Pihlajalinna Oyj: Pihlajalinna Financial Statements Release 1 January-31 December 2023: Strong profitability and cash flow in the fourth quarter, write-downs reduced profit

Pihlajalinna Plc Financial Statements Release 14 February 2024 at 8:00

Pihlajalinna Financial Statements Release 1 January-31 December 2023

Strong profitability and cash flow in the fourth quarter, write-downs reduced profit
This financial statements release is unaudited. The comparison figures in brackets refer to the corresponding period in the previous year.

A brief look at October-December:

• Revenue amounted to EUR 183.0 (188.4) million - a decrease of EUR -5.4 million, or -2.9 per cent. The divestment of dental care services and reduction in COVID-19 services¹⁾ and in the cost liability of demanding specialised care decreased consolidated revenue by EUR -17.4 million, or -9.3 per cent.
• Without COVID-19 services and the decrease in the cost liability of demanding specialised care, organic growth³? was EUR 11.6 million, or 6.2 per cent.
• Adjusted EBITA³? before the amortisation and impairment of intangible assets was EUR 9.9 (2.2) million.
• Net cash flow from operating activities amounted to EUR 26.1 (22.5) million.
• Negotiations related to open receivables with former outsourcing partners did not lead to the desired outcome during the financial year, and the company is considering legal actions for debt recovery. Consequently, these items no longer met the definition of receivables on the financial statements date, and Pihlajalinna classified the items as contingent off-balance sheet assets. The write-down of the receivables amounted to EUR 8.2 million.
• Pihlajalinna has reviewed its non-current investments, the valuation of its interests in associates and loan receivables. Based on that review, a write-down of EUR 2.4 million was recognised during the quarter.
• Earnings per share (EPS) was EUR -0.25 (-0.03). The write-downs in the quarter decreased the company's earnings per share EUR 0.37.?

A brief look at January-December:

• Revenue amounted to EUR 720.0 (690.5) million - an increase of EUR 29.5 million, or 4.3 per cent. The divestment of dental care services and reduction in COVID-19 services¹⁾ and in the cost liability of demanding specialised care decreased consolidated revenue by EUR -59.9 million, or -8.7 per cent.
• Without COVID-19 services and the decrease in the cost liability of demanding specialised care, organic growth³? was EUR 72.9 million, or 10.6 per cent.
• The effect of M&A transactions²⁾ on revenue growth was EUR 16.2 million, or 2.3 per cent.
• Adjusted EBITA³? before the amortisation and impairment of intangible assets was EUR 37.8 (26.7) million - an increase of 41.5 per cent.
• Net cash flow from operating activities amounted to EUR 79.0 (64.9) million.
• Pihlajalinna issued a EUR 20 million hybrid bond on 27 March 2023. The issue ensures that the Group has leeway in executing its strategy and improving its financial position.
• Earnings per share (EPS) was EUR 0.19 (0.42). The write-downs in the financial statements decreased the company's earnings per share EUR 0.37.
• According to the Pihlajalinna's specified dividend policy, Pihlajalinna aims to distribute dividend or capital repayment minimum of one-third of the earnings per share, taking into account the company's financial position and strategy.
• The Board of Directors proposes that a dividend of EUR 0.07 per share be paid for the financial year that ended on 31 December 2023.

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

²? Pohjola Hospital Ltd 1 February 2022, Etelä-Savon Työterveys Oy 1 April 2022, Lääkärikeskus Ikioma Oy 1 April 2022, Punkkibussi® business 1 April 2022, MediEllen Oy 1 September 2022, Seppämagneetti Oy and Seppälääkärit Oy 1 October 2022.

³? Alternative performance measure. In addition to the IFRS figures, Pihlajalinna presents additional, alternative performance indicators which the company monitors internally and which provide the company's management, investors, stock market analysts and other stakeholders with important additional information concerning the company's financial performance, financial position and cash flows. These performance indicators should not be reviewed separately from the IFRS figures and they should not be considered to replace the IFRS figures.

