Pihlajalinna Half-Year Financial Report 1 January–30 June 2019 (6 months)

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Pihlajalinna Plc     Half Year Financial Report     15 August 2019 at 8.00 a.m.

Pihlajalinna’s profitability weighed down by loss-making units, the group launched an efficiency programme 

Pihlajalinna adopted the new IFRS 16 Leases standard fully retrospectively on 1 January 2019. Restated comparable financial figures were published on 18 April 2019 for each reporting period in 2018.

The figures in this half-year financial report are unaudited.
A brief look at April-June:

  • Revenue amounted to EUR 129.7 (125.3) million – an increase of 3.5%, organic growth of 1.5%
  • Adjusted EBITDA was EUR 10.8 (10.2) million – an increase of 5.6%
  • Adjusted EBIT was EUR 2.1 (2.0) million
  • IFRS 3 costs and amortisation related to M&A had a negative effect of EUR 1.4 (1.8) million on operating profit
  • Earnings per share (EPS) was EUR -0.02 (0.00)
A brief look at January-June:
  • Revenue amounted to EUR 262.2 (244.5) million – an increase of 7.2%, organic growth of 2.1%
  • Adjusted EBITDA was EUR 23.3 (17.1) million – an increase of 36.4%
  • Adjusted EBIT was EUR 6.0 (1.9) million
  • IFRS 3 costs and amortisation related to M&A had a negative effect of EUR 2.6 (4.0) million on operating profit
  • The number of personnel at the end of the review period was 6,100 (5,918)
  • Earnings per share (EPS) was EUR 0.04 (-0.06)
KEY FIGURES 4-6/2019
3 months
3 months
6 months
6 months
12 months
Revenue, EUR million 129.7 125.3 262.2 244.5 487.8
EBITDA, EUR million 10.4 9.1 22.6 16.4 44.8
EBITDA, % 8.1 7.3 8.6 6.7 9.2
Adjusted EBITDA, EUR million* 10.8 10.2 23.3 17.1 45.9
Adjusted EBITDA, %* 8.3 8.1 8.9 7.0 9.4
Operating profit (EBIT), EUR million 1.6 1.0 5.1 1.3 13.2
Operating profit, % 1.2 0.8 2.0 0.5 2.7
Adjusted operating profit (EBIT), EUR million* 2.1 2.0 6.0 1.9 14.4
Adjusted operating profit, %* 1.6 1.6 2.3 0.8 3.0
Profit before tax (EBT), EUR million 0.6 0.1 3.2 -0.5 9.5
Earnings per share (EPS), EUR -0.02 0.00 0.04 -0.06 0.16
Equity per share, EUR 5.26 5.15 5.36
Return on capital employed (ROCE), % 4.9 4.2 4.6
Return on equity (ROE), % 7.5 6.0 5.7
Equity ratio, % 29.7 29.0 29.9
Gearing, % 148.6 152.1 136.6
Interest-bearing net debt, EUR million 191.9 187.1 178.0
Net debt/adjusted EBITDA 12 months * 3.7 4.9 3.9
Gross investments, EUR million** 8.4 12.8 22.4 139.0 160.1
Cash flow from operating activities, EUR million 11.2 4.1 14.5 9.7 41.2
Cash flow after investments, EUR million 4.0 -1.4 2.9 -36.1 -18.8
Average number of personnel (FTE) 4,666 4,320 4,868
Personnel at end of the period (NOE) 6,100 5,918 5,850

* Significant transactions that are not part of the normal course of business, infrequently occurring events or valuation items that do not affect cash flow are treated as adjustment items affecting comparability between review periods. According to Pihlajalinna’s definition, such items include, for example, restructuring measures, impairment of assets and the remeasurement of previous assets held by subsidiaries, the costs of closing down businesses and business locations, gains and losses on the sale of businesses, costs arising from operational restructuring and the integration of acquired businesses, costs related to the termination of employment relationships as well as fines and corresponding compensation payments. Pihlajalinna does not recognise adjustments affecting comparability for acquisition-related transfer taxes and expert fees (IFRS 3 costs) or purchase price allocation (PPA) amortisation.

EBITDA adjustments totalled EUR 0.3 (1.1) million for the quarter and EUR 0.7 (0.7) million for the review period. Adjustments to operating profit totalled EUR 0.5 (1.1) million for the quarter and EUR 0.9 (0.7) million for the review period.

* * Assets acquired via leases are regarded as equal to assets acquired by the Group itself, meaning that right-of-use assets pursuant to IFRS 16 are included in gross investments.  

Pihlajalinna´s outlook for 2019

Pihlajalinna’s consolidated revenue is expected to increase from the 2018 level. Adjusted EBIT is expected to improve clearly compared to 2018.

The group has launched an efficiency improvement programme that aims at annual cost savings of approximately EUR 17 million. The efficiency improvement programme will help reduce costs for the September–December period of the current year by an estimated approximately EUR 5 million. The efficiency improvement programme involves a non-recurring item of approximately EUR 8 million, which is reported as an adjustment item.

Joni Aaltonen, CEO of Pihlajalinna:

Pihlajalinna has grown strongly through M&A transactions and opening of new clinics in recent years, and several new agreements has been signed in early 2019. The new contracts are expected to increase turnover for the remainder of the year. Expansion of the service network has been a strategic goal in recent years, and except for some provincial centres we now have a nationwide service network.

