Untitled

2020

ANNUAL REPORT 2020

CONTENTS

Pihlajalinna 2020 .....................................2

From the CEO ..........................................4

Business and strategy ..........................5

Strategy 2021-2023 ................................5

Operating environment ........................6

Trends and megatrends .......................8

Remote services .....................................10

Customer groups ....................................12

Responsibility ..........................................18

Quality and safety of care ................... 18

Data protection and

information security ..............................20

Personnel ...................................................21

Economic responsibility ....................... 25

Impact maps ............................................. 26

Board of Directors .................................. 30

Management Team ................................. 31

Report by the Board of Directors ....32

Audited financial statements ............57

Auditor’s report ....................................... 103

Information for shareholders .............107

NET DEBT/EBITDA

31 Dec 2020

3,6

(31 Dec 2019: 3.5)

target below 3

ADJUSTED EBITDA

EUR

54,6

million

(2019: 55,1)

REVENUE EUR

508,7

million

(2019: 518,6)

-1,9%

ADJUSTED OPERATING

PROFIT (EBIT) EUR

20,8

million / 4,1%

2019: 20,8 / 4,0%)

target over 7%

Key figures

• Market leader in the complete outsourcing of social

and healthcare services in Finland

• The Group pays all of its taxes to Finland

• Headquartered in Kehräsaari, Tampere

• Extensive range of services oered to both private

and public sector customers

• Strong geographical presence in Pirkanmaa, South

Ostrobothnia, Central Finland, Pohjois-Savo and the

Helsinki Metropolitan Area

• Values: energy, ethics, open-mindedness

• Listed on the main list of Nasdaq Helsinki in 2015

EARNINGS PER SHARE

EUR

0,39

(2019: 0,15)

NUMBER OF PERSONNEL

31 Dec 2020

5,995

(31 Dec 2019: 5,815)

Annual report 2020

Pihlajalinna

Pihlajalinna is one of Finland’s

leading providers of social,

healthcare and wellbeing services.

The Group’s customers include

private individuals, businesses,

insurance companies and public

sector entities, such as municipalities

and joint municipal authorities.

This report fulfills the disclosure obligation pursuant to Section 7:5§ of the Securities Markets Act.

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Timeline 2020

7 Jan

Pihlajalinna opens Tavastia private clinic in Helsinki

9 Jan

Mehiläinen’s tender oer period starts

5 Feb

Pihlajalinna opens an Uniikki special housing unit in Riihimäki

24 Feb

Pihlajalinna launches a new cardiovascular symptom

service in partnership with the Heart Hospital

20 Mar

Forever fitness centres are closed temporarily due

to the COVID-19 epidemic

23 Mar

Pihlajalinna starts COVID-19 testing

27 Mar

Pihlajalinna temporarily withdraws its outlook due

to the COVID-19 epidemic

31 Mar

The primary care service agreement between

Pihlajalinna and Hattula expires

1 Apr

Pihlajalinna starts cooperation negotiations with

the entire personnel concerning temporary layos

4 May

Forever fitness centres reopen on a restricted basis

Pihlajalinna opens an occupational health centre in

Sodankylä

Pihlajalinna’s telephone service and mobile application can

be used to seek assistance regarding cardiovascular symp-

toms in adults. The service is intended for the assessment

of non-urgent sensations of arrhythmia and chest pain or

other symptoms of suspected cardiovascular origin, for

example. The service is produced in partnership with the

Heart Hospital, which oers specialised care services to

patients where necessary. The early diagnosis of cardio-

vascular disease improves outcomes and helps the patient

manage in their daily life.

"Pihlajalinna has a strong background as a partner to the

public sector, and it is important for us to contribute to the

cooperation now that COVID-19 testing is further enhanced in

accordance with the national test-trace-isolate strategy,” says

Pihlajalinna’s Chief Operating Ocer Teija Kulmala.

The municipal education and training consortium Sasky expands

its practical nurse training in Tampere in partnership with

Pihlajalinna. Pihlajalinna has strong expertise in the production

and development of social and healthcare services. The closer

cooperation with Sasky provides an excellent foundation for new

and inspiring approaches to learning. “Together, we can develop

training in response to the challenges of the developing social

and healthcare service sector by, for example, incorporating

digital services and methods into the students’ professional skills

in the early stages of the learning path,” says Elina Heliö, Chief

People and Culture Ocer at Pihlajalinna.

“This transaction represents an important strategic suc-

cess for Pihlajalinna. The acquisition of Työterveys Virta

supports the growth of the new private clinic in Oulu and

expands our service oering in North Ostrobothnia. At the

same time, we will improve the services oered to Työter-

veys Virta’s existing occupational healthcare customers

through the addition of Pihlajalinna’s nurse telephone and

remote medical services and the introduction of a work

ability management portal. This will further increase the

convenience of service use for occupational healthcare

customers,” says Joni Aaltonen, CEO of Pihlajalinna.

“Our goal is to provide high-quality services in Huhta-

suo through a combination of in-person appointments

and remote consultations. We will reshape operating

practices to combine the existing strong nurse team

model with new operating methods, such as remote

services, which will improve the availability and ac-

cessibility of appointments in Huhtasuo,” says Sanna

Poikonen, Regional Director for Central Finland at

Pihlajalinna.

22 Jun

Pihlajalinna and the municipal education and

training consortium Sasky launch training

cooperation in Tampere

11 Sep

Pihlajalinna is selected as the outpatient care service

provider of Huhtasuo health centre in Jyväskylä

23 Sep

Pihlajalinna is selected to produce COVID-19 testing

services for HUS

29 Sep

The FCCA proposes to the Market Court that the merger

between Mehiläinen and Pihlajalinna be prohibited

5 Oct

Pihlajalinna petitions the Chancellor of Justice to

investigate the drafting of the legislation on social

and healthcare services

9 Oct

Pihlajalinna wins a public bidding competition for the

sale of Työterveys Virta Oy’s share capital and

occupational healthcare services

2 Nov

Pihlajalinna opens an occupational health centre

in Pello

25 Nov

Mehiläinen will not complete its tender oer

30 Nov

Pihlajalinna starts COVID-19 antigen testing

1 Dec

Pihlajalinna starts as the service provider for

the Huhtasuo health centre in Jyväskylä

8 Dec

Bottenhavets Hälsa − Selkämeren Terveys

is selected as the name of the joint venture

providing social and healthcare services in

Kristiinankaupunki

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

he year 2020 was an

extraordinary peri-

od globally, and its

impacts were also seen at

Pihlajalinna. I am particularly

satisfied with our customer

service and the ﬂexibility that

our organisation demonstrat-

ed in shifting the focus of our

services – including public services

as well as services oered directly

to consumers – during the COVID-19

epidemic.

I am also pleased with our strong profit

performance, especially in the fourth

quarter, which shows that our eciency

improvement programme has had a

long-term impact on our profitability.

Partnerships and occupational healthcare

have increased the use of our services and

elevated the capacity utilisation rates of

our operating locations. Nevertheless, we

have not yet returned to the normal level

of operations seen before the COVID-19

epidemic. However, the final quarter of

the year puts us in an excellent position to

enter the new year.

Earnings per share improved substan-

tially year-on-year thanks to the measures

we have taken over the past couple of

years. The substantial leap in profitability

From the CEO

taken in our private clinic, occupational

healthcare and hospital operations also

supported the improvement in earnings

per share.

Our COVID-19 testing operations began

in April and the volume of testing services

subsequently began to grow significantly

in August. COVID-19 testing increased rev-

enue for the financial year 2020 by EUR

11.4 million. In addition to operating its

own testing stations, Pihlajalinna produc-

es sample-taking services for municipal

customers and HUS, for example.

In October, Pihlajalinna was selected

as the best service provider in a public

bidding competition organised for the sale

of Työterveys Virta Oy’s share capital and

occupational health services. Our position

in the Oulu region will be significantly

strengthened by the transaction. Our mar-

ket share in occupational healthcare ser-

vices in the region will increase to approx-

imately 30 per cent, which improves our

position in all services oered to consum-

ers and partners in North Ostrobothnia.

The operations of Selkämeren Terveys

Oy – which is a joint venture between the

City of Kristiinankaupunki, Vaasa

Hospital District and Pihlajalinna – got

o to a good start at the beginning of

the new year. The Huhtasuo health centre

outsourcing in Jyväskylä, which began in

December, has received good customer

feedback. Huhtasuo is an important

proving ground for us, as we see broader

opportunities for our health centre service

models in public services.

Customers’ service consumption habits

changed quickly due to the COVID-19

epidemic. Pihlajalinna’s preparedness

to deliver extensive remote services

proved to be good. Our remote services

were used nearly 500,000 times during

the year, representing 44 per cent of all

consultations. The use of video and chat

consultations grew threefold.

We have specified our strategy further.

We continue to focus on good coopera-

tion with our partners. Ensuring that our

services are smooth and easy to use is key

to winning our customers’ trust regardless

of who pays for the service. We will focus

on digital sales and service channels and

emphasise the customer’s comprehensive

health and wellbeing in our services. More

information on our updated strategy is

provided on page 5 of this Annual Report.

JONI AALTONEN

CEO

We will focus on digital

sales and service channels

and emphasise the cus-

tomer’s comprehensive

health and wellbeing in our

services.

BUSINESS AND STRATEGY | RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Pihlajalinna’s strategy 2021–2023

Strategic priorities

1. The renewal of private services

Pihlajalinna will strengthen its multichannel

services and business in the private sector

through new service concepts and digital

innovation.

2. Cooperation in social and

healthcare services

Pihlajalinna will engage in close cooperation with

the future wellbeing services counties and build

a strong market position in public healthcare.

3. The strengthening of digitalisation

Pihlajalinna has a strong focus on digitalisation

in the development of personnel, the customer

experience and operational performance.

Mission

We help Finns to live

a better life

Vision

We bring wellbeing to everyone

Values

Ethics, energy,

open-mindedness

Objectives

• Pihlajalinna oers the most attractive and

diverse range of services.

• Pihlajalinna is the number one choice of

consumers and professionals.

• Pihlajalinna’s services are easy to access and

available without a delay.

• Pihlajalinna ensures profitable growth.

Long-term targets

OPERATING

PROFIT (EBIT)

OVER

of revenue

NET DEBT

UNDER

EBITDA

Performance indicators

The achievement of goals will be measured

by, for example, financial indicators, the

volume of available expert capacity and the

Net Promoter Score (NPS) measurements

of the customer experience and employee

experience.

BUSINESS AND STRATEGY

BUSINESS AND STRATEGY | RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

BUSINESS AND STRATEGY

he preparations for the comprehen-

sive reform of social, healthcare and

rescue services continued in 2020.

The objectives of the reform are to reduce

inequalities in health and wellbeing, safe-

guard equal and high-quality healthcare,

social welfare and rescue services and

improve the availability and accessibility

of services. Further goals include ensuring

the availability of skilled labour, respond-

ing to the challenges presented by chang-

es in society, curbing the growth of costs

and improving safety.

The government’s proposal on the re-

form of healthcare, social welfare and res-

cue services was submitted to Parliament

in December 2020. Under the proposal,

the responsibility for the organisation

of healthcare, social welfare and rescue

services would be transferred from munic-

ipalities to 21 wellbeing services counties,

the City of Helsinki and partially to the

joint county authority for the Hospital

District of Helsinki eective from 1 January

2023.

The focus of the healthcare and social

welfare system will be shifted towards

basic-level services and prevention to

The operating

environment

reduce the need for specialised care and

demanding special services. The wellbeing

services counties would organise health-

care, social welfare and rescue services

primarily as public services, but it is

estimated that they would also continue

to use outsourcing arrangements with

private service providers.

As a provider of a wide range of social

and healthcare services, Pihlajalinna

can oer an eective care chain to in-

dividual customers as well as the mu-

nicipalities that organise the services.

There is strong evidence that service

provision based on outsourcing

has helped municipalities and

joint municipal authorities

improve the quality and

availability of services and

keep the growth of costs

under control. One of

the key objectives of the

government programme

is fast access to care, and

achieving it will only be

possible if the services and

operating models of all ser-

vice providers are utilised.

As a provider of a wide

range of social and

healthcare services,

Pihlaja linna can oer an

eective care chain to

individual customers as

well as the municipalities

that organise the

services.

BUSINESS AND STRATEGY | RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Pihlajalinna business

locations 2020

Private clinic surgical operation dental clinic

Social and healthcare outsourcing

Residential service

Fitness centre

Responsible doctor service

Growing need for services

and increasing costs

The demand for social and healthcare

services is growing in Finland due to fac-

tors such as the ageing of the population.

The population is ageing rapidly and the

proportion of over 75-year-olds is set to

grow by more than 50 per cent by 2030.

According to the most recent population

forecast by Statistics Finland, 15 years

from now there will be no counties in

Finland where the birth rate exceeds the

death rate if the birth rate were to remain

at the current level.

The changing population structure will

present challenges related to the organ-

isation of healthcare and social welfare

services. It has also been estimated that

the implementation of the new nursing ra-

tio in elderly care (0.7) and the seven-day

care guarantee would increase the annual

healthcare and social welfare service

expenses of municipalities by as much as

EUR 680 million.

The COVID-19 epidemic brought both

permanent and temporary changes and

made the development of the operating

environment less predictable. Non-urgent

care has been temporarily reduced due to

the epidemic, which is reﬂected in longer

queues for treatment. According to the

Finnish Institute for Health and Welfare,

the number of people who have waited

for treatment for more than six months

grew significantly in the hospital districts

in 2020.

There has been no reduction in the

need for occupational healthcare services

during the epidemic. Companies have also

purchased testing services from occu-

pational healthcare providers to prevent

unnecessary extended absences, for

example, and keep the wheels of society

turning. At the same time, however, the

massive lay-os in 2020 and the decline

in private consumption caused by the

epidemic have driven companies to cut

the contents of their occupational health-

care agreements.

BUSINESS AND STRATEGY | RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

BUSINESS AND STRATEGY

perations and development in the

social and healthcare sector are

inﬂuenced by a number of dif-

ferent trends and megatrends in society.

Analysing the trends that inﬂuence our

industry is an essential aspect of foresight.

It helps us determine the focus areas of

our business to enable us to respond to

the challenges of the social and healthcare

service sector now and in the future. We

evaluate trends and their impacts against

our mission, which is to help Finns to live

a better life.

Examining trends supports our view

that the focus of healthcare needs to be

shifted increasingly towards prevention.

This is reﬂected in our operations in var-

ious ways, including the development of

extensive remote services, comprehensive

occupational health services, the eective

solutions we develop together with the

public sector and the creation of other

care paths that support wellbeing.

The rapid and unpredictable changes

caused by the COVID-19 epidemic chal-

lenge the prevailing trends. For example,

the COVID-19 crisis has been reported to

have aected the trend of urbanisation

at least temporarily, with migration to

Trends and megatrends

that inﬂuence our business

rural municipalities growing in Finland

in 2020. However, the overall impact on

megatrends of the changes sparked by

the epidemic can only be assessed after

more time has passed. In the short term,

the significant care backlog caused by the

COVID-19 epidemic presents a challenge

to the Finnish healthcare system.

Technological development and

the digital transformation

Rapid technological development and

automation are continuing. Interaction

is increasingly shifting to virtual envi-

ronments and remote connections. The

use of virtual and augmented reality is a

noticeable aspect of the digital transfor-

mation. Health technology is developing

quickly and becoming part of daily life,

and people carry data about their health

with them, measured by various devices.

Analysing the

trends that

inﬂuence our

industry is an

essential aspect of

foresight.

BUSINESS AND STRATEGY

Interest in health and wellbeing

Concurrently with the eect of increasing

wealth on the growth of consumption,

people’s interest in their health and well-

being has increased – especially in young

age groups. On average, Finns smoke less,

eat more healthily and exercise more in

their free time. Wellness trends also drive

consumer habits, such as nutrition-related

choices and the use of health and wellbe-

ing services. The development of lifestyle

choices has been fastest among those

with higher education.

Increasing wealth

People’s increasing wealth contributes to

increasing consumption. However, increas-

ing wealth must be examined relative to

the growth of household debt, and the

growth of wealth has not been evenly dis-

tributed. Increasing wealth will give more

and more people the ability to purchase

voluntary medical expenses insurance. At

the end of June 2020, nearly 1.25 mil-

lion Finns had private medical expenses

insurance.

Sustainable development

(ecological and social sustainability)

In addition to the ecological sustainability

crisis, we need to respond to questions

concerning the future of social sustaina-

bility. In addition to participation, a sense

of community and accessibility, social sus-

tainability is a matter of the fair distribu-

tion of benefits and disadvantages. Social

sustainability is reﬂected in, for example,

the wellbeing of companies’ employees

and maintaining the vitality of dierent

regions.

Increasing inequality

Health dierences between dierent so-

cioeconomic groups are large in Finland,

even by international comparison. The

dierence in life expectancy at age 25

between the highest-earning decile and

the lowest-earning decile is over 10 years

for men and over 5 years for women.

There are also clear dierences between

socioeconomic groups in the use of

healthcare service and lifestyle variables

that are significant to health.

Increase in lifestyle diseases

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 the use of

alcohol. However, standardised mortality

in the working-age population, relative to

the age structure and size of the entire

population, is declining. While recreational

physical activity to promote wellbeing

has increased, the changes in people’s

work and living environments has led to a

decrease in overall physical activity.

The ageing and diversification

of the population

The sharp ageing of the population is still

ahead, and the change in the population

structure will have a dramatic impact on

the dependency ratio. Population fore-

casts indicate that, in 2050, there will be

seven non-working-age persons per 10

working-age persons in Finland. The age-

ing of the large generations will also be

manifested in an increase in age-related

illnesses, and this will present an unprece-

dented challenge to the economy. Global

migration will continue to increase.

Urbanisation

People are migrating to areas with jobs

and larger markets, especially cities where

higher education and education in the

sciences is available. It is estimated that,

in 2050, approximately 70 per cent of

the world’s population will live in cities.

Urbanisation is reﬂected in dierences in

population structure between regions. The

ageing of the population is the fastest in

regions with negative net migration.

Declining municipal economies

The debt of municipalities and joint

municipal authorities has increased

sharply and the statistics indicate that the

growth of indebtedness is accelerating.

Social and healthcare services account for

a majority of municipalities’ expenses. In

2019, the net costs of municipalities’ social

and healthcare services grew by nearly

EUR 1 billion year-on-year. In continental

Finland, the per capita net costs of social

and healthcare services amounted to

EUR 3,490 in 2019.

BUSINESS AND STRATEGY | RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

BUSINESS AND STRATEGY

Diverse remote services

Pihlajalinna continued to expand and

develop its range of remote services in

2020. High-quality, eective and diverse

remote services are oered to private and

occupational healthcare customers as well

as public sector customers.

Remote services have been expanded to

complement private clinic and occupational

health services as well as the public services

of the joint ventures between Pihlajalinna

and municipalities. The significance of

remote services as part of preventive social

and healthcare services will continue to

grow in the future.

The user volumes of Pihlajalinna’s

remote services grew significantly in the

spring of 2020 when the COVID-19 epidemic

began and continued to grow throughout

the year.

SECONDS

The median waiting time

of customers using the

Pihlajalinna health

application in 2020.

132 %

Percentage growth of the service volume

of the nurse telephone service in 2020.

15 302

RESPONSIBLE DOCTOR SERVICE

CUSTOMERS

Number of customers treated via Pihlajalin-

na’s responsible doctor service in 2020. In

Pihlajalinna’s responsible doctor model, a

physician who is familiar with the patient’s

overall situation is responsible for their

day-to-day care in cooperation with nurs-

ing sta. The model is part of our range of

services oered to municipal customers.

MUNICIPALITIES

Pihlajalinna’s responsible doctor service is

used by approximately 70 municipalities

across Finland. The customers include

municipalities as well as joint municipal

authorities.

145

SPECIALISTS

Number of specialists

who provided appoint-

ments via the Pihlajalinna

health application

in 2020.

123 %

Percentage growth

of the service volume of

the Pihlajalinna health

application in 2020.

BUSINESS AND STRATEGY | RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

The number of remote consultations

grew significantly in 2020. Pihlajalinna’s

general practitioner Miika Kurkela says

the best outcomes are often achieved by

a combination of in-person appointments

and remote consultations.

According to Miika Kurkela, remote

consultations are a ﬂexible option for

physicians, allowing them to work from a

holiday home or while travelling, for

example. Although most of the work is

done alone, support is available electroni-

cally from supervisors, colleagues and the

IT department.

Kurkela also considers it important that

the remote consultation model gives phy-

sicians the opportunity to work remotely.

– The opportunity to work remotely im-

proves wellbeing at work, job satisfaction,

motivation, productivity and eciency. It

also improves your ability to concentrate

on your work. Remote work allows you to

maintain a good balance between work

and free time and it reduces the time you

spend commuting, Kurkela explains.

The fact that remote consultations are

not tied to a specific location benefits

both the physician and the customer.

Remote consultations enable physicians

to see patients anywhere in Finland. This

can help balance regional shortages in

physicians. Remote consultations also

Remote consultations oer ﬂexibility

provide ﬂexibility with regard to time by

eliminating the need for the customer or

physician to travel.

Kurkela believes that, ideally, in-person

appointments and remote consulta-

tions complement each other. Nearly

all ailments can be treated in remote

consultations, but the best outcomes are

achieved by combining both consulta-

tion models.

While many issues can be

addressed in a single consulta-

tion, Kurkela points out that

customers who use remote

consultations should prepare

for the possibility that

remote treatment alone

is not enough However,

even in these cases, the

remote consultation is

far from pointless, as

the information gained

from interviewing the

customer will make the

subsequent in-person

appointment smoother.

The opposite is also

true: findings recorded

during previous in-

person appointments

are valuable information

for physicians who hold

remote consultations.

BUSINESS AND STRATEGY

500,000

Our remote services were

used nearly half a million times

during the year 2020.

44 %

44 per cent of all

consultations were held

remotely.

Remote consultations

enable physicians to

see patients anywhere

in Finland. This can

help balance regional

shortages in physicians.

BUSINESS AND STRATEGY | RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Customer groups

BUSINESS AND STRATEGY

(included in corporate customers)

SHARE OF

CONSOLIDATED

REVENUE

14 %

(17 %)

SHARE OF

CONSOLIDATED

REVENUE

5 %

(5 %)

REVENUE M€

79,8

(97,8 M€)

-18,4 %

REVENUE M€

29,8

(27,6 M€)

+8,1 %

REVENUE M€

124,0

(118,8 M€)

+4,4 %

REVENUE M€

370,5

(363,8 M€)

+1,8 %

Private customers

Insurance company customers

Corporate customers Public sector

Pihlajalinna’s customer groups are corporate customers,

private customers and public sector customers.

The Group’s corporate customer group consists of

Pihlajalinna’s occupational health customers, insurance

company customers and other corporate contract

customers.

The Group’s private customers are private individuals

who pay for services themselves and may subsequently

seek compensation from their insurance company.

The Group’s public sector customer group consists of

public sector organisations in Finland, such as municipal-

ities, joint municipal authorities, congregations, hospital

districts and the public administration when purchasing

social and healthcare outsourcing services, residential

services, occupational health services and stang

services.

SHARE OF

CONSOLIDATED

REVENUE

22 %

(20 %)

SHARE OF

CONSOLIDATED

REVENUE

65 %

(63 %)

(included in public sector)

SHARE OF

CONSOLIDATED

REVENUE

50 %

(49 %)

REVENUE M€

287,9

(285,5 M€)

+0,8 %

Complete outsourcings

BUSINESS AND STRATEGY | RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Sleep is one of the cornerstones of

wellbeing.

Sleep is involuntary and it gets easily dis-

rupted when people are under increased

stress. The term sleep disorder is used

when someone has diculty falling asleep

or staying asleep that results in fatigue

during the day. Poor sleep is a risk factor

for various longer-term health problems.

There are many solutions for fixing sleep

disorders. Sometimes, sleep problems

are caused by medical reasons, so they

are treated with medical interventions. In

most cases, however, sleep disorders are

caused by stress. In that case, they are

known as functional sleep disorders, which

can be remedied by changing habits and

routines.

In 2020, Pihlajalinna launched a sleep

coaching service aimed at behavioural

change. Sleep coaching is available for pri-

vate and occupational healthcare custom-

ers, either individually or in groups.

– Sleep coaching includes learning the

basics about the nature of sleep and what

factors aect natural sleep positively and

negatively. The participants also learn to

identify actions and attitudes that help

people fall asleep and stay asleep. As

many as 80% of the people who com-

pleted the coaching programme saw an

improvement in their sleep, says Susanna

Paarlahti, Service Manager, Occupational

Health Psychology, who was involved in

the development of the service.

Good sleep improves

productivity and quality of life

Insomnia is common in the working-age

population. Paarlahti points out that sleep

is worth investing in for employers as well.

– From the employer’s perspective, it is

very beneficial to support the employees’

sleep quality, as employees who are alert

and energetic are more productive and

ecient, Paarlahti explains.

For the individual, good sleep is a

quality of life issue. A sleep deficit has a

significant impact on cognitive wellbeing,

which is reﬂected in your perceptual and

deductive capabilities as well as the ability

to regulate emotions.

– The world feels completely dierent

when you wake up well rested and alert

and you don’t need to struggle with per-

sistent fatigue, Paarlahti adds.

A counter-

measure to the

increase in mental

health problems

Sickness-related ab-

sences and retirements

caused by mental health

problems have grown glob-

ally in recent times. Paarlahti

believes sleep coaching represents a

countermeasure to this trend. Sleep has

a significant impact on wellbeing and the

perception of balance, whereas stress

makes many illnesses worse. Ensuring

good sleep can help prevent many mental

health disorders.

– Good sleep and improving your sleep

means that you’ve been able to balance

or resolve various stress factors. This has

a direct link to mental health, Paarlahti

explains.

The lessons learned in sleep coaching

can also be useful in resolving other

psychological issues.

– When you learn to improve your

sleep with habits and methods that give

you moments of relaxation in daily life,

help you address your worries and make

behavioural changes that promote good

Good sleep is

important

BUSINESS AND STRATEGY

The lessons learned

in sleep coaching

can also be useful

in resolving other

psychological

issues.

health, that’s more or less everything

you need to support your mental health,

Paarlahti concludes.

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Pihlajalinna physician

Arvo Haapanen urged

Timo Suni, 74, to start

exercising. Three days

later, Timo walked into a

Forever fitness centre. It

has now been two years,

and Timo is tremendously

enthusiastic about exercise

and his health has improved.

Timo’s career involved a lot of seat-

ed work and driving. This gave him a

variety of problems, including neck and

shoulder pain, headaches and back pain.

When he retired, Timo went from seated

work to physically demanding forest

management, much of which consisted of

repetitive movements.

In September 2018, Timo went for his

annual check-up with Pihlajalinna. His

previous physician had retired and his

new doctor was Arvo Haapanen. Haapa-

nen brought up the topic of exercise and

urged Timo to get more varied exercise

to maintain good health. Three days later,

Timo walked into a Forever fitness centre

and began working out with a personal

trainer.

BUSINESS AND STRATEGY

Movement as medicine

– My wife had tried to get me to exer-

cise for years, but Haapanen managed to

do it in three days, Suni says.

Well-rounded exercise under the

guidance of a personal trainer

Timo now works out twice a week with

his personal trainer. They work on his core

and do mobility and strength exercises.

– My personal trainer makes sure I do

the exercises correctly, with sucient va-

riety and good progress. Had I exercised

alone, I wouldn’t have achieved the same

degree of diversity in my workouts, says

Suni in describing his programme with his

trainer.

Timo is motivated by his improving

health and feeling better. He says his back

pain has gone away almost entirely. A

well-rounded exercise regimen has also

helped him maintain his functional capac-

ity. His exercise programme has improved

his balance, core control, strength and

mobility, allowing him to continue to work

on forest management as a hobby that is

close to his heart.

– It’s important to stay in shape phys-

ically, because it also aects the mental

side of things. Hiring a personal trainer is

a small sacrifice, since well-rounded exer-

cise helps with many ailments, Suni says,

summarising the benefits of the changes

he has made.

Exercise improves overall wellbeing

According to Arvo Haapanen, specialist in

geriatrics at Pihlajalinna, simply bringing

up the topic of physical activity is often

enough to motivate a customer to start

exercising.

– We should look at movement as med-

icine. It’s also important to highlight em-

pirical evidence about the health impacts

of exercise. If you want to really get the

message across, you need to explain the

reasons behind it, Haapanen says.

Haapanen believes exercise plays a sig-

nificant role alongside medical treatment.

– Specific medical issues, such as high

blood pressure, can often be treated with

medication, but exercise and healthy

eating can improve the patient’s quality

of life in a broader sense. When you keep

the big picture in mind, it is likely that the

patient’s quality of life will remain good

for longer than it would if they were only

treated by prescribing medication, Haapa-

nen concludes.

It’s important to stay in

shape physically, because

it also aects the mental

side of things.

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BUSINESS AND STRATEGY

A pioneer in resident participation

At the Uniikki unit of Pihlajalinna Special

Housing Services, service housing with

24-hour assistance is based on the idea

that everyone has the right to dream

and live a life that suits their individual

circumstances.

Uniikki’s service housing with 24-hour

assistance is intended for people with de-

velopmental disabilities who have severe

challenges with behavioural regulation or

life management. Such challenges may

arise from autism spectrum disorders or

mental health problems, for example.

No two days are the same at Uniikki:

daily life is planned individually and ﬂexi-

bly to suit each resident’s mood, ability to

concentrate and energy levels.

According to Miina Laru, Managing

Director of Pihlajalinna Special Housing

Services, service housing with 24-hour

assistance at Uniikki is based on the

engagement of the residents and the idea

that everyone has the right to live a life of

dignity that suits their individual circum-

stances.

– People with developmental disabilities

mustn’t be put in the same mould, allow-

ing them to only engage in activities that

people on the outside believe are realistic

possibilities for them. The starting point

for our housing services is what each res-

ident wants to do. Only then do we con-

sider how those wishes can be realised in

a way that takes the individual’s condition

and capabilities into account.

At Uniikki, the sta members want to

see the individual behind the developmen-

tal disability or autism disorder. No-one is

forced to adapt to circumstances in which

their activities, dreams and wishes are

restricted from the outside.

Uniikki is a pioneer in promoting the

engagement and participation of people

with developmental disabilities and autism

spectrum disorders as well as finding

ways to help them build a life of their

own in spite of diculties with self-regu-

lation. This can be achieved with su-

cient personnel resources as well as the

motivation and professional competence

of the sta. The sta members’ work with

the residents is supported by training and

strong expert assistance. There are special

counsellors working at the units and psy-

chologist services are purchased from two

psychologists.

Pihlajalinna’s first Uniikki facility was

opened in Hämeenlinna in 2018. This was

followed by the opening of Uniikki Rii-

himäki in 2020. The third Uniikki facility is

currently under development in Lohja and

it is expected to open in August 2021.

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BUSINESS AND STRATEGY

A year of development in 2020

Pihlajalinna Koskiklinikka hospital was recognised

by the International Society of Arthroscopy, Knee

Surgery and Orthopaedic Sports Medicine. Pihlaja-

linna Koskiklinikka was granted ISAKOS Approved

Teaching Center status.

“The ISAKOS Teaching Center certificate means

that we are an internationally acknowledged hospital

in the field of knee surgery. Our advanced operations

include highly demanding and uncommon surgeries

that visiting colleagues want to come see and learn

from,” says Petri Sillanpää, Pihlajalinna Koski-

klinikka’s Chief Orthopaedic Surgeon and specialist

in orthopaedics and traumatology.

We partnered with Medanta to develop an antimi-

crobial non-disposable face mask for use by health-

care professionals. The face mask was designed in

collaboration between hygiene nurses and workwear

designers. The masks are made from ﬂexible two-ply

antimicrobial Medanta Microfiber fabric. The quality

of the professional mask meets the regulatory

requirements for personal protective equipment.

“Our collaboration with Medanta is a good example

of private, agile and quick product development at its

finest,” says Procurement Manager Henna Rantanen

from Pihlajalinna.

We partnered with the Heart Hospital to develop

a new service for evaluating cardiovascular symp-

toms. Pihlajalinna’s telephone service and mobile

application can be used to seek assistance regarding

cardiovascular symptoms in adults.

The service is aimed at making it easier for cardi-

ovascular patients to access care, responding to the

challenges created by the ageing of the population

and curbing the rise in costs. The cardiovascular

symptom service is the first cooperatively devel-

oped service that crosses the boundary between the

public and private sectors. We launched the service

in 2020 in Southwest Finland, Uusimaa and the

Seinäjoki region.

In 2020, we launched Pihlajalinna Bonus, a con-

venient fundraising method for sports clubs and

other non-profits. The members of sports clubs and

associations that have signed an agreement with

Pihlajalinna can help accumulate bonuses paid to the

club or association by joining the Pihlajalinna Bonus

programme and focusing their purchases on Pihlaja-

linna.

Pihlajalinna Bonus was enthusiastically received

by sports clubs and we continued to develop it

throughout 2020. Adding members was made easier

by introducing a joining function in the Pihlajalinna

health application.

Support

for sports

clubs

Collaborative

product

development

International

recognition

Launch of

cardiovascular

symptom

service

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BUSINESS AND STRATEGY

A year of development in 2020

We joined the eort of slowing down the spread of

COVID-19 right from the early stages of the epidemic.

We started COVID-19 testing in March and expanded our

testing operations nationwide in April. We added rapid

antigen testing to our range of services in the autumn of

2020.

The number of our drive-in testing stations was signifi-

cantly increased in the autumn when the Hospital District

of Helsinki and Uusimaa (HUS) chose Pihlajalinna as one

of the service providers to collect samples for COVID-19

testing in the Uusimaa and Kymenlaakso regions. We

also opened new testing locations for our private and

occupational healthcare customers in the autumn based

on regional needs.

Our online reservation services were one of our most

significant areas of digital development in 2020. For

example, we oered our customers the opportunity to

seek COVID-19 testing via a symptom questionnaire

added to our online reservation system. We also devel-

oped our services for occupational healthcare customers

to enable them to make an appointment for inﬂuenza

vaccination directly online, for instance.

The development of online reservation services was

especially important last year due to the sharp increase

in the number of calls caused by the COVID-19 epidemic.

When the COVID-19 restrictions began to shape

people’s daily lives, our joint venture Kolmos-

tien Terveys and the City of Parkano took action

and created the VirtaParkki wellbeing channel.

It combines online activities related to recreation,

wellbeing and health in one calendar. VirtaParkki

includes programme content produced by the city,

Kolmostien Terveys and third-sector operators for

children, young people, adults and senior citizens.

In 2020, we completed a reform process to deploy

the health centre model in all of our municipal

joint ventures. The model helps harmonise and

clarify appointment reservation practices. For

example, when the residents of the municipalities

make a call, they do not need to assess whether

their issue is urgent or non-urgent, as all reserva-

tions are made through the same contact point. At

the same time, the range of services available to

municipal residents was expanded by the deploy-

ment of the Pihlajalinna health application.

The model will be adopted in the spring of 2021

by Selkämeren Terveys, a joint venture that began

service production in Kristiinankaupunki on 1 Janu-

ary 2021.

Nationwide

COVID-19

testing

Development

of online

reservation

services

Wellbeing for

the residents of

municipalities

Deployment

of the health

centre model

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RESPONSIBILITY

Responsibility

for health and

wellbeing

It is easier, more inexpensive and more straightforward for the

body to keep a person healthy rather than cure someone who is

already ill. With this in mind, Pihlajalinna develops services that

focus on keeping people healthy and preventing illnesses.

Pihlajalinna’s mission is to help people to live a better life.

Pihlajalinna bears responsibility for the health and wellbeing of

the Finnish people, the use of society’s funds and the payment of

taxes to Finland, for employees, and for the appropriate storage

and processing of customer data. Pihlajalinna places the highest

priority on ensuring the quality, safety and eectiveness of ser-

vices, looking after its personnel and assuring the data protection

and privacy of its customers.

Pihlajalinna’s quality policy and quality control system

support the strategy of Pihlajalinna Group. The joint

quality policy is followed throughout Pihlajalinna Group.

The company’s operations comply with the current

legislation, regulations issued by the authorities and

any licences and requirements of the industry. We

monitor the development of the customer expe-

rience, medical quality, employee satisfaction and

process quality.

Pihlajalinna’s

mission is to help

people to live a

better life.

RESPONSIBILITY

Medical key figures 2020

2,45

COMPLAINTS*

1 050300

TOTAL NUMBER OF VISITS

0,06

SURGICAL INFECTIONS**

DEEP INFECTIONS

0,19

OFFICIAL COMPLAINTS*

0,95 %

PATIENT INJURY NOTIFICATIONS

FILED IN 2020*

25 %

SHARE OF THE PATIENT INSURANCE

CENTRE’S DECISIONS IN 2020 IN

WHICH THE PATIENT WAS ENTITLED

TO COMPENSATION

+74

PRIVATE CLINICS

+84

DENTAL CLINICS

+69

MUNICIPAL

JOINT VENTURES

+90

HOSPITALS

+65

TELEPHONE SERVICES

* The number of complaints, ocial complaints and patient injury notifications per 100,000 visits. The patient injury

notifications include cases in which the policyholder is Pihlajalinna Lääkärikeskukset Oy or Pihlajalinna Terveys Oy. The

Group does not necessarily receive information about complaints, ocial complaints or patient injury notifications

related to the operations of practitioners working at Pihlajalinna Group’s clinics. The cases that the Group is aware of are

reported in the statistics. Both the number of visits and complaints, ocial complaints and patient injury notifications

encompass Pihlajalinna’s private clinics, the Group’s hospitals, occupational health centres and dental clinics.

** The surgical area infection percentage has been calculated in relation to the number of procedures in Pihlajalinna’s

hospitals.

The measurement covers all Pihlajalinna private clinics, hospitals,

the operating locations of municipal joint ventures except the

operating locations of Kuusiolinna Terveys Oy, dental clinics and

telephone services. The total number of feedback submissions

was 117,488. The range of the Net Promoter Score index is -100

to +100.

NPS INDEX

BUSINESS AND STRATEGY

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Training

The personnel receive regular training on data protection

and information security. All Pihlajalinna profession-

als are required to complete general training on data

protection, including an examination. Those who process

patient data also need to take an additional examination

concerning patient data. The personnel have access to

up-to-date guidelines.

Risk assessment

Data protection and information security risks are assessed

and analysed regularly and always in the new system specifi

cation phase and in connection with significant changes.

User rights management

In all systems, user rights and access management are

centralised. System administrators determine the princi-

ples for granting user rights. The rights of external users

are managed in a centralised manner.

Supervision and monitoring

The status of data protection and information security is

reported in connection with internal and external audits.

Technical information security is constantly assessed and

separate information security inspections are made to the

most critical environments. The general work related to

data protection is led by a steering group and operational

activities are led by the data protection and information

security team.

Service provider monitoring

Suppliers and external service providers must commit

to complying with information security requirements

defined by the Group and suppliers are subject to reg-

ular audits. When external services change, information

security requirements are reviewed.

Processing of deviations in information security

Pihlajalinna Group has defined procedures and tools for

detecting deviations in information security. In addition,

there are action plans for exceptional circumstances.

Each deviation in information security is recorded and

processed for further action.

Connection to the data network

A connection to Pihlajalinna Group’s data network and associ-

ated services can only be formed with hardware and software

managed or approved by data administration. In order to

ensure information security, software and file formats used in

the systems are supervised and, when necessary, restricted.

The most significant systems only accept logins from the local

area network. Two-factor authentication is used for logins

from the wide area network.

Information security practices

Data protection and

information security

Data protection and

information security

indicators Target   

Number of successful

attempts to gain

unauthorised access

   *

Number of detected

viruses and malware

Computers are

free of

viruses and

malware

 automatically

removed viruses

 automatically

removed malware

programs

 automatically

removed viruses

 automatically

removed malware

programs

 automatically

removed viruses

 automatically

removed malware

programs

Volume of junk mail Less than  of

junk mail makes it

through to users

Target achieved Target achieved Target achieved

Information security

updates are current

All information

security updates

are installed

within  hours of

being released

 of updates

installed within

one week of being

released

 of updates

installed within

one week of being

released

 of updates

installed within

one week of being

released

* The attempts to gain unauthorised access were detected quickly the situation was normalised and

the systems were subsequently updated

ihlajalinna’s goal is to ensure the data

protection of its customers and pa-

tients as well as secure the operation

of IT systems, services and data networks

that are critical for its operations, prevent

their unauthorised use and the accidental or

intentional corruption of data.

The Group prepares itself for distur-

bances and exceptional conditions so that

operations can be continued with as little

disruption as possible in all circumstances.

Information security and data protection

are monitored actively and deviations are

processed quickly. Information security is

established and maintained with state-of-

the-art, up-to-date solutions.

In 2020, we paid special attention to

enhancing information security, partly in

response to widely publicised security-re-

lated events in the healthcare sector. We

have further strengthened the processes

and technologies related to secure sign-

in in our services. For example, we have

adopted strong authentication practices in

our public services. We have also worked

with an external partner to increase the

internal and external scanning of our

information networks to further enhance

information security.

BUSINESS AND STRATEGY

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RESPONSIBILITY

n social and healthcare services, the per-

sonnel play a key role in the provision of

high-quality services and the creation

of customer value. Wellbeing at work as

well as the availability and motivation of

personnel also have a significant impact

on the company’s profit performance.

Pihlajalinna develops wellbeing at work

among its personnel by, among other

things, high-quality supervisory work, pre-

ventive occupational healthcare and well-

being projects. The active caring model

used by Pihlajalinna involves agreeing on

the responsibilities of the various parties

concerned as well as operating methods

aimed at resolving challenges related to

work ability and performance.

Pihlajalinna observes labour legislation

and collective agreements at all of its

operating locations, respects its employ-

ees’ right to unionisation and trade union

activities and also develops coopera-

tion based on trust and openness with

employee representatives. We treat our

Our employees,

the most important

resource

The Pihlis Pulse survey

is a tool developed

by Pihlajalinna’s

occupational

healthcare and HR

experts to support the

development of the

work community.

employees equally and do not condone

any discrimination against employees and

practitioners. The Group has an operating

model against inappropriate treatment at

work, which applies to everyone employed

by Pihlajalinna Group.

The employees’ voices are heard

The Pihlis Pulse survey is a tool developed

by Pihlajalinna’s occupational healthcare

and HR experts to support the develop-

ment of the work community. The Pulse

survey supports the identification of

teams’ strengths and weaknesses as well

as the planning of development measures.

Since it is conducted 3–4 times per year,

the survey also enables the monitoring

of wellbeing at work and the employee

experience. It also serves as a communi-

cation channel that promotes interaction

between the management, supervisors

and the personnel. The results of the Pulse

survey are discussed by the Group Man-

agement Team and the progress of devel-

opment measures is

monitored regularly.

Pihlajalinna employees

are empowered to exer-

cise inﬂuence on their jobs and

working environments in various

ways, including the company’s Together

activities. Together is a Group-wide co-

operation organisation involving Together

representatives selected by employees as

well as employee delegates and occupa-

tional safety and health delegates. The

aim of the activities is to create a coherent

company culture, develop dialogue based

on trust and openness as well as respond

to the statutory requirements concern-

ing employer-employee cooperation. We

strengthened our internal cooperation

organisation in 2020 by engaging in nego-

tiations with labour unions regarding the

organisation of operations.

In 2020, Pihlajalinna conducted cooper-

ation negotiations concerning temporary

lay-os. The entire Group was within the

scope of the negotiations. The cooper-

ation negotiations were conducted in

response to the changes in the operating

environment caused by the COVID-19

epidemic.

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High-quality supervisory work

and continuous development

Pihlajalinna’s eorts to develop supervi-

sory work and leadership are aimed at

ensuring that the organisation has highly

competent and inspiring supervisors who

enable the success of their teams. The

success of managers and supervisors is

supported by diverse training and eec-

tive HR processes. In 2020, the focus of

Pihlajalinna’s eorts to support super-

visory work was on change support for

managers and supervisors. The success of

teams is also supported by a goal-driven

performance management process.

At Pihlajalinna, competence develop-

ment involves learning on the job, training

and sharing knowledge. The focus is on

learning on the job, which makes the roles

of the manager and work community

particularly significant. The Pihlajalinna

Academy online learning environment

provides a foundation for the continuous

development of competence.

Physicians are oered remote lectures

on a weekly basis, for example. The

physicians employed by Pihlajalinna can

also undertake specialisation training in,

for example, general medicine, occupa-

tional healthcare and geriatrics as well as

Personnel indicators

Indicator  

Average number of personnel (FTE)   

Personnel at the end of the period (NOE)    

Ratio of average annual pay to highest annual pay  

Personnel exit turnover  

Ratio of women to men among personnel      

Ratio of fixed-term employees to permanent employees      

Equality and non-discrimination plan valid valid

Action plan against inappropriate treatment at work valid valid

Sickness-related absences*  

Occupational accidents**work-related fatalities  

Infringements against labour law  

* The sickness-related absence rate is calculated as the ratio of sickness-related absences to planned working hours

The figure includes sickness-related absences caused by accidents

** Occupational accidents include accidents that occurred at work and during commutes and work-related travel

HR focus areas in 2020

• Change support for managers and

employees

• Development of HR processes (performance

management and recruitment)

• Improving the quality of HR data and

information management processes

• Development of the cooperation

organisation and statutory cooperation

• Preventive occupational safety and health

PERMANENT

EMPLOYEES

72 %

(85 %)

FIXED-TERM

EMPLOYEES

28 %

(15 %)

required training in areas related to their

specialisation.

Professional training is provided by both

Pihlajalinna’s own experts and external

training providers. Our recommendation

is that an individual competence develop-

ment plan should be drafted annually for

each employee.

We focus on health and safety

The goal of Pihlajalinna’s occupational

safety and health activities is ensuring a

healthy and safe working environment

and the eective prevention of accidents

and occupational illnesses. Occupational

safety at Pihlajalinna is evaluated at three

levels, starting from the continuous ob-

servation of the environment, identifying

hazards, assessing risks and preparing for

accidents.

Observing the working environment

is very important. Generally, workplaces

where the number of reported safety ob-

servations has increased have achieved a

reduction in accidents. Pihlajalinna encour-

ages everyone to report their observa-

tions whenever they recognise a potential

safety issue. A total of 2,141 safety obser-

vations were reported in 2020, which is

roughly equal to the previous year. Safety

RESPONSIBILITY

BUSINESS AND STRATEGY

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Comments

from employees

“Although I am rela-

tively new to Pihlajalinna,

my job description has been

quite broad right from the start

and I have enjoyed having challenges in many

dierent areas. At the same time, my job has

enabled me to learn new things, develop myself as

a professional and meet new people. Being given

responsibility right from the early stages has been

nice and it has given more meaning to my work. I

also appreciate the high quality of managerial work

here. Pihlajalinna provides an interesting front-row

seat to the world of healthcare from the per-

spective of a private-sector organisation.”

Mikael Landvik,

Business Controller

observations are processed together with

employees without delay. We monitor the

number of safety observations as well as

the processing times.

Our preventive eorts have produced

good results. Pihlajalinna’s total number of

occupational accidents decreased in 2020.

A total of 480 accidents were reported in

2020, compared to 520 in 2019. A particu-

larly significant observation regarding the

accident statistics is that serious accidents

have decreased sharply, from 21 in 2019

to only 7 in 2020. The decrease in serious

accidents also led to a reduction in sick-

ness-related absences and compensation

days.

About 75 per cent of all accidents

are caused by falling, physical stress,

violence or sharp objects. Slipping and

falling account for nearly half of all days

of incapacity for work. In 2020, we paid

particular attention to falling and slip-

ping accidents by arranging occupational

safety and health information sessions as

well as sharing best practices. Accidents

and absences involving falling and slipping

turned to a noticeable decline as a result.

Our occupational safety and health

activities in 2020 were also inﬂuenced

by the COVID-19 epidemic. Pihlajalinna’s

Medical Management Team has been reg-

ularly convened by the Medical Director

to issue guidelines on issues pertaining

to the personal protection of employees

and support the occupational safety and

health organisation. Risk assessments

conducted at Pihlajalinna’s operating

locations have played a significant role

in occupational safety and health eorts

during the epidemic.

“What I like

about my job is

having variety and

challenging situations that

give me the opportunity to maintain

my expertise and learn new things. My

colleagues are lovely and supportive. I’ve

also had the chance to participate in work

trial arrangements to find out what types

of duties I’m best suited for. I have been

given responsibility and diverse tasks,

which is something that I believe prac-

tical nurses should be given more of

in general.”

Miia Hellgren,

practical nurse

“What I really like

about my job is

that the team and my

supervisor trust me and give me

encouragement. My supervisor gives

me freedom and ﬂexibility in my work.

I find that the advantages of working

for a private-sector organisation include

employee benefits and a relaxed approach

to work as well as eciency and the ease

of networking. We are encouraged to

develop ourselves and we have many op-

portunities to participate in training.”

Lea Toivaala,

instruments attendant and

cleaning supervisor

“My team includes

highly competent oc-

cupational health physicians,

occupational health nurses, occupational

health psychologists and occupational

health physiotherapists. We also work

together with oce secretaries and

laboratory technicians. We have nice and

professionally competent employees who

are always ready to help. Cooperation

here is very smooth!”

Erja Taimiaho,

occupational health

nurse

“I work for Pihlajalin-

na’s Nurse Telephone

Service. My job is dynamic,

varied and unpredictable.

I get to make decisions inde-

pendently. I like the fact that you never

know what the caller needs to discuss. I get to

use my professional skills to assess the need for

treatment and provide instructions for home care

and further action as necessary. I’m surrounded

by a supportive community of professionals. It’s

the best community I’ve been a part of in my

career so far. My immediate supervisor is easy

to get a hold of and always ready to provide

assistance and support.”

Sonja Niittyoja,

registered nurse

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Pihlajalinna Group’s tax footprint

EUR million  

Direct tax payable for the period

Income tax (business income tax)  

Employer’s pension contributions  

Social security contributions  

Employer’s unemployment insurance contributions  

Contribution to accident insurance and group life insurance  

Employer contributions total  

Property taxes  

Transfer taxes  

Direct tax payable for the period total  

Value added tax of goods and services paid by the company

Value added taxes estimate  

Tax for the period

Withholding taxes  

Employee pension contributions deferred  

Employee unemployment insurance contributions notional  

Payroll tax total  

Net value-added tax  

Total tax for the period  

Tax footprint  

Revenue  

Profit before taxes  

Average number of personnel (FTE)    

Public subsidies  

All taxes paid to Finland

RESPONSIBILITY

Central Ostrobothnia 

Ostrobothnia  

South Ostrobothnia  

Pirkanmaa  

Satakunta 

Kanta-Häme 

Varsinais-Suomi  

Uusimaa  

Lapland 

North Ostrobothnia  

Kainuu 

Pohjois-Savo  

North Karelia 

Central Finland  

Etelä-Savo 

South Karelia 

Kymenlaakso  

Päijät-Häme 

Pihlajalinna’s tax

withholdings 2020

by county

1000 €

TOTAL TAX FOR

THE PERIOD

M€

61,1

(61,7)

DIRECT TAX PAYABLE

FOR THE PERIOD

TOTAL M€

37,9

(40,8)

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

t Pihlajalinna, responsible social

and healthcare services are also

ecient. Limited resources, such

as tax revenue, must be converted into the

highest possible amount of wellbeing.

Pihlajalinna is a trusted partner for many

municipalities. In 2020, Pihlajalinna was

responsible for the social and healthcare

services of approximately 100,000 resi-

dents.

Under the model developed by the

company, Pihlajalinna establishes a joint

venture with the municipality or joint

municipal authority in question, with both

parties owning a stake.

The model benefits society in many

dierent ways. The joint ventures also pay

significant dividends to the municipali-

ties. In addition, income accrued through

the sale of shares has helped balance the

finances of municipalities.

The joint ventures are domiciled in each

partner municipality, with the municipal-

ity receiving 30.34% of the company’s

corporate income taxes. For example, the

largest payer of corporate income tax in

the City of Jämsä in 2019 was Jokilaakson

Terveys, a joint venture between Pihlajal-

RESPONSIBILITY

A trusted partner

for municipalities

inna and the Central Finland Health Care

District , which paid nearly 700,000 in

corporate income taxes.

Local vitality

Local companies are important for the

local business sector. The joint ventures

not only produce social and healthcare

services but they also strive to promote

the development of local vitality through

their operations and choices. The joint

ventures acquire products and services

needed in their service production from

local businesses and make use of local ex-

pertise and circumstances in their service

solutions.

The model developed by Pihlajalinna for

municipal services is based on keeping

people as healthy as possible through

prevention, quick and eective primary

care as well as immediate specialised care

available locally. This reduces the need

for expensive specialised care. The joint

venture model has been successful in halt-

ing the growth of social and healthcare

service costs in the partner municipalities

and even decrease the costs.

Pihlajalinna’s ownership structure

 December 

HOLDING

Foreign ownership  

Nominee-registered  

Finnish ownership (direct)  

The average growth

rate of the net operating

costs of social and healthcare

services in Pihlajalinna’s partner

municipalities has slowed from 4.5

per cent to 0.1 per cent after the start

of cooperation. This calculation is based

on the joint ventures’ average develop-

ment of the cost index three years before

the start of cooperation and five years

after the start of cooperation. The growth

of the net operating costs of social and

healthcare services in Pihlajalinna’s part-

ner municipalities has been substantially

more moderate than elsewhere in Finland

over the past few years.

The annual margins of Pihlajalinna’s

partner municipalities have developed

very favourably as a result of the cooper-

ation. Comparing the average per capita

annual margin for the three years before

the start of cooperation with the years

after cooperation began, the margin in

the partner municipalities has grown by as

much as hundreds of per cent. For exam-

ple, the average per capita annual margin

has increased by 631 per cent in Mänt-

tä-Vilppula and 274 per cent in Kuortane.

The joint venture

model has been

successful in halting

the growth of social

and healthcare

service costs in the

partner municipalities

and even decrease

the costs.

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

IMPACT MAPS

PRIMARY CARE: 14 170 (Jämsä,

Koskenpää, Länkipohja, Kuorevesi)

EMERGENCY AND

ON-CALL SERVICES:

9187

SPECIALISED CARE: 17 267

DENTAL CARE: 13881

ADULT PSYCHIATRY: 1988

ADOLESCENT PSYCHIATRY: 58

SUBSTANCE ABUSE CLINIC: 177

FAMILY SERVICE CENTRE: 1928

Jämsän Terveys and

Jokilaakso Hospital

Jämsän Terveys (JT) is a joint venture established

between Pihlajalinna and the municipality of

Jämsä. It has produced social and healthcare ser-

vices for Jämsä starting from 1 September 2015

under an outsourcing agreement signed in spring

2015. The agreement period is 10 years. The

company is responsible for providing primary and

specialised care to 20,200 inhabitants in Jämsä.

Jokilaakso Hospital is a hospital that provides

public specialised care. The hospital is part of the

Pihlajalinna Group. The hospital’s services are pro-

duced by Jokilaakson Terveys (JLT), established

in 2010, a joint venture between Pihlajalinna and

the Central Finland Hospital District.

496

(JT)

18 %

(JT)

82 %

(JT)

46,1

(JT)

56-60

(JT)

8,0

(JT)

226

(JLT)

15 %

(JLT)

85 %

(JLT)

45,5

(JLT)

56-60

(JLT)

7,8

(JLT)

NUMBER OF EMPLOYEES

EMPLOYMENT TYPE

FIXED-TERM

PERMANENT

AVERAGE AGE OF PERSONNEL

THE WORK ABILITY INDEX

average total score

CORPORATE TAXES

TO THE MUNICIPALITIES

€ 1 373 (JT)

€ 642 807 (JLT)

WITHHOLDING TAXES

TO THE MUNICIPALITIES

€ 3 193 527 (JT)

€ 1 694 948 (JLT)

PIHLAJALINNA GROUP’S

WITHHOLDING TAXES TO THE

REGIONAL GOVERNMENT:

Central Finland

€ 5 841 241

Purchase price for shares to the

City of Jämsä and dividends paid

to the City and the Central Finland

Health Care District during the

period 2014–2020 (JLT)

Purchase price for shares:

EUR 4.3 MILLION

Dividends:

EUR 1.9 MILLION

Equity repayment*:

EUR 0.5 MILLION

* Equity repayment from the reserve

for invested unrestricted equity.

OWNERSHIP

Jämsän Terveys

51 %

Pihlajalinna

49 %

Jämsä municipality

OWNERSHIP

Jokilaakson Terveys

90 %

Pihlajalinna

10 %

Central Finland

Health Care District

BOARD OF DIRECTORS

Jämsän Terveys

50 %

Pihlajalinna representatives

50 %

Jämsä municipality

representatives

LARGEST AGE GROUP

SPECIALISED CARE AND SERVICES

APPOINTMENTS WITH PHYSICIANS

COMPLAINTS AND

OFFICIAL COMPLAINTS

DAYS OF CARE

78421

NPS-INDEX

+69*

* Jämsän Terveys and

Jokilaakso Hospital

have been involved in

the measurement since

October 2020. NPS (Net

Promoter Score) Index

measures customer

experience. The range of

the score is -100 to +100.

SPECIAL-

ITIES

Nearly

2000

surgical

operations

annuall

Most significant specialities:

ORTHOPAEDICS AND

SURGERY, INTERNAL

MEDICINE, NEUROLOGY,

CARDIOLOGY

Information from 1 January - 31 December 2020

LOCAL SUBCONTRACTORS

Jämsän Terveys: 88

Jokilaakson Terveys: 38

VALUE OF COOPERATION

€ 514369,80 (JT)

€ 104263,69 (JLT)

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

IMPACT MAPS

Mäntänvuoren Terveys

Mäntänvuoren Terveys Oy is a joint venture established

in 2013 between the municipality and Pihlajalinna.

The current agreement between the municipality

and Pihlajalinna is valid until 2026, followed

by a five-year option period. Mäntänvuo-

ren Terveys is responsible for provid-

ing social and healthcare services to

11,700 customers in Mänttä-Vilppula

and Juupajoki.

NUMBER OF

EMPLOYEES

390

EMPLOYMENT TYPE

FIXED-TERM

13 %

PERMANENT

87 %

CORPORATE TAXES

TO THE MUNICIPALITIES

€ 937 276

WITHHOLDING TAXES

TO THE MUNICIPALITIES

€ 2 548 967

PIHLAJALINNA GROUP’S

WITHHOLDING TAXES TO THE

REGIONAL GOVERNMENT: Pirkanmaa

€ 13 940 717

Purchase price for shares and

dividends paid to the City of

Mänttä-Vilppula during the

period 2016–2020

Purchase price for shares:

EUR 7.9 MILLION

Dividends:

EUR 2.4 MILLION

Equity repayment*:

EUR 0.6 MILLION

* Equity repayment from the reserve

for invested unrestricted equity.

OWNERSHIP

91 %

Pihlajalinna

9 %

Mänttä-Vilppula municipality

BOARD OF DIRECTORS

50 %

Pihlajalinna representatives (3)

50 %

Mänttä-Vilppula municipality

representatives (3)

APPOINTMENTS WITH

PHYSICIANS

18 744

DENTIST APPOINTMENTS

7 459

DAYS OF CARE

80 141

SPECIALISED CARE AND SERVICES

GERIATRICS

SURGERY

PLASTIC SURGERY

PSYCHIATRY

INTERNAL MEDICINE CARDIOLOGY

LUNG DISEASES

DIALYSIS UNI

Information from 1 January - 31 December 2020

NPS-INDEX

+69*

*Mäntänvuoren Terveys has

been involved in the measu-

rement since April 2020.

NPS (Net Promoter Score)

Index measures customer

experience. The range of

the score is -100 to +100.

COMPLAINTS AND

OFFICIAL COMPLAINTS

AVERAGE AGE OF

PERSONNEL

44,8

LARGEST AGE GROUP

56-60

THE WORK ABILITY INDEX

average total score

7,7

LOCAL SUBCONTRACTORS

VALUE OF COOPERATION

€ 2 156 302,39

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Kuusiolinna Terveys

Kuusiolinna Terveys Oy is a joint venture established by

Pihlajalinna and the municipalities of Alavus, Ähtäri,

Kuortane and Soini. The agreement period is

10 years and the agreement includes a five-

year option. It has produced social and

healthcare services for the sub-region

since 1 January 2016. The company

is responsible for providing primary

care to 22,700 inhabitants in total.

NUMBER OF EMPLOYEES

1075

EMPLOYMENT TYPE

FIXED-TERM

13 %

PERMANENT

87 %

AVERAGE AGE

OF PERSONNEL

44,3

LARGEST AGE GROUP

56-60

THE WORK ABILITY INDEX

average total score

8,0

CORPORATE TAXES

TO THE MUNICIPALITIES

€ 304 688

WITHHOLDING TAXES

TO THE MUNICIPALITIES

€ 7 217 833

PIHLAJALINNA GROUP’S

WITHHOLDING TAXES TO THE

REGIONAL GOVERNMENT:

South Ostrobothnia

€ 7 867 167

Purchase price for shares paid to

the municipalities of Alavus, Ähtäri

and Soini, dividends paid to the

municipalities during the period

2017–2020

Purchase price for shares:

EUR 16.3 MILLION

Dividends:

EUR 4.6 MILLION

OWNERSHIP

90 %

Pihlajalinna

10 %

Alavus, Kuortane, Ähtäri and

Soini municipalities

BOARD OF DIRECTORS

50 %

Pihlajalinna representatives (4)

50 %

The municipality

representatives (4)

SPECIALISED CARE

AND SERVICES

DAYS OF CARE

179 655

Most significant

special services:

INTERNAL MEDICINE

GERIATRICS

CARDIOLOGY

ORTHOPAEDICS AND SURGERY

UROLOGY

ENT

NPS-INDEX

+69*

* The score is the average

result of Pihlajalinna’s joint

ventures in 2020. Kuusio-

linna Terveys will introduce

the NPS measurement

during the spring 2021. NPS

(Net Promoter Score) Index

measures customer expe-

rience. The range of the

score is -100 to +100.

COMPLAINTS

AND OFFICIAL

COMPLAINTS

IMPACT MAPS

SPECIAL-

ITIES

APPOINTMENTS WITH PHYSICIANS

PRIMARY CARE, EMERGENCY

AND ON-CALL SERVICES:

29 391

SPECIALISED CARE: 1 951

DENTAL CARE: 16 719

PSYCHIATRIC POLYCLINIC: 1 678

FAMILY SERVICES: 3 711

Information from 1 January - 31 December 2020

LOCAL SUBCONTRACTORS

213

VALUE OF COOPERATION

€ 5 732 236,93

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Kolmostien Terveys

Kolmostien Terveys Oy is a joint venture established

between Pihlajalinna and the municipality of

Parkano. It has produced social and healthcare

services for Parkano and Kihniö starting

from 1 September 2015. The agreement

period is 10 years and the agreement

includes a five-year option. The

company is responsible for providing

primary care to 8,300 inhabitants in

Parkano and Kihniö.

