Ramsay boss Craig McNally says hospital property sales are on the cards

Selling some of its Australian properties is the ‘right thing to do’, Ramsay chief executive Craig McNally says.

Ramsay chief executive Craig McNally says the group is exploring potential hospital property sales but no decision has been made. Picture: supplied

Ramsay Health Care says it is exploring the sale of some of its hospitals but won’t offload its French business as its debt levels rise.

The Covid-19 pandemic and labour shortages have battered Australia’s biggest private hospital operator – with Covid-19 costs totalling $64.4m in the three months to September 30.

Ramsay chief executive Craig McNally said the company was “still a long way to get back to pre-Covid margins” while its lenders have lifted the group’s leverage ratio to the “maximum allowable”.

But Mr McNally was confident the company would make a “gradual recovery” during the rest of this financial year before returning to “more normalised conditions” in 2024 and it was looking at potential property sales.

“It’s complicated and there has to be a good reason to do that. But it is the right thing for us to explore and see what it looks like,” he said.

However, Ramsay chief financial officer Martyn Roberts said “there’s (was) no decision to do anything at this stage”. “I mean, we’ve been quite open and we’ve been exploring what something in the area might look like and we continue to do that,” he said.

In September, private equity group KKR aborted its $20bn takeover of Ramsay after it was unable to gain access to the books of the company’s French business Ramsay Sante.

Speculation has been mounting that Ramsay may look to offload its 52.8 per cent stake in Sante – which is valued at €1.11bn ($1.71bn) – since talks with KKR collapsed. But Mr McNally said such talk was being “fuelled by investment bankers looking to broker a deal somewhere”.

“We’re not in discussions with anybody,” he said.

“The structures we have for international business particularly are things that the board looks at from time to time and we’ve got our board strategy sessions in another month or so, and we’ll look at that again and think ‘okay, what are the options about the way we hold those businesses’.

“But the rest of it is just speculation,” he added.

Ramsay’s stake in Ramsay Sante created a mechanism to ward off takeover suitors, given its complexities and the need for French regulatory approval.

KKR relied on Ramsay to grant it access to Ramsay Sante, rather than approaching the company’s board, which had the sole authority to grant due diligence.

Ramsay Sante attempted to engage with KKR, sending it a list of questions about its intentions for the company. But KKR did not provide responses.

Complicating matters further is the fact KKR owns Ramsay Sante’s competitor Elsan, making Ramsay’s French arm reluctant to open its books to the New York-based private equity giant.

In the three months to September 30, Ramsay Sante’s earnings before interest, tax, depreciation and amortisation fell 16.4 per cent to €110.2m, which Mr McNally said reflected a €14m lower contribution from pandemic-related government revenue and cost support and the “direct effect of inflation and higher labour costs due to staff shortages”.

But he was upbeat about its longer-term prospects.

“Activity levels in October have continued to improve as doctors and patients return from the vacation period and Covid cases in the community, while rising, remain at manageable levels. The business continues to work closely with governments in its regions to monitor and manage Covid cases as it moves into the northern hemisphere winter.

“Labour shortages in France have gradually improved over 2022 following the introduction of a series of measures earlier in the year however upward pressure on staffing costs remains.”

Overall, Ramsay reported a 6.7 per cent rise in revenue to $3.4bn in the three months to September 30. Meanwhile, net profit eased 1.2 per cent to $57.4m.

Mr McNally said the weighted average cost of debt was 3.24 per cent, with about 45 per cent of consolidated debt hedged at an average cost of 1.94 per cent until the end of the financial year.

Ramsay shares jumped 4.7 per cent to $61.85 on Friday. They are still down 26.6 per cent from the high reached in April after it disclosed KKR’s bid.