Private hospital operator Ramsay Health Care Limited (ASX: RHC) this morning reported its annual result for the year to 30 June 2018.
It reported that group revenue increased by 5.4% to $9.2 billion and group earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 6.2% to $1.4 billion.
The important Australian segment reported that its revenue went up by 5.5% to $4.9 billion despite challenging industry conditions. Its hospital admissions growth rate remained above the industry's growth rate in the face of affordability concerns surrounding private health insurance. Australia EBITDA increased by 12.1% to $896 million.
France revenue grew by 0.3% to €2.2 billion and EBITDAR fell 0.6% to €445.7 million. The company said that Ramsay Generale De Sante performed in line with expectations considering the negative tariff environment.
Ramsay UK reported revenue was down 5.2% to £424.2 million and EBITDAR dropped 9.8% to £102.7 million. NHS volumes suffered a "significant downturn" due to demand management strategies and the positive tariff adjustment was not enough to offset this in FY18.
Ramsay's favoured profit measure of core net profit after tax (NPAT) went up by 6.8% to $579.3 million and core earnings per share (EPS) grew by 7% to 279.8 cents. Management attributed the growth to disciplined cost management and achieving further operational efficiencies, as well as some one-off benefits.
However, statutory profit fell by 20.6% to $388.3 million and statutory earnings per share (EPS) dropped by 21% to 185.6 cents. Affecting the statutory result were: the restructuring of Ramsay Generale De Sante costing $29.9 million in FY18, the impairment of Ramsay UK totalled $122 million and there were $39.1 million of 'other' items.
The full-year dividend was increased by 7.1% to 144 cents, adding another year to the consecutive dividend growth streak which has been going since 2000.
During FY18 Ramsay completed $171.2 million of brownfield projects, including seven operating theatres and 21 consulting suites.
Ramsay approved $325 million of brownfield projects in FY18. This will result in an additional 229 net beds, 24 operating theatres and 39 consulting suites.
In FY19 Ramsay expects to complete $242 million worth of work adding 216 net beds, 30 consulting suites, 15 operating theatres and one emergency department.
Management remain on the lookout for acquisition opportunities, particularly in Asia and Europe. Ramsay Generale De Sante recently launched a takeover bid for European healthcare business Capio. Ramsay also launched a joint venture global procurement business to save on supplier costs.
FY19 Outlook
However, despite the range of growth initiatives the short-term outlook for the current financial year remains challenging.
Assuming no negative unforeseen circumstances Ramsay is targeting core EBITDA growth of between 4% to 6%. Higher interest and tax payments mean that Ramsay is aiming for core EPS growth of up to 2%.
But, the long-term industry fundamentals should help earnings grow beyond FY19.
Foolish takeaway
The fairly muted market response to today's report shows that this tough year was mostly expected and that FY19 wouldn't be better.
Ramsay has a lot of attractive features like the ageing tailwind and strong re-investment into the business, however a business growing at low single digits may struggle to justify trading at 20x FY18's underlying earnings unless growth picks up soon.
I'm in no rush to buy Ramsay shares unless they fall to below $50, in which case I'll consider it.
