Clariane SE (CLARI) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to Korian's Full Year 2022 Results. We are delighted to be back here in the room in [Foreign Language], as they say in French to be with you all. So we have Sophie Boissard, our CEO, with us today; and Philippe Garin, our CFO, who will be presenting the results. We will then be taking your questions here in the room, of course. And then I would like to remind you, we have a web chat that you are all very used to after the last couple of years in which you can post your questions, and we will be delighted to pose those directly to Sophie and Philippe for you, if you are on the webcast. So without further ado, I will pass you over to Sophie.

Thank you, Sarah, and hello, everybody, and welcome. I'm really delighted to see you all in person this morning and also would like to welcome the one that are connected. And I'm really happy to be able to present in person the activity and results of Korian, with Philippe here next to me as well as some of the member of the Group Management Board present today. Actually, I would like to start with some personal note. We were all expecting 2022 to be the year of normalization post-COVID. And actually, it was not exactly the case, with the fallout from both the war in Ukraine, economic tension and last but not least, for our industry, the turmoil in elderly care in France. Nevertheless, and if I try to take a step back, the year we just went through clearly demonstrates not only the resilience of Korian's business model and operation, but mainly, and most of all, the resilience of Korian's teams. And I would like to start this presentation by expressing my warm thanks and all my gratefulness to all the members of our community, the Korianers who are showing day after day such a level of kindness and dedication, and a steadfast commitment to the care and well-being of the patient and resident and their loved ones. And I dare say, this is probably our strongest asset in all the Korian community. This morning, I will try to take you through Korian's 2022 main highlights and our operational performance. Then I will hand over to Philippe for a detailed financial report before turning to our outlook and of course, taking your questions. Definitely, let me try to kind of frame the year. You see that on the next slide. 2022 brought, as I said, challenges, we share actually with all other sectors. Rent and inflation differentiated between countries, but all in all, we scored above 9% average in the 7 countries. Tight labor market, of course as well as lingering effect from COVID, not to be forgotten that we had several smaller waves all along the year, 2022, to face. But it was also mainly a year of extreme scrutiny for our industry, following the devastating accusation against Orpea's former management. And as you see reflected in the slide, I really have the feeling that we were experiencing a kind of huge contrast between what was happening within the company. And as you see on the picture, there has been a lot going on in terms of further transformation, a lot of great achievement, both extra financials and also financial resilience and the perception from the outside, with the perception of mistrust generated in the media headlines and among the general public. If I just try to frame what we did, as a company, we continued in 2022 to pursue the strategy you all know of becoming more diversified and more specialized in order to be able to better address the growing care needs in our societies, care that are related to aging and also to the surge of non-communicable diseases. And this continuous transformation can be measured both by our progress on ESG roadmap and by the repositioning of our networks as well as through our financials. Before I turn to our full-year figures, I would like to say some more words to speak about the topics that I know is top of mind for most of us. I mean, of course, the turmoil that we have seen in the French elderly care sector since the accusation around the ethical and financial practices of Orpea. This accusation, that's pretty clear, have tarnished the entire sector, with actually, probably, at least 4 areas of concern that are reflected on the slide. First one is mistreatment accusation. Second one is about family relations management. Third one is about compliance with public regulation, compliance with public funding and the fourth one is about asset valuation. Of course, we did not -- we -- of course, when we discovered this with the other stakeholders, we decided to take actions proactively. First, I ordered actually several internal audits in order to check the quality management system. This was performed by Deloitte. And in order also to check the contract with main suppliers, this was performed by Accuracy. Second, we pushed on increased dialogue with families within old care homes across the French network, and we decided proactively to publish transparency indicators. If you go on our website for each care home, you now found several indicators related to quality, related to family perception, related to the features of the facility. And we are, at this stage, the only one to be -- to have reached such a level of transparency. And this was very important for us in order to reinitiate trustful dialogue with family locally. And last but not least, we've put a lot of emphasis on awareness and training because everything when it comes to mistreatment prevention starts with the people on the field. So we did not start this last year. It was already ongoing for several years that we started again to increase the level of awareness and to make sure that everyone within our company knows about the whistleblowing and alert system that we have. That's what we have done on our side. Of course, in the meantime, the public authorities took a lot of initiatives, and this was really a great need that they did so. What did they do? They increased the level of control, and this was a must, actually, because in France, the level of control was week. Second, they decided about a new regulation framework for elderly care. Again, this was needed because the regulation framework was too weak, too imprecise. And last but not least, they engaged with the profit and no profit organization called the Synerpa in France into a so-called responsibility charter, which has been presented to the minister in December and agreed by the minister and will be followed. What came out of all this control and inspections? Just to give you some insights, as you know, the Care Minister in France announced that they would be able to control 100% of the care homes within the next 2 years. When it comes to Korian network, we have already 110 facilities that have been audited by the ARS, Agence Regionale de Sante. It represent 40% of the network. We have already 60% of the reports draft or finals. Until now, no major findings emerged. Some recommendation, of course, and this will fuel the continuous improvement cycle that we are deploying, but no major findings. Second, we had a lot of, I would say, standard ongoing inspections on the tax, on consumer protection. And all these did not show any significant findings when it comes to our practices. And I have the impression that this is actually also the case for the other players. For me, this is a clear sign that, actually, the former Orpea was an outlier in the industry and not as it has been set the industry standard. And this is very, very important. Looking forward, I expect clear regulation, regular [ civil ] controls, as they need to be an attentive dialogue locally with all stakeholders to contribute to rebuild the bedrock of trust that our care industry needs to function. For sure, it will take some time, but we are on the right track. And for me, this is a very important statement to start with '22 presentation. This being said, let me go back to our 2022 operational performance. And I would like to start with some words on the extra financials, as in our industry, they are necessary conditions for our financial performance. As you may remember, we presented in 2019 a comprehensive ESG roadmap with 15 indicators. And this now made the external certification of our facilities across Europe a key target. Achieving this ambition required that we design European-wide procedures to be a hallmark for Korian quality care in the form of an ISO 9001 standard, and that we train all our teams in 760 sites to this new standard. And to date, and this is for me a key achievement of last year, 2/3 of our facilities, 68 to be precise, have been already certified by external bodies, and we expect to reach the 100% target by the end of '23. In '22 -- and this was also part of the ESG roadmap, we increased the level of people engaged in qualifying pass. And actually, it's now around 7,000 employees that were beneficiaries of the training and graduating programs we offer for professional development. And this reflects our commitment to provide a meaningful and fulfilling careers in care and Korian's long-term investment in people. And probably looking at 2022, this is the achievement I'm the most proud of. On average, and this reflects increasing loyalty and commitment of our teams. The tenure of teams is now 7.3 years when we started tracking in 2019. Before COVID, it was at 6.7 years. If I look now at the operations, the past year, the network cared for over 800,000 people through in and outpatient care, and we were able, in this very shaky environment, to maintain and even to improve the net promoter score up to a level of 36%. Nursing home occupancy is up 230 basis points at the end of December. And this increase has fueled organic growth, together with added volume in health care and community care and uplift in tariffs, offsetting not fully increased toward -- the increase of costs towards the end of the year. This is why we were able to post strong organic growth at 6.2%, and we were also able to post a resilient EBITDA margin down by 50 basis points in the face of unheard of inflationary headwinds. You must remember that all our revenues are regulated, and this is why we cannot adjust top line as fast as price increase. Operating free cash flow is particularly strong, also due to quality of earnings first and second, to the reversal of working capital needs. Let us now go through the main ESG KPI. That's on the next slide. I start with quality. I've always maintained that it is beneficial to have regular external evaluation from our care facility. This control must come from the public authorities as the Orpea scandal clearly demonstrate it, but they have to come also from self audits performed by the operator themselves. And this is why we started this ISO certification process from scratch in 2019, and we aim to have the 100% certification by the end of '23. Second, and this reflects the fact that we are also controlled by public bodies, our health care activities. The clinics are also audited on a regular basis by the [Foreign Language]. And I'm proud to say that, again, 100% of the clinics earn marks of A or B, which is a very, very strong and good rating. Positive Care, which is our internal approach for ethical and patient center care is now rolled out to 97% of our facility, as you've seen on the slide. And all these initiatives, certification, control and the positive care standard deployment contribute to the high and resilient level of satisfaction, which is reflected in the regular surveys that we perform across all of our network, be it reflected in the net satisfaction score, the net promoter score or what we call the consideration score, which measured the way our residents, patients and the loved ones feel considered and supported from Korian and the Korian teams. Let us now move on to talk about our people and our HR policy. Definitely, my