Annual Report • Mar 13, 2019
Annual Report
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| Pihlajalinna in brief 1 |
|---|
| From the Chairman |
| of the Board of Directors 4 |
| From the CEO 5 |
| Operational environment 6 |
| Business and strategy8 |
| Presentation of business areas10–13 |
| Customer groups 14–15 |
| Responsibility 16 |
|---|
| Quality and safety of care17 |
| Economic responsibility18–19 |
| Responsibility for personnel 20–21 |
| Data protection and |
| information security22–23 |
| Partnership 24–25 |
| Impact maps26–29 |
| Board of Directors 30 | |
|---|---|
| Management Team 31 | |
| Financial year 2018 | |
| Report by the Board of | |
| Directors33 | |
| Financial statements53 | |
| Auditor's report 98 | |
| Information for shareholders 101 |
| Operating profit (EBIT) |
|
|---|---|
| REVENUE | 12.8 |
| 487.8 | EUR million |
| EUR million (2017: 424.0) |
2.6% (2017: 19.1 EUR million |
| +15% | 4.5%) |
| target over 7% |
EBITDA 2.9
EARNINGS PER SHARE 0.17 EUR (2017: 0.46)
NUMBER OF PERSONNEL 5,850 31 Dec 2018
(31 Dec 2017: 4,753)
REPORT BY THE BOARD OF DIRECTORS
AUDITED FINANCIAL STATEMENTS
Pihlajalinna is one of Finland's leading providers of social, healthcare and wellbeing services. The Group's customers include private individuals, businesses, insurance companies and public sector entities, such as municipalities and joint municipal authorities.
The Group pays all of its taxes to Finland
Headquartered in Kehräsaari, Tampere
The Pihlajalinna operating model and its social effects culminate in our way of working in cooperation with municipalities. When a joint venture of Pihlajalinna and a municipality is responsible for providing the municipality's social and healthcare services on a long-term agreement, the company has a strong incentive to promote health and to adopt effective operating models. Over 50 per cent of Pihlajalinna's revenue comes from complete outsourcing agreements for municipal social and healthcare services. The average agreement period is 10+5 years.
12 Jun Pihlajalinna acquires Anula Oy.
29 Jun Pihlajalinna announces it has increased its holdings in municipal joint ventures.
1 Jun Pihlajalinna acquires Leaf Areena Oy.
3 Oct Pihlajalinna launches a customer relationship programme.
1 Sep Production of residential services for the elderly and people with developmental disabilities begins in
Laihia.
The schedule of the planned structural reform of healthcare and social services was delayed, and the resignation of the government as well as the decision to not move forward with the reform at the moment came just as our Annual Review was about to be published. We had hoped for the reform to go through, as our society needs it and the period of uncertainty has lasted too long, stopping both development actions and necessary investments in municipalities. At the same time future county organisations and healthcare districts have made significant investments in the future model that will not be implemented now.
It is good that there was plenty of discussion about the topic. What has slightly bothered me about the debate is how some participants seem to lack a full understanding of the need for reform. The question is not how we can maintain the current service level with less money. The question is how we can prepare for the coming sustainability gap, the ageing of the population and urbanisation. Furthermore, in the
public discussion, there has been a strong confrontation between private and public healthcare and the new structures instead of concentrating on how the patients would get the best possible care which our society could afford in the future.
In 2010, there were 940,000 people in Finland over the age of 65. Current estimates indicate that this number will increase to about 1.5 million by 2030. At their current levels, employmentbased immigration and the birth rate will not alleviate the situation. These problems will be exacerbated in municipalities with negative migration rates.
I am optimistic and confident that our welfare society will be preserved in spite of these challenges, but not without significant changes. We must look for ways to build genuine cooperation and partnership between public and private healthcare. There are already good examples of outsourcing and service vouchers. In outsourcing, according to studies conducted by independent third parties, there have been good results in service availability, quality and cost management. As the reform was cancelled, the juridical foundation for the restriction law disappeared. And that is good for both communities and for the whole society.
We are the leading company in municipal outsourcings and fixedpriced service production. We have a good foundation from which to meet the requirements of the communities and operate in the environment where the reform will not take place. Due to the fact that the reform was withdrawn, there is an opportunity for bigger and faster organic growth than earlier expected.
Pihlajalinna is the domestic reformer of healthcare and is willing to maintain this responsibility going forward. I think society needs to create opportunities for the innovative development of services. The aim is to ensure that all Finns receive the high-quality and ethically produced care they need without unnecessary delay.
The Chairman of the Board of Directors
STRATEGY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
2018 was a year of building. We changed our organisational structure, expanded geographically, built new services and invested in creating a stronger brand and digital services. While all this building eroded our profitability, we now enter the new year in a good position.
During the year, we opened new fullservice private clinics in Oulu, Turku and Seinäjoki. We also made acquisitions that saw us expand our operations to new regional capitals. The Doctagon acquisition strengthened our presence in bilingual regions. We can now call ourselves a genuinely national operator and we are even better prepared to offer our services to all Finns, provided that the planned structural reform of healthcare and social services is implemented. In locations where we do not yet have a physical presence, we can provide remote services.
We have achieved a concrete expansion of our range of services. The responsible doctor model launched by Doctagon, for example, improves our competitiveness in public sector services and tendering. We are piloting shared
services with Forever fitness centres in the areas of occupational healthcare and rehabilitation. We are also working together with an increasingly extensive network of partners. In cooperation with the psychotherapy centre Vastaamo, we are piloting low-threshold therapy services in municipal joint ventures that have already produced significant savings in specialised care and improved health outcomes for our customers.
The previously implemented changes in organisational structure and efficiency improvement measures began to produce results towards the end of the year, and we were able to rectify our profit performance, which was weaker than in the comparison period during the first half of the year. Nevertheless, our expansion and the changes we implemented eroded our profitability for the year, and our result declined year-onyear. We have now completed all of our major changes for the time being, and we are not planning to open any new surgical units in 2019, for example.
Following the changes made, we are very well positioned to pursue major occupational healthcare tendering
opportunities, and we have been able to improve the profitability of occupational healthcare. Our experience tells us that strong sales of occupational healthcare services usually lead to an increase in selfpaying customers in private clinics and hospitals.
In our strongest area, the capitationbased municipal business, 2018 was a year of waiting for new moves. As the health and social services reform will not be implemented now, we expect that municipalities will again become active in working with us to develop service models that make it possible to maintain services for their residents while keeping costs under control.
I am particularly pleased by the change in the atmosphere of the public debate in 2018. We can already see that the boundaries between public and private healthcare are fading and that we all share a desire to build genuine cooperation to help Finns to live a better life.
The demand for social and healthcare services is growing in Finland due to factors such as the ageing of the population. Faced with economic pressures, the public sector is centralising service production, and the range of services funded by tax revenue is likely to decrease. This presents private service providers with the opportunity to increase their share of primary care as well as specialised care, where the private sector's share is relatively small at present.
In dental care, private operators have a longer tradition and larger market share because the public dental care services have been limited and their availability has been poor.
As Pihlajalinna is a provider of a wide range of social and healthcare services, the company can offer a complete and effective care chain to individual customers as well as the communities that organise the services.
As a clear market leader in municipal outsourcing, Pihlajalinna also has the strongest experience and expertise in operating under fixed pricing. As the healthcare and social welfare
reform will not be implemented now, Pihlajalinna will continue as a partner to the public sector under its existing models, such as complete outsourcing produced through joint ventures.
The overall market for social and healthcare services has grown at a conservative rate in recent years. The growth in the market for private operators has mainly stemmed from the changing division of tasks between public and private producers.
Today, private operators produce healthcare services for approximately
EUR 4.2 billion per year. Of this total, EUR 2.4 billion is privately funded private production. This includes, for example, surgical procedures covered by insurance, occupational healthcare and dental care. The rest of the amount is publicly funded private production, such as social and healthcare services outsourced by municipalities.
Regulators have tried to slow down the outsourcing of social and healthcare services by implementing interim legislation that restricts complete outsourcing measures. In spite of these restrictions, municipalities have looked to ensure
the provision of local services to residents by entering into various partnerships with private producers.
Pihlajalinna's view is that there will be opportunities for the private sector to complement the public sector's services, particularly in basiclevel specialised care and non-urgent specialised care, as the population ages and the public sector cuts and centralises specialised care in fewer units.
While waiting for the final decision on the social and healthcare reform, the financial situation of the communities has not got any better and we believe
they will start looking for new solutions as there will be no reform for now. In complete outsourcing models positive results have been achieved in both service availability as well as cost management.
The situation in the private market remains unchanged. The occupational healthcare market is expected to grow if municipalities and other public sector entities decide to divest the occupational healthcare providers they currently own.
Pihlajalinna's business starts from its mission: we help Finns to live a better life. In order to realise this mission, Pihlajalinna is expanding to new operating locations and building a broader range of services. This allows Pihlajalinna to respond to people's needs by providing easily accessible local services.
In 2018, Pihlajalinna opened full service private clinics in Turku, Oulu and Seinäjoki. The Group also expanded its operations through acquisitions in new locations in regions such as Varsinais-Suomi, Pohjois-Savo and Kanta-Häme, as well as entirely new regions, including Kymenlaakso and Päijät-Häme.
Pihlajalinna will continue its expansion in 2019–2020, particularly into regional capitals. Expansion can be pursued both organically and through acquisitions. Pihlajalinna's hospital network was completed in spring 2018, and no new surgical units will be opened this year. The surgical units are located in Helsinki (2), Tampere, Turku, Oulu, Kuopio, Joensuu, Seinäjoki, Jämsä, Hämeenlinna and Ähtäri.
In addition to expanding the private clinic network, Pihlajalinna expanded its network of imaging units and dental clinics in 2018. The company also opened its first special needs residential service unit for people with developmental disabilities and autism spectrum disorders in Hämeenlinna. In Laihia, Pihlajalinna began producing residential services for the elderly and people with developmental disabilities under a joint venture model.
Pihlajalinna has expanded its range of services and competencies from the treatment of illnesses to wellbeing services and prevention. The company acquired the Forever fitness centre chain in February 2018. The main beneficiary of this development is the customer, but it also helps Pihlajalinna produce its services in even more efficient and effective packages.
The acquisition of Doctagon saw Pihlajalinna expand its range of services to include responsible doctor and remote consultation services for municipalities. The availability and accessibility of physicians is a challenge in many municipalities, particularly in rural areas. Responsible doctor and remote consultation services provide municipal customers with timely access to medical expertise.
A broad range of services enables the company to grow in different operating environments and to diversify risks. Pihlajalinna aims to take on a significant role in all types of services: insurancebased services, services paid for by customers and publicly funded services.
Pihlajalinna is focusing heavily on developing its digital services. Digital service development is particularly effective in supporting the fixed-price business that constitutes the majority of Pihlajalinna's operations. Under the fixed-price model, the service provider, municipality and customer all share the same objective: keeping people healthy and maintaining their functional capacity.
Pihlajalinna launched a customer loyalty programme in 2018. The programme is aimed at increasing the awareness of Pihlajalinna's entire service offering, cross-selling services and creating added value by promoting good health. A new portal was launched for occupational health customers in October. The portal is a cooperation channel between the
customer organisations and Pihlajalinna's occupational health professionals.
Following the revamp of its brand, in 2018 Pihlajalinna focused on marketing services such as those of sports clinics. Pihlajalinna engages in marketing that differs from other operators in the industry to increase its spontaneous brand awareness. This work will continue in 2019.
From 14th of March 2018, Pihlajalinna restructured its operations, which were previously based on two segments. The new operating structure is based on four geographical business areas:, Southern Finland, Mid-Finland, Ostrobothnia and Northern Finland. Each business area is managed by a business director who is in charge of their area's business operations and service offering both for the private and the public sector.
Pihlajalinna has two long-term financial targets. The ratio of net debt to EBITDA is currently in line with the target. The target for the operating profit (EBIT) margin is over seven per cent of revenue. In 2018, operating profit (EBIT) was 2.6 per cent of revenue.
Investments in new business locations, the restructuring of operations as well as transfer taxes and advisory fees related to acquisitions had a negative effect on profitability in 2018. The company is confident that the results of its investments will be reflected favourably in its operating profit in the near future.
WE WILL BE THE MOST VALUED COMPANY IN THE HEALTHCARE AND SOCIAL SERVICES SECTOR IN FINLAND IN 2020
WE HELP FINNS TO LIVE A BETTER LIFE
ETHICS, ENERGY AND OPEN-MINDEDNESS
PIHLAJALINNA'S LONG-TERM TARGETS
NET DEBT below 3x EBITDA OPERATING exceeding
7% of revenue
PROFIT (EBIT)
Finland's economic situation has been weak for years and the public sector has become indebted. Especially municipalities have run into difficulties as the costs of care have increased and, at the same time, tax revenue has decreased. Economic difficulties have led to the public sector's willingness to outsource services and seek more efficient ways to produce effective services.
In Finland, the population is ageing faster than in any other European country. According to the forecast of Statistics Finland, the number of citizens over 65 will total almost 1.3 million by 2020 and reach 1.5 million by 2030. As those over 65 use the majority of social and healthcare services, the demand for and the costs of the services are expected to increase.
Previously, people fell ill with viral and infectious diseases, for instance, while nowadays the most common diseases among Finns are lifestyle-related. For the workingage population, the most common factors leading to death are tumours, diseases of the circulatory system and use of alcohol. In Finland, health inequalities are relatively large and depend on the level of education, among other factors. In order to curb costs, there needs to be emphasis on prevention and rapid access to care.
On average, Finns smoke less, eat more healthily and exercise more in leisure time. Wellness trends also drive consumer habits, such as nutrition-related choices and the use of health and sports services. The development of lifestyle choices has been fastest among those with higher education.
The number of voluntary medical expenses insurance policies has clearly increased in recent years. The reasons behind this include concern about the availability of public services and the need to ensure rapid access to care. At the beginning of 2018, nearly 1.2 million Finns had a voluntary medical expenses insurance policy. We assume that the demand for voluntary insurance policies will continue to grow at least until 2020.
People expect healthcare services to be more effective and of higher quality. The need for individual solutions has increased and technology has strengthened this trend. The majority of Finns want to increase freedom of choice in social and healthcare services. An increasing number of people have sought to ensure their freedom of choice with a medical expenses insurance policy, for instance.
Southern Finland is a densely populated and growing area with a lot of potential. The area includes Pihlajalinna's business operations in the regions of Uusimaa, Southwest Finland, Kymenlaakso, Päijät-Häme and South Karelia. The goal for the Southern Finland business area is to achieve strong growth through the expansion of the service network. There is a strong network of private clinics, hospitals, dental clinics, a fertility clinic, Forever fitness centres and Ikipihlaja homes in Southern Finland.
REVENUE 107.6 EUR million (60.7 EUR million 2017) +77%
PAID IN THE AREA 11.8 EUR million (4.4 EUR million 2017) +170%
WITHHOLDING TAXES
In the coming years, Pihlajalinna wants to serve as an example of the development of occupational healthcare and wellbeing services. The Forever chain of fitness centres was acquired by Pihlajalinna in 2018. They offer diverse wellbeing services for adults who exercise.
The Forever chain expanded to Turku with the company's acquisition of Leaf Areena. The first Forever LITE fitness centre opened in Tampere in late 2018. The affordably priced Forever LITE gyms offer fitness centre services that also support prevention and rehabilitation. The number of Forever LITE fitness
centres rose to six in early 2019 when the company announced the acquisition of the five fitness centres that make up the FIT1 chain.
Fitness centre services complement Pihlajalinna's preventive occupational healthcare services and rehabilitation services carried out after specialised care procedures. Pihlajalinna combines various services in locations where the Group has both fitness centres and private clinics. Combined services help create more efficient care chains and allow the Group to offer prevention-based service packages to employers.
BUSINESS AND STRATEGY
PIHLAJALINNA 2018 RESPONSIBILITY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
AUDITED FINANCIAL STATEMENTS
The Mid-Finland area includes Pihlajalinna's operations in the regions of Pirkanmaa, North Karelia, Pohjois-Savo, Kanta-Häme, Satakunta, Central Finland and Etelä-Savo. In the Mid-Finland business area, Pihlajalinna seeks growth through synergies between joint ventures and private clinics. There are private clinics, hospitals, dental clinics, Ikipihlaja homes, two fitness centres and a special needs residential service unit in the area. The Hattula partial outsourcing arrangement and three joint ventures established between Pihlajalinna and municipalities operate in Mid-Finland. The three joint ventures are responsible for the complete social and healthcare outsourcings of MänttäVilppula, Parkano and Kihniö, and Jämsä. The outsourcing arrangements are responsible for a combined population of 54,000 people. Jokilaakso Hospital, which provides public specialised care services in Jämsä, and three reception centres are also located in this area.
Pihlajalinna implemented a goal-driven wellbeing programme for personnel in its municipal companies in 2018. The objectives of the programme include increasing the personnel's energy levels and alertness, reducing sickness-related absences and creating a positive impact on the company's business. During the course of the programme, activities such as alertness theme days, expert lectures and targeted coaching services were arranged for the personnel.
Targeted services offer direct support for members of personnel who belong to a risk group. For example, health coaching aims to influence
lifestyle factors and thereby promote a person's ability to cope with the demands of life and work.
A total of 205 employees of Jämsän Terveys and Jokilaakson Terveys participated in the services provided under the wellbeing project. The services aimed at people in risk groups were used by 80 employees.
The personnel who participated in the coaching groups reported positive changes, such as reduced stress, decreased chronic pain and increased motivation to exercise. The participants also felt the coaching sessions helped them shape their own dreams and goals as well as improve their time management, which allowed them to dedicate more time to their families.
Ostrobothnia includes Pihlajalinna's business operations in the regions of Southern Ostrobothnia, Ostrobothnia and Central Ostrobothnia. The area includes private clinics, a hospital, a dental clinic and a complete social and healthcare outsourcing arrangement that is the largest of its kind in Finland, with Pihlajalinna working together on service production with the municipal joint venture Kuusiolinna Terveys. The company is responsible for providing social and healthcare services to 24,000 residents. Laihian Hyvinvointi, a producer of residential services for
8 PRIVATE CLINICS
the elderly and the disabled, began operating in the area in 2018. In the Ostrobothnia business area, Pihlajalinna seeks strong growth through the private clinic business.
2 HOSPITALS
1,244 PERSONNEL
2 FITNESS CENTRES
The responsible doctor model developed by Doctagon was introduced at 10 care homes operated by Kuusiolinna Terveys in 2018. The responsible doctor model is aimed at providing high-quality and safe care or the customers of care homes in their own residential environment. At the same time, the model delivers a reduction in visits to healthcare facilities, transport and periods spent in inpatient care, all of which are taxing for the elderly.
1 DENTAL CLINIC
In the responsible doctor model, each unit has a designated responsible doctor who is familiar with caring for the elderly and takes responsibility for the medical care of the entire unit. The responsible doctor model consists of remote consultation and in-person rounds by the doctor in three-month intervals.
The responsible doctor can be reached around the clock, every day of the year. Improved examination solutions make it possible to initiate treatment rapidly without relocating the customer, provided that moving to the emergency and on-call services department of a health centre or hospital is not required by the customer's condition.
2 MUNICIPAL OUTSOURCINGS
The around-the-clock responsible doctor model can avoid as many as three in four in-person visits to acute care, which are taxing on the elderly. The use of the responsible doctor model frees up an estimated 90–100 hours of the doctor's time each month, which can be allocated to receiving primary care patients who belong to the population covered by the Kuusiokunnat area's social and healthcare outsourcing arrangement.
PIHLAJALINNA 2018 RESPONSIBILITY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
AUDITED FINANCIAL STATEMENTS
The Northern Finland area includes business operations in the regions of North Ostrobothnia, Kainuu and Lapland. There are private clinics, a hospital and dental clinics in the area. The focus of business in the Northern Finland area is on new customer acquisition and building the service network. The goal is strong growth in all customer segments. Pihlajalinna opened a full service private clinic and hospital in Oulu in 2018.
REVENUE 12.3 EUR million (7.6 EUR million 2017) +62%
EUR million (0.3 EUR million 2017)
At the beginning of 2018, Pihlajalinna opened a full service private clinic and hospital in Oulu's central business district. The new facility was developed in accordance with Pihlajalinna's new private clinic concept.
Pihlajalinna Oulu offers general practitioner and medical specialist services as well as physiotherapists, comprehensive occupational health services and two operating rooms. The clinic also has a wide range of
examination services: in addition to a laboratory and basic imaging, there is an MRI machine. Dental clinic services are also available in Oulu.
Designed according to a new concept, the private clinic is a peaceful environment where the customer experience is a high priority. The concept is also a step towards the private clinic of the future, one that offers both social and healthcare services.
Pihlajalinna's customer groups are corporate customers, private customers and public sector customers.
The Group's corporate customer group consists of Pihlajalinna's occupational healthcare customers, insurance company customers and other corporate contract customers with the exception of public sector occupational healthcare customers.
The Group's public sector customer group consists of public sector organisations in Finland, such as municipalities, joint municipal authorities, congregations, hospital
districts and the public administration when purchasing social and healthcare outsourcing services, residential services, occupational healthcare services and staffing services.
BUSINESS AND STRATEGY
PIHLAJALINNA 2018 RESPONSIBILITY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
One of Pihlajalinna's most significant initiatives in 2018 was the national customer relationship programme launched in October. The programme is free of charge and open to all Pihlajalinna customers and other Finnish adults who are interested in company's services.
At the core of the programme is the idea of individual health and solving the related needs. The aim is to provide support for all Pihlajalinna customers to help them enhance their health and wellbeing as well as serve them in their daily life, even when they are not visiting a clinic.
The programme supports new customer acquisition and cross-selling. It also helps increase customer awareness of Pihlajalinna's comprehensive service offering. Loyal customers already receive national special offers and health-related information. Our vision is to serve customers at a more individual level in the future.
"For a layperson, it can be difficult to know what you should do to promote your health. By joining the programme, people can receive health tips and lifestyle recommendations. In the future, we will also deliver personalised content to the programme members," says Head of Customer Experience, Insight and Design Jutta Tikkanen.
In practice, marketing communications and promotional offers can be targeted in the future based on customers' personal interests as well as data on their prior service use, health and demographics. The programme also makes it possible to build individual service paths based on the customer's language choices, for example. The programme is managed on the Salesforce Service Cloud Lightning platform, which was deployed in connection with the EU data protection reforms in spring 2018.
During autumn, three newsletters were sent to programme members. The newsletters contained promotional offers and health-related information. National promotional offers will be launched four times
per year. Pihlajalinna's business areas can also use the programme to introduce local customer benefits of their own. In the future, the programme will also be used to present new services and communicate information about new research in various areas of health.
The launch of the programme was extensively communicated to customers at Pihlajalinna's operating locations and in digital marketing channels. By the end of December 2018, close to 8,000 people had joined the programme. The goal for 2019 is to increase customers' perceived added value delivered by the programme and achieve significant growth in the number of members. The target is to have 100,000 Finns join the programme by the end of 2019.
The number of programme members is not, however, the only priority. The programme allows us to execute our mission of helping Finns to live a better life. Pihlajalinna develops health and wellbeing services focused on keeping people healthy and helping customers enjoy a higher level of wellbeing in every stage of life.
"We rarely get excited by things that are not directly related to ourselves or our loved ones. At Pihlajalinna, our aim is to profile ourselves as a genuinely attractive and beneficial health partner through targeted services," Jutta Tikkanen explains.
RESPONSIBILITY
Pihlajalinna has a responsible mission: helping Finns to live a better life. It is easier, more inexpensive and more lighter for the body to keep a person healthy rather than cure someone who is already ill. This is why we build services that focus on keeping people healthy.
Pihlajalinna bears responsibility for the health and wellbeing of the Finnish people, the use of society's funds and the payment of taxes to Finland, for
our employees, and for the appropriate storage and processing of customer data. Pihlajalinna places the highest priority on ensuring the quality, safety and effectiveness of services, looking after its personnel and assuring the data protection and privacy of its customers.
Thousands of Pihlajalinna professionals look after the health and wellbeing of hundreds of thousands of Finns every day. Without the trust
GENERAL PUBLIC
INSURANCE COMPANIES
PUBLIC SECTOR • municipalities • joint municipal authorities • public officials and political decisionmakers
• non-governmental • organisations
CUSTOMERS
• private individuals
MEDIA
SHAREHOLDERS
of customers and society, the company cannot realise its mission.
Pihlajalinna maintains close contact with its stakeholders and continuously receives and collects feedback from customers, personnel and partners in various ways. Feedback helps Pihlajalinna to evaluate performance and determine which aspects of Pihlajalinna's operations are most important from its stakeholders' perspectives.
Stakeholder expectations regarding Pihlajalinna's responsibility have been surveyed by theme-focused interviews. The stakeholders defined the following as Pihlajalinna's key responsibility themes:
To make it possible for Pihlajalinna to realise its mission of helping Finns to live a better life, we constantly improve our operations, develop more effective social and healthcare services and monitor the quality of care and service. We want to be a responsible industry pioneer that provides rapid and easy care where and when our customers need it.
Pihlajalinna's goal is to meet the relevant regulatory requirements every day, in every unit. All of the Group's healthcare services are scientifically proven and medically effective. The Group aims to improve the effectiveness of its services by ensuring quick access to care. The Group's operations are based on laws and decrees, regulations issued by the authorities, the Current Care Guidelines and Pihlajalinna's own operating guidelines. Pihlajalinna ensures quality and safety through self-monitoring and guidelines, personnel training and the recruitment of highly competent professionals.
Responsibility for the quality of Pihlajalinna's social and healthcare services is borne by the Medical Director, the Medical Management Team, the directors in charge of healthcare, the chief medical officers and the individuals in charge of units. The management continuously monitors quality indicators and targets, develops operations and takes action in response to any non-compliance. Results, targets and the progress of implemented measures are regularly monitored in management reviews, in management teams and in unit meetings.
Pihlajalinna's private clinics, hospitals and dental clinics use the ISO 9001 quality management system. The objective of certification is to further develop and improve the units' daily operations. They also help improve risk management and ensure that statutory requirements and self-monitoring objectives are met.
Patients are becoming empowered customers due to increased freedom of choice through both insurance and the intended healthcare and social welfare reform. Pihlajalinna continuously
develops its services to make them even more customer-oriented and builds increasingly smooth and effective service paths. The goal is to make the customer experience a competitive advantage for Pihlajalinna. In 2018, the Group's focus areas in the development of the customer experience included a new private clinic concept and a new customer relationship programme.
Notifications, feedback and noncompliance incidents are mainly handled locally but, when necessary, they are dealt with at the Group management level and together with the authorities. Data protection officers are responsible for handling reports pertaining to information security.
Pihlajalinna's Head of Customer Experience is responsible for processing feedback. Feedback is received directly from customers during the provision of care and services, through websites and social media as well as from employees in accordance with Pihlajalinna's feedback process. Patient ombudsmen provide assistance and advice on matters concerning the application of the Patient Act.
0.86 COMPLAINTS*
OF VISITS
0.1
PATIENT INJURY NOTIFICATIONS FILED IN 2018*
OFFICIAL COMPLAINTS*
According to the Patient Insurance Centre's decisions, the patient was entitled to compensation in
27% of the notification cases resolved in 2018
* The number of complaints, official complaints and patient injury notifications per 100,000 visits. The patient injury notifications include cases in which the policyholder is Pihlajalinna Lääkärikeskukset Oy or Pihlajalinna Terveys Oy. The Group does not necessarily receive information about complaints, official complaints or patient injury notifications related to the operations of practitioners working at Pihlajalinna Group' clinics. The cases that the Group is aware of are reported in the statistics. Both the number of visits and complaints, official complaints and patient injury notifications encompass Pihlajalinna private clinics, the Group's hospitals, occupational health centres dental clinics and the Hattula health centre.
