Terveystalo Oyj (TTALO) Earnings Call Transcript

Good morning, and welcome to Terveystalo's Q3 2026 Results Webcast. My name is Siri Markula, and I'm responsible for Investor Relations and Sustainability at Terveystalo. Today, we will go through our third quarter results and highlights with our CEO, Ville Iho, and our CFO, Juuso Pajunen. After that, we will provide you with a short update of our ARC strategy execution and our strategic objectives. You will also meet our new SVP, Oral Health, Ville Pesonen. After the presentations, there will be time for your questions. But now let's start with the third quarter highlights. Over to you, Ville.

Thank you, Siri. And good morning. Let's dive straight into the highlights of the quarter. We have today plenty of things to cover. But briefly, the highlights and lowlights of the quarter. Obviously, the lowlight of the quarter was muted demand environment, which can be seen in our volume development and hence, a decline in revenue, which is roughly 6% and that dropped through to our EBIT also, even though our service delivery and ops has been fighting hard to adjust to muted demand. We can see clearly now the operating leverage working to negative direction for us and EBIT coming down. We have positives, of course, also during the quarter. We have positive development in our dental services, which we will cover thoroughly today. We are progressing with our ARC strategy. We are pushing new products into the market, and we are well positioned for the future as we take the next step in our execution and in our journey. Let's double-click on this muted demand environment. We have shown this picture with different segments and underlying sort of factors impacting the demand for quite a couple of quarters. Consumer demand was actually showing positive indications earlier, but especially September took a dip down in our demand. And it can be also seen in the consumer confidence, which went down during September after some months of positive trend. Our biggest business suffered from a decline in occupational health care demand and visits both in preventive and in health services health care. Visits and demand and market is clearly down. We have made some adjustments to public statistics. There are some discrepancies in the data, which are showing health care appointments in occupational health care dipping 10%. Our sort of management adjustment says that it's actually 5%. But anyways, it is still negative and can be seen in the environment and in our numbers. Then finally, the number of employed people in Finland is stable, no clear uptake just yet and sort of the meltdown within the current agreements and current customers in occupational health care has been visible throughout now a couple of quarters. And that still continued to a certain extent. Of course, with the more positive trends now in the economy, we are expecting this one to start correcting itself and impacting also our numbers positively going forward. Negative demand environment is seen in all of our segments in a negative way. Healthcare Services took a clear dip down, also portfolio businesses. But within portfolio businesses, of course, we have a good news story with Dental, which we'll discuss today and present our future view on that very important new growth vector for Terveystalo. Sweden, still a very muted demand environment, even though we are winning in market share there. All in all, sort of disappointing quarter from Terveystalo point of view, but still underlying demand going forward to coming years next year and '28. Underlying trends, demography will provide ample amount of demand for our services. We just need to adjust to the new expectations from our customers, be it public, be it corporate or be it private or insurance customer. Actually, there's a lot of positives within our development inside Terveystalo. And there's one clearly negative that has been taking the numbers down during last couple of quarters. And that's obviously our biggest demand driver, occupational health care. In that area, we have worked hard in renewing our services, in renewing our sales activities, account management activities, and we are making clear progress, especially when it comes to large accounts. So there, we are growing again with large customers. There's still a lot of work that we need to do with the SMEs to repackage our services to make them easier to buy, use and pay for, but we are making a turnaround here. We expect number of connected employees to start growing again during first quarter 2027. Health care requires transformation from customers' point of view. Health care services companies only sort of aggressively waiting for patients to pop in for doctor visit is sort of past history. We need to reach to the customer to look at the actual customer needs and different ways we can help our patients and customers on the way. We have been planning with our ARC strategy, new packages, new type of services. We have now launched first pilot in continuous care modality, highly digitally driven continuous care service offering under Wellby brand. And that's the first service that we are providing through that platform is obesity management. It's a pilot phase, but we believe that this type of new services will be answering the developing and increasing customer demands. And we will increase services, this type of services. We will launch the final platform for obesity management during Q4. In the piloting phase, we are testing, we are making trials for acquiring customers, what type of service design changes we need to do. But this is part of the future. This is part of our strategy execution, which we will make a deep dive later during the presentation. With this one, I will, for the final round, actually give floor to CFO, Juuso Pajunen.

