Aevis Victoria SA (AEVS) Earnings Call Transcript & Summary

Dear, ladies and gentlemen, welcome to the conference call of Avis Victoria SA. At our customers' request, this conference will be recorded. [Operator Instructions] I now hand you over to Antoine Hubert, who will lead you for this conference. Please go ahead.

Hello, everybody, and welcome to our analyst and press conference regarding half year result presentation of Aevis Victoria. We'll start with some financial highlights. So total revenue for the first half year was CHF 346.6 million. This is a decrease of 1.5% compared to last year operational revenue. In the first half, last year, the sale of our Infracore stake had revenue also. So we have to carve it out to compare. EBITDAR for the first half year is CHF 38.3 million, which is 12.7% margin, and we end up semester with 31.2% equity ratio and 49.4% leverage ratio. So it's a total equity of CHF 411 million, and net debt of CHF 600 million. The operating results remained solid despite the crises. Operating margin and profit and cash generation was very good. And the hotel business was quite satisfying, considering that we had zero MICE activity and very low tourist activity from abroad. The profit and loss key figures. So as I say, total revenue decreased from CHF 351 million to CHF 346 million. We were able to limit the decrease because of, of course, also acquisition on the hotel side. The EBITDAR decreased from 15.6% to 12.7%. So CHF 38 million instead of CHF 47.8 million. The published half year result in 2019 included sale of Infracore that's why the published turnover was CHF 545 million, but that did include CHF 119 million of the sale of Infracore, same for [ a metric even in ] the EBITDAR. If we go to take a look to a segment breakdown. We see that the hospital has achieved CHF 250 million revenue in the first half year compared to CHF 268 million last year. This is CHF 18 million decrease which directly due to interruption of activity. The EBITDAR level decreased from 19% to 15.7% from CHF 51 million to CHF 39 million, and EBITDA level decreased from CHF 23 million to -- from 8.9% to 7.3%, so from CHF 23.8 million to CHF 18.2 million, so we've lost quite CHF 5.5 million EBITDA. The hospitality. Hospitality, we have an increase of revenue that's based on the acquisition, acquisition of Hotel InterContinental in Davos and the Seiler Hotel in Zermatt basically, also due to the reopening of the Eden au Lac in Zurich. EBITDAR was CHF 5.5 million, so 12.6%. Last year, it was CHF 4 million, 13.7%. And the EBITDA is 1.5%. And last year, it was negative 1.3% (sic) [ 4.8 ]. That's basically due to the change of mix. We have now more mountain hotels with the increasing of Davos and Zermatt. And the -- of course, the 2 first months of the year, January and February are very strong in the mountain hotel. The real estate segment is difficult to compare because of the sale of Infracore. So last year, Infracore was consolidated until end of May. So that was 5 months of consolidation for the real estate. So the net revenue were CHF 26 million, decreased to CHF 3.6 million, which is now basically the hotel real estate revenue. EBITDAR CHF 2.5 million compared to CHF 23.6 million, but that's, of course, due to the deconsolidation of the Infracore part. The segment other, which includes the ambulance, Clinique de Valere and Générale and several other start-ups projects, which we've been able to reduce the loss of this segment. The corporate segment, we also reduced the cost at corporate level. And as mentioned, of course, we don't have Infracore any more consolidated. So there is only this CHF 3.8 million of Infracore, as mentioned. The balance sheet the figure for Aevis. So we see that we have a total cash available at the end of the semester of CHF 65.5 million compared to CHF 170 million last year, which was a decrease due to the sale of Infracore. Short-term financial liability and long-term financial liability has increased. That's because of acquisition of the Davos, InterContinental and the participation in the Hôpital du Jura bernois. Then the shareholder equity is CHF 400 million and total assets CHF 1.3 billion. We have worked and had a strong focus on safeguarding liquidity during the crisis. So we've been working on the operating cash flow level, also the working capital and we have been able to increase the cash flow from operating activities. We have implemented various operational optimization and cost-cutting measures at all levels. We have been negotiating also rent reductions for this COVID, which were basically solidarity rent reduction because there was no obligation of the landlord to reduce these rent. So with CHF 13.5 million rent reduction, roughly CHF 9 million comes from Infracore. Infracore made a reduction -- 2 months of rent holiday for the hospitals and other rent reduction came on the hospitality network. We have, of course, reduced some financing cost on the first half year because of the sale of Infracore and reduction of the overall debt. So we have been able to reduce the financial expenses from CHF 12.3 million to CHF 7.9 million. AEVIS VICTORIA, of course, our long-term vision is still the same. We want to invest for better life. We invest in service to people. We want to create value, grow and manage company for long-term value and we'd like to make partnerships with other investors. So our focus sector now are always health care with Swiss Medical Network, Medgate, Nescens, Swiss Ambulance Rescue; Hospitality & Lifestyle with Victoria-Jungfrau, Seiler Hotel and Weriwald. So these are 3 companies and the infrastructure with 30% stake in Infracore and 100% stake in Swiss Hotel Properties, which is growing also on the -- in the second half year with some acquisition appearing in July. Basically, the impact of COVID-19 on our group, we were quite well prepared because we choose to grow in the cloud and to digitalize all of administration 4 years ago already. So we were quite ready for home office and we had all the documents already digitalized. We have also a high level of decentralization. So all our manager has been able to handle discussion with the cantons and the local authorities very safely. And of course, we have a good capital base and sufficient liquidity reserves. So we don't have a short-term concern on the group neither a medium-term concern. Nevertheless, certain measures have been implemented. So we have reduced or stopped CapEx program. Of course, we cannot stop an ongoing building or transformation. So we have been able to reduce the CapEx, but not completely avoid them. We use all available tools, so short-time work etc., state-backed financing to support our operations. There has not been any dividend paid to the shareholder to focus on liquidity, of course and we had these rent holidays. And also, we have optimized cash cycle with faster invoicing and also faster collection. Overall, we had a very good resilience during COVID-19 crisis. Of course, thanks to the hard work of all employees, partners and doctors. And given the circumstances, we must say that we are pretty happy with the result. Swiss Medical Network. So it's still 100% participation of AEVIS. We also say that we were open for new shareholder for this company, Swiss Medical Network, in order to achieve our goal to transform it into an integrated care operation. Of course, AEVIS is ready to deal with some other strategic investor in Swiss Medical Network to achieve it. We have also nonconsolidated entities part of the Swiss Medical Network, will be consolidated within the 2, 3 next year. So that's Hôpital du Jura bernois and Rosenklinik AG in [indiscernible] deal. And Hôpital du Jura bernois, I think the closest operation from an integrated care. So just to show you the physician, we have 2,346 physicians in Swiss Medical Network. If you add those from Hôpital du Jura bernois and Rosenklinik, you end up with 2,467. Intervention for the half year. So inpatient intervention would be 26.9 -- 26,900, and the number of bed is 1,193. As you know, the number of bed is not really an interesting key number now because overall, beds are reducing with the increasing part of outpatient activities within the health care sector. So solid growth outside the period of forced slowdown. So the Swiss Medical Network at the January and February months above last year. So with a 3% increase in activity -- both activity and turnover. And then we had, unfortunately this lockdown from the 16th of March through the 27th of April, where the capacity was only utilized to 35%. Then reopening, we were really quick in reopening the operation. So we had 90% capacity optimization in May and June. And June was really a very busy month with 120% compared to budget. That was basically due to the backlogs of the -- all the interrupted surgery that was already planned before COVID. So that's why we were able to achieve this. And from July, we have now normalization of the situation. We are on budget, and we are still able, in less than 48 hours, to make resources available for COVID, if another interruption would be necessary. But we think that now the COVID problem is more managed on a local level. We see that the hospitalization rate is very low. There is an average of 50 people in hospital for all Switzerland. And there is around 30 people in average in Intensive Care in all Switzerland for COVID. So it's less 3% than the total ICU capabilities in Switzerland. So there is no concern. And we don't think that new shutdown will occur. So highlights regarding COVID in the first half year. So keyword was adaptation and collaboration and reactivity. We, of course, have implemented comprehensive hygiene and protection measure. We had a very low rate of infection within our employees. We have had flexible cooperation, various hospitals were part of the cantonal pandemic plan, each cantons were different. Cost savings, we have introduced short-time work, reducing overtime, simplifying the gastronomic hotel service within the hospital. And we did