Calling Dr Casey

By Peter V O'Brien

Friday 18th October 2002

Share prices of companies in the healthcare and retirement village sector performed poorly in the past six months.

The latest preliminary final and interim reports from the companies contained statements lauding results and a fair amount of huff and puff regarding prospects.

Relationships between earnings losses in Eldercare New Zealand's case, even after unusual items and net investment show a dismal scene.

A standard measure to financial performance is the ratio of net profit to average shareholders' equity. It is normal to exclude intangible assets from that calculation, to get a return on net equity, but that can be ignored in this case,

Only Eldercare carried significant intangibles in the statement of assets, liabilities and shareholders equity for its year ended May 31. It recorded a loss for the year after removing unusual items, so the return on shareholders' equity was negative, with or without intangibles.

Returns on average shareholders equity in the latest reporting periods (interim for Metlifecare) were Calan Healthcare Properties Trust 6.27%, Metlifecare 4.35%, Ryman Healthcare 10.6% and Wakefield Hospital 4.45%. They were modest or abysmal, with the exception of Ryman, depending on one's attitude and financial exposure.

Something has to happen soon, because the companies would be better off as would shareholders if they sold up and put shareholders equity into fixed interest securities.

The relationship of operational cashflows to shareholders equity is another valid test of financial efficiency. Those relationships were, on an average shareholders' equity basis, Calan 6%, Eldercare 5.58%, Metlifecare 7.49%, Ryman 34.66% and Wakefield 11.12%.

Ryman Healthcare stands out as an efficient user of resources on those bases, despite a 21.5% decline in net profit for the year ended March 31 and a similar decline in return on shareholders equity. The company's operational cashflow had a strong rise and its second-half profit was up 47% on earnings for the first six months.

Ryman's report for the March 31 year said the fluctuating nature of developing large new retirement village complexes and the group's higher gearing ratio associated with holding a substantial landbank affected net surplus for the first half. The company substantially increased its asset base in recent years with an obvious strain on profitability until those assets reach peak earning capacity assuming they do.

Eldercare was the most optimistic company in the sector, although any presumed justification of the optimism is crystal-ball-gazing stuff. The company's formal annual report addressed "the future."

Managing director Alan Clarke's report gave the normal praise to "a management team with the experience and professionalism to ensure we achieve our vision to be New Zealand's leading listed multi-discipline healthcare and medical services provider."

His report and chairman Jim Syme's related to a period covering seven months after a board "reorganisation" in October last year. Such comments can be indulging in corporatespeak to gloss over strife. It's is an open question whether that occurred in Eldercare's case.

The company is obviously on the PR offensive. The formal annual report was sent to me at NBR's Auckland head office (I have always been content with residence in Wellington), as was an effusive invitation to the company's annual meeting held on Wednesday.

The latter legitimately referred to more news about "the opportunity identified in the dental market following the Geddes Dental Group acquisition" while apologising for the invitation's lateness.

Never mind, Mr Clarke, in this game we even get used to phone calls at a few hours' notice (as opposed to letters) demanding our presence at meetings. They usually emanate from self-important spin-doctors who have learned they can expect a terse reply from this quarter, which sets personal and professional priorities.

Healthcare and retirement companies must learn to match enthusiasms with financial reality. Share prices suggest the market agreed with that view

Comments from our readers

No comments yet