Regis Healthcare Limited (REG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Regis Healthcare FY '23 Full Year Results briefing [Operator Instructions] I would now like to hand the conference over to Dr. Linda Mellors, Managing Director and Chief Executive Officer. Please go ahead.

Thank you, Melanie, and good morning, everybody. Thank you for joining us today to discuss Regis Healthcare's full year results for 2023. As we begin, I would of course like to acknowledge the Wurundjeri, Boon Wurrung people of the Kulin Nation, traditional custodians of the land on which we meet today and pay my respects to their elders, past, present and emerging. And I extend that respect to any Aboriginal or Torres Strait Islander peoples joining us on the call. And I'm joined today by Rick Rostolis, our Chief Financial Officer. As you're aware, Regis is one of Australia's largest and most geographically diverse providers of aged care. We have a team of more than 9,000 dedicated people delivering care and services to more than 7,000 residents and clients over the past year. Regis owns and operates 63 residential aged care homes, comprising 6,960 operational places. More than 90% of rooms are single with a private ensuite, a prerequisite for many residents. All of our homes are freehold with significant real estate value, as demonstrated by the average house price in the catchment area across our portfolio exceeding $1 million. Regis remains one of the few national providers of aged care with residential aged care homes in every state of Australia and the Northern Territory. In addition to our existing portfolio, Regis also has a pipeline of greenfield developments with Regis Camberwell in Victoria under construction, Toowong currently in the tendering phase, and 2 sites in Sydney to be tendered during FY '24. Regis's occupancy continued to improve throughout the year, and achieve spot occupancy of 93.7% at 30 June, 2023. Underlying earnings before interest, tax depreciation and amortization of $83.3 million was 6.7% higher than the prior year. Moving to this morning's agenda, I'll provide an update on some of the key aged care industry changes and reforms followed by an overview of our financial and operating results in the past year, an update on our strategic priorities and outlook and then open the meeting up for questions. Moving to the aged care industry overview. Over the past 12 months, the sector has started to see meaningful action in relation to the government's reform agenda. There is improved shared understanding of the correlation between adequate funding, contemporary regulatory settings and a supportive workforce with care and service outcomes for our consumers. There is still more work to be done to stabilize and support the sector into the future that significant progress has been made. The most significant structural change which impacts our workforce is the largest ever wage increase to the aged care modern Awards rates. Eligible aged care workers have received up to a 15% pay increase, which was effective from 30 June, 2023. And many workers have also received the 5.75% increase to the minimum Award wage. Regis strongly support high wages for aged care workers to recognize the incredible hard work and skill of our frontline staff and to support further recruitment and retention. Regulatory and funding policy has become clearer with the aged care funding instrument replaced by the new Australian National Aged Care Classification, or AN-ACC. And that funding model commenced on the 5 October, 2022. From 1 July, 2023, the government increased the AN-ACC starting price from [ $206.80 ] to $243.10, with the intention to cover the direct care minutes mandate, wage increases and indexation. Like many providers, Regis has been undertaking an organizational redesign to refocus resources towards more eligible direct care, while seeking to preserve the holistic care and experience of our residents. The organization redesign includes the redeployment of some workers into eligible direct care roles, and the recruitment of additional registered nurses to make care minutes requirements from 1 October, 2023. Separately, and pleasingly, more residents have chosen a Regis home [ for their ] residential aged care needs, requiring additional workforce to meet their care minutes requirements. [ Lighter ] market pressures remain in terms of availability of key employee cohorts, particularly registered nurses, given the ongoing global shortage. Regis has had registered nurses rostered 24/7 at each of our homes for a considerable period of time and years ahead of the mandate effective from 1 July, 2023. We have invested in additional internal recruitment capabilities and are recruiting at record numbers. The increased Award rates are showing early signs of contributing to increased interest in aged care roles and reducing turnover. And we anticipate improved workforce availability during FY '24. The recently formed Independent Health and Aged Care Pricing Authority has modelled the cost of care under the AN-ACC funding model and make recommendations to the government. The pricing authority's advice helped inform the government's AN-ACC price for FY '24. It's our belief that the pricing authority will provide a fairer representation of the actual costs of delivering high quality care in the residential aged care setting and will lead to additional funding in the medium-to long-term including