Medicover AB (publ)

Welcome to the MediCover Q4 2024 report presentation. Today's conference call is limited to 60 minutes. For the first part of the call, participants will be in listen-only mode. During the Q&A session, participants can ask questions by dialing the pound key followed by five on their telephone keypad. Now I will hand the conference over to the speakers, CEO Fredrik Rogmark and CFO Anand Patel. Please go ahead.

So good morning, everyone. Welcome to Medicover's fourth quarter 2024 and full year 2024 reporting. I have with me in the room Anand Patel. I have also with me in the room John Stubbington. and I start with saying you also saw this announcement in the morning that John will be succeeding me as CEO 1st of May and we will comment on that towards the end of the presentation as well as take any questions related to that during the Q&A when of course John will also be able to answer any questions. So the highlights for the quarter I think we have had a number of very strong quarters that we have reported throughout 2024, and I think this is the same. I think it's an excellent quarter to end 2024 with. We have double-digit volume growth in both divisions, both reporting segments, and that is then topped up with significant pricing power in both divisions. So a very high double-digit organic growth in both divisions and for the group. And in addition to that, both reporting segments, both divisions, we see significantly strengthened margins. So very important, very positive. We have seen a continued very strong growth out of healthcare services, particularly Poland remains very strong, but as well, you know, Romania, And I think also for some of you, probably a bit surprising, but a really increased organic volume growth in diagnostic services. We have reported now for a few consecutive quarters that growth is really back in the diagnostic business, including Germany. And that's really good. And as point we made many times is that once volume comes back in diagnostics business, you see that coming through in margin expansion rather quickly. Also very important to point out, again, I've commented on that much more frequently in recent quarters, is that we see a very strong pickup in the underlying operating cash flow. And in this quarter, we report net operating cash flow up more than 50% versus the fourth quarter last year, which again is a very strong sign. Towards the end of last year, so in December, I believe, we announced the potential plans to list our Indian subsidiary locally in India. And that is work that is ongoing. I reiterate the point made back then that it's a 12 to 24-month process to make that happen. Nothing is certain, but we have a strong ambition to make that happen. It's not going to be executed as a listing in 2025, but a strong ambition to make that happen during 2026. If we then turn to the standard slide, you have seen many times in terms of revenue, more than 20% growth, of which just short of 19% organic. In fact, if you annualize the absolute growth, the absolute organic growth we have in this quarter. It's about 75% of the size of the entire company when we listed back in 2017. So I think that puts a perspective on the absolute amount of organic growth that we generate as a business. You see a quadrant revenue being very modest because we've had these 18 odd months or so behind us where We have had very muted inorganic activity, as you know. If we look at the pie charts again, I think relevant to point out Poland, now more than 50% of the group, you see 23% up. We have some foreign exchange tailwind in Poland, which is helpful, but despite this underlying excluding effects, very strong growth out of Poland, Notably, look at Germany, 15%. We've had a number of quarters where we have reported, for German purposes, very high growth. I think it's very pleasing to see that continuing. 32% out of Romania. You see 11% out of India. Local currency growth for our Indian hospital business is 13%. So we see also... significant double-digit growth out of the indian hospital business now that is few feeding through into good you know margin expansion on this slide which i've significantly point out in my ceo statement you recall that last time around so in the fourth quarter 2023 we had a very large one of exceptional credit to the P&L statement in central admin cost, where we had to put back when we did not pay out additional money for acquisitions. So we had a big credit to the central admin cost. Now, for all sense and purposes, when we look at how the business is doing, I think we need to neutralize that. Of course, in the reported number, you don't see that. We net that out in the sub settings here because the relevant thing is, of course, to understand how the operating margin develops, excluding such large one-off. And look at the EBITDA margin overall, excluding that one-off in the prior quarter, we're up 30 basis point. If we look at adjusted EBITDA margin with up 80 basis points, look at adjusted EBITDA L, we're up 110. basis points and you come down to operating profit, we're up a full 160 basis points. And we have talked about this in quite a few of the recent quarters that, of course, it's really important that we see that margin is expanding more the further down the profit and loss statement we come. And that is, of course, the largest factor behind the strong cash flow generation. I mean, we've always had strong