Regis Healthcare Limited (REG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Regis Healthcare FY '24 Results Presentation. [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, and good morning, everybody, and thank you very much for joining us today to discuss Regis Healthcare's 2024 full year results. I would like to begin by acknowledging the Boonwurrung people 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 peoples joining us on the call. I am again joined today by Rick Rostolis, our Chief Financial Officer. Regis is one of the largest and most geographically diverse providers of aged care in Australia. Operating residential aged care homes, home care service hubs, day therapy and respite centers and retirement villages. Regis has a team now of more than 11,000 dedicated people delivering care and services to more than 9,000 residents and clients on any given day. Regis owns and operates 67 residential aged care homes in every state of Australia and the Northern Territory, with approximately 7,500 beds. All homes are freehold owned with significant real estate value. Within our homes, we offer a diverse range of support options to cater for personalized care requirements and offer a range of additional services programs with distinct levels of personal services and comfort. Across the 67 homes, 93% of our beds are in single rooms, a key requirement for many current and future residents. Pleasingly, Regis' occupancy continued to trend higher across FY '24 with spot occupancy of 95.3% at 30 June 2024. Underlying earnings before interest, tax, depreciation and amortization or underlying EBITDA of $107.2 million was 28.7% higher than the prior year. Moving to this morning's agenda. I'll provide an update on the key aged care industry changes and reforms. We will then cover the financial results and operating highlights, provide an update on our strategic priorities and outlook, and then we will open the call for questions. So moving to the aged care industry overview, aged carries an essential service with almost 250,000 Australians accessing residential aged care and another 1 million accessing home care services each year. The aging population means demand for services will continue to grow. Government funding for residential aged care is forecast to increase 11% per annum and grow from $16 billion in FY '23 to $41 billion in FY '32. The Baby Boomer generation is fast approaching the age where more residential aged care will be in demand, and we expect this cohort will impact the aged care sector for around 20 years. The Baby Boomer generation is wealthier and we'll expect modern facilities with single on-site rooms and larger sites. In recent years, the aged care sector has been on a capital strike due to underfunding, elevated construction costs and uncertain regulatory environment, COVID-19 and inadequate returns on property developments. This has led to only 4,300 net new beds being built across the last 3 years, which is well below the rate required to meet expected demand. It is estimated that the aged care sector needs to build 135,000 new and refurbished beds over the next decade, and this is estimated to cost the sector circa $55 billion to $72 billion. Sector liability has improved following the introduction of the Australian National Aged Care classification funding model, which we refer to as AN-ACC. And this was introduced in October 2022. In the 6 months ending 31 December 2023, 65% of providers were profitable in terms of net profit before tax. This was up from 46% in the 6 months ending 31 December 2022. However, only 36% of homes were meeting their care minutes targets in the second quarter of FY '24, which will be potentially overstating sector profitability. Further funding reform is needed to ensure the long-term financial viability of the sector and support the growing number of older Australians with high-quality care and services and fit-for-purpose accommodation. This slide outlines some of the key government reforms, which are having a meaningful impact on the sector. The Fair Work Commission finalized its Stage 3 decision on aged care wages in March 2024, with eligible care and support workers to receive an additional plan increase of up to 13.5% to be phased in from 1 January 2025 and 1 October 2025. Regis strongly supports higher wages that reflects the value and the difficulty of the work performed by frontline aged care workers. We have seen better funding for care with the independent health and aged care pricing authority, providing residential aged care pricing advice to government. The AN-ACC's starting price increased at the start and during the financial year to cover worker wage increases and indexation. It is our belief that the pricing authority will provide a fairer representation of the actual cost of delivering high-quality care with more reasonable levels of indexation over time. Mandated care minutes will increase again in October 2024, with providers expected to achieve on average 215 minutes per resident per day, including 44 minutes from registered nurses. Pleasingly, the government has recognized the important work of enrolled nurses in the sector with enrolled nurse minutes able to contribute up to 10% of the registered nurse minute requirement from October. The Royal Commission into aged care quality and safety found that the current Age Care Act is no longer fit for purpose and that a new act should focus on creating a simpler, safer system, strengthening the powers of the regulator and creating more choice and control for residents. Subject to parliamentary processes, a new Aged Care Act is expected to commence from 1 July 2025, a delay of 12 months from what was earlier flagged. This seems to now be dependent on the government introducing the legislation to Parliament in the next setting period. The new legislative regime will include strengthened quality standards that are designed to improve outcomes for older people and set clear expectations for providers in delivering quality aged care. Despite the delay in commencement, Regis continues to roll out to upgrade systems and processes to meet the proposed new standards. The establishment of the aged care task force marked a significant step towards assessing and reforming the funding mechanisms within the aged care sector. This initiative, which was a key component of the government's