emeis Société anonyme (EMEIS) Earnings Call Transcript & Summary

Hello, and welcome to the emeis Full Year 2024 Results Conference Call. My name is Ben, and I will be your operator for today's conference. On today's call, we have Mr. Laurent Guillot, CEO; and Mr. Jean-Marc Boursier, CFO. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Mr. Laurent Guillot, CEO, to begin today's conference. Thank you.

Well, thank you, and good morning to all of you, and thank you for attending this conference call. We are pleased to deliver today this set of figure and doing so to confirm what we said to you in February, the turnaround is now underway and in our operating performance. In fact, our margins have now indeed entered with the second half '24 in a phase of growth bottoming out from transitory lows in H1 '24. We believe our performance is still below our potential, but the turnaround trajectory is now becoming clearer, fueling our confidence for the year ahead. We are indeed following the right direction and the right path. With a good grip on operational cost, the positive momentum of top line is mechanically feeding our operating profit. With a notably far stronger EBITDAR and EBITDA in H2 than in H1, we can already expect a pace recovery that will prolong into '25. Let's go quickly on a few figures because you already added for most of them in February. Top line is up 8.3% on an organic basis, growing in all locations and all businesses and particularly strong for our nursing homes. Occupancy rates have continued to improve ahead of levels reached in H1 to 86%, up 2.7% versus '23. Even if it has been partly penalized by recent openings, even if these openings are progressively slowing down, EBITDAR and EBITDA beat guidance '24, thanks to a strong H2. Recurring free cash flow is now almost balanced in H2 at minus EUR 31 million following a loss of EUR 130 million in H1 and more than EUR 420 million in '23. So we are almost breakeven in recurring free cash flow. And we are, therefore, confident that the trend will continue in '25 with an EBITDAR that should be between plus 15% and 18% at constant perimeter next -- this year. On top of that, as you know, we've been able to secure more than EUR 900 million of disposals since mid-'22. This disposal contributed to keep our balance sheet in a good position, including our cash position above EUR 500 million at the end of '24 and an almost stable net debt at EUR 4.7 billion. Our real estate portfolio is valued at EUR 6.2 billion, slightly down minus 4.6% like-for-like, probably at a cyclical low. Well, we've discussed that already in February, but we are now entered a virtuous circle where taking care of the team is bringing the company in terms of care to the highest standard, improving our occupancy rate and thus our profitability that allow us to continue to take care of our teams, which is a good cycle we are in now and allow the improvement that you have seen in the second half. So if we start with our CSR achievements and as you know our top priorities about human resources and quality, you can see that all indicators are strongly improving compared to '22 and at a good level and most of them are improving compared to last year. Satisfaction rate has improved 2.6% versus '22. Net Promoter Score on the same period plus 14 points. In terms of quality, 125 facilities have been audited by the Haute Autorite de Sante France with an average score of 3.85 -- 3.89, 4 being the maximum. So a very strong performance. And all our facilities have been audited in the last 3 years, as you can imagine, as a consequence of the book in '22 and more than 80% will have been audited between '24 and '25 with every time stronger score. A very strong increase of the percentage of facilities that have been certified by external organizations such as ISO 9001 from 71% in '23 to 89% in '24. On human resources, still some room for improvement in turnover ratio that has improved compared to '22 and '23, but still at a high level, but we continue to work on that topic. Absenteeism very, I would say, in the frame of this sector, 8.7% is quite a good performance and same work-related accident frequency rate is at a low level compared to the sector overall, but still a strong room for improvement there. The improvement on this perimeter -- human resources perimeter is clearly paving the way for the improvement of the quality, thus an improvement of occupancy rate and financial numbers. And it is true that we have an overall improvement in performance in our occupancy rate from 83.1% overall in average in '23, we improved in '24 to 85.8%, so plus 2.7% in '24 compared to '23. And the beginning of the year that you saw -- you can see on this graph, is showing a new improvement of around 2 points compared to last year. And the good news is that it's both outside of France and in France compared to last year. Next slide. Okay. No new information on this thing, except that, as you can see, starting from a high level, the clinics have improved by 1.1% compared -- in '24 compared to '23 with a stronger improvement in nursing all across our geographies, 3.2% versus '23. The recovery momentum that we have now entered is the result of a combination of several factors. First, and it is quite important because you continue to see that in '24 -- in '25, the improvement of the resident recruitment process in '24 with a number of new arrival, exiting in '24 by 10%, a level recorded in '23, this trend seems to be continuing in early '25. So far quality and HR ratings improvement, providing support for occupancy, solid momentum in occupancy rate, positive price effect that your teams have been able to capture by several measures, including segmentation. And our capacity to keep operating expenses under control, especially in H2 '24 after some investments in H1 '24. So as a result, we saw our EBITDAR and EBITDA margin improving in H2, driving our earnings to beat our guidance of 2024. So the EBITDA came at EUR 740 million, up 6%. This is EUR 10 million to EUR 30 million above our guidance and the EBITDA came at EUR 245 million, up 20%, also beating largely our guidance by EUR 35 million. It's now fair to say that this set of figures is a good milestone on the road to a good recovery that reinforces our confidence for '25 and beyond. We are still positive figures below our midterm ambitions and far below our midterm ambition, but we are in the right place on the road to normalization. So we do confirm today that we still prevent a positive momentum to be continued ahead with EBITDA expected to grow at constant parameter, but by 15% to 18% in '25 compared to '24. So I hand over now to Jean-Marc, our CFO, who will present in greater detail the main financial achievements on the '24 year-end numbers. Jean-Marc?

