Terveystalo Oy Ord

Good morning everybody and welcome to Terveystalo's half-year results webcast and phone conference. My name is Kati Kaksonen and I'm responsible for Terveystalo Investor Relations, Sustainability and Communications. As usual, we'll have the presentations held first by our CEO Ville Iho and then the results analysis followed by our CFO Juuso Pajunen and after that we'll have time for your questions. We'll take questions from the phone lines as well as through the webcast after the presentations. Without further ado, over to you, Ville.

Thanks, Kati. And from my behalf as well, very good and hopefully sunny July morning from Helsinki. Tervestalo Q2 results. I have a great pleasure to present them today. we can say that this is the strongest second quarter ever in terrestrial history. And it's not only one number, it's across the board great results and strong, consistent development against our targets. Healthcare services, our biggest business, is driving the positive development and momentum, both a top line and margin growth. We are very glad to see that the portfolio businesses where we have started individual profitability improvement initiatives in respective businesses is also improving and contributing to the group result progress and with Sweden we don't see that the full results yet but we are very pleased to see how the agenda has been evolving and how committed and determined work the team in Sweden is putting in place, and we are confident that the same pattern will follow in Sweden, will turn around the business in 2025. This all and positive results when it comes to our finances is comes with the backdrop of continued high quality, our NPS is on a record high level, also medical quality is improving, which is very important for the future of our business and business model. Key numbers, as said, no matter where you look, this is an extremely strong quarter and continues on the path set for Tervestalo some 20 months ago with our profitability improvement program. Revenue is up by some 5% driven by healthcare services. EPS strong improvement there with 91%, EBIT A 42.5 million and 50% improvement also there year on year and EBIT A margin at 12.5. NPS has said 86.4% improvement from very high level there as well and we continue creating strong cash flow with our profitability. All in all, as I said, record quarter, but this is not where we want to end. This is second quarter in a row where we can see that we are on new high level and from this level we continue progressing. Our P&Ls, our segments presented in graphical format, as said, healthcare services is leading the race. The agenda for that one was set some 20 months ago with Alpha program. Great improvement still from Q2 last year to this second quarter. Portfolio businesses, as said, is starting to improve and that's of course very important for the company. It's not only one cylinder which is contributing, it's already two and it will be three as we turn around the Swedish business in the course of next 12 months. For Tervestalo future, it's important to see the progress that we are making and also the facing of the progress. In this slide, you can see the different P&Ls in order of magnitude, but this is not only order of magnitude, this is also the facing of our program and our progress. Healthcare services is now set on a new high level, but it continues to improve, and we see further potential there with our new agenda. Portfolio businesses, as I said, have started to improve, and there's a new ambitious target set for each and every business, and we are. determinedly progressing against those targets and Sweden we will turn around. And these three cylinders at the end contributing to tervestalo futures is very important for our story and supports also the new guidance that Juuso will walk you through in detail in a few minutes. This also, of course, begs the question, what's next for Terve Enstalo? We are now in a new level and we see further potential. And we invite you to listen to our new agenda and a new set of targets on 4th of December this year. With that one, over to you, Juuso.

