Annual Report • Mar 19, 2020
Annual Report
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THE TENDER OFFER IS NOT BEING MADE DIRECTLY OR INDIRECTLY IN ANY JURISDICTION WHERE PROHIBITED BY APPLICABLE LAW AND THE TENDER OFFER DOCUMENT AND RELATED ACCEPTANCE FORMS AND SUPPLEMENT DOCUMENTS ARE NOT AND MAY NOT BE DISTRIBUTED, FORWARDED OR TRANSMITTED INTO OR FROM ANY JURISDICTION WHERE PROHIBITED BY APPLICABLE LAW BY ANY MEANS WHATSOEVER INCLUDING, WITHOUT LIMITATION, MAIL, FACSIMILE TRANSMISSION, E-MAIL OR TELEPHONE. IN PARTICULAR, THE TENDER OFFER IS NOT MADE IN AND THE TENDER OFFER DOCUMENT AND THIS SUPPLEMENT DOCUMENT MUST UNDER NO CIRCUMSTANCES BE DISTRIBUTED INTO CANADA, JAPAN, AUSTRALIA, SOUTH AFRICA, HONG KONG SPECIAL ADMINISTRATIVE REGION OF THE PEOPLE'S REPUBLIC OF CHINA OR NEW ZEALAND OR ANY OTHER JURISDICTION WHERE PROHIBITED BY APPLICABLE LAW.
Mehiläinen Yhtiöt Oy (the "Offeror" or "Mehiläinen") supplements the tender offer document dated 8 January 2020 (the "Tender Offer Document") in accordance with Chapter 11, Section 11, Subsection 4 of the Finnish Securities Market Act (746/2012, as amended) with the following information of this document (the "Supplement Document"):
Pihlajalinna Plc ("Pihlajalinna") published its audited consolidated financial statements for the financial period ended on 31 December 2019 (the "Consolidated Financial Statements") on 19 March 2020. The Consolidated Financial Statements include the report of the Board of Directors. The Offeror supplements Sections 5.10 and 5.11 of the Tender Offer Document with the Consolidated Financial Statements, which are added as Appendix F to the Tender Offer Document.
The Tender Offer Document and the Supplement Document will be available in Finnish from 20 March 2020 onwards at the headquarters of Mehiläinen, Pohjoinen Hesperiankatu 17 C, 6th floor, FI-00260 Helsinki, Finland, the headquarters of Nordea Bank Abp, Satamaradankatu 5, FI-00020 Nordea, Finland and at Nasdaq Helsinki, Fabianinkatu 14, FI-00130 Helsinki, Finland. The electronic versions of the Tender Offer Document and the Supplement Document will be available in Finnish from 19 March 2020 onwards online at ostotarjous.mehilainen.fi, investors.pihlajalinna.fi/public-tender-offer and nordea.fi/osakkeet, and in English from 19 March 2020 onwards online at ostotarjous.mehilainen.fi, investors.pihlajalinna.fi/public-tender-offer.aspx?sc_lang=en and nordea.fi/equities.
The Finnish Financial Supervisory Authority (the "FFSA") has approved the Finnish language version of this Supplement Document but the FFSA assumes no responsibility for the accuracy of the information presented therein. The decision number of such approval by the FFSA is FIVA 5/02.05.05/2020. The Supplement Document is also available as an English translation. In the event of any discrepancy between the two language versions of the Supplement Document, the Finnish language version shall prevail.
Shareholders in the United States are advised that the shares in Pihlajalinna are not listed on a U.S. securities exchange and that Pihlajalinna is not subject to the periodic reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is not required to, and does not, file any reports with the U.S. Securities and Exchange Commission (the "SEC") thereunder.
The tender offer will be made for the issued and outstanding shares in Pihlajalinna, which is domiciled in Finland, and is subject to Finnish disclosure and procedural requirements. The tender offer is made in the United States in compliance with Section 14(e) of the Exchange Act and the applicable rules and regulations promulgated thereunder, including Regulation 14E (in each case, subject to any exemptions or relief therefrom, if applicable) and otherwise in accordance with the disclosure and procedural requirements of Finnish law, including with respect to the tender offer timetable, settlement procedures, withdrawal, waiver of conditions and timing of payments, which are different from those of the United States. In particular, the financial information included in the Tender Offer Document and this Supplement Document has been prepared in accordance with applicable accounting standards in Finland, which may not be comparable to the financial statements or financial information of U.S. companies. The tender offer is made to Pihlajalinna's shareholders resident in the United States on the same terms and conditions as those made to all other shareholders of Pihlajalinna to whom an offer is made. Any information documents, including the Tender Offer Document and this Supplement Document, are being disseminated to U.S. shareholders on a basis comparable to the method that such documents are provided to Pihlajalinna's other shareholders.
To the extent permissible under applicable law or regulations, including Rule 14e-5 under the Exchange Act, Mehiläinen and its affiliates or its brokers and its brokers' affiliates (acting as agents for Mehiläinen or its affiliates, as applicable) may from time to time and during the pendency of the tender offer, and other than pursuant to the tender offer and combination, directly or indirectly, purchase or arrange to purchase, the shares in Pihlajalinna or any securities that are convertible into, exchangeable for or exercisable for such shares. These purchases may occur either in the open market at prevailing prices or in private transactions at negotiated prices. To the extent information about such purchases or arrangements to purchase is made public in Finland, such information will be disclosed by means of a press release or other means reasonably calculated to inform U.S. shareholders of Pihlajalinna of such information. In addition, the financial advisers to Mehiläinen may also engage in ordinary course trading activities in securities of Pihlajalinna, which may include purchases or arrangements to purchase such securities. To the extent required in Finland, any information about such purchases will be made public in Finland in the manner required by Finnish law.
Neither the SEC nor any U.S. state securities commission has approved or disapproved the tender offer, passed upon the merits or fairness of the tender offer, or passed any comment upon the adequacy, accuracy or completeness of the disclosure in the Tender Offer Document or this Supplement Document. Any representation to the contrary is a criminal offence in the United States.
The receipt of cash pursuant to the tender offer by a U.S. holder of shares in Pihlajalinna may be a taxable transaction for U.S. federal income tax purposes and under applicable U.S. state and local, as well as foreign and other, tax laws. Each holder of shares in Pihlajalinna is urged to consult its independent professional adviser immediately regarding the tax consequences of accepting the tender offer.
It may be difficult for Pihlajalinna's shareholders to enforce their rights and any claims they may have arising under the U.S. federal securities laws, since Mehiläinen and Pihlajalinna are located in non-U.S. jurisdictions, and some or all of their respective officers and directors may be residents of non-U.S. jurisdictions. Pihlajalinna's shareholders may not be able to sue Mehiläinen or Pihlajalinna or their respective officers or directors in a non-U.S. court for violations of the U.S. federal securities laws. It may be difficult to compel Mehiläinen and Pihlajalinna and their respective affiliates to subject themselves to a U.S. court's judgment.
THE TENDER OFFER DOCUMENT, THIS SUPPLEMENT DOCUMENT OR ANY OTHER DOCUMENT OR MATERIALS RELATING TO THE TENDER OFFER IS NOT BEING MADE AND HAVE NOT BEEN APPROVED BY AN AUTHORISED PERSON FOR THE PURPOSES OF SECTION 21 OF THE UK FINANCIAL SERVICES AND MARKETS ACT 2000 (THE "FSMA"). ACCORDINGLY, THE TENDER OFFER DOCUMENT, THIS SUPPLEMENT DOCUMENT OR ANY OTHER DOCUMENT OR MATERIALS RELATING TO THE TENDER OFFER ARE NOT BEING DISTRIBUTED TO, AND MUST NOT BE PASSED ON TO, THE GENERAL PUBLIC IN THE UNITED KINGDOM. THE COMMUNICATION OF THE TENDER OFFER DOCUMENT, THIS SUPPLEMENT DOCUMENT OR ANY OTHER DOCUMENT OR MATERIALS RELATING TO THE TENDER OFFER IS EXEMPT FROM THE RESTRICTION ON FINANCIAL PROMOTIONS UNDER SECTION 21 OF THE FSMA ON THE BASIS THAT IT IS A COMMUNICATION BY OR ON BEHALF OF A BODY CORPORATE WHICH RELATES TO A TRANSACTION TO ACQUIRE DAY TO DAY CONTROL OF THE AFFAIRS OF A BODY CORPORATE; OR TO ACQUIRE 50 PER CENT. OR MORE OF THE VOTING SHARES IN A BODY CORPORATE, WITHIN ARTICLE 62 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005.
This Supplement Document contains statements that, to the extent they are not historical facts, constitute "forward-looking statements". Forward-looking statements include statements concerning plans, expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position, future operations and development, business strategy and the trends in the industries and the political and legal environment and other information that is not historical information. In some instances, they can be identified by the use of forward-looking terminology, including the terms "believes", "intends", "may", "will" or "should" or, in each case, their negative or variations on comparable terminology. By their very nature, forward-looking statements involve inherent risks, uncertainties and assumptions, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. Given these risks, uncertainties and assumptions, investors are cautioned not to place undue reliance on such forward-looking statements. Any forward-looking statements contained herein speak only as at the date of this Supplement Document.
| oni Aaltonen, CEO of Pihlajalinna |
|---|
| evenue by region |
| evenue by customer group |
| consolidated revenue and result |
| easonal variation |
| larket and legislation review |
| consolidated statement of financial position and cash flow |
| inancing arrangements |
| cquisitions and capital expenditure |
| cquisitions of non-controlling interests |
| hanges in Group structure |
| esearch and development |
| ersonnel |
| . 1anagement Team |
| loard of Directors |
| hareholders' Nomination Board |
| Committees nominated by the Board |
| emuneration of the members of the Board of Directors |
| oard authorisations |
| uditiors and auditing |
| hares and shareholders |
| 1ehiläinen's cash tender offer for all shares in Pihlajalinna Plc |
| isk management |
| lisks and uncertainties in business operations |
| egment reporting |
| lagging notifications |
| current incentive schemes |
| he Board of Directors' proposal for profit distribution |
| ihlajalinna's outlook for 2020 |
| Corporate Governance Statement |
| tatement of non-financial information |
| vents after the balance sheet date |
| ey financial figures |
| hare-related information |
| warterly information |
| Calculation of key financial figures and alternative performance |
| econciliations of alternative performance measures |
| hares and shareholders |
| hareholding of the management |
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| ial Statements 100 |
| EUR million | 10–12/2019 | % 10–12/2018 | % change | ||
|---|---|---|---|---|---|
| Southern Finland | 31.1 | 21 | 29.5 | 21 | 1.6 |
| Mid-Finland | 82.5 | 55 | 79.3 | 56 | 3.2 |
| Ostrobothnia | 30.0 | 20 | 28.6 | 20 | 1.4 |
| Northern Finland | 3.9 | 3 | 3.2 | 2 | 0.7 |
| Other operations | 1.9 | 1 | 2.0 | 1 | -0.1 |
| Intra-Group sales | -15.8 | -15.7 | -0.1 | ||
| Total consolidated | |||||
| revenue | 133.8 100 | 127.0 100 | 6.8 |
Revenue for Southern Finland for the quarter amounted to EUR 31.1 (29.5) million, an increase of EUR 1.6 million, or 5.5 per cent. Revenue increased in South West Finland and the Helsinki Metropolitan Area as a result of increasing demand and expansion of the Forever fitness centre chain.
Revenue in Mid-Finland amounted to EUR 82.5 (79.3) million, an increase of EUR 3.2 million, or 4.1 per cent. The revenue increased as a result of the acquisition of Terveyspalvelu Verso in Savo, price adjustments implemented in accordance with the service agreements of social and healthcare outsourcing arrangements and sales to insurance companies.
Revenue for Ostrobothnia amounted to EUR 30.0 (28.6) million, an increase of EUR 1.4 million, or 5.0 per cent. The revenue increased mainly due to a price adjustment to the service agreement on the social and healthcare outsourcing of the Kuusiokunnat municipalities.
Revenue in Northern Finland amounted to EUR 3.9 (3.2) million, an increase of EUR 0.7 million, or 22.4 per cent. In particular, increased demand for occupational health services increased the area's revenue.
| EUR million | 2019 | % | 2018 | % change | |
|---|---|---|---|---|---|
| Southern Finland | 118.2 | 20 | 107.6 | 20 | 10.6 |
| Mid-Finland | 324.1 | 56 | 311.9 | 57 | 12.3 |
| Ostrobothnia | 115.7 | 20 | 108.8 | 20 | 6.9 |
| Northern Finland | 14.7 | 3 | 12.3 | 2 | 2.4 |
| Other operations | 7.7 | 1 | 4.8 | 1 | 2.9 |
| Intra-Group sales | -61.8 | -57.6 | -4.2 | ||
| Total consolidated | |||||
| revenue | 518.6 | 100 | 487.8 | 100 | 30.8 |
The full-year revenue for Southern Finland amounted to EUR 118.2 (107.6) million, an increase of EUR 10.6 million, or 9.9 per cent. Revenue increased in South West Finland and the Helsinki Metropolitan Area in particular as a result of increasing demand and expansion of the Forever fitness centre chain. Sales to
insurance companies also increased. The growth in fertility treatments in the Helsinki Metropolitan Area reached 13 per cent during the financial year.
Revenue in Mid-Finland amounted to EUR 324.1 (311.9) million, an increase of EUR 12.3 million, or 3.9 per cent. The acquisition of Terveyspalvelu Verso in Savo, price adjustment of social and healthcare outsourcing and growth in the offering of services for senior citizens in Pirkanmaa as well as increased demand for occupational health services contributed to the increase in the revenue for the area. In addition, the volumes of special needs residential services and sales to insurance companies increased. On the other hand, terminated agreements on health centre outsourcing and reception centre operations decreased the revenue.
Revenue for Ostrobothnia amounted to EUR 115.7 (108.8) million, an increase of EUR 6.9 million, or 6.3%. Revenue for the area was increased by providing residential services for the elderly and mentally disabled in Laihia and price adjustments in accordance with the social and healthcare service agreement. In addition, the expansion of the Forever fitness centre chain to Vaasa increased the volumes in the area.
Revenue in Northern Finland amounted to EUR 14.7 (12.3) million, an increase of EUR 2.4 million, or 19.5 per cent. In particular, increased demand for occupational health services increased the area's revenue.
Pihlajalinna's customer groups are corporate customers, private customers and public sector customers.
| EUR million | 10–12/2019 | % 10–12/2018 | % change | ||||
|---|---|---|---|---|---|---|---|
| Corporate customers | 32.8 | 22 | 29.6 | 21 | 3.1 | ||
| of which insurance company customers |
7.9 | 5 | 6.7 | 5 | 1.2 | ||
| Private customers | 24.9 | 17 | 24.5 | 17 | 0.4 | ||
| Public sector | 91.9 | 61 | 88.5 | 62 | 3.4 | ||
| Intra-Group sales | -15.8 | -15.7 | -0.1 | ||||
| Total consolidated revenue |
133.8 100 | 127.0 100 | 6.8 |
Revenue from corporate customers amounted to EUR 32.8 (29.6) million, an increase of EUR 3.1 million, or 10.5 per cent.
The revenue for the fourth quarter amounted to EUR 133.8 million, an increase of EUR 6.8 million. Organic revenue growth was 3.1%. The volume and profitability of occupational health services and sales to insurance companies developed favourably during the fourth quarter. Profitability was affected by the costs of public specialised care were concentrated towards the end of the year. Strong investments in ensuring the quality of residential services for senior citizens following stricter requirements imposed by the authorities increased the personnel expenses. Permanent changes in the requirements of the authorities have an impact on Pihlajalinna's agreement prices.
The year 2019 had several phases. The healthcare and social welfare reform ran aground, but the new Government again included it in its government programme. Pihlajalinna has expanded its network of clinics in recent years also with an eye to the healthcare and social welfare reform. With the efficiency improvement programme, we reassessed the network of clinics and also reviewed the resourcing of operations from the point of view of profitability. We closed a few small clinics, but also opened new clinics in provincial centres, such as Rovaniemi and Vaasa, as planned.
Municipalities have clearly become more active, and several negotiations on outsourcing projects have been started. Municipalities' will to make their own social and healthcare service decisions and safeguard their own social and healthcare services became concrete in the partial outsourcing agreement concluded with the city of Kristiinankaupunki in December. The term of the contract is at least 15 years but not more than 20 years. According to the tendering documentation, the value of the agreement is approximately EUR 90 million, not taking index adjustments into account. The service production begins on 1 January 2021.
Pihlajalinna increased its holdings in municipal joint ventures during the fourth quarter, which strengthens the earnings per share. Pihlajalinna now has a holding of 90% in Kuusiolinna Terveys Oy, with the municipalities of Alavus, Ähtäri, Kuortane and Soini having a holding of 10%. Pihlajalinna has a 91% holding in Mäntänvuoren Terveys Oy and the city of Mänttä-Vilppula a holding of 9%. Furthermore, Pihlajalinna agreed on the procurement of three social and healthcare service buildings with the city of Mänttä-Vilppula. Already earlier in the year under review, Pihlajalinna increased its holding in Kolmostien Terveys Oy. Pihlajalinna has a 96% holding in the company, the city of Parkano a 4% holding.
The government's new healthcare and social welfare reform programme has good focal points from the point of view of Pihlajalinna: the key matter is investing in rapid access to care. Pihlajalinna aims at being a partner to the public sector. Therefore, we signed cooperation agreements with the Hospital District of Pirkanmaa and Heart Hospital. The cooperation becomes concrete in a new service for investigating heart-related symptoms, which will begin in February 2020.
The revenue of occupational healthcare increased by more than 25% year-on-year. The increase in the share of fixed-price services and development of operating models improved profitability. The total number of private customers increased to almost 200,000. The growth outlook in occupational healthcare services remains good.
From the point of view of private clinic operations, partnerships with insurance companies developed favourably during 2019. Pihlajalinna signed a cooperation agreement with Pohjola Insurance Ltd in May. Based on the highly successful pilot project, Pohjola Insurance has approved Pihlajalinna as a national service provider for its multi-supplier model. We aim to further strengthen the cooperation with insurance companies and improve Pihlajalinna's market position as a nationwide partner of insurance companies.
During the fourth quarter, Mehiläinen Yhtiöt Oy announced a cash tender offer recommended by the Board of Directors of Pihlajalinna Plc for all shares in Pihlajalinna Plc. Together, these two companies are even better positioned to provide effective healthcare and high-quality residential services and develop a digital service offering.
The merger is currently under review by the Finnish Competition and Consumer Authority. Based on currently available information, the tender offeror expects to obtain the approval of the authorities and complete the tender offer towards the end of the second quarter of 2020 or at the latest during the third quarter of 2020. Even if the merger does not take place, Pihlajalinna is in a good position thanks to its good publicsector references and operating models, well-known private clinics in the provinces and extensive insurance company partnerships.
Pihlajalinna reports its revenue based on the following geographical regions: Southern Finland, Mid-Finland, Ostrobothnia and Northern Finland.
Sales to insurance company customers increased by EUR 1.2 million, or 18.1 per cent. The revenue for the quarter was increased by the nationwide Stora Enso account, which began on 1 January 2019, and the acquisition of Terveyspalvelu Verso in late 2018.
Revenue from private customers amounted to EUR 24.9 (24.5) million, an increase of EUR 0.4 million, or 1.6 per cent. The expansion of the Forever fitness centre chain increased the revenue from private customers.
Revenue from the public sector amounted to EUR 91.9 (88.5) million, an increase of EUR 3.4 million, or 3.8 per cent. The revenue increased as a result of the price adjustment of social and healthcare outsourcing pursuant to the service agreements and growth in the offering of services for senior citizens. The sales of occupational health services to public sector customers increased following the acquisition of Terveyspalvelu Verso.
| EUR million | 2019 | % | 2018 | % change | |
|---|---|---|---|---|---|
| Corporate customers | 122.1 | 21 | 106.3 | 19 | 15.7 |
| of which insurance company customers |
27.6 | 5 | 25.2 | 5 | 2.4 |
| Private customers | 97.8 | 17 | 93.0 | 17 | 4.8 |
| Public sector | 360.6 | 62 | 346.0 | 63 | 14.5 |
| Intra-Group sales | -6.8 | -57.6 | -4.2 | ||
| Total consolidated | |||||
| revenue | 518.6 100 | 487.8 100 | 30.8 |
Revenue from corporate customers amounted to EUR 122.1 (106.3) million, an increase of EUR 15.7 million, or 14.8 per cent. Sales to insurance company customers increased by EUR 2.4 million, or 9.6 per cent. The revenue for the review period was increased by the Stora Enso account, which began on 1 January 2019, the acquisition of Terveyspalvelu Verso in late 2018 and the favourable development of corporate customer accounts, particularly in the Turku region.
Revenue from private customers amounted to EUR 97.8 (93.0) million, an increase of EUR 4.8 million, or 5.1 per cent. Revenue increased mainly following the acquisition and expansion of the Forever fitness centre chain. In addition, sales of the Turku, Oulu and Seinäjoki clinics in particular to private customers developed favourably.
Revenue from the public sector amounted to EUR 360.6 (346.0) million, an increase of EUR 14.5 million, or 4.2 per cent. The revenue increased as a result of Pihlajalinna's responsible doctor services, the price adjustment of social and healthcare outsourcing pursuant to the service agreements, growth in the offering of services for senior citizens as well as the start of residential services provision in Laihia in September 2018.
Revenue by customer group 2018, m€
Pihlajalinna's revenue for the quarter amounted to EUR 133.8 (127.0) million, an increase of EUR 6.8 million, or 5.4 per cent, compared to the corresponding period last year. Organic revenue growth was EUR 3.9 million, or 3.1 per cent. Growth in revenue due to M&A transactions was EUR 2.9 million, or 2.2 per cent. The most significant of the M&A transactions was the acquisition of Terveyspalvelu Verso in late 2018.
EBITDA was EUR 12.3 (14.1) million, a decrease of EUR 1.8 million, or 12.9 per cent. The volume and profitability of occupational health services and sales to insurance companies developed favourably during the fourth quarter. Profitability was affected by the costs of public specialised care were concentrated towards the end of the year. Strong investments in ensuring the quality of residential services for senior citizens following stricter requirements imposed by the authorities increased the personnel expenses. Permanent changes in the requirements of the authorities have an impact on Pihlajalinna's agreement prices.
Adjusted EBITDA was EUR 14.4 (14.6) million, a decrease of EUR 0.1 million, or 0.8 per cent. EBITDA adjustments amounted to EUR 2.1 (0.4) million. The adjustments are associated with contingent assets pursuant to IAS 37 and costs resulting from the implementation of the tender offer.
Depreciation, amortisation and impairment amounted to EUR 8.6 (8.2) million. Depreciation of intangible assets amounted to EUR 1.9 (1.9) million, of which depreciation related to purchase price allocations amounted to EUR 1.1 (1.3) million. Depreciation of property, plant and equipment amounted to EUR 2.1 (1.8) million. For right-of-use assets, depreciation amounted to EUR 4.8 (4.4) million and impairment amounted to EUR -0.2 (0.0) million.
Pihlajalinna's EBIT was EUR 3.7 (5.9) million, a decrease of EUR 2.3 million. Adjusted EBIT amounted to EUR 5.6 (6.5) million, a decrease of EUR 0.9 million. The adjusted EBIT margin was 4.2 (5.1) per cent.
Pihlajalinna's revenue from public specialised care included in the complete outsourcing of social and healthcare services was EUR 22.3 (21.8) million. The EBITDA for public specialised care was EUR 0.6 (2.4) million with an EBIT of EUR 0.6 (2.3) million. The cost accumulation of public specialised care involves random fluctuation. In addition, individual cases falling within the scope of the hospital districts' pooling system for high-cost care, possible variable consideration and operational economy surplus refunds may influence the costs of specialised care considerably during the financial year, and between financial periods, in Pihlajalinna's municipal companies.
The group's net financial expenses amounted to EUR -1.0 (-1.0) million. Profit before taxes amounted to EUR 2.7 (4.9) million, a decrease of EUR 2.3 million. Taxes in the income statement amounted to EUR -0.6 (-1.3) million. The profit was EUR 2.1 (3.6) million. Earnings per share (EPS) was EUR 0.16 (0.11).
Pihlajalinna's revenue for the financial year amounted to EUR 518.6 (487.8) million, an increase of EUR 30.8 million, or 6.3 per cent. Growth in revenue due to M&A transactions was EUR 17.4 million, or 3.6 per cent. The most significant factors contributing to the growth of revenue as a result of M&A transactions were the acquisition of Terveyspalvelu Verso in late 2018 and the acquisitions of the Forever fitness centre chain and Doctagon healthcare service company in the first quarter of 2018. Organic revenue growth was EUR 13.4 million, or 2.8 per cent.
In June 2019, the group launched an efficiency improvement programme to achieve annual cost savings of approximately EUR 17 million. The reduction in costs for the past financial year achieved through the efficiency improvement programme are estimated to be approximately EUR 5 million. A non-recurring expense and impairment totalling EUR 7.4 million was recognised in relation to the efficiency improvement programme and reported as an adjustment item affecting comparability.
EBITDA was EUR 47.8 (44.8) million, an increase of EUR 3.0 million, or 6.7%. EBITDA was affected by a non-recurring expense of EUR 4.2 million recorded due to the efficiency improvement programme, consisting of a restructuring provision of EUR 2.4 million and a provision of EUR 1.8 million concerning onerous contracts.
requirements of the authorities have an impact on Pihlajalinna's agreement prices. Moreover, challenges in dental care and terminated agreements on health centre outsourcing and reception centre operations burdened the profitability for the financial year.
Depreciation, amortisation and impairment amounted to EUR 37.7 (31.6) million, an increase of EUR 6.1 million. Depreciation of intangible assets amounted to EUR 7.4 (7.1) million, of which depreciation related to purchase price allocations amounted to EUR 4.6 (5.1) million. Depreciation of property, plant and equipment amounted to EUR 7.7 (7.5) million. For right-of-use assets, depreciation amounted to EUR 19.3 (17.0) million and impairment amounted to EUR 3.2 (0.0) million.
Pihlajalinna's EBIT was EUR 10.2 (13.2) million, a decrease of EUR 3.0 million. EBIT was weighed down by non-recurring expenses amounting to EUR 7.4 million recognised in relation to the efficiency improvement programme and reported as an adjustment item affecting comparability. Adjusted EBIT amounted to EUR 20.8 (14.4) million, an increase of EUR 6.4 million. The adjusted EBIT margin was 4.0 (3.0) per cent.
Adjusted EBITDA was EUR 55.1 (45.9) million, an increase of EUR 9.2 million, or 20.1%. EBITDA adjustments amounted to EUR 7.3 (1.1) million. The volume and profitability of occupational health services and sales to insurance companies developed in line with the objectives during the fourth quarter. Profitability was burdened by primary care and social care services in the complete outsourcing of social and healthcare services. Strong investments in ensuring the quality of residential services for senior citizens following stricter requirements imposed by the authorities increased the personnel expenses. Permanent changes in the Market and legislative review The Finnish social and healthcare service field is currently in a waiting state. The healthcare and social welfare reform is included in the Government programme, but municipalities taking initiative, for example, indicates that not everyone has faith in the completion of the reform during this government term any more.
Pihlajalinna's revenue from public specialised care included in the complete outsourcing of social and healthcare services was EUR 88.2 (86.4) million. The EBITDA for public specialised care was EUR 3.8 (2.5) million with an EBIT of EUR 3.5 (2.2) million. The cost accumulation of public specialised care involves random fluctuation. In addition, individual cases falling within the scope of the hospital districts' pooling system for high-cost care, possible variable consideration and operational economy surplus refunds may influence the costs of specialised care considerably during the financial year, and between financial periods, in Pihlajalinna's municipal companies.
The group's net financial expenses amounted to EUR -3.9 (-3.8) million. Profit before taxes amounted to EUR 6.3 (9.5) million. Taxes in the income statement amounted to EUR -1.8 (-2.7) million. The profit was EUR 4.5 (6.8) million. Earnings per share (EPS) was EUR 0.15 (0.16).
Pihlajalinna's business operations are to a certain extent influenced by seasonal fluctuations. Pihlajalinna's complete outsourcing for social and healthcare services and other fixed-price invoicing is accompanied by a steady period of recognition of revenue as income. During the summer holidays, especially in July, staff costs related to such agreements are reduced and profitability improves mainly due to wage accruals. On the other hand, service demand by Pihlajalinna's private and corporate customers is lower and profitability is weaker during holiday seasons, especially in July, August and December. At the quarterly level, seasonal fluctuations have historically had a positive effect on profitability for the third quarter of the year.
PARTNERSHIP REPORT BY THE
BUSINESS AND RESPONSIBILITY STRATEGY PIHLAJALINNA 2019
BOARD OF DIRECTORS AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
In October 2019, the government issued additional information about the planned healthcare and social welfare reform. The objectives of the reform will be to reduce inequalities in health and wellbeing, safeguard equal and quality health and social services for all and improve the availability and accessibility of services, especially at the basic level. Further objectives are to ensure the availability of skilled labour, respond to the challenges of changes in society and curb the growth of costs.
The structural reform of health and social services will be based on 18 counties and five collaboration areas. The counties will be responsible for organising health and social services as well as rescue services. The structural reforms are based on the desire to ensure equal availability of services throughout Finland.
The focus of the healthcare and social welfare system will be shifted towards basic-level services and prevention to reduce the need for specialised care and demanding special services. Counties will mainly organise social and healthcare services as public services, with the private and third sectors serving as supplementary service providers.
Pihlajalinna's view is that partnerships between the public sector and private corporations are a good solution for satisfying the growing demand. During the past decade, services provided by private operators have increased strongly in care services and specialised care services. In specialised care, for example, private service providers' production increased by 15.3 per cent annually in 2014−2017. This development has taken place without government guidance or decisions. There are major regional differences in access to specialised care. A private service provider can significantly increase the speed of access to care, as every Finn has the right to quality services and high service availability.
More than 50 per cent of municipal revenue is spent on social and healthcare services and two out of three Finnish municipalities reported a deficit in 2018. The population is ageing rapidly and the proportion of over 75-year-olds is set to grow by more than 50 per cent by 2030. The annual margins of Pihlajalinna's partner municipalities have developed very favourably under joint venture structures compared to their peer municipalities. According to the most recent population forecast by Statistics Finland, 15 years from now there will be no counties in Finland where the birth rate exceeds the death rate if the birth rate were to remain at the current level. This presents challenges related to the organisation of social and healthcare services.
Activity has increased among municipalities, as they do not want to just wait for a potential reform but to ensure social and healthcare services and jobs. Several municipalities have commenced talks about outsourcings. The most recently announced were the plan of the municipalities in the Päijät-Häme district to outsource their health centre operations with a joint venture model.
The private market situation remains the same and the amount of health insurance policies continues to grow. The private occupational healthcare market is expected to grow as many municipalities and other public sector entities are interested in divesting the occupational healthcare providers they currently own.
At the end of the review period, Pihlajalinna Group's total statement of financial position amounted to EUR 438.4 (436.8) million. Consolidated cash and cash equivalents amounted to EUR 27.0 (36.3) million.
Net cash flow from operating activities in the quarter amounted to EUR 19.8 (24.2) million. Taxes paid amounted to EUR -1.1 (-1.6) million. The change in net working capital was EUR 8.6 (11.5) million.
The net cash flow from operating activities during the financial year amounted to EUR 36.8 (41.2) million. Taxes paid amounted to EUR -4.7 (-5.5) million. The change in net working capital was EUR -6.2 (1.6) million.
Net cash flow from investing activities totalled EUR -19.5 (-60.1) million for the financial year. Acquired business operations had an impact of EUR -4.9 (-40.9) million on net cash flow from investing activities. Investments in property, plant and equipment and intangible assets totalled EUR -15.4 (-19.6) million, and proceeds from the disposals of property, plant and equipment totalled EUR 0.8 (0.4) million.
The group's cash flow after investments (free cash flow) was EUR 17.4 (-18.8) million.
Net cash flow from financing activities during the financial year totalled EUR -26.7 (18.1) million. The change in financial liabilities, including changes in credit limits, amounted to EUR 7.7 (49.4) million. Payments for financial lease liabilities amounted to EUR -22.7 (-16.3) million, and interest paid and other financial expenses amounted to EUR -3.8 (-3.5) million. The net effect of the change in non-controlling interests on cash flow was EUR -1.3 (-6.4) million. In April 2019, Pihlajalinna Plc paid a total of EUR 2.3 (3.6) million in dividends. A total of EUR 4.4 (1.4) million in dividends was paid to non-controlling interests.
