When Federal Treasurer Jim Chalmers hands down the budget on 14 May, the pressing need for fiscal responsibility is likely to trump spending programs.
In an era of fake news, it’s getting more difficult to separate fact from fiction. Yet it’s imperative we do so because the consequences for being deceived can be enormous.
Elective surgeries hit Ramsay’s private hospitals
The Ramsay Health Care Limited (ASX: RHC) share price has tumbled into the red after the global private hospital network provide an FY22 trading update.
At the time of writing, the Ramsay share price is down 5.1% to $68.58.
Cost pressures weigh on profits
Key financial results from the first three months of FY22 include:
- Unaudited revenue up 1.3% to $3.2 billion
- Earnings before interest and tax (EBIT explained) down 27.8% to $197.4 million
- Net profit declined 39.5% to $58.1 million
Asia Pacific
Notwithstanding a 0.7% revenue decline, Asia Pacific was the standout regional performer, with earnings increasing 5.3%.
Pandemic restrictions across New South Wales, Victoria (and to a lesser extent in Queensland and Western Australia) led to a reduction in elective surgery numbers.
Additionally, COVID-19 costs remain elevated, adding $55 million in one-off expenses.
Despite the disruption, admissions remain largely above both FY21 and pre-pandemic FY20.
Into October, elective surgeries still remain interrupted. For example, in Greater Sydney, elective surgery is capped at 75%. Furthermore, Victoria has requested day surgery cap lists at 50%.
“The current state government timetables around lifting COVID related movement restrictions and border closures combined with the underlying demand for healthcare services should create a more favourable operating environment in 2HFY21”.
Across Asia, Ramsay benefitted from the provision of COVID-related services such as testing, vaccination and treatment. Subsequently, revenue increase by 15.4%.
United Kingdom
The United Kingdom achieved a 20.6% jump in revenue however recorded a loss over the quarter.
Isolation orders on staff and patients created enormous disruption and significant cancellations.
The business was unable to reduce staff costs in conjunction with cancellations, resulting in higher personnel expenses.
Management noted the admissions pipelines remain strong from private insurers and self-funded patients.
Positively, operating conditions have improved from the relaxation of isolation and COVID protocols over October.
Europe
Similar to the United Kingdom, Ramsay Europe saw profits fall 45.4% despite revenue growth.
The region benefitted from subsidies and a significant catch-up of volumes.
However, staff turnover and mandatory vaccinations have led to a shortage of nurses.
A fourth wave in France has impacted activity, while the Nordic regions are recovering well.
Cheap cash
Ramsay has cancelled two fixed-rate loans to take advantage of record-low interest rates.
The upfront cost is $11.3 million, however, Ramsay will save $20.2 million in interest over the next four years.
My take
It’s not a surprise to see disruption among elective hospital networks such as Ramsay’s.
However, what is frustrating is that the business is seeing its costs blow out as a result of the onerous restrictions placed on hospitals.
The Ramsay share price was up 17% this year before today’s update. So today’s selling is likely just some profit-taking.
The long-term outlook for private hospitals remains positive, as populations age and household wealth rises.
Information warning: The information in this article was published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.