Thank you, Ville. So thank you all. As Ville said, this will be my final quarterly result with Terveystalo, #16 in total after 4 years with the company. So thank you, all stakeholders, investors, analysts for watching my face for these releases and obviously, in other meetings. But let's go to the quarter 3. So all in all, if we look this page, one can be only disappointed. In each and every KPI, you see the negative sign in front of those ones, and it's absolutely not something that we can be happy with. The market was challenging. And during the quarter, we saw decline throughout the market and within our services in public and private markets. Occupational health was especially challenged with the less connected employees and the lower visit per employee ratio. But at the same time, if we look a bit underneath the hood, we were able to reduce the variable cost at the pace of the decline of revenues and protect our profitability. It has been actually a good achievement. But in a seasonally low quarter, in any case, the fixed expenses also pushed through and the profitability is reduced. Then on a positive note, we closed Hohde transaction, and we have successfully started the integration, and you will hear a bit more on that one later today. So looking at the whole group, the lower revenues were impacting the profitability despite the efficiency actions we have taken. Every segment declined. Healthcare Services were pressured by the occupational health portfolio businesses due to outsourcing contracts, but the positive movement in Dental supported the revenues. Sweden had a slow start after summer, which is visible on both the revenue and EBIT. As said, we were successful on protecting the profitability with defense in the variable costs. And finally, the adjustment items, they include mainly M&A-related topics on Hohde acquisition with the biggest item being the transfer taxes within that EUR 4.1 million. Then comes the advisory fees related to process and everything else is small potatoes in that number. Looking to Healthcare Services, lower revenue, the changes in sales mix were impacting the profitability. All in all, the market was weak. Morbidity was below previous year, some 15%. You will see a bit more details on the following slide on that one. And the start of the summer in occupational health was also quite slow. At the same time when the visits were on a low level, it's good to note that our sales mix was weaker than usually, which is seen especially in the Diagnostics and especially within Diagnostics in the laboratories. And that one pushed the column 'Services and sales mix' and pricing to being negative during the quarter also. If we then go on the volume development, that continued to be challenging. The main contributors for the changes in visits remained pretty much the same as in previous quarters. Morbidity was low during the quarter, 15% down compared to previous year. At the moment, we are having our medical leadership forecast for the full year points out that in the Q4, morbidity starts to increase and the total levels during Q4 are above previous year Q4 levels. We are assuming the peak to happen late November, early December. But as you all understand, these forecasts are based on best information today and are subject for volatility. In occupational health, the story was continued, but the decline is stabilizing. And like Ville has explained, we are progressing, especially with the large accounts and now turning our eyes more and more into small accounts. Out-of-pocket trend that was during summer and immediately after summer positive was broken in September, even though it's supported by Kela 65, those visits are now also in the comparable numbers from previous years. So all in all, combined consumer insurance demand was actually stable during the quarter, but the trend that we saw during summer was not continued during September. And at the moment, we are evaluating how it goes to Q4. Portfolio businesses, outsourcing contracts revenue declined as expected. As you know already, these are nowadays margin contributing. So when we are reducing this -- or this revenues reducing, it has an impact on EBIT also. On positive note on public sector, we have now seen that especially in staffing services, the volume is growing. However, the price level is inherently lower than couple of years ago. Dental is the bright spot. We have both organic growth within the Terveystalo services, and then we have added Hohde to revenues, which has contributed some EUR 5.5 million on total revenues. And as you see, EUR 6.2 million, up EUR 5.5 million of Hohde, you see that we have a healthy organic growth also underneath in the Terveystalo operations. The column 'Other' includes the divestment of Child Welfare that was announced earlier this year. In Sweden, revenues have been pressured by the slow macro end market. The start after summer was slowish and in consulting world, that one, of course, impact quite quickly on the revenues. If we take comparable currencies, EBITDA was actually improving year-on-year, but on euro notes, it was slightly down, both in absolute and then relative terms. Going forward to balance sheet. Our cash flow continues to track income statement steadily. So the decline that we see year-on-year basis or LTM basis is pretty much what we have lost on the profitability side and then from the Q1 tax out payments from a strong '25 profits. Net debt to adjusted EBITDA at 2.9, reflecting now the Hohde acquisition. And now we are pretty much within our financial target of 3.0. Going to see the market. The demand environment was challenging in Q3, weaker than we originally expected during the summer. The change in there is mainly on the consumer market that, as explained, didn't behave post summer as we were expecting and as all of the trends pointed out. If we then look for the next 12 months picture, it has not materially changed. We do see that there are positive development expected in the consumer and insurance market, especially in the dental, where we are continuing our solid performance. As said, this was the bright spot for the quarter in any case. And then Sweden, where we are net positive and capturing market share, we are expecting to little by little improve also from the market perspective. So all in all, we are expecting gradual improvement during the next 12 months. Then going to guidance. You heard our updates from yesterday or most likely have seen that one. So we have updated our guidance for 2026. We expect the full year '26 adjusted operating profit to be between EUR 110 million and EUR 120 million. January-September was clearly below the levels of previous year and the demand development has been weak. Now within this guidance, we have taken into the weak demand environment post summer into account, and we are not expecting material improvements in the market conditions for Q4. And we are expecting the challenging environment to continue. The revenue from outsourcing operations in the portfolio businesses are expected to be minus EUR 25 million for the full year, and the guidance includes Hohde, but does not include anything from Silmaasema or any other significant acquisitions. On the Silmaasema, we are progressing with a close dialogue with the competition authorities. And we have communicated during summer closing to take place either this year or Q1 next year. As the time close by, this year, closing gets more and more less probable or less and less probable, if I put it that way. Then with these words, I would like to invite our CEO, Ville on stage to update you on the strategy.

