Ramsay Health Care share price falls on profit crunch and dividend cut

This private hospital operator continues to battle with higher costs.

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The Ramsay Health Care Ltd (ASX: RHC) share price is falling on Thursday.

In morning trade, the private hospital operator's shares are down over 2% to $50.00.

This follows the release of the company's half-year results.

Ramsay Health Care share price falls on results

  • Revenue up 10.5% to $8,159.3 million
  • EBITDAR up 3.6% to $1,120 million
  • Profit after tax from continuing operations down 23% to $140.4 million
  • Profit after tax up 290% to $758.5 million
  • Interim dividend down 20% to 40 cents per share

What happened during the half?

For the six months ended 31 December, Ramsay Health Care reported a 10.5% increase in revenue to $8,159.3 million. This was boosted by favourably currency movements, with constant currency revenue increasing by a more modest 7.8%. This reflects mid to high single digit growth in activity in all regions combined with indexation increases.

Things weren't anywhere near as positive on the bottom line. The company reported a 23% decline in profit after tax (from continuing operations) to $140.4 million due to margin pressures. Though, management believes that this will change in the second half and continues to expect earnings growth (from continuing operations) for the full year.

On a reported basis, Ramsay Health Care recorded a 290% increase in profit after tax to $758.5 million. However, this reflects the sale of Ramsay Sime Darby (RSD).

Management commentary

Ramsay Health Care's CEO, Craig McNally, was pleased with the half. He said:

I am pleased to report that activity levels continued to improve across all regions through the first half of FY24. This, combined with tariff uplift, drove patient revenue growth of 7.8% in constant currency.

Commenting on its margins, McNally said:

The rate of margin recovery continues to be impacted by high inflation in the healthcare sector, in particular wages and medical consumables, with tariff increases only partially offsetting cost increases.

During the half, we made some progress agreeing new terms with payors to more adequately reflect inflation over the last few years, however there is still a way to go to ensure long-term industry sustainability, with many hospital operators losing money and closing or reducing services in the regions where we operate.

The industry must continue to push for higher compensation as recent increases do not address the impact of inflation over recent years.

Outlook

As mentioned above, management continues to expect to deliver earnings growth from continuing operations in FY 2024 despite its first-half decline. McNally explained:

Excluding the proceeds from the sale of Ramsay Sime Darby, we continue to expect growth in earnings in FY24. This will be weighted to the second half, primarily due to the return of seasonality in our European earnings which have been smoothed by government support over the last few years.

Looking further ahead, McNally notes that "the long-term outlook for Ramsay remains strong" and he is confident that the company will "deliver improved returns for shareholders, underpinned by our strategy, market-leading positions and unique portfolio of assets."

The Ramsay Health Care share price is down 25% over the last 12 months.

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 no position in any of the stocks mentioned. 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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