Good day and thank you for standing by. Welcome to the Medicover first quarter 2024 results presentation call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a the question-and-answer session. To ask a question during the session, you need to press star one one on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Alternatively, you can submit your questions via the webcast. Please be advised that today's conference will be limited to 60 minutes. Also, this conference is being recorded. I would now like to hand the conference over to a speaker today, Fredrik Rågmark. Please go ahead.
Thank you. And good morning, everyone. Welcome to the first quarter results presentation. You see the headline: "A very strong quarter. Very happy, very pleased with the outcome of the first quarter, confirming expectations and perhaps a little bit more." We continue to grow strongly, so organic growth above 14% and just short of 19% total growth. Very importantly, it's across pretty much all of the business units, certainly both divisions. And also importantly, we have solid double-digit underlying volume growth in both divisions. You remember last year we prioritized price growth, had in some places slightly lower volume growth. Now we have solid volume growth back and also see price growth continue. So very pleased with that. We are a whisper short of annual revenue run rate of EUR 2 billion.
It's a nice little anecdote, as I wrote about in my CEO statement, that it took us in the quarter 25 years to the third quarter 2020 to reach EUR 1 billion run rate. Now it has taken us three and a half years in the quarter to be a whisker within EUR 2 billion run rate, which I think gives a good historic perspective on our sort of growth momentum. Very importantly to point out here, since we've seen historic weakness, but as the diagnostic division has transferred out of the COVID years, it is really important, I think, and positive to see solid double-digit volume growth back in DX and the consequential margin improvements that we see coming out of that.
To be remembered, we talk about that more later, that is within the context of still no price adjustments in Germany.
That's half of the division. So it's really a strong performance. Cash flow is up very well, 28% growth in operational cash flow. And again, it sort of confirms and illustrates the operational leverage we see coming through in this quarter. And we are investing our organic growth and maintenance capital in line with expectation this quarter, just a tad below the 6% we have guided towards. Some of the graphic illustrations on growth, you recognize these pie charts and graphs since before. A few things to point out. You see Poland as a country, 27% up. Indeed, significant.
We have some foreign exchange tailwinds in there. Joe will talk about that, which we're very pleased to have after many years of the opposite direction of FX for us. You see Germany for the group, up 12%. That is a significant number with no price adjustments.
The market is probably growing as such around 4%-5%. So that's quite a significant achievement. Also here to point out, India at 11%. Now, there's been quite a bit of FX headwind out of India. So local currency-wise, we're up about 17% in India, which is good and as planned for the quarter. And below, you see our different payer groups. I think the one to point out there being you see actually our public money in the right upper corner or slice is up 30%. And that's really a combination of both good tariff increases, in particular in Poland, but also as we grow in Romania with the new hospital, and we grow our public side of funding alongside the new hospitals. Looking at the profitability side, I think that is a very important part of this report.
We made the point many times over the recent quarters that as we gradually fill up capacity that we've taken on and our network matures, that will drive profitability improvements. Also, we work, of course, on a number of efficiency improvements, not the least in Germany, to address margin improvements. So very pleased to see that coming through. Particularly, as we've had questions quite many times in terms of that trickling through straight down through the entire length of the profit and loss statement. So very pleased with this. You can look at EBITAaL, the second last from bottom, which is up a strong 76% versus prior year and likewise operational profit or EBIT up 78%, which I think very well illustrates that point.
If we then go to Healthcare Services, I think the bar chart in the middle of the slide, I think, very well illustrates the growth momentum in this division. You see the little drop. One bar is lower than all the others. That's the second quarter 2020 when the pandemic broke out. And then the quarter after, you see we're back growing. That was the EUR 1 billion run rate quarter. So since that quarter, we have then effectively doubled. And you can see large part of that doubling is coming from this division. So growth continues to be strong, just short of 24%, of which 17% organic growth in this division, of which 5% being price.
A tiny bit of acquired revenue. And point I made before, pretty much across the board, certainly in Poland, but equally in Romania, in India, very good growth across the different businesses.
That can be well illustrated with the member intake in our original corporate paid business, where we're up 54,000 members in the quarter, which, in fact, is the second- highest member growth quarter since we listed. So I think that well illustrates the strong demand for our services. Looking at the margin side of things for healthcare services, so EBITDA was up 34.5% to EUR 46 million with good margin expansion, bringing in depreciation. Growth was stronger, up a very robust 54%, so EUR 26.1 million with about 1.5 percentage point margin expansion.
