Healius to search for growth strategy as CEO hits the exit ramp

Healius’s pathology division needed to improve its profitability to avoid breaching its debt covenants, analysts said just days before it announced a strategic review and the resignation of its CEO.

Maxine Jaquet, the outgoing managing director of Healius.

Healius’s struggling pathology division would have needed to deliver a “material step-up in profitability” for the company to avoid breaching its debt covenants, analysts remarked just days before the company announced a strategic review, and the ousting of its managing director.

Maxine Jaquet, who took the top role at Healius just 12 months ago, yesterday announced she would resign immediately “to pursue other opportunities”, with chief financial officer and former media executive Paul Anderson to lead a wide-ranging strategic review of the company. Healius shares have plummeted from close to $5 in late 2021 to as low as $1.09 in recent days, as it struggled to adapt to post-pandemic business conditions.

The stock bounced more than 14 per cent on the news of the strategic review on Tuesday, to close at $1.29.

Barrenjoey analysts, commenting after the company’s half-year results were released in late February, said while Healius’s forecast leverage ratios were below covenant levels, they were also contingent on further significant reductions in net debt.

Healius raised $187m at $1.20 late last year – a steep discount to the prevailing share price – to get its balance sheet in better shape, but Barrenjoey said risks remained.

“As we detail … the pathology division needs to deliver a material step-up in profitability in the second half to ensure covenants are not breached,’’ the broker said in a note to clients.

Other analysts were already imagining how the company might be broken up, with Jarden analysts saying an asset review already announced might see Healius spin off its Lumus Imaging division, which grew revenue 8.5 per cent over the half.

“Unfortunately, while the sale of Lumus Imaging would likely solve the debt problem, it would leave Healius with the underperforming pathology business,’’ Jarden said.

Following Healius’s results release in late February – where it announced an underlying loss of $14.2m, down from an $8.1m profit – Jarden downgraded its full-year outlook for the group from a $1m profit to a $9m loss, and said it couldn’t understand management’s thinking on the outlook.

“Given about 80 per cent of FY24 EBIT guidance needs to be achieved in the second half, it is difficult for us to understand management’s confidence, especially considering three months ago they set second half pathology volume growth guidance at 6-8 per cent and now it is expected to only be 1-3 per cent.

“Nevertheless, to achieve the latest guidance, the upside to earnings relies on pathology to do the heavy lifting given Lumus Imaging in the first half already performed in line with market and expanded its margin.’’

Ms Jaquet was thrust into the top job at Healius a year ago, following the sudden departure of Malcolm Parmenter.

She has had to contend with a takeover offer from competitor Australian Clinical Labs, launched on March 20 last year, which was eventually blocked by the competition regulator, and rumblings from investors unhappy with the company’s performance.

Shareholders at the annual meeting in November last year expressed their disappointment at how the company was being run, with K Capital’s chair David Kingston saying he was glad he hadn’t bought shares earlier in the year.

“Thankfully, I was underwhelmed, so I didn’t buy any shares at that time,” Mr Kingston told the meeting.

“Sadly, Healius has gone from bad to worse and the stock is down from a peak two years ago of $5 to $1.34. That’s a reduction in market capitalisation of $2bn.”

Activist investor John Wylie’s Tannara Capital was also critical of the company’s performance, and won a seat on the board at the meeting.

Mr Wylie accused the company of being “extremely” poorly run and lacking accountability.

In February Healius flagged its earnings before interest, tax, depreciation and amortisation for the 2024 financial year would be between $359m and $369m after an earlier prediction in November of $383m-$393m.

The company on Tuesday said it “would commence a wide-ranging strategic review of the company’s structure and assets’’.

“Healius will engage investment banking advisers to help undertake the review alongside management and the board.”

Originally published as Healius to search for growth strategy as CEO hits the exit ramp