Pihlajalinna Plc                Interim Report                  5 May 2022 at 08.00 a.m.

Pihlajalinna Interim Report 1 January-31 March 2022 (3 months)

Pihlajalinna and Pohjola Hospital were combined, strong growth in revenue

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

A brief look at January-March:

  • Revenue amounted to EUR 163.1 (139.9) million - an increase of EUR 23.2 million, or 16.6 per cent
  • Adjusted EBITDA was EUR 16.5 (15.2) million - an increase of 8.2 per cent
  • Adjusted EBITA before the amortisation and impairment of intangible assets was EUR 7.8(8.3) million - a decrease of -6.2per cent
  • Earnings per share (EPS) was EUR 0.23 (0.20)
  • Revenue from services related to COVID-19 ¹⁾ amounted to EUR 8.1 (8.8) million - a decrease of EUR 0.7 million.
  • The effect of M&A transactions ²⁾ on revenue growth was EUR 15.9 million, or 11.3 per cent. Organic growth was EUR 7.3 million, or 5.2 per cent.
  • Customer volumes ³⁾ grew by 23 per cent year-on-year. Remote services represented 42 per cent of all appointments. The use of chat services via the Pihlajalinna Health App (Terveyssovellus) more than tripled, and the use of the Nurse Telephone Service doubled.
  • Pihlajalinna and Pohjola Hospital were combined on 1 February 2022. The integration is moving ahead as planned, and the increase of supply throughout the network of operating locations is being systematically managed. The amount of available appointments increased by 30 per cent year-on-year.
  • The District Court handed down its ruling on the dispute between Jämsän Terveys Oy and the City of Jämsä. The effect of the decision on profit attributable to the owners of the parent company was EUR -2.4 million. The effect of the decision on earnings per share (EPS) was EUR -0.11 per share.
  • Pihlajalinna strengthened its network of operating locations and range of specialised care services by acquir-ing the entire share capital of Etelä-Savon Työterveys Oy and a majority interest in Lääkärikeskus Ikioma Oy on 1 April 2022. Etelä-Savon Työterveys has nearly 20,000 occupational healthcare customers within the scope of its service provision. Pihlajalinna also acquired the Punkkibussi® business from Saaristolääkärit Oy on 1 April 2022.
  • Pihlajalinna published its first sustainability report in accordance with the Global Reporting Initiative (GRI) standard.
  • Pihlajalinna rearranged its long-term debt financing with a sustainability-linked financing arrangement.

¹⁾ COVID-19 services include COVID-19 testing, sample collection, vaccination and other potential services that are directly related to managing the COVID-19 pandemic.

²⁾ Työterveys Virta Oy 1 April 2021, Pohjola Hospital Ltd 1 February 2022

³⁾ Excluding municipal outsourcing arrangements and COVID-19 testing

1-3/20221-3/2021¹⁾2021
3 months3 monthschange %12 months
INCOME STATEMENT
Revenue, EUR million 163.1 139.9 16.6 577.8
EBITDA, EUR million 9.3 14.9 -37.7 62.6
EBITDA, % 5.7 10.6 -46.5 10.8
Adjusted EBITDA , EUR million ²⁾ 16.5 15.2 8.2 65.3
Adjusted EBITDA, % ²⁾ 10.1 10.9 -7.2 11.3
Operating profit (EBIT), EUR million -1.2 6.4 -118.6 27.9
Operating profit (EBIT), % -0.7 4.6 -115.9 4.8
Adjusted operating profit (EBIT), EUR million ²⁾ 5.9 6.7 -11.4 30.3
Adjusted operating profit (EBIT), % ²⁾ 3.6 4.8 -24.0 5.3
Adjusted operating profit before the amortisation andimpairment of intangible assets (EBITA), EUR million ²⁾ 7.8 8.3 -6.2 37.3
Adjusted operating profit before the amortisation andimpairment of intangible assets (EBITA), % ²⁾ 4.8 5.9 -19.5 6.5
Profit before tax (EBT), EUR million -2.7 5.5 -148.2 24.2
SHARE-RELATED INFORMATION
Earnings per share (EPS), EUR 0.23 0.20 16.0 0.89
Equity per share, EUR 5.50 4.99 10.2 5.27
Dividend per share, EUR0.30
OTHER KEY FIGURES
Return on capital employed (ROCE), % 5.1 6.7 -23.6 8.8
Return on equity (ROE), % 13.9 10.3 35.9 16.1
Equity ratio, % 20.5 26.2 -21.8 26.9
Gearing, % 288.4 161.2 78.9 158.8
Interest-bearing net debt, EUR million 359.6 189.6 89.6 194.7
Net debt/adjusted EBITDA, 12 months ²⁾ 5.4 3.3 63.2 3.0
Gross investments, EUR million ³⁾ 176.1 4.144.8
Cash flow from operating activities, EUR million 15.5 10.7 45.5 56.9
Cash flow after investments, EUR million -28.2 7.6 -470.0 24.9
Average number of personnel (FTE) 4,819 4,444 8.4 4,746
Personnel at the end of the period (NOE) 6,623 5,783 14.5 6,297
Practitioners at the end of the period 1,747 1,451 20.4 1,512

