Clariane SE (CLARI) Earnings Call Transcript & Summary

Good day, and welcome to Clariane 2023 Half Year Results Presentation. Today's call is being recorded. At this time, I will now turn the call over to Sophie Boissard; joined by Philippe Garin, CFO. Please go ahead.

Dear investors, thank you for joining Clariane's first half call. I am Sophie Boissard, Group CEO; and together with Philippe Garin, Group CFO, I will be presenting and answering to your question. Let us go to Slide #4. I would like to start by underlining some of the key highlights of the recent months. First, let me recall our successful transformation into a purpose-driven company associated with a new name for the group, Clariane, with an overwhelming support from our shareholders. Second, we see more and more confirmation on the back-to-normal momentum in all our activities, including nursing home with an occupancy rate at 89.2% and very positive feedback from families and resident. I dare say that last year, gravedigger crisis is now, from an operation point of view, behind us. Third, we delivered a robust operating performance despite inflation at more than 10% average, reflecting the value of our diversified model. Fourth, in a tightening credit market, we've been able to achieve major milestones on our financing road map, both in equity and debt, benefiting from large support of our financial partners. Fifth, we are, therefore, on track to meet our targets for the year. Let us now move to Slide #6 and have a look on the key figures. Regarding operations, we've been supporting 445,000 (sic) [ 545,000 ] people in H1, which is a plus 15% versus previous year. It reflects the development of our patient base in all countries. Occupancy rate in nursing home has been continuously increasing over the last 6 months, reaching 89.2%, plus 2 points. Given the unmet demand, there is still a strong growth potential there, closely linked with the availability of qualified staff, which remains the main pain points. Residents' feedback are positively oriented. We, for example, posted plus 7-point increase in Net Promoter Score for the temporary stays in France over the first semester, or 87% positive opinion from a recent satisfaction survey performed in France over 1,000 residents. But please note that our yearly customer survey will only take place in H2. Let us move to some of the key ESG targets. This is the second column on the slide. As you see, the first one is about quality, and we are well on track to reach the 100% ISO certification target of our networks by the end of this year. The second major dimension, and you've heard me very often about this, is about the training and HR development. We are currently at 5,800 employees engaged in a graduating or training program, which is actually very close to the yearly target set at 6,500. So we are actually working ahead of the road map for '23 on that very important target. The third ESG target I want to highlight is about energy efficiency. We've set an action plan to support reduction in volume, and we've posted for the first half minus 14%, which is very encouraging. Let us move now to the third column on the financials. They will be, of course, developed in all details by Philippe, but I want to comment on 3 points. First point, with the 9.3% organic growth, our diversified business model in terms of activities and geographies proved to be very resilient. Operating result is stable as expected at EUR 285 million in a challenging environment in terms of cost inflation. Therefore, ability to adjust pricing is key and remain a major focus and priority and of all executives around the company. Operating free cash flow at EUR 45 million has been lower than previous year because of temporary higher working capital requirements due to delays from public payers. This will be recovered in H2. Let us move now to Page #6. The transformation of Clariane into a purpose-driven company is effective since mid-June. It ensures for long-lasting and clear alignment between social and financial performance, and therefore, represents a step change in the group's history. We are very happy to get a strong support from our shareholders to endorse both the new purpose and the commitment road maps that go with it. We have also put in place an enhanced governance to foster dialogue with external and internal stakeholders. As you see on Page #7, those changes associated with the purpose-driven company change have already started to materialize. First, the Mission Committee with the 13 members made up of representatives of patient and resident, employees, qualified personality is in place. It has already held 2 meetings and is fully operational. Second, some of the 10 initiatives associated with our 5 commitment have already been launched. The first one is the Clariane University in France that has already, with only 3 weeks functioning, 150 applications coming from our employees. This shows that it is really meeting a very strong demand. Second, we have launched some very interesting medical research projects. Third, we've been able to submit the commitment to SBTi initiative, and we aim to submit a quantitative low-carbon trajectory by end of '23, which is a major milestone in our low-carbon trajectory and commitment. Let's move now to Page #8. All our activities present strong organic growth. Long Term Care reported a 9.1% growth and 9.3% organic, driven by both price and volume. Price, of course, with significant adjustment done on regulated tariffs, notably in Germany, and which contribute to around 2/3 of the global organic growth at group level. The second dimension is volume. Occupancy rates have been steadily increasing by 2 points between H1 2022 and H1 '23, and reaching 89.2% end of July. This is true for all geographies, as I will comment further. Healthcare segment reported 17.5% growth, of which 6% organic. This segment now represents 27% of group's revenue, which represent a 200 bps increase. Post-acute and mental health activities are both showing dynamic momentum, notably fueled by continued strong increase of the number