Ladies and gentlemen, thank you for standing by. I am Poppy, your conference call operator. Welcome, and thank you for joining the MedLife conference call to present and discuss the 2023 preliminary and audited financial results. Please note that the conference call is being recorded, and during the management's presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session, and you can submit questions via the webcast platform or via telephone. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mihail Marcu, Chairman of the Board and CEO of MedLife Group. Mr. Marcu, you may now proceed.
Good evening. Thank you, everybody, for participating in our conference call in regards to the results of the last quarter of 2023 and, of course, the aggregate full year 2023. I'm today here with the team together with the COO, Mr. Nicolae Marcu, and Mr. Dorin Preda, who is an executive manager of the group. And also, we have the CFO, Mrs. Alina Irinoiu. And, I'll give her the microphone to make the main presentation. Then, of course, we'll stay all together with you for the Q&A session. Thank you. Alina, please take over.
Thank you, Mihail, for the introduction. Good afternoon, everyone. I also thank you for your participation today to the preliminary financial results presentation. As usual, I'll start with the key messages for this 12-month period, followed by a more detailed outlook of last year and also for this year, 2024. Nevertheless, more details on 2024 will be available at the end of March, when we will submit the budget for approval to the general meeting of shareholders. Moving to the key messages, MedLife finalized 2023 with a pro forma total turnover of EUR 453 million, which represents an increase of 25% compared to the same period, out of which 12% was organic growth. This robust growth shows that we have continued to experience sustained demand for medical services in our units, despite a less favorable macroeconomic environment.
This organic growth also seems to be maintained in the first two months of this year, which creates strong growth premises and opportunities for the rest of the year. In terms of year-on-year increase, this growth trend of 25%, on average, was maintained since listing on the Bucharest Stock Exchange, which is in line with the management's commitment to, on one hand, increase the market share but also to consolidate the private healthcare market and be the largest diagnostic and treatment network in Romania. As a fact, only this year, more than 1.4 unique patients accessed the medical services within the network. Moving to profitability, of course, you already know that the early-stage investments that we have started and completely completed at the end of the year put a pressure on the group's profitability, but on the same time, laid the foundation for further growth.
However, even with the loss impact coming from these units, which is included under IFRS figures, you can see and you will see later on in the presentation that profitability margins improved as compared to prior year. And the quarterly downward trend of the previous year is being on a reverse track. 2023 was a year of consolidation and coagulation under the group's umbrella of all the numerous acquisitions that we have completed completed in 2021 and 2022. This year, we have also completed three company mergers in Arad Group, in Sfânta Maria Network, and also in the pharmacy segment. And we will continue this action to merge companies and reduce the number of subsidiaries in the group.
We have also performed investments in medical oncology top equipment, the launch of the transport of biological samples with drones, but also the equipping of three hospitals with state-of-the-art surgical robots in order to boost the medical technological capabilities of our units. In much more detail, the investments undertaken by the group during this period included three main CapEx-intensive projects that came with loss results during the reporting period, namely the two radiotherapy Neolife centers in Brăila and Vâlcea that were opened for the patients in July 2023. The most significant one in terms of investments, Nord Pipera Hospital, which is a 20,000-sq m hospital with eight operating theaters and 110 beds, was recently inaugurated. Here, investments amounted to EUR 30 million, excluding the IFRS 16 impact coming from the renting contract.
Then further investments were performed in the oncological platform, not only the one under Neolife umbrella but also the acquisition of a second radiotherapy equipment in Brașov and also the modernization of existing equipment in Sibiu. Also in Sibiu, in Polisano Hospital, we have invested in a da Vinci robotic surgery equipment, reaching so three da Vinci robots at group level. On top, there were also important investments in state-of-the-art equipment in all the hospitals across the country, including MedLife Medical Park in Bucharest, Humanitas Hospital in Cluj, MedLife Hospital in Brașov, and Polisano in Sibiu, in order to, as mentioned before, enhance the medical capabilities in these units, which, of course, are expected to yield good results in the future. In terms of expansion projects, we have completed, starting with January 2023, the inauguration of a hyperclinic in Deva, followed by another one in Bacău.
Also, two new BetterMe lifestyle medicine centers were inaugurated in Cluj and Timișoara, and also the Center of Excellence in Maternal-Fetal Medicine in Timișoara. Moving to M&A transactions, we have completed the Muntenia Hospital in February, Nord, our prior Provita Medical Group, which was consolidated starting with April, which has presence in Bucharest and Suceava, and also Brol Medical Center in Timișoara. And two other small M&A transactions that were completed by Sfânta Maria. One is located in Craiova, and the other one is in Cluj, both being small providers that are mainly in contract with the National Health Insurance House. As a consequence of the projects above, net debt to EBITDA ratio has increased, with leverage level coming down by the end of 2024 once results from the listed investments will build up.
More in detail, the companies that joined the group through M&A activity in the last year added to the group's balance sheet a volume of debt that didn't allow the relaxation of the associated indicators in the short term, and added, on a standalone basis, 0.7x net debt to EBITDA at the consolidated level. On the side of outlook for the period to come, we are confident that through this investment we set the foundation for a solid platform for growth, especially in Bucharest where, together with the new Nord Hospital, we believe that we will be able to take over the position of main private provider of hospital services in the coming years. We will continue definitely to focus on consolidating profitability margins and the gradual reduction of leverage levels in 2024 but also onwards.
Regarding acquisitions, we had, as you already seen, adopted a more cautious approach, but of course, we'll, we'll act based on current market circumstances and trends. As previously discussed, our strategic priorities include the continued development of MedLife Medical Park project, and the opening of new medical units in the Oltenia region and the western part of the country. We will also continue to invest in technology and digitization. We believe that the future of medicine lies in adopting the latest innovations, improving the medical platform, and expanding the portfolio of doctors and providing personalized treatments. The gradual shift in recent years from prevention services to hospital and oncology services would result in greater resilience for the group on a long-term basis. Just a second. I lost my voice. Sorry.
In terms of consolidated statement of profit or loss, 12 months 2023 pro forma versus 12 months 2022 IFRS, gross sales National Health Program for chemotherapy drugs included increased by 25%, reaching RON 2.24 billion for 2023. Net sales net of drugs increased by 18% reaching RON 2.1 billion. Operating expenses increased by 17% to RON 2 billion. 29% increase in operating profit reaching RON 122 million. 29% increase in pro forma EBITDA to RON 318 million and 15.1% pro forma margin, 13.7% in the same period last year. Pro forma net result of RON 17.2 million and 1% pro forma margin compared to 2.1% in the same period last year.
In terms of IFRS net result, a loss of RON 6 million on the back of early-stage investments that are dragging losses that in pro forma figures were adjusted to have a like-to-like comparison for the rest of the group's performance. To this, we add also the financing of this project, the high-yield environment, which resulted this year in higher financing costs than before, and also increased amortization in line with the expansion of asset base.
In terms of the bridge in EBITDA from IFRS figures to pro forma figures, RON 4.8 million EBITDA is the contribution of companies consolidated during this year as if their result would have been consolidated starting with 1st of January, plus the normalization adjustments of RON 26 million, top amounts being linked to M&A costs, one- off consultancy fees, but also the most important part being the impact of the early-stage investments, namely Nord Hospital. In terms of the bridge in revenues from IFRS figures to pro forma sales, RON 32 million sales are coming from the companies consolidated during the year, also as if the consolidation started with 1st of January, and also less RON 135 million, which represents the request of National Health Program for chemotherapy. Moving to quarter-on-quarter EBITDA evolution, I touched a bit before this subject.
I think it's important to mention that the trend from prior year was reversed, with gradual improvements in EBITDA levels, returning basically to the usual seasonality of the business. While in terms of revenues, the trend is very clear that we managed to increase the platform quarter-on-quarter, both through acquisitions and organically, constantly throughout the past few years. Moving to key operational indicators in terms of business line evolution, clinics remain the main sales units of the group with 37% share in total sales, growth of 35% being explained by sustained demand of outpatient medical services but also the new acquisitions performed during 2022 and 2023, of course, with 20% increase in the number of visits and 13% increase in average fee.
Stomatology with 6% share in total sales, sales increased by 2% mainly as a consequence of a contraction in 2023 in the number of expensive procedures that were rather postponed by patients. Hospitals with 22% share in total sales, growth of 27% has been sustained by increasing the number of patients by 20% compared to the same period of 2022, following increase in medical teams and complexity of the medical act but also the consolidation of OncoCard, Muntenia, and Nord Hospitals throughout 2022 and 2023. Average fee here has also increased by 6.3%. Laboratories with 11% share in total sales, 15% growth year on year with 16% increase in the number of laboratory tests performed. Corporate division with 12% share in total sales and growth of 17% in revenues sustained by increased number of subscriptions and constant pricing adjustments.
In terms of the split of revenues between Fee for Service, National Health Insurance House, and contract, 61% is Fee for Service, 26% is National Health Insurance House, and 13% is invoice. Moving to operating expenses evolution, the drivers for increased costs on IFRS are increasing third-party expenses including doctors' agreement and salaries expenses with 2.1 percentage point of sales. On one hand, at the beginning of this year, the high inflation came with upward pressure on wages. In addition, which is the most important, is that medical teams and operational teams were constantly throughout the period put in place for the early-stage stage investments. Basically, as a common part of these costs are the ones adjusted in Pro Forma, together with administrative utilities, insurance, and promotions, which are related to those units before their opening.