cash flow, but the pickup in the in the cash flow generation we see. So that's really a very good picture to see and perhaps equally important, which I come back to at the outlook slide at the end is that we're very confident, comfortable that we will see that trend continuing because as we have commented on many times recently, the drivers why that has happened over the prior quarters, why it's happening in this quarter are the same as why it will continue to happen in future quarters. Then if we turn to healthcare services, again, super strong growth above 21% of which 19% or 19.2% to be specific, organic, eight and a half percentage points of that price. And then the rest being volume growth. For the full year, again, almost 22% growth, just short of 18% organic growth for healthcare services for the full year. I think quite an outstanding number. You see acquired revenue for healthcare service almost non-existent for the year. And important to point out, know it's a very strong demand picture across the board so it's not one single business somewhere that is doing really well so we see a very sort of solid uh both volume and revenue growth across the entire spectrum of activities in healthcare services so Very positive. Now, that is then feeding through. You recall, I think everyone on the call probably remembers that, but the exceptional items that I talked about before, we accounted for them in central cost with the purpose of keeping the divisional numbers unaffected. So when we look at the The visual numbers, we don't need to do any adjustments because these are the same numbers year on year. So we look at a beta margin up really well, 70 basis points for the full year, 60 basis points. And again, same trend that the further down the P&L statement we go. you know, the stronger the margin expansion, EBITDA L, which you recall is one of the key metrics we look at. That's very much a proxy to cash generation that Anand will talk much more about later. And you see that being a full percentage point, higher margin, both for the quarter and for the full year. And when we come down to EBIT, you see the up, you know, short of 90% for the quarter. with more than two percentage points expansion for the full year, about one and a half percentage point expansion again with big absolute increases. So all in all, you see the volume increase that we put through the infrastructure that we have invested in as we put more and more paying customers through this infrastructure. We see margins going up. I think that's what we have been if not preaching, but we have repeated repetitively throughout the year behind us. And I think it's pleasing to see that coming through. Last quarter, we commented on the fact that when we look on the most recent six hospital openings over the past two and a half years, then five of them being in India, Number six being the more recent large hospital in Bucharest. In the third quarter, they brought a 4.7 million EBITDA-L loss. Now in this quarter, they bring a 3.3 million EBITDA-L loss. And I made the point last quarter or three months ago that two of the six then turned positive. So although we still lose a fair amount of money, I think the important point to make here is that you can see sequentially quarter on quarter, quite a big increase or change in that loss. And again, something that we expect to continue. And even with the loss that we report for these six units for this quarter, just bringing it to zero. So just bringing it to break even. which is not going to take too many quarters, you see is an equivalent of additional 90 basis point EBITDA L margin for healthcare services. So relative to 9% or 9.2%, which 9.4%, excuse me, that we reported for this quarter, obviously another 90 basis point is quite significant. So I think that's an important data point that you bring with you. We've had very good medical cost management and medical cost control. You see our overall loss ratio for the division is down quite significantly. And remember that is still in an environment where medical cost inflation is certainly not gone by no means. So it's a very large amount of hard work and nitty-gritty details that is involved in making that cost ratio coming through like that. So well done is my message to the team there. You recognize the standard map of India with our hospital network, and this is just to remind you that the two most recent openings then that we did back in the summer 24, so in the beginning of the third quarter, Warangal that you see there in the middle up to the right, sort of north of Hyderabad and then Bangalore or Bangalore down in the southern part of the country. Those are the two most recent ones that we then are busy filling up with new customers. I remind you that we have previously communicated, which is still the case, that we have two more openings coming in pipeline. one uh sort of second half of uh of the of 25 uh in in uh what both of them hydra but effective and then then the second one in in early 26. shifting on to diagnostic services So again, repeat, super good growth, up 18.3%, of which 17.3% organic. Very happy with that number. You see price representing 4.4, so above 12, 12.5% organic volume growth. And for the full year, 15% up, 15.2% and organic 14%. So very solid rebound back to historic growth numbers for for diagnostics. Slightly more acquired revenue here than in healthcare services. We have bought