Medicover AB

STO:MCOV B

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2020 results presentation. [Operator Instructions] I must advise you that this conference is being recorded today on Friday, the 12th of February 2021. I would now like to turn the conference over to your speaker today, Fredrik Rågmark. Please go ahead, sir.

[Fredrik Rågmark, CEO & Director]

Yes. Good morning, everyone, and welcome to Medicover Quarter 4 and Year-End Report for 2020. And we are very happy today, as I think you all can imagine. We have had an absolutely fantastic quarter behind us with historically strong growth rates, expanding margins and super strong cash flow.And before we go into that, I would though like to start, as I've done, I think, each quarter this year to pay tribute to all our fantastic staff across the group, who tirelessly and relentlessly work day in and day out to support all our customers with their health concerns and, of course, big worries about COVID-19 virus. So I really would like to recognize and appreciate that upfront before going into the quarter and the year.So revenue was extraordinarily strong, just short of EUR 300 million with some change, so EUR 297.7 million, up 30% versus prior year, of which organic, 27%. Obviously, that's very, very strong. I remind you, last time around third quarter, so 3 months ago, we celebrated the milestone that we were first time, on a run rate basis, above EUR 1 billion revenue. You see now we're almost 20% up. We're almost EUR 1.2 billion run rate, so although for the year we're just a tad below, but very strong growth indeed. So that's something to celebrate.In terms of Fee-For-Service, our cash-paying customers -- and I remind you, that's where we took the biggest hit in the second quarter when elective services were largely shut down due to the lockdowns -- our Fee-For-Service segment, which is now 58% of revenue, was up a full 40% for the quarter. I don't think you've seen that number for a long time.For the quarter, we account just over EUR 50 million from COVID-19 revenues. And we assess the net positive revenue impact, i.e., the revenue of a bit more than EUR 50 million and deduct the negative impact from still a lower demand in other areas, so -- but for the quarter, we see a net positive revenue impact of range EUR 25 million to EUR 35 million from COVID.And on the pie charts at the bottom right, noteworthy there is you see Germany, our second largest geography, plus 50%. That is, of course, an incredible number, reflecting the very high demand for diagnostics in Germany, of course. So that's something to remind ourselves of.Left pie chart, you see the payer mix, and of course, the funded business or employer paid business. In the same way as back in the second quarter, we pointed out how important the stability of that revenue payer segment is for us. You can see that the growth there, of course, is much, much lower now when demand has returned in the Fee-For-Service segment. So you see plus 3% in the funded business, whereas we're in 40% in the Fee-For-Service segment, and even 36% up in our public pay business, which again then, of course, is a reflection of the demand for largely Diagnostic Services in Germany as well as the other countries.Strong growth in profits, obviously, as this is flowing through to the results. Although EBIT is not on this chart, but operating profit almost tripling for the quarter. And EBITDA also up a strong 59% with margins expanding some 330 basis points. So EBITDA contribution from the COVID-related services, we assess at about 2 percentage points. So that leaves still 130 basis points of margin expansion, excluding the COVID-19 contribution. And then I remind you that that's despite having a EUR 17 million to EUR 27 million estimated lost revenue due to COVID-19.So although we have that lost revenue, we still have been able to expand margins with quite a significant amount, which I think is a strong and good reflection of all the hard work underlying. And of course, operating cash flow, Joe will talk more about that later on, very strong, up more than 60% versus the prior year. And again, the graphic illustration to the right there, both in terms of the absolute demand, you can see the dip we had in the second quarter, and then the very, very strong second half of the year 2020.Then if we flip over to the commentary on the full year. So again, I don't think any business, perhaps, certainly not ours, have seen a year like 2020 in terms of such a roller coaster, with a sort of cliff drop in the second quarter and an extremely strong bounce back second half.So revenue for the year, up 18% and just a tad off EUR 1 billion, you see the EUR 997.8 million of revenue. And organic growth of that being just above 11%. So very strong indeed. It's -- I think it's nice anecdote to remind you that now here in May, in a few months, it will be 4 years since we listed the company. And we have now more than doubled revenue over that period. So we have been compounding growth at just short of 20% over these 4 years as a public company, which I think is noteworthy.Also, I think it's worthwhile to remind you, memory is short, but the second quarter this year, 2020, our revenue effectively decreased year-on-year. So we had a revenue decrease in the second quarter of a couple of percent, and organic was even 8% down for the quarter. So despite a contraction in a quarter out of 4, we have seen these growth rates. And if you look at the second half alone, so the third and the fourth quarter, we're up 27% year-on-year, of which 20% is organic. So we can express that rebound in many different ways, but it's clear in terms of the nature of our services and the essential nature of our services how customers have strongly returned to our business across geographies.So for the year, Fee-For-Service being 54% of revenue, and that was up 24%, and revenue from COVID-19 for the year, we estimate at just short of EUR 95 million. However, you see the net overall COVID-19 revenue impact, i.e., the positive amount and deducting the losses in revenue, we estimate is still negative. So although I mentioned just recently here that for the quarter we have a net positive impact. However, for the year, we still have a net negative impact, which also is important to remember.And then going to the profit side over the full year. So EBITDA was up also strongly, 31%, to just short of EUR 158 million. And margins expanding 150 basis points to 15.8%. We're saying that we assume about 170 basis points from the extra COVID work and COVID contribution. So we see underlying, including grants, et cetera, received from governments, we say we have a 40 basis points contraction in EBITDA for the full year underlying. Now, I consider that being a very strong number, considering that we have lost an estimated EUR 117 million to EUR 136 million revenue for the year from COVID-19. So I think that's a very strong number indeed.We have talked quite a bit about how the pandemic have impacted our people, our business and all of us and clearly, one thing that we -- or our colleagues have managed very, very well, has been to service our customers digitally and through virtual remote care. And for the full year, our virtual care provision is up some 4.5x the prior year level. And if you look at the last few months of the year 2020, we were even up 6.5x versus the prior year period. So a very significant shift in consumer behavior and consumer demand, and we have some very, very strong NPS scores. So clearly, our customers like that.Also for the full year, operating cash flow very strong, up almost 80% at EUR 156 million. We successfully placed the share issue back in the late spring to support the balance sheet. The financial targets that we set -- with the new financial targets that we set a year ago pretty much now or exactly a year ago to run for the coming 3 years. We are now already trading at the top end of that range, which, of course, we're very happy and proud of. As we write in the report, we're not obviously revising the financial targets. I think that would not be a wise thing to do with the uncertainty the world has for the moment. But clearly, we're confident that we will achieve or perhaps even exceed those financial targets.Last but not least, you remember last year we canceled the inaugural dividend due to the pandemic. And this year around, we're happy to suggest to the annual meeting a new inaugural dividend at this time of EUR 0.07 per share.Then look quickly at our 2 trading divisions. So Healthcare Services, as a portal statement, of course, Healthcare Services has mainly the negative impact from COVID and still some restrictions in societies, whereas Diagnostic Services has most of the positive impact in terms of the divisional effects.So you see the revenue for Healthcare Services, just short of EUR 150 million, 19.4% growth versus prior year with 10.9% being organic. I think that's a very good number. And for the full year, up 21% to EUR 540 million, of which 5.2% being organic. And again, remind all of us again of the severe drop in the second quarter, which of course impacts the full year number, again, and perhaps more an anecdote than anything else, but back when we listed 4 years ago, the whole group revenue 2016 was EUR 497 million. So you see the Healthcare Services side alone in 2020 is larger from a revenue point of view than the entire group when we listed 4 years ago.Our Fee-For-Service here, just short of half of the division, grew by a strong 38% in the quarter. And you see the payer split here, already commented before, in terms of the funded business, obviously, it still is much lower than our historic growth, although we're confident that's going to return over time. Fee-For-Service growing very strongly, and you see also the public business is up 21% in this division. So indeed, a strong number.From a profit point of view, Healthcare Services EBITDA margin of 14.4% for the quarter at EUR 21.5 million. So margin expansion for the quarter and for the full year, and even more noticeable 200 basis points margin expansion, growing 38% to EUR 84 million for the year. You'll recall, second quarter, we had negative member growth. And back then, we commented that we're confident that we will return to growth second half of the year.We had good third quarter member growth and we also have good fourth quarter member growth, you see, bringing in 36,000 members in the fourth quarter, although of course, year-on-year, it's much lower than previously at 4% due to the drop, of course, in the second quarter.We've been active on the M&A front in this division in the fourth