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Regis Healthcare shares tumble as profits halve

The Regis Healthcare Ltd (ASX: REG) share price is falling sharply today following a negative market reaction to the release of the company’s 1H20 result.

After being down as much as 9%, Regis Healthcare shares are now trading 7.62% lower for the day at $2.06.

What did Regis Healthcare report?

For the 6 months to 31 December 2019, Regis Healthcare reported underlying revenue of $332.2 million, which was a 4.4% increase on the prior corresponding period (pcp) of H1 FY19.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for the company was reported as $44.4 million, representing a significant 21.7% decline on the pcp. Reported net profit after tax (NPAT) declined even more significantly by 50.5% to reach $12.1 million.

Meanwhile, average occupancy rates came in at 90.4% in steady state homes, while net debt reduced by $21.7 million to sit at $281.5 million at the end of the period.

Regis Healthcare declared an interim dividend of 4.02 cents per share, of which is 50% franked.

Strategy update and project pipeline

Despite strong headwinds in the Residential Aged Care Industry, Regis Healthcare commented that it has implemented a series of programs to improve occupancy. Additional resources have also been utilised by the company to the ramp up sites in Western Australia in order to maximise the opportunities in that state.

Regis reported that it has opened 1,247 new places over the last four years. At the end of 2019, 79% of these places were occupied and $286.5 million of net refundable accommodation deposit (RAD) cash flow had been collected.

Investment in new homes has now slowed and Regis has paused several projects in the development program. However, the company has commenced a greenfield development in Camberwell, Victoria which is planned for the second half of FY20.

For the remaining developments in the pipeline, Regis Healthcare added that activities are underway in readiness to commence construction once conditions are more favourable.

In Residential Aged Care, the company has contracted to purchase three services with a total of 173 places across two locations in Lower Burdekin, near Townsville. The company further added that it is continuing to prepare for the commencement of the redevelopment of its retirement living locations in Nedlands, Western Australia and Blackburn South, Victoria.

FY20 outlook

Looking forward, Regis Healthcare managing director and CEO, Dr Linda Mellors, said:

“Following this difficult first half for the Company, our focus at this time is to optimise business performance whilst maintaining excellent resident care standards. The business performance improvement will be achieved through occupancy improvement strategies, disciplined cost management and process redesign.”

“We continue to review acquisition and development opportunities whilst keeping a conservative approach to managing our balance sheet and debt,” she added.

Regis Healthcare has reaffirmed its previously announced full-year guidance. With this, underlying full-year EBITDA is anticipated to be around $92 million, while underlying NPAT is anticipated to be around $28 million.

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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. 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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