Terveystalo Group Interim Report 1 January – 30 September 2019

Strong organic growth improved underlying profitability 

Terveystalo Plc Interim Report 31 October 2019 at 9:00 a.m. EET

This release is a summary of Terveystalo's Half-Year Report for 1 January – 30 September 2019. The full release is available as an attachment to this stock exchange release and is available on our website at https://www.terveystalo.com/en/investors/Financial-information/ .

July–September 2019 in brief

• Revenue increased by 46.0 percent year-on-year to EUR 234.0 million (160.3)  
• Adjusted1) earnings before interest, taxes and amortization (EBITA) before IFRS 16 impact (comparable), increased by 61.9 percent to EUR 24.0 million (14.8), representing 10.2 (9.2) percent of revenue  
• Earnings before interest, taxes and amortization (EBITA)2) were 9.9 (13.9) percent of revenue 
• Profit for the period2)3) amounted to EUR 10.4 million (16.0) The net profit of the reference period was improved by non-recurring capital gains of EUR 8.1 million (net). 
• Operating cash flow2) amounted to EUR 26.4 million (13.5) 
• Earnings per share2) (EPS) were EUR 0.08 (0.13). 

In July–September, there was one more business day than in the reference period, which improved revenue and profitability.  

January–September 2019 in brief

• Revenue increased by 39.1 percent year-on-year to EUR 760.4 million (546.8)  
• Adjusted1) earnings before interest, taxes and amortization (EBITA) before IFRS 16 impact (comparable), increased by 34.5 percent to EUR 81.6 million (60.6), representing 10.7 (11.1) percent of revenue 
• Earnings before interest, taxes and amortization (EBITA)2) were 10.3 (13.6) percent of revenue 
• Profit for the period2)3) amounted to EUR 38.0 million (58.7) The net profit of the reference period was improved by non-recurring capital gains of EUR 15.9 million (net) and a non-recurring deferred tax asset of EUR 13.0 million related to confirmed losses. 
• Net debt/adjusted EBITDA1)2)4) was 3.5 
• Net debt/adjusted EBITDA1) before IFRS 16 impact (comparable) was 3.0 (2.0) 
• Operating cash flow2) amounted to EUR 124.1 million (62.1) 
• Earnings per share2)3) (EPS) were EUR 0.30 (0.46). 

Unless otherwise stated, the figures in parentheses refer to a corresponding period one year ago.
Terveystalo adopted the IFRS 16 Lease standard on 1 January 2019. Figures for the reference period in 2018 have not been adjusted. Additional information on the application of the IFRS 16 standard and other significant principles concerning the financial statement can be found in section 1 of the notes to the financial statement. 

1) Adjustments are material items outside the ordinary course of business, associated with acquisition-related expenses, restructuring-related expenses, net gain/loss on sale of assets, strategic projects, and other items affecting comparability. In July–September, adjustments totalled EUR 1.2 (-7.4) million and in January–September EUR 4.1 (-13.6) million. 

2) Not comparable because of the adoption of IFRS 16. The adoption of IFRS 16 had a significant effect on adjusted EBITDA, which increased by EUR 9.9 million in July–September and by 29.7 million in January–September. IFRS 16 impact on EBITA was not material. Operating cash flow increased due to the impact of IFRS 16 by EUR 29.7 million in January–September. In addition, the adoption of IFRS 16 increased interest-bearing lease liabilities by EUR 176.9 million. 

3) The net profit of the reference period was improved by a non-recurring deferred tax asset of EUR 13.0 million related to confirmed losses and non-recurring capital gains totaling EUR 8.1 million (net) in July–September and EUR 15.9 million (net) in January–September. 

4) EBITDA for the last 12 months includes a nine-month impact of the Attendo acquisition and the effect of IFRS 16.
   

Ilkka Laurila, CFO and Interim CEO: Strong organic growth

Once again, Terveystalo delivered broad scale growth across all customer groups in the third quarter. Revenue growth was driven by the impact of Attendo health care services acquisition and record strong organic growth, especially within the private customer group. Our underlying profitability improved thanks to strong sales in private and corporate customer groups and despite lower margin of the acquired Attendo health care business. Operating leverage continues to drive efficiencies and we are confident in our ability to reach our mid-term profitability target. In addition, our operating cash flow remains strong and our investments in digitalisation continue to increase. At the same time, we continue to strengthen our balance sheet.  

During the last 18 months we have been working hard to overcome the limitations of availability of physicians by creating new processes and digital solutions to increase availability within our system. This work is now starting to bear fruit: in July, we set a new record with the total number of digital appointments in Finland being higher than the number of physical visits in Southwest Finland. Digital appointments can provide the solution to access to care in many locations. On average, our 24/7 chat appointment with a physician is only 7 seconds away. In addition, we continue to see double digit growth in appointments offered by other health care professionals and labs.  

We have also introduced new tools; the renewed Terveystalo Oma Terveys app now offers for example new 24/7 chat appointment services for mental well-being and physician video appointments. Terveystalo Pro app for health care professionals was also launched during the third quarter. Upcoming features will, for example, enable professionals to manage their physical and digital appointment availability in real time. New features and capabilities are in the pipeline for coming months.  

