The market certainly didn’t take kindly to the news from struggling Kiwi ehealth group, Orion Health about its fall in revenue in the year to March and news of a $NZ32 million rights issue to shareholders to bolster depleted cash reserves.
Although a smaller loss of $NZ33 million was reported for the year to March 31, analysts pointed out that the improvement was generated by cost cutting which won’t produce a profit unless there is a significant lift in topline revenues.
The company told both the NZX and ASX yesterday that in addition to the rights issue, it continues to entertain unspecified expressions of interest it has received.
That plus gloomy comments from the company and CEO Ian McCrae left the market more than a little non-plussed and confused investors can only mean one thing – a big price fall. So down went Orion shares on the NZX by 13.3% to $NZ1.04. They were untraded in Australia and remained unchanged on $A1.10.
Describing the year as “challenging", Orion reported operating revenue of $NZ199 million, 4% down from 2016 although up by 3% on a constant currency basis.
The operating loss of $NZ33 million was a $NZ22 million improvement from 2016. Orion’s net loss after tax was $NZ34 million.
Orion’s net cash balance at 31 March was just $NZ6 million – last year the forecast was for a much higher cash reserve at year’s end, and that is why the company is proposing a discounted 2 for 9 rights issue to raise $NZ32 million. Besides the $NZ6 million in cash, Orion reported $NZ million in working capital debt facilities and a $NZ10 million standby facility.
All eligible shareholders will be able to subscribe for new shares at $0.90 on a 2 for 9 basis under the offer. CEO and 50.8% shareholder, CEO Ian McCrae has committed to take up $NZ15 million of shares in the offer. And 9.6% shareholder GA Cumming, together with all New Zealand-based directors, have committed to take up their full entitlements.
First NZ Capital is underwriting the balance of the offer of around $NZ7 million, which shouldn’t be a big ask. But if not strongly supported by small shareholders, will represent an embarrassing rejection of the company’s strategy.
Orion Health is also exploring expressions of interest it said it had received, focusing on ways to "maximize shareholder value and deliver outcomes that are in the best interests of all stakeholders".
Last month Orion said it had been in discussions with a parties over the previous quarter that could result in a partnership or minority investment.
"These discussions are preliminary and non-conclusive at this stage," it said.
The board started a review of the company which continues and has already found $NZ10 million in cost savings.
“Financial year 2018 is an important year for Orion Health as the business focuses on its drive to profitability during the second half of the financial year,” Mr McCrae said.
"The $32 million rights offer and the existing banking facilities together provide the business the financial resources to achieve that objective." The company still says it It expects to be profitable in 2018 even after a drop in recurring income from a US customer. The company expects revenue growth of between zero and 10% in the year ahead in constant currency terms to give Orion revenues of between $NZ200 million and $NZ220 million.
The shares have fallen heavily over the last year as market sentiment about Orion has turned negative about so-called growth stocks that do not grow, but continue to burn cash, as Orion did in 2016-17. In fact they have almost halved so far in 2017 (at yesterday’s close) and are down more than 80% from the 2016 high of $NZ5.35
Some analysts reckon the company will have to undergo further restructuring to cut costs and perhaps change management.
