Pihlajalinna Interim Report 1 January–31 March 2018 (3 months)

Pihlajalinna Plc           Interim Report             4 May 2018

Pihlajalinna Interim Report 1 January–31 March 2018 (3 months)

Pihlajalinna’s result weighed down by expansion and structural reforms, outlook unchanged

Brief look at January–March:

• Revenue amounted to EUR 119.2 (110.0) million – an increase of 8 per cent
• EBITDA amounted to EUR 4.3 (8.9) million
• Adjusted EBITDA was EUR 3.9 (9.1) million
• Operating profit (EBIT) was EUR 0.1 (5.4) million
• Adjusted operating result (EBIT) was EUR -0.3 (5.7) million.
• The number of personnel at the end of the reporting period was 5,638 (4,519)
• Earnings per share (EPS) was EUR -0.06 (0.15)
• Pihlajalinna acquired Doctagon Oy, a majority stake in the Forever fitness centre chain, the Hämeenlinna-based Linnan Klinikka and Kymijoen Työterveys.
• New full-service private clinics were opened in Turku, Oulu and Seinäjoki in line with Pihlajalinna’s national expansion plan.
• Pihlajalinna moved from a business-based structure to a geographical structure. In conjunction with the change, the Group moved to a single reportable segment.

* 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 reporting 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 or purchase price allocation (PPA) amortisation.  

EBITDA adjustments for the quarter totalled EUR -0.4 (0.2) million. Adjustments to operating profit for the quarter totalled EUR -0.4 (0.3) million. 

** Finance leases are not included in the gross investments 

Pihlajalinna’s outlook for 2018 unchanged

Pihlajalinna’s consolidated revenue is expected to increase clearly from 2017 level especially due to M&A transactions. Adjusted EBIT is expected to improve compared to 2017.

In the financial year 2017, revenue was EUR 424.0 million and the adjusted EBIT was EUR 20.0 million.

Joni Aaltonen, CEO of Pihlajalinna:

“The first quarter of 2018 was a period of major changes, intensive development and new initiatives for Pihlajalinna. Partly due to these factors, the result for the reporting period was weaker than expected. We keep our outlook unchanged because we believe that the planned measures, reforms and new services will strengthen our profitability during the rest of the year.

The Group’s revenue increased in line with expectations, but EBITDA and the operating result declined significantly year-on-year. There were several reasons for the lower profitability. EBITDA and the result were weighed down by, among other things, the start of operations at three major private clinics that opened during the first quarter, the higher-than-expected costs of outsourced specialised care, transfer taxes and expert fees associated with M&A transactions, the effect of structural reforms and codetermination negotiations on the management of business performance as well as the impact of slower-than-planned recruitment of doctors on the sales of staffing services. We also invested in increasing Pihlajalinna’s national brand recognition and digital development.

The development of business operations in line with the Group’s strategy has required renewal and geographical expansion, which weigh down on the Group’s result significantly in the short term. Our strategic focus areas for this year are national expansion and establishing regional service entities in order to improve customer guidance and enhance cross-selling. We are preparing for health and social services reform particularly by engaging in geographical expansion, but our strategy and growth are not dependent on the planned reforms.

We completed two major M&A transactions during the reporting period by acquiring the entire share capital of Doctagon Oy as well as a majority stake in the Forever fitness centre chain. As expected, both of these businesses showed strong profitability in the first quarter, and they were already favourably reflected in the Group’s result. Our aim is to achieve strong profitable growth in both businesses. The effectiveness of Doctagon’s award-winning municipal responsible doctor model has been proved by independent studies and the model is highly scalable. We believe it will present us with new opportunities in public sector partnerships. We also intend to significantly expand Pihlajalinna’s operations in bilingual regions. The new collaborative services of the Forever fitness centre chain and Pihlajalinna’s occupational health services have been developed at a quick rate. The aim is to begin piloting the services during the second quarter. Customer guidance between the fitness centres and Pihlajalinna’s traditional services already began in the first quarter.

We will continue to roll out our new operating structure based on geographical regions and build our organisation during the second quarter. We expect to be able to take full advantage of the new regional model in the second half of the year. As a result of the codetermination negotiations related to the new operating structure, the Group’s annual personnel expenses will be reduced by approximately EUR 2.8 million.

Pihlajalinna's segment reporting has also changed due to the operational restructuring. The operating segments are the geographical business areas that are combined into one reportable segment. We also report revenue by business area and customer group.

On 8 March 2018, the Finnish government presented a legislative proposal concerning the Act on Freedom of Choice, related to the structural reform of healthcare and social services. The proposal is largely in line with the previous draft. Pihlajalinna’s view is that there is still a strong need for health and social services reform and that the reform is worth implementing in spite of the drawbacks of the proposed model. In any case, the model must be reviewed and developed as more knowledge becomes available.

In our view, the health and social services reform would provide faster access to basic-level care while also improving service quality. Achieving the financial goals would largely depend on the counties’ capacity and willingness to take advantage of the opportunities presented to them, such as fixed compensation, a performance-based share and incentives. In our view, freedom of choice should be developed in such a way as to give the service providers of health and social services centres the obligation and the opportunity to take more extensive responsibility for customers, excluding demanding specialised care services. This could be achieved by introducing services from various specialised branches of medicine to the health and social service centres. This would allow customers to obtain care from a single location and avoid the fragmentation of the care path, unnecessary chains of referrals and needless bureaucracy.”

Pihlajalinna’s financial reporting in 2018

Half-Year Financial Report January–June: Thursday, 16 August 2018
Interim Report January–September: Thursday, 1 November 2018

Briefing

Pihlajalinna Plc will hold a briefing for analysts and the media on Friday 4 May 2018 at 10.00 a.m. in the Paavo Nurmi room at Hotel Kämp, Pohjoisesplanadi 29, 00100 Helsinki, Finland.

Helsinki, 3 May 2018

Pihlajalinna Plc’s Board of Directors

Further information:
Joni Aaltonen, CEO, +358 40 524 7270
Ville Lehtonen, CFO, +358 40 759 7084
Siri Markula, Head of Communications and IR, +358 40 743 2177

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 serves private individuals, businesses, insurance companies and public sector entities, such as municipalities and joint municipal authorities. Pihlajalinna provides general practitioner services, specialised care, emergency and on-call services, a wide range of surgical services, occupational healthcare, dental care and wellbeing services. In addition, the company offers innovative social and healthcare service provision models to public sector entities.