Medicover AB

STO:MCOV B

Earnings Call Transcript 2024-Q3

[Fredrik RÃ¥gmark, executive]

So good morning, everyone. Nice of you to join us for our third quarter results presentation. Before I start going into the presentation, I would just like to mention that this is then the last quarter when we have Joe Ryan as CFO, who will be taking us through the results today. I will be coming back to Joe at the end of the presentation today.

And also, we have in the room with us here, Anand Patel, who you have seen, we have recruited in as successor to Joe, who sits in on the presentation today, although he will not be speaking, but just so you are all aware that both of them are in the room.

So the third quarter overall message, a very good quarter. actually, very strong and robust delivery. We continue the very strong and visible trend we have reported throughout the first half of the year with strong and even increasing organic revenue growth, coupled with expanding margins in both divisions as we will go through in detail. And in addition to that, very strong operating cash flow. So I think those are the sort of 3 cornerstones.

We had organic revenue, which ticked up above 17%, so 17.4%, which, obviously, speaks for itself, represented by both divisions really. We come back to that in detail.

Operating cash flow, I also added in here for your information, you find that in some of the details of the quarterly reporting, but I think it's interesting to see if we look at the rolling 12 months figure for our net operating cash flow is EUR 240.2 million here in the third quarter. That's up 18% versus the same period last year.

But perhaps more importantly, it is the strongest quarter ever from that operating cash flow measure on a rolling 12-month basis, we've had since we listed the company. And that includes then these rather exceptional COVID-19 years. So that's really, I think, a very good illustration of the progress we are making because obviously, cash flow is always largely the best measure to see performance, I think.

Again, Healthcare Services continued to show very strong organic growth. You can see almost getting used to that, but nevertheless, very, very strong underlying organic growth and -- which drives profitability improvement, and that's really coming across the board.

We've talked about each quarter for quite some time now the importance of filling up the infrastructure that we have invested into. And of course, that's particularly true in Healthcare Services with the investments, particularly in India and Romania, and we will talk more about that. But most importantly, it's very visible in the numbers we report.

Likewise, Diagnostic Services growing very nicely. We continue the trend. We have seen first half of the year with solid double-digit organic growth again and even on a volume basis for Diagnostic Services, less price on that side because of half of it being in Germany, but nevertheless, a very strong position. We are also recording an impairment charge of EUR 16.4 million on our Nordic fertility businesses, Denmark and Norway, as well as the German dental activities, and we will talk a little bit more details about that later on in the presentation.

So going to the second page that you recognize. So overall, then just short of 20% growth, 19.8% to be exact, 17.4% organic. Acquired revenue, almost nonexistent. You know that we have been very inactive now for some -- well, 9 -- well, 7 quarters really on the inorganic front. So that's very visible in that number.

Good growth in Fee-For-Service, of course, given the overall impact of Fee-For-Service in our revenue base. And I've already made the point, I think, significantly on the operating cash flow.

On the pie charts, just pointing out, I think it's worthwhile. You see Poland, if you had the quarter 3 '23 pie in front of you, Poland was then 48%. So despite us growing quite nicely in many other geographies, Poland is growing so strongly, so it is -- its share has popped up to 50%. So you see the 25% growth out of Poland, obviously rather exceptional.

I'm sure, as Joe will comment on later on, there is some foreign exchange support in that number, clearly on the back of the zloty strengthening, but also the underlying real number is very significant.

You see Germany, again, worthwhile to point out, 15% up, and that is despite a pricing situation that is a constant topic to talk about. So Germany performed very strongly. Romania, you see on the back, of course, largely of additional hospital capacity that we put into Healthcare Services in Romania.

India, you do see there 10%. I talk about 11% when we talk about our hospital business. So the fact that India as a geography is 10% is due to the fertility businesses that we've exited that we have talked about before. So more importantly, the hospital business is then in Europe up 11%, in local currencies up 13%.

Then if you go to the next slide, looking at the profitability, 2 points to make. You remember, last time around, so third quarter last year, we had an exceptional credit that we put into central administrative costs not to impact the trading margins in the 2 divisions. That was the sort of contingent acquisition payments that would not be paid. So we had to credit that back to the P&L now. So that's why you see actually shrinking margins on the reported number.

