Ramsay Health Care (ASX:RHC) Q1 2027 Earnings Call

0:00 and thank you for standing by. Welcome to the Ramsey Sontay Q1 results presentation conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Alternatively, you may submit your question via the webcast. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today, Pascal Rocher, Group CEO, and Clément Laffey, Group CFO. Please go ahead.

0:47 Okay. Thanks a lot. Thanks, all of you, for joining this Q1 One Festival Day. So, today, we will comment to the results we have just been releasing yesterday evening, and I am so with Claymore Lafayette, the group CFO. Entering into this Q1 result on the page number four, if we were to summarize in a couple of seconds, we would say that we have delivered a solid Q1 performance with continued revenue growth and improved operational performance. As a matter of fact, the revenue has reached €1,233,000,000, which is a plus 2.9% growth versus the same quarter of last year. Would we were to compare in constant currency, it is a 2.6% growth.

1:45 What has driven this growth? In fact, it has been driven by higher MSO activity. As an example, for France, the MSO admission has increased by 4.1%, targeted efforts driving a huge increase in day medicine care developments in France, and continued strength in the Nordic. But beyond this growth, we are pleased to share with you that the ADPA for Q1 has been issued at 121 million of euros versus 112 last year, which represents a 9.8 margin. Please keep in mind that we are talking about Q1 with the seasonality effect of July and August.

2:33 So an improved profitability driven beyond this revenue growth by productivity gain, disciplined cost control across all geographies, and, as you may recall, the ruling out the execution of the Sankyuran contract despite all these tariff headwinds. Beyond that, the leverage ratio has decreased versus Q1 last year, continued leveraging by 0.2 points. We will come back to this later with So, in this context, we maintain our short-term and mid-term financial outlook. Besides, in this slide, by the way, number four, there have been, during the last quarter, an important business development, a very hard outside litigation, going back to 2002, 2004, for one of the huge, important hospitals in Lille, called Jean Mermoz, there was an appeal ruling that took place and that confirmed that the group has no liability regarding the topic of the building more than 20 years ago. It means that there is a 57 million euros in damage that remains to be received pursuant to the decision and subject to further appeal by the opposite, I would say, opponents.

4:04 So, that being said, if we go on the next page, during the Capital Market Day, we held on September 17th, we have shared with you our ambition for the next years to 2030, our strategy plan, Connecting Care 2030, to unlock the full potential of integrated care and reinforcement of the active portfolio management and efficiency measure. So, we are pleased to share with you a couple of deliveries that took place during Q1 on the five avenues. As an example, in order to keep on strengthening the integrated care offering in Sweden, the referral from a huge hospital to discharge patients, so to advance home care, inpatient palliative care, and inpatient rehabilitation, so the number of patients that have been proposed when discharged because they needed to be followed by one of a business unit, one of a team, has increased by 70% compared this one to Q1 2024, so two years ago.

5:16 Talking about, once again, accelerating the additional profitable growth through new revenue stream, We are pleased to share with you that regarding imaging for France, in the last month, we have been rolling out two new units, one PET scan and one radiotherapy, by the way, in the Hôpital Les Peupliers in Paris. Regarding the third pillar, which is digitalization and AI, we keep on rolling full speed regarding the rollout of MDL scripts, so speech-to-text to relieve, I would say, the administrative burden and to free up some patient time for the doctor. It is done for all the American students, and now we are increasing the speed in the mental health a business unit in France, and with our own AI, Ramsey Compagnon tool, it once again kicks the box of better medical excellence and better efficiency, as an example, Ramsey Compagnon, now there is over 100,000 prompts per month, in September, a couple of days ago. Talking about portfolio management, we were committed during the CMD to say that in Valence, south of France, we will go from three facilities to one facility, reducing, by the way, the number of beds by roughly 50 beds, delivering additional BDA.

6:47 It has been done as planned. on October 1st. And finally, regarding the continued cost optimization initiative, the Choosing Wisely, which is better for the patient and efficiency, is rolling out once again through various countries. And three weeks ago, we have been relocating the group exporter. We used to be in Paris. We are now in the suburb of Paris, and with a good, I would say, a good study. Another news to share with you on the next slide, during, once again, the CMD mid-September regarding the new board. Once again, would the demerger take place and would the Ramsey-Sante AGM on December 1st validate this content?

