Hi. Good morning, ladies and gentlemen, and welcome to Terrace Towers Results Briefing and live webcast for the first half of the year. My name is Gabi Kokson, and I'm in charge of investor relations here at Pervistala. As usual, our CEO, Uryanarhinan, and our CFO, Ilklaudella will give a short presentation on the results and we'll follow that with a Q and A. We'll take questions through the phone lines as well as through the wireline webcast.
But without further ado, I'll give over to Uke.
Thanks, Kathy. Good morning, everyone. So now we're here on first half year second quarter of 2019, I guess the headline probably says what I hopefully says what we want to portray, which is, of course, our our absolute quarter on quarter growth is driven by Attendo. But actually, we're quite satisfied with the underlying growth. Which is seen broadly across the customer groups.
And, and so if we start to kind of look at the Q2 highlights, As said, strong development in all customer groups, in all physical regions, Atendo Healthcare integration proceeding as planned. Lots of work, very active, but basically all plans integration synergies, everything is progressing as budgeted and planned. We see continued growth, in prevention and well-being services. These as you may recall, we've seen a high double digit growth. I think that the positive thing is we are also seeing a clear pick up on, on, I would say, classical health care appointments, which we will classify as private business.
Also, our, our health care, sorry, the occupational health care is performing very solidly. Maybe a little bit peculiarity, but, our digital businesses continue to grow, we've seen an all time high in July on remote appointments, both be it chats or be it digital visits. And I think the real trick behind this is that it actually allows us to manage availability industrially better than, than previously. So we see a high demand on digital services or increasing demand as well as then we can see the operational impact of that business gradually coming in. We have, we have a new remote appointment app.
So basically, or actually our my health account is basically upgraded and we see we get very, very positive feedback from be it to app stores or be it consumer feedback all time, all time high on, chats. And actually, if you look at even in some regions in, in Finland over summertime, you almost see digital visits being as large as physical visits. And so that clearly tells the story of an increased interest towards I would say next to physical doctor appointments and physical healthcare activity, the long term work on increasing digital presence clearly starts to play in. We are we are testing small scale still, but basically the whole notion of pre bookable remote appointment And our vision there is that, that the consumer can over time choose live, whether they want to have a physical visit, or a digital visit. And I think that work is progressing very well, not 100% up and running it, but we're on a beta mode and we can, we can still gather some more learnings, but very, very positive development there.
Look at the growth numbers, 37% growth quarter on quarter. Of course, a majority of the coming out of the offender acquisition basically more than tripling our public business, to a sizable 1,000,000. Next to it then, almost the same size, private growing by 13.8%, which I think is a very good number. It is a combination of, of well-being prevention as well as 10 classical doctor appointments. We do see appointments growing.
And that, of course, then the impacts are mix. And especially when we come more and more towards well-being, you'll see the appointments playing a larger role So we always need to look at the sales mix effect of that. Also very positively, you'll see growth in Occupational health care 77.1 percent year on year, and that despite having a 1 less business day. Now without being too much of an educator, of course, the impact of one business day means that that lost revenue basically, almost fully leaves from the profitability line simply because the cost base remains broadly the same. So always on a quarter on quarter comparison, This kind of a working day comparison remains relevant and then on a year, full year basis is of course losing meaning.
So that's the Q2. Basically then puts us puts us on a euro growth or sales on the first half year, 36% growth, more or less the same numbers. I think the point here to note is that our public and our private business start to be almost the same size. So we're really solidly standing on kind of 3 different business legs, which is also the way we try to look at our business increasingly. Which is on kind of, understand the differences and the sense of similarities of these 3 different business groups, public, private and corporate.
But very, very much, solid growth, and I would say strong underlying growth and broad growth across all of these groups. Customer wise and geographically. Our EBITDA, our EBITA, year on year compares on gets impacted by, asset this kind of increase in appointments relative to other activity, appendo coming in with, initially lower margin, one working day. And then as you may recall, we had, we had some positive one offs on a comparison period. So if you look at that on a quarter on quarter, you actually see I would say, a kind of an, lesser impact or lesser growth that we see from a kind of an organic point of view, and so we and Anilka will come on to talk about more on longer term trend.
But we are actually quite satisfied with how our business continues to drive efficiency despite, atento coming in with somewhat different business mix. Then coming with the different business model. So the EBITA then comes at 20% to 25.9%, adjusted EBITA percent at 10% of revenue and then profit at 10,400,000. Looking to market, I think the big message we're looking at the market is, is despite there are clouds on the horizon on the kind of a broad scale of a macro beat, beat internationally and even changes in the way how private consumer looks at the confidence against the Finnish economy, we do see our market being, currently unimpacted by it. So basically, we see strong demand for our services.
We don't see impact on health care policies, be it reform or not reform, basically impacting at all. We're basically busy developing our own business, driving our own efficiency, and of course, making sure that our appendo integration continues to to play in and so that we are ready for, whatever may come out of the public side. Despite I would say, political discussions, I remain very confident that public private partnerships is one clear way forward for Finland and for the reverse to law in that same sentence. However, 2019, I think the impact of any political decision is limited, and I think we'll see that playing in our longer term. Asset market in environment for us remains positively despite, I would say, somewhat weak in consumer confidence.
And And so we remain confident on the market outlook and basically are busy with our own work. And with that, I would like to hand over to Ilkka and I can run through the financial numbers.
Good morning on my behalf as well. And as usually, we take a closer look on the financial performance as well. Starting with the profitability and especially EBITDA if you take a look at the longer trend of the EBITA development, as the result for Q2 was announced at 9.9 percentages. If you would compare that to 2017 number, it's already clearly higher than that. And if you would compare it to 2018 numbers, it's somewhat lower still because of those mix issues that, that, Uki already earlier sort of describe.
But if you would compare our performance versus the Q1, if you take a look at the Q1 2018, in which the EBITDA was posted 13% and Q1 'nineteen having full impact from the Atendal acquisition plus 12%. So 1% relatively speaking lower. And if you would do sort of, working day adjustment for the Q2 result, which is roughly that 1.7% for the top line, roughly 0 point 5% decrease for the margin level, you will end up having roughly 10.4 margin level for Q2 and which is already quite close to 2018 performance. And therefore, we we are quite happy with the operating leverage and the operational sort of improvement and the profitability that we achieved during the second quarter. And that as usually the sort of the root cause for that is obviously the operating leverage of our business model, that still applies especially when it comes to the corporate and private customer segments as described earlier, the logic with the public business is somewhat different, then but if you take a look cost structure again, if you take a look at other operating expenses, clearly increased less than, top line, Or if you take a look at the material expenses, which is, sort of included in the materials and the service line, it does all increase some 5% to 6% versus the top line growth or if you would do a sort of the IFRS 16 adjustment back the rent leases and premises expenses, it has only increased some 17% or 18% roughly, roughly speaking.
So also that has increased less than the top line. And that will end up sort of having the operational leverage impact that we are having in this kind of corporate and private businesses, especially. Then on the balance sheet side and the targets on the balance sheet, the leverage ratio target is the 3 times multiple. Now we are having that close to 1,000,000 impact after the IFRS 16 impact And but still if you take a look at the leverage ratio, if you would exclude that, to put it sort of a comparable numbers, we are already quite close to the 3 times leverage ratio. And if you would do that, even any kind of sort of LTM adjustment for the attendeeva acquisition, you will end up already having below that three times leverage ratio, which is then, why we see that we are not worried about the leverage ratio development and we are, already sort of, in our internal target when it comes to the leverage ratio.
And the one big reason for that is that we can see if you can see the operational sort of process improvement in the P and L side, you can also see it in the balance sheets. So if you take a look at the The working capital development, like this described already during the earlier quarters, sort of if you are able to operate efficiently, your operations, you can see the improvement also in working capital development as we can see again during the second quarter of 2019. And also having obviously impact for the improvement in the leverage ratio. As already also mentioned during the earlier quarters, we will continue our investments in the digitalization of the health care and our operations, the sort of increase in the CapEx level can be seen here, then so that, if you take a compare it to the last 12 month investment intangible assets in 20 Q2, Q4 in 2017 was 1,000,000 versus the Q2 2019 LTM number is 1,000,000 So it has almost tripled during the time which is according to our strategy and what we have said that we will continue investing in digitalization of our business and the health care.
Cash flow still. So, sort of end result of the boat, sort of the P and L positive P and L development as well as working capital development end up on having a situation that you can see here that our operating cash flow even though that you would do IFRS 16 sort of conversion back to those numbers, we the operating cash flow developed very positively during the second quarter of 2019 and, showing the group good sort of operational development of the business during the second quarter and the first half of twenty nineteen. Then I think that we can, open and open the lines for the further questions and the Q and
Thank you, Ilkka. Do we have any questions from the phone lines?
You can press 2 to cancel. And our first question comes from the line of Panu Latinmaki of Danske Bank. Please go ahead. Your line is open.
Yes, thank you. A couple of questions. Firstly on the organic growth rate, I know you are not giving the number anymore, but, can you kind of confirm whether it was roughly on the same level as in Q1 when you kind of gave the number?
