Good day, and thank you for standing by. Welcome to the fourth quarter 2021 results presentation conference call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be the question and answer session. To ask a question during the session, you will need to press star and one on your telephone keypad. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Fredrik Rågmark. Please go ahead.
Good morning, everyone. Welcome to our quarter four and full year 2021 results presentation. We have put in some new overview slides initially before we go into the details of the quarter and the year. We have really done that because, as you know, it is five years coming up since we listed the company. I thought it could be interesting and relevant for everyone to get a perspective on what has happened over the five years since we listed, as the background to the growth and the progress we're seeing. I used the headline the power diversification and growth, which I think very well summarizes these five years. As you know, we are predominantly a private pay group.
79% of our revenue is private pay, and that has been compounding. You see 23% over the five-year period. Many people think we are only boosted by COVID over the past couple of years. We certainly have had some impact, some negative, some positive from COVID. What I'm seeking to summarize for you on this slide is the fact that we have, we are, and we will grow organically and total very strongly. It's particularly important to remind you of the diversification. You look at our payor groups. The 79%, which is private pay, you know, splits up in 60% fee for service where consumers pay to us directly. That has been compounding. You see an extraordinary 28% over the period.
Our funded business, our membership business in Poland, Romania, which has a very stable and recurring revenue stream, but it's only an organic growth model. You see for that reason, of course, slightly lower, but very stable 11%. Perhaps surprisingly to some of you see that even our publicly funded business had compounded 22%. Healthcare Services and Diagnostic Services are two divisions compounding plus 20% growth, both of them. Looking at the geographies as the third important diversification, Poland, our largest geography, 18% over the five-year period. Germany, Europe's largest healthcare market, compounding 21%. Romania, 23%. India, obviously we started during the period, now representing 10% of group revenue.
In Ukraine, that has a lot of focus right now, and I'm sure we'll spend some time on them later on in this presentation, compounding at 25% per annum. I think those numbers speak for themselves. Significant margin expansion over the period, as you see, four or five percentage points added to the margins from when we listed the group and members as a good indicator of growth in the funded business, up 68% for the period and lab tests up more than 50%. Overall, I think a fantastic sort of record of growth and diversification over the five-year period. We turn to next page. You know, what is driving this growth historically today and why will we keep on seeing, we believe, sustainably a very strong underlying organic growth in our business?
Well, fundamentally, all of the markets where we operate, excluding Germany, that's obviously much more mature, but all other geographic markets have double-digit growth in the underlying private pay healthcare services market. You know, that's the fundamental market environments we operate in. Many people wonder if, well, are you sort of reaching your penetration potential? That is, nothing could be as wrong as that. If we look at just one example, you know, the Polish private pay fee for service market, which is obviously the longest and the largest market for us, we still have a tiny approximately 4% market share in that market. There's plenty of room for us to take market share for many years to come. We have a super strong brand, and we are very well positioned in our different service offerings.
We're really, you know, besides the underlying market growth by continually growing our service offer and continuously growing our distribution network in both our businesses, again, driving underlying growth. Not the least of the past couple of years, one of the lasting consequences of the pandemic, although it was certainly there before that happened, but the consumer awareness and increased focus on health and wellness is being boosted by the current COVID situation in the world. That's certainly something we expect to last and become a new normal. Then one should not forget the fact that most of our businesses have a direct to consumer customer relationship, and that is obviously extremely valuable when consumer behavior is evolving in the way we see now.
Last but not least on this slide, you know, the diagnostic element of the healthcare industry is growing. With the evolution of abilities and capabilities in diagnostic, you know, the share of wallet, so to speak, that is going to diagnostic is increasing over time, which is important. Have a few just quick highlights on the quarter and the year before we go into the details. I think it's a fantastic, an additional fantastic quarter. And let's not forget that it's not only positive impacts of COVID from us, you know? You've gotta keep that context in mind that we also still have a number of negative impacts. In such an environment, push through 26% revenue growth, 22% organic, I think is very significant.
One should also not forget that it's not that we have a very soft-ish quarter to compare with last year. You know, the quarter four 2020 compared to an undisturbed quarter for 2019. That was before anyone had heard the term COVID. Last year around, we grew 30% on that undisturbed quarter for 2019, so we do not have a soft comparative quarter. You're looking at the underlying business if you strip out COVID and, you know, we grew at 28% up and organic 25%. I think that's a fantastic number.
If again, just to make the point with the life before COVID, if we look at our underlying business this quarter and compare that to the quarter four 2019, so no COVID in either of those, we are up 37% over that 24-month period. Again, I think that brings home the point that I have now made a few times. Good profitability, EBITDA jumps more than 40% up to just north of EUR 75 million to 120 basis points margin expansion. That's a very strong number. Adjusted EBITDA just short of 21%. That's obviously quite a long way ahead of our financial targets. Fantastic operating cash flow. Joe will talk more about that later.
Strong inflow of members, so 31,000 in the quarter, more than 140,000 for the year, come back to that. Strong intake of members in our employee paid business, and likewise, in lab tests. Last but not least, you know, added on the COVID revenue at the bottom, it's important to see that, you know, you see the COVID revenue element is growing much slower than the underlying business. Clearly 16% of revenue is not insignificant, but it's much more important to see how the underlying business is growing. Flipping to a quick highlight of the year, I call it a remarkably strong year. I think that is true. 2020 was a very difficult year with the second quarter.
