Thank you. Good morning, everyone, to Medicover's third quarter report. I will start off, and then Joe will come in later with the specific financial comments. The theme for this quarter is really ongoing strong revenue growth, strong organic revenue growth, and profit growth remains somewhat held back by the ongoing German public reform situation that we will comment on more specifically. 16.3% up on revenue, of which 13.8% organic, so very robust growth. The adjusted EBITDA, when we also exclude the Indian startup fertility business, grew by 8%. Healthcare Services, particularly strong revenue growth, as we will take you through, supported by a very strong employment market and the prepaid business, particularly in Poland. Diagnostic Services, obviously held back by the headwind in Germany, but very strong growth in Ukraine and Romania and the other markets.
We reiterate the revised guidance that we gave mid-year for 8%-12% organic adjusted EBITDA growth for this year. Our midterm 3-year organic EBITDA growth target remains the same at 18%-20%. If we flip to the next slide, looking at the revenue growth outlook. As I said, across all locations, with the exception of German laboratory and also the Polish hospital business, all other businesses had substantial double-digit growth, which overall then supported organic growth of just short of 14%. Very solid growth outlook. The development in Germany, as mentioned, still impacted by the reimbursement revisions that implemented in Q2. I'll come back and comment more specific on that on the Diagnostic Services slides in just a bit. Last year was strong in Healthcare Services. First half year of this year was strong in Healthcare Services.
On the one hand, very pleased to report accelerated growth in that business, in Healthcare Services, which has had a big knock-on impact in terms of investing quite significantly more on taking on more capacity, which we'll take you through the details of just in a bit as well, which put short-term pressure on margins for Healthcare Services. Overall, adjusted EBITDA grew by just short of 5% to EUR 16 million, or 9.6% margin. You see a drop since last year of 100 basis points, then related to largely the situation in Germany. Also as we help you with reporting, excluding the startup losses in India for the fertility business, we came to EUR 16.5 million or 7.8% margin. Going specifically into Healthcare Services. Just short of EUR 87 million revenue, up a strong 21.5%.
I think that's a long time ago, I recall Healthcare Services being above 20% revenue growth, so that is significant. The main driver of that, not surprising, is the employer-paid business representing two-thirds of the overall cake and also representing about the same proportion of growth. Fee for service is also growing nicely, but of course, because of the size of the corporate paid business, that's the bulk of the driver. You see 17% member growth. We put on, in this quarter alone, 40,000 new members, so that's the equivalent of a little city. That's a lot of people. We're just ahead of the busiest season in the year for us. The six months ahead of us now is really important from a customer service point of view. We've really accelerated quite a bit of facility programs.
I can put that in context for you in terms of looking at the amount of medical space that we have put on this year versus last year. Remember that 2017 was a strong growth year as well. The amount of medical space that's been put on for the first nine months this year relative to last year is a factor of four. We've added four times as much medical space this year around versus last year, and of course, that has quite a lot of short-term cost implication. Again, remember the revenue model here, we take on all the members up front, but we account for the revenue in subsequent quarters, and all of the new people have to be serviced day one when they arrive.
We front-load quite a lot of facility investment here, which is absolutely the right thing to do in terms of this quite extraordinary growth environment we find ourselves in. EBITDA for Healthcare Services came out as EUR 9.1 million or 10.5% margin. As you know here in Healthcare Services, we have the Indian fertility. Adjusting for that, to help you with that, we get to 11.2%. You see a 50-basis point contraction versus last year, which is related to the facility expansion I just mentioned. Overall, growth outlook for this business remains intact in the same way as we have reported over the past quarters. We have consolidated in the prior reported acquisitions the OK Systems, a Polish benefit business for the full quarter, and the Romanian hospital operator, Pelican, for the last month in the quarter. Flipping over to Diagnostic Services.
Revenue at EUR 83 million, 11% up organic, a bit higher there due to currency issues out of both Romania and Ukraine. 13.5% organic growth and lab test growth being some 8%. You can see here we also have some price increases coming through, which is good. The price issues and the reform issues in Germany that we talked about last quarter around have obviously impacted us quite significantly during the quarter. It's important to remind you that the private pay business has not been impacted by this. In fact, private pay business has probably had a positive impact from this, but clearly quite a significant impact on the public pay side.
