The Japara Healthcare Ltd (ASX:JHC) share price fell 7% to $1.87 this morning, after the company's half-year results showed sharply lower profits despite higher revenues. Here's what you need to know:
- Revenue rose 15% to $177 million
- Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of $29 million, up from $28 million in prior year
- Net profit after tax (NPAT) fell 10% to $14.6 million
- Earnings of 5.5 cents per share, down from 6.2 cents previously
- Dividends maintained at 5.5 cents per share
- Average occupancy of 94.4% (excluding acquisitions), down from 94.6% previously
- Several land acquisitions and redevelopments completed during the year, growing operational places by 1% to 3,840
- Outlook for EBITDA growth between 7% and 10% for the full year
- Company's intention remains to pay up to 100% of NPAT as dividends each year
So What?
Although Japara experienced strong revenue growth, and increased the average reimbursement from the government by 2.1% per place, most of the benefit was offset by a big increase in staff costs. Revenue rose $23 million while staff costs alone grew $18 million and this, combined with higher costs in all other areas, resulted in a sharply lower profit figure.
Japara is doing a lot of development and refurbishment, and has 'over 1,100 new greenfield places' on track to be delivered by the 2020 financial year. This would represent a ~29% increase in the company's total number of places and could result in the company generating higher profits over the next few years.
The demand for aged care beds is also reportedly growing at approximately 3.4% per annum, a healthy tailwind. An estimated 76,000 extra beds will be required over the next 10 years.
Now What?
One thing that jumped out at me is that Japara's development plans will see the company growing its maximum places at a much faster rate than the rest of the market. This will mean that (assuming all Japara's places are filled and market growth forecasts are accurate) Japara will be growing its market share at the expense of competitors.
That means that Japara will have to ensure that its aged care centres are top notch in order to keep occupancy high – which could mean that higher staff costs seen today could in fact be the norm going forwards. Japara's results were also weak in comparison to peers Estia Health Ltd (ASX: EHE) and Regis Healthcare Ltd (ASX: REG), which both reported strong profit growth and whose results we covered here and here. I'm not a buyer of Japara today.
