Japara reports revenue up, but occupancy and net profit down

Japara has released its half yearly results, delivering a lower net profit on the prior comparative period despite strong net RAD cash inflows and the opening of three new homes.

In its presentation to investors last week, the company showed a 6.8 per cent increase in total revenue to $193.5 million but net profit after tax down 18.3 per cent to $7.6 million, compared to $9.3 million in the same period last year.

Net RAD inflows increased by $3 million compared to the same period last year, totalling $28.9 million, while a new five-year syndicated loan facility of $345 million is funding its upcoming brownfield and greenfield developments, as well as planned acquisitions and other ‘general purposes’.

The loan, provided by ANZ, CBA and NAB, was secured just before Christmas.

Japara’s Chief Executive Officer, Andrew Sudholz, said the company had a challenging first half of the year and that occupancy is below expectations.

“The first half of FY2019 was a challenging period across the sector and also included the commencement of the Royal Commission into Aged Care Quality and Safety,” Mr Sudholz said.

“Whilst occupancy was a little lower than we had wanted, underlying earnings were resilient and net RAD cash inflows met expectations.”

“It was pleasing to see our investment in the organic growth of the business become more tangible with the opening of our new Glen Waverley, Rye and Brighton-Le-Sands homes along with the completion of the brownfield extensions at Kingston Gardens and Mirridong. These developments will provide earnings growth as occupancy increases over the next 12 months.

“Our significant refurbishment program has also continued, with four homes substantially refurbished during the period where residents now enjoy enhanced amenity and asset quality. We also continue to invest in our IT infrastructure to enhance resident experience, provide additional clinical insights and improve business efficiency.”

Mr Sudholz said average occupancy of 93.6% was below expectations across the portfolio following the announcement of the Royal Commission and dropped to 92.0 per cent by 31 December 2018. It was also impacted by a small number of homes underperforming.

He acknowledged the recent Government subsidy boost for residential aged care providers and return of ACFI indexation increased revenue during the period, but noted that wage rate increases during the period exceeded ACFI rate growth.

The company also increased advertising and marketing expenditure to support occupancy in the challenging environment, he said.

Japara’s operating highlights included:
· Average occupancy of 93.6% (1H FY2018: 92.3%)
· Total operational places up 1.4% since 30 June 2018 to 4,125
· Three new greenfield developments recently completed and opened in Glen Waverley (Vic), Rye (Vic) and Brighton-Le-Sands (NSW) adding 220 new places to the company’s portfolio
· An additional two brownfield extensions at Kingston Gardens and Mirridong homes (Vic) were recently opened providing 84 new places
· Completion of the significant refurbishment of four homes during 1H FY2019
· Planning approval recently received for proposed greenfield developments at Belrose (NSW), with 104 places planned, and at Highton (Vic), where 122 places are planned.

Mr Sudholz told investors the full year FY2019 EDBITDA is expected to be in line with its FY2018 results subject to no material changes in market or regulatory conditions.

Mr Sudholz noted additional investment is needed to support the workforce and information technology to both support transition to the new aged care standards and the broader business during a challenging period.

The Board determined an interim dividend of 2.80 cents per share, down on the same period last year which was 4.0 cents per share.


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