quarter, where we acquired a reasonably significant gym chain to support our sports card business in Poland, and we also closed 3 dental acquisitions to further support our dental business and dental rollout. And you can see there, again, the graphic illustration to the right showing the -- both the revenue and then EBITDA margin growth.Then shifting to Diagnostic Services. And of course, we -- one can't comment on this in any other way than this is sort of an epic growth quarter to have a 42% revenue growth and even stronger organic. Of course, this is the FX effect. We've had quite significant FX headwinds in the quarter. So almost 46% organic growth, I think, is something to carry with us, something to remember.And revenue for the full year at EUR 473 million, up 16% and organic 18%. And you remember in this division, Fee-For-Service is a larger proportion at 68% of divisional revenue and up 43% for the quarter. So again, just very, very strong indeed.And again, you see the split at the bottom. I already commented before, Germany is basically half of this division. And you see that the geography is up 50%, which, of course, is quite remarkable. And you see the other geographies all growing strongly. And growth being in -- from a percentage point of view, equally strongly seen in our private pay and publicly funded business.The EBITDA then, profit reflecting that super strong revenue growth. So EBITDA doubling up to EUR 37.4 million for the quarter, a strong margin of 24.2%. You see massively up from last year, of course, very much supported by COVID-19 testing. But again, underlying demand for diagnostics is also picking up. So we have sort of 2 tailwinds here supporting us. Full year EBITDA, just short of EUR 90 million, and margin growing for the full year, again, although we were so severely impacted from a profit point of view, particularly in Diagnostic Services in the second quarter. So impressive to see this kind of performance coming through.Laboratory tests, up 8% for the quarter, although for the full year, in fact, they decreased by 3% due to the second quarter. And we keep on building our BDP network. So we've reached EUR 733 million at the end of the quarter and the year.Then just a few comments specifically on the COVID-19 situation in the 2 divisions. I already made the point that most of the benefits from COVID-19 sits in Diagnostic Services, whereas most of the headwinds we see in Healthcare Services. You remember back in the third quarter, so last time we reported, we spoke quite a bit about the high level of hospital admissions in our Indian hospital business. You can say luckily, from a health perspective, the virus spread in India is significantly down. So we are very happy about that. And that is, of course, reflected in lower number of admissions for COVID in our Indian hospital business, as you can see, we're down to just short of 2,000 for the quarter, whereas I think we were around 5,000 in the third quarter.So otherwise, in terms of Healthcare Services, you see a negative impact for quarter 4 and a quite significant negative impact for the full year. So fitness business, as an example, is the single individual business we have across the group that is still mostly negatively impacted where, in fact, the gyms are still closed in Poland. We have some expectation that they will be able to reopen quite soon, but for the time being they are still closed.On the Diagnostic Services side, you see a very significantly positive impact of EUR 34 million to EUR 38 million for the quarter. And much less, 11% to 19%, but still positive for the full year and significant additional contribution, of course, from the COVID-19 work. Quite -- we spoke quite significantly last time around about the investments we were doing in terms of scaling up capacity for dealing with the demand to COVID-19 testing. And clearly you can see that here we performed 1.2 million tests in the fourth quarter alone and 1.9 million for the full year. So that clearly, I think, visualizes the sort of upscaling that's been going on in the fourth quarter.We had -- we could have done even more. So we, as well as, I guess, most, if not all, other people in this industry had quite severe supply chain issues experienced, which had a negative impact in the quarter. So had that not been the case, we would have done even more.Now that the COVID-19 testing is, of course, a reflection on how society view the virus. So you know how that has continued into 2021. And we are slightly down from the peak levels we saw in quarter 4, but we clearly still run that engine on a very high level.Also to note is that with these new mutations arriving, the demand for ability to sequence the positive tests where someone tests positively. In Germany, for example, the ambition is to take 10% of all positive tests across the country and get them sequenced to verify the virus mutations, and that is just starting, and we see that as a -- as also a significant demand driver going forward into 2021.And the last point to make is that, clearly, for us to be able to safely provide care to all our customers, a very important element is to be able to have our staff being vaccinated. And it's good to be able to report to you that we are well underway with achieving that across the group.So with that, I hand over to Joe.

