Good day, welcome to the 2018 Quarter 2 Results Presentation Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Fredrik Rågmark. Please go ahead, sir.
Hello. Good morning, everyone, welcome to our six-month interim report and the webcast presentation. I'm here with our CFO, Joe Ryan, and Paula Treutiger, our IR director. A good quarter behind us. Continuing strong growth. Revenue up just short of 14% to just above EUR 161 million. Keep on the good growth pace in terms of revenue growth. As you will see when we go through the two divisional segments, this is reflected throughout the business. Lower EBITDA growth this quarter than previously, where you see adjusted EBITDA excluding the India fertility business at 7%. As we'll take you through, this downward in this quarter is due to the revisions in the KV public reimbursement system in Germany that we will explain to you in some detail in this call. Otherwise, everything else is growing as previously and as planned.
Very good member growth on healthcare services. In fact, I think it's the strongest ever. This also has some knock-on effects in terms of us further scaling up our facility investments across Poland to not only cater for more members, but above all, ensuring we provide them the best-in-class service and accessibility, which is why they choose us. Very solid growth and outlook in the core Polish employee paid business. Diagnostic service, also strong growth across major markets. Ukraine had a fantastic quarter behind us as well as Romania. Significant double-digit, sort of 20%+ type of growth, so really, really good. We reiterate our three-year EBITDA growth target, the compounding 18%-20% growth. However, in this particular year, we revised that down due to the diagnostic division trading slower due to the German KV revisions overall to the company to 8%-12% for this particular year.
However, important to reiterate that we're comfortable that we maintain our three-year compounding target. Last but not least, if we look at the adjusted EBITDA excluding India on a last 12-month basis, we are up 17%, indicating the underlying trend in the business. Flipping to page four, strong top-line growth for both divisions. Yeah, we continue to grow strongly across both divisions. The fee-for-service offering, i.e., where our customers come to us and pay out of pocket, growing over 20% versus the prior year quarter, indicating significant demand. We have commented almost in each report recently on the situation of the public contract in the Warsaw Hospital. The existing contracts, as was mentioned in our last quarter call, have been extended, we have submitted tender offers in the tenders, and we do expect results to come back to us on that within the pretty close future.
We comment here that we see no significant impact whatsoever on our results in full year 2018 as opposed to a bit more negative previously. That sort of moves forward in quite a good direction for us. Clearly, we have pressure on margins in Germany because of these KV changes, and I can address that up front. We had planned and expected for a regular price cut, which we have seen many times before. That came slightly earlier than what was expected, but that's not the significant issue. In addition, there were certain referral volume measures introduced which came unexpected to the market in general as well as to us. Referral volumes have been somewhat impacted, which is by far the vast reason behind what we have seen in the second quarter.
Clearly, it's not going to go away in the third quarter and hence the somewhat lower expectation on diagnostic EBITDA growth for 2018. We will talk more about this later on, what our expectations going forward in terms of the volumes. Adjusted EBITDA grew by 2.2% with a margin of 8.8% in the second quarter. If we exclude the losses as we typically do relating to the start-up fertility business in India, we were up 7% to just short of EUR 15 million EBITDA for the quarter, a margin of 9.2%. If you then move on to slide five, healthcare services, as I said, fantastic growth. Members 17% up.
We are clearly growing faster than our competition, which is a strong sign, and it certainly is a sign that our customers appreciate our service. EBITA just short of EUR 7 million, 8.4%, and adjusting for the India fertility business which sits in this division, as you know, 9.3%. Slight contraction from prior year, driven solely by short-term investing in additional medical facilities and capacity to manage this growth. Underlying, very solid, very positive outlook for this business. I already made the comment in terms of the reimbursement changes in Poland will have no material impact on us in 2018. Something which is new to you, and I want to just take a minute on that. In the last month of the quarter, we acquired a business called OK System in Poland.
This is an employee benefit sport fitness card business, effective where we can very synergetically to our healthcare offer, cross-sell both to our own customer base for sport and fitness and to their customer base for healthcare. If we look at what Polish employees are looking for in terms of employee benefits, healthcare is a far away number one, and that's where it remains. A very strong runner-up in second place is sport and fitness memberships. We believe this will significantly add to the attractiveness of our combined offer. For those of you who are interested, you may want to look, there's a very large competitor to this business called the Benefit Systems, that is many like 20 times as large as OK System. It's Benefit Systems and then nothing.