Thank you, Juuso. So as Juuso said, we'll zoom out for a while and take a look at our strategy. And as we have communicated, we decided to postpone our Capital Markets Day from December this year to next spring. By then, we expect to have completed the Silmaasema transaction and to be able to provide you with a clearer view of strategy execution and the long-term value creation potential of that combined business. Ville, as you take us now through our strategic objectives and progress so far, could you start by reminding us why this was the right time to update our strategy?

Absolutely. Thank you, Siri. So as I said earlier already in the presentation, health care services need to transform and need to reach out to actual customer needs. This has been very conservative industry with very conservative ways of serving customer and patient needs. The underlying demand, and this is clearly a positive and strong point. Underlying demand continues to grow. There's no question about that one. People will age. People will want more services for their health care and well-being need. But how they consume it, how they buy it, how they compare different services is going to be different, and it needs to be modernized also with the service providers. We have seen this development now for, let's say, 2 years, and we have prepared for our strategic pivot. And we have, of course, already clear actions ongoing with our new ARC strategy. ARC basically comes from, or stands on 3 equally strong pillars. The most important one is customer. As I said, this industry needs to transform to be more, actually more customer-centric, build services and ways of serving from actual customer needs and reach out to the customer. That only will enable us to capture the growth, underlying growth, which is evident in the market. And only through technology can we do it in profitable way. So this is the triangle that we will work on with our ARC strategy and with our execution. This is the time to pivot. We have 6 specific strategic objectives under ARC strategy umbrella. Number 1, as I said, is the core of everything, basically, build a truly customer-centric health care services company. Sounds trivial, but looking at the tradition for 2,000 years for this type of services, that is not the case. We have been patient-centric, but that's not enough for future years and decades. Number 3, in the middle is grow and diversify. We need to create more diversified ecosystem around customer health care and well-being needs and diversify our portfolio. Of course, we have actions in place for that one, as you have seen with the Hohde acquisition and Silmaasema deal. We need to transform health care delivery to make the reach out to the customer in a profitable way. We need to invest in technology in making the actual services efficient, smooth, easy to use, easy to buy. Number 4, make health care easy and engaging, is really about transforming the current service modalities, which have been, as I said earlier, aggressively waiting for the patient to appear in the appointment room to clear service packages, clear sellable and buyable service packages, easy to buy, easy to use, easy to compare, easy to track, easy to also check after the fact what really costed what. Number 5, we need to scale continuous digital services, again, reach out to the customer. We have launched the piloting phase during Q3, our Wellby platform, and we continue now to build on that one. There are episodic needs, which are reactive also in the future sort of condition or certain time in your life where you need certain type of support. Finally, number 6, which is very much in the core of our classic operation, is reinvented corporate health. There are many, many ways we can support companies and corporate and well-being management. We just need to, especially for the smaller customers, to repackage it, make it clear, make it again easier to buy, easier to understand, easier to use and easier to check. This is the 6 clear and concrete targets that we continue working on