emeis Société anonyme (EMEIS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the emeis conference call regarding its 2026 half year results. It will be structured in 2 parts. First, a presentation by emeis management team represented by Mr. Laurent Guillot, Group CEO; and Mr. Jean-Marc Boursier, Group Deputy CEO. Afterwards, there will be a Q&A session during which you can ask oral or written questions. I will now hand over to the management team. Gentlemen, please go ahead.

Yes. Thank you. Good morning, everyone, and thank you for joining Jean-Marc and myself this morning for the presentation of our half year results at the end of June '26. I know that earnings season is in full swing. So Jean-Marc and I will try to keep this brief. First, I wanted to share with you our satisfaction at being able to present our half year result today, fully audited nearly 2 months earlier than we have in recent years. This is further evidence of our group's return to normalcy, which is reflected in all aspects of emeis operations. You may have seen already our press release, so you may already guess how happy we are regarding this set of figures, showing strong performance in H1 ahead of our initial expectations. I'd like to begin this presentation by highlighting the major achievements of the first half of the year, achievements we are proud of and that have very well driven our financial and operational performance. First, I'd like to really thank and congratulate the emeis teams who performed exceptionally well through this difficult year, first in the face of quite significant flu season at the beginning of the year and then during the heat waves more recently. Health and safety measures alongside with proactive plans help protect our residents. I would also like to take here the opportunity this morning to warmly congratulate our team looking after our residents when facing the forest fires in Gironde or in Spain these days. Second, the significant improvement of our marketing processes, particularly in recruiting new residents. The number of prospects increased by nearly 22% in a single year, which obviously fuels the growth of our occupancy rate. In this context, we have also further refined our pricing strategy as occupancy rates rise across our markets. Proactive pricing management for accommodation with tailored and dynamic pricing structures, enabling through pricing effect to outperform inflation while increasing at the same time, occupancy. In addition, this year, we are seeing the positive effect of our OpEx optimization program that we call Boost, which aims to control operating expenses while maintaining the quality of care. The first half of the year also saw a very strong performance in certain markets, as you will see with Jean-Marc's presentation, France is recovering quickly, but performance is particularly satisfying and exceeds our expectation in Southern Europe and in Germany as well. And finally, as you know, we exited the safeguard plan during the first half of the year. We were able to settle our tax and social security debts and reassess our maintenance capital expenditures budget to prepare for our group's future performance. All these factors have contributed to the growth in the average occupancy rate of our facilities. It has risen by 2.8 percentage points over the past year, now above 90% in Q2 and even reaching over 91% for the first half in our mature markets. This latest increase is part of the very favorable trend we have been observing for nearly 4 years now. This momentum shows no sign of slowing down, and we are -- we do expect further improvement ahead. It is also worth noting that the growth in our revenue has largely translated into higher operating margins and income. While revenue increased by EUR 103 million, operating margin rose by nearly EUR 70 million and our net income by nearly EUR 100 million. This is a result of our agility, our segmentation strategy and our vigilance in controlling costs, something also that feed our confidence for the coming quarters. We continue to make successful progress toward all our objective to move our group towards recovery and stronger performance ahead. We have now achieved our goal regarding confidence with our residents and patients as well as quality of care and accommodation. The satisfaction rate shows a strong progress and is a proof of this. We are also making strong progress in increasing our average occupancy rate, although we still have significant room for improvement ahead. The progress we've made so far is particularly encouraging. Occupancy rate is now above 90%, as I said, in Q2, but we'll do even better ahead. Operating margins have risen sharply over the past 2 years. But here too, we will deliver stronger figures in the coming years. Our disposal plan has now been met and even exceeded. We will now be very opportunistic in this area going forward. Our balance sheet, particularly with regard to our debt maturity profile has normalized since the refinancing completed 6 months ago in December and in January 2006. Our financial leverage ratio has decreased considerably over the past 2 years. It now stands at 8.7x, but we are very confident that it will continue to decrease further in the coming semesters. The first semester thus exceeded our expectations in many respects. We sustained momentum in occupancy rate and effective control of operating expenses. In some international markets, signs of supply constraints appear to be emerging in the market when occupancy rates now exceeding 90%. In France, although still lagging behind other markets, the pace of growth is particularly strong, and the catch-up is therefore well underway. We are thus ahead of our initial expectations. And as a result, the guidance for fiscal year '26 has to be revised upwards. We now expect the group's EBITDA on a like-for-like basis to grow between 12% and 14% in '26, whereas we had previously anticipated growth of only slightly more than 10%. Over the midterm, we continue to believe this momentum will continue, expecting a CAGR of -- for EBITDA between '24 and '28 between 12% and 16%. Thank you for your attention. This was my introduction. And now I turn the floor to Jean-Marc Boursier, our Deputy CEO, to present this financial performance of the first half to you in greater detail, and I will be available to answer the questions you may have afterwards. Jean-Marc?