1) Pihlajalinna has changed its accounting policies and begun to retrospectively apply, effective from 1 January 2020, the IFRS Interpretations Committee's Agenda Decision publish in April 2021 regarding the recognition of configuration or customisation costs in a cloud computing arrangement (Software as a Service, SaaS).

2) Significant transactions that are not part of the normal course of business, are related to business acquisition costs (IFRS 3), are infrequently occurring events or valua-tion 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. From financial statements 2021 onwards, Pihlajalinna presents costs according to the IFRS Interpretations Committee's new Agenda Decision concerning cloud computing arrangements, and reversals of amortisation, as adjustment items. Adjusted operating profit before the amortisation and impairment of intangible assets (EBITA) is presented as a new alternative performance measure.

EBITDA adjustments amounted to EUR 7.2 (0.4) million for the review period. Adjustments to operating profit amounted to EUR 7.1 (0.3) million for the review period.

3) 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 2022

Pihlajalinna's full year consolidated revenue is expected to increase substantially, and full year adjusted operating profit before the amortisation and impairment of intangible assets (EBITA) is expected to be on a par with 2021. Due to Pohjola Hospital integration and efficiency improvement programs in municipal companies, the adjusted EBITA from the first half of the year will be below the bar of the previous year.

The acquisition of Pohjola Hospital will increase consolidated revenue by at least EUR 50 million in the financial year 2022. Revenue from COVID-19 services is expected to decline from the level of 2021. In 2022, Pihlajalinna will focus on the integration of Pohjola Hospital operations to be a seamless part of its Medical Center for All of Finland -concept. Maintaining profitability on a par with 2021 will require success in increasing supply, realization of the planned synergies of the acquisitions, and successful implementation of efficiency improvements in municipal companies.

Joni Aaltonen, CEO of Pihlajalinna:


Pihlajalinna's revenue increased by 16.6 per cent to EUR 163.1 (139.9) million. The acquisition of Pohjola Hospital on 1 February 2022 and Työterveys Virta on 1 April 2021 had an effect of 11.3 per cent on revenue growth. Organic growth was EUR 7.3 million, or 5.2 per cent.

Pihlajalinna's systematic and responsive approach to managing supply growth has brought results. We have also been increasingly successful in recruiting healthcare professionals and engaging them to Pihlajalinna. The amount of available appointments increased by 30 per cent year-on-year in spite of the absences caused by COVID-19 among the personnel. Over 300 new practitioners or physicians in employment relationships started working for Pihlajalinna during the review period. The use of chat services via the Pihlajalinna Health App (Terveyssovellus) more than tripled, and the use of the Nurse Telephone Service doubled. The use of remote services grew particularly in the areas of pediatric health and psychiatry. Expanding our remote services and ensuring scalability are key focus areas for us as we increase the supply of our services. Some 42 per cent of all appointments, excluding municipal outsourcing and COVID-19 testing, took place via remote services.

The share of revenue represented by services related to COVID-19 decreased year-on-year in spite of the high COVID-19 testing volume. The potential abatement of the COVID-19 pandemic would lead to a significant decline in the share of COVID-19 services in Pihlajalinna's business operations towards the end of the year. Going forward, COVID-19 testing and vaccination services will be part of normal business operations during the flu season.

The Omicron variant of COVID-19 drove the number of respiratory infections to a very high level in the early months of the year, especially compared to the very low number of infections in the reference period. Based on the data collected by Pihlajalinna among occupational healthcare customers, sickness-related absences due to respiratory infections per 1,000 customers grew nearly sixfold compared to the corresponding period last year. Compared to the pre-pandemic period, 2019, the number of infections was twice as high.

Employee benefit expenses were exceptionally high during the review period. The COVID-19 pandemic saw sickness-related absences among Pihlajalinna's personnel increase by a factor of 1.5, and substitutes and recruitment services were used to compensate for shortages in personnel. Costs were also increased by the efforts to increase supply. The volumes and profitability of surgical operations developed even better than expected in the first quarter.

The costs of complete outsourcing agreements remained at high level during the first quarter of the year. The profitability of municipal outsourcings was additionally weakened by trade receivable write-downs based on the ruling of the District Court on 4 April 2022.