Then we have this business, and then there's pretty much nothing else in terms of corporates in this sector. Benefit Systems is listed in Warsaw, did about EUR 225 million or so revenue last year, 2017. Grew +30%, and a high double-digit EBITDA margin. Clearly that business is at a very different scale than what this is, but we believe we will have significant opportunities to scale this up and to create a very complementary offer with our current healthcare services. All right. If we flip on to slide 6, diagnostic services. We grew in diagnostic services just short of 12%, organic just short of 14%, so indeed strong. Lab test volume picked up only 4%, and that's really on the back of the lower referral volumes in Germany. Germany, of course, is our largest lab market, as you know.
When we do see significant movements in the volumes in Germany in any particular quarter, that has a very visible knock-on effect on the division by test numbers. However, important to point out here is that while we've then had a contraction in the KV paid, i.e. public paid lab volumes in Germany this particular quarter, the private pay lab volumes in Germany, which is about 40% of our German lab volume, is growing very strongly, just short of 20% year-on-year, which is if not remarkable, that may be a strong word, but it's a very strong growth rate in a mature German market. We kept on adding blood drawing points, so we added 24 during the second quarter. We are now just short of 550 BDPs across our territories.
The reimbursement revisions in Germany, to articulate that a little bit more, here had sort of two components to it. That's why we call it a double cut, and that's why the effect of it has been more visible and beyond what we had expected. I made a point already. We had budgeted for and planned for a, what I call a regular price cut. That pretty much happens, if not every, but certainly every second year, so nothing new with that. It came a bit earlier than we planned for, but that has really no material impact. In addition, was introduced a way to seek to not necessarily reduce volume of test referrals. Actually, I don't think that was the intention of the regulator here, but that has been the consequence.
We see a referral volume drops of anywhere from 1%-5%, 6%, 7%, depending on location. We do expect this to normalize over a certain period of time, and we're not going to volunteer a number of months over which that will happen. Clearly, as a company, we take mitigating actions to manage the short-term situation while we still expect this to return to normal referral volumes level in quite a reasonable time, I would think. It's around 15% of the diagnostic services revenue, which is subject to these revisions. You see that that's significantly lower than the overall public pay component in diagnostic service, and that is because it's not all type of tests that have been subject to these price cuts. Medicover clinics in Germany, they keep improving.
Clearly, they were also impacted by the KV adjustments, albeit to a much more limited scale due to the nature of their services, but they were held back in the quarter to some extent due to that. We have previously commented on that we had some issues with recruiting staff and doctors. That's really been improving quite a bit. We feel good in terms of how we are able to staff up the locations and get productivity going in our locations. That's pretty good, actually. Flipping onto slide seven, which is our India venture and MaxCure. We have, in the second quarter, further increased our ownership, and we are now at just above 45% ownership.
MaxCure currently operate 10 hospitals in two states, Telangana and Andhra Pradesh, where Hyderabad being the capital of Telangana, and that's where the founders of the business started and where the bulk of the business still is. Revenue for MaxCure second quarter, EUR 14 million. Underlying growth, just short of 20%. A lot of currency effects here, as you can see, but the underlying growth, 20% in MaxCure reflecting the growth of the market. We are maintaining a good double-digit EBITDA margin. This is a fast-growing, nicely profitable business that we have very positive outlook for. On the right-hand side, you see our latest addition, which is going to be hospital number 11 in the network, which is the first step into the Maharashtra state or the state of Maharashtra, which is on the western part of India. Mumbai is in Maharashtra.
This is together with the Ashoka Group. Ashoka Group is a very well-reputed, it's listed Indian business in infrastructure. They have built this facility, brand new, 350 bed, highly specialized. We have staff in place now, and within the coming few weeks or maximum a month, we will start to provide services. We're very excited over this, which is then the first step into a new large populace and fast-growing state. I can also take this opportunity to comment on that the sort of growth strategy for MaxCure is Hyderabad from where it all started and which is still sort of the central gravity for MaxCure. Hyderabad, which by the way, some of you may have read the first IKEA shop in India, that was slightly delayed, now it's opening.