Thank you, Laurent. Good morning, everyone, and thank you for joining us this morning. I will begin my presentation by highlighting what I believe are the 5 most important points in our earnings release. First, revenue growth remained strong, reaching 6% like-for-like. It is driven by improved occupancy rate as well as favorable price effect. Second, operating margin are improving very significantly. The EBITDA margin, excluding IFRS 16, for instance, rose by 46% on a like-for-like basis. And as a percentage of revenue, it has increased by 2.2 points to 7.6%. Third, net income remains negative at minus EUR 40 million, but has improved considerably, rising by EUR 97 million versus last year. Fourth, the operating contribution to our cash flow is very significant. In the first half of this year, however, it was offset by one-offs, transitional items related to the group's normalization. I'm referring to working capital requirements and to nonrecurring items, which I will discuss in more details later. Net operating cash flow and recurring free cash flow are consequently stable. And finally, our leverage ratio continues to improve materially. Net debt-to-EBITDA ratio now reaches 8.7x at the end of June versus 15.4x a year ago. This improvement is not only driven by net debt reduction, but also by the sharp increase in EBITDA. Let's look at the P&L in greater detail. So if we start by occupancy rate evolution, across the group, as you can see on this slide, in all of our markets and business segments and in all of our regions, our occupancy rates are rising significantly. This trend is relatively consistent across all regions, as you can see on the left-hand side of this slide. For nursing homes, in particular, the increase is very pronounced with occupancy rates rising by 2.9 points to 89.4%. And if we focus, as usual, on our 2 major markets, namely Germany on one hand and France nursing homes on the other hand, trends are also particularly favorable. It shows that the momentum remains strong and at a steady pace in both those regions. In France, as you can see, the 380 basis points increase in the occupancy rate is certainly driven by the French group's commercial performance. Please note, however, that this trend also benefits from, first, the reduction in the number of beds in the denominator, which now consists of marketable beds as in other regions versus authorized beds. And it benefits also from the sale of our senior living facilities. The sale was closed at the end of 2025. And the occupancy rate of those senior facility were slightly lower than the rest of the portfolio. In France, we are also very happy to see that occupancy rate rose in Q2 versus Q1, whilst usually relatively stable in those 2 quarters, and this is very encouraging. In Germany, as you can see on the right-hand side of the slide, the occupancy rate continues to rise at a very rapid pace, plus 3.4 points. And this trend is, therefore, continuing for the third consecutive year, as you can see, with an occupancy rate now approaching 90%. How does it translate into revenue growth? Laurent said it, we enjoyed an organic growth in revenue of 6% in H1. While the increase in occupancy rate is obviously a significant factor, plus 2.6% if you combine -- if you include the new openings, the favorable price effect remains the primary driver of the revenue growth, contributing 3.4% in H1. On a current basis, not an organic basis, but the current basis, revenue is up 3.5%, slightly minored by, first, the disposal of our Czech Republic activities and the French senior housing I was mentioning in 2025, but also by the fact that we are currently disposing of our activities in Latin America. And therefore, we have excluded LatAm from our revenue in application of the accounting norm IFRS 5. If we look at the growth by activity, as you can see, nursing homes have outperformed again in H1 this year with a like-for-like growth of 7.1%, a material performance reflecting the strong occupancy rate improvement seen in all markets in addition to the capture of positive price effects. The momentum was maintained despite sanitary risk, thanks to the proactive health protocols, which helped contain a particularly virulent flu season as well as heat waves more recently. On clinics, although a bit weaker, the dynamics remain very satisfying, especially on mental health. This is benefiting from the effect of operational corrective measures taken throughout 2025 following, as you would maybe remember, a relatively weak Q1 last year. We -- that quarter fell short of expectation, particularly in terms of