Medicover AB (publ) (MCOVB) Earnings Call Transcript & Summary

Welcome to the Medicover Q4 2024 Report Presentation. Today's conference call is limited to 60 minutes. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Fredrik RÃ¥gmark; and CFO, Anand Patel. Please go ahead.

So good morning, everyone. Welcome to Medicover's Fourth Quarter 2024 and Full Year 2024 reporting. I have with me in the room, Anand Patel. I have also with me in the room, John Stubbington. And I'll start with saying you also saw this announcement in the morning that John will be succeeding me as CEO 1st of May, and we will comment on that towards the end of the presentation as well as take any questions related to that during the Q&A, when, of course, John will also be able to answer any questions. So the highlights for the quarter. I think we have had a number of very strong quarters that we have reported throughout 2024, and I think this is the same. I think it's an excellent quarter to end 2024 with. We have double-digit volume growth in both divisions, both reporting segments, and that is then topped up with significant pricing power in both divisions. So a very high double-digit organic growth in both divisions and for the group. And in addition to that, both reporting segments, both divisions, we see significantly strengthened margins. So very important, very positive. We have seen a continued very strong growth out of Healthcare Services, particularly Poland remains very strong, but as well in Romania. And I think also for some of you, probably a bit surprising, but a really increased organic volume growth in Diagnostic Services. We have reported now for a few consecutive quarters that growth is really back in the Diagnostics business, including Germany, and that's really good. And as a point we made many times is that once volume comes back in Diagnostics business, you see that coming through in margin expansion rather quickly. Also very important to point out, again, I've commented on that much more frequently in recent quarters is that we see a very strong pickup in the underlying operating cash flow. And in this quarter, we report net operating cash flow up more than 50% versus the fourth quarter last year, which again is a very strong sign. Towards the end of last year, so in December, I believe, we announced the potential plans to list our Indian subsidiary locally in India, and that is work that is ongoing. I reiterate the point made back then that it's a 12- to 24-month process to make that happen. Nothing is certain, but we have a strong ambition to make that happen. So it's not going to be executed as a listing in '25, but a strong ambition to make that happen during 2026. If we then turn to the standard slide, you have seen many times in terms of revenue, plus a more than 20% growth, of which just short of 19% organic. In fact, if you annualize the absolute growth, the absolute organic growth we have in this quarter, it's about 75% of the size of the entire company when we listed back in 2017. So I think that puts a perspective on the absolute amount of organic growth that we generate as a business. You see acquired revenue being very modest because we've had these 18-odd months or so behind us where we have had very muted inorganic activity, as you know. If we look at the pie charts, again, I think relevant to point out that Poland, now more than 50% of the group. You see 23% up. We have some foreign exchange tailwind in Poland, which is helpful. But despite this underlying, excluding FX, very strong growth out of Poland. Notably, look at Germany, 15%. We've had a number of quarters where we have reported for German purposes, very high growth. I think it's very pleasing to see that continuing. 32% out of Romania. You see 11% out of India. Local currency growth for our Indian hospital business is 13%. So we see also significant double-digit growth out of the Indian hospital business. Now that is feeding through into good margin expansion on this slide, which I significantly point out in my CEO statement, you recall that last time around, so in the fourth quarter 2023, we had a very large one-off exceptional credit to the P&L statement in central admin costs, this -- where we had to put back when we did not pay out additional money for acquisitions. So we had a big credit to the central admin costs. Now for all sense and purposes, when we look at how the business is doing, I think we need to neutralize that. Of course, in the reported number, you don't see that, but we net that out in the subsettings here because the relevant thing is, of course, to understand how the operating margin develops, excluding such large one-off. And look at the EBITDA margin overall, excluding that one-off in the prior year quarter, we're up 30 basis points. If you look at the adjusted EBITDA margin, we're up 80 basis points. Look at the adjusted EBITDAaL, we're up 10 basis points and you come down to operating profit, we were up a full 160 basis points. And we have talked about this in quite a few of the recent quarters. That, of course, is really important that we see that margin is expanding more the further down the profit and loss statement will come. And that is, of course, the largest factor behind the strong cash flow generation. I mean, we've always had strong cash flow, but the pickup in the cash flow generation we see. So that's really a very good picture to see. And perhaps equally important, which I come back to at the sort of outlook slide at the end is that we're very confident, comfortable that we will see that trend continuing because as we have commented on many times recently, the drivers why that has happened over the prior quarters, why it's happening in this quarter are the same as why it will continue to happen in future quarters. Then if we turn to Healthcare Services, again, super strong growth, about 21%, of which 19% or 19.2% to be specific, organic, 8.5 percentage points of that price and then the rest being volume growth. For the full year, again, almost 22% growth, just short of 18% organic growth for Healthcare Services for the full year 2024. I think quite an outstanding number. You see acquired revenue for Healthcare Services almost nonexistent for the year. And important to point out, it's a very strong demand picture across the board. So it's not one single business somewhere that is doing really well. So we see a very sort of solid both volume and revenue growth across the entire spectrum of activities in Healthcare Services. So very positive. Now that is then feeding through. You recall, I think everyone on the call probably remembers that, but the exceptional items that I talked about before, we accounted for them in central costs with the purpose of keeping the divisional numbers unaffected. So when we look at the divisional numbers, we don't need to do any adjustments because these are the same numbers year-on-year. So we look at EBITDA margin up really well, 70 basis points for the full year, 60 basis points. And again, same trend that the further down the P&L statement we go, the stronger the margin expansion. EBITDAaL, which you recall is one of the key metrics we look at, that's very much a proxy to cash generation that Anand will talk much more about later. And you see that being a full percentage point higher margin, both for the quarter and for the full year. And when we come down to EBIT, you see the up -- short of 90% for the quarter with more than 2 percentage points expansion for the full year, about 1.5 percentage point expansion, again with big absolute increases. So all in all, you see the volume increase that we put through the infrastructure that we have invested in. As we put more and more paying customers through this infrastructure, we see margins going up. I think that's what we have been, if not preaching, but we have repeated repetitively throughout the year behind us. And I think it's pleasing to see that coming through. Last quarter, we commented on the fact that when