That's opening in Hyderabad, and it's actually just opening some sort of 300, 400, 500 meters away from our core hospital facility in Hyderabad. That sort of gives you a bit of a Swedish connection to where we operate in Hyderabad. Hyderabad is quite a busy hospital city, and we've had some questions coming, is it right to keep expanding MaxCure in Hyderabad if it's so much competition? Hyderabad is quite a competitive city for hospital services. This is obviously where we started, MaxCure started. However, most of the expansion, if not all expansion now, is outside of Hyderabad, down in the Andhra Pradesh city on the eastern coast, and also really creating feeder system hospitals on the outskirts of Hyderabad to provide patient referrals into the Hyderabad infrastructure, as well as them now stepping into the state of Maharashtra.
We feel very comfortable, which you obviously can tell from the way we speed up our investments into this business in terms of how management and the current majority owners are thinking about expanding and scaling the business. Our fertility business, which as you recall, is a startup, and now it sort of moves a little bit away from being a startup into running quite a significant network of clinics now. We are at 12 operating clinics as of a few days ago when the 12th clinic opened up, and we maintain the ambition to be at 20 or around 20 operating clinics by the end of this current year. You recall that we operate in Delhi, in the NCR region. That's where we started doing very well, growing volumes nicely.
We went then into the Punjab State, northwest of NCR, where we are now up and running, and we are working on opening our first facility, which will be a hub, a significant facility down in Hyderabad, again, in the state of Telangana. That really will be the third cluster around which we will develop our hub-and-spoke model to grow fertility volumes in India. Overall, we're very confident and pleased with what we see in India. With that, I hand over to Joe to talk a little bit more specifics on financials.
Thank you, Fredrik. Top line, very strong. For the quarter, EUR 161.1 million versus EUR 141.6 million, 13.8% increase for the quarter versus last year quarter, 13.7% organic growth. We had something like about, for the quarter, EUR 2.1 million acquired revenues versus 17 quarter, and some currency effects around about EUR 2 million. Good strong revenue growth. In the healthcare services side, we had something like about 13.3% organic revenue growth. The Polish zloty year-on-year has been a little bit stronger in the second quarter, and that's impacted between the headline growth, 15.5%. Very good strong growth there. The members, extremely strong growth. We put on 162,000 people, members, individuals lives since the end of the second quarter 2017. Just to put that into a sort of Swedish context, Uppsala has a population around about 150,000.
We need to put the facilities on to be able to service those people. One thing is putting the physical facilities on in terms of expanding them, but the more important one is then in terms of bringing the doctors to be able to service and look after those people. That is something which is really important for us in terms of being able to service those people, maintain the satisfaction levels, which drives the retention levels, which drives our longer term profit. That has impacted in terms of the healthcare services, in terms of their EBITDA a little bit in this quarter, as we've made sure we've been putting on the doctors and the medical staff to be able to service those people as well as the facilities.
If we look at the EBITDA level for the healthcare services, that was adjusted for India to make it comparable to last time around. That was some EUR 7.5 million revenue, EBITDA profit versus EUR 6.9. A margin of 9.3% versus a margin around 9.8%. They have some impact in terms of the medical costs side, delivery side, in terms of making sure that we can actually treat these people in the way that we expect to make sure we get retention. That will normalize over time. Not particularly worried about that. In terms of for the diagnostic services side, that was up headline 11.9% in EUR terms, 13.9% organic.
The currency situation in Romania and Ukraine is relatively benign at the moment, at the time, there still is a small negative movement there in terms of Romania and Ukraine, and that's driving the variance there in terms of between the organic and the headline. Volume increase, that has been a little bit subdued, and that's on the issues that Fredrik talked about in Germany. Within the numbers, we also picked up our share of profits from MaxCure for the 12 months to 31st of March 2018, which is the financial year in India. On an IFRS basis, their net profit after tax is around about EUR 1 million. We pick up about a quarter of a million EUR and reflect that in our financial statements here for our share of their profits for the period that we've owned the business.
