Medicover AB (publ)

Good day and welcome to the Medicover first quarter 2023 results presentation. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. If you have a question please press star 1 1 on your telephone. You will then hear a message advising your hand is raised. To withdraw that question press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Fredrik Rugmark. Please go ahead.

Thank you and good morning everyone to our first quarter 2023 results presentation. So our first headline slide is very high underlying growth, important to point out, make a very Specific statement here that we see from a trading point of view COVID-19 is behind us. It's in the past It represents around 1% of revenue this quarter. So 99% of revenue what we do is our underlying business And that is doing really well very strong growth. In fact, you see underlying growth is up organically 25% year-on-year, which I think is a super strong number and If we go back, that may be interesting also to note, if we look at the first quarter 2019, which is the last first quarter of a year where we had no disturbance or awareness of what would come with COVID. And over those four years, we have more than doubled our business on a like for like basis. So from just under 200 to over 400 million euros this quarter, So we've been compounding 20% revenue growth over those four years, which for sure has had a lot of negative impacts from COVID on our underlying business. I think I really want to point out how strong that development is. If we look at how this quarter's organic revenue growth in that underlying activity splits between the division, you see just short of 28% in healthcare services. and just short of 19% in diagnostic services. And both of those are very good. You all know that we have invested much more over the past two, three years in healthcare services. It's quite natural to see higher organic growth in that segment. But equally important is to see how diagnostic services ex-COVID is coming back with the revenue growth. And as I will comment on, That's a good mixture of both volume growth and price and mix growth. Number two, I think the most commonly discussed theme in our reporting through 2022 was how cost inflation impacted us with very, very significant, particularly salary inflation. And given the fact that we're such a staff-intensive business, that was significantly impacting us. Likewise, we commented throughout the year that, you know, we've had good acceptance, good receptions with our price growth in our private pay markets. But we've had this delay factor and it would be into 2023 when this would start to be noticeable in reported financials again. So, you know, particularly happy to be able to visualize that with underlying margins in the group and for both divisions. rising substantially this quarter, so that again is good for the quarter, but even more important I think it is you see how the price mitigation is coming through in reported margins. Our expansion has continued in terms of opening new hospitals. And that will continue as well as we progress throughout the year. I write in my CEO statement that if we look at the amount of medical space we have put on, if we compare to the start of the prior year, so end of this quarter compared to 1st of January 2022, we've added 34% in terms of square meter medical space over those five quarters. So indeed, that is a significant amount of medical space that obviously has short-term drag on our margins, but as I will speak a bit later on, we're very happy with how we keep filling up those facilities. Then looking at some more of the specifics, so just short of 420 million euro revenue for the quarter, up 10% of which roughly half of that being organic. I already made a point with 25% organic growth in the underlying business, ex-COVID. We bring with us quite a bit of acquired revenue from last year, so 33 million, a good growth in our fee-for-service business. Important as well, it's just to point out for you, if we annualize the first quarter revenue, we're up versus the full year, 2022. already now 11%. And netting off the COVID element, we're in fact up already 19%. So quite significant in terms of recognizing just the annualization factor where we are in the first quarter. You're familiar with our two pie charts there. And again, just draw your attention perhaps to the growth factor. Poland is a is obviously our largest market. You've known that for a long time. And pushing through 30% revenue growth across that geography in the quarter versus last year is a significant number to be noticed. And you can also note the reduction in Germany, which is then obviously all driven by COVID dropping out of the German diagnostics business. Perhaps the other thing that is worthwhile to note draw your attention to. If you look at the bottom pie chart there, you see negative growth in public funding. Again, that's all COVID related. You have a 18% growth in our funded business. And as I'll speak a little bit about later, we have about 8% member growth year on year in the quarter, which is good. So you see how the price and mix element is coming through. in addition to underlying member growth in that important piece of what we do. And also solid good growth in our fee-for-service side. And I think we'll go to the margin slide. So again, important message here being the underlying margins improving. Of course, as I initially said, we overall reported financials, they are what they are. But no doubt most important for understanding where our business is today and even more importantly where it's heading for the rest of the year is to understand the dynamics in the 99% underlying business. Beta 54.3 million down 30% since prior year and margin of 12.9%. Looking at the underlying business, it's up 129 basis points. good solid underlying margin expansion. And you can see that illustrated in the graph in the bars to the right where we have given you the blue shades for the underlying and then topped up with the COVID earnings during the quarters historically here. And you have also the other results measures. Then shifting on to the two divisions. Again, phenomenal growth in healthcare