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Good day and thank you for standing by. Welcome to the Fourth Quarter 2022 Results Presentation Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Fredrik Rågmark. Please go ahead.
Thank you. Good morning, everyone. Welcome to our quarter 4 2022 results presentation.
So we start with a summary of the fourth quarter. I would add a headline here, calling it a challenging quarter with strong delivery. So clearly, there are factors in the environment that we have seen for most -- throughout 2022 that continued in the fourth quarter that makes it challenging. Inflation remains at historically high levels. COVID is really pretty much behind us in terms of testing. And the war in Ukraine continues. But despite that, I think we have continued on a strong path of delivery. We've seen a very strong member growth in the core Polish member business. We have continued on a very strong expansion phase in India, with several new hospitals opening in the quarter. We have made an entry and 2 dental acquisitions in Germany and several new openings in Poland. We have been busy acquiring gyms and gym networks to support the sports and fitness business in Poland. And although overall the diagnostics segment is impacted quite significantly by COVID reducing and obviously the situation in Ukraine, but despite that, quite a few of the other core markets in diagnostics have performed very well during the quarter. But although that is -- it's visible in the lab test volumes going down in terms of both COVID reducing and Ukraine that the comparative quarter last year was completely normal, of course. If we then go and have a look at the revenues, so just short of EUR 400 million of revenue. That was 6% up with a reduction organically of 2.5%. Again, we have quite a big chunk of COVID revenue dropping out relative to the comparative quarter. As we have done over the recent period, we give you as well a number what we call business as usual when we neutralize for the COVID element as well as the Ukraine situation. And business as usual, ex COVID and ex Ukraine, we've had a good, robust underlying growth of 17.5%, which is pretty much what you have seen or what we have seen over the past couple of years, so that is continuing that trend. Overall revenue from COVID in the quarter, EUR 11.6 million. You see quite a sharp reduction, to say the least, from what we had the last quarter -- last year. And we brought in just short of EUR 40 million revenue in terms of acquired revenue. Fee for service, which is our consumer direct pay business, is now up to just short of 60% of revenue.
And looking at the pie charts and the 2 bars there, what may be noticeable. Poland was where we started. It has always been the largest geography, in fact. This quarter, it's actually growing quite significantly as a proportion. You see Poland is up 26%. In revenue-wise, it's climbing back up to 45% of our overall group revenue as a geography. Now that's partly driven by obviously reshifting where you see Ukraine being the small pie to the left is down 61%, so down to 3% of group revenues. Of course, there's a few things going on in the overall scheme of things here. Perhaps worthwhile to notice as well is India is now representing a double-digit share of our overall group revenue at 11%, up 36% for the year. In terms of the bar chart to the right, you see the underlying strong growth. And in the light blue, the COVID element basically shifting out as well as Ukraine significantly dropping, and then the added revenue from acquisitions at the top. So overall, strong growth but in quite adverse conditions. Then we go to the expansion. So we have continued investing significantly. Joe will talk about that much more later on today. Now that clearly is short term impacting our margins, as well as the COVID situation. EBITDA, we came up to EUR 53 million, a reduction from EUR 75 million last time around; 13.3% EBITDA margin. Now adjusted EBITDA, which is then our public financial target, at EUR 57.7 million, so 14.5% for the quarter. And I'll remind you, we'll talk about that later on. So the -- 3 year behind us, we closed where we had the financial targets 15.5% to 16.5%. We're pleased that we hit the target for the full year. We're obviously a bit short for the final quarter of the year. Adjusted EBITDAaL, which is basically the cash flow proxy that we use in today's financial accounting standards, of EUR 34.6 million or 8.7% margin. And operating profit, EUR 8.6 million. And you see the bar illustration to the right. And it's always just note -- worthwhile to remind ourselves of quarter 4 '19, at the very left of this chart, was the last quarter on this illustration that was completely not impacted by any COVID. And you can see that being compared to the last quarter 2022, where there is still a little bit impact but rather negligible, as I just mentioned to you. However, quite significant, still, impact obviously from the Ukraine situation. Then switching on to Healthcare Services. It had a super strong quarter. Revenue up to EUR 259 million, so 35% revenue growth with organic growth of 19%. So indeed a very significant growth trajectory. I think that is very visible in the bar chart to the right. Full year revenue was equally up strongly at just short of 29% at EUR 917 million, of which organic growth was just short of 16%. And again, it's worthwhile to remind ourselves that when we listed 6 years ago, the entire group was basically EUR 500 million. And Healthcare Services is rapidly approaching twice the size of the entire group at listing.