In the second quarter of 2019, revenue increased by 3.5% compared with the previous year. Organic growth in revenue was 1.5%. Profitability remained reasonably stable in the established units of our service network. In the context of corporate acquisitions, we have not systematically carried out separate employee co-operation negotiations nor carried out operating efficiency measures fully in the past. Therefore, synergies have not been achieved in all units and the profitability in our service network varies considerably. The costs of administration have also risen as a result of the acquisitions. Unequal resourcing of units and general salary increases resulted in an increase in personnel costs in the quarter. For these reasons, the group’s administrative and personnel costs were higher than planned and in some units the EBITDA remained negative. The whole group’s EBIT was negative in April and May. Profitability improved in June.

To ensure the company’s operating conditions and achieve targeted operating profit, it is necessary to take measures to streamline operations in all units and to make management of operations more efficient. We must become capable of profitable growth and of strengthening the corporate culture that supports it. We must also be agile in various situations and better at anticipating changes in the industry, which can often occur quickly. According to our estimates, Pihlajalinna’s long-term EBIT target is achievable. Revenue can also be increased significantly if demand in municipalities can be realised into actual contracts.

We accordingly began planning an efficiency improvement programme in June. In the context of this programme, we started employee co-operation negotiations on 17 June 2019 for production-related and financial reasons as well as due to the restructuring of business operations. We estimate that the efficiency improvement programme will bring direct cost savings of approximately EUR 17 million per year. The new organisation and management system will enable us to achieve more efficient implementation of costs and resourcing of various departments and maintain a good standard of service provision.

The maximum level of personnel reductions included in the efficiency improvement programme was not realised. Efficiency and direct cost savings are being implemented equally by modifying the remuneration structure and employee benefits, and by improving overall cost effectiveness. It is important for us to ensure that our efforts to improve profitability will not have a negative effect on service quality. We want to provide good care for our customers, operate ethically and develop Finnish healthcare with an open mind.

During the review period, we released a letter of intent on co-operation with Pirkanmaa Hospital District. The partnership seeks to design new and innovative service models with a strong customer focus and an emphasis on social responsibility and effective services. Concrete co-operation began with the signing of a letter of intent with Heart Hospital. This co-operation seeks to determine the current risk of serious illness in patients earlier by applying technology such as artificial intelligence, and to streamline the care of heart patients and ensure good quality of life for those who already have heart problems. Our goal is to develop Pihlajalinna private clinics into multi-faceted service centres that offer care paths for both private and public services, all the way up to the most demanding level of university hospital care.

Pihlajalinna also signed a co-operation agreement with the insurance provider Pohjola Vakuutus at the end of May concerning the piloting of a new kind of customer service model for Pohjola Vakuutus customers in two localities.

Also in May, we introduced the Pihlajalinna health application mobile service for primary care customers in Parkano, Kihniö, Mänttä-Vilppula and Juupajoki. The app now covers a total population base of around 20,000 and allows for swift and independent access to healthcare services. Use of the app will expand in autumn 2019 to Alavus, Ähtäri, Soini, Kuortane and Hattula, covering a total population of around 33,000.

Our network of business locations expanded with the opening of a private clinic in Vaasa in June and an occupational healthcare service unit in Rovaniemi in August. We also acquired the Aurinkoristeys occupational healthcare units of the municipality of Raisio and the Kouvola Työterveys occupational healthcare unit in May.

Although the planned nationwide social and healthcare reform did not materialise, the need for change in the system has not disappeared. Reform is included in the programme of the new government that took office earlier this year. The economic situation of Finnish municipalities has deteriorated further. Expenditure on social and healthcare services already accounts for more than half of all municipal expenditure, and as many as two-thirds of the country’s municipalities had a deficit in 2018. Due to the postponement of the social and healthcare reform, municipalities must continue to seek solutions to existing problems and balance their finances. They have also had problems in recruiting doctors and other healthcare professionals, which makes it difficult to organise social and healthcare services as a separate activity. There is now a clear municipal demand for Pihlajalinna’s service models.

In its co-operation with municipalities, Pihlajalinna is interested in a wider range of services where our operating models are better able to provide benefits to society, and where a comprehensive supply of services enables high-quality, appropriate care. Bringing services close to people speeds up access to basic care and improves service quality. Our aim when co-operating with municipalities is to create new service models that will enable municipalities to maintain their level of services, to manage costs, and to implement services in an ethically sustainable way.

Pihlajalinna’s financial reporting 2019
Interim report January–September: Tuesday 5 November 2019

Pihlajalinna will hold a briefing for analysts and media in Helsinki on Thursday 15 August 2019 at 10 am in the Paavo Nurmi Cabinet at Hotel Kämp (Pohjoisesplanadi 29, 00100 Helsinki).

Helsinki, 14 August 2019
The Board of Directors of Pihlajalinna Plc

Further information
Joni Aaltonen, CEO, Pihlajalinna Group, + 358 40 524 7270

Nasdaq Helsinki
Major media

Pihlajalinna in brief
Pihlajalinna is one of the leading private social and healthcare services providers in Finland. The company provides social and healthcare services as well as wellbeing services for households, companies, insurance companies and public sector entities in private clinics, health centres, dental clinics, hospitals and fitness centres around Finland. Pihlajalinna provides general practitioner and specialised care services, including emergency and on-call services, a wide range of surgical services, occupational healthcare and dental care services, in private clinics and hospitals. The company, in cooperation with the public sector, offers social and healthcare service provision models to public sector entities with the aim of providing high quality services for public pay healthcare customers.