renegotiate the rent contracts. So we have pushed back our 5-year investment plan. So we made CapEx stop until 2021. So that means that the whole business plan is pushed back from 1 year, but is still on track. EBITDAR still 15.7%, which is quite good regarding the circumstance. Of course, the telemedicine was very important during the COVID crisis, and our subsidiary, Medgate, was the most important partner for the Federal Office of Public Health, was also part of various task force. They set up a very high-performing hotline for patients and health care professionals. They had to increase the capacity, more staff, more IT. And -- we see that the trend for telemedicine is still there. We will work together with Medgate to integrate more telemedicine in the whole operation of Swiss Medical Network. We see also that this COVID crisis could maybe support a new wave of consolidation within health care. Of course, there is some small player, which have additional problems due to this COVID. So we think that it will be a catalyst for the consolidation. You see that it's very important to be part of a well-organized care network. And we are sure that Swiss Medical Network will profit from all those opportunities in the future. Our vision for Swiss Medical Network is the creation of an integrated care platform for Switzerland. So the model is UPMC. So University of Pennsylvania Medical Center or Kaiser Permanente or even SwitzerHealth. So the idea is to have some partner jumping in to have an integrated care organization focusing on maintaining the people healthy instead of treating them. So that's a complete paradigm shift. Developing accompanying measures; prevention, proactivity; aligning incentives and interest to avoid this all unnecessary treatment and also promote digitalization through the system to improve the efficiency of treatment. So to be functional, we believe that this organization should comprise hospital, of course, medical center, clinics, general practitioner groups. So the GP becomes the care manager for the citizen and also health plan infrastructure so to be able to have our own health plan system and to have the member payment as a top line instead of having a fee-for-service structure. Of course, the system will be hybrid. So that means that we will still work with the traditional payer system, but we will also have our own insurance organization. Maybe -- and in our regions, we have 7 regions in Switzerland. One of this region is maybe the closest example of the integrated care, and that's the Arc Jurassien with the Hôpital du Jura bernois, but also with our Clinique Montbrillant, Hôpital de la Providence, in Neuchatel. With the Hôpital du Jura bernois, we have the full spectrum. We have medical center. We have psychiatric medicine, mental health, so we could, in Arc Jurassien, make very quickly an offer of integrated care. The unleasing component is now the interest. Medgate has now 600 employees, of which 150 physicians. We did, in '19, 1 million teleconsultation. And almost the same number during the first half year. Since 2000, we have now more than -- at the end of '19, we had more than 9 million of teleconsultation. Of course, the availability is always 24/7, and we have more than 2,400 partner in the referring network. And Medgate was the partner of the Bundesamtes für Gesundheit during the corona and is still the partner. On the hospitality side, so the Victoria-Jungfrau is the hospitality holding with now the Victoria-Jungfrau hotel, Bellevue Palace, Eden Au Lac, Crans Ambassador, the Mont Cervin, the Petit Cervin, Monte Rosa and the InterContinental in Davos, total of 847 rooms in operation. Average room rate was CHF 384. 827 employees and more than 2,500 F&B seats. We are strongly focusing on F&B in our hotel with several very successful restaurants. You can see the current hotel portfolio with this fully owned hotels and also the 2 affiliated hotel lines of Geneva and Schweizerhof in Zermatt, which not part of AEVIS, but they are managed under the same roof, under the additional hotel of hospitality band. Highlights for the first year -- half year 2020 in the hospitality. So we had an excellent winter season. So plus -- almost 16% until end of February. So the shutdown did not affect our winter season. We have -- the revenue are up 49.8% because of these acquisitions: Mont Cervin Palace, Monte Rosa and InterContinental. If we look in organic terms on the perimeter of the Victoria-Jungfrau Collection, of course, we are down by 51.5% because, of course, the Bellevue Palace and the Victoria-Jungfrau had no MICE business since the March 16. And those 2 hotels, of course, rely on the MICE business with [indiscernible] Interlaken and all the political meeting happening in the Bellevue Palace. We -- the summer season was challenging. Of course, we decided not to open all the hotels, especially in Zermatt. We had all bookings opened, but then we upgrade the people to be able to at the Mont Cervin full. So only the Mont Cervin was opened and was