The basis for Pihlajalinna's presented claims was accepted by the District Court. However, the District Court did not consider the evidence provided by Jämsän Terveys to be sufficient in terms of cost effects and the amount of the claims. Jämsän Terveys has filed an appeal regarding the District Court's ruling to the Court of Appeal.

The sales of occupational health services continued to see strong growth, and Pihlajalinna has also been successful in terms of customer retention. The key drivers of growth include digital services, competitive pricing and successful acquisitions. Etelä-Savon Työterveys, which was acquired at the beginning of April increased the number of people within the scope of Pihlajalinna's occupational health services to approximately 270,000.

The proportion of preventive activities by occupational health physicians in occupational healthcare increased to 62.2 (57.4) per cent. Incorporating the Mental Care (Mielen Huoli) services into occupational healthcare service agreements is increasing rapidly. Pihlajalinna launched the low-threshold Mental Care service in early 2021. The use of the chat service more than tripled compared to the final quarter of 2021. The demand for short-term therapy services has also increased. Russia's attack on Ukraine was clearly reflected in the demand for these services. The rate of sickness-related absences caused by reasons related to mental health per 1,000 employees increased by 6 per cent year-on-year in the review period. Compared to the pre-pandemic period in early 2019, the increase is over 50 per cent.

Our goal is to expand our network of operating locations and our range of specialised care services, especially in the Helsinki Metropolitan Area and other growth centres. We strengthened our network of private clinics by opening new private clinics in Lahti, Espoo and Vantaa in the first quarter. We will open a new private clinic in Rovaniemi in May 2022.

Pihlajalinna acquired the entire share capital of Etelä-Savon Työterveys Oy and a majority interest in Lääkärikeskus Ikioma Oy on 1 April 2022. Lääkärikeskus Ikioma provides its customers with a comprehensive range of private clinic services, including general practitioner and specialist appointments, occupational healthcare and physiotherapy services, and day surgery. Pihlajalinna also acquired the Punkkibussi® business from Saaristolääkärit Oy on 1 April 2022.

Pihlajalinna rearranged its long-term debt financing with a sustainability-linked financing arrangement in March 2022. The new five-year EUR 200 million unsecured financing arrangement was concluded with Danske Bank, OP Corporate Bank and Swedbank. The interest rate risk of the loan is partially hedged. The loan margin is linked to the customary financial covenants as well as Pihlajalinna's annual sustainability targets related to customer satisfaction (NPS), employee engagement (eNPS) and access to surgical treatment in targeted time.

Pihlajalinna will continue its sustainability efforts this year with a particular focus on the strategic development of clinical quality and effectiveness. The aim is to identify the most significant aspects of quality and effectiveness with regard to Pihlajalinna and its customers, and to pursue goal-driven development in these areas. The key sustainability themes for the year also include sharpening Pihlajalinna's environmental policy and the readiness to certification of the ISO 14001:2015 environmental management system. To facilitate the setting of climate targets, we have started Group-level carbon footprint calculations as well as projects aimed at the minimisation and recycling of waste.

Russia's offensive war in Ukraine has shocked us all. We hope for a quick end to the war and the human suffering it involves. While Pihlajalinna operates only in Finland, the war may have indirect impacts through slower economic growth and high inflation. Pihlajalinna will refrain from all business activities with parties subject to economic sanctions.

The war has elevated the risk of cyber attacks, and Pihlajalinna takes this threat seriously. The global component shortage caused by the COVID-19 pandemic and the war in Ukraine, and rising inflation, may increase Pihlajalinna's costs and create delays in purchases of materials and equipment.

Pihlajalinna reopened its reception centre operations for asylum seekers due to the war in Ukraine. The first of the new reception centres was opened in the village of Karkku in Sastamala, where Ukrainian refugees began to be received at the beginning of April. We see the provision of reception centre services as an activity that has significance to society. We have previous experience from reception centre operations during the period 2015-2019, when large numbers of refugees entered Finland in a short period of time due to the war in Syria.

Pihlajalinna is planning the renewal of its operating structure and a transition to an organisational structure based on business activities. The renewal of the operating structure would also lead to a change in Pihlajalinna's segment reporting. Going forward, the operating segments would be the company's two business segments: Public Services, and Private Clinic and Hospital Services. The new operating structure will be announced in the third quarter of the year at the latest.

Helsinki, 4 May 2022

The Board of Directors of Pihlajalinna Plc

Further information

Joni Aaltonen, CEO, +358 40 524 7270

Tarja Rantala, CFO, +358 40 774 9290
 

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Pihlajalinna in brief

20-year-old Pihlajalinna (Nasdaq HELSINKI: PIHLIS) is one of the leading private service providers of social, healthcare and wellbeing services in Finland. 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, occupational healthcare and dental care services, residential services and wellbeing services, for example. 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. Read more investors.pihlajalinna.fi.

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