private room sales, but has been largely corrected since then. If we look at revenue increase by geography, nearly 60% of our revenue is generated internationally. And on those markets, the growth -- the like-for-like growth is 7.5%. In Spain, in Poland, in the Netherlands, growth is even double digit. This performance is driven by a very favorable price effect like in Austria, in Germany, in Switzerland and in Spain as well as strong increases in occupancy rates in Italy and Poland, for instance. Note that in Ireland, where rates are under significant pressure -- were under significant pressure last year, this metric is now rapidly recovering, although it remains below last year levels. In France, the recovery is still going on, as said by Laurent. We were particularly positively surprised with the very good momentum in occupancy rates, especially on our nursing homes business, while the price effect remained positive. As you can see on the nice slide, the performance of our revenue is flowing nicely into operating margin. Staff cost ratio has been further decreased reflecting the measures we progressively implemented during the past 12 months to optimize the allocation of our human resources. At the same time, we also benefited from the initial effect of Boost, our operational performance program, launched last year, which led to a reduction in the intensity of other costs or OpEx as well. I'm very confident that those 2 cost components, namely staff costs and OpEx can be further improved in the years to come. And as a result, these measures are enabling us to maximize the conversion of revenue growth into operational profitability. And consequently, EBITDA margin reached 15.8% and EBITDA margin before IFRS 16, 7.6%, both of them up 2 points versus last year. When we break down the EBITDA growth by geography, we see that all regions are contributing positively to this growth, plus EUR 15 million in France, plus EUR 13 million in Northern Europe, mainly driven by Germany and the Netherlands, plus EUR 11 million in Central Europe with a very strong performance in Switzerland; and finally, plus EUR 8 million in Southern Europe. Please note as well that our EBITDA includes EUR 23 million of profit on PropCo disposal versus only EUR 5 million last year. Laurent mentioned the Boost operational program. So let's say a word about Boost. The program was launched in 2025 and is designed to further improve the quality of our service while optimizing our OpEx base. To illustrate this, you can see a few examples of topics the team are currently working on. The consolidation of regional pharmacies, the renegotiation of our laundry contracts and the renewal of and standardization of our medical equipment are good examples of what we are tackling for the time being. Both program addresses an OpEx base of approximately EUR 400 million and is expected to reduce operating expenses by 2% per annum over the next 3 years, thus feeding our confidence for further margin expansions. The initial results are very encouraging and prompt us to consider implementing similar measures outside France. If we continue to go down the P&L, you can see on the next page, growth in EBITDAR flows nicely into EBITDA and then into EBIT improvement. Rental expenses flattening are kept well under control despite important volume of PropCo disposal achieved last year. This is due to 3 factors: first, renegotiation of leases; second, OpCo disposal achieved in 2025; and third, acquisition in 2025 of some real estate assets that were historically leased, notably in Italy. And as a consequence, EBITDA, excluding IFRS 16 is up 46% like-for-like at EUR 228 million. You can also see on this page that EBIT grew by 83% versus H1 last year at EUR 187 million with a margin of now 6% -- 6.2% versus 3.5% last year, a very good trend that is very likely to continue. And since H1 2024, EBIT grew by EUR 200 million, which is very noticeable. If we finish now the analysis of our P&L with an EBIT that is up EUR 83 million year-on-year, emeis net result group share grew by EUR 97 million, although still negative by minus EUR 40 million. Two further elements to be noted in this page. First, the reduction versus last year on nonrecurring items since most of the big operations were finalized in 2025. In H1 2026, please note that these nonrecurring items are largely related to the Isemia closing in January. Financial expenses are slightly up versus last year, plus EUR 18 million. But as a matter of fact, a financial income from derivatives for EUR 15 million was recognized last year. This means that on a like-for-like