Ramsay posts 'no surprises' earnings slump: Costs & staff shortages weigh on 1H result

Ramsay Health Care (ASX: RHC) has experienced a sharp decline in first-half earnings amid an increase in covid-related costs and labour shortages.

The result should come as no surprise after the company's November trading update flagged challenging operating conditions, with first-quarter profits down -39.5%.

Financials at a glance: 

• Revenue of $6.7bn, up 1.2% 

• Net profit of $158.9m, down -30% 

• Interim dividend of 48.5 cents, flat on last year 

The profit result came in slightly ahead of Bloomberg estimates of $155.2m but below Bell Potter estimates of $162.8m. 

Ramsay shares fell -2.6% as the market opened but bounced back to breakeven territory by 11:00 am AEDT. The price-action appears encouraging, considering how the S&P/ASX 200 is down -1.9%.

Costs on the rise

“Our FY22 interim result has been severely impacted by further waves of COVID which have impeded surgical activity, increased costs, in particular staffing costs due to isolation orders, and resulted in lower non surgical activity due to movement restrictions,” said CEO Craig McNally. 

Higher costs was an apparent issue across all operational regions, stemming from increased use of protective equipment due to additional usage and higher prices, and short-term increase in staffing costs.

Ramsay expects costs to gradually decline as the environment normalises, but likely to remain high in FY22-23.

Second-half remains volatile

"Our results in 2HFY22 will continue to be impacted by government imposed restrictions on capacity limiting our activity levels, combined with the additional costs of operating in the COVID environment,” said McNally. 

Ramsay expects covid isolation orders and staff vacancies to continue to impact its activity levels.

Notably, surgical restrictions and higher costs in Australia in January is estimated to have been $48m. This is quite substantive when compared to the region's first-half earnings of $406m.

Ramsay said the business is expected to benefit from the addition volume created by the lacklog of elective surgery and surgical services as covid cases decline.

The question is when will Ramsay be able to materialise its backlog, given ongoing volatile conditions.

Ramsay 12-month price chart