For all sense and purposes, when we look at how the business is doing, I think we need to take that out because that was one-off, non-cash, non-operational. And doing so, as you see here in the slightly smaller print, we have good, healthy margin increase on all results, measures and very much in line with what you have seen during quarter 1 and quarter 2 so far this year and likewise, what we expect to see going forward.

Joe will speak more about the goodwill impairment, but of course, that then goes to operating profit and it goes to net profit, which is then significantly impacted.

As I note in my CEO statement, also just for full transparency, if we neutralize the impairment charge in addition to the EUR 4 million, our operating profit EBIT is up just short of 60% versus the prior year quarter and a good evidence then of operational leverage.

A point that we have made, I think, every quarter recently is the fact that, despite then having quite significant sort of margin expansion in here, we still carry a significant drag with us from the larger hospitals that we have opened.

And specifically what we say in this report, if we look over the past 2 years, so since the third quarter '22, we have opened 6 large units, 5 of them in India, one in Bucharest, and 2 of those 6, we have now opened then during the third quarter this year, so during July and August of '24.

Now 2 of those 6 turned positive during the quarter and that's a really important message because, of course, as they turn positive, they no longer lose money. Now as a group, those 6 hospitals contributed almost a negative EUR 5 million on an EBITDAaL basis in this quarter. So for the overall group, that's close to 90 basis points of additional margin, just by bringing them to 0, let alone, of course, getting to the profitability levels where we want and need them to be. So that is really the single largest item that keeps improving our margins on a reported basis as we progress.

Then turning to Healthcare Services. Again, very impressive growth, organic above 18%, so 18.3%. That splits pretty much 50-50 into price and volume, so 9 percentage points of price and slightly more than 9 percentage points of volume growth, almost non-existent acquired revenue, and you see Fee-For-Service up 16%, just above half of the divisional revenue. And I think we can say universally a very strong demand picture across the line here. I spoke before about Poland, Romania is certainly a similar situation, as well as India.

So I mentioned before, India hospitals up 13% in local currency. A good member intake in our corporate paid business. So overall, a very solid picture for revenue-wise, Healthcare Services. That is then transforming into good robust profit improvement, 20 basis points up on EBITA, 70 basis points up on EBITDAaL. So really visible in terms of the improvements we are doing here.

I made the point already in terms of the 6 hospital units. Now if you look only on the Healthcare Services division and that amount of money, you see that's even 130 basis points additional EBITDAaL margin on top of the 9.8% that we report in this quarter. So as a proportion of the overall reported margin right now is then really significant, as you can see.

And 2 of the 6 have turned positive in the quarter. We just opened an additional 2, which will obviously take some time to bring to positive territory. But really important is that you understand that underlying dynamics in terms of what is driving the improvement.

Then we have a slide which we have had for a couple of quarters, just to show you where are the Indian hospitals and the maturity profile of them. I will only point out on the map this time around. You see the slightly more light blue bobs. You have Warangal up to the middle right, which opened during the summer and you have Bangalore down in the -- for us, new state, Karnataka, which also opened then during the third quarter. So those are the 2 additions during the quarter.

Then moving on to Diagnostic Services. Good growth, very solid growth, 15.5% up, of which organic was 15.3% and then price representing 4 percentage points of that. So you see volume growth being 11% plus.

And if you think about 4% price growth and basically half of the business in Germany, Healthcare Services had 9% price growth, so 8% -- on a like-for-like basis then is more or less 8%. So quite similar between the 2 divisions when you compensate for the situation in Germany. So overall good growth, driven both by some price, obviously, but also good test mix development, underlying good test growth.

We have commented for a number of quarters in terms of the situation in Germany. You will probably have some questions around that. And the situation, we are -- you recall us saying 2, 3 quarters back that we expected price increases. Now we see price being flat, and we are working hard to address that situation and compensate in terms of cost structure.

We are confident in terms of the work we do in that area. And I think it is relevant to make that comment that, of course, Germany being half of the division and the significant margin growth that you see in Diagnostic Services is, of course, largely driven by Germany given that it's half of the division.

And I think the fact that we are able to grow our margins in the division and then largely out of Germany, the way we do, despite a situation the way we have reported it with prices being stable and not growing, I think, is a good illustration. So we are confident that we will manage that situation going forward, but I'm sure you will have some additional questions relating to that.

