Annual Report • Mar 14, 2017
Annual Report
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Pihlajalinna Annual Report
2016
| From the CEO2 | |
|---|---|
| From the Chairman of the Board of | |
| Directors3 | |
| Operational environment4 | |
| Business and strategy6 | |
| Segments8 | |
| Responsibility12 |
| Tax footprint14 | |
|---|---|
| Personnel16 | |
| Responsibility for environment18 | |
| Information security 19 | |
| Corporate Governance20 | |
| Board of Directors22 | |
| Management Team23 | |
| Financial Statements24 | |
| Information for shareholders79 | |
1 January 2016 Social and healthcare services produced jointly by Pihlajalinna and the municipalities commence in the Kuusiokunnat area 8 February 2016 Pihlajalinna acquires Itä-Suomen Lääkärikeskus 1 August 2016 A new, 10+5-year agreement period begins in the production of social and healthcare services for Mänttä-Vilppula 8 August 2016 Pihlajalinna's founder and CEO Mikko Wirén becomes the Chairman of the Board of Directors 7 September 2016 Changes to the Group's Management Team and its structure (see Page 23) 10 November 2016 Tervola chooses Pihlajalinna as the municipality's social and healthcare service 14 December 2016 Hattula chooses Pihlajalinna as the municipality's social and healthcare service partner
and Aarne Aktan becomes the Group's CEO
partner
Pihlajalinna is one of the largest social and healthcare service providers in Finland. The company's customers include private individuals, businesses, insurance companies and public sector entities, such as municipalities and joint municipal authorities.
Pihlajalinna's growth and development continued to be extremely strong in 2016. Thanks for that go to our customers, partners and employees.
We plan to grow and expand also in the coming years, but we will also focus on improving the profitability of our existing business. The building blocks of the future healthcare and social welfare restructuring are still scattered all around. Despite this, Pihlajalinna is preparing for the future by expanding nationally and by transferring under one brand, Pihlajalinna.
One of Pihlajalinna's greatest strengths has been the ability to transform, and we will hold on to that also in the future. Changes in society strongly affect the market for private social welfare and healthcare but our own ability to react and transform is the key to making the most of the new opportunities that will be available.
In 2016, we started developing new digital services and the results will be available for customers this spring. Our objective is to be the best Finnish actor in digital services by the end of this year. The objective is a demanding one but we will make it.
Pihlajalinna is in many ways a special company. We have grown amazingly quickly into a business creating hundreds of millions in revenue. We are the largest company owned by Finns in the field and we pay all our taxes to Finland. We are the first, and so far the only, company that has founded joint ventures together with municipalities to produce all social welfare and healthcare services for people of the municipalities.
I am so proud to lead Pihlajalinna in a time when we as a company can change Finland and its future.
CEO
I founded Pihlajalinna in 2001 as a young Bachelor of Medicine. Back then, my objective was to develop more influential ways to produce health and improve the organisation of social welfare and healthcare work. Now, 15 years later, Pihlajalinna employs more than 4,000 people. We have together developed new operating models and more efficient ways of taking care of people and their wellbeing.
Creating new operating models is at the core of the future healthcare and social welfare restructuring. One of the most important goals of the healthcare and social welfare reform is to cut the sustainability gap in public finances. Achieving the goal
requires a clear direction and wise decisions from political decision-makers. Experts say the best solution is a model in which the service provider assumes the responsibility for the overall costs of the customers' healthcare.
Pihlajalinna has already realised this concept in municipal outsourcings in which joint ventures of Pihlajalinna and municipalities are responsible for all costs of a municipality's social welfare and healthcare. As a result, we have achieved significant savings and more satisfied customers. Decision-makers have to make sure that the future social welfare and healthcare model provides strong enough incentive for all actors in the field to invest in high quality and customer service but also in cost efficiency. This can be done by investing in prevention and functional services that are close by, for instance.
The objectives of Pihlajalinna's early days are still relevant. Now I implement them in a different role after August 2016 when I moved from the CEO's seat to Chairman of the Board of Directors. In my new role, I am still strongly creating growth for the company and will continue to make sure that Pihlajalinna challenges familiar models also in the future.
Chairman of the Board of Directors
The future healthcare and social welfare restructuring will transform the business operations of social and healthcare service providers operating in Finland. The patient will become a customer exercising power as people will get a more extensive right to choose the service provider both in healthcare and in social services.
Along with freedom of choice, fixed pricing will become more common. When a fixed compensation is paid for serving a customer, it makes sense for the service provider to invest in prevention and to ensure as quick recovery as possible. Applying fixed compensations, or the so-called capitation model, encourages the service provider to look after health instead of just treating diseases.
In 2016, approximately 60 per cent of Pihlajalinna's revenue came from fixedprice agreements, which is a clearly higher percentage than with our competitors or public sector operators. The majority of this consists of fixed-price municipal
EUR million
outsourcings – a field in which Pihlajalinna has gained a great deal of knowledge and experience. Thanks to the lessons learnt, we know how to operate under the fixed-price model.
The growth of the overall Finnish social and healthcare market has slowed down. In 2015, the entire market for social and healthcare services amounted to EUR 29.0 billion (Statistics Finland), showing a yearon-year growth of 2.3 per cent. In the future, the growth of private social and healthcare
companies is based, first and foremost, on a new division of tasks among public and private sector.
During the past few years already, the market for privately produced healthcare has grown more strongly than that for publicly produced healthcare. The factors behind this development include, among other things, the increasing number of voluntary medical expenses insurance policies and the growth of the occupational healthcare market.
The private production's share of publicly funded social and healthcare services will probably increase once the healthcare and social welfare reform expands freedom
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 400 350 300 250 200 150 100 50 0
Pihlajalinna focuses on general practitioner and medical specialist services but also expands its operations to outsourcing and establishes the first private clinic.
The company builds its private clinic network and expands its service offering to outsourcing, occupational healthcare and care services.
Strong growth from complete municipal outsourcings, Pihlajalinna becomes a fullservice social and healthcare service provider.
of choice. At present, approximately one fourth of social and healthcare services are produced by private operators. The Government's goal is that, after the full implementation of the healthcare and social welfare reform, roughly two thirds of the market will be within the framework of freedom of choice.
During its 15 years of existence, Pihlajalinna has transformed itself from a small medical staffing agency to a full-service social and healthcare service provider. Thanks to its ability to transform, the company has grown strongly especially in the publicly funded market (in municipal outsourcing, for instance).
EUR MILLION
* Includes long-term care for the elderly and the disabled. Source: NIHW: Health Expenditure and Financing 2014, Pihlajalinna
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. Nowadays the most common diseases among Finns are lifestyle-related. For the working-age 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.
AVERAGE ANNUAL GROWTH RATE:
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. In 2016, more than one million Finns had a voluntary medical expenses insurance policy. We assume that the demand for voluntary insurance policies will continue growing at least until 2019.
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.
The cornerstones of Pihlajalinna's business model are a broad service offering, an efficient care chain and cooperation between the Group's segments.
Pihlajalinna's growth has been driven, first and foremost, by municipal social and healthcare service outsourcings. The foundation for the company's success is the joint venture model developed by the founder of the company, Mikko Wirén, in which a private service provider and a public operator act as partners (see Page 14).
Pihlajalinna's strategy is based on a broad service offering that enables the company to grow in both private and public social and healthcare as well as to diversify risks.
The broad service offering guarantees Pihlajalinna's ability to guide customer flows efficiently within the Group. For instance,
specialised care customers from municipal outsourcings can be offered a quality option among the Group's own hospitals and clinics along with the public services. This ensures that the customers receive effective care quickly.
In 2016, Pihlajalinna grew and expanded its operations in line with its strategy. The majority of the organic growth arose from the municipal outsourcing market. In the Kuusiokunnat area in Ostrobothnia, the service production for the largest municipal outsourcing in Finland so far started at the
beginning of the year. The new social and healthcare outsourcing agreement between Pihlajalinna and Mänttä-Vilppula entered into force in August, and towards the end of the year, both Tervola and Hattula chose Pihlajalinna as their social and healthcare service partner. The latter partnerships had no impact on revenue in 2016. In the private sector business operations, the most significant changes were the integration of Tampereen Lääkärikeskus (Koskiklinikka), acquired at the end of 2015, and the integration of Itä-Suomen Lääkärikeskus (ITE), acquired in February 2016.
PRIMARY AND SOCIAL CARE SERVICES: • social and healthcare outsourcings • residential services • staffing CUSTOMERS: • public sector entities • Group's own units (staffing services) • private individuals (care services) PRIVATE CLINICS AND SPECIALISED CARE SERVICES: • general practitioner and medical specialist services (emergency and on-call services, diagnostics, surgical services and occupational healthcare and dental care services etc.) CUSTOMERS: • private individuals • businesses • insurance companies • public sector entities RECEPTION CENTRES CARE STAFFING OCCUPATIONAL HEALTHCARE JOINT VENTURES AND OUTSOURCINGS The weak growth of the national economy Lifestyle diseases and the distribution of wellbeing The ageing of the population Structural changes in society, e.g. the healthcare and social welfare reform Individuals' interest in their own health and wellbeing Individuality, freedom of choice and expression of will The increase in the number of voluntary insurance policies Insurance companies PRIVATE CLINICS DENTAL CARE SURGICAL OPERATIONS AND PUBLIC SPECIALISED CARE Customer guidance Services within the Group
Pihlajalinna's Private Clinics and Specialised Care segment (C & S) operates under the Dextra brand. The segment is divided into four service areas.
Pihlajalinna Group's private clinics provide various primary and specialised care services. Medical specialists work in specialities such as orthopaedics, ear, nose and throat diseases, gynecology, dermatology and general medicine. Diagnostic services include MRI, X-ray and ultrasound imaging and laboratory services. There are specialised clinics among private clinics, such as the Sports and Injury Clinic and the Dextra Fertility Clinic.
Pihlajalinna produces surgical services in Helsinki, Tampere, Joensuu, Jämsä and Ähtäri. Of these, Dextra Hospital Munkkivuori, Dextra Laser Tilkka and Dextra Plastic Surgery Hospital operate in Helsinki, Dextra Koskisairaala in Tampere, Dextra Lääkärikeskus ITE in Joensuu, Jokilaakso Hospital in Jämsä and Ähtäri Hospital in Ähtäri. The Surgical Operations and Public Specialised Care service area provides a wide range of general surgery services and a variety of specialised surgical services in specialities such as orthopaedics, plastic surgery, ear, nose and throat diseases, abdominal surgery, vascular surgery and urology.
Dextra Occupational Healthcare provides companies and organisations with comprehensive occupational healthcare and wellbeing services. All services of Dextra Occupational Healthcare are produced by a multidisciplinary team of doctor, nurse, physiotherapist, psychologist and nutritionist. Close cooperation and an occupational healthcare plan made together with the customer organisation enable efficient support for the health and work ability of personnel. The occupational healthcare services have approximately 7,000 corporate customers with roughly 90,000 employees. Most of the customer organisations are SMEs.
Dextra Dental Clinics provide general and specialised dental services, such as surgical procedures, orthodontics, cosmetic dental care, oral hygiene and dental laboratory services. Their customers include private individuals, businesses, public sector entities and insurance companies.
• general practitioner and medical specialist services, such as emergency and on-call services, diagnostics, surgical services and occupational healthcare and dental care services
REVENUE, EUR
215.6 million (EUR 119.5 million in 2015)
+80%
% OF CONSOLIDATED REVENUE
OPERATING PROFIT, EUR
6.2
million (2.8)
OPERATING PROFIT, %
16.4 million (9.2)
% OF CONSOLIDATED EBITDA
Pihlajalinna's Primary and Social Care segment (P & S) operates under the Pihlajalinna brand. The segment is divided into two service areas: Social and Healthcare Outsourcings and Other Business Operations.
During 2016, Pihlajalinna started service production in the Kuusiokunnat area in Ostrobothnia. In Mänttä-Vilppula, a new 10-year agreement period commenced on 1 August 2016. The city also decided to use the 5-year extension option, continuing the agreement until 31 July 2031. In addition, the Kuusiokunnat joint municipal social and health authority approved the 5-year option period included in the social and healthcare service agreement between Kuusiokunnat and Pihlajalinna and the agreement will continue until 31 December 2030.
Tervola chose Pihlajalinna as its social and healthcare service partner in November 2016. The preliminary start date for the service production in Tervola is 1 July 2017.
In December, Hattula chose Pihlajalinna as the municipality's social and healthcare service partner. The service production is scheduled to begin in two stages in 2017 and 2018. The procurement decision has been appealed to the Market Court.
In November, Pihlajalinna acquired the recruitment company MediApu. The transaction will strengthen Pihlajalinna's physician recruitment function and support its outsourcing ventures in health and social services.
In social and healthcare service outsourcings, Pihlajalinna usually establishes a joint venture with the municipality or joint municipal authority in question (see Page 14). On 31 December 2016, the company produced social and healthcare services, excluding official duties, for eight municipalities. In 2017, the service production will start in Soini (on 1 January 2017) and Tervola (on 1 July 2017).
In addition to joint ventures that produce outsourcing services, Pihlajalinna produces public specialised care services using the joint venture model in Jokilaakso Hospital in Jämsä. Jokilaakson Terveys Oy's shareholders, responsible for the operations of the hospital, are Pihlajalinna (51%), the City of Jämsä (39%) and the Central Finland Hospital District (10%). In January 2016, the Parliamentary Ombudsman of Finland reached a verdict according to which the hospital falls under the framework of public freedom of choice. Consequently, anyone, in consultation with his/her attending physician, is free to choose the hospital as their place of treatment.
| Joint venture | Municipalities | Popu lation |
The value of the agreement per year (2016) |
|---|---|---|---|
| Kuusiolinna Terveys Oy | Kuusiokunnat (Alavus, Ähtäri, Kuortane and, as of 1 Jan. 2017, Soini) |
21,800 | approx. EUR 80 million |
| Jämsän Terveys Oy | Jämsä | 21,500 | approx. EUR 51 million |
| Mäntänvuoren Terveys Oy | Mänttä-Vilppula and Juupajoki 12,600 | approx. EUR 47 million | |
| Kolmostien Terveys Oy | Parkano and Kihniö | 8,800 | approx. EUR 33 million |
Pihlajalinna produces the services of two health centres in Tampere (Omapihlaja Kehräsaari and Omapihlaja Hervanta) as well as health centre and inpatient healthcare services in Hattula. Hattula will expand the outsourcing of its services during 2017, and it chose Pihlajalinna as its partner after a tendering process.
Pihlajalinna has Ikipihlaja homes in nine locations, offering service housing with 24-hour assistance.
On 31 December 2016, Pihlajalinna had five asylum seeker reception centres. In 2016, the reception centres in Kokemäki, Jämsä, Kihniö, Hämeenlinna and Sastamala housed 420 asylum seekers representing 14 different nationalities.
Pihlajalinna provides both public sector entities and the Group's other service areas with outsourced physician services and emergency and on-call services. Staffing services play a key role as an internal supporting function in complete outsourcings, for instance.
• MediApu Oy
• mainly public sector entities but also the Group's own units (staffing services) and private individuals (care services)
REVENUE, EUR
million (EUR 96.8 million in 2015) +96%
% OF CONSOLIDATED REVENUE
OPERATING PROFIT, EUR
(2.3)
OPERATING PROFIT, %
(3.9)
% OF CONSOLIDATED EBITDA
Pihlajalinna's business operations are based on responsibility: responsibility for the health and wellbeing of the Finnish people, responsibility for the use of society's funds and the payment of taxes to Finland, responsibility for our employees and responsibility for the storage and processing of customer information. As a major company, we are responsible for many other things, too, but the aspects mentioned above are the most significant ones for us.
For us, responsibility is not just about ticking boxes in a list in the Annual Report. Responsibility is directly derivable from our strategy and purpose. Without responsibility, Pihlajalinna cannot operate.
Pihlajalinna Group has grown dramatically. Much of our growth results from municipal outsourcings in which we take charge of all or some of the social and healthcare services of a municipality or a joint municipal authority. Some of the business expansion has happened through acquisitions. Both of the cases mentioned above involve the integration of many different operating methods and IT
systems with Pihlajalinna's existing operations. For this reason, it is still difficult to obtain comparable information from different units of the Group. When it comes to the collection of information and corporate responsibility reporting, we are still in the early stages but we already want to increase the transparency of our work in this Corporate Report.
We welcome any feedback on our work. Which aspects in Pihlajalinna's operations are the most important for you as a customer, an employee, an investor or a taxpayer, for instance? You can provide feedback either on our website at www.pihlajalinna.fi or by sending me e-mail.
Pihlajalinna has a large group of stakeholders with whom we are in close contact in our daily work.
In addition to everyday interaction, we monitor the satisfaction of our customers with our operations by conducting customer satisfaction surveys, for instance. In some parts of the Group we measure the willingness of our customers to recommend our services to others. Our website features a feedback channel that also enables anonymous feedback.
Personnel satisfaction is measured annually with a wellbeing at work survey, the results of which serve as a basis for developing the company's operations. In addition, we are creating Together (Kimpassa) activities at Pihlajalinna. They refer to the Group's cooperation, open dialogue and community spirit across unit and company boundaries.
The public sector is closely involved in our operations through our joint ventures. Social and healthcare services outsourced by municipalities and joint municipal authorities are produced by joint ventures of Pihlajalinna and municipalities, with half of their Board of Directors consisting of Pihlajalinna's representatives and the other half of representatives of municipalities. This ensures that the residents of the municipality have a strong representation in social and healthcare decision-making also after outsourcing.
Other important stakeholders include, for instance, insurance companies, shareholders, authorities and trade unions. We are developing ways of listening to these stakeholders to hear what kind of expectations they have towards Pihlajalinna.
Better life for Finns
Pihlajalinna helps Finns to live a better life. To succeed in this, we are constantly improving our operations, developing more effective social and healthcare services, monitoring the quality of care and service and analysing customer satisfaction.
The significance of prevention and effective, fast care is continuously increasing in social care and healthcare. One of the underlying reasons is the change of the funding model from service-specific pricing more and more towards fixed pricing.
In fixed pricing, Pihlajalinna is not paid for a single MRI image, for instance, but for adopting the responsibility for an individual's healthcare services. This could mean, for instance, that the company is paid a standard compensation for each customer.
Occupational healthcare is already quickly adopting a fixed compensation model, and we believe that the healthcare and social welfare reform is moving the entire field of social and healthcare services to the same direction. This benefits everyone as service providers have a strong incentive to develop more effective operating methods.
As the only major Finnish provider of social and healthcare services, Pihlajalinna has gained extensive experience in adopting overall responsibility for a large population. At the end of 2016, the company was responsible for social and healthcare services of approximately 64,800 individuals.
In municipal social and healthcare outsourcing, the joint ventures of Pihlajalinna and municipalities are paid a fixed compensation for producing social and healthcare services. As agreements cover a long term, Pihlajalinna and the municipalities have joint interest in keeping people healthy and capable of independent living as well as in treating the ill quickly. We believe that in the future, this is in the best interests of Pihlajalinna's customers as well as a competitive advantage for the company.
Pihlajalinna is continuously investing in customer satisfaction, the quality of care and patient safety and actively collects information on these issues. The Group has a Quality Director acting as the patient ombudsman who handles incoming notifications, feedback and non-compliances. Feedback comes directly from customers and personnel or through local supervisors or the websites of the Pihlajalinna units. Notifications, feedback and non-compliances are handled primarily locally but, when necessary, at the Group's management level and together with authorities.
The quality of care and the smooth flowing of care chains are also constantly being enhanced in cooperation with insurance companies. Especially LocalTapiola's TerveysHelppi and Fennia's FenniaHoitaja are advanced operating models in which healthcare professionals employed by Pihlajalinna advise the customers of insurance companies and direct them quickly to appropriate care.
Pihlajalinna's Dextra chain has several quality certificates. During 2017, the ISO 9001 quality management system will be expanded to all units of the Private Clinics and Specialised Care segment. The Omapihlaja health centre in Kehräsaari, Tampere, also has an ISO 9001 certificate. The purpose of certification is to further develop and improve units' daily operations. At the same time, we ensure compliance with statutory requirements, meet in-house control targets, improve risk management and mitigate risks. Furthermore, Munkkivuori and Kamppi clinics have a certified ISO 14001 environmental management system, an ISO 27001 information
| Happy or Not results in municipal companies |
||||
|---|---|---|---|---|
| Jämsän Terveys | 77% | 13% | 3% | 7% |
| Jokilaakson Terveys | 80% | 11% | 3% | 6% |
| Kuusiolinna Terveys* | 73% | 12% | 3% | 12% |
| Mäntänvuoren Terveys* | 75% | 12% | 4% | 9% |
| Kolmostien Terveys* | 79% | 11% | 3% | 7% |
| * In use since August 2016 |
| SURGICAL AREA INFECTIONS** |
|---|
| superficial 0.20% |
| deep 0.39% |
| NUMBER OF VISITS |
| 922,571 |
| 7% of the notification cases |
* The number of complaints, official complaints and patient injury notifications in relation to the number of visits. The patient injury notifications include cases in which the policyholder is Dextra 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 Dextra clinics, the Group's hospitals, occupational health centres and dental clinics as well as OmaPihlaja health centres in Tampere and the Hattula health centre. ** The surgical area infection percentage has been calculated in relation to the number of procedures in Pihlajalinna's hospitals. Some of the hospitals have not compiled separate statistics on superficial and deep infections. In these cases, all infections are categorised as deep infections.
NPS INDEX, HOSPITALS 89.3%*
* Average hospital services NPS index 2016, includes Dextra Koskisairaala, Dextra Munkkivuori, Dextra Laser Tilkka, 597 respondents
CUSTOMER SATISFACTION Feedback on the website, percentages by topic
Encounters 9% Waiting time at the clinic 5%
Pihlajalinna is a Finnish listed company that is for the most part, approximately 92 per cent, in Finnish ownership. The company pays all of its taxes to Finland.
Pihlajalinna is headquartered in Kehräsaari, Tampere and the business locations of all subsidiaries are in Finland. Companies owned jointly with municipalities are domiciled in their operating locations. As a result, prosperity generated by Pihlajalinna spreads to an extensive area, especially to Pirkanmaa, South Ostrobothnia and Central Finland.
The operating models created by Pihlajalinna have enabled municipalities and joint municipal authorities to save millions
PIHLAJALINNA'S TYPICAL MUNICIPALITY MODEL
of euros in social and healthcare expenses. Municipalities have been able to use the money saved otherwise to the benefit of their residents. According to a study by the National Institute for Health and Welfare, Mänttä-Vilppula saved approximately two million euros during the first year and even in the following years, the municipality's social and healthcare costs developed more moderately than in the comparison municipalities. Savings have also been achieved in seven other municipalities.
In addition to savings, municipalities find it important to be able to forecast social and healthcare spending reliably.
The joint venture model created by Pihlajalinna has become the predominant practice in municipal social and healthcare outsourcing. At the end of 2016, Pihlajalinna was still the only private service provider utilising the joint venture model when operating with municipalities.
Under the Pihlajalinna model, Pihlajalinna establishes a joint venture with the municipality or joint municipal authority in question. Typically, Pihlajalinna owns 51 per cent and the municipality or joint municipal authority 49 per cent of the joint venture. The joint venture is a private company, but the municipality is closely involved in decision-making.
The model benefits society in many different ways (see Page 1). When the joint venture generates profit, some of it returns back to the local community as tax revenue. The municipality also receives its share of the profits, which it can then use for any purpose it chooses. In addition, the price of the joint venture operations for the municipality is lower than that of earlier, purely public operations.
Prevention and rapid access to care reduce costs as the need for expensive specialised care decreases (see adjacent figure).
| Paid taxes 2016 | Group total |
|---|---|
| Income taxes | 2.48 |
| Employer contributions | 32.70 |
| Employer part of pension insurance contributions | 24.59 |
| Social security contributions | 2.86 |
| Employer part of unemployment insurance contributions | 4.34 |
| Accident and group life insurance contributions | 0.91 |
| Real estate taxes | 0.03 |
| Transfer taxes | 0.75 |
| Paid taxes 2016, total | 36.0 |
| Value added taxes, estimate | 10.40 |
|---|---|
| Taxes collected 2016 | |
|---|---|
| Salary taxes | 42.79 |
| Tax withholdings | 33.59 |
| Employee part of pension insurance contributions, calculatory | 7.66 |
| Employee part of unemployment insurance contributions, calculatory | 1.54 |
| Net VAT | 0.47 |
| Taxes collected 2016, total | 43.26 |
In addition payments made to self-employed individuals were in total EUR 54.25 million, from which the self-employed individuals withhold remitted the taxes themselves.
| 399.09 |
|---|
| 13.73 |
| 4,379 |
| 0.69 |
| PIHLAJALINNA'S TAX WITHHOLDINGS BY COUNTY 2016 EUR 1,000 |
||
|---|---|---|
| Lapland 251 | ||
| Central Ostrobothnia 7 | North Ostrobothnia 124 | |
| Ostrobothnia 264 South Ostrobothnia 6,950 |
Kainuu 1 | |
| Kehräsaari* | Pirkanmaa 13,488 | Pohjois-Savo 110 North Karelia 448 Central Finland 6,036 |
| Pihlajalinna's paradise island |
Satakunta 604 | Etelä-Savo 117 |
| Kanta-Häme 661 | South Karelia 200 | |
| Varsinais-Suomi 815 | Kymenlaakso 114 | |
| *saari = island | Uusimaa 3,352 | Päijät-Häme 45 |
| Pihlajalinna's ownership 31 Dec. 2016 |
Ownership percentage |
|---|---|
| Outside Finland | 0.064 % |
| Nominee registered | 7.928 % |
| FINNISH OWNERSHIP | 92.008 % |
Personnel
During the years of Pihlajalinna's intensive growth, HR work has been carried out by skilled supervisors and HR specialists. In 2016, the Group established a centralised HR service function and started the systematic development of HR services.