basis, financial expenses would have been totally stable, and this trend generally reflects decline in net debt volume on one hand against the backdrop of rising interest during the period on the other hand. Let's move on to the cash flow. The cash flow statement is facing, let's face it, some headwinds with a very good operational contribution offset by 2 one-offs related to the group normalization. So these 2 temporary and nonrecurring factors that have offsetted the growth in EBITDA are the following: First, EUR 94 million working capital increase. This is largely the result of the normalization of our suppliers' payment processes, which were disrupted last year by the transition to a new accounting IT system in France. And second explanation, the early exit of emeis's safeguard proceedings, which made possible for us to settle the fiscal and social debt that had been frozen by the French state until then. This largely explains the EUR 164 million you can see listed here under the nonrecurring items. Please note also the increase in maintenance CapEx that we have implemented to ensure emeis performance over the medium and long term. In the coming few years, the level of maintenance CapEx will continue to rise, but only very slightly. As you can see on the next slide, this is more of the same. You can see that the net operating cash flow and recurring cash flow remained broadly stable in H1 with a very strong operating contribution that was temporarily offsetted by 2 nonrecurring items, the 2 nonrecurring items that I just explained. A few words on disposal. You may have noticed in the free cash flow, the minimal contribution of asset disposal to the group this year, which is totally in line with our decision to adopt an extremely opportunistic approach on this topic now that the 2022 to 2025 disposal program has been met and even significantly exceeded. On the top of the Isemia transaction closed in January for EUR 761 million, and that is accounted for as capital contribution. EUR 114 million of disposals have been achieved in H1, almost 2/3 of them related to a sale and leaseback operation with a yield lower than 5%, which is an excellent valuation for emeis. Note as well that on the top of that, a further EUR 156 million of disposals are expected to be finalized in the coming quarters. For your information, so we have engaged the disposal of the full perimeter of our activities in LatAm, so Brazil, Uruguay, Mexico and Colombia. At the end of June, 30% of the expected values were already finalized and cashed in and a further 40% were already secured and signed, which means that the whole LatAm perimeter is very likely to be sold before year-end. As a result of all information we are sharing with you today, you can see that the group net debt has decreased by EUR 566 million since the beginning of the year and now amounts to EUR 3.9 billion pre-IFRS. As a consequence of both net debt reduction and operating margin increase, you can see that our leverage ratio continues its rapid downward trend. It stood at 8.7x at the end of June compared to 11.8x at the end of December and even 15.4x a year ago. Looking ahead, we are totally convinced that the group financial structure will continue to improve. As a reminder, we have agreed to a covenant of 6.5x effective in 2029, and we believe we have room to maneuver. Already, we are ahead of our commitment, which was to reach 12x of leverage ratio by the end of '26. So we are well below our covenant. And to conclude my presentation, you will find here a few additional information regarding the debt structure. I will highlight just a few points. Our debt has an average maturity of nearly 5 years with no significant reimbursement until 2030, as you can see. Our cash position stands at EUR 601 million at the end of June, which is comfortable. And please note as well that 85% of our debt has now been hedged or is at fixed rate. This paints a picture of a group whose financial performance is not only improving considerably, but whose financial structure has also been significantly strengthened. We can now look ahead with confidence for the years to come. As you know, today is the last time I will be addressing you as a CFO, and I will come to appreciate just how far we've come over the last 2 years. But now that our financial situation has stabilized, we will focus with Laurent on continuing to improve our operational performance in line with our medium-term guidance and beyond. In my new role as Group COO alongside Laurent, I will be dedicated to this task. Laurent, the floor is yours for the conclusion.