NUMBER OF EMPLOYEES

417

EMPLOYMENT TYPE

FIXED-TERM

14 %

PERMANENT

86 %

AVERAGE AGE

OF PERSONNEL

43,8

LARGEST AGE GROUP

56-60

THE WORK ABILITY INDEX

average total score

8,1

CORPORATE TAXES

TO THE MUNICIPALITIES

€ 30 932

WITHHOLDING TAXES

TO THE MUNICIPALITIES

€ 2 438 211

PIHLAJALINNA GROUP’S

WITHHOLDING TAXES TO THE

REGIONAL GOVERNMENT:

Pirkanmaa

€ 13 940 717

Purchase price for shares and

dividends paid to the City of

Parkano during the period

2016–2020

Purchase price for shares:

EUR 4.6 MILLION

Dividends:

EUR 0.5 MILLION

OWNERSHIP

96 %

Pihlajalinna

4 %

Parkano municipality

BOARD OF DIRECTORS

50 %

Pihlajalinna reprentatives (3)

50 %

Parkano municipality representatives (3)

APPOINTMENTS WITH

PHYSICIANS

20 577

DAYS OF CARE

63 280

SPECIALISED CARE AND SERVICES

GERIATRICS

GYNECOLOGY

PSYCHIATRY

YOUTH PSYCHIATRY

NEUROLOGY

INTERNAL MEDICINE

RADIOLOGY AND

GENERAL MEDICIN

NPS-INDEX

+66*

*Kolmostien Terveys has

been involved in the measu-

rement since March 2020.

NPS (Net Promoter Score)

Index measures customer

experience. The range of

the score is -100 to +100.

COMPLAINTS AND

OFFICIAL COMPLAINTS

IMPACT MAPS

Information from 1 January - 31 December 2020

LOCAL SUBCONTRACTORS

VALUE OF COOPERATION

455 385,16 €

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Board of Directors

Mikko Wirén

Chairman of the Board of Directors

b. 1972, Lic.Med., Member of the Board

of Directors since 2016

Mika Manninen

b. 1975, M.Sc. (Econ.), Member of the Board

of Directors since 2019

Group CFO, Fennia Group

Independent of the Company

Kati Sulin

b. 1974, Master of Arts, Member of the Board

of Directors since 2018

Managing Director, Ifolor Oy

Independent of the Company

Seija Turunen

b. 1953, M.Sc. (Econ.), Member of the Board

of Directors since 2016

Board Professional

Independent of the Company and

its major shareholders

Leena Niemistö

Vice Chairman of the Board of Directors

b. b. 1963, D.Med.Sc., Specialist in Physiatrics,

Member of the Board of Directors since 2014

Board Professional

Independent of the Company and its

major shareholders

Matti Jaakola

b. 1955, M.Sc. (Econ.), Member of the

Board of Directors since 2019

Board Professional, management

consultant

Independent of the Company and its

major shareholders

Hannu Juvonen

b. 1955, Lic.Med., Specialist, MBA, Member of the

Board of Directors since 2019

Practitioner, management consultant

Independent of the Company and its major

shareholders

BUSINESS AND STRATEGY

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Management Team

Joni Aaltonen

CEO

b. 1970, BBA

Employed by the Company since 2008

Sanna Määttänen

Chief Business Development Ocer and

Chief Information Ocer

b. 1967, Specialist in geriatrics, eMBA

Employed by the Company since 2012

Marko Savolainen

Chief Legal Ocer

b. 1967, Master of Laws with court training

Employed by the Company since 2017

Juha-Pekka Halttunen

Sales Director

b. 1969, Vocational Qualification in Business

Employed by the Company since 2005

Teija Kulmala

Group COO, CEO of Jämsän Terveys Oy and

Jokilaakson Terveys Oy

b. 1969, MD, Specialist in obstetrics and

gynaecology, eMBA

Employed by the Company since 2016

Tarja Rantala

CFO

b. 1972, M.Sc. (Econ.)

Employed by the company since 2014

Elina Heliö

Chief People and Culture Ocer

b. 1972, Master of Laws with court training

Employed by the Company since 2019

For more information on

the members of Pihlajalinna

Plc’s Board of Directors and

Management Team, please refer

to Corporate Governance in the

Investors section

http://investors.

pihlajalinna.fi/corporate-

governance

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

2020

REPORT BY THE BOARD OF DIRECTORS

AND FINANCIAL STATEMENTS

2020

Report by the Board of Directors

Financial year 1 January–31 December 2020

Joni Aaltonen, CEO of Pihlajalinna ......................................................................................... 34

Revenue by business area .......................................................................................................... 34

Revenue by customer group ..................................................................................................... 36

Seasonality ....................................................................................................................................... 37

Consolidated revenue and result ............................................................................................. 37

The operating environment

....................................................................................................... 39

Consolidated statement of financial position and cash ﬂow

....................................... 40

Financing arrangements ............................................................................................................. 40

Capital expenditure ...................................................................................................................... 40

Complete and partial outsourcings ......................................................................................... 41

Changes in Group structure ...................................................................................................... 42

Research and development ...................................................................................................... 42

Personnel .......................................................................................................................................... 42

Management Team ........................................................................................................................ 42

Board of Directors ......................................................................................................................... 42

Shareholders’ Nomination Board ............................................................................................ 42

Committees nominated by the Board ................................................................................... 42

Remuneration of the members of the Board of Directors ............................................ 42

Board authorisations

.................................................................................................................... 42

Auditing ............................................................................................................................................. 43

Shares and shareholders

.............................................................................................................. 43

Mehiläinen did not complete its tender oer for Pihlajalinna,

the merger process has ended

................................................................................................. 43

Risk management

.......................................................................................................................... 43

Risks and uncertainties in business operations ................................................................. 44

Flagging notifications .................................................................................................................. 45

Current incentive schemes ......................................................................................................... 45

Repurchasing own shares for the incentive programme ............................................... 46

The Board of Directors’ proposal for profit distribution and

the Annual General Meeting 2021 ........................................................................................... 46

Pihlajalinna’s outlook for 2021 .................................................................................................. 46

Corporate Governance Statement .......................................................................................... 46

Statement of non-financial information ................................................................................ 47

Events after the balance sheet date ...................................................................................... 47

Key financial figures ...................................................................................................................... 48

Share-related information, tables ............................................................................................ 49

Quarterly information

.................................................................................................................. 50

Calculation of key financial figures and alternative performance measures

........... 51

Reconciliations of alternative performance measures .................................................... 52

Shares and shareholders ............................................................................................................. 55

Shareholding of the management .......................................................................................... 56

Signatures to the Report by the Board of Directors and

the Financial Statements

........................................................................................................... 102

CONTENTS

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Joni Aaltonen, CEO of Pihlajalinna:

I am satisfied with our customer service and the ﬂexibility

that our organisation demonstrated in shifting the focus of

our services – including public services as well as services

oered directly to consumers – during the COVID-19 epi-

demic.

I am also pleased with our strong profit performance,

which shows that our eciency improvement programme

has had a long-term impact on our profitability. Our revenue

in the final quarter of 2020 exceeded the previous year’s lev-

el. Partnerships and occupational healthcare have increased

the use of our services and elevated the capacity utilisation

rates of our operating locations. Nevertheless, we have not

yet returned to the normal level of operations seen before

the COVID-19 epidemic. While the direction is good, there is

still room for improvement. The final quarter of the year puts

us in an excellent position to enter the new year.

Earnings per share improved substantially year-on-year

thanks to the measures we have taken over the past couple

of years. The substantial leap in profitability taken in our pri-

vate clinic, occupational healthcare and hospital operations

also supported the improvement in earnings per share.

Pihlajalinna’s acquisition of Työterveys Virta Oy further

strengthens our position as we start the new year. Our posi-

tion in the Oulu region will be significantly strengthened by

the transaction. Our market share in occupational healthcare

services in the region will increase to approximately 30 per

cent, which improves our position in all services oered to

consumers and partners in North Ostrobothnia. Early this

year, we also won a significant proportion of a competitive

bidding process for the outpatient clinic, surgery and inpa-

tient services of the Northern Ostrobothnia Hospital District.

In Kristiinankaupunki, the operations of Selkämeren Ter-

veys Oy have got o to a good start. The Huhtasuo health

centre outsourcing in Jyväskylä, which began in December,

has received good customer feedback. Huhtasuo is an im-

portant proving ground for us, as we see broader opportuni-

ties for our service models in public services.

Preventive services are the primary purpose of occupa-

tional healthcare and the remote work situation has further

increased the need for these services. For a long time now,

the most common causes of disability have been mental

health disorders and musculoskeletal disorders. This year,

the focus of Pihlajalinna’s development of digital occupa-

tional health services will be especially on care paths for

musculoskeletal disorders and services to support mental

health. We are also developing products in collaboration

with our Forever fitness centre chain. We believe we have an

excellent opportunity to grow the number of Pihlajalinna’s

occupational healthcare customers and the impact of occu-

pational health services.

Customers’ service consumption habits changed quickly

due to the COVID-19 epidemic. Pihlajalinna’s preparedness

to deliver extensive remote services proved to be good. Our

remote services were used nearly 500,000 times during the

year, representing 44 per cent of all consultations. The use

of video and chat consultations grew threefold. The work of

healthcare professionals who provide remote consultations

is ﬂexible, and the opportunity to work remotely improves

employee satisfaction and the productivity of work. Ideally,

however, in-person appointments and remote consultations

complement each other. Nearly all ailments can be treated

in remote consultations, but the best outcomes are achieved

by combining both consultation models. Certain routine

healthcare tasks can also be automated.

Pihlajalinna will publish minor revisions to its strategy

during the beginning of the year 2021. We continue to focus

on good cooperation with our partners. Ensuring that our

services are smooth and easy to use is key to winning our

customers’ trust regardless of who pays for the service. We

will focus on digital sales and service channels and empha-

sise the customer’s comprehensive health and wellbeing in

our services.

Revenue by geographical business area

Pihlajalinna reports its revenue based on the following ge-

ographical regions: Southern Finland, Mid-Finland, Ostro-

bothnia and Northern Finland.

• Southern Finland includes Pihlajalinna’s business oper-

ations in the regions of Uusimaa, South West Finland,

Päijät-Häme, Kymenlaakso and South Karelia.

• Mid-Finland includes Pihlajalinna’s business operations

in the regions of Pirkanmaa, Satakunta, Kanta-Häme,

Central

• Finland, South Savo, North Karelia and North Savo.

• Ostrobothnia includes Pihlajalinna’s business operations

in the regions of Southern Ostrobothnia, Ostrobothnia

and Central Ostrobothnia.

• Northern Finland includes Pihlajalinna’s business oper-

ations in the regions of North Ostrobothnia, Kainuu and

Lapland.

Report by the Board of Directors for the

financial year 1 January–31 December 2020

BUSINESS AND STRATEGY

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October–December 2020

Revenue for Southern Finland amounted to EUR 34.1 (31.1)

million, an increase of EUR 3.0 million, or 9.7 per cent.

COVID-19 testing increased the revenue for the business

area by EUR 4.0 million. Revenue from surgical opera-

tions increased as activity in the public sector picked up

in working through treatment queues in cataract and vas-

cular surgery. The demand for remote services increased.

Revenue from fitness centre operations decreased by

EUR 0.9 million due to a decline in the number of mem-

bers caused by the restrictions in place in the spring and

the prevailing COVID-19 situation.

Revenue in Mid-Finland amounted to EUR 83.6 (82.5)

million, an increase of EUR 1.1 million, or 1.3 per cent.

COVID-19 testing increased the revenue for the business

area by EUR 2.0 million, but this did not fully compensate

for the lower other demand for private clinic services

and occupational healthcare services. The expiration of

the healthcare service agreement with Hattula as well as

agreements concerning reception centre operations con-

tributed to the decrease in revenue for the region.

Revenue for Ostrobothnia was EUR 29.9 (30.0) million,

a decrease of EUR 0.1 million, or 0.5 per cent. A complete

outsourcing agreement for social and healthcare servic-

es accounts for a significant proportion of the region’s

revenue. The region’s revenue remained stable thanks

to the steady recognition of revenue from the complete

outsourcing agreement and annual price adjustments.

Revenue for Northern Finland amounted to EUR 5.1

(3.9) million, an increase of EUR 1.2 million, or 31.2 per

cent. COVID-19 testing increased the revenue for the

business area by EUR 1.2 million.

January–December 2020

Revenue for Southern Finland was EUR 114.7 (118.2) mil-

lion, a decrease of EUR 3.4 million, or 2.9 per cent. Pihlaja-

linna’s Forever fitness centres were closed entirely for six

weeks in mid-March in accordance with the recommenda-

tions of the Finnish Government. Operations continued on

a very limited basis at the beginning of May. All group ex-

ercise activities, for example, were suspended entirely un-

til 31 July 2020. The opening hours of fitness centres only

returned to normal on 1 August 2020 and service produc-

tion was still restricted during the remaining part of the

year. Revenue from fitness centres declined by 38 per cent

and was EUR 6.2 million lower than in the corresponding

period in the previous year. The demand for stang ser-

vices among industry operators was substantially reduced

due to the epidemic and the agreements were terminated.

The revenue of dental care services decreased by 15 per

cent due to the reduction in demand caused by the COV-

ID-19 epidemic. Revenue from occupational healthcare

services grew by 16 per cent thanks to COVID-19 testing,

the growth of the customer base and the higher share of

fixed-price agreements. The total revenue from COVID-19

testing in the area came to EUR 6.2 million.

Revenue for Mid-Finland was EUR 316.8 (324.1) million,

a decrease of EUR 7.3 million, or 2.3 per cent. The COV-

ID-19 epidemic reduced revenue by 9 per cent in private

clinic services, 4 per cent in occupational healthcare

services and 29 per cent in dental care services. The ex-

piration of the healthcare service agreement with Hattula

as well as agreements concerning reception centre oper-

ations also contributed to the decrease in revenue for the

region. The total revenue from COVID-19 testing in the

area came to EUR 3.6 million. Pihlajalinna Special Housing

Services opened a new Uniikki unit in Riihimäki in Febru-

ary to provide service housing with 24-hour assistance.

Revenue for Ostrobothnia amounted to EUR 116.8

(115.7) million, an increase of EUR 1.1 million, or 1.0 per

cent. A complete outsourcing agreement for social and

healthcare services accounts for a significant proportion

of the region’s revenue. The region’s revenue remained

stable thanks to the steady recognition of revenue from

the complete outsourcing agreement and annual price

adjustments. Revenue fell by 6 per cent in private clinic

services and 29 per cent in dental care services due to

the decline in demand caused by the COVID-19 epidemic.

Revenue from occupational health services grew by 17

per cent thanks to the growth of the customer base. Rev-

enue from surgical operations increased by 41 per cent

due to an increase in surgeries in Seinäjoki.

Revenue for Northern Finland amounted to EUR 16.2

(14.7) million, an increase of EUR 1.5 million, or 10.0 per

January–December 2020

EUR million 2020 % 2019 % change change %

Southern Finland 114.7 20 118.2 20 -3.4 -2.9

Mid-Finland 316.8 55 324.1 56 -7.3 -2.3

Ostrobothnia 116.8 20 115.7 20 1.1 1.0

Northern Finland 16.2 3 14.7 3 1.5 10.0

Other operations 9.8 2 7.7 1 2.0 26.6

Intra-Group sales -65.6 -61.8 -3.8

Total consolidated

revenue 508.7 100 518.6 100 -9.9 -1.9

October–December 2020

EUR million 10–12/2020 % 10–12/2019 % change change %

Southern Finland 34.1 22 31.1 21 3.0 9.7

Mid-Finland 83.6 54 82.5 56 1.1 1.3

Ostrobothnia 29.9 19 30.0 20 -0.1 -0.5

Northern Finland 5.1 3 3.9 3 1.2 31.2

Other operations 2.8 2 1.9 1 0.9 46.7

Intra-Group sales -18.4 -15.8 -2.6

Total consolidated

revenue 137.2 100 133.8 100 3.4 2.6

BUSINESS AND STRATEGY

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cent. Revenue from occupational health services grew by

15 per cent due to COVID-19 testing and the growth of

the customer base. The revenue of dental care services

decreased by 25 per cent due to the reduction in demand

caused by the COVID-19 epidemic. The total revenue from

COVID-19 testing in the area came to EUR 1.4 million.

Revenue by customer group

Pihlajalinna’s customer groups are corporate customers,

private customers and public sector customers.

• The Group’s corporate customer group consists of

Pihlajalinna’s occupational health customers, insurance

company customers and other corporate contract

customers.

• The Group’s private customers are private individuals

who pay for services themselves and may subsequently

seek compensation from their insurance company.

• The Group’s public sector customer group consists of

public sector organisations in Finland, such as munic-

ipalities, joint municipal authorities, congregations,

hospital districts and the public administration when

purchasing social and healthcare outsourcing services,

residential services, occupational health services and

stang services.

October–December 2020

Revenue from corporate customers amounted to EUR

36.1 (31.9) million, an increase of EUR 4.2 million, or

13.0 per cent. Sales to insurance company customers

increased by EUR 0.7 million, or 8.2 per cent. In the cor-

porate customer group, revenue from COVID-19 testing

came to EUR 3.5 million.

Revenue from private customers was EUR 22.0 (24.9)

million, a decrease of EUR 2.9 million, or 11.8 per cent.

The decline in customer volumes caused by the COVID-19

epidemic reduced the revenue of fitness centres by 26

per cent, or EUR 1.1 million. Among private customers, the

demand for private clinic services decreased by 26 per

cent and the demand for dental care services decreased

by 14 per cent. In the private customer group, revenue

from COVID-19 testing came to EUR 0.4 million.

Revenue from the public sector amounted to EUR

97.5 (92.7) million, an increase of EUR 4.8 million, or 5.2

per cent. COVID-19 testing as a partner to the public

sector increased revenue by EUR 3.5 million. The annual

price adjustments of complete outsourcing agreements

increased revenue. Demand increased for public sector

occupational health services, responsible doctor servic-

es and special housing services. The expiration of the

healthcare service agreement with Hattula as well as

agreements concerning reception centre operations con-

tributed to the decrease in revenue. The COVID-19-related

costs, such as COVID-19 testing, of complete outsourcing

agreements for social and healthcare services do not

increase Pihlajalinna’s revenue, as they are treated as cost

compensation under the agreements.

January–December 2020

Revenue from corporate customers amounted to EUR

124.0 (118.8) million, an increase of EUR 5.3 million, or

4.4 per cent. Sales to insurance company customers

increased by EUR 2.2 million, or 8.1 per cent. The de-

mand for stang services among industry operators

was substantially reduced due to the epidemic and the

agreements were terminated. The number of remote con-

sultations increased manifold. In the corporate customer

group, revenue from COVID-19 testing came to EUR 5.8

million.

Revenue from private customers was EUR 79.8 (97.8)

million, a decrease of EUR 18.0 million, or 18.4 per cent.

The demand for private clinic services by self-paying

private customers declined due to the COVID-19 epi-

demic by EUR 7.0 million, or 15 per cent. Pihlajalinna’s

Forever fitness centres were closed entirely for six weeks

in mid-March in accordance with the recommendations of

the Finnish Government. Operations continued on a very

limited basis at the beginning of May. All group exercise

activities, for example, were suspended entirely until 31

July 2020. The opening hours of fitness centres only re-

turned to normal on 1 August 2020 and service produc-

tion was still restricted during the remaining part of the

October–December 2020

EUR million

10–12/2020

% 10–12/2019 % change change %

Corporate customers 36.1 23 31.9 21 4.2 13.0

of which insurance company customers

8.6 6 7.9 5 0.7 8.2

Private customers 22.0 14 24.9 17 -2.9 -11.8

Public sector 97.5 63 92.7 62 4.8 5.2

of which complete outsourcing 73.7 47 72.5 48 1.2 1.6

of which stang 5.8 4 5.8 4 0.0 -0.2

of which occupational healthcare

and other services 18.1 12 14.4 10 3.7 25.4

Intra-Group sales -18.4 -15.8 -2.6

Total consolidated revenue 137.2 100 133.8 100 3.4 2.6

January–December 2020

EUR million 2020 % 2019 % change change %

Corporate customers 124.0 22 118.8 20 5.3 4.4

of which insurance company customers

29.8 5 27.6 5 2.2 8.1

Private customers 79.8 14 97.8 17 -18.0 -18.4

Public sector 370.5 65 363.8 63 6.6 1.8

of which complete outsourcing 287.9 50 285.5 49 2.4 0.8

of which stang 22.9 4 23.6 4 -0.7 -3.0

of which occupational healthcare

and other services 59.7 10 54.7 9 5.0 9.1

Intra-Group sales -65.6 -61.8 -3.8

Total consolidated revenue 508.7 100 518.6 100 -9.9 -1.9

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

year. Fitness centre revenue declined by EUR 6.7 million, or 36 per cent. The demand for

dental care services declined by EUR 4.0 million, or 21 per cent. The volume of surgical

services for private customers declined due to the COVID-19 restrictions and the COV-

ID-19 situation by EUR 0.8 million, or 12 per cent. Revenue from COVID-19 testing came

to EUR 1.0 million. Demand for fertility treatments and remote consultations grew.

Revenue from the public sector amounted to EUR 370.5 (363.8) million, an increase

of EUR 6.6 million, or 1.8 per cent. COVID-19 testing as a partner to the public sector

increased revenue by EUR 4.6 million. The demand for public sector occupational health

services grew by EUR 2.0 million, or 16 per cent. Demand grew by 8 per cent for respon-

Q4 2020 Q4 2020

47 %

16 %

14 %

23 %

Revenue by customer group

2020, %

50 %

14 %

22 %

2019 2020

+5 %

-1,9 %

508,7518,6

+1 %

-18 %

+4 %

286 288

98 80

119 124

Q4/2019 Q4/2020

+18 %

+2,6 %

137,2133,8

+2 %

-12 %

+13 %

Corporate customers

Private customers

Complete outsourcings

Other private sector services

Revenue by customer group,

M€

sible doctor services and by 35 per cent for public surgical operations. The expiration of

the healthcare service agreement with Hattula as well as agreements concerning recep-

tion centre operations contributed to the decrease in revenue. The demand for stang

services decreased. Complete outsourcing agreements for social and healthcare services

account for approximately half of Pihlajalinna’s total revenue. Revenue remained stable

in spite of the COVID-19 situation thanks to the steady recognition of revenue from com-

plete outsourcing agreements and annual price adjustments. The COVID-19-related costs

of complete outsourcing agreements for social and healthcare services do not increase

Pihlajalinna’s revenue, as they are treated as cost compensation under the agreements.

Seasonal variation

Pihlajalinna’s business operations are to a certain extent inﬂuenced by seasonal ﬂuctu-

ations. Pihlajalinna’s complete outsourcing for social and healthcare services and other

fixed-price invoicing is accompanied by a steady period of recognition of revenue as

income. During the summer holidays, especially in July, sta costs related to such agree-

ments are reduced and profitability improves mainly due to wage accruals. On the other

hand, service demand by Pihlajalinna’s private and corporate customers is lower and

profitability is weaker during holiday seasons, especially in July–August and December.

At the quarterly level, seasonal ﬂuctuations have historically had a positive eect on

profitability for the third quarter of the year.

Consolidated revenue and result

October–December 2020

Pihlajalinna’s revenue totalled EUR 137.2 (133.8) million, an increase of EUR 3.4 million, or

2.6 per cent.

COVID-19 testing increased revenue by EUR 7.3 million. COVID-19 vaccinations as a

partner to the public sector began. Revenue from remote services grew particularly in

chat and video appointments. Revenue was reduced by the expiration of agreements

in stang services, healthcare services in Hattula and reception centre operations. The

member volumes of fitness centres and the demand for private clinic services and den-

tal care services by private customers have not recovered to the levels seen before the

COVID-19 epidemic.

EBITDA was EUR 15.1 (12.3) million, an increase of EUR 2.8 million, or 23.0%. Adjusted

EBITDA was EUR 15.7 (14.4) million, an increase of EUR 1.3 million, or 9.0 per cent. EBIT-

DA adjustments amounted to EUR 0.6 (2.1) million.

Increased COVID-19 testing volumes improved profitability. The previous year’s e-

ciency improvement programme has increased profitability across the board in private

clinic services, occupational healthcare services, surgical operations and dental care ser-

vices. Profitability was negatively aected by the higher costs of specialised care under

complete outsourcing agreements, services for the elderly and health services, the expi-

BUSINESS AND STRATEGY

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ration of stang services agreements, the decrease in the

number of members of fitness centres and the reduced

capacity utilisation rates of services for the elderly.

Depreciation, amortisation and impairment amounted

to EUR 8.4 (8.6) million. Adjustments to depreciation,

amortisation and impairment, which mainly consisted

of items related to the closure of operating locations,

amounted to EUR -0.1 (-0.2) million. Depreciation of

intangible assets amounted to EUR 1.6 (1.9) million, of

which depreciation related to purchase price allocations

amounted to EUR 0.7 (1.1) million. Depreciation, amorti-

sation and impairment of property, plant and equipment

amounted to EUR 2.1 (2.1) million, and depreciation and

impairment of right-of-use assets totalled EUR 4.6 (4.6)

million.

Pihlajalinna’s operating profit amounted to EUR 6.8

(3.7) million, an increase of EUR 3.1 million, or 84.5 per

cent. The EBIT-to-revenue ratio (EBIT margin) was 4.9

(2.7) per cent. Adjusted EBIT amounted to EUR 7.3 (5.6)

million. The adjusted EBIT margin was 5.3 (4.2) per cent.

Adjustments to EBIT amounted to EUR 0.5 (1.9) million.

Pihlajalinna’s revenue from public specialised care

included in fixed-term complete outsourcings of social

and healthcare services was EUR 22.4 (22.3) million. The

EBITDA of public specialised care amounted to EUR -0.3

(0.6) million and the operating result amounted to EUR

-0.4 (0.6) million. The cost accumulation of public spe-

cialised care involves random ﬂuctuation. Individual cases

falling within the scope of the hospital districts’ pooling

system for high-cost care and possible variable elements

of compensation may inﬂuence the costs of specialised

care considerably during the financial year, and between

financial periods, in Pihlajalinna’s municipal companies.

The group’s net financial expenses amounted to EUR

-1.0 (-1.0) million. Profit before taxes came to EUR 5.7

(2.7) million. Taxes in the income statement amounted to

EUR -2.8 (-0.6) million. Pihlajalinna Terveys Oy redeemed

nearly all of its series B shares in December 2020. A

change in deferred taxes of EUR -1.6 million was recog-

nised in the consolidated income statement due to the

redemption of the shares. Profit came to EUR 3.0 (2.1)

million. Earnings per share (EPS) was EUR 0.15 (0.16).

January–December 2020

Pihlajalinna’s revenue amounted to EUR 508.7 (518.6)

million, a decrease of EUR 9.9 million, or 1.9 per cent.

Well over half of Pihlajalinna’s business volume remained

stable in spite of the COVID-19 epidemic that began in

mid-March. Pihlajalinna’s complete outsourcings for social

and healthcare services and other fixed-price invoicing

involve a steady recognition of revenue over time.

Pihlajalinna’s Forever fitness centres were closed

entirely for six weeks in mid-March in accordance with

the recommendations of the Finnish Government. The

opening hours of fitness centres only returned to nor-

mal on 1 August 2020 and service production was still

restricted during the remaining part of the year. Fitness

centre revenue declined by EUR 6.7 million, or 36 per

cent. The COVID-19 epidemic and the related restrictions

also significantly reduced the demand for dental care

services and private clinic services. In addition, revenue

was reduced by the expiration of agreements in stang

services, healthcare services in Hattula and reception

centre operations. COVID-19 testing increased revenue by

EUR 11.4 million. In 2020, approximately 44 per cent all

customer appointments took place via remote services.

The figure does not take into account the total number of

customer appointments in Pihlajalinna’s outsourcings.

In June, the Finnish Government decided on support

for business costs for companies that had suered a

significant decrease in revenue due to the COVID-19

epidemic and that have had costs that are dicult to

adjust. Pihlajalinna recognised financial support intended

primarily to cover the fixed costs of the Group’s fitness

centres in other operating income. Pihlajalinna received

EUR 0.8 million in cost support, which is the Group-spe-

cific maximum amount.

To minimise the negative financial impacts of the COV-

ID-19 epidemic, the Group held cooperation negotiations

in the spring 2020 that led to full-time and part-time

lay-os of the personnel. The number and duration of the

temporary lay-os were significantly aected by ﬂexi-

bility in employment relationships and the possibility of

temporarily relocating to another task.

EBITDA was EUR 52.4 (47.8) million. Adjusted EBIT-

DA was EUR 54.6 (55.1) million, a decrease of EUR 0.5

million, or 0.9 per cent. EBITDA adjustments amounted

to EUR 2.2 (7.3) million. Volumes recovered in surgical

operations and the previous year’s eciency improve-

ment programme and ﬂexibility in employment relation-

ships improved profitability. The profitability of private

clinic services improved due to COVID-19 testing and the

eciency improvement programme implemented in 2019.

The profitability of occupational health services improved

thanks to COVID-19 testing, the eciency improvement

programme, the growth of customer volumes and an in-

crease in the relative share of fixed-price agreements. The

surgical volumes of Jokilaakso Hospital rose to a record

high as the public sector worked through surgery queues.

Profitability was significantly reduced by the higher costs

of specialised care under complete outsourcing agree-

ments, services for the elderly and health services as well

as the decrease in the number of members of fitness

centres caused by the COVID-19 restrictions. The reduced

capacity utilisation rates of services for the elderly and

the expiration of agreements for stang services and

reception centre operations also reduced profitability.

Depreciation, amortisation and impairment amounted

to EUR 34.3 (37.7) million. Adjustments to depreciation,

amortisation and impairment, which mainly consisted of

the impairment of lease liabilities arising from the closure

of operating locations, amounted to EUR 0.4 (3.3) million.

Depreciation of intangible assets amounted to EUR 6.5

(7.4) million, of which depreciation related to purchase

price allocations amounted to EUR 3.1 (4.6) million.

Depreciation, amortisation and impairment of property,

plant and equipment amounted to EUR 8.8 (7.7) million,

and depreciation and impairment of right-of-use assets

totalled EUR 18.9 (22.5) million.

Pihlajalinna’s operating profit amounted to EUR 18.2

(10.2) million, an increase of EUR 8.0 million, or 78.5 per

cent. The EBIT-to-revenue ratio (EBIT margin) was 3.6

(2.0) per cent. Adjusted EBIT amounted to EUR 20.8

(20.8) million. The adjusted EBIT margin was 4.1 (4.0) per

cent. Adjustments to EBIT amounted to EUR 2.6 (10.6)

million.

BUSINESS AND STRATEGY

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Pihlajalinna’s revenue from public specialised care

included in fixed-term complete outsourcings of social

and healthcare services was EUR 89.6 (88.2) million. The

EBITDA of public specialised care amounted to EUR 0.2

(3.7) million and the operating result amounted to EUR

0.0 (3.5) million. The cost accumulation of public special-

ised care involves random ﬂuctuation. Individual cases

falling within the scope of the hospital districts’ pooling

system for high-cost care and possible variable elements

of compensation may inﬂuence the costs of specialised

care considerably during the financial year, and between

financial periods, in Pihlajalinna’s municipal companies.

The Group’s net financial expenses amounted to EUR

-4.4 (-3.9) million. Net financial expenses were increased

by a waiver expense associated with a financing arrange-

ment in the spring and higher interest rate margins. Profit

before taxes came to EUR 13.8 (6.3) million. Taxes in the

income statement amounted to EUR -4.8 (-1.8) million.

Pihlajalinna Terveys Oy redeemed nearly all of its series

B shares in December 2020. A change in deferred taxes

of EUR -1.6 million was recognised in the consolidated

income statement due to the redemption of the shares.

The profit was EUR 8.9 (4.5) million. Earnings per share

(EPS) was EUR 0.39 (0.15).

