Good morning, everybody, welcome to Terveystalo's first quarter results call and webcast. My name is Kati Kaksonen. I'm responsible for Terveystalo's investor relations, sustainability, and communications. As usual, on the agenda, we have a short presentation on the results by our CEO, Ville Iho, and our CFO, Juuso Pajunen, we'll follow that with a Q&A. We'll take questions through the phone lines as well as the webcast after the presentation. Without further ado, over to you, Ville.
Thank you, Kati. Good morning from my behalf as well. It's a pleasure to present Terveystalo Q1 performance today. As a key highlight, one can say that this is a material step into the right direction for Terveystalo. A strong start of the year, and I'll go briefly into the highlights. Key headlines for Q1. Strong demand and underlying business continues, and this needs to be understood against the backdrop of, first of all-time low consumer confidence and also Kela reimbursement levels going down after year's end. Still, we see that the robust, strong demand continues, and that supports our core business. Our margin uplift is progressing according to the plan.
Since Q3 result disappointment, we have been working with high discipline, and this is another logical step in our path to our financial targets and to 12% EBITA margin. Our profit improvement program Alpha is on track. It's overperforming. Today, we can say that we have a tracked EUR 25 million run rate impact at the end of Q1, and we also say that there will be, for this year, roughly EUR 30 million P&L impact. A strong start of the year. Very logical step into the right direction. We are on the right path.
Key highlights, as numbers, for Q1, we grew despite the fact that COVID business basically evaporated during Q1 and some of the portfolio businesses' outsourcing contracts went down. Excluding COVID, growth rate is clearly double digit. EBITA margin, a slight drop, but a strong comeback in our underlying business, and I'll dive deeper into that one in the segment numbers. A clear highlight is NPS 85%.
We have been doing a lot of changes within our Alpha program, also in our operations, but still our teams have been able to work with the customers on a new level, so this is all-time high NPS, and big thanks for Terveystalo team in delivering this great result. We are growing now especially in brick-and-mortar, and that's healthy for our sales mix, and we have been able to steadily grow our demand to support that, grow our supply to support that growth. Our segment new segment reporting can be seen here, and as you can see, Healthcare Services, our core business, posted a solid performance.
Growth rate, again, excluding COVID, clearly double-digit. Slight drop in the EBITA margin, but against the backdrop of COVID business evaporating, this is clearly a strong comeback and an on right path to deliver in the future. As we have stated earlier, we are targeting a industry-leading profitability as a sort of North Star for this business. Portfolio business is also recovered. They are taking steps into the right direction. All of the portfolio businesses have their independent plans, and I'm especially pleased to see, for example, dental and staffing business coming back from pandemic levels.
Sweden also strong quarter, EBITA margin all-time high Q1, 7%, and a nice growth both organically and inorganically on a right path and in our plan. Alpha program, as I said, is delivering. It's overperforming. Strong and fast start for the program. We can today say that the EUR 25 million run rate is in the bank, and going forward, we can also, with great confidence, say that this year's P&L impact will be roughly EUR 30 million, and with great confidence also say that we'll reach EUR 50 million targeted profit improvement on our way to 12% EBITA margin for the group. Short deep dive into meaningful matters, more meaningful matters, which is healthcare.
Terveystalo as in essence and as its DNA is a world-class healthcare company, we concentrate on integrated, outcome-based, high-quality healthcare. It's a positive spiral that we always in our focus areas try to create. Last time around, we talked about great outcomes in our mental health and growth both as a business and also as a impact to our customers. Today, the highlight is musculoskeletal area, which is another focus area for Terveystalo. Terveystalo has been known for great speedy access to high-quality care. Care paths are really effective from the front end.
You get to the specialist fast, the care paths start immediately, you get the surgery fast as well. We also invest in post-surgery outcomes and post-surgery re-recovery. Tail end of any operation is also, of course, our focus area. This type of outcome-based healthcare is what Finland needs. This is a type of healthcare, integrated healthcare that the whole world needs. You can see from the KPI that medical quality, patient satisfaction, business is growing. All of the KPIs are actually into the right direction. At the end as the end result, what matters for the payer is actually the full cost of operation.
There's a front end, and there's a tail end. This KPI, 34% less sick days is the tail end KPI, which means real benefit for employer or insurance company. By investing in, into these care paths, by improving them constantly, we can sell high-quality products and services with the right price point to also support our margins. With that highlight and deep dive, I will ask Juuso to go through the numbers.
Thank you, Ville. Let's take a deep dive into the fun part of the P&L release, so the numbers. First, a quick recap of the key highlights. We have solid earnings. This is driven by robust demand and a successful supply. We are in a margin uplift, especially if we exclude COVID impact from previous year Q1. The underlying margins are developing very well in all of our segments. If we now look forward, this is the first time in the history of Terveystalo that we will issue a guidance. I will come back to that at the end of the presentation. We are confident on what we are doing. We are confident on our visibility in the markets today. Due to that one, we will stick our necks out and give a firm guidance what's going to happen.
If we look a bit further into the revenue, where it is coming from, last year in the first quarter, we delivered EUR 330 million of revenue. This year it's EUR 341 million. It is a solid growth, especially when you consider what has happened. Appointments are growing. We are getting more and more brick-and-mortar appointments. At the same time, we are losing a bit in the digital channels, which is mainly driven by the COVID. To be honest, I think this is positive normalization for us. At the same time, the diagnostics, we are losing COVID tests, 178,000 pieces of COVID tests last year in the first quarter, all-time high or the highest number during the COVID period and roughly half of the total testing volumes in the full year 2022.
That one is out from the revenue bracket. At the same time, the underlying diagnostics continues to improve in a very steady month-by-month rates, and we are now approaching the pre-COVID levels. Our volumes are clearly higher than pre-COVID, so we have still room to improve and work to be done before we are on a place where we want to be. This is clearly supporting the Healthcare Services Finland revenues. If we look for the portfolio businesses, we have positive momentum, especially in the staffing and the dental business. Other portfolio businesses are having a solid growth momentum. We have the outsourcing contracts, whereas we have earlier communicated fairly openly, there are contracts ending. During this year, we are expecting to lose roughly EUR 40 million of revenues. Now we saw EUR 7 million decline in the first quarter.
This is as expected and as planned. Sweden, solid growth, EUR 3.3 million. Good to remember that in Sweden we have been quite active in the M&A, but also the euro-SEK rate has played against us during the past year. These ones with the previous year rates would be even higher. Then we have the segment Other, which basically includes mainly internal eliminations when we talk about revenue line. EUR 341 million as revenues. Then if we go to look on the EBITDA, now we need to remember that this one is adjusted EBITDA that we are talking about, and it has been impacted by various different levers. EUR 39 million last year and EUR 36.5 million this year. Clearly positive improvement in the portfolio businesses and in Sweden.
Sweden over doubled its margin. Portfolio businesses took a hefty step forward in the independent value creation journey they are on. Healthcare Services Finland is a solid performance if we exclude the COVID. Basically, we have a change in the sales mix supporting this one, especially through the physical appointments. We have the price increases. Our pricing power has been solid. We are able to fight the inflation in this end. The profit improvement program has a bit north of EUR 4 million impact also in the quarter. Various positive levers impacting Healthcare Services Finland. Also we are seeing some cost inflation in the fixed cost base that we are fighting with the price increases. The world is normalizing after COVID.
We have the travels, we have the fares, we have these type of expenses that are now coming back in a different manner. Really positive momentum. Just to remind, these are the adjusted EBITA numbers. We have EUR 9.4 million in the adjustment lines. These are materially all related to success fees on implementing the profit improvement program. If you step back and remember, we guided EUR 50 million run rate impact at a cost of EUR 25 million-EUR 30 million. We are now halfway there from the original plan of EUR 50 million, we are halfway there on the adjustment items if you count Q4 and Q1 together.
Those ones, I would say that we are ahead of plan in the implementation and at the cost of implementation, we are at plan. Positive momentum in that part too. If we take a bit deeper look into the segments, I'm really happy that we are now able to show the new segment reporting. I think it increases the clarity and transparency on how we are doing. We have the big motor of Healthcare Services in Finland. 4% increase in revenues. If we would take out the COVID impact, this would be clearly solid double-digit numbers, and you can quite well extrapolate it already from the materials and 178,000 COVID tests.
Minor decline in the margin driven by the COVID tests that have been a high-margin product, but the underlying performance is solidly improving. If we look the portfolio businesses, minus 4%, but remembering that we are taking the EUR 7 million from the outsourcing contracts that are ending. If we exclude those ones, we have double-digit growth pretty much in all other services that we are providing. A minor step forward, but a good step forward on the relative profitability from 3%- 4%, and not only driven by the outsourcing going down, but also clearly supported by the positive momentum in staffing and in dental. Step forward. Sweden, 15% up, including the MHTs, but the profits and margin more than doubling. I think this is showing that our recipe is working in Sweden.
We are capable of taking the next steps. Really good performance, of course, against weaker comparables when we look to Q1 2022 in the Swedish market. Having a bit of the graphs, what's happening, where we are going. I only reiterate from here, 3.4% growth. Clear, it's a double-digit growth if you adjust for FX, if you adjust for COVID. The organic growth is double-digit range. We have a 6.4% decline in the adjusted EBITA and decline in the margin. This is a good performance when you take into account the loss of COVID test volumes. A couple of words on the cost structure. We have taken the previous year first quarter and first quarter 2023, and different revenue buckets in proportion to the revenues.
In the materials we are going down. This is the positive impact of the not having COVID tests as much, so we use less materials. We have the premises. We are adjusting to new normal post-COVID, but at the same time, we need to remember that the brick-and-mortar is a vital part when we deliver integrated care paths. That drives the diagnostics, the imaging, and all of that part. It is important for us to be in the right locations with right-sized and well-functioning premises. IT stable. Basically, we have been building up the omni-channel digital capabilities. We have capability to optimize here, but from cost structure perspective, we have been now working quite well. Of course, our biggest cost bucket is the personnel-related expenses. This one includes private practitioner fees that are sensitive to sales mix.
Depending what type of appointments, what is the split between digital channels and physical channels, that impacts on what type of fees private practitioners are charging from us. This is highly inflation-hedged. So basically it correlates with the revenues. At the same time, we are addressing this bucket with the profit improvement program. Finally, it's good to note, when we talk about the guidance and the future profitability, the salary increases will hit us only in the second half in a material manner. We have not yet seen the cost inflation in this part. However, we have taken some measures in the pricing part. Finally, the other bucket that includes the external consulting fees, success fees, if I clarify, from the profit improvement program.
The message in here is that we know our costs well, and we are in a position to impact the cost inflation part in a fairly good manner. We have different levers in different places. We can run the efficiency quite well throughout the cost buckets. When you add that one into a strong pricing power as we have demonstrated on the revenue side, it's a quite a good mix. CapEx, we are clearly going down. We are now the last 12 months is 4.2% of the revenue. We clearly see that the intangible asset CapEx is going down like we communicated after the Q4 numbers. We are now at the EUR 53 million rate. We have walked a certain journey in increasing our digital capabilities, and we are in a certain place.
At the same time, it's fair to say that this is a journey that doesn't stop. It continues, but we continue to optimize it, and probably we are over the hill on the largest investments. We need to continue on the premises side, and we need to continue on the machinery and equipment side to make sure that we can deliver the best quality to our patients. Cash flow, this is a place to be happy. We delivered solid operating cash flow. It has been supported by timing of corporate taxes, corporate income taxes, which were now favorable for us in Q1. At the same time, in the total cash flow and the net debt development, we have paid the dividends in Q1 out as opposed to previous year where we paid them Q2 out.
All of that one then pushes us into the Q1 net debt to adjusted EBITDA of 3.3. We are clearly below our target, but obviously with the guidance that we are giving, we have capability to deleverage should we choose so. With all of these ones, we are flowing to the final page of my part, strong fundamentals. We give the first guidance ever. I'm actually quite happy and proud that we can take this one now, and we can start giving the guidance. Our guidance is that Terveystalo estimates the revenues for full year 2023 to grow. Last year was EUR 1.259 million .
We need to remember that this guidance is against losing 378,000 COVID tests, losing EUR 40 million volumes in the outsourcing contracts as disclosed already earlier. We are estimating to grow. At the same time, our adjusted EBITDA margin is estimated to be between 9.1% and 10.1%. Last year, we delivered 8.4%, this is a clear improvement of the margins for the full year. Remembering that in Q1, we are below previous year Q1. We are very confident that in the coming quarters we are in a position to improve quite clearly. There are always, like in issuing guidance, we have to tell what are the key assumptions behind the guidance.
We have consumer demand needs to stay solid, and the number of employed in our core markets in Finland and Sweden needs to stay solid. We have the profit improvement program. We have a EUR 25 million run rate at the end of Q1. We are estimating the program to deliver approximately EUR 30 million P&L impact during 2023. We will continue with this momentum. We are not ready, but we have a clear strong path forward. A moderate inflation during 2023, so meaning that the central banks and the current forecasts are somewhat in the right ballpark. Those are the key assumptions behind this one. We will reduce the public sector revenues in the outsourcing contracts, and these are excluding any material acquisitions and divestments. Revenue will grow.
We will be between 9.1% and 10.1% during this year, which is a clear step forward from the 8.4% last year. With these words, welcome to our Capital Markets Day in 10th of May in Helsinki. Happy to see you in Sanomatalo pretty soon. Back to Ville.
Yeah. Exciting stuff coming up in the Capital Markets Day. We'll dive deeper into core strengths of our business and our strategy going forward. With that one, back to Kati.
Thanks. I think that we are ready for your questions. Do we have any questions around the phone lines?
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Grace Lee from Jefferies. Please go ahead.
Hi. Thanks for taking my question. I've got three, please. first, can I ask on in terms of the revenue, your guidance, 2023 guidance to grow qualitative. You've achieved obviously 3.5%, I think you mentioned underlying basis double-digit growth. How should we think about phasing of the growth? I mean, we always knew that first half will be tougher with a tougher prior comp. The underlying recovery trend seems to be good and but there are obviously certain things to consider. How should we think about the phasing of growth from here? What... Do you have any sort of further pricing increases that you are sort of anticipating as we go through the rest of the 2023? The second question is on the cost-saving side. You've achieved EUR 25 million already in Q1, but only guiding EUR 30 million expectation for full year.
Does this sort of indicate that a low-hanging fruits are sort of done, and from here onwards, the cost saving will be sort of incremental, will be my second question. Thirdly, on portfolio business, margin 4.1% in Q1. You mentioned a couple of things and I thought, you said also double-digit growth in all services if you exclude that outsourcing contract impact. Is this margin sort of sustainable? Is there further improvement that we could sort of expect in terms of what you can do in terms of steps that you can take? Thank you.
Yeah. Can we get the volume a bit up for the next one? Thanks. I think that. Did you catch the first one?
yes. There were quite many questions
Yeah.
The first one was on the growth and how do we get that one. I'm sorry it was a bit, low on the voice level and a bit breaking up, I try to answer and remind me if I forget something. Basically, the growth was solid, and our guidance is we are estimating to grow during the year. How we are phasing this one up, we assume that the trends from Q1 continue, we are expecting to improve throughout the year in a sequential manner. That should help a bit on timing the growth part. We have been very, I would say, good in the price increases. That is the other part that you can add into the formula.
What happens in the public healthcare or outsourcing contracts, we have said that it's roughly EUR 40 million decline during the year, and we have now reported roughly EUR 7 million . It's not entirely linear, but you don't make or break models if you just use that one. Finally, we have published the COVID testing volumes. We need to remember that the 178,000 tests in Q1 is roughly half of the total volumes lost, and in Q4 we were virtually in a zero place. Then you need to also adjust that one into your expectations come Q2 and Q3, which were fairly identical in the test volume part on that part. Obviously our plans in the price increases, we do not communicate, and we do not disclose.
What I can say is that we have been fairly consistent and solid on that part. We have all of our eyes on what happens in the inflation side because that one drives then the other part. The other factor, of course, is the consumer demand and how solid or soft that one remains. We need to also consider the flexibility of the demand from the pricing perspective. These ones were the first on the growth part.
Did you get the second?
The second question was it on the timing of the cost part and the profit improvement program? Is that... Can you con-
Yes. It was my que-
Yeah.
Yes. Cost saving, you've done already EUR 25 million achieved in Q1, but only guiding EUR 30 million for full year. Has the low-hanging fruit been achieved? From here onwards, are we expecting any improvement to be incremental? Thank you.
Basically, first of all, it's good to note that this is not a cost program, this is a profit program. We are addressing both the top line and the bottom line and the run rate. Run rate profit improvement is at EUR 25 million levels at the Q1. The guidance steps out from the run rate. Guidance is a concrete profit and loss impact, EUR 30 million during 2023. Visible exactly on 2023 financial income statement. If you extrapolate that EUR 30 million clear profit improvement compared to the EUR 25 million run rate at Q1, you can clearly assume that we are north of EUR 40 million on the run rate levels at the end of the year, which is an improvement compared to what has been the expectation or communication for 2023.
If you take a bit of logic, you can assume that in Q2 we will progress. We start to be in a place where we have collected the low-hanging fruits. Q3 is materially a summer season, and when you have more and more long-haul items, probably there is no material progress during that one. In Q4, we take the next steps to be 100% aligned for 2024. That's give or take on the development of that one.
We have the personal cost inflation hitting in on the second half of the year.
That's absolutely correct.
Yeah.
In the second half of the year, we have the personal cost inflation hitting based on how the collective labor agreements are being finalized. We don't have a definite solution on that one yet, but the employee and the employer unions are in a negotiation phase. What we do know from the previous agreement, the ballpark numbers where that would land, which we have said also that between 3% and 4% is the expected increases.
Yeah. Then there was a third question on the if I got it right, on the upside, potential in the portfolio businesses where we saw already improvement.
Yes. Basically we don't guide different segments, but it is crystal clear that the improvement from 3%-4% is positive development, but it is as crystal clear that we are not happy on that one. Independent value creation means something more. It is a step to right direction, it is good development, but definitely not fulfilling our ambitions in the bigger picture. Maybe this is also a topic that we are addressing in the Capital Markets Days in the coming two weeks.
Thank you.
Thanks. Are there any further questions from the phone lines?
There are no more questions at this time, I hand the conference back to the speakers.
Thanks. We have quite a few questions from the webcast, starting from Sami, from Danske Bank. This might be a bit reiterating what we already discussed, but we estimate the EUR 30 million P&L impact from the profit improvement program this year. What was the contribution in Q1?
It was EUR 4.x million. Now, EUR 4.7 if I recall correctly. Allow me EUR 200,000 volatility in this answer.
Yeah. Then coming back to the EBIT EBITDA margin guidance. According to Sami, it looks a bit cautious as we were already at 10.7% in the seasonally strong Q1. Is there any expectations on the margins deteriorating from the Q1 on the underlying basis when we go forward during this year?
Well, I think that first of all, we are more than 1 percentage point below previous year in Q1, which means that in order to improve within a range of 0.7-1.7 percentage points, we need to be clearly better in Q1, Q3, Q2 or between Q2 and Q4. That one should be pretty clear that we are in a improvement path. Then the other part on the margins is that like we iterated, that we have the salary increases coming and materially hitting only in the second half. That one will impact impact us a bit, but obviously like I said, we have the eyes on the ball and on the pricing part of this one.
Yeah. Another question on the guidance. What kind of ballpark does the revenue growth imply?
We have now chosen to use adjective grow. If you go to traditional stock exchange company communication, stable would be something like -2% to +2%, and grow would be the second adjective on that one. Maybe you can draw a bit of conclusions from that perspective.
Yeah. Then a question on the channel mix, which we have discussed quite a bit in recent quarters. How did the digital versus the physical appointment mix impact the margins? Does the physical appointments have a higher incremental margin in general?
Yeah. One of the key developments during this quarter, as Juuso explained earlier, is the increase in our base diagnostics and that requires obviously a referral rate from our appointments, entry-level services to grow. We are happy to see that actually referral rates are developing positively in all of the channels, not only in brick-and-mortar. In brick-and-mortar it's higher, so a mix turning more into brick-and-mortar has an other positive impact into the sales mix. Maybe a third element in the sales mix development is the fact that as we said during H2 last year was that due to the lack of supply early in the H2, we were not able to provide supply for highest margin private consumer customers.
Now since the booking rates have come, gone slightly down, we have been able to serve consumer customers on a better level, that also plays positively into the sales mix. Supply in order, referral rates progressing positively in all of the channels, channel mix in more to brick-and-mortar. This is all from margin point of view, this is positive development.
Excellent. Maybe continuing on Joni's questions from Nordea. I think you already touched upon on the improvement of the funneling from digital appointments towards the diagnostics, so we covered that one. A question to you on the financial expenses. Were there some additional expenses there, example, FX losses included?
We don't have FX losses. Those are not that material as long as you are referring to foreign exchange rates. What is in the financial expenses is that our net interest was roughly 2.8%, which is slightly higher than we expected, and we have some volatility coming from the hedges. As discussed after Q4, we have roughly 50% hedging rate on our interest rates, and the timing of those ones is not 100% linear, so there's a bit of volatility on that one. Also the interest levels have been increasing during the Q1, a bit more than we had expected. That's the material part of the financing cost.
2.8%, which you find from some page in the result report, is the current net interest cost of our interest-bearing loans. As said, we are on a 50/50 hedging rate with different timed hedges, so it's not like we have a 5% on one hand and then 0 on the other hand. It is a bit volatile.
Yeah. Coming back on the referrals and the diagnostics, on Jutta's question from SEB, how much roughly are the diagnostics now below the pre-COVID levels if we go back to that time?
I think Juuso touched upon that one already. We are lower than pre-pandemic, but especially brick-and-mortar, and especially brick-and-mortar with consumer business is closing up with the pre-pandemic levels. We have still the channel mix which is slightly impacting. Our corporates are slightly down. There's gradual and steady progress towards pre-pandemic levels and this first quarter was a clear step to the right direction in that one. I don't know if, Juuso, you want to.
I think that you can view it from two different angles. You can kind of take the absolute numbers when we approach quite quickly, and then you can take the relative numbers where we know that we have clearly further work to be done, remembering that our supply is materially higher in absolute numbers compared to 2019. We are going rapidly to right direction, but we are not through that journey yet.
That is maybe marketing little bit the Capital Markets Day. This will be one of the deep dives in there, so stay tuned.
Good. Then, last question so far, unless you have something else you want to ask. Reminder, send them in from the webcast. Last question from Jutta, on the portfolio businesses. Is there plans to divest some of the parts in that, segment?
As for rest of the company, we have a clear two-phase approach to value creation. We have this year, next year, which are Alpha profit improvement program driven in core business. For the portfolios they have the independent value creation plans as we have communicated. We expect these portfolio businesses to improve during this two years period, and if so, they will prove their value inside the portfolio, and that's what we are working on as we speak.
Yeah. Of course we already saw encouraging improvements.
Absolutely
... especially in dental and staffing during this quarter. All right. At the moment I don't see any further questions from the audience, so, we thank you for joining us today, and have a great weekend and Vappu next week.
[Foreign language] Hyvää vappua.
[Foreign language] Glada vappen.
Thanks. Bye.