Terveystalo Oy Ord

Good morning, everybody, and welcome to Terveys Talos Q3 results call and webcast. My name is Kati Kaksonen. I'm responsible for investor relations and sustainability here at Terveys Talos. As usual, we'll go through the result highlights with our CEO, Ville Iho, and our CFO, Juuso Pajunen. And after the presentation, you will have a chance to ask questions. I will take the questions from the phone lines as well as through the webcast after the presentation. Without further ado, over to you, Ville.

Thank you, Kati. And good morning from my behalf. Let's dive directly into Q3 highlights. As you can see from the numbers, this quarter three was a quarter of margin improvement amid revenue headwind. So the adjusted EBIT margin developed positively. Very strong operating cash flow. EPS developing positively as expected. Very high NPS taking all-time highs all the time. but then with the decline of some 5% top line, adjusted EBIT in absolute terms slightly down. Double-clicking into different P&Ls and their role in the business, how they are contributing and continue contributing in the future, starting from Sweden. Just as a reminder, Sweden is in a phase still of turnaround. We have been adamant in the fact that we continue focusing only on turnaround and profitability improvement. Our Sweden team is getting the results. The underlying efficiency is continuously improving. The results continue to improve. The market being fairly muted at this stage. Still, we are not making proper profits yet, but looking at next year. Volume development looks positive and we start making results and then it's time to focus on growth. Portfolio business is quite the same story. The profitability turnaround has for large parts happened. Some minor fixes in smaller businesses, but the bigger businesses are doing fine and developing positively. Now it's time to grow and we are specifically in two different segments, as we have said before, dental and then opening public market. Healthcare services, our biggest business, margin on a very, very high level, really strong, starting from a very strong position. Now our eyes and focus turn into volume growth and we continue boost that one with selective specialities driven M&A and then investments in digital delivery and capabilities. Further double-clicking into the strategic agenda, as I said, Sweden, profitability improvement program, Gamma, almost done and dusted, efficiency in all-time high level. Now looking at organic and potentially inorganic growth there on a solid base. Portfolio businesses, as I said, profitability improvement done and dusted. now organic growth in dental and also inorganic growth in dental and public partnership being relevant in the opening market when healthcare counties are actually starting buying where we have seen positive signs already. Inside healthcare services, we are seeing very strong development in our consumer driven businesses. We continue boosting that one, Kela 65 being a prime example of our sort of a positive drive. Also in insurance business, our position continues to be strong and developing nicely out of pocket in good place and developing positively. against low morbidity. We have reorganized our operations and our delivery model so that there's clearly separate brick-and-mortar delivery through our healthcare services or hospital network. And then now forcefully and decisively scaling up the digital health 10x where we are eyeing major leaps in efficiency in transactions, more intellect in our patient and customer steering, and then finally truly scaling up truly digital healthcare services, tech-based services, nurse services, and in very near future also AI-supported health services. Among all the positive developments, the challenge currently which we'll further discuss is in occupational health care. We know exactly where we are. We know how to turn around the negative development. There we have a program called FALTI led by new SVP occupational health care or corporate health Laura Karottie. And that one will be discussed in more detail. So all in all, very clear, sort of 9 out of 10 moving very fast to the positive territory, more focus needed for occupational health care, which will be fixed. Looking at the volume development and our sort of view on markets in near term, next 12 months, starting from the smallest, Sweden, as we have communicated many times, the market has been very soft. The Swedish economy has driven the demand for occupational healthcare services very low. Now, looking forward, both the market seems to be picking up. Sweden economy is doing better next year. But more importantly, looking at our internal view on the sales funnel, commercial activities, Sales funnel looks positive, and when we are able to, during next year, pour more volume on higher operating leverage, of course, then we'll start making money. Portfolio businesses, public business, as we all know, has been very, very slow in buying. Healthcare counties are only sort of picking up the buying activities. What we see in large tenders and also in smaller tenders is increased activity. And looking at the next 12 months, we see the market developing positively. Same goes with the consumer business. It has been fairly muted due to low confidence of consumers. We have seen already some positive signs, specifically in the dental services, which typically is the most sensitive for consumer behavior, and we expect the positive drive and vibe to continue for the next 12 months. In public business, when we jump over to healthcare services, in public services produced by healthcare services units, It has gone down and it has brought or contributed to lower volumes in health care services. We see that that one bottoming out and the next 12 months should be more positive. Consumer business, even though our own position has been strengthening, has been fairly flat due to low morbidity, But with sort of a normalized view on that one, our strong drive in Kela 65 and an insurance business, we see that one developing positively also going forward. Insurance business, equally, it has actually been the growth driver inside healthcare services continues to be so. A number of insured persons in Finland continues to slightly slowly pick up and use of services is on high level. Occupational healthcare, finally, so we'll double-click on the development, what has contributed to lower volumes in EQ3, but very shortly, it's number of connected employees, sort of thinner scopes in the agreements by the corporate clients, and then inside those agreement scopes, lower use of services. All of these slightly