The operating environment

The preparations for the comprehensive reform of social,

healthcare and rescue services continued in 2020. The

government’s proposal on the reform of healthcare, social

welfare and rescue services was submitted to Parliament

on 8 December 2020. Under the proposal, the respon-

sibility for the organisation of healthcare, social welfare

and rescue services would be transferred from municipal-

ities to 21 wellbeing services counties, the City of Helsinki

and partially to the joint county authority for the Hospital

District of Helsinki eective from 1 January 2023. The

entry into eect of the comprehensive reform of social

and healthcare services is subject to the parliament’s

approval.

While the focus of the reform is on public services,

they will continue to be complemented by private and

third-sector service provision. The objectives of the

reform include equality, faster access to care and shifting

the focus of healthcare towards preventive services. The

sustainability of municipal finances also requires mit-

igating the upward pressure on social and healthcare

service expenses. Achieving these objectives calls for

taking advantage of the services and operating models

of all parties in the field of social and healthcare services.

There is strong evidence that service provision based on

outsourcing has helped municipalities and joint municipal

authorities improve the quality and availability of services

and keep the growth of costs under control.

The next steps in the preparations for the reform of

social and healthcare services include a survey of munic-

ipalities conducted by Statistics Finland to collect infor-

mation on the net expenses of social, health and rescue

services at the local government level. Commissioned by

the Ministry of Finance, the survey will provide material

for assessing the impacts of the comprehensive reform of

social and healthcare services. In parliament, the discus-

sion of the reform will continue with committee hearings

scheduled to start at the beginning of 2021.

The progress of the reform of social and healthcare ser-

vices still involves significant risks. These risks are related

to, for example, political decision-making, the implemen-

tation and funding of the reforms as well as constitutional

questions. These risks have also been recognised by the

group in charge of the reform of social and healthcare

services, which has promised to address them during the

committee hearings, for example.

The COVID-19 epidemic continues to make changes in

the operating environment less predictable to a signif-

icant degree, and the impacts of the epidemic on the

social and healthcare service market is impossible to

predict. Consumer behaviour and the various economic

impacts are substantially aected by the balancing act

between COVID-19 restrictions and the health impacts of

the epidemic.

The second wave of the epidemic temporarily slowed

down economic growth in Finland in late 2020. Accord-

ing to the most recent economic survey of the Ministry

of Finance, domestic service demand remains weak at

the beginning of 2021. The survey also notes that the

deficit in public finances will remain significant in 2021 as

responding to the epidemic keeps public sector expenses

high. The forecast indicates that the deficit will gradually

decrease in the coming years. However, even if society

begins to return to normal, public debt relative to GDP

looks to continue to grow through the first half of the

2020s.

In the autumn 2020, the Permanent Secretary of the

Ministry of Social Aairs and Health estimated that

working through the treatment queues caused by the

COVID-19 epidemic can take as long as two years. At the

end of December 2020, a total of 141,471 patients were

waiting for access to treatment in hospitals belonging to

the hospital districts. Of these, 5.4 per cent had waited

for access to non-urgent specialised care for more than

six months. Comparing the number of people waiting

for access to treatment with the corresponding date

in previous years, it can be said that the situation was

exceptional.

The demand for occupational health services has not

decreased as a result of the COVID-19 epidemic. The

social responsibility of employers has been emphasised

during the epidemic, as evidenced by, for example, the

willingness of businesses to purchase COVID-19 testing

services. Private social and healthcare service providers

are also a significant partner in COVID-19 vaccinations,

which began in Finland at the end of 2020.

Many municipalities and other public sector entities

have divested, or are in the process of divesting, the

occupational healthcare providers they currently own.

According to the Finnish Institute for Health and Wel-

fare and Statistics Finland, the private sector’s share of

service provision in occupational healthcare increased

by about 10 per cent between 2015 and 2019, which

means that approximately 360,000 people moved under

private-sector services. The number of Pihlajalinna’s in-

dividual occupational healthcare customers increased by

nearly 150,000 during the same time period.

BUSINESS AND STRATEGY

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Consolidated statement of financial

position and cash ﬂow

Pihlajalinna Group’s total statement of financial position

amounted to EUR 442.1 (438.4) million. Consolidated

cash and cash equivalents amounted to EUR 13.3 (27.0)

million.

Net cash ﬂow from operating activities in the quarter

amounted to EUR 18.6 (19.8) million. Taxes paid amount-

ed to EUR -0.6 (-1.1) million. The change in net working

capital was EUR 4.0 (8.6) million.

The net cash ﬂow from operating activities during the

financial year amounted to EUR 47.2 (36.8) million. Taxes

paid amounted to EUR -3.6 (-4.7) million. The change in

net working capital was EUR -1.8 (-6.2) million.

Net cash ﬂow from investing activities totalled EUR

-2.0 (-4.3) million during the quarter. Net cash ﬂow from

investing activities totalled EUR -4.4 (-19.5) million for the

financial year. Acquisitions of subsidiaries had an impact

of EUR -1.4 (-4.9) million on net cash ﬂow from investing

activities for the financial year. Investments in tangi-

ble and intangible assets amounted to EUR -9.9 (-15.4)

million, and the proceeds from the disposal of tangible

assets amounted to EUR 6.8 (0.8) million. Pihlajalinna

sold and leased back two care properties in Laihia in May

2020.

The Group’s cash ﬂow after investments (free cash

ﬂow) was EUR 16.7 (15.4) million for the quarter and EUR

42.8 (17.4) million for financial year.

Net cash ﬂow from financing activities totalled EUR

-9.5 (-12.9) million for the quarter. The change in financial

liabilities, including changes in credit limits, amounted to

EUR -3.2 (-1.5) million. Payments for financial lease liabili-

ties amounted to EUR -5.4 (-6.1) million, and interest paid

and other financial expenses amounted to EUR -0.9 (-0.8)

million. A total of EUR 0.0 (4.4) million in dividends was

paid to non-controlling interests.

Net cash ﬂow from financing activities during the finan-

cial year totalled EUR -56.5 (-26.7) million. The change

in financial liabilities, including changes in credit limits,

amounted to EUR -12.2 (7.7) million. Payments for finan-

cial lease liabilities amounted to EUR -20.6 (-22.7) million,

and interest paid and other financial expenses amounted

to EUR -4.5 (-3.8) million. The net eect of the change in

non-controlling interests on cash ﬂow was EUR -18.3 (-1.3)

million. In January 2020, Pihlajalinna paid EUR 16.3 million

in total for shares in Kuusiolinna Terveys to the municipal-

ities of Alavus, Ähtäri and Soini as well as EUR 2.0 million

to the city of Mänttä-Vilppula for shares in Mäntänvuoren

Terveys. A total of EUR 0.2 (4.4) million in dividends was

paid to non-controlling interests. Pihlajalinna Plc did not

pay dividends for the financial year 2019. The Group has

acquired its own shares for its incentive scheme in the

amount of EUR 0.7 (0.0) million.

The Group’s gearing was 169.4 (181.7) per cent. In-

terest-bearing net debt amounted to EUR 194.8 (192.7)

million. The Group paid EUR 1.4 (1.5) million in contingent

considerations (earnout payments) during the financial

year.

Return on capital employed was 5.7 (3.1) per cent and

return on equity was 8.1 (3.8) per cent.

Financing arrangements

Pihlajalinna has a five-year EUR 120 million unsecured fi-

nancing arrangement with Danske Bank and Nordea. The

arrangement comprises a EUR 50 million revolving credit

facility and a long-term bullet loan of EUR 70 million. It

also includes an opportunity to increase the total amount

by EUR 60 million (to EUR 180 million), subject to sepa-

rate decisions on a supplementary loan from the funding

providers.

The financing arrangement includes the customary

financial covenants concerning leverage (ratio of net

debt to pro forma EBITDA) and gearing. The calculation

of covenants will continue with the creditor banks in ac-

cordance with the accounting principles confirmed in the

original financing arrangement (frozen GAAP, i.e. exclud-

ing the IFRS 16 impact). The Group met the set covenants

on 31 December 2020.

Due to the changes in the operating environment

caused by the COVID-19 epidemic, Pihlajalinna and the

creditor banks agreed on a temporary adjustment to the

covenants of the financing arrangement at the end of

March. The temporary covenants for the first and second

quarter of the year were as follows: leverage must not ex-

ceed 4.25 and gearing must not exceed 140 per cent. The

original covenants of the financing arrangement – lever-

age of 3.75 and gearing of 115 per cent – took eect again

when the covenants were reviewed in the third quarter.

As part of the agreement, a permanent new margin

ceiling was added to the financing arrangement. The mar-

gin ceiling will enter into eect if leverage exceeds 3.50.

On 31 December 2020, leverage in accordance with the

financing arrangement stood at 2.78.

The Group has credit limit agreements valid until

further notice, totalling EUR 10 million. The notice period

of the credit limit agreements is one month. At the end

of the review period, Pihlajalinna had a total of EUR 40.0

million in unused committed credit limits.

Capital expenditure

Gross investments, including acquisitions, amounted to

EUR 25.7 (44.1) million. The Group’s gross investments

in property, plant and equipment and intangible assets,

which consisted of development investments, additional

investments and replacement investments required for

growth, amounted to EUR 10.7 (12.6) million during the

financial year. Gross investments in connection with the

opening of new units amounted to EUR 0.3 (9.4) mil-

lion. Gross investments in relation to M&A transactions

amounted to EUR 0.0 (3.8) million. Gross investments in

right-of-use assets amounted to EUR 14.6 (18.4) million,

including the opening of new units in Riihimäki (Uniikki

special needs residential services) and Helsinki (Pihlajalin-

na Tavastia private clinic).

Investment commitments for the Group’s develop-

ment, additional and replacement investments amounted

to approximately EUR 2.5 (0.5) million. The investment

commitments are related to additional and replacement

investments in clinical equipment and information system

projects.

At the end of the financial year 2019, Pihlajalinna

agreed on the acquisition of three social and healthcare

service buildings with the city of Mänttä-Vilppula. A mu-

nicipal complaint was lodged regarding the transaction

and the conditions for the acquisition were not met by

the due date of 31 December 2020.

BUSINESS AND STRATEGY

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Company

Pihlajalinna’s holding,

31 December 2019

Pihlajalinna’s holding,

31 December 2020

First year of service production

under the current contract Duration of contract (years)

Jokilaakson Terveys Oy

90% 90% internal service provision internal service provision

Jämsän Terveys Oy

51% 51% 2015 10

Kuusiolinna Terveys Oy

90% 90% 2016 15

Mäntänvuoren Terveys Oy

91% 91% 2016 15

Kolmostien Terveys Oy

96% 96% 2015 15

Ab Bottenhavets Hälsa - Selkämeren Terveys Oy

83% 2021 15–20 years

Summary of the revenue and profitability of complete and partial outsourcing agreements (intra-Group sales eliminated)

Complete and partial outsourcings

10–12/2020

3 months

10-12/2019

3 months

2020

12 months

2019

12 months

INCOME STATEMENT

Revenue, EUR million 66.9 66.5 264.2 262.4

EBITDA, EUR million 1.4 2.1 11.0 15.3

EBITDA, % 2.0 3.1 4.2 5.8

Adjusted EBITDA, EUR million* 1.4 3.9 11.0 17.5

Adjusted EBITDA, %* 2.0 5.9 4.2 6.7

Operating profit (EBIT), EUR million 0.7 1.5 8.2 13.0

Operating profit, % 1.0 2.2 3.1 4.9

Adjusted operating profit (EBIT), EUR million* 0.7 3.3 8.2 15.1

Adjusted operating profit, %* 1.0 5.0 3.1 5.8

Profit before tax (EBT), EUR million 0.6 1.5 8.1 12.8

Complete and partial outsourcings

BUSINESS AND STRATEGY

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Changes in Group structure

Merged company

Target company Date of time

Forever Matinkylä Oy

Forever Helsinki Oy 1 January

2020

Etelä-Karjalan

Liikuntakeskus Oy

Forever Hiekkaharju Oy

Forever Varisto Oy

Keravan Forever Oy

Klaari Oy

Kompassi

Hammaslääkärikeskus Oy

Pihlajalinna

Seinäjoki Oy

1 February

2020

Forever Herttoniemi Oy Forever Helsinki Oy

1 September

2020

Forever Hämeenlinna Oy

Pihlajalinna Solutions Oy

Pihlajalinna

Lääkärikeskukset Oy

1 September

2020

Impact Care Oy

Leaf Areena Oy

Pihlajalinna

Liikunta-

keskukset Oy

31 December

2020

Forever Järvenpää Oy

Forever Lahti Oy

Research and development

Development costs that fulfilled the criteria for capital-

isation amounted to EUR 0.4 (0.5) million during the

financial year.

In the financial year 2020, development operations

were focused, for example, on a remote service model

for municipal residents for use in social and healthcare

outsourcing, mobile solutions, an occupational healthcare

portal and research services processes.

Personnel

At the end of the review period, the number of personnel

was 5,995 (5,815). The Group’s personnel averaged 4,308

(4,515) persons as full-time equivalents, a decrease of

207 persons or 5 per cent. The Group’s employee benefit

expenses totalled EUR 214.2 (222.0) million, a decrease of

EUR 7.7 million or 3 per cent.

Management Team

CEO Joni Aaltonen serves as the Chairman of the Man-

agement Team. The Management Team also includes

COO Teija Kulmala, CFO Tarja Rantala, Chief Legal Ocer

Marko Savolainen, Chief People and Culture Ocer Elina

Heliö, Head of Service Development and CIO Sanna Määt-

tänen and, starting from 25 June 2020, Sales Director

Juha-Pekka Halttunen.

On 17 December 2020, Pihlajalinna announced that

medical specialist Sari Riihijärvi, PhD, had been appointed

as Medical Director. The appointment will take eect on 2

July 2021, at which time Riihijärvi will take up her position

and join the Management Team.

Board of Directors

The Annual General Meeting on 15 April 2020 confirmed

the number of the members of the Board of Directors as

seven. Matti Jaakola, Hannu Juvonen, Mika Manninen, Leena

Niemistö, Kati Sulin, Seija Turunen and Mikko Wirén were

re-elected to the Board of Directors for a term of oce end-

ing at the conclusion of the next Annual General Meeting.

The Annual General Meeting elected Mikko Wirén as

the Chairman of the Board and Leena Niemistö as the

Vice-Chairman.

Shareholders’ Nomination Board

The Shareholders’ Nomination Board is comprised of the

following representatives:

• Jari Eklund, Group Director and Board member, Local-

Tapiola General Mutual Insurance Company and Local-

Tapiola Mutual Life Insurance Company (Chairman),

until 3 December 2020

• Juha Koponen, Group Director and Board member,

LocalTapiola General Mutual Insurance Company and

LocalTapiola Mutual Life Insurance Company, starting

from 3 December 2020

• Mikko Wirén, Managing Director, MWW Yhtiö Oy

• Antti Kuljukka, CEO, Fennia Mutual Insurance Company

• Hanna Hiidenpalo, Director, Chief Investment Ocer,

Elo Mutual Pension Insurance Company

Committees nominated by the Board

Pihlajalinna Plc’s Board of Directors appointed the follow-

ing members to its committees at its constitutive meeting

on 15 April 2020:

Audit Committee: Seija Turunen (chairman), Matti

Jaakola, Mika Manninen and Hannu Juvonen

Remuneration Committee: Mikko Wirén (chairman),

Leena Niemistö and Kati Sulin

It was agreed that all members of the Board of Direc-

tors may join any of the committee meetings.

Remuneration of the members of the

Board of Directors

The Annual General Meeting on 15 April 2020 decided

that the remuneration of the Board of Directors be kept

unchanged, and that the following annual remuneration

be paid to the members of the Board of Directors to be

elected at the Annual General Meeting for the term of

oce ending at the close of the Annual General Meeting

2021: to the full-time Chairman of the Board of Directors

EUR 250,000 per year; to the Vice-Chairman EUR 36,000

per year, and to members EUR 24,000 per year.

In addition, the AGM decided that each Board member

shall be paid a meeting fee of EUR 500 for each Board

and Committee meeting. Reasonable travel expenses

will also be reimbursed to the members of the Board in

accordance with the Company’s travel policy.

Board authorisations

The Annual General Meeting on 15 April 2020 authorised

the Board of Directors to decide on the acquisition of a

maximum of 2,061,314 shares, which is approximately 9

per cent of the Group’s current share volume. Under this

authorisation, the acquisition of the Group’s own shares is

only permitted using unrestricted equity. Targeted share

acquisition is possible. The authorisation is eective until

the next Annual General Meeting, or until 30 June 2021 at

the latest.

The Annual General Meeting also authorised the Board

of Directors to decide on a share issue and other special

rights conferring an entitlement to shares under Chapter

10, Section 1 of the Limited Liability Companies Act. The

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

amount of shares to be issued cannot exceed 3,091,971

shares, which corresponds to approximately 14 per cent

of all the shares in the Group. The authorisation concerns

both the issuance of new shares and the sale or transfer

of the Group’s own shares. The authorisation permits a

targeted share issue. The authorisation is eective until

the next Annual General Meeting, or until 30 June 2021 at

the latest.

Auditors and auditing

At Pihlajalinna’s Annual General Meeting held on 15 April

2020, KPMG Oy Ab, a firm of authorised public account-

ants, was elected as the company’s auditor for the finan-

cial year 1 January–31 December 2020. Lotta Nurminen,

APA, is the principal auditor.

Shares and shareholders

At the end of the financial period, Pihlajalinna Plc’s share

capital entered in the Trade Register amounted to EUR

80,000 and the total number of shares was 22,620,135, of

which 22,617,841 were outstanding and 2,294 were held

by the company. The company has one share series, with

each share entitling its holder to one vote at the Annual

General Meeting. All of the outstanding shares bestow

their holders with equal rights to dividends and other

distribution of the company’s assets. At the end of the

review period, the company had 14,141 (11,752) sharehold-

ers. A list of the largest shareholders is available on the

company’s investor website at investors.pihlajalinna.fi.

The trading code for the shares on the Nasdaq Helsinki

main market is PIHLIS. Pihlajalinna Plc has been classified

as a Mid Cap company in the Healthcare sector.

Mehiläinen did not complete its tender

oer for Pihlajalinna, the merger process

has ended

On 5 November 2019, Mehiläinen Yhtiöt Oy and Pihlajalin-

na Plc entered into a combination agreement, pursuant to

which Mehiläinen made a voluntary recommended public

cash tender oer for all issued and outstanding shares in

Pihlajalinna. The oer period commenced on 9 January

2020 at 9:30 a.m. (Finnish time) and it expired on 20

November 2020 at 4:00 p.m. (Finnish time).

Merger control clearance was not obtained for the

tender oer and the minimum acceptance condition of

the tender oer was not fulfilled. Consequently, Mehiläi-

nen will not complete the tender oer and the merger

process between the companies has ended.

Risk management

In its risk management, Pihlajalinna’s aim is to operate as

systematically as possible and incorporate risk manage-

ment 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 cate-

gorises the group’s risks and describes the goals of risk

management. In addition, it defines risk management

principles, operating methods and responsibilities.

Pihlajalinna sharpened its management system in

response to the COVID-19 epidemic. The Group Man-

agement Team actively monitors the epidemiological

situation and operational indicators and assesses what

measures are necessary. The Medical Management Team

meets weekly and issues instructions to the Group’s units

in accordance with the guidelines and policies issued by

the national and regional authorities. While the COV-

ID-19 epidemic continues, the safety and health of the

Group’s personnel and customers remain the first priority

in Pihlajalinna’s management system. Regional manage-

ment, personnel and practitioners are kept up to date on

the situation through continuous communication on the

intranet despite the fact that daily crisis management has

been discontinued.

Internal risk reporting is included in the regular busi-

ness reporting as well as in business planning and deci-

sion-making. The material risks and their management are

reported to stakeholders regularly and, when necessary,

on a case-by-case basis.

The Group employs an Enterprise Risk Management

system and process. Risks are categorised into strategic,

operational, financial and damage risks.

Strategic risks refers to uncertainty related to the

implementation of the Group’s short-term and long-term

strategy. An example is structural changes in society.

Operational risks are risks that are caused by external

factors, technology, actions of employees, the operations

of the organisation or the functionality of processes.

Share-related information, outstanding shares 10-12/2020 10-12/2019 2020 2019

No. of shares outstanding at the end of the period 22,617,841 22,620,135 22,617,841 22,620,135

Average no. of shares outstanding during the period 22,574,207 22,620,135 22,586,212 22,620,135

Highest price, EUR 10.45 15.88 15.66 15.88

Lowest price, EUR 8.72 10.40 8.72 8.70

Average price, EUR* 9.31 14.68 12.09 12.77

Closing price, EUR 9.38 15.28 9.38 15.28

Share turnover, 1,000 shares 2,628 2,127 6,620 4,062

Share turnover, % 11.6 9.4 29.3 18.0

Market capitalisation at the end of the period, EUR million 212.2 345.6 212.2 345.6

* average rate weighted by trading level

BUSINESS AND STRATEGY

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These risks are managed by, for instance, monitoring the

competitive situation systematically and reacting to its

changes.

Financial risks refers to risks that are related to the

Group’s financial position, such as profitability, the func-

tionality of financing processes and taxation.

Damage risks are related to accidents or other damage

that may occur to the Group’s assets, personnel, cus-

tomers, stakeholders or environment. The company has

liability and patient insurance to cover potential malprac-

tice caused by the company’s own personnel.

A factor that links all risk categories together is the

reputational risk that may aect the reputation of the

Group’s brands or the entire Group. Breaches of informa-

tion security and data protection may lead to financial

losses, claims for compensation and loss of reputation.

The goal of Pihlajalinna’s risk management is to pro-

mote the achievement the Group’s strategic and opera-

tional targets, shareholder value, the Group’s operational

profitability and the realisation of responsible operating

methods. Risk management seeks to ensure that the risks

aecting the company’s business operations are known,

assessed and monitored.

The Group and operative management are responsible

for risk management according to reporting responsibil-

ities. 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.

Risks and uncertainties in business

operations

It is still hard to assess and predict the financial impact

caused by the restrictions recommended by the Finnish

Government and the duration of the COVID-19 situation

on Pihlajalinna’s business operations.

In addition to the scenarios pertaining to the continu-

ation of the COVID-19 epidemic, the most essential risks

and uncertainties aecting the Group’s operations are

connected to the complete outsourcing agreements on

social and healthcare service, material amendments to

legislation, opening new locations, success in acquisitions

and information system projects, tax-related risks and the

commitment and recruitment of competent management.

A tax audit of the Group’s main companies began in

the spring 2017. The tax audit was completed in its entire-

ty in February 2021. No additional taxes became payable

as a result of the tax audit with regard to income taxation

(the Act on the Taxation of Business Profits and withhold-

ing taxes (Tax Prepayment Act). No notable sanctions

arose from the tax audit with regard to value added taxes

(Value Added Tax Act).

Policy adjustments and amendments were made to

the Government’s draft proposal for social and health-

care services reform based on the consultation round

that ended in September. Instead of the nullification of

outsourcing agreements, which was proposed before

the draft was circulated for consultation, the new draft

proposes that some agreements would be subject to

a termination procedure. Under the draft proposal, the

nullification of outsourcing agreements concerning social

and health services would be limited to very comprehen-

sive and significant agreements and areas of operation

for which outsourcing is specifically prohibited (e.g. the

exercise of public authority, 24-hour social services). In

the view of Pihlajalinna’s management and legal experts,

the nullification of such agreements or making them sub-

ject to a termination procedure would still potentially be

in conﬂict with the Constitution and contract law.

Determining the annual profitability of the Group’s

fixed-term complete social and healthcare services out-

sourcing agreements may become accurate with a delay.

The Group may not always be aware of the actual costs

of the agreements at the time of preparing the financial

statements, and the agreements may involve variable ele-

ments of compensation. The cost accumulation of public

specialised care involves random ﬂuctuation. In addition,

individual cases falling within the scope of the hospital

districts’ pooling system for high-cost care may inﬂuence

the cost liability of specialised care considerably during

the financial year, and between financial periods, in Pihla-

jalinna’s municipal companies.

The fixed-term service agreements for all of the

Group’s complete outsourcing arrangements are highly

similar with regard to their principles and basic terms.

Pihlajalinna has calculated and recognised the variable

compensation components and cost compensation under

the agreements using the same criteria and model for all

clients. Demands for the compensation of cost increases

due to changes in services corresponding to the actual

costs and investment costs that serve operations after

the end of the term of the contract being the client’s

responsibility constitute the majority of costs and varia-

ble compensation components that are specified with a

delay. For 2020, the assessment of investment costs and

COVID-19 related costs included in invoicing by hospital

districts can only be carried out after the hospital dis-

tricts have published their financial statements.

Pihlajalinna has recognised only part of these legally

justified claims in its income statement. The parties to the

agreements are bound by an obligation to negotiate and

negotiation is the primary procedure. If the obligation to

negotiate does not lead to payment, the receivables are

sought through legal action, which may further delay the

collection of items presented in current receivables in the

financial statements.

Items that may, according to the management’s

estimate, inﬂuence the profitability of com-

plete outsourcing agreements with a delay:

The City of Jämsä has taken legal action against Jämsän

Terveys Oy regarding a matter concerning the price

adjustment provision in the service agreement. The

dierence in views regarding whether the fixed annual

price for social and healthcare services can decrease due

to price adjustments amounted to approximately EUR

2.6 million at the end of the financial year. The District

Court has postponed the hearing of the main case due to

Jämsän Terveys possibly being in the process of bringing

an additional counterclaim against the City of Jämsä. The

additional counterclaim concerns the eect of changes

in the services under the service agreement on price

and the service provider’s liability for financing invest-

ments by the Pirkanmaa Hospital District insofar as such

investments serve operations after the term of the service

agreement. The service provider is entitled to price

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

adjustments corresponding to increases in costs and the

contractual parties are under an obligation to negoti-

ate and try to reach an agreement. In its counterclaim,

Jämsän Terveys claims a total of approximately EUR 15

million from the City of Jämsä. The total amount of vari-

able compensation under the potential counterclaim that

Jämsän Terveys has recognised as revenue and recorded

in its receivables amounts to EUR 3.4 (3.2) million.

The total amount of contractually and legally justified

variable compensation that Kuusiolinna Terveys Oy has

recognised as revenue and recorded in its receivables

amounts to EUR 6.3 (4.6) million. The protocol on inter-

pretation signed with the municipalities of Alavus, Ähtäri

and Soini in conjunction with the share transactions

carried out in 2019 were also intended to agree on the

principles of charging the variable elements of com-

pensation in question. The company’s receivables from

variable compensation components are related to cost

increases caused by service changes and compensating

such increases in accordance with the costs as well as an

assessment of the investment cost liability in specialised

care. The costs of services for the elderly, the investment

costs associated with specialised care, the costs of child

welfare services and Kuussote’s own administrative costs

have increased significantly compared to the time the bid

was made. A share transaction has not yet been com-

pleted with Kuortane, and no corresponding protocol on

interpretation has been signed. The total claims from the

clients amounted to approximately EUR 12 million based

on the previously mentioned grounds at the time of

drawing up the financial statements.

The total amount of contractually and legally justified

variable compensation from the City of Mänttä-Vilppula

that Mäntänvuoren Terveys Oy has recognised as revenue

and recorded in its receivables amounts to EUR 3.2 (2.1)

million. The variable compensation recognised as revenue

in accordance with the agreement includes an estimate

of compensation for specialised care costs to the service

provider of the Pirkanmaa Hospital District’s investment

costs allocated to the client. The receivables from vari-

able compensation components are also related to cost

increases caused by service changes and compensating

such increases in accordance with the actual costs. The

total claims from the client amounted to approximately

EUR 6 million based on the previously mentioned grounds

at the time of drawing up the financial statements.

The total amount of contractually and legally justified

variable compensation from the City of Parkano that

Kolmostien Terveys Oy has recognised as revenue and

recorded in its receivables amounts to EUR 0.6 (0.6)

million. The variable compensation recognised as revenue

in accordance with the agreement includes an estimate

of compensation for specialised care costs to the service

provider of the Pirkanmaa Hospital District’s investment

costs allocated to the client. During the financial year,

the client approved cost increases arising from changes

to services for the elderly as part of the annual fee under

the service agreement. The total claims from the client

amounted to approximately EUR 1.5 million based on the

previously mentioned grounds at the time of drawing up

the financial statements.

Pending legal processes:

The City of Jämsä has taken legal action against Jämsän

Terveys Oy regarding a matter concerning the price

adjustment provision in the service agreement as men-

tioned above under Possible items that may, according to

the management’s estimate, inﬂuence the profitability of

complete outsourcing agreements with a delay.

The municipality of Hattula filed an application for a

summons with the District Court regarding confirmation,

contractual penalty and claim for damages based on a

breach of contract. The claim filed by the municipality

of Hattula in the dispute is for the total amount of EUR

2.9 million plus penalty interest and the claimant’s legal

fees. Pihlajalinna has disputed the presented claims and

alleged breach of contract and filed a counterclaim of ap-

proximately EUR 1.7 million for the groundless termination

of the agreement, amongst other things. Pihlajalinna’s

service production in Hattula ended on 31 March 2020.

A claim based on breach of contract has been filed

against a subsidiary of the Group in arbitration proceed-

ings. The claim is estimated to be entirely unfounded.

Impairment testing of goodwill

At the end of the review period, goodwill on Pihlajalin-

na’s statement of financial position amounted to EUR

173.6 (173.6) million. Pihlajalinna checks annually and, if

necessary, quarterly, that the carrying amount of goodwill

does not exceed the fair value. Due to the duration and

severity of the COVID-19 epidemic, the Group decided to

also conduct impairment testing on goodwill during the

financial year, concerning the situation on 30 June 2020.

The annual impairment testing was conducted on the

situation on 30 November 2020. Pihlajalinna observed

no indications of the carrying amount of goodwill being

greater than its estimated recoverable amount. If nega-

tive changes were to occur in the development of Pihlaja-

linna’s profit and growth, this could lead to an impairment

of goodwill. This could have an unfavourable impact on

Pihlajalinna’s operating result and equity.

Flagging notifications

The company did not receive any ﬂagging notifications

under Chapter 9, Section 5 of the Securities Markets Act

during the financial year.

Current incentive schemes

At its meeting on 14 February 2019, the Board of Di-

rectors approved the terms of a share-based long-term

incentive programme for Pihlajalinna Group’s senior

management (LTIP 2019). The incentive programme is

eective from 1 January 2019 onwards and it is aimed at

the CEO, the Management Team and other key employ-

ees selected for inclusion in the programme. LTIP 2019

includes an overall five-year plan period and none of the

share rewards received by the key employees thereunder

may be sold or transferred prior to the year 2022 and, as

a rule, they also include a restriction period of the same

duration. In the event that a beneficiary’s employment

ends during the restriction period, shares that have al-

ready been received must be returned. The key employee

is required to have made an investment in Pihlajalinna

shares as a precondition for participation in the pro-

gramme. At the end of the financial year, the incentive

programme included 20 key employees.

BUSINESS AND STRATEGY

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The fixed matching share programme (commitment

shares) consisted of a commitment period from the be-

ginning of 2019 to the payment of the fixed share reward

at the end of 2020. In this scheme, the company matched

each key employee’s share investments with additional

shares at a fixed rate. A total of 97,000 matching shares

were awarded. This figure is the gross reward, from which

the applicable taxes were deducted, leaving a net amount

of 45,105 shares that were transferred to the participants

on 28 December 2020. The shares are subject to a trans-

fer restriction but not a restriction period.

The performance- and quality-based matching share

plan includes three one-year performance periods (the

calendar years 2019–2021), during which the participants

can earn performance-based additional shares, provided

that the company reaches the performance objectives

set by the Board of Directors. Based on each individual

performance period, the participant can earn a maximum

of two additional shares for three shares invested without

consideration (gross before the deduction of the appli-

cable payroll tax). The performance-based share rewards

will be delivered after the respective performance periods

according to the programme in the spring of 2020, 2021

and 2022.

