Terveystalo Group Interim Report 1 January – 30 September, 2023: Profit improvement ahead of schedule and clearly visible in the third quarter results

Terveystalo Plc, Interim Report 27 October, 2023 at 09:00 EEST

This release is a summary of Terveystalo's Interim Report 1 January – 30 September, 2023. The full release is attached to this stock exchange release and is available on our website at: https://www.terveystalo.com/en/company/investors/reports-and-presentations/

July–September 2023 in brief

• Revenue increased by 1.5% year-on-year to EUR 280.5 (276.4) million.
  The Healthcare Services segment revenue increased by 7.2% and was EUR 209.3 (195.2) million.
  Portfolio Businesses revenue decreased by 12.1% mainly due to terminated outsourcing contracts and was EUR 60.5 (68.8) million.
  The revenue from Sweden decreased by 11.5% and came to EUR 15.8 (17.8) million. In SEK terms, the revenue decreased by 0.9%.
• Adjusted¹⁾ earnings before interest, taxes, amortization, and impairment losses (EBITA) increased by 69.7% year-on-year to EUR 21.1 (12.5) million, representing 7.5% (4.5%) of revenue.
  The profitability improvement came mainly from the Healthcare Services segment. Profitability was improved due to the normalisation of the sales mix, and progress of the profit improvement program including pricing actions and improved operational efficiency. The impact of prolonged inflation dampened the profitability improvement.
• Items affecting comparability¹⁾ with an effect on EBITA were EUR 2.7 (1.0) million.
• The result for the period was EUR 3.3 (-19.6) million.
• Earnings per share (EPS) was EUR 0.03 (-0.15).
• Cash flow from operating activities grew to EUR 35.6 (4.8) million due to positive working capital development.
• The profit improvement program had an approximately EUR 10 million impact on the adjusted EBITA in July-September.

January–September 2023 in brief

• Revenue increased by 2.1% year-on-year to EUR 944.0 (924.3) million.
  The Healthcare Services segment revenue increased by 5.4% and was EUR 693.8 (658.3) million.
  Portfolio Businesses revenue decreased by 7.9% and was EUR 199.9 (217.0) million.
  The revenue from Sweden increased by 1.0% and came to EUR 65.9 (65.2) million. In SEK terms, the revenue grew by 10.1%.
• Adjusted¹⁾ earnings before interest, taxes, and amortization (EBITA) increased by 14.0% to EUR 86.1 (75.5) million, representing 9.1 (8.2) percent of revenue.
• Items affecting comparability with an effect on EBITA were EUR 15.7 (3.4) million.
• Profit for the period was EUR 21.9 (16.8) million.
• Earnings per share (EPS) were EUR 0.17 (0.13).
• Net debt/adjusted EBITDA was 3.1 (3.1).
• Cash flow from operating activities was EUR 97.4 (64.4) million.
• The profit improvement program targeting at least 50-million-euro annual (run-rate) EBITA improvement by the end of 2024 has progressed well and the target will be achieved ahead of schedule. The measures implemented by the end of the reporting period are estimated to have an annual run-rate impact of over EUR 40 million on profitability.
  • In January-September, the adjusted EBITA impact of the profit improvement program was EUR 23 million.
  • The company estimates the adjusted EBITA impact for 2023 to be over EUR 30 million.
• Starting from 1 January 2023, Terveystalo Group comprises three reporting segments: Healthcare Services, Portfolio Businesses, and Sweden. Comparative data for the 2022 fiscal year in accordance with the new reporting structure was published on 28 March 2023.

The figures in parentheses refer to the corresponding period one year ago.

1) Adjustments are material items outside the ordinary course of business, associated with acquisition-related expenses, restructuring-related expenses, net gains, and losses on the sale of assets, impairment losses, strategic projects, and other items affecting comparability. Adjustments related to the profit improvement program were approximately EUR 2.9 million during the third quarter and 16.4 million during January-September.

CEO Ville Iho: Profit improvement is progressing ahead of schedule

Terveystalo's revenue grew 1.5% year-on-year to EUR 281 million in the third quarter, which is seasonally the slowest quarter of the year. We had a negative impact from Covid-19 testing in the comparison period, expired outsourcing contracts, and the foreign exchange rate. Excluding these changes, the underlying organic growth was around 6% year-on-year. The Healthcare Services segment grew by more than 7% year-on-year, driven by volume growth in surgery and successful pricing actions at the beginning of 2022. Portfolio business revenue declined as planned due to the expiry of contracts in the outsourcing business. In Sweden, a slightly slower pick up of demand after the summer holiday period than in the previous year and a markedly weaker exchange rate had a negative impact on revenue.

Terveystalo's profitability strengthened according to plan and adjusted EBITA grew by 70% year-on-year to EUR 21 million. Profitability improved thanks to a stronger customer and service mix in the Healthcare Services segment and a well-progressed profit improvement program.

A year ago, we launched a profit improvement program, which has made rapid progress. The measures taken by the end of the reporting period under the profit improvement program are estimated to have a run-rate impact of over EUR 40 million on profitability. The full year adjusted EBITA impact is estimated to exceed EUR 30 million in 2023. The general increase in interest rates, the prolonged inflation, and the macroeconomic outlook underline the importance of the profit improvement program also in the coming quarters. We are committed to delivering an adjusted EBITA margin of at least 12% in 2025 in line with our financial targets and will reach the EUR 50 million target of the profit improvement program ahead of schedule.

The near-term outlook for the operating environment is mixed. A significant increase in Kela reimbursements in early 2024 is expected to support consumer demand for general and specialist practices, psychiatry, and basic oral health services and reduce pressure on the severely congested public primary care sector. The insurance-funded market will also continue to grow. On the other hand, the weakening macroeconomic outlook will inevitably affect the purchasing behaviour of businesses and consumers in both Finland and Sweden. However, thanks to our strong and diverse customer base, comprehensive service offering, and profit improvement program delivering ahead of schedule we can grow our business profitably even in a softer market environment.

Alongside our profit improvement program, we have continued to invest in technology, customer experience, and our products. Our customers are currently more satisfied than ever with Terveystalo's services, with an NPS score of over 86. In our key customer segment of corporate health, we have used technology to improve care pathways and brought new diagnostics to health promotion with our partner Nightingale Health. Since June, our symptom assessment tool has guided our customers to the right specialist in the right channel through AI-powered symptom mapping, streamlining both access to care and the work of the professional. Nightingale's blood analysis technology enables us to improve disease prevention by identifying the risks of lifestyle diseases on a more individual basis.

We are continuously working towards integrated, data-driven outpatient and preventive care to deliver best-in-class care outcomes and people experience. Our successes in the third quarter include our highest-ever customer satisfaction index, NPS, and several awards as the industry's most attractive employer. We will continue to fight for a healthier life.

Meaningful Matters,

Ville Iho

Guidance for 2023

Terveystalo estimates its revenue for the full year 2023 to grow (2022: EUR 1,259 million) and its adjusted EBITA margin to be between 9.1% and 10.1% (8.4% in 2022).
Estimates are based on consumer demand and the number of employed people remaining on current levels both in Finland and Sweden, the profit improvement program delivering over 30-million-euro adjusted EBITA impact in 2023, and prolonged inflation during 2023. Additionally, the estimates assume no material changes in public sector behaviour, excluding the reduction of public outsourcing revenue from 2022 levels. Estimates exclude any material acquisitions or divestments.

Financial targets

Terveystalo’s financial targets are:

• annual revenue growth of at least 5 percent through organic growth and acquisitions
• an adjusted EBITA margin of at least 12 percent in 2025
• net debt/adjusted EBITDA ratio of 3.5x or less
  However, indebtedness may temporarily exceed the target level, such as in conjunction with acquisitions.
• to distribute a minimum of 40 percent of net profit as dividends annually
  However, the dividend proposal must consider Terveystalo’s long-term development potential and financial position.

Key figures

Terveystalo Group, MEUR	7–9/ 2023	7–9/ 2022	Change, %	1–9/ 2023	1–9/ 2022	Change, %	2022
Revenue	280.5	276.4	1.5	944.0	924.3	2.1	1 259.1
Adjusted EBITA * 1)	21.1	12.5	69.7	86.1	75.5	14.0	105.2
Adjusted EBITA, % * 1)	7.5	4.5	-	9.1	8.2	-	8.4
EBITA 1)	18.4	11.4	60.7	70.4	72.2	-2.5	95.9
EBITA, % 1)	6.6	4.1	-	7.5	7.8	-	7.6
EBIT	10.2	-24.6	141.5	44.3	21.1	109.5	33.9
EBIT, %	3.6	-8.9	-	4.7	2.3	-	2.7
Return on equity (ROE), % 1)	-	-	-	5.1	7.1	-	4.1
Equity ratio, % 1)	-	-	-	39.0	40.2	-	40.2
Earnings per share (EUR)	0.03	-0.15	116.7	0.17	0.13	30.3	0.19
Weighted number of shares outstanding, in thousands	126,556	126,548	-	126,554	126,348	-	126,508
Net debt	-	-	-	597.2	580.9	2.8	566.6
Gearing, % 1)	-	-	-	103.5	99.2	-	95.7
Net debt/adjusted EBITDA (last 12 months) 1)	-	-	-	3.1	3.1	-	3.2
Adjusted EBITDA (last 12 months), excluding IFRS 16*1)	-	-	-	133.1	135.4	-1.7	122.2
Net debt, excluding IFRS 16	-	-	-	391.5	406.1	-3.6	386.8
Adjusted net debt/adjusted EBITDA (last 12 months), excluding IFRS 16*1)	-	-	-	2.9	3.0	-	3.2
Average personnel (FTEs)	-	-	-	6,471	6,685	-3.2	6,552
Private practitioners (end of period)	-	-	-	6,126	5,852	4.7	5,928

*) Adjustments are material items outside the ordinary course of business, associated with acquisition-related expenses, restructuring-related expenses, gain on sale of assets, impairment losses, strategic projects, and other items affecting comparability.
1) Alternative performance measure. In addition to the IFRS figures, Terveystalo presents additional, alternative performance indicators that the company monitors internally, and which provide the company management, investors, stock market analysts, and other stakeholders with important additional information concerning the company’s financial performance, financial position, and cash flows. These performance indicators should not be reviewed separately from the IFRS figures, and they should not be considered to replace the IFRS figures.
 

Result Briefing
Terveystalo will arrange a webcast and a conference call in English on its result on Friday 27 October 2023 starting at 10:30 EEST. You can watch the webcast online at: https://terveystalo.videosync.fi/2023-q3-results

You can access the teleconference by registering at the link below. After the registration, you will be provided phone numbers and a conference ID to access the conference. http://palvelu.flik.fi/teleconference/?id=10010304

Helsinki, 26 October 2023
Terveystalo Plc
Board of Directors

For further information, please contact:
CFO Juuso Pajunen
Tel. +358 40 584 9722

Kati Kaksonen, Vice President, Investor Relations, Sustainability & Communications
Tel. +358 10 345 2034
[email protected]

Distribution:
Nasdaq Helsinki Oy
Main media
www.terveystalo.com