we look on the most recent 6 hospital openings over the past 2.5 years, then 5 of them being in India, # 6 being the more recent large hospital in Bucharest. In the third quarter, they brought a EUR 4.7 million EBITDAaL loss. Now in this quarter, they bring a EUR 3.3 million EBITDAaL loss. And I made the point last quarter, or 3 months ago, that 2 of the 6 then turned positive. So although we still lose a fair amount of money, I think the important point to make here is that you can see sequentially quarter-on-quarter quite a big increase or change in that loss. And again, something that we expect to continue. And even with the loss that we report for these 6 units for this quarter, just bringing it to 0, so just bringing it to breakeven, which is not going to take too many quarters, you see is an equivalent of additional 90 basis point EBITDAaL margin for Healthcare Services. So relative to 9% or 9.2%, which -- 9.4%, excuse me, that we reported for this quarter, obviously, another 90 basis points is quite significant. So I think that's an important data point that you bring with you. We've had very good medical cost management and medical cost control. You see our overall loss ratio for the division is down quite significantly. And remember, that is still in an environment where medical cost inflation is certainly not gone by no means. So it's a very large amount of hard work and nitty-gritty details that is involved in making that cost ratio coming through like that. So "well done" is my message to the team there. You recognize the standard map of India with our hospital network. And this is just to remind you that the 2 most recent openings then that we did back in the summer '24, so in the beginning of the third quarter, Warangal that you see there in the middle up to the right, sort of north of Hyderabad and then Bengaluru (or Bangalore) down in the southern part of the country. Those are the 2 most recent ones that we then are busy filling up with new customers. I remind you that we have previously communicated, which is still the case that we have 2 more openings coming in pipeline, one sort of second half of '25 in [indiscernible] Hyderabad effectively and then the second one in early '26. Shifting on to Diagnostic Services. So again, repeat, super good growth, up 18.3%, of which 17.3% organic, very happy with that number. We see price representing 4.4%, so about 12%, 12.5% organic volume growth. And for the full year, 15% -- 15.2% and organic 14%. So very solid rebound back to historic growth numbers for Diagnostics, slightly more acquired revenue here than in Healthcare Services. We have bought some smaller labs. And if you recall, we bought the lab activity in Berlin about a year ago. So relatively benign to the overall picture, but slightly more than in Healthcare Services. Again, then, of course, the organic volume growth driven by organic test volume growth. So you see the same -- more or less the same numbers coming through in test growth as we report in organic volume growth for obvious reasons. And then the pricing reform in Germany, which we have spent a lot of time on recent earnings calls to talk about and in our report writing is in effect. And we -- as we say in the report, we believe that we are in a position that the implications of that in terms of 2024 -- sorry, we are able to manage with ongoing efficiency programs. I also comment on the next slide, if you go to the profitability slide that not starting from the bottom, but we've seen very solid margin expansion in Diagnostics. And you see -- I'm not going to run through each line here, but you see 1, 2, 2.5 percentage point margin expansion as you go down the profit and loss statements. And obviously, volume growth is driving this, a bit of mix change where the mix change has been favorable to us. And it's really pleasing to say when you look at the quarter 4 margin expansion, it's actually Poland and Germany that are the main contributors to that. And I make that point because we obviously get a lot of questions around how we manage the pricing situation in Germany and being able, despite no price adjustments historically, and we can't say we expect it either in the public pay business in Germany. Despite that, we are able to see a very favorable profit and margin expansion year-on-year, quarter-on-quarter in Germany. That I think is a really strong message, and it's again a testament to very well managed for our people out of Germany. So if I try and summarize 2024, so we've been busy as we always are, but we've been busy across the board really with lots of strategic initiatives, a lot of focus, obviously, on driving capacity utilization, which I made the point many times is a key element in driving margins and profitability. A lot of work on operational efficiency, automation, worked a lot on broadening our service offerings, cost and price management, we talked significantly about and you see that coming through very much in reported numbers. I mentioned the evaluation of the listing in -- of our Indian hospital business. Organic revenue, you're sort of used to hear us talking about. But I think the point with 2024, despite the business being so many times larger -- in fact, even percentage-wise, our organic growth has ticked up during 2024 relative to previous years, driven by all the factors that by now, I think, are quite familiar to you. So very pleased to actually how the year has come up despite an environment that is not always so easy to navigate. And net cash flow for the year is up just short of 28%; again, a testament to the performance throughout the year. I think just 2 slides on the full year. So just short of EUR 2.1 billion of revenue, so up just short of 20% for the year is within that acquired revenue is only EUR 20 million. So that's 1% or so. So almost universally organic growth. And you see the revenue growth numbers being split quite evenly. Poland, 24%; Germany, again, 15%, which I think stands out in a market where you probably have a market growth perhaps of sort of 3% to 4%. Romania is up very strongly. India has a little bit of foreign exchange against it. So you see 9%, but underlying local currency growth is about 13%. And you see it's being quite split evenly across our public, our funded and our fee-for-service business. So again, good picture, just short of 20% 5-year compounded revenue growth. I think perhaps the thing to point out on those bar charts to the right, that now COVID may feel a long time ago and gladly forgotten, but you see the light blue elements of the bar charts, how we have been able to replace and outgrow the business we had both before and during it was topped up by some COVID revenue. So I think very proud and pleased with how that revenue looked like. And finally, on 2024. So in terms of earnings, so EBITDA up to just short of EUR 285 million, 17% up. You see actually margins then down relative to the year before. But again, then you've got to remember that not only in the fourth quarter, but also in the third quarter, we had this exceptional one-off credits to the central admin costs. So overall, in total, EUR 10.9 million, we had to credit back, do that, and then we're up 30 basis points on EBITDA. We're up 40 basis points on adjusted EBITDA, 70 basis points in adjusted EBITDAaL and even more than 1 percentage point on EBIT. And then I also look at this impairment charge just to understand the underlying evolution in operating profit. And a final point to make before I hand over to Anand for the financial review is that also very pleased to say that the Board will recommend to the Annual General Meeting here end of April to distribute a dividend of EUR 0.15 per share. That is a full 25% increase on the prior year level, which, of course, is a reflection of our view or the Board's view on the strong position of the company and the strong confidence in the outlook of the business. I think, again, sending a very strong message. So with that, I hand over to Anand.

