Garofalo Health Care S p A : Results 1H2023 - Conference Call Transcript

"GHC Results 1H2023 Conference Call" Tuesday, September 12, 2023, 4:00PM CET

MODERATORS: Mrs. Maria Laura Garofalo, CEO

Mr. Alessandro Maria Rinaldi, Chairman of the BoD Mr. Luigi Celentano, Chief Financial Officer

Mr. Riccardo Rossetti, Head of Administration and Reporting

Mr. Giuseppe Laganga, General Manager of Aurelia 80 Group

Mr. Mimmo Nesi, Investor Relator & Chief Sustainability Officer

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OPERATOR: Good evening, this is the Chorus Call operator. Welcome to the H1 2023 GHC results presentation. After the initial presentation, there will be an opportunity to ask questions. Now, I would like to give the floor to Mr. Mimmo Nesi, Investor Relator & Chief Sustainability Officer of Garofalo Health Care. Mr. Nesi, please.

MIMMO NESI: Good afternoon everyone and thank you very much as usual for your time and availability. As you have seen, at lunch the company communicated its results through the press release, which we will now obviously comment on, in particular to notify the excellent growth of the Group in the first half of the year. I remind you that the call will be held in Italian and that the transcript of the call will be available on the website, both in Italian and in English.

Before proceeding, I would like to briefly introduce who is present here in the room from Rome, therefore the CEO of the GHC Group, Mrs. Maria Laura Garofalo; the Chairman of the Board of Directors, Mr. Alessandro Maria Rinaldi; the CFO, Mr. Luigi Celentano; the Head of Administration and Reporting, Mr. Riccardo Rossetti; and the General Manager of the Aurelia 80 Group, Mr. Giuseppe Laganga.

At this point I give the floor to the CEO for an overview of the results of the first half of the year and obviously there will be the opportunity to ask questions.

MARIA LAURA GAROFALO: Good evening everyone. Before leaving the floor to the CFO for the specific analysis of the numbers, I would like to make some general considerations. It is clear that we are particularly satisfied with this half-yearly report. A half-yearly report that goes in continuity, indeed, is even an improvement compared to the first quarter. The important thing I want to point out is a really significant growth in the organic activity. In fact, overall Revenues increased by 20.4 million euros, therefore by 12.3%. If we exclude from the evaluation the two facilities that we have recently acquired, GVDR and Sanatorio Triestino, thus making the data comparable with the previous year, we have a Like-for-Like Revenue growth of 9.5 million and 5.8%.

The even more important thing, focusing on the Like-for-Like values, is that, as regards EBITDA, compared to the 9.5 million in revenue growth we have an EBITDA growth of 4.8 million: this means that these incremental Revenues generated a margin of 50.5%.

The other element of fundamental importance, which must absolutely be highlighted, is the growth of private activity, which has grown substantially. Overall we have a growth of 25.3%, a figure that also includes GVDR and the Sanatorio Triestino, where I remember that the GVDR has private Revenues of

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approx. 50% of its turnover and Sanatorio Triestino produces private Revenues equal to approx. 25% of its turnover. However, making a comparison exclusively with homogeneous data, therefore excluding GVDR and Sanatorio, we still have a growth of 11.7%.

Outside-Region figures are growing by 7% this year, an important figure because last year Outside-Region numbers grew by 10.5% and private figures by 2.1%, while this year Outside-Region numbers are growing by 7% and private by 11.7%.

This is a very important data, because it gives us the pulse of the general situation of the country, that is, we operate in a sector which, whatever happens, even at a regulatory, structural or organizational level, on the side of the National Healthcare Service, healthcare, regardless, grows, because obviously it is a non-compressible need, indeed, it is a growing need, especially in our country, due to the well-known problem of the elderly and chronic patients. I repeat: we are the European country with the highest number of elderly and chronically ill people ever.

As I have said in many previous calls, obviously Covid has exponentially increased healthcare needs, we continually read in the newspapers the problem relating to waiting lists therefore, since assistance is an irrepressible necessity, the patients, even if the system is unable to support them and satisfy all their needs, in any case they grow, through insurance policies; now all citizens are taking out healthcare policies and there is even a great growth in the "out-of- pocket" private sector not covered by insurance policies, because health is a basic necessity. This is to say that we had understood this trend, perhaps not fully, in the sense that we had perceived it but compared to our perception the phenomenon is growing very quickly. Our numbers, as I have represented them, highlight this phenomenon.