SURGICAL INFECTIONS** deep infections
** The surgical area infection percentage has been calculated in relation to the number of procedures in Pihlajalinna's hospitals.
NPS INDEX PRIVATE CLINICS +69
NPS INDEX HOSPITALS
+87
NPS INDEX DENTAL CLINICS
+84
Measuring covers all Pihlajalinna private clinics, hospitals and dental clinics. The number of feedback is 10,068.*
| OPEN COMMENTS | |||||
|---|---|---|---|---|---|
| OF FEEDBACK RELATED TO |
of all feedback |
negative | development positive ideas |
||
| Technology issues | 9% | 81% | 0% | 19% | |
| Quality of care | 22% | 58% | 39% | 3% | |
| Invoicing | 7% | 85% | 0% | 15% | |
| Meeting | 15% | 47% | 50% | 3% | |
| Waiting time | 13% | 96% | 2% | 2% | |
| Content of service | 22% | 58% | 15% | 27% | |
| Other | 12% | 23% | 4% | 73% | |
| Total | 100% |
* Pihlajalinna Group implemented unified method of measuring customer feedback in all services in May 2018 and we report all feedback collected. In municipal companies we follow a model agreed upon with the customer.
At Pihlajalinna, responsible social and healthcare services are also efficient. Limited resources, such as tax revenue, must be converted into the highest possible amount of wellbeing.
Under the model developed by the company, Pihlajalinna establishes a joint venture with the municipality or joint municipal authority in question, with both parties owning a stake. The model benefits society and the joint venture's local community in many different ways. The municipality receives its share of the joint venture's profits, which it can then use for any purpose it chooses. Furthermore, when the joint venture produces a profit, part of that profit goes back to the local community in the form of tax revenue, as the companies are domiciled in the municipalities they operate in.
Local companies are important for the local business sector. The largest of the joint ventures is Kuusiolinna Terveys, which is responsible for providing social and healthcare services to a total of 24,000 people in Alavus, Kuortane, Ähtäri and Soini. Kuusiolinna paid dividends of EUR 735,000 to its partner municipalities in 2018 and the value of its cooperation with local businesses exceeded EUR 2,6 million. In 2018, Pihlajalinna distributed total dividends of EUR 1,3 million to the partner municipalities of its joint ventures. For more information on Pihlajalinna's local impact and responsibility, please refer to pages 26–29.
The significance of prevention and effective, fast care is continuously increasing in social care and healthcare. It is easier, more inexpensive and lighter for the body to keep a person healthy rather than cure an ill person. One of the underlying reasons is the change of the funding model from servicespecific pricing more and more towards fixed pricing. This benefits everyone, as service providers have a strong incentive to develop more effective operating methods, such as digital services, and focus their operations on prevention.
The majority of Pihlajalinna's business, just under 60 per cent, is fixed-price business. In fixed pricing, Pihlajalinna is not paid for a single MRI image, for instance, but for assuming responsibility for an individual's healthcare services. This is why
Pihlajalinna builds services that focus on keeping people healthy. Pihlajalinna made a significant investment in prevention and its development in care chains by acquiring the Forever fitness centre chain in 2018.
The model developed by Pihlajalinna for municipal services is based on keeping people as healthy as possible through prevention, quick and effective primary care as well as immediate specialised care available locally. This reduces the need for expensive specialised care.
Pihlajalinna is a Finnish listed company that is approximately 95 per cent in Finnish ownership. Pihlajalinna is headquartered in Tampere and all of its subsidiaries are registered in Finland. Pihlajalinna's tax footprint is presented on the next page.
| 31 Dec 2018 | HOLDING |
|---|---|
| Foreign shareholders | 0.1% |
| Nominee-registered | 5.5% |
| Finnish shareholders | 94.4% |
Lapland 262
EUR 1,000
| Central Ostrobothnia 2 | North Ostrobothnia 1,072 |
|---|---|
| Ostrobothnia 367 | |
| South Ostrobothnia 7,712 | Kainuu 3 |
| Pohjois-Savo 582 | |
| North Karelia 579 | |
| Pirkanmaa 14,395 | Central Finland 6,034 |
| Satakunta 499 | Etelä-Savo 124 |
| Kanta-Häme 974 | South Karelia 214 |
| Varsinais-Suomi 1,683 | Kymenlaakso 1,208 |
| Uusimaa 8,901 | Päijät-Häme 124 |
STRATEGY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
INFORMATION FOR SHAREHOLDERS
| EUR million | 2018 | 2017 |
|---|---|---|
| Paid taxes | ||
| Income taxes | 5.1 | 4.3 |
| Employer part of pension insurance contributions | 29.4 | 25.7 |
| Social security contributions | 1.5 | 1.6 |
| Employer part of unemployment insurance contributions | 4.3 | 4.0 |
| Accident and group life insurance contributions | 0.9 | 0.9 |
| Employer contributions. total | 36.1 | 32.1 |
| Real estate taxes | 0.1 | 0.1 |
| Transfer taxes | 1.2 | 0.4 |
| Paid taxes. total | 42.4 | 36.8 |
| Cost of value added taxes | ||
| Value added taxes. estimate | 12.4 | 9.0 |
| Taxes collected |
| Tax withholdings | 44.7 | 35.3 | |
|---|---|---|---|
| calculatory | Emloyee part of pension insurance contributions. | 11.7 | 9.5 |
| calculatory | Employee part of unemployment insurance contributions. | 3.3 | 2.3 |
| Salary taxes | 59.7 | 47.1 | |
| Net value added tax | 0.6 | 1.8 | |
| Taxes collected. total | 60.3 | 48.9 | |
| Revenue. EUR million | 487.8 | 424.0 | |
| Result before taxes. EUR million | 10.0 | 17.4 | |
| Average number of personnel (FTE) | 4,868 | 3,879 | |
| Public subsidies. EUR million | 1.3 | 0.8 |
PAID TAXES 2018 TOTAL €42.4 million
(36.8)
TAXES COLLECTED 2018 €60.3 million (48.9)
Having professional, highly competent and committed personnel is essential for Pihlajalinna's business operations. Social and healthcare services are based on trust, and the personnel plays a key role in producing highquality and ethical services. The significance of wellbeing at work, work ability, recruitment and the workplace atmosphere is also reflected in the company's result, as Pihlajalinna professionals play a very big role in creating customer value.
As an employer, Pihlajalinna aims to develop the work ability and wellbeing of its personnel in order to strengthen the company's competitiveness both as an employer and in its business operations. Investing in employee competence and ensuring high-quality supervisory work help Pihlajalinna achieve its strategic goals.
Pihlajalinna respects internationally recognised human rights and complies with Finnish labour law and collective agreements as well as the legislation governing human rights and equality in all of its business locations. Pihlajalinna respects its employees' right of organisation and collective bargaining. Pihlajalinna does not condone discrimination based on employees' and practitioners' origin, nationality, religious beliefs, ethnicity, gender, age or any other such factor.
At Pihlajalinna, supervisory work and management are aimed at giving employees the opportunity to perform well at their jobs. Management involves inspiring employees and engaging in concrete communication on goals and feedback. High-quality supervisory work plays an important role in the development of day-to-day operations and quality. Supervisory work is evaluated in various ways, including the Pihlis Pulse survey conducted every two months. The supervisor index illustrates employees' views of the supervisors' fairness and ability to set targets and provide motivating feedback to support strong work performance.
Supervisory work and its development were one of the focus areas of Pihlajalinna's HR function in 2018. For the first time, Pihlajalinna organised its own supervisor training, which took place on a monthly basis. The themes were being a supervisor at Pihlajalinna, employment relationship competencies and appreciative interaction. The training days focused on supervisors' duties and responsibilities during the employment lifecycle, using coaching style leadership, active caring and how to address observed problems with subordinates. All Pihlajalinna
PERSONNEL INDICATORS
| Indicator | 2018 | 2017 |
|---|---|---|
| Average number of personnel (FTE) | 4,868 | 3,879 |
| Practitioners | 1,400 | 992 |
| Wages and salaries incl. social security expenses, EUR million | 208.9 | 172.5 |
| Ratio of average annual pay to highest annual pay | 5.0% | 8.0% |
| Full-time / part-time / on call personnel, % | 62/17/21 | 61/18/21 |
| Care personnel / other personnel / doctors / administration, % | 64/16/15/5 | 67/17/11/5 |
| Equality and non-discrimination plan | valid | valid |
| Action plan against inappropriate treatment at work | valid | valid |
| Occupational accidents* / work-related fatalities | 327/0 | 284/0 |
| Infringements against labour law | 1** | 1** |
* Occupational accidents include accidents that occurred at work and during commutes and workrelated travel.
** On 28 June 2018, Kuusiolinna Terveys Oy, a partially (51%) owned subsidiary of Pihlajalinna, was ordered to pay one plaintiff compensation pursuant to the Non-discrimination Act for recruitmentrelated discrimination.
supervisors have an obligation to participate in the training and their training record is monitored. Supervisors were also provided with training related to HR systems and, in cooperation with education institutions, training for a degree-based Specialist Qualification in Management and a degree-based Qualification in First-Line Management.
Pihlajalinna aims to improve wellbeing at work among its personnel by, among other things, high-quality supervisory work, occupational healthcare and wellbeing projects. The implementation of the active caring model established in 2017 continued as part of supervisor training. The model involves agreeing on responsibilities and operating methods aimed at resolving challenges related to work ability and performance in a proactive and systematic manner.
In 2018, Pihlajalinna introduced Pihlis Pulse, a survey conducted every two months to actively monitor the perceptions and wellbeing of the company's personnel.
The wellbeing projects in municipal outsourcing were expanded to include all municipal joint ventures. Among
STRATEGY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
EMPLOYMENT TYPE PERMANENT 75% (68%) FIXED-TERM 25% (32%) GENDER DISTRIBUTION 16% (14%) 84% (86%) FEMALE MALE
other things, the projects include events and information bulletins for all personnel. They also include exercise and life management coaching for individuals with an elevated work ability risk.
Pihlajalinna aims to empower its employees to exercise influence on their jobs and working environments through Together activities. Together is a cooperative organisation that spans the entire Group. The people involved in the activities include Together representatives selected by employees as well as the employee delegate and occupational safety and health organisation. The aim of the activities is to create a coherent company culture, develop dialogue and respond to the statutory requirements concerning employer-employee cooperation. Pihlajalinna's Together organisation and occupational safety and health organisation were restructured at the beginning of 2019 to correspond to the Group's new regional organisation structure.
At Pihlajalinna, unit supervisors are responsible for HR and shift planning. Shift planning complies with the applicable legislation and collective agreements as well as the permits issued by the supervisory authorities. The planning is based on customer needs as well as fairness towards personnel. Shifts are planned proactively, taking into account known absences and part-time periods. Substitutes are generally hired in the case of absences. If the customer volume is lower than usual and the number of personnel is sufficient, a substitute is not hired. If the attempts to hire a necessary substitute for a short absence are unsuccessful, the supervisor concerned will see whether a substitute can be arranged from another unit through internal arrangements. Overtime is subject to the provisions of the collective agreements and records of hours worked are based on actual shifts worked.
Pihlajalinna's new uniform employee benefits entered into effect on
1 January 2018. For most Pihlajalinna professionals, the uniform benefits represent a significant improvement on their previous benefits. In reforming the employee benefits, the primary principle was to provide equal benefits to all personnel. The primary objective of the benefits is to ensure employee wellbeing. With the introduction of the new benefits, Pihlajalinna significantly increased its investment in employee benefits. Previously, benefits were inherited from acquisitions and municipal outsourcing arrangements, for example, and they were very varied. Pihlajalinna's employee benefits include comprehensive occupational healthcare, leisure-time accident insurance, sports benefits and culture benefits, among others.
At Pihlajalinna, competence development primarily involves training and the sharing of internal knowledge. The focus is on learning on the job, which makes the roles of the manager and work community particularly significant. The Pihlajalinna Academy online learning environment is an important element of internal training.
The Group has a uniform introductory training plan. The aim is that all new employees, internally reassigned employees, employees taking up supervisory positions and those returning from extended leave receive introductory training related to the organisation and their specific job in accordance with the introductory training plan. In addition to permanent employees, fixed-term employees, trainees, agency workers and practitioners will also receive introductory training.
Professional training is provided by both Pihlajalinna's own experts and
external training providers. In annual target-setting and development discussions, the manager and employee together prepare an individual competence development for each employee.
Pihlajalinna's HR administration was restructured in connection with the Group's organisational renewal. The number of HR Managers rose to three. The HR Managers report to the Head of Business Operations in charge of their respective area as well as the Group's Head of HR. The HR Managers are paired with four local HR experts. The HR administration also includes the centralised payroll services team, the centralised HRD team and the recruitment team.
The recruitment organisations of Pihlajalinna and MediApu, which has been part of the Group since 2016, were combined into a single unit in connection with the organisational renewal. The operations of the new recruitment team were organised to correspond to the Group's geographical structure. The recruitment team is responsible for the entire Group's recruitment and it supports Pihlajalinna's business operations locally and at the Group level. It also provides recruitment services to external customers.
In 2018, Pihlajalinna Group held 12 employer-employee cooperation negotiations on productionrelated and financial grounds. These negotiations concerned 372 employees and they resulted in 31 redundancies and the discontinuation of positions. Of these, 57 employees found new jobs within the Group.
Pihlajalinna's goal is to ensure the data protection of its customers and patients as well as secure the operation of IT systems, services and data networks that are critical for its operations, prevent their unauthorised use and the accidental or intentional corruption of data.
The Group prepares itself for disturbances and exceptional conditions so that operations can be continued with as little disruption as possible in all circumstances. Information security is monitored actively and deviations are processed quickly. Information security is established and maintained with state-of-the-art, up-to-date solutions.
In 2018, Pihlajalinna prepared for the EU's General Data Protection Regulation (GDPR), which entered into effect in May. The aim of the GDPR is to harmonise the regulations governing the processing of personal data in the EU.
Pihlajalinna's GDPR project included, among other things, ISO 27001 certification, updating agreements, updating the data protection and information security policy, drawing up a data balance sheet, documenting the information system portfolio, training the company's personnel, drafting data
protection materials, implementing changes to processes related to data subjects and documenting the processes. In addition, new information systems were created to enable data subjects to exercise their rights and to facilitate the processing of information requests. The process concerning information security deviations was also revised. One major part of the project was the classification of Pihlajalinna's data files and updating the data file descriptions.
The project also included the development of data protection
related to the Pihlajalinna website, the Oma.pihlajalinna.fi service and the Pihlajalinna mobile application, such as updating the terms of use and drawing up new forms to enable data subjects to exercise their rights.
All Pihlajalinna professionals are required to complete general training on data protection, including an examination. Those who process patient data also need to take an additional examination concerning patient data. This ensures that our personnel have the necessary practical knowledge of issues related to data protection.
| Target | 2018 | 2017 | 2016 | |
|---|---|---|---|---|
| Number of successful attempts to gain unauthorised access |
0 | 6* | 2* | 0 |
| Number of detected viruses and malware |
Computers are free of viruses and malware |
89 automatically removed viruses 2,884 automatically removed malware programs** |
0 | 0 |
| Volume of junk |
Less than 1% of junk mail makes it through to users |
Target achieved | Target achieved |
Target achieved |
| Information security updates are current |
All information security updates are installed within 24 hours of being released |
90% of updates installed within one week of being released |
Target not achieved, part of ongoing activity |
Target achieved |
* The attempts to gain unauthorised access were detected quickly, the situation was normalised and the systems were subsequently updated.
** Updates to the system have enabled more accurate statistics and monitoring.
The personnel receive regular training on data protection and information security. All Pihlajalinna professionals are required to complete general training on data protection, including an examination. Those who process patient data also need to take an additional examination concerning patient data. The personnel have access to up-to-date guidelines.
Suppliers and external service providers must commit to complying with information security requirements defined by the Group and suppliers are subject to regular audits. When external services change, information security requirements are reviewed.
Data protection and information security risks are assessed and analysed regularly and always in the new system specification phase and in connection with significant changes.
In all systems, user right and access management is centralised. System administrators determine the principles for granting user rights. The rights of external users are managed in a centralised manner.
Pihlajalinna Group has defined procedures and tools for detecting deviations in information security. In addition, there are action plans for exceptional circumstances. Each deviation in information security is recorded and processed for further action.
SUPERVISION AND MONITORING
The status of data protection and information security is reported in connection with internal and external audits. Technical information security is constantly assessed and separate information security inspections are made to the most critical environments. The general work related to data protection is led by a steering group and operational activities are led by the data protection and information security team.
A connection to Pihlajalinna Group's data network and associated services can only be formed with hardware and software managed or approved by data administration. In order to ensure information security, software and file formats used in the systems are supervised and, when necessary, restricted. The most significant systems only accept logins from the local area network. Two-factor authentication is used for logins from the wide area network.
PIHLAJALINNA 2018 RESPONSIBILITY
STRATEGY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
PARTNERSHIP
At Pihlajalinna, we believe that the wellfunctioning cooperation between the private service providers and public sector secures versatile and effective social and healthcare services for all Finns. Pihlajalinna is responsible for the full range of social and healthcare services for the residents of several municipalities. The Group is a trusted partner for many municipalities in primary care, specialised care, social and care services as well as physician recruitment. Pihlajalinna cooperates with approximately 100 municipalities in total.
As the only major private provider of social and healthcare services, Pihlajalinna has gained extensive experience in taking on overall responsibility for a large population. At the beginning of 2018, Pihlajalinna was responsible for the social and healthcare services of approximately 100,000 residents in its partner municipalities. Thousands of Pihlajalinna professionals look after the health and wellbeing of Finns every day.
An efficient care chain between primary and specialised care ensures that Pihlajalinna's primary care customers receive effective care quickly. Customers can rest assured that their wellbeing is comprehensively looked after throughout the care chain.
Pihlajalinna's municipal partners have brought their social and healthcare service expenditure under control,
diversified their local services and improved satisfaction among personnel and customers. In Pihlajalinna's operating model, the municipality is a genuine partner rather than a mere client. The partner municipalities have increased their vitality and been able to pursue the digital transformation of their social and healthcare services faster than other municipalities.
In 2018, Pihlajalinna increased its holdings in Pihlajalinna group companies that are jointly owned with municipalities. Pihlajalinna now owns 81 per cent of the shares of Mäntänvuoren Terveys Oy and Kolmostien Terveys Oy as well as 90 per cent of the shares of Jokilaakson Terveys Oy. The company also signed a conditional agreement with the Kuusiokunnat municipalities according to which it will increase its holding in Kuusiolinna Terveys Oy to 97 per cent.
Pihlajalinna and the municipality of Laihia signed a shareholders' agreement regarding a joint venture and the production of residential services in Laihia for senior citizens and people with developmental disabilities. The services will be produced by Laihian Hyvinvointi Oy. Under the agreement, Pihlajalinna Terveys Oy owns 81% of the company and the municipality of Laihia owns 19%.
On 1 January 2019, Pihlajalinna began service production related to the partial outsourcing of social and healthcare services for the municipality of Hattula under a new agreement. Hattula has roughly 9,700 inhabitants and the value of the agreement is approximately EUR 7 million per year. According to the tendering process, the duration of the agreement is 15 years at the minimum and 20 years at the maximum.
Pihlajalinna is a long-term social and healthcare service partner for the City of Parkano. Having begun with general practitioner and medical specialist services, the cooperation has since been expanded to represent the complete outsourcing of social and healthcare services. Kolmostien Terveys, a joint venture between the City of Parkano and Pihlajalinna, is responsible for providing social and healthcare services to 9,000 local residents. Complete outsourcing offers security to the city: the provision of basic services to local residents has been secured far into the future, and social and healthcare costs are clear and predictable.
Like many small towns, Parkano suffered from a shortage of physicians at the turn of the century. Mikko Wirén, a newly graduated physician working at the Parkano health centre, decided to find a solution to this challenge. Wirén acquired more physicians to work at the health centre and had the idea of building a business around the leasing of general practitioner and medical specialist services, which led to the creation of Pihlajalinna in 2001.
Ever since then, Parkano has acquired general practitioner and medical specialist services from Pihlajalinna. The resources of a large company in the field of social and healthcare services make it easier, for example, to find medical specialists to offer appointments with customers in a small town on one day each week.
"Without our cooperation with Pihlajalinna, we wouldn't have around-the-clock emergency services in Parkano, for example. It creates a sense of security, especially for families with children and the elderly, because the closest major hospital, Tays, is nearly a hundred kilometres away," says Mayor Jari Heiniluoma.
The City of Parkano decided to outsource social and healthcare services in 2014. The development of costs had been too quick and unpredictable for a long time, and the City had been forced to make annual budget cuts in other administrative sectors to cover the costs of social and healthcare services.
"Our costs were increasing by 2.5–10 per cent each year. We found out the costs of specialised care at the end of each January. For a small town, having your costs suddenly go up by 1.5 million is a big deal," Heiniluoma explains.
In addition to bringing costs under control and making them more predictable, the decision to outsource social and healthcare services was aimed at ensuring the continued provision of services in a town located on the fringes of its administrative region. The City of Parkano wanted to have influence on the quality and quantity of social and healthcare services. According to Heiniluoma, the
City's priority was to ensure sufficient services for its entire population, especially the elderly and families with children.
"We wanted to create a sense of security and the feeling that Parkano is a good place to live. Effective social and healthcare services help us ensure that we will continue to have labour and families with children in Parkano in the future," Heiniluoma adds.
The City of Parkano wanted to bring all social and healthcare services under the same umbrella. The City wanted to invest in effective primary care and prevention, which would help keep the costs of specialised care predictable.
Pihlajalinna was chosen as the partner following a tendering process. Kolmostien Terveys, a joint venture
Municipality Population
detail on pages 26–29.
between the City of Parkano and Pihlajalinna, was established in 2016. The joint venture provides all social and healthcare services for the residents of Parkano and Kihniö, with the exception of tasks designated to be performed by the authorities. The agreement period is 10 years and it includes a five-year option.
The decision was made to bring strong local expertise into the management of the joint venture and the social and healthcare outsourcing arrangement. The City is closely involved in the joint venture's decision-making. Its operations are overseen by a steering group that regularly reviews matters with Pihlajalinna and the City's basic welfare committee.
"Understanding the municipality's needs and circumstances is essential in managing this kind of operation. The guiding principles have been to ensure the provision of services for local residents and keeping social and healthcare service jobs in the area," Heiniluoma concludes.
For more information on the local impact of Kolmostien Terveys, please refer to page 27 (impact map).
Kolmostien Terveys and the psychotherapy centre Vastaamo launched a cooperation at the beginning of 2018 to improve the availability of psychotherapy services for the people of Parkano and Kihniö. The goals of the cooperation are to lower the threshold of customers seeking psychotherapy services and to provide quick, convenient and preventive assistance to people.
The low-threshold psychotherapy services are open to all local residents. Customers are directed to the low-threshold psychotherapy services via two routes: referred by a professional in primary care services or through an online Quality of Life survey that is open to the public.
Once customers have completed the Quality of Life Survey, they have the option of applying for shortterm psychotherapy or submitting a service referral request. The customer can choose whether to have the appointment with a psychotherapist at the health centre, via an encrypted video connection online, or at the Vastaamo psychotherapy centre's offices.
Early referral to treatment for depression and anxiety is beneficial for both the individual and society. During the first six months of the pilot project, the costs of specialised psychiatric care were reduced by 71% and health centre visits due to mental health problems decreased by 27%. At the same time, the resources of specialised psychiatric care could be allocated to the treatment of more severe issues.
Jämsän Terveys (JT) is a joint venture established between Pihlajalinna and the municipality of Jämsä. It has produced social and healthcare services for Jämsä starting from 1 September 2015 under an outsourcing agreement signed in spring 2015. The agreement period is 10 years and the agreement includes a five-year option. The company is responsible for providing primary and specialised care to 22,000 inhabitants in Jämsä.
Jokilaakso Hospital is a hospital that provides public specialised care. The hospital is part of the Pihlajalinna Group. The hospital's services are produced by Jokilaakson Terveys (JLT, established in 2010), a joint venture between Pihlajalinna and the Central Finland Hospital District. Jokilaakson Terveys Oy's shareholders are Pihlajalinna (90%) and the Central Finland Hospital District (10).
OWNERSHIP, JÄMSÄN TERVEYS • Pihlajalinna 51% • Jämsä municipality 49%
OWNERSHIP, JOKILAAKSON TERVEYS
• Pihlajalinna 90% • Central Finland Hospital District 10%
FIXED-TERM
(JLT)
18% 16% (JT)
PERMANENT 84% (JT)
82% (JLT)
Corporate taxes to the municipality
€ 3,317,262 € 1,668,641 Withholding taxes to the municipality (JT) (JLT)
€ 6,033,526 Pihlajalinna Group's withholding taxes to the regional government: Central Finland
€ 390,000 Dividends to the municipality (JLT)
€ 1,790,000 Pihlajalinna's joint venture dividends to partner municipalities (municipalities, total)
50%
PIHLAJALINNA REPRESENTATIVES (3)
50%
REPRESENTATIVES (3)
7.7 WELLBEING AT WORK, AVERAGE TOTAL SCORE (scale 1–10, year 2018)
| CUSTOMER FEEDBACK | ||||
|---|---|---|---|---|
| JÄMSÄN TERVEYS | 80% | 12% | 3% | 5% |
| JOKILAAKSON TERVEYS | 85% | 9% | 2% | 4% |
26
Kolmostien Terveys is a joint venture established between Pihlajalinna and the municipality of Parkano. It has produced social and healthcare services for Parkano and Kihniö starting from 1 September 2015. The agreement period is 10 years and the agreement includes a five-year option. The company is responsible for providing primary care to 9,000 inhabitants in Parkano and Kihniö.
€142,358 Corporate taxes to the municipality
€2,484,138 € Withholding taxes to the municipality
€14,394,735 € Pihlajalinna Group's withholding taxes to the regional government: Pirkanmaa
€190,000 € Dividends to the municipality
€1,790,000 € Pihlajalinna's joint venture dividends to partner municipalities (municipalities, total)
Kuusiolinna Terveys Oy is a joint venture established by Pihlajalinna and the Kuusiokunnat sub-region. It has produced social and healthcare services for the sub-region since 1 January 2016. The agreement period is 10 years and the agreement includes a fiveyear option. The municipalities own 49% of the joint venture, while Pihlajalinna owns the remaining 51%. Service production began in Alavus, Kuortane and Ähtäri on 1 January 2016 and in Soini on 1 January 2017. The company is responsible for providing primary care to 24,000 inhabitants in total.
Corporate taxes to the municipality
€ 7,269,198 Withholding taxes to the municipality
€ 7,712,396 Pihlajalinna Group's withholding taxes to the regional government: South Ostrobothnia
€ 735,000 Dividends to the municipality
€ 1,790,000 Pihlajalinna's joint venture dividends to partner municipalities (municipalities, total)
| CUSTOMER FEEDBACK | |||||
|---|---|---|---|---|---|
| EMERGENCY AND ON-CALL SERVICES IN ALAVUS | 75% | 11% | 4% | 10% | |
| PHYSICIAN'S APPOINTMENTS IN ÄHTÄRI | 80% | 11% | 3% | 6% |
REPORT BY THE BOARD OF DIRECTORS
AUDITED FINANCIAL STATEMENTS
Mäntänvuoren Terveys Oy is a joint venture established in 2013 between the municipality and Pihlajalinna. The municipality owns 19% of the joint venture, while Pihlajalinna owns 81%. The current agreement between the municipality and Pihlajalinna is valid until 2026, followed by a five-year option period. Mäntänvuoren Terveys is responsible for providing social and healthcare services to 13,000 customers in Mänttä-Vilppula and JuupajokI.
