Terveystalo Group Interim Report January-September 2022

Profitability significantly weakened due to changes in the sales mix and increased costs, 50-million-euro annualized profit improvement program underway

Terveystalo Plc, Interim Report January-September 2022, 27 October 2022 at 09:00 EEST

 

This release is a summary of Terveystalo's Interim Report January-September 2022. 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 2022 in brief

•          Revenue increased by 1.2% year-on-year to EUR 276.4 (273.1) million. The revenue in Finland decreased by 0.4%. The revenue of Sweden and others segment1) increased by 31.6% and came to EUR 17.8 (13.5) million.

•          Adjusted2) earnings before interest, taxes, amortization, and impairment losses (EBITA) decreased by 60.4% to EUR 12.5 (31.5) million, representing 4.5% (11.5%) of revenue. Profitability was reduced year-on-year due to supply challenges, changes in the sales mix with a larger share of shorter care pathways, as well as increased costs.

•          Adjusted items affecting comparability were EUR 29.9 (2.3) million. The operating result was weakened by a one-off write-down of approximately EUR 28.9 million to other intangible assets

•          Result for the period was EUR -19.6 (14.5) million.

•          Earnings per share (EPS) was EUR -0.15 (0.11).

•          Cash flow from operating activities was EUR 4.8 (30.7) million.

•          Terveystalo has launched a program targeting at least 50-million-euro annualized (run-rate) profit improvement by the end of 2024, with most of the benefits estimated to be realized already in 2023. The estimated costs for the program are EUR 25 – 30 million and the costs will be treated as items affecting comparability.

•          Terveystalo confirms earlier financial targets: annual growth of at least 5 percent and adjusted EBITA margin of 12-13% medium to long term

 

January-September 2022 in brief

•          Revenue increased by 11.8% year-on-year to EUR 924.3 (827.1) million. The revenue in Finland increased by 5.6%. The revenue of Sweden and others segment1) came to EUR 65.2 (13.5) million.

•          Adjusted2) earnings before interest, taxes, amortization, and impairment losses (EBITA) decreased by 23.8% to EUR 75.5 (99.1) million, representing 8.2 (12.0) percent of revenue.

•          Adjusted items affecting comparability were EUR 32.2 (3.3) million.

•          Result for the period was EUR 16.8 (54.6) million.

•          Earnings per share (EPS) were EUR 0.13 (0.43).

•          Net debt/adjusted EBITDA (last 12 months) was 3.1 (2.6).

•          Cash flow from operating activities was EUR 64.4 (109.1) million.

The figures in parentheses refer to the corresponding period one year ago.
1) Consists of the Group’s business operations in Sweden, Estonia, and the Netherlands. Feelgood (Sweden) has been consolidated from 1 July 2021 onwards.  Estonia and the Netherlands did not have a significant effect on revenue during the reporting period.

2) 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.

 

Ville Iho, CEO: Current level of profitability is far from satisfactory; a profit improvement program, including an operating model change, is underway and aiming at rapid, structural profitability improvement to support long-term value creation

 

Demand for healthcare services continued to be strong in the third quarter of 2022. Profitability was weak when the supply fell short of our goals, demand was focused on appointments and lower-margin care pathways, and growth investments increased our costs. Revenue grew by 1.2% year-on-year to EUR 276.4 (273.1) million led by growth in Sweden, and adjusted EBITA decreased by 60.4% to EUR 12.5 (31.5) million.

 

The number of appointments increased by more than 5% year-on-year, but the supply was clearly below our target. At the same time, the price and margin of the average care pathway decreased significantly due to changes in the service mix, the channel shift, and shorter care pathways. Supply growth was mainly driven by digital visits, where fewer referrals for specialists and diagnostics are made compared to physical appointments. The changes in the sales mix were also negative between customer groups. The share appointments booked by higher-margin consumer customers decreased by 2 percentage points as contracted customers took a larger part of the supply.

 

Covid-19 has changed the structure of demand. September was the first comparable month, based on which we can conclude the depth and permanence of the post-pandemic changes. The scenario in which the underlying demand returns to the pre-pandemic level throughout the care pathway did not materialize, and we are making immediate changes to improve the underlying profitability of our core business.

 

We are now rapidly improving the profitability of our business with three different levers. First, in our operating model, we make a clear division between the core business, portfolio businesses, and the Swedish business. The structure of our core business, healthcare services, will be simplified, and a profit improvement program has been launched. The program aims for inflation-adjusted, annualized run-rate EBITA improvement of at least 50 million euros by the end of 2024. Most of the targeted benefits are estimated to be realized already in 2023. The program includes direct cost savings, commercial initiatives to drive top-line and mitigate the effect of inflation, and measures to accelerate capacity growth. Measures that strengthen profitability also improve access to care and the effectiveness of the treatment when we move to efficient and scalable operating models. As the third area of ​​profit improvement, we will develop and optimize the portfolio businesses more independently to achieve the required financial performance and drive value creation.

 

The already launched profit improvement program is based on a holistic approach to respond to post-pandemic market conditions and sets out to ensure that Terveystalo reaches its financial targets. The long-term growth prospects are good; underlying demand is strong, and we have maintained our position as the preferred employer of industry professionals.