7:35 New governance framework, we were saying. Once again, we confirm that the majority of the board will be constituted by an independent director through a very rigorous process. The chairman of the board will be independent. We're going to come back to this in a couple of seconds. The chairman of the audit committee will be independent, and all this refers to the French Provenance Code. Talking about the chairman, will be proposed, by the way, to the Ramses Santé AGM, Frédéric Collet, independent chairman of the board. Frédéric Collet has a long, long experience in the healthcare industry in France and on an international base. Having been the chairman of Novartis France, has been working in Sandoz, the head of the oncology worldwide. He has been, by the way, for four years in France, the chairman of the Association of the French Pharmaceutical Industry.

8:35 And by the way, since a couple of years, he's on the board of the Institut Imagine, the largest institute for genetic disease in France, key, key, I would say, institute. He knows well Ramsey Santé because, as you know, we are a mission-driven company. He has been part of the last three years of this committee and very involved. He is, by the way, founder and the president of Biomasse Consort, senior advisor at Oradeo, and chairman of AI and Cancer Consortium. So, this is the key news in a nutshell I wanted to share, not to give you more granularity regarding the financial performance during the last few months. I'm giving the floor to Clément.

9:21 Thank you, Pascal. Good morning, good afternoon, everyone. Before presenting the next slide, so a reminder of the key message, Grosvenor Growth has been resilient and predominantly volume-driven, and the line for stability has improved at a higher pace than previous over the last quarter, thanks to performance plans despite a constrained tax environment, and we continue to deliver the company. So if we go to the page number eight, So, let us dig down in a couple of figures. Revenues increased by 2.9% over the last quarter, 2.6% at the constant ethics basis, growing all geographies and all segments of activities. As you can see on this bridge, the growth is quasi-exclusively organic-driven.

10:08 Organic revenue growth remained resilient at 2.2% in France, with notaries increased, supported by a 4.1% increase in MSO volumes. notably supported by DEM Medicine, a growth that has been quite significant at around plus 40% over the last quarter. And this has been partly offset by the continued negative mixed effects with a shift from full hospitalization to ambulatory care. In the Nordics, organic growth is at 4.2%. driven by primary care development, as well as Saint-Johan, robust volume, as well as the effect of the new contract.

10:54 If we go to the next page, let's have a look at our profitability. EBITDA has improved by 7.5% over the last quarter versus last year. plus €8 million, in spite of increasing inflation, notably in France, a minimum wage increase of 2.4% in June 26. And this inflation is not covered by the tarification, notably in France. So, how we achieved this profitability improvement? Organic growth, I mentioned it already. Saint-Germain new contract in Q1, and we expect to see a further effect in Q2, because we will be on the live for life basis on this contract, only starting from Jan next year. And I mentioned it as well, structural performance plan and cost containment initiatives. In order to navigate a constrained health environment, performance and operational execution is key.

11:59 I will give you a couple of examples of what has been delivered in this area over the quarter. First of all, we mentioned the imaging units, the two new imaging units, so continue to accelerate in this area. I mentioned as well the day medicine care developing at a very significant pace. Further improvement in calling their accuracy with AI Non-medical staff reduction in France over the last quarter In the Nordics, very good cost control in pharmaceuticals in primary care Benchmarking between the units and with a further use of generic stress Removed or exporter, Pascal, you mentioned it And finally and we made also good progress in our portfolio management with the transfer of the activities of the balance unit as well as also some transfer of maternity wards.

13:02 We are not stopping there. Additional actions have already been identified and will continue to accelerate in this step. If we go to the next page, regarding the leverage, leverage is typically higher in September than in June, affecting the normal seasonality of the business. Patients do not undertake non-emergency care during the holiday and summer prayers. But then we compare September with September last year, and two years ago, as you can see on this graphic, we are continuously leveraging the company, minus 0.2 over the last three years. thanks to EBITDA generation, operational cash flow improvement. We observed over the last quarter a positive working-care variation because the last year variation was negatively impacted by the reimbursement of French state advances, which was not the case this year. We also continue to work on the French DSO to reduce our delays. This has been combined with a selective capex policy, 4% of gross capex on revenues this quarter stable versus last year, with a clear priority on high-impact investments and on strategic priorities.

