Terveystalo
Annual Report 2019

Plain-text annual report

TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS CONTENTS YEAR 2019 Terveystalo in brief Year 2019 CEO’s review Operating environment Strategy This is how we create value Terveystalo as an investment CORPORATE GOVERNANCE Corporate governance statement Board of directors Executive team Remuneration policy Remuneration statement Information for shareholders FINANCIALS Board of Directors’ report Financial statements Auditors’ report 6 8 10 12 15 18 20 24 31 33 36 40 42 50 62 114 FOREWORD This report is for shareholders, investors, analysts, media, clients, personnel, and other stakeholders who are interested in Terveystalo. The business of Terveystalo Group focuses on comprehensive healthcare. We offer a wide variety of primary and secondary healthcare and wellbeing services for corporate and private customers and the public sector. Our nationwide network covers approximately 300 clinics across Finland. The network of clinics is supplemented by 24/7 digital services. This Annual Report and its sister publication, the Sustain- ability Report and Quality Book, report on the company’s financial, social, and environmental impact and explain their strategic significance for the company’s business. The Annual Report includes Terveystalo’s highlights in 2019, the CEO’s review, a description of the operating envi- ronment, the strategy and value creation section, the Cor- porate Governance Statement, and the remuneration policy statement, as well as the Report of the Board of Directors and the financial statements with notes. The Statement of Non-Financial Information as required by the Accounting Act is included in the Report of the Board of Directors found in the financials section of the Annual Report. Sustainability management and results at Terveystalo are reported more extensively in the company’s Sustainability Report. Clinical quality is discussed in the Quality Book 2019. 2 3 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS AN OVERVIEW OF 2019 In 2019, Terveystalo had approximately 1.2 million customers with approximately 3.7 million visits to a physician, which means approximately 15 percent of all physician visits in Finland. Our revenue increased by 38 percent to over a billion euros, and we employed a total of 13,000 professionals directly and indirectly. This year, we particularly invested in the development of preventive and comprehensive wellbeing services, improvement of access to services, customer experience, and advancement of digital services. 4 5 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS TERVEYSTALO IN BRIEF Terveystalo is a listed company on the Helsinki Stock Exchange. Terveystalo is the largest private healthcare service company in Finland in terms of revenue and network. The company offers versatile primary and secondary healthcare services for corporate and private customers as well as the public sector. The nationwide network covers approximately 300 clinics across Finland. The clinic network is supplemented by 24/7 digital services. TERVEYSTALO IS THE LARGEST PRIVATE HEALTHCARE SERVICE PROVIDER IN FINLAND 15% of all doctor visits in Finland Approximately 1.2 million individual customers in 2019 FINLAND’S LARGEST IN TERMS OF REVENUE AND NUMBER OF CLINICS Approximately 3.7 million doctor visits in 2019 1 REVENUE BY CUSTOMER GROUP 2019 REVENUE BY CUSTOMER GROUP 2019 29% 29% TOTAL 1030.7 EUR mill. 42% KEY FIGURES 1,030 REVENUE EUR MILL. (745) 2019 11.2% ADJUSTED EBITA, % OF REVENUE (11.8%) Corporate, 42% (54%) Private individuals, 29% (35%) Public, 29% (11%) 2019 SERVICE OFFERING • OCCUPATIONAL HEALTH CARE • PRIMARY AND SPECIALTY CARE • WELL-BEING SERVICES • IMAGING AND LABS • DAY SURGERY • HEALTHCARE OUTSOURCING • HEALTHCARE STAFFING Clinic hospitals Clinics, dental clinics and occupational health clinics Municipality outsourcings USERS OF TERVEYSTALO’S DIGITAL SERVICES ON DECEMBER 31, 2019 188,000 personal health plans (oma suunnitelma) over 150,000 remote visits in 2019 over 4.7 million million individuals in digital patient records approx. 800,000 million users of the oma terveys online service 300 CLINICS, OF WHICH 17 CLINIC HOSPITALS AND 40 DENTAL CLINICS 47 CLINICS WITH IMAGING SERVICES 170 CLINICS WITH PHYSIOTHERAPY 6 7 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 2019 In 2019, Terveystalo made the use of services even easier and improved their accessibility by means such as a broad range of digital services. This spread includes some of the highlights of 2019.. SEPTEMBER ENHANCED OMA TERVEYS SERVICE The Oma Terveys application includes new features, such as the 24/7 chat service for mental wellbeing and video appointments with a physician. The 24/7 chat service enables access to a physician in about seven seconds on average. JULY RECORD NUMBER OF DIGITAL APPOINTMENTS The number of chat and video appointments at Terveystalo peaked in July. Their number was higher than physical appoint- ments at Terveystalo in Southwest Finland. Re- mote appointments signif- icantly improve the acces- sibility of our services. FEBRUARY TERVEYSTALO BECOMES SHAREHOLDER IN THE OLO JOINT VENTURE PHARMACY CHAIN THAT DEVELOPS HEALTHCARE SERVICES Terveystalo became a shareholder in the Olo joint venture pharmacy chain, which aims to develop pharmacies into customer- oriented local health and wellbeing service points. VILLE IHO BECOMES CEO OF TERVEYSTALO Terveystalo’s long-time CEO, Yrjö Närhinen, left the company and the Board of Directors appointed Ville Iho as the new CEO. Mr. Iho started in his post in December. AUGUST TERVEYSTALO EXPANDS ITS OCCUPATIONAL HEALTH SERVICES The occupational health services of the Welfare District of Forssa, Kanta- Hämeen Työsyke Oy, and Etelä-Karjalan Työkunto Oy became part of Terveystalo. MAY–JUNE OCTOBER EVALUA BECOMES PART OF TERVEYSTALO Evalua, established in 2003, specializes in scientific evidence-based health surveys, advanced personnel surveys, and interpretation of results. OCTOBER THE NEW FINANCING AGREEMENT SPURS TERVEYSTALO’S SUSTAINABILITY WORK Terveystalo agreed on loan financing of EUR 410 million. The interest rate margin depends on how Terveystalo achieves its sustainability goals. ISS ESG GRANTS PRIME STATUS TO TERVEYSTALO Terveystalo was granted Prime status by ISS ESG. This means that Terveystalo meets ISS ESG’s strict criteria for sustainability in its field of business. OCTOBER SUPPORT FOR PROFESSIONALS: THE TERVEYSTALO PRO APPLICATION The Pro application is designed for healthcare professionals. They will soon be able to manage their physical and digital appointments in real time. SEPTEMBER 8 9 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS CEO’S REVIEW: TERVEYSTALO LEADS THE WAY THROUGH THE TRANSFORMATION OF THE INDUSTRY Technology is reshaping healthcare and the most progressive operators are creating new solutions for the prevention of illnesses and better access to care. Terveystalo is at the forefront of the development the individual-oriented care of the future. Our solutions are effective: our customer satisfaction reached a record-high level in 2019 and our operational profitability increased. Technological progress and the service innovations it brings are re- Our remote chat appointments with physicians, for example, are shaping all industries, and digital services are also becoming more available with an average waiting time of seven seconds. common in healthcare. The significance of comprehensive wellbe- Our growth in customer volume was paralleled by our customer ing is growing and the industry megatrends, along with customer satisfaction rising to an all-time high. Meanwhile, the growth of our comparisons against services in other sectors, are shaping customer business continued, and we exceeded EUR 1 billion in total revenue expectations in healthcare. The ageing of the Western population will for the first time while maintaining our profitability at a level that increase service needs and lead to higher healthcare costs. is among the highest in our industry. Our operational profitability At the same time, there are shortages of healthcare profession- improved, supported by organic growth, in spite of the lower profit als in many areas. Amidst these pressures, the quality and availa- margin of the acquired Attendo health services business. We are bility of healthcare services are often viewed as a zero-sum game, confident that we will achieve our medium-term profitability target. and it is believed that outcomes can only be influenced by increasing We are also increasingly challenging ourselves when it comes to resources or shifting existing resources from one area to another. sustainability. For example, in November, we agreed on loan financ- At Terveystalo, the leading private company in its field, we have a ing of EUR 410 million with an interest margin that takes into account unique opportunity, and responsibility, to be a trendsetter in this re- Terveystalo’s sustainability target achievements. gard. We create new operating methods that help society as a whole respond to the challenges presented by ageing, diseases of afflu- DEEP EXPERTISE MOVES US TOWARD INDIVIDUAL-ORIENTED AND PREVENTIVE CARE ence, and growing healthcare costs. Instead of seeing a zero-sum As Terveystalo’s new CEO, I am very impressed by the company’s game, we challenge ourselves to continuously innovate and resolve strong culture and competencies. The people of Terveystalo have bottlenecks in care chains. We invest in the development of new ser- deep professional expertise and a willingness to work together across vice solutions and processes with the aim of supporting the overall the boundaries between various areas. At the same time, they are health of our customers more accurately and effectively. actively seeking new and concrete solutions to the industry’s needs. Our digital tools are a good example of the solutions we have Our experts have a high level of ambition when it comes to clinical, implemented to respond to our customers’ needs effectively re- operational and experienced quality, and our organization has a gardless of time and place, around the clock. We also make use of deeply ingrained culture of data-driven management. Terveystalo’s analytics in our services to further increase the efficiency of care mission, “We are fighting for a healthier life,” takes concrete shape chains. In addition, we engage in increasing dialog with our custom- every day in the form of a tremendous work ethic. ers. Combined with the data we collect regarding treatment, this The transformation of the industry provides Terveystalo with new helps us to develop preventive services. opportunities for taking advantage of its key competencies. As we Alongside technological development, we are building the move forward, we will continue to drive the industry’s development strongest working community in our industry, making purposeful towards more individual-oriented and preventive care while also use of our experts and guiding our customers to meet the right ex- promoting transparency and the comparability of the quality of care. pert through the appropriate service at the appropriate time, using We are building our industry’s strongest working community and the the appropriate channel. best team. We want our customers to feel that they are receiving the best possible care regardless of the service or channel they use. A YEAR OF FINANCIAL AND OPERATIONAL EXCELLENCE Our strengths provide an excellent foundation for making future Terveystalo had an excellent year in 2019 in terms of financial and strategic choices. operational results. In spite of the resource-related challenges in our industry, we have achieved growth in our service provision while en- Ville Iho suring high service quality and quick access to care for our customers. CEO Much of the credit for this goes to new processes and digital solutions. Terveystalo DOCTOR APPOINTMENT VIA CHAT WITHIN 7 SECONDS 24/7 10 11 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS OPERATING ENVIRONMENT AND GENERAL MEGATRENDS GENERAL MEGATRENDS HEALTHCARE TRENDS REFLECT GLOBAL MEGATRENDS The healthcare field is influenced by a number of global megatrends, Automation, robotization, artificial intelligence, and digital plat- Aging populations increase healthcare costs and cause more pressure The importance of proactive and preventive care is also empha- such as the digital revolution, aging populations, and the increasing forms modify all fields from industry to knowledge work. Digital for revision of the regulation environment. At the same time, many sized, and digitalization will transform the healthcare service chains. importance of comprehensive wellbeing. By identifying these trends, services are also becoming more common in healthcare, provid- areas suffer from a shortage of healthcare professionals. Digital ser- Some parts of the treatment chain can already be replaced with we can even more efficiently anticipate future challenges and op- ing new solutions for the prevention of illnesses and better ac- vices provide some tools to respond to the challenges of healthcare. digital services. portunities and respond to trends even better. cess to care, among others. For example, customers can use the Digital services are growing in popularity, as services can be efficiently Megatrends also influence healthcare customers’ expectations. In Terveystalo Oma Terveys application to look at their entire health provided round the clock, regardless of time and place. Through the Western world, the population is aging, and the lifestyle of today’s history and access 24/7 remote appointments, all in one place. With digital services, it is also possible to reach a healthcare professional seniors is different from that of the previous generations. They con- the future-oriented personal My Health Plan, customers can, to- if a lack of personnel makes physical appointments unavailable or sume more and use more healthcare services. Likewise, millennials are gether with a health professional, set goals to improve their health the waiting time is long. another important demographic group. They typically follow a healthy and take concrete steps to achieve them. lifestyle and digitalization is a natural part of their everyday life. DIGITALIZATION OUR RESPONSE GLOBAL TRENDS CHANGE THE WAY HEALTHCARE IS PROVIDED AND FUNDED • Increasing use of digital services • Ease of use • Targeted and tailored services based on customer information • We provide the best customer experience on e-health • We provide a wide variety of continuously improving mobile services • We personalise and target our offering to customers • We provide our corporate customers with a wide range of digital services CHANGING CUSTOMER BEHAVIOR AND EXPECTATIONS • Ageing population • Polarisation of health & exercising habits • Increasing importance of holistic, tailored health and well-being services • Increasing amount of data OUR RESPONSE • We continuously develop our service concepts by utilising customer information • We tailor our range of services locally based on customer demand Change in demographics Depleting resources The empow- ered consumer Chronic diseases The distrustful consumer DigitalHealth • Aging → increased healthcare costs → regulatory reforms inevitable • AI-based (diagno- sis) support → role of doctors changing • Role of nation’s state creates uncertainties for the healthcare industry • Lack of profes- • Customers • Increasing need • New type of sional resources • Role of nurses and other profes- sionals increasing increasingly own their data and select their own services • Customer expe- rience and digital personalization for cost-effective population management competitors (from start-ups to tech giants) • Monetization • Competitive models change. E.g., From Fee for Service model to subscription based services advantage from data and quality metrics • Digital platforms as a source of competitive advantage • Growing prefer- ence of digital channels • Role of proactive and preventative care enforced • More frequent interactions • Service chain transformation digital diagnosis & diagnostics, only then to a doctor 12 13 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS THE FINNISH HEALTHCARE MARKET STRATEGY The total annual cost of healthcare in Finland is approximately EUR as the total cost of healthcare. According to studies, companies can Terveystalo’s customer-driven high-quality services promote the THE PREFERRED EMPLOYER FOR PROFESSIONALS 15 billion. Publicly funded and provided healthcare constitutes 74 benefit from systematically investing in work ability management. health of Finns and, thereby, the wellbeing of Finnish society as a The ability to attract and retain competent, motivated professionals percent of the amount. Private healthcare plays a significant role in One euro of investment generates six euros of return as a result of whole. The core of Terveystalo’s strategy is constituted by continu- is critical for us: only in this way can we achieve the operational the Finnish system. lower sickness absence and pension costs. ous improvement of clinical, operational, and experienced quality, efficiency, superior service experience, and clinical quality that form Finland has an internationally unique occupational health system that covers 1.9 million Finns. This has effects on public health as well PUBLIC PROVISION PRIVATE PROVISION Public provision and funding 74% EUR 10.8 bn. Finnish healthcare market in total EUR 14.5 bn. Private provision, public funding 7% EUR 1.0 bn. Private provision and funding 19% EUR 2.7 bn. PUBLIC FUNDING PRIVATE FUNDING In 2017 according to Nordic Healthcare Group estimate OPERATING ENVIRONMENT together with profitable growth through organic growth and sup- the core of our strategy. Good customer satisfaction and high-quality plementary acquisitions. Our mission statement is: We are fighting care are not possible without satisfied employees. for a healthier life. We provide a broad range of healthcare and wellbeing services LOCAL QUALITY LEADER WITH NATIONWIDE SCALE BENEFITS for private, corporate, and public sector customers. Our competitive Our comprehensive network and extensive service range form a advantages include a wide and comprehensive network, scalable platform for providing efficient, individual, and local services for business model, and a broad range of digital services. Together with customers. Because of the operating leverage of our business, we our development-oriented culture, they attract the field’s best talent. can continuously invest in digitalization, service development, and SUPERIOR CUSTOMER EXPERIENCE A positive customer experience promotes customers’ commitment MEASURED EFFECTIVENESS operational efficiency. and loyalty. We want to provide a superior experience in all of our Clinical quality is created through the medical expertise of healthcare service channels. This requires active identification and fulfilment professionals, excellent facilities, continuous training, and efficient of the customer’s individual expectations and needs. Our digital processes. We want to be the frontrunner in our field in measuring tools, which support the service, are an integral part of the customer and reporting the quality and effectiveness of care. experience. THE PREFERRED PARTNER TO OUR CUSTOMERS We participate actively in the development of healthcare services Our objective is to be the preferred provider of healthcare services in Finland and the promotion of the wellbeing and health of Finns. for all customer groups. We continuously develop our service range We aim to develop customer-oriented cooperation models with the and network in order to cater to our customers’ individual needs public sector and engage in active dialogue on the future of health- RESPONSIBLE SOCIAL INNOVATOR even better. BUSINESS AND STRATEGY care. We offer effective tools for the prevention of lifestyle diseases with an impact on the national economy and we supplement public healthcare services. INFLUENTIAL TRENDS DESCRIPTION AND EFFECT OF RISKS MANAGEMENT OPPORTUNITY INFLUENTIAL TRENDS DESCRIPTION AND EFFECT OF RISKS MANAGEMENT OPPORTUNITY Market conditions and development of the employment rate Development of the Finnish economy and the employment rate affect demand for Terveystalo’s services. Promotion of cost-efficiency, productivity, and other aspects of competitiveness in accordance with the chosen strategy. Terveystalo’s strong balance sheet and focus on competitiveness reduce risks and can provide strategic opportunities (incl. acquisitions). Continuous improvement of competitiveness. Reduced relative competitiveness has an impact on profitability and increases risks related to the operating environment. Commercial strategies, a culture of continuous improvement, and a strong perception of continuous improvement of productivity. Development of services. Increased relative competitiveness promotes profitability and reduces risks related to the operating environment. Changes in market demand and supply Changes in demand or supply have an effect on the company’s growth expectations. Continuous improvement of competitive- ness, continuous development of services. An extensive network and continuous improvement of competitiveness and quality promote customer loyalty. Regulatory changes and changes in subsidies or taxes Regulatory changes are delayed, or significant changes take place in the regulatory environment. Early recognition of regulatory changes, compliance, continuous improvement of competitiveness and quality, reorganisation of the ways of providing services, social influence. Regulatory changes may result in new demand and encourage custom- ers to favour service providers that invest in quality and competitiveness. Digitalization and technological develop- ment The role of digital services is growing and shaping the industry. Requirements for data privacy and security are increasing. Continuous investments in the develop- ment of digital services and tools. Data privacy and security are managed as part of overall security management through a variety of methods and processes. Digitalisation can provide new solutions for disease prevention and improve access to care. The growing importance of corporate responsi- bility Shortcomings in corporate responsibility can have a significant negative impact on the company’s reputation and operations. Continuous development of quality and corporate responsibility as part of the company’s strategy. Sustainable operations and transparent reporting can create a competitive advantage. Choice and implementation of acquisitions. Integration challenges related to customer relations, resources, systems, processes, and culture. The pursued benefits are achieved only partially or not at all. Systematic choice of targets and prepa- ration in order to ensure strategic com- patibility, accurate valuation, and efficient integration. Stakeholder cooperation. Growth, new customers and business operations, geographic expansion, extended competencies Ability to hire and retain competent personnel with a wide range of expertise. Challenges related to the plannin- gand implementation of business operations that have an effect on profitability and creation of value. Development of competence, incentive systems, development of well-being at work, value-based management, and ethical practices. Development and commer- cialization of innovations and new services. A lost opportunity to develop and commercialise new services. A systematic development project port- folio, R&D cooperation and partnerships, development of the business model. Attractiveness as a workplace enables better availability of competent per- sonnel compared with our competitors. Committed personnel who are capable of first-class performance enable the implementation of the strategy and the success of the company. Revision of the current services and supplementary services to create added value. New services can be a significant source of growth and value for the company. 14 15 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS systematic progress of growth strategy implementation The main strategic measures in 2019 included the integration of continued to expand, and the expected synergies from completed acquisitions were achieved as planned. As a result of the acquisi- Attendo health services and an increase in available appointments tions and strong organic growth, revenue increased by 38 percent, through process development and digital tools. and profitability according to adjusted EBITA remained strong at 11.2 ACHIEVEMENT OF FINANCIAL TARGETS The Net Promoter Score* (NPS) for customer experience was percent of revenue. TARGET REALISED IN 2019 TARGET LEVEL strong in all of the measured areas. Personnel job satisfaction at Corporate responsibility is one of Terveystalo’s strategic key pri- Terveystalo was at an excellent level, but the employee net promot- orities. In addition to the Quality Book, the company published its er score (eNPS) remained at an average level. (9) The improvement first corporate responsibility report for 2019 and was granted Prime measures identified on the basis of the personnel survey have been status by ISS ESG as the first Finnish healthcare service company. initiated. Terveystalo’s comprehensive overall health service range TERVEYSTALO GROWTH STRATEGY MISSION: CHAMPIONS OF A HEALTHIER LIFE OUR GROWTH IS BASED ON SIX STRATEGIC CHOICES: SUPERIOR CUSTOMER EXPERIENCE NPS appointments THE PREFERRED PARTNER TO OUR CUSTOMERS Customer Experience quality THE PREFERRED EMPLOYER FOR PROFESSIONALS ENPS LOCAL QUALITY LEADER WITH NATIONWIDE SCALE BENEFITS Operational quality MEASURED EFFECTIVENESS Medical quality RESPONSIBLE SOCIAL INNOVATOR FINANCIAL TARGETS: GROWTH 6–8% annual revenue growth1 PROFITABILITY An Adjusted EBITA margin 12–13%2 CAPITAL STRUCTURE Net Debt / Adjusted EBITDA not to exceed 3.5x3 DIVIDEND POLICY At least 30 % of net profit distributed4 OUR STRENGTHS: LARGEST NETWORK LARGEST AMOUNT OF DATA SCALABILITY DEVELOPMENT ORIENTED CULTURE OUR VALUES: KNOW-HOW AND CARING 1 Growth in the long term through a combination of organic growth and bolt-on acquisitions. 2 An Adjusted EBITA margin 12–13% of revenue in the medium- to long-term. 3 Indebtedness may temporarily exceed the target level, for example, in conjunction with acquisitions. 4 Taking Terveystalo’s long-term development potential and financial position into account. 2 REVENUE 1,200 1,000 800 600 400 200 0 4 506 547 690 745 1,031 2015 2016 2017 2018 2019 38 % 11.2 % 2.7 (comparable) Annual growth of 6 to 8 percent In the long term through a combina- tion of organic growthand bolt-on acquisitions Adjusted EBITA margin* 12–13% of revenue *before interest, taxes, depreciation and amortisation in the medium to long term Interest-bearing Net Debt / Adjusted EBITDA not to exceed 3.5 times Indebtedness may temporarily exceed the target level, for example, in conjunction with acquisitions Corporate, 42% (54%) Private individuals, 29% (35%) No dividend was paid for the 2018 financial Public, 29% (11%) year. Funds were distrib- uted from the invested unrestricted equity fund at EUR 0.20 per share (277% of net profit for the period). At least 30% of the profit for the financial period Taking Terveystalo’s long-term development potential and financial position into account Increase in revenue Profitability Capital Structure Payment of dividends 3 ADJUSTED EBITA, EUR MILL. AND % OF REVENUE NET DEBT/ADJUSTED EBITDA 120 100 80 60 40 20 0 50.7 10% 56.8 10.4% 73.0 10.6% 87.7 11.8% 115.1 11.2% 5 4 3 2 1 0 5.0 4.2 2.8 3.8 2.7* 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 *Before IFRS 16 impact (comparable) 16 17 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS VALUE CREATION MODEL VALUE CREATION MODEL resources and key capital: business model: outputs: created value and impacts: PERSONNEL AND COMPETENCE • We employed over 13,000 people, of whom more than 5,000 are private practitioners: approximately 5,000 doctors from ~30 specialties, over 900 nurses, 130 operating room nurses and over 800 occupational nurses, 350  dentists, 200 psychologists, 140 psychotherapists, 55 nutritionists and about 600 occupational and physiotherapists. FINANCIAL • Net debt EUR 548 mill. • Equity EUR 541 mill. IMMATERIAL • ISO 9001: 2015 Quality Certification • Utilising customer information in the management of medical quality and promoting public health in society • Care chains based and developed on evidence-based medicine • Medical Quality Management Tools: Etydi, Medical Reporting, and Dashboard • A strong brand, the most interesting employer among doctors and healthcare students • ”In the best hands” model in responding to customer needs • Oma Suunnitelma, a personal health plan for Preventive Health Care • Medical research: Terveystalo clinical research, biobank SOCIAL • Good relationships, especially with private practitioners and other healthcare professionals, investors, suppliers of materials and services, directly affect our ability to deliver high quality, personalized health services • Close cooperation with industry associations, insurance and pension companies and health insurance funds to promote the sharing of best practices and the efficasy of care • Good relationships with authorities and decision-makers support our operations and role in the Finnish healthcare system INFRASTRUCTURE • About 300 clinics • 17 Clinic hospitals • 40 dental clinics • 45 Rela massage therapy units NATURAL RESOURCES • Energy consumption 17,170 MWh (electricity) Occupational health Services Health care staffing Primary and specialist care ctors, n u rs e o D s a n d o ther healthcare p r o f e s s i o n a l s Out- sourcing Services CHAMPIONS OF HEALTHIER LIFE Well-being services N a ti o n wide network a n d d i g it a l s ervices Clinical research Imaging and labs Day surgery quality management CLINICAL, EXPERIENCE-RELATED AND OPERATIONAL QUALITY KEY OPERATIONAL MANAGEMENT SYSTEMS DIGITALIZATION AND INNOVATIONS • Leading professionals • Quality management • Network management • A model for continuous improvement • Managing profitability and growth • Digital solutions to improve the clinical, operational and customer experience quality • New services and service models Governance structures, policies and controls related to good corporate governance, Code of Conduct, risk management and compliance. • 3.7 mill.. doctor visits for 1.2 mill. individual customers, 15% of all doctor visits in Finland • 6,2 customer visits • Over 150,000 remote appointments • Over 4.7 mill. individuals in electric patient records • 188,000 new health goals recorded for digital health plans EMISSION AND WASTE • Carbon footprint 2,222.5 tonnes CO2 (Scope 1 & 2) • Waste 73 tonnes (mixed and hazardous waste) IMPACT AND VALUE FOR CUSTOMERS (INDIVIDUAL): • Fast access to care: Chat reception to a general practitioner or occupational health practitioner available 24/7 in 7 seconds average • Availability of care everywhere in Finland, digital services available 24/7, 75% of Finns live 15 minutes drive away from Terveystalo unit • High quality and efficacy of care • Strong patient safety, reminders (0.01%), complaints (0.00%), patient injury complaints (0.01%) all below the industry average • Deacrese in sickness related work abcences and the cost of work left undone • Prevention of illnesses • High Customer Satisfaction and Net Promoter Score, NPS • Cost savings and improved access to care in publicly funded services ECONOMIC IMPACT • Tax footprint EUR 149 mill. • Equity repayment EUR 26 mill. • Investments, excl. M&A EUR 33 mill. • Materials and services purchased EUR 473 mill. • Financial expenses (net) of EUR 14 mill. IMPACT ON PERSONNEL AND PRIVATE • Wages and salaries, EUR 314 mill. • Personnel sickness absenteeism rate 3,7 below national average • Lost work injury frequency rate, LTIR 25, significantly below industry national average • 92% are satisfied with Terveystalo as an employer • A total of 2,685 hours of centralised nationwide training sessions. 18 19 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS TERVEYSTALO AS AN INVESTMENT Terveystalo, a company founded in 2001, has grown through nearly 200 acquisitions into Finland’s largest healthcare service company. In recent years, Terveystalo has made some significant investments, particularly in digitalization and customer experience, as well as clinical and operational quality. Terveystalo’s customer-oriented business model and corporate culture produce excellent services for all customer groups. Terveystalo’s strengths provide it with a number of channels for growth. MEGATRENDS ACCELERATE STRUCTURAL MARKET GROWTH • Aging populations and high incidence of lifestyle diseases increase both demand for healthcare and healthcare costs. • People are investing more in health and wellbeing and using more services. COMPETITIVE ADVANTAGE OF SCALE • Terveystalo’s broad and diverse customer base enables cross-selling and efficient use of resources. • Economies of scale enable continuous improvement of profitability. Terveystalo has an extensive existing network and scalable centralized operations. SERVICES TAILORED FOR DIFFERENT CUSTOMER GROUPS ENABLE GROWTH IN THE CHANGING MARKET • The objective is to be the preferred provider of healthcare services for all customer groups and to continuously develop the services and network to respond to our customers’ individual needs. OPPORTUNITY TO ACCELERATE GROWTH THROUGH ACQUISITIONS • Since 2001, Terveystalo has completed nearly 200 acquisitions. • Because of the economies of scale and solid experience in acquisitions, Terveystalo has historically met or exceeded the cost synergy expectations, creating value through acquisitions. COMPANY CULTURE ATTRACTS HEALTHCARE PROFESSIONALS • Terveystalo has been chosen as the most attractive employer among physicians and healthcare students for six years in a row. 1 2 3 4 5 20 21 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS CORPORATE GOVERNANCE At Terveystalo, the highest power of decision- making is exercised by the shareholders at the General Meeting of Shareholders. The company’s Board of Directors and CEO are in charge of the management of Terveystalo. The rest of company management assists and supports the CEO in his duties. The Board of Directors is responsible for ensuring that Terveystalo complies with good corporate governance principles. 22 23 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS CORPORATE GOVERNANCE STATEMENT I. INTRODUCTION Governance at Terveystalo Plc (“Terveystalo” or the “Company”) is based on applicable law, the rules and recommendations of Nasdaq II. DESCRIPTIONS CONCERNING CORPORATE GOVERNANCE Terveystalo is a Finnish limited liability company domiciled in Helsinki. GENERAL MEETING OF SHAREHOLDERS quorum. The Nomination Board has a written Charter which includes The General Meeting of Shareholders is Terveystalo’s most author- a more detailed description of the election process and the duties itative decision-making body. The Annual General Meeting is held of the Nomination Board members as well as the procedures of the Helsinki Ltd (the Helsinki Stock Exchange), and the Company’s Articles The parent company, Terveystalo Plc, and its subsidiaries form the annually on a date determined by the Board of Directors, within six Nomination Board’s meetings. The charter of the Nomination Board of Association. In addition, the Company applies the Finnish Corporate Terveystalo Group. The responsibility for the administration and opera- (6) months of the end of the financial year. can be found on the company website at www.terveystalo.com/en/ Governance Code 2015 (Corporate Governance Code), issued by the tions of Terveystalo Group lies with the governing bodies of the parent The Annual General Meeting deals with matters falling within investors/Corporate-governance/shareholders-nomination-board/. Securities Market Association and is available on its website at www. company, Terveystalo Plc. These governing bodies include the General its competence pursuant to the Finnish Limited Liability Companies In accordance with shareholdings on September 1, 2019, cgfinland.fi. Terveystalo complies with all the recommendations in Meeting of Shareholders, the Board of Directors, and the CEO. The Act and Terveystalo’s Articles of Association, and any other possi- Terveystalo’s Nomination Board consists of the Company’s four the Corporate Governance Code. Terveystalo’s Corporate Govern- General Meeting of Shareholders elects the members of the Board of ble matters that are requested to be handled by the Annual Gen- largest shareholders and the Chairman of the Board of Directors. In ance Statement has been prepared in accordance with the Corporate Directors on the basis of the proposal of the Nomination Board consisting eral Meeting. An Extraordinary General Meeting is convened when accordance with the above, the members of Terveystalo’s Nomina- Governance Reporting section of the Corporate Governance Code. of major shareholders, and the Board appoints the company’s CEO. necessary. More detailed information about the General Meeting tion Board from September 10, 2019 are Risto Murto (Varma Mutual This statement has been reviewed and approved by Terveystalo’s The Board of Directors is aided by two committees. The Board elects of Shareholders is provided in Terveystalo’s Articles of Association, Pension Insurance Company), Matts Rosenberg (Rettig Group AB), Audit Committee and Board of Directors, and it has been prepared the committee members from among its number. The Management which can be found on the company website at www.terveystalo. Peter Therman (Hartwall Capital), Laura Raitio (Helsinki Deaconess separately from the Report of the Board of Directors. The statement Group assists the CEO with the management of Terveystalo Group’s com/en/investors/Corporate-governance. Institute Foundation), and Kari Kauniskangas (Chairman of the Board is available on the company website at www.terveystalo.com/en/ operations. The work of the Board of Directors, its committees, the The Annual General Meeting for 2019 was held on April 4, 2019. of Directors of Terveystalo Plc). investors/Corporate-governance/. CEO, and the Management Group is governed by the Company’s cor- The decisions of each General Meeting can be found on Terveysta- In its organization meeting held on September 10, 2019, the porate governance principles, adopted by the Board of Directors. These lo’s website at www.terveystalo.com/en/investors/Corporate-gov- Nomination Board elected Risto Murto as its chairman. The Share- principles include the Charters of the Board and its committees, the ernance/General-Meeting-of-Shareholders/. holders’ Nomination Board will forward its proposals for the Annual division of responsibilities between the decision-making bodies, and the principles concerning the arrangement of internal control and risk management. The Company’s governance structure is described below. TERVEYSTALO’S GOVERNANCE STRUCTURE GENERAL MEETING NOMINATION BOARD AUDIT BOARD OF DIRECTORS General Meeting to Terveystalo’s Board of Directors on 31 January 2020 at the latest. In 2019, the Nomination Board convened six SHAREHOLDERS’ NOMINATION BOARD times. The attendance rate of members was 97 per cent. In accordance with the decision of the General Meeting of Sharehold- ers, Shareholders’ Nomination Board prepares annual proposals for Name Meetings attended Attendance rate the next Annual General Meeting concerning the number of Directors Risto Murto 6/6 and their election and remuneration. The Shareholders’ Nomination Matts Rosenberg 4/4 Board consists of the Chairman of the Company’s Board of Directors Peter Therman 4/4 and representatives of the Company’s four largest shareholders. Kari Kauniskangas 4/4 However, if the holding of the fifth largest shareholder exceeds 100 % 100 % 100 % 100 % ten (10) per cent of all the shares and votes in the Company, the Members of the Nomination Board until 9 September 2019: five largest shareholders shall be represented on the Shareholders’ Ole Johansson 2/2 Nomination Board. The Nomination Board consists of representatives Tomas von Rettig 2/2 of the four (or five) largest shareholders and the Chairman of the Fredrik Cappelen 1/2 Board of Directors, as determined by shareholdings on September 1 in 100 % 100 % 50 % each calendar year. The Chairman of the Board of Directors convenes Member of the Nomination Board until 4 December 2019: the first meeting of the Shareholders’ Nomination Board, and the Laura Raitio 4/4 100 % Shareholders’ Nomination Board elects a Chairman from among its number. Subsequent meetings of the Nomination Board are con- Member of the Nomination Board as of 9 December 2019: vened by the elected Chairman. If more than half of the members of Olli Lehtilä 1/1 100 % AUDIT COMMITTEE Internal Control and Risk Management REMUNERATION COMMITTEE the Shareholders’ Nomination Board are present, they constitute a CHEF EXECUTIVE OFFICER EXECUTIVE TEAM 24 25 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS BOARD OF DIRECTORS the Board of Directors. The Shareholders’ Nomination Board plans of members of the Management Group reporting directly to the CEO. Lasse Heinonen serves as Chairman of the Audit Committee, and According