Ramsay Health Care chief executive Chris Rex says he can safely spend hundreds of millions each year expanding the group’s Australian hospitals because demographic trends almost guarantee the extra beds and operating theatres will be filled.
Mr Rex, delivering a 21.3 per cent rise in half-year net profit to $191.4 million, said in the countries where the $13 billion company operates, the population is living longer and often with more chronic disease. Advances in technology were offering up more clinical interventions to allow people to live even longer still, he said.
“That combination of circumstances is here for the next, as long as the baby boomer bubble is around, [maybe] for 20 to 30 years, who can say,” Mr Rex told Fairfax Media. “There is an inevitable natural increase [in hospital visits] every year as that group of people ages and it’s a demanding generation.”
In the second half of 2014-15 Ramsay completed $175 million worth of expansions at its 69 Australian hospitals and approved another $190 million worth of projects across the group, which also stretches to Asia and Europe.
“I don’t think we or the [Australian] industry is getting ahead of demand,” he told an analyst briefing.
So-called “brownfield” expansions of existing hospitals may be the main source of Ramsay’s future Australian growth. The company has had some success in collaborating with state governments to run public hospitals as a private operator, but Mr Rex said that growth in this segment would be limited with the election of new Labor state governments in Victoria and Queensland “given their very anti-privatisation platforms”.
Group revenue rose 41.6 per cent to $3.3 billion, boosted by a three-month contribution of Generale de Sante, the French operator Ramsay took control of last October, making it the country’s largest private operator. The company upgraded its guidance for full-year core net profit growth to 18 to 20 per cent, from 14 to 16 per cent previously.
Ramsay shares rose 3.6 per cent to a record high of $66.42, taking the stock’s full-year gain to 36 per cent compared to a 9 per cent rise in the S&P/ASX200 index.
Unlike in Australia where Ramsay is paid by private health insurers for caring for their members, the company’s main funder in France is the government, which hasn’t increased the tariffs it pays to private operators for some time. Mr Rex said when growth in tariffs might resume was unclear, however he said Ramsay could continue to boost earnings through disciplined management of costs.
Joel Gray, portfolio manager at shareholder Hyperion Asset Management, said he expected demographic trends would underpin performance in France, despite the sluggish tariff environment. Mr Gray said he backed Ramsay’s overseas expansion because the underlying business in Australia was strong. “The difference between them and a lot of companies is they’re not desperate for overseas expansion,” he said. “Quite often if you have limited growth in your main business then you’re a bit more aggressive or desperate with respect to making acquisitions.”
Mr Rex said Ramsay was close to finalising a joint venture agreement to run five hospitals in the Chinese city of Chengdu.
Although Ramsay now has 212 hospitals in five countries, Australia, where it is the country’s largest operator, still contributes the bulk of earnings. Australian revenue rose 8 per cent to $2 billion, while earnings before interest and tax from the country rose 12.6 per cent to $282.8 million.