Polar opposite prognoses from a couple of our healthcare stocks on Thursday, with private hospital operator Ramsay looking rosy but nutritional supplement retailer Blackmores decidedly less so.
…………
The ending of the Covid restrictions and lockdowns and their pressure on the health system in the six months to December has seen Ramsay Health Care (ASX: RHC) enjoy an upturn in its fortunes here and in the UK in particular.
The company told the ASX on Thursday that had lifted its interim dividend after a 22.3% lift in its bottom-line net profit to $194.4 million, thanks to the drop in those additional costs here and in the UK associated with the Covid restrictions and rules.
As a result of the improvement, Ramsay will pay a fully franked dividend of 50 cents per share for the half year, up 3% on the previous half in 2021.
Revenue increased 13.6% to $7.103 billion for the December half (in constant currency terms), “gradually improving over the six-month period driven by an increase in surgical activity levels across all regions … reflecting the decline in COVID, the reduction in surgical restrictions and better management of COVID disruption as teams adjust to ‘living’ with the virus.
“The estimated direct impact of operating in a COVID environment in Australia and the UK combined in the first quarter was $66.8m. The estimated impact in Q2 declined to an immaterial level. The residual costs are expected to continue for the foreseeable future,” Ramsay’s directors predicted.
“Group EBIT jumped 119.7% in the second quarter over the September quarter “despite momentum temporarily slowing in December as a result of another wave of COVID. February has seen a return to positive momentum in surgical activity levels,” directors said on Thursday.
Earnings before interest tax depreciation amortisation and impairment rose 10% to $1.026 billion for the six months.
Statutory net profit after minority interests of $194.4 (up 20%) included “a positive contribution from non-recurring items of $34.4m compared to a negative contribution of $33.1m in the December, 2021 half year.
Directors said that the company’s operating results improved progressively over the six-month period driven by an increase in surgical activity levels across all regions compared to the December 2021 half year to the.
“This reflects the general decline in COVID cases in the community, the reduction in surgical restrictions in Australia that were in place in the prior period and improved management of the disruption caused by COVID as hospital teams adjust to living with the virus.”
The result includes a six-month contribution from Elysium Healthcare (Elysium) in the UK, acquired in January 2022 and GHP Speciality Care AB (GHP) in Sweden completed in May 2022.
“The EBITDA contribution from both these businesses combined with recent smaller acquisitions in Europe was $38.8m. The short-term performance of the Elysium business has been impacted by critical labour shortages restricting capacity utilisation and resulting in higher costs,” directors said.
Ramsay shares ended the day up 3% at $67.91.
…………
Shares in Blackmores (ASX: BKL) were down more than 9% at one stage on Thursday after a mixed interim report with both gains and losses that unsettled the market.
Not even a 38% rise in interim dividend to 87 cents per share could support the shares.
The shares finally ended down 6.6% at $79.08.
That was after Blackmores said its December half revenue fell 1.6% to $338 million while profit rose 19.6% to $24.3 million.
That seems to have been due to the higher proportion of earnings from higher margin sales in Australia and NZ (ANZ) and sales in China versus earnings from its Indonesia JV and other markets in Malaysia and Thailand where sales were very strong in the previous corresponding period.
As a result, revenue was up in the ANZ and China markets but there was a steep drop in international sales. International revenue in fact fell 15%.
That saw underlying EBIT for the international segment fall 40% and the EBIT margin shrank to 11.8%.
The company’s underlying gross margin eased from 53.9% to still strong 53.3%, largely due to the impact of inflationary pressures in raw material costs. Underlying after tax net profit for the group as a whole rose 17.3% to $24.4 million,
The higher dividend came from the company changing its payout ratio to a range of 40%-70% of statutory NPAT, up from 30%-60%.
In Thursday’s announcement, CEO Alastair Symington said Blackmores “delivered a solid result with continued revenue and earnings growth momentum in its Australia/New Zealand and China segments offset by its International segment which lapped a very strong prior corresponding period that primarily included COVID-19 demand surge for immunity products”
“While the near-term operating environment remains somewhat uncertain with continuing themes of cost inflation and rising interest rates impacting consumer sentiment and behaviour, we remain focused on executing our strategic and commercial plans and leveraging the Group’s channel and geographic diversity.”
And while the outlook is uncertain, Blackmores is more positive on cost cuts – more than a dozen mentions of the phrase in the release and a big deal was made of the cuts made so far, and of those to come.
The CEO said the company’s operational expenditure “reduced by 6.3% while we remain on track to achieve our target of $55 million annualised gross cost savings by the end of FY23 with $6 million in savings delivered during the first half.
“Today we have also outlined the next phase of cost savings targeting an initial $34-44 million in further gross cost savings over FY24–FY26.”
Usually cost cutting is music the ears of investors and analysts, but not for Blackmores yesterday.
