Garofalo Health Care S p A : Acquisition of Aurelia 80 Group - Conference Call Transcript

"GHC - Acquisition of the Aurelia 80 Group

Conference Call"

Friday, 28th July, 2023, 11:30 CET

MODERATORS: Mrs. Maria Laura Garofalo, CEO

Mr. Alessandro Maria Rinaldi, Chairman of the Board of Directors 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 morning, this is the Chorus Call operator. Welcome to the conference call to present the acquisition announced by Garofalo Health Care. 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 morning everyone and thank you very much for your availability. As you have seen, this morning at market opening, GHC Group announced a historic operation, which we will comment on today with the presence of the Chief Executive Officer. I remind you that the call will be made in Italian and the transcript will also be made available shortly in English on the company's website.

At this point I briefly introduce who is here in the room, and obviously the CEO of the GHC Group, Mrs. Maria Laura Garofalo; the Chairman of the Board of Directors, Mr. Alessandro Maria Rinaldi; the CFO of the GHC Group, Mr. Celentano; the Head of Administration and Reporting, Mr. Riccardo Rossetti; and today the General Manager of the Aurelia 80 Group, Mr. Laganga, is also with us.

At this point I leave the floor to the Chief Executive Officer of the Group for an initial introduction.

MARIA LAURA GAROFALO: Good morning everyone and thanks for your attention. Today it is with great pride that I announce this operation to the market, an operation that has kept us busy for a long period of time because we took over this asset from a compulsory liquidation which obviously derives from disagreements between the shareholders. A stalemate arose in the shareholding structure, therefore 50% against 50%, which no longer allowed the company to operate, therefore the company was put into liquidation and the President of the Court of Rome appointed a liquidator. After an initial attempt to find an agreement among the shareholders, we proceeded towards a liquidation process through an auction which ended, fortunately for us, last night with our victory.

Yesterday evening we were awarded the Aurelia 80 Group, which includes important facilities in the capital city, an award which took place through the signing of the offer which took place during the relaunch phase, and in the first days of next week a preliminary contract subject to a suspensive condition will be signed , i.e. the closing will take place once the authorization and accreditation of the Targets have been transferred to the new legal entity, in which they will be conferred.

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It was a very important auction, because all the big names, national and international, took part. In the end, 13 expressions of interest had arrived, both from funds, including foreign ones, and from very important operators in the sector. To name a few, to give you a sense of the importance of the auction, I tell you that the IEO was present, obviously San Donato, Humanitas, all the large groups as well as, in fact, financial funds, one of which is foreign.

The procedure was a classic auction procedure, therefore with an expression of interest, a non-binding offer, by virtue of which the subjects were selected who could move on to the binding phase with access to the data room and, after four weeks of due diligence, there was the tender. We were selected among the best offers to access the relaunch phase, the relaunch phase was held last night and we won it for 47 million euros.

The sense of this operation is profound, important, because it is the operation that changes the face of GHC, because it is true that GHC, at the same time, reconquers its origins, but it is true that it reconquers the origins which until today, precisely because the difficulty that existed within the company, due to the difficult relations between the shareholders, they have never been able to express their value, a value that can be fully expressed from this moment on, also because this moment coincides with a series of situations and very favorable elements.

First of all, you know that when we described the "disciplinary" of our M&A procedure, we said that among the important requisites there was the choice of territories in which to grow. It's true, Lazio is certainly not an easy Region, I have experienced it and I can say it, but I can also say that Lazio has now left the Commissarial regime, it still remains in the "Piano di rientro" (development plan) but it has left the Commissarial regime, it has a new Regional Council very favorable towards the private sector, a Regional Council that is already moving in the direction of putting funds on the table for initiatives that can not only reduce waiting lists, but above all, for example, reduce the crowding of Emergency Rooms.

You know that President Rocca, the new President of the Council of the Lazio Region, is giving - he has given it throughout his electoral campaign, but he is also demonstrating it practically - great priority to health care, so much so that he has not nominated a Councilor for health but kept the powers to himself, being a man of experience and having already been General Manager of large Roman hospitals, including the Sant'Andrea. He has placed within the Region a series of officials that I know personally and who are also of great standing and has launched the premises for what for Lazio will have to be an important investment in the health sector, not only as regards the reduction of Emergency Room crowding, but also an important support to general medicine assistance. He is therefore also putting incremental budgets in the pipeline for this activity.