strong belief is that good care means, first of all, good caregivers. And it goes by making sure the caregivers feel supported in their daily jobs. This is why, as a company, we long had an ambitious human resources policy, putting the consideration and the development of all our people as a central element of our strategy and as a key differentiator as an employer brand. Training at Korian, not only mean being training about daily task, that's we have to do. That's a must. It also means by Korian, being supported in the development and being supported through graduating training programs. And as I said, close to 7,000 employees participated in the more than 125 programs we now offer. So we have a wide graduating offering everywhere. And we have now a very strong buy-in more than -- around 12% of the permanent staff participating to those programs. As you may remember, we have not only invested in training, we have also invested in health and safety at work. And this is the second major dimension of HR policy. We have been the first company to sign a charter both in France and at European level as well as to undertake concrete action at our facilities. And this starts to bear fruit at last. We see work-related accident decrease by 21% since 2019 and by 15%. So it's really an acceleration this past year. Last but not least, we have also strongly invested in social dialogue with 15 agreements signed in 2021 and 2022. And we launched the sector-first employee shareholding plan. You might say that the environment was pretty adverse from a stock market point of view, but I think it's very important to have our people being a shareholder of the company. And I'm very proud to say that we have now almost 10,000 shareholders who are Korian employees amounting to 3% of the company's capital. And if you see this reflected in the commitment and engagement score of our employees, it continues to rise last year as a test, our 78% engagement score. And we also received once again top employer recognition in our 4 core countries. So that's for the HR achievement. Looking now at the full ESG roadmap, so the ESG issued in 2019 to be delivered by '23. We are actually very close to the full achievement of the targets. There are only 5 dimensions that still deserve some further miles to go in '23. This is for the ISO certification program, the positive care deployment, 3% missing, social life council and family committees and also the HQE certification of buildings. And we are missing one large stakeholder committee at country level in Germany, but they will start to work in the weeks to come. We are presently working pretty intensively on the next ESG roadmap, aligned with our ambition to become a purpose-driven company, and this roadmap will be presented to you in 1 month from now. Let's now go back to the current situation of our portfolio and activity footprint. We have, year after year, developed a unique footprint that makes us the European leader of health care services in Europe, being able to provide in selected geographies, a full continuum of care to fragile patients from high dependency care in nursing homes and specialized medical care in post-acute, rehabilitation and mental health to innovative solution for the less dependent and the new baby boomer generation. This command a leading position in the largest and more attractive European markets and help us to anticipate market shift for the decade to come. And our presence in the 7 and 3 main segments is supported by differentiated and well-recognized brands such as Korian for care homes, now Inicea for medical services in France, ITA and Grupo Cinco for psychiatrist care in Spain or Petits-fils, Ages & Vie or Casa Barbara, when it comes to community care offering. We have been developing our network all along the Europe with 2 main focuses. First one is to say we want to have recognized field of expertise at local level on one hand, expertise that are tailored to the evolving and growing needs of the population locally, of course. And the second dimension is that we want to have definitely a cluster or hub approach. Being focused on providing care pathway within communities through, of course, our own network, but also by being able to team, to partner with local care providers and especially with hospitals. And this is what we can do if you look at our footprint across 700 local communities that we are able to serve. You see that reflected on the map. And this is why we were able to care for over 800,000 people in '22. And if you look at the figures, this is pretty striking to see that actually most of the people we support are actually using our medical service offering or more and more the community care service offering that has been doubling in terms of number of clients. We are now serving more people at home, then the number of people we serve in our care homes. And I think this figure reflects the huge shift in our market positioning that we have been preparing, anticipating and deploying along the last years. Let us have a look at the transformation, the physical one, we had to do in order to support that shift. Actually, 2022 has been a record year for transformation. What you see on the left-hand side of the slide is actually the number of facilities in the core networks that we have been upgrading, refurbishing or building -- rebuilding actually along the years. And as you see, we were -- of course, it has been a very significant acceleration in the last 2 years and especially in 2022. Why do we do that? It's because we are convinced that we have to anticipate the changes in the need of our resident and patient. And these changes are not only driven by a baby-boom generation that is eager for personalized solution in the community care. These changes also reflect and COVID was a major game changer, the increased level of dependency prevailing in long-term care and a surge in chronic disease leading actually to new type of need in health care service offering. Today, I think we have done 90% of the repositioning and investment program we had in mind. A large proportion of CapEx have been deployed, amounting to EUR 1.5 billion, including real estate. And this has enabled us to adapt almost 40% of care facility network, 40% refurbishment and 56 disposals or closing done last year, 8% of care homes network. While in health care, we've been able to upgrade 50% of the network to provide more outpatient care. We had practically no outpatient care in 2016. We have now outpatient care everywhere and to provide also more specialized care with better equipment and better features. During this period, we have been also able to open new clinics, 26 last year, and we have also delivered 21 new long-term care homes. Let's now have a look at the activity in the 3 main segments. So starting with long-term care. Definitely, we are progressively back to normal with this plus 230 basis points in terms of occupancy, supporting a significant organic growth in that segment, plus 9.3%. When it comes to health care activity, it is already fully normalized. Actually, there is a significant care backlog under acute care. So this is fueling further activity in the post-acute and also in the mental health segment. And as I said, further growth may be expected in '23 as post-COVID disruption acute care is really progressing again and as our outpatient capacities have been significantly extended. So we are able to take care of more patients with the same number of facilities, and this will support the growth in health care looking forward. Last but not least, coming to community care. Demand continues to run high, with occupancy of the small concepts like Ages & Vie, post ramp up above 95% and home care networks like Petits-fils, now carrying for an average of 15,000 people in their homes. Actually, the only constraint we have there in home care is to recruit the right number of people. We could do probably twice more. But we want to be selective in the way we choose, support and train our people, and this is why we really keep a very close eye to the quality of home care. Now some -- really some more insights segment by segment. Long-term care first. What I want to highlight today is the underlying trend in that segment. This is not the same industry anymore. We have, really, to cope with higher dependency, mainly cognitive disorder and growing care intensity, therefore. Here are reflected on the slide some statistics from the French network to the current situation. 50% of our residents are above 90-year-old. 56% of residents are rated or ranked with the highest level of dependency. 2/3 suffer from soft to high cognitive disorders, and 20% of entries are reserved from hospitals. So definitely, we are shifting into the long-term intensive care model, and I think it will remain so. Therefore, we have to adapt the organization and the network to this new environment. And that's what we have done by reinforcing the staff ratio. The staff ratio is at 0.8. So 8 caregivers for 10 resident average at Europe level. And we have done, as I explained, a huge network adaptation in order to be able to have specific areas for Alzheimer's care and to offer living spaces on each road. So smaller units, more medicalized. If you have a look at the satisfaction score, which is not an easy one for care homes, especially for this type of long-term care homes, net promoter score increased by 100 basis points from 30 to 31, which is in comparison with peer scores, a pretty high and very resilient score. Now let's have a look at the second segment, the health care. So definitely, this is more diverse. We are now covering an extended field of specialties, including geriatrics, neuro rehabilitation, pneumology and cardiology. In mental health, we are leaders in the treatment of mood disorders, eating disorders and addiction. These are really the 3 segments we focus on. In '22, we again reinforced our networks with targeted acquisition in Italy to have -- that have high level of outpatient activity and that are well recognized in that segment. And that help us to reinforce regional hub near Rome and Milan. We have also recently closed an additional acquisition in mental health with Grupo Cinco in Spain following the integration of ITA Salud in 2020. Now we have built a significant mental health platform in this important market, and we are now really one of the top player at European level in this mental health segment. In total, we operate more than 110 mental health facilities in 3 markets, France, Spain and Italy. And if I look at the level of satisfaction or promotion done by the patients that come through and use our services, it is indeed very high. We perform on a continuous basis survey after each state basically. And you see net promoter score is at 46%, very high. Some last words on the smallest segment, but from a growing demand point of view, a very dynamic one, I mean community care. So for us, it actually encompass 2 subsegments. The first one is living -- assisted-living concept and community living concept and the second one is home care. Given the high demand for prevention and assistance to maintain autonomy, we have really tried to innovate and to create -- innovate new solutions to address these challenges. And we clearly see that tailored innovative concepts such as Ages & Vie, aged people sharing a home and sharing assistance at home in rural areas or such as Petits-fils with really high-quality positioning in terms of home care are really meeting the demand and very successful, both from a quality rating point of view and from economic and financial point of view. That's you see reflected here in the sites with some further details. On that note, I will now hand over to Philippe, who will share how these factors contribute to our performance with an update detailed on our financials.