Look, guys, key to answer. So I think
Yes, I will open it to logic a bit. As a preemptive strike, we put in Q1 slides here already as an appendix. So if you take a look at the Q1 and and the quote in these numbers. So basically, you can see that the impact from the out end of the private sector was roughly 9%. It hadn't only impacted real impact the corporate segment be less than 1%.
And the growth for the public segment will be we already said during the also said during the 2nd second quarter. And if you would also put sort of rough the impact of the working day during the second quarter, you will end up you have to do some sort of math, but you will end up having having an end result that, that during the second quarter, our growth was actually in line with our long term targets, as well-being 6% to 8%.
All right. That's clear. Thank you. 2nd question actually on cash flow. So that was very strong in Q2.
Do you think this is kind of a trend to continue or was there something in the working capital that will normalize in the second half?
First, you have to take into account that that is even though the tire for 2016 is it's ridiculous. But even though that IFRS 16 is not cash flow item, it will have impact on the operating cash flow calculation. So So the impact for the Q2 is roughly at SEK 10,000,000.
Yes. Sorry,
I mean, like excluding that.
And yeah, and in top of that, if you take a look at the working capital, there's a certain, sort of nonrecurring impact from the pension related payments in Finland with the sort of the governmental HATS system here in Finland is not operating as the government or the pension institutions planned, and that's why it have had positive impact for the second quarter of working capital. But even though that you would exclude that impact as well, we had a sort of good solid operational development for the working capital also for the Q2. But it's not it's like I said, it's not that good as the number shows, but that then, but, and And but going forward, we also see that there is no reason why the historical development should change And as we have been historically able to improve our operating cash flow and the working capital development continue to believe so that, that also in the future.
And I think that's the key point, which is, which is that as we continue to grow top line, our ability to drive efficiency down further down that the P and L continues. And I think operational operating cash flow, I think, is a great example of our continued ability to drive operational efficiency. And I think that is exactly as Ilkka says, will continue and should continue.
All right. Thank you. My final question is a broader one on the market and the public side of that since you last reported, there, we have a new government and some clarity on the kind of outlook on this So the thing, so what are your thoughts now? It seems that we are not seeing that many outsourcings, but something else on the public side. So any comments on the kind of timing and your plans and what do you expect?
Thanks. I think, yes, I mean, not to dwell too much on kind of the political outlooks, but but it is, it is, a little bit unfortunate that Finland continues to struggle with renewing its, I would say, basic services, be it infrastructure, be it schooling, be it social care, healthcare, And so these things take a long, long time. And so we, as an operator, within that market, we need to be accustomed to that, that the demand, I judge will be there and is there. And if you look at if you look at the kind of the status of municipalities financially, there's the highest number of municipalities ever to make an operational loss, which means that the financial situation out in municipalities in Finland is actually quite series. And therefore, I think we do need solutions to help our public health care.
Now then the question there is much more, how and when will that demand materialize? And And so as we all knew, there was there was a kind of a period with quite a lot of complete outsourcings. And I think if you look at the political tonality right now, it's probably a little bit against that. There are other forms of collaboration being discussed Now what does that mean? That means that the overall sentiment is probably more waiting and people are more on the waiting mode.
We see a lot of interest and demand. We also see that the new government is a little bit trying to form, their words into action, and we haven't really seen that in practice yet. Therefore, our focus is to make sure that if there are new types of services, be it staffing services, be it service vouchers, we need to be ready for those or other forms of tendering, my current judgment is that we see less of a focus on complete outsourcings and we see more of a focus on kind of specific activity going forward. But I am struggling to see that the demand would lessen But that probably means that whatever will happen in the next half of the year, second half of the year, we'll see quite modest financial impact of that because these tend to be long processes. And so the tendering processes, when they start, will take a while.
So I think the market will be in a little bit of a waiting mode, 2019. Having said that, there is a lot of demand, there is a lot of small, a large number of small activity going on. So we remain, quite positive on the development and investing into the public
Alright. Thank you. That's all for me.
Thank you. Our next question comes from
Hi, good morning. Thanks for taking the questions. My first one is on staffing. I remember last year, you talked a lot about not being able to get enough consultants growth rates that you've shown in the business?
Staffing is yes, I think it's a very observant question. I think I mean staffing overall tends to vary quite a lot from one period to another. And rightly, so we had to spend quite a lot of time on the first half year actually to make sure that we stabilize the situation. I think it has stabilized. One of the key drivers I think is These are people who look for short term employment.
