Assura (OTC:ARSSF) — Annual General Meeting

0:00 Good morning, and welcome to the ASSURA PLC Annual General Meeting Proceedings. As recorded meeting, attendees will be in listen only mode. Questions could be submitted via the Q and A tab situated on the right hand corner of your screen. Simply type in your question and press send. The company may not be in a position to answer every question submitted today. Have all questions be reviewed with responses published on the investment company platform where appropriate to do so. I'd now like to hand you over to Ed Smith, Non Executive Chairman. Good morning, sir. Good morning, and good morning, everyone, both here and on the on the on the call. It's now 11:00. And as there is a call in present, I declare this meeting open. For those of you who don't know me, although I've been introduced, I'm Ed Smith. I'm the nonexecutive chairman of ASSURA, and I'd like to welcome everybody to this year's AGM. In addition to those joining the meeting in person, this year's AGM has also been made available to view via investor meet at the company platform.

0:53 Investors watching the meeting via this platform are able to see and hear the AGM but have not seen or heard by the board and has made clear in the notice of the AGM are unable to vote via the platform. Questions may be submitted in writing over the platform and will be addressed at relevant points in the meeting, and we can see them on the screen. I'm joined to hear today by my fellow directors, and I'd like to introduce them briefly before we begin. Clearly, Jonathan Murphy and and Jane are executive directors, and then our nonexecutive directors, Jonathan Davies, Louise Fowler. We we also have Emma, Karriaga, Noel Gordon, Sam Barrow, and our associate, Lara Nashcombandi, as part of our development of of next generation of of of PLC non executives.

1:47 We're in a board meeting today, so we're all physic to present in in a in a long board meeting. So we've stepped out to to to conduct the AGR. So, Jonathan, it's over to you now to provide an update on the company's performance in the first quarter, which went out in our trading statement this morning. Yes. Thank you, Ed, and good morning, everyone, and welcome welcome to the AGM. So in terms of, you know, the update we put out this morning, we we reported on a further quarter of good progress. And, clearly, with the backdrop that we're all facing at the moment in terms of higher interest rates and higher inflation, I'm sure investors will understand that we have slowed down on a a number of our of our activities in terms of new starts. So if we look at our activity going back to the year end to March, we were highlighting that we had five projects that we were looking to start this financial year, and one of those has now started in the first quarter. Just to put that in context, if we were to go back twelve months, we probably would be looking at doing between twenty and twenty five projects.

2:46 So clearly, that is a significant slowdown in in in new developments and new activity, and that simply reflects the the backdrop that we have in terms of increasing cost of construction, increasing cost of finance. And therefore, as a result, that means that we're having to charge the NHS higher rents on those new projects. Those higher rents are clearly take longer to be agreed and accepted by the NHS, hence why we are slowing down in terms of those in terms of those new activities. But in terms of the quarter, I'm delighted to say that we we've completed two projects, and we also passed a significant milestone for the business. So we completed the hundredth development that we have delivered for the NHS in the twenty year history of the company, a very significant milestone to, you know, to deliver a further high quality development for for the benefit in the NHS, and that is a, a new GP surgery in Wolverhampton, which we've delivered for the, Presby, medical practice.

3:44 We've also completed a further project, which is a, a site in in Kettering, which is a new facility for Ramsay Healthcare. So this is effectively a a facility that provides day case surgery on behalf of the NHS, but operated and and delivered by by Ramsey. In terms of other activity, we've also seen a significant number of rent reviews completed in the period in the ordinary course, and we've been able to, you know, see an increase in our organic growth as as a result of that. In terms of other activity going on in the business,

4:17 the good thing in terms of the the backdrop is that we've got we've had no financial events in the period. We've got no debt that is due for renewal anytime soon, and the business remains in a very strong position in in a very robust financial health with significant cash resources and more than enough cash and facilities to deliver all of the projects that we've got on-site and that we're due to start in in the over the coming year. So overall, the business, despite slowing down in some of these new projects, business remains in very strong financial health. We've made good progress in the quarter, and we continue to continue delivering the projects that are on-site for the NHS at the moment. Is a summary of the of the key activity in the first quarter. Thank you, Jonathan. So before we get to the formal business of the AGM and the resolutions and and everything, this is an opportunity for shareholders to to basically ask questions about the performance of of the company.

