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

Welcome to the Medicover Q2 2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, John Stubbington; and CFO, Anand Patel. Please go ahead.

Good morning, everybody. It's John here. Welcome to our Q2 2026 report. I think we've got a quarter of positive progression, which we're very pleased with. You can see it's another quarter of double-digit organic revenue growth and margin expansion, which is really what we're aiming for. Strong organic growth of 11.8%. And this is our sixth quarter of improved margins. So we're very pleased with that. It's a record that we're proud of and hope to continue as we go forward. Just a reminder for everybody, this particular quarter has a very strong comparable base. Last year, we made significant movements upwards. So it's even more pleasing to see the progress that we've actually made. And a year or so ago, probably just a year-and-a-quarter, there was a lot of talk about India and what we're going to do in terms of the growth for India. But you can see that over Q1 and Q2, we've had very positive progression and really strong growth percentages. Our Diagnostic business has performed very well. There's a level of consistency that's happening within that division, which we're delighted with, and it's all credit to their hard work. And we have consistency of increasing our fee-for-service revenue streams, which is where our main focus is, and leverage was at 2.9x. So revenue, EUR 640.4 million, very respectable in terms of the growth rate. You can see that from an organic perspective, it's 11.8%, which is very credible indeed. Adjusted EBITDA, EUR 109.2 million, very pleasing to see that and to see our progress. And you can see also with the adjusted EBITDA margin at 17.1%. The increase there is not as big. But as I said, there's a very high comparable. So just to see that move in the right direction is very positive for us. Operating cash flow, EUR 73.6 million, that's up 28.4%. So really good generation. You know that from our perspective, that's quite important for us because as we do that, it gives us more choices. Leverage, as I said, is at 2.9x. That's down from where we were at year-end of 3.1x and of course, has improved quite considerably if we look year-on-year from 3.6x last year to 2.9x. So good, solid set of numbers that we've produced. So we're happy with that. If we move forward and just look at the revenue and the progression of the revenue streams, another good quarter. Revenue produced at expected levels. So we're happy with that. Revenue by country is very steady. But you can see a strong quarter in India in euros, up 23%, in local currency, much higher. And as I said, this time last year, it was a big area of debate for us. So it's really pleasing to see the team have continued their progress and got momentum inside that business. And revenue by payer, a little bit of change in mix here happening with different things going on, but very good strength coming through from fee-for-service, which is our biggest stream. And it's obviously the stream that we want to concentrate on a lot, and it's good to see that growth. Governmental revenue streams in terms of the public pay, lots of micro changes happening there that's affecting it. And we know that in terms of our funded business, we want to continue to develop that, but pleasing to see that we've got growth starting to come through in Poland from some of the initiatives that we put in place. So very positive. If you look at Healthcare Services, solid performance by Healthcare Services. Again, this is the area where probably the comparable base was the highest. So we need to bear that in mind. But revenue growth, 6.9%, organic 12.2%. So very, very good. And price accounted for 5.2pp of that. So quite a solid mix that we have there. As I said, with India, 23.1% revenue growth in India in euros, but 39.6% in local currencies. So 34.4% last quarter, towards 40% this quarter, good momentum in that particular business. Fee-for-service and other areas performed well. Sports and wellness continues to be strong for us, and we will continue to develop that proposition very strongly. Memberships relatively unchanged. As I say, Poland grew some membership, fall in Romania. Quite a bit of that was contract management. So managing the profitable and unprofitable accounts. And most importantly, really here, related to the fee-for-service is that quarter-on-quarter, our ability to create relationships with people that are looking for those kind of solutions is growing quite strongly. Revenue, EUR 442.8 million, so up 6.9%, which is good. EBITDA margin 18.4%, so a slight change there against the comparable. Memberships relatively flat and revenue by country, not particularly changing dramatically. When you see the minuses, please bear in mind that we still have Hungary in these comparables. So that affects that particular indicator. If we move to Diagnostics, we'll see that it's a strong growth and improved profitability. So congratulations to that team. Good revenue growth, increased by 8.5%. Organic growth was up 10.9% and a good proportion of that is in price. And please remember that from a German perspective, the ability to move price is almost absolutely 0. So a very credible performance by the Diagnostics team. Fee-for-service strong. As we said, that's the area of focus. So that's really pleasing to see. Operational leverage coming through. And of course, with the diagnostic tests, mix is quite important in terms of the different types of tests that you do. We've always focused on making sure we've got a reputation for not only covering the basics, but covering the more advanced side of life. So that's great. Ukraine continued to deliver really solid performance for us. I mean Q1, we said, was softer. A bit of that was reflected by the weather, a bit of that was reflected by the war conditions. But considering the things that they have to overcome, we just have such a fantastic team in Ukraine, and we'd like to thank them for everything they do because it really is difficult conditions that I don't think any of us would want to trade. And Germany did really, really well, solid momentum. We're seeing the change in mix continue where we're getting more fee-for-service, maybe as a consequence of the environment, but also a consequence of the proposition that we have there. Our expansion on BDPs continues, really important for us in terms of the future. So that's very good to see. And the number of tests up by 4%, which is good progression, 40.3 million that we produced, which is great. Revenue, very solid, EUR 205.1 million, up 8.5%, so very, very good. Continued improvement in the margin. You can see that that's a significant improvement that the team have done there. So very pleasing to see and 40.3 million is a positive sign against our 38.7 million tests of the comparable quarter. And if you look through from a country mix, it's again, relatively stable. And you can see the strength of Ukraine coming through with that. And again, our payer mix continues to increase on a fee-for-service basis, and that will give us much more stability and of course, opportunity to move prices, as we move forward. So very, very positive signs. So congratulations to everybody in Diagnostic Services. So I'll hand on to Anand, who will talk you through a little bit more detail of the financials, and then I'll come back at the end to summarize. Anand, over to you.

Thank you, John. So I'll describe the quarter as a solid quarter and consistency in us delivering double-digit organic growth from a revenue perspective and margin accretion as well. So we're pleased with our numbers. I think one number I'd put out is EBIT. So EBIT of EUR 51.2 million. You can see our margin rate is 8% now, which is up 100 bps year-on-year. So pleased to see underlying profitability being boosted by, as John said, in some areas, tough comps, but we're still growing our margins year-on-year and our organic growth as well. Other profit measures are up year-on-year as well, as you can see from the page. One I'll pull out is EBITDAaL, which is obviously our best measure of cash profit at EUR 72.7 million. That's up just under 13% with margin accretion of 50 basis points year-on-year at 11.3%. So we're pleased with that. And as a reminder, in Q2, we paid our dividend of EUR 0.20 per share. So that's kind of reflected in our cash flows. From a Healthcare perspective, John has mentioned that we had some tough comps from last year, but still pleased with the growth, I'd say, a solid performance. So organic growth of 12.2%. And you can see there was kind of growth in both price and volume, which is very pleasing. From an EBITDAaL perspective, it's up year-on-year at EUR 55.6 million. There is margin rate dilution year-on-year of 30 basis points. That's predominantly due to the tough comps, as I mentioned earlier, and there's also some one-off activity last year, which is if you strip out, then we'll be up year-on-year. EBITDAaL relating to the immature Indian hospitals, you can see the loss on those in the quarter was EUR 3.2 million. So it's down a bit on last quarter, we're up on last year. Those are predominantly due to the hospital that we opened in Q1 and in line with expectations. But as John says, we're pleased to see the India overall company performance perform really well at the numbers that he mentioned earlier. I'd say a very strong month from Diagnostics. So solid in Healthcare, strong in Diagnostics. So organic growth of 10.9%. Again, pleasing to see volume growth as well as price growth across both. EBITDAaL of EUR 30.3 million, which is very strong with margin rate up 110 basis points at 14.7%. I think, obviously, we kind of concluded on the 2 acquisitions we did in Q2 last year, and it's pleasing to see in both Healthcare as well actually and in Diagnostics that the synergies we've realized are helping boost our numbers year-on-year. In other metrics, our leverage trends down. So it's below 3x, which is good compared to last year, as our increasing profitability kind of offsets the fact that we're kind of keeping our invested base safe from a debt capital and equity capital perspective. You'll have seen that we increased and strengthened our liquidity in Q2. So in May, we managed to increase our RCF from EUR 300 million to EUR 400 million. That gives us more scope and more optionality and headroom to take further investment decisions in the future, should we choose to. I've mentioned the dividend we paid of EUR 30 million in Q2. Tax is in line with expectations at 28%. An improved performance in cash versus Q1 with net operating cash flow at 28% at EUR 73.6 million and free cash flow at 4.1% of revenues versus 3% last year. And finally, on ROIC, kind of an improvement there as well, so 13.6% versus 9.3% last year. So I'd say a good performance on those measures. In terms of CapEx, if you look on the left, you can see this clear blue water between our free cash flow and our growth CapEx, which is good. Our CapEx overall was EUR 29.7 million in the quarter, about 4.6% of revenues. I've mentioned previously that will be around 6% of revenues for the full year, and we'll stick to that. In terms of the type of spend where the money was spent in the quarter, 2/3 was in Healthcare Services and 1/3 in Diagnostics. The maintenance growth split is 44%, 56% in this quarter. However, looking forward for the full year, we expect to see revert back to more 2/3 on growth and 1/3 on maintenance. And finally, medical space of just over 1 million square meters, a little movement in the quarter, but up year-on-year. And finally, with regards to our midterm targets to 2028, we still expect to achieve them. So organic revenue of EUR 3.25 billion, adjusted organic EBITDA of EUR 600 million, leverage under 3x and all the other measures highlighted in the bottom right corner, including EBIT, we expect to achieve that. So with that, I'd like to say thank you, and I'll hand back to John to wrap up.

Yes. So we say here solid performance, and that's probably our Englishness that's coming through there. It's really good to see the consistency that we've got with the double-digit organic growth, 6 consecutive quarters with margin improvement, which is the zone that we want to be in. Strong fee-for-service growth. That's one of our most important revenue drivers and really good to see that the synergies from the 2 acquisitions, which were our largest in our history have come through. And the acquisitions have been embedded well into the organization and they're very much part of Medicover now. India, as I said before, a lot of conversation, a lot of talk about India if we go back 12 months, and we said that we would start to see the momentum of that coming through, and it is coming through. So strong double-digit revenue growth even in euro with the exchange rates. So congratulations to all. And we will do what we've said that we're going to do. We'll focus on our execution. We'll focus on making sure we get efficiency, improving our capacity utilization and making sure that when it comes to our price and cost management that we take the appropriate steps that means that the customer gets what they need and that we have a good, strong, sustainable business. And finally, just a thank you to all of the people in Medicover. These results have been created due to your hard work. So thank you very much for all you do. Okay. And now we'll go to the Q&A and hand over to the moderator to help us with that.

[Operator Instructions] The next question comes from Kristofer Liljeberg from DNB Carnegie.

I have some questions here regarding Poland and then India as well. So Poland first, would you be able to comment what growth would have been adjusted for the strength in the Sports and Wellness segment? So I'm thinking about both funded and the fee-for-service adjusted for Sports and Wellness, which seems to do very, very well.

No, we don't disclose that information, Kristofer. So unfortunately, I can't answer that question. We don't do it for competitive reasons.

Okay. And you said funded were growing again in Poland. Is that also true for members quarter-over-quarter?

Yes. Yes. Our funded position started to move again in Poland. We've put -- as we commented on previous quarters, we've put some different solutions out there in the market and more are going to come. So -- and we fully expect the employment market to sort of help us along as well. But even whilst that's been adjusting a little bit, that's probably the best way to describe it, we still know that we can penetrate more. So we expect to do more on that line as we move forward.

But given that the number of members were down here sequentially, it seems a pretty large drop in Romania, if you could maybe explain that a bit.

Yes. Yes. We did some looking at our profitability on the portfolio and made some sort of harsher decisions in terms of the membership that we have in the portfolio in Romania. So it did drop. And the -- what we have to remember about Romania, currently, there's quite a lot of fiscal things that are happening and there's some other companies that decided that healthcare is not right for them at this moment in time. But membership isn't the biggest part of our business down in Romania. It's a small -- a much, much smaller percentage of our mix of revenue. So I think that that will stabilize as we move forward. So we've got a watching brief on it. We're taking counter actions. But your question about Poland is -- we expect Poland to be as history, relatively strong for us.

Okay. Great. And then India, if you could comment on margins there. I don't know if EBITDA versus the rest of the group, if it's improving year-over-year, anything like...

Yes. Yes, I think, broadly speaking, they're slightly up year-on-year. But so we're more pleased about the revenue growth. As always, we're building margin in, let's say, Indian hospitals that I've seen, you kind of recruit the doctors first and then the kind of revenues tend to follow. So we've got a strong base of having recruited a good doctor set. And now the revenues are starting to follow, as you can see. So we expect a bit of margin accretion further. But yes, no, we're pleased.

