Good day, and thank you for standing by. Welcome to the third quarter 2023 results presentation. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link anytime during the conference. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Fredrik Rågmark. Please go ahead.
All right. Good morning. Welcome everyone to our third quarter 2023 results reporting. My summary slide, I think the headline on the summary slide very well summarizes where we are delivering according to plan. We are 3 quarters out of 12, so 25% of the time into the new three-year financial target period, and I think we are well underway with these set of strong numbers to deliver on those financial targets. We have continued strong organic growth, just short of 15%. We report 19.5% growth, and if you would neutralize for the slight remaining COVID revenue element in the prior year quarter. So our underlying total growth is in fact 24%, and that is actually identical as the prior year, third quarter growth.
We've been compounding ex-COVID 24% revenue growth now for two years in a row, third quarter, which I think illustrates the very strong underlying growth momentum we have in the business. It should be recognized that that is despite some quite significant negative foreign exchange headwinds that Joe will talk about later. Indeed, fundamentally, a very strong underlying growth. Profitability is improving, margins are expanding, EBITDA margin up quite significantly. Operating profit, our EBIT line, absolute is more than doubling. Again, you know, this is very much driven by quite a few of our units, our immature units, particularly in India, but also elsewhere, is gradually maturing.
That's a point we have raised in quite a few of the recent quarterly calls, where, as you know, we have invested quite aggressively over the past couple of years. And it's very pleasing to see us gradually filling up these units, both driving top line growth organically, as well as obviously marginal contribution improving. We have made the point that we would sort of normalize back to more historic levels, our organic capital investment during 2023. And you see both in the quarter and for the nine-month period, that we are more or less down to slightly above half of where we were trending this time last year to reflect that ambition. As Joe will talk about later on, that is certainly not that we are stopping investing.
We are just bringing it down to more historic levels. Important to point out, I think we've had questions, perhaps the most frequent questions we've had over the past few quarters, has been around how able we are or how quickly we can actually fill the capacity we have taken on in our Indian hospital business. So it's very pleasing to be able to tell you that we are doing well in India, and we are well filling up that capacity. And we make the point that this is actually the first quarter when our Indian hospital business is accretive to the group wide as well as divisional EBITDA margin. So that's an important milestone for us to report to you. I've already made the point that I think we're well on track to achieve our three-year financial targets.
And also I put on the upfront slide, you know, election that took place in Poland a few weeks back. You know, we still do not have a new government, so I'm not going to get into that. But it is indeed pleasing to see the highest voter turnout ever after the fall of communism in Poland, and particularly important, that it was all the young people that came out to vote that overwhelmingly actually voted for the historic opposition. So it indeed, I think you can call that true democracy. If we then look at revenue, I've made the point already. I think, you know, we have very strong underlying growth momentum, pretty much whatever line you look at. And it's not in one market, it's very much across the board, reflecting, of course, price.
You know, we talk about in the report that price is coming through significantly, but volume as well. So if you look at underlying volume growth, i.e., take out the price component, you see in Healthcare Services, it's 11%, and if we neutralize for COVID, in diagnostics, it's also double digits. So on a fair comparison, excluding COVID in the comparative number, both our divisions are volume-wise, organically up double-digit, which in the environment we operate in, I think is a very, very strong result. And I think we can go to the next slide, Hanna.
Maturing units and strength and profitability, I think you know the graph to the right on the slide very well sort of illustrates. You see the consistency on how we have been able to put on, in absolute terms, more and more EBITDA quarter by quarter. You see the light gray being that extra COVID contribution, and as that has tapered off, we are, I think, in a good position to have replaced and will continue to replace and add on top of that increased EBITDA contribution from our units across the market. So, slightly more than 30% EBITDA growth, and that sort of falls through most of the lines in the profit and loss statement.
As every quarter, we remind you of our strong underlying cash flow. Cash flow remains strong, and with us now slightly reducing the pace of our organic capital investments, obviously, we are generating more cash to, over time, reduce debt or do other things with the cash. Looking then at healthcare services, impressive growth, I think that sort of summarizes the situation for healthcare services. You see the graph to the right there with everly standing, rising revenue. Again, something we expect to continue as we have invested particularly much in this division in additional capacity. The revenue was up a very impressive 32%.
