Ramsay Générale de Santé SA (GDS) Earnings Call Transcript & Summary

Afterwards, in case. And basically I leave the floor to Pascal Roché, group CEO, to update you on the recent developments. If I can ask everyone to put the phone on mute, so we can have a proper understanding of the comments. And of course, we'll open the floor for Q&A session shortly after. Thank you very much. Pascal?

Okay. Yes. Thanks, Arnaud, and thanks, everybody, for joining. Before entering through the financial results, we would like to give you a couple of points, mainly 2 points regarding the context. So by the way, if I can reiterate, if everybody could be on mute, please, it will be kind. It will be kind. So yes, I just wanted at the beginning to give a flavor, as we're saying, on 2 items. The first one, let's say, is a health care political context in which we operate in Europe; and the second topic is regarding the integration between Capio and Ramsay Générale de Santé. If we look at the landscape in which we operate in Europe, we do think that the main change, and that would be to share with regard to French tax, why and it is a positive one. Because for those of you who have been following industry in the last year, we got used to the fact that every year, the French government is changing tariff on March 1; and beyond that point, we got used to the fact that at least from 2012 to 2018, the French tariff were decreasing. Now a couple of weeks ago, for the whole industry, we have obtained a commitment from the French government that I will summarize as follows. The first commitment is the fact that for the next 3 years, starting for 2020, so March 1, 2020, a couple of days, the tariff every year will be in positive territory by at least 0.2%. We will call that, let's say, a safety net. Beyond that point for this year, so 2020, the first year of the 3-year commitment of the French government, the tariff will increase for MSO, mainly Medicine-Surgery-Obstetrics by 0.6% and for Full Care and Rehabilitation and Mental Health by 0.5%. So we are really very pleased to have these 3-year visibility with positive tariffs every year. And for this coming year, today at 0.5% and 0.6%. Beyond that point, and not to lose you into too many details, the French government has taken the commitment that if for the work profession, the hospital budget is respected. So if the expenses given here are below the budget, the delta will be given back to the old French hospital, and that's for sure to brand new because it did occur in the past year after year that the money saved by the French hospital was given, I would say, to the excess on GP, in-town pharmacists, biologists and so forth. So that really for us a very important change in the landscape to share with you. The second point we wanted to share with you is the combination of the 2 entities now gives Ramsay Santé. We have moved 1 year from being the leader of product hospitalization in France to being a leader in integrated care in Europe. And I would say, beyond these nice words, what it gives us, it's a diversity of funding, a diversity of activity from emergency hospital to primary care to digital approach and so forth. So there is, for sure, I would say, not only a diversification of the risk, but being positive. It gives us plenty of opportunities, and we really consider that the integration between the 2 companies is ahead of schedule. We are more than comfortable, let's put it that way, that the synergy will be delivered and that really certainly, the best is yet to come. With all the best practice we are seeing everywhere and adapting to each and every country in various topics from operational efficiency to medical outcome to purchasing of first and so forth. So yes, more than ever, I would say, integration is ahead of schedule. The integration is very, very well advanced. So yes, we wanted to share with you these 2 key elements to, I would say, discuss the present and share the future. And so could please, Arnaud, now enter to give the summary of the financial results we are disclosing this evening.

Yes, of course. Thank you, Pascal. We'll take some time to move through the results as, obviously, the reading of those is a bit complex because of 2 new elements. The first one is that we compared figures on the published side that are not on the constant perimeter. Obviously, we have now 6 months of Capio in the books versus last semester last year with only 1 month and 3 weeks. And we have, for the first time, the implementation of the new IFRS 16 standards in our accounts. So on the published figure -- on published figures, the turnover -- reported turnover is up 44.4%. What is very important for us and obviously highlighting the dynamics of the group is that at constant scope, at constant exchange rates, we have a very solid, very robust organic growth of 3%. This is fueled by very good developments in volume turns for our subacute care businesses close to 10%, another robust 3% plus for Mental Health and close to 1% increase in the number of admissions for Medicine-Surgery-Obstetrics in the former Ramsay Santé or Ramsay Générale de Santé perimeter. If we just spend some time looking at the EBITDA, which is obviously the key metric for us. It has improved by 121.7%, but obviously encompasses the impact of the Capio contribution and the implementation of IFRS 16. The amounts, which relates to the recognition or actually, the first implementation of IFRS 16 in those accounts in the EBITDA level is of 99.2%, that you should deduct from the published figure to have a more consistent view on the business development. But we want to highlight also the fact that at a constant scope, so just Ramsay Santé with Capio on the same period at constant exchange rate and, of course, without the impact of this new IFRS standard, we reported a 210.4% EBITDA margin, which is an improvement of more than 100 basis points over the period and over last semester '19 and '18. So it's a very solid increase in terms of profitability for the former Ramsay Générale de Santé perimeter, again, resulting from the combination of some actions and measures -- action laws taken specifically around headcount management and the proper allocation of resources to our business. The impact of the measures that Pascal described a couple of times around the selling of site services, such as private rooms, which has specific services to customers, the family of customer patients, but also the fact that some of the CapEx that we implemented over the period are paying off, and we are referring here to the plan 80/20, which is to give towards improving the capacities and the number of single rooms in our Mental Health facilities. And the payback is very robust and very solid. Obviously, on top of that, we have derived the first euros from the synergy plan that we launched together, Capio. Part is, of course, on the Capio side, but part of those savings and impact of good practices are also impacting our own core Ramsay Générale de Santé P&L. Current operating profit is an increase of 92.4%. But here again, obviously as a result, we have the impact of IFRS 16 in this figure. And it's an amount of close to short of EUR 20 million in this respect, EUR 18.2 million to be precise, impacting positively the operating profit. On the contrary, though, at the net income level, the implementation of IFRS 16 has a dilutive impact. As we mentioned, it's already back in June, also in August on the back of our June results. It's a negative impact of close to EUR 11 million, which is in relation to the fact that we have long-term lease commitments with our major landlords, mostly in France, to be honest. Of course, the second key element, the key impact of this new IFRS standard, IFRS 16, relates to the net debt of the group, which has increased significantly from EUR 2.3 billion end of December 2018 to close to EUR 3.7 billion for this semester, that is end of December. But this amount includes, for the first time, close to about EUR 1.9 billion of debt related to this new accounting standard. It has obviously no impact on the cash flow. It's a pure, I would say, relocation -- readjustment of our balance sheet through this new accounting standard. Basically, that was most of the comments that we wanted to share with you on that topic. And unless Pascal has anything more to add, we can open the floor for questions and answers.

Yes. Thanks, Arnaud. Maybe the last point to share with you before listening to any question you may have is to say that we have kept on adding a high level of investment during the last 6 months from a CapEx standpoint in order to keeping on for tomorrow and the day after tomorrow. To be sure that we've got the right, I would say, state-of-art facility for doctors attractiveness, patient-customer experience and keeping on transforming the company, mainly through a digital approach on which Sweden and more globally, it's a Nordic country and are really in advanced. And in which 2 are in France, through some, I would say, specific tools, enablers versus the patients. We are, too, I think, well advanced and very complementary to lead to that transformation regarding digital from customer to back offices. So that being said, that point on the investment, we are very pleased with Arnaud to take any questions you may have.

Thank you. So please state your company and your name. And of course, we'll take the first question. Anyone?

This is [indiscernible] from BlackRock. I just wanted to get a little bit more background on the new reform for the French spending. I understand this is obviously very positive for you, but can you elaborate a little bit on like how it's going to impact your business and it's the 3 different increases, 3 different buckets you mentioned? How the tariffs are going to increase?

Yes. Well, I think if I try to split what's good in this reform. The first point, which for us is really critical is the ability to have a commitment to the French government. Every year for the next 3 years that the tariff will be in positive territory. Once again, it may sound as a small increase at this minimum 0.2. But once again, taking the aggregate of the 5 years between 2013 and 2018, where the tariff had decreased by 10% on an aggregate basis. And so the storm we had been through, and in spite of that, in the former GDS maintaining at EBITDA, of course, as you can imagine, having first a multiyear visibility. For us, it's a great achievement. That allow us to better, I would say, prioritize our investment in the business, which is long-term driven. So second positive outcome, which is purely, I would say, mathematical and just financial is that by definition, 0.6% of increase in average due to the size, which is now, I would say, the size of the company in France, which is, let's say, roughly EUR 2.7 billion. By -- to make a simple math, 1% of tariff increase represent EUR 27 million of turnover and net profit. So of course, every 0.1% obtained has a huge impact regarding the profitability. The first topic I was rapidly explaining before is the fact that year after year, if -- once again, the overall increase of the profession in terms of budget is below the vote in the French parliament. And I'm not sure, of course, it would occur. But if we look back to the past, we do consider it could occur. We've got this commitment from the French government that it will feed the increase of the next year tariff, and so it will give arguments to obtain better than the safety net of at least 0.2% every year. And by the way, the last point, I was not commenting before, but I suppose it is to a part of your question and not to lose you into too many details. So net-net, there is roughly EUR 100 billion paid by the French state to the French hospital every year. The quality subvention could effect in French. So quality subvention, that will represent EUR 400 million this year, will represent EUR 1 billion in 2 years' time. And not to be too optimistic versus the future, but we are really confident that we will obtain a higher percentage plan, I would say, on natural market share for couple of reasons. First, because one of the key KPI to obtain this quality subvention is the level of certification of our hospital. The level of certification is ranked, I would say, by the French state. And as of today, we've got the best average ranking in France from any public group or private group of hospitals, and it is a key driver. And secondly, because regarding the KPI and medical outcome, it is really DNA or journey and the flexibility to adapt. So we have been pushing for years and years to France government to increase the part given to quality-based outcomes. And by the way, this is what we are supposed to do. So we are very pleased to see this move to a higher level, once again, of quality subvention. So this is kind of couple, I hope, granular elements to give you some more fresh, I would say, regarding the content of this reform.

Sophie Morris from KKR on the line. Can you just talk about some of the key drivers behind the good organic growth rate you've had of plus 3% and what's driven that over the past 3 months, 6 months? And also, could you just -- I don't know if I heard it correctly, what was the constant perimeter growth in the EBITDA as well?

Sure. Maybe I will -- well, please, Arnaud.

Yes. I want -- just the last question on the EBITDA development. So at constant perimeter, at constant exchange rates and constant accounting standard, so to say, so without IFRS 16, our EBITDA margin reached 10.4%, and this is a more than 100 basis point increase versus last year. So 1 percentage point higher than last year on the EBITDA constant perimeter, constant exchange rates with same accounting standards.

Yes. Coming back to your comment regarding the 3% organic growth. To give you a bit of content on this figure, on the former Ramsay Générale de Santé, the French territory, the organic growth is 2.4%, driven by volume in positive territory for every specialty, meaning MSO; sub-acute care in which we have been, by the way, growing by 9.8%; Mental Health; emergency venues in which we've been growing by 4.7% and session. Session is a mix between senior therapy and dialysis. So organic growth for France was 2.4% and organic growth in the Nordic was -- so Nordic being a weighted average of Sweden, Denmark and Norway, was 4.6%. And this good, solid, and we consider sustainable organic growth, mainly driven by Sweden due to the weight of Sweden is, I would say, a total value growth of the market, again, of market share in many of our business areas. And to the fact that there have been some tenders, I would say, one, which gave some additional activities in Sweden. So this is coming back to your question of this 3%. This is a split, I would say, between the various countries and the various drivers. Once again, it is one of the advantage to be -- to have that various footprints, various legs, if I can say that, that way, in various type of specialty country and business area.

Happy to take here another question.