I hear you and agree. Unfortunately if we want to access the Chinese market for our own goods, where our trade surplus with China is huge, it becomes difficult to reject each and every bid. Just visit the Bellamy’s page on this site to see how obsessed they are with market access to the red dragon, including the overhyped vitamins pill poppers and our esteemed minerals industry colleagues. Rinehart’s inheritance from her dad wouldn’t be worth the $10bn it is if she couldn’t sell what was in our land already if they weren’t there to buy it.
There will be quite a detailed review as to whether Healius and the database records it holds is critical Australian infrastructure. My guess is that it will more likely than not be FIRB approved, with conditions.
The real damage caused here has been the over 8 years of underperformance by the Executive and Board teams. The share price was once $11. That is billions lost in shareholder value.
They were the ones that oversaw a collapse in Medical Centres profits, erosion in Pathology profitability and a string of mishaps like the wages error and the underpayment of award staff at arbitration, giving Gregg the CEO gig, approving a 7% “pre tax” return on invested capital performance hurdle rate, handing Parmenter over $3.5m in share awards at $0 per share cost to him, a clumsy $2.50 a share capital raise soon followed by the wages error disclosure, plus the losses of key contracts such as the Bowel screening contract and writing off over $6 million in Asian ventures, including millions sunk building private billings centres. Don’t get me started on the continuous endorsement of ‘normalisation of profits’ financial reporting innovation.
Our own shareholder funds have funded it all.
I have said many times the company needs to immediately action at least $100m in cost take out; leapfrog and other initiatives can then follow. This is what a responsible Board does when margins have been in constant decline for over 5 years. You tell the CEO to do it or go for a hike.
At its core, the company historically promulgated what many may alternatively consider financial legerdemain; it allowed the treatment of doctor goodwill payments to be accounted for as indefinite life intangibles up until 2016, when post individual contract end, usually within 5 odd years, the payments were anything but.
This allowed the contract start payments made to the doctors avoid being expensed in the profit and loss accounts of Primary Healthcare for years, which resulted in higher medical center EBIT reported earnings; to its credit, the company moved to report at length that the change in accounting of now amortising these capitalised costs at higher rates better reflects the economic substance of its commercial relationships with its HCPs. Funnily, the same former accounting treatment was adopted at Vision Eye Institute, where it had its own crisis that challenged this treatment earlier this decade; who remembers the Dr David Kitchen legal action? (https://m.sunshinecoastdaily.com.au/news/cq-eye-surgeon-loses-multi-million-dollar-lawsuit/3087846/). Now a Jangho subsidiary, where the first 20% of stock was bought off Healius. Funny world we live in.
The charade came to an end under Gregg, however I suspect he misjudged the extent of erosion of profits that would arise in the switch to the higher variable income model for the HCPs. Whilst recruiting of new HCPs has improved, it simply hasn’t been enough.
It is great to see HCPs enjoying their new found freedom of working the hours they prefer etc; the problem is, as shareholders we want them working harder, for more hours at a time to enable the total gross billings to increase, such that the higher profit share now given to them is offset financially for us by the higher gross take.
If the Board had not lead Healius to a recent disastrous $2.20 share price, some 40% off its average pre last 30 June, this bid would not have eventuated as Jangho has candidly said itself.
This is business with fabulous market positions in pathology (#1 or 2), medical centres (#1) and diagnostic imaging (#3). In theory it should be selling for at least 12 times ebitda; in the USA you’d need to bid 15 times for something similar. That’s well over $4 for Healius. Unfortunately we lack the capital depth here to emulate the same. The 4th pillar, day surgeries and private billings practices, has yet to get properly started and leapfrog and new technology profit growth has yet to deliver on their supposedly big promise.
We keep reading how private equity is flush with cash and on the hunt etc etc, Thickens of BCG and Tim Sims of Pacific Equity Partners singing the same and telling us how financially innovative they are and that they are no longer barbarians at the gate as reported in the AFR yesterday; let’s see if they turn up, invest their investors’ funds where their mouth is and put a proper counter or innovative revised joint bid in along with the Curtain Wall manufacturer. Doubt it.
HLS Price at posting:
$2.75 Sentiment: Buy Disclosure: Held
(20min delay)