Welcome to Terveystalo Q3 results webcast and call. My name is Kati Kaksonen, I'm in charge of investor relations here at Terveystalo. Today, our CFO and the interim CEO, Ilkka Laurila, will go through the presentation, and we'll follow that with a Q&A as usual. In addition to the usual presentation, we also have special guests here today. Our digital health team will give a short presentation on our new MyHealth app and digital appointments. Without further ado, I will give over to Ilkka.
Good morning on my behalf as well. As usually, we will go through the key achievements during the Q3 and also the financial result for the Q3. Q3 highlights overall, we are quite pleased to have, again, a broad scale of growth across all customer groups, especially in the private customer groups. We saw very good growth rates during the Q3. That is partly driven by the new processes that we have been able to establish during the, say, last 18 months, and the digital solutions that we have been able to launch during the year and during the Q3. As Kati mentioned, we will also go slightly more deeper on that so that you can see what does it actually mean, the own health solution that we are so much talk about.
Our profitability, the EBITDA margin, has also improved thanks to especially strong sales in private and corporate customer groups, which again sort of shows the operating leverage model of the business and which applies to the fee for service type of business that we are doing in the corporate and private business. Obviously, the strong cash flow, we are happy with the strong cash flow from the operating activities, we continue our rather high level on the digital type of investments, and those most likely will continue to grow as well. As mentioned clearly higher growth rates than during the last quarters, I would say. 10.4% in the corporate segment, 21% in private segment. Without Attendo, public segment growth was 18.5%. On top of that, obviously the Attendo impact is that roughly EUR 15 million.
What should be taken into account when taking a look at these numbers is that there was one working day more, having rough impact of that 1.5%, positive effect for the revenue. Obviously, the impact of the Attendo's private dental business have also impact on the private growth. Despite of that, the growth compared to earlier quarters this year was clearly higher in the private segment versus year ago. What else should be taken into account when taking a look at these numbers is that if we go back to the last year's quarters where we always compare our numbers, is that we had a sort of weaker performance in Q2 last year. We had a slightly improving performance in Q3 last year, which still gives us the easier comparison period.
We had an excellent or good sort of performance already during the Q4 last year, which makes the comparison period for Q4 tougher than in Q3. Here are the year-to-date growth numbers. Here also, you can see that the growth rates have been higher now in Q3 than during the earlier quarters. Overall, the pie chart here shows that the private and public business from the top-line perspective are now basically completely evenly balanced with the corporate segment still creating 42% of the total revenue. Numberwise, it means that the adjusted EBITDA before the IFRS 16 impact grew from EUR 14.8 million to EUR 24 million. The margin improved from 9.2% to 10.2%, and we will take a closer look on that as well. Shortly. The net profit for the period declined from EUR 16 million to EUR 10.4.
The key reason for the decline, obviously, is that for the comparison period, we had a capital gain from selling one of our businesses in Latvia at the time. There were also some other sort of non-recurring capital gains related to the comparison period. This is the way that we are trying to open the logic where we are. We are saying that we are in the middle of the transformation within our company, and also in the healthcare sector in general. What we try to show here is that if you think about traditionally how the private healthcare in Finland has operated, is that historically the customer has entered to doctor's appointment, and doctor has sent through the referrals to bill the customer to the labs, to the imaging, or to the surgery.
What we have done and what we tried to do is that for the last, say, year and a half, is that we tried to open the bottleneck for the doctor appointments, which is having a very high utilization rates, which we have reported, I would say, since the Q2 2018. Is that we have developed both, if you want to call it, the analog processes as well as the new digital tools, so that the customers can bypass the bottleneck for the doctor appointment, go directly to the different kind of, or to the different sort of healthcare professional appointments, or go directly to the lab having a sort of referral for labs, et cetera. In addition to those, we have developed those digital tools, which enables customers, first of all, easier access to our services.
On the other hand, it will even out the supply and demand, so that from, as an example, from the remote areas, you can take the digital appointment, although you're not physically close to the physical doctor or the healthcare center. That those dozens of different kind of activities and tools that we have developed starts to sort of even though that the absolute numbers and the absolute revenue from these different sources are quite small, it starts to open the bottleneck for the doctor appointments and improves the customer’s availability to access to our sort of healthcare services. Market outlook. Even though that we see if anyone sort of follows Finnish newspapers or news, you can see that all the economists are taking more negative view on the coming economic development.
