Auna Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 22, 2024

There are 7 speakers on the call.

Operator

Good afternoon, and welcome to Aouna's First Quarter 2024 Earnings Conference Call. My name is Christa, and I will be your operator for today's call. At this time, all participants are in a listen only mode. And please note that this call is being recorded. There will be an opportunity for you to ask questions at the end of today's presentation.

Operator

Now, I would like to turn the call over to Anna Maria Mora, Head of Investor Relations. Ma'am, please go ahead.

Speaker 1

Thank you, and hello, everyone, and welcome to Auna's conference call to discuss our Q1 2020 24 results. Please note that there is a webcast presentation to accompany the discussion during this call. If you need a copy of the presentation, please contact Aouna's Investor Relations team. Before we begin, I would like to remind all participants that our comments today will include forward looking statements. In addition to reporting unaudited financial results in accordance with International Financial Reporting Standards, we will discuss certain non IFRS financial measures and operating metrics including foreign exchange neutral calculations.

Speaker 1

Investors should carefully read the definitions of these measures and metrics included in our earnings press release of today to ensure that they understand them. Non IFRS financial measures and operating metrics should not be considered in isolation, as substitute for or superior to IFRS financial measures and are provided as supplemental information only. Before we begin our prepared remarks, please also note that certain statements made during the course of today's discussion may constitute forward looking statements, which are based on management's current expectations and beliefs, and which are subject to a number of risks and uncertainties that could cause actual results to materially differ, including factors that may be beyond the company's control. This includes, but are not limited to, expectations and assumptions related to the integration and performance of the businesses we acquire. For a description of these risks, please refer to our filings with the U.

Speaker 1

S. Securities and Exchange Commission and our earnings press release. Speaking on today's call is Usos Zamora, our Executive Chairman and President, who will discuss Auna's consolidated and segment financial and operating results, as well as provide updates on our various strategic growth initiatives. Giselle Ramey, our Chief Financial Officer and Executive Vice President will follow with a more detailed review of Aunah's consolidated financial results. After that, Sussa will provide a wrap up of our Q1 performance as well as discuss our performance outlook.

Speaker 1

We'll then open the call for your questions. Suso, please go ahead.

Speaker 2

Good afternoon, everybody. Thank you very much, Annie. Welcome everyone to our earnings call. Our first as a public company and definitely an exciting moment in our journey. Let's begin our presentation and please turn to Slide 4.

Speaker 2

So our regional, vertically and horizontally integrated healthcare platform delivered strong top line growth and we're reporting an adjusted net income basis of PEN 22,000,000. So from top to bottom, it's been a good quarter. These results reflect the growing scale advantages and increasing synergies of our regional platform. Peru's outperformance strengthens our conviction in Mexico for our larger market where we are deploying the same business model and implementing our own standards at OCA. The business we acquired in Monterrey in Mexico in the second half of twenty twenty two.

Speaker 2

Our continued growth in Mexico indicates that our strategy is gaining traction in healthcare services, while the launch of Onco Mexico is proceeding according to our plan. Our aim is to scale Mexico with a high degree of predictability. Let's take a closer look at our Q1 performance. Please turn to Slide 6, operator. So starting with our consolidated results, focused and consistent execution of our growth strategy drove top line revenues across our geographic segments.

Speaker 2

Key performance drivers were a growing proportion of more profitable, high complexity services. Of course, increased capacity utilization and improving our operational efficiencies. Our strong performance reflects a growing scale and returns from past investments in Peru and Colombia. And in addition, we made further progress deploying our business model in Mexico. The key highlight of the quarter was Peru, where EBITDA margin surpassed our internal 20% EBITDA target.

Speaker 2

Expect to continue to replicate the business factors that we had in Peru that have produced growing scale and the benefits thereof in Mexico. Adjusted net income, which excludes extraordinary non recurring items rose to PEN 22,000,000 as operating results more than covered financial expenses and taxes. Debt leverage, a key metric for all of us at Oona fell further and we expect will continue to decline as we gain additional traction in the latter half of the year. In healthcare services, our organic and inorganic investments in Peru and Colombia are paying off. As we have further implemented the own away, this obsession with our patient centric model of high medical resolution with great patient journey and standardization that scales with high predictability and delivers growing financial results.