[Joe Ryan, Chief Financial Officer]

Thank you, Fredrik. So just looking at Slide 13 with a summary of financial numbers there. Yes, it was unfortunate with the supply chain limitations, but I think that that was a feature we saw. And we came in just short of EUR 300 million of revenue recognized for Q4 and just short of EUR 1 billion for the full year, so EUR 997.8 million for EUR 2.2 million short. And for sure, if we had not quite the scale of supply chain limitations then we would have been over that EUR 300 million mark and over the EUR 1 billion mark. So unfortunately for us, we need to wait another year before we solidly pass that milestone.In terms of the figures, the only 1 here I'll really pull out is in terms of the EBITDA number, the adjusted one. So this -- for the quarter, we came in at EUR 43.8 million and EUR 115.1 million. That number is akin to the old IAS 17 EBITDA number and represents a fair reflection of our ability to generate cash. The adjustments there we put through our IFRS 2 share-based payments, which was EUR 5.1 million for the year and M&A expenditures, direct M&A expenditures, which was EUR 1.1 million, so down a little bit as we put the, for the first part of the year, our M&A agenda on hold. Overall, EUR 6.6 million of adjustments for the year.So 14.7% margin, up 4.6% for the quarter and up 1.4%, even reflecting the cliff fall that we had in Q2. So really encouraging numbers across the board in all respects in terms of our financial report for this quarter and the year.Just moving on to Slide 14. Net interest cost, this reflects the IFRS 16 lease-based interest allocation, EUR 2.7 million. So our underlying external debt side of EUR 1.1 million of interest costs, reflecting our lower debt levels. And for the full year, those numbers being EUR 17.2 million, EUR 10.2 million for interest for operating leases for real estate and EUR 7.7 million of external debt. So our debt coming down in terms of our total cost there, reflecting our reduction in indebtedness.FX losses were high for the quarter, EUR 2.2 million. One of the things when we introduced IFRS 16 was reflected that we were going to have higher volatility in this line in the P&L account, and that's what we see. So half of that amount, EUR 1.1 million, coming from our euro-denominated contracts in -- mainly in Poland for this quarter. And if we get the currency moving the other way, as it could well do over 2022, then you'll see some unwinding of that through the P&L account as well. Those figures, EUR 8.4 million for the year, of which EUR 5.5 million being lease-related, with Belarus and Poland being the substantial parts there.Our Q4 cash flow is extremely strong. So before -- operating cash flows before tax, EUR 56.4 million, so a really good number there. And if you look at the capital -- working capital side, we had some unwinding as we went through the year of working capital, and that's come back a little bit now in the fourth quarter. So EUR 12.6 million increase in working capital over the quarter. But for the full year, that figure is 0.7%. So we had a very benign situation even though we've expanded the business and done some smaller acquisitions over the year in terms of working capital. And our full year cash flow before tax payments, 100 and -- just short of EUR 168 million.Our tax level has been in line with where we were last year. So our effective tax rate, 26.7% versus 25.9% last time around for the full year, so a tax charge of EUR 10 million. Tax paid in cash, a little bit ahead of that, EUR 11 million, EUR 13.5 million previous year.Mixture in terms of reduced profitability in some units and other units, obviously, doing well, particularly with the German units in respect to the laboratories for testing and our average tax charge being slightly higher in Germany than some of the other markets.Cash and cash equivalents, as you can imagine, has followed then the operating side. So we have excluded some liquid short-term investments from our definition of cash versus our previous quarters of this year, just to make it clear. So this increased 46.7% from 34.8% last year around for 2019, so strong operating cash flows. The capital increase we did and then repayment of the debt, and also then our strong organic investment in fixed capital has also impacted that.Loans payable, net of cash and short-term liquid investments, EUR 81.1 million, down from EUR 240 million at the end of 2019. So a quite substantial reduction in terms of our indebtedness and increase in our balance sheet ability. Our lease liabilities has increased. So we increased this by EUR 23.3 million net. With the FX movements gross that comes up to about EUR 33 million, and that's a reflection of the expansion of our footprint in terms of continued expansion over the year, particularly in India, where we've added quite a few facilities, and then also some of the expansions that we've done in some of the acquisitions.So with that strong balance sheet, we have over EUR 300 million in liquidity available in terms of our facilities and the cash that we have on hand. So we're strongly placed for both organic and inorganic growth. And reflecting that ability for organic growth, we've done capital investments now of EUR 31.4 million for the quarter. So as we picked up and as we went through that shock of the second quarter when we resumed in the second half in terms of our capital programs and our investments, we've got that moving again and caught up some of that delay that we had -- that we put in place in the second quarter. Full year, EUR 72.5 million. And if you look at the split between that, 61% growth, 39% maintenance. So you can see our clear focus on there.And in terms of where we've been putting that money to work, then for the quarter, EUR 13.6 million of that went into our Medicover Hospitals India business unit as we had increased the number of facilities there. Now we're operating something like about 20 facilities. And I'm glad to say also, we just commissioned our first LINAC accelerator for treating cancer patients in Hyderabad for the group. So that is now fully commissioned, fully operational, fully permitted and seeing patients in our completed state-of-the-art cancer treatment center there in a fantastic location. So really happy. And our second one will be coming on in a matter of short months or even weeks.Our noncash impairment charge, we've adjusted this, EUR 5.2 million. This was some smaller units earlier on in the year where COVID-19 really crystallized some decisions, and we wrote those down and move out of those small activities. Really strong balance sheet, EUR 483 million in terms of our IFRS equity. So impacted by currency movements, you look at the FX movement between the euro and the U.S. dollar, some 8% movement there for the full year 2020. And you see that reflected in some of our markets. Poland is almost exactly the same movement against the euro and some other ones.So I think it's as much the weakness in the COVID story and developing markets as it is with the movements between the euro and the U.S. dollar. So a really strong balance sheet, really strong position, and we continue to invest in growing our business.So just moving on in terms of the financial targets overview. And Fredrik has talked extensively earlier on in terms of our growth. I mean, if you look at that, this is fantastic numbers. Our organic growth, 26.6% for the quarter, 11.3% for the full year. And even with the COVID impact in there, our underlying businesses have done very well indeed. And the adjusted EBITDA margin, 18.7% there for the quarter. So really outstanding performance with the aid from the additional COVID revenues and contributions and then also in terms of -- for the full year, including that cliff fall that we had in the second quarter, 16.4%, and at the upper end of our 3-year targets as well.And if you look then in terms of our balance sheet side, our liquidity, very good, and our indebtedness pretty low, so it's 0.7%. So we have lots of ability in terms of -- to continuing our organic investment side, as you see that picking up in Q4 and also -- then also to be able to look at inorganic expansion over 2021 and further.

