Optima Health plc (OPT) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to Optima Health's FY '26 Financial Results Presentation. Today, I'm joined by Andy Bones, Chief Finance Officer, and the 2 of us will take you through the agenda we've got there. So FY '26 financial headlines, our strategic progress and outlook, and Andy will go into a bit more detail on the financial review. And then as Sergey has mentioned, we'll open up for Q&A towards the end. Next slide, please, Tom. So to reacquaint those of you with Optima and all those of you who have not heard about Optima before, Optima Health is the U.K.'s market leader in occupational health and well-being. So what does that mean? We help organizations to implement multiyear health programs where we monitor, report, advise and rehabilitate workplace-related health issues for employees in the U.K. We help businesses comply with legislation, manage their risk and ultimately make favorable management decisions where they're able to improve productivity of the workforce, the well-being of the workforce and the health of their employees. The market which we operate in, as you can see down at the bottom, is a favorable one. Our target addressable at the moment is roughly GBP 1.6 billion across the U.K. and Ireland. And the issue at hand are some of those key headlines and metrics there. So the cost of ill health for employees is roughly GBP 85 billion. That equates to 150 million days lost to sickness absence annually in the U.K. And across from a state perspective, the cost to the state is around GBP 212 billion of this issue. There recently was a Keep Britain Working report published by the government that suggested to make inroads into those and make -- improve some of those metrics. The target addressable market could be up to GBP 6 billion. That equates to around GBP 15 per employee per month spent on occupational health-related services. Capability-wise, we have unrivaled capability across the U.K. and Ireland. So we support around 6.5 million employees and the customers that we serve, of which there are around 3,500. We directly employ around 2,000 people, of which 1,250 or so are directly employed clinicians. So doctors, nurses, physiotherapists, counselors, multidisciplinary team that we need to support our organization. Next slide, please, Tom. And underpinning that, we have some key fundamental USPs and strengths that support us in exploiting those positive market dynamics. We've got comprehensive U.K.-wide and Ireland-wide scale, and that means we can support any client in any sector, anywhere from a geographical perspective across the U.K. and Ireland. Underpinning that is our proprietary IT platforms that gets the cases to the clinicians, the right clinician at the right time with the right intervention and allowing our customers to flexibly access our services. And we deliver the full breadth of scope of what could be required in a workplace health perspective. Anything that a corporate or an organization requires, we're able to deliver in-house, whether that be occupational health-related, mental health and musculoskeletal triage-related, neurodiversity assessments, et cetera. Our model is a favorable one also. We are a profitable organization. Our contracts with our customers are recurring in nature, long-term in nature and multiyear contracts, which allow us to deliver profitably, turn that into cash and invest in our business going forward. And finally, we've got a great track record from an M&A perspective, which I'll touch on the next slide of consolidating effectively, being disciplined in our approach and delivering on the outcomes that are required there. Next slide, please, Tom. So I thought I'd remind everybody of that journey and that track record over the last few years or so. So 2021 -- end of 2021, Optima sold the business into Marlowe plc. At the time, we were around GBP 70 million of revenues and GBP 10 million of EBITDA, and that delivered significant shareholder value at that point in time. Thereafter, through 2022 through to 2023, we integrated 12 businesses into the Optima Health platform and the model. And that integration activity finished in 2023, delivering in the platform that we have to the scale platform that we have today and delivered significant operational benefits and synergy savings. In 2024, we embarked on a strategic demerger from Marlowe plc and listed the business on AIM in September of 2024 to allow us to really focus and pursue strategies tailored to our end market and customers. And thereafter, we continued with that strategy. So 2025, we acquired 3 businesses, entering the Ireland market with Cognate Health, BHSF Occupational Health and Care first EAP, in addition to winning a significant contract with the U.K. Armed Forces that is around GBP 210 million over 7-year term. And then finally, in early 2026, we acquired the transformational acquisition of PAM, People Asset Management, which adds around GBP 66 million of revenues to the group. Next slide, please, Tom. So taking you through the financial headlines, if you go on the next one, please in some key metrics. So really pleased with our results for FY '26. Revenues increasing around 15% year-on-year, so GBP 120.6 million, contributing to that and underpinning some of that is some of that disciplined M&A that I talked about on the previous slide, but sustained and resilient demand for our services. Adjusted EBITDA is also very pleasing. In FY '26, we delivered GBP 20.1 million versus GBP 17.6 million the year before, which is also around a 15% increase. Again, those acquisitions that we talked about