Investment Matters

Primary Health Care

Primary Health Care delivered a result in line with expectations.  The revenue from the Medical Centres division increased 3.0%.  Earnings declined by 2.2% compared with H1FY-15, impacted by a GP shortage early in the half.  Primary enacted a more flexible model (for the GPs), which also is consistent with the new tax / accounting treatment for GPs.  GP recruitment and retention improved through the half, with further improvements expected.

The company's Pathology division grew revenue 5.7% and earnings 4.0% - increase in volumes combined with a slight reduction in fees.  The Imaging division had a 2.1% fall in revenue, with earnings declining 48.0% to $10.5m.  Revenue was down because of a slight reduction in fees, combined with a shift to lower cost tests.  Labour and property costs drove the decrease in earnings, along with higher amortisation of radiologist acquisition costs.

Overall this resulted in a 9.9% fall in net profit.  The payout ratio was cut, which will allow the company to increase investment in the coming period (new medical centres).  Therefore the dividend for the half is 5.6cps.

Primary also noted the government reviews currently underway (as well as MYEFO), with funding under pressure.  Market growth rates are coming under pressure even before changes are enacted and the company considers changes to funding inevitable.  In response, Primary is looking at aggressive cost-savings measures, where feasible, including labour costs and rent.  The cost base will be made more flexible (for example, with the GP model, and equipment funding arrangements).  However, even with these measures, the company will still need to introduce private billing across all of its divisions.  Trial use of co-payments in particular areas has commenced.

The company indicated 'green shoots' in relation to the trading conditions for the first two months of H2.   It is forecasting profit between $60m and $65m for H2 (compared to $50.1m in the first half).

Demand for primary health care is increasing - partly driven by demographics.  Primary Health Care is is well positioned to deliver cost effective solutions to meet this need, along with the services of pathology and radiology.  The current regulatory uncertainty will impact the company in the short-term.  Ultimately, however, operators such as Primary are an integral part of the Australia's health care system and Primary will grow its earnings, and its dividend return, through time. 

Primary Health Care HY