services. You see that very well illustrated with the bars to the right over a three-year period, rising strongly pretty much every quarter, so up to 276 million euros this particular quarter, 33% up, of which organic was 20.7. And again, isolating out, we have no COVID revenue whatsoever in this division in this quarter. So separating that out, we're up some 28% organic year-on-year, again, a just phenomenal number, I would say, of which about 12 percentage points is represented by price, illustrating again the point that I've made throughout the prior year where customers have accepted, I think, very well our price increases. Most of the acquired revenue you see is coming from this division so just over 30 million sits in healthcare services and obviously given the overall growth and the strong position of fee-for-service in this division you will see very strong growth in fee-for-service at 36%. Continued good member growth which we've had pretty much throughout the period. I believe we still have a factor and we will have that factor, I think, for perhaps forever, but certainly still for many years to come where employers, I think more so after the pandemic than before, recognize the inherent value in providing the kind of healthcare benefit that we do. So demand for our services in the in the employee paid market remains very, very strong. And likewise, if you look at the pie charts here, pretty much the same picture as I painted before. When we looked at the group level, Poland is up even stronger here relative to, it has a higher proportion in this division. India is growing nicely on the back of our hospital expansion. And likewise, you see how the different payer segments are developing. So overall, a quarter to be very pleased with in healthcare services. That is also reflected in terms of how margins are developing. So EBITDA at 34.2 million, up 35%. And overall, also a slight margin increase to 12.4%. And again, I don't need to remind you now, I've said that many times, Here is particularly where we have significant drag on our margins because of the expansion, particularly so in India, but also not insignificant. For example, in Romania, where we will be opening the large new hospital here during the second quarter, but again, been very well mitigated, partly by the investments we did last year and acquisitions, but most importantly through price increases that we've pushed through. Now, I made a point in the report. Obviously, it's one important data point that you all are, I think, studying very closely is how we are able to fill up the capacity that we put on in all of these new units. And two units that we have mentioned in prior reporting are the two major large new hospitals we have opened in the state of Maharashtra in India, in Navi Mumbai and in Pune, both 300 bed plus facilities. And it's very pleasing and reassuring to be able to say that both of those are expected to break even on an EBITDA level within 12 months of operation, which is significant. And so we're very happy and pleased To say that to you, that's one indication in terms of how we're filling up this capacity. Shifting then on to diagnostic services where revenue just short of 150 million euros, obviously big organic reduction on the back of a big chunk of COVID revenue and testing dropping out. We had 4.6 million euros of COVID revenue this year. I said about 1% of overall group revenue. 3% of divisional revenue, so 97% of revenue in diagnostic services relates to everything else we do. There will remain some COVID testing for hospital admissions, things like that, but it's just going to be part of the ongoing business from now on. Importantly, also to remind you, the first quarter last year, so first quarter 2022 was really the last quarter where COVID revenue and earnings had a very material impact on us. So although it certainly existed throughout the remainder of 2022, but on a comparable basis, as we progress through 2023, it will have significantly lower differences in the annual comparisons. Point already made that good, actually very good underlying growth in the remainder underlying business, 19.5%. That is a combination of volume growth where if we exclude Belarus, we have disposed of the Belarusian business during the quarter, so isolating for the Belarus disposal. We are volume-wise up about 9% in terms of test volume. And then the balance is then a combination of price and mix. So also here, and that's really good against the background of half of the business here being in Germany where there's no price adjustment so far. So we've had good dynamics in our private pay fee for service markets. So we have discussed in prior quarters quite a bit around the outlook for German price indexation. That has not happened yet. There are no visible signs on the horizon, if and when it will come. So until we know that or have some more certainty around that, we assume that prices in Germany will remain stable. Ukraine continues to improve. As we pretty much talk about every quarter since the atrocities broke out end of February last year, I am overwhelmed with the ability of our people in Ukraine to manage the situation there. We're growing, we're profitable. It is a situation where we don't make any forecasting for the future. That is too uncertain, but equally, I want to emphasize how much we recognize the extraordinary ability of our people and leadership in Ukraine to handle the situation the country and our business is in. So here again, reported profit, reported margin, obviously sharply down on the back of a very profitable COVID trading quarter dropping out the prior year quarter. But looking at the underlying business ex-COVID, a very healthy development with 24% growth in beta to just north of 25 million and margin expanding more than one full percentage point. So good progress both in growth and in profitability ex-COVID in this division. We have continued to invest in BDPs, although you see on a comparable basis it's down. That is then due to the removal of the business in Belarus as we sold that during the quarter. And that's as much as I will say now, and I hand over to Joe for the financial review. Thank you very much, Fredrik.