I think we did comment last quarter around that there was a similar reform implemented back in 1998, so that's, I guess 20 years ago, and of a similar nature, this, and that normalized over about 12 months in the market. We're six months into this, and we can say that we have seen quite a bit of referral normalization towards the end of the quarter we're reporting now, so the month of September and into October. We write in the report that it's too early to say that this is a normalization, and we want to be a bit cautious and wait another quarter. But clearly, we have seen a pickup in that trend towards the end of the quarter, but the bulk of the impact obviously came early in the quarter and then during the summer, which is the outcome for this particular quarter.
EBITDA reached EUR 9.3 million with a margin of 11.2%, you see 190 basis point contraction due to the point I just made. We have added quite a lot of blood-drawing points, the businesses both out of Romania and Ukraine are charging on all cylinders. 566 locations by end of quarter three. As you saw, we announced the other week that we have also acquired the Ukrainian lab operation of In Vitro, that we expect to close early in the next year. That will add another around 60 BDPs to our Ukrainian network. You see around 10% overall increase on our BDP network. We had good growth in the German clinics business, up some 15% of revenue and EBITDA margin 6.4%.
That was a good growth on last year and we're looking at a good ongoing growth outlook and the previous estimates that we stated for the German clinics business. If we, slide seven. Yesterday was the public inauguration of our 11th hospital in India. This is a live picture taken by one of our colleagues who was there yesterday in Nashik with a number of Indian dignitaries just in front of our hospital. The hospital has effectively been operating for around a month to six weeks. It's all up and running and works well and only yesterday was then the public inauguration. Over this quarter, our effective ownership in MaxCure has not changed, so it remains at 45.1%. The 11th hospital I just mentioned, the most recent one. Quarter three revenue for MaxCure was just about EUR 14 million or a 9.4% underlying growth.
We continue to see a very good outlook for MaxCure, an opportunity to keep on expanding, not the least to fill the hospital on the right hand of the page there. The fertility business, we reported a loss of half a million EUR for the quarter. You will notice that's quite a bit better than prior quarters, which is effect of actually the centers filling up quite nicely. We are now operating a total of 15 clinics across the country, and the latest one being a flagship clinic that we opened in Hyderabad, actually very close to the main MaxCure hospital location. We target to be around 20 clinics by year-end. The longer established clinics, they are profitable, and the Delhi cluster where we started, as you know, as a whole, that is now profitable.
We have a lot of confidence and clearly we keep on pushing this rollout with a quite high level of aggressiveness, if I can use that word. We had previously stated an assumed loss here for the year, about EUR 4 million, and we can see that being less because of this more favorable development. Probably down towards three and a half there somewhere, but clearly less than the previously stated EUR 4 million. That was pretty much my introduction. Joe, you want to take over?
Thank you very much, Fredrik. On slide page 10, financial numbers. I think Fredrik mentioned there was characterized by the headwinds in terms of Germany. We still see the revenue growing strongly and all of the other main business units have performed well in terms of further that revenue growth. Germany, fortunately, we've actually been mitigated a little bit of the full effects of the regulatory changes in respect of private pay growth, which remains robust. In terms of the margins and the EBITDA, we came in at adjusted EBITDA EUR 16 million versus EUR 15.3 million in the prior year quarter. An increase of some 4.6% on an organic basis as we use for our guidance and targets. That was a 3.3% increase. We had the impact of acquisitions coming in in this quarter. We have one month of consolidation of our Pelican Hospital business acquired in Romania.