[Fredrik Rågmark, CEO & Director]

Very good. Thank you, Joe. So I think that summarizes the report from our side. So we are happy to take any questions that the audience may have.

[Operator]

[Operator Instructions] Your first question comes from the line of Kristofer Liljeberg.

[Kristofer Liljeberg-Svensson]

Yes, great quarter, of course. 3 questions from me. First, the diagnostic business, I think you said that volumes now are a bit below the peak in Q4, but still strong. So maybe you could give some more view on how you expect the diagnostic business to play out in 2021?And also for the group, do you see -- when do you expect the pent-up demand for the Healthcare business to start helping you. And do you think it's fair to assume for the group, that organic growth will be above sort of a normal level also in 2021 and then maybe below in 2022 due to a difficult comparison? So that's sort of the first question.And then just wondering if you can explain, I think you said lab test was up 8%, and how that relates to revenue in diagnostic being up as much as 45%?And then the final question is, if you also have an EBITA figure adjusted for leases? That's something you have provided before.

[Fredrik Rågmark, CEO & Director]

Okay, Kristofer. So I'll kick off. I'll do the first one. I think Joe will give you answer 2 and 3 there. So starting out from a DX perspective, the -- I think the outlook for 2021 is -- obviously, the uncertainty is when -- will there be another wave coming? Will there be new mutations arriving? We will see demand for that core PCR testing starting to drop at some stage. If that is midyear, quarter 3, 4, who knows? No one really knows, Kristofer.So I think the only thing -- it's going to last much longer than everyone expected 6 months ago. That's my view. So we see a slight reduction. That's the point we made, but still a very strong underlying demand. We're still scaling up capacity. So we're still increasing -- investing in increasing capacity. And I guess that's an indication as good as any that we see that sort of level still rising for a while. Then I think also important...

[Kristofer Liljeberg-Svensson]

Sorry, could I ask another, because you talked about the supply problem. So is it so that even if demand has come down a little bit from the peak, your -- the revenues, the run rate now for revenues is actually higher than what you have in Q4.

[Fredrik Rågmark, CEO & Director]

Well, I don't want to give a specific what the run rate of revenue is, Kristofer. I think the supply chain issues are better now, but there's still some of that there. So the comment I was going to make, though, is that I think even with the virus, at some stage, sort of starting to drop a little bit, you're going to have other types of COVID-relating testing coming into play.We talked before about this thing we do at the airport in Munich, just as one example. And as people start to travel again on the back of perhaps lower restrictions, you're going to have a large degree of testing that wasn't there before, related to anyone that wants to move around Europe and flying or anything. And you have this sequencing stuff that I talked about that's going to start. And no one wish -- certainly, the last one wishing that we have more mutations would be us. But if you have more mutations arriving, you're going to have even more demand for sequencing.So the point I'm making with that is that you're going to have an overdemand of diagnostic testing for the foreseeable future, then it may not be at the peak levels we saw in quarter 4 forever, obviously.Then on the -- in the service division, that is very -- I mean, normalization of demand there is very much sort of an inverted reflection of what I just talked about. So somehow, I think we will see lower-than-normalized demand levels as long as you have sort of significant virus spreads in society. Now -- that's going to normalize as well. But when that will be back at fully at normal level, that is as difficult to say as when will the DX demand be back to normal.So I guess the important thing, which I said many, many times, is that those 2 things sort of take out each other in our combined situation. So slightly weaker outlook, not than we have today, but I think the run rate we see in health care service probably will run like that, perhaps slightly stronger, but not massively back to normal, whereas the sort of unusually high situation, again, in diagnostics will probably run like that for the foreseeable future.

[Kristofer Liljeberg-Svensson]

But I guess the net effect because of this, the diagnostic business is strong. The net effect is still going to be positive for 2021?

[Fredrik Rågmark, CEO & Director]

Yes, you say -- as long as the situation remains as it is now, Kristofer, you're going to have a -- certainly a net positive impact on the group, yes.

[Joe Ryan, Chief Financial Officer]

Your question #3 was 8% up for test and 45% up in terms of revenue. We have 1.2 million tests in Q4 related to COVID. So take that out of the EUR 29.1 million total, that comes to EUR 27.9 million versus EUR 26.8 million last time around, so that's 4.1% up. We had EUR 41.2 million in revenues for the division, of EUR 154.6 million total. Take that out, you come to EUR 113.2 million for non-COVID versus EUR 108.6 million last time around, so that's plus EUR 4.2 million. So those 2 numbers are roughly what you'd expect to see.

[Kristofer Liljeberg-Svensson]

Okay. Okay. I missed that you were leaving out the COVID test. That's -- okay.

