Terveystalo Oy Ord

Good morning, everybody, and welcome to Terveystalo's first quarter results webcast and conference call. My name is Kati Kaksanen. I'm responsible for Terveystalo Investor Relations and Sustainability. As usual, our CEO Ville Iho and our CFO Juuso Pajuelen will present the results and we'll follow that with a Q&A. We'll take questions from the phone lines as well as through the webcast and from the audience, if there's any. But without further ado, over to you, Ville.

Thank you, Kati. So diving into Q1 very shortly through the key numbers. All in all, a solid start of the year and continuing on the improvement path that we have laid out during the last two years. Margin is up. Our adjusted EBIT is up by 20 percent. EPS up by 40 percent. against slightly dropping revenue line, which is then again due to softness in Sweden, softness in portfolios and some discontinued outsourcing contracts in portfolios. Healthcare services still growing with healthy 5%, but all in all a flattest quarter in revenue. Very glad to still see our NPS customer satisfaction trending upwards as it has done throughout the improvement journey that we have conducted. So strong, solid start for this year 2025. Looking at different businesses, if there's one headline for the agenda, it's improvement. As we have communicated previously, we are looking for still incremental improvement in health care services, which is already on a very strong place. Q1 was one step in that journey. In portfolio businesses in Sweden, we are looking for more drastic performance improvement. Against tough market conditions in portfolios and in Sweden, I'm very glad to say that both of these businesses have been able to improve their relative profitability. first step in Sweden to see the real benefits of turnaround agenda and turnaround program in our bottom line numbers. Portfolios continue to do good work against fairly tough market conditions and incrementally improving their performance. The agenda is solid. Improvement will be there across the board. Taking a slightly longer view on our strategic agenda and strategic KPIs, it's been again a solid improvement in efficiency, organic growth, but also in underlying forward-looking KPIs like NPS customer satisfaction and people engagement index where we also see all-time high figures and a positive trend going forward. Also medical quality measured with the pay index trending nicely to positive territory and at all-time high. So all in all, we have not only been able to improve the financial performance step by step, but also underlying forward-looking KPIs in our strategic agenda. With that one, I will hand over to Juuso.