Thank you, Fredrik. And as I say, it's very pleasing for me to be part of announcing a strong set of results on behalf of our company. So as for prior periods with regards to the P&L, I will refer to EBITDAaL as that is a key cost recurring line for us. Across the year and in the final quarter, we have shown strong consistent growth. So looking at Q4 for the group, EBITDA grew by 15% to EUR 49 million. Remember, Fredrik referred to the one-off credit we had in Q4 last year. If you exclude that, our EBITDA margin in Q4 would have grown by 1.1%, which is very strong. Looking at both business units, they were consistently strong as well. So looking at Healthcare Services, EBITDA was EUR 37.1 million at a margin rate of 9.4%, which is up 1.1% year-on-year and Diagnostics of EUR 20 million at a margin rate of 11.8%, which is 1.6% up year-on-year. So again, what you can see and echoing Fredrik's comments earlier, we're really leveraging our fixed base and operationally really driving through the margins. This has been consistently seen not just in Q4, but throughout the whole of the year. From a leverage perspective, I'll take a couple of minutes on this. So at the end of the year, our covenant levels are 3.4x. You will remember that at the end of Q3, we were at 3.1x. And as of last year, we were at 3.1x. So the growth quarter-on-quarter is predominantly due to us drawing down another EUR 150 million of loans. We've managed to secure those at really favorable rates as we paid down the more expensive debt that we've had. And actually, the rationale for that was to do a couple of things. So one, finalize the acquisitions of a couple of minor businesses; two, acquire the noncontrolling interest of EUR 56.7 million, which you'll see in the report; and finally, set us up for potential acquisitions in H1 in FY '25. Our effective tax rate was 27.4%, higher than last year, but last year was artificially low, driven by the one-off releases, but the tax charge is broadly similar year-on-year. And again, echoing Fredrik's comments on cash. So net cash performance is really strong. In terms of -- for the full year, we had EUR 261.9 million. That was up from EUR 205 million last year. So really strong, and you can see the benefits of the margin growth really driving our cash flow stronger. If you look at free cash flow, really strong in the quarter, tripling to 19.4%, but actually full year growing to EUR 107.8 million, which is up 50%. And I think the benefits of that, you can see in the next slide because in essence, free recurring cash flow is the cash before we invest in organic growth CapEx. So to touch on CapEx first, I guess, in the quarter, we spent EUR 40.7 million, a bit higher than last year. But for the full year, we have spent in line with the guidance we've previously given. We've always said we'll spend between 5.5% to 6% of CapEx, and that's what we've done last year. So Q4 may look a little high, but it's in line with what we've guided full year and just a little bit of phasing. And in terms of medical space, that grew by 6.8% to 909,000 square meters. If you look at the chart on the bottom left, you can see the evolution of our cash flow year-on-year. So the light blue are the free cash flow and the dark blue are our organic investment CapEx. So you can see the first block that actually in FY '23, we were driving free recurring cash flow and we were kind of immediately investing into organic investment CapEx and just about covering it. You can see the evolution in FY '24 to the right, where actually there's clear blue water between the cash flow we're driving versus the CapEx we're investing. So generating and keeping cash in our business, which gives us more options for future growth. If you look at the far right, I'll just refer to the numbers on the right in terms of the pie chart. You can see that although CapEx is higher year-on-year. So in total, you'll see in the report, we spent EUR 122.3 million, which is higher than the EUR 110.5 million last year. As a percentage of revenue, we're within the guidance that we've given at 5.8%, which is between the 5.5% to 6% guidance we've given previously. So strong and tight control of our investment CapEx at 66% of the total with 34% on maintenance, all in line and well managed. And then looking at our targets. I think you can see from a run rate perspective, looking at revenue first. So if you take the run rate for Q4, you can see we're clearly on track to exceed the EUR 2.2 billion revenue target we set for FY '25. From an EBITDA perspective, Fredrik has already said that we're very confident that we will achieve and exceed our EUR 350 million adjusted EBITDA target that we've set. And again, you can see from moving from EUR 254 million in FY '23 to EUR 300 million in FY '24. We're clearly on the right trajectory to do that, particularly as we expect to drive further margin expansion in FY '25. In terms of leverage, we're in line with our covenants, and we expect to be under 3.5x. We've said previously that for the first half of the year will be around 3% to 3.5%, and then we expect that to reduce in the second half of the year. So all in all, I would say from a target perspective, strong performance, well on track. And with that, I'll hand over back to Fredrik.

Sure. Thank you. And we have one summary slide, key takeaways. So it's always worthwhile repeating the most important messages, which I think are 4 on this slide. We will continue to report very strong organic growth as we proceed through 2025. We have reported strong organic growth. We will continue to report strong organic growth. Now that is feeding through and will continue to feed through in margin expansion and profitability improvement because we're filling up an existing facility network with more paying customers. You will see more of that. We are also acquiring minority positions that Anand talked about that will particularly drive EPS higher, which is important. Now that finally is feeding through in improved cash flow. You will continue to see net operating cash flow go up. We have made previously guided and worthwhile repeating that, that we saw 5.5% to 6% CapEx in 2024, and we will also guide for the similar level in 2025, which will mean that the free cash flow that Anand referred to will continue to go up. And hence, that's the final statement, is that we are very confident not only that we will achieve, but we will exceed the financial targets that we set for 2025. And of course, that's part one of the reasons why the Board is confident to recommend an increased dividend. So all in all, I think very good, very strong, very solid set of results. Then last bullet point, which is not on this slide, but that is to make the comment that we made this announcement this morning that John Stubbington will succeed me in the CEO role as of 1st of May. And John has worked -- we have worked together since 2010, so that's 15 years. For most of that time, John has looked after our Healthcare Services division, which you know is a big growth engine for us, and it will continue to be a big growth engine. I think important to point out is that when it comes to succession, planning your succession is a really important thing. And I think we're in a very good position that we have had the opportunity -- we have the opportunity to plan this. I think 2 things are particularly important. One is the position and the strength of the company, and we are in a stronger position as a company than I think we've ever been before. And John is a super strong internal candidate. So very happy and comfortable that we do this in a good way. I will then continue in my current role through the first quarter. So you will hear my voice together with Anand one more time when we report the first quarter, and then John will take over. So with that, I finish and we hand over for Q&A.

[Operator Instructions] The next question comes from Rickard Anderkrans from Handelsbanken.

So starting off with India, 13% organic growth in India, in line with Q3, still quite a bit lower than local peers are reporting and some other geographies of your business. Should we anticipate acceleration in '25? Or any high-level thoughts on sort of the growth rates you're seeing there?

I guess the short answer is yes. You should expect an acceleration if we look at FY '25.

Great. And just to follow up on India. So what's the next step or milestone in the process of evaluating a potential direct listing of the Indian subsidiary? Any time line you can share for sort of the next data point to look out for?

I made the point -- they're actually very different, or perhaps I didn't make the point in this call. I made the point in an interview this morning. It's a very different thing to list the business here in Sweden versus listing it in India. I mean here, we wouldn't be here -- in Scandinavia and Sweden, you wouldn't be announcing a listing until it's actually very close by or close in time. In India, that is very much an opposite thing. So you have to largely announce it at least a year in advance because there's a lot of work that you need to do and the process inevitably gets public. So most of 2025 will be spent on -- I shouldn't call it admin work, but all the legal and banking processes around what needs to happen with the company before you take it to the stock exchange. So the earliest it can happen from a floating point of view is first half of '26. But there's a lot of work going on in terms of all the processes around listing, which we have initiated.

All right. That's clear. I appreciate it. And another strong quarter here for Diagnostic Services, a good contribution from Germany, as you mentioned. Should we expect a similar type of momentum in '25 or anything else you would like to call out here just so we maybe don't get overly excited for the coming quarters, or maybe it's still a reasonable level, the momentum we're seeing in sort of absolute growth contribution.

I mean I think -- again, read the transcript for this call, but I think I made the point either in the third or the second quarter that we need to be a little bit cautious on the German growth outlook. Now we actually reported another quarter with a similar level of growth out of Germany as we did previously in the year, which is very strong. So perhaps a word of caution on the full 25-year German overall growth outlook. 15% is a very strong number in that country. But I think overall, Diagnostics as a division is back to growing solidly double digits that we have seen historically before COVID broke out, and that we expect to continue definitely.

Very clear. And just a final squeeze one in. Any input on the COO position for Healthcare Services following John taking position as CEO?

No, I think that would be too early to say. The one thing we -- one thing which is clear to say is that will not be filled with an external recruitment. We have a lot of internal super strong talent. So we are not worried about that, but it's too early to say.

The next question comes from Mattias Vadsten from SEB.

I think to start, congrats on a fantastic and very long journey on Medicover, Fredrik. And also congrats to you, John, to be appointed CEO of Medicover. My first question relates to CapEx a little bit here. So I think you have one opening in '25 and one opening in '26. So considerably, I think, lower rate of openings compared to recent years. So my question is, so you still say a similar sort of CapEx levels as a percentage of revenues in 2025. So what will be driving these investments? And also maybe a bit for you, John, where do you see sort of -- where are you most keen to invest in when it comes to Medicover, let's say, in the next 5 years? That is my first question.

So we split the answer then. I take the first part. John will answer the second part. Well, you sort of posed the question, Mattias, like the only thing we put CapEx is into Indian hospitals. In fact, we're investing in a lot of other things besides the Indian hospitals. So the CapEx we're spending is largely going relative to the geographies where we operate. So Poland would receive the largest chunk of that money, followed by Romania effectively. And Germany in the Diagnostics business. And then India, relatively speaking to the previous years is receiving a lower share because you make the correct observation that the 2 openings in India is less than previous years.

From my point of view -- it's John here. We've got 2 strong divisions. We've got very solid foundations in both of them, track record of investing across the board in different areas. I don't see it changing dramatically. We've got a good model. We'll continue to carry on with the kind of historic pattern that we've had. So I don't see it dramatically changing because we've got such a good model.

So basically, a short follow-up. So the investment, let's say, in the next year will reflect the sort of weighting of each geography as part of the group is basically what you're saying?

I think that's a fair assessment, yes.

Okay. My next question relates to -- I think we continue to be impressed by the price increases you can pass through in the business. And despite growing volumes the way you do, so I think about 6.5% price on a group level in 2023 and 2024. So how do you see this for 2025, if you could share some words on the pricing strategy? And also, is it fair to see volumes continuing to grow sort of double digits in 2025?

I mean, I'm laughing, Mattias, because you asked the identical question in the third quarter. And I think the answer is actually identical to the third quarter. So you will -- I think we did say then that you will see volume growth of sort of similar levels. And I think we said pricing power at sort of -- if you look at Healthcare Services, sort of -- I think I said 2/3, sort of 60-odd percent of where they were, but perhaps volume -- now volume was very good. So I don't think volume will pick up. But if you recall, we had that conversation, sort of 50% to 60% of where they were in '24 and similar for Diagnostics. And I think that's still the expectation, Mattias.

Very clear. And then a question on -- if you could tell us a bit more about the acquisition of noncontrolling interest I think you mentioned that it relates to shares in the sports business in Poland. So yes, just how much you own of that business, maybe the profitability level and yes, how we should see that going forward really?

Well, I mean, we're not commenting on individual profitability levels. But you will see in the annual report from last year that -- so now we own 100% of it. So we bought the minority interest that we did not control. And it obviously is a very good business. Otherwise, we wouldn't have spent the money, and it fits very well into the overall strategy we have for our sports and wellness business in Poland.

Okay. Great. And then a follow-up to Rickard's question around Germany. If you could comment a little bit on the competitive environment and how that has changed or the competition climate and how that has changed in the recent, say, 2 years?

It's -- no, I mean, the competitive climate hasn't really changed. It's -- in general, the German health care industry has been and continues to be under pressure because you can imagine, as we have talked about in each of our quarterly calls that where the public revenue, which for most -- not all, but most of the players is a majority of revenue, there has been and continues to be no price adjustments. And although cost inflation in Germany has been and remain below what we see in Central and Eastern Europe, but certainly elevated compared to historic levels. So -- and that's throughout the industry. And we have talked previously on these earnings calls that there are quite a few listed German companies where you can more study how they're commenting on it. And it's been a tough environment. So that's why I made the point earlier here today, Mattias, that I think it's a particularly noteworthy point, I think, that in such an environment that our team has been able to actually grow and expand margins in Germany vis-a-vis the prior year. So that's a good point. But it's not down from increased pricing. It's coming out of a lot of tedious work on automation and cost management. And I think that is the red thread, if you so wish, throughout the German health care industry that you will see. And I don't expect that to change, Mattias. If you look at FY '25, it's going to be, I think, a very similar picture.

The next question comes from Kristofer Liljeberg from Carnegie.

I have 4 questions. I hope that is okay. The first one, coming back to India growth. You said you expect acceleration in 2025. But I'm interesting to hear your view why India hasn't been growing more in 2024. Second question relates to diagnostic margin continues to impress given the situation in Germany. Would it be possible to split the improvement between how much is just pure scale effects from higher volumes and how much of this is mix, i.e., that genetics and specialized diagnostics is growing faster than more standard tests. Then my third question relates to the higher central cost. If I do the math correctly, it seems they are up here quite a bit also adjusted for higher EU items, if there's a reason for that and how to think about central costs going into 2025? And then finally, on minorities, what minorities do you have still now? Is that only India or something else of significance?

Do you want to comment on India?

Yes. I think from an Indian point of view, our growth has been reasonable. We've done a lot of openings. When you do the openings, sometimes it takes a bit of time to get all of the arrangements for the different revenue streams, recruiting some of the doctors, but also more importantly, insurance company providing revenue streams to you as well. So some of that has been a little bit slower than we expect, but it's not anything that we're particularly concerned with. We literally do expect through the course of 2025 for our growth to pick up for maturity to start to happen in terms of the hospitals. And some of the plans we've got pretty good. So we should see that strength.

Thank you, Anand. Your second question on DX margins, Kristofer, I mean, you're not going to get an exact split, but we can say that quite a bit more than 50% of the profitability increase comes down purely from contribution on additional volumes. So quite a bit more than half. So the main driver of profitability and margin expansion is down to volume test growth because of the sort of fixed cost nature of the setup and the much larger flow-through. Then I think on the central costs, I think the biggest explanation would be...

On Diagnostic, given your commentary about it would be difficult to remain this growth rate in Germany. Does this mean you shouldn't expect the same type of margin improvement in Diagnostics in 2025?

