Aged care provider Estia Health saw its shares lose more than 6% yesterday as it confirmed market fears of an earnings and revenue downgrade after going into a trading halt on Wednesday.
The shares finished the day at $3.20, down 3% which was not a bad result given that some analysts were concerned the company would report a splash of red ink and cuts. The shares fell 10% to $2.95 soon after the trading update was released, but then rebounded.
As it is the embattled group says it now expects earnings to be down by up to 18% for the 2016-17 financial year.
That will be largely because of lower than expected occupancy growth and higher than projected costs.
Estia said it expects earnings before interest, tax, depreciation and amortisation (EBITDA) for the 2016/17 financial year of between $86 and $90 million, down from the minimum $104.8 million it predicted when reporting its 2015-16 results on August 29 (when the shares fell 17% on the day).
The company said it now expects its non-labour operating expenses to be $11.7 million higher than previously forecast.
“We have commenced a rigorous strategic review of our business and have already identified several non-core assets that we will be seeking to divest to help reduce costs and ensure we maintain a strong balance sheet,” acting CEO Norah Barlow said yesterday. That means more red ink and downgrades could be in the offing.
“The strategic review will be focused on taking costs out of the business and improving margins further, but without compromising on our commitment to continue to deliver high quality aged care services to our residents,” she said.
The company said it unaudited management accounts show that Estia generated EBITDA of $14.7 million in the first two months of the 2017 financial year.
The company has also allowed certain shareholders – the Kennedy family – to subscribe for $15 million worth of shares under the company’s Dividend Reinvestment Plan.
Acting chief executive Norah Barlow said the downgrade to earnings guidance was due to a lower projected occupancy growth rate and a reappraisal of the company’s anticipated non-labour operating expenses in FY2017.
Asset sales will also take place, the company said yesterday.
The company’s earnings were downgraded last month by analysts following clarifications from the federal government on what fees companies like Estia could charge. The clarifications came a few days after the weak 2015-16 profit and outlook.
The company said that as a result of the clarification that it would stop charging certain fees.
"Estia has also determined that it will no longer charge residents under the Asset Replacement Contribution because of legislative uncertainty," the company said.
"Estia is working within the Living Longer, Living Better reforms by the Federal Government and our business model will leverage the services we provide as we implement new co-contribution revenue streams to help re-balance the reduced Government funding commitment."
Estia chairman Pat Grier said the company will provide shareholders with an update on the ongoing strategic review, including capital management measures, at the AGM on November 23.
Estia said it held cash of $11.7 million and had outstanding debt of $286.5 million, with remaining undrawn capacity under its debt facilities, which mature in December 2018, of $43.5 million. An issue can’t be too far away.