As an employer, Pihlajalinna wants to develop the personnel's work ability and wellbeing in a manner that strengthens the company's competitiveness both in business operations and as an employer. In the future, there will be a labour shortage in the social and healthcare sector, but its focus areas are difficult to predict. The personnel's strong expertise and wellbeing at work are directly reflected on the customer experience, and satisfied customers make work more rewarding. The key task of the HR services is to ensure Pihlajalinna's sustainable competitiveness as a service provider and an employer.
The development of numerous HR processes and tools was launched during the year, with the aim of creating shared operating methods and tools for HR work. These efforts have now been started (see adjacent figure), but in many areas, work carried out in 2016 will only bear fruit in the coming years.
In 2016, the most significant HR management project was to build the HR service function. On the basis of the business strategy, competence needs were analysed and information was collected about the employees' wishes with regard to competences and wellbeing at work. The results served as a basis for the Pihlajalinna Academy online learning environment and a programme promoting wellbeing at work.
For the first time, target-setting and development discussions covered, using a single shared format, the entire Pihlajalinna personnel. The discussion is a management tool that guides the setting and achievement of targets, the assessment of performance and management as well as the development at work and as a professional. The 2016 discussions were the first move towards a systematic target-setting discussion culture where the next step is to make the discussion about targets and resources part of everyday work.
DEVELOPMENT DISCUSSIONS CONDUCTED
59%
The wellbeing at work survey was conducted for the second time in the entire Group.
Pihlajalinna professionals are enthusiastic about their work, find their work meaningful and consider the company atmosphere to be good. The work community is characterised by open discussion, supporting one's colleagues and appreciating the work of others. This positive spirit is a resource that Pihlajalinna wants to increasingly support and nurture. The survey results also make the challenges of rapid growth visible. Development areas include management and supervisory work as well as clear rules, responsibilities and decision-making in the work community. Overall, even the lowest survey results were clearly on the positive end of the scale and Pihlajalinna professionals believe in the Group's future success.
The implementation of our strategy requires that we know how to implement it. For this reason, competence development needs were analysed together with operative management, in the employees' targetsetting and development discussions and with the aid of the wellbeing at work survey. For developing competence, we chose an online learning environment where content can be collected by means of training, presentations, videos, workshops, coaching and mentoring. The Academy tool was completed during the year and it will be implemented in the beginning of 2017. The Academy will focus on the most important service production processes and their training throughout the organisation.
Pihlajalinna wants to strengthen the competence of local HR specialists and supervisors in employment-related matters and management, for instance. Hence, the Academy will contain regular supervisor meetings, Pihlajalinna's own management training and training leading to Specialist Qualification in Management, among other things.
The building of a Group-wide cooperation organisation, called Together (Kimpassa) activities, started at Pihlajalinna. The personnel has elected its representatives for each business area and administration. Together refers to the Group's cooperation, open dialogue and community spirit across unit and company boundaries. The activities aim at building a uniform corporate culture and meeting the statutory cooperation requirements. The invitees of the Groupwide Together meetings include the members of the Extended Management Team, HR specialists, the Together representatives elected by the personnel, employees' representatives and occupational safety and health delegates. The Group's HR services, in cooperation with the Together representatives, are responsible for the development of the activities. The tasks of a Together representative include, among other things, exchanging thoughts and ideas with the personnel in the representative's area, communicating between the personnel and the management and participating in Together meetings. Group-wide meetings are organised annually.
WELLBEING AT WORK
EMPLOYMENT TYPE
GENDER DISTRIBUTION
PERSONNEL EXIT TURNOVER ENTIRE PERSONNEL
SICKNESS-RELATED
Recruitment services merged into the Group HR. The task of recruitment services is to hire workforce from different occupational groups to the Group's business locations around Finland. In 2016, the need for recruitment increased due to the Group's growth and expansion. The labour shortage in certain occupational groups and the high turnover of employees has been tackled with efficient and competent recruitment.
In 2016, the Group held six employer– employee cooperation negotiations on production-related and financial grounds. The negotiations resulted in 22 redundancies.
In the Private Clinics & Specialised Care segment acquisitions, 229 new employees transferred to the Group (ItäSuomen Lääkärikeskus Oy, Doktori Oy, Kompassi Lääkärikeskus Oy and Kompassi Hammaslääkärikeskus Oy, Tampereen Lääkärikeskus Oy, Jämsän Lääkärikeskus Oy, Ala-Malmin Hammaslääkärit Oy). In Primary & Social Care segment, Kuusiolinna Terveys Oy started its operations on 1 January 2016, with 905 employees transferring from the municipalities of Alavus, Kuortane and Ähtäri to the Group in a transfer of business. The operations of Ähtärin Veljeskoti were transferred to Kuusiolinna Terveys Oy on 1 April 2016. The personnel, consisting of 30 employees, transferred to Kuusiolinna Terveys with unchanged terms of employment, as part of a transfer of business. The Mäntänvuoren Terveys takeover process in the autumn of 2016 had no impact on the number of personnel.
In all of its operations, Pihlajalinna Group bears the responsibility for environment and takes environmental effects into account in business development. The company takes action to protect environment according to legislation and official regulations.
Our targets are
The Group conducts an energy review every four years at the minimum. The review determines the energy consumption profile of the Group's business locations and identifies energy saving opportunities. The
energy review includes site-specific reviews that provide detailed information about on-site energy consumption and suitable measures for saving energy.
Most of Pihlajalinna's business locations are in rental properties where energy costs are included in the rent. As a result, exact details about water consumption, for instance, are not available. In most of Pihlajalinna's business locations, electricity is not included in the rent of the premises; instead, we order it ourselves. The majority of electricity ordered by Pihlajalinna is green and comes from one company, Nordic Green Energy.
We process confidential paper waste, hazardous waste and pharmaceutical waste appropriately and carefully. We seek to reduce the amount of pharmaceutical waste by avoiding unnecessary storage of medicines and by monitoring medication loss, for instance. In nursing, we develop operating methods that improve the quality of care and at the same time reduce the amount of single-use waste.
We aim to reduce the amount of office waste and to recycle it. Of our business locations, Dextra Munkkivuori and Dextra Kamppi have an ISO 14001 environmental certificate.
Pihlajalinna's goal is to secure the operation of IT systems, services and data networks that are critical for its operations, prevent their unauthorised use and accidental or intentional data destruction and corruption. The company prepares itself for disturbances and exceptional conditions so that
operations can be continued with as little disruption as possible in all circumstances.
The Group's business operations require that IT systems function safely and without disturbances. Information security is monitored actively and deviations are processed quickly. Information security is
established and maintained with state-ofthe-art, up-to-date solutions.
Information security related to user actions is guided with rules and guidelines as well as by continuously providing training and information on safe processing of information.
for further action.
The Corporate Governance of Pihlajalinna Plc (Company) is based on effective legislation, the Company's Articles of Association and the rules and regulations applied to companies listed on Nasdaq Helsinki Ltd.
The Corporate Governance of Pihlajalinna Plc (the Company) is based on effective legislation, the Company's Articles of Association and the rules and regulations applied to companies listed on Nasdaq Helsinki Ltd. The Company abides by the Finnish Corporate Governance Code 2015 issued by the Securities Market Association. The Finnish Corporate Governance Code is available on the www.cgfinland.fi/en website maintained by the Securities Market Association.
In 2016, Pihlajalinna departed from Recommendation 1 of the Code concerning the content of the notice of the General Meeting. The notice of the General Meeting issued on 11 March 2016 did not include a proposal for the composition of the Board of Directors. The proposal was not available before the notice of the General Meeting was issued. The Company's largest shareholders, representing approximately 38 per cent of the Company's shares and votes, announced that they would publish the proposal for the composition of the Board of Directors before the General Meeting. The proposal for the composition of the Board of Directors was published on 23 March 2016. In all other respects Pihlajalinna abides by the governance code without exceptions.
The Company has compiled a separate Corporate Governance Statement. The statement is available on the Company's
website http://investors.pihlajalinna.fi/ corporate-governance.aspx?sc\_lang=en.
The General Meeting is Pihlajalinna's highest decision-making body. The Board of Directors is responsible for the invitations to the General Meeting. The Annual General Meeting is held annually within six months of the end of the financial year. The Annual General Meeting decides on the matters determined by the Limited Liability Companies Act and the Articles of Association.
A shareholder has the right to have a matter within the remit of a General Meeting, under the Finnish Limited Liability Companies Act, to be discussed by the General Meeting if he or she requests this in writing from the Board of Directors by the date announced on the Company website. The date will be announced on the Company's website no later than by the end of the financial year preceding the Annual General Meeting.
The decisions of the General Meeting are published after the meeting in a stock exchange release.
The Board of Directors is elected on an annual basis by the Annual General Meeting. According to the Company's Articles of
Association, there are a minimum of four (4) and a maximum of ten (10) members on the Board of Directors. The Board of Directors elects a Chairman from among its members.
The term of office of a member of the Board of Directors begins at the General Meeting where he or she was elected. The term of office of a member of the Board of Directors expires and the term of office of a successor member begins at the close of the General Meeting deciding on the election of the successor member, unless otherwise provided in the Articles of Association or decided when the successor member is elected.
The Company aims to ensure that its Board of Directors as a whole has sufficient and versatile expertise and experience with respect to its duties. A person to be elected to the Board of Directors shall have the qualifications required by the duties and the possibility to devote a sufficient amount of time to the work.
The Members of the Board elected in 2016 represent versatile experience from managerial and board duties. All the members of the Board elected in 2016 hold a master's degree and one of them has a doctoral degree. The members of the Board of Directors have versatile industry-specific, economic and business skills. Their age distribution is from 44 to 63 years. There are at
least two women and at least two men on the Board of Directors.
The Board of Directors has established from among its members an Audit Committee and a Nomination and Remuneration Committee. These committees have written charters approved by the Board of Directors.
The Company's business operations are lead by the Chief Executive Officer in accordance with the instructions and orders issued by the Board of Directors. The Board of Directors appoints the Chief Executive Officer. The CEO is responsible for ensuring that the Company's accounting practices comply with the law and that the financial matters are handled in a reliable manner. The Management Team assists the CEO in leading the operations. Pihlajalinna Plc changed its Management Team structure and composition on 7 September 2016. Simultanously, the Group formed an Extended Management Team to support the Management Team.
The goal of internal control associated with the financial reporting process is to ensure that Pihlajalinna Group's operations are profitable, that decision-making is based on reliable information and sufficient identification of business risks and that the financial reports published by the Company provide materially correct information about the Company's finances. Pihlajalinna Group does not have a separate internal audit organisation.
The Insider Guidelines of Pihlajalinna Plc are based on market abuse regulation, applicable legislation, insider guidelines of the Nasdaq Helsinki Ltd and regulations and guidelines issued by the Financial Supervisory Authority. The Company maintains a list of persons discharging managerial responsibilities and related parties who have the duty to notify their transactions related to Company's financial instruments to the Company and the Financial Supervisory Authority within three business days after the transaction. The Company publishes transactions notified to it with a release within the same time limit.
Pihlajalinna observes a silent period of 30 days prior to the announcement of financial results.
The purpose of Pihlajalinna Plc's Guidelines on Related Party Transactions is to ensure that any business transactions involving persons belonging to the Company's related parties are made independently and based on market terms. The Company assesses and monitors that any related party transactions are overall in the best interests of the Company and that any conflicts of interest are duly taken into account when making decisions on related party transactions.
According to Pihlajalinna's Articles of Association, the General Meeting shall elect one (1) auditor that shall be an auditing firm approved by the Central Chamber of Commerce. The Annual General Meeting of 2016 elected KPMG Oy Ab, a firm of authorised public accountants, as the Company's auditor, with Lotta Nurminen, APA, as the principal auditor. The auditors will annually provide an auditor's report to Pihlajalinna's Annual General Meeting.
b. 1972, Lic.Med., Member of the Board of Directors since 2016 Chairman of Pihlajalinna Plc's Board of Directors, Senior Adviser
Primary work experience: founded Pihlajalinna in 2001, Group´s CEO 2014– 2016. Pihlajalinna Terveys Oy CEO 2005– 2016, General Practitioner and Occupational Health Physician 2001–2011. Health Centre Physician in Parkano in 2001–2005. MWW Yhtiö Oy CEO 2004–
Main simultaneous positions of trust: Vice Chairman of the Board of LocalTapiola's Pirkanmaa regional company 2014–, Member of the Board of Ipanala Oy 2016–
b. 1963, D.Med.Sc., Specialist in Physiatrics, Member of the Board of Directors since 2014 Vice-Chairman of Pihlajalinna Plc's Board of Directors, Senior Adviser Independent of major shareholders Primary work experience: Pihlajalinna Plc Deputy CEO 2013–2016, Dextra Oy CEO 2003–2016, Kuntoutus Orton Specialist 2000–2004
Main simultaneous positions of trust: Member of the Board of Elisa Corporation, Stockmann Plc and Suomen Messut Osuuskunta, Chairman of the Board of HLD Healthy Life Devices Ltd
b. 1963, M.Sc. (Econ.), Member of the Board of Directors since 2016 Group Director of LocalTapiola Group Independent of the Company Primary work experience: Investment Director of Tapiola General and Tapiola Life 1998–2012, Unit Director 1996–1997, Head of Department 1994–1995 and Head of Securities 1993–1994 Main simultaneous positions of trust: Member of the Supervisory Board of Ilkka-Yhtymä Oyj, Member of the Board of Turva Mutual Insurance Company, LocalTapiola Mutual Life Insurance Company, LocalTapiola General Mutual Insurance Company and Pellervon Taloustutkimus PTT Ry
b.1963, BBA and eMBA,
Member of the Board of Directors since 2016 Executive Partner at Hasan & Partners Independent of the Company and its major shareholders
Primary work experience: Hasan & Partners Executive Partner 1991–, Wataniya Telecom Plc Chief Commercial Officer and Director of Marketing 2004–2006
Main simultaneous positions of trust: Chairman of the Board of Oy HIFK-Hockey Ab 2007–, Member of the Board of Restamax Plc and Champions Hockey League Ag
b. 1960, 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 Primary work experience: LocalTapiola Group Director of Company Group 2013– 2014, Tapiola Group Director of Corporate Group 2009–2013, Nordea Bank Finland Head of Segment Corporate Finland 2008– 2009
Main simultaneous positions of trust: Member of the Board of Turva Mutual Insurance Company, LocalTapiola Real Estate Asset Management Ltd and LocalTapiola Asset Management Ltd
b. 1953, M.Sc. (Econ.), Member of the Board of Directors since 2016 Board Professional
Independent of the Company and its major shareholders
Primary work experience: Finnlines Plc Adviser of the Board 2013–2014, Vice President and CFO 2007–2013, Director of harbour functions and CEO of harbour companies (Finnsteve companies) 2010– 2013, Director of Finance 1992–2007 Main simultaneous positions of trust: Member of the Board of Elisa Corporation,
Chairman of the Board of Finnpilot Pilotage Ltd
b. 1973, B. Sc. (econ.) CEO Employed by the company since 2016 Primary work experience: Talentum Plc CEO 2011–2016, Quartal Oy CEO 1997–2011 Main simultaneous positions of trust: Trainers House Oyj Chairman of the Board, Solteq Oyj and Intera Equity Partners III Oy Member of the Board
b. 1969, M. Sc. (Admin.) Executive Vice President, Head of Group Projects Employed by the company since 2010 Primary work experience: Plenware Oy Vice President, Administration 2004–2009, Head of Finance and Administration 2001–2004 ja Financial Manager 2000–2001 Main simultaneous positions of trust: none
(in Management Team starting on 20.2.2017) b. 1970, BBA SVP, P & S segment and Head of Corporate Planning Employed by the company since 2008 Primary work experience: Pihlajalinna Plc CFO 2008–2015, COO 2015– 2016, Plenware Oy CFO 2005–2008, KPMG Oy Ab Auditor 2001–2004
Main simultaneous positions of trust: Vendero Oy, Kemvit Oy and Posa Oy Chairman of the Board, Sinister Oy Deputy Member of the Board
b. 1966, M. Sc. (Econ.) CFO Employed by the company since 2016 Primary work experience: Talentum Oyj CFO 2011–2016, OneMed Group Finance and HR Director 2007–2011, Alma Media / Kauppalehti Group CFO 2004–2007
Main simultaneous positions of trust: none
b. 1976, Master of Laws General Counsel Employed by the company since 2014 Primary work experience: Krogerus Counsel 2012–2014, Borenius Attorneys 1999–2012 Main simultaneous positions of trust: none
At the end of the year 2016 also Virpi Holmqvist (SVP of Primary and Social Care segment) was part of the Management Team. She resigned from her position on 1 February 2017.
Pihlajalinna Plc changed its Management Team structure and composition on 7 September 2016. The group formed an Extended Management Team to support the Management Team in group projects and Group's shared services.
In addition to the Management Team members, The Extended Management Team includes:
– Financial Statements and Report by the Board of Directors 2016
| Report by the Board of Directors | 26 | |
|---|---|---|
| Financial statements | 32 | |
| Key figures | 34 | |
| Shares and shareholders | 35 | |
| Shareholding of the management | 36 | |
| Consolidated statement of financial position, IFRS | 37 | |
| Consolidated statement of comprehensive income, IFRS | 38 | |
| Consolidated statement of cash flows, IFRS | 39 | |
| Consolidated statement of changes in equity, IFRS | 40 | |
| Accounting policies | 41 | |
| Notes to the consolidated financial statements, IFRS | 49 | |
| 1 2 |
Operating segments Revenue |
49 50 |
| 3 | Other operating income | 50 |
| 4 | Materials and services | 50 |
| 5 | Employee benefit expenses | 50 |
| 6 | Depreciation, amortisation and impairment | 50 |
| 7 | Other operating expenses | 51 |
| 8 | Financial income | 51 |
| 9 | Financial expenses | 51 |
| 10 | Income taxes | 51 |
| 11 | Earnings per share, EUR | 51 |
| 12 | Property, plant and equipment | 52 |
| 13 | Intangible assets | 53 |
| 14 | Business combinations | 54 |
| 15 | Subsidiaries and material non-controlling interests 57 | |
| 16 | Interests in associates and joint arrangements | 58 |
| 17 | Other non-current receivables | 58 |
| 18 | Fair values of financial assets and liabilities | 59 |
| 19 | Deferred tax assets and liabilities | 61 |
| 20 | Inventories | 61 |
| 21 | Trade receivables and other receivables (current) | 62 |
| 22 | Cash and cash equivalents | 62 |
| 23 | Notes on equity | 62 |
| 24 | Share-based payments | 63 |
| 25 | Provisions | 63 |
| 26 | Financial liabilities | 63 |
| 27 | Trade and other payables | 64 |
| 28 | Financial risk management | 64 |
| 29 | Capital management | 66 |
| 30 | Operating leases | 66 |
| 31 | Contingent assets and liabilities and commitments 66 | |
| 32 | Related party transactions | 67 |
| 33 | Events after the balance sheet date | 68 |
| Parent company income statement and balance sheet, FAS | 69 | |
| Parent company cash flow statement FAS | 71 | |
| Parent company notes to financial statements, FAS | 72 | |
| Signatures of the financial statements and the report of the Board of | |
|---|---|
| Directors | 75 |
| Auditors' Report | 76 |
| Information for shareholders | 79 |
Pihlajalinna Group's revenue and profitability for 2016 developed as expected. The year-on-year improvement was significant. Revenue growth has been extremely healthy: 72 per cent of it was organic.
In the fourth quarter, the Primary and Social Care (P & S) segment developed well in all areas. A particularly delightful fact was that the profitability of municipal outsourcing continued to improve. The segment's profit formation in the last part of the year did not contain any negative surprises.
In the Private Clinics and Specialised Care (C & S) segment, the fourth-quarter result of Private Clinics was especially good. Occupational Healthcare also continued to improve its profitability. Koskiklinikka in Tampere and ITE in Joensuu have now belonged to the segment for roughly one year, and we can be very satisfied with these acquisitions.
We have specified our strategic expansion plan in more detail. Furthermore, we have announced that the Pihlajalinna brand will be adopted in both of our segments. Our primary manner of expanding and becoming a stronger national operator is to open new business locations. Alongside this, M&A transactions may serve as a good supplement as the acquisition of Itä-Suomen Lääkäritalo at the beginning of the year showed.
Pihlajalinna is involved in major social and healthcare services outsourcing projects underway in Finland. We have submitted bids to the tendering processes of the City of Kouvola and the Forssa Joint Municipal Welfare Authority. In addition, many municipalities are interested in joining current outsourcings of other municipalities and joint municipal authorities. These provide a promising outlook for growth.
According to the draft for the act on the freedom of choice, submitted to circulation for official comments by the Finnish Government in January, the freedom of choice in primary care would be realised more extensively than anticipated. In addition, part of specialised care would be within the framework of freedom of choice. We find this a good course of development.
Pihlajalinna's revenue during the financial year amounted to EUR 399.1 million (EUR 213.3 million in the previous financial year), an increase of EUR 185.8 million, or 87 per cent. Organic growth amounted to EUR 134.5 million, including the new social and healthcare service outsourcings in Kuusiokunnat and Jämsä. M&A transactions accounted for EUR 51.3 million of the growth in revenue.
EBITDA for the financial year amounted to EUR 27.9 (11.6) million, an increase of EUR 16.3 million, or 141 per cent. Adjusted EBITDA for the financial year amounted to EUR 28.9 (12.5) million. EBITDA for the financial year was burdened by the non-recurring compensation of EUR 0.9 million related to a production agreement of the Surgical Operations service area that expired in the previous financial year and the non-recurring loss of EUR 0.1 million resulting from the integration of the Care Services service area. These items have been treated as an adjustment of EBITDA. In the previous financial year, the costs of EUR 0.9 million related to the sale of shares in connection with the Initial Public Offering were treated as an adjustment of EBITDA.
Depreciation, amortisation and impairment for the financial year totalled EUR 12.8 (8.0) million. Amortisation and impairment of
intangible assets during the financial year was EUR 4.5 (2.9) million, of which amortisation related to the allocation of costs totalled EUR 3.4 (2.2) million. Depreciation of property, plant and equipment totalled EUR 8.2 (5.1) million.
Depreciation, amortisation and impairment for the financial year include a EUR 0.5 million non-recurring impairment loss resulting from the restructuring of the operations of the Dental Care and Surgical Operations service areas. These items have been treated as an adjustment of operating profit.
Pihlajalinna's operating profit for the financial year amounted to EUR 15.1 (3.6) million, an increase of EUR 11.5 million. The EBIT-torevenue ratio (EBIT margin) for the past financial year was 3.8 (1.7) per cent. Adjusted operating profit for the financial year amounted to EUR 16.6 (4.5) million, an increase of EUR 12.1 million. Adjusted EBIT margin was 4.2 (2.1) per cent.
Transfer taxes and expert fees relating to the M&A transactions added an extra burden of EUR 0.5 (0.9) million to the result during the financial year.
The Group's net financial expenses for the financial year totalled EUR -1.4 (-2.3) million.
Pihlajalinna's profit before tax for the financial year amounted to EUR 13.7 (1.3) million.
Taxes for the financial year amounted to EUR -3.0 (-0.1) million. Profit for the period amounted to EUR 10.8 (1.2) million. Earnings per share (EPS) was EUR 0.39 (0.03).
The healthcare and social welfare reform is progressing and the related pilot projects concerning freedom of choice have been launched in five different locations. So far, Pihlajalinna has enrolled for the pilot project conducted in Tampere. The company is monitoring the development of the situation and circumstances in the four other pilot locations. These pilot projects may yield valuable information on both the legislative reform and private sector operations.
The company's view of the EUR volume of the services included within the framework of freedom of choice has become more specific. The estimate provided in the rationale behind the draft for the act on the freedom of choice, submitted into circulation for official comments in late January 2017, is that the size of the market within the freedom of choice would be EUR 3.7 billion for direct choice of basiclevel social and healthcare services, EUR 1.5 billion for personal budgets and EUR 2.8 billion for service vouchers. The company estimates that the share of private operators producing services that will be included within the framework of freedom of choice in the future is at the moment approximately EUR 1.5 billion. The circulation for official comments will end towards the end of March, and the act is expected to be submitted to Parliament for approval in autumn 2017.
Tervola chose Pihlajalinna as its social and healthcare service partner on 10 November 2016. The duration of the agreement is 10 years at the minimum and 15 years at the maximum. The service production begins on 1 July 2017. Tervola's population is about 3,200 and the value of the agreement is approximately EUR 13 million per year.
Hattula chose Pihlajalinna as its social and healthcare service partner on 14 December 2016. Pihlajalinna and the municipality of Hattula will establish a company whose share of service production will be less than 50 per cent of the current operational social welfare and health care costs of the municipality. Hattula has roughly 9,700 inhabitants and the value of the agreement is approximately EUR 7 million per year. The duration of the agreement is 15 years at the minimum and 20 years at the maximum. The preliminary plan is to begin the service production for oral health care on 1 April 2017 and for other services on 1 April 2018. The agreement includes an approximately EUR 5 million investment commitment related to the construction of Hattula's wellbeing centre. The procurement decision has been appealed to the Market Court.