Thank you, Laurent. Good morning to all of you, and thank you for attending this call this morning regarding the 2024 audited financial statements of the emeis group. I won't spend too long on the figures that were already disclosed early February. However, it is fair to remind you that top line and operating margin are pointing encouraging trends, especially in H2, driving our confidence for the quarters to come. I would like first to highlight 4 key items. First, the solid sales growth of over 8% on current and organic basis, benefiting from favorable occupancy increases and positive price effects. Second, a strong rebound in our EBITDAR and EBITDA margin in the second half, leading us to beat our 2024 guidance, thanks to a better-than-expected revenue growth, but also to encouraging operating expenses kept under control. Third, cash flow improved significantly this year. Net operating cash flow has turned positive to EUR 15 million, EUR 101 million above last year. The recurring free cash flow is almost balanced in H2 at minus EUR 31 million, revealing a strong improvement versus H1 that was at minus EUR 131 million. And finally, free cash flow is still negative in 2024, but has improved by EUR 448 million in 12 months. Fourth and final, net debt remained relatively stable this year at EUR 4.7 billion, and liquidity position reached EUR 524 million at the end of the year. Sales that we have published already early Feb, posted substantial organic growth at plus 8.4% driven by a combination of 3 factors, all of which having a positive impact in 2024: A price effect of plus 4.8%; occupancy rate effect of plus 1.8%; and the effect of the ramp-up of recently opened establishment for 1.6%. This favorable growth trend can also be observed in the group's 2 core businesses but particularly on nursing homes that were up 10.8% year-on-year. All businesses in all regions contributed to the group organic growth except for France, which posted organic growth of only 3.9% but which is showing very encouraging signs, particularly in terms of occupancy rates. I will come back to it later. All of the regions posted remarkable double-digit growth rates. Occupancy rates show a progressive recovery ongoing with an average improvement of plus 2.7 points in 2024 versus 2023, reaching now an average of 85.8%. And if we exclude the ramp-up facility, occupancy rate for the group would be today at close to 88% which is 2% higher than the average occupancy rate posted for the entire perimeter. This is, in our opinion, a very solid achievement, even more since we were able to capture, at the same time, a positive cost effect of almost 5%, as already disclosed. Next one. As I said before, H2 came largely ahead of H1 this year, and this comparison between the 2 semesters gives more color about the reason that drove this rebound. At the end of June, we indeed told you that occupancy rate recovery has already started. But the impact was muted at profit level by the increase in staff costs that we decided in 2023. But we also told you that the recovery on operating margin was about to start, and this is exactly what happened in H2. The second half of the year is marked not only by the positive dynamic in sales, but also by staff costs that remained totally stable in H2 versus H1. And consequently, if sales are up 3% in H2, EBITDAR grew by 19% and EBITDA even more by 67%. And instead of percentage, if we look at the margin in euro term, you will note that the positive upside in sales, plus EUR 92 million, was largely transferred into EBITDA, plus EUR 62 million, and EBITDAR EUR 61 million growth. A positive momentum that we can expect to continue in 2025, suggesting very encouraging trends for the coming quarters. When we look at the EBITDA bridge between 2023 and 2024 by region, the positive contribution for all nondomestic countries -- regions was more -- has more than offset the negative from France. We explained already this when publishing the half year-end results for 2024, our French business was impacted first by slower-than-expected recovery trends on occupancy rates, whilst residual impact from inflation was hitting operating expenses and mostly by efforts made on staff costs. You remember that we have recruited 1,600 additional people, mostly in H2 2024, and by wage increases, while the positive consequence of this was only progressive through occupancy rates and sales. But more interestingly, when we look at the EBITDAR bridge between the first 1 -- the first semester and the second semester, it shows exactly that the turning momentum in the second part of the year has materialized with all markets now contributing positively to EBITDAR growth, showing everywhere the benefit from the measures that we've implemented recently. Next one. Thank you. emeis net result group share came at minus EUR 412 million, still negative. However, when comparing to 2023, if I exclude the exceptional accounting income that was resulting from the recapitalization of the debt implemented as part of the financial restructuring, so that was a positive income of EUR 2.9 billion, the net result of this year improved by more than EUR 1 billion year-on-year. This is not only due to the operational recovery explained above, but also by the normalization of financial expenses at EUR 389 million and by much lower nonrecurring item at only minus EUR 40 million. More interestingly, the cash flow statement shows interesting measurement of improvement. It is interesting to note that the more aggregates are considered for cash flow computation, the stronger the improvement versus last year. As you can see, EBITDA is up EUR 41 million year-on-year, but net operating cash flow improved by EUR 101 million, recurring free cash flow by EUR 262 million, and the total free cash flow by EUR 448 million. This illustrates the fact that our upturning momentum is not only driven by our operational result, but also by financial expenses normalization and by our capacity to better control working capital, CapEx and nonrecurring items. On this cash flow aggregate as well, the momentum in H2 is particularly attractive. If I focus on recurring free cash flow, which is in the middle of this