Good morning to all of you. Let's start with our main KPIs. We delivered EUR 4.5 billion of sales last year with an organic growth of 6.2%. Our EBITDAR margin is 24.1%, decreasing by 80 bps compared to '21. EBITDA margin, thanks to our real estate management, decreased by only 50 basis points. The net result of the group from continued operation is EUR 67 million. The significant decrease is due to transformation costs we supported in '22. Let's move to the cash and the balance sheet. Thanks to the working capital, we have been able to recover. We delivered EUR 371 million of free cash flow. Our liquidity stands to EUR 1.2 billion. Despite our strong free cash flow, our leverage is 3.7%. This is above expectation as we did not complete any real estate partnership in '22. This agreement shall take place in the months to come. To complete this overall picture, our real estate portfolio amounts to EUR 3.5 billion, showing an increase of 10%. Some more information on our growth. If we focus on the scope we are maintaining, excluding disposal and compensation, our growth is quite strong at 11%. Regarding organic growth, we have a solid 8.1%, quite, quite balanced between volume and price. This slide shows quite well the momentum of growth and the negative impact of the end of COVID compensation. Indeed, we have 8% of growth in Q4, with a negative impact of EUR 20 million of compensation decrease compared to last year. The growth by country evidences the impact of disposal in France and Germany. The growth of activity we maintained in these 2 countries is above 8%. If we shift to activity on the right-hand side of the slide, we can appreciate how strong the growth of the 3 activity is, excluding compensation. Thanks to the recovery of occupancy rate, long-term care is growing by 9%. Health care fueled by ambulatory activity delivered growth of 5% -- 5.1%. And community care, thanks to the huge emerging demand gain 7.5%. Let's move to the performance by geography. 2 countries, France and Italy, thanks to their large portfolio, activity are showing an increase of the EBITDAR margin. In these 2 countries, we have a regular recovery of occupancy rate, a network which has been renovated, a strong increase in activity with a large share of ambulatory care and efficient cost management despite the increase of staff costs. The picture in Germany is different. The COVID crisis continued to impact our activity in '22. And consequently, the occupancy rate is recovering slowly. The very significant increase in salary of 25% implemented in September had a 40 basis point impact on our margin rate. This increase was priced into care, but without any margin. We experienced a similar situation in '22 in France with [Foreign Language]. In Benelux, the margin is impacted by the ramp-up of our activity in the Netherlands, following the delivery of 14 facilities into last year. Let's move back to the group. Staff costs now represent 60% of our sales as a consequence of a constant increase of staff ratio for the reason Sophie described earlier. The increase in care staff costs we mentioned regarding Germany, which is also true in most of other countries, some revenue in cost overrun related to COVID disruption. The margin [ in red ], as we said, of both EBITDA and EBITDAR decreased in '22, mainly due to a slower recovery and of occupancy and a time lag in inflation. EBITDA is more resilient, thanks to the increase in real estate ownership and some lease management. This bridge shows quite clearly an impact of -- the impact of recovery equal to the decrease of COVID compensation. The huge impact of cost increases, which represent EUR 190 million, partially compensated within latitude to increase price. The difference is a net impact of EUR 27 and 100 bps of margin rate. '22 was also a strong year for disposal of assets with a net capital gain of real estate of EUR 30 million. A quick focus now on cost increases. Obviously, staff represented our biggest increase with EUR 140 million. This equates to a 6% increase of salary. We also faced a 10% increase in food cost, and 30% in energy. Overall, as I said, we had to face EUR 190 million of cost increase, compensated partially by EUR 163 million of price increase, which covered only 85% of the increase of our costs. While our EBITDA has been quite resilient with a net increase in value, our net result was impacted by an increase of our transformation costs with capital losses in Germany and restructuring in Belgium, and increasing depreciation as a direct consequence of our expanding real estate ownership. Our level of investment in '22 is comparable to '21. Development CapEx are still significant and mainly dedicated to the renovation of our network, notably in France. M&A was largely deployed in Italy and UK, a new year of acquisition of real estate with a high level of greenfield and buyback in France and Germany and bolt-on in UK. Overall, we are completing a cycle of investments, which has allowed the group to renovate 40% of its network to diversify its activity in health care and to double its real estate ownership rate from 14% to 28%. These investments will generate significant growth in the year to come. 40% of this investment have been, this year, financed by our cash flow and most of the remaining by debt. In '20 and '21, we welcomed 3 investors in 2 real estate vehicles for EUR 3 million and EUR 100 million, respectively. Further operation of this kind are under discussion, but were not completed in '22. Our real estate partnership approach will allow us to improve our leverage in '23, and we expect the group to be self-financed -- to self-finance its activity as soon as '24. This year, we also completed a huge task of reorganizing the group, with now 90% of own facility located in a dedicated legal structure. Our structures are ready to welcome equity partner for EUR 400 million of external investment. Our real estate value has been quite resilient this year with an increase of 0.1% of cap rate, mainly related to UK. This stability brought the overall value of the portfolio to EUR 3.5 billion, increasing in line with our investments. I'm quite proud to point out that our set portfolio is more and more qualitative with 50% of the facility new or renovated since 2016. Thanks to the improvement of EBITDA during the second half and the strong free cash flow, our leverage was stable since 30th of June. We have maintained 55% of LTV ratio, and our debt remained balanced between PropCo and OpCo. After 2 years of exceptionally high liquidity, having faced the opportunity offered by the low interest rate environment, we are back to a more normal but still comfortable level of liquidity. Indeed, we continue to raise debt in '22 in the amount of EUR 620 million, of which EUR 215 million in the second half. Thanks to our hedging policy, the net cost of debt remained low in line with last year at 2%. I take this opportunity to highlight the EUR 135 million of positive mark-to-market of our interest rate hedging instrument. Looking ahead, our maturity in the first semester of '23 are real estate related. We are refinancing these one by one, using our debt-free assets. We are working with both, our bank and institutional investor to refinance our Euro PP, OCEANE and bond maturities later in '23 and in '24. The Board is proposing a dividend of EUR 0.25 per share, with the possibility of payment in share. I will now give back the floor to Sophie for the outlook. Thank you.