2021 from an operational point of view has certainly not been easier. I think the, you know, the COVID virus has operationally had much more impact on us in 2021 in terms of being able to manage staff levels, et cetera, et cetera. So I think it's a remarkably strong year if we look at some of the organizational challenges we have had, and our staff as always have acted, I think, in absolutely formidable way. Revenue being up 38%, same organic, you know, EUR 380 million of absolute growth. Let's not forget that, you know, the year before the IPO, we had EUR 479 million in the entire group. So not so very far away from the total size of the group before we listed. We've actually grown absolutely this year.
A good underlying growth. I talked about the compounded growth rates. Again, you know, we're just short of 3x the size of the group of the pre-IPO year. For the year, we put on 72% higher EBITDA, 360 margin points expansion. I think no one can sort of be disappointed with that, and tremendous cash flow generation coming out of this, of course. Final highlight slide. For the year, 142,000 new members. I think that's the strongest member growth year our business has ever had. Likewise, 28% growth in the number of laboratory tests. And of course, you have seen, if you have read the full report, you have the details on the number of COVID tests being done.
Of course, that's just a very small minority of the overall number of lab tests we do. Again, the point I made on the initial slides, I think this really very well illustrates the strength of our diversification on payor service offers and geographical mix. You know, we're very forward leaning in how we have invested during the year, putting in EUR 190 million in total investment capital, again, is by far the largest we have done in any year. That being split in a very ambitious organic growth program where, you know, two-thirds of all of that money has gone into building infrastructure that will drive growth in the coming years.
You know, an additional quite significant element of inorganic growth capital that we speak about a bit later on in terms of the businesses that we have bought. As you know, we have closed some larger acquisitions just into the new year. We very successfully completed a new round of debt financing in Germany with a Schuldschein issue in the social bond framework that was very well received. We were significantly oversubscribed, so we raised the amount of money quite significantly. We're super well capitalized going forward.
I'm sure you would be glad to see that we have proposed to the AGM later on in the year to do a significant increase in the dividend. Following last year's inaugural EUR 0.07, we propose to raise that to EUR 0.12 per share. I think that sends a strong signal of our confidence in the business. With that sort of highlight, I will go into the more traditional slides that you have seen many times before, and most of these have then been covered, so I will be reasonably quick. For the quarter, EUR 376 million revenue. As you see, you see the graph on the right-hand side, where you know the blip in quarter two, 2020 stands out.
You remember I said, I think when that happened, that was the second quarter in our history when we did not grow. It's pleasing to see how growth has come back as I have talked about now quite for some time. COVID revenue, EUR 61.5 million, you see, you know, not so significantly different from quarter four last year. Fee for service being at a strong 62% of revenue was up a phenomenal 35%. I think I've talked probably enough of diversification now, so I'm not going to spend more time, but you have the two pie charts that I normally talk quite a bit about at the bottom that I think very well illustrates the point in terms of payers and geographies.
If we flip on, I think it's a very nice graph showing the absolute EBITDA progression as well as margin progression. I think that sort of summarizes that the business is doing really well. That being a factor of, I think very strong development in our underlying business. You overlay that with COVID contribution from the diagnostic side. Again, I agree with you that on the healthcare services side, there is certainly still an element of negative impact from COVID. It is not that it's only positive. Flipping on to the full year numbers, just short of EUR 1.4 billion of revenue. The group is sizing up. If you recall, last year was just short of EUR 1 billion.
You know, we're looking forward to some point in time when we can reach EUR 2 billion, and we will see when that will come. Of that, EUR 246 million being COVID, significant growth as you see on last year. Fee for service remains above 60% of our total revenue and up a rather phenomenal 53% for the year. Looking at the full year profitability, obviously the same underlying dynamics. EBITDA up some 70% to EUR 270 million, just short of 20% margin for the year. The EBITDA contribution provided about EUR 90 million in terms of EBITDA. Looking at the adjusted EBITDA margin, i.e.
Our financial targeted metrics at 20.4%, you see a rather significant growth on the prior year number. Same thing on EBIT. I already commented on the super strong operating cash flow. You will see that when Joe talks later on that, you know, we have been able to reduce our debt levels quite significantly despite having this rather ambitious capital investment program behind us, which I think is a good illustration of the strong position we are in. If we flip to the details of our two divisions. Healthcare Services had a strong quarter, north of EUR 190 million, up 29% of which organic was 23%.
For the full year, they grew 32% to north of EUR 700 million, of which organic was more than 30%. So that I think is an absolutely outstanding number. COVID in healthcare services, as you know, is much less. So you see the revenue here being for the quarter EUR 7.5 million, and for the full year, some EUR 66- EUR 67 million. Obviously it's a growth on the prior year number, but it's significantly less, as you obviously know, than what we see in the other division. Fee for service keeps growing very strongly in healthcare services, which is pleasing. I remind you that, you know, most of the acquisitions we do, if not all, are providing inorganic growth into the fee for service segment.
That's really why you have this attractiveness. Remind you, 4% market share in a very large market in Poland, EUR 6 billion-EUR 7 billion annual size, where we today have 4% market share. This is obviously a divisional number I show you here, but it's also very representative for the Polish market, seeing 40% growth in the quarter in that segment. Member business strong, 1.5 million members. That's a nice number or just short of that, but still rounded to 1.5 million members. 31,000 new in the quarter, 142,000 new for the year. Again, I think that very well illustrates the strength of that offer and that people like the services we provide.
You will have noticed we have announced that the larger deal we closed, CDT Medicus, in the southwest part of the country just after the new year. Obviously, you know, this flowed through into profitability. Now we have two factors which have sort of dampened margin growth, if you wish, in this division. Firstly is that we have, as you see from the capital investment program I talked about, a lot of that has gone into two elements of healthcare services, which is the very ambitious expansion of our Indian hospital business, and likewise, the very ambitious expansion of our sports gyms offer in Poland.
Those two are super strategic and we have put on a lot of new infrastructure to take advantage of some of the situations arising during COVID. Now, that has meant that we have put on a lot of capacity that we will be busy filling up over the quarters to come, which short term is negatively impacting margins in this division. Secondly, as life starts to normalize a little bit more, people are coming back to more clinical services. Plus, we have had a much higher than usual respiratory tract infection season in the fourth quarter. Our medical utilization levels are significantly higher than this time last year.
That has been balanced with a very sustained level of digital remote services, which we talked about pretty much on every earnings call since the pandemic broke out, which is really important. I think I made the point several times that that is a consumer behavior that we have said we expect to last or stay, and that certainly seems to be the case. If we now flip onto diagnostic services, which has had also, like healthcare services, a just phenomenal quarter. Revenue up 23%, organically 19%, full year revenue up an outstanding 46%, of which organic, likewise 46%. Revenue in here from COVID, obviously much more pronounced. You see EUR 54 million for the quarter, EUR 179 million for the year.
That's almost tripling for the year versus 2020, you see. Fee for service in this division has always traded on a higher level than in healthcare services, and is now above 70% for the quarter, was up 28%. Obviously, you know, the growth in lab tests closely tracks, or perhaps it's the other way around. You know, the revenue growth closely tracks the growth in our lab tests numbers, as you can see. With this obviously follows a quite significant drop through in profitability from revenue growth. So EBITDA very strongly up 28% margin. I think that's a number not to be shy about. That's a very strong number. For the full year, EBITDA doubles.
Again, that's not something to be. Or rather something to be very proud and happy over. Margin, you see, more than seven percentage points up versus last year, which again, we talked about that many times. That's a consequence of pushing higher volumes of tests through our largely fixed cost network of labs and BDPs. We've continued, important to remind you, we continued to invest in new BDPs throughout the crisis, keep building out our distribution across the region, and we completed what we think will prove to be a very interesting acquisition in the specialist genetics field with the NIPD business in Cyprus that we, where we have been minority shareholders for a number of years. We have done a tech transfer of their technology into our core genetics business in Munich since many years.
It's a business that we know very well, and we're really excited about the outlook for that opportunity. Hence, we had the opportunity to take control of that business here early in 2022. That's my summary. I hand over to Joe to talk a bit more details of financials.
Thank you. Pop through to page eighteen, Hannah. Net interest, a large increase there in terms of our lease charge under IFRS 16 .EUR 4.4 of the EUR 5.8 million is for our lease charges as we've expanded our base. I'll talk about that in a second. The underlying EUR 1.5 million, and for the full year, the underlying EUR 5.1 million, reflecting the relatively low levels of leverage and the relatively low costs of our debt portfolio. FX gain 1.7 million for the quarter. Eight hundred thousand or so of that was from, again, coming from the lease changes where we have foreign currency denominated leases, predominantly in Poland. That comes through as a gain now.
It's been a loss at various other times, so it's up and down and up and down and up and down. Non-cash, so no cash flow impact from that. Full year, EUR 1.8 million and 0.2 of that for the euro denominated leases mainly in Poland. Full year tax charge, our effective tax rate has come down to 25.8%, 26.7 last time around, so down about 90 basis points. Predominantly, where our profits have ended up being in a slight weighting to lower tax countries. Tax paid, a cash flow out was EUR 18.3 million for the year, EUR 11 million last time around. Cash flow, very strong.
We had for the quarter EUR 71.4 million cash inflow before working capital changes. For the full year, that was just over a quarter of a billion euros, EUR 257 million cash inflow for the business. Working capital out was outflows of EUR 17.5 million and EUR 40.9 million for the full year. Those levels were in line with the expansion of the business. Working capital sort of tracking where it should be. Loans then payable. This has increased to EUR 143 million.
We put on over the year just over EUR 60 million in terms of net debt, which is a really strong performance, given the strong investment in our capital base, our organic investment, and then also on top of that, our acquisition agenda. I think that's reflecting the strong underlying cash inflows from the business. Flip to the next page. We are then very happy to talk about our second Schuldschein issue under the German Schuldschein instruments. This was a little bit innovative in the market. This was done under a social bond framework, a use of proceeds. Really happy to be able to do that because this really helps to reflect to a wider audience what we're actually doing in terms of our business.
It's not only that we've got a great business in terms of growth and development and, you know, from a financial perspective, but we have a real world impact as well in terms of what we do. We talked here in the framework about something which we really started off on at the very, very outset in terms of medical, and was very apparent for us then when we worked with the World Bank and the IFC in terms of helping us to start off back some 25 years ago. The area here is the universal health coverage. We are a significant influencer in many countries' healthcare system in terms of helping to deliver healthcare infrastructure to people that otherwise would not be able to get access to that healthcare.
