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

Good morning all, and welcome to our half year results presentation for the 6 months to 30 September or as I like to call it, the halftime update for the full year. I'll start with a bit of admin for those joining, thank you for joining on Teams. You are currently not on camera and you are muted. At the end of the presentation, there will be a Q&A session and please either raise your virtual hand or write your question in the chat box and we will [indiscernible] answer all questions at the end. So the format of today, I will start with a few slides on the business and a few opening remarks before handing over to our Chief Financial Officer, Jeremy Edmonds, to talk more in detail about the financial results for the 6 months Brien, Executive Chair and Founder, to talk about strategy and growth before I finish up with the last couple of slides, including outlook statements. Moving now to Slide 4. Our NPAT for the year -- sorry, for the 6 months was up $4.3 million to $6.3 million, which you can see from the slide is an increase of over 200%, a really, really impressive result that we're pleased for. And similarly, our earnings per share was up over 200% to $0.02 per share from the previous period of $0.07 per share. We'll be paying a dividend in December of $0.01 per share, fully imputed, and this represents an increase on the prior period of over 50%. It's worth noting that there will be no tax on that dividend as a result of the fully imputed nature, which we're again pleased to announce. And finally, on this slide, our available funds from operations or as we like to call it AFFO was up nearly 100% to $7.2 million. Now moving to our business highlights on Slide 5. I'd just like to call out a few of the numbers here, and Jeremy will go into the numbers in more detail in the following slides. But in particular, we -- our growth in underlying EBITDA of over 40%, which we signaled to the market earlier, was right in the middle of the guidance range that we updated in the August of this year. It's worth noting that. Again, we are absolutely delighted with our occupancy number. Some time ago, we had a drive for 95% occupancy, and we not only met that reasonably stretched target, but for the period, we averaged 95.0%, which is up on the prior period of 92.3%. And also, we completed during the period, the acquisition of St Allisa, which has become pretty immediately earnings accretive to us and a key part of the portfolio. I'll talk more about St Allisa later in the presentation. And lastly, on the slide, very importantly, Jeremy will talk more of this, but we have reduced our financing costs and our overall net debt. My final slide in this section is a very important slide, our exceptional people. You can see Klara there with Derek from Matua. Klara is our facility manager at Matua. A facility that is consistently at 100% of the 147 beds, and we're very proud of Klara and the facility. She's part of our exceptional people who deliver exceptional care to our residents every day. So why does this matter? It's really important to note that our regional management team that helped drive the business have all been care home managers previously. So they know firsthand how to help our residents, how to help our care home leaders or as I call it, our CEOs of our 24 care homes to deliver care, how to be commercial and how to run each of their care homes efficiently and with excellent care to residents because that is the core of what we do, deliver excellent care to our residents every day. It's also worth noting our continued excellent audit results, which are industry-leading. During the period, we had 2 audits and both had positive outcomes with no findings on either of those 2 audits. And finally, on this slide, you can see on the bottom right, our staff turnover remains at a record low of 17%. So again, this means that our exceptional people are delivering exceptional care to residents that they know and they bond with and have that ongoing bond with and are doing it on the basis that they know the families and the residents. I was fortunate enough during the period to work 2 shifts as a health care assistant to witness this bond. And I have to say that changed my views of what our people do every day and only increased the respect for which I have for all of our exceptional people delivering exceptional care to our 2,000 residents. So now I'll hand over to Jeremy to cover some more detail of our financials, and then you'll hear from Brien. Thank you.

