see lower demand, but at the same time, some flashes of better future going towards the end of the quarter. So it is on a lower level than previous year, but maybe sequentially, month by month, there could be some type of a flapping upwards. Sweden, difficult macro. At the same time, we have some public sector contracts that have ended and that have put pressure on the top line. But with all of these ones, 9 million euros more revenue, growth in the terrestrial revenues, and with one working day less. If we then look on the profitability, healthcare services, operational efficiency throughout the services and due to the profit improvement program especially, we have a solid sales mix improvement. We have also the commercial actions in place and then the cost control. So we have been able to take next steps as we have communicated throughout previous year in our profit improvement program. We have been able to deliver that one and now you see the results. They are coming through and we continue to improve like Ville also told. Portfolio businesses, we have positive development throughout. We have similar kind of medicines as in the healthcare services, but since the business mix and the provided services are different, of course, the medicines are tailor-made for that one. But we have the commercial actions, we have the operational efficiency, and then we have the natural ending of low-margin contracts. Sweden already discussed through but basically we have the profit improvement program in place we have kicked it off we have started to progress it the progress is in plan but at the same time it's good to note that we are not expecting to progress with leaps and bounds so year 24 will be difficult in Sweden but we will improve sequentially in that one not too much to go deeper into the details of this slide, but it's good to note that especially in healthcare services, if the service mix shows growth throughout, also the client mix shows growth throughout. public consumer corporate all growing and of course the margin improvement is positive 3.5 percentage points quarter to quarter or year on year improvement portfolio businesses outsourcing revenues declining staffing dental revenues declining other businesses muted but despite lower development in revenues, the relative profitability as well as the absolute profitability are going up. Sweden already discussed not meeting our targets, not on a satisfactory level but the plan is in place, we are progressing and I think that with Finland we have demonstrated that we have some experience and capabilities on turning businesses around. Other part, balance sheet, shareholder returns. We continue to be a strong cash motor. We delivered very solid operating cash flow. Our leverage goes down. And then if you look at that one, improving margins, solid EPS, doubling EPS, and strong cash flow. Those are all signals of a strong company. So no matter whether you look the income side, whether you look on the balance sheet side, we are demonstrating that what we are doing flows through the numbers. CapEx levels now stabilizing into the 40 million levels, having still the same buckets, intangible assets, mainly going to software, tangible assets, either leasehold improvements or machinery. So same investment pockets as earlier, nothing new in this one. So with these ones, we are narrowing the guidance range. Earlier it was 10.1 to 11.5. Now we have taken it to 10.5 between 11.5. Last year was 9.8. And basically normal disclaimers, we are basing the guidance on an information available at the closing of the quarter. So there are other inflation consumer demand components in there, normal sicknesses. Now of course we have Q1 in the pocket, so the next heavy season is in Q4. And basically outsourcing contacts will continue the contract. Sweden will not be great during this year. A new topic we are highlighting that the possible increase in the VAT rate in Finland is not expected to have a material impact on 24 results. We do not yet know when this one will take place, what is the final date, but presumably it will land on H2. And basically we are excluding, like always, material acquisitions and divestments from our guidance. So profit improvement will continue. With these words back to Katja.

Thanks, Juuso. Do we have any questions from the phone lines?

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad.

The next question comes from Sami Sakamis from Danske Bank. Please go ahead.

Hi, I have three questions. We'll take this one by one. Starting from healthcare services, where we had a strong performance, do you still see levers that you would be able to use to improve margins even further? or is the Q1 margin level something that we should expect going forward?

Thanks Sami. If I start, the user can continue. Yeah, Q1 for healthcare services was a strong one. We have still a tail of the ALPHA program ongoing. As we have communicated, we'll close that one down during this spring. So we have still things and some elements in the pipeline for the improvement.

also other way around on LTM basis we are not where we want to be so that that's for sure we have also future levers like Ville tells yeah but maybe to rephrase if we think about

sort of next year, which is your target year, do you think you could still be able to improve on this level at healthcare services or is it so that the improvement will come from other areas of the business?

For sure the improvement will be more rapid in other areas as per phasing of different segments. But Q1 was really positive for healthcare services. There's nothing sort of one-off type of things in that basket. The efficiency has truly improved, but as you said, on LTM level, we are not where we want to be, and this is really... Putting things into the context, turnaround has been strong and rapid, but this is the first quarter where we can honestly say that we are pleased with the margins of healthcare services. This is not the end. This is sort of a new base from which we continue developing the business.