Here revenue from COVID is gone. As you see, at EUR 200,000. It was EUR 8 million last time around, so it's pretty much behind us in terms of this division. We've been quite active on the acquisition front in Healthcare Services, so EUR 35 million in the quarter and over EUR 100 million for the full year brought in as acquired revenue. And that's particularly then represented, as you know, since before in the fee-for-service segment. So that keeps on growing strongly. It is now up to 55% of revenue in this division and was up 39% for the quarter. Very pleasing is to see the strong trend in our member corporate pay business in Poland, where we brought in -- had another good, strong quarter with 24,000 new members, 177,000 for the full year, really confirming the trend that we have seen for a number of years now, not the least driven by employers, definitely even more recognizing the value of, importance of quality health care in a post-pandemic world. And you see Poland being up now to 64% of the revenue split in this division. And India actually climbing quite quickly up to position #2 in terms of Healthcare Services with 17% of divisional revenue. Looking at profitability in Healthcare Services. So EBITDA for the quarter at EUR 38.2 million. Same margin as last year, 14.8%. And for the full year, EBITDA of EUR 125.9 million or 13.7% margin. When you look at the EBITDAaL profit measure, you will see a big deviation versus prior year, which obviously is a reflection of the fact that we have put on a lot of new facilities, particularly in this division, which we will fill with new customers in the coming periods while we still carry the lease costs in the current period. And obviously, we're carrying, as a point we have made before, quite a bit of higher costs in terms of the early-stage greenfield rollouts. Then shifting to Diagnostic Services, a slightly different picture here with the unwinding of COVID-19 revenue and the impact of Ukraine. So the revenue for the quarter at just short of EUR 144 million, so down 24% since the prior year. And full year revenue down 12.7% at EUR 612 million. And COVID revenue in the quarter, EUR 11.4 million. So it's not completely gone, but you see a 20-odd percent of what it was prior year. And full year, EUR 106 million versus EUR 179 million. So the point we make in the written report, that largely COVID-19 as a pandemic, as a testing -- commercial testing, topic is largely behind us, although obviously the virus will still circulate in society. Revenue from Ukraine, I would argue, was surprisingly strong, EUR 11.6 million. Obviously a big, big, big drop since prior year, but nevertheless EUR 48.4 million for the full year. And I say -- or I have said in every earnings call since February of last year that I think it is incredibly impressive to see how our Ukrainian leadership team is handling a very, very difficult situation. And our business is profitable. And you have more profit details in the full report in terms of Ukraine. In this business, fee for service or direct pay from our private pay customers represents 67%, so a broader base. And as you know, largely everything outside Germany is pretty much full fee for service. We had quite significant reduction in the number of lab tests on the back of COVID unwinding as well as Ukraine. Perhaps the one point to make on the geographic chart, you see actually all geographies are shrinking here, which is COVID unwinding. And of course, particularly stands out here is Ukraine, which is down, I mentioned before, 64%. And as the division is down to 8% of Diagnostic revenue. Not surprisingly, the drop in volume feeds through to lower profitability. So EBITDA was up to EUR 23 million for the quarter, 15.9%; and for the full year, EUR 118.7 million, 19.4% margin. And likewise, the EBITDAaL profit measure has dropped in a similar level. And I don't need to further remind you in terms of the impact that has -- that we have seen during the years. We've continued to invest in BDP openings, not in Ukraine obviously but in the other markets that we're pushing distribution forward.
Then if I quickly also cover 2022, as this is also a [indiscernible] for the full year. So I think I'm very proud, pleased and happy to say that we've delivered on the 3-year financial targets. So we concluded the second period of 3 years since we listed. And the first 3 period -- the first 3 years, we also exceeded our targets, and we're pleased that we could do that as well this time around equally. And what I think is important to point out when you -- as you know, our revenue target in -- the public financial target is about organic revenue growth. And when you look at the numbers, we've actually put on over the 3-year period here now an organic annual revenue additional EUR 428 million, which is basically 85% of the entire company that we listed soon to be 6 years ago. So I think that's a number which should sink in. I think it's a very strong outcome in terms of how we're able in the environment we have and have had over the past couple of years to see that organic revenue generation. And that is despite all of these factors that we have talked about extensively. Now over the 3-year period, we delivered adjusted EBITDA quite a bit above the target. And if you look at single handedly, 2022, we came in at the bottom end of the range at 15.5%, which, again, I consider very strong, consider the environment we've been operating in, in 2022. I mentioned under Healthcare Services already the strong member intake over the years, so 177,000 members for the new year. And the big theme throughout the year has been our very, very high pace of investment. In fact, as a company, as a group, we've never invested money at the pace we've done over the past couple of years. And if you look at 2022 alone, we put EUR 370 million at work. And that splits some EUR 140 million in organic and EUR 229 million in acquisition investments. Joe will -- talk about that before.