The City of Kouvola has made preparations for outsourcing its social and healthcare services, and Pihlajalinna participates in the tendering process. The population of the region of Kouvola is 86,000. The City of Kouvola has estimated that the value of the potential outsourcing agreement would be EUR 84 million per year.
Pihlajalinna participates in the tendering process for the social and healthcare services of the Joint Municipal Welfare Authority in the Forssa region. The population of the region is approximately 34,500. The Joint Municipal Authority has estimated that the value of the possible outsourcing agreement would be roughly EUR 37 million per year.
Many cities and municipalities are interested in joining current outsourcings of other municipalities and joint municipal authorities. In addition, several municipalities have expressed their interest or are currently investigating the possibility of outsourcing social and healthcare services.
The Private Clinics and Specialised Care segment is divided into four service areas: Private Clinics, Surgical Operations and Public Specialised Care, Dental Care, and Occupational Healthcare.
The C & S segment's revenue during the past financial year amounted to EUR 215.6 (119.5) million, an increase of EUR 96.1 million, or 80 per cent. Revenue growth was attributable to the transfer of the specialised care services of Kuusiokunnat and Jämsä to the service provision responsibility of Pihlajalinna and to the acquisitions
of Tampereen Lääkärikeskus (Koskiklinikka) and Itä-Suomen Lääkärikeskus (ITE).
The C & S segment's operating profit for the financial year amounted to EUR 6.2 (2.8) million and adjusted operating profit to EUR 7.5 (2.8) million. Profitability improved in particular due to acquisitions (Koskiklinikka, ITE), which can be seen in the improved profitability of the Private Clinics and Occupational Healthcare service areas. EBITDA for the financial year was burdened by the non-recurring compensation of EUR 0.9 million related to a production agreement of the Surgical Operations service area that expired in the previous financial year. This item has been treated as an adjustment of operating profit.
The Primary and Social Care segment is divided into two service areas: Social and Healthcare Outsourcings and Other Business Operations, which includes health centre outsourcings, staffing services and care services (including reception centres for asylum seekers).
The P & S segment's revenue during the financial year amounted to EUR 189.8 (96.8) million, an increase of EUR 93.0 million, or 96 per cent. This growth was mainly due to the social and healthcare outsourcings of Kuusiokunnat and Jämsä.
The P & S segment's operating profit for the financial year amounted to EUR 10.9 (2.3) million and adjusted operating profit to EUR 11.0 (2.3) million. Year-on-year profitability improved, mainly as a result of the social and healthcare outsourcings of Kuusiokunnat, Mänttä-Vilppula and Jämsä.
At the end of the financial year, Pihlajalinna Group's total statement of financial position was EUR 217.7 (185.1) million. Consolidated cash and cash equivalents stood at EUR 27.5 (15.3) million.
The Group's net cash flow from operating activities during the financial year amounted to EUR 32.3 (17.7) million. A total of EUR 7.6 (9.2) million in working capital was released during the financial year. During the financial year, the Group departed from previous practices
| C & S | P & S | |||
|---|---|---|---|---|
| Quarter | 10–12/2016 | 10–12/2015 | 10–12/2016 | 10–12/2015 |
| Revenue, EUR million | 56.8 | 32.0 | 49.1 | 31.4 |
| EBITDA, EUR million | 4.2 | 2.6 | 3.1 | 1.1 |
| EBITDA, % | 7.4 | 8.2 | 6.2 | 3.7 |
| Adjusted EBITDA | 4.2 | 2.6 | 3.1 | 1.1 |
| Adjusted EBITDA, % | 7.4 | 8.2 | 6.2 | 3.7 |
| Operating profit, EUR million | 1.7 | 1.0 | 2.5 | 0.7 |
| Operating profit, % | 3.0 | 3.2 | 5.1 | 2.1 |
| Adjusted operating profit (EBIT) | 1.7 | 1.0 | 2.5 | 0.7 |
| Adjusted operating profit, % | 3.0 | 3.2 | 5.1 | 2.1 |
| Cumulative 12 mths | 1–12/2016 | 1–12/2015 | 1–12/2016 | 1–12/2015 |
| Revenue, EUR million | 215.6 | 119.5 | 189.8 | 96.8 |
| EBITDA, EUR million | 16.4 | 9.2 | 12.9 | 3.9 |
| EBITDA, % | 7.6 | 7.7 | 6.8 | 4.1 |
| Adjusted EBITDA | 17.3 | 9.2 | 13.0 | 3.9 |
| Adjusted EBITDA, % | 8.0 | 7.7 | 6.9 | 4.1 |
| Operating profit, EUR million | 6.2 | 2.8 | 10.9 | 2.3 |
| Operating profit, % | 2.9 | 2.3 | 5.7 | 2.4 |
| Adjusted operating profit (EBIT) | 7.5 | 2.8 | 11.0 | 2.3 |
| Adjusted operating profit, % | 3.5 | 2.3 | 5.8 | 2.4 |
by making advance payments of salary-based insurance contributions, totalling EUR 2.6 million. The Group also shifted to a uniform payment schedule in holiday bonuses, which burdened the cash flow from operating activities in the past financial year by approximately EUR 1.0 million year on year.
Net cash flow from investing activities totalled EUR -25.5 (-32.1) million. The impact of subsidiary acquisitions on net cash flow in the financial year was EUR -21.1 (-33.8) million. Investments in property, plant and equipment and intangible assets during the financial year totalled EUR -4.9 (-7.8) million, and proceeds from the disposals of property, plant and equipment and subsidiaries totalled EUR 0.3 (9.2) million. In the comparison period, Pihlajalinna financed the share acquisitions of the care homes in Southwest Finland by selling the Group's care home properties (proceeds from the disposals of property, plant and equipment) and the property companies (disposal of subsidiaries).
The Group's cash flow after investments was EUR 6.8 (-14.4) million.
Net cash flow from financing activities totalled EUR 5.4 (18.8) million. During the financial year, the Group withdrew EUR 14.9 (31.1) million of new loans within its credit limits and repaid its financial liabilities to a total amount of EUR 3.6 (90.4) million. In the comparison period, net cash flow from financing activities includes EUR 82.3 million of net assets received in the Initial Public Offering and in the share issue of 15 December 2015.
The Group's gearing of was 21.9 (25.2) per cent at the end of the financial year.
Interest-bearing net debt amounted to EUR 22.1 (23.5) million. In the financial year, return on capital employed was 10.8 (3.4) per cent and return on equity was 11.1 (2.3) per cent.
In September 2015, Pihlajalinna signed a five-year revolving credit facility worth EUR 60 million and credit limit agreements worth EUR 10 million. The facility includes a financial covenant based on the ratio of net debt to EBITDA. The Group met the set covenants on 31 December 2016. The Group decided not to use the 12-month option period for 2021 included in the financing agreement.
In deviation from the financial statements of 31 December 2015, the Group presents drawdowns from the revolving credit facility under non-current financial liabilities. The Group has adjusted the presentation of this loan in its statement of financial position of 31 December 2015. The Group estimates that drawdowns from the revolving credit facility are actually long-term by nature, although their maturity is 1, 3 or 6 months.
At the end of the financial year, Pihlajalinna had EUR 45.2 (58.0) million of unused committed credit limits.
During the financial year, the strategic business focus areas were improvement of profitability, enhancement of service production efficiency, coordination of specialised care customer flows, customer-oriented control of outsourced residential services as well as management of net social and healthcare costs in the agreement municipalities.
• The acquisition of MediApu Oy will strengthen Pihlajalinna's physician recruitment function and support its outsourcing ventures in health and social services.
Gross investments, including acquisitions, in the financial year totalled EUR 27.4 (44.6) million. The Group's gross investments in property, plant and equipment and intangible assets, which consisted of normal additional and replacement investments required for growth, amounted to EUR 5.5 (6.0) million during the financial year. Capital expenditure relating to the opening of new units totalled EUR 0.1 (2.4) million. Gross investments attributable to M&A transactions, including goodwill, totalled EUR 21.7 (36.3) million.
On 8 February 2016, Pihlajalinna implemented the purchase of shares in Itä-Suomen Lääkärikeskus Oy (ITE Joensuu). The transaction price paid in cash on the execution date was EUR 6.8 million. At the beginning of July, Pihlajalinna paid a contingent consideration of EUR 1.5 million related to the transaction. The contingent consideration was based on the company's profit development as shown in its adopted financial statements 2015, which turned out better than anticipated. Pihlajalinna also paid a sum corresponding to ITE's net cash at the time of the transaction, EUR 0.4 million.
On 9 February 2016, Pihlajalinna further strengthened its private clinic operations in Lappeenranta by purchasing the majority of shares in Lääkäriasema DokTori Oy. On 7 March 2016, Pihlajalinna strengthened its presence in Seinäjoki and elsewhere in South Ostrobothnia by acquiring the majority of the shares of Etelä-Pohjanmaan Sydäntutkimuspalvelu Oy, Kompassi Hammaslääkärikeskus Oy and Kompassi Lääkärikeskus Oy. The acquisition was finalised on 1 April 2016. Pihlajalinna acquired the noncontrolling interest of Etelä-Pohjanmaan Sydäntutkimuspalvelu Oy and Kompassi Lääkärikeskus Oy on 30 December 2016.
On 6 June 2016, Pihlajalinna strengthened its Dental Care service area in the Helsinki Metropolitan Area by acquiring the shares of Ala-Malmin Hammaslääkärit Oy.
On 1 November 2016, Pihlajalinna acquired the share capital of Jämsän Lääkärikeskus Oy to strengthen its position and services in Central Finland. In addition, Pihlajalinna acquired the entire share capital of MediApu Oy on 30 November 2016. MediApu is an Oulubased medical recruitment service that provides municipal work opportunities for physicians.
The Group's investment commitments are related to the renovation of business premises, as well as IT system development projects and the purchase of clinical equipment. In total, these investment commitments amount to approximately EUR 1.3 million.
At the end of the financial year, 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 61 per cent of the company.
In 2017, normal additional and replacement investments are expected to remain below depreciation and amortisation.
At the beginning of the financial year, the following subsidiary mergers were implemented in order to achieve a clearer Group structure: On 1 January 2016, Palvelukoti Sarahovi Oy merged with Palvelukoti Sofianhovi Oy (renamed in this connection as IkiPihlaja Sofianhovi Oy); on 1 January 2016, Dextra Suunterveydenhoito Oy merged with Wiisuri Oy; on 1 February 2016, Imatran Kliininen Laboratorio Oy, Lääkärikeskus Irmeli Elomaa Oy, Lääkärikeskus Labeho Oy, Medilappi Oy, Tammerkosken Hammasklinikka Oy, Tampereen Hammashoito Oy and Zirlab Oy merged with Dextra Oy.
On 1 October 2016, business transfers were conducted between Pihlajalinna Terveys Oy, Dextra Oy and Tampereen Lääkärikeskus Oy to create a clearer Group business model. In the business transfers, the business of Pihlajalinna Terveys Oy's Dextra Akaa, Ylöjärvi, Ikaalinen, Mänttä-Vilppula, Nokia and Pieksämäki clinics was transferred to Dextra Oy and the business of Dextra Kehräsaari and Dextra Sairaala Hämeenkatu was transferred to Tampereen Lääkärikeskus Oy.
Visita Oy was dissolved on 31 December 2016.
The Group's personnel averaged 4,379 (2,503) persons in the financial year, an increase of 1,876 persons, or 75 per cent. At the end of the financial year, the number of personnel amounted to 4,407 (3,047). The increase in personnel was mainly due to the implementation of new complete outsourcing agreements for social and healthcare services in Kuusiokunnat and Jämsä (in total approximately 1,600 persons transferred). During the financial year, the Group's employee benefit expenses totalled EUR 167.2 (97.4) million, an increase of 72 per cent.
Tuomas Otala was appointed Chief Information Officer (CIO) of Pihlajalinna from 1 January 2016 onwards.
Niclas Köhler was appointed Pihlajalinna Group's Chief Financial Officer (CFO) and a member of the Group's Management Team as of 11 March 2016.
On 11 March 2016, Pihlajalinna Group announced the nomination of Aarne Aktan as the company's new CEO. He assumed his new position on 8 August 2016 and simultaneously stepped down from the company's Board of Directors. On 29 April 2016, Aarne Aktan took over as the Executive Vice President of the Private Clinics and Specialised Care (C & S) segment and as a member of the Group's Management Team.
Pihlajalinna's Annual General Meeting of 4 April 2016 elected the then CEO, Mikko Wirén, as a member of the Board of Directors. Wirén's term as a Board member began on the same day as Aarne Aktan began as the company's CEO. Niemistö will continue as Pihlajalinna's Senior Adviser.
On 29 April 2016, Leena Niemistö, Pihlajalinna's previous Deputy CEO and EVP of the Private Clinics and Specialised Care (C & S) segment, stepped down from her operative management positions in Pihlajalinna Plc and will concentrate on her Board positions in Pihlajalinna and other companies. Niemistö will continue as Pihlajalinna's Senior Adviser, especially in M&As.
Juha Rautio was appointed as Deputy CEO of Pihlajalinna Plc from 7 September 2016 onwards. He had previously served as SVP of the Primary and Social Care (P & S) segment. In the same connection, Virpi Holmqvist, who had previously served as Outsourcing Business Director, was appointed as SVP of the Primary and Social Care segment.
On 7 September 2016, Siri Markula took over as Head of Communications and IR.
On 15 December 2016, Pauli Waroma was appointed as Pihlajalinna Group's Head of Marketing. Waroma will start his work on 1 March 2017. He will be responsible for the Group's marketing efforts and the development of its brands and customer experience.
On 7 September 2016, Pihlajalinna Group changed its Management Team structure and established an Extended Management Team to support the Management Team.
As of the same date, the Group's Management Team will include the following five (5) members: Aarne Aktan, CEO (also Executive Vice President of the C&S segment); Juha Rautio, Deputy CEO and Head of Group Projects; Virpi Holmqvist, SVP of the Primary and Social Care segment; Niclas Köhler, CFO; and Hanne Keidasto, General Counsel.
In addition to the Management Team members, the Extended Management Team includes the following five (5) members: Joni Aaltonen, Head of Mergers and Acquisitions; Sanna Hildén, Head of Human Resources; Siri Markula, Head of Communications and IR; Tuomas Otala, CIO; and Kimmo Saarinen, Medical Director.
The main responsibilities of the Extended Management Team include support for the CEO and the Management Team in major projects and the Group's shared services.
The Annual General Meeting held on 4 April 2016 decided that the number of members of the Board of Directors shall be six (6) at a time. Ms. Leena Niemistö, Mr. Jari Sundström and Mr. Aarne Aktan were re-elected and Ms. Seija Turunen, Mr. Jari Eklund, Mr. Timo Everi and Mr. Mikko Wirén were elected as new members of the Board of Directors for a term ending at the end of the next Annual General Meeting.
Mikko Wirén's term of office as a member of the Board of Directors began on 8 August 2016 as he resigned from his position as the company's CEO. On the same date, Aarne Aktan stepped down from the Board of Directors and assumed his new position as the company's CEO.
At its organising meeting on 4 April 2016, Pihlajalinna Plc's Board of Directors elected Leena Niemistö as its Chairman and Jari Sundström as its Vice-Chairman. The Board of Directors elected Mikko Wirén as the Chairman of the Board of Directors and Leena Niemistö as the Vice-Chairman starting from 8 August 2016.
Audit Committee: Seija Turunen (Chairman), Jari Eklund and Leena Niemistö (for the period 4 April 2016–9 May 2016: Seija Turunen (Chairman), Jari Eklund and Aarne Aktan).
Nomination and Remuneration Committee: Mikko Wirén (Chairman), Jari Sundström and Timo Everi (for the period 4 April 2016–8 August 2016: Leena Niemistö (Chairman), Jari Sundström and Timo Everi).
Remuneration of the members of the Board of Directors The Annual General Meeting of 4 April 2016 decided that remuneration shall be paid to the members of the Board of Directors as follows: to the Chairman EUR 3,500, to the Deputy Chairman EUR 2,500 and to the other members EUR 2,000 per month.
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, for travel in Finland and abroad, per diem allowances are paid in accordance with the State Travel Regulations.
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 20,613,146. 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 9,172 (5,459) 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, and Pihlajalinna Plc has been classified as a Mid Cap company in the Healthcare sector.
During the financial year, a total of 8,196,264 Pihlajalinna shares (39.8%) were traded at a total exchange value of EUR 134,276,810. The highest price of the financial year was EUR 18.87 (19.85), the lowest price EUR 12.90 (11.38), the average price EUR 16.38 (12.72) and the closing price EUR 18.42 (17.70). The market value of the share capital based on the closing price was EUR 379.7 (364.9) million.
On 11 May 2016, Pihlajalinna received three disclosure notices in accordance with Chapter 9, Section 5 of the Securities Markets Act.
According to the first notification, Sentica Buyout III Ky and Sentica Buyout III Co-Investment Ky (together referred to as the "Funds") had sold their shares in Pihlajalinna in privately negotiated transactions (the "Share Sale Transactions"), in which the Funds sold a total of 3,515,990 shares to LocalTapiola General Mutual Insurance Company, LocalTapiola Mutual Life Insurance Company and Elo Mutual Pension Insurance Company on 11 May 2016. After the transactions, the Funds' ownership of the shares and votes of Pihlajalinna is 0 per cent.
Before the transactions, the Funds' ownership of the shares and votes of Pihlajalinna was 17.06 per cent.
According to the second notification, LocalTapiola Group's (Local-Tapiola General Mutual Insurance Company and LocalTapiola Mutual Life Insurance Company) holdings of Pihlajalinna Plc's stock had increased to 23.42 per cent of Pihlajalinna's total shares and votes. After the transaction, LocalTapiola Group owns 4,827,526 Pihlajalinna shares.
According to the third notification, Elo Mutual Pension Insurance Company's holding of Pihlajalinna Plc's stock had increased to 6.15 per cent of Pihlajalinna's total shares and votes. After the transaction, Elo Mutual Pension Insurance Company owns 1,267,161 Pihlajalinna shares.
At Pihlajalinna's Annual General Meeting of 4 April 2016, KPMG Oy Ab, a firm of authorised public accountants, was elected as the company's auditor for the financial year 1 January–31 December 2016. Lotta Nurminen, APA, will be the principal auditor.
The Annual General Meeting of 4 April 2016 decided to authorise the Board of Directors to resolve on the repurchase of an aggregate maximum of 2,061,314 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 2017.
The authorisation revokes all previous authorisations to resolve on the repurchase of the company's own shares.
Own shares may be repurchased on the basis of the authorisation only by using unrestricted equity. Own shares may be repurchased at a price formed in public trading on the date of the repurchase, or otherwise at a price formed on the market. Own shares may be repurchased using, inter alia, derivatives. The Board of Directors resolves on how shares are repurchased. Own shares may be repurchased otherwise than in proportion to the shares held by the shareholders (directed repurchase).
The Annual General Meeting of 4 April 2016 decided to authorise the Board of Directors to resolve on the issuance of shares and special rights entitling to shares. The aggregate number of shares to be issued on the basis of the authorisation may not exceed 4,122,629 shares. The authorisation will remain in force until the end of the next AGM, however, no longer than until 30 June 2017.
The authorisation revokes all previous authorisations to resolve on the issuance of shares and special rights entitling to shares.
The authorisation concerns both the issuance of new shares as well as the transfer of the company's own shares. The Board of Directors decides on all other terms and conditions of the issuance of shares and special rights entitling to shares. The authorisation includes a right to deviate from the shareholders pre-emptive right to subscription (directed issue).
In its risk management, Pihlajalinna's aim is to operate as systematically as possible and incorporate risk management in normal business processes. Furthermore, the Group invests in quality management systems and the management of occupational safety and health risks.
Pihlajalinna's Risk Management Policy defines and categorises the Group's risks and describes the goals of risk management. In addition, it defines risk management principles, operating methods and responsibilities.
Internal risk reporting is included in the regular business reporting as well as in business planning and decision-making. The material risks and their management are reported to stakeholders regularly and, when necessary, on a case-by-case basis.
In 2017, risk management will be developed by establishing an Enterprise Risk Management process. In monitoring, risks are categorised into strategic, operational, financial and damage risks.
Strategic risks refer to uncertainty related to the implementation of the Group's short-term and long-term strategy. An example is structural changes in society. The role of the private sector as a provider of social and healthcare services as well as structural changes in the public sector have a material impact on the company's business.
Operational risks are risks that are caused by external factors, technology, personnel's actions, organisation's operations or processes' functionality. These risks are managed by, for instance, monitoring the competitive situation systematically and reacting to its changes.
Financial risks refer to risks that are related to the Group's financial position, such as profitability, the functionality of financing processes and taxation. For instance, changes in tax legislation may have an impact on the company's business.
Damage risks are related to accidents or other damages that may occur to the Group's assets, personnel, customers, stakeholders or environment. The company has liability and patient insurance to cover potential malpractice caused by the company's own personnel.
A factor that links all risk categories together is the reputational risk that may affect the reputation of the Group's brands or the entire Group.
The goal of Pihlajalinna's risk management is to promote the achievement the Group's strategic and operational targets, shareholder value, the Group's operational profitability and the realisation of responsible operating methods. Risk management seeks to ensure that the risks affecting the company's business operations are known, assessed and monitored.
The Group and operative management are responsible for risk management according to reporting responsibilities. In addition, risk management specialists guide and develop the Group's risk management. Everyone working at Pihlajalinna must also know and manage risks related to their responsibilities.
As the population ages and the structures of healthcare services change, social policies may have a material impact on the private healthcare sector's business environment both in the short and long term. New policies may impact on business opportunities and profitability, particularly with respect to the availability of competent personnel.
In addition to the aforementioned factors,there is a risk of possible appeals and trials related to public contracts. Additionally, there are risks involved with the continuity of key existing customer relationships and contracts especially in the long term.
Political decision-making and structural reforms in the public sector also affect social care and healthcare services and may directly or indirectly impact on the Group's business and growth opportunities. The future overall effects of the healthcare and social welfare 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 areas of social and healthcare services but, on the other hand, the Group's extensive operations in different operating areas may partially balance out the effects of reforms.
The Group closely monitors political decision-making processes. For instance, foreseeing the growth of the reception centre business is challenging due to possible changes in the asylum seeker situation, which are difficult to predict.
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 or an interim report.
In addition, the most essential risks and uncertainties affecting the Group's operations are connected to the success of its acquisitions and information system projects, the commitment and recruitment of competent management, and tax risks.
As part of the contract terms of the new CEO, Aarne Aktan, Pihlajalinna Plc's Board of Directors decided on a new long-term share-based incentive scheme for the years 2016–2018.
There are three earnings periods in the incentive scheme, equivalent to the full calendar years 2016, 2017 and 2018. The earnings criteria of the share-based incentive scheme have been connected to the profitability development of the company's business operations. The amount of any share compensation paid to the CEO depends on achieving the targets set on the earnings criteria.
The maximum total incentive paid to the CEO consists of company shares and a monetary contribution. Based on the incentive scheme, the CEO can be granted a maximum of 37,500 shares (gross amount before applicable taxes) as a compensation. The possible share compensation will be paid to the CEO after the financial statements of each earnings period (financial year) have been confirmed, in 2017, 2018 and 2019. The CEO did not earn any share-based incentive compensation for the financial year 2016.
A transfer restriction applies to incentive scheme shares during the commitment period. The commitment period begins when the compensation is paid and ends two years after the compensation payment date.
The company does not use any share-based incentive schemes for other members of the Management Team or the Board of Directors.
The Board of Directors proposes that a dividend of EUR 0.15 per share be paid for the financial year that ended on 31 December 2016. The parent company's total distributable funds were EUR 161,712,551.76, of which profit for the financial year accounts for EUR 12,261,882.58. At the balance sheet date, the number of shares entitling their holder to dividend is 20,613,146, and consequently, the total dividend amount would be EUR 3,091,971.90. 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 0.39. The proposed dividend of EUR 0.15 is 38.5 per cent of earnings per share.
Pihlajalinna Plc's Annual General Meeting is scheduled for 4 April 2017 in Tampere, Finland. The Board of Directors will decide on the notice of the General Meeting and included proposals at a later date.
The annual report for 2016, including financial statements and the Board of Directors' report, will be published on the company's investor website at investors.pihlajalinna.fi during week 11.
Pihlajalinna's consolidated revenue and adjusted EBIT are expected to improve compared to 2016. In the financial year 2016, revenue was EUR 399.1 million and the adjusted EBIT was 16.6 million euros.
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-todate information about compliance with and deviations from the Corporate Governance Code is maintained on the investor site at investors.pihlajalinna.fi.
On 2 January 2017, Pihlajalinna acquired the entire share capital of Itä-Suomen Lääkäritalo Oy. Itä-Suomen Lääkäritalo provides a wide variety of private clinic and hospital services in its three locations: ITE Lasaretti Kuopio, Lääkärikeskus ITE Leppävirta and Lääkärikeskus ITE Suonenjoki. Pihlajalinna acquired Itä-Suomen Lääkäritalo to strengthen its position and services 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 23 January 2017, Minna Elomaa was appointed as the new business director of Pihlajalinna Group's Dextra private clinics. Elomaa transfers to Pihlajalinna from Diacor, where she was most recently business director and deputy managing director. The areas under her responsibility included, amongst others, private customer business operations, private clinics, and the hospital. Elomaa begins with Pihlajalinna on 1 August 2017.
