Hi, good morning, everybody, and welcome to Terveystalo's Q3 result call and webcast. As usual, our CEO, Ville Iho, and our CFO, Ilkka Laurila, will present the results in a brief manner, and we'll follow that with a Q&A. We'll take questions from the phone lines as well as through the webcast after the presentations. Without further ado, I'll give over to Ville on the results.
Thank you, Kati, and good morning from my behalf. It is actually a great pleasure today to present our Q3 results. There are a lot of positives and a lot of things that we can take pride from inside Terveystalo. We returned to growth, as the headline says. At the same time, we improved our profitability. Key headlines and takeaways from Q3 presented here. Growth, of course, in this very difficult and changing circumstances, a very good achievement. It's driven by a nice sales mix, partly by active COVID-19 testing and our ability to scale up our testing capability and capacity. Margins partly by also very strict cost control. As said, the demand and the market was still highly fluctuating. Agility remained as a key for managing the organization during Q3. Q2 was a scale-down exercise with protecting our margins.
Q3 was a scale-up exercise in taking the most out of the new opportunities that were presented by market to us. Digital demand still grew, and we are very much in that game. We'll come back to that very important topic. All in all , Terveystalo, as an organization and team, performed extremely well in this very difficult circumstance. If we take a look at the payer group level, where does the growth come from? All in all, the revenue was EUR 240 million during Q3, and revenue grew almost across the board. In corporate segment, almost 5%. In private payer group, almost 10%, which is very good progress in that specific group. In public domain, little bit mixed bag. Staffing revenue slightly declined as well as the outsourcing revenue, but then services were very much high and up from year-over-year. Q3 revenue breakdown here.
As said, growth driven very much by private and corporate payer groups and COVID-19 testing. That was also boosting the service sales inside public payer group. We have been sort of underlying throughout the COVID-19 season, or era or crisis, however you want to call it, our adaptability and our ability to react to changing environments. As I already said, that has been a key point for us during Q3 as well. Q2, as I said, was a good performance from the organization. From the point of view that in very pressing circumstances and lowering demand, we were able to protect our margins with very strict cost control and adjustment measures. That was well done by the organization. In the last quarter reporting, I sort of used a reference to boxing match. Q2 was the first round.
We sort of stood up. We were winning already during the first round. Q3 was the second round. We are still winning. Different type of round, very much still winning. Looking forward, the market is very difficult to forecast. Of course, everybody's following the COVID-19 crisis development and how the pandemic is progressing. Finland is at the moment doing fine. Society is open. The testing activity is very big part of that one. We play a big part in testing activity. We are providing some 10% of our nationwide testing as we speak. We are the bulk of corporate testing, keeping the Finnish companies active and open. COVID-19 pandemic progress still difficult to forecast. Agility remains a key for us going forward.
I think we have proved thus far that we can react to demand being down, we can react demand being up, and sales mix shifts in very rapid and agile manner. That's going to be the key going forward as well. We are building assets that we cannot yet book into our balance sheet as we go. Even during the crisis, we are now very proud that we are able to report nice results, higher margins, higher revenue. At the same time, equally important is that customers are trusting us more than ever. NPS still record high. Very different levels than, for example, last year at the same time. Over 80 for appointments, which is a record high level. Equally important, which is not shown here, is that our employee NPS is developing very nicely.
I was slightly worried that since we have been pushing very hard and we have been doing adjustments, we have been doing temporary layoffs, and people have been working their butts out in our network in scaling up, for example, testing capability and reacting to new demand profiles. Our eNPS, employee satisfaction, is up from spring. It's up from last year's level. It's developing nicely. That's great. That's a very good proof of the trust inside the company that we are doing right things and the team is there together to perform. Another indicator that our service during Q3 is that our brand preference is record high. It's developing nicely. We are the most preferred brand in this branch, in this industry. The gap against our competitors is growing nicely.