And again, you know, there's quite a few negative FX elements in that number, and having organic growth north of 20%, of course, not insignificantly driven by 11.5% of price in, in that, in that growth. I think that illustrates how well our colleagues in this business have been able to price compensate for the historically high cost inflation we have seen. Fee for Service continues to, to grow well here. Quite often, we have had questions recently in terms of if we see consumer weakness or, you know, is the recession, will there be a recession, will, will consumers, be more careful to spend money? And in, in, in, in general, we don't really see that.
You could say that in some particularly expensive elective services, you have some, you know, demand softness. But in general, I think we are surprised in how resilient consumer demand across the board continues to be in our business. In our corporate paid member business, we grew 5.5%, so 13,000 new members in the quarter. That is a slightly slower growth in absolute terms than what we have seen before. And as I comment in the report, I think that's a combination of us being very focused in this year on ensuring price compensation, and where we have not been able to agree with customers, you know, we have focused on margin and price, as well as, you know, a slight weakening in the economy.
That's obviously the case across the board. Now, in terms of margin for healthcare services, again, I think the graph to the right very well illustrates how top line growth and revenue in absolute terms are flowing through to increase the profitability. So 44% growth in EBITDA, good margin expansion, you know, not insignificantly supported and driven by our Indian hospital business. But again, I draw your attention to the fact that we still have quite a few immature units, so this is something that we will see going forward for quite a few quarters. And that's the point I made on the second last bullet here, that strong margin development, increased contribution from early-stage project investments.
But again, you know, there's quite a few still, not the least, the new hospital in Bucharest, as well as a number of units in India, effectively, where we have significant drag on results from early stage investments. I put in one slide just for illustration. We get quite a few questions around, you know, what's going on in India. You know, I think the clip from the newspaper, this is from last week out in India, where quite a few of the industry experts, et cetera, expect India now to become the third largest economy in the world by 2030. So which is just sort of seven years away.
So only the U.S. and China, if we believe S&P, will have economy larger than India in seven years' time. And clearly, in that environment, that largely explains how the, you know, private pay healthcare market is enjoying high double-digit growth for many years to come. And obviously, that has knock-on effects on a very large amount, or a very increasing amount of various deal activity in the healthcare sector. Obviously, you know, we are not sellers. That's not why we put up this, but I'm more putting it up to illustrate for you that, you know, the world is very active, or the global investor community is very active in terms of Indian healthcare. If we then move on to diagnostic services, the right here, healthy development.
We still have some COVID in the, in the comparative quarter last year, although it is diminishing quite quickly. So revenue here was just short of reported numbers last year, so EUR 140.9 versus EUR 142.7 last year. Organic growth was 3.5%, so you recall that we have sold our Belarus business. So, we have almost made up for the drop-off of, of the COVID revenue, the drop-off of Belarus, as well as quite significant FX headwind. So I think, actually a very strong result for DX.
You see the next bullet here that just short of 15% organic growth in this business, ex- you know, the COVID element last year, of which price represented about 4 percentage points, so 10%+ organic growth. And again, you will remember that the difference in terms of price compensation between our two divisions being that here in this division, some just short of 50% of revenue is in Germany, which, as you know, we still have not been able to adjust pricing. Fee for service here, about two-thirds of divisional revenue. Actually quite good underlying growth. I already made that point, but it's, it's volume, it's mix, and it's price increases. So, a good, a good outcome in terms of diagnostic services.
Now, you know, the graph to the right, again, I think very well illustrates that, extra COVID income during a couple of years, and now we are gradually replacing, building back profitability in the underlying business. We're still slightly down in terms of absolute numbers, as you see, and, and margin, still the same. Sorry, also the same, so slightly down with the comparative quarter. But again, when we look at the underlying ex-COVID, we are significantly growing our profits, and, margin. Then, we go into the financial overview, and I hand over to Joe.
Thank you, Fredrik. So, pull up here just a slide of our adjusted EBITDA. I'll just repeat for the audience what that is. That's an EBITDA number, but we adjust that for lease costs, and the adjustments are in respect of IFRS 2 non-cash charges and then any M&A expenses through the quarter. This quarter, we have virtually nothing in terms of M&A costs, so it's just really the IFRS 2 numbers adjusted out, non-cash. So, a very strong growth, as you can see. You have the dark blue bars in terms of on the graphic there. As we reported 30.9 last time around, we report 41.9 this time around. So just in terms of the reported numbers, that's strong growth.
But if we adjust out for the COVID-19 contribution, which we had in, then we come down to 26.8 as a sort of comparable underlying basis for last time around, and we do the same here, and any acquisition impact, we come down to 42.2. That's a 57% increase, and a healthy margin increase. We had also then a non-cash release of around EUR 4 million through the P&L account, for, in relation to acquisitions, in this quarter. So even stripping that out, you come down to a 42% increase. So very healthy and strong growth in respect to this.
