Radius Residential Care Limited (RAD) Earnings Call Transcript & Summary

Good morning all, and welcome to Radius Care's full year presentation -- results presentation for the year to 31 March. My name is Andrew Peskett. I'm the Chief Executive Officer, and I'll be co-presenting with Jeremy and Brien this morning. So -- and we're also joined by several significant shareholders, directors of Radius Care and employees. So welcome all, and we'll move to Page 3, please. So today, I'll present the overview of the FY '25 performance in Section 1. I'll then hand to my left to Jeremy to present the analysis of the result, Section 2. And then Brien, our Founder and Executive Chair, will present Section 3, the growth strategy. And I'll finish the presentation off with a couple of slides, including our outlook statements. So moving to overview of the performance for the year. As we always do, we like to start with our people. It's our 1,900 people who come to work every day to provide exceptional care to our residents that have contributed to this result, and it's their result really. And what we need to confirm about our people, we have an excellent group of leaders in our 23 care homes. I like to call them the 23 CEOs of the care homes who are autonomous, focused on continuous improvement and eager to learn and do better every day. And I think that bears fruit in the results. Decisions are made at care homes but with support from us and with decisions through regional areas as well, mean that we get really, really good autonomous teams working well in our care homes as overseen by executive team members who, as you'll see in the presentation, regularly visit our care homes to check in. As a result, our turnover has now tracked slightly below 17%, which is an excellent indication that our people are engaged and enjoy working for Radius Care. So an opportunity to say thank you to all of our 1,900 people for their work every day in looking after and caring for our residents. And our next slide is the business highlights for the year. There's a lot of highlights up here. I'd just like to call out a few. Firstly, our EBITDAR per bed at $28,000 is a new record. That's improved from just under $20,000 a few years ago and continues to increase year-on-year up to $28,000 per bed, which is more than every other operator in New Zealand. So we're very proud of that and continuing to grow there. Our 20% growth in underlying EBITDA is also worth calling out another very strong financial result. That's the number that we tend to look at in line with how the business is performing and in line with net profit before and after tax, both which increased significantly. We had an improvement of higher-revenue hospital and specialist care residents. So ACC, psycho, geriatric, dementia and hospital residents, which means our revenue per bed per day is higher and continuing to increase, certainly higher than competitors and continuing to increase year-on-year at Radius Care. And we have declared a record dividend, which is up 14% on FY '24's dividend, so $0.008 per share fully imputed will be paid in July. And then the last point on the business highlights on this slide is the growth. We'll talk a little bit later. The St Allisa acquisition of 109 beds in Christchurch from Arvida settles next week, and we're very excited to welcome those people at the St Allisa care home and to integrate that into our business. So that will be earnings accretive through the year. And as we've talked previously, we completed the acquisition of 51% of Cibus during the year. In terms of financial highlights, we touched on some on the previous page, another couple to point out on this page, accommodation supplements. We've had a focus on accommodation supplements and that $1 million -- or just over $1 million increase reflects both more beds being charged to accommodation supplements and at a higher rate. So year-on-year, strong growth on accommodation supplements continuing into FY '25 and beyond. Then, again, operating cash flow as a metric, we look at fairly closely. A 42% increase in operating cash flow for the year is significant and a very pleasing result. AFFO, 18% on last year, supporting strong dividend payouts, which we've talked about. And both drawn debt and the net debt, so both drawn debt and net debt reduced by approximately $6 million from the last financial year, which is, again, good with interest costs going down both at an aggregate number on the amount of debt and the interest rate for them. So that's a good result. And my final slide before I hand over to Jeremy is a very significant slide and just like to emphasize the importance of 4-year certification. So when you have your care home certified every year or when they're due to be audited, you either get a 1-, a 2-, a 3- or a 4-year certification. And pleasingly, we currently have 16 of our 23 care homes with 4-year certification. That standard is getting harder to attain, and several other care homes are falling away to 2 or 3 years, not within Radius Care. But as you can see, we've increased from -- we had 5 care homes in FY '21 4 years ago at 4-year certification. We've now got 16 and of course, looking to build on that as we've got more certification audits during the year. I think it's a critical metric in that families of residents will look at whether the care home they're looking for their parents or relatives has a 4-year certification or not. And quite often, if it doesn't, they won't have their families stay there. So it's a very important lead indicator to our stronger occupancy, which we have talked about and we'll talk about more in the future, currently and a lead indicator to satisfaction and the exceptional care that we deliver. So that's me on the first section. I'll now hand over to Jeremy, our Chief Financial Officer, for a more in depth analysis of the result.

