Heathcare and retirement listed companies suffer growing pains

By Peter V O'Brien

Friday 19th April 2002

HEALTHCARE SECTOR SHARE PRICES (CENTS)

Company	Price 13.4.02	Price 15.10.01	% change Oct-Apr	2001/02 high	2001/02 low

Calan	81	80	+1.2	95	73
Eldercare *	28	17	+64.7	31	11.5
Metlifecare	140	105	+33.3	150	90
Ryman	174	198	-12.1	215	171

* Adjusted for issue

Share prices of companies in the healthcare and retirement-village sector continued their improvement in the six months ended last Friday after reasonable rises in the April-October period of 2001.

Prices on Friday are in the table and are compared with those ruling on October 15, the last time The National Business Review considered the sector.

The share price improvements since April last year followed a six-month period when the companies suffered a substantial decline in investor support, excluding Ryman Healthcare.

Profitability was mixed in the latest reporting rounds as the operators reorganised their businesses.

Calan Healthcare Properties Trust, for example, said in the report for the six months ended December directors and unitholders were agreed that priorities should be to achieve a more measured rate of growth and greater certainty in relation to work-in-progress projects.

Calan, as noted in previous reviews of the sector, does not operate the facilities it owns, but is included in the table because it builds and leases properties to health specialists.

The company said the board was "determined to reach a position of less complexity in relation to the [property] portfolio and is unwavering in its focus on bringing the work-in-progress projects to fruition."

Calan also differs from other sector companies in that it is basically a property operation and distributes most of its earnings to unit holders, after provision for holding costs in the work-in-progress projects.

Eldercare New Zealand's performance in the six months ended November was summed up with nice understatement in the words of chairman Jim Syme: "Net profit after tax (NPaT) for the six months to November 30, 2001, was a loss of $0.842 million. While the company did not achieve full profitability for the period, the result is a vast improvement on the loss of $6.546 million reported for the same period last year."

Eldercare's share price is still relatively depressed, although there was a massive 64.7% improvement in the past six months, albeit from a low dollar base.

The National Business Review survey in October noted the market would need solid evidence of a profitability turnaround before it gave the stock any substantial re-rating.

That comment was made in the context of a share price decline from a 2000 high of 70c and the announcement of a rights issue.

The issue was in the ratio of 1:7:5 and the price of new shares was 16.5c, about the same as the 17c market price ruling on October 15.

There was a later placement of 12.12 million shares at 16.5c each to Alliance Capital Management New Zealand and the issue of a $5 million convertible note to Cullen Investments, an investment company of entrepreneur Eric Watson.

The cash issue received a 95.5% acceptance rate, a good result given some market scepticism about its likely success.

Eldercare's latest result was said to follow "a comprehensive 15-month period of company restructuring, moving away from property development and refocusing as a listed medical and healthcare operator, with retirement, rehabilitation and medical operations throughout New Zealand."

Those comments and the report of Metlifecare for the year ended December seemed to sum up the sector's recent "philosophical" problems.

Metlifecare recorded a profit of $7.2 million for the year, compared with $474,000 for 2000.

Chairman Peter Fitzsimmons said the company had achieved a significantly improved financial result from growth in margins and reduced operating costs.

The healthcare/retirement sector is relatively new among Stock Exchange-listed companies and operators seemed to have the usual growing pains of such activities in working out the appropriate nature of their businesses.

That was also seen in Ryman Healthcare's report for the six months ended September when the company produced a profit of $4.54 million, compared with $7.01 million in the corresponding period of the previous year.

The report said there had been noticeable shifts within the industry, resulting in higher dependency levels of residents and patients in rest homes and hospitals.

Ryman said the government was having difficulties in trying to contain the healthcare budget and pay for the increasing standards of care and educations that were being demanded.

"This has impacted on a large number of operators, as well as the hardworking staff, who expect and deserve a fair remuneration for their efforts. Unfortunately, the ability of the industry to respond to this situation is limited."

The healthcare/retirement companies have obviously revaluated their activities. Investors need to see those revaluations reflected in net profit.

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