Earnings Call: Q1 2021

Apr 29, 2021

Thank you. Good morning, everyone, and welcome to the Q1 2021 results presentation. This is our strongest quarter ever. It is strong throughout. And it certainly shows the resilience of our business models that despite the crisis roaring on across so while we can deliver a set of results like this. And it also is important to be clear upfront that Despite this is certainly positively impacted by COVID now, as you will see in the numbers. But fundamentally, our underlying business is also recovering strongly and progressing strongly, which which gives this set of results. So that's an important thing to keep in mind for context here. So really strong revenue growth, EUR 317,000,000 organic growth just below 40% and some 22% of that being COVID related, which means 18% underlying business growth, which is very strong. We've seen pickup in demand during the quarter in our underlying businesses, although we're clear on that we're not yet back at levels in the underlying business where we were before the world view of COVID. We've seen increased admissions into our hospitals during the month of March with a sharp ramp up towards the end of March. And you all read the daily news of how the situation is in India. So we are obviously very busy there currently to try and deal and support with that very critical situation. We've expanded some of these services that we are providing to different industries to support in this sort of business recovery, such as the airport support down in Germany or also the cruise line industry that is bringing passengers back to their cruise ships. Fee for service, which you know is a very core element of what we do, was now up to 50 7% of group revenue for the quarter and was up 41%. And you see there in the left bottom pie chart that fee for service and public money is growing roughly the same. And that is, of course, driven by the fact that large parts in Germany of our COVID related testing is publicly reimbursed as well as in the other countries. So hence, the public funding is growing very strongly. If we look on the profitability side of things, EBITA being our Prime results measure very strongly up, more than doubling, 126 percent up, €65,500,000 up some 8 percentage points in margin. Again, the underlying EBITDA, we strip out The COVID related earnings, which is approximately 25% of that result, Look at the underlying EUR 48,900,000 again, more than 6 percentage points margin expansion and 70% up versus last year. Obviously, I remind you that when we reported Q1 last year, we had 2 weeks of COVID impact, And we haven't really had the time then yet to do any corrective measures. So of course, the comparative quarter Last year is slightly on the soft side, but nevertheless, that is a very strong result indeed. That's also visible in the cash flow. Joe will talk more about that later on. But just short of $58,000,000 operating cash flow, which is more than 50% up on the prior year figure. Cash is always king, as you know, so that's a very important result measure to look at. If we then go Onto the division. So Healthcare Services, again, I remind you, same thing we talked about last quarter. In terms of COVID impact, 90% plus of the positive impact is on the Diagnostic division. So Healthcare Services remain with predominantly a negative impact from COVID where some of the services are not yet back at pre COVID levels, where some services such as our sports business is outright still closed. So there is still recovery to come in this side of the business. But despite that, revenue up to €157,000,000 which was organic growth of 23.5%, approximately 7% of that being COVID related, which leaves Steamed percent organic growth in this business, which is really, really strong when one considers the point I just made that there are significant parts of activities here that are not yet back at pre COVID levels. Fee for service in this division, just short of 50% of the division and was up by 29% for the quarter. I already made a point in terms of significantly increased patient admissions into our hospitals. And as you know, if you look at the absolute number of hospitals in our group, The vast majority of them we do have out in India. And it should also be made the point that we have been very aggressive in terms of scaling up the number of beds in our Indian operation in order to support the very critical situation India is currently facing. So we are very busy adding beds out there. And as mentioned, some of our businesses are still very heavily impacted where the sports and gym business is the most significant example, where we're still waiting for restrictions to be lifted so we can open. In terms of the employer paid business, we brought in 30,000 new members in the quarter, which we're happy with. That's a good number. And it shows the strength and resilience of that business. Looking at how that transformed into profit development. EBITDA again here, euros 22,500,000 up strongly from €14,500,000 last time around and relatively benign COVID impact here just a little bit above €1,000,000 So most of this or €21,100,000 to be specific relates to the underlying business, and that's 3 50 basis points margin expansion on the prior year or almost 50% growth. So I think again that shows really well the operational leverage we have in the business when volumes gradually now come back. We have