Thank you, Ville. So good morning all. Happy to be here and proud to present our numbers for first quarter. So I'm Juuso Pajunen, the CFO of Terve Östalo Group. If we start on the group level, Hede says solid performance at group level. Some might say even strong performance. We have been doing quite well. If we look on the totals and we start from bottom up. Our EPS went up 41% like Ville told. Our adjusted EBIT is almost 20% up and our EBIT A is 14% up. So we have a throughout solid performance from the income statement KPIs. And what is more important if we look on the picture is that all of our business segments improved in their relative profitability. We are getting the demand in, we have the improved operational efficiency, and we have a favourable service mix, especially in the healthcare services that yields now into our results. Then if we look on the top line, we have healthcare services having a healthy almost 5% demand against one working day less compared to previous quarter. We have the portfolio businesses where especially outsourcing contracts contributed to negative revenue development and then we have Sweden where we are working on our turnaround program and progressing as planned. But if we go a bit deeper into each segment and start with the healthcare services. So healthcare services continues to be the revenue driver and the profit driver in our group. If we look into the supply and the booking rates, they are on a good level. What is good to understand on the demand is that the flu season continues to be strong. We had some 25,000 to 30,000 visits more contributing on the stronger flu season now compared to previous year. That helped our both the service mix and also having an impact on the customer mix, which on a big scale are fairly normal, but we see that in the in the total demand if we then think about further our profitability and our revenues were supported by our service sales and channel mix and then the pricing and to improve our transparency towards markets we have now updated how we show this one to you in the future so if we take a view on the growth and the revenue bridge, as said, almost 5% up. Our visits are moderately growing with somewhat 0.4 percentage points if we adjust for the working days. And then the rest of the growth is coming from the service, sales and channel mix in total. So all in all, a robust result in healthcare services supported by organic growth and an efficient operation model. If we then go to see the portfolio businesses, we have seen that the publicly funded market remains cautious. We see this one, especially in the staffing, where part of the decline in the revenues is still coming from our selection of customer contracts. And then we have the outsourcing where we are 10 million down. We have earlier told that we will this year lose revenues in the ballpark of 25 million euros, it will be first half heavy and that estimate of 25 million euros has not changed despite this 10 million euro at the moment. Then if we look on the consumer driven markets, we see dental is going up despite the headwind from the one working day less. We are almost 5% up and also massage services, we see that the demand is picking up. However, it's good to note that these are coming against quite weak comparables what comes to demand. So all in all, what is important is that we are improving our adjusted EBIT percentage. We are now going back on the improvement mode, both on EBIT A level and EBIT level in total in the portfolios. Our agenda is working, but we have some stickiness in the public sector market at the moment that creates headwinds in the revenue. Then if we go to Sweden, We have difficult market conditions. The Swedish economy has not been recovering and has been impacted by the global turmoil. to a certain extent that has made our market environment difficult. But at the same time, we have been able to improve our efficiency. Our Gamma program is having a clear impact and it will continue to have the impact. So we are within our plan. We would obviously benefit from support from the markets, but our improvement plan doesn't require that one. So we are getting forward in here. We are improving our relative profitability and we will continue to do so. Then if we look into our investments, our balance sheet and our investment levels are fairly normal. We have a slight pickup. to 42 million in the latest 12 months period and as we have since CMD and already earlier communicated we will prioritize organic growth investments and disciplined inorganic expansion. So disciplined M&A is part of our plan and then very focused organic growth driving investments are what we will continue to do and this 42 million will modestly ramp up in the coming quarters or so towards the vicinity of 4% on the revenues or slightly above that one in the longer term. If we then look on the cash flow, we have a 202 million euros of operating cash flow on the last 12 months. It is a solid good performance, but it needs to be put into context that in 24 we made more profits that comes with taxes that were paid out now. So we have a tax impact in here and then if we look the Q4 numbers or then Q124 numbers, it's good to note that the Q4 LTM has two strong quarters within that one. So this is normal volatility within the cash flow that we are seeing. The profits that we are making convert in a very high ratio into cash. And then if we look on the balance sheet, we are net debt to EBITDA at 2.2. And if we would take against adjusted EBITDA, we would be at 2. So our balance sheet is strong and we have all the powder needed to invest in our growth in the future. Then finally, let's talk about guidance for 2025. First, it is unchanged. So we are saying that the full year revenues are going to grow and our adjusted EBIT will be between 10.7% to 11.8% of the revenue, while previous year was 10.5%. The estimates are based on stable demand environment, employment levels and typical morbidity rates. And we have the 25 million reduction what comes to the outsourcing contracts. So we reiterate what we have said. At the same time, having said that one, we all know that there is some global uncertainty and turmoil in the world. There are the tariffs from Trump and there are different type of forces in play at the moment. We are not immune to those ones. And there are scenarios where they could have indirect impact to us. So we don't export to US. The tariffs don't mean anything to us in that sense. And what we buy will not be impacted by that one either. But the indirect impact, if Finnish employment levels would be starting to go down, if the employment levels in Sweden would start to go down, those could have an impact. on our operations, but we deem it fairly unlikely based on the megatrends on our services and based on the need and the value that we provide to clients that it would have a material impact and we are very comfortable to reiterate our guidance for this year. Then also if you look now our performance in Q1, the solid improvement what comes to previous year performance. It is fair to say that if you take all the scenarios that are at the moment meaningful to us, it is The scenarios that are above the midpoint of the guidance are probably more likely to occur than those ones that are below the guidance. Obviously, it is up to you to put your own scenarios into place, but that is how it looks like to us. We are within the range, but potentially the upper part of the range is more likely at the moment. So with these ones, I'm happy to reiterate our guidance for 2025. We are going to grow and our adjusted EBIT margin will be between 10.7 and 11.8 percentage points. With these ones, let's invite Kati on board and start the Q&A.

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

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

Hi, I have several questions. We'll take this one by one. Firstly, starting from the guidance, you didn't narrow the guidance range, even though Q1 SAC is a strong quarter, should de-risk the outlook. Can you talk about the reservations? You mentioned tariffs and indirect impact, but are there other things that make you worried?

Well, if I start on that one, I don't think we are worried. So I think that our guidance is robust and it is at the moment relevant. We all do need to acknowledge that there are also forces in play that are more unpredictable than maybe a year or two years ago, when it comes to the whole macroeconomic environment. At the same time, what could happen, as said, the employment levels are a topic that could have a mid-term impact to our operations. But as said, I think that it's more likely that we are on the upper end of the range. So I could imagine scenarios also below the midpoint, but those ones seem to be a bit less likely at the moment than the other scenarios.

Okay, thanks. And then I'd like to check a couple of things regarding portfolio businesses. Firstly, if we think about the outsourcing business, was it so that you're not expecting any further contract expiries after Q1? So this is sort of the level you will be having throughout the year.