The other issue is that qualitatively, this is a significantly better result because in our last results, we had a contribution from COVID, and that has now been more than replaced with our underlying business. So, a recurring revenue business. So, the quality of it is much stronger. You can see this in the divisional, in the segment margins. So if you look on the Healthcare Services, you've got a 9.4% margin versus 7.7%. So, the 10% level is a very important point for me. So, we need to be well north of 10%, and so going through that 10% margin is an important point for the Healthcare Services.
And on the DX, we still have a drag from COVID-19 in the segment. So here we still are down in terms of margin compared to last year. We had very strong contribution from the COVID business, and then we're now replacing this with lower margin business as usual, but we will get back up above those margins as well. So we still have drag of early-stage units, particularly in the healthcare services side. So that is dragging down in terms of hospital units and then our normal sort of program in terms of opening greenfield sites. But we still have a number of new hospital units, which are in the process of getting to growing and bringing volumes in to mature. So we have lots of room to growth in the coming quarters.
We've got the maturing profile of the units, we've got the volume contribution, and we've got various efficiency initiatives as well, which will be contributing to growing the absolute amount here and also the margin. If we look at then in terms of some of the balance sheet measures, our debt has been pretty static now, and net debt, internal cash generation funding, not only our continuing investment program, but also the dividends. And we see leverage coming down, static to the year-end, but coming down from Q2. Our interest cost has increased against the backdrop of higher interest rates, as you'd expect.
The split out on the right-hand side, in the lower graph, you have the interest cost for the quarter and for the nine months, and you can see the various components. So we have our expansion of our facilities, so we have the allocation of IFRS 16 lease interest into our interest costs. And that's more or less the sort of fixed rate, so 5.6. But that's expanded because we've expanded our capacity and our volume of activities. And then we have what I call our real interest, if you like, our cash interest, in terms of with our our external real debt. And the effective all-in cost there, all costs, amortizations, arrangement costs, commitment costs, et cetera, is around about 5.5% all in.
That was running around 2.4% in the comparative quarter last year. And if we look at our real cash cost interest on our debt, that's at 4.6% at the end of September. Effective tax rate comes down a little bit to 26%. We're running at estimate around 30.3% last year for the nine months. Our working capital has been quite benign. Our operating cash flow, EUR 57.5 million, up slightly on the same quarter last year. And if we look at the nine months, we're up around 27% for our operating cash flow after working capital changes. CapEx has reduced to a more normalized level, which we've seen in previous years from the high levels of 2022.
This is still to note at levels which will drive superior growth. So this is more than enough to ensure we go through our, the longer term targets. And this is very supportive of the growth of the business. Within this, about a third of it is related to hospital facilities, both in the quarter and the nine months, with new facilities, Romania, India, and Poland. We put on in the, sixty-seven point one million of new, lease additions, in the nine months. And we have then, in terms of our operating medical space, we have at the end of the quarter, about eight hundred and fifty thousand square meters.
If I go back to the end of 2021, that's up some 238,000, so some 39% increase since the start of 2022. If I go back, not very much further back than that, so back to the beginning of 2021, we have more than doubled our facility space. That's important because that drives our long-term growth, that drives our profitability, that drives our ability to sustain our growth over the next few years. Just to come back then and have a look at our financial targets, just to end in terms of reminding in respect to there. So we have EUR 2.2 billion 2022 full year revenue, organic. We are well on track to achieve that, very much so.
Look at the run rate now, look at any other measure, we're well on the way to doing that. And if we look at the adjusted EBITDA, we're looking to be in excess of EUR 350 million, and we're well on the way to, to achieving that as well. So, we're in a very good position in terms of being able to deliver on those 2025 targets. And back to you, Fredrik.
All right, so that's it. So we are very proud and happy over these results, and very glad to take any questions someone may have.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. If you wish to ask a question via the webcast, please type it in the box and click Submit. We will take our first question, and the question comes from the line of Kristofer Liljeberg from Carnegie. Please go ahead, your line is open.
Thank you, and good morning. It's Kristofer from Carnegie. I have three questions. The first one is on the sequential margin development for the two business segments. So, in one way, we don't see the same historical improvement or sequential improvement in healthcare service. So if you could explain that, if that's due to the dilutive effects from new units. On the other hand, we don't see this seasonal drop as historically has been the case in diagnostics. If you could explain that, strong sequential performance. My second question relates to the rather high minority charge in the quarter. Is that due to the higher profit in India that you talked about?
