Two updates on Friday from unrelated sectors linked by a common theme as higher costs saw lower profits from online retailer Kogan and private hospital operator Ramsay Health Care.
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Ramsay – which is a private equity takeover target at the moment – reported a slide in earnings for the first nine months of the year as Covid continued to hurt its hospital operations.
The company, which is considering a $20 billion bid from a KKR-led buyout group, told the ASX that earned a profit of $269.7 million for the nine months to March down 6.8% from the same period in the 2020-21 financial year.
But that was after ignoring “non-recurring” items, including expensing of IT costs, and transaction costs.
If these costs were included, unaudited profits slumped a nasty 38.9% to $201.6 million from the first 9 months of 2020-21.
The weaker earnings were struck on a 5.7% rise in revenue for the period to more than $3.44 billion.
Ramsay said in the trading update on Friday that while the business is “well-placed” to capitalise on a backlog of surgeries, Covid is continuing to have an impact on costs.
In the Australian business alone, the COVID-19 revenue impacts are estimated to be $196.2 million, including $89.2 million in the March quarter alone.
“While COVID cases remain at elevated levels in the community, Ramsay expects to continue to experience disruption and the additional costs associated with operating in the current environment,” the company said in its update.
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For online retailer Kogan, the March quarter was a dismal three months, with the company’s sales going backwards and the business swinging to a loss as consumer demand dried up and unsold stocks soared.
In a third quarter update on Friday, Kogan said overall sales had moderated through the first three months of the year, falling 3.8% to $262.1 million.
Weaker than expected sales and higher inventory and operating costs meant the retailer reported a $800,000 loss for the quarter, a 110% fall on the same quarter in 2021.
The company said it had been positioning itself for continued elevated growth through the start of the year, which did not come to pass, a development the company blamed on “general market factors”, including an overall slowdown in online shopping (which has been seen by other retailers and online sellers, such as Wesfarmers’ Catch).
Because it had expected sales to grow, it had lifted its inventory and operational levels accordingly (it suffered from higher stocks a year ago as well). The company will now cut its operating costs to be more in line with its current growth levels over the rest of the year – which means more losses
Inventory levels were up on the first half, totalling $193.9 million across Kogan and its New Zealand-based subsidiary Mighty Ape. Kogan didn’t give a comparative figure for stocks a year ago but in the March, 2021 quarter said slow sales had seen the Company “required to store larger than expected levels of inventory — incurring high storage expenses and demurrage fees”.
In the latest statement on Friday Mr Kogan said “While market conditions are challenging at present, the foundations laid over the last 16 years are holding us in good stead.”
“Our current focus on recalibrating inventory levels and core operational costs is aimed at returning the company to its historical margins and also to position the business for its next phase of growth.”
Judging from the March quarter reports for the last two years, Kogan managers have a bad forecasting history when it comes to consumer demand, sales and stocks for the new year.
