Medicover AB (publ)

Welcome to the MediCover Q3 2024 report presentation. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to the speakers, CEO Frederick Ruhmark and CFO Joe Ryan. Please go ahead.

Good morning everyone. Nice of you to join us for our third quarter results presentation. Before I start going into the presentation, I would just like to mention that This is then the last quarter when we have Joe Ryan as CFO, who will be taking us through the results today. I will be coming back to Joe at the end of the presentation today. And also we have in the room with us here Anand Patel, who you have seen we have recruited in as successor to Joe, who sits in on the presentation today, although he will not be speaking. but just so you are all aware that both of them are in the room. So the third quarter overall message, a very good quarter, actually very strong and robust delivery. We continue the very strong and visible trend we have reported throughout the first half of the year with strong and even increasing organic revenue growth coupled with expanding margins in both divisions, as we will go through in detail. And in addition to that, very strong operating cash flow. So I think those are the sort of three cornerstones. We had organic revenue, which ticked up above 17%, so 17.4%, which obviously speaks for itself. represented by both divisions really, we come back to that in detail. Operating cash flow. I also added in here for your information, you find that in some of the details of the quarterly reporting, but I think it's interesting to see if we look at the rolling 12 months figure for our net operating cash flow, it's 240.2 million. Here in the third quarter, that's up 18% versus the same period last year. But more importantly, it is the strongest quarter ever from that operating cash flow measure on a rolling 12-month basis we've had since we listed the company. That includes these rather exceptional COVID-19 years. That's a very good illustration of the progress we are making, because obviously cash flow is always largely the best measure to see performance. Again, healthcare services continue to show very strong organic growth. You can say you're almost getting used to that, but nevertheless, very strong underlying of organic growth, which drives profitability improvement. And that's really coming across the board. We've talked about each quarter for quite some time now, the importance of filling up the infrastructure that we have invested into. And of course, that's particularly true in healthcare services with the investments, particularly in India and Romania. And we will talk more about that. But most importantly, it's very visible in the numbers we report. Likewise, diagnostic services are growing very nicely. We continue the trend we have seen first half of the year with solid double-digit organic growth again, and even on a volume basis for diagnostic services. Less price on that side because of half of it being in Germany. But nevertheless, a very strong position. We are also recording an impairment charge of 16.4 million on our Nordic fertility businesses, Denmark and Norway, as well as the German dental activities. And we will talk a little bit more details about that later on in the presentation. So going to the second page that you recognize. So overall, then just short of 20% growth, 19.8% to be exact, 17.4% organic. Acquired revenue almost non-existent. You know that we have been very inactive now for some, well, seven quarters really on the inorganic front. So that's very visible in that number. good growth in fee-for-service, of course, given the overall impact of fee-for-service in our revenue base. And I've already made the point, I think, significantly on the operating cash flow. On the pie charts, just pointing out, I think it's worthwhile. You see Poland, if you had had the quarter 3.23 pie in front of you, Poland was then 48%. So despite us growing quite nicely in many other geographies, Poland is growing so strongly. So its share has popped up to 50%. So you see that 25% growth out of Poland, obviously rather exceptional. I'm sure as Joe will comment on later on, there is some Foreign exchange support in that number clearly on the back of the slot is strengthening, but also the underlying real number is very significant. You see Germany, again worthwhile to point out, 15% up. And that is despite a pricing situation that is a constant topic to talk about. So Germany performs very strongly. Romania you see on the back of course largely of additional hospital capacity that we put into healthcare services in Romania. India you see they're 10%. I talk about 11% when we talk about our hospital business. So the fact that India as a geography is 10% is due to the fertility businesses that we've exited, that we have talked about before. So more importantly, the hospital business is then in Europe up 11%, in local currencies up 13%. Then if you go to the next slide, looking at the profitability, two points to make. You remember last time around, so third quarter last year, we had an exceptional credit that we put into central administrative costs not to impact the trading margins in the two divisions. That was, you know, these sort of contingent acquisition payments that would not be paid. So we had to credit that back to the P&L now. So that's why you see actually shrinking margins on the reported number. For all sense and purposes, when we look at how the business is doing, I think we need to take that out because that was one of non-cash, non-operational. And in doing so, as you see here in the slightly smaller print, we have good, healthy margin increase on All results measures and very much in line with what you have seen during quarter one and quarter two so far this year, and likewise what we expect to see going forward. Joe will speak more about the goodwill impairment, but of course that then goes to operating profit and it goes to net profit, which is then significantly impacted. As I note in my CEO statement, also just for full transparency, if we neutralize the impairment charge in addition to the 4 million, our operating profit EBIT is up just short of 60% versus the prior year quarter, and a good evidence then of operational leverage. A point that we have made, I think, every quarter recently is the fact that Despite