also kept acquiring a number of smaller businesses in Poland, in the gyms field, dental businesses and also a network of medical centers in the northern part of the country during the quarter. Overall, we now operate 30 hospitals or inpatient sites where, as I just mentioned, the vast majority of them being in India. Then going over to Diagnostic Services, where revenue jumped all the way up to €165,500,000 So up 53% and organic a super strong 61%. I think I did comment last quarter that it was EPIC growth and I don't know if Eivr would report organic growth. I think at that time it was 40 or something. So this time we are significantly above The last quarter, of course, largely driven by COVID, where out of the 61% organic growth, 39% relates to COVID related revenue, but that leaves a strong 22% organic growth in the underlying business, which I think also brings home that message that we are recovering also underlying. Fee for service, as you know from before, is a larger part of this division, 2 thirds, 67% and this was up in line with the overall division then 53% for the quarter. And how did that fall through into profitability? Of course, a quite sharp Profit dropped through here with EBITDA up almost 150 percent to EUR 47,300,000 with a very significant margin expansion, overall EBITA margin 28.6%. Again, here the COVID EBITDA just north of EUR 15,000,000 or about a third of the total profitability in the division for the quarter. Stripping that out leaves some €32,100,000 of EBITDA, which again was up some 70% versus prior year, so super strong 8.5 percentage points margin expansion. So indeed, very significant. Laboratory tests, so looking at the absolute test numbers, they were up 21%. If we strip out the COVID related tests and look at the underlying Ex COVID test volumes, they were up 17%, so again, quite corresponding to the underlying organic revenue growth. We kept on growing our BDP network. So now we're up at 756 across our geographies. And then our sort of standard summary page, what has COVID brought to us this quarter. And I think I've pretty much covered already all of the points here. So of overall $52,000,000 $53,000,000 COVID revenue. You see 80% plus being related to diagnostic services for obvious reasons and about $10,000,000 on the health care services side and then 90% plus of the sort of profit contribution impact going to the Diagnostic Services and a little bit on Healthcare Services as has been covered. Important to comment on is that the supply chain issues we talked about in prior quarters are largely sorted out. So that doesn't really impact us any longer. If you look at the specific COVID related revenue, it's fairly much in line for the diagnostic services with the prior quarter. So volumes have kept up roughly on about the same level as we saw in the Q4. Now if I look at January, February, March, March was sequentially slightly down from January, February in the core markets here in Europe from a COVID testing point of view, I think largely in line with the with how you see the sort of virus peaks and drops. And a point was already made in terms of the very sharp ramp up in admissions in Medicover Hospice India. Important to say is the ability of us to provide vaccines to our staff and of course to customers. But given the fact that each of our frontline medical staff will see and treat many, many patients in a day, The fact that we can vaccinate most of our medical frontline staff is really very important in our ability to keep on providing a service, particularly now, of course, in India, where any staff that we can't keep on up and running due to non vaccinations or infections is a serious shortcoming. So that's a really important thing to point out. All right. With that, I hand over to Joe for the financial overview. Thank you, Pedro. So just having a look here in terms of the detailed financial numbers. And the thing I'd like to put out on here is the numbers are great helped by COVID, some impact from Negative impact from COVID in second half of March twenty twenty in the comparatives. But the thing that I really want to draw away is the underlying performance. So we had stripping out the COVID related revenues, euros 26,500,000 increase in the in our euro reported revenues, so really strong numbers. And if we look at the divisions, we have with Healthcare Services, euros 13,300,000. So that's just short of 10% against the euro figures prior year round and EUR 15,700,000 in the Diagnostic Services. So some 14.7% increase. So really strong numbers in terms of the increase in terms of stripping out the COVID numbers. And you see that reflected also in the margins. So for the Healthcare Services, we had 3.5 Percentage point increase in the underlying and in the Diagnostic Services, we had 8.5 percentage points. Now that's in Europe reported numbers We have quite strong headwinds on the FX side against us in almost all the in all non euro markets. So really strong numbers to take away on the quarter, on the underlying as well as then with the COVID figures. So just Looking at some of the financial aspects, net interest cost SEK 4,500,000 as reduced in prior year. Interest charge for leases of that is SEK 2,800,000, so up slightly in prior year. And that gives an underlying debt Discount release of SEK 1,300,000. We refinanced in the prior year for the debt in our Indian subsidiary, and we had a CHF 1,200,000 