Medicover AB (publ)

Good day and welcome to the MediCover second quarter 23 results presentation. At this time all participants are in listening only mode. After the speaker's presentation there will be a question and answer session and to ask questions during the session you will need to press star 1 1 on your telephone keypad and you should hear an automated message advising you that your hand is raised. To withdraw your question please press star 1 1 again. Please be advised that today's conference is being recorded. And I would now like to hand you over to your speaker of today, Fredrik Rackmark. Please go ahead.

Thank you. Good morning, everyone. Welcome to our second quarter 2023 results presentation. And we have headlined our first slide, Strong Organic Growth, Always Still Difficult Macroeconomic Environments. I think that summarized very well the environment we're in. Still high inflation, cost pressures, et cetera, et cetera. But despite that, I think we deliver a very solid, robust set of numbers. Fundamentally underlying good, strong organic growth, overall 12.9%, and neutralizing for the impact of the still quite significant COVID quarter last year round, we take up to 22% organic growth. Again, a good solid number. And of that, just below 10 percentage points represent price, illustrating the impact of the quite significant efforts the team has done on price adjustments over the past year. Also, to point your attention to the fact that if we annualize the growth In the quarter, we put on more than 350 million of additional revenue since over the last 12 months and the vast majority of that is organic growth. And I think that is a good sort of bookmark in terms of us being well underway in terms of the new three-year financial targets. We're just six months into that new three-year period. But despite that, I think we have started that period in a very good and strong way. Healthcare services, a very strong quarter. Solid growth and margins improving on the back of price growth, gradually maturing units and just scale. So, you know, putting more customers through our fixed cost infrastructure. Equally diagnostic services, optically, the first look may look sort of flattish, and that's obviously with COVID unwinding, but as we'll take you through when you look into the numbers, it's actually really good underlying solid growth volume-wise and mix-wise, and also price, although held back, obviously, by Germany being big in this division. And we just recently here inaugurated a new big two-under-bed multi-specialty hospital in Bucharest. In fact, you know, not that more anecdotal than anything, but it's the first hospital of its size and specialization to open in Bucharest in many decades. So that's going to be an important piece in terms of driving our Romanian business. And importantly, I make a statement at the end of my CEO comment that we expect to see continued improved performance during the second half of this year and also into 2024. And that's really on the back of the same drivers that we have seen impacting the results this quarter. And then a bit more specific revenue here for the second quarter then. just short of 425 million euros. So run rate wise, then some 1.7 billion euros annualized. That's up 17.2% of which organic 12.9. Again, I think that's a very solid result. Not to forget all the COVID revenue that we replaced. And in addition to that has put on quite a bit of more more revenue, so excluding for that point made before 22% organic growth, excluding COVID, acquired revenue in this 25 million, and now fee for service is up to 58% of the total group. On the pie chart, perhaps just to bring your attention to one data point, and that is actually for, I think it's the first time for quite some quarters where Poland is actually gaining a proportional share, so you see that's up to 48% of our overall revenue base, and that's on the back of growing 30% in the quarter, which is quite an outstanding number. There's some foreign exchange gains in it, etc., but nevertheless, that's quite an outstanding number. Otherwise, I think the The graphs and pie chart on this page will speak for themselves. Moving on to margins, so strong development despite fall off of COVID-19 now. The second quarter last year, we still had 28 million euros revenue COVID, I believe. So that's really the, it's tapering off quite significantly then in the comparative quarters, Q3 and Q4 last year. This is in a way the last quarter where we had really tough comps from COVID-19. And I think you can see that very well in the bar chart to the right where obviously the blue is the underlying and you have that light grey being the EBITDA top-up which you can see topped off in the final quarter 2021. but still was not insignificant for the first half last year. So I think that's quite a good illustration of what's happening underlying. So just north of 58 million EBITDA up 10%, 13.7% margin. Again, if we adjust that