slide, you can see that this cash flow contribution improvement is not only due to the reduction of development CapEx, but also by optimization of nonrecurring item that should diminish ahead and by asset disposal. This indicator of recurring free cash flow is almost balanced in H2 at minus EUR 31 million, which is a very strong improvement versus the H2 of 2023, which was minus EUR 351 million but also versus H1 2024 at minus EUR 131 million. Improving free cash flow goes primarily through the control of our CapEx. As you know, most of emeis CapEx are real estate related, either linked to our development program or to our properties maintenance. It is fair to say that development CapEx has been massively reduced over the year, down 51%. This is not only due to the natural phasing out due to the progressive completion of our historical projects, but also to the fact that we have decided to increase selectivity when we look at potential new projects. Very few new projects are launched, and emeis now favors the most profitable ones with a shorter payback, especially when real estate partnership are found for financing. Regarding maintenance CapEx, on the other hand, we have decided to maintain these roughly unchanged at EUR 100 million to ensure that the quality of our facility will remain in line with our standards. If I focus on development projects, in 2024, we have opened 1,700 new beds, and we have 1,400 additional ones under construction. But we are also analyzing new projects for future years with a potential of 1,600 new beds. Most of these could be launched ahead. If real estate partnership were signed with investors through forward sales agreements, such an approach is key for emeis since it allows to optimize the development CapEx whilst keeping the optionality of capturing incremental growth and value creation from promising projects waiting in the wings today. As a matter of example, you remember that we signed in Q1 this year, a partnership with a Dutch investor for 25 facilities to be developed in the Netherlands and to be opened between 2026 and 2029. Our partner will finance all CapEx during construction, emeis as an operator will sign a lease once construction is completed. We believe we should be able to secure more attractive deals like this one ahead. Optimizing free cash flow also means that we are in a favorable situation for selling assets. As you remember, our ambition for disposal was raised in October from historically EUR 1.25 billion to EUR 1.5 billion between mid of 2022 and the end of 2025. In 2024 only, our teams have been very active since EUR 624 million of assets have been sold or are today under firm agreements. This is a significant milestone made of real estate disposal in average at a 5.6% yield with EUR 28 million of capital gains, mainly in the Netherlands, in Portugal and in Ireland, and 2 operational disposals, 1 in Chile that was closed and cashed in, in 2024 and the Czech Republic that we closed on the 31st of March 2025. To date, more than EUR 900 million, and 60% of this ambition, has already been reached, EUR 579 million of real estate disposal, which are already cashed, EUR 166 million of real estate disposal under agreement to date and EUR 171 million of OpCo assets signed or closed. So 2024 marks a significant acceleration on this matter. Therefore, the remaining disposal still to be achieved by year-end amount to approximately EUR 600 million with numerous discussions for potential deals ongoing, representing more than EUR 2 billion of gross asset value when it comes to PropCo disposal of fund value or OpCo disposals, I'm very confident that our year-end ambition will be met. The appetite from investors seems relatively strong, if I look at the number of potential acquirers in those different processes. With stocks ongoing for EUR 2 billion of potential disposal, which is much more than our plan, we can, therefore, be selective and opportunistic. Consequently of what we said, our net debt is almost stable since December 2023, growing by only EUR 59 million at EUR 4.7 billion, as you can see. I would like here, again, to insist on the recurring free cash flow that, in a certain extent, measures the real cash contribution of our business when excluding asset disposal, nonrecurring item and development CapEx that could generate ahead accretive contribution to growth. So the recurring free cash flow is still negative, but the second half is significantly improved and is almost balanced. Please remember as well that the group benefited from a EUR 390 million of capital increase in February 2024. Overall, the group's net debt, excluding IFRS rental liability came by EUR 4.7 billion, broken down as follows: a gross debt of EUR 5.3 billion with an average cost of debt at 5.37%, so slightly down versus H1, it was then at 5.44%. And EUR 524 million of cash and cash equivalents, well above our covenant or minimum liquidity of EUR 300 million. The IFRS 16 debt, so the lease liability, accounted to EUR 3.6 billion at the end of 2024, slightly below the 2023 levels. I will end my presentation with a few comments regarding our real estate portfolio. At the end of the year, it reached a fair value of EUR 6.2 billion, reflecting a market adjustment of minus 4.6% versus the end of 2020 -- 4.6% versus the end of 2023 on a like-for-like basis, largely attributable to a cap rate increase of plus 35 bp during the year at 6.25%. It's interesting to note that fair values have already turned in some markets -- has already upturn in some markets such as Central Europe, while pricing are still down in some other markets, mostly in France and in Northern Europe. Now that this premium has largely reconstituted and while interest rates have started to decrease, we are very confident that this could signal valuation have now reached a trough, especially since observing operating performance improvement from operators have started to recover. Such a portfolio constitutes a solid anchor value on which to base our operational renewal for the years ahead. Thank you very much for your attention, and I will now hand over to Laurent to complete this presentation with the outlook and our 2025 guidance.

