Japara Healthcare Ltd (ASX: JHC) is one of the largest aged care providers in Australia.
The company made a late announcement regarding its status of capital refurbishment and also updated its FY18 guidance.
In 2015 Japara introduced a 'capital refurbishment deduction' following legal advice from its solicitor and subsequently supported by a senior barrister's opinion. Japara decided that the capital refurbishment deduction was supported by relevant legislation and provided a direct benefit to residents.
However, a recent Federal Court found that the asset replacement charge implemented by Regis Healthcare Ltd (ASX: REG) was not consistent with relevant legislation. Japara has reviewed its position and decided to refund all capital refurbishment deductions, including any accrued interest.
Revenue from capital refurbishment deductions totalled $1.84 million in the 8 months to the end of February and totalled $2.82 million in previous financial years.
After the non-recurring refund of the capital refurbishment deductions, Japara anticipates that FY18 earnings before interest, tax, depreciation and amortisation (EBITDA) is likely to be 14% to 19% below FY17's.
Foolish takeaway
Obviously, this isn't good for Japara and impacts the FY18 result. However, it doesn't affect the long-term outlook for Japara so any short-term negative effects should finish by the end of FY18. It could be a long-term opportunity if the share price falls tomorrow.
