The Ramsay Health Care Limited (ASX: RHC) share price is receiving a healthy boost today after the company released its half-year results (HY21).
Ramsay is a global private hospital operator in around 500 locations spreading across Australia, the UK, Europe, and Asia.
A decline in revenue offset by government assistance
Ramsay’s revenue from patients and other revenue fell by 6.6% compared to the prior corresponding period, HY20 (PCP). This excludes COVID-19 government grant revenue.
Revenue in the Asia Pacific region actually increased slightly by 0.5% relative to the PCP. However, it suffered a big jump in costs due to the pandemic restrictions and the impact of case-mix changes.
In the UK, revenue dropped by 82.5% over the PCP but its EBIT improved by 24.8% relative to the same period. This was due to tighter cost control and assistance provided by the government.
Europe generated the most revenue, bringing in $3.1 billion, and only fell by 0.8% compared to the PCP. EBIT rose by 54.9% relative to the PCP as a result of timely government assistance and proceeds of $33.8 million received from the disposal of assets.
Government assistance cushioned the jump in employee expenses of $140.3 million over the PCP, which was likely a result of needing to hire more staff to meet COVID compliance requirements.
In addition, the increase of $76.7 million in medical consumables and supplies was also likely due to COVID.
As a result, the company recorded a net profit after tax (NPAT) of $226 million, down 12.5% relative to the PCP.
After putting dividends on hold last year, Ramsay declared a fully franked interim dividend of 48.5 cents per share, representing a payout ratio of 50%. The company said the resumption in dividend payments reflects the board’s confidence in the strong cashflow of the business.
Management outlook
Ramsay’s CEO and Managing Director, Craig McNally believes the company will be in a sound position to capitalise on additional volume from surgical back-logs and latent demand for non-surgical services in 2022.
Craig McNally appears to be taking a cautious approach to 2021, as he said, “While the rollout of the vaccine gives us optimism that some normalcy in operating conditions and capacity will return, in light of the risks associated with further spikes in COVID cases, and the flow-on impact to our facilities, we are not in a position to provide FY21 full-year guidance.”
My take
Ramsay operates in an industry that requires a high level of working capital expenses, in particular employees, medical consumables and supplies, and occupancy costs.
COVID has only added to the working capital strain, and this will likely remain. The world has witnessed the severe ramifications of not implementing a COVID-safe environment, so such expenditure is a necessity.
This will likely continue to put pressure on margins, and it is difficult to see how Ramsay, as well as other private hospital providers, can get out of it.
I also think people will likely prefer to recover at home rather than in a hospital, which is more expensive. I believe this trend will likely be driven by continual technological advancements in remote health care and family members will be more accessible through remote working.
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