Speaker 2

We have been ramping up capacity utilization in Mexico through a physician relationship and incentive model. And at the same time, we have been developing referral initiatives with insurance companies and brokers. The strong growth in top line and average revenue per patient reflects a greater mix of high complexity services. Our focus on oncology, cardiology, neurology and trauma shock. At Onco Salud, we continue to attract new customers to our oncology and general healthcare plan memberships, combined with higher average monthly revenue per customer, this drove revenues 15% higher.

Speaker 2

While intercompany price increases impacted OncoSolu's cost of revenue, our very stable oncological MLR at 51.5 percent also produced stable gross margins. We flip to Slide 7, operator. Now let's move on to our 4 segments to review specific segment results. In order to be consistent with the FX neutral metrics provided on a consolidated basis, variances for Mexico and Colombia will be provided on a local currency basis, while the financial charge remain in our functional currency, the Peruvian stock. Please turn to Slide 8 to discuss the results of our healthcare segment in Mexico.

Speaker 2

So in Mexico, we continue to advance strategic initiatives in the implementation of the UNO. Our progress in the Q1 of 2024 is reflected in the 6% increase in healthcare services revenues versus Q4 2023. Patients treated increased 4.7% with a range of services. Occupancy was stable at 41% due to a temporary decrease in operational volume related to an earlier Easter holiday that fell in the Q1 versus in the Q2 in 2023 and physicians also attending to medical congresses and distracted many of them. This also occurred in the Q1 of this year versus in other quarters last year.

Speaker 2

Bentayra grew 38%, driven by growth in B2B plans. While Benthera is a small percentage of our revenues, it serves as a platform for launching Hong Kong Mexico. In addition to its nationwide insurance license, Entegra gives us an established and extensive insurance distribution network in the country. Entegra will be rebranded to Onus Salud in the future. Mexico's healthcare services adjusted EBITDA decreased versus the Q1 2023 on higher SG and A as a product of investments in regional, commercial and operational capabilities necessary to deliver growth in the medium to long term, along with local administrative capabilities that have not yet been implemented in the Q1 of 2023 after the acquisition.

Speaker 2

However, in a better measure, adjusted EBITDA grew 23% versus Q4 2023. And margins remain at a very healthy and stable level of 34%. I must highlight we're solidly building our Mexican capabilities and these replicate those in our business model that have years of proven results. During 2024, our organizational focus has been and will continue to be Mexico. And our progress in integrating Mexico to the own away team promising.

Speaker 2

We are gradually bringing the own away standards and top talent to OCA and gradually scaling this business in Monterrey, one of the Mexico's fastest growing healthcare markets benefiting of course from the near shoring phenomenon. Again, we remain sharply focused on the implementation of our proven capabilities and thus to shift revenue mix towards standardized, more profitable, high complexity services and on increasing occupancy by attracting and retaining top tier high yield physicians with incentives and other benefits that reward productivity within the owner network. Additionally, we are rolling out tailored packages and bundles for insurance and broker referrals And these also attract out of pocket payers. We are on track for the launch of Onco Mexico this year. Our other key initiatives during the quarter are the implementation of SAP and our hospital information system for which had a great all hands launch of these projects in Monterrey early in the year.

Speaker 2

We expect Mexico to perform well, definitely during the rest of the year with a higher impact in the second half of the year as we start harvesting the benefits of our own away strategy. Now please turn to Slide 9 to discuss the Colombian Healthcare Network. Revenue in Colombia increased 15.3% year over year. This growth was primarily driven by a 22% increase in average revenue per patient due to a better service mix with a higher participation of oncology services and a decrease in certain ambulatory and in home hospitalization services during second half of twenty twenty three. The latter resulted in a 5% decrease in patients versus Q1 of 2023.