to Terveystalo’s Articles of Association, the Board of Direc- the composition of the Board of Directors from the perspective of the The number of terms or the age of Board members is not limited. Paul Hartwall and Olli Holmström are Committee members. The tors has a minimum of five (5) and a maximum of eight (8) ordinary Company’s current and future business needs, taking into account The Board of Directors may establish committees to assist the Audit Committee convened 5 times in the financial year 2019. The members. The Annual General Meeting of Shareholders elects the diversity of the Board. In 2019, the Company’s Board of Directors Board with the preparation and performance of its duties and re- average attendance rate of the Committee members was 100 per members of the Board of Directors. The Board of Directors elects the met the diversity criteria. The age range of Board members is 38 to sponsibilities. The Board of Directors may determine the size and cent. Attendance rate by member is shown in a separate table under Chairman from among their number. In 2019, the General Meeting of 66 years. Two of the Board members are women and six are men. composition of such committees and approve their charters. Attendance of Board members at Board and Committee meetings Shareholders elected eight members to the Board of Directors: Dag Andersson, Paul Hartwall, Lasse Heinonen, Olli Holmström, Kari Kauni- DESCRIPTION OF THE WORK OF THE BOARD OF DIRECTORS In 2019, the Board of Directors convened 16 times. The average in 2019. attendance rate at Board meetings was 97 per cent. Attendance rate skangas, Åse Aulie Michelet, Katri Viippola, and Tomas von Rettig. The The Board of Directors has prepared and adopted a written Charter of by member is shown in a separate table under Attendance of Board REMUNERATION COMMITTEE Board of Directors elected Kari Kauniskangas as the Chairman of the the Board. It supplements the provisions of the Articles of Association members at Board and Committee meetings in 2019. The Remuneration Committee carries out its responsibilities under its Board. All the members of the Board are independent of the Company. and the applicable laws and regulations. The Charter of the Board of Kari Kauniskangas, Dag Andersson, Lasse Heinonen, and Åse Aulie Directors describes the Board’s composition, the election process of COMMITTEES OF THE BOARD OF DIRECTORS Charter adopted by the Board of Directors. The Charter of the Remu- neration Committee came into effect on July 1, 2017. The Remunera- Michelet are independent of major shareholders of the Company; Paul the Directors, the responsibilities of the Board, meeting arrangements, The Company’s Board of Directors has established two committees: tion Committee of the Board of Directors identifies individuals qualified Hartwall is a member of the Board of Directors of Hartwall Capital, Olli division of responsibilities among the Board members, and reporting the Audit Committee and the Remuneration Committee. to serve as the CEO of the Company and gives its recommendation on Holmström is the CEO of the Helsinki Deaconess Institute Foundation; to the Board of Directors. The CEO attends Board meetings. The Chief Katri Viippola is Senior Vice President for Communications, HR, and Financial Officer (CFO) and other members of the Management Group AUDIT COMMITTEE the appointment of the CEO to the Board of Directors. It also assists the Board of Directors with any major management reorganizations on CSR at Varma; and Tomas von Rettig is the Chariman of the Board of attend Board meetings upon invitation by the Board of Directors. The The Audit Committee carries out its responsibilities under its Charter the basis of preparation and proposals by the CEO. The Remuneration Directors of Rettig Group Oy AB. Board of Directors has general competence to decide and act in mat- adopted by the Board of Directors. The Audit Committee assists the Committee assists the Board of Directors with the evaluation and In accordance with the decision of the Annual General Meeting of ters that do not fall within the competence of any other corporate Board of Directors in performing and monitoring the supervisory remuneration of the CEO and the members of the Management Group 2019, Fredrik Cappelen (Chairman), Eeva Ahdekivi, Lasse Heinonen, governing body under law or the Company’s Articles of Association. duties related to its financial reporting process. In addition, the Audit reporting directly to the CEO, oversees the Company’s remuneration Olli Holmström, Vesa Koskinen, Åse Aulie Michelet, Katri Viippola, The Board of Directors is responsible for the Company’s administration Committee assists the Board of Directors in supervising matters related policies, schemes, and plans, as well as defines appropriate succession and Tomas von Rettig were members of the Board of Directors until and the appropriate arrangement of its functions. In addition, the to financial reporting, internal control, internal auditing, and risk planning procedures for the Management Group. April 4, 2019. Board of Directors is responsible for ensuring appropriate supervision management. The Audit Committee monitors the financial reporting The Remuneration Committee consists of a minimum of three HOLDINGS OF THE BOARD MEMBERS AND THEIR CONTROLLED ENTITIES IN THE GROUP, DECEMBER 31, 2019 Kari Kauniskangas Dag Andersson Paul Hartwall Lasse Heinonen Olli Holmström Åse Aulie Michelet Katri Viippola Tomas von Rettig 4,248 1,695 1,695 10,938 3,134 25,758 3,134 3,938 of the Company’s accounting and asset management. The Board of processes, the quality and integrity of the financial statements and members elected by the Board of Directors from among its num- Directors decides on matters of principle and on any issues that could other financial reports, and the Company’s financial performance. In ber. The members of the Remuneration Committee must meet the have broad-ranging implications for the Company. It decides on major addition, the Audit Committee monitors the statutory audit of the fi- independence criteria applicable to such committee members of corporate plans and transactions, as well as establishes limits for capital nancial statements, consolidated financial statements, and the annual, publicly listed companies in Finland, including that the majority of expenditure, investments, divestments, and financial commitments. half-year, and interim reports. The Audit Committee also monitors the members of the committee must be independent of the Com- The Board of Directors’ responsibilities include reviewing and approving the efficiency of the Company’s internal control, internal auditing, pany. Remuneration Committee members must possess the exper- the strategic objectives and strategic plans of the Company and its and risk management systems and assesses the performance of tise and experience required for the performance of the duties and business areas, as well as monitoring their implementation. The Board internal auditing. Furthermore, the Audit Committee evaluates the responsibilities of the Remuneration Committee. Desirable qualifi- of Directors also reviews and approves the Company’s financial targets. qualifications and independence of the external auditor, particularly cations for members of the Remuneration Committee include ex- In addition, the Board of Directors monitors and assesses the Company’s the provision of non-audit services to the Company, prepares the perience in business management, corporate governance, human financial reporting system, approves the Company’s financial reports, proposal for the election of the external auditor, and monitors com- resources management, and executive remuneration. and monitors the Company’s external audit process. It also ensures that pliance with laws and regulations. The Audit Committee prepares The Remuneration Committee establishes its own schedule and Biographical details of the Board members are provided below under the Company has defined the operating principles of internal control, the proposal for the remuneration and election or re-election of the meets as frequently as necessary to carry out its responsibilities Group Management. internal auditing, and risk management, and monitors compliance external auditor and submits its recommendation for the appointment under its Charter, and in any event at least twice a year. DIVERSITY OF THE BOARD OF DIRECTORS in the best interest of the Company and its shareholders. The Board Audit Committee shall ensure that the Board of Directors is aware and Dag Andersson, Åse Aulie Michelet, and Katri Viippola are Com- The principles concerning the diversity of the Board of Directors, of Directors appoints and dismisses the CEO, supervises the CEO’s of matters which may significantly impact the Company’s financial mittee members. The Remuneration Committee convened 10 times prepared by the Company, came into effect on September 27, 2017. actions, and approves the CEO’s service contract and remuneration condition or business affairs. during the financial year. The average attendance rate of the Com- The Company regards the diversity of the Board of Directors as a upon the recommendation of the Remuneration Committee. Upon the The Audit Committee consists of at least three members ap- mittee members was 100 per cent. Attendance rate by member is material contributor to the achievement of the Company’s strategic proposal of the CEO, the Board of Directors appoints the Management pointed by the Board of Directors. The Audit Committee has a Chair- shown in a separate table under Attendance of Board members at targets. The work of the Board of Directors requires understanding Group reporting directly to the CEO and approves the service contracts man, elected by the Board of Directors. The members of the Audit Board and Committee meetings in 2019. with these principles. In all situations, the Board of Directors must act of the external auditor to the Board of Directors. In addition, the Kari Kauniskangas is Chairman of the Remuneration Committee differences in culture, values, and business practices. Diversity is as- and remuneration of the Management Group members upon the Committee must meet the independence and expertise criteria and sessed from different perspectives, including age, gender, education, recommendation of the Remuneration Committee. In addition, the CEO other criteria applicable to Audit Committee members of publicly and professional background. Both genders shall be represented on must consult the Chairman of the Board of Directors on any dismissal listed companies in Finland. 26 27 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS ATTENDANCE OF BOARD MEMBERS AT BOARD AND COMMITTEE MEETINGS IN 2019 NAME PARTICIPATION IN BOD MEETINGS* PARTICIPATION IN AUDIT COMITTEE MEETINGS* PARTICIPATION IN REMUNERATION COMITTEE MEETINGS* Kari Kauniskangas Dag Andersson Paul Hartwall Lasse Heinonen Olli Holmström Åse Aulie Michelet Katri Viippola Tomas von Rettig Members of the BoD until 4 April 2019: Fredrik Cappelen Eeva Ahdekivi Vesa Koskinen 14/14 11/14 14/14 15/16 16/16 15/16 16/16 15/16 2/2 2/2 2/2 *Attendance in meetings is presented according to each member’s term-of-office. CHIEF EXECUTIVE OFFICER 2/4 4/4 5/5 5/5 1/1 8/8 8/8 8/8 8/8 2/2 2/2 III. DESCRIPTIONS OF INTERNAL CONTROL PROCEDURES AND THE MAIN FEATURES OF RISK MANAGEMENT SYSTEMS RISK MANAGEMENT INTERNAL CONTROL In its operations, the Company applies a risk management and internal control policy, adopted by the Board of Directors. The objectives of internal control related to the financial reporting process are to ensure that Terveystalo’s financial reporting is reliable, interim re- ports and financial statements are prepared in accordance with the Risk management is part of Terveystalo’s management system. The accounting principles and policies applied by Terveystalo and give company applies a risk management policy adopted by the Board essentially correct information of the Company’s finances, and that of Directors. The purpose of risk management is to ensure fulfilment regulations and policies are complied with. Internal control is based of the customer promise, patient and occupational safety, top-notch on Terveystalo’s risk management system, business culture, and services, financial performance, business continuity, a good company respective practices. The Company values, Code of Conduct, and image, and corporate social responsibility. Group policies and principles, such as the risk management policy, Risk management is an integral part of the planning processes financial policy, procurement policy, credit policy, disclosure policy, as well as monitoring and reporting routines in Terveystalo Group. and approval authorizations, guide the internal control. The purpose It is implemented in the day-to-day management and activities at of the Compliance program is to ensure compliance with corporate all levels of the organization. Risk management must be consist- governance principles throughout the company and the accuracy ent and commensurable. It is important to understand the causes of financial reporting. The program aims to create a uniform control and consequences of risks and to ensure that the risk management environment by applying appropriate internal control principles in measures are correct and properly targeted. the business processes. The party that owns and approves the financial reporting-relat- The CEO is responsible for the day-to-day management of the com- Biographical details of the Executive team members are provided The objectives of risk management include: ed policies is usually the CFO. Internal control is carried out by the pany and for implementing the Company strategy in accordance below under Group Management. • Ensuring business continuity Board of Directors, the Audit Committee, the operational manage- with the instructions and orders issued by the Board of Directors. The Executive team meets once or twice a month or as need- • Ensuring the achievement of strategic and operative objectives ment and, in respect of the financial reporting process, employees The CEO undertakes the execution of measures approved by the ed. It assists the CEO with tasks such as the preparation and • Managing risks associated with financial transactions in financial administration. Terveystalo’s Board of Directors bears Board of Directors and oversees preparations for any strategically execution of the Company strategy, business plans, matters of • Supporting decision-making overall responsibility for internal control and risk management in important measures. The CEO ensures that the management of the principle, and any other important matters. In addition, the Ex- • Ensuring top quality care and patient safety the Company. The Board of Directors has delegated the practical Company is adequately arranged, and the Company’s accounting ecutive team assists the CEO in ensuring the flow of information • Ensuring employees’ expertise and occupational safety implementation of an efficient control environment and control complies with the legislation. In addition, the CEO ensures the ap- and sound internal cooperation. The Company’s Board of Direc- • Avoiding operational risks and risks of damage and minimizing measures related to the reliability of financial reporting to the CEO. propriate arrangement of the Company’s administration and asset tors decides on the nomination and remuneration of Executive damage if a risk is realized The CFO is responsible for the control environment of financial management. Ville Iho started as Terveystalo’s President and CEO team members. on December 6, 2019. Biographical details of the CEO are provided below under Executive team. GROUP ORGANIZATION TERVEYSTALO PLC – THE PARENT COMPANY OF THE GROUP • Improving risk awareness within the organization reporting. The CFO acts as the owner of reporting risks, reporting • Identifying the opportunities associated with risk-taking, improving to the Audit Committee and the Board of Directors on risk man- risk tolerance agement and internal control. Control involves various measures, • Identifying development opportunities within the organization such as the revision of financial reports, the balancing of accounts, • Gaining the trust of external and internal stakeholders subledgers, and system transfers, logical analyses of reported fig- ures, and reference analyses of forecasts and realizations. Moni- Terveystalo strives to proactively identify, analyze, and manage toring of monthly performance in relation to the specified targets major risks. Risk management is an integral part of management. It is an essential factor. These control measures are carried out at EXECUTIVE TEAM AND MANAGEMENT SYSTEM The company’s CEO serves as the Chairman of the Executive team. In 2019, the Executive team consisted of the Chief Medical Officer (CMO) and the Officers and Vice Presidents responsible for operational activities, digitalization, finances, HR, legal matters, communications, marketing and brand, and business operations. The holdings of the members of the Executive team and controlled entities on December 31, 2019 are presented below. Ville Iho, Chief Executive Officer from December 6, 2019 Petri Bono, CMO Jens Jensen, Senior Vice President, Corporate Health Juha Juosila, Chief Digital Officer Susanna Laine, Senior Vice President, Communications, Marketing and Brand Ilkka Laurila, CFO 0 0 119,476 88,495 13,668 314,923 TERVEYSTALO HEALTHCARE HOLDING OY – FINANCING contributes to strategic development, helps managers make informed different organizational levels. TERVEYSTALO HEALTHCARE OY – GROUP’S CENTRALISED PROCUREMENT SUOMEN TERVEYSTALO OY AND OTHER OPERATIVE COMPANIES – THE OPERATIVE BUSINESS choices, puts measures in priority order, takes into account oppor- tunities, uncertainties, and their effects, and distinguishes between alternative approaches. The Board of Directors is responsible for risk management and its adequacy and adopts the risk management policy. The CEO is responsible for organizing risk management in the Group. The Ex- ecutive team supports the CEO in implementing risk management, monitoring operational risks, assessing risks, and implementing measures related to risks. Terveystalo Plc’s Board of Directors also acts as the Board of Directors RISK MANAGEMENT PROCESS for the Group’s financing company, Terveystalo Healthcare Holding Risks are assessed on all levels of Terveystalo Group’s organization. Oy. At the other subsidiaries, the CEO, CFO, and Legal Officer usually Terveystalo identifies risks using performance indicators, market Julia Ormio, Senior Vice President, Legal 0 serve as members of the subsidiary’s Board of Directors. From the statistics, effectiveness information, customer feedback, register data, Laura Räty, Senior Vice President, perspective of business operations, the Group subsidiaries operate inspection reports and inquiries from the authorities, occupational Public Partnerships 9,078 in accordance with the Group’s management system. The Group’s safety risk surveys, incident information, audit results, and competitor Siina Saksi, Senior Vice President, business activities are performed by Suomen Terveystalo Oy, and information. Private Customers and Clinics 50,559 Terveystalo Healthcare Oy is the Group’s purchasing company. Pia Westman, Senior Vice President, Well-being, Diagnostics and Digital Services 23,594 28 29 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS IV. OTHER INFORMATION PROVIDED IN THE STATEMENT INTERNAL AUDIT parties must report their transactions with Terveystalo’s financial in- struments to the Company and the Finnish Financial Supervisory Au- thority. Terveystalo publishes such transactions in stock exchange The primary objective of internal audit is to support the Board of releases. The executives and persons involved in the preparation Directors, the other bodies, and the management in performing of the Company’s financial reviews, that is, those who participate their control duties. The company has outsourced internal audits in the preparation or publication of interim reports and annual fi- to be carried out by an external auditor. The internal audit function nancial statements/financial statement releases, must not, directly reports to the Audit Committee the audits carried out in accordance or indirectly, carry out transactions with the Company’s financial with its annual audit plan. The purpose of internal audit is to produce instruments themselves or on behalf of a third party, or advise an- impartial and independent information for the Board of Directors yone to do so, during a silent period of 30 calendar days preceding and management. Internal audits particularly focus on issues that the publication of the Company’s each interim report and annual are important both in the long and short run from the perspective financial statements release and on the date of publication of such of strategy, business, and operations. When preparing the audit a report. plan and establishing the extent and priorities of internal audit, the following are typically considered: business-driven internal audit, AUDITOR internal audit relating to the company’s risk and the implementation The Company’s auditor in 2019 was Authorized Public Accountants KP- of strategy, and internal audit focusing on Corporate Governance and MG Oy Ab, which appointed APA Jari Härmälä as the auditor-in-charge. Compliance. The planning and risk assessment process of internal Auditor’s fees paid in 2019 totaled EUR 185.6 thousand and fees paid audit also includes reviewing the annual plans and results of the for other services totaled EUR 25.9 thousand. GROUP MANAGEMENT BOARD OF DIRECTORS second line of defense players. In 2019, audits were carried out in strategic development program Core and HR processes. The audits planned for 2020 will focus on IT and digital development processes. Terveystalo has obtained quality certification (ISO 9001:2015) for its operations. Activities of internal auditing are also carried out through the processes of the certificate. The company’s internal quality function ensures, for instance, compliance with the quality standards in operational service production. RELATED PARTY TRANSACTIONS The company has specified the Group companies, the CEO, the Man- agement Group, and the members of the Board of Directors as related parties, including close family members of the aforementioned as well as entities in which they have control, joint control, or significant influence. The company’s financial administration monitors related party transaction as part of the Company’s normal reporting and control procedures and submits quarterly reports on related party transactions to the Audit Committee. Material transactions between the Company and its related parties are presented annually in Notes to the Consolidated Financial Statements. MAIN PROCEDURES OF INSIDER MANAGEMENT Terveystalo complies with the EU’s Market Abuse Regulation (MAR), the Finnish Securities Markets Act, the guidelines and regulations issued by the European Securities and Markets Authority (ESMA) and the Finnish Financial Supervisory Authority (FIVA), and the Guidelines for Insiders published by Nasdaq Helsinki Oy. The insider guidelines adopted by the Company’s Board of Directors supplement the appli- cable insider regulation and specify the procedures of the Company’s insider management. The company has specified persons in charge and respective substitutes for insider management tasks. The company does not have a permanent, company-specific insider list. Instead, it has pro- ject-specific insider lists. The company has specified the members of the Board of Directors, the CEO, the CFO, and the Senior VP, Legal as executives. The executives must specify the persons and communi- ties closely associated with them and disclose them to Terveystalo as their related parties. Terveystalo’s executives and their related KARI KAUNISKANGAS b. 1962, M.Sc. (Econ.), Finnish citizen DAG ANDERSSON b. 1961, BBA, MBA, Swedish citizen PAUL HARTWALL b. 1981, M.Sc. (Econ.), Finnish citizen LASSE HEINONEN b. 1968, M.Sc. (Econ.), Finnish citizen Chairman of Terveystalo’s Board of Directors since 2019. Independent of the company and its major shareholders. Member of Terveystalo’s Board of Directors since 2019. Independent of the company and its major shareholders. Member of Terveystalo’s Board of Directors since 2019. Independent of the company. Main occupation: Kusinkapital Ab, CEO Relevant work history: 2008– Kusinkapital Ab, CEO Main positions of trust: Member of the Board of Directors of 2010– Hartwall Capital Oy Ab and 2009– Ultivista Oy Main past positions of trust: Member of the Board of Directors of 2019–2020 Hoivatilat Plc and 2014–2017, Sponda Plc Committees: Chairman of the Remuneration Committee, member of the Share- holders’ Nomination Board Committees: Member of the Remuneration Committee Main occupation: Board professional Relevant work history: 2008–2018 Diaverum AB (formerly Gambro Health Care), President and CEO, 1998–2007 Mölnlycke Health Care AB, multiple executive positions, most recently President of the Surgical Division Main positions of trust: Member of the Board of Directors of: 2014- Nolato AB, 2018- GHP AB and 2018- XVIVO AB Main past positions of trust: 2018–2019 Diaverum Arabia, Chairman of the Board of Directors, 2009–2011, Terveystalo, Member of the Board of Directors Main occupation: Board professional Relevant work history: 2008–2017, Fiskars Corporation, President and CEO; 1999–2007, Amer Sports Corporation, multiple executive positions, most recently Senior Vice President, Sales & Distribution and Head of Winter & Outdoor Division Main positions of trust: Member of the Board of Directors of: 2019– Ahlström Capital Oyj, 2018– Luhta Sportswear Company Oy, 2018– Antti Ahlströmin Perilliset Oy, 2018– Royal Design Group Holding AB, 2017– O.Mustad & Son A.S., 2013– Veho Oy Ab and 2020– CAP Group Oy, 2019- Chairman of the Board of Directors of Veho Oy AB Main past positions of trust 2018– 2019 Raisio Plc, Vice Chairman of the Board of Directors, 2008–2010 Wärtsilä Corporation, Member of the Board of Directors Member of Terveystalo’s Board of Directors since 2018. Independent of the company and its major shareholders. Committees: Chairman of the Audit Committee Main occupation: 2018– Ahlström Capital, CEO Relevant work history: 2011–2018 Tieto Plc, Executive Vice President, CFO, 2015–2016 Tieto Plc, Head of Telecom, Media and Energy. 2004–2011 Leadership roles in Finnair, e.g. EVP Cargo & Aviation Services, Deputy CEO and CFO. 1992–2004 Various leadership roles in Novartis Pharma and Sandoz in Finland, Turkey, and Switzerland in Finance and Supply chain manage- ment Main positions of trust: Member of the Board of Directors in Ahlstrom-Munksjö Plc, Olvi Plc, Enics Ag, Destia Oy, and Are Oy 30 31 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS GROUP MANAGEMENT BOARD OF DIRECTORS GROUP MANAGEMENT EXECUTIVE TEAM OLLI HOLMSTRÖM b. 1960, M.Th., Finnish citizen Member of Terveystalo’s Board of Directors since 2017. Independent of the company. Committees: Member of the Audit Committee Main occupation: CEO of the Helsinki Deaconess Institute Foundation sr Relevant work history: Nokia Plc, Director, HR of the CTO unit, multiple senior positions in human resources management at Nokia Plc Main positions of trust: Member of the Board of Directors of Suomen Diakoniaopisto Ltd, Diaconia University of Applied Sciences Ltd, Finnish Associaton of Private Care Providers, Chairman of the Board of Directors of Helsinki Deaconess Institute Hoiva Ltd Main past positions of trust: Chairman of the Board of Diacor Terveyspalvelut Ltd; Chairman of the Finnish Association of Private Care providers, Member of the Board of the Confederation of Finnish Indus- tries, Vice Chairman of the Executive Committee of the Association for Finnish Work, Member of the Board of Medix Laboratoriot Ltd, Joint Medix Laboratoriot Ltd, Chairman of the Board of Rinnekoti Foundation sr. ÅSE AULIE MICHELET b. 1952, M. Sc. Pharm. Norwegian citizen KATRI VIIPPOLA b. 1976, Executive MBA, Master of Arts, Finnish citizen Member of Terveystalo’s Board of Directors since 2016. Independent of the company and its major shareholders. Committees: Member of the Remuneration Committee Main occupation: Board professional Relevant work history: Managing Director of Teres Medical Group AS, Managing Director of Marine Harvest ASA, and Senior Management positions at GE Healthcare Main positions of trust: Chairman of the Board of Directors at Inven2 AS, Spin Chip Diagnostics AS and BI Norwegian Business School, Member of the Board of Directors of Odfjell SE Main past positions of trust: Chairman of the Board of Directors of Photocure ASA, Member of the Board of Directors of Royal Green- land AS, Cermaq ASA, Norske Skog ASA, Orkla ASA, and Yara ASA Member of Terveystalo’s Board of Directors since 2018. Independent of the company. Committees: Member of the Remuneration Committee Main occupation: 2016– Varma Mutual Pension Insurance Company, SVP, HR, Communications, and Corporate Social Responsibility Relevant work history: 2013–2015 Keva, HR and Administra- tive Director, HR Director. 2008–2013 Yle (Finnish Broadcasting Company), Head of Personnel Development, HR Manager, HR Consultant. 2002–2008 Yle, Yle News and Aamu-tv morning show, Journalist and News Anchor Main positions of trust: Vice Chairman of The Board, The Finnish Broadcasting Company Yle, Board Member, Economic Informa- tion Office TAT TOMAS VON RETTIG b. 1980, BBA (Bachelor of Business Administration), CEFA (Certified European Financial Analyst). Finnish citizen Vice Chairman of the Board of Directors since 2018. Independent of the company. Committees: - Main occupation: 2019– Chairman of the Board, Rettig Group Ltd Relevant work history: 2016–2019 Rettig Group Ltd, President & CEO. 2015–2019 Rettig Capital Ltd, Deputy CEO. 2013–2015 Rettig Group Ltd, Vice President Corporate Finance and Development. 2011–2012 Rettig Group Ltd, Vice President Business Development. 2011–2011 Rettig Asset Management Oy Ab, Senior Portfolio Manager. 2008–2010 Rettig Asset Management Oy Ab, Portfolio Manager. 2006–2008 Skandinaviska Enskilda Banken Ab (publ), Middle Office Main positions of trust: Multiple Board Member and Chair- man positions in Rettig Group com- panies and Chairman of the Board of Directors in Roof Productions Oy Main past positions of trust: Finlayson Ltd, Member of the Board of Directors. Board Member and Chairman positions in Rettig Group companies VILLE IHO, CEO b. 1969, M.Sc. (engineering), Finnish citizen President and Chief Executive Officer from December 6, 2019. Relevant work history: CEO of Nurminen Logistics Plc, mul- tiple managerial positions at Finnair, most recently as COO, Deputy CEO, and acting CEO CFO Ilkka Laurila acted as the interim CEO from September 9, 2019, until Ville Iho, who was appointed as CEO on August 8, 2019, took up his post in December. Yrjö Närhinen was Terveystalo’s CEO until September 9, 2019 PETRI BONO, CMO b. 1970, MD, Docent, Finnish citizen Chief Medical Officer and member of the Management Group since 2019. Relevant work history: Helsinki University Central Hospital (HUCH), Chief Medical Officer, University of Helsinki, docent (cancer biology). Various leadership posi- tions within HUCH, including Director of Comprehensive Cancer Center Main positions of trust: TILT therapeutics, Oncorena and Faron Pharmaceuticals, member of the Scientific Advisory Board; Orion Research Foundation, Vice Chairman; Instru Foundation, Board Member Main past positions of trust: HUS Kiinteistöt Oy, HYKS Instituutti Oy, Board member; ESMO (European Society for Medical Oncology), member of the Scientific Advisory Board JENS JENSEN, SENIOR VICE PRESIDENT, CORPORATE HEALTH b. 1973, M.Sc. (Econ.), Finnish citizen Senior Vice President, Corporate Health since 2019, Member of the Management Group since 2016. Relevant work history: CFO of Terveystalo, Head of Sales and Service, Commercial Finland of If P&C Insurance Company Ltd, various managerial positions at If P&C Insurance Company Ltd. Main past positions of trust: Member of the Board of Directors of the Finnish Workers’ Compensation Center (Tapaturmavakuutuskeskus). JUHA JUOSILA, CHIEF DIGITAL OFFICER b. 1972, M.Sc. (Econ.), Finnish citizen Chief Digital Officer since 2016, member of the Management Group since 2016. Relevant work history: Director of Business Development and Strategy of Sanoma Pro Ltd, Chief Marketing and Technology Officer of Realia Group Oy, several managerial positions at MTV Sisällöt Oy (MTV 3) and Sonera Plc Main positions of trust: Member of the Board of Directors at Etsimo Healthcare Oy Main past positions of trust: Member of the Board of Directors of Realia Isännöinti Oy, Huoneis- tokeskus Oy, Huoneistomarkkinointi Oy, Realia Management Oy, SKV Kiinteistönvälitys Oy, Sentraali Oy, and Jokakoti Oy (currently Oikotie Asunnot Oy), a deputy Member of the Board of Directors of Oy Suomen Uutisradio Ab 32 33 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS GROUP MANAGEMENT EXECUTIVE TEAM ILKKA LAURILA, CFO b. 1977, M.Sc. (Forestry), M.Sc. (Econ.), Finnish citizen CFO since 2015, Member of the Management Group since 2015. Relevant work history: Terveystalo Head of Treasury and Finance and Head of Procurement, Associate Director of Rahoituksen neuvontapalvelut Inspira Oy, mana- gerial positions at Ernst & Young Oy JULIA ORMIO, SENIOR VICE PRESIDENT, SUSANNA LAINE, SENIOR VICE PRESIDENT, COMMUNICATIONS AND BRAND b. 1967, M.Scs., Finnish citizen Senior Vice President, Communica- tions and Brand since 2015, Member of the Management Group from 2010 to January 2020. Relevant work history: Terveystalo Head of Communi- cations, Marketing, Customer Experience and Private Customers, several communication positions at ISS Palvelut Oy (part of ISS Group), Infor Consulting Oy, Oy SRG Finland Ab (Töölön Matkatoimisto), and Oy AC-tiedotus Ab LEGAL b. 1970, LL.B., LL.M., Finnish citizen Senior Vice President, Legal and member of the Management Group of Terveystalo from December 1, 2018 to January 2020. Relevant work history: 2017–2018 SVP, Legal and Compliance, Sumitomo SHI FW Oy, 2012–2017 Vice President, Legal & Compliance, Amec Foster Wheeler Energia OY Group and Power Group Asia, 2008–2011 Senior Legal Counsel Outotec Oyj, 2006–2008, Senior Associate, Attorney-at-Law, Castrén & Snellman, Attorneys LTD, 2001–2006 Legal Counsel Elcoteq Network Corporation Main past positions of trust: 2015–2019 Port of Helsinki Oy, Member of the Board of Directors 2011–2013 Revenio Group Plc, Member of the Board of Directors LAURA RÄTY, SENIOR VICE PRESIDENT, SIINA SAKSI, SENIOR VICE PRESIDENT, PIA WESTMAN, SENIOR VICE MINTTU SINISALO,SENIOR VICE PUBLIC PARTNERSHIPS b. 1977, Lic. Med., EMBA, Finnish citizen Senior Vice President, Public Part- nerships since 2016, Member of the Management Group since 2016. Relevant work history: Senior Vice President for Public Partnerships in Terveystalo, Deputy Mayor for Social Affairs and Public Health of the City of Helsinki, Min- ister of Social Affairs and Health, a member of the Finnish Government and Chairperson of the Party Council of the National Coalition Party of Finland, several positions in health care sector entities Main past positions of trust: Chairperson of the Board of Directors of Oy Apotti Ab and Keva, Member of the Board of Directors of Helsingin Kansallismedia Oy, Member of the Council of Representatives of Helsin- ki Cooperative Society HOK-Elanto PRIVATE CUSTOMERS AND CLINICS b. 1966, MSc. (Econ), EMBA, Finnish citizen PRESIDENT, WELL-BEING, DIAGNOSTICS AND DIGITAL SERVICES b. 1965, PhD, Finnish citizen Senior Vice President for Private Customers and Clinics since 2019, Member of the Management Group since 2016. Senior Vice President for Well-being, Diagnostics and Digital Services since 2019, Member of the Manage- ment Group since 2016. Relevant work history: Business Director for the network at Terveystalo, Business Director for Western and Central Finland at Terveystalo, Senior Vice President, HR Specialist Sales at Pohjola Insurance Ltd, Country Manager of Tryg Finland at Tryg Forsikring A/S, Finnish Branch, and a member of Tryg’s Sweden-Finland Executive team at Tryg A/S, several mana- gerial positions at Tryg A/S, If P&C Insurance Company Ltd, Merita Bank Plc and Kansallis-Osake-Pankki Relevant work history: Senior Vice President for Well-being, Diagnostics and Digital Services at Terveystalo; Business Director, Centralized Services, Helsinki metropolitan area and Uusimaa; Business Director for Southern and South-Eastern Finland; Business Director for Southern Finland; Unit Director of Terveystalo Kamppi; Director of Hospital and Healthcare Services and Director of Hospital Services, several managerial positions at Eira Hospital Ltd and the Finnish Red Cross Blood Transfusion Service PRESIDENT, HR b. 1980, M.Sc. (Econ.) Finnish citizen SVP HR and member of the Execu- tive Team since 2020. Relevant work history: Multiple HR leadership positions at Finnair, most recently VP, People and Culture at Finnair Operations business unit. August Associates HR manager and management consultant. Main past positions of trust: Finnair Pension Fund Board member and Chairman of the Board. Johanna Karppi was Senior Vice President for Human Resources until September 30., 2019. 