Healthscope shares plunge on profit warning

As Healthscope shares closed more than 18pc lower, Robert Cooke said investors were exaggerating its market update.

Healthscope chief executive Robert Cooke pictured at the company offices in Melbourne.

Healthscope chairman Paula Dwyer and boss Robert Cooke have labelled the near 30 per cent collapse in the private hospital operator’s share price this morning as an “overreaction” following its profit warning, as guidance of weak hospital volumes also hit rival Ramsay Health Care (RHC) to shed a combined $1.5 billion in market value.

Shares in Healthscope tanked as much as 27 per cent to an eight-month low on the dismal first quarter trading update, before paring losses to end 18.8 weaker at $2.38.

Healthscope lost $750 million in market value through the session, while Ramsay has seen a little over $700m sliced.

“That’s an overreaction, and we have taken a really cautious view to our outlook statement and we are talking about a couple of per cent of volume,’’ Mr Cooke told The Australian after stepping from the stage at Healthscope’s annual meeting today.

It came as he told shareholders the company had experienced weaker than expected revenue growth in its core hospitals unit in the September quarter.

“The crazy thing about this is that you have waiting lists of nine months in the public sector, you then have the federal government getting billed for radiology, pathology and other things – so its cost shifting by the states – then they go and build extra beds for $2m to $3m per bed – we can build it for a $1m.

“So as a taxpayer you are saying, hold on, so you (state governments) are cost shifting to the federal government, you are causing a backlog of public waiting list and then you build extra beds at double the cost the private sector can and we are missing out on business.”

Healthscope chairman Ms Dwyer told The Australian she agreed the share price dive was an overreaction.

“Yes I do, I think that we have indicated that growth in our hospitals division will be muted but there will still be growth. But I do think it (the share price fall) is an overreaction.’’

Mr Cooke said talk of rising health costs were “front and centre” among consumers.

“I think that everything is price sensitive and we are talking about volume being a couple of per cent down, so when I try and look at the specialties that are down it’s orthopaedics, ophthalmology and some other things where you would say ‘look, I’ve had that sore knee for a while, I will put up for it a bit longer’.’’

The struggles through the first quarter forced managing director Robert Cooke to warn the hospital unit’s operating earnings before interest, tax, depreciation and amortisation was on track to be flat year-on-year, a sudden drop-off from last year’s growth rate of 8.3 per cent.

“Management focus continues to be on driving revenue growth and disciplined cost control,” he said.

“However, if the trend for the first quarter was to continue, it is likely that operating EBITDA growth for our Hospitals division would be flat year on year.”

However, the group insisted short-term headwinds were not a sign of a softening in the long-term outlook.

“Over the last 12 months we have seen a heightened level of public commentary in relation to healthcare affordability and consumer confidence in private health insurance in Australia,” Mr Cooke added.

“Various data points across the industry tell us that the average rate of hospital volume growth generally has slowed. We have seen this impact a number of our hospitals resulting in increased variability in volumes and case mix month to month in the first quarter and particularly in September.”