that we probably talked about last year around lower margins that would then be brought up to the corporate margins have now been integrating and are now delivering those corporate margins that we talked about. The operational transformation initiatives that we also talked about in previous year are now starting to deliver results, and we're looking to proliferate those and move forward with those. And our results also include other operating income of GBP 4.7 million, which we'll touch on in later slides. Cash in a really good position as well. So cash generated from operations was GBP 17.3 million, a big uptick from the previous year. And our net debt has increased to GBP 94.4 million. What's worth noting there is the M&A consideration paid in the year was GBP 106.6 million. plus fees in relation and expenses in relation to those acquisitions as well. And a bridge loan that was used to finance the PAM acquisition that completed on the 26th of March was repaid a number of weeks later in April. So that net debt position obviously reduced significantly in April following our bridge loan being repaid in the equity raise. New business and our outlook in that regard is also positive. So we delivered GBP 10.8 million of annualized new business wins in the year, which included a key strategic deal with PerkBox that we announced earlier in the year. And FY '25, obviously, was a bumpy year, looks slightly flattered by the U.K. Armed Forces number in there. So FY '26, we are really happy and it's a positive number. And to underpin that is a further GBP 8.6 million of annualized new business that we have won since the 31st of March. So we've made a good positive start thereafter. And as we stand today, we've combined our pipeline across Optima Health and the PAM acquisition. We have a pipeline of roughly GBP 34 million in annualized revenue that we're working on at the moment. Statutory operating profit improved slightly. Obviously, acquisition-related fees were expensed in the year, and they equated to GBP 3.2 million. And it's worth noting our amortization of acquired intangibles number that runs through our numbers of GBP 6.8 million. And we're really pleased with the ability for us to originate and convert on the M&A opportunities that we've highlighted in previous announcements. So -- the GBP 100 million transformational acquisition of PAM, obviously, a key one for us, and we'll touch a little bit about the integration activity in a slide or two's time, but also some of the others that we've undertaken earlier in the year, we've made great strides forward on those. So the Cognate Health business in Ireland, our entry into Ireland as we've rebranded Optima Health Ireland and it's progressing well. And the BHSF Occupational Health and Care first businesses were both fully integrated by January 2026 and delivering to expectation. Next slide, please, Tom -- or again. So now we'll cover a little bit of our strategic progress and outlook. So again, it's worth reminding, we first, I think, showed this slide at our interims in December. So our medium-term targets is to grow the business to GBP 200 million of revenues and GBP 40 million EBITDA. That's underpinned by some key in-flight strategic initiatives that fall into those 4 categories that you see there. So first and foremost is our core bread and butter, organic growth of the business, focusing on our sweet spot areas where we think we can win market share, where we can first-generation outsource contracts, the biggest of which being the AFR, the U.K. Armed Forces transition, which is planned to go live in calendar year 2027, but also increasing the services that we deliver and the wallet share across our existing clients as well as winning new business. Our operational transformation activity is progressing well, and we've got a slide on that in a moment or 2. So this is around how we make our services more efficient, more profitable, but also improve the quality and client advocacy of those services. And we'll touch on that in a moment or 2. And part of our strategy will continue -- have been and will continue to be a disciplined approach to allocation of capital to M&A, leveraging our platform that we've built in the U.K. to deliver economies of scale and efficiencies as we bring those on board, but also looking to expand into complementary adjacencies. And then finally, our overhead efficiency. We look to optimize that, whether that be through technology, synergies as we acquire businesses, that is a key area where we can improve and move towards our medium-term target of GBP 40 million of EBITDA. Next slide, please, Tom. So looking at that progress outlook. So focusing first on our progress to date. So the operational transformation initiatives are now delivering impact. That is operated under 7 work streams under our Chief Operating Officer and focusing on the areas that you can see there, so clinical efficiency, self-service and contact center modernization, operational process flows and improvements, admin excellence, our mix of clinical expertise, our proprietary IT platforms and our overhead efficiency. So those programs have now been going for around about 9 months, and as I say, delivering benefit. Adjusted EBITDA, and you can see some of that benefit in our half 1 versus half 2. So if you exclude the other operating income from the headline numbers that I talked about there, our half 2 adjusted underlying EBITDA was GBP 3.4 million favorable to half 1, a 530 basis point improvement, highlighting some of that margin improve. So we exit FY '26 with good momentum on those transformation programs and