Terveystalo Group Half-Year Report January-June 2022: Strong growth continued, margin pressure due to changes in operating environment

Terveystalo Plc, Half-Year Report 19 July, 2022 at 09:00 EEST

This release is a summary of Terveystalo's Half-Year Report 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/

April-June 2022 in brief

•          Revenue increased by 15.6% year-on-year to EUR 318.2 (275.3) million. The external revenue of the Sweden and others segment1) came to EUR 25.2 million representing 9.2%-points of the revenue growth.

•          Adjusted2) earnings before interest, taxes, and amortization (EBITA) decreased by 18.2% to EUR 24.1 (29.5) million, representing 7.6% (10.7%) of revenue. Profitability was reduced year-on-year due to supply challenges, changes in the sales mix and increased costs.

•          Adjusted items affecting comparability were EUR 1.7 (0.8) million.

•          Profit for the period was EUR 11.1 (16.2) million.

•          Earnings per share (EPS) was EUR 0.09 (0.13).

•          Cash flow from operating activities was EUR 34.8 (47.3) million.

January-June 2022 in brief

•          Revenue increased by 17.0% year-on-year to EUR 647.9 (554.0) million. The external revenue of the Sweden and others segment1) came to EUR 47.4 million representing 8.5%-points of the revenue growth.

•          Adjusted2) earnings before interest, taxes, and amortization (EBITA) decreased to EUR 63.1 (67.7) million, representing 9.7 (12.2) percent of revenue.

•          Adjusted items affecting comparability were EUR 2.3 (1.0) million.

•          Profit for the period was EUR 36.4 (40.1) million.

•          Earnings per share (EPS) were EUR 0.29 (0.32).

•          Net debt/adjusted EBITDA was 2.7 (2.7).

•          Cash flow from operating activities was EUR 59.6 (78.4) 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, strategic projects and other items affecting comparability.

Ville Iho, CEO: Demand is strong, but supply challenges limit growth and weigh on profitability

Strong continuous demand supported Terveystalo's growth in the second quarter of the year. Revenue increased by almost 16 % year-on-year, of which Sweden's share was approximately 9%-points. Acquisitions contributed about a half of the revenue growth in Finland. Booking rates for health services remained very high and supply limited organic sales growth in most services. The supply that fell short of the targets, the weakened sales mix and the personnel costs raised by acquisitions, among other things, weighed on profitability despite strong demand and growth. Adjusted EBITA decreased by 18.2 percent to 24.1 million euros and was 7.6 percent of the revenue.

The supply grew modestly compared to a year ago, still focusing on digital services. However, we succeeded in recruiting new professionals during the period and the number of private practitioners increased by more than 10 percent. This positive development will be reflected in the actual supply figures with a delay. To strengthen the supply, we are moving even more of our development efforts into solutions that help our professionals work more efficiently. Job satisfaction at Terveystalo continues at high level with Employee Net Promoter Score, eNPS reaching 30 in the latest survey.

The number of Covid-19 tests decreased according to our assumptions, while other diagnostics are yet to return to the pre-pandemic levels. The sales mix was also negatively affected by the supply falling short of the targets, as the appointments of contracted customers took capacity from higher-margin private customer care chains. Personnel costs increased because of acquisitions, growth investments in new businesses, and proactive recruitment.

The Swedish business continued to develop according to our plans. In the second quarter, we continued with complementary acquisitions and expanded the range of services for new payer groups.

The number of digital appointments continued to grow strongly, 28 percent year-on-year. Outside of our own services, Terveystalo's digital solutions are being piloted for the first time by public sector customers. Our goal is to continue to lead the renewal of our industry in Finland, Sweden and in the future in new markets. With more efficient use of health data, better care management and the use of digital appointments it is possible to improve access to care, job satisfaction, as well as productivity . During the fall, in addition to developing digital partnerships in the public healthcare, we will take the occupational health digital suite to Sweden.

Terveystalo's market position and competitiveness are strong. We have grown rapidly, especially in digital services, new businesses, and the Swedish market, and have exceeded our growth targets many times over. In a strong demand environment, our focus has been on growth and customer experience, which is also reflected in relatively faster growing personnel costs. In an environment where inflationary pressures are combined with a tight labor market and general economic uncertainty, we will emphasize profitability in relation to growth. We continue to invest in the long-term competitiveness of our business, but the changing environment will be reflected in investment priorities, criteria for acquisitions in new business areas and timing of recruitments. We also need to review the pricing of our services so that it is in line with the general cost level increase.