So in terms of margins coming out of DX, we have said many times, this is a more sort of marginal contribution type of business. So when we put more volume into the network we have, a larger proportion of that additional revenue will flow through as additional contribution, and that's really evident when you look at the -- at the margin expansion, you've seen that picture before, and that's a picture that we expect to continually. Obviously, a good picture to report.

And really, just like the comment I had on Healthcare Services, it really is a good, solid demand picture across our markets in Germany, in the other countries. We don't have a bullet here on Ukraine. I shall mention Ukraine separately. There is no change. You read the newspapers as much as we do, I'm sure. So there's really no change in the situation in the hostilities with Russia.

Our business performs well in Ukraine, surprisingly well, I should say. And the efforts that are being made by our team, by our leadership in Ukraine is nothing less than heroic to manage that situation. We keep on the, what we call, the [ NHS ] pilot, so that is doing quite a large volume of tests with the local public system on the back of expecting reimbursement for those during 2025.

That slightly impacts the test and sort of revenue mix out of DX. It's well described in the report. I just want to mention that we are very supportive. We are behind Ukraine, but there's no difference in outlook in terms of when that conflict will end.

All right. So with that, I will hand over to Joe for the financial overview.

[Joe Ryan, executive]

Thank you, Fredrik. So my preferred measure here is adjusted EBITDAaL, so EBITDA after lease costs, that's more in line with our cash flows from our operating business as the real estate that we use in the business is a recurring structure of our capital on a recurring cash outflow for the group.

That measure grew by 16%, so we're up to EUR 48.5 million, last time around EUR 41.9 million. And the margin there is down -- we're down to 9.2% from 9.5%. So when you adjust for the EUR 4 million credit we had exceptionally last time around, then that margin comes up -- or the growth comes up to 28%. And the margin comes up to -- in line with the -- to reflect what's happening in the business underlying. So we're up 0.6 percentage points on that margin level, so good development on our cash flows, and you see that then also later on in the cash flow numbers as well.

Healthcare Services, that wasn't impacted by this one-off credit. The division and service, the segments. So Healthcare Services, EUR 36.1 million, and EUR 28.5 million last time around. So you can see we've got 0.4 percentage points increase in the margin on there, the flow-through on the incremental volumes and operational leverage. But the operational leverage is a little bit clouded. We see that on some lines, very clearly, for instance, on lease costs and some other items. But it's a bit clouded by the start-up costs as well that we incur in relation to the new hospitals we have running.

On the Diagnostics side, 19.5% versus 15.2%, so you can see the absolute amounts there and margin quite clearly up 12% versus 10.7%. So it's a little bit clearer here in terms of that flow-through of the contribution in the increased volumes coming from the Fee-For-Service markets. Operational leverage, you can see, much clearer on the Diagnostics side, they have less new units diluting the figures.

Continued room for growth here. I think we've got that coming. As we've explained before, you're going to see that for many quarters coming through. We've got the maturing profile of the units that we have on the ground now. We've got the volume increments, which will feed through in that. And then on top of that, we have various different efficiency initiatives working as well in terms of to improve our efficiency and margins.

As mentioned, we had an impairment charge this quarter, EUR 16.4 million overall in 2 business areas, smaller business areas. We had our Nordic IVF activities and we had an impairment of EUR 9.8 million there and our German dental business unit's EUR 6.6 million. And that's about 1/3 of the goodwill that we carry for the Nordics and about half of the goodwill we carry on the German dental businesses. These are relatively small units.

We are -- have always been and are conservative in terms of our goodwill carrying values. We still carry after those impairment charges, EUR 515 million of goodwill at the end of the quarter. And all of those other items in our goodwill, we have lots of headroom and very clean -- and very clear that there's no issues with any of that goodwill that we're carrying, very well supported. So that means then there's a clean situation in terms of for -- when I hand over to the new CFO, so I leave a clean deck, so to speak.

That's approximately 3% of our carrying goodwill value. And it's worth noting that one of the negative things in respect to writing that down is, obviously, it hits our net profits and earnings per share. So if we adjusted for just this item, EUR 16.4 million, that would be EUR 0.109 higher in terms of the earnings per share. So unfortunately, I'll leave on a little negative note in terms of that, but at least it's definitely a clean slate going forward.