14:16 So we further develop imaging visotherapy, and we also dedicate our capex to portfolio management initiatives. Forgetting the financing, so a key update of the quarter. Obviously, in July 2026, we need to mention the completion of the refinancing of our senior debt, 1.75 billion, including 200 million RTF, and growth. We pushed our senior debt maturities to 20.3 and simplified our balance sheet structures as well, providing higher flexibility. We also recharge our real estate financing on HPVB, Dijon Bourgogne in France, drawing a new trend of fiduciary loan. It's an illustration on how real estate is a way to secure good financing at attractive conditions.

15:08 And maybe a last update on our hedging policy in a context where we see the interest rate increasing. We proactively manage and we optimize our hedging policy today 80% of our gross financial debt is hedged, again, versus to hedge and face the context of intriguing interest rates. So, at the conclusion, good start of the year, both in terms of ability to secure organic growth, transition into financial performance, and debt averaging. I'll say a word on the key perspectives for the months to come. So, first of all, executing, sorry, if we move to next page, page 12, yes, executing the performance plan, clearly, it's a priority, delivering the new strategy, sustaining supply and growth notably by leveraging our integrated healthcare offering. and maintaining high standards of care and enhancing the medical outcome. And all of this, combined with a strict capstone allocation, will contribute to deliver the company. As announced by Pascal, if we move to the page 13, We maintain and we confirm our guidance for the short and the mid-term.

16:24 FY27, revenue growth between 2 and 3% at constant ethics and stable EBITDA margin versus stature. By FY29, revenue growth at 3% CAGR, per annum, and gradual EBITDA. ABDA margin improvement, growth cap tax at 4% of our revenue on average over the next three years, and continued delivery targeting a ratio net debt on ABDA PR price below 4.0. Thank you for your attention, and Pastor and I would be happy to take any of your questions.

17:00 Okay, thanks, Clément. So, after this, please feel free regarding any questions you may have. Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 1 and 1 again. If you wish to ask a question via the webcast, please type it into the box and click submit. Please stand by while we compile the Q&A roster. Thank you. Our first question comes from the line of Craig Wong Pan from RBC. Please go ahead. Your line is open.

17:47 Hi, and good morning. I just wanted to ask about the net debt. I understand the leverage ratio usually increases from June to September due to seasonality, but if you just look at the net debt figure, that also increased by about $145 million from June to September. Could you just explain why that's increased?

18:09 Yes, sir. Thank you for your question. I think when we compare with June, we have to consider the seasonality effect of our activities. Traditionally, we know that in the first quarter of the year, so we have two summer months where, again, the patients do not undertake specific surgeries that are non-emergency, I would say, needs. So we know the activity is lower. So usually, our first quarter of the year, net debt increased versus June. But again, we need to compare September with September. So that's why we presented this vision, I think, on the page number 11 of the presentation. which shows a decrease in the level of net debt versus last year, that is two years ago.

19:01 So again, seasonality is the right answer to your question, I think.

19:06 Okay, thank you. Thank you. As a reminder, if you would like to ask a question over the phone, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. and to withdraw your question, you can press star one and one again. And if you wish to ask a question via the webcast, please type it into the box and click submit.

19:32 If I may, so while we are waiting for maybe some questions, so we have received a couple of written questions, so maybe to deal with some of them. One of the questions is how do we explain that in spite of admission growth for France, 4.1%, The revenue growth is a bit lower. What is true, by the way, we are more in the range of 2.2, 2.4%. Well, the first, there are two reasons. The first one is the activity mix. Day surgery keep on increasing versus inpatients. Just to remind us, for the last, during the last 12 years, regarding surgery for one person in France, we have been growing from 49% of death surgery to 74% of death surgery, which means that today, many, many surgeries, the patient is leaving the hospital the same day, whereas 12 years ago, he was spending maybe one or two nights in the hospital.

20:37 And long story short, their surgery, in average, is less paid than inpatient surgery. So there is this activity mix value, which is the first driver. The second driver is that the tariff has been very constrained, even by the way, decreasing in some specialties such as imaging. So these two factors combined explain, if I may, why the MSO admission for France 4.1% does not translate exactly in a 4.1% revenue growth. There is another, by the way, there is a couple of same questions regarding the day medicine for France, just to explain what it is.