Speaker 2

So growth is being facilitated by investments, such as increasing the number of ICU beds that are hospital Outpatient consultations increased 46% in Colombia, while the number of patients we treated decreased 5% as we reallocated resources away from low complexity areas such as ambulatory and in home services. This is our strategy to direct high complexity services to more expensive and specialized hospital units and service low complexity through digital channels, at home deliveries and or large volume facilities that benefit from scale. Occupancy levels grew significantly year over year to 79% and this includes Clinica El Sur in Medellin, a relatively new facility that is ramping up. Adjusted EBITDA for the segment increased a strong 16% on top line growth, while margin was stable. Cost of services were up 19%, reflecting investments to support the delivery of high complexity services.

Speaker 2

However, SG and A was also stable during the quarter. In Colombia, we continue to develop new competencies in high complexity areas like oncology and neurosurgery, and orthopedics and cardiology, such as our recent inauguration of the Center of Excellence for Pulmonary Oncology. We expect the SAP implementation to be completed this year for Barranquilla and Medellin. This was a complex endeavor, one in which we've learned a lot, given the need to consolidate many operations with different and older legacy systems. Now please turn to the Slide 10 to discuss our healthcare in Peru segment.

Speaker 2

The results of healthcare services in Peru are a product of leveraging the expansion of the network, increasing the mix of high complexity and high ticket services and monetizing our own network referrals as a result of our proven strategy of deploying our urban healthcare ecosystems. These drove average revenue per patients as did adjustments to illness healthcare plan in order to align rates with the highest payer within our network. We are also harvesting growth from other organic investments as well, such as a clinic at Chiclayo Hospital. We've also expanded clinic at Ayahuasca and increasing the emergency service capacity at Quintella. Another revenue driver in Peru was a 2 percentage point increase in occupancy.

Speaker 2

And again, this takes into consideration Chiclayo and Vallejo expansions, which are new and are ramping up. This mainly resulted from the implementation of our model by which specialties and services are directed to the most appropriate Auna facility, principally in terms of cost of treatment. This is our operational model by which we continue to scale certain facilities for certain treatment and thus gain the efficiencies of this particular operational scale. All of the revenue drivers I've covered drove operating leverage in the quarter with an adjusted EBITDA increase of 70%. Now please turn to Slide 11 to we grew revenues 16%, reflecting the strength of this business and its ability to rapidly implement new growth initiatives.

Speaker 2

A key driver was increased third party revenue from Moncassolu's integrated hospitals, which included co payments and uncovered expenses and medical grants from some international pharma labs. Other drivers included a 4% increase in the number of oncology plants. Our oncological MLR remained stable at 51.5%. Top line growth drove the 24% increase in EBITDA with underlying operating leverage reflected in SG and A as a percent of revenue, which fell 3 percentage points to 29%. Lower customer acquisition costs and deliberately slower growth as a result of price increases for general healthcare plans also contributed to EBITDA growth.

Speaker 2

And with that, I'll pass it on to Giselle. Giselle, if you can please continue with the presentation.

Speaker 3

Thank you, Sussan. Good afternoon, everyone. I'll pick up the presentation now with slide 13 to talk more about consolidated revenues. Let's take a step back and focus on the key growth drivers in the quarter. As you can see in the chart at the right of the slide, consolidated revenue grew a little bit over 20% or 11% on FX neutral basis.

Speaker 3

As Sussou pointed out earlier, the growth was across our business and all of our segments. Importantly, our consolidated gross margin in the quarter was 38.5%. We drove much of the top line revenue growth by leveraging prior investments that expanded our healthcare facilities in Peru and Colombia, coupled with a higher mix of high complexity and oncology services. Let's now turn to slide 14 to discuss cost of sales and services and SG and A expenses. Revenue growth drove a 26% increase in gross profit with a strong margin.

Speaker 3

I'd like to draw your attention to the points under the chart on the left. As we explained in our earnings release, there were a number of one time accounting effects that make comparisons between the reporting periods of the Q1 of 2023 and the Q1 of 2024 difficult. First, our cost of sales and services included PEN11 million in headcount costs that were reclassified to SG and A beginning in the Q2 of 2023. Also versus the Q1 of last year, depreciation decreased PEN11 million in the Q1 of this year due to the purchase price allocation method used at OCA. When excluding these accounting changes, our cost of sales and services increased 11% year on year on an FX neutral basis, which was consistent with the revenue growth in the quarter.