It's really happy to be able to combine that in one of our financing frameworks there, so we can really emphasize that. It's something we don't really emphasize so much with the financial community, so really happy to do that. EUR 277 million gross we raised. The flexibility of the Schuldschein is fantastic, so we could actually stagger the money coming in as we didn't need all of that money straight away. We also retired some of the older Schuldschein, so we had a net EUR 250 million, or we will have a net EUR 257 million raised. Very good pricing. Really happy with the pricing on that. We've also fixed some of that interest rate.
We've got a hedge level there as well. Six and a half years was the average duration for the issue. Fantastic liquidity profile as well. As obviously we're gonna continue to invest heavily both in our organic and inorganic expansion over the next few years. Strong liquidity. We have over half a billion EUR of that available to us for organic and inorganic expansion. One thing in the next two points is our right-of-use lease liabilities under IFRS 16, both the lease liabilities and the assets. This is a really important aspect in terms of our ability to expand.
We've put on a lot of capacity, and that capacity is what we're gonna fill over the next few years, and we're gonna add more capacity. That's a really important driver for us to be able to grow the business sequentially over the coming years. Capital investment, we did just over EUR 37 million in the quarter. Just under 60% of that was growth. For the full year, 61% was growth CapEx versus our maintenance CapEx. For the full year, we did just over EUR 100 million euros of organic expansion in Greenfield and maintaining our asset base. Our equity has gone up to EUR 562 million.
We had positive movement on our translations with the Indian rupee and the Ukrainian hryvnia moving to strength at the year-end. We had a negative movement of EUR 33 million for the year. About EUR 20 million of that is from existing positions where we have minorities who can put shares onto us for their minority positions. This is really good because this just actually means that we've upgraded our outlook in terms of the value of those put options as the businesses have performed better and as we've expanded those businesses. We had EUR 13.3 million new ones, which have come on in terms of acquisitions for our fertility acquisitions in the Nordics.
Loans payable, very low, just 0.6x EBITDA for our loans payable, net of cash and short-term liquid investments. Not only have we expanded the business, invested very heavily, but our debt levels we've managed lower. Next slide, Hannah. We did, as I mentioned, just over EUR 100 million in organic capital investment. A really strong year in terms of investing and growing our businesses.
As I said, 61% of that is for growth CapEx, so over EUR 60 million of growth CapEx investment in Greenfield and new facilities and machinery, particularly in India, where we've been busy expanding our footprint in the hospitals there. On top of that, we have also done our inorganic expansion, so just over EUR 10 million cash outflow in Q4. EUR 87.5 million for the full year. You can see there in terms of the slides, the businesses we've acquired. In terms of enterprise values, about just over EUR 120 million. We've also recognized minorities in some of those business positions as well.
A good position for us to support our future growth. We recognize the net loss of EUR 2.2 million for the full year in respect of all of those acquisitions in aggregate. The largest driver on that was the gyms business behind that. As obviously when we bought some of those that have closed for the first half of the year, but it was an opportunity which we couldn't really miss. We've been in a really fantastic position, and it's something that COVID has given us in terms of being able to pick up those assets.
If we hadn't been able to buy those assets, we probably would have had to do organic investments, which would have been more difficult, cost us more money, and created more competition in the market. We're really happy to be able to buy up those assets at good prices, and we expect that that's gonna perform really well with our sports gyms benefits market in the coming few years. Subsequent acquisitions, we close those out now, NIPD Genetics and CDT Medicus in Poland. Just under EUR 44.5 million for NIPD cash out brings us ownership to 87.2%. We have call options over the remaining shares.
No debts, but we took onto the balance sheet EUR 7.7 million of cash that they had on hand. CDT Medicus, EUR 55.8 million for 100%, and debt net of cash is around about zero. That's effectively the full value for the business. Just onto our targets, just to summarize in terms of there. You can see there, we have our three-year targets, which would come to an end this year. We have 9%-12% organic growth for top line. We've obviously exceeded that for the last year. Then profits adjusted EBITDA margin year-end, we're looking at 15.5%-16.5%.
Obviously, with COVID support, we're well ahead of that. Even if you take out the COVID business on the underlying, we're doing well in respect to that as well. If you look then at the capital structure, not to be below 3.5 times in terms of leverage metric, obviously, we're well below that at 0.6 times. We have a lot of opportunity in terms of being able to use the balance sheet to further support growth. I'll hand back to you, Fredrik.
Sure. Thank you, Joe. That sort of wraps up our presentation of a super quarter and a rather remarkable year, as I headlined it in the beginning of the presentation. I also would like to wrap up with expressing a big thank you to all our staff across all of the geographies that we operate that indeed have performed extraordinarily well during the year to handle both the COVID situation, ongoing operations, and a strong expansion agenda. With that, I hand over if anyone would like to ask any questions.
The first question comes from the line of Karl Norén from Danske Bank. Please ask your question.
Good morning. I have three questions, but we can start with the underlying organic revenue growth, which has been very strong, both in Q4 and for the full year with a figure of closer to 25%. I'm just wondering how one should think of this going forward. I know you have the target of 9%-12% organically, but as you said, Fredrik, you're still managing to grow 33% underlying organically with a tough comparison. It would just be interesting if you could elaborate a bit on how we should see the underlying organic revenue growth in 2022. Thank you.