[Joe Ryan, Chief Financial Officer]

EBITA. EBITDAaL So for adjusted EBITDAaL for leases, 11% for Q4 versus 5.6% last time around. In our spreadsheet which we publish on our website with the APMs, you have that reconciled last year. So for the full year, that was 7.3% versus 6% in 2019. So those are that data on the APMs we publish on the [ website ]...

[Kristofer Liljeberg-Svensson]

But it's not in the report, right?

[Joe Ryan, Chief Financial Officer]

Not in the report, no.

[Kristofer Liljeberg-Svensson]

So if possible, I would appreciate if you could include it again in the future.

[Joe Ryan, Chief Financial Officer]

Okay. Yes, sure. No problem. If that's useful, we would be happy to accommodate that.

[Operator]

And your next question comes from the line of James Vane-Tempest from Jefferies.

[James Alexander Stewart Vane-Tempest]

Just a couple, if I may. Just curious in terms of the underlying population in Poland. I understand that, I guess, the rate of decline had increased in 2020 versus 2019, and that sort of continues so far in '21. I mean the business is clearly doing very well. I'm just conscious how do you view the kind of the broader macro dynamic in terms of what the prospects are?And the second question is, thinking about the organic growth in Healthcare Services, just curious how much India contributed to that? Or was it all a consolidation effect?And then the third question, it's a bit of a follow-up to one we've had already, but just thinking about what you're currently benefiting from in diagnostics in terms of testing. How we should think about the phase of the business as we move to a vaccination level and then a new world beyond COVID?

[Fredrik Rågmark, CEO & Director]

James, I was -- on your first question, you said something about decline in Poland. What were you referring to in terms of decline?

[Joe Ryan, Chief Financial Officer]

Population.

[James Alexander Stewart Vane-Tempest]

Population, yes.

[Fredrik Rågmark, CEO & Director]

Population? Okay. Yes. No, I mean, the -- I think Poland has been at the bottom of the birthrates in the EU for quite some time. And I think it's sort of -- it's a top of mind issue for the government. They're doing a lot of stuff to try and get people to have more babies. And I think, so far, not very successfully. So I think that's an issue for Poland to address making sure they get their birth rates up. I don't think there's anything visible so far in data or statistics that that's happening. We see quite a bit of that in our hospitals, of course, and not the least down in Neomedic in the south part of the country. I think we had we had some 7,000 births or so in the Neomedic group in 2020.So we see quite a bit of that. But -- so we -- that's an issue, James. It's been there for quite a while, and it's not -- so far has not gone away. I think from a sort of that broader perspective on Poland, knock that on to the economy, I think we're quite positive. I think you heard me say pretty much every quarter before the pandemic hit that the main issue for the Polish economy was lack of labor. It was basically zero unemployment. And now, obviously, there's been quite a bit of unemployment, but I think that sort of reabsorption rate is much -- going to go much quicker in Poland because there's still a lot of demand for qualified labor.And which is why if you look at our employer paid businesses, that second half growth, if I remember correct from memory, the member intake the second half of 2020 was some 2.5x the member intake second half of 2019. And so not only were we back growing, but relatively speaking, we were back growing much -- quite robustly, which again is a reflection of that economy. So we're optimistic on the Polish outlook, James.And then on -- I take your last question as well, which I think is sort of quite similar to the answer I gave to Kristofer here, that from a DX perspective and demand outlook, we will see -- what I mean for the foreseeable future, quite a bit into 2021 -- we will see very elevated COVID-19-related testing. And you're going to have different kind of testing, as I talked about. It depends as the sort of disease evolves or the virus evolves, whether it's gene sequencing, virus sequencing or if it's the regular PCR testing or it's more on to rapid testing for traveling, et cetera, but it's going to be elevated.And then in terms of when that knocks on to underlying demand returning to normal, we will just see. And I reiterate that the good thing for Medicover is that we have this sort of natural hedge that somehow we're suffering a little bit on one side, but we gained significantly more on the other side. So somehow -- when it normalizes again, the timing of that is just very difficult to predict for us, as for everyone else in the world, really.And Joe, you had the second one?

[Joe Ryan, Chief Financial Officer]

Yes. In terms of the organic growth question, we acquired and consolidated the Medicover Hospitals India business the end of November. So we have 1 month of revenue recognized, December, in the prior comparative numbers. So if you look at the inorganic element in terms of acquisitions, we had an adjustment of EUR 15.8 million for this quarter, of which was predominantly -- which is almost exclusively the 2 months of revenue, so October and November, for the Medicover hospital is India, and the 1 month of December was considered organic.

[Operator]

[Operator Instructions] Your next question comes from the line of Karl Norén from Danske Bank.