plan to support the sector was chaired by the Minister for Aged Care. In March 2024, the task force's findings were made public, encompassing a set of 23 recommendations aimed at ensuring the sector's enduring viability. As yet, the government has not issued a public response to these recommendations. The government and our position continued discussions with both sides making public comments regarding constructive negotiations and the need for reform. We expect the bill to be introduced to Parliament to contain the negotiated position on the funding reform. I'd now like to make some observations with respect to the key task force funding recommendations, beginning with recommendation 9, which is government funding to be focused on care. On average, the government funds around 94% of the cost of delivering care 3 AN-ACC with means tested care fees making up the balance. There is a strong safety net such that those without means can still access quality aged care. The task force recommendations suggested that the government should continue to focus on funding care with residents making greater contributions to noncare components, such as everyday living and accommodation costs. Recommendation 10 is better priced and more flexible everyday living care contributions. Providers currently received 2 payments for everyday living activities, including the basic daily theme, which is set at 85% of the single basic age pension paid by the resident and the hoteling supplement paid by government. The total payment is approximately $73 per resident per day. On average, aged care providers are losing money, providing these everyday living services. The task force recommendation is for funding to cover the full cost of providing these services through the basic daily fee and supplement with those residents which means paying some or all of the cost. Regis agrees with the recommendation and remains hopeful that this recommendation will be adopted. Recommendation 12 was a move away from Refundable Accommodation Deposits or RADs in the longer term. Although the task force made this recommendation, there are several important caveats to discuss. An independent review of RADs has been recommended for 2030. This review will consider the feasibility of transitioning the sector away from accepting RADs by 2035, with a shift towards a rental-only model. Removal of RADs from this sector will only occur if financial sustainability is deemed to be in place. And if there are alternative diversified and adequate sources of capital available to the sector, while still remaining affordable for consumers. We understand there is strong opposition to this recommendation from lenders to the aged care sector. Recommendation 13 is RAD retention. The task force recognized that there is an immediate need to improve revenue from accommodation in the shorter term. Under a RAD retention scheme, providers would retain a small portion of each RAD paid. The amount would be based on length of stay with the cap in place to protect longer-stay residents. The task for foresees rebalancing are current in equity between daily accommodation or DAP payers and RAD payers with DAP payers effectively cross-subsidizing RAD payers. Regis is a leading developer of residential aged care homes supports the recommendation to reintroduce a RAD retention. Recommendation 14 is review the accommodation supplement for supported residents. An accommodation supplement is paid by government for concessional residents as a contribution towards their accommodation costs. The supplement needs to incentivize providers to improve the quality of accommodation and refurbish homes. Sorry, I beg your pardon, to incentivize providers to improve the quality of accommodation and accept lower means residents. An increase in the accommodation supplement would further encourage providers to build and refurbish homes. Recommendation 15 additional short-term measures are required to improve accommodation funding. The task force recommended additional measures to attract greater capital investments and improve financial viability of the sector. For residents paying by a DAP, they recommended replacing the maximum permissible interest range with a rate that more closely reflects the cost of providing accommodation. Indexation of the DAP in line with the accommodation supplement and pointed to the substantial increase to the maximum room price recommended in the 2017 Churn review from $550,000 to $750,000 without requiring regulatory approval from the pricing authority. Regis strongly supports the key recommendations of the aged care task force that seek to make age care more sustainable, person sensitive and fair. Moving now to our financial and operational performance for the year. I'm pleased to report a strong set of results this year with excellent growth in key metrics, including occupancy, revenues, underlying earnings and cash flow. Revenue from services exceeded $1 billion for the first time and was up 30% on the prior year. Underlying EBITDA of $107.2 million was up 29% and net profit after tax before amortization of operational places or adjusted NPAT of $35.6 million was up 25%. The improved financial results were driven by higher occupancy, additional government funding through AN-ACC increases, the CPSM acquisition and increased resident income. Average occupancy increased to 94.1%, up from 91.5% in FY '23. Net operating cash flow of $252.3 million was up 140% on the prior year, and we ended the year in a net cash position of $64.9 million. The Board has resolved to pay a final dividend of $0.664 per share, 50% franked, which represents 100% of adjusted NPAT, excluding one-off items. Regis was very pleased to acquire CPSM in December 2023, a premium residential aged care business in Southeast Queensland with 5 homes and 644 beds. CPSM has been fully integrated with Regis' management structures and operating processes with our systems and technology in place. Our Star ratings have continued to improve, increasing from 3.32% in quarter 1 of FY '24 to 3.62% in quarter 3 FY '24. Total average care minutes have also increased from 197.9 minutes in quarter 1 FY '24 to 210.5 minutes in quarter 4 FY '24 as Regis' has continued to invest in our direct care workforce to meet government mandated cements targets. I'll now hand over to Rick to discuss further details on the results.

