comparison to bhp fall

Ramsay in rude health, but shares unwell
Kevin Andrusiak
August 29, 2006
RAMSAY Health Care managing director Pat Grier likened share market reaction to a 177 per cent jump in net profit to that of BHP, as shares in the hospital and equipment provider fell.
Ramsay shares slid 6.2 per cent by the close of trading after investors started to digest news of an $87.6 million net profit, which included a contribution from Affinity hospitals acquired in the $1.4 billion takeover.

Ramsay, which owns 66 hospitals in Australia and three in Indonesia, had to relinquish control of a number of hospitals to meet strict Australian Competition and Consumer Commission regulations to win the Affinity buiness. It is still expecting to book up to $20 million in synergies from the acquisition.

"The market reaction is very disappointing," Mr Grier said. "I don't know what more we could have done. It is a bit like what happened with BHP Billiton.

"There were no curlies in the results and I think we are the best private hospital operator in the country."

Ramsay said it would increase earnings per share 24 per cent this fiscal year after EPS in the 12 months to the end of June improved 16 per cent to 46c. Apart from booking more in the way of synergies, Ramsay will also try to improve margins and occupancy rates at its Affinity-acquired hospitals to bring them more into line with the margins being booked from its Ramsay hospitals.

The Affinity hospitals, which only came under Ramsay management in September, are reporting margins of about 12.5 per cent compared with 13 per cent for the others.

Ramsay management had cut labour costs at many Affinity hospitals and introduced tighter cost controls after the takeover.

Affinity hospitals, with only a 3 per cent rise in occupancy rates compared with 5 per cent for all of Ramsay's other Australian-owned hospitals, recorded a 9.6 per cent increase in EBIT while the Ramsay hospitals EBIT lifted 7.4 per cent.

Mr Grier also forecast a $400 million program for brownfield extensions to many hospitals in its portfolio, which would return 15 per cent in earnings before interest and tax in three years.

He added the business would face further labour cost pressures across all operations over the next year but Ramsay was also looking for further acquisitions.