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

Good day, and welcome to the Ramsay Santé half year result at end of December 2020. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Arnaud Jeudy, CFO of Ramsay Santé. Please go ahead, sir.

Thank you very much, and good evening to all of you. Thank you very much for participating to this call. It's rather late in the evening, sorry for that, but we really wanted to have a short comment and obviously, a long Q&A session on those half year results that have been released just today. As you will see that it's -- there are rather different items, different inputs to talk about in terms of accounting treatments and accounting adjustments in some extent to the BAU as we used to have. But before that, I'll leave the floor to Pascal Roche to update you on the recent development and business plans. Pascal?

Yes, thanks, Arnaud, and thanks, everybody, for joining as quite a late moment of today. We wanted to share with you the overall context in which we have been operating in Europe in the 5 countries in which we operate during these last 6 months. Of course, as you know, the epidemic, once again has marked I would say, our activity or organization; and two, when Arnaud and Marcus are going to take us through the figures with many specific items to comment and to read across these last 6 month figures. If I were to sum up the impact of the epidemic, on 1 side, the France and Sweden, in which the level of epidemic, unfortunately, have spread very high through a second wave. On the other side, Norway and Denmark, mainly Norway have been practically totally preserved. And just in the last 6 months, the activity in Norway, I would say, has been business as usual. And we have only 1 hospital in Italy. So I proposed not to comment furthermore regarding Italy. Now beyond the fact that these -- some country, France and Sweden, our activity has been heavily impacted by the COVID. It's a bit, I would say, a tale of 2 cities this last 6 months. July, August and even September, have recorded a very, very high level of activity, much better than the previous year, certainly stemming from the backlog of the first wave that heaters are very strongly, as you know, in March, April up to mid-May. Whereas from mid-October, unfortunately, with the second wave of the COVID, and I will comment just after involvement in order to take care of the COVID patients. Or stop of elective surgery in some facility, relentlessly -- relentless adaptation of our facility according to the specificity of the virus in each and every town, it has been a very, very different end of the year. So commenting about our world during the COVID. Really, I'm very proud to report to you that what has been done once again by the team in order to play a role and to support the various governments have been immense. As a matter of fact, in France, the group Ramsay Santé has taken in charge more than 5,000 COVID patients, from which more than 2,000 in critical care. In Sweden, too, our team has taken a real role in order to fight and to take care of patients, for example, in beyond I would say, the fact that we have once again played a key role in our jurisdiction. It has -- we have been able to keep on building very strong relationship with the various governments with our payers and for us, it is really priceless on the mid- long-term in order to obtain, I would say, first authorization to obtain additional volume whenever the way to get them according to the country. But once again, as well as during the first wave, respect way to interact with the various regional health agency in France, in Norway or the counties in Sweden has paved the way for future development and profitable relationship for the world of the group. So this is the context, once again, in which we have been operating. Unfortunately, as you know, today, 23rd of February, we are still not in what -- either what can be considered as a high plateauing regarding the epidemic or step-by-step, maybe a third wave, whatever is the word, is still a very complex environment. We are very well supported by the various institutional with whom we are working. But before answering any question you may have on the current situation. Going back to the July to December period and handing over to Arnaud Jeudy and Marcus to go through the figures.

Yes. Thank you very much, Pascal. So some comments, obviously, on the set of figures that are not that easy to reach from an external standpoint. If I just take you through the first-line of the P&L, which is the turnover and the business development that we recorded over the period. To mention the fact that the business has been significantly hit, as Pascal mentioned, by the second wave of the COVID, particularly in France, where volumes are down on the MSO side by close to 3%. And that's obviously linked to the cancellation of elective surgery procedures in some of our clusters in France. This has been also hit. And the result of, as you can see, a lower attendance of patients in our emergency care centers. At the same time, we had to face a significant drop in the number of days built for Follow-up Care and Rehabilitation patients as well as for Mental Health patients related to a couple of items. The first one is obviously the fact that because of the context, the epidemic context, we had no other choice but to cancel any -- all the operation, the business is around common or group meets group process Mental Health treatments. Day care hospitals are also being significantly hit, a lot of cancellation of attendees and to some extent for . We had in terms of capacity to use generators, of course, we can't -- and we decided not, obviously, to put 2 patients in double rooms, but only 1 patient per room. Thus reducing our capacity to welcome and treat patients in sub acute fundamental health businesses. This translated into a volume drop in France, as said by almost 10%, which has been offset luckily by a very good business development in the Nordics stemming from a catch-up effect in Stockholm that had a long waiting lists and keys in for elective surgery procedures. And by a strong recovery as well and quite rapid and sustainable to the recovery in Denmark and Norway. So all in all, on the published side, the revenue is down 1.2%. Adjusted for the change in perimeters and the exchange rates, we still have a dip in revenue by 0.7%. Despite this revenue drop, which, again, does not include any recognition of any grant in France. The EBITDA has improved significantly by close to 15%. Benefiting from, in this case, the financial consequence of the supporting and compensation packages put in place by the French state and the Swedish counties. Just to mention the main elements out of that. As you remember, we benefit in France. We benefited until December end, and this will be the case for the next 6 months as well, but we benefit from a revenue guarantee scheme. That basically secures the fact that top line should not be lower than the 1 from 2019. And this led to the recognition for this semester of EUR 76 million as other operating income. At the same time, the French President decided, early in spring, to have a deep look into the wage grades for the health care nurses, health care professionals, and that led to the implementation of a wage increases across the whole business, public, private in France. Starting September 1 with -- in our case, in the case of the private operators, a wage increase of EUR 206 per month, per employee. And of course, it has been decided at the early stage that this extra cost would be fully compensated by specific grants, and we got those grants over the period to an amount of EUR 21 million, which also were recognized and booked as other operating income. Lastly, of course, because of the COVID crisis, the situation we had to face. And basically, the pandemic consequences, we also had to face significant cost increases related to the profile of our patients, related also to the safety measures to be put in place in all our facilities. So we had to deal with significant increases in costs, being procurement, being investments for the facilities, being, in some cases, some equipment to be purchased. And again, through the negotiations we had with the French authorities. We benefited from a compensation package that amounted to close to EUR 15 million over the last 6 months. Similarly, in Sweden, thanks to the very active role that Capio Ramsay Santé played in Sweden notably, we had the opportunity to get compensation, almost full compensation of the extra costs linked to the fact that, as Pascal mentioned, was 1 of the key hospitals in the COVID crisis treating a lot of patients in resuscitation ward. So and that amounted to EUR 24 million. So no way of saying that, of course, we have the positive recognition and translation of our involvement in the COVID crisis since March, booked in the second half of this calendar year for the first half of our financial year. So there's a kind of a cut-off effect. Just to walk you through the points, we ended up last year on the second half of our financial year with a drop in EBITDA of EUR 35 million we have on the same perimeter, an increase in the EBITDA of this first half of EUR 32 million. So basically, the rebalancing of the cost and the profits related to this crisis as we speak. But very happy also to be seen and recognized as a key player in this crisis with the measures that we benefit from as well, being I think the right recognition of this in its involvement. Below the EBITDA, just a word to tell you that we also get -- we finally sold the German business, which was non-core. This has been quite a lengthy process, but we ultimately it over the last 6 months. And that led to a capital gain of EUR 11.5 million. On the debt side, as you can see, the debt has decreased by about 10% related to the seasonality pattern of our business. That's the first point. And also to the fact that we still benefit -- or we still benefited until December end from cash advances from the French state. So that we have today, an amount of EUR 425 million of cash advances, out of which we consider that EUR 200 million to EUR 250 million max will be repaid over time to the French controlling bodies. So long way of saying that even though we still face some uncertainties on the business developments in France, in Sweden, as Pascal mentioned, because the crisis is still there. The number of cases has been gradually increasing. We have a safe profile in terms of liquidity profile, but also business development, and we have taken internal measures to cope with potential downside for the next couple of months, hoping for that to terminate soon. And for us also to recover rather quickly as we saw that already in July, September before the second wave. So all in all, I would say, resilient figures. And again, with, of course, the impact of the measures we benefited from via different states, but are just at the level of our involvement into this crisis management. So that was mostly it from our side in terms of comments. I think the best option now would be to open the floor to Q&A. So we can have an interactive discussion on this press release. Please?

[Operator Instructions] And we will take our first question. Colin, please go ahead.

This is Andrea Scauri. Can you hear me?

Yes.

This is Andrea Scauri from Lemanik. I have some questions. The first one is related to what you mentioned, basically, the subsidies, subsidies that you had from the French government. I was wondering if you could detail a little bit more what was the impact per patient in terms of refund from the French government? And second point, how long do you expect that these benefits -- these subsidies that will last? Third question, if I understood correctly, you are in your net cash position in Europe, basically, cash availability, EUR 250 million of advances from the French government. I was wondering how long does it last these benefits? Then I have another couple of questions, but please go ahead with these first 3 questions.

Sure. First question on the impact of the credits on our P&L and basically the way to deal with the grants and how to allocate those grants. Obviously said there is a difference according to which company. Just to not waste time on that, saying no measure, no package at all in Denmark, no package at all, no measure in Norway. Sweden, for instance, Sweden, we benefit from a completion for the volumes on some specific facts have been discussed county-by-county, facility-by-facility and there's kind of the global lump sum that we benefited from at the end of December. It is not something that go on forever. It has been a discussion related to our augment in crisis and the first wave, to be precise. Second, in Sweden, we also had a compensation of that were officially has been over cost related to the COVID. So how much is that represent on is difficult to say because, obviously, we're dealing here with patients in very acute conditions, intensive care. What we could say, though, is that, for instance, the price of the masks went up by almost 150%. The prices of the gowns went up by almost 80%, 85%. Obviously tariff increase was and on top of that, the patients themselves were somehow heavier than the normal patient. So difficult to split. But there was a compensation of those extra costs in Sweden. And that was the case as well in France. We and basically we also benefited from, as I said, EUR 15 million of compensation. And this has to again, procurements, devices that are so such as gloves, masks or but also some equipment, respirators also devices that were also useful for resuscitation wards. So all in all, we think that we have a coverage of our costs over that period. And we think that measure then to a point, is likely to continue at least partial the next couple of months. What is almost though is the fact that we will benefit from the revenue guarantee scheme for the next 6 -- so from January to June, it has been extended. So we had this revenue grantee in France from March to December and then extended to January, February and June 2021 other goods . For the -- so in terms of the again, in Sweden, it's a case-by-case, and it's negotiated, I would say, on a monthly basis, individually to the county and the level of activity with these COVID patients. In France, we have a stronger visibility because as I said, the revenue guarantee will be extended by 6 months. So basically, hopefully, we should be over by the end with the COVID crisis, we still hope that. Back to last part cash balance. The amount of cash that leads to the French state, the government cash budget is about EUR 405 million. But what I said, we think that we will have to repay between EUR 200 million and EUR 250 million, considering the level of activity today. And this money will certainly be repaid over the next 6 months. So by June end, we should be back to, I would say, a normal cash position. And that is cash we particularly send back to the state. The way would be if will not to pay us the next couple of weeks of invoices. And that's usually

Okay. Very clear. If I may, another couple of questions and then will give the floor to other people. On tariffs, let's assume that in the next 6 months, COVID is behind us. What approach you should expect from the French government and the Swedish government? Because we are from the period of the decline I was wondering that after the COVID crisis the approach from the authorities that will be more open to guarantee better tariffs and increasing tariffs for business . And very I see that the stock is trading at very cheap multiples compared to other listed in France, for example I suppose that this is basically due to the fact that the stock is basically totally liquid. I was wondering how you think of the stock because if I understood correct, that was supposed to have been done after revision of PPO. But after that deal, the stock remains extremely illiquid.

Last question before handing the mic over to Pascal on the tariff side. On the liquidity of our company, I think we would definitely share your conclusion, your approach. We have a very liquid fund . Now obviously, the recent development in the industry and, I mean, across all countries related specifically this COVID crisis led to massive business hopefully not for us. And that's also why we said in our press release, we our results have been supported by the French measures, the French government measures, and we definitely think about. I mean, all in all, we booked EUR 200 million cash EBITDA over the last 6 months. So without that, would have been just bankrupt, so to say, not bankrupt to be too pessimistic, but of course, situation would have been different. So our shareholders are, of course, deeply involved into this they haven't taken any dividend for the last years, 6 years, 7 years, they won't take dividends in the future. So the question of it is obviously something that they will consider in due course. Which first of all, it is early to say. And again, we have to see how we exit this COVID situation. As I said, we are very confident because we have a very high level of available. Our liquidity process is very robust. We have a strong EBITDA, whatever the reasons, but I think this mirrors also role in omissions as a provider in France in Europe, Sweden as well, of course. So that's the second step. And I think it's not my role now on the tariff side, Pascal?

Yes. Thanks, Arnaud. Well, you're right. We have been through from 2012 to 2017 through very complex share regarding tariff for France, at least with an aggregate increase by 10% during this year. So coming back to this year -- in fact, last year, for France, and I will comment later from other country. For France, we have signed a 3-year protocol with the Minister of Health that guarantee the profession to have every year, an increase by at least 0.2% plus in case or due to some volumes, there will be another execution of the total health expenses below what is voted by the French parliament, e.g. last year, EUR 82 billion to be given back to delta for profession. So this is a context. We expect in the very next weeks, if not days, to know what will be the tariff grade for 2021. But once again, we are out of the dramatic years and we will be in positive territory for the tariff this year, plus we are totally convinced, and it is one of the commitment of the French President that there will be on the short, mid and long-term an increase in the venture related to the quality based outcomes and that with no arrogance, but having the best quality outcome measured by the French state, what is called the Haute Autorité de Santé, the High Health Authority in France, we will benefit above our natural market share. So this is for France. For Sweden, when we consider a mix of activity being the primary care, being our activity in ]being in specialist, et cetera, where we will enjoy an increase in tariff we expect maybe around 1% to 1.5%. Too soon to say, everything is not yet decided because as you were rightly stating, we are still in the crisis, COVID crisis. As to Denmark and Norway. It's a bit more complex to say. We expect tariffs to be at least slightly positive, but it depends too with negotiation with insurers and related to out of pocket, so a bit more complex. So this is a comment on the tariffs.

Okay. Thank you very much for the answers for your time. If I may, on the liquidity, this is a real issue for minority shareholders. And the point that the stock is very liquid. My -- this is my thought, it's not something related to the COVID crisis because it has always been illiquid since year. So I think that my view, management should address this point. Otherwise, it -- for me, it's a nonsense that the company remains listed for -- with the cost related being listed. I don't know if you share with this view.