Thanks, Linda, and good morning, everyone, and thanks for joining us today. Just turning to the financial summary on Slide 10. As Linda has mentioned, FY '24 revenue from services reached a new milestone of $1 billion, up 30% on the prior year. The key drivers of the revenue increase were: firstly, a 12% increase in the AN-ACC starting price from 1 July '23, followed by a further 4% from 1 December. Including the contribution from increased resident acuity, AN-ACC increases contributed $113 million to the revenue uplift. Importantly, a significant portion of these increases helped fund the Fair Work Commission's decision to increase modern award wage rates by 15% and the annual wage review of 5.75% from 1 July '23. Secondly, an increase in average occupancy for the year from 91.5% to 94.1%, contributed around $11 million in improved revenue, excluding CPSM. Pleasingly, and consistent with trends observed across the financial year, occupancy improved across all states and the Northern Territory. Thirdly, we saw an uplift of $40 million from the government hoteling supplement that was introduced on 1 July '23, together with increased resident revenue due to improved occupancy and indexation. And lastly, the 5 CPSM homes acquired on 1 December '23, contributed $52 million for the 7 months of ownership. Other income of $104.3 million primarily consisted of $81.5 million of RAD imputation under AASB 16 and $13.7 million of one-off government grants. In terms of expenses, staff costs increased by 30% on the prior year with the main impacts being the pass-through of AN-ACC funding related to the Fair Work value case and annual wage review increases of $68 million EBA uplifts and labor increases required to meet payment requirements of $73 million and an additional 600 employees who we welcomed from CPSM, which added $38 million of the wages bill. As Linda mentioned, the average care minutes per resident per day increased from 197.9 minutes in the first quarter of FY '24 to 210.5 minutes in the fourth quarter. The increase in care minutes was assisted by the previously disclosed organizational redesign that occurred on October '23. Regis' came in at targets will increase again from 1 October '24 as the sector moves to an average of 215 minutes per resident per day up from 200 minutes. The increase in care minute requirements is expected to be funded by the government as part of new AN-ACC price to be set from 1 October '24. As a result of the revenue and expense changes mentioned, underlying EBITDA, which excludes the impact of one-off costs and RAD imputation, increased 29% to $107.2 million, with CPSM contributing $7.5 million. As previously flagged to the market, we expected our underlying EBITDA margin to remain stable year-on-year. As a substantial part of the 1 July '23 AN-ACC uplift was passed through to staff with other cost increases, including EBA wage rises and general CPI impose absorbing the additional revenue earned. Depreciation for the year was $46.7 million and remained broadly in line with '23. We should expect to see an increase in depreciation in the short to medium term as we open the Camberwell home later this calendar year and embark on further Greenfield and refurbishment projects. EBITDA, I should say, of $61.5 million was up 55% on the prior year, and EBITDA will be a feature of our reporting going forward. Setting aside imputed interest under AASB 16, finance costs were $10 million for the year, a reduction of $800,000 from FY '23 with lower bank interest offset by increased RAD charges. Excluding the amortization of operational places, NPATA was $35.6 million, up 25% on the prior year. FY '24 underlying NPATA, which excludes one-off items was $38.9 million, up 91% from $20.4 million in FY '23. At the bottom line, Regis reported a statutory net loss of $21.4 million. Again, this was impacted by the operational places amortization expense. And please note that this expense is now fully amortized at 30 June '24. The FY '24 effective tax rate was 23.8%, primarily due to $5.6 million of landholder duty on the CPSM acquisition being nontax deductible. FY '24 net operating cash flow of $252.3 million reinforce the fact that the business is highly cash generative. Net RAD cash inflow increased 223% to $141 million as Regis continued to generate strong RAD sales with all states and the Northern Territory recording positive results. Of this amount, the CPSM acquisition contributed $18 million. Capital expenditure increased 25% to $67 million, including $34 million in the Camberwell Greenfield development. The company is now in a net cash position with $65 million in the bank at 30 June '24. A tremendous amount of work has been carried out across the business to get us into a position where we can aggressively pursue growth activities, including Greenfield projects and acquisitions. Regis has an active Greenfield pipeline and with the potential acquisition targets that will pursue aggressively over the coming period. Please note that we'll be closing our 119-bed Western home in Perth in October as part of a conditional and confidential sale process. Residents and staff have been notified of the closure with Regis supporting residents to move to either Regis or other aged care home in Perth. Given the sale remains confidential, no financial details can be disclosed at this time. There is no material impact on Regis' profitability as a result of the closure. Moving to Slide 11, drivers of shareholder value. During the year, average available beds across the portfolio increased to 7,313 including the 644 CPSM beds acquired last December. Consistent with our strategy to divest non income-producing assets in June 2024, we divested a subscale residential aged care home in McLeod, Victoria with 63 beds, mostly double rooms. Average occupancy steadily improved across the financial year and sits above the sector average. Demand for residential aged care services has increased in an environment of general undersupply or fit the purpose accommodation. This, together with various management initiatives to continue to build reputation in local communities and nurture relationships with local health care