We still see that within the corporate customers, the demand will remain rather stable, especially the preventive services, relatively speaking, will continue to increase. That it is further emphasized that the slight legislation says for the corporate customers related to that Kela reimbursement that the corporate customers are receiving from using occupational healthcare services. For the private customers, we see continuing trend for the comprehensive wellbeing, which will further create a strong demand or stronger and broad demand for different kind of services overall. We continue our work and development of those comprehensive wellbeing services within our organization and work on that will continue in the future as well.
In the public segment, even though that the reform has been delayed, like we all know, especially when it comes to the public sector occupational healthcare customers, we see increase in demand for those services as well as the specialty care services for the public sector customers. Like Kati already said, we thought that it would make sense to sort of talk so much on the digital appointment, even though that is not having yet that significant impact from the revenue perspective. We thought that it might make sense to have a sort of short demo here to show you what kind of tool that is, and for all those Finns that have not yet used it, you can actually see it. Especially those international listeners you can at least see what kind of tool that we are talking about.
With that, I will invite Lauri Saarivuori, our development manager from the digital team, to show how it actually works.
Thank you, Ilkka. Good day, everyone. My name is Lauri Saarivuori. I work as a development manager for our e-health services here in Terveystalo. Now I will give you a brief demo about our new Oma Terveys app. Basically, MyHealth. Just to make things happen, I will do some video checks first. Here, actually, I'm going to show you our app straight from our production environment. This is the app that you can all already download from App Store or Google Play. This is from my actually personal app, but you won't be seeing any personal health data here. Here, straight from my phone, I have our new Terveystalo Oma Terveys, so MyHealth app, which can use Face ID, fingerprints, et cetera. Of course, when you're first time taking the app into use, you need to use your strong authentication methods.
For example, bank credentials. When you come into the app, firstly, you see the home screen. This is now in Finnish, but I will guide you through it. Basically, what you could see here is your lab results, your appointments, your coming appointments, your vaccinations, et cetera. Here you would have a full home screen with your history and your future appointments. Here, actually, you can see just now that there's a payment, for example. It is possible with Terveystalo to actually pay all your visits to our doctors through the app. What else do we have here? Well, we don't yet have actually possibility to make the appointment straight from the app, but that is coming. We have our own health plan.
Oma Suunnitelma in Finnish, where you can make your personal health plans with your doctors or other professionals. You can have your goals. You can communicate with your personal professional in Terveystalo, et cetera. The thing that we wanted to demonstrate the most is our remote services. There has been a lot of talk about different remote services. Here you can actually now see that we have a lot of different chats here. For example, for your occupational health or your private health. Here, actually, just for your information, currently our chat levels are about 3,000 chats per week, and they're growing. Here we also have the opportunity for offline messaging with your own occupational health team for those matters that are not so urgent. What I wanted to show you is our newest developments or video appointments.
We currently have already the possibility to go for a video appointment already without queuing. On weekdays, we have this Yleislääkärin videovastaanotto, which is basically an MD answering for your questions through video. I'm now going to show you how it works. Here we have some more information on when it's open, how much it costs, et cetera. Now I'm just going to join the queue, and this is our live production environment. Let's see when our professional picks me up. Now our professional has picked me up. The conversation has started. Here you can see our doctor is answering. She's already asking if I want the video. Now the doctor asks me if I want to join the video conversation. There she is. You cannot actually hear the sound now, but it's because of the audio set up here.
Of course, you can then hear the sound when you're having the discussion. Here you also have the possibility to attach different attachments, do the chat as well. You can always, of course, you can just put the video off and continue the chat as well. It's that easy and this is already in production. You can also do this by appointment. Now I'm just going to Oh, she closed it already. We have our customer feedback, and that was it. Well, actually, this app has been released about a month ago, and during the last month, about 40,000 people have registered for it. That's growing day by day, and we're all the time developing more features into the app. Basically, every two weeks we're publishing a new version. Here's the demo. Now I'll give the floor back to Ilkka. Thank you.