On 1 February 2017, Pihlajalinna Group's Senior Vice president, Primary and Social Care segment, Virpi Holmqvist resigned from her position in Pihlajalinna to move on to new duties outside the Group. Her employment ends on 1 August 2017 at the latest. Joni Aaltonen, Pihlajalinna's Head of Mergers and Acquisitions, has been named as SVP of Pihlajalinna Group's Primary and Social Care (P & S) segment. He will start in his new role and join the Group's Management Team on 20 February 2017.
On 11 February 2017, Pihlajalinna Group announced its plans to expand to ten new locations before the start of the healthcare and social welfare reform in 2019. Primarily, Pihlajalinna will grow by opening completely new business locations. In addition, the company may expedite the pace of expansion with acquisitions. Pihlajalinna will prepare for the future freedom of choice by gathering all of its services under one brand, Pihlajalinna. At the same time, Pihlajalinna's look and logo will be renewed. The change should be implemented at the latest by the start of the healthcare and social welfare reform.
PIHLAJALINNA PLC Board of Directors
| SCOPE OF OPERATIONS | 2016 | 2015 | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|
| Revenue, EUR million | 399.1 | 213.3 | 148.9 | 104.4 | 47.3 |
| Change, % | 87.1 | 43.3 | 42.5 | 121.0 | |
| Gross investments, EUR million | 27.4 | 44.6 | 28.3 | 8.8 | 55.4 |
| % of revenue | 6.9 | 20.9 | 19.0 | 8.4 | 117.3 |
| Personnel at the end of the period | 4,407 | 3,047 | 1,714 | 1,270 | 711 |
| Average number of personnel | 4,379 | 2,503 | 1,619 | 1,197 | 617 |
| PROFITABILITY | 2016 | 2015 | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|
| Adjusted EBITDA, EUR million | 28.9 | 12.5 | 14.0 | 12.4 | 4.8 |
| Adjusted EBITDA, % | 7.2 | 5.9 | 9.4 | 11.9 | 10.2 |
| EBITDA, EUR million | 27.9 | 11.6 | 11.8 | 11.8 | 4.8 |
| EBITDA, % | 7.0 | 5.4 | 7.9 | 11.3 | 10.2 |
| Adjusted operating profit (EBIT), EUR million | 16.6 | 4.5 | 8.2 | 7.9 | 3.4 |
| Adjusted operating profit, % | 4.2 | 2.1 | 5.5 | 7.6 | 7.3 |
| Operating profit (EBIT), EUR million | 15.1 | 3.6 | 6.0 | 7.3 | 3.4 |
| Operating profit, % | 3.8 | 1.7 | 4.0 | 7.0 | 7.3 |
| Net financial expenses, EUR million | -1.4 | -2.3 | -3.1 | -1.9 | -1.1 |
| % of revenue | -0.4 | -1.1 | -2.1 | -1.9 | -2.3 |
| Profit before tax, EUR million | 13.7 | 1.3 | 2.9 | 5.3 | 2.3 |
| % of revenue | 3.4 | 0.6 | 1.9 | 5.1 | 4.9 |
| Income taxes, EUR million | -3.0 | -0.1 | -1.0 | -0.8 | -1.0 |
| Profit for the financial year | 10.8 | 1.2 | 1.9 | 4.5 | 1.3 |
| Return on equity (ROE), % | 11.1 | 2.3 | 7.7 | 13.3 | 6.6 |
| Return on capital employed (ROCE), % | 10.8 | 3.4 | 7.1 | 9.4 | 6.8 |
| FUNDING AND FINANCIAL POSITION | 2016 | 2015 | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|
| Interest-bearing net debt, EUR million | 22.1 | 23.5 | 71.1 | 29.5 | 40.0 |
| % of revenue | 5.5 | 11.0 | 47.8 | 28.3 | 84.6 |
| Equity ratio, % | 46.5 | 50.5 | 8.0 | 36.5 | 31.6 |
| Gearing, % | 21.9 | 25.2 | 686.3 | 77.1 | 135.0 |
| Net debt/adjusted EBITDA | 0.8 | 1.9 | 5.1 | 2.3 | 2.4 |
EUR million
EUR million/%
| SHARE RELATED INFORMATION | 2016 | 2015 | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|
| Earnings per share (EPS), EUR* | 0.39 | 0.03 | 0.11 | 0.35 | 0.12 |
| Equity per share, EUR* | 4.74 | 4.47 | 0.70 | 2.89 | 2.34 |
| Dividend per share, EUR (the Board of Directors' proposal) | 0.15 | ||||
| Dividend per share, % (the Board of Directors' proposal) | 38.5 | ||||
| Effective dividend yield, % (the Board of Directors' proposal) | 0.8 | ||||
| Number of shares at year-end | 20,613,146 | 20,613,146 | |||
| Average number of shares | 20,613,146 | 16,767,940 | |||
| Market capitalisation, EUR million | 379.7 | 364.9 | |||
| Dividends paid, EUR million (the Board of Directors' proposal) | 3.10 | ||||
| P/E ratio | 47.2 | 640.0 | |||
| Maximum share price, EUR | 18.87 | 19.85 | |||
| Minimum share price, EUR | 12.90 | 11.38 | |||
| Average share price, EUR | 16.38 | 12.72 | |||
| Closing price at year-end, EUR | 18.42 | 17.70 | |||
| Trading volume of shares, number of shares | 8,196,264 | 7,679,586 | |||
| Trading volume of shares, % | 39.80 | 45.80 |
* The per-share indicators for 2012 and 2013 are adjusted like-for-like figures that reflect the terms and conditions of the directed share issue carried out in July 2014.
| QUARTERLY INFORMATION 1,000 € |
Q4/16 | Q3/16 | Q2/16 | Q1/16 | Q4/15 | Q3/15 | Q2/15 | Q1/15 |
|---|---|---|---|---|---|---|---|---|
| CONSOLIDATED STATEMENT OF INCOME | ||||||||
| Revenue | 103,735 | 93,932 | 101,371 | 100,055 | 62,633 | 50,881 | 51,930 | 47,883 |
| EBITDA | 7,075 | 6,826 | 6,976 | 7,029 | 3,422 | 3,051 | 2,075 | 3,033 |
| Adjusted EBITDA | 7,075 | 7,838 | 6,976 | 7,029 | 3,431 | 2,949 | 3,018 | 3,083 |
| Adjusted EBITDA, % | 6.8 | 8.3 | 6.9 | 7.0 | 5.5 | 5.8 | 5.8 | 6.4 |
| Depreciation, amortisation and impairment | -3,201 | -3,238 | -3,460 | -2,860 | -2,067 | -2,098 | -2,010 | -1,778 |
| Operating profit (EBIT) | 3,874 | 3,589 | 3,516 | 4,169 | 1,355 | 953 | 66 | 1,255 |
| Adjusted operating profit (EBIT) | 3,874 | 4,673 | 3,912 | 4,169 | 1,363 | 851 | 1,008 | 1,305 |
| Adjusted operating profit (EBIT), % | 3.7 | 5.0 | 3.9 | 4.2 | 2.2 | 1.7 | 1.9 | 2.7 |
| Financial income | 11 | 61 | 24 | 21 | 49 | 38 | 68 | 16 |
| Financial expenses | -345 | -384 | -410 | -395 | -397 | -580 | -815 | -695 |
| Profit before tax | 3,539 | 3,266 | 3,129 | 3,794 | 1,007 | 412 | -682 | 576 |
| Income taxes | -519 | -860 | -526 | -1,049 | -273 | 53 | 95 | 31 |
| Profit for the period | 3,020 | 2,406 | 2,604 | 2,745 | 735 | 465 | -586 | 607 |
| Personnel at the end of the period | 4,407 | 4,470 | 4,589 | 4,228 | 3,047 | 2,905 | 2,525 | 2,261 |
| Change in personnel during the quarter | -63 | -119 | 361 | 1,181 | 142 | 380 | 264 | 547 |
| Q4/16 | Q3/16 | Q2/16 | Q1/16 | Q4/15 | Q3/15 | Q2/15 | Q1/15 | |
|---|---|---|---|---|---|---|---|---|
| C&S segment | ||||||||
| Revenue | 56,812 | 48,555 | 56,091 | 54,148 | 31,959 | 26,754 | 30,816 | 29,932 |
| EBITDA | 4,224 | 2,473 | 4,604 | 5,118 | 2,608 | 1,556 | 1,917 | 3,078 |
| Adjusted EBITDA | 4,224 | 3,353 | 4,604 | 5,118 | 2,608 | 1,556 | 1,917 | 3,078 |
| Operating profit (EBIT) | 1,705 | -198 | 1,727 | 2,936 | 1,019 | -140 | 353 | 1,555 |
| Adjusted operating profit (EBIT) | 1,705 | 755 | 2,123 | 2,936 | 1,019 | -140 | 353 | 1,555 |
| P&S segment | ||||||||
| Revenue | 49,115 | 46,857 | 46,986 | 46,819 | 31,411 | 24,789 | 22,027 | 18,525 |
| EBITDA | 3,062 | 4,950 | 2,628 | 2,269 | 1,147 | 1,278 | 1,300 | 207 |
| Adjusted EBITDA | 3,062 | 5,081 | 2,628 | 2,269 | 1,147 | 1,278 | 1,300 | 207 |
| Operating profit (EBIT) | 2,515 | 4,440 | 2,130 | 1,783 | 666 | 800 | 884 | -40 |
| Adjusted operating profit (EBIT) | 2,515 | 4,572 | 2,130 | 1,783 | 666 | 800 | 884 | -40 |
| Unallocated | ||||||||
| Revenue | 227 | 19 | 58 | 121 | -13 | 15 | 9 | 9 |
| EBITDA | -212 | -597 | -255 | -358 | -333 | 218 | -1,141 | -252 |
| Adjusted EBITDA | -212 | -597 | -255 | -358 | -324 | 115 | -199 | -202 |
| Operating profit (EBIT) | -347 | -654 | -341 | -549 | -331 | 293 | -1,172 | -260 |
| Adjusted operating profit (EBIT) | -347 | -654 | -341 | -549 | -322 | 190 | -229 | -210 |
| Profit for the period (rolling 12 mths) x 100 | |||||
|---|---|---|---|---|---|
| Return on equity (ROE), % | Equity (average) | ||||
| Return on capital employed (ROCE), % | Profit before taxes (rolling 12 mths) + interest and other financial expenses (rolling 12 mths) x 100 |
||||
| Total statement of financial position – non-interest-bearing liabilities (average) | |||||
| Gearing, % | Interest-bearing net debt x 100 | ||||
| Equity | |||||
| Equity ratio, % | Equity x 100 | ||||
| Total statement of financial position – advances received | |||||
| Earnings per share (EPS), EUR | Profit for the financial year attributable to owners of the parent | ||||
| Average number of shares during the financial year | |||||
| Equity per share, EUR | Equity attributable to owners of the parent | ||||
| Number of shares at year-end | |||||
| EBITDA | Operating profit + depreciation, amortisation and impairment | ||||
| EBITDA, % | EBITDA x 100 | ||||
| Revenue | |||||
| Net debt/adjusted EBITDA, | Interest-bearing net debt | ||||
| 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 EBITDA* | Operating profit + depreciation, amortisation and impairment + adjustment items | ||||
| Adjusted operating profit (EBIT)* | Operating profit + adjustment items | ||||
| Adjusted EBIT margin* | Adjusted operating profit (EBIT) x 100 | ||||
| Revenue | |||||
| Gross investments | Increase in tangible and intangible assets | ||||
| P/E ratio | Closing share price at year-end adjusted for share issue | ||||
| Earnings per share (EPS) | |||||
| Effective dividend yield, % | Dividend per share x 100 | ||||
| Closing price at year-end |
* These definitions correspond to the key figures reported earlier as "excluding non-recurring items".
| MAJOR SHAREHOLDERS , 31 DEC. 2016 |
|---|
| ----------------------------------- |
| Percentage of shares |
|||
|---|---|---|---|
| Number of shares | and votes | ||
| 1 | Localtapiola General Mutual Insurance Company | 3,208,891 | 15.6% |
| 2 | MWW Yhtiö Oy | 2,227,060 | 10.8% |
| 3 | Localtapiola Mutual Life Insurance Company | 1,618,635 | 7.9% |
| 4 | Elo Mutual Pension Insurance Company | 1,267,161 | 6.1% |
| 5 | Nordea Bank Ab (Publ), Finnish Branch | 734,218 | 3.6% |
| 6 | Niemistö Leena Katriina | 703,475 | 3.4% |
| 7 | Varma Mutual Pension Insurance Company | 545,500 | 2.6% |
| 8 | Fennia | 530,000 | 2.6% |
| 9 | Ilmarinen Mutual Pension Insurance Company | 490,000 | 2.4% |
| 10 | Skandinaviska Enskilda Banken Ab (Publ), Helsinki Branch | 487,354 | 2.4% |
| 10 largest, total | 11,812,294 | 57.3% | |
| Other shareholders | 8,800,852 | 42.7% | |
| Total | 20,613,146 | 100.0% |
31.12.2016
| 101–1,000 | 7.0% |
|---|---|
| 1,001–10,000 | 6.3% |
| 10,001–100,000 | 11.5% |
| 100,001–500,000 | 18.6% |
| 500,001– | 55.4% |
| DISTRIBUTION OF SHAREHOLDING BY SIZE RANGE, 31 DEC. 2016 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Shares per shareholder | Number of shareholders |
% of share holders |
Number of shares |
Percentage of shares, % |
||||
| 1 - 100 | 4,362 | 47.6% | 242,760 | 1.2% | ||||
| 101 - 1,000 | 4,244 | 46.3% | 1,452,987 | 7.0% | ||||
| 1,001 - 10,000 | 464 | 5.1% | 1,291,218 | 6.3% | ||||
| 10,001 - 100,000 | 77 | 0.8% | 2,364,414 | 11.5% | ||||
| 100,001 - 500,000 | 16 | 0.2% | 3,832,827 | 18.6% | ||||
| 500,001 - | 9 | 0.1% | 11,428,940 | 55.4% | ||||
| 9,172 | 100.0% | 20,613,146 | 100.0% | |||||
| of which nominee | ||||||||
| registered shares | 9 | 1,634,118 | 7.9% | |||||
| Total | 20,613,146 | 100.0% |
| DISTRIBUTION OF |
|---|
| SHAREHOLDING |
| BY SECTOR |
| DISTRIBUTION OF SHAREHOLDING BY SECTOR, 31 DEC. 2016 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Number of shareholders |
% of share holders |
Number of shares |
Percentage of shares, % |
|||||
| Private companies | 387 | 4.2% | 3,312,899 | 16.1% | ||||
| Financial and insurance institutions |
37 | 0.4% | 10 036 154 | 48.7% | ||||
| Public entities | 9 | 0.1% | 2,669,723 | 13.0% | ||||
| Households | 8,674 | 94.6% | 4,306,800 | 20.9% | ||||
| Non-profit organisations | 45 | 0.5% | 262,855 | 1.3% | ||||
| Foreign shareholders | 20 | 0.2% | 24 715 | 0.1% | ||||
| 9,172 | 100.0% | 20 613 146 | 100.0% | |||||
| of which nominee registered shares |
9 | 1,634,118 | 7.9% | |||||
| Outstanding shares | 20,613,146 | 100.0% |
| Direct holding | SHAREHOLDING BY MEMBERS OF THE BOARD OF DIRECTORS AND MANAGEMENT TEAM 31 DEC. 2016 Indirect holdings |
||||
|---|---|---|---|---|---|
| Percentage of | Percentage of | ||||
| Number | shares | Number | shares | ||
| Board of Directors | of shares | and votes | of shares | and votes | |
| Jari Eklund | |||||
| Jari Sundström | |||||
| Leena Niemistö | 703,475 | 3.41% | |||
| Mikko Wirén | 46,950 | 0.23% | 2,227,060 | 10.80% | |
| Seija Turunen | |||||
| Timo Everi | |||||
| Management Team | |||||
| Aarne Aktan | 5,400 | 0.03% | |||
| Hanne Keidasto | 4,170 | 0.02% | |||
| Juha Rautio | 57,850 | 0.28% | |||
| Niclas Köhler | |||||
| Virpi Holmqvist | 28,552 | 0.14% |
| EUR 1,000 | Note | 31.12.2016 | 31.12.2015 | |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets | ||||
| Property, plant and equipment | 12 | 45,498 | 48,608 | |
| Goodwill | 13 | 92,270 | 76,056 | |
| Other intangible assets | 13 | 16,319 | 15,127 | |
| Interests in associates | 16 | 2,796 | 2,839 | |
| Available-for-sale financial assets | 16 | 46 | 44 | |
| Other receivables | 17 | 2,805 | 2,827 | |
| Deferred tax assets | 19 | 1,589 | 2,519 | ASSETS |
| 161,323 | 148,021 | EUR 1,000 | ||
| Current assets | ||||
| Inventories | 20 | 1,959 | 1,753 | 250 |
| Trade and other receivables | 21 | 26,143 | 19,710 | 200 |
| Current tax assets | 780 | 289 | Goodwill | |
| Cash and cash equivalents | 22 | 27,537 | 15,330 | 150 Other non-current |
| 56,419 | 37,082 | 100 assets |
||
| Other current assets 50 |
||||
| TOTAL ASSETS | 217,742 | 185,103 | Cash and cash | |
| equivalents 0 |
||||
| EQUITY AND LIABILITIES | 15 16 |
|||
| Equity attributable to owners of the parent | 23 | |||
| Share capital | 80 | 80 | ||
| Reserve for invested unrestricted equity | 87,945 | 87,945 | ||
| Retained earnings | 9,744 | 4,102 | ||
| 97,770 | 92,128 | |||
| Non-controlling interests | 3,240 | 1,324 | ||
| Total equity | 101,010 | 93,451 | ||
| LIABILITIES | ||||
| Non-current liabilities | ||||
| Deferred tax liabilities | 19 | 5,548 | 5,185 | |
| Provisions | 25 | 847 | ||
| Financial liabilities* | 26 | 48,335 | 36,338 | |
| Other non-current liabilities | 1,929 | 1,946 | EQUITY AND LIABILITIES | |
| 56,658 | 43,469 | EUR 1,000 | ||
| 250 | ||||
| Current liabilities | ||||
| Trade and other payables | 27 | 55,033 | 42,007 | 200 |
| Current tax liabilities | 1,333 | 669 | Total equity 150 |
|
| Financial liabilities* | 26 | 3,707 | 5,506 | Other current 100 liabilities |
| 60,074 | 48,182 | Other non-current 50 |
||
| TOTAL LIABILITIES | 116,732 | 91,650 | liabilities Financial liabilities 0 |
|
| 15 16 |
||||
| TOTAL EQUITY AND LIABILITIES | 217,742 | 185,103 |
* In deviation from the financial statements of 31 December 2015, the Group presents drawdowns from the revolving credit facility under non-current financial liabilities. The Group has adjusted the presentation of this loan in its statement of financial position of 31 December 2015. Drawdowns from the revolving credit facility are actually long-term by nature, although their maturity is 1, 3 or 6 months.
| EUR 1,000 | Note | 1.1.- 31.12.2016 |
1.1.- 31.12.2015 |
|---|---|---|---|
| Revenue | 1,2 | 399,092 | 213,327 |
| Other operating income | 3 | 1,511 | 753 |
| Materials and services | 4 | -167,988 | -81,913 |
| Employee benefit expenses | 5 | -167,171 | -97,409 |
| Other operating expenses | 7 | -37,743 | -23,107 |
| Share of profit in associated companies and | |||
| joint ventures | 16 | 206 | -70 |
| EBITDA | 27,906 | 11,581 | |
| Adjusted EBITDA | 7 | 28,915 | 12,480 |
| Depreciation, amortisation and impairment | 6 | -12,759 | -7,953 |
| Operating profit | 15,147 | 3,628 | |
| Adjusted operating profit | 6,7 | 16,624 | 4,527 |
| Financial income | 8 | 116 | 171 |
| Financial expenses | 9 | -1,534 | -2,487 |
| Financial income and expenses | -1,418 | -2,316 | |
| Profit before tax | 13,729 | 1,313 | |
| Income taxes | 10 | -2,954 | -93 |
| Profit for the period | 10,775 | 1,219 |
| TOTAL COMPREHENSIVE INCOME FOR THE PERIOD |
10,775 | 1,219 |
|---|---|---|
| Total comprehensive income for the financial year attributable to |
||
| Owners of the parent | 8,049 | 464 |
| Non-controlling interests | 2,726 | 756 |
| Earnings per share for profit attributable to owners of the parent company, EUR |
||
| Basic 11 |
0.39 | 0.03 |
| Diluted | 0.39 | 0.03 |
* The Group does not have any other comprehensive income items
| EUR 1,000 | Note | 1.1.- 31.12.2016 |
1.1.- 31.12.2015 |
|---|---|---|---|
| Cash flow from operating activities | |||
| Cash receipts from sales | 400,474 | 210,373 | |
| Cash receipts from other operating income | 1,404 | 563 | |
| Operating expenses paid | -367,289 | -192,051 | |
| Operating cash flow before financial items and | |||
| taxes | 34,589 | 18,885 | |
| Interest received | 110 | 123 | |
| Taxes paid | -2,410 | -1,294 | |
| Net cash flow from operating activities | 32,288 | 17,713 | |
| Cash flow from investing activities: | |||
| Investments in property, plant and equipment and intangible assets |
-4,932 | -7,835 | |
| Proceeds from disposal of property, plant and equipment and intangible assets |
274 | 7,880 | |
| Changes in other investments | 0 | 379 | |
| Changes in loan receivables | -40 | -100 | |
| Dividends received | 264 | 15 | |
| Acquisition of subsidiaries less cash and cash equivalents at date of acquisition |
14 | -21,059 | -33,769 |
| Disposal of subsidiaries less cash and cash equivalents at date of disposal |
1,308 | ||
| Net cash flow from investing activities | -25,492 | -32,123 | |
| Cash flow from financing activities: | |||
| Proceeds from issuing shares | -29 | 82,332 | |
| Changes in non-controlling interests | -1,057 | -478 | |
| Proceeds from borrowings | 14,880 | 31,096 | |
| Repayment of borrowings | -3,630 | -90,399 | |
| Repayment of financial lease liabilities | -2,435 | -1,160 | |
| Interest and other operational financial | |||
| expenses | -1,363 | -2,025 | |
| Dividends paid and other profit distribution | -956 | -588 | |
| Net cash flow from financing activities | 5,410 | 18,778 | |
| Changes in cash and cash equivalents | 12,206 | 4,368 | |
| Cash at the beginning of the financial year | 15,330 | 10,962 | |
| Cash at the end of the financial year | 27,537 | 15,330 |
| Equity attributable to owners of the parent company | |||||
|---|---|---|---|---|---|
| Share capital | Reserve for invested unre stricted equity |
Retained earnings |
Non controlling interests |
Total equity | |
| Total equity, 1 Jan. 2015 | 3 | 5,081 | 4,270 | 1,002 | 10,356 |
| Profit for the period | 464 | 756 | 1,219 | ||
| Total comprehensive income for the period |
464 | 756 | 1,219 | ||
| Bonus issue | 78 | -78 | |||
| Share issue | 82,942 | 82,942 | |||
| Dividends paid | -588 | -588 | |||
| Total transactions with the owners of the parent |
78 | 82,865 | -588 | 82,354 | |
| Changes in NCI without a change in control |
-631 | 153 | -478 | ||
| Total changes in ownership interests | -631 | 153 | -478 | ||
| Total equity, 31 Dec. 2015 | 80 | 87,945 | 4,102 | 1,323 | 93,451 |
| Equity attributable to owners of the parent company | |||||
|---|---|---|---|---|---|
| Share capital | Reserve for invested unre stricted equity |
Retained earnings |
Non controlling interests |
Total equity | |
| Total equity, 1 Jan. 2016 | 80 | 87,945 | 4,102 | 1,324 | 93,451 |
| Profit for the period | 8,049 | 2,726 | 10,775 | ||
| Total comprehensive income for the period |
8,049 | 2,726 | 10,775 | ||
| Dividends paid | -2,160 | -2,160 | |||
| Total transactions with the owners of the parent |
-2 160 | -2 160 | |||
| Changes in NCI without a change in control |
-1,056 | -1,056 | |||
| Investment (without consideration) in reserve for invested unrestricted equity to the benefit of non-controlling |
|||||
| interests | -1,351 | 1,350 | |||
| Total changes in ownership interests | -2 407 | 1 350 | -1 056 | ||
| Total equity, 31 Dec. 2016 | 80 | 87,945 | 9,744 | 3,240 | 101,010 |
Pihlajalinna Group provides healthcare and social care services to municipalities, hospital districts, companies, insurance companies and private persons. Services are provided at private clinics and health centres, dental clinics and hospitals across Finland.
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 16 February 2017. 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 2016. 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.