Even that one, because that's typically the best forecast for future market share, that's very important that we are doing nice progress in that field as well. Many positive things. Digital, we'll discuss in detail in just a while. In our internal webcast, I used a lot of time to thank the organization, to thank Terveystalo team. Q2 and Q3, they have been both proof of our capabilities, our commitment to serve customers in whatever circumstances through whatever channel is needed. Three examples here. Starting from the right-hand side, Finnair Terveystalo cooperation, just one example of our capability of serving our customers in a very detailed and dedicated manner. We have built our testing platform inside Finnair's booking cycle, making the digital booking flow convenient and smooth for traveling customers. Just one example.
We were able to build that very fast and in very agile and responsive manner to Finnair. Overall response times in our services and smoothness of our services, I can share a personal example because I first time tested the COVID-19 processes two days ago. I got slight symptoms of flu. I thought that this is going to be a very important week for us, so it's better to take a COVID-19 test right away. It was 5:20 P.M.; I started getting a doctor's referral to COVID-19 tests. 5:50 P.M., I was already out from the test. Two hours after that one, I got the result from rapid test. 12 hours after that one, I got the final PCR test result. Of course, negative, and that's why I'm here presenting today. Very smooth digital flow and very quick response time. Excellent service during the process as well.
My favorite part in this slide and proof of Terveystalo team 's perseverance, or sisu, as we call it in Finland. Two weeks ago, I visited Pohjanmaa. This is from Seinäjoki, one of our units. When we say that we need to build testing capabilities, for example, in this case, driving lanes for our customers our people in the units, they don't wait. They don't wait for nice signs or tents or whatnot. They start doing. They start building. They go to local hardware store. They buy tents. They have nails and hammers. They build it, and in matter of hours, we have the testing capabilities built up in our reaches. That's one of the great strengths. We talk a lot about digital and our capabilities in that front, but equally important is Terveystalo spirit, our ability nationwide to react very fast.
When there's a get-go, people, they perform and they deliver. Talking about digital, as we discussed in our CMD earlier, this is a trend. It's not going to go anywhere in the future. Digital appointments are here to stay. We have now clocked half a million visits during the year, during October, and it's growing rapidly. Already 15% of our corporate appointments are digital, and I would say it's a proof of the sort of durability of that service mode. This has been COVID-19 with all the sort of burden on the organization. It has been a great sort of test and exercise for the company like Terveystalo to go tooling into omnichannel world and on omnichannel processes. I think we are doing fine. We are leading back here, as I said in CMD earlier. We have emphasized throughout the crisis the importance of agility.
That remains a key topic going forward. Of course, we are doing our plans for next year. We are planning, we are budgeting, we are building our must-win battles based on our strategy. We need to be conscious of the fact that nobody can still predict and forecast COVID-19 pandemic progress, and hence, we need to be ready to make moves. We were ready to make moves during Q2, we were able to make moves during Q3, and we will be ready to make moves going forward as well. With that one, over to CFO Ilkka Laurila.
Good morning on my behalf as well, and like usually, we'll take a closer look on the numbers. Starting from the top line and profitability development, like Ville already mentioned, the development in Q3 was very good, actually. We actually made a record high on Q3 sales-wise, as well as in EBITDA profitability. As you can see, the absolute EBITDA, it was that close to EUR 31 million, and the relative EBITDA margin 12.9%, which is clearly higher than during the period that we have been listed so far. On a comparable quarter-to-quarter basis, we have all years since 2017 been able to increase both the relative margin and the absolute amount of the EBITDA. In the following slides, we will take a closer look on that where it actually derives from during this quarter.
If you take a closer look on the cost structure, again, you can see that if the top line has increased at 2.6%, pointing that the private was up that close to 9% and the corporate up by 5%, in which we have that operating leverage working and the scalability. For the public business, we had a slight decline in those areas which are not operated within our network, so in staffing and in outsourcing. The public business, which is operated in the network, the occupational healthcare, and the service sales, that was also up sort of emphasizing the operating leverage of the business. On the cost structure, you can see that the purchase of the materials has increased at 8.3%. Obviously, the reason for that is the PPE procurement.
