Shares in Ramsay Health Care fell sharply yesterday after country’s biggest hospitals operator produced the expected weak 2017-18 results and forecast more of the same for 2018-19, especially in Australia.
The shares slid more than 6% to $54.48 yesterday, touching an intra-day low of $53.60 after revealing a 20.6% slide in net profit to $388.35 million (from $489 million the year before).
Earnings were hit by the cost of restructuring in its France business and lease provisions in the UK. Excluding the one-off costs, underlying net profit rose 6.8% to $579.3 million on a 5.4% rise in total revenue for the year to $9.18 billion, from $8.70 billion.
Non-core items of $191 million were mostly due to Ramsay UK recognising an onerous lease provision and asset write downs and its French unit, Ramsay Générale de Santé, taking restructuring costs of nearly $30 million – both of these were previously revealed in June.
Ramsay operates 73 hospitals and day surgery units in Australia, plus pharmacies here; hospitals and other services in France and the UK (and through its French unit, is trying to move into Sweden).
Ramsay Health Care managing director Craig McNally said the company had delivered a solid result despite NHS volumes falling at its UK hospitals.
“Our FY18 results were impacted by the significant downturn in NHS volumes in our UK business as well as softer growth rates in our Australian business, and the decision to temporarily slow down the rollout of the Ramsay Pharmacy franchise network while we invest in infrastructure and resources to successfully scale this franchise business for the long term,” he said.
Mr McNally said the normal growth attributable to brownfield hospitals (that is, the expansion of existing hospitals) in Australia was lower due to $171 million in capital investment completions, which included 208 gross beds, seven theatres, and 21 consulting suites.
“As disclosed to the market in June, our FY’18 results were impacted by the significant downturn in NHS volumes in our UK business as well as softer growth rates in our Australian business and the decision to temporarily slow down the rollout of the Ramsay Pharmacy franchise network while we invest in infrastructure and resources to successfully scale this franchise business for the long term.
“Notwithstanding the positive tariff adjustment in the UK which came into effect in April 2018, demand management strategies had a negative impact on NHS volumes in our Ramsay UK hospitals during the year and particularly in the second half.
“In Australia, the business performed well despite industry headwinds. Our hospitals maintained admissions growth above the industry growth rate, which is currently being impacted by affordability concerns and the ongoing negative focus on private health insurance.
“EBIT growth in Australia was positively impacted by our disciplined cost management strategies and our focus on achieving further operational efficiencies as well as some one-off benefits,” the company said.
But what concerned investors was the weak outlook with the company telling the ASX in the statement yesterday that earnings growth in the coming year is expected “to be subdued driven by a combination of challenging circumstances in the UK, a slower rate of growth in Australia, and a neutral outlook in France.”
“However, long term industry fundamentals are continuing to drive the market for healthcare. We expect growth initiatives including our brownfield programme and investments aimed at strengthening our business, to contribute strongly to earnings beyond FY’19.
“At the same time, our strong balance sheet provides headroom for expansion and we have increased our focus on investigating acquisition opportunities and new areas of growth.
“Based on current operating conditions in each of our core markets and barring unforeseen circumstances, in FY’19, Ramsay is targeting positive Core EPS growth of up to 2%, adversely impacted by anticipated higher interest and tax in FY’19. This corresponds to Core EBITDA growth for the Group of 4% to 6%.