Speaker 3

Moving on to SG and A, as we note under the chart on the right, when excluding the reclassification of the PEN11 million in headcount costs and impacts which I just mentioned, SG and A increased 17% year on year on an FX neutral basis, reflecting the previously mentioned investments in regional, commercial and operational capabilities necessary to deliver growth in the medium to long term, along with local administrative capabilities implemented in Mexico after the acquisition. Now let's move on to slide 15 please. On this slide, we break down adjusted EBITDA by business segment. In total, EBITDA grew 14.3% year on year or 7% on an FX neutral basis. Although margin decreased on a year on year basis due to the growth investments which I just mentioned, it expanded 1.5 percentage points when compared to the Q4 of 2023.

Speaker 3

In Peru, where our growth strategy is very advanced, adjusted EBITDA increased 40% year on year with the margin increasing 4 percentage points to 20.4%. Let's now move on to net income on the next slide please. In the Q1 of 2024, we have introduced the concept of adjusted net income give the market a clearer picture of our net income when adjusting exclusively for the non cash and extraordinary expenses generated by the refinancing exercise that was carried out in the Q4 of last year. We expect these adjustments will provide further clarity on the impact the refinancing had on the Q4 2023 net income as well as one remaining impact in this Q1 of 2024's net income. On this slide, we show you the variations in adjusted net income for the Q1 of 2024 versus the Q1 of 2023.

Speaker 3

As you can see, adjusted net income reached a gain of PEN22 million in the Q1 of this year, up from an adjusted net income of PEN1 1,000,000 in the Q1 2023 and an adjusted net loss of PEN6 1,000,000 in the Q4 2023. I'd like to draw your attention to the PEN30 million non cash extraordinary financial cost adjustment being made to net income in this quarter, which corresponds to an extraordinary item related to the mark to market valuation of a legacy derivative, which has now been extinguished in April related to the retired 2028 notes. You can find more information as to the adjusted net income in our earnings release. Similarly, the PEN38 million increase in finance costs versus the Q1 of 2023 is also primarily explained by the same extraordinary impact just described. Now let's move on to slide 17 to talk about cash flows for the quarter.

Speaker 3

Operating cash flow increased 2% year on year to PEN154 1,000,000. This was mainly due to the growth of our Peruvian operations as discussed. As you can see in the cash flow bridge, cash used during the quarter was mainly PEN45 1,000,000 in taxes, PEN31 million of CapEx, mainly maintenance CapEx and PEN89 1,000,000 in interest expenses related to our 2029 to our 2028 term loan. During the quarter, we also reduced PEN13 1,000,000 in debt. Moving to the right of the bridge, you can see that of the PEN1.3 billion in net proceeds from the IPO, PEN1.2 billion was used to acquire the non controlling interest of Aouna Salud and most of the remainder of the proceeds were used to pay costs related to the IPO as well as a small reduction in debt in line with our deleveraging strategy.

Speaker 3

Now I'd like to discuss our debt structure and leverage on slide 18. Since acquiring Oka and Imas in 2022, we have been steadily deleveraging our balance sheet. As you can see in the chart on the bottom of the slide, furthermore, we remain committed to reaching our target ratio of 3x leverage. As you can see in the pie chart at the right of the slide, more than half of our debt is in direct local currency funding. The balance is in U.

Speaker 3

S. Dollar dominated debt of which 90% is hedged to Peruvian solids. We finished the quarter with a very strong cash position of $92,000,000 which equates to 8% of our revenues in the last 12 months. The other pie chart on this slide breaks down our debt structure, while the bar chart on the bottom right of the slide shows our amortization profile over the next years. Summing all of this up, we are maintaining a very healthy debt structure and maturity profile in order to support our growth strategy.

Speaker 3

That concludes my review. I would like to pass it back over to Suso who will wrap up our presentation.