Corporate taxes to the municipality
€ 2,654,677 Withholding taxes to the municipality
€ 14,394,735 Pihlajalinna Group's withholding taxes to the regional government: Pirkanmaa
€ 475,000 Dividends to the municipality
€ 1,790,000 Pihlajalinna's joint venture dividends to partner municipalities (municipalities, total)
3. 5.
6.
7.
4.
8.
2.
1.
Chairman of Pihlajalinna Plc's Board of Directors, Lic.Med., Member of the Board of Directors since 2016
Vice Chairman, PhD, Doc., Specialist, MBA, Member of the Board of Directors since 2018, CEO of Realia Group. Independent of the Company
BBA and eMBA, Member of the Board of Directors since 2016, Executive Partner at Hasan & Partners. Independent of the Company and its major shareholders
Master of Arts, Member of the Board of Directors since 2018, CEO of Hanaholmen Swedish-Finnish Cultural Centre and Director of Cultural Foundation for Sweden and Finland. Independent of the Company and major shareholders
b. 1963, D.Med.Sc., Specialist in Physiatrics, Member of the Board of Directors since 2014, Board Professional. Independent of major shareholders
LL.M., trained on the bench, Member of the Board of Directors since 2015, Managing Director of LocalTapiola General Mutual Insurance Company. Independent of the Company
STRATEGY PARTNERSHIP
Head of Business Operations, Southern Finland, MSc (Econ.). Employed by the company since 2017
Head of Business Operations, Ostrobothnia, CEO, Kuusiolinna Terveys Oy, Master of Health Science. Employed by the company since 2016
Head of Business Operations, Central Finland, CEO, Jämsän Terveys Oy and Jokilaakson Terveys Oy, MD, eMBA, Specialist. Employed by the company since 2016
CFO, M.Sc. (Econ.). Employed by the company since 2017
Head of Service and Product Development, Specialist in Geriatrics, eMBA. Employed by the company since 2012
General Counsel, Master of Laws with court training. Employed by the company since 2017
Head of Marketing and Communications, BBA. Employed by the company since 2017
Head of Sales, Head of Business Operations, Northern Finland, M.Soc. Sci. Employed by the company since 2018
REPORT BY THE BOARD OF DIRECTORS AND THE FINANCIAL STATEMENTS
STRATEGY PARTNERSHIP
CONTENTS
| Joni Aaltonen, CEO of Pihlajalinna | 34 |
|---|---|
| Revenue by business area | 35 |
| Revenue by customer group | 35 |
| Consolidated revenue and result | 36 |
| Market and legislation review | 38 |
| Consolidated statement of financial position and cash flow | 38 |
| Financing arrangements | 38 |
| Acquisitions, divestments and capital expenditure | 39 |
| Acquisitions of non-controlling interests | 39 |
| Changes in Group structure | 39 |
| Research and development | 40 |
| Personnel | 40 |
| Management changes and Management Team | 40 |
| Board of Directors | 40 |
| Committees nominated by the Board | 40 |
| Shareholders' Nomination Board | 40 |
| Remuneration of the members of the Board of Directors | 40 |
| Auditing | 40 |
| Shares and shareholders | 40 |
| Board authorisations | 41 |
| Risks and uncertainties in business operations | 41 |
| Risk management | 42 |
| Flagging notifications | 42 |
| Incentive schemes | 42 |
| Seasonality | 42 |
| The Board of Directors' proposal for profit distribution | 42 |
| Pihlajalinna's outlook for 2019 | 43 |
| Corporate Governance Statement | 43 |
| Statement of non-financial information | 43 |
| Events after the balance sheet date | 43 |
| Key financial figures | 44 |
| Share-related information, tables | 44 |
| Quarterly information | 45 |
| Calculation of key financial figures and alternative performance measures | 46 |
| Reconciliations of alternative performance measures | 47 |
| Shares and shareholders | 51 |
| Shareholding of the management | 52 |
| Signatures to the Report by the Board of Directors | 97 |
| and the Financial Statements |
The Group's revenue growth remained strong in the fourth quarter. Profitability improved, particularly due to complete outsourcing arrangements, while the start-up of new units weighed down the result. We launched a customer relationship programme at the beginning of October. The programme is aimed at increasing awareness of Pihlajalinna's entire service offering, cross-selling services and creating added value by promoting good health.
The changes in organisational structure and efficiency improvement measures implemented during the early part of the year are clearly beginning to produce results. While we want to improve the efficiency of our operations, we do not want to compromise our future development or the direction that we believe is right for Finnish healthcare. The open-minded development of our business and profitable growth are our key goals at the present time.
2018 was a year of business development for Pihlajalinna. We changed our organisational structure, expanded geographically, built new services and invested in creating a stronger brand and digital services. While all this building for the future eroded our profitability, we now enter the new year in a good position. The major changes have now been done—for the time being—and we can focus on the continued improvement of our profitability.
We are now a genuinely national operator. In line with our strategy, we have expanded our operations to new regional capitals through acquisitions. We opened new full-service private clinics in Oulu, Seinäjoki and Turku. In addition, the acquisition of Doctagon during the financial year strengthens our presence in Swedish-speaking regions. In areas where we don't have medical specialists comprehensively available, for example, we can provide medical specialist services from another location using digital channels. The use of remote services enables us to balance regional differences in demand and supply. In the fourth quarter, we acquired the entire share capital of Terveyspalvelu Verso Oy. This transaction saw Verso's 17 clinics in Pohjois-Savo become part of the chain of Pihlajalinna's private clinics.
We have also achieved a concrete expansion of our range services: the responsible doctor model is being expanded geographically and we are increasing the service offering of our fitness centres in occupational healthcare and rehabilitation. We have expanded our partner network. For example, in cooperation with the psychotherapy centre Vastaamo, we are providing low-threshold therapy services in municipal joint ventures that generate significant savings in specialised care and improved health outcomes for our customers.
The growth of the municipal business was weakened in 2018 by the effect of uncertainty around health and social services reform on municipal decision-making. In spite of the prevailing
uncertainty, our joint venture in Laihia began its operations on 1 September 2018, while in Hattula, a partial outsourcing arrangement for social and healthcare services started at the beginning of 2019.
In our view, the proposed health and social services reform and bringing services close to people would provide faster access to basic-level care while also improving service quality. In order for the economic objectives of healthcare and social welfare reform to be achieved, the counties must have the capacity and willingness to take advantage of the national service networks of private service providers and implement economic pricing models, such as fixed compensation, a performance-based share and incentives. Bringing services close to people would provide significantly faster access to care and ensure high-quality care for all Finns, including those who live outside growth centres.
In our view, freedom of choice should be developed in such a way as to give the service providers of health and social services centres the obligation and the opportunity to take more extensive responsibility for customers, excluding demanding specialised care services. This could be achieved by introducing services from various specialised branches of medicine to the health and social service centres. This would allow customers to obtain care from a single location and avoid the fragmentation of the care path, unnecessary chains of referrals and needless bureaucracy.
Pihlajalinna is interested in broader service solutions that are more effective in creating value for society. The recent public discussion surrounding the poor quality of care for the elderly is a sign of how serious the situation is. Addressing these problems calls for close cooperation between the public sector and private enterprises. The issue is not the price at which a day of care can be produced. The challenge is much broader. The service chain must be examined as a whole to ensure that every customer receives the care that their condition requires. Complete outsourcing enables this by providing a more comprehensive service offering, which makes it possible to choose the appropriate location of treatment.
If the health and social services reform is not implemented, we expect that municipalities will again become active in working with us to develop service models that make it possible to maintain services for their residents while keeping costs under control and producing the services in an ethically sustainable manner. In 2019, we expect our consolidated revenue to increase and our adjusted EBIT to improve clearly compared to 2018.
Pihlajalinna's geographical business areas are Southern Finland, Mid-Finland, Ostrobothnia and Northern Finland.
• Southern Finland includes Pihlajalinna's business operations in the regions of Uusimaa, South West Finland, Päijät-Häme, Kymenlaakso and South Karelia.
| EUR million | 10-12/2018 | % | 10-12/2017 | % |
|---|---|---|---|---|
| Southern Finland | 29.5 | 21 | 15.0 | 12 |
| Mid-Finland | 79.3 | 56 | 76.8 | 62 |
| Ostrobothnia | 28.6 | 20 | 26.7 | 22 |
| Northern Finland | 3.2 | 2 | 2.6 | 2 |
| Other operations | 2.0 | 1 | 1.7 | 1 |
| Intra-Group sales | -15.7 | -14.9 | ||
| Total consolidated | ||||
| revenue | 127.0 | 100 | 107.9 | 100 |
The quarterly revenue of the Southern Finland business area amounted to EUR 29.5 (15.0) million, an increase of EUR 14.5 million, or 96 per cent. The business area's revenue increased significantly following the acquisitions of Doctagon, the Forever fitness centre chain and Kymijoen Työterveys.
The revenue of the Mid-Finland business area amounted to EUR 79.3 (76.8) million, an increase of EUR 2.5 million, or 3 per cent. The acquisitions of Linnan Klinikka and Röntgentutka increased the business area's revenue. The most significant negative factors affecting revenue were the termination of Omapihlaja health centre operations and Pappilanpuisto service housing with 24-hour assistance as well as the closure of the home care unit in Tampere.
The revenue of the Ostrobothnia business area amounted to EUR 28.6 (26.7) million, an increase of EUR 1.9 million, or 7 per cent. The business area's revenue was increased by the provision of residential services for senior citizens in Laihia and the cost-based price adjustment of the Kuusiokunnat social and healthcare outsourcing.
The revenue of the Northern Finland business area amounted to EUR 3.2 (2.6) million, an increase of EUR 0.6 million, or 21 per cent. The business area's revenue was increased by the start of operations at Pihlajalinna Oulu.
| EUR million | 2018 | % | 2017 | % |
|---|---|---|---|---|
| Southern Finland | 107.6 | 20 | 60.7 | 13 |
| Mid-Finland | 311.9 | 57 | 301.4 | 63 |
| Ostrobothnia | 108.8 | 20 | 105.4 | 22 |
| Northern Finland | 12.3 | 2 | 7.6 | 2 |
| Other operations | 4.8 | 1 | 6.0 | 1 |
| Intra-Group sales | -57.6 | -57.1 | ||
| Total consolidated | ||||
| revenue | 487.8 | 100 | 424.0 | 100 |
The full-year revenue of the Southern Finland business area amounted to EUR 107.6 (60.7) million, an increase of EUR 46.9 million, or 77 per cent. Acquisitions (Doctagon, Forever fitness centre chain, Kymijoen Työterveys, Dextra Lapsettomuusklinikka and the Suomen Yksityiset Hammaslääkärit chain of dental clinics) had a significant
impact on the business area's revenue growth. The start-up of Pihlajalinna Turku also increased the revenue of the Southern Finland business area. The centralisation of insurance company partnerships has led to tighter competition to some extent, which is also reflected in lower volumes, particularly in surgical operations, in the Southern Finland business area.
The revenue of the Mid-Finland business area amounted to EUR 311.9 (301.4) million, an increase of EUR 10.5 million, or 3 per cent. The majority of the growth was attributable to the acquisitions of Linnan Klinikka and Röntgentutka. The costbased price adjustments of social and healthcare outsourcing contributed to the higher revenue of the Mid-Finland business area. The most significant negative factors affecting revenue were the contraction of reception centre operations, the termination of Omapihlaja health centre operations and Pappilanpuisto service housing with 24-hour assistance as well as the closure of the home care unit in Tampere. The centralisation of insurance company partnerships has led to tighter competition, which is also reflected in lower volumes, particularly in surgical operations, in the Mid-Finland business area.
The revenue of the Ostrobothnia business area amounted to EUR 108.8 (105.4) million, an increase of EUR 3.4 million, or 3 per cent. The business area's revenue was increased by the cost-based price adjustment of the Kuusiokunnat social and healthcare outsourcing, the provision of residential services for senior citizens and people with disabilities in Laihia starting from 1 September 2018 and the start-up of a new clinic in Seinäjoki.
The revenue of the Northern Finland business area amounted to EUR 12.3 (7.6) million, an increase of EUR 4.7 million, or 62 per cent. The business area's revenue was particularly increased by the August 2017 acquisition of Caritas Lääkärit Oy and the start of operations at Pihlajalinna Oulu.
Pihlajalinna's customer groups are corporate customers, private customers and public sector customers.
| EUR million | 10-12/2018 | % | 10-12/2017 | % |
|---|---|---|---|---|
| Corporate customers | 29.4 | 21 | 21.2 | 17 |
| of which insurance | ||||
| company customers | 6.7 | 5 | 6.5 | 5 |
| Private customers | 24.6 | 17 | 17.3 | 14 |
| Public sector | 88.6 | 62 | 84.5 | 69 |
| Intra-Group sales | -15.7 | -14.9 | ||
| Total consolidated | ||||
| revenue | 127.0 | 100 | 107.9 | 100 |
Revenue from corporate customers amounted to EUR 29.4 (21.2) million, an increase of EUR 8.4 million, or 40 per cent. Sales to insurance company customers increased by EUR 0.2 million, or 3 per cent. The revenue for the quarter was increased by the start-up of new clinics, Doctagon's staffing services, imaging services in Pirkanmaa and the acquisition of Linnan Klinikka. The use of digital services, and the Pihlajalinna occupational health nurse telephone service in particular, has increased in corporate customer relationships.
Revenue from private customers amounted to EUR 24.6 (17.3) million, an increase of EUR 7.2 million, or 42 per cent. The acquisition of the Forever fitness centre chain contributed significantly to the increase in revenue from private customers. Revenue was also increased by the expansion of the dental care network, fertility treatments, the acquisition of Linnan Klinikka and imaging services in Pirkanmaa.
Revenue from public sector customers totalled EUR 88.6 (84.5) million, an increase of EUR 4.1 million, or 5 per cent. The majority of the growth was attributable to the acquisitions of Doctagon and Kymijoen Työterveys. The start of the production of residential services in Laihia on 1 September 2018 also increased revenue. The main factors that had a negative effect on revenue in this customer group were the termination of Omapihlaja health centres and the unprofitable Pappilanpuisto service housing with 24-hour assistance and home care unit in Tampere.
| 2018 | % | 2017 | % |
|---|---|---|---|
| 105.6 | 19 | 82.6 | 17 |
| 25.2 | 5 | 26.6 | 6 |
| 92.0 | 17 | 68.0 | 14 |
| 347.7 | 64 | 330.5 | 69 |
| -57.6 | -57.1 | ||
| 487.8 | 100 | 424.0 | 100 |
Revenue from corporate customers during the financial year amounted to EUR 105.6 (82.6) million, an increase of EUR 23.0 million, or 28 per cent. Sales to insurance company customers declined by EUR 1.4 million, or 5 per cent. Revenue was increased by the start-up of new clinics, Doctagon's staffing services, imaging services in Pirkanmaa and the acquisition of clinics in Hämeenlinna and Oulu. Revenue from corporate customers was reduced by the termination of a telephone service arrangement with an insurance company. The use of
digital services, and the Pihlajalinna occupational health nurse telephone service in particular, became well established in corporate customer relationships during the financial year.
Revenue from private customers amounted to EUR 92.0 (68.0) million, an increase of EUR 24.0 million, or 35 per cent. The acquisition of the Forever fitness centre chain contributed significantly to the increase in revenue from private customers. Revenue was also increased by the expansion of the dental care network, fertility treatments, the acquisition of Linnan Klinikka in Hämeenlinna, the start-up of new clinics and the imaging services in Pirkanmaa. The centralisation of insurance company partnerships has led to tighter competition to some extent, which is also reflected in lower volumes of surgical operations among customers who pay for their services themselves.
Revenue from public sector customers totalled EUR 347.7 (330.5) million, an increase of EUR 17.2 million, or 5 per cent. The majority of the growth was attributable to the acquisitions of Doctagon and Kymijoen Työterveys. The cost-based price adjustments of social and healthcare outsourcings and the start of the production of residential services in Laihia on 1 September 2018 also increased revenue. The main factors that had a negative effect on revenue in this customer group were the contraction of reception centre operations, the termination of Omapihlaja health centres and the unprofitable Pappilanpuisto service housing with 24-hour assistance as well as the closure of the home care unit in Tampere.
Pihlajalinna's revenue for the quarter amounted to EUR 127.0 (107.9) million, an increase of EUR 19.0 million, or 17.6 per cent. Growth in revenue due to M&A transactions was EUR 17.6 million, or 16.3 per cent. The most significant M&A transactions were the acquisitions of Doctagon, the Forever fitness centre chain and Kymijoen Työterveys in the first quarter.
EBITDA amounted to EUR 10.6 (8.1) million, an increase of EUR 2.5 million, or 30.7 per cent. Profitability was significantly improved by service provider refunds from hospital districts for public sector specialised care cost accruals. The volumes and profitability of clinic and surgical operations were lower than in the comparison period due to the competitive situation and patient guidance by insurance companies. The profitability of occupational healthcare services remained on a par with the previous year in spite of investments in the nurse telephone service.
M&A transactions had an impact of EUR 2.1 million on EBITDA, while the start-up of new private clinics had an impact of EUR -0.4 million. Transfer taxes and expert fees related to M&A transactions (IFRS 3 costs) reduced EBITDA by EUR 0.1 (0.3) million. Personnel expenses of EUR 0.9 (0.4) million were capitalised in development costs during the quarter.
Adjusted EBITDA amounted to EUR 11.1 (8.5) million, an increase of EUR 2.6 million, or 30.2 per cent. EBITDA adjustments totalled EUR 0.4 (0.4) million.
Depreciation, amortisation and impairment amounted to EUR 4.7 (3.6) million. Amortisation and impairment of intangible assets amounted to EUR 1.9 (1.4) million, of which purchase price allocation (PPA) amortisation was EUR 1.3 (1.0) million. Depreciation, amortisation and impairment of property, plant and equipment amounted to EUR 2.8 (2.2) million.
Pihlajalinna's operating profit amounted to EUR 6.0 (4.6) million, an increase of EUR 1.4 million, or 30.6 per cent. The EBIT-to-revenue ratio (EBIT margin) was 4.7 (4.2) per cent. The adjusted operating profit was EUR 6.5 (4.9) million, an increase of EUR 1.6 million, or 32.2 per cent. The adjusted EBIT margin was 5.1 (4.6) per cent.
Pihlajalinna's public specialised care revenue included in complete social and healthcare outsourcings amounted to EUR 21.8 (20.8) million. The EBITDA of public specialised care amounted to EUR 2.4 (0.0) million and the operating profit was EUR 2.3 (0.0) million. Profitability was significantly improved by service provider refunds from hospital districts for public sector specialised care cost accruals. The cost accumulation of public specialised care involves random fluctuation. 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 Group's net financial expenses totalled EUR -0.8 (-0.4) million. Profit before tax amounted to EUR 5.2 (4.1) million, an increase of EUR 1.1 million, or 25.9 per cent. Taxes in the income statement amounted to EUR -1.4 (-0.6) million. The profit was EUR 3.8 (3.5) million. Earnings per share (EPS) was EUR 0.12 (0.12).
Pihlajalinna's revenue for the financial year amounted to EUR 487.8 (424.0) million, an increase of EUR 63.8 million, or 15.0 per cent. Growth in revenue due to M&A transactions was EUR 65.7 million, or 15.5 per cent. The most significant M&A transactions were the acquisitions of Doctagon, the Forever fitness centre chain and Kymijoen Työterveys.
EBITDA was EUR 31.2 (33.3) million, a decrease of EUR 2.1 million, or 6.4 per cent.
Profitability was reduced by a decrease in surgical and reception centre operations due to the competitive situation, patient guidance by insurance companies and the contraction of reception centre operations. Structural reforms and the codetermination negotiations held in the spring had a negative effect on business performance. Profitability was improved by service provider refunds from hospital districts for public sector specialised care cost accruals. However, public specialised care costs increased significantly during the first half of the year. The profitability of occupational healthcare services remained on a par with the previous year in spite of investments in the nurse
telephone service. Pihlajalinna's market share as a provider of occupational healthcare services increased significantly compared to the previous year.
M&A transactions had an impact of EUR 6.6 million on EBITDA, while the start-up of new private clinics had an impact of EUR -3.5 million. Transfer taxes and expert fees related to M&A transactions (IFRS 3 costs) reduced EBITDA by EUR 1.6 (0.9) million. Personnel expenses of EUR 1.3 (0.4) million were capitalised in development costs during the financial year.
As part of Pihlajalinna's structural reforms, the Group carried out codetermination negotiations for productionrelated reasons and due to the restructuring of business operations. The negotiations were concluded on 14 March 2018 and the number of staff reductions was 25. As a result of the reductions, personnel expenses will be reduced by approximately EUR 2.8 million annually. Employment termination expenses related to staff reductions amounted to EUR 0.6 million during the financial year.
Adjusted EBITDA was EUR 32.3 (34.1) million, a decrease of EUR 1.8 million, or 5.2 per cent. EBITDA adjustments totalled EUR 1.1 (0.7) million.
Depreciation, amortisation and impairment amounted to EUR 18.4 (14.2) million. Amortisation and impairment of intangible assets amounted to EUR 7.1 (5.2) million, of which purchase price allocation (PPA) amortisation was EUR 5.1 (3.8) million. Depreciation, amortisation and impairment of property, plant and equipment amounted to EUR 11.3 (9.0) million.
Pihlajalinna's operating profit was EUR 12.8 (19.1) million, a decrease of EUR 6.3 million, or 33.1 per cent. The EBIT-torevenue ratio (EBIT margin) was 2.6 (4.5) per cent. Adjusted operating profit was EUR 14.0 (20.0) million, a decrease of EUR 6.0 million, or 29.9 per cent. The adjusted EBIT margin was 2.9 (4.7) per cent.
Pihlajalinna's public specialised care revenue included in complete social and healthcare outsourcings amounted to EUR 86.4 (84.3) million. The EBITDA of public specialised care amounted to EUR 2.5 (0.9) million and the operating profit was EUR 2.2 (0.7) million. Profitability was significantly improved by service provider refunds from hospital districts for public sector specialised care cost accruals. However, public specialised care costs increased significantly during the first half of the year. The cost accumulation of public specialised care involves random fluctuation. Individual cases falling within the scope of the hospital districts' pooling system for high-cost care 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 totalled EUR -2.8 (-1.7) million. Profit before tax was EUR 10.0 (17.4) million, a decrease of EUR 7.5 million, or 42.9 per cent. Taxes in the income statement amounted to EUR -2.8 (-3.4) million. Profit was EUR 7.1 (14.1) million. Earnings per share (EPS) was EUR 0.17 (0.46).
The preparations for the restructuring of social welfare and healthcare services moved forward in 2018, although the implementation of the reforms was postponed. The legislation related to the reforms is currently in the Constitutional Law Committee and the reforms are intended to enter into effect on 1 January 2021, which is when the responsibility for organising social and healthcare services will be transferred to the counties.
If the legislation is enacted, the first county elections are planned for autumn 2019. Personal budgets and service vouchers would be adopted in 2022. The freedom of choice in social and healthcare services would enter into effect gradually. Freedom of choice pilots would begin when the legislation is confirmed. As freedom of choice increases, private operators will increasingly produce publicly funded social and healthcare services. Initially, these services will focus particularly on primary care and care services.
According to an estimate by the Ministry of Social Affairs and Health, the size of the freedom-of-choice market would be approximately EUR 5.4 billion (of which health and social services centres would account for roughly EUR 1.9 billion, service vouchers for roughly EUR 1.6 billion, personal budgets for roughly EUR 1.5 billion and dental care units for roughly EUR 0.4 billion). The Ministry of Social Affairs and Health has confirmed that service voucher pilots will continue in 2019.
Pihlajalinna's view is that there will be opportunities for the private sector to complement the public sector's services, particularly in basic-level specialised care and non-urgent specialised care, as the population ages and the public sector cuts and centralises specialised care in fewer units.
Activity in public service procurement from private operators has increased as the decisions on social and healthcare service reform have been postponed. Pihlajalinna began residential service operations in Laihia on 1 September 2018 and the partial outsourcing of social and healthcare services in Hattula at the beginning of 2019. In addition, Kristiinankaupunki has carried out negotiation-based tendering procedures to outsource part of its social and healthcare services. The procurement decision based on the tendering process has not yet been made.
The situation in the private market remains unchanged. The occupational healthcare market is expected to grow if municipalities and other public sector entities decide to divest the occupational healthcare providers they currently own. For example, the City of Kotka sold Kymijoen Työterveys, and the Ylä-Savo joint municipal authority for social and healthcare services sold Terveyspalvelu Verso, to Pihlajalinna during the financial year.
At the end of the financial year, Pihlajalinna Group's total statement of financial position was EUR 349.5 (253.6) million. Consolidated cash and cash equivalents stood at EUR 36.3 (37.1) million.
The Group's net cash flow from operating activities during the financial year amounted to EUR 27.4 (34.9) million. Taxes
paid amounted to EUR -5.5 (-4.6) million. The change in net working capital was EUR 1.5 (6.6) million. Cash flow from operating activities was reduced by the lower EBITDA and improved by higher trade payables and other liabilities.
Net cash flow from operating activities for the quarter totalled EUR 20.6 (16.5) million. The change in net working capital was EUR 11.5 (9.3) million. Cash flow from operating activities was improved by higher trade payables and other liabilities.
Net cash flow from investing activities totalled EUR -60.1 (-18.5) million. Subsidiary acquisitions had an impact of EUR -41.0 (-8.9) million on net cash flow from investing activities. Investments in property, plant and equipment and intangible assets totalled EUR -19.6 (-10.1) million, and proceeds from the disposals of property, plant and equipment totalled EUR 0.4 (0.2) million.
The Group's cash flow after investments (free cash flow) was EUR -32.7 (16.4) million.
Net cash flow from financing activities totalled EUR 31.9 (-6.9) million. The Group withdrew EUR 121.5 (14.5) million in new loans and repaid its financial liabilities, including changes in credit limits, by a total of EUR 72.1 (6.4) million. Pihlajalinna Plc distributed dividends of EUR 3.6 (3.1) million in the spring. Dividends of EUR 1.4 (2.8) million were distributed to noncontrolling interests. Repayments of financial lease liabilities totalled EUR 3.4 (3.2) million and interest paid and other financial expenses amounted to EUR 2.6 (1.8) million. Changes in non-controlling interests had a net effect of EUR -6.4 (-4.0) million on cash flow. Pihlajalinna significantly increased its holdings in municipal joint ventures in June 2018.
The Group's gearing was 68.7 (32.3) per cent. Interestbearing net debt amounted to EUR 90.1 (34.2) million. The Group's gearing was particularly increased by acquisitions, which had a combined cash flow effect of EUR -36.9 (-8.4) million. The Group also paid EUR -4.0 (-0.5) million in contingent considerations (earn-out payments).
Return on capital employed was 5.8 (11.8) per cent and return on equity was 6.0 (13.6) per cent.
Pihlajalinna reorganised its debt financing in the first quarter. A new five-year EUR 120 million unsecured financing arrangement was concluded 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 Group met the set covenants on 31 December 2018.
The Group's credit limit agreements valid until further notice, totalling EUR 10 million, remained unchanged. The notice period of the credit limit agreements is one month.
At the end of the financial year, Pihlajalinna had EUR 39.0 million in unused committed credit limits.
STRATEGY PARTNERSHIP
| Acquired/divested entity | Month of acquisition |
Industry | Domicile |
|---|---|---|---|
| Terveyspalvelu Verso Oy, 100% of the share capital | 12/2018 | Occupational health services | Iisalmi |
| Hammashannu Oy, sold 100% of the share capital (part of the SYH chain) | 9/2018 | Dental care | Turku |
| Anula Oy, 100% of the share capital | 7/2018 | Dental care | Hämeenlinna |
| Leaf Areena Oy, 100% of the share capital | 6/2018 | Fitness centres | Turku |
| Suomen Yksityiset Hammaslääkärit chain, 51% of the share capital | 3/2018 | Dental care | Several |
| Doctagon Ab, 100% of the share capital (directed share issue) | 3/2018 | Private clinic operations, occupational health services, staffing services |
Helsinki |
| Forever fitness centre chain, 70% of the share capital | 2/2018 | Fitness centres | Several |
| Röntgentutka Oy, 50% of the share capital (previous holding 50%, acquisition achieved in stages) |
2/2018 | Imaging | Tampere |
| Linnan Klinikka Oy, 100% of the share capital | 2/2018 | Private clinic operations, occupational health services |
Hämeenlinna |
| Kymijoen Työterveys Oy, 100% of the share capital | 2/2018 | Occupational health services | Kotka |
| Salon Lääkintälaboratorio Oy (Sallab), 100% of the share capital | 1/2018 | Private clinic operations, occupational health services |
Salo |
| Someron Lääkärikeskus Oy, 100% of the share capital | 1/2018 | Private clinic operations, occupational health services |
Somero |
A summary of the acquisitions is presented in the Note 26 Business combinatios
Gross investments, including acquisitions, totalled EUR 101.7 (30.4) 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 9.9 (8.3) million during the financial year. Capital expenditure relating to the opening of new units totalled EUR 12.4 (5.1) million. Gross investments associated with M&A transactions totalled EUR 79.3 (17.0) million.
The Group's investment commitments related to development, additional and replacement investments amounted to approximately EUR 1.1 million.
Pihlajalinna will develop a new assisted living facility for senior citizens in Laihia, under a subletting model, with capacity for 60 residents. The building is scheduled to be completed in autumn 2019. Pihlajalinna has made a commitment to acquire an assisted living facility from the municipality of Laihia following the construction of the new facility. In addition, Pihlajalinna is committed to renovating two smaller care homes that it acquired previously.
Pihlajalinna's expansion will continue regardless of the postponement of the potential reform of health and social services. During the 2017 financial year, Pihlajalinna announced it plans to open new units in 10 new locations by 2020. Future expansion will be primarily achieved by acquisitions and municipal projects. No new surgical units will be opened in 2019.
Pihlajalinna increased its holdings in municipal joint ventures in June 2018 and, at the end of the financial year, Pihlajalinna owned 81 per cent of the shares of Mäntänvuoren Terveys Oy and Kolmostien Terveys Oy as well as 90 per cent of the shares of Jokilaakson Terveys Oy. In addition, the company signed a conditional agreement with the Kuusiokunnat municipalities according to which it will increase its holding in Kuusiolinna Terveys Oy to 97 per cent by the end of 2018. The validity of the agreement has, however, been extended until 15 March 2019.
Pihlajalinna has paid a total of EUR 8.4 million for the completed share acquisitions. According to the conditional agreement, the transaction price for the acquisition of Kuusiolinna Terveys shares is EUR 18.4 million.
| Company | Pihlajalinna's holding, 1 January 2018 |
Pihlajalinna's holding, 31 December 2018 |
First year of service production under the current contract |
Duration of contract (years) |
|---|---|---|---|---|
| Jokilaakson Terveys Oy | 51% | 90% | internal service provision |
internal service provision |
| Kuusiolinna Terveys Oy | 51% | 51% (will increase to 97% after the parties have signed a separate entry into force document, the validity of the agreement has been extended until 15 March 2019) |
2016 | 10+5 |
| Mäntänvuoren Terveys Oy | 66% | 81% | 2016 | 10+5 |
| Kolmostien Terveys Oy | 71% | 81% | 2015 | 10+5 |
The following changes in Group structure took place during the financial year:
Development costs that fulfilled the criteria for capitalisation amounted to EUR 1.3 (1.2) million during the financial year.
In financial year 2018, development activities were focused on the continued development of digital services and mobile services and their deployment across all customer groups. Other projects completed during the financial year were related to a remote service model for municipal residents for use in social and healthcare outsourcing, operating models for fixed-price occupational healthcare agreements, a sports clinic concept and a social and healthcare service centre concept. Further focus areas in development included the customer relationship programme, business intelligence and the EU General Data Protection Regulation.
At the end of the financial year, the number of personnel was 5,850 (4,753), an increase of 1,097 persons or 23 per cent. The Group's personnel averaged 4,868 (3,879) persons as full-time equivalents, an increase of 989 persons or 26 per cent. The Group's employee benefit expenses totalled EUR 208.4 (175.4) million, an increase of EUR 33.0 million or 19 per cent.
The increase in the number of personnel was primarily due to acquisitions and newly opened business locations.
During the financial year, Pihlajalinna carried out targeted codetermination negotiations for production-related reasons and due to the restructuring of business operations. The negotiations concerned 372 employees and they resulted in 31 redundancies and the discontinuation of positions. Of these, 57 employees found new jobs within the Group.
Pihlajalinna's Board of Directors appointed the following ten (10) members to the Group Management Team on 14 March 2018:
Stefan Wentjärvi was appointed as Pihlajalinna's Head of Sales. He took up his post and joined the Group Management Team on 1 September 2018.
Marko Savolainen was appointed General Counsel of Pihlajalinna. He took up his post and joined the Group Management Team on 14 December 2018.
The Annual General Meeting held on 5 April 2018 decided that the Board of Directors will be composed of eight (8) members. Timo Everi, Leena Niemistö, Jari Sundström, Seija Turunen and Mikko Wirén were re-elected and Matti Bergendahl, Kati Sulin
and Gunvor Kronman 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 AGM elected Mikko Wirén as the Chairman of the Board and Matti Bergendahl as Vice-Chairman.
Audit Committee: Seija Turunen (chairman), Matti Bergendahl, Leena Niemistö and Kati Sulin
Remuneration Committee: Mikko Wirén (chairman), Timo Everi, Gunvor Kronman and Jari Sundström
On 26 September 2018, the four largest registered shareholders of Pihlajalinna Plc nominated the following representatives to the Shareholders' Nomination Board:
The Annual General Meeting of 5 April 2018 amended the second paragraph of Section 2 of the Charter of the Shareholders' Nomination Board. The paragraph in question has been published in its entirety on 5 April 2018 in the stock exchange release announcing the resolutions of Pihlajalinna Plc's Annual General Meeting of Shareholders.
The Annual General Meeting of 5 April 2018 decided that the remuneration of Board members shall remain unchanged as follows: the full-time Chairman EUR 250,000, the Deputy Chairman EUR 48,000 and the other 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. In addition, reasonable travelling expenses would be paid according to the Company travel rules.
At Pihlajalinna's Annual General Meeting held on 5 April 2018, KPMG Oy Ab, a firm of authorised public accountants, was elected as the company's auditor for the financial year 1 January–31 December 2018. Lotta Nurminen, APA, is the principal auditor.
Pihlajalinna acquired the entire share capital of Doctagon Ab through a directed share issue in March 2018. In the directed share issue, the entire transaction price for Doctagon Ab, totalling EUR 30,105,000, was paid in Pihlajalinna Plc shares. The directed share issue offered 2,006,989 new shares to be subscribed according to the purchase deed terms with a subscription price of EUR 15.00 per share. The number of new shares corresponded to approximately 10 per cent of all of Pihlajalinna Plc's shares before issuing the new shares. The total number of Pihlajalinna Plc's shares after the registration of the new shares is 22,620,135. The shares were entered in the Trade Register on 14 March 2018.
INFORMATION FOR SHAREHOLDERS
At the end of the financial year, 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 13,372 (12,489) 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 | 10-12/2018 | 10-12/2017 | 2018 | 2017 |
|---|---|---|---|---|
| No. of shares outstanding at the end of the period | 22,620,135 | 20,613,146 | 22,620,135 | 20,613,146 |
| Average no. of shares outstanding during the period | 22,620,135 | 20,613,146 | 22,224,236 | 20,613,146 |
| Highest price, EUR | 11.06 | 16.40 | 15.28 | 18.42 |
| Lowest price, EUR | 8.56 | 12.60 | 8.56 | 12.60 |
| Average price, EUR* | 9.56 | 14.45 | 12.18 | 16.30 |
| Closing price, EUR | 8.62 | 13.34 | 8.62 | 13.34 |
| Share turnover, 1,000 shares | 830 | 1 617 | 6 182 | 5 189 |
| Share turnover, % | 3.7 | 7.9 | 27.8 | 25.2 |
| Market capitalisation at the end of the period, EUR million | 195.0 | 274.0 | 195.0 | 274.0 |
* average share price weighted by trading volume
The Annual General Meeting of 5 April 2018 authorised the Board of Directors to resolve on the repurchase of the company's own shares using non-restricted equity. The shares may be purchased as a directed repurchase. The authorisation is for a maximum of 2,061,314 shares. The authorisation will remain in force until the end of the next AGM, however, no longer than until 30 June 2019.
The Annual General Meeting of 5 April 2018 authorised the Board of Directors to decide on the issuance of shares and other special rights entitling to shares referred to in Chapter 10, Section 1 of the Finnish Companies Act. Pursuant to the authorisation, the share issue may be carried out as a directed share issue. The authorisation is for a maximum of 3,091,971 shares. The authorisation concerns both the issuance of new shares and the transfer of the company's own shares. The authorisation will remain in force until the end of the next AGM, however, no longer than until 30 June 2019.
Pihlajalinna assesses risks annually and the objective is the minimisation and better anticipation of risks.
Political decision-making and structural reforms in the public sector also affect social and healthcare services, and may directly or indirectly impact the Group's business and growth opportunities. The future overall effects of the potential health and social services reform and any other possible changes in the arrangement of social and healthcare services are difficult to predict. Reforms may hamper the Group's operations in some segments of social and healthcare services but, on the other hand, the Group's extensive operations in different segments may partially balance out the effects of reforms. The Group closely monitors political decision-making processes.
In addition to the aforementioned factors, public contracts involve the risk of possible appeals and trials. Furthermore, the continuity of key existing customer relationships and contracts involves risks, especially in the long term.
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.
In addition, the most essential risks and uncertainties affecting the Group's operations are connected to the success of opening new locations, 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 began in spring 2017. For income taxation (the Act on the Taxation of Business Profits and Income from Professional Activity) has been completed without sanctions. The other aspects of the tax audit are still incomplete.
The Group's trade receivables include EUR 3.6 (2.5) million in substantially delayed payments from a significant customer. Pihlajalinna has signed a conditional agreement that also concerns the payment of the receivables in question. According to the Group management's estimate, the customer will pay the receivables in full.
In its other receivables, the Group has a total of EUR 2.4 million 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.
At the end of the 2018 financial year, goodwill on Pihlajalinna's statement of financial position amounted to EUR 169.9 (103.9) 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 which, in turn, could have an unfavourable impact on Pihlajalinna's operating result and equity.
More information on Pihlajalinna's risks and risk management will be provided in the Corporate Governance Statement and
the Statement of Non-financial Information, scheduled to be published in week 11. More information on financial risks and their management is provided in the consolidated financial statements under Note 25 Financial risk management. The consolidated financial statements will be published as part of the Annual Report on the company's investor website at investors.pihlajalinna.fi in week 11.
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 be aware of and manage risks related to their responsibilities.
During the financial year, Pihlajalinna received the following flagging notifications under Chapter 9, Section 5 of the Securities Markets Act:
| Number of shares at the time of the |
||||
|---|---|---|---|---|
| Date | Shareholder | Thres hold |
Holding total, % |
flagging notice |
| 26 Sep 2018 |
Fennia Group (Fennia Mutual Insurance Company and Fennia Life) |
Over 10% |
10.02% | 2,265,586 |
| 24 May 2018 |
Fennia Group (Fennia Mutual Insurance Company and Fennia Life) |
Over 5% |
6.03% | 1,364,252 |
| 14 Mar 2018 |
LocalTapiola Group (LocalTapiola General Mutual Insurance Company and LocalTapiola Mutual Life Insurance Company) |
Under 25% |
23.76% | 5,375,350 |
| 15 Feb 2018 |
LocalTapiola Group (LocalTapiola General Mutual Insurance Company and LocalTapiola Mutual Life Insurance Company) |
Over 25% |
26.07% | 5,373,026 |
The share-based long-term incentive programme for the company's key employees approved by the Board of Directors of Pihlajalinna Plc on 14 May 2018 became void, as the required level of adjusted operating profit was not achieved. No rewards will be paid under the incentive programme.
A precondition for the payment of share rewards based on the plan was that the actual adjusted operating profit for the calendar year 2018 meet the company's outlook effective on 14 May 2018.
During the financial year, the company did not use any sharebased incentive schemes pertaining to the Board of Directors.
Pihlajalinna's business operations are affected by seasonality to some extent. Revenue from Pihlajalinna's complete social and healthcare outsourcings and other fixed-price services is recognised evenly over time. During the summer holidays, especially in July, the personnel costs are lower and profitability is improved mainly due to personnel cost accruals. However, service demand by Pihlajalinna's private and corporate customers is lower, and profitability weaker, during the holiday seasons, especially in July–August and December. Quarterly seasonality has historically had a favourable impact on profitability in the third quarter.
The Board of Directors proposes that a dividend of EUR 0.10 per share be paid for the financial year that ended on 31 December 2018.
Calculation of the parent company's distributable funds:
| EUR | 31 Dec 2018 |
|---|---|
| Reserve for invested unrestricted equity | 183,190,483.50 |
| Retained earnings | 24,125,933.46 |
| Profit for the financial year | 51,578.66 |
| Capitalised development costs | -1,281,316.43 |
| Total | 206,086,679.19 |
On the balance sheet date, the number of shares entitling their holder to dividend was 22,620,135, and consequently, the total dividend amount would be EUR 2,262,013.50. No material changes have taken place in the company's financial position after the end of the financial year. The company's liquidity position is good and, in the view of the Board of Directors, the proposed distribution does not jeopardise the company's ability to fulfil its obligations.
Earnings per share for the financial year was EUR 0.17. The proposed dividend of EUR 0.10 is 58.1 per cent of earnings per share.
Pihlajalinna Plc's Annual General Meeting is scheduled for 4 April 2019 in Tampere, Finland. The Board of Directors will decide on the notice of the General Meeting and the included proposals at a later date.
Pihlajalinna's consolidated revenue is expected to increase from the 2018 level. Adjusted EBIT is expected to improve clearly compared to 2018.
Pihlajalinna publishes 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 11. 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 publishes 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 11.
Pihlajalinna Plc's Shareholders' Nomination Board submitted its proposals to the company's Board of Directors, to be presented to the Annual General Meeting of 2019.
The Nomination Board proposes to the Annual General Meeting of Pihlajalinna Plc, scheduled to be held on 4 April 2019, that the number of the members of the Board of Directors be confirmed as seven, instead of the current number (eight).
The Nomination Board proposes that Leena Niemistö, Kati Sulin, Seija Turunen and Mikko Wirén, currently members of the Board of Directors, be re-elected as members of the Board of Directors. The Nomination Board further proposes that Mika Manninen, Hannu Juvonen and Matti Jaakola be elected as new members of the Board of Directors.
Mika Manninen (b. 1975, Master of Science in Economics and Business Administration) is a member of Fennia Group's Management Team and is currently the Group CFO. Prior to this, he worked as the Fennia Group's Risk Management Director from 2015 to 2017. Manninen has over 10 years of experience in various positions in banking from 2001 to 2015.
Hannu Juvonen (b. 1955, Licentiate of Medicine, Specialist, MBA) was most recently the Director of the Kanta-Häme Hospital District from 2016 to 2018, and has held management positions in the Helsinki Social Services and Health Care Division from 2013 to 2016 and in East Savo Hospital District from 2009 to 2012. He previously worked as the Investment Director of Korona Invest Oy from 2007 to 2009, and as an expert and Community Relations and Communication director at Pfizer Oy from 2000 to 2006. He was a full-time private medical practitioner from 1990 to 2000. In conjunction with his positions he has accumulated experience of holding Board positions in several companies and other organisations.
Matti Jaakola (b. 1955, Master of Science in Economics and Business Administration) has a long track record of holding various marketing and management positions in international and Finnish companies. He is currently the Chairman of the Board of Directors of two Finnish industrial companies and a member of the Board of Directors of a foreign forest industry company. He has also been a partner of CV Group Oy since 2012 and the CEO of CapWell Oy since 2006. Jaakola has been the CEO of the Georgia-Pacific Corporation in North Europe and of Henkel KgA in the Nordic countries, and has held various management positions in Metsä Group. Jaakola has extensive experience of Board work both in Finland and abroad, and has been involved in the administration of key industry associations.
The personal details of the current members of the Board and details of their positions of trust are available on the company's investor website 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 otherwise 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 Annual 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.
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, to be published at a later date.
Pihlajalinna increased its ownership of Kolmostien Terveys Oy by agreeing to buy 15% of the shares in the company at the end of February 2019. Following the transaction, the City of Parkano will own 4% of the company and Pihlajalinna will own 96%.
| SCOPE OF OPERATIONS | 2018 | 2017 | 2016 | 2015 | 2014 |
|---|---|---|---|---|---|
| Revenue, EUR million | 487.8 | 424.0 | 399.1 | 213.3 | 148.9 |
| Change, % | 15.0 | 6.2 | 87.1 | 43.3 | 42.5 |
| Organic revenue growth, EUR million | -2.0 | 10.1 | 134.5 | 44.3 | 26.2 |
| Change, % | -0.5 | 2.5 | 63.0 | 29.7 | 25.1 |
| Gross investments, EUR million* | 101.7 | 30.4 | 27.3 | 44.6 | 28.3 |
| % of revenue | 20.8 | 7.2 | 6.9 | 20.9 | 19.0 |
| Capitalised development costs, EUR million* | 1.3 | 1.2 | 1.3 | 0.1 | |
| % of revenue | 0.3 | 0.3 | 0.6 | 0.0 | |
| Employee benefit expenses, EUR million | 208.4 | 175.4 | 167.2 | 97.4 | 62.2 |
| Personnel at the end of the period (NOE) | 5,850 | 4,753 | 4,407 | 3,047 | 1,714 |
| Average number of personnel (FTE) | 4,868 | 3,879 | 3,526 | 2,503 | 1,619 |
| PROFITABILITY | 2018 | 2017 | 2016 | 2015 | 2014 |
| EBITDA, EUR million* | 31.2 | 33.3 | 27.9 | 11.6 | 11.8 |
| EBITDA, %* | 6.4 | 7.9 | 7.0 | 5.4 | 7.9 |
| Adjusted EBITDA, EUR million* | 32.3 | 34.1 | 28.9 | 12.5 | 14.0 |
| Adjusted EBITDA, %* | 6.6 | 8.0 | 7.2 | 5.9 | 9.4 |
| Operating profit (EBIT), EUR million* | 12.8 | 19.1 | 15.1 | 3.6 | 6.0 |
| Operating profit, %* | 2.6 | 4.5 | 3.8 | 1.7 | 4.0 |
| Adjusted operating profit (EBIT), EUR million* | 14.0 | 20.0 | 16.6 | 4.5 | 8.2 |
| Adjusted operating profit, %* | 2.9 | 4.7 | 4.2 | 2.1 | 5.5 |
| Net financial expenses, EUR million | -2.8 | -1.7 | -1.4 | -2.3 | -3.1 |
| % of revenue | -0.6 | -0.4 | -0.4 | -1.1 | -2.1 |
| Profit before tax, EUR million* | 10.0 | 17.4 | 13.7 | 1.3 | 2.9 |
| % of revenue | 2.0 | 4.1 | 3.4 | 0.6 | 1.9 |
| Income tax, EUR million | -2.8 | -3.4 | -3.0 | -0.1 | -1.0 |
| Profit for the financial year | 7.4 | 14.1 | 10.8 | 1.2 | 1.9 |
| Cash flow after investments, EUR million | -32.7 | 16.4 | 6.8 | -14.4 | -8.1 |
| Return on equity (ROE), %* | 6.0 | 13.6 | 11.1 | 2.3 | 7.7 |
| Return on capital employed (ROCE), %* | 5.8 | 11.8 | 10.8 | 3.4 | 7.1 |
| FUNDING AND FINANCIAL POSITION | 2018 | 2017 | 2016 | 2015 | 2014 |
| Interest-bearing net financial debt, EUR million | 90.1 | 34.2 | 22.1 | 23.5 | 71.1 |
| % of revenue | 18.5 | 8.1 | 5.5 | 11.0 | 47.8 |
| Equity ratio, %* | 37.6 | 41.8 | 46.5 | 50.5 | 8.0 |
| Gearing, %* | 68.7 | 32.3 | 21.9 | 25.2 | 686.3 |
| 2018 | 2017 | 2016 | 2015 | 2014 | |
|---|---|---|---|---|---|
| Earnings per share (EPS) | 0.17 | 0.46 | 0.39 | 0.03 | 0.11 |
| Equity per share, EUR* | 5.39 | 4.87 | 4.74 | 4.47 | 0.70 |
| Dividend per share, EUR (the Board of Directors' proposal) |
0.10 | 0.16 | 0.15 | ||
| Dividend per share, % (the Board of Directors' proposal)* |
58.1 | 34.7 | 38.4 | ||
| Effective dividend yield, % (the Board of Directors' proposal)* |
1.2 | 1.2 | 0.8 | ||
| Number of shares at year-end | 22,620,135 | 20,613,146 | 20,613,146 | 20,613,146 | |
| Average number of shares | 22,224,236 | 20,613,146 | 20,613,146 | 16,767,940 | |
| Market capitalisation, EUR million | 195.0 | 274.0 | 379.7 | 364.9 | |
| Dividends paid, EUR million (the Board of Directors' proposal) |
2.3 | 3.30 | 3.10 | ||
| P/E ratio* | 50.1 | 28.9 | 47.2 | 640.0 | |
| Highest quotation, EUR | 15.28 | 18.42 | 18.87 | 19.85 | |
| Lowest quotation, EUR | 8.56 | 12.60 | 12.90 | 11.38 | |
| Average quotation, EUR | 12.18 | 16.30 | 16.38 | 12.72 | |
| Closing price at year-end, EUR | 8.62 | 13.34 | 18.42 | 17.70 | |
| Trading volume of shares, 1,000 shares* | 6,182 | 5,189 | 8,196 | 7,680 | |
| Trading volume of shares, %* | 27.8 | 25.2 | 39.8 | 45.8 |
Net debt/adjusted EBITDA* 2.8 1.0 0.8 1.9 5.1
* Alternative performance measure
| BUSINESS AND | ||
|---|---|---|
| PIHLAJALINNA 2018 | RESPONSIBILITY |
STRATEGY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
| QUARTERLY INFORMATION | ||||||||
|---|---|---|---|---|---|---|---|---|
| EUR 1,000 | Q4/18 | Q3/18 | Q2/18 | Q1/18 | Q4/17 | Q3/17 | Q2/17 | Q1/17 |
| INCOME STATEMENT | ||||||||
| Revenue | 126,962 | 116,290 | 125,340 | 119,172 | 107,924 | 99,387 | 106,696 | 109,976 |
| Other operating income | 1,916 | 457 | 644 | 1,330 | 1,177 | 532 | 281 | 261 |
| Materials and services | -48,067 | -42,847 | -49,674 | -48,587 | -43,424 | -40,724 | -44,705 | -46,685 |
| Employee benefit expenses | -53,334 | -48,743 | -54,351 | -51,981 | -44,941 | -41,211 | -45,203 | -44,056 |
| Other operating expenses | -16,840 | -14,471 | -16,398 | -15,627 | -12,597 | -8,844 | -9,934 | -10,598 |
| EBITDA | 10,637 | 10,686 | 5,560 | 4,307 | 8,139 | 9,140 | 7,136 | 8,898 |
| Adjusted EBITDA | 11,072 | 10,668 | 6,626 | 3,908 | 8,503 | 9,040 | 7,383 | 9,135 |
| Adjusted EBITDA, % | 8.7 | 9.2 | 5.3 | 3.3 | 7.9 | 9.1 | 6.9 | 8.3 |
| Depreciation, amortisation and impairment | -4,682 | -4,742 | -4,756 | -4,206 | -3,580 | -3,669 | -3,427 | -3,506 |
| Operating profit (EBIT) | 5,955 | 5,944 | 804 | 101 | 4,559 | 5,471 | 3,708 | 5,392 |
| Adjusted operating profit (EBIT) | 6,510 | 5,926 | 1,870 | -299 | 4,923 | 5,371 | 3,987 | 5,701 |
| Adjusted operating profit (EBIT), % | 5.1 | 5.1 | 1.5 | -0.3 | 4.6 | 5.4 | 3.7 | 5.2 |
| Financial income | 45 | 19 | 33 | 21 | 43 | 38 | 67 | 34 |
| Financial expenses | -797 | -769 | -650 | -749 | -469 | -506 | -442 | -445 |
| Profit before taxes | 5,203 | 5,194 | 187 | -627 | 4,132 | 5,003 | 3,333 | 4,981 |
| Income taxes | -1,358 | -1,181 | -250 | -26 | -625 | -1,032 | -656 | -1,067 |
| Profit for the period | 3,845 | 4,013 | -63 | -653 | 3,507 | 3,971 | 2,677 | 3,914 |
| Share of the result for the financial year attributable to owners of the parent company |
2,733 | 2,327 | 42 | -1,276 | 2,442 | 1,882 | 2,013 | 3,178 |
| Share of the result for the financial year attributable to non-controlling interests |
1,112 | 1,686 | -105 | 623 | 1,064 | 2,088 | 664 | 736 |
| EPS | 0.12 | 0.11 | 0.00 | -0.06 | 0.12 | 0.09 | 0.10 | 0.15 |
| Personnel at the end of the period (NOE) | 5,850 | 5,867 | 5,918 | 5,638 | 4,753 | 4,767 | 4,898 | 4,519 |
| Change in personnel during the quarter | -17 | -51 | 280 | 885 | -14 | -131 | 380 | 112 |
| KEY FIGURES | |||||
|---|---|---|---|---|---|
| Profit for the financial year attributable to owners of the parent company | |||||
| Earnings per share (EPS) | Average number of shares during the financial year | ||||
| ALTERNATIVE PERFORMANCE MEASURES | |||||
| Equity attributable to owners of the parent company | |||||
| Equity per share | Number of shares at the end of the financial year | ||||
| Dividend distribution for the financial year (or proposal) | |||||
| Dividend per share | Number of shares at the end of the financial year | ||||
| Dividend per share x 100 | |||||
| Dividend/result, % | Earnings per share (EPS) | ||||
| Effective dividend yield, % | Dividend per share x 100 | ||||
| Closing price for the financial year | |||||
| Closing price for the financial year | |||||
| P/E ratio | Earnings per share (EPS) | ||||
| Share turnover, % | Number of shares traded during the period x 100 | ||||
| Average number of shares | |||||
| Return on equity (ROE), % | Profit for the period (rolling 12 mths) x 100 | ||||
| Equity (average) | |||||
| Return on capital employed, % (ROCE) | Profit before taxes (rolling 12 mths) + financial expenses (rolling 12 mths) x 100 | ||||
| Total statement of financial position – non-interest-bearing liabilities (average) | |||||
| Equity ratio, % | Equity x 100 | ||||
| Total statement of financial position – prepayments received | |||||
| Gearing, % | Interest-bearing net debt - cash and cash equivalents x 100 | ||||
| Equity | |||||
| EBITDA | Operating profit + depreciation, amortisation and impairment | ||||
| Operating profit + depreciation, amortisation and impairment x 100 | |||||
| EBITDA, % | Revenue | ||||
| Adjusted EBITDA* | Operating profit + depreciation, amortisation and impairment + adjustment items | ||||
| Adjusted EBITDA, %* | Operating profit + depreciation, amortisation and impairment + adjustment items x 100 | ||||
| Revenue | |||||
| Net debt/Adjusted EBITDA*, | Interest-bearing net debt - cash and cash equivalents | ||||
| rolling 12 mths | Adjusted EBITDA (rolling 12 mths) | ||||
| 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 (EBIT) x 100 | |||||
| Adjusted operating profit, %* | Revenue | ||||
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. Pihlaja does not recognise adjustments affecting comparability for acquisition-related transfer taxes and expert fees (IFRS 3 costs) or purchase price allocation (PPA) amortisation.