If we look at our leverage levels, that's come down. So we come down to 3.1x versus 3.3x. This is our basis of looking at leverage where we look at our loans payable net of cash and liquid investments to adjusted EBITDAaL, so after leases. So we're not including lease liabilities in this measure.

Now that sort of like is with deleveraged, but I think that what you -- is hidden there is that the deleverage has been much larger than that. So we've got EUR 52 million of cash and debt recognition in terms of buying in noncontrolling interests, and that sort of doesn't change the profit measure in the leverage calculation. So that's to increase our shareholders' share of profits and then to feed through into EPS increase. So we financed that and still come down in terms of leverage.

Inorganic acquisitions, EUR 18.1 million this time last year was EUR 16.4 million for the 9 months. So in those units, we've had a little bit of investment in Germany. We bought out a clinic -- a lab in Berlin and integrating that into our Berlin assets and then also a nice addition with the genetics unit in the west of the country. We have some dental units as well within those figures.

Net debt overall increased EUR 62.8 million for the 9 months. And our working capital side has been very benign, EUR 12.4 million increase for the 9 months as well. So we have a very good working capital cycle, very benign in almost all of our units. So as you can see with the growth we've put on with a very small net investment in working capital.

Our effective tax rate comes in at -- we keep that at 26% projected for the year-end through to the year-end, and our operating cash flow up 25%. As I mentioned earlier on, you can see that flow through in terms of the cash that we're generating. So 25% up at EUR 72.3 million. And if you look for the 9 months, we're at just short of EUR 200 million versus just over EUR 160 million last year around. So that's up 22%. So we are generating more cash out of the businesses, as you'd expect in terms of investing and growing the activities.

Then if we look at our free recurring cash flow, so what we got left after our lease payments and after we reinvest in our maintenance side of the business, that was just short -- just under EUR 35 million, EUR 34.8 million, so up 35% for the quarter. And if we look at the 9 months, that was just short of EUR 90 million, up from EUR 66 million. And so that's 35% up. So really good strong development for the 9 months.

If I look at that as a percentage of revenues, then we can see a very clear increase there, so we're at 5.8% from 5.1%. So we are not only generating absolute with the size of the business growth, but we're also increasing the margin in respect of that free cash flow -- free recurring cash flow.

We then reinvested in the business, our growth investments, and we did just short of EUR 20 million for the quarter. And if I look for the 9 months, we're at EUR 55 million for the 9 months, up slightly on where we were in absolute amounts of money in the prior year.

Of that EUR 55 million, around about 1/3 or just over 1/3 has been into our Indian activities in our hospitals. So we've got 3 large hospital units in there that we've invested in with Warangal outside Hyderabad, our beautiful facility in Bangalore, and then we've also got a facility in Vizag, our onco facility, which is also then a brand-new state-of-the-art Elekta machines there as well. So a really nice facility, and that's picked up really well.

Then we have some Polish gyms, quite a bit of IT spend in there as well, particularly in terms of orientated to resilience and in terms of new statutory obligations on our health care businesses as deemed to be critical infrastructure.

We're looking then on the next slide, you can see here in terms of that CapEx on the left-hand side, you can see our free recurring cash flows. You can see that as a percentage, so we've increased that from 5.1% to 5.8%. And you can see then our organic growth investment with the darker column there in terms of where we've reinvested part of that free cash flows.

Our organic CapEx then, so this is CapEx, excluding leases, so real assets, if you like. You can see there in terms of the graphs, 5.4% for the quarter as a percentage of revenues, 5.3% as a percentage of revenues for the 9 months. So we are up in terms of the absolute amounts, but you can see we are -- for the 9 months, we are down in terms of as a percentage.

You will see a slightly higher CapEx in Q4 as a percentage of revenues. We've got some projects coming in, which we're finalizing some new clinical assets. And also, we have quite a few gyms coming in as well in Q3, hopefully, if they are finalized in time.

Just come back and a quick glance at our financial targets through for 2025. So sort of a short-term target now really, looking forward just over 1 year. If you look on the left-hand side there, you can see that projection we have with the dotted line in terms of the rates of growth.

Remember, we didn't start at EUR 1.5 billion revenues. We started lower than that because part of that revenues was COVID. So adjusting for that, you can see we are well on track in terms of meeting our target levels.

