results are out another cracker

ASX RELEASE 28 August 2006 RAMSAY HEALTH CARE FY2006 CORE NET PROFIT RISES 69% Financial Highlights • Core Net Profit after tax increased 69% to $93.3 million • Core EPS rose 16% to 46 cents • Core EPS increase exceeds initial guidance for year and above upgraded guidance at half year • Net profit after tax up 177% to $87.6 million • Final Dividend 13.5 cents, fully franked, up 17%, making full year dividend 24.0 cents, up 20% • Net debt at year end down to $700 million from $1.4 billion last year Results from continuing operations • Core Net Profit after tax up 82% to $91.4 million • Core EPS up 24% to 45 cents • Revenue increased 73% to $2.0 billion • EBITDA up 73% to $251.6 million • EBITDA margin remained at 12.7% *Core Net Profit and Core Earnings per Share are before specific items and amortization of intangibles. Overview Australia’s largest private hospital operator Ramsay Health Care Limited today announced a 69% rise in core net profit (before specific items and amortization of intangibles) to $93.3 million for the year to 30 June 2006, up from $55.1 million in the 2005 financial year. The FY06 result includes the first full year of contribution from Affinity hospitals which Ramsay acquired in April 2005 and which effectively doubled the size of the company’s portfolio of hospitals. Page 1 1
The strong profit results translate into core earnings per share of 46 cents on substantially enlarged capital, a 16% increase from the 39.7 cents recorded for FY05, and ahead of the company’s expectations for the year. Following the Affinity purchase, which was a company transforming acquisition, Ramsay conducted a strategic review and rationalised its portfolio, resulting in the divestment of a number of hospital facilities and its aged care business for higher than expected proceeds. The divestments released a substantial amount of capital which will be used to fund future growth prospects. Core net profit after tax from continuing operations increased 82% to $91.4 million. Revenue from continuing operations totalled $2.0 billion for the 2006 financial year, a 73% increase on the 2005 financial year. Net specific one-off charges totalled $5.7 million (net of tax) in FY06 and relate to restructuring and integration of Affinity, amortization of intangibles and profit on sale of divested operations. The restructuring and integration costs included in the $5.7 million net charge are in line with Ramsay’s expectations for restructuring and integration costs disclosed at the time of the Affinity acquisition. After these specific items, net profit after tax was $87.6 million, a 177% increase from $31.7 million in the 2005 financial year. Directors have declared a fully franked final dividend of 13.5 cents per share, up from 11.5 cents in the previous corresponding half year, taking the full year dividend to 24.0 cents, an increase of 20%. Directors have decided to suspend the dividend reinvestment plan due to the higher than expected proceeds from divestments and the faster than expected reduction in debt. Ramsay Managing Director Pat Grier said: “This is an exceptionally pleasing result for Ramsay Health Care in a year in which we have created the best hospital portfolio in Australia. While it was a year of consolidating and integrating the Affinity hospitals, we continued to build on the strength and earnings quality of the existing Ramsay hospitals which continue to underpin our earnings growth. “The first full year of trading of the Affinity hospitals under Ramsay management has been pleasing and this major integration is proceeding well, and in some aspects, ahead of schedule. Page 2 2
“We have some of the best hospitals in Australia in our portfolio – the hospitals doctors want to refer their patients to, the ones that private health fund members want to go to and the hospitals which are leading the way in patient care, medical practice, teaching and employee relations. “This portfolio not only provides a solid base to continue to grow the Ramsay business organically, but exciting opportunities to further grow through capacity enhancements and expansion and, possibly, further acquisitions.” Affinity integration The retained Affinity hospitals, which only came under Ramsay management in September 2005 after the conclusion of negotiations with the Australian Competition and Consumer Commission, have performed in line with Ramsay’s expectations. The retained Affinity Australia hospitals recorded a 9.6% increase in EBIT, and the Indonesian hospitals recorded a 15.1% increase, while Ramsay hospitals EBIT rose 7.4%. This is largely organic growth and confirms the continued focus on the micro-management of the business. EBIT margins improved at the Affinity Hospitals, but Ramsay believes there is scope for further improvements in coming years. The three year integration plan is proceeding on schedule, including major operational changes such as the restructuring of the Affinity head office. As forecast, Ramsay has achieved pre-tax cost synergies of approximately $15 million in the 2006 financial year and is on track to realise the remaining $20 million over FY07 and FY08. In addition, Ramsay is on track to achieve the expected pre-tax revenue synergies of approximately $15 million per annum by the end of FY08. As a result of revenue and cost benefits, the company expects to achieve incremental core EBITDA of approximately $50 million per annum by the end of FY08.