Thank you, Andrew. And this is my third interim results call with Radius Care. So I'm pleased to share some highlights of what's been a very strong first half year for the company. Andrew has covered some of these highlights already. So I'll go through this quickly, but I wanted to particularly call out net profit after tax tripling to $6.3 million and our AFFO result available funds from operations, which is the measure of the ultimate cash that's generated by the business and allows us to support increasing dividends. Also, our balance sheet position has strengthened significantly with a further reduction in net debt, seeing an increase in equity and a reduction in leverage. So I'll move on to some of the detail now and starting with bottom line profitability. Both profit before tax and net profit after tax have a very similar shape and both of them tripling versus the same half in the previous year. It's pleasing to see this profile also seen in the earnings per share result, which has increased to $0.022 per share, up $0.05 on the previous year. In terms of underlying EBITDA growth, we reported $14.9 million for the half, which was in the middle of the guidance of $14 million to $16 million that we shared at our shareholders' meeting in August. This also demonstrates the operating leverage that Radius Care has with a $4.3 million increase in underlying EBITDA dropping straight to the bottom line with also a $4.3 million increase in net profit after tax. And both care and our retirement village operations contributed to the EBITDA growth, although most of the contribution was from care. We see this in our most important measure of our care operating margins, which is underlying EBITDA per care bed. And we're reporting this year on an annualized basis. So the $29,900 is the last 12 months ending 30th of September 2025. So the increase from the 27,900 that we reported for the last full financial year is a result of a great operating performance in care with stronger occupancy that Andrew mentioned, improving bed mix towards higher acuity care and really effective cost management from the teams that are in all the care homes around the country. In terms of revenue, 17% revenue growth was strong as well. And this was mainly driven by the strong occupancy and higher acuity bed mix as well as further growth in accommodation supplements. It's also important to note that we had 6 months of the Cibus contribution that wasn't in the same half last year and 4 months of e St Allisa revenue, the recently acquired Care Home that we'll talk more about later in the presentation, both of which contributed also to revenue growth. And the results of all of this are seen in the available funds from operations metric, which has doubled to $7.2 million. And as I said, this is the primary measure of cash that's ultimately generated by the business after maintenance CapEx, interest and tax. And this has supported a significant increase in our dividend, lifting from $0.065 per share to $0.01 per share. Once again, this is fully imputed. So it's very tax efficient and will be paid a week before Christmas on the 18th of December. I'll finish with an update on our progress against the capital management framework that we originally shared in May. And this has guided us in how we allocate our surplus AFFO across different areas of the business. We've talked about the $0.01 per share dividend already, but we were also able to return some capital to shareholders with a share buyback with a further 1.4 million shares purchased as part of our share buyback scheme. Growth remains a focus, and it's important for us to allocate some cash flow towards growth. And St Allisa was part of this, which was purchased $1.1 million after the sale and leaseback in May. There was also a smaller acquisition of some development land in Invercargill. All of this still allowed surplus cash to be applied to reduce debt. And it's pleasing to see that our leverage has rapidly reduced now to 2.3x, which is already below the medium-term target of 2.5x leverage that we shared back in May. And with that, I'll hand over to Brien Cree, our Founder and Executive Chairman, who will talk about our growth strategy.

