Japara Healthcare Ltd (ASX: JHC) is one of the largest aged care providers in Australia.
The company made a late announcement regarding its status of capital refurbishment and also updated its FY18 guidance.
In 2015 Japara introduced a ‘capital refurbishment deduction’ following legal advice from its solicitor and subsequently supported by a senior barrister’s opinion. Japara decided that the capital refurbishment deduction was supported by relevant legislation and provided a direct benefit to residents.
However, a recent Federal Court found that the asset replacement charge implemented by Regis Healthcare Ltd (ASX: REG) was not consistent with relevant legislation. Japara has reviewed its position and decided to refund all capital refurbishment deductions, including any accrued interest.
Revenue from capital refurbishment deductions totalled $1.84 million in the 8 months to the end of February and totalled $2.82 million in previous financial years.
After the non-recurring refund of the capital refurbishment deductions, Japara anticipates that FY18 earnings before interest, tax, depreciation and amortisation (EBITDA) is likely to be 14% to 19% below FY17’s.
Obviously, this isn’t good for Japara and impacts the FY18 result. However, it doesn’t affect the long-term outlook for Japara so any short-term negative effects should finish by the end of FY18. It could be a long-term opportunity if the share price falls tomorrow.
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Motley Fool contributor Tristan Harrison owns shares of JAPARA DEF SET and Regis Healthcare Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.