And then not to be forgotten is that while we have seen very good progress out of India in terms of capacity increases, which is driving margin out of India, that has largely been offset by starting the big hospital unit in Bucharest, which was not operational first quarter last year.
So there is still significant operational leverage to come in future quarters as we also fill the unit in Bucharest and continue to make progress in India and the other countries. Our medical cost ratio is slightly up in the quarter. A mix of things here: staffing in a lot of new units, minimum salary increases, a different mix, etc. That was to be expected. But still, you see margin leverage is still coming through despite that. So very strong performance, definitely.
Then I put in one slide on India. I think one of the top three questions we always get is to try and understand how we increase capacity or capacity utilization in our Indian hospitals. So we put this on where we have divided, basically trying to show you the maturity of the hospital network. We will show this slide as we progress in future quarters.
The point to make with this is that the overall occupancy levels will primarily increase as we mature the network, i.e., as hospitals shift from below one year or the one-three-year age level to the above 36 months age level. That will have an outsized impact on the overall level. This is just to show you. On the picture to the right, you see new hospitals in 2024, which will then come into the youngest category, obviously. Bangalore in the south, you see in the new state for us of Karnataka, will have a soft opening here in one week or two. Then we have a place called Warangal, you see up to the right, a couple of hours north of Hyderabad, which will equally open here in a couple of weeks.
And then towards the end of the year, you see a light blue dot there in Hyderabad. So we put on a major unit in Hyderabad. Then there will be a fourth one, but that's in 2025, why it's not shown on this, equally in Hyderabad. So this is a picture you will see. And I put it on again, remind you, it's from the maturity of the network that will largely be the main driver of higher occupancy rate in our Indian business. Then moving on to DX, delivering organic growth. I put as a headline here, which I think is really important, so EUR 163 million. We're back growing.
We've had a number of quarters behind us where we have talked about underlying growth because we de-accelerated out of the COVID revenue. Now we're back. There was a tiny bit of COVID revenue last time around, nothing this.
But despite that, we're growing, 8% organic. Here, as a division, we have foreign exchange headwinds. So not if as the service division had significant FX tailwind, largely thanks to Poland and the zloty. Here, it's the opposite. So we have about 1% or so headwind from FX in this number. And in addition, we have about three percentage points of growth, and acquired revenue here being EUR 5 million, not a lot, but slightly more than in the other division. You see a point I made before, that lab test volume growth is up just short of 14%.
And if we exclude the little remaining COVID testing last time around and the disposal of Belarus, that was seen in January last year, we're actually up test volume-wise around 17%, which is a very solid number. I made the point, no price increases yet in Germany.
Situation hasn't really changed very much since the last quarter when we talked to you. If anything, pressure keeps building up. So we have the same position that we think it's inevitable that at some point it will come. But until we have some visibility, we refrain from trying to predict exactly when that is. If we then go to the margin profit side of Diagnostic Services, so EBITDA was up 14% to EUR 30 million, and just short of 1 percentage point margin expansion.
Then it may also be relevant just to remind you that in the comparative number, it's just short of 40 basis points of still COVID margin in there. So if you look at the real like for like, and this is the last quarter that you ever hear this because the second quarter last year, then it was completely gone.
But in terms of having a transparent picture on margin development, one should remember that. EBITDAa L is growing slightly ahead of EBITDA as should be expected, so EUR 23.6 million or 14.5 percentage point margin. So good volume growth across pretty much all of the businesses, including Germany. I remind you, the 12% growth out of Germany is not insignificant. So with that, I hand over to Joe to talk a little bit about the more detailed financial overview.
Thank you very much, Fredrik. So adjusted EBITDAaL. So EBITDA adjusted for lease costs, interest, and depreciation. It's more like the old cash flow measure of EBITDA. And leases are our recurring costs and cash flow for the group. So that's why we use that measure in terms of performance. Strong growth. We came in at EUR 43.5 million, last time around EUR 33.7 million, so strong there.
You can see that in the margin expansion, 8.7% versus 8%. We had some adjusting items between the years, mainly COVID and the disposal of Belarus and some small acquisitions we've done over 2023 and into this quarter, impacting the comparatives. It's qualitatively a significant improvement. We've got the COVID-19 fully gone. Belarus has been replaced with organic recurring revenues. And we're still carrying an immature portfolio of new hospitals. The impact of that was roughly similar in Q1 last year as this year. But obviously, the composition of the hospitals having that drag is different as we've got maturity in a year down the line on the Indian hospitals that were new then. And now we have the Bucharest hospital, which opened at the end of June last year.