of patients we cared for, plus 17% over the last 6 months. Community Care reported a 17.7% growth, of which 16.7% organic development on the back of continued momentum of Clariane shared housing concepts and high growth in the home care network. The number of clients served by Petits-fils network in France has increased by 28% in June '23 versus June 2022 and reach now 17,000 clients in France. Let us move now to Slide #9 with a further look into the Long Term Care segment. Long Term Care segment represents now 62% of group revenue in total. As I said, revenue are growing in all countries on the back of continued normalization of occupancy rates, plus 2 points between H1 '22 and H1 '23 and actually, year-on-year plus 2 points also. High cycle of investment is coming to an end with 23 refurbishment and new build projects delivered during H1 2023. As you see on Page #10, Healthcare segment is now representing 27% of group revenue, with a continued strong increase in the number of patient cared for, plus 17%. 75% of Healthcare revenue are coming from post-acute and rehabilitation care and 25% from mental health. On the post-acute subsegment, the last half has been marked by continued modernization of the network, with 11 projects to be delivered in the full year, including 6 that have been already delivered in first half. On the mental health subsegment, the semester has been marked by the acquisition of Grupo 5, which is a key milestone in the group European strategy to scale up this mental health activity. Mental health activity is set to represent circa EUR 330 million in 2023, with a strong footprint in 3 countries: France; mainly Spain now; and Italy. As you see on Slide #11, Community Care represent already 12% of the group revenue with a strong and untouched growth potential. The strong development of Clariane's shared housing concepts have proven very successful with close to 700-bed opening over the semester, essentially fueled by the Ages&Vie French concept rollout. As I said before, continued high growth in the home care network has been again proven through over the last semester, with now more than 260 Petits-fils agencies in France, and an increase of 28% clients served in June 2023 versus June 2022. Based on the Slide #12, let's now have a look at the evolution of our activities by region and geographies. During the semester, all the countries in which the group operates posted solid growth, as you see on the chart. Excluding external growth, therefore, on the right organic basis, this performance has been primarily supported by the increase in tariff in all countries to compensate the strong inflation on costs and the strong organic growth in all geographies, confirming the well-balanced geographic footprint in Europe and the relevance of our choice for development and reinforcement of our activities. Starting with the Slide #13, I would like to have a look to the various performance in the different countries, starting with France and Italy, which have the most mature and diversified business model, covering all the 3 segments. In France, revenue amounted to EUR 1,096 million, up close to 6% on a like-for-like basis. The performance has been supported by a progressive recovery in nursing home, reaching now 89% end of July. Note that there is still room for improvement to get back to the pre-COVID levels around 91%, 92%. Healthcare activities showed also positive momentum, especially in the outpatient segment, which represents now about 1/3 of this activity. EBITDAR increased by 5.4%, so a little bit slower than revenue. Italy, in Italy, revenue was organically up 8%. In nursing home, the activity was supported by high occupancy rate and full back to normal, and Healthcare posted robust improvement during the first half. In this favorable context, EBITDAR amounted to close to EUR 65 million, with a slight improvement in margins. Let us move now to Slide #14, to the countries which are mainly long-term care-focused namely Germany, Belgium and the Netherlands. In Germany, revenue reached EUR 573 million, an increase of 13%, fully organic. This development has been fueled by the strong tariff increase in 2022 following significant salary resets effective from September 2022 on. The EBITDAR amounts to EUR 103 million versus EUR 134 million in H2 -- in H1 2022, so a visible decrease in the margin as tariff adjustments obtained in H2 2022 proved to be -- to only partially offset the total increase in costs in this country, with continued high inflation in H1 2023. In this context, we have started a new campaign of tariff negotiation that will help us to bridge the gap in H2 2023. In the Benelux region, so in Belgium and in the Netherlands, revenue organic growth remained high at close to 16%, driven by strong improvement in occupancy rate in Belgium, we are now over 91%, and the ramp-up of new facilities in the Netherlands. In this context, EBITDAR was up 24.9%, driven by continued ramp-up in the Netherlands and this improved occupancy level in Belgium. Last but not least, based on Slide #15, let me finish with our ramping-up countries, Spain and the United Kingdom. In those 2 countries, revenue was up by more than 100% due to Grupo 5 acquisition in Spain. Excluding the impact of these acquisitions, revenue in this region was up 6.4%. This performance on a like-for-like basis was mainly driven by price increase and ramp-up contribution in the United Kingdom. EBITDAR was at 24.7% (sic) [ EUR 24.7 million ] versus EUR 17.5 million in H1 2022. Let me take a few minutes to talk about Grupo 5. The integration process is well on track. And with our mental health platform covering now all the main regions of Spain, we are able to address the fast-growing markets through the combination of Ita expertise on eating disorders and Grupo 5 expertise on psychiatric care and mood disorders. And this combination place us as a clear leader in this activity, not only in Spain, but in Europe overall, with EUR 330 million of revenue expected in mental health segment in 2023. I hand over now to Philippe Garin for the financial report.