Our comprehensive occupational health offering is reflected in the continued growth of preventive and well-being services. While the link between the number of end customers covered by occupational health contracts and the growth in revenue is lessening, strong increase in demand for preventive and well-being services drives an increase of average revenue per end customer. 

The demand in the public sector customer group remains strong. Integration of acquired Attendo health care business is well on track. Municipalities continue to seek solutions to their budget constraints and shortage of physicians. We are able to offer tailored solutions to various customer needs ranging from staffing to secondary care outsourcings. This enables us to adjust our mix should there be changes in the regulatory environment. 

Corporate responsibility is one of our strategic focus areas and we see increasing investor interest for ESG themes. For 2019, we will publish our first corporate responsibility report and we are pleased to have recently achieved a Prime status from ISS ESG, indicating that we meet the high responsibility standards of ISS ESG in our industry.  

Even though the economic outlook in Finland has recently somewhat weakened, we are pleased with our financial and operational performance in the third quarter and continue our persistent work in championing healthier lives for all Finns.  

Ilkka Laurila 

Market outlook

•  The market environment remains favorable in spite of weakened consumer confidence.  
•  Corporate customers keep up a steady demand and the relative share of preventive services is increasing, which is a trend that will be further strengthened by the upcoming change in legislation concerning Kela reimbursements, due to be introduced at the beginning of 2020. 
•  Private customer demand also remains at a steady level, and the trend of comprehensive well-being is creating broad growth in service demand. This is particularly reflected in growth in the demand for services other than physician appointments.  
•  With the health care and social welfare reform still being delayed, public sector demand remains strong in various service categories. 

These views are based on the expected market development within the next six months, compared to the past six months. 

Changes in reporting

Terveystalo adopted the IFRS 16 standard on 1 January 2019. In accordance with the IFRS 16 standard, previous lease expenses are replaced with depreciation charges for right-of-use assets and interest expense on lease liabilities in the income statement. As a result, the IFRS 16 standard has a low impact on the operating profit and the profit for the financial year 2019. In 2019, the adoption of IFRS 16 will have a positive impact of approximately EUR 40 million on the operating margin, and it will increase net debt and right-of-use assets on the balance sheet by approximately EUR 200 million. The figures for 2018 have not been adjusted. The adoption of IFRS 16 has affected the income statement, balance sheet and cash flow. For additional information on the accounting principles, please refer to page 16. 

Key figures

Adjustments are material items outside the ordinary course of business, associated with acquisition-related expenses, restructuring-related expenses, net gain/loss on sale of assets, strategic projects, and other items affecting comparability.  
1) Alternative performance indicator. Additional information in note 14.  
2) Not comparable because of the adoption of IFRS 16. Adoption of IFRS 16 had a significant effect on adjusted EBITDA, which increased by EUR 9.9 million in July–September and by EUR 29.7 million in January–September. IFRS 16 impact on EBITA was not material. Operating cash flow increased due to the impact of IFRS 16 by EUR 29.7 million in January–September. In addition, the adoption of IFRS 16 increased interest-bearing lease liabilities by EUR 176.9 million.  
3) The net profit of the January–September reference period was improved by a non-recurring deferred tax asset of EUR 13.0 million related to confirmed losses and non-recurring capital gains totaling EUR 8.1 million (net) in July–September and EUR 15.9 million (net) in January–September. 
4) EBITDA for the last 12 months includes a nine-month impact of the Attendo acquisition and the effect of IFRS 16.  

Briefing

Terveystalo will hold a result briefing and live webcast in English on October 31, 2019, starting at 11:00 a.m. EET, at Terveystalo Piazza, Jaakonkatu 3 B, (3rd floor), 00100 Helsinki, Finland. You can watch the webcast online at: https://terveystalo.videosync.fi/2019-q3-results  

To ask questions, please join the telephone conference 5–10 minutes prior to the start time using your local number (Finland: +358 (0)9 8171 0310, Sweden: +46 (0)8 5664 2651, UK: +44 (0)33 3300 0804, US:
+1 855 857 06 86. If you are calling from another location, please use any of the numbers above. The Participant Passcode is 98563325#. 

Helsinki, 31 October 2019
Terveystalo Plc
Board of Directors 

For more information, please contact:
Ilkka Laurila, CFO and Interim CEO
Tel. +358 30 633 1757 

Kati Kaksonen, Director, Investor Relations and Financial Communications
Tel. +358 10 345 2034
Kati.kaksonen@terveystalo.com

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

Terveystalo in brief 

Terveystalo is a listed company on the Helsinki Stock Exchange. Terveystalo is the largest healthcare service company in Finland with net sales and network. The company offers versatile primary and secondary healthcare services for corporate and private customers and the public sector. The nationwide network covers 260 locations across Finland. The clinic network is complemented by 24/7 digital services.  

In 2018, Terveystalo had approximately 1.2 million individual customers and approximately 3.5 million visits to a physician. Around half of Terveystalo’s 10,000 health care professionals are employees of Terveystalo, while the other half are independent practitioners. Terveystalo’s services carry the Key Flag symbol and the company is a member of the Association for Finnish Work. www.terveystalo.com  

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