Just to finalize just on that point in terms of for MaxCure, they have a debt on their balance sheet, that debt is in Indian rupees, they're matched to their currencies. They don't have a foreign currency exposure on their balance sheet. There is quite a spread in terms of the cost of debt in terms of Indian rupees versus USD or EUR, as you can imagine. That's why you get a more significant difference between their net profit and their operational profit. Just coming over onto the financials, just to make a few other points. Our effective tax rate that we're looking at for the year is 29%.
We have adjusted that in terms of taking out the impact of the other income, where we recognize some of the gains in terms of the options we have over the revaluation of our options to acquire shares in MaxCure. Those are, by their nature, not taxable. They are IFRS adjustments. There's no tax impact in respect of those. We expect, adjusted for that, will be around about 29% for the year. We have been active now in terms of getting ready to buy assets and actually buying companies. As Fredrik mentioned, we bought OK System in June. We haven't consolidated that into the numbers. It's just at the end of the month that that was finalized. We own a 78.5% share of the business, there's a minority.
We paid something between the final price will end up somewhere between EUR 7 million and EUR 8 million in terms of the finalization of the price details. Given that the business had some EUR 9 million revenue for 2017, I think that is quite an okay price that we paid there. We bought some other assets. We have a small clinic in Romania, which we just finalized after the quarter, in terms of signing agreement, and that will close in September. The process in terms of regulatory approvals is going ahead and following its process in Romania. That will be for around about EUR 23 million in terms of the price for Spitalul Pelican in the west of Romania. We expect that to close, could well be September. I do not expect it to be after October.
We will consolidate those into either September and the last quarter or just for the last quarter. The fertility business in the U.K., we exited that. There was a loss of EUR 1.8 million, which we have booked through the other income line. This has been loss-making in Q2 and for the first half. About EUR 300,000 loss for the second quarter, about EUR 700,000 loss for the first half. That was booked into the other income cost line, which is a net profit of EUR 3.2 million. Within that, we have a EUR 1.5 million gain in respect of our real estate assets that we developed with some excess land in Warsaw. All of those apartments have been sold. We have a very nice new clinic on the ground floor in a great location, which we are continuing to use as a Medicover center.
We booked in a EUR 1.5 million gain for that process there. A net position in terms of the revaluation of the options for MaxCure, a net profit of EUR 3.5 million. All of those lines together gave a net EUR 3.2 million. Interest costs is running a little bit higher, as you see here. We have a net of EUR 1 million charge. In that EUR 1 million charge, we have around about half a million, which is interest on bank debt. The others are release of discounts of financial liabilities. Operating cash flow good. Working capital, we paid down some payables balances. That was an increase in our working capital. Tax cash paid was a little bit higher in terms of settlements for 2017 and some prepayments for 2018. Net debt, just under EUR 40 million.
That is ticking up a little bit as we start our acquisition agenda and start to put some of the money that we have raised to work in terms from the IPO. Around just over EUR 70 million gross drawn on our revolving credit facility of EUR 200 million. Investing for growth on the next slide. We have now closed seven transactions, including smaller ones. Dental, genetics, the clinics, and now OK System in Poland. Payments in total, EUR 18.1 million cash paid for those investments. Our two main investments in India, our Greenfield fertility business, we have invested to date since the IPO EUR 9.3 million cash in that. Our investment in cash into the MaxCure business, just short of EUR 30 million, EUR 29.1 million. We have invested just short of EUR 40 million into India since the IPO.
Our investment, we continue to invest, putting money to work in terms of growing our facilities, growing our distribution, growing our clinics, new blood-drawing points, pharmacies. For the first half, we've invested just short of EUR 12 million in growth CapEx. This is things which are new and expanding our footprint and providing to service our growth and provide our ability to grow. EUR 26 million since the IPO. We will continue at that sort of pace in terms of investing. That's what we're here for in terms of raising the money to invest and put it to work to ensure we can continue to drive growth. Coming over onto the next slide. Here recapping in terms of our targets against how we've performed for the six months and for the quarter.