Thank you, Jean-Marc. As you have understood from both our presentation, the momentum we have achieved now in terms of sales in the first half '24 and then in term of sales and operating margin in the second half is obviously fueling our confidence for '25. On a longer term on our markets, there is no doubt about the good trend and the good perspective we have due to the strong underlying market trends for retirement homes, for instance, the high demographic intensity of the post-swap period will materialize in elderly population, which is expected to grow by almost 30% in the next 10 years. This represents 17 million more people aged over 75 years in 10 years from now. And there is not the capacity installed in Europe and in our 5 main geographies to face this good trend, which gives us a good opportunity to continue to grow our occupancy rate, but also, at some point, to improve our pricing more aggressively. Mental disorder, unfortunately for the population, mental disorder prevalence is expecting to grow 20% within 10 years in Europe and in our main market, same thing. There is not the capacity installed to face this growth. So then for us, it's a good opportunity. And it is the same thing for rehab where large chunk of our customers are over 75 years old, which is also a growing population. So we can indeed, in all our business, forecast supportive occupancy rate and progressively and obviously more in nursing homes than in the clinics for regulatory reasons, a good pricing momentum that we can count on in the next 5 years. If we look at, in fact, at the capacity in Europe, on our 5 largest European markets, French, Germany, Spain, Austria and Netherlands, we have a shortfall of approximately 0.5 billion nursing homes bed by 2030, which is a huge and is not filled by the capacity. So the midterm is very appealing for company and for emeis. While short term, however, our priority is to maintain the recovery trend upwards, the positive momentum engage in H2 is set to continue. We do expect occupancy rate to improve further at the start of the year, as I've said a little bit earlier, confirmed this expectation so far with 2-point improvement in average, around 2 points growth in the first quarter. We continue to pay the highest intention to operating expenses, and we continue to keep it under control. So as a result, EBITDAR is expected to be sharply -- to be up in '25 between 15% and 18% on a constant perimeter. We confirm and reiterate our ambition to grow our EBITDAR between 15% and 18%. Clearly, same thing, we have engaged in a significant number of potential transaction to be comfortable with our target of having EUR 1.5 billion real estate and operational disposal between mid of '22 and the end of '25 as was our commitment set previously. So before answering to your questions you may have, I'd like to conclude and wrap up a little bit the key elements. First, as we said earlier in February, the positive trend on the top line and occupancy rate is continuing and provide good outlook for the coming quarter. Second, the solid rebound of performance in H2 in operating margin drove our '24 EBITDAR and EBITDA significantly ahead of our guidance. We've seen a real inflection point on this aggregate. It's a good outlook for the next quarter. This inflection point is even more an evidence looking at cash flow with net operating cash flow that turned positive in '24, improving EUR 100 million in 1 year and recurring free cash flow now almost balanced in H2 at minus EUR 31 million, signaling not only the recovery momentum on margin but also in our capacity to take our cash and CapEx and working capital requirements under control. Disposals are in line with our expectations, more than EUR 100 million in the EUR 1.5 billion ambitions have been achieved already. And we have EUR 600 million remaining disposals to be done. And we are currently having discussions for potential operations, representing more than EUR 2 billion, both operational and real estate. And so in conclusion, we confirm our guidance for '25 with EBITDAR expected to grow between 15% and 18% on constant parameter. So thank you really for your attention, and we are now available with Jean-Marc to answer the question you may have.