more reasonable levels of indexation. Regulation of bed licenses from 1 July, 2024 is expected to be a key advantage to larger providers with development ambitions and access to capital. As opposed to the ACA scheme, where the government determines where new build could be located, the regulation will give providers flexibility to build new aged care homes in desirable locations. Our ratings were a recommendation of the Royal Commission and were introduced in December, 2022. Each residential aged care home is assigned an overall star rating comprised of 4 subcategories, being resident experience, compliance, quality and staffing. In evaluation of staffing, the star rating is based on actual eligible direct care minutes reported to the Department of Health and Aged Care on a quarterly basis, which are then compared to targets set by government. Reporting of actuals commenced in December, 2022 against targets that are not mandated until October, 2023. Whilst the sector has seen significant reform in recent years, there is more required to ensure funding is appropriate. There is an available, well trained workforce, and that all Australians have access to a high quality, equitable and innovative aged care system. Regis welcomes the new Aged Care Taskforce announced in the federal budget, which I'll discuss shortly. I do want to move now to the current state of bed stock in the sector against future demand, and the growing number of older Australians means that additional aged care places will be required notwithstanding increasing services in consumers' own home. The Aged Care Financing Authority's ninth report on funding and financing, forecast an extra 80,000 aged care beds would be needed by 2030 to meet the aging population demand. The Baby Boomer generation is approaching the age band where the sector expects to see a sharp uptick in the number of older people requiring aged care services. The oldest baby boomers are approaching 80 years of age and the average age of entry into residential aged care is 84 years, with the range generally being 80 to 92. High numbers of people in the Baby Boomer generation impacted the aged care sector for around 20 years. In addition, current stock of beds across the sector is of mixed quality. It's estimated that the sector needs to replace around 25% or 55,000 beds due to age and outdated layout. This implies 135,000 new and refurbished beds are required to be built, costing the sector over $50 billion over the next decade or so. Regis authority removed 3 and 4 bedrooms from our portfolio and the vast majority of our offering is single rooms with private ensuite to meet consumer expectations, along with a small proportion of double rooms to suit couples and companions. Providers also need to respond to higher expectations regarding accommodation services and amenities. With the Baby Boomer generation approaching residential aged care, the need to provide a more premium service offering to meet future resident requirements is expected. The sector has been on a capital strike for 5 or so years now, following years of inadequate funding, uncertainty around policy, regulatory and funding settings and future government reforms as well as the COVID-19 pandemic. Most of the sector has been loss-making over the past 4 years. The negative impact on the value of building work in the aged care sector coincided with the period when government should have created conditions to accelerate building to allow the sector to prepare to the wave of baby boomers. As I mentioned earlier at current cost of development, there is $50 billion of capital required to be invested to build and replace beds. This provides a real opportunity for high quality providers with desirable fit for purpose and well managed homes to see improved occupancy performance and returns in the years to come. So moving now to our financial and operational performance for the year. Revenue from services was $780.6 million, up 7.6% on the prior year. Underlying earnings before interest, tax depreciation and amortization was $83.3 million, up 6.7% and net profit after tax before amortization of operational places, or NPATA, as we'll refer to it, was $28.5 million, a significant turnaround on the prior year. The improved underlying results were driven by higher occupied beds and additional government funding through AN-ACC and additional residents income. Average occupancy improved to 91.5%, up from 89.8% in the prior corresponding period, with an all-time high of 6,521 occupied beds or 93.7% achieved in June, 2023. Importantly, net debt reduced by 94.2% to $6 million driven by strong operating cash flow generation and our strategy to release capital from non-income producing assets. The Board has declared a final dividend of $0.748 per share, 50% franked. The full-year total dividends payout represents 100% of NPATA. In terms of star ratings, Regis show improvement in our average overall star rating across the portfolio from 3.11 in quarter 1 FY '23 to 3.14 in quarter 3 FY '23, which is the most recently available data. Average care minutes across the portfolio increased from 165.3 minutes in quarter 1 to 178.8 minutes in quarter 4. And we are well placed to complete our organization redesign by 1 October, 2023. Recruitment effort is ongoing to complete the registered nurse minute requirements and has occupancy increases. And I'll now hand over to Rick to discuss the details of our results.