The Group's gearing was 181.7 (136.6) per cent. Interestbearing net debt amounted to EUR 192.7 (178.0) million. The Group paid EUR 1.5 (4.0) million in contingent considerations (earnout payments) during the financial year.
Return on capital employed was 2.9 (4.6) per cent and return on equity was 3.8 (5.7) per cent.
Pihlajalinna has a five-year EUR 120 million unsecured financing arrangement with Danske Bank and Nordea. The arrangement comprises a EUR 50 million revolving credit facility and a long-term bullet loan of EUR 70 million. It also includes an opportunity to increase the total amount by EUR 60 million (to EUR 180 million), subject to separate decisions on a supplementary loan from the funding providers.
The financing arrangement includes the customary financial covenants concerning leverage (ratio of net debt to pro forma EBITDA) and gearing. The adoption of IFRS 16 does not affect the calculation of financial covenants. The calculation of covenants will continue with the creditor banks in accordance with the accounting principles confirmed in the original financing arrangement (frozen GAAP). The group met the set covenants on 31 December 2019.
The group has credit limit agreements valid until further notice, totalling EUR 10 million. The notice period of the credit of Mehiläinen Yhtiöt Oy materialises, the provision on change of control in Pihlajalinna's financing arrangements will apply. According to the provision, the funding providers are entitled to terminate the financing arrangement prematurely following a material change of control. After the announcement of the final result of the tender offer, Pihlajalinna and the funding providers have 30 business days to agree on the impacts of the change of control on the financing arrangement.
| Acquired entity | Month of acquisition Industry |
Domicile | |
|---|---|---|---|
| Klaari Oy (Fit1 fitness centre chain) and its subsidiaries Fit1 Fitness club Länsi-Suomi Oy, 100% of the share capital |
February 2019 |
Fitness centres |
Espoo, Vaasa |
| Dalmed Oy, 100% of the share capital |
April 2019 | Occupational healthcare services |
Kemiö |
| Kouvolan Työterveys ry (business operations) |
June 2019 | Occupational healthcare services |
Kouvola |
| Aurinkoristeys, i.e. the occupational healthcare units of the town of Raisio (business operations) |
September 2019 |
Occupational healthcare services |
Raisio, Naantali |
limit agreements is one month. At the end of the review period, Pihlajalinna had a total of EUR 29.5 million in unused committed credit limits. When the voluntary recommended public cash tender offer Pihlajalinna constructed a new assisted living facility for senior citizens in Laihia, under a subletting model, with capacity for 60 residents. The facility was commissioned at the end of October 2019. Pihlajalinna also acquired an assisted living facility from the municipality of Laihia in October. During the financial year, Pihlajalinna also renovated two smaller care homes that it acquired previously. The total value of the deal was approximately EUR 8.4 million.
| Pihlajalinna's holding, 31 December 2018 |
Pihlajalinna's holding, 31 December 2019 |
First year of service production under the current contract |
Duration of contract (years) |
|---|---|---|---|
| 90 % | 90 % | internal service provision | internal service provision |
| 51 % | 51 % | 2015 | 10 |
| 51 % | 90 % | 2016 | 15 |
| 81 % | 91 % | 2016 | 15 |
| 81 % | 96 % | 2015 | 15 |
| 81 % | 81 % | 2018 | service voucher |
Gross investments, including acquisitions, amounted to EUR 44.1 (160.0) million. The Group's gross investments in property, plant and equipment and intangible assets, which consisted of development investments, additional investments and replacement investments required for growth, amounted to EUR 12.6 (13.1) million during the financial year. Gross investments in connection with the opening of new units amounted to EUR 9.4 (9.3) million. Gross investments in relation to M&A transactions amounted to EUR 3.8 (79.3) million. Gross investments in rightof-use assets amounted to EUR 18.4 (58.4) million. which Pihlajalinna paid a total of EUR 16.3 million for the shares. Following the share transactions in Kuusiolinna Terveys, Pihlajalinna holds 91% of Kuusiolinna Terveys Oy while the holding of the City of Mänttä-Vilppula is 9%. The shareholder and service agreements of Mäntänvuoren Terveys Oy remain unchanged. Pihlajalinna paid EUR 2 million to the City of Mänttä-Vilppula for the shares. In February 2019, the City of Parkano sold 15 per cent of its shareholdings in Kolmostien Terveys to Pihlajalinna. Pihlajalinna paid EUR 1.2 million to the City of Parkano for the shares.
Investment commitments for the group's development, additional and replacement investments amounted to approximately EUR 0.5 million. The investment commitments are related to IT system development projects and replacement investments in clinical equipment.
At the end of the financial year, Pihlajalinna agreed on the procurement of three social and healthcare service buildings with Mänttä-Vilppula. The transaction will be completed by 31 December 2020. The total value of the deal is estimated at EUR 4–7 million, depending on the development plan of the buildings.
At the end of the financial year, Pihlajalinna increased its holding in Kuusiolinna Terveys, a joint venture with the municipalities of Alavus, Ähtäri, Kuortane and Soini, and in Mäntänvuoren Terveys Oy, a joint venture with the city of Mänttä-Vilppula.
Following the share transactions in Kuusiolinna Terveys, Pihlajalinna holds 90% of Kuusiolinna Terveys Oy while the municipalities' holding is 10%. The shareholder and service agreements of Kuusiolinna Terveys Oy remain unchanged. Transactions were made with the municipalities of Alavus, Ähtäri and Soini, to
BOARD OF DIRECTORS AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
The following changes in group structure were implemented during the financial year:
Development costs that fulfilled the criteria for capitalisation amounted to EUR 0.5 (1.3) million during the financial year.
In the financial year 2019, development operations focused on a remote service model for municipal residents for use in social and healthcare outsourcing and mobile solutions, operating model for fixed-price occupational healthcare agreements (occupational healthcare portal) and sports clinic and social and healthcare centre concepts.
At the end of the financial year, the number of personnel was 5,815 (5,850), a decrease of 35 persons or one per cent. The Group's personnel averaged 4,515 (4,618) persons as full-time equivalents, a decrease of 103 persons or 2 per cent. The Group's employee benefit expenses totaled EUR 222.0 (208.4) million, an increase of EUR 13.6 million or 6 per cent.
The number of Pihlajalinna personnel increased by approximately 150 due to the expansion of operations during the financial year. On 15 August 2019, Pihlajalinna announced that the co-operation negotiations that commenced in June had been completed. The negotiations resulted in the termination of some 180 positions, mainly through dismissals. Some of these redundancies took the form of retirement and other staffing reductions not offset through reorganising operations.
At its meeting on 14 August 2019, Pihlajalinna Plc's Board of Directors appointed a new Management Team as part of the company's efficiency improvement programme. CEO Joni Aaltonen serves as the Chairman of the Management Team. The Management Team also includes COO Teija Kulmala, CFO Tarja Rantala, General Counsel Marko Savolainen, Head of Human Resources Elina Heliö and Head of Service Development and CIO Sanna Määttänen.
The management team positions of the following persons were discontinued on 15 August 2019: Minna Elomaa (Head of Business Operations, Southern Finland), Tero Järvinen (Head of Business Operations, Ostrobothnia), Ville Lehtonen (CFO), Stefan Wentjärvi (Head of Sales, Head of Business Operations,
Northern Finland) and Pauli Waroma (Head of Marketing and Communications).
The Annual General Meeting on 4 April 2019 confirmed the number of the members of the Board of Directors as seven. Leena Niemistö, Kati Sulin, Seija Turunen and Mikko Wirén were re-elected and Matti Jaakola, Hannu Juvonen and Mika Manninen were elected as new members of the Board of Directors for a term of office ending at the conclusion of the next Annual General Meeting.
The Annual General Meeting elected Mikko Wirén as the Chairman of the Board and Leena Niemistö as the Vice-Chairman.
The Shareholders' Nomination Board is comprised of the following representatives:
At its organising meeting on 4 April 2019, Pihlajalinna Plc's Board of Directors elected the following members to its committees:
Audit Committee: Seija Turunen (chairman), Matti Jaakola, Mika Manninen and Hannu Juvonen Remuneration Committee: Mikko Wirén (chairman), Leena Niemistö and Kati Sulin
The Annual General Meeting held on 4 April 2019 decided that the remuneration of the Board of Directors be kept unchanged, except for a reduction in the remuneration of the Vice-Chairman, and that the following annual remuneration be paid to the members of the Board of Directors to be elected at the General Meeting for the term of office ending at the close of the Annual General Meeting 2020: to the full-time Chairman of the Board of Directors EUR 250,000 per year, to the Vice-Chairman EUR 36,000 per year, and to the other members of the Board of Directors EUR 24,000 per year.
In addition, the AGM decided that each Board member shall be paid a meeting fee of EUR 500 for each Board and Committee meeting. Reasonable travel expenses will also be reimbursed to the members of the Board in accordance with the company's travel policy.
The Annual General Meeting on 4 April 2019 authorised the Board of Directors to decide on the acquisition of a maximum of 2,061,314 shares, which is approximately 9 per cent of the group's current share volume. Under this authorisation, the acquisition of the group's own shares is only permitted using unrestricted equity. Targeted share acquisition is possible. The authorisation is effective until the next Annual General Meeting, or until 30 June 2020 at the latest.
The Annual General Meeting also authorised the Board of Directors to decide on a share issue and other special rights conferring an entitlement to shares under Chapter 10, Section 1 of the Limited Liability Companies Act. The amount of shares to be issued cannot exceed 3,091,971 shares, which corresponds to approximately 14 per cent of all the shares in the group. The authorisation concerns both the issuance of new shares and the sale or transfer of the group's own shares. The authorisation permits a targeted share issue. The authorisation is effective until the next Annual General Meeting, or until 30 June 2020 at the latest.
At Pihlajalinna's Annual General Meeting held on 4 April 2019, KPMG Oy Ab, a firm of authorised public accountants was elected as the company's auditor for the financial year 1 January–31 December 2019. Lotta Nurminen, APA, is the principal auditor.
At the end of the financial period, Pihlajalinna Plc's share capital entered in the Trade Register amounted to EUR 80,000 and the total number of shares outstanding was 22,620,135. The company has one share series, with each share entitling its holder to one vote at the Annual General Meeting. All shares bestow their holders with equal rights to dividends and other distribution of the company's assets. At the end of the financial year, the company had 11,752 (13,372) shareholders. The company does not hold any treasury shares. A list of the largest shareholders is available on the company's investor website at investors.pihlajalinna.fi.
The trading code for the shares on the Nasdaq Helsinki main market is PIHLIS. Pihlajalinna Plc has been classified as a Mid Cap company in the Healthcare sector.
| Share-related information |
10–12/2019 10–12/2018 | 2019 | 2018 | |
|---|---|---|---|---|
| No. of shares outstanding at the end of the period |
22,620,135 22,620,135 22,620,135 | 22,620,135 | ||
| Average no. of shares outstanding during the period |
22,620,135 22,620,135 22,620,135 22,224,236 | |||
| Highest price, EUR |
15.88 | 11.06 | 15.88 | 15.28 |
| Lowest price, EUR |
10.40 | 8.56 | 8.70 | 8.56 |
| Average price, EUR* |
14.68 | 9.56 | 12.77 | 12.18 |
| Closing price, EUR |
15.28 | 8.62 | 15.28 | 8.62 |
| Share turnover, 1,000 shares |
2,127 | 830 | 4,062 | 6,182 |
| Share turnover, % |
9.4 | 3.7 | 18.0 | 27.8 |
| Market cap italisation at the end of the period, EUR million |
345.6 | 195.0 | 345.6 | 195.0 |
* average share price weighted by trading volume
On 5 November 2019, Mehiläinen Yhtiöt Oy and Pihlajalinna Plc entered into a combination agreement, pursuant to which Mehiläinen made a voluntary recommended public cash tender offer for all issued and outstanding shares in Pihlajalinna.
In the tender offer, Pihlajalinna's shareholders are offered a cash consideration of EUR 16.00 for each issued and outstanding share in Pihlajalinna. The consideration includes a premium of approximately 46.0 per cent compared to the closing price of the Pihlajalinna share on the official list of Nasdaq Helsinki on 4 November 2019. The non-conflicted members of the Board of Directors of Pihlajalinna unanimously decided to recommend that the shareholders of Pihlajalinna accept the tender offer.
The Finnish Financial Supervisory Authority approved the tender offer document on 8 January 2020. The offer period commenced on 9 January 2020 at 9:30 a.m. (Finnish time) and it will expire on 19 March 2020 at 4:00 p.m. (Finnish time) at the earliest, unless extended or discontinued in accordance with, and subject to, the terms and conditions of the tender offer and applicable laws and regulations. Currently, the tender offer is expected to be completed towards the end of the second quarter of 2020 or at the latest during the third quarter of 2020. Any extension of the offer period will be announced by way of a stock exchange release as soon as practically possible.
In its risk management, Pihlajalinna's aim is to operate as systematically as possible and incorporate risk management in normal business processes. Furthermore, the group invests in quality management systems and the management of occupational safety and health risks. Pihlajalinna's Risk Management Policy defines and categorises the group's risks and
| Merged company | Target company | Month of acquisition |
|---|---|---|
| Pihlajalinna Tampere Oy | Pihlajalinna Lääkärikeskukset Oy | 1 January 2019 |
| Doctagon Ab | Pihlajalinna Terveys Oy | 1 January 2019 |
| Anula Oy | Linnan Klinikka Oy | 1 January 2019 |
| Hammaslääkäripalvelu Savodent Oy, HammasPirta Oy, Paimion Hammaslääkäripalvelu Oy and Salon Hammas-lääkärikeskus Oy |
Tampereen Hammaspiste Oy (currently Pihlajalinna Hammasklinikat Oy) |
1 January 2019 |
| Hammaslääkärikeskus Mandibula Oy | Mandibula Raisio Oy | 28 February 2019 |
| Mandibula Raisio Oy | Pihlajalinna Hammasklinikat Oy | 1 March 2019 |
| Pihlajalinna Kymijoki Oy | Pihlajalinna Lääkärikeskukset Oy | 3 June 2019 |
| Ala-Malmin Hammaslääkärit Oy, Salon Lääkintälaboratorio Oy and Someron Lääkäriasema Oy |
Pihlajalinna Lääkärikeskukset Oy | 1 September 2019 |
| Pihlajalinna Oulu Oy | Pihlajalinna Madetojanpuisto Oy (currently Pihlajalinna Oulu Oy) |
1 September 2019 |
| Etelä-Pohjanmaan Sydäntutkimuspalvelu Oy | Kompassi Lääkärikeskus Oy | 1 September 2019 |
| Pihlajalinna Parainen Oy | Pihlajalinna Turku Oy | 3 September 2019 |
| Fit1 Fitnessclub LänsiSuomi Oy | Klaari Oy | 30 November 2019 |
| Dalmed Oy | Pihlajalinna Turku Oy | 31 December 2019 |
STATEMENTS
AUDITED FINANCIAL INFORMATION FOR SHAREHOLDERS
describes the goals of risk management. In addition, it defines risk management principles, operating methods and responsibilities.
Internal risk reporting is included in the regular business reporting as well as in business planning and decision-making. The material risks and their management are reported to stakeholders regularly and, when necessary, on a case-by-case basis.
The Group employs an Enterprise Risk Management system and process. Risks are categorised into strategic, operational, financial and damage risks.
Strategic risks refers to uncertainty related to the implementation of the Group's short-term and long-term strategy. An example is structural changes in society.
Operational risks are risks that are caused by external factors, technology, actions of employees, the operations of the organisation or the functionality of processes. These risks are managed by, for instance, monitoring the competitive situation systematically and reacting to its changes.
Financial risks refers to risks that are related to the Group's financial position, such as profitability, the functionality of financing processes and taxation.
Damage risks are related to accidents or other damage that may occur to the Group's assets, personnel, customers, stakeholders or environment. The company has liability and patient insurance to cover potential malpractice caused by the company's own personnel.
A factor that links all risk categories together is the reputational risk that may affect the reputation of the Group's brands or the entire Group.
The goal of Pihlajalinna's risk management is to promote the achievement the Group's strategic and operational targets, shareholder value, the Group's operational profitability and the realisation of responsible operating methods. Risk management seeks to ensure that the risks affecting the company's business operations are known, assessed and monitored.
The Group and operative management are responsible for risk management according to reporting responsibilities. In addition, risk management specialists guide and develop the group's risk management. Everyone working at Pihlajalinna must also know and manage risks related to their responsibilities.
The most essential risks and uncertainties affecting the group's operations are connected to the complete outsourcing agreements on social and healthcare service, material amendments to legislation, opening new locations, success in acquisitions and information system projects, tax-related risks and the commitment and recruitment of competent management.
A tax audit of the group's main companies, which began in spring 2017, was completed with regard to income taxation (the Act on the Taxation of Business Profits and Income from Professional Activity) and value added taxes (Value Added Tax Act) without notable sanctions. For withholding taxes (Tax Prepayment Act), the audit reports are still pending approval by the Tax Office for Major Corporations. No material consequences are expected.
Determining the annual profitability of the group's complete social and healthcare services outsourcing agreements may become accurate with a delay. The group may not always be aware of the actual costs of the agreements at the time of preparing the financial statements, and the agreements may involve variable consideration. The cost accumulation of public specialised care involves random fluctuation. In addition, individual cases falling within the scope of the hospital districts' pooling system for high-cost care and operational economy surplus refunds may influence the costs of specialised care considerably during the financial year, and between financial periods, in Pihlajalinna's municipal companies.
The City of Jämsä has taken legal action against Jämsän Terveys Oy over the service agreement. The dispute concerns the provision on price adjustments pursuant to the service agreement. The difference of opinion regarding the determination of the annual price totalled approximately EUR 1.8 million at the time of the financial statements. Moreover, the balance sheet of Jämsän Terveys Oy includes other receivables amounting to a total of EUR 3.1 million from the City of Jämsä, associated with the increased costs of specialised care and increased regulatory requirements for services for senior citizens. According to the management's estimate, the customer will pay the receivables in full.
Kuusiolinna Terveys Oy has trade and other receivables totalling EUR 4.5 million from a client. The protocol on interpretation signed with the municipalities of Alavus, Ähtäri and Soini in conjunction with the share transactions also agreed on the charging principles of the variable consideration. The outstanding receivables are associated with increased regulatory requirements for services for senior citizens, costs of specialised care and the calculation of net expenditure. A share transaction has not yet been completed with Kuortane, and no corresponding protocol on interpretation has been signed. According to the management's estimate, the client will pay the receivables in full, as the majority of the client's shareholders have agreed on the charging principles.
Mäntänvuoren Terveys Oy has trade and other receivables totalling EUR 1.2 million from a client. The receivables are associated with increased regulatory requirements for services for senior citizens and the calculation of net expenditure pursuant to the previous agreement. A social and healthcare service property transaction that will be completed in 2020 has been agreed upon with the client. According to the management's estimate, the customer will pay the receivables in full in conjunction with the completion of the property transaction.
Kolmostien Terveys Oy has trade and other receivables of EUR 0.4 million from a client relating to the increased regulatory requirements for services for senior citizens. According to the management's estimate, the customer will pay the receivables in full.
On the date of the financial statements, the Group's receivables include a total of EUR 1.6 million (EUR 2.8 million at the end of 2018) in service provider refunds for public sector specialised care cost accruals, estimated on a municipality-specific basis. According to the group management's view, under the service agreements, the refunds of cost accruals are payable to Pihlajalinna because they were accumulated during Pihlajalinna's service provision and liability for costs. In addition, the group has a total of EUR 0.2 million of overdue receivables from Kihniö and Juupajoki.
At the end of the financial year, goodwill on Pihlajalinna's statement of financial position amounted to EUR 173.6 (169.9) million. Pihlajalinna checks annually and, if necessary, quarterly, that the carrying amount of goodwill does not exceed the fair value. During the financial year, Pihlajalinna observed no indications of the carrying amount of goodwill being greater than its estimated recoverable amount. If negative changes were to occur in the development of Pihlajalinna's profit and growth, this could lead to an impairment of goodwill. This could have an unfavourable impact on Pihlajalinna's operating result and equity.
Pihlajalinna reformed its management system and the structure of its Management Team as part of its efficiency improvement programme. In conjunction with the reform, some of the Management Team positions were discontinued. In addition, the company also established an operations management team as a new management team level directed by the COO Teija Kulmala. The changes took effect on 15 August 2019.
Pihlajalinna's previous operating structure had four geographical business areas: Mid-Finland, Southern Finland, Ostrobothnia and Northern Finland. Each business area was managed by a Head of Business Operations responsible for its performance, who is in charge of their area's business operations and service offering for both the private and the public sector. In the revised operating structure, COO Teija Kulmala is in charge of the profitability and resources of business operations and the Group has one operating segment.
During the financial year, Pihlajalinna did not receive any flagging notifications under Chapter 9, section 5 of the Securities Markets Act:
At its meeting on 14 February 2019, the Board of Directors approved the terms of a share-based long-term incentive programme for Pihlajalinna Group's senior management (LTI 2019). The incentive programme is effective from 1 January 2019 onwards and it is aimed at the CEO, the Management Team and other key employees selected for inclusion in the programme. In the initial stage, 25 key employees were selected for the programme. LTI 2019 includes an overall five-year plan period and none of the share rewards received by the key employees thereunder may be sold or transferred prior to the year 2022. The key employee shall, in addition, make an investment in Pihlajalinna shares as a precondition for participation in the programme. At the end of the investment period, i.e. 2019, 23 key employees fulfilled the minimum investment requirement of the scheme.
The fixed matching share plan includes a commitment period from the beginning of 2019 until the payment of the fixed matching share incentive in 2020. In this scheme, the company matches each participant's share investments with additional shares at a fixed rate. The additional shares will be delivered in 2020, and they are subject to a transfer restriction.
The performance- and quality-based matching share plan includes three one-year performance periods (the calendar years 2019–2021), during which the participants can earn
performance-based additional shares, provided that the company reaches the performance objectives set by the Board of Directors. Based on each individual performance period, the participant can earn a maximum of two additional shares for three shares invested without consideration (gross before the deduction of the applicable payroll tax). The performance-based share rewards will be delivered after the respective performance periods in springs 2020, 2021 and 2022. These matching shares will be subject to a two-year transfer restriction.
The performance criteria applied to the performance- and quality-based matching share plan for the first performance period 2019 were the adjusted EBIT of Pihlajalinna Group and key operative and qualitative indicators. No performance- and quality-based share rewards materialised for the performance period 2019 pursuant to the matching share plan, as the minimum objectives set for the programme were not achieved.
The LTI 2019 plan includes terms and conditions relating to change in control. According to them, the cash tender offer announced by Mehiläinen for all of the shares in Pihlajalinna on 5 November 2019 will result in the payment of the fixed matching share plan in full if the transaction is completed. The transfer restriction of the shares expires immediately when the outcome of the tender offer is announced in the execution of the tender offer.
The terms and conditions of the incentive scheme include special provisions for any change of control. Based on Mehiläinen's public tender offer, the above-mentioned provisions on change of control apply.
According to the fixed matching share plan, a total of 108,000 matching shares fall due to the 23 key employees who met the investment requirement if the change in control takes place. The fair value of the matching shares is EUR 1.7 million in accordance with the cash tender offer. An expense of EUR 0.3 million has been allocated to the financial year 2019 due to the share-based reward paid due to the change in control.
The Board of Directors proposes that no dividend be paid for the financial year that ended on 31 December 2019 due to the tender offer made by Mehiläinen. Should the tender offer lapse, the Board of Directors will re-evaluate the matter.
Calculation of the parent company's distributable funds:
| EUR | 31 December 2019 |
|---|---|
| Reserve for invested unrestricted equity | 183,190,483.50 |
| Retained earnings | 21,915,498.62 |
| Profit for the period | 2,328,952.90 |
| Capitalised development costs | -1,017,078.36 |
| Total | 206,417,856.66 |
Pihlajalinna Plc's Annual General Meeting is scheduled for Wednesday, 15 April 2020 in Tampere, Finland. The Board of Directors will decide on the notice of the General Meeting and the included proposals at a later date.
The annual report for 2019, including the Board of Directors' report and the financial statements, was published on the company's investor website at investors.pihlajalinna.fi in week 12.
STRATEGY PIHLAJALINNA 2019
PARTNERSHIP REPORT BY THE
STATEMENTS
AUDITED FINANCIAL INFORMATION FOR SHAREHOLDERS
Pihlajalinna's consolidated revenue for 2020 is expected to increase from the 2019 level. Adjusted EBIT is expected to increase compared to 2019.
On 5 November 2019, Mehiläinen Yhtiöt Oy and Pihlajalinna Plc entered into a combination agreement, pursuant to which Mehiläinen made a voluntary recommended public cash tender offer for all issued and outstanding shares in Pihlajalinna. The offer period commenced on 9 January 2020. In the tender offer, Pihlajalinna's shareholders are offered a cash consideration of EUR 16.00 for each outstanding share in Pihlajalinna. Currently, the tender offer is expected to be completed towards the end of the second quarter of 2020 or at the latest during the third quarter of 2020.
Pihlajalinna published its Corporate Governance Statement separately on the company's investor website at investors. pihlajalinna.fi at the same time as the Board of Directors' report during week 12. Up-to-date information about compliance with and deviations from the Corporate Governance Code is maintained on the investor site at investors.pihlajalinna.fi.
Pihlajalinna published its statement of non-financial information separately on the company's investor website at investors. pihlajalinna.fi at the same time as the Board of Directors' report during week 12.
Mehiläinen Yhtiöt Oy launched a cash tender offer recommended by the Board of Directors of Pihlajalinna Plc for all shares in Pihlajalinna Plc on 9 January 2020
On 5 November 2019, Mehiläinen Yhtiöt Oy and Pihlajalinna Plc announced that they had entered into a combination agreement pursuant to which Mehiläinen made a voluntary recommended public cash tender offer for all issued and outstanding shares in Pihlajalinna.
The Finnish Financial Supervisory Authority approved the tender offer document on 8 January 2020. The acceptance period for the tender offer, or the offer period, commenced on 9 January 2020 at 9:30 a.m. (Finnish time) and it will expire on 19 March 2020 at 4:00 p.m. (Finnish time) at the earliest, unless extended or discontinued in accordance with, and subject to, the terms and conditions of the tender offer and applicable laws and regulations. Currently, the tender offer is expected to be completed towards the end of the second quarter of 2020 or at the latest during the third quarter of 2020. The offeror will extend the offer period in accordance with, and subject to, the terms and conditions of the tender offer and applicable laws in order to satisfy the closing conditions, including obtaining merger control clearance. Any extension of the offer period will be announced by way of a stock exchange release as soon as practically possible.
The tender offer document has been available in Finnish as of 9 January 2020 at the head office of Mehiläinen, address Pohjoinen Hesperiankatu 17 C, 6th floor, 00260 Helsinki, Finland, Nordea Bank Plc's head office, address Satamaradankatu 5, 00020 Nordea, Finland, and at Nasdaq Helsinki, address Fabianinkatu 14, 00130 Helsinki, Finland. An electronic version of the tender offer document has been available in Finnish as of 9 January 2020 on
the internet at ostotarjous.mehilainen.fi, investors.pihlajalinna.fi/ public-tender-offer and at nordea.fi/osakkeet, and in English as of 9 January 2020 at ostotarjous.mehilainen.fi, investors.pihlajalinna. fi/public-tender-offer.aspx?sc_lang=en and nordea.fi/equities.
Statement of the Board of Directors of Pihlajalinna Plc on the voluntary public cash tender offer of Mehiläinen Yhtiöt Oy The Board of Directors of Pihlajalinna issued a statement on the tender offer as required by chapter 11, section 13 of the Finnish Securities Markets Act (746/2012, as amended) on 3 January 2020.
The cash consideration offered is EUR 16.00 for each share in Pihlajalinna. The consideration includes a premium of approximately
The consideration offered is subject to the terms and conditions of the tender offer. According to the terms and conditions of the tender offer, should the number of issued and outstanding shares in Pihlajalinna change as a result of a share issue, reclassification, stock split or any other similar transaction with dilutive effect, or should Pihlajalinna distribute a dividend or otherwise distribute funds or any other assets to its shareholders, or should a record date with respect to any of the foregoing occur prior to the completion of the tender offer, the offered consideration will be reduced accordingly on a euro-for-euro basis.
It is the intention of Mehiläinen, subject to Mehiläinen acquiring more than ninety per cent (90%) of the issued and outstanding shares and voting rights in Pihlajalinna, to initiate mandatory redemption proceedings in accordance with the Finnish Limited Liability Companies Act (624/2006, as amended) to acquire the remaining shares in Pihlajalinna, and thereafter to cause Pihlajalinna's shares to be delisted from Nasdaq Helsinki as soon as reasonably practicable.
As required under applicable laws, Mehiläinen has, and will have at the completion of the tender offer, access to debt and equity funding in sufficient amounts to finance the payment of the aggregate offer price for all of the issued and outstanding shares in Pihlajalinna in connection with the Tender Offer (including in any mandatory redemption proceedings in accordance with the Limited Liability Companies Act). The debt financing is subject to customary certain funds financing conditions.
LocalTapiola General Mutual Insurance Company, MWW Yhtiö Oy, Fennia Mutual Insurance Company, LocalTapiola Mutual Life Insurance Company, Elo Mutual Pension Insurance Company, Leena Niemistö, funds advised by Fondita Fund Management Company Ltd., Ilmarinen Mutual Pension Insurance Company,
Fennia Life Insurance Company Ltd. as well as certain other major shareholders of Pihlajalinna, have irrevocably undertaken to accept the Tender Offer, subject to certain customary conditions. Such undertakings concern approximately 63.2 per cent of the shares and votes in Pihlajalinna in the aggregate.
The completion of the Tender Offer is conditional on the fulfillment or waiver of certain conditions on or by the date on which offeror announces the final result of the tender offer. These conditions include the receipt of all necessary regulatory approvals and that the tender offer has been approved with regard to shares representing, together with any other shares otherwise acquired by the Offeror prior to or during the offer period, more than ninety per cent of the issued and outstanding shares and voting rights in Pihlajalinna.
The Board of Directors believes that the offer price offered to the shareholders of Pihlajalinna is fair based on an assessment of the issues and factors that the Board of Directors has concluded to be material in evaluating the tender offer. The Board of Directors of Pihlajalinna recommends that the shareholders of Pihlajalinna accept the tender offer.
The Board of Directors further notes that according to offeror's notice, the offer period of the tender offer is intended to be extended so that the offeror expects that the tender offer would be completed towards the end of second quarter of 2020 or at the latest during the third quarter of 2020. The offer period may therefore be somewhat long. Pursuant to the Securities Market Act, the offer period may for special reasons be more than ten (10) weeks, provided that the business operations of the target company are not hindered for longer than reasonable. A notice of closing of the offer period shall be disclosed at least two (2) weeks prior to the closure of the offer period.
The Board of Directors notes that shareholders of Pihlajalinna should also consider the risks related to not accepting the Tender Offer. In case the condition of completion regarding reaching at least 90% of shares and votes would be waived, the completion of the tender offer would reduce the number of shareholders in Pihlajalinna and the number of shares that would otherwise be publicly traded. Depending on the number of shares validly tendered in the tender offer, this could have an adverse effect on the liquidity and value of the shares.
The European Commission decided on 28 January 2020 to refer the handling of the authority approval of Mehiläinen's tender offer to the Finnish Competition and Consumer Authority (hereinafter referred to as the "FCCA").
Mehiläinen Yhtiöt Oy submitted a formal merger control notification regarding the public tender offer by Mehiläinen Yhtiöt Oy for the shares in Pihlajalinna Plc on 10 February 2020.
According to the Finnish Competition Act, the the first phase of the notification proceedings may not take more than 23 working days. The Phase I Investigation will thus be completed no
later than on 12 March 2020. According to information currently available, it is more likely than not that the FCCA will, after the Phase I Investigation, initiate continued phase II proceedings before the authority approval is obtained. According to the Competition Act, the Phase II Investigation may not take more than 69 working days, unless the Finnish Market Court grants, upon application, an extension to the FCCA for investigating the case.