Thank you, Jean-Marc. And before answering your question, I wanted to remind you the main point of this presentation, the ones that make us particularly pleased with the H1 figures. First, this half year highlights particularly strong momentum in our business with a like-for-like growth rate of revenue of 6% and an increase of nearly 3 points in the average occupancy rate. Second, this growth has positively impacted our operating margins, which are rising sharply. EBITDA, for instance, is up -- EBITDAR is up 18% like-for-like. Third, at the same time, our financial structure is strengthening significantly with a leverage ratio now at 8.7%, which will continue to decline in the next semesters. And finally, as a result of this first half, which exceeded our expectations, we have raised our guidance for '26 and now expect EBITDAR to grow by 12% to 14% on a like-for-like basis. So we are now available to answer your questions.

[Operator Instructions]

So first question from Frederic Dib. Can you please provide more detail on the sale and leaseback operation where you mentioned yields below 5% geography, types of assets, duration of lease, below 5% seems aggressive compared to market comparables. How do you explain that? Yes, you're correct. We -- this is quite aggressive. This is very good performance of our real estate team. This is also explained of the -- by the geographical mix because some of the assets sold were in Switzerland. But this is also the proof that we are very selective now, now that we have exited from the safeguard period that we are very selective with our operations. And we will really focus on operations that make sense for the company from a financial point of view and really are in very, very good conditions. And this is really our strategy, selectivity and very good price going forward. Second question, congratulations for the results. Your margin improvement is impressive given the inflationary pressure on wages. Should we expect emeis to be more impacted in H2 '26? Well, we are managing this inflationary pressure. We have -- as you have noticed, we've made specific efforts on prices to try to compensate. But at the same time, thanks to both productivity gains overall and management of costs through the Boost program, we are balancing this inflationary pressure by our actions. And we should continue to see an improvement in the results in H2 and hence the revision of the guidance. We are not expecting more impact in H2, but that is still to be done. It depends on the events. As you may have imagined at the beginning of the year, we are not thinking about a war in Iran. This had impact on the inflation. This had an impact on our operation, but we immediately adjusted and we are very active on that front to be sure that this will not impact our P&L. The second point is that, for sure, concerning H2, most of our costs that are non-staff costs are already fixed and will not be impacted in the short term. Yes. This is particularly true concerning energy. Any question on the telephone?

The next question comes from Constantin Gumenita from Caius Capital.

Congratulations on solid numbers. Three questions from me, please. One on pricing. Should we expect a similar price evolution in the second half as in the first half or perhaps slightly higher given the dynamic pricing model you referenced? On clinics, could you give a bit more color on the operational -- or reminder rather on the operational corrective measures implemented in 2025 and how you expect that to impact second half like-for-like growth versus the first half growth rate? And lastly, on costs, very encouraging progress on the Boost program in France. But could you also give a bit of color perhaps on your actions with regards to staff costs and non-care home-related central costs?

Concerning pricing, well -- or active pricing strategy, really, this is something that we started 1 year, 1.5 years ago. So this is really continuous improvement facility by facility. What is positive in most of the countries is now that we start to have -- with increased occupancy rate, we start to have more capacity to be selective and to enforce this pricing policy. To sum up, the higher the occupancy rate, the higher the capacity we have to pass prices to our customer. I would say very similar price effect in H2 compared to H1, even if it is sure that after the start of the war in Iran, we reboosted, if I may say so, our pricing policy. Concerning the clinics, same period mid last year -- first half last year, we launched a corrective action to increase our single room sales, meaning that the private contribution of our customers to be sure that they have been taking a little bit more and pay more single rooms than before. This had a significant impact starting already in the second half last year, but more in the first half '26, and we expect further results in the second half of this year. Thank you for your comment on Boost. On the staff cost, we continue to drive the staff cost down progressively, I would say, with a relatively cautious but steady approach month after month, quarter after quarter. This includes clearly organization optimization. This includes simplification of reporting through digitalization. This includes a lot of measures of productivity that obviously we do in our 1,000 facility across Europe. This is really a progressive improvement everywhere, but this is a strong area of action. And this is probably one of the area where we still have a significant opportunity to increase our margin. We are totally conscious of that. Jean-Marc, you wanted to add something or my answer was...

No, perfect.

Okay. Sorry.

Can I just confirm on the last question?

You have a follow-up question?