Speaker 2

Thank you, Ajise. So I'd now like to end today's presentation with some final comments and of course open to Q and A. Comments regarding our vision of the company. So quarterly results, they clearly demonstrate our ability to disrupt, modernize, integrate and consolidate healthcare in these underpenetrated and underserved Spanish speaking Latin American geographies. We have been succeeding with a healthcare platform that is more and more regional, vertically and horizontally integrated and scaled.

Speaker 2

Also driving our success are standardized best practices and protocols as well as the state of the art equipment. These distinct competitive advantages also bring higher predictability to our insurance business. As a long standing healthcare services and oncology plan provider who has grown in the market and accompanied millions of patients in their healthcare journeys, we are able to deliver a long term approach to patient health by focusing on prevention, detection and of course, treatment. As Peru's outperformance demonstrated this quarter, once our operations reach a certain level of capacity utilization, we start to generate significant returns. And we always harvest the benefits of diversification as one country, one site, one business performs over expectations, it increases our predictability.

Speaker 2

We remain very excited about Mexico, given the promise of the owner way in that market. We continue to expect that it will deliver substantial growth and value creation, both in the near and long term. This year, we expect consolidated adjusted EBITDA to increase at least 20% with much of the growth in the second half. Please refer to our earnings press release for the assumptions behind this guidance. Reaching this goal is, of course, subject to risks and uncertainties inherent in our business and in the countries where we operate.

Speaker 2

This is also further described in our filings, but we remain optimistic in our ability to achieve it. We believe that as more investors recognize strength and merits of our business model and strategy as well as the growth potential of our markets, this will eventually be reflected in Oona's share price. With that in mind, we intend to invest substantial time in the weeks months ahead to bring Aona to the attention of a wider audience. Thus, I've committed myself, I've committed G Cell and the rest of the team to frequent roadshows that we can be close so that we can be close to shareholders and future investors. For those of you who are current investors, thank you for your ongoing support of Oona and our mission.

Speaker 2

And as a final word, I'd like to thank the doctors, nurses, technicians and many other colleagues for their hard work and dedication to our mission of transforming healthcare in Spanish speaking Latin America. All of us are highly patient centered, steadfastly committed to the highest standard of care, quality and safety. And with that, I conclude our presentation. We of course appreciate your attention and would like to now open the session to any questions you may have. Operator, please proceed with the Q and A session.

Operator

At this time, we will open the floor for your questions. And as a reminder, you can also submit your questions online Your first question comes from Bruno Alves with BTG Factual. Please go ahead.

Speaker 4

Hi, Suso, Giselle. Good afternoon, everyone. Actually, Samuel from BTG. Our first question is about the monthly performance flow out in the Q1. In Mexico, in local currency, the adjusted EBITDA declined 10% year on year during the Q1.

Speaker 4

In the presentation, you commented that some calendar effects jeopardizing the year on year comparability in March. So just to understand if the EBITDA performance in January or February was better in year on year terms? That's the first question. And the second question is about the 2024 guidance. That is also related to the first topic considering the 20% EBITDA growth outlook for this year.

Speaker 4

Do you believe that this figure will be equally split among all the 3 geographies or Mexico should lag the others that's happened in the Q1? Thank you very much.

Speaker 2

Kisa, do you want to take the first one and I'll take the second one?

Speaker 3

Yes, of course. Hi, Samuel. How are you? Just to answer the first part of the question as to EBITDA growth on a year on year basis. As we mentioned in the call, impacting comparability was not only the seasonality effects, which were different this year versus the Q1 of last year, but also the incremental SG and A, which we already saw on our P and L in the Q4 of last year.

Speaker 3

That's why it's also important to note that for the Oka Monterrey operation, EBITDA increased 34% when compared to the Q4 of last year. You mentioned the 10% decline in adjusted EBITDA, which was in reference to the Q1 of last year, which was before we had made those investments in the regional and local capabilities in SG and A. As far as the month on month performance, basically, obviously, while there were impacts comparing March to March because of fully weak, there was also other impacts in the other months due to the Congress has mentioned. So I think from a revenue perspective, the quarter is pretty much spread out between the 3 months as far as performance and growth versus last

Speaker 2

year. Samuel, sorry. With respect to the second question, I think that we feel very comfortable on the 20% guidance, EBITDA growth. And I wouldn't want to represent how it will come out, but it's not going to come out very different to what we are planning with respect to Mexico, Peru and Colombia. It is a fact that we building the capabilities in Mexico that proves predictable results takes a little longer time.