The global situation and the sourcing capabilities when it comes to the face mask has more or less normalized, and the prices have came down. In these kinds of situations, you have to be cautious with those gearings, and you always have some kind of bottlenecks and be it in the rubber gloves. In the future, if you consider that globally, we would have to give vaccination for billions of people it might sort of have some disturbances for the sourcing and therefore we need to be cautious and careful when purchasing materials for the operations. So far we have been successful it and we have been prepared carefully, and we haven't had any sort of scarce resources when it comes to any protective gearings or any other sort of healthcare supplies. Employee benefit expenses also declined slightly.
Reasons for that we still had those temporary layoffs during July and at the beginning of August. The second reason for that is that we are having here in Finland the temporary pension cost reduction up until end of this year; the impact for this quarter is EUR 1.5 million, roughly relating to that. The third reason is that as we have been very cautious and trying to be agile and try to be tight when it comes to the costs, we have been also postponed some of the recruitments both within the network as well as here within the group functions.
If we take a look at the IT expenses still continuing to increase like during earlier quarters, an obvious reason for that is that as the digital network increases, the number of the laptops and the PCs increases, the remote working increases, and we are developing all the time new kinds of applications, et cetera. That obviously will also have impact for the IT expenses, which continue to increase also in the times like this. Other operating expenses declined by almost 20%, as an evidence of our tight cost control. We have been able to decline some of the expenses, but most of those we have cut the budgets and postponed some of the cost line items, not making any sort of permanent cost reductions.
From the balance sheet perspective, highlighting the key takeaway, this slide, I would say, is that our cash and cash equivalent is close to EUR 65 million. Our liquidity is on a good level and no worries related to that. From the balance sheet perspective, our net debt ratio, leverage ratio is still below our target of 3.4 during this quarter, developed quite stable as you can see. Still no worries related to that and we are quite positive that we are able to keep it in a good level also in the near future. Working capital level slightly increased. Couple of reasoning for that, obviously, since the Q2 the sales has increased, which also obviously have impact for the accounts receivable side.
The inventory has increased because like mentioned earlier, we are cautious when it comes to healthcare supplies and try to keep higher inventory levels that we usually do, and that's why the inventory levels are also increasing. Thirdly, within the other payables, we are in Finland, having been able to postpone some of the pension-related payments in Q2 and during the Q1 already. Now we are paying those postponed pension payments back, and that's why the other payables have also declined during this quarter. CapEx-wise, like mentioned earlier, during the earlier quarters, we have said that we are considering some of the investments again, and we have been postponing some of the investments. The LTM impact you can see here. That if you take a look at the digital development, the intangible assets, that has remained actually rather stable. We continue to investing in those.
What we have been postponing during the crisis is the machinery and equipment investments. We have also now, when the situation have been better, we have opening the investments again on that area as well and continue to invest in those as well in the future. Improvement for the premises has remained rather stable. Those are obviously quite lengthy projects, and that's why, in a short term, you're not able to see in a short-term impact in those. Relative to top line, you can see that the total CapEx level has slightly declined from 4.5 to 3.9 as we have freezed some of the investments. Finally, that closes my section, and here you can see our financial calendar for the next year and AGM for this financial year, which have been also published today. Then I think that we are ready for the Q&A.
Thanks, Ilkka and Ville. Do we have any questions from the phone lines?
Yeah, we do have a question from Alex Gibson from Morgan Stanley. Please go ahead. Your line is open.
Great. Thank you. I have two quick questions. The first one is just on cost savings, and I'm not sure I caught it. What was the contribution in the quarter from subsidies and temporary layoffs to employees in absolute EUR amounts? Just trying to figure out what will and will not recur as we move into 2021. Then on the testing, or the COVID-19 testing opportunity, could you be a bit more precise in saying how much was the revenue contribution and probably more importantly, how much was the EBITDA contribution to your business in the quarter from COVID-19 testing? Thanks.
Starting from the cost side, the total impact of the subsidies during this quarter is close to EUR 1.5 million. That relates that pension payment reductions. The impact from the temporary layoffs we have not published, but you can see in our report we have published the number of the working days and number of the people that we have been laid off. You can do some sort of estimate on that, but the bigger impact, actually, number-wise, is that we have been freezed recruitment during this year. Obviously when the business grows, we continue investing in people and continue recruiting new people as well.