I would also like to make a quick point about the last two facilities we have acquired. As regards the GVDR, the diagnostic center in Veneto, with various locations between Padua, Venice and Treviso, 2022 brought a margin of 19.3%, the half-year figures - I remember that we acquired it in December last year - bring a margin of 23.9%. I repeat: the facility makes 50% of private turnover. This gives the signal of how the facilities, six months after joining GHC, are already increasing their margins by several points. However, it doesn't end here, because there is an important growth project in the pipeline at GVDR, as I had anticipated, which will end in early October. An adjacent building had already been purchased by the previous owners, now communicating with the main building in Cadoneghe, which is the reference centre, the largest in the entire GVDR reality. They had acquired this adjoining building to develop a completely private business. The renovation will be completed in early October and in the meantime, we are building an operating room there to develop outpatient surgery, but we will already start with an incremental private turnover, which is

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connected to a couple of agreements that we have practically already brought home. For an agreement we are taking over the package of a company that deals exclusively with occupational medicine. GVDR also deals with occupational medicine, therefore they are welfare services for companies, which are now all oriented towards corporate welfare. We at GVDR already make around 500,000 euros of turnover in occupational medicine and have bought packages for a further 700,000 euros of turnover. This doctor who gives us this branch of the company will move into our building, bringing with her this entire package of contracts with large companies and will occupy some of the clinics in the building. Obviously this is very important not so much for the profitability of the 700,000 euros, which in the end is not very high, it will be around 12%, but for the large private sector that it will generate for the entire centre, because it is clear that, when checks are carried out which are part of the company contract package, it always turns out that patients need further tests and obviously those are extra package and all private.

Even the Sanatorio Triestino in 2022 had a margin of 15.7%, we only have two months, so they are not indicative, because we acquired it in May 2023, but it still goes to 17.7%. However, it is the signal of a trend. We are also particularly active with this facility. Just today they told me that we managed to obtain an incremental budget of 550,000 euros for ophthalmology and orthopaedics. In fact, in synergy with Centro Medico San Biagio, also owned by us, which is in Veneto but on the border with Friuli-Venezia Giulia, we are trying to develop ophthalmology. You know that the Centro Medico San Biagio has a very strong know-how in ophthalmology, so we are bringing in ophthalmologists to develop ophthalmology and, obviously, based on this we are also very happy to develop orthopedics which, as you know, is one of the specialties with the highest margin. Especially in view of the development of ophthalmology, I must say that Sanatorio Triestino is a wonderful property, completely renovated, with newly purchased machinery. It was a very convenient operation that we carried out on the Sanatorio, not only because we purchased it at a very low multiplier, but also because it was completely renovated and with newly purchased properties. The only thing that needed to be renovated was the outpatient surgery room, which we are happy to do also as part of this project to develop the ophthalmology business. It will be a small intervention, which we will do around Christmas, to avoid hindering business continuity. All these interventions will bring further growth to the acquired targets.

The latest update: we have finally concluded the IRG 2 project (Istituto Raffaele Garofalo 2), in Piedmont, in Gravellona Toce, which unfortunately had suffered a major setback because the works were starting with the start of the Covid pandemic and therefore we had to stop. Instead, now we have completed them and I must say that it is a beautiful building, connected to the Raffaele Garofalo 1 Institute, which is on the other side of the road, with a futuristic glass

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walkway. Overall, the growth of the private department of the IRG is also going very well and we are working to try to give the Eremo di Miazzina, i.e. the original headquarters, which will be exclusively social-welfare to some cooperatives. We only left the dependency care beds there, but with not too interesting margins, which would take away a lot of energy from a management and investment point of view. Instead, there are these cooperatives, we are dealing with one in particular, which provide personnel intended in particular for dependency care services, which are interested in the business management because they have more possibilities to develop it and find synergies. In the meantime, our intention is perhaps to give it under management for three or four years and then concentrate on the new Raffaele Garofalo Institute. In this way the margins of IRG would also increase, because it is clear that the original headquarters would otherwise dilute the results.

These are the objectives we are bringing home, like all those we have set ourselves up to now. I keep quiet, because I think I've put a lot of irons in the fire. Before speaking to the CFO, are there any questions?

OPERATOR: This is the Chorus Call operator. We will now begin the Q&A session. The first question is from Emanuele Gallazzi, from Equita. Please.

EMANUELE GALLAZZI: Good afternoon everybody. I'll start with the first three questions. The first: you indicated the different growth between private activity and outside-Region, I was wondering if you could give us an indication of what you are seeing between the different types of facilities, therefore at the level of hospitals, diagnostic centers and polyclinics if there are of the differences in speed trends in this phase and market context.

The second point is whether you can give us an idea of the performance of the various facilities or how the business went in July and August: I know summer months are not very busy, but an indication of how the activity continued in the last two months can be useful.

Third element: in the press release you indicated the possibility of new incremental budgets for the second part of the year, you gave an indication in the call about Sanatorio Triestino, I was wondering if there were other opportunities and, connected to this, on the topic of waiting lists, how the regions are moving, I am thinking above all of Emilia-Romagna and Veneto which are the most important for you. Thank you.

LUIGI CELENTANO: I take the floor and try to go through the questions in order. Regarding the first question, if we point out the different speeds of private growth between facilities, I would say that the growth we express at a consolidated level is a generalized growth that concerns both hospital structures and outpatient

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