Thank you, Philippe. So let's turn to the outlook for '23 and beyond. When it comes to operating performance and margin, in an environment that we expect to remain pretty challenging from a macroeconomic point of view, we have defined 4 key priorities for 2023, and you see them reflected on the slide. The first one is to further streamline the operating model to support performance in terms both of quality and financials. And we have undertaken significant work to improve and optimize selected overheads and support functions in the largest country. The second dimension is definitely to work further about HR and ensuring that we can feel, in a timely manner, all our position with qualified candidates. We expect to recruit again more than 10,000 people in '23, and we have been working hard to plan with the outmost care for recruitment in each profession, each region at a group level with a clear target to be able to fill at least 50% of the needs with our internal sourcing channels, notably through the development of our training capabilities, which we will further push forward. The third priority is about digital transformation, and I see that, Anne-Charlotte Dymny, our Chief Digital and IT Officer, is present here today. Definitely, this is a critical priority, too, as we are preparing for the future. '23 will be about reinforcing technology foundation as we have completed our move to cloud computing in the main country. We will also continue to automate key processes in the field and in the back office, and it will support the operating model performance for sure. Last but not least, energy is becoming a critical dimension, as you saw Philippe presentation, it has been a key topic in 2022, not the one we would have totally expected 1 year ago with a 30% increase in total cost in '22. And we are making now very active efforts to further reduce consumption, targeting a first step of minus 15% versus 21% at the end of '23, and we are well on the go and minus 30% of total volume by '25, '26. And this will go with the launch of energy performance contracts covering all the countries. For the time being, we have such contracts in Belgium, but we want to extend the model everywhere. So this is really a very key dimension of secured performance looking forward. Beyond these 4 near-term priorities, I look forward to speaking with you a month from now on the 31st of March about the new midterm corporate project we are actively working on and about the new ESG roadmap that goes with it. In line with our aim, I hope you recall, to legally become a purpose-driven company, which will be on the agenda of the next Shareholder General Meeting in June. Ultimately, all 4 of these priorities serve a single purpose driving growth and performance at Korian. We have actually 3 levers to fuel a very dynamic top line, at least in 2023 and the years to come. The first one is definitely very easy to guess through the normalization of our long-term care network. We have still a way to go before getting back to the level we had minimum in 2019. So it's -- we are missing 2 more points of occupancy to be back above the 90% level and possibly to push further. So this will be one of the strong growth drivers for '23. The second driver is about pushing further outpatient and asset-light activities, such as home care, supported by the recently developed or redeveloped capacities, which has presented. And the third level is definitely also through the ramp-up of the newly delivered facility, we have been actually -- we have more than 1,500 ramping up facilities delivered last year, and we will add at least 1,000, 1,200 more capacities, especially through the development of the small care community development such as Ages & Vie. Let us come now to the guidance. We, therefore, expect to deliver at least 8% organic revenue growth in '23, and at least with this embedded growth potential, 5% in '24-'25. This is organic. When it comes to operating margin since -- in '23, we expect that most of the price rate adjustment will have to cover significant further wage adjustment, of which most of them have already been decided or pre-decided in '22. And also to offset further inflation of costs, we are guiding this year on an EBITDAR and EBITDA that will remain at least stable in amount in '23. In '24 and '25, we expect EBITDAR and EBITDA to grow again in line with revenue on the back of what we are doing to optimize and streamline the operating model. When it comes to leverage that we include in the guidance this year, because it will be one of our key area of attention in a higher interest rate environment, we intend to be back '23 below 3.5x, notably thanks to real estate monetization, as Philippe explained. And looking forward, we intend to further reduce our leverage around 3x and to adjust loan-to-value between 50% and 55% thanks to CapEx adjustment, to the level of operating cash flow generation so the self-finance growth model that Philippe described. I'm confident that Korian will continue to demonstrate resilience and deliver sustainable performance in the new macroeconomic context supported on the one hand side by the strong underlying demand and care needs in all our markets and the strong commitment of all teams and I would like to highlight the strong commitment of the group management board members that are really fully, fully supportive of the company in this challenging time. Thank you very much for your attention. Philippe, myself and also Nicolas Merigot, Korian France CEO; Anne-Charlotte or Marion Cardon are now available for your questions. So floor is yours.