5:15 And we do have one on screen, which, if I can say, how does increasing interest rates affect your profits in any is is any any of of your your debt debt due for refinancing and our rents rising? Good question. We we talked about that at the year end. Jonathan, do you want to respond to that one? Yes. So I you know, as I referenced in the in my introductory remarks, we're in a very fortunate position in that we've got no debt that's due for refinancing anytime soon. So the first facility that we've got is we've got a facility during 2025. So between now and 2025, we have no debt coming up for maturity. We're also in a in a good position from the type of debt and the mature and the maturity profile we've put in place, and the vast majority of our debt is is is very long term. So we're over seven years in terms of our average maturity.

6:05 And the cheapest debt that we have is actually the longest debt. Most of that doesn't fall due until the twenty thirties. So in the short term, we've got no pressure effectively from from rising interest rates. It has no impact on on the business in the short term. And in terms of rent reviews, yes, well, we we completed 55 rent reviews in the first quarter. So we added no point 6,000,000 to the rent roll. So, yes, we are continuing to to see progression on on rent reviews.

6:30 No. Any questions on the performance of the company before we get to the resolutions. Yes? Yeah. Just wondering, you know, if interest rates stay sticky, how viable is the business going forward? Because how do you expand dividends that you're paying out is around 6% -ish in cost of capital as that is. What what do you see for the future over the next two or three years if rates stay where we are, get higher? So the question for for for for for for for people on the screen because I think they can't hear you, but I can if interest rates stay high, what is viability of the business, and and how do we look forward in terms of rates of return. Expand. Yeah. And and expand.

7:16 Absolutely. So so the so the good news is on if you take that, you you sort of reference a period of two or three years. So if we look at the next two or three years, we've got almost no debt up for for refinancing. We've only got one facility, which is 75,000,000. So over a three year time horizon, we'll have to refinance 75,000,000 debt out of our 1,200,000,000 debt book, so relatively modest. Of that 75,000,000, that that's current rate is around about 3%. So, clearly, if we refinance today, that would cost us around 6 percent. So, clearly, that would cost us more, but that wouldn't be a material impact to the business. And over the next three years, we'll still be able to deliver organic growth, notwithstanding, you know, slowdown in projects I referenced. The projects we're already building, they all add £4,000,000 to our rent all this year. Our rent reviews, we've got 22% of our rent views, which are which are guaranteed to go up in line with inflation.

8:09 So you've got you've got the indexation growth coming from that. And if we look at where we were at the end of March, in terms of our index linked rent reviews, we had over £4,000,000 of of rent due effectively from from previous inflation. So you've got that coming through as well. So So on a two or three year time horizon, you've got excellent visibility of continued growth in our top line with very little downside from the impact of of

8:35 interest rates. So we're incredibly well positioned. Now in terms of the overall, your your other question is about how we position future growth, I mean, that's that's is a really good question. And, clearly, if we were to raise capital today when our dividend yield is is, you know, six and a half, 7%, clearly, we would only be doing that if we're able to identify new opportunities that we're able to provide a return in excess of that. So that we'll we're we are already adopting a very different approach to new projects. But if you step back and look at the macro picture, you know, UK health care infrastructure is incredibly underinvested. You know, all the political parties are talking about the need for more out of hospital care. So on a macro view, we're still incredibly bullish about the prospects for the sector in the in the long term. We just have a bit of a short term challenge today, but we're very well positioned to write that out.

9:26 It's not without its challenges that we're up for. A quick way of putting it. Yeah. Sorry. Maybe we are long winded. We are really good at what we do, and we're very much liked by Yeah. A struggling NHS, but it is, you know, headwinds. I'm just a bit concerned. There's a bit of a spiral with as rates possibly might go up further.

9:48 Obviously, that's the gearing comes worse, worse, and the share price drops. And the advantage of the fantastic work that Jane has done on long term financing with average debt of 2.3% fixed for a number of years is is, as as the Stifel note says this morning on our trading results, market leading balance sheet strength. And we're not in any rush to do anything about that. Okay. Sure. Understood. But I think on on the in terms of using the gearing and you talked about sort of a downward spiral, just just one point to just make clear. So, obviously, if you look at a loan to value ratio, our loans are fixed. They're obviously they're not changing. And if but if our values are decided, our values are falling, then it looks our loan to value obviously goes higher, and that can be a risk factor for people to look at that and go, well, look.