Thank you. That was an excellent demo without any demo effect even. I think that the key takeaway also is that nowadays, these kind of tools and gadgets, these are really easy to use. That enables us to use those by the wider audience. It's not just our digital teams that can use it. You don't have to be an engineer to be able to use those, but the easiness and the convenience to use those kind of services is all the time improving. Few words still on the financial performance on Q3. Here are the adjusted EBITDA picture that we have shown on every quarter. You can see, if you take a look at the right-hand side of the picture, you can see how the adjusted EBITDA margin has developed.
If during the Q1 and Q2, we were still on a lower level versus the year ago because we acquired the Attendo business with significantly lower margin levels. During the Q3, we were able to even improve our margin level despite of the Attendo integration from that 9.2 to that 10.2 level, which is in my books an excellent result when it comes to the Q3 performance and operating leverage. It shows the operating leverage of the business and the efficiency improvements that we have been able to carry out. The same table that we have shown every quarter is here so that you can see that if the top line again has increased at 46%, most of the cost line items is not growing as fast as the top line. In the materials and the services, the growth has been significantly lower than in the revenue line.
That also applies to other operating expenses, which has increased at 33% versus 46% top-line growth. One thing to note on that is that, of course, when the digital investments are growing all the time, obviously the IT expenses are also growing and that is the, I would say, the biggest cost line item in there that is obviously growing within the other operating expenses. From the balance sheet side, the strengthening of the balance sheet further continues. The net debt amount at the moment without the IFRS 16 impact is EUR 390 million and the IFRS 16 impact is EUR 177 million roughly. The development you can see here, that we are now at the level of our financial target, which is 3 times leverage before the IFRS 16 impact.
Obviously, if and when the cash flow from the operating activities continues to develop favorably, we expect that our balance sheet will further deleverage going forward. On the working capital, positive trend further continues as during the earlier quarters this year as well, which also shows the operational efficiency development and the fact that we don't have any major problems or major issues when it comes to the basic processes within our environment. On the investments, the development you can see here, the trend further continues as said in the Q2 reporting, when the intangible asset investment was that EUR 14 million, now it's that EUR 16 million and versus when it was in Q1 2018, the LTM level was that EUR 6 million and during the earlier quarters, it was EUR 4 or EUR 5 million.
We have more than tripled our investments in LTM numbers for the development of the digital and other IT solutions. As evident from the picture, when it has grown from EUR 10 million to EUR 16 million this year, the trend will further obviously continue in the near future as well. As said, strong operating cash flow has continued and we don't expect to have any sort of, based on the historical facts that we have within our hands, we don't expect to have any negative developments in there as well. One more thing to highlight is that the corporate responsibility has, I would say, almost always has been one of the strategic focus areas for us, and we are pleased to see that the investor interest on those themes are also increasing. That's definitely a positive thing, and we also sort of improve our performance here.
We are continuously working hard on that area as well. Just a few days ago, we also received the prime status from the ISS rating agency when it comes to the ESG standards. In addition to quality book, we will also publish our first corporate responsibility report regarding 2019 activities when we will report the annual report as well. Finally, the upcoming IR events and the financial reporting for the next year, which have already been released. I think we have time for the Q&A.
Thank you, Ilkka and Lauri. Do we have any questions for either Ilkka or Lauri? I see Sami is having his hand up already, so I'll give over to you.
Thank you. Sami Sarkamies, Nordea Markets. I have a couple of questions. Can you give us a bit more flavor regarding the organic growth rates within corporate and private segments in the third quarter? I know that you're not reporting those anymore, but perhaps a comparison against Q2 levels would still be useful.
If you would think about it that way, that in Q1, when we have not yet integrated our Attendo's dental services or Attendo's corporate customers, the numbers you can see here that the private customers grew at the time to 12.6% and corporate customers at 6.9%. Without that impact, the growth was 3.7% in private and 6% in corporate. What it means that in the corporate segment, the Attendo's impact is really not material, I would say. With the private customers, the impact is that roughly 9% like it is here in Q1 as well. Overall, if you do that kind of math and adjust it with sort of having a one working day more, having that 1.5% impact for the Q3, it's not rocket science.
You will end up having 11, 12, whatever, sort of close to that level of number in Q3 overall, including public and private and corporate.
Okay, thanks. On private segment, could you open up some reasons behind the strong growth you had in the third quarter?