pretty full. In Interlaken, of course, Victoria-Jungfrau was opened, but we did not open the Crans Ambassador and InterContinental hotel. So they will remain closed until the winter season. We opened the Eden au Lac on January 8. We closed it on the March 20 and reopened in May. The hotel is running at a very satisfying rate in the F&B. So both the 2 restaurants are running very well. But of course, we are still suffering in the room occupancy because of the lack of foreign visitors in Zurich. The Eden au Lac is pretty easy to manage. It's a small hotel with only 40 rooms. So really our focus are on -- is on the F&B and it's pretty easy to reduce the room capacity in an efficient vision. Of course, Bellevue Palace is suffering from the absence of MICE business. And we are currently discussing with the owner, which is the Swiss confederation to see how we will handle this situation. We had also an effective reaction to the pandemic, quick reaction. So we put all the measures to mitigate the negative impact. We introduced the short-term work, of course and we're able to have lower rents. There is still uncertainty on the winter season 2021 -- 2020,2021, we -- for now, we are planning to reopen all the hotels, but still monitoring the quarantine policy from the Swiss confederation and we will assess the situation on the daily base. Our EBITDAR margin was 12.6%, as you have seen in the segment. Little focus on the reopening of La Réserve Eden au Lac in Zurich. So reopened in January 2020. 40 rooms and suite. New F&B with the roof top located on the top of the floor, La Muna, which is Japanese Parisian-style restaurant. And the Eden Kitchen & Bar with 172 seats on the ground level. Both restaurants are doing very well. The Eden -- La Réserve Eden au Lac has become place to be enjoyed. And we had very good review in the all international press. The hotel has been elected best renovation, best 5 Star renovation in 2020 and has attracted a lot of interest. Of course, we are looking forward for the reopening of the international travel to feel this hotel. But we are really, really happy with this achievement. On the infrastructure level, so we have still the Swiss Hotel Property, which is 100% participation of AEVIS. Market value of all this property at -- in end of July because there were some acquisition in July, was CHF 452 million. We have a total of 93,000 square meter. And number of room is 663. One summer destination, which is Interlaken. One city destination, which is the Eden au Lac, and 3 Alpine destination, which is the Mont Cervin and Monte Rosa and the InterContinental in Davos. You can see the footprint on the next slide. We also have a land reserve in Crans-Montana, was the former Notre-Dame -- Institute of Notre Dame. And this land has a 14,000 square meter building capability [indiscernible]. So we think that there's no material impact on asset value expected on the Swiss Hotel Property, thanks to the high quality of the property. The strong winter season, the timing was pretty lucky because closing up and after the winter season. All these items have no CapEx backlog. So there's no CapEx required, no impact. Of course, we could -- we maybe invest in some hotels like Victoria-Jungfrau to -- not to -- not because those CapEx are needed, but to turn it into maybe a more result-style hotel. So Victoria-Jungfrau has been based until now a lot on MICE. And we want to increase the family offering, and we want to take profit of Interlaken and with the setup to attract family for the holidays. And that's why we plan to invest into changing a little bit environment around the hotel. Infracore, we still have 30% shareholding in Infracore. The total market value is CHF 1.1 billion. The revenue for the first half year was CHF 28.8 million. On the next slide, there is an overview of the financials for the half year Infracore, which is not consolidated in AEVIS, but we own 30%. So the total revenue were on the budget, CHF 28.7 million increased from last year because of the acquisition of Générale-Beaulieu Immobilière. EBITDA is slightly higher than the budget because we were able to reduce the cost. And if we -- if you see that the rent reduction, so the profit forecasted for 2020 was CHF 38.7 million. And due to the rent reduction granted to Swiss Medical Network, the profit for the period will be at CHF 30.8 million instead of the CHF 36 million that was the plan. So since 90% or 95% of the profit is distributed to the shareholders as a dividend, the -- our dividend share will be around CHF 9 million for 2020 instead of maybe CHF 11 million if there were no rent reduction. We will not provide any guidance for the rest of the year because, especially the hospitality segment has no visibility. For the hospital segment, the second half year will be on budget as planned, but the hospitality business has a lot of uncertainty, especially regarding government policy for travel. So I'm finished with my presentation and then now open for question and answer. Thank you very much.