Well, I, Karl, I think you should look positively upon it. I think that's the short answer. You know, we will be updating the financial targets at some point here during 2022. We're not gonna wait till Christmas to do that. We will come back. I think you can expect not in too long a time to give you an update when that will be. I'm not gonna obviously comment on how if and if so, how we will change organic growth target. Clearly, you know, I made the point there that, you know, we're on a run rate. We're sort of 3x what we were when we listed now. Of course, one got to respect that when you take a percentage growth number.
Your observation is right, Karl. I think, you know, every time I speak to you and another, I always say, you know, the strongest factor of Medicover, I think is the sustainable underlying organic revenue growth. In fact, you know, that was why I put on that initial summary slide now because we're five years into our journey. I think, you know, those factors that were there five years ago, they are certainly there still. If anything, I think they are growing in importance. I, you know, I have a pretty bullish outlook on our organic revenue growth perspective.
Okay. Sounds good. Then if we take a bit more short-term view, I guess you have been quite impacted, as you mentioned, by, you know, higher sick leave among staff and Omicron disturbances in the fourth quarter. I'm just wondering, would you say that this has had a tangible impact on the financial results in Q1? And how should we see this developing also going into the first quarter? Because I guess this is quite hard to manage.
You mean in quarter four? You said Q1, you mean?
Yeah, yeah. I mean in quarter four, and maybe now when we're in the first quarter of 2022.
No, no, Karl, I wouldn't say it has had a tangible financial impact. What it has had is that it has caused some rather strong operational challenges for our leaders to handle, you know, accessibility and you know, service levels. It is not that we have had to close facilities or denied services to customers. It's more an internal operational impact than it is a financial impact.
Okay. Just on the margin side, for the full year, I think you had an adjusted EBITDA margin for the underlying business of 16.4% at the top range of your target. I'm just wondering, going forward, as you said, you will update the financial target, so I guess we'll get an update on this at some point. I'm just wondering the underlying expansion of the margin going forward, given that there are some, you know, wage inflation in the market, et cetera. I'm just wondering how confident are you that the margin, the underlying margin should be higher in 2022 versus what you reported for 2021?
Well, obviously, I'm not gonna give you a statement what I think the margin will be for 2022 versus 2021. I you know, the point I made, or I think Joe has answered that a number of times in I think the best way for you to look at that is if you go back and look at the various quarters in 2019 and full year 2019 before the world knew COVID, and then compare that to our underlying you know, EBITDA margin as we report it now. You see the you know, effect of scale coming through. Then you know, the big the sort of white elephant in the room for everyone is inflation. You know, if
You know, that is certainly not less of a challenge for us than any other business. I think we talked about that as late as last quarter with you, that the thing to remember is that we have 79% private pay revenue. I'm not saying that it's always easy to raise prices, but at least you're in a position to impact your price levels, assuming you have good service and customers like what you do. Clearly, you know, increased efficiency through more digitalization wherever that is possible, and an ability to push through, you know, significant elements of the inflation effect onto our prices. That's just super important.
You know, you're coming from a question, well, you know, will we actually perhaps see, you know, reversal of margin expansion because of the environment? That we don't really think. I guess, you know, one should stay away from commenting here on the sort of further growth in the underlying margin. You know, we're positive. We have a, you know, a strong outlook on that. You know, I wait to be specific until we update the financial targets.
Okay, that's clear. Thank you.
Thank you. The next question comes from line of Kristofer Liljeberg from Carnegie. Please ask your question.
Yeah. Thank you. My first question relates to acquisitions and what a full year effect will be from the one you did in 2022 or in 2021, what the full year effect will be in 2022, and also from the ones acquired here or closed at the beginning of the year. Is it possible to give such a figure?
Hi, Kristofer. We disclose obviously the impact in terms of the acquisitions in the financial statement. We disclose for the ones that we've already done for the full year in terms of the impact. They're in the notes in terms of the release. For the ones that we'll do next year, we will include those in the annual report, I think. I'm not sure if we have that in the one we have now at the moment. Yeah. What we have disclosed, Kristofer, in the back page on note number eight, we've disclosed the 2021 numbers for both NIPD and CDT.
Okay.
That gives you some sort of guidance in terms of looking at the where we're looking.
Okay. Looking ahead there, of course, a lot of moving parts with a large share or almost half of earnings now in 2021 being from COVID-related services. At the same time, you said you have had some, you know, negative impact from COVID also, which hasn't been quantified, I think, in the same way. You're growing a lot organically, but at the same time, initial dilutive effect both from acquisitions and the startups you have done in the year. Do you think this, you know, strong underlying organic growth and the potential to improve profitability in units that you have started or acquired, do you think that will be able to fully offset or gradually lower COVID volumes in 2022 and 2023?
Well, I mean, specifically on that point, I
No. I think that's a very specific no on that question, Kristofer. We, you know, I think we've always made the point that the COVID element of earnings is the much higher margin business. Short term, if you replace, you know, the same nominal amount of COVID business with normal business, your overall margin will reduce. Because as you see from our split outs, you know, the marginal contribution on the COVID element is much higher. Short term, it will not compensate. Now if you say, as we will keep on growing organically very strongly, I think I made that point enough in this presentation why we're confident on that. Plus, we're gonna add additional M&A.