Speaker 2

So I always want to take want to at least give myself some caution that we will deliver the 20%, but there might be some difference, not substantial, some differences as to how the countries are producing the results. I think Mexico is an amazing market made for Aluna and I don't want to hit it right quarter by quarter. I want to hit it right year by year and in that 5 year metric, I think we will be, I think the most significant player in oncology at least. So I think that, I would leave it there, somewhere.

Speaker 3

And we'll need to complement and report Cuso's point because we see that this question is coming up, on the chat from several participants. Our guidance is on a consolidated basis and we think given the synergies and the regional footprint that Awuna has, it is most appropriate and predictable for us to provide it always on a consolidated basis and not by region.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Alejandro Zamacona Kona from HSBC. Please go ahead.

Speaker 5

Thank you. Hi, Suso or Gital. Thank you for taking my questions. Couple of questions here. The first one is, can you comment on the status of this plan of recruiting doctors in Mexico?

Speaker 5

I mean, any color in terms of timing, challenges, strategy should be helpful. And then my second question is on the occupancy rates in Mexico. I mean during the quarter, we saw a flat year over year growth. What can we expect going forward? Thank you.

Speaker 2

Thank you very much. So I think we're on track on attracting the doctors that will produce some high yield, but qualitatively our focus on high complexity also has a timing issue. So it's not about just filling up the hospital with doctors that deliver any type of practice, But qualitative, we need to make sure that what we're building is an institution that has the best standard in this high complexity. So, I, Banco Mexico is a project that's may that it has 2 pronged strategy. 1 is a market share strategy in terms of hospital services related to oncology and the other one is the insurance business.

Speaker 2

Both require a distinguished number of physicians that align to the Ono way. And I think the conversation we've had, I was in Monterrey last Tuesday and Tuesday before that, only meeting with doctors. And now here in Mexico City as well, we've been meeting with some doctors and we'll be meeting some doctors next week. I think that we are very well known in Peru and Colombia, I must admit. We are less known still in Mexico.

Speaker 2

So our strategy to be a significant player in oncology and other high complexity diseases is one that has many diversity of actions, including clinical trials, research, relating ourselves to some of the other players in oncology, prevention campaigns. So and these again will produce the attraction that we've achieved in Peru and Colombia in the physician world. Our offering is distinct. But once it's implemented, it has improved in Colombia, it delivers predictability and the only way that is this high medical resolution and high patient experience and great financial returns. But it needs to be built over time.

Speaker 2

So I would say that, 2024 is a very important year as we invite and retain key doctors into our network. That's happening at the right pace. But we still have a substantial opportunity to complete what we want to achieve here. Thank you.

Operator

Your next question comes from the line of Mauricio Zapata with Morgan Stanley. Please go ahead.

Speaker 6

Hi, Suso, Giselle and Maria. Thanks for the opportunity. Two questions from our side. The first one about Colombia. I understand I saw in the release that you are now receiving direct payments from address.

Speaker 6

But if you could detail a little bit how it has been interfering with working capital. We saw that receivables going up a little bit. So if there is any kind of relation there, what you were foreseeing in terms of this financial relation now directly with Andres. But also if you could talk about the patient flow after the intervention in the EPSs. And I understand that you are focusing on high complexity oncology.

Speaker 6

If this kind of administrative control of DPS is may change somehow the way you get the patient flow. So my first question is about Colombia. And the second question, a little bit about Mexico. So we saw that you were increasing patients, but not necessarily the ones that increase hospital occupancy. If you somehow perceive a different ramp up there in terms of hospital occupancy or it somewhat has a kind of a competitive reaction there?

Speaker 6

As you know, you are trying to capture more volumes there if there was any competitive reaction in the hospital business? Thank you.