The consolidated financial statements have been prepared under the historical cost convention, unless otherwise provided in the accounting policies below. In accordance with the IFRS, the Group management is required to make certain estimates and decisions based on judgement. Information on judgements that the management has relied on in applying the accounting policies followed by the Group and that have the most significant effect on the figures presented in the financial statements as well as information on assumptions concerning the future and on key assumptions related to the estimates has been presented in the accounting policies under "Accounting policies requiring management judgement and major sources of estimation uncertainty".
The financial statements are presented in thousands of euros (EUR 1,000).
The Amendments to IAS 1 Presentation of Financial Statements – Disclosure Initiative (effective for annual periods beginning on or after 1 January 2016), which entered into force during the 2016 financial year, has had effects on Pihlajalinna's financial statements. The amendments clarified the guidelines of IAS 1 on materiality, reconciliation of income statement and statement of financial position items, presentation of sub-headings and the structure and accounting policies of financial statements.
Other amendments to IFRS which entered into force during the 2016 financial year have not had effects on Pihlajalinna's financial statements.
| No. | Accounting policy | Note nro |
Name of the note |
|---|---|---|---|
| 1 | Accounting policies relating to the consolidated financial statements |
||
| 1.1 | Consolidation principles | ||
| 1.1.1 | Subsidiaries | 15 | Subsidiaries and material non-controlling interests |
| 32 | Related party transac tions |
||
| 1.1.2 | Associates and joint arrangements |
16 | Interests in associates and joint arrangements |
| 1.2 | Foreign currency trans lation |
||
| 1.3 | Property, plant and equipment |
12 | Property, plant and equipment |
| 1.4 | Government grants for the acquisition of property, plant and equipment |
3 | Other operating income |
| 1.5 | Intangible assets | 13 | Intangible assets |
| 1.5.1 | Goodwill | ||
| 1.5.2 | Research and develop ment costs |
||
| 1.5.3 | Other intangible assets | ||
| 1.6 | Inventories | 20 | Inventories |
| 1.7 | Leases | ||
| 1.7.1 | Group as lessee | 12 | Property, plant and equipment |
| 18 | Fair values of financial assets and liabilities |
||
| 26 | Financial liabilities | ||
| 30 | Operating leases | ||
| 1.7.2 | Group as lessor | 3 | Other operating income |
| 1.7.3 | Sale and leaseback | 3 | Other operating income |
| 27 | Trade and other payables | ||
| 1.7.4 | Arrangements that may contain a lease |
||
| 1.8 | Impairment of tangible and intangible assets |
13 | Intangible assets |
| 1.9 | Employee benefits | ||
| 1.9.1 | Pension obligations | 5 | Employee benefit expenses |
| 1.9.2 | Share-based payments | 24 | Share-based payments |
| 1.10 | Provisions and contin | 25 | Provisions |
| gent liabilities | 31 | Contingent assets and liabilities and commit ments |
|
| 1.11 | Current taxes and | 10 | Income taxes |
| deferred taxes | 19 | Deferred tax assets and liabilities |
| No. | Accounting policy | Note nro |
Name of the note |
|---|---|---|---|
| 1.12 | Revenue recognition principles |
||
| 1.12.1 | Services and goods sold | 2 | Revenue |
| 1.12.2 | Rental income | 3 | Other operating income |
| 1.12.3 | Interest and dividends | 8 | Financial income |
| 1.13 | Financial assets and liabilities |
||
| 1.13.1 | Financial assets | 18 | Fair values of financial assets and liabilities |
| 1.13.2 | Cash and cash equiva lents |
22 | Cash and cash equiva lents |
| 1.13.3 | Impairment of financial assets |
||
| 1.13.4 | Financial liabilities and | 9 | Financial expenses |
| borrowing costs | 18 | Fair values of financial assets and liabilities |
|
| 26 | Financial liabilities | ||
| 1.14 | Dividend based on work contributions |
18 | Fair values of financial assets and liabilities |
| 27 | Trade and other payables | ||
| 1.15 | Equity | 23 | Notes on equity |
| 1.16 | EBITDA | ||
| 1.17 | Operating profit (EBIT) | ||
| 1.18 | Earnings per share | 11 | Earnings per share |
| 1.19 | Dividend | 23 | Notes on equity |
| 1.20 | Items influencing com parability |
6 | Depreciation, amortisa tion and impairment |
| 7 | Other operating expenses | ||
| 9 | Financial expenses | ||
| 2 | Accounting policies requiring management judgement and major sources of estimation uncertainty |
||
| 2.1 | Measuring the fair value | 14 | Business combinations |
| of assets acquired in the context of business combinations and the fair value of contingent consideration |
33 | Events after the balance sheet date |
|
| 2.2 | Impairment testing | 13 | Intangible assets |
| 3 | New and revised stand ards to be applied later |
Subsidiaries are entities in which the Group exercises control. The Group has control of an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Intragroup shareholdings are eliminated using the acquisition method. The consideration transferred and the acquired entity's identifiable assets and assumed liabilities are measured at fair value at the date of acquisition. Acquisition-related costs, apart from costs incurred from the issue of debt securities or equity securities, are expensed. The consideration transferred does not include transactions that are treated separately from the acquisition. Their effect is recognised in profit or loss in the context of the acquisition. 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. If there are non-controlling interests in the acquiree, these interests will be measured at an amount that corresponds to their pro rata share of the acquiree's total identifiable net assets. The treatment of goodwill generated through the acquisition of a subsidiary is explained under "Goodwill".
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 noncontrolling 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. The Group has one real estate company that is consolidated as a joint operation.
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 consolidates Dextra Lapsettomuusklinikka Oy and Insta Care Oy as associates and Röntgentutka Oy as a joint venture using the equity method. 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.
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.
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 and structures | 10–25 years |
|---|---|
| Machinery and equipment | 3–10 years |
| Other tangible assets | 3–5 years |
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. Depreciation of assets will be discontinued when they are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Government grants, such as grants received from the government for the acquisition of property, plant and equipment, are recognised as deductions from the carrying amounts of the related 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. Such grants that are 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.
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.
Research expenditure is recognised as an expense as incurred. Development costs incurred from the planning of new or significantly improved products are capitalised as intangible assets from the time when the costs of the development stage can be reliably determined, completion of the product is technically viable, the Group is able to use or sell the product, the Group can demonstrate how the product will generate probable economic benefits in the future and the Group has both the intention and the resources to complete the development work and use or sell the product. Capitalised development costs include those costs of work, subcontracting and testing that are directly incurred from completing the asset for its intended purpose. Development costs previously expensed shall not be capitalised later.
Assets are amortised from the time when they are ready for use. Assets that are not yet available for use are tested annually for impairment. Subsequent to their initial recognition, capitalised development costs are measured at cost less accumulated amortisation and impairment. The amortisation period for development costs is 3 to 10 years, during which capitalised development costs are amortised using the straight-line method.
The Group's capitalised development costs that have not been amortised are associated with the following three projects: Takeover of social and healthcare operations in Mänttä-Vilppula and development of operating models in 2013, specialised care referral forwarding and coordination operating model developed for the Parkano social and healthcare partnership area in 2015 and the three-year SYKKI project funded with Tekes subsidies aiming to create an effective and cost-efficient model for public social and healthcare services, started in 2012.
An intangible asset is initially recognised at cost, provided that the cost can be reliably determined and that it is probable that the expected economic benefits generated by the asset will flow to the Group.
Those intangible assets with finite economic useful lives are amortised using the straight-line method during their known or estimated useful lives.
For intangible assets with finite economic useful lives, the amortisation periods are as follows:
| Trademarks | 10 years |
|---|---|
| Other intangible assets | |
| Customer agreements | 4 years |
| Patient database | 4 years |
| License fees | 3–7 years |
| Computer software | 3–7 years |
| Certificates | 3–5 years |
| Non-competition agreements | 2–5 years |
Economic useful lives are reviewed at the end of each financial year, and where they differ significantly from previous estimates, the amortisation periods are changed accordingly.
Inventories are measured at the lower of cost and probable net realisable value. Cost is determined using the first-in, first-out (FIFO) method. Net realisable value is the estimated sales price in the ordinary course of business, less the estimated product completion costs and the necessary sales costs.
The Group's inventories are mainly comprised of hospital units' supplies and medications and dental units' materials and supplies.
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 divided into finance costs and reduction of lease liability over the lease term so that the interest rate on the remaining liability will be equal in each period. 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.
Where a lease includes components concerning both land areas and buildings, each component is classified separately as a finance lease or an operating lease.
Where it is necessary for accounting purposes to classify and determine the share that the land area and the building represent in the lease, the minimum lease payments (including any one-off advance payments) will be allocated proportionately to the fair values of the leasehold interests concerning the land area and the building at the inception of the lease.
Assets leased out under operating leases are included in the consolidated statement of financial position under property, plant and equipment. They are depreciated during their useful lives, as is done with corresponding assets in the Group's own use. Lease income is recognised over the lease term on a straight-line basis.
The Group has not leased out assets treated as financial lease agreements.
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. The unrecognised portion of the difference between the carrying amount and the sales price is presented as Other non-current liabilities in the statement of financial position.
The most significant of the Group's finance leasing agreements are due to sale and leaseback transactions of premises.
Whether or not a contract is classified as a lease is based on the substance of the arrangement in question and more specifically on whether or not the fulfilment of the arrangement is dependent on a certain asset and whether or not the arrangement conveys a right to use this asset.
On each date of the financial statements, the Group estimates whether there are indications that assets may be impaired. If such indications exist, the asset's recoverable amount is estimated. The recoverable amount is also estimated annually for the following assets regardless of whether or not there are indications of impairment: goodwill and intangible assets not yet available for use. The Group has no intangible assets with indefinite useful lives. In addition to the annual testing, goodwill is always tested for impairment when there are indications that a given unit may be impaired. The need to recognise an impairment loss is assessed at the level of cash-generating units (CGUs), 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-inuse 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.
Pension plans are 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.
The Group has a long-term share-based incentive scheme for the CEO, in which payments are made as either equity instruments or in cash. The benefits granted in the scheme are measured at fair value at the time of granting and expensed on a straight-line basis during the vesting period. If the payments are made in cash, the recognised liability and change in its fair value are correspondingly amortised as expenses. The effect of the arrangement on the income statement is presented in employee benefit expenses.
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.
The Group has recognised restoration provisions relating to its premises. The provisions are based on the management's estimates of the restoration costs of premises.
Contingent liabilities are possible obligations arising from previous events, the existence of which is only confirmed once an uncertain event beyond the scope of the Group's control is realised. Also, an existing obligation that will not probably require fulfilling a payment obligation or the amount of which cannot be reliably determined is considered to be a contingent liability. Contingent liabilities are presented in Note 31 "Contingent assets and liabilities and commitments".
The tax expense consists of current tax and deferred tax. 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.
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.
Revenue consists of revenue from the sales of products and services at fair value, adjusted with any discounts and other adjustment items. The consolidated revenue mainly consists of provision of services. The services provided by the Group consist of occupational health care services, services provided at private clinics and hospitals, diagnostics services, oral healthcare services, services for the elderly, asylum seeker reception centre operations, and social and health service outsourcings.
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 also have effects on revenue recognition.
Revenue from other services is primarily recognised after the service has been provided.
Revenue from the sales of goods is recognised when significant risks, rewards and control incidental to the ownership of the goods are transferred to the buyer.
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 invoicing. According to the management's view, Pihlajalinna Group 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 leases out its operating premises. Rental income is recognised over the lease term on a straight-line basis.
Interest income is recognised using the effective interest method and dividends at the time when the right to dividend is established.
The Group's financial assets are classified into the following categories: loans and receivables and available-for-sale financial assets. The classification is based on the purpose for which the financial assets are acquired and takes place upon the initial recognition.
Transaction costs are included in the initial carrying amount of the financial assets, when the item concerned is not measured at fair value through profit or loss. Transaction action costs related to financial assets recognised at fair value through profit or loss are recognised immediately in profit or loss. All purchases and disposals of financial assets are recognised on the trade date, which is the date when the Group commits to purchasing or disposing of a financial instrument.
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.
Loans and receivables are non-derivative assets with fixed or determinable payments and that are not quoted on the active market, and which the Group does not hold for trading or does not specifically classify as available for sale upon initial recognition. In the Group, this item includes trade receivables and loan receivables. Loan receivables are measured at amortised cost and included in the consolidated statement of financial position as current or non-current assets depending on their maturity.
Available-for-sale financial assets consist of quoted and unquoted shares. They are measured at fair value, or when fair value cannot be reliably determined, at cost. Investments in quoted shares are measured at fair value, which is the bid quote on the date of the financial statements.
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.
At the end of each reporting period, the Group assesses whether or not there is objective evidence of impairment regarding any individual financial asset. If the fair value of a share investment has fallen significantly below its cost and for the period determined by the Group, this is considered evidence of impairment with respect to the available-for-sale share. In this case, the loss accumulated in the fair value reserve is transferred to be recognised in profit or loss.
An impairment loss is recognised on loans and receivables, such as trade receivables, when there is objective evidence showing that the receivable will not be recovered in full.
Financial liabilities are initially recognised at fair value. Transaction costs are included in the initial carrying amount of the financial liabilities measured at amortised cost. Financial liabilities, excluding derivative liabilities, are subsequently measured at amortised cost using the effective interest method. Financial liabilities are included in both non-current and current liabilities. 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.
The principles for measuring the fair value of all financial assets and liabilities are presented in Note 18 "Fair values of financial assets and liabilities".
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 27 "Trade and other payables" and Note 18 "Fair values of financial assets and liabilities". Work contribution-based dividends paid by the company are an income tax deductible item.
The Group classifies all instruments it issues either as an equity instrument or a financial liability, depending on their nature. Equity instruments are any contracts evidencing a residual interest in the
assets of the company after deducting all of its liabilities. Costs relating to the issue or purchase of equity instruments are presented as a deduction from equity.
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.
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.
The Board's dividend proposal to the AGM has not been recognised in the financial statements. Instead, dividends will be recognised on the basis of the decision of the AGM.
Exceptional business transactions not included in the normal course of business, infrequently repeated events or valuation items that do not have effects on cash flow are treated as items influencing comparability. According to Pihlajalinna's definitions, such items include
Income and expenses are presented on the appropriate lines in the income statement. Impairment is presented in the income statement on the appropriate line item Depreciation, amortisation and impairment or, in the case of goodwill, on the line item Goodwill impairment. Further information on non-recurring items for the financial year is provided in Note 7 "Other operating expenses", Note 9 "Financial expenses" and Note 6 "Depreciation, amortisation and impairment".
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 following estimates and assumptions are the most significant ones:
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. Further information on the measurement of intangible assets acquired in business combinations is provided in Note 14 "Business combinations".
The fair value of the contingent consideration on the acquisition date is recognised as part of the consideration transferred for the acquiree. When a contingent consideration is classified as a financial liability, it is measured at fair value on each date of the financial statements. Any changes in fair value will be recognised in profit or loss. The key variables are the estimate of future EBITDA and the discount rate. In the financial statements as at 31 December 2016, the contingent considerations totalled 2,381 (2,982) thousand euros.
The Group annually tests goodwill and intangible assets that are not yet available for use for impairment and estimates any indications of impairment in accordance with the accounting policies stated above. The recoverable amounts of the cash-generating units are determined using calculations based on their value in use. The preparation of these calculations requires the use of estimates. Further information on the sensitivity of the recoverable amount to changes in the assumptions used is provided in Note 13 "Intangible assets".
The Group has not yet applied the following new, revised or amended standards and interpretations already published by the IASB. The Group will adopt them as from the effective date of each standard and interpretation, or if the effective date is some date other than the first day of the financial year, as from the beginning of the financial year that first follows the effective date.
• IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2018). The new standard includes a five-step model for recognising revenue form contracts with customers, and it replaces the current IAS 18 and IAS 11 standards and related interpretations. Revenue can be recognised over time or at a point of time, and the passing of control is a key criterion. The standard also increases the amount of notes to be disclosed.
Pihlajalinna launched a detailed contract-specific IFRS 15 adoption project concerning revenue recognition in autumn 2016, surveying the services sold and provided by segment. Pihlajalinna has surveyed the
significant customer agreements, covering approximately 65% of the Group's revenue, during the autumn. The adoption project has identified the following major performance obligations by segment by the end of the 2016 financial year:
Social and healthcare outsourcing
Care services (including asylum seeker reception centres)
Private Clinics
• individual customer visits to healthcare services
Surgical operations and public specialised care
Occupational healthcare
The transaction price is primarily comprised of individual visits according to the price list or annual, 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 fulfilled either over time (e.g., outsourcings, care services) or at a specific 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 based on a fixed annual price, and they are recognised as revenue over time.
Pihlajalinna aims to adopt the new IFRS 15 in the financial year beginning on 1 January 2018, and it will apply an adjusted procedure by recognising any cumulative adjustment effect caused by the adoption of the standard in the opening retained earnings under equity for the 2018 financial year. At the time of preparing these financial statements, Pihlajalinna estimates that the adoption of the standard will not have a significant impact compared to the revenue recognition principles currently applied by Pihlajalinna. Pihlajalinna will continue the adoption project and communicate about its progress in the interim reports published in 2017.
Pihlajalinna Group has two operating segments that are strategic business units of the Group. The strategic business units provide various services and are managed separately. The segment information presented by the Group is based on the internal management reporting, which is prepared in accordance with IFRS.
The Group's segments are Private Clinics and Specialised Care (C&S), and Primary and Social Care (P&S).
The Private Clinics and Specialised Care segment provides general and specialist medical consultation services, diagnostic services, occupational healthcare services, oral healthcare services, surgical services and rehabilitation services.
The Primary and Social Care segment provides care services, full primary healthcare and social care outsourcings, health centre outsourcings and staffing services.
In the Group, assessment of the segments' profitability and decisions concerning resources allocated to the segments are based on the segments' operating profit, as according to the management's view it is the most appropriate indicator for assessing the segments' profitability. The chief operating decision maker identified in the Group that is responsible for the aforementioned assessments and decisions on resources is the Management Team.
Each segment's assets and liabilities are items used by the segment in its business operations and can reasonably be allocated to the segment. Unallocated items include the parent company's expenses, financial income and expenses and income taxes. Capital expenditure consists of increases in property, plant and equipment and intangible assets, used during more than one financial year. Inter-segment pricing is determined on an arm's length basis.
| EUR 1,000 | 2016 | ||
|---|---|---|---|
| C & S | P & S | Total | |
| Result | |||
| Total external revenue | 213,339 | 185,499 | 398,838 |
| Inter-segment revenue | 2,267 | 4,278 | 6,544 |
| Operating segment's revenue | 215,606 | 189,776 | 405,382 |
| Depreciation and amortisation | -10,249 | -2,041 | -12,289 |
| Operating segment's EBITDA | 16,419 | 12,909 | 29,328 |
| Operating segment's EBITDA, % | 7.6 | 6.8 | 7.2 |
| Operating segment's operating profit |
6,170 | 10,868 | 17,038 |
| Operating segment's operating profit, % |
2.9 | 5.7 | 4.2 |
| Assets | |||
| Operating segment's assets | 138,199 | 49,539 | 187,738 |
| Capital expenditure | 22,030 | 5,023 | 27,053 |
| Liabilities | |||
| Operating segment's liabilities | 28,471 | 27,141 | 55,612 |
| EUR 1,000 | 2015 | ||
|---|---|---|---|
| C & S | P & S | Total | |
| Result | |||
| Total external revenue | 118,417 | 94,899 | 213,316 |
| Inter-segment revenue | 1,043 | 1,853 | 2,896 |
| Operating segment's revenue | 119,460 | 96,752 | 216,211 |
| Depreciation and amortisation | -6,371 | -1,620 | -7,991 |
| Operating segment's EBITDA | 9,159 | 3,930 | 13,089 |
| Operating segment's EBITDA, % | 7.7 | 4.1 | 6.1 |
| Operating segment's operating profit |
2,787 | 2,311 | 5,098 |
| Operating segment's operating profit, % |
2.3 | 2.4 | 2.4 |
| Assets | |||
| Operating segment's assets | 119,610 | 45,212 | 164,822 |
| Capital expenditure | 36,001 | 8,024 | 44,025 |
| Liabilities | |||
| Operating segment's liabilities | 20,427 | 21,077 | 41,504 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Revenues | ||
| Operating segments' revenue | 405,382 | 216,211 |
| Items unallocated to the segments | 426 | 19 |
| Elimination of inter-segment revenue | -6,716 | -2,903 |
| Total consolidated revenue | 399,092 | 213,327 |
| Operating profit | ||
| Operating segments' operating profit | 17,038 | 5,098 |
| Items unallocated to the segments | -1,891 | -1,470 |
| Consolidated operating profit | 15,147 | 3,628 |
| Assets | ||
| Operating segments' assets | 187,738 | 164,822 |
| Inter-segment elimination | -5,855 | -3,901 |
| Items unallocated to the segments | 35,859 | 24,182 |
| Total consolidated assets | 217,742 | 185,103 |
The segments' assets exclude non-current receivables, deferred tax assets, current tax assets as well as cash and cash equivalents.
| Total consolidated liabilities | 116,732 | 91,650 |
|---|---|---|
| Items unallocated to the segments | 66,975 | 54,042 |
| Inter-segment elimination | -5,855 | -3,895 |
| Operating segments' liabilities | 55,612 | 41,504 |
The segments' liabilities exclude financial liabilities, deferred tax liabilities and current tax liabilities.
| EUR 1,000 | 2016 | ||
|---|---|---|---|
| Operating segments, total |
Unallocated | Group, total |
|
| Financial income and | |||
| expenses | 0 | -1,418 | -1,418 |
| Capital expenditure | 27,053 | 307 | 27,360 |
| Depreciation and amortisation |
-12,289 | -470 | -12,759 |
| EUR 1,000 | 2015 | ||
|---|---|---|---|
| Operating segments, total |
Unallocated | Group, total |
|
| Financial income and expenses |
0 | -2,316 | -2,316 |
| Capital expenditure Depreciation and |
44,025 | 592 | 44,617 |
| amortisation | -7,991 | 38 | -7,953 |
Capital expenditure includes increases in tangible and intangible assets.
The Group's revenues from three municipal customers totalled approximately EUR 180.2 million (EUR 106.1 million), representing 45% (50%) of the consolidated revenue.
The C & S segment's revenue during the past financial year amounted to EUR 215.6 (119.5) million, an increase of EUR 96.1 million, or 80 per cent. Revenue growth was attributable to the transfer of the specialised care services of Kuusiokunnat and Jämsä to the service provision responsibility of Pihlajalinna and to the acquisitions of Tampereen Lääkärikeskus (Koskiklinikka) and Itä-Suomen Lääkärikeskus (ITE).
The C & S segment's operating profit for the financial year amounted to EUR 6.2 (2.8) million and adjusted operating profit to EUR 7.5 (2.8) million. Profitability improved in particular due to acquisitions (Koskiklinikka, ITE), which can be seen in the improved profitability of the Private Clinics and Occupational Healthcare service areas. EBITDA for the financial year was burdened by the non-recurring compensation of EUR 0.9 million related to a production agreement of the Surgical Operations service area that expired in the previous financial year. This item has been treated as an adjustment of operating profit.
The P & S segment's revenue during the financial year amounted to EUR 189.8 (96.8) million, an increase of EUR 93.0 million, or 96 per cent. This growth was mainly due to the social and healthcare outsourcings of Kuusiokunnat and Jämsä.
The P & S segment's operating profit for the financial year amounted to EUR 10.9 (2.3) million and adjusted operating profit to EUR 11.0 (2.3) million. Year-on-year profitability improved, mainly as a result of the social and healthcare outsourcings of Kuusiokunnat, Mänttä-Vilppula and Jämsä.
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Sale of services | 398,969 | 213,165 |
| Sales of goods | 123 | 161 |
| Total | 399,092 | 213,326 |
All of the Group's income came from Finland.
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Capital gains on property, plant and equipment |
239 | 140 |
| Rental income | 463 | 300 |
| Government grants | 686 | 234 |
| Insurance indemnities | 52 | |
| Other income items | 70 | 79 |
| Total | 1,511 | 753 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Materials | -14,061 | -10,365 |
| Change in inventories | -208 | -38 |
| External services | -153,719 | -71,509 |
| Total | -167,988 | -81,913 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Wages and salaries | -134,474 | -78,498 |
| Pension costs – defined contribution | ||
| plans | -24,591 | -14,629 |
| Other social security expenses | -8,106 | -4,281 |
| Total | -167,171 | -97,409 |
| Average number of personnel in the | ||
| financial year | 4,379 | 2,503 |
Information on the employee benefits and loans of members of management considered to be related parties is presented in Note 32 Related party transactions.
