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Wakefield 1st half net profit up nearly 33%

Wednesday 9th November 2011

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Wakefield Health said adjusted first-half net profit rose nearly 33 percent, reflecting revenue growth from work for ACC and district health boards (DHBs) and good control of costs in a still relatively subdued market.

Net profit rose to $3.2 million in the six months ended Sept. 30 from an adjusted $2.8 million in the same six months last year and was well ahead of the previous first-half's bottom line $1.9 million loss, it said in a statement.

“While we have yet to see a significant rebound in demand, targeted initiatives to improve margins while still maintaining capacity and the outstanding level of service our patients expect have been effective in delivering good operating results and excellent growth in net profit,” chairman Alan Isaac said.

Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 14 percent although the year-earlier EBITDA was dragged down by $350,000 of costs relating to its attempted takeover of Norfolk Investments. Adjusting for those takeover costs, EBITDA was up 9.3 percent.

Wakefield finally succeeded in taking over Norfolk, which owns 60 percent of the Grace Hospital in Tauranga in August.

The higher profit also reflects one month's earnings from Norfolk and from Wakefield purchase of 30 percent stakes in Endoscopy Auckland and Laparoscopy Auckland which together contributed $250,000 to the bottom line.

Isaac said those acquisitions are a key part of Wakefield's growth strategy. “These investments allow Wakefield to broaden the base of its earnings and enter markets that the company believes have significant potential for long-term growth,” Isaac said.

Wakefield also owns the Wakefield and Bowen hospitals in Wellington and the Royston hospital in Hastings.

Isaac said the 5.1 percent rise in revenue to $41.2 million was largely due to increased levels of ACC and DHB work and private revenues were stable.

Despite increases in collective contracts, employee costs fell 1.6 percent due to lower staff numbers resulting from efficiency initiatives, he said.

Earlier today, Wakefield said it reached its target of raising $15 million in new capital to help pay for the recent acquisitions.

Wakefield said redevelopment of the Bowen hospital progressed well and the commissioning of its new theatre block is expected ahead of the mid-January reopening.

Isaac said the company doesn't see industry conditions changing significantly in the second half.

“Private demand remains somewhat subdued as difficult economic conditions weigh on consumer confidence and we have continued to see a slight decline in the total number of New Zealanders with private health insurance,” he said.

ACC volumes have grown and outsourcing opportunities for DHBs have increased recently.

“While generally these have been short-term and for relatively small volumes and hence it cannot be predicted whether such opportunities will continue, we are heartened by the recent entry into a three-year agreement with the Hawkes Bay DHB to provide a range of elective surgical services,” Isaac said.

“This demonstrates a more sustainable approach to public sector contracting that Wakefield believes is beneficial to both parties.”

Variations in DHB and ACC work have knocked Wakefield's earnings around since it listed in 2001.

Isaac said increased insurance costs as a consequence of the Christchurch earthquakes will add about $250,000 to Wakefield's second-half expenses and second-half earnings are traditionally weaker than the first-half because of the Christmas holiday period.

Wakefield shares are unchanged at $4.80, near the bottom of their $4.60 to $6.55 trading range over the past year. The shares have been trending lower since peaking at $10 in August 2009.

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