Healthcare services, that EBITDAaL margin is 7.6 versus 6.4, so very nice margin expansion on that, despite our slightly higher medical cost ratio and those immature hospitals still dragging there. The driver in terms of that medical cost ratio has been a mix. So we've got some growth changes in different rates in that would change the mix slightly, slightly higher medical incidence rate in Poland. And then we also had the minimum wage increase in Poland, which came through as well. So we managed all of that. And you can see in the numbers for the healthcare services, the operational leverage as we're increasing the contribution. And that contribution is flowing through to the bottom line and impacting the margin. So then we have on the diagnostic side, 14.5% versus 14% on the EBITDAaL margin.
That's despite the disappearance of the last drop of COVID business in Q1 last year. And also, we are doing a trial to enter a public market in Ukraine as well. So really very strong performance out of there. And good to see the expansion in terms of the margin that was falling through again with operational leverage, with those marginal increases falling through the profit and loss lines. We've got plenty of room for growth in the coming quarters. We've got the maturing profile of a number of our units. We've got increasing volume. And then we've got efficiency initiatives as well, which will continue to help us to perform well as we go through 2024 and into 2025. If we look at a bit more in terms of the balance sheet, we've got reducing debt leverage levels.
This is, I remind you, despite that we bought in non-controlling interest in our German business in the beginning of this year. So that was a EUR 41.1 million impact in terms of our debt and the payments that we made. And then we have also two smaller acquisitions we did in the quarter around about EUR 10 million. So if you neutralize for those, then we actually reduced our net debt level. Overall, the net debt increased by EUR 23.2 million. So you can see the relative impacts there. Working capital, very benign. We reduced that by EUR 16 million.
That follows a little bit the seasonal pattern where we tend to reduce that in Q1. And it grows over a little bit over the other quarters. Operating cash flow, very healthy expansion on there. We came in at EUR 78.5 million, EUR 61.4 million last time around.
So a healthy expansion in terms of there. What I like to concentrate on is what I call free recurring cash flows. And just to remind you on this, this is where we look at our operating cash flow as the financial statements. We adjust that for the recurring lease costs. So we take off the depreciation and the lease costs for the depreciation and the interest costs for the leases. So it comes down to more of a kind adjusted operating cash flow, if you like, and then take off our maintenance CapEx.
So this came in at EUR 42.6 million. That was EUR 29.3 million last time around. So a good, strong number and a good expansion in terms of our recurring free cash flow generation. We then used EUR 18.5 million of that in our growth capital spend. So we reinvested EUR 18.5 million out of that free cash flow.
Last time around, that was EUR 21.2 million. If we look then in terms of the capital spend overall, that was EUR 27.8 million, just short of EUR 30 million last time, EUR 29.6 million. That's down then in percentage of revenue compared to last year. We were at 7.1% last year for the quarter. And we're at 5.6% for this quarter. I just remind you, our outlook in respect to that for the full year is around about the 6% of revenues level. So if we look at what we've been investing in, the biggest investment areas have been in India.
So we have two new hospitals, which will be coming online now in Q2. We have one in a place called Warangal, a tier-two city outside of Hyderabad, about 2 million population, and then one in a tier-one city, our first hospital in Bangalore in the Whitefield district.
So those two will be coming online now in the coming quarter. So big hospital units, full-service hospitals, multispecialty. They'll be really nice units. And then we have some wellness gyms in Poland, a clinic. And then we spent a bit of money also in terms of our IT infrastructure as well, upgrading some of that and renewing some of the IT infrastructure. The increase in medical space was about 4.7%. So we're still putting on new medical service delivery space in the quarter. So we still continue to expand. As I mentioned before, we have done everything we need to do to reach our targets in 2025. So these investments that we're putting on now are really in terms of our future targets past the 2025 levels.
If you look down on the left-hand side in terms of the graph there, you can see our free cash flow, our free recurring cash flow. And then also, we've got the growth CapEx in the dark blue. You can see where we're reinvesting. And I think that illustrates very well on the right-hand side where you see quarter one 2024 at EUR 42.6 million in terms of the free recurring cash flows. And that then is 8.5% of our revenues. And so we need to go back to see with the boost from COVID back at those times where we had a higher number in terms of that. If we look then in terms of our financial targets, just to reiterate that in terms of EUR 2.2 billion in terms of our 2025, at least EUR 2.2 billion.
