Australia's largest private hospital operator, Ramsay Health Care (ASX: RHC) has reported a 6.8 per cent rise in underlying net profit of $579.3 million for fiscal 2018.

However, it posted a 21 per cent loss in non-adjusted terms. Year-on-year profit declined 21 per cent to $388.3 million, from $488.9 million in fiscal 2017. This was attributed largely to impairments within its UK and French hospital operations of $122 million and $29.9 million, respectively.

The result aligned with guidance delivered by Ramsay management in June, "but we view the outlook as a bit soft, pointing to a sustained weakness in the Australian environment," says Chris Kallos, Morningstar senior equity analyst.

Ramsay operates 223 hospitals across Australia, UK and France, with a growing international footprint.

medical hospital

 Ramsay operates 223 hospitals across Australia, UK and France.

Locally, this includes 73 hospitals and day surgery units. Reinvestment in its Australian hospitals has averaged about $200 million a year over the last decade.

In the year to 30 June, Ramsay spent $171 million on capital investment completions, which included 208 gross beds, seven theatres, and 21 consulting suites. This figure is tipped to rise to $240 million in fiscal 2019, and management has approval to boost this figure as high as $320 million, according to Kallos.

While this reduced revenue growth attributable to its local operations, Kallos emphasises it helps strengthen its future positioning for ageing patient demographics and changing care needs. This includes greater demand for neurological treatments.

Kallos notes the mediocre results are largely due to industry-wide conditions in Australia, along with tougher environments in UK and Europe: "Being global gives them exposure to some offshore risks too," he says. 

Ramsay managing director, Craig McNally, indicated the results were "impacted by the significant downturn in NHS volumes in our UK business, as well as softer growth rates in our Australian business.

He also cited its decision to temporarily slow the rollout of its Ramsay Pharmacy franchise network "while we invest in infrastructure and resources to successfully scale this franchise business for the long term".

Morningstar's Kallos expects patient volumes in Australia to remain soft, flat in Europe and neutral in the UK – where government changes, including Brexit concerns, are detrimental.

Australia comprises about 55 per cent of overall group revenue, followed by France's 37 per cent contribution and UK's 8 per cent.

Global revenue rose to $9.18 billion, or 5.4 per cent, from $8.70 billion, of which the Australian business contributed $4.9 billion, up 5.5 per cent on last year.

Ramsay profit falls on write-downs

  • Net profit down 21pct to $388.3 mln
  • Revenue up 5.5pct to $9.18 bln
  • Fully franked final dividend of 86.5 cents/share, up 5.0 cents from year ago


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Glenn Freeman is senior editor, Morningstar Australia

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