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- Underlying Earnings: Improved driven by ora receipts.
- EBITDA: Increased by 2.6% compared to the prior period.
- Occupancy Rate: Total (EPA:TTEF) group occupancy at 90-92%; unaffected sites at 94%.
- Net Cash Inflow: $97 million from operating activities.
- Net Debt Reduction: Reduced by approximately $8 million since March.
- Gearing Level: Reduced to 37.5%.
- Interest Coverage Ratio (ICR): 4.2 times, compared to a covenant of 2 times.
- Blended Interest Rate: 2.7% for retail bonds; 5.7% for bank debt.
- Development and Resale Margins: Resale margin over 20%; development margins elevated.
- Care Segment EBITDA per Bed: $10,000 per bed.
- Annualized EBITDA per Bed Including Resale Gains: Just over $20,000 per bed.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Oceania Healthcare Ltd (ASX:OCA) has completed or is nearing completion of its brownfield developments, which positions the company to focus on selling its high levels of unsold stock.
- The company has improved its underlying earnings and cash flow, driven by strong capital gains and occupancy rates.
- Oceania Healthcare Ltd has met all banking covenants and requirements, indicating strong capital management.
- The company has achieved a significant milestone with 94% occupancy at sites not affected by development, which is expected to improve margins.
- Oceania Healthcare Ltd is focusing on sustainability, with initiatives like building to Homestar Seven standards and being a finalist in the Deloitte 200 Awards for sustainability leadership.
- Oceania Healthcare Ltd is facing high levels of unsold stock, which is a primary focus for the company to address.
- The company's gearing levels are too high, which is a concern that needs to be managed alongside sales efforts.
- There have been increases in finance costs and operating expenses, impacting the company's financial performance.
- The company has experienced impairments related to its Elmwood site, affecting its financial results.
- Oceania Healthcare Ltd's development debt coverage has been decreasing, partly due to capitalized interest, which adds financial pressure.
A: Suzanne Dvorak, CEO, explained that a full portfolio review of prices across all sites was conducted, affecting both care and independent living units. Prices may increase, stay the same, or decrease based on demand. Marketability's role is to maintain sales momentum, especially at high-value sites, and they are compensated on a success basis rather than a retainer.
Q: What are the plans for the development and divestment of sites like Lady Allum, Elmwood, and Franklin?
A: Kathryn Waugh, CFO, stated that master planning for Lady Allum and Elmwood is underway, with changes from initial plans made years ago. The Franklin development will be staged to avoid issues experienced at Elmwood, with existing care facilities used until the new development is complete.
Q: Will the resumption of dividends be linked to cash earnings?
A: Kathryn Waugh, CFO, clarified that the resumption of dividends will be primarily linked to gearing and sales levels, rather than cash earnings. The board will focus on unsold stock and gearing as key markers for dividend decisions.
Q: What is the expected increase in sales and marketing expenses due to efforts to improve sales?
A: Kathryn Waugh, CFO, noted that while specific guidance isn't provided, the focus will shift from brand building to local area marketing. Suzanne Dvorak, CEO, added that Marketability will focus on high-value sites, with in-house sales capacity being a long-term solution.
Q: Can you explain the changes in development debt versus assets and the impact of capitalized interest?
A: Kathryn Waugh, CFO, explained that the decrease in coverage is largely due to capitalized interest, which is included in development debt but not in the balance sheet once developments are completed. The quicker stock is sold, the less the holding cost will be.
Q: What is the peak negative cash flow expected from the Franklin development?
A: Kathryn Waugh, CFO, stated that the committed spend for Franklin is $70 million, including $30 million for villas expected to sell quickly. The total negative cash flow, including land and interest, could be around $100 million, but further stages will depend on the success of initial sales.
Q: How will the $5 million cost savings target for FY26 be achieved, and is there potential for further cost reductions?
A: Suzanne Dvorak, CEO, mentioned that the focus is on right-sizing the portfolio and regional support. The $5 million target is a start, with potential for further reductions as sales and execution improve.
Q: What drove the large increase in embedded resale value in the half-year?
A: Kathryn Waugh, CFO, indicated that the increase is linked to the growth in the portfolio, particularly care suites, and the impact of multiple resales. Further details will be provided after a more detailed review.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.