Aevis Victoria SA (AEVS) Earnings Call Transcript & Summary

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

Hello, and welcome, everybody, to the conference for the annual results of Aevis Victoria. We just published our annual report this morning, and I'm pleased to give you some highlights and some focus on our activities. Aevis Victoria was pretty well prepared for the ongoing COVID crisis because we already had a high level of digitalization and decentralization. We, since 5 years, we are using home office, flexible office. Nobody has a fixed office at Aevis. So it was really easy to switch on the remote organization when this crisis happened. We have a mindset focused on the adaptability, agility, reactivity. And we had also a good capital base and sufficient liquidity reserve. Nevertheless, we took all possible measures to weather the crisis. All CapEx have been strongly reduced or stopped, so only the ongoing projects have moved forward. All available tools have been used. So the short term work, state-backed financing and also for the hotel business have applied to the nonreversible contribution from the cantons that are beginning right now. We have decided to stay with no ordinary dividend for 2020, as we did for 2019. But we will probably give an extraordinary dividend following some sales of participation. We are strongly focusing on management of liquidity in all departments of the group, all the units. We have got rent waiver during the first half of 2020 from our landlords, and we have been optimizing the cash cycle. Our long-term vision is still the same. Aevis Victoria is a private equity company. We buy companies in service for people. We're trying to create value by growing and building up those companies for the long-term value. As we can see, now is the sale of 10% of Swiss Medical Network based on an enterprise value of CHF 1.7 billion. It shows that our strategy is working, and on the long term we are creating a lot of value. 3 main sectors have investments, so healthcare with Swiss Medical Network. Medgate, we have 40% Medgate. Nescens, which becomes the brand for antiaging and longevity. Swiss Ambulance Rescue and Ava and AIDA are indirect investments through Medgate. Hospitality and lifestyle, we are now merging the activity of Victoria-Jungfrau Collections and Hotel Schweizerhof from Davos to build one operator. And in infrastructure, as we did with Infracore for the healthcare, we are now building a hotel real estate company, Swiss Hotel Properties, which has already more than CHF 500 million in assets. The vision is to transform Aevis slowly in a pure-play investment company. As we did with Infracore, the company was fully consolidated in the first phase of construction. Then we had the first shareholder coming in with Bâloise, and then we sold another share to MPT and now it's an important minority participation for Aevis with steady cash flows and dividends since Infracore is paying around CHF 30 million dividend each year. So CHF 9 million comes to Aevis. For Swiss Medical Network, we are also entering in this stage with the -- as we already announced 2 years ago that we were contemplating opening the shareholding of Swiss Medical Network to strategic investors. So we just sold 10% to Medical Property Trust. Medical Property Trust, who's already invested in Infracore, they're used to invest up to 10% in the operator and that's the first step for this process. We are going now to open a strategic process to find other investors that can help us and to shape Swiss Medical Network and to achieve the vision of integrated healthcare. In the hotel business, for now we are in the early stage. So we are building the core of both infrastructure and operating pillars in hospitality. So Victoria-Jungfrau is the holding for the operating companies and Swiss Hotel Properties is the company for the buildings. And of course, these 2 companies will also, in the future, maybe 2022 or 2023, will also be open to external shareholders and new investors. The financial of Aevis, last year we had a sale of subsidiaries, so to make the consolidated number more comparable, we have made a pro forma which excludes the capital gain through the participation, so only operating income. Pro forma 2019 was a net revenue of CHF 623 million. We achieved CHF 641 million. It's an increase in revenue essentially due to acquisition, because on an organic base, we had a slight decrease in the hospital business and a strong decrease in the hotel business because of the COVID. EBITDAR, operating EBITDAR has been increased to CHF 99 million. It was CHF 87 million last year. Of course, with the sale of the subsidiary, Infracore subsidiary, was CHF 308 million. So that's a strong increase if you compare year-to-year. The rental expenses are a little higher in 2020 because in 2019 Infracore was still consolidated until end of May. So 5 months of consolidation, that's essentially the difference. And also, with the increase in assets, we also have an increase in depreciation and amortization. So the EBIT is negative with CHF 23 million. Consolidated segment reporting, here we can see that the hospital business is very resilient. We did not achieve our budget because of the 45-days of closure between March 16 and April 27. But still, we reached an EBITDAR of CHF 100 million, which is 18.4%, which is a very good result for the hospital. But in a sanitary crisis, of course, the hospitals are something key, and we have been integrated in all the processes in all the cantons to help with this COVID crisis. Hospitality, the EBITDAR is positive, but the EBITDA is negative CHF 8.4 million compared to last year. Of course, it's a bad result, but we know the causes and our assets are really strong. We have really landmark hotels, and