with ARC strategy. Presenting clear and concrete examples where we are already making progress. We are, when we are talking about digital platform scaling, making health care more efficient, more smooth. We have launched our Ella platform. We continue scaling that one. We have our 10x initiative where we are basically making our digital appointments 10x more efficient. We have embedded AI to different journey points to customer journey and also professional journey in their workday. And we continue to do that one. There's loads of potential in health care services delivery inside the company and with our customers with their processes to make this more efficient. The strategic M&A, again, diversifying and growing the portfolio. That's very clear and loud. We have made the Hohde deal, which is now in the integration phase, gathering steam going really well, which we will hear in just a minute more about. We have made Silmaasema acquisition and continue preparing for that one. All in all, our portfolio next year will look more diversified and give more potential to work on more than -- with more than 2 million customers that we serve in more and more frequent ways. Making health care easy and engaging, we have packaged classic services. We have launched Wellby platform. We are pricing in more transparent way. We are making things easier for the customers to track and follow and basically also to manage their care and service journey. And finally, within occupational health care, we have basically renewed almost everything during last year -- last 1.5 years. The most visible across-the-board rollout that customers are seeing today is Leo, modern health care -- occupational health care platform, which provides more transparency for the customers, more precise risk assessment and hence, more precise and accurate interventions and create value for our customers. Rollout will continue during H1. All in all, we are making clear progress already and ample potential going forward in executing our ARC strategy. ARC strategy, of course, is related to our financial targets, which we renewed and disclosed in conjunction with ARC strategy disclosure. Again, 10% EPS growth, less than 3.0 or max 3.0 net debt to adjusted EBITDA level and 50% annual distribution of net results. With that one, it wasn't final time, so you will come once more to the stage. Juuso, please.

Thank you. There always needs to be a comeback. So very briefly a reminder for all that in '27, we will update our reporting structure to provide further transparency on how our different segments are doing. We will report Healthcare Services, Oral Health, Public Partnerships and Sweden as segments starting from January '27 and comparable figures will be provided before we publish Q1 '27 report. And obviously, it is clear, as stated also upon the acquisition of Silmaasema that as we get the approvals, Silmaasema will become a segment as itself on our reporting structure. Then let's remind all of ourselves on what we acquired with Hohde Group. It was announced 23rd of December last year. Enterprise value at EUR 88 million, which corresponds fully burdened synergies, roughly 8x EBITDA, now on FAS EBITDA, remember, to also Finnish accounting standards. Synergies, roughly EUR 4 million within the next couple of years are the expectations. EUR 56 million, once again, Finnish accounting standard revenues and roughly EUR 6.4 million Finnish accounting standard revenues. Combined revenues for '25, roughly EUR 108 million then within Terveystalo. We have successfully started the integration with synergy capture already commenced and progressing. What we have learned until now is that Hohde is stronger than Terveystalo, especially when it comes to supply management. And at the same time, Terveystalo is stronger in some processes such as recall. So we see, we truly see a best of both worlds meeting with this acquisition. But without further ado, let's invite Mr. Ville Pesonen on stage to explain and give you a deep dive what Oral Health actually is in Terveystalo.