With those volumes grossing up at, I think, you know, good margins, from an absolute point of view, it's gonna come back pretty quickly, I think. I'm not worried about that. On a direct comparison replacing the same number of sort of revenue from COVID to non-COVID, you know, margin will be lower. One point which I also take the opportunity to answer as part of that question, Kristofer, and for the wider audience, is that one thing that we are likely to do here going into 2022 is to actually stop trying to break out the profitability element of COVID and non-COVID.
That is because now we are basically soon into the third running calendar year of COVID environment, and it becomes sort of increasingly, if not impossible, but very difficult to separate out what was the case, you know, three years ago, plus a significant element of what we call COVID revenue will probably be permanent. I'm not gonna give a figure on that, but, you know, there is a new normal in the market where some element of the so-called COVID revenue will be permanent, higher systemic testing. We will be reporting throughout 2022, you know, the revenue we generate from specific COVID activities, but stop to try and split out the profitability.
I think I wanted to have a chance to communicate to you so you're aware of that.
Okay. I understand. At the same time, I think it has been very helpful to see those. I've seen no other company trying to do it-
No, I mean, you know, we really set it out that way in order. Because when COVID is over, everyone will have forgotten about the fact that we had COVID earnings, and then we can always look back on the underlying business and compare apples to apples. I'm sure it was the right thing to do, Kristofer. You know, this change we're not doing to try and, you know, not be transparent. It's just that it's increasingly difficult to separate what is what. There is a risk that it becomes, instead of being, you know, specific, it sort of, you know, it becomes counterproductive. That's really what we feel.
Could I have a final question related to M&A? Because all the COVID volumes has been maybe temporary in a way, at least it has generated a lot of cash flow, so balance sheet is very strong. So what's the outlook for M&A?
It's good. You know, we have a strong pipeline. We have strong teams. You know, we're ambitious. Yeah, you know, it should be good, Kristofer Liljeberg.
Okay, great. Thank you very much.
Thank you. The next question comes from the line of Grace Lee from Jefferies. Please ask your question.
Great. Thanks for taking my question. I'm gonna ask two questions on M&A, please, just to follow up on those. I've noticed the Medicover Genetics particularly highlighted, and just curious if you can confirm how much of that revenue in FY 2021 specifically comes from Medicover Genetics. I'm just curious of how much to quantify that. Obviously, this is an area where you are focusing in terms of acquisition, inorganic growth going forward. How much is your sort of target or ambition growth outlook for that specific segment? I'll follow up with the second question. Thank you.
Well, Grace, you know, we're not splitting out the different segments within diagnostics, and genetics being one of them. Clearly, you can say, you know, the vast majority of COVID testing that we have done sort of lands in part of that business. You know, but we're not quoting a number in terms of genetic, what it contributes. It is a significant piece of our business in diagnostics. In terms of the opportunity going forward, you know, that's a big question.
I mean, somehow, you know, the last point I had on my, the growth driver slide being that, you know, diagnostics is taking a larger and larger share of the overall sort of healthcare spending thing is that is largely driven. This is my view. I'm not saying it's something that necessarily the entire world agrees with, but our absolute view is that through the ongoing development of how genetic testing is changing healthcare delivery, you know, you're gonna get a much more over time, call it sort of individualized treatments and individualized elements or healthcare services. That is gonna push the whole genetic diagnostic growth very significantly. We have a very, call it strategic focus on developing and growing in that segment based on that outlook.
Hence, you know, over time it will be big, but I'm not gonna aim to quantify it beyond that.
Okay, thank you so much. Then on the India side, again, you are increasing the footprint there and expanding. Can I ask in terms of those that were to fully open and operating in India in FY 2021, what was sort of utilizing the inflation rate, for example, in Q1 now that potentially COVID patients are lower? Just, how's your sort of plan going in terms of expansion? What are you targeting for 2022? Thank you.
Well, yeah, I'm not sure if that is. That is a question we've had before, and I'm not sure if it was you or someone else asked the question. You know, the way we tried to answer it then was that, you know, the way we sort of do this is that we have divided up our hospitals in three categories. One being sort of mature operations, one being operations that's been up and running sort of order of magnitude a year and a half or more, or roughly a year and a half, and the third category being sort of startup situations. I mean, if you need a rule of thumb, you can say if you run your hospice with utilization levels above 70%, you have a very good business.
If they're sort of above 60%-70%, it's okay-ish, but not terribly good. If it's lows below 60%, it's not really very attractive. Now you can say that largely sort of reflects those three categories. Our mature hospice, you know, they are all, you know, in that upper category doing really well. What we are doing now is that actually we're, you know, speeding up the rate of expansion, and obviously they end up being in the third category by definition. The fact that we have the courage, if you wish to do that, is of course driven by the fact that we see very well that the projects that we are taking on is moving very nicely up into the, you know, the categories above. Otherwise we obviously would not take on such expansion.
I think it's a sign of confidence that we see that happening. The fact is that of course, if you relatively speaking have more projects in the third category, you will dilute the overall margin of your Indian business, which is sort of the situation we're in right now. We're in it very consciously because COVID has also, likewise, the point Joe made with gyms in Poland, it has opened up some opportunities for us that perhaps would not have been there had it not been COVID.