non cash cost in the comparatives for writing up arrangement fees, which are amortized over time. FX loss is SEK 1,200,000. Almost all of that is euro denominated is in Poland for IFRS 16, where we book in advance the exchange rate movement, and that's a Sure, non cash item. Tax charge, we estimate at SEK 10,200,000. We've used an effective tax rate estimated of 28%. We used 30% last time around, maybe that will be slightly lower for the full year. But we are earning money in countries where we have operations, where we have a higher tax rate than our average. Tax paid CHF 2,600,000 3.3 last time. Cash flow from operations with those strong results, obviously very strong, CHF 60,300,000 Working capital quite benign, an increase of $5,200,000 in line with the decrease of the business. Cash and cash equivalents have increased as a result of that strong operating cash flow. So excluding our short term Liquid investments, we're parking money to manage that, euros 65,900,000 up 46,700,000 And also then our loans net of cash and those short term investments have reduced to $61,300,000 so down just almost $20,000,000 from the year end. Our business continues to expand. We've done some small acquisitions in the quarter, which have increased our our lease liabilities and then we also done some expansion in terms of adding new facilities as well. So our lease liabilities increased just over €10,000,000 to €211,000,000 from €200,000,000 at year end. Capital investments, we continue to invest in expanding our business, dollars 19,400,000 overall in terms of cash flows for capital spending and just below that being in growth Orientated investments and just over half of that being in maintenance investments. Expansion of our facilities in India, it's about a quarter of the investments. We now have some 20 facilities running in India. Just to remind you, when we first took our steps Twindeer in end of 2017. We had 9 facilities, both of our cancer facilities are now running. Dental Greenfield Dental and our acute clinics in Poland. And we've also been increasing laboratory capacity and investing in servicing our clients in related to COVID treatments as well. IFRS equity has expanded relative benign translation adjustments. So that's up to CHF 513,000,000 from year end. So a good increase on that, seeing the profits flow through into our equity line. And our liquidity is really strong. We have our revolving credit facility, dollars 220,000,000 which is undrawn. And then with our own balance sheet liquidity, that It gives us an immediate liquidity of some $320,000,000 and certainly more ability to leverage the balance sheet. And That means we're extremely strongly placed in terms of organic and inorganic growth. And just going back and having a look at our financial targets with the COVID boost, we sell through those by a long margin. So growth 39.7 percent in underlying growth, organic growth and EBITDA margin obviously fell through those medium term targets and our capital structure with a strong cash flow is largely unleveraged at the moment. All right. Thank you, Joe. So those were the slides to take you through. So we're very happy to take any questions you may have on these results. Thank So your first question comes from the line of Kristofer Lederberg from Carnegie. Please go ahead. Thank you. Just one question from me and it's about what appeared to be a much better operating leverage than in the past because if we strip out The COVID effect, it seems EBITDA adjusted for leases were something around €25,000,000 And at the same time, you're Saying you're not back at the previous levels for the underlying business as it were before COVID. Still, this is kind of More than twice as high as in 2019 earnings wise. So have you done something structural with the cost? So does the extra COVID volumes also help cover overall fixed cost also for the underlying business? Or If you could just help me explain what's going on here. Thank you. Sure, Christophe. I'll let Joe Do that. Yes. Christophe, we've seen a strong flow through. Yes, it's Difficult to unpick the COVID impact. Remember, last time around, we were impacted just at the Second half of March on that. And it impacted the 2 divisions in different ways, and it was the start of the process. So, the last EUR 13,000,000 to EUR 14,000,000 in terms of revenues, and we were hit quite hard. So I think Had we not had that situation, you would have seen a strong good pickup in terms of margins in that Q1 comparative. So there's a little bit of sort of like What we were expecting to see anyway coming through. But then on top of that, even though we're not back at previous levels in all of our businesses, We are doing well on an underlying level in quite a few of our businesses. And that is flowing through, particularly on the Diagnostics side, where we're seeing good levels of underlying demand, where people have adapted to the situations restrictions they have in terms of COVID and are coming back and getting the testing that they need. We have our gyms business, which is closed. So we have no revenues pretty much from this business. We have our pharmacy business, which we still see to be continuing strong impact on that. So we have quite a few businesses areas where we have where we're feeling a COVID impact. We dedicated hospitals in our facilities to COVID, where we're giving up good margin activities and replacing