The first question is from [ Dominic Fergus ] of [ Intelsat ].

I would have a question, first of all, regarding this strategic investors, you are interested in bringing in? What kind of investors are you thinking of? And have you all -- why do you need them? And have you already talked to any parties so that you might be able to announce something shortly, please?

So as you know, to be able to form an integrated care organization, you need basically 3 component, health plan components or insurance; you need infrastructure, hospitals, medical center; and you need the doctors, so the medical human resources. We have some of the infrastructure with the people and some medical center. We have some of the medical resources with our doctors, of course. But if you want to be an integrated care organization, you have to provide the whole set, the whole range of services. So strategic partner could be medical centers group, could be pharmacy groups. All kind of partner on the health care provider side. And also, of course, on the insurance side. So we need an insurance partner to be able to have our own health plan because we don't want to reinvent the insurance, we want to do that with the partner. And there is -- just to answer to your second part of the question. Of course, we are talking about that. We are doing a lot of education and communication around integrated care because it's something that's not really known in Switzerland. And we have discussion with a lot of player in this field. But there is no concrete deal going on, and we are not going to announce soon a deal on this. We think that it's a medium-term target. And, as I say, it needs a lot of education for all the stakeholders to understand really what means to be an integrated care provider.

May I -- can you still hear me? May I add a question. You've also talked about consolidation, some -- provide us maybe also suffering now a bit as a result of COVID? I mean what are you thinking of -- what did you imply to -- what kind of players are these?

Yes. So as you've seen, we have announced last week that we acquired the [indiscernible] deal. So this kind of structure alone are quite sensible to crisis like the corona, the COVID-19. There is also a lot of diagnostic center. There is also radiology center that are struggling since the COVID-19 interruption because that was 45 days of no activity for this player. Physiotherapist also are struggling. So there is a lot of such small structure that are really efficient and really high quality, but that needs now maybe to be part of a larger group. And that's what I was implying.

So the next question is from [ Andreas Trilling ] of [ Intelsat ].

Mr. Hubert, you say in the press release in relation to the high debt that covenants were over expected as end of June, which covenants do you mean? And respectively, how are these covenants defined?

All the covenants that was -- that were in place for the bonds or for the credit facility of the group as our competitor has announced that they have renegotiated covenant. I think it was useful to say that we have no covenant problem, and we did not have to renegotiate our covenants.

But how are these covenants defined? Can you say that?

So the covenants are defined when you issue a bond, there are covenants. When you make a credit agreement, there is a covenant. And a lot of companies, due to COVID-19, had to renegotiate the covenants because they were not complying with this covenants, which is not the case in our book.

So you think you won't have a problem to repay the bond due in next June?

No, no. I think we have repaid all our bonds till now. And we are very careful with the liquidity and financing management. And we will -- we have no stress on this side.

Maybe my last question. There were a lot of management transaction in our own shares, how do you explain this unusual high amount of management transactions?

That was basically -- transaction done by one member of the management and has been disclosed as the legal requirements has that.

Okay. So these management transactions were made by you?