STRATEGY PARTNERSHIP
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.
| EUR 1,000, unless otherwise specified | 2018 | 2017 |
|---|---|---|
| Return on equity (ROE), % | ||
| Result for the period (rolling 12 mths) / | 7,143 | 14,068 |
| Equity at the start of the period | 105,856 | 101,010 |
| Equity at the end of the period | 131,159 | 105,856 |
| Equity (average) x 100 | 118,507 | 103,433 |
| Return on equity (ROE), % | 6.0 | 13.6 |
Return on equity is one of the most important indicators of a company's profitability used by shareholders and investors. The indicator illustrates the company's ability to look after the capital invested by shareholders in the company. The figure indicates how much return was accumulated on equity during the financial year.
| Return on capital employed (ROCE), % | ||
|---|---|---|
| Profit before taxes (rolling 12 mths) + | 9,957 | 17,449 |
| Financial expenses (rolling 12 mths) | 2,965 | 1,862 |
| / | 12,922 | 19,311 |
| Total statement of financial position at the start of the period - | 253,581 | 217,742 |
| non-interest-bearing liabilities at the start of the period | 76,486 | 67,071 |
| 177,095 | 150,672 | |
| Total statement of financial position at the end of the period - | 349,530 | 253,581 |
| Non-interest-bearing liabilities at the end of the period | 78,083 | 76,486 |
| 271,447 | 177,095 | |
| Average x 100 | 224,271 | 163,883 |
| Return on capital employed (ROCE), % | 5.8 | 11.8 |
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 / | 131,159 | 105,856 |
| Total statement of financial position - | 349,530 | 253,581 |
| Advances received x 100 | 897 | 366 |
| Equity ratio, % | 37.6 | 41.8 |
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, % | ||
|---|---|---|
| Interest-bearing financial liabilities - | 126,378 | 71,239 |
| Cash and cash equivalents / | 36,316 | 37,074 |
| Equity x 100 | 131,159 | 105,856 |
| Gearing, % | 68.7 | 32.3 |
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%.
/ divide by the next number/numbers
| EUR 1,000, unless otherwise specified | 2018 | 2017 |
|---|---|---|
| Net debt / adjusted EBITDA, rolling 12 mths | ||
| Interest-bearing financial liabilities - | 126,378 | 71,239 |
| Cash and cash equivalents | 36,316 | 37,074 |
| Net debt / | 90,062 | 34,164 |
| Adjusted EBITDA (rolling 12 mths) | 32,274 | 34,061 |
| Net debt / adjusted EBITDA, rolling 12 mths | 2.8 | 1.0 |
This figure indicates how quickly the company could pay back its debt at the current level of profits, if it were to use its entire EBITDA to pay back debt and no investments would be made and no dividends paid, for example. 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 significant acquisition.
| Result for the period | 7,143 | 14,068 |
|---|---|---|
| Income taxes | -2,815 | -3,381 |
| Financial expenses | -2,965 | -1,862 |
| Financial income | 118 | 181 |
| Depreciation, amortisation and impairment | -18,386 | -14,182 |
| EBITDA | 31,190 | 33,312 |
| Total EBITDA adjustments | 1,083 | 749 |
| Adjusted EBITDA | 32,274 | 34,061 |
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, % | ||
|---|---|---|
| EBITDA / | 31,190 | 33,312 |
| Revenue x 100 | 487,764 | 423,984 |
| EBITDA, % | 6.4 | 7.9 |
| Adjusted EBITDA, % | ||
| Adjusted EBITDA / | 32,274 | 34,061 |
| Revenue x 100 | 487,764 | 423,984 |
| Adjusted EBITDA, % | 6.6 | 8.0 |
| Operating profit (EBIT) and Adjusted operating profit (EBIT) | ||
| Result for the period | 7,143 | 14,068 |
| Income taxes | -2,815 | -3,381 |
| Financial expenses | -2,965 | -1,862 |
| Financial income | 118 | 181 |
| Operating profit | 12,804 | 19,130 |
| Total adjustments of depreciation, amortisation and impairment | 119 | 102 |
| Total EBITDA adjustments | 1,083 | 749 |
| Total adjustments of operating profit | 1,203 | 852 |
| Adjusted operating profit (EBIT) | 14,007 | 19,981 |
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.
STRATEGY PARTNERSHIP
| INFORMATION FOR | ||
|---|---|---|
| SHAREHOLDERS |
| EUR 1,000, unless otherwise specified | 2018 | 2017 |
|---|---|---|
| Operating profit (EBIT), % | ||
| Operating profit / | 12,804 | 19,130 |
| Revenue x 100 | 487,764 | 423,984 |
| Operating profit (EBIT), % | 2.6 | 4.5 |
| Adjusted operating profit (EBIT), % | ||
| Adjusted operating profit / | 14,007 | 19,981 |
| Revenue x 100 | 487,764 | 423,984 |
| Adjusted operating profit (EBIT), % | 2.9 | 4.7 |
| Cash flow after investments | ||
| Net cash flow from operating activities | 27,405 | 34,941 |
| Net cash flow from investing activities | -60,070 | -18,549 |
| Cash flow after investments | -32,665 | 16,392 |
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 before taxes | ||
|---|---|---|
| Result for the period | 7,143 | 14,068 |
| Income taxes | -2,815 | -3,381 |
| Profit before taxes | 9,957 | 17,449 |
| Gross investments | ||
| Property, plant and equipment at the end of the period | 72,558 | 61,917 |
| Other intangible assets at the end of the period | 22,914 | 16,604 |
| Goodwill at the end of the period | 169,927 | 103,893 |
| Add depreciation, amortisation and impairment | 18,386 | 14,182 |
| - | ||
| Property, plant and equipment at the start of the period | 61,917 | 45,498 |
| Other intangible assets at the start of the period | 16,604 | 16,319 |
| Goodwill at the beginning of the period | 103,893 | 92,270 |
| Change in financial leases during the period | 12,473 | |
| Proceeds from the sale of property, plant and equipment during the | ||
| period | -322 | -325 |
| Gross investments | 101,693 | 30,361 |
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.
| Organic revenue growth, % | ||
|---|---|---|
| Revenue for the period - | 487,764 | 423,984 |
| Revenue from M&A transactions during the period | 65,741 | 14,759 |
| Revenue for the previous period | 423,984 | 399,092 |
| Organic revenue growth / | -1,961 | 10,133 |
| Revenue for the previous period x 100 | 423,984 | 399,092 |
| Organic revenue growth, % | -0.5 | 2.5 |
| Revenue growth attributable to M&A transactions, % | 15.5 | 3.7 |
| Revenue growth | 63,780 | 24,892 |
| Revenue growth, % | 15.0 | 6.2 |
Organic revenue growth is the growth of existing business, not achieved through M&A transactions. Organic growth can be achieved through increasing the service offering, new customer acquisition, growth in the number of visits by 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.
| EUR 1,000, unless otherwise specified | 2018 | 2017 |
|---|---|---|
| EBITDA | 31,190 | 33,312 |
| Adjustments to EBITDA | ||
| Closure of operating locations | 42 | 448 |
| Subsidiary's previous holding at fair value | -964 | -296 |
| Conciliation agreement concerning the Group's facility expenses | 220 | |
| Dismissal-related expenses | 565 | 377 |
| Gain on the disposal of business | -47 | |
| Change in fair value of contingent consideration | 1,192 | |
| Other | 296 | |
| Adjustments to EBITDA in total | 1,083 | 749 |
| Adjusted EBITDA | 32,274 | 34,061 |
| Depreciation, amortisation and impairment | -18,386 | -14,182 |
| Adjustments to depreciation, amortisation and impairment | ||
| Closure of operating locations | 119 | 102 |
| Adjustments to depreciation, amortisation and impairment in total | 119 | 102 |
| Adjustments to operating profit in total | 1,203 | 852 |
| Adjusted operating profit (EBIT) | 14,007 | 19,981 |
| Operating profit (EBIT) | 12,804 | 19,130 |
| Financial income | 118 | 181 |
| Financial expenses | -2,965 | -1,862 |
| Income taxes | -2,815 | -3,381 |
| Profit for the period | 7,143 | 14,068 |
| The adjustment items are presented in the income statement items as follows: | ||
| Other operating income | -1,011 | -296 |
| Employee benefit expenses | 565 | 377 |
| Other operating expenses | 1,530 | 668 |
| EBITDA adjustment items total | 1,083 | 749 |
| Depreciation, amortisation and impairment | 119 | 102 |
| Operating profit adjustment items total | 1,203 | 852 |
MAJOR SHAREHOLDERS, 31 DEC. 2018
| Percentage of shares |
|||
|---|---|---|---|
| Number 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 | Elo Mutual Pension Insurance Company | 1,267,161 | 5.6% |
| 6 | Niemistö Leena Katriina | 703,475 | 3.1% |
| 7 | Fondita Nordic Micro Cap Mutual Fund | 550,000 | 2.4% |
| 8 | Nordea Bank Abp | 545,097 | 2.4% |
| 9 | Ilmarinen Mutual Pension Insurance Company | 490,000 | 2.2% |
| 10 | Skandinaviska Enskilda Banken Ab (Publ), Helsinki Branch | 323,873 | 1.4% |
| 10 largest, total | 13,561,087 | 60.0% | |
| Other shareholders | 9,059,048 | 40.0% | |
| Total | 22,620,135 | 100.0% |
| Shares per shareholder | Number of shareholders |
% of shareholders |
Number of shares |
Percentage of shares, % |
|---|---|---|---|---|
| 1–100 | 7,215 | 54.0% | 354,779 | 1.6% |
| 101–1,000 | 5,460 | 40.8% | 1,827,524 | 8.1% |
| 1,001–10,000 | 600 | 4.5% | 1,600,220 | 7.1% |
| 10,001–100,000 | 69 | 0.5% | 1,696,640 | 7.5% |
| 100,001–500,000 | 20 | 0.1% | 4,393,758 | 19.4% |
| 500,001– | 8 | 0.1% | 12,747,214 | 56.4% |
| 13,372 | 100.0% | 22,620,135 | 100.0% | |
| of which nominee-registered shares | 10 | 1,236,617 | 5.5% | |
| Outstanding shares | 22,620,135 | 100.0% |
| Number of shareholders |
% of shareholders |
Number of shares |
Percentage of shares, % |
|
|---|---|---|---|---|
| Private companies | 516 | 3.9% | 5,089,548 | 22.5% |
| Financial and insurance institutions | 44 | 0.3% | 10,708,003 | 47.3% |
| Public entities | 6 | 0.0% | 1,879,157 | 8.3% |
| Households | 12,734 | 95.2% | 4,779,750 | 21.1% |
| Non-profit organisations | 44 | 0.3% | 139,361 | 0.6% |
| Foreign shareholders | 28 | 0.2% | 24,316 | 0.1% |
| 13,372 | 100.0% | 22,620,135 | 100.0% | |
| of which nominee-registered shares | 10 | 1,236,617 | 5.5% | |
| Outstanding shares | 22,620,135 | 100.0% |
| SHAREHOLDING BY THE MANAGEMENT 31 DEC. 2018 | ||||
|---|---|---|---|---|
| Direct holding | Indirect holdings | |||
| Number | Percentage of shares | Number | Percentage of shares | |
| Board of Directors | of shares | and votes, % | of shares | and votes, % |
| Matti Bergendahl | ||||
| Jari Sundström | ||||
| Kati Sulin | ||||
| Gunvor Kronman | ||||
| Leena Niemistö | 703,475 | 3.1% | ||
| Mikko Wirén | 2,309,010 | 10.2% | ||
| Seija Turunen | ||||
| Timo Everi | ||||
| Management Team | ||||
| Joni Aaltonen | 81,920 | 0.4% | ||
| Minna Elomaa | ||||
| Tero Järvinen | 560 | 0,0% | ||
| Teija Kulmala | ||||
| Ville Lehtonen | ||||
| Sanna Määttänen | 11,700 | 0.1% | ||
| Pauli Waroma | ||||
| Stefan Wentjärvi | 22,038 | 0.1% | ||
| Marko Savolainen |
CONTENTS
| Consolidated statement of comprehensive income, IFRS | 54 | ||
|---|---|---|---|
| Consolidated statement of financial position, IFRS | 55 | ||
| Consolidated statement of cash flows, IFRS | 56 | ||
| Consolidated statement of changes in equity, IFRS | 57 | ||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |||
| CATEGORY | NO. | DESCRIPTION | |
| Accounting policies | 58 | ||
| Adoption of IFRS standards applicable in the future | 59 | ||
| Income statement | 1 | Revenue from contracts with customers and segment information | 62 |
| Income statement | 2 | Other operating income | 64 |
| Income statement | 3 | Materials and services | 64 |
| Income statement | 4 | Employee benefit expenses and the number of personnel | 64 |
| Income statement | 5 | Depreciation, amortisation and impairment | 64 |
| Income statement | 6 | Other operating expenses and audit fees | 65 |
| Income statement | 7 | Key figures related to adjusted EBITDA and adjusted operating profit | 65 |
| Income statement | 8 | Financial income | 66 |
| Income statement | 9 | Financial expenses | 66 |
| Income statement, taxes | 10 | Income taxes | 66 |
| EPS | 11 | Earnings per share | 67 |
| Statement of financial position | 12 | Property, plant and equipment | 67 |
| Statement of financial position | 13 | Intangible assets | 69 |
| Statement of financial position | 14 | Other non-current receivables | 72 |
| Statement of financial position | 15 | Trade receivables and other receivables (current) | 72 |
| Statement of financial position | 16 | Cash and cash equivalents | 73 |
| Statement of financial position | 17 | Provisions | 73 |
| Statement of financial position | 18 | Trade and other payables | 73 |
| Balance sheet, taxes | 19 | Deferred tax assets and liabilities | 73 |
| Equity | 20 | Financial assets and liabilities by measurement category | 75 |
| Equity | 21 | Notes on equity | 77 |
| Equity | 22 | Interest-bearing financial liabilities | 77 |
| Equity | 23 | Changes in financial liabilities with no impact on cash flow | 78 |
| Equity | 24 | Capital management | 78 |
| Risk management | 25 | Financial risk management | 78 |
| Group structure | 26 | Business combinations | 80 |
| Group structure | 27 | Subsidiaries and material non-controlling interests | 83 |
| Group structure | 28 | Interests in associates and joint arrangements | 84 |
| Other | 29 | Operating leases | 85 |
| Other | 30 | Contingent assets and liabilities and commitments | 85 |
| Other | 31 | Related party transactions | 85 |
| Other | 32 | Events after the balance sheet date | 88 |
| Other | 33 | Share-based payments | 89 |
| PARENT COMPANY FINANCIAL STATEMENTS, MAIN CALCULATIONS, FAS | |||
| Parent company balance sheet and income statement FAS | 90 | ||
| Parent company cash flow statement FAS | 92 | ||
| EUR 1,000 | Note | 1.1.-31.12.2018 | 1.1.-31.12.2017 |
|---|---|---|---|
| REVENUE | 1 | 487,764 | 423,984 |
| Other operating income | 2 | 4,347 | 2,251 |
| Materials and services | 3 | -189,175 | -175,538 |
| Employee benefit expenses | 4 | -208,409 | -175,412 |
| Other operating expenses | 6 | -63,371 | -42,288 |
| Share of profit in associated companies and joint ventures | 28 | 35 | 316 |
| EBITDA | 31,190 | 33,312 | |
| Depreciation, amortisation and impairment | 5 | -18,386 | -14,182 |
| OPERATING PROFIT | 12,804 | 19,130 | |
| Financial income | 8 | 118 | 181 |
| Financial expenses | 9 | -2,965 | -1,862 |
| Financial income and expenses | -2,847 | -1,681 | |
| PROFIT BEFORE TAXES | 9,957 | 17,449 | |
| Income taxes | 10 | -2,815 | -3,381 |
| PROFIT FOR THE PERIOD* | 7,143 | 14,068 |
| TOTAL COMPREHENSIVE INCOME FOR THE PERIOD |
7,143 | 14,068 |
|---|---|---|
| Total comprehensive income for the financial year attributable to |
||
| Owners of the parent | 3 826 | 9,515 |
| Non-controlling interests | 3,316 | 4,553 |
| Earnings per share for profit attributable to owners of the parent company, EUR |
||
| Basic 11 |
0.17 | 0.46 |
| Diluted | 0.17 | 0.46 |
* The Group does not have any other comprehensive income items
| EUR 1,000 | Note | 31.12.2018 | 31.12.2017 |
|---|---|---|---|
| ASSETS | |||
| NON-CURRENT ASSETS | |||
| Property, plant and equipment | 12 | 72,558 | 61,917 |
| Goodwill | 13 | 169,927 | 103,893 |
| Other intangible assets | 13 | 22,914 | 16,604 |
| Interests in associates | 28 | 23 | 3,012 |
| Other investments | 139 | 101 | |
| Other receivables | 14 | 1,800 | 1,568 |
| Deferred tax assets | 19 | 3,745 | 2,224 |
| 271,106 | 189,320 | ||
| CURRENT ASSETS | |||
| Inventories | 2,454 | 2,169 | |
| Trade and other receivables | 15 | 37,923 | 23,959 |
| Current tax assets | 1,731 | 1,059 | |
| Cash and cash equivalents | 16 | 36,316 | 37,074 |
| 78,424 | 64,261 | ||
| TOTAL ASSETS | |||
| 349,530 | 253,581 | ||
| EQUITY AND LIABILITIES | |||
| Equity attributable to owners of the parent | 21 | ||
| Share capital | 80 | 80 | |
| Reserve for invested unrestricted equity | 116,520 | 87,945 | |
| Retained earnings | 5,295 | 12,268 | |
| 121,895 | 100,293 | ||
| Non-controlling interests | 9,264 | 5,563 | |
| Total equity | 131,159 | 105,856 | |
| LIABILITIES | |||
| NON-CURRENT LIABILITIES | |||
| Deferred tax liabilities | 19 | 5,997 | 5,457 |
| Provisions | 17 | 302 | 829 |
| Financial liabilities | 122,811 | 66,336 | |
| Other non-current liabilities | 1,505 | 1,655 | |
| 130,614 | 74,277 | ||
| CURRENT LIABILITIES | |||
| Trade and other payables | 18 | 79 494 | 61,822 |
| Current tax liabilities | 1,884 | 1,304 | |
| Financial liabilities | 6,380 | 10,321 | |
| 87,757 | 73,448 | ||
| TOTAL LIABILITIES | 218,371 | 147,725 | |
| TOTAL EQUITY AND LIABILITIES | 349,530 | 253,581 |
EUR 1,000
| EUR 1,000 Note |
1.1.–31.12.2018 | 1.1.–31.12.2017 |
|---|---|---|
| Cash flow from operating activities | ||
| Cash receipts from sales | 486,063 | 423,755 |
| Cash receipts from other operating income | 1,945 | 1,535 |
| Operating expenses paid | -455,223 | -386,026 |
| Operating cash flow before financial items and taxes | 32,785 | 39,265 |
| Interest received | 108 | 227 |
| Taxes paid | -5,488 | -4,551 |
| Net cash flow from operating activities | 27,405 | 34,941 |
| Cash flow from investing activities: | ||
| Investments in property, plant and equipment and intangible assets |
-19,589 | -10,140 |
| Proceeds from disposal of property, plant and | ||
| equipment and intangible assets | 392 | 223 |
| Changes in other investments | 12 | -55 |
| Changes in loan receivables | 250 | |
| Dividends received | 12 | 103 |
| Acquisition of subsidiaries less cash and cash equivalents at date of acquisition 27 |
-40,951 | -8,929 |
| Disposal of subsidiaries less cash and cash | ||
| equivalents at date of disposal 27 |
55 | |
| Net cash flow from investing activities | -60,070 | -18,549 |
| Cash flow from financing activities: | ||
| Proceeds from issuing shares | ||
| Acquisitions of non-controlling interests | -6,424 | -4,044 |
| Proceeds from short-term borrowings 23 |
722 | |
| Proceeds from long-term borrowings 23 |
121,520 | 14,500 |
| Repayment of borrowings 23 |
-72,131 | -7,157 |
| Repayment of financial lease liabilities 23 |
-3,406 | -3,189 |
| Interest and other operational financial expenses | -2,618 | -1,801 |
| Dividends paid and other profit distribution | -5,034 | -5,886 |
| Net cash flow from financing activities | 31,906 | -6,855 |
| Changes in cash and cash equivalents | -759 | 9,537 |
| Cash at the beginning of the financial year | 37,074 | 27,537 |
| Cash at the end of the financial year | 36,316 | 37,074 |
| EUR 1,000 | |||||
|---|---|---|---|---|---|
| Equity attributable to owners of the parent company | |||||
| Share capital | Reserve for invested unrestricted equity |
Retained earnings |
Non-controlling interests |
Total equity | |
| Total equity, 1 Jan. 2017 | 80 | 87,945 | 9,744 | 3,239,7980 | 101,010 |
| Profit for the period | 9,515 | 4,553 | 14,068 | ||
| Total comprehensive income for the period | 9,515 | 4,553 | 14,068 | ||
| Dividends paid | -3,162 | -1,660 | -4,822 | ||
| Transactions with owners, total | -3,162 | -1,660 | -4,822 | ||
| Changes in NCI without a change in control | -3,830 | -214 | -4,044 | ||
| Changes in NCI with a change in control | -355 | -355 | |||
| Total changes in ownership interests | -3,830 | -570 | -4,399 | ||
| Total equity, 31 Dec. 2017 | 80 | 87,945 | 12,268 | 5,563 | 105,856 |
| Equity attributable to owners of the parent company | |||||
|---|---|---|---|---|---|
| Share capital | Reserve for invested unrestricted equity |
Retained earnings |
Non-controlling interests |
Total equity | |
| Total equity, 31 Dec. 2017 | 80 | 87,945 | 12,268 | 5,563 | 105,856 |
| IFRS 15 adoption | 0 | 0 | |||
| IFRS 9 adoption | 0 | 0 | |||
| Total equity, 1 Jan. 2018 | 80 | 87,945 | 12,268 | 5,563 | 105,856 |
| Profit for the period | 3 826 | 3,316 | 7,143 | ||
| Total comprehensive income for the period | 3 826 | 3,316 | 7,143 | ||
| Directed share issue | 28,574 | 28,574 | |||
| Dividends paid | -3,619 | -1,225 | -4,844 | ||
| Investments in Group companies | 2,381 | 2,381 | |||
| Transactions with owners, total | 28,574 | -3,619 | 1,156 | 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 | 5,295 | 9,264 | 131,159 |
Pihlajalinna is one of the leading private social and healthcare services providers in Finland. The Group serves private persons, companies, insurance companies and public sector entities, such as municipalities and hospital districts. Pihlajalinna produces 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 110. In addition, Pihlajalinna has four major municipal outsourcing arrangements and two partial outsourcing arrangements that have dozens of business locations combined (including health centres, maternity and child health clinics, service housing units with 24-hour assistance and daytime activity centres). Pihlajalinna cooperated with approximately 100 municipalities in 2018.
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 14 February 2019. 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 2018. 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.
The adoption of IFRS 15 Revenue from Contracts with Customers has not had an impact on the Group's equity or the revenue recognition principles applied by Pihlajalinna. The standard has, however, increased the amount of information presented with regard to revenue. Starting from 1 January 2018, Pihlajalinna presents the Group's revenue distribution by business area and by customer group.
In response to the adoption of IFRS 9 Financial Instruments, Pihlajalinna has revised its accounting model for credit losses to comply with the requirements of the standard. Expected credit losses are now recognised at the beginning of a contract. The adoption of the standard has not had an impact on the Group's equity and the change does not have a material impact on the Group's result.
Other new or amended standards and interpretations that entered into force during the 2018 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. Acquisitionrelated 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
INFORMATION FOR SHAREHOLDERS
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 step-by-step acquisitions, the former ownership interest 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 interest 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 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 day-to-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.
IFRS 16 enters into effect on 1 January 2019 and it replaces IAS 17 Leases and related interpretations. Under the new standard, nearly all leases are recognised in the lessee's statement of financial position, as operating leases and finance leases are no longer separated. A right-of-use asset is recognised along with a financial liability representing lease payments. The only exceptions are short-term leases and leases for which the underlying asset is of low value.
The new standard requires the lessee to recognise a right-ofuse asset and a lease liability representing unpaid future lease payments. 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-of-use 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.
During the latter part of 2018, Pihlajalinna has reviewed all of its lease arrangements in relation to the new accounting regulations pursuant to IFRS 16. The review indicated that the majority of Pihlajalinna's lease arrangements are leases for business premises. The other reviewed lease arrangements 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.
The majority of Pihlajalinna's lease arrangements are longterm leases for business premises. For lease arrangements valid until further notice, with a short notice period, Pihlajalinna will estimate the probable lease term. Making these estimates requires a significant degree of management judgement.
As the Group does not operate as a lessor to a material extent, no significant effects on the financial statements are expected.
The adoption of the standard will not affect the covenant calculations of the Group's financing arrangement.
Pihlajalinna will apply IFRS 16 fully retrospectively by adjusting the figures for each previous reporting period in 2018 in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Prior to the publication of the interim report for the first quarter of 2019, Pihlajalinna will publish a release that presents the adjustments to financial figures for each of the reporting periods in 2018.
The following lease-related items will be presented in the consolidated statement of financial position (EUR million):
| 2018 IAS 17 |
2018 IFRS 16 |
2018 IFRS 16 |
|
|---|---|---|---|
| EUR 1,000 | Leases | Leases | total |
| ASSETS | |||
| Property, plant and equipment | |||
| Right-of-use assets | |||
| Land areas | 1.7 | 1.7 | |
| Business premises | 28.2 | 80.5 | 108.7 |
| Machinery and equipment | 1.0 | 1.1 | 2.1 |
| Total right-of-use assets | 29.3 | 83.2 | 112.5 |
| Deferred tax assets | 0.3 | 0.3 | 0.5 |
| Trade and other receivables | |||
| Current subleases | 0.0 | 0.2 | 0.2 |
| TOTAL ASSETS (under IFRS 16) | 29.5 | 83.6 | 113.2 |
| EQUITY | |||
| Retained earnings | |||
| Cumulative adjustment to retained earnings of 1 January 2018 | -0.7 | -0.7 | -1.5 |
| Effect on the profit for the financial year | -0.3 | -0.3 | -0.6 |
| TOTAL | -1.0 | -1.0 | -2.0 |
| Liabilities | |||
| Deferred tax liabilities | 0.0 | 0.0 | 0.0 |
| Non-current financial liabilities | |||
| Lease liabilities | 27.1 | 72.6 | 99.7 |
| Current financial liabilities | |||
| Lease liabilities | 3.4 | 12.1 | 15.5 |
| Total lease liabilities | 30.5 | 84.7 | 115.2 |
| TOTAL EQUITY AND LIABILITIES (Effect of IFRS 16) | 29.5 | 83.6 | 113.2 |
STRATEGY PARTNERSHIP
AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
The following lease-related items will be presented in the consolidated income statement (EUR million):
| 2018 | 2018 | 2018 | |
|---|---|---|---|
| EUR 1,000 | IAS 17 Leases |
IFRS 16 Leases |
IFRS 16 total |
| INCOME STATEMENT | |||
| Other operating income | |||
| Lease income from subleases | -0.2 | -0.2 | |
| Other operating expenses (adjustment of leases) | 4.4 | 13.7 | 18.2 |
| Effect of IFRS 16 on EBITDA | 4.4 | 13.6 | 18.0 |
| Depreciation, amortisation and impairment | |||
| Depreciation of right-of-use assets | |||
| Land areas | -0.3 | -0.3 | |
| Business premises | -3.1 | -12.0 | -15.1 |
| Machinery and equipment | -0.6 | -0.5 | -1.1 |
| Total depreciation of right-of-use assets | -3.8 | -12.7 | -16.5 |
| Effect of IFRS 16 on operating profit | 0.7 | 0.9 | 1.5 |
| Financial income | |||
| Interest income from subleases | 0.0 | 0.0 | |
| Financial expenses | |||
| Interest expenses on right-of-use assets | -1.0 | -1.3 | -2.3 |
| Income tax | |||
| Change in deferred taxes | 0.1 | 0.1 | 0.1 |
| Effect of IFRS 16 on the profit for the financial year | -0.3 | -0.3 | -0.6 |
Cash flow from operating activities will increase and cash flow from financing activities will decrease by an estimated EUR 41 million due to repayments of lease liabilities and new lease liabilities being classified as cash flow from financing activities.