34 35 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS TERVEYSTALO REMUNERATION POLICY FOR GOVERNING BODIES 1. INTRODUCTION derlying principle of shareholder value creation. The incentives are aligned with the company’s business strategy. The objective is to 2. DESCRIPTION OF THE DECISION-MAKING PROCESS of and for the management of conflicts of interest. The underlying principle is that the corporate organ which elects the respective This remuneration Policy of Terveystalo Plc is the Policy referred to reward concrete achievements in implementing the company’s The Shareholders’ Nomination Board reviews and prepares the Remu- corporate organ also decides on its remuneration. The Company in reporting requirements of the Finnish Corporate Governance Code strategy and in achieving its business targets. The Company’s com- neration principles for the members of the Board of Directors defined observes the rules set in its Code of Conduct, the Finnish Compa- for listed companies issued by the Securities Market Association on pensation structures are designed to be competitive in the relevant in this Policy. The Shareholders’ Nomination Board also prepares nies Act and the Finnish Corporate Governance Code which stipu- November 1, 2019. market. According to the pay for performance principle, incentive its proposal for the remuneration of the members of the Board of late governance procedures and rules for the avoidance of conflicts This Policy presents the governance and principles of remunera- plans places emphasis on performance to ensure that management Directors annually. The proposal shall be based on the principles of interest. The decision-making process described above aims at tion for governing bodies at Terveystalo Group. This Policy has been achieves its goals. defined in this Policy. The AGM makes the final decision on the Board guaranteeing that the decisions are fair and unbiased. approved by the Board of Directors of Terveystalo Plc and is subject Remuneration is designed to attract and retain the desired talent of Directors’ remuneration. According to the decision of the AGM, the to an advisory vote by the Annual General Meeting (AGM) in April and to motivate the employees to deliver the strategy and to max- Chairman of the Board of Directors is a member of the Shareholders’ 2020. The Policy will be applied from the AGM 2020 onwards. The imize shareholder value creation. The targets and rewards in the Nomination Board as his/her role in providing insight regarding the Shareholders’ Nomination Board has reviewed and participated in incentive systems are balanced between long-term value creation Board of Directors’ work and composition is crucial. the preparation of this Policy. and efficient achievement of short-term goals. The Board of Directors reviews and approves the remuneration 3. DESCRIPTION OF THE REMUNERATION OF THE BOARD OF DIRECTORS Remuneration at Terveystalo is based on the principles of perfor- This Policy describes the principles and governance of the re- principles for President and CEO defined in this Policy based on pre- The purpose of the Board remuneration is to ensure that Terveystalo mance, fairness and competitiveness. These remuneration princi- muneration paid to the Company’s Board of Directors and to the paratory work carried out by the Board of Directors’ Remuneration has a Board consisting of highly competent professionals representing ples apply to all Terveystalo employees and the purpose is to ensure President and CEO of Terveystalo. In the event that a Deputy was Committee. The Board of Directors also decides on the salary, in- a diverse and relevant mix of skills, capabilities and experience. The that Terveystalo as an employer attracts motivated and competent appointed to the CEO position, the same principles would apply to centive schemes and associated targets of the President and CEO Board of Directors’ remuneration shall be transparent, reasonable and professionals. Remuneration shall support the achievement of Ter- the Deputy CEO. based on preparatory work carried out by the Board of Directors’ comparable to market levels. The Board of Directors’ remuneration is veystalo´s strategic goals, align management’s priorities with the The Board of Directors may make minor amendments to the Remuneration Committee. All share based incentive schemes are designed to align the Board’s interests with those of all shareholders. interests of Terveystalo´s shareholders, encourage behavior consist- remuneration arrangements regarding the President and CEO de- decided by the Board of Directors based on the preparatory work of The Shareholders’ Nomination Board prepares and presents its ent with Terveystalo’s values, and reward excellent performance. scribed in the Policy for regulatory, exchange control, tax or admin- the Remuneration Committee. proposal on the remuneration of the members of the Board of Direc- The Company’s compensation philosophy is based on the un- istrative purposes or to take account of changes in the legislation. The President and CEO normally participates in the Remuneration tors to the AGM. The proposal should take into account the relevant DECISION-MAKING PROCEDURE SHAREHOLDERS NOMINATION BOARD Responsible for proposing the Board’s remuneration. ANNUAL GENERAL MEETING OF SHAREHOLDERS Responsible for deciding the Board’s remuneration. BOARD OF DIRECTORS Responsible for deciding the remuneration paid to the CEO and the Executive Team members. Responsible for deciding short-term and long-term incentive plans based on company level targets. REMUNERATION COMMITTEE Responsible for preparing remuneration-related matters and proposals for the Board. Meeting fees The meeting fees are intended to link part of the remuneration to the time and effort required from the members of the Board of Directors in respect of the meetings. Travel expenses Intended to reimburse the members of the Board of Directors for reasonable costs and expenses related to their work. CEO EXECUTIVE TEAM Committee’s meetings, except for matters relating to the service market level and the time and effort required from the members of terms and remuneration of the President and CEO. the Board of Directors, as well as additional responsibilities assigned The governance principles in decision-making on remuneration to the members, such as chairmanship of the Board of Directors or in the Company follow principles aimed at ensuring the prevention its Committees. PURPOSE AND LINK TO STRATEGY DESCRIPTION REMUNERATION ELEMENT Annual remuneration The annual remuneration should be sufficient to attract, retain and motivate high-performing individuals. The Shareholders’ Nomination Board prepares and presents its proposal on the remunera- tion of the members of the Board of Directors to the AGM based on what the AGM decides on the Board’s remuneration annually. The proposal should take into account the relevant market level and the time and effort required from the members of the Board of Directors, as well as additional responsibilities assigned to the members, such as chairmanship of the Board of Directors or its Committees. The annual remuneration is paid as a combination of Terveystalo shares and cash or fully in cash. Meeting fees are paid in cash. The members of the Board are entitled to reimbursement for reasonable travel expenses related to their work. 36 37 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 4. DESCRIPTION OF THE REMUNERATION OF THE PRESIDENT AND CEO structure and level should be comparable to the relevant national PROPORTION OF REMUNERATION ELEMENTS and industry benchmarks. The CEO is encouraged to accumulate and The remuneration of the President and CEO is defined to be competitive 5. TEMPORARY DEVIATION maintain a personal shareholding in Terveystalo. with a significant part of the remuneration being performance-based. The Board of Directors may temporarily deviate from any sections Terveystalo’s approach to the remuneration of the President and CEO is that the remuneration should align the interest of the CEO with those of the company’s shareholders. Terveystalo uses various remuneration elements to attract, motivate and retain high performing individuals with the right skills, capabilities and mindset. Performance correlates remuneration components, grounds for determining variable remuneration components and proportional shares of overall remuneration The remuneration of the President and CEO is defined to be with reward level, and this promotes sustained high performance and competitive with a significant part of the remuneration being Incentive opportunity at maximum level performance of STI is 120% of the Policy and from any contents of the Policy based on its full of annual base salary and maximum level performance of LTI at grant discretion in any of the circumstances and on any of the grounds is 120% of annual base salary. described below: other key terms applicable to the service contract • a structural change (change in the Company’s corporate, group, business or organizational structure or a material change in its focus to business targets and strategy execution. The remuneration performance-based. SHARE OWNERSHIP REQUIREMENT ownership structure), FIXED REMUNERATION REMUNERATION ELEMENT PURPOSE AND LINK TO STRATEGY DESCRIPTION Base salary Base salary provides a core compensation for the role and attracts, retains and motivates high-calib- er individuals. Base salary is set by the Board of Directors, taking into account a number of factors, such as: • recognition of the value of an individual’s personal performance and contribution to the business • the individual’s skills and experience • internal salary levels • relevant external market conditions Base salary is reviewed annually. Benefits and insurance coverage Insurance coverages and other benefits that are in line with local market practices attract and retain high-caliber individuals Taxable fringe benefits, standard Terveystalo personnel benefits, and other benefits are included in the base salary. Insurances include leisure time accident insurance, travel insurance and management liability insurance. The Board of Directors has a possibility to decide on supplementary defined contribution pension in line with local market practices. In such case the maximum annual pension contribution may not exceed 20% of annual base salary. VARIABLE REMUNERATION To encourage building a meaningful shareholding in Terveystalo, • a personnel change (such as changes in the Board of Directors or the President and CEO is expected to retain at least 50% of the net in the top management of the Company or need to recruit a new shares received based on the LTI plans until his/her share ownership in President and CEO or Deputy to the President and CEO), Terveystalo corresponds to at least his/her annual gross base salary. • other exceptional or unexpected event or change or materially TERMINATION OF THE SERVICE CONTRACT AND SEVERANCE PAY ating environment or a material change in the Company’s strategy Regarding the termination of the service contract and severance or business plan pay of President and CEO, the agreement may be terminated by • material change in the Company’s financial position or outlook, both parties by giving six (6) months’ notice. Should the Company • regulatory or judicial changes, changes in governmental or admin- terminate the agreement, the Company is required to pay an istrative orders or in taxation or taxation practice, or additional severance pay, equivalent to twelve (12) month’s base • other change or circumstances not specified above if the Board changed circumstances in the Company or in its business or oper- salary. SUPPLEMENTARY INFORMATION of Directors, after careful consideration, deems that a deviation is necessary or advisable in order to safeguard the Company’s long-term interests or sustainability such as, without limitation, As a benchmarking approach, the Remuneration Committee re- in order to ensure the continuity of the Company’s management. views market benchmark data from Finnish and, where necessary, international healthcare companies of a similar size and complexity The procedure to be followed in the deviation from this Policy shall be to Terveystalo when setting total remuneration packages for the the same as the decision-making procedure for the implementation President and CEO. This is used more as a guide than a direct determi- of this Policy described elsewhere in this Policy. If the deviation nant of pay levels. Other factors considered include each individual’s concerns Board remuneration, the decision-making may involve Up-to-date descriptions of ongoing incentive plans are published on the Terveystalo website, at www.terveystalo.com. role and experience, as well as Company performance and personal an annual or extraordinary shareholder meeting as applicable in REMUNERATION ELEMENT PURPOSE AND LINK TO STRATEGY DESCRIPTION Short-term incentives (STI) Long-term incentives (LTI) The STI is aimed at driving short-term (annual) performance against specific Group targets and individual objectives based on key strategic priorities for the year. LTI is aimed at driving long-term perfor- mance against specific group targets, as well as committing the CEO to the company and aligning the CEO’s interests with the interests of the shareholders. Performance is measured over a one-year period and potential rewards are paid in the following year. The terms of the Short-Term Incentive plan is described on the company website. Performance criteria: • Performance criteria are set annually by the Board based on the key priorities for the financial year. Criteria may include both financial and non-financial criteria. Reaching maximum level requires exceptional performance • Following the end of the performance period the Board of Directors confirms the achievement of the criteria and determines the amount of the payout Incentive opportunity: • Incentive opportunity at maximum level of performance may not exceed 120% of annual base salary The terms and conditions for each Long-Term Incentive plan are decided by the Board of Directors. The terms of ongoing Long-Term Incentive plans are described on the company website. Performance criteria: • Performance criteria for each plan are set by the Board of Directors based on the key priorities for the performance period. Reaching the maximum level requires exceptional performance • Following the end of the performance period the Board of Directors confirms the achievement of the criteria and determines the amount of the payout • The LTI performance period shall, as a rule, be no fewer than three years. Performance criteria for each plan are set by the Board of Directors based on the key priorities for and within the performance period Discretion and claw-back: • The Board of Directors is entitled, subject to a particularly weighty reason, to change or cancel the incentive payout or to postpone its payment, and, in exceptional cases, such as intentional misstatement of financials underlying the measures, to recover rewards paid prior to said misconduct Incentive opportunity: The Board of Directors decides on LTI allocation on individual level. • Incentive opportunity at maximum level performance at grant may not exceed 120% of annual base salary performance. the individual circumstances. The deviation and its grounds shall be reported in the next annual Remuneration Report and presented to TERMS FOR DEFERRAL AND POSSIBLE CLAWBACK OF REMUNERATION the next AGM as part thereof. Clawback provisions apply to LTI and STI plan awards in exceptional circumstances. The Board of Directors is entitled, subject to a particu- larly weighty reason, to change or cancel the incentive payout or to postpone its payment, and, in exceptional cases, such as intentional misstatement of financials underlying the measures, to recover re- wards paid prior to said misconduct. PREVIOUSLY AGREED OR GRANTED AWARDS The Board reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with the Policy set out above where the terms of the payment were agreed prior to the presentation of this Policy to the AGM. 38 39 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS REMUNERATION STATEMENT This Remuneration Statement of Terveystalo Plc (“Terveystalo” or “Company”) for the financial year 2019 is the statement referred to in reporting requirements of the Finnish Corporate Governance Code for listed companies issued by the Securities Market Association on October 1, 2015. The remuneration of Terveystalo’s governing bodies in 2019 was in line with the Company’s remuneration principles, which are based on performance, objectivity and competitiveness. The remuneration REMUNERATION OF THE BOARD OF DIRECTORS FOR THE FINANCIAL YEAR 2019 REMUNERATION OF THE CEO AND OTHER MEMBERS OF THE EXECUTIVE TEAM FOR THE FINANCIAL YEAR 2019 two-year vesting period, following the performance period. The Board of Directors decides on the performance criteria and the re- quired performance levels for each criterion at the beginning of each performance period. BASE SALARY AND BENEFITS The remuneration of the CEO and the other Executive team members During the performance period 2019, the share-based incentive consists of a fixed monthly salary and customary fringe benefits. scheme offered the key employees the possibility to earn rewards In addition, in 2019 one Executive team member was entitled to based on the Company achieving the required operational targets a defined benefit pension plan, amounting to EUR 8,500 per year. and Total Shareholder Return (TSR) levels. In 2019, the monthly base salary (including benefits) of CEO Yrjö Närhinen was EUR 38,640 and the monthly base salary of CEO Ville Any rewards payable from the performance share plan are paid partly supports the achievement of Terveystalo’s strategic goals and the long- Terveystalo’s Annual General Meeting, held on 4 April 2019, resolved in Iho was EUR 33,333. term financial success of the Company. In addition to supporting the accordance with the proposal of the Shareholders’ Nomination Board implementation of strategy, the purpose of remuneration is to maximize that the Chairman of the Board of Directors be paid an annual remu- SHORT-TERM INCENTIVE SCHEME in Terveystalo Plc shares and partly in cash approximately two years after the end of the performance periods. The purpose of the cash component is to cover the taxes and tax-like fees incurred by the the creation of shareholder value. The targets and remuneration of the neration of EUR 80,000, the Vice Chairman an annual remuneration of Terveystalo’s Board of Directors decides on the the targets related participants. As a rule, no reward will be paid if a plan participant Company’s incentive schemes maintain a balance between long-term EUR 49,000, the rest of the Board members an annual remuneration to the short term incentive schemes for the CEO and other members terminates his or her employment or service before the reward pay- value creation and the efficient achievement of short-term goals. of EUR 39,000, and the Chairman of the Audit Committee an annual of the Executive Team. For 2018 and 2019, the key STI performance ment. No LTI rewards were paid in 2019. remuneration of EUR 49,000. targets for the CEO and the Executive Team were based on the Com- DECISION-MAKING PROCEDURE CONCERNING REMUNERATION In addition, an attendance fee of EUR 600 will be paid for members of assets) as well as personal performance targets. and the performance criteria set for the Total Shareholder Return the Board of Directors and Committee members residing in Finland, (TSR) were met for 90% of the maximum. Accordingly, the rewards EUR 1,200 for members residing elsewhere in Europe, and EUR 2,400 In 2019, the STI payable to the CEO for achieving the set targets was to be subsequently paid in spring 2022 correspond to approximately pany’s adjusted EBITA (earnings before amortization of intangible In the 2019 performance period, the Company’s operational targets The Company’s Annual General Meeting decides on the remuneration for members residing outside of Europe for each Board and Committee equivalent to ten months’ salary. The bonus payable for exceeding 600,000 Terveystalo Plc shares, including shares as well as the cash of the members of the Board of Directors each year. The Remuner- meeting they attend. For Board and Committee meetings that are the set targets to an exceptional extent was equivalent to at most component. ation Committee of the Board of Directors assists the Board with its held by telephone or other electronic means, the attendance fee 15 months’ salary. The STI payable to the other members of the responsibilities relating to the remuneration of the CEO and the other would be EUR 600. members of the Executive team, and oversees the Company’s remu- Executive Team for achieving the set targets was equivalent to five EMPLOYMENT CONTRACTS AND REDUNDANCY BENEFITS months’ salary, and the STI payable for exceeding the set targets to The CEO’s contract may be terminated by either the CEO or Terveystalo neration policies. The Board of Directors approves the remuneration Travel expenses are reimbursed in accordance with the Company’s an exceptional extent was equivalent to at most 7.5 months’ salary. at six months’ notice. If Terveystalo terminates the CEO’s contract, the of the CEO and the other Executive team members. travel policy. The annual remuneration of the Board is paid as a combi- nation of Company shares and cash in such a manner that 40 percent LONG-TERM INCENTIVE SCHEME CEO is entitled to an additional severance pay of an amount equaling his or her monthly salary for 12 months. The contract of a member The Annual General Meeting held on 4 April 2019 authorized the of the annual remuneration is paid in shares and 60 percent is paid in Terveystalo has a share-based rolling long-term incentive scheme of the Executive Team may be terminated at three months’ notice. Board of Directors to resolve on the issuance of shares or special cash. The Company will reimburse the transaction costs and capital currently in effect. The incentive scheme consists of three perfor- If the Company terminates the employment contract of a member rights entitling to shares. The authorization is effective until the end transfer tax related to trading. Attendance fees are paid in cash. mance periods, corresponding to the calendar years 2018, 2019 and of the Executive team other than the CEO, the member is entitled of the next Annual General Meeting, however no longer than until 2020. Each plan consists of a one-year performance period and a to additional severance pay equaling his or her monthly salary for 30 June 2020. The remuneration paid to the members of the Board of Directors in 7.5 months. The remuneration policy and the decision-making process is described in more detail in Terveystalo remuneration policy for governing bodies. 2019 is presented in the following table: MEETING FEES OF THE BOARD OF DIRECTORS REMUNERATION PAID DURING THE FINANCIAL YEAR 2019 The remuneration paid to the CEO and the other members of the Executive Team in 2019 is presented in the following table: ANNUAL FEE IN SHARES ANNUAL FEE IN CASH AND BOARD’S COMMITTEES OTHER FINANCIAL BENEFITS REMUNERATION SUPPLEMENTARY NIMI Kari Kauniskangas Dag Andersson Paul Hartwall Lasse Heinonen Olli Holmström Åse Aulie Michelet Katri Viippola Tomas von Rettig Members of the Board of Directors until April 4, 2019: Fredrik Cappelen Eeva Ahdekivi Vesa Koskinen *Other financial benefits include transfer tax fees for the annual fees paid in shared. 40 31,999 15,595 15,595 19,597 15,595 15,595 15,595 19,597 - - - 48,001 23,405 23,405 29,403 23,405 23,405 23,405 29,403 - - - 10,800 10,800 7,800 12,600 13,800 24,000 14,400 12,600 11,400 6,000 - 512 250 250 314 250 250 250 314 - - - FIXED ANNUAL SALARY AND BENEFITS SHORT-TERM INCENTIVE BONUSES BASED ON LONG-TERM PENSION OTHER FINANCIAL INCENTIVE SCHEMES CONTRIBUTIONS BENEFITS CEO starting from December 6, 2019 Ville Iho 27,273 - CEO January 1–September 9, 2019 Yrjö Närhinen Other members of the Executive Team in total* 488,017 384,430 1,756,153 535,536 - - - - - - 65,322 8 500 - *The total remuneration of Ilkka Laurila for the period he acted as interim CEO (September 9–December 5, 2019)is included in the total “Other members of the Executive Team”. Laurila received compensation for the period he acted as interim CEO in January 2020. The compensation amounted EUR 50.000. One-time payment of 65 322 was approved by the Board of Directors and paid to CEO Närhinen in spring 2019. 41 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS INFORMATION FOR SHAREHOLDERS GENERAL MEETING OF SHAREHOLDERS Terveystalo’s Annual General Meeting will be held on Thursday, April 2, 2020, starting at 3:00 pm EET, at Finlandia Hall, Mannerheimintie 13 E, 00100 Helsinki, Finland. The reception of persons who have registered for the meeting will commence at 2:00 pm EET. Coffee will be served at the meeting. NOTICE TO ANNUAL GENERAL MEETING The notice to Annual General Meeting as well as the Board of Directors’ proposals to the AGM are published in a stock exchange release and on Terveystalo’s website. The matters to be dealt with at the meeting are listed in the notice to the meeting. Pursuant to the Limited Liability Companies Act, shareholders have the right to have a matter falling within the competence of the general meeting under law dealt with by the General Meeting, provided that the shareholder requests this in writing from the Board of Directors well in advance, so that the matter can be included in the notice to the meeting. THE RIGHT TO ATTEND Shareholders who are included in the company’s shareholders’ regis- ter, maintained by Euroclear Finland Ltd, on Monday March 23, 2020 have the right to attend the Annual General Meeting. REGISTRATION Shareholders who wish to attend the Annual General Meeting and exercise their right to vote shall inform the company of this by 10:00 am EET on Monday, March 30, 2020. Registration is possible • on the internet at: https://www.terveystalo.com/en/investors/Corporate- governance/General-Meeting-of-Shareholders/ or • by telephone from Monday to Friday from 9 am to 4 pm EET, +358 20 770 6904, or • by letter to Terveystalo Plc, Annual General Meeting/Legal matters & Compliance, Jaakonkatu 3B, 00100 Helsinki, Finland. Holders of nominee-registered shares are advised to request that their custodian bank provide the necessary instructions regarding the registration in the Register of Shareholders, issuing of proxy documents and registration for the Annual General Meeting well in advance. The account management organization of the custodian bank will register a holder of nominee-registered shares who wants to attend the Annual General Meeting to be entered in the temporary Register of Shareholders of the Company at the latest on Monday, March 30, 2020 by 10:00 am EET. Shareholders may attend the Annual General Meeting or author- ize a representative to exercise their rights at the meeting. Please deliver any proxy documents by the registration deadline to: Terveystalo Plc, Annual General meeting/Legal matters & Com- pliance, Jaakonkatu 3B, 00100 Helsinki, Finland. IMPORTANT DATES MARCH 23, 2020 RECORD DATE OF THE ANNUAL GENERAL MEETING MARCH 30, 2020 AT 10:00 AM EET REGISTRATION DEADLINE APRIL 2, 2020 AT 2:00 PM EET RECEPTION OF PERSONS REGISTERED FOR THE ANNUAL GENERAL MEETING BEGINS APRIL 2, 2020 AT 3:00 PM EET ANNUAL GENERAL MEETING BEGINS PROPOSAL FOR THE DISTRIBUTION OF PROFITS EVALUATION OF TERVEYSTALO AS AN INVESTMENT The parent company’s distributable funds total EUR 533.7 million, of To the best our knowledge, the following analysts follow Terveystalo which EUR 41.1 million is profit for the financial year. The Board of Group regularly. The list is not necessarily exhaustive. Terveystalo Directors proposes to the Annual General Meeting that a dividend assumes no responsibility for any opinions of the analysts following of EUR 0.13 per share be distributed for 2019 and that the Board be the company. authorized to resolve on the payment of additional dividend in the autumn 2020 (EUR 0.26 (0.20) per share in total). Carnegie Iiris Theman No substantial changes have occurred in the company’s financial +358 9 618 71 241 iiris.theman@carnegie.fi position since the end of the financial year. The company’s liquidity is good and, in the Board’s opinion, will not be jeopardized by the Danske Bank Panu Laitinmäki proposed distribution of profits. +358 10 2364 867 panu.laitinmaki@danskebank.com BASIC SHARE INFORMATION Listing: Nasdaq Helsinki Oy Trading ticker: TTALO ISIN code: FI4000252127 Sector: Healthcare Number of shares on December 31, 2019: 128,036,531 FINANCIAL REVIEWS IN 2020 In 2020, Terveystalo Plc will publish financial reports as follows: Inderes Olli Vilppo +358 40 761 9380 olli.vilppo@inderes.fi Jefferies James Vane-Tempest +44 207 029 8275 jvane-tempest@jefferies.com Morgan Stanley Alex Gibson +44 20 7425 5975 alex.gibson@morganstanley.com • Interim report for January-March 2020 on Wednesday, May 6, 2020 Nordea Sami Sarkamies • Half-Year Report for January-June 2020 on Thursday, August 6, 2020 +358 9 5300 5176 sami.sarkamies@nordea.com • Interim report for January-September 2020 on Thursday, October 29, 2020 Terveystalo’s financial reports are prepared in Finnish and English. OP Anssi Raussi +358 10 252 4392 anssi.raussi@op.fi SEB Jutta Rahikainen Subscribe to receive Terveystalo’s information releases by email at: +358 9 616 28 713 jutta.rahikainen@seb.fi https://www.terveystalo.com/en/investors/News-room/ SILENT PERIOD Terveystalo observes a silent period of 30 days prior to the publication of interim reports and the year-end result. During the silent period, Terveystalo does not comment on any business-related matters or meet with any representatives of the capital markets. CHANGES OF ADDRESS Euroclear Finland Ltd maintains lists of Terveystalo Plc’s shares, share- holders, and options. Shareholders who wish to make changes to their personal and contact information are kindly asked to contact their own account operator directly. Terveystalo does not make such updates. 42 43 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS CONTACT INFORMATION CONTACT INFORMATION Customer service and appointment booking +358 30 6000 Exchange 030 63 311 Email addresses are of the format firstname.lastname(at)terveystalo.com PRESS CONTACTS Expert interviews for media: requests on weekdays from 9 am to 4 pm EET, tel. +358 50 358 1170 TERVEYSTALO GROUP SERVICES AND MANAGEMENT Terveystalo Piazza Jaakonkatu 3 B, 3rd floor 00100 Helsinki, Finland INVESTOR RELATIONS Please email flagging notifications to: investors@terveystalo.com DIRECTOR, INVESTOR RELATIONS AND FINANCIAL COMMUNICATIONS Kati Kaksonen, tel. +358 10 345 2034 kati.kaksonen@terveystalo.com 44 45 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS BOARD OF DIRECTORS’ REPORT AND FINANCIAL STATEMENTS This section includes the Board of Directors’ Report for 2019, including Statement of non- financial information, the Financial Statements for 2019 including Notes to the Financial Statements and the Auditor’s Report. 46 47 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS CONTENTS REPORT OF THE BOARD OF THE DIRECTORS CONSOLIDATED FINANCIAL STATEMENTS, IFRS Consolidated statement of income and comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity 1. Corporate information 50 62 62 63 64 65 66 2. Accounting policies for the consolidated financial statements 66 66 2.1 Basis of preparation 2.2 Application of new and amended IFRSs 2.3 2.4 2.5 2.6 2.7 Critical accounting estimates and judgments Principles of consolidation Foreign currency transactions Property, plant and equipment Investment properties 2.8 Goodwill and other intangible assets 2.9 Impairment 2.10 Leases – Group as a lessee 2.11 Financial assets and liabilities 2.12 Inventories 2.13 Employee benefits 2.14 Provisions and contingent liabilities 2.15 Revenue recognition 2.16 Segment information 2.17 Government grants 2.18 Operating profit 2.19 Earnings per share 2.20 Income taxes 3. Business combination 4. Disaggregation of revenue 5. Other operating income 6. Material and services 7. Employee benefit expenses 8. Depreciation, amortisation and impairment 9. Other operating expenses 10. Financial income and expenses 11. Taxes 11.1 Income taxes 11.2 Deferred tax assets and liabilities 12. Earnings per share 13. Property, plant and equipment and right-of-use assets 13.1 Carrying amounts of property, plant and equipment and right-of-use assets 13.2 Finance leases and right-of-use assets 14. Intangible assets 14.1 Carrying amounts of intangible assets 14.2 Development costs 48 66 68 69 70 70 70 70 71 71 72 72 73 73 73 73 73 73 74 74 74 76 77 77 77 78 78 79 79 79 80 81 82 82 83 84 84 85 15. Impairment testing of cash-generating units including goodwill 16. Investment properties 17. Associated companies 18. Share-based payments 19. Financial assets and liabilities – carrying amount and fair value and fair value hierarchy 20. Financial risks 20.1 Financial risk management 20.2 Interest rate risk 20.3 Credit risk 20.4 Liquidity risk 20.5 Capital management 21. Trade and other receivables 22. Cash and cash equivalents 23. Non-current assets held for sale 24. Share capital and invested non-restricted equity reserve 25. Financial liabilities 26. Trade and other payables 27. Provisions 28. Collateral and other contingent liabilities 29. Related party transactions 30. Group companies 30.1 Changes in the Group structure 31. Group’s key financial ratios 32. Calculation of financial ratios and alternative performance measures 33. Reconciliation of alternative performance measures 34. Subsequent events PARENT COMPANY’S FINANCIAL STATEMENTS Parent company’s statement of income Parent company’s statement of financial position Parent company’s statement of cash flows Parent company’s accounting policies and measurement and recognition principles and methods Notes to the parent company’s financial statements 85 86 87 87 88 89 89 89 89 89 90 90 91 91 92 92 94 94 95 95 96 97 98 99 100 103 104 104 105 106 107 108 SIGNATURES TO THE FINANCIAL STATEMENTS AND BOARD OF DIRECTOR’S REPORT 113 AUDITOR’S REPORT 114 49 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS BOARD OF DIRECTORS’ REPORT MARKET REVIEW There were no material changes in the health care market during Market consolidation continues and a foreign private equity Price competition is intensifying in public customer accounts in services is increasing, which is a trend that will be further owned health care operator made a cash tender offer for all shares occupational health, while in other customer groups, the scope of strengthened by the upcoming change in legislation concern- the reporting period. The health care market and services continue in a listed Finnish health care operator in late 2019. The tender offer occupational health services — and well-being services, in particu- ing Kela reimbursements, due to be introduced at the begin- to increasingly expand toward maintaining health and well-being is expected to be completed in the latter part of the second quarter lar — is growing. The use of multiple provider models among insur- ning of 2020. and the prevention of illnesses. Despite weakened consumer confi- of 2020 or, at the latest, in the third quarter of 2020. ance companies has increased in recent times. Due to Terveystalo’s • Private customer demand also remains strong, and the trend dence, the continued steady development of the Finnish economy Terveystalo’s market share among private customers developed extensive network and diverse service offering, this is a favorable of comprehensive well-being is creating broad based growth and the slightly improved employment rate contributed to strong favorably during the period. Customer expectations concerning development for the company. in service demand. This is particularly reflected in growth in demand for Terveystalo’s services among the corporate and private digital tools and solutions have increased substantially and their It is estimated that the Government’s new health care policies the demand for services other than physician appointments. customer groups during the review period. significance is highlighted particularly in corporate decision-making. will reduce the number of full outsourcing of health care services • Public sector demand remains strong in various service cat- KEY FIGURES Terveystalo Group, EUR million Revenue Adjusted EBITDA * 1) 2) Adjusted EBITDA, % * 1) 2) EBITDA 1) 2) EBITDA, % 1) 2) Adjusted earnings before interest, taxes and amortization (EBITA) * 1) 2) Adjusted earnings before interest, taxes and amortization (EBITA), % * 1) 2) Adjusted earnings before interest and taxes (EBIT) * 1) 2) Adjusted earnings before interest and taxes (EBIT), % * 1) 2) Earnings before interest and taxes (EBIT) 2) Net profit 2) 3) Net debt 2) Net debt/adjusted EBITDA (last 12 months) * 1) 2) Return on equity (ROE), % 1) 2) 3) Equity ratio, % 1) 2) Gearing, % 1) 2) Earnings per share (€) 2) 3) Operating cash flow 2) Personnel (end of period) Private practitioners (end of period) Number of working days Before IFRS 16 impact (comparable), EUR million Adjusted EBITDA * 1) Adjusted EBITDA, % * 1) Adjusted earnings before interest, taxes and amortiza- tion (EBITA) * 1) Adjusted earnings before interest, taxes and amortiza- tion (EBITA), % * 1) Adjusted net debt * 1) Adjusted net debt/adjusted EBITDA (last 12 months) * 1) 2019 1,030.7 176.3 17.1 171.2 16.6 115.1 11.2 86.5 8.4 81.4 54.1 548.2 3.1 10.3 39.9 101.3 0.43 173.6 8,685 5,068 251 2019 136.4 13.2 113.4 11.0 369.5 2.7 2018 744.7 108.9 14.6 116.6 15.7 87.7 11.8 67.7 9.1 75.4 68.7 413.3 3.8 14.2 44.1 80.8 0.54 100.6 6,018 4,877 251 2018 108.9 14.6 87.7 11.8 413.3 3.8 Change, % 38.4 62.0 - 46.9 - 31.2 - 27.7 - 7.9 -21.3 32.7 - - - - - 72.5 44.3 3.9 Change, % 25.3 - 29.3 - -10.6 - * Adjustments are material items outside the ordinary course of business, associated with acquisition-related expenses, restructuring-related expenses, gain on sale of assets, strategic projects, and other items affecting comparability. 1) Alternative performance measure. Additional information is provided in notes 31 and 32. 2) Not comparable because of the adoption of IFRS 16. The adoption of IFRS 16 had a significant effect on adjusted EBITDA, which increased by EUR 39.9 million in January–December. The impact of IFRS 16 on earnings before interest, taxes, and amortization (EBITA) was not material. Operating cash flow increased due to the impact of IFRS 16 by EUR 39.9 million in January–December. In addition, the adoption of IFRS 16 increased interest-bearing lease liabilities by EUR 178.7 million. 3) The net profit of the January–December reference period was improved by a non-recurring deferred tax asset of EUR 13.0 million related to confirmed losses and non-recurring capital gains, totaling EUR 15.8 million. 50 in the public sector but, on the other hand, the demand for various egories. types of partial outsourcing, occupational health and health care These views are based on the expected market development staffing services is expected to grow. The use of service vouchers is within the next six months, compared to the past six months. also expected to increase. With the most extensive network of clinics and hospitals, strong outsourcing and staffing expertise in the public sector and the large customer base in occupational health care, the company neverthe- FINANCIAL TARGETS The financial target pertaining to the capital structure has been less expects to be able to continue its strong performance in the revised to take into account the computational impact of IFRS 16 current market structure and to be an attractive partner for various adoption. Going forward, interest-bearing Net Debt to Adjusted customer groups. CHANGES IN REPORTING Terveystalo adopted the IFRS 16 standard on 1 January 2019. In ac- cordance with the IFRS 16 standard, previous lease expenses are re- placed with depreciation charges for right-of-use assets and interest EBITDA shall not to exceed 3.5 times. However, indebtedness may temporarily exceed the target level, for example, in conjunction with acquisitions. GROUP REVENUE Revenue for the full year increased by 38.4 percent year-on-year expense on lease liabilities in the income statement. As a result, the and amounted to EUR 1,030.7 million (744.7). Revenue was in- IFRS 16 standard has a low impact on the operating profit and the creased by the acquisition of Attendo Health Services completed in profit for the financial year 2019. In 2019, the adoption of IFRS 16 will late 2018 and broad-based growth in the demand for Terveystalo’s have a positive impact of approximately EUR 40 million on the oper- services. Terveystalo’s competitiveness was reflected in the strong ating margin, and it will increase net debt and right-of-use assets on development of insurance company sales, high utilization rates, the balance sheet by approximately EUR 180 million. The figures for and a substantial increase in the demand for preventive services 2018 have not been adjusted. The adoption of IFRS 16 has affected and well-being services. Growth in supply was achieved on a broad the income statement, balance sheet, and cash flow. For additional front, especially in the second half of the year. information on the accounting principles, please refer to page 66. MARKET OUTLOOK • The market environment remains favorable in spite of weak- ened consumer confidence. • Corporate customers keep up a steady demand. Price compe- tition is intensifying in certain customer groups in occupation- al health. At the same time, the relative share of preventive EUR million Corporate customers Private customers Public sector customers Excluding Attendo Health Services 2019 432.5 303.1 295.1 91.0 2018 Change, % 402.7 260.7 81.2 81.2 7.4 16.2 > 200 12.0 Total 1,030.7 744.7 38.4 51 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS CORPORATE CUSTOMERS Corporate customers constitute Terveystalo’s largest customer PUBLIC SECTOR CUSTOMERS Terveystalo’s public customer group is made up of Finnish public on the amortized loan withdrawal costs of old loans. The refinancing non-recurring deferred tax asset of EUR 13.0 million related to con- arrangement will reduce interest margins, which will have a positive firmed losses and non-recurring net capital gains of EUR 15.8 million. group. Terveystalo’s corporate customers consist of the company’s sector organizations, such as municipalities, municipal federations, impact on the financing costs in 2020. The full-year profit before tax The equity ratio was 39.9 (44.1) percent. The key indicators are not occupational health care customers, excluding municipal and hospital districts as well as municipal occupational health care was EUR 66.8 (68.2) million. Profit for the period was EUR 54.1 (68.7) comparable because of the adoption of IFRS 16. occupational health care customers, which are included in the customers. Terveystalo’s broad nationwide platform, digital offering, public sector customer group. The company provides statutory good reputation, and established brand, as well as its thorough occupational health services and other occupational health and expertise and experience in health care services throughout the wellbeing services for corporate customers of all sizes. Terveystalo chain of care, make Terveystalo an attractive partner for the public million, and earnings per share were EUR 0.43 (0.54). The net profit of the comparison year was improved by a non-recurring deferred tax asset of EUR 13.0 million related to confirmed losses that was recognized following the conclusion of a tax audit as well as non-re- is the largest provider of occupational health services in Finland in sector. Terveystalo’s services for public sector customers are mainly curring net capital gains, totaling EUR 15.8 million. SEASONAL VARIATION AND THE IMPACT OF THE NUMBER OF BUSINESS DAYS Terveystalo’s revenue from corporate and private customers has terms of revenue and the number of end users. Terveystalo provides financed from budgets of municipalities, municipal federations, and Full-year operating cash flow increased significantly during the typically been lower during the vacation seasons, particularly in occupational health services for over 24,000 companies, and in 2019, hospital districts. The services offered to public sector customers review period, amounting to EUR 173.6 (100.6) million. The growth July and August. The number of business days has an effect on the the company provided occupational health services for a total of include full and partial outsourcing, health care staffing services, was mainly attributable to the expansion of operations as a result revenue and earnings development, particularly when comparing approximately 700,000 customers. specialized care services, other health care services as well as of the Attendo acquisition, the positive development of net working quarterly performance. Revenue from public sector customers is occupational health services for municipalities, municipal federations, capital as well as the adoption of IFRS 16. distributed