Originally Posted by
Maverick
Well that has to be one of the most complicated reports I think I've ever seen. Where do we even start?
To pick just one (of dozens) as not to send everyone to sleep, Beagles post about rampant care costs constantly stripping away any of the ultra slow gains of DMFs etc. You raise very valid concerns, and always have, about this ever growing disappointment.
To be fair, , the analyst pointing out that operation costs have gone up 9% , although true , needs a bit of unpacking . In those costs they had an extra one off cost of $1m for covid cost and they also repaid $1.8m of wage subsidy also they took over the staff cost at Frankton- a big paddock with a single level 44 bed rest home on it.
If We set aside these extra cost out and consider the extra new staff additions then the staff cost have actually risen this HY at the usual OCA annual pace of about 6.25% p/a over the last 5 years ( the govt DHB fees have gone up about 5.5% p/a in comparison over the same time) .
The ratio of operations expense /care fees tells a grim picture as you, again, rightly point out Beagle
These are annual ratio results;
2017-83%...2018-87%..2019-.90%...2020-97%...2021-97%...2022-(inc estimated 2hy) 97%.
So this year and the last 2 years operations expense /care fees have leapt up a lot and then flatlined at 97% which is pretty well only break even. This is either DHB underfunding as you suggest or extra covid costs (or some combo most likely). Given the time period and flatness of the 2 prior years (plus this year) I'm tilting towards covid being the biggest reason. I pity the poor mum and dad owned rest homes who will be really struggling without fandangled ORAs and PAC fees to help. One thing in the care big incumbents favour is no smaller players in their right mind will be building new rest homes. While a future moat for OCA, it's seriously real problem for future oldies who get sick without a lot of money.
Looking ahead some years to 2026 in my spreadsheets when the care stuff should be humming I've got bad news. The 97% operations expense /care fees ratio hasn't budged. But I am basing my forward assumptions based on only 5 years of history with bulk decommissions and covid disruptions within it so things are likely to actually be better than calculated but who knows for sure.
I don't believe OCAs care suits (including the PAC and DMF) will ever really make any decent money … EVER.
I've always said they were a red herring as the source of where the OCA profit growth will come from and now I think it's actually worse than I was anticipating. Yes, they will make a little more profit in the future but it's more to do with their footprint growing rather than improved operations.
On a far lesser concern but more immediate effect for their “care” part of their profit is why the heck did they repay the subsidy ( I'm pretty sure ARV haven't...T-J?) . It has helped wipe out the growth this HY (the other reason being the 12.5% new share issued but that's for another day).
Financially I'm personally against the repayment as this is what the subsidy was for but a part of me is also proud that the directors choose to do an honorable thing. I did not know they did this until Monday so has caused me to downgrade my earlier stated share price expectations because of the reduced EPS effect. Although it will have no effect in a year or so.
While they have tried to show us 2 sets of books with stripped out repayment figures ( yet more adjustment on adjustments) it just has helped create a report that is extremely difficult to untease.
A year from now things will be simpler and clearer with all of these multi layers of adjustments having washed through.
I see it as the directors trying to be as informative as possible but for the folk with a day job, I doubt anyone ( apart from a few here on ST) can actually DYOR …..it's just too much.
If you are willing Just a Kiwi, I'd love to hear your opinion on what you think covid costs might be as we live with the virus. OCA spent $1m on it for 1 month of lockdown !!!...extra staff wages and PPE. Knowing the workings of care as you do, is this an expense that will be somewhat cemented in going forward or do you think covid costs will relegate away into the infectious stuff you always dealt at those older historic costs?