Thank you, Juuso. It's really nice to be here for the first time if Juuso is the last time. So it's my first time here. So my name is Ville Pesonen. I'm SVP in Oral Health here in Terveystalo. My background is that I'm oral maxillofacial surgeon and experience. I started at Attendo and was Director of Outsourcing Services, Outsourcing business in dental services in Attendo. And after that, practicing in several private dental clinics as an oral surgeon. And then I founded Hohde Group 12 years ago and worked as a CEO in Hohde Group. About the dental care market. The total market in Finland is approximately EUR 1.3 billion market when we add to these numbers also public sector. Private dental care market is approximately EUR 700 million per year, and it has been growing steadily 2% per year in former years and will grow. Our estimate is that it will grow approximately 5% per year going forward. Dental care market is stable and well-functioning system and private sector plays an important role in dental care system in Finland. And we know that public sector has long waiting times and they have been limiting the investments in dental care. And we see a really good opportunity here for the private players. Talking about Terveystalo Oral Health business, our goal is to become a leader in oral health and the acquisition of Hohde Group supports the development, of course. And oral health is one of the Terveystalo selected growth areas. Now with the combined numbers, we have 1,500 dental professionals working with us with high NPS numbers, total 77 sites from which 63 dental clinics and 14 dental laboratories. And from dental clinics, we offer broad services. Almost everything that you can get from dental clinic, we are offering that. So there will be, and there are general dentistry, specialist dentistry and also dental hygienist services. And from laboratory side, our highly skilled experts are working closely in close cooperation with our dentists and customers and dentist customers, and we offer also almost everything that dental laboratory can produce. So prosthesis, mouth guards and crowns and bridges and also specialist dental technicians work to the customers. So that was shortly my presentation. Now we move forward.

Thank you, Ville. Now it's time for a Q&A, and let's start with questions from the phone lines.

[Operator Instructions] The next question comes from Sami Sarkamies from Danske Bank Markets.

I have several questions. We'll be taking this one by one. Firstly, starting from connected employees. You lost connected employees on a sequential basis in the third quarter, even though I think you were previously assuming that you would be able to grow the base during the second half of the year. And then you're expecting growth in Q1. So first question would be that when you talk about Q1, are you assuming that you would have a growth on a year-on-year basis starting Q1?

Yes. So basically, yes, actually, we updated after the H1 that we have limited expectations on growth when it comes to occupational health for second half. What comes to the gradual growth in Q1, we are meaning that from Q3 '26 to Q4 '26 numbers, we are getting in Q1 '27 to higher numbers compared to what we have kind of order stock today. That is what we mean by the statement.

Okay. And then I mean, on visibility for this Q1 growth, so you said that you've been making progress with large customers. So have you been winning these deals already? So it's in a way certain that that growth will happen.

Well, if I take that one. So it's a combination, as we have discussed earlier, it's a combination of already basically done deals and then win rates counts the cases that we are now dealing with. So we have both. We have sort of a view forward with the forecasting based on the current win rates and then we have already done deals.

Okay. And then what were like the main reasons why you didn't achieve this sequential growth during the second half of the year?

Twofold. Basically, we discussed earlier that especially the large accounts were sticky. And even though the sales funnel has been, so to say, rich during this year, really the timing of getting the deals done and also the stickiness of the deal early this year was higher than we expected. So basically, the growth in large accounts has been pushed forward, but we can, we see clearly that that's now starting to happen. Then we still had churn in SMEs and also losses in the employment levels within our existing customers. So that's really the combination.

But then I would like to remember that from Q2 '26 to Q3 '26, the biggest impact is actually summer employees. So there is a seasonal component where you, it is practically impossible to grow the absolute number from Q2 to Q3. So that one needs to be always remembered when we are talking this figure.