evenly with the exception of staffing services. Due to Revenue from corporate customers for the full year grew by 7.4 and hospital districts. percent, amounting to EUR 432.5 (402.7) million. Strong demand for Full-year cash flow from investing activities amounted to EUR the seasonal nature of business, the required net working capital -46.7 (-224.4) million. The change was mainly due to a reduction in varies during the year. Variation is due to the timing of pension and preventive, well-being and digital services contributed to the growth Revenue from public sector customers for the full year more than the acquisition of subsidiaries. Cash flow related to the acquisition VAT payments, vacation pay obligations and service fees related to which increased average sales per end customer. The demand for tripled thanks to the Attendo acquisition completed at the end of of subsidiaries totaled EUR -12.3 million (-229.8) during the review occupational health care, etc. mental well-being services and digital services in particular in- 2018 and significant growth of occupational health services. Rev- period. Cash flow was also affected by a significant increase in in- creased significantly. The demand for illness-related appointments enue amounted to EUR 295.1 (81.2) million of which revenue from vestments related to both tangible and intangible assets. During was nearly on par with the reference period. The number of end Attendo’s existing agreements amounted to EUR 204.1 million. Rev- the review period, there were no investment cash flows related to customers in occupational health care increased slightly compared enue excluding Attendo Health Services increased by 12.0 percent, the sale of subsidiaries, compared to EUR 24.1 million during the to the reference period. amounting to EUR 91.0 million. Attendo’s occupational health units reference period. INVESTMENTS AND ACQUISITIONS Net investments* in 2019, including M&A, amounted to EUR 58.2 (236.1) million. The Group’s net cash capital expenditure, excluding Occupational health services provided by Attendo Health Servic- were integrated during the second quarter by merging functions Full-year cash flow from financing activities amounted to EUR M&A, was EUR 33.2 (17.7) million and the corresponding non-cash es were integrated during the second quarter by merging functions and units. -123.1 (127.6) million. In addition to the effect of IFRS 16 adoption, capital expenditure EUR 11.2 (9.9) million. These investments con- and units. With regard to certain agreements, the staffing services faced cash flow from financing activities was decreased by paid return sisted mainly of investments in IT system projects (including ERP challenges related to the availability of health care professionals, of equity and repayments of long-term liabilities. In the reference and CRM), digital application and service development, medical but the contract portfolio as a whole developed favorably during period, cash flow from financing activities was increased by bank equipment and the network. The relative share of intangible invest- the second half of the year. financing withdrawn in relation to the Attendo acquisition. ments in gross investments increased, whereas the relative share of *The statutory task of occupational health care is to prevent work-related adverse health effects. Pre- ventive services include, for example, workplace surveys to examine the conditions and exposures at the workplace; health examinations; suggested measures to improve work conditions and to promote the employees’ ability to work; guidance and counseling; participation in the planning and implementa- tion of measures that maintain work ability; promotion of coping at work and, when necessary, referrals to rehabilitation in case of reduced work ability; guidance in first aid preparedness at the workplace; and assessment and monitoring of the quality and impact of occupational health care activities. ing period. Of these, the full outsourcing agreements in Tohmajärvi **Well-being services include, for example, physiotherapy, mental well-being services (psychologists and Puolanka terminated at the end of the year. The business is In addition to hospital outsourcings and other partial outsourc- ings, Terveystalo had 10 full outsourcing agreements in the report- THE GROUP’S FINANCIAL POSITION Terveystalo’s liquidity position is good. Cash and cash equivalents at investments in devices and equipment fell. Terveystalo made several business acquisitions during the year. In the first quarter, Terveystalo carried out a number of acqui- sitions to supplement its business operations, particularly in the and psychotherapists), nutritional therapy, work ability coaching, and massage services at Rela hierojat (Terveystalo’s subsidiary). expected to continue to a lesser extent in a different service format. the end of the period amounted to EUR 40.6 million (EUR 36.9 million area of well-being business. It acquired the business operations of PRIVATE CUSTOMERS Private customers are Terveystalo’s second-largest customer FINANCIAL PERFORMANCE Adjusted EBITDA for the full year 2019 increased by 62.0 percent, in December 2018). The total assets of the Group amounted to EUR Länsi-Vantaan Hammaslääkärit Oy, and Kajaanin OMT-Fysioterapia 1,359.3 million (EUR 1,162.3 million in December 2018). The increase Oy. In addition, Terveystalo became a shareholder in the new Olo was mainly due to the adoption of IFRS 16. The effect of IFRS 16 on joint venture pharmacy chain company established together by right-of-use assets was EUR 176.4 million. Tamro and independent pharmacists. Terveystalo’s holding is ap- group. Private customers include private individuals and families. amounting to EUR 176.3 (108.9) million. The increase in adjusted Equity attributable to owners of the parent company totaled proximately 20 percent. Terveystalo is planning to provide a broad The company’s strong brand, easy access to services without long EBITDA was , in addition to improvement in profitability, mainly due EUR 541.2 (511.7) million. The increase was mainly due to improved range of health and well-being services through the chain pharma- waiting times, extensive service portfolio for private customers, to the adoption of IFRS 16, which had a EUR 39.9 million effect on profitability. cies. The chain company does not own the pharmacies; business is families, and senior citizens, and personalized digital services give EBITDA as well as the acquisition of Attendo Health Services. Gearing at the end of the review period was 101.3 (80.8) per- based on a model according to which an independent pharmacist Terveystalo a competitive edge over other private operators and Full-year adjusted earnings before interest, taxes and amortiza- cent, and net interest-bearing debt amounted to EUR 548.2 (413.3) can also be a shareholder or member in the chain company. public health care services and encourage customers to invest in tion (EBITA) and before IFRS 16 impact (comparable) increased by million. The effect of IFRS 16 on interest-bearing lease liabilities was In the second quarter, Terveystalo acquired Etelä-Karjalan their own health. Services for private customers are paid for either 29.3 percent to EUR 113.4 million (87.7). Adjusted EBITA relative to EUR 178.7 million. Työkunto Oy. by the customers themselves or by their insurance companies. revenue decreased by 0.8 percentage points, to 11.0 percent. The Terveystalo signed a new financing agreement in the fourth Terveystalo made four acquisitions to supplement its business decrease in adjusted EBITA relative to revenue resulted from chang- quarter of 2019. The signed syndicated facilities agreement con- during the third quarter by acquiring Työsyke Oy, Hammaslääkäri Revenue from private customers for the full year grew by 16.2 per- es in the sales mix, with more emphasis on staff-intensive outsourc- sists of a five-year loan of EUR 410 million to replace the agree- trade name Osmo Karinen, Hardent Oy (Hymiö) and the occupation- cent, amounting to EUR 303.1 (260.7) million. In addition to acquisi- ing services through the Attendo acquisition as well as increased ments made in connection to the IPO and the acquisition of Attendo al health operations of the Welfare District of Forssa. tions, growth was especially supported by growth in the supply of investments in digitalization. The adoption of IFRS 16 did not have a healthcare operations. The interest rate margin of the new financing Terveystalo carried out two acquisitions in the fourth quarter to appointments with physicians and other health care professionals material effect on the adjusted EBITA margin. agreement takes into account Terveystalo’s achievement of respon- complement its business by acquiring the share capital of Evalua as well as the strong demand for well-being and digital services. The Operating profit for the full year amounted to EUR 81.4 (75.4) sibility targets for improvement in customer satisfaction, employee International Ltd. Oy and the occupational health operations of the share of occupational health customers who used private services million. Net financial expenses increased by 56.7 percent during the satisfaction and well-being as well as the reduction of mixed waste. municipality of Säkylä. Evalua, established in 2003, specializes in — and sales to this segment — also grew significantly year-on-year. review period, amounting to EUR -14.4 (-9.2) million. The increase The financing agreement also includes conventional covenants re- scientific evidence-based health surveys, advanced personnel sur- Health care services for private customers provided by Attendo was due to the debt financing of the Attendo acquisition and the lated to the company’s solvency and debt servicing capacity. veys, and interpretation of results. Health Services (mainly dental health services) were integrated adoption of IFRS 16. In addition, a refinancing arrangement was car- Return on equity for the review period was 10.3 (14.2) percent. during the second quarter by merging functions and units. ried out, which included a write-down of EUR 1.0 million recognized The return on equity in the comparison year was improved by a * Net investments do not include the additions of right-of-use assets recognized as a result of the adoption of IFRS 16. 52 53 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS THE STATEMENT OF NON-FINANCIAL INFORMATION Terveystalo is the largest private healthcare service company in Fin- tainability in the Sustainability Report to be published in week 9. This section is a summary of the key results documented in the report. ETHICAL BUSINESS PRACTICES Terveystalo’s Code of Conduct comprehensively describes the oper- DATA PRIVACY AND SECURITY Digitalization of health care presents significant opportunities for land in terms of revenue and network. The company offers versatile At the general level, the company’s operations are guided by ating principles that everyone at Terveystalo is required to observe, improving the availability and effectiveness of care as well as the primary and secondary healthcare services as well as well-being Terveystalo’s Code of Conduct and our values: know-how and car- regardless of their business unit or job. Terveystalo’s partners are early identification of risks. Terveystalo has made significant invest- services for corporate and private customers and the public sector. ing. Terveystalo has signed the UN Global Compact principles and is also expected to adhere to the Code of Conduct. Everyone to whom ments in the development of digital services and tools. The nationwide network covers approximately 300 clinics across committed to supporting their realization in the Group’s operations. the Code of Conduct applies must ensure that they understand how As digital services increase in importance and change the in- Finland. The clinic network is supplemented by 24/7 digital services. The company respects all internationally recognized human rights. the guidelines are applied and always operate accordingly. The up- dustry, the requirements concerning data privacy and data security In 2019, Terveystalo defined its material aspects of sustainability The table below is a summary of the key aspects, targets and dated Code of Conduct was published in December 2019. increase accordingly. Terveystalo’s Data privacy and Data security in collaboration with key stakeholders and promoted corporate re- achievements of Terveystalo’s sustainability efforts in 2019. Risks related to infringements against the Code of Conduct are policies define the procedures for each of the Group’s functions to 2019 and receiving hospitality for business purposes. Actual or suspected agement of overall safety, using various methods and processes. managed through communications as well as mandatory training ensure the legal and appropriate processing of personal data as well for all personnel. Risks related to infringements against the Code of as the confidentiality, integrity, non-repudiation and usability of Conduct include, for example, potential conflicts of interest or giving data. Data privacy and data security are ensured as part of the man- sponsibility efforts in many areas. The company will report on its sus- OBJECTIVE MEASURABLE TARGET INDICATOR Employees who have com- pleted Compliance training 100% of our employees have completed Compliance training Suppliers who have accepted the Supplier Code of Conduct. 100% of our suppliers have accepted the Supplier Code of Conduct Patient safety ETHICAL BUSINESS PRACTICES Percentage of employees who have completed the training relative to all employees Percentage of suppliers who have accepted the Supplier Code of Conduct relative to all suppliers HEALTH AND WELL-BEING OF CUSTOMERS 2018 N/A The Supplier Code of Conduct was published in late 2018 The updated Code of Conduct was published in December 2019, training and monitoring will begin in early 2020 Of the suppliers, who account for 80% of total procurement, approximately 60% have accepted the Supplier Code of Conduct Cornerstone indicators of patient safety: Objection vs. visits to a physician Notices of patient injuries vs. visits to a physician Complaints vs. visits to a physician Incident reports vs. visits to a physician 0.01% 0.01% 0.00% 0.15% 0.01% 0.01% 0.00% 0.14% Clinical quality Clinical quality is such a significant issue for us that it is discussed extensively in a separate publication. The Quality Book for 2019 will be published in week 9. Occupational safety Well-being of the personnel Employer recommended by the personnel Tax footprint Revenue growth Accident occurrence rate below the industry average of 39 More than 90% of the employees are satisfied with Terveystalo as an employer Improving the employee Net Promoter Score (eNPS) to reach31 (a good level) by 2025 We openly disclose our tax footprint annually In the long run, growth of 6–8 percent through a combina- tion of organic growth and bolt-on acquisitions. EMPLOYEE WELL-BEING Accident occurrence rate 26 Job satisfaction 92.7% 25 88% eNPS N/A 9 (average) ECONOMIC IMPACTS Taxes paid Tax footprint 2018 Tax footprint 2019 Revenue growth, % 8% 38.4% (including the share of Attendo Health Services) The people we employ We create jobs in Finland Salaries and fees paid EUR 163.2 Mill. EUR 261.2 Mill. Reducing the carbon footprint 40% reduction by 2030 SUSTAINABILITY Direct (scope 1) and indirect (scope 2) greenhouse gas emissions, tCO2 infringements against the Code of Conduct must be reported to the When implementing data privacy, particular attention is paid to en- supervisor, the supervisor’s supervisor, Terveystalo’s Legal & Com- suring the confidentiality of personal data, preventing unauthorized pliance department or via the Terveystalo whistleblowing channel. access to the data, and preventing the use of the data in a manner Personnel training and monitoring in accordance with the updated that would cause damage to the individual. The measures for im- Code of Conduct will begin in early 2020. plementing data security are adapted to the security level specified Terveystalo’s Supplier Code of Conduct (link to the Finnish ver- for the data being protected, the level of assumed risk, the effec- sion) entered into effect in autumn 2018 and they are widely applied tiveness of controls, and the appropriate cost level. Amendments to in Terveystalo Group’s standard agreements. Contractual clauses laws and decrees related to the processing to patient and personal pertaining to the Supplier Code of Conduct must be included in all data are monitored and any new requirements are taken into ac- agreements under which the companies of Terveystalo Group ac- count in guidelines and the development of information systems. quire products and services from external suppliers. Terveystalo evaluates the privacy protection level of its personal No incidents of misconduct or infringements against the Code data systems regularly and always as part of system development of Conduct were brought to the attention of the company in 2019. measures. Each function or controller evaluates and monitors the HEALTH AND WELL-BEING OF CUSTOMERS Quality is an inseparable part of Terveystalo’s corporate responsi- implementation of data privacy in their respective organizations. Internal and external audits at Terveystalo assess a clinic’s compli- ance with privacy protection guidelines and the performance of a function or unit in the systematical addressing of privacy protection bility and all of Terveystalo’s personnel are responsible for ensuring incidents. that our customers receive appropriate, high-quality and safe care. An action endangering privacy protection is any action that is At Terveystalo, quality management is based on clinical, opera- in breach of any law concerning personal data processing, the data tional, and experienced quality supporting each other. The focus privacy policy, or guidelines issued on the basis of the data privacy areas and results of quality management are reported annually in policy. Terveystalo’s personnel are required to submit an incident Terveystalo’s Quality Book. report on any observed incidents in which data privacy has been Patient safety is at the heart of the quality of healthcare: the compromised. Data privacy incidents are first processed at the re- patient receives the right treatment they need, with minimal harm. spective clinic by the person responsible for incident response and Patient safety is a key component of Terveystalo’s quality, which is the medical director of the clinic. The persons responsible for inci- constantly monitored and developed. In Terveystalo, the proportion dent response report data security violations to the authorities in of patient injuries in relation to the number of visits is below the accordance with a separately defined process. industry average. Objection vs. visits to a physician were 0.01 per Based on the severity and frequency of the data privacy incident, cent (0.01), notices of patient injuries vs. visits to a physician 0.01 it is evaluated whether a root cause analysis should be conducted. per cent (0.01), complaints vs. visits to a physician 0.00 per cent The objective of root cause analysis is to identify measures to pre- (0.00) and incident reports vs. visits to a physician 0.14 per cent vent recurrences of the incident or mitigate its negative impacts. (0.15). If there is a justified reason to suspect that the data privacy inci- Patient safety is managed by monitoring, among other things, dent might meet the criteria for a punishable act, Terveystalo sub- operation-specific and site-specific surgical infection rates, inci- mits the matter to be inspected by the competent authority. Any dents, official requests for clarification vs. visits to a physician and action by employees that endangers data privacy is also assessed Patient Insurance Center solutions. The safety and effectiveness of from the perspective of labor law and may even lead to immediate our drug treatment is ensured by drug treatment plans, guidelines termination of employment. 2,460.3 2,222.5 and a selection of basic medicines. Material efficiency and waste recycling Annual reduction in mixed waste intensity Mixed waste intensity (mixed waste [metric tons] relative to total revenue [100 million]) 7.79 4.85 54 55 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS EMPLOYEE WELL-BEING Competent and committed personnel form the foundation for Terveystalo’s operations. There are shortages of competent profes- sionals in many places, and the most significant risks of the line of operation related to personnel are related to the availability and retention of competent professionals. To manage these risks, the of our systematic long-term development efforts. For example, by properties, the emissions generated by service-related driving, 88% of employees are satisfied with Terveystalo as a workplace. transport and travel as well as the waste generated at hospitals and clinics. 2) in 2019 was 2g/EUR (3g/EUR) relative to total revenue and 0.3 tCO2 (0.4 tCO2) relative to the number of employees. In 2019, Terveystalo completed an RFP process for its electricity ECONOMIC IMPACTS Responsible business is also financially profitable and sustainable GHG Protocol standard. The direct (scope 1) and indirect (scope 2) greenhouse gas emis- portfolio for green electricity and updated its procurement and car sions arising from operations are reported in accordance with the policies to better integrate environmental considerations. Car policy was reformed to favor low-emission vehicles by incentivizing the choice of gas cars and cars with less than 100 CO2 emissions. In ad- dition, a plastic recycling project was piloted at three hospital units. company offers diverse career and development opportunities in business. We create value for customers, society, and shareholders a wide range of jobs and supports the well-being and work per- by continuously developing the clinical, operational, and expe- • Scope 1: greenhouse gas emissions arising from fuel con- formance of its professionals. The aim is to be the industry’s most rienced quality of our work, enabling faster access to treatment, sumption related to the heating and electricity production for Terveystalo’s goal is to minimize mixed waste in all of its oper- attractive employer for physicians as well as other professionals. reducing sickness absences, and employing directly and indirectly properties controlled by Terveystalo as well as service driving, ations and recover as much waste as possible. Plastic waste was Equality, fairness and non-discrimination are important principles more than 12,000 people. Terveystalo is a significant employer, tax- transport and company car driving controlled by Terveystalo. reduced by 20 percent on average at the units where the plastic that Terveystalo is committed to observing. payer, and healthcare service provider in Finland. recycling pilots were run. Terveystalo is committed to reducing the Terveystalo is a significant employer in Finland. Terveystalo Terveystalo’s operations produce economic value for various As Terveystalo does not, for the most part, own or control the prop- plastic waste generated by its operations in accordance with the had 8,685 employees (2018: 6,018) and 5,068 private practitioners stakeholders. The key stakeholders include shareholders, custom- erties at which it operates, the greenhouse gas emissions mostly EU’s plastic strategy by improving recycling and reviewing the pack- (2018: 4,877). ers, personnel, Terveystalo’s private practitioners, suppliers, service consist of the emissions from the company’s fleet of cars and the aging options offered by suppliers when possible. Medical waste is Occupational healthcare plays an important role in the identifica- providers, and society. The most important cash flows consist of trucks used for imaging operations. The emissions arising from also closely monitored and prevented through enhanced inventory tion of health risk factors and the prevention of illnesses. Terveystalo’s revenue generated from customer purchases and the operations of Terveystalo’s own driving and driving under Terveystalo’s direct management. Thanks to an improved recycling rate for hazardous occupational healthcare and occupational safety are organized on a practitioners, and expenses arising from purchases from suppliers company-specific and regional basis in accordance with Finnish leg- and service providers, dividends paid to shareholders, wages paid islation, according to which the employer shall arrange occupational to personnel, as well as taxes and investments. control were calculated based on fuel consumption. In 2019, Scope 1 CO2 emissions totaled 260.2 tCO2 (334.9). waste and plastic recycling, the volume of mixed waste was 50 (58) tons and mixed waste volume relative to total revenue was reduced by 37.7 percent year-on-year. healthcare at its own expense in order to prevent and control health In 2019, Terveystalo’s revenue and other operating income to- • Scope 2: greenhouse gas emissions arising from the produc- The company estimates that, due to the nature of its business, risks and problems related to work and working conditions and to pro- taled EUR 1,032.8 million (2018: EUR 762.9 million). Expenses related tion of electricity purchased by Terveystalo and the produc- environmental aspects do not pose material risks to company tect and promote the safety, working capacity, and health of employ- to purchased goods, materials and services amounted to EUR 472.9 tion of district heating consumed at properties controlled by operations. ees. In addition to observing the statutory requirements, Terveystalo million (2018: EUR 351.3 million). Salaries, fees and related social Terveystalo. provides a comprehensive range of primary healthcare, specialized security contributions totaled EUR 314.3 million (2018: EUR 197.1 healthcare and well-being services to employees. million). Net financial expenses to creditors amounted to EUR 14.4 In 2019 Terveystalo piloted, among other things, direct appoint- million (2018: EUR 9.2 million). Equity repayment paid to sharehold- ments for physiotherapy to expedite the treatment of musculoskel- ers amounted to EUR 25.5 million (2018: EUR 7.7 million in equity etal symptoms as well as Mielen Chat and Mielen Sparri, two digital repayments). Terveystalo’s investments in business development services to support psychological well-being. Mielen Chat and Miel- amounted to EUR 33.2 million (2018: EUR 17.7 million). en Sparri are low-threshold services that are implemented as remote Terveystalo’s tax footprint totaled EUR 149.3 million (2018: EUR In 2019, electricity purchases for Terveystalo’s properties totaled 17,839 (17,140) MWh, which corresponds to 1,962.3 tCO2 (2,125.4) emissions and over 70 percent of the company’s carbon footprint. Starting from 2020, the company’s electricity portfolio (electricity purchased for properties) will be zero-CO2 green electricity. CO2-free electricity purchased for consumption in 2020 is 9,060 MWh, which SHARES, SHAREHOLDERS, AND BOARD AUTHORIZATIONS At the end of December 2019, Terveystalo’s market value was EUR 1,431 million (1,028) and the closing price was EUR 11.18 (8.03). In 2019, the highest price of Terveystalo’s share on Nasdaq Helsinki Ltd was EUR 11.18 (11.40), the lowest price EUR 7.90 (6.98) and the av- erage price EUR 9.94 (9.61). A total of 27.8 (36.8) million shares were services using Terveystalo’s Oma Terveys application. The service 93.7 million). In addition, a total of EUR 298.8 (2018: 276.3) mil- corresponds to approximately 50 percent of the company’s electric- traded in 2019. At the end of the reporting period, the number of provides the opportunity to discuss anything a person might have lion in fees to private practitioners, who pay their individual taxes ity consumption. Due to the nature of the company’s operations, the CO2 emis- sions intensity is low. Terveystalo’s emissions intensity (Scope 1 and Terveystalo shares registered in the Trade Register was 128,036,531. The following tables list the largest shareholders, distribution of ownership and owner groups. on their mind in full confidentiality. The service also includes tools separately. that support psychological well-being. Brief psychotherapy was also included in the selection of occupational health services. Terveystalo aims to recognize challenges related to work ability and occupation- al health at an early stage and seek solutions to these challenges SUSTAINABILITY Terveystalo is committed to the targets agreed upon in international through effective cooperation with occupational health services. climate summits for the mitigation of climate change. The emissions The Lost Time Injury Rate (LTIR), an indicator of accident frequen- arising from operations are reduced, for example, by increasingly cy, was 25 (26), which is also clearly below the national average shifting to green electricity and by favoring low-emission vehicles. (LTIR 39). The rate of sickness absences was almost unchanged from The conservation and sustainable use of natural resources in our the previous year at 3.65 (3.9) percent, which is clearly below the supply chains is promoted by reducing plastic consumption, recy- general average. cling waste, increasing the efficiency of material management and In the personnel survey, the employee Net Promoter Score reducing the number of small orders. Medical waste at Terveystalo’s (eNPS) (includes private practitioners) is used as of the key indica- units is also being reduced. Digital services also enable us to simul- tors of well-being at work and coping with the demands of work. taneously improve service availability and reduce our customers’ The eNPS figure indicates the proportion of the employees and pri- travel times and the emissions generated by travel. vate practitioners who would recommend Terveystalo as a work- Terveystalo’s environmental policy and program guide the oper- place to others. The promoter score in the most recent survey was 9, ations of all Terveystalo Group’s units and meet the requirements of which corresponds to the average level among Finnish companies. the environmental standard. Terveystalo’s key partners are expect- The promoter score declined late in the year as a result of several ed to respect the principles of environmental management. development and integration projects that put a strain on employ- The carbon footprint is an environmental perspective of Tervey- ees. Stress factors have been identified and action has been taken stalo’s business operations that is considered important by investors to improve the situation. The goal is to increase the NPS to a good in particular. Terveystalo’s carbon footprint mainly consists of emis- The list is based on the register of shareholdings maintained by Euroclear, and it does not include nominee-registered shares. level. The other results of the personnel survey reflect the outcomes sions arising from the production of electrical energy consumed According to its own notification and its custodian’s notification, Lannebo Fonder owns a total of 6,134,919 shares, which corresponds to 4.8% of all shares. 56 THE LARGEST REGISTERED SHAREHOLDERS ON DECEMBER 31, 2019 Name Number of shares % of shares Votes % of votes Varma Mutual Insurance Company Rettig Group AB OP Cooperative Hartwall Capital Elo Mutual Pension Insurance Company Ilmarinen Mutual Pension Insurance Company Mandatum Life Insurance Company Investment fund OP-Suomi Investment fund Evli Finnish Small Cap State Pension Fund Ten largest, in total 22,151,945 21,153,191 14,922,573 14,431,690 5,232,951 5,073,725 3,286,657 2,743,907 1,731,999 1,000,000 17.3 16.5 11.7 11.3 4.1 4.0 2.6 2.1 1.4 0.8 22,151,945 21,153,191 14,922,573 14,431,690 5,232,951 5,073,725 3,286,657 2,743,907 1,731,999 1,000,000 91,728,638 71.6 91,728,638 17.3 16.5 11.7 11.3 4.1 4.0 2.6 2.1 1.4 0.8 71.6 57 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS DISTRIBUTION OF OWNERSHIP, DECEMBER 31, 2019 Number of shares 1–100 101- 500 501–1 000 1 001–5 000 5 001–10 000 10 001–50 000 50 001–100 000 100 001–500 000 500 001- Total of which nominee-registered Non-transferred, total In general account In special accounts, total Total issued Number of shareholders % of shareholders Number of securities % of securities 6,281 7,826 1,322 921 100 107 23 22 23 37.8 47.1 8.0 5.5 0.6 0.6 0.1 0.1 0.1 365,865 1,928,351 1,044,132 1,937,410 724,342 2,356,346 1,708,306 4,665,432 0.3 1.5 0.8 1.5 0.6 1.8 1.3 3.6 Number of votes 365,865 1,928,351 1,044,132 1,937,410 724,342 2,356,346 1,708,306 4,665,432 113,306,347 88.5 113,306,347 16,625 100 128,036,531 100.0 128,036,531 9 0 14,907,304 11.6 14,907,304 0 0 0 0 0 0 0 0 0 % of votes 0.3 1.5 0.8 1.5 0.6 1.8 1.3 3.6 88.5 100.0 11.6 0 0 0 128,036,531 100 128,036,531 100 Share-based incentive schemes and the Board’s authorizations The company’s currently valid long-term share-based incentive cordance with the agreement to be used as part of Terveystalo’s KPMG Oy was re-elected as the company’s auditor, with APA Jari share-based incentive system, in accordance with the terms of the Härmälä continuing as the auditor in charge. scheme. During the review period, EAM TTALO Holding Oy held The Annual General Meeting authorized the Board of Directors to 730,000 Terveystalo shares. DISTRIBUTION OF PROFITS PROPOSED BY THE BOARD Aim of Terveystalo’s Dividend Policy is to distribute at least one third resolve on the repurchase of the company’s own shares using the unrestricted equity of the company. The authorization covers a max- imum of 12,803,653 own shares in total, which corresponds to ap- proximately 10 percent of the company’s currently registered shares. The Annual General Meeting also authorized the Board of Direc- of net profit as dividends during the business cycle. The current fi- tors to resolve on the issuance of shares and special rights entitling nancial performance, development potential, financial position, and to shares as referred to in Chapter 10, Section 1 of the Finnish Com- capital requirements are taken into account. In 2019, earnings per panies Act. The authorization covers a maximum of 12,803,653 own share were EUR 0.43 (0.54). shares in total, which corresponds to approximately 10 percent of The parent company’s distributable funds totaled EUR 533.7 mil- the company’s currently registered shares. The authorization can be lion, of which EUR 41.1 million is profit for the financial year. The used for the financing or execution of acquisitions or other business Board of Directors proposes to the Annual General Meeting that a arrangements, to strengthen the balance sheet and financial posi- dividend of EUR 0.13 (0.20) per share be distributed for 2019, total- tion of the company, for implementing share-based incentive plans ing EUR 16.6 (25.5) million. The Board of Directors further proposes or the payment of the annual compensation payable to the mem- that the Board of Directors be authorized to resolve in its discretion bers of the Board of Directors, or for other purposes as determined on the payment of additional dividend. The amount dividend to be by the Board of Directors. paid based on the authorization shall not exceed EUR 0.13 per share. The Annual General Meeting authorized the Board of Directors to The authorization is valid until the opening of the next Annual Gen- decide on donations of a total maximum of EUR 150,000 for charita- eral Meeting. Unless the Board of Directors decides otherwise for ble or corresponding purposes. a justified reason, the authorization will be used to pay dividend All of the authorizations will remain effective until the end of the one time during the period of validity of the authorization. No sub- Annual General Meeting 2020 and, in any event, no longer than for stantial changes have occurred in the company’s financial position a period of 18 months from the date of the resolution of the Annual since the end of the financial year. The company’s liquidity is good General Meeting. SHAREHOLDER GROUPS, DECEMBER 31, 2019 Shareholders by sector Households Public entities Financial and insurance institutions Companies Non-profit institutions Foreign owners Total Of which nominee-registered Number of shares 7,365,072 33,538,215 29,955,147 19,585,888 1,468,352 21,216,553 113,129,227 14,907,304 % of shares 6.5 29.6 26.5 17.3 1.3 18.8 100.0 11.6 Notifications of major shareholdings In 2019, Terveystalo received 2 notifications of major shareholdings. scheme consists of three performance periods, the calendar years and, in the Board’s opinion, will not be jeopardized by the proposed The new Board of Directors elected Kari Kauniskangas as its 2018, 2019, and 2020. The Board of Directors decides on the perfor- distribution of profits. mance criteria and the required performance levels for each criteri- on at the beginning of each performance period. During the performance period 2019, the plan offered the key employees the possibility to earn rewards based on the Company CHANGES IN MANAGEMENT Yrjö Närhinen, CEO, resigned on September 9, 2019.Ville Iho was Chairman and Tomas von Rettig as its Vice-Chairman. Lasse Hei- nonen was elected as Chairman of the Audit Committee and Paul Hartwall and Olli Holmström as members of the Audit Committee. Kari Kauniskangas was elected as Chairman of the Compensation Committee and Dag Andersson, Åse Michelet, and Katri Viippola as achieving the required operational targets and Total Shareholder appointed as President and CEO on August 8, 2019, and he took up members of the Compensation Committee. Return (TSR) levels. his post on December 6, 2019. SVP HR Johanna Karppi resigned on The Board has been authorized to resolve on the repurchase September 30, 2019. of the company’s own shares using the unrestricted equity of the company. The authorization covers a maximum of 12,803,653 own shares in total, which corresponds to approximately 10 percent of the company’s currently registered shares. The Board has also been authorized to resolve on the issuance of DECISIONS OF THE ANNUAL GENERAL MEETING 2019 AND THE FIRST BOARD MEETING Terveystalo Plc’s Annual General Meeting was held on April 4, 2019, EVENTS AFTER THE REPORTING PERIOD Minttu Sinisalo b. 1980, M.Sc. (Econ.), was appointed as Terveysta- lo’s Senior Vice President for HR. She took up her post on January 1, 2020. Susanna Laine, Senior Vice President, Communications and shares and special rights entitling to shares as referred to in Chapter in Helsinki. The Annual General Meeting adopted the financial state- Brand, and a member of the Executive Team, vacated her position According to a notification, a transaction on December 4, 2019, 10, Section 1 of the Finnish Companies Act. The authorization covers ments for the year 2018 and discharged the members of the Board on January 8, 2020. Veera Siivonen, b. 1980, M.Sc. (Tech., Industrial reduced the total holdings in Terveystalo shares and votes held by a maximum of 12,803,653 own shares in total, which corresponds of Directors and the President and CEO from liability. The Annual Engineering) has been appointed Senior Vice President, Marketing Helsinki Deaconess Institute Foundation to 0% (0 shares) of the to approximately 10 percent of the company’s currently registered General Meeting approved the proposals of the Shareholders’ Nom- and Communications of Terveystalo as of May 1, 2020, at the latest. outstanding shares in Terveystalo. The Helsinki Deaconess Insti- shares. The authorization can be used for the financing or execution ination Board and the Board of Directors without any changes. Elina Saviharju, b. 1981, LL.B., LL.M. (Harvard) has been appointed tute Foundation’s previous shareholding amounted to 10.5 percent of acquisitions or other business arrangements, to strengthen the In accordance with the proposal of the Board of Directors, the Senior Vice President, Legal, of Terveystalo. She will join the compa- (13,470,705 shares). balance sheet and financial position of the company, for implement- Annual General Meeting resolved not to pay dividends based on ny as of July 24, 2020, at the latest, as Julia Ormio, Chief Legal Officer According to a notification, a transaction on December 4, 2019, ing share-based incentive plans or the payment of the annual com- the balance sheet confirmed for the financial year 2018. The Annual and Member of the Executive Team of Terveystalo, has resigned. increased the combined holdings in Terveystalo shares and votes pensation payable to the members of the Board of Directors, or for General Meeting decided that EUR 0.20 per share (totaling EUR 25.5 The Shareholders’ Nomination Board of Terveystalo has submit- held by Pohjola Insurance and OP Life Insurance to 11.65 percent other purposes as determined by the Board of Directors. million) would be distributed from the invested non-restricted equi- ted its proposal on the Board of Directors to the Annual General (14,922,573 shares) of all of the outstanding shares in Terveystalo. Evli Awards Management Oy (EAM) is responsible for the acqui- ty reserve. The distribution was paid on April 15, 2019. Meeting 2020. The Shareholders’ Nomination Board proposes to the Shareholders’ agreements Terveystalo is not aware of any shareholder’s agreements regarding sition and management of the shares in accordance with the sec- The number of the members of the Board of Directors was con- Annual General Meeting that the number of members of the Board tion of the Limited Liability Companies Act concerning incentives firmed as eight. Lasse Heinonen, Olli Holmström, Åse Aulie Michelet, of Directors shall be seven (7). The Shareholders’ Nomination Board and the financing of the acquisition of company shares. Financed Katri Viippola, and Tomas von Rettig were re-elected as members of proposes, for a term that ends at the end of the Annual General the ownership of the Company and voting rights. by Terveystalo, EAM TTALO Holding Oy will acquire shares in ac- the Board, and Dag Andersson, Paul Hartwall, and Kari Kauniskangas Meeting 2021 Dag Andersson, Lasse Heinonen, Kari Kauniskangas, were elected as new members of the Board. Åse Aulie Michelet, Katri Viippola and Tomas von Rettig to be 58 59 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS re-elected as members of the Board and Niko Mokkila to be elected • The development and implementation of information sys- as a new member of the Board. tem projects and services, service products, and operating Nomination Board recommends that Kari Kauniskangas is models involves risks. The company is gradually replacing its re-elected as the Chairman of the Board and Tomas von Rettig as operating systems and support systems as well as creating the Vice Chairman of the Board. The current members of the Board new digital customer solutions, which increases the overall Olli Holmström and Paul Hartwall have announced that they are not risk related to information systems. Risk management is an available for re-election to the Board of Directors. essential aspect of the systems integration and deployment All candidates have given their consent to the position and The processes. Nomination Board has assessed all candidates to be independent of • The company’s business operations rely on its capacity to the company. Dag Andersson, Kari Kauniskangas, Lasse Heinonen identify, recruit, and retain competent and professional health and Åse Michelet are also independent of major shareholders. care professionals, employees, and executives. The increased The Shareholders’ Nomination Board proposes to the Annu- supply of services and increased competition may affect the al General Meeting 2020 that the following remuneration be paid availability of health care professionals, particularly in major to the members of the Board during the next term: annual remu- cities. Turnover in key employees involves the risk of losing neration of the Chairman EUR 85,000, annual remuneration of the knowledge and expertise. Vice-Chairman EUR 50,500, annual remuneration of the members • The company may not be able to find suitable acquisition EUR 40,250, annual remuneration of the Chairman of the Audit Com- targets or expansion opportunities under favorable terms, mittee EUR 50,500. and the integration of acquisition targets is not necessarily Additionally, the following attendance fees shall be paid for each realized as planned. Board and Committee meeting: EUR 625 for members residing in • The company’s business is very dependent on functioning Finland, EUR 1,300 for members residing elsewhere in Europe and information systems, data communication, and external ser- EUR 2,600 for members residing outside of Europe. For Board and vice providers. Interruptions can result from hardware failure, Committee meetings that are held by telephone or other electronic software failure, or cyber threats. Long-lasting malfunction of means, the attendance fee shall be EUR 625. Travel expenses are information systems or payment transfers can lead to signifi- proposed to be reimbursed in accordance with the company’s travel cant loss of sales and decline in customer satisfaction. policy. • Endangered data security or privacy can lead to losses and In addition, the Nomination Board proposes the annual remuner- claims for damages and endanger reputation. ation of the Board to be paid as a combination of company shares • Corporate responsibility aspects are increasingly important and cash in such a manner that 40% of the annual remuneration for customers, such as ensuring the responsibility of the is paid in shares in the possession of the company or, if this is not product supply chain, fair and equal treatment of employees, possible, in the company’s shares purchased from the market, and avoidance of corruption, and protection of the environment. 60% is paid in cash. The Company will reimburse the transaction Possible failures associated with corporate responsibility costs and capital transfer tax related to trading. Attendance fees are would mean negative publicity for Terveystalo and could proposed to be paid in cash. GOVERNANCE Terveystalo Corporation’s Corporate Governance Statement, Re- cause operational and financial damage. Challenges related to Terveystalo’s corporate responsibility work include com- municating the corporate responsibility principles to the key stakeholders and ensuring the responsibility of the product and service supply chain. muneration Policy and Remuneration Statement 2019 have been • The company is a party to, and may become a party to, legal published as a separate document from the Board of Directors’ Re- action or administrative procedures initiated by the authori- port and as part of the Annual Report on pages 24–42 and are also ties, patients, or third parties. The company’s view is that its available on the company’s website. currently pending legal obligations and court cases are not significant in nature. THE MOST SIGNIFICANT SHORT-TERM RISKS AND UNCERTAINTY FACTORS Terveystalo’s risk management is governed by the risk management Risk management at Terveystalo and risks related to the company’s business are described in more detail at https://www.terveystalo. com/en/investors/Corporate-governance/Risk-management-and- policy approved by the Board. The policy defines goals, principles, risks/ and in the company’s Annual Review. organizations, responsibilities, and practices for risk management. The management of financial risks complies with the Group’s financ- ing policy approved by Terveystalo’s Board. The risks and uncertainty factors described below are considered GENERAL MEETING OF SHAREHOLDERS 2020 The Annual General Meeting of Terveystalo Plc will be held on to potentially have a significant impact on the company’s business Thursday, April 2, 2020, at the Finlandia Hall in Helsinki. operations, financial results and future outlook within the next 12 months. The list is not intended to be exhaustive. • Changes in the competitive landscape, new competitors entering Terveystalo Plc the markets and increasing price competition may have a nega- Board of Directors tive impact on the company’s profitability and growth potential. 60 61 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS CONSOLIDATED FINANCIAL STATEMENTS, IFRS CONSOLIDATED STATEMENT OF INCOME EUR mill. Revenue Other operating income Materials and services Employee benefit expenses Depreciation, amortisation and impairment losses Other operating expenses Operating profit Financial income Financial expenses Net finance expenses Share of results in associated companies Profit before taxes Income tax expense Profit for the period Profit attributable to Owners of the parent company Non-controlling interests Earnings per share for profit attributable to the shareholders of the parent company, in euro Basic earnings per share Diluted earnings per share CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME EUR mill. Profit for the period Total comprehensive income Total comprehensive income attributable to: Owners of the parent company Non-controlling interest The notes are an integral part of the Consolidated financial statements. Note 1.1.–31.12.2019 1.1.–31.12.2018 4 5 6 7 2, 8 2, 9 10 2, 10 11 12 12 1,030.7 2.1 -472.9 -314.3 -89.8 -74.4 81.4 0.3 -14.7 -14.4 -0.2 66.8 -12.7 54.1 54.2 -0.1 0.43 0.43 744.7 18.2 -351.3 -197.1 -41.1 -97.9 75.4 0.3 -9.5 -9.2 1.9 68.2 0.5 68.7 68.7 0.0 0.54 0.54 1.1.–31.12.2019 1.1.–31 Dec 2018 54.1 54.1 54.2 -0.1 68.7 68.7 68.7 0.0 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION EUR mill. ASSETS Non-current assets Property, plant and equipment Right-of-use assets Goodwill Other intangible assets Investment properties Investments in associates Loan receivables Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Non-current assets held for sale TOTAL ASSETS EQUITY AND LIABILITIES Equity attributable to equity holders of the Company Share capital Invested non-restricted equity reserve Treasury shares Retained earnings Non-controlling interest TOTAL EQUITY Non-current liabilities Non-current financial liabilities Non-current lease liabilities Deferred tax liabilities Provisions Other liabilities Total non-current liabilities Current liabilities Provisions Trade and other payables Current tax liabilities Current financial liabilities Current lease liabilities Total current liabilities TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES 62 The notes are an integral part of the Consolidated financial statements. Note 31 Dec 2019 31 Dec 2018 13 13 14, 15 14 16 17 21 11 21 22 23 20, 25 20, 25 11 27 27 26 20, 25 20, 25 86.3 176.4 779.2 161.9 0.5 2.3 0.3 3.7 83.6 - 768.7 167.7 0.6 2.4 0.0 5.8 1,210.7 1,028.7 5.6 101.6 40.6 147.8 0.8 1,359.3 0.1 492.8 -6.7 55.1 0.0 541.2 360.3 143.7 30.3 7.5 9.7 551.5 1.6 165.4 14.8 49.8 35.0 266.6 5.8 89.9 36.9 132.5 1.1 1,162.3 0.1 518.2 -6.7 0.1 0.1 511.8 400.4 - 34.1 9.1 7.8 451.4 2.3 146.9 0.2 49.8 - 199.1 818.0 1,359.3 650.5 1,162.3 63 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Equity attributable to owners of the parent company Invested non- restricted equity reserve Share capital Treasury shares Retained earnings 0.1 518.2 -6.7 0.1 Non- controlling interests Total equity 0.1 511.8 Total 511.7 - - - - 0.1 - - -25.5 - 492.8 - - - - 54.2 54.2 -0.1 54.1 0.7 - 0.1 0.7 -25.5 0.1 - - - 0.7 -25.5 0.1 -6.7 55.1 541.2 0.0 541.2 EUR mill. Equity 1 Jan 2019 Comprehensive income Profit for the period Transactions with owners Share-based payments Equity repayment Other adjustments Equity 31 Dec 2019 Equity attributable to owners of the parent company EUR mill. Equity 1 Jan 2018 Comprehensive income Profit for the period Transactions with owners Share-based payments Equityrepayment Acquisition of treasury shares Invested non- restricted equity reserve Share capital 0.1 525.9 - - - - - - -7.7 - Equity 31 Dec 2018 0.1 518.2 The notes are an integral part of the Consolidated financial statements. Treasury shares Retained earnings -68.8 Total 457.2 Non- controlling interests 0.1 0.0 - - - Total equity 457.3 68.7 0.2 -7.7 -6.7 511.7 0.1 511.8 68.7 68.7 0.2 - - 0.1 0.2 -7.7 -6.7 - - - -6.7 -6.7 EUR mill. Cash flows from operating activities Profit before income taxes Adjustments for Non-cash transactions Depreciation, amortisation and impairment losses Change in provisions Other non-cash transactions Gains and Losses on sale of property, plant, equipment and other changes Net finance expenses Changes in working capital Trade and other receivables Inventories Trade and other payables Interests received Income taxes paid Net cash from operating activities Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired Acquisition of property, plant and equipment Acquisition of intangible assets Proceeds from the disposal of subsidiaries, net of cash disposed of Investments to associated companies Proceeds from sale of financial assets Acquisition of business operations, net of cash acquired Repayment of long-term loan receivables Proceeds from sale of property, plant and equipment Dividends received Net cash from investing activities Cash flows from financing activities Acquisition of treasury shares Proceeds from non-current borrowings Repayment of non-current borrowings Proceeds from current borrowings Repayment of current borrowings Payment of finance lease liabilities (2018 finance leasing) Payment of hire purchase liabilities Interests and other financial expenses paid Equity repayment Net cash from financing activities Net change in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December The notes are an integral part of the Consolidated financial statements. Note 1.1.–31 Dec 2019 1.1.–31 Dec 2018 66.8 68.2 89.8 -1.2 -2.4 0.0 14.4 -7.9 0.3 17.7 0.3 -4.1 41.1 -2.1 -2.3 -15.9 9.2 1.9 0.3 0.0 0.2 0.3 173.6 100.6 -12.3 -15.9 -17.7 - -0.6 0.3 -1.0 0.2 0.1 0.1 -229.8 -9.4 -10.4 24.1 -1.8 1.9 -0.9 - 0.3 1.7 -46.7 -224.4 - 370.0 -401.4 - -10.0 -37.1 -4.9 -14.2 -25.5 -6.7 160.0 -11.4 10.0 -0.8 -4.1 -3.3 -8.4 -7.7 -123.1 127.6 3.8 36.9 40.6 3.9 33.0 36.9 25 25 25 25 25 25 64 65 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 1. CORPORATE INFORMATION Terveystalo Plc is a Finnish public limited liability company organized lease agreements on the statement of financial position as a right- of The impact from the standard to Terveystalo Group´s reporting in -use assets and lease liabilities. There are two exceptions available, the reporting period is as follows: under the laws of Finland and domiciled in Helsinki, Finland. The parent these relate to either short term contracts in which the lease term company, Terveystalo Plc, is listed on the Nasdaq Helsinki. Terveystalo is 12 months or less, or to low value items i.e. assets of value USD CONSOLIDATED STATEMENT OF INCOME Group consists of the parent company and 19 subsidiaries. More infor- 5,000 or less. mation is presented in note 30. A copy of the consolidated financial The most significant impact of IFRS 16 is that Terveystalo has rec- statements is available at the Group’s website www.terveystalo.com, ognized new assets and liabilities, mainly for its operating leases of from Terveystalo Oyj / Corporate Communications, Jaakonkatu 3, facilities. In addition, the nature of expenses related to those leases 00100 Helsinki, Finland, or via e-mail at investors@terveystalo.com. will change as IFRS 16 replaces the operating lease expense with a Terveystalo is a leading private healthcare service provider in depreciation charge for right- of -use assets and interest expense on Finland. The company offers general practice and specialist med- lease liabilities reported under financing expenses. IFRS 16 standard ical care, diagnostic services, outpatient surgery, dental services has impact for condensed consolidated statement of cash flows as and other adjacent services to corporate, private and public sector well. The cash flow from operating activities increases, because the customers. Terveystalo had approximately 300 clinics (of which 18 repayment of the lease liabilities in rents is transferred from cash clinic-hospitals) in financial year 2019. flow to financing activities. In its meeting on 12 February 2020 the Board of Directors of Terveystalo has applied the IFRS 16 using the modified retro- Terveystalo Plc approved the publishing of these consolidated finan- spective approach without restatement of comparatives. The right cial statements. According to the Finnish Limited Liability Companies of use assets was primarily recognized at an amount equal to the Act, shareholders have the right to approve or reject the financial lease liability. IAS 17 recognized finance lease contracts has been EUR mill. Revenue EBITDA Adjusted EBITDA Depreciation Adjusted EBITA Net finance expenses Profit/loss before taxes Taxes Profit/loss for the period 1–12/2019 1–12/2019 1–12/2019 1–12/2018 Reported IFRS 16 effect Before IFRS 16 Reported 1,030.7 - 1,030.7 171.2 176.3 -89.8 115.1 -14.7 66.8 -12.7 39.9 39.9 -38.3 1.6 -3.5 -1.9 0.5 131.3 136.4 -51.5 113.5 -11.2 68.7 -13.2 744.7 116.6 108.9 -41.1 87.7 -9.5 68.2 0.5 54.1 -1.4 55.5 68.7 Amendments to IAS 28 — Long-term Interests in Associates and Joint Ventures (effective for financial years beginning on or after 1 January 2019) The amendments clarify that an entity applies IFRS 9 Financial In- struments to long-term interests in an associate or joint venture that forms part of the net investment in the associate or joint ven- ture. The new amendments did not have a significant impact on Terveystalo’ s consolidated financial statements. Plan amendment, Curtailment or Settlement (Amendments to IAS 19) (effective for financial years beginning on or after 1 January 2019) The amendments clarify that on amendment, curtailment or set- tlement of a defined benefit plan, an entity uses updated actuarial assumptions to determine its current service cost and net interest for the period and the effect of the asset ceiling is disregarded when calculating the gain or loss on any settlement of the plan and is dealt with separately in other comprehensive income (OCI). The new amendments did not have a significant impact on Terveystalo’s con- statements in the Annual General Meeting held after the publica- recognized in transition to IAS 17 valued amounts. CONSOLIDATED STATEMENT OF FINANCIAL POSITION solidated financial statements. tion of the financial statements. The Annual General Meeting also Terveystalo Group´s most significant lease agreements are the has the right to make a decision to amend the financial statements. lease contracts of the premises. The contracts of the premises con- 2. ACCOUNTING POLICIES FOR THE CONSOLIDATED FINANCIAL STATEMENTS 2.1 BASIS OF PREPARATION The consolidated financial statements of Terveystalo have been pre- sist of temporary contracts and contracts that are valid under fur- ther notice. When implementing the IFRS 16 standard, Terveystalo management has considered the estimated closing date for contract that are valid under further notice. Terveystalo Group applied the IFRS 16 exception for a small number of short-term contracts that were mainly parking place and warehouse contracts. These con- tracts are not material. EUR mill. Opening balance 1 Jan 2019 Transactions Depreciation Payment of lease liabilities Carrying amount 31 Dec 2019 Right-of-use assets Lease liability 199.8 14.9 -38.3 - 176.4 200.2 14.9 - -36.4 178.7 Annual Improvements to IFRSs (2015–2017 cycle) (effective for financial years beginning on or after 1 January 2019) The annual improvements process provides a mechanism for minor and non-urgent amendments to IFRSs to be grouped together and issued in one package annually. The amendments clarify the fol- lowing standards: pared in accordance with International Financial Reporting Standards The lease liability has been measured at the present value of the CONSOLIDATED STATEMENT OF CASH FLOWS • IFRS 3: when an entity obtains control of a business that is (IFRS) as adopted by the European Union. The consolidated financial remaining lease payments discounted using the incremental bor- statements have been prepared in compliance with the IAS and IFRS rowing rate. Terveystalo’s lease contracts have been classified into standards as well as the SIC and IFRIC interpretations in force on 31 three separate interest categories on basis of the length of the con- December 2019. The consolidated financial statements also comply tract. Classifications are contracts with a length between 1–3 years, with the regulations of Finnish accounting and company legislation between 4–10 years and contracts with a length over ten years. Each complementing the IFRSs. one of these three categories have been defined its own incremen- The consolidated financial statements are presented in millions of tal borrowing rate. The weighted average incremental borrowing euro and have been prepared under the historical cost basis, unless rate applied to lease liabilities on 1 January 2019 was 1.9%. otherwise stated in the accounting principles. All figures presented EUR mill. Cash flows from operating activities Cash flows from financing activities 1–12/2019 39.9 -39.9 a joint operation, it remeasures a previously held interest in that business at fair value (a business combination achieved in stages). IFRIC 23 Uncertainty over Income Tax Treatments (effective for financial years beginning on or after 1 January 2019) The interpretation brings clarity to the accounting for income tax • IFRS 11: when an entity subsequently obtains joint control of a business that is a joint operation, it does not remeasure a previously held interest in that business. • IAS 12: an entity accounts for all income tax consequences of have been rounded, and consequently the sum of individual figures RECONCILIATION OF IFRS 16 treatments that have yet to be accepted by tax authorities. The dividends in the same way, regardless of how the tax arises may deviate from the presented aggregate figure. Key figures have been calculated using exact figures. EUR mill. 2.2 APPLICATION OF NEW AND AMENDED IFRSS New and amended standards applied in the financial year 2019 Terveystalo Group has applied as from 1 January 2019 the following new and amended standards that have come into effect: Other operating lease liabilities on 31 Dec 2018 Weighted decremental borrowing rate % on 1 Jan 2019 Lease liabilities on 31 Dec 2018 discounted Additions IFRS 16 recognized lease liabilities from municipality outsourcing In mergers and acquisitions transferred IFRS 16 lease liabilities IFRS 16 Leases (effective for financial years beginning on or after 1 January 2019) IFRS 16 Leases. The new standard replaces the IAS 17 standard and related interpretations. IFRS 16 requires the lessees to recognize the Others Disposals Others Lease liabilities on 1 Jan 2019 201.7 1.9 177.9 18.3 4.2 0.2 -0.5 200.2 key test for accounting is the assessment of whether the tax au- (in profit or loss, other comprehensive income or equity). thority will accept the entity’s chosen tax treatment or not. When considering this the assumption is that tax authorities will have full • IAS 23: when a qualifying asset is ready for its intended use knowledge of all relevant information in assessing a tax treatment or sale, an entity treats any outstanding borrowing made to proposed by the entity. The new amendments did not have a sig- obtain the said asset as part of general borrowings. nificant impact on Terveystalo’ s consolidated financial statements. Amendments to IFRS 9 — Prepayment Features with Negative Compensation (effective for financial years beginning on or after 1 January 2019) The amendments enable entities to measure at amortised cost some prepayable financial assets with so-called negative compen- sation. The new amendments did not have a significant impact on Terveystalo’ s consolidated financial statements. The impacts of these amendments on Terveystalo’ s consolidated financial statements are not expected to be significant. 66 67 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS Adoption of new and amended standards and interpretations applicable in future financial years * = not yet endorsed for use by the European Union as of 31 Decem- 2.3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of the financial statements requires management ownership of leased assets are substantially transferred to the Group If the Group gains control in stages in the acquiree, the existing according to IAS 17. interest will be measured at fair value through profit or loss. to make certain estimates and assumptions that are based on During financial year 2019, the Group has made judgements and Goodwill arising from an acquisition is recognized as the excess ber 2019. management’s best view of the circumstances prevailing at the re- estimates when implementing IFRS 16 to lease contracts and estimat- of the aggregate of the consideration transferred, the amount of porting date, prior experience and assumptions about future events ing the closing date for contract that are valid under further notice. non-controlling interests in the acquiree and previously held equity • Amendments to References to Conceptual Framework in related, among other, to the expected development of the Group’s IFRS Standards (effective for financial years beginning on or economic environment in terms of sales and cost level. However, after 1 January 2020) it is possible that the realized outcomes differ from the estimates Impairment testing Impairment testing for goodwill is carried out at least annually. The interest in acquiree over the fair value of the Group’s share of the identifiable net assets acquired. If the consideration transferred is less than the fair value of the net assets of the subsidiary acquired, The revised Framework codifies IASB’s thinking adopted in and assumptions used in the financial statements. In addition, the Group has no other intangible assets with an indefinite useful life. the resulting gain is recognized in profit or loss. recent standards. The Conceptual Framework primarily serves application of the accounting policies requires judgement, espe- The recoverable amounts of cash generating units are estimated Intra-Group transactions, receivables, liabilities and unrealized as a tool for the IASB to develop standards and to assist the cially when the current IFRS standard has alternative accounting, based on the calculations of their value in use. Preparation of these gains, as well as the distribution of profits within the Group are elim- IFRS Interpretations Committee in interpreting them. It does valuation and presentation methods. calculations requires use of estimates. Even though management inated in the preparation of the consolidated financial statements. not override the requirements of individual IFRSs. The Group monitors the realization of the estimates and as- believes that the used estimates and assumptions are appropriate, Accounting policies of subsidiaries have been aligned where neces- sumptions and changes in the underlying factors on a regular ba- the estimated recoverable amounts may differ from the actual sary to correspond to the Group’s principles. • Definition of a Business (Amendments to IFRS 3)* (effective sis together with the operating units by using several internal and results. See note 15 Impairment testing of cash-generating units Transactions with non-controlling interests that do not result for financial years beginning on or after 1 January 2020) external information sources. Changes in estimates or assumptions including goodwill for more detailed information. in the loss of control are treated as equity transactions – in other The amendments narrowed and clarified the definition are recognized in the period when the estimate or assumption is of a business. They also permit a simplified assessment of revised, and in the future periods if the change affects the subse- whether an acquired set is a group of assets rather than a quent periods. Provisions The most significant provisions in the statement of financial posi- words, as transactions with owners when they are acting as own- ers. The difference between the fair value of the consideration paid and the book value of the portion of the net assets acquired is rec- business. The impacts of the amendments on Terveystalo’s The critical issues requiring management’s judgement are pre- tion relate to mainly loss-making contracts as well as retirement ognized in equity. Also, gains and losses arising from sales of shares consolidated financial statements are not expected to be sented below: obligations related to some leased premises. Management makes to non-controlling interest are recognized in equity. significant. estimates mainly concerning the loss-making contracts. When the Group ceases to have control or significant influence, • Definition of Material (Amendments to IAS 1 and IAS 8) (effective for financial years beginning on or after 1 January 2020) Intangible assets in connection with business combinations IFRS 3 requires the acquirer to recognize intangible assets separately 2.4 PRINCIPLES OF CONSOLIDATION any retained interest in the entity is measured at fair value through profit or loss. Terveystalo Group does not have such subsidiaries, which have a significant non-controlling interest. The amendments clarify the definition of material and in- from goodwill, if certain criteria are met. Recognizing intangible clude guidance to help improve consistency in the application assets separately at fair value requires management to estimate the Subsidiaries The consolidated financial statements include the parent company of that concept across all IFRS Standards. In addition, the ex- expected future cash flows. Management has used available market Terveystalo Plc and all its subsidiaries where over 50 percent of the Associates Associates are entities over which the Group has significant influence. planations accompanying the definition have been improved. information when possible in determining the fair values. If no market voting rights are controlled by the parent company or the parent Significant influence generally arises when the Group holds over 20 The impacts of the amendments on Terveystalo’ s consoli- information has been available, the measurement of intangible assets company otherwise controls the company. The Group controls an percent of the voting rights, or otherwise has significant influence, dated financial statements are not expected to be significant. has been based on historical income from the asset and the planned entity when it is exposed to, or has rights to variable returns from but no control over the entity. use in operation. The valuations are based on discounted cash flows its involvement with the entity and has the ability to affect those Associates are consolidated using the equity method. They are • Interest Rate Benchmark Reform (Amendments to IFRS 9, and estimated disposal or replacement prices, and the valuation returns through its power over the entity. initially recognized at cost, which includes transaction expenses. If IAS 39 and IFRS 7) (effective for financial years beginning on requires management to make estimates of the future use of the The subsidiaries are included in the consolidated financial state- the Group’s share of the associated company’s losses exceeds the or after 1 January 2020) asset and impact on the company’s financial position. Changes in ments starting from the date on which control commences until the carrying amount of the investment, the investment is recognized Amendments have been issued to address uncertainties the company’s future operations may cause changes in valuation. date on which control ceases. at zero value in the consolidated statement of financial position. related to the ongoing reform of interbank offered rates Management believes that the used estimates and assumptions All subsidiaries are consolidated by using the acquisition meth- Recognition of further losses exceeding the carrying amount is dis- (IBOR). The amendments provide targeted relief for finan- are reasonable for measurement of fair values. In addition, the od. The consideration transferred for the acquisition of a subsidiary continued, unless the Group has incurred legal or constructive obli- cial instruments qualifying for hedge accounting in the lead Group’s property, plant and equipment and intangible assets are as- comprise assets transferred, liabilities incurred and the equity inter- gations on behalf of the associate. up to IBOR reform. The impacts of the amendments on sessed to determine whether there is any indication of impairment ests issued by the Group measured at fair value. Identifiable assets Unrealized gains resulting from the transactions between the Terveystalo’ s consolidated financial statements are not ex- at least at each reporting date. acquired and liabilities and contingent liabilities assumed in a busi- Group and associates are eliminated according to the Group’s share pected to be significant. • IFRS 17 Insurance Contracts* (IASB’s proposal effective for The valuation of contingent considerations Management makes discretionary decisions and estimates when ness combination are measured initially at fair value at the acqui- of ownership. Goodwill relating to an associate is included in the car- sition date. On an acquisition-by-acquisition basis, non-controlling rying amount of the investment. The Group’s share of the associated interest in the acquiree is measured either at fair value or at value, company’s profit or loss for the period is separately disclosed below financial years beginning on or after 1 January 2022) determining the valuation of contingent considerations in business which equals the proportional share of the non-controlling interest net finance expenses. Adjustments have been made when necessary The new standard for insurance contracts will help inves- combinations. Judgement is applied especially when estimating the in the identifiable net assets acquired. to the associate’s accounting policies to align to those of the Group. tors and others better understand insurers’ risk exposure, expected amount of payments and those are based on potential All acquisition costs, except costs related to issue of debt or equity At each reporting date, the Group reviews the carrying amounts profitability and financial position. This standard replaces IFRS scenarios for future returns, amounts paid under different scenarios securities, are recognized as an expense as incurred. To the consid- of the investments in associates to determine whether there is any 4 standard. The impacts of the amendments on Terveystalo’ and the profitability of each scenario. eration transferred is not included transactions treated separately objective indication of impairment. If any such evidence of impair- s consolidated financial statements are not expected to be significant. Other becoming amendments or new standards have no significant Lease agreements classified between finance and other leases In financial year 2018 Management has made judgements and esti- from the acquisition which are recognized through profit or loss. Any ment exists, then the impairment loss is determined. An impairment contingent consideration is measured at fair value and it is classified loss is the amount by which the carrying amount of an investment either as a liability or equity. Contingent consideration classified as a in associate exceeds its recoverable amount. An impairment loss is liability is measured at fair value at the end of reporting period and recognized in profit or loss. effect to Terveystalo’ s consolidated statements. mates while assessing when all the risks and rewards incidental to the resulting profit or loss is recognized in profit or loss. Contingent If the Group’s ownership interest in an associate is reduced, but consideration classified as equity is not remeasured. significant influence is retained, only the relative portion of previ- 68 69 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS ously recognized amounts in other comprehensive income and the above mentioned useful lives are applied. Depreciation periods for if the assets meet the definition of an asset, are identifiable or rise value of the investment in the consolidated financial statements are contract of premises vary from 1 to 16 years. from contractual or legal rights. Financial assets At the end of each reporting period the Group evaluates indicators recognized in profit or loss as part of the gain or loss. Previously according to IAS 17 recognized machinery, equipment Other intangible assets are measured at cost and amortised on a of potential impairment of a single financial asset or a group of fi- Mutual real estate companies Housing companies and mutual real estate companies are consoli- ognized in the statement of financial position and are depreciated The Group has no intangible assets with indefinite useful lives. Impairment loss provision is based on simplified approach. Esti- over the shorter of the useful life or lease term. Depreciation periods mated impairment loss rates have been calculated using historical dated to the financial statements as subsidiaries using the acquisition vary from 2 to 6 years. Amortisation periods used for intangible assets are as follows: information of actual impairment losses and current conditions and and other tangible assets acquired through a finance lease are rec- straight-line basis over the known or estimated useful lives. nancial assets. method when the Group has control over the company. Previously according to IAS 17 recognized operational premises Mutual real estate companies, where Terveystalo Group and oth- acquired through sale and leaseback contracts and other leases of er parties have either contractually or through articles of association premises that are classified as finance lease are capitalized at the rights to the assets and obligations for the liabilities relating to the present value of minimum lease payments and depreciated over the arrangement are accounted for as joint operations. Group includes lease period. Depreciation periods vary from 8 to 15 years. These in its consolidated financial statements proportion to its ownership are valued and recognized according to IFRS 16 since 1.1.2019. its share of the income, expenses and other comprehensive income Gains and losses on the sale and disposal of property, plant and as well as proportion of the assets and liabilities related to joint equipment are presented in other operating income or other oper- operations starting from the date the joint control commences until ating expenses. the date the joint control ceases. Maintenance expenditure are not included in the carrying Immaterial rights Other intangible assets Software Customer agreements and related customer relationships Trademarks 3–10 years the Group’s view of the economic conditions over the expected lives 3–5 years of the receivables have been taken into account. 5 years The impairment loss to be recognized in profit or loss is the dif- ference between the carrying value of the receivable and the esti- 2–12 years mated future cash flows. 20 years or shorter useful life 2.10 LEASES Research and development Research costs are recognized as an expense as incurred in the Group as a lessee (IFRS 16) The Group assesses whether a contract is or contains a lease at in- Apartments, which are not used in business operations, are in amounts of property, plant and equipment. When parts of the mag- statement of income. Development costs are capitalized when cer- ception of a contract. A contract is or contains a lease if the contract principal accounted for as investment properties. netic resonance imaging equipment need to be replaced, the Group tain capitalization criteria are met. Development costs that do not conveys the right to control the use of an identified asset for a period Terveystalo- Group had no mutual real estate companies during capitalizes the replacement costs as a separate item. qualify for the capitalization are recognized as an expense. The es- in exchange for consideration. A lessee recognises a right-of-use financial year 2019. The residual values and useful lives of property, plant and equip- timated useful lives of capitalized development costs are 3–5 years. asset and a lease liability on statement of financial position at the 2.5 FOREIGN CURRENCY TRANSACTIONS The consolidated financial statements are presented in euros which is the functional and presentation currency of the parent company. 