Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ramsay Health Care Ltd (RMSYF, Financial) reported a 7.3% growth in revenue from patient activity, driven by a 3.4% increase in group hospital admissions.
- The company successfully completed the sale of Ramsay Sime Darby, strengthening its balance sheet with leverage now at 2 times.
- Productivity improvements were noted, with labor costs as a percentage of revenue from patient activity declining by 100 basis points despite significant wage inflation.
- Ramsay Health Care Ltd (RMSYF) achieved a 6.7% increase in the full-year dividend to $0.80 per share, reflecting the Board's confidence in the outlook.
- The company made significant progress towards its sustainability targets, including a reduction in greenhouse gas emissions and achieving a 50% gender target across senior leadership teams.
Negative Points
- The growth rate in revenue slowed in the second half of the year due to factors such as the cost of living, tight government budgets, and government elections.
- Public payers have granted significant wage rises to various sectors of the economy while failing to recognize the impact on private hospital operators in tariff indexation.
- The company faced higher net financing costs, with non-cash mark-to-market movements on interest rate swaps impacting net financing costs negatively.
- The EBIT result was impacted by a negative contribution of $36.4 million, predominantly reflecting asset impairments in Europe and the UK.
- The outlook for growth in FY25 is expected to be lower than FY24, primarily due to cost of living issues and the return of the management contract for the Peel Health Campus in Perth to the government.
Q & A Highlights
Q: Can we talk a little bit about what you foresee in terms of the pathway back to pre-pandemic margins?
A: Craig McNally, CEO: The big picture issues are still volume as a tailwind, getting pricing right, and improving productivity. We see no structural reason why we don't continue to improve margins, but it will take a number of years to get back to pre-pandemic levels.
Q: What are your expectations from the government's review of private hospitals in Australia?
A: Craig McNally, CEO: The review is a diagnostic to understand the operating environment and dynamics between operators and payers. We are well-placed given our quality portfolio, management, and investments. The government is not looking to bail out individual operators but to address long-term structural issues.
Q: Can we expect budget constraints in New South Wales and Victoria to last longer than FY25, impacting public to private volumes?
A: Craig McNally, CEO: We still expect strong volume growth in the NHS. In Australia, the decrease in public activity in private hospitals is due to budgetary constraints, particularly in New South Wales. The situation in Australia is state-specific and depends on economic conditions and government priorities.
Q: Have you seen a pickup in NHS volume year-to-date for July and August?
A: Craig McNally, CEO: Yes, but it's summer holidays, so activity levels are the lowest of the year. However, we are confident in continued NHS volume growth and private growth in the market.
Q: Can you provide more color on how cost of living pressures are impacting activity levels?
A: Martyn Roberts, CFO: Cost of living pressures are leading people to avoid surgeries in the private sector due to out-of-pocket costs. We've seen an increase in private activity in public hospitals as people choose to avoid these costs.
Q: With the NPAT growth guidance, is that on a trading basis before adjusting for the slowing of the EHR spend?
A: Martyn Roberts, CFO: It's the statutory NPAT, including all factors.
Q: How successful have you been in the past with lobbying for increased funding from the NHS?
A: Craig McNally, CEO: Success has been mixed. There have been good increases over the years, but it depends on the country's economic position. We expect tariff increases to reflect wage agreements, but the exact level is uncertain.
Q: Do you expect Australia margin improvement in FY25?
A: Martyn Roberts, CFO: Any margin improvement will be offset by increased costs in digital and data transformation.
Q: What are your current expectations for underlying wage inflation in FY25 for each region?
A: Martyn Roberts, CFO: Wage inflation tends to track national wage inflation levels. We are currently in EBA negotiations in WA and New South Wales, and outcomes are uncertain.
Q: Can you give us some sense of the impact of returning the Peel Health Campus contract in FY25?
A: Martyn Roberts, CFO: Peel Health Campus represented about 3% of volumes in FY24. The EBIT impact is high single-digit millions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