Thanks, Jeremy. So I will just summarize these next slides. I'm aware that there's a lot of slides in this presentation. So I'll try and keep it brief, although I don't have too many to go through. This first one here is just an example of how we are now starting to think of the business in terms of it being a health services business. So we are actively pursuing all these areas that you see on the screen there, particularly ACC and we've got Cibus Catering. We've got the Radius shop that is ramping up. We've got in-home care. So all these various business units are being worked on progressively. Just go to Slide 16. So executing our growth strategy focuses on 3 key groups. We have diversity of revenue. So we want to grow Cibus Catering. We want to grow our RConnect. We want to continue to expand in home care, which currently is quite small, but is growing. We want to expand the shop, as I mentioned, and we want to expand into complementary health services, all that focused on predominantly aged care. So within the core aged care business, which will always remain the core business, we want to grow our scale, and we want to do that through lease care opportunities, a bit of targeted M&A as it comes up. St Allisa is a good example. And then we have the brownfield developments, which continue to grow. As Jeremy mentioned, we picked up small piece of land Invercargill to add some villas to. We've also acquired a bit of land in Matamata next to our facility there. So we're just continuing to grow that brownfield footprint. And then greenfield, obviously, there's a large part of the future business will be greenfield developments of aged care, not retirement villages. And lastly, RadPro, which we refer to as our -- effectively our technology that runs -- helps run the business, and that will have significant investment put into it over the next couple of years, particularly now that we have AI that we're all using almost every day, even 6 months ago, it was a new thing now it's part of everyday life. So if I move to Slide 17, our growth strategy in general now is capital light, as you're aware. We've been granted approval in principle with Western District Council for an 80-bed care facility. It does come with a bit of spare land, which was one of their requirements really to have a village next to the care facility. So we will build a 55-unit village next to the care facility. Then we have the M&A, St Allisa is a good example, 109 beds. We're in the process of completely refurbishing that building at the moment. And it's relatively full and already producing positive EBITDA. It took us about a month or so to get our operating systems in there, which was pretty quick actually, given that Radius has been built predominantly over acquisition, that's the fastest integration that we've had. On the village side, 12 villas currently being consented and constructed with another half a dozen about to come online after those ones. And the new village development, we are, again, trying to make it very clear to everyone that we are not a village developer. -- small villa developments around large aged care facilities is not a bad thing. It does create a bit of a community, and it does obviously have a certain level of feed into the care home, although you can't really bank on that because -- as you know, our care homes are predominantly full. So there's not always going to be room. And secondly, you have no way of knowing how many people within the village will need care. So for us, it's more about building a community around what we consider to be a broader community facility rather than specifically the old style of continuum of care model. Moving on to Page 18, RadPro. So we are -- this is a good description of RadPro. RadPro is Radius Care's operating model, representing the proprietary combination of culture, leadership, processes, systems and technology enabling high quality and high acuity resident-centred care. I think there's a lot of talk about how do we produce the results that we produce, particularly measured against some others. And the bottom line is that it is about those core points there. It's about culture. It's about leadership. It's about the way that we operate holistically across the whole company. And it is a systemic model. So it's not just about technology. And we intend to invest in that because our growth plans are significant, and we need to have the systems in place to enable that growth to occur. Page 19 leads us into that growth strategy. So a key part of our growth strategy is providing home care in the community. Radius is an approved ACC high dependency provider throughout New Zealand, and we are actively pursuing further contracts with Health New Zealand. We expect this side of the business to grow substantially over the coming years as it integrates with the government policy of reducing risk level people in care and wanting to keep them at home longer. That fits with our philosophy also given that we are a high acuity provider. So we feel that it's a good idea to move into the community and start to look after those people in the home, which we are successfully doing, and we are currently the only aged care provider that holds those contracts. And with that, I will hand you back to Andrew.

Thanks, Brien. So turn out to slide 8, as you can see, is caught some Goldfish outside St Allisia. Brien mentioned that the building is being renovated. And I just want to talk to a couple of things. We've mentioned St Allisia a bit. It's worth dwelling on the fact that it is earnings accretive. As Brien and Jeremy both said, it became earnings accretive and profitable pretty quickly. And we -- how do we do that? We appointed a former Radius Care leader or manager of another site in Christchurch on day 1, and she has led that transition with obviously help from us and the team have become experts in described as RadPro and the operations. And that's been really good to see. We've supported them. We've visited them and helped them out, but that's been a really interesting process to lead. And the other point to note there is that we are, as Brien said, looking at other opportunities for large care homes of 80 to 100 beds plus to do effectively what we've done with St Allisia, what we did with Matamata Country Lodge, what we did with Clear House and all of the acquisitions that Brien and the team have undertaken in the 21 years of Radius Care's history. So again, from a capital-light perspective, not spending too much money, but having the operational efficiency of Radius Care brings to these new opportunities. So on to the final slide, our outlook slide. A couple of points from me here. You can see the [indiscernible] and one of our regional managers at Elloughton. And I think on the left is a sporting event at Elloughton there again with Lorraine. Critical for me is the continuous improvement piece. We are now 7 weeks into the second half of the year and trading has been strong in those 7 weeks. So we are looking to continuously improve all areas of the business, our service to our residents, our leadership, our engagement of our staff, and the homeliness of our care homes, amongst other things in the business. So it's nice to be able to report on the first 6 months, but our focus is very today and in the future focused, how we can continue to improve the business every day. And we will look forward to updating you in May of 2026. We will update you on the continuous improvements that we have achieved on our results and our strategic growth initiatives that we have achieved between now and then. So we look forward to that at year-end. And in the meantime, thank you for your time and patience this morning. I know it's a busy time of year in reporting. So thank you for joining the call. I see there is one question at the moment.

I think Arie, has a question.

Okay. James then Arie. James, hi.

Well done on the result and the rest of the sort of stuff. A few questions from me, if I may. Obviously, occupancy has ticked up nicely over the last year. Could you just give us an indication about how much of it you think is sort of industry related versus RAD village specific?

Yes, sure. Look, it's always hard to tell. We think we know our people are doing a great job every day, and we're focused on that and getting our occupancy as high as possible. The industry had provided lag data from the ACA, and I think occupancy is generally up. Obviously, it will be interesting to see how the other operators who have care homes report in the next week. 2.7 percentage points up is certainly a pretty steep upward trajectory for us. We targeted 95%. We achieved it. But as I said earlier, we're really looking to increase that in the year ahead.

And maybe sort of an extension of that. You mentioned a couple of your villages close to 100%, if not at 100%. Can you give us an indication about what your longer-term view is about full occupancy?

Yes, sure. Currently, we've got 5 care homes of 24 that are full. So obviously, we're targeting more -- what does full occupancy look like? Obviously, with discharges and higher acuity, 100% is pretty close to unattainable. But we believe that 98% to 99% is effectively full and aspiring to get to that number as soon as possible next financial year or the next year ahead would be excellent. And those are our aspirations to have that number tick up from 95% to 98-ish over the course of the next year, James.

Okay. And then obviously, the business has done pretty well on the efficiency point of view and staffing has been, I think you've mentioned before, sort of at full levels. Is there any pressures on staffing? Or do you think you need to sort of increase further costs as occupancy sort of rises from 92-odd to 98-ish you're talking about?

So no pressure. If you think about 2 or 3 years, we had lots of pressure to get staff into the country, and that was an issue. There is not that pressure now. We do have adequate staffing. We're always looking to pay attention to how we train and develop our staff as best as possible. And the jump from 95 to, potentially 98, 99 won't incur additional staffing costs just the way our rosters are.

Okay. Cool. And then well done on the net debt for the period as well. With obviously a few moving parts in sort of Hokitika and additional sites in Chicago and Belfast. Can you give us an indication about what the sort of net capital second half cost will be and spend?

Yes, sure, James. So we're expecting to settle the Belfast site within the next couple of months. Exact timing TBC, it may be delayed over Christmas, but that will be an extra $5.5 million CapEx that -- we have a banking facility that we'll draw down to fund that. So otherwise, underlying CapEx will probably be pretty similar second half and first half. The brownfield developments, they're in the consenting process now. So there'll be limited spend on those this financial year. So most of that investment will be in FY '27. But because they're residential properties, we're expecting that to be fully recycled within FY '27 and fully paid back probably also during FY '27. There won't be a lot on Hokitika this financial year either. That will start ramping next year.

Just one more if I may. Just with regard to Allisa, just as far as you put new systems in or your RAD systems in there. Just how long do you think it will be to sort of achieving your expectations as far as EBITDA per bed?

Right. In terms of the EBITDA per bed monthly rate... In the next month or so, really... We're pretty close actually. We're pretty close. I mean we're always aspiring for more for larger care homes, obviously, because don't forget that average of 30 is 2 things, as Jeremy said, it's average over the last 12 months. So the average over the last 6 months is significantly higher than half that. And secondly, it's a larger care 109. So the aspiration for might be more closer to 32 to 35.

I'll just sneak in the last one with regard to resident tenure and retirement side of things. At 4.9%, quite a lot lower in years than other industry players. I assume it's just sort of your age of entry. Can you sort of give us an indication of what sort of average age of entry is at the moment?

Yes. I don't have that number, James, but you did write it as pun on the pun. Age of entry related and under 5 years is closer to probably service apartment occupancy for some operators. So we're pleased with that. We do tend to, as Brien said, have smaller villages and higher age of entry kind of circa early to mid-80s. We don't advertise to the kind of mid- to late 60s. We are looking at the early to mid-80s range. And often, they will transition to the service departments where we have them and/or care homes at home support, which we are now instituting into reasonably early in that process.