I think one KPI, one proxy, which I think gives you a flavor of what's going on here quite nicely, is to look at the amount of medical delivery space we have that, I think, is the best proxy we can get for sort of future revenue growth. And over 2022, we have added more than 200,000 square meters of medical delivery space. That's a 34% growth on the opening balance. So it's sort of sometimes perhaps a little bit hard to fathom that, but it's -- we spent 27 years developing a medical infrastructure network over a number of countries. And in this year alone, we have expanded that medical footprint some 34%, which obviously will drive growth for many years to come as we fill that with private pay customers going forward. If we look at the full year revenue, just above EUR 1.5 billion, so 9% up for the year, organic growth of 1.9%. And that you see with basically EUR 120 million -- EUR 130-odd million of COVID revenue disappearing. So we've been able to fill up a little bit more, in fact, the revenue that disappeared from reduced COVID services. So I think a very strong achievement. You see a 4-year compounding revenue graph to the right, so 22.5%. That's obviously total growth, so adding up organic growth and acquisition growth over that period. And you will see a picture very similar to what I have described on both divisions below on the full year level. So last picture on '22. So earnings-wise, so EBITDA of EUR 217 million for the year, 14.4% margin. And then as already mentioned, the adjusted EBITDA margin just at the bottom end of our target range at 15.5%. Operating profit, EUR 55.5 million, 3.7%. And earnings per share at EUR 0.08 per share. And again, you will by now be very aware of the various factors that have impacted trading. And the Board is also recommending a dividend the same as last year of EUR 0.12 per share. And I think with that, I hand over to Joe to give a little bit more financial details in the financial review.
Thank you, Fredrik. So in terms of our interest costs, we've expanded. So as you'd expect, our lease liabilities have increased, and therefore the cost of that has increased as well. So we have about EUR 6.1 million charged in terms of lease liability interest; 4.3 million of, you can call it, sort of real interest costs, and that includes discounting and obviously what we pay for our external debt. So total just over EUR 10 million. If you look at that in terms of what sort of rates that implies, then in terms of the lease liabilities, that implies a rate of about 5.8%. Obviously, we've expanded our footprint quite significantly, as Fredrik referred to, a range of different markets but particularly also then in India as well. And that has a higher implied interest rate. And interest rates in general are higher, as you know.
Our gross debt has increased to EUR 515 million from EUR 418 million. So not so significantly is the amount of money we've deployed as we raised a lot of the debt back in 2021. Obviously, we're paying for that fully now. So that's the 3.3% effective interest rate all in for that gross debt level. Maturity is really good. So we've got an average maturity of about 4.7 years on our external debt, and we're in a strong position also with undrawn facilities. We've got about 260 million undrawn credit facilities at the moment. If you look at our indebtedness level, that is up now. So if you look at our loans payable net of our cash and short-term investments, we're at EUR 466 million, up very heavily from EUR 143 million at the end of last year as we've deployed and utilized the debt that we raised and that we had sitting on the -- the money we had sitting on the balance sheet. So in terms of our ratio indebtedness, that's up. So as reported, that's 3.2x. It's lower in terms of our covenant basis with our finance partners, with our banks. And investors on a covenant basis is about 2.85. We've got quite a large variance this year-end because that's adjusted for M&A full LTM looking backward view. And as we've done quite a lot of M&A during the year, then that adjustment factor is bigger.