negative from our business point of view. It's been negative. It's going to stabilize, but specifically number of connected employees will not be sort of turned around in one quarter. We'll turn that one around, but it will take a couple of quarters to get to, again, to all-time highs. If we dive deeper into this phenomena, as you can see, and it's good to remember the phases that we have seen in the development over the last couple of years and quarters, In 22 and 23, in a number of connected employees, we were pushing all-time highs. At the same time, as you remember, the profitability of this business was really, really low. And we struggled with the low contribution to the rest of the business, and hence the Alpha program. With the Alpha program, we... totally turned around the profitability of not only occupational healthcare, but the company. With that one, of course, some of the less profitable agreements went out, and now we see also some unintended tail effects of the alpha period. Now what we are doing is, of course, we are rebalancing products, pricing, offering, and it's not going to be either or, it's going to be both, so both profitability and volumes. Occupational healthcare, as I said, is the biggest focus area in our agenda currently. It will be turned around with our program. It's a comprehensive exercise of renewing, partly even transforming sales and account management, our product offering to become more relevant and effective. according to expectations by ever demanding customers. And then finally digital front door renewal, which we now can accelerate and fast track with our Medhelp joint venture. And our customers will see tangible results already from Q1 onwards on this area. Positive thing, very, very positive thing in our portfolio is consumer side, so combined insurance, Kela 65 out-of-pocket area. Our brand is doing fine, and that's, of course, one of the basic building blocks for boosting this business. We are the most preferred brand when we look at the brand preference development. We have been so, but now we are all-time high. Also, in top of mind, the company, healthcare services company that Finnish consumers think about them when they wake up in the morning, that's now Tervestalo for the first time, and that itself gives a very solid base for further improvement in this business. We have invested heavily in the services, We have invested heavily in digital engagement with our consumer customers. We have invested in Kela65, and in that particular new segment, we are a clear leader in that developing market. Finally, Juuso will explain in detail the strength of our finances, the profitability, cash flow and balance sheet. We continue increasing our investments in our digital capabilities. It's an ever-increasing value driver in our business model. And we have some key focus points and developments in that digital ecosystem. For the professionals, we have launched the Ella user interface and a digital front door and continue scaling that one up. And that's going to bring tangible efficiency improvements during next year in our sort of traditional brick-and-mortar appointment activities. For individual care, looking from a customer's point of view, as said, it's very much in the core of our 10X agenda. We are making leaps in efficiency in transactions related to our incoming traffic. customer contacts, we are going to further improve the leading capabilities that we today already have in patient steering and customer steering. And then finally, we'll make efficiency leaps in text-based appointments, text-based digital appointments, nurse services, and introduce first AI-supported health services in very near future. In occupational health, as said already, we are now in very good position to migrate our patients occupational health capabilities, digital capabilities into new MedHelp environment. It's best in class in Europe, and our customers have said they will see tangible results and a fully new view. sort of better control on people, on organization, sick leaves, workability, starting from Q1 next year when we start deploying new system to first customers. All in all, we are in this digital journey in very strong, very good place. Our architecture is where it should be. Our initiatives, projects create value, not in years, but rather in months. And we are confident in investing more and getting more yield out of the digital engine. With that one, over to you, Jusuf.

Thank you, Ville. So, good morning, all. I'm Juuso Pönnen, CFO of Terve Stalo, and let's talk about the financial performance in the third quarter. So, first of all, if we look at the whole group, we have a positive margin development continued, despite the revenue headwinds. This was, in relative terms, the second best Q3 during the group's history, and the best one was during the COVID time. So, what I want to highlight is that our efficiency is in place, our machine is ticking. But also, having said that, when we do know that we can't be happy on the growth and especially the revenue development when it comes to occupational healthcare. So if we look at the big picture, portfolios in Sweden improve both in relative and absolute profitability, but they are still facing anticipated negative growth. So portfolios in the outsourcing businesses in Sweden, we are still coming from the efficiency hunt and now going for the growth mode. And then with healthcare services, we have the strong margin, but the headwinds in the occupational health and the morbidity have been pushing the growth negative, like Ville also explained a bit on the occupational health part. So then if we look first on the healthcare services, I will double-click in the next slide on the growth, especially what comes to visit growth, so let's park that question. But all in all, the performance, what comes to the relative profitability, it was really solid. We had the decline in revenues, headwind in the markets, and despite those ones, we were able through solid cost control and our flexible operating model to keep our profitability in a good place, especially remembering that this is the low season Q3. And for the growth, we have a strong plan, and in the longer perspective, I still remind you that the megatrends will continue to support our long-term outlook when it comes to the growth. So then let's see the visits. Let's address the elephant in the room. So basically we can split our visits growth. So now we are talking about the volume. We can split it into different type of buckets. First of all, we have the morbidity. So that one is basically seasonal. We have no control over that one. And