So just looking a little bit at some of our balance sheet items, our debt levels in terms of cost of financing, this has increased. So if we look at our lease liabilities, on the top bar there on the right-hand side, the implied interest rate for lease liabilities, that's ticked up a little bit, as you'd expect, with our new lease liabilities coming in in a higher interest rate environment. If you look at our debt, our real commercial debt, then rates there have also ticked up in terms of in line with the increase in base rates. Just one point to add in terms of our debt instruments. We in the quarter launched a Swedish social finance commercial paper program in April. So this is a first. And we're very proud to make that available to Swedish investors to be able to manage their cash and put it into a social financing framework and actually doing some good as well as making some interest. Our liquidity position is good. We have a good maturity profile and we have a large undrawn facility lines as well available for us. We look at our indebtedness levels, we brought that down from the year end about on our net loans payable basis, we brought that down around about 20 million. We had the sale of the business in Belarus which generated a bit of cash and helped us to bring that down. We look at the ratio to our adjusted EBITDA LTM number. then as reported the debt ratios are up slightly from 3.2 to 3.3. If we look at that on a lender covenant basis that's around about 3 because that takes into a case a real LTM basis including the impact of the full impact from acquisitions. Cash flow has been quite strong. We've had good working capital movements as well. So our operational cash flow has been around about 61.4%. million net inflows. Effective tax rate, we estimate that around about 28.7, so just slightly lower than what we had in 2022. We have quite a few new startup entities and costs which are not then impacting in terms of the tax rate, so we're carrying that a little bit in our tax rate. I'll move on to the next slide. Our right of use lease liabilities, that's increased from around about 5 million net. The biggest item in here is in terms of our new leases extensions. We have 24.8 million increase of which about 13.8 is due to indexation. So we have around about 11 million which is new facilities and extensions that we brought on in the quarter. Our consolidated equity, this has moved up around 5.2 million euros. and we have then the profit for the period and also then we have a positive movement in other comprehensive income, primarily related to the sale and disposal in Belarus. We have continued to invest in the quarter. Although our guidance at the capital market stage was that we would be looking to invest at a lower level than we did in 2022, it's well worth noting that 2022 was very high. So we have consistently invested a high level in terms of capital investments, particularly in our growth area, and that has consistently helped to drive our growth organically and our expansion. So we are certainly investing at a level which is commensurate with keeping that growth going and also to take us through our $2.2 billion target and actually through that. So we have continued to invest. Around, if I look at the total investment there, so I'm just short of 30 million euros in the quarter, around about a third of that has been in hospital facilities, India, Romania, Poland. And I think if you read through the report there, we give a number of approximately around about probably four hospitals that we're going to bring in online in India over this coming year. So we'll just move on then in terms of our financial targets, just to give a little recap in respect to that. So our organic revenue, we're looking to exceed $2.2 billion in 2025 and adjusted EBITDA organic $350 million. If I look at where our run rate is in terms of our Q1 numbers, $419 million top line revenue, annualized that, we're just short of $1.7 So we're about 523 million gap to that 2.2 billion target, and we have 11 quarters in terms of filling that. So we are very confident in terms of being able to meet these targets and continue through them. So I'll hand back to you, Frederik.

All right. Thank you, Joe. So that's our commentary, and we're happy to take any questions you may have.

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw a question, please press star one one again.

Please stand by while we open up the first question.

Your first question comes from Christopher Lilberg at Carnegie Investment Bank. Christopher, your line is open. Please go ahead.

Thank you very much. Good morning. I have three questions. The first one is if you could maybe comment a little bit how you think the losses from new openings will look like coming quarters. And I'm also interested to hear about the sequential improvement in diagnostic margins here. Is that only seasonal effects or have you been able to better compensate for the higher cost versus what we saw during the autumn 2022. And finally, on investments, €30 million here in the quarter. Is this a level you think will continue for the next quarter, i.e. that we will be around €120 million for the full year? Thank you.