If we look at our working capital, it's pretty benign. So our net operating cash flow after working capital, EUR 41 million for the Q4, and full year EUR 170 million. So stock has been one of the drivers in managing that. In the Q4, we're pretty flat on receivables days over the last few quarters, so nothing particularly unusual there. Our effective tax rate is up. So we're looking at about 29.3% for the full year. Last time around last year, it was 25.8%. As you'd expect, with the level and pace of investments that we have been doing and the rollout in greenfield and brownfield sites, the drag that, that causes in terms of the results doesn't get reflected in the deferred tax fully. And so the rate has moved up. We expect that to come down, but it probably will be at a higher level in 2023. A look at then in terms of some of the balance sheet measures. Our lease liabilities have increased as we've increased that footprint. So from EUR 345 million to EUR 424 million. So we've got acquisitions in there and new leases, indexation. The indexation has not been a significant part. It's been in that EUR 82.5 million. It's been more about new leases that we put on place and extensions of existing ones. So it's not such a significant part, indexation. I'm sure we will get more as we go through in 2023. But if I look, for instance, in the Indian portfolio, a lot of that, the indexation, is already hard baked into the leases. It's not actually based on an index. It's sort of planned increases over time, so you don't see that coming through fully in the lease liabilities as you might expect. Equity. We've gone from EUR 517 million at the beginning of the year to EUR 474 million. The obvious things, you will see in there, but we have also then bought out some minorities that have impacted that. And we have also then the obligations to noncontrolling interests. That's gone up, particularly on the back of the value of the Indian business in terms of the valuation models going up as well. So that then pushes up the amount that we reflect for a future potential buyout of the Indian minority. Capital investment and deployment, very strong, EUR 40.8 million. And for the quarter, EUR 141 million for the full year, very much more heavily weighted to the growth investments than we have in prior years, hospitals, dental clinics. We've effectively launched new facilities, whether brownfield or new sites. We've effectively launched 136 new locations in -- so not looking at acquisitions, just looking at new greenfield sites. So we're looking about 136 over the 12-month period. So in total, if you look at that, it is a substantial amount of money. It's just short of EUR 230 million that we've invested in -- cash flow-wise in inorganic and EUR 141 million in organic investments. So we've been pretty busy. You see on the table on the right here, at the bottom, we've got about EUR 282 million of enterprise value for the acquisitions that we've done this year and EUR 59 million just in the fourth quarter. So we've got those 2 dental clinics that we announced in Germany. So we went into a new market in dental, plus we've got another one in Poland that we acquired in the fourth quarter. And then we've got a few gyms that we acquired also in Poland -- a couple of gym chains in Poland in Q4 as well, building out our gym network for the wellness and sports fitness area of the Polish business. If we look then in terms of a summary, looking back at where we are in terms of our overall targets we set back in February 2020. We've effectively carried on our previous guidance of 9% to 12% for organic growth. We had -- as the base year for that, we had EUR 844 million. We've now come in, as you see, of just over EUR 1.5 billion in terms of revenues. And if I knock off the first 24 months for acquisitions that we've done in that period and also acquisitions that we did in 2019 but the full year impact, then that would come down to EUR 1.39 billion in terms of revenues. And that compounds out as a 14.6% organic compound annual growth rate. That's euro numbers. We haven't adjusted for FX constant currency. If I looked on that on a constant currency basis, it's a little bit difficult with the acquisitions. But if we do it in as fair way as possible, we would be looking at about probably another 2.8% on top of that in terms of compounding rates, so -- and as you see, when we report every year, we have a higher organic constant currency basis when we report in terms of growth. So pretty strong and growth, well above our targets. And sort of the pace that we've invested in terms of our organic capital deployment, it's really what we've been trying and aiming to do, is to be a consistent and very strong, high growth. Profit-wise, we had a target we set back in February '20 of 15.5% to 16.5% adjusted EBITDA margin. We had, in 2019, EUR 125 million adjusted EBITDA and a 14.8% margin. And now we come out at EUR 234 million, 15.5%. And that is a compound annual growth rate of 23.3%. And if I go back to the prior 3-year one, we're not far different from that. We have a very similar compound annual growth rate. Capital structure. We had 2.8x in terms of our leverage metrics. We now come out at 3.2x. But obviously, between 2.8x and 3.2x, there's been a lot of change. So we've been -- we went up to 2.8x, then we came down, and now we're back up again. So I'm very happy that we've been able to use the balance sheet in our inorganic investment and actually use that strength and money that we had on the balance sheet to boost our growth. And back to you, Fredrik.
Sure. Thank you, Joe. And we will finish today with commenting on the new financial targets that we released last evening, after the close of the exchange. And we're very pleased with these new financial targets that I think signal a strong confidence in our ability to keep up the organic growth rate. In fact, after 6 years as a listed company then and 3x the size when we listed, we're actually increasing percentage-wise the organic growth ambition. And we also do it slightly different this time around to state this as a absolute number in both revenue and adjusted EBITDA as a number that we will exceed. So we say, in terms of 2025, from a base of EUR 1.510 billion, we will exceed EUR 2.2 billion of organic revenue and we will exceed EUR 350 million of adjusted EBITDA for 2025. We also say that we will, in addition, complement that with inorganic activity, but we point out that, that will be weighted towards the second half of that 3-year period, as we have signaled that. In terms of 2023, we will normalize our investment activity and focus on execution on the first agenda that we have had behind us.