Speaker 2

Thank you very much Mauricio. So I'll start with the last one and then I'll go into the Colombian. I think we are good at filling up hospitals. But in our promise of value based care, we're actually measuring the number of days patients go back to their families. So beds is not the perfect metric for us.

Speaker 2

We still believe that in Mexico, we can double up in the next 5 years without any investments to reach our 80% standard in hospital utilization. I don't want to diminish that effort at all. But I think that I don't think there's a I don't think there's a delay. But I think the Q1 had these dislocations, had these dislocations of the Holy Week in which people don't do medical treatment and other issues. But I think we're on track to grow occupancy.

Speaker 2

I do think that in the future, we'll try to help the market understand how we see occupancy and how we see, higher complexity procedures as a better measure of our volume, as a better measure of our volume. Now we are measuring surgery rooms and utilization, ITU utilization, chemotherapy infusion stage utilization. That's the core of our business, not the hospital stay. No, but still I do not want to diminish. Right now we have a very clear strategy to fill up the hospital beds, notwithstanding what I just said and that will be coming during the course of this year.

Speaker 2

In Colombia, I believe that the fragility, vulnerability of these 2 payers that were intervened by the regulator based on financial considerations and limits that they will not complying to will improve our working capital collections in the future, not make them worse. I think there's right now, there's a transition in which we, there's a transition in which the address and the insurance companies and ourselves and other service providers are learning to work directly with the address. And that might prove a few months of a dislocation. But in general terms, I see the Colombian sector with these interventions, hopefully the companies will be back on their own footings and then return to an autonomous operational standard. But I think that does not put us in any vulnerable position.

Speaker 2

As you might remember, 84% of the hospital and 84% of the hospital services in Colombia are delivered by private institutions And the government or the intervening authority does not want hospitals to miss payments, patients to wait for services. So, I think we're well protected there. I think there are issues that the address and the payers have to resolve and make it a little more efficient, but I'm not worried. There was a lot of uncertainty before that about what was going to happen because the vulnerability of these companies was well known. This was one of the scenarios that was expected.

Speaker 2

I think it's not bad for us. We'll be of course monitoring the situation, being very much in tune with what's necessary for our patients. I think that because we are a high complexity player in Colombia in particular and most high complexity procedures or diagnostics are delivered in what we call and packaged, you know, I don't want to call them capitated, but they're not perfectly capitated, but in packaged fashion to the payers, in the B2B fashion in Colombia called PGPs and PAVs and there are other modalities of them. The fact that those have a higher priority in the system, they normally get paid faster. So I think that we had and will continue to have a better working capital situation than others because of our high complexity offering and credibility thereof.

Speaker 2

Thank you, Mauricio.

Speaker 3

And perhaps Mauricio from my end hi Mauricio, how are you? Perhaps from my end, just to clarify or complement some of the points you mentioned. As far as cash conversion, you can observe in our earnings release that cash conversion has remained stable versus both the Q4 of last year as well as the Q1 of last year. As we stated in our initial clarifying note on the Colombia situation and also reinforced with our earnings release payments since the administrative interventions have been consistent with what we had received in previous months. So collections have also been consistent and this is reflected in the stable cash conversion cycle.

Speaker 3

And that is on the point of Colombia. And then just to complement the point on occupancy levels in Mexico, We continue to maintain a firm view of what we can accomplish in occupancy in Mexico in the medium to long term. And this is why we were working on the aforementioned initiatives as far as the doctor incentive model as well as all the other benefits that Suso mentioned and also focus on physician productivity as well as, you know, the the bundles and packages which we're working on with, the different payers, right, the insurance companies and out of pocket, etcetera. We suggest looking at occupancy on an annual and multi annual basis, tracking it every quarter will be difficult to maybe visualize some of these results, but we continue to see that we will be able to take the Mexican operations to the long term levels that we see in Peru, for example, right, where facilities that are ramped up approach 80% occupancies, right, in the next 5 years. And finally, as far as the competitive environment part of your question, no specific disruptions as far as the competitive environment.

Speaker 3

And as Rousseau mentioned, the physician relationship model is one that really does differentiate Aouna.