 

Outside of operational activities, the third quarter’s result was also weakened by an isolated issue, a one-off write-down of 29 million euros to other intangible assets. The impairment loss was related to the long-standing basic IT systems reform project, which included the renewal of the patient record (EMR) system. The development path of the EMR system has been redesigned. The renovation can be carried out with lighter components, and the development work of an external supplier to build a completely new EMR system was decided to be suspended. The suspension does not affect Terveystalo's in-house development of digital services and will reduce future investment needs in basic systems.

 

Our financial targets and strategy remain unchanged; in our core business, we aim for industry-leading profitability, and we want to continue to be the preferred choice of customers and professionals. Portfolio businesses aim at independent value creation and in Sweden we aim for significant growth in the medium term.

 

I am confident that the effects of the operating model change and the profit improvement program will quickly be reflected in our performance.
 

Toward a better tomorrow,
Ville Iho

 

Outlook

• Demand for health services continues to be strong. However, demand is focused on short care pathways and services, the growth of which is limited by supply. A tight labor market and rising inflation create growing pressure on operating costs, including wages.
• The demand for Covid-19 related services is expected to decrease and the demand for digital services to continue to grow.
• Significant employment and consumer confidence changes may be reflected in underlying demand.

These views are based on the expected development of demand for Terveystalo’s services within the next six months, compared with the past six months.

 

Terveystalo confirms earlier financial targets: The company aims for annual growth of at least 5 percent and an adjusted EBITA margin of 12-13% medium to long term.

Key figures

Terveystalo Group, MEUR	4-6/ 2022	4-6/ 2021	Change, %	1-6/ 2022	1-6/ 2021	Change, %	2021
Revenue	276.4	273.1	1.2	924.3	827.1	11.8	1,154.6
Adjusted EBITDA. * 1)	30.9	48.6	-36.3	130.0	146.9	-11.5	206.1
Adjusted EBITDA, % * 1)	11.2	17.8	-	14.1	17.8	-	17.8
EBITDA 1)	29.9	46.2	-35.2	126.6	143.6	-11.8	201.8
EBITDA, % 1)	10.8	16.9	-	13.7	17.4	-	17.5
Adjusted EBITA * 1)	12.5	31.5	-60.4	75.5	99.1	-23.8	141.0
Adjusted EBITA, % * 1)	4.5	11.5	-	8.2	12.0	-	12.2
EBITA 1)	11.4	29.1	-60.7	72.2	95.8	-24.7	136.7
EBITA, % 1)	4.1	10.7	-	7.8	11.6	-	11.8
Adjusted EBIT * 1)	5.2	23.6	-77.8	53.3	79.6	-33.0	114.4
Adjusted EBIT, % * 1)	1.9	8.6	-	5.8	9.6	-	9.9
EBIT	-24.6	21.2	-216.1	21.1	76.3	-72.3	110.1
EBIT, %	-8.9	7.8	-	2.3	9.2	-	9.5
Return on equity (ROE), % 1)	-	-	-	7.1	13.0	-	13.6
Equity ratio, % 1)	-	-	-	40.2	43.0	-	42.2
Earnings per share (EUR)	-0.15	0.11	>-200.0	0.13	0.43	-69.1	0.63
Weighted number of shares outstanding, in thousands	126,548	127,307	-	126,348	127,307	-	127,180
Net debt	-	-	-	580.9	529.8	9.6	519.0
Gearing, % 1)	-	-	-	99.2	86.5	-	85.2
Net debt/adjusted EBITDA (last 12 months) 1)	-	-	-	3.1	2.6	-	2.5
Total assets	-	-	-	1,459.9	1,424.4	2.5	1,448.6
Adjusted EBITDA (last 12 months), excluding IFRS 16*1)	-	-	-	135.4	155.7	-13.1	156.9
Net debt, excluding IFRS 16	-	-	-	406.1	355.1	14.3	340.6
Adjusted net debt/adjusted EBITDA (last 12 months), excluding IFRS 16*1)	-	-	-	3.0	2.3	-	2.2
Average personnel (FTEs)	-	-	-	6,685	5,645	18.4	5,643
Personnel (end of period)	-	-	-	11,027	9,622	14.6	9,805
Private practitioners (end of period)	-	-	-	5,852	5,710	2.5	5,754

*) 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, and strategic projects and other items affecting comparability.
1) Alternative performance measure. In addition to the IFRS figures, Terveystalo presents additional, alternative performance indicators which 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.
 

 

 

Briefing
Terveystalo will arrange a webcast and a conference call in English on its result on Thursday 27 October 2022 starting at 10:30 EEST.
You can watch the webcast online at: https://terveystalo.videosync.fi/2022-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.

https://call.vsy.io/access-8594

 

 

Helsinki, 26 October 2022
Terveystalo Plc
Board of Directors

 

For further information, please contact:
Mikko Tainio, interim CFO
Tel. +358 30 633 0673
 

Kati Kaksonen, Vice President, Communications, IR & CR
Tel. +358 10 345 2034
[email protected]

 

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