providers has a sensitive average occupancy now comfortably sitting at or above 95%. We would expect this to continue throughout FY '25. Spot occupancy at 30 June '24 was 95.3% and improved to 95.5% at 19 August '24. Aged care government revenue per occupied bed day averaged $291 and was up 26.1% on FY '23. This increase reflected a combination of improved government funding for an increase in AN-ACC of $26.30 and the introduction of hoteling supplement of $10.80 on 1 July '23, a further increase in AN-ACC of approximately $10 on 1 December '23 as well as increased resident acuity. Aged care government revenue per occupied bed day for the month of June was approximately $297. Aged care resident revenue per occupied bed day of $14.30 was up 8.5% on FY '23. This increase reflected increased occupancy, the basic daily fee indexation in September 23 of 3.1% and March 24, of 1.8% as well as higher DAP income due to the MPIR, which increased from 7.46% at 30 June '23 to 8.34% at 30 June '24. Aged care resident revenue per occupied bed day for the month of June was approximately $107. Aged care staff expenses of $287 per occupied bed day increased by 25.7% due to the items previously mentioned, the Fair Work, work value case, annual wage review, enterprise agreement increases and recruitment of staff to meet the care minutes mandate. Aged care staff expenses per occupied bed day for the month of June '24 was approximately $296. Total RAD liabilities have increased from $1.3 billion to $1.6 billion with the CPSM acquisition adding $150 million of RADs during the year. Importantly, the average incoming RAD increased 5.4% during the year to $517,000. Moving over to Slide 12. This slide sets out the impact of one-offs or nonrecurring items for the year that do not form part of underlying EBITDA. As disclosed at the half year, Regis incurred $7.6 million of one-off acquisition and integration costs relating to CPSM. Regis also recognized $13.7 million of government grant income, comprising $10.3 million relating to COVID-19 and $3.4 million of one-off funding for 50% of the cost of increased leave entitlements due to the Fair Work, work value case. The impact of COVID-19 outbreak cost has greatly reduced from $16.5 million in FY '23 to $4.6 million in FY '24. Although Regis continues to experience COVID-19 outbreaks, our homes are well prepared to manage these as part of business as usual activities. During the year, Regis recognized a net gain of $5.1 million on the disposal of noncurrent assets, including the divestment of the Cloud Home, Four subscale retirement villages and a parcel of vacant land in Queensland. Regis continues to identify and divest non income-producing assets and to redeploy funds into growing the core residential aged care business. The company has continued to invest in strategic, scalable technology platforms with $6.6 million invested into new and upgraded human resources software systems, including time and attendance and recruitment, which will go live in FY '25. Importantly, we commenced our remediation payment process and paid $28.6 million to current and former employees, inclusive of on costs and interest payments. These payments were made out of the $37.7 million provision that had been established in previous periods. Due to the complexity involved in determining the amount and timing of final remediation costs, we continue to engage with our external advisers and regulatory authorities, including the Fair Work [indiscernible]. Moving on to Slide 13. Strong cash flow generation, including net rate inflow has allowed Regis to improve its cash position to $65 million of cash in the bank at 30 June '24. There has been strong conversion of EBITDA to cash with $123.1 million of cash flows from operating activities before tax, interest and RADs. In terms of cash outflows, Regis paid a net $75.2 million for the acquisition of CPSM in December 23. The CPSM acquisition is a great example of the type of business Regis is looking to acquire. The business was well run, profitable and had an excellent compliance and quality track record. The homes are relatively new or recently refurbished and located in desirable locations. Regis has maintained significant debt capacity with over $400 million of undrawn bank facilities at 30 June '24. The strong balance sheet and substantial undrawn debt facility provides regions with considerable firepower to fund its growth program, including Greenfield developments, major refurbishments and strategic acquisitions. As Linda has already mentioned, the Board of Directors resolved to pay a final dividend of $0.664 per share, 50% franked, payable on 25 September '24. This takes total dividends for FY '24 to $0.192 per share, which represents a 100% payout of NPATA, excluding the impact of one-off costs. So over to capital expenditure. Development CapEx increased to $33.9 million, primarily attributable to the Camberwell Greenfield development. Regis has made considerable progress of its development site in Toowong Brisbane with construction soon to commence on a 123-bed residential aged care home. Maintenance and refurbishment CapEx increased markedly over the prior year. This increased investment includes some COVID catch-up, but importantly, provides a signal for higher levels of ongoing refurbishment spend to improve our overall resident experience. Regis will continue to invest heavily in the refurbishment of a homes to ensure that they remain desirable and meet the requirements of current and future residents. Moving on to the resident profile. The increased number of RAD paying residents was a key driver of the $141 million of net RAD cash inflow during the year. Excluding CPSM, the number of 100% RAD pay has increased by 78 residents. The MPIR increased during the year with no noticeable shift in consumer preferences away from DAPs to RADs. At this stage, we do not expect any material shift from DAPs to RADs during FY '25. Lastly, the total number of residents at 30 June '24 was impacted by the -- sorry, was impacted by the divestment of Regis McLeod in June 24, with 48 residents transferring to the new owner. And with that, I'll hand you back to Linda.