For the full quarter for OK Systems, the sports benefit package for employee benefits in Poland. In terms of for the nine months, we came in at an adjusted EBITDA EUR 45.6 million versus EUR 42.9 million for the prior nine months. An increase of some 6.3% on an organic basis. Excluding acquisitions and currency effects, and excluding the Indian IVF business, that was 9.6% growth. We look at the two segments, the two divisions, we can see there we have a decrease in terms of the margin for the Healthcare Services side compared to last year. A 1.2% decrease. The 10.5% margin versus 11.7%, and an increase overall of around 8%, 9.1% versus 8.4%. That has been impacted by the requirement and the obligation for us to put on new medical space. We've been in this business for quite some time, Fredrik and I.
We've been through these cycles of where we've had strong growth periods. The key for us in all of those previous ones was making sure that we could provide the services to the new clients. Putting on the facilities and making sure that the doctors and the medical staff are in there and trained, and able to provide them with the care. That's the important part in terms of retaining those customers. I've mentioned that last time around as well. Coming up to the busy season now in the fourth quarter and into the first quarter, we need to make sure we have the facilities and the medical staff to be able to honor our obligations to our clients. For the full year, that was a similar picture. We had 8.5% margin versus 9.6%. We're down a 1.1% margin on that.
No real impact in terms of the acquisitions on those margins. In terms of the Diagnostic Services, we had 11.2% margin for the quarter versus 13.1%. We had a decrease of 1.9%. That is pretty much fully down to the impact in terms of Germany. For the full year, that was 13.1% margin versus 14%. We were off some 0.9%. The business there is performing very well ex that German laboratory impact. We come on to some specific comments in terms of the next slide. We have forecast an effective tax rate of around 29%. That effective tax rate was adjusted for the impact of other income line which the majority of it is not taxable, given the nature of it. We may come in a little bit lower than that 29%. I don't expect it for the full year to be higher.
We have now the acquisitions which we've taken in in the quarter. We have acquired 80% of the Pelican Hospital. That's been for one quarter, more or less. The price we paid for that was EUR 23.3 million. We had the benefit package for the sports OK Systems in Poland. That we actually acquired in Q2, at the end of Q2. That's consolidated for the full quarter in terms of the P&L. We paid around EUR 8 million for that. Goodwill for those two acquisitions we recognized on the balance sheet, some just short of EUR 18 million. We now have also announced that we acquired or we signed an agreement to acquire a genetics laboratory based just to the southwest of Munich. That's quite well recognized genetics business within Germany. That will have some synergistic impact in terms of our existing business.
We have also just announced that we're acquiring a business in Ukraine. The price for this will be around about EUR 6 million. Both of these are subject to regulatory approval, the consolidation is expected from the start of January next year. Maybe with the Ukraine one, we actually consolidate that earlier, there won't be any impact in terms of the profit and loss for the year. Just to mention, in Ukraine, we have strong cash generation from the business there. They perform very well. We're not actually putting new money into Ukraine. This is a recycling of the money that we generated out of Ukraine. We have in the other income line around EUR 1.1 million that we recognize.
This is mainly the recognition of the value in our option positions versus our valuation model for the options that we have for our MaxCure Indian hospital shares. The interest income was low, just over around EUR 100,000. This was low because we did some adjustments for the full year impact. Normally this would be, on a normal basis, you could look at this being nearer to being sort of the EUR 600,000-EUR 800,000. Operating cash flow was good. EUR 15.8 million versus EUR 15.4 million. We had a very benign working capital quarter. We had net inflows of just short of EUR 7 million from working capital. IFRS equity is strong, EUR 316 million, up from just over EUR 300 million at the end of the year. Net debt, we are at EUR 55 million. We have a quite large cash balance on the balance sheet at the end of the quarter.
Part of this is money which we put into a blocked account just for security for the genetics laboratory acquisition. That's restricted cash, that's why we have some high cash balance on the balance sheet. If you have a look at what we've been doing in terms of the investment side. Slide number 12. We have now picked up in terms of the deployment of money into acquisitions. We have these two larger acquisitions, OK Systems at the end of Q2 and Pelican during the quarter. That makes up a large proportion of just over EUR 40 million since the IPO. We've done a number of other transactions, they've been at the smaller end of the curve. We're now building this genetics capability. It's an area that we've had a focus on for a while.