And if you look at our run rate now for this quarter, and remember, our revenues are recurring. So if we're showing revenues on there, those revenues are largely recurring revenues. So we're well on track with the with EUR 2.1 billion run rate, so we'll clearly be in excess of EUR 2.2 billion for next year.

If we look then in terms of our adjusted EBITDA organic, you can see in that same projection, if you look at the start base, and we had to take off the COVID contributions, profits that we were getting. So our base was much lower. And I think you can see on that with the dotted line as well that we are well on track in terms of meeting that EUR 350 million organic EBITDA target.

We have then also some illustrations here, which haven't changed in respect of some of the other profit metrics that you will see. Leverage, we're now at 3.1x. Our stated level is to be lower than 3.5x or at 3.5x unless we've got some short-term larger inorganic activity, but we're well within that measure currently.

I hand back to you, Fredrik.

[Fredrik RÃ¥gmark, executive]

Sure. So the summary slide, key takeaways. So super strong organic growth, very strong cash flow. Joe has talked about that in detail. I commented on that as well and really represented by super performance out of both Healthcare Services and Diagnostic Services. So we're well on track towards the financial targets, Joe just made that point, and which will include both putting on more revenue, more volume, price and units -- volume units.

It will include to keep growing our margins for the same logic that you've heard us repeat for a number of quarters and the illustrations that we have taken you through in this quarter, in this presentation, and it will involve generating additional strong cash generation, which will allow us to both invest in the organic expansion, bring down debt on the balance sheet and then very likely distribute some money to shareholders over time.

So I think we're in a very good position, and I think that's the sort of summary of the quarter. And I would like to sum up also with saying, a point I made initially that, this is the last quarter when you have the pleasure to listen to Mr. Ryan as our CFO.

And I thought it would be appropriate just to say that I worked out this morning that we have actually delivered 66 quarterly reports together, and 30 of those is in our second iteration as a public company and 36 of them was in our first iteration as a public company. So 66 quarters, I think, works out to 17.5 years. So I think you can retire with dignity, Joe.

And on behalf of the company and all of us, I would like to express a warm thank you for all these years and super strong execution and delivery on the financial front. Thank you, Joe.

[Joe Ryan, executive]

Thank you, Fredrik. It's been a pleasure to serve as Medicover's CFO for the history of Medicover, effectively to-date. And I have been very fortunate and lucky, Fredrik, to have such a quality CEO and business partner in creating such a health care powerhouse that Medicover is today. It's been a pleasure of a journey.

Furthermore, I'd like to thank my colleagues who are with us now still and the ones that have been on our journey over the years. As you can imagine, we have had many people coming in and going through their careers with us and leaving as well. They have been on that amazing journey of growth and development and our history.

Some times have been hard. We've had lots of memorable times and events and achievements. But I'd just like to just echo our sort of -- you see that on our presentations, and we talk about that in our Annual Report, which is caring for your health is all we do. And that's all we're going to continue to do in more locations with more patients and more people as we grow for many, many, many, many years to come.

So it was a pleasure and a real honor to be able to serve as the CFO for Medicover. Thank you, Fredrik.

[Fredrik RÃ¥gmark, executive]

Sure. Good. Thank you, Joe. Very nice words. We bring those with us.

So with that, I hand over to see if we have any questions to answer from the audience.

[Operator]

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

[Rickard Anderkrans, analyst]

So starting off, could you remind us of the share of the total installed bed capacity of the 6 units you called out previously in the presentation? And what are your internal expectations of when these 6 units could reach lease adjusted EBITDA breakeven as a group to start with? I'll start there.

[Fredrik RÃ¥gmark, executive]

Well, Richard, as you know, we are not noting down the quarters when these start-up units will become positive. And the reason why I said in this quarter that out of the 6 that has started over the past 2 years, 2 of them actually turned positive in the quarter. So that is then within 2 years of starting up, which is, I think, really good. I think if you want to be a little bit more conservative, I think you can say within 3 years out of India, you sort of would expect that to happen. Now it happened for 2 of them within 2 years, which I think is good.

Now the 2 ones that just started now in this third quarter, they are large. So they are significant units. They're sort of 300 bed plus, I think, or 250, 300, both of them. So significant units.

I think as the 6 combined would be plus/minus 1,000 beds. So I think total capacity currently in India would be somewhere between, I think, 5,000, 6,000. So say, give or take, 20-odd percent of installed capacity would be within the past 2 years to give you a sort of a sense of the magnitude.