Thanks, Christopher. Last is... In the past, if you go back, we didn't really particularly split out the losses and focus on it because they were smaller in the absolute amounts. But as we've expanded and sort of accelerated the expansion rollout, it becomes a little bit more significant. So we're given a little bit more flavor and understanding in terms of the numbers. We expect, and I think Frederick mentioned this in his commentary, that we expect to four units and actually one of them already within the quarter for one of the months has turned positive at the EBITDA level. So we expect those to turn positive within the 12 months, so before the year end. But we've got new ones coming on, Kristoffer. So we've got new units for sure coming on. We've got, as you said, we're probably going to have four new units coming in in India. And we have a hospital open now in June in Bucharest, large scale. So we will continue to have that drag, I think, as we go forward. The absolute amounts is a little bit difficult to say. We obviously have internal expectations of where we're going to go, but as they're new units, you know, it's quite easy for it to be plus and minus in respect to this. It's difficult to give guidance on that. But, you know, you should expect a continuing lag in terms of losses as we go through this year. sequentially because that's what we're doing. We're putting out new facilities and we're setting up greenfield operations or low occupancy level units and that creates a drag on us. But that's what drives the growth and once they're full, which we've got a long history of doing, of filling up these units, they become recurring cash flow generators and then that builds as a block that we carry on. That's the beauty of our businesses. It's really sticky once you get the capacity to a good level. Sequential margins, was that on 8 Division or was that?

Yeah, it was on DX. Yeah, so you have, I mean, there, Christoffer, you have a, as I commented on, it's good. So you have a combination of, excluding Belarus, you have about 9% volume impact in underlying business, so pushing more volume through our fixed infrastructure. That helps. And then, as I mentioned, the balance is the combination of price and mix of tests sold. So that's been very good. That's been helpful. So I think we should be very pleased with that.

Then you had a question, Kristoffer, on investments in terms of are you expecting to see around about 130 million Not really. I think as we talked about the capital markets, they should be looking around about 100 million plus or minus that sort of level. We are running at a higher level because we've got investments that we launched in 2022 programs and we're finalizing some of those. Some of it gets dragged into the next year. So that's a little bit higher than where I'd expect to be at the end of the year. So we slow down in terms of putting new capacity on and starting new projects so you would expect it to slow down on the second half of the year. But still it is a level which is commensurate with what we were doing and investing back in 21 and earlier years in terms of relative to the size of the business and it is enough for us to be able to reach those targets of 2.2 and take us through those targets of 2.2 billion. It's not a shy number, it's not a low level, and it's not going to impact our ability to deliver in any way. It's just that we're going a little bit slower than we were before.

Okay, thank you. I'll get back to the queue with a follow-up on new openings. Thanks.

Thank you. Please stand by for your next question. Your next question comes from Grace Lee at Jefferies. Grace, your line is open. Please go ahead.

Thank you. I've got three questions, please. First, could I ask on pricing, you've disclosed healthcare, for example, 12.1 percentage point. Can you also disclose that for diagnostic, how much pricing contributed to that organic growth, excluding COVID? And is there any sort of further pricing increases that you're expecting as we go through the rest of the year? My second question is a phasing of growth expectation from here. I think you've highlighted earlier annualizing effect organic growth 11% based on Q1 performance. But there are some expectations in terms of sort of negative impacts coming from volume side of things as well as pricing contribution into the rest of the year. So could you comment on the phasing of the growth? And then thirdly, margin bridge. Could you comment on healthcare services? I'm quite curious about that Q1 versus Q4, that drop in that margin. I'm just curious what was the driving factor around that. Thank you.

All right. Thank you, Grace, for asking us. Pricing, I made the comment on diagnostics that basically the balance between volume growth of around 9% when you exclude Belarus and then the organic revenue growth ex-COVID, that's a combination of price and mix. And, you know, it varies between the different markets. You also, as we write in the report, we have quite negative foreign exchange. So we have, you know, raised prices in local currency quite significantly more, but in euros, then it's slightly less. But I think the important thing is that you have given the fact that 50% of revenue in division has no price adjustments in this quarter for obvious reasons, and the other 50% then represents on balance in total some 7-8%. And we're not breaking that down between what is mix and what is price. Then on the facing of the growth, I'm not sure I exactly understood your question, if that was related to the point I made with annualization of first quarter revenue, which I think it was. Or Joe, do you think it was? Peppas, you answered it.

