Estia declares $5.3M HY loss on back of COVID and $37M class action settlement with shareholders – but revenue rises 5%

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The listed aged care provider has seen its revenue nudge up despite a year marked by COVID outbreaks and occupancy declines across its portfolio and an $11.7 million class action payout to its own shareholders over market disclosures in 2015 and 2016.

Its total revenue and other income increased by 5% to $332.3 million for the half year ended 31 December 2020.

Net RAD balances were maintained at $836.1 million despite a drop in occupancy, with a $1.5 million net inflow of new RADs despite no new homes being opened during the reporting period.

The group also sold off two surplus land sites within NSW at Mona Vale and Wollongong, which resulted in a profit before tax of $8.2 million.

$5.8 million lost due to Victorian occupancy decline

Estia says the result would have seen the operator declare a slim $3.8 million HY profit – lower than the $14.3 million profit it achieved at the end of 1H20 – but the impact of COVID-19, an $800,000 landbank impairment and a $37.75 million settlement with its own shareholders (see further below) saw this profit turned into a $5.3 million loss.

Estia estimates most of this lost revenue – $5.8 million – was due to the occupancy decline in Victoria.

11 of the operator’s 27 Victorian homes had residents or employees test positive to COVID-19 with four experiencing major outbreaks.

As a result, occupancy was an average of 85.1% in Victoria compared to 93.5% in its 42 homes in other states.

Overall, average occupancy fell from a pre-COVID 93.6% to an average of 90.6% across the period.

$20 million in COVID costs

Regular SOURCE readers may recall Estia’s 2019 half yearly results that stated a 1% difference in occupancy equals $5 million in EBITDA for 12 months – this result would equate to around $7.5 million in lost revenue.

In total, Estia recorded $20.1 million in direct incremental costs from its pandemic response.

$12.6 million of these expenses were in Victoria – that’s around $31.40 in incremental costs per available bed day in Victorian homes and $10.30 a day in its other homes.

Estia did receive $8.5 million in Government Temporary Funding and grants during COVID, but says another $7.3 million on additional grant support has yet to be confirmed nor recognised during the reporting period.

Development pipeline to be reactivated

Unsurprisingly given the loss, the group again elected not to declare a dividend for the period, but Chief Executive Ian Thorley was positive about how the group had handled the period.

“The financial and operational strength of the Group, together with Government’s additional funding and the geographic and demographic diversity of our homes, supported the Group’s financial outcomes in the period, and with that our ability to provide for the needs of residents and employees,” he said.

“Our financial performance outside of Victoria has remained consistently sound and this has supported the additional investment, costs and lost revenues in Victoria.”

Proving his point, its investor presentation states that its development pipeline of 600 beds is now ready to activate.

The market liked what it heard – Estia shares gