Pihlajalinna Interim Report 1 January–30 September 2020 (9 months)

Pihlajalinna Plc                           Interim report                            4 November 2020 at 8:00 a.m.

Pihlajalinna Interim Report 1 January–30 September 2020 (9 months)

The demand for healthcare services recovered, earnings per share grew

The figures in this interim report are unaudited. The comparison figures in brackets refer to the corresponding period in the previous year.

A brief look at July–September:

• Revenue amounted to EUR 123.9 (122.7) million – an increase of 1.0%
• Adjusted EBITDA was EUR 17.2 (17.4) million – a decrease of 0.7%
• Adjusted EBIT was EUR 8.7 (9.3) million – a decrease of 6.5%
• IFRS 3 costs and amortisation related to M&A had a negative effect of EUR 0.8 (1.1) million on operating profit
• Earnings per share (EPS) was EUR 0.20 (-0.06)
• Although the demand for healthcare services recovered, the customer volumes of Pihlajalinna’s private clinic locations were still more than 10 per cent lower than in the comparison period.
• COVID-19 testing volumes began to grow significantly in August.

A brief look at January–September:

• Revenue amounted to EUR 371.5 (384.8) million – a decrease of 3.5%
• Adjusted EBITDA was EUR 38.9 (40.7) million – a decrease of 4.4%
• Adjusted EBIT was EUR 13.5 (15.3) million – a decrease of 11.6%
• IFRS 3 costs and amortisation related to M&A had a negative effect of EUR 2.5 (3.7) million on operating profit
• Earnings per share (EPS) was EUR 0.24 (-0.01)
• The Finnish Competition and Consumer Authority proposed to the Market Court that the merger between Mehiläinen Yhtiöt Oy and Pihlajalinna Plc be prohibited.
• Pihlajalinna won a public bidding competition and is negotiating the purchase of the entire share capital of Työterveys Virta Oy.

* 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 0.6 (4.4) million for the quarter and EUR 1.6 (5.1) million for the review period. Adjustments to operating profit amounted to EUR 0.7 (7.9) million for the quarter and EUR 2.1 (8.7) 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 2020

Due to the coronavirus epidemic, Pihlajalinna temporarily withdrew its outlook for 2020, which had been issued on 14 February 2020. It is still hard to assess and predict the financial impacts of the duration of the COVID-19 situation. National or regional restrictions connected to the second wave of COVID-19 will have a negative effect on consumer demand. At the same time, COVID-19 testing, working through the queues in the public sector and the release of other pent-up demand help compensate for the decline in consumer demand.

Long-term financial objectives remain the same

The trends and megatrends that accelerate the growth of Pihlajalinna’s business operations have not changed because of the coronavirus epidemic. The use of digital services and the structural changes in the production of social services and healthcare may even increase because of the coronavirus epidemic. Pihlajalinna’s long-term objectives — net debt less than 3 times EBITDA and operating profit over seven per cent of revenue — remain the same.

Joni Aaltonen, CEO of Pihlajalinna:

In the third quarter of the year, it was evident that the previous year’s efficiency improvement programme has increased profitability across the board in Pihlajalinna’s private clinic services, occupational healthcare services, surgical operations and dental care services. The demand for healthcare services recovered, but the customer volumes of Pihlajalinna’s private clinic locations were still more than 10 per cent lower than in the comparison period in spite of the strong development of insurance company partnerships and the sale of occupational healthcare services. The COVID-19 restrictions resulted in the loss of just under 6,000 member customers for Pihlajalinna’s fitness centres.

The volume of COVID-19 testing began to grow significantly in August, and the testing operations increased the quarterly revenue by EUR 3.4 million. In September, the number of COVID-19 tests performed by Pihlajalinna was even higher than in August. Testing operations are expected to continue and potentially grow further, as Pihlajalinna has been chosen to provide COVID-19 sampling services for HUS in the Helsinki Metropolitan Area, Central Uusimaa and Southeast Finland. New COVID-19 testing locations will be opened as necessary. Pihlajalinna is also starting antigen testing using the Aidian rapid test method, which produces a result in as little as 15 minutes.