The third question relates to growth in India that seems to have slowed, compared with recent years, if you could comment on that. Thank you.
The sequential margin.
Mm-hmm. The minority charge in India growth. All right, Kristofer, Joe will answer those for you.
In terms of what... Kristofer, can you just...
... Maybe if I start with the DX one, in terms of we see it, we historically see a fall off in the margin in the summer in terms of diagnostics. And that's because we have lower activity in the summer, and that then drives a falloff in the marginal contribution through to the business, and then you see that come through into, in terms of the margin. But what you've got to consider is you've got to consider the underlying business as usual activity. So we've expanded the business at both in Germany in terms of volumes and in terms of, in the other markets, in terms of volumes.
So we've got real underlying volume, and that has been the driver in terms of the sequential profitability. So, we're seeing good levels of activity. And that's supporting then the business as usual, and as we're now all business as usual, then that's supporting the seasonality. Eventually, I think we're gonna get back into some sort of seasonality once we're completely through all this COVID thing. So you'll see the seasonality in the diagnostic side reasserting itself. But I think you've still got some sort of level of confusion happening on there.
On the diagnostic side, I guess then we should see even larger or even better margin in Q4 for diagnostics.
Yeah, yeah, yeah. We'll see the seasonality on the diagnostic side come through in Q4 now and then Q1. So, we'll see that coming through. The problem then on the healthcare services side is with, now India is a significant component of our activities. So, the Indian healthcare dynamics start to assert themselves. And now we don't see it in the reported numbers because you've got a 13% headwind against us for the Indian rupee for this quarter. So you don't see it in terms of the absolute numbers. So India has done pretty well, and our busiest period in India is this quarter just gone, plus the first part of this quarter.
So no, you know, so October will be a good month in India, but then it starts to slow down through the rest of the quarter, and January is the lowest level in the Indian hospitals business. It's just the other way around. It's just how it is. People don't go to hospital in the winter, they go in the summer. You know, here in Northern Europe, people go in the winter, they don't go in the summer. So, it's just a reverse in terms of the market dynamics. So we'll see that dropping off. And additionally, in the healthcare services, what we'll see is we'll see higher utilization in the prepaid side.
So this will be at the peak in January, February, December, January, February, in terms of the normal seasonality. So, we'll see that being pushed down as well in, as normal in the winter.
Great. That's very helpful. And then just on this higher minority charge further down in the P&L, is that the higher profit in India then, I guess?
Yeah. We have a significant minority in India. We have a minority in our German businesses, one of our German businesses as well. And that's done really fantastically, that German business. So that's pushed it up a little bit. And then, as I said, in the Indian business, that's performing well as well. So those are where we've got the two biggest minority positions.
How much of the minority charge would you say in the quarter is India versus this joint?
I don't think it's the fact that it's so much. I think that it's the profits are relatively small, so when you divide it out, it looks like, "Oh, wow, this is big!" Yeah. It's just that those have been pretty, they've been performing particularly the German part, they don't have any interest costs. So the profit is, so they're not paying any interest on that part. So there's no debt in that particular structure. So that's performed really well. So it looks like that that's a bigger, bigger, bigger share. We have arrangements in that particular business, which mean that we have some call options and things. So I expect that we'll probably see some changes in that next year.
I could expect that we would see the minority interest reducing next year or certainly the year after that.
Thank you very much.
Thank you. We will take our next question. The next question comes from the line of Mattias Vadsten from SEB. Please go ahead. Your line is open.
Hello. I have a few questions as well. First one, on demand for 2024, you speak about the fee for service and members respectively. That would be helpful. You know, you grow volumes, double digits, ex-COVID in both segments right now in Q3. That's impressive, I think. And you still have sort of a lot of capacity to fill 2024. So would at least sort of high single-digit volume growth be achievable in 2024, you say? I appreciate you're not guiding a specific year, but, you know, some thoughts are always appreciated. That's the first one.
Yeah, that's a short answer, Mattias. We do expect to see continued good demand for our services.
... and we make the point many times over that we have quite a bit of capacity to fill up. So, you know, we wouldn't in any material way expect the demand outlook to change. I think that's the summary.