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Amortisation by asset type | ||
| Intangible assets | ||
| Trademarks | -771 | -527 |
| Capitalised development costs | -263 | -115 |
| Other intangible assets | -3,514 | -2,242 |
| -4,548 | -2,884 | |
| Property, plant and equipment | ||
| Buildings | -3,523 | -2,121 |
| Buildings, Restructuring of Dental Care and Surgical Operations |
||
| (impairment of assets) | -469 | |
| Machinery and equipment | -4,218 | -2,948 |
| Other tangible assets | -1 | 0 |
| -8,211 | -5,069 | |
| Total depreciation, amortisation and impairment |
-12,759 | -7,953 |
| Depreciation, amortisation and impairment influencing adjusted operating profit |
||
| Restructuring of Dental Care and Surgical Operations, impairment |
469 | |
| Total | 469 | 0 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Facility expenses | -13,803 | -9,466 |
| Equipment and information manage | ||
| ment expenses | -11,528 | -6,473 |
| Sales and marketing expenses | -4,831 | -3,285 |
| Other expenses | -7 580 | -3 883 |
| Total | -37,743 | -23,107 |
| Other operating expenses influenc | ||
| ing adjusted EBITDA and operating profit |
||
| IPO-related share-selling expenses | 899 | |
| Compensation for a production agreement of Surgical Operations that |
||
| expired in the previous financial year | 885 | |
| Items arising from the integration of | ||
| care business operations | 127 | |
| Total | 1,011 | 899 |
| Auditor's fees | ||
| Audit, BDO and PWC | -127 | -94 |
| Audit, KPMG Oy Ab | -142 | -222 |
| Other services, KPMG Oy Ab | -26 | -341 |
| Total | -294 | -657 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Dividend income from available-for sale financial assets |
14 | 15 |
| Interest income from loans and receivables |
94 | 153 |
| Other financial income | 8 | 4 |
| Total | 116 | 171 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Interest expenses from financial liabilities carried at amortised cost |
-1,061 | -1,741 |
| Other financial expenses | -473 | -473 |
| Refinancing expenses | -273 | |
| Total | -1,534 | -2,487 |
| Adjustment items to financial expenses |
||
| Refinancing expenses | -273 | |
| Total | 0 | -273 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Current taxes | -2,465 | -827 |
| Taxes for the previous financial years | -19 | 9 |
| Deferred taxes: | ||
| Origination and reversal of temporary differences |
-471 | 724 |
| Total | -2,954 | -93 |
| Taxes recognised directly in equity 2015 |
Before tax | Tax |
| Emission costs | 2,682 | -639 |
| Total | 2,682 | -639 |
Reconciliation of tax expenses in the income statement and taxes calculated on the basis of the Group's tax rate of 20%:
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Profit before taxes | 13,729 | 1,313 |
| Taxes calculated on the basis of the Finnish tax rate |
-2,746 | -263 |
| Income not subject to tax | 3 | 3 |
| Non-deductible expenses | -379 | -1 |
| Unrecorded deferred tax assets from tax losses |
-51 | -28 |
| Utilised prior losses with unrecognised tax benefits |
106 | 143 |
| Share of associates' profit | 41 | -14 |
| Other items | 91 | 57 |
| Taxes for prior financial years | -19 | 9 |
| Taxes in the income statement | -2,954 | -93 |
Earnings per share for the financial year attributable to owners of the parent are calculated by dividing the profit for the financial year attributable to owners of the parent by the weighted average number of shares outstanding during the financial year. The parent company does not have dilutive instruments.
| 2016 | 2015 | |
|---|---|---|
| Profit for the financial year attribut able to owners of the parent, EUR |
8,048 302,15 | 463,730,80 |
| Number of shares outstanding, | ||
| weighted average | 20,613,146 | 16,767,940 |
| Earnings per share (EPS), EUR | 0.39 | 0.03 |
| EUR 1,000 | ||||||
|---|---|---|---|---|---|---|
| Machinery and | Other | Construction | ||||
| Land areas | Buildings | equipment | tangible assets | in progress | Total | |
| Cost at 1 January 2016 | 88 | 41,032 | 21,080 | 143 | 315 | 62,657 |
| Additions | 927 | 3,359 | 72 | 4,357 | ||
| Business combinations | 321 | 1,005 | 3 | 1,329 | ||
| Transfers between items | 946 | 1,477 | -325 | 2,098 | ||
| Disposals | -186 | -661 | -847 | |||
| Cost at 31 December 2016 | 88 | 43,039 | 26,260 | 146 | 61 | 69,595 |
| Accumulated depreciation at | ||||||
| 1 January 2016 | -5,329 | -8,719 | 0 | 0 | -14,049 | |
| Depreciation and amortisation | -3,992 | -4,218 | -1 | -8,211 | ||
| Transfers between items | -940 | -1,433 | -2,373 | |||
| Disposals | 186 | 350 | 536 | |||
| Accumulated depreciation at | ||||||
| 31 December 2016 | -10,076 | -14,020 | -1 | 0 | -24,098 | |
| Carrying amount at 1 January 2016 | 88 | 35,702 | 12,361 | 143 | 315 | 48,609 |
| Carrying amount at | ||||||
| 31 December 2016 | 88 | 32,963 | 12,241 | 145 | 61 | 45,498 |
| EUR 1,000 |
| Land areas | Buildings | Machinery and equipment |
Other tangible assets |
Construction in progress |
Total | |
|---|---|---|---|---|---|---|
| Additions | 10,689 | 4,373 | 534 | 15,596 | ||
| Business combinations | 44 | 8,031 | 2,356 | 27 | 0 | 10,459 |
| Transfers between items | 1,273 | 8 | -2 | -1,278 | 0 | |
| Disposals | -118 | -8,050 | -278 | -3 | -8,449 | |
| Cost at 31 December 2015 | 88 | 41,032 | 21,080 | 143 | 315 | 62,657 |
| Accumulated depreciation at 1 January 2015 |
-3,831 | -5,888 | -1 | -9,720 | ||
| Depreciation and amortisation | -2,121 | -2,948 | 0 | -5,069 | ||
| Business combinations | 0 | |||||
| Disposals | 622 | 116 | 1 | 740 | ||
| Accumulated depreciation at 31 December 2015 |
-5,329 | -8,719 | 0 | 0 | -14,049 | |
| Carrying amount at 1 January 2015 | 163 | 25,259 | 8,732 | 120 | 1,058 | 35,333 |
| Carrying amount at 31 December 2015 |
88 | 35,702 | 12,361 | 143 | 315 | 48,608 |
Property, plant and equipment include the following assets acquired under finance leases:
| EUR 1,000 | |||
|---|---|---|---|
| Machinery and | |||
| Buildings | equipment | Total | |
| 31/12/16 | |||
| Cost | 26,836 | 1,452 | 28,288 |
| Accumulated depreciation | -4,786 | -729 | -5,515 |
| Carrying amount | 22,050 | 723 | 22,773 |
| 31/12/15 | |||
|---|---|---|---|
| Cost | 26,836 | 1,059 | 27,895 |
| Accumulated depreciation | -2,480 | -261 | -2,741 |
| Carrying amount | 24,356 | 798 | 25,154 |
The Group concluded in 2013 a 15-year sale and leaseback agreement concerning hospital property of Dextra Oy, 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.
Additions to the costs of property, plant and equipment include assets leased with finance leases totalling EUR 393 thousand (EUR 16,304 thousand in 2015).
| EUR 1,000 | ||||||
|---|---|---|---|---|---|---|
| Development | Other intangi | Pre | ||||
| Goodwill | Trademarks | costs | ble assets | payments | Total | |
| Cost at 1 January 2016 | 76,056 | 7,153 | 1,613 | 12,391 | 1,506 | 98,719 |
| Additions | 936 | 342 | 1,278 | |||
| Business combinations | 16,214 | 610 | 3,579 | 20,403 | ||
| Transfers between items | 1,046 | 953 | -1,726 | 273 | ||
| Disposals | 0 | |||||
| Cost at 31 December 2016 | 92,270 | 7,762 | 2,659 | 17,859 | 122 | 120,673 |
| Accumulated depreciation at | ||||||
| 1 January 2016 | -1,603 | -240 | -5,694 | 0 | -7,536 | |
| Depreciation and amortisation | -771 | -263 | -3,514 | -4,548 | ||
| Accumulated depreciation at | ||||||
| 31 December 2016 | -2,374 | -503 | -9,208 | 0 | -12,085 | |
| Carrying amount at 1 January 2016 | 76,056 | 5,550 | 1,373 | 6,696 | 1,506 | 91,182 |
| Carrying amount at | ||||||
| 31 December 2016 | 92,270 | 5,389 | 2,157 | 8,651 | 122 | 108,589 |
| EUR 1,000 | ||||||
|---|---|---|---|---|---|---|
| Goodwill | Trademarks | Development costs |
Other intangi ble assets |
Pre payments |
Total | |
| Cost at 1 January 2015 | 56,249 | 5,268 | 1,333 | 7,304 | 469 | 70,622 |
| Additions | 1,326 | 649 | 1,506 | 3,481 | ||
| Business combinations | 19,970 | 1,885 | 3,969 | 25,824 | ||
| Transfers between items | 469 | -469 | ||||
| Disposals | -163 | -1,046 | -1,209 | |||
| Cost at 31 December 2015 | 76,056 | 7,153 | 1,613 | 12,391 | 1,506 | 98,719 |
| Accumulated depreciation at | ||||||
| 1 January 2015 | -1,076 | -125 | -3,451 | -4,652 | ||
| Depreciation and amortisation | -527 | -115 | -2,242 | -2,884 | ||
| Accumulated depreciation at 31 December 2015 |
-1,603 | -240 | -5,694 | -7,536 | ||
| Carrying amount at 1 January 2015 | 56,249 | 4,192 | 1,208 | 3,852 | 469 | 65,970 |
| Carrying amount at 31 December 2015 |
76,056 | 5,550 | 1,373 | 6,698 | 1,506 | 91,183 |
Other intangible assets include licences and computer software; customer agreements and related customer relationships acquired in connection with business combinations; and non-competition agreements and certificates.
For the purpose of impairment testing, goodwill has been allocated to the operating segments, Private Clinics and Specialised Care (C&S) and Primary and Social Care (P&S). The Group has determined the operating segments as the cash-generating units (CGUs).The carrying amounts of goodwill are allocated to the operating segments as follows:
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Private Clinics and Specialised Care (C & S) |
73,993 | 48,839 |
| Primary and Social Care (P & S) | 18,278 | 15,787 |
| Tested goodwill | 92,270 | 64,626 |
| Goodwill arising from the acquisition of Koskiklinikka |
11,430 | |
| Goodwill as per the statement of financial position at the end of the |
||
| financial year | 92,270 | 76,056 |
The date of goodwill impairment testing was the end of the financial year. In the previous financial year, testing was carried out based on the situation prevailing at the end of October 2015 due to the schedules of the Board of Directors. Neither the goodwill of EUR 11.4 million nor the future cash flows arising from the acquisition of Koskiklinikka were taken into account in impairment testing in 2015.
The recoverable amounts from the CGUs are determined based on value-in-use calculations. Cash flow forecasts are based on the budget for 2017 approved by the Board of Directors, and the cash flow estimates for 2018–2021 are based on the estimates of the segments' management on 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.
In the impairment testing carried out during the previous financial year, cash flows from complete outsourcing were conservatively only taken into consideration for the period of validity of the agreements, at maximum to 2026. In the 2016 financial year, testing was carried out on the going concern basis.
The growth rate of 2% used in the calculation of the terminal value is in line with the sector's actual long-term growth.
Budgeted and forecast operating profit are based on actual average operating profit and the view of each segment's management on the development of volumes. The possibility of intensified competition in the sector has been accounted for when preparing estimates on the volumes and profitability of the business.
The testing was carried out on going concern basis in the financial year.
The discount rate 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 pre-tax discount rate used for the Private Clinics and Specialised Care segment was 8.37% (8.98%) and for the Primary and Social Care segment, 8.39% (11.23%).
The growth rate of 2 % used in the calculations of the terminal values is in line with the sector's actual long term growth.
Based on the impairment tests, there is no need for impairment. The recoverable amount exceeded the carrying amounts in both segments (CGUs).
The occurrence of any of the following changes, ceteris paribus, would lead to the carrying amount of the segment's assets being equal to the segment's recoverable amount:
| 2016 | 2015 | ||||
|---|---|---|---|---|---|
| Private Clinics and Specialised Care (C & S) | |||||
| - decline in volume | 26.5% | 15.1% | |||
| - decrease in the operating profit percentage |
2.3 percentage units |
1.4 percentage units |
|||
| - rise in the discount rate | 4.4 percentage units |
2.4 percentage units |
|||
| Primary and Social Care (P & S) | |||||
| - decline in volume | 69.5% | 21.9% | |||
| - decrease in the operating profit percentage |
4.8 percentage units |
1.2 percentage units |
45.0 percentage
units
14.0 percentage
units
The Group expanded in the 2016 financial year through several business combinations.
On 8 February 2016, Pihlajalinna completed the purchase of shares in Itä-Suomen Lääkärikeskus Oy (ITE). The transaction price paid in cash on the execution date was EUR 6.8 million. At the beginning of July, Pihlajalinna paid a contingent consideration of EUR 1.5 million related to the transaction and net cash at the time of the transaction, EUR 0.4 million. The contingent consideration was based on the company's profit development as shown in its adopted financial statements 2015, which turned out better than anticipated.
Pihlajalinna further strengthened its private clinic operations in Lappeenranta by purchasing the majority of shares in Lääkäriasema DokTori Oy on 9 February 2016.
On 7 March 2016, Pihlajalinna strengthened its presence in Seinäjoki and elsewhere in South Ostrobothnia by acquiring the majority of the shares of Etelä-Pohjanmaan Sydäntutkimuspalvelu Oy, Kompassi Hammaslääkärikeskus Oy and Kompassi Lääkärikeskus Oy. The acquisition was finalised on 1 April 2016.
The non-controlling interests in Etelä-Pohjanmaan Sydäntutkimuspalvelu Oy, Kompassi Hammaslääkärikeskus Oy and Kompassi Lääkärikeskus Oy were acquired on 30 December 2016.
On 6 June 2016, Pihlajalinna strengthened its Dental Care service area in the Helsinki Metropolitan Area by acquiring the shares of Ala-Malmin Hammaslääkärit Oy.
On 1 November 2016, Pihlajalinna acquired the share capital of Jämsän Lääkärikeskus Oy to strengthen its position and services in Central Finland. In addition, Pihlajalinna acquired the entire share capital of MediApu Oy on 30 November 2016. MediApu is an Oulu-based medical recruitment service that provides municipal work opportunities for physicians.
Since the acquisitions are not material individually, the following partially preliminary information has been consolidated:
| EUR 1,000 | 2016 |
|---|---|
| Consideration transferred | |
| Cash, basic transaction price | 22,213 |
| Cash, contingent consideration | 1,895 |
| Contingent consideration | 2,360 |
| Total cost of the combination | 26,469 |
At the date of acquisition, the values of assets acquired and liabilities assumed were as follows:
| EUR 1,000 | Note | 2016 |
|---|---|---|
| Property, plant and | ||
| equipment | 12 | 1,329 |
| Intangible assets | 13 | 4,189 |
| Inventories | 413 | |
| Available-for-sale financial assets | 2 | |
| Trade and other receivables | 3,358 | |
| Cash and cash equivalents | 5,420 | |
| Total assets | 14,712 | |
| Deferred tax liabilities | -817 | |
| Financial liabilities | -1,355 | |
| Other payables | -2,286 | |
| Total liabilities | -4,457 | |
| Net assets | 10,255 | |
| Goodwill generated in the acquisition | ||
| Consideration transferred | 26,469 | |
| Net identifiable assets of acquiree | -10,255 | |
| Goodwill | 13 | 16,214 |
| Transaction price paid in cash | 24,108 | |
| Cash and cash equivalents of acquiree | -5,420 | |
| Effect on cash flow* | 18,688 |
Customer contracts, non-compete agreements, trademark 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 465 million, 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 15,522 thousand and total operating profit EUR 1,781 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 2016, consolidated revenue would have amounted to EUR 402,895 thousand and operating profit for the financial year would have been EUR 16,135 thousand.
The Group expanded in the 2015 financial year through several business combinations.
The acquisition of Pietarsaaren Medicenter Oy was completed on 1 February 2015.
In a transaction executed in February, the Pihlajalinna Group acquired a 100% stake in Wiisuri Oy, a dental care business based in Jyväskylä.
The arbitration process concerning the MediLappi Oy share transaction was concluded in February. The transaction price confirmed in the arbitration process was EUR 0.2 million higher than the management's estimate in the 2014 financial statements.
In a transaction concluded in early March, Suomen Keinojuuriklinikka Oy became part of Pihlajalinna Group.
On 31 March 2015, the Group acquired three care homes in Southwest Finland: Hoitokoti Matinkartano Oy, Hoitokoti Setälänpiha Oy and Raision Oiva Oy.
Since the acquisitions are not material individually, the following information has been consolidated:
| EUR 1,000 | 2016 |
|---|---|
| Consideration transferred | |
| Cash | 16,825 |
| Total cost of the combination | 16,825 |
At the date of acquisition, the values of assets acquired and liabilities assumed were as follows:
| EUR 1,000 | Note | 2016 |
|---|---|---|
| Property, plant and equipment | 12 | 775 |
| Intangible assets | 13 | 1,693 |
| Inventories | 211 | |
| Available-for-sale financial assets | ||
| Trade and other receivables | 1,307 | |
| Cash and cash equivalents | 5,438 | |
| Total assets | 9,423 | |
| Deferred tax liabilities | -339 | |
| Financial liabilities | -278 | |
| Other payables | -523 | |
| Total liabilities | -1,139 | |
| Net assets | 8,285 | |
| Goodwill generated in the acquisition | ||
| Consideration transferred | 16,825 | |
| Net identifiable assets of acquiree | -8,285 | |
| Goodwill | 13 | 8,540 |
| Transaction price paid in cash | 16,825 | |
| Cash and cash equivalents of acquiree | -5,438 | |
| Effect on cash flow* | 11,388 |
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 322 million, 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 11,828 thousand and total operating profit EUR 1,082 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 2015, consolidated revenue would have amounted to EUR 216,064 thousand and operating profit for the financial year would have been EUR 3,744 thousand.
On 30 December 2015, Pihlajalinna Group acquired the entire share capital of Tampereen Lääkärikeskus Oy (Koskiklinikka). The purchase included Koskiklinikka's 50 per cent holding of the imaging service company Röntgentutka Oy.
The acquisition of Koskiklinikka private clinic and hospital as well as four smaller private clinics strengthen Pihlajalinna's strategy to grow to a leading social and healthcare company in Finland.
The transaction price was paid in cash.
| EUR 1,000 | 2015 |
|---|---|
| Consideration transferred | |
| Cash | 25,245 |
| Total cost of the combination | 25,245 |
At the date of acquisition, the values of assets acquired and liabilities assumed were as follows:
| EUR 1,000 | Note | 2015 |
|---|---|---|
| Property, plant and equipment | 12 | 9,683 |
| Trademark | 13 | 1,885 |
| Intangible assets | 13 | 2,276 |
| Associated company | 2,839 | |
| Deferred tax asset | 79 | |
| Inventories | 273 | |
| Available-for-sale financial assets | 1 | |
| Trade and other receivables | 1,833 | |
| Cash and cash equivalents | 5,130 | |
| Total assets | 23,999 | |
| Deferred tax liabilities | -839 | |
| Financial liabilities | -6,037 | |
| Other payables | -3,309 | |
| Total liabilities | -10,185 | |
| Net assets | 13,815 | |
| Goodwill generated in the acquisition | ||
| Consideration transferred | 25,245 | |
| Net identifiable assets of acquiree | -13,815 | |
| Goodwill | 13 | 11,430 |
| Transaction price paid in cash | 25,245 | |
| Cash and cash equivalents of acquiree | -5,130 | |
| Effect on cash flow* | 20,115 |
Trademark, 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 490 million, have been recorded under other operating expenses.
Had Koskiklinikka been consolidated as of the beginning of 2015, consolidated revenue would have amounted to EUR 242,448 thousand and operating profit for the financial year would have been EUR 5,072 thousand.
Had Koskiklinikka and the acquisitions carried out in 2015 been consolidated as of the beginning of 2015, consolidated revenue would have amounted to EUR 245,185 thousand and operating profit for the financial year would have been EUR 5,188 thousand.
The Group is committed to paying EUR 2,381 thousand in contingent consideration for the acquisitions in the 20166 financial year. Payment of the consideration is contingent on various indicators measuring profit-making ability.
The fair value of contingent consideration is determined on the basis of the budget for the 2017 financial year approved by the Board of Directors and on estimates for 2018–2019 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 | 2016 | 2015 |
|---|---|---|
| Contingent consideration, 1 January |
2,982 | 5,450 |
| Increase in contingent consideration from the acquisition of business operations |
2,360 | |
| Increase in the fair value of contingent consideration |
154 | |
| Unrealised decrease in the fair value of contingent consideration |
-661 | -502 |
| Effect of the unwinding of discount |
70 | 146 |
| Contingent consideration paid during the financial year* |
-2,370 | -2,266 |
| Contingent consideration, 31 December |
2,381 | 2,982 |
In a transaction separate from the acquisition, the Group has undertaken to pay EUR 171 thousand as an additional transaction price, which has been recognised under employee benefit expenses.
*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 | 2016 | 2015 |
|---|---|---|
| Acquisitions in the financial year, effect on cash flow |
18,688 | 31,503 |
| Contingent consideration paid | ||
| during the financial year | 2,370 | 2,266 |
| Total | 21,059 | 33,769 |
The Group had 31 (33) subsidiaries in 2015. Of these subsidiaries, 26 (28) are wholly-owned and 5 (5) are partially owned. A list of all of the Group's subsidiaries is presented in Note 32 "Related party transactions". In 2015, the Group had 2 (2) associates, 1 (1) joint venture and 1 (1) joint operation.
| 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 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | ||
| Jokilaakson Terveys Oy | Jämsä | 49% | 49% | 265 | 581 | 1,080 | 1,109 | |
| Mänttä | ||||||||
| Mäntänvuoren Terveys Oy | Vilppula | 49% | 49% | 895 | 74 | 371 | 89 | |
| Jämsän Terveys Oy | Jämsä | 49% | 49% | 206 | 110 | 326 | 120 | |
| Kuusiolinna Terveys Oy | Alavus | 49% | 49% | 1,044 | -8 | 1,046 | 2 | |
| Kolmostien Terveys Oy | Parkano | 39% | 49% | 316 | -1 | 417 | 4 | |
| 2,726 | 756 | 3,240 | 1,324 |
| EUR 1,000 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
|---|---|---|---|---|---|---|---|---|---|---|
| Terveys Oy | Jokilaakson | Mäntänvuoren Terveys Oy |
Terveys Oy | Jämsän | Kuusiolinna Terveys Oy |
Terveys Oy | Kolmostien | |||
| Current assets | 4,047 | 4,478 | 6,550 | 5,404 | 7,336 | 5,749 | 13,069 | 63 | 4,329 | 10 |
| Non-current assets | 1,344 | 1,217 | 1,336 | 1,432 | 345 | 198 | 400 | 39 | 1,093 | 1,046 |
| Current liabilities | 3,008 | 3,241 | 7,081 | 6,605 | 6,979 | 5,698 | 11,285 | 99 | 4,344 | 1,047 |
| Non-current liabilities | ||||||||||
| Revenue | 24,302 | 23,848 | 40,931 | 39,039 | 72,807 | 11,771 | 81,014 | 33,504 | ||
| Operating profit | 662 | 1,410 | 2,277 | 200 | 547 | 281 | 2,705 | -20 | 1,034 | -2 |
| Profit/loss | 540 | 1,185 | 1,827 | 150 | 421 | 224 | 2,131 | -16 | 810 | -2 |
| Share of profit/loss attributable to owners of the parent |
276 | 604 | 932 | 77 | 215 | 114 | 1,087 | -8 | 494 | -1 |
| Non-controlling interests' share of profit/loss |
265 | 265 | 895 | 895 | 206 | 206 | 1,044 | 1,044 | 316 | 316 |
| Net cash flow from operating activities |
2,565 | -1,218 | -19 | 2,447 | 2,714 | 2,441 | 10,501 | -34 | 605 | -1 |
| Net cash flow from investing activities |
-519 | -87 | -93 | -69 | -274 | -43 | -400 | -35 | -189 | 0 |
| Net cash flow from financing activities |
-603 | -1,002 | 647 | -201 | -2 | 19 | -57 | 69 | 932 | 10 |
| of which dividends paid to non-controlling interests |
-294 | -490 | -49 | -98 |
Sinister Duo Oy has been dissolved. The company's assets were distributed to the shareholders during the 2016 financial year. Sinister Duo Oy did not hold any Pihlajalinna Plc shares on 31 December 2016.
