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Japara Healthcare Ltd (ASX:JHC) share price falls 3.5% on FY18 profit drop

The Japara Healthcare Ltd (ASX: JHC) share price is currently down 3.5% after reporting its FY18 result for the 12 months to 30 June 2018.

Japara Healthcare is one of the largest aged care providers in Australia.

Total revenue grew by 3% to $373.2 million, Japara achieved average occupancy of 93.2% with the second half averaging 94%. During the year, the average revenue per occupied bed day increased by $3.30 to $276.70 and the average Government revenue per occupied bed day increased by $3.20 to $199.80.

Total operational places increased by 6% to 4,069 during the year and the number of homes increased by five to 48, adding to Japara’s scale.

Earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 15.8% to $50.7 million and net profit after tax (NPAT) declined by 21.5% to $23.3 million.

Japara’s earnings per share (EPS) fell by 22% to 8.76 cents whilst the full year dividend was reduced by 31% to 7.75 cents, franked to 50%. The dividend payout ratio can be up to 100% of NPAT, however this year it was 88% with the company’s significant investment program.

The aged care provider said that net bank debt was $116.3 million at the end of the year, with $86 million related to developments and the rest being ‘core net debt’. Japara still has liquidity of around $94 million. Net refundable accommodation deposit inflows in FY18 were $41.6 million.

Despite the continued opening of new and upgraded facilities, Japara has a pipeline of over 1,200 net new places in the coming years. The recent Riviera Health purchase added 210 places plus 297 surplus licences.

Japara’s CEO, Andrew Sudholz, said “We found FY2018 a challenging year with earnings impacted by occupancy pressures and Government funding cuts which included the absence of ACFI indexation.”


Japara thinks that FY19 will show EBITDA growth of 5% to 10%, with several potential caveats of no unforeseen events. Growth is good, however it doesn’t make up for the fall this year – FY19 EBITDA is predicted to be lower than FY17.

Eight refurbished homes and 300 net new places will be opened in FY19, so the second half is predicted to be stronger than the first half.

Foolish takeaway

This report was quite disappointing. There isn’t much Japara can do regarding government funding, nor the impact of flu.

For the long-term I think Japara is doing the right thing by investing as much as possible to expand its operations. It just makes the short-term profit results disappointing. From FY19 there should be a steady increase of profits again. I continue to hold my shares for what Japara could be in a decade or two in the future.

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Motley Fool contributor Tristan Harrison owns shares of JAPARA DEF SET. 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.

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