them with relatively low margin and activities restructuring costs in there. So there's a lot of negative aspects still coming through in terms of COVID. We have also been investing quite substantially over Yes, several years. And these are long term assets which take time to put in place. And then we start to get them to work. I think particularly the extension of our wing of the hospital in the west of Romania as an example. So then we have a little bit of structural stuff as well where we have people adapting how they get healthcare because of COVID. And that doesn't necessarily mean we're doing less healthcare. It does mean we could leverage some the online assets that we have. So I think overall, you're seeing a combination there in terms of incremental revenues coming back and also maybe being a bit higher in certain areas and that is then flowing through. And then also some Multitude of different factors of investments performing and working and contributing and then some negative impacts from COVID continuing as well. And the comment you made about in a more online Customer interactions, how important has that been for in insulation for the improved earnings? Is that a significant explanation or back to there or If you look at where you're seeing the margin improvement, it's larger on the Diagnostics side. And in the comparative figures, they were hit quite hard because it's such a marginal business. So in the comparative figures, we lost quite a bit of margin in the second half of March from the fall off in terms of COVID. So there's a bit of that Coming back in the EUR 8.5 million. But that's the reason I'm comparing with 2019. And it seems like If you have like €50,000,000, €60,000,000 higher sales now a quarter, almost half of that is just Yes. Falling through down to bottom line. And that hasn't been the case Historically, as I understand. So and then this is what I was saying in terms of had we not had COVID, you would have seen a good margin improvement Undoubtedly underlying in the Q1 2020. So if you want to take it back further, then you can attribute part of that over time. The diagnostic side is a higher operational leverage business. So when you put more volumes through, you get a very good flow through in terms of the margin, the contribution. You see On the Healthcare Services side, we built 3.5 percentage points impact. Now they were also impacted on Q2 as well, but to a lesser degree, because the prepaid business was largely untouched. The employer paid business was largely untouched. So there it's a more subdued margin increase, more in line with just general increase in terms of investments and performance and held back still by some negative aspects of COVID. But I guess it's just adding to that as well that we commented on that last year that we took quite some significant sort of permanent cost structure measures, which is also part of the explanation here in addition to what Joao is saying. So overall, you look back 2 years, Christophe, for the question you're asking, we put on quite a lot of business. We grow strongly. And a larger portion of what you saw historically, that has fallen through. And Joe has given various reasons for that. And I think that's just important to see that. I think a lot of A lot of people were historically asking that, how strong is the operational leverage when you put on more scale and what's your fixed cost base. And so I think It's a good illustration of how scale matters in our business. Yes, that's great. Thank you very much. Thank you. Next question comes from the line of Paul Moren from Danske Bank. Please Go ahead, Paul. Yes. Good morning. So I have a question regarding the Healthcare Services side and if it's possible to quantify maybe The negative impact that you have seen now in Q1, if that's possible to explain a bit more about the trends you're seeing in the Healthcare division, Excluding or yes, Francois, please. If you look back at our Quarter reporting since the crisis broke out, we previously, we have given an estimate on the negative impact. Now this is the Q1 we don't do that. And the reason for that being is that we, as I think probably all other businesses, we are running these 12 month running forecasts. So 12 months into the future, you have a pretty good pick on what you think is going to happen. And as this broke out in March last year, basically the month of February was the last month, we had, call it, an undisturbed forecast what the world would look like when before we knew what COVID was. And we're 14, 15 months beyond that now. We have no original undisturbed forecast. And we just feel that the it's just too much uncertainty to try and estimate what we think it would have been had not probably happened. Now clearly, there is still, as we have made on this call, a quite significant negative impact from these various businesses that both myself and Joe have talked about. But we refrain from trying to quantify for this particular reason. Okay. Thank you. Thank you. We have a few questions online. The first one is, do you mind elaborate about the situation in India and how it affects your business there? Yes, I can comment on that. I mean, the situation in India now is by far the most severe situation we have seen anywhere since the crisis broke. And I think there was a new world record set today In terms of number of daily new infections, 360,000,000, 70 odd 1,000. So