We maintain the balance sheet and dividend policy targets with leverage up to 3.5x, which we can exceed for shorter periods of time, but that's the same guidance. And then 50% payout ratio of net profit. So I think that's a strong outlook, strong targets. To put it in some perspective, I made the point earlier in this call that we have put on the -- over the last 3 years, I think, an impressive EUR 428 million of organic annual revenue growth. You do your math quickly, and you see -- as a minimum, we say we will put on EUR 690 million of organic revenue growth over the coming 3 years, which is then some 60% higher than the prior 3-year period, which clearly we're comfortable with because of the underlying strong demand as well as the very strong investment agenda that we have had behind us and now we are executing on. And in addition, Joe made the point when he talked to the balance sheet. Now when we deliver on these targets over the period and looking at the sort of leverage levels we can take it up to, when we start again with more inorganic activity over the period, we can deploy, should the opportunities arise, some to -- up towards EUR 300 million of inorganic activity as well during the period.
And that's the end of the presentation, so we are happy to take any questions that you may have.
[Operator Instructions] Now we're going to take our first question, and the question comes from the line of Kristofer Liljeberg from Carnegie.
Yes. Can you hear me?
Yes.
I have 3 questions. First, on depreciation that has come up naturally here, of course. From 4% a few years, now it's about 5% with all investments you have done. Is it possible to maybe give some color what that level should be in 2025 if you're reaching your target? And also to reach that target, what type of organic CapEx is needed? And my final question relates to the new medical delivery space that you have talked about. How much of the new space has been filled during the year? And what could you say about the timing for rest of it?
If you do...
Yes, sure. So depreciation, yes, that's up, which I think is a reflection of the pace of the expansion that we've done. So we've got 2 years of quite heavy expansion. So if you look back to over the last 24 months, we've put on 91% from the beginning of '21 in terms of medical space. So that rollout, we've done at a slower pace historically because we haven't had so much capital to be able to deploy. And also, as we've grown the business, we've grown the ability to the sort of like the employee base and the capabilities in terms of rolling that out as well. So we expanded our footprint. Historically, we've also then been able to grow and deploy more space. That space, as you see in terms of the margins and if you look also at the return on invested capital, those -- that space is not full. So we've done the investment. We've got the space, and we're depreciating the asset base. So we've got a higher depreciation level. And as we move those -- that space is being filled, that depreciation level will come down to levels that you've seen historically. We've not changed dramatically in terms of how we deploy capital, so we use operating leases for the real estate. So we're investing in the fit-out, in the machinery, in the equipment, et cetera, which is on our balance sheet, so that's what's getting depreciated. So I'm talking here excluding right-of-use lease depreciation, so real depreciation, if you like. So that will come down as the margin, and that goes up.
You asked then about organic CapEx. What's the sort of level? Well, we're going to come down to a more normalized level of organic capital deployment. So if you look back historically, that's been up around about sort of 4% of revenues. So that's the sort of level to -- that we expect that we're going to be running at in the next couple of years and still achieve that EUR 2.2 billion organic target. How long does it take us to fill that sort of space up? Sort of like a reasonable sort of like -- a reasonable sort of historical level in terms of where we start to get to pretty reasonable -- pretty okay levels of occupancy is sort of 18 months. Sometimes we've done that quicker. Sometimes it's been longer, depending on the particular one itself. And as we've increased scale, it's gotten a little bit easier in some of the business units as well. So if I look at the Polish employer paid one, then we're probably -- we start to get to good utilization levels well before 18 months. In some of the new hospital stand-alone sites, it can be a longer period. So I hope that gives you some sort of flavor.
And the next question comes from the line of Klas...
It is Klas Palin, Erik Penser Bank. Can you hear me?
Yes, we hear you, Klas.
Yes, great. I have a couple, if I may. And my first question would be, when it comes to India, you reported a nice growth year-over-year but a little bit of a slowdown compared to the third quarter. Is this just due to seasonality or any other things?
Yes, it is. So there's definitely not a slowdown, but you do have seasonality and depending on how festivals and holidays fall, et cetera. So there is definitely not slowdown in the India rollout.