Just a reminder, the questions can be posed over here in the room and through the chat on the webcast. So we have the first question from Patrick from Societe Generale.

Patrick of Societe Generale. I have one question regarding the EBITDA margins that you are expecting for 2023 so you expect stable EBITDA with revenue up 8%. If I do the math correctly, it means an EBITDA margin down something like 200 basis points or maybe a bit more. Could you explain us the bridge to go from the 24% of this year to 22% or maybe a bit less in 2023? What are the bridge? What is the impact of pass-through without margin could you explain, please?

You remember the bridge you had regarding the margin this year, you have the same kind of bridge for next year. So you will have an increase of activity on volume mainly related to ambulatory activity on the health care side and recovery on the nursing home side, but we will still have some decrease in the compensation. So what is going to bring regarding new margin, the increase of activity next year will be quite low and we have still a huge increase of activity without any margin earning cost. We have been impacted this year in Germany by an increase of EUR 50 million of cost, which have been directly translated in price. Next year it will be EUR 100 million because it has been implemented in September so it's only 1/3 of the full impact. So clearly new year, I hope we'll have good news. But overall we will have the same kind of trend as the 1 you are seeing for the second year in this line.

So if I can complete, actually there are 3 levels there. There is the pass-through effect that Philippe just described. This is the main reason for margin dilution definitely and there is a transformation in the model. We have more contributing health care at even a lower EBITDAR, but a better EBITDA because it requires less square meters in order to be there. And we are globally also cautious in the fact that we will have to face some further headwind in inflation. So this is why we decided to guide on stable EBITDAR and EBITDA in amount. And probably you might ask how we are going to offset the cost on the rental side, Patrick.

I had just 1 question. I think you answered the question.

So we have a question in the chat from James at Jefferies on the working capital. What's driving the significant change in working capital being positive inflow of EUR 33 million this year compared to minus EUR 100 million in outflow last year and how do you see the development of this in 2023?

