Clariane SE (CLARI) Earnings Call Transcript & Summary

Good day, and welcome to the Clariane's conference call. Please note this conference is being recorded. [Operator Instructions] Today, our speakers are Sophie Boissard, CEO; and Philippe Garin, CFO. And now I'll hand you over to Sophie Boissard to begin today's conference. Please go ahead.

Thank you very much. Ladies and gentlemen, thank you for joining Clariane call today. I'm Sophie Boissard, CEO of Clariane; and together with Philippe Garin, Chief Finance Officer of the company. I'm going to present the 4-part plans we are going to launch to strengthen the company's balance sheet and to overcome a sharply deteriorated access to financing. As you know, Clariane started 2023 with a significant refinancing agenda, representing EUR 1.7 billion debt maturity to be reimbursed or renewed in 2023 and 2024, this in a challenging market environment overall. We have been executing according to plan until Q3 where our access to credit has been deteriorating rapidly with a complete free after our Q3 publication and the upgrading of our 2023 leverage guidance from 3.5x to 3.8x. This is why and I would like to go on Slide #3. We have been deciding yesterday with our Board of Directors on a comprehensive EUR 1.5 billion action plan to restore short-term access to financing for the company and to strengthen company's balance sheet. This plan encompass both short-term equity and debt financing. That's for the short term, the very short term and mid and long term, a significant asset disposal program and a capital increase of EUR 300 million to be executed in 2024, which will be underwritten at least for EUR 200 million by Crédit Agricole Assurance, which is our first shareholder. This comprehensive action plan aim to place Clariane back on track to deliver on its value creation task, thanks to our first-class platform at Pan-European level. Let us go now through the various dimensions of the plan, starting first, Slide #4 on a refresh on where we stand from an operational point of view. I hand over to Philippe on this.

Good morning to everyone. As a reminder, on Slide 4, the revenue figures for the third quarter of '23 published on the 24th of October '23 confirms the resilience of the Group operating business across various geographies, marked in particular, by solid growth in group revenue over the first 9 months of '23, plus 9% on organic basis, a continued rise in the occupancy rate of nursing home to 88.9% early October and over 89% as of today. If we move to Slide 5. On the right side of this slide, you have the detail of maturities of the group. More than EUR 650 million from now to June '24. On the other side, on the left one, we have a focus of the increase of our spread over the week of Q3 results. Indeed, on Slide 6, following Q3 publication, share price fall by almost 40% in 2 days. Due to the downgrade of the leverage target from 3.5x to 3.8x. Suspending the finalization of the 2 real estate partnership projects under negotiation and forecasted to be completed by the end of '23. In this context, the group decided to draw on 3rd November, its revolving credit facility line for a total amount of EUR 500 million. Since then, access to real estate and corporate financing has been significantly reduced putting under strong pressure, the refinancing of the various short-term maturities occurring between November '23 and June '24.

This is why and we come now to Slide #7. The Board of Directors of Clariane has been deciding on a global and comprehensive plan to strengthen the group's financial structure. This action plan encompass 4 key initiatives aiming to strengthen client liquidity on the short term and to strengthen its financial structure mid and long term, enabling the company to successfully pursue its mission in the new economic environment, which mission is take care of each person's humanity in times of vulnerability and this is exactly what we are doing in all our geographies and through all our business lines. So what is the first part of the plan? First part of the plan is to secure the 2 real estate partnership, which were at risk, as Philippe just explained, because of the strong share drop end of October. So what's going to happen on this first pillar. Actually, one of the two partnerships, the one on French assets will be executed by Credit Agricole Assurance at the conditions, we have been negotiating with our partners before. And the second one is going to be closed by the end of the year. And again, we have here to guarantee that here it will to be closed anyway at the forcing condition. This represents an equity injection of EUR 230 million by the end of the year. Second dimension is the securing of the credit line, real estate credit line of EUR 200 million that will support our refinancing terms in 2024. The third pillar is actually a very significant and comprehensive asset disposal program from 2024 onwards. I will come back on that program later that it aims to significantly contribute to the deleveraging of the company and the strengthening of expenses. Last but not least, subject, of course, to the general assembly of shareholders, we aim to launch a capital increase of EUR 300 million to be executed in the first half 2024 with, of course, the possibility for all shareholders to contribute to that capital rise and an underwriting given up to EUR 200 million by our first shareholder, Credit Agricole Assurance. So these are the 4 pillars of the plan and they definitely go together all the 4 of them, and they aim to restore both the short-term credit access for the company and to strengthen mid and long-term balance sheet of the company. Let's go through the various pillars of the plan. I hand over to Philippe for the first one.