Well, I think you should expect a similar type of margin expansion, Kristofer. I'm just saying that 15% revenue growth in Germany is very, very high. So I think one needs to be cautious on German revenue growth from that level. But you're going to see perhaps a higher revenue growth in some of the other countries. So a little bit cautious on the overall growth rate because of Germany being at that elevated level, but otherwise, not a very dissimilar flow-through to margin and profit increase contribution. I think that's what I'm trying to say. And on central costs, I think actually the largest driver to the central cost increase, besides the one-offs in the prior year where we took out EUR 10-odd million of admin costs because of the recredits, is IFRS 2 costs. You know that we have commented on a number of quarters that since, I believe, first quarter 2024, we account for all IFRS 2 costs centrally, which means that the year-on-year, you will see all of the increases in IFRS 2 costs; they pop up in the central costs. So besides that credit thing for the third and fourth quarter, that's the biggest explanation to that. And in terms of the minorities, you are -- I mean, there are some minor minorities, but by far, the largest one is India. We do have some minor minorities in some -- in 2 of the local Romanian hospitals. And we do have a small minority in the Norwegian fertility business. But the -- in terms of absolute numbers, the MHI is by far the vast majority of it.

Okay. And if we take the minority impact here on earnings in 2024, is it possible to split out how much is India? Out of total?

Yes, probably.

I guess that might be small because we have the interest rates, et cetera, but...

Yes. Well, I actually think it's really small because we -- I think you've had the answer some time back on the fact that the financing of our Indian operation is almost universally done by intercompany lending from us to the Indian business. So the interest we charge on that intercompany finance more or less nets out the profits that are being done locally. So from a sort of minority EPS perspective, there's hardly anything, I think, coming out of India because of the interest charge back to us.

The next question comes from Kane Slutzkin from Deutsche Bank.

Just quickly, just on Poland, I was just sort of -- could you sort of reconcile the sort of strong Polish performance with comments you've sort of made in the past around the mixed employment market there? And then just on Diagnostics, could you split out the sort of -- the mix between advanced and standard testing?

So can you repeat -- what was the first question on Poland?

Yes. Just sort of in the past, you've made some comments around a mixed employment market in Poland despite sort of membership going up. But just sort of reconcile that sort of mixed employment market with the very strong performance you've seen.

Yes, I'll take that. So the -- I think it's fair to say versus previous years, if you look at the kind of organic natural growth that you get with the employers adding on extra employees on to existing plans, that side of the industry has slowed down a little bit as the political environment has changed and as the EU position has changed. But I think that's kind of washing out now. I think you're starting to see that go away. So our actual strength comes from the fact that we're selling more new business, and we're deepening our relationships with the existing customers because of the strength of the comprehensive nature of our proposition because we do more than health care. And even in health care, we do a lot of different types of health care. So our model is strong in terms of acquiring new business. And then once we've got the new business, strengthening the relationship with further products being sold. So although the overall market has seen an employment sort of drop in organic growth, we've managed to ride that pretty well. And our competition, just so you've got context, they'll ride it pretty well, but they'll ride it in a different way. They'll probably get it from historic NFZ funds, which we've got some of, and we've benefited from that. But we haven't got as much as some of the other competition, but that segment will get a little bit tougher for them, and we carry less weight in that. So I think that's a positive for us.

And on your sort of diagnostic question, I think you remember, I think we talked about that you had a bit more split up in the prior year's annual report, and that number sort of still stands where you have -- just for reminding everyone then, we classify this advanced diagnostic tests as something where the end customer pays at least EUR 15, EUR 1-5. And I think that it's about sort of 4% of test volume and around 40% of revenue. And if you look at the growth in diagnostics, that element is probably slightly bigger than the base, but not dramatically bigger than the base. So you have that element of it is growing slightly faster, but not sort of dramatically faster.

Okay. And maybe just to sneak one last one in on India. Is it possible you could comment on sort of occupancy levels you kind of have at a sort of group level there?

Yes. We're towards the 50% mark, which if you benchmark it versus the industry would be lower, but it would be where we'd anticipate it to be currently given the amount of extra hospitals we've put on. But also remember, at the same time as putting extra hospitals on, we're also putting extra beds on the existing facilities. So both of those factors sort of push that percentage down. But as I said earlier, we fully expect in 2025 for things to strengthen. So [indiscernible].

You said towards 50%.

Yes.

The next question comes from Philip Ekengren from ABG Sundal Collier.