If the FCCA initiates the Phase II Investigation, the offeror will extend the offer period in accordance with, and subject to, the terms and conditions of the tender offer and applicable laws, in order to satisfy the conditions to completion of the tender offer, including obtaining the authority approval, provided that the business operations of Pihlajalinna are not hindered for longer than is reasonable, as referred to in Chapter 11, section 12, subsection 2 of the Finnish Securities Market Act. The offeror will decide on a possible extension of the offer period once the Phase I Investigation has progressed to a stage where the offeror is better placed to estimate the overall duration of the handling of the authority approval. Any extension of the offer period will be announced by way of a stock exchange release as soon as practically possible.
The Nomination Board proposes to the Annual General Meeting of Pihlajalinna Plc, scheduled to be held on 15 April 2020, that the number of the members of the Board be confirmed to be seven. The Nomination Board proposes that all of the current members of the Board of Directors, Matti Jaakola, Hannu Juvonen, Mika Manninen, Leena Niemistö, Kati Sulin, Seija Turunen and Mikko Wirén, be re-elected as members of the Board of Directors for a new term of office.
The personal details of the current members of the Board and the details of their positions of trust are available at investors.pihlajalinna.fi/corporate-governance/board-of-directors.
The Nomination Board further proposes that the Annual General Meeting elect Mikko Wirén as the Chairman of the Board and Leena Niemistö as the Vice-Chairman.
The Shareholders' Nomination Board proposes that the remuneration of the Board of Directors be kept unchanged, and that the following annual remuneration be paid to the members of the Board of Directors to be elected at the Annual General Meeting for the term of office ending at the close of the Annual General Meeting 2021: to the full-time Chairman of the Board of Directors EUR 250,000 per year; to the Vice-Chairman EUR 36,000 per year, and to members EUR 24,000 per year.
Additionally, the Nomination Board proposes that each member of the Board of Directors be paid an attendance fee of EUR 500 per Board or Committee meeting. Reasonable travel expenses will also be reimbursed to the members of the Board in accordance with the company's travel rules.
The above-mentioned proposals will also be included in the notice of the Annual General Meeting which is to be published at a later date.
| PIHLAJALINNA | BUSINESS AND | RESPONSIBILITY |
|---|---|---|
| 2019 | STRATEGY |
BOARD OF DIRECTORS STATEMENTS
AUDITED FINANCIAL INFORMATION FOR SHAREHOLDERS
| Scope of operations | 2019 | 2018 | 2017 without IFRS 16 |
2016 without IFRS 16 |
2015 without IFRS 16 |
|---|---|---|---|---|---|
| Revenue, EUR million | 518.6 | 487.8 | 424.0 | 399.1 | 213.3 |
| Change, % | 6.3 | 15.0 | 6.2 | 87.1 | 43.3 |
| Organic revenue growth, EUR million | 13.4 | -2.0 | 10.1 | 134.5 | 44.3 |
| Change, % | 2.8 | -0.5 | 2.5 | 63.0 | 29.7 |
| Gross investments, EUR million* | 44.1 | 160.0 | 30.4 | 27.3 | 44.6 |
| % of revenue | 8.5 | 32.8 | 7.2 | 6.9 | 20.9 |
| Capitalised development costs, EUR million* | 0.5 | 1.3 | 1.2 | 1.3 | |
| % of revenue | 0.1 | 0.3 | 0.3 | 0.6 | |
| Employee benefit expenses, EUR million | 222.0 | 208.4 | 175.4 | 167.2 | 97.4 |
| Personnel at the end of the period (NOE) | 5,815 | 5,850 | 4,753 | 4,407 | 3,047 |
| Average number of personnel (FTE) | 4,515 | 4,618 | 3,879 | 3,526 | 2,503 |
| Profitability | 2019 | 2018 | 2017 | 2016 | 2015 |
| EBITDA, EUR million* | 47.8 | 44.8 | 33.3 | 27.9 | 11.6 |
| EBITDA, %* | 9.2 | 9.2 | 7.9 | 7.0 | 5.4 |
| Adjusted EBITDA, EUR million* | 55.1 | 45.9 | 34.1 | 28.9 | 12.5 |
| Adjusted EBITDA, %* | 10.6 | 9.4 | 8.0 | 7.2 | 5.9 |
| Operating profit (EBIT), EUR million* | 10.2 | 13.2 | 19.1 | 15.1 | 3.6 |
| Operating profit, %* | 2.0 | 2.7 | 4.5 | 3.8 | 1.7 |
| Adjusted operating profit (EBIT), EUR million* | 20.8 | 14.4 | 20.0 | 16.6 | 4.5 |
| Adjusted operating profit, %* | 4.0 | 3.0 | 4.7 | 4.2 | 2.1 |
| Net financial expenses, EUR million | -3.9 | -3.8 | -1.7 | -1.4 | -2.3 |
| % of revenue | -0.8 | -0.8 | -0.4 | -0.4 | -1.1 |
| Profit before tax, EUR million* | 6.3 | 9.5 | 17.4 | 13.7 | 1.3 |
| % of revenue | 1.2 | 1.9 | 4.1 | 3.4 | 0.6 |
| Income tax, EUR million | -1.8 | -2.7 | -3.4 | -3.0 | -0.1 |
| Profit for the period | 4.5 | 6.8 | 14.1 | 10.8 | 1.2 |
| Funding and financial position | 2019 | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|---|
| Return on capital employed (ROCE), %* | 2.9 | 4.6 | 11.8 | 10.8 | 3.4 |
| Return on equity (ROE), %* | 3.8 | 5.7 | 13.6 | 11.1 | 2.3 |
| Cash flow after investments, EUR million | 17.4 | -18.8 | 16.4 | 6.8 | -14.4 |
| Interest-bearing net financial debt, EUR million | 192.7 | 178.0 | 34.2 | 22.1 | 23.5 |
|---|---|---|---|---|---|
| % of revenue | 37.2 | 36.5 | 8.1 | 5.5 | 11.0 |
| Equity ratio, %* | 24.3 | 29.9 | 41.8 | 46.5 | 50.5 |
| Gearing, %* | 181.7 | 136.6 | 32.3 | 21.9 | 25.2 |
| Net debt/adjusted EBITDA* | 3.5 | 3.9 | 1.0 | 0.8 | 1.9 |
| 2019 | 2018 | 2017 | 2016 | 2015 | |
|---|---|---|---|---|---|
| Earnings per share (EPS) | 0.15 | 0.16 | 0.46 | 0.39 | 0.03 |
| Equity per share, EUR* | 4.47 | 5.36 | 4.87 | 4.74 | 4.47 |
| Dividend per share, EUR | 0.10 | 0.16 | 0.15 | ||
| Dividend per share, % | 64.0 | 34.7 | 38.4 | ||
| Effective dividend yield, % | 1.2 | 1.2 | 0.8 | ||
| Number of shares at year-end | 22,620,135 | 22,620,135 | 20,613,146 | 20,613,146 | 20,613,146 |
| Average number of shares | 22,620,135 | 22,224,236 | 20,613,146 | 20,613,146 | 16,767,940 |
| Market capitalisation, EUR million | 345.6 | 195.0 | 274.0 | 379.7 | 364.9 |
| Dividends paid, EUR million | 2.3 | 3.3 | 3.1 | ||
| P/E ratio* | 83.9 | 55.1 | 28.9 | 47.2 | 640.0 |
| Highest quotation, EUR | 15.88 | 15.28 | 18.42 | 18.87 | 19.85 |
| Lowest quotation, EUR | 8.70 | 8.56 | 12.60 | 12.90 | 11.38 |
| Average quotation, EUR | 12.77 | 12.18 | 16.30 | 16.38 | 12.72 |
| Closing price at year-end, EUR | 15.28 | 8.62 | 13.34 | 18.42 | 17.70 |
| Trading volume of shares, 1,000 shares* | 4,062 | 6,182 | 5,189 | 8,196 | 7,680 |
| Trading volume of shares, %* | 18.0 | 27.8 | 25.2 | 39.8 | 45.8 |
* Alternative performance measure
| 1 000 € | Q4/19 | Q3/19 | Q2/19 | Q1/19 | Q4/18 | Q3/18 | Q2/18 | Q1/18 |
|---|---|---|---|---|---|---|---|---|
| Income statement | ||||||||
| Revenue | 133,761 | 122,660 | 129,710 | 132,465 | 126,962 | 116,290 | 125,340 | 119,172 |
| Other operating income | 710 | 186 | 381 | 352 | 1,860 | 401 | 588 | 1,304 |
| Materials and services | -53,942 | -45,928 | -49,684 | -50,658 | -48,067 | -42,847 | -49,674 | -48,587 |
| Employee benefit expenses | -54,970 | -52,443 | -57,592 | -56,962 | -53,334 | -48,743 | -54,351 | -51,981 |
| Other operating expenses | -13,253 | -11,547 | -12,370 | -13,034 | -13,291 | -10,834 | -12,790 | -12,591 |
| EBITDA | 12,307 | 12,928 | 10,446 | 12,163 | 14,130 | 14,266 | 9,112 | 7,318 |
| Adjusted EBITDA | 14,444 | 17,367 | 10,753 | 12,563 | 14,565 | 14,248 | 10,178 | 6,918 |
| Adjusted EBITDA, % | 10.8 | 14.2 | 8.3 | 9.5 | 11.5 | 12.3 | 8.1 | 5.8 |
| Depreciation, amortisation and impairment |
-8,640 | -11,546 | -8,844 | -8,622 | -8,195 | -8,218 | -8,148 | -7,025 |
| Operating profit (EBIT) | 3,667 | 1,382 | 1,601 | 3,541 | 5,935 | 6,048 | 964 | 292 |
| Adjusted operating profit (EBIT) | 5,557 | 9,257 | 2,057 | 3,941 | 6,489 | 6,030 | 2,030 | -107 |
| Adjusted operating profit (EBIT), % | 4.2 | 7.5 | 1.6 | 3.0 | 5.1 | 5.2 | 1.6 | -0.1 |
| Financial income | 30 | 42 | 27 | 22 | 46 | 20 | 34 | 22 |
| Financial expenses | -1,007 | -1,017 | -995 | -1,028 | -1,039 | -1,014 | -894 | -942 |
| Profit before taxes | 2,690 | 407 | 633 | 2,535 | 4,942 | 5,053 | 104 | -628 |
| Income taxes | -561 | -302 | -269 | -652 | -1,306 | -1,153 | -234 | -26 |
| Profit for the period | 2,129 | 104 | 364 | 1,884 | 3,636 | 3,901 | -129 | -653 |
| Share of the result for the financial year attributable to owners of the parent company |
3,703 | -1,284 | -490 | 1,436 | 2,535 | 2,234 | -11 | -1,283 |
| Share of the result for the financial year attributable to non-controlling interests |
-1,574 | 1,389 | 853 | 448 | 1,101 | 1,667 | -118 | 629 |
| EPS | 0.16 | -0.06 | -0.02 | 0.06 | 0.11 | 0.10 | 0.00 | -0.06 |
| Personnel at the end of the period (NOE) |
5,815 | 5,936 | 6,100 | 5,871 | 5,850 | 5,867 | 5,918 | 5,638 |
| Change in personnel during the quarter |
-121 | -164 | 230 | 21 | -17 | -51 | 280 | 885 |
* Without IFRS 16
| Key figures | ||
|---|---|---|
| Earnings per share (EPS) | Profit for the financial period attributable to owners of the parent company | |
| Average number of shares during the financial year | ||
| Alternative performance measures | ||
| Equity per share | Equity attributable to owners of the parent company Number of shares at the end of the financial period |
|
| Dividend per share | Dividend distribution for the financial year (or proposal) Number of shares at the end of the financial period |
|
| Dividend/result, % | Dividend per share Earnings per share (EPS) |
x 100 |
| Effective dividend yield, % | Dividend per share Closing price for the financial year |
x 100 |
| P/E ratio | Closing price for the financial year Earnings per share (EPS) |
|
| Share turnover, % | Number of shares traded during the period Average number of shares |
x 100 |
| Return on equity (ROE), % | Profit for the period (rolling 12 months) Equity (average) |
x 100 |
| Return on capital employed, % (ROCE) |
Profit before taxes (rolling 12 months) + financial expenses (rolling 12 months) Total statement of financial position – non-interest-bearing liabilities (average) |
x 100 |
| Equity ratio, % | Equity Total statement of financial position – prepayments received |
x 100 |
| Gearing, % | Interest-bearing net debt - cash and cash equivalents Equity |
x 100 |
| EBITDA | Operating profit + depreciation, amortisation and impairment | |
| EBITDA, % | Operating profit + depreciation, amortisation and impairment Revenue |
x 100 |
| Adjusted EBITDA* | Operating profit + depreciation, amortisation and impairment + adjustment items | |
| Adjusted EBITDA, %* | Operating profit + depreciation, amortisation and impairment + adjustment items Revenue |
x 100 |
| Net debt/Adjusted EBITDA*, rolling 12 months |
Interest-bearing net debt - cash and cash equivalents Adjusted EBITDA (rolling 12 months) |
|
| Cash flow after investments | Net cash flow from operating activities + net cash flow from investing activities | |
| Adjusted operating profit (EBIT)* | Operating profit + adjustment items | |
| Adjusted operating profit, %* | Adjusted operating profit (EBIT) Revenue |
x 100 |
| Profit before taxes | Profit for the financial year + income tax | |
| Gross investments | Increase in property, plant and equipment and intangible assets excluding finance leases | |
| Organic revenue growth, % | Revenue for the period - revenue from M&A transactions for the period - revenue for the previous period |
x 100 |
| Revenue for the previous period |
* 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.
| EUR 1,000, unless otherwise specified | 2019 | 2018 |
|---|---|---|
| Return on equity (ROE), % | ||
| Profit for the period (rolling 12 months)/ | 4,480 | 6,754 |
| Equity at beginning of period | 130,322 | 105,407 |
| Equity at end of period | 106,083 | 130,322 |
| Equity (average) x 100 | 118,202 | 117,864 |
| Return on equity (ROE), % | ||
|---|---|---|
| Profit for the period (rolling 12 months)/ | 4,480 | 6,754 |
| Equity at beginning of period | 130,322 | 105,407 |
| Equity at end of period | 106,083 | 130,322 |
| Equity (average) x 100 | 118,202 | 117,864 |
| Return on equity (ROE), % | 3.8 | 5.7 |
| Return on capital employed (ROCE), % | ||
| Profit before taxes (rolling 12 months) + | 6,264 | 9,472 |
| Financial expenses (rolling 12 months) | 4,047 | 3,890 |
| / | 10,311 | |
| Total statement of financial position at beginning of period - | 436,764 | |
| non-interest-bearing liabilities at beginning of period | 13,361 295,552 |
|
| 78,191 | 76,730 | |
| 358,573 | 218,822 |
| Average x 100 | 349,927 | 288,697 |
|---|---|---|
| 341,282 | 358,573 | |
| Non-interest-bearing liabilities at end of period | 97,164 | 78,191 |
| Total statement of financial position at end of period - | 438,446 | 436,764 |
| 358,573 | 218,822 | |
| non-interest-bearing liabilities at beginning of period | 78,191 | 76,730 |
| Total statement of financial position at beginning of period - | 436,764 | 295,552 |
| / | 10,311 | 13,361 |
| Financial expenses (rolling 12 months) | 4,047 | 3,890 |
| Profit before taxes (rolling 12 months) + | 6,264 | 9,472 |
Return on capital employed is one of the most important indicators produced by financial statements analysis. It measures the company's relative profitability, or the return on capital invested in the company that requires interest or other returns.
| Equity ratio, % | ||
|---|---|---|
| Equity / | 106,083 | 130,322 |
| Total statement of financial position - | 438,446 | 436,764 |
| Advances received x 100 | 1,069 | 897 |
| Equity ratio, % | 24.3 | 29.9 |
The equity ratio measures the company's solvency, the capacity to tolerate losses and the ability to manage commitments in the long term. The indicator shows the percentage of the company's assets that are financed by equity.
| Gearing, % | 181.7 | 136.6 |
|---|---|---|
| Equity x 100 | 106,083 | 130,322 |
| Cash and cash equivalents / | 27,004 | 36,316 |
| Interest-bearing financial liabilities - | 219,707 | 214,341 |
Gearing illustrates the company's indebtedness. The figure reveals the ratio between the equity invested in the company by shareholders and the interest-bearing debt borrowed from lenders. The second financial covenant of the Group's financing arrangements is the gearing ratio. The maximum value is 115%.
Pihlajalinna publishes a wide range of alternative performance measures, i.e. key figures that are not based on financial reporting standards, because they are considered to be significant for investors, the management and the Board of Directors in assessing the group's financial position and profitability. The alternative performance measures should not be considered to be replacements for the key figures defined in IFRS standards. The table below presents the reconciliation calculations for the alternative performance measures and the justifications for their presentation.
BUSINESS AND RESPONSIBILITY STRATEGY PIHLAJALINNA 2019
PARTNERSHIP REPORT BY THE
BOARD OF DIRECTORS AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
| 2019 | 2018 | |
|---|---|---|
| Net debt/adjusted EBITDA, rolling 12 months | ||
| Interest-bearing financial liabilities - | 219,707 | 214,341 |
| Cash and cash equivalents | 27,004 | 36,316 |
| Net debt / | 192,703 | 178,026 |
| Adjusted EBITDA (rolling 12 months) | 55,127 | 45,909 |
| Net debt/adjusted EBITDA, rolling 12 months | 3.5 | 3.9 |
This figure illustrates how quickly, at the current profit rate, the company would have paid off its debts if the EBITDA were to be used in full to repay the debts, if the company does not, for example, invest or distribute any dividend. The second financial covenant linked to the Group's financing arrangement is based on the ratio of the Group's net debt to pro forma EBITDA. The maximum value of the covenant linked to the financing arrangement is 3.75. The closer the value of the covenant is to the maximum value, the higher the loan margin. The Group's management and Board of Directors monitor the fulfilment of the covenant on a monthly basis and the covenant is reported to the lenders on a quarterly basis. The covenant calculations are also updated with forecasts whenever the Group is about to carry out a material acquisition.
| Adjusted EBITDA | 55,127 | 45,909 |
|---|---|---|
| Total EBITDA adjustments* | 7,284 | 1,083 |
| EBITDA | 47,844 | 44,826 |
| Depreciation, amortisation and impairment | -37,653 | -31,586 |
| Financial income | 120 | 122 |
| Financial expenses | -4,047 | -3,890 |
| Income taxes | -1,784 | -2,717 |
| Profit for the period | 4,480 | 6,754 |
EBITDA indicates how much is left of the company's revenue after deducting operating expenses. Assessments of whether EBITDA is sufficiently high should take into account the company's financial expenses, depreciation requirements and intended profit distribution. Adjusted EBITDA provides significant additional information on profitability by eliminating items that do not necessarily reflect the profitability of the company's operative business. Adjusted EBITDA improves comparability between periods and is frequently used by analysts, investors and other parties.
The Group Management Team and operative management monitor and forecast adjusted EBITDA on a monthly basis.
| EBITDA / | 47,844 | 44,826 |
|---|---|---|
| Revenue x 100 | 518,596 | 487,764 |
| EBITDA, % | 9.2 | 9.2 |
| Adjusted EBITDA / | 55,127 | 45,909 |
|---|---|---|
| Revenue x 100 | 518,596 | 487,764 |
| Adjusted EBITDA, % | 10.6 | 9.4 |
| Profit for the period | 4,480 | 6,754 |
|---|---|---|
| Income taxes | -1,784 | -2,717 |
| Financial expenses | -4,047 | -3,890 |
| Financial income | 120 | 122 |
| Operating profit | 10,191 | 13,240 |
| Total adjustments of depreciation, amortisation and impairment** | 3,337 | 119 |
| Total EBITDA adjustments* | 7,284 | 1,083 |
| Total operating profit (EBIT) adjustments | 10,621 | 1,203 |
| Adjusted operating profit (EBIT) | 20,812 | 14,442 |
Operating profit indicates how much is left of the proceeds of actual business operations before financial items and taxes. With operating profit, the company must cover, among other things, financial expenses, taxes and the distribution of dividends. Adjusted operating profit provides significant additional information on profitability by eliminating items that do not necessarily reflect the profitability of the company's operative business. Adjusted operating profit improves comparability between periods and is frequently used by analysts, investors and other parties.
The Group Management Team and operative management monitor and forecast adjusted operating profit on a monthly basis.
| 2019 | 2018 | |
|---|---|---|
| Operating profit (EBIT), % | ||
| Operating profit / | 10,191 | 13,240 |
| Revenue x 100 | 518,596 | 487,764 |
| Operating profit (EBIT), % | 2.0 | 2.7 |
| Adjusted operating profit (EBIT), % | ||
| Adjusted operating profit / | 20,812 | 14,442 |
| Revenue x 100 | 518,596 | 487,764 |
| Adjusted operating profit (EBIT), % | 4.0 | 3.0 |
|--|
| Net cash flow from operating activities | 36,840 | 41,235 |
|---|---|---|
| Net cash flow from investing activities | -19,452 | -60,070 |
| Cash flow after investments | 17,387 | -18,835 |
Cash flow after investments (free cash flow) indicates how much cash is left for the company after deducting the cash tied up in operative business and investments. It indicates how much the company has left for its shareholders and creditors. Free cash flow indicates how sustainable the foundation of the company's profitability is, and it is used as the basis of the company's valuation.
| Profit for the period | 4,480 | 6,754 |
|---|---|---|
| Income taxes | -1,784 | -2,717 |
| Profit before taxes | 6,264 | 9,472 |
| Gross investments | ||
| Property, plant and equipment at the end of the period | 53,237 | 43,281 |
| Right-of-use assets at the end of the period | 108,109 | 115,970 |
| Other intangible assets at end of period | 19,084 | 22,914 |
| Goodwill at end of period | 173,607 | 169,927 |
| Depreciation, amortisation and impairment for the period are added | 37,653 | 31,586 |
| Property, plant and equipment at the start of the period | 43,281 | 30,326 |
| Right-of-use assets at the start of the period | 115,970 | 73,125 |
| Other intangible assets at beginning of the period | 22,914 | 16,604 |
| Goodwill at beginning of the period | 169,927 | 103,893 |
| Proceeds from the sale of property, plant and equipment during the period | -4,483 | -317 |
| Gross investments | 44,081 | 160,048 |
Gross investments refers to the acquisition of long-term factors of production, including M&A transactions. Divestments and proceeds from the sale of property, plant and equipment are not deducted from investments. Investments are also presented on a cash flow basis in the cash flow statement.
| Revenue for the period - 518,596 487,764 Revenue from M&A transactions during the period 17,386 65,741 Revenue for the previous period 487,764 423,984 Organic revenue growth / 13,446 -1,961 Revenue for the previous period x 100 487,764 423,984 Organic revenue growth, % 2.8 -0.5 Revenue growth due to M&A transactions, % 3.6 15.5 Revenue growth 30,832 63,780 Revenue growth, % 6.3 15.0 |
||
|---|---|---|
Organic revenue growth is growth in existing business operations that has not come about as a result of M&A transactions. Organic growth can be achieved through increasing the service offering, new customer acquisition, growth in custom from existing customers, price increases and digitalisation. Social and healthcare outsourcing contracts won through public competitive bidding and new business locations established by the group itself are included in organic growth.
BOARD OF DIRECTORS STATEMENTS
AUDITED FINANCIAL INFORMATION FOR SHAREHOLDERS
| 2019 | 2018 | |
|---|---|---|
| EBITDA | 47,844 | 44,826 |
| Adjustments to EBITDA | ||
| Closure of operating locations | 42 | |
| Previous holding of subsidiary at fair value | -964 | |
| Dismissal-related expenses | 3,019 | 565 |
| Profit from divestment of business operations | -47 | |
| Change in fair value of contingent consideration | 281 | 1,192 |
| IAS 37, contingent asset | 1,845 | |
| Onerous contracts | 1,843 | |
| Other | 296 | 296 |
| Adjustments to EBITDA in total | 7,284 | 1,083 |
| Adjusted EBITDA | 55,127 | 45,909 |
| Depreciation, amortisation and impairment | -37,653 | -31,586 |
| Adjustments to depreciation, amortisation and impairment | ||
| Closure of operating locations | 3,337 | 119 |
| Adjustments to depreciation, amortisation and impairment in total | 3,337 | 119 |
| Adjustments to operating profit in total | 10,621 | 1,203 |
| Adjusted operating profit (EBIT) | 20,812 | 14,442 |
| Operating profit (EBIT) | 10,191 | 13,240 |
| Financial income | 120 | 122 |
| Financial expenses | -4,047 | -3,890 |
| Income taxes | -1,784 | -2,717 |
Profit for the period 4,480 6,754
| Revenue | 1,845 | |
|---|---|---|
| Other operating income | -1,011 | |
| Employee benefit expenses | 3,566 | 565 |
| Other operating expenses | 1,873 | 1,530 |
| EBITDA adjustment items total | 7,284 | 1,083 |
| Depreciation, amortisation and impairment | 3,337 | 119 |
| Operating profit adjustment items total | 10,621 | 1,203 |
| Major shareholders, 31 Dec. 2019 | |||||
|---|---|---|---|---|---|
| Number of shares | Percentage of shares and votes | ||||
| 1 | Localtapiola General Mutual Insurance Company | 3,481,641 | 15.4 % | ||
| 2 Mww Yhtiö Oy |
2,309,010 | 10.2 % | |||
| 3 Fennia Mutual Insurance Company |
1,998,965 | 8.8 % | |||
| 4 Localtapiola Mutual Life Insurance Company | 1,891,865 | 8.4 % | |||
| 5 Nordea Bank Abp |
1,325,876 | 5.9 % | |||
| 6 | Elo Mutual Pension Insurance Company | 1,267,161 | 5.6 % | ||
| 7 | Skandinaviska Enskilda Banken Ab (Publ), Helsinki Branch | 1,050,207 | 4.6 % | ||
| 8 Niemistö Leena Katriina |
703,475 | 3.1 % | |||
| 9 | Fondita Nordic Micro Cap Mutual Fund | 534,596 | 2.4 % | ||
| 9 | Ilmarinen Mutual Pension Insurance Company | 490,000 | 2.2 % | ||
| 10 largest, total | 15,052,796 | 66.5 % | |||
| Other shareholders | 7,567,339 | 33.5 % | |||
| Total | 22,620,135 | 100.0 % | |||
| Distribution of shareholding by size range, 31 Dec. 2019 | |||||
| Shares per shareholder | Number of shareholders | % of shareholders | Number of shares | Percentage of shares, % | |
| 1 - 100 | 6,388 | 54.4 % | 305,063 | 1.3 % | |
| 101 - 1 000 | 4,712 | 40.1 % | 1,609,159 | 7.1 % | |
| 1 001 - 10 000 | 565 | 4.8 % | 1,550,088 | 6.9 % | |
| 10 001 - 100 000 | 61 | 0.5 % | 1,500,445 | 6.6 % | |
| 100 001 - 500 000 | 17 | 0.1 % | 3,093,064 | 13.7 % | |
| 500 001 - | 9 | 0.1 % | 14,562,316 | 64.4 % | |
| 11,752 | 100.0 % | 22,620,135 | 100.0 % | ||
| of which nominee-registered shares | 9 | 2,464,485 | 10.9 % | ||
| Outstanding shares | 22,620,135 | 100.0 % |
Distribution of shareholding by sector, 31 Dec. 2019
| Number of shareholders | % of shareholders | Number of shares | Percentage of shares, % | |
|---|---|---|---|---|
| Private companies | 435 | 3.7 % | 4,527,080 | 22.5 % |
| Financial and insurance institutions | 30 | 0.3 % | 9,067,843 | 45.0 % |
| Public entities | 4 | 0.0 % | 1,883,979 | 9.3 % |
| Households | 11,222 | 95.5 % | 4,533,075 | 22.5 % |
| Non-profit organisations | 40 | 0.3 % | 135,948 | 0.7 % |
| Foreign shareholders | 21 | 0.2 % | 7,725 | 0.0 % |
| 11,752 | 100.0 % | 20,155,650 | 100.0 % | |
| nominee-registered shares | 2,464,485 | 10.9 % | ||
| Outstanding shares | 22,620,135 | 100.0 % | ||
AUDITED FINANCIAL INFORMATION FOR SHAREHOLDERS
| Direct holding | Indirect holdings | |||
|---|---|---|---|---|
| Number of shares Percentage of shares and votes Number of shares | Percentage of shares | |||
| Board of Directors | ||||
| Mikko Wirén (MWW Yhtiö Oy) | 2,309,010 | 10.2 % | ||
| Leena Niemistö | 703,475 | 3.1 % | ||
| Matti Jaakola | ||||
| Hannu Juvonen | ||||
| Mika Manninen | ||||
| Kati Sulin | ||||
| Seija Turunen | ||||
| Management Team | ||||
| Joni Aaltonen | 81,920 | 0.4 % | ||
| Teija Kulmala | 6,000 | 0.0 % | ||
| Tarja Rantala | 10,455 | 0.0 % | ||
| Elina Heliö | 1,009 | 0.0 % | ||
| Sanna Määttänen | 11,700 | 0.1 % | ||
| Marko Savolainen | 4,000 | 0.0 % |
| Consolidated statement of comprehensive income, IFRS | 56 | ||
|---|---|---|---|
| Consolidated statement of financial position, IFRS | 57 | ||
| Consolidated statement of cash flows, IFRS | 58 | ||
| Consolidated statement of changes in equity, IFRS | 59 | ||
| Notes to the consolidated financial statements, IFRS | |||
| Category | No. | Description Accounting policies |
60 |
| New and amended standards and interpretations applied in the past financial year | 60 | ||
| Adoption of new and revised standards and interpretations in future financial years | 62 | ||
| Income statement | 1 | Revenue from contracts with customers and segment information | 63 |
| Income statement | 2 | Other operating income | 65 |
| Income statement | 3 | Materials and services | 65 |
| Income statement | 4 | Employee benefit expenses | 65 |
| Income statement | 5 | Share-based incentive scheme for key personnel | 66 |
| Income statement | 6 | Other operating expenses | 66 |
| Income statement | 7 | Depreciation, amortisation and impairment | 66 |
| Income statement | 8 | Adjusted EBITDA and adjusted operating profit | 67 |
| Income statement | 9 | Financial income | 68 |
| Income statement | 10 | Financial expenses | 68 |
| Income statement, taxes | 11 | Income taxes | 68 |
| EPS | 12 | Earnings per share | 69 |
| Statement of financial position 13 | Property, plant and equipment | 69 | |
| Statement of financial position 14 | Intangible assets | 70 | |
| Statement of financial position 15 | Right-of-use assets | 73 | |
| Statement of financial position 16 | Other non-current receivables | 74 | |
| Statement of financial position 17 | Trade and other receivables | 74 | |
| Statement of financial position 18 | Provisions | 76 | |
| Statement of financial position 19 | Trade and other payables | 76 | |
| Balance sheet, taxes | 20 | Deferred tax assets and liabilities | 76 |
| Equity | 21 | Financial assets and liabilities by measurement category | 78 |
| Equity | 22 | Notes on equity | 79 |
| Equity | 23 | Financial liabilities | 80 |
| Equity | 24 | Changes in interest-bearing liabilities with no impact on cash flow | 80 |
| Equity | 25 | Capital management | 80 |
| Risk management | 26 | Financial risk management | 81 |
| Group structure | 27 | Business combinations | 83 |
| Group structure | 28 | Subsidiaries and material non-controlling interests | 86 |
| Group structure | 29 | Interests in associates and joint arrangements | 88 |
| Other | 30 | Contingent assets and liabilities and commitments | 88 |
| Other | 31 | Related party transactions | 89 |
| Other | 32 | Events after the balance sheet date | 91 |
| Parent company financial statements, main calculations, FAS | |||
| Parent company balance sheet, FAS | 93 | ||
| Parent company income statement, FAS Parent company cash flow statement, FAS |
94 95 |
||
| Parent company notes to financial statements, FAS | Signatures to the Report by the Board of Directors and the Financial Statements | 96 100 |
|
| Auditor's report | 101 | ||
| Information for shareholders | 105 | ||
| PIHLAJALINNA | BUSINESS AND | RESPONSIBILITY |
|---|---|---|
| 2019 | STRATEGY |
| EUR 1,000 | Note | 1.1.–31.12.2019 | 1.1.–31.12.2018 |
|---|---|---|---|
| Revenue | 1 | 518,596 | 487,764 |
| Other operating income | 2 | 1,630 | 4,153 |
| Materials and services | 3 | -200,212 | -189,175 |
| Employee benefit expenses | 4 | -221,967 | -208,409 |
| Other operating expenses | 6 | -50,205 | -49,541 |
| Share of profit in associated companies and joint ventures | 29 | 2 | 35 |
| EBITDA | 47,844 | 44,826 | |
| Depreciation, amortisation and impairment | 7 | -37,653 | -31,586 |
| Operating profit | 10,191 | 13,240 | |
| Financial income | 9 | 120 | 122 |
| Financial expenses | 10 | -4,047 | -3,890 |
| Financial income and expenses | -3,926 | -3,768 | |
| Profit before taxes | 6,264 | 9,472 | |
| Income taxes | 11 | -1,784 | -2,717 |
| Profit for the period* | 4,480 | 6,754 | |
| Total comprehensive income for the period | 4,480 | 6,754 | |
| Total comprehensive income for the financial year attributable to | |||
| Owners of the parent | 3,365 | 3,475 | |
| Non-controlling interests | 1,115 | 3,279 | |
| Earnings per share for profit attributable to owners of the parent company, EUR Basic |
12 | 0.15 | 0.16 |
| Diluted | 0.15 | 0.16 | |
* The Group does not have any other comprehensive income items.
| EUR 1,000 | Note | 31.12.2019 | 31.12.2018 |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 13 | 53,237 | 43,281 |
| Goodwill | 14 | 173,607 | 169,927 |
| Other intangible assets | 14 | 19,084 | 22,914 |
| Right-of-use assets | 15 | 108,109 | 115,970 |
| Interests in associates | 29 | 24 | 23 |
| Other investments | 146 | 139 | |
| Other receivables | 16 | 1,975 | 1,800 |
| Deferred tax assets | 20 | 6,006 | 4,063 |
| 362,188 | 358,117 | ||
| Current assets | |||
| Inventories | 2,322 | 2,454 | |
| Trade and other receivables | 17 | 46,062 | 38,147 |
| Current tax assets | 869 | 1,731 | |
| Cash and cash equivalents | 27,004 | 36,316 | |
| 75,237 | 78,647 | ||
| Total assets | 438,446 | 436,764 | |
| Equity and liabilities | |||
| Equity attributable to owners of the parent | 22 | ||
| Share capital | 80 | 80 | |
| Reserve for invested unrestricted equity | 116,520 | 116,520 | |
| Retained earnings | -15,481 | 4,551 | |
| 101,119 | 121,150 | ||
| Non-controlling interests | 4,965 | 9,171 | |
| Total equity | 106,083 | 130,322 | |
| Liabilities | |||
| Non-current liabilities | |||
| Deferred tax liabilities | 20 | 5,726 | 6,105 |
| Provisions | 18 | 170 | 302 |
| Lease liabilities | 15 | 96,404 | 101,998 |
| Financial liabilities | 21 | 103,862 | 95,694 |
| Other non-current liabilities | 1,302 | 1,505 | |
| 207,465 | 205,603 | ||
| Current liabilities | |||
| Trade and other payables | 19 | 102,002 | 79,494 |
| Current tax liabilities | 423 | 1,884 | |
| Provisions | 18 | 1,636 | |
| Lease liabilities | 15 | 17,747 | 16,504 |
| Financial liabilities | 21 | 3,090 | 2,958 |
| 123,877 | 100,840 | ||
| Total liabilities | 331,341 | 306,443 | |
| Total equity and liabilities | 438,446 | 436,764 |
| PIHLAJALINNA | BUSINESS AND | RESPONSIBILITY |
|---|---|---|
| 2019 | STRATEGY |
BOARD OF DIRECTORS AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
| EUR 1,000 Note |
1.1.–31.12.2019 | 1.1.–31.12.2018 |
|---|---|---|
| Cash flow from operating activities: | ||
| Profit for the period | 3,365 | 3,487 |
| Cash flow adjustments for business operations: | 0 | |
| Taxes | 1,784 | 2,717 |
| Depreciation, amortisation and impairment | 37,653 | 31,586 |
| Financial income and expenses | 3,925 | 3,733 |
| Other | 964 | 3,444 |
| Net cash generated from operating activities before change in working capital | 47,691 | 44,968 |
| Change in working capital | -6,227 | 1,643 |
| Interest received | 109 | 112 |
| Taxes paid | -4,733 | -5,488 |
| Net cash flow from operating activities | 36,840 | 41,235 |
| Cash flow from investing activities: | ||
| Investments in property, plant and equipment and intangible assets | -15,406 | -19,589 |
| Proceeds from disposal of property, plant and equipment and intangible assets | 801 | 392 |
| Changes in other investments | -1 | 12 |
| Dividends received | 11 | 12 |
| Acquisition of subsidiaries less cash and cash equivalents at date of acquisition 27 |
-4,857 | -40,951 |
| Disposal of subsidiaries less cash and cash equivalents at date of disposal 27 |
55 | |
| Net cash flow from investing activities | -19,452 | -60,070 |
| Cash flow from financing activities: | ||
| Proceeds from issuing shares | ||
| Acquisitions of non-controlling interests | -1,267 | -6,424 |
| Proceeds from short-term borrowings 24 |
501 | |
| Proceeds from long-term borrowings 24 |
9,000 | 121,520 |
| Repayment of borrowings 24 |
-1,785 | -72,131 |
| Repayment of lease liabilities 24 |
-22,656 | -16,311 |
| Interest and other operational financial expenses | -3,838 | -3,543 |
| Dividends paid and other profit distribution | -6,653 | -5,034 |
| Net cash flow from financing activities | -26,699 | 18,076 |
| Changes in cash and cash equivalents | -9,312 | -759 |
| Cash at the beginning of the financial year | 36,316 | 37,074 |
| Cash at the end of the financial year | 27,004 | 36,316 |
| Equity attributable to owners of the parent company | |||||
|---|---|---|---|---|---|
| Share | Reserve for invested unre |
Retained | Non-controlling | Total | |
| capital | stricted equity | earnings | interests | equity | |
| Total equity, 31 Dec. 2017 IFRS 15 adoption |
80 | 87,945 | 12,268 | 5,563 | 105,857 |
| IFRS 9 adoption | |||||
| IFRS 16 adoption | -300 | -149 | -449 | ||
| Total equity, 1 Jan. 2018 | 80 | 87,945 | 11,968 | 5,414 | 105,407 |
| Profit for the period, reported | 3,826 | 3,316 | 7,143 | ||
| Effect of IFRS 16 | -351 | -37 | -388 | ||
| Total comprehensive income for the period | 3,475 | 3,279 | 6,754 | ||
| Directed share issue | 28,574 | 28,574 | |||
| Dividends paid | -3,619 | -1,225 | -4,844 | ||
| Investments in group subsidiaries, reported | 2,381 | 2,381 | |||
| Investments in group subsidiaries, effect of IFRS 16 | -93 | 93 | 0 | ||
| Total transactions with owners | 28,574 | -3,712 | 1,249 | 26,111 | |
| Changes in NCI | |||||
| without a change in | |||||
| control | -7,180 | -771 | -7,951 | ||
| Total changes in ownership interests | -7,180 | -771 | -7,951 | ||
| Total equity, 31 Dec. 2018 | 80 | 116,520 | 4,551 | 9,171 | 130,322 |
| EUR 1,000 | Equity attributable to owners of the parent company | ||||
| Reserve for | |||||
| Share capital |
invested unre stricted equity |
Retained earnings |
Non-controlling interests |
Total equity |
|
| Total equity, 1 Jan. 2019 | 80 | 116,520 | 4,551 | 9,171 | 130,322 |
| Profit for the period | 3,365 | 1,115 | 4,480 | ||
| Total comprehensive income for the period | 3,365 | 1,115 | 4,480 | ||
| Dividends paid | -2,262 | -4,930 | -7,192 | ||
| Investments in Group companies | 95 | -91 | 5 | ||
| Total transactions with owners | -2,167 | -5,021 | -7,188 | ||
| Changes in NCI without a change in control | |||||
| -21,230 | -301 | -21,531 | |||
| Total changes in ownership interests | -21,230 | -301 | -21,531 | ||
| Total equity, 31 Dec. 2019 | 80 | 116,520 | -15,481 | 4,965 | 106,083 |
| Share capital |
invested unre stricted equity |
Retained earnings |
Non-controlling interests |
Total equity |
|
|---|---|---|---|---|---|
| Total equity, 1 Jan. 2019 | 80 | 116,520 | 4,551 | 9,171 | 130,322 |
| Profit for the period | 3,365 | 1,115 | 4,480 | ||
| Total comprehensive income for the period | 3,365 | 1,115 | 4,480 | ||
| Dividends paid | -2,262 | -4,930 | -7,192 | ||
| Investments in Group companies | 95 | -91 | 5 | ||
| Total transactions with owners | -2,167 | -5,021 | -7,188 | ||
| Changes in NCI without a change in control | |||||
| -21,230 | -301 | -21,531 | |||
| Total changes in ownership interests | -21,230 | -301 | -21,531 | ||
| Total equity, 31 Dec. 2019 | 80 | 116,520 | -15,481 | 4,965 | 106,083 |
Pihlajalinna is one of the leading private social and healthcare service providers in Finland. The Group serves private persons, companies, insurance companies and public sector entities, such as municipalities and hospital districts. Pihlajalinna provides a broad range of social and healthcare services as well as wellbeing services. The service selection includes general practitioner and medical specialist services, occupational healthcare, social and healthcare outsourcing, fitness centre services, responsible doctor and remote consultation services as well as residential services and staffing services.
At the end of the financial year, the total number of Pihlajalinna's private clinics, hospitals, dental clinics, fitness centres, service housing units with 24-hour assistance and reception centres was approximately 140. In addition, Pihlajalinna has four major complete social and healthcare outsourcing agreements and one partial outsourcing agreement that collectively cover some 60 locations (including health centres, maternity and child health clinics, service housing units with 24-hour assistance and daytime activity centres).
The Group's parent company, Pihlajalinna Plc, is a Finnish public limited company established under the laws of Finland, whose Business ID is 2617455-1. The company is domiciled in Tampere, and its registered address is Kehräsaari B, FI-33200 Tampere, Finland. Pihlajalinna Plc's shares are listed on the NASDAQ OMX Helsinki main market. A copy of the consolidated financial statements is available on the internet at investors.pihlajalinna.fi or can be obtained at the head office of the Group's parent company, address Kehräsaari B, 33200 Tampere, Finland.
The Board of Directors of Pihlajalinna Plc approved these financial statements in its meeting on 13 February 2020. In accordance with the Finnish Limited Liability Companies Act, the shareholders may adopt or reject the financial statements at the Annual General Meeting held after their publication. The Annual General Meeting can also decide on modifications to be made to the financial statements.
The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), and their preparation complies with the IAS and IFRS as well as SIC and IFRIC interpretations effective on 31 December 2020. International Financial Reporting Standards, as intended in the Finnish Accounting Act and the regulations issued pursuant to the Act, refer to the standards that have been approved for application within the EU in accordance with Regulation (EC) No. 1606/2002 and interpretations thereof. The notes to the consolidated financial statements also comply with the Finnish accounting and company legislation that complements the IFRS regulations.
Accounting policies that influence a particular note to the consolidated financial statements are indicated with the heading Accounting policies in the note in question.
The consolidated financial statements are presented in euros and all figures are rounded to the nearest thousand, unless otherwise specified.
Pihlajalinna adopted IFRS 16 fully retrospectively by adjusting the financial figures for 2018 in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Pihlajalinna issued a release on 18 April 2019 to present restated comparable financial figures for each reporting period in 2018.
The IFRS 16 Leases standards covers the definitions, recording and measurement of leases as well as other financial statements provided regarding leases. According to the standard, the tenant records the asset item based on the right of use and the corresponding financial liability in the statement of financial position. The Group adopted the new standard fully retrospectively. The effects of the date of transition 1 January 2018 are calculated as if the standard has always been valid.
The IFRS 16 Leases standard had a significant impact on the income statement, balance sheet and key figures of Pihlajalinna. The adoption of the standard considerably increased the EBITDA and adjusted EBITDA when the renting expense recorded in the income statement was replaced with depreciations of the right-of-use-asset as well as the interest costs of liability recorded in the financial items. In addition, the change in deferred taxes was recorded in the income tax. The adoption of the standard has not significantly changed Pihlajalinna's operating profit, adjusted operating profit, profit for the financial year or earnings per share.
The assets on the consolidated balance sheet were increased by the right-of-use asset calculated for the start of each lease and depreciated during the lease period. The amount of interest-bearing debt on the consolidated balance sheet increased with the discounted amount of lease liability. In addition, the transition to the new lease standard impacted the consolidated cash flow from operating activities as well as the cash flow from financing activities once the realised payments of rent are targeted at the cash flow from financing activities to the extent corresponding to the financial expenses and the partial payment of debt. Overall, the consolidated cash flow remains unchanged, but there are changes in the manner of representation between the different parts of the statement of cash flows. An entry in equity was created regarding the retroactive deployment of the new standard on the date of transition on 1 January 2018 when the values of assets and liabilities recorded in the statement of financial position differed on the date of transition.
Most of the Pihlajalinna rental arrangements in line with the IFRS 16 are leases for business premises. The other lease arrangements in line with the standard concern land areas, machinery and equipment (exercise equipment, clinical equipment, cars and other equipment). Pihlajalinna applies the IFRS 16 exemption that allows lessees to elect not to recognise a right-of-use asset and corresponding lease liability for assets with a lease term of 12 months or less as well as assets of low
and office furniture. Furthermore, to make the accounting of leases easier, Pihlajalinna elects not to separate service components from leases, instead treating the entire agreement as a lease in its consolidated financial statements. For lease arrangements valid until further notice, with a short notice period, Pihlajalinna will estimate the probable lease term.
Pihlajalinna revised the presentation manner of the main calculations by adding rows in line with the IFRS 16 to the calculations. In addition, Pihlajalinna's statement of cash flows complies with an indirect calculation model.
The adoption of the standard does not affect the covenant calculations of the Group's external financing arrangement. The calculation of covenants will continue with the creditor banks in accordance with the accounting principles confirmed in the original financing arrangement.
The IFRIC 23 interpretation provides a more detailed framework regarding the recognition of uncertain tax positions and emphasises requirements related to notes to financial statements.
Other new or amended standards and interpretations that entered into force during the 2019 financial year have not had an impact on Pihlajalinna's financial statements.
Subsidiaries are entities in which the Group exercises control. The Group has control of an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Intragroup shareholdings are eliminated using the acquisition method. The consideration transferred and the acquired entity's identifiable assets and assumed liabilities are measured at fair value at the date of acquisition. Acquisition-related costs are
expensed. Any contingent consideration is measured at fair value at the date of acquisition and classified as a liability. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the Group retrospectively adjusts the provisional amounts recognised at the acquisition date to reflect any new information. The measurement period may not exceed one year from the acquisition date. A contingent consideration classified as a liability is measured at fair value at the end of each reporting period, and any resulting gain or loss is recognised in profit or loss after the end of the measurement period.
Non-controlling interests in the acquiree are recognised either at fair value or an amount that corresponds to their pro rata share of the acquiree's net assets. The amount by which the consideration transferred, non-controlling interests in the acquiree and previously owned holding combined exceed the fair value of the acquired net assets is recognised as goodwill in the consolidated statement of financial position. If the combined value of the consideration, non-controlling interests and previously owned holding is lower than the fair value of the acquiree's net assets, the difference is recognised in the statement of comprehensive income.
Acquired subsidiaries are consolidated from the date when the Group obtained control, and disposed subsidiaries are consolidated until the date when the Group lost control. All intragroup transactions, receivables, liabilities, unrealised profits and internal profit distribution are eliminated in the preparation of the consolidated financial statements. Unrealised losses will not be eliminated in case of impairment losses. Profit or loss for the financial year attributable to the owners of the parent company and to the non-controlling interests is presented in the consolidated statement of comprehensive income. Comprehensive income is attributed to the owners of the parent company and to the non-controlling interests, even if this would lead to a situation where the portion attributable to the non-controlling interests is negative. The portion of equity attributable to the non-controlling interests is presented as a separate item under equity in the consolidated statement of financial position. Such changes in the parent company's ownership interest in a subsidiary that do not lead to loss of control are treated as equity transactions.
In connection with acquisitions achieved in stages, the previous holding is measured at fair value, and the resulting gain or loss is recognised in profit or loss. When the Group loses control of a subsidiary, any remaining holding is measured at fair value at the date of loss of control, and the resulting difference is recognised in profit or loss.
Associates are companies over which the Group has significant influence. As a rule, significant influence is established when the Group holds more than 20% of a company's voting power or otherwise has significant influence but no control.
A joint arrangement is an arrangement of which two or more parties have joint control. Joint control involves contractually agreed sharing of control of an arrangement, which exists only
BUSINESS AND RESPONSIBILITY STRATEGY PIHLAJALINNA 2019
INFORMATION FOR SHAREHOLDERS
when decisions about relevant activities require the unanimous consent of the parties sharing control. A joint arrangement is either a joint operation or a joint venture. A joint venture is an arrangement whereby the Group has rights to the net assets of the arrangement, whereas in a joint operation the Group has rights to the assets, and obligations for the liabilities, relating to the arrangement.
Associates and joint ventures are consolidated using the equity method. If the Group's share of the loss of an associate or a joint venture exceeds the carrying amount of the investment, then the investment is carried at zero value, and the losses exceeding the carrying amount are not consolidated, unless the Group is committed to fulfilling the obligations of the associate or joint venture. An investment in an associate or a joint venture includes the goodwill generated through the acquisition. Unrealised profits between the Group and an associate or a joint venture are eliminated in proportion to the Group's ownership interest. The Group's pro rata share of an associate's or a joint venture's profit for the financial year is included in operating profit.
The Group owns 31% in Kiinteistö Oy Levin Pihlaja, which is consolidated as a joint operation according to the pro rata share, using the proportionate consolidation method.
The consolidated financial statements are presented in euros, which is the functional currency and presentation currency of the Group's parent company and of the subsidiaries engaged in business activities. In their own accounting, Group companies translate dayto-day transactions denominated in foreign currency into their functional currency applying the exchange rates of the transaction date. Foreign exchange gains and losses related to the business are included in the corresponding expense items.
In the course of preparing the financial statements, it is necessary to make estimates and assumptions about the future. However, such estimates and assumptions may later prove inaccurate compared with actual outcomes. The Group regularly monitors the realisation of the estimates and assumptions and
changes in the underlying factors together with the business units by using several, both internal and external, sources of information. Any changes in estimates and assumptions are recognised in the financial year during which the estimate or assumption is corrected and in all subsequent financial years. Additionally, it is necessary to exercise judgement in the application of the accounting policies. The most significant estimates and assumptions are presented under the note in question under the heading Key accounting estimates and decisions based on management judgement.
* = The regulation in question was not yet endorsed for use in the EU on 31 December 2019.
Amendments to References to the Conceptual Framework in IFRS Standards (effective for financial years beginning on or after 1 January 2020).
The revised Framework codifies IASB's thinking adopted in recent standards. The Conceptual Framework primarily serves as a tool for the IASB to develop standards and to assist the IFRS Interpretations Committee in interpreting them. It does not override the requirements of individual IFRSs.
Definition of a Business (Amendments to IFRS 3) (effective for financial years beginning on or after 1 January 2020)
The amendments narrowed down and clarified the definition of a business. They also permit a simplified assessment of whether an acquired set is a group of assets rather than a business.
(effective for financial years beginning on or after 1 January 2020) The amendments clarify the definition of material and include guidance to help improve consistency in the application of that concept across all IFRS Standards. In addition, the explanations
accompanying the definition have been improved.
The above-mentioned and other new or amended standards and interpretations effective in upcoming financial periods are not expected to have a significant impact on Pihlajalinna's financial statements.
The Group's revenue consists of payments related to the sale of healthcare services, social services and wellbeing services measured at fair value, adjusted by any discounts and other adjustment items. The healthcare services provided by the Group consist of occupational health services, services provided at private clinics and hospitals, responsible doctor services, diagnostics services, rehabilitation services and dental care services. The social services provided by the Group consist of services for the elderly and the disabled, mental health and substance abuse group services, and asylum seeker reception centre operations. A significant part of the consolidated revenue consists complete social and healthcare outsourcing, which also includes the provider's liability for the costs of specialised care. The Group also provides wellbeing services and physician recruitment services. Forever fitness centres offer diverse wellbeing services for adults who exercise. Fitness centre services complement Pihlajalinna's preventive occupational healthcare services and rehabilitation services carried out after specialised care procedures.
The Group records the remunerations of employed healthcare professionals, contract-based practitioners and holders of Series B shares of Pihlajalinna Terveys Oy under revenues on a gross basis, i.e. based on total customer invoicing. According to the management's view, Pihlajalinna has primary responsibility for the provision of services to its customers. Therefore, the Group is involved in a contractual relationship as a principal which is exposed to significant risks and benefits related to the sale of services. The Group records the remunerations of contract-based practitioners and holders of Series B shares of Pihlajalinna Terveys Oy in the income statement under the item External services.
IFRS 15 Revenue from Contracts with Customers includes a five-step model for recognising revenue from contracts with customers: when to recognise revenue, and at what amount. Revenue can be recognised over time or at a point in time, and the passing of control is a key criterion. Pihlajalinna has identified the following major performance obligations:
• Private Clinics and Dental Care
• location-specific daily charges described in the customer agreement
BOARD OF DIRECTORS AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
The transaction price is primarily comprised of individual visits according to the price list or annual, monthly, daily or hourly rates based on customer agreements. In most cases, the price concerns an individual performance obligation. In some cases, the price includes a variable element of consideration (e.g. discount, penalty charge, bonus), which is allocated to one or more performance obligations. The performance obligations are primarily fulfilled either over time (e.g. outsourcings, residential services, fitness centre services, recruitment services, responsible doctor services) or at a point in time (e.g. occupational healthcare services, individual customer visits, additional services).
The performance obligation in social and healthcare outsourcings is the municipality's statutory social and healthcare service operations described in the customer agreement. The outsourcings are primarily based on a fixed annual price, and they are recognised as revenue over time.
Revenue from individual services is recognised on a treatment visit-specific basis based on service use.
Pihlajalinna has implemented changes to its segment reporting as a result of structural reforms. Pihlajalinna reformed its management system and the structure of its Management Team as part of its efficiency improvement programme. In conjunction with the reform, some of the Management Team positions were discontinued. In addition, the company also established an operations management team as a new management team level directed by the COO Teija Kulmala. The changes took effect on 15 August 2019.
Pihlajalinna's previous operating structure had four geographical business areas: Mid-Finland, Southern Finland, Ostrobothnia and Northern Finland. Each business area was managed by a Head of Business Operations responsible for its performance, who is in charge of their area's business operations and service offering for both the private and the public sector. In the revised operating structure, COO Teija Kulmala is in charge of the profitability and resources of business operations and the Group has one operating segment.
Pihlajalinna's CEO makes significant operational decisions at the Group level. The senior operating decision-maker monitors the Group's result. The key performance indicators that are monitored are EBITDA and operating profit. Adjusted EBITDA and adjusted operating profit also provide significant additional information on profitability, as these alternative performance measures eliminate items that do not necessarily reflect the profitability of the company's operative business. The alternative performance measures, adjusted EBITDA and adjusted operating profit, improve comparability between periods.
The adjustment items of these alternative performance measures are specified in Note 8 Adjusted EBITDA and adjusted operating profit.
Determining the annual profitability of the group's complete social and healthcare services outsourcing agreements may become accurate with a delay. The group may not always be aware of the actual costs of the agreements at the time of preparing the financial statements, and the agreements may involve variable consideration. The cost accumulation of public specialised care involves random fluctuation. In addition, individual cases falling within the scope of the hospital districts' pooling system for high-cost care and operational economy surplus refunds may influence the costs of specialised care considerably during the financial year, and between financial periods, in Pihlajalinna's municipal companies.
Pihlajalinna reports its sales revenue divided into the following geographical regions:
| EUR 1,000 | 2019 | % | 2018 | % |
|---|---|---|---|---|
| Southern Finland | 118,198 | 20 | 107,633 | 20 |
| Mid-Finland | 324,140 | 56 | 311,881 | 57 |
| Ostrobothnia | 115,676 | 20 | 108,792 | 20 |
| Northern Finland | 14,703 | 3 | 12,307 | 2 |
| Other operations | 7,705 | 1 | 4,797 | 1 |
| Intra-Group sales | -61,826 | -57,646 | ||
| Total consolidated revenue 518,596 | 100 487,764 | 100 |
Pihlajalinna's customer groups are corporate customers, private customers and public sector customers.
residential services, occupational healthcare services and staffing services.
| EUR 1,000 | 2019 | % | 2018 | % |
|---|---|---|---|---|
| Corporate customers | 122,078 | 21 | 106,329 | 20 |
| of which insurance company customers |
27,587 | 5 | 25,162 | 5 |
| Private customers | 97,793 | 17 | 93,036 | 17 |
| Public sector | 360,551 | 62 346,045 | 63 | |
| Intra-Group sales | -61,826 | -57,646 | ||
| Total consolidated revenue | 518,596 | 100 487,764 | 100 |
The Group's sales revenue from the four largest municipal customers totalled approximately EUR 257.1 (252.6) million, representing 50% (52%) of the consolidated revenue.
Estimate of unsatisfied performance obligations related to service agreements on the provision of social and healthcare services, EUR million
| EUR 1,000 | 31.12.2019 | 31.12.2018 |
|---|---|---|
| 2019 | 244 | |
| 2020 | 250.7 | 245 |
| 2021 | 251.8 | 246 |
| 2022 | 252.9 | 247 |
| 2023 | 254.1 | 248 |
| 2024 | 252.0 | 249 |
| 2025 | 253.1 | 250 |
| 2026 | 182.3 | 251 |
| 2027 | 183.1 | 253 |
| 2028 | 184.0 | 254 |
| 2029 | 184.9 | 255 |
| 2030 | 149.0 | 220 |
| 2,398 | 2,962 |
The City of Jämsä did not exercise its right to extend the validity of the service agreement concluded on 18 March 2015. This five-year option period has been omitted from the estimate of obligations related to social and healthcare outsourcing agreements.
Government grants received as compensation for expenses already incurred are recognised in profit or loss for the period in which they become receivable. These grants are presented under other operating income.
Government grants related to capitalised development projects are recognised as deductions from the carrying amounts of intangible assets, when there is reasonable assurance that such grants will be received and that the Group will comply with the conditions for receiving them. The grants will be recognised as income over the useful life of an asset by way of reduced depreciation.
The Group has subleased certain premises that are not used for business operations. Income from these leases is presented under other operating income.
With regard to sale and leaseback agreements completed prior to the adoption of IFRS 16, the Group will continue the allocation of capital gains as before in accordance with the transition provision of IFRS 16.
If a finance lease is created as a result of a sale and leaseback agreement, the difference between the carrying amount and the sales price will be recognised in the consolidated statement of financial position and recognised as income over the lease term under other operating income. The unrecognised portion of the difference between the carrying amount and the sales price is presented as Other liabilities in the statement of financial position.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Capital gains on property, plant and equipment |
258 | 289 |
| Rental income | 368 | 185 |
| Government grants | 680 | 1,290 |
| Insurance indemnities | 81 | |
| Previous holding measured at fair value |
964 | |
| Other income items | 323 | 1,343 |
| Total | 1,630 | 4,153 |
Pihlajalinna Terveys Oy, a Group subsidiary, has issued a second series of shares (Series B) and established contingency funds associated with them. Funds accumulate in the contingency funds based on the work contributions of the holders of Series B shares. This work contribution is included in profit or loss under the item External services. The liability indicated by the contingency fund is included in current liabilities under the item Other liabilities, presented in Note 19 Trade and other payables and Note 21 Financial assets and liabilities by measurement category. Work contribution-based dividends paid by the company are an income tax deductible item.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Materials | -19,343 | -17,465 |
| Change in inventories | -217 | -74 |
| External services, practitioners |
-76,508 | -70,767 |
| External services, other | -104,144 | -100,868 |
| Total | -200,212 | -189,175 |
Pension plans are generally classified as defined benefit plans and defined contribution plans. The Group only has defined contribution plans. In defined contribution plans, the Group makes fixed payments to a separate unit. The Group has no legal or constructive obligation to make additional payments if the recipient of the payments is incapable of paying out
said retirement benefits. Payments made into the defined contribution plans are recognised in profit or loss for the financial year for which they are charged.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Wages and salaries | -185 532 | -172 355 |
| Pension costs – defined contribution plans | -30 956 | -30 459 |
| Other social security expenses | -5 479 | -5 595 |
| Total | -221 967 | -208 409 |
| Personnel on average (FTE) | 4 515 | 4 618 |
| Personnel at the end of the period (NOE) | 5 815 | 5 850 |
Information on the employee benefits and loans of members of management considered to be related parties is presented in Note 31 Related party transactions.
At its meeting on 14 February 2019, the Board of Directors approved the terms of a share-based long-term incentive programme for Pihlajalinna Group's senior management (LTI 2019). The incentive programme is effective from 1 January 2019 onwards and it is aimed at the CEO, the Management Team and other key employees selected for inclusion in the programme. In the initial stage, 25 key employees were selected for the programme. LTI 2019 includes an overall five-year plan period and none of the share rewards received by the key employees thereunder may be sold or transferred prior to the year 2022. The key employee shall, in addition, make an investment in Pihlajalinna shares as a precondition for participation in the programme. At the end of the investment period, i.e. 2019, 23 key employees fulfilled the minimum investment requirement of the scheme.
The fixed matching share plan includes a commitment period from the beginning of 2019 until the payment of the fixed matching share incentive in 2020. In this scheme, the company matches each participant's share investments with additional shares at a fixed rate. The additional shares will be delivered in 2020, and they are subject to a transfer restriction.
The performance- and quality-based matching share plan includes three one-year performance periods (the calendar years 2019–2021), during which the participants can earn performance-based additional shares, provided that the company reaches the performance objectives set by the Board of Directors. Based on each individual performance period, the participant can earn a maximum of two additional shares for three shares invested without consideration (gross before the deduction of the applicable payroll tax). The performance-based share rewards will be delivered after the respective performance periods in springs 2020, 2021 and 2022. These matching shares will be subject to a two-year transfer restriction.
The performance criteria applied to the performance- and quality-based matching share plan for the first performance period 2019 were the adjusted EBIT of Pihlajalinna Group and key operative and qualitative indicators. No performance- and quality-based share rewards materialised for the performance period 2019 pursuant to the matching share plan, as the minimum objectives set for the programme were not achieved.
The terms and conditions of the incentive scheme include special provisions for any change of control. Based on Mehiläinen's public tender offer, the above-mentioned provisions on change of control apply.
The LTI 2019 plan includes terms and conditions relating to change of control. According to them, the cash tender offer announced by Mehiläinen for all of the shares in Pihlajalinna on 5 November 2019 will result in the payment of the fixed matching share plan in full if the transaction is completed. The transfer restriction of the shares expires immediately when the outcome of the tender offer is announced in the execution of the tender offer.