Thank you, Sophie. Let's move to Slide 17. Since Sophie has commented extensively the growth in revenue and the operational performance by BU and country, I will concentrate on the financial performance of the group and the balance sheet. Before going into detail, I would like to highlight that we are fully in line with the guidance with significant revenue growth and a stable EBITDA. In value, our leverage is at a high point, but should be reduced by the end of this year. Let's look to the figures. On Slide 18, let's move to the P&L of the group. We see clearly on this slide, our inflation has impacted our EBITDA. Overall, our revenue has increased by 12.2%, where staff and other costs have respectively increased by 14% and 17%. The amount of EBITDA is, therefore, only slightly up compared to last year. And thanks to an active real estate management, there is a reasonable increase of 6% of France, allowing a stable EBITDA in value. Moving to Slide 19, we have a bridge, which confirm what we have seen in the previous slide. In blue, the volume effect of 2% increase in occupancy is offset by the decrease of the remaining compensation. In orange, we can see the huge increase of price, but also of cost, leading to a net negative impact of EUR 23 million, mainly reflecting timeline effect in Germany. In green, the favorable net impact of asset management. Let's move to Slide 20. Below EBITDAR, there are 2 significant variations: an increase of amortization, which is a direct consequence of our investments over the previous year; and a decrease of noncurrent expense following a particularly high level of restructuring booked last year. As a consequence, the net result remained low, representing 1.3% of revenue. If we move to Slide 21, on cash flow. Our investment of the semester are very similar to last year, while taking into account both the overall amount and the split. Grupo 5 represents more than 40% of the total. The amount of EUR 375 million which represent a large majority of the CapEx for the full year as we are expecting a net investment in H2 of around EUR 50 million. We have financed this investment differently than last year. Despite the lower cash flow, our real estate financing strategy with the vehicle completed in June, bringing EUR 120 million of equity, has benefited us a lower increase of net debt compared to last year. Slide 22. This graph demonstrates very well what I have just indicated. After a 4-year cycle of investments strengthening the network and scaling Healthcare capabilities, we now enter entire focus on deleveraging the group. I can tell you that from 1st of July, we are in a self-finance -- we are a self-financed company, with cash flow significantly above CapEx. Slide 23. The group benefit after the cycle from a high-quality network reflected in a resilient valuation despite market condition. This combination results in a cap rate of 5.5% for the portfolio after a 5.4% in '22 and 5.3% in '21. Slide 24. As already explained, our real estate partnership has been extended with a new vehicle, allowing us to raise EUR 120 million. Overall, the real estate partners have invested around EUR 500 million since 2020. With a 50-50 approach, we still have around EUR 300 million that can be raised. Page 25. As I mentioned, our focus is on deleveraging. As a result, we have reduced our pipeline by around 50%. Our greenfield pipeline will be largely financed through partnership vehicles, [indiscernible] with our recent announcement in June of a partnership in France with Banque des Territoires. Page 26. At 4.1x, our leverage is at a high point at the end of June as a direct result of the front-loaded investments in H1. In H2, we will have a higher free cash flow in line with previous year, very limited level of net investment, around EUR 50 million, and further real estate vehicles. These elements will allow us to reduce significantly our leverage and if the 2 vehicles are completed, will be around 3.5x leverage. Page 27. I am pleased to highlight some key milestones achieved since the beginning of the year. The extension of the term loan with our pool of bank for EUR 505 million; a new sustainability-linked financing for EUR 40 million; and the continued financing or refinancing of our real estate assets with EUR 150 million. Page 28, with EUR 900 million of liquidity, the group is back to a normal cash position after being over-liquid during the COVID crisis. Let's have a look on our new debt maturity profile following this recent operation. EUR 650 million of debt maturities have been extended beyond the next 2 years over the semester. And after this refinancing, the average maturity has moved from 4 years to 4.5 years.

Thank you, Philippe, for this detailed and clear explanation of the group financials performance during this first half. I'd like to take the opportunity to thank you for your commitment and the one of your team on the work accomplished in recent months with our financial partners who have just renewed their confidence into Clariane and its newly adopted mission. Bravo for that. Before leaving the floor to your questions, I would like to confirm the following based on Slide #30. Based on the first half robust achievement that you just heard about, we remain fully focused on the short- and long-term objective. We, therefore, confirm our annual objective of organic revenue growth of more than 8% and of a stable EBITDAR. And we, last but not least, also confirm our road map for reducing the group debt level. In the very short term, in the second half, as you heard from Philippe, the group will be in a self-finance situation. This is key in an environment marked by tightening credit conditions, and this is also a key differentiator towards some of our peers. In the longer term, the group is now fully armed to face the major challenges of taking care of everyone's humanity in times of fragility. This is our mission, and I know that I can rely on the community of professional of Clariane in our 7 countries to achieve this mission with greatest dedication. Thanks to you all. Now let us turn to the Q&A session.

[Operator Instructions] There are no questions on the line for now. Please proceed.

In that case, maybe we can tackle some of the first questions that we have on the webcast. Sophie, Philippe, the first question we have is what is the situation in Germany. If you could come back to that?

Yes. Thank you very much for the question. Situation in Germany from an operating point of view is a very good one, both from the quality standard and also for the overall momentum in recruiting and retaining good professionals everywhere. The key dimension in Germany is to catch up from the huge inflation both on wages and other costs, namely energy and food cost. We did part of the way last year with a significant unheard increase in the tariff, and we are now entering the second round of tariff adjustment with significant increase requested with a strong backing coming from the local authorities because everyone is aware that we had to face a margin squeeze last year and that we need to recover and to be back to a sustainable level of profitability.

If there are no more questions on the -- if there no questions on the line, I'll carry on with the webcast questions. Could you also tell us how the mental health activity is evolving?

So mental health activity is actually developing pretty fast, both from an inorganic point of view from the French platform with the recent development and the opening of 5 further outpatient center, and now with the contribution of Grupo 5. So we are on our way to reach EUR 330 million revenue in 2023. This will represent, at the end of the day, around 30% of the total revenue of Healthcare activity across the group. We are also very confident that we can develop and expand further on an asset-light mode, both by taking over some further outpatient center, especially in Spain, and also ramping up the various centers we have in France with 30 clinics, outpatient clinics across the country. So that creates a strong opportunity, both from a top line and also from a margin contribution point of view with a segment that delivers around 15% EBITDA, so after rent, EBITDA margin.

I think there's a question on the phone line, before we move on.

We will take our question from Patrick Jousseaume from Societe Generale.

Can you hear me?

Yes, Patrick. Yes, we can hear you.

Yes. I have 2 questions. The first one is your press release. You mentioned a change of control of Ages&Vie. Could you be more precise about that? Is it just about the real estate assets? Or is it the company itself? It's unclear for me. And the second is about liquidity, and, let's say, debt repayments. So we have not accessed to the slides, and we have seen the slide about liquidity and debt repayment very quickly. So could you give us, let's say, a more precise figure about what you have to repay in second half of 2023 and 2024, please?

I'll start with it, sorry, Patrick. In fact, with the JV, we are only speaking about real estate. It was an agreement with the investor at the beginning that as we were developing Ages&Vie, we were, I would say, at the origin of the concept. They were willing that we have kind of a work of management, being the [ Jeron ] and to have the real estate company fully consolidated in our accounts as being -- having the full management of the real estate vehicle. It has been decided to change because we have only 30% of the vehicle. And the first -- the process now, the concept now is fully, I would say, very well-known, mature, and there is no reason that we keep such an amount of real estate in our balance sheet when we have only 30%. So it's a kind of consequence, and we decided to enter in a new deal with them. We have changed the status of this real estate company to restate, and we keep the [ Jeron ] job, but we have less rights than before.

And we are -- but the operating company is still fully consolidated in our figures. So we are -- we have the management company and the real estate investment vehicle is now outside of our scope. Is it clear for you?

Yes. Yes.

Regarding liquidity, your second question, we have EUR 900 million of liquidity, split by both RCF of EUR 500 million and EUR 400 million of cash. We have in the -- for '23 and '24, mainly Schuldschein, to -- at maturity, EUR 200 million end of this year, the [ UPP ] of July has been, by definition, reimbursed. And we have another maturity of Schuldschein end of '25 of EUR 100 million. The slides are now on the website.

There are no further questions on the audio line. Please proceed.

Thank you. So there is a question on the new privately placed payments -- private placed sustainability bond. The question is, is it unsecured or does it have any sort of form of securities?

Now just to be very clear about the [ 3 ] financing we have been able to put in place during this semester and until end of July. On real estate side, by definition, it is secured with real estate. But on this EUR 40 million financing and on the term loan, it's totally unsecured, and nothing has changed on this topic.

There is a next question on, is there any view on the evolution of the working capital for the rest of 2023?

Yes. Our working capital, during the first semester, have not been extremely good. We had -- we were expecting a reversal of working capital in Germany. Clearly, in fact, in Germany, the kind of financing is changing year after year. And even though when we were very well financed, which has been the case during the COVID crisis, we had to face a huge work, huge documentation to put in place to recover our receivable. We have been able to do it, but now we have an increase of our working capital in Germany due to the fact that the new situation is with some of people moving to the social aid, which is not an issue regarding recovering the receivables, but they are not going to be paid by the same people. And we need to ensure a transfer. So we are -- we keep an overall working capital quite significant in Germany. And we have a temporary situation, which is not quite good in France. We have changed our system. And as a consequence, we -- it's a funny consequence, but it is true. We are paying a supplier a bit sooner than what was planned from the beginning of this year. So these 2 reasons are totally temporary. I am not expecting a different free cash flow than the one we are able to deliver year after year, roughly 50% -- between 40% and 50% of the EBITDA, at the end of the EBITDA without R. So no particular situation for the full year regarding working capital and free cash flow.

So we have another question on the webcast. What, if any, are the consequences -- I'm not sure of the wording here, but what, if any, are the consequences of the dismantlement of our payer for Clariane?