This laboratory in the south of Germany is a very important step for us in addressing that strategy. We have a particular test, which is called non-invasive prenatal testing. It's becoming quite prevalent and quite used now. It's a very good example of the real-world application of genetic testing and the real practical impacts, real increases in the quality of testing and the quality of diagnostics. There's nothing particularly new about non-invasive prenatal testing. It's been around for a little while now. We have brought in our own test, which we're now localizing in Germany with a partner. We think that that will be quite interesting development in the genetics field. This was a discussion in terms of making that reimbursable in Germany through the public healthcare system, that's probably going to happen next year.
I think that that will prepare us and put us in a good position in Germany for being able to distribute that test. Investments in CapEx. We have, as Fredrik mentioned, been very busy in terms of putting medical space in place. We've spent, in terms of growth CapEx, which is not just those facilities, there's other things as well. We spent some EUR 16.1 million in the 9 months and some EUR 30 million since the IPO. We have this now, this 9 months, we've put on around 10,000 sq m in putting on new space for dealing with our increased volumes. We have the two main investments in India, the MaxCure investment and the fertility investment. Sorry.
We've put in terms of the fertility, EUR 10.9 million, including the original acquisition back in 2017 at the beginning of the fourth quarter. For MaxCure, we've invested some just short of some EUR 30 million. In terms of the balance sheet, the obligations we've assumed as well, that comes up to around EUR 40 million. In terms of for the MaxCure, nothing has changed in terms of the investments that we've done for this quarter. No new money into that. They're busy expanding, as you saw with the inauguration that Fredrik, nice little slideshow Fredrik showed you. They're busy spending that money. In terms of for the fertility business itself, you will have seen that we have a lower loss that we incurred in this quarter, and that's pretty much been driven by the maturity of the centers that we've already put in place.
We gave guidance before that for the full year, we were expecting around about a EUR 4 million loss for the fertility business. That's going to come in lower for the full year. That's going to be more like in the range of somewhere between EUR 3 million and EUR 3.5 million lost for the full year. On to the next slide. If we look at the growth targets, those were quite handsomely met. For the quarter, we did 13.8% growth, for the 9 months, 13.9%. Consistent growth over the 9 months. For the EBITDA, we were at 3.3% for the quarter organic, excluding the IPO cost impacts from the previous year and the IVF, so underlying. The IVF in India. For the 9 months, 9.6%. The interest-bearing debt, we actually bring in some debt onto the balance sheet now with the acquisitions.
As we start to increase the leverage slightly, that increased up to 0.9 times the EBITDA. Thank you very much, and let me hand over for questions. Yeah.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will now take our first question from Kristofer Liljeberg from Carnegie Investment Bank. Please go ahead. Your line is open.
Yeah, thank you. Three questions from me. First, could you give some indication what acquisitions will contribute with the EBITDA for the year, considering that the guidance is for organic earnings growth? Second question is if you could comment a little bit about the EBITA and EBITDA margin of MaxCure. I think in the report you said the net profit line is pretty small, but I guess that's due to a lot of interest rates that you're paying as well. The third question relates to this latest acquisition in Ukraine. If you could say how much that will contribute with the sales next year. Thank you.
Right. Thank you, Kristofer. Joe, will you want to comment? Yeah. In terms of acquisitions, if you're thinking in the range of-- I'm talking just here about the larger ones. If you're thinking in the range of one to one and a half million in terms of the fourth quarter. For India, I think India in terms of foreign exchange for the Indian rupees has been a little bit in the news recently. I think yesterday I was watching the BBC Business News, and they even had a little section in terms of the pressures in India due to the foreign exchange movements versus the USD. We don't have any foreign exchange exposure in terms of the investments. We've gone through the basis there of making sure that we've got no foreign currency exposures.
I think given the recent movements, that's been reasonably wise, but that costs us money. We have got quite a high cost. For the cost of funding that we have in India, we have about EUR 22 million of Indian rupee debt within the Indian business today.
Could you comment about the profitability margins in India?