I think it's very clear in terms of the EUR 2 billion, just short of EUR 2 billion run rate that we come in now in terms of Q1 that we're going to achieve those targets. And then on adjusted EBITDA in excess of EUR 350 million on there. And I think the development that you can see now in the quarter also illustrates very well that we're well on track to achieve that. Our leverage, we're at 3.2 on a reported basis. And so that's without any LTM adjustment for any acquisitions. We're at a slightly lower level in terms of our covenant ratios. So we're in a good situation in terms of our debt with that coming down, as I illustrated, with the buy-in of our non-controlling interest in Germany in the quarter of EUR 41.1 million.
If I look then in terms of we add here a little bit more color in terms of illustration of what it would mean further down the profit and loss account for our 2025 targets. Our adjusted EBITDAaL, so after leases, as you mentioned, sort of our preferred internal measure, would be in excess of EUR 235 million. Just to put that a little bit in context in terms of what that would imply in terms of a margin on EUR 2.2 billion, that would then be something around about 10.7% in terms of margin. We're at 8.7%, I remind you now, for the Q1. If we look at EBIT, operating profit, this would be in excess of EUR 140 million. That would then apply a margin of something around 6.4%.
I think what this illustrates for us is the operational leverage from the flow-through of these numbers at the higher level, the EUR 350 million EBITDA coming through. I mentioned we've pretty much done everything we need to do in terms of the infrastructure to be able to provide and make those numbers. That's really where you get the operational leverage falling through in terms of the P&L line. That would be that EBIT margin would be around about 6.4%. That would apply. Just to put that in context, for this quarter, we were at 3.8%. So I hope that helps to give you a little bit more guidance in terms of understanding how the numbers would potentially look in 2025. So I hand back to you, Fredrik.
Sure. Thank you, Joe. Good run-through. So we put in just a summary slide.
So, you remember the key messages: robust organic growth that we have always had. And we are very confident we will continue to have. So, I think very solid performance, good margin expansion, good operational leverage. We have a very strong outlook. We are very confident. And as Joe just pointed out, we are well underway. So next quarter, we are halfway. So we are well underway to achieve our financial targets for 2025. So with that, we hand over to any potential questions you may have.
Thank you, dear participants. As a reminder, if you wish to ask a question over the phone, please press star one one on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star one one again. To ensure everyone has the opportunity to ask a question today, please limit yourself just to two questions.
You also have the ability to submit your questions via the webcast. Please stand by. We'll compile your Q&A. Rest of this will take a few moments. And now we're going to take our first question over the phone. And the question comes to the line of Mattias Vadsten from SEB. Your line is open. Please ask your question.
Thank you. I'll try to use my two questions wisely here. First, on India, if you could give us some further thoughts on demand in Q1 and also the trading into Q2. And then to that question, did I get it correctly that you have two openings in Q2, one in Q4, and then one into 2025? If you just can confirm this and speak a bit about how the two openings will hit sort of CapEx and profits for the second quarter. That's the first one
Yeah. So I can comment on that, Mattias. So I made a point that I think we're up 17% in local currency for the first quarter. That's in line with plan. We think it's good. We commented last quarter, fourth quarter, and last year that we saw some weakness in the industry or the society second half of last quarter. That is not the case this quarter. So we're happy with revenue. We've had good flow-through to margin and profits. In fact, we're ahead of budget for India for the first quarter, which gives you a good feel, I think. So we're in a good place.
I can confirm what you said regarding openings. So two here in the second quarter, the ones Joe mentioned, Warangal and Bangalore. And then it's a larger unit in Hyderabad, either late third quarter or into the fourth quarter.
So, a bit whether it's October or November time. Oh, September or October time will tell, but towards the end of the year. And most, if not all of the, well, there's still some CapEx to be spent. But most of the CapEx for those units, the opening now, have been spent, not yet for the larger one towards the end of the year. And the two ones that will open will start having, obviously, a negative impact on P&L from sort of late second quarter, put it that way. And then you have the same comments as we've been asked a number of times before in terms of those sort of three stages. Stage one, bring them to cash flow break-even. Stage two, bring them to an overall profitable situation. And stage three, bring them up above a level where they are accretive to divisional margins.
Good.