Thank you Ville. So let's talk about the red hot part of our quarterly release, so that's the numbers. Obviously a week ago we took a bit of the wind out from this presentation, but I'm really proud and happy to show what we are doing at the moment. So if we take the highlights, we have continued the margin recovery in Q2. Actually we had the best ever Q2 during the company's listed history what comes to relative margin we are our adjusted EBITDA is increasing 49% EPS 91 or if you take the half year EPS it has more than doubled our leverage is at 2.5 all included what comes to IFRS 16, so no matter how you look at this performance, it's solid. You can pick a line in income statement, you can pick a line in balance sheet, or you can combine those ones, and we are on track. And then, as Ville mentioned, it's not only the financial performance, but we have the NPS, client satisfaction, we have the medical quality, pays, all of those ones are strong and solid. So we are truly delivering now. Our performance is coming from the Finnish segments and especially from the healthcare services, which you will see a bit further when we go forward on the slides. Sweden is not visible in the figures, but we have a very clear agenda. We have taken solid steps forward and we are very confident on the profit improvement program progress. So it will be coming in 2025. And all of this one merits the guidance update. We will be between 11.5 and 12.5 at the end of this year. So if we then look a bit on the revenue, basically you could read the headline, profit improvement program working, commercial actions delivering. We are growing 5.5%. One needs to remember that we had one working day more in second quarter compared to previous quarter. That helps a bit also on that growth. So the volume adjusted appointment growth. or workday adjusted appointment growth is not heavily growing it's stable even though it is 1.4 percent during the quarter in absolute terms but that helps us on the growth part then we have both the customer and service mix are working in our favor we need to remember also that this is a low demand month Low demand quarter as is the third quarter what comes to diagnostics and other service sales. So the appointment delivery is more important and the appointment performance may be then in Q1 and Q4. And then it's worth to note that revenue is increasing in all customer groups and in all services, so we are consistently improving our healthcare services. What comes to portfolio businesses, we have the outsourcing decline, we have all known, we have communicated, you have all known. And it continues on the pace as anticipated. Staffing continues the track from Q1. We have been doing some proactive customer selection. We don't want to offer whatever. We want to offer those services where we have the solid value add, which also converts into profit. And then what comes to dental and massage, we are continuously impacted by the lower consumer purchasing power. The decline has stabilized, but the trend is still very wobbly. It would be difficult to say that it is clearly demonstrating improvement, but it has clearly stabilized during the year and most likely bottom out during Q1. Then if we look Sweden, also the story continued. We have the ended customer contracts, customer selection, but also a weak demand environment, which is in our business model hitting more than in our Finnish business. So all in all 5.5% growth, very solid growth in our healthcare services which is the big motor and basically margin improving customer selection and revenue selection especially in portfolios and Sweden. Then if we look at the EBITDA development, adjusted EBITDA from 28.5 to 42.5, almost 50% improvement. We have the healthcare services truly delivering. clearly seeing the operational efficiency and here I want to highlight continuously that it's the low demand season and during that season the sales mix capability to yield margin in through all of the services is very important and this is what we have demonstrated now with our profit improvement program that has progressed quicker than anticipated but also delivers very solidly. So this one combined with the successful commercial actions and the continued scrutiny on cost delivers the profit improvement. If we then see the portfolio businesses, we have positive development in staffing and outsourcing. In here also we have the commercial actions, we have the operational efficiency improvement, but then it's good to know that we have been fairly solid and good in adjusting in our consumer driven businesses. to the lower demand so once the demand starts to pick up we are lean and mean to go forward also in that end and finally in Sweden the reduction in revenues converts into bottom line but as said the profit improvement program is progressing Then finally good to note it's not an adjusted EBITDA topic but we have in the adjustment items as written in our profit warning last week we have a roughly 6 million euros additional item related to renovation liabilities coming from a rental contract older than a decade so that is truly not for this period and we don't have similar type of items in our portfolio so That's good to note when you look at our total numbers. Going into the sales mix, that is improved in Finland. We continue to have the headwinds in Sweden. Here's nothing particularly new that I wouldn't have said earlier, but as said, good to note in healthcare services, all client segments growing, all services growing in revenue perspective, and the margin creation is really solid. Portfolio business is a bit of mixed bag, but the revenue is declining in the public sector by choice and in the consumer segments from the market environment. If we look then H1 as a total, this is story continued. Revenues are growing 4%, so now we don't have work data adjustments needed. We don't have this type of, so it's fully comparable year on year. 4% up appointments, a bit less than 1% it's down, and despite that one, we are improving our adjusted EBITDA by 38%. The big contribution coming from healthcare services, portfolio businesses, still in a phase of going into the better and better yielding momentum and Sweden in early steps of profit improvement program. So very natural, very understandable facing. And the H1 tells the same story as Q1 and Q2. So very consistent, very understandable in my opinion. Then if we look cash flow, When we make profit, we make cash. As simple as that. This clock is ticking. We have a really strong EBITDA, really strong cash flow. We have been fairly stingy on the CapEx side, minus 38 million LTM. We continue to be slightly below of our own expectations maybe, but at the same time we are... we are doing what is the right thing. We are investing in digital, we are a bit investing in the walls, and that's pretty much that. Then if we look at our leverage, 2.5, continued improvement on the leverage ratio, interest-bearing liabilities going slightly down, and good to know that in Q2 we paid our dividends out, and we have already funded that with operating cash flow, so a solid place to be. EBITDA converts into cash which is how it always should be so then we go to the guidance so we expect revenues to grow no change in there adjusted EBIT A to be between 11.5 and 12.5 so as you know the midpoint is at 12 percent so 20 months ago, Ville told that we will make 12% in 2025. Now there's a clear likelihood that we could do it already in 2024. Our estimates are based on everything we know at the end of second quarter. So inflation, consumer demand, employment and normal mobility. So still on the Q4, we would expect that we have normal flu season. That's important for our profit generation. We are confident that our performance improvement program continues to deliver and is sustainable, and then we have the same disclaimers as earlier. So all in all, we are very confident on our visibility. We are confident on our past delivery, and we are confident on our future delivery, and with these ones, it's easy to say that 11.5 to 12.5, a clear improvement compared to Q1 release, a clear improvement compared to start of the year, And that's where we are. With these words, any final words, Ville?