And given the fact that we were not had had not closed the deal. There was uncertainty about kind of when will the deal close and all of those, all of these impacts are gone now. And so we see the pipeline for professionals being better. And that helps are kind of, let's say, access for the physicians. The second thing that does help is that we'll be able to stabilize the situation in terms of making sure that the deal base, if you wish, is more healthy.
And so we've done a lot of work on stabilizing staffing and kind of turning that into a growth more than I would my expectation is that that the second half is significantly more stable than the first half where we at least from a work based point of view.
And is that helped by the launch of that new app, the consumer booking app?
No, it's a little bit, I mean, the consumer app basically allows us to, allows us to serve, I would say, the private customer the staffing business, okay, sorry, now you have 2 different assets. So we need to specify staffing as a rental doctor staffing business or staffing physicians. And if I comment on the rental doctors, that was my first question. There, our first answer there, I think we have seen better access to professionals and that business has clearly stabilized, there we see also demand. Almost indefinite demand you could argue.
We're then getting access to physicians. And if that's your question, there, the app will help because the whole point is to be able to, I would say, even out, the gaps between supply and demand. And the better we are at supplying health care services digitally, the better we are on kind of evening out these gaps between supply and demand. So there, the new app and the digital services will definitely help.
Especially help to sort of availability of the specialty care doctors. For smaller municipalities and the smaller cities.
Did you have you seen a lot of those specialty doctors not be available in the past then because I always got the sense that it's the initial bookings there.
I mean, basically, if you recall, the discussion about a year ago where basically we saw very high booking rates, and, and we were kind of talking about how do we even out the, the kind of our one of the limitations for growth is our ability to provide access or offering basically. And that indeed where we are seeing now, the benefit of being able to provide digital services is that indeed opens up availability for some specific specialties in areas that there was not a doctor available earlier. And then at the same time, what the other thing that it does is that it evens out gaps on supply. So So basically my judgment is that with lower individual percentages, so if you would look at availability gaps of 1% to 3%. Digital tools will definitely help there, to even out these gaps.
And that is essentially the magnitude we saw a year ago in terms of a shortfall of apply. So I would say that these tools will allow us to withstand even if somebody even if there would be capacity increase, we are now more and more capable of, supplying the required amount of services, despite if there would be a new supply. So I think that's just goes to show that we have a lot of ways, continuous possibilities on driving efficiency on managing supply and demand. If you execute to turn.
Okay. Yes. And then on those IT investments as well, because you've updated consumer bookings up. Are there is there any other technology investments that you need to make significantly that are going to be large CapEx projects we know that IT investments, particularly on building out infrastructure can escalate, but do you have to do anything either with your existing business or atendo to get everything up to a new level of technology capabilities?
Yes. We continue. I mean, basically, basically, the answer for that is we continue to do, in material investments, which is IT investments increasingly are our systems are fully operational assets, But I think we increasingly see a demand and need to be able to provide, new type of digital services, be it booking, connect that to billing, use to date, the better. And so we continue to invest in IT definitely. And I think the trend you've seen is probably a good indication of of where we will continue to be.
So the balance between IT and physical investments will continue to be growing more towards digital investments, definitely.
And CapEx as a percentage of sales, do you anticipate that moving up further compared to the last 12 months?
We haven't sort of provided certain numbers and estimates, but as mentioned, we are now the intangible invest will increase and you can see the trend line for the network and the machinery automatically investment. So trend wise, it will continue as it is at the moment. And, but, should be taken into account that if you put, do the percentage calculation, you have obviously have to take into account for the last twelve numbers, also the up tender impact. For the full year.
So absolute investment will continue to be significant that I would say we're somewhat upping the investment driven by IT. But then if you look at relative to sales, I think it's more stable.
Okay, great. And one final one from me. On the new CEO search, is there any update there? What is the expertise and background that you're looking for with the new candidate?
Yes, sorry, I, I did not have that slide here. I mean, just basically for personnel, had that. So for the spirit of transparency, I think one of the key thing for us in terms of operational structure is really where I think we are quite unique and we continue to be unique is that we have a I would say healthy balance between medical expertise and commercial expertise. And so the profile for the CEO does not need medical expertise, which I think is very critical. So that then allows us to look at individuals who are able to run service businesses understand us, the need for digital, and basically has an experience of running a large organization.
Now that process is actually proceeding very well. And I think, we are we can expect to hear, some updates on that rather sooner than later. And I think And with that, I am quite pleased that it's progressing quite nicely and hopefully we'll be able to come with some news quite soon.
Thank
And there are no further questions on the telephone lines at this time. Speakers.
Thank you. We have one question from Sami Zargami as not there, or actually three questions through the web cost? Yes. Exactly. The first one is that you mentioned softer consumer confidence in your outlook comments.