The megatrends driving demand for health services have intensified during the pandemic, and despite economic uncertainty, demand is very high. Our mission to fight for a healthier life is more relevant than ever, and as the leading private healthcare service provider in our core market, we play a key role in the lives of people and work communities. We are committed to our vision of creating a world with fewer sick days and more healthy, happy years.

Towards a better tomorrow,

Ville Iho

Outlook

• Demand for health services is very strong and broad based. However, growth is restricted by supply. Tight labour market and rising inflation create growing pressure on operating costs, including wages.
• The demand for services related to COVID-19 is expected to decrease. However, predicting the volume is difficult. The overall demand for health services is expected to remain at a high level. The demand for digital services is expected to continue to grow.
• Demand from corporate customers for preventive and statutory occupational health services is expected to develop favourably. Demand for medical care is expected to continue strong. Significant changes in the employment rate may be reflected in the underlying demand.
• Overall demand is expected to remain strong in the private customer segment. Significant decline in general consumer confidence may, however, be reflected in the demand.
• Demand from the public sector is expected to remain strong in occupational health, service sales, and staffing services. Revenue from the outsourcing business is expected to remain stable. Tight labour market creates pressure especially on the salary costs of new and replacement recruitments in staffing and outsourcing services.
• Demand in the Swedish occupational health market is expected to develop favourably due to pent-up demand in the wake of the pandemic.

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.

The impacts of COVID-19 and the measures taken by Terveystalo

During the second quarter of 2022, in Terveystalo’ s service production the share of various COVID-19-related services decreased year-on-year. Well-being and digital services continued to grow.

The impacts of the war in Ukraine

The indirect impacts of the war in Ukraine on Terveystalo are assessed to be minimal, as Terveystalo does not have business operations in, or with, countries that are subject to sanctions. Indirect impacts of the war may arise from supply chain disruptions, rising inflation, or potential disruptions in the financial markets. The war may also have a delayed economic impact through declining consumer purchasing power and employment. If the situation were to be prolonged, this could have a negative impact on the demand for Terveystalo’s services. In procurement, higher prices have been reflected in the prices of certain supplies (material purchasing accounts for approximately 3% of operating expenditure), but the most significant purchasing agreements for 2022 have already been concluded.  The rising price of electricity affects operating expenditure, but its impact at the Group level is relatively minor. Delivery times have become longer in certain categories of products and materials, such as healthcare equipment, due to component shortages.

Rising inflation creates growing pressure to increase wages. Wage increases are determined by collective bargaining in the Finnish healthcare industry regarding nurses, for example (approximately 43% of employees). Wage inflation is also visible in other professionals’ recruitments. Most of the physicians who work for Terveystalo are private practitioners (approximately 96%). The financial risk associated with inflation is mitigated by Terveystalo’s ability to price its services.

Key figures

*) Adjustments are material items outside the ordinary course of business, associated with acquisition-related expenses, restructuring-related expenses, gain on sale of assets, 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 separate from the IFRS figures and they should not be considered to replace the IFRS figures.
2) The quality index consists of seven effectiveness indicators that describe the clinical and experienced quality, access to care, and the proportion of preventive care.
3) Amount of mixed waste (metric tons) relative to total revenue (100 million)
 

Briefing
Terveystalo will arrange a result webcast and conference call in English on 19 July 2022 starting at 10:30 EEST.
You can watch the webcast online at: https://terveystalo.videosync.fi/2022-q2-results

To ask questions, please join the telephone conference 5–10 minutes prior to the start time using your local number:
Finland: +358 981 710 310,
Sweden: +46 856 642 651,
UK: +44 33 3300 0804,
US: +1 631 913 1422.

If you are calling from another location, please use any of the numbers above.
The Participant Passcode: 98466773#

Presentation is held by President and CEO Ville Iho and CFO Ilkka Laurila.

Helsinki, 18 July 2022
Terveystalo Plc
Board of Directors

For further information, please contact:
Ilkka Laurila, CFO
Tel. +358 30 633 1757
 

Kati Kaksonen, Vice President, Communications, IR & CR
Tel. +358 10 345 2034
kati.kaksonen@terveystalo.com

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