Okay, thanks. Then moving on to your guidance upgrade, I think it almost looks a bit conservative Given how strong margins you had in Q1, what are maybe some of the key reservations you have for the rest of the year that could bring margins down in addition to normal seasonality?

Yeah, I think that if you look at the guidance range, first of all, like always, we do our scenarios and we do our thinking and we set the range based on that one. And if you think about kind of the implied year to go, how it looks like, the lower end of the range would say that we have only modest improvement from previous year. year to go and then the upper range says that we are somewhere in the performance levels of 17, 18, 19 and there are scenarios that merit the lower end, there are scenarios that merit the higher end. The lower end part would then mean that we have some kind of a labor market distraction type of items and the higher end of course assumes that we continue on the track where we are so depending how you put your probabilities you could assume that especially after Q2, we have quite good place to evaluate further.

Okay. And then finally, any call regarding the second quarter that has already started? So how is that sort of paving out?

Well, we are not seeing any... If you are referring to markets, for example, and different segments, we are not seeing any major shifts or changes in our environment. Our internal work continues as per plan. Environment, be it corporate, consumer, insurance, is predictable. It is behaving as we have expected, and we are in our plan.

Okay, thanks. I don't have any further questions. The next question comes from Joni Sandvall from Nordea.

Please go ahead.

Yeah, thanks for the presentation. It's Joni from Nordea. A couple of questions from my side. Maybe on the portfolio business deal, sales were down and you mentioned selection in the staffing, so should we expect this kind of selection to continue and be visible in the sales development during the rest of the year and what kind of margin impact this has.

Well, if we slice and dice it, I think that the first message is that we continue to be selective. We are very careful on how to use the scarce resources in the healthcare professional world. So yes, we will continue to be selective. We are margin first company in that sense. we would not sacrifice margin only for the sake of volume. That's the first message. Then obviously the guidance on the revenues we give on the group level, we are expecting revenues to grow. There could be some volatility in staffing, but that highly depends on how the market and the clients are also behaving. So that's probably covering the question.

okay okay thanks that's clear then on the on the diagnostics volumes were still down but sales were up similar amount so is this mainly due to the pricing or is there a improving mix in the diagnostic side and maybe you can comment also the referral rates how they are evolving

Yes, so if I start and Ville can complement. There is both impacts. There's the pricing and there's the mix impact. Both are in there. Then volumes, we continuously need to remember that we had the one working day less, which then makes the appointment or PC's volume look different so that's good to know then if we look on the referral rate we have developed it has been one of our profit improvement program initiatives to bring the referral rate first back to pre-covid levels given the mix impact and then we are looking for the levers to push it even forward but one could now say that we have stabilized into a certain place

Yeah, maybe to add on that one, we had a normal flow season this quarter, so no major differences from earlier trends. We have been able to normalize or come back from sort of acute flu type of diagnostics from lower levels of COVID pandemic. but still we have some work to do with the longer care chains and their referral rate. Maybe one important note here is that if you look at the margin profile of Tervestalo, we have been able to diversify our profit levers And now it's been very important in our Alpha program that we have been able to improve the profitability of the appointments. And hence we are more resilient to different type of seasons and different type of mixes going forward.

Okay, that's clear. Then maybe lastly on the inflation and especially salary inflation, what's your expectations? And on the other hand, How has the supply situation evolved now during the first quarter?

So basically, if I start, the first question on the salary levels and the inflation, as you all know, our CLA will end at the end of this month and there will be a negotiation phase. However, we do know how public sector same salaries have been behaving and there are some hints on the export sector. We are obviously expecting salary growth, but nothing that would be an outlier in our Excel models. So the dialogue is ongoing and we are expecting a normal way of discussion to a certain degree on that part. Otherwise, inflation is, let's say that until the Iran situation, it was fairly well predictable and evening out. And now, obviously, you can't rule out scenarios where geopolitical unrest would impact, for example, energy prices. But we are in a

alert situation to react if that one would happen I would add that we have fairly of course we do have a fairly good visibility on the ongoing CLA negotiations and where are the gaps and expectations and that one and with the knowledge it's a fairly easy to say that we are prepared in our scenarios for the outcome. And so, as you also said, we are not expecting anything drastic. We know the situation, we know how it's going to impact our numbers, and it's all counted in already into our scenarios. Then you asked about the supply. Supply continues to improve during Q1. The utilization rate or booking rates of the appointments, they have normalized as we have discussed, but still the supply is improving, which is important going forward.

Okay, thanks. That's all from me. The next question comes from Iris the Man from Carnegie. Please go ahead.

Hi, this is Iris from Carnegie. Just a couple of questions also from my side. So firstly, follow up on the volume decrease in healthcare services. When do you basically expect the volume growth? Could it be already in H2 or is it more likely next year?

