Radius Residential Care Limited ($RAD)

Good morning, all, and welcome to you all to our FY '26 results call. This is my fifth final year results for Radius Care, and I'm pleased to bring you the results today with Brien Cree, our Executive Chair and Founder; and Jeremy Edmonds, our CFO. So turning to Slide 4. We would like to emphasize that FY '26 has been a strong year of performance. If you look at the key metrics here, net profit before tax, net profit after tax and AFFO, or available funds from operations, are all up on the previous year by 34% to 44%. Our leverage has reduced from 2.9x to 2.5x. And critically, in the bottom left here, our final dividend is up 50% from $0.008 to $0.012 per share. Moving on to the next slide. We thought we'd give you some color around the last 7 years since listing and what the numbers look like. So moving to the top left, reported profit before tax. You can see, the last couple of years have been very strong from a reported profit before tax perspective. Beneath that, our underlying EBITDAR has grown from $17 million in FY '20 to -- sorry, to -- sorry, apologies -- our underlying EBITDAR per bed, bottom left, has grown from $17,000 in FY '20 to $31,000 this year. And top right, underlying EBITDA has grown from $6 million in FY '20 to $27.5 million in FY '26. And before we move away from this slide, it's also worth noting that we are just under 1,900 beds today. And with the acquisition of Karori, which we'll talk about shortly, that number will increase to just under 2,000 beds, which has increased from 1,700 beds in FY '20. Moving on to the next slide, key business highlights. Jeremy will talk to some of these numbers in greater detail. I just wanted to point out a couple. The occupancy for the year is up to 95%, which is up over 2 percentage points from last year. We're pretty pleased about that. We continue to improve our mix of higher-revenue hospital and higher-acuity residents as that is our focus in our core business. On the right-hand side, again, we'll talk more about St Allisa, which was our 24th care home we acquired during the year. And Karori, we will acquire and settle that transaction in 2 weeks' time to get up to the 2,000 beds. So we're pretty excited about that. And before moving to the next slide, we just want to call out again our 2,000 people who provide exceptional care to our residents every day across our 24 care homes and across the 3 shifts every day. That is -- this is their result, and the excellent care they provide to our residents is the critical part of our success. And moving on to the next slide before I pass over to Jeremy for more color on numbers, you can see one of our wonderful RNs, [ Lissy John ] from Windsor Court looking after Martin, one of our residents. And as I said before, 2,000 exceptional people. And again, a couple of points to note here. Our audit results are industry-leading. So what does that mean? We have 4-year certification results at pretty much most of our sites now. And in recent years, all of our audits have been successful in obtaining that Gold Star maximum 4-year certification, proving out the care that we deliver to our residents every day. Also, our staff turnover has reduced from approximately 35% a couple of years ago to 18%. So that's pleasing as we look to develop our staff and give them opportunities to stay at Radius Care. So, moving to the right-hand side of the slide, as a result of this development and training and everything we do for our people, our employee Net Promoter Score, or our eNPS, is currently plus 20, and that's improved in recent years year-on-year. So we're pleased with that to look after our people, to retain them and to reward them for working for Radius Care. And just one thing before I pass on to Jeremy. Again, we have a very strong culture and internal promotion work at Radius Care. All of our regional management team have been facility managers or care home managers at Radius Care. And most of our care home managers have come up from either health care assistants, RNs or through activities coordinators in some cases to become care home managers, and that gives us great pride in being able to promote them every year. So that's me for the first part of the presentation. I'll hand over to Jeremy for some more color on the numbers, and you'll hear from Brien later. Thank you.