We're looking at 13.7% growth for the organic for the quarter, 14% for the six months. As you can see, the German issue is not an issue in terms of revenues. German issue has held us back in terms of profits. For the quarter, we have organic EBITDA expansion 6.5% and 13% year-to-date. If you remember on the first call, those numbers were in excess of our targets. That's what's holding us back temporarily. Our interest-bearing debt, we're starting to invest a little bit of money now, so that starts to creep up. There's still plenty of ability for us to be able to invest. That's what we're working on.
All right. Thank you, Joe. That was the slides and the information we wanted to take you through. I suggest we open up for questions then.
Thank you. Please press star one to ask a question. We are going to take first a question from Nordea, Hans Smalle. Your line is open. Please go ahead.
Yes, good morning. This is Hans Smalle with Nordea. I have a few questions. Starting off with the impact on diagnostics in Germany. The changes on reimbursement, was that active from the first day of the quarter, or should we see a sequential larger impact going into the third quarter? Also in terms of the acquisition of OK System, should we expect that that will be consolidated now during the third quarter, or do you have a date when we can expect it to be consolidated? Finally, when it comes to growth CapEx, should we expect similar levels going into the second half, or do you expect any acceleration in growth CapEx? Thank you.
Hans, that was simple to answer. Yes, yes.
Okay.
It was impacted from the beginning of the quarter. OK System is consolidated from July. You should expect a similar level of growth CapEx for second half of the year.
Okay, perfect. Maybe I can do a follow-up since you were so quick in answering those questions.
Yeah.
I heard you mention, Joe, the structural impact on the first half and the second quarter. Could you just repeat how much M&A contribution you had in the second quarter?
Yeah. For revenues, we had EUR 2.1 million of revenue came from acquisitions in the prior 12 months. For the first half, that was EUR 3.7 million of Sorry, EUR 3.9 million for revenue impact in terms of acquired businesses. When we were doing the IPO, we slowed down in terms of doing acquisitions and M&A work. It's taken us through to now before we actually start to actually move that agenda forward with any real more sizable acquisitions, as you can see. Pretty much most of the acquisitions we've done in the last 12 months have been on the smaller side. The agenda starts to move now. As I said before, in the past, when we talked about this, our agenda is to invest anywhere between EUR 200 million-EUR 350 million over the next few years in terms of M&A and accelerated growth CapEx.
We've got our work ahead of us.
Very good. Thank you so much.
We're going to open next line from Jefferies, James Vane-Tempest . Your line is open. Please go ahead.
Yes. Hi, good morning. Thanks for taking my questions. It's James Vane-Tempest and Jefferies. Firstly on the IVF business, the decision to close the U.K., just wondering if that's an operational issue or a demand issue. If you could tell us who you sold it to, that would be helpful to know. Second question, just on your guidance and the new organic EBITDA growth. If the deals do consolidate as you expect in the second half of the year, can you give us a sense what they would contribute so we can think about what a reported level would be at this stage? The final question, just on the Germany diagnostics margins.
Just curious if this changes your strategy in Germany from a capital allocation perspective. I know the magnitude seems to have taken some by surprise. How do you view the ramp from peak profitability in this segment now, given those changes? Thank you.
All right. I'll try and deal with one and three. I'll leave two for Joe here then, James. In terms of the U.K., it's not a market and structure issue. The local partner that we had took over the business, so we basically handed it over to him, the local doctor that we worked with. That was largely an operational and scale issue. If you wish, we sort of failed to scale that business adequately within a reasonable period of time. I didn't really see that that would happen within a reasonable planning horizon, which warrants our time and effort. It shouldn't be seen as a vote on the attractiveness of the U.K. fertility market, but we could just not get the sufficient scale and operational efficiency out of that particular business. That's how you should see it.
number three, in terms of if the KV revisions, were we taken by surprise, does it change our strategy? I made the point here that we were taken somewhat by surprise as I'm sure the entire market was by the sort of volume inducement introductions. We are of the opinion, James, that that's probably going to normalize over a, and I said I don't want to put a number or a time period to it, but reasonably soon, I think, because I don't think anyone has had the intention of really changing the prescription behavior of doctors just the way this has been done. That has been the consequence. It sort of has happened before in the German market, and that's returned to normal.