Kati? No, it's a big thanks for Terve's team for delivering these results over the last 20 months. Literally, there has been thousands of people contributing both on frontline and back office to these achievements. bright future ahead.

Absolutely. So now we have time for your questions. Do we have any questions on 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 Joni Sandvall from Nordia. Please go ahead.

Yeah, thanks, Ville, a useful, good presentation and good results. Congrats for those. Maybe starting with quite strong corporate sales growth and it was clearly picking up from Q1. So what is actually driving the growth? Is there a pricing component or have you been just successful on commercial front?

Or do you want to start? Well, you can start. Yeah. So basically, if you look at corporate revenues purely from number perspective, we have the connected employees are now slightly improving after Q1. We have one working day more. So those are the mathematical components. But then we have an improved client mix and, of course, the pricing and commercial actions that are also contributing to the growth. Yeah.

And as we have discussed earlier, when we think about the commercial actions, it's not sort of headline price increases, which we are solely talking about. Of course, that's a contributing factor, but there's a lot of different elements, how we slice and dice the commercial offering and how we, for example, close the price leakages and improve on that front.

Okay, thanks. Then maybe on the appointments and your new remuneration plan, what you've launched early this year, has this actually progressed faster than you have earlier anticipated?

Yes, one can say that it's slightly above our expectations, the contribution. The mix has been slightly different and better from our angle. Not fast because it's sort of sequenced actions that we chose to do and then we see the impact. But as you asked, it has been slightly overperforming against our expectations. But maybe important to note that this is not it yet. So there's some more to come during the course of this year.

Okay. Okay. Thanks. Then one question about the diagnostic sales. Obviously, it's more quiet quarters now, but sales growth improved there. Is there any improvement in the funneling on this front, and how should we, you know, think about the growth rates going now for H2?

If we start from sort of a longer-term progress and the discussions that we have had during 20 months, There's no drastic change to be expected in how the appointments are then contributing to diagnostic sales. We have been able to improve the digital appointment conversion to diagnostics. There's some work to be done. when we think about the rest of the pool, and we are steadily progressing, slowly but steadily progressing in there. Mainly it's down to the flow seasons and such, what is the actual customer demand.

Okay, okay. Then maybe one question on healthcare services, margin improvement potential. I think you mentioned that there is still, you know, improving trend in profitability, but how much of this is still related directly to the profit improvement program and how much is just normal business improvement that you are expecting?

Well, of course, that's a little bit of a theoretical question because now we are in the middle of transit or actually we have done a handover from profit improvement program in healthcare services to line organization. And it's a blend of new actions in the new agenda of healthcare services and then the tale of alpha initiatives. But as I said earlier, there's continued progress and of course we have not fully emptied the tank yet.

And we don't guide on segment level but obviously to reach 11.5 to 12.5 this year it means that there's also some contribution from healthcare services so as we have said we are not expecting anything materially positive from Sweden this year especially compared to previous year and portfolios are progressing on their own pace so of course also healthcare services will continue to contribute in a positive manner okay thanks that's clear a last question from my side on M&A from now when the profitability levels have been how does a restored or

or improved? How is your M&A appetite going forward?

Well, recipe for success during last 20 months has been keeping the eye on the ball. And as we discussed in the presentation, the phasing is important. Healthcare services during the last two quarters now, it has been on a new level. We see further potential there, but we can claim it solid and good pace for future progress. So in that front, we see opportunities, of course, no reason to not do those. Portfolios, slightly different story. They have started later and they are progressing now, which is very good for the whole group. And we need to be very, very selective on what we do. And there's further considerations also in that mix, how we deem each and every business going forward. But important is that it's improving and continues to improve. Sweden, lastly, it's totally sort of eye on the ball agenda. So we'll concentrate now solely on delivering the results through the profit improvement program in our Swedish business. And then when the time is right, we will return to this M&A discussion.

