Pihlajalinna Interim Report 1 January–31 March 2020 (3 months)

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

Pihlajalinna Interim Report 1 January–31 March 2020 (3 months)

Adjusted EBIT improved, Pihlajalinna temporarily withdrew its outlook for 2020 due to the coronavirus epidemic

The figures in this interim report are unaudited.
A brief look at January–March:

• Revenue amounted to EUR 133.0 (132.5) million – an increase of 0.4%

• Adjusted EBITDA was EUR 12.7 (12.6) million – an increase of 0.8%
• Adjusted EBIT was EUR 4.2 (3.9) million – an increase of 6.9%
• IFRS 3 costs and amortisation related to M&A had a negative effect of EUR 0.9 (1.2) million on operating profit
• Earnings per share (EPS) was EUR 0.06 (0.06)
• The voluntary tender offer by Mehiläinen Yhtiöt Oy is expected to be completed during the third quarter of 2020 at the latest.

* 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.

Adjustments to EBITDA totalled EUR 0.5 (0.4) million for the quarter. Adjustments to operating profit totalled EUR 0.9 (0.4) million for the quarter.

** 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 was given on 14 February 2020. It is hard to assess and predict the financial impact caused by the emergency laws issued by the Finnish Government and the duration of the coronavirus epidemic on Pihlajalinna’s business operations. Pihlajalinna estimates that it will issue an updated outlook for 2020 later this year. During the first months of the year, Pihlajalinna’s revenue and profitability developed in the expected manner.

The impact of the coronavirus epidemic on Pihlajalinna’s business operations

Pihlajalinna’s complete outsourcings for social and healthcare services and other fixed-price invoicing involves a steady recognition of revenue over time. In periods of low demand, the profitability of these kinds of contracts will usually remain stable. The coronavirus epidemic is not expected to have a significant effect on the demand for housing services for the elderly or recruitment services. For these reasons, based on the current situation, it is expected that more than half of Pihlajalinna’s business operations will remain stable in spite of the coronavirus epidemic.

Pihlajalinna temporarily closed all of its fitness centres on 20 March 2020 to prevent the spread of the coronavirus epidemic. The epidemic has also decreased the demand for non-urgent healthcare and dental care services. Cooperation negotiations were initiated in late March concerning the Group’s personnel at fitness centres and dental care services. The negotiations led to full-time or part-time lay-offs of the personnel. 

The effects of the coronavirus epidemic reduced customer flows in private clinics, hospitals, dental clinics and fitness centres after the middle of March. The decreased customer flows reduced the invoicing of the services in question by approximately EUR 3.3 million.

On 1 April 2020, Pihlajalinna Group started cooperation negotiations concerning the entire personnel due to the changes in the operating environment caused by the coronavirus epidemic. The cooperation negotiations concerned all business operations and employees within the Pihlajalinna Group except for personnel at dental care services and fitness centres, for whom corresponding negotiations were already held previously. In addition, the doctors working in operative clinical work and a majority of the municipal joint-stock companies’ service functions were excluded from the negotiations.

The cooperation negotiations were fully completed on 24 April 2020. The primary objective of the negotiations was to find solutions through flexibility in employment relationships and temporary relocations. The reduction of operations and services caused by the epidemic leed to full-time or part-time temporary lay-offs of a maximum of approximately 796 employees for 90 days at the most. The number and duration of the temporary lay-offs will be impacted by the possibility of temporarily relocating to another task and flexibility in employment relationships.

It is difficult to comprehensively assess the financial impact of the coronavirus epidemic because the non-urgent pent-up demand for social services and healthcare as well as wellness services will be released once the situation goes back to normal.

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.

Pihlajalinna’s outlook for 2020 (given on 14 February 2020)

Pihlajalinna’s consolidated revenue is expected to increase from the 2019 level. Adjusted EBIT is expected to increase compared to 2019.

Joni Aaltonen, CEO of Pihlajalinna:

During the first months of the year, Pihlajalinna’s revenue and profitability developed in the expected manner. The global coronavirus epidemic, which also spread to Finland in March, reduced the demand for services at private clinics, hospitals, dental clinics and fitness centres. Due to the epidemic, Pihlajalinna temporarily withdrew its outlook for 2020 at the end of March.