Thanks, Linda. Good morning, everyone, and thanks for your time today on what we know is a busy period for all. Turning to Slide 8, the financial summary. As Linda has already mentioned, revenue from services was $780.6, million up 7.6% on the prior year. The key drivers of revenue growth were the increased occupied bed days, additional government funding through the AN-ACC model, which I'll come back to later, and additional resident revenue mainly due to indexation and increased debt income. Average occupancy for the period was 91.5%, significantly up on 89.8% in FY '22 with improvements seen across most jurisdictions. This represents an additional 53 residents on average year-on-year. Notably, second half average occupancy increased again with an additional 29 residents up to 92% for the half. Other income of $117 million contained a number of non-cash and one off items that I'll come back to you shortly. Whilst increased government revenue under the new AN-ACC model was welcomed, the additional funding received was largely absorbed by increases to enterprise agreements and Award wages, significant overtime and agency costs in the face of ongoing workforce shortages, as well as the recruitment of additional frontline staff mostly in the second half of the financial year as the company continues to prepare for the government's care minute mandate from 1 October. Staff expenses including the impact of COVID-19 with $591.2 million, up 7.4% [ on ] last year. With respect to the introduction of mandated care minutes, the company has made significant progress with the average care minutes per resident per day, increasing from 165 minutes in the first quarter to almost 179 minutes in the fourth quarter. This increasing care minutes include repurposing roles into direct care, decentralizing some support roles, and investing in additional direct care workers such as registered nurses. Regis remains well placed to meet mandated targets for personal care workers within the FY '23 cost envelope. And we've invested in a number of initiatives to continue to attract registered nurses, including expansion of our recruitment capability, providing enhanced career pathways, and working with various domestic and international partners to recruit candidates. Pleasingly, underlying EBITDA, which excludes RAD imputation and the impact of net one-off gains was $83.3 million, up 6.7% on FY '22. A full reconciliation of underlying EBITDA to the company statutory result is contained in an appendix to the investor pack. Depreciation was $45.1 million, up $3 million, mainly due to technology investments that we have made in recent years, including the enterprise-grade Wi-Fi rollout program, clinical care system enhancements, new electronic medication management system and core ERP upgrade. It holds us in good state going forward. This year saw the full year impact of the government's decision to discontinue operational places or bed licenses on 1 July, 2024. Whilst the prior year only included the P&L impact for 9 months, the operational places intangible asset will be fully amortized by 30 June, 2024. Finance costs were $73.6 million and included $62.9 million of non-cash imputed interest under AASB 16. The effective interest rate attached to net debt increased from 4.9% to 6.7% in FY '23. Excluding the after-tax impact of non-cash amortization of operational places of $57 million. Adjusted net profit after tax or NPATA, was $28.5 million, up 631% on the prior year. Including the amortization of operational places, the company reported a statutory net loss after tax of $28.5 million, an improvement of 26.5% on the prior year. From a cash perspective, Regis generated $105.2 million of net operating cash flow. Net cash flows from operating activities before RADs increased 145% to $60.2 million as receipts from customers and government subsidies improved in line with the performance of the underlying business. Capital expenditure increased by 10% to $53.5 million as the company continued to invest in the refurbishment of homes as well as in scalable technology platforms. Following the purchase of a development site in Belrose, New South Wales in FY '22, the company has acquired another greenfield development site in Carlingford, New South Wales to support the future growth agenda. Strong cash generation and rationalization of non-income-producing assets led the company to reduce net debt by 94% to $6 million at 30 June. Now turning to Slide 9. During the year, the average available operational places across all homes reduced by 77,000 to 6,980 mainly due to the closure of the Belmore, New South Wales, a 60-bed home, in January, 2023. Operational places now stand at 6,960,and we expect this to be around the mark throughout FY '24, subject to any M&A activity. Average occupancy steadily improved across each quarter and is well above the sector average and Regis' low point during COVID of 87%. Higher occupancy mainly reflects a number of management-driven initiatives, including quality of care and service offering, established referral relationships and concentrated sales and marketing efforts. The company has continued to see occupancy improvement across the business. We've scored occupancy of 93.7% at 30 June and 93.5% or 6,512 residents at 18 August, 2023. Based on current available operational places of 6,960, occupancy levels of 93% and above are maintainable and in line with management's previous advice that this level of occupancy could be achieved in a post COVID-19 environment. Aged Care government revenue per occupied bed day averaged $230.70, up 5.2% on the prior year. This improvement included a combination of increased government funding through the introduction of AN-ACC in Q2 and resident reassessments. I note that the company averaged $242.20 of government revenue per occupied bed day in Q4, with this increase primarily made up of AN-ACC uplifts. Aged care resident revenue per occupied bed day averaged $96.10, up 11% on FY '22. This increase reflects the basic daily fee indexation of 4% and 3.7% in September and March, respectively, and higher DAP income due to the MPIR, which increased from an average of 4% to over 6% in FY '23. Q4 average resident revenue was $102.20 per occupied bed day. Aged care staff expenses per occupied bed day averaged $228.40, up 6.5% on the prior year, excluding the impact of COVID. The increase in staff expenses included [ API ] uplifts and significant agency and overtime costs, combined with additional care minutes per resident per day through the recruitment of additional direct care workers during the second half of the year. Q4 staff expenses per occupied bed day averaged $234.40. Pleasingly, the average rate held by 100% RAD payers increased by 3.9% from $461,000 to $479,000, whilst the average incoming RAD increased to $491,000. Probate liability reduced from $199.7 million to $177.5 million at 30 June, and now represents 13.6%, previously 15.8% of the total RAD liability of $1.3 billion. The historically high probate liability at 30 June, 2022 led to a net RAD cash flow in Q1. However, this improved significantly during the remainder of the year, resulting in a net RAD cash inflow of $43.6 million, of which $34.9 million was generated in the second half. Moving on to Slide 10, one-off nonrecurring items, and there are a number of items here that I'll touch on. Of the $32.5 million of government grant income, $31.4 million represents COVID-19 income. At 30 June, $12.8 million of this amount was approved by the government with a further $10.4 million approved since year-end. We have now received in cash over 50% of the outstanding claims with an average success rate of 97% of all claims made. As previously mentioned, the government has a significant backlog and volume of claims to process across the aged care sector. We expect to have all outstanding claims approved and settled during FY '24. In FY '23, the impact of COVID-19 on incremental staff expenses was greatly reduced following a substantial reduction in the number of outbreaks. COVID-19 outbreak related expenses fell from $13 million in the first half to $3.5 million in the second half. During the year, the company generated a gain of $11.7 million on the disposal of non-income-producing property assets, including the Hollywood Retirement Village and vacant land in WA and the sale of the Belmore land in New South Wales. In total, Regis received net cash proceeds of $60 million on the disposal of non-income-producing assets. In addition, partly due to decisions taken to dispose of non-income-producing assets, Regis wrote off $12.8 million of capital works in progress relating to development projects, which are no longer expected to continue. This write-off accounts for the bulk of the increase in administration expenses seen in the face of the statutory profit and loss account. The company also realized a non-cash revaluation gain of $7.2 million on the investment property portfolio, which is independently valued at the end of each financial year. And lastly, as a result of the Fair Work Commission's decision to increase aged care work and modern Award rates by 15%, Regis incurred a one-off $7.3 million uplift to employee leave entitlements. The government has announced that it will be funding a grant program through which Regis expected to recover some of this one-off cost. The company is yet to see the details of the grant program. Moving on to Slide 11. Regis's robust cash flow position this year has enabled net debt to reduce the $6 million, down 94%. There has been strong conversion of EBITDA to cash with $71.5 million of cash flows from operating activities before tax, interest and rents. As mentioned, net RAD cash flows -- inflows of $43.6 million with $60 million being generated from the disposal of non-income-producing assets. In December 2022, the company refinanced facilities B, C and D of the syndicated debt facility through to March 27, which followed a successful refinancing of Facility A in FY '22. Regis now has significant debt capacity with well over $350 million of undrawn bank facilities. Over the last 5 years, net debt has reduced by almost $400 million, demonstrating the strong cash generation potential of the business, notwithstanding the challenging period for the company and the sector. With a materially stronger balance sheet, Regis now has additional capacity to fund its growth and broaden its residential aged care footprint through greenfield and brownfield developments and via material strategic acquisitions. As Linda has already mentioned, the Board of Directors resolved to pay a final dividend of $0.748 per share, 50% franked, payable on 27 September. With the interim dividend of $0.02 per share, Regis will pay out $0.948 per share or 100% of NPATA in FY '23, up from $0.584 per share in FY '22. On Slide 12, capital expenditure. As already mentioned, the company invested $53.5 million, up 10% on the prior year. The company's greenfield development program recommenced earlier in the year, with construction well underway on our 112-bed residential aged care home in Camberwell, Victoria. This project remains on track and is expected to open to new residents in the second half of FY '25. During the year, the company purchased a development site in Carlingford, New South Wales for $15 million, with a development approval in place for 110-bed residential aged care development. The intended deregulation of operational places on 1 July, 2024 presents new market opportunities for Regis to invest in geographic areas previously not open to the business. Development CapEx increased to $30 million driven by Camberwell, as well as progressing designs and tendering process for pipeline sites in Belrose, Carlingford, and Toowong. Refurbishment CapEx is expected to trend higher in the short-term as Regis invest in upgrading existing aged care homes and continues its investment in technology-based solutions, improving staff efficiency and resident quality of care, scalable for future growth. In line with our strategic plan, the company continues to invest heavily in technology with various Wi-Fi-enabled initiatives put in place together with an upgrade of the clinical care platform and rollout of an electronic medication management system. These investments place Regis at the forefront of technology-enabled care initiatives aimed at improving both staff and resident experience. On to resident profile on Slide 13. As you can see on this slide, the proportion of non-concessional and concessional residents has remained consistent over the past year. The proportion of non-concessional residents paying a full rate has also remained steady at just under 60%, while there has been a slight uptick in that payers and a decrease in combos. In line with interest rates, the MPIR has seen a rapid increase over the past 12 months from 4.1% to 7.9% today. We are yet to see a meaningful shift in consumer preferences between RADs and DAPs, but we expect that with a high MPIR, there should be a shift towards RAD. And with that, I'll hand you back to Linda.

Thanks very much, Rick. So moving now to other matters. As we previously reported, Regis identified potential underpayments of employee liabilities to certain current and former employees under our enterprise agreements. There has been no change to the provision in the last 6 months, and we expect remediation to occur in the first half of FY '24. As many of you may know, the government announced in the recent federal budget that it was establishing an Aged Care Taskforce to review and provide advice on funding arrangements for aged care. The outcomes of this taskforce will be critical in establishing the short and longer-term funding and financing settings for the sector. There is now a broad understanding that change is required to urgently support the viability of the sector and attract private investment to build and maintain the residential aged care homes that are needed for the aging Australian population. Importantly, Regis agrees with the government's principles that the system needs to provide quality and appropriate care delivered by skilled workforce and allows and encourages innovation. The sector needs access to sufficient and new capital to encourage the development of new accommodation and upgrades to existing accommodation. Regis continues to work with our industry peak body via Aged and Community Care Providers Association to support the development of an effective and sustainable aged care funding model and drive positive change. The Australian government commissioned an independent capability review of the aged care regulator as recommended by the Royal Commission. The ensuing report was released on 21 July, 2023 and included recommendations to improve the culture, leadership, structure, governance, capability and performance of the regulator. The government looks forward to implementation of all of the recommendations. Fit for purpose regulation is necessary to deliver quality care and services and to support a maturing sector. Moving now to the strategic update and outlook. And just a reminder that Regis's strategic priorities are built on 3 fundamental principles, being a culture of care, having positive people and practice, and enhancing -- and ensuring our future. Over the last year, significant work has been done on stabilizing the business, harnessing efficiencies and investing in technology, as Rick mentioned, to enhance the operating and financial performance. Some of the key achievements during FY '23 include implementation of a new electronic medication management system that provides better accuracy and history of medication provided to our residents, upgrading of our clinical management system to improve clinical and quality outcomes for our residents and efficiencies for our workforce, finalizing the target operating model, including organization redesign to refocus resources towards more eligible direct care, expanding our talent acquisition capability, particularly in relation to attracting registered nurses and carriers. Commencing construction of the greenfield residential aged care development in Camberwell, Victoria and receiving net proceeds of $60 million through the rationalization of non-income-producing assets. The strategic technology investments we've made in recent years are readily scalable, which will support our endeavor to grow and expand our residential aged care footprint. In terms of our strategic priorities for FY '24 and starting with the Regis culture of care, we continue to strengthen our clinical governance program and our market-leading additional services offering, together with participating in a number of strong research projects with leading universities and partners to pilot innovative new technologies. These important structures and platforms underpin the high-quality care and service experience for our residents and clients. In terms of our people, we are rolling out a new people management system to improve the employee experience, increase efficiencies and ensure accuracy and reporting compliance. As I mentioned earlier, we have been finalizing our new target operating model, including the organization redesign. Whilst much of the preparation and work has been completed, the new operating model will be introduced in this first half, which will drive significant increase in Regis' direct care minutes in line with the government mandate. Regis remains focused on improving labor productivity and reducing overtime and agency costs, which will occur under the new operating model. Importantly, we're also motivated to further improve staff engagement to enhance resident and employee experience under our continuity of care model. We expect that this will also improve our recruitment and retention outcomes. In terms of ensuring our future, we are making significant investments this year in the ongoing refurbishment of our existing portfolio and progressing our pipeline of greenfield developments. Regis is also pursuing material strategic acquisitions to broaden our residential aged care footprint whilst remaining disciplined and seeking high-quality portfolios that will provide adequate returns for our shareholders. We are also intending to rationalize other non-income-producing assets to realize further proceeds to be invested into other higher returning core business opportunities. Moving now to Slide 18. The company is proud of our history to care for our people, local communities, broader society and the environment. There are a few items I'd like to highlight today on ESG, starting with the substantial improvements that Regis achieved over the last year in a range of resident quality and safety indicators, including wounds, falls and preventable errors. From an employee perspective, the company is particularly pleased with the improvements in our work, health and safety outcomes with reductions in injuries, lost time and claims. We introduced a new Board approved and monitored safety index and our lost time injury frequency rate was well ahead of the sector. Using the Safe Work Australia method, Regis returned a lost time injury frequency rate of 6 for the year against a benchmark performance of '24. The company continues to lead and participate in a range of robust research projects to improve consumer care and services and workforce performance and well-being. The company conducted its fifth annual employee engagement survey during the period. Pleasingly, our engagement lifted by 5 basis points to 59% since the last survey in March 2021. Regis's metrics were better than the aged care for-profit benchmark and the broader residential aged care services group. In terms of the environment, we are actively working to minimize our environmental footprint and the short-term and long-term impacts of our operations, including minimizing the use of natural resources, such as electricity and gas and the production of waste. Regis is on target to reduce our energy consumption by 10% by 2024 as per our 2019 commitment. We are undertaking a pilot to redirect our organic food waste from landfill, reduce our greenhouse gas emissions and save money on waste removal. The Regis Board and management remains firmly committed to the highest standards of behavior, ethics and operations for the benefit of our residents, clients, employees, shareholders and stakeholders. Moving now to our growth program. As Rick mentioned, Regis recommenced building activity during the year with a greenfield development at Camberwell, Victoria. For those of you not from Melbourne, Camberwell is an inner eastern suburb with an average house price of $2.6 million. The Camberwell development will see a high-quality residential aged care home constructed with 112 beds across 4 levels. This is an investment of approximately $40 million, excluding land with all rooms being single with ensuite. The development is progressing as planned and remains on track to open to new residents in the second half of FY '25. In terms of our other pipeline development projects, we continue to advance our plans and are ready to accelerate our program of works as investment returns improve. In January of this year, the company acquired a parcel of land in Carlingford, New South Wales. This site has been earmarked for a 110-bed residential aged care home with development approval in place. We have 2 further development projects in Toowong, Queensland, and Belrose, New South Wales. Regis will continue to build contemporary fit for purpose and desirable aged care homes for older Australians with high care and service standards. So moving now to some comments on outlook. In the year ahead, we expect to benefit from improving occupancy, additional government and resident funding while completing our organization redesign and recruitment program to meet care minute requirements. Regis has a materially stronger balance sheet, and we'll continue to focus on releasing capital from non-income producing assets to reinvest into higher return in core business opportunities. Our strong balance sheet, including significantly reduced net debt, will support Regis's active pursuit of strategic material acquisitions to broaden our residential aged care footprint. In summary, the Board and executive team are focused on improving the quality of care and services to our residents, attracting and retaining the right people, investing in more efficient systems and processes, upgrading the quality of our existing homes and investing in growth through the additions of new internally developed homes or by acquisition. Finally, I would like to sincerely thank each of our 9,000 employees for their continued hard work, commitment and care that they provide to our residents and clients day in and day out. And with that, I will now hand back to our operator, Melanie, and we can take questions.

[Operator Instructions] Your first question comes from David Low with JPMorgan.

If we could just sort of get to the heart of it. I know you haven't given guidance for the current year. But obviously, the variables that occupancy is -- the starting point is nicely high. Funding has been increased. But of course, we've got the new care requirements as well. But just wondering when we think about the earnings in the year finished and the earnings in the year ahead, I mean, it feels to me that there is further improvement in earnings. So just wondering how you think we should think through those major variables, please?

I think I've given you a heads up in the speech, I've given you all the Q4 numbers, the exit numbers on revenue and cost. To your point, each provider receives an extra $37.10 effective 1 July, made up of the $26.30 for AN-ACC a $10 rate, hotel supplement. And of that $37.10 -- to be clear, under the Fair Work case and the government's decision to fund the increase. Of the $37.10, we passed through and started to pass through $23.12 to workers -- to eligible workers. So again, we've seen an uplift in our staff expenses, partly due to the care minute mandate mostly in Q4 of this year. So you'll see that ramp-up, I mentioned -- I think I mentioned that our staff expenses were up about $234 million for the quarter versus $228 million for the half -- for the year on average. So that should give you some indication of where we're at. The point I want to make is, and I'll try to make it in the speech, the bulk of the investment that we've needed to make for personal care workers to meet the mandate is effectively now baked into our numbers. Linda has spoken about the organizational redesign, which is repurposing roles, which we're currently doing and have been doing for the last 12 months. That should get us there in terms of the personal care worker piece. The piece around our registered nurses is an issue for the whole sector, including us, but we are getting closer to the target. So again, to cut a long story short, and I don't want to put a number on it, of course, there's going to be growth next year. We started the year with 6,500 residents when we've averaged 6,389 for the whole of '23.

And look, I just want to -- it's very useful to run through the key variables. My other question is, I mean, I see the commentary there about the plans for M&A. How progressed are you? So the key material strategic acquisitions, am I right in understanding that there's about $400 million of undrawn facilities now? Could you talk a little bit about what we should expect in the year ahead, please?

Well, to talk about the year ahead -- let's talk with the last couple of years. Look, leaving aside much larger organizations such as the Bain [indiscernible]. Let's leave that aside because that's not to do with us. We've seen some poor quality homes come to market, but we are seeing in recent months better quality homes. We have an expectation that a number of quality homes will come to [Technical Difficulty] through FY '24 and it's our intention to participate in that.

And are you in progress at the moment? I mean, when you say that there's some quality homes that have come, there's some obvious targets that you would think you'd be hoping to sign a deal with this year?

There are obvious targets, David, but I'd be silly of me to mention what they are over this forum. But the short answer is, yes.

Your next question comes from Craig Wong-Pan with Rural Bank of Canada.

Just wanted to understand the increase in the care minutes. Rick, you mentioned there that you're kind of well on track for the personal care workers. But just to understand, the registered nurses part is the kind of the trickier or more difficult part to reach. Is that what you're saying?

I think it's not just for us, Craig. It's for the sector. It's a global shortage of registered nurses. But the point I would make without getting into all the detail is we saw an increase in the work hours of registered nurses through Q4, which means we are recruiting, which is positive. So it's opening up. The reality is, I think you're going to find that the bulk providers are struggling with getting to the 40-odd minutes required for registered nurses, but we're pushing hard.

And then I saw there was a good increase in the residential income per occupied bed day of 11%. What was the kind of drivers there or how do you achieve that?

So there's 2 things. I mentioned the indexation. So there's been 2 hefty indexation pieces as you'd be aware, in September and March, the basic daily hefty index. So we saw a 4% increase in September and a 3.7% increase in March. So that in itself is significant. And due to the fact that the MPIR increased year-on-year, we saw an uplift in GAAP income. They are the 2 components that made up that 11% increase.

And then my last question, just on the occupancy rate, really kind of good rate there that you're seeing in FY '24 year-to-date. I guess, when I look back at your numbers in the past, I mean, I think some of the high numbers that you've achieved back into 2016 and '17 were under a different definition. So my understanding is that you probably haven't been at this kind of occupancy rate before. Just trying to understand like exactly how you got there? Like, why do you think that is sustainable?

So I would really encourage you to have good occupied bed days along with the occupancy number because that will actually give you the information that you're looking for. Importantly, we achieved the highest number of residents in our care, since forever. It's the highest number on record for Regis, and we have maintained that coming into this new financial year. So we're really pleased. We think that there's more to go. And I think the other thing I would say to you is that everything that we've done to date has been through management efforts. You saw the slide around demand versus supply. There won't be sufficient supply. I would expect that there will be some pretty strong upward pressure on occupancy coming over the next few years.

So do you think sort of those trends, like the Baby Boomer trend that's sort of starting to emerge now and that's kind of driving that? Or is it more kind of the marketing efforts and the kind of internal things that you've been doing to drive that higher?

It's the internal things that we've been doing to drive it higher. We haven't seen the baby boomers coming in any kind of numbers yet. And as I said, sort of the oldest baby boomer is approaching 80. The average age of entry is 84. So we've got a couple of years, I think, before the really big numbers come, but we should start to see some increases with those -- the oldest of the Baby Boomer generation.

Your next question comes from Tom Godfrey with Ord Minnett.

Just first one for me, and it's already been touched on, but just on the occupancy side and noting your comment, Rick, in the prepared remarks just around 93% plus for this year. That's obviously sort of implying a 150, 200 basis point step up. My question is around incremental margins. I know historically, sort of getting to those occupancy levels, you did see really strong incremental margins and good operating leverage. Just with the mandated care minutes, how do you sort of see that changing your fixed versus variable cost mix and the incremental margins we can expect on those resident revenues?

Can you recall, I previously quoted, [ Tom ], in terms of the margins? Back in the good old days of [indiscernible].

Yes. No, looking for the new numbers, not the old numbers.

Well, look, the reality is, the game has changed. So at -- the uplift didn't necessarily mean staff increases. This is a very different ball game. I hate to put a number on it because I know there's other numbers out in the month, but you're talking 20% to 30% force to the bottom line, not 50% or 60%.

And then just a follow-up from me, and it's touching on the acquisition question again. But just in terms of strategic material acquisitions, are you able to give us sort of any guide around quantum of beds or scale that might be referring in terms of those opportunities?

Anything, Tom. Look, there's -- look, we can't name names, right? But anything between 100 beds to 2,000 beds. That's probably the ballpark.

Your next question comes from Vanessa Thomson with Jefferies.

I just wanted to talk a bit more about the expansion plans. You said that there's some assets out there. If you were say to buy an asset today, how long until you can transition that to being Regis beds? I know that's perhaps a moving fees a bit.

Sorry, Vanessa, that was if we bought one today?

Yes.

Okay. So, very quickly.

So does that mean 1 month or 6 months? Or, like could we see that in FY '24?

I'll try to answer it this way. If something was available as of tomorrow, it might -- depending on the size of that organization, it could take us anywhere between 1 month to 3 months to get it completed. So the short answer would be, yes, you would see income from that acquisition through FY '24.

And then when we look at the growth program, the Belrose and Carlingford tendering in '24, what kind of time frame would that take from tender to having beds available for occupancy?

So a build -- you would probably look at a good 18 months in terms of build time. So -- and then you've got to furnish it and ramp it up. So you're probably looking at a couple of years from build to -- build start to opening.

And then from tender start to build start?

Look, it's not an enormous period of time, Vanessa. It really just depends on contract negotiations.

It does depend, Vanessa. But if you take 24 to 30 months, it's probably that feasible part you're talking about.

And then just my last question. I just wanted to clarify the cost of debt. I think you said it's gone from 4.9% to 6.7%. Is that what I -- is that correct?

Yes, that is correct.

Your next question comes from Sebastian Clemens with Jarden.

I just had one on the mix of residents and the payer profile. Just with the trends we see on the rise of the MPIR rates, just how you're seeing that trend over the next 12 to 24 months, and if you think there will be a material shift towards RAD payers, et cetera?

So I think I made the comment that we would expect to see a shift to RAD. But I think we need to understand the history of this business is we've always been what they call in the trade a RAD house. So we have got a high level of RAD payers. I think when you compare us to other providers in the market of this sort of size, so it will be home-by-home, and we've got strategies in place home-by-home, whether we're pushing for RAD or pushing for DAP, and that will continue through FY '24. But my sense is -- and we're not seeing -- we're only 2 months into the year. I would expect we'll see a subtle shift towards RADs, but we'll wait and see.

Yes, I was just looking back at [ 2019 ], got down to like 6% for DAP payers...

[ That's ] expectation for the next 12 months at this stage.

Your next question comes from David Bailey with Macquarie.

I know David and Tom asked this question, I'll just get it clear in my mind. 4Q EBITDA for -- operating [ bed day ] is probably higher than the average of [ '23 ]. We hold that over '24 year-on-year improvement. Is that the right way to think about it?

Correct.

In terms of ACA deregulation, just wondering if you've identified areas for potential new developments? And if so, when we might start to see that coming through?

Yes, we have. So we have quite a structured process to look at where we would like to build. I think I probably wouldn't go through that process with you other than to say that you can see that we've got pipeline projects. So we bought 2 parcels of land in New South Wales, in Belrose and Carlingford. We've got the block in Toowong, and we're building in Camberwell. So look, we continue to focus on areas where there's an undersupply or where the current supply is of poor quality.

Some of those have been around for a little while. Thinking if there's -- other areas have popped up, and it sounds like there has. And just in terms of the task force, there's been a bit of thinking that [indiscernible] and co-contributions could be an option. Just your thinking around -- high-level thoughts around likelihood, and if so, potential mechanisms for that to be enacted?

Yes. So look, I think what you can see at the moment with the taskforce is that they are ventilating a whole range of options out with the community. I think all stakeholders are calling for more resident contributions. When you have a look at the cost to government against the aging population, government can't continue to keep increasing the cost to government -- well, to taxpayers because there won't be sufficient working population to sustain this. And so, I think that resident -- increased resident contributions will come. And then we're just waiting to see really in what form. But there are very productive conversations happening within and around that Aged Care Taskforce. So I feel actually really positive about some really good quality recommendations coming out.

And then just finally around market structure, increased regulations requirements, care minutes. How do you see the market structure industry changing over the next sort of 3 to 5 years?

Yes. I think it must be really hard to be a small provider at the moment. The pace of reform is quite extraordinary. And the changes in regulation, all of the new reporting and compliance requirements, it's burdensome for a group of our size. And we've got, obviously, a lot more resources to spread the burden through. I think we've seen for a long time that government wants a consolidation in the sector. We are a highly fragmented sector. And I think like we've seen in other industries, you've probably heard me say before, we look particularly to private hospitals to some of the diagnostic groups where you can see that they've all been through the same process and you'll need to have scale to be able to compete in the future.

Your next question is a follow-up from Tom Godfrey with Ord Minnett.

It was actually just a follow-up to Dave's question around the Aged Care Taskforce. I think we're due to get the interim report October and then the final in December. Do you guys have a preference in terms of what the recommendations could look like around -- I mean testing, deregulating the base [ daily care ] fee RAD retentions? Or does it not sort of really matter to you what format it takes, we just need co-contributions?

I think we have an interest in making sure that the recommendations are sensible and sustainable. So we absolutely do have views across all of those areas. I think it's really important that we get to see the recommendations as a group rather than considering individual recommendations because as you can imagine, there is interplay between various recommendations. So we'd be very keen to see the group.

Your next question is a follow-up from Vanessa Thomson with Jefferies.

I just wanted to understand that jump in the administration expense in FY '23. I think, Rick, you said that it was related to the write-off of capital work. Did I have that correct?

Yes. So I did chip in as I saw your early note where you called out the admin expenses. So the bulk of the write-offs that are one-off items that I called out are sitting in admin expenses. So the bulk of it is the $12.8 million write-off of development costs and also other costs associated, for example, with the underpayments program that we're continuing to run. So they're one-off. So you could basically back those out going forward.

And so if we back out the $12.8 million, that's kind of like the underlying admin expense and so how we should...

No. It's more than $12.8 million. So you've got other numbers in the -- it's more like $16 million you can back out.

So if we back that out, that should give us a guide to FY '24?

That's correct.

And then I just had one last question. The increase of 15% to the Award rate for aged care workers, how does that pass through for those who were already receiving an above Award wage? Because -- yes.

So the expectation from government was that we would pass on the dollar increase, the dollar and cents increase and for those relevant classifications under the Award that met through to our enterprise agreements.

There are no further questions at this time. I'll now hand back to Dr. Mellors for closing remarks.

Thanks very much, Melanie, and thanks, everyone, for joining us this morning, and we look forward to meeting up with many of you over the coming week. Hope you have a good day.

And that concludes our conference for today. Thank you for participating. You may now disconnect.