Yes. With all honesty, we see hospital occupancy go up in the winter. In India, it's the sort of reverse that people don't go to the hospitals so much when it's the winter -- when they have their winter. It's just a different dynamic. And then you have a whole ton of festivals in the fourth quarter. Maybe you've heard of Diwali. That's a big festival and a whole lot of other ones as well.
Okay. Perfect. Great. And also if you just could repeat what you told about the tax rate going forward, yes, and if you expect this to come down somewhat in the near term.
Yes. So we were -- last year around, we were just above 25%, so I expect to see it coming down, but it's going to be linked into getting the occupancy levels and getting the facilities that we've expanded on producing because we've got a number of different units where the new facilities sit within separate legal entities. And so we're not getting the tax offset for the operating deficits we generate on those new units, but those will come in to turn to being profitable contributing. And we'll get then the recognition in deferred tax, and that will come down. So our cash tax is not that significantly changed, but our recorded tax level will come down. If you look at what we do in terms of our return on invested capital calculations, when we're looking at that, we use a normalized tax rate of around 25%. So that's where I expect to trend back to. Whether it will be -- I don't expect it will be next year, but certainly in the next year or afterwards, I would expect to be trending down to that sort of tax rate.
Okay. Great. Perfect. And then my last question is about your German dental business, and if the integration has progressed well and if -- how much revenue contribution it gave in Q4, if it's possible to split out.
Yes, we do. It's in the disclosure, on the -- back on the -- sorry. No, it's not in the disclosure there in terms of the back. But if you look at for Q4, which would be probably the best guide for you, we did both acquisitions in the -- from the beginning of Q4. So just to give you an idea of the sort of size of scale, our Q4 revenue was just short of EUR 11 million for Q4. So annualize that EUR 44 million, this still gives you an idea of the scale.
And the next question comes from the line of Mattias Vadsten from SEB.
I have 3 questions today to start with, then we have more on the CMD. But on the revenue target, is the difference versus the prior target of 9% to 12% organic mainly the elevated price increases expected through 2025 versus the level that you had in the past in terms of price increases? Of course, you added a lot of capacity lately, like 2021, '22, that you fill up going forward, but it sounds like sort of the future organic CapEx should be fairly the same as you've had in the past. So just some thoughts from you on this topic would be helpful.
Just so I get it, you're asking basically if the difference in the revenue growth target is sort of price-driven or if there's a volume difference as well. Is that your question?
Exactly, the 13.5% per year versus the 9% to 12% historically -- or in terms of your target. So if that's incremental more bullish on volumes or if it's higher price increases.
Well, I think, Mattias, you should interpret that, that we're sort of more bullish on growth than what we have been, and we have not been unbullish historically. And right now we're in a higher inflation environment. Now that's going to drop. But when it drops, who knows? So you will have more volume growth than what we have seen historically. And there will be some, obviously, price growth, as you see in this report, much higher than what we have seen historically. Now that will add up to a higher growth, and that's why we're basically putting up a higher absolute number as a number we intend to exceed. So there is a growth in volume element in there and there is an unspecified price component in there.
I just wanted to make that clear.
Yes. Then you asked, Mattias, about CapEx. I think I answered that with Kristofer's question. So we'll bring that down to a level, which is more in line with what we've done historically. So around about towards 4% of revenues, that sort of level for our reinvestment in growth. For our maintenance levels, that will come -- that was -- which is this year and will be in line with previous years. So around about -- sort of somewhere around about the sort of 2.5% to 3% level but not more than 3%.
Good. And do you expect this -- you're talking about 4% until 2025, but lower in 2023...
Mattias, whenever we invest for growth. We're not investing for this year's growth. So we're -- actually, we're investing for the next year and the year afterwards and the year afterwards. So that sort of growth is just to keep -- keeps the engine going. And we've -- just by growing the business to EUR 2.2 billion, multiply that out by 4%, you're on to effectively what we've invested total this year, EUR 140 million, just on the growth side. So it gives you an idea of sort of like that we not only increase our cash generation to fund our growth, but we also increased our ability to grow as well because the markets we're in have got such a fundamental demand and fundamental need for the infrastructure that we're putting in place and then servicing the clients through.
Agreed. Good. My next one, I know I've been asking like 3 quarters in a row now about Diagnostic Services. I will try to frame it a little bit differently. I mean, if we look on the lab test growth in 2021 over 2020, excluding the COVID testing, it was up like splendid 24% or something; up 2.3% this year, excluding COVID and Ukraine. So if you look over a 3-year period, it still looks quite good, but is there a difficulty to exactly know the moving parts that make the difference in 2022 versus what you achieved in 2021? And what do you expect going into 2023 and beyond in terms of diagnostic tests?