No, I think I'm just guessing a little bit here in terms of your question, Grace, but I think you were worried that there would be a negative impact on volume later on in the year because we've increased prices. We're not seeing that at all. If you look at the price increases which were put through in terms of our corporate programs, for example, that is perfectly in line with what's happening in the market with costs of labor. So as a percentage of the labor costs, we're just maintaining our position in respect to that. For employers, there's not really an issue or problem around this. We may see this a little bit to a certain extent with some particular customers, but we've got enough new business coming in, which is strong, as you see in the metrics, but we're not really concerned about that at all in any way, shape, or form. What we have got a problem, Grace, with is making sure that we can get enough people in to service the customers well that we have. So in fact, if we have some customers who are not particularly interested in paying the price that they need to pay to get that service, then we're not really too worried about actually those going away. We started that way more than a year ago in terms of being very firm on that, and that's not been a problem for us. Then I think, moving on, you had a question about the sequential margins in the healthcare services. Yeah, that's an interesting point. If you go back to Q4 on our bridge there in terms of where we looked on a light-for-light basis, we had a differential margin between Q4 2021 and Q4 2022 of around about 1.9%, and if you look at the differential margin in Q1 now on that bridge, we've increased by about 1.2%. So we've got a difference in respect to that. And if you look at that, Grace, what we've got is we've got a seasonality within the healthcare services side which is not particularly unusual. That is really I think what you're seeing coming through in terms of that sequential view rather than any underlying thing which is different. We had already in queue for the indexation impact with our prepaid business, with our employer paid business and so we already had a pickup in respect of that out of Poland and we've got a full quarter in respect of that for for the first quarter of 2023, but we've also got this is our highest cost quarter as well. So even though our utilization levels were quite benign versus what would be what it was in 2022, we still had relatively higher costs in terms of our medical operations. So I think that's what you're seeing coming through on a sequential view rather than anything fundamental.

Okay, thank you very much. Can I just follow up one point about pricing? Is there any sort of further pricing increases that you're assuming as we go through the rest of the year? Thank you.

Yeah, I mean, I think, although I think the inflationary pressure, relatively speaking, is lower now than it was in the prior year, but it certainly is not gone. So I don't think us or anyone else for that matter is through with adjusting price to address underlying inflation, although the situation is much improved versus this time last year.

Just to this point, Grace, it's worth adding for participants. We are in the process of changing a little bit how we do our contracts for corporate paid business. So we're moving that onto a renewal basis indexation rather than a once a year indexation at a fixed date or at fixed dates. And so that will smooth out a little bit in the future over time as we move our contracts over, that there won't be a sort of like one point in time where prices will jump in the year.

Great. Thank you.

Thank you. Please stand by for your next question. Your next question comes from Klaas Palin at Erik Pensa Bank. Klaas, your line is open. Please go ahead.

Thank you so much, and hello, and thanks for taking my questions. I have two about your India business. And if you could comment further on the development on the occupancy rates in the India hospitals during the first quarter. And also, you mentioned in the report that you are about to add three to five new units during 2023. And what could that mean in number of new beds?

Sure. So, you know, the reason, Claes, for me highlighting that in my commentaries is really that we make good progress. in filling up, you know, that doesn't mean that you fill up everything from one quarter to another, but we are certainly on the plans that we made for the units that we are now operating. And, you know, very important, of course, the larger a unit is, the more drag it has short term, but the larger the contribution is once it turns profitable. So as we communicated on the capital markets, just to remind everyone, we also have a gradual shift in our Indian expansion to larger units to that way drive over time higher contribution and margins. But again, point I just made, short term, you then have, if you wish, per unit a slight higher drag. So relatively speaking, it becomes even more important to show that you bring them across the corner, so to speak. So we're pleased with that class. We're on plan. And so it's good. And in terms of the three to five new units, I think you can assume one of them is a specialized cancer unit, so a repossessed unit, if you wish, that we used for other purposes previously. So we're turning that into a cancer unit. And we have a mother and child unit in Hyderabad, a larger general hospital in Hyderabad, and also two other potentials in that state. So I think overall, those projects that we single out in the reporting today is somewhere in the sort of 600, 500 to 600, possibly 700 beds they would add up to, I think.