Speaker 6

That's very clear. Thank you. Thank you, Suso. Thank you,

Operator

Hecel. There are no more questions from the phone lines. So I will now turn the call over to Anna Maria Moura, who will proceed with the questions from the webcast platform.

Speaker 1

Thank you, operator. Now we will proceed with the questions from the webcast platform. The first question is, what are your plans of expansion in Mexico and then taking advantage of near shoring?

Speaker 2

Thank you, Annie. So I don't feel very comfortable. I'm not sure how much you can talk about this, of course. Right now, we're very much focused on delivering that huge opportunity in Monterrey with 40% capacity utilization and rolling out the Elanco Mexico project. The Elanco Mexico project as I described before, which we have spoken about and I think we've represented well in the filing, is one in which it starts off in Monterrey and will continue in Mexico City.

Speaker 2

It is a project that we've devised as asset light, capital light, given that the number of patients in oncology that we will be capturing is a smaller number. We don't need to do a major investment, be it CapEx or an acquisition to deliver high growth in that Hong Kong Mexico project. So we see ourselves being very sensitive about capital allocation for that project. And we see ourselves as we've grown in other countries, not in the necessity to do something large. So we do see ourselves implementing this strategy in the second half of this year, more forthright in 2025, much more in 2025 this year, all the plans.

Speaker 2

But definitely, the Mexico City market is the most attractive market. And when we see ourselves delivering a lot of value to a lot of families that don't have cancer coverage in Mexico City. Thank you, sorry.

Speaker 1

No, it's okay. Thank you, Susso. Now we're going to go ahead with another question regarding Mexico. This question is from Caio Muscarlini. And the question is, can you please share our expectations for the launch of both Onco Mexico and the hospital operation in Mexico City?

Speaker 1

How are these projects evolving?

Speaker 2

So again, as we've indicated, Manco, Mexico is on track. In July, we'll be launching the policies and the B2B services are being negotiated today. And I think we'll deliver what we expect 2024. 2025, we'll see a much more significant impact in our total results. Again, mostly related to our operations in Monterrey, while we roll out our capabilities in Mexico City, which will produce results later on 2026.

Speaker 2

That's the way we should see it. But I think we're on track. There's a great team involved in this with proven capabilities. And I think we confirm over and over again, of the need for this coverage and these services and confirm the opportunity that we have at Alunorte for that. So in Mexico City, again, it's about making sure that we have the facilities, the right number of facilities and capacities to give the services to the population that we grow at a certain pace.

Speaker 2

This can be done as we've proven in the past in an asset light way. And you'll see us engaging in that way in the next 12 months. Thank you.

Speaker 1

Thank you, Suso. The next and final question because we're running out of time is from Jocelyn Jensen. And the question is, could you provide your CapEx expectations for the year by country? Where do you see net leverage by year end? When do you expect to resume dividend payments?

Speaker 3

I can tackle that one. Thank you, Jocelyn. As far as our CapEx expectations for the year, this should be approximately $15,000,000 in 2024. As far as leverage projections for the year end, we're currently not providing guidance on leverage given that this at the end of the day will also be a resulting factor from the EBITDA where we have provided the 20% EBITDA growth guidance on an FX neutral basis. And as to the dividend policy, currently, Aouna maintains a no dividend policy.

Speaker 3

As you guys know, we're very committed to deleveraging the company and obviously this will be a function of that as well.

Speaker 2

And also, Giselle, just to add on, I mean, we are a growth company, a high growth company. And as you see our numbers from the past, So we reuse all of the retained earnings and cash flow to continue to grow. So we will not be changing the dividend policy for a while.

Speaker 1

Thank you, Suso. As mentioned before, we have run out of time. So at this time, we are going to close the Q and A session. Thank you all so much for your attention and your interest in Oona. As always, we look forward to hearing from you and don't hesitate to contact us.

Speaker 1

Please stay safe and healthy and have a great evening.

Speaker 2

Thank you very much, Annie and G.

Operator

Thank you so much. This concludes today's conference call. You may now disconnect.

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Earnings Conference Call
Auna Q1 2024
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