On Slide 8 now. You are the 2 fast pillars. Part 1 is the initiation of exclusive negotiation with Credit Agricole Assurance to close by the end of '23 real estate partnership for a consideration of EUR 140 million, involving the premises of 19 health and medico-social facility in France. In [indiscernible], we will continue negotiations on the second real-estate partnership of GBP 90 million [ EUR 90 million ] -- sorry, involving U.K. assets for which Crédit Agricole Assurances has undertaken to secure execution if necessary. These 2 partnerships are planned to be completed by the end of '23. This operation will be coupled to a securing of EUR 200 million in real estate deadline with Clariane group.

So that is -- that reflected 2 first figures in order to secure short-term credit access and to meet our short-term maturities, especially the short-term maturities that are coming at mid-December. Slide #9, let's go to the third pillar, which is actually what we are starting to strengthen and to clean the balance sheet of the company. Currently, Clariane is operating in 7 countries across Europe. We have large platforms in the core geographies in France, Germany, Italy, with diversified portfolio encompassing the 3 business division of the company, the long-term care, the core and historic activity, the healthcare and chronic patient care, which is the second component of our business model and the community care, wound care and residential solutions, which we have in most of our geographies. Definitely, in this new market environment with a higher cost of money, less access due to corporate debt and still a pretty capital-intensive business model because we need to have quality infrastructure in order to deliver quality care, we have decided to refocus the company on a selective number of geographies, and we will dispose geographic platforms, smaller ones or selected parts of business in order to have a streamlined balance sheet, and also a streamlined portfolio of activity for the forthcoming years. Definitely, we have already received expression of interest, some of them targeting Belgium and Netherlands. As an example, we are going to review all mark of interest and to do definitely the work in order to come to that EUR 1 billion growth disposal proceeds by 2024, 2025, probably early 2025 for the remaining part. This program encompass both operating activities and real estate portfolios, plus to some extent, minority stakes or partnerships. So definitely, it will bring a strong contribution to the deleveraging of the company looking forward. Last but not least, I come to the fourth pillar on Slide #10. We are going to propose to the shareholder meeting right issues for EUR 300 million with preferential subscription rights, so definitely open for all shareholders with the commitment to underwrite coming up to EUR 200 million by Crédit Agricole Assurances and for the remaining EUR 100 million by other banks and it contemplated timing, first semester of 2024. Therefore, exceptional general meeting of shareholders is going to be convened in Q1 2024 to vote this new financial authorization. And one key element is that the Crédit Agricole Assurance guarantee to underwrite up to EUR 200 million of this rights issue is subject to preconditions such as AMF given, of course, antitrust condition and the waiver of OCEANE bond holder. This EUR 300 million rights issue is the fourth contribution to strengthen client equity capital and to reinforce on a sustainable way, our financial structure to meet our commitments in terms of quality, development and value creation. Let's go now to Slide #11. Let me highlight that we are really with this plan actually doing what is required to meet the gap that block the access to the credit markets? That's the first part. But the operational activity is strong, solid and resilient despite global market environment and this is why we've been reiterating our guidance from an operational point of view in Q3, which is delivering an organic revenue growth above 8% and we are currently traveling at 9%. Ensuring a stable in amount, EBITDAR and with the revision, we posted 3 weeks ago, having lending with a leverage of around 3.8x subject to real estate monetization transaction that as you have seen, those transactions are now secured and certain. Slide #12. Clariane definitely has a very strong and qualitative platform for value creation. It comes both from the very strong and recognized activity portfolio, long-term care on one hand side, where we are currently #1 at Pan-European level, Healthcare scale platform, post acute, mental health, and selected primary care, especially in Italy, where we have strong 2 and 3 positions and the community care, where we've been actually very active in developing innovative concepts in rural areas with [indiscernible] in urban cities with Petits-fils, where we are in those 2 concepts, #1 in France. So platform is a very qualitative and strong one, and it relies on a very strong strategic project based on our mission, take care of each person humanity in times of vulnerability and combining a very strong approach in terms of values, in terms of dedication and commitments to local communities and in terms of leveraging the expertise, the unique expertise that are embedded at Clariane. With the plan that we just decided on to strengthen our balance sheet, we have everything in our hands to successfully deliver on the value creation for investors and shareholders on one hand side and for all stakeholders on the other hand side. As a conclusion, Slide #13. Implementation of the today announced action plan will enable to improve the group financial situation, short term and mid term and will enable Clariane to face the key dates of 2026, which are the next large maturity date for debt with confidence. With this plan, we are able to cover 2024 liquidity requirements. With this plan, we are able to comply with our financial covenants. With this plan, we are able to bring the operating leverage target significantly below 3x by the end of 2023, 2025 and being able then to successfully face the next maturity date in 2026 and 2027. We are operating on a market that is a very strong market looking forward, supported by long-term trends. We are operating on the market that -- at West, local health scanning care for those most vulnerable and support for the elderly independent people. These are definitely major long-term challenges throughout Europe and we as Clariane are ideally positioned to address this promising segment. And we, as Clariane have the critical mass and level of expertise required. With a healthy balance sheet, Clariane will be able to execute its value creation plan with confidence. Thank you very much for listening and we are now open and ready to answer your questions.