According to the fixed matching share plan, a total of 108,000 matching shares fall due to the 23 key employees who met the investment requirement if the change of control takes place. The fair value of the matching shares is EUR 1.7 million in accordance with the cash tender offer. An expense of EUR 0.3 million has been allocated to the financial year 2019 due to the share-based reward to be paid due to the change of control.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Facility expenses | -9,282 | -8,408 |
| Equipment and information management expenses |
-20,595 | -18,557 |
| Sales and marketing expenses | -8,046 | -7,623 |
| Other expenses | -12,282 | -14,953 |
| Total | -50,205 | -49,541 |
| Auditor's fees | ||
| Auditing, BDO | -100 | -81 |
| Auditing, KPMG Oy Ab | -231 | -251 |
| Statements, KPMG Oy Ab | -13 | -18 |
| Non-audit services, KPMG Oy Ab | -3 | -8 |
| Total | -347 | -357 |
Property, plant and equipment will be depreciated using the straight-line method over their estimated economic useful lives. The estimated economic useful lives are as follows:
| Buildings | 10–25 years |
|---|---|
| Renovation expenses on real estate 5–10 years | |
| Machinery and equipment | 3–10 years |
| Other tangible assets | 3–5 years |
For the magnetic imaging equipment at new private clinics, the Group adopted a units-of-production based depreciation method effective from 1 January 2018. The amount of depreciation is based on the units of production derived
from the equipment. For the Group's other machinery and equipment, the Group still uses straight-line depreciation. As the utilisation rate of imaging capacity is low during the first years of a new operating location, the units-of-production method provides a more accurate reflection of the actual economic use of the magnetic imaging equipment in question.
| Trademarks | 10 years |
|---|---|
| Development costs | 3–10 years |
| Other intangible assets | |
| Customer agreements | 4 years |
| Patient database | 4 years |
| Non-competition agreements | 2–5 years |
| Intellectual property rights | 3–7 years |
Property, plant and equipment is depreciated on a straight-line basis over the shorter of economic useful life or lease term.
| Right-of-use plots | 25 years |
|---|---|
| Right-of-use buildings and business premises | 1–15 years |
| Right-of-use equipment | 3–10 years |
| Impairment is recognised pursuant to IAS 36 for onerous right | |
| of-use buildings and business premises. |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Depreciation, amortisation and impairment by asset type |
||
| Intangible assets | ||
| Trademarks | -776 | -776 |
| Capitalised development costs | -790 | -527 |
| Other intangible assets related to purchase price allocations |
-3 784 | -4 355 |
| Other intangible assets | -2 089 | -1 473 |
| -7 438 | -7 131 | |
| Property, plant and equipment | ||
| Buildings | -120 | -52 |
| Renovation expenses on real estate | -2 119 | -2 234 |
| Machinery and equipment | -5 440 | -5 213 |
| Other tangible assets | -4 | -4 |
| -7 682 | -7 503 | |
| Right-of-use assets | ||
| Right-of-use plots | -125 | -39 |
| Right-of-use business premises and buildings |
-17 738 | -15 581 |
| Right-of-use business premises and buildings, impairment |
-3 189 | |
| Right-of-use equipment | -1 480 | -1 332 |
| -22 532 | -16 953 | |
| Total depreciation, amortisation and impairment -37 653 | -31 586 |
IAS 1 Presentation of Financial Statements does not provide a definition for the concept of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation). The Group has defined it as follows: EBITDA is the net sum consisting of revenue plus other operating income less materials and services (adjusted with change in inventories), employee benefit expenses and other operating expenses.
IAS 1 Presentation of Financial Statements does not provide a definition for the concept of operating profit. The Group has defined it as follows: operating profit is the net sum consisting of revenue plus other operating income less materials and services, employee benefit expenses, depreciation, amortisation and any impairment losses, as well as other operating expenses. All income statement items other than those stated above are presented below operating profit.
Significant transactions that are not part of the normal course of business or are infrequently occurring, and valuation items that do not affect cash flow, are treated as items affecting comparability between reporting periods. According to Pihlajalinna's definitions, such items include, for example:
Pihlajalinna does not recognise adjustments affecting comparability for the following items:
The reconciliation calculations for adjusted EBITDA and adjusted operating profit and the justifications for their presentation are as follows:
EBITDA indicates how much is left of the company's revenue after deducting operating expenses. Assessments of whether EBITDA is sufficiently high should take into account the company's financial expenses, depreciation requirements and intended profit distribution. Adjusted EBITDA provides significant additional information on profitability by eliminating items that do not necessarily reflect the profitability of the company's operative business. Adjusted EBITDA improves comparability between periods and is frequently used by analysts, investors and other parties.
The Group's CEO and Management Team monitor and forecast adjusted EBITDA and adjusted operating profit.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| 47,844 44,826 | |
|---|---|
| 42 | |
| -964 | |
| 3,019 | 565 |
| -47 | |
| 281 | 1,192 |
| 1,845 | |
| 1,843 | |
| 296 | 296 |
| 7,284 | 1,083 |
| 55,127 45,909 | |
| 37,653 31,586 | |
| 3,337 | 119 |
| 3,337 | 119 |
| 10,621 | 1,203 |
| 20,812 14,442 | |
| 10,191 13,240 | |
| 120 | 122 |
| -4,047 -3,890 | |
| -1,784 | -2,717 |
| 4,480 | 6,754 |
| 1,845 | |
| -1,011 | |
| 3,566 | 565 |
| 1,873 | 1,530 |
| 7,284 | 1,083 |
| 3,337 | 119 |
| 10,621 | 1,203 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Dividend income from available-for-sale financial assets |
11 | 12 |
| Interest income from loans and receivables |
90 | 94 |
| Interest income from subleases | 2 | 4 |
| Other financial income | 17 | 12 |
| Total | 120 | 122 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Interest expenses from financial liabilities carried at amortised cost |
-1,772 | -1,441 |
| Interest expenses on lease liabilities |
-1,864 | -1,936 |
| Other financial expenses | -411 | -512 |
| Total | -4,047 | -3,890 |
The income taxes on the consolidated income statement consist of current tax, adjustments to taxes for previous periods, and deferred taxes. Taxes are recognised in profit or loss, except when they are directly attributable to items recognised under equity or other comprehensive income. In such cases, also the tax is recognised under the item in question. Current tax is calculated on taxable profit, based on the enacted tax rate. Tax is adjusted with any taxes associated with prior financial years. Any penal interests related to said taxes are recognised under financial expenses. The share of associates' profit is presented in the statement of comprehensive income as calculated from net profit and thus including the income tax charge.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Current taxes | -4,110 | -4,953 |
| Taxes for the previous financial years | -11 | -104 |
| Deferred taxes: | ||
| Origination and reversal of temporary differences |
2,337 | 2,340 |
| Total | -1,784 | -2,717 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Profit before taxes | 6,264 | 9,472 |
| Taxes calculated on the basis of the Finnish tax rate (20%) |
-1,253 | -1,894 |
| Income not subject to tax | 2 | 4 |
| Non-deductible expenses | -64 | -575 |
| Unrecorded deferred tax assets from tax losses |
-550 | -6 |
| Utilised prior losses with unrecognised tax benefits |
51 | 32 |
| Share of associated company's profit |
0 | 1 |
| Fair value measurement of contingent consideration |
-56 | -238 |
| Previous holding measured at fair value |
0 | 199 |
| Reversal of unused replacement reserve |
0 | -221 |
| Other items | 97 | 85 |
| Taxes for prior financial years | -11 | -104 |
| Taxes in the income statement | -1,784 | -2,717 |
| Effective tax rate | -28.5 % | -28.7 % |
Earnings per share is calculated by dividing the profit for the financial year attributable to owners of the parent by the weighted average number of shares outstanding during the financial year.
Earnings per share for the financial year attributable to owners of the parent are calculated by dividing the profit for the financial year attributable to owners of the parent by the weighted average number of shares outstanding during the financial year. The parent company does not have dilutive instruments.
| 2019 | 2018 | |
|---|---|---|
| Profit for the financial year attributa ble to owners of the parent, EUR |
3,365,143.62 | 3,474,716.01 |
| Number of shares outstanding, weighted average |
22,620,135 | 22,224,236 |
| Earnings per share (EPS), EUR/share | 0.15 | 0.16 |
Property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures incurred directly from the acquisition of an item of property, plant and equipment. Costs incurred subsequently are included in the carrying amount of an asset only if it is deemed probable that any future economic benefits related to the asset will flow to the Group and that the cost of the asset can be reliably determined. Other repair and maintenance costs will be expensed at the time they are incurred.
The residual value, the useful life of an asset and the depreciation method applied are reviewed at least at the end of each financial year and adjusted as necessary to reflect the changes in the expectations concerning the economic benefits attached to the asset. Capital gains generated from decommissioning and disposing of property, plant and equipment are included under other operating income, and capital losses are included under other operating expenses.
Assets are depreciated from the time when they are ready for use; i.e. when their location and condition allow them to be applied as intended by the management.
In 2018, the Group opened private clinics in Turku, Oulu and Seinäjoki. The Group acquired 3 Tesla high-field magnetic imaging equipment for the clinics in Oulu and Turku and a 1.5 Tesla high-field magnetic imaging device for the clinic in Seinäjoki. For the magnetic imaging equipment at these green field private clinics, the Group adopted a units-of-production based depreciation method effective from 1 January 2018. The amount of depreciation is based on the units of production derived from the magnetic imaging equipment. For the Group's other machinery and equipment, the Group still uses straightline depreciation. As the utilisation rate of imaging capacity is very low during the first years of a new operating location, the units-of-production method provides a more accurate reflection of the actual economic use of the magnetic imaging equipment in question than straight-line depreciation.
| Renovation expenses on |
Shares in real estate |
Machinery and equip |
Other tangible |
Construction in | ||||
|---|---|---|---|---|---|---|---|---|
| EUR 1,000 | Land areas | Buildings | real estate | companies | ment | assets | progress | Total |
| Cost at 1 January 2019 | 105 | 1,714 | 24,656 | 5,572 | 46,051 | 172 | 1,446 | 79,716 |
| Additions | 2,235 | 645 | 7 | 7,691 | 9 | 7,793 | 18,381 | |
| Business combinations | 13 | 13 | ||||||
| Transfers between items | 0 | 5,730 | 1,571 | 1,254 | -1 | -7,009 | 1,544 | |
| Disposals | -69 | -168 | -268 | -1,773 | 0 | -7 | -2,285 | |
| Cost at 31 December 2019 | 36 | 9,512 | 26,604 | 5,579 | 53,237 | 179 | 2,223 | 97,369 |
| Accumulated depreciation at 1 January 2019 |
0 | -308 | -11,504 | -24,614 | -9 | 0 -36,434 | ||
| Depreciation and amortisation | -119 | -2,119 | -5,440 | -4 | 0 | -7,682 | ||
| Transfers between items | 0 | -321 | -1,209 | 1 | 0 | -1,529 | ||
| Disposals | 23 | 266 | 1,225 | 0 | 0 | 1,514 | ||
| Accumulated depreciation at 31 December 2019 |
-404 | -13,678 | -30,038 | -12 | 0 | -44,132 | ||
| Carrying amount at 1 January 2019 |
105 | 1,406 | 13,151 | 5,572 | 21,437 | 163 | 1,446 | 43,281 |
| Carrying amount at 31 December 2019 |
36 | 9,108 | 12,925 | 5,579 | 23,199 | 167 | 2,223 | 53,237 |
BUSINESS AND RESPONSIBILITY STRATEGY
PIHLAJALINNA 2019
PARTNERSHIP REPORT BY THE
| PIHLAJALINNA | BUSINESS AND | RESPONSIBILITY |
|---|---|---|
| 2019 | STRATEGY |
INFORMATION FOR SHAREHOLDERS
| EUR 1,000 | Goodwill Trademarks | Develop ment costs |
Other intangible assets related to purchase price allocations |
Other intangible assets |
Pre-payments | Total | |
|---|---|---|---|---|---|---|---|
| Cost at 1 January 2019 | 169,927 | 7,762 | 5,206 | 21,513 | 12,707 | 245 | 217,362 |
| Additions | 549 | 2,006 | 1,010 | 3,565 | |||
| Business combinations | 3,680 | 0 | 69 | 7 | 0 | 3,756 | |
| Transfers between items | 212 | 773 | -808 | 177 | |||
| Disposals | -95 | -5 | -99 | ||||
| Cost at 31 December 2019 | 173,607 | 7,762 | 5,967 | 21,582 | 15,400 | 443 | 224,763 |
| Accumulated depreciation at 1 January 2019 |
-3,926 | -1,343 | -13,341 | -5,910 | -24,521 | ||
| Depreciation and amortisation | -776 | -790 | -3,784 | -2,089 | -7,438 | ||
| Transfers between items | -216 | -216 | |||||
| Disposals | 104 | 104 | |||||
| Accumulated depreciation at 31 December 2019 |
-4,702 | -2,132 | -17,125 | -8,111 | -32,071 | ||
| Carrying amount at 1 January 2019 |
169,927 | 3,836 | 3,864 | 8,173 | 6,797 | 245 | 192,841 |
| Carrying amount at 31 December 2019 |
173,607 | 3,060 | 3,834 | 4,457 | 7,290 | 443 | 192,692 |
| Development | Other intangible assets related to purchase |
Other intangible |
Pre | ||||
|---|---|---|---|---|---|---|---|
| EUR 1,000 | Goodwill | Trademarks | costs | price allocations | assets | payments | Total |
| Cost at 1 January 2018 | 103,893 | 7,762 | 3,813 | 13,826 | 8,388 | 119 | 137,802 |
| Additions | 1,344 | 3,602 | 431 | 5,377 | |||
| Business combinations | 66,034 | 49 | 7,687 | 359 | 74,130 | ||
| Transfers between items | 361 | -305 | 56 | ||||
| Disposals | -3 | -3 | |||||
| Cost at 31 December 2018 | 169,927 | 7,762 | 5,206 | 21,513 | 12,707 | 245 | 217,362 |
| Accumulated depreciation at 1 January 2018 |
-3,150 | -816 | -8,986 | -4,353 | -17,305 | ||
| Depreciation and amortisation | -776 | -527 | -4,355 | -1,473 | -7,131 | ||
| Accumulated depreciation at 31 December 2018 |
-3,926 | -1,343 | -13,341 | -5,910 | -24,521 | ||
| Carrying amount at 1 January 2018 |
103,893 | 4,613 | 2,997 | 4,840 | 4,036 | 119 | 120,496 |
| Carrying amount at 31 December 2018 |
169,927 | 3,836 | 3,864 | 8,173 | 6,797 | 245 | 192,841 |
Goodwill created through business combinations is allocated to cash-generating units (CGUs). Pihlajalinna's operating structure has changed compared to that of 2018. Instead of four
Goodwill generated through business combinations is measured at the amount by which the consideration transferred, noncontrolling interests in the acquiree and previously owned holding combined exceed the fair value of the acquired net assets. Goodwill is not amortised but is tested for impairment at least once per year. geographical business areas, teh Group has a Chief Operating Officer (COO) responsible for the entire Group's business operations and service offering to both the private and public sectors. The COO is responsible for preparing the Group businesses' budgets and managing the area's resources, investments and profitability. The COO is supported by joint support services.
| EUR 1,000 | Land areas | Buildings | Renovation expenses on real estate |
Shares in real estate companies |
Machinery and equip ment |
Other tangible assets |
Construction in progress |
Total |
|---|---|---|---|---|---|---|---|---|
| Cost at 1 January 2018 | 88 | 1,317 | 16,111 | 4,015 | 32,526 | 162 | 5,827 | 60,046 |
| Additions | 25 | 397 | 2,405 | 1,127 | 10,911 | 2 | 2,089 | 16,957 |
| Business combinations | 1,321 | 430 | 2,049 | 8 | 0 | 3,809 | ||
| Transfers between items | -9 | 0 | 5,237 | 1,602 | 0 | -6,470 | 360 | |
| Disposals | 0 | -419 | -1,037 | 0 | 0 | -1,456 | ||
| Cost at 31 December 2018 | 105 | 1,714 | 24,656 | 5,572 | 46,051 | 172 | 1,446 | 79,716 |
| Accumulated depreciation at 1 January 2018 |
0 | -257 | -9,484 | -20,012 | -5 | 0 -29,759 | ||
| Depreciation and amortisation | -51 | -2,234 | -5,213 | -4 | 0 | -7,502 | ||
| Transfers between items | -205 | -124 | 0 | 0 | -329 | |||
| Disposals | 419 | 735 | 0 | 0 | 1,154 | |||
| Accumulated depreciation at 31 December 2017 |
-308 | -11,504 | 0 | -24,614 | -9 | 0 -36,434 | ||
| Carrying amount at 1 January 2018 |
88 | 1,060 | 6,627 | 4,015 | 12,513 | 156 | 5,827 | 30,287 |
| Carrying amount at 31 December 2018 |
105 | 1,406 | 13,151 | 5,572 | 21,437 | 163 | 1,446 | 43,281 |
14. Intangible assets
Goodwill generated through business combinations is measured at the amount by which the consideration transferred, noncontrolling interests in the acquiree and previously owned holding combined exceed the fair value of the acquired net assets. Goodwill generated through business combinations is measured at the amount by which the consideration transferred, noncontrolling interests in the acquiree and previously owned holding combined exceed the fair value of the acquired net assets.
Goodwill is not amortised but tested annually for impairment, and whenever there is an indication that the asset may be impaired. For this purpose, goodwill is allocated to cashgenerating units (CGUs). Goodwill is measured at original cost less accumulated impairment.
Assets are amortised from the time when they are ready for use. Assets that are not yet available for use are tested annually for impairment. Subsequent to their initial recognition, capitalised development costs are measured at cost less accumulated
amortisation and impairment. The amortisation period for development costs is 3 to 10 years, during which capitalised development costs are amortised using the straight-line method.
The Group's capitalised development costs that have not been amortised are associated with the following projects:
Other intangible assets include licences and computer software. In business combinations, customer agreements and related customer relationships as well as non-competition agreements and certificates have been allocated.
STRATEGY PIHLAJALINNA 2019
PARTNERSHIP REPORT BY THE BOARD OF DIRECTORS AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
EUR 1,000 2019
| Tested goodwill in total on 31 October 2019 | 173,607 |
|---|---|
| Goodwill as per the statement of financial position at the end of the financial year on 31 December 2019 |
173,607 |
| The carrying amounts of goodwill were allocated to the business areas as follows in the testing for goodwill in 2018: |
|
| 2018 | |
| Southern Finland | 90,313 |
| Mid-Finland | 60,853 |
| Goodwill as per the statement of financial position at the end of the financial year on 31 December 2018 |
169,927 |
|---|---|
| Achievement of control in Dextra Lapsettomuusklinikka Oy | |
| Acquisition of Terveyspalvelu Verso Oy on 28 December 2018 |
6,344 |
| Re-estimation of initial acquisition cost and contingent consideration during the measurement period |
-14 |
| Tested goodwill in total on 30 November 2018 | 163,596 |
| Northern Finland | 7,686 |
| Ostrobothnia | 4,744 |
For the 2018 financial year, goodwill testing was carried out without the effects of IFRS 16 Leases on the consolidated income statement, statement of financial position and calculation of discount rate.
If indications of amortisation or impairment exist, the asset's recoverable amount is estimated. The recoverable amount is also estimated annually in conjunction with the closing of the books for the following assets regardless of whether or not there are indications of impairment: goodwill and intangible assets not yet available for use.
The need to recognise an impairment loss is assessed at the level of CGUs, or in other words, at the lowest level of units that are mainly independent of other units and whose cash flows are separable and largely independent of the cash flows of other corresponding units. A CGU is the lowest such level in the Group whose goodwill is monitored for internal management purposes. Such corporate assets that serve a number of CGUs and do not generate a separate cash flow have been attributed to CGUs and are tested as part of the relevant CGU.
The recoverable amount is the fair value of an asset less costs of disposal or the asset's value-in-use, whichever is greater. The value-in-use is understood as the future net cash flows expected to be derived from the asset or the CGU in question, discounted to their present value. The discount rate applied is the pre-tax rate, which reflects current market assessments of the time value of money and particular risks associated with the asset.
An impairment loss is recognised when the carrying amount of an asset is larger than its recoverable amount. An impairment loss is recognised immediately in profit or loss. If the impairment loss is attributable to a CGU, it is first allocated to decrease the goodwill allocated to the said CGU and then to decrease the carrying amount of the unit's other assets on a pro rata basis. When an impairment loss is recognised, the useful life of the asset to which the depreciation or amortisation is allocated is
re-estimated. An impairment loss recognised on an asset other than goodwill is reversed in case a change has occurred in the estimates used for determining the asset's recoverable amount. However, an impairment loss shall not be reversed to an extent larger than what the carrying amount of the asset would be excluding the recognition of the impairment loss. An impairment loss recognised on goodwill is not reversed in any situation.
The recoverable amounts of the CGUs are based on valuein-use calculations prepared by using discounted cash flow forecasts. The cash flow forecasts are based on the budget for 2020 approved by the Board of Directors, and the cash flow estimates for 2021–2024 are based on the Head of Business Operations' estimates of the growth and profitability of the business. Cash flows arising beyond the forecast period approved by the management are capitalised using a stable 2% growth rate.
The discount rate used in the calculations is determined using the weighted average cost of capital (WACC), which describes the total cost of equity and liabilities, taking into account the asset-specific risks. The discount rate is a pre-tax rate. The adoption of the IFRS 16 Leases standard had an effect on the calculation of the discount rate due to the changed capital structure.
The growth rate of 2% used in the calculation of the terminal value is in line with the sector's actual long-term growth. The testing period is five (5) years.
| Discount rate (pre tax WACC) |
Discount rate (after tax WACC) |
|
|---|---|---|
| 2019 | ||
| Entire Group | 6.82 % | 5.84 % |
| 2018 | ||
| Southern Finland | 8.50 % | 7.18 % |
| Mid-Finland | 8.50 % | 7.18 % |
| Ostrobothnia | 8.50 % | 7.18 % |
| Northern Finland | 8.14 % | 7.18 % |
| 2019 | The terminal period's share of the amount of expected cash flows: |
|
| Entire Group | 79 % | |
| 2018 | ||
| Southern Finland | 71 % | |
| Mid-Finland | 73 % | |
| Ostrobothnia | 73 % | |
| Northern Finland | 81 % | |
| 2019 | Revenue growth during the |
Profitability growth during the |
| Entire Group | testing period 1.0 % |
testing period 0.0 % |
| 2018 | ||
| Southern Finland | 3.0 % | 6.0 % |
| Mid-Finland | 1.0 % | 2.4 % |
| Ostrobothnia | 3.0 % | 3.0 % |
| Northern Finland | 15.0 % | 13.2 % |
In impairment testing, the growth of revenue and profitability is based on presumed organic growth in normal market conditions, the general development of the social and healthcare services market and the operative management's views.
Based on the testing calculations, there is no need to recognise impairment. The recoverable amounts of the cash-generating units exceeded their combined carrying amounts.
The occurrence of any of the following changes, ceteris paribus, would lead to the carrying amount of the assets being equal to its recoverable amount:
| Decline in | Decline in | Increase in | |
|---|---|---|---|
| EBIT margin | volume | discount rate | |
| 2019 | |||
| Entire Group | more than 5 | more than 34 | more than 7 |
| percentage | percentage | percentage | |
| points | points | points | |
| 2018 | |||
| Southern Finland |
more than 1 percentage point |
more than 12 percentage points |
more than 1 percentage point |
| Mid-Finland | more than 5 | more than 50 | more than 14 |
| percentage | percentage | percentage | |
| points | points | points | |
| Ostrobothnia | more than 5 | more than 68 | more than 70 |
| percentage | percentage | percentage | |
| points | points | points | |
| Northern Finland |
more than 1 percentage point |
more than 12 percentage points |
more than 1 percentage point |
In assessing the recoverable amounts of the CGUs, taking the aforementioned into consideration, the management estimates that no reasonably probable change in any key variable would lead to a situation where the units' recoverable amounts would be lower than their carrying amounts.
Pihlajalinna adopted the new IFRS 16 Leases standard fully retrospectively on 1 January 2019.
Most of the Pihlajalinna rental arrangements in line with the IFRS 16 are leases for business premises. The other lease arrangements in line with the standard concern land areas, machinery and equipment (exercise equipment, clinical equipment, cars and other equipment). Pihlajalinna applies the IFRS 16 exemption that allows lessees to elect not to recognise a right-of-use asset and corresponding lease liability for assets with a lease term of 12 months or less as well as assets of low value. Assets of low value include, for example, IT equipment and office furniture. Furthermore, to make the accounting of leases easier, Pihlajalinna elects not to separate service components from leases, instead treating the entire agreement as a lease in its consolidated financial statements. For lease arrangements valid until further notice, with a short notice period, Pihlajalinna will estimate the probable lease term.
Right-of-use assets are measured at cost, which includes the following items:
| EUR 1,000 | Right-of-use plots Right-of-use buildings and business premises | Right-of-use equipment | Total | |
|---|---|---|---|---|
| Cost at 1 January 2019 | 383 | 157,488 | 4,587 | 162,458 |
| Additions | 179 | 12,678 | 1,649 | 14,505 |
| Business combinations | 3,326 | 476 | 3,802 | |
| Disposals | -7,292 | -809 | -8,101 | |
| Cost at 31 December 2019 | 561 | 166,200 | 5,903 | 172,664 |
| Accumulated depreciation at | -162 | -43,774 | -2,552 | -46,487 |
| 1 January 2019 | ||||
| Depreciation and amortisation | -125 | -17,738 | -1,480 | -19,343 |
| Impairment | -3,189 | -3,189 | ||
| Disposals | 4,138 | 326 | 4,464 | |
| Accumulated depreciation at | -287 | -60,562 | -3,706 | -64,555 |
| 31 December 2019 | ||||
| Carrying amount at | 221 | 113,714 | 2,035 | 115,970 |
| 1 January 2019 | ||||
| Carrying amount at 31 December 2019 |
274 | 105 638 | 2 197 | 108 109 |
| PIHLAJALINNA | BUSINESS AND | RESPONSIBILITY |
|---|---|---|
| 2019 | STRATEGY |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Lease deposits paid | 1,764 | 1,800 |
| Non-current subleases | 211 | |
| Total | 1,975 | 1,800 |
At the end of each reporting period, the Group assesses whether or not there is objective evidence of impairment regarding any individual financial asset. Objective evidence of impairment of loans and other receivables includes significant financial distress of the debtor and payments being delinquent or substantially delayed. Impairment of loans is recognised in financial expenses in the income statement and impairment of other receivables is recognised in other operating expenses for the period in which the impairment was identified.
Following the adoption of IFRS 9, the Group recognises a credit loss provision based on expected credit losses. The expected credit loss model is based on the amount of historical credit losses. The lifetime expected credit losses are calculated by multiplying the gross carrying amount of unpaid trade receivables by the expected loss.
The carrying amount of trade receivables and other receivables corresponds to the maximum credit risk involved at the end of the reporting period. The Group recognised EUR 228 thousand (EUR 333 thousand) in impairment losses on trade receivables during the financial year.
| EUR 1,000 | 2019 | 2018 | Impair | Impair | |||||
|---|---|---|---|---|---|---|---|---|---|
| Trade receivables | 30,492 26,582 | ment | Net | ment | Net | ||||
| Prepayments and accrued income | 13,260 | 11,022 | EUR 1,000 | 2019 | losses | 2019 | 2018 | losses | 2018 |
| Current subleases | 112 | 0 | 18,114 | -17 | 18,096 | 16,847 | 16,847 | ||
| Other receivables | 2,198 | 320 | Past due | ||||||
| Total | 46,062 | 37,923 | Less than 30 days |
3,105 | -13 | 3,092 | 2,822 | 2,822 | |
| 30–60 days 1,784 | -63 | 1,721 | 573 | 573 | |||||
| The carrying amount of trade receivables and other receivables | 61–90 days | 644 | -124 | 519 | 450 | 450 | |||
| corresponds to the maximum credit risk involved at the end of | More than | 7,520 | -457 | 7,063 | 6522 | -633 5,889 | |||
| the reporting period. The Group recognised EUR 228 thousand | 90 days | ||||||||
| (EUR 333 thousand) in impairment losses on trade receivables | Total | 31,166 | -674 30,492 | 27,214 | -633 26,582 |
Ageing analysis of trade receivables
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Credit loss provision at 1 January | 633 | 247 |
| Credit losses recorded | 228 | 351 |
| Credit loss provision, used | -220 | -198 |
| Credit loss provision, increase | 33 | 233 |
| Credit loss provision at 31 December | 674 | 633 |
| EUR 1,000 | Right-of-use plots Right-of-use buildings and business premises | Right-of-use equipment | Total | |
|---|---|---|---|---|
| Cost at 1 January 2018 | 384 | 100,388 | 1,925 | 102,698 |
| Additions | 24,673 | 589 | 25,261 | |
| Business combinations | 32,427 | 2,073 | 34,500 | |
| Disposals | -1 | -1 | ||
| Cost at 31 December 2018 | 383 | 157,488 | 4,587 | 162,458 |
| Accumulated depreciation at 1 January 2018 |
-123 | -28,193 | -1,219 | -29,535 |
| Depreciation and amortisation | -39 | -15,581 | -1,332 | -16,953 |
| Accumulated depreciation at 31 December 2018 |
-162 | -43,774 | -2,552 | -46,487 |
| Carrying amount at 1 January 2018 |
261 | 72,196 | 706 | 73,162 |
| Carrying amount at 31 December 2018 |
221 | 113,714 | 2,035 | 115,970 |
Short-term leases and minor leases to which the Group applies the practical exemptions provided by IFRS 16 totalled EUR 980 thousand. Lease liabilities relating to right-of-use items are specified in Note 23 Financial liabilities.
Determining the annual profitability of the Group's complete social and healthcare services outsourcing agreements may become accurate with a delay. The Group may not always be aware of the actual costs of the agreements at the time of preparing the financial statements, and the agreements may involve variable consideration. The cost accumulation of public specialised care involves random fluctuation. In addition, individual cases falling within the scope of the hospital districts' pooling system for high-cost care and operational economy surplus refunds may influence the costs of specialised care considerably during the financial year, and between financial periods, in Pihlajalinna's municipal companies.
The City of Jämsä has taken legal action against Jämsän Terveys Oy over the service agreement. The dispute concerns the provision on price adjustments pursuant to the service agreement. The difference of opinion regarding the determination of the annual price totalled approximately EUR 1.8 million at the time of the financial statements. Moreover, Jämsän Terveys Oy has other receivables amounting to a total of EUR 3.1 million from the City of Jämsä, associated with the increases costs of specialised care and increased regulatory requirements for services for senior citizens. According to the management's estimate, the customer will pay the receivables in full.
Kuusiolinna Terveys Oy has trade and other receivables totalling EUR 4.5 million from a client. The protocol on interpretation signed with the municipalities of Alavus, Ähtäri and Soini in conjunction with the share transactions also agreed on the principles of charging the variable consideration. The outstanding receivables are associated
with increased regulatory requirements for services for senior citizens, costs of specialised care and the calculation of net expenditure. A share transaction has not yet been completed with Kuortane, and no corresponding protocol on interpretation has been signed. According to the management's estimate, the client will pay the receivables in full, as the majority of the client's shareholders have agreed on the charging principles.
Mäntänvuoren Terveys Oy has trade and other receivables totalling EUR 1.2 million from a client. The receivables are associated with increased regulatory requirements for services for senior citizens and the calculation of net expenditure pursuant to the previous agreement. A social and healthcare service property transaction that will be completed in 2020 has been agreed upon with the client. According to the management's estimate, the customer will pay the receivables in full in conjunction with the completion of the property transaction.
Kolmostien Terveys Oy has trade and other receivables of EUR 0.4 million from a client relating to the increased regulatory requirements for services for senior citizens. According to the management's estimate, the customer will pay the receivables in full.
On the date of the financial statements, the Group's receivables include a total of EUR 1.6 million (EUR 2.8 million at the end of 2018) in service provider refunds for public sector specialised care cost accruals, estimated on a municipality-specific basis. According to the group management's view, under the service agreements, the refunds of cost accruals are payable to Pihlajalinna because they were accumulated during Pihlajalinna's service provision and liability for costs. In addition, the group has a total of EUR 0.2 million of overdue receivables from Kihniö and Juupajoki.
PARTNERSHIP REPORT BY THE BOARD OF DIRECTORS AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
profit nor taxable profit. Whether or not deferred tax assets can be recognised in this respect is always estimated at the end of each reporting period.
