Virtus Health chief executive Sue Channon says declining demand for in-vitro fertilisation will not rebound in the short term, but the fertility clinic network can still take market share and deliver revenue growth from complementary services.
Ms Channon said despite a first-half 0.4 per cent fall in IVF cycles to 7586, due to concerns about the economy, revenue rose 12.9 per cent to $114.5 million. Demand from prospective parents for diagnostic tests, as well as growth in non-IVF services like gynaecology and ophthalmology at Virtus’s day hospitals, boosted revenue. The company’s newly established operations overseas in Ireland and Singapore also performed strongly, she said.
Virtus, which became the world’s first listed IVF provider when it floated in 2013, increased its market leading position to a 45.6 per cent share of the local $500 million sector. The overall market had a 0.9 per cent decline for the half in the number of IVF cycles, which includes harvesting eggs, and then fertilising and transplanting embryos. “Virtus has grown revenue and market share despite the weak local market,” she said.
Chief financial officer Glenn Powers said Virtus does not anticipate any recovery in 2014-15 in Australia.
Net profit in the six months ended December 31, fell 1.2 per cent to $16.7 million, as acquisition and overseas establishment costs dragged down the bottom line. Excluding one-off costs, net profit for the half rose 1.8 per cent to $17.2 million.
Despite the sluggish local growth on offer, Ms Channon said demographic factors would continue to play in the company’s favour.
About one in six couples trying to have a baby require some sort of assisted reproductive service, she said. The rising average age of mothers, as well as the incidence of chronic health problems, will hold up that statistic, she said. “The rising incidence of obesity is the next epidemic our fertility specialists talk about,” she said.
But investors were spooked about the weak market, pushing Virtus down by as much as 56¢ or 7.2 per cent in early trading. The stock closed down 2.8 per cent to $7.59, down from a 12-month high of $8.80 hit last June.
Wilson HTM analyst Shane Storey described the result as “soft”. He said the fragile domestic economy and high cost of the service is dampening demand. “The purported demographic drivers of the IVF industry lack potency in addressing the protracted softness in this marketplace,” he wrote to clients.
However, investor David Liu, ATI Asset Management’s head of research, said Virtus was battling economic factors that it would cycle through. Although he said the increasing proportion of the company’s revenue coming from its low cost clinics would partially offset any rebound. Mr Liu said a highlight of the result was the recently acquired Irish clinic, which reported volume growth of 25 per cent and margin improvement. “That just shows they’ve been able to integrate well,” he said.
Ms Channon said Virtus had not been affected by the arrival of rival Monash IVF in New South Wales, nor had Primary Health Care’s first bulk bill IVF clinic in the centre of Sydney hurt the business. “[Virtus’s] NSW business has grown at a much higher rate than the market,” she said.