Regis Healthcare Limited (REG) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the Regis Healthcare FY '26 Full Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Kinkade, Managing Director and CEO. Please go ahead.

Good morning and thank you for joining us today to discuss Regis Healthcare's 2026 full year results. I'm joined today by Rick Rostolis, our Chief Financial Officer. I'd like to acknowledge Rick, who is presenting his final set of results today. On behalf of the Board, executive and broader team, I'd like to thank Rick for his significant contribution over the past 6 years. I'm also pleased to note the announcement earlier today of the appointment of Stuart Hooper as incoming CFO, commencing 1 September. Stuart brings extensive financial leadership experience across the health care, infrastructure and corporate finance sectors, including as CFO of Bupa Asia Pacific and as CFO of Ventia. I would like to begin by acknowledging the Wurundjeri Woiwurrung people of the Kulin Nation, traditional custodians of the land on which we meet today. I pay my respects to the elders past and present and I extend that respect to any Aboriginal or Torres Strait Islander peoples on the call. Just turning to Slide 2. Having joined Regis last month, I've had the privilege of visiting 40 homes, spending time with our residents, families and team members. I've been very impressed by our people, the quality and scale of our portfolio and our development pipeline. We are well positioned to meet growing demand and rising consumer expectations. At the same time, I can see we have opportunities. In my first few weeks, there are 3 I would highlight. Firstly, we have opportunities to strengthen our offering and grow our resident funded revenue. Government funding hasn't been keeping pace with cost inflation in the sector and we need to mitigate this. In recent weeks, we have lifted prices on 70% of our rooms by an average of 10%. This will flow through to earnings and cash flow as we welcome new residents in the months and years ahead. Ahead of 1 November 2026, we have work to do to transition current residents to the higher everyday living fee health framework and to grow HELF uptake for new residents to be in line with our peers. Secondly, we have opportunities to better leverage our scale. In recent years, there has been significant investment in technology and digitization. We are pursuing near-term cost savings. And as we look ahead, we have opportunities to further leverage data and AI and to mature our operating model to better harness the benefits of our scale. In doing so, we will improve consistency across our network, create more time for care, invest in our people and enable margin improvement. Thirdly, we have multiple avenues for growth through acquisitions, our development pipeline and ongoing portfolio renewal. In summary, my first month has reinforced my view that Regis is a quality platform with an excellent team, opportunities to improve earnings quality, performance and growth in a market with strong long-term fundamentals. I'm excited about the opportunities ahead. We'll now take you through the FY '26 results and outlook before opening the call for questions. So moving to our financial and operational performance for the year. I'm pleased to report that Regis delivered strong results across revenue, EBITDA and operating cash flow. Revenue from services increased 16% to $1.35 billion. Underlying EBITDA rose 10% to $138 million and underlying NPAT grew 4% to $55 million. Operating cash flow increased 10% to $336 million, supported by strong net RAD cash inflows of $250 million. And we ended the year in a net cash position of $174 million. At the statutory NPAT level, the result was up 16%, benefiting from the gain on sale of Ayr and Home Hill, our homes in Far North Queensland. The Board has resolved to pay a final dividend of $0.094 per share, 100% franked, up 16% on last year. Turning to the key operational highlights. We saw strong results across all key metrics. Our mature home occupancy was 96%, up from 95.6% and our total occupied bed days increased 8% to $2.85 million. We generated net RAD cash inflows of over $250 million, up 28%, further strengthening the balance sheet and supporting future growth initiatives. On care, our focus is on delivering high-quality care and services for our residents and families. We saw the commencement of the new Aged Care Act and strengthened quality standards and made significant progress on the rollout of a new clinical management system, which is now deployed across most homes and will be fully implemented by the end of this half. We deployed a new digital catering and food safety platform and strengthened our texture-modified food options to improve dining experience for our residents. We also enhanced our lifestyle programs with more opportunities for social connection. We continued to invest in our people and culture with our employee turnover reducing to 18%. We also improved safety outcomes and workforce planning, reducing our reliance on agency labor and overtime. In terms of growth and portfolio management, we took significant steps to expand and improve the quality of our portfolio with the acquisition of 6 quality homes from Rockpool and OC Health, adding 830 beds. We successfully completed the ramp-up of Camberwell and Oxley, which both reached 99% occupancy by year-end and generated net RAD cash inflow of $98 million in FY '26. We progressed refurbishments of our homes and greenfield developments with 1,300 beds in the pipeline. We also continued to renew our portfolio through targeted divestments. With that, I will now hand over to Rick to discuss further details on the results.