When it comes to the top line, also, we haven't published the explicit number what comes from the COVID-19 testing, but the average or the prices for We have done that 75,000 tests, and the price for the private individuals is EUR 235 and for the corporate customers, the list price is EUR 195. Through that, you can do sort of estimate of the total impact from the COVID-19 testing. Clear majority of the testing volumes relates to corporates. That EUR 195 is a sort of list price for the corporates, and that's clearly the biggest part of the COVID-19 testing. From the margin contributions-wise, we have said earlier that it's a sort of solid business. At the beginning, you'll have a quite high sort of costs related to that. You have to recruit resources; you have the PPE expenses.
You have different kinds of investments related to that testing. If you are able to keep your volumes up, the utilization rate of the facilities, and the capacity is high, then it comes with a sort of higher than the average margin. If the utilization rate gets lower, obviously the high level of fixed costs will have a negative impact for the total profitability on that arena.
Okay. That's helpful. Maybe just following up on that, on the utilization. How many tests per month or per quarter do you need to deliver to really make this a margin -accretive business rather than a margin -dilutive business?
Unfortunately, it's not that straightforward. We did actually, during Q1, when the testing volumes were slowing , we actually took down the capacity, and we closed some of the testing facilities. That comes back to that agility, which Ville mentioned. That if we are seeing a decrease in testing volumes, we are also acting really fast to scale down the capacity. In the matter of weeks, I would say, we are able to take down the capacity, and in that sense, we are not afraid of having a sort of negative impact from the testing because we are always able to scale down the capacity. Obviously the positive impact is then sort of diminishing.
Maybe shortly continue on that one. Underlying the sort of capability of Terveystalo to scale up and scale down once again. In this testing context, we are number one nationwide provider for the testing. We have the vastest nationwide network. I think I gave quite nice example how we are able, in a physical manner, to scale up very rapidly throughout the network of 350 units if we so wish. Earlier in Q3, when the demand for testing was increasing on the public side. They were contemplating around doubling the capacity in five weeks. We were contemplating around five-folding the capacity in two weeks; that's what we did. That's what we can do going forward as well. We are highly agile; we are highly adaptable. During the crisis, what has improved quite nicely is the logistics.
We have a central lab now in Helsinki, and the logistics it has become faster and leaner, and to a certain extent, also more cost -efficient. That's sort of a sustainable improvement for the process going forward.
Just continuing that, still not to mention the digital capabilities that we are able to do when it comes to the testing. Only physical piece when it comes to the testing nowadays is the sample taking. Everything else has been digitalized. You can book the time online or through your mobile. You can have the referral through online. You can sort of make an appointment online, and you can get the results online. Only piece that we are not able to digitalize is the sample taking, unfortunately. That world is not ready for that yet.
Not yet. In my sort of individual-
In few weeks.
Yeah. In my individual experience, exactly as Ilkka said the physical experience was five minutes. All the rest was digital.
Yeah. I'm getting it right? If I was to exclude testing, is like a decline of minus 5% in the quarter ballpark around where you think the underlying growth of the business is?
Sorry, what? Sorry, can you repeat?
Just doing the simple calculation, and you have given us numbers, but it seems like your growth, if you didn't have testing, would have been maybe minus 5%.
You mean, you're referring—
Underlying
Underlying
Underlying, yes.
Yeah, underlying volume.
Yeah.
Basically, especially when it comes to private business, like we said in the outlook as well, we saw positive development in the private, and private is already going also to underlying volumes. For the corporate segment, it's a bit mixed picture. The preventative and legally required services have bounced back, so it has normalized, and it's slightly increasing. Sort of the sickness care -related services when it comes to the corporate segment, and if you would exclude the COVID-19 testing, situation has not yet fully normalized, and that relates to a couple of factors, I would say. First thing is obviously some of the corporates are not using so much occupational healthcare, sickness care -related services, and are cost -cautious.