Perfect. Then some questions on prices, one on healthcare services and one on diagnostics here. On healthcare services, you know, price is up 11.5% this quarter, 7.7 Q3 last year, almost 20% over two years. So could you give us any thoughts, you know, on how sequential cost inflation looks currently, and how we should look at prices for 2024? That's the first one. And on diagnostics, the question only relates to Germany, if you've seen anything new there.
So, I think, sequentially, going into 2024, we expect inflation and cost inflation to trend down. We do not expect to see price compensation on the levels we are reporting now, as, you know, inflation will come down. We don't think that you will see inflation in 2024 being on historic levels. So we think those, perhaps two or odd three percent extra will take longer to get out of the economy than perhaps what some people expect today. So with historic measures, we think we will probably trade in a slightly higher inflation and price growth environments for slightly longer than perhaps people expect.
But relative to the past 12, 24 months, it will be significantly lower, and as well on the pricing side, which probably will in itself then impact volume growth in that particular business in a positive way. And then in diagnostics and on Germany, no, we have not seen or been informed of any movement from the authorities in terms of adjusting price. We are reiterating the comment in the text of the report that we believe at some stage it has to come. And that's something that we, as we wrote it, is something obviously we believe, but we remain neutral as in terms of when that will come.
You know, there's no indications to build any assumptions on other than that. At some stage, we are firmly of the opinion it has to happen.
Yeah, I think these are good answers. The follow-up on Germany, do you see any sort of business opportunities emerging? You know, cost pressure has been high for some time now, and I believe, you know, some of your competitors might have a hard time. Could you share any thoughts around that?
Yeah, well, I mean, you know, I would be careful to draw out any conclusions on that, Mattias. I think we are at, you know, at the stage we're in Germany right now, we're focused on making sure that we manage the situation as well as we can, which I think we do. I think we actually do well under the market circumstances in Germany. You know, there may be opportunities coming out to this. So your question is pertinent and correct, but, you know, I wouldn't sort of draw any conclusions out to that today. I think that may be slightly too early for us.
Good. The next one relates to investments. Appreciate all the guiding you've done this year. It helps a lot. So now, if you could guide a figure for next year, re- you know, in relation to this year, and then also if you could remind us just an opening from here and twelve months forward.
You mean organic capital investments?
Exactly.
Yeah, well, I think we have given that before, Mattias. We said we're gonna trend down to historic levels of 5%-6%, which is, I think now we're actually below 5% in the quarter. But I think, you know, that 5%-6% level that we've indicated for 2023, I think is a fair representation of where we were historically and where we think we will be going forward. Now, you know, that's a pretty chunky number with the assumption you have on revenue in total, et cetera, for 2024. So it certainly is not a lack of investments, it's just bringing it down to historic levels. You know, where will those openings be?
We, you know, we have a continued ambitious program in India. I think we wrote in this report that we opened a mother and child unit in Hyderabad in the summer behind us. We will open a dedicated cancer unit on the East Coast towards the end of the year. And I believe, from memory, that over 2024, we have 3 larger units coming online. We enter the state of Karnataka and Bangalore, to the southwest of Hyderabad in the first or early second quarter next year with a big unit. We will open a large, new, additional unit in Hyderabad, sometime second half of next year. And so, you know, that's an ambitious program. And back in Europe, you will see the same pattern as we have reported this year, Mattias.
So you have, you know, in terms of, you know, some dental rollouts, you know, slightly slower than what we have seen over the past couple of years, but still, you know, we're adding units. And with that underlying volume growth in our, you know, regular fee-for-service business in Poland and Romania, you know, there will be some ambulatory clinic expansions, obviously not in hospitals, where we have plenty of capacity for the moment. So quite sort of the same pattern that you've seen over the past year, I would say.
I think that's a very good answer. And the last one is very quick. On diagnostics, the laboratory test volume increase of 3.5%, what would this figure be excluding the Belarus effect?
11%. 11.1, I think. So really good numbers-
Thank you.
In terms of the underlying growth. That goes back to the answer to Kristofer, in terms of, you know, we see sequentially good figures in the data, and it's the volume in the business units, and that's across the board. Germany, Romania, Serbia, you know, all Poland, all the markets we've been growing volume as we've, you know, ex Belarus.
Sounds good. Thank you very much.
Thank you. Once again, if you wish to ask a question from the phone lines, please press star one and one on your telephone. If you wish to ask a question via the webcast, please type it in the box and click submit. There seems to be no further questions from the phone lines.
All right. Well, thank you all for listening in. Again, very good quarter behind us, and looking forward to talking to you all when it's time to report the fourth quarter next time around. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.