The Group shall offset deferred tax assets and liabilities where these relate to the same taxation authority and the same taxable entity.
| EUR 1,000 Deferred tax assets |
1.1.2019 | Recognised in profit and loss |
Recognised in equity |
Subsidiaries acquired |
31.12.2019 |
|---|---|---|---|---|---|
| Tax losses carried forward confirmed by tax authorities | 1,793 | 224 | 2,017 | ||
| Liability to holders of Series B shares | 1,314 | 242 | 1,557 | ||
| Sales proceeds from sale and leaseback arrangements | 313 | -30 | 283 | ||
| Provisions | 942 | 942 | |||
| Share-based incentive scheme | 53 | 53 | |||
| IAS 37 contingent asset | 369 | 369 | |||
| Effect of IFRS 16 | 317 | 135 | 452 | ||
| Other items | 325 | 8 | 333 | ||
| Deferred tax assets on the statement of financial position | 4,063 | 1,943 | 6,006 | ||
| Deferred tax liabilities | |||||
| Property, plant and equipment and intangible assets | 3,496 | 474 | 3,969 | ||
| Recognition of property, plant and equipment and intangi ble assets at fair value in business combinations |
2,402 | -912 | 13 | 1,503 | |
| Effect of IFRS 16 | 108 | 84 | 192 | ||
| Other items | 100 | -39 | 61 | ||
| Deferred tax liabilities on the statement of financial position | 6,105 | -394 | 13 | 5,726 | |
| Changes in deferred taxes during 2018: | |||||
| EUR 1,000 | Recognised in | Recognised in | Subsidiaries |
| EUR 1,000 | Recognised in | Recognised in | Subsidiaries | ||
|---|---|---|---|---|---|
| Deferred tax assets t | 1.1.2018 | profit and loss | equity | acquired | 31.12.2018 |
| Tax losses carried forward confirmed by tax authorities | 483 | 1,310 | 1,793 | ||
| Liability to holders of Series B shares | 1,215 | 99 | 1,314 | ||
| Sales proceeds from sale and leaseback arrangements | 343 | -30 | 313 | ||
| Effect of IFRS 16 | 356 | -39 | 317 | ||
| Other items | 184 | -123 | 264 | 325 | |
| Expenses arising from directed share issue | -11 | 11 | 0 | ||
| Deferred tax assets on the statement of financial position | 2,582 | 1,206 | 11 | 264 | 4,063 |
| Deferred tax liabilities | |||||
| Property, plant and equipment and intangible assets | 2,711 | 784 | 3,496 | ||
| Replacement reserve for business premises | 814 | -814 | |||
| Recognition of property, plant and equipment and intangi ble assets at fair value in business combinations |
1,891 | -1,026 | 1,538 | 2,402 | |
| Effect of IFRS 16 | 244 | -136 | 108 | ||
| Other items | 43 | 57 | 100 | ||
| Deferred tax liabilities on the statement of financial position | 5,702 | -1,135 | 1,538 | 6,105 |
| EUR 1,000 | Recognised in | Recognised in | Subsidiaries | ||
|---|---|---|---|---|---|
| Deferred tax assets t | 1.1.2018 | profit and loss | equity | acquired | 31.12.2018 |
| Tax losses carried forward confirmed by tax authorities | 483 | 1,310 | 1,793 | ||
| Liability to holders of Series B shares | 1,215 | 99 | 1,314 | ||
| Sales proceeds from sale and leaseback arrangements | 343 | -30 | 313 | ||
| Effect of IFRS 16 | 356 | -39 | 317 | ||
| Other items | 184 | -123 | 264 | 325 | |
| Expenses arising from directed share issue | -11 | 11 | 0 | ||
| Deferred tax assets on the statement of financial position | 2,582 | 1,206 | 11 | 264 | 4,063 |
| Deferred tax liabilities | |||||
| Property, plant and equipment and intangible assets | 2,711 | 784 | 3,496 | ||
| Replacement reserve for business premises | 814 | -814 | |||
| Recognition of property, plant and equipment and intangi ble assets at fair value in business combinations |
1,891 | -1,026 | 1,538 | 2,402 | |
| Effect of IFRS 16 | 244 | -136 | 108 | ||
| Other items | 43 | 57 | 100 | ||
| Deferred tax liabilities on the statement of financial position | 5,702 | -1,135 | 1,538 | 6,105 | |
| Available tax losses | Tax values recorded | Tax values not recorded | ||||
|---|---|---|---|---|---|---|
| Tax losses | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 |
| Maturing within five years | 2,296 | 2,886 | 459 | |||
| Maturing later than within five years | 15,771 | 11,660 | 2,017 | 1,794 | 1,137 | 1,116 |
| Total | 18,066 | 14,546 | 2,017 | 1,794 | 1,596 | 1,116 |
| Taxes calculated on the basis of the Finnish tax rate (20%) | 3,613 | 2,909 |
The recognition of deferred tax assets on the statement of financial position is justified when the Group is likely to accrue taxable income against which the losses in question can be used before they expire in line with the prudence principle. The Group will primarily apply for the right to deduct all confirmed losses of its acquired subsidiaries. The Tax Authority has granted the right to deduct confirmed losses in spite of changes in ownership.
Material items included under
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Sales and income accruals | 5,886 | 3,923 |
| Personnel expenses | 1,452 | 3,463 |
| Expenses paid in advance | 3,734 | 1,935 |
| Other | 2,189 | 1,700 |
| Total | 13,260 | 11,022 |
The carrying amounts of the receivables correspond substantially to their fair values.
A provision is recognised when the Group has a legal or constructive obligation resulting from a past event, when it is probable that the payment obligation will materialise and when the amount of the obligation can be reliably estimated. The amount recognised as a provision equals the best estimate of the costs required to fulfil the present obligation on the date of the financial statements.
A restructuring provision is recognised when the Group has in place a detailed plan for such restructuring and its implementation has commenced or the interested parties have been informed of the main points of such a plan.
The Group recognises a provision for onerous contracts when the expected benefits to be derived from a contract are less than the unavoidable expenses of meeting the obligations under the contract.
A restoration provision is recognised when the Group has a contractual obligation or decision to restore business premises to a certain condition as required by an agreement or decision at the termination of a lease or when business requirements change. The Group has recognised restoration provisions relating to its premises and provisions for onerous contracts related to vacant business premises.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Current provisions | 1,636 | 302 |
| Non-current provisions | 170 | |
| Total | 1,806 | 302 |
| Premises restoration |
Restruc | ||
|---|---|---|---|
| provision | Onerous contracts |
turing provision |
Total |
| 433 | 396 | 829 | |
| 330 | 330 | ||
| -94 | -94 | ||
| -763 | -763 | ||
| 302 | 302 | ||
| 1,843 | 3,019 | 4,862 | |
| -786 | -2,571 | -3,357 | |
| 1,359 | 448 | 1,806 | |
In June 2019, the group launched an efficiency improvement programme to achieve annual cost savings of approximately EUR 17 million. The reduction in costs for the past financial year achieved through the efficiency improvement programme are estimated to be approximately EUR 5 million. A non-recurring expense of EUR 4.2 million was recorded due to the efficiency improvement programme, consisting of a restructuring provision of EUR 2.4 million and a provision of EUR 1.8 million concerning sales agreements that have been identified onerous.
| EUR 1,000 | 2019 | 2018 | ||||
|---|---|---|---|---|---|---|
| Trade payables | 18,573 | 18,789 | ||||
| Accrued liabilities | 69,373 | 49,049 | ||||
| Pre-payments | 1,069 | 897 | ||||
| Other liabilities | 12,986 | 10,759 | ||||
| Total | 102,002 | 79,494 | ||||
| Material items included under Accrued liabilities: | ||||||
| Total | 69,373 | 49,049 |
|---|---|---|
| Other accrued liabilities | 51 | 968 |
| Financial items | 165 | 114 |
| Allocation of purchase invoices | 7,306 | 7,446 |
| Allocation of sales | 65 | 1,795 |
| Doctor's fee liability | 7,658 | 6,350 |
| Purchase price of Kuusilinna Terveys Oy and Mäntänvuoren Terveys Oy shares |
18,598 | |
| Wages and salaries and social security payments | 35,531 | 32,375 |
Deferred taxes are calculated on temporary differences between the carrying amount and the tax base. However, a deferred tax liability shall not be recognised on the initial recognition of goodwill, or on the initial recognition of an asset or liability in a transaction which is a business combination and, at the time of transaction, affects neither accounting profit nor taxable profit.
In the Group, the most significant temporary differences result from depreciation and amortisation of property, plant and equipment and intangible assets, unpaid dividends based on work contributions, fair value-based adjustments made in connection with business combinations, and unused tax losses.
Deferred taxes are calculated by applying tax rates enacted or substantively enacted by the end of the reporting period.
A deferred tax asset is only recognised to the extent that it is probable that taxable profit will be available against which the temporary difference can be utilised. However, a deferred tax asset is not recognised if it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting
STRATEGY PIHLAJALINNA
2019
INFORMATION FOR SHAREHOLDERS
| EUR 1,000 31.12.2019 |
Note | Fair value hierarchy |
Fair value through profit or loss |
Amortised cost |
Total carrying amounts |
Fair values total |
|---|---|---|---|---|---|---|
| Non-current financial assets | ||||||
| Other shares and participations | level 3 | 146 | 146 | 146 | ||
| Lease deposits | 16 | level 2 | 1,764 | 1,764 | 1,764 | |
| Current financial assets | ||||||
| Trade receivables | 17 | 30,492 | 30,492 | 30,492 | ||
| Other receivables | 17 | level 2 | 2,198 | 2,198 | 2,198 | |
| Cash and cash equivalents | 27,004 | 27,004 | 27,004 | |||
| Total | 146 | 61,458 | 61,604 | 61,604 | ||
| Carrying amounts of financial liabilities Non-current financial liabilities |
||||||
| Loans from financial institutions | 23 | level 2 | 103,182 | 103,182 | 103,182 | |
| Lease liabilities | 23 | level 2 | 96,404 | 96,404 | 96,404 | |
| Other liabilities | 23 | level 2 | 681 | 681 | 681 | |
| Current financial liabilities | , | |||||
| Loans from financial institutions | 23 | level 2 | 1,193 | 1,193 | 1,193 | |
| Cheque account with credit limit | 23 | 501 | 501 | 501 | ||
| Lease liabilities | 23 | level 2 | 17,747 | 17,747 | 17,747 | |
| Contingent consideration | 27 | level 3 | 1,397 | 1,397 | 1,397 | |
| Trade and other payables | 19 | 26,357 | 26,357 | 26,357 | ||
| Total | 1,397 | 246,064 | 247,460 | 247,460 |
| EUR 1,000 31.12.2018 |
Note | Fair value hierarchy |
Fair value through profit or loss |
Amortised cost |
Total carrying amounts |
Fair values total |
|---|---|---|---|---|---|---|
| Non-current financial assets | ||||||
| Other shares and participations | level 3 | 139 | 139 | 139 | ||
| Lease deposits | 16 | level 2 | 1,800 | 1,800 | 1,800 | |
| Current financial assets | ||||||
| Trade receivables | 17 | 26,582 | 26,582 | 26,582 | ||
| Other receivables | 17 | level 2 | 320 | 320 | 320 | |
| Cash and cash equivalents | 36,316 | 36,316 | 36,316 | |||
| Total | 139 | 65,018 | 65,157 | 65,157 | ||
| Carrying amounts of financial liabilities | ||||||
| Non-current financial liabilities | ||||||
| Loans from financial institutions | 23 | level 2 | 93,627 | 93,627 | 93,627 | |
| Lease liabilities | 23 | level 2 | 101,998 | 101,998 | 101,998 | |
| Other liabilities | 23 | level 2 | 720 | 720 | 720 | |
| Contingent consideration | 27 | level 3 | 1,348 | 1,348 | 1,348 | |
| Current financial liabilities | , | |||||
| Loans from financial institutions | 23 | level 2 | 1,493 | 1,493 | 1,493 | |
| Cheque account with credit limit | 23 | 0 | 0 | 0 | ||
| Lease liabilities | 23 | level 2 | 16,504 | 16,504 | 16,504 | |
| Contingent consideration | 27 | level 3 | 1,465 | 1,465 | 1,465 | |
| Trade and other payables | 19 | 25,357 | 25,357 | 25,357 | ||
| Total | 2,812 | 239,699 | 242,511 | 242,511 |
Financial assets and liabilities recognised at fair value on the consolidated statement of financial position are classified according to their valuation-based hierarchy levels and measurement methods as follows:
Level 1: Fair values are based on quoted prices in active markets for identical assets and liabilities. The Group has no financial assets or liabilities measured according to level 1 of the hierarchy.
Level 2: The fair value is determined using valuation methods. The financial assets and liabilities are not subject to trading in active and liquid markets. The fair values can be determined based on quoted market prices and deduced valuation.
The carrying amount of the trade receivables and financial assets essentially corresponds to their fair value, as the effect of discounting is not significant taking the maturity of the receivables into consideration.
The fair values of lease liabilities are based on discounted cash flows. The fair values of loans essentially correspond to their carrying amount since they have a floating interest rate and the Group's risk premium has not materially changed.
The carrying amount of other financial liabilities essentially corresponds to their fair value, as the effect of discounting is not significant taking the maturity of the receivables into consideration.
of shares in unlisted companies. Contingent considerations are measured at value at the time of acquisition. More information on contingent considerations is presented in Note 27 Business combinations.
The Group classifies all instruments it issues either as an equity instrument or a financial liability, depending on their nature. Equity instruments are any contracts evidencing a residual interest in the assets of the company after deducting all of its liabilities. Costs relating to the issue or purchase of equity instruments are presented as a deduction from equity.
Level 3: The fair value is not based on verifiable market information, and information on other circumstances affecting the value of the financial asset or liability is not available or verifiable. The Group's other shares and participations consist solely The reserve for invested unrestricted equity contains other equity-like investments and the share subscription price to the extent that this is not entered in share capital under a specific decision.
| EUR 1,000 | Number of shares |
Share capital |
Reserve for invested unrestricted equity |
Total |
|---|---|---|---|---|
| 31.12.2018 | 22,620,135 | 80 | 116,520 | 116,600 |
| 31.12.2019 | 22,620,135 | 80 | 116,520 | 116,600 |
Pihlajalinna has one share series, with each share entitling its holder to one vote at a General Meeting of shareholders. The company's shares have no nominal value. All shares bestow their holders with equal rights to dividends and other distribution of the company's assets.
When a financial asset or liability is recognised on the transaction date, the Group measures it at its acquisition cost, which is equal to the fair value of the consideration given or received.
For the purpose of measurement after initial recognition, the Group's financial assets are classified as financial assets measured at amortised cost and financial assets measured at fair value through profit or loss. The Group has no financial instruments classified as derivatives nor financial assets measured at fair value through other comprehensive income. Financial assets are derecognised when the Group has lost its contractual right for the financial assets in question or has transferred substantially all risks and rewards outside the Group.
The Group's trade receivables, loan receivables, lease deposits and cash and cash equivalents have been classified at the time of IFRS 9 adoption as financial assets measured at amortised cost using the effective interest method, taking any impairment into account.
Financial assets measured at fair value through profit or loss consist of quoted and unquoted shares. The Group has no holdings of shares quoted in public markets.
Cash and cash equivalents consist of cash at hand and demand deposits. The account with credit limit in use is included in current financial liabilities.
The Group classifies loans from financial institutions, accounts with credit limits, lease liabilities, trade payables and other liabilities as financial liabilities measured at amortised cost using the effective interest method. Transaction costs are included in the initial carrying amount. Arrangement fees for loan commitments are treated as transaction costs. The Group classifies contingent considerations arising from M&A transactions as financial liabilities measured at fair value through profit or loss. No interest is paid on liabilities arising from contingent considerations. Any contingent consideration is measured at fair value at the date of acquisition and classified as a liability. A contingent consideration classified as a liability is measured at fair value at the end of each reporting period, and any resulting gain or loss is recognised in profit or loss after the end of the measurement period. The Group has no financial instruments classified as derivatives.
Financial liabilities are classified as current liabilities, unless the Group has an unconditional right to postpone their repayment to a date that is at least 12 months subsequent to the end of the reporting period.
BUSINESS AND RESPONSIBILITY STRATEGY
AUDITED FINANCIAL INFORMATION FOR SHAREHOLDERS
The parent company's total distributable funds amount to EUR 206,497,856.66, of which the profit for the financial year accounts for EUR 2,328,952.90.
The Board of Directors proposes that no dividend be paid for the financial year that ended on 31 December 2019 due to the tender offer made by Mehiläinen. Should the tender offer lapse, the Board of Directors will re-evaluate the matter.
On 5 November 2019, Mehiläinen Yhtiöt Oy and Pihlajalinna Plc entered into a combination agreement, pursuant to which Mehiläinen made a voluntary recommended public cash tender offer for all issued and outstanding shares in Pihlajalinna.
In the tender offer, Pihlajalinna's shareholders are offered a cash consideration of EUR 16.00 for each issued and outstanding share in Pihlajalinna. The consideration includes a premium of approximately 46.0 per cent compared to the closing price of the Pihlajalinna share on the official list of Nasdaq Helsinki on 4 November 2019. The non-conflicted members of the Board of Directors of Pihlajalinna unanimously decided to recommend that the shareholders of Pihlajalinna accept the tender offer.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Non-current interest-bearing liabilities | ||
| Bank loans | 103,182 | 93,627 |
| Other liabilities | 681 | 720 |
| Lease liabilities | 96,404 101,998 | |
| 200,266 196,345 | ||
| Current interest-bearing liabilities | ||
| Bank loans | 1,193 | 1,493 |
| Cheque accounts with credit limit | 501 | 0 |
| Lease liabilities | 17,747 | 16,504 |
| 19,441 | 17,997 | |
| Interest-bearing financial liabilities total | 219,707 214,341 |
At the end of the financial year, the Group had EUR 29.5 (39.0) million of unused committed short-term credit limits. Drawdowns from the Group's revolving credit facility are actually long-term by nature, although their maturity is 1, 3 or 6 months.
Right-of-use assets are presented under property, plant and equipment and lease liabilities are presented under financial liabilities. The right-of-use asset is initially measured at cost and depreciated over the economic life of the asset. The right-ofuse asset is also subject to IAS 36 Impairment of Assets. The
lease liability is initially measured at the present value of future lease payments. In later periods, the lease liability is measured using the effective interest rate method, according to which the lease liability is measured at amortised cost and the interest expense is amortised over the lease term. The standard allows the lessee to also include non-lease elements of an agreement (typically services) in the lease liability.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Non-current lease liabilities | ||
| Right-of-use plots | 206 | 169 |
| Right-of-use business premises and buildings | 95,112 100,827 | |
| Right-of-use equipment | 1,087 | 1,002 |
| Total | 96,404 101,998 | |
| Current lease liabilities | ||
| Right-of-use plots | 61 | 5 |
| Right-of-use business premises and buildings | 16,568 | 15,482 |
| Right-of-use equipment | 1,118 | 1,017 |
| Total | 17,747 16,504 |
| EUR 1,000 | 2018 | Cash flow |
Busi ness combi nations |
New instal ments & financial leasing |
Effec tive interest rate |
2019 |
|---|---|---|---|---|---|---|
| Non current interest bearing liabilities |
94,347 | 9,000 | 44 | 376 | 96 103,862 | |
| Current interest bearing liabilities |
1,493 | -1,285 | 153 | 1,333 | 1,694 | |
| Lease liabilities |
118,502 -22,656 | 3,802 | 14,504 | 114,151 | ||
| Total liabilties from financing |
214,341 -14,941 | 3,999 | 16,212 | 96 219,707 |
The goal of the Group's capital management is to ensure that the normal requirements of business operations are met, enable investments in line with the Group's strategy and increase longterm shareholder value. The Group influences its capital structure mainly through the distribution of dividend and share issues.
The key indicators concerning capital management are the equity ratio, the ratio of net debt to adjusted EBITDA and gearing.
| EUR 1,000 | Note | 2019 | 2018 |
|---|---|---|---|
| Equity | 106,083 130,322 | ||
| Total statement of financial position – | |||
| prepayments received | 437,377 435,867 | ||
| Equity ratio 1) | 24.3,% | 29.9,% | |
| Interest-bearing financial liabilities | 23 219,707 | 214,341 | |
| Cash and cash equivalents | -27,004 | -36,316 | |
| Interest-bearing net debt | 192,703 178,026 | ||
| Gearing 2) | 181.7,% 136.6,% | ||
| EBITDA | 47,844 | 44,826 | |
| Adjustment items* | 7,284 | 1,083 | |
| Adjusted EBITDA | 55,127 45,909 | ||
| Net debt/adjusted EBITDA | 3.5 | 3.9 |
* 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 and Group refinancing, 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.
1) The formula for calculating the equity ratio is 100 x Equity / (Total statement of financial position – prepayments received) 2) The formula for calculating gearing is 100 x Interest-bearing net debt / Equity
More information on adjusted EBITDA is provided in Note 8 Adjusted EBITDA and adjusted operating profit.
The Group's main financial risks consist of credit and counterparty risk as well as interest rate and liquidity risks. The Group operates in Finland and is therefore not exposed to material foreign exchange risks in its operations. The Group's general risk management policies are approved by the Board of Directors. The Group's Chief Financial Officer, together with the operative management, is responsible for identifying financial risks and for practical risk management. The goal of the Group's risk management is to ensure sufficient liquidity, minimise financing costs and regularly inform the management about the Group's financial position and risks. Group's financial administration actively monitors compliance with the financial covenants and assesses financial leeway in relation to the covenant maximums as part of the Group's business planning.
The Group's revenues and cash flows from operations are mostly independent of fluctuations in market interest rates. The Group is exposed to interest rate risks mainly through its external loan portfolio. In accordance with the principles of risk management, the Board of Directors decides on the extent of interest rate hedging coverage for the Group's loan portfolio. At the end of the financial year, the Group had no interest rate hedging arrangements in place. On the date of the financial statements, 53 (56) per cent of the interest-bearing liabilities were subject to fixed interest rates. During the financial year, the average annual interest rate on the Group's interest-bearing liabilities was approximately 1.84% (1.55%). The duration, i.e. the fixed interest rate period, of the financing portfolio was 4.0 (4.3) years.
The table below presents the Group's interest rate position at the end of the reporting period.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Fixed rate financial liabilities | 116,624 | 119,938 |
| Variable rate financial liabilities | 103,387 | 94,803 |
| Total variable rate position | 103,387 | 94,803 |
The table below presents the effects on consolidated profit before tax should market interest rates rise or fall, all other things being equal. The sensitivity analysis is based on the interest rate position at the closing date of the reporting period.
| 2019 | 2019 | 2018 | 2018 | |
|---|---|---|---|---|
| 0.5 percentage |
0.5 percentage |
0.5 percentage |
0.5 percentage |
|
| Change | points higher | points lower | points higher | points lower |
| Effect on profit |
||||
| before tax | -517 | 0 | -474 | 0 |
Since the Group has no material interest-bearing assets, its income and operating cash flows are not materially exposed to changes in market interest rates.
The Group monitors the amount of financing required by business operations by analysing forecasts for cash flow from sales in order to make sure the Group has a sufficient amount of liquid assets for financing operations and repaying maturing loans.
The Group aims to ensure the availability and flexibility of financing with adequate credit limits, a balanced maturity profile and sufficiently long maturities for borrowings, as well as by obtaining financing through several financial instruments. On the financial statements date, the Group's financial assets stood at EUR 27.0 (36.3) million, in addition to which the Group had EUR 29.5 (39.0) million in unused committed credit limits available.
Pihlajalinna has a five-year EUR 120 million unsecured financing arrangement with Danske Bank and Nordea. The arrangement comprises a EUR 50 million revolving credit facility and
a long-term bullet loan of EUR 70 million. It also includes an opportunity to increase the total amount by EUR 60 million (to EUR 180 million), subject to separate decisions on a supplementary loan from the funding providers.
The financing arrangement includes the customary financial covenants concerning leverage (ratio of net debt to pro forma EBITDA) and gearing. The adoption of IFRS 16 does not affect the calculation of financial covenants. The calculation of covenants will continue with the creditor banks in accordance with the accounting principles confirmed in the original financing arrangement (frozen GAAP). The group met the set covenants on 31 December 2019.
The group has credit limit agreements valid until further notice, totalling EUR 10 million. The notice period of the credit limit agreements is one month.
When the voluntary recommended public cash tender offer of Mehiläinen Yhtiöt Oy materialises, the provision on change of control of Pihlajalinna's financing arrangements will apply. According to the provision, the funding providers are entitled to terminate the financing arrangement prematurely following a material change of control. After the announcement of the final result of the tender offer, Pihlajalinna and the funding providers have 30 business days to agree on the impacts of the change of control on the financing arrangement.
The Group's equity ratio at the end of the financial year was 24.6 (29.9) per cent. The Group has good financial standing and its business operations are profitable, and therefore the company has not identified any significant risks related to the availability of additional financing.
The Group's key loan covenants are reported to the financiers on a quarterly basis. If the Group breaches the loan covenant terms, the creditors may accelerate the repayment of the loans. The management monitors the fulfilment of loan covenant terms and reports on them to the Board of Directors on a regular basis.
The financial covenants linked to the Group's financing arrangement are based on the ratio of the Group's net debt to pro forma EBITDA (leverage) and the Group's gearing. The maximum value of the leverage covenant is 3.75. The closer the Group's leverage covenant term is to said maximum value, the higher the margin on the financing arrangement. The maximum value of the gearing covenant is 115%. At the end of the reporting period, the Group met the terms of the covenant, with the leverage indicator being 3.13 (2.61) and gearing being 97% (68,7%).
At the end of the reporting period, 31 December 2019, the loan amount to which the covenants apply was EUR 100.0 (91.0) million.
The city of Jämsä has taken legal action against Jämsän Terveys Oy over the service agreement. The dispute concerns the provision on price adjustments pursuant to the service agreement. The difference of opinion regarding the determination of the annual price totalled approximately EUR 1.8 million at the time of the financial statements. Moreover, the balance sheet of Jämsän Terveys Oy includes other receivables totalling EUR 4.5 million from a client. The protocol on interpretation signed with the municipalities of Alavus, Ähtäri and Soini in conjunction with the share transactions also agreed on the charging principles of variable consideration. The outstanding receivables are associated with increased regulatory requirements for services for senior citizens, costs of specialised care and the calculation of net expenditure. A share transaction has not yet been completed with Kuortane, and no corresponding protocol on interpretation has been signed. According to the management's estimate, the client will pay the receivables in full, as the majority of the client's shareholders have agreed on the charging principles.
amounting to a total of EUR 3.1 million from the city of Jämsä, associated with the increased costs of specialised care and increased regulatory requirements for services for senior citizens. According to the management's estimate, the customer will pay the receivables in full. Kuusiolinna Terveys Oy has trade and other receivables On the date of the financial statements, the group's receivables include a total of EUR 1.6 million (EUR 2.8 million at the end of 2018) in service provider refunds for public sector specialised care cost accruals, estimated on a municipality-specific basis. According to the group management's view, under the service agreements, the refunds of cost accruals are payable to Pihlajalinna because they were accumulated during Pihlajalinna's service provision and liability for costs. In addition, the group has a total of EUR 0.2 million of overdue receivables from Kihniö and Juupajoki.
Mäntänvuoren Terveys Oy has trade and other receivables totalling EUR 1.2 million from a client. The receivables are associated with increased regulatory requirements for services for senior citizens and the calculation of net expenditure pursuant to the previous agreement. The social and healthcare service property transaction agreed with the client will be implemented by 31 December 2020. According to the management's estimate, the customer will pay the receivables in full in conjuction with the implementation of the property transaction.
Kolmostien Terveys Oy has trade and other receivables of EUR 0.4 million from a client relating to the increased regulatory requirements for services for senior citizens. According to the management's estimate, the customer will pay the receivables in full.
The payment information of corporate and personal customers is checked at every appointment. For the collection of payments, the Group mostly uses an external collections agency. The Group offers private customers financing via Svea-Rahoitus. This arrangement includes a check of the customer's creditworthiness.
The ageing analysis of trade receivables is presented in Note 17 Trade receivables and other receivables. The amount of credit losses recorded in profit or loss during the financial year was not significant. The maximum amount of the Group's credit risk equals to the carrying amount of financial assets at the end of the financial year (see Note 20 Financial assets and liabilities by measurement category).
The Group operates mainly in Finland and is not therefore exposed to material foreign exchange risks in its operations. The Group's annual procurements in foreign currencies are insignificant.
The table below presents the contractual maturity of financial liabilities. The figures are undiscounted and they include both future interest payments and repayments of principal.
| EUR 1,000 | Carrying amount at 31 Dec. 2019 |
less than 1 year |
1–2 years | 2–3 years | 3–4 years | over 4 years |
|---|---|---|---|---|---|---|
| Loans from financial institutions | 104,375 | -3,435 | -3,817 | -3,319 | -100,916 | -239 |
| Lease liabilities | 114,151 | -19,457 | -17,371 | -14,589 | -12,125 | -59,266 |
| Other interest-bearing liabilities | 681 | -20 | -57 | -57 | -57 | -851 |
| Contingent consideration | 1,397 | -1,397 | ||||
| Cheque account with credit limit | 501 | -501 | ||||
| Trade payables | 18,573 | -18,573 | ||||
| Other liabilities, series B | 7,784 | -7,784 | ||||
| Total | 247,460 | -51,166 | -21,244 | -17,964 | -113,098 | -60,357 |
| Carrying amount | less than | |||||
|---|---|---|---|---|---|---|
| 1000 € | at 31 Dec. 2018 | 1 year | 1–2 years | 2–3 years | 3–4 years | over 4 years |
| Loans from financial institutions | 95,120 | -2,950 | -2,533 | -2,285 | -93,188 | -312 |
| Lease liabilities | 118,502 | -18,287 | -14,583 | -14,653 | -13,340 | -68,174 |
| Other interest-bearing liabilities | 720 | -20 | -93 | -57 | -57 | -864 |
| Contingent consideration | 2,812 | -1,465 | -1,348 | |||
| Cheque account with credit limit | 0 | |||||
| Trade payables | 18,789 | -18,789 | ||||
| Other liabilities, series B | 6,568 | -6,568 | ||||
| Total | 242,511 | -48,079 | -18,557 | -16,994 | -106,585 | -69,350 |
Klaari Oy (Fit1 gym chain) and its subsidiary Fitnessclub Länsi-Suomi Oy, 100% of the share capital
Dalmed Oy,
100% of the share capital
| Domicile | Industry | Month of acquisition |
|
|---|---|---|---|
| Espoo, Vaasa | Fitness centres |
February 2019 |
|
| Kemiö | Occupational healthcare services |
April 2019 |
|
| Kouvola | Occupational healthcare services |
June 2019 |
|
| Raisio, Naantali | Occupational healthcare services |
September 2019 |
Kouvolan Työterveys ry (business operations)
Aurinkoristeys, i.e. the occupational healthcare units of the town of Raisio (business operations)
BOARD OF DIRECTORS AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
With respect to significant business combinations, the Group has relied on an external advisor on the estimates of the fair value of property, plant and equipment and intangible assets. With property, plant and equipment, comparisons are made with the market prices of corresponding assets, and it is estimated how much the value of the acquired assets has decreased due to age, wear and tear and other such factors. With intangible assets, fair value measurement is based on estimated cash flows related to the assets.
Since the acquisitions are not material individually, the following partially preliminary information has been consolidated:
| EUR 1,000 | 2019 |
|---|---|
| Consideration transferred | |
| Cash, basic transaction price | 3,712 |
| Total cost of the combination | 3,712 |
The preliminary values of the assets and liabilities acquired for consideration at the time of acquisition were as follows:
| EUR 1,000 | Note | 2019 |
|---|---|---|
| Property, plant and equipment | 13 | 13 |
| Intangible assets | 14 | 76 |
| Right-of-use assets | 15 | 3,802 |
| Deferred tax assets | 0 | |
| Inventories | 1 | |
| Other investments | 5 | |
| Trade and other receivables | 196 | |
| Cash and cash equivalents | 334 | |
| Total assets | 4,428 | |
| Deferred tax liabilities | -14 | |
| Financial liabilities | 23 | -197 |
| Lease liabilities | 23 -3,802 | |
| Other liabilities | -344 | |
| Total liabilities | -4,356 | |
| Preliminary net assets | 72 |
| EUR 1,000 | Liite | 2019 |
|---|---|---|
| Consideration transferred | 3,712 | |
| Affordable transaction | 3 | |
| Share of the acquisition allocated to non-controlling interests |
38 | |
| Net identifiable assets of acquirees | -72 | |
| Preliminary goodwill | 14 | 3,680 |
| Transaction price paid in cash | 3,712 | |
| Cash and cash equivalents of acquiree | -334 | |
| Preliminary effect on cash flow* | 3,378 | |
Customer contracts, non-compete agreements and patient databases were recorded in the acquisition as intangible assets separate from goodwill. The fair value of intangible assets has been determined on the basis of the standardised price level in business combinations and the discounted values of future cash flows. The remaining goodwill consists of expectations about returns, the skilled workforce of the acquired companies and synergy benefits.