No performance- and quality-based share rewards ma-

terialised for the first performance period 2019 pursuant

to the matching share plan, as the minimum objectives

set for the programme were not achieved.

For the second performance period of 2020 under the

performance- and quality-based matching share plan,

the gross reward for the Group’s management is 56,583

shares. The shares will be paid to the participants after

the financial statements have been completed. The shares

are subject to the normal transfer restriction but not a

restriction period.

Repurchasing own shares for the incen-

tive programme

The Board of Directors of Pihlajalinna Plc decided on 20

March 2020 to start repurchasing the company’s own

shares on the basis of the authorisation given by the

Annual General Meeting on 4 April 2019. The shares were

acquired for use as part of the company’s incentive pro-

gramme in public trading on Nasdaq Helsinki Ltd at the

market price prevailing at the time of purchase.

Pihlajalinna started repurchasing the company’s own

shares on 31 March 2020 and completed it on 17 April

2020. During that time, Pihlajalinna acquired a total of

47,399 of its own shares for an average price of EUR 14.56

per share.

Following the repurchase, Pihlajalinna held a total of

47,399 of its own shares, corresponding to 0.21% of the

total number of shares. On 28 December 2020, Pihlajal-

inna conveyed 45,105 shares held by the company to key

employees in accordance with the incentive programme.

After the share transfer, the number of treasury shares

held by the company was 2,294 shares.

The Board of Directors’ proposal for

profit distribution and the Annual

General Meeting 2021

The Board of Directors proposes that a dividend of EUR

0.20 per share be paid for the financial year that ended

on 31 December 2020.

Calculation of the parent

company’s distributable funds:

EUR 31 December 2020

Reserve for invested unrestricted equity

183,190,483.50

Retained earnings 23,552,697.95

Profit for the period 7,698,486.16

Capitalised development costs -752,840.27

Total 213,688,827.34

On the balance sheet date, the number of shares entitling

their holder to dividend was 22,617,841, and consequently,

the total dividend amount would be EUR 4,523,568.20.

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 obliga-

tions. While determining the proposal for profit distribu-

tion, the Board of Directors has also taken into considera-

tion the impact of the repurchase of own shares after the

financial year on the distributable funds.

Earnings per share for the financial year was EUR 0.39.

The proposed dividend of EUR 0.20 is 51.8 per cent of

earnings per share.

Pihlajalinna Plc’s Annual General Meeting will be held

on 15 April 2021 in Tampere. The Board of Directors will

decide on the notice of the General Meeting and the

included proposals at a later date.

The annual report for 2020, including the Board of

Directors’ report and the financial statements, will be

published on the company’s investor website at investors.

pihlajalinna.fi in week 13.

Pihlajalinna’s outlook for 2021

It is still hard to assess and predict the financial impacts

of the duration of the COVID-19 situation. National or

regional restrictions aimed at preventing a third wave of

COVID-19 and potential delays in COVID-19 vaccinations

may have a negative impact on consumer demand. At the

same time, extensive COVID-19 testing, the start of vacci-

nations, working through the queues in the public sector

and the release of other pent-up demand help compen-

sate for the decline in consumer demand.

Pihlajalinna’s consolidated revenue is expected to

increase clearly and adjusted EBIT is expected to improve

clearly compared to 2020.

Pihlajalinna is updating its strategy and will publish the

new strategy during the beginning of the year 2021.

Corporate Governance Statement

Pihlajalinna publishes its Corporate Governance State-

ment separately on the company’s investor website at

investors.pihlajalinna.fi at the same time as the Board of

Directors’ report during week 13. Up-to-date information

about compliance with and deviations from the Corpo-

rate Governance Code is maintained on the investor site

at investors.pihlajalinna.fi.

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Statement of non-financial information

Pihlajalinna publishes its statement of non-financial infor-

mation separately on the company’s investor website at

investors.pihlajalinna.fi at the same time as the Board of

Directors’ report during week 13.

Events after the balance sheet date

Acquisition of Työterveys Virta Oy

The city government of Oulu and municipal govern-

ment of Liminka decided in their meetings on Monday,

11 January 2021, to sell the shares of Työterveys Virta Oy

to Pihlajalinna. The governments also chose Pihlajalinna

to be their contracting party for occupational healthcare

services. The other owners of Työterveys Virta will also

make their decisions about selling the shares and procur-

ing occupational healthcare services during January–Feb-

ruary.

On 9 October 2020, Pihlajalinna announced it had won

a public bidding competition for the sale of Työterveys

Virta Oy’s share capital and occupational healthcare ser-

vices. In order to complete the transaction, the appropri-

ate due diligence procedures were carried out, and the

acquisition has proceeded to the contract stage and the

approval of the contracts of sale. The total price of the

shares with cash reserve is EUR 17.6 million.

Repurchase of own shares

Pihlajalinna completed the repurchase of own shares that

began on 15 January 2021 and ended on 21 January 2021.

During that time, Pihlajalinna acquired a total of 60,000

of its own shares for an average price of EUR 9.70 per

share. The repurchased shares were acquired on the basis

of the authorisation given by the Annual General Meeting

on 15 April 2020 and shall be used as a part of the com-

pany’s incentive programme.

Following the repurchase, Pihlajalinna holds a total of

62,294 of its own shares, corresponding to approximately

0.28 per cent of the total number of shares.

The Shareholders’ Nomination Board’s

proposals to the Annual General Meeting 2021

The number of members and composition of the Board

of Directors:

The Nomination Board proposes to the Annual General

Meeting of Pihlajalinna Plc to be held on 15 April 2021 that

the number of the members of the Board be confirmed to

be six instead of the current seven.

The Nomination Board proposes that Hannu Juvonen,

Mika Manninen, Leena Niemistö, Kati Sulin, Seija Turu-

nen and Mikko Wirén, currently members of the Board

of Directors, be re-elected as members of the Board of

Directors.

Of the current members, Matti Jaakola will not continue

as a member of the Board of Directors.

The personal details of the current members of the

Board and the details of their positions of trust are avail-

able at investors.pihlajalinna.fi/corporate-governance/

board-of-directors.

The Nomination Board further proposes that the Annu-

al General Meeting elect Mikko Wirén as the Chairman of

the Board and Leena Niemistö as the Vice-Chairman.

Remuneration of the members

of the Board of Directors

The Shareholders’ Nomination Board proposes that the

remuneration of the Board of Directors be kept un-

changed, except for the remuneration of the Chairman

of the Audit Committee, and that the following annual

remuneration be paid to the members of the Board of

Directors to be elected at the Annual General Meeting for

the term of oce ending at the close of the Annual Gen-

eral Meeting 2022: to the full-time Chairman of the Board

of Directors EUR 250,000 per year; to the Vice-Chairman

and the Chairman of the Audit Committee EUR 36,000

per year, and to the other members of the Board of Direc-

tors EUR 24,000 per year.

The proposal is that the annual remuneration to be paid

in company shares and cash so that about 40 per cent

of the remuneration is used to purchase the company’s

shares on behalf of the members and the remaining share

of the remuneration is paid in cash. The remuneration can

be paid either entirely or partially in cash if the member

of the Board of Directors has, on the day of the General

Meeting, 15 April 2021, been in possession of over EUR

1,000,000 worth of company shares. The company is

responsible for the expenses and transfer tax arising from

the acquisition of the shares. The remuneration to be paid

in shares can be paid by transferring company shares in

possession of the company to the members of the Board

of Directors or by purchasing shares directly on behalf of

the Board members within three weeks after the interim

report for the period of 1 January–31 March 2021 has been

published. If this is not, due to legal or other regulatory

reasons, such as insider regulations, possible at the first

available time after this, the alternative is to pay the re-

muneration in cash. If the term of a Board member ends

before the Annual General Meeting of 2022, the Board is

entitled to decide on the possible recovery of the remu-

neration in a manner it deems appropriate.

In addition, the Nomination Board proposes that each

Board member be paid meeting remuneration in the

amount of EUR 500 for each Board and Committee

meeting. In addition, reasonable travel expenses would

be reimbursed in accordance with the company’s travel

policy.

The above-mentioned proposals will also be included in

the notice of the Annual General Meeting which is to be

published at a later date.

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Scope of operations

2020 2019 2018 2017

without IFRS 16

2016

without IFRS 16

Revenue, EUR million 508,7 518,6 487,8 424,0 399,1

Change, % -1,9 6,3 15,0 6,2 87,1

Organic revenue growth, EUR million -11,3 13,4 -2,0 10,1 134,5

Change, % -2,2 2,8 -0,5 2,5 63,0

Gross investments, EUR million 25,7 44,1 160,0 30,4 27,3

% of revenue 5,1 8,5 32,8 7,2 6,9

Capitalised development costs, EUR million 0,4 0,5 1,3 1,2

% of revenue 0,1 0,1 0,3 0,3

Employee benefit expenses, EUR million 214,2 222,0 208,4 175,4 167,2

Personnel at the end of the period (NOE) 5 995 5 815 5 850 4 753 4 407

Average number of personnel (FTE) 4 308 4 515 4 618 3 879 3 526

Profitability

2020 2019 2018 2017 2016

EBITDA, EUR million 52,4 47,8 44,8 33,3 27,9

EBITDA, % 10,3 9,2 9,2 7,9 7,0

Adjusted EBITDA, EUR million 54,6 55,1 45,9 34,1 28,9

Adjusted EBITDA, % 10,7 10,6 9,4 8,0 7,2

Operating profit (EBIT), EUR million 18,2 10,2 13,2 19,1 15,1

Operating profit, % 3,6 2,0 2,7 4,5 3,8

Adjusted operating profit (EBIT), EUR million 20,8 20,8 14,4 20,0 16,6

Adjusted operating profit, % 4,1 4,0 3,0 4,7 4,2

Net financial expenses, EUR million -4,4 -3,9 -3,8 -1,7 -1,4

% of revenue -0,9 -0,8 -0,8 -0,4 -0,4

Profit before tax, EUR million 13,8 6,3 9,5 17,4 13,7

% of revenue 2,7 1,2 1,9 4,1 3,4

Income tax, EUR million -4,8 -1,8 -2,7 -3,4 -3,0

Profit for the period 8,9 4,5 6,8 14,1 10,8

Cash ﬂow after investments, EUR million 42,8 17,4 -18,8 16,4 6,8

Return on equity (ROE), % 8,1 3,8 5,7 13,6 11,1

Return on capital employed (ROCE), % 5,7 3,1 4,7 11,8 10,8

Key financial figures

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

2020 2019 2018 2017 2016

Earnings per share (EPS) 0,39 0,15 0,16 0,46 0,39

Equity per share, EUR 4,85 4,47 5,36 4,87 4,74

Dividend per share, EUR (the Board of Directors’ proposal) 0,20 0,10 0,16 0,15

Dividend per share, % (the Board of Directors’ proposal) 51,8 64,0 34,7 38,4

Eective dividend yield, % (the Board of Directors’ proposal) 2,1 1,2 1,2 0,8

Number of shares at year-end 22 617 841 22 620 135 22 620 135 20 613 146 20 613 146

Average number of shares 22 586 212 22 620 135 22 224 236 20 613 146 20 613 146

Market capitalisation, EUR million 212,2 345,6 195,0 274,0 379,7

Dividends paid, EUR million (the Board of Directors’ proposal) 4,5 2,3 3,3 3,1

P/E ratio 24,3 102,7 55,1 28,9 47,2

Highest quotation, EUR 15,66 15,88 15,28 18,42 18,87

Lowest quotation, EUR 8,72 8,70 8,56 12,60 12,90

Average quotation, EUR 12,09 12,77 12,18 16,30 16,38

Closing price at year-end, EUR 9,38 15,28 8,62 13,34 18,42

Trading volume of shares, 1,000 shares 6 620 4 062 6 182 5 189 8 196

Trading volume of shares, % 29,3 18,0 27,8 25,2 39,8

Share related information

* Alternative performance measure

Funding and financial position

2020 2019 2018 2017 2016

Interest-bearing net financial debt, EUR million 194,8 192,7 178,0 34,2 22,1

% of revenue 38,3 37,2 36,5 8,1 5,5

Equity ratio, % 26,1 24,3 29,9 41,8 46,5

Gearing, % 169,4 181,7 136,6 32,3 21,9

Net debt/adjusted EBITDA 3,6 3,5 3,9 1,0 0,8

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

1 000 € Q4/20 Q3/20 Q2/20 Q1/20 Q4/19 Q3/19 Q2/19 Q1/19

INCOME STATEMENT

Revenue 137 194 123 855 114 659 132 974 133 761 122 660 129 710 132 465

Other operating income 472 634 937 336 710 186 381 352

Materials and services -53 539 -47 496 -44 202 -52 740 -53 942 -45 928 -49 684 -50 658

Employee benefit

expenses

-55 478 -50 093 -52 296 -56 368 -54 970 -52 443 -57 592 -56 962

Other operating expenses -13 506 -10 236 -10 595 -12 067 -13 253 -11 547 -12 370 -13 034

EBITDA 15 142 16 663 8 503 12 136 12 307 12 928 10 446 12 163

Adjusted EBITDA 15 739 17 240 9 007 12 664 14 444 17 367 10 753 12 563

Adjusted EBITDA, % 11,5 13,9 7,9 9,5 10,8 14,2 8,3 9,5

Depreciation, amortisation and impairment -8 378 -8 681 -8 392 -8 804 -8 640 -11 546 -8 844 -8 622

Operating profit (EBIT) 6 764 7 983 112 3 332 3 667 1 382 1 601 3 541

Adjusted operating profit (EBIT) 7 291 8 656 615 4 214 5 557 9 257 2 057 3 941

Adjusted operating profit (EBIT), % 5,3 7,0 0,5 3,2 4,2 7,5 1,6 3,0

Financial income 50 73 64 46 30 42 27 22

Financial expenses -1 066 -1 100 -1 075 -1 396 -1 007 -1 017 -995 -1 028

Profit before taxes 5 748 6 956 -899 1 982 2 690 407 633 2 535

Income taxes -2 791 -1 534 62 -583 -561 -302 -269 -652

Profit for the period 2 957 5 422 -837 1 399 2 129 104 364 1 884

Share of the result for the financial year

attributable to owners of the parent company

3 405 4 620 -568 1 263 3 703 -1 284 -490 1 436

Share of the result for the financial year

attributable to non-controlling interests

-448 802 -269 137 -1 574 1 389 853 448

EPS 0,15 0,20 -0,03 0,06 0,16 -0,06 -0,02 0,06

Personnel at the end of the period (NOE) 5 995 5 882 5 640 5 865 5 815 5 936 6 100 5 871

Change in personnel during the quarter 113 243 -226 50 -121 -164 230 21

Quarterly information

BUSINESS AND STRATEGY

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Key figures

Earnings per share (EPS)

Profit for the financial period attributable to owners of

the parent company

Average number of shares during the financial year

Alternative performance measures

Equity per share

Equity attributable to owners of the parent company

Number of shares at the end of the financial period

Dividend per share

Dividend distribution for the financial year (or proposal)

Number of shares at the end of the financial period

Dividend/result, %

Dividend per share

x 100

Earnings per share (EPS)

Eective dividend yield, %

Dividend per share

x 100

Closing price for the financial year

P/E ratio

Closing price for the financial year

Earnings per share (EPS)

Share turnover, %

Number of shares traded during the period

x 100

Average number of shares

Return on equity (ROE), %

Profit for the period (rolling 12 months)

x 100

Equity (average)

Return on capital employed, %

(ROCE)

Profit before taxes (rolling 12 months) +

financial expenses (rolling 12 months)

x 100

Total statement of financial position –

non-interest-bearing liabilities (average)

Equity ratio, %

Equity

x 100

Total statement of financial position –

prepayments received

Gearing, %

Interest-bearing net debt – cash and cash equivalents

x 100

Equity

EBITDA

Operating profit + depreciation, amortisation and impairment

EBITDA, %

Operating profit + depreciation, amortisation and impairment

x 100

Revenue

Adjusted EBITDA*

Operating profit + depreciation, amortisation and

impairment + adjustment items

Adjusted EBITDA*

Operating profit + depreciation, amortisation and

impairment + adjustment items

x 100

Revenue

Net debt/Adjusted EBITDA*,

rolling 12 months

Interest-bearing net debt – cash and cash equivalents

Adjusted EBITDA (rolling 12 months)

Cash ﬂow after investments

Net cash ﬂow from operating activities +

net cash ﬂow from investing activities

Adjusted operating profit (EBIT)*

Operating profit + adjustment items

Adjusted operating profit, %*

Adjusted operating profit (EBIT)

x 100

Revenue

Profit before taxes

Profit for the financial year + income tax

Gross investments

Increase in tangible and intangible assets and in right-of-use

assets

Organic revenue growth, %

Revenue for the period - revenue from M&A transactions for

the period - revenue for the previous period

x 100

Revenue for the previous period

* Significant transactions that are not part of the normal course of business, infrequently occurring events or valuation

items that do not aect cash ﬂow are treated as adjustment items aecting comparability between review periods.

According to Pihlajalinna’s definition, such items include, for example, restructuring measures, impairment of assets and

the remeasurement of previous assets held by subsidiaries, the costs of closing down businesses and business loca-

tions, gains and losses on the sale of businesses, costs arising from operational restructuring and the integration of

acquired businesses, costs related to the termination of employment relationships as well as fines and corresponding

compensation payments. Pihlajalinna does not recognise adjustments aecting comparability for acquisition-related

transfer taxes and expert fees (IFRS 3 costs) or purchase price allocation (PPA) amortisation.

Calculation of key financial figures and alternative performance measures

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

EUR 1,000, unless otherwise specified

2020 2019

Return on equity (ROE), %

Profit for the period (rolling 12 months)/ 8 941 4 480

Equity at beginning of period 106 083 130 322

Equity at end of period 114 990 106 083

Equity (average) x 100 110 537 118 202

Return on equity (ROE), % 8,1 3,8

Return on equity is one of the most important indicators of a company’s profitability used by share-

holders and investors. The indicator illustrates the company’s ability to look after the capital invested

by shareholders in the company. The figure indicates how much return was accumulated on equity

during the financial year.

Return on capital employed (ROCE), % 2020 2019

Profit before taxes (rolling 12 months) + 13 786 6 264

Financial expenses (rolling 12 months) 4 637 4 047

/ 18 423 10 311

Total statement of financial position at beginning of period - 438 446 436 764

non-interest-bearing liabilities at beginning of period 112 655 92 101

325 790 344 663

Total statement of financial position at end of period - 442 138 438 446

Non-interest-bearing liabilities at end of period 119 031 112 655

323 107 325 790

Average x 100 324 449 335 227

Return on capital employed (ROCE), % 5,7 3,1

Return on capital employed is one of the most important indicators produced by financial state-

ments analysis. It measures the company’s relative profitability, or the return on capital invested in

the company that requires interest or other returns.

Equity ratio, % 2020 2019

Equity/ 114 990 106 083

Total statement of financial position – 442 138 438 446

Advances received x 100 1 158 1 069

Equity ratio, % 26,1 24,3

The equity ratio measures the company’s solvency, the capacity to tolerate losses and the ability

to manage commitments in the long term. The indicator shows the percentage of the company’s

assets that are financed by equity.

Gearing, % 2020 2019

Interest-bearing financial liabilities – 208 117 219 707

Cash and cash equivalents/ 13 306 27 004

Equity x 100 114 990 106 083

Gearing, % 169,4 181,7

Gearing illustrates the company’s indebtedness. The figure reveals the ratio between the equity

invested in the company by shareholders and the interest-bearing debt borrowed from lenders. The

second financial covenant of the Group’s financing arrangements is the gearing ratio. The maximum

value of this key figure is 115% excluding the eect of IFRS 16 (frozen GAAP). On the financial state-

ments date, gearing calculated according to the financing agreement was 94%.

Net debt/adjusted EBITDA, rolling 12 months 2020 2019

Interest-bearing financial liabilities – 208 117 219 707

Cash and cash equivalents 13 306 27 004

Net debt/ 194 810 192 703

Adjusted EBITDA (rolling 12 months) 54 649 55 127

Net debt/adjusted EBITDA, rolling 12 months 3,6 3,5

This figure illustrates how quickly, at the current profit rate, the company would have paid o

its debts if the EBITDA were to be used in full to repay the debts, if the company does not, for

example, invest or distribute any dividend. The second financial covenant linked to the Group’s

financing arrangement is based on the ratio of the Group’s net debt to pro forma EBITDA (leve-

rage). The maximum value of the covenant linked to the financing arrangement is 3.75. The closer

the value of the covenant is to the maximum value, the higher the loan margin. The Group’s mana-

gement and Board of Directors monitor the fulfilment of the covenant on a monthly basis and the

covenant is reported to the lenders on a quarterly basis. The covenant calculations are also updated

with forecasts whenever the Group is about to carry out a significant acquisition. On the financial

statements date, leverage calculated according to the financing agreement was 2.78.

Reconciliations with alternative key figures and ratios

Pihlajalinna publishes a wide range of alternative performance measures, i.e. key figures

that are not based on financial reporting standards, because they are considered to be

significant for investors, the management and the Board of Directors in assessing the

group’s financial position and profitability. The alternative performance measures should

not be considered to be replacements for the key figures defined in IFRS standards.

The table below presents the reconciliation calculations for the alternative performance

measures and the justifications for their presentation.

Reading notes:

/divide by the next number/numbers

- deduct the next number/numbers

+ add the next number/numbers

BUSINESS AND STRATEGY

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EBITDA and Adjusted EBITDA 2020 2019

Profit for the period 8 941 4 480

Income taxes -4 845 -1 784

Financial expenses -4 637 -4 047

Financial income 232 120

Depreciation, amortisation and impairment -34 255 -37 653

EBITDA 52 445 47 844

Total EBITDA adjustments* 2 204 7 284

Adjusted EBITDA 54 649 55 127

EBITDA indicates how much is left of the company’s revenue after deducting operating expenses.

Assessments of whether EBITDA is suciently high should take into account the company’s finan-

cial expenses, depreciation requirements and intended profit distribution. Adjusted EBITDA provides

significant additional information on profitability by eliminating items that do not necessarily reﬂect

the profitability of the company’s operative business. Adjusted EBITDA improves comparability

between periods and is frequently used by analysts, investors and other parties.

The Group Management Team and operative management monitor and forecast adjusted EBITDA

on a monthly basis.

EBITDA, % 2020 2019

EBITDA/ 52 445 47 844

Revenue x 100 508 682 518 596

EBITDA, % 10,3 9,2

Adjusted EBITDA, %

Adjusted EBITDA/ 54 649 55 127

Revenue x 100 508 682 518 596

Adjusted EBITDA, % 10,7 10,6

Operating profit (EBIT) and Adjusted operating profit (EBIT)

Profit for the period 8 941 4 480

Income taxes -4 845 -1 784

Financial expenses -4 637 -4 047

Financial income 232 120

Operating profit 18 191 10 191

Total adjustments of depreciation, amortisation and impairment** 381 3 337

Total EBITDA adjustments* 2 204 7 284

Total operating profit (EBIT) adjustments 2 585 10 621

Adjusted operating profit (EBIT) 20 775 20 812

Operating profit indicates how much is left of the proceeds of actual business operations before finan-

cial items and taxes. With operating profit, the company must cover, among other things, financial

expenses, taxes and the distribution of dividends. Adjusted operating profit provides significant addi

tional information on profitability by eliminating items that do not necessarily reﬂect the profitabi-

lity of the company’s operative business. Adjusted operating profit improves comparability between

periods and is frequently used by analysts, investors and other parties.

The Group Management Team and operative management monitor and forecast adjusted operating

profit on a monthly basis.

Operating profit (EBIT), % 2020 2019

Operating profit/ 18 191 10 191

Revenue x 100 508 682 518 596

Operating profit (EBIT), % 3,6 2,0

Adjusted operating profit (EBIT), %

Adjusted operating profit/ 20 775 20 812

Revenue x 100 508 682 518 596

Adjusted operating profit (EBIT), % 4,1 4,0

Cash ﬂow after investments

Net cash ﬂow from operating activities 47 185 36 840

Net cash ﬂow from investing activities -4 406 -19 452

Cash ﬂow after investments 42 780 17 387

Cash ﬂow after investments (free cash ﬂow) indicates how much cash is left for the company

after deducting the cash tied up in operative business and investments. It indicates how much the

company has left for its shareholders and creditors. Free cash ﬂow indicates how sustainable the

foundation of the company’s profitability is, and it is used as the basis of the company’s valuation.

Profit before taxes 2020 2019

Profit for the period 8 941 4 480

Income tax -4 845 -1 784

Profit before taxes 13 786 6 264

Gross investments

Property, plant and equipment at the end of the period 43 996 53 237

Right-of-use assets at the end of the period 102 832 108 109

Other intangible assets at end of period 16 337 19 084

Goodwill at end of period 173 607 173 607

Depreciation, amortisation and impairment for the period are added

34 255 37 653

Property, plant and equipment at the start of the period 53 237 43 281

Right-of-use assets at the start of the period 108 109 115 970

Other intangible assets at beginning of the period 19 084 22 914

Goodwill at beginning of the period 173 607 169 927

Proceeds from the sale of property, plant and equipment during

the period

-8 700 -4 483

Gross investments 25 691 44 081

Gross investments refers to the acquisition of long-term factors of production, including M&A

transactions. Divestments and proceeds from the sale of property, plant and equipment are not

deducted from investments. Investments are also presented on a cash ﬂow basis in the cash ﬂow

statement.

BUSINESS AND STRATEGY

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Organic revenue growth, % 2020 2019

Revenue for the period - 508 682 518 596

Revenue from M&A transactions during the period 1 424 17 386

Revenue for the previous period 518 596 487 764

Organic revenue growth/ -11 338 13 446

Revenue for the previous period x 100 518 596 487 764

Organic revenue growth, % -2,2 2,8

Revenue growth due to M&A transactions, % 0,3 3,6

Revenue growth -9 914 30 832

Revenue growth, % -1,9 6,3

Organic revenue growth is growth in existing business operations that has not come about as a

result of M&A transactions. Organic growth can be achieved through increasing the service oering,

new customer acquisition, growth in custom from existing customers, price increases and digitalisa-

tion. Social and healthcare outsourcing contracts won through public competitive bidding and new

business locations established by the group itself are included in organic growth.

2020 2019

EBITDA 52 445 47 844

Adjustments to EBITDA

Dismissal-related expenses -60 3 019

Compensation under the share-based incentive scheme in rela-

tion to the expired tender oer

1 517 266

Change in fair value of contingent consideration 281

IAS 37, contingent assets 1 845

Onerous contracts 1 843

Other 747 30

Adjustments to EBITDA in total 2 204 7 284

Adjusted EBITDA 54 648 55 127

Depreciation, amortisation and impairment -34 255 -37 653

Adjustments to depreciation, amortisation and impairment

Double depreciation arising from a merger with no cash ﬂow eect

354

Closure of operating locations 26 3 337

Adjustments to depreciation, amortisation and impairment in total

381 3 337

Adjustments to operating profit in total 2 585 10 621

Adjusted operating profit (EBIT) 20 775 20 812

Operating profit (EBIT) 18 191 10 191

Financial income 232 120

Financial expenses -4 637 -4 047

Income tax -4 845 -1 784

Profit for the period 8 941 4 480

The adjustment items are presented in the income statement items as follows:

2020 2019

Revenue 1 845

Employee benefit expenses 1 457 3 285

Other operating expenses 747 2 154

EBITDA adjustment items total 2 204 7 284

Depreciation, amortisation and impairment 381 3 337

Operating profit adjustment items total 2 585 10 621

BUSINESS AND STRATEGY

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Shares and shareholders

Major shareholders, 31 Dec. 2020

Number of shares Percentage of shares and votes

1 Localtapiola General Mutual Insurance Company 3 481 641 15,4 %

2 Mww Yhtiö Oy 2 309 010 10,2 %

3 Fennia Mutual Insurance Company 1 998 965 8,8 %

4 Localtapiola Mutual Life Insurance Company 1 891 385 8,4 %

5 Elo Mutual Pension Insurance Company 1 267 161 5,6 %

6 Niemistö Leena Katriina 703 475 3,1 %

7 Ilmarinen Mutual Pension Insurance Company 490 000 2,2 %

8 Skandinaviska Enskilda Banken Ab (Publ), Helsinki Branch 486 802 2,2 %

9 Fondita Nordic Micro Cap Mutual Fund 470 000 2,1 %

9 Nordea Bank Abp 378 727 1,7 %

10 largest, total 13 477 166 59,6 %

Other shareholders 9 142 969 40,4 %

Total 22 620 135 100,0 %

Distribution of shareholding by size range, 31 Dec. 2020

Shares per shareholder Number of shareholders % of shareholders Number of shares Percentage of shares, %

1–100 7 301 51,6 % 342 660 1,5 %

101–1,000 5 855 41,4 % 2 040 759 9,0 %

1,001–10,000 870 6,2 % 2 351 955 10,4 %

10,001–100,000 91 0,6 % 2 058 576 9,1 %

100,001–500,000 18 0,1 % 4 174 548 18,5 %

500,001– 6 0,0 % 11 651 637 51,5 %

14 141 100,0 % 22 620 135 100,0 %

of which nominee-registered shares 9 1 038 125 4,6 %

Outstanding shares 22 620 135 100,0 %

1–100 shares/shareholder 1,5%

101–1,000 9,0%

1,001–10,000 10,4%

10,001–100,000 9,1 %

100,001–500,000 18,5%

500,001– 51,5%

Distribution of shareholding

31 Dec. 2020

BUSINESS AND STRATEGY

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Distribution of shareholding by sector, 31 Dec. 2020

Number of shareholders % of shareholders Number of shares Percentage of shares, %

Private companies 544 3,8 % 4 888 697 22,7 %

Financial and insurance institutions 28 0,2 % 8 958 039 41,5 %

Public entities 4 0,0 % 1 872 650 8,7 %

Households 13 506 95,5 % 5 714 342 26,5 %

Non-profit organisations 39 0,3 % 129 333 0,6 %

Foreign shareholders 20 0,1 % 18 949 0,1 %

14 141 100,0 % 21 582 010 95,4 %

Nominee registered 1 038 125 4,6 %

Outstanding shares 22 620 135 100,0 %

Private companies 22,7%

Financial and insurance

institutions 41,5%

Public entities 8,7%

Householders 26,5%

Non-profit organisations 0,6%

Foreign shareholders 0,1%

Distribution of shareholding

31 Dec. 2020

Shareholding by the management, 31 Dec. 2020

Direct holding Indirect holding

Number of shares Percentage of shares and votes Number of shares Percentage of shares and votes

Board of Directors

Mikko Wirén (MWW Yhtiö Oy) 2 309 010 10,2 %

Leena Niemistö 703 475 3,1 %

Matti Jaakola (Capwell Oy) 1 000 0,0 %

Hannu Juvonen

Mika Manninen

Kati Sulin

Seija Turunen

Management Team

Joni Aaltonen 33 233 0,1 %

Teija Kulmala 11 460 0,1 %

Tarja Rantala 14 055 0,1 %

Elina Heliö 1 464 0,0 %

Sanna Määttänen 15 300 0,1 %

Marko Savolainen 7 600 0,0 %

Juha-Pekka Halttunen 4 725 0,0 %

BUSINESS AND STRATEGY

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Financial statements

1 Jan–31 Dec 2020

CONTENTS

Main calculations of the consolidated financial statements

Consolidated statement of comprehensive income, IFRS

Consolidated statement of financial position, IFRS

Consolidated statement of cash ﬂows, IFRS

Consolidated statement of changes in equity, IFRS

Notes to the consolidated financial statements

Category No.