Thanks Andrew. Good morning, everyone. Thanks for joining us today. I'm now on Slide 7, financial summary. Starting with revenue. I'll take you through the key drivers of the 16% increase to $1.35 billion, highlighting portfolio improvements, demand trends and operating momentum that supported growth through FY '26. The acquisitions of Rockpool and OC Health accounted for around 50% of the revenue uplift, contributing $97 million. These acquisitions have helped strengthen the quality of the portfolio, including expanding our aged care footprint, increasing scale by over 800 beds and enhancing future earnings capacity. Excluding these 2 acquisitions, AN-ACC indexation of 2.6% from 1 October '25 contributed over $40 million to revenue and the hoteling supplement added circa $20 million as the average rate per resident per day increased from $12 in FY '25 to $21 in FY '26. Revenue also benefited from the opening of Camberwell in November '24, offset by the sale of our Ayr and Home Hill homes in March '26. Other income grew 44% to $189 million, including higher imputed RAD income of $153.5 million, which incorporates the introduction of the 2% RAD retention from November '25, which contributed $1.3 million to earnings. Other income also included $7 million of interest and a one-off gain of $25 million on the sale of Ayr and Home Hill. During the year, we continued to invest in care delivery and our workforce. Staff costs increased by 19% to just over $1 billion, with the main drivers including the Rockpool and OC Health acquisitions, which accounted for 42% of the increase, higher wages for direct care workers under the Fair Work value case, the 3.5% annual wage review increase from 1 July '25 and EBA increases of circa 3% to 4%. Pleasingly, we saw a meaningful reduction in agency usage and overtime, particularly in H2, supported by improved workforce planning and reduced employee turnover. Agency hours for the year represented 0.7% of total worked hours, down from a peak of 6% as we exited COVID. Occupancy expenses increased by $5 million, mainly due to one-off stamp duty costs relating to recent M&A transactions. We also continued to invest in our homes, including improvements to our catering offering and technology solutions to enhance resident experience while managing CPI plus related cost pressures in utilities and consumables. Resident care expenses increased by $7 million with $5.6 million attributable to the Rockpool and OC Health acquisitions. Increases in cleaning, resident welfare and other services reflected a combination of inflationary cost pressures and higher occupancy. Administration expenses increased by $7 million, driven by one-off items, including acquisitions and the investment in the new clinical management system. While the October '25 AN-ACC indexation did not include a margin uplift and resulted in a negative financial impact on earnings, the business once again demonstrated its resilience and delivered underlying EBITDA growth of 10% to $138 million. Depreciation increased to $56 million, primarily due to the Regis Camberwell home and recent acquisitions. Excluding noncash imputed interest under AASB 16, finance costs were $11 million, up $2.7 million on the prior period with interest paid on a higher amount of RAD outflows accounting for the increase. The effective tax rate was over 33% on statutory profit before tax, reflecting nontax deductibility of $10 million of stamp duty and acquisitions, but closer to 30% on an underlying basis. Statutory NPAT of $55.7 million was up 14% on the prior period. Importantly, the business continued to generate significant cash, reinforcing the strength of the operating model. Net operating cash flow increased 10% to $336 million, with net RAD cash inflows increasing 28% to $250 million, driven by the ramp-up of Camberwell, recent acquisitions, increases to accommodation pricing and a higher number of RAD-paying residents. Our portfolio mix continues to shift towards higher-quality homes with strong demand fundamentals and cash generation, which should support more resilient and predictable earnings and RAD cash flows over time. The strong cash generation has enabled us to substantially increase investment in future growth with CapEx rising to $143 million, supporting greenfield developments, land acquisitions and refurbishment activity across the broader portfolio. Now turning to Slide 8. FY '26 was characterized by continued growth in occupied beds, improved revenue metrics and a substantial increase in the average value of incoming RADs. Average available beds increased 8% to 8,142, reflecting the contribution from recent acquisitions. Importantly, underlying demand across the larger portfolio remained very strong. Average occupancy increased to 95.8% from 95.1%, while occupancy at our mature homes reached 96%, up from 95.6% in FY '25. Our recently opened homes at Camberwell and Oxley both completed successful ramp-ups within 12 months from opening. Aged care revenue per occupied bed day increased 7% to $462, with government revenue per occupied bed day up 6% following the AN-ACC price increase, indexation and improved hoteling supplement funding. Resident revenue increased by 8% and was supported by the biannual indexation of the basic daily fee, an increase in DAP revenue, acquisitions and changes to legislation on 1 November '25 that shifted more of the cost burden to residents. Aged care staff expenses per occupied bed day rose 8% to $341, driven by the Fair Work Commission's Work Value Case, annual wage