Some of that relates to the fact that, especially when it comes to the work-related injuries and other sorts of accidents, the estimate at the moment is that the volume of that, or the number of those incidents have declined nationwide from 10% to 15%. That will obviously have impact for the corporate sickness care. The third element is that as people are working remotely and having a social distance, of course, all kinds of other infections than the COVID-19 are also sort of being avoided. We can see the clear decline nationwide as well when it comes to the other infections, be it any ear, nose, throat, or stomach -related infections. Obviously post COVID-19 situation that like as well; the work-related injuries would and should sort of normalize.
Okay. Thank you.
We have another question on the telephone from Panu Laitinmäki from Danske Bank. Please go ahead. Your line is open.
Yes. Thank you. I have three questions. Firstly, continuing on the testing topic. What's the outlook for the volume of the tests in the coming months? I think you made an agreement with the Helsinki Hospital District to be a partner with them. How much will this growth volume of the testing going forward?
Do you want to take it or?
The Helsinki Hospital District, or Helsinki Uusimaa Hospital District that only relates to sample taking, first of all. It's not COVID-19 testing; it's only the sample taking. It's a bit different sort of type of business. When it comes to the COVID-19 testing, we have to refer to our best medical experts in this case, and they are estimating that during the following six months, like our outlook is that the testing volumes nationwide and within our operations as well are going to remain on a high level. We will see, like you can see if you are looking at our open reporting through the internet, where we publish every day the testing volumes; you can see the weekly fluctuations, but our medical experts still continue estimating that the volumes will remain rather high level during the following six months, at least.
Commenting on that one, still coming back to the network strength that Terveystalo has, the strongest network in Finland. As the COVID-19 pandemic or epidemic progresses, we will see shifts and changes in different districts as we have seen lately. For Terveystalo, that doesn't mean instability because we are in every corner of Finland. Basically, wherever this COVID-19 pops up, we are there, and we will capture the testing volumes.
Okay. Thank you. The second question is more broadly on demand from the public sector. I think we had discussed earlier that there is a backlog of services in the public sector, and they might need help with that. What have you seen related to that recently? Is there any progress with that, or is it the opposite, so that things would be frozen with the kind of traditional services now as the public sector is again preparing for COVID-19?
There has been like this. The one example is, of course, the sample -taking agreement that we have done with the Helsinki and Uusimaa Hospital District, and there's other similar kinds of smaller agreements and negotiations ongoing. In a sort of bigger scale, I would argue that part of the positive development in sickness care and in specialty care within the private business, that's partly driven by people opting out the public queues. It's difficult to quantify the number because we don't ask every patient that why you have visited our facilities. I think that one element is that. The THL, the Finnish, I don't know what that is in English, but the Finnish sort of the health—
Authority
The authority published the survey related to public use. The situation typically historically at the end of August has been that people waiting in queues for more than six months, the number of those have been on average roughly 2,000 people nationwide. This year, the situation at the end of August was close to 18,000 that have waited more than six months to their operations. Some of those customers most likely will opt out the public queue and pay out of pocket. The following question obviously is, and the best and the good question is that how much the public sector will sort of try to close down that queue with their own operations and how much they are outsourcing to private partners. I think it's pretty clear that they are not able to do it on their own.
They need private sector for that, but the quantity remains open because the queues have already, since the end of August, at least based on the Finnish newspapers, have been increasing from that 18,000 still. The jury is out still that how big of the opportunity that is for the private sector.
Yes. Municipalities and public sector in general, they have been given a lot of leeway in this one, not sort of acting according to care guarantees or access to care. That's due to the COVID-19. That has been sort of the explanation why they have been given so much leeway. At one point, as Ilkka said, they need to dismantle these queues. As said many times before, the only capacity available for solving that developing crisis is private sector.
My final question is on the very kind of near-term outlook. You already described what's happening in the corporate and private segments in general, but have you seen any change to people's behavior in the, let's say, past couple of weeks when we have seen more restrictions on Finland? Any kind of indications that Q4 would be more negative than what we have seen in Q3?