Revenue from remote services grew in the third quarter, particularly in chat and video appointments. Remote services have been expanded to complement private clinic and occupational healthcare services as well as the public services of the joint ventures between Pihlajalinna and municipalities. The user volumes of remote services grew significantly in the spring and early autumn.

At the end of September, the Finnish Competition and Consumer Authority announced that it proposes to the Market Court that the merger between Mehiläinen and Pihlajalinna be prohibited. We were surprised to find that the FCCA had come to evaluate the healthcare services market and the package of measures proposed by Mehiläinen in the manner it presented, proposing to the Market Court the merger to be prohibited. Before the signing of the combination agreement between Pihlajalinna and Mehiläinen, both parties had carefully examined it from the points of view of competition law and FCCA’s earlier merger decisions. The Board of Directors of Pihlajalinna had also carefully considered these matters before issuing its recommendation to accept the tender offer. We remain committed to the tender offer in accordance with the combination agreement, but will prepare for all possible outcomes. Throughout the offer period, Pihlajalinna has continued to develop its business with a long-term view.

According to a report released by the National Audit Office of Finland on 27 October 2020, the proposed funding model for social and health services offers little incentives for service providers to control the growth of costs. However, the National Audit Office praised the many amendments made to the draft proposal by the government after it was widely circulated for comment. One such amendment concerned the position of private sector service providers. According to the draft proposal, all service procurement is allowed unless specifically prohibited by law.

Based on Pihlajalinna’s experience, the adoption of new operating models and service innovations would help keep rising costs under control while improving the quality and availability of services.

Pihlajalinna has a wealth of experience in the provision of public services at fixed prices. For example, Pihlajalinna’s joint venture model has made it possible to stop the unfavourable development of social and healthcare service costs in the partner municipalities and even reduce costs while improving service availability and customer satisfaction. If these proven operating models are not taken into consideration in the reform of healthcare and social services, there is a risk that the increase in costs will accelerate further and service availability will suffer. This would automatically lead to higher taxes.

We continue to pursue strong growth in occupational healthcare services. Pihlajalinna was selected as the best service provider in a public bidding competition organised for the sale of Työterveys Virta Oy’s share capital and occupational healthcare services. The aim is to finalise the transaction and the acquisition of occupational healthcare services based on acquisition agreements by the end of January 2021. This transaction represents a strategically important success for us, as it provides growth potential in the Oulu region and the surrounding municipalities and substantially strengthens Pihlajalinna’s business in the entire region of North Ostrobothnia. The acquisition will give Pihlajalinna a nearly 30 per cent share of the occupational healthcare market in the Oulu region, creating the opportunity to also significantly increase the provision of private clinic, diagnostics and hospital services compared to the current level.

Pihlajalinna is also continuing the strong expansion of its public services. Service production will begin on 1 January 2021 on the partial outsourcing of social and healthcare services in Kristiinankaupunki. The outsourcing arrangement includes, for example, primary care outpatient appointments, rehabilitation, dental care services and inpatient services. In Jyväskylä, the outsourcing agreement for the Huhtasuo health centre won by Pihlajalinna will take effect in December 2020.

In the coming months, Pihlajalinna will further enhance its digital services. Remote consultations with doctors and a centralised nurse service to assess the need for care are now in use across all of Pihlajalinna’s municipal companies. Occupational healthcare services are also moving swiftly towards the digital assessment of the need for care. The COVID-19 situation has contributed to a permanent change in the habits of our customers. We want to be among the first to offer them effective digital social and healthcare services.
 

Pihlajalinna’s financial reporting in 2021

Financial statements bulletin 2020: Friday, 19 February 2021

Financial statements and Board of Directors’ report: no later than in week 13

Interim report January–March: Friday, 7 May 2021

Half-year financial report January–June: Friday, 13 August 2021

Interim Report January–September: Thursday, 4 November 2021
 

Briefing

Pihlajalinna will hold a briefing for analysts and the media on Wednesday, 4 November 2020 at 10:00 a.m. The event will be held remotely.
 

Helsinki, 3 November 2020

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 Finland’s leading private providers of social, healthcare and wellbeing services. The Group provides services to private individuals, companies, insurance companies and public sector entities, such as municipalities and joint municipal authorities, across Finland. The Group 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 Group, 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.