for COVID, we increased margins 120 basis points to 13.7. Adjusted EBITDA just north of 61 million. and adjusted EBITDA L at 36.7, 8.6% down from prior year 9.6 EBIT, just above 13 million. Also important to point out, we sort of comment on that in every quarter, but it's important to remind you that we do have very strong cash generation. That's part of the business model we operate. And that was the same this quarter. So good, solid, strong cash flow, which is good to see. And moving on to healthcare services. So revenue then, 292.5 million. So just short of 1.2 billion run rate revenue in healthcare services. Quite an impressive number, up 33%, of which organic 22%. And in this 22% organic growth price is about 12 percentage points, 10% being volume and a bit of mix. So good solid underlying volume and importantly price growth. And this is obviously a key measure through which we have addressed and do address the still ongoing cost inflation in pretty much all our countries, but obviously Poland being by far the largest and most important one. 25 million, so you see basically all of the acquired revenue in the group sits here. Fee-for-service grew strongly, so up 28%, significant no COVID impacts on that side, so just a good solid performance, good performance and demand levels, and we see that throughout I mentioned before the new hospital in Bucharest that opened, and we have three major openings scheduled in India during the second half of the year. So although we say that we have slowed down the investment pace to more historic levels, Joe will talk more about that later on, that does not mean in any way that we have stopped investing. We have more brought it back to more historic normalized levels. We continue to see good member growth, so 20,000 new members in the quarter, 7.5% up, so just a little bit north of 1.7 million members in the corporate paid business. Now, volume growth, some maturing, and price hardening led to good sort of flow through for healthcare services. EBITDA just short of 45 million euros, so up more than 50% versus last year. 15.3%, so 180 basis points or so improvement, so good to see that. Let's not forget that we still have a lot of immature units, not the least the large one we just opened in Bucharest. We're still carrying quite a significant drag in this division from immature units. So beta L of 26.8 million euros, again, a good solid growth from prior years. And the factors driving this, I have already commented on. Then if we flip to diagnostic services, revenue 138.1 million, that's an organic reduction of just 0.4 percentage points. And you see that we had 800,000 euros from COVID revenue this quarter versus 27 million last year. So comparing underlying like for like, the organic growth in this division excluding COVID was 21%, of which price represents 5 percentage points. That 16% is largely volume driven, but a couple of percentage points of mix in there as well. You can see if price represents five percentage points here. I talked you through before that we have 12 percentage points in healthcare services now. You recall, as you see there at the bottom, that Germany is basically, now it's 48%, I believe. of the division where we had no price movement, so five percentage points is quite a figure to be expected relative to the movements we have seen in the other division, i.e. price growth outside Germany has worked real well, but we still wait to see something in that respect in Germany. Ukraine continues to perform just outstandingly considering the circumstances. We say every quarter we take off our hats for the colleagues in Ukraine and we continue to do so. Test volume represents approximately 80% of normalized levels. So quite an outstanding achievement. So the fee for service here represented 70% and that was basically flat versus the prior year. And moving then on to how has that impacted margins in diagnostics, I think they've performed quite well under the circumstances, beat just north of 20 million, 14.7%, obviously quite a big contraction from prior year with the COVID earnings. So excluding COVID-19, we were at 14.7, that's down 40 basis points from prior year. which is driven solely by the German situation. So we're actually compensating that significantly much more outside of Germany and then being slightly held back for the time being in Germany. So a beta L of 14 million is the approximate 10% margin down from just north of 15% last year. So you see that flows straight through the P&L exactly in the same way. I think important to point out here is the solid underlying volume growth and price growth in the market, volume growth across the division really, and then price growth outside Germany. We make the point here, still no price adjustments on the horizon in Germany, and that is the situation, and we will see when that comes. And I think with that summary, I will hand over to Joe and then come back to answer your questions after Joe's session.

