Release Date: August 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Regis Healthcare Ltd (ASX:REG, Financial) reported a 28.7% increase in underlying EBITDA to $107.2 million.
- Revenue from services exceeded $1 billion for the first time, up 30% from the prior year.
- Occupancy rates improved to 95.3% as of June 30, 2024, indicating strong demand.
- The company acquired CPSM, adding five premium homes and 644 beds, contributing positively to financial results.
- Net operating cash flow increased by 140% to $252.3 million, ending the year with a net cash position of $64.9 million.
Negative Points
- Staff costs increased by 30%, driven by wage increases and additional staffing to meet care minute requirements.
- The aged care sector faces a significant need for new and refurbished beds, estimated to cost $55 billion to $72 billion over the next decade.
- Only 36% of homes met their care minutes targets in the second quarter of FY24, indicating potential overstatement of sector profitability.
- The company reported a statutory net loss of $21.4 million, impacted by amortization expenses.
- The aged care sector continues to face challenges with underfunding, elevated construction costs, and regulatory uncertainties.
Q & A Highlights
Q: Could you provide an assessment of the supply and demand dynamics in the aged care sector over the next 12 to 24 months?
A: Linda Mellors, CEO: The supply and demand dynamics will be very tight over the coming years. Providers might not have sufficient time to ramp up and create new homes to meet the increases expected from the Baby Boomer generation.
Q: How high can occupancy go, and what are the opportunities for charging higher prices for premium products?
A: Linda Mellors, CEO: Occupancy could get as close to full as the sector can manage due to insufficient builds. The sector has seen rapid escalation in occupancy this year. Regarding pricing, we are waiting for the government's response to the task force recommendations, particularly the increase in room pricing.
Q: What was the key reason for the higher RAD (Refundable Accommodation Deposits) inflow this time around, and what are your expectations for FY25?
A: Rick Rostolis, CFO: The CPSM acquisition added $18 million to RAD inflows. Coming out of COVID, we saw an increase in occupancy, which contributed to the higher RAD inflows. We expect to see strong positive RAD inflows again in FY25.
Q: Can you provide some color on staff expenses as a percentage of revenue for FY25?
A: Rick Rostolis, CFO: The exiting average aged care staff cost per resident per day was $297 in June. We expect this to increase by 4-5% during FY25. Revenue-wise, we need to see the AN-ACC price increase in October before discussing margin differentials.
Q: Given the tight supply, do you think the ramp-up of the new Campbellwell home will be quicker than usual?
A: Linda Mellors, CEO: Typically, ramp-up takes around 18 months. We stage ramp-ups carefully to manage risk. If we can do it faster, we will, but we plan for an 18-month ramp-up on average.
Q: What is your interpretation of the sensitivity of RAD-paying residents to the RAD retention initiative?
A: Linda Mellors, CEO: The reintroduction of RAD retention is expected to be accepted by consumers, as it was previously in place. Surveys show consumers are willing to pay more for quality accommodation and services. We do not anticipate a significant shift from RAD to DAP (Daily Accommodation Payments).
Q: Can you provide an indication of the cost to build per bed for Campbellwell compared to Toowong?
A: Rick Rostolis, CFO: Campbellwell's cost to build was less than $400,000 per bed, negotiated pre-COVID. Toowong's cost is in excess of $500,000 per bed, reflecting current construction costs.
Q: What are your expectations for the timing and financial impact of the task force recommendations?
A: Linda Mellors, CEO: The government is waiting to include the funding chapter in the new Aged Care Act, expected to be tabled in the next sitting period and come into effect on July 1, 2025. It's difficult to speculate on the financial impact until we see the data.
Q: How do you see the supply of aged care homes evolving in light of the task force recommendations?
A: Linda Mellors, CEO: Providers are likely waiting for the task force recommendations before committing to large-scale building projects. We expect occupancy to rise across the sector due to the tight supply.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