2.7 INVESTMENT PROPERTIES Investment property refers to properties held by the Group in order Transactions in foreign currencies are translated into respective func- to earn rental income or for capital appreciation or both. Investment ment are reviewed at each reporting date. 2.9 IMPAIRMENT lease commencement date. A lease term is determined as the non-cancellable period of a lease. The lease term includes periods covered by an option to ex- Tangible and intangible assets At the end of each reporting period, the Group assesses whether there tend or terminate the lease, if the Group is reasonably certain to exercise the extension option or not to exercise the termination tional currency at the exchange rate prevailing on the transaction date. properties are measured at acquisition cost and depreciated on a are any indications of impairment. If any indications of an impairment option. Managements judgement is used to assess the estimated Gains and losses arising from transactions denominated in foreign straight-line basis over a 40-year depreciation period. exist, the recoverable amount of the asset is determined. For goodwill closing date for contracts that are valid under further notice. currency and from translation of monetary items are recognized in profit or loss as financial income or expenses. The Group had no significant foreign currency transactions dur- 2.8 GOODWILL AND OTHER INTANGIBLE ASSETS ing the reporting period and as at the reporting date the Group has no significant foreign currency denominated monetary or non-mon- Goodwill Goodwill arising in a business combination is recognized as the excess and intangible assets not yet available for use, the recoverable The Group does not have to recognise short-term leases (a lease amount is determined annually, irrespective of whether there is that has a lease term of 12 months or less) and leases for which the any evidence of impairment. Evidence of impairment is assessed at underlying asset is of low value. The lease payments can be associ- the level of geographical areas using common resources i.e at the ated with such leases are expensed on a straight-line basis. lowest unit level, which is largely independent of the other units Initially a right-of-use asset is measured at cost, which compris- etary statement of financial position items. of the aggregate of the consideration transferred, the amount of and whose cash flows can be distinguished from the cash flows of es the amount of the initial measurement of the lease liability, any 2.6 PROPERTY, PLANT AND EQUIPMENT Items of property, plant and equipment are measured at cost less non-controlling interests in the acquiree and previously held equity equivalent units. lease payments made at or before the commencement date, less any interest in acquiree over the fair value of the Group’s share of the The recoverable amount of an asset is the higher of its fair value lease incentives, any initial direct costs incurred by the Group, and an identifiable net assets acquired. less costs to sell or value in use. The value in use is the amount of estimate of restoration costs to be incurred by the Group. If a lease accumulated depreciation and impairment losses. Depreciation is Goodwill is not amortised but tested for impairment annually. For future cash flows of an asset or cash generating unit discounted to contains several lease components, they are accounted for separately. recognized on a straight-line basis over the estimated useful lives impairment testing, goodwill is allocated to cash-generating units present value. The discount rate used is the pre-tax discount rate Subsequently right-of-use assets are measured at cost less any of items of property, plant and equipment. Land is not depreciated. or groups of cash-generating units. Goodwill is measured at cost which reflects the market view on the time value of money and accumulated depreciation and any accumulated impairment losses less accumulated impairment losses. An Impairment loss in respect specific risks related to the asset. and adjusted for any remeasurements of the lease liability. A right- The estimated useful lives are as follows: of goodwill is not reversed. An impairment loss is recognized when the carrying amount of an of-use asset is depreciated from the commencement date to the Magnetic resonance imaging equipment 10 years Gain or loss on disposed unit includes also the carrying amount asset exceeds its recoverable amount. The impairment loss is recog- earlier of the end of the useful life of the right-of-use asset or the Buildings 10–40 years of goodwill. Machinery and equipment Improvements to office premises 2–7 years 2–10 years Other intangible assets Other intangible assets include software and licenses, as well as nized in profit or loss. If impairment loss is related to a cash generat- end of the lease term. If the Group is reasonably certain to exercise ing unit, the impairment loss is allocated first to reduce the carrying the purchase option, the right-of-use asset is depreciated over its amount of any goodwill allocated to the cash generating unit, and useful life. then to reduce the carrying amounts of the other assets on a pro rata The residual value and useful life of a right-of-use asset are re- Premises used in operations are depreciated on a straight line basis acquired companies’ customer relationships, trademarks and other basis. The useful life of an asset, which is subject to depreciation or viewed where necessary but at least annually and an impairment over a 40 year depreciation period. Property, plant and equipment intangible assets. Intangible assets are recognized initially at cost if amortisation, is reassessed when an impairment loss is recognized. loss is recognised if there is a change in expectations of the future also include artworks which are not depreciated. the cost of the asset can be measured reliably and if it is probable The impairment loss recognized for other assets than goodwill is re- economic benefits. Right-of-use assets (IFRS 16) are depreciated over the shorter of that the future economic benefits attributable to the asset will flow versed if there has been a change in estimates used to determine the The lease liability is initially measured at the present value of the useful life or lease term. If the use of call option is certain, right- to the Group. recoverable amount. The reversal of the impairment loss cannot ex- the lease payments that are not paid at the commencement date. A of-use asset is depreciated over the useful life. If the call option is Intangible assets acquired in a business combination are meas- ceed the carrying amount of the asset if impairment loss had not been lease liability includes fixed payments, including in-substance fixed recognized in the right –of-use asset and in the lease liability, the ured at fair value at the acquisition date separately from goodwill, recognized. Impairment loss recognized for goodwill is not reversed. payments; variable lease payments that depend on an index or a 70 71 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS rate, initially measured using the index or rate as at the commence- based on their current quotation in active markets. Realized or un- ment date; amounts expected to be payable under a residual val- realized gains and losses arising from changes in fair values are rec- ue guarantee, and the exercise price under a purchase option that ognized in other comprehensive income in the period in which they Terveystalo is reasonably certain to exercise. are incurred. There weren’t any financial assets valued at fair value 2.13 EMPLOYEE BENEFITS Pension benefits Pension plans are classified as either defined contribution plans or Subsequently the lease liability is measured at amortised cost us- through other comprehensive income in Terveystalo Group during defined benefit plans. The Finnish TyEL pension insurance is treated is considered as a contingent liability. Contingent liabilities are dis- closed in the notes. 2.15 REVENUE RECOGNITION Revenue is recognized when the significant risks and rewards of ing the effective interest method. It is remeasured when there is a the period 2018 and 2019. as a defined contribution plan. In defined contribution plans, the ownership and control over the services and products have been trans- change in future lease payments arising from change in an index or Financial assets at amortised cost consist of trade receivables Group makes fixed contributions into the plan. The Group has no ferred to the buyer. Group’s services consist mainly of occupational rate, if there is a change in the Terveystalo’s estimate of the amount and other receivables. They are measured at amortised cost and legal or constructive obligation to make additional payments if healthcare services, general practice and clinic hospital operations, expected to be payable under a residual value guarantee or if the they are included in non-current assets unless the Group has an the pension insurance company is unable to pay pension benefits dental services as well as diagnostic services. Revenue from services Group changes its assessment of whether it will exercise a purchase, intention to hold the instrument for less than 12 months from the earned by employees in the reporting period or in previous periods. is recognized when the service is rendered. Regarding long-term extension or termination option. When the lease liability is remeas- reporting date, in which case they are included in current assets. Contributions made into defined contribution plans are recognized contracts, revenue is recognized over the term of the contract, as ured in this way, a corresponding adjustment is made to the carrying Financial asset is derecognized when the contractual rights to through profit or loss in the reporting period which they relate. the customer simultaneously receives and consumes the benefits amount of the right-to-use asset, or is recorded in profit or loss if the the cash flows from that asset expire, or the financial asset is trans- carrying amount of the right-of-use asset has been reduced to zero. ferred to another party and the Group substantially transfers all the Group as a lessee (IAS 17) Leases of property, plant and equipment, in which the Group has substantially all the risks and rewards of ownership, are classified as Cash and cash equivalents Cash and cash equivalents include cash in hand, bank deposits avail- risks and rewards of ownership to another party. Share-based payment transactions Share-based payment schemes are valued at fair value on the grant recognized to the extent that Terveystalo Group expects to be entitled in exchange for the goods and services taking into account the terms date and recognized as an expense over the vesting period. A cor- and conditions of the customer contracts and business practices. responding adjustment is made to equity or liabilities when the Regarding private practitioners, Terveystalo acts as a principal and transaction is cash settled. recognizes revenue on a gross basis based on accrued gross sales. from the service as Terveystalo provides the service. Revenue is finance leases. Assets acquired through a finance lease agreement able on demand, and other short-term highly liquid investments. The expense determined at the grant date is based on the Fees related to purchasing these services are recognized in materials are recognized on the statement of financial position at inception of Items included in cash and cash equivalents have original maturities Group’s estimate of the number of shares that will ultimately vest. and services expenses. the lease period at the lower of fair value of the leased asset and of three months or less from the acquisition date. The estimate is reviewed at the end of each reporting period and Revenue recognized by the reporting date corresponds to the the present value of the minimum lease payments. Assets acquired under finance lease agreements are depreciated over the shorter of the useful life of the asset and the lease period. Lease payments are Financial liabilities Financial liabilities are measured at fair value through profit or loss the potential impact of any adjustments to the initial estimates is benefit of the service provided by Terveystalo for the customer. recognized in profit or loss and a corresponding adjustment is made Terveystalo Group has not incurred any costs of obtaining a contract to equity or liabilities. When the shares are subscribed, the proceeds to be recognized as an asset. Customer contracts do not include any apportioned between the finance charge and the reduction of the or at amortised cost. received, net of any transaction costs, are credited in the invested significant financing components. outstanding liability. The finance charge is allocated to each reporting Financial liabilities at fair value through profit or loss include in- non-restricted equity reserve. period during the lease period as to produce a constant periodic rate terest rate derivatives. Realized or unrealized gains and losses aris- of interest on the remaining balance of liability. The finance lease ing from changes in fair values are recognized in profit or loss in the liability is included in interest-bearing financial liabilities. period in which they are incurred. Personnel offering As part of the initial public offering of Terveystalo Oyj, personnel 2.16 SEGMENT INFORMATION Terveystalo Group’s business is divided into three regions which are the Group’s operating segments: Helsinki centre, Capital region, Central Leases where the lessor retains substantially all the risks and Financial liabilities at amortised cost include loans from financial were offered an opportunity to subscribe the company’s shares with Units and Regional Units. In addition to the regional structure, the Group rewards of ownership are classified as operating leases. Payments institutions, lease liabilities and hire and purchase liabilities. They a ten per cent lower price than the subscription price in the institu- functions include finance and administration, HR and legal, IT, com- made under operating lease contracts are expensed on a straight- are initially recognized at fair value which is based on the consider- tional and the public offering. Personnel offering is accounted for munication, marketing and investor relations, business development line basis over the lease periods. ation received. Transaction costs are included in the initial amount under IFRS 2. The subscription price paid by subscribers is booked in and digitalization, as well as medical quality and service management. Classification of contracts as leases is based on the substance recognized and subsequently the financial liability is measured at the invested non-restricted equity reserve and the discount granted Terveystalo reports the Group as one reportable segments based on of the arrangement and more specifically on whether the arrange- amortized cost using the effective interest method. to the subscribers is expensed over the 180-day lock-up period with the IFRS 8 aggregation criteria as same services are offered in all re- ment is dependent on a certain asset and whether the arrangement Financial liabilities are included in non-current and current liabil- corresponding adjustment to retained earnings. More details on the gions, customer type is similar in all regions, methods used to provide conveys the right to use that asset. ities and they can be either interest-bearing or non-interest-bear- personnel offering can be found in Note 18 Share-based Payments. services are similar and regulatory environment and operational risks 2.11 FINANCIAL ASSETS AND LIABILITIES Financial assets Financial assets are classified in accordance with IFRS 9 Financial ing. Financial liabilities are classified as current liabilities, unless the Group has an unconditional right to postpone the payment of the liability to at least 12 months from the reporting date. 2.14 PROVISIONS AND CONTINGENT LIABILITIES A provision is recognized when the Group has a present legal or con- are same in all regions. In addition, monitoring of profitability is primar- ily based on geographical areas. CEO is Terveystalo’s chief operating decision maker. Terveystalo operates mainly in Finland and Terveystalo Overdraft accounts included in Group cash pool account structure structive obligation as a result of a past event, and it is probable that an does not have individual significant customers as defined in IFRS 8. are included in current interest-bearing financial liabilities and they outflow of economic benefits will be required to settle the obligation, instruments into the following categories: financial assets at fair are presented on a net basis, because the Group has a contractual and a reliable estimate can be made of the amount of the obligation. Pro- value through profit or loss, financial assets at fair value through legal right to off-set or otherwise eliminate an amount due to a visions are recognized at the present value of the expenditure required 2.17 GOVERNMENT GRANTS Government grants are presented in other operating income as far other comprehensive income or financial assets at amortised cost. debtor fully or in part. to fulfil the obligation. If the obligation can be partially compensated as they do not relate to acquired assets. Grants are recognized when Classification is based on the purpose of the acquisition of the item The classification of the Group’s liabilities is presented in note 25 by a third party, the compensation is treated as a separate asset, but there is reasonable assurance that grants will be received and Group and is made upon initial recognition. Financial liabilities. Financial assets at fair value through profit or loss are initially measured at fair value. Fair value is determined based on their cur- rent quotation in active markets. Realized or unrealized gains and 2.12 INVENTORIES Inventories are measured at the lower of cost and net realizable only when it is virtually certain that the compensation will be received. will comply with the conditions associated with the grants. A provision is recognized for contracts when the unavoidable costs of meeting the obligations under the contract exceed the eco- nomic benefits expected to be received under it. 2.18 OPERATING PROFIT IAS 1 (Presentation of Financial Statements) standard does not define losses arising from changes in fair values are recognized in profit or value. The cost of inventories is determined by using FIFO (first in, A contingent liability is a possible obligation arising as a result of operating profit. The Group has defined it as follows: Operating profit loss in the period in which they are incurred. first out) method. Net realizable value is the cost of goods less ob- past events, and whose existence will be confirmed only when an is calculated by adding other operating income to revenue, deducting Financial assets at fair value through other comprehensive in- solescence allowance. uncertain future event takes place, not wholly within control of the costs related to materials and services, deducting costs related to come are initially measured at fair value. Fair value is determined entity. Also, a present obligation which probably does not require a employee benefits, depreciation, amortisation and impairments as cash settlement or on which the value cannot be reliably estimated well as other operating expenses. 72 73 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 2.19 EARNINGS PER SHARE Basic earnings per share is calculated by dividing profit or loss attrib- has been consolidated to Group’s financial statements from the ac- The tangible assets acquired in the business combination described IDENTIFIABLE ASSETS ACQUIRED AND LIABILITIES ASSUMED quisition month onwards. above were measured at fair value. utable to the shareholders of the parent company by the weighted On 30 August 2019 Terveystalo Healthcare Oy acquired 100 percent average number of shares outstanding during the financial period. of the shares of TyöSyke Oy. The acquired subsidiary has been consolidat- The company has equity instruments or arrangements that would ed to Group’s financial statements from the acquisition month onwards. In these business combinations, the Group has acquired customer EUR mill. relationships and other intangible assets. The fair value of customer Cash and cash equivalents contracts and related customer relationships included in other in- Intangible assets have dilution effect related to calculation of earnings per share. On 30 August 2019 Suomen Terveystalo Oy acquired the business tangible assets has been determined on the basis of the estimated Property, plant and equipment 2.20 INCOME TAXES Income taxes primarily include current and deferred taxes. Tax related from Hammaslääkäri Osmo Karinen Trade name as an asset deal. duration of customer relationships and the discounted net cash flows Investments in associates On 30 September 2019 Terveystalo Healthcare Oy acquired 100 from existing customer contracts. The fair values of customer con- Deferred tax receivables percent of the shares of Hardent Oy. The acquired subsidiary has tracts and other intangible assets have not been completed. Investments to items recognized directly in equity or in other comprehensive income been consolidated to Group’s financial statements from the acquisi- As a result of these business combinations, a preliminary goodwill Inventories is also recognized in equity or in other comprehensive income. Current tion month onwards. The acquisition includes a contingent consider- tax assets and liabilities are measured at the amount expected to be ation that was treated as part of the consideration transferred and received from or paid to taxation authorities, using the rates and laws recognized as a liability at the date of acquisition with a fair value amounting to EUR 10.2 million was recognized. The goodwill is attributa- Trade and other receivables ble to skills of the workforce and synergies expected to be achieved. The Trade and other payables recognized goodwill is tax deductible as far as it is related to asset deals. Provisions that have been enacted by the date of the statement of financial position. EUR 0.4 million. The contingent consideration is tied to the sales dur- The fair value of the acquired trade and other receivables Income taxes include any adjustment to tax in respect of previous years. ing the next 36 months period, starting from the acquisition date. amounted to EUR 1.2 million, for which the risk of impairment has Deferred tax is recognized in respect of all temporary differences On 30 September 2019 Suomen Terveystalo Oy acquired the busi- been deemed non-significant. between the carrying amounts of assets and liabilities for financial re- ness from Forssan seudun hyvinvointikuntayhtymä as an asset deal. The Group has incurred acquisition related expenses of EUR 1.6 porting purposes and the amounts in taxation. Deferred tax is not rec- On 28 October 2019 Terveystalo acquired 100 percent of the shares million related to transfer tax caused by the transaction, and related ognized in the initial recognition of assets or liabilities in a transaction of Evalua International Ltd. The acquired subsidiary has been consoli- to consulting, valuation or equivalent services. The expenses have that is not a business combination and that affects neither accounting dated to Group’s financial statements from the acquisition month on- been included in other operating expenses. Deferred tax liabilities Interest bearing liabilities Total identifiable net assets acquired Goodwill 25.7 67.6 3.4 0.0 1.1 0.0 0.9 21.0 -28.6 -5.5 -13.3 -0.8 71.7 178.7 nor taxable profit nor loss at the date of the transaction. Deferred tax wards. The acquisition includes a contingent consideration that was The contributed recognized revenue from these acquisitions in The tangible assets acquired in the business combination described is not recognized for non-tax-deductible goodwill or for subsidiaries’ treated as part of the consideration transferred and recognized as a 2019 was EUR 6.7 million and the result was EUR 0.3 million. above were measured at fair value. In the business combination, the retained earnings to the extent that it is probable that the temporary liability at the date of acquisition with a fair value EUR 0.4 million. If the acquisition had occurred on 1 January 2019, management Group has acquired customer relationships. The fair value of custom- difference will not reverse in the foreseeable future. Deferred taxes re- On 31 of December Terveystalo acquired the occupational health estimates that the Group’s consolidated revenue in 2019 would have er contracts and related customer relationships included in other late primarily to tax losses carried forward and the difference between business from Municapality of Säkylä as an asset deal. been EUR 1,038.7 million and the consolidated result would have intangible assets has been determined on the basis of the duration the book value and tax base of capitalized customer relationships and The following table summarizes the acquisition date fair values been EUR 53.8 million. trademarks, and to provisions related primarily to loss making contracts. of the consideration transferred as well as the recognized amounts A deferred tax asset is recognized to the extent that it is probable of assets acquired and liabilities assumed at the date of acquisition. that future taxable profits will be available against which they can The statement of financial position of acquired companies has been YEAR 2018 During 2018, the Group has made several business acquisitions. of customer relationships and the discounted net cash flows from existing customer contracts. The acquisition resulted preliminary in a goodwill amounting to EUR 178.7 million. The goodwill is attributable to skills of the workforce and synergies expected to be achieved. The be used and using the losses is considered probable. prepared in accordance with IFRS and Terveystalo Group´s account- The biggest acquisition is presented separately, whereas the other recognized goodwill is not deductible for tax purposes. Deferred taxes are calculated using tax rates enacted by the ing principles in all material respect. The following table is partially smaller acquisitions are disclosed in aggregate. The fair value of the acquired trade and other receivables reporting date. preliminary and the information has been consolidated, because the acquisitions are not material individually. Acquisition of Attendo Terveyspalvelut Oy On 28 December 2018, Terveystalo Healthcare Oy acquired 100 per- amounts to EUR 21.0 million for which the risk of impairment has been deemed non-significant. The Group incurred acquisition-related expenses of EUR 6.2 mil- CONSIDERATION TRANSFERRED cent of the shares of Attendo Terveyspalvelut Oy. As a part of the lion related to transfer tax caused by the transaction, and related 3. BUSINESS COMBINATIONS During the year 2019, the Group has made six business acquisitions and acquired three businesses as asset deals. On 31 January 2019 Terveystalo Healthcare Oy acquired 100 per- EUR mill. Cash cent of the shares of Länsi-Vantaan Hammaslääkärit Oy. The acquired Contingent consideration subsidiary has been consolidated to Group’s financial statements from Total consideration transferred the acquisition month onwards. The acquisition includes a contingent consideration that was treated as part of the consideration transferred IDENTIFIABLE ASSETS ACQUIRED AND LIABILITIES ASSUMED and recognized as a liability at the date of acquisition with a fair value EUR 0.5 million. The contingent consideration is tied to the sales during the next 36 months period, starting from the acquisition date. EUR mill. Cash and cash equivalents On 29 March 2019 Terveystalo Healthcare Oy acquired 100 percent Intangible assets of the shares of Kajaanin OMT-Fysioterapia Oy. The acquired subsidiary Property, plant and equipment has been consolidated to Group’s financial statements from the acqui- Inventories sition month onwards. The acquisition includes a contingent consid- Trade and other receivables eration that was treated as part of the consideration transferred and Trade and other payables recognized as a liability at the date of acquisition with a fair value EUR Deferred tax liabilities 0.1 million. The contingent consideration is tied to the sales during the Total identifiable net assets acquired next 36 months period, starting from the acquisition date. On 28 June 2019 Terveystalo Healthcare Oy acquired 100 percent Goodwill of the shares of Etelä-Karjalan Työkunto Oy. The acquired subsidiary 74 14.0 1.4 15.4 1.6 4.8 0.3 0.1 1.2 -1.8 -0.9 5.2 10.2 acquisition the Group also gained control of the following companies, to consulting, valuation or equivalent services. The expenses have which are subsidiaries of the Attendo Terveyspalvelut Oy: Attendo been included in other operating expenses. Kuntaturva Oy, Attendo Ålands Tandläkarna Oy, Attendo Estonia OÜ, If the acquisition had occurred on 1 January 2018, management Attendo Hammaslääkärikeskukset Oy, Attendo Työterveyspalvelut Oy, estimates that the Group’s consolidated revenue in 2018 would have Attendo Hammaslääkäripalvelut Oy, Attendo Aaria Oy and Attendo been EUR 976.4 million and the consolidated profit would have been Hammaslääkäriasemat Oy. The acquisition improves Terveystalo’s com- EUR 72.4 million. petiveness and growth opportunities particularly within services offered to the public sector. The acquired subsidiaries have been consolidated to Group’s financial statements from the end of December 2018 onwards. Other business combinations On 31 January 2018, Suomen Terveystalo Oy acquired the business The following table summarizes the acquisition date fair values of the from Hammas Jaarli Oy as an asset deal. The acquisition includes a consideration transferred as well as the recognized amounts of assets contingent consideration. acquired and liabilities assumed at the date of acquisition. The state- On 28 February 2018, Terveystalo Healthcare Oy acquired 100 ment of financial position has been prepared in accordance with IFRS percent of the shares of Naantalin Yksityislääkärit Oy. The acquired and Terveystalo Group’s accounting principles in all material respect. subsidiary has been consolidated to the Group’s financial state- CONSIDERATION TRANSFERRED EUR mill. Cash Total consideration transferred ments from the acquisition month onwards. On 29 March 2018, Terveystalo Healthcare Oy acquired 100 percent of the shares of Juha Uusimäki Oy (Lääkärikeskus Ilo). The acquired subsidiary has been consolidated to the Group’s financial 250.5 250.5 statements from the acquisition month onwards. The acquisition in- cludes a contingent consideration that was treated as part of the 75 TERVEYSTALO PLC ANNUAL REVIEW 2019 starting from the acquisition date. EUR 6.7 million was recognized. The goodwill is attributable to skills of Public without the impact of Attendo Finland Healthcare services - acquisition On 1 October 2018, Terveystalo Healthcare acquired 100 per- the workforce and synergies expected to be achieved. The recognized Total cent of the shares of Rela-Hierojat Oy, Hierojakoulu Relaxi Oy and goodwill is tax deductible as far as it is related to asset deals. Rela-Group Oy. The acquired subsidiaries have been consolidated The fair value of the acquired trade and other receivables CONTRACT BALANCES to the Group’s financial statements from the acquisition month on- amounted to EUR 0.9 million, for which the risk of impairment has wards. The acquisition includes a contingent consideration that was been deemed non-significant. EUR mill. treated as part of the consideration transferred and recognized as The Group has incurred acquisition related expenses of EUR 0.3 Receivables, which are included in trade and other receivables a liability at the date of acquisition with a fair value EUR 1.1 million. million related to transfer tax caused by the transaction, and related Contract liabilities YEAR 2019 CORPORATE GOVERNANCE FINANCIALS consideration transferred and recognized as a liability at the date of IDENTIFIABLE ASSETS ACQUIRED AND LIABILITIES ASSUMED acquisition with a fair value EUR 0.1 million. The contingent consider- ation is tied to the sales during the next 36 months period, starting from the acquisition date. EUR mill. Cash and cash equivalents On 28 September 2018, Suomen Terveystalo Oy acquired the Intangible assets business from Jämsän Fysikaalinen Hoitolaitos Oy as an asset deal. Property, plant and equipment On 28 September 2018, Terveystalo Healthcare Oy acquired 100 Trade and other receivables percent of the shares of Fysiatrinen osaamiskeskus Prima Oy. The Trade and other payables acquired subsidiary has been consolidated to the Group’s financial Deferred tax liabilities statements from the acquisition month onwards. The acquisition in- Total identifiable net assets acquired cludes a contingent consideration that was treated as part of the consideration transferred and recognized as a liability at the date Goodwill of acquisition with a fair value EUR 0.3 million. The contingent con- 1.9 0.4 0.2 0.9 -0.7 -0.1 2.7 6.7 sideration is tied to the sales during the next 36 months period, As a result of these business combinations, goodwill amounting to The contingent consideration is tied to the EBITDA during the next to consulting, valuation or equivalent services. The expenses have 36 months period, starting from the acquisition date. been included in other operating expenses. On 25 October 2018, Suomen Terveystalo Oy acquired the busi- The contributed recognized revenue from these acquisitions in ness from ONNI hammas dental clinic in Porvoo as an asset deal. 2018 was EUR 2.7 million and the result was EUR 0.2 million. On 31 October 2018, Terveystalo Healthcare Oy acquired 100 per- If the acquisition had occurred on 1 January 2018, management cent of the shares of Puistosairaalan Silmälääkärit Oy and Jyväskylän estimates that the Group’s consolidated revenue in 2018 would have Silmäntutkimuslaboratorio Oy. The acquired subsidiaries have been been EUR 752.6 million and the consolidated result would have been consolidated to the Group’s financial statements from the acquisi- EUR 70.0 million. tion month onwards. The acquisition includes a contingent consider- ation that was treated as part of the consideration transferred and recognized as a liability at the date of acquisition with a fair value EUR 0.2 million. The contingent consideration is tied to the sales dur- 4. DISAGGREGATION OF REVENUE The Group’s distribution of revenue is based on the customer types. ing the next 12 months period, starting from the acquisition date. The Group does not have customers whose revenue exceeds 10 On 14 December 2018, Terveystalo Healthcare Oy acquired 100 percent of the Group’s total revenue. Terveystalo offers its primary percent of the shares of Kuntoutumisasema OTE Oy. The acquired and outpatient secondary healthcare services to three distinct cus- subsidiary has been consolidated to the Group’s financial state- tomer groups: corporate customers, private customers and public ments from the acquisition month onwards. The acquisition includes customers. a contingent consideration. Corporate customers constitute Terveystalo’s largest customer The following table summarises the acquisition date fair values group. Terveystalo’s corporate customers consist of the company’s of the consideration transferred as well as the recognized amounts occupational health care customers, excluding municipal occupa- of assets acquired and liabilities assumed at the date of acquisi- tional healthcare customers. The company provides statutory occu- tion. The statement of financial position of acquired companies has pational health services and other occupational health and well-be- been prepared in accordance with IFRS and Terveystalo Group´s ac- ing services for corporate customers of all sizes. Terveystalo is the counting principles in all material respect. The net assets relating to largest provider of occupational health care services in Finland in asset deals have been adjusted to correspond Terveystalo Group’s terms of revenue and the number of end-users. Terveystalo pro- accounting principles in all material respect. vides occupational healthcare services for over 24,000 companies. CONSIDERATION TRANSFERRED EUR mill. Cash Contingent consideration Total consideration transferred 76 Private customers are Terveystalo’s second-largest custom- er group. Private customers include private individuals and fami- lies. The company’s strong brand, easy access to services without long waiting times, leading service portfolio for private customers, families, and senior citizens, and personalized digital services give Terveystalo a competitive edge over public healthcare services and encourage customers to invest in their own health. Services for pri- 7.7 1.7 9.4 vate customers are paid for either by the customers themselves or ing, good reputation, and established brand, as well as its thorough by their insurance companies. expertise and experience in health care services throughout the Terveystalo’s public customer group is made up of Finnish public chain of care, make Terveystalo an attractive partner for the public sector organizations, such as municipalities, municipal federations, sector. Terveystalo’s services for public sector customers are mainly and hospital districts, as well as municipal occupational healthcare financed by municipalities and government budgets. customers. Terveystalo’s broad nationwide platform, digital offer- DISSAGREGATION OF REVENUE EUR mill. Corporate Private Public 5. OTHER OPERATING INCOME EUR mill. Rental income Gains on sale of property, plant and equipment Gains on disposal of subsidiaries Other items Total 6. MATERIALS AND SERVICES EUR mill. Purchases of materials Change in inventories External services Total 7. EMPLOYEE BENEFIT EXPENSES EUR mill. Wages and salaries Share-based compensation Pension expenses - defined contribution plans Other social security costs Total 1.1.–31.12.2019 1.1.–31.12.2018 432.5 303.1 295.1 91.0 1,030.7 402.7 260.7 81.2 81.2 744.7 1.1.–31.12.2019 1.1.–31.12.2018 90.1 1.5 80.5 1.8 1.1.–31.12.2019 1.1.–31.12.2018 1.2 0.3 -0.5 1.1 2.1 0.5 1.5 14.6 1.6 18.2 1.1.–31.12.2019 1.1.–31.12.2018 -32.0 -0.3 -440.6 -472.9 -28.4 -0.2 -322.7 -351.3 1.1.–31.12.2019 1.1.–31.12.2018 -261.2 -0.7 -44.1 -8.4 -314.3 -163.2 -0.2 -27.9 -5.9 -197.1 Number of personnel at the end of the reporting period 8,685 6,018 77 TERVEYSTALO PLC ANNUAL REVIEW 2019 1.1.–31.12.2019 1.1.–31.12.2018 EUR 000 1.1.–31.12.2019 1.1.–31.12.2018 AUDITOR’S FEES YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 8. DEPRECIATION, AMORTISATION AND IMPAIRMENT EUR mill. Depreciation and amortisation by asset type Intangible assets Trademarks Customer relationships Other intangible assets Total Property, plant and equipment Buildings Right-of-use assets Machinery and equipment Improvement to premises Other tangible assets Total Investment property Depreciation and amortisation total Impairment losses by asset groups Other intangible assets Land and water Buildings Other property, plant and equipment Improvement to premises Impairment total Total depreciation, amortisation and impairment losses 9. OTHER OPERATING EXPENSES SPECIFICATION OF OTHER OPERATING EXPENSES EUR mill. External services Operating and maintenance expenses for premises and equipment ICT expenses Non statutory personnel expenses Leases* Travel expenses Marketing and communication Acquisition related expenses Other costs Total * The presented number is not comparable, because the rent expenses have decreased by 39.9 million euro during 1–12/2019 due to implementation of IFRS 16. 78 -4.1 -17.4 -6.6 -28.1 -2.3 -38.3 -15.1 -4.8 -0.8 -61.2 -0.0 -89.4 -0.3 - - -0.0 -0.0 -0.4 -89.8 -4.1 -10.8 -5.0 -19.9 -2.5 - -13.4 -4.7 -0.6 -21.1 -0.0 -41.0 - -0.0 -0.1 -0.0 - -0.1 -41.1 1.1.–31.12.2019 1.1.–31.12.2018 -2.5 -16.5 -22.8 -4.8 -3.7 -4.9 -7.2 -0.4 -11.5 -74.4 -3.8 -14.9 -16.2 -3.9 -34.3 -3.5 -7.1 -6.5 -7.7 -97.9 Audit and auditor's statements based on laws and regulations Audit, KPMG Auditor's statements based on laws and regulations, KPMG Total Non audit services Assurance services, KPMG Tax services, KPMG Other services, KPMG Total Auditor's fees total 10. FINANCIAL INCOME AND EXPENSES EUR mill. Interest income on loans and other receivables Dividend income Total financial income Interest expense on loans from financial institutions Interest expense on finance lease agreements Interest expenses on lease liabilities Change in fair value of interest rate derivatives, no hedge accounting Other financial expenses Total financial expenses Total financial income and expenses -147.2 -38.4 -185.6 -5.5 -4.4 -16.0 -25.9 -211.5 -159.4 -17.7 -177.1 -1.6 -32.8 -213.9 -248.3 -425.4 1.1.–31.12.2019 1.1.–31.12.2018 0.3 0.0 0.3 -7.9 -1.0 -3.5 -0.5 -1.7 -14.7 -14.4 0.3 0.0 0.3 -6.5 -1.2 - -0.9 -0.9 -9.5 -9.2 Financial income and expenses do not include any significant foreign exchange gains or losses and there are no other foreign currency items in the consolidated statement of income. 11. TAXES 11.1 INCOME TAXES INCOME TAXES IN THE STATEMENT OF INCOME EUR mill. Current tax for the reporting year Income taxes for prior periods Deferred taxes Total income taxes Deferred taxes have been calculated using the enacted tax rate of 20%. 1.1.–31.12.2019 1.1.–31.12.2018 -15.6 0.0 2.8 -12.7 -0.1 -0.0 0.7 0.5 79 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS RECONCILIATION OF THE GROUP’S TAX RATE TO THE FINNISH TAX RATE EUR mill. Profit or loss before taxes Tax using the parent company's tax rate Tax rates in foreign jurisdictions Tax exempt income Non-deductible expenses Share of profit in associated companies Utilisation of deferred tax assets relating to tax losses carried forward, recognized after concluded tax audit Recognition of previously unrecognized tax losses Unbooked deferred tax receivables of tax losses Taxes from previous periods Other Total tax in the statement of income 11.2 DEFERRED TAX ASSETS AND LIABILITIES 1.1.–31.12.2019 1.1.