then having quite significant sort of margin expansion in here, we still carry a significant drag with us from the, you know, the larger hospitals that we have opened. And specifically what we say in this report, if we look over the past two years, so since the third quarter 22, we have opened six large units, five of them in India, one in Bucharest, and two of those six we have now opened then during the third quarter this year, so during July and August of 24. Now, two of those six turned positive during the quarter, and that's a really important message because, of course, as they turn positive, they no longer lose money. Now, as a group, those six hospitals contributed almost a negative 5 million on a beta L basis in this quarter. So for the overall group, that's close to 90 basis points of additional margin. just by bringing them to zero, let alone of course getting to the profitability levels where we want and need them to be. So that is really the single largest item that keeps improving our margins on a reported basis as we progress. Then turning to healthcare services, again, very impressive growth, organic above 18%, so 18.3%. That splits pretty much 50-50 into price and volume, so 9 percentage points of price and slightly more than 9 percentage points of volume growth. Almost non-existent acquired revenue, and you see fee for service up 16%, just above half of the divisional revenue. And I think we can say universally a very strong demand picture across the line here. I spoke before about Poland, Romania is certainly a similar situation, as well as India. So I mentioned before, India hospice up 13% in local currency, a good member intake in our corporate paid business. So overall, a very solid picture for revenue wise healthcare services. that is then transforming into you know good robust you know profit improvement 20 basis points up on the beta 70 basis points up on the beta l so really visible in terms of the improvements we are doing here I made the point already on in terms of the six hospital units now if you look only on the healthcare services division and that amount of money, you see that's even 130 basis points additional EBITDA L margin on top of the 9.8 that we report in this quarter. So as a proportion of the overall reported margin right now is then really significant as you can see. And two of the six have turned positive in the quarter. We just opened an additional tube, which will obviously take some time to bring to positive territory. But really important is that you understand that underlying dynamics in terms of what is driving the improvement. Then we have a slide which we have had for a couple of quarters just to show you where are the Indian hospitals and the maturity profile of them. I will only point out on the map this time around. You see the slightly more light blue bobs. You have Warangal up to the middle right, which opened during the summer. And you have Bangalore. down in the, for us, new state Karnataka, which also opened then during the third quarter. So those are the two additions during the quarter. Then moving on to diagnostic services, good growth, very solid growth, 15.5% up, of which organic was 15.3%. And then price representing four percentage points of that. So you see volume growth being 11% plus. And if you think about 4% price growth and basically half of the business in Germany, healthcare services had 9% price growth. So 8% on a like for like basis, then it's more or less 8%. So quite similar between the two divisions when you compensate for the situation in Germany. So overall good growth, driven both by some price, obviously, but also good test mix development, underlying good test growth. We have commented for a number of quarters in terms of the situation in Germany. You will probably have some questions around that. And the situation we are You know, you recall us saying two, three quarters back, but that we expected price increases. Now we see price being flat and we are working hard to address that situation and compensate in terms of cost structure. We are confident in terms of the work we do in that area. And I think it is relevant to make that comment that of course Germany being half of the division and the significant margin growth that you see in diagnostic services is of course largely driven by Germany given that it's half of the division. And I think the fact that we are able to grow our margins in the division and then largely out of Germany the way we do, despite a situation the way we have reported it with prices being stable and not growing, I think is a good illustration. So we are confident that we will manage that situation going forward. But I'm sure you will have some additional questions relating to that. So in terms of margins coming out of DX, we have said many times, you know, this is a more sort of marginal contribution type of business. So when we put more volume into the network, we have a larger proportion of that additional revenue will flow through as additional contribution. And that's really evident when you look at the At the margin expansion, you've seen that picture before, and that's a picture that we expect to continually, obviously, a good picture to report. And really, just like the comment I had on healthcare services, it really is a good, solid demand picture across our markets in Germany, in the other countries. We don't have a bullet here on Ukraine. I shall mention Ukraine separately. You know, there is no change. You read the newspapers as much as we do, I'm sure, so there's really no change in the in the situation and the hostilities with Russia. Our business performs well in Ukraine, surprisingly well, I should say. And the efforts that are being made by our team, by our leadership in Ukraine is nothing less than heroic to manage that situation. We keep on what we call the NHS pilot, so that is doing quite a large volume of tests with the local public system on the back of expecting reimbursement for those during 2025. That slightly impacts the test and sort of revenue mix out of DX. It's well described in the report. I just want to mention that we are very supportive, we are behind Ukraine, but there's no difference in outlook in terms of when that conflict will end. All right. So with that, I will hand over to Joe for the financial overview.