Yes, we have been quite consistently and continuously showing the graph at the appendix of the presentations, and 25 million euros is the expectation of lost volume for this year. It is always an approximation, but that's the ballpark number, it is correct. There are minor impact pluses and minuses coming from, for example, pass-through items within such contracts, but that's still our best understanding of the situation.

Okay and what about then staffing are you sort of satisfied with profitability of the current staffing business and is that something you want to retain throughout the year?

Well first of all if you look the staffing the market has been difficult so and that is not then tervöstalo staffing market. It is the total healthcare staffing market as we see it and as we have proxies on that one. And that is the main driver what comes to staffing. On top of that, we have made some conscious choices on not to retain the certain agreements during last year, which are now visible on the revenue line. Then what comes to profitability, our staffing is a good business. It is making benchmark profits For our purposes, we are happy with that one. And the operating model is fairly resilient on changes on the revenue levels. So we have no further need to discuss on that topic. It is a good business, but with unfortunate market conditions.

Okay. And then finally, dental and massage services. Seems that you finally turned the corner. on those in Q1? Are you expecting sort of positive growth figures from now on?

From our current perspective, our guidance says that we are expecting improvement in all segments, so that one obviously refers to profitability and portfolios, but the current trends suggest that now there's a turnaround on consumer-driven demand, what comes to these services, and then it is still good to note that the comparables are from fairly weak demand point of time. So we are expecting this to continue improving.

Okay, and then finally, on the cash flow, a bit slow start for the year. I think you mentioned taxes as one of the reasons. Any sort of timing impacts? And if you think about the full year cash flow outlook, how does it look relative to last year?

Yeah, I think that in total our cash conversion, the longer time span you take, our cash conversion is very, very stable. And I think that that will continue in the future. I have no reason to believe that it wouldn't continue. As I already said in the Q4, quarterly release that we had an exceptionally good Q4 and for the full year 24 we had also a good Q1. So there are always timing differences when you close balance sheet on 31st of March that creates a bit of volatility. So now we had negative volatility earlier, we have had positive volatility and we have been fairly open about that one. I don't think there's anything drastic or more to say on that one other than that we are a cash machine and we continue to be a cash machine.

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.

All right, we have some questions from the webcast audience, maybe starting from the global macro environment and the tariffs that the Trump administration has imposed. Do they have any impact on the business going forward?

If I reiterate what I said on Sami's first question, it is difficult to see direct impacts hitting us. It is easy to understand that indirect impacts may occur. So basically we don't export, we don't import, we buy only for our own services, for our own needs, so direct impacts are not there. But indirectly, if Finnish economy goes into bad shape, if Swedish economy goes into bad shape and it impacts both the employment and the consumer demand, obviously we are not in a void. So we have protection on the services we provide, on the need for our services that makes us less volatile. But we are living in the same economy as everyone else.

Anything that you want to add, Pille?

Well, maybe taking one step back and looking at the longer trends, one needs to remember, first of all, that as Juso referred to, we have been very resilient business. against different cycles. That continues to be the case. We are not in a bubble, but more resilient than the rest of the guys, at least most of the guys. Then looking at the megatrends, regardless of the cycle, megatrends continue to support a longer-term increase in demand for healthcare services, and we are well positioned in that play.

Absolutely and referring to the strategic agenda of course we are continuously working on the value created for our customers and the efficiency of the services to also be able to maneuver around the changes in the landscape better. Maybe then going into the portfolio businesses and the public sector, there's a question if our exposure to the public sector contracts is becoming a liability considering the uncertainty and the budget cuts in the welfare regions.

Well, first of all, no. There was a time or place in time when our existing portfolio was a bit of a liability, and that was due to the fact that it was not hedged against inflation that the world had not seen for a couple of decades. But that was the only reason. Now the agreement portfolio that we have in place is solid. It's profitable and it's adequately heads to two different conditions and creating positive cash flow. We are looking positively on the public market, even though it has been fairly silent. But now we have the first large contracts being tendered coming into the latter part of this year, which is interesting. and sign that the public market will start to open up.

And maybe just to remind everyone that public sector businesses are proportionately small when it comes to our total revenues. We are primarily a private money business. And I would even say that some of these well-being country cuts will give an opportunity for the private sector to demonstrate how efficient we are. So let's see how the games and plays fold out as we go forward.

