Estia Health chief Paul Gregersen quits

Estia Health has launched a wide-ranging review of its business after chief executive Paul Gregersen fell on his sword.

Estia chief executive Paul Gregersen has called it a day. Picture: David Geraghty

Struggling aged-care provider Estia Health has launched a wide-ranging review of its business and has promised to slash its debt levels after chief executive Paul Gregersen fell on his sword.

Mr Gregersen told chairman Pat Grier during a meeting in Sydney on Thursday that he was ready to walk, caving in to investor pressure after disappointing financial results and a recent share price slide.

“He basically walked in and said he’d had enough. He said he had been thinking about it over the previous weekend and it was time for him to move on,” Mr Grier told The Weekend ­Australian.

Mr Gregersen, who had been in the role for two years, is the highest-profile casualty so far of the unwinding of the nation’s listed aged-care market, which also includes operators Japara and Regis Healthcare.

Shares in Estia — one of the nation’s biggest operators with 63 facilities across Australia’s east coast — have plummeted amid concerns about an aggressive growth strategy. Growth had been funded through the use of residential deposits as well as the number of residents it had classed as having “high care needs”.

These residents attract higher funding from the federal government, but this came under review in the May budget.

The company’s shares are down more than 50 per cent after starting the year at $7.36. They closed yesterday at $3.20.

Estia came under renewed pressure after its financial results last month, when it missed its earnings guidance and ditched its strategy of owning 10,000 beds by 2020. Two days after the release of its results, investors were further shocked when founder Peter Arvanitis abruptly quit the board and dumped his $55 million stake.

Analysts slashed price targets on the stock, with some cautioning that its balance sheet looked stretched.

Mr Grier, the former head of private hospital operator Ramsay Health Care, said when a share price dropped as much as Estia’s had, conversations with shareholders about the chief executive’s tenure were common.

“You can’t ignore the pressure when share price movements like that happen and there was pressure there,” he said.

Estia non-executive director Norah Barlow, the former head of Australian and New Zealand-listed aged-care provider Summerset, has stepped into the role as interim CEO while the company searches for a replacement.

Mr Gregersen will remain at Estia until the end of the year in a consulting role.

Phillip King of Regal Funds Management, which has an 8 per cent stake in Estia, said he was encouraged about Mrs Barlow stepping in as she had done an outstanding job at Summerset.

“We think it is great for Estia that she has accepted this role,” Mr King said.

Mrs Barlow plans to review the company’s assets.

“I would not be taking this role on if I thought the company was sitting there with big problems,” she said yesterday.

“Part of my role is to make sure we reinvestigate what we are doing.

“The intention of the (original) growth strategy was good but when we look at the fundamentals, we are looking at where the leverage sits and where that plays out.”

Mrs Barlow said the company had a sound balance sheet, good banking support, all its covenants were complied with and it had plenty of headroom: “We are looking at reducing the leverage. With the current environment we want to make sure we bring that back.”

Federal government cuts to aged-care funding has the sector nervous, given about 70 per cent of operators’ revenue is government-funded.

The government pays a fixed daily amount per person, with more funding available for residents who are judged to require more attention, using a system known as the aged-care funding instrument, or ACFI.

Faced with a forecast $3.8bn blowout in the cost of the ACFI over four years, the government announced in the budget it would cut $1.8bn from the funding mechanism.

Market concerns about the funding cut hit on Estia has been heightened on speculation that it over-claimed for high-care needs residents.

Mrs Barlow rejected those suggestions, saying Estia had applied the correct classification for the level of its residents’ needs. “Our level of ACFI payment is similar to the other two listed companies,” she said.

“For the benefit of the residents we should be making sure we are getting paid appropriately to provide the appropriate level of care. We would be failing if we didn’t.”

Mrs Barlow said there would be a realignment of funding and some changes.

Mr Grier added that the federal government had to reaffirm its commitment to the aged-care reforms.

“They need to look at how they have been handling reforms. The government overreacted to what they thought was a cost blowout and I think they have to take a step back and say ‘how do we get behind them and make them work’,” he said.