[Karl Norén, Analyst]

Congratulations on a very strong quarter once again. And I just have 2 questions here, if I may. The first one is on your employer-based model in Poland, where you once again had a very strong quarter, as you already mentioned, but I just wonder if you could say anything how you see the long-term prospects in growing this business even more? And how large -- could you please elaborate on how large do you see this market to be? And what is your anticipated market share as of now?And also on the second question, I wonder if you could comment anything about the digitalization we have seen during this pandemic. I mean, I think you mentioned that in December, you saw like 6.5x more virtual visits than last year. And what do you really expect to be the long-term effects of this into your business? Because I mean there clearly is a lot of opportunities to this. And it would be interesting to hear what you see, how this will impact you in the longer run on both financially and also operationally?

[Fredrik Rågmark, CEO & Director]

Yes, sure. I mean the employer-paid business, that's how we started 25 years ago. It still is the largest individual business we have. It's not only Poland, as you know, it's also Romania, and we also have our risk-carrying business in Hungary, although we sold off the provider side in Hungary a number of years ago. But the nice thing with that business, and we have pointed that out numerous times, is the stability and the predictability. As I said, over 25 years of history we had 2 quarters where we had negative member growth. And the second time it happened was second quarter last year. So I think that gives you that sort of proof of that stability.Growth rates typically have been low double digit. Now we're lower than that because we're carrying with our second quarter last year. We're confident to represent that growth is going to tick up. I'm not going to give a percentage, but clearly, from a -- run rate wise, growth is going to pick up from where we are in the current quarter, just as the model works. And if you see the member intake I just mentioned on the second half of last year, that's going to give us, obviously, new revenue in 2021.And so we don't see anything on the horizon that would lead us to have a different outlook on that business than we've had for the past 10-odd years or so, or perhaps even more. The largest competitor we have in Poland, being our main market then, is a company called LUX MED, that is owned by Bupa out of the U.K., and we're sort of, in the employer-paid side, more or less the same size. And then there are other competitors, also listed companies, that are smaller than us. But a very, very solid business that is, if you wish, in many ways, the anchor of our business historically and certainly continue to be so.The sort of virtual care, the digital care provision, yes, it's just really important. I think one can give a lot of credit and appreciation to our colleagues in terms of when the crisis hit there in March, if I -- if my memory is correct, I think we shifted -- over the sort of course of 10 days, 2 weeks, I think we moved about 2,000 clinicians over to digital remote care away from a clinic setting and -- which is significant.So the -- I think we comment in the report that we did about 1.5 million virtual visits, I believe, for the year 2020, and run rate wise, we're sort of trending around 2 million visits currently. We made a comment before that when all of this is over, when we think back what the pandemic was and when life is back to normal, whenever that will be, we expect that that particular feature will remain. Perhaps not -- not at the level we are right now, but at levels significantly elevated to where they were before.And the reason why we're quite confident to make such a statement is that if you look at the consumer response, what our customers are telling us in terms of that service, it's just really, really, really positive. So I think that's one of the lasting -- is going to be one of the lasting effects of this, that the -- if you wish -- consumer behavior have changed, and that's not going to go back. It's going to stay like that to a certain degree, which is obviously very positive for us and for the industry.

[Operator]

There are currently no further questions. [Operator Instructions]

[Hanna Bjellquist, Head of Investor Relations]

We have one question or 2 questions in our chat room. And first one is, could you please discuss a little bit what you see in your M&A pipeline? And do you expect more deals in Diagnostic Service business?

[Fredrik Rågmark, CEO & Director]

Yes. We have a super strong balance sheet. Our balance sheet is really poised in terms of being able to -- do support the continuing organic and certainly a substantial amount of inorganic expansion as well. We've put, obviously, on hold our processes in that in Q2 when that hit, and subsequently we put that back in the agenda in terms of moving ahead with that.And I think you start to see us picking up, okay, on a smaller scale. We did 3 acquisitions in the dental field in Poland in our sort of rollout processes there for dental practices. And we also then bought 1 -- opportunistically 1 gym company, which was -- fits within our expansion in the non-medical wellness area in Poland and fits really well in terms of supporting that strategy.So we have put that back on the agenda. We are actively pursuing acquisitions, and we will continue to do so. That's not to say that we have anything large which is in the pipeline imminently, but certainly, if you look at the size of the balance sheet that we have, we certainly have the ability to do quite a substantial amount over the next couple of years. And that has expanded quite substantially with the business, with the capital raise we did in June last year. And so you will see inorganic expansion coming through in the next couple of years in a quite substantial way.

[Hanna Bjellquist, Head of Investor Relations]

And another question was, one of the past constraints problem was the rise in employment costs and availability, hiring of qualified staff, especially nurses. Given the constraints of COVID-19 over the last month, how do you see the [ starter traction ] going forward? And will that put any limitations on business?