Thank you, Frederik. So interest rates in an interest rate environment which has increased, so we expect to see our interest rates costs go up. In terms of lease liability interest, this is more of a fixed nature because this is the exception of the lease. has increased in line with the increase in the lease liabilities, but there's not been no rate impact in respect of on that. Other interest costs, which relates to real debt, if you like, that's round about doubled. So our total interest charge, 11.5. In terms of the implied interest rates, it's gone up slightly with the new leases and indexation for lease liabilities on the real debt then we've pretty much doubled in terms of the effective interest rate cost for the cost of the debt. Approximately half of the debt is fixed interest rate, and approximately the rest is floating rates. Average maturity goods, the only maturity we've got on our horizon is 2024, with small rollover in our German shoulder shine debts in the second half of the year. So really, we need to look through to 2025 before we see our first Real maturities coming up in terms of the indebtedness levels, they've stayed pretty stable since the end of 2022. So since the end of 2022, loans payable net balances have increased around about 12 million euros, so very benign. In terms of the indebtedness levels ratios, as reported, that has increased, so 3.2 to 3.5 from the end of the year. We will see that now trend down over the second half of the year. It's not about the debt levels, because as you can see, the debt levels have stayed pretty static. It's about the fallout of COVID contribution and the replacing of that with our underlying business. And as those numbers increase on the second half of the year, we'll see the debt levels trend down, the indebtedness levels trend down. In terms of cash flow, strong cash flow for the first half, so we've done $105 million net operational cash flow. If we look at that in terms of a free cash flow basis, we've invested some 53.9 cash in terms of capital spending, so that leaves us with about 51 million in terms of free cash flows, so a strong number there performing as we reduce our capital investment pace to a level which is commensurate with where we've been in the past. If we look back to the prior year on that sort of free cash flow basis, we were at 73.6 million for the first half in terms of cash flows, and we spent 67.9 million in terms of capital spending, much higher pace back in 2022, so 5.7 million pre-cash flow on a comparable basis. This is sort of an idea in terms of the business cash generation which we're generating. I move on then in terms of lease liabilities. Those have slightly increased there, so we're up about $13 million. The largest movement then is in terms of lease extensions and indexation, $45 million. So about $25 million of that is actually new leases or extensions. $20 million is indexation impacts, which really come through now rather than we're seeing those come through in 2022 as a trailing impact. Our equity has increased slightly. We've gone from 472 to 485. The largest movement on there has been our translation of impact with the increasing strength of the Polish zloty and our large exposure in terms of our balance sheet on Polish zloty assets. We've seen a large movement in terms of the translation of our balance sheets. And just coming back in terms of our capital investment, So Q2, that was 24.3 million, 53.9 million for the first six months. A little bit of that coming over from prior year where we were investing at a higher pace. Our healthcare services finishing off some of the assets which we had running on there, particularly the hospital and book arrest. So 39.7 million for the six months and 14.2 for our diagnostic services. If we look at where we're running, it was at 5.7% of revenue in Q2, 6.4% for the first half. And if we look through for the year end, it's going to be sort of similar levels overall for the full year. Now, that's down from our 9.9% that we invested in for the full year 2022. So it gives you an idea that we are slowing down our organic deployment of capital. But that's still in line with where we were sort of in prior years. So we had 7.6 back in 2021. And the total amount is going to be north of 100 million euros that we deploy. So we're not sort of slowing it down historically. We're slowing it down sequentially from our very high levels in 2022. About a third of the amount that we've invested has gone into hospital facilities in the first half. So Romania, India, and Poland. long lived assets, infrastructure assets which would be earning us cash for 20, 30 years. In terms of the financial targets, we are well on our way in terms of meeting our revenue targets. So you can see there if you annualize our revenues for the quarter then you can see we've still got quite a chunky number in terms of to fill that 2.2 billion target but I think you can be fairly confident that we will be able to deliver on that. And then in terms of our EBITDA targets, again, we have a way to go in terms of getting to that $350 million. But again, as you can see, with a sequential improvement in terms of margins, which we expect to see a continuation of that development through the second half this year and then into 2024. both with the size and the increase of the business and then also with margin development we expect to be on track to deliver on those targets as well. We are up at our leverage levels, 3.5. We're quite happy to be there. That means we're using our balance sheet. The cash generation, as I alluded to earlier, you can see in terms of we can manage our debt levels quite well by changing our pace of deployment of new capital. So we're in good shape to deliver on our 2025 targets.