Thank you.
Thank you. The next question comes from the line of Lars Krafft, Erik Penser Bank. Please ask your question.
Yes, thank you. Hi there, and thanks for taking my questions. I have questions more about the specific market, and would like to start with the Romanian market. It seems like you making quite a lot of investments. You're setting up the new hospitals in Bucharest and imaging centers, and you also bought into Polaris Medical Hospital. I just wonder how much larger will your Romanian business be when all these new entities are up and running? If it's possible to give some sort of an indication how much more capacity it brings on.
Well, you know, that's gonna add significant amounts of capacity cost. I mean, the
Mm-hmm.
You know, the hospital construction which is underway in Bucharest is a significant piece. We're expensing that as we go throughout 2020. I mean, we started already last year, so in the same way as I just answered Grace Lee there. Short term, that actually depressing our margins because you know, before we can start filling it in with customers, which is perhaps sort of second quarter next year, I think we will be opening the doors, give or take around that time. You know, that's a significant piece, not so totally different from. You know, it's not as large as Wilanów or Warsaw, but it's not terribly different.
You know, the Polaris thing up in Cluj is also you know, quite a significant footprint. you know, filling that with customers will add. I mean, relative to the size of our Romanian business-
Mm-hmm.
Once those new assets are fully utilized, which obviously gonna take a while, that will have a significant impact indeed. I mean, I'm not gonna give you a percentage cost, but it will be very noticeable, put it that way.
Yeah. Okay. I need to ask you about Ukraine, and just if in any way changes your investment plans in the short term given the situation?
I think a slightly longer answer, and then I give you the specific thing you're asking for. I think really important, and we have, you know, done that. We send a very strong signal to all our people and all our leadership in Ukraine. You know, we have whatever, 3,000 plus people employed that we are, you know, standing strongly behind them. We as an organization, as a company, strongly support our people in Ukraine. We have done super well in 2021. The fourth quarter was really good. If you look on the month of January and February, it's completely business as usual in Ukraine.
When we sit here in Stockholm or in other West European locations, you know, you read only one thing in the newspapers about Ukraine. That's the point I want to make with that, it does not reflect what is happening on a daily basis in Ukraine, whether you talk about a diagnostic business or kids going to school or whatever it is. That's the fact of the matter today. Now, you know, what do we think about, you know, the security situation?
Our view is, as I said this morning in an interview, we think it is much more likely that we have a peaceful outcome because, you know, there's just so much to lose for a lot of people, if that would not be the case. Now, I think it's very likely that the situation, sort of, the uncertainty will go on for quite some time because that I think is in many people's interest, that this sort of uncertainty goes on. I think unfortunately, we will live with, in our book, not a big military invasion, but we will live with a level of uncertainty and sort of aggression on the borders for quite some time. Now, the knock-on impact of that on us is that, you know, we keep on with our ongoing organic investment program.
We generate quite a lot of cash in the country of Ukraine, so, you know, we're deploying, we're putting that cash to use. You know, so from that point of view, you know, the short-term situation does not change, you know, the ongoing business development we have in Ukraine.
Okay, perfect. Thank you so much. Lastly, about the tax rate. It was mentioned that have been going down for some time. Do you expect this trend to continue, that we will see a bit lower tax rate going forward?
Yes, I'll update on the Q1 release when we do that. When we did the IPO, projected then over several years that the tax rate would come down. That's effectively what's really happened, and that's a structural issue in terms of amortization of some of the costs which are not tax-deductible, and we couldn't make them tax-deductible. Also then in terms of developments in the particular markets. You've seen, for instance, that Germany, which is the highest tax market, has been diluted as a percentage of the overall business as we've grown in other markets. Therefore, our average weighting of tax rate has come down, and that's pretty much also the other factor that's driving it.
You know, you can expect that to continue to some degree.
Okay, great. Thank you so much.
Thank you. The next question comes from the line of Karl Norén from Danske Bank. Please ask a question.
Hi, Moderator. I don't think I had another question. It must be wrongly registered. Thanks.
Dear participants, once again, if you wish to ask a question, please press star and one on your telephone keypad.
We have got a number of questions in the chat, and the first one is, could you please comment on your current strategy for Indian hospitals with regard to servicing COVID patients?
Well, it's the same strategy that we've had all along, is that we if and when we can, we help out and service COVID patients. Fact of the matter is that the Omicron variant is driving much less, which is very good for public health. It is driving much less inpatient admissions than the prior variants. Although just as we see here in the other parts of the world, you have a much wider spread of the virus in society, but you actually have much lower levels of COVID-related hospital admissions. That's what we see as well. We do service COVID patients in our hospitals, but at a much lower level than at prior variants.
Can you also give some more color on the share of airport COVID diagnostics in total revenues from COVID in diagnostic services segment?
Airport COVID diagnostics.
Airport COVID. Yeah. Well, you know, it's not insignificant, but it's not a massive number in the overall number.
If you could share some thoughts on how they think sales and EBITDA and EBITDA margins might shape up in 2022? Secondly, with the tremendous success achieved since the IPO in the last five years, and given your comfort ahead of your 2022 targets, perhaps you can share something about your thoughts on future five-year outlook?