Thank you, Andrew. And this is my third full year results call with Radius. And today, I'm very pleased to share some of the financial highlights of what has been another strong year for Radius. So starting with the bottom line. And what you can see from this slide is that both profit before tax and net profit have a very similar growth shape with 37% up against FY '25 and 34% up for net profit. Over the next slides, I'll cover some of the contributing factors behind this performance. So moving on to EBITDA, and we're pleased to report consistent growth in both underlying EBITDA and EBITDAR per care bed. And when you look at the growth in EBITDA, this really demonstrates the operating leverage that Radius Care has with the improvement in EBITDA dropping straight to bottom line profitability and reflected in a similar lift in profit before tax. Behind this is our focus on our core business of care with care operating margins, which is measured by EBITDAR per care bed, lifting to $31,100, up from the $27,900 1 year ago. Driving this is a year of strong occupancy and ongoing disciplined cost management by our care home teams. But our care home teams aren't just focusing on cost management. They have a really strong eye on revenue growth as well. And this is an enormous focus for the company with 14% growth in revenue, bringing us above $200 million for the first time. Behind this performance is occupancy that we've talked about, bed mix, supplemented by a great year for accommodation supplements and also the contribution to revenue of our newly acquired St Allisa care home in Christchurch. And all of these metrics are ultimately reflected in AFFO, which is the measure of cash that's ultimately generated by our business' ongoing operations after allowing for the below-the-line costs of maintenance CapEx, interest and tax. The operating leverage that I mentioned earlier is also seen in AFFO, lifting this number to $12.7 million. And pleasingly, this has allowed us to declare a significantly increased final dividend of $0.012 per share. Importantly, this is fully imputed because we do pay tax, which provides a tax-efficient mechanism of dividend payments to our shareholders. The payment date is the 11th of June this year. Finally, I'll cover an update of our capital management framework. So this framework was released a year ago, and it's guided how we've allocated our AFFO. We've talked about the dividend. But at the payout ratio of 49% of AFFO, this is at the low end of our policy payout range of 40% to 70%, which lets us retain earnings within the business for growth. So with the balance of AFFO that isn't included in dividends, we've continued to reduce leverage, but most importantly, allocated investment capital for growth. We've acquired and upgraded the St Allisa care home, as well as acquired development land in Christchurch, Matamata and Invercargill with the retained earnings from AFFO. So that's my short review of the financial highlights. And now, I'll hand back to Andrew to start talking about growth.

Thank you, Jeremy. And once again, thank you to you and your team for producing these results so early. Nice to be one of the first listed operators in the results season in May to be reporting. So well done. And a couple of slides on our growth. Firstly, Karori, pictures there. As you can see, it's a scale -- large-scale care home with 90-plus care beds. It's in a lovely suburb in Wellington, Karori in leafy Messines Road, and on settlement later this month, will be immediately earnings accretive to the company from a care perspective. And also, as a bonus, there are 14 units that are retirement village or units that are currently unoccupied that we'll be looking to sell down in the FY '27 year, which will receive up to $6 million to $7 million, hopefully, most of that in the FY '27 year, but some of it may be at the start of FY '28 as well. So I'm really pleased to take on that site. A lot of us have been spending a bit time down there, and I know the staff are looking forward to Radius Care becoming the owners in a couple of weeks and nice to mention that today. And following this slide, there is a lovely picture of St Allisa with some of our residents here celebrating in the Canterbury sunshine. Again, completed during the year, 109 beds, so large-scale care home. And as Jeremy said, a capital-light acquisition. We spent a bit of money improving the property. It is earnings accretive now and also fully occupied, so 100% occupied. There are 109 care beds. And we're looking to continue to improve the operations of what is a very nice and large-scale care home in Christchurch. So that's one example of where we have executed, we're in the process of executing, and we do want to make sure that we have sufficient pipeline of new care homes to be able to continue to deliver care to residents across the country. So that's my part on growth. I'll now hand over to my boss, Brien.

Thank you, Andrew. Hello, everyone. So I have the next 4 slides. So Radius Care is progressing development of up to 20 new 80 and 100 bed care homes, funded by private landlords. Bespoke design supports high-quality and high-acuity care with efficient operations. And earthworks for the first 2 developments have commenced. We have a number of NDAs signed and are actively pursuing these projects where private investor landlords own the buildings that Radius Care is the lessee. We see new 80 and 100 bed care homes as being a big part of our future. They will help to fill the lack of beds needed by aged care and will act as hubs, providing a base for our growing home care business. Village growth, brownfield developments, we have 12 villas underway. Construction is currently underway for 6 additional villas at Matamata Country Lodge. That's one on the right. And additional land has been acquired at Clare House, Invercargill, which will also allow another 6 villas development. So we'll recycle the cash from the sale of the villas in Matamata to use to build the ones Invercargill. On the new village front, this is on the left, you can see that's our site in Christchurch. And if you look closely in the far sort of top right-hand corner, you can see a piece sort of cordoned off. That is actually the 1 hectare site for the new care facility. So while our primary focus is expanding care, some new-build care homes come with spare land, creating the opportunity to develop boutique retirement villages of 80 and 100 units like the 55-villa retirement village planned for Hokitika to complement the care home we are building there. The 4.3 hectare site, which is the one that you see on the left, in Belfast, Christchurch will incorporate 80 villas and the 100-bed care home. The next area of growth is Luma. So Radius Care is proud to support the aged care sector with the launch of Luma, a range of continence products designed by our clinicians for use specifically for the elderly. While it improves the quality and cost of our internal supply, it also opens the door to wider opportunities across the aged care sector. Now, this project was born out of the desire to improve the existing continence products. We decided we could improve on design, making them more specific to the elderly and to New Zealanders. After going through an extensive design and testing program, which spanned nearly 2 years, the first full order has arrived in New Zealand and is being rolled out to our facilities. Continuing on the next slide then, we have diversity through in-home support. So, as the -- as the health needs of New Zealanders change, so does the role we play. We are broadening who we are, who we support, how we deliver care and where we can make the most impact. Our current scope covers 2 main categories in home care. That's private in-home care, and private in-home care support -- is supported by client self-funding and can be anywhere from a few hours to full-time living care. The second part is ACC in-home care. Radius Care is an approved provider under the ACC Home and Community Maximise Independence category, offering support for those who have experienced a life-changing injury. We will continue to grow our footprint in home and community support services as we believe they will form an integral part of aged care in the future. So to summarize our growth plans, we have new-build care homes. We have continued acquisitions. We have boutique village growth. We have Luma continence, in-home care and Cibus Catering. So wrapped in a bundle, that is diversified aged care services. I'll now hand you back to Andrew.

Thanks, Brien. And just reiterating that it's super exciting to move from, as we talked about earlier in the presentation, 2,000 care beds on the way to 4,000 care beds with the 20 new sites. And as Brien set out, there's a lot happening in the aged care services part of Radius Care and providing a range of different opportunities through revenue diversification, so super exciting. And to close out the presentation, we have our outlook statement. You can see the wonderful residents of Heatherlea with the Americana Festival that's held annually on the left-hand side, and on the right-hand side, our residents of Elloughton having a trip to the beach in Timaru, Caroline Bay, I think that is. So nice to see them here out in our presentation. So, our outlook statement, we expect growth in our key financial metrics for FY '27, so that's growth over the metrics we've just shown you for FY '26. And Karori -- in addition to that growth, Karori will provide earnings both from a care perspective and from care -- sorry, from the ORA sales of the 14 units in addition to that. So that's our future forward-looking outlook statement and brings to a close the formal presentation this morning. So we will flip to the next slide, which is a repeat of the earlier slide on the progress we have made in improving the business since FY '20 and reiterate that we're very proud of that journey in the last 7 years and open the floor to questions. I think if you put your virtual hand up on your computer, you will be unmuted, and we'll take them in the order that they are received. So please fire away.

Got Arie [indiscernible].

Just first, a couple of questions just on the operating environment. Are you -- what are your expectations in terms of government funding uplift for the year ahead? And is your expectation that you'll get clarity on that in a timely manner like we did last year?

So good question, Arie. Our crystal balls aren't that clear, but we have budgeted for 2%. We don't know what that number is. But we -- as always, there's a lot of going on. It's not an area of great focus for our business. We focus on what we can do, the controllables in terms of our core business. But as I said, our budget for FY '27 is 2%.

Yes. And then, just if you could come back to just that point on whether it's shaping up to be protracted or you'll get clarity on that early in the year? But just also second part of this question, are you seeing much in the way of increased cost pressures in the business yet? And if so, where and what are you doing to try and mitigate that?

Sure. I'll have first cut, and these guys can back me up. So in terms of timing, we wouldn't expect it to be as late as it has been in some years. So I think the latest it's been since I've been here is September. We would expect some clarity come June, if not June, in early July on fund. So hopefully, that answers your question -- first part of your question. Second part, no noticeable pickup in costs and some minor pickups in some supplies, but we're not hugely dependent on the oil and gas and issues that would raise significant issues. But Jeremy probably got lens on that. There's a minor percentage increase in several supplies.

Yes. It's really, at this stage, limited to any delivered goods. We were seeing a couple of suppliers add some transport levies, reflecting higher cost of fuel on delivered products into our care homes. But that really isn't material at this stage. But obviously, it's a watch-out for the wider inflationary environment. But at this stage, nothing material.

And maybe just a couple on growth for you, Brien. And obviously, that's quite a long list of opportunities that you've got in front of you. Just on the new facilities, like, how are you thinking about the phasing of these? And in particular, when you think about your capacity to, say, be opening up a number of facilities at the same time, how many would you be willing to have in development phase at the same time?

Yes, it's a good question, Arie. In general, what we -- we know that we can easily do one. So initially, we're thinking to, in the first couple of years, ramping up to about 4. Four, I think, means 1 a quarter. So that's -- we expect to develop a team that will be able to ramp those openings up. So I think what we'll see is, over the next couple of years, we'll see 2 or 4 sites come online. And then, by then, we will have been able to ramp up the balance and ramp up the ability to open them.

And then, in terms of the acquisitions, I mean, obviously, they are still there, those opportunities, and you're able to execute on a particularly attractive one in Karori. Are you active on any acquisitions at the moment?

No. But we are constantly looking. And yes, to be fair, there's not that many that fit our category in terms of scale, et cetera, that come on the market. So I mean, obviously, we've been able to do 1 a year for the last 2 years, including this year. So I think it would be ambitious to think that we can do a number of acquisitions in any 1 year. It's governed particularly by just what's available on the market. People need to want to sell them. And so, we sort of -- we haven't budgeted for any new acquisitions, but we will acquire facilities if they come on the market and they do meet our criteria.

And then, just last one for me for now. Just related, I guess, to how you're thinking about the funding of this growth. And clearly, the business is producing very strong free cash flow, and you're paying a portion of that as dividends. But have you sort of thought about, at the point where you're sort of perhaps opening up 4 facilities in a year, there's obviously some fit-out to fund. I mean, you're leasing the land and buildings, but there's some fit-out to fund and also some start-up losses. Do you think that you might have to sort of -- for a period there, if this growth plays out as you're expecting that you might dial down the dividend for a period to fund some of that growth in the early stages of the operations?

I guess, Arie, we'll be guiding -- using our capital management framework to guide those decisions, and that's been created with the intention of being able to balance that growth investment and paying dividends. I think the growth profile that Brien has outlined is starting with a couple per year, given that the fit-out cost is really just chattels. We can cover that within our undistributed AFFO at this stage. And with expected profit growth over the next few years, we'll probably be able to internally fund that. But again, as I said, we'll be guided by our capital management framework and see what the available cash each year gives us. I think it's probably too early to answer that question exactly, but we'd expect to be able to fund that internally.

That's a good answer. And I think, Arie, also noting the importance of the dividend to retail shareholders. I think it's worthwhile pointing that out. I know everybody has got a different view on dividends, including you, Arie. But retail shareholders, it's very important. I got [indiscernible] texts from retail shareholders this morning on dividend. So it's a balance, and I think Jeremy summarized it.

James Lindsay.

Congratulations on the result. Yes, a couple for me. Maybe just on the debt side of things as well. Obviously, you made good progress in getting that debt down to that 2.5x level. Any expectations of sort of continuing that trend? Or are you expecting to sort of hold that as a measure?

It will probably be held for a couple of years, James, given that we're starting to invest in earthworks at our Applefields development, and we're about to acquire Karori. So we'll probably see that flattish or the decline, level off for a couple of years. But again, we see continued earnings growth, which will attack leverage on the other side even if debt is flat.

Just interesting, on the sort of average occupancy that you reported now, I think if I recall, first half '26 was actually just a number just slightly higher than that and that, if I remember the trading update, you had suggested that October and November had been above that 95%. So just interested, in the last few months, what's happened and where it is sort of spot-wise now?

Yes, I can talk to that. So I think October and November were above 95%, early 95%. So you put in a very small range, 95.1%, 95.2%. We're currently in the late-94s as -- reported 94.9%. I think it's pretty -- if you look historically, our best-ever year's occupancy prior to this year was 92.8%, which we've done a couple of times. So to hit 94%, 95% and maintain it is a good result. We always strive for more, but we get to the point where, to Brien's commentary, we're often talking about running out of space. We only have kind of 75, 80 empty beds at a given time. And with our high acuity, that does -- we do have kind of between 5 and 10 discharges a day. So, that number can be quite variable. And I think the answer is that moving forward, we will like -- I think we'll get to 97%, 98% at some point in time in the next year or 2, but it's probably harder to get from 95% to 97% than it was to get from 93% to 95%. So yes, a very slight tick-down. But again, we're very focused on not only improving the occupancy, but maintaining and improving the yield per bed by way of accommodation supplements, which you've seen, has grown to $12.2 million, and by way of increased hospital versus rest home level, which is the way we're moving towards. So hopefully, that's answered your 2 questions there, James.

There is another point too, James, and that is our acuity level. So, for example, comparing us to other companies, you need to compare the acuity level. We have significantly higher acuity because that's the area that we focus on. And so, that, by definition, means that we have more admissions and discharges. So it's a little bit harder for us to maintain a higher occupancy than it is for perhaps a rest home operator, for example, who has low acuity and people stay a lot longer. So just, for us, it's a function of the area of the business that we focus on, which is high acuity. So it just means that, for us, it's a little bit harder to maintain those real high occupancy numbers because people are coming in and out all the time.

Got it. That's great color. But you mentioned just with regard to that 97% and taking a couple of years to get there, there's still enough pressure in the industry for that to rise, as you say, over 1 to 2 years towards that 97%?

Yes. Well, as the dissatisfaction officer, I'm always striving for more and better and continuous improvement. So we will always strive to hit that 97%. What we're getting is full, which is the 97% to 98% range. Again, my crystal ball is not functioning, but we'll aim to do that as quickly as possible.

Got it. And just with regard to Matamata and Clare House, just with regard to construction commencing, can you just give us a sort of an update on expectations for delivery for that?

Yes. Do you want to...

Yes, sure. So delivery of the Matamata units will be later in this calendar year, so late first half of the financial year, most likely September, October. And Clare House will be in the remainder of the -- so more likely in the second half of the financial year.

Got it. That's good. And then, on Belfast, Christchurch, just on the stage development, how many stages are you thinking that, that will be done and sort of the time frame for the retirement side of things? Is that over sort of 5, 7 years?

Yes, it's -- because it's not really a focus, to be honest, we will get the care home up first. It's an 18-month build, and we are pushing hard to try and get that done by the end of next calendar year. And then, the villa side of it, we anticipate starting with something like 5 or 10 and just seeing how they go. And we'll just roll those out as the demand requires. You can see when you think of our build-out of new builds, that's really our focus. So we don't want to divert attention to trying to build villas in Christchurch, which, whilst they are good for the overall business, they are a very small part of the overall business. The new-builds, I think, are -- that's the space where we build our core business. So we'll be focusing on that more. But again, to answer your question, we haven't sort of said let's build Stage 1, Stage 2, Stage 3. We're just going to get them started and see how they go. So it will be 5 to 7 years, I'm sure.

Yes. Great. And then, the last one for me, just with regard to the Hokitika development. And I think that was sort of an approach to you and the community sort of coming together to provide services that were probably weren't being provided by the market. So just interested if you've had other approaches like that from sort of a community or trying to get both care and retirement in the regions?

We've had approaches through Health NZ for different regions, not for village, for care, and we are actively working on a number of those. As an example, Nelson is an area that is [ under-bedded ] in terms of care, and the local hospital there is pretty keen for us to build a care facility on some land they own. These are all early discussions. But I referred to, under the NDAs, in my presentation, we've got a number of different opportunities that we are actively pursuing. This is the time we say last orders for questions. And [ any other ] questions? Okay. Well, on behalf of the team here, I'd like to say thank you all for joining this morning. And as I said, again, well done Jeremy and the team for early results preparation, and have a lovely Wednesday. Thanks all.

Thanks, everyone.

Thank you.