It's an external factor that we can't impact, so we just got to adjust to it, which we do in the short term. It does not in any way change our fundamental outlook in terms of what we want to do in Germany. I made the point that in the lab business, today we have 40% private pay. If anything, perhaps it underlines the importance of our strategy to really push private pay in Germany alongside the KV business. KV business is not bad business in any way. It's just that you're obviously subject to the regulatory authorities changing like they did now. I think, the combination of a significant private pay component, which is growing very strongly, and managing the KV revenue segment is a strong combination, and that's what we intend to keep doing. Joe, you want to comment on the middle question?
Yeah, James, it depends upon when the transactions obviously close and when we can consolidate the figures from. In terms of for an EBITDA level, I don't expect it to be lower than EUR 1 million. I expect it more probably to be about EUR 1.5 million. It could be up to EUR 2 million. It might, if we get a bit earlier consolidation, be a bit higher than that in terms of the EBITDA profit level.
Thank you. If I could ask a quick follow-up, Fredrik, your comment on IVF. I'm just curious, given the relative, say, small size of that business overall compared to-
Yeah
your other businesses you have, and the relative fragmentation given you have presence in many markets, just wondering whether you see any risks in the other markets where you have a smaller presence in IVF, that there may be an element of retrenchment if it is kind of tough to scale in some of these individual markets.
No, if you look at that little business, if I should term it like that, was largely an exception to what we do. We went in, I can't tell you exactly, is it three years of work? I don't. Time goes so fast. A number of years back on the ambition to really be able to scale that up quickly. We haven't been able to do that. Call a spade a spade and say, time ran out on us and we basically said, "This is not going to work, so just get out of it." If we look at the other IVF business, with Poland, we're the largest one in the market, is growing very strongly. Ukraine are doing tremendously well, growing very nicely.
India, I think the Indian business is probably, an educated estimate towards the end of the year, we're probably going to be on a run rate of our group-wide cycles in India of sort of 20%-25%. The scaling up there is going really well. I think what you should look at the U.K. one, hopefully that's the exception to the rule that we're able to scale well where we operate, here we just couldn't see that that's going to happen. Call it a day. I guess that's the way to put it.
That's really helpful. Thank you.
Please press star one to ask question. We are going to open next question from SEB, Richard Kux. Your line is open, please go ahead.
Good morning. Could you just please, on your guidance, please clarify what is the base that you use for the EBITDA figure? Since we're using a lot of adjusted figures. What is the base, and also could you again say what is the adjustment that you're making? What is the organic impact of 1.5, and also are you excluding any other figures in there in your presentation there during the slide, you're excluding the impact from the fertility clinic in India. Is that loss excluded from the guidance?
Richard, Yes. Basically, if you recall in our IPO and in each quarter, we've been very clear on communicating given the size of the losses with the Indian fertility startup, that that is exceptional to our financial targets. We rarely would not have a startup of that magnitude. The financial targets that we set adjusted EBITDA and adjusted EBITDA as it is defined in our financial statements. Adjusted EBITDA, we exclude India because it has such a significant impact. In the same way as our financial targets are stated as being excluding the startup losses relating to fertility India, likewise, the revised guidance for 2018, of course, is made on the same basis.
Rich, just to go back here and recall for this. In terms of India, the asset prices, we discussed this when we were doing the IPO. The asset prices were pretty high if you want to buy anything in India in the healthcare sector at all. It's much more interesting for us and to build our own where we get our own culture, we get the right procedures, right practices, and the right quality levels. Versus buy something or build it was very much in our interest to build that. We're excluding the India in terms of to give you a comparative adjustment in terms of the growth. It's not any structural thing on, we're trying to do anything to the numbers. It's purely in terms of giving a clear comparative basis.
Okay, fine. I just wanted to understand. What is the base figure that we're using then? Is the reported figure including a loss that you want to adjust for, or what's the starting point?
He asks in the base reported EBITDA, the Indian loss is included. I think that's what Richard is asking.
Yeah. In our base EBITDA, the India losses are consolidated in there. Yeah, absolutely.
