Estia Health (ASX:EHE) share price falls on FY21 earnings

It wasn't an easy financial year for the residential aged care provider.

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The Estia Health Ltd (ASX: EHE) share price is in the red on the back of the company's financial year 2021 (FY21) earnings.

Right now, the Estia Health share price is $2.23, 0.43% lower than its previous close.

Estia Health share price slumps despite 105% increase to profits

Here's how the residential aged care provider performed over FY21:

  • Revenue of $646 million – up 4.4%
  • $5.99 million net profit after tax – 105% more than in FY20
  • Reinstated 2.3-cent fully franked final dividend

FY21 was a productive but challenging time for Estia Health.

The company's operations suffered a $24.3 million hit from its COVID-19 response, as it increased costs, and reduced occupancy and revenue. Estia received $21.4 million of government support throughout FY21, none of which was from JobKeeper.

Additionally, Estia Health settled a shareholder class action brought about it due to disclosures the company made between August 2015 and October 2016. The class action was settled for $38.4 million, of which Estia paid $12.3 million and its insurers covered the rest. 

The company's mature homes segment brought in earnings before interest, tax, depreciation, and amortisation (EBITDA) of $62.5 million. The segment reported 91.2% occupancy over FY21.

Estia Health ended the period with $33.4 million of cash and $81.1 million of debt.

What happened in FY21 for Estia Health?

Here's what moved the Estia share price in FY21:

Royal Commission

First off, the Royal Commission into Aged Care Quality and Safety handed down its final report in February. The report contained 148 recommendations, of which, the government accepted 126.

According to Estia, the accepted recommendations will lead to higher costs, compliance, and administrative requirements. Many will need to receive legislative approval, which will require detailed assessment, research and consultation, expected to take place over the next 2 to 3 years. These include:

  • A $10 per day short-term financial relief by way of an increase in daily fees. If the increase had been applied to Estia's occupied bed days in FY21 it would have added $20.6 million to the company's revenue
  • Mandated minimum care hours from October 2023
  • A wide range of regulatory, supervisory, prudential, reporting and governance improvements that will be introduced over the next 18 to 24 months

Estia was required to provide two sets of information to the Royal Commission regarding the quality of care and staff hours at its homes. The company wasn't asked to appear before the Royal Commission following its submissions. Estia's performance matters were also not referenced in the final report.

COVID-19

Over FY21, all of Estia's homes were impacted by COVID-19 at one time or another.

During Victoria's second wave, 11 of the company's 27 Victorian homes experienced at least one infection. Those infections resulted in the deaths of 36 residents.

The outbreaks were resolved over September and October and the last of Estia's homes with a COVID-19 infection was COVID-19 free on 10 November 2020.

No Estia homes experienced infections between November 2020 and 30 June 2021.

As of 20 August 2021, 82.4% of Estia's residents and 82.1% of employees had been at least partially vaccinated against COVID-19. According to Estia, the Federal Government expects all states to issue public health orders before mid-September to make vaccinations mandatory for all residential aged care workers.

Developments and sales

In February, Estia opened its newest home at Blakehurst NSW. The 105-bed home reached 63.8% occupancy less than five months after opening. The home has been EBITDA positive since May.

Over FY21, the company decided to close its 46 bed home at Keilor Downs, Victoria. It stated the home wouldn't meet community expectations for residential aged care homes in the coming years. The closure cost Estia $300,000.

Additionally, Estia sold 3 surplus land sites for $9.5 million over the period.

What did management say?

Estia Health's CEO, Ian Thorley, commented on the news driving the company's share price today. He said:

In the face of one of the most challenging periods the sector has ever faced Estia delivered a resilient performance which, combined with a strong balance sheet, has given us the confidence to reinstate the dividend.

The financial result, supported by temporary government funding and grants provided to cover the COVID-19 cost impacts during the pandemic, places Estia in a sound position to respond to the Government's post-Royal Commission reforms which represent a fundamental shift in thinking towards a more transparent and competitive sector.

While we are broadly supportive of the government's response, significant uncertainty remains over the detail of the system and program reforms and the financial and operational impacts that these will have on the sector and individual providers…

The current situation with restrictions in NSW and Victoria, and to a lesser extent in Queensland is further testing the sector. At this stage it is too early to make any statements or guidance about the consequences or impacts on the FY22 financial performance. Our focus is wholly on the well-being of our residents and our people.

What's next for Estia Health?

Here's what might drive the Estia Health share price in FY22:

The company didn't give guidance for FY22, but it is planning to develop 2 new homes at St Ives and Aberglasslyn in NSW. The homes will include a total of 236 new beds.

Additionally, it's waiting for more recommendations of the Royal Commission to be implemented by the government. These might have a large impact on the business.

Estia Health share price snapshot

The Estia Health share price has gained 24% year to date. Its also 39% higher than it was this time last year.

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