Pihlajalinna Interim Report 1 January–30 September 2019 (9 months)

Pihlajalinna Plc                            Interim report                             5 November 2019 at 8:00 a.m.

Profitability strengthened by efficiency improvement and revenue growth

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 interim report are unaudited. 

A brief look at July–September:

• Revenue amounted to EUR 122.7 (116.3) million – an increase of 5.5%, organic growth of 3.7%
• Adjusted EBITDA was EUR 17.4 (14.2) million – an increase of 21.9%
• Adjusted EBIT was EUR 9.3 (6.0) million
• IFRS 3 costs and amortisation related to M&A had a negative effect of EUR 1.1 (1.3) million on operating profit
• A non-recurring expense of EUR 7.9 million recognised in relation to the efficiency improvement programme is reported as an adjustment item affecting comparability
• Earnings per share (EPS) was EUR -0.06 (0.10)

A brief look at January–September:

• Revenue amounted to EUR 384.8 (360.8) million – an increase of 6.7%, organic growth of 2.6%
• Adjusted EBITDA was EUR 40.7 (31.3) million – an increase of 29.8%
• Adjusted EBIT was EUR 15.3 (8.0) million
• IFRS 3 costs and amortisation related to M&A had a negative effect of EUR 3.7 (5.3) million on operating profit
• The number of personnel at the end of the review period was 5,936
  (5,867)
• Earnings per share (EPS) was EUR -0.01 (0.04)

* 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 amounted to EUR 4.4 (0.0) million for the quarter and EUR 5.1 (0.6) million for the review period. Adjustments to operating profit amounted to EUR 7.9 (0.0) million for the quarter and EUR 8.7 (0.6) 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 unchanged

Pihlajalinna’s consolidated revenue is expected to increase from the 2018 level. Adjusted EBIT is expected to improve clearly compared to 2018. Revenue in 2018 amounted to EUR 487.8 million and adjusted EBIT was EUR 14.4 million.

In June, the group launched an efficiency improvement programme to achieve annual cost savings of approximately EUR 17 million. The reduction in costs for September–December 2019 achieved through the efficiency improvement programme are estimated to be approximately EUR 5 million. A non-recurring expense of EUR 7.9 million was recognised in relation to the efficiency improvement programme and reported as an adjustment item affecting comparability.

Joni Aaltonen, CEO of Pihlajalinna:

The effects of the efficiency improvement programme launched in June can be seen as improved profitability in the third quarter. The improvement of profitability is also supported by revenue growth. Quarterly revenue grew by 5.5% year-on-year. Organic revenue growth was 3.7%.

The employee co-operation negotiations held as part of the efficiency programme were completed in August. The negotiations resulted in the termination of some 180 positions, mainly through dismissals. The number of redundancies was smaller than initially estimated. Besides eliminating staff positions, Pihlajalinna also enhanced its management system and administration by such means as streamlining and centralising operations at its Head Office in Tampere. The group also combined establishments, eliminated duplication of operations and improved general cost management.

The growth of revenue from occupational healthcare services is particularly evident in the third quarter, but the volume derived from other new agreements, such as the co-operation with Pohjola, did not have a notable impact yet. The number of people within the scope of the group’s occupational healthcare services rose to about 200,000. This represents year-on-year growth of over 30%. Going forward, we expect to see growth in occupational healthcare services particularly from the occupational healthcare services maintained by non-profit organisations and public sector entities being transferred to private service providers. Service development, tools for employers and digital services give private service providers a stronger opportunity to increase their share of the occupational healthcare market.

Pihlajalinna and Pohjola Insurance Ltd signed a co-operation agreement on 31 May 2019. The partnership was launched with pilot projects in two municipalities. Based on the highly successful piloting, Pohjola Insurance has approved Pihlajalinna as a national service provider for its multi-supplier model. Pihlajalinna will continue to supply services under the co-operation agreement, which does not commit the buyer to any specific purchasing volume. Pihlajalinna estimates that annual revenue of some EUR 5–10 million could be achieved under the co-operation agreement.

A new fitness testing and clinical exercise physiology laboratory was established at the Pihlajalinna Dextra Sports Clinic in Munkkivuori. The test station is a new initiative to combine healthcare services and sports and it complements the services of the sports clinic as well as the fitness centre services of Pihlajalinna Forever. This kind of wide-ranging and high-quality combination of health and sports services is still rare in Finland. A Kuopio-based fitness centre joined Pihlajalinna’s chain of fitness centres in August. These measures represent continued progress on Pihlajalinna’s path to becoming a leading exercise and wellbeing operator in Finland.

Municipalities have clearly become increasingly active in making their own decisions on social and healthcare services. Negotiations are currently under way with several municipalities and joint municipal authorities. Kristiinankaupunki organised a tendering process for part of its social and healthcare services, and Pihlajalinna won the tender. The contract negotiations are currently under way and the agreement is subject to confirmation by the city council. The duration of the agreement is 15 years at a minimum and at most 20 years. According to the tendering documentation, the value of the agreement is approximately EUR 90 million, not taking index adjustments into account. The municipality of Pello has also started a tendering process, and the municipality of Askola has initiated an assessment regarding outsourcing. Vesilahti and Ruovesi are in negotiations to join the Mänttä-Vilppula partnership area, which would see Mäntänvuoren Terveys expand its services to include the municipalities in question.

Pihlajalinna is well positioned in private clinic services as well as in public services, which will grow due to the ageing of the population. Profitability improvement enables further investments in service development, smooth use of services and improving the customer experience. This will strengthen Pihlajalinna’s market position. Digital service development will continue. Online services and the booking of appointments, among other things, are developed even more user-friendly.

In other industries, private corporations play a strong role in innovation and the development of technologies and services. These development efforts ultimately benefit Finnish society as a whole. Why would the social and healthcare service sector be any different? Can we afford to treat it differently?

Pihlajalinna’s financial reporting and Annual General Meeting in 2020

Financial statements bulletin 2019: Friday, 14 February 2020
Financial statements and Board of Directors’ report: no later than in week 13
Interim report January–March: Friday, 8 May 2020
Half-year financial report January–June: Friday, 14 August 2020
Interim report January–September: Wednesday, 4 November 2020
Pihlajalinna Plc’s Annual General Meeting is scheduled for Wednesday, 15 April 2020, in Tampere, Finland.

Briefing

Pihlajalinna will hold a briefing for analysts and media in Helsinki on Tuesday, 5 November 2019 at 10 am in the Paavo Nurmi Cabinet at Hotel Kämp (Pohjoisesplanadi 29, 00100 Helsinki).

Helsinki, 4 November 2019

The Board of Directors of Pihlajalinna Plc

Further information

Joni Aaltonen, CEO, +358 40 524 7270
Tarja Rantala, CFO, +358 40 774 9290

Distribution

Nasdaq Helsinki
Major media
investors.pihlajalinna.fi

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.