The IFRIC 23 interpretation entering into effect on 1 January 2019 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 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, 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 of social and health service outsourcing, which also includes the provider's liability for the costs of specialised care. During the financial year, the Group expanded its operations to include wellbeing 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.
The adoption of IFRS 15 Revenue from Contracts with Customers has not had an impact on the Group's equity or the revenue recognition principles applied by Pihlajalinna. The adoption of the standard has, however, increased the amount of information presented with regard to revenue. Pihlajalinna presents revenue distribution by business area and by customer group.
IFRS 15 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:
• individual customer visits to healthcare services
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), 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) 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.
REPORT BY THE BOARD OF DIRECTORS
Social and healthcare outsourcings are mainly based on fixed annual prices, recognised as revenue over time. The recognition of revenue from the Group's complete social and healthcare services outsourcing agreements may become more accurate with a delay. The Group may not always be aware of the actual costs of the agreements, which may also affect revenue recognition.
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. Effective from the beginning of 2018, Pihlajalinna's operating segments are the Group's geographical business areas, which are combined into one reportable segment. Pihlajalinna reports its Group-level results as its segment data in 2018, with the Group-level results for 2017 presented as comparison figures.
Pihlajalinna's CEO makes significant operational decisions at the Group level. Accordingly, Pihlajalinna's operations and results are reported as one reporting segment. 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 7 Adjusted EBITDA and adjusted operating profit.
Pihlajalinna's geographical business areas are Southern Finland, Mid-Finland, Ostrobothnia and Northern Finland.
| EUR 1,000 | 2018 | % | 2017 | % |
|---|---|---|---|---|
| Southern Finland | 107,633 | 20 | 60,691 | 13 |
| Mid-Finland | 311,881 | 57 | 301,392 | 63 |
| Ostrobothnia | 108,792 | 20 | 105,405 | 22 |
| Northern Finland | 12,307 | 2 | 7,606 | 2 |
| Other operations | 4,797 | 1 | 6,027 | 1 |
| Intra-Group sales | -57,646 | -57,137 | ||
| Total consolidated | ||||
| revenue | 487,764 | 100 | 423,984 | 100 |
Pihlajalinna's customer groups are corporate customers, private customers and public sector customers.
| 2018 | % | 2017 | % |
|---|---|---|---|
| 105,639 | 19 | 82,627 | 17 |
| 25,162 | 5 | 26,600 | 6 |
| 92,009 | 17 | 67,961 | 14 |
| 347,762 | 64 | 330,533 | 69 |
| -57,646 | -57,137 | ||
| 100 | |||
| 487,764 | 100 | 423,984 |
The Group's revenues from the four largest municipal customers totalled approximately EUR 252.4 (243.7) million, representing 52 (57) % of the consolidated revenue.
| EUR 1,000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| 2018 | 242,627 | |
| 2019 | 243,814 | 243,783 |
| 2020 | 244,896 | 244,864 |
| 2021 | 245,983 | 245,951 |
| 2022 | 247,074 | 247,042 |
| 2023 | 248,171 | 248,139 |
| 2024 | 249,272 | 249,240 |
| 2025 | 250,379 | 250,346 |
| 2026 | 251,490 | 251,458 |
| 2027 | 252,607 | 252,574 |
| 2028 | 253,728 | 253,695 |
| 2029 | 254,855 | 254,822 |
| 2030 | 219,739 | 219,739 |
| 2,962,007 | 3,204,280 |
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.
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 | 2018 | 2017 |
|---|---|---|
| Capital gains on property, plant and | ||
| equipment | 289 | 295 |
| Rental income | 380 | 223 |
| Government grants | 1,290 | 805 |
| Insurance indemnities | 81 | 291 |
| Fair value measurement of pre-existing | ||
| interest in acquiree | 964 | 296 |
| Other income items | 1,343 | 340 |
| Total | 4,347 | 2,251 |
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 18 Trade and other payables and Note 20 Financial assets and liabilities by measurement category. Work contribution-based dividends paid by the company are an income tax deductible item.
| 2018 | 2017 |
|---|---|
| -17,465 | -13,798 |
| -74 | 14 |
| -70,767 | -59,300 |
| -100,868 | -102,454 |
| -189,175 | -175,538 |
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. On the financial statements date, the company did not have any share-based incentive schemes for the CEO, other members of the Management Team or the Board of Directors.
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Wages and salaries | -172,355 | -143,304 |
| Pension costs – defined contribution | ||
| plans | -30,459 | -25,665 |
| Other social security expenses | -5,595 | -6,443 |
| Total | -208,409 | -175,412 |
| Personnel on average (FTE) | 4,868 | 3,879 |
| Personnel at the end of the period | ||
| (NOE) | 5,850 | 4,753 |
Information on the employee benefits and loans of members of management considered to be related parties is presented in Note 31 Related party transactions.
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. For intangible assets with finite economic useful lives, the amortisation periods are as follows:
| Trademarks | 10 years |
|---|---|
| Capitalised 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 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Amortisation by asset type | ||
| Intangible assets | ||
| Trademarks | -776 | -776 |
| Capitalised development costs | -527 | -314 |
| Other intangible assets related to | ||
| purchase price allocations | -4,355 | -3,032 |
| Other intangible assets | -1,473 | -1,099 |
| -7,131 | -5,221 | |
| Property, plant and equipment | ||
| Buildings | -3,189 | -3,185 |
| Renovation expenses on real estate | -2,234 | -1,294 |
| Machinery and equipment | -5,828 | -4,479 |
| Other tangible assets | -4 | -4 |
| -11,255 | -8,962 | |
| Total depreciation, amortisation and impairment |
-18,386 | -14,182 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Facility expenses | -21,484 | -12,960 |
| Equipment and information | ||
| management expenses | -19,311 | -14,718 |
| Sales and marketing expenses | -7,623 | -5,624 |
| Other expenses | -14,953 | -8,986 |
| Total | -63,371 | -42,288 |
| Auditor's fees | ||
| Auditing, BDO | -81 | -68 |
| Auditing, KPMG Oy Ab | -251 | -193 |
| Auditor's statements (based on law | ||
| and regulations) | -18 | |
| Non-audit services, KPMG Oy Ab | -8 | -19 |
| Total | -357 | -279 |
EUR 1,000 / %
Facility expenses
Equipment and information management expenses
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:
• fines and corresponding compensation payments
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.
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's CEO, Management Team and regional management monitor and forecast adjusted EBITDA and adjusted operating profit on a monthly basis.
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| EBITDA | 31,190 | 33,312 |
| Adjustments to EBITDA | ||
| Closure of operating locations | 42 | 448 |
| Subsidiary's previous holding at fair value |
-964 | -296 |
| Conciliation agreement concerning the Group's facility expenses |
220 | |
| Dismissal-related expenses | 565 | 377 |
| Gain on the disposal of business | -47 | |
| Change in fair value of contingent consideration |
1,192 | |
| Other | 296 | |
| Adjustments to EBITDA in total | 1,083 | 749 |
| Adjusted EBITDA | 32,274 | 34,061 |
| Depreciation, amortisation and impairment |
-18,386 | -14,182 |
| Adjustments to depreciation, amortisation and impairment |
||
| Closure of operating locations | 119 | 102 |
| Adjustments to depreciation, amortisation and impairment in total |
119 | 102 |
| Adjustments to operating profit in | ||
| total | 1,203 | 852 |
| Adjusted operating profit (EBIT) | 14,007 | 19,981 |
| Operating profit (EBIT) | 12,804 | 19,130 |
| Financial income | 118 | 181 |
| Financial expenses | -2,965 | -1,862 |
| Income taxes | -2,815 | -3,381 |
| Profit for the period | 7,143 | 14,068 |
| The adjustment items are presented in the income statement items as follows: |
||
| Other operating income | -1,011 | -296 |
| Employee benefit expenses | 565 | 377 |
| Other operating expenses | 1,530 | 668 |
| EBITDA adjustment items total | 1,083 | 749 |
| Depreciation, amortisation and impairment |
119 | 102 |
| Operating profit adjustment items total |
1,203 | 852 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Dividend income from available-for sale financial assets |
12 | 3 |
| Interest income from loans and receivables |
94 | 47 |
| Other financial income | 12 | 131 |
| Total | 118 | 181 |
| 1 000 € | 2018 | 2017 |
|---|---|---|
| Interest expenses from financial liabilities carried at amortised cost |
-2,452 | -1,452 |
| Other financial expenses | -512 | -410 |
| Total | -2,965 | -1,862 |
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 | 2018 | 2017 |
|---|---|---|
| Current taxes | -4,953 | -4,188 |
| Taxes for the previous financial years | -104 | -50 |
| Deferred taxes: | ||
| Origination and reversal of | ||
| temporary differences | 2,243 | 857 |
| Total | -2,815 | -3,381 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Profit before taxes | 9,957 | 17,449 |
| Taxes calculated on the basis of the Finnish tax rate (20%) |
-1,991 | -3,490 |
| Income not subject to tax | 4 | 1 |
| Non-deductible expenses | -575 | -88 |
| Unrecorded deferred tax assets from tax losses |
-6 | -1 |
| Utilised prior losses with unrecognised tax benefits |
32 | 29 |
| Share of associated company's profit | 1 | 63 |
| Fair value measurement of contingent consideration |
-238 | |
| Fair value measurement of pre-existing interest in acquiree |
199 | |
| Reversal of unused replacement reserve | -221 | |
| Other items | 85 | 155 |
| Taxes for prior financial years | -104 | -50 |
| Taxes in the income statement | -2,815 | -3,381 |
| Effective tax rate | 28.3% | 19.4% |
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 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. The parent company does not have dilutive instruments.
| 2018 | 2017 | |
|---|---|---|
| Profit for the financial year attributable to owners of the parent, EUR |
3,826,449.44 | 9,515,009.52 |
| Number of shares outstanding, weighted average |
22,224,236 | 20,613,146 |
| Earnings per share (EPS), EUR/share |
0.17 | 0.46 |
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.
During the financial year, the Group opened new full-service 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 new private clinics, the Group adopted a unitsof-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 straight-line 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 real |
Shares in real estate |
Machinery and |
Other tangible |
Construc tion in |
||||
|---|---|---|---|---|---|---|---|---|
| EUR 1,000 | Land areas | Buildings | estate | companies | equipment | assets | progress | Total |
| Cost at 1 January 2018 | 88 | 40,648 | 13,005 | 4,015 | 29,380 | 161 | 5,827 | 93,124 |
| Additions | 25 | 397 | 2,404 | 1,127 | 10,913 | 2,089 | 16,956 | |
| Business combinations | 1,321 | 430 | 3,448 | 10 | 5,210 | |||
| Transfers between items | -9 | 5,237 | 1,606 | -6,470 | 364 | |||
| Disposals | -1,037 | -1,037 | ||||||
| Cost at 31 December 2018 | 104 | 41,045 | 21,968 | 5,572 | 44,310 | 171 | 1,446 | 114,617 |
| Accumulated depreciation at 1 January 2018 Depreciation and amortisation |
-8,200 -3,189 |
-6,378 -2,234 |
-16,624 -5,828 |
-5 -4 |
0 | -31,206 -11,255 |
||
| Transfers between items | -205 | -128 | -333 | |||||
| Disposals | 735 | 735 | ||||||
| Accumulated depreciation at 31 December 2018 |
-11,388 | -8,817 | -21,845 | -9 | 0 | -42,059 | ||
| Carrying amount at 1 January 2018 Carrying amount at |
88 | 32,448 | 6,627 | 4,015 | 12,757 | 156 | 5,827 | 61,917 |
| 31 December 2018 | 104 | 29,657 | 13,151 | 5,572 | 22,465 | 162 | 1,446 | 72,558 |
| Renovation expenses on real |
Shares in real estate |
Machinery and |
Other tangible |
Construc tion in |
||||
|---|---|---|---|---|---|---|---|---|
| EUR 1,000 | Land areas | Buildings | estate | companies | equipment | assets | progress | Total |
| Cost at 1 January 2017 | 88 | 28,172 | 10,780 | 4,088 | 26,260 | 146 | 61 | 69,595 |
| Additions | 12,476 | 497 | 9 | 3,803 | 13 | 6,039 | 22,837 | |
| Business combinations | 1,632 | 1,222 | 3 | 2,857 | ||||
| Transfers between items | 262 | 275 | -273 | 264 | ||||
| Disposals | -166 | -83 | -2,180 | -2,429 | ||||
| Cost at 31 December 2017 | 88 | 40,648 | 13,005 | 4,015 | 29,380 | 161 | 5,827 | 93,124 |
| Accumulated depreciation at 1 January 2017 |
-5,015 | -5,061 | -14,020 | -1 | 0 | -24,098 | ||
| Depreciation and amortisation | -3,185 | -1,294 | -4,479 | -4 | -8,962 | |||
| Transfers between items | -189 | -75 | -264 | |||||
| Disposals | 166 | 1,950 | 2,116 | |||||
| Accumulated depreciation at 31 December 2017 |
-8,200 | -6,378 | 0 | -16,624 | -5 | 0 | -31,206 | |
| Carrying amount at 1 January 2017 |
88 | 23,157 | 5,719 | 4,088 | 12,241 | 145 | 61 | 45,496 |
| Carrying amount at 31 December 2017 |
88 | 32,447 | 6,627 | 4,015 | 12,757 | 156 | 5,827 | 61,917 |
An asset leased with finance leases is recognised in the consolidated statement of financial position from the commencement of the lease term at the fair value of the leased asset at the inception of the lease or at the present value of
minimum lease payments, whichever is lower. An asset acquired with finance leases is depreciated during the asset's economic useful life or lease term, whichever is shorter. Lease payments are apportioned between the finance charge and the reduction of the outstanding liability so as to produce a constant periodic rate of interest on the remaining balance of the liability. Lease obligations are included in financial liabilities.
Property, plant and equipment include the following assets acquired under finance leases:
| Shares in real estate |
Machinery and |
|||
|---|---|---|---|---|
| EUR 1,000 | Buildings | companies | equipment | Total |
| 31/12/2018 | ||||
| Cost | 33,648 | 5,661 | 2,793 | 42,102 |
| Accumulated depreciation | -8,378 | -2,681 | -1,766 | -12,826 |
| Carrying amount | 25,270 | 2,979 | 1,027 | 29,276 |
| 31/12/2017 | ||||
| Cost | 33,648 | 5,661 | 1,393 | 40,702 |
| Accumulated depreciation | -6,135 | -1,788 | -1,151 | -9,074 |
| Carrying amount | 27,513 | 3,873 | 242 | 31,629 |
The Group concluded a 15-year sale and leaseback agreement concerning Pihlajalinna Lääkärikeskukset Oy's hospital property in 2013, which met the criteria for a finance lease. The Group sold five of its care properties in 2015 and leased them back for 15 years. Similarly, the Koskiklinikka lease has been interpreted as a 12-year sale and leaseback agreement and it meets the
criteria for a finance lease. The additions in 2017 consisted of leases for three care homes, which were interpreted as financial leases.
Additions to the costs of property, plant and equipment include assets leased with finance leases totalling EUR 1,355 thousand (EUR 12,473 thousand in 2017).
REPORT BY THE BOARD OF DIRECTORS
Goodwill generated through business combinations is measured at 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. Goodwill generated through business combinations is measured at 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.
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 cash-generating 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 straightline method.
The Group's capitalised development costs that have not been amortised are associated with the following projects:
| EUR 1,000 | Goodwill | Trademarks | Development costs |
Other intangible assets related to purchase price allocations |
Other intangible assets |
Pre-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 | ||
| Disposals | -84 | -84 | |||||
| Accumulated depreciation at 31 December 2018 |
-3,926 | -1,343 | -13,341 | -5,910 | -24,521 | ||
| Carrying amount at 1 January 2018 |
103,893 | 4,612 | 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 |
| Development | Other intangible assets related to purchase price |
Other intangible |
|||||
|---|---|---|---|---|---|---|---|
| EUR 1,000 | Goodwill | Trademarks | costs | allocations | assets | Pre-payments | Total |
| Cost at 1 January 2017 | 92,270 | 7,762 | 2,659 | 11,648 | 6,211 | 122 | 120,674 |
| Additions | 1,154 | 745 | 1,080 | 2,979 | |||
| Business combinations | 11,622 | 2,178 | 349 | 14,149 | |||
| Transfers between items | 1,083 | -1,083 | 0 | ||||
| Disposals | |||||||
| Cost at 31 December 2017 | 103,893 | 7,762 | 3,813 | 13,826 | 8,388 | 119 | 137,802 |
| Accumulated depreciation at 1 January 2017 |
-2,374 | -503 | -5,954 | -3,254 | -12,085 | ||
| Depreciation and amortisa tion |
-776 | -314 | -3,032 | -1,099 | -5,221 | ||
| Accumulated depreciation at 31 December 2017 |
-3,150 | -816 | -8,986 | -4,353 | -17,305 | ||
| Carrying amount at 1 January 2017 |
92,270 | 5,390 | 2,156 | 5,694 | 2,956 | 122 | 108,588 |
| Carrying amount at 31 December 2017 |
103,893 | 4,613 | 2,997 | 4,840 | 4,036 | 119 | 120,496 |
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.
Goodwill generated through business combinations is measured at 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. Goodwill is not amortised but is tested for impairment at least once per year.
Goodwill created through business combinations is allocated to cash-generating units (CGUs), meaning geographical
business areas, as shown in the table below. Pihlajalinna's operating structure is based on four geographical business areas: Mid-Finland, Southern Finland, Ostrobothnia and Northern Finland. Each business area is managed by a Head of Business Operations who is in charge of their area's business operations and service offering both for the private and the public sector.
The Head of Business Operations is responsible for preparing the area's budget and managing the area's resources, investments and profitability. The business areas use shared support services.
STRATEGY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
The carrying amounts of goodwill are allocated to the business areas as follows:
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Southern Finland | 90,313 | 42,859 |
| Mid-Finland | 60,853 | 48,280 |
| Ostrobothnia | 4,744 | 4,744 |
| Northern Finland | 7,686 | 6,434 |
| Tested goodwill in total on 30 November |
163,596 | 102,317 |
| Re-estimation of initial acquisition cost and contingent consideration during the measurement period |
-14 | 995 |
| Acquisition of Terveyspalvelu Verso Oy on 28 December 2018 |
6,344 | |
| Achievement of control in Dextra Lapsettomuusklinikka Oy |
581 | |
| Goodwill as per the statement of financial position at the end of the financial year, on 31 December |
169,927 | 103,893 |
Goodwill testing was carried out on 30 November 2017 by operating segment, which were the CGUs under the definition previously used by the Group.
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 2019 approved by the Board of Directors, and the cash flow estimates for 2020–2023 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 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.
Other key assumptions used in goodwill testing by business area:
| 2018 | Discount rate (pre tax WACC) |
Discount rate (after tax WACC) |
|---|---|---|
| Southern Finland | 8.50% | 7.18% |
| Mid-Finland | 8.50% | 7.18% |
| Ostrobothnia | 8.50% | 7.18% |
| Northern Finland | 8.14% | 7.18% |
| 2018 | The terminal period's share of the amount of | expected cash flows: |
|---|---|---|
| Southern Finland | 71% | |
| Mid-Finland | 73% | |
| Ostrobothnia | 73% | |
| Northern Finland | 81% | |
| 2018 | Revenue growth during the testing period |
Profitability growth during the testing period |
| 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 by business area in normal market conditions, the general development of the social and healthcare services market and the operative management's views. The opening of new private clinics in Turku, Seinäjoki and Oulu during the financial year was taken into account in estimating the business areas' volume and profitability development for the testing period.
Based on the testing calculations, there is no need to recognise impairment. The recoverable amounts of all cash-generating units exceeded their carrying amounts.
The occurrence of any of the following changes, ceteris paribus, would lead to the carrying amount of the business area's assets being equal to its recoverable amount:
| 2018 | Decline in EBIT | Decline in | Increase in |
|---|---|---|---|
| margin | volume | discount rate | |
| 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.
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Lease deposits paid | 1,800 | 1,568 |
| Total | 1,800 | 1,568 |
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 Group's trade receivables include EUR 3.6 (2.5) million in substantially delayed payments from a significant customer. Pihlajalinna has signed a conditional agreement regarding the payment of the receivables in question. According to the Group management's estimate, the customer will pay the receivables in full.
The Group's prepayments and accrued income include EUR 2.4 million in the service provider's shares of hospital districts' operational economy surplus refunds. According to the Group management's estimate, the refunds are payable to the service provider to the extent they were accumulated during Pihlajalinna's service provision and liability for costs.
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Trade receivables | 26,582 | 17,509 |
| Prepayments and accrued income | 11,022 | 5,291 |
| Other receivables | 320 | 1,158 |
| Total | 37,923 | 23,959 |
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 148 thousand (EUR 337 thousand) in impairment losses on trade receivables during the financial year.
| Impair ment |
Net | Impair ment |
Net | |||
|---|---|---|---|---|---|---|
| EUR 1,000 | 2018 | losses | 2018 | 2017 | losses | 2017 |
| Past due | 16,847 | 16,847 | 11,787 | 11,787 | ||
| Less than 30 days |
2,822 | 2,822 | 1,129 | 1,129 | ||
| 30–60 days | 573 | 573 | 1,062 | 1,062 | ||
| 61–90 days | 450 | 450 | 253 | 253 | ||
| More than 90 days |
6,522 | -633 | 5,889 | 3525 | -247 | 3,278 |
| Total | 27,214 | -633 | 26,582 | 17,757 | -247 | 17,509 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Credit loss provision at 1 January | 247 | 325 |
| Credit losses recorded | 351 | 148 |
| Credit loss provision, used | -198 | -226 |
| Credit loss provision, increase | 233 | |
| Credit loss provision at 31 December | 633 | 247 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Sales and income accruals | 3,923 | 742 |
| Personnel expenses | 3,463 | 1,241 |
| Expenses paid in advance | 1,935 | 2,698 |
| Other | 1,700 | 610 |
| Total | 11,022 | 5,291 |
The carrying amounts of the receivables correspond substantially to their fair values.
REPORT BY THE BOARD OF DIRECTORS
Cash and cash equivalents consist of cash at hand, demand deposits and other highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. The items classified under cash and cash equivalents have a maturity of no more than three months from the date of acquisition. The account with credit limit in use is included in current financial liabilities.
| 36,316 37,074 |
|---|
| 36,316 37,074 |
| 2017 |
| 2018 |
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 | Premises restoration provision |
Onerous contracts |
Total |
|---|---|---|---|
| 31/12/2017 | 847 | 847 | |
| Increases in provisions | 330 | 396 | 726 |
| Reversals of unused provisions |
-744 | -744 | |
| 31/12/2017 | 433 | 396 | 829 |
| Increases in provisions | 330 | 330 | |
| Provisions used | -94 | -94 | |
| Reversals of unused provisions |
-763 | -763 | |
| 31/12/2018 | 0 | 302 | 302 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Trade payables | 18,789 | 12,573 |
| Accrued liabilities | 49,049 | 38,800 |
| Pre-payments | 897 | 366 |
| Other liabilities | 10,759 | 10,084 |
| Total | 79,494 | 61,822 |
| Material items included under Accrued liabilities: |
||
| Wages and salaries and social security payments |
32,375 | 27,426 |
| Doctor's fee liability | 6,350 | 5,356 |
| Allocation of sales | 1,795 | 1,505 |
| Allocation of purchase invoices | 7,446 | 3,919 |
| Financial items | 114 | 8 |
| Other accrued liabilities | 968 | 587 |
| Total | 49,049 | 38,800 |
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 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 | 01/01/2018 | Recognised in profit and loss |
Recognised in equity |
Subsidiaries acquired |
31/12/2018 |
| Tax losses carried forward confirmed by tax authorities | 483 | 1,310 | 1,794 | ||
| Liability to holders of Series B shares | 1,215 | 99 | 1,314 | ||
| Sales proceeds from sale and leaseback arrangements | 343 | -30 | 313 | ||
| Other items | 184 | -123 | 264 | 325 | |
| Expenses arising from directed share issue | -11 | 11 | 0 | ||
| Deferred tax assets on the statement of financial position | 2,224 | 1,245 | 11 | 264 | 3,745 |
| Deferred tax liabilities | |||||
| Property, plant and equipment and intangible assets | 1,224 | 784 | 2,009 | ||
| Replacement reserve for business premises | 814 | -814 | 0 | ||
| Measurement of property, plant and equipment and intangible assets at fair value in business combinations |
3,378 | -1,026 | 1,538 | 3,889 | |
| Other items | 43 | 57 | 99 | ||
| Deferred tax liabilities on the statement of financial position | 5,457 | -999 | 1,538 | 5,997 |
| EUR 1,000 | |||||
|---|---|---|---|---|---|
| Deferred tax assets | 01/01/2017 | Recognised in profit and loss |
Recognised in equity |
Subsidiaries acquired |
31/12/2017 |
| Tax losses carried forward confirmed by tax authorities | 93 | 109 | 281 | 483 | |
| Liability to holders of Series B shares | 1,031 | 184 | 1,215 | ||
| Sales proceeds from sale and leaseback arrangements | 373 | -30 | 343 | ||
| Other items | 93 | 67 | 23 | 184 | |
| Deferred tax assets on the statement of financial position | 1,589 | 331 | 304 | 2,224 | |
| Deferred tax liabilities | |||||
| Property, plant and equipment and intangible assets | 877 | 347 | 1,224 | ||
| Replacement reserve for business premises | 917 | -103 | 814 | ||
| Recognition at fair value in business combinations | 3,704 | -762 | 436 | 3,378 | |
| Other items | 51 | -8 | 43 | ||
| Deferred tax liabilities on the statement of financial position | 5,548 | -526 | 436 | 5,457 |
The Group had confirmed losses of EUR 8,966 (2,415) thousand, for which deferred tax assets of EUR 1,794 (483) thousand were recognised. The recognition of deferred tax assets on the statement of financial position is justified, as the Group is likely to accrue taxable income against which the losses in question can be used before they expire.
The Group has incurred losses amounting to EUR 5,580 (556) thousand for which deferred tax assets have not been recognised. The losses will expire in 2025–2028.
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, demand deposits and other highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. The items classified under cash and cash equivalents have a maturity of no more than three months from the date of acquisition. The account with credit limit in use is included in current financial liabilities.