we are very confident that as soon as the travels reopen, we will achieve our budget and our goals. The real estate is now only almost on the hotels. Last year, there was still this 5 months of Infracore consolidated. And of course, this year, there was no activity on the corporate level, so no income coming from sales or disposal of participation. The balance sheet, equity, CHF 419 million. There's a slight reduction in the equity ratio from 37% to 27%. This will go up again in 2021 because with the sale of 10% of Swiss Medical Network, we will increase the equity of around CHF 100 million and reduce the net debt of the same amount, with the same amount. Cash and cash equivalents at the end of the year was CHF 84 million. So with the addition of the sale of at least 10% in Swiss Medical Network, we have now around CHF 220 million, CHF 230 million in the end. The statutory Aevis key figures look better, so that's the statutory figures of Aevis Victoria Holding. The equity has increased to CHF 426 million from CHF 393 million, also due to the capital increase that we did for some acquisition. Dividend income has increased also. Now we have a steady dividend income with Infracore, and so we've been able to achieve an EBITDA of CHF 7 million for the statutory reports. If we make an indicative sum of the parts for Aevis, we have for CHF 300 million of nonconsolidated participation, that's Swiss Ambulance Rescue, Medgate and Infracore, the hotel operating company is worth around CHF 100 million. CHF 100 million is onetime sales. Then Swiss Medical Network, CHF 1.7 billion. The value has been set by this sale of 10%. And the hotel portfolio, hotel building portfolio is worth CHF 500 million. That's based on the end of year valuation from Wuest & Partner, so a really recent valuation. And so total assets of CHF 2.6 billion. The net debt is now pre -- before the sale of 10% of Swiss Medical Network, net debt was around CHF 800 million. And so the implied net asset value of CHF 1.8 billion for Aevis. We are going to focus on some sectors. So Swiss Medical Network was, at the end of the year, 100% participation of Aevis. We will be now 90% participation of Aevis. 22 hospitals and clinics, 35 health centers, 2,500 physicians, around 60,000 surgeries per year and more than 340,000 outpatients, 1,500 beds. Since 2003, we have been building up this company, Swiss Medical Network, by acquiring companies, hospitals and also by working on the organic growth. So this year, 2020, we took 35% shareholding in Hôpital du Jura bernois, which was the first real privatization in Switzerland. We are going to exercise our option to take the majority in July. So we will be 52% shareholder in Hôpital du Jura bernois. We also bought [indiscernible] from Biel Centre Médical Bienne which is a pretty comprehensive medical center in the center of Biel. Highlights, we've continued the growth. Even if the organic growth is a decrease of 0.9%, we are trying to stay agile, lean and quality driven. It was an achievement for us to have one of our hospitals, the Clinique Générale-Beaulieu, rated Number 10 worldwide by Newsweek. So that was really a good achievement. Then our vision in Swiss Medical Network is of course to change the current system because we are an inefficient and vicious triangle with insurance, taking care of the patients as long as they're healthy. And then all the healthcare world, taking care of the patients as soon as they have a healthcare problem. So there is a clear conflict of interest between the 2 stakeholders, and we will try to integrate all this to get rid of this conflict of interest by integrating in the same organization, all the players in silos around healthcare, including health plans, so insurance, education and research. In Switzerland, we have 7 different regions. Geneva, Canton Vaud, the Fribourg/Valais region, the Mittelland region, Zurich region, the Ticino region and the Arc Jurassien, the region Arc Jurassien where is included Hôpital du Jura bernois. That's maybe the most mature organization to make an integrated care organization. Hôpital du Jura bernois in the Arc Jurassien. So we have 2 hospitals, 3 hospitals. We have medical centers. We have a mental hospital. We have radiology center, elderly care home, rescue service, pharmacy, laboratories, and we can also -- we have also a partner network with [indiscernible] Hospital and Biel Hospital. There is a rehabilitation facility and Spitex. So all these organizations, some are integrated and the partner networks are not integrated. We want to turn these into the first real accountable care organization in Switzerland by inviting an insurance partner to be part of the company. So the Hôpital du Jura bernois SA will be renamed in Réseau de l'Arc Jurassien. The name is not yet defined. And the idea is now we are 2 shareholders, Medical Network and Canton Berne. We'd like to turn it into a 3-party organization with also an insurance partner being shareholder of this Réseau de l'Arc Jurassien to be able to set up our own health plan and to change the party. That means that a part of our topline will be not only the fee for service that we invoice to other insurance, but also the insurance revenue from our own health plan. And that will be a gamechanger because then if the insurance payments are the topline, that means that then you have to keep the people healthy instead of treating them. So there is no more incentive in doing volume, but there is a strong incentive to make it quality and to have better outcomes to be able to recruit more members in the organization. So that's currently into process and we hope to be able to have our own health plan for the January 1, 2022 for the population of the Arc Jurassien. The hospitality at Aevis, it's basically 4 companies