So is it true then that India margin are still dilutive for the business?

Yes, yes.

Okay. And just when it comes to the impact on EBITDA margin from leases, is that the similar effect that you have in Europe, if we look at that as a percentage of sales or something like that?

Similar, yes, I would say, yes, because obviously, the rupee has depreciated year-on-year as well, yes.

The next question comes from Mattias Vadsten from SEB.

I have a couple of questions. So starting with Romania, I think the macro backdrop quite well explained. What would be helpful, I think, is some more flavor on the political situation and perhaps more -- yes, what tangible initiatives that are taken there to impact the ability to grow for you? And maybe if it will be sort of soft on a year-on-year basis also for H2 2026? That's the first one.

Yes. I mean the political situation down there creates a degree of instability. And that translated into some micro changes in the payment system in healthcare from the governmental funds where they've capped things, which in history were capped before and they've cut some of the tariffs, and they're basically repurposing their framework to be able to balance budgets and coming into line with things. So what happens there is that these changes happen. And then for us, we feel it because in that location, we do. And over time, what we would expect to happen, and usually does happen, is that the people that are not getting their care through that means will switch to getting their care through an alternative means. So we have to repurpose our operations as these things happen. And we're taking those kind of countermeasures in terms of the offerings that we do for fee-for-service and the way that we look at the lines that have been affected from a governmental perspective. And then usually, what happens is our fee-for-service line starts to attract more people as a consequence and we start to move through. Ultimately, government of Romania have a responsibility to provide care to the people of Romania through the governmental funds, and they will continue to do that. It's just that there's micro changes happening that we have to adapt to. So it will take a bit of time for us to adapt, but we should be able to come through that. And I'll say one more thing. And usually, that creates opportunity for us. So let's see how it plays out.

Yes. A good example of that, I guess, is Germany and what we've seen. And you had better growth year-on-year in Q2 compared to the first quarter. Would you say this is just more patients moving to the fee-for-service line that is helping you there? Or is it anything else?

No, I think it's a combination of a number of factors, as it always is in our business. It's not really down to kind of like one particular answer due to the nature of what we do. But yes, the nature of the reforms that happened a year ago would have changed consumer behavior to be more prepared to pay out-of-pocket because of delays. We don't expect that to be like a tap, which didn't have a lot coming out of it and suddenly, there's loads coming out of it. We expect that to kind of like move over a period of time. But I think the strength of our broad portfolio of testing and the fact that we've got lots of tests that are very much focused on to the medical side of life and supporting the medical profession, but also within our portfolio, we have more lifestyle-related things, which are becoming more and more popular. So I think we're well placed to be able to take advantage of those positions and see fee-for-service progress. But don't expect it to be a dramatic thing. It should be steady as we go. And as we see the trends and understand where to focus on, we'll very much seize on that.

I will squeeze in one last question. In terms of the price contribution in Diagnostics, it has been averaging around 3.1% since the onset of '25. Now I think it was 5%, just what is driving that? I think in Germany, no changes, I presume. Could it be an impact of raising prices in fee-for-service for Germany maybe?

No, no. No, I don't think so. I don't think that any price change that we do in Germany, there's frameworks that control things. So no, it's much more mix, yes, and the strength, as I said, of the broad nature of our portfolio.

The next question comes from Kane Slutzkin from Deutsche Bank.

Just a quick one. I'm not sure if you can comment, but can you talk to the situation around the Indian business? I mean, originally, you were looking to list this business. But I guess in June, we learned of talks with KKR regarding a potential sale. Where are we on these bits?

Yes. As you can expect, I can't say too much on this from a legal perspective. I can just reiterate the facts for everybody, which is, as everyone knows, some time back, we said we'd explore the IPO in India. That still very much is an option for us, and we're continuing to do the work on our IPO. At the same time, our business in India is very attractive. And it's no surprise and shock to us that people have knocked on our door. And our responsibility, if somebody does that, is for us to evaluate things and see what's the best course of action for us. And of course, one person knocking on the door doesn't mean to say that there could be other people that would want to knock on this door as well. So it's a good position that we find ourselves in. We've got a very attractive business and different options that we could deploy. No decisions have been made on options. And as I say, we've got a responsibility to evaluate, and we're in that process. So that's really all we can say at this moment in time.