Thank you. I will now hand over to the speakers for the questions. Sir, please go ahead.

I have a first question on the real estate partnership. Can you clarify the gross value of the portfolio and the book assets also a question around the coupon level and does this [indiscernible] capitalization rate of your assets?

Okay. Let's start with -- as you know, we have 2 [indiscernible]. The first one is the French one, the big one. You have EUR 268 million of gross asset value, almost no debt. So the main value is equal to gross value. And we have a 10.5% fixed rate remuneration, which is closer to a perpetual debt, no gain on market condition, not lost 2. The second one, is one in U.K. We are working on it. So I'm not going to give the detail but it's a vehicle with a gross asset value of GBP 200 million and with a low level of debt.

Thank you, Philippe. The next question is about the portfolio disposals. Could you please give us the split of the asset sales in the operating assets to the real estate assets and we didn't disclose the plans for next year.

We will decide on the plan in a few weeks with the Board of Directors, who I'm not going to disclose the details of the plan yet. That's already, sorry. But I can just say that it will be a mix of OPCO and PropCo to be disposed plus some minority stage. And I think one can assume that it could be a kind of balance it between OPCO and PropCo values. As I said, it's going -- it will have, as a result, cut in the number of countries we are in with the disposal of smaller geographies where we do not have the critical size in order to refocus in the large ones where we have strong synergies and growth potential with the existing networks.

Maybe a follow-up question to this theme around what could be the impact of the billion of asset sales on EBITDA and EBITDAR.

It's certainly clearly too soon. It will depend on the share of the real estate side, we can enter in partnership, too. And for sure, we're not going to do too dilutive move or -- but in average, it's really clearly too soon to give detail on this topic.

And probably, since we have a pretty balanced portfolio, we do not expect to see a dilutive impact on our EBITDA margin. That's for sure not.

There are a few questions around the intentions in relation to the hybrid bond that we have studied outstanding in GBP.

Yes. Regarding the hybrid bond, the gross period is between March and June next year. We are working on it, as you know, and we will assess the best option at that time.

We have a question around how confident we are on the IMS -- the AMF clearance that's required for capital raise.

Definitely this part has to be performed by Credit Agricole Assurances on the -- so I cannot tell how and what is going to happen here. I know that [indiscernible] all intend to start the procedures as soon as possible after the announcement of the shareholder meeting after decision from the Board of Directors. That's what I can say.

The next question we have is around the loan-to-value ratio within the new partnership. I don't if you want to comment?

Yes, sure. For different reasons, the 2 partnership to come has been set up with a very small level of debt linked to interest rates. And we have [indiscernible] France. So the partnership will be on the gross asset value equal to net asset value, very, very, very low level of debt and same thing in UK, we are more at 15% of LTV in U.K. That's it.

Let's just check if there's any more questions on the chat.

It appears there are no further questions at this time, speakers please go ahead.

Thank you. We've reviewed the remaining questions. There's one question that we haven't got to yet. How do you think about the EUR 300 million rights issue? Why EUR 300 million in particular.

As I said, the key objective of this action plan is to bring our global leverage down well below 3x. So we are looking actually around 150 to 200 basis points of deleveraging. Looking forward, most of this will come to the disposal plan that for sure and EUR 300 million of capital raised will bring a contribution to that deleveraging process. The aim is very clear. We need to have a healthy balance sheet in order to support a sustainable way the business model of our equity. We are kind of social infrastructure type of company. We need to be able to invest on a regular basis to maintain and to develop our networks. And this is why we need those global equity injection, thanks to the disposal program and thanks to the capital increase of EUR 300 million to be on that healthy -- to reach the healthy region in terms of balance sheet structure. If there are no more questions, we will end the call, and of course, Sarah Mingham and Stéphane Bisseuil for any kind of questions and further inquiries. Thank you very much for your attention. Have a good day.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.