Thank you, Fredrik. So my preferred measure here is adjusted EBITDA, so EBITDA after lease costs. That's more in line with our cash flows from our operating business. as the real estate that we use in the business is a recurring structure of our capital and a recurring cash outflow for the group. That measure grew by 16%, so we're up to 48.5 million. Last time around, 41.9 million. And the margin there is down. We're down for 9.2 for 9.5. So when you adjust for the €4 million credit we had exceptionally last time around, then that margin comes up. Well, the growth comes up to 28% and the margin comes up in line to reflect what's happening in the business underlying. So we're up 0.6 percentage points on that margin level. So good development on our cash flows. And you see that then also later on in the cash flow numbers as well. Healthcare services, that wasn't impacted by this one off credit. the divisions uh this is the segment so healthcare services 36.1 million around 28.5 last time around so you can see we've got point four percentage points increase in the margin on there um the flow through on the incremental volumes um and operational leverage but the operational leverage is a little bit clouded we see that on some lines um very clearly for instance on these costs and some other items but it's a bit clouded by the um startup costs as well that we incur in relation to the new hospitals we have running. On the diagnostic side, 19.5 versus 15.2. So you can see the absolute amounts there and margin quite clearly up 12 versus 10.7. So it's a little bit clearer here in terms of that flow through the contribution in the increased volumes coming from the fee for service markets. Operational leverage, you can see much clearer in the diagnostic side. They have less new units diluting the figures. Continue room for growth here. I think we've got that coming as we've explained before. You can see that for many quarters coming through. We've got the maturing profile of the units that we have on the ground now. We've got the volume increments which will feed through in that. And on top of that, we have various different efficiency initiatives working as well in terms of to improve efficiency and margins. As mentioned, we had an impairment charge this quarter, 16.4 million overall in two business areas, smaller business areas. We had a Nordic IVF activities and we had an impairment 9.8 million there and a German dental business unit. units, 6.6 million. And that's about one third of the goodwill that we carry for the Nordics and about half of the goodwill we carry on the German dental businesses. These are relatively small units. We have always been and are conservative in terms of our goodwill carrying values. We still carry after those empowerment charges, 515 million euros of goodwill at the end of the quarter. And all of those other items in our goodwill, we have lots of headroom and very clean and very clear that there's no issues with any of that goodwill that we're carrying. Very well supported. So that means then there's a clean situation in terms of when I hand over to the new CFO, so leave a clean deck, so to speak. That's approximately 3% of our carrying Goodwill value. And it's worth noting that one of the, One of the negative things in respect of writing that down is obviously it hits our net profits and earnings per share. So if we adjusted for just this item, 16.4 million, that would be 10.9 euro cents higher in terms of the earnings per share. So unfortunately, I'll leave on a little negative note in terms of that, but at least it's definitely a clean slate going forward. If we look at our leverage levels, that's come down. So we come down to 3.1 versus 3.3. This is our basis of looking at leverage where we look at our loans payable, net of cash and liquid investments to adjusted EBITDA also after leases. So we're not including lease liabilities in this measure. Now that sort of like is with the leverage, but I think that what you is hidden there is that the leverage has been much larger than that. We've got 52 million euros of cash and debt recognition in terms of buying in non-controlling interests. And that sort of doesn't change the the profit measure in the in the leverage calculation. So that's to increase our shareholders' share of profits and to feed through into EPS increase. So we financed that and still come down in terms of leverage. Inorganic acquisitions, 18.1. This time last year was 16.4 for the nine months. So in those units, we've had a little bit of investment in Germany. We bought out a lab in Germany in Berlin and integrating that into our Berlin assets, and then also a nice addition with the genetics unit in the west of the country. We have some dental units as well within those figures. Net debt overall increased 62.8 million for the nine months, and working capital side has been very benign, 12.4 million increase for the nine months as