Thanks very much, Rick. And I'll now move on to the strategy update and the outlook. Starting with our strategy, where I'm pleased to confirm that the Regis Healthcare Board recently approved our next 3-year strategy for financial years 2025 to 2027, which will be launched over the coming months. Our strategic direction is informed by a deep understanding of the evolving needs and expectations of residents and clients, the opportunities within our sector and the strengths that differentiate Regis from our competitors. Our new strategy sets a bold course for the next 3 years, focusing on 3 pillars of business excellence. Being care and service excellence, a responsible business and a future-ready company. These pillars will provide a structured approach to achieving and sustaining high performance across everything we do every day. Our business excellence pillars are coupled with 5 targeted areas of growth, focused on bringing exceptional value to all of our stakeholders. So those 5 targeted areas are providing an exceptional concierge and diving experience, offering best-in-class lifestyle and additional services, building scalable home care hubs to meet continuing growing demand, expanding our residential aged care footprint through Greenfield developments and acquisitions and exploring innovative and new aged care models. All of this will be made possible through 3 key enablers that will support and underpin what we do over the next 3 years. So we'll have an integrated model of care across all our care offerings, innovative education and training model to support our people and digital innovation to enable and enhance all we do. As we progress our strategy, we will build on our strengths and establish new capabilities so that we can meet the growing needs of our employees, residents, clients, their families, care partners, communities and shareholders. And I look forward to providing you with a further update at our next investor presentation. I'd now like to highlight a number of the FY '24 operational accomplishments across the business. Within our clinical care and quality improvement domains, we introduced a continuity of care model to ensure a consistent and person-centered approach to caring for residents. We continue to enhance our approach to clinical care through a number of targeted initiatives, resulting in significant improvements in care outcomes, including reductions across pressure injuries, restrictive practices, weight loss, falls with injury and medication administration areas. We continue to excel in customer experience with 96% of residents responding that they are being treated with dignity and respect and 94% responding that they were receiving service and support for daily living that were important to their health and well-being. 98% of assessed aged care quality and safety commission accreditation requirements were met. In terms of our people, we implemented an early intervention program for injured employees to help them return to work earlier in a safe and supportive way which is supporting a substantial reduction in the number of lost time injury claims and claim costs. We achieved an industry-leading claims lost time injury frequency rate of 6%, significantly below the industry average of 24. We strengthened our business resilience framework, including training for our leaders in emergency management and crisis management. Regis has made a significant investment in improving technology and systems, including the implementation of an electronic medication management system to improve medication safety. We matured our clinical governance systems through a broad range of strategies, including enhancing our incident management, feedback and consumer engagement systems. More recently, we have designed a new people management system to improve the employee experience, increase efficiencies and ensure accuracy and reporting compliance. This will be progressively rolled out in FY '25. In growing our business, we acquired an integrated CPSM, comprising 5 premium homes in Southeast Queensland to continue to grow our residential aged care portfolio. We progressed our Greenfield developments, including Regis Camberwell, which is due to open to new residents in late 2024. Finally, we increased our investment in refurbishment works across Regis Homes to attract residents and future proof the portfolio. So moving to Slide 19. Regis' sustainability program comprises 5 key pillars that support the United Nations' Sustainable Development Goals. There are a few areas I would like to highlight on the ESG front. In terms of the environment, we are committed to responsibly managing the short- and long-term impacts of our operations, including the use of natural resources, such as electricity and natural gas and the production of waste. Regency is one of more than 1,000 businesses that joined the Victorian government climate change pledge towards 2 targets by 2050, achieving 0 net emissions and keeping global temperature rise to under 2 degrees. Regis offers comprehensive services to the local community across 6 home care hubs and 9-day therapy and restart locations nationwide. These include personalized nursing and allied health care, meal preparation, social support, companionship, respite and group therapy. This closely links to a number of UN sustainable development goals, including good health and well-being, gender equality, decent work and economic growth and reduced inequalities. The annual Regis Employee Engagement Survey took place in March 2024, and we are proud to report 86% sustainable engagement at a company level, which reinforces the work we are doing to create a positive career experience for our people. We are significantly outperforming the Australian benchmark by 6%, with strong results in employees feeling enabled to do their job effectively. 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 Regis Board and management team remain 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 a quick update on our recent CPSM acquisition, which was our first acquisition since 2020. This transaction aligns with our strategy to broaden our residential aged care footprint in high-demand metropolitan locations with quality homes that have been recently built or refurbished have an excellent accreditation history and strong financial performance. We completed the acquisition on 1 December 2023, adding 800 staff and 5 homes in Southeast Queensland with 644 beds. The homes have performed strongly since acquisition with average occupancy of 97%. Integration has been completed with all homes operating under Regis' management structures, systems and processes. Moving now to our development program. After reporting activity over COVID-19, where Regis and most of the aged care sector went on a capital strike due to underfunding and regulatory uncertainty. Regis resumed building activity in September 2022 with the Greenfield development at Camberwell Victoria. The construction of the new 112-bed Camberwell residential aged care home is nearing completion with opening planned for late 2024. This 4-story home will have 110 single on-suite rooms and 1 double room with on-suite with a comprehensive range of care options, including permanent care, respite care, palliative care and a memory support unit. Fit out works are underway, and we have commenced our marketing campaign. In May, Regis concluded the construction tender process for Toowong, our latest Greenfield development project in Brisbane. This home will have 123 beds across 5 levels with many rooms having views of the city and nearby mountains. Construction is expected to commence in the coming months. In relation to our other pipeline Greenfield developments, we are progressing our plans and project activities as construction costs moderate and investment returns improve. Regis has 2 additional development projects in Belrose and Carlingford, both located in Sydney with land-owned and development approvals secured. These projects were tendered during FY '24 and are currently undergoing assessment. With a solid track record in Greenfield developments, Regis remains committed to constructing modern purpose-built age care homes that meet high standards of care and service for older Australians. With the tightening supply market, we expect that new developments will have strong consumer demand. We are also actively scaring the market for new development sites to add to our pipeline. Moving to the outlook. Regis continues to adapt to a rapidly changing regulatory environment and expects to benefit over time from increased demand, improved workforce availability, additional government funding and strategic growth initiatives. Regis' strong balance sheet, substantial debt facility and disciplined management of the business, support the active pursuit of further material acquisitions and Greenfield developments to drive increased shareholder value and meet community needs. The Board and executive team are focused on improving the quality of care and services to our residents and clients, attracting and retaining the right people, investing in more efficient systems, improving work practices, and we continue to make significant investments in the refurbishments of our existing homes. I'd like to take this opportunity to thank each of our more than 11,000 employees for their unwavering dedication, commitment and compassionate care provided to our residents and clients day after day. And with that, I'll now hand back to the operator, and we're happy to open the meeting to questions.