	10-12/2023	10-12/2022	change %	1-12/2023	1-12/2022	change %
	3 months	3 months		12 months	12 months
INCOME STATEMENT
Revenue, EUR million	183.0	188.4	-2.9	720.0	690.5	4.3
EBITDA, EUR million	11.6	11.5	1.6	72.5	54.4	33.2
EBITDA, %	6.4	6.1		10.1	7.9
Adjusted EBITDA, EUR million ¹?	20.7	12.0	72.2	80.6	64.2	25.5
Adjusted EBITDA, % ¹?	11.3	6.4		11.2	9.3
Adjusted operating profit before the amortisation andimpairment of intangible assets (EBITA), EUR million ¹?	9.9	2.2	339.8	37.8	26.7	41.5
Adjusted operating profit before the amortisation andimpairment of intangible assets (EBITA), % ¹?	5.4	1.2		5.2	3.9
Operating profit (EBIT), EUR million	-1.9	-0.6	241.9	20.6	8.9	131.2
Operating profit (EBIT), %	-1.1	-0.3		2.9	1.3
Adjusted operating profit (EBIT), EUR million ¹?	7.7	0.1		29.1	18.6	56.3
Adjusted operating profit (EBIT), % ¹?	4.2	0.0		4.0	2.7
Profit before tax (EBT), EUR million	-6.1	-2.8	118.1	8.2	1.5	428.3
SHARE-RELATED INFORMATION
Earnings per share (EPS), EUR	-0.25	-0.03	703.9	0.19	0.42	-55.5
Equity per share, EUR				6.56	5.50	19.3
Dividend per share, EUR (Board of Directors Proposal)				0.07	-	-
OTHER KEY FIGURES
Return on capital employed (ROCE), %				4.0	2.3	75.9
Return on equity (ROE), %				3.4	6.2	-44.9
Equity ratio, %				22.0	18.6	18.5
Gearing, %				243.9	313.8	-22.3
Interest-bearing net debt, EUR million				352.7	385.7	-8.5
Net debt/adjusted EBITDA, 12 months ¹?				4.4	6.0	-27.1
Gearing, excluding IFRS 16, %				93.6	139.95	-33.2
Interest-bearing net debt excluding IFRS 16, EUR million				142.0	178.6	-20.5
Net debt/adjusted EBITDA, excluding IFRS 16, 12 months ¹?				2.7	4.4	-38.5
Gross investments, EUR million ²?	4.7	18.0		66.5	234.5	-71.7
Cash flow from operating activities, EUR million	26.1	22.5	16.4	79.0	64.9	21.8
Cash flow after investments, EUR million	22.5	15.5		60.5	-18.6	426.2
Average number of personnel (FTE)				4,923	4,851	1.5
Personnel at the end of the period (NOE)				6,880	7,016	-1.9
Practitioners at the end of the period				2,208	1,812	21.9
NPS, private clinics				79.1	77.1	2.59
NPS, municipal outsourcing activities				74.7	72.3	3.32

¹? Significant transactions that are not part of the normal course of business, are related to business acquisition or divestment costs (IFRS 3), are infrequently occurring events or valuation items that do not affect cash flow are treated as adjustment items affecting comparability between financial years. According to Pihlajalinna's definition, such items include, for example, restructuring measures, impairment of assets and the remeasurement of previous assets held by subsidiaries, the costs of closing businesses and business locations, gains and losses on the sale of businesses, cost arising from operational restructuring and the integration of acquired businesses, costs related to the termination of employment relationships as well as fines and corresponding compensation payments. Pihlajalinna presents costs concerning cloud computing arrangements, and reversals of amortisation, as adjustment items.

EBITDA adjustments in the quarter amounted to EUR 9.1 (0.6) million and EUR 8.1 (9.8) million in the financial year. Adjustments to operating profit in the quarter amounted to EUR 9.6 (0.6) million and EUR 8.5 (9.7) million in the financial year.

²? Assets acquired via leases are regarded as equal to assets acquired by the Group itself, meaning that right-of-use assets pursuant to IFRS 16 are included in gross investments.

Pihlajalinna's outlook for 2024

In 2024, Pihlajalinna will focus on organic growth and improving its profitability and financial position.

• The Group expects the consolidated revenue to increase from the previous year's level (EUR 720.0 million in 2023).
• The Group expects the adjusted operating profit before the amortization and impairment of intangible assets (EBITA) to improve from the previous year's level (EUR 37.8 million in 2023).
• The Group continues measures to strengthen its financial position. Efficiency measures are expected to improve Pihlajalinna's profitability.

Slowed economic growth, weakened consumer confidence and changes in market interest rates may affect Pihlajalinna's service demand and financial result more than expected. Price increases are expected to compensate the effects of cost inflation.