What are the first questions? Please go ahead.

Yes, I read the question. Could you please update on whether your plan to present an updated business plan of the group in the coming months. Well, do we have a new business plan. Well, the -- as you have understood from our presentation and from the announcement that we made in February. We have significant change ahead that may be expected in our perimeter in '25 because we are -- we are in discussions for EUR 2 billion disposals, both in real estate and in operations. So we thought it would be more appropriate to give a guidance on '25 numbers at constant perimeter. And then depending on what are the operations that we will do finally to achieve our target of EUR 1.5 billion disposals -- in disposals to update you a little bit later on the consequences and on the impact on our numbers. And thus we will -- due to these bigger deals and perspective parameter change ahead, I think it's more appropriate to guide on the constant perimeter and to see year after year divestment of the project. Do you have questions over the phone?

Yes, we do. [Operator Instructions] The first question comes from the line of Aleksander Peterc from Bernstein.

I just have a few. So the first one is on your indication of early '25 occupancy trends starting at plus 200 basis points, which looks encouraging. Is this an indication of where you'd like to land for the year? And then second question, again, that's related to the outlook. I know you don't guide on the top line, but you do give us some EBITDAR improvement guidance of 15% to 18%. Should we assume similar top line trends that -- the one you experienced in last year? And then I have a small follow-up after that.