At the end of the previous financial year, Sinister Duo held 330,000 Pihlajalinna Plc shares. Sinister Duo Oy was owned by private persons belonging to Pihlajalinna's management and key personnel. Pihlajalinna did not take part in financing or arranging any collateral for Sinister Duo Oy.
| EUR 1,000 | 2016 | 2015 | |
|---|---|---|---|
| Interests in associates | |||
| Interests in joint ventures | Röntgentutka Oy | 2,795 | 2,839 |
| Interests in joint operations | 40 | 40 | |
| Total carrying amount | 2,835 | 2,879 |
| Name | Main business location | Sector | 2016 | 2015 |
|---|---|---|---|---|
| Helsinki | Private clinics, private doctors and | |||
| Dextra Lapsettomuusklinikka Oy | similar specialist medical services | 49% | 49% | |
| Insta Care Oy | Tampere | Software design and production | 50% | 50% |
| Röntgentutka Oy | Tampere | Imaging | 50% | 50% |
| EUR 1,000 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
|---|---|---|---|---|---|---|---|
| Dextra | |||||||
| Röntgentutka Oy | Insta Care Oy | Lapsettomuusklinikka Oy | |||||
| Current assets | 1,642 | 1,676 | 138 | 54 | 1,013 | 740 | |
| Financial assets included in current assets | 1,013 | 1,105 | 74 | 27 | 400 | 328 | |
| Non-current assets | 1,173 | 1,370 | 269 | 359 | 1,669 | 1,991 | |
| Current liabilities | 633 | 704 | 235 | 366 | 2,143 | 2,290 | |
| Financial liabilities included in current liabilities | 71 | 71 | 85 | - | 1,700 | 2,000 | |
| Non-current liabilities | 345 | 417 | 200 | 200 | 1,345 | 1,345 | |
| Financial liabilities included in non-current liabilities | 345 | 417 | 200 | 200 | 1,345 | 1,345 | |
| Revenue | 3,905 | 4,199 | 483 | 292 | 3,292 | 2,474 | |
| Depreciation and amortisation | -291 | -243 | -90 | -90 | -338 | -332 | |
| Operating profit | 518 | 893 | -270 | -167 | 195 | -24 | |
| Profit/loss | 412 | 715 | -275 | -173 | 97 | -178 | |
| Interest income | 0 | 1 | 0 | 0 | 0 | 0 | |
| Interest expenses | -4 | -2 | -5 | -6 | -99 | -154 | |
| Income tax expenses or income | -101 | -176 | - | - | |||
| Associate's net assets | 1,837 | 1,925 | -28 | -152 | -806 | -904 | |
| Group's holding | 50% | 50% | 50% | 50% | 49% | 49% | |
| Associate's carrying amount in the consolidated statement of financial position |
0 | 0 | 0 | 0 | |||
| Joint venture's carrying amount in the consolidated statement of financial position |
2,795 | 2,839 |
The Group's pro rata share of an associate's or a joint venture's profit for the financial year up to the is presented separately in operating profit up to the carrying amount of the Group's investment in their shares. The carrying amount of Dextra Lapsettomuusklinikka (EUR 196 thousand) was written down in 2014. Similarly, the carrying amount of Insta Care (EUR 70 thousand in 2015 and EUR 31 thousand in 2014) was written down. Röntgentutka Oy's profit is consolidated as of 1 January 2016.
The Group has given a guarantee for a bank loan and a lease commitment on behalf of Dextra Lapsettomuusklinikka Oy.
The Group owns 31% in Kiinteistö Oy Levin Pihlaja, which is consolidated as a joint operation according to the pro rata share.
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Loan receivables from associates | 1,495 | 1,445 |
| Lease deposits paid | 1,247 | 1,225 |
| Prepayments and accrued income | 63 | 157 |
| Total | 2,805 | 2,827 |
Pihlajalinna Terveys Oy has convertible bond receivables from Dextra Lapsettomuusklinikka Oy totalling EUR 0.5 million and other non-current loan receivable of EUR 0.8 million. Dextra Lapsettomuusklinikka has registered the loss of its share capital in the Trade Register on 2 January 2015. Using its judgement, the company's management has estimated on the basis of forecasts received and recent performance that the original carrying amount of the loan receivables corresponds to their fair value. Pihlajalinna Terveys Oy has a loan receivable of EUR 0.2 million from Insta Care Oy.
| EUR 1,000 | |||||
|---|---|---|---|---|---|
| Financial liabilities | Fair | ||||
| 31.12.2016 | Note | Loans and receivables |
measured at amortised cost |
Total carrying amounts |
values total |
| Non-current financial assets | |||||
| Loan receivables from associates | 17 | 1,495 | 1,495 | 1,495 | |
| Current financial assets | |||||
| Trade receivables | 21 | 15,968 | 15,968 | 15,968 | |
| Trade receivables from associates | 21 | 11 | 11 | 11 | |
| Other receivables | 21 | 3,168 | 3,168 | 3,168 | |
| Cash and cash equivalents | 22 | 27,537 | 27,537 | 27,537 | |
| Total | 48,179 | 0 | 48,179 | 48,179 | |
| Non-current financial liabilities | |||||
| Loans from financial institutions | 26 | 24,877 | 24,877 | 24,877 | |
| Finance lease liabilities | 26 | 20,739 | 20,739 | 20,739 | |
| Other liabilities | 26 | 833 | 833 | 833 | |
| Current financial liabilities | |||||
| Loans from financial institutions | 26 | 350 | 350 | 350 | |
| Cheque account with credit limit | 26 | 343 | 343 | 343 | |
| Finance lease liabilities | 26 | 2,520 | 2,520 | 2,520 | |
| Trade and other payables | 27 | 13,176 | 13,176 | 13,176 | |
| Total | 62,838 | 62,838 | 62,838 |
| EUR 1,000 | |||||
|---|---|---|---|---|---|
| Financial liabilities | Fair | ||||
| Loans and | measured | Total carrying | values | ||
| 31.12.2015 | Note | receivables | at amortised cost | amounts | total |
| Non-current financial assets | |||||
| Loan receivables from associates | 17 | 1,445 | 1,445 | 1,445 | |
| Current financial assets | |||||
| Trade receivables | 21 | 15,567 | 15,567 | 15,567 | |
| Loan receivables from associates | 21 | 10 | 10 | 10 | |
| Other receivables | 21 | 87 | 87 | 87 | |
| Cash and cash equivalents | 22 | 15,330 | 15,330 | 15,330 | |
| Total | 32,439 | 0 | 32,439 | 32,439 | |
| Non-current financial liabilities | |||||
| Loans from financial institutions | 26 | 12,122 | 12,122 | 12,122 | |
| Finance lease liabilities | 26 | 23,029 | 23,029 | 23,029 | |
| Other liabilities | 26 | 870 | 870 | 870 | |
| Current financial liabilities | |||||
| Loans from financial institutions | 26 | 324 | 324 | 324 | |
| Finance lease liabilities | 26 | 2,272 | 2,272 | 2,272 | |
| Other liabilities | 26 | 246 | 246 | 246 | |
| Trade and other payables | 27 | 8,635 | 8,635 | 8,635 | |
| Total | 47,498 | 47,498 | 47,498 |
When determining the fair values of the financial assets and liabilities shown in the table, the following price quotations, assumptions and valuation models have been used:
Using its judgement, the company's management has estimated on the basis of forecasts received and recent performance that the original carrying amount of the loan receivables corresponds to their fair value.
The fair values of loans 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 initial carrying amount of non-derivative receivables corresponds to their fair value because there is no material discounting effect when taking into account the maturity of the receivables.
The initial carrying amount of non-derivative payables corresponds to their fair value because there is no material discounting effect when taking into account the maturity of the payables.
Instruments at hierarchy level 1 are actively traded on the market, which means their fair values are directly based on market prices. Fair values of level 2 instruments are based on information that is observable in the market. Fair values of level 3 instruments are not based on observable market data (that is, unobservable inputs).
All of the Group's financial assets and liabilities measured at fair value (i.e. all of the Group's derivatives) are included in the fair value hierarchy level 2 under IFRS 7. The fair value of these instruments at the end of the reporting period was EUR 0 thousand (EUR 0 thousand). Non-current financial liabilities (loans from financial institutions and finance lease liabilities) are similarly included in the fair value hierarchy level 2. The contingent consideration of EUR 2,381 thousand (EUR 2,982 thousand) under Other liabilities is included in the fair value hierarchy level 3.
Changes in deferred taxes during 2016:
| Recognised in | Recognised in | Subsidiaries | |||
|---|---|---|---|---|---|
| 31.12.2016 | |||||
| 93 | |||||
| 875 | 156 | 1,031 | |||
| 659 | -192 | 466 | |||
| 2,519 | -927 | 0 | 0 | 0 | 1,590 |
| 1,793 | |||||
| 3,704 | |||||
| 51 | |||||
| 5,185 | -456 | 0 | 817 | 0 | 5,548 |
| 1.1.2016 984 1,552 3,576 59 |
profit and loss -891 241 -689 -8 |
equity | acquired 817 |
Other |
Changes in deferred taxes during 2015:
| EUR 1,000 | ||||||
|---|---|---|---|---|---|---|
| Recognised in | Recognised in | Subsidiaries | ||||
| Deferred tax assets | 1.1.2015 | profit and loss | equity | acquired | Other | 31.12.2015 |
| Tax losses carried forward confirmed by | ||||||
| tax authorities | 145 | 839 | 984 | |||
| Liability to holders of Series B shares | 741 | 134 | 875 | |||
| Other items | 208 | 372 | 79 | 659 | ||
| Deferred tax assets on the statement of | ||||||
| financial position | 1,094 | 1,345 | 0 | 79 | 0 | 2,519 |
| Deferred tax liabilities | ||||||
| Property, plant and equipment and | ||||||
| intangible assets | 1,134 | 411 | 8 | 1,552 | ||
| Tax related to the costs of the IPO and | ||||||
| directed share issue recorded in the | ||||||
| reserve for invested unrestricted equity | 639 | -639 | 0 | |||
| Recognition of property, plant and equipment and intangible assets at fair |
||||||
| value in business combinations | 2,839 | -439 | 1,176 | 3,576 | ||
| Other items | 119 | -60 | 59 | |||
| Deferred tax liabilities on the statement | ||||||
| of financial position | 4,092 | 551 | -639 | 1,184 | 0 | 5,185 |
The Group had confirmed losses of EUR 437 thousand (EUR 4,919 thousand), for which deferred tax assets of EUR 87 thousand (EUR 839 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 losses in 2015 arose mostly from costs related to the Initial Public Offering as well as exceptional costs
during the start-up of companies founded, which the company has been able to utilise almost fully in the 2016 financial year. The losses in question will expire in 2023–2026.
The Group has incurred losses amounting to EUR 254 thousand (EUR 317 thousand) for which deferred tax assets have not been recorded. The losses will expire in 2025–2026.
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Materials and supplies | 1,958 | 1,753 |
| Total | 1,958 | 1,753 |
No impairment on the carrying amounts of inventories was recorded during the reporting period.
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Trade receivables | 15,968 | 15,567 |
| Trade receivables from associates | 11 | |
| Prepayments and accrued income | 6,945 | 3,987 |
| Receivables from associates | 10 | |
| Interest receivables from associates | 51 | 59 |
| Other receivables | 3,168 | 87 |
| Total | 26,143 | 19,710 |
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 337 thousand (EUR 143 thousand) in impairment losses on trade receivables during the financial year. There are no major credit risk concentrations associated with receivables. The Group has a EUR 1.2 million receivable in past due receivables, the payment of which the customer has postponed. According to the management's estimate, the customer will pay the receivable in full
| EUR 1,000 | |||||||
|---|---|---|---|---|---|---|---|
| Impairment | Impairment | ||||||
| 2016 | losses | Net 2016 | 2015 | losses | Net 2015 | ||
| 11,377 | 11,377 | 8,342 | 8,342 | ||||
| Past due | |||||||
| Less than 30 days | 1,622 | 1,622 | 6,196 | 6,196 | |||
| 30–60 days | 680 | 680 | 304 | 304 | |||
| 61–90 days | 412 | 412 | 127 | 127 | |||
| More than 90 days | 2,213 | -325 | 1,888 | 784 | -187 | 597 | |
| Total | 16,304 | -325 | 15,979 | 15,754 | -187 | 15,567 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Credit loss provision at 1 January | 187 | 280 |
| Credit losses recorded | 337 | 143 |
| Credit loss provision, used | -337 | -143 |
| Credit loss provision, increase | 138 | -93 |
| Credit loss provision at 31 December | 325 | 187 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Sales and income accruals | 1,161 | 1,991 |
| Personnel expenses | 3,542 | 254 |
| Expenses paid in advance | 1,922 | 897 |
| Other | 320 | 845 |
| Total | 6,945 | 3,987 |
The carrying amounts of the receivables correspond substantially to their fair values.
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Cash in hand and at bank | 27,537 | 15,330 |
| Total | 27,537 | 15,330 |
Reconciliation of the number of shares
| EUR 1,000 | ||||
|---|---|---|---|---|
| Number of shares | Share capital | Reserve for invested unrestricted equity |
Total | |
| Establishment | 250 | 3 | 3 | |
| Share issue | 13,398,610 | 5,081 | 5,081 | |
| Bonus issue | 78 | -78 | 0 | |
| Initial public offering | 5,714,286 | 57,854 | 57,854 | |
| Directed issue | 1,500,000 | 25,088 | 25,088 | |
| 31.12.15 | 20,613,146 | 80 | 87,946 | 88,026 |
| 31.12.16 | 20,613,146 | 80 | 87,946 | 88,026 |
Pihlajalinna has one share series, with each share entitling its holder to one vote at a General Meeting of shareholders. The company's shares have no nominal value. All shares bestow their holders with equal rights to dividends and other distribution of the company's assets.
In the Initial Public Offering executed in June, 5,714,286 new shares were issued at the subscription price of EUR 10.5 per share.
The expenses arising from the share issue, EUR 2,145.5 thousand were recorded in the reserve for invested unrestricted equity.
In the directed share issue executed in December 2015, 1,500,000 new shares were issued at the subscription price of EUR 17.00 per share. The expenses arising from the share issue, EUR 412.2 thousand were recorded in the reserve for invested unrestricted equity.
The shares belong to the book-entry system.
EUR 2,500 of the share capital was subscribed when the company was founded. During the 2015 financial year, the share capital was increased to EUR 77.5 thousand through a bonus issue of EUR 80 thousand.
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 were EUR 161,712,551.76, of which profit for the financial year accounts for EUR 12,261,882.58. The retained earnings of the parent company were EUR 8,627,068.26.
After the balance sheet date, the Board of Directors has proposed that a dividend of EUR 0.15 per share be distributed. The total dividend amount would be EUR 3,091,971.90.
As part of the contract terms of the new CEO, Aarne Aktan, Pihlajalinna Plc's Board of Directors decided on a new long-term share-based incentive scheme for the years 2016–2018.
There are three earnings periods in the incentive scheme, equivalent to the full calendar years 2016, 2017 and 2018. The earnings criteria of the share-based incentive scheme have been connected to the profitability development of the company's business operations. The amount of any share compensation paid to the CEO depends on achieving the targets set on the earnings criteria.
The maximum total incentive paid to the CEO consists of company shares and a monetary contribution. Based on the incentive scheme, the CEO can be granted a maximum of 37,500 shares (gross amount before applicable taxes) as a compensation. The possible share compensation will be paid to the CEO after the financial statements of each earnings period (financial year) have been confirmed, in 2017, 2018 and 2019. The CEO did not earn any sharebased incentive compensation for the financial year 2016.
A transfer restriction applies to incentive scheme shares during the commitment period. The commitment period begins when the compensation is paid and ends two years after the compensation payment date.
The company does not use any share-based incentive schemes for members of the Board of Directors.
| EUR 1,000 | Premises restoration provision |
|---|---|
| 1.1.16 | |
| Provisions made | 899 |
| Provisions used | -52 |
| 31.12.16 | 847 |
The Group has recognised restoration provisions relating to the conversion of the purpose of use of its premises.
The provisions are based on the management's estimates of the restoration costs of premises.
The provisions are expected to be used during 2017–2018.
| EUR 1,000 | 2016 | 2015 | ||||
|---|---|---|---|---|---|---|
| Non-current financial liabilities carried at amortised cost | ||||||
| Bank loans | 24,877 | 12,122 | ||||
| Other liabilities | 833 | 870 | ||||
| Finance lease liabilities | 20,739 | 23,029 | ||||
| Contingent consideration measured | ||||||
| at fair value | 1,887 | 317 | ||||
| Total | 48,335 | 36,338 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Current financial liabilities carried at amortised cost | ||
| Bank loans | 350 | 324 |
| Cheque accounts with credit limit | 343 | 0 |
| Other liabilities | 0 | 246 |
| Finance lease liabilities | 2,520 | 2,272 |
| Contingent consideration measured at | ||
| fair value | 494 | 2,665 |
| Total | 3,707 | 5,506 |
The fair values of liabilities are presented in Note 18 "Fair values of financial assets and liabilities". Recognition and measurement of contingent consideration is described in Note 14 "Business combinations".
In deviation from the financial statements of 31 December 2015, the Group presents drawdowns from the five-year EUR 60 million revolving credit facility under non-current financial liabilities. The Group has adjusted the presentation of this loan in its statement of financial position of 31 December 2015. Drawdowns from the revolving credit facility are actually long-term by nature, although their maturity is 1, 3 or 6 months.
Pihlajalinna refinanced its earlier loan arrangement at the end of September 2015. The new agreement consists of a five-year, EUR 60 million revolving credit facility and a total of EUR 10 million account limit agreements. The new agreement involves only one financial covenant: net debt/adjusted pro forma EBITDA.
At the end of the financial year, the Group had EUR 45.2 (58.0) million of unused committed short-term credit limits.
Maturity periods of finance lease liabilities:
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Gross finance lease liabilities – amount of minimum lease pay ments by maturity period |
||
| Within one year | 3,249 | 3,071 |
| Between one and five years | 11,275 | 11,536 |
| Over five years | 13,124 | 15,880 |
| Total | 27,648 | 30,487 |
| Financial expenses accrued in the future |
-4,389 | -5,186 |
| Present value of finance lease liabilities |
23,259 | 25,302 |
| liabilities will mature as follows: | ||
|---|---|---|
| Within one year | 3,201 | 2,272 |
| Between one and five years | 10,276 | 10,537 |
| Over five years | 9,782 | 12,493 |
| Total | 23,259 | 25,302 |
Finance lease liabilities consist of lease agreements for passenger cars, machinery and equipment and real estate property leases. The property leases are primarily tied to the consumer price index.
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Trade payables | 8,020 | 4,260 |
| Accrued liabilities | 36,658 | 30,840 |
| Pre-payments | 342 | 93 |
| Other liabilities | 10,013 | 6,815 |
| Total | 55,033 | 42,007 |
| Material items included under Accrued liabilities: |
||
| Wages and salaries and social security payments |
25,549 | 19,171 |
| Remuneration of contract-based practisioners |
5,664 | 4,615 |
| Allocation of sales | 43 | 1,901 |
| Allocation of purchase invoices | 4,944 | 4,198 |
| Financial items | 71 | 8 |
| Other accrued liabilities | 387 | 947 |
| Total | 36,658 | 30,840 |
The Group's main financial risks consist of interest rate and liquidity risks, credit risks and counterparty risks. The Group operates mainly in Finland and is not therefore exposed to material foreign exchange risks in its operations. The Group's general risk management policies are approved by the Board of Directors. The Group's Chief Financial Officer, together with the operative management, is responsible for identifying financial risks and for practical risk management. The goal of the Group's risk management is to ensure sufficient liquidity, minimise financing costs and regularly inform the management about the Group's financial position and risks.
Group's financial administration actively monitors compliance with the financial covenants and assesses financial leeway in relation to the covenant maximums as part of the Group's business planning.
The Group's revenues and cash flows from operations are mostly independent of fluctuations in market interest rates. The Group is exposed to interest rate risks mainly through its external loan portfolio. In accordance with the principles of risk management, the Board of Directors decides on the extent of interest rate hedging coverage for the Group's loan portfolio. At the end of the financial year, the Group had no interest rate hedging arrangements in place. On the date of the financial statements, 50% (68%) of the interestbearing liabilities were subject to fixed interest rates. During the financial year, the average annual interest rate on the Group's interestbearing liabilities was approximately 2.10% (2.83%). The duration, i.e. the fixed interest rate period, of the financing portfolio was 3.0 (3.5) years.
The table below presents the Group's interest rate position at the end of the reporting period.
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Fixed rate financial liabilities | 25,088 | 26,639 |
| Variable rate financial liabilities | 24,731 | 12,423 |
| Total variable rate position | 24,731 | 12,423 |
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.
| 2016 | 2016 | 2015 | 2015 | |
|---|---|---|---|---|
| Change | 0.5 per centage units higher |
0.5 per centage units lower |
0.5 per centage units higher |
0.5 per centage units lower |
| Effect on profit before tax |
-124 | 0 | -62 | 0 |
Since the Group has no material interest-bearing assets, its income and operating cash flows are not materially exposed to changes in market interest rates.
The Group monitors the amount of financing required by business operations by analysing forecasts for cash flow from sales in order to make sure the Group has a sufficient amount of liquid assets for financing operations and repaying maturing loans.
The Group's credit limits include a five-year, EUR 60 million revolving credit facility and EUR 10 million account limit agreements. The revolving credit facility involves only one financial covenant: net debt/adjusted EBITDA.
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. At the end of the reporting period, the Group's financial assets stood at EUR 27.5 million (EUR 15.3 million), in addition to which the Group had EUR 45.2 million (EUR 58.0 million) in unused credit limits available.
The Group's equity ratio at the end of the financial year was 46.5 per cent (50.5). The Group has good financial standing and its business operations are profitable, and therefore the company has not identified any significant risks related to the availability of additional financing.
The table below presents the contractual maturity of financial liabilities. The figures are undiscounted and they include both future interest payments and repayments of principal.
| EUR 1,000 | ||||||
|---|---|---|---|---|---|---|
| Carrying amount at 31 Dec. 2016 |
less than 1 year |
1–2 years | 2–3 years | 3–4 years | over 4 years | |
| Loans from financial institutions | 25,227 | -24,954 | -281 | -131 | -27 | -99 |
| Finance lease liabilities | 23,259 | -3,249 | -3,225 | -3,154 | -3,081 | -14,939 |
| Other interest-bearing liabilities | 833 | -20 | -93 | -57 | -57 | -1,041 |
| Contingent consideration | 2,381 | -508 | -1,035 | -529 | -453 | |
| Cheque account with credit limit | 343 | -361 | ||||
| Trade payables | 8,020 | -8,020 | ||||
| Other liabilities | 5,156 | -5,156 | ||||
| Total | 65,219 | -42,268 | -4,634 | -3,869 | -3,618 | -16,079 |
| Carrying amount at 31 Dec. 2015 |
less than 1 year |
1–2 years | 2–3 years | 3–4 years | over 4 years |
|---|---|---|---|---|---|
| 12,446 | -12,377 | -192 | -66 | -16 | -65 |
| 25,302 | -3,134 | -3,356 | -3,284 | -3,575 | -17,139 |
| 1,115 | -267 | -130 | -57 | -57 | -1,040 |
| 2,982 | -2,704 | -333 | |||
| 4,260 | -4,260 | ||||
| 4,375 | -4,375 | ||||
| 50,479 | -27,117 | -4,011 | -3,407 | -3,648 | -18,244 |
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 covenant related to the Group's revolving credit facility is based on the ratio of the Group's net debt to pro forma EBITDA adjusted for IPO-related expenses. The maximum value of the covenant term is 3.75. The closer the Group's covenant term is to said maximum value, the higher the loan margin. At the end of the reporting period, the Group met the terms of the covenant; the key ratio was 0.78 (1.55). The contractual margin falls to its lowest at 31 December 2016, with the key ratio being below 1.00.
At the end of the reporting period, 31 December 2016, the loan amount to which the covenants apply, was EUR 24.5 million.
The Group's credit risk mostly consists of credit risks involved in customer receivables related to business operations. Noncurrent loan receivables from associates also involve a credit and counterparty risk. 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 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 Dextra 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 21 "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 18 "Fair values of financial assets and liabilities").
The Group operates mainly in Finland and is not therefore exposed to material foreign exchange risks in its operations. The Group's annual procurements in foreign currencies are insignificant.
The 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 and the ratio of net debt to EBITDA excluding non-recurring items (adjusted EBITDA).
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Total equity | 101,010 | 93,451 |
| Statement of financial position, total – | ||
| prepayments received | 217,401 | 185,010 |
| Equity ratio | 46,5 % | 50,5 % |
| Interest-bearing liabilities | 49,662 | 38,862 |
| Cash and cash equivalents | -27,537 | -15,330 |
| Interest-bearing net debt | 22,125 | 23,533 |
| EBITDA | 27,906 | 11,581 |
| Non-recurring items | 1,011 | 899 |
| Adjusted EBITDA | 28,918 | 12,480 |
| Net debt/adjusted EBITDA | 0.77 | 1.89 |
The Group's equity ratio improved considerably during the previous year due to the net assets received from the Initial Public Offering, a total of EUR 57.4 million, and the net assets received from the directed share issue, a total of EUR 25.0 million.
The Group leases many 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 | 2016 | 2015 |
|---|---|---|
| Within one year* | 6,853 | 5,693 |
| More than one year and a maximum of five years later* |
15,969 | 14,665 |
| Over five years later | 7,750 | 5,470 |
| Total | 30,571 | 25,829 |
* In the financial statements for 2016, the leases of three care homes in Southwest Finland have been presented as minimum rents, totalling EUR 2.3 million. After the end of the financial year, these leases were replaced with new 15-year leases interpreted as finance leases. The present value of these finance leases is EUR 12.5 million.
The Group leases out parts of its premises under operating leases. The amount of rental income is not material.
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Collateral given on own behalf | ||
| Pledged collateral notes | 1,100 | 1,100 |
| Sureties | 320 | 320 |
| Collateral given on behalf of associates | ||
| Other contingent liabilities | 3,443 | 3,998 |
Other contingent liabilities
The Group's subsidiaries, Dextra Oy, Pihlajalinna Terveys Oy, Suomen Keinojuuriklinikka Oy, Tampereen Lääkärikeskus Oy, Hoivakoti Nestori Oy and Itä-Suomen Lääkärikeskus Oy, have provided a suretyship in the parent company's loan facility. The balance of the loan at the time of the financial statement was EUR 24.5 million.
If certain criteria are met, the Group has committed to redeeming an additional 20% of the shares in Kolmostien Terveys Oy and 30% of the shares in Mäntänvuoren Terveys Oy during 2017–2018.