The acquisition-related expenses, a total of EUR 53 thousand, have been recorded under other operating expenses.
The revenue and results for the acquired business operations beginning from the date of acquisition (total revenue EUR 2,909 thousand and total operating profit EUR 102 thousand) are included in the consolidated statement of comprehensive income. Had the business operations acquired in the financial year been consolidated as of the beginning of 2019, consolidated revenue would have amounted to EUR 520,093 thousand and operating profit for the financial year would have been EUR 10,291 thousand.
At the beginning of February, Pihlajalinna increased its ownership in Kolmostien Terveys Oy by acquiring 15 per cent of the company's share capital from the City of Parkano. After the transaction, the Group owns 96 per cent of the company.
Pihlajalinna increased its holding in Mäntänvuoren Terveys Oy by purchasing 10 per cent of the shares in the company from the City of Mänttä-Vilppula in December. After the transaction, the Group owns 91 per cent of the company.
At the end of the financial year, Pihlajalinna increased its holding in Kuusiolinna Terveys, a joint venture with the municipalities of Alavus, Ähtäri, Kuortane and Soini. The transactions were made with the municipalities of Alavus, Ähtäri and Soini. After the transaction, the Group owns 90 per cent of the company.
Röntgentutka Oy, a former joint venture, became a whollyowned subsidiary of Pihlajalinna in February 2018. Pihlajalinna consolidates the company as an acquisition achieved in stages. The pre-existing interest in acquiree was remeasured to fair value and the gains, amounting to EUR 964 thousand, were recognised in other operating income.
With respect to significant business combinations, the Group has relied on an external advisor on the estimates of the fair value of property, plant and equipment and intangible assets. With property, plant and equipment, comparisons are made with the market prices of corresponding assets, and it is estimated how much the value of the acquired assets has decreased due to age, wear and tear and other such factors. With intangible assets, fair value measurement is based on estimated cash flows related to the assets.
Since the acquisitions are not material individually, the following information has been consolidated:
| EUR 1,000 | 2018 |
|---|---|
| Consideration | |
| Cash, basic transaction price | 43,014 |
| Value of issued shares | 28,620 |
| Contingent consideration | 110 |
| Total cost of the combination | 71,744 |
At the date of acquisition, the values of assets acquired and liabilities assumed were as follows:
| EUR 1,000 | Note | 2018 |
|---|---|---|
| Property, plant and equipment | 13 | 5,210 |
| Intangible assets | 14 | 8,096 |
| Right-of-use assets | 15 | 34,500 |
| Deferred tax assets | 264 | |
| Inventories | 293 | |
| Other investments | 67 | |
| Trade and other receivables | 8,401 | |
| Cash and cash equivalents | 6,162 | |
| Total assets | 62,992 | |
| Deferred tax liabilities | -1,538 | |
| Interest-bearing financial liabilities | 23 | -4,770 |
| Lease liabilities | -34,500 | |
| Other liabilities | -11,616 | |
| Total liabilities | -52,424 | |
| Acquired net assets | 10,569 |
Goodwill generated in the acquisition:
| EUR 1,000 | Note | 2018 |
|---|---|---|
| Consideration transferred | 71,744 | |
| Previous holding measured at fair value | 4,005 | |
| Share of the acquisition allocated to non-con trolling interests |
854 | |
| Net identifiable assets of acquirees | -10,569 | |
| Goodwill | 14 | 66,034 |
| Transaction price paid in cash | 43,014 | |
| Cash and cash equivalents of acquiree | -6,162 | |
| Effect on cash flow* | 36,853 | |
| EUR 1,000 Acquired/divested entity |
Month of acquisition |
Industry | Domicile |
|---|---|---|---|
| Terveyspalvelu Verso Oy, 100% of the share capital | Dec 2018 | Occupational healthcare services | Iisalmi |
| Hammashannu Oy, sold 100% of the share capital (part of the SYH chain) |
Sept 2018 | Dental care | Turku |
| Anula Oy, 100% of the share capital | July 2018 | Dental care Hämeenlinna | |
| Leaf Areena Oy, 100% of the share capital | June 2018 | Fitness centres | Turku |
| Suomen Yksityiset Hammaslääkärit chain, 51% of the share capital | Mar 2018 | Dental care | Useita |
| Doctagon Ab, 100% of the share capital (directed share issue) | Mar 2018 | Private clinic operations, occupational health services, staffing services |
Helsinki |
| Forever fitness centre chain, 70% of the share capital | Feb 2018 | Fitness centres | Several |
| Röntgentutka Oy, 50% of the share capital (previous holding 50%, acquisition achieved in stages) |
Feb 2018 | Imaging | Tampere |
| Linnan Klinikka Oy, 100% of the share capital | Feb 2018 | Private clinic operations, occupational health services |
Hämeenlinna |
| Kymijoen Työterveys Oy, 100% of the share capital | Feb 2018 | Occupational healthcare services | Kotka |
| Salon Lääkintälaboratorio Oy (Sallab), 100% of the share capital | Jan 2018 | Private clinic operations, occupational health services |
Salo |
| Someron Lääkärikeskus Oy, 100% of the share capital | Jan 2018 | Private clinic operations, occupational health services |
Somero |
BOARD OF DIRECTORS AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
Customer contracts, non-compete agreements and patient databases were recorded in the acquisition as intangible assets separate from goodwill. The fair value of intangible assets has been determined on the basis of the standardised price level in business combinations and the discounted values of future cash flows. The remaining goodwill consists of expectations about returns, the skilled workforce of the acquired companies and synergy benefits.
The acquisition-related expenses, a total of EUR 1,336 thousand, have been recorded under other operating expenses.
The revenue and results for the acquired business operations beginning from the date of acquisition (total revenue EUR 54,646 thousand and total operating profit EUR 3,661 thousand) are included in the consolidated statement of comprehensive income. Had the business operations acquired in the financial year been consolidated as of the beginning of 2018, consolidated revenue would have amounted to EUR 502,744 thousand and operating profit for the financial year would have been EUR 14,577 thousand.
At the beginning of June, Pihlajalinna increased its ownership in Kolmostien Terveys Oy by acquiring 10 per cent of the company's share capital from the City of Parkano. After the transaction, the Group owns 81 per cent of the company.
Pihlajalinna increased its holding in Mäntänvuoren Terveys Oy by purchasing 15 per cent of the shares in the company from the City of Mänttä-Vilppula in June. After the transaction, the Group owns 81 per cent of the company.
Pihlajalinna increased its holding in Jokilaakson Terveys Oy by purchasing 39 per cent of the shares in the company from the City of Jämsä in June. After the transaction, the Group owns 90 per cent of the company. .
The fair value of contingent consideration is determined on the basis of the budget for the 2019 financial year approved by the Board of Directors and on estimates for 2019–2020 prepared by the management. The estimates are based on a discount rate of 3%.
Any changes in the fair value of contingent consideration are recorded under other operating expenses. The valuation difference resulting from the discount rate has been recognised in profit or loss under financial items.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Contingent consideration, 1 January | 2,812 | 5,418 |
| Increase in contingent consideration from the acquisition of business operations |
110 | |
| Increase in the fair value of contingent consideration during the measurement period |
1,192 | |
| Effect of the unwinding of discount | 63 | 136 |
| Contingent consideration paid during the financial year* |
-1,479 | -4,044 |
| Contingent consideration, 31 December | 1,397 | 2,812 |
*The line item "Acquisition of subsidiaries less cash and cash equivalents on date of acquisition" in the consolidated statement of cash flows presents the following items as a net amount:
| 2019 | 2018 |
|---|---|
| 3,378 36,853 | |
| 1,479 | 4,044 |
| 4,857 40,897 | |
The Group had 44 (59) subsidiaries in 2019. Of these subsidiaries, 20 (30) are wholly-owned and 24 (29) are partially owned. A list of all of the Group's subsidiaries is presented in Note 31 Related party transactions. In 2019, the Group had 1 (1) associated company and 1 (1) joint operation. .
| EUR 1,000 | Main business |
Non-controlling interests' share of the votes |
Non-controlling interests' share of profit or loss |
Non-controlling interests' share of equity |
||||
|---|---|---|---|---|---|---|---|---|
| Subsidiary | location | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |
| Jämsän Terveys Oy | Jämsä | 49 % | 49 % | -48 | -178 | 520 | 568 | |
| Kuusiolinna Terveys Oy | Alavus | 10 % | 49 % | 345 | 2,137 | 349 | 3,447 | |
| Kolmostien Terveys Oy | Parkano | 4 % | 19 % | 13 | 114 | 77 | 303 | |
| Pihlajalinna Erityisasumispalvelut Oy | Hämeenlinna | 30 % | 30 % | 6 | -122 | -148 | -153 | |
| Dextra Lapsettomuusklinikka Oy | Helsinki | 49 % | 49 % | 420 | 304 | 339 | -81 | |
| Pihlajalinna Liikuntakeskukset Group | several | 30 % | 30 % | 57 | 47 | 2,792 | 2,697 | |
| Suomen Yksityiset Hammaslääkärit Group | several | 45 % | 49 % | -92 | 26 | 499 | 642 | |
| 701 | 2,328 | 4,428 | 7,423 |
| Jämsän Terveys Oy | Kuusiolinna Terveys Oy | Kolmostien Terveys Oy | |||||
|---|---|---|---|---|---|---|---|
| EUR 1,000 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |
| Current assets | 12,388 | 11,588 | 20,310 | 20,043 | 4,934 | 6,175 | |
| Non-current assets | 1,870 | 1,251 | 1,520 | 1,188 | 1,032 | 1,069 | |
| Current liabilities | 12,297 | 10,943 | 18,220 | 14,043 | 4,016 | 5,623 | |
| Non-current liabilities | 822 | 663 | 69 | 47 | 22 | 16 | |
| Revenue | 72,563 | 73,383 | 95,312 | 93,016 | 36,527 | 35,445 | |
| Operating profit | -123 | -440 | 4,220 | 5,443 | 409 | 743 | |
| Profit/loss | -98 | -364 | 3,383 | 4,360 | 324 | 601 | |
| Share of profit/loss attributable to owners of the parent |
-50 | -2,500 | 3,370 | 4,246 | -1,340 | 601 | |
| Non-controlling interests' share of | |||||||
| profit/loss | -48 | -178 | 345 | 2,137 | 13 | 114 | |
| Net cash flow from operating activities | -703 | 2,117 | 1,265 | 4,223 | -1,292 | 2,903 | |
| Net cash flow from investing activities | -191 | -174 | -890 | -538 | 1,380 | -5,249 | |
| Net cash flow from financing activities | -206 | -141 | -3,105 | -1,635 | -76 | -668 | |
| of which dividends paid to non-controlling interests |
-2,891 | -735 | -190 |
| Lapsettomuus klinikka Oy |
Dextra | Pihljalinna Erityisasumis palvelut Oy |
Group | Pihlajalinna Liikuntakeskukset |
Suomen Yksityiset Hammaslääkärit Group |
|||
|---|---|---|---|---|---|---|---|---|
| EUR 1,000 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 |
| Current assets | 397 | 249 | 219 | 792 | 8,891 | 5,584 | 669 | 1,142 |
| Non-current assets | 2,229 | 2,637 | 655 | 684 | 27,421 | 24,498 | 1,867 | 2,056 |
| Current liabilities | 852 | 1,765 | 714 | 1,334 | 19,236 | 14,864 | 1,528 | 1,896 |
| Non-current liabilities | 501 | 706 | 651 | 23,800 | 22,746 | 195 | 241 | |
| Revenue | 5,073 | 4,493 | 2,410 | 1,113 | 18,467 | 14,890 | 4,898 | 4,619 |
| Operating profit | 1,145 | 893 | 43 | -479 | 799 | 662 | -204 | 143 |
| Profit/loss | 857 | 620 | 19 | -405 | 191 | 157 | -193 | 53 |
| Share of profit/loss attributable to owners of the parent |
437 | 316 | 13 | -284 | 134 | 110 | -102 | 27 |
| Non-controlling interests' share of profit/loss |
420 | 304 | 6 | -122 | 57 | 47 | -92 | 26 |
| Net cash flow from operating activities |
1,619 | 1,530 | 787 | -914 | 5,397 | 2,791 | 394 | -220 |
| Net cash flow from investing activities |
-135 | -28 | -47 | -481 | 1,241 | -696 | -397 | -1,153 |
| Net cash flow from financing activities |
-1,176 | -2,055 | -740 | 1,395 | -4,542 | -633 | -228 | 1,590 |
| of which dividends paid to non-controlling interests |
PIHLAJALINNA 2019
PARTNERSHIP REPORT BY THE
STATEMENTS
AUDITED FINANCIAL INFORMATION FOR SHAREHOLDERS
Associates are companies over which the Group has significant influence. As a rule, significant influence is established when the Group holds more than 20% of a company's voting power or otherwise has significant influence but no control.
A joint arrangement is an arrangement of which two or more parties have joint control. Joint control involves contractually agreed sharing of control of an arrangement, which exists only when decisions about relevant activities require the unanimous consent of the parties sharing control. A joint arrangement is either a joint operation or a joint venture. A joint venture is an arrangement whereby the Group has rights to the net assets of the arrangement, whereas in a joint operation the Group has rights to the assets, and obligations for the liabilities, relating to the arrangement.
Associates and joint ventures are consolidated using the equity method. If the Group's share of the loss of an associate or a joint venture exceeds the carrying amount of the investment, then the investment is carried at zero value, and the losses exceeding the carrying amount are not consolidated, unless the Group is committed to fulfilling the obligations of the associate or joint venture. An investment in an associate or a joint venture includes the goodwill generated through the acquisition. Unrealised profits between the Group and an associate or a joint venture are eliminated in proportion to the Group's ownership interest. The Group's pro rata share of an associate's or a joint venture's profit for the financial year is included in operating profit.
| EUR 1,000 | 2019 2018 | ||
|---|---|---|---|
| Interests in associates |
Ullanlinnan Silmälääkärit Oy | 24 | 23 |
| Interests in joint operations |
40 | 40 | |
| Total carrying amount | 64 | 63 | |
Interests in associates and joint ventures
| Main business |
Holding, % | |||
|---|---|---|---|---|
| Name | location | Industry | 2018 | 2018 |
| Ullanlinnan | Healthcare | |||
| Silmälääkärit Oy Helsinki | services | 37 % | 37 % |
| Ullanlinnan Silmälääkärit Oy | ||
|---|---|---|
| 2019 | 2018 | |
| Current assets | 96 | 105 |
| Financial assets included in current assets |
71 | 78 |
| Non-current assets | 62 | 43 |
| Current liabilities | 50 | 46 |
| Financial liabilities included in current liabilities |
||
| Non-current liabilities | 30 | 30 |
| Financial liabilities included in non-current liabilities |
30 | 30 |
| Revenue | 521 | 421 |
| Depreciation and amortisation | -16 | -9 |
| Operating profit | 6 | 17 |
| Profit/loss | 5 | 13 |
| Interest income | 1 | |
| Interest expenses | -2 | -3 |
| Income tax expenses or income | ||
| Associate's net assets | 77 | 72 |
| Group's holding | 37 % | 37 % |
| Joint venture's carrying amount in the consolidated statement of financial position |
24 | 23 |
The share of associates' profit is presented under other operating expenses up to the carrying amount of the Group's investment in their shares.
The Group owns 31 % in Kiinteistö Oy Levin Pihlaja, which is consolidated as a joint operation according to the pro rata share.
| Collateral given on own behalf | 2019 | 2018 |
|---|---|---|
| Pledged collateral notes | 1,300 | |
| Sureties | 3,682 | 320 |
| Properties' VAT refund liability | 1,728 | |
| Lease commitments for off-balance sheet leases | 980 | 1,311 |
| Lease deposits | 1,764 | 1,800 |
The City of Jämsä has taken legal action against Jämsän Terveys Oy over the service agreement. The dispute concerns the provision on price adjustments pursuant to the service agreement. The difference of opinion regarding the determination of the annual price totalled approximately EUR 1.8 million at the time of the financial statements.
| 31. | Related party transactions | |
|---|---|---|
The Group's related parties consist of the subsidiaries, associates and joint ventures. Key management personnel considered related parties consist of the members of the Board of Directors and the Management Team, including the CEO.
The Group's parent company is Pihlajalinna Plc, which owns all of Pihlajalinna Terveys Oy's Series A shares.
| Company | Domicile | Holding | % of votes |
|---|---|---|---|
| Parent company Pihlajalinna Plc | Tampere | ||
| Pihlajalinna Terveys Oy | Mänttä-Vilppula | 100 % | 100 % |
| Ikipihlaja Johanna Oy | Jämsä | 100 % | 100 % |
| Jokilaakson Terveys Oy | Jämsä | 90 % | 90 % |
| Pihlajalinna Lääkärikeskukset Oy | Helsinki | 100 % | 100 % |
| Mäntänvuoren Terveys Oy | Mänttä-Vilppula | 91 % | 91 % |
| Ikipihlaja Kuusama Oy | Kokemäki | 100 % | 100 % |
| Ikipihlaja Sofianhovi Oy | Mänttä-Vilppula | 100 % | 100 % |
| Wiisuri Oy | Jyväskylä | 100 % | 100 % |
| Ikipihlaja Matinkartano Oy | Lieto | 100 % | 100 % |
| Ikipihlaja Setälänpiha Oy | Lieto | 100 % | 100 % |
| Ikipihlaja Oiva Oy | Raisio | 100 % | 100 % |
| Kolmostien Terveys Oy | Parkano | 96 % | 96 % |
| Jämsän Terveys Oy | Jämsä | 51 % | 51 % |
| Kuusiolinna Terveys Oy | Alavus | 90 % | 90 % |
| Lääkäriasema DokTori Oy | Lappeenranta | 100 % | 100 % |
| Kompassi Hammaslääkärikeskus Oy | Seinäjoki | 100 % | 100 % |
| Kompassi Lääkärikeskus Oy | Seinäjoki | 100 % | 100 % |
| Mediapu Oy | Oulu | 100 % | 100 % |
| Pihlajalinna Seinäjoki Oy | Seinäjoki | 100 % | 100 % |
| Pihlajalinna Turku Oy | Turku | 81 % | 81 % |
| Pihlajalinna Solutions Oy | Tampere | 100 % | 100 % |
| Pihlajalinna Erityisasumispalvelut Oy | Hämeenlinna | 70 % | 70 % |
| Pihlajalinna Oulu Oy | Oulu | 100 % | 100 % |
| Dextra Lapsettomuusklinikka Oy | Helsinki | 51 % | 51 % |
| Ab Kristina Hälso Terveys Oy | Kristiinankaupunki | 100 % | 100 % |
| Linnan Klinikka Oy | Hämeenlinna | 100 % | 100 % |
| Pihlajalinna Liikuntakeskukset Oy | Tampere | 70 % | 70 % |
| Forever Matinkylä Oy | Espoo | 70 % | 70 % |
| Etelä-Karjalan Liikuntakeskus Oy | Lappeenranta | 70 % | 70 % |
| Forever Helsinki Oy | Helsinki | 70 % | 70 % |
| Forever Herttoniemi Oy | Helsinki | 70 % | 70 % |
| Forever Hiekkaharju Oy | Vantaa | 70 % | 70 % |
| Forever Hämeenlinna Oy | Hämeenlinna | 70 % | 70 % |
| Forever Järvenpää Oy | Järvenpää | 70 % | 70 % |
| Forever Lahti Oy | Lahti | 70 % | 70 % |
| Forever Varisto Oy | Vantaa | 70 % | 70 % |
| Keravan Forever Oy | Kerava | 70 % | 70 % |
| Leaf Areena Oy | Turku | 70 % | 70 % |
| Suomen Yksityiset Hammaslääkärit Oy | Tampere | 55 % | 55 % |
| Pihlajalinna Hammasklinikat Oy | Tampere | 55 % | 55 % |
| Laihian Hyvinvointi Oy | Laihia | 81 % | 81 % |
| Terveyspalvelu Verso Oy | Iisalmi | 100 % | 100 % |
| Impact Care Oy | Helsinki | 100 % | 100 % |
| Klaari Oy | Helsinki | 70 % | 70 % |
Information on the associates is presented in Note 29 Interests in associates and joint arrangements.
STRATEGY
INFORMATION FOR SHAREHOLDERS
The following changes in group structure were implemented during the financial year:
| Merged company | Target company | Date of time |
|---|---|---|
| Pihlajalinna Tampere Oy | Pihlajalinna Lääkärikeskukset Oy | 1.1.2019 |
| Doctagon Ab | Pihlajalinna Terveys Oy | 1.1.2019 |
| Anula Oy | Linnan Klinikka Oy | 1.1.2019 |
| Hammaslääkäripalvelu Savodent Oy, HammasPirta Oy, Paimion Hammaslääkäripalvelu Oy and Salon Hammaslääkärikeskus Oy |
Tampereen Hammaspiste Oy (currently Pihlajalinna Hammasklinikat Oy) |
1.1.2019 |
| Hammaslääkärikeskus Mandibula Oy | Mandibula Raisio Oy | 28.2.2019 |
| Mandibula Raisio Oy | Pihlajalinna Hammasklinikat Oy | 1.3.2019 |
| Pihlajalinna Kymijoki Oy | Pihlajalinna Lääkärikeskukset Oy | 3.6.2019 |
| Ala-Malmin Hammaslääkärit Oy, Salon Lääkintälaboratorio Oy and Someron Lääkäriasema Oy |
Pihlajalinna Lääkärikeskukset Oy | 1.9.2019 |
| Pihlajalinna Oulu Oy | Pihlajalinna Madetojanpuisto Oy (currently Pihlajalinna Oulu Oy) |
1.9.2019 |
| Etelä-Pohjanmaan Sydäntutkimuspalvelu Oy | Kompassi Lääkärikeskus Oy | 1.9.2019 |
| Pihlajalinna Parainen Oy | Pihlajalinna Turku Oy | 3.9.2019 |
| Fit1 Fitnessclub LänsiSuomi Oy | Klaari Oy | 30.11.2019 |
| Dalmed Oy | Pihlajalinna Turku Oy | 31.12.2019 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Salaries and other short-term employee benefits, Management Team |
1,328 | 1,465 |
| Post-employment benefits, Management Team |
131 | |
| Total | 1,459 | 1,465 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| CEO | ||
| Joni Aaltonen | 285 | 285 |
| Members of the Board of Directors | ||
| Leena Niemistö | 43 | 44 |
| Jari Sundström (until 4 April 2019) | 8 | 36 |
| Mikko Wirén | 260 | 259 |
| Seija Turunen | 35 | 38 |
| Jari Eklund (until 4 April 2018) | 9 | |
| Timo Everi (4 April 2019) | 9 | 37 |
| Matti Bergendahl (4 April 2018–5 April 2019) | 14 | 45 |
| Gunvor Kronman (4 April 2018–5 April 2019) | 9 | 28 |
| Kati Sulin (since 4 April 2018) | 32 | 29 |
| Matti Jaakola (since 4 April 2019) | 27 | |
| Hannu Juvonen (since 4 April 2019) | 27 | |
| Mika Manninen (since 4 April 2019) | 27 | |
| Total | 771 | 807 |
According to the CEO's contract, the notice period for dismissal is 3 months. The company is liable to pay the CEO one-time compensation for termination amounting to six months' total salary. The CEO's pension benefits are according to the statutory pension scheme. The CEO is not a member of the Board of Directors. .
In addition to statutory pension insurance, the Chairman of the Board of Directors has a supplementary defined contribution pension plan.
| 2019 | 2018 | |
|---|---|---|
| Key management personnel | ||
| Rents paid | 942 | 982 |
| Services procured | 987 | 1 207 |
| Trade payables | 9 | 124 |
| Associates | ||
| Services procured | 35 | |
| Rents received | 20 |
The Group has leased several of its business premises from a member of the key management personnel: the premises in Nokia, Karkku, Tampere and Kangasala.
A Group company has an agreement with a member of the key management personnel, under which the Group buys healthcare professionals' services.
The Group's statutory accident insurance policy has been taken out from another related party.
On 5 November 2019, Mehiläinen Yhtiöt Oy and Pihlajalinna Plc announced that they had entered into a combination agreement pursuant to which Mehiläinen made a voluntary recommended public cash tender offer for all issued and outstanding shares in Pihlajalinna.
The Finnish Financial Supervisory Authority approved the tender offer document on 8 January 2020. The acceptance period for the tender offer, or the offer period, commenced on 9 January 2020 at 9:30 a.m. (Finnish time) and it will expire on 19 March 2020 at 4:00 p.m. (Finnish time) at the earliest, unless extended or discontinued in accordance with, and subject to, the terms and conditions of the tender offer and applicable laws and regulations. Currently, the tender offer is expected to be completed towards the end of the second quarter of 2020 or at the latest during the third quarter of 2020. The offeror will extend the offer period in accordance with, and subject to, the terms and conditions of the tender offer and applicable laws in order to satisfy the closing conditions, including obtaining merger control clearance. Any extension of the offer period will be announced by way of a stock exchange release as soon as practically possible.
The tender offer document has been available in Finnish as of 9 January 2020 at the head office of Mehiläinen, address Pohjoinen Hesperiankatu 17 C, 6th floor, 00260 Helsinki, Finland, Nordea Bank Plc's head office, address Satamaradankatu 5, 00020 Nordea, Finland, and at Nasdaq Helsinki, address Fabianinkatu 14, 00130 Helsinki, Finland. An electronic version of the tender offer document has been available in Finnish as of 9 January 2020 on the internet at ostotarjous.mehilainen. fi, investors.pihlajalinna.fi/public-tender-offer and at nordea.fi/ osakkeet, and in English as of 9 January 2020 at ostotarjous. mehilainen.fi, investors.pihlajalinna.fi/public-tender-offer.aspx- ?sc_lang=en and nordea.fi/equities.
The Board of Directors of Pihlajalinna issued a statement on the tender offer as required by chapter 11, section 13 of the Finnish Securities Markets Act (746/2012, as amended) on 3 January 2020.
The cash consideration offered is EUR 16.00 for each share in Pihlajalinna. The consideration includes a premium of approximately
of Nasdaq Helsinki during the 3 months immediately preceding the announcement of the Tender Offer; and • 52.7 per cent compared to the volume-weighted average trading price of the Pihlajalinna share on Nasdaq Helsinki during the 12 months immediately preceding the announcement of the Tender Offer.
The consideration offered is subject to the terms and conditions of the tender offer. According to the terms and conditions of the tender offer, should the number of issued and outstanding shares in Pihlajalinna change as a result of a share issue, reclassification, stock split or any other similar transaction with dilutive effect, or should Pihlajalinna distribute a dividend or otherwise distribute funds or any other assets to its shareholders, or should a record date with respect to any of the foregoing occur prior to the completion of the tender offer, the offered consideration will be reduced accordingly on a euro-foreuro basis.
It is the intention of Mehiläinen, subject to Mehiläinen acquiring more than ninety per cent (90%) of the issued and outstanding shares and voting rights in Pihlajalinna, to initiate mandatory redemption proceedings in accordance with the Finnish Limited Liability Companies Act (624/2006, as amended) to acquire the remaining shares in Pihlajalinna, and thereafter to cause Pihlajalinna's shares to be delisted from Nasdaq Helsinki as soon as reasonably practicable.
As required under applicable laws, Mehiläinen has, and will have at the completion of the tender offer, access to debt and equity funding in sufficient amounts to finance the payment of the aggregate offer price for all of the issued and outstanding shares in Pihlajalinna in connection with the Tender Offer (including in any mandatory redemption proceedings in accordance with the Limited Liability Companies Act). The debt financing is subject to customary certain funds financing conditions.
LocalTapiola General Mutual Insurance Company, MWW Yhtiö Oy, Fennia Mutual Insurance Company, LocalTapiola Mutual Life Insurance Company, Elo Mutual Pension Insurance Company, Leena Niemistö, funds advised by Fondita Fund Management Company Ltd., Ilmarinen Mutual Pension Insurance Company, Fennia Life Insurance Company Ltd. as well as certain other major shareholders of Pihlajalinna, have irrevocably undertaken to accept the Tender Offer, subject to certain customary conditions. Such undertakings concern approximately 63.2 per cent of the shares and votes in Pihlajalinna in the aggregate.
The completion of the Tender Offer is conditional on the fulfillment or waiver of certain conditions on or by the date on which offeror announces the final result of the tender offer. These conditions include the receipt of all necessary regulatory approvals and that the tender offer has been approved with regard to shares representing, together with any other shares otherwise acquired by the Offeror prior to or during the offer period, more than ninety per cent of the issued and outstanding shares and voting rights in Pihlajalinna.
STRATEGY
INFORMATION FOR SHAREHOLDERS
PIHLAJALINNA 2019
The Board of Directors believes that the offer price offered to the shareholders of Pihlajalinna is fair based on an assessment of the issues and factors that the Board of Directors has concluded to be material in evaluating the tender offer. The Board of Directors of Pihlajalinna recommends that the shareholders of Pihlajalinna accept the tender offer.
The Board of Directors further notes that according to offeror's notice, the offer period of the tender offer is intended to be extended so that the offeror expects that the tender offer would be completed towards the end of second quarter of 2020 or at the latest during the third quarter of 2020. The offer period may therefore be somewhat long. Pursuant to the Securities Market Act, the offer period may for special reasons be more than ten (10) weeks, provided that the business operations of the target company are not hindered for longer than reasonable. A notice of closing of the offer period shall be disclosed at least two (2) weeks prior to the closure of the offer period.
The Board of Directors notes that shareholders of Pihlajalinna should also consider the risks related to not accepting the Tender Offer. In case the condition of completion regarding reaching at least 90% of shares and votes would be waived, the completion of the tender offer would reduce the number of shareholders in Pihlajalinna and the number of shares that would otherwise be publicly traded. Depending on the number of shares validly tendered in the tender offer, this could have an adverse effect on the liquidity and value of the shares.
The European Commission decided on 28 January 2020 to refer the handling of the authority approval of Mehiläinen's tender offer to the Finnish Competition and Consumer Authority (hereinafter referred to as the "FCCA").
According to the Finnish Competition Act, the the first phase of the notification proceedings may not take more than 23 working days. The Phase I Investigation will thus be completed no later than on 12 March 2020. According to information currently available, it is more likely than not that the FCCA will, after the Phase I Investigation, initiate continued phase II proceedings before the authority approval is obtained. According to the Competition Act, the Phase II Investigation may not take more than 69 working days, unless the Finnish Market Court grants, upon application, an extension to the FCCA for investigating the case.
If the FCCA initiates the Phase II Investigation, the offeror will extend the offer period in accordance with, and subject to, the terms and conditions of the tender offer and applicable laws, in order to satisfy the conditions to completion of
the tender offer, including obtaining the authority approval, provided that the business operations of Pihlajalinna are not hindered for longer than is reasonable, as referred to in Chapter 11, section 12, subsection 2 of the Finnish Securities Market Act. The offeror will decide on a possible extension of the offer period once the Phase I Investigation has progressed to a stage where the offeror is better placed to estimate the overall duration of the handling of the authority approval. Any extension of the offer period will be announced by way of a stock exchange release as soon as practically possible.
The Nomination Board proposes to the Annual General Meeting of Pihlajalinna Plc, scheduled to be held on 15 April 2020, that the number of the members of the Board be confirmed to be seven. The Nomination Board proposes that all of the current members of the Board of Directors, Matti Jaakola, Hannu Juvonen, Mika Manninen, Leena Niemistö, Kati Sulin, Seija Turunen and Mikko Wirén, be re-elected as members of the Board of Directors for a new term of office.
The personal details of the current members of the Board and the details of their positions of trust are available at investors.pihlajalinna.fi/corporate-governance/board-of-directors. The Nomination Board further proposes that the Annual General Meeting elect Mikko Wirén as the Chairman of the Board and Leena Niemistö as the Vice-Chairman.
The Shareholders' Nomination Board proposes that the remuneration of the Board of Directors be kept unchanged, and that the following annual remuneration be paid to the members of the Board of Directors to be elected at the Annual General Meeting for the term of office ending at the close of the Annual General Meeting 2021: to the full-time Chairman of the Board of Directors EUR 250,000 per year; to the Vice-Chairman EUR 36,000 per year, and to members EUR 24,000 per year.