Description

Accounting policies

New and revised standards and interpretations applied in

the past financial year

New and revised standards and interpretations to be

applied in future financial years

Income statement 1

Revenue from contracts with customers and segment

information

Income statement 2

Other operating income

Income statement 3

Materials and services

Income statement 4

Employee benefit expenses and the number of personnel

Income statement 5

Share-based incentive scheme for key personnel

Income statement 6

Other operating expenses and audit fees

Income statement 7

Depreciation, amortisation and impairment

Income statement 8

Key figures related to adjusted EBITDA and adjusted

operating profit

Income statement 9

Financial income

Income statement 10

Financial expenses

Income statement, taxes 11

Income taxes

EPS 12

Earnings per share

Statement of financial position

Property, plant and equipment

Statement of financial position

Intangible assets

Statement of financial position

Right-of-use assets

Statement of financial position

Other non-current receivables

Statement of financial position

Trade receivables and other receivables (current)

Statement of financial position

Provisions

Statement of financial position

Trade and other payables

Balance sheet, taxes 20

Deferred tax assets and liabilities

Equity 21

Financial assets and liabilities by measurement category

Equity 22

Notes on equity

Equity 23

Financial liabilities

Equity 24

Changes in financial liabilities with no impact on cash ﬂow

Equity 25

Capital management

Risk management 26

Financial risk management

Group structure 27

Business combinations

Group structure 28

Subsidiaries and material non-controlling interests

Group structure 29

Interests in associates and joint arrangements

Other 30

Contingent assets and liabilities and commitments

Related party transactions

Other 32 Events after the balance sheet date 94

Parent company financial statements, main calculations, FAS

Parent company balance sheet and income statement FAS

Parent company cash ﬂow statement FAS 96

Parent company notes to financial statements, FAS 97

Signatures to the Report by the Board of Directors and the Financial Statements 102

Auditor’s report 103

Information for shareholders 107

BUSINESS AND STRATEGY

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Consolidated statement of comprehensive income, IFRS

EUR 1,000 Note 1.1.-31.12.2020 1.1.-31.12.2019

Revenue

1 508 682 518 596

Other operating income 2 2 379 1 630

Materials and services 3 -197 977 -200 212

Employee benefit expenses 4 -214 235 -221 967

Other operating expenses 6 -46 397 -50 205

Share of profit in associated companies and joint ventures

29 -7 2

EBITDA

52 445 47 844

Depreciation, amortisation and impairment 7 -34 255 -37 653

Operating profit

18 191 10 191

Financial income 9 232 120

Financial expenses 10 -4 637 -4 047

Financial income and expenses

-4 404 -3 926

Profit before taxes

13 786 6 264

Income tax 11 -4 845 -1 784

Profit for the period

8 941 4 480

Total comprehensive income for the period

8 941 4 480

To the owners of the parent company 8 720 3 365

To non-controlling interests 221 1 115

Earnings per share for profit attributable to

owners of the parent company, EUR

Basic 12 0,39 0,15

Diluted 0,39 0,15

Consolidated statement of financial position, IFRS

EUR 1,000 Note 31.12.2020 31.12.2019

Non-Current assets

Property, plant and equipment 13 43 996 53 237

Goodwill 14 173 607 173 607

Other intangible assets 14 16 337 19 084

Right-of-use assets 15 102 832 108 109

Interests in associates 29 17 24

Other investments 126 146

Other receivables 16 5 503 1 975

Deferred tax assets 20 5 355 6 006

347 774 362 188

Current assets

Note 31.12.2020 31.12.2019

Inventories 3 400 2 322

Trade and other receivables 17 75 771 46 062

Current tax assets 1 886 869

Cash and cash equivalents 13 306 27 004

94 364 76 258

Total assets

442 138 438 446

Equity and liabilities

Equity attributable to owners of the parent 22

Share capital 80 80

Reserve for invested unrestricted equity 116 520 116 520

Retained earnings -6 839 -15 481

109 761 101 119

Non-controlling interests 5 230 4 965

Total equity 114 990 106 083

Liabilities

Non-currents liabilities

Deferred tax liabilities 20 5 761 5 726

Provisions 18 114 170

Lease liabilities 15 95 475 96 404

Financial liabilities 21 92 523 103 862

Other non-current liabilities 1 152 1 302

195 024 207 465

Current liabilities

Trade and other payables 19 109 352 102 002

Current tax liabilities 2 004 423

Provisions 18 648 1 636

Lease liabilities 15 18 705 17 747

Financial liabilities 21 1 415 3 090

132 124 124 898

Total liabilities

327 147 332 362

Total equity and liabilities

442 138 438 446

BUSINESS AND STRATEGY

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Consolidated statement of cash ﬂows, IFRS

EUR 1,000 Note 1.1.-31.12.2020 1.1.-31.12.2019

Cash flow from operating activities:

Profit for the financial year attributable to the owners of the parent 8 720 3 365

Taxes 4 845 1 784

Depreciation, amortisation and impairment 34 255 37 653

Financial income and expenses 4 411 3 925

Other 155 964

Net cash generated from operating activities before change in working capital 52 387 47 691

Change in working capital -1 830 -6 227

Interest received 223 109

Taxes paid -3 594 -4 733

Net cash ﬂow from operating activities 47 185 36 840

Cash flow from investing activities:

Investments in property, plant and equipment and intangible assets -9 878 -15 406

Proceeds from disposal of property, plant and equipment and intangible assets 6 843 801

Changes in other investments 20 -1

Dividends received 10 11

Acquisition of subsidiaries less cash and cash equivalents at date of acquisition 27 -1 400 -4 857

Net cash ﬂow from investing activities -4 406 -19 452

Cash flow from financing activities:

Acquisitions of non-controlling interests -18 282 -1 267

Acquisition of own shares -692

Proceeds from short-term liabilities 24 501

Repayment of short-term liabilities 24 -501

Proceeds from long-term liabilities 24 0 9 000

Repayment of long-term liabilities 24 -11 675 -1 785

Repayment of lease liabilities 24 -20 604 -22 656

Interest and other operational financial expenses -4 512 -3 838

Dividends paid and other profit distribution -212 -6 653

Net cash ﬂow from financing activities -56 477 -26 699

Changes in cash and cash equivalents -13 697 -9 312

Cash at the beginning of the financial year 27 004 36 316

Cash at the end of the financial year 13 306 27 004

BUSINESS AND STRATEGY

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Consolidated statement of changes in equity, IFRS

Equity attributable to owners of the parent company

Share capital

Reserve for invested

unrestricted equity Retained earnings

Non-controlling

interests Total equity

Total equity, 1 Jan. 2019 80 116 520 4 551 9 171 130 322

Profit for the period 3 365 1 115 4 480

Total comprehensive income for the period 3 365 1 115 4 480

Dividends paid -2 262 -4 930 -7 192

Investments in group subsidiaries, 95 -91 5

Total transactions with owners -2 167 -5 021 -7 188

Changes in NCI without a change in control -21 230 -301 -21 531

Total changes in subsidiary shareholdings -21 230 -301 -21 531

Total equity, 31 Dec. 2019 80 116 520 -15 481 4 965 106 083

Equity attributable to owners of the parent company

Share capital

Reserve for invested

unrestricted equity Retained earnings

Non-controlling

interests Total equity

Total equity, 1 Jan. 2020 80 116 520 -15 481 4 965 106 083

Profit for the period 8 720 221 8 941

Total comprehensive income for the period 8 720 221 8 941

Dividends paid 0 -312 -312

Acquisition of own shares -692 -692

Share-based benefits 1 312 0 1 312

Total transactions with owners 620 -312 308

Changes in NCI without a change in control -698 356 -342

Total changes in subsidiary shareholdings -698 356 -342

Total equity, 31 Dec. 2020 80 116 520 -6 839 5 230 114 990

BUSINESS AND STRATEGY

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Accounting policies

Company profile

Pihlajalinna is one of the leading private social and

healthcare service providers in Finland. The Group serves

private persons, companies, insurance companies and

public sector entities, such as municipalities and hospital

districts. Pihlajalinna provides a broad range of social and

healthcare services as well as wellbeing services. The ser-

vice selection includes general practitioner and medical

specialist services, occupational healthcare, social and

healthcare outsourcing, fitness centre services, respon-

sible doctor and remote consultation services as well as

residential services and stang services.

At the end of the financial year, the total number of

Pihlajalinna’s private clinics, hospitals, dental clinics,

fitness centres and service housing units with 24-hour

assistance was approximately 140. In addition, Pihlajalinna

has four major complete social and healthcare outsourc-

ing agreements that collectively cover some 60 locations

(including health centres, maternity and child health

clinics, service housing units with 24-hour assistance and

daytime activity centres).

The Group’s parent company, Pihlajalinna Plc, is a Finn-

ish public limited company established under the laws

of Finland, whose Business ID is 2617455-1. The compa-

ny 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 oce 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 18 February 2021. 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.

Basis of preparation

The consolidated financial statements have been pre-

pared in accordance with the International Financial Re-

porting Standards (IFRS), and their preparation complies

with the IAS and IFRS as well as SIC and IFRIC interpre-

tations eective on 31 December 2020. International

Financial Reporting Standards, as intended in the Finnish

Accounting Act and the regulations issued pursuant to

the Act, refer to the standards that have been approved

for application within the EU in accordance with Regula-

tion (EC) No. 1606/2002 and interpretations thereof. The

notes to the consolidated financial statements also com-

ply with the Finnish accounting and company legislation

that complements the IFRS regulations.

Accounting policies that inﬂuence a particular note to

the consolidated financial statements are indicated with

the heading Accounting policies in the note in question.

The consolidated financial statements are presented in

euros and all figures are rounded to the nearest thousand,

unless otherwise specified.

New and revised standards and

interpretations applied in the past

financial year

In 2020, the Group has adopted the following amended

standards published by the IASB. They are not, however,

estimated to have a material eect on Pihlajalinna’s finan-

cial statements.

Amendments to IFRS 3 Business Combinations — Defini-

tion of a Business (eective for financial years beginning

on or after 1 January 2020)

The amendments are intended to assist entities to

determine whether a transaction should be accounted

for as a business combination or as an asset acquisition.

The amendments clarify the minimum requirements for

a business, remove the assessment of whether market

participants are capable of replacing any missing inputs

or processes, specify the definitions of business and

outputs and provide additional guidance to assist entities

in assessing whether the object of an acquisition is an

independent process. The amendments also introduce an

optional fair value concentration test.

Amendments to IAS 1 Presentation of Financial

Statements and IAS 8 Accounting Policies, Changes in

Accounting Estimates and Errors — Definition of Mate-

rial (eective for financial periods beginning on or after 1

January 2020)

The purpose of the amendments is to align the defi-

nition of “material” across the standards and to clarify

certain aspects of the definition. The amendments clarify

that materiality will depend on the nature or magnitude

of information, or both.

Amendments to IFRS 9 Financial Instruments, IAS 39:

Financial Instruments: Recognition and Measurement

and IFRS 7 Financial Instruments: Disclosures — Interest

Rate Benchmark Reform (eective for annual periods

beginning on or after 1 January 2020)

Amendments have been issued to address uncertainties

related to the reform of interbank oered rates (IBOR).

The amendments provide targeted relief for financial in-

struments qualifying for hedge accounting in the lead-up

to IBOR reform.

BUSINESS AND STRATEGY

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Amendments to IFRS 16 Leases — COVID-19-related

Rent Concessions (eective for financial years beginning

on or after 1 June 2020)

The amendment gives lessees the opportunity to apply

a practical expedient that simplifies the accounting

treatment of rent concessions that are the direct result of

COVID-19. Lessees that apply the practical expedient are

not required to assess whether rent concessions con-

stitute changes in leases if the criteria presented in the

amendment to the standard are fulfilled. The expedient

was not applied to the financial statements for 2020.

Consolidation principles

Subsidiaries

Subsidiaries are entities in which the Group exercises

control. The Group has control of an entity when it is ex-

posed, or has rights, to variable returns from its involve-

ment with the entity and has the ability to aect 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 ac-

quisition. Acquisition-related costs are expensed. Any

contingent consideration is measured at fair value at the

date of acquisition and classified as a liability. If the initial

accounting for a business combination is incomplete by

the end of the reporting period in which the combination

occurs, the Group reports in its financial statements pro-

visional amounts for the items for which the accounting

is incomplete. During the measurement period, the Group

retrospectively adjusts the provisional amounts recog-

nised at the acquisition date to reﬂect any new informa-

tion. The measurement period may not exceed one year

from the acquisition date. A contingent consideration

classified as a liability is measured at fair value at the end

of each reporting period, and any resulting gain or loss is

recognised in profit or loss after the end of the measure-

ment period.

Non-controlling interests in the acquiree are recognised

either at fair value or an amount that corresponds to their

pro rata share of the acquiree’s net assets. The amount

by which the consideration transferred, non-controlling

interests in the acquiree and previously owned holding

combined exceed the fair value of the acquired net assets

is recognised as goodwill in the consolidated statement

of financial position. If the combined value of the consid-

eration, non-controlling interests and previously owned

holding is lower than the fair value of the acquiree’s net

assets, the dierence is recognised in the statement of

comprehensive income.

Acquired subsidiaries are consolidated from the date

when the Group obtained control, and disposed subsidi-

aries are consolidated until the date when the Group lost

control. All intragroup transactions, receivables, liabili-

ties, 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 compa-

ny and to the non-controlling interests is presented in

the consolidated statement of comprehensive income.

Comprehensive income is attributed to the owners of

the parent company and to the non-controlling interests,

even if this would lead to a situation where the portion

attributable to the non-controlling interests is negative.

The portion of equity attributable to the non-controlling

interests is presented as a separate item under equity in

the consolidated statement of financial position. Such

changes in the parent company’s ownership interest in a

subsidiary that do not lead to loss of control are treated

as equity transactions.

In connection with step-by-step acquisitions, the for-

mer 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 dierence is recognised in

profit or loss.

Associates and joint arrangements

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 arrange-

ment, 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 arrange-

ment whereby the Group has rights to the net assets of

the arrangement, whereas in a joint operation the Group

has rights to the assets, and obligations for the liabilities,

relating to the arrangement.

Associates and joint ventures are consolidated using

the equity method. If the Group’s share of the loss of an

associate or a joint venture exceeds the carrying amount

of the investment, then the investment is carried at zero

value, and the losses exceeding the carrying amount

are not consolidated, unless the Group is committed to

fulfilling the obligations of the associate or joint venture.

An investment in an associate or a joint venture includes

the goodwill generated through the acquisition. Unre-

alised 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 as-

sociate’s or a joint venture’s profit for the financial year is

included in operating profit.

The Group owns 31% in Kiinteistö Oy Levin Pihlaja,

which is consolidated as a joint operation according to

the pro rata share, using the proportionate consolidation

method.

Foreign currency translation

The consolidated financial statements are presented in

euros, which is the functional currency and presenta-

tion 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

BUSINESS AND STRATEGY

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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.

Accounting policies requiring

management judgement and major

sources of estimation uncertainty

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 lat-

er 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 chang-

es in estimates and assumptions are recognised in the

financial year during which the estimate or assumption is

corrected and in all subsequent financial years. Addition-

ally, it is necessary to exercise judgement in the appli-

cation of the accounting policies. The most significant

estimates and assumptions are presented under the note

in question under the heading Key accounting estimates

and decisions based on management judgement.

New and revised standards and

interpretations to be applied in future

financial years

Amendments to IFRS 9 Financial Instruments, IAS 39:

Financial Instruments: Recognition and Measurement,

IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insu-

rance Contracts and IFRS 16 Leases* – Interest Rate Ben-

chmark Reform – Phase 2 (eective for annual periods

beginning on or after 1 January 2021)

Amendments address issues aecting financial state-

ments when changes are made to contractual cash ﬂows

and hedging relationships as a result of interest rate

benchmark reform. Amendments assist companies in

providing useful information about the eects of interest

rate benchmark reform on financial statements.

Amendments to IAS 16 Property, Plant and Equipment

— Proceeds before Intended Use* (eective for annual

periods beginning on or after 1 January 2022)

Under the amendments, proceeds from selling items

before the related item of PPE is available for use should

be recognised in profit or loss, together with the costs of

producing those items.

Amendments to IAS 37 Provisions, Contingent Liabili-

ties and Contingent Assets – Onerous Contracts – Costs

of Fulfilling a Contract* (eective for annual periods

beginning on or after 1 January 2022)

When an onerous contract is accounted for based on

the costs of fulfilling the contract, the amendments clarify

that these costs comprise both the incremental costs and

an allocation of other direct costs.

Annual Improvements to IFRS Standards 2018–2020*

(eective for annual periods beginning on or after 1 Jan-

uary 2022).

The annual improvements process provides a mecha-

nism for minor and non-urgent amendments to IFRSs to

be grouped together and issued in one package annually.

The amendments clarify the following standards:

• IFRS 1 First-time Adoption of International Financial Re-

porting Standards – Subsidiary as a first-time adopter:

A subsidiary that becomes a first-time adopter later

than its parent may elect to measure cumulative trans-

lation dierences at amounts included in the consoli-

dated financial statements of the parent.

• IFRS 9 Financial Instruments – Fees in the ‘10 per

cent’ test for derecognition of financial liabilities: This

amendment clarifies that – for the purpose of perform-

ing the ‘10 per cent test’ for derecognition of financial

liabilities – in determining those fees paid net of fees

received, a borrower includes only fees paid or received

between the borrower and the lender, including fees

paid or received by either the borrower or lender on

the other’s behalf.

• IFRS 16 Leases, example 13: The amendment removes

the illustration of payments from the lessor relating to

leasehold improvements. The example was not clear as

to why such payments are not a lease incentive.

BUSINESS AND STRATEGY

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1. Revenue from contracts with

customers and segment information

Accounting policies

The Group’s revenue consists of payments related to the

sale of healthcare services, social services and wellbeing

services measured at fair value, adjusted by any discounts

and other adjustment items. The healthcare services

provided by the Group consist of occupational health

services, services provided at private clinics, hospitals

and remotely, responsible doctor services, diagnostics

services, rehabilitation services and dental care servic-

es. The social services provided by the Group consist of

services for the elderly and the disabled, mental health

and substance abuse group services, and asylum seek-

er reception centre operations. A significant part of

the consolidated revenue consists complete social and

healthcare outsourcing, which also includes the provider’s

liability for the costs of specialised care. The Group also

provides wellbeing services and physician recruitment

services. Forever fitness centres oer diverse wellbeing

services for adults who exercise. Fitness centre servic-

es complement Pihlajalinna’s preventive occupational

healthcare services and rehabilitation services carried out

after specialised care procedures.

The Group recognises the remunerations of employed

healthcare professionals, contract-based practitioners

and holders of Series B shares of Pihlajalinna Terveys Oy

(arrangement valid until 30 November 2020) as revenue

on a gross basis, i.e. based on total customer invoicing.

According to the management’s view, Pihlajalinna has

primary responsibility for the provision of services to its

customers. Therefore, the Group is involved in a contrac-

tual relationship as a principal which is exposed to sig-

nificant risks and benefits related to the sale of services.

The Group records the remunerations of contract-based

practitioners and holders of Series B shares of Pihlajalinna

Terveys Oy in the income statement under the item Exter-

nal services.

IFRS 15 Revenue from Contracts with Customers

includes a five-step model for recognising revenue from

contracts with customers: when to recognise revenue,

and at what amount. Revenue can be recognised over

time or at a point in time, and the passing of control is

a key criterion. Pihlajalinna has identified the following

major performance obligations:

Social and Healthcare Outsourcings

• statutory social and healthcare services of a

municipality’s residents separately described in the

contracts with customers

• individual social and healthcare service visits by

residents of other municipalities

Residential services (including asylum seeker

reception centres)

• statutory social and healthcare services separately

described in the contracts with customers

• capacities of reception centres on each day covered

by the agreement

• elderly care home services on each day covered

by the agreement

• individual separately charged additional services or

health centre visits

Private Clinics and Dental Care

• individual customer visits to healthcare services at

operating locations or remotely

Surgical Operations and Public Specialised Care

• statutory social and healthcare services of a

municipality’s residents separately described in the

contracts with customers

• individual social and healthcare service visits by

residents of other municipalities

• other individual visits (e.g. private individuals who pay

for their services themselves or through insurance

companies)

Occupational healthcare

• individual occupational healthcare customer visits (e.g.

appointments with occupational healthcare nurses and

doctors, laboratory tests) at operating locations or

remotely

• preventive and health-promoting separately agreed

services (e.g. occupational health check-ups,

workplace-specific occupational health surveys)

• other additional services agreed upon with the

customer (e.g. first aid course)

Fitness centre services

• obligations related to monthly and annual fees for

fitness centre services

• individual separately charged additional services

Notes to the consolidated

financial statements, IFRS

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Recruitment services

• customer-specific monthly fees for recruitment services

• individual separately charged recruitment services

Responsible doctor services

• location-specific daily charges described in the

customer agreement

Stang service

• selling a healthcare professional’s labour event-

specifically or based on time

• customer-specific monthly fees for emergency and

on-call services

The transaction price primarily comprises individual

services according to the price list or annual, monthly,

daily or hourly rates based on customer agreements. In

most cases, the price concerns an individual performance

obligation. In some cases, the price includes a variable

element of consideration (e.g. discount, penalty charge,

bonus), which is allocated to one or more performance

obligations. The performance obligations are primarily

fulfilled either over time (e.g. outsourcings, residential

services, fitness centre services, recruitment services,

responsible doctor services) or at a point in time (e.g.

occupational healthcare services, individual customer

visits, additional services).

The performance obligation in social and healthcare

outsourcings is the municipality’s statutory social and

healthcare service operations described in the customer

agreement. The outsourcings are primarily based on a

fixed annual price, and they are recognised as revenue

over time. The recognition of revenue from the Group’s

complete social and healthcare services outsourcing

agreements may become more accurate with a delay. The

Group may not always be aware of the actual costs of the

agreements, which may also aect revenue recognition.

Revenue from individual services is recognised on a

treatment visit-specific or service--specific basis based

on service use.

Pihlajalinna’s CEO makes significant operation-

al decisions at the Group level. The senior operating

decision-maker monitors the Group’s result. The key

performance indicators that are monitored are EBITDA

and operating profit. Adjusted EBITDA and adjusted

operating profit also provide significant additional infor-

mation on profitability, as these alternative performance

measures eliminate items that do not necessarily reﬂect

the profitability of the company’s operative business. The

alternative performance measures, adjusted EBITDA and

adjusted operating profit, improve comparability between

periods.

The adjustment items of these alternative performance

measures are specified in Note 8 Adjusted EBITDA and

adjusted operating profit.

Key accounting estimates and decisions based on

management judgement

Determining the annual profitability of the Group’s fixed-

term complete social and healthcare services outsourc-

ing agreements may become accurate with a delay. The

Group may not always be aware of the actual costs of

the agreements at the time of preparing the financial

statements, and the agreements may involve variable ele-

ments of compensation. The cost accumulation of public

specialised care involves random ﬂuctuation. In addition,

individual cases falling within the scope of the hospital

districts’ pooling system for high-cost care may inﬂuence

the cost liability of specialised care considerably during

the financial year, and between financial periods, in

Pihlajalinna’s municipal companies.

The fixed-term service agreements for all of the

Group’s complete outsourcing arrangements are highly

similar with regard to their principles and basic terms.

Pihlajalinna has calculated and recognised the variable

compensation components and cost compensation under

the agreements using the same criteria and model for all

clients. Demands for the compensation of cost increases

due to changes in services corresponding to the actual

costs and investment costs that serve operations after

the end of the term of the contract being the client’s

responsibility constitute the majority of costs and varia-

ble compensation components that are specified with a

delay. For 2020, the assessment of investment costs and

COVID-19 related costs included in invoicing by hospital

districts can only be carried out after the hospital

districts have published their financial statements.

Pihlajalinna has recognised only part of these legally

justified claims in its income statement. The parties to the

agreements are bound by an obligation to negotiate and

negotiation is the primary procedure. If the obligation to

negotiate does not lead to payment, the receivables are

sought through legal action, which may further delay the

collection of items presented in current receivables in the

financial statements.

Revenue by region

Pihlajalinna reports its sales revenue divided into the

following geographical regions:

• Southern Finland includes Pihlajalinna’s business oper-

ations in the regions of Uusimaa, South West Finland,

Päijät-Häme, Kymenlaakso and South Karelia.

• Mid-Finland includes Pihlajalinna’s business operations

in the regions of Pirkanmaa, Satakunta, Kanta-Häme,

Central Finland, South Savo, North Karelia and North

Savo.

• Ostrobothnia includes Pihlajalinna’s business operations

in the regions of Southern Ostrobothnia, Ostrobothnia

and Central Ostrobothnia.

• Northern Finland includes Pihlajalinna’s business

operations in the regions of North Ostrobothnia,

Kainuu and Lapland.

EUR 1,000 2020 % 2019 %

Southern Finland 114 749 20 118 198 20

Mid-Finland 316 810 55 324 140 56

Ostrobothnia 116 808 20 115 676 20

Northern Finland 16 176 3 14 703 3

Other operations 9 755 2 7 705 1

Intra-Group sales -65 617 -61 826

Total consolidated

revenue

508 682 100 518 596 100

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Sales revenue by customer group

Pihlajalinna’s customer groups are corporate customers, private customers and public

sector customers.

• The Group’s corporate customer group consists of Pihlajalinna’s occupational health

customers, insurance company customers and other corporate contract customers.

• The Group’s private customers are private individuals who pay for services themselves

and may subsequently seek compensation from their insurance company.

• The Group’s public sector customer group consists of public sector organisations in

Finland, such as municipalities, joint municipal authorities, congregations, hospital dis-

tricts and the public administration when purchasing social and healthcare outsourcing

services, residential services, occupational health services and stang services.

EUR 1,000 2020 % 2019 %

Corporate customers 124 023 22 118 758 20

of which insurance company custo

mers 29 830 5 27 587 5

Private customers 79 820 14 97 837 17

Public sector 370 456 65 363 827 63

of which complete outsourcing 287 897 50 285 541 49

of which stang 22 892 4 23 600 4

of which occupational healthcare and

other services 59 667 10 54 686 9

Intra-Group sales -65 617 -61 826

Total consolidated revenue 508 682 100 518 596 100

Information on key customers

The Group’s sales revenue from the four largest municipal customers totalled approx-

imately EUR 272.2 (257.1) million, representing 54% (50%) of the Group’s eliminated

revenue.

Estimate of unsatisfied performance obligations related to fixed-term service agreements

on the provision of social and healthcare services, EUR million

EUR 1,000 31.12.2020 31.12.2019 EUR 1,000 31.12.2020 31.12.2019

2020 251 2029 195 185

2021 259 252 2030 158 149

2022 260 253 2031 6

2023 262 254 2032 6

2024 263 252 2033 6

2025 240 253 2034 6

2026 192 182 2035 6

2027 193 183

2028 194 184 2 246 2 398

Kristiinankaupunki selected Pihlajalinna as the service provider of the city’s partially outsourced social

and healthcare services. The service production began on 1 January 2021. The term of the contract

is at least 15 years but not more than 20 years. According to the tendering, the annual value of the

contract is approximately 6 million euros. Therefore, the value is approximately 90 million euros for 15

years without index increases. With the option period taken into account, the total value is approxi-

mately 120 million euros without index increases. The estimated value of the contract is based on the

current cost level of production of services.

Summary of the Group’s complete and partial outsourcing agreements

and their agreement periods

Service provider – client

First year of service production

under the current contract

Duration of contract

(years)

Jämsän Terveys Oy – City of Jämsä 2015 10

Kuusiolinna Terveys Oy – KuusSote 2016 15

Mäntänvuoren Terveys Oy –

City of Mänttä-Vilppula

2016 15

Kolmostien Terveys Oy – City of Parkano 2015 15

Bottenhavets Hälsa Ab (Selkämeren Terveys

Oy) – Kristiinankaupunki

2021 15–20 years

BUSINESS AND STRATEGY

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2. Other operating income

Accounting policies

Government grants received as compensation for expenses already incurred are recog-

nised in profit or loss for the period in which they become receivable. These grants are

presented under other operating income.

Government grants related to capitalised development projects are recognised as

deductions from the carrying amounts of intangible assets, when there is reasonable

assurance that such grants will be received and that the Group will comply with the con-

ditions for receiving them. The grants will be recognised as income over the useful life of

an asset by way of reduced depreciation.

The Group has subleased certain premises that are not used for business operations.

Income from these leases is presented under other operating income.

Sale and leaseback

With regard to sale and leaseback agreements completed prior to the adoption of IFRS

16, the Group will continue the allocation of capital gains as before in accordance with

the transition provision of IFRS 16.

If a finance lease is created as a result of a sale and leaseback agreement, the dier-

ence between the carrying amount and the sales price will be recognised in the con-

solidated statement of financial position and recognised as income over the lease term

under other operating income. The unrecognised portion of the dierence between the

carrying amount and the sales price is presented as Other liabilities in the statement of

financial position.

EUR 1,000 2020 2019

Capital gains on property, plant and equipment 235 258

Rental income 550 368

Government grants 1 379 680

Other income items 215 323

Total 2 379 1 630

In June 2020, the Finnish Government decided on support for business costs for companies that had

suered a significant decrease in revenue due to the COVID-19 epidemic and that have had costs that

are dicult to adjust. Pihlajalinna recognised financial support intended primarily to cover the fixed

costs of the Group’s fitness centres in other operating income under government grants. Pihlajalinna

received EUR 800 thousand in cost support, which is the Group-specific maximum amount.

3. Materials and services

Accounting policies

Pihlajalinna Terveys Oy, a Group subsidiary, had a second series of shares (Series B) until

30 November 2020, which had contingency funds associated with them. Funds accumu-

lated 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 was included in current liabilities

under the item Other liabilities, presented in Note 19 Trade and other payables and Note

21 Financial assets and liabilities by measurement category. Work contribution-based

dividends paid by the company was an income tax deductible item.

2020 2019

Materials -19 967 -19 343

Change in inventories 1 092 -217

External services, practitioners -71 931 -76 508

External services, other -107 171 -104 144

Total -197 977 -200 212

4. Employee benefit expenses

Accounting policies

Pension plans are generally classified as defined benefit plans and defined contribution

plans. The Group only has defined contribution plans. In defined contribution plans, the

Group makes fixed payments to a separate unit. The Group has no legal or constructive

obligation to make additional payments if the recipient of the payments is incapable of

paying out said retirement benefits. Payments made into the defined contribution plans

are recognised in profit or loss for the financial year for which they are charged.

2020 2019

Wages and salaries -179 381 -185 266

Share-based incentive schemes

- implemented as shares -1 517 -266

Pension costs – defined contribution plans -27 009 -30 956

Other social security expenses -6 327 -5 479

Total -214 235 -221 967

The employer’s TyEL pension contributions were reduced by 2.6 percentage points for the period 1

May–31 December 2020. The pension insurance company will not pay customer compensation for the

period during which the reduced rate was in eect. The eect of the temporary reduction in the em-

ployer’s TyEL pension contributions will be compensated in full during the period 2022–2025 through

an increase in the employer’s TyEL pension contributions.

BUSINESS AND STRATEGY

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2020 2019

Personnel on average (FTE) 4 308 4 515

Personnel at the end of the period (NOE) 5 995 5 815

Information on the employee benefits and loans of members of management considered to be related

parties is presented in Note 31 Related party transactions.

5. Share-based incentive scheme for key personnel

At its meeting on 14 February 2019, the Board of Directors approved the terms of a

share-based long-term incentive programme for Pihlajalinna Group’s senior management

(LTI 2019). The incentive programme is eective from 1 January 2019 onwards and it is

aimed at the CEO, the Management Team and other key employees selected for inclu-

sion in the programme. LTI 2019 includes an overall five-year plan period and none of

the share rewards received by the key employees thereunder may be sold or transferred

prior to the year 2022 and, as a rule, they also include a restriction period of the same

duration. In the event that a beneficiary’s employment ends during the restriction period,

shares that have already been received must be returned. The key employee is required

to have made an investment in Pihlajalinna shares as a precondition for participation in

the programme. At the end of the financial year, the incentive programme included 20

key employees.