I think that question is right to answer together when the update on financial targets come. I mean, you know, we put on these initial slides, obviously without having seen this question. To give you a five-year perspective what has happened over the past five years, I think one thing which is fair to say, and the point that we have made many times, healthcare certainly, you know, how we operate, it's a scale business. The more scale we put on, onto our infrastructure, that is driving margin growth, not only in absolute terms, but also relative terms. If we are successful to keep scaling up our business, I think it's a fair assumption that margins will go in a similar direction. I think that's an answer to that question.
If I may add, Dani, if you think back, because you were part of it, you came in and joined Medicover as an investor when we did the IPO. If you think back to the situation we were in back in May 2017 when we listed, you know, we had access to much less capital. We've got access to much more capital now, at cheaper prices and in terms of longer duration. We've got a very good track record in terms of financial markets behind us, in terms of being able to deliver on what we think we can deliver on.
We've got more countries, so we've got a wider footprint in terms of where we are, and we've got a wider business base, so we've got more opportunities. We've developed, most importantly, our management teams and our management capacity to be able to execute. I think, as Fredrik has beaten on many times, the opportunity is there, so it's really about our ability to deploy capital and execute on those projects. I think we're in a very good position to do that. I'd say we're in a stronger position today, obviously much larger, so, you know, the absolute amounts get more difficult to keep maintaining, but we're in a stronger position than we were when we did the listing in May 2017.
The final question I think we have had, given some color on before. If COVID diagnostic revenue were to disappear entirely from the end of Q1, what impact might this have on your 9%-12% organic growth aspiration? Will the business be able to grow in line above this rate regardless? Similarly, how should we think about the EBITDA margin development ex COVID diagnostic revenue versus 2021 EBITDA margins have been?
Well, Dani, you know that you saw that you know we quoted this underlying business revenue growth in quarter four of 28%. So, you know, take that out, take COVID out entirely, you know, we grew 28% on the prior year quarter four, excluding COVID, which is super strong. You know, I'm not gonna say what that number is in quarter one. We're obviously just a week into the month two of quarter one, but it certainly will be significantly above 9%-12%, I'm sure. And your second question, you know, we talk about the EBITDA margin in the underlying business.
Likewise there, you know, we're saying somewhere in the report, we haven't said that in this presentation here, but it's quoted in the report that on a like for like basis, if you exclude some of these subsidies that existed last year, and we've also changed how we allocate costs to a certain extent. But if you look at it from a like for like basis, the underlying EBITDA margin is up 150 basis points in quarter four this year versus quarter four last year, which again is not surprising. You know, that's a consequence of that volume growth of 28% coming through in that segment.
Thank you. I think we have back to the Operator. I think you have a question.
Yes, we do. We have the next question comes from the line of Gustaf von Sivers from Carlsquare. Please ask your question.
Yeah. Good morning, Fredrik, Joe, and Hannah. Congratulations on a great year. I would like to ask a question on the gym business where you now have invested some EUR 44 million. I see here that you have 77 gyms. I wonder if you guys could update us on the sort of idea behind the gyms. What is sort of the good thing about owning them? I have some, you know, bad experience in owning gyms. I wonder also if you have, like, a member base stat on how many members there are, or how you want to work that in the existing business, and the sort of main idea behind being a gym owner. Thank you.
Absolutely. That's a very good question, Gustav. Before I dive into the answer, you know, was it on the last quarter?
Yes.
If you're interested, if you go into the archive from the last quarter results presentation, we actually did a little sort of split up presentation on why we invest in Medicover Sport. You can find some-
O-okay.
You can find some more details there. The executive summary, Gustaf, is that you know, you have a situation in Poland where you sell benefit cards for the sports market in the same way as you do for the healthcare market. Employers will buy a benefit card which gives access to a wide range of gym networks. That's very, if you wish, complementary synergetic to our healthcare offer, because our own sales force can sell that to the same employers that you know, contract us for healthcare. In fact, you know, the border between call it preventive primary care and wellness, healthy living is sort of very blurry.
If you think about how we make, you know, the best returns possible out of our insured healthcare business is by having customers being very healthy and having long relationship with us. That's what the employer is paying for all of this. They wanna have healthy, productive, happy staff. Now they are today already paying for gym benefits. If we can bundle them with our healthcare benefits, we basically can collect more money from employers that we already contract with, and staff then become more healthy, hopefully, because they go to the gym a bit more often.
The cost, the medical cost of servicing them over time will go down because they are, you know, healthy, and they are happy, the employers are happy, and we are really happy. It's basically extending the offer of health into a wider definition into to wellness, if you wish. Part of that is then to operate these gyms. I think you should really think about it as a benefit business where we as an element to that also because, you know, our members in that sports business, they also access many gyms that we do not operate. It's a combination where we send members to gyms under other brands and where they come to gyms that we operate. That's sort of how it looks.
Okay, I get it. It's not the gyms per se stand alone. They don't really have to be, you know, all that profitable, is it? Okay, I get it. Thank you.
All right.
Thank you. Dear speakers, we do not have any further questions at this time. Please continue.
All right, we wrap up. Thank you very much for listening in and we hope to see as many as possible of you next time around when we report quarter one. Also remind you, I think the day after we have our annual general meeting here in Stockholm, that you're all very welcome, if you're a shareholder of course, to come and attend. Thank you very much. Bye.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.