that we are merging together in the same holding, Victoria-Jungfrau collection, Seiler Hotels, Weriwald, which is the InterContinental in Davos, and MRH Zermatt, the Schweizerhof in Zermatt by organizing all these hotels in the same holding, we will be able in Zermatt to have only 1 operating company for 4 hotels. So a higher flexibility in Zermatt for -- to adapt the offering to the demand. More than 900 rooms in operation, 11,000 overnight stay, 360 suites. Our average room rate has increased this year to 517. That's due to the addition of the new hotels in Zermatt and the [indiscernible]. The impact of the crisis, of course, is very strong on the hotel business. So in the city hotels, lack of MICE activity, foreign tourists, and this has only been very partially compensated by the domestic demand. We are very happy with La Réserve Eden au Lac in Zurich. So since we reopened, we have great results on the hospitality side. The food and beverage is still weak, of course, because the restaurant has been closed for a few periods. So we are looking forward to be able to open all the restaurants and to rehab the full fruit of our investment. So we had an organic decline, but overall an increase in revenue because of the integration of Seiler Hotel, InterContinental and the reopening of Eden au Lac. And still, we did a positive EBITDAR in 2020 despite the pandemic. Our current portfolio with our fully owned hotels, Victoria-Jungfrau in Zurich, Bellevue Palace, Crans Ambassador, Mont Cervin Palace, Monte Rosa, Petit Cervin, InterContinental Davos and Schweizerhof, Zermatt. And La Réserve Geneva is an affiliated hotel. That means that we are managing also this hotel together with the other 9 hotels. Infracore is 30% participation of Aevis. We have increased our voting rights to 50% because Valère has sold its interest in Infracore to Medical Property Trust and we have instated nonvoting rights shares to be able to have a joint control. So that means that MPT has 70% of the economic rights and 50% of the voting rights, and we have 30% of the economic rights and 50% of the voting rights. Market value had a slight increase to CHF 1.1 billion. There's no major change in the Infracore portfolio in 2020. Swiss Hotel Properties, that has been a strong addition to the portfolio with the 3 hotels, the 4 hotels in Zermatt and the InterContinental in Davos. The market value of those hotels is CHF 508 million. This comprises 18 properties on 5 sites. So the hotel properties in the hotel portfolio, we have hotels and we have also land reserve Crans-Montana where we can build a hotel. And also, in Zermatt, there is a lot of land reserve because we not only have the 4 hotels, but also a lot of commercial and commercial properties like [ Migros ], a restaurant, boutique and also land reserve around the hotels and around Zermatt. Medgate is a 40% shareholding of Aevis. It's 500 employees. Medgate had very strong growth in 2020 due to the coronavirus. The Bundesamt fur Gesundheit gave Medgate the mandate to be the official hotline for corona and Medgate is still participating to the corona outbreak this year. Also, I think this corona crisis has also boosted telemedicine all across the board. We just announced yesterday a deal with MPT. So MPT, Medical Property Trust is a real estate investment trust, stock listed at the New York Stock Exchange. They have more than 400 hospitals all around the world in more than in 9 countries. They are our partner at Infracore since 1.5 years, and they now have taken this 10% at Swiss Medical network. That's something that they usually do, having up to 10% in their operator, also to have a good feeling of what's happening on the operating level. Of course, it's a very strong partner for Swiss Medical Network and the price, the valuation of Swiss Medical Network through this deal has improved to CHF 1.7 billion, which is a significant value creation since the inception in 2002. That will also boost the equity of Aevis from CHF 98 million and CHF 145 million cash inflow. Of course, it's the first step. We want to open the shareholder buys to other strategic players in Switzerland or abroad and a formal process will be started during Q2 this year to achieve that. It's difficult to give an outlook for 2021, but we had a promising start into 2021 with the sale of 10% to MPT, but also we sold 60% of Swiss Ambulance Rescue to a strategic partner which will make able to build, buy-and-build the ambulance business through all Switzerland. On the hospital segment, the hospitals have demonstrated the resilience and utility also during the COVID crisis. We have significant increase in activity expected for this year. On the hospitality, we are more cautious. It's very difficult to predict, but we are convinced that our hotels are landmark hotels and they will rebound as soon as the country reopens. We use the technical unemployment [indiscernible] to have the maximum flexibility. And it's very useful in this period, of course. We have also applied for all the government help for the hotel business. We did not receive anything in 2020, but we are -- we will receive more than CHF 10 million in 2021 for our hotels. And we are -- so we -- in the Alps, we still have Crans Ambassador and Schweizerhof open. We are monitoring weekly the situation, and we will close as soon as the demand decrees and take the decision for the reopening for the summer depending of the border opening and all other factors. And for the real estate, so all these buildings are in prime locations and maintaining the highest standards. And Infracore is delivering steady, substantial dividend every year. And also, Infracore will be our partner for the further growth of Swiss Medical Network. So thank you, and now opening the question-and-answer session.