[Rickard Anderkrans, analyst]

And impressive growth rate continues in Poland. It would be interesting to hear a little bit of an update on how you expect the quite strong budget uplift for next year as well as EU funds could play out from Medicover perspective in '25, '26. Any incremental update there?

[Fredrik RÃ¥gmark, executive]

Well, I mean, we've made the point many times that -- the question comes rather often if we think that sort of the Polish economy will start to impact us more in a negative sense. And I think we're -- I think we have -- as a company, we have weathered the years behind us, I think, very well if you look at our reported results out of Poland.

If anything, the Europe and certainly Poland, I guess, is going into more positive territory from an economic perspective, if you take a 3-year perspective going forward. And certainly, Poland, you have -- what you were addressing here, you have significant amounts of the sort of EU transfers coming in, improving the economy.

Short-term, we're reporting, I think, quite solid sort of member growth numbers, but the employment market in Poland is sort of a bit mixed, I think, is true to say. So on the one hand, it's quite difficult to find people if you want to hire people. But then you've had quite high this minimum wage growth that we have talked about in our reporting for a couple of quarters. That is sort of impacting quite a bit the employers' willingness to bring on additional people.

So short-term, you have -- I wouldn't call it soft, but you have sort of a little bit of a mixed employment picture in Poland. But if you take 12-, 18-, 24-month perspective on economic growth and the strength of the economy, I think it's a really solid perspective. So I think we're in a sort of good position from that perspective.

[Rickard Anderkrans, analyst]

And a final question on the German sort of lab or diagnostic reimbursement topic. It seems that your view on the impact and outlook has become a bit worse versus expectations in Q2. Maybe you could help us quantify the impact you're expecting at this point, at least in '25. Just trying to get a sense of how we should think about the impact throughout the P&L and get a sense of the magnitude, so we don't get lost in expectation there.

[Fredrik RÃ¥gmark, executive]

I think the right way to answer that question, Richard, is that if we try to describe that reform to you, it would just get too complicated. So I think the important message to send this point I made before is that we are addressing some of our cost structure elements and some, call it, revenue sources to mitigate the impact of that reform in '25. So although on the face of it, if you just sat and did nothing, it would have a negative impact on us, which I'm not going to try and quantify.

More importantly, we're confident that with the work we do, we will mitigate on a like-for-like basis, any impact from that reform on our sort of Germany. And that's why I made the point that throughout the past 2 years, if you wish, with a stable pricing situation and quite inflationary environment, if you wish, from a cost perspective. We have, despite that, quite significantly grown our margin out of Germany, which is why we have, I think, a high degree of confidence that we're able to mitigate this going forward.

[Joe Ryan, executive]

I think it's worth observing, Fredrik, this is going to cause disruption in the German laboratory sector as well. So that may well shake out some opportunities. So every cloud has its lining. But we don't see that this is going to have a material impact in any way in terms of our figures for 2025. We will manage through this as some of the other challenges that we manage on a regular basis.

[Fredrik RÃ¥gmark, executive]

Yes, that's good point.

[Operator]

The next question comes from Mattias Vadsten from SEB.

[Mattias Vadsten, analyst]

I have 3 questions today. The first one would be on India. I think previously, during the year, you've talked about some one-offs here. It has been divestiture of some smaller hospital units and IVF clinics and you have had a revamp of a larger unit into an oncology facility, if I'm not mistaken. So maybe if you could talk a little bit about how much this is still affecting you year-over-year and when all of those factors are not disturbing the picture anymore year-on-year? And also maybe comment a little bit on the -- if you are pleased with the initial ramp-up in the new units in India. That's the first one.

[Joe Ryan, executive]

Just -- if could you just repeat that, Mattias, in terms of your question about -- you're asking about margins, what it would look like ex the start-up units or when they mature, something like that?

[Mattias Vadsten, analyst]

No, this is not on the margin side. So it's on the growth rate year-on-year. Previously, you had some impact from a revamp of a larger unit in India, and you have also had some divestitures in the country that has impacted growth year-on-year. So when do you expect this to be not affecting you year-on-year any longer? And then also the initial ramp-up of the new units, if you're pleased with what you see? That's the question.