further to go. The PAM acquisition that we completed on the 26th of March, as I mentioned, adds around GBP 66 million pro forma revenue, GBP 8.2 million of adjusted EBITDA. At the time, we highlighted that we were targeting GBP 5 million of synergies over 3 years. Pleased to report that we've already delivered GBP 2.1 million of year 1 synergies from that combination. So we've made a very good start in that regard. The U.K. Armed Forces contract that we announced around a year, bit's more than a year ago now in terms of it is in transition. That is yet to deliver -- start to deliver service revenues, which are planned to commence in calendar year '27, financial year '28. And that strong new business, as I mentioned before, so GBP 10.8 million of annualized new business won in FY '26, including that PerkBox deal that I mentioned, which was implemented a month ahead of schedule in June. The preferred bidder work or signed work since the year-end of GBP 8.6 million, which will be in various stages of being implemented and a continued robust pipeline of GBP 33.9 million that we're working on there to convert further in the year. And as I touched on that previous M&A, BHSF, Care first integrations completed and our first expansion internationally into Republic of Ireland with Cognate Health has now been rebranded Optima Health Ireland and is progressing well. So where do we go from here? So we're going to continue to execute and deliver our strategic plans to deliver and then go on from those medium-term targets, as I mentioned. So GBP 200 million of revenues and GBP 40 million of adjusted EBITDA. The first and foremost and top of that list is the comprehensive integration of PAM, People Asset Management, realizing those full operational and financial benefits, including the GBP 5 million synergy target that we set ourselves at the point of acquisition. We'll then continue that transformation activity that's ongoing in our business under our Chief Operating Officer across operational efficiency, clinical enhancements and that overhead efficiency. There's been a lot of progress made, but there will be further progress made in our protocol improvements, the use of technology and AI tools to improve our operational efficiency. Clinical enhancements, we will continue to roll out technology enhancements to improve the quality and the productivity of our clinicians. At the time that we announced that, we announced that we had undertaken last summer a number of proof-of-concept studies of areas where we thought there was benefit to be had. We focused, first and foremost, on delivering some of the biggest hitting items first. Those secondary items from those proof of concepts are now moving into development and delivery and will deliver further enhancements and benefits to the business. And aligned with our integration of the PAM business, we're starting to focus and are focusing on our overhead efficiency, targeting best practice and that is able to support scaling business but also delivers a margin enhancement opportunity. As you would expect us, we'll continue to convert new business pipeline, which is as strong as it's ever been in both core and adjacent markets. And we have and we'll continue to discern and have a disciplined approach to -- disciplined approach to M&A opportunities. We've got around a dozen opportunities that we've got at various stages of origination that we're working on, and we'll continue to evaluate whether they can create value for Optima Health plc shareholders and execute those accordingly. Next slide, please, Tom. So looking a little bit then into the integration approach and where we are from key KPIs and post PAM. So it's worth noting that given that PAM completed right at the end of the financial year, the P&L is not in our financial FY '26 numbers, but the balance sheet side of that is. So we report some pro forma numbers, as you can see here. So in key headline numbers, the GBP 67 million or so added from PAM plus the FY '26 numbers of Optima were combined to GBP 188 million of revenue, GBP 28 million of adjusted EBITDA, 1,250 clinical employees that I talked about and 3,500 customers and a market share of around 15% in the U.K. market. At the point of that acquisition, we outlined and talked about our integration approach, as you can see there on the right-hand side. First and foremost, we established a single and consistent leadership governance and talent stratification. So we've already done that. That's done. And not only is that done at a leadership level, we've actually rolled out our talent evaluation program process and procedures across the entire business, PAM. So we're very aware of where our future and emerging talent is across the organization as we bring those businesses together. We target one core technology platform, of course, and operating model, and we're well progressed on that. As we talked about at the -- when we announced the PAM deal, we start there with central functions. So all of our central functions, finance, IT, our people function, our governance are now under one line of command, if you like, in terms of, so integrated together. And that supports us unlock those scale efficiencies as we start to look at how we deliver more efficiently, look at where we have duplicate costs in the business and deliver some of those synergy benefits. And we've deployed our dedicated experienced M&A teams that have got a clear plan of how we fully integrate that business and unlock the operational and financial benefits that we expect. And the result of that will be that scalable platform that's primed for future