Regis Healthcare Limited (REG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Regis Healthcare Half Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Dr. Linda Mellors, Managing Director and CEO. Please go ahead.

Thank you, operator, and welcome, everybody, to the Regis Healthcare results presentation for the half year ended 31st of December 2020. I'd like to begin by acknowledging the Boon Wurrung and Wurundjeri peoples of the Kulin Nation, traditional custodians of the land on which we meet today, and pay my respects to their elders, past and present. I extend that respect to any Aboriginal or Torres Strait Islander people who's joining us today. With me today is Rick Rostolis, our Chief Financial Officer. I'll ask Rick to take you through the detailed financial information for the half year later in this presentation. Next slide, please. Our presentation today is in 5 parts. I'll start with some comments in relation to the current operating environment and then summarize our response to the COVID-19 pandemic. Rick will provide you with the details of our financial performance for the half year, and I'll then go through our strategy and growth plans and an update on the industry conditions and outlook. So starting with our operating environment. At our 2020 full year results presentation, I noted it was a particularly difficult time for the aged care sector with residential aged care providers operating in an uncertain government policy and funding environment, together with the impact of the poor care and experience highlighted by the Royal Commission into aged care quality and safety. The Royal Commission was again extended, this time due to the COVID-19 pandemic. This has also unfortunately extended the negative commentary about aged care, and of course, delayed the much-needed policy and funding reform. In that time, more providers have fallen into negative earnings. And the sustainability of the sector is an urgent issue to be resolved. We hope that the public conversation will soon move to reforming the sector to ensure older people have the care, services, accommodation and workforce to make their needs and choices into the distant future. Indexation has remained insufficient to meet the increasing workforce costs through EBAs, leading to further margin compression. Funding reform will need to address this issue as well as fund the increased numbers of staff we expect will be needed to deliver the quality of care expected. The regulatory framework remains a constraining factor in terms of a protective market, limitations on consumer choice and a compliance framework and culture that, collectively, are not delivering the systemic quality improvements required. COVID-19 has taken a heavy toll on older people and the aged care sector. In addition to the direct impact on those older people and aged care workers who contracted the virus, the pandemic sadly also provided another avenue of criticism to the sector, which has performed well relative to the experiences of other nations. COVID-19 has also driven up operating costs, created economic and sector-wide uncertainty and damaged reputations. It has magnified sector risk, and as mentioned earlier, delayed the findings of the Royal Commission, thereby delaying its likely recommendations for major structural change and the critical decisions necessary to restore sustainable funding to the sector. We are eagerly awaiting the final report of the Royal Commission this week and government's response. Sector profitability has continued to decline with an increasingly large number of both tax-paying and tax-exempt providers in a negative operating position. The company remains firmly of the view that it is unreasonable and unsustainable to expect operators to continue to subsidize what should and must be funded by government. The ongoing lack of policy and funding settings to support a viable sector has resulted in capital developments being deferred broadly across the sector. The current settings provide inadequate and uncompetitive investment returns. The sector needs to attract capital investment to increase system capacity and modernize accommodation. Next slide, please. Moving now to COVID-19. I note that I provided an extensive update on COVID-19 at our AGM in October 2020. Regis had no outbreaks in the first wave of the COVID-19 pandemic in Australia. There were numerous challenges faced by the business, particularly early in the second wave in Melbourne, including the well-publicized limitations of the public health response, including delays in access to testing, result notification and contact tracing. The expectations on Care Homes to function as hospital awards with hospital-level equipment and in an environment that's not designed to care for acutely unwell patients and the unfair public criticism of aged care providers and workers regarding COVID-19 outbreaks and the stark differences in public commentary and reporting of similar outbreaks between aged care and other care settings, for example, hospitals or disability homes. Our residential aged care homes in Melbourne experienced tougher operating conditions as a result of the second wave with lower occupancy, resulting in lower income and significantly higher costs associated with additional staffing and PPE requirements. At all times, Regis prioritized the health and safety of our residents and employees. Several of our Melbourne homes suffered a COVID-19 outbreak as defined by the Department of Health. In this regard, I note that an outbreak in aged care is defined as any home that has 1 or more residents or staff members with a positive diagnosis, regardless of where they acquired the virus. Regis had a number of homes where a staff member was diagnosed with COVID-19, resulting from community transmission. These homes were classified as outbreak homes despite no transmission within the home. On the 15th of July 2020, we experienced our first and most serious outbreak at our Regis Brighton home after an employee returned to positive COVID-19 test. This employee followed all requirements, but unfortunately transmitted the virus during the presymptomatic phase of their illness. The outbreak was contained to 1 wing of the home. We subsequently had a small outbreak at our Regis Fawkner home, which was contained very quickly. Both of these outbreaks occurred in the context of increased community transmission in Victoria. Given our preparation, we were able to immediately implement our outbreak management plan, and I'm proud of the way our team rose to the challenge to provide compassionate care and support to residents at the homes and their loved ones. The team communicated frequently with residents, families and employees. Sadly, 12 residents died following a diagnosis of COVID-19, and my sincere sympathies go to their families and friends. Our resident families and employees have felt deeply the loss of these valued members of our Regis Brighton and Regis Fawkner communities. The pandemic has again highlighted the need for increased prioritization of older people in our communities regardless of where they live. The company invested heavily in preparing for COVID-19. We were able to build on our existing clinical governance systems and processes and dedicate specialists in nursing and infection control to our COVID-19 response. Our Regis outbreak management team, including executive infection control and clinical specialist nurses, provided exceptional leadership and direction to our impacted homes. Importantly, Regis had appointed a national manager of infection control before the pandemic was known. This new role was filled by an existing General Manager of one of our homes, bringing valuable operating experience as well as infection prevention and control expertise. Our outbreak management team was supported by the full executive senior managers and staff. Our outbreak management team liaised with all authorities, arranged testing, conducted in-house and timely contact tracing and provided up-to-date and accurate information and advice. Their leadership and actions helped to counter the detriments in the public health response and provided a higher level of protection and response for our residents and employees. Regis also benefited from the specialist expertise of a number of residential in reach units provided by Victorian Hospitals. There was a constant focus on maintaining our care and service levels through well-considered and executed business continuity plans. Importantly, our Board, executive and workforce recognized and responded to the physical, mental, cognitive and emotional threat with great kindness and compassion. Regis was not subject to any regulatory action relating to COVID-19. With low community transmission, our homes have returned to focusing on lifestyle and wellness activities, while retaining vigilance around infection prevention and control. Next slide, please. Thank you. Now to our financial and operational results. The company delivered a first half EBITDA of $42.6 million and NPAT of $11.0 million. This is a good result in the current operating context, but below our first half results from the financial year 2020. This reflects the ongoing funding challenges, the impact of the extended Royal Commission and the COVID-19 pandemic. Notwithstanding these impacts, revenue from services was up 6.3% compared with the first half FY 2020, while net debt reduced substantially to $183.1 million. Rick will shortly speak to the recently completed $515 million syndicated debt refinancing. I note the Board has declared an interim dividend of $0.02 per share, which will be paid on the 8th of April 2021. The company's focus remains on providing excellent care and services to our consumers, supporting our workforce and improving our financial performance. I'll now hand over to Rick to discuss the financial and operational performance of the business for the first half in greater detail.

Thanks, Linda. Just moving over to Slide 6, the financial summary. Thank you. Good morning, everyone. I've categorized the half year result by saying that despite many challenges, management focused on optimizing performance where levers could be pulled, including targeted plans to increase occupancy across a number of homes. Having said that, it's clear that the company's half year performance weakened further largely in response to the ongoing government funding pressures and the effects of COVID-19. EBITDA of $42.6 million, which has been adjusted to exclude the impact of AASB 16, was down 1.2% on the prior corresponding period, and was influenced by a number of factors, including lower average occupancy across a number of our Melbourne-based homes at the height of the second wave of COVID-19. As Linda has mentioned, revenue from services of $353.1 million was up 6.3% on H1 FY '20 with the following items making up the majority of the increase: $6.8 million of one-off COVID-19 government funding received in October 2020; $900,000 of temporary equity funding; and a $7.9 million contribution to revenue from the 1 March 2020 acquisition of Lower Burdekin's business and assets. Excluding COVID-19 funding and the contribution from the second half FY '20 acquisition, revenue from services was up 1.6% on the first half of FY '20. Government revenue of $253 million was up 10.2% on the prior corresponding period and made up 71.7% of revenue from services. Government revenue also included the $7.7 million of COVID-19 government funding, $6 million from the Lower Burdekin acquisition, and 1.6% COPE indexation. Again, excluding COVID-19 funding and the contribution from the acquisition, government revenue was up 4.3% on H1 FY '20. Resident revenue in the first half of $96.4 million was down 1.6%, mainly reflecting reduced additional services revenue due to COVID-19 restrictions. The increase in average occupancy from 87.9% to 88.3% is across the entire residential aged care portfolio and is attributable to improvements in all states and the Northern Territory, bar Victoria, with increased occupancy, particularly in New South Wales and WA, offsetting the COVID-19 related decline in Victoria. The improved occupancy result was driven by a disciplined approach, targeting specific homes with various strategies for occupancy uplift and ensuring there was alignment of targets across all levels of management. Staff expenses of $249.8 million, which excludes COVID-19-related staff expenses of $5.6 million, accounted for 72.3% of revenue from services, up from 71.9% in the prior corresponding period. $6.2 million of increased staff expenses relates to the LBHA acquisition and $5.6 million to the impact of enterprise agreements, which averaged circa 2.5% as opposed to the indexation applied to government revenue, which was only 1.6% and clearly inadequate to absorb the EBA impact. EBITDA included a $500,000 contribution from the prior period acquisition and a number of one-off items, including the already mentioned COVID-19 government funding of $7.7 million, $9.7 million of COVID costs and a $2.5 million profit on sale of passive assets. I will come back to these one-off items in a moment. The increase in depreciation and amortization was mainly due to the impact of previous ramp-up homes and the accelerated depreciation of certain capitalized projects. Finance costs of $4.8 million, excluding the impact of AASB 16, were down on the $6 million in the first half of FY '20, reflecting the significantly reduced level of net debt carried by the business. As a result of the above factors, NPAT of $11 million was down 8.9% in the first half of FY '20, with earnings per share down by a similar percentage. Now turning to Slide 7, key operational statistics. Thank you. Average operational places increased to 7,170 half-on-half, mainly due to the acquisition made in March 2020 and the closure of one of our Melbourne-based homes in September. As already mentioned, average occupancy in H1 FY '21 was 88.3% compared to 87.9% in H1 FY '20 with Victoria's occupancy impacted by COVID-19. Excluding Victoria, average occupancy for the half year was close to 90% across the non-Victorian homes. During the period, Victoria's average occupancy reduced from 88.1% in the first half of 2020 to 84.1%. Pleasingly, post the difficult COVID-19 second wave, Victoria's spot occupancy had improved to 86.6% at 31 December. Spot occupancy across all residential age key homes had improved to 89.7% at 31 December. And as of 23 February 2021, was 90.4%, with Victoria spot occupancy having improved again to 87.4%. Excluding Victoria, spot occupancy is currently 91.3% with momentum building in all regions. We have a continued focus on improving occupancy across all homes. And the first half occupancy result reflects, in part, the positive effect of targeted management initiatives despite the impacts of COVID-19 during the period. Aged Care revenue per occupied bed day was up 2.2%, excluding COVID-19 government funding, with the bulk of the increase attributable to COPE indexation. Government revenue per occupied bed day was up 4.8%, supported by COPE indexation and also influenced by the increased acuity of residents and improved internal assessment processes. Aged care resident revenue per occupied bed day was down 3.8%. As mentioned, this decrease, in part, was due to reduced additional services revenue as a result of the impact of COVID-19 on a number of our homes. Staff expenses per occupied bed day increased due to the impact of EBAs. The number of RADs remained stable during the first half, with circa 47% of permanent residents having paid either a full or part lump sum, consistent with the first half of FY '20. The average RAD held increased to nearly -- sorry, to nearly $426,000, which is up from $414,000 in the prior corresponding period. The slight decrease in the average incoming RAD reflects previous ramp-up homes nearing mature occupancy levels and management initiatives to drive RAD outcomes across a targeted number of homes. Just moving to Slide 8, one-off items. Thank you. We have presented on this slide the before tax impact of one-off items during the first half of FY '21. As mentioned, during the reporting period, COVID-19 government funding of $7.7 million was received, including a one-off $6.8 million, together with $900,000 in temporary actuary uplift for the months of July and August. During the period, $9.7 million of COVID costs were incurred, which included $5.6 million in staff expenses and $4.1 million in personal protective equipment and other related costs. The majority of these costs were incurred in Victoria. With respect to PPE, unit prices paid were well above pre-COVID-19 pricing and lead times were long. We are continuing to see elevated unit prices, but expect some relaxation in pricing soon. Although difficult to forecast, we also expect to incur further COVID-19-related costs in the second half with higher infection prevention and control standards embedded across all homes. I would also like to note that the company has applied for several grants under the Commonwealth Government's aged care support program and support for aged care workers in COVID-19, that total in excess of $3 million. Should the grants be approved, we will recognize these as income in the second half of the financial year. Consistent with our commentary at 30 June 2020 that we would look to identify and divest nonincome-producing assets, please note the $2.5 million profit on sale of passive assets during the period, including vacant land located at Palm Beach in Queensland. In relation to Palm Beach, proceeds of $21 million received during the period that was used to pay down debt. Further to the ASX announcement made on 3rd of August 2020, we incurred approximately $400,000 in external costs to address the cybersecurity incident. Importantly, the company promptly implemented its backup and business continuity systems. And the incident did not affect the delivery of resident care or services. We continue to review and improve our system security to mitigate the risk of further disruption. With respect to Royal Commission costs, they were immaterial during the half and were absorbed into BAU costs. Now moving to Slide 9. Thank you. As is appropriate in the current operating environment, the company has continued to take a conservative and disciplined approach to managing debt. Net operating cash flow of $49 million, which excludes government funding received in advance of January of $39.6 million, was underpinned by EBITDA of $42.6 million. And despite the negative impacts of COVID-19-related lockdowns, net RAD cash flows were a positive $4.7 million. Importantly, I note that RAD cash flows for the half year were positive in every state and territory, apart from Victoria. Total net debt at 31 December 2020 of $183.1 million, again, excluding government funding received in advance for January, was well within our committed bank facility limit. Please note that statutory net debt at 31 December was $143.5 million. We believe that disclosing net debt in this presentation, excluding revenue received in advance, reflects a more accurate representation of capital performance. The total reduction in net bank debt over the last 12 months has been $98.4 million or 35%, and is now reflected in a significantly reduced leverage ratio of 2.2x, down from 2.7x in H1 FY '20. Significantly, as Linda has already mentioned, this month, the company completed the refinancing of its $515 million syndicated debt facility, which includes the extension of $150 million of funding to February 2023 and $365 million to February 2024. As Linda has mentioned, the Board of Directors declared an interim dividend of $0.02 per share, 50% franked, which is payable on 8 April 2021. During the half year, the company reduced its investment in capital expenditure to $7.6 million, which mainly related to maintenance and refurbishment of homes. This was in line with the Board's decision to pause a number of planned development initiatives given the lack of certainty around Royal Commission outcomes and future federal government funding and policy. The remaining developments in the pipeline, activities such as preparing land for commencement, development approval and design documentation, are underway in readiness to commence construction once conditions are favorable to do so. Turning to Slide 10. As you can see on this slide, the subtle move away from RADs to DAPs as per industry trend continued during the first half of the financial year, with 100% RAD payers now representing 30% of the permanent resident profile. Notwithstanding this, the 31 December 2020 paid-up RAD balance of approximately $1.159 billion was up from the $1.129 billion at December '19 and is consistent with the balance of 30 June 2020, despite the challenges imposed by COVID-19 lockdowns. Residents paying a RAD/DAP combination have increased during the half year. While debt payers, as a percentage of permanent residents, remain steady. With the MPIR attached to DAPs having reduced again, it is likely that the industry trend preferencing DAPs will continue to be favored in the second half of the financial year. The inequity of RADs versus DAPs needs to be urgently reviewed as this undermines the capital base of the sector, and we look forward to government reform post the Royal Commission where we hope that this imbalance will be addressed. With this, I'll hand you back to Linda.

Thanks very much, Rick. And if I could have Slide 11, please. On the 20th of November 2020, Regis announced that it had rejected the unsolicited conditional nonbinding and indicative proposal received on the 19th of November 2020 from Washington H. Soul Pattinson and Company Limited to acquire all of the shares in Regis. The indicative cash price offered under the proposal was $1.85 per share. The proposal followed rejection by the Regis Board of an earlier proposal on the 30th of September 2020 at $1.65 per share. On receiving the proposal on the 19th of November 2020, Regis established a formal Board committee comprising Regis' independent nonexecutive directors and myself as a Managing Director and CEO, to consider the proposal. Both proposals were rejected as they materially undervalued the company, given its medium- to long-term prospects, and did not offer fair value to shareholders, having regard in particular to the following factors. The Royal Commission is due to deliver its final report by the 26th of February 2021, with substantial policy and funding reform expected to be recommended to the Commonwealth government. The Commonwealth government has committed publicly that it will respond to the recommendations of the Royal Commission in the May 2021 budget and has foreshadowed substantial additional funding for the aged care sector. And the easing of the impact of COVID-19 has resulted in improving trends in the aged care sector performance. Washington H. Soul Pattinson formally withdrew its proposal on the 20th of January 2021. If I could have Slide 12, please. In this section, I'll take you through the key elements of the company's strategy, including the Board's thinking in the context of the ongoing uncertainty in government policy and funding and the impact of the COVID-19 pandemic. Moving to Slide 13. Regis operates residential aged care homes in every state and the Northern Territory. The company has a portfolio of 64 freehold residential aged care homes, following the acquisition of the Lower Burdekin Homes in Queensland of Regis Air and Regis Home Hill on the 1st of March 2020 and the closure of Regis Milpara in Victoria in September 2020. Overall, our total available operational places increased compared to the first half of 2020. Regis also holds 8 retirement villages, 5 day therapy centers and 6 home care business bases. Moving to Slide 14. From a business perspective, Regis is aimed to deliver long-term sustainable growth has not changed. The Regis philosophy remains that by consistently providing excellent care in high-standard homes, we deliver great outcomes for residents and their families, have more engaged and capable staff and therefore, create an environment where the business is able to innovate, invest and grow. However, as previously communicated at the 2020 full year results presentation, the Board has reassessed the company's strategy in the current environment given the impacts of COVID-19, the ongoing uncertainty regarding policy and funding direction and the final report from the Royal Commission due to be delivered now by this Friday. As a result, Regis continues to have nice growth projects on hold pending greater certainty of investment returns. This follows a period of solid organic growth, but with investment returns that were significantly lower than expected. In the meantime, Regis remains focused on continuous improvement and seeking out learnings and opportunities to stay at the forefront of care and services for our consumers. Regis' scale of operations means we are able to provide a range of on-site and off-site care and support services that contribute to quality and safety of care and services for our residents and clients. Some examples include that every Regis aged care home has nurses and care workers on-site 24/7. This includes an in-charge registered or senior enrolled nurse on every shift. Regis provides 24/7 senior registered nurse support to all of our homes across the country through an in-house nurse-on-call service. As we mentioned, liaison specialists in our club services sites provide extended support to our residents living with dementia and their families. Our clinical support team is a national support service providing clinical support and coaching across all residential aged care homes. And Regis has centralized catering and housekeeping functions, which plan and monitor the Regis standards across all of our homes. Cash flow is critical in this time of sector instability with solid progress made this half with net debt reducing to $183.1 million at 31 December 2020. As flagged in our full year 2020 results, the Board regularly assesses the company's options regarding material nonincome-producing assets. And as Rick mentioned, in the half, the company sold vacant land at Palm Beach, Queensland for $21 million. The company continues to focus on improvements in occupancy, RAD cash flows and our additional services product offering. Our disciplines around system, process and cost efficiency also continue and are showing pleasing results. The company continues to review our business portfolio mix to determine where to invest in the near term. This includes the development of a home care growth strategy that we expect to implement later in the calendar year. Of critical importance is preparing our business for the sector reform that we anticipate post the government's response to the Royal Commission final report, including likely sector consolidation. Finally, we have completed the refresh of the executive team and added new capabilities that strengthen the company's position now and into the future. If I could have Slide 15, please. As I mentioned, it continues to be a challenging time for the company and the sector. This follows a number of years of compressed returns and much lower-than-anticipated investment returns on our greenfield and brownfield developments, noting the multiple changes to the policy and funding environment since those business cases were by the Board. During FY 2020, the Board made the prudent decision to place most of the developments in our pipeline on hold until such time as the government's policy and funding parameters are clear and there is a sufficient return on investment to incentivize the allocation of the company's capital. We continue to review acquisition and development opportunities against our existing criteria, primarily quality of location, land and buildings. We continue to see this as a time to maintain a conservative approach to management of our balance sheet and debt, and we will continue with our strategy to pay down debt using RAD inflows. We will also, of course, keep debt capacity in the event conditions improve and market opportunities are attractive. Moving to Slide 16. There have been significant environmental, social and governance achievements during the period. Our environmental program continues to mature. We've completed our solar and LED projects and are seeing the benefits through reduced emissions and usage. The company entered into a formal contracting partnership with the Turtle Tribe, established by a then 11-year-old entrepreneur, to supply all Regis residents with toothbrushes made from 100% biodegradable bamboo as an alternative to plastic. In October, the company issued our first Modern Slavery statement, detailing the concrete steps taken to ensure there is no slavery, servitude or child labor in any part of our business or in our supply chain. We look forward to building on this further in coming years, reflecting our commitment to acting ethically and with integrity in our business operations. Regis' long-standing intergenerational programs continue with creative alternatives introduced due to interruptions through COVID-19 and visitor restrictions. Our safe workplace initiatives continue and now incorporate extensive activities in the face of COVID-19. These will be in place for the foreseeable future, and many will become part of the new way of operating. We continue to provide an employee assistance program, and this has been an important source of support for our workforce grappling with the challenges of COVID-19 at work and at home. Keeping our workforce engaged and valued has continued through a range of programs, including the Regis Spirit program for engagement and recognition. Our focus on cultural diversity, mental health awareness and disability support for our residents and our workforce will continue. From a governance perspective, our capable and experienced Board benefits from an appropriate skill mix, with our founders each bringing almost 30 years of aged care operating and development experience, combined with 4 independent directors with a range of strong financial, property, marketing, workforce and operations experience. One of our independent directors is a medical clinician with expertise in systems planning, clinical governance, clinical training and operations. My own experience is across the health and aged care sectors, including a range of complex hospital services, subacute services, palliative care, residential aged care, home care and retirement living. The Board Clinical Governance and Care Committee continues to oversee our clinical governance framework and will provide leadership as we progress through the sector reforms post the Royal Commission. Importantly, both the Board and executive team meet our gender balance targets. Moving to Slide 17. The aged care sector continues to operate in an uncertain environment. As mentioned a number of times today, we look forward very much to the recommendations of the Royal Commission, which are expected by the end of this week. Also, top of mind presently is the COVID-19 vaccination program, which commenced this week. This is a most welcomed development, and we are particularly pleased that aged care residents and workers have been prioritized given the higher risks. Moving to Slide 18. The company has remained supportive of the Royal Commission and the critical importance of its work. We prepared and lodged 10 submissions to the Royal Commission with our ideas about sector reform, and I would call to appear as an expert witness at the funding and finance hearing. We remain highly engaged in sector reform discussions and now await the imminent release of the recommendations and government response. The company is hopeful of a clear and strong response from government that sets out a policy and framework to support the provision of consistently high-quality care that is sustainable over the long term. This will require a substantial increase to the budget allocated to aged care by government as well as other changes. The single aged care quality framework is now 18 months in, with consumers more involved in decisions about their care and the key focus on dignity and choice. Key regulatory functions, including decisions about regulatory actions moved from the Department of Health to the Aged Care Quality and Safety Commission on the 1st of January 2020. All Regis Homes remained accredited and during the half, and that is still the case. The aged care sector received a number of funding boost through the half in response to the impact of the COVID-19 pandemic and associated financial pressures. The company also acted as a pass-through for the government's retention bonus for aged care workers, including $6.4 million paid to date in retention bonuses to staff, with an additional $3.2 million to be paid in the second half. Moving to Slide 19. As previously announced, and Rick has already covered this, on the 3rd of August 2020, the company advised the ASX that it had been the target of a cybersecurity attack. The company promptly implemented our backup and business continuity systems, and the incident did not affect the delivery of resident care or services. The incident also did not materially impact the company's day-to-day operations. On the 21st of December 2020, Oneview Healthcare lodged a claim in the Supreme Court of Victoria against Regis, seeking damages of $21.4 million for alleged breach of a collaboration agreement commenced in 2018 between the 2 parties. Regis has engaged external legal counsel and intends to strongly defend the matter. On the 23rd of January 2021, the Aged Care Quality and Safety Commission applied regulatory penalties to Regis Netherlands, including a sanction and a notice to agree. Regis is fully compliant with all actions and requirements stipulated by the commission. We just lodged a request for review of the sanction within the strict 14-day time limit. We noted within that request for review that we have an investigation into matters underway that, that investigation was ongoing, and the company would provide the commission with the findings once complete. It's important to note that the majority of issues that come under the investigation have not been substantiated. Moving to Slide 20 and the outlook. The company has faced another difficult 6 months in the half. I'm proud of the continued focus on maintaining excellent care standards while we optimize our business performance. Our first half results are pleasing, given the multiple negative factors the sector encountered during the half year period. The executive team's focus on executing business performance improvements, including improved occupancy and revenue generation and disciplined cost management, will keep the business strong and stable pending sector reform. We will continue to review our portfolio mix, acquisition and development opportunities, while conservatively managing our balance sheet and debt position. Given the current operating environment, including the ongoing impact of the COVID-19 pandemic and pending Royal Commission Final Report, the Board does not believe it to be appropriate to put forward any FY 2021 earnings guidance. Before I conclude, I would like to thank the more than 8,000 Regis team members for the important work they do in caring for older Australians. Our frontline workforce, in particular, has shown extraordinary commitment and resilience. I'm proud of our leaders in the executive and management teams and their incredibly hard work over the half, and I look forward to their ongoing contributions to operational excellence and the reform agenda. I would like to acknowledge the expert guidance and commitment of our Board Directors who have provided outstanding governance and stewardship for the company. Finally, I would like to thank our residents, clients and families for choosing Regis and for their support, particularly as we responded to the COVID-19 pandemic. Thank you. I will now hand back to the operator to open the meeting to questions.

[Operator Instructions] Your first question comes from Vanessa Thomson with Jefferies.

I just wondered, typically, you would see a slight skew, I believe, to the first half of the year over the second half of the year. Is that likely in FY '21?

To answer your question, the short answer is yes. So less days in the second half. And we do have -- are lean in terms of where the EBA increases occurs. So I don't see that being any different this year. It's sort of like a 56-44 split. That's sort of the intention, but somewhere around the mark, but you're quite right in your observation.

Okay, thank you. And thank you for providing the COVID expenses of $9.7 million. I wondered if you could give us an idea of how much of that you think will be a persistent increase into the future.

Yes. So I think I may comment, difficult to forecast. And let's assume that the worst is behind us. Vaccines are in place. There will be a heightened level of cost around infectious control that will remain. Screening, cleaning, these types of activities will remain. So look, I'm really loathed to put a number on this, Vanessa. Maybe give me another 6 months to come back to you. But at this stage, I'd rather not put a number on it.

Okay. And in the past, and I know it's going back away, regis used to separate out steady-state homes. Is there a chance you could give us a feel for what proportion of the portfolio would fall into that category? Or is that not something that you do anymore?

So 100% of the portfolio falls into steady-state homes.

Okay. And then my last question was just around the OneView Health Care allegation, and if you could just give us a bit of color about that incident.

It's -- so there's a disagreement around a collaboration agreement that we plan to strongly defend. I'm not prepared to say any more about that today.

The next question comes from Tom Godfrey with UBS.

I just wanted to start with occupancy, and it's obviously encouraging to see over sort of the last couple of months, the group rates improve. I'm just wondering if you could give us a bit more color around what you're seeing from your key referral sort of pathways and what's happening on the ground to see that sort of bounce back? And how much is sort of the Victorian market normalizing?

Yes. Thank you, Tom. So the Victorian market has been particularly difficult. So we've seen good increases elsewhere. It's really Victoria that has been heavily impacted by the fear of COVID. We're certainly hopeful that the rollout of the COVID-19 vaccination will take away an element of that fear and that -- the occupancy in our Victorian Homes will increase in the second half. But the other states and territories have improved.

And Tom, can I just add to get back to the commentary that I made, so the first half of FY '20 pre-COVID, Victoria averaged about 88%, 88.1%, in fact. And I think if I look back in history, that's probably the going rate for Victoria. So when we mentioned as of yesterday, we're tracking at 87.4%, we're almost back to those pre-COVID levels. So I would expect to break through the 88% all going well over the next couple of months, and we'll go from there.