[Joe Ryan, executive]

Yes. I think I'd just echo what Fredrik was saying earlier on, which is we're very pleased with the ramp-up in terms of the new units. I think we will get to a stage where we have very good occupancy not too far in the future in our units in Navi Mumbai. It's a fantastic location and Mumbai continues to increase.

We also have -- it takes a bit of time also in the process in getting some of the insurance enrollments such that we can address certain parts of the market and we're well past those on those units as well. So that then boosts the sort of more value-added part of the segment of the market as well that we can address. So we're well on the way in terms of that. And I think that those units at Pune, Navi Mumbai are going to be real good performers.

When we look at the new units, they've taken off pretty well to -- the one in Bangalore and the one in Warangal. Warangal, a lot of patients were traveling to Hyderabad. And I think that we sort of pick up those patients now rather than traveling. So that's actually picked up faster than we expected. And then the development of the one in Bangalore is going fine according to plan.

So in terms of the numbers, you see we go into double-digit growth from this quarter. The 2 units, I think you're referring to that we closed and disposed of, those are very small units. So they don't really disrupt anything in terms of the development side. So it's a mixture of those new units with the new growth coming through and then it's in terms of getting additional occupancy into the older ones.

And we see a mixed bag in respect to the older ones. So some we've got really good development ones, some they're a little bit stalled, so we need to go back and look at how we got the doctors working in some of those. But I think overall, as you can see here in the figures with our growth here, then I think we're doing fine. And we think we can continue to have good growth levels coming out year-on-year in India.

[Mattias Vadsten, analyst]

The next one would be you continue to, I think, at least be impressed by the price increases you pressed through despite this growing volumes the way you do. So maybe just a little bit of comments on how you see the pricing strategy going into 2025?

[Fredrik RÃ¥gmark, executive]

Yes. So you will see quite significant price component of growth in '25 as well. It will come down relative to '24 because of the fact that inflation is coming down in our markets as well and hence, the knock on price indexation or ability to grow price will correspondingly reduce. But it will be on significantly more elevated levels than it was before all of this started to happen. So relatively speaking, price growth is coming down vis-a-vis '24, but still on historically much higher levels. I think that's the way to describe it, Mattias.

[Mattias Vadsten, analyst]

I think that's perfectly clear. And then I also have a follow-up on Germany. I would tweak that question a little bit. So in terms of the outlook there, do you see the strong volumes coming up to a better level because it's growing quite substantially in Germany because competition is coming off from the sort of worse reimbursement levels in that country?

And also, if you could just give a sense -- I mean, you don't have to be specific, but just a sense on the, let's say, margin development for Germany, yes, in 2022, '23 and maybe year-to-date this year? That's the third and last one for me.

[Fredrik RÃ¥gmark, executive]

I mean, if I start from the back end of that, I'm not going to be specific for obvious reasons because we don't split out our country margins, as you know. But the point I made before, Mattias, I think it is -- given that Germany is so significant, you're not going to be terribly wrong if you take half of the divisional profit improvement and perhaps slightly more is represented by Germany being half of the business. And if you work that backwards, you're going to see that there is a significant margin improvement in the German component of what we do, which is really good and very important.

And again, I repeat the point I made to Rickard before here. Remember, that's in an environment where we had cost inflation significantly above any price compensation. So that's a significant point to make. Now why do we see such good volume growth in Germany? I wouldn't attribute it yet to competitive reasons. I think the point Joe made here is that, depending on how this sort of pricing thing plays out in '25, that may work to some people's advantage, perhaps ourselves, time will tell.

I don't think that is something we've seen yet. So I think what has driven -- is driving our, I think, volume development in Germany is just a sort of good offer. I mean, some of our sort of specialized testing that we have talked about before is growing super strong.

In specialized immunology, our genetics business is significantly double-digit growing. So that growth is driven by the composition of our test mix really that is growing very differently across Germany.

[Operator]

The next question comes from Kristofer Liljeberg from Carnegie Investment Bank.

[Kristofer Liljeberg-Svensson, analyst]

First, I just want to thank you, Joe. I think I could say honestly that I've never came across a CFO who knows so much details about the business, I mean, not only the financial stuff, but also other issues such as, for example, ICU layouts in the Indian hospitals. So it's been very nice working with you those years.

[Joe Ryan, executive]

Thank you, Kristofer for kinds words.