Klaus, just to add on that as well, we do have seasonality in the Indian business and it's a little bit at the reverse of what you see in Europe, which is the winter months, so January, February, part of December. These are the lower occupancy months and our higher occupancy months are ahead of us for the rest of the year.

Thank you. Please stand by for your next question.

Your next question comes from Mathias Weston at SEB. Mathias, your line is open. Please go ahead.

Hi. A few questions for me. Sorry if I missed during the presentation, but if you could remind on planned openings of hospitals. In 2023, and perhaps plans also for 2024, and when you expect the growth investments part of CapEx to fall to the 4% level as percentage of revenues. Should we expect that into next year or rather towards the second half? That's the first one.

No, I think you may have missed that, but in terms of Joe, start from the back. We will drop towards that level during the second half. If you I think Joe quoted a number of 100 million overall, and you break that down into growth and maintenance, and divide that by your assumed annual revenue for the year, you will see that that's pretty much where you will end up, or slightly lower perhaps. So that's no difference versus what we said at the capital market today. And the planned openings, Mattias, they are what we listed there. You know, there's not a whole bunch of other hospitals in India that will come in addition to what we mentioned in the report today. Then, you know, there are some things that will come through in the, when I say some things, there are probably around two units that will come in to play first half of 24. And that's pretty much the visibility we have for the moment.

So just to recap, four or five hospitals in India and the large new state-of-the-art facility in Bucharest will open in Q2.

That's perfect. The next one, if you could share some insights on how to think about salaries through this year in terms of timing a lot of dynamics you grew the amount of personal substantially last year of course had some churn as well increasing salaries they have different countries so yeah just some insights on how to think about it here through the year of 23 yeah that's that's a tricky one matthias because you have so many different things going on at the same time in different markets so you i think i think i sort of referred to the answer i gave to

I think it was Grace that where you basically the inflationary pressure on salaries is lower now than what we had through the pressure upwards is lower. That relative upward pressure is lower now than it was through 2022. So relatively speaking, on a steady state basis, you will see less salary growth than you did last year. Now, then you have the expansion factor. Obviously, if we over time bring down growth investments a little bit, like we have discussed, the amount of new staff consequentially will also come down a little bit. But it's sort of difficult for you to model that. So I think it's probably easier if you look at the I would sort of flip it around, Mattias, and say, you know, what is my staff ratio cost going to be of revenue? And I think, you know, what we have been able to show here with the price growth coming through is that that sort of is not rising. And I think that's a reasonable assumption going forward as well here, that we're able sort of to compensate that price, sorry, that cost inflation with price growth outside the German business as we speak today.

So I think there's no surprises, Matthias, in terms of what we do, which is we pass on pressures to our customers in terms of pricing. Some areas we have a problem to do that because, for example, it's public pricing. But that doesn't mean we don't do anything in terms of our efficiency side. So we're also working in terms of the staffing levels, investing in automation, and managing our intensity in terms, if you like, for the operations. So we don't stand still on the right nor the left.

Thank you very much for that. Helpful. And then membership, I mean, sort of continues to be strong, in my opinion, at least, although falling on a year-on-year momentum in Q1 versus you had in

H2 last year so my question is really you know what have you seen maybe March April I guess this is related to the price increases somewhat and you know how you see it for the remainder of the year and what signals you have here yeah I think we want to send a strong signal in terms of the underlying demand and dynamics you know there's nothing there's nothing we see on the horizon that would single a softer sort of employment market or lower demand for those services. I think we made a point in last quarter's call or I'm not sure when, but I made the point before, now Joe touched on that earlier today, that in an environment where you raise prices quite aggressively because you have to, some customers will not be happy. It would be completely unnatural if that was not the case. you do lose some accounts because they don't really want to stay. And in an environment where staff is the biggest challenge to service the business we have, on the one hand you can say it's never nice to lose a customer, but as long as you bring in new customers on the price levels where they need to be, that is not such a bad thing. So we are certainly not concerned with the absolute member intake this quarter being slightly less than the corresponding quarter. And in reality, I think it's much better, which I know you do, Mattias, but also look at it on a rolling 12-month basis. You're always going to have quarterly differences because of some accounts going in and out, et cetera. So there's a very solid underlying robust demand for that business.

That's fair. And then in terms of healthy services, I appreciate if you don't do this, but if you could shed some light on occupancy in other markets, like Romania, Poland, and so on, as you've done for India. I have a fair guess, but if you could speak a little bit about this.