What is the starting figure that we should use as the base for the 18%-20% growth guidance? Is that EUR 44.3 or should we adjust that figure?
In terms of for 2017?
No, in terms of the starting point that you, when you talk about the three-year CAGR of 18 till 20%.
Right. Okay. The base there is 2016.
The reported-
2017, 2018, 2019. Yeah.
Yeah.
Our reported as of 2016 is the starting base.
Okay, thank you. There was a EUR 1.5 million positive impact from M&A that you're seeing.
In terms of James' question, he asked where did we think that it was going to come out in terms of the consolidation of the acquisitions which are coming, assuming they all close, et cetera. I mentioned there, I don't expect it will be, I'm pretty certain it will be not less than EUR 1 million, probably more like EUR 1.5 million, depending on if we can consolidate a little bit earlier, it could be up to EUR 2 million, maybe if we're lucky, a little bit higher. If you're looking at it, very much bottom range won't be less than EUR 1 million. I doubt it'd be very much above EUR 2 million.
Okay. The gains on the options from MaxCure, is that sort of mark to market all the time?
Yeah.
Later in the year, should that be fully reflected now?
If you just remember the history of this, go back. When we were doing the IPO, we disclosed this, that we had an option, that our major shareholder was investing in this, and they invested in this initially back in May 2017. We acquired that position from them at cost in beginning of the fourth quarter. Within that position, in terms of what they'd invested in, they'd been negotiating this back in the first quarter of 2017 and the last quarter of 2016. The arrangement was such that we have options to invest further. The business has performed very well over that period of time. The mark-to-market value of those positions, financial derivatives, has increased quite significantly. This is then just a release and recognition of those mark-to-market positions. Eventually, as we consolidate, this will form part of our cost base in terms of our investment.
Eventually through our profits and the recognition of profits, we will convert it into cash. It's not a cash profit at the moment.
Do you expect more during the rest of this year to book more gains?
Yeah. We have a certain amount which is disclosed. I think we've got about three or four pages of disclosures in the release. As you can imagine, with IFRS 9, with all of the detailed disclosures that are needed, sensitivities, basis of valuation, inputs, da, da. There's an enormous amount of data in the release to pick over.
Great.
We have an amount which is deferred, and that will be released over the rest of the year. Yeah.
Thanks. Also, last question just on the tax rate. You said that there's a 29% underlying tax rate, but what do you expect to have as a sort of reported tax rate for the full year?
Yeah, it'll be lower because with this other income, that, as I said, is not subject to taxation given the nature of it. It's an IFRS adjustment. That will actually bring down the tax rate. You can calculate that yourself. In the quarter, we had EUR 3.5 million recognized, and I think for the year to date, we have recognized, just trying to remember. We have recognized some EUR 7.2 million profit for those positions.
Okay. Thank you.
Next question comes from the line of Geoffrey Jamston Tapis. Your line is open. Please go ahead.
Oh, hi. It's James again. Thanks for taking my follow-up question. It's a quick clarification, actually. Fredrik, I think you mentioned that when thinking about the impact from reimbursement cuts in Germany, it had happened before. Just curious how long at that previous point it took to normalize through the business just to help us kind of understand how dynamics may play out again this year. Thank you.
Yeah. You're sort of pushing for that. I would say it's quite a long time ago they did that, but if I would volunteer anything, I would probably say 6-12 months, James.
Okay.
That's a non-scientific answer, but it's the best guess I can offer you.
That's really helpful. Thanks a lot.
James, just to add in respect to that, part of the issue is also doctor IT systems in the clinics. The providers need to adjust their IT clinics to be able to reflect this for the doctors to be able to operate more efficiently in respect to this. It's a myriad of facets that come into it. It's quite complex and difficult to be able to really give a prediction of how long it's going to take to get it sorted out and working properly.
Understood. Thank you.
There is no further questions.
All right. Okay. Well, as always, we appreciate very much that you take your time and listen to us. We are in Stockholm, where it's like 32 degrees outside and probably as warm wherever you other people are. Thank you for taking the time to listen, and looking forward to talking to you, if not before, so at the end of the third quarter. Thank you all very much. Bye.
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