[Operator Instructions] The first question is from [ Phillippe Re from Lagafeux ].

Hello, Mr. Hubert. It's [ Phillippe Re from Lagafeux ]. I have a question about the CapEx needs for the hospital segment. How wide do you assess the needs, maintenance needs in particular, for the hospitals? Can you generate free cash flow for this business?

Yes. So as you know, when we buy [indiscernible] and we invest to put this hospital to the state-of-the-art level. So we have no CapEx backlog in the hospital, which means that we can stop investing without any impact because everything is up to date. So we can make a pause in investment in the hospital with no problem. So that's what we did. Only the new projects have been finished, so the existing projects, and we are strongly managing the CapEx to be able to make free cash flow. This year, I mean, overall, Aevis has produced 28, more than CHF 28 million of operating cash flow. And on the hospital side, of course, the operating cash flow was really satisfied.

Maybe -- can you hear me?

Yes.

Maybe you have shown the indicative sum of the parts. This analysis is a conservative assessment of the valuation. And we can see that, for example, for Swiss Medical Network, throughout the transaction with MPT, it's a good proof or a good indicator for the value of Swiss Medical Network in particular?

Yes, exactly. So that's a formal transaction so that can put a price for Infracore. Also, there has been a transaction at the end of the year between Bâloise and MPT, which can assess also the value of our share in Infracore to more than CHF 200 million. So -- and the assessment is -- when there is no transaction, we have made a very conservative assessment of the value.

The next question is from [ Dominic Fergus, Intelsat ]

Well, again, about the Swiss Medical Network there, what's your ultimate goal there? I mean, to what? I guess you will still as Aevis, will keep minority stake. Can you tell us about in which region it will be? And do you have indications that MPT will raise maybe its stake? I mean, obviously, your most important competitor in Switzerland is fully owned by a foreign group. So could this also happen to Aevis? And maybe a third question, I've heard from [indiscernible] recently from their CEO that they were really winning with this activity again because all these elective surgeries had to be now and that there was a catching up and had to be done then. I mean, do you see a similar effect? Are you full again in your hospitals?

Okay. So I will begin with the last question. So hospitals are now running at full capacity, of course. And that's already since September 2020. The first months of 2021 are very active, and we feel that now the people does not fear anymore to come into our hospitals, they trust the hospitals. Regarding MPT, MPT is a real estate investment trust, so they will not invest more than 10%. That's a rule. They cannot invest more than 10% without losing their real estate tax statutes. And so the participation of MPT is really to have a link between the infrastructure, real estate and the operation. So the investors we are looking for are mostly Swiss, mainly Swiss, yes. So we are looking for investors that can bring something to the integrated care concept. Could be insurance, could be pharmacy, could be medical centers, could be know how. So that's more in this region that we go. And in the end, the end picture, the ideal end picture would be that Aevis retains a 30%, 35% shareholding in this Swiss Medical Network organization. So we are not control free. We are -- we just want our company to be in the best hands possible for the future and for the long term.

May I ask just a follow-up question? To this day, are there any Swiss health insurance companies being invested in hospitals? Or would that be something new for them as well?

For now, there is no healthcare insurance invested in hospitals, so this could be new. And probably maybe the health insurance would be more a regional partner, so not the same insurance in all the regions. Because also, the Swiss healthcare insurance have also a lot of difference. You take CSS are very strong in Lausanne, very strong in the French part of Switzerland. KPC is very strong in Berne, regional Berne. So you have different culture and presence. And so we think that maybe partnership with Swiss insurance would be more regional. But then you have also some Swiss non-healthcare insurance that would be interested in investing in this sector. Like Swiss Life, Swiss Re, Zurich, etc. So that's basically -- or some international insurance like AXA, like Allianz, which are also a very strong player in Switzerland.

Since there are currently no further questions, [Operator Instructions] We haven't received any further questions at this point. I'll hand back to Antoine Hubert for closing remarks.

Okay. So thank you very much. And as always, our Investor Relations service is always open to further questions and discussion. I'm also good to one-to-one discussion if anybody wants to. And thank you very much, and have a good day.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.