–31.12.2018 66.8 -13.4 0.0 0.1 -0.1 0.0 - 0.3 -0.2 0.0 0.6 -12.7 68.2 -13.6 0.1 1.9 -0.0 0.4 11.9 - - -0.0 -0.1 0.5 During the year 2019 DEFERRED TAX ASSETS EUR mill. Provisions Tax losses carried forward Finance leases Interest rate derivatives Other temporary differences Total DEFERRED TAX LIABILITIES EUR mill. Reversal of goodwill amortisation Business combinations Depreciation difference Loan withdrawal expense Other temporary differences Total 1 Jan 2019 Recognized in profit or loss Recognized in equity Business combinations 31 Dec 2019 1.6 2.3 0.5 0.2 1.2 5.8 -0.3 -2.3 0.5 0.1 0.1 -1.9 -0.1 - - - - -0.1 - - - - - - 1.2 - 1.0 0.3 1.3 3.7 1 Jan 2019 Recognized in profit or loss Recognized in equity Business combinations 31 Dec 2019 2.3 31.1 0.2 0.3 0.2 34.1 0.2 -4.9 0.0 0.0 0.0 -4.8 - - - - - - - 0.9 - - - 0.9 2.6 27.1 0.2 0.2 0.2 30.3 Deferred tax assets are recognized from unused tax losses to the extent that is probable that future taxable profits will be available against which the losses can be used. Unused tax losses amount to EUR 11.4 million in the beginning of financial year 2019. Unused tax losses have been used during financial year 2019. During the year 2018 DEFERRED TAX ASSETS EUR mill. Provisions Tax losses carried forward Finance leases Interest rate derivatives Other temporary differences Total DEFERRED TAX LIABILITIES EUR mill. Reversal of goodwill amortisation Business combinations Depreciation difference Loan withdrawal expense Other temporary differences Total 1 Jan 2018 Recognized in profit or loss Business combinations 31 Dec 2018 0.9 4.8 0.5 - 1.2 7.4 -0.3 -2.5 -0.0 0.2 -0.0 -2.7 1.1 - - - 0.0 1.1 1.6 2.3 0.5 0.2 1.2 5.8 1 Jan 2018 Recognized in profit or loss Business combinations 31 Dec 2018 2.2 21.1 0.3 0.3 0.2 24.1 0.2 -3.4 -0.1 -0.1 0.0 -3.4 - 13.4 - - - 13.4 2.3 31.1 0.2 0.3 0.2 34.1 Deferred tax assets were recognized from unused tax losses to the extent that is probable that future taxable profits will be available against which the losses can be used. Unused tax losses amount to EUR 11.4 (89.0) million, of which deferred tax assets has been fully recognized in consequence of concluded tax audit. In the financial year 2017 deferred tax asset has not been recognized for a portion of EUR 65.1 million. EUR 3.1 million tax losses expire at the end of the financial year 2021, EUR 0.9 million tax losses expire at the end of the financial year 2022, EUR 2.3 million tax losses expire at the end of the financial year 2023, EUR 0.1 million tax losses expire at the end of the financial year 2024, EUR 2.4 million tax losses expire at the end of the financial year 2025, EUR 2.4 million tax losses expire at the end of the financial year 2026 and EUR 0.2 million tax losses expire at the end of the financial year 2027. The Group’s tax burden could increase as a result of changes to tax laws or their application or as a result of the future tax audits, and the Group companies may not be able to utilize their tax losses carryforwards. 12. EARNINGS PER SHARE Result attributable to the equity holders of the company, EUR mill. Weighted average number of shares, in thousands Diluted average number of shares, in thousands Basic earnings per share for result attributable to the equity holders of the company, EUR Diluted earnings per share for result attributable to the equity holders of the company, EUR 1.1.–31.12.2019 1.1.–31.12.2018 54.2 127,307 127,307 0.43 0.43 68.7 127,769 127,769 0.54 0.54 80 81 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 13. PROPERTY, PLANT AND EQUIPMENT AND RIGHT-OF-USE ASSETS 13.2 FINANCE LEASES AND RIGHT-OF-USE ASSETS 13.1 CARRYING AMOUNTS OF PROPERTY, PLANT AND EQUIPMENT AND RIGHT-OF-USE ASSETS Property, plant and equipment include assets leased under finance leases as follows: 2019 EUR mill. Land and water Buildings and constructions Machinery and equipment Improvement to premises Other tangible assets and advances paid Acquisition cost 1 Jan 2019 IFRS 16 implementation Business combination Additions IFRS 16 transactions Disposals Acquisition cost 31 Dec 2019 Accumulated depreciation and impairment losses 1 Jan 2019 Depreciation for the reporting period IFRS 16 depreciation Impairment losses Accumulated depreciation and impairment losses 31 Dec 2019 Carrying amount 1 Jan 2019 Carrying amount 31 Dec 2019 0.1 - - - - - 0.1 0.0 - - - 0.0 0.0 0.0 33.2 199.8 - 0.1 14.9 - 248.0 -15.2 -2.4 -38.3 - -55.9 18.0 192.1 100.8 38.0 - 0.3 18.8 - -1.5 - - 6.1 - - 118.4 44.1 -61.3 -15.1 - - -13.9 -4.8 - -0.3 -76.4 -19.0 39.5 42.0 24.1 25.1 3.7 - - 2.0 - - 5.8 -1.6 -0.8 - -0.0 -2.4 2.1 3.3 2018 EUR mill. Land and water Buildings and constructions Machinery and equipment Improvement to premises Other tangible assets and advances paid Acquisition cost 1 Jan 2018 Business combination Additions Disposals Reclassifications Acquisition cost 31 Dec 2018 Accumulated depreciation and impairment losses 1 Jan 2018 Depreciation for the reporting period Impairment losses Accumulated depreciation and impairment losses 31 Dec 2018 Carrying amount 1 Jan 2018 Carrying amount 31 Dec 2018 1.9 - - -1.9 - 0.1 - - -0.0 - 1.9 0.0 39.8 0.1 1.1 -7.8 - 33.2 -12.6 -2.5 -0.1 -15.2 27.1 18.0 83.5 3.1 14.7 -0.7 0.3 100.8 -48.0 -13.4 - -61.3 35.5 39.5 33.4 0.6 3.0 -0.1 1.1 38.0 -9.2 -4.7 - -13.9 24.2 24.1 4.4 0.0 0.7 - -1.4 3.7 -1.1 -0.6 -0.0 -1.6 3.3 2.1 Total 175.8 199.8 0.3 27.1 14.9 -1.5 416.2 -92.1 -23.0 -38.3 -0.3 -153.8 83.6 262.6 Total 163.0 3.8 19.5 -10.5 - 175.8 -70.9 -21.1 -0.1 92.1 92.1 83.6 EUR mill. Acquisition cost 1 Jan 2019 IFRS 16 implementation Business combination Additions IFRS 16 transactions Disposals Reclassifications Acquisition cost 31 Jan 2019 Accumulated depreciation and impairment losses 1 Jan 2019 Depreciation IFRS 16 depreciation Accumulated depreciation and impairment losses 31 Dec 2019 Carrying amount 1 Jan 2019 Carrying amount 31 Dec 2019 Buildings and constructions Machinery and equipment Other tangible assets 29.9 199.8 - - 14.9 - - 244.6 -12.9 -2.2 -38.3 -53.5 17.0 191.2 18.3 - - 0.3 - -0.2 - 18.4 -16.7 -1.0 - -17.7 1.6 0.7 2.8 - - 1.0 - - - 3.8 -1.6 -0.8 - -2.4 1.2 1.4 Total 51.0 199.8 - 1.3 14.9 -0.2 - 266.8 -31.3 -4.0 -38.3 -73.6 19.7 193.2 The group has lease agreements with several counterparties, concerning mainly premise contracts and previously IAS 17 recognized contracts. Finance leases (IAS 17) EUR mill. Acquisition cost 1 Jan 2018 Business combination Additions Reclassifications Acquisition cost 31 Dec 2018 Accumulated depreciation and impairment losses 1 Jan 2018 Depreciation Accumulated depreciation and impairment losses 31 Dec 2018 Carrying amount 1 Jan 2018 Carrying amount 31 Dec 2018 Buildings and constructions Machinery and equipment Other tangible assets 28.7 0.1 1.1 - 29.9 -10.6 -2.3 -12.9 18.1 17.0 17.8 0.5 0.1 -0.1 18.3 -15.6 -1.1 -16.7 2.2 1.6 2.1 - 0.7 - 2.8 -1.0 -0.6 -1.6 1.1 1.2 Total 48.6 0.6 1.9 -0.1 51.0 -27.3 -4.0 -31.3 21.3 19.7 The Group has finance lease agreements with several counterparties. Rental payments are mainly based on the interest rate level at the inception of the lease. Some of the finance lease agreements include purchase options. The lease agreements do not include restrictions on dividends, additional indebtedness or entering new lease agreements. 82 83 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 14. INTANGIBLE ASSETS 14.1 CARRYING AMOUNTS OF INTANGIBLE ASSETS 2019 EUR mill. Acquisition cost 1 Jan 2019 Business combination Additions Disposals Goodwill 836.7 10.6 - - Customer relationships 149.5 4.2 - - Trademarks 82.9 - - - Acquisition cost 31 Dec 2019 847.2 153.7 82.9 Accumulated amortisations and impairment losses 1 Jan 2019 Amortisation for the reporting period Impairment losses Accumulated amortisations and impairment losses 31 Dec 2019 Carrying amount 1 Jan 2019 Carrying amount 31 Dec 2019 2018 EUR mill. Acquisition cost 1 Jan 2018 Business combination Additions Reclassifications Acquisition cost 31 Dec 2018 Accumulated amortisations and impairment losses 1 Jan 2018 Amortisation for the reporting period Accumulated amortisations and impairment losses 31 Dec 2018 Carrying amount 1 Jan 2018 Carrying amount 31 Dec 2018 -68.0 - - -68.0 768.7 779.2 -62.1 -17.4 - -79.5 87.4 74.2 Goodwill Customer relationships 651.3 185.4 - - 836.7 -68.0 - -68.0 583.3 768.7 83.8 65.7 - - 149.5 -51.3 -10.8 -62.1 32.5 87.4 -21.0 -4.1 - -25.1 61.9 57.8 Trademarks 82.9 - - - 82.9 -16.9 -4.1 -21.0 66.0 61.9 Other intangible assets and advances paid 42.7 0.6 17.7 - 61.0 -24.4 -6.5 -0.3 -31.1 18.4 29.9 Other intangible assets and advances paid 30.0 2.3 10.3 -0.0 42.7 -19.3 -5.0 -24.4 10.7 18.4 Total 1,111.7 15.4 17.7 - 1,144.8 -175.4 -28.0 -0.3 -203.7 936.4 941.2 Total 848.0 253.4 10.3 -0.0 1,111.7 -155.5 -19.9 -175.4 692.5 936.4 84 14.2 DEVELOPMENT COSTS Other intangible assets include development costs as follows: EUR mill. Acquisition cost 1 Jan 2019 Additions Disposals Acquisition cost 31 Dec 2019 Accumulated amortisations and impairment losses 1 Jan 2019 Amortisation Accumulated amortisations and impairment losses 31 Dec 2019 Carrying amount 1 Jan 2019 Carrying amount 31 Dec 2019 EUR mill. Acquisition cost 1 Jan 2018 Additions Disposals Acquisition cost 31 Dec 2018 Accumulated amortisations and impairment losses 1 Jan 2018 Amortisation Accumulated amortisations and impairment losses 31 Dec 2018 Carrying amount 1 Jan 2018 Carrying amount 31 Dec 2018 2.6 1.0 - 3.5 -1.3 -0.6 -1.9 1.3 1.7 1.4 1.2 - 2.6 -1.1 -0.2 -1.3 0.3 1.3 15. IMPAIRMENT TESTING OF CASH-GENERATING UNITS INCLUDING GOODWILL Goodwill is not amortised but it is tested for impairment at least annually. Goodwill arising from business combinations has been allocated to cash-generating units as shown in the table below. Geographical areas consist of units with their own budgets and performance measurement, but they use shared resources and are centrally managed. EUR mill. Regional units Capital region Central units 31 Dec 2019 Goodwill 368.4 229.2 181.8 % EUR mill. 47.3% Attendo 29.4% Helsinki Centre 23.3% Eastern Finland Total 779.5 100.0% Total Central Finland Western Finland Northern Finland Capital region and Uusimaa 31 Dec 2018 Goodwill 178.7 97.5 76.2 97.2 122.6 69.2 127.3 768.7 % 23.3% 12.7% 9.9% 12.6% 15.9% 9.0% 16.6% 100.0% 85 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS In financial year 2019 there were three cash generating units, in comparison to six in financial year 2018. Along with the new divi- Discount rate (Pre-tax WACC) Change 17. ASSOCIATED COMPANIES ing the acquisition of company shares. For this arrangement, EAM established EAM TTALO Holding Oy (a holding company) to purchase sion of cash generating units, goodwill was reallocated to new cash Regional Units Increase over 4.3 percentage points Terveystalo has the following associated companies which are all Terveystalo’s shares financed by Terveystalo, in accordance with generating units based on geographical location and actual sales. Capital Regions Increase over 9.5 percentage points consolidated using the equity method: the agreement. The shares are used as part of Terveystalo’s share- The recoverable amounts of the cash-generating units are based Central Unit Increase over 12.3 percentage points on value-in-use calculations which have been calculated using dis- counted cash flow projections. The key assumptions used in the Profitability growth rate calculations are discount rate, profitability growth rate and long- term growth rate. The projections are based on the budgets and estimates for the years 2020–2024 including the long-term growth Regional Units Capital Regions Central Unit which have been approved by the management. THE ASSUMPTIONS USED IN IMPAIRMENT CALCULATIONS ARE: The length of impairment testing period Profitability growth rate during testing period Long-term growth rate Discount rate (Pre-tax WACC) Discount rate (Post-tax WACC) 5 years 8.30% 2.00% 7.45% 6.63% In the 2019 impairment testing, the assumption for the profitability growth is 8.3 percent (2018: 10.18 percent). This assumption is based on organic growth under normal market situation, general develop- ment in health care services market and long-term estimates by the Decrease over 5.7 percentage points Decrease over 9.7 percentage points Decrease over 9.5 percentage points Decrease over 4.8 percentage points Decrease over 13.1 percentage points Decrease over 18.8 percentage points Long term growth Regional Units Capital Regions Central Unit When assessing the recoverable amounts of cash generating units, manage- ment believes that no reasonably possible change in any of the key variables used would lead to a situation where the recoverable amount of the units would fall below their carrying amount. 16. INVESTMENT PROPERTIES Associated companies Domicile Ownership Voting rights Medix Laboratoriot Oy Etsimo Healthcare Oy Olo-apteekki Oy Finland Finland Finland 25.0% 21.7% 20.0% 25.0% 21.7% 20.0% based incentive system, in accordance with the terms of the system. During the review period, EAM TTALO Holding Oy acquired 730,000 Terveystalo’s shares worth EUR 6.7 million. SUMMARISED FINANCIAL INFORMATION ON ASSOCIATED COMPANIES EUR mill. Carrying amount Group’s share of total comprehensive income 2019 2.3 -0.2 Program Grant date Outstanding shares at the end of the reporting period, pcs 2018 Fair value at grant date Validity Estimated vesting period 2.4 1.9 Vesting conditions Exercised 2019 27 March 2019 712,000 7.92 12/31/2019 3 years Total Shareholder Return (TSR) and profitability In shares and cash 18. SHARE-BASED PAYMENTS Terveystalo has a share-based incentive plan directed to the Group’s Personnel offering As part of the initial public offering of Terveystalo Plc, personnel were key employees. The aim of the plan is to align the objectives of the offered an opportunity to subscribe the company’s shares with a 10 Group’s management. CARRYING AMOUNT OF INVESTMENT PROPERTIES shareholders and the key employees in order to increase the value percent lower price than the subscription price in the institutional The subsequent cash flows are estimated by extrapolating the cash flow estimates using a 2.0 percent (2018: 2.0 percent) growth factor which is in line with the target inflation of the European Central Bank. The discount rate used in impairment testing has been Pre-tax WACC of which the components are risk-free interest rate, risk pre- miums, industry-specific beta, loan cost, and industry specific equity / debt ratios. The discount rate in the 2019 calculations has been 7.45 percent (2018: 8.01 percent). EUR mill. 1.1.–31.12.2019 1.1.–31.12.2018 Carrying amount at the beginning of the period Disposals Depreciation Carrying amount at the end of the period 0.6 - -0.0 0.6 0.6 - -0.0 0.6 of the Company in the long term, to retain the key employees at the and the public offering. Terveystalo’s Board of Directors accepted Company, and to offer them a competitive reward plan that is based the commitments given in full and issued 355,656 new shares to on earning and accumulating shares of the Company. permanent employees of the Company or its wholly owned subsid- The Performance Share Plan includes three performance peri- iaries in Finland during the subscription period and the members of ods, calendar years 2018, 2019 and 2020. Each plan consists of a the Board of Directors of Terveystalo. one-year performance period and a two-year holding period, fol- The subscription price at the personnel offering was 8.79 euros. lowing the performance period. The Board of Directors will resolve The subscription price paid by the subscribers has been booked into on the performance criteria and on the required performance levels the invested non-restricted equity fund and the discount granted to for each criterion at the beginning of each performance period. the subscribers has been expensed to the 180 days lock-up period Based on the impairment testing, there is no need for recogni- INCOME AND EXPENSES RELATED TO INVESTMENT PROPERTIES During the performance period 2019, the share-based incentive determined in the offering terms according to IFRS 2. In 2019, EUR EUR mill. 1.1.–31.12.2019 1.1.–31.12.2018 based on the Company achieving the required operational targets (2018: EUR 187,800). scheme offered the key employees the possibility to earn rewards 707,300 were booked in personnel expenses and retained earnings tion of impairment losses. All cash generating units’ value in use was higher than their carrying amount. Sensitivity analysis The Group has assessed the sensitivity of the impairment testing to the effect of the most critical assumptions used in the calculation. Total The Group has tested the sensitivity of the calculation with respect Rental income from investment properties Operating expenses for investment properties 0.1 -0.0 0.1 0.1 -0.0 0.1 and Total Shareholder Return (TSR) levels. Any rewards payable from the performance share plan will be paid partly in Terveystalo Plc shares and partly in cash approximate- ly two years after the performance periods. The cash proportion is intended to cover taxes and tax-related costs arising from the to the discount rate, profitability growth rate and long-term growth Income and expenses relating to investment properties are present- rewards to the plan participants. As a rule, no reward will be paid if a rate. The table below shows the required change in the assumption ed based on the Group’s ownership in the investment properties. plan participant terminates his or her employment or service before that the recoverable amount would fall below the carrying amount. There are no other contractual obligations related to investment the reward payment. No LTI rewards were paid in 2019. properties. FAIR VALUES OF INVESTMENT PROPERTIES Investment Value per m2 (In thousands of euro) Total value (In thousands of euro) m2 Koy Jyväskylän Väinönkatu 30 1,348 0.4–0.5 556–679 The 2019 performance period, the Company’s operational targets and the performance criteria set for the Total Shareholder Return (TSR) were met for 90% of the maximum. Accordingly, the rewards to be subsequently paid in spring 2022 correspond to approximately 600,000 Terveystalo Plc shares, including allocated shares as well as the cash component. In its 2018 meeting, the Board made a decision concerning the acquisition and management of Terveystalo Plc’s shares with Evli The value of Kiinteistö Oy Jyväskylän Väinönkatu has been deter- Awards Management Oy, in accordance with the section of the mined based on the Group’s share of ownership (16.81 %). Limited Liability Companies Act concerning incentives and financ- 86 87 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 19. FINANCIAL ASSETS AND LIABILITIES – CARRYING AMOUNT AND FAIR VALUE AND FAIR VALUE HIERARCHY Reconciliation of financial assets and financial liabilities recognized at fair value on level 3 ACCRUED ADDITIONAL PURCHASE PRICE LIABILITIES Financial assets and liabilities at fair value Note Financial assets and liabilities at amortised cost Carrying amount Fair value Fair value hierarchy 22 22 23 25 25 25 25 25 25 25 26 25 26 0.3 - - 0.3 - - - - - - - - - - 1.4 1.4 - 0.3 0.3 Level 2 90.1 40.6 130.7 331.6 12.5 16.2 1.2 143.7 41.5 5.2 3.1 38.5 1.2 35.0 - 90.1 40.6 131.0 331.6 12.5 16.2 1.2 143.7 41.5 5.2 3.1 38.5 1.2 35.0 1.4 90.1 40.6 131.0 331.6 12.5 16.2 1.2 143.7 41.5 5.2 3.1 38.5 1.2 35.0 1.4 Level 2 Level 2 Level 2 Level 2 Level 2 Level 3 Level 2 Level 2 Level 2 Level 2 Level 2 Level 3 Level 2 Level 2 629.7 631.2 631.2 Financial assets and liabilities at fair value Note Financial assets and liabilities at amortised cost Carrying amount Fair value Fair value hierarchy 22 22 23 25 25 25 25 25 25 26 26 - - - - - - - - - - - - - 0.9 0.9 0.0 0.0 0.0 Level 2 80.5 36.9 117.4 372.8 9.2 18.3 1.1 41.5 4.4 3.9 33.2 0.9 - 80.5 36.9 117.4 372.8 9.2 18.3 1.1 41.5 4.4 3.9 33.2 0.9 0.9 80.5 36.9 117.4 372.8 9.2 18.3 1.1 41.5 4.4 3.9 33.2 0.9 0.9 Level 2 Level 2 Level 2 Level 2 Level 2 Level 3 Level 2 Level 2 Level 2 Level 2 Level 3 Level 2 485.3 486.2 486.2 EUR mill. 31 Dec 2019 Financial assets Non-current Loan receivables Current Trade receivables Cash and cash equivalents Total Financial liabilities Non-current Loans from financial institutions Hire purchase liabilities Finance lease liabilities Accrued additional purchase price liabilities Lease liabilities Current Loans from financial institutions Hire purchase liabilities Finance lease liabilities Trade payables Accrued additional purchase price liabilities Lease liabilities Interest rate derivatives Total EUR mill. 31 Dec 2018 Financial assets Non-current Other receivables Current Trade receivables Cash and cash equivalents Total Financial liabilities Non-current Loans from financial institutions Hire purchase liabilities Finance lease liabilities Accrued additional purchase price liabilities Current Loans from financial institutions Hire purchase liabilities Finance lease liabilities Trade payables Accrued additional purchase price liabilities Interest rate derivatives Total 88 EUR mill. Carrying amount 1 Jan Additions Disposals Through profit or loss Carrying amount 31 Dec 2019 2.0 1.4 -0.9 -0.1 2.4 2018 0.8 1.7 -0.1 -0.5 2.0 20. FINANCIAL RISKS whose invoicing is primarily carried out in connection with the ren- dering of services. 20.1 FINANCIAL RISK MANAGEMENT The Group is exposed to various financial risks in its normal busi- The Group has no major customer specific risk concentrations and its credit risk is diversified. Credit risk is managed by monitoring ness activities. The objective of the Group’s risk management is to the amount, maturity distribution and turnover of trade receivables. minimize the negative effects of changes in the financial markets on Credit risk is also monitored on a client by client basis. the Group’s result and valuation. The Group’s main financial risks are The Group’s maximum credit risk is equal to the carrying amount interest rate risk, credit risk and liquidity risk. The Group’s risk man- of financial assets at the reporting date. The maturity distribution agement principles are approved by the Board of Directors and the of the Group’s trade receivables is disclosed in note 21 Trade and Group’s financial department is responsible for the implementation other receivables. of the principles. The Group’s financial department identifies and as- sesses risks and acquires instruments needed to hedge against them. 20.2 INTEREST RATE RISK The Company’s interest rate risk arises from its loans from financial 20.4 LIQUIDITY RISK The Group aims to assess and monitor continuously the amount of funding required by business operations, in order to ensure sufficient liquidity to finance its operations, to repay maturing loans as well as to institutions issued at floating rate. In 2019, the Group’s average interest carry out investments and acquisitions of companies according to the rate for loans from financial institutions has been 1.5 percent (2018: growth strategy. The Group’s cash and cash equivalents comprise cash 2.1 percent). An increase of one percentage point in the average in bank accounts, cash in hand and cash payments not yet recorded interest rate would have increased the Group’s interest expenses by into the Group’s bank accounts (cash in transit) at the reporting date. EUR 2.5 million during the year 2019 (2018: EUR 1.9 million). The Group manages liquidity risk by monitoring unused liquidity The Group does not apply hedge accounting according to IFRS 9. reserves and forecasting future cash flows. The Group’s subsidiaries have the following open interest rate de- The Group has an overdraft facility in use, of which EUR 48.0 mil- rivative contracts at the reporting date: lion remained unused at the reporting date (2018: EUR 38.0 million). • Interest rate swap agreements based on which the Group nancial liabilities. The figures are undiscounted and they include pays fixed 0.19, 0.21, 0.49 and 0.51 percent interest rate and both interest payments and repayments of principals. The undis- receives variable interest on EUR 50.0, 25.0 and 30.0 million counted cash flows related to lease liabilities (2018 finance lease The table below presents a contractual maturity analysis of fi- loan capital. liabilities) differ from the amounts in the statement of financial po- sition because the amounts recognized in the statement of financial • Floor agreements, in which the interest rate floor has been set position are discounted to the end of the reporting period. Interest to 0.00 percent on EUR 50.0, 25.0 and 30.0 million loan capital. payments which are based on variable rates have been presented using variable rates as of the end of the reporting date. 20.3 CREDIT RISK The majority of the Group’s incoming cash flows are payments from established institutions, public sector and companies with appropriate credit rating. However, the Group’s trade receivables include credit risk. Credit risk is managed mainly by monitoring the customer’s credit rating on a regular basis and by co-operating with collection agencies. In addition, the Group’s customers include private people 89 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS MATURITY ANALYSIS OF LIQUIDITY RISK 31 Dec 2019 EUR mill. Carrying amount Contractual cash flows 1 year 1–2 years 2–5 years Over 5 years Loans from financial institutions Lease liabilities Finance lease liabilities Hire purchase liabilities Trade payables Interest rate derivatives Total 373.1 178.7 19.4 17.7 38.5 1.4 628.8 388.4 192.0 23.0 18.0 38.5 1.7 661.7 45.1 38.1 4.2 5.5 38.5 0.5 131.9 44.7 34.4 3.5 4.8 - 0.5 88.0 298.6 73.9 8.1 7.8 - 0.6 - 45.6 7.2 - - - 389.0 52.8 31 Dec 2018 EUR mill. Carrying amount Contractual cash flows 1 year 1–2 years 2–5 years Over 5 years Loans from financial institutions Finance lease liabilities Hire purchase liabilities Trade payables Interest rate derivatives Total 414.3 22.3 13.6 33.2 0.9 484.3 439.5 26.3 14.1 33.2 1.5 514.7 48.4 4.9 4.3 33.2 0.4 91.2 47.7 3.6 3.4 - 0.4 55.1 343.5 8.2 5.3 - 0.8 - 9.5 1.1 - - 357.7 10.6 20.5 CAPITAL MANAGEMENT The objective of the Group’s capital management is to support busi- 21. TRADE AND OTHER RECEIVABLES ness operations and to ensure competitive operating conditions with CARRYING AMOUNTS OF TRADE AND OTHER RECEIVABLES optimal capital structure, as well as to enable the implementation of the strategy. In addition to operative cash flows the capital structure is man- EUR mill. Non-current aged by share issues, by increase or repayment of financial liabili- Loan receivables ties, possible conversions between equity and financial liabilities, as Total non-current receivables well as through operative decisions on investments and growth and potential disposals of assets in order to reduce liabilities. Current The development of the Group’s capital structure is monitored, Trade receivables among others things with the following ratios: change in net debt, Other receivables ratio of net debt to operating margin, and ratio of operating cash flows to the financial expenses. Accrued income and deferred expenses The Group’s net debt to equity ratio (gearing) was 101.3 percent Total at the reporting date (2018: 80.8 percent). The ratio is calculated by dividing interest-bearing net debt with equity. The net debt includes 2019 2018 0.3 0.3 90.1 2.7 8.8 101.6 0.0 0.0 80.5 1.8 7.3 89.6 interest-bearing liabilities less interest-bearing receivables and cash SPECIFICATION OF ACCRUED INCOME AND DEFERRED EXPENSES and cash equivalents. The Group’s interest-bearing liabilities were EUR 588.8 million at the reporting date (2018: EUR 450.1 million). A significant part of the interest-bearing liabilities consists of loans from financial institutions. EUR mill. 2019 2018 Personnel related deferred expenses Current tax receivables Other accrued income and deferred expenses Total 0.1 3.7 5.0 8.8 0.3 0.5 6.4 7.3 During the reporting period the Group has recognized impairment Based on the Group’s view, the carrying amount of trade receiv- losses and provisions for impairment losses on trade receivables ables corresponds to the maximum credit risk if the contractual par- through profit or loss totaling EUR 0.9 million (2018: EUR 0.8 million). ties are unable to meet their obligations related to trade receivables. Impairment loss provision is based on simplified approach. Estimated The fair value of other receivables and accrued income corre- impairment loss rates have been calculated using historical infor- sponds with their carrying amount. mation of actual impairment losses and current conditions and the Group’s view of the economic conditions over the expected lives of the receivables have been taken into account. AGEING OF TRADE RECEIVABLES AND RECOGNIZED IMPAIRMENT LOSSES 2019 EUR mill. Not past due Past due Less than 30 days 31–90 days 91–180 days Over 180 days Total Trade receivables total Estimated share of impairment losses Recognized impairment losses Carrying amount 79.0 6.7 2.8 0.7 1.8 91.0 0.1% 0.5% 2.0% 10.0% 53.8% -0.1 0.0 -0.1 -0.1 -0.6 -0.9 79.3 6.7 2.8 0.6 0.8 90.1 Trade receivables are denominated in euros. Information about credit risk related to trade receivables is stated in note 20 Financial risks. AGEING OF TRADE RECEIVABLES AND RECOGNIZED IMPAIRMENT LOSSES 2018 EUR mill. Not past due Past due Less than 30 days 31–90 days 91–180 days Over 180 days Total Trade receivables total Estimated share of impair- ment losses Recognized impairment losses Carrying amount 69.1 8.6 2.0 0.6 1.0 81.3 0.1 % 0.5 % 2.0 % 10.0 % 53.8 % -0.1 -0,0 -0,0 -0.1 -0.5 -0.8 69.0 8.6 1.9 0.5 0.5 80.5 Trade receivables are denominated in euros. Information about credit risk related to trade receivables is stated in note 20 Financial risks. 22. CASH AND CASH EQUIVALENTS 23. NON-CURRENT ASSETS HELD FOR SALE The Group’s cash and cash equivalents at 31 December 2019, amount- EUR mill. 31 Dec 2019 31 Dec 2018 ing to EUR 40.6 million (2018: EUR 36.9 million) consist of cash in hand Unquoted equity investments 0.8 1.1 and bank as well as, cash payments on the bank settlement account at the reporting date. Non-current assets held for sale at 31 December 2019, amounting The carrying amounts in the statement of financial position cor- to EUR 0.8 million (2018: EUR 1.1 million), consists of shares in real respond to the maximum amount of credit risk if the contractual estate and housing companies and other shares. The Group expects parties are unable to meet their obligations. However, no significant that the carrying value would be recovered through sale rather than counterparty risks are associated with cash and cash equivalents. through continuing use. The fair value of cash and cash equivalents correspond to their car- rying amounts. 90 91 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 24. SHARE CAPITAL AND INVESTED NON-RESTRICTED EQUITY RESERVE EUR mill. 1 Jan 2018 Equity repayment Acquisition of treasury shares 31 Dec 2018 1 Jan 2019 Equity repayment 31 Dec 2019 Number of outstanding shares, 1,000 pcs Number of treasury shares, 1,000 pcs 128,037 - -730 127,307 127,307 - 127,307 - - 730 730 730 - 730 Number of shares total, 1,000 pcs 128,037 - - 128,037 128,037 - 128,037 Share capital Invested non-restricted equity reserve Treasury shares 0.1 - 0.1 0.1 - 0.1 525.9 -7.7 - 518.2 518.2 -25.5 492.8 - -6.7 -6.7 -6.7 - -6.7 Total 526.0 -7.7 -6.7 511.6 511.6 -25.5 486.1 EUR mill. Current Loans from financial institutions Hire purchase liabilities Finance lease liabilities Lease liabilities Total Financial liabilities total 2019 2018 41.5 5.2 3.1 35.0 84.8 41.5 4.4 3.9 - 49.8 588.8 450.1 The Group’s loan agreement includes covenant based on which creditors can demand an immediate repayment of the loans if a certain covenant limit is breached. The covenant relates to the ratio between EBITDA and net debt. The Group has met all covenant terms and conditions during the reporting period. GROSS AMOUNT OF LEASE LIABILITIES - MATURITY OF THE MINIMUM LEASE PAYMENTS Shares and share capital On 31 December 2019, the number of shares is 128,036,531 of which 2019 of EUR 41.1 million. The Board of Directors proposes to the Annual General Meeting in 2019 that the distributable funds are the number of outstanding shares is 127,306,531 and the number used as follows: of treasury shares is 730,000. The company has single share class. The shares have no nominal value. All shares issued have been paid • A dividend of EUR 0.13 (0.20) per share be distributed for 2019, in full. Each share has one vote at the Annual General Meeting and totaling EUR 16.6 (25.5) million and the rest of the profit is equal rights to dividend and other distribution of assets. recognized in equity. Terveystalo PLC’s share is listed on Nasdaq Helsinki Oy. The trad- ing code is TTALO. Terveystalo PLC’s shares belong to the book-entry • In addition, the Board of Directors be authorized to resolve in its EUR mill. Within one year Between one and five years Later Total Financial expenses to be accrued in the future Present value of finance lease liabilities system maintained by Euroclear Finland Oy. discretion on the payment of additional dividend. The amount The numbers presented are not comparable due to implementation of IFRS 16 Invested non restricted equity reserve Invested non-restricted equity reserve consists of other invest- dividend to be paid based on the authorization shall not exceed EUR 0.13 per share and EUR 16.6 million in aggregate. MATURITY OF THE PRESENT VALUE OF LEASE LIABILITIES ments similar to equity and the subscription price of shares to the The equity repayment proposed by the Board of Directors to the extent that it has not been recorded in share capital according to Annual General Meeting is not deducted from distributable equity specific resolution. According to the current Finnish Companies Act until approved by the Annual General Meeting of Shareholders. subscription price of new shares is recognized in the share capital, No material changes have taken place in the company’s financial unless it has not been according to Issuance Resolution fully or partly position since the end of the financial year. The liquidity of the com- recognised in invested non-restricted equity reserve. pany is good and the proposed allocation of funds, in the view of EUR mill. Within one year Between one and five years Later Total 2019 42.3 119.9 52.8 214.9 -16.9 198.1 2019 38.1 127.4 32.6 198.1 2018 4.9 11.6 9.5 26.1 -3.8 22.3 2018 3.9 9.7 8.7 22.3 Distributable funds On 31 December 2019, the distributable funds of the parent company totaled EUR 533.7 million including the profit of the financial period 25. FINANCIAL LIABILITIES FINANCIAL LIABILITIES MEASURED AT AMORTISED COST EUR mill. Non-current Loans from financial institutions Hire purchase liabilities Finance lease liabilities Lease liabilities Total 92 the Board of Directors, does not endanger the company’s solvency. The numbers presented are not comparable due to implementation of IFRS 16 LIABILITIES ARISING FROM FINANCING ACTIVITIES 2019 2018 331.6 12.5 16.2 143.7 504.0 372.8 9.2 18.3 - 400.4 EUR mill. Long-term Loans from financial institutions Hire purchase liabilities Finance lease liabilities Lease liablilities Total Short-term Loans from financial institutions Hire purchase liabilities Finance lease liabilities Lease liabilities Total 1 Jan 2019 Cash flows Changes Business combination Other Reclassifica- tions 31 Dec 2019 Non-cash changes 372.8 9.2 18.3 165.2 565.6 41.5 4.4 3.9 35.0 84.8 -31.4 -4.0 -2.9 -36.4 -74.8 -10.0 -0.9 -1.1 - -12.1 - 7.2 0.8 14.9 22.8 - 1.8 0.3 - 2.1 - - - - 0.2 -10.0 - - - - - - 0.0 0.2 -10.0 - - - - - - - - 10.0 - - - 0.0 0.0 10.0 331.6 12.5 16.2 143.7 504.0 41.5 5.2 3.1 35.0 84.8 93 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 26. TRADE AND OTHER PAYABLES CARRYING AMOUNTS OF TRADE AND OTHER PAYABLES EUR mill. Trade payables Other payables Advances received Interest rate derivatives Accrued expenses Total SPECIFICATION OF OTHER PAYABLES EUR mill. Doctor's fee liabilities VAT liabilities Other Total SPECIFICATION OF ACCRUED EXPENSES EUR mill. Personnel related accrued expenses Interest liabilities Other Total 27. PROVISIONS CARRYING AMOUNTS OF PROVISIONS EUR mill. Non-current provisions Current provisions Total EUR mill. Onerous contracts Other provisions Total 2019 38.5 66.2 1.5 1.4 57.7 165.4 2019 41.1 17.0 8.1 66.2 2019 55.1 0.4 2.2 57.7 2019 7.5 1.6 9.1 2019 5.0 4.1 9.1 CHANGES IN PROVISIONS DURING THE FINANCIAL YEAR 2019 EUR mill. 1 Jan 2019 Increase in provisions Used provisions 31 Dec 2019 94 Onerous contracts Other provisions 7.0 0.5 -2.5 5.0 4.4 0.8 -1.1 4.1 2018 33.2 58.5 1.8 0.9 52.5 146.9 2018 34.6 15.7 8.1 58.5 2018 45.6 1.1 5.9 52.5 2018 9.1 2.3 11.4 2018 7.0 4.4 11.4 Total 11.4 1.3 -3.6 9.1 CHANGES IN PROVISIONS DURING THE FINANCIAL YEAR 2018 EUR mill. 1 Jan 2018 Increase in provisions Used provisions 31 Dec 2018 Onerous contracts and other provisions The most significant provisions in the statement of financial position relate to loss-making agreements as well as to some asset retire- ment obligations related to leased premises. 28. COLLATERAL AND OTHER CONTINGENT LIABILITIES EUR mill. Business mortgages Total Securities for own debts Deposits Guarantees Total Other operating lease liabilities* Less than one year Between one year and five years Later Total 31 Dec 2019 31 Dec 2018 0.6 0.6 0.2 0.9 1.0 - - - - 0.5 0.5 0.1 0.8 0.9 37.4 107.5 56.7 201.7 *Due to the IFRS 16, other operating lease liabilities are recognized to the consolidated statement of financial position, instead of collateral and other contingent liabilities. 29. RELATED PARTY TRANSACTIONS GROUP’S RELATED PARTIES The Group’s related parties include the parent company as well as subsidiaries and associated companies. In addition, related parties include also the members of the Board of Directors, Group manage- ment and the CEO as well as their close family members and entities Onerous contracts Other provisions 3.9 5.2 -2.1 7.0 4.1 0.6 -0.3 4.4 COMPENSATION FOR THE KEY MANAGEMENT Remuneration for CEOs, in thousands of euro Fixed pay, Yrjö Närhinen Short term employee benefits, Yrjö Närhinen Short-term incentives, Yrjö Närhinen Other benefits, Yrjö Närhinen Pensions (statutory) Fixed pay, Ville Iho starting 6.12.2019 Pension (statutory) Total 2019 464.0 24.0 - 65.3 95.7 27.3 4.7 Total 8.0 5.8 -2.4 11.4 2018 445.3 19.9 384.4 - 151.4 - - 681.0 1,001.0 Renumeration for CEOs is presented performance-based concerning financial years 2019 and 2018. The CEO’s contract will expire automatically without prior written notice upon the CEO reaches the age of 60. Remuneration to members of the Executive team (excluding CEO), in thousands of euro Fixed pay Short term employee benefits Short-term incentives Share -based payments Pensions (statutory) Pensions (voluntary) Total 2019 1,724.1 82.0 693.9 179.8 432.3 8.5 2018 1,388.3 61.6 535.5 - 353.7 - 3,120.7 2,339.1 Renumeration to members of the Executive team is presented performance-based concerning financial years 2019 and 2018. BONUS SCHEME The Company operates a bonus scheme, which is determined by the in which they have control, joint control or significant influence. Board of Directors of the Company upon the recommendation of the The relationships of the parent company and the subsidiaries are Remuneration Committee. The CEO and the members of the Executive disclosed in note 30 Group companies. Team are eligible to participate in the bonus scheme in accordance RELATED PARTY TRANSACTIONS Transactions with related companies and Group’s receivables from and liabilities to related companies at the reporting date, in thousands of euro Sales Purchases Receivables Liabilities with the Company’s bonus policy. Annual bonuses are payable based on the attainment of key performance targets of the Company. The key performance targets of the CEO and the Executive Team are based on the Company’s adjusted EBITDA as well as the individual business and performance targets. The individual business and performance targets are set by the manager of the participant in the bonus scheme. The Board of Directors of Terveystalo Plc has resolved to establish a share-based incentive plan directed to the Group’s key employees. More information on the share-based incentive plan is presented in note 18 Share-based payments. 