well. So we have a very good working capital cycle, very benign in almost all of our units, as you can see with the growth we put on with a very small net investment in working capital. our effective tax rate comes in that we keep that 26 percent projected for the year end through to the year end and our operating cash flow up 25 percent as I mentioned earlier on you can see that flow through in terms of the cash that we're generating so 25 percent up at 72.3 million And if you look for the nine months, we're at just short of 200 million versus just over 160 million last year around. So that's up 22%. So we are generating more cash out of the businesses as you'd expect in terms of investing and growing the activities. Then if we look at our free recurring cash flow, So what we've got left after our lease payments and after we reinvest in our maintenance side of the business, that was just short, just under 35 million euros, 34.8 million. So up 35% for the quarter. And if we look at the nine months, that was just short of 90 million, up from 66 million. And so that's 35% up. So really, um good strong uh development for the nine months if i look at that as a percentage of revenues then we can see a very clear increase there so we're at 5.8 percent from 5.1 percent so um we are not only generating absolute you know with the size of the business growth but we're also increasing the um the margin in respect of that free cash flow free recurring cash flow We then reinvested in the business our growth investments and we did just short of 20 million for the quarter. And if I look for the nine months, we're at 55 million for the nine months, up slightly on where we were in absolute amounts of money in the prior year. Of that 55 million, around about a third, just over a third, has been into our Indian activities in our hospitals. So we've got three large hospital units in there that we've invested in with Warangal outside Hyderabad, our beautiful facility in Bangalore. And then we've also got a facility in Visag, our Onco facility, which is also then a brand new state of the art electric machines there as well. So really nice facility and that's picked up really well. Then we have some Polish gyms, quite a bit of IT spending there as well, particularly in terms of orientated to resilience and in terms of new statutory obligations on our healthcare businesses as deemed to be critical infrastructure. We're looking then on the next slide, you can see here in terms of that capex on the left hand side, you can see our free recurring cash flows. You can see that as a percentage increase that from five point one to five point eight percent. And you can see then our organic growth investment with the darker column there in terms of where we've reinvested part of that free cash flows. Our organic capex then, so this is capex excluding leases, so real assets if you like. You can see there in terms of the graphs, 5.4% for the quarter as a percentage of revenues, 5.3% as a percentage of revenues for the nine months. So we are up in terms of the absolute amounts, but you can see we are for the nine months we are down in terms of as percentage. You will see a slightly higher capex in Q4 as a percentage of revenues. We've got some projects coming in which we're finalizing some new clinical assets and also we have quite a few gyms coming in as well in Q3, hopefully if they are finalized in time. Just come back in a quick glance at our financial targets through for 2025. So sort of a short-term target now, really, looking forward just over one year. If you look on the left-hand side there, you can see that projection we have with the dotted line in terms of the rate of growth. Remember, we didn't start at 1.5 billion revenues. We started lower than that because part of that revenues was COVID. So adjusting for that, you can see we are well on track in terms of meeting our target levels. And if you look at our run right now for this quarter, and remember, our revenues are recurring. So if we're showing revenues on there, those revenues are largely recurring revenues. So we're well on track with there with 2.1 billion run rate. So we'll clearly be in excess of 2.2 billion euros for next year. If we look then in terms of our adjusted EBITDA organic, you can see in that same projection, if you look at the start base, we had to take off the COVID contributions, profits that we were getting, so our base was much lower. And I think you can see on that with the dotted line as well, that we are well on track in terms of meeting that 350 million organic EBITDA target. We have then also some illustrations here which haven't changed in respect of some of the other profit metrics that you will see. Leverage, we're now at 3.1. Our stated level is to be lower than 3.5 or at 3.5 unless we've got some short-term larger inorganic activity, but we're well within that measure currently. I hand back to you, Fredrik.