review and EA increases, together with higher care minute requirements. Our strategy to drive accommodation room pricing resulted in the average incoming RAD increasing 20% to close to $700,000, with the impact of higher-quality homes from recent acquisitions, significant refurbishments and the ramp-up of Camberwell and Oxley playing a major role. Moving to one-off items on Slide 9. In FY '26, one-off items resulted in a net gain before tax of $4.4 million. As already mentioned, the most significant item was a $25 million profit on the March '26 sale of our residential aged care homes at Ayr and Home Hill. With respect to acquisition activity, we incurred $13.7 million of one-off costs, including $10 million in stamp duty related to the acquisitions of Rockpool and OC Health. We also recognized an uplift to the employee entitlements liability associated with the Fair Work Commission's Work Value Case from 1 October '25 and incurred $2.4 million of professional services costs related to the historical employee entitlements underpayment program of work. Finally, we incurred a one-off $4.3 million in rolling out our new clinical management system. Over to 10, cash and capital management. FY '26 was a significant year of investment and portfolio expansion while maintaining a strong liquidity position. During December '25, we successfully completed a partial debt refinance, extending facilities B and D to March '29 to provide greater flexibility in supporting future growth opportunities. Operating activities generated $121 million of cash before interest, tax and RADs. Net RAD cash inflow of $250 million reflected strong resident demand, higher incoming RADs and contributions from acquisitions. The ramp-up of Camberwell contributed $42 million of RAD inflow, while Rockpool contributed $65 million from the date of acquisition, supported by the Oxley ramp-up. In terms of cash flows -- cash outflows, we invested $183 million for the acquisitions of Rockpool and OC Health and a further $143 million in capital expenditure. We've also paid $52 million in dividends. Our strong balance sheet, significant undrawn debt facility of $362 million and ability to generate substantial and predictable operating cash flows provide the company with considerable capacity to deliver on its growth plans. Capital expenditure on Slide 11. In FY '26, we continued to execute our growth strategy while maintaining the quality and competitiveness of our existing portfolio. As mentioned, total CapEx was $143 million, up $55 million on FY '25. We invested $55.6 million in land settlements at 5 sites in attractive metropolitan aged care markets, while we continued to progress construction activity at Toowong and Carlingford, investing close to $43 million in greenfield developments. We also invested $40 million on the maintenance and refurbishment of our existing portfolio to improve occupancy, attract higher accommodation pricing and allow for higher everyday living fees to be offered. With average occupancy remaining strong and resident acuity continuing to rise, these refurbishments ensure our homes remain contemporary, high quality and aligned with consumer expectations now and into the future. Turning to resident profile and rent pricing on Slide 12. Supported residents now represent 39% of permanent residents, down from 43% a year ago, with recent acquisitions and divestments contributing to the reduction. On the right-hand side of the slide, you can see the progress we have made with respect to accommodation pricing. The average advertised room prices increased by 38% since December '24, rising from around $550,000 to more than $750,000 today. This has been driven by increases in the IHACPA pricing threshold, strong demand for quality accommodation, continued investment in our homes, including acquisitions and portfolio renewal. Importantly, since 30 June '26, we have repriced approximately 70% of rooms, resulting in an average uplift of around 10% in average advertised room prices. A significant financial opportunity for Regis is already embedded within the existing portfolio. Through ongoing pricing optimization, we can see a pathway to unlock substantial rent inflows over time and increase earnings through RAD retention. These settings should support operating margins, increase cash generation and contribute to long-term capital sustainability. Moving to Slide 13, which highlights one of the key strengths of the Regis business model, being our ability to generate cash from both operating earnings and RADs. Over the past 4 years, the combination of underlying EBITDA and net RAD cash inflow has increased significantly, growing from $127 million in FY '23 to $388 million in FY '26. This growth has come from an improved occupancy environment, the acquisition of quality homes, the refurbishment of existing homes and our accommodation pricing strategy. The result is a business generating substantial cash flows that can be reinvested to support growth while maintaining a strong balance sheet. From 1 November '25, we started to receive the benefit of the new 2% RAD retention arrangements. While the earnings contribution in FY '26 was relatively modest, it establishes a new recurring earnings stream, which we expect to become increasingly meaningful over time. Importantly, these cash earnings provide the funding to support our growth agenda of quality acquisitions, greenfield developments and refurbishments, while also continuing to drive shareholder returns. And with that, I'll hand you back to Andrew.