I think the biggest reason is the work that has been, like I said, the work that has started, I would say 18 months ago with regards to that sort of funnel picture that I showed to you. Obviously, the one quarter is too short a period in healthcare and I think almost in any industry to make strong conclusions on the development. You should obviously take a longer trend line. If you want to make a projection for the future, straight-line basis from one quarter is not a fair adjustment, especially when it comes to the private customers. As you can see from the historical trend, the private sales, the fluctuation within the private sales is somewhat bigger versus the corporate segment and also versus the public sector customers should there not be any major changes in public sector contracts.
Your outlook statements, I think you can read them so that you have become a bit more positive regarding private and corporate segments, or maybe a bit more cautious regarding the public segment. Could you just walk us through those changes in your thinking related to those areas?
Overall, I would say actually that the view is pretty much the same, I would say, as during the earlier quarters. The only sort of impact is the macroeconomic environment that we are seeing and the development in there that we are seeing at the moment, so that as we all know, the macroeconomic environment has somewhat weakening trend at the moment. The positive tonality, I would say, comes from that we don't, at the moment, believe that the weakening macroeconomic development should have a major impact to our development relative to the overall market development. That's the, I would say, the change in the view. When it comes to the public segment, what we see and what we have shown already during the earlier quarters is that there's most likely a limited amount of major complete outsourcings, but the demand continues to be strong.
The service mix within the public sector customers is somewhat different than it used to be, say, two, three years ago when we all had a strong pipeline and there was a lot of tender processes related to complete outsourcing. It's more and more episodes, different sort of specialty care, smaller outsourcing, as well as these occupational healthcare contracts and also outsourcing. From the top-line perspective, the development in the public is slower, but on the other hand, the number of the activities obviously is higher and the profit pool impact is not that high as the top-line development in the public market. Typically, those complete outsourcing contracts are having typically lower margin levels than the smaller contracts.
Finally, you're talking about Kela reimbursement changes next year becoming a tailwind for the corporate business. What kind of impact are we talking about?
First of all, it applies to the corporate customers. The change in that is that during this year, there has been a sort of the roof for reimbursement, both in Kela I and Kela II, meaning the sickness care and the preventive care. For the next year, the rules are changing in that way that you can use Basically, the whole compensation level can be directed to preventive services, meaning Kela I services. The total compensation level as such is not changing, but what is changing, that it will most likely have a slightly increase in impact on the continuing trend when the preventive and wellbeing services are increasing. It will enhance that development, but it will not have a dramatic impact either way because the actual amount and the actual compensation or the reimbursement levels are not changing. It's more steered to preventive work than earlier.
Okay. Thank you.
Thanks. I think we have other questions from the room, but I think we'll take a couple of questions through the phone lines in between, if that's okay. Do we have any questions from the phone lines at the moment?
We have a question from the line of [Anu Light-Mackey] from Danske Bank. Please go ahead.
Yes, thank you. I would have a couple of questions. Firstly, on the very good growth in the corporate segment, could you kind of specify where it came from, given that we are not having that many new employees in Finland and you already have a very high market share? Was it really more billing per customer, or how do you see that, and how sustainable is this kind of a growth rate going forward?
It's more like, I think we have said that we have already seen during this year and during earlier seasons that the historical correlation in the corporate segment development, when it was You were able to quite nicely tie the corporate sales development with the end user amount. That is actually, the correlation is actually weakening. What we see is that the change in behavior within the customers when it comes to the spend level, how much they use to acquire healthcare and preventive services, that sort of is widening the scope of different kind of services. That is where the growth is coming from. That we have been able to support the existing demand for the preventive services as well as those wellbeing services so that the average spend per customer has actually developed positively. That is where it comes from.
Thank you. On the cash flow, which was very good in the first nine months, is there something in the Q4 that we should expect to reverse in terms of working capital or is this a trend that we should look for the full year?
Historically speaking, in the old Terveystalo side, there is not going to be any unusual changes expected. The only factual change in the working capital has been the pension-related payment and the payment cycle of the [dual] pensions is not quarterly based in Finland anymore, but it's on a monthly based. That impact you can see already in Q1, Q2, and Q3 result. That's the only difference when you compare last year numbers. When it comes to the Attendo working capital, and the impact of that and integrations, that is somewhat more difficult to say at the moment, obviously because we haven't owned the business during the last year Q4. We would not expect that to have any sort of major impact for the complete or the total working capital development.