Okay, thanks. That's all from me.

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

Okay, hi. I have three questions. We'll take this one by one. Firstly, starting from seasonality, how should we think about this going forward? In the past, second and third quarters have tended to be quite a bit weaker quarters than Q1 and Q4. Now second quarter was actually quite strong relative to the first quarter. What are you thinking on seasonality at the moment?

Well, first, if we now look purely the technical part of the seasonality, we have one working day more in Q3 compared to previous year, which actually comes from July. So it's traditionally more difficult to evaluate that technical impact because it comes in the vacation period than Q4 is. is flat same 62 working days so on that sense we have a bit of positive momentum coming for the second half from the working days then the second part of the seasonality which then relates into the especially on the flu season which makes Q4 and Q1 strong that one obviously remains in there Q3 will be seasonally weak that one will not go away. The big thing what we have done in our profit improvement program is that now we are clearly better in making margins also from appointments and once you have an appointment heavy Q3 I think that we have all the room to improve in Q3 but obviously still it will be seasonally weaker than other quarters. So maybe not as big volatility as sometimes in the history, but the underlying reasons for seasonality have not actually vanished away.

Okay, that's very helpful. And then the second question would be on the diagnostics area of the business where you achieved 8% revenue growth on the back of 1% volume growth. Was there anything special in the second quarter, or have you raised prices this much overall?

As you said earlier, it's mixed. It's price, that combination, and also slight improvement in conversion in what we are doing.

Okay. And then thirdly, You reported quite negative trends at portfolio business overall. We had negative growth rates, not only in outsourcing services, but also staffing and dental care. Do you see any potential for improvement in staffing or dental care during the second half year?

Well, to start from maybe starting from dental, of course, dental is, as we have discussed earlier, suffering from consumer confidence and disposable income difficulties with consumers. And as you said, the trend has stabilized. We don't see growth trend in consumer demand yet, at least not material one, but it has stabilized. Good thing with the dental is that we have been able to protect the margins and even improve those ones, even though the consumer demand environment has been flattish or even negative. We have made conscious decision that we'll continue to focus and invest in dental. We see potential there. That's an area of business and healthcare that we believe in. But it will take some time, of course, for this consumer trend to turn around. But it will be there. Then for staffing, as you said, we have been more selective and maybe tougher on pricing, and that can be seen then on volumes of the contracts. but we are pleased with the profitability progress in that area. going to remain as a stable part of our business. It has been very stable. The healthcare districts, regardless of their discussion and comments around the staffing, they will need these services, and the way we deliver these services is sustainable and contributes to healthcare districts' services and their duties.

Okay, thanks. I don't have any further questions.

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

Thanks. We have some questions from the webcast audience, so maybe starting with the results and the forward-looking view. Congratulations on the great result in the market that is difficult for many companies in general. The question is, is there still room for even better results in the coming quarters or are we now in the ceiling of our performance?

Well, now we have, during this year, we have two times upgraded the guidance. So that speaks for itself. Now we have the guidance in place and user commented that one thoroughly. We see we are ahead of our schedule in our profit improvement. That's clear. And that what lies ahead for TerraVestal with our strong progress and strong cash flow is a question that we will answer in our CMD later this year in December.

And then purely mathematically, it's good to note that our last 12 months EBITDA is 11.4 and we are guiding 11.5 to 12.5. So we are definitely guiding continued improvement.

Yes. Then maybe talking about the risks and the top line growth. Are there any identifiable risks for the business for the rest of the year? And what about the top line growth expectations? Are we expecting continued growth there?

Well, I will refer back to guidance and users comments around that one. Also the guidance comments and caveats made there are very clear. So there are no sort of new things on the horizon. It has not been blooming market in many fronts, but we have been able to progress regardless of that one. We see steady progress ahead.

Then maybe jumping into M&A, which we briefly already discussed, but are we looking at any new M&A activity for this year and what kind of targets would be the ideal fit for our portfolio? Maybe first to you.