growth, whether that be inorganic activity or organic growth and with the ultimate aim of us creating value for our shareholders. Next slide, please, Tom. So in a little tiny bit more detail before I hand over to Andy to talk about the financial review. Here is our high-level road map from a One Optima program perspective, which effectively is the name that we've called the integration with PAM. So in half 1, and this is the calendar year, half 1 of calendar year 2026, that was a strategy, early governance stage of finding out about the business, building on our due diligence process to discover exactly what we've got and how we will go about that. We combined the leadership team established very early on, and we put in place the comms and engagement plans for our people and outlined what we would do there. We're now already into delivery phase and execution phase of that integration, communicating things such as our brand strategy, central functions integrations are well underway. Our Ireland business is well underway into being combined. PAM also has an Irish subsidiary, and we'll progress there -- from there. Ultimately, we will be substantially integrated as a business by that December. That doesn't mean that we will unlock the full GBP 5 million synergy benefits at that point in time. That will come as we proceed through, some of which already have been delivered, as I've mentioned, but we'll look to optimize and unlock some of those benefits as we go forward into calendar year 2027. As I've already mentioned, the AFRS service is also due to go live in 2027, which will then see us getting into a let's call it -- we call it the scale and value stage of our -- that integration where we've unlocked those steady-state efficiencies and the long-term synergies that we expect, things like from property rationalization where we've got duplicate properties, et cetera, and that we will plan on executing. Tom, please can you move on a slide. And Andy, I'll hand over to you to go through in a little bit more detail some of the financials.

Thanks, Johnny, and good morning to everybody, and I'll take you through the financial review now. If you could move to the next slide, please, Tom. So as Johnny has already mentioned, I'm going to go through these key items, but revenue has increased by 15% year-over-year, and that's been delivered by a mixture of organic revenue growth and the full year impact of the 2 acquisitions made during FY '26. Point of clarity, of course, that this statement of comprehensive income does not include any impact of the PAM acquisition, so that is excluded. We can see that the gross profit has increased from GBP 35.3 million from GBP 33 million in FY '25. FY '26 also includes the other operating income of GBP 4.7 million. When we look at the adjusted EBITDA figures, we're at GBP 20.1 million versus GBP 17.6 million at 17% EBITDA margin in both financial years. The adjusted EBITDA also includes National Insurance and Real Living Wage impact of GBP 2 million and the new plc cost of GBP 0.8 million, which is why there's an increase in admin expenses as well as the integration and change team costs of GBP 0.6 million, which were treated as a business as usual cost in FY '26. In terms of operating profit, there's an impact -- there's an increase in exceptional costs of GBP 3.2 million of that associated with the acquisitions made during the year, and I'm going to talk more about that on a subsequent slide. And FY '25 exceptional costs of GBP 3.9 million included GBP 2.8 million of the demerger and listing costs in that year. And the depreciation and amortization is due to the new acquisitions. Next slide, please. So as I've already mentioned, just quickly to go through the exceptional costs during FY '26. We recorded GBP 4.7 million of exceptional costs in FY '26, GBP 3.2 million of which related to the PAM acquisition. And these were external adviser and legal costs that related to the acquisition activities made in March 2026. And it also includes fees related to the bridging loan of GBP 30 million, which was subsequently paid after year-end. There was a further GBP 1.5 million from integration costs made from acquisitions made earlier in the year. And these are redundancy costs and restructuring costs, which we do not consider business as usual costs, hence, the GBP 4.7 million of exceptional costs during the year. For clarity, how we classify exceptional costs, there's an integration and change team that's in the business to deliver the value from the acquisitions, and these were in FY '26 treated above the line as an administration cost. So they were not in exceptionals during the year. The acquisition external costs are included within exceptionals as are redundancy costs. And there will be costs incurred to support our transformation program, which will be treated as exceptional costs during FY '27. Next slide, please. So the balance sheet reflects the fact, of course, that the PAM acquisition was made at the end of -- towards the end of March 2026. The net assets has remained largely unchanged at GBP 170 million versus GBP 168 million FY '26 to FY '25. And the total assets increased by over GBP 100 million, which is related to the PAM acquisition. And again, if you look at the trade and other receivables, it's increased to GBP 34.7 million from GBP 19.2 million, but that's really from being a larger group and from the acquisitions. You'll see in the cash flow that working capital actually -- the net working capital position actually decreased year-over-year, which drove cash performance into the business. So the year-end cash was GBP 21.6 