Pihlajalinna’s Medical Management Team and the Group Management Team monitor the progress of the epidemic and the recommendations issued by the Finnish Government, the Finnish Institute for Health and Welfare and the hospital districts on a daily basis. Since March, Pihlajalinna has recommended that, if the nature of their work allows it, all employees should work remotely for the time being. Meetings are also arranged remotely whenever possible and work-related travel within Finland is restricted to only what is absolutely necessary. We have cancelled all events planned for this spring. The Annual General Meeting was held in March with special arrangements and precautions.

We continuously update our policies and guidelines regarding personal protection to ensure the health of our personnel and customers. Our procurement unit has been working for several months now to ensure that we have adequate inventories of protective equipment. In April, we announced a new antimicrobial non-disposable respirator that we developed in cooperation with Medanta Oy for use by healthcare professionals. The production of the masks has started at a rate of 20,000 units per week and the first batch arrived in Finland in late April. We have also taken measures at our private clinics to ensure that all customer groups can use our services safely. In Pirkanmaa, for example, we have designated certain clinics and times of day for the treatment of patients with infectious diseases.

Due to the changes in the operating environment caused by the coronavirus epidemic, the Group has had to engage in cooperation negotiations. The negotiations were fully completed on 24 April 2020. The measures agreed on in the negotiations are aimed at returning service operations to normal as quickly as possible when a recovery in customer flows occurs.

Pihlajalinna started coronavirus testing on 23 March 2020 in Tampere, Kangasala, Seinäjoki and Helsinki. The testing became nationwide at the start of April, with new testing locations opened at nearly all regional capitals. By increasing the provision of diagnostics services, we contribute to Finland’s success in fighting the epidemic. We perform tests for private and occupational healthcare customers with a doctor’s referral as well as for customers who come through insurance companies.

The demand for remote services increased manifold when the epidemic began. While the situation has already levelled off compared to the spike in demand seen in the early days of the epidemic, we hope that the remote services will also increasingly reach people who have a non-acute need for treatment. Non-urgent care may be difficult to obtain from the public sector at the present time, and our remote services can help in this respect as well. The remote services provide customers with flexibility and freedom of choice, and they will not want to give up these benefits even after the epidemic.

Private sector doctors and nurses could also provide healthcare services at facilities and residences occupied by the elderly and people with special needs. One such example is Pihlajalinna’s responsible doctor model, which could be utilised at more care homes. The responsible doctor model can be used to improve the quality of care and reduce costs. One of the benefits of implementing the responsible doctor model is that elderly customers do not need to visit their local health centre as often when most healthcare services are provided for them at the care home they reside in. This would be particularly advantageous during an epidemic.

In May, Pihlajalinna and Pohjola agreed to prolong their agreement on nationwide provision of specialised care services for insurance customers for three years. The realisation of the social and healthcare outsourcing agreement with Kristiinankaupunki was confirmed at the end of April and service production will begin on 1 January 2021. Pihlajalinna currently has a few projects under way aimed at the growth of the business. In the tendering process of Päijät-Häme, for instance, we are one of three service providers selected for the negotiation procedure. We are also in ongoing negotiations with regard to certain public occupational health service providers.

While the epidemic is not yet over, the reversal of the closure of Uusimaa and the opening of schools are indications that the restrictions imposed throughout society will gradually begin to be removed in May. We reopened our fitness centres on a limited basis on 4 May 2020. We are continuously assessing the role of restrictions, hygiene and protection in using the services of our business locations safely as well as the general practices used in the industry in the prevailing exceptional circumstances. Taking the epidemic and its aftermath into consideration, we encourage our customers to place a high priority on receiving good treatment for other illnesses as well. The treatment of underlying health conditions must not be compromised. Pihlajalinna is keeping its public healthcare operations and private clinics open throughout the epidemic. This will speed up the return to normal after the epidemic has passed. We want to serve our customers in all circumstances.

Pihlajalinna’s financial reporting in 2020

Half-year financial report January–June: Friday, 14 August 2020

Interim report January–September: Wednesday, 4 November 2020

Briefing

Pihlajalinna will hold a briefing for analysts and the media on Friday, 8 May 2020 at 10:00 a.m. The event will be held remotely.

Helsinki, 7 May 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 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.