Estia Health cuts earnings forecast, flags asset sale

Estia Health’s interim chief executive Norah Barlow has cut the aged care operator’s earnings forecast.

Estia’s share performance

Estia Health’s interim chief executive Norah Barlow has cut the aged care operator’s earnings forecast, saying there is a disconnect between previous managements’ targets and “realism”.

Mrs Barlow, who has taken a more conservative approach for the company after investor backlash on concerns about its strategy, said her first month in the top role had revealed that Estia’s aggressive growth had created challenges because of the list of properties that had been brought together.

“I’ve seen (in the business) too much of the thinking of ‘everything will be all right’. That comes with the growth mentality,” she said.

“Aged care is a really good, solid business that is well supported by government, but it has its challenges. Some of those challenges come from the fact of being very acquisitive — lots of groups being brought together very fast, and those things need to be washed out.”

Mrs Barlow, the former head of Australian and New Zealand-listed aged-care provider Summerset, stepped into the role of interim CEO last month as the company searches for a replacement after the shock exit of former boss Paul Gregersen.

Mr Gregersen caved in to investor pressure after disappointing financial results and a significant share price slump. Mrs Barlow is not expected to pursue the role on permanent basis.

Releasing a market update yesterday, Mrs Barlow warned that earnings before interest, tax depreciation and amortisation would be lower, and said non-core assets would be divested following a review.

She said the company would stop charging residents certain fees for additional services.

Shares in the company slumped 12 per cent to $2.91 in early trade yesterday but after the market digested the update, the shares clawed back slightly to close 3 per cent lower at $3.20. “Investors liked the approach, I got a sense they want a back to basics approach,” Mrs Barlow said.

The company revealed it now expected EBITDA to decline to between $86 million and $90m in fiscal 2017, which equates to around a $15m drop on previous forecasts.

A reduction of around $5.5m from its previous projected occupancy growth rate and a hit of around $11.7m to its non-labour operating expenses had fuelled the earnings downgrade.

“When we were looking at the July and August numbers and what management projected, we were seeing a disconnect,” Mrs Barlow said on the projected occupancy growth rate.

“We are saying we are very aware of market responsibilities to have a realism attached to forecasts. We want to be real here. We have looked at it and didn’t feel we could be achieving that (previous forecast).”

The interim chief said a number of non-core assets would be divested, but she said it was not a “fire sale”.

“We aren’t jumping in ... we have good support from our banks, we are in our covenants and we have debt headroom. We are doing this to strengthen our balance sheet,” she said.

“We are looking at things like a couple of houses ... we are not looking at facilities, we are confident in our portfolio.”

The listed company also highlighted that it would no longer charge residents under the Asset Replacement Contribution because of legislative uncertainty.

“We want to work with the government and until that is resolved we will not be charging it,” Mrs Barlow said, adding that residents who had been charged it would have that money refunded.

The company also said its former chief financial officer, Joe Genova, who had been moved to a new position in August, had now left the company.