Ramsay Health (ASX: RHC) share price drops as profit falls 39%

The Ramsay Health Care Limited (ASX: RHC) The share price fell into the red today after the global network of private hospitals provided a FY22 trading update.

As of this writing, the Ramsay stock price is down 5.1% to $ 68.58.

Source: CHR 2021 Annual Report

Cost pressures weigh on profits

The main financial results for the first three months of fiscal 22 include:

  • Unaudited revenue up 1.3% to $ 3.2 billion
  • Earnings before interest and taxes (EBIT explained) down 27.8% to $ 197.4 million
  • Net income fell 39.5% to $ 58.1 million

Asia Pacific

Despite a 0.7% drop in revenues, Asia-Pacific was the best performer with profits up 5.3%.

Pandemic restrictions in New South Wales, Victoria and, to a lesser extent, Queensland and Western Australia have resulted in a reduction in elective surgeries.

Additionally, the costs of COVID-19 remain high, adding $ 55 million in one-time expenses.

Despite the disruptions, admissions remain significantly higher in both exercise 21 and exercise 20 before the pandemic.

Source: RHC FY22 Trading Update
Source: RHC FY22 Trading Update

In October, elective surgeries are still interrupted. For example, in Greater Sydney, elective surgery is capped at 75%. Additionally, Victoria requested lists of 50% day surgery caps.

“Current state government timetables for lifting COVID-related movement restrictions and border closures, combined with the underlying demand for health services, is expected to create a more favorable operating environment in 2HFY21.”

Across Asia, Ramsay has benefited from the provision of COVID-related services such as testing, vaccination and treatment. Subsequently, turnover increased by 15.4%.

UK

The UK posted a 20.6% jump in revenue but posted a loss for the quarter.

Staff and patient isolation orders created huge disruption and significant cancellations.

The company has not been able to reduce personnel costs in conjunction with the cancellations, resulting in increased personnel costs.

Management noted that admissions pipelines remain strong from private insurers and self-funded patients.

Positively, operating conditions have improved since the easing of isolation and COVID protocols in October.

Europe

As in the UK, Ramsay Europe saw profits drop 45.4% despite revenue growth.

The region has benefited from subsidies and a significant catch-up in volumes.

However, staff turnover and mandatory vaccinations have resulted in a shortage of nurses.

A fourth wave in France impacted activity, while the Nordic regions are recovering well.

Cheap money

Ramsay canceled two fixed rate loans to take advantage of record interest rates.

The initial cost is $ 11.3 million, however, Ramsay will receive $ 20.2 million in savings on interest charges over the next four years.

My opinion

It’s no surprise to see disruption among elective hospital networks such as Ramsay’s.

What is frustrating, however, is that the company is seeing its costs skyrocket due to onerous restrictions on hospitals.

Ramsay’s stock price was up 17% this year before today’s update. So today’s sale is probably just taking a profit.

The long-term outlook for private hospitals remains positive as populations age and household wealth increases.

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