Thanks, Rick. Moving to our strategy, growth plans and outlook. So Slide 15 highlights the strong performance we've seen from our recent greenfields, provides a clear indication of the opportunity ahead for future greenfields, including Toowong, which is due to open shortly. Starting with Camberwell, our 112-bed home opened in November 2024 and ramped up in 12 months. Importantly, we've seen strong demand from prospective residents and families, reflected in the average incoming RAD of more than $870,000, contributing to paid-up RADs of over $60 million as at 30 June. Oxley opened in March 2025 and was successfully ramped up in its first year of operation. The home has generated an average incoming RAD of almost $800,000 and has a paid-up RAD balance of over $90 million at year-end. These outcomes reinforce our confidence in our development strategy of selecting attractive locations, building quality assets and converting strong demand into occupancy and RAD growth. Looking ahead, Toowong represents the next step in the strategy. The 123-bed home is progressing well, development costs remain on budget and completion of construction is expected to be completed by the end of this calendar year. The 5-level home will have 117 single ensuite rooms and 6 couple rooms with a comprehensive range of services, including a dedicated memory support unit. Moving to the greenfield development pipeline. We have 9 development sites with approximately 1,300 beds. These sites are again located in high-demand areas. They are also positioned in attractive catchments with favorable demographic and socioeconomic characteristics, supporting premium room pricing and higher everyday living fees. Given the current tight supply environment, we anticipate strong consumer demand for these new homes. Each development has been designed to meet increasing resident expectations and enhance our accommodation mix. Together, these projects reflect our disciplined approach to capital allocation and commitment to growing and modernizing our portfolio. We also maintain an active pipeline of potential development acquisitions to support future growth. Turning now to our acquisition activity. Over the past 3 years, Regis has invested approximately $300 million across a number of transactions that have expanded our footprint, increased scale and created opportunities to drive operational efficiencies and earnings growth. Importantly, these residential aged care acquisitions have delivered on their business cases, added earnings, as well as RAD inflows, which have reduced the effective capital invested, enhancing returns. We have continued to grow our home care business with the acquisition of BodeWell last year, adding 800 clients and recently announced the acquisition of the Royal Freemasons home care business with 500 clients in Melbourne. Looking ahead, we have an active M&A pipeline focused on high-quality operators that complement our strategic objectives. We remain disciplined in our approach, prioritizing assets that are newer, well located and with strong earnings growth potential. Turning to Slide 18. One of the unique features of the aged care sector is the role that refundable accommodation deposits, or RADs, play in funding growth and creating shareholder value. RADs are a significant source of funding for the business, providing stable, long-term and low-cost capital to support investment in our operating assets while preserving balance sheet flexibility. Over time, our RAD balance has grown through a combination of acquisitions, development activity, higher occupancy and pricing uplifts. With our recent increase in room prices, this is expected to generate more than $500 million of additional net operating cash inflows over time, while also increasing the earnings benefit from RAD retention. Looking ahead, the 2% RAD retention framework creates a new recurring earnings stream that will progressively build over time. Combined with higher accommodation pricing and continued growth in RAD balances, we estimate RAD retention earnings has the potential to exceed $50 million per annum once fully phased in, helping to mitigate potential margin pressure from government funding. Moving to the outlook and priorities. So looking ahead, our priorities are to continue to improve our quality of care and service to grow revenue from residents, leverage our scale to drive better performance and continue to pursue further growth in a disciplined way. We remain confident in the long-term fundamentals of the sector. While government funding settings today do not fully reflect the cost of delivering care and we have more to do to increase health uptake, we are well positioned to improve earnings through growing resident funded revenue, leveraging the benefits of our scale and pursuing further growth. Our strong cash generation and balance sheet provide capacity for new acquisitions and developments while maintaining a sustainable dividend. We are well positioned for continued growth and long-term value creation. Finally, thank you to our 13,000 team members for your impact every day and thank you to our residents, clients and families for your trust. I will now hand back to the operator so we can take questions. Thank you.