Yeah. I think we discussed that before. We've been running around about the sort of like depending on the month, it will be lower or above the mid-teens in terms of the EBITDA margins. We've been up to the higher teen EBITDA margins in terms of the more active months and then below the mid-teens in the less active months. That's pretty much what we're seeing at the moment. I think as you see in terms of the top line growth, we're reporting slightly lower top line growth than we did last time around in terms of about 9.2%, I think it was from the top of my memory, for Indian rupee growth. Nothing particularly special there. We have a little bit of maturity in terms of some of the centers.
We're having one center, we have some doctor changes, and that's had an impact while those doctors have got up to speed.
Could I add on the currency movements you mentioned, the debt you have for this business, is that in local currency?
That's the point I was trying to make.
Okay, great.
That's in local currency. We have no foreign currency debt or exposure in respect to that. That's been a deliberate approach in terms of currency positioning in there, given our expectations in currency volatility. That's cost us. It's a relatively high cost of local funding.
Thanks.
Your last other question was in terms of Ukraine, in terms of expectations of revenues. We're paying for that something lower than 1x, just below 1x revenues for that. We do expect some revenue synergies to come out of it, but the main payback for us comes through operational synergies.
Thank you.
We will now take our next question from Richard Kok from SEB. Please go ahead. Your line is open.
Hi. First question is on the organic sales. Your midterm guidance is for 9%-12%, for the past couple of years, you've been growing 13%, 14% almost every quarter. At least. Without giving a guidance for 2019, do you see any signs of or any reason for this growth level to slow down in the near term?
No, we don't, Richard. That's the very short specific answer.
Why is the guidance not higher?
Well, the guidance is a midterm, as we stated before. It's a three-year guidance, so it's basically 2017, 2018, and 2019. We're approaching two of those three years. Basically, one year to go on that original guidance. We're not revising it. If we're slightly above, I don't necessarily think that's a bad thing. Now, we have this impact of the German reform on our short-term profitability. The fact that we guided specifically for earnings growth being lower in 2018. Obviously, that impact is quite significant. As you see, we didn't change our overall midterm guidance. That obviously says that over the three-year period, we're confident both on the revenue growth and the EBITDA growth as we originally stated it.
Okay, great.
Just in respect of that, I think you've seen in these earnings announcements, you see that gone through now, you've got people talking about cost increases and impacts in terms of the global economy and Trump, and da da da. We have uncertainties out there as well. We have strong growth in the prepaid business out of Poland, as Fredrik talked about at the beginning of the call. What that means is that growth, we haven't recognized that in revenues yet. Those increases are next year's revenues, if you like. We have a very good visibility in terms of being able to see where our revenues are going to be. We know that those are going to be strong in terms of going into next year. There are other impacts potentially that come in terms of the economy. We are exposed to all of that.
I think that we're being reasonably sensible in terms of our guidance in that respect.
Okay, thanks. Sounds a bit on the conservative side then. Looking at profitability, how much lower are margins in this quarter or the recent couple of quarters due to the investments in new facilities that you're talking about? I'm trying to get at, what could margins have been if you hadn't invested for the future? What would a normalized margin be?
Yeah. The point I was making, Richard, here is that clearly, the level of scale of that business, you wouldn't expect our margins to decrease year-on-year. It's a full-scale business, so perhaps you should even expect them to slightly expand. The reason why we bring this up is to put that in context for you. I think that's how you need to think about it. The sort of margin contraction that we report is driven by that.
Our value creation comes from retaining clients. We have about 98% retention in terms of our corporate clients. We're growing, we believe, faster than the market. The key in terms of success always for our business in this, and we've done this for quite some years, is about making sure we retain customers. Where we've gone wrong before in the past is because we haven't invested in making sure fast enough in terms of making sure we've got the capacity to satisfy those customers' needs when we come up to the busy periods. That's really been our focus in terms of short term rather than looking Our focus has been looking more to that longer-term satisfaction and that longer-term ratios than on short-term performance.
Absolutely. That definitely makes sense. My question was more, how much higher can the margins go then when you're in a more steady state?