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

Could we just start with the supply and demand dynamics. I mean, you mentioned it a number of times in the presentation, but is your assessment that over the next 12, 24 months that supply will start to pick up and match demand? Or do you think we're in for a period of very tight supply and demand dynamics for a few years yet, please?

Thanks very much, David. Linda here. It's the latter. It's going to be very tight over the coming years. Providers won't have sufficient time to actually ramp up and create new homes in time for the increases that we're expecting through the Baby Boomer generation.

Okay. Great. And the implications then, I mean, how high can occupancy go? And obviously, the other option is pricing, sort of what your expectations are or how much opportunity there might be to extract or to charge higher prices for a premium product, please?

Yes. Thanks, David. So I think occupancy will go to being as close to full as the sector can be because there just won't be sufficient beds. And I think that the sector in general has seen pretty rapid escalation in occupancy across this calendar year. So it will be very interesting to see the numbers that come out from government on the industry as a whole. In terms of pricing, one of the things we are waiting for is the government's response to the task force recommendations and particularly the increase in room pricing that was recommended through the 2017 Chin review.

Okay. Look, just the other question or topic I wanted to touch on was the RADs certainly exceeded my expectations. And I heard clearly, and I've heard clearly for many years now that you're not ever seeing any change in the RAD versus debt preference. But what was the key -- why was it so much a higher number this time around? And what are your expectations going into FY '25, please?

David, it's Rick, how are you? So I think, David, if you go back to the half, we turned the half at 43 million positive RADs and my expectations were ex CPSM that we'd probably end up around 100. The reality is that CPSMs in itself added $18 million. So that's the reason for this year. Compared to last year, though, we're still coming out of COVID so the number last year, I think was also about $40 million to $50 million. I've got it in front of me. I think it was $43 million. So the increase -- increased $141 million, yes, did surprise to a certain extent. But given we're coming out of COVID, it shouldn't have been all unexpected. And in terms of this year, we've got a ramp up that's occurring at Camberwell. So we'd like to see how that goes before we make too many comments. But we'd be expecting to be strongly positive again in '25.

If I could just squeeze in one more. I mean when you say coming out of COVID, it's not surprising. I think I understand you, but can I get you just be a bit clearer on what exactly you're seeing was the obvious change in retrospect, please?

When you have an occupancy increase as we've had during the year, I think in resident numbers ex CPSM were up 145 residents. And of that amount, I think I mentioned in the call, we have 78 of those residents providing RADs. And when you're averaging 500,000 of RAD, you can see how that improves.

Your next question comes from David Stanton with Jefferies.

Just stepping in for Vanessa here. Just a follow-up on David's question. I mean just for Regis itself, it's about 95% occupancy about as good as it can be expected over more the medium term than the near term. I get your call that you're talking about 95% for F '24, but I'm more interested over the medium term. Can it get to higher than that?

Thanks very much, David. Yes, it can. So we have a range of homes that operate around the 98% mark. So it can go up. It is location specific, of course, and quality of home specific at this point in time. But again, I'll just take you back to the tightening supply market. I think even sort of the lesser quality beds across the sector will end up filling.

Understood. And lots of things going on in terms of revenue increase, but also staff expense increase. Just for 2025, any sort of color you can give us about staff expenses as a percentage of revenue. Should we expect that to sort of increase decrease or basically stay flat for '25, please?

So David, I mentioned a couple of numbers, which was held for expect this. I think the exiting average aged care staff cost per resident per day are quoted was $297. Now I would expect if you're using that number as you go forward and you can have some EBA increases, you're going to have an annual wage review, et cetera. So if you added 5% to 6% of that, that's going to give you a fair indication as to where that's going to go. Revenue-wise, it's difficult to predict, and I say this because we're expecting an AN-ACC boost come on October. That AN-ACC Boost is meant to cover for the carer increase for $2.15. It's meant to cover for AWR increases for 1 July, including a catch-up. So for long story short. I think we need to see where AN-ACC goes in October before we start talking about margin differentials between revenue and labor cost. But from a labor perspective, it's $297 in June, and we'd expect that to go up 4%, 5% during the -- absent AN-ACC.

Understood. Very, very clear. And I guess then to that end, it's probably too early to call a percentage -- EBITDA percentage margin change for 2025 on that basis?