The fixed matching share programme (commitment shares) consisted of a commit-

ment period from the beginning of 2019 to the payment of the fixed share reward at the

end of 2020. In this scheme, the company matched each key employee’s share invest-

ments with additional shares at a fixed rate. A total of 97,000 matching shares were

awarded. This figure is the gross reward, from which the applicable taxes were deducted,

leaving a net amount of 45,105 shares that were transferred to the participants on 28 De-

cember 2020. The shares are subject to a transfer restriction but not a restriction period.

The performance- and quality-based matching share plan includes three one-year

performance periods (the calendar years 2019–2021), during which the participants can

earn performance-based additional shares, provided that the company reaches the per-

formance objectives set by the Board of Directors. Based on each individual performance

period, the participant can earn a maximum of two additional shares for three shares

invested without consideration (gross before the deduction of the applicable payroll tax).

The performance-based share rewards will be delivered after the respective performance

periods in the spring of 2020, 2021 and 2022.

No performance- and quality-based share rewards materialised for the first perfor-

mance period 2019 pursuant to the matching share plan, as the minimum objectives set

for the programme were not achieved.

For the second performance period of 2020 under the performance- and quali-

ty-based matching share plan, the gross reward for the Group’s management is 56,583

shares. The shares will be paid to the partic-ipants after the financial statements have

been completed. The shares are subject to the normal transfer restriction but not a re-

striction period.

6. Other operating expenses

EUR 1,000 2020 2019

Facility expenses -9 600 -9 282

Equipment and information management expenses -20 425 -20 595

Sales and marketing expenses -6 065 -8 046

Other expenses -10 307 -12 282

Total -46 397 -50 205

Auditor’s fees

Auditing, BDO -92 -100

Auditing, KPMG Oy Ab -225 -231

Statements, KPMG Oy Ab -7 -13

Non-audit services, KPMG Oy Ab -16 -3

Total -340 -347

7. Depreciation and impairment

Accounting policies

Property, plant and equipment will be depreciated using the straight-line method over

their estimated economic useful lives. The estimated economic useful lives are as follows:

Buildings 10 – 25 years

Renovation expenses on real estate 5 – 10 years

Machinery and equipment 3 – 10 years

Other tangible assets 3 – 5 years

For the magnetic imaging equipment at new private clinics, the Group adopted a

units-of-production based depreciation method eective from 1 January 2018. The

amount of depreciation is based on the units of production derived from the equipment.

For the Group’s other machinery and equipment, the Group still uses straight-line depre-

ciation. As the utilisation rate of imaging capacity is low during the first years of a new

operating location, the units-of-production method provides a more accurate reﬂection

of the actual economic use of the magnetic imaging equipment in question.

For intangible assets with finite economic useful lives, the amortisation periods are as

BUSINESS AND STRATEGY

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follows:

Trademarks 10 years

Development costs 3–10 years

Other intangible assets

Customer agreements 4 years

Patient database 4 years

Non-competition agreements 2–5 years

Intellectual property rights 3–7 years

Property, plant and equipment is depreciated on a straight-line basis over the shorter of

economic useful life or lease term.

The planned depreciation periods of property, plant and equipment are as follows:

Right-of-use plots 25 years

Right-of-use buildings and business premises 1–15 years

Right-of-use equipment 3–10 years

Impairment is recognised pursuant to IAS 36 for onerous right-of-use buildings and

business premises.

Depreciation, amortisation and impairment by asset type 2020 2019

Intangible assets

Trademarks -776 -776

Capitalised development costs -924 -790

Other intangible assets related to purchase price allocations -2 321 -3 784

Other intangible assets -2 504 -2 089

-6 525 -7 438

Property, plant and equipment

Buildings -170 -120

Renovation expenses on real estate -2 620 -2 119

Machinery and equipment -6 012 -5 440

Other tangible assets -1 -4

-8 803 -7 682

Right-of-use assets

Right-of-use plots -120 -125

Right-of-use business premises and buildings -17 578 -17 738

Right-of-use business premises and buildings, impairment -26 -3 189

Right-of-use equipment -1 202 -1 480

Poistot ja arvonalentumiset yhteensä -34 255 -37 653

8. Adjusted EBITDA and adjusted operating profit

Accounting policies

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 operat-

ing 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 con-

cept 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, em-

ployee benefit expenses, depreciation, amortisation and any impairment losses, as well as

other operating expenses. All income statement items other than those stated above are

presented below operating profit.

Significant transactions that are not part of the normal course of business or are infre-

quently occurring, and valuation items that do not aect cash ﬂow, are treated as items

aecting comparability between reporting periods. According to Pihlajalinna’s defini-

tions, such items include, for example:

BUSINESS AND STRATEGY

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• restructuring measures and Group refinancing

• impairment of assets and/or remeasurement to fair value of pre-existing interest in

acquiree

• expenses arising from discontinuation of business activities and business locations, or

gains and losses arising from divestments

• expenses from restructuring of operations and integration of acquired businesses

• dismissal-related expenses

• fines and corresponding compensation payments

Pihlajalinna does not recognise adjustments aecting comparability for the following

items:

• transfer taxes and expert fees related to acquisitions, and

• purchase price allocation amortisation of intangible assets (PPA amortisation).

The reconciliation calculations for adjusted EBITDA and adjusted operating profit and

the justifications for their presentation are as follows:

EBITDA indicates how much is left of the company’s revenue after deducting operating

expenses. Assessments of whether EBITDA is suciently high should take into account

the company’s financial expenses, depreciation requirements and intended profit distri-

bution. Adjusted EBITDA provides significant additional information on profitability by

eliminating items that do not necessarily reﬂect the profitability of the company’s opera-

tive business. Adjusted EBITDA improves comparability between periods and is frequent-

ly used by analysts, investors and other parties.

Operating profit indicates how much is left of the proceeds of actual business oper-

ations before financial items and taxes. With operating profit, the company must cover,

among other things, financial expenses, taxes and the distribution of dividends. Adjusted

operating profit provides significant additional information on profitability by eliminating

items that do not necessarily reﬂect the profitability of the company’s operative busi-

ness. Adjusted operating profit improves comparability between periods and is frequent-

ly used by analysts, investors and other parties.

The Group’s CEO and Management Team monitor and forecast adjusted EBITDA and

adjusted operating profit.

EUR 1,000 2020 2019

EBITDA 52 445 47 844

Adjustments to EBITDA

Dismissal-related expenses -60 3 019

Compensation under the share-based incentive scheme in relation

to the expired tender oer

1 517 266

Change in fair value of contingent consideration 281

IAS 37, contingent assets 1 845

Onerous contracts 1 843

Other 747 30

Adjustments to EBITDA in total 2 204 7 284

Adjusted EBITDA 54 649 55 127

Depreciation, amortisation and impairment 34 255 37 653

Adjustments to depreciation, amortisation and impairment

Double depreciation arising from a merger with no cash ﬂow eect 354

Closure of operating locations 26 3 337

Adjustments to depreciation, amortisation and impairment in total

381 3 337

Adjustments to operating profit in total 2 585 10 621

Adjusted operating profit (EBIT) 20 775 20 812

Operating profit (EBIT) 18 191 10 191

Financial income 232 120

Financial expenses -4 637 -4 047

Income taxes -4 845 -1 784

Profit for the period 8 941 4 480

The adjustment items are presented in the income statement

items as follows:

Revenue 1 845

Employee benefit expenses 1 457 3 566

Other operating expenses 747 1 873

EBITDA adjustment items total 2 204 7 284

Depreciation, amortisation and impairment 381 3 337

Operating profit adjustment items total 2 585 10 621

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9. Financial income

EUR 1,000 2020 2019

Dividend income from financial assets measured at fair value

through profit or loss

10 11

Interest income from loans and receivables 94 90

Interest income from subleases 94 2

Other financial income 34 17

Total 232 120

10. Financial expenses

EUR 1,000 2020 2019

Interest expenses from financial liabilities carried at amortised

cost

-2 128 -1 772

Interest expenses on lease liabilities -1 900 -1 864

Other financial expenses -609 -411

Total -4 637 -4 047

Due to the changes in the operating environment caused by the COVID-19 epidemic,

Pihlajalinna and the creditor banks agreed on a temporary adjustment to the covenants

of the financing arrangement at the end of March 2020. As part of the agreement, a per-

manent new margin ceiling was added to the financing arrangement. The margin ceiling

will enter into eect if leverage exceeds 3.50. Net financial expenses were increased

by a waiver expense associated with a financing arrangement and higher interest rate

margins.

11. Income taxes

Accounting policies

The income taxes on the consolidated income statement consist of current tax, adjust-

ments to taxes for previous periods, and deferred taxes. Taxes are recognised in profit

or loss, except when they are directly attributable to items recognised under equity or

other comprehensive income. In such cases, also the tax is recognised under the item in

question. Current tax is calculated on taxable profit, based on the enacted tax rate. Tax is

adjusted with any taxes associated with prior financial years. Any penal interests related

to said taxes are recognised under financial expenses. The share of associates’ profit is

presented in the statement of comprehensive income as calculated from net profit and

thus including the income tax charge.

EUR 1,000 2020 2019

Current taxes -4 159 -4 110

Taxes for the previous financial years -2 -11

Deferred taxes:

Origination and reversal of temporary dierences -685 2 337

Total -4 845 -1 784

Reconciliation of eective tax rate

EUR 1,000 2020 2019

Profit before taxes 13 786 6 264

Taxes calculated on the basis of the Finnish tax rate (20%) -2 757 -1 253

Income not subject to tax 2 2

Non-deductible expenses 67 -64

Unrecorded deferred tax assets from tax losses -318 -550

Utilised prior losses with unrecognised tax benefits 81 51

Share of associated company’s profit -1 0

Fair value measurement of contingent consideration 0 -56

Share-based remuneration -59

Payment of liability to B series shareholders (end of arrange-

ment) -1 938 -11

Other items 80 108

Taxes for prior financial years -2 -11

Taxes in the income statement -4 845 -1 784

Eective tax rate -35,1 % -28,5 %

12. Earnings per share

Accounting policies

Earnings per share is calculated by dividing the profit for the financial year attributable

to owners of the parent by the weighted average number of shares outstanding during

the financial year.

Earnings per share for the financial year attributable to owners of the parent are calcu-

lated 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 dilution eect of the diluted earnings per share is attributable to a share-based

incentive programme.

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2020 2019

Profit for the financial year attributable to owners of the parent, EUR

8 719 803,93 3 365 143,62

Number of shares outstanding, weighted average 22 586 212 22 620 135

Earnings per share (EPS), EUR/share 0,39 0,15

Diluted earnings per share, EUR/share 0,39 0,15

13. Property, plant and equipment

Accounting policies

Property, plant and equipment are measured at cost less accumulated depreciation and

impairment losses. Cost includes expenditures incurred directly from the acquisition of

an item of property, plant and equipment. Costs incurred subsequently are included in

the carrying amount of an asset only if it is deemed probable that any future economic

benefits related to the asset will ﬂow to the Group and that the cost of the asset can be

reliably determined. Other repair and maintenance costs will be expensed at the time

they are incurred.

The residual value, the useful life of an asset and the depreciation method applied are

reviewed at least at the end of each financial year and adjusted as necessary to reﬂect

the changes in the expectations concerning the economic benefits attached to the asset.

Capital gains generated from decommissioning and disposing of property, plant and

equipment are included under other operating income, and capital losses are included

under other operating expenses.

Assets are depreciated from the time when they are ready for use; i.e. when their loca-

tion and condition allow them to be applied as intended by the management.

In 2018, the Group opened private clinics in Turku, Oulu and Seinäjoki. The Group

acquired 3 Tesla high-field magnetic imaging equipment for the clinics in Oulu and

Turku and a 1.5 Tesla high-field magnetic imaging device for the clinic in Seinäjoki. For

the magnetic imaging equipment at these green field private clinics, the Group adopt-

ed a units-of-production based depreciation method eective from 1 January 2018. The

amount of depreciation is based on the units of production derived from the magnetic

imaging equipment. For the Group’s other machinery and equipment, the Group still uses

straight-line depreciation. As the utilisation rate of imaging capacity is very low during

the first years of a new operating location, the units-of-production method provides a

more accurate reﬂection of the actual economic use of the magnetic imaging equipment

in question than straight-line depreciation.

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Property, plant and equipment

EUR 1,000 Land areas Buildings

Renovation

expenses on real

estate

Shares in real

estate companies

Machinery and

equipment

Other tangible

assets

Construction in

progress Total

Cost at 1 January 2020 36 9 512 26 604 5 579 53 237 179 2 223 97 370

Additions 136 458 0 5 455 0 1 171 7 220

Transfers between items -27 2 625 -7 391 -7 -1 835 1 140

Disposals -6 683 -317 -3 499 0 -1 020 -11 519

Cost at 31 December 2020 36 2 937 29 370 5 572 55 584 172 539 94 209

Accumulated depreciation at 1January 2020 -404 -13 678 -30 039 -12 0 -44 133

Depreciation and amortisation -170 -2 620 -6 012 -1 0 -8 803

Transfers between items 22 -684 -364 5 0 -1 020

Disposals 141 317 3 284 0 0 3 742

Accumulated depreciation at 31December 2020 -410 -16 665 -33 130 -7 0 -50 213

Carrying amount at 1 January 2020 36 9 108 12 925 5 579 23 199 167 2 223 53 237

Carrying amount at 31 December 2020 36 2 527 12 704 5 572 22 454 165 539 43 996

EUR 1,000 Land areas Buildings

Renovation expen-

ses on real estate

Shares in real

estate companies

Machinery and

equipment

Other tangible

assets

Construction in

progress Total

Cost at 1 January 2019 105 1 714 24 656 5 572 46 051 172 1 446 79 716

Additions 2 235 645 7 7 691 9 7 793 18 381

Business combinations 13 0 13

Transfers between items 5 730 1 571 1 254 -1 -7 009 1 544

Disposals -69 -168 -268 -1 773 0 -7 -2 285

Cost at 31 December 2019 36 9 512 26 604 5 579 53 237 179 2 223 97 369

Accumulated depreciation at 1January 2019 -308 -11 504 -24 615 -9 0 -36 436

Depreciation and amortisation -119 -2 119 -5 440 -4 0 -7 682

Transfers between items -321 -1 209 1 0 -1 529

Disposals 23 266 1 225 0 1 514

Accumulated depreciation at 31December 2019 -404 -13 678 0 -30 039 -12 0 -44 133

Carrying amount at 1 January 2019 105 1 406 13 151 5 572 21 437 163 1 446 43 280

Carrying amount at 31December 2019 36 9 108 12 925 5 579 23 199 167 2 223 53 237

BUSINESS AND STRATEGY

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14. Intangible assets

Accounting policies

Goodwill

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 identifiable acquired net assets.

Goodwill typically reﬂects the value of acquired market share, business expertise and

synergies.

Goodwill is not amortised, but it is tested for impairment annually and whenever there

is an indication that the asset may be impaired. Goodwill is allocated to cash-generating

units (CGUs). Goodwill is measured at original cost less accumulated impairment.

Capitalised development costs

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 recogni-

tion, capitalised development costs are measured at cost less accumulated amortisation

and impairment. The amortisation period for development costs is 3 to 10 years, during

which capitalised development costs are amortised using the straight-line method.

The Group’s capitalised development costs that have not been amortised are

associated with the following projects:

• New operating model for fixed-price occupational healthcare agreements and a related

occupational healthcare portal

• Renewal of primary care service models, involving remote service models for municipal

residents and mobile solutions (social and healthcare service centre concept)

• Sports clinic concept

• Pihlajalinna mobile application and website development with the aim of making

AI-assisted digital services available to all customers.

• Specialised care referral forwarding and coordination operating model developed for

the Parkano social and healthcare partnership area

• Takeover of social and healthcare services in Mänttä-Vilppula and the development of

operating models

• The three-year SYKKI project, funded with Tekes subsidies, aimed at creating an

eective and cost-ecient model for public social and healthcare services

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Intangible assets

EUR 1,000 Goodwill Trademarks

Development

costs

Other intangible assets related to

purchase price allocations

Other intangible

assets Pre-payments Total

Cost at 1 January 2020 173 607 7 762 5 968 21 582 15 401 443 224 763

Additions 380 3 150 354 3 884

Transfers between items 518 -708 -191

Disposals -417 -417

Cost at 31 December 2020 173 607 7 762 6 348 21 582 18 652 89 228 040

Accumulated depreciation at 1January 2020 -4 702 -2 133 -17 125 -8 111 -32 071

Depreciation and amortisation -776 -924 -2 321 -2 504 -6 525

Transfers between items 85 85

Disposals 417 417

Accumulated depreciation at 31December 2020 -5 479 -3 057 -19 446 -10 114 -38 095

Carrying amount at 1 January 2020 173 607 3 060 3 834 4 457 7 290 443 192 691

Carrying amount at 31 December 2020 173 607 2 284 3 289 2 136 8 539 89 189 944

EUR 1,000 Goodwill Trademarks

Development

costs

Other intangible assets related to

purchase price allocations

Other intangible

assets Pre-payments Total

Cost at 1 January 2019 169 927 7 762 5 206 21 513 12 707 245 217 362

Additions 549 2 006 1 010 3 565

Business combinations 3 680 69 7 3 756

Transfers between items 212 776 -808 180

Disposals -95 -5 -99

Cost at 31 December 2019 173 607 7 762 5 968 21 582 15 401 443 224 763

Accumulated depreciation at 1January 2019 -3 926 -1 343 -13 341 -5 910 -24 521

Depreciation and amortisation -776 -790 -3 784 -2 089 -7 438

Transfers between items -216 -216

Disposals 104 104

Accumulated depreciation at 31December 2019 -4 702 -2 132 -17 125 -8 111 -32 071

Carrying amount at 1 January 2019 169 927 3 836 3 864 8 173 6 797 245 192 841

Carrying amount at 31December 2019 173 607 3 060 3 835 4 457 7 290 443 192 692

Other intangible assets include licences and computer software. In business combinations, customer agreements and related customer relationships as well as non-competition agreements and certificates have

been allocated.

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Impairment testing of goodwill

Accounting policies

Goodwill generated in M&A transactions is allocated to cash-generating units (CGU).

Under Pihlajalinna’s operating structure, the Group’s Chief Operating Ocer (COO) is

responsible for the entire Group’s business operations and service oering to both the

private and public sectors. The COO is responsible for preparing the Group businesses’

budgets and managing the area’s resources, investments and profitability. The COO is

supported by joint support services.

The recoverable amount is determined by value-in-use calculations. Cash ﬂow-based

value-in-use is determined by calculating the discounted present value of expected cash

ﬂows. The discount rate used in the calculations is determined using the weighted aver-

age cost of capital (WACC), which describes the total cost of equity and liabilities, taking

into account the time value of money and the specific risks associated with Pihlajalinna’s

business. The discount rate is a pre-tax rate. Potential impairment loss on goodwill is rec-

ognised immediately in the income statement. Previously recognised impairment losses

on goodwill are not reversed.

The Group carried out its annual impairment testing of goodwill based on the situ-

ation on 31 November 2020 (30 October 2019). The result of the testing was that no

impairment losses were recognised for the Group’s cash-generating unit for the financial

year that ended on 31 December 2020. The Group’s recoverable amount exceeded the

carrying amount. Due to the COVID-19 epidemic, the Group decided to also conduct im-

pairment testing on goodwill during the financial year, based on the situation on 30 June

2020. No indications were observed of the carrying amount of goodwill being greater

than its estimated recoverable amount.

EUR 1,000 2020 2019

Tested goodwill in total, Group 173 607 173 607

Goodwill as per the statement of financial position at the end

of the financial year

173 607 173 607

Other key assumptions used in goodwill testing:

2020 2019

Discount rate (pre tax WACC) 7,59 % 6,82 %

Discount rate (after tax WACC) 6,39 % 5,84 %

The terminal period’s share of the amount of expected cash ﬂows: 75 % 79 %

Sensitivity analyses in impairment testing

Based on the testing calculations, there is no need to recognise impairment. The CGU’s

recoverable amount exceeded the carrying amount.

The table below shows the required change in assumptions that would lead to the

recoverable amount falling below the carrying amount.

2020 2019

Decline in EBIT margin more than 2 percentage points more than 5 percentage points

Decline in volume more than 19 percentage points more than 34 percentage points

Increase in discount rate more than 4 percentage points more than 7 percentage points

Key accounting estimates and decisions based on management

judgement

The cash ﬂow forecasts used in calculating value-in-use in impairment testing

are based on the budget for 2021 approved by the Board of Directors. Cash

ﬂow in subsequent years is estimated conservatively, at nearly zero growth, in

connection with impairment testing. Cash ﬂows arising beyond the forecast

period 2022–2025 have been capitalised using a stable 2% growth rate.

The assumptions of business growth and the development of prices and

costs used in the cash ﬂow estimates are based on the management’s esti-

mates of the development of demand and the markets, which are compared

with external information sources. The productivity and eciency assumptions

used in the calculations are based on internal targets, with previous actual

development taken into account in their estimation. The risk-free interest rate,

risk multiplier (beta) and risk premium parameters used in determining the

discount rate are based on information obtained from the market. Cash ﬂow

estimates have been validated by comparing them to Pihlajalinna’s market

capitalisation.

The growth rate of 2% used in the calculation of the terminal value is in line

with the sector’s actual long-term growth. The testing period is five (5) years.

BUSINESS AND STRATEGY

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EUR 1,000 Right-of-use

plots

Right-of-use buildings and

business premises

Right-of-use

equipment

Total

Cost at 1 January 2020 561 166 200 5 903 172 664

Additions 239 13 558 792 14 589

Disposals -44 -2 938 -1 345 -4 328

Cost at 31 December 2020 756 176 820 5 350 182 926

Accumulated depreciation at 1January 2020 -287 -60 562 -3 706 -64 555

Depreciation and amortisation -120 -17 604 -1 202 -18 927

Impairment 0

Disposals 15 2 328 1 045 3 388

Accumulated depreciation at 31December 2020 -393 -75 838 -3 863 -80 094

Carrying amount at 1 January 2020 274 105 638 2 197 108 109

Carrying amount at 31 December 2020 363 100 981 1 487 102 832

EUR 1,000 Right-of-use

plots

Right-of-use buildings and

business premises

Right-of-use

equipment

Total

Cost at 1 January 2019 383 157 488 4 587 162 458

Additions 179 12 678 1 649 14 505

Business combinations 3 326 476 3 802

Disposals -7 292 -809 -8 101

Cost at 31 December 2019 561 166 200 5 903 172 664

Accumulated depreciation at 1January 2019 -162 -43 774 -2 552 -46 487

Depreciation and amortisation -125 -17 738 -1 480 -19 343

Impairment -3 189 -3 189

Disposals 4 138 326 4 464

Accumulated depreciation at 31December 2019 -287 -60 562 -3 706 -64 555

Carrying amount at 1 January 2019 221 113 714 2 035 115 970

Carrying amount at 31December 2019 274 105 638 2 197 108 109

Short-term leases recognised in the income statement, totalling EUR 91 (520) thousand and minor leases recognised in the income statement,

totalling EUR 723 (460) thousand, are practical exemptions provided by IFRS 16 applied by the Group.

Lease liabilities relating to right-of-use items are specified in Note 23 Financial liabilities.

15. Right-of-use assets

Accounting policies

Most of the Pihlajalinna rental arrangements in

line with the IFRS 16 are leases for business prem-

ises. The other lease arrangements in line with

the standard concern land areas, machinery and

equipment (exercise equipment, clinical equip-

ment, cars and other equipment). Pihlajalinna

applies the IFRS 16 exemption that allows lessees

to elect not to recognise a right-of-use asset and

corresponding lease liability for assets with a

lease term of 12 months or less as well as assets

of low value. Assets of low value include, for

example, IT equipment and oce furniture. Fur-

thermore, to make the accounting of leases easier,

Pihlajalinna elects not to separate service com-

ponents from leases, instead treating the entire

agreement as a lease in its consolidated financial

statements. For lease arrangements valid until fur-

ther notice, with a short notice period, Pihlajalinna

will estimate the probable lease term.

Right-of-use assets are measured at cost, which

includes the following items:

• original amount of the lease liability

• direct expenses of the initial phase and

• expenses due to restoring to original condition

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16. Other non-current receivables

Accounting policies

Right-of-use assets that have been transferred to a lessee under a sublease and classi-

fied as financial leases have been derecognised from fixed assets and presented on the

balance sheet as net investments in a sublease.

EUR 1,000 2020 2019

Lease deposits paid 635 1 764

Non-current subleases 4 868 211

Total 5 503 1 975

Pihlajalinna subleased two care homes that it sold and leased back in May.

The table below presents the contractual maturity analysis of subleases. The figures are

undiscounted and they include both future interest payments and repayments of the net

investment.

Maturity distribution of sublease receivables

less than

1 year

1–2

years

2–3

years

3–4

years

over

4 years

Carrying amount at 31 Dec. 2020 5 386 585 573 510 433 3 939

17. Trade and other receivables

Accounting policies

At the end of each reporting period, the Group assesses whether or not there is objective

evidence of impairment regarding any individual financial asset. Objective evidence of

impairment of loans and other receivables includes significant financial distress of the

debtor and payments being delinquent or substantially delayed. Impairment of loans

is recognised in financial expenses in the income statement and impairment of other

receivables is recognised in other operating expenses for the period in which the impair-

ment was identified.

The expected credit loss model is based on the amount of historical credit losses. The

lifetime expected credit losses are calculated by multiplying the gross carrying amount of

unpaid trade receivables by the expected loss..

Key accounting estimates and decisions

based on management judgement

Determining the annual profitability of the Group’s fixed-term complete social and

healthcare services outsourcing agreements may become accurate with a delay.

The Group may not always be aware of the actual costs of the agreements at the

time of preparing the financial statements, and the agreements may involve vari-

able elements of compensation. The cost accumulation of public specialised care

involves random ﬂuctuation. In addition, individual cases falling within the scope

of the hospital districts’ pooling system for high-cost care may inﬂuence the cost

liability of specialised care considerably during the financial year, and between

financial periods, in Pihlajalinna’s municipal companies.

The fixed-term service agreements for all of the Group’s complete outsourcing

arrangements are highly similar with regard to their principles and basic terms.

Pihlajalinna has calculated and recognised the variable compensation components

and cost compensation under the agreements using the same criteria and model

for all clients. Demands for the compensation of cost increases due to changes

in services corresponding to the actual costs and investment costs that serve op-

erations after the end of the term of the contract being the client’s responsibility

constitute the majority of costs and variable compensation components that are

specified with a delay. For 2020, the assessment of investment costs and COV-

ID-19 related costs included in invoicing by hospital districts can only be carried

out after the hospital districts have published their financial statements.

Pihlajalinna has recognised only part of these legally justified claims in its

income statement. The parties to the agreements are bound by an obligation to

negotiate and negotiation is the primary procedure. If the obligation to negotiate

does not lead to payment, the receivables are sought through legal action, which

may further delay the collection of items presented in current receivables in the

financial statements.

Items that may, according to the management’s estimate, inﬂuence the profitability of

complete outsourcing agreements with a delay:

The City of Jämsä has taken legal action against Jämsän Terveys Oy regarding a matter

concerning the price adjustment provision in the service agreement. The dierence in

views regarding whether the fixed annual price for social and healthcare services can de-

crease due to price adjustments amounted to approximately EUR 2.6 million at the end

of the financial year. The District Court has postponed the hearing of the main case due

to Jämsän Terveys possibly being in the process of bringing an additional counterclaim

against the City of Jämsä. The additional counterclaim concerns the eect of changes

BUSINESS AND STRATEGY

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in the services under the service agreement on price and the service provider’s liability

for financing investments by the Pirkanmaa Hospital District insofar as such investments

serve operations after the term of the service agreement. The service provider is entitled

to price adjustments corresponding to increases in costs and the contractual parties

are under an obligation to negotiate and try to reach an agreement. In its counterclaim,

Jämsän Terveys claims a total of approximately EUR 15 million from the City of Jämsä.

The total amount of variable compensation under the potential counterclaim that Jämsän

Terveys has recognised as revenue and recorded in its receivables amounts to EUR 3.4

(3.2) million.

The total amount of contractually and legally justified variable compensation that Kuu-

siolinna Terveys Oy has recognised as revenue and recorded in its receivables amounts

to EUR 6.3 (4.6) million. The protocol on interpretation signed with the municipalities

of Alavus, Ähtäri and Soini in conjunction with the share transactions carried out in

2019 were also intended to agree on the principles of charging the variable elements

of compensation in question. The company’s receivables from variable compensation

components are related to cost increases caused by service changes and compensating

such increases in accordance with the costs as well as an assessment of the investment

cost liability in specialised care. The costs of services for the elderly, the investment costs

associated with specialised care, the costs of child welfare services and Kuussote’s own

administrative costs have increased significantly compared to the time the bid was made.

A share transaction has not yet been completed with Kuortane, and no corresponding

protocol on interpretation has been signed. The total claims from the clients amounted

to approximately EUR 12 million based on the previously mentioned grounds at the time

of drawing up the financial statements.

The total amount of contractually and legally justified variable compensation from the

City of Mänttä-Vilppula that Mäntänvuoren Terveys Oy has recognised as revenue and

recorded in its receivables amounts to EUR 3.2 (2.1) million. The variable compensation

recognised as revenue in accordance with the agreement includes an estimate of com-

pensation for specialised care costs to the service provider of the Pirkanmaa Hospital

District’s investment costs allocated to the client. The receivables from variable com-

pensation components are also related to cost increases caused by service changes and

compensating such increases in accordance with the actual costs. The total claims from

the client amounted to approximately EUR 6 million based on the previously mentioned

grounds at the time of drawing up the financial statements.

The total amount of contractually and legally justified variable compensation from the

City of Parkano that Kolmostien Terveys Oy has recognised as revenue and recorded in

its receivables amounts to EUR 0.6 (0.6) million. The variable compensation recognised

as revenue in accordance with the agreement includes an estimate of compensation

for specialised care costs to the service provider of the Pirkanmaa Hospital District’s

investment costs allocated to the client. During the financial year, the client approved

cost increases arising from changes to services for the elderly as part of the annual fee

under the service agreement. The total claims from the client amounted to approximately

EUR 1.5 million based on the previously mentioned grounds at the time of drawing up the

financial statements.

EUR 1,000 2020 2019

Trade receivables 59 071 30 492

Prepayments and accrued income 15 734 13 260

Current subleases 518 112

Other receivables 448 2 198

Total 75 771 46 062

The carrying amount of trade receivables and other receivables corresponds to the maxi-

mum credit risk involved at the end of the reporting period.

Due to the COVID-19 epidemic, Pihlajalinna has reviewed the credit risk of receivables

and the procedures used to estimate the credit risk. No significant changes have been

observed in customers’ payment behaviour. The collection of trade receivables has been

enhanced. The amount of receivables more than 90 days past due is significantly in-

creased by withheld payments concerning trade receivables and trade payables between

Jämsän Terveys and the City of Jämsä.

As described under Risks and uncertainties in business operations, if the negotiation

obligation does not lead to payment, the receivables will be collected through legal ac-

tion. This may further delay the collection of items presented in current receivables in the

financial statements.

The Group recognised EUR 316 thousand (EUR 228 thousand) in impairment losses

on trade receivables during the financial year.