Another variation, which is higher, let's say, than the others, is decrease in commodities with 2.3 percentage points of sales, following decrease of Pharmachem and Pharmacies share in total group, a trend that has already been discussed and seen throughout 2023. In terms of consolidated statement of financial position, non-current assets increased by 25%, on one hand due to increase in property, plant, and equipment with EUR 50 million. On the other hand, we have the increase in right-of-use assets with EUR 20 million. This is following consolidation of newly acquired companies and their leasing IFRS 16 contracts. Goodwill had also increased with EUR 15 million. Financial debt has increased by 30%, which is explained by investments completed in M&A during this period, but big amounts are coming from the organically developed projects presented before and their corresponding IFRS 16 contracts.
The newcomers in the group have a limited number of buildings which were leased over extended period of time, 10-20 years, outside basically the range of MedLife Group contracts. In terms of net debt to pro forma EBITDA ratio, we are at 4.58 as of 31st December. Net debt to EBITDA ratio, if we exclude Nord Group, is 3.92 times. We are committed to continue the solid business growth trend, entering a cycle of gradually increasing margins and lower debt levels over the next 12-18 months. Moving to consolidated cash flow, for the 12-month period ended 2023, net cash from operating activities after payment of interest, income tax, and the variances in working capital amounted to RON 168 million.
Net cash from financing activities in the period amounted to RON 124 million, mostly related to the financing of CapEx and M&A, while RON 280 million were used in investing activities. This is my presentation for today. We can jump to questions and answer session. Thank you very much.
Ladies and gentlemen, at this time, we will begin the question and answer session. You can submit questions through the platform, in the Ask a Question sector or via telephone by pressing star followed by one on your telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and 1 at this time. One moment for the first question, please.
As a reminder, if you would like to ask a question, please press star and 1 on your telephone. The first question comes from the line of Bram Buring with Wood & Company. Please go ahead.
Hello. A few questions, please. First one would be, what levers do you have to pull to be able to reduce debt or reduce your interest costs in the next 12 months? Second question is regarding stomatology. So is something right over RON 30 million a quarter a good run rate for the business now? And, we'll leave the other guidance questions to be for now. So just those two. Thank you.
Hello, Bram. Thank you for your questions. I'll start with your first question, and I'll comment that it's not necessarily about reducing debt. It's about increasing EBITDA and profitability, in order to give a better comfort on net debt to EBITDA ratio and the capacity of the group to further generate increase. As you know, at the end of this year, we have also approved an additional credit facility of EUR 15 million on top of the one that existed and we still have funds available that will be used only if good opportunities arise in the M&A sector.
We also discussed before, we are looking for companies that won't affect net debt to EBITDA of 4, so we'll be below 4 on the computation. But that would be my answer in terms of interest costs. We are dependent on the market. We have already seen some tendencies to decrease a bit. We have seen also the forecasts of banks, of Bloomberg, of analysts. We've noted a direction to get somewhere at 3.2, maybe 3.5 at the end of 2024.
Thank you.
And in terms of stomatology, yes, I would say that you can use the last quarter for your projections.
Excellent. Thank you.
Once again, to register for a question, please press star and 1 on your telephone. At this time, there are no further audio questions. I pass the floor back to management for any recent questions.
Okay. We will take the questions that we have received on the platform. I will start with the first one. It's regarding the strategies to improve margins during this year, and the direction that the company is pursuing in this respect, and how we handle threats and opportunities in this remark. I think that during the presentation, we have touched a bit the answer of your question.
Nevertheless, I will shortly recap a bit the measures that we have in place. First of all, we started the early investment project, so they laid the foundation to increase profitability. The two radiotherapy centers in Brăila and Vâlcea started in July, and they delivered very good results and already reached break-even. In terms of Nord Hospital, the hospital was launched pretty soon at the beginning of this year. We also plan to finalize the integration process or not really to finalize because it's a continuous work, but there are still companies to be integrated, further integrated into the group and take advantage of all the synergies. We are going to perform further mergers, as the one that we have already completed. We have consolidated throughout the past two years the team of doctors.
We have massively invested in equipment that will create important growth opportunities. I think another aspect of threats and opportunities, if I may, is that we have exposure in specialties that are more resilient. In the past two years, we have switched to oncology. We have switched to radiotherapy and also to hospitals that will give the group better stabilities in the future. Thank you. Moving to the next questions. What are the key differences between audited results and pro forma results? There are two main aspects that we consider in pro forma. On one hand, we include the companies that we have acquired throughout 2023 as if the acquisition had occurred on 1st of January.