21:22 So, day medicine has been promoted, I would say, by the French government in order to initiate pathways the same day. So, there are many day medicine pathways, e.g. obesity, e.g. pain management, etc., etc., and if you see the right full specialist the same day, can be a doctor, a physio, etc., etc., but as long as you see the full specialist the same day in the same unit, you are paid, I would say, by a better price, a much better price, so it's a huge need from a patient standpoint, and it has, I would say, a very positive economic impact for the company, so yes, we are running, we are growing, I would say, on these specific segments, not at double digits, but really in the range of 35 to 40%.

22:20 We have a next question regarding cost initiatives. Elaborate on these initiatives, and should we expect non-recovering costs for those initiatives? So, we return every stone, clearly, behind the... The different lines of the P&L, but clearly we are working on every caption, I would say, of the cost being personal cost, adapting the actual staffing to activity, reducing temp staff, reducing non-medical staff. as well, increasing our productivity. Regarding medical purchases, we have also a couple of initiatives to centralize and make sure we optimize the cost per reference, working notably in France with doctors to make sure to reduce the number of reference and increase and improve our purchasing conditions.

23:19 Within these performance initiatives, we not only have costs, but also some mixed improvement initiatives regarding the coding accuracy, regarding, you mentioned, Pascal, which is clearly also a way to improve also our mix in terms of margin, because we believe these kinds of pathways are very attractive to our margins. So, behind these performance plans, we also find the portfolio management initiatives that are, as you know, a very important part of the strategic plan in the Connecting Care 2030. Behind this portfolio management, we might have a couple of recurring costs to implement these measures, but we believe this cost will remain quite limited because basically it's about to optimize our portfolio and again to reduce when we can the footprint and to accelerate on the segments that are the more profitable.

24:21 Yeah, thanks, Clément. There are four, if not five, questions regarding the budget for France for next year and the health care budget. Well, what we can say is that there is currently, as of today, a total budgetary and political uncertainty in France. The dedicated health care budget for 2027 for France called the PSLSS, has been, by the way, rejected two days ago. So, back to the Parliament. First, I mean, of course, we don't speculate, I would say, on political outcomes, but we don't know. Nobody knows. That being said, by definition, we are always engaged actively with healthcare authority and policy makers, I would say, to advocate and just to remind that private healthcare provider in France a systemic backbone of regarding the French system.

25:25 Now, I think it's worth to share with you, once again, as we did during the CND, that one that does not rely solely, I would say, on support. We've got multiple levers within our hands, I would say, within management control, being these volumes, the capacity, the utilizations, the procurement, the workforce management and productivity, beyond, of course, the fact that outside of France, the other country represents now one-third of the total activity with, at least here, peer visibility. So, we don't know. It's a short answer, but once again, we are concentrated in what is in our hands, I would say.

26:13 We have a specific question regarding the capex 4% of our revenues. Does it include greenfield or is it just maintained capex? So 4% is the total gross capex before the leasing that we implement to finance notably the imaging equipment. So 4% gross capex is the total. um bearing in mind that approximately three percent is regarding uh related to maintenance i.t and regulatory and one percent on average is dedicated to development and that this pocket of development capacity will be dedicated to our strategic priorities priorities We have one question regarding real estate and how much to be owned, how much debt associated with this real estate. So, as we discussed during the CMD, so real estate is valued 1.5 billion at the end of June, or 0.

27:13 It represents 20% of square meters operated within the group, quasi exclusively located in France, 42 facilities. has also been located in prime locations such as Paris, Paris region, Lyon and Lille. And thanks to this real estate, we have been able to draw approximately 350 million of real estate debt, and these amounts have slightly increased as of September to roughly 400 million after the refinancing of the HPVB Dijon Bourgogne that I mentioned earlier in this presentation.

27:51 Okay, thanks, Kimmel. Any other questions? As a reminder, if you would like to ask a question over the phone lines, you will need to press star 1 and 1 on your telephone, or you may type your questions into the box via the webcast and click submit. No further questions via the phone lines.

28:23 Okay, thanks a lot. So I think we have tried to cover the written questions we have received, and also at least with Clément. Well, thanks once again for having joined this morning of Q1 results, and as always, I will say, we stand at your disposal. Would you have some specific questions, we'll do our best to answer. Thanks once again, and have a very good day. Bye-bye. Thank you. Thank you. This concludes today's conference call. Thank you for participating and you may now disconnect.