2019 64.6 - 2.9 - 2018 8.6 18.4 1.5 15.7 95 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 2019 2018 30.1 CHANGES IN THE GROUP STRUCTURE Remuneration to Board of Directors, in thousands of euro Annual fee Meeting fees Other financial benefits* Annual fee Meeting fees Other financial benefits* Kari Kauniskangas** (Chairman of the board) Dag Andersson** Paul Hartwall** Lasse Heinonen Olli Holmström Åse Aulie Michelet Katri Viippola Tomas von Rettig Members to Board of Directors until April 4, 2019 Fredrik Cappelen Eeva Ahdekivi Vesa Koskinen Total 80.0 39.0 39.0 49.0 39.0 39.0 39.0 49.0 - - - 14.4 16.2 10.8 12.0 12.6 22.8 16.2 12.6 4.8 1.8 - 373.0 124.2 0.5 0.2 0.2 0.3 0.2 0.2 0.2 0.3 - - - 2.4 - - - 49.0 39.0 39.0 39.0 49.0 80.0 39.0 - 334.0 - - - 9.6 13.8 18.6 7.2 7.8 12.6 10.2 - 79.8 - - - 0.3 0.2 0.2 0.2 0.3 0.5 0.2 - 2.1 Financial year 2019 The following mergers took place during the financial year 2019: Financial year 2018 The following mergers took place during the financial year 2018: • 28.2.2019 Fysiatrinen osaamiskeskus Prima Oy merged with • 28.2.2018 Liikekeskuksen Hammaslääkärit Oy merged with Suomen Terveystalo Oy. Suomen Terveystalo Oy. • 28.2.2019 Jyväskylän Silmätutkimuslaboratorio Oy merged • 31.3.2018 Bitewell Oy merged with Suomen Terveystalo Oy. with Suomen Terveystalo Oy. • 31.3.2018 Forssan Erikoishammaslääkärit Oy merged with • 28.2.2019 Puistosairaalan Silmälääkärit Oy merged with Suomen Terveystalo Oy. Suomen Terveystalo Oy. • 30.4.2018 Läkkitorin Hammaslääkäriasema Oy merged with • 30.4.2019 Attendo Aaria Oy merged with Attendo Ham- Suomen Terveystalo Oy. maslääkäripalvelut Oy. • 30.4.2018 Tampereen Hammaslääkäriasema Oy merged • 30.4.2019 Attendo Hammaslääkäriasemat merged with Oy with Suomen Terveystalo Oy. Attendo Hammaslääkäripalvelut Oy. • 30.4.2019 Attendo Hammaslääkärikeskukset Oy merged Terveystalo Oy. Suomen Terveystalo Oy. • 30.4.2019 Attendo Hammaslääkäripalvelut Oy merged with Suomen Terveystalo Oy. • 30.6.2018 Naantalin Yksityislääkärit Oy merged with • 31.5.2018 Kymppihammas Oy merged with Suomen Annual fee to the Board of Directors is paid partly in cash and partly in shares *Other financial benefits include transfer tax fees for the annual fees paid in shares **Member of the Board of Directors starting 2019. MANAGEMENT HOLDINGS Name Position Kari Kauniskangas Chairman of the Board of Directors Dag Andersson Member of the Board of Directors Paul Hartwall Member of the Board of Directors Lasse Heinonen Member of the Board of Directors Olli Holmström Member of the Board of Directors Åse Aulie Michelet Member of the Board of Directors Katri Viippola Member of the Board of Directors Tomas von Rettig Member of the Board of Directors Ville Iho 1 Petri Bono Jens Jensen Juha Juosila Chief Executive Officer Chief Medical Officer SVP, Corporate Health Chief Digital Officer Susanna Laine SVP, Communications and Brand Ilkka Laurila Julia Ormio Laura Räty 2 Siina Saksi Pia Westman 1) Since December 6, 2019. Chief Financial Officer SVP, Legal SVP, Public Partnerships SVP, Private Customers and Clinics SVP, Wellbeing, Diagnostics and Digital Services 2019 4,248 1,695 1,695 10,938 3,134 25,758 3,134 3,938 0 0 119,476 88,495 13,668 314,923 0 9,078 50,559 23,594 30. GROUP COMPANIES The Group’s parent company is Terveystalo Plc domiciled in Finland. Suomen Terveystalo Oy. SUBSIDIARIES AS AT 31 DEC 2019 • 30.4.2019 Attendo Työterveyspalvelut Oy merged with Terveystalo Oy. • 31.7.2018 Koy Seinäjoen Lakeudentie merged with Suomen Company name Domicile Group's share Group's voting rights EAM TTALO Holding Oy Finland 0.0% 100.0% Etelä-Karjalan Työkunto Oy Finland 100.0% 100.0% Evalua International Ltd. Oy Finland 100.0% 100.0% Evalua Nederland B.V. Netherlands 100.0% 100.0% Examinatio Magnetica Fennica Oy Finland 60.0% 60.0% Fertility Clinic Holding Oy Finland 100.0% 100.0% Hardent Oy Finland 100.0% 100.0% Hierojakoulu Relaxi Oy Finland 100.0% 100.0% Rela-group Oy Rela-hierojat Oy Finland 100.0% 100.0% Finland 100.0% 100.0% Suomen Terveystalo Oy Finland 100.0% 100.0% Terveystalo Estonia OÜ Estonia 100.0% 100.0% Terveystalo Healthcare Holding Oy Finland 100.0% 100.0% Terveystalo Healthcare Oy Finland 100.0% 100.0% Terveystalo Julkiset palvelut Oy Finland 100.0% 100.0% Terveystalo Julkiset palvelut Oy. • 30.4.2019 Terveystalo Julkiset palvelut Oy partially de- Healthcare Holding Oy. mergered to Suomen Terveystalo Oy. • 31.8.2018 Juha Uusimäki Oy merged with Suomen • 31.5.2019 Kuntoutumisasema OTE Oy merged with Suomen Terveystalo Oy. Terveystalo Oy. • 31.7.2018 Star Healthcare Oy merged with Terveystalo • 30.9.2018 Porin Hammaslääkäripalvelu Oy merged with • 30.6.2019 Länsi-Vantaan Hammaslääkärit Oy merged with Suomen Terveystalo Oy. Suomen Terveystalo Oy. • 31.10.2018 Turun Teknohammas Oy merged with Suomen • 30.9.2019 Kajaanin OMT - Fysioterapia Oy merged with Terveystalo Oy. Suomen Terveystalo Oy. The following disposals of subsidiaries took place during the financial year 2018: • 16.4.2018 Koy Porin Linnankulma was disposed. • 31.7.2018 AVA Clinic SIA was disposed. 2) Laura Räty’s shares are owned by Groundhog Oy, which she controls. Terveystalo Kuntaturva Oy Finland 100.0% 100.0% Terveystalo Tactus Oy Finland 100.0% 100.0% TT Ålands Tandläkarna Ab Finland 100.0% 100.0% TyöSyke Oy Finland 100.0% 100.0% 96 97 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 31. GROUP’S KEY FINANCIAL RATIOS 32. CALCULATION OF FINANCIAL RATIOS AND ALTERNATIVE PERFORMANCE MEASURES Terveystalo Group, EUR mill. Revenue Adjusted EBITDA, * 1) 2) Adjusted EBITDA, % * 1) 2) EBITDA 1) 2) EBITDA, % 1) 2) Adjusted EBITA * 1) 2) Adjusted EBITA, % * 1) 2) EBITA 1) 2) EBITA, % 1) 2) Adjusted operating profit (EBIT) * 1) 2) Adjusted operating profit (EBIT), % * 1) 2) Operating profit (EBIT) 2) Operating profit (EBIT), % 2) Return on equity (ROE), % 1) 2) 3) Equity ratio, % 1) 2) Earnings per share (€) 2) 3) Gearing, % 1) 2) Net debt/Adjusted EBITDA (LTM) 1) 2) Total assets 2) Average personnel FTE Personnel (end of period) Private practitioners (end of period) Before IFRS 16 impact (comparable), EUR mill. Adjusted EBITDA * 1) Adjusted EBITDA, % * 1) Adjusted EBITA * 1) Adjusted EBITA, % * 1) Net debt Net debt/Adjusted EBITDA (LTM) * 1) 2019 1,030.7 176.3 17.1 171.2 16.6 115.1 11.2 110.0 10.7 86.5 8.4 81.4 7.9 10.3 39.9 0.43 101.3 3.1 1,359.3 4,943 8,685 5,068 2019 136.4 13.2 113.4 11.0 369.5 2.7 2018 744.7 108.9 14.6 116.6 15.7 87.7 11.8 95.5 12.8 67.7 9.1 75.4 10.1 14.2 44.1 0.54 80.8 3.8 1,162.3 3,498 6,018 4,877 2018 108.9 14.6 87.7 11.8 413.3 3.8 2017 689.5 92.4 13.4 68.2 9.9 73.0 10.6 48.8 7.1 52.3 7.6 28.2 4.1 2.1 50.7 0.06 56.1 2.8 902.3 3,180 4,265 4,431 2017 92.4 13.4 73.0 10.6 256.4 2.8 * Adjustments are material items outside the ordinary course of business and these relate to acquisition related expenses, restructuring related expenses, gain / losses on sale of assets (net), strategic projects including the IPO and other items affecting comparability. 1) Alternative performance measure. Terveystalo presents alternative performance measures as additional information to financial measures defined in IFRS. Those are performance measures that the company monitors internally and they provide management, investors, securities analysts and other parties with significant additional information related to the company’s results of operations, financial position and cash flows. These should not be considered in isolation or as substitute to the measures under IFRS. 2) Not comparable due to the effect of IFRS 16 implementation. 3) The net profit of the January–December reference period was improved by a non-recurring deferred tax asset of EUR 13.0 million related to confirmed losses. 98 Financial ratios Earnings per share, (EUR) = Profit for the period attributable to owners of the parent company Average number of shares during the period Terveystalo presents alternative performance measures as additional information to financial measures defined in IFRS. Those are performance measures that the company monitors internally and they provide significant additional information related to the company’s results of operations, financial position and cash flows to the management, investors, securities analysts and other parties. These should not be considered in isolation or as substitute to the measures under IFRS. Alternative performance measures to the statement of financial position The company presents the following alternative performance measures to the statement of financial position as they are, in the company’s view, useful indicators of the company’s ability to obtain financing and service its debt. Return on equity, % Equity ratio, % Gearing, % Net debt/Adjusted EBITDA (LTM) * = = = = Profit/loss for the period (LTM) Equity (including non-controlling interest) (average) Equity (including non-controlling interest) Total assets - advances received Interest-bearing liabilities - interest-bearing receivables and cash and cash equivalents Equity Interest-bearing liabilities - interest-bearing receivables and cash and cash equivalents Adjusted EBITDA (LTM) x 100% x 100% x 100% Alternative performance measures to the statement of income The company presents the following alternative performance measures to the statement of income as in the company’s view, they increase under- standing of the company’s results of operations. In addition, the adjusted alternative performance measures are widely used by analysts, investors and other parties and facilitates comparability between periods. Adjusted EBITDA* Adjusted EBITDA, %* = = Earnings Before Interest, Taxes, Depreciation, Amortisation, impairment losses and adjustments Earnings Before Interest, Taxes, Depreciation, Amortisation, impairment losses and adjustments x 100% Revenue Adjusted EBITA* = Earnings Before Interest, Taxes, Amortisation, impairment losses and adjustments Adjusted EBITA, %* Adjusted operating profit (EBIT)* Adjusted operating profit (EBIT), %* = = = Earnings Before Interest, Taxes, Amortisation, impairment losses and adjustments Revenue x 100% Earnings Before Interest, Taxes and Share of profits in associated companies, and adjustments Earnings Before Interest, Taxes and Share of profits in associated companies, and adjustments x 100% Revenue EBITDA EBITDA, % EBITA EBITA, % = Earnings Before Interest, Taxes, Depreciation and Amortisation and impairment losses = Earnings Before Interest, Taxes, Depreciation and Amortisation and impairment losses Revenue = Earnings Before Interest, Taxes, Amortisation and impairment losses = Earnings Before Interest, Taxes, Amortisation and impairment losses Revenue Operating profit (EBIT) = Earnings Before Interest, Taxes and Share of profits in associated companies Operating profit (EBIT), % = Earnings Before Interest, Taxes and Share of profits in associated companies Revenue * Adjustments are material items outside the ordinary course of business and these relate to acquisition related expenses, restructuring related expenses, gain on sale of assets, strategic projects, new operations and other items affecting comparability. x 100% x 100% x 100% 99 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 33. RECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES Return on equity, % Profit/loss for the period (LTM) Equity (including non-controlling interest) (average) Return on equity, % Equity ratio, % Equity (including non-controlling interest) Total assets Advances received Equity ratio, % Gearing, % Interest-bearing liabilities Interest-bearing receivables and cash and cash equivalents Equity Gearing, % Net debt /Adjusted EBITDA (LTM) Interest-bearing liabilities Interest-bearing receivables and cash and cash equivalents Adjusted EBITDA (LTM) Net debt /Adjusted EBITDA (LTM) Adjusted EBITDA, EUR mill. Profit (loss) for the period Income tax expense Share of profits in associated companies Net finance expenses Depreciation, amortisation and impairment losses Adjustments* Adjusted EBITDA Adjusted EBITDA, % Adjusted EBITDA Revenue Adjusted EBITDA, % Adjusted EBITA, EUR mill. Profit (loss) for the period Income tax expense Share of profits in associated companies Net finance expenses Amortisation and impairment losses Adjustments* Adjusted EBITA 100 2019 54.1 526.5 10.3 2019 541.2 1,359.3 1.5 39.9 2019 588.8 40.6 541.2 101.3 2019 588.8 40.6 176.3 3.1 2019 54.1 12.7 0.2 14.4 89.8 5.1 176.3 2019 176.3 1,030.7 17.1 2019 54.1 12.7 0.2 14.4 28.6 5.1 115.1 2018 68.7 484.5 14.2 2018 511.8 1,162.3 1.8 44.1 2018 450.1 36.9 511.8 80.8 2018 450.1 36.9 108.9 3.8 2018 68.7 -0.5 -1.9 9.2 41.1 -7.7 108.9 2018 108.9 744.7 14.6 2017 7.2 344.8 2.1 2017 457.3 902.3 1.2 50.7 2017 289.4 33.0 457.3 56.1 2017 289.4 33.0 92.4 2.8 2017 7.2 -3.3 0.2 24.1 40.0 24.1 92.4 2017 92.4 689.5 13.4 2018 2017 68.7 -0.5 -1.9 9.2 20.0 -7.7 87.7 7.2 -3.3 0.2 24.1 20.6 24.1 73.0 Adjusted EBITA, % Adjusted EBITA Revenue Adjusted EBIT, % Adjusted operating profit (EBIT), EUR mill. Profit (loss) for the period Income tax expense Share of profits in associated companies Net finance expenses Adjustments* Adjusted EBIT Adjusted operating profit (EBIT), % Adjusted EBITA Revenue Adjusted EBIT, % EBITDA, EUR mill. Profit (loss) for the period Income tax expense Share of profits in associated companies Net finance expenses Depreciation, amortisation and impairment losses EBITDA EBITDA, % EBITDA Revenue EBITDA, % EBITA, EUR mill. Profit (loss) for the period Income tax expense Share of profits in associated companies Net finance expenses Amortization and impairment losses EBITA EBITA, % EBITA Revenue EBITA, % 2019 115.1 1,030.7 11.2 2019 54.1 12.7 0.2 14.4 5.1 86.5 2019 86.5 1,030.7 8.4 2019 54.1 12.7 0.2 14.4 89.8 171.2 2019 171.2 1,030.7 16.6 2019 54.1 12.7 0.2 14.4 28.6 110.0 2019 110.0 1,030.7 10.7 2018 87.7 744.7 11.8 2018 68.7 -0.5 -1.9 9.2 -7.7 67.7 2018 67.7 744.7 9.1 2018 68.7 -0.5 -1.9 9.2 41.1 116.6 2018 116.6 744.7 15.7 2018 68.7 -0.5 -1.9 9.2 20.0 95.5 2018 95.5 744.7 12.8 2017 73.0 689.5 10.6 2017 7.2 -3.3 0.2 24.1 24.1 52.3 2017 52.3 689.5 7.6 2017 7.2 -3.3 0.2 24.1 40.0 68.2 2017 68.2 689.5 9.9 2017 7.2 -3.3 0.2 24.1 20.6 48.8 2017 48.8 689.5 7.1 101 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS Operating profit (EBIT), EUR mill. Profit (loss) for the period Income tax expense Share of profits in associated companies Net finance expenses EBIT Operating profit, (EBIT), % EBIT Revenue EBIT, % Adjustments based on subject area* , EUR mill. Acquisition related expenses(1 Restructuring related expenses(2 Gain on sale of asset Strategic projects, new operations and other items affecting to comparability Adjustments Adjustments based on account group* , EUR mill. Other operating income Materials and services costs Personnel expenses Other operating expenses Adjustments Adjusted EBITDA before the effect of IFRS 16 Profit (loss) for the period Income tax expense Share of profits in associated companies Net finance expenses Depreciation, amortisation and impairment losses Adjustments* IFRS 16 rental expense adjustment Adjusted EBITDA without the effect of IFRS 16 Adjusted EBITDA before the effect of IFRS 16, % Adjusted EBITDA without the effect of IFRS 16 Revenue Adjusted EBITDA without the effect of IFRS 16, % 2019 54.1 12.7 0.2 14.4 81.4 2019 81.4 1,030.7 7.9 2019 3.3 0.7 0.3 0.8 5.1 2019 -0.3 - 0.4 5.0 5.1 2019 54.1 12.7 0.2 14.4 89.8 5.1 -39.9 136.4 2019 136.4 1,030.7 13.2 2018 68.7 -0.5 -1.9 9.2 75.4 2018 75.4 744.7 10.1 2018 6.6 1.4 -15.8 0.1 -7.7 2018 -16.8 0.4 0.0 8.7 -7.7 2017 7.2 -3.3 0.2 24.1 28.2 2017 28.2 689.5 4.1 2017 17.7 5.8 -0.2 0.8 24.1 2017 -0.2 0.1 4.0 20.3 24.1 2018 2017 68.7 -0.5 -1.9 9.2 41.1 -7.7 - 108.9 2018 108.9 744.7 14.6 7.2 -3.3 0.2 24.1 40.0 24.1 - 92.4 2017 92.4 689.5 13.4 Adjusted EBITA before the effect of IFRS 16 Profit (loss) for the period Income tax expense Share of profits in associated companies Net finance expenses Amortisation and impairment losses Adjustments* IFRS 16 rental expense adjustment IFRS 16 depreciation Adjusted EBITA without the effect of IFRS 16 Adjusted EBITA before the effect of IFRS 16, % Adjusted EBITA without the effect of IFRS 16 Revenue Adjusted EBITA without the effect of IFRS 16, % Net debt/Adjusted EBITDA (LTM) before the effect of IFRS 16 Interest-bearing liabilities Interest-bearing receivables and cash and cash equivalents Adjusted EBITDA (LTM) Net debt/Adjusted EBITDA (LTM) without the effect of IFRS 16 2019 54.1 12.7 0.2 14.4 28.6 5.1 -39.9 38.3 113.4 2019 113.4 1,030.7 11.0 2019 410.1 40.6 136.4 2.7 2018 2017 68.7 -0.5 -1.9 9.2 20.0 -7.7 - - 87.7 2018 87.7 744.7 11.8 2018 450.1 36.9 108.9 3.8 7.2 -3.3 0.2 24.1 20.6 24.1 - - 73.0 2017 73.0 689.5 10.6 2017 289.4 33.0 92.4 2.8 *Adjustments are material items outside the ordinary course of business and these relate to acquisition related expenses, restructuring related expenses, gain /losses on sale of assets (net), strategic projects including the IPO and other items affecting comparability. 1) Including transaction costs and expenses from integration of acquired businesses as well as IPO related expenses. 2) Including restructuring of network and business operations, provisions for onerous contracts (lease agreements and other). 34. SUBSEQUENT EVENTS Minttu Sinisalo b. 1980, M.Sc. (Econ.), was appointed as Terveystalo’s Senior Vice President for HR. She took up her post on January 1, 2020. Susanna Laine, Senior Vice President, Communications and Brand, and a member of the Executive Team, vacated her position on January 8, 2020. Veera Siivonen, b. 1980, M.Sc. (Tech., Industrial Engineering) has been appointed Senior Vice President, Marketing and Communications of Terveystalo as of May 1, 2020, at the latest. Elina Saviharju, b. 1981, LL.B., LL.M. (Harvard) has been appointed Senior Vice President, Legal, of Terveystalo. She will join the compa- ny as of July 24, 2020, at the latest, as Julia Ormio, Chief Legal Officer and Member of the Executive Team of Terveystalo, resigns. Terveystalo is acquiring Varkauden Fysiokeskus Oy´s physiother- apy operations under a contract signed on 16 January 2020. 102 103 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS PARENT COMPANY’S FINANCIAL STATEMENT, FAS PARENT COMPANY’S INCOME STATEMENT PARENT COMPANY’S STATEMENT OF FINANCIAL POSITION EUR Revenue Other operating income Materials and supplies Employee benefit expenses Wages and salaries Social security expenses Pension expenses Other social security expenses Depreciation, amortisation and impairment losses Other operating expenses Operating profit or loss Financial income and expenses Other interest and financial income From Group companies From others Other interest and financial expenses To Group companies To others Profit or loss before appropriations and taxes Appropriations Increase/decrease in depreciation in excess of plan Group contributions Taxes Profit or loss for the period Note 1.1 1.1.–31.12.2019 1.1.–31.12.2018 742,672 146,000 -955 495,915 - - EUR ASSETS Non-current assets Property, plant and equipment Machinery and equipment -1,819,857 -1,527,033 Investments 1.2 1.4 1.5 1.6 -237,965 -11,449 -15,131 -221,457 -15,270 -14,874 -1,429,164 -1,530,175 -2,625,850 -2,812,894 - 392 -48,553 -2,596 - 1,183 -15,261 -2,251 -2,676,606 -2,829,223 4,297 -216 54,000,000 12,000,000 -10,224,640 41,103,051 -1,415 9,169,147 Holdings in Group companies Total non-current assets Current assets Trade receivables Receivables from Group companies Prepayments and accrued income Cash and cash equivalents Total current assets TOTAL ASSETS EUR EQUITY AND LIABILITIES Equity Share capital Invested non-restricted equity reserve Retained earnings Profit or loss for the period Total equity Appropriations Depreciation in excess of plan Total appropriations Liabilities Non-current liabilities Loans from financial institutions Current liabilities Loans from financial institutions Trade payables Liabilities to Group companies Other liabilities Accruals and deferred income Total liabilities TOTAL EQUITY AND LIABILITIES Note 31 Dec 2019 31 Dec 2018 2.1 2.2 2.3 2.4 44,379 60,188 506,685,344 506,685,344 506,729,723 506,745,532 - 8,465 71,811,351 29,492,208 204,252 690 183,859 96,644 72,016,293 29,781,175 578,746,016 536,526,707 Note 31 Dec 2019 31 Dec 2018 2.5 2.6 80,000 493,503,962 -900,845 41,103,051 80,000 519,111,269 -10,069,991 9,169,147 533,786,168 518,290,424 10,621 10,621 14,918 14,918 - 35,598 37,365 176,642 21,207 238,100 34,054,995 16,993,771 144,331 10,535,893 88,437 844,252 44,949,227 18,221,365 578,746,016 536,526,707 104 105 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS PARENT COMPANY'S STATEMENT OF CASH FLOWS EUR Cash flows from operating activities Profit/loss for the period Adjustments Depreciations according to plan Non-cash transactions Financial income and expenses Gains and Losses on sale of property, plant, equipment Other adjustments Change in working capital Change in trade and other receivables Change in trade and other payables Taxes Net cash from operating activities Cash flows from investing activities Purchase of tangible and intangible items Net cash from investing activities Cash flows from financial activities Change in long-term receivables Change in Group account Payment of hire purchase liabilities Received Group supports Equity repayment Interest paid Net cash from financial activities ACCOUNTING POLICIES OF PARENT COMPANY’S FINANCIAL STATEMENTS The financial statements of Terveystalo Oyj are prepared in accord- ance with Finnish Accounting Standards (FAS). MEASUREMENT AND RECOGNITION PRINCIPLES AND METHODS Holdings in Group companies The balance sheet value of holdings in Group companies consists of historical costs less impairments. If the estimated future cash flows generated by a non-current asset are expected to be permanently lower than the balance of carrying amount, an adjustment to the value must be made to write-down the difference as an expense. If the basis for the impairment can no longer be justified at reporting date, it must be reversed. PROPERTY, PLANT AND EQUIPMENT, AND DEPRECIATION The balance sheet value of property, plant and equipment consists of historical costs less depreciation and other deductions. Property, plant and equipment are depreciated using straight-line deprecia- tion based on the expected useful life of the asset. The depreciation is based on the following expected useful lives: Machinery and equipment: 5 years 1.1.–31.12.2019 1.1.–31.12.2018 41,103,051 9,169,147 15,131 14,874 -54,004,297 -11,999,784 51,149 830 10,380,880 17,512 - 1,415 -331,073 -727,065 - 98,683 -7,464,756 -1,415 -3,511,394 -10,164,325 -152 -152 -2,216 -2,216 - 17,093,486 -19,440 12,000,000 -25,607,306 -51,149 -6,708,591 20,194,595 -21,207 2,000,000 -7,682,192 -17,512 3,415,592 7,765,094 Net change in cash and cash equivalents -95,954 -2,401,448 Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 96,644 690 2,498,091 96,644 106 107 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS NOTES TO THE STATEMENT OF INCOME 1.5 FINANCIAL INCOME AND EXPENSES 1.1 REVENUE EUR Finland Total 1.2 DEPRECIATION, AMORTISATION AND IMPAIRMENT LOSSES EUR Depreciation Total 1.3 PERSONNEL Average number of personnel during financial year 1.4 OTHER OPERATING EXPENSES EUR External services ICT expenses Non-statutory expenses Leases Travel expenses Marketing and communication Other costs Total AUDITOR’S FEES EUR Audit and auditor's statements based on laws and regulations Audit, KPMG Auditor's statements based on laws and regulations, KPMG Total Non audit services Assurance services, KPMG Tax services, KPMG Other services, KPMG Total Auditor's fees total 108 2019 742,672 742,672 2018 495,915 495,915 2019 -15,131 -15,131 2018 -14,874 -14,874 2019 6 2018 5 2019 -187,285 -21,799 -294,403 -51,318 -43,950 -105,119 -725,289 2018 -200,232 -9,678 -220,594 -6,709 -91,390 -354,449 -647,124 EUR Other interest and financial income From others Total Other interest and financial expenses To Group companies To others Total 1.6 APPROPRIATIONS EUR Increase/decrease in depreciation in excess of plan Group contributions recieved Appropriations total NOTES TO THE STATEMENT OF THE FINACIAL POSITION 2.1 PROPERTY, PLANT AND EQUIPMENT MACHINERY AND EQUIPMENT EUR Acquisition cost 1.1 Additions Disposals Acquisition cost 31.12 Accumulated depreciation and impairment losses 1.1 -1,429,164 -1,530,175 Depreciation for the period Accumulated depreciation and impairment losses 31.12 Carrying amount 1.1 Carrying amount 31.12 2019 2018 -79,900 -19,300 -99,200 - -3,000 -16,000 -19,000 -118,200 -63,195 -13,500 -76,695 -6,448 -41,352 - -47,800 -124,495 2.2 INVESTMENTS HOLDINGS IN GROUP COMPANIES EUR Acquisition cost 1.1 Acquisition cost 31.12 Carrying amount 1.1 Carrying amount 31.12 2019 2018 392 392 -48,553 -2,596 -51,149 1,183 1,183 -15,261 -2,251 -17,512 2019 4,297 2018 -216 54,000,000 12,000,000 54,004,297 11,999,784 2019 79,830 152 -830 79,152 -19,642 -15,131 -34,773 60,188 44,379 2018 77,614 2,216 79,830 -4,768 -14,874 -19,642 72,845 60,188 2019 2018 506,685,344 506,685,344 506,685,344 506,685,344 506,685,344 506,685,344 506,685,344 506,685,344 109 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS PARENT COMPANY OWNERSHIPS: Holdings in Group companies Terveystalo Healthcare Holding Oy 2.3 RECEIVABLES FROM GROUP COMPANIES EUR Loan receivables Trade receivables Prepayments and accrued income Total 2.4 PREPAYMENTS AND ACCRUED INCOME EUR Prepayments and accrued income Total 2.5 CHANGES IN EQUITY Restricted equity SHARE CAPITAL EUR At the beginning of the period At the end of the period Total restricted equity Unrestricted equity INVESTED NON-RESTRICTED EQUITY RESERVE EUR At the beginning of the period Equity repayment At the end of the period 2019 100% 2018 100% 2019 2018 10,132,900 10,132,900 969,860 650,717 54,000,000 12,000,000 65,102,760 22,783,617 2019 204,252 204,252 2018 183,859 183,859 2019 80,000 80,000 2018 80,000 80,000 80,000 80,000 2019 2018 519,111,269 526,793,461 -25,607,306 -7,682,192 493,503,962 519,111,269 RETAINED EARNINGS EUR Retained earnings at the beginning of the period Retained earnings at the end of the period Profit or loss for the period Total unrestricted equity Total equity DISTRIBUTABLE EARNINGS EUR Invested non-restricted equity reserve Retained earnings Profit or loss for the period Total 2019 -900,845 -900,845 2018 -10,069,991 -10,069,991 41,103,051 9,169,147 533,706,168 518,210,424 533,786,168 518,290,424 2019 2018 493,503,962 519,111,269 -900,845 -10,069,991 41,103,051 9,169,147 533,706,168 518,210,424 Shares and share capital On 31 December 2019 the number of shares is 128,036,531 of which Invested non restricted equity reserve Invested non-restricted equity reserve consists of other invest- 730,000 is held by EAM TTALO Holding Oy, company which is under ments similar to equity and the subscription price of shares to the the control of Terveystalo PLC. The company has single share class. extent that it has not been recorded in share capital according to The shares have no nominal value. All shares issued have been paid specific resolution. According to the current Finnish Companies Act, in full. Each share has one vote at the Annual General Meeting and subscription price of new shares is recognized in the share capital, equal rights to dividend and other distribution of assets. unless it has not been according to Issuance Resolution fully or partly Terveystalo PLC’s share is listed on Nasdaq Helsinki Oy. The trad- recognized in invested non-restricted equity reserve. ing code is TTALO. Terveystalo PLC’s shares belong to the book-entry system maintained by Euroclear Finland Oy. 110 111 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS 2.6 LIABILITIES 2.6.1 Non-current liabilities EUR Loans from financial institutions Total 2.6.2 Current liabilities EUR Loans from financial institutions Trade payables Other liabilities to Group companies Other liabilities Accruals Total 2.6.3 Liabilities to Group companies EUR Trade payables Group account payables Total 2.6.4 Accruals and deferred expenses EUR Personnel related accrued expenses Other Tax liabilities Total OTHER NOTES 3.1 COLLATERAL AND OTHER CONTINGENT LIABILITIES EUR Contingent liabilities on behalf of Group companies Suretyship Guarantees 2019 - - 2018 35,598 35,598 2019 37,365 176,642 2018 21,207 238,100 34,054,995 16,993,771 144,331 10,535,893 88,437 844,252 44,949,227 18,185,767 2019 2,285 2018 190,786 33,896,471 16,802,984 33,898,755 16,993,771 2019 311,253 - 10,224,640 10,535,893 2018 832,083 12,170 - 844,252 2019 2018 374,200,000 415,600,000 400,734 446,312 Signatures to the financial statements and Board of Director’s report Helsinki, 12 February 2020 Kari Kauniskangas Dag Andersson Chairman of the Board of Directors Member of the Board of Directors Paul Hartwall Lasse Heinonen Member of the Board of Directors Member of the Board of Directors Olli Holmström Åse Aulie Michelet Member of the Board of Directors Member of the Board of Directors Katri Viippola Tomas von Rettig Member of the Board of Directors Member of the Board of Directors Ville Iho Managing Director AUDITORS NOTE A report on the audit has been issued today. Helsinki, February 2019 KPMG Oy Ab Audit firm Jari Härmälä Authorised Public Accountant 112 113 TERVEYSTALO PLC ANNUAL REVIEW 2019 YEAR 2019 CORPORATE GOVERNANCE FINANCIALS AUDITOR’S REPORT TO THE ANNUAL GENERAL MEETING OF TERVEYSTALO PLC REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS This document is an English translation of the Finnish auditor’s report. Only the Finnish version of the report is legally binding. OPINION We have audited the financial statements of Terveystalo Plc (busi- tion 537/2014. The non-audit services that we have provided have ness identity code 2575979-3) for the year ended 31 December been disclosed in note 9 to the consolidated financial statements. 2019. The financial statements comprise the consolidated balance We believe that the audit evidence we have obtained is sufficient sheet, income statement, statement of comprehensive income, and appropriate to provide a basis for our opinion. statement of changes in equity, statement of cash flows and notes, including a summary of significant accounting policies, as well as the parent company’s balance sheet, income statement, statement of cash flows and notes. In our opinion MATERIALITY The scope of our audit was influenced by our application of ma- teriality. The materiality is determined based on our professional judgement and is used to determine the nature, timing and extent of our audit procedures and to evaluate the effect of identified • the consolidated financial statements give a true and fair misstatements on the financial statements as a whole. The level of view of the group’s financial position, financial performance materiality we set is based on our assessment of the magnitude of and cash flows in accordance with International Financial Re- misstatements that, individually or in aggregate, could reasonably porting Standards (IFRS) as adopted by the EU be expected to have influence on the economic decisions of the users of the financial statements. We have also taken into account • the financial statements give a true and fair view of the par- misstatements that in our opinion are material for qualitative rea- ent company’s financial performance and financial position sons for the users of the financial statements. in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, THE KEY AUDIT MATTER HOW THE MATTER WAS ADDRESSED IN THE AUDIT Valuation of Goodwill and Intangible Assets (Accounting Principles for the Consolidated Financial Statements and the Notes 14 and 15) • At the year-end 2019 the goodwill amounted to 779.2 M€ and accounted for 57% of the consolidated total assets and for 144% of the consolidated equity. • Goodwill is tested for impairment at least annually. An impairment is recognised when the recoverable amount is less than the carrying value of the asset. • Terveystalo determines recoverable amounts for impairment tests based on value in use. Preparation of cash flow projections underlying impairment tests requires management making judgments over profitability, long-term growth rate and discount rate. • The acquisition-related recognized assets for trade mark and customer relationships at the year-end 2019 were in total 132.0 M€. These assets have finite useful lives and the related amortization periods shall be reviewed annually. • Given the high level of management judgment related to the forecasts used and the significant carrying amounts involved, valuation of goodwill and intangible assets is considered a key audit matter. • We assessed the key assumptions used in the calculations, such as profit- ability, discount rate and long-term growth rate. To analyse the forecasts we applied professional judgement in testing the key assumptions and assessing the resulting effects on the sensitivity analysis. • We involved KPMG valuation specialists when assessing the appro- priateness of the assumptions used and the technical accuracy of the calculations. This included a comparison to external financial and industry forecasts. • In respect of the acquisition-related intangible assets we evaluated the recoverability of these assets by assessing the related calculations and the underlying assumptions. • In addition, we considered the appropriateness of the disclosures in respect of goodwill, impairment testing and intangible assets. Our opinion is consistent with the additional report submitted to the were of most significance in our audit of the financial statements of Revenue Recognition (Accounting Principles for the Consolidated Financial Statements and the Note 4) Audit Committee. BASIS FOR OPINION We conducted our audit in accordance with good auditing practice in the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The significant risks of material misstatement referred to in the EU Regulation No 537/2014 point (c) of Article 10(2) are included Finland. Our responsibilities under good auditing practice are further in the description of key audit matters below. described in the Auditor’s Responsibilities for the Audit of the Financial We have also addressed the risk of management override of in- Statements section of our report. ternal controls. This includes consideration of whether there was We are independent of the parent company and of the group com- evidence of management bias that represented a risk of material panies in accordance with the ethical requirements that are applica- misstatement due to fraud. ble in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To our best knowledge and understanding, the non-audit servic- es that we have provided to the parent company and group com- panies are in compliance with laws and regulations applicable in Finland regarding these services, and we have not provided any prohibited non-audit services referred to in Article 5(1) of EU regula- • The consolidated revenue amounted to 1,030.7 M€ million and consist • As part of our audit procedures, we evaluated the sales-related internal of numerous types of individual service transactions generated to various customer and payer groups in multiple business locations. Vol- umes of sales transactions processed in the IT systems are substantial and Terveystalo also uses a number of service pricing models and client contract templates. • Given the variety and large number of sales transactions, revenue recognition is considered a key audit matter. control environment, as well as tested the effectiveness of the key controls. We also performed substantive audit procedures. • We evaluated the IT systems relevant for revenue recognition and the functioning of the related general IT controls. • We tested the effectiveness of the processes to enter and record sales transactions as well as the sales pricing and invoicing processes. We also tested inclusion of relevant transactions in the appropriate period in order to assess the accuracy of revenue recognition. • In addition, we tested controls over cash sales such as reconciliation routines. • We considered the appropriateness of the disclosures provided for revenue in the consolidated financial statements. 114 115 TERVEYSTALO PLC ANNUAL REVIEW 2019YEAR 2019 CORPORATE GOVERNANCE FINANCIALS RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THE MANAGING DIRECTOR (CEO) FOR THE FINANCIAL STATEMENTS The Board of Directors and the Managing Director (CEO) are responsible • Obtain an understanding of internal control relevant to the and are therefore the key audit matters. We describe these matters In our opinion, the information in the report of the Board of Direc- audit in order to design audit procedures that are appropriate in our auditor’s report unless law or regulation precludes public dis- tors is consistent with the information in the financial statements and in the circumstances, but not for the purpose of expressing an closure about the matter or when, in extremely rare circumstances, the report of the Board of Directors has been prepared in accordance opinion on the effectiveness of the parent company’s or the we determine that a matter should not be communicated in our re- with the applicable laws and regulations. for the preparation of consolidated financial statements that give a group’s internal control. port because the adverse consequences of doing so would reason- If, based on the work we have performed on the other information true and fair view in accordance with International Financial Reporting ably be expected to outweigh the public interest benefits of such that we obtained prior to the date of this auditor’s report, we con- Standards (IFRS) as adopted by the EU, and of financial statements that • Evaluate the appropriateness of accounting policies used and communication. give a true and fair view in accordance with the laws and regulations the reasonableness of accounting estimates and related dis- governing the preparation of financial statements in Finland and closures made by management. comply with statutory requirements. The Board of Directors and the Managing Director (CEO) are also responsible for such internal control • Conclude on the appropriateness of the Board of Directors’ as they determine is necessary to enable the preparation of financial and the Managing Director’s (CEO) use of the going concern statements that are free from material misstatement, whether due basis of accounting and based on the audit evidence obtained, to fraud or error. whether a material uncertainty exists related to events or OTHER REPORTING REQUIREMENTS INFORMATION ON OUR AUDIT ENGAGEMENT We have acted as auditors appointed by the Annual General Meeting clude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Helsinki, 12 February 2020 KPMG OY AB In preparing the financial statements, the Board of Directors and conditions that may cast significant doubt on the parent com- uninterrupted for 8 years. Terveystalo Plc became a public interest the Managing Director (CEO) are responsible for assessing the parent pany’s or the group’s ability to continue as a going concern. entity on 13 October 2017. company’s and the group’s ability to continue as a going concern, If we conclude that a material uncertainty exists, we are re- disclosing, as applicable, matters relating to going concern and using quired to draw attention in our auditor’s report to the related the going concern basis of accounting. The financial statements are disclosures in the financial statements or, if such disclosures OTHER INFORMATION The Board of Directors and the Managing Director (CEO) are responsible Jari Härmälä Authorised Public Accountant, KHT prepared using the going concern basis of accounting unless there is are inadequate, to modify our opinion. Our conclusions are for the other information. The other information comprises the report an intention to liquidate the parent company or the group or cease based on the audit evidence obtained up to the date of our of the Board of Directors and the information included in the Annual operations, or there is no realistic alternative but to do so. auditor’s report. However, future events or conditions may Report, but does not include the financial statements and our auditor’s cause the parent company or the group to cease to continue report thereon. We have obtained the report of the Board of Directors as a going concern. prior to the date of this auditor’s report, and the Annual Report is expected to be made available to us after that date. Our opinion on AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the • Evaluate the overall presentation, structure and content of the the financial statements does not cover the other information. financial statements, including the disclosures, and whether In connection with our audit of the financial statements, our re- the financial statements represent the underlying transac- sponsibility is to read the other information identified above and, in financial statements as a whole are free from material misstatement, tions and events so that the financial statements give a true doing so, consider whether the other information is materially in- whether due to fraud or error, and to issue an auditor’s report that and fair view. includes our opinion. Reasonable assurance is a high level of assurance, consistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With but is not a guarantee that an audit conducted in accordance with • Obtain sufficient appropriate audit evidence regarding the fi- respect to the report of the Board of Directors, our responsibility good auditing practice will always detect a material misstatement nancial information of the entities or business activities within also includes considering whether the report of the Board of Direc- when it exists. Misstatements can arise from fraud or error and are the group to express an opinion on the consolidated financial tors has been prepared in accordance with the applicable laws and considered material if, individually or in the aggregate, they could statements. We are responsible for the direction, supervision regulations. reasonably be expected to influence the economic decisions of users and performance of the group audit. We remain solely re- taken on the basis of the financial statements. sponsible for our audit opinion. As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional scepti- We communicate with those charged with governance regarding, cism throughout the audit. We also: among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies • Identify and assess the risks of material misstatement of the in internal control that we identify during our audit. financial statements, whether due to fraud or error, design We also provide those charged with governance with a state- and perform audit procedures responsive to those risks, and ment that we have complied with relevant ethical requirements obtain audit evidence that is sufficient and appropriate to pro- regarding independence, and communicate with them all relation- vide a basis for our opinion. The risk of not detecting a mate- ships and other matters that may reasonably be thought to bear on rial misstatement resulting from fraud is higher than for one our independence, and where applicable, related safeguards. resulting from error, as fraud may involve collusion, forgery, From the matters communicated with those charged with gov- intentional omissions, misrepresentations, or the override of ernance, we determine those matters that were of most signifi- internal control. cance in the audit of the financial statements of the current period 116 117 TERVEYSTALO PLC ANNUAL REVIEW 2019TERVEYSTALO PLC Jaakonkatu 3 B, 3rd floor 00100 Helsinki, Finland Exchange: 030 633 11 www.terveystalo.com 

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