Is this based on your own observation? Or are you just referring to changes in views by external forecasts?
External. External.
So single word answer to that? The second one is can you elaborate on magnitude and growth rate of sales currently taking place through the digital channels or remote appointments?
Yes. Trying to, I would say that the growth rates are, are astonishingly high, but the base is very low. So quite quite typical. I mean, if you look at, for example, give you a particular number in July, I think we did 12,000 chats. Now 12,000 chats on the digital front sounds like a lot.
And if you look at an index that's enormous, we're doubling the business, But if you contrast that to the own number of physical visits, it's still quite modest. So, so right now, I would say that the numbers are encouraging. It clearly goes to show that there is demand. It clearly goes to show that it kind of supports the existing infrastructure, but the numbers in itself would suggest that you would not want to run digital only business or it would be quite modest in our scale.
Fair enough. 3rd one is can you still open up reasons for particularly strong private growth in Q2 and during the remainder of the year?
Well, I mean, I would just take one point which I am particularly, please about it. It comes back into Alex's earlier question on availability. This business is driven by the operational ability to create question, it basically means, how can we connect supply and demand at any given time and space? How can we allocate that demand to write professional and how do we make sure that people don't do work that they're not basically asked or trained for. And so there are many types of activity going on.
1 is the digital front. 1 is how can we direct more work towards nurses, physiotherapists, so basically take a burden away from the doctors, the physicians, And the third point is look at ways on how can we drive development like labs without referrals, things like this, And the combination of those basically means that we can offer a larger availability which then I see, I think manifests itself in, in, in, in growth rates, whereas then, is there an increased demand per se, on an absolute market, I don't have the data to indicate that. So we can only see that through our own own data. But I think the key driver for us is the excellent daily work on managing availability.
Yes. And to add on that, so it's basically that is the availability. And the improvement in there. But on top of that, I would also like to add that, in a smaller businesses be dental, the well-being, the digital offering, we also see also saw high crowd numbers during the second quarter, although the nominal value like I said is considerably smaller. Versus the sort of the whole private business, but it had a significant positive impact for the second quarter.
And
well-being stock to be significant.
Yes, as well as to then propose to your tender acquisition. Yes.
Great. Do we have any questions from the room.
Yes. Irris Teemann from Carnegie. Regarding your public customers, I understand that 2 full outsourcing agreements are terminating at theendofthisyear and also some pilot contract contracts will end in the second half. Are you able to offset the sales decline coming from these contracts?
Well, point number 1, they were they were budgeted for, I. E. We knew at the time of the acquisition, the lifespan of these contracts. That's point number 1. Point number 2, there are always certain amount of contracts terminating.
You never really know how that will continue. Our judgment is that, that some of them may terminate completely. So that means that the service will end. If you would look at And if you ask this from the city sense, they would definitely not want this to terminate. We're quite quite confident, but but these are these are political decisions.
And that's now then the 3rd point is this business, as said, some parts will terminate, some parts will grow. And I think the key point is, of course, to be very alert on the new things. So it could be that complete outsourcing, there's less of, but then there are other types of activity that will offset. So our aim is on a kind of a more mid to long term range is to be able to provide that growth. We're not 100% sure what terminates what's not But from a paper point of view, there are 2 large contracts terminating.
If you look at the pipeline, potentially, it could be quite, quite significant, but then of course, none of these tendering processes have actually been announced, so we don't know. So that's the situation. And so there may be variation from a quarter on quarter.
Yeah. And to add on that, those, those, freedom of choice trials, which are mentioned that those are really sort of immaterial and insignificant in our numbers. Those complete outsourcing, those are bigger outsourcing But, you should also take into account that those complete outsourcing quite typically include quite significant part of the past through invoicing meaning that the top line impact is bigger than the impact on the EBITDA or the EBITDA especially with Eve and typically as it converts to some other sort of shapes or format of the public Christmas.
Okay. Thank you. That's clear. And secondly, given that you have had changes in the board in early this year and also Eurya will be stepping down So are you going to review your strategy or is that already ongoing?
Well, that's, of course, for the board to look at, but it is fair to say that very often when it comes to CEO change, I think they need to coincide. And of course, you would look at from trying to answer it from my personal point of view, it is quite natural that should I have engaged in strategic work, that means that I would have been around for quite some time. So so far, we have a solid strategy. We can continue with this strategy. We've had a board discussion on the Spring, but I would say it's fair to expect that the new CEO will look at and develop the strategy somewhere.
Okay. Thank you. Thanks. Is there any other questions from the room? I assume not.
So thank you.