FLLYR: WFD: Wakefield Health Full Year Results

14 May 2010 4:37 pm

WFD 14/05/2010 FLLYR

REL: 1637 HRS Wakefield Health Limited

FLLYR: WFD: Wakefield Health Full Year Results

Wakefield Health full year results

Wakefield Health today reported net profit after tax of $6.2 million for the year ended 31 March 2010. This result was 38.9% down on the record earnings of $10.1 million achieved in the previous financial year.

Chairman John Calder noted that trading conditions in the second half of the 2010 financial year had remained subdued, similar to the first half. Some softness in demand for private surgery persisted, particularly for major procedures, while ACC funded patient numbers did not return to previous levels and the Company performed significantly less DHB funded work than in the previous year. These factors contributed to a 10.8% decrease in revenue for the year ended 31 March 2010 compared to the previous year.

Total operating costs were down 5.5%. Medical supplies consumed decreased in line with the reduction in work volumes. Payroll costs remained stable despite the impact of wage increases from collective agreement settlements which were offset by reductions in the use of casual and contract staff and overtime to align with lower work levels. Other operating expenses declined 11.5% compared to the prior year assisted by cost savings sought in response to the reduced revenues.

While cost reductions were achieved, these were not proportional to the revenue decline and hence margins contracted. EBITDA fell 26.1% to $16.3 million. Depreciation and amortisation expense increased reflecting the added investment in theatre equipment, information systems and property upgrades. Interest costs were significantly lower than the prior year due to significantly lower floating interest rates coupled with the benefit of deleveraging in the previous financial year. While this provided some limited respite, 2010 net earnings were still 38.9% lower than the year ended 31 March 2009.

Reported earnings are summarised below:

Year Year Ended Ended 31.3.10 31.3.09 Change

Revenue ($000) 76,803 86,075 -10.8% Operating Expenses ($000) 60,487 64,00 -5.5% EBITDA ($000) 16,316 22,070 -26.1% EBIT ($000) 9,726 16,434 -40.8% Net Earnings ($000) 6,196 10,133 -38.9% Earnings per share (cents) 44 72 -38.9% Dividend (cents) 18.0 25.0 -28.0%

The redevelopment of Bowen Hospital in Wellington has gathered pace, with the first phase of construction well underway and in line with planned completion of this phase in December 2010. The ongoing upgrading of Wakefield Hospital also continued, with new specialist and theatre staff facilities opened during the year and refurbishment of several areas in the hospital completed or underway.

The Company recently announced that it intended making a takeover offer for Norfolk Investments Limited, a company that holds a 60% interest in Tauranga's Grace Hospital and had entered into conditional pre-offer agreements with shareholders holding more than 51% of Norfolk's shares who have committed to accept Wakefield's offer when made. The formal takeover process is now underway. Although formal notice of the offer has been given to Norfolk in accordance with Takeovers Code requirements, for the offer to proceed further it first needs approval of Norfolk shareholders at a shareholders meeting which has been called for 25 May 2010.

"The quality of the Grace Hospital business and the demographics of the Bay of Plenty region make Norfolk an attractive acquisition for Wakefield and the Company is excited about the opportunity to enter this market" said Andrew Blair, Wakefield's Chief Executive Officer.

The strength of Wakefield's balance sheet allows it to undertake these major projects and still maintain a comfortable level of borrowing. At 31 March 2010 the company's gearing (net debt divided by net debt plus equity) was 5.8% and the Company has entered into new debt facilities to provide borrowing capacity for the major projects currently underway.

Outlook

Recessionary economic conditions appear to have played a factor in suppressing private demand, particularly for major surgeries that are patient funded or have a major patient contribution. As economic conditions improve, it is expected that demand will again pick up, though predicting the extent and timing of this is not possible at this stage.

It has been encouraging to note that despite the impact of recession, the number of individuals with private health insurance has remained relatively stable. The latest statistics released by the Health Funds Association of New Zealand for the March 2010 quarter show that 1.39 million New Zealanders held life insurance, a drop of only 3,000 in the past year.

ACC has funded less surgery nationally in the past twelve months than it did in the previous year, with a greater proportion of applications for surgery declined by the Corporation. Were there to be an increase in the approval rate in the coming year, then this would likely impact favourably on the Company's business.

The Company also believes that nationally there has been less DHB funded work carried out by the private sector in the past 12 months. Wakefield has always been at pains to stress the unpredictability of this work. Although encouraged by government policy initiatives in support of longer term sustainable contracting, the Company does not see any change to this unpredictability in the short term.

While current trading conditions have suppressed short term earnings, the Company remains focused on the positive long term growth indicators for the private healthcare sector and is working to ensure it remains well positioned to meet the inevitable increased future demands for these services. This will see the Company continuing to invest in developing its existing facilities and it will also be seeking to expand the extent and scope of the Company's operations through new investment opportunities.

Dividend

The Directors have declared a fully imputed final dividend of 10.0 cents per share. This dividend will be paid on 25 June 2010 to all shareholders on the register at 18 June 2010. Together with the interim dividend of 8.0 cents per share paid in November 2009, this will result in total distributions to shareholders in respect of the 2010 financial year of 18.0 cents (last year 25.0 cents).

Ends Issued by Wakefield Health Limited 14 May 2010 End CA:00194918 For:WFD Type:FLLYR Time:2010-05-14:16:37:52

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