[Kristofer Liljeberg-Svensson, analyst]

Then to my questions here, coming back to Germany. I think is it fair to say that the situation you expect next year in Germany is not going to be worse than what you have seen in the last 2 years?

[Fredrik RÃ¥gmark, executive]

Yes. That's a nice -- for us, Kristofer, I would answer yes. So we're -- I think the answer is shortly yes on that question relating to medical.

[Kristofer Liljeberg-Svensson, analyst]

And the cost savings and other issues or other adjustments you're doing, that's not just to keep margins flat. We could expect you will be able to continue to improve margins in Germany?

[Fredrik RÃ¥gmark, executive]

Yes, correct.

[Joe Ryan, executive]

Kristofer, why that sort of is supported on that is it affects the whole industry. So the whole industry is going to be taking -- moving in certain directions. So we see we could -- it could be positive in some aspects, minor.

[Kristofer Liljeberg-Svensson, analyst]

Then on the EUR 5 million negative impact from the new hospitals, I think you referred to EBITDA level here. But would it be -- are you charging those hospitals with full depreciations, i.e., the impact is as big further down in the P&L?

[Joe Ryan, executive]

Yes, absolutely. Full depreciation is charged on those. Yes.

[Fredrik RÃ¥gmark, executive]

It's EBITDAaL. It's not EBITDA, Kristofer. It's EBITDAaL level.

[Kristofer Liljeberg-Svensson, analyst]

Yes. So even on a pretax profit level, we're talking about EUR 20 million here on an annualized.

[Joe Ryan, executive]

Yes. It's significant in terms of the flow through to the profit and loss account, which is what we've talked about sequentially now for many of these years.

[Kristofer Liljeberg-Svensson, analyst]

Yes, I understand. I just wanted to make sure. Yes, that's good. And then final question, new upcoming large openings here for the coming quarters and into 2025.

[Fredrik RÃ¥gmark, executive]

We stand by what we have said before. There's nothing new in addition to that, Kristofer. So we said there's 2 new openings coming in India, both of them in the Hyderabad area during 2025. And if anything, they -- I think we've said last time we talked about this, it's going to be in the second quarter. And I think it may be that one of them is going to be a bit later during the year, but there's nothing more beyond what we have said previously that is on the horizon.

[Kristofer Liljeberg-Svensson, analyst]

And when it comes to the competitive situation in India, there have been some M&A deals, et cetera. But do you see this changing significantly in other way? Or is it just more of the same that there is tough competition for resources and a lot of capacity being open?

[Joe Ryan, executive]

Kristofer, competition is quite local in the inpatient services, as you can imagine, for obvious reasons. So our competitors don't stand still in just the same way as we don't stand still. So we're always facing those challenges. And you see some hospital units which change hands in ownership, and you might get someone who's a little bit more competent in running it, so the competition goes up. But that's just within the mix. Nothing unusual in that respect in the competitive dynamics.

What we see with the M&A of our competitors is we see very little new investment in new locations. And that's what we're doing differently is in terms of we're putting new locations. So the dynamics don't change that much actually on the ground in the local area.

[Operator]

[Operator Instructions]

[Unknown Executive]

We have a few online questions?

[Operator]

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

[Fredrik RÃ¥gmark, executive]

I think there's one -- I think the 2 -- those 2 we have answered. There's one written question, which has not been addressed, which is can you provide the mix between advanced and standard testing in terms of volume and revenue?

And we -- I think we report on that pretty much annually in the Annual Report, I think, yes. So just for reference for the audience, what we define as an advanced diagnostic test in the Diagnostic division is where the end customer pays more than EUR 15 for a test. So that's not a scientific definition. It's a commercial definition. But I think the overall price per test in the portfolio is somewhere, I think, around EUR 4 or so.

And I think the average price per test within the advanced diagnostic category is EUR 35-odd or so. So you see there's a big difference price-wise between the advanced diagnostic testing and the overall routine testing. And I think the last number we reported, if my memory is correct, was sort of like 42%, 43% of revenue, I think, and 4% or 5% of test volume.

So test volume-wise, a very small proportion of Diagnostic division, but revenue-wise, a very significant element. And importantly, that component is growing faster than the overall total. So it's an important piece of our strategy.

Otherwise, there are no questions that we have not answered, I think, in terms of the commentary. So with that, I would like to thank you for attending today's call, and goodbye.