10:40 The business is riskier than it was before. But if you take if you step away

10:43 from that and look at the actual cash flows, you know, we've got a very strong interest cover position. So we've got we we, you know, we've got very, very good cover in terms of the interest that we're paying. All our debt is fixed, so that's absolutely, you know, solid. And the projects that we're completing now and the rental growth that I mentioned before will all improve that interest cover because our interest cost is absolutely fixed. So we're not we're in a very fortunate position that because we are, you know, very well capitalized with a with an with an excellent debt, effectively, short term financing metrics will improve rather than deteriorate. So even if the environment if you move this one's even higher, the actual impact on our day to day cash flows is zero. So we're we're in a very good position in that sense. I have another question on screen.

11:31 What is the current ECG ratings of your properties?

11:35 How many need improving, and who will pay for it? Okay. So in terms of our in terms of our EPC, I presume it means EPC, which is our energy performance certificate. So the the the current portfolio has has 53% of our of our portfolio is is EPC b or better. We have a a plan to have a 100% by 2026, so we've got a further three years to to deliver that. That's well ahead of of of most comparable businesses. The good news about the type of assets we build is that they are relatively uncomplicated buildings. So, you know, we're sat here in a in a in a, you know, a a London office block, which has got very complicated air conditioning facilities and lifts and infrastructure.

12:24 Our buildings are much more straightforward. And so we don't have the same level of challenge around our EPC performance, and our portfolio is relatively new. So the average age of our building is is nineteen years. So we we you know, most of our stock is modern purpose built stock that's relatively easy to update. So, yeah, 53% EPCB or better and a plan for that to be a 100% by 2026

12:51 on On the the journey. I have another question, which is quite a long question. I see recently the MD of Saga has directed his board to personally purchase, accumulate through their own finances over the next few years and continue to own over a minimum set period, a multiple of their incoming company shares as a requirement to main remain part of the executive incentive package. Is this something that your company would also seriously consider an action as a formal policy of ensuring management commitment? As a shareholder, I would encourage you to look at this as it certainly makes the director remuneration incentive package more profitable. I think you can answer that in respect to to yourself and Jane. Yes. Absolutely. So so in in terms of our personal shareholder, we have we have personal shareholding requirements as part of remuneration policy.

13:46 A third of of any of our bonus is is is investable in shares, and and Jane and I have just just bought shares in the ordinary course as a result of that. And in terms of share options and anything that gets awarded, they have a lock in period of two years, and we're not allowed to sell them unless we're in excess of those those requirements. And and in fact, we've we we we are net investors in the shares, not not sellers. And we will we'll we'll continue to remain very, very invested in in the stock. And, you know, as as both executives and shareholders, we're very, very closely aligned to the to the shareholder performance. K. Good. And then a question from Kevin. Should the governing party change at the next election, is there any predicted impact on the business?

14:35 Well, that's a that's a tricky one. So I think probably most people are expecting there could be a change of government to the next the next election. From our perspective, clearly, if there was to be, let's let's say, for argument's sake, a labor government and majority government, which most people actually may not be the most likely outcome, but let's say there is a labor government. You know, what where does that leave us? The good news is that the we we have regular conversations with all the political parties as I'm sure you understand. And and the the policy direction of of labor is very supportive in terms of investment in out of hospital care and into investment in out of hospital facilities, and clearly, that that would underpin further demand for our assets. It's also really noticeable that some of the language that the labor party using now is very different to three years ago. So if you think not three years, but you think back to the last election with Jeremy Corbyn, there was a quite a negative tone around, private sector involvement in health care. That negativity is now gone. I think there's much more of a sort of pragmatic, you know, business friendly approach being adopted. So so overall, a change in government for us would perhaps be an opportunity for an acceleration of investment in primary care. And in fact, the you policy document that Labor published just a few weeks ago is very supportive of the expansion of of primary care provision.

15:53 Doesn't explicitly say, and therefore build more buildings, but, you know, that would be an obvious conclusion from that. So we think overall, it would be probably a net positive for the business. Thank you. And James' question, you have a stable a minus rating. What would cause the rating to fall? Maybe let Jane cover that matter. Yep. You're right. We do have an a minus stable outlook on our on our rating. When they pull the rating together, they use a number of factors. Jonathan alluded to cash flow and Fitch who provide our rating. They very much look at the underlying cash flow. So, they're looking at interest cover. They're looking at net debt to EBITDA. And to a lesser extent, they're looking at at loan to value. We would need to see our loan to value, be maintained for a sustained period well above 40% before they would cover it. We would also need to see our interest cover fall. So our covenant is 1.75 times. We were at four and a half times.