Okay. So 2 questions. As you know, we don't guide on top line, you said it yourself. So we don't guide neither on occupancy rate. Clearly, we have a low -- an easier comparison basis at the beginning of the year than at the end of the year because we saw some improvement already in the second half of last year, especially in France, where the first part of the year last year was not that strong. And the second part of the year improved, especially after that we strengthened our commercial team and we changed our brand. So I think there is a kind of dynamic, and I hope it will be confirmed throughout the year. But I would say that comparison basis is easier at the beginning of the year than at the end of the year. Second part of your question concerning the top line. I would say last year, we had a strong pricing momentum especially to recover from the price increases that we had in '22 -- or the cost increases that we had in '22, '23. And we had and we were very dynamic in terms of pushing prices to our customers. Clearly, the inflation momentum has been fading in the recent past started in the second half of '24. And to continue to have a positive spread between price and cost, we may have to -- we may need to push a little bit more -- less pricing than in the previous year. So I would say compared to last year, we may have a slightly less price increases overall.

Okay. That's great. And then I just...

Did I answer your first question?

Yes. That's very good, very good to have additional color. That's very helpful. And I just have a housekeeping question on nonrecurring items. The decrease, do you guide on that in any way for 2025? I think that's the tail end restructuring costs and so on.

Jean-Marc?

No, we don't guide for 2025. But we told you 6 months ago that we would keep it as low as possible. And as a matter of fact, with minus EUR 40 million in 2024, it is much lower than what the group has experienced in the last few years, and we intend to keep it as low as possible going forward. So would it be a good proxy for 2025 and beyond? I can't tell precisely, but it is what I can answer as of today. There is one question regarding the question by [indiscernible] on the real estate valuation. Is it including or excluding real estate transfer tax? This is excluding rent. One question on the liquidity position. Is it including or excluding the undrawn facility? It is all inclusive. Our liquidity at the end of 2024 of EUR 524 million is inclusive of everything.

I think the question concerning the impact of the current tax war by the U.S. against EU. As you know, our business is a very local business. I would say even in France, it's a local -- very localized business, and we are immune to the kind of external influence, both macro economy, geopolitical. And tax wars is definitely a very good advantage for the company to be immune to this kind of valuations and uncertainties. Well, we have a question in French concerning the price and volume and occupancy rates in '25. Can we guide at constant parameter? Can we guide a little bit on that? I think I answered already partly to that topic. We are around 2 points above last year in occupancy rate in Q1. This is quite a good trend. The good news within these 2 points is that if you look at France, which, as you know, was lagging behind in the evolution of the last years, and we were in Q4 last year at around 1 point above Q4 '23, the first half of the year is closer to the average of the group, so slightly below 2 points, which is a good evolution for the nursing homes in France. We expect -- I mean, this occupancy rate, as I was saying, has a higher comparison basis for the second half of the year, but we continue to put all the teams at work to do all their best and efforts to continue to increase. This is one of the key elements for '25 that we continue to grow our occupancy rate. On prices, as I was saying before, probably inflation was higher in '23 and beginning in '24. So we had the capacity and to keep a positive trend spread between price and cost. We pushed quite hard to increase our prices in '24. And we may be a little bit more prudent or cautious in '24 in terms of price increase. We don't need that much neither to have a positive spread. So probably on that front, it will be a little bit lower.

On new beds, to give you a flavor of the potential contribution to growth. So as I told you earlier, we have opened 1,700 new beds in 2024 mostly in Southern Europe, Spain, Portugal and Italy. We have 1,400 new beds under construction that will be put in operation in 2025 and 2026, mostly in Spain, Switzerland and Netherlands, and we have today 95,000 beds. That gives you an order of magnitude of the potential growth of those new openings.

There are no questions here on the line. [Operator Instructions]

Okay. So there appears to be no other questions. So if I sum up very quickly, we are really pretty much in the same mindset that we were in February when we made the presentation of the first numbers of '24. The trend continue to be the same. We confirm our guidance with the EBITDAR expected to grow between 15% and 18% at constant perimeter. And our disposal strategy is perfectly in line with our expectations with around EUR 2 billion potential operations both in real estate and in pure operations as a disposal to be able to achieve our EUR 1.5 billion ambition at the end of the year compared to 2022. So positive momentum continues to be the case for emeis. Thanks a lot to all of you, and see you soon. Bye-bye.

Thank you for joining today's call. You may now disconnect.