The Group classifies loans from financial institutions, accounts with credit limits, financial 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.
| Fair value | Total | Fair | ||||
|---|---|---|---|---|---|---|
| Fair value | through profit | Amortised | carrying | values | ||
| 31.12.2018 | Note | hierarchy | or loss | cost | amounts | total |
| Non-current financial assets | ||||||
| Other shares and participations | level 3 | 139 | 139 | 139 | ||
| Lease deposits | 14 | level 2 | 1,800 | 1,800 | 1,800 | |
| Current financial assets | ||||||
| Trade receivables | 15 | 26,582 | 26,582 | 26,582 | ||
| Other receivables | 15 | level 2 | 320 | 320 | 320 | |
| Cash and cash equivalents | 16 | 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 | 22 | level 2 | 93,627 | 93,627 | 93,627 | |
| Finance lease liabilities | 22 | level 2 | 27,117 | 27,117 | 27,117 | |
| Other liabilities | 22 | level 2 | 720 | 720 | 720 | |
| Contingent consideration | 26 | level 3 | 1,348 | 1,348 | 1,348 | |
| Current financial liabilities | ||||||
| Loans from financial institutions | 22 | level 2 | 1,493 | 1,493 | 1,493 | |
| Cheque account with credit limit | 22 | 0 | 0 | 0 | ||
| Finance lease liabilities | 22 | level 2 | 3,421 | 3,421 | 3,421 | |
| Contingent consideration | 26 | level 3 | 1,465 | 1,465 | 1,465 | |
| Trade and other payables | 18 | 25,357 | 25,357 | 25,357 | ||
| Total | 2,812 | 151,735 | 154,548 | 154,548 |
| EUR 1,000 | |||||||
|---|---|---|---|---|---|---|---|
| 31/12/2017 | Note | Fair value hierarchy |
Fair value through profit or loss |
Available-for sale financial assets |
Amortised cost |
Total carrying amounts |
Fair values total |
| Non-current financial assets | |||||||
| Other shares and participations | level 3 | 101 | 101 | 101 | |||
| Lease deposits | 14 | level 2 | 1,568 | 1,568 | 1,568 | ||
| Current financial assets | |||||||
| Trade receivables | 15 | 17,509 | 17,509 | 17,509 | |||
| Other receivables | 15 | level 2 | 1,158 | 1,158 | 1,158 | ||
| Cash and cash equivalents | 16 | 37,074 | 37,074 | 37,074 | |||
| Total | 101 | 57,310 | 57,412 | 57,412 | |||
| Non-current financial liabilities | |||||||
| Loans from financial institutions | 22 | level 2 | 34,555 | 34,555 | 34,555 | ||
| Finance lease liabilities | 22 | level 2 | 29,551 | 29,551 | 29,551 | ||
| Other liabilities | 22 | level 2 | 752 | 752 | 752 | ||
| Contingent consideration | 26 | level 3 | 1,478 | 1,478 | 1,478 | ||
| Current financial liabilities | |||||||
| Loans from financial institutions | 22 | level 2 | 2,209 | 2,209 | 2,209 | ||
| Cheque account with credit limit | 22 | 1,178 | 1,178 | 1,178 | |||
| Finance lease liabilities | 22 | level 2 | 2,993 | 2,993 | 2,993 | ||
| Contingent consideration | 26 | level 3 | 3,940 | 3,940 | 3,940 | ||
| Trade and other payables | 18 | 18,648 | 18,648 | 18,648 | |||
| Total | 5,418 | 89,887 | 95,305 | 95,305 |
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 financial 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.
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 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 26 Business combinations.
The Group classifies all instruments it issues either as an equity instrument or a financial liability, depending on their nature.
Reconciliation of the number of shares
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.
| EUR 1,000 | ||||
|---|---|---|---|---|
| Number of shares | Share capital | Reserve for invested unrestricted equity |
Total | |
| 31/12/2017 | 20,613,146 | 80 | 87,945 | 88,026 |
| Directed share issue 14 March 2018 | 2,006,989 | 28,574 | 28,574 | |
| 31/12/2018 | 22,620,135 | 80 | 116,520 | 116,600 |
Pihlajalinna acquired the entire share capital of Doctagon Ab through a directed share issue in March 2018. In the directed share issue, the entire transaction price for Doctagon Ab, totalling EUR 30,105,000, was paid in Pihlajalinna Plc shares. The directed share issue offered 2,006,989 new shares to be subscribed according to the purchase deed terms with a subscription price of EUR 15.00 per share. The number of new shares corresponded to approximately 10 per cent of all of Pihlajalinna Plc's shares before issuing the new shares. The total number of Pihlajalinna Plc's shares after the registration of the new shares is 22,620,135. The shares were entered in the Trade Register on 14 March 2018.
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 ofthe company's assets.
The shares belong to the book-entry system.
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.
The parent company's total distributable funds amount to EUR 206,086,679.19, of which the profit for the financial year accounts for EUR 51,578.66.
After the balance sheet date, the Board of Directors has proposed that a dividend of EUR 0.10 per share be distributed.
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Non-current interest-bearing liabilities |
||
| Bank loans | 93,627 | 34,555 |
| Other liabilities | 720 | 752 |
| Finance lease liabilities | 27,117 | 29,551 |
| Total | 121,463 | 64,858 |
| 2018 | 2017 |
|---|---|
| 1,493 | 2,209 |
| 0 | 1,178 |
| 3,421 | 2,993 |
| 4,915 | 6,381 |
| 126,378 | 71,239 |
At the end of the financial year, the Group had EUR 39.0 (34.8) 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.
Leases are classified as either finance leases or operating leases. Leasing agreements by which the risks and benefits associated with the ownership of an asset are substantially transferred to the lessee represent finance leases.
An asset leased with finance leases is recognised in the consolidated statement of financial position from the commencement of the lease term at the fair value of the leased asset at the inception of the lease or at the present value of minimum lease payments, whichever is lower. An asset acquired with finance leases is depreciated during the asset's economic useful life or lease term, whichever is shorter. Lease payments are apportioned between the finance charge and the reduction of the outstanding liability so as to produce a constant periodic rate of interest on the remaining balance of the liability. Lease obligations are included in financial liabilities.
Lease payments based on operating leases are expensed in profit or loss on a straight-line basis during the lease term. The Group's other leases are mainly related to business premises.
The most significant of the Group's finance leasing agreements are due to sale and leaseback transactions of premises.
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Within one year | 4,338 | 3,993 |
| Between one and five years | 14,021 | 14,552 |
| Over five years later | 17,517 | 20,325 |
| Minimum lease payments total | 35,876 | 38,870 |
| Financial expenses accrued in the | ||
| future | -5,337 | -6,326 |
| Present value of finance lease | ||
| liabilities | 30,538 | 32,544 |
Maturity periods of the present value of finance lease
liabilities
| Present value of finance lease liabilities total |
30,538 | 32,544 |
|---|---|---|
| Over five years later | 13,399 | 15,305 |
| Between one and five years | 12,864 | 13,306 |
| Within one year | 4,275 | 3,933 |
| EUR 1,000 | 2018 | 2017 |
| EUR 1,000 | ||||||
|---|---|---|---|---|---|---|
| 2017 | Cash flow | Business combinations |
New instalments and financial leasing |
Effective interest rate |
2018 | |
| Non-current interest-bearing liabilities | 35,307 | 53,040 | 2,710 | 3,094 | 196 | 94,347 |
| Current interest-bearing liabilities | 3,388 | -3,652 | 659 | 1,097 | 1,492 | |
| Finance lease liabilities | 32,544 | -3,406 | 1,401 | 30,539 | ||
| Total liabilities from financing | 71,239 | 45,982 | 4,770 | 4,191 | 196 | 126,378 |
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 long-term 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 | 2018 | 2017 |
|---|---|---|---|
| Total equity | 131,159 | 105,856 | |
| Total statement of financial position – prepayments |
|||
| received | 348 634 | 253,215 | |
| Equity ratio1 | 37.6% | 41.8% | |
| Interest-bearing financial | |||
| liabilities | 22 | 126,378 | 71,239 |
| Cash and cash equivalents | 16 | -36,316 | -37,074 |
| Interest-bearing net debt | 90,062 | 34,165 | |
| Gearing2 | 68.7% | 32.3% | |
| EBITDA | 31,190 | 33,312 | |
| Adjustment items* | 1,083 | 749 | |
| Adjusted EBITDA | 32,274 | 34,061 | |
| Net debt/adjusted EBITDA | 2.8 | 1.0 |
* 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.
More information on Adjusted EBITDA is provided in Note 7 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 financial management, 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.
Liquidity risk
37.6 (41.8) per cent.
additional financing.
principal.
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 36.3 (37.1) million, in addition to which the Group had EUR 39.0 (34.8) million in unused committed credit limits available. Pihlajalinna reorganised its debt financing in the first quarter of the financial year. A new five-year EUR 120 million unsecured financing arrangement was concluded 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 Group met the set covenants on 31 December 2018.
totalling EUR 10 million, remained unchanged. The notice period of the credit limit agreements is one month.
The Group's credit limit agreements valid until further notice,
The Group's equity ratio at the end of the financial year was
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
The table below presents the contractual maturity of financial liabilities. The figures are undiscounted and they include both future interest payments and repayments of
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, 25% (50%) 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 1.89% (2.19%). The duration, i.e. the fixed interest rate period, of the financing portfolio was 3.9 (3.1) years.
The table below presents the Group's interest rate position at the end of the reporting period.
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Fixed rate financial liabilities | 31,975 | 35,509 |
| Variable rate financial liabilities | 94,803 | 35,845 |
| Total variable rate position | 94,803 | 35,845 |
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.
| 2018 | 2018 | 2017 | 2017 | |
|---|---|---|---|---|
| Change | 0.5 per centage points higher |
0.5 per centage points lower |
0.5 per centage units higher |
0.5 per centage units lower |
| Effect on profit before tax |
-474 | 0 | -179 | 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.
| EUR 1,000 | ||||||
|---|---|---|---|---|---|---|
| Carrying amount at 31 Dec. 2018 |
less than 1 year |
1–2 years | 2–3 years | 3–4 years | over 4 years | |
| Loans from financial institutions | 95,120 | -2,851 | -2,556 | -2,360 | -93,189 | -314 |
| Finance lease liabilities | 30,538 | -4,338 | -4,256 | -3,822 | -3,135 | -20,325 |
| 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 | 154,548 | -34,031 | -8,252 | -6,238 | -96,381 | -21,502 |
| EUR 1,000 | ||||||
|---|---|---|---|---|---|---|
| Carrying amount at 31 Dec. 2017 |
less than 1 year |
1–2 years | 2–3 years | 3–4 years | over 4 years | |
| Loans from financial institutions | 36,764 | -36,399 | -410 | -176 | -40 | -40 |
| Finance lease liabilities | 32,544 | -3,993 | -3,901 | -3,807 | -3,710 | -23,459 |
| Other interest-bearing liabilities | 752 | -20 | -93 | -57 | -57 | -916 |
| Contingent consideration | 5,418 | -3,946 | -1,122 | -357 | ||
| Cheque account with credit limit | 1,178 | -1,209 | ||||
| Trade payables | 12,573 | -12,573 | ||||
| Other liabilities, series B | 6,075 | -6,075 | ||||
| Total | 95,305 | -64,216 | -5,526 | -4,396 | -3,806 | -24,416 |
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 covenant term is to said leverage maximum value, the higher the margin on the financing arrangement. The maximum value of the gearing covenant is 115%. The Group met the terms of the covenants at the end of the financial year, with the leverage indicator being 2.61 and gearing being 68.7%.
At the end of the reporting period, 31 December 2018, the loan amount to which the covenants apply was EUR 91.0 million.
The Group's credit risk mostly consists of credit risks involved in customer receivables related to business operations. The Group has no significant credit risk concentrations related to customer receivables, as the key customers in the public sector (municipalities and public entities) and the largest occupational healthcare customers have a good credit rating that has been checked.
The Group's trade receivables include EUR 3.6 (2.5) million in substantially delayed payments from a significant customer. Pihlajalinna has signed a conditional agreement regarding the payment of the receivables in question. According to the Group management's estimate, the customer will pay the receivables in full.
The Group has recognised a total of EUR 2.4 million 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.
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's private customers also have a special Joustotili (Flexible Account) available to them, which allows for flexible financing of services and includes a check of the private customer's creditworthiness.
The ageing analysis of trade receivables is presented in Note 15 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.
| Month of | |||
|---|---|---|---|
| EUR 1,000 | acquisition | Industry | Domicile |
| Acquired/divested entity | |||
| Terveyspalvelu Verso Oy, 100% of the share capital | Dec-18 | Occupational health services | Iisalmi |
| Hammashannu Oy, sold 100% of the share capital (part of the SYH chain) | Sep-18 | Dental care | Turku |
| Anula Oy, 100% of the share capital | Jul-18 | Dental care | Hämeenlinna |
| Leaf Areena Oy, 100% of the share capital | Jun-18 | Fitness centres | Turku |
| Suomen Yksityiset Hammaslääkärit chain, 51% of the share capital | Mar-18 | Dental care | Useita |
| Doctagon Ab, 100% of the share capital (directed share issue) | Mar-18 | Private clinic operations, occupational health services, staffing services |
Helsinki |
| Forever fitness centre chain, 70% of the share capital | Feb-18 | Fitness centres | Useita |
| Röntgentutka Oy, 50% of the share capital (previous holding 50%, acquisition achieved in stages) |
Feb-18 | Imaging | Tampere |
| Linnan Klinikka Oy, 100% of the share capital | Feb-18 | Private clinic operations, occupational health services |
Hämeenlinna |
| Kymijoen Työterveys Oy, 100% of the share capital | Feb-18 | Occupational health services | Kotka |
| Salon Lääkintälaboratorio Oy (Sallab), 100% of the share capital | Jan-18 | Private clinic operations, occupational health services |
Salo |
| Someron Lääkärikeskus Oy, 100% of the share capital | Jan-18 | Private clinic operations, occupational health services |
Somero |
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.
STRATEGY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
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:
| 2018 |
|---|
| 43,014 |
| 28,620 |
| 110 |
| 71,744 |
At the date of acquisition, the preliminary values of assets acquired and liabilities assumed were as follows:
| EUR 1,000 | Note | 2018 |
|---|---|---|
| Property, plant and equipment | 12 | 5,210 |
| Intangible assets | 13 | 8,096 |
| Deferred tax assets | 264 | |
| Inventories | 293 | |
| Other investments | 67 | |
| Trade and other receivables | 8,401 | |
| Cash and cash equivalents | 6,162 | |
| Total assets | 28,492 | |
| Deferred tax liability | -1,538 | |
| Interest-bearing financial liabilities | 23 | -4,770 |
| Other liabilities | -11,616 | |
| Total liabilities | -17,924 | |
| Preliminary net assets | 10,569 |
| EUR 1,000 | Note | 2018 |
|---|---|---|
| Consideration transferred | 71,742 | |
| Previous holding measured at fair value | 4,005 | |
| Share of the acquisition allocated to non-controlling interests |
827 | |
| Net identifiable assets of acquirees | -10,538 | |
| Preliminary goodwill | 13 | 66,034 |
| Transaction price paid in cash | 43,014 | |
| Cash and cash equivalents of acquiree | -6,162 | |
| Preliminary effect on cash flow* | 36,853 |
Customer contracts, non-compete agreements and patient databases were recorded in the acquisitions 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.
On 2 January 2017, Pihlajalinna acquired the entire share capital of Itä-Suomen Lääkäritalo Oy, which operates in the Kuopio region. Itä-Suomen Lääkäritalo has, under the name Lääkärikeskus ITE, worked in close cooperation with Itä-Suomen Lääkärikeskus Oy, which Pihlajalinna acquired on 1 February 2016.
On 6 July 2017, Pihlajalinna acquired the entire share capitals of Kuopio-based Sataman Röntgen Oy and Joensuu-based Joen Magneetti Oy.
On 3 August 2017, Pihlajalinna acquired the Oulu-based Caritas Lääkärit Oy. At the same time, the company's name was changed to Pihlajalinna Madetojanpuisto Oy.
Pihlajalinna acquired Paraisten Lääkärikeskus Oy on 4 December 2017.
Insta Care Oy, a former joint venture, became a wholly-owned subsidiary of Pihlajalinna as of 1 June 2017. At the same time, the company's name was changed to Pihlajalinna Solutions Oy. Pihlajalinna consolidates the company as an acquisition achieved in stages. The previous holding was measured at fair value and the gains were recognised through profit and loss.
On 31 December 2017, Pihlajalinna exercised its right to convert a proportion of a convertible bond issued by Dextra Lapsettomuusklinikka Oy into new shares in the company in accordance with the terms of the bond. Pihlajalinna consolidates Dextra Lapsettomuusklinikka Oy as an acquisition achieved in stages. The pre-existing interest in acquiree was remeasured to fair value and the gains were recognised through profit and loss. Following the conversion of the bond, Pihlajalinna's ownership in the company is approximately 51%.
Of the fair value measurement of pre-existing interest in the acquiree, EUR 296 thousand is recognised in other operating income and EUR 16 thousand in the reserve for invested unrestricted equity.
Since the acquisitions are not material individually,
the following partially preliminary information has been
| consolidated: | |
|---|---|
| EUR 1,000 | 2017 |
| Consideration transferred | |
| Cash, basic transaction price | 10,052 |
| Contingent consideration | 3,435 |
| Total cost of the combination | 13,487 |
| At the date of acquisition, the preliminary values of assets |
|---|
| acquired and liabilities assumed were as follows: |
| EUR 1,000 | Note | 2017 |
|---|---|---|
| Property, plant and equipment | 12 | 2,857 |
| Intangible assets | 13 | 2,527 |
| Deferred tax assets | 304 | |
| Inventories | 196 | |
| Other investments | 1 | |
| Trade and other receivables | 1,424 | |
| Cash and cash equivalents | 1,622 | |
| Total assets | 8,932 | |
| Deferred tax liability | -436 | |
| Interest-bearing financial liabilities | -3,335 | |
| Other liabilities | 23 | -3,336 |
| Total liabilities | -7,107 | |
| Preliminary net assets | 1,826 | |
Goodwill generated in the acquisition:
| EUR 1,000 | Note | 2017 |
|---|---|---|
| Consideration transferred | 13,487 | |
| Previous holding measured at fair value | 312 | |
| Share of the acquisition allocated to non-controlling interests |
-355 | |
| Net identifiable assets of acquirees | -1,826 | |
| Preliminary goodwill | 13 | 11,617 |
| Transaction price paid in cash | 10,052 | |
| Cash and cash equivalents of acquiree | -1,622 | |
| Preliminary effect on cash flow* | 8,429 |
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 350 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 8,786 thousand and total operating profit EUR 438 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 2017, consolidated revenue would have amounted to EUR 433,656 thousand and operating profit for the financial year would have been EUR 19,700 thousand.
Pihlajalinna increased its holding in Mäntänvuoren Terveys Oy by purchasing, in accordance with its commitment, 15 per cent of the company's share capital from the City of Mänttä-Vilppula at the beginning of July. After the transaction, the Group owned 66 per cent of the company.
In December, Pihlajalinna increased its ownership in Kolmostien Terveys Oy by acquiring 10 per cent of the company's share capital from the City of Parkano in accordance with Pihlajalinna's commitment. After the transaction, the Group owned 71 per cent of the company.
The fair value of contingent consideration is determined on the basis of the budget for the 2018 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 | 2018 | 2017 |
|---|---|---|
| Contingent consideration, 1 January |
5,418 | 2,381 |
| Increase in contingent consideration from the acquisition of business operations |
110 | 2,300 |
| Increase in the fair value of contingent consideration during the measurement period |
1,192 | 1,135 |
| Effect of the unwinding of discount |
136 | 103 |
| Contingent consideration paid during the financial year* |
-4,044 | -500 |
| Contingent consideration, 31 December |
2,812 | 5,418 |
The treatment of the Mediapu Oy acquisition made in the 2016 financial year has been revised during the measurement period by supplementing the identifiable assets by a non-competition agreement of EUR 1,000 thousand and a deferred tax liability of EUR 200 thousand, and recognising an additional EUR 1,135 thousand in contingent considerations. As a result, goodwill increased by EUR 335 thousand.
* 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:
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Acquisitions in the financial year, effect on cash flow |
36,853 | 8,429 |
| Contingent consideration paid during the financial year |
4,044 | 500 |
| Total | 40,897 | 8,929 |
The Group had 59 (32) subsidiaries in 2018. Of these subsidiaries, 30 (24) are wholly-owned and 29 (7) are partially owned.
In 2018, the Group had 1 associated company and 1 (1) joint operation. In 2017, the Group had 1 joint venture, in which the Group acquired control during the 2018 financial year.
A list of all of the Group's subsidiaries is presented in Note 31 Related party transactions.
| EUR 1,000 | |||||||
|---|---|---|---|---|---|---|---|
| Main business location |
Non-controlling interests' share of the votes |
Non-controlling interests' share of profit or loss |
Non-controlling interests' share of equity |
||||
| Subsidiary | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |
| Jokilaakson Terveys Oy | Jämsä | 10% | 49% | 298 | 1,249 | 573 | 1,838 |
| Mäntänvuoren Terveys Oy | Mänttä-Vilppula | 19% | 34% | 923 | 771 | 1,497 | 1,029 |
| Jämsän Terveys Oy | Jämsä | 49% | 49% | -177 | 426 | 575 | 752 |
| Kuusiolinna Terveys Oy | Alavus | 49% | 49% | 2,137 | 1,977 | 3,445 | 2,043 |
| Kolmostien Terveys Oy | Parkano | 19% | 29% | 114 | 168 | 303 | 288 |
| Pihlajalinna Erityisasumispalvelut Oy |
Hämeenlinna | 30% | 30% | -122 | -38 | -153 | -32 |
| Dextra Lapsettomuusklinikka Oy |
Helsinki | 49% | 49% | 303 | -52 | -355 | |
| Pihlajalinna Turku Oy | Turku | 15% | -257 | -288 | |||
| Pihlajalinna Liikuntakeskukset Group |
several | 30% | 68 | 2,718 | |||
| Suomen Yksityiset Hammaslääkärit Group |
several | 49% | 27 | 642 | |||
| Laihian Hyvinvointi Oy | Laihia | 19% | 3 | 4 | |||
| 3,316 | 4,553 | 9,264 | 5,563 |
| EUR 1,000 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
|---|---|---|---|---|---|---|---|---|---|---|
| Terveys Oy | Jokilaakson | Mäntänvuoren Terveys Oy |
Terveys Oy | Jämsän | Terveys Oy | Kuusiolinna | Kolmostien Terveys Oy |
|||
| Current assets | 8,062 | 6,087 | 15,288 | 8,154 | 11,588 | 8,745 | 20,043 | 16,150 | 6,175 | 4,217 |
| Non-current assets | 1,179 | 1,132 | 1,179 | 1,248 | 490 | 421 | 993 | 722 | 1,046 | 1,138 |
| Current liabilities | 3,332 | 3,319 | 8,217 | 6,318 | 10,813 | 7,561 | 13,875 | 12,597 | 5,612 | 4,343 |
| Revenue | 27,477 | 26,180 | 50,418 | 42,375 | 73,383 | 73,587 | 93,016 | 91,259 | 35,445 | 34,255 |
| Operating profit | 3,744 | 3,146 | 6,103 | 2,840 | -449 | 1,101 | 5,440 | 5,068 | 743 | 731 |
| Profit/loss | 2,977 | 2,548 | 4,856 | 2,267 | -361 | 870 | 4,360 | 4,034 | 601 | 578 |
| Share of profit/loss attributable to owners of the parent |
2,679 | 1,300 | 3 933 | 1,496 | -184 | 1,047 | 2,224 | 1,898 | 487 | 411 |
| Non-controlling interests' share of profit/loss |
298 | 1,249 | 923 | 771 | -177 | -177 | 2,137 | 2,137 | 114 | 168 |
| Net cash flow from operating activities |
3,367 | 3,088 | 4,068 | 3,948 | 1,972 | 2,117 | 4,090 | 4,633 | 2,894 | 2,590 |
| Net cash flow from investing activities |
-302 | -143 | -11,715 | -78 | -170 | -203 | -538 | -299 | -5,249 | -221 |
| Net cash flow from financing activities |
-1,001 | -1,000 | -38 | -1,901 | -1 | -1 | -1,502 | -2,001 | -659 | -704 |
| of which dividends paid to non-controlling interests |
-490 | -490 | -931 | -735 | -980 | -190 | -343 |
| EUR 1,000 | 2018 | 2017 | 2018 | 2017 | 2018 | 2018 | 2018 | 2018 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Lapsettomuus klinikka Oy |
Dextra | Pihlajalinna Erityisasumis palvelut Oy |
Pihlajalinna Liikunta keskukset Group |
Group | Suomen Yksityiset Hammaslääkärit |
Turku Oy | Pihlajalinna | Hyvinvointi Oy | Laihian | |||||
| Current assets | 249 | 777 | 2,901 | 873 | ||||||||||
| Non-current assets | 1,141 | 1,622 | 684 | 149 | 2,093 | 681 | 3,354 | 20 | ||||||
| Current liabilities | 1,497 | 3,124 | 1,334 | 256 | 12,010 | 1,777 | 5,546 | 870 | ||||||
| Non-current liabilities | 650 | 150 | 1,033 | 0 | 2,380 | |||||||||
| Revenue | 4,493 | 1113 | 14,890 | 4,619 | 4,570 | 1,522 | ||||||||
| Operating profit | 857 | -479 | -157 | 499 | 127 | -1,814 | 25 | |||||||
| Profit/loss | 618 | -405 | -126 | 228 | 55 | -1,716 | 15 | |||||||
| Share of profit/loss attribu table to owners of the parent |
315 | -284 | -88 | 160 | 28 | -1,459 | 12 | |||||||
| Non-controlling interests' share of profit/loss |
303 | -122 | -38 | 68 | 27 | -257 | 3 | |||||||
| Net cash flow from operating activities |
1,237 | -914 | -234 | -192 | -164 | -3,543 | 418 | |||||||
| Net cash flow from investing activities |
-28 | -481 | -117 | -3,120 | -1,499 | -2,163 | -22 | |||||||
| Net cash flow from financing activities of which dividends paid to non-controlling |
||||||||||||||
| interests | -1,763 | 1,395 | 351 | 5,079 | 1,882 | 6,066 | 0 |
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 | 2018 | 2017 | |
|---|---|---|---|
| Interests in associates |
Ullanlinnan Silmälääkärit Oy |
23 | |
| Interests in joint ventures |
Röntgentutka Oy | 3,011 | |
| Interests in joint operations |
40 | 40 | |
| Total carrying amount |
63 | 3,051 |
| Main | Holding, % | |||
|---|---|---|---|---|
| Name | business location |
Sector | 2018 | 2017 |
| Röntgentutka Oy | Tampere | Imaging | 50% | |
| Ullanlinnan | Helsinki | Health | 37% | |
| Silmälääkärit Oy | care | |||
| services |
| EUR 1,000 | ||
|---|---|---|
| Ullanlinnan Silmälääkärit Oy |
Röntgentutka Oy |
|
| 2018 | 2017 | |
| Current assets | 105 | 2,343 |
| Financial assets included in current assets |
78 | 1,850 |
| Non-current assets | 43 | 883 |
| Current liabilities | 46 | 677 |
| Financial liabilities included in current liabilities |
71 | |
| Non-current liabilities | 30 | 280 |
| Financial liabilities included in non-current liabilities |
30 | 280 |
| Revenue | 421 | 3,986 |
| Depreciation and amortisa tion |
-9 | -290 |
| Operating profit | 17 | 791 |
| Profit/loss | 13 | 631 |
| Interest income | 1 | |
| Interest expenses | -3 | -3 |
| Income tax expenses or income |
-157 | |
| Associate's net assets | 72 | 2,269 |
| Group's holding | 37% | 50% |
| Joint venture's carrying amount in the consolidated statement of financial |
||
| position | 23 | 3,011 |
The share of associates' profit is presented under other operating expenses up to the carrying amount of the Group's
REPORT BY THE BOARD OF DIRECTORS
investment in their shares. During the financial year 2018, the Group acquired control in Röntgentutka Oy.
The Group owns 31% in Kiinteistö Oy Levin Pihlaja, which is consolidated as a joint operation according to the pro rata share.