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Why Lazio? Because, despite being difficult, Lazio is always Lazio. In Lazio there is the Capital city, in Lazio the most important events take place, there is politics, in two years there will be the Jubilee. Even "Roma Capitale" is dealing with the health emergency and, at a time when in any case the funds of the National Healthcare System in general are scarce, private activity will grow, as it is growing and will grow even more so in Lazio.

It will grow because it is growing physiologically, but it will also grow due to a series of important strategic contingencies that are taking place now and in the coming years.

Two years ago, the Lazio Region approved, within the context of a decree dictating the health planning of the Region, a transfer of beds and assistance offer from the European Hospital to the Aurelia Hospital in Rome, giving us the green light for the construction of a large development project. This too was probably one of the reasons that created the disagreement among the shareholders. Obviously everyone has its own vision, in prospective terms, our vision is the corporate one, therefore to create the greatest value for the company.

This project will create great added value for our facilities and I see it as an important opportunity, because the project will work in this way: today we have the Aurelia Hospital which in itself represents one of the largest accredited private facilities in the area, as you have read from our press release, it is fully included in the regional emergency network as a first level "DEA", also equipped with an Emergency Room with attached helipad, operating 24 hours a day, it is a multi-specialist acute care facility, therefore it is accredited in almost all medical-surgical specialties, but it also has an important motor, neurological and respiratory rehabilitation department.

The European Hospital is a predominantly private facility, in fact to date the private activity of the Aurelia 80 Group is basically expressed by the European Hospital, which is an authorized multi-specialist structure for acute care, not accredited, accredited only for cardiology and cardiac surgery. It is a national center of excellence for cardiovascular diseases, with an important reality and with professionals recognized worldwide, both for their skills and for the high number of scientific publications carried out. The project is to exploit the building area of the Aurelia Hospital to create a new "surgical plate", i.e. a large operating ward. Within this operating department, two operating rooms will be dedicated to cardiac surgery. Cardiac surgery, together with clinical and interventional cardiology, will be moved and concentrated entirely in Aurelia Hospital.

Only private activity will remain in the European Hospital and the rehabilitation department will be moved, therefore in accreditation, with a budget of over 4.3 million, and then it will further develop the private activity, which is already carrying out significantly.

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What will the Aurelia Hospital become? In my opinion it will become unique in Italy, in the sense that it will become a large hospital. In this agreement made with the Region, moreover, it increases its beds, also receiving authorization and accreditation for vascular surgery beds, which were previously lacking and which are essential for creating the "Heart Center", because a cardiac surgery center must have an important vascular department annexed. In fact, to achieve high levels of quality, cardiac surgery goes hand in hand with vascular surgery.

In this redevelopment of the Group's hospital care offer, therefore, we have also obtained an increase in the number of beds in Aurelia, which will allow us to ask for a budget increase. However, it is very important how we intend to create this hospital, this "Heart Center", which however also implies a review of all the critical wards, intensive care units, coronary units, sub-intensive units, etc..

A "surgical plate" will be created, which is a very cutting-edge conception of what an operating ward can be: the operating wards, generally divided by specialty, are spread over several floors, and it is clear that the spread over several floors of the operating departments generates a loss of efficiency, but also of quality. Instead, we will concentrate all the operating rooms in a single department, therefore we will create a mega operating block, not vertically but horizontally, where we will have seven operating rooms, two of which are dedicated to cardiac surgery and the other five to other surgical specialties.

In this way, not only will we have an efficiency in terms of management, and therefore costs, but also the quality will rise significantly, because it is clear that, with respect to the complications that can physiologically occur during surgery, the professionals will have at their disposal, on the same plate, the colleagues who will be able to intervene on the specific complication. This will also lower the number of claims, raising the quality of the assistance provided.

Another important improvement in efficiency will also come from the concentration of cardiology, now divided between the European Hospital and Aurelia Hospital, in a single department, still at the Aurelia Hospital. To date we have clinical and interventional cardiology which is in Aurelia Hospital and in European Hospital, while at the end of the plan we will no longer have two centres, necessarily with dispersion of resources at an economic and therefore financial level, but we will also concentrate all cardiology in Aurelia Hospital. We will only have a hemodynamics division, because cardiology is interventional cardiology and therefore the procedure is not carried out in the operating room but in the hemodynamics rooms, where all the interventional cardiology activity will be concentrated, with obvious improvements in efficiency.

At the end of this plan, which I expect to implement within 24 months from the day we take possession of the facilities, even if already tomorrow we will start informally with the liquidator on the first steps to take, for example to obtain the building permit, which we had already obtained but which, after the time,

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