[Operator Instructions] Your first question comes from Tom Godfrey from Ord Minnett.

Can you hear me okay?

Yes.

Great. Maybe if I can just start with RAD retention and just sort of picking up on that $1.3 million that you quoted at the bottom of one of the slides, that sort of feels like it was a little bit below where we were initially pegging the first year. I just wonder whether there's any updated thoughts around the shape of sort of the ramp-up of RAD retention and how you go from the $1 million this year to $50 million longer term.

I might take that one. Thanks, Tom. Yes, I think to start with FY '26, we -- with the delay in the act from June to November, I think that caught us out. I think our modeling also, to be fair, caught us out in terms of a couple of things. One, the take-up of new residents from November 1. What we saw was an influx of residents in October, prior to the 2% coming in November, December was weak uptake of residents generally because of that October phenomenon. I think we also, in the modeling, assume that once a resident said they're going to pay a RAD that they'll pay us that RAD almost immediately. And the reality is they're taking up to 6 months to pay us the RAD. And of course, you can't take the 2% until they're giving you the cash. So what we sort of thought around $4 million in FY '26 was less than half. In terms of your other question about going forward, I won't get into the detail of it, but Andrew has mentioned the $50 million. I'm on the record mentioning $50 million. We talk about fully phasing by FY '29. I don't think anything has changed there. So come FY '29, given the accommodation pricing strategy, absent acquisitions -- in isolation, this should provide us over $50 million.

Got it. That's clear, Rick. And is it right for us to assume that '27 on '26 should be one of the bigger years in terms of the incremental sort of delta there?

No. In fact, it's -- again, I don't want to get into the detail, but if you look at the way it ramps up in the modeling, it's a decent step-up in FY '27, but you'll get a lot more of it in '28 as you get to that '29 phase-in.

Got it. Okay. And then just one more from me. Just in terms of, obviously, you saw a better sort of second half exit rate around agency utilization and overtime. Just given where your EBAs are sitting, can you sort of put all that together for us and give us a sense of how we should be thinking about what you guys need out of AN-ACC next month in terms of cost recovery?

So as we all know, AN-ACC will cover direct care costs, views around cost increases, EBAs, I expect to be 3% to 4% again. The annual wage review, we all know, was 4.75%. I think interestingly, we're also seeing outside of direct care staff cost, the costs that relate to care are up over CPI. What does that all mean? The expectation is that we'll remain whole with AN-ACC, but I don't have a percentage off the top of my head, to be honest. I'm happy to come back to you, but that's what it's meant to cover. That's what we're expecting it to cover.

Your next question comes from Steven Wheen from Jarden.

The first question was just on the price increases that you've put through on the RAD rooms. The average is $750,000 across 70%. Trying to understand what proportion of the rooms would be sitting below $750,000 with a view to has that the potential to continue to increase to get to that 75 cap? Or not necessarily a cap, but that range that came in with the Aged Care Act.

Yes. Look, I'll take that one, Steve. A couple of points. The percentage now below $750,000 is well under 50%. So it was, at this time last year, I have a feeling we might have quoted 55%. It's probably around that 30% to 40%. So to answer your question, there is still scope. In terms of the 70% -- the 70% of the rooms, where we've concentrated initially is around single room single ensuite in some of the more -- I don't want to say advantageous, but some of the more -- the better homes. So there's full scope. Not only there's scope to get to $750,000 plus on some of these ones at 30%, 40% below, but there's also scope above the $750,000, although it's a different process through IHACPA. But there's potential on both sides.

Okay. And is that process to go through IHACPA a difficult one under the current Aged Care Act? Or is it similar to what it was previously?

Nothing is easy. If you plan correctly and have all the data you require, it's pretty much a specified list of requirements, you should be able to get through a process within 3 months.

Got it. Just a question on some of the costs. Firstly, where you are with care minutes, were you able to hit that sort of magic number that is required for your centers for the second half of the year? And secondly, what sort of headwind on maybe margin or profitability was the Ayr and Home Hill assets? And therefore, does that provide -- what sort of tailwind does that provide going into '27?

So it's not -- Ayr and Home Hill, not material, it's not worth even discussing. Care minutes is a different story because, again, on average, we would say we've met care minutes, but there are ups and downs. As you know, we've previously spoken about the homes that are up. So it's actually costing us money and then some that are potentially below, which is costing us a bit of revenue, not material again, in terms of what the government introduced on 1 April in terms of the care minute supplement, I think they call it. So I think the short story is around care minutes, we're at the mark. I think there's more potential to reduce, cost of those homes are still high. And in terms of Ayr and Home Hill, immaterial in the scheme of things.

Your next question comes from David Stanton from Jefferies.