I would also just like to start by thanking you, Fredrik, for your work and welcoming John, wishing you all the luck as the new CEO. First, just a follow-up on Germany. The diagnostics and the reform to the public pricing here, you now talk about a slightly negative impact for you and also a destabilization to the industry. I wonder if that could open up for some potential M&A and kind of gaining market share there.

Yes, could be. You never know. I mean, we're making the point like that because for people not to underestimate the impact this has on the industry. So -- but equally, we also want to make the comment we did, that I think we're actually riding this in a very good way. Now for a lot of reasons, I think people hesitate or at least if you generalize, perhaps it's not the country where you invest most of your money right now because you're going to get more clarity on what the outlook is. But in such situation, there's also opportunities open up. So who knows. But there's nothing around the corner.

Makes sense. And also maybe just a final quick question for me here. The 6 new facilities you opened, when can we expect the remaining 4 to turn breakeven or positive? Is it during '25? Or is it rather during '26?

No. I mean, if you saw that if we're going from 4.7% to 3.3% sequentially one quarter from another, I'm not saying it's going to be exactly linear, but I think -- and then remember, we're going to open 2 big new units. But if you take those 6, I think it would be a big disappointment to the people around the table if they would not at least reach breakeven during '25. That's for sure.

The next question comes from James Vane-Tempest from Jefferies International Limited.

I have 3, if I may. I'll ask 2 and then come back for a follow-up. Just one question just regarding the overall conflict in Ukraine and certainly with news flow that if it reaches some kind of resolution. What would that actually mean to your business in principle? Because on the one hand, Ukraine is about, call it, 10% of the business, which could see some stability. But on the other hand, what are the sort of movement of populations from Poland back to Ukraine. So how should we think about the puts and takes if there was some kind of resolution? Second question is just regarding your guidance. Obviously, the midterm '23 to 2025, and we're in 2025 now. So at what point do you think you might be in a position to give us another midterm target? And would this be more sort of 2 years or 3 years, which you've kind of seen before, so '27, '28? Just to help us understand that, just given '25 could essentially be year 1? And then I'll come back for a third question.

Ukraine, James, is not 10%. It's sort of 3%, 3.5% of our business nowadays. So it is very important to us, but everything else has grown quite significantly since the conflict broke out. Now not to give you too long an answer, but puts and takes, when the conflict ends, it can only be very positive for our business. So we stay away from making any predictions how that and when that will happen, but I am absolutely convinced that whenever it happens, it's going to be very positive for our business, for sure. Then the updated guidance, I think that will happen on John and Anand's watch. But obviously, sometime during 2025, we will very likely not make an updated guidance, but set new financial targets. But that remains to be seen when that happens during '25.

Yes. Sorry, my clarification on Ukraine, I guess I was thinking more regarding diagnostics versus group. Yes, completely right in terms of the low proportion of the overall group. My final question is just on India. I appreciate it's in the early stages, but I guess, given the news that you are kind of pursuing the sort of independent listing. What's the current thinking? Is this essentially a direct listing of the whole asset? Is this potentially looking at secondary in terms of being able to then reinvest into the rest of the business? Or is it just a case of giving it access to potential kind of greater primary capital down the line to kind of intrinsically grow it? Can you help us sort of understand what the main kind of motivations are and I guess, main route of either external capital to benefit your existing business outside of India? Or is this more just a case of to allow that for greater ease of capital to grow that externally within India?

The latter one. So it is a way to provide mid-, long-term growth capital to our Indian business to be able to grow for a very long time in the future. We believe that it's more capital efficient to do that locally as opposed to raising money in Europe and sending it to India. So that is the main driver of why it is listing that entity. It is not us selling out. So we have the intention to remain a majority owner, consolidate the business, but it's to provide capital locally in a more efficient way.

Understood. So you're not going to sell anything you just listed and then potential kind of dilution if there is sort of primary capital, but with a view to retaining majority ownership and consolidation.

We're -- you're sort of asking me to give you an answer, which we can't do yet. We don't even know if the IPO will happen yet. We have that ambition, but time will tell. The IPO needs to be of a certain size. Perhaps we need to sell a little bit to make it large enough, but it's not our intention to exit that business. I think it's our intention to remain plus 50% owner and keep on growing the business. That's the main intention. All right. I think our time is up.

There are no more phone questions at this time. So I hand the conference back to the speakers for any closing comments.

All right. So thank you, everyone, for attending and -- sorry, asking lots of good questions. And thank you, Anand. Thank you, John, and Hanna here around the table. So we look forward to speaking with you next time around when we report the first quarter. Thank you.

Thank you.

Thank you.