Absolutely. So then a couple of questions on the top line. First on the healthcare services specifically. Could you open up a bit, Juuso, whether the 6.1% growth in the services and sales mix slash pricing in the healthcare services is more driven by price rather than the mixed changes and how should one think about those?

Yeah, I think that first of all, we have not opened up that one and it is a fairly complex equitation to even open up as you need to remember that we have in our mix, we have a channel mix. So whether it goes to remote or physical, we have a service mix. So whether it's appointments, whether it's diagnostics, whether it's surgery, and then we have a customer mix, whether it is a corporate customer, consumer customer, public sector customer, or insurance customers. So the mixed impact is a fairly important part of this equitation. And also in that 6%, it is a fairly important part, because now we need to remember that the other part of our pricing has some kind of a link to inflation. And we have been in our CMDs and other financial events, we have been stating that we can, due to our service mix and due to our value at the customers we can be slightly above the inflation also due to scarcity of resources what comes to healthcare professionals so then you can look a bit on the inflation and then you can think a bit on top of that one and then you have the mixed impact which seems to be higher than the inflation impact if we put it like that but as said this is a fairly complex equitation

Yeah, so maybe then talking about the guidance on the top line. In the first quarter, the sales went down by approximately 1% year on year, yet we are still guiding for growth for this year. How confident are we that the sales will actually grow rather than remain flat this year?

Yeah, at the moment, I can reiterate our guidance. We are expecting that we are growing this year. Obviously, there are the same disclaimers and variations as within the guidance in total, but that is our current best guess.

Yeah, and of course, our main focus continues to be on the EBIT margin.

Absolutely correct. So we are in for EPS enhancement as per our financial targets, and that one we have been very successful.

Great. Then going back into the healthcare services. Once again, we had a record level quarter when it comes to the EBIT margin. How much room for improvement do we still see in this area going forward?

Well, it's... market which is a good place to be and position which is a good place to be for terveystalo. We have a good agenda in place for organic growth and efficiency both and there's additional potential to improve the performance and it's a The internal agenda, for example, for the efficiency will take us quite far from where we are today. So I'm really confident that we can improve efficiency and performance based on that one. But the rest is related to market conditions. We are not in a vacuum. And I'm sure the rest of the guys and at least the green competitor will improve as well. So we are not in a bubble, but internally there's a lot to do. We have a great potential, a great agenda in place.

Absolutely. Anything that you want to add there, Juus?

No, I think Ville said it all.

Great. At the moment, we don't have any other questions from the webcast. Do we have any questions in the audience?

Roni Pernehme from Indrus, hi. Maybe a couple of questions regarding the portfolio business, maybe about the staffing. The market seems to be hard at the moment. Do you see any permanent changes in the staffing market in Finland, or is it quite a transitionary market?

If I start, so it's a good question. Maybe one needs to look at how it then evolved over the last couple of years. From the outset, it's a fairly low barrier entry business model, at least when you look at the business from outside. And post-COVID and during COVID, there was an influx of new entrants into the market. driven mainly by bottlenecks in public sector and bottlenecks in the nursing services. And that in a way encouraged new supply to come into market, which not of the supply was healthy. Now what we are seeing is that since the market has been turning, it's saturating, the long tail of the new supply is starting to drop out. So I would say it's a cycle. But when there's a cycle, there typically happens some permanent changes. But we trust in our model. We have been here for, let's say, 20 years. We can be more agile in directing our supply wherever the need is. We have excellent supply of professionals and we have sources where to source them. As Juuso said, it's a good business. There has been a difficult cycle, but we trust in that one.

And then it's good to know the other synergies. So this is a supply driven environment. So what is not in the staffing is supplied somewhere else. So it has an important part in our business.

All right. Thank you. Maybe one more about the dental business where you have big ambitions. So maybe if you could talk about how your synergies with health care services has developed here.

Yes, if I start and Ville can complement. I think that we are seeing progress what comes to synergies in healthcare services. We have different type of synergy potential in here. We have the occupational health clientele, which is clearly a place where more and more clients would like to include. dental into their healthcare plans. Then we have the consumer market synergies are especially brand driven. And then we have the backend synergies, which are more coming from the network. And as you know and see from our healthcare services, results and capability to run that network, obviously dental benefits also from that one. So all in all, we are seeing progress in that. But I would also say that we have quite a journey to walk also, that we have lots of room to improve.

We need nothing to add.

All right. No further questions. Thank you.

Great. I don't think that we have any further questions in the audience either. So thank you, everybody, for joining us today and have a great weekend once that arrives.

Thank you. Thank you.