Yes. The -- I know you've asked that question 2, 3 quarters in a row. And it's sort of difficult to put a finger exactly on it because you have quite a few moving parts, as you put it. And you have an element of -- I think the main thing I have answered in the last couple of quarters on this question, Mattias, is that there is an element of this sort of transition from sort of COVID prescription into normal prescription of tests, which is delayed, for the lack of a better word, somehow. In a completely different part of our business, we have talked before about when we transitioned in the Indian hospital network from only serving COVID in the hospital. And then it took 2, 3 months coming back to normal treatments in the hospital. It's something like that but not identical. But somehow, as COVID revenues unwind, in some places, we see it takes a bit longer to build back, if I call it, the normal testing volume. So the observation is correct. If you exclude, you neutralize Ukraine and COVID, you have a benign underlying test growth. And we expect that to improve, no doubt, but we can't be sort of scientific with you about what is actually driving that at this very moment in time.
Good. And last question, if I may. Recently, you have invested quite forward learning in healthy services. And we know, of course, going forward, that India will grow quite sharply. If we look to your budget and your organic investments in the next 3 to 5 years, let's say, will you be more forward learning on healthy services over diagnostic services? Or how should we interpret this? I assume you will talk about it on the CMD, but anyway...
Yes. I mean I think you will hear quite a bit about that in a couple of hours. And I mean I think one question -- no, sorry, sorry. One way we have answered this question historically is to say, well, we will invest our capital pretty much in relationships to where we have our business and assets today. And whether that is geography, historically Poland, Germany being the largest and Romania runner up, that is largely still true with -- and I said there's one exception to that rule, which we have articulated as India over the past couple of years because it came from a very low base. So proportionally, it has received much more growth capital than what its -- call it, its geographical base in our revenue warranted, and now it's up to 11-odd percent. But I think, if you look at the going forward, I think India as a geography would probably still receive slightly more than its sort of geographic revenue share. Otherwise, I think that rule still applies. And the fact that we have seen less capital deployed in diagnostics is not because we haven't wanted to, if I put it that way, with what has happened in -- well, Ukraine speaks for itself and -- but also not to be forgotten is that we say COVID may be just behind us. But over the 3 years that we have lived with COVID very intensively, a large part of the, call it, development agenda and everything beyond actually just running the daily business in diagnostic service has been about servicing a COVID agenda. So that's also part of, if you wish, putting COVID behind us and moving into a regular development phase.
And the next question comes from the line of Grace Lee from Jefferies.
Could I ask 3 questions, please? First, on India, could you just comment on profitability performance in Q4 that you achieved so that we get the idea of sort of exit rate on this?
Why don't you just give us all your questions there, Lee -- Grace? And we'll come back to you.
Yes. And then second question is about expansion KPIs that you mentioned earlier. You mentioned about medical delivery space, but also there is, I think, disclosure around EBITDA after lease. Can you remind us how much of your facilities -- hospital expansions, particularly India, they are sort of leasing versus ownership so that we can think about squaring that to what that means to EBITDA in terms of lease cost aspect of things? That's my second question.
And third question, quickly on sort of net interest expectation for '23 and leverage impact.
Sorry, didn't catch that last one, Grace.
And your expectation for net interest for '23 and room for your leverage given it's quite high at 3.2x. And also, can you remind us covenant as well, please?
Yes, sure. Okay. India profitability growth. So for full year, we run around about 14.6% EBITDA margin for India. And if we look at just the quarter, we were running around about 17%, so -- but that's an EBITDA margin. So obviously then EBITDA is lower than that. So our EBITDAaL margin for Q4 was around about 7%, just above 7%. So -- and that's with that heavy expansion coming through and reopening costs and everything else. And we've still got our expansion agenda for 2023 for India as well, which we're working on within that. So plenty of room for that to move up is, I think, what you need to think about. Then the question was on leasing versus ownership, yes, specific to India.
Yes, yes, please.
So we only own one facility in India. So all of the other facilities that we operate and all the stuff that we're doing expansion-wise now is where we're leasing with the real estate. The leases are long leases. So we're looking at normally sort of 20 to 25 years in terms of the leasing. And as I mentioned earlier on, the indexation is actually hard baked into those leases. So that's actually reflected upfront in the leases. We've got quite a large divergence between IAS 17, so the old EBITDA and EBITDA of this year, which we haven't had previously, about 9.2 million, if I think remember off the top of my head where the IAS 17 EBITDA would be 9.2 million. And that's the front loading of the lease charges that you get through IFRS 16. So on a cash flow basis, we're in a strong position than we would be just on the sort of EBITDA number.