Okay. And then what about Q4? Are you expecting sequential growth in Q4?

Well, as I said in the guidance, we don't put our hopes on Q4 improvements, not on market or not on occupational health.

Okay. And then you are quite negative regarding Q4 as per the new guidance assumptions. Is this mostly related to occupational health, you're not, in a way, having made progress you previously anticipated?

If I comment, and Ville can then contribute further. Our Q4 guidance is based on our thinking that Q3 market environment was extremely challenging, and we have continued that market environment for Q4. So we are not expecting material improvements in occupational health. We have also now been modest with our expectations when it comes to consumer behavior. And these combined lead to the current Q4 guidance.

Yes, exactly. So our forecasting routine is such that it just now took into account specifically the September low figures. And our earlier expectation was that the ramp-up from the summer season to first sort of actual active season for the health care services would be steeper and higher. But now we are basically basing our Q4 forecasts and assumptions on the lower volumes that we got during September. We are prudent with our forecasting.

And what's your assessment that consumer confidence has been improving both in Finland and Sweden? Why isn't that in a way translating to stronger growth if we think about your business?

I can start and Juuso can continue. So basically, we see positive development in sort of the most dynamic consumer segment, which is dental. So there, we see growth clearly. But for the rest, actually, that was a little bit surprise for us coming from summer to September that consumer demand was not sort of -- it was not impacted on the earlier positive development and earlier signs and earlier positive development in consumer confidence. But that sort of more negative view has now been taken into account into the Q4 figures. It can be so that September is a dip. It's an anomaly and then the consumer demand will start again growing more rapidly. But as of today, we are prudent and we have taken sort of more negative/realistic view on the rest of the year.

Okay. And then on the full year cash flow outlook, I mean, you're not guiding for it, but if we look at the first 3 quarters, it's roughly half the level of last year and also net debt to EBITDA is close to your financial targets. Where do you see yourself at the end of this year before the Silmaasema acquisition?

Well, first of all, the cash flow has been tracking very carefully the operating performance. The only deviation is the taxes paid out in Q1 from the strong 2025 profits. And that one, we would expect to continue. So our cash flow will track our operating performance. In Q4 cash flows, you obviously know that we have paid out dividends in October. So that will be a negative component. And then traditionally, Q4 has been strong when it comes to cash inflow, and that is where we are basing our expectations at the moment.

Okay. And then my final question would be on the one-off costs in the third quarter, EUR 4 million. Can you elaborate this in a bit more detail? And do you expect more still in Q4?

The EUR 4 million in Q3 are materially coming from the Hohde transaction. So the biggest component in there is the transfer taxes that were EUR 1 point-some million in total or roughly EUR 1 million. Then we have different type of success fees. As you know, this was a structured process where you use advisers. We had a very thorough and comprehensive FCCA process. You know the prices of lawyers. So a material part of that EUR 4 million is related to Hohde transaction.

The next question comes from Joni Sandvall from Nordea.

I have one question left. Following the weak actually morbidity, what we have seen in '25 and also in '26, it seems that early Q4, the situation has even weakened further. Is there actually some structural changes in the market or behavior of customers? So I'm just trying to figure out, is this some kind of new baseline? Or should we -- you mentioned that you are expecting higher morbidity year-over-year in Q4, but it seems that this has been week-after-week performance on the morbidity side. So any comments around this would be good.

If I start and Ville can then complement. First of all, the morbidity, our the visibility starts to improve at late August and then you start to have a better visibility on forecasts around mid-September. And from that point onwards, our forecast has been fairly accurate. It was very low during August, then slightly improving during September, so that the full quarter was roughly 15% down. Now, the start of October, week 41 was on a weaker note. Week 42 is relatively less down, and it seems that this is behaving as we forecast. In our forecast, we take into account our own data plus then the Finnish what is THL in English, our administrator's data. And based on that one, we do. So at the moment, we don't see disconnection between our forecast methodology and the outcomes, which points out that the change in behavior is not material. But obviously, we can't rule out either that one.