Tuomas Hyyryläinen, CEO:

Pihlajalinna's year 2023 was in many ways eventful and occasionally challenging. However, we succeeded operationally well - the company's revenue and comparable profitability reached record levels. Additionally, sickness-related absences reduced and the satisfaction of both personnel and customers increased. This was made possible by focusing determinedly throughout the year on strengthening the company's profitability and financial position, focusing on our customers and quality as well as developing the company's leadership and the well-being of the personnel.

Pihlajalinna's full-year revenue in 2023 increased to EUR 720.0 (690.5) million, despite a EUR 59.9 million decrease in revenue due to the removal of the cost liability for demanding specialised care in the wellbeing services counties of Pirkanmaa and Central Finland, the decrease in COVID-19 services and the divestment of dental care services. Organic growth was over 10 per cent and the customer volumes of private clinics grew by 8 per cent year-on-year. Revenue increased particularly by the insurance company customer group, driven by our hospital operations, and occupational healthcare services, where we take care of more than 280,000 customers. The growth in supply was driven by the successful recruitment of professionals which are extremely important to us. At the end of 2023, the number of practitioners at Pihlajalinna was 2,208 (1,812), representing an increase of 22 per cent.

Pihlajalinna's adjusted EBITA developed consistently during the year. The measures we initiated to strengthen profitability yielded results despite of the challenges caused by cost inflation. Adjusted EBITA increased 41.5 per cent reaching the highest level in history of Pihlajalinna EUR 37.8 (26.7) million. The improved profitability was attributable to the successful increasing of supply and achieved economies of scale, price adjustments that compensated inflation and several efficiency improvement measures.

The wellbeing services counties began their operations at the beginning of 2023 and resulted in many changes in the Pihlajalinna's operating environment. The transfer of the cost liability for the demanding specialised care to the wellbeing services counties of Pirkanmaa and Central Finland reduced annual revenue by 33.1 million euros but improved the predictability of the Group's business. In South Ostrobothnia, negotiations on the matter have continued. As a result of the establishment of the wellbeing services counties, we aimed in 2023 to finalise the negotiations related to open receivables with previous contract counterparties. The negotiations did not lead to the desired outcome, and consequently we made a EUR 8.2 million write-down to receivables from our previous contract counterparties. This negatively affected our earnings per share.

The work initiated towards improving the well-being amongst our personnel are reflected in reduced sickness-related absences and enhanced satisfaction of our personnel. Additionally, satisfaction of our customers has increased in all our customer groups. We are on the right path, but there is still plenty of potential to develop everyday work of our professionals. This further strengthens the provision of high-quality and impactful services.

The healthcare services market is growing, especially with the increasing demand for private health insurance and the growth in the need for public healthcare services. Cost inflation regarding the development of wages in the sector is expected to continue and the spring wage negotiations are expected to be challenging. There's a busy and promising year ahead of us. We expect our revenue and adjusted EBITA to increase compared to 2023.

I want to take this opportunity to thank everyone at Pihlajalinna for the past year - you made our success possible. I also wish to thank all our customers for their trust in our services. I believe that consistency, purposefulness, and collaborative efforts will lead us in the right direction and make us even more impactful for all of Pihlajalinna's stakeholders.

Webcast for analysts, media and investors

Pihlajalinna will organize a live webcast meeting for analysts, media and investors today, on 14 February 2024 at 10:00 a.m. at https://pihlajalinna.videosync.fi/q4-2023. The event will be conducted in Finnish. The recording of the event will be available later on the same website as the live webcast.

Pihlajalinna Plc's full Financial Statements Release for January-December 2023 is attached to this release and available at company's website.

Further information:

Tarja Rantala, CFO, [phone] or [e-mail]
Tuula Lehto, VP, Communications and Sustainability, [phone] or [e-mail]

Distribution:

Nasdaq Helsinki
Major media
investors.pihlajalinna.fi

Pihlajalinna in brief

Pihlajalinna is one of the leading providers of private healthcare and social services in Finland. The Group provides comprehensive and quality private clinic and hospital services as well as occupational healthcare and insurance cooperation services. To the wellbeing services counties Pihlajalinna offers social and healthcare service production models, in which the cooperation between the public and private sectors guarantees effective services for citizens. Appoximately 7,000 employees and 2,200 practitioners work at Pihlajalinna. In 2023, Pihlajalinna's revenue was 720 million euros. Pihlajalinna's shares are listed on Nasdaq Helsinki Oy. Read more www.pihlajalinna.fi.