Clariane SE (CLARI) Earnings Call Transcript & Summary

Good day, and welcome to today's Clariane Q3 2024 Revenue Conference Call. Throughout today's recorded presentation hosted by Sophie Boissard, CEO; and Grégory Lovichi, CFO. [Operator Instructions] And now, I'd like to hand the call over to Sophie Boissard, CEO. Please go ahead, ma'am.

Thank you very much. Ladies and gentlemen, dear investors, good afternoon. Welcome to the Clariane Group Third Quarter 2024 Presentation. I am Sophie Boissard, Group CEO, and I'm today with Grégory Lovichi. Grégory joined Clariane a little over a month ago as Chief Financial Officer and member of the Group Management Board, and I'm delighted to welcome him to Clariane. Let us begin on Slide 5 with the 4 key highlights of the quarter. Over the first 9 months of 2024, Clariane recorded dynamic revenue growth of 6.3% on an organic basis. All business segments and regions saw growth and the average occupancy rate in care homes, which remains our main segment of activity, grew by close to 2 percentage points, confirming the back to normal momentum. As the year comes to a close, the group is confirming its 2024 guidance of organic revenue growth over 5% and EBITDA at least stable in value. This excluding IFRS 16 and disposals and despite the absence of contribution from real estate development activities in '24, activities that generated close to EUR 50 million in 2023. Finally, and this is the fourth highlight, the quarter saw us move forward on the final component of the plan we announced 1 year ago to strengthen our balance sheet as we are progressing on the last part of the plan, I mean, the EUR 1 billion disposal program. We have been securing at end of September, 48% of the total target of EUR 1 billion of gross proceeds of disposals to be compared by 40% at the 30th of June, which means an improvement of EUR 80 million during the summer. Let us now have a look at the main drivers of our revenue growth that stood at 6.3% in organic terms and 5.4% on a reported basis. This increase was well balanced, fueled by both volume and prices. Volume first with a 2.3% increase in business volume coming mainly from nursing homes with a net positive impact of EUR 85 million revenue. This was a result of a higher volume of occupancy by 2 points in mature networks and additional capacity coming on stream, especially in the Netherlands, which sold 10% of additional capacities recently opened and in [indiscernible] network, our shared housing network in France. Price and case mix management are the second driver of the growth, with overall a 4% revenue increase, generating a positive impact of EUR 150 million coming from all regions and particularly from France, Germany, Belgium and the Netherlands. The slight negative impact from change in scope amounted to minus 0.9%, representing a diminution of EUR 33 million in total on revenue. I will now hand over to Grégory to comment in more detail the period figures by sector and geography. Grégory, the floor is yours.