This is in order to have also the full P&L impact of these companies because from a balance sheet point of view, we do have the full impact. And on the other hand, we have taken out or adjusted the operating expenses that have been delivered by the three main organic development projects, but only for the period before their opening. And the third one would be the reclassification that we make for the chemotherapy drugs, which are basically offset both in sales and in operating expenses because this is what they are, revenue with zero margin. In terms of higher operating expenses results, particularly regarding the increase seen in third-party expenses plus 34% year-on-year and salary expenses with an increase of 23% year-on-year, yes, I think I can partially responded also during the presentation.
Third-party expenses, which include mostly doctor agreements and salary expenses, have increased more than revenues in terms of IFRS figures, and this is explained by the teams that were hired at the beginning of starting the project throughout the year, especially for Nord Hospital in which we have signed the contracts with the doctors of teams, with all the administrative staff in order to start this unit in January. This is why, when you or we have such important organic development projects for a short period of time, some increases in OpEx are not linked to the increase in revenues. The third question, third-party expenses, is mostly salaries of collaborating doctors, those not employed directly by MedLife. Yes, a big part of these operating expenses, I would say that 80% is related to doctors.
Can you shed some light on the doubling of finance costs in 2023 versus prior year? Of course. It's on one hand linked to increasing financing. Of course that you, you have seen additional funds used in order to sustain the M&A process and the organic development project, this on one hand. And on the other hand is linked to increasing interest rates. We are linked to Euribor six months. And the level now it's around 4%, versus back in prior year when was obviously much lower. And the last question, what's the overall plan to control the expenses? Do you expect significant pressure on any cost item for 2024? I would say that we do not expect significant pressure on the cost items.
On the other hand, I would expect, as mentioned, the unit to produce revenues and so the percentage of several categories of costs as compared to sales to gradually decrease.
Okay. Thank you, Alina. I will take it over. So it's Mihail Marcu again. As long as we have answered all the questions, I will have a final statement. First of all, I would like to excuse and to say that our colleague Ioana Bîrșu is also with us. She was an important person, key person in preparing all the documentation to you, so and she's with us today. Now, going back to the main subject, I would like to remind you that we have grown with 25% again. That's a very important figure, and it's part of our mission to grow and our promise to the market.
The second, if you look at the margins, y ou'll see that the margins that started decreasing back in 2022, strongly decreased after we have finalized working especially on the COVID laboratory tests. We succeed slowly to stabilize, and especially if you look, we have again the same seasonality as we used to have before 2020. This is again a sign of the health of the company succeeding to stabilize not only the decrease but starting slowly to increase the margins. And this is despite the fact we had a big hospital newly coming to the group which was not open in the last quarter of last year. So despite that, we succeed to increase the margins. This hospital started already in January and February, and slowly, I think, will come and will have also not only expenses but incomes.
This is one of the main driver for the increase because it was one of the questions raised by you today. If you look at this separate hospital, you can understand that MedLife was going to be less than 4x debt to EBITDA. This is also which, as we have put it in our press release, that more than approximately 0.7% of this ratio was part of this investment, which will be paid back. I can tell you that we are prepared to be a very important player on the hospital market, even taking the lead in the coming two years, in Bucharest especially.
This is one of the fields where we have not been very, very performing in the past, and we are pretty sure that we'll surpass that when we continue to grow and gain margins on this field, either. You can see also this year we haven't pushed too much on some services lower margin as pharmaceutical field. And this is because the margins are lower than the rest of the group, and we will not insist on this field also either. Our intention is to consolidate especially the medical specialties more resilient and those that link with chronic, with oncology, with surgery which cannot be postponed for the next economic cycle. Now, we have ahead an important year to our consolidation and most probably driven by organic growth, which started well in the first two months as in our press release.
We'll continue to push for this margin to go slowly up as in the same time with the reduction of the debt to EBITDA ratio. There are few acquisitions in our plan. They are not big enough to change this ratio either, which will still stay as the main priority of the group.
Don't forget our because of the profit which was our pain in the last year, and you could see in our results all the increase or the decrease of the interest which is published by different starting with most of the financial institutions and the commercial banks we have. We are expecting a slow decrease in interest, and that's going to go directly to the profit of the company because that's the main, let's say, the difference in our case from the net result to the EBITDA. We like the fact we succeed to increase operational margins, and also the brand contributed a lot. We had a very good campaign last year which now is paying back, and the image of the brand and the trust into the brand increased a lot from our measurement.
That may be part of the success that keeping the strong organic growth at the end of last year and the beginning of this year. We hope this will lead to also to a better financial performance throughout the year. So that's our statement. Thank you very much for being with us today. And, of course, we are here to answer your questions. Thank you very much and have a good day.