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 all of Pihlajalinna Terveys Oy's Series A shares. Pihlajalinna Terveys Oy owns the shares in the other subsidiaries.
| Company | Kotipaikka | Omistusosuus | Osuus äänivallasta |
|---|---|---|---|
| Parent company Pihlajalinna Plc | Tampere | ||
| Pihlajalinna Terveys Oy | Tampere | 100% | 100% |
| Hoivakoti Johanna Oy | Jämsä | 100% | 100% |
| Jokilaakson Terveys Oy | Jämsä | 51% | 51% |
| Dextra Oy | Helsinki | 100% | 100% |
| Mäntänvuoren Terveys Oy | Mänttä-Vilppula | 51% | 51% |
| Dextra Medical Spa ja Plastiikkakirurginen Sairaala Oy | Helsinki | 100% | 100% |
| Hämeenlinnan Hoivapalvelu Ky | Hämeenlinna | 100% | 100% |
| Kuusama-koti Oy | Kokemäki | 100% | 100% |
| Laser Tilkka Oy | Helsinki | 100% | 100% |
| Imatran Kliininen Laboratorio Oy | Imatra | 100% | 100% |
| Ikipihlaja Sofianhovi Oy | Mänttä-Vilppula | 100% | 100% |
| Wiisuri Oy | Jyväskylä | 100% | 100% |
| Suomen Keinojuuriklinikka Oy | Kauniainen | 100% | 100% |
| Hoivakoti Nestori Oy | Tampere | 100% | 100% |
| Hoitokoti Matinkartano Oy | Lieto | 100% | 100% |
| Hoitokoti Setälänpiha Oy | Lieto | 100% | 100% |
| Oikare Oy | Raisio | 100% | 100% |
| Raision Oiva Oy | Raisio | 100% | 100% |
| Kolmostien Terveys Oy | Parkano | 61% | 61% |
| Jämsän Terveys Oy | Jämsä | 51% | 51% |
| Kuusiolinna Terveys Oy | Alavus | 51% | 51% |
| Tampereen Lääkärikeskus Oy | Tampere | 100% | 100% |
| Gyne-Praxis Oy | Jyväskylä | 100% | 100% |
| Koskisairaala Oy | Tampere | 100% | 100% |
| Itä-Suomen Lääkärikeskus Oy | Joensuu | 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% |
| Jämsän Lääkärikeskus Oy | Jämsä | 100% | 100% |
| MediApu Oy | Oulu | 100% | 100% |
Information on the associates is presented in Note 16 "Interests in associates and joint arrangements".
At the beginning of the financial year, the following subsidiary mergers were implemented in order to achieve a clearer Group structure: Palvelukoti Sarahovi Oy was merged with Palvelukoti Sofianhovi Oy (the company name was changed into IkiPihlaja Sofianhovi Oy in connection with the merger) on 1 January 2016; Dextra Suunterveydenhoito Oy was merged with Wiisuri Oy on 1 January 2016; Imatran Kliininen Laboratorio Oy, Lääkärikeskus Irmeli Elomaa Oy, Lääkärikeskus Labeho Oy, Medilappi Oy, Tammerkosken Hammasklinikka Oy, Tampereen Hammashoito Oy and Zirlab Oy were merged with Dextra Oy on 1 February 2016.
On 1 October 2016, business transfers were conducted between Pihlajalinna Terveys Oy, Dextra Oy and Tampereen Lääkärikeskus Oy to create a clearer Group business model. In the business transfers, the business of Pihlajalinna Terveys Oy's Dextra Akaa, Ylöjärvi, Ikaalinen,
Mänttä-Vilppula, Nokia and Pieksämäki clinics was transferred to Dextra Oy and the business of Dextra Kehräsaari and Dextra Sairaala Hämeenkatu was transferred to Tampereen Lääkärikeskus Oy. Visita Oy was dissolved on 31 December 2016.
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Salaries and other short-term employee benefits, Management Team |
1,092 | 810 |
| Advisor fees, Mikko Wirén | 116 | |
| Advisor fees, Leena Niemistö | 124 | |
| Post-employment benefits, | ||
| Management Team | 51 | 0 |
| Total | 1,383 | 810 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| CEO Aarne Aktan | ||
| (since 8 August 2016) | 127 | |
| CEO Mikko Wirén | ||
| (until 8 August 2016) | 195 | 295 |
| Deputy CEO Leena Niemistö (until 29 April 2016) |
63 | 204 |
| Members of the Board of Directors | ||
| Leena Niemistö | 53 | 29 |
| Aarne Aktan (member of the Board | ||
| until 8 August 2016) | 30 | 34 |
| Jari Sundström | 43 | 20 |
| Mikko Wirén (since 8 August 2016) | 22 | |
| Seija Turunen (since 4 April 2016) | 27 | |
| Jari Eklund (since 4 April 2016) | 27 | |
| Timo Everi (since 4 April 2016) | 26 | |
| Mika Uotila (member of the Board | ||
| until 4 April 2016) | 19 | 34 |
| Marjatta Rytömaa (member of the | ||
| Board until 4 April 2016) | 20 | 36 |
| Heikki Dunder (member of the Board | ||
| until 4 April 2016) | 18 | 30 |
| Veli-Matti Qvintus (member of the | ||
| Board until 4 April 2016) | 18 | 30 |
| Matti Ala-Härkönen (member of the | ||
| Board 1 June 2015–4 April 2016) | 20 | 10 |
| 705 | 719 |
According to the CEO's contract, the notice period for dismissal is 6 months. During the notice period, the CEO is entitled to salary or agreed lump sum compensation. 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 | 2016 | 2015 |
|---|---|---|
| Key management personnel | ||
| Rents paid | 822 | 875 |
| Services procured | 1,572 | 853 |
| Trade payables | 218 | 15 |
| Other liabilities | 235 | 75 |
| Other related parties | ||
| Services procured | 81 | |
| Associates | ||
| Services sold | 56 | |
| Services procured | 1,311 | 209 |
| Rents received | 275 | |
| Interest received | 39 | 99 |
| Dividends received | 250 | |
| Trade payables | 97 | |
| Other liabilities | 64 | |
| Trade receivables | 11 | |
| Interest receivables | 51 | 59 |
| Loan receivables | 1,495 | 1,445 |
The Group has leased several of its business premises from members of the key management personnel, including the premises in Nokia, Karkku, Tampere (Kehräsaari and Klingendahl) and Kangasala.
At the beginning of the previous financial year, a Group company signed 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 an other related party.
On 23 January 2017, Minna Elomaa was appointed as the new business director of Pihlajalinna Group's Dextra private clinics. Elomaa transfers to Pihlajalinna from Diacor, where she was most recently business director and deputy managing director. The areas under her responsibility included, amongst others, private customer business operations, private clinics, and the hospital. Elomaa begins with Pihlajalinna on 1 August 2017.
On 1 February 2017, Pihlajalinna Group's Senior Vice president, Primary and Social Care segment, Virpi Holmqvist resigned from her position in Pihlajalinna to move on to new duties outside the Group. Her employment ends on 1 August 2017 at the latest. Joni Aaltonen, Pihlajalinna's Head of Mergers and Acquisitions, has been named as SVP of Pihlajalinna Group's Primary and Social Care (P & S) segment. He will start in his new role and join the Group's Management Team on 20 February 2017.
On 2 January 2017, Pihlajalinna acquired the entire share capital of Itä-Suomen Lääkäritalo Oy. Itä-Suomen Lääkäritalo Oy provides a wide variety of private clinic and hospital services in its three locations: ITE Lasaretti Kuopio, Lääkärikeskus ITE Leppävirta and Lääkärikeskus ITE Suonenjoki.
In the financial statements for 2016, the leases of three care homes in Southwest Finland have been presented as minimum rents, totalling EUR 2.3 million. After the end of the financial year, these leases were replaced with new 15-year leases interpreted as finance leases. The present value of these finance leases is EUR 12.5 million.
On 11 February 2017, Pihlajalinna Group announced its plans to expand to ten new locations before the start of the healthcare and social welfare reform in 2019. Primarily, Pihlajalinna will grow by opening completely new business locations. In addition, the company may expedite the pace of expansion with acquisitions.Pihlajalinna will prepare for the future freedom of choice by gathering all of its services under one brand, Pihlajalinna. At the same time, Pihlajalinna's look and logo will be renewed. The change should be implemented at the latest by the start of the healthcare and social welfare reform.
| EUR 1,000 | Note | 1 Jan–31 Dec 2016 |
1 Jan–31 Dec 2015 |
|---|---|---|---|
| Revenue | 1.1. | 441 | 19 |
| Personnel expenses | 1.2. | -1,158 | -302 |
| Depreciation, amortisation and impairment | 1.3. | -97 | -18 |
| Other operating expenses | 1.4. | -1,055 | -4,293 |
| Operating profit (loss) | -1,869 | -4,594 | |
| Financial income and expenses | 1.5. | 9,695 | 403 |
| Profit (loss) before | |||
| appropriations and taxes | 7,826 | -4,192 | |
| Appropriations | |||
| Group contribution | 1.6. | 5,176 | 400 |
| Income tax | 1.7. | -740 | 758 |
| Profit (loss) for the financial year | 12,262 | -3,033 |
| EUR 1,000 | Note | 31.12.2016 | 31.12.2015 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | 2.1. | 1,067 | 858 |
| Investments | 2.2. | 173,791 | 68,791 |
| 174,858 | 69,649 | ||
| Current assets | |||
| Non-current receivables | 2.3. | 19 | 6,158 |
| Current receivables | 2.4. | 37,227 | 99,593 |
| Cash and cash equivalents | 1 | 58 | |
| 37,247 | 105,809 | ||
| TOTAL ASSETS | 212,105 | 175,458 | |
| EQUITY AND LIABILITIES | |||
| Equity | 2.5. | ||
| Share capital | 80 | 80 | |
| Reserve for invested unrestricted equity | 153,085 | 153,085 | |
| Retained earnings | -3,635 | -601 | |
| Profit/loss for the financial year | 12,262 | -3,033 | |
| 161,793 | 149,531 | ||
| Liabilities | 2.6. | ||
| Non-current liabilities | 24,500 | 17,400 | |
| Current liabilities | 25,813 | 8 527 | |
| 50,313 | 25,927 | ||
| TOTAL EQUITY AND LIABILITIES | 212,105 | 175,458 |
| EUR 1,000 | 1 Jan– 31 Dec 2016 |
1 Jan– 31 Dec 2015 |
|---|---|---|
| Cash flows from operating activities | ||
| Cash receipts from sales | 452 | |
| Operating expenses paid | -2,393 | -4,567 |
| Operating cash flow before financial income and taxes |
-1,941 | -4,567 |
| Interest received | 1,408 | 954 |
| Net cash from operating activities | -532 | -3,614 |
| Cash flows from investing activities | ||
| Investments in tangible and intangible assets | -307 | -871 |
| Dividends received | 8,709 | |
| Net cash used in investing activities | 8,402 | -871 |
| Cash flows from financing activities | ||
| Proceeds from issuance of share capital | 85,500 | |
| Proceeds from short-term borrowings from | ||
| group companies | 11,812 | 12,716 |
| Loans granted to Group companies | -32,197 | -104,199 |
| Proceeds from short-term borrowings | 343 | |
| Proceeds from long-term borrowings | 14,500 | 12,000 |
| Repayment of long-term borrowings | -2,000 | -1,200 |
| Group contributions received | 400 | |
| Interest paid | -784 | -447 |
| Net cash from financing activities | -7,926 | 4,369 |
| Change in cash and cash equivalents | -56 | -116 |
| Cash at the beginning of the financial year | 58 | 173 |
| Cash at the end of the financial year | 1 | 58 |
Pihlajalinna Plc (2617455-1), domiciled in Tampere, is the parent company of Pihlajalinna Group.
The company was established on 15 April 2014.
Intangible 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.
| Other intellectual property rights | ||
|---|---|---|
| Licence fees | 7 years | |
| Computer software | 5–7 years |
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 estimated probable receivables.
The sale of products and services is recognised in connection with their delivery.
As a rule, research and development costs are expensed in the year in which they were incurred.
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.
The financial statements have been prepared in accordance with the new Finnish Accounting Act and Decree. Certain lines of the cash flow statement have been renamed.
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Revenues by sector | ||
| Sale of services | 441 | 19 |
| 441 | 19 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Wages and salaries | -1,000 | -287 |
| Pension costs | -132 | -13 |
| Other social security expenses | -25 | -2 |
| -1,158 | -302 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Depreciation according to plan | ||
| Intangible assets | -97 | -18 |
| -97 | -18 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Voluntary social security expenses | -12 | 0 |
| ICT expenses | -368 | -4 |
| Sales, marketing and travel expenses | -21 | -454 |
| Administrative expenses | -655 | -3,835 |
| -1,055 | -4,293 | |
| Auditor's fees | ||
| audit fees | -64 | -119 |
| auxiliary services | -341 | |
| -64 | -460 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Dividend income | ||
| From Group companies | 8,709 | |
| Dividend income, total | 8,709 | 0 |
| Interest income from non-current investments |
||
| From Group companies | 1,475 | 840 |
| From others | 8 | 19 |
| Interest income from noncurrent | ||
| investments, total | 1,483 | 858 |
| Interest expenses and other financial expenses |
||
| To Group companies | -14 | |
| To others | -497 | -441 |
| Interest expenses and other financial expenses, total |
-497 | -456 |
| Financial income and expenses, total | 9,695 | 403 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Group contributions received | 5,176 | 400 |
| 5,176 | 400 |
| EUR 1,000 | 2016 | 2015 |
|---|---|---|
| Taxes on extraordinary items | -1,035 | -80 |
| Change in deferred tax assets | 295 | 838 |
| -740 | 758 |
| EUR 1,000 | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Other intellectual property rights | ||
| Acquisition cost at the start of the | ||
| financial year | 432 | |
| Additions | 67 | 427 |
| Transfers between items | 684 | 5 |
| Acquisition cost at the end of the period |
1,183 | 432 |
| Accumulated amortisation according to plan during the financial year |
-18 | |
| Accumulated amortisation according to plan during the financial year |
-97 | -18 |
| Carrying amount at the end of the | ||
| period | 1,067 | 414 |
| Prepayments for intangible assets | ||
| Acquisition cost at the beginning | 443 | 5 |
| Additions | 241 | 443 |
| Transfers between items | -684 | -5 |
| 0 | 443 | |
| Intangible assets, total | ||
| Acquisition cost at the start of the | ||
| financial year | 876 | 5 |
| Additions | 307 | 871 |
| Transfers between items | ||
| Acquisition cost at the end of the period |
1,183 | 876 |
| Accumulated amortisation according to plan during the financial year |
-18 | |
| Accumulated amortisation according to plan during the financial year |
-97 | -18 |
| Carrying amount at the end of the | ||
| period | 1,067 | 858 |
| EUR 1,000 | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Shares in subsidiaries | ||
| Acquisition cost at the start of the | ||
| financial year | 68,791 | 68,791 |
| Additions | 105,000 | |
| Acquisition cost at the end of the period |
173,791 | 68,791 |
| Total investments | 173,791 | 68,791 |
| EUR 1,000 | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Loan receivables from Group companies |
5 400 | |
| Deferred tax assets | 19 | 758 |
| 19 | 6 158 | |
| Total non-current receivables | 19 | 6 158 |
| EUR 1,000 | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Receivables from others | ||
| Trade receivables | 11 | |
| Other receivables | 44 | 61 |
| Prepayments and accrued income | 277 | 59 |
| 332 | 121 | |
| Receivables from Group companies | ||
| Trade receivables from Group | ||
| companies | 2 | 24 |
| Loan receivables | 31,396 | 98,799 |
| Prepayments and accrued income | 5,497 | 649 |
| 36,895 | 99,473 | |
| Material items included under | ||
| Prepayments and accrued income | ||
| Group contribution | 5,176 | |
| Accrued interest income | 329 | 254 |
| Other | 269 | 454 |
| 5,774 | 709 | |
| Total current receivables | 37,227 | 99,593 |
| EUR 1,000 | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Share capital at the beginning | 80 | 3 |
| Bonus issue | 78 | |
| Share capital at the end | 80 | 80 |
| Reserve for invested unrestricted equity at the beginning |
153,085 | 67,663 |
| Bonus issue | -78 | |
| Increase in share capital and share issue |
85,500 | |
| Reserve for invested unrestricted equity at the end |
153,085 | 153,085 |
| Retained earnings at the beginning | -3,634 | -601 |
| Retained earnings at the end | -3,634 | -601 |
| Profit/loss for the financial year | 12,262 | -3,033 |
| Total equity | 161,793 | 149,531 |
| Distributable unrestricted equity at the end |
161,713 | 149 451 |
| EUR 1,000 | 31.12.2016 | 31.12.2015 |
|---|---|---|
| 2.6.1 Non-current liabilities | ||
| Liabilities to others | ||
| Loans from financial institutions* | 24,500 | 12 000 |
| 24,500 | 12 000 | |
| Liabilities to Group companies | ||
| Other liabilities | 5 400 | |
| 0 | 5 400 | |
| Non-current liabilities, total | 24,500 | 5 400 |
| Liabilities maturing over five years | ||
| later | 0 | 0 |
* In deviation from the financial statements of 31 December 2015, the company presents drawdowns from the revolving credit facility under non-current financial liabilities. The Group has adjusted the presentation of this loan in its statement of financial position of 31 December 2015. Drawdowns from the revolving credit facility are actually long-term by nature, although their maturity is 1, 3 or 6 months.
| EUR 1,000 | 31.12.2016 | 31.12.2015 |
|---|---|---|
| 2.6.2 Current liabilities | ||
| Liabilities to others | ||
| Loans from financial institutions* | 343 | |
| Trade payables | 53 | 223 |
| Other liabilities | 128 | 6 |
| Accrued liabilities | 287 | 159 |
| 811 | 12,388 | |
| Liabilities to Group companies | ||
| Trade payables | 0 | |
| Accrued liabilities, interest | 350 | |
| Other liabilities | 25,002 | 7,789 |
| 25,002 | 8,139 | |
| Material items included under accrued liabilities |
||
| Personnel expense allocations | 125 | 48 |
| Interest allocations | 71 | 358 |
| Other items | 91 | 102 |
| 287 | 509 | |
| Current liabilities, total | 25,813 | 20,527 |
| EUR 1,000 | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Collaterals and contingent liabilities |
||
| Collaterals given on behalf of Group companies |
||
| Pledged shares in subsidiaries | 68,791 | |
| Pledged bank accounts and other receivables |
173 |
The Group companies Pihlajalinna Terveys Oy (2303024-5), Dextra Oy (0107418-3), Suomen Keinojuuriklinikka Oy (2637898-4) Tampereen Lääkärikeskus Oy (0153655-2), Hoivakoti Nestori Oy (2678086-9) and Itä-Suomen Lääkärikeskus Oy (2701756-6) have provided a suretyship in the parent company's loan facility.
At the end of the reporting period, 31 December 2016, the loan amount to which the covenants apply, was EUR 24.5 million.
The revolving credit facility involves only one financial covenant: net debt/adjusted EBITDA.
The financial covenant related to the Group's revolving credit facility is based on the ratio of the Group's net debt to pro forma EBITDA adjusted for IPO-related expenses. The maximum value of the covenant term is 3.75. The closer the Group's covenant term is to said maximum value,the higher the loan margin. The Group met the terms and conditions of the covenant at the end of the financial year, with the key ratio being 0.78 (1.55). The loan margin under the agreement will drop at its lowest when the covenant ratio fell below 1.00 on 31 December 2016.
Pihlajalinna Plc has provided a suretyship as collateral for the EUR 1.7 million loan of the associated company Dextra Lapsettomuusklinikka Oy (2563086-9).
Helsinki, 16 February 2017
Chairman
Mikko Wirén Leena Niemistö
Jari Eklund Timo Everi
Seija Turunen Jari Sundström
Aarne Aktan CEO
A report on the audit performed has been issued today.
16 February 2017
KPMG Oy Ab Firm of Authorised Public Accountants
Lotta Nurminen Authorised Public Accountant
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 2016. 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, statement of cash flows and notes. In our opinion
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.
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.
We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud.
| THE KEY AUDIT MATTER | HOW THE MATTER WAS ADDRESSED IN THE AUDIT |
|---|---|
| Goodwill impairment assessment (refer to Accounting policies relating to the consolidated financial statements and note 13) | |
| • In recent years the Group has expanded its activities through | • Our audit procedures included, among others, assessing key inputs |
| acquisition of companies. As a result, the consolidated statement of | in the calculations such as revenue growth rate, profitability and |
| financial position includes a significant amount of goodwill. | discount rate, by reference to the parent company's Board approved |
| • Goodwill is not amortized but is tested at least annually for | budgets, data external to the Group and our own views. We assessed |
| impairment. Determining the cash flow forecasts underlying the | the historical accuracy of forecasts prepared by management by |
| impairment tests requires the management make judgments over | comparing actual results for the year with the original forecasts. |
| certain key inputs, for example revenue growth rate, discount rate, | • We involved KPMG valuation specialists that assessed the technical |
| long-term growth rate and inflation rates. | accuracy of the calculations and compared the assumptions used to |
| • Due to the high level of judgement related to the forecasts used, | market and industry information |
| and the significant carrying amounts involved, goodwill impairment | • Furthermore, we considered the appropriateness of the Group's |
| assessment is considered a key audit matter. | disclosures in respect of goodwill and impairment testing. |
Measuring fair values of assets acquired in business combinations and contingent consideration (refer to Accounting policies relating to the consolidated financial statements and note 14)
| • The Group made several business combinations during the financial year. The assets and liabilities of the acquiree are measured at fair value at the date of the acquisition. Measuring fair values for intan gible assets is based on cash flows generated by the assets which requires the management to make estimates For property, plant and equipment comparisons are made to market prices of similar assets. |
• We considered the purchase agreements, assessed the valuation principles of the assets and liabilities of the acquiree and the under lying assumptions used, as well as assessed the technical accuracy of the purchase price allocations. We also assessed the existence of intangible assets based on the transferred business and goodwill generated in the acquisition. |
|---|---|
| • The acquisition-date fair value of contingent consideration is recorded as part of the consideration transferred in exchange for the acquiree. Determination of contingent consideration also requires the management to make estimates on future financial performance of the company, for example. The contingent consideration is meas ured at fair value at each reporting date. • Due to the high level of judgement related to the entries recorded, |
• We involved KPMG valuation specialists that assessed the appropri ateness of the valuation principles applied. • Audit procedures also included assessing fair values of any additional or contingent considerations for business combinations made in the current and previous financial years. • Furthermore, we considered the appropriateness of the Group's disclosures in respect of business combinations. |
| and the number of acquisitions and their significance, the entries resulting from the business combinations are considered a key audit matter. Audit of revenue from municipality outsourcing contracts and related judgmental items (refer to Accounting policies relating to the consolidated financial statements and notes 1 and 15) |
|
| • A notable proportion of the Group's revenue is based on long-term outsourcing contracts with municipalities. These include both complete outsourcing contracts for social and healthcare services as well as other outsourcing contracts. • The Group may not always be aware of the actual costs for some |
• Our audit procedures included assessment of the principles applied by the Group to revenue recognition and recording of judgmental items, as well as inspection of new contracts with municipalities. We observed the judgmental items recorded in the consolidated finan cial statements through discussions with management, analytically and by performing substantive testing where applicable. |
| complete outsourcing contracts at the reporting date. These costs also affect the revenue to be recognized. Thus the revenue recog nition based on these contracts requires the management to make estimates. |
• The subsidiaries with material non-controlling interests administer ing the significant municipality outsourcing contracts are audited by another audit firm. We participated in that audit firm's risk assess ment in order to also identify the risk of material misstatement of |
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.
appropriateness of the audit firm's work from the perspective of the
audit of the consolidated financial statements.
Our objectives are to obtain reasonable assurance on 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 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:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
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.
The Board of Directors and the Managing Director are responsible for the other information. The other information comprises information included in the report of the Board of Directors and in the Annual Report, but does not include the financial statements and our auditor's report thereon. We 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 report of the Board of Directors, 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 16 February 2017 KPMG Oy Ab
Authorised Public Accountant
The Annual General Meeting of Pihlajalinna Plc will be held in Tampere-talo, Sonaatti meeting room located in Yliopistonkatu 55, 33100 Tampere Tuesday 4 April 2017 at 3:00 p.m. The reception of participants who have registered for the meeting will commence at 2:00 p.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, 23 March 2017, 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 30 March at 4:00 p.m.
Registration for the meeting is possible via
Any proxies are requested to be delivered as original copies before the end of the registration period to Pihlajalinna Oyj, yhtiökokous2017, Kehräsaari B, 33200 Tampere, Finland.
The Board of Directors proposes that a dividend of EUR 0.15 per share be paid for the financial year that ended on 31 December 2016 based on the adopted statement of financial position. The dividend would be paid to a shareholder who on the dividend record date 6 April 2017 is registered as a shareholder in the Company's shareholders' register held by Euroclear Finland Ltd. The Board of Directors proposes that the dividend be paid on 13 April 2017.
2016
The interim reports will be published at approximately 8:00 a.m. in Finnish and English, and they are 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.
Siri Markula, Head of Communications and IR, +358 40 743 2177, [email protected]
Additional information is available in the investor section at investors.pihlajalinna.fi
www.pihlajalinna.fi
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