some smaller labs. And if you recall, we bought the lab activity in Berlin about a year ago. So relatively benign to the overall picture, but slightly more than in healthcare services. Again, then, of course, the organic volume growth driven by organic test volume growth. So you see the same, more or less the same numbers coming through in test growth as we report in organic volume growth for obvious reasons. And then the pricing reform in Germany, which we have spent a lot of time on recent earnings call to talk about and in our report writing is in effect. And as we say in the report, we believe that we are in a position that the implications of that in terms of 2025, we are able to manage with ongoing efficiency programs. I also comment on the next slide, if you go to the profitability slide, that not starting from the bottom, but we've seen very solid margin expansion in diagnostics. And you see, I'm not going to run through each line here, but you see you know, one to two and a half percentage point margin expansion as you go down the profit and loss statements. And obviously, you know, volume growth is driving this, a bit of mixed change where, you know, the mixed change has been favorable to us. And it's really pleasing to say when you look at the quarter four margin expansion, it's actually Poland and Germany that are the main contributors to that. I make that point because we obviously get a lot of questions around how we manage the pricing situation in Germany and being able, despite no price adjustments historically, and we can't say we expect it either in the public pay business in Germany, despite that, we are able to see a very favorable profit and margin expansion year on year, quarter on quarter in Germany. That I think is a really strong message and it's again a testament to very well managed for our people out of Germany. So if I try and summarize 2024, so we've been busy as we always are, but we've been busy across the board really with lots of strategic initiatives. A lot of focus obviously on driving capacity utilization, which I made the point many times is a key element in driving margins and profitability. A lot of work on operational efficiency, automation, worked a lot on broadening our service offerings, cost and price management. we talk significantly about, and you see that coming through very much in reported numbers. I mentioned the evaluation of the listing of our Indian hospital business. Organic revenue, you're sort of used to hear us talking about, but I think the point with 2024, despite the business being so many times larger, in fact, Even percentage-wise, our organic growth has ticked up during 2024 relative to previous years, driven by all the factors that by now I think are quite familiar to you. So very pleased with actually how the year has come out despite an environment that is not always so easy to navigate and the net cash flow for the year is up just short of 28 percent again a testament to to the to performance throughout the year i think just the two slides on the full year so just short of 2.1 billion euro of revenue so that up just short of 20% for the year. You see within that acquired revenue is only 20 million, so that's 1% or so, so almost universally organic growth. And you see the revenue growth numbers being split quite evenly, Poland 24, Germany again 15%, which I think stands out in a market where you probably have the market growth perhaps of sort of 3 to 4%. Romania is up very strongly. India has a little bit of foreign exchange against it. So you see 9%, but underlying local currency growth is about 13%. And you see it's been quite split evenly across our public, our funded and our fee for service business. So again, good picture, just short of 20%, five-year compounded revenue growth. I think perhaps the thing to point out on those bar charts to the right, that now COVID may feel a long time ago and gladly forgotten, but you see the light blue elements of the bar charts, how we have been able to replace and outgrow the business we had both before and during. It was topped up by some COVID revenue. So I think very proud and pleased with how that revenue looked like. And finally, on 2024, so in terms of earnings, so it beat up to just short of 285 million, 17% up. You see actually margins then down relative to the year before, but again, Then you got to remember that not only in the fourth quarter, but also in the third quarter, we had this exceptional one of credits to the central admin costs. So overall in total 10.9 million, we had to credit back and do that. And then we're up 30 basis points on the beta. We're up 40 basis points on adjusted beta, 70 basis points on adjusted beta L and the even more than one percentage point on EBIT. And then I also look at this impairment charge just to understand the underlying evolution in operating profit. And a final point to make before I hand over to Anand for the financial review is that also very pleased to say that the board will recommend to the annual general meeting here end of April to to distribute the dividend of 15 euro cents per share. That is a full 25% increase on the prior year level, which of course is a reflection of our view or the board's view on the strong position of the company and the strong confidence in the outlook of the business. I think, again, sending a very strong message. So with that, I hand over to Amanda. Thank you, Frederick.