million compared to GBP 14.8 million at the 31st of March 2025. And the net debt increased to GBP 94.4 million, which was the financing of the PAM acquisition. However, at year-end, the GBP 70 million term loan and GBP 16 million drawn RCF and the GBP 30 million related party bridge facility. Post year-end via the equity raise, the GBP 30 million bridge facility has been repaid, that's now at 0 as we are today. And the trade and other payables has increased up to GBP 36 million from GBP 12 million. But again, this is to do with the enlarged group that we are following the business combinations in the year. Next slide, please. You can see from this slide that the working capital movement was actually positive during the year when you strip out the impact of the acquisitions. So the net cash flow generated from operating activities was GBP 17.3 million versus GBP 5.4 million in FY '25. The GBP 17.3 million also included GBP 4.7 million of restructuring, demerger, listing and acquisition costs, so the underlying cash flow generated from trade was higher. So how has the cash been generated? Well, there's a GBP 1.9 million net working capital inflow into FY '27 (sic) FY'26. So we're really pleased that the cash conversion remains very strong in this business and reflects the recurring and contracted revenues as seen in this business. The GBP 101.8 million of net acquisition cost outflow relates to the acquisition of PAM primarily. So at year-end, the net debt which excludes leases is GBP 94.4 million, reflecting the PAM acquisition. Again, to repeat, the GBP 30 million bridge facility was repaid post year-end. And the enlarged group remains focused on deleveraging over the course of the next 2 to 3 years as we bring down the leverage position of the business from where it is today. Next slide, please.

[ That's ] brilliant. Thank you very much, Andy. And Tom, if you won't mind moving on to the next slide, I'll just summarize before we open up for Q&A. So to reiterate, we're a U.K. leader in corporate health and well-being across, covering both public and private sectors. We've got a large and growing market with attractive dynamics and some really good natural complementary adjacencies that we are looking to expand into. We have strong new business momentum, organic growth perspective. So GBP 10.8 million of annualized contract value won in FY '26 and a further GBP 8.6 million won or at preferred bidder stage post that year-end. And as I mentioned, a robust pipeline of activity that we're working on, at almost GBP 34 million there. The growth outlook in our analyst forecast, as you've seen for FY '27 into [ FY '28 ] underpinned by a long-term contract that we've won with the U.K. Armed Forces, which is due to start delivering service revenues at GBP 20-plus million per annum, and once that's been transitioned and in calendar year '27. And those transformation activities and are that we have outlined and the program of transformation that we're delivering is already starting to deliver margin improvements and will improve, and deliver more margin improvements as we grow. We're seeing the early signs of that GBP 3.4 million of extra underlying EBITDA, 500-plus basis point improvement in margin in half 2 of FY '26 versus half 1, and we look to proliferate and accelerate that. We've invested the time and effort, and the acquisitions that we've done to date have come about by investment of time in originating, building relationships in our market and we've continued to do that. So we have a substantial and qualified pipeline of M&A opportunities that we will continue to discern and allocate capital in a disciplined fashion where we see there is value to be created. And as a result, I and the Board are really confident of our FY '27 and both our medium-term value creation targets. Next slide, please. And at that point, Sergey will open up for some Q&As and questions.

[Operator Instructions] We now take our first question from Adam McCarter from Cavendish.

The first one I have is, I appreciate -- it may still be early following the PAM acquisition and the increase in scale across the enlarged group. But are you seeing any early evidence that this is helping you win larger contracts, improve conversion rates or compete more effectively versus other providers?

Yes, Adam, that's a good question. So we're obviously at the early stages of integration and unlocking some of those benefits. But those absolutely will come, and we are absolutely talking about what those benefits are. So as we talked about at the time of the acquisition, there are some great technology elements in there, so feature-rich and functions that we can deploy now across group in terms of we'll be deploying across group. We've got the increased resilience in scale from a clinician perspective. We had a client just the other day that was asking about that and when that will be available. So we were already robust from a clinical services delivery of the business, but even more so now. So again, that benefit will be coming through. And then also, again, as we've talked about at the time of the acquisition, some very complementary services that we can now cross-sell across groups. So a good example of that is PAM has an assisted -- assistive technology and support effectively equipment business that we're able to leverage and sell across Optima clients and there's opportunities vice versa. So we'll start to see what does that do to our new business win rates and metrics in time, Adam. But certainly, some of those themes are being talked about in some of the pictures that we're tendering at the moment.