we had plenty fewer visits compared to previous year. And this is part of normal seasonal variation. It changes annually. Then if we go into the occupational health care, we have different factors behind the decline. We have basically macro-driven components, so the general employment in Finland is lower than earlier, and we have a sluggish economy, and that one also then impacts on the employer's behavior. So basically they are implementing cost reduction initiatives due to own economic pressures and push. And that one impacts on our demand also. So a concrete example on that one would be narrowing down the contract scopes on what they offer to their employees. Then we have the third component, which goes into more on what we have done ourselves. As Ville explained, how our profit improvement program has been progressing and how despite having very high amount of connected employees, our occupational health business was not super profitable. Now we have very efficient machine, profitable business, and we need to load further volume on that one and get the benefit of the operator. operating leverage and for that part we have a solid strong program ongoing like Ville mentioned the name is Valtti and we are confident that by implementing that program we will address the weaknesses we have had and we would expect to see growth in the number of connected employees in the coming year. In public sector, especially capacity sales, which is a minor part in the healthcare services segment, but it is in a very low level due to the well-being county setups and all of that one. But now we have seen that the sales pipeline is opening up and the market is little by little finding its form. And then we have the positive momentum, Kela 65, consumer insurance market, where we have been growing and we have been able to capture positive momentum and that one we will obviously continue pushing. The experiences from KLA65 are very positive from the patient perspective and also from our perspective. So with all of this one, there are various factors impacting our growth and we will address especially the occupational health part decisively when going forward. Then if we go into the portfolio businesses, we have clear improvement in profitability. We have been able to improve the EBIT margins continuously, 2.2 percentage points up compared to previous year. And then we have the momentum in especially public sector business outsourcing. We have been guiding you that it will most likely decline 30 million euros this year, and we are on that trend, on that pattern. and continuing on that one. On staffing, we started to have revenue headwinds during roughly a year ago, and now those ones are stabilizing out. And part of that one was also our own selection on how we address the market. But now, little by little, the positives are coming. Markets are opening up. Well-being counties are more and more capable of also buying and willing to buy. So this market momentum is growing. little by little turning and then we have the consumer part that is growing, it is performing positively and we will obviously continue to push on that part. So solid performance improvement in the portfolios when it comes to profitability. Then in Sweden we are also improving both absolute EBIT and relative EBIT. We are still showing heftily negative numbers in a very, very seasonally low quarter. So Q3 is always difficult and weak in Sweden due to how... the offering behaves during vacation period in here what i'm really proud is that our efficiency continues to ramp up we have we continuously see on our kpis positive development what comes to occupancy rates but also we start to see that one on the monthly gross margin levels going up so We are now getting into an efficiency place, and we will load further volumes on top of that one. We have a solid sales pipeline that supports us getting back on track and on black number. So program is in plan. Improvements are now... continuously more visible also in the backward looking income statement and we will then push forward but however there is a weak market environment still in sweden as a totality so the macro has not recovered yet to the full extent but despite macro we we are able to push sweden back to good numbers in the coming coming year then if we look our investments we've been uh Continuously investing in technology. We have been stating since the capital markets day last year that we will land somewhere between 4 to 5% of revenues in the longer perspective on the investments. Now we are 3.4. We are heavy in digital. We have been talking about Ella. our professional user interface and related flows. You have seen during the quarter investments in MedHealth, the joint venture, which will be the digital front door in our occupational health. And then some may have seen that we have deepening our collaboration with Jösta in the artificial intelligence and ambient scribing, further improving our tools. We have a good momentum, we have solid technology roadmap, and we have capability to invest. So we will continue on doing on that one. And then in organic growth, the market is there and we are evaluating different type of opportunities. And for those opportunities, we had a solid quarter for cash flow. We are now in the green bucket again. As was the negative part, normal seasonality, so is this one. Our cash profile has not materially changed, and there's no reason to believe it materially changes either. So normal volatility, we are the Swiss clock we have been with tick, tick, tick cash. And then our leverage ratios, 2.1 at the moment. So we have fresh powder to continue investing. So positive financial position and we can definitely do both organic and inorganic investments. Then if we look for our guidance, basically this is unchanged, so despite some market headwinds, we reiterate our guidance after the second best third quarter ever. So we are expecting our... adjusted EBIT to be between 155 and 165 million euros. These are based on the current demand environment, employment levels, and morbidity rates. So normal disclaimers, nothing new on that one. But what is good to note may be that the implied range for Q4 seems high-ish compared to previous year Q4, but then you need to look back on your notes and remember that in previous year Q4, we had especially personally related items that we don't have this year in Q4. So the baseline adjusting needs to be a bit taken to understand our Q4 performance. So all in all, I'm happy to reiterate our guidance, 155 to 165 million euros in total. With these words, let's invite Kati on stage and let's have a Q&A.