Ramsay (ASX:RHC) share price on watch after strong FY 2021 profit growth but cautious outlook

It was a much better 12 months for this hospital operator…

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The Ramsay Health Care Limited (ASX: RHC) share price could be on the move today.

This follows the release of the private hospital operator's full year results.

Ramsay share price on watch after strong profit growth

  • Revenue increased 3.9% to $12,435.5 million
  • Earnings before interest and tax (EBIT) lifted 29.1% to $1,132.6 million
  • Statutory profit jumped 58.1% to $449 million
  • Earnings per share up 47.6% to 192.6 cents
  • Free cash flow down 14.8% to $852.3 million
  • Fully franked final dividend of 103 cents per share, bringing full year dividend to 151.5 cents (up 142% year on year)

What happened in FY 2021 for Ramsay?

For the 12 months ended 30 June, Ramsay reported a 3.9% increase in revenue to $12,435.5 million. This reflects a 7.8% increase in Asia Pacific revenue, a 6.9% lift in European revenue, and a 21.3% reduction in UK revenue. Some of the latter's decline was offset by revenue from government agreements. This includes payments for the use of its facilities and services to assist with COVID outbreaks. Ramsay also received payments in some regions for the additional costs associated with operating in a COVID environment.

Things were even better for Ramsay's earnings, which could bode well for the Ramsay share price today. The company reported a 29.1% increase in EBIT to $1,132.6 million thanks to strong earnings growth across all three of its geographic segments. This was broadly in line with the market's expectations. For example, Goldman Sachs was forecasting EBIT of $1,137.9 million.

Ramsay's EBIT was driven by Asia-Pacific EBIT increasing 18.9% to $636 million, European EBIT jumping 38.3% to $403.8 million, and UK EBIT surging 83.4% to $92.8 million in FY 2021.

In light of this profit growth and strong balance sheet, the Ramsay Board declared a fully franked final dividend of 103 cents per share. This brings its full year dividend to 151.5 cents, which is up 142% year on year.

What did management say?

Ramsay's CEO & Managing Director, Craig McNally, commented: "Our FY21 financial report is a solid result given the ongoing disruption to the business caused by the pandemic which saw significant restrictions placed on elective surgery and drove a material reduction in demand for non-surgical services."

"We have worked closely with governments across our regions to relieve pressure on the public hospital and aged care systems. As all our regions emerged from the lock-downs in 4QFY21 we started to benefit from the pent up demand for private healthcare services and we believe we are in a strong position to assist with addressing the public backlog of elective surgeries moving forward. The recovery in volumes has however been disrupted by further lock-downs. Lifting vaccination rates will be the key to the recovery," he added.

Mr McNally also spoke a little about the big dividend increase in FY 2021.

He said: "The higher than normal dividend payout ratio this year reflects our strong cashflow and financial position allowing the full year dividend to be restored to the FY19 level. The Board recognises shareholder support during what has been the most challenging 18 months in the Company's history."

What's next for Ramsay in FY 2022?

No guidance has been provided for FY 2022 due to the uncertainty it is facing because of COVID-19.

However, it has provided some details on what to expect in the new financial year. This includes the lockdowns in Australia, which negatively impacted its Australian EBIT by $13 million in July.

Another piece of information that could weigh on the Ramsay share price is the surgical restrictions that came into place this week at seven hospitals in Greater Sydney. By way of reference, the estimated EBIT impact of an approximately 90-day restriction on elective surgeries in Victoria in 2020 was $70 million. However, Ramsay's business in NSW is approximately twice the size of its Victorian business.

Commenting on the year ahead, Mr McNally said: "Our FY22 results will be largely dictated by the effectiveness of global vaccination programs in reducing the number and severity of COVID cases around the world, reducing COVID hospitalisation rates, improving both doctors and the general publics' confidence in returning to health care settings and allowing the private hospital sector to operate without capacity restrictions."

"The UK and European businesses have started FY22 on positive trajectories after emerging from long and restrictive lock-downs, although both businesses continue to be impacted by issues associated with the COVID environment. The Australian and Asian businesses will continue to be impacted by lock-downs in 1HFY22 until vaccination rates progressively improve."

While the near term will be tough, Ramsay's CEO is positive on the company's medium term prospects.

"We remain well positioned for strong growth over the medium term addressing the backlog in demand for healthcare services in both the public and private systems and we will continue to support the public health sector where required in the fight against COVID," he concluded.

Ramsay share price performance

The Ramsay share price has been a bit of a mixed performer in 2021. Although its shares are up a decent 6.3% year to date, they trail the ASX 200 with its gain of 12.7%.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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