Well, first of all, from a company performance point of view, it's very, very positive that we have been able to deliver this level of results with slightly decreasing appointment or transaction volumes. And it goes to show that we are a different company. We are a more efficient company. If the positive scenario, then would come to pass where volumes start to increase in different segments. Of course, the operating leverage is even higher than previously for teravirstalo, and the impact on bottom line is going to be very, very, strong and positive we know from our different segments we know that the corporate base is fairly solid the pipeline from our point of view looks pretty good actually but in this segment changes are typically not rapid so it's going to be fairly stable towards age two. We did some more selective segmentation last year and it slightly dampened the occupational healthcare volumes, but it was per design. Now we are in a new sort of base and continue to muscle with the pipeline going forward and gradually start building that base. But it's not going to be drastic or rapid. Then insurance customers continue to grow and those volumes continue to grow. The question mark always is with the consumers and out of pocket and that has been fairly muted. during Q4 and also Q1. There you have also the positive scenario where it started increasing. And it can happen, of course, fairly rapidly.

Thanks. And secondly, how do you see the price component developing this year in healthcare services?

Well, I think that obviously we don't comment on future pricing environment, but we have been fairly consistently saying since the CMD last year that we see that we have capability to overperform compared to inflation. And I think that that statement still holds.

Okay. And finally, perhaps on competition in the Finnish market in private and occupational healthcare. Any comments on competition? Has it become more intensified?

Well, I would say that in Finnish private healthcare landscape, we have a healthy situation where we have different players competing from different customers and bids. We have two big ones then, one slightly smaller one and then even smaller one. And we have a good market and it's a functioning market. There has not been any drastic changes as to the competitive situation. We feel that we are in a strong position, be it any segment, customer segment inside the healthcare services. We have good visibility. We have a good roadmap also ahead. and we are not expecting anything sort of dramatic happening in the customer front nor competitive landscape.

Okay, thank you.

There are no more questions at this time, so I hand the conference back to the speakers.

Thank you. At the moment, it's a busy results day, so we don't have any online questions, but do we have any audience questions?

Roni Perhomen from Indros, hi. Maybe one question regarding the current cost to treatment guarantees Finnish government has made. In which way have you been following this conversation and how do you see it affecting your demand, possibly?

Well, yeah. The discussion around the care guarantees on public sector, it's in a way, it can be positive either way for Tervestalo. Earlier scenario from our side was that since the new government is pushing for the care guarantees to be stricter, there will be increased service procurement from public side directly to our services. Well, that will not now materialize. They will ease up the requirements for the care guarantees. What it means that the public side access to care will remain on a low level. And what that then means is to our current business model and healthcare service is especially positive because there is always this bill effect from public use to private side.

All right, no further questions from me.

Thanks. I think we still have one additional question from the phone lines.

The next question comes from Joni Sandvall from Nordea. Please go ahead.

Maybe one follow-up on the M&A front following the Alpha program and successful implementation of this. Have you actually discovered some areas where you would need some bolt-on acquisitions?

Well, if I start on that one, we made a small acquisition at the closing of Q1, and that indicates that obviously we are continuously keeping our eyes open. We are in a position that there are always potentially smaller white spots that we want to address. So if we look segment by segment in healthcare services, obviously our coverage is quite good, but there are both geographically and service-wise, something that we can always, in a modest manner, do if opportunities emerge. Obviously, then in portfolios, we are going through with our strengths, and we want to have that one in a positive place from a margin perspective, but also in there, there's potentially something bolt-on possible. And then finally, Sweden, we want to turn it around first. We would not do anything material at the moment. So yes, we are looking around, we have white spots, we are willing to address them in an organic manner or so should there be such opportunities.

If I continue, exactly right. So we need to always have a solid base on which we then can add Boltons or even new services. The key for last quarters has been a turnaround, especially in our biggest business. Now going forward, slightly more focus on portfolios and Sweden and continuous improvement in healthcare services. But as you said, there are always some white spots. And now when we have been able to solidify the base, during this spring, of course, we will evaluate some new opportunities, but we will do it in very, very conscious manner and all of the things that we plan and will execute are going to be value adding.

Thanks. I assume that there are no further questions from the phone lines or the webcasts at the moment, so any closing words first over to you, Juuso?

No, thank you for participating, and let's see in three months.

Yes, thanks for following strong Q1, strong start of the year, strong trend, confident on delivering our targets, and a big thanks to Terve Stalo team.

Great. Thank you for joining and have a good weekend when that time comes.

Thank you.