All right. Thank you. My final question is on the acquisitions. What is your acquisition strategy going forward now you have integrated the Attendo acquisition and debt is coming down a bit? Are you looking for any larger ones or is it small bolt-ons or what are you thinking?
Regarding Attendo acquisition, the integration goes as planned and the technical takeover will take place at the year-end so that the TSA contract will end during the first quarter 2020. From the technical perspective, it will be integrated within our technical environment, be it bookkeeping or be it the HR services. We get obviously better or we are able to build a better transparency and the visibility for those operators when we have the numbers and the bookkeeping and the HR processes within our infrastructure. When it comes to the M&A, you have seen that we have done during this year, unfortunately, can't remember the exact number, but it's seven or eight acquisitions that we have done during this year. Those are mostly small or bolt-on acquisitions.
I said earlier also that we will continue to look all opportunities in the market and we don't close the window for the larger acquisitions, but obviously not either for the smaller acquisition and most likely we'll continue to do both whenever the situation and opportunities arise. As you can see from the smaller acquisitions, what kind of acquisitions we are doing is slightly different versus the earlier years. There's more the public sector related, these occupational healthcare related, which have provided the municipality-owned public sector, municipality-owned occupational healthcare service providers, and there's more technological-driven and competence-driven services that we have acquired, latest one being that Evalo just during this month. Those are the type of the acquisitions that we believe that will further continue.
Obviously, on the wellbeing side as well, we have acquired handful of physiotherapy service providers and hopefully continue to do so in the future as well. All right. That's all from me. Thank you.
The next question comes from the line of Alex Gibson from Morgan Stanley. Please go ahead.
Hi, thank you. I have two questions. I know it's difficult for you to determine what the organic underlying growth of the business is, but if we go forward 12 months when Attendo is not a major contributor, what levels of growth should we be expecting across each of the customer groups? If you can talk about that compared to market growth rates as well, that would be helpful. My second question is just on synergies updates. I didn't see anything highlighted in the release, but if you could let us know what the impact of synergies was in the quarter, that would be helpful. Thank you.
When it comes to the revenue development for the different customer groups. Like reported earlier in the public sector, there's a couple of larger complete outsourcing contracts which are ending at the year-end. I think the total impact of those is some EUR 30 million to EUR 40 million or so. Obviously, there's also new contracts, so the net impact is not that high, but inevitably that will have an impact for the public sector development. For the corporate and the private segment, like I said earlier, we believe that the B2C market developed quite positively, and we see that we are able to increase our market share relative to market growth rates. What then would be the market growth rates?
We don't expect the market grow that fast, but that it has been historically because of the fact that weakening environment, but we believe that our relative performance to the market will continue to over-perform. Now, because I don't have a pen and paper, I already forgot the second question. If you, Alex, can repeat that?
Okay. Yeah. I'll do the second. Then I have a couple of follow-ups on what you just said. The second one was on synergies in the quarter for the Attendo acquisition. I think you were talking about EUR 5 million for the full year. Was it EUR 5 million in the quarter?
The EUR 5 million is the run rate impact starting from the 2020. That's the run rate impact. That's not the financial impact for 2019. Of those synergies, all sort of activities have been already carried out and implemented, with the exception of that transition service agreement, which is still in place with the Attendo, which relates mainly to bookkeeping, financial reporting, and HR services and some other sort of support services. I would say that clearly the biggest proportion of the synergies, you can already see within the numbers.
Okay, great. Just following up on what you said earlier. Should we assume that public customer group declines next year because of the ending of those two larger outsourcing contracts? For corporate and private, you say you don't expect the market to grow fast. Should we be thinking that means 2%-3% and you doing a bit better than that? Is it higher?
In the public sector, like I said, the impact of those two larger outsourcing or handful of larger outsourcing contracts is that EUR 30 million-EUR 40 million. Obviously, still we are in the middle of the year, there's tender processes ongoing all the time. Even though that we would publish it, we don't know it at yet because quite typically, start of those new services will only be at the year-end or at the start from the 2020. For that, we don't actually have yet the sort of information. For the corporate and private market development, like typically in healthcare, the movements are not that fast, I would say. If historically, the development of the market growth has been that roughly between 3.5%-4%, I don't believe at the moment that it will dramatically be lower, but somewhat lower.