16:56 And as Jonathan said, we're actually predicted to improve that cover. And our net debt to EBITDA at nine times is is is perfectly within the range that Fitch has set. So I have no concerns at the moment. I mean, a rating movement would be from an a minus to a triple b plus, which is a very, very strong investment grade business even at a BBB plus, but I'm not seeing anything to indicate that we would at this moment in time. Any further questions? Would you like to ask your question and and and say Sure. Who you you are, and I'll try and summarize your question for you for the for the benefit of being on the screen. Yeah. There's a bit of an intro and then and then the question. So I am Melanie. I'm here today on behalf of ShareAction, which is a charity that campaigns for more responsible investment on social environmental issues.

17:52 So my question is regarding assurance policies related to the insecurity of work, particularly for lower paid employees and contracted workplace. First of all, thank you for your recent engagement with ShareAction on the topic of living hours. I'm delighted that ASSURA is a living wage employer. This is one of the most important steps an employer can take to alleviate in work poverty. However, the number of hours worked and the security of those hours can also significantly affect the amount of pay for employees to take home. And that's why the Living Wage Foundation has established a living hour standard, which presents employees with opportunity to provide staff with security and stability. Living hours of credit with employers commit to riding workers' work.

18:40 Decent notice periods for shifts of at least four weeks with guaranteed payment if shifts are canceled, the right to a contract that reflects actual hours worked, and a guaranteed minimum of sixteen hours a week unless the worker requests otherwise. ShareAction's been working in this area, with coordinating a coalition of institutional investors with 3,700,000,000,000 in assets under management. Following successful engagement on the living wage, its members are now engaging with companies on insecure work and promoting the living hours standard as a market of responsible business practice. So my question, I'd like to ask the board whether they have given consideration to the issue of insecure work or whether the company will become a leader as an early adopter of the living hours standard.

19:28 And finally, would you surely be willing to meet with members of the Good Work Coalition, the Living Wage Foundation, and Share Action to further discuss this? So the question is about the the way in which we approach our employees with respect to working hours, living wage, general engagement around work remuneration and our commitment to being a good employer with respect to unsocial hours and and other other things. And and that's a sort of quick summary, probably not do you justice, but but it's grateful I'm grateful that you gave us a question in advance. I know Jonathan will want to respond fully to your question. Yeah. Absolutely. So, I mean, I guess the first thing I would say is that, you know, we take our our responsibility for for social impact and sustainability incredibly seriously.

20:20 And in fact, it's an absolutely central tenet of the business, and and it's it's it's the way we run our business on a day to day basis and is and is, you know, is absolutely central to to our operations. We're we're a health care business. We operate in a in a in an environment where we are trying to improve the health and well-being of of the individuals impacted by our buildings, and that runs right the way through our organization, our culture, and the and the way that we operate. We are a a national living wage employer, we commit to that both as both as directly as an employer, but also we promote that through our through our supply chain, through the partners that we work with. Anyone who wants to be a partner or a supplier to assure it has to share our our values, and has to share our ambition, to promote social impact and sustainability.

21:09 And that that's right away across everyone that we work with. So the the broad thrust of our of our of our approach is entirely consistent with the with the the ambitions and the aims of your organization. In terms of that specific point, I'll be entirely honest. We haven't we haven't directly looked at the minimum hours requirement within our within our either our our direct employment or within our our supply chain. To a certain extent, it's it's likely not to have a very significant proportion of our supply chain. If you think about our operations, in terms of our our head office team, our directly employed team is not relevant at all. They're all well within the the parameters that we're talking about. In terms of the work we we direct, we employ directly, again, largely professional services firms, largely major contractors.

21:58 They're they they will absolutely be well within those those parameters, but we haven't it's something we haven't explicitly required as part of our supply chain. It's not some it was an element of of the living wage commitment that I I'll be honest. Until your question came to, I wasn't really aware of. I think it's very unlikely that there's anyone within our entire supply chain that that is impacted negatively by the issues that you raised, but we're certainly happy, suggest to to to have a follow-up discussion and understand the issues more and just make sure that there aren't further things that we'd be able to do. Thank Good. Thank you. We we you know, I I I say this, you know, through COVID, we put people first as our motto as a board. All of my board colleagues was look after our people because by looking after our people, we look after our customers. We look after our suppliers.