Yeah, so obviously, like Ville explained briefly earlier, that we have our three businesses within different phases. And obviously, depending on which phase you are, the more you have earned to also acquire. We are interested in making acquisitions that fit into our strategy, that fit into our core offering. And should these type of opportunities emerge or should we be able to create those opportunities ourselves? Of course, we are willing to grasp them and we have balance sheet to do it. At the same time, our main focus is still to deliver solid returns to our shareholders, so obviously we would not jump into an M&A just for sake of growth unless it is a truly EPS-yielding acquisition.

Then a question from Iris from Carnegie. Our volumes in the healthcare services have started to grow year on year after a declining trend in the early 2023. Do we see this growth as being sustainable and what are the drivers behind the volume growth?

If I start that purely technically volumes are stable. So even though we have appointments growing in healthcare services in Q2, you need to remember that there's one working day more, which already technically adds some appointment growth. Yeah, H1, I think that they were at 99.7, if I recall correctly, or 99.1. compared to previous year. So we have not yet gone into a position where we would say that we have a solid volume growth in our portfolio. Obviously, the more you look month by month, there are some indications that could say that we could have something positive ahead of us, but it's still too early to go into that type of a dialogue. So I would talk about stable volumes at the moment. Nothing to add.

All right, then a question on the cash flow profile and capital allocation. As we commented, the cash flow profile is strong, which is generally a bit rare in these times. The question is, are we more prone to grow dividends or invest in growth going forward?

Yeah, I think that the first and easy answer to that one is stay tuned, CMD, 4th of December. Then if we just look a bit backwards, what has happened is that we have continued to deliver solid cash flow. We had EPS return on equity perspective difficult year in 23 due to non-cash related write-offs, but also even if you adjust for those ones, we paid a solid dividend i think that has been an indication from the board of directors that they rely on our cash generation and that they are willing to share the positives to shareholders so there's no change in this logic not logic in our capital allocation we can invest either to walls either to digital either to mta or give money back to our shareholders and we have been fairly consistent in all of those ones at the moment so Let's wait until the CMD and maybe we can also think about that topic.

All right, then still a couple of more questions. First on the pricing environment, what sort of our early thinking going ahead to next year about pricing and how we see that?

That's, of course, a very important topic for our commercial team. What we see in the market, we have been slightly more aggressive as we should be as the leading provider of healthcare services, private provider of healthcare services in Finland in our pricing, but it is not as earlier discussed only sort of headline prices. It's a lot of other pricing actions. which have been yielding good results. What we see ahead, and this is continuous discussion with our commercial team, is that there's still room for us to maneuver in commercial front. We have not, well, maybe we can say that we have not emptied the tank yet. There's, of course, corporation companies, they are... looking at the prices and they are looking at their costs, but we continue to deliver value and as I said, we have still room to maneuver.

Great. Then maybe looking ahead on the further development of the business, is there anything new that we could comment on the digital offering or other new innovations in the pipeline?

In the digital offering and our development on that front, we have followed the same logic as with the full turnaround program. Eye on the ball, focus on delivering the agenda that we already have in place, not to start too many new things at the same time. what we have seen during the course of this year, for example, is I think a good showcase of our steady progress. symptom screening, AI-driven symptom screening that we have now put in place for our corporate clients. It's one good example. It's a one-of-a-kind process at this stage for companies, and there's more to come. The focus will be both on customer front, but also more and more on professionals. tools and efficiency gains in how professionals are able to deliver the services. Steady progress.

Yeah, and I'm sure that we'll come into that topic in the upcoming Capital Markets Day in December as well. Then a final question, a bit broader one. What could be a new business area that could possibly show unexpected growth potential in the foreseeable future? Do we have any examples of this?

Well, we have now during the last 20 months, of course, we have played our cards well and the company and the team and thousands of people in Terraverse have truly delivered. So now we are, as Juso pointed out, we have a license to dream in the areas where we are already on a new level. So we will, of course, have more focus on innovation and developing new type of services. And there will be, of course, during the course of next year, there will be some. We concentrate on the same customer segments. We will create base for potential public market growth whenever that happens. And we continue to be the leading provider for consumers, insurance companies, and corporates alike. And there's always development.

Absolutely. With that, I don't think that we have any further questions, so maybe closing words and thank yous.

I wish everyone very pleasant and hot summer, at least as hot as our numbers.

Thank you. Thanks a lot for tuning in and my special thanks for Terve's team and also for our customers. This has been a good run for the last 20 months, but more to be expected.

Great. Thank you for joining. Have a nice summer.