I think when we did the original road shows, when we did the IPO, we were quite pointed about saying we don't believe that there's any real room in terms of expanding the business of increasing the margin, the contribution margin overall for this business area. We may get some slight increases in a mid longer-term increase sort of perspective. Nothing more than that.
Okay. Last question regarding the pressure in Germany on volumes and then lab tests, have we seen the full effect of that yet? For how long do you think that's going to be extended?
That's the point I was alluding to here, Richard. That we clearly saw the first part of that in the second quarter, and that's why we comment as we did mid-year. We have certainly seen a full effect of that in this quarter. We will still see some effects from this going forward. Now, we are specific in writing in the report that it's too early to say that there has been a normalization in referral patterns. I made the comment here that during the month of September, so the last month of the prior quarter, and also October, which is about to close here, referral patterns are not yet back to fully normal, but they are significantly better than if we look at the totality of Quarter 3.
The take on that is we are probably starting to see a normalization, it will certainly impact the last quarter of this year, and it's likely to have still some impacts the first quarter of next year. I'm not in a position to quantify that, clearly it will be around, that's for sure, for another six months probably.
Richard, just to come back and just as a recap in terms of what's happened here for our audience online today. There was no intention of the actions in terms of reducing referrals. That was not what was intended by this process. What's happened is that it's got caught up in an unintended consequences, the patients still need to be treated. The system still wants to make sure that those patients are treated. I think in this normalization, what we're seeing is that the behavior in terms of the doctors, the system changes that they needed in terms of adapting their IT system, their doctor practice systems, is working its way through. We had the price cut, which was a pure price cut, which we expected, and we planned for, and we budgeted for, and that wasn't really an issue for us.
I think we're seeing this working through. We'll see where it ends up if we get full normalization.
Okay. All for me. Thanks.
We will now take our next question from Karolina Lind from Deutsche Bank. Please go ahead. Your line is open.
Yeah. Hi, good morning.
Good morning.
Hi. I have three questions. I will start with you on MaxCure. What is the net debt in MaxCure now, and is the growth you show impacted by effects?
Yeah. They have around about EUR 22 million of gross debt. Cash, they operate in terms of, there's not significant cash balances. Your net debt is not going to be significantly lower than that couple of million EUR. In terms of foreign exchange, those numbers and figures that we've alluded to are local currency numbers, so there's no foreign exchange in that. We have some translation impact through the balance sheet in terms of through the comprehensive income. We have exchange differences on translation of EUR 2.4 million, which we accounted for in the quarter. The majority of that is actually Ukraine, Romania, and a little bit of it on the Indian investment.
Okay, thank you. On, because I didn't hear what you said about the investments in the fertility business in India. You invested EUR 10.9 million. For what period was that?
Yeah. EUR 10.9 million is the cash investment in terms of the original acquisition, which we did back at the beginning of Q4 2017. The subsequent money that we've invested in terms of rolling out the clinics. We opened now three clinics in the quarter, or just after the quarter. We started a new cluster in Hyderabad, we have the first location now with the next week, we have the formal inauguration of that center in Hyderabad. Just to remind you where we have our clusters. We have Delhi, which is our most established cluster. We're still to continue to invest in terms of adding spokes onto that. We have up in the Punjab, our second cluster. Now we start off our third cluster in Hyderabad.
Okay. How many clinics do you expect to have by the end of 2018?
Our expectation is to have 20 clinics at the end of this year. Subject a little bit to regulatory approvals and timing for those things. It could be that it slips into next year in terms of those regulatory to meet that target. We continue to roll out clinics. We see that the oldest established ones are meeting their targets and objectives. I think you see that a little bit in terms of the profit number, the loss number rather, that we report for the quarter, which is down on previously reported ones. Our expectation was that to be higher, that we had the centers opening a little bit quicker. That's not necessarily a reflection of our ambition has changed or anything. It's more a reflection in terms of timing of the opening of the new clinics.
Okay, thank you.
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All right. Well, thank you all as always for joining and listening to us. We look forward to, if not seeing you before, to talk to you in 3 months' time again. Thank you all for listening.