Age distribution of trade receivables

EUR 1,000 2020

Impairment

losses Net 2020 2019

Impairment

losses

Net 2019

23 646 -8 23 638 18 114 -17 18 096

Past due

Less than 30 days 3 783 -12 3 771 3 105 -13 3 092

30–60 days 1 853 -66 1 787 1 784 -63 1 721

61–90 days 2 216 -131 2 085 644 -124 519

More than 90 days 28 263 -473 27 790 7 520 -457 7 063

Total 59 760 -689 59 071 31 166 -674 30 492

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EUR 1,000 2020 2019

Credit loss provision at 1 January 674 633

Credit losses recorded -316 228

Change in credit loss provision 330 -187

Credit loss provision at 31 December 689 674

Material items included in prepayments and accrued income

EUR 1,000 2020 2019

Sales and income accruals 4 006 5 886

Personnel expenses 1 575 1 452

Expenses paid in advance 6 782 3 734

Other 3 371 2 189

Total 15 734 13 260

The carrying amounts of the receivables correspond substantially to their fair values.

18. Provisions

Accounting policies

A provision is recognised when the Group has a legal or constructive obligation resulting

from a past event, when it is probable that the payment obligation will materialise and

when the amount of the obligation can be reliably estimated. The amount recognised as

a provision equals the best estimate of the costs required to fulfil the present obligation

on the date of the financial statements.

A restructuring provision is recognised when the Group has in place a detailed plan for

such restructuring and its implementation has commenced or the interested parties have

been informed of the main points of such a plan.

The Group recognises a provision for onerous contracts when the expected benefits to

be derived from a contract are less than the unavoidable expenses of meeting the obliga-

tions under the contract.

The Group has recognised restoration provisions relating to its premises and provisions

for onerous contracts related to vacant business premises.

EUR 1,000 2020 2019

Current provisions 648 1 636

Non-current provisions 114 170

Total 762 1 806

EUR 1,000

Onerous

contracts

Restructuring

provision Total

1.1.2019 302 302

Increases in provisions 1843 3 019 4 862

Provisions used -786 -2 571 -3 357

Reversals of unused provisions

31.12.2019 1 359 448 1 806

Increases in provisions 100 100

Provisions used -597 -448 -1 045

Reversals of unused provisions -100 -100

31.12.2020 762 0 762

19. Trade and other payables

EUR 1,000 2019 2018

Trade payables 45 262 18 573

Accrued liabilities 57 572 69 373

Pre-payments 1 158 1 069

Other liabilities 5 359 12 986

Total 109 352 102 002

Material items included under Accrued liabilities:

Wages and salaries and social security payments 32 675 35 531

Purchase price of Kuusilinna Terveys Oy and Mäntänvuoren Ter-

veys Oy shares

18 598

Doctor’s fee liability 7 269 7 658

Allocation of sales 82 65

Allocation of purchase invoices 15 943 7 306

Financial items 191 165

Other accrued liabilities 1 412 51

Total 57 572 69 373

The amount of trade payables is increased by withheld payments concerning trade

receivables and trade payables between Jämsän Terveys and the City of Jämsä.

BUSINESS AND STRATEGY

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20. Deferred tax assets and liabilities

Accounting policies

Deferred taxes are calculated on temporary dierences 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, aects neither account-

ing profit nor taxable profit.

In the Group, the most significant temporary dierences result from depreciation and

amortisation of property, plant and equipment and intangible assets, 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 dierence 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 trans-

action, aects 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 oset deferred tax assets and liabilities where these relate to the same

taxation authority and the same taxable entity.

BUSINESS AND STRATEGY

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Changes in deferred taxes during 2020:

Deferred tax assets 1.1.2020

Recognised in

profit and loss

Subsidiaries

acquired 31.12.2020

Tax losses carried forward confirmed by tax authorities 2 017 421 2 438

Liability to holders of Series B shares 1 557 -1 557 0

Sales proceeds from sale and leaseback arrangements 283 -30 253

Provisions 942 -352 590

Share-based incentive scheme 53 69 122

IAS 37, contingent assets 369 157 527

Eect of IFRS 16 452 263 715

Other items 333 376 710

Deferred tax assets on the statement of financial position 6 006 -651 5 355

Deferred tax liabilities

Property, plant and equipment and intangible assets 3 969 529 4 498

Recognition of property, plant and equipment and intangible assets at fair value in business combinations 1 503 -619 884

Eect of IFRS 16 192 145 337

Other items 61 -19 42

Deferred tax liabilities on the statement of financial position 5 726 35 5 761

Changes in deferred taxes during 2019:

Deferred tax assets 1.1.2019

Recognised in

profit and loss

Subsidiaries

acquired 31.12.2019

Tax losses carried forward confirmed by tax authorities 1 793 224 2 017

Liability to holders of Series B shares 1 314 242 1 557

Sales proceeds from sale and leaseback arrangements 313 -30 283

Provisions 942 942

Share-based incentive scheme 53 53

IAS 37, contingent assets 369 369

Eect of IFRS 16 317 135 452

Other items 325 8 333

Deferred tax assets on the statement of financial position 4 063 1 943 6 006

Deferred tax liabilities

Property, plant and equipment and intangible assets 3 496 474 3 969

Recognition of property, plant and equipment and intangible assets at fair value in business combinations 2 402 -912 13 1 503

Eect of IFRS 16 108 84 192

Other items 100 -39 61

Deferred tax liabilities on the statement of financial position 6 105 -394 13 5 726

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Available tax losses Tax values recorded Tax values not recorded

Tax losses 2020 2019 2020 2019 2020 2019

Maturing within five years 3 681 2 296 736 459

Maturing later than within five years 18 752 15 771 2 438 2 017 1 312 1 137

Total 22 432 18 066 2 438 2 017 2 048 1 596

Taxes calculated on the basis of the Finnish tax rate (20%) 4 486 3 613

The recognition of deferred tax assets on the statement of financial position is justified

when the Group is likely to accrue taxable income against which the losses in question

can be used before they expire in line with the prudence principle.

The Group will primarily apply for the right to deduct all confirmed losses of its ac-

quired subsidiaries. The Tax Authority has granted the right to deduct confirmed losses

in spite of changes in ownership.

21. Financial assets and liabilities by measurement category

Accounting policies

When a financial asset or liability is recognised on the transaction date, the Group meas-

ures it at its acquisition cost, which is equal to the fair value of the consideration given or

received.

Financial assets

For the purpose of measurement after initial recognition, the Group’s financial assets are

classified as financial assets measured at amortised cost and financial assets measured

at fair value through profit or loss. The Group has no financial instruments classified

as derivatives nor financial assets measured at fair value through other comprehensive

income. Financial assets are derecognised when the Group has lost its contractual right

for the financial assets in question or has transferred substantially all risks and rewards

outside the Group.

The Group’s trade receivables, loan receivables, lease deposits and cash and cash

equivalents have been classified at the time of IFRS 9 adoption as financial assets meas-

ured at amortised cost using the eective interest method, taking any impairment into

account.

Financial assets measured at fair value through profit or loss consist of quoted and

unquoted shares. The Group has no holdings of shares quoted in public markets.

Cash and cash equivalents

Cash and cash equivalents consist of cash at hand and demand deposits. The account

with credit limit in use is included in current financial liabilities.

Financial liabilities

The Group classifies loans from financial institutions, accounts with credit limits, lease

liabilities, trade payables and other liabilities as financial liabilities measured at amortised

cost using the eective interest method. Transaction costs are included in the initial car-

rying amount. Arrangement fees for loan commitments are treated as transaction costs.

The Group classifies contingent considerations arising from M&A transactions as financial

liabilities measured at fair value through profit or loss. No interest is paid on liabilities

arising from contingent considerations. Any contingent consideration is measured at fair

value at the date of acquisition and classified as a liability. A contingent consideration

classified as a liability is measured at fair value at the end of each reporting period, and

any resulting gain or loss is recognised in profit or loss after the end of the measurement

period. The Group has no financial instruments classified as derivatives.

Financial liabilities are classified as current liabilities, unless the Group has an uncondi-

tional right to postpone their repayment to a date that is at least 12 months subsequent

to the end of the reporting period.

BUSINESS AND STRATEGY

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EUR 1,000 31.12.2020 Note Fair value hierarchy Fair value through profit or loss

Amortised

cost Total carrying amounts Fair values total

Carrying amounts of financial assets

Non-current financial assets

Other shares and participations level 3 126 126 126

Lease deposits 16 level 2 635 635 635

Current financial assets

Trade receivables 17 59 071 59 071 59 071

Other receivables 17 level 2 448 448 448

Cash and cash equivalents 13 306 13 306 13 306

Total 126 73 461 73 587 73 587

Carrying amounts of financial liabilities

Non-current financial liabilities

Loans from financial institutions 23 level 2 91 879 91 879 91 879

Lease liabilities 23 level 2 95 475 95 475 95 475

Other liabilities 23 level 2 644 644 644

Current financial liabilities

Loans from financial institutions 23 level 2 1 415 1 415 1415

Cheque account with credit limit 23 0

Lease liabilities 23 level 2 18 705 18 705 18705

Trade and other payables 19 45 262 45 262 45262

Total 253 379 253 379 253 379

EUR 1,000 31.12.2019 Note Fair value hierarchy Fair value through profit or loss

Amortised

cost Total carrying amounts Fair values total

Carrying amounts of financial assets

Non-current financial assets

Other shares and participations level 3 146 146 146

Lease deposits 16 level 2 1 764 1 764 1 764

Current financial assets

Trade receivables 17 30 492 30 492 30 492

Other receivables 17 level 2 2 198 2 198 2 198

Cash and cash equivalents 27 004 27 004 27 004

Total 146 61 458 61 604 61 604

Carrying amounts of financial liabilities

Non-current financial liabilities

Loans from financial institutions 23 level 2 103 182 103 182 103 182

Lease liabilities 23 level 2 96 404 96 404 96 404

Other liabilities 23 level 2 681 681 681

Current financial liabilities

Loans from financial institutions 23 level 2 1 193 1 193 1 193

Cheque account with credit limit 23 501 501 501

Lease liabilities 23 level 2 17 747 17 747 17 747

Contingent consideration 27 level 3 1 397 1 397 1 397

Trade and other payables 19 26 357 26 357 26 357

Total 1 397 246 064 247 460 247 460

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Fair value assessment

Financial assets and liabilities recognised at fair value on the consolidated statement of

financial position are classified according to their valuation-based hierarchy levels and

measurement methods as follows:

Fair value hierarchy levels

Level 1: Fair values are based on quoted prices in active markets for identical assets and

liabilities. The Group has no financial assets or liabilities measured according to level 1 of

the hierarchy.

Level 2: The fair value is determined using valuation methods. The financial assets and

liabilities are not subject to trading in active and liquid markets. The fair values can be

determined based on quoted market prices and deduced valuation.

The carrying amount of the trade receivables and financial assets essentially corre-

sponds to their fair value, as the eect of discounting is not significant taking the maturi-

ty of the receivables into consideration.

The fair values of lease liabilities are based on discounted cash ﬂows. The fair values of

loans essentially correspond to their carrying amount since they have a ﬂoating interest

rate and the Group’s risk premium has not materially changed.

The carrying amount of other financial liabilities essentially corresponds to their fair

value, as the eect of discounting is not significant taking the maturity of the receivables

into consideration.

Level 3: The fair value is not based on verifiable market information, and information

on other circumstances aecting the value of the financial asset or liability is not availa-

ble or verifiable.

The Group’s other shares and participations consist solely of shares in unlisted compa-

nies. Contingent considerations are measured at value at the time of acquisition. More

information on contingent considerations is presented in Note 27 Business combinations.

22. Notes on equity

Accounting policies

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.

Reconciliation of the number of shares

1 000 €

Number of

capital

Reserve for invested

unrestricted equity

Total

31.12.2019 22 620 135 80 116 520 116 600

Treasury shares held by the parent

company on 31 December 2020

2 294

Outstanding shares on 31 December 2020 22 617 841 80 116 520 116 600

Pihlajalinna has one share series, with each share entitling its holder to one vote at a

General Meeting of shareholders. The company’s shares have no nominal value. All shares

bestow their holders with equal rights to dividends and other distribution of the compa-

ny’s assets. The shares belong to the book-entry system.

Reserve for invested unrestricted equity

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.

Distributable funds

The parent company’s total distributable funds amount to EUR 213,689,101.67, of which

the profit for the financial year accounts for EUR 7,698,486.16.

Dividends

The Board of Directors proposes that a dividend of EUR 0.20 per share be paid for the

financial year that ended on 31 December 2020.

23. Financial liabilities

EUR 1,000 2020 2019

Non-current interest-bearing liabilities

Bank loans 91 879 103 182

Other liabilities 644 681

Lease liabilities 95 475 96 404

187 997

200 266

Current interest-bearing liabilities

Bank loans 1 415 1 193

Cheque accounts with credit limit 0 501

Lease liabilities 18 705 17 747

20 119 19 441

Interest-bearing financial liabilities total 208 117 219 707

BUSINESS AND STRATEGY

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At the end of the financial year, the Group had EUR 40.0 (29.5) million of unused com-

mitted short-term credit limits.

Drawdowns from the Group’s revolving credit facility are actually long-term by nature,

although their maturity is 1, 3 or 6 months.

Lease liabilities

Accounting policies

Right-of-use assets are presented under property, plant and equipment and lease liabil-

ities are presented under financial liabilities. The right-of-use asset is initially measured

at cost and depreciated over the economic life of the asset. The right-of-use asset is also

subject to IAS 36 Impairment of Assets. The lease liability is initially measured at the

present value of future lease payments. In later periods, the lease liability is measured

using the eective interest rate method, according to which the lease liability is meas-

ured at amortised cost and the interest expense is amortised over the lease term. The

standard allows the lessee to also include non-lease elements of an agreement (typically

services) in the lease liability.

EUR 1,000 2020 2019

Non-current lease liabilities

Right-of-use plots 286 206

Right-of-use business premises and buildings 94 605 95 112

Right-of-use equipment 583 1 087

Total 95 475 96 404

Current lease liabilities

Right-of-use plots 88 61

Right-of-use business premises and buildings 17 723 16 568

Right-of-use equipment 894 1 118

Total 18 705 17 747

24. Changes in interest-bearing liabilities with

no impact on cash ﬂow

EUR 1,000 2019 Cash ﬂow

New instalments

and lease

liabilities

Eective

interest rate

2020

Non-current interest-

bearing liabilities 103 862 -11 789 353 96 92 523

Current interest-

bearing liabilities 1 693 -386 108 1 415

Lease liabilities 114 151 -20 604 20 632 114 179

Total liabilities

from financing

219 707

-32 779 21 093 96 208 117

25. Capital management

The goal of the Group’s capital management is to ensure that the normal requirements

of business operations are met, enable investments in line with the Group’s strategy and

increase long-term shareholder value. The Group inﬂuences its capital structure mainly

through the distribution of dividend and share issues. The key indicators concerning

capital management are the equity ratio, the ratio of net debt to adjusted EBITDA and

gearing.

EUR 1,000 Liite 2020 2019

Equity 114 990 106 083

Total statement of financial position –

prepayments received 440 980 437 376

Equity ratio 1) 26,1 % 24,3 %

Interest-bearing financial liabilities 23 208 117 219 707

Cash and cash equivalents -13 306 -27 004

Interest-bearing net debt 194 810 192 703

Gearing 2) 169,4 % 181,7 %

EBITDA 52 445 47 844

Adjustment items* 2 204 7 284

Adjusted EBITDA 54 649 55 127

Net debt/adjusted EBITDA 3,6 3,5

BUSINESS AND STRATEGY

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* Significant transactions that are not part of the normal course of business, infrequently

occurring events or valuation items that do not aect cash ﬂow are treated as adjust-

ment items aecting comparability between review periods. According to Pihlajalinna’s

definition, such items include, for example, restructuring measures and Group refinanc-

ing, impairment of assets and the remeasurement of previous assets held by subsidiaries,

the costs of closing down businesses and business locations, gains and losses on the sale

of businesses, costs arising from operational restructuring and the integration of ac-

quired businesses, costs related to the termination of employment relationships, as well

as fines and corresponding compensation payments.

During the financial year, the Group acquired 47,399 of its own shares based on an

authorisation granted by the Annual General Meeting on 4 April 2019. The shares were

acquired in public trading on Nasdaq Helsinki Ltd at the market price prevailing at the

time of purchase. The shares were used as part of the Group’s incentive scheme. On the

financial statements date, the Group held 2,294 treasury shares.

1) The formula for calculating the equity ratio is 100 x Equity / (Total statement of finan-

cial position – prepayments received)

2) The formula for calculating gearing is 100 x Interest-bearing net debt / Equity

More information on adjusted EBITDA is provided in Note 8 Adjusted EBITDA and adjust-

ed operating profit.

26. Financial risk management

The Group’s main financial risks consist of credit and counterparty risk as well as interest

rate and liquidity risks. The Group operates in Finland and is therefore not exposed to

material foreign exchange risks in its operations. The Group’s general risk management

policies are approved by the Board of Directors. The Group’s Chief Financial Ocer,

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

sucient 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.

Interest rate risk

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, 56% (53%) of the interest-bearing liabilities were subject

to fixed interest rates. During the financial year, the average annual interest rate on the

Group’s interest-bearing liabilities was approximately 1.87% (1.84%). The duration, i.e. the

fixed interest rate period, of the financing portfolio was 3.6 (4.0) years.

The table below presents the Group’s interest rate position at the end of the reporting

period.

EUR 1,000 2020 2019

Fixed rate financial liabilities 115 790 116 624

Variable rate financial liabilities 92 535 103 387

Total variable rate position 92 535 103 387

The table below presents the eects 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.

2020 2020 2019 2019

Change

0.5 percentage

points higher

0.5 percentage

points lower

0.5 percentage

units higher

0.5 percentage

units lower

Eect on profit before

tax -463 0 -517 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.

Liquidity risk

The Group monitors the amount of financing required by business operations by analys-

ing cash ﬂow forecasts in order to make sure the Group has a sucient amount of liquid

assets for financing operations and repaying maturing loans.

The Group aims to ensure the availability and ﬂexibility of financing with adequate

credit limits, a balanced maturity profile and suciently long maturities for borrowings,

as well as by obtaining financing through several financial instruments. On the financial

statements date, the Group’s financial assets stood at EUR 13.3 (27.0) million, in addi-

tion to which the Group had EUR 40.0 (29.5) million in unused committed credit limits

available.

Pihlajalinna has a five-year EUR 120 million unsecured financing arrangement with

Danske Bank and Nordea. The arrangement comprises a EUR 50 million revolving credit

facility and a long-term bullet loan of EUR 70 million. It also includes an opportunity to

increase the total amount by EUR 60 million (to EUR 180 million), subject to separate

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

decisions on a supplementary loan from the funding providers.

The Group’s equity ratio at the end of the financial year was 26.1 (24.3) per cent.

The Group has good financial standing and its business operations are profitable, and

therefore the company has not identified any significant risks related to the availability of

additional financing.

The table below presents the contractual maturity of financial liabilities. The figures

are undiscounted and they include both future interest payments and repayments of

principal.

Financial liabilities repayment schedule

EUR 1,000

Carrying

amount

at 31 Dec.

2020

less than

1 year

1–2

years

2–3

years

3–4

years

over 4

years

Loans from financial institutions

93 293 -3 526 -3 337 -90 960 -249 0

Lease liabilities

114 179 -20 387 -17 314 -13 626 -12 181 -59 060

Other interest-bearing liabilities

644 -20 -57 -57 -57 -794

Trade payables

45 262 -45 262

Total

253 379 -69 196 -20 708 -104 642 -12 486 -59 854

EUR 1,000

Carrying

amount

at 31 Dec.

2019

less than

1 year

1–2

years

2–3

years

3–4

years

over 4

years

Loans from financial institutions

104 375 -3 435 -3 817 -3 319 -100 916 -239

Lease liabilities

114 151 -19 457 -17 371 -14 589 -12 125 -59 266

Other interest-bearing liabilities

681 -20 -57 -57 -57 -851

Contingent consideration

1 397 -1 397

Cheque account with credit limit

501 -501

Trade payables

18 573 -18 573

Other liabilities, series B

7 784 -7 784

Total

247 460 -51 166 -21 244 -17 964 -113 098 -60 357

Loan covenants

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 financing arrangement includes the customary financial covenants concerning

leverage (ratio of net debt to pro forma EBITDA) and gearing. The calculation of cove-

nants will continue with the creditor banks in accordance with the accounting principles

confirmed in the original financing arrangement (frozen GAAP, i.e. excluding the IFRS 16

impact). The Group met the set covenants on 31 December 2020.

Due to the changes in the operating environment caused by the COVID-19 epidemic,

Pihlajalinna and the creditor banks agreed on a temporary adjustment to the covenants

of the financing arrangement at the end of March. The temporary covenants for the first

and second quarter of the year were as follows: leverage must not exceed 4.25 and gear-

ing must not exceed 140 per cent. The original covenants of the financing arrangement –

leverage of 3.75 and gearing of 115 per cent – took eect again when the covenants were

reviewed in the third quarter.

As part of the agreement, a permanent new margin ceiling was added to the financing

arrangement. The margin ceiling will enter into eect if leverage exceeds 3.50. On 31 De-

cember 2020, leverage in accordance with the financing arrangement stood at 2.78 (3.13)

and gearing was 94% (97%).

At the end of January 2021, Pihlajalinna and the creditor banks agreed that the ex-

ceptional items referred to in the covenant calculations can include IAS 37 compliant

items recognised in relation to receivables from the City of Jämsä that may be collected

through legal action. At the end of the reporting period, 31 December 2020, the loan

amount to which the covenants apply was EUR 90.0 (100.0) million.

Credit risk

The Group’s credit risk mostly consists of credit risks involved in customer receivables

related to business operations. The Group’s largest customers are municipalities, joint

municipal authorities or large and solvent listed companies.

The Group’s key credit risks are presented in Note 17 Trade and other receivables. The

payment information of corporate and personal customers is checked at every appoint-

ment. For the collection of payments, the Group uses an external collections agency. The

Group oers private customers financing via SveaRahoitus. This arrangement includes

a check of the customer’s creditworthiness. The ageing analysis of trade receivables is

presented in Note 17 Trade receivables and other receivables. The amount of credit losses

recorded in profit or loss during the financial year was not significant. The maximum

amount of the Group’s credit risk equals to the carrying amount of financial assets at the

end of the financial year (see Note 20 Financial assets and liabilities by measurement

category).

Currency risk

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.

BUSINESS AND STRATEGY

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27. Acquired business operations

The Group did not carry out any business acquisitions during the financial year 2020.

Acquisitions during the financial year 2019

Acquired entity

Month of

acquisition Industry Domicile

Klaari Oy (Fit1 gym chain) and its

subsidiary Fitnessclub Länsi-Suomi Oy,

100% of the share capital

February

2019

Fitness centres Espoo, Vaasa

Dalmed Oy, 100% of the share capital April 2019 Occupational

healthcare services

Kemiö

Kouvolan Työterveys ry (business

operations)

June 2019 Occupational

healthcare services

Kouvola

Aurinkoristeys, i.e. the occupational

healthcare units of the town of Raisio

(business operations)

September

2019

Occupational

health services

Raisio, Naantali

Accounting policies

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 intangi-

ble assets. With property, plant and equipment, comparisons are made with the market

prices of corresponding assets, and it is estimated how much the value of the acquired

assets has decreased due to age, wear and tear and other such factors. With intangible

assets, fair value measurement is based on estimated cash ﬂows related to the assets.

Since the acquisitions are not material individually, the following information has been

consolidated:

EUR 1,000 2019

Consideration

Cash, basic transaction price 3 712

Total cost of the combination 3 712

On the date of acquisition, the values of assets acquired and liabilities assumed were as

follows:

EUR 1,000 Note 2019

Property, plant and equipment 13 13

Intangible assets 14 76

Right-of-use assets 15 3 802

Deferred tax assets 0

Inventories 1

Other investments 5

Trade and other receivables 196

Cash and cash equivalents 334

Total assets 4 428

Deferred tax liabilities -14

Financial liabilities 23 -197

Lease liabilities 23 -3 802

Other liabilities -344

Total liabilities -4 356

Acquired net assets 72

Goodwill generated in the acquisition:

EUR 1,000 Note 2019

Consideration transferred 3 712

Aordable transaction 3

Share of the acquisition allocated to non-controlling interests

Net identifiable assets of acquirees -72

Goodwill 14 3 680

Transaction price paid in cash 3 712

Cash and cash equivalents of acquiree -334

Eect on cash ﬂow* 3 378

Customer contracts, non-compete agreements and patient databases were recognised

in the acquisition as intangible assets separate from goodwill. The fair value of intangi-

ble assets has been determined on the basis of the standardised price level in business

combinations and the discounted values of future cash ﬂows. The remaining goodwill

consists of expectations about returns, the skilled workforce of the acquired companies

and synergy benefits.

The acquisition-related expenses, a total of EUR 53 thousand, have been recorded

under other operating expenses. The revenue and results for the acquired business op-

BUSINESS AND STRATEGY

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erations beginning from the date of acquisition (total revenue EUR 2,909 thousand and

total operating profit EUR 102 thousand) are included in the consolidated statement of

comprehensive income. Had the business operations acquired in the financial year been

consolidated as of the beginning of 2019, consolidated revenue would have amounted to

EUR 520,093 thousand and operating profit for the financial year would have been EUR

10,291 thousand.

Acquisition of non-controlling interests during the financial year 2019

At the beginning of February 2019, Pihlajalinna increased its ownership in Kolmostien

Terveys Oy by acquiring 15 per cent of the company’s share capital from the City of Par-

kano. After the transaction, the Group owns 96 per cent of the company.

Pihlajalinna increased its holding in Mäntänvuoren Terveys Oy by purchasing 10 per

cent of the shares in the company from the City of Mänttä-Vilppula in December 2019.

After the transaction, the Group owns 91 per cent of the company.

At the end of the financial year 2019, Pihlajalinna increased its holding in Kuusiolinna

Terveys, a joint venture with the municipalities of Alavus, Ähtäri, Kuortane and Soini. The

transactions were made with the municipalities of Alavus, Ähtäri and Soini. After the

transaction, the Group owns 90 per cent of the company.

Contingent consideration

The fair value of contingent consideration is determined on the basis of the budget

for the 2019 financial year approved by the Board of Directors and on estimates for

2019–2020 prepared by the management. The estimates are based on a discount rate of

3%. Any changes in the fair value of contingent consideration are recorded under other

operating expenses. The valuation dierence resulting from the discount rate has been

recognised in profit or loss under financial items.

EUR 1,000 2020 2019

Contingent consideration, 1January 1 397 2 812

Eect of the unwinding of discount 3 63

Contingent consideration paid during the financial year* -1 400 -1 479

Contingent consideration, 31December 0 1 397

*The line item “Acquisition of subsidiaries less cash and cash equivalents on date of ac-

quisition” in the consolidated statement of cash ﬂows presents the following items as a

net amount:

EUR 1,000 2020 2019

Acquisitions in the financial year, eect on cash ﬂow 3 378

Contingent consideration paid during the financial year 1 400 1 479

Total 1 400 4 857

28. Subsidiaries and material non-controlling interests

The Group’s structure

The Group had 30 (44) subsidiaries in 2020. Of these subsidiaries, 16 (20) are whol-

ly-owned and 14 (24) are partially owned. A list of all of the Group’s subsidiaries is pre-

sented in Note 31 Related party transactions.

In 2020, the Group had 1 (1) associated company and 1 (1) joint operation.

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

Breakdown of material non-controlling interests in the Group

EUR 1,000

Subsidiary

Main business

location

Non-controlling interests’ share

of the votes

Non-controlling interests’ share

of profit or loss

Non-controlling interests’ share

of equity

2020 2019 2020 2019 2020 2019

Jämsän Terveys Oy Jämsä 49 % 49 % -289 -48 231 520

Pihlajalinna Erityisasumispalvelut Oy Hämeenlinna 30 % 30 % 10 6 -137 -148

Dextra Lapsettomuusklinikka Oy Helsinki 49 % 49 % 436 420 653 339

Pihlajalinna Liikuntakeskukset Group useita 30 % 30 % -597 57 2 106 2 792

Suomen Yksityiset Hammaslääkärit Group useita 45 % 45 % -23 -92 477 499

-462 343 3 329 4 003

Summary of financial information on subsidiaries with a material non-controlling interest

Jämsän Terveys Oy

Pihljalinna

Erityisasumis-

palvelut Oy

Dextra

Lapsettomuus-

klinikka Oy

Pihlajalinna

Liikuntakeskukset

Group

Suomen Yksityiset

Hammaslääkärit

Group

EUR 1,000 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019

Current assets 30 919 12 388 415 219 1 166 397 1 272 8 891 700 669

Non-current assets 1 810 1 870 2 582 655 1 712 2 229 40 747 27 421 2 070 1 867

Current liabilities 31 517 12 297 1 026 714 797 852 14 510 19 236 1 504 1 528

Non-current liabilities 647 822 2 421 651 168 501 21 246 23 800 84 195

Revenue 73 997 72 563 3 650 2 410 5 425 5 073 11 797 18 467 4 478 4 898

Operating profit -698 -123 82 43 1 149 1 145 -1 893 799 -80 -204

Profit/loss -591 -98 35 19 889 857 -2 006 191 -51 -193

Share of profit/loss attributable to owners

of the parent -301 -50 24 13 453 437 -1 409 134 -28 -102

Non-controlling interests’ share of profit/loss -289 -48 10 6 436 420 -597 57 -23 -92

Net cash ﬂow from operating activities -2 537 -703 283 787 1 401 1 619 3 765 5 397 360 394

Net cash ﬂow from investing activities -125 -191 -126 -47 -772 -135 -314 1 241 -176 -397

Net cash ﬂow from financing activities -209 -206 -157 -740 -623 -1 176 -6 958 -4 542 -214 -228

of which dividends paid to non-controlling

interests -123 -89

BUSINESS AND STRATEGY

| RESPONSIBILITY | REPORT BY THE BOARD OF DIRECTORS | AUDITED FINANCIAL STATEMENTS

29. Interests in associates and joint arrangements

Accounting policies

Associates are companies over which the Group has significant inﬂuence. As a rule,

significant inﬂuence is established when the Group holds more than 20% of a company’s

voting power or otherwise has significant inﬂuence but no control. A joint arrangement

is an arrangement of which two or more parties have joint control. Joint control involves

contractually agreed sharing of control of an arrangement, which exists only when

decisions about relevant activities require the unanimous consent of the parties sharing

control. A joint arrangement is either a joint operation or a joint venture. A joint venture

is an arrangement whereby the Group has rights to the net assets of the arrangement,

whereas in a joint operation the Group has rights to the assets, and obligations for the

liabilities, relating to the arrangement.

Associates and joint ventures are consolidated using the equity method. If the Group’s

share of the loss of an associate or a joint venture exceeds the carrying amount of the

investment, then the investment is carried at zero value, and the losses exceeding the

carrying amount are not consolidated, unless the Group is committed to fulfilling the

obligations of the associate or joint venture. An investment in an associate or a joint ven-

ture includes the goodwill generated through the acquisition. Unrealised profits between

the Group and an associate or a joint venture are eliminated in proportion to the Group’s

ownership interest. The Group’s pro rata share of an associate’s or a joint venture’s

profit for the financial year is included in operating profit.

EUR 1,000 2020 2019

Interests in associates Ullanlinnan Silmälääkärit Oy 17 24

Interests in joint operations 40 40

Total carrying amount 57 64

Interests in associates

Holding, %

Name Main business

location

Industry 2020 2019

Ullanlinnan Silmälääkärit Oy Helsinki Healthcare services 37 % 37 %

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.

Interests in joint operations

The Group owns 31% in Kiinteistö Oy Levin Pihlaja, which is consolidated as a joint operation accor-

ding to the pro rata share.

30. Contingent assets and liabilities and commitments

Collateral given on own behalf 2020 2019

Sureties 4 401 3 682

Properties’ VAT refund liability 85 1 728

Lease commitments for o-balance sheet leases 794 980

Lease deposits 635 1 764

Lawsuits and ocial proceedings