Additionally, the Nomination Board proposes that each member of the Board of Directors be paid an attendance fee of EUR 500 per Board or Committee meeting. Reasonable travel expenses will also be reimbursed to the members of the Board in accordance with the company's travel rules.
The above-mentioned proposals will also be included in the notice of the Annual General Meeting.
| EUR 1,000 | note | 31.12.2019 | 31.12.2018 |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Intangible assets | 2.1. | 5,448 | 5,003 |
| Property, plant and equipment | 2.2. | 2,695 | 3,015 |
| Investments | 2.3. | 284,485 | 204,485 |
| 292,628 | 212,504 | ||
| Current assets | |||
| Non-current receivables | 2.4. | 37 | 61 |
| Current receivables | 2.5. | 43,072 | 115,308 |
| Cash and cash equivalents | 16 | 2,272 | |
| 43,124 | 117,642 | ||
| Total assets | 335,752 | 330,145 | |
| EUR 1,000 note |
31.12.2019 | 31.12.2018 |
|---|---|---|
| Assets | ||
| Non-current assets | ||
| Intangible assets 2.1. |
5,448 | 5,003 |
| Property, plant and equipment 2.2. |
2,695 | 3,015 |
| Investments 2.3. |
284,485 | 204,485 |
| 292,628 | 212,504 | |
| Current assets | ||
| Non-current receivables 2.4. |
37 | 61 |
| Current receivables 2.5. |
43,072 | 115,308 |
| Cash and cash equivalents | 16 | 2,272 |
| 43,124 | 117,642 | |
| 335,752 | 330,145 | |
| Total assets | ||
| Equity and liabilities | ||
| Equity 2.6. |
||
| Share capital Reserve for invested unrestricted equity |
80 183,190 |
80 183,190 |
| Retained earnings | 21,915 | 24,126 |
| Profit/loss for the financial year | 2,329 | 52 |
| 207,515 | 207,448 | |
| Accumulated appropriations 2.7. |
787 | 514 |
| Mandatory provisions 2.8. |
74 | |
| Liabilities 2.9. |
||
| Non-current liabilities | 101,709 | 93,368 |
| Current liabilities | 25,666 | 28,816 |
| 127,375 | 122,184 | |
| Total equity and liabilities | 335,752 | 330,145 |
| EUR 1,000 | note | 1.1.–31.12.2019 | 1.1.–31.12.2018 |
|---|---|---|---|
| Revenue | 1.1. | 3,276 | 2,428 |
| Other operating income | 1.2. | 347 | 304 |
| Personnel expenses | 1.3. | -1,258 | -1,350 |
| Depreciation, amortisation and impairment | 1.4. | -1,515 | -1,072 |
| Other operating expenses | 1.5. | -3,534 | -2,966 |
| Operating profit (loss) | -2,683 | -2,656 | |
| Financial income and expenses | 1.6. | -110 | 321 |
| Profit (loss) before | |||
| appropriations and taxes | -2,793 | -2,335 | |
| Appropriations | 1.7. | ||
| Change in depreciation difference | -274 | -501 | |
| Group contribution | 6,000 | 2,900 | |
| Income taxes | 1.8. | -604 | -13 |
| Profit (loss) for the financial year | 2,329 | 52 |
| EUR 1,000 | 1.1.–31.12.2019 | 1.1.–31.12.2018 |
|---|---|---|
| Cash flow from operating activities | ||
| Profit for the period | 2,329 | 52 |
| Depreciation, amortisation and impairment | 1,515 | 1072 |
| Financial income and expenses | 110 | -321 |
| Other adjustments (appropriations and taxes) | -5,122 | -2,387 |
| Cash flow before change in working capital | -1,169 | -1,584 |
| Change in net working capital | 1,150 | -255 |
| Cash flows from operating activities before financial items and taxes | -18 | -1,839 |
| Interest received | 1,673 | 2,263 |
| Direct taxes paid | 306 | -547 |
| Cash flow from operating activities | 1,960 | -123 |
| Cash flows from investing activities | ||
| Investments in tangible and intangible assets | -1,584 | -3,263 |
| Investments in subsidiaries | 0 | -589 |
| Cash flows from investing activities | -1,584 | -3,852 |
| Cash flows from financing activities | ||
| Proceeds from short-term borrowings from group companies | -5,045 | 19,235 |
| Loans granted to Group companies | -5,264 | -67,747 |
| Proceeds from short-term borrowings | 501 | |
| Repayment of short-term borrowings | -1,178 | |
| Proceeds from long-term borrowings | 9,000 | 91,000 |
| Repayment of long-term borrowings | -732 | -34,438 |
| Group contributions received | 2,900 | 4,795 |
| Interest paid | -1,730 | -1,821 |
| Dividends paid | -2,262 | -3,619 |
| Cash flows from financing activities | -2,633 | 6,227 |
| Change in cash and cash equivalents | -2,257 | 2,252 |
| EUR 1,000 | 1.1.–31.12.2019 | 1.1.–31.12.2018 |
|---|---|---|
| Cash flow from operating activities | ||
| Profit for the period | 2,329 | 52 |
| Depreciation, amortisation and impairment | 1,515 | 1072 |
| Financial income and expenses | 110 | -321 |
| Other adjustments (appropriations and taxes) | -5,122 | -2,387 |
| Cash flow before change in working capital | -1,169 | -1,584 |
| Change in net working capital | 1,150 | -255 |
| Cash flows from operating activities before financial items and taxes | -18 | -1,839 |
| Interest received | 1,673 | 2,263 |
| Direct taxes paid | 306 | -547 |
| Cash flow from operating activities | 1,960 | -123 |
| Cash flows from investing activities | ||
| Investments in tangible and intangible assets | -1,584 | -3,263 |
| Investments in subsidiaries | 0 | -589 |
| Cash flows from investing activities | -1,584 | -3,852 |
| Cash flows from financing activities | ||
| Proceeds from short-term borrowings from group companies | -5,045 | 19,235 |
| Loans granted to Group companies | -5,264 | -67,747 |
| Proceeds from short-term borrowings | 501 | |
| Repayment of short-term borrowings | -1,178 | |
| Proceeds from long-term borrowings | 9,000 | 91,000 |
| Repayment of long-term borrowings | -732 | -34,438 |
| Group contributions received | 2,900 | 4,795 |
| Interest paid | -1,730 | -1,821 |
| Dividends paid | -2,262 | -3,619 |
| Cash flows from financing activities | -2,633 | 6,227 |
| Change in cash and cash equivalents | -2,257 | 2,252 |
| Cash at the beginning of the financial year | 2,272 | 21 |
| Cash at the end of the financial year | 16 | 2,272 |
STRATEGY PIHLAJALINNA 2019
PARTNERSHIP REPORT BY THE
BOARD OF DIRECTORS AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
Pihlajalinna Plc (2617455-1), domiciled in Tampere, is the parent company of Pihlajalinna Group. The company was established on 15 April 2014.
On 5 November 2019, Mehiläinen Yhtiöt Oy and Pihlajalinna Plc entered into a combination agreement, pursuant to which Mehiläinen made a voluntary recommended public cash tender offer for all issued and outstanding shares in Pihlajalinna.
In the tender offer, Pihlajalinna's shareholders are offered a cash consideration of EUR 16.00 for each issued and outstanding share in Pihlajalinna. The consideration includes a premium of approximately 46.0 per cent compared to the closing price of the Pihlajalinna share on the official list of Nasdaq Helsinki on 4 November 2019. The non-conflicted members of the Board of Directors of Pihlajalinna unanimously decided to recommend that the shareholders of Pihlajalinna accept the tender offer.
The offer period commenced on 9 January 2020 at 9:30 a.m. (Finnish time) and it will expire on 19 March 2020 at 4:00 p.m. (Finnish time) at the earliest, unless extended or discontinued in accordance with, and subject to, the terms and conditions of the tender offer and applicable laws and regulations. Currently, the tender offer is expected to be completed towards the end of the second quarter of 2020 or at the latest during the third quarter of 2020. The offeror will extend the offer period in accordance with, and subject to, the terms and conditions of the tender offer and applicable laws in order to satisfy the closing conditions, including obtaining merger control clearance. Any extension of the offer period will be announced by way of a stock exchange release as soon as practically possible. .
Intangible assets and tangible assets have been recognised in the balance sheet at cost. Depreciation and amortisation according to plan is calculated using the straight-line method over the economic useful lives of the assets.
| Development costs | 5–7 years |
|---|---|
| Other intellectual property rights | 5–7 years |
| Other long-term expenditures | 5–7 years |
| Machinery and equipment | 3–10 years |
Acquisition costs of assets included in non-current assets with a probable economic useful life of less than 3 years, and smallscale acquisitions (value under EUR 850) have been expensed in the financial year during which they were acquired in full.
Financial assets are measured at the lower of cost or fair market, if the impairment is considered to be permanent.
Deferred tax liabilities or assets have been calculated on the temporary differences between taxation and the financial statements, using the prevailing tax base at balance sheet date. The balance sheet includes deferred tax liabilities in their entirety and deferred tax assets in the amount of the estimated probable receivables.
The sale of products and services is recognised in connection with their delivery.
The company's capitalised product development expenditure relating to the Pihlajalinna mobile application and the company website will be amortised over their economic useful lives. Unamortised development expenditure included in intangible assets, which restricts profit distribution, amounted to EUR 1,017 (1,281) thousand at the end of the financial year.
The personnel's statutory pension security is handled by an external pension insurance company. Pension costs are recognised as expenses during the year of their accrual.
Pihlajalinna Plc's cash flow statement has been converted to comply with an indirect calculation model.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Revenues by sector | ||
| Sale of services | 3,276 | 2,428 |
| 3,276 | 2,428 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Rental income | 19 | |
| Lease income from equipment | 328 | 304 |
| 347 | 304 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Wages and salaries | -1,136 | -1,215 |
| Pension costs | -110 | -127 |
| Other social security expenses | -12 | -7 |
| Total | -1,258 | -1,350 |
| Average number of employees | ||
| during the financial year | 5 | 2 |
The remuneration of the Board of Directors of Pihlajalinna Plc is included in the company's personnel expenses. The Annual General Meeting of 4 April 2019 decided that remuneration shall be paid to the members of the Board of Directors as follows: to the full-time Chairman of the Board of Directors EUR 250,000 per year; to the Vice-Chairman EUR 36,000 per year, and to members EUR 24,000 per year. In addition, the AGM decided that each Board member shall be paid a meeting fee of EUR 500 for each Board and Committee meeting.
A summary of the remuneration of the Board of Directors is included in Note 31 "Related party transactions" to the consolidated financial statements. In addition, the Corporate Governance Statement includes a summary of remuneration paid to members of the Board of Directors in 2019.
| 1.4. Depreciation and impairment | EUR 1,000 | 31.12.2019 31.12.2018 | |||
|---|---|---|---|---|---|
| EUR 1,000 | 2019 | 2018 | Development costs | ||
| Depreciation according to plan | Acquisition cost at the start of the | 1,607 | 1,164 | ||
| Intangible assets | -1,153 | -741 | financial year | ||
| Property, plant and equipment | -362 | -331 | Additions | 443 | |
| -1,515 | -1,072 | Acquisition cost at the end of the period | 1,607 | 1,607 | |
| Accumulated amortisation according to plan during the financial year |
-325 | -61 | |||
| Accumulated amortisation according to | -264 | -264 | |||
| 1.5. Other operating expenses | plan during the financial year | ||||
| EUR 1,000 | 2019 | 2018 | Carrying amount at the end of the period | 1,017 | 1,281 |
| Voluntary social security expenses | -20 | -58 | |||
| Facility expenses | -237 | -241 | Other intellectual property rights | ||
| Vehicle expenses | -5 | -31 | Acquisition cost at the start of | 1,494 | 1,464 |
| ICT expenses | -2,175 | -1,628 | the financial year | ||
| Machinery and equipment expenses | -1 | -1 | Additions | 121 | 13 |
| Sales, marketing and travel expenses | -66 | -49 | Transfers between items | 17 | |
| Administrative expenses | -1029 | -958 | Acquisition cost at the end of the period | 1,615 | 1,494 |
| Other operating expenses, total | -3,534 | -2,966 | Accumulated amortisation according to plan during the financial year |
-544 | -321 |
| Accumulated amortisation according to plan during the financial year |
-245 | -223 | |||
| Auditor's fees | Carrying amount at the end of the period | 827 | 950 | ||
| audit fees | -116 | -70 | |||
| auxiliary services | -1 | -10 | Other long-term expenditures | ||
| -117 | -80 | Acquisition cost at the start of the financial year |
2,827 | 470 | |
| Additions | 1,037 | 2,342 | |||
| 1.6. Financial income and expenses | Transfers between items | 217 | 15 | ||
| EUR 1,000 | 2019 | 2018 | Acquisition cost at the end of the period | 4,082 | 2,827 |
| Interest income from non-current investments | Accumulated amortisation according to | -273 | -20 | ||
| From Group companies | 1,671 | 2,256 | plan during the financial year | ||
| From others | 2 | 0 | Accumulated amortisation according to | -644 | -253 |
| Interest income from non-current | 1,673 | 2,256 | plan during the financial year | ||
| investments, total | Carrying amount at the end of the period | 3,165 | 2,554 | ||
| Interest expenses and other financial expenses | Prepayments for intangible assets | ||||
| To others | -1,783 | -1,935 | Acquisition cost at the beginning | 217 | 15 |
| Interest expenses and other financial | -1,783 | -1,935 | Additions | 440 | 217 |
| expenses, total | Transfers between items | -217 | -15 | ||
| Carrying amount at the end of the period | 440 | 217 | |||
| Financial income and expenses, total | -110 | 321 | |||
| Intangible assets, total | |||||
| 1.7. Appropriations | Acquisition cost at the start of the financial year |
6,145 | 3,114 | ||
| EUR 1,000 | 2019 | 2018 | Additions | 1,597 | 3,015 |
| Difference between depreciation | Transfers between items | 0 | 17 | ||
| according to plan and depreciation | Acquisition cost at the end of the period | 7,742 | 6,145 | ||
| in taxation | -274 | -501 | Accumulated amortisation according to | -1,143 | -402 |
| Group contributions received | 6,000 | 2,900 | plan during the financial year | ||
| 5,726 | 2,399 | Accumulated amortisation according to plan during the financial year |
-1,153 | -741 | |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Income taxes on actual operations during the financial year |
-604 | -13 |
| Income taxes total | -604 | -13 |
| 1.4. Depreciation and impairment | EUR 1,000 | 31.12.2019 31.12.2018 | |||
|---|---|---|---|---|---|
| EUR 1,000 | 2019 | 2018 | Development costs | ||
| Depreciation according to plan | Acquisition cost at the start of the | 1,607 | 1,164 | ||
| Intangible assets | -1,153 | -741 | financial year | ||
| Property, plant and equipment | -362 | -331 | Additions | 443 | |
| -1,515 | -1,072 | Acquisition cost at the end of the period | 1,607 | 1,607 | |
| Accumulated amortisation according to plan during the financial year |
-325 | -61 | |||
| 1.5. Other operating expenses | Accumulated amortisation according to | -264 | -264 | ||
| EUR 1,000 | 2019 | 2018 | plan during the financial year | ||
| Voluntary social security expenses | -20 | -58 | Carrying amount at the end of the period | 1,017 | 1,281 |
| Facility expenses | -237 | -241 | Other intellectual property rights | ||
| Vehicle expenses | -5 | -31 | Acquisition cost at the start of | 1,494 | 1,464 |
| ICT expenses | -2,175 | -1,628 | the financial year | ||
| Machinery and equipment expenses | -1 | -1 | Additions | 121 | 13 |
| Sales, marketing and travel expenses | -66 | -49 | Transfers between items | 17 | |
| Administrative expenses | -1029 | -958 | Acquisition cost at the end of the period | 1,615 | 1,494 |
| Accumulated amortisation according to plan during the financial year |
-544 | -321 | |||
| Other operating expenses, total | -3,534 | -2,966 | Accumulated amortisation according to plan during the financial year |
-245 | -223 |
| Auditor's fees | Carrying amount at the end of the period | 827 | 950 | ||
| audit fees | -116 | -70 | |||
| auxiliary services | -1 | -10 | Other long-term expenditures | ||
| -117 | -80 | Acquisition cost at the start of the financial year |
2,827 | 470 | |
| Additions | 1,037 | 2,342 | |||
| 1.6. Financial income and expenses | Transfers between items | 217 | 15 | ||
| EUR 1,000 | 2019 | 2018 | Acquisition cost at the end of the period | 4,082 | 2,827 |
| Interest income from non-current investments | Accumulated amortisation according to | -273 | -20 | ||
| From Group companies | 1,671 | 2,256 | plan during the financial year | ||
| From others | 2 | 0 | Accumulated amortisation according to | -644 | -253 |
| Interest income from non-current | 1,673 | 2,256 | plan during the financial year | ||
| investments, total | Carrying amount at the end of the period | 3,165 | 2,554 | ||
| Interest expenses and other financial expenses | Prepayments for intangible assets | ||||
| To others | -1,783 | -1,935 | Acquisition cost at the beginning | 217 | 15 |
| Interest expenses and other financial | -1,783 | -1,935 | Additions | 440 | 217 |
| expenses, total | Transfers between items | -217 | -15 | ||
| Carrying amount at the end of the period | 440 | 217 | |||
| Financial income and expenses, total | -110 | 321 | |||
| Intangible assets, total | |||||
| 1.7. Appropriations | Acquisition cost at the start of the financial year |
6,145 | 3,114 | ||
| EUR 1,000 | 2019 | 2018 | Additions | 1,597 | 3,015 |
| Difference between depreciation | Transfers between items | 0 | 17 | ||
| according to plan and depreciation | Acquisition cost at the end of the period | 7,742 | 6,145 | ||
| in taxation | -274 | -501 | Accumulated amortisation according to | -1,143 | -402 |
| Group contributions received | 6,000 | 2,900 | plan during the financial year | ||
| 5,726 | 2,399 | Accumulated amortisation according to plan during the financial year |
-1,153 | -741 | |
| Carrying amount at the end of the period | 5,447 | 5,003 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Voluntary social security expenses | -20 | -58 |
| Facility expenses | -237 | -241 |
| Vehicle expenses | -5 | -31 |
| ICT expenses | -2,175 | -1,628 |
| Machinery and equipment expenses | -1 | -1 |
| Sales, marketing and travel expenses | -66 | -49 |
| Administrative expenses | -1029 | -958 |
| Other operating expenses, total | -3,534 | -2,966 |
| Auditor's fees | ||
| audit fees | -116 | -70 |
| auxiliary services | -1 | -10 |
| -117 | -80 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Interest income from non-current investments | ||
| From Group companies | 1,671 | 2,256 |
| From others | 2 | 0 |
| Interest income from non-current investments, total |
1,673 | 2,256 |
| Interest expenses and other financial expenses | ||
| To others | -1,783 | -1,935 |
| Interest expenses and other financial expenses, total |
-1,783 | -1,935 |
| Financial income and expenses, total | -110 | 321 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Machinery and equipment | ||
| Acquisition cost at the start of the financial year |
3,367 | 144 |
| Additions | 41 | 3,242 |
| Transfers between items | -19 | |
| Acquisition cost at the end of the period | 3,408 | 3,367 |
| Accumulated amortisation according to plan during the financial year |
-351 | -23 |
| Accumulated depreciation on disposals and transfers |
3 | |
| Accumulated amortisation according to plan during the financial year |
-362 | -331 |
| Carrying amount at the end of the period | 2,695 | 3,015 |
| Property, plant and equipment, total | ||
| Acquisition cost at the start of the financial year |
3,367 | 144 |
| Additions | 41 | 3,242 |
| Transfers between items | 0 | -19 |
| Acquisition cost at the end of the period | 3,408 | 3,367 |
| Accumulated amortisation according to plan during the financial year |
-351 | -23 |
| Accumulated depreciation on disposals and transfers |
0 | 3 |
| Accumulated amortisation according to plan during the financial year |
-362 | -331 |
| Carrying amount at the end of the period | 2,695 | 3,015 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Shares in subsidiaries | ||
| Acquisition cost at the start of the financial year |
204,485 | 173,791 |
| Additions | 80,000 | 30,694 |
| Acquisition cost at the end of the period | 284,485 | 204,485 |
| Total investments | 284,485 | 204,485 |
A full list of the Group's subsidiaries is presented in Note 31 "Related party transactions" to the consolidated financial statements.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Receivables from others | ||
| Lease deposits given | 37 | 61 |
| 37 | 61 | |
| Total non-current receivables | 37 | 61 |
| 2019 | 2018 |
|---|---|
| 263 | 47 |
| 1,422 | 1,846 |
| 1,685 | 1,894 |
| 57 | 480 |
| 35,283 | 110,018 |
| 6,047 | 2,916 |
| 41,387 | 113,414 |
| 6,000 | 2,900 |
| 850 | |
| 1 | 102 |
| 1,469 | 910 |
| 7,470 | 4,762 |
| 43,072 | 115,308 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Restricted equity | ||
| Share capital at the beginning | 80 | 80 |
| Share capital at the end | 80 | 80 |
| Total restricted equity | 80 | 80 |
| Unrestricted equity | ||
| Reserve for invested unrestricted equity at the beginning |
183,190 | 153,085 |
| Directed share issue | 30,105 | |
| Reserve for invested unrestricted equity at the end |
183,190 | 183,190 |
| Retained earnings at the beginning | 24,178 | 27,745 |
| Dividends paid | -2,262 | -3,619 |
| Retained earnings | 21,915 | 24,126 |
| Profit for the period | 2,329 | 52 |
| Total unrestricted equity | 207,435 | 207,368 |
| Total equity | 207,515 | 207,448 |
| Distributable unrestricted equity | ||
| Retained earnings | 21,915 | 24,126 |
| Profit for the period | 2,329 | 52 |
| Reserve for invested unrestricted equity | 183,190 | 183,190 |
| Capitalised development costs | -1,017 | -1,281 |
| 206,418 | 206,087 | |
| Number of shares | 22,620,135 22,620,135 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Accumulated depreciation difference | 787 | 514 |
| 2.8. Mandatory provisions | ||
|---|---|---|
| EUR 1,000 | 2019 | 2018 |
| Onerous contracts | 74 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Liabilities to others | ||
| Loans from financial institutions | 100,000 | 91,000 |
| Other non-current liabilities | 1,673 | 2,368 |
| Lease deposits received | 36 | |
| 101,709 | 93,368 | |
| Non-current liabilities, total | 101,709 | 93,368 |
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Liabilities to others | ||
| Loans from financial institutions | 501 | |
| Trade payables | 1 559 | 253 |
| Other liabilities | 743 | 793 |
| Accrued liabilities | 395 | 263 |
| 3 199 | 1 308 | |
| Liabilities to Group companies | ||
| Trade payables | 85 | 79 |
| Accrued liabilities, interest | 1 | |
| Other liabilities | 22 382 | 27 427 |
| 22 468 | 27 507 | |
| Material items included under Accrued liabilities |
||
| Personnel expense allocations | 137 | 92 |
| Interest allocations | 164 | 111 |
| Taxes | 60 | |
| Other items | 35 | 61 |
| 395 | 264 | |
| Current liabilities, total | 25 666 | 28 816 |
| EUR 1,000 | 31.12.2019 | 31.12.2018 |
|---|---|---|
| Vakuudet ja vastuusitoumukset | ||
| Collaterals given on behalf of Group companies |
||
| Other sureties | 19 |
Pihlajalinna has a five-year EUR 120 million unsecured financing arrangement with Danske Bank and Nordea. The arrangement comprises a EUR 50 million revolving credit facility and a long-term bullet loan of EUR 70 million. It also includes an opportunity to increase the total amount by EUR 60 million (to EUR 180 million), subject to separate decisions on a supplementary loan from the funding providers.
The financing arrangement includes the customary leverage (ratio of net debt to pro forma EBITDA) and gearing covenants. The adoption of IFRS 16 does not affect the calculation of financial covenants. The calculation of covenants will continue with the creditor banks in accordance with the accounting principles confirmed in the original financing arrangement (frozen GAAP).
At the end of the reporting period, 31 December 2019, the withdrawn loan amount to which the covenants apply was EUR 100.0 million (EUR 91.0 million). The maximum value of the leverage covenant is 3.75 and the maximum value of the gearing covenant is 115%. The closer the Group's leverage covenant is to the maximum value, the higher the loan margin. The Group met the set covenants on 31 December 2019, with the leverage ratio being 3.31 (2.61) and gearing 99% (69%).
The group has credit limit agreements valid until further notice, totalling EUR 10 million. The notice period of the credit limit agreements is one month. At the end of the review period, Pihlajalinna had a total of EUR 29.5 million in unused committed credit limits.
When the voluntary recommended public cash tender offer of Mehiläinen Yhtiöt Oy materialises, the provision on change of control of Pihlajalinna's financing arrangements will apply. According to the provision, the funding providers are entitled to terminate the financing arrangement prematurely following a material change of control. After the announcement of the final result of the tender offer, Pihlajalinna and the funding providers have 30 business days to agree on the impacts of the change of control on the financing arrangement.
| EUR 1,000 | 2019 | 2018 |
|---|---|---|
| Lease commitments | ||
| Within one year | 147 | |
| Between one and five years | 304 | 559 |
| Over five years later | 342 | 478 |
STRATEGY
PARTNERSHIP REPORT BY THE BOARD OF DIRECTORS STATEMENTS
AUDITED FINANCIAL INFORMATION FOR SHAREHOLDERS
A report on the performed audit has been issued today.
Tampere, 17 February 2020
KPMG Oy Ab
Authorised Public Accountant
Leena Niemistö
Kati Sulin Seija Turunen
Matti Jaakola Hannu Juvonen
Mika Manninen
CEO
We have audited the financial statements of Pihlajalinna Plc (business identity code 2617455-1) for the year ended 31 December 2019. The financial statements comprise the consolidated statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes, including a summary of significant accounting policies, as well as the parent company's balance sheet, income statement, cash flow statement and notes.
Our opinion is consistent with the additional report submitted to the Audit Committee.
We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report.
In our best knowledge and understanding, the non-audit services that we have provided to the parent company and
group companies are in compliance with laws and regulations applicable in Finland regarding these services, and we have not provided any prohibited non-audit services referred to in Article 5(1) of regulation (EU) 537/2014. The non-audit services that we have provided have been disclosed in note 6 to the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements. description of key audit matters below. We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud.
The scope of our audit was influenced by our application of materiality. The materiality is determined based on our professional judgement and is used to determine the nature, timing and extent of our audit procedures and to evaluate the effect of identified misstatements on the financial statements as a whole. The level of materiality we set is based on our assessment of the magnitude of misstatements that, individually or in aggregate, could reasonably be expected to have influence on the economic decisions of the users of the financial statements. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for qualitative reasons for the users of the financial statements.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The significant risks of material misstatement referred to in the EU Regulation No 537/2014 point (c) of Article 10(2) are included in the
PIHLAJALINNA 2019
PARTNERSHIP REPORT BY THE
BOARD OF DIRECTORS AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
Due to the high level of judgement related to the entries recorded resulting from the changes in the Group structure, specific form required for the documentation and the number of changes, the entries and administrative documentation are considered a key audit matter.
Our audit procedures included, among others, assessing key inputs in the calculations such as revenue growth rate, profitability and discount rate, by reference to the parent company's Board approved budgets, data external to the Group and our own views. • We assessed the historical accuracy of forecasts prepared by management by comparing the actual results for the year with the original forecasts.
The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company's and the group's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or cease operations, or there is no realistic alternative but to do so.
We would like to draw attention to note 17 where the key accounting estimates and decisions based on management judgements related to the receivables totaling EUR 12.8 million are presented. The receivables may contain uncertainty due to agreements open to interpretations as well as delays between recognizing the receivable and receiving payment, among other things. Our opinion has not been qualified by this matter.
• The subsidiaries administering the significant municipality outsourcing contracts are audited by another audit firm. We participated in that audit firm's risk assessment in order to also identify the risk of a material misstatement in the consolidated financial statements. We instructed the other audit firm to report to us on their audit of these subsidiaries, discussed their significant findings with their lead partner, received reporting on their audit and assessed the appropriateness of the audit firm's work from the perspective of the audit of the consolidated financial statements. • We observed the judgmental items recorded in the consolidated financial statements through discussions with management, analytically and by performing substantive testing where applicable. We requested related agreements, calculations and administrative
documents for our use.
• We assessed the recognition principles applied to judgmental income and expense items against IFRS principles and considered the appropriateness of the Group's disclosures in respect of judg-
mental items.
• We assessed how the Group has received payments relating to
previously recognized judgmental items.
• We requested documentation for juridical basis for recognizing these items from the Group's general counsel and representation letter from the management about the collectability of these
receivables.
• We requested a legal representation letter about the legal action
in the district court.
• We reported in more detail about the contents of these judgemental items to the Audit Committee and the Board of Directors.
Adoption and application of the standard IFRS 16 Leases (refer to Accounting policies of the consolidated financial statements, notes 15 and 23 to the consolidated financial statements)
• Our audit procedures included evaluation of the recognition principles for lease arrangements applied by the Group and assessment of their appropriateness by reference to IFRS standards. • We assessed key inputs in the calculations relating to the length of the lease periods, discount rates and depreciation periods of right-of-use assets, as well as compared on a spot check basis the terms, euro amounts and index changes in certain, most significant lease agreements to the data used in calculations. We assured, based on the calculation prepared by the company that all significant lease arrangements have been identified. • We considered the appropriateness of the Group's disclosures in respect of lease arrangements.
ended on 31 December 2019. If the public tender offer does not realise, the Board of Directors will reconsider the matter.
As far as Pihlajalinna is aware, the following investment banks and stockbrokers monitor Pihlajalinna and publish reports on the company: Pihlajalinna is not liable for the estimates presented in the analyses.
Marko Savolainen, Chief Legal Officer, +358 400 195213, [email protected]
Tarja Rantala, CFO, +358 40 7749290, [email protected]
Additional information is available in the investor section at investors.pihlajalinna.fi
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The Annual General Meeting of Pihlajalinna Plc will be held in Tampere-talo, Duetto 2 meeting room, located at Yliopistonkatu 55, 33100 Tampere, on Wednesday, 15 April 2020 at 10:30 a.m. The reception of participants who have registered for the meeting will commence at 9:30 a.m. Shareholders are offered an advance voting possibility in order to participate in decisionmaking of the Annual General Meeting. The meeting can be followed remotely.
A shareholder entered in the list of the company's shareholders maintained by Euroclear Finland Ltd on the record date of the General Meeting, 1 April 2020, has the right to participate in the General Meeting.
A shareholder who is registered in the shareholders' register and wants to participate in the General Meeting, shall register for the meeting no later than 6 April 2020 at 10:00 am. Registration for the meeting is possible via the registration link on the website at investors.pihlajalinna.fi, by letter to Pihlajalinna Oyj, Yhtiökokous 2020, Kehräsaari B, 33200 Tampere, by e-mail to [email protected] or by telephone on +358 (0)20 770 6896 (9 a.m.–4 p.m.).
Any proxies are requested to be delivered as original copies before the end of the registration period to Pihlajalinna Oyj, Yhtiökokous 2020, Kehräsaari B, 33200 Tampere, Finland.
Due to the tender offer by Mehiläinen, the Board of Directors proposes no dividends to be paid for the financial year that
Pihlajalinna's financial reporting in 2020
The interim reports will be published at approximately 8:00 a.m. in Finnish and English, and they will be available on Pihlajalinna's website at investors.pihlajalinna.fi.
Pihlajalinna's management organises information events for analysts and the media on a regular basis.
Pihlajalinna complies with a silent period of 30 days and a closed window before the publication of results.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
We were first appointed as auditors by the Annual General Meeting when Pihlajalinna Plc was established on 15 April 2014 and our appointment represents a total period of uninterrupted engagement of six years. In Pihlajalinna Terveys Oy we were first appointed as auditors for the financial year ended 31 December 2010. Pihlajalinna Plc became a public interest entity on 8 June 2015. We have been the company's auditors since it became a public interest entity.
The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Annual Report, but does not include the financial statements and our auditor's report thereon. We have obtained the report of the Board of Directors prior to the date of this auditor's report, and the Annual Report is expected to be made available to us after that date. Our opinion on the financial statements does not cover the other information.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
In our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements and the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Tampere 17 February 2020
KPMG OY AB
Authorised Public Accountant, KHT
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