Yes. The answer is more in the fact that the 2 last year was quite specific. Part of the financing which has been put in place was specific financing on compensation for COVID crisis, which were quite difficult to recover. So if you remember, we were around EUR 240 million in '20 and in '21 when we used to be more around EUR 300 million in 2022. So we have been impacted this 2 last year by a significant increase in our working capital in our balance sheet and it's the start of the reversal. So we have been able to reduce the working capital by EUR 30 million this year so it's EUR 30 million improvement of the working capital and the free cash flow and I hope we are working on this topic to do it again. We have room to do it again in the year to come.

And we have another question on the chat this time on the debt maturities for 2023 and 2024. Will there be some debt down payment or will this indicate the real estate simply be extended? Have you already started these conversations?

I think regarding the debt, first topic is to speak about investment. We are reducing deeply our investment as you have seen. As an appendix, you will see the pipeline. The pipeline has been divided by 2 and it's one of the reasons why we have a slight impact on our net results. We had to cancel or to postpone some investment. So first item is to reduce investment. Second item is the one I just shared with you increase free cash flow. The way we are following is to be self-finance so decreasing the investment, increasing the cash flow. Third, using real estate, we are running behind real estate debt. We are not going to increase the real estate debt because we have a roof at 55%, but we have some bridge. We have some debt which is allocated to real estate and we can renew significant part of it. And after, you are fully right, we are going to enter in talk. We have already started, but we are going to move again this way to talk with our bank and with some investors to renew the other maturities.

David Cerdan, Kepler Cheuvreux. I have a question regarding your real estate disposal. Which kind of volume of disposal do you expect for 2023 to achieve your deleverage plan? And what is the mood in the market regarding property asset? Do you expect, I would say, a lower valuation for your asset? Is there risk of a lower valuation? And what is the alternative if you face some difficulties in selling some asset?

We are not directly selling assets. We are opening vehicles, which is a bit different because we are warranting revenue, which is kind of important floor for long-term investment. We are not expecting today less appetite from the market on this topic. Of course we have talked about the value of real estate. As you have seen, the current valuation is equal to last year regarding cap rate, slight increase. It's mainly in U.K., other markets are quite resilient. We are expecting some decrease. I don't think we should face a huge move, health care real estate assets are quite resilient compared to other assets. So we can always be extremely cautious and trying to face or to be scared about risk. But we are working with lot of investor and of course the price is going to decrease a bit, but we don't see huge issue to open a vehicle and to refinance our real estate today.

[Interpreted] I got a question on your real estate ownership. Do you still see a target of 30% for '23?

30% has been a target. Clearly we strongly believe that we need real estate. You can see this year we have been able to deliver EUR 30 million capital gain on real estate. Why? Because we are very well placed to buy real estate at a low price, at least lower price than the market and today lot of people are asking us to buy the real estate. With the current interest rate, it's less easy. But clearly we have an access to real estate, which is a good one and we can buy. We don't want to keep. It's why we have sold quite a lot of real estate. So the objective is to be flexible to improve our assets and when you want to be flexible and improve your assets, you have the interest to be the owner. If you want to modify your assets, you have the interest to owner and if you don't want to commit for too long period, I am unable to say that I will have the same kind of activity for 25 year in asset. I can commit for 15 years because after I see quite well what I'm going to do during 10 year and after 10 year if the duration of France is 15 year, I am strong against the landlord to renegotiate. So I don't want to commit for a too long period and I want to stay flexible. That are my strategy regarding real estate. And when I buy real estate at a low price or when I improve the EBITDA, I want to keep the full EBITDA. If I have [ it long ], I have to share the EBITDA divided by 2. So we are extremely opportunistic regarding real estate. We don't want to be big, big real estate company and we believe that being between 25% and 30% is enough for us.

A couple of questions still on the real estate theme. One is how do you see the evolution of cap rates going forward, which is similar to some of the questions we've had so far? And more specifically, what's the valuation of our U.K. assets and are they still unencumbered?

U.K. asset, most of them have been bought 2 years ago. We have seen an increase last year -- we see a slight decrease last year. It's clear that the U.K. market is more volatile than the other markets, but we are still above the acquisition price. As you may remind, we are booking our asset. We are not revaluing our asset in our balance sheet. We are keeping the historic price so we don't have any kind of depreciation to be booked and we have not booked any depreciation, any impairment this year and we don't see because we have still significant room. Even though cap rate will probably increase, we have some room before booking impairment. Cap rate will decrease slightly. Again I believe that health care assets are stronger than the other and we have quite regular cash flow to come and to cover the value.

We expect of course cap rates slightly to increase in the quarters to come. But as Philippe said, our assets is mainly about the revenue they generate and since we've been always very cautious in the effort rate we take so the part of EBITDAR that is dedicated to the rental part when we do the valuation, we have significant room. We've been very cautious in the way we assess and evaluate our assets so far and we have a resilient activity and visibility on the activity so far. So this is why we don't expect major shift in this very specific health care asset class. And maybe, David, you were just asking how much we expect from the real estate monetization. This year we have actually a very significant potential of further equity inflows. We have selected vehicles so it's not going to be 1 operation kind of take it or leave it. We have actually for the time being 3 different partnerships that we are considering. So you will know more about this in the weeks and months to come.

Ganet from ODDO. I have few questions, if I may. First will be on your forecast and guidance, I'd like to have a view on the price effects that is factored in the 8% or 5% forecasted for the next years. Second point and still on organic actually, can you elaborate a bit more on rate of occupancy first, per country for 2022. And secondly, the assumption that you have taken in terms of rate of occupancy on your forward-looking guidance notably on '24-'25 when talking about plus 5%? That's the second question. The third question would be on M&A and CapEx more globally. Can you provide a split of the CapEx? If I heard correctly, Philippe, you said that there will be a decline of CapEx. So is it possible to have a total amount of forecast plus the split by destination as you have shown in 1 of your slide? And that will be good.