[Fredrik Rågmark, CEO & Director]

Well, I think the fair answer to give on that one is, well, it certainly has not become easier. I think that's the answer to give -- that was a constraint before, and it's not less of a constraint today. So we are in a situation where we -- I think for the year 2020, when probably most businesses reduced staff to meet lower demand, we -- I think from memory, we increased our staff levels by 13% over the year. So I think we net hired -- net hired about 3,500 people for the year in a COVID-19 environment.So the fact that our HR colleagues and HR processes were able to do that in 2020 certainly gives me a lot of confidence that we will manage that situation 2021 as well, going forward. The underlying cost inflation for medical staff and everything to deal with medical will remain above general inflation. When I say forever, nothing in life is perhaps forever, but for a very long time. And the only way you can compensate for that is by becoming more efficient, which we do. So again, staff costs will continue to rise faster than inflation. That's just law of nature. So we're just going to have to remain becoming more efficient day by day.

[Joe Ryan, Chief Financial Officer]

I think it's also fair to make the comment, Fredrik, that we -- in some respects, some of the positive longer-term impacts of the COVID crisis will be the focus of public health authorities in terms of making sure there is adequate supply in the provision of medical staff. Part of the problems we faced in terms of recruitment are because of the lack of focus in terms of training and development from public authorities.We've done our own part in terms of trying to provide training and by developing our own staff resources. So I think that focus also will also help the industry overall in general in our markets.

[Hanna Bjellquist, Head of Investor Relations]

And we have got a new question as well. You mentioned about COVID testing outlook for 2021. Could you provide potential contribution upside from vaccination for 2021?

[Fredrik Rågmark, CEO & Director]

No, we cannot, because that outlook is very uncertain. We do get cost coverage in some locations for the work we do with vaccinations. But it's not going to be material in terms of the overall group. So we look upon our work in that vaccination field more as a sort of a service we do to society to help vaccinate customers and staff, but it's not going to be a revenue generator that's going to be noticeable.

[Hanna Bjellquist, Head of Investor Relations]

So do we have any further questions?

[Operator]

Yes. We have one question, and it's from the line of Gergana Almquist from Redeye.

[Gergana Almquist, Equity Analyst]

I have a question about the wellness segment. Do you see this as becoming a third division in the company? Or could you elaborate on the plan there with the gyms?

[Fredrik Rågmark, CEO & Director]

No, it's not going to be a third division. So I mean we see the wellness segment as very closely connected to our corporate employer-paid business. And that is because the way -- this is obviously in Poland for the benefit of everyone, where we grow our sports card business, as we call it, where we -- alongside our health care benefit, employers are increasingly as well spending money on buying a sport cards benefit that will allow them -- or allows access to gyms.Now that's very synergistic with our employer-paid health care business at a very basic level, of course, because we do this to try and keep our customers as healthy as possible. That's the mission of the business, and that's what we're working every day to do. And if people start to do a little bit more sports and spend more time in the gym, you sort of feel better, you build a better health. So that's good, certainly good for our Healthcare business, it's good for everyone. So that's why it's very synergistic and very closely connected to that corporate-paid business.

[Gergana Almquist, Equity Analyst]

Okay. And another question about the German operation. Do you plan expanding and buying more labs there as the largest market?

[Fredrik Rågmark, CEO & Director]

Yes. We would love to do that. We're always up for expansion. Germany is our largest geography for labs, so absolutely. There's nothing imminent. Joe made that point. We're very acquisitive when we can. We have a strong balance sheet. Germany is a big focus for us, so when the right opportunity arrives, absolutely.

[Hanna Bjellquist, Head of Investor Relations]

And a new question in the chat. Can we have some more insights in what the plan is for the business to expand in India?

[Joe Ryan, Chief Financial Officer]

Yes. We've taken quite an aggressive expansion given the COVID backdrop in India. So we now have up and running 20 facilities, including diagnostic-only centers, in India, our 2 dedicated cancer centers, one is now completely operational. Second one is partially operational, with its LINAC being commissioned in -- as I said, in a few months, even a matter of weeks. So this is part of our expansion in terms of the super speciality profile that we have for our business there. And we moved up from originally when we started off that business unit in 2017 with 9 facilities to 20 now.So there's been quite an aggressive expansion over the second half of 2020, where we'll probably reduce that expansion pace a little bit in terms of making sure we can digest those new facilities and get them to the performance levels we want to see before we have another big expansion step. But definitely, we'll continue to dedicate organic capital expenditure in India.If you look at the amount of money we've invested there so far, it's still 1 of our -- I think it's the fourth largest market in terms of capital that we've put in, after Poland, Romania and Germany, but it will -- and not quite to 10% of revenues yet, but it's an important market for us, and we will continue to expand there.

[Hanna Bjellquist, Head of Investor Relations]

Thank you. Any further questions?

[Operator]

We have no further questions from the phone lines.

[Fredrik Rågmark, CEO & Director]

All right. So thank you, everyone, for listening in on this call. And look forward to meet you all for the first quarter in about 1.5 months or something like that. Thank you. Bye.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect.