Downgrade Damage Puts Ramsay In The Casualty Ward
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Shares in Ramsay Health Care fell to four and a half year lows after the private hospitals operator slashed its earnings guidance, took a big write down, blamed a tougher operating environment in Australia and the UK and warned of more to come in 2018-19.
The shares close down more than 7.5% at $57.49, the lowest they have been since early 2014. At one stage the shares had fallen 12%.They are now down more than a quarter from the year high of $76.18.
Ramsay in in an update to the ASX on Thursday that instead of the forecast 8% to 10% growth in core earnings it was now looking at a figure around 7%.
Having just received disappointing May results and with no material improvement anticipated for June, Ramsay advises that its FY18 Core EPS growth is now expected to be approximately 7% compared to the guidance of 8% to 10% previously provided in conjunction with the release of its results for the six months ended 31 December 2017,” the company said yesterday.
Ramsay managing director Craig McNally said in addition to a significant downturn in National Health Service (NHS) volumes in Ramsay’s UK business, the company had experienced weaker growth rates in procedural work and inpatient admissions in its Australian operations in recent months.
There had also been delays in the rollout of the long mooted Ramsay Pharmacy franchise network in Australia, he said in yesterday’s statement.
“Ramsay expects operating conditions in both the UK and Australia to remain challenging,” Mr McNally said.
“In addition to the recent slowdown in the UK, we are also facing more challenging market conditions in Australia, with lower growth in procedural work and inpatient admissions, which has adversely impacted case mix in our Australian hospitals.”
He said given the current climate around private health insurance and affordability in Australia, this trend would continue into the 2019 fiscal year.
Ramsay following a review revealed that it written down the value of some hospital leases in the UK, but not the goodwill of the business.
That will see the impact taken in the June 30, 2018 accounts with an after tax charge of £70 million ($A125 million), consisting of an onerous lease provision and asset write-downs related to certain UK sites.
Six UK sites were identified during the review as requiring onerous lease provisioning and/or fixed asset impairment. These were Berkshire Independent, Ashtead, Mount Stuart, Croydon, Renacres and Clifton Park hospitals. Ramsay said the Berkshire Independent and Ashtead operations saw the bulk of the write down - £60 million after tax.
The provisions and impairments are non-cash and Ramsay said would have no impact on its debt facilities or compliance with its debt facility covenants (so its bankers are all sweet then).
These will be one-off items so will be included in the statutory profit for the year to June, but not the underlying result. "The charge will be excluded from Ramsay’s Core NPAT for FY18 and will therefore not affect Ramsay’s final dividend for FY18,” the company said in the statement.
“In the meantime, we continue to focus on operational efficiency improvements in our UK business, which have included a restructure in recent months, as well as focusing our efforts on building our non-NHS business,” Mr McNally said in yesterday’s statement.
Britain’s NHS has been referring more patients to private providers in an effort to cut costs.
Mr McNally said notwithstanding the positive tariff adjustment in the UK, which came into effect in April, NHS demand-management strategies were having a “significant negative impact on volumes despite the significant and increasing number of people in the UK awaiting treatment”.
He said while a funding boost for the NHS announced this week by UK Prime Minister Theresa May was a positive step, “We do not anticipate immediate benefits for us and expect operating conditions in the UK to remain challenging in the medium term”.
Despite the problems in the uK and Australia Ramsay made it clear it was still on the lookout for acquisitions.
The private hospital operator was currently investigating a range of acquisition opportunities that would complement its strategic investments.
“We have increased our investment in a number of quality, innovation and research initiatives focused on achieving industry-leading patient outcomes in all the markets in which we operate, at the same time as ensuring that Ramsay hospitals deliver value to consumers and payers,” Mr McNally said.
The company was also investing in technology and equipment for patients and surgeon, and upgrading our facilities.
“We continue to invest strategically in brownfield expansions, which will contribute to long-term growth for the business,” he said.
“At the same time, we are implementing a range of cost management and procurement strategies which will ensure we remain a leader in cost-effective healthcare delivery in all the markets in which we operate.”
That is business speak for cost-cutting throughout the Australian and UK operations.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.