Regarding the guidance. As you know when we are giving a guidance, we give a kind of floor. So we see a kind of floor of 8% and for sure we will have a significant share of price probably 4%, maybe a bit more. But probably if we have a bit more than 4% of price, we will have a bit more than 8%. So we see at least 8% and something which will be quite well balanced like this year between volume and price. Regarding rate occupancy, in fact I would say everywhere we are a bit below what we were using to be before the crisis like in Italy. Italy is very high, we are at 94%, 95%, but we used to be at 97%. You know that in Italy we have half of the beds that we have in other countries so the situation is a bit different. In France, we are a bit more than 88%. We were at 91% so something 2% or 3% below. The situation is a bit different in Germany. Germany is exiting from the crisis a bit later than in other countries. During the first half of '22, Germany moved through a period of discrepancy of organization of COVID so we had still a lot of absentees, a lot of disruption in the facility and they started to recover I would say during the second half. So they have some delay and they are more at 86% of occupancy rate this year. Occupancy in '24, '25, we have taken the assumption to recover equal to this year of 2%. I think it's reasonable, probably it can be a bit less or it can be a bit higher. We see quite a good trend today, but we know very well that we know how strong they are during the summer as we have a huge level of short stay and the level of short stay during the summer and the translation of short stay to long stay after the summer is key to have a good indication of the trend of occupancy during the year. M&A and CapEx, we have complete Grupo 5 beginning of this year. For M&A, we are not going to do any other deal this year or very small deals. So M&A will be mainly Grupo 5. And most of the investment in the year to come are going to be development and greenfield that is going to be at probably EUR 400 million this year, plus [ EUR 100 million ] of M&A. So EUR 500 million this year and for '24, it will depend on our ability to deliver cash because we will be self-financed. So if we are able to deliver a lot of cash, we will be a bit higher than EUR 300 million. If we are not, we will decrease in due proportion the investment.

One point on ESG and notably HR, actually you've shown loyalty data. I'm curious about -- I know that the most important rate is the loyalty on the first 6 months because once a nurse or a caregiver is inside post 1 year, actually it seems that they are loyal. So the key improvement from you would be the fact that people are increasingly loyal in the first 6 months. Can you provide some data on the first parts of their career at Korian if you have some data about the improvements?

Actually this is not something we measure. We perform a so-called poll survey once a year for all the permanent staff. It's done on exactly the same very easy question to be pushed directly through mails and SMS. And so we do not -- it's anonymous of course and we do not measure the level of engagement given the tenure time. What we can measure is of course the level of fluctuancy in the first 3 or 6 months and then you're absolutely right. If people do not feel welcome and supported, they might go very fast because actually there are a lot of open position everywhere in care industries in general. And I don't have the split of figures country by country on this, but definitely we see average of 1 under 3 new hire that are leaving in the first 6 months and we have to improve that. But engagement score, it's a very classic way of measuring things. We are asking Ipsos to perform the poll survey so that they can compare with their database and this is why this is not, I would say, Korian own measurement. It's really something that is a market standard and done really under market standard type of approach. It is what it is, but at least it gives a very tangible feedback from the teams. And therefore, since close to 60% of permanent staff answered to the survey, it's representative.

I have a question regarding your asset portfolio. What is the breakdown by geographies? And second question regarding your EBITDA margin decline in 2023 by around 200 basis point, what is the decline for just Germany and as a result, what could be the average decline for the other regions?

Asset portfolio is following the split of the group so we have roughly half of the portfolio in France. I will say the second place is taken by Italy for once and not by Germany, the second portfolio is Italian. And after it's a split between the other countries I would say at equal place; Germany, Belgium and Spain. Regarding margin by country, we are not going to enter in very detail. You are right, Germany will be hit again by a decrease of margin thanks due to this pass-through. Overall, we have decided such a guidance and clearly, but France will be hit too because we have the completion of some compensation on the health care side. So we are not going to see an increase of margin significant in France. It's an overall situation, decrease will be a bit higher. I'm speaking about rate because overall I remind that we will see an increase in value of EBITDA. So if we are speaking in rates, the margin rate will decrease slightly higher in Germany, but will decrease in other country too.

We have a couple of questions on the environment generally on the chat. One is are we seeing any strong discounts on the pricing notably pushed by other players who may have a lower occupancy level? And the second question, is there any view on a potential French dependency law?

I will take those 2. Yes, we see some players that are trying to push price down. That's for sure. Maybe Nicolas can confirm at least in the French segment because this is definitely the way other players are playing. But when it comes to Korian, we have decided all along the years to maintain our level of pricing because it goes also with the level of quality and stability we want to offer to the facility organization. So this discount is not affecting us in the pricing policy and in the way we act. It might have slowed down volume recovery, but I think we did the right trade-off. It's better to have the right positioning and to make sure that we have stable activity and progressive return to normal and I'm very confident that we will be back above 90% in the year to come in France. It's actually the underlying trend we are experiencing now. Market environment, what we have heard, but this is not official is that there will be some kind of bill related to selected topics of elderly care being passed at parliament in Q2 if I'm well informed. And of course there is a yearly bill so-called [indiscernible] that may also contain some, I would say, selected topics regarding elderly care in general. That's for what we know. I think there is very intensive work done on regulation, as I said, together with the professional organization and the ministry in order to really make sure that we align both on the ethics and regulation framework and transparency level and we've done real progress with the entire industry on that segment where definitely the regulation was too weak. And on the economic dimension, I think that authorities are well informed that with such cost increase inflation environment, margins are under pressure and this is why we were actually able to get a plus 5% price rate increase for elderly care in France, which is one of the highest indexation we ever had in the industry. So I think this shows the fact that the regulation framework is actually meant to support quality and sustainability in the sector and not to cut cost from a public funding point of view. That's what definitely the regulator wants is to have quality and transparency for the funding and the support he gives, which is I would say absolutely normal.