Then you talked -- asked, I think, a question -- and that's our strategy going forward, Grace. We often have a right to buy out the leases from the landlord if they want to sell it or in some other areas, so we can -- we have to find -- we get to spare capital lying around, which I don't think we will, but then we can always buy out the real estate if that's sort of what we thought was a good idea, but we don't think that's a good idea at the moment. We'd much rather use our sketch capital to be able to leverage up with having other people financing the real estate. On 2023, in terms of net interest and room for organic, I'll talk more about that at the Capital Markets Day, but basically, as our COVID comps will now drop out in Q1, so the really nice COVID numbers that we had back in Q1 2022, that will drop out in Q1 now this year. So expect our leverage to go up in terms of the reported number in Q1 and probably also then maybe a small increase or staying stable in Q2. And then we would expect it to start coming down as we slow our inorganic and growth CapEx deployment in the second half of the year. And we'll get better contribution coming through from our early-stage investments.
Great. Could I just squeeze in one question about that leasing-ownership side of things? Because obviously this has impact in terms of cost construction. And you mentioned, indexation not so much, but there is upfront cost to it. Does that impact how you think about the pace of expansion or speed sort of -- or is there other consideration that impacts? If you can just highlight a few.
I think we're going to run out of time here, Grace, but do feel free to ask the question at the Capital Markets Day.
Yes. That's true.
And the last question comes from the line of Dani Saurymper from Pacific Asset Management.
Just a couple of questions, if I may. On India, how many beds did you have in operation at the end of the year? And what is the expected number of new bed openings either in 2023 or over the next couple of years, if you're able to comment on that? And then secondly, as it relates to your organic growth target to achieve EUR 2.2 billion, is there a cadence there that we should think about in the context of you talked about capital deployment being more levered towards the end of the period? Should we expect an acceleration in organic growth towards the end of the period as well? Or is it fairly evenly balanced? And I guess the ultimate question here is, when you think about M&A and capital deployment, you've been -- historically been able to acquire hospital operations in India, particularly low multiples versus if you look at what multiples of the publicly traded Indian hospital operators are. I'm just curious how you're thinking about the market environment to add additional assets through M&A rather than through greenfield or organic investments.
Thanks, Dani. So we've got operational beds, and this is not after capacity because we've got actually -- in the facilities, we've invested and we've got capacity to add more beds as we get occupancy going up. But we've got 4,300 operational beds now at the end of the year, and that will increase as we launch more hospitals over 2023, '24, '25. So we have a clear ambition to increase our hospital -- number of hospitals and operating beds, so we will see strong growth over this 3-year period and over the next 5 years and probably over the next decade in India. In terms of M&A deployment and will that mean that we see sort of an acceleration at the end of the period, no. The targets that we've given is 2.2 billion -- or at least EUR 2.2 billion, so in excess of EUR 2.2 billion in terms of revenues from organic for 2025. And because, as I mentioned, when we do the investment for growth, our organic investment, it's not for this year's growth. It's for next year's growth and for the year subsequently and the year after that. So we've done quite a bit of the deployment that we need to in terms of capital and facilities to actually achieve that EUR 2.2 billion target, not all of it, but a long way there. So we will do that with reducing our rate of organic investment from the highs that we've had this year. So we'll bring that down in terms of percentage of revenues. But as I mentioned, whenever we're doing organic investment, it's not for this year's growth. It's for next year and the year afterwards and the year afterwards. So you really need to sort of look backwards to the investment we did historically to compare to the growth we're getting in the current year.
So M&A work on -- will be incremental and above the EUR 2.2 billion target, so that M&A work will be towards the end of the 3-year period. So we will be doing a lot less inorganic this coming year, 2023, and we'd probably expect that it will be the second half of the period before we accelerate. So I think that's pretty much all the time we've got for it, Dani. So if you have any -- if we haven't answered that adequately, please ask again at the capital event later on today.
Thank you. There are no further questions at this time. And I would like now to hand the conference over to our speaker, Fredrik Rågmark, for closing remarks.
So thank you, everyone, for attending. And I hope as many as possible of you will have a chance to join us for our inaugural Capital Markets Day just starting in an hour. So thank you and goodbye.
That does conclude our conference for today. Thank you for participating. You may now all disconnect.