I don't have obviously the exact number for that, because of the macroeconomic development, it will be most likely somewhat lower. How much then that will then some third-party service providers that can provide the market growth estimates, that is something then that needs to be discussed with them.
Okay, great. Thank you very much. Very clear.
Thanks. Then I think we have more questions from the room and also through the webcast. I think Ollie was next in line. Do you still have a question?
No.
Okay. Anybody else from the room?
Yeah. Iiris Theman from Carnegie. Two questions, please. Just a follow-up on your organic growth. Can we expect the year-to-date organic growth level, which seemed to be about 7%-8%, to continue in Q4? Or do you see any headwinds?
I would say, like I said, I think the one or two quarters are too short period to take average number. I think you should take a longer trend from two to three years in healthcare to be able to have and adjust that with economic development to be able to have a better view on the coming future. Like you can see from the numbers, if the Q2 last year was quite weak, and this quarter was very good, actually, the variations will continue. That's typical for the private sector, that there is a quite big variations in the growth rates between the different quarters. We always need to take a longer trend views to be able to see a big picture on the private customer development.
Okay. On your digital services, how would you compare those to your competitors? Are you ahead of your competitors or in line with competition?
Like I have said, the best thing in Finland is that we have good competitors in healthcare. That is great thing to have because that puts a lot of effort for our development, and we try to put a lot of pressure to competitors that they should develop their services and their IT and digital tools. I would say that from the objective perspective, it's always difficult to argue that who is having a best kind of solutions or tools. I think that we, with our best competitors, are developing our services side by side, so that in one month or in one quarter, we are improving our services, and we are better, and in some quarter, they develop their services, and we take a benchmark from their services, and we continue to develop our services. That's the brilliance of the competition.
We hope that from the healthcare development services or for the general how the healthcare in Finland should develop, we hope that that will continue in the future as well. We challenge to ourself and our competitors so that we are even further able to develop better and better services to our customers.
Okay. Thank you.
Thank you. We have a couple of questions from the webcast. Jutta Rahikainen from SEB has some questions. Firstly, were we able to take market share in the private and corporate segment, or was the market growing faster than earlier in Q3? Also, we are growing significantly in the public segment, also excluding Attendo. Were we aggressive in pricing in the outsourcing tenders, or what's the root cause of that?
I would say that when it comes to the corporate and private customers, unfortunately, within this industry, we don't have the facts for the market development. We only know the fact of how the employed persons have developed. It has slightly increased versus last year. For the private segment, we only know how the private consumption has developed in the economy general, and we know where the Kela compensation levels are. Those are the only existing data points that are available for everybody. If you compare our performance on those data points, obviously we believe that we have been growing much faster than the market, but we don't have facts for that, unfortunately. For the public segment, the main driver for the organic growth, excluding the Attendo, is exactly those specialty care and occupational healthcare customer contracts, not so much on those larger complete outsourcing contracts.
With the public customers, we don't actually see that high pressure when it comes to the pricing. Overall, obviously, the market is tight as always, especially with larger customers and larger corporate customers. We don't see any major changes on that environment in a short term either, even though that the competition, of course, has been tight and will continue to be tight.
We have one more follow-up question on the Attendo margin diluting impact. Was it lower in this quarter than in the previous quarters? Jutta is just trying to figure out why the group EBITDA clean margin improved as much as it did in this quarter.
If you think it through that way, that has there been any sort of the service or the sales mix changes within the Attendo having an impact on the EBITDA margins, there's no that material impact coming from that. Obviously, if you compare it to, for example, in Q2, like I said, we are excluding that transition service agreement. We are now running full speed with the synergies of the Attendo acquisition and almost full speed, and that impact is included in the numbers. Rest than that, there's no any major sort of service sales or any other sort of sales mix or mix changes versus earlier quarters this year.
Thank you, Ilkka. Do we have any additional questions from the room or from the phone lines?
There are no questions on the phone.
Thanks. There are no further questions in the room, so I thank you for your time, and have a good Halloween, everybody.
Thank you.