Absolutely too early to call. We really need to see the AN-ACC increase. We need to see the back pay. And I suspect we'll have more to say come the AGM.

Understood. And my final one, I promise. Can you give us some color on CapEx for FY '25, please?

Expect a little bit more than what you have -- so let's break this down. From a Greenfield perspective, and it's broken down this way in the presentation, where Camberwell is almost done, but now we're gearing up to Toowong. So leaving that aside, the refurbishment number you're seeing in the presentation, you should expect to see at least that plus some in FY '25. And we've made the comment that we are now coming again coming out of COVID, playing a bit of COVID catch-up, but also gearing up for the future residents of our homes. So you should expect to see an uplift in all the refurbishment going forward in the medium term.

The next question comes from Craig Wong-Pan with RBC.

Just on that staff cost of $297, that exit rate, does that take into account the lower agency costs that you mentioned. I was just wondering if that provides a further tailwind to that number?

Our $297 Craig includes all staff costs that would include agency that's come up in the second half.

Okay. So that -- I'm just trying to understand that kind of exit rate, though, is that -- you've already -- we're already experiencing lower agency costs then? Or is that a further benefit to come to...

It's already in that number because it's the number for June. So by definition, the agency has already come off.

Yes. Okay. And then just my last question on Camberwell. That's due to open late 2024. Given the tight supply, do you think the ramp-up of that home will be quicker than usual? And can you remind us what the typical ramp up for a new home is?

Yes, Craig, it's Linda here. So typical ramp-up would be around 18 months. We like to stage ramp-up carefully to make sure that we're not introducing unnecessary risk into a new home. So we will ramp-up the starting according to the resident numbers that come through, but we'll also manage the number of admissions per week to make sure that there's no unnecessary risk. If we can do it faster than we will on average plan for 18 months.

The next question comes from Tom Godfrey with Ord Minnett.

Can you hear me okay?

Yes. Thanks, Tom.

Great. And sorry, at the risk of flogging a dead horse, I was just going to ask one more occupancy question. Just given the home closures, Rick, are you able to sort of help us with the average available beds or available beds going into FY '25? Is it that 7461 number? How should we be thinking about that?

Okay. So let's go back a step. So in FY '23, we averaged 6980 available beds. So this year, you've had CPSM come on. And as you quite rightly point out, McLeod is gone and Western is decounting. So in terms of where we see it going forward, absent acquisitions, I'd be banking on a number around 7,400 for FY '25 as your available beds.

Got it. That's clear. And then just in terms of sort of working back to occupancy is you're noticing your spot rate is very strong. Is 95% plus on that denominator, a fair way to sort of think about FY '24?

Yes. As I pointed out in the call, Tom, we're sitting comfortably above 95%, 95.5% on that lower base, and we'll push towards 96% and see how we go in the next few months.

Got it. Next one, I sort of wanted to ask just around staff costs, noting Dave's question earlier. You're at 210 to 211 care minutes in Q4. The step-up is only to 215 and you sort of noted before your AN-ACC pricing should include that step-up. So you're sort of already paying for staff costs you're investing ahead of the curve there. Shouldn't that be if it comes through in the AN-ACC, the tailwind to profit?

No, it doesn't quite work like that, Tom. So there are 2 different things that I think you're conflating there. One is the sector average care minutes and the other one is Regis' care minutes. So whilst the sector was expected on average to achieve 200 minutes coming out of Q4, the Regis target was actually 212 minutes. So our 210 million is against a target of 212 on average. So then you've got to add 15 minutes on top of those numbers.

It's a little confusing, Tom, because this is all driven by resident acuity. So in essence, the acuity of our residents is higher than what you would see elsewhere. Having said all that, when AN-ACC bumps up in -- so we haven't invested ahead of the curb the short answer. We will need to continue to invest come October, but we're yet to see our target for that quarter. And then our recruitment team will work behind the scenes to make sure we close and to that number for the quarter that ends December. So the reality is for the sector 215 is the target for the quarter ended December. Our target, I suspect, will be over 220. I don't know, but I suspect it will be over 220 given the acuity of our residents versus the sector.

Got it. Okay. Now, understood. Linda. So you were at 212 now and adding 50 to that you're more like 227, so there is an incremental sort of headcount investment into [indiscernible].

The other comment I would make, Tom and Linda may want to make a comment as well is we hear the government isn't keen for providers to make margin out of care funding. So AN-ACC was to increase by, say, 7.5%, which is a 200 going to 215. And then say, our targets moved by 7% to 7.5%. I expect it will be just an in and out revenue uplift and cost uplift with very little to no margin on that.

Yes, I agree.

Got it. Now, that's clear. Just last one for me, I'm picking up on some of your sort of later comments there, Linda, just around build costs moderating and you guys are searching aggressively for development sites. Has there sort of been a change in tone around brownfields and Greenfield. I thought you're sort of waiting to see the detail of the task force recommendations before you push out there, but it sounds like you're sort of confident enough given what you're already seeing?

It's a bit of both, to be honest, Tom. So Camberwell was obviously well in train. We had expected to know the government's response to the task force recommendations by now, which is why we tendered the 2 homes in Sydney as well as Toowong in Queensland. So we have decided to go ahead with the building Toowong. We are still just waiting for the task force response before we press go on Belrose and Carlingford. If the response is favorable, we're ready to move on those Sydney developments basically straight away. And again, given the lack of new supply coming into the market, from a community perspective, we would really want to see lots of providers press and go on building developments to cater for the need that's coming.

The next question comes from Steve Wheen with Jarden.

Yes. I just wanted to ask about some of the Aged Care Act reform items. In particular, the RAD retention, what sort of sensitivity do you think your RAD-paying residents would have to this initiative if there was some retention? And how do you sort of -- what's your interpretation of that sensitivity? And could you ultimately end up with a situation where they all start switching to DAPs in an environment where you can take some amount of retention?

Thanks, Steve. I'll take that one. So the RAD retention -- the first point to note is there used to be a RAD retention that was accepted by consumers. It was removed. So it's a reintroduction of something that used to be in place. All of the work that's being done in terms of surveying consumers by the consumer peaks in particular and the council of older Australians all shows that consumers are happy to pay more for better quality accommodation and services. So we're not anticipating any great shift from RADs to DAP. It's still very much dependent on a person's individual circumstances with sort of good financial advice from a professional.

Yes. Understood. Okay. Second question I had was just in response to the -- your occupancy percentages, does that -- are you excluding Nedlands already, even though it's not yet closed?

Nedlands isn't closing. Nedlands is a home that we have on the same site as Wilston. Wilston is closing. Nedlands will remain.

Okay. So the question then…

We're not quoting the 7,400 earlier. That takes into account the closure of Wilston.

However, the occupancy numbers that we have quoted today for FY '24, Wilston is included in those numbers.

Yes. Okay. Got it. Just a question now on the development pipeline and in particular, the cost of build. Are you able to give us some indication of what the cost to build per bed of Camberwell looks like relative to what Toowong now looks like? Is there any sort of metric that you can provide on that front, just to kind of give us an understanding of how construction costs may be moderating?

I'll give that a go, Steve. So with Camberwell, if you look at prior presentations, we called out the cost to build ex land. And again, remember, these negotiations were all conducted pre-COVID -- said the benefit of a lower cost. That came in at less than $400,000 a bed ex-land. When you're now talking 21, you're talking in excess of $500,000 per bed. -- cost to construct.

Yes. Excellence, yes. Okay. That's helpful. Final question I just had is just with regards to your pipeline of non-income-producing assets. What we -- do you have any more to go? And what could we expect to see on that front or FY '25?

Look, there's potentially a little bit to go, Steve. These things are difficult to call out because they don't just happen overnight. So maybe a little bit more to go, but we prefer to wait and see before we call anything out.

The next question comes from David Bailey with Macquarie.

Maybe just on the task force recommendation Slide 7. Just in terms of timing, does the act care debate put through before some of these recommendations are enacted. And any sort of rough estimates of what these recommendations could look like from a dollar perspective or dollar per resident today perspective?

Thanks, David. So a couple of things there. We gather from communications coming out from government that they are waiting for the Aged Care Act and will include the chapter on funding and finances in the act. Technically, some of these could be implemented ahead of the act through existing levers that government has available, but I think they are disinclined to do that. We are -- and you will have read the same media reports that we will have read over the last couple of weeks. That negotiations continue that they're constructive, but they are looking for bipartisan support before they actually table the billing Parliament. There's still discussion that, that might be in the next setting period, but it wouldn't come into effect until 1 July 2025. I might let Rick talk about dollars, although I suspect that it's difficult for us to comment on until we see the details.

Yes, David, look, as Linda said, it's difficult to speculate. So -- but we can go through some of the things on Slide 7, probably the easiest one is the everyday living. And again, I always have guarded comments if no strings attached, a dollar increase in the basic daily fee would add about $2.6 million to our bottom line. And again, remembering these are going to be going -- my understanding is these are going to be phased in this is for new residents going forward as opposed to current residents. So when it's fully ramped-up an extra dollar of BDF $2.6 million, similar to any sort of RAD retention, whether it's 2% or 3%, based on an average rate of 517,000 at 2%, you're talking 10,000 retention. We also understand it could be capped over a 5-year period, but we're speculating.

Yes. No. And then just following up on some of the earlier questions. It sounds like build costs have sort of moderated, maybe slightly down. But is it the expectation for the industry that these task force recommendations there to come through before we'll see a material step change in the supply of places?

Yes. Good question, David. So when I use the word moderate, I didn't mean coming down. I just meant they stopped escalating as sharply as they have over the last 5 years. And to your second question, I think your assumption is correct that providers will be waiting to see the response to the task force recommendations before you see sort of large-scale building across the sector.

Right. So we had a while for recommendations to come through. It's going to take a few years to build. Therefore, that earlier questions around occupancy is rising is probably true plus the sector.

Absolutely, it is.

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

Thanks very much to everybody on the call for your interest, and we very much look forward to speaking with many of you over the coming days. And for everybody else, we'll have our next update most likely at the AGM. Thanks very much.

That does conclude our conference for today. Thank you for participating. You may now disconnect.