I had a question regarding your strategy on leverage because you've developed a business model that is using quite a lot of debt in terms of internationalization and you did a lot of acquisition and diversification, which all makes sense. But in today's context that maybe you didn't accept in terms of higher interest rates and also the crisis we got in France. Would you consider or you cannot consider that at all to go the other way around in terms of M&A, selling some assets? Would it be some countries or some businesses, which of course make lot of sense in strategy, but maybe financially is a bit more difficult to keep going forward or is that something you don't want to consider at all?

As I was saying, we are at the end of a very high investment cycle, which we had to do both because the core network had to be upgraded that's for sure and because we had to accelerate the diversification. I'm very glad that we did it in a low interest rate world. We are at the end of the cycle. Now we have to digest those acquisition, integration are underway and we will, as Philippe explained, really focus on that. So we do not expect to have further M&A. I think the latest acquisition we've done are relevant ones and they will bring short-term returns because there is a lot of embedded growth, organic and asset-light growth in it. It's mainly health care with a lot of outpatient activity so low asset or CapEx intensity and higher return. So that's definitely the road to be followed in the semesters to come and I'm confident that we will monetize. We are accelerating the blended ownership model on the real estate side, which is actually the part that is very much asset intensive. And as Philippe said, we are very pragmatic on that with higher interest rate and if we find a good counterpart, we are absolutely flexible to have also a different type of partnership on real estate.

But you wouldn't consider selling assets…

For the time being we have the role, we have the strategy, we have a very focused geography and footprint. So for the time that's what we are doing. Of course there will be some disposals. We've been demonstrating in the last months that we were able to sell or to restructure 56% or 58% of long-term care network so there will be probably more selected disposals to come definitely and especially on assisted living. We are arbitrating some segment of activities there.

Christophe again. Two additional questions. One on rental. Is there a specific trend that we should have in mind when modeling for the future? And the second question is on ambulatory care, can you update us on the proportion of the network which is able to provide that kind of service and where should we land by the end of '23 for example?

On the first question, we have an increase which is reduced by first the increase of ownership, which is quite significant when we increase by EUR 400 million each year real estate. We are renegotiating quite strongly some in France notably, but not only we have some new renewal of lease and we are quite, I would say, strong in the renegotiation so we can have some savings. And so we consider that the increase of rent should be below one of the costs which will increase slightly below our top line.

And on outpatient care in health care, I don't know Nicolas, if you want to take this for the French health care segment?

Yes. 85% of our French network is proposing ambulatory care and in '23 we will target 80% of our portfolio proposing this ambulatory care. And in term of proportion of revenues, ambulatory care is representing an average of 10% of the total revenue coming from this activity of health care in France.

It went up by 200 basis points in the last 2 years and we expect the growth this year to be practically in line inpatient and outpatient care because we have also rate adjustment. So the contribution will be probably pretty much balanced.

We have a couple more questions on the different impacts in 2023 in addition to the rental question we've just had. What might be the impact on the financial charges next year particularly in the context of increased spreads and the increased base rate? And how can we -- can you comment on the evolution of the other noncurrent in 2023, but also in 2024 and beyond?

As you have seen, we have been quite resilient regarding financial costs this year. We see another resilient year. It will increase a bit more than what we have seen this year, but we don't see huge increase. It will be fully right relative to our spread because we are fully hedged on the interest rate side. So it should be quite limited for next year. Regarding other noncurrent, it's always a significant issue because there is some advantage to restructure whether we need to do it. We had a big issue in [indiscernible] like any other you have maybe what is happening to one of our competitors which is obliged to close many houses facility in Brazil. We have done this since 3 years so it's year after year and we still have some to close. I hope next year and overall noncurrent costs should decrease compared to this year maybe more thanks to some capital gain we could book next year.

There is another question on the CapEx. Is there a level of extra CapEx required to complete the refurbishment that we have been talking about?

I think Philippe was pretty clear by stating that we will be around EUR 500 million CapEx this year and refurbishment CapEx at the end of the cycle is actually in that amount. Afterwards, we intend to be back around EUR 300 million.

There is also a question for next year. You've guided on organic growth. Is there any external growth to be taken into account next year?

Yes, we have Grupo 5, which has been bought in January so clearly it will have a positive impact roughly 2%. But we don't see any other significant impact regarding external growth and we have some negative impact from the disposal of this year. So again for next year, a relatively low impact of variation of perimeter.

I think we may have covered this one, but it has come in the chat again. Are you planning to separate the real estate assets?

I think we've been pretty clear. We have dedicated vehicles there. We are contemplating mainly to replicate the type of partnership we've done twice until now. So it's with minority partners in, but we might also consider some sale and leaseback. Depending from the conditions, we are actually contemplating both alternatives.

And we have a final question that's in the chat at the moment. I would remind you can pose your questions there or in the room. We've talked about technology as a driver for the future. However, we don't necessarily see how that might affect either the CapEx or the revenue going forward. Could you comment on that?

That's true and this is why I give you -- actually I have given you an appointment end of March where we will present a midterm new corporate project and we will be much more precise on that dimension. But this is fully embedded in the level of CapEx I just mentioned, but we will explain more. More to come on the 31st of March. This is a teaser.

We have a last question from David.

I have a question regarding your net debt, it was around EUR 3.8 billion at the end of 2022. If you deliver your partnership program, at which kind of net debt do you expect to be? And can you also give a number on what you expect from the monetization of your partnership in real estate?

I think you have the number in the presentation. We have said that we have EUR 400 million, which are open to welcome investors. So the impact will be from EUR 0 million to EUR 400 million this year. Regarding the net debt, we should stabilize net debt, I hope we can decrease it a bit. But if we have EUR 500 million of investment this year or EUR 300 million around of cash flow meaning we need to monetize EUR 200 million to be back to a stable debt. And if we are able to do more than EUR 200 million on equity side, we should decrease debt.

That concludes all the questions that we have in the room and in the chat.

Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]