And can I just say it's very pleasing for me to be part of announcing a really strong set of results on behalf of our company. So as per prior periods, with regards to the P&L, I will refer to EBITDA L as rent is a key cost recurring line for us. Across the year and in the final quarter, we have shown strong, consistent growth. So looking at Q4 for the group, EBITDA grew by 15% to 49 million. Remember, Frederick referred to the one-off credit we had in Q4 last year. If you exclude that, our EBITDA margin in Q4 would have grown by 1.1%, which is very strong. Looking at both business units, they were consistently strong as well. So looking at healthcare services, EBITDA of 37.1 million at a margin rate of 9.4%, which is up 1.1% year on year, and diagnostics of 20 million at a margin rate of 11.8, which is 1.6% of the year. So again, what you can see, and echoing Frederick's comments earlier, we're really leveraging our fixed debt base and operationally really driving through the margins. This has been consistently seen, not just in Q4, but throughout the whole of the year. From a leverage perspective, I'll take a couple of minutes on this. So at the end of the year, our covenant levels are 3.4 times. You will remember that at the end of Q3, we were at 3.1. And as of last year, we were at 3.1 times. So the growth quarter on quarter is predominantly due to us drawing down another 150 million euros of loans. We've managed to secure those at really favorable rates as we've paid down the more expensive debt that we've had. And actually the rationale for that was to do a couple of things. So one, finalize the acquisitions of a couple of minor businesses. Two, acquire the non-controlling interest of 56.7 million, which you'll see in the report. And finally, set us up for potential acquisitions in H1 in FY25. Our effective tax rate was 27.4%, higher than last year, but last year was artificially low, driven by the one-off releases, but the tax charges broadly similar year on year. And again, echoing Frederick's comments on cash, so net cash performance is really strong. In terms of for the full year, we had 261.9 million. That was up from 205 million last year. So really strong, and you can see the benefits of the margin growth really driving our cash flow stronger. If you look at free cash flow, really strong in the quarter, tripling to 19.4%. but actually full year growing to $107.8 million, which is up 50%. And I think the benefits of that you can see in the next slide, because in essence, pre-recurring cash flow is the cash before we invest in organic growth capex. So to touch on capex first, I guess, so in the quarter we spent $40.7 million, a bit higher than last year. But for the full year, we have spent in line with the guidance we've previously given. We've always said we'll spend between 5.5% to 6% of capex. And that's what we've done last year. So pupil may look a little high, but it's in line with what we've guided for you and just a little bit of phasing. And in terms of medical space, that grew by 6.8% to 909,000 square meters. If you look at the chart on the bottom left, you can see the evolution of our cash flow year on year. So the light blue bars are the free cash flow. and the dark blue are our organic investment capex. So you can see the first block that actually in FY23 we were driving free recurring cash flow and which we were kind of immediately investing into organic investment capex and just about covering it let's say. You can see the evolution in FY24 to the right where actually there's clear blue water between the cash flow we're driving versus the capex we're investing. So generating and keeping cash in our business, which gives us more options for future growth. If you look at the far right, I'll just refer to the numbers on the right in terms of the bar chart. You can see that although CapEx is higher year on year, so in total, you'll see in the report we spent £122.3 million, which is higher than £110.5 million last year. as a percentage of revenue were within the guidance that we've given. So we're at 5.8%, which is between the 5.5% to 6% guidance we've given previously. So strong and tight control of our investment capex at 66% of the total with 34% on maintenance, but all in line and well managed. And then looking at our targets, I think you can see from a run rate perspective, looking at revenue first. So if you take the run rate for Q4, you can see we're clearly on track to exceed the 2.2 billion revenue target we've set for FY25. From an EBITDA perspective, Frederick's already said that we're very confident that we will achieve and exceed our €350 million adjusted EBITDA target that we've set. And again, you can see from moving from 254 million in FY23 to 300 million in FY24. We're clearly on the right trajectory to do that, particularly as we expect to drive further margin expansion in FY25. In terms of leverage, we're in line with our covenants and we expect to be under three and a half times. We've said previously that for the first half of the year, we'll be around three to three and a half percent. And then we expect that to reduce in the second half of the year. So all in all, I would say from a target's perspective, strong performance, well on track. And with that, I'll hand over back to Fredrik.