it's a really, really difficult situation for India as a country. Now what are we doing? We're operating a reasonably large number of hospital beds across the country, southern part of the country. So we are doing absolutely everything we can to provide the support possible. I think about 75% of all beds We operate now filled with COVID patients. We are as another example, we rented an entire hotel behind one of our main hospital sites to provide additional nursing bed capacity. That may not be a hospital, but it's much better than no beds at all. So we are really doing or rather our colleagues, I should say, in India are doing a formidable task to try and deal with what is arguably a very, very difficult situation. And then we have one question about could you provide more layers around the key drivers driven this margin Improvements in both health care and the diagnostic side. Mainly curious whether that is a trend that is expected to continue or whether this is one off Impact and we go back to more normalized margin pre COVID. So I think we already answered Christophe's Question the first part of that question. So I won't go over that again. But however, on the second part of that question, does this continue? I think the operational leverage that continues. And remember, we've got headwinds in terms of foreign exchange as well. So all of the inputs that we have for some of the markets are On the DX side, our foreign exchange denominated. So that's also compensated already in those figures. So our expectation is that we're going to see a strong underlying COVID a stronger COVID business through this quarter 2. And then in terms of the underlying business, fundamentally, we don't see that that's going to weaken. So we expect to see that this is going to this trend in terms of the profitability side, we don't see that that's going to weaken in the near term. Thank you. We also have Rannan, can you help us with guidance for EBIT ex COVID? In terms of the COVID related revenues, We're not particularly using additional facilities for COVID. So we're using our existing We've added some small new locations. And then in terms of The DaaS side in terms of the depreciation related to COVID, obviously, we've invested quite a bit of money in terms of The capital side, but again, that's not such a significant number. So we estimate that the so the difference between the two is not so significant. So in terms of if you strip out and roll the numbers down. So we disclosed, I think, in the on Page 4 in terms of the presentation, the EBIT for the underlying business, We disclosed that at 25.4 percent, so margin of 9.6 percent. You reiterated 2022 targets, but how are you seeing the phasing this year with tougher comps in the second half? Yes, I mean, we're clearly performing well ahead of the financial targets set for 2022. And I think last quarter around, we got a question, isn't it up for revision given the performance. And I think the answer 3 months ago, I think is the same answer as we see now that Clearly, if we see when the uncertainty in the world has reduced a little bit, I think one should recognize that perhaps it's the end of the beginning of this virus crisis. So I think we still have a long way to run with uncertainty ahead of us. So we don't really feel it's a time when you reassess your financial targets. But would that look different in 6 to 9 months' time? Perhaps that is the time when we assess it. But clearly, we are confident that we're trading ahead of those expectations that we set for 3 years. So we've got one question on the line, sir, From Matthijs Madsen from SEB. You are Matthijs. Yes. Hi, there. I missed a minute or so on the call. So sorry if I missed the answer of this question. Just one from It was much better profitability on the COVID-nineteen related revenues in Health Care Services segment in Q3 versus what we have seen now in Q4 And Q1, of course, on lower sort of revenue contribution from COVID-nineteen. But can you give some flavor here and how we should think about it And going forward? Well, I think the way to think about that, Matthias, is that the Most the point we made before is that most of the positive impact in Healthcare Services from COVID has been or was in the hospital business in India and with those very significant admission numbers back in the Q3 last year. Now you had a little bit of pickup, as I said, sort of second half of March, but you didn't really see that vastly impacting quarter 1. You will see a more significant impact from that in quarter 2, no doubt. However, one should be clear on that the pricing in India is now come down compared to where it was 6 to 9 months ago. So although it is certainly from a financial point of view an attractive activity for us. But from an Comparative point of view, it's going to be slightly less than what you saw in the Q3 last year. That's very clear. And all other questions were answered already. Thank you. Sir, no further questions over the phone. Please continue. Correct. In the next one, Heather. No, I think it was just a question mark about the EBIT margin for the underlying business. We said that. Yes. It was 9.6 percent. Okay. So I think we've answered all your questions. And We thank you for having participated. And we're busy looking after all our customers in India and elsewhere and look forward to talking to you at the end of the Q2 next time. Thank you.