The Group has leased almost all of the premises it uses. The lease terms range from from a few years to fifteen years, and normally they include the option to extend the lease after the original expiry date. The leases generally include an index clause.
Minimum lease payments under non-cancellable operating
| leases: | ||
|---|---|---|
| EUR 1,000 | 2018 | 2017 |
| Within one year | 18,152 | 8,278 |
| More than one year and a maximum of five years later |
52,754 | 22,752 |
| Over five years later | 54,902 | 19,057 |
| Total | 125,807 | 50,087 |
The amount of lease liabilities has increased significantly due to acquisitions.
The Group leases out parts of its premises under operating leases. The amount of rental income is not material.
| 2018 | 2017 |
|---|---|
| 1,300 | 1,300 |
| 320 | 3 099 |
At the time of the financial statements, the Group had no pending lawsuits or official proceedings.
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 and the Deputy CEO.
The Group's parent company is Pihlajalinna Plc, which owns the entire share capital of Doctagon Ab and all of Pihlajalinna Terveys Oy's Series A shares. Doctagon Ab owns the shares in Impact Care Oy and Pihlajalinna Terveys Oy owns the shares in the other subsidiaries.
| COMPANY | Domicile | Holding | % of votes |
|---|---|---|---|
| Parent company Pihlajalinna Plc | Tampere | ||
| Doctagon Ab | Helsinki | 100% | 100% |
| Impact Care Oy | Helsinki | 100% | 100% |
| Pihlajalinna Terveys Oy | Tampere | 100% | 100% |
| Parent company Pihlajalinna Plc | Jämsä | 100% | 100% |
| Jokilaakson Terveys Oy | Jämsä | 90% | 90% |
| Pihlajalinna Lääkärikeskukset Oy | Helsinki | 100% | 100% |
| Mäntänvuoren Terveys Oy | Mänttä-Vilppula | 81% | 81% |
| 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 | 81% | 81% |
| Jämsän Terveys Oy | Jämsä | 51% | 51% |
| Kuusiolinna Terveys Oy | Alavus | 51% | 51% |
| PihlajalinnaTampere Oy | Tampere | 100% | 100% |
| Lääkäriasema DokTori Oy | Lappeenranta | 100% | 100% |
| Etelä-Pohjanmaan Sydäntutkimuspalvelu Oy | Seinäjoki | 100% | 100% |
| Kompassi Hammaslääkärikeskus Oy | Seinäjoki | 100% | 100% |
| Kompassi Lääkärikeskus Oy | Seinäjoki | 100% | 100% |
| Ala-Malmin Hammaslääkärit Oy | Helsinki | 100% | 100% |
| Mediapu Oy | Oulu | 100% | 100% |
| Pihlajalinna Oulu Oy | Oulu | 100% | 100% |
| Pihlajalinna Seinäjoki Oy | Seinäjoki | 100% | 100% |
| Pihlajalinna Turku Oy | Turku | 100% | 100% |
| Pihlajalinna Solutions Oy | Tampere | 100% | 100% |
| Pihlajalinna Erityisasumispalvelut Oy | Hämeenlinna | 70% | 70% |
| Pihlajalinna Madetojanpuisto Oy | Oulu | 100% | 100% |
| Pihlajalinna Parainen Oy | Parainen | 100% | 100% |
| Dextra Lapsettomuusklinikka Oy | Helsinki | 51% | 51% |
| Hattulan Hyvinvointi Oy | Hattula | 100% | 100% |
| Someron Lääkäriasema Oy | Somero | 100% | 100% |
| Salon Lääkäriasema Oy | Salo | 100% | 100% |
| Pihlajalinna Kymijoki Oy | Kotka | 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 | 51% | 51% |
| Tampereen Hammaspiste Oy | Tampere | 51% | 51% |
| Hammaslääkäripalvelu Savodent Oy | Kuopio | 51% | 51% |
| Hammaspirta Oy | Oulu | 51% | 51% |
| Paimion Hammaslääkäripalvelu Oy | Paimio | 51% | 51% |
| Salon Hammaslääkärikeskus Oy | Salo | 51% | 51% |
| Mandipula Raisio Oy | Raisio | 51% | 51% |
| Hammaslääkärikeskus Mandipula Oy | Raisio | 51% | 51% |
| Laihian Hyvinvointi Oy | Laihia | 81% | 81% |
| Anula Oy | Hämeenlinna | 100% | 100% |
| Terveyspalvelu Verso Oy | Iisalmi | 100% | 100% |
Information on the associates is presented in Note 28 Interests in associates and joint arrangements.
The following changes in Group structure took place during the financial year:
Hoivakoti Nestori Oy merged with Ikipihlaja Johanna Oy on 1 May 2018 (sister company merger).
Tampereen Röntgenkonsultit Oy merged with Pihlajalinna Tampere Oy on 30 November 2018 (subsidiary merger).
Röntgentutka Oy merged with Pihlajalinna Tampere Oy on 1 December 2018 (subsidiary merger).
The business operations of Salon Lääkintälaboratorio Oy and Someron Lääkäriasema Oy were sold to Pihlajalinna Turku Oy on 1 October 2018.
The business operations of Doctagon Ab's Helsinki branch were sold to Pihlajalinna Lääkärikeskukset Oy on 31 December 2018.
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Salaries and other short-term employee benefits, Management Team |
1,465 | 853 |
| Advisor fees, Mikko Wirén | 87 | |
| Advisor fees, Leena Niemistö | 16 | |
| Total | 1,465 | 955 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| CEO Joni Aaltonen (since 11 December 2017) |
285 | 7 |
| CEO Aarne Aktan (until 10 December 2017) |
332 | |
| Members of the Board of Directors | ||
| Leena Niemistö | 44 | 54 |
| Jari Sundström | 36 | 35 |
| Mikko Wirén | 262 | 212 |
| Seija Turunen | 38 | 35 |
| Jari Eklund (until 5 April 2018) | 9 | 35 |
| Timo Everi | 37 | 34 |
| Matti Bergendahl (since 5 April 2018) | 45 | |
| Gunvor Kronman (since 5 April 2018) | 28 | |
| Kati Sulin (since 5 April 2018) | 29 | |
| Total | 811 | 743 |
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.
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Key management personnel | ||
| Rents paid | 982 | 1,057 |
| Services procured | 1,207 | 1,289 |
| Trade payables | 124 | 64 |
| Associates | ||
| Services sold | 9 | |
| Services procured | 35 | 1,022 |
| Rents received | 20 | 241 |
| Interest received | 88 | |
| Dividends received | 100 | |
| Trade payables | 83 | |
The Group has leased several of its business premises from members of the key management personnel, including 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.
Pihlajalinna Plc's Shareholders' Nomination Board submitted its proposals to the company's Board of Directors, to be presented to the Annual General Meeting of 2019.
The Nomination Board proposes to the Annual General Meeting of Pihlajalinna Plc, scheduled to be held on 4 April 2019, that the number of the members of the Board of Directors be confirmed as seven, instead of the current number (eight). The Nomination Board proposes that Leena Niemistö, Kati Sulin, Seija Turunen and Mikko Wirén, currently members of the Board of Directors, be re-elected as members of the Board of Directors. The Nomination Board further proposes that Mika Manninen, Hannu Juvonen and Matti Jaakola be elected as new members of the Board of Directors.
Mika Manninen (b. 1975, Master of Science in Economics and Business Administration) is a member of Fennia Group's Management Team and is currently the Group CFO. Prior to this, he worked as the Fennia Group's Risk Management Director from 2015 to 2017. Manninen has over 10 years of experience in various positions in banking from 2001 to 2015. Hannu Juvonen (b. 1955, Licentiate of Medicine, Specialist, MBA) was most recently the Director of the Kanta-Häme Hospital District from 2016 to 2018, and has held management positions in the Helsinki Social Services and Health Care Division from 2013 to 2016 and in East Savo Hospital District from 2009 to 2012. He previously worked as the Investment Director of Korona Invest Oy from 2007 to 2009, and as an expert and Community Relations and Communication director at Pfizer Oy from 2000 to 2006. He was a full-time private medical practitioner from 1990 to 2000. In conjunction with his positions he has accumulated experience of holding Board positions in several companies and other organisations.
Matti Jaakola (b. 1955, Master of Science in Economics and Business Administration) has a long track record of holding various marketing and management positions in international and Finnish companies. He is currently the Chairman of the Board of Directors of two Finnish industrial companies and a member of the Board of Directors of a foreign forest industry
company. He has also been a partner of CV Group Oy since 2012 and the CEO of CapWell Oy since 2006. Jaakola has been the CEO of the Georgia-Pacific Corporation in North Europe and of Henkel KgA in the Nordic countries, and has held various management positions in Metsä Group. Jaakola has extensive experience of Board work both in Finland and abroad, and has been involved in the administration of key industry associations.
The personal details of the current members of the Board and details of their positions of trust are available on the company's investor website 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 otherwise 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 Annual General Meeting for the term of office ending at the close of the Annual General Meeting 2020: to the fulltime 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. 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 abovementioned proposals will also be included in the notice of the Annual General Meeting, to be published at a later date.
Pihlajalinna increased its ownership of Kolmostien Terveys Oy by agreeing to buy 15% of the shares in the company at the end of February 2019. Following the transaction, the City of Parkano will own 4% of the company and Pihlajalinna will own 96%.
The share-based long-term incentive programme for the company's key employees approved by the Board of Directors of Pihlajalinna Plc on 14 May 2018 became void, as the required level of adjusted operating profit was not achieved. No rewards will be paid under the incentive programme.
A precondition for the payment of share rewards based on the plan was that the actual adjusted operating profit for the calendar year 2018 meet the company's outlook effective on 14 May 2018.
During the financial year, the company did not use any share-based incentive schemes pertaining to the Board of Directors.
| EUR 1,000 | Note | 1.1.–31.12.2018 | 1.1.–31.12.2017 |
|---|---|---|---|
| REVENUE | 1.1. | 2,428 | 1,556 |
| Other operating income | 1.2. | 304 | |
| Personnel expenses | 1.3. | -1,350 | -1,749 |
| Depreciation, amortisation and impairment | 1.4. | -1,072 | -310 |
| Other operating expenses | 1.5. | -2,966 | -2,000 |
| OPERATING PROFIT (LOSS) | -2,656 | -2,503 | |
| Financial income and expenses | 1.6. | 321 | 20,476 |
| PROFIT (LOSS) BEFORE | |||
| APPROPRIATIONS AND TAXES | -2,335 | 17,972 | |
| Appropriations | 1.7. | ||
| Change in depreciation difference | -501 | -13 | |
| Group contribution | 2,900 | 4,795 | |
| Income taxes | 1.8. | -13 | -545 |
| PROFIT (LOSS) | |||
| FOR THE FINANCIAL YEAR | 52 | 22,210 | |
STRATEGY PARTNERSHIP
| EUR 1,000 | Note | 31.12.2018 | 31.12.2017 |
|---|---|---|---|
| ASSETS | |||
| NON-CURRENT ASSETS | |||
| Intangible assets | 2.1. | 5,003 | 2,712 |
| Tangible assests | 2.2. | 3,015 | 121 |
| Investments | 2.3. | 204,485 | 173,791 |
| 212,504 | 176,624 | ||
| CURRENT ASSETS | |||
| Non-current receivables | 2.4. | 61 | 61 |
| Current receivables | 2.5. | 115,308 | 48,926 |
| Cash and cash equivalents | 2,272 | 21 | |
| 117,642 | 49,008 | ||
| TOTAL ASSETS | 330,145 | 225,633 |
| EQUITY | 2.6. | ||
|---|---|---|---|
| Share capital | 80 | 80 | |
| Reserve for invested unrestricted equity | 183,190 | 153,085 | |
| Retained earnings | 24,126 | 5,535 | |
| Profit/loss for the financial year | 52 | 22,210 | |
| 207,448 | 180,911 | ||
| Accumulated appropriations | 2.7. | 514 | 13 |
| LIABILITIES | 2.8. | ||
| Non-current liabilities | 93,368 | 34,037 | |
| Current liabilities | 28,816 | 10,672 | |
| 122,184 | 44,709 | ||
| TOTAL EQUITY AND LIABILITIES | 330,145 | 225,633 |
| EUR 1,000 | 1.1.–31.12.2018 | 1.1.–31.12.2017 |
|---|---|---|
| CASH FLOW FROM OPERATING | ||
| ACTIVITIES | ||
| Cash receipts from sales | 2,639 | 877 |
| Cash receipts from other operating income | 304 | |
| Operating expenses paid | -4,782 | -3,988 |
| Operating cash flow before financial income and taxes |
-1,839 | -3,111 |
| Interest received | 2,263 | 1,251 |
| Taxes paid | -547 | -841 |
| Cash flow from operating activities | -123 | -2,701 |
| CASH FLOWS FROM INVESTING | ||
| ACTIVITIES | ||
| Investments in tangible and intangible assets | -3,263 | -1,453 |
| Investments in subsidiaries | -589 | |
| Dividends received | 20,031 | |
| Cash flow from investing activities | -3,852 | 18,578 |
| CASH FLOWS FROM FINANCING ACTIVITIES |
||
| Proceeds from short-term borrowings from | ||
| group companies | 19,235 | -16,809 |
| Loans granted to Group companies | -67,747 | -10,875 |
| Repayment of short-term borrowings | -1,178 | |
| Proceeds from short-term borrowings | 835 | |
| Proceeds from long-term borrowings | 91,000 | 14,500 |
| Repayment of long-term borrowings | -34,438 | -5,034 |
| Group contributions received | 4,795 | 5,176 |
| Interest paid | -1,821 | -560 |
| Dividends paid | -3,619 | -3,092 |
| Cash flows from financing activities | 6,227 | -15,858 |
| CHANGE IN CASH AND CASH | ||
| EQUIVALENTS | 2,252 | 19 |
| Cash at the beginning of the financial year | 21 | 1 |
| Cash at the end of the financial year | 2,272 | 21 |
STRATEGY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
Pihlajalinna Plc (2617455-1), domiciled in Tampere, is the parent company of Pihlajalinna Group.
The company was established on 15 April 2014.
Intangible 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.
The planned depreciation periods are as follows:
| 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 acquisition cost or at probable fair market value at the balance sheet date, if the estimated future revenue generated is expected to be permanently lower.
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 costs are related to the development of Pihlajalinna mobile application and the company website. The Pihlajalinna mobile application was introduced in financial year 2017 in Pihlajalinna's occupational healthcare accounts and for insurance customers. The mobile application makes it possible to provide a quick and easy AI-assisted remote doctor service via chat and video. Online services support the brand revamp and enable booking and access to personal health information for private customers, insurance customers and occupational healthcare customers. The development of the Pihlajalinna mobile application and online services continued in financial year 2018.
The amortisation period for the Pihlajalinna mobile application is set at seven years to reflect its useful life. The capitalised costs of development projects totalled EUR 1,606 (1,164) thousand in 2018. Unamortised capitalised development costs included in intangible assets, which restricts profit distribution, amounted to EUR 1,281 (1,103) thousand at the end of the financial year.
AUDITED FINANCIAL STATEMENTS
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.
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Revenues by sector | ||
| Sale of services | 2,428 | 1,556 |
| 2,428 | 1,556 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Lease income from equipment | 304 | |
| 304 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Wages and salaries | -1,215 | -1,516 |
| Pension costs | -127 | -210 |
| Other social security expenses | -7 | -23 |
| -1,350 | -1,749 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Depreciation according to plan | ||
| Intangible assets | -741 | -286 |
| Property, plant and equipment | -331 | -23 |
| -1,072 | -310 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Voluntary social security expenses | -58 | -83 |
| Facility expenses | -241 | -44 |
| Vehicle expenses | -31 | -47 |
| ICT expenses | -1,628 | -999 |
| Machinery and equipment expenses | -1 | -6 |
| Sales, marketing and travel expenses | -49 | -26 |
| Administrative expenses | -958 | -796 |
| Other operating expenses, total | -2,966 | -2,000 |
| Auditor's fees | ||
| audit fees | -70 | -63 |
| auxiliary services | -10 | -2 |
| -80 | -65 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Dividend income | ||
| From Group companies | 20,031 | |
| Dividend income, total | 20,031 | |
| Interest income from non-current investments |
||
| From Group companies | 2,256 | 907 |
| From others | 0 | 27 |
| Interest income from noncurrent investments, total |
2,256 | 933 |
| Interest expenses and other financial expenses |
||
| To others | -1,935 | -489 |
| Interest expenses and other financial expenses, total |
-1,935 | -489 |
| Financial income and expenses, total | 321 | 20,476 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Difference between depreciation according to plan and depreciation in |
||
| taxation Group contributions received |
-501 2,900 |
-13 4,795 |
| 2,399 | 4,782 |
| EUR 1,000 | 2018 | 2017 |
|---|---|---|
| Change in deferred tax assets | -19 | |
| Income taxes on actual operations during the financial year |
-13 | -526 |
| -13 | -545 |
| EUR 1,000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Development costs | ||
| Acquisition cost at the start of the | ||
| financial year | 1,164 | |
| Additions Acquisition cost at the end of the |
443 | 1,164 |
| period | 1,607 | 1,164 |
| Accumulated amortisation according to plan during the financial year |
-61 | |
| Amortisation according to plan during the financial year |
-264 | -61 |
| Carrying amount at the end of the period |
1,281 | 1,103 |
| Other intellectual property rights | ||
| Acquisition cost at the start of the | ||
| financial year | 1,464 | 1,183 |
| Additions Transfers between items |
13 17 |
282 |
| Acquisition cost at the end of the | ||
| period | 1,494 | 1,464 |
| Accumulated amortisation according to plan during the financial year |
-321 | -115 |
| Amortisation according to plan during the financial year |
-224 | -205 |
| Carrying amount at the end of the period |
950 | 1 144 |
| Other long-term expenditures | ||
| Acquisition cost at the start of the financial year |
470 | |
| Additions | 2,342 | 470 |
| Transfers between items | 15 | |
| Acquisition cost at the end of the period |
2,827 | 470 |
| Accumulated amortisation according to plan during the financial year |
-20 | |
| Amortisation according to plan during the financial year |
-253 | -20 |
| Carrying amount at the end of the period |
2,554 | 451 |
| Prepayments for intangible assets | ||
| Acquisition cost at the beginning | 15 | |
| Additions | 217 | 15 |
| Transfers between items | -15 | |
| Acquisition cost at the end of the | ||
| period | 217 | 15 |
| Intangible assets, total | ||
| Acquisition cost at the start of the financial year |
3,114 | 1,183 |
| Additions | 3,015 | 1,931 |
| Transfers between items | 17 | 0 |
| Acquisition cost at the end of the period |
6,146 | 3,114 |
| Accumulated amortisation according to plan during the financial year |
-402 | -115 |
| Amortisation according to plan during the financial year |
-741 | -286 |
| Carrying amount at the end of the | ||
| period | 5,003 | 2,712 |
STRATEGY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
| EUR 1,000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Machinery and equipment | ||
| Acquisition cost at the start of the financial year |
144 | |
| Additions | 3,242 | 144 |
| Transfers between items | -19 | |
| Acquisition cost at the end of the period |
3,367 | 144 |
| Accumulated amortisation according to plan during the financial year |
-23 | |
| Accumulated depreciation on disposals and transfers |
3 | |
| Amortisation according to plan during the financial year |
-331 | -23 |
| Carrying amount at the end of the period |
3,015 | 121 |
| Property, plant and equipment, total | ||
| Acquisition cost at the start of the financial year |
144 | |
| Additions | 3,242 | 144 |
| Transfers between items | -19 | |
| Acquisition cost at the end of the period |
3,367 | 144 |
| Accumulated amortisation according to plan during the financial year |
-23 | |
| Accumulated depreciation on disposals and transfers |
3 | |
| Amortisation according to plan during the financial year |
-331 | -23 |
| Carrying amount at the end of the period |
3,015 | 121 |
| EUR 1,000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Shares in subsidiaries | ||
| Acquisition cost at the start of the financial year |
173,791 | 173,791 |
| Additions | 30,694 | |
| Acquisition cost at the end of the period |
204,485 | 173,791 |
| Total investments | 204,485 | 173,791 |
A full list of the Group's subsidiaries is presented in the notes to the consolidated financial statements in Note 31 Related party transactions.
| EUR 1,000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Receivables from others | ||
| Lease deposits given | 61 | 61 |
| Total non-current receivables | 61 | 61 |
| EUR 1,000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Receivables from others | ||
| Other receivables | 47 | 143 |
| Prepayments and accrued income | 1,846 | 985 |
| 1,894 | 1,128 | |
| Receivables from Group companies | ||
| Trade receivables | 480 | 691 |
| Loan receivables | 110,018 | 42,271 |
| Prepayments and accrued income | 2,916 | 4,836 |
| 113,414 | 47,798 | |
| Material items included under Prepayments and accrued income |
||
| Group contribution | 2,900 | 4,795 |
| Accrued direct taxes | 850 | 315 |
| Accrued social security expenses | 102 | 98 |
| Accrued interest income | 0 | 11 |
| Other | 910 | 602 |
| 4,762 | 5,821 | |
| Total current receivables | 115,308 | 48,926 |
| EUR 1,000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| 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 | 153,085 | 153,085 |
| Directed share issue | 30,105 | |
| Reserve for invested unrestricted equity | ||
| at the end | 183,190 | 153,085 |
| Retained earnings at the beginning | 27,745 | 8,627 |
| Dividends paid | -3,619 | -3,092 |
| Retained earnings | 24,126 | 5,535 |
| Profit for the financial year | 52 | 22,210 |
| Total unrestricted equity | 207,368 | 180,831 |
| Total equity | 207,448 | 180,911 |
| Distributable unrestricted equity | ||
| Retained earnings | 24,126 | 5,535 |
| Profit for the financial year | 52 | 22,210 |
| Reserve for invested unrestricted equity | 183,190 | 153,085 |
| Capitalised development costs | -1,281 | -1,103 |
| 206,087 | 179,728 |
| EUR 1,000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Accumulated depreciation difference | 514 | 13 |
| 2.8. LIABILITIES | ||
|---|---|---|
| ------------------ | -- | -- |
| EUR 1,000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| 2.8.1 Non-current liabilities | ||
| Liabilities to others | ||
| Loans from financial institutions | 91,000 | 34,000 |
| Other non-current liabilities | 2,368 | 37 |
| 93,368 | 34,037 | |
| Non-current liabilities, total | 93,368 | 34,037 |
| EUR 1,000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| 2.8.2 Current liabilities | ||
| Liabilities to others | ||
| Loans from financial institutions | 1,178 | |
| Trade payables | 253 | 301 |
| Other liabilities | 793 | 99 |
| Accrued liabilities | 263 | 402 |
| 1,308 | 1,980 | |
| Liabilities to Group companies | ||
| Trade payables | 79 | 500 |
| Accrued liabilities, interest | 1 | |
| Other liabilities | 27,427 | 8,193 |
| 27,507 | 8,692 | |
| Material items included under accrued liabilities |
||
| Personnel expense allocations | 92 | 166 |
| Interest allocations | 111 | |
| Other items | 61 | 236 |
| 264 | 401 | |
| Current liabilities, total | 28,816 | 10,672 |
| EUR 1,000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Collaterals and contingent liabilities |
||
| Collaterals given on behalf of Group companies |
||
| Other sureties | 1,700 |
Pihlajalinna reorganised its debt financing in the first quarter of the 2018 financial year. A new five-year EUR 120 million unsecured financing arrangement was concluded 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.
At the end of the reporting period, 31 December 2018, the withdrawn loan amount to which the covenants apply was 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 2018, with the leverage ratio being 2.61 and gearing 69%.
The Group's credit limit agreements valid until further notice, totalling EUR 10 million, remained unchanged. The notice period of the credit limit agreements is one month.
At the end of the financial year, Pihlajalinna had EUR 39.0 million in unused committed credit limits.
| EUR 1,000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Total amount of lease liabilities | ||
| Within one year | 38 | |
| Between one and five years | 54 | |
| Over five years later | ||
| Total amount of lease commitments | ||
| Within one year | 147 | 204 |
| Between one and five years | 559 | 554 |
| Over five years later | 478 | 611 |
PIHLAJALINNA 2018 RESPONSIBILITY STRATEGY PARTNERSHIP
Helsinki, 14 February 2019
Mikko Wirén Chairman
Matti Bergendahl
Seija Turunen
Kati Sulin
Joni Aaltonen CEO
AUDITOR'S NOTE
A report on the performed audit has been issued today.
Tampere, 14 February 2019
KPMG Oy Ab
Lotta Nurminen
Authorised Public Accountant
Leena Niemistö
Timo Everi
Jari Sundström
Gunvor Kronman
This document is an English translation of the Finnish auditor's report. Only the Finnish version of the report is legally binding.
We have audited the financial statements of Pihlajalinna Plc (business identity code 2617455-1) for the year ended 31 December 2018. 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.
In our opinion
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.
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.
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.
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 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.
Goodwill impairment assessment (refer to note 13 to the consolidated financial statements)
| • The Group has expanded its activities through acquisition of companies. As a result, the consolidated statement of financial position includes a significant amount of goodwill. |
• 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 |
|---|---|
| • Goodwill is not amortized but is tested at least annually for impairment. Determining the cash flow forecasts underlying the impairment tests requires management make judgments over |
budgets, data external to the Group and our own views. In addition we assessed the reallocation of goodwill and other assets to the cash-generating units in the new reporting structure. |
| certain key inputs, for example revenue growth rate, discount rate, long-term growth rate and inflation rates. |
• We assessed the historical accuracy of forecasts prepared by management by comparing the actual results for the year with the original forecasts. |
| • The cash-generating units have changed as a consequence of changes in the company's reporting structure. Thus the assets to be tested have been reallocated to these units which has also required management judgment. |
• We involved KPMG valuation specialists that assessed the technical accuracy of the calculations and compared the assumptions used to market and industry information. |
| • Due to the high level of judgement related to the forecasts used, and the significant carrying amounts involved, goodwill impairment assessment is considered a key audit matter. |
• Furthermore, we considered the appropriateness of the Group's disclosures in respect of goodwill and impairment testing. |
STRATEGY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
AUDITED FINANCIAL STATEMENTS
INFORMATION FOR SHAREHOLDERS
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.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company's or the group's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
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 4 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 14 February 2019 KPMG OY AB
Lotta Nurminen Authorised Public Accountant, KHT STRATEGY PARTNERSHIP
REPORT BY THE BOARD OF DIRECTORS
The Annual General Meeting of Pihlajalinna Plc will be held in Tampere-talo, Duetto 2 meeting room, located at Yliopistonkatu 55, 33100 Tampere, on Thursday, 4 April 2019 at 11:00 a.m. The reception of participants who have registered for the meeting will commence at 10:00 a.m.
A shareholder entered in the list of the company's shareholders maintained by Euroclear Finland Ltd on the record date of the General Meeting, 25 March 2019, has the right to participate in the General Meeting.
A shareholder who is registered in the shareholders' register of the Company and who wants to participate in the Annual General Meeting, shall register for the meeting no later than 28 March 2019 at 10:00 a.m. Registration for the meeting is possible via the registration link on the website at investors.pihlajalinna.fi, by letter to Pihlajalinna Oyj, Yhtiökokous 2019, 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 2019, Kehräsaari B, 33200 Tampere, Finland.
The Board of Directors proposes that a dividend of EUR 0.10 per share be paid for the financial year that ended on 31 December 2018 based on the adopted statement of financial position. The dividend would be paid to a shareholder who on the dividend record date, 8 April 2019, is registered as a shareholder in the Company's shareholders' register maintained by Euroclear Finland Ltd. The Board of Directors proposes that the dividend be paid on 15 April 2019.
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.
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.
Taina Erkkilä, Director, Communications and Investor Relations, +358 40 457 7897, [email protected]
Additional information is available in the investor section at investors.pihlajalinna.fi
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