I think that's perfectly clear to me. And then the next one on testing, I will speak a bit slow here. So the underlying true growth. So I take 13.7%, which is the lab test growth, subtract the 4.5% impact from your Ukraine, get to 9.2%. Then I add back 3.7, what seems to be Belarusian COVID impact. So I get to 12.9% underlying true laboratory test growth, if you could confirm that this is correct to begin with. And then the next one is, obviously, how could it be so strong suddenly because it looks to be a really good demand in diagnostics. So that's the next or my last question.
Yeah. I think that's a little bit too complicated to be able to answer just straight here in terms of this.
But we sort of look at it a little bit more simpler, really, which is we look at what it was last year. We look at it what it is this year. And the only real one which we have, which is a little bit unusual, is the EUR 1.4 million tests in Ukraine where we're working with the public system to see if that can actually be something that we can do. So it's more like a test, really, no real revenue associated with that. And so if you neutralize for that EUR 1.4 million and just look at the top-line numbers, then you come out about the same because trying to adjust for COVID and for Belarus isn't really going to help you, I mean, which it gets a little bit too complicated, a little bit too difficult to disaggregate it.
What is happening, though, and I can mention that, is that we do have got mixed changes in there. So we've got price changes where we've increased the prices on some of the business lines where we have flexibility to increase it. We've also grown the business where we've got some large corporate contracts, which have then a lower average price but are very contributory overall to the margin. So we've also got within there a bit of mixed change happening as well, which then sort of makes it a bit difficult in doing what you're doing, which is trying to sort of unpick it, really. So it just gets really quite complicated quite quickly. So we haven't tried to do that for you. We just did it in a much simpler way.
Okay. But I think it looks strong no matter how you look at it.
So it seems like an underlying. It's super strong. It's fantastic.
So it's in Germany. It's in Poland. It's in Romania. It's across all of our markets there. So yeah, it's super strong.
Good. Thanks so much.
Thank you. Dear participants, as a reminder, if you wish to ask a question over the phone, please press star 11 on your telephone keypad. Dear speakers, there are no further questions at this time. I would now like to hand the conference over to the management team for any written questions.
Then we have a question from Christopher. Congratulations. Great quarter. Can you please give some info on how you expect PPE depreciation will develop as a percentage of sales going forward? Financial net, are there any other one-off items in addition to the FX gain? Reason for smaller minority impact on earnings. So thank you very much, Christopher, for the congratulations.
We think also it's a great set of numbers as well. If we look at the PPE depreciation, I think in terms of what you see now in terms of the quarter, in terms of what you see in there now, that gives you as a percentage, that gives you a good indication. As we fill up that extra facilities, you should see some dilution of there. But offsetting that, you're going to see with the new units coming in. So I think if you look at that Q1 number as a percentage and factor that forward with a little bit of operational leverage on there, then that will give you a good guidance. Financial net, there are no other particular strange items in there.
In terms of the interest cost, we've got a little bit, which is in Q4, and a little bit in this quarter, which are sort of one-off interest costs but nothing significant to really talk about. You're talking about overall something like EUR 1 million, EUR 1.5 million between those two quarters. So nothing really that's going to disturb any comparative basis or anything else. And then the smaller minority impact, this is where we acquired a minority, EUR 41.1 million for a minority, which we had in one of our German units, quite a profitable German unit, as you can imagine by the price that we paid for that. And that then has an impact in terms of the NCI and also our EPS.
And just to remind you then in terms of what's remaining in the NCI, the biggest components then are in terms of the Indian activities. And then we have some gyms, wellness, fitness facilities in Poland, which is where we have our minorities as well. And those are the other contributors in terms of the NCI.
And then we have a question. Last year, installed an MRgFUS device for Parkinson's therapy at the hospital in Warsaw. What are the sales results for the first few months? And do you plan more such devices at other sites than the yeah. We started that, I think, back in the summer of 2023. So it's sort of 9 months running.
And it has been very popular, very successful. I don't have an exact number in front of me, but I think it's been well above 100 treatments fulfilled.
That was quite some time ago. So I think it's significantly more than that right now. But it's doing really well. And we do have ideas to bring that also elsewhere in our network, although that has not yet happened.
Respect to operators. There are no further questions at this time. I would now like to hand the conference over to our speakers for any closing remarks.
Very good. When you have good numbers, you get fewer questions. I think that's the conclusion from this session. So we thank you for listening in today. And see you next time around. Thank you.
That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.