Yeah, Poland, we've had quite an okay quarter. Our main hospital in Warsaw is pretty much running at almost as full of occupancy as you can really run at. We've got a new operating theatre which opens now, so that gives us a bit more ability to put some more volume through there. Maternity business in the hospital chains in the south of Poland, they've had a reasonably decent pickup towards the end of the quarter. So that's been doing fine as well in terms of occupancy. We're quite happy with that. We saw that dip last year. I think that was part of a reaction to the Ukraine situation and ended there where people were worried what was happening. But that's been pretty okay for this quarter. In Romania, we have our two established hospitals, the one in Bucharest and the one in Oradea in the west, which have been quite okay as well. We've got a change year on year in terms of COVID business in the Oradea one. And the new hospital in Cluj, that's still in a deficit situation, so we're still getting more volume in there. So that's about growing and filling up the capacity on there. We've done some more investments to make that even more attractive. It's the premier hospital in that area. So we feel confident we can get that to the level it needs to be. And then we have the new hospital opening in June in Bucharest. And obviously we start with zero occupancy on that. So that will be our task for the rest of the year to get people into that.

Thanks so much. And yeah. That was all from me.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone keypad. Please stand by for your next question. Your next question comes from Hans Bostrom at Trinity Delta. Hans, your line is open. Please go ahead.

Good morning. Just one follow-up question on your diagnostics business. I'm just curious to understand the drivers of this strong margin improvement, particularly taking into account, I mean, you talked about it at some length, but you obviously have a static pricing situation in Germany and no doubt an accelerating cost base. I just wonder how much of a drag this German business actually is on the underlying margins and how long you expect to be able to sustain this level of margin improvement from product mix, because it does seem... like a very, very strong development considering rather unfavorable dynamics on the side relative to revenue.

Okay, Hans. Hi, Joe here. So it's a lab business. So it's the marginal revenue increase in terms of that flowing through. So if you look at Germany as a whole, just looking at that on its own, We've had quite okay growth in the underlying business there, so spilling out the COVID side. We've got a good marginal contribution coming through from there. We've kept our costs in terms of our staffing static year on year, and that means that we get that then flowing through. And how we've kept that static in a situation where we've increased salaries over the year is in terms of the staffing levels. As I said, we're working on the right side in terms of pricing and the left side in terms of cost. So we haven't been standing still in terms of our cost development as well. So we've been managing that in that environment also. So we've got actually, even with the static pricing environment, we've been able to manage some of the contribution from there in quite an okay way. On top of that, we have then in terms of the more In terms of the more fee-for-service orientated higher growth markets such as Romania, we've got a very good contribution flow coming through in terms of the additional volumes that we've been selling. And it's not only volumes, it's also we've got a good change in terms of our mix as well. So both of those things have been contributing quite strongly in terms of that margin. If you look at the comparative bridge margin that we put in the report there, we've moved that up from 10.9 on a comparative basis to 13, so we've got a 2.1% margin improvement, percentage points margin improvement. It's a good quarter because you get higher activity in Q1, so on a sort of like normalised basis as you go through for reflecting the the seasonality, we feel quite okay in terms of where we are on the performance versus the rest of the year, what we expect.

This level of keeping the staffing levels in check in Germany, is that something you expect to be able to sustain then on a two-, three-year view, or is this really a very favorable situation you are in in the beginning of this year in that regard?

No, that's our outlook and that's our plan. If we look back over the last 18 months or so, we've been also doing automation investments and we are continuing to do that as well. Our aim is in terms of dealing with part of the cost pressure is also then in terms of dealing with our cost structure. That's how we are dealing in terms of that. We've worked both in terms of the pricing and the volumes that we get, but we also work in terms of the efficiency and the effectiveness of how we use our staff and facilities.

Thank you. There are currently no further questions.

We have one more question in the chat. As I remember from previous calls, you have ability to increase prices by inflation to corporate clients in October and February. Did you use CPI indexation in February 2023?

Thank you, David. Historically, we were invested in two points, October and February. The majority of the indexation was in October, so the February indexation was a relatively small part of the total portfolio. As I mentioned, what we have done is we are moving our client base And we haven't done that for all of them yet, but we're moving them to move the indexation to the anniversary of when the contractor originally come. So we're going to move away from this October and February indexation.

All right. I think that was all questions. Thank you for listening and goodbye.

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