Thank you, Sophie, and hello to everyone. My name is Grégory Lovichi, I joined the Clariane Group after having been CFO of the food and catering company Groupe Le Duff. I began my career as an auditor at Ernst & Young, then joined the Lafarge Group where I had a 14 year stint. I was successively in charge of corporate finance, cash optimization roles, M&A and was a CFO in several countries. So let me begin by looking at the breakdown in growth of our various activities on Slide 8. As you can see, the 9 months revenue increase was well spread throughout our balanced portfolio. Long-term care, which accounted for just over 62% of the group's business activity in the first 9 months of '24, grew 7% on an organic basis. The increase was powered by ongoing upticks in prices, particularly in Germany and by increase in volume. Specialty Care accounted for around 25% of the group total with organic growth of 3%. And revenue in Community Care whose brands include Petits-fils and Ages & Vie amounted to EUR 491 million in the first 9 months of '24. This represented almost 13% of the group total, along with organic growth of 9.8%. This performance was driven by further development of the shared housing network and ongoing strong growth in the home care network. On Slide 9, we've mapped out the evolution of our occupancy rate. The continued improvement in our occupancy rate since mid-'22 has been the main driver in our revenue expansion in long-term care as the sector returned to normal. From a low of 85.6% in Q2 '22, we've now reached 90.7% in Q3 of this year. That's a 510 basis point increase. On a year-on-year basis, the improvement stands at almost 190 basis points with the 9-month occupancy rate reaching 90.2%. Looking ahead, this trend is very positive. We have room for embed growth in our existing capacity. To note, since Q2 of this year, the price effect has overtaken volume to become the main driver of our revenue increase. On Slide 10, let's dive into our revenue bridge for the first 9 months. As Sophie pointed out for the period, we saw reported growth of plus 5.4%, driven by both volume and price improvements translated into organic growth of 6.3%. The most important aspect to bear in mind is how important the price component has become in the mix that driving the increase. It drove 2/3 of the 9 months progression in revenue and accounts for almost 3/4 of the increase in Q3. Let's break this down further for the 9-month period. The volume increase remained strong quarter after quarter and contributed EUR 85 million or plus 2.3% to revenue growth. This was mainly supported by strong occupancy rate increases in our long-term care sector, particularly across our key regions. Furthermore, the specialty care activity, especially in France and Germany, added another EUR 13 million and Community Care also provided a boost of EUR 8 million. As I pointed out, care, case mix and price effect was more accretive, adding a significant EUR 150 million revenue, representing plus 4% growth. This includes a notable EUR 127 million uptick from price increases in long-term care services across key markets like Germany, France and Belgium. Finally, we saw a change in perimeter effect of minus EUR 33 million, representing a minus 0.9% impact on revenue. On Slide 11, you have the geographic breakdown in our revenue growth over the first 9 months. You can see that here too, our growth is well distributed with all regions growing well on an organic basis, with Spain leading the way and Germany demonstrating the strength of its recovery. Let's now move to the analysis by country on Slide 12 and begin with France. Revenue remained firm in France throughout the period, rising by 4.9% on an organic basis. Organic revenue growth in the Long-Term Care segment was 4.6% in the first 9 months of the year. That increase reflects the positive impact of both active revenue management and higher volumes with the average occupancy rate continuing to rise to 89.1%. The Specialty Care segment achieved organic revenue growth of 2.6% in the first 9 months of '24, and the Community Care segment achieved strong growth driven by robust demand for services such as those offered by Ages & Vie and Petits-fils. In Germany, revenue improved significantly in the first 9 months of '24, driven by higher business volumes and the impact of price increases negotiated in '23 with local authorities. Business growth and the strategy of increasing prices, combined with the recovery plan measures have enabled the group to begin significantly improving its performance since the start of the year. Over the period, Long-Term Care posted organic revenue growth of 9%, supported by price rises and an occupancy rate that rose to 89.6%. Revenue in the Community Care segment grew by 5.1% on an organic basis. On Slide 13, now with Belgium and the Netherlands. Growth remains strong in the BNL region with revenue rising by 7.7% on an organic basis in the first 9 months of '24. In Belgium, revenue during the period totaled EUR 483 million, up 5.6% on an organic basis. The Long-Term Care segment posted organic growth of 6.6%, supported by an occupancy rate that rose to 91.8% for the 9-month period and by regular prices rises. In the Netherlands, revenue was EUR 114 million, up 17.9% in organic terms. All 3 of the group's business segments in this country achieved firm growth during the period. To note, long-term care revenue rose by 18.6% with an average occupancy rate of 72.8% in the first 9 months of the year versus 75.9% in the same period of 2023. The decrease reflects new beds coming on stream, particularly in 3 new greenfield facilities in favorable market conditions. Moving now to Italy and Spain on Slide 14. The Italian market remained dynamic in the first 9 months of the year, with revenue up 3.4% in organic terms. Long-term care revenue grew by 6.4% on an organic basis, supported by a high occupancy rate of 96.3% on average during the period. Revenue in the Specialty Care segment, which accounted for almost 44% of the total in Italy was stable during the period. The Community Care segment, which accounts for almost 8% of the group's revenue in Italy, achieved organic revenue growth of 9.1%. Our last region posted solid revenue growth of 14.3% on an organic basis. It includes Spain and the whole of the U.K. business that was deconsolidated on 9th of April after the group sold all its assets and business activities in that country. In Spain, the sum of revenue of EUR 184 million in the first 9 months of '24, up 13.4% on an organic basis. Revenue in the Long-Term Care segment, which accounts for almost 21% of revenue in Spain rose by 10.3% on an organic basis. This was supported by a slight increase in prices and an average occupancy rate of 89.8% over the period. Revenue in the Specialty Care segment, almost 75% of the total in Spain rose by 11.1% in organic terms. That growth resulted from the group's strong momentum in this business segment, which is being boosted by the expansion of its network and service offering following the acquisition of Grupo 5. I will now hand back to Sophie to conclude on our financing plan and outlook.

Thank you, Grégory. Let us now move to the update of the plan to strengthen the group's financial position on Slide 16. As you know, with the successful completion of the capital increase with preferential subscription rights on the 5th of July 2024, Clariane has completed the first 3 stages of this plan announced exactly 1 year ago. The fourth and final part of the plan consists of a program to dispose of operational and real estate assets and to form asset partnerships, program intended to refocus our business activities geographically, and to raise around EUR 1 billion in gross disposal proceeds. On Slide 17, you have reflected the principles that have guided and will continue to drive our asset disposal strategy. Since the start of the financial year, the group has already performed 7 transactions of various size, representing to almost EUR 500 million. In Q1, we sold the full U.K. platform and some real estate assets in the Netherlands. In Q2, we secured the home care business disposal -- the hospital at home care business disposal in France after a successful competitive process. And during the third quarter of 2024, we continue to implement this program with 4 smaller-sized transactions, mainly real estate, 1 in France and 3 in Spain for an additional amount of around EUR 80 million. We are currently progressing on a further set of various disposal process around 7 further processes ongoing, some of large size, others of smaller size in various geographies, which will allow us to tap different buckets of potential buyers. For obvious reason, I will not be more specific today. Just note that we are confident to achieve on time our target of EUR 1 billion disposal in gross proceeds from disposal by the end of 2025. Let me now conclude on our outlook for 2024. We expect organic revenue growth to remain above 5% and EBITDA, excluding IFRS 16 and expected disposals to remain at least stable. This, despite the absence of contribution from real estate development activities in '24, activities that generated EUR 48 million in 2023. Our 2023-2026 outlook, as presented at the Capital Markets Day in May is also reaffirmed. As we move ahead, the group will continue to focus on improving its performance in a balanced way and on maintaining a high level of quality in all our activities. On the strength of the momentum resulting from our “At your side” corporate project, along with our better support efficiency program, we are looking ahead to the coming months with determination and confidence. I thank you for your attention. Operator, can we move to questions?

[Operator Instructions] While waiting for questions over the phone, we will now take questions from the webcast.

Yes. First question regarding the remaining maturities for the rest of 2024. And what is your strategy to address your 2025 and 2026 maturities...

Yes, thanks for the question. If you -- regarding the maturities, I will invite you as well to have a look of what has been published last June, where we were mentioning the remaining maturities of 2024, meaning that we have still a [indiscernible] mainly, and this was mentioned in June of EUR 88 million and the remaining amortization of real estate debt.

So the next question is regarding the EUR 80 million of disposal in Q3. What is the part of the real estate disposal? And what is the part of the OpCo that had been sold?

Most of the closed disposals come from real estate. It's 90% of real estate assets basis.

Thank you, Sophie. Next question, are you satisfied by the 2025 PLFSS for your activities?

It's too early to tell. Actually, I think that the type of companies with intensive labor and staff costs and salaries being mainly between minimum wage and 3x minimum wage. So that's exactly our profile will be, to a certain extent, protected by the -- with the change expected in the regulation on social charges and tax on wages. So that's what I can say based on the draft bill that has been presented to the parliament.

Thank you, Sophie. Next question regarding Q3 real estate disposal.

And sorry, just following -- just as a follow-up to the previous question. Of course PLFSS is also covering the subsidies that will come to our nursing home and to our medical activities. So far, we have only been informed of the overall indexation that definitely is designed to protect or to secure funding for the nursing home and elderly care segment. That's what I can say, but I don't -- I cannot -- of course, not say yet how this overall indexation will be transformed into tangible pricing and subsidies for the private companies. And when it comes to the medical activities, post-acute and mental health, again, we only have the overall indexation that has been communicated, a plus 4%. I doubt that we will get 4% as an indexation. But again, it's too early to tell, and we are actively exchanging with the health care ministry. That's what I can tell today.

Thank you, Sophie. So next question regarding the Q3 real estate disposal, could you comment on the cap rates achieved? And what was the leverage on the assets sold, meaning real estate debt?

On the capitalization rate, what we can say and what we saw, it's different, obviously, from one country to the other, but the cap rate has stabilized over the [indiscernible] that we have observed in Q2. I think it's an important information that we have to bear in mind at that stage on that one.

Thank you, Grégory. Next question regarding the growth in occupancy rate in France. How much of this improvement will you attribute to the general tightening of the market versus gaining market share from your -- one of your challenged competitors?

Since the various players do not provide granular information on the occupancy, difficult to tell. What I can tell you because there has been recently a publication on the occupancy rate in France from 2020 down to end of '23, and then we have been able to compare our own occupancy rates with this overall metrics for the industry. It's covering all type of operators that we are, to a certain extent, overperforming the market, especially in the densely populated areas such as the Paris region or Marseille or the large metropolitan areas. So it probably means that we are performing better than some of our competitors, at least in those regions, but I cannot tell you more. What I can say is that we have really a very sound and regular progression and a very strong commitment of all our networks and facility managers to fully use and fully occupy the existing capacities, and this is what it has to be because the needs are there. Maybe one further comment. We also see some changes in the way patient residents use our facilities. The more we go, the more we see an increased activity coming from the acute hospitals. So we are definitely, as I already told you many times, traveling to a more medicalized activity. And directionally, I think that's what elder care segment will be about.