What we can see also from the open credit card data, which some of the Nordic banks are publishing, the usage of the healthcare services has remained rather stable during the recent weeks, even though the usage of some other service sector services have already declined because of the worsening COVID-19 situation. So far so good. We haven't seen any major deviations when it comes to our operations.
Yes. After Q2 and during Q2, we were discussing a lot about this fear factor, which was impacting demand, especially in the capital region. Clearly, the atmosphere, it has shifted so that we are sort of a trusted partner in this crisis. Obviously, we'll see some sporadic changes in demand. For example, in Vaasa, a good example is when the COVID-19 spikes in certain areas, it might temporarily impact our demand. Overall, in our network, we haven't seen any negative development in customers' willingness to use our services.
Okay. That's all from me. Thank you.
There are no further audio questions registered.
Thank you. We have some questions from the webcast. I think some of the questions were already discussed earlier, but a question from Anssi Raussi, OP: how much do you estimate our COVID-19 testing capacity to increase in Q4 compared to Q3?
The question was our testing capacity.
Our testing capacity quarter to quarter compared to this quarter to going forward.
Well, at the moment, we don't see a need to increase on our overall testing capacity. We have what it takes, so to speak. Obviously, as I said many times before, we are ready to ramp up regionally where needed. The capacity will not be a bottleneck for us.
Another question from Pauli Lohi, Nordea. You're guiding for a significant fall in revenue from outsourcing contracts. Does this have anything to do with the new healthcare reform? Are the new outsourcing contracts postponed by municipalities once the new healthcare reform is in place and uncertainty disappears in that regard?
No. It has nothing to do with the social and healthcare reform. It's discontinuing some of the old Attendo outsourcing contracts, and we haven't lost any contracts, but the municipalities are insourcing their operations.
Maybe still on that note, as we commented, I think, during the last quarter report, the activity from the municipalities and from the public sector when it comes to outsourcing is still active, so the market is there.
Yeah. A question from Iiris Theman, Carnegie. Can you comment how has the sales of corporate and private customers developed so far in October? How do you expect the current employment situation down 1% year-on-year in September to impact your corporate customer sales?
Like I mentioned earlier, the credit card data that has been published openly by the Nordic banks, that refers to the situation that the private healthcare spend has remained rather stable. Overall, when it comes to corporate segment, like mentioned earlier, the situation is such that the preventive services are developing quite positively and the sickness care is still sort of uncertain and behind the underlying demand is behind the normal situation like explained earlier. Of course, if the unemployment situation is worsening significantly, that will have an impact to our business as well. In a short term, and currently there's other drivers that are sort of having bigger impact for the corporate sales than the unemployment situation related to COVID-19.
A question on the cost line items. Should we expect any temporary government cost subsidy for Q4 this year still?
That pension-related subsidy, of which impact during this quarter was EUR 1.5 million, that is still continuing during the Q4. That's the only sort of subsidy that we are seeing during the Q4.
A follow-up question on the queues in the public sector from Pauli Lohi, Nordea. Aren't the largest queues in the secondary healthcare side in the public sector? How much can we help on the secondary healthcare to dissolve those lines?
The number that I was referring to relates exactly to the secondary care. It's the number that is collected from the Finnish hospital districts, which operate the secondary care in Finland. The increase from that 2,000 to 18,000 relates to secondary care and mostly operations, and namely eye operations and surgeries. Mainly.
Yeah. Which we do operate—
Yeah.
We can take part in dismantling those queues. A follow-up question on the ending outsourcing contracts. Can you quantify the impact of these terminating contracts, and when will these end?
Most of those will end at the end of this year. In some occasions, we might have one or two months impact also for the next year, but most of those will end at the end of this year. We are still negotiating with some of the outsourcing contracts. Therefore, we're not able to quantify the actual impact post the year-end at the moment.
Yeah. There are still some new contracts also up in negotiations. The net impact, this is not clear yet. Unless we have any new questions from the phone lines, I think we've covered all the questions from the webcast.
There are no further questions registered.
Thank you.