Orpea in red: contraction of activity in France in the third quarter – 09-11-2022 at 16:00

(AOF) – Orpea (-3.66% at 8 euros) is among the main falls in the SBF 120 index despite activity data in line with expectations. Revenues for the third quarter amounted to € 1,181 billion, up 6.4%, of which 4% in organic growth. In the France Benelux UK Ireland area, the largest, revenue growth was 2.1%, essentially organic in nature (+ 1.6%) to 695.8 million euros.

“The growth observed in both the Netherlands and Belgium made it possible to compensate for the slight decrease in turnover observed in France (-0.6%)” explained the group. In France, the activity of nursing homes remained affected by the context of the crisis.

The Orpea stock has lost more than 90% of its value since January 1st and the publication of the book “Les gravediggers”, a work that recounts serious dysfunctions in the care of residents. The situation then only went from bad to worse for the company.

During the third quarter, the occupancy rate in retirement homes in France averaged 85.4%, about 1.5 points lower than the average rate observed in the third quarter of 2021.

On 25 October a conciliation procedure was opened with the President of the Nanterre Specialized Commercial Court. “The purpose of this procedure is to reach friendly solutions (…) that allow the company to achieve a sustainable financial structure by drastically reducing its debt and ensuring the liquidity necessary for the exercise of its business” recalled Orpea. In this phase, the solutions envisaged envisage in particular the conversion into equity of all the unsecured debt of Orpea, which as at 31 October 2022 represented approximately € 4 billion, and the adjustment of the financial covenants.

In total, consolidated gross debt amounted to € 9.5 billion as of September 30, 2022 and liquidity was € 831 million as of November 2, 2022.

The first meeting with Orpea’s unsecured debtors will be held on 15 November. Only interested financial creditors will be able to participate.

On the same day, in the morning, the new management team will present the Orpea transformation plan.

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Key points

– European number 1 in comprehensive addiction assistance with over 120,000 beds and nearly 2,000 facilities in 23 countries, created in 1989;

– Turnover of 4.3 billion euros, divided between France-Benelux for 60%, Central Europe for 26%, Eastern Europe for 9%, Iberian Peninsula and Latin America (Brazil, Chile and Uruguay) for 5% then China;

– Value creation model based on an organization suitable for international development in locations with high purchasing power, ownership of 50% of properties (46% in 2021, for a value of € 8.2 billion);

– Split capital (14.5% for the Canadian pension fund CPPIB and 5% for FFP of the Peugeot family) and governance renewed in July with Guillaume Pépy new chairman of the board of 14 directors, Laurent Guillot retained as CEO;

– Tense balance sheet with 8.3 billion in debt against 1.1 billion in cash at the end of June, the group signed a loan agreement accompanied by a 3 billion euro real estate asset disposal program by the end of 2025.

Challenges

– Development of the transformation plan in 4 points: quality of support and well-being of residents, strengthening of dialogue with stakeholders, ambitious human resources policy and renewed managerial practices;

– Innovation strategy and anticipation of the management of human frailty:

– Open innovation with 108 projects on health and care, catering and hospitality, construction and processes,

– university research with nearly 30 innovative projects;

– Environmental roadmap 2023:

– 100% of tenders including a CSR evaluation,

– 100% of the suppliers signing the Responsible Purchasing Charter,

– 100% of HQE certified new buildings,

– launch of a green loan;

– Growth tank provided by the 26,000 beds under construction (3,000 beds opened in 2022);

– Continuation of the increase in the employment rate and spin-off of the recruitment and training activities.

Challenges

– Strong impact of inflation on food and energy consumption, electricity purchases in France are not covered;

– Strategic review in progress, the accounting consequences of which are not included in the half-yearly accounts;

– As part of the asset disposal program, questions about asset quality, after write-downs in Brazil and Belgium;

– Lack of financial visibility: after an increase in revenues of 10.9% and a net loss in the first half of the year, a risk of deterioration in the operating margin is expected for 2022, which would entail a renegotiation of the financial covenants.

Inevitable race for new blockbusters

The patent for Merck’s flagship product, the cancer drug Keytruda, which accounts for more than 35% of its sales, expires in 2028. Despite the loss, since 2019, of the patents for its three-star products (Avastin, Herceptine, Rituxan) Roche was able to renew its portfolio by introducing new molecules to the market. However, the discovery and launch of new drugs are becoming more and more expensive. AstraZeneca spends approximately $ 6 billion annually on research and development in a pharmaceutical industry where the life of a patent lasts only ten to fifteen years. This leads laboratories to withdraw from certain activities. So J&J, Pfizer, GSK and, no doubt, Novartis soon prefer to focus again on specialty drugs and abandon any ancillary activities.

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