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Cashflow Cash flow generation in FY06 was consistent with profitability. Strong cash flow management resulted in gross operating cash flow of $260 million exceeding EBITDA of $252 million. The proceeds from divestments have been applied against debt. Net debt has been reduced from $1.4 billion at 30 June 2005 to approximately $700 million at 30 June 2006. Gearing has been reduced from 64% at 30 June 2005 to 45% at 30 June 2006. Hospital Operational Highlights Admissions across the Ramsay portfolio rose solidly over the year. For Ramsay hospitals, admissions rose 5%, while Affinity Australian hospital admissions rose 3% and 18% in Indonesia. During the year, Ramsay achieved satisfactory outcomes from health fund negotiations. Despite the dilutionary impact of the Affinity hospitals, the group’s hospital EBIT margin increased slightly to 11.8%. This margin increase was achieved despite higher labour costs and the significant challenges of the Affinity merger and integration process. Strategic Review The acquisition of Affinity in April 2005 allowed Ramsay to undertake a strategic review in order to maximize the value and strategic positioning of its portfolio. That review has been successfully completed and resulted in the sale of Ramsay’s aged care business as well as three additional hospitals in South Australia. Ramsay believes it now has the premier private hospital portfolio in Australia, comprising 65 hospital facilities in Australia, and three hospitals in Indonesia.
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Planned Capacity Expansion Following the strategic review and subsequent divestments, Ramsay has between $300 million and $400 million to invest in improvements and capacity expansion at a number of its hospitals to enhance profit growth from FY08 onwards. The company’s previous brownfields investments have delivered returns of 15% or more on capital invested over the medium term and Ramsay continues to use this 15% investment hurdle to guide its decisions on where to invest in the future. As part of its brownfields program, which has yet to be finalised and approved by the Board, Ramsay plans to: • develop major regional referral centres in key locations across New South Wales, Queensland, Victoria and Western Australia; and • invest in other hospitals in its portfolio to develop them as niche service providers in particular medical specialities. The process of identifying the best investment opportunities to deliver on the above strategy is well underway and details on major projects will be released when finalised. As part of this process, the Board has approved a redevelopment project at Hollywood Private Hospital in Perth which will see the addition of 90 beds, four operating theatres, medical consulting suites, car parking, day surgery facilities and expanded infrastructure. The development is to be undertaken in stages over the next three years for a net investment after the sale of the medical suites of $80-85 million, with completion expected around mid-2009. Outlook Despite industry challenges, including labour cost pressures, Ramsay expects to deliver continued solid organic growth across its portfolio through focusing on its core hospital management expertise. In addition, management will continue to focus on improving earnings from those Affinity hospitals now under Ramsay management and realising the identified synergies. Ramsay expects labour cost pressures to continue, as well as the need to manage the transition from the exclusive contracts at the veterans’ hospitals in Queensland and Western Australia.
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During FY07, Ramsay will invest in brownfield expansion at key hospitals to lay the foundations for further earnings growth over the medium term. In the absence of unforeseen circumstances, Ramsay is targeting growth in core earnings per share of between 15% and 20% for the 2007 financial year from the 44.9 cents core EPS from continuing operations achieved in FY06. Ramsay continues to explore opportunities to grow further through acquisition, including potential acquisitions of hospitals in a number of areas where Ramsay is not facing competition issues, and acquisitions within the private health care sector. Contacts: Pat Grier Paula Hannaford Managing Director Gavin Anderson & Company (02) 9433 3444 (02) 9552 4499 or 0413 940 180 Page 6 6
Summary of Financial Performance Year ended 30 June $000’s Continuing Operations 2006 2005 % Operating Revenue 1,983,489 1,143,784 73% EBITDA 251,568 145,256 73% EBIT 193,339 107,804 79% Core Net Profit after tax - continuing operations 91,372 50,251 82% Divested Operations Core Net Profit after tax – divested operations 1,907 4,844 Total Core Net Profit after tax 93,280 55,096 69% Specific Items (net of tax) 5,690 23,445 Net Profit after tax 87,590 31,650 177% Total Core EPS (cents per share) 46.0¢ 39.7¢ 16% Total dividend (cents per share) fully franked 24.0¢ 20.0¢ 20% Earnings per Share (cents per share) 2006 2005 % Core EPS – continuing operations 44.9¢ 36.2¢ 24% Total Core EPS 46.0¢ 39.7¢ 16% Basic EPS 42.7¢ 22.8¢ 87% Notes: 1) Core Net Profit and Core Earnings per Share are before specific items and amortisation of intangibles. 2) All EPS calculations are based upon Net Profit after tax adjusted for preference dividend. 3) Prior year restated for AIFRS and divested operations. Page 7 7