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Ferret's Stock Watch: 6th of Feb

HEALTH CARE GROUP PICKING UP BUSINESS THROUGH ACQUISITIONS

Sydney - Wednesday - February 6: (RWE Aust Business News) - PARAGON CARE LTD (PGC) has reported a record interim result.

Net profit for the period was $564K or 165% higher than for the same period in 2011 from operating revenue that was 7% lower at $9.2 million.

The strong profit result was primarily attributable to benefits that emerged following the completion of the integration of recent acquisitions and the move of several of the businesses to the corporate site in Nunawading.

In addition the benefit of major cost savings that flowed from further restructuring undertaken in response to the downturn in spending by hospitals on new equipment, in the latter part of calendar 2011 and early 2012 were achieved.

Operating costs for the period under review were 11% lower than the previous corresponding period as savings and efficiencies were achieved across the company including general and corporate overheads.

The relatively modest fall in operating revenue masked a significant increase in core revenue.

The comparative result included a large revenue boost from the supply of a wide range of product to the recently completed Royal Children's Hospital.

It also included operating revenue from the former Aged Care Services businesses of $136K prior to their sale in August as well as the gain of $284k on their subsequent sale.

Core sales of medical equipment to hospitals strengthened through the period, whilst rising revenues from multi-year sales agreements that have been secured with several hospitals have become an important feature of the company's sales mix.

Accordingly, core revenue was significantly higher (11.7%) than in the previous corresponding period.

Finance costs were also markedly lower reflecting a significant reduction in net debt and interest rates.

Strong surplus cash flow together with accelerated loan repayments resulted in net debt falling from $5.8 million as at December 31, 2011 to $4.2 million as at December 31, 2012.

Against a higher equity base, gearing has fallen from 52%, a year ago, to 37%.

The company has been resolutely focused on maximising its operating efficiency to increase EBITDA margins.

SHARE PRICE MOVEMENTS

Shares of Paragon Care yesterday crept up 0.5c to 40c. Rolling high for the year is 43.5 and low 17c. The company has 32.2 million shares on issue with a market cap of $12.9 million.

Further initiatives are being implemented focusing on gross margins which should see the EBITDA margin continue to improve.

Although recurrent health spending by the commonwealth and the states remains under pressure, capital commitments for new hospitals and major refurbishment programs are still at a high level and will remain so for the next 3 to 5 years as these projects progress to completion.

These projects will provide the company with major supply opportunities similar to the Royal Children's Hospital project which was completed in 2012.

Current back order levels and potential pipeline of new revenues for the short to medium term are encouraging and underpin the guidance in association with the excellent first half result.

Mark Simari, Paragon Care CEO said "In a difficult environment, we have made considerable progress in improving the sustainability of our operations and we are now well positioned to capture the opportunities that are opening up for us and to grow our business."

BACKGROUND

Paragon Care Ltd has a vision to be one of Australia's leading providers of integrated services to Australia's health and aged care markets.

The company listed on the ASX in October 1999.

These are high growth markets driven by the ageing of the population, continuously rising consumer expectations and increasing government spending.

Paragon Care has five operating businesses: Axishealth, Iona Medical, Volker Australia, Rapini and GM Medical who combined supply durable medical equipment to hospitals, medical centres and aged care facilities.