22:48 And that has continued. And with our ASSURA foundation, we have a very strong sense of of social engagement. I think as a company that has essential provision to our great national health service, you'd expect us to have have much of that. But as Jonathan says, continued engagement and and watching that brief is important. If there are no other questions from the room, there are no more questions on the screen. I have the joy of turning to the formal business if I can get my machine back up. And and so you have to, I'm afraid, listen to the script. We now proceed to the formal business of the meeting. This consists of the resolution set out in the notice of the meeting dated 06/01/2023, which was sent to you together with an explanatory circular and the annual report, which I have to say is an excellent document. As mentioned in the circular and as permitted under ASSURA's articles of association, I directed all business to to be be transacted at today's meeting be voted on by way of a poll.

23:53 This will result in a more accurate reflection of the views of shareholders by ensuring that every vote is recognized, including the votes of those shareholders who who are unable to attend, but who have appointed proxies for the meeting. Shareholders present and in person, corporate representatives, and proxies are entitled to vote. The notice of meeting includes 17 items of business for your consideration. An explanation of each of these is included in the AGM circular, but in summary, they are as follows. Resolution one covers our annual report and accounts for the year ended 03/31/2023. Resolution two seeks approval by way of an advisory resolution of the director's remuneration report for the year ended 03/31/2023 contained in the annual report and accounts.

24:43 Resolutions three and four are, audit related resolutions. Resolutions five to 12 cover the reelection of Louise Fowler, Jonathan Murphy, Jane Cotton, Jonathan Davies, Sam Barrel, Emma Karriaga, Noel Gordon, and myself as directors. And resolutions 13 to 17 covered capital and other issues, including authorizations relating to the allotment of share capital, the disapplication of preemption rights, the repurchase of shares, and the notice period for general meetings. Resolutions 14 to 17 are proposed as special resolutions. So got that bit done. Does anyone have any questions on any of today's resolutions before we proceed to voting? I will explain the voting procedure further in a moment, but I would mention now the fact that because all resolutions will be voted be be voted on by way of a poll, these resolutions will, in effect, be voted upon simultaneously rather than sequentially.

25:45 This is the one opportunity in the meeting for you to ask any questions you might have before I invite you to vote on those resolutions. So if there are any questions on the resolutions, and the screen's gone blank, do you know Do we need to pass Which which machine whose machine is Oh, yeah. Are there any questions in the room on the resolutions? By the way, sir, it's nice to see you back for another year. You've not seen before? You have? Thought you had. Oh, we have no questions on the screen and no questions in the room.

26:33 Right. I'll now explain the whole procedure. The company secretary, all aboard, will act to scrutineer in connection with the poll. She will be assisted by a registrar's link asset services. Only shareholders or their proxies or corporate representatives are invited to vote at the meeting. To vote on the poll, you will need the poll card, which you were given on registration today. If you wish to vote on the poll in more than one capacity, you will need a separate poll card for each capacity in which you vote. If need you need a a further poll card, please put your hand up, and we will pass one to you. Those shareholders present who have returned a form of proxy need not complete the poll card unless they wish to alter their voting instructions. However, if a shareholder now completes a poll card, any proxy vote given by that shareholder will be canceled.

27:24 When the poll procedure commences, you should insure insert on your poll card in the places indicated the full name of the shareholder if if you you are are using the poll card to vote only some of the shares registered in the shareholder's name, but not all of them, the number of shares you are voting with the card, and across in respect of each resolution to indicate that you are voting for or against or withholding your vote. If you wish to vote some shares for a resolution and other shares against it, you should also ensure cert the relevant number of shares alongside the separate crosses that you insert for that resolution. You should then sign the card in the place indicated. Cards will be collected at the end of the poll procedure when I have declared the poll closed.

28:12 Are there any questions on the voting procedure itself? Good. The poll will now commence. So are there any shareholders who wish to vote in the room that have not already done so? Think in that case, we can move And I can say that everybody who wishes to complete a poll card has done so, and we have all received all the proxies. So the poll is now closed, and the results of the poll on each resolution will be determined by this ball of scrutineer. This will take bit of time, and the results will be announced through a an RNS to the market as soon as practical. We expect this this to be sometime later today. If you'd like to see details of the valid proxy votes lodged at the relevant proxy cutoff time, these are available from.

29:04 That concludes the annual general meeting. Thank you very much for attending, and see everybody next year. Thank you very much. Thank you very much to the board for updating attendees today. I please ask attendees not to close the session to be automatically redirected to provide your feedback in order the board can better understand your views and expectations. This will only take a few moments to complete and is greatly valid by the team. On behalf of the board of ASSURA PLC, we'd like to thank you for attending today's Annual General Meeting proceedings, and good morning to you all. Thank you.