Thank you, Andrew. I'll cover a very brief overview of our most important indicators of financial performance for the year. And starting with our most important financial metrics, which are underlying EBITDA and underlying EBITDAR per care bed. And in both of these critical metrics, we've shown very strong growth against the previous year, which in itself saw growth on the year before that. Now both of these metrics delivered growth as a result of our improved occupancy, which strengthened during the year; improved mix, which Andrew referred to earlier; and a team that across the board really has -- shares the focus on tight cost management. Underlying EBITDA was also assisted by the acquisition partway through the year of Cibus, which made a meaningful contribution to the second half. But overall, we're particularly pleased with our EBITDAR per care bed, which at $28,000 continues an industry-leading profile for us. On the top line, we also saw revenue growth, and revenue was driven by our improved occupancy, which on average for the year was 92.8%, up 1% on the previous year. But that strengthened in the second half, and our final week of March was 93.9%. So we start the year with increasing momentum in occupancy. Accommodation supplements also saw continued growth. We're pleased with the 11% growth there in an area where we attract an additional charge for our premium rooms. And that performance is ultimately reflected in an increased dividend that we're able to pay to shareholders. So the final dividend is $0.008 per share, which is 14% growth on last year's $0.007 per share. And that will be paid in a few weeks on the 19th of June. As a profitable company that pays tax, we're very pleased that we can attach imputation credits to our dividends. And so with both the fully imputed interim dividend and the final dividend to cash dividend of $0.0145 for the year but with imputation credits represents an attractive gross yield at the current share price. That also allows cash to be retained for our exciting growth plans, and we've paid out only 47% of AFFO, which means that a significant cash has been retained both to pay down debt and to be held for future growth. So now I'll hand over to Brien, who's going to talk about an update on our growth strategy.

Thanks, Jeremy. So moving on to, I suppose, the future, our execution of our capital-light growth strategy, and we have 3 main pillars here. The first is to grow scale. And we've talked about this many times. We'll continue to do that through leased care opportunities, targeted M&A, brownfield and greenfield developments. Our second pillar is through diversifying revenue. We've made significant inroads into this strategy. So we've acquired Cibus Catering, and we intend to grow that now as a stand-alone business. We're growing our RConnect, which is our nursing bureau, and that provides temporary staff to the broader aged care and home care service. We're expanding the Radius Care Shop. That's our online shop. And we are expanding into other health services beyond core aged care. The third pillar is RadPro, and we're developing RadPro as a fully integrated operating platform for aged care and home care services. So I'll expand on each 1 of these in the next 3 -- or next 2 slides. Growing scale. So Pillar 1, this is about our capacity to expand. We're aware that, at a high occupancy, we need to keep growing our core aged care business. Andrew touched on this being our most recent acquisition of St Allisa in Christchurch, which will settle at the end of this month. That's a property that we will lease. We have acquired the total property and then on sold the land and buildings to a landlord, an independent landlord. And this will deliver a material EBITDA growth over the -- from FY '26 forward really. We'll continue to add large care facilities as we come across them. There's not a huge number of them in the country, but it is our area of expertise. And as they do come up, we will look to acquire those. Second area is greenfield and brownfield development. We've talked about this development before. It's due to kick off this year. So it's a 4.3-hectare site in Christchurch. It will have 80 villas and a 100-bed care facility, and we are going to build and sell the land and buildings on that facility and take a head lease across the care facility. So we'll own the village, and we'll own the business at the care facility, which, again, is reinforcing our capital-light future. Additionally to that, we've got a project underway to build and lease back new care facilities. We've signed our first heads of agreement. So we have a landlord in the Waikato who was in the process of getting building consent -- resource consent to build our first property. Christchurch at Belfast will be our second, and we have a number of discussions underway with different landlords to build and lease care facilities to us. On the next slide, our second pillar is to diversify revenue. Cibus Catering, we've talked about. That's going very well. The second pillar is to broaden our health services, so we're doing that through home support. So Radius Care's recently been accredited as an ACC home care provider. Not something that should be taken lightly. It was an extremely difficult process. Took us over a year to achieve that. So we're now onboarding our first ACC clients in their own homes. Additionally to that, we have our own general home care business, which is starting to roll out using our care facilities as basis for home care. We're also growing RConnect. I mentioned that, which is our full-service nursing bureau, and that provides temporary staff into aged care and home care companies throughout the board of 2 sectors. We're also growing the Radius online shop, and we're developing our own brands in areas like incontinence products, and we're expanding the general product offering of that online shop. And finally for me, why are we different? This touches a little bit on what we call RadPro. So our culture, we have a number -- well, basically, the key point to our culture is our focus on being -- on care being our priority. So yes, we're good at cost management. We're good at growing revenue, but care is our key focus. And we're also focused on lean commercial habit base within the support office here in Auckland. Portfolio is large sites, quality buildings with diversified revenue streams. Intellectual property is 22 years of experience in specialist care. The things that we're not, we're not retirement village property developers as our core business, so therefore, we are not dependent on the property market. And secondly, we have no care suites, perhaps a little bit of a difference to our other listed companies. But from a care suite point of view, it doesn't really fit the high-acuity model because of the short-term stay of people. So we are not hitting down that care suite path. And RadPro is our unique -- Radius-unique protocols and operating systems that we've developed over 22 years, and we are now developing that into a full-service suite. And that's it from me. Back to Andrew.

Thanks, Brien. Just before we flip on to debt, the next slide, you might see me buried in there amongst our wonderful people at Matamata. A couple of -- sorry, last week, I finished a 2-week tour to celebrate the company achieving 95% occupancy. So we had a goal a year or 2 ago to get to 95% occupancy across a week or 2, and we achieved that a few weeks ago. So I delivered cheesecakes or had delivered cheesecakes to all of our 23 care homes and as you can see, some pretty heavy people and pretty invested and engaged people that contributed to that result. So nice to see that slide there. Next, Jeremy. Next slide on capital management. I just wanted to call out 3 parts to our new confirmed capital management framework. The first, as you can see, we have set a target of net debt to EBITDA of below 2.5x over the medium term. So that's 2.5x net debt-to-EBITDA ratio as a new target to make sure our debt is at sensible levels. Point 2, we currently own approximately 50% of our care homes, and we want to maintain the ratio of between 25% and 50%, so quarter -- between [ 1/4 and 1/2 ] of our care homes to be owned by us. So to Brien's point around capital light and leasing like St Allisa, we're happy to take on more leases because it means more beds and growing our portfolio and our scale while keeping the cost base minimal is very sensible. And then the third call out on this slide is the AFFO range. So we're aiming to pay between 40% to 70% of AFFO, available funds from operations to dividends. And this year, as Jeremy said, we've done that. We're in -- within that range. So that's just confirming the range of dividends between 40% and 70% of our -- the AFFO that we generate every year. So there's more detail in the appendix on the slide but just to call out those 3 key points. And then finally, our outlook statement. So we are now 50 days into the next financial year, FY '26. We're well and truly into it. Trading, we're pleased to confirm that trading has been strong. As you can see on the slide, the April occupancy was at 94.5% (sic) [ 94.4% ] and continues to trade strongly on that front. We also continue to drive higher revenue occupancy being ACC, hospital at higher acuity. As Brien was saying, we're pivoting most of our care homes away from rest home into the future. And we have -- the majority of our care homes, as Brien was saying, full now at 95% or more. So that higher-acuity, higher-revenue admission becomes even more significant across the portfolio. So we are expecting, in the middle of that slide, that all of our key metrics for FY '26 will be improved on the FY '25 numbers on the core business. And then on top of that, on the right-hand side, we have the earnings accretive acquisition of St Allisa, Cibus and any other acquisitions that occurred during the year. So we've hit the ground running in the first 50 days and can assure you that we are looking to go hard through the year and maintain that momentum. So that's our outlook statements and brings the presentation to a close. I think if you have questions, we're welcome to take them if you'd like to raise your hand first, and we'll answer one by one. If you have questions for any of us, I'll direct the answers. So please feel free to ask questions. We don't appear to have any questions. Okay. Well, give it another couple of 10 seconds, [ an ] opportunity. Thank you for your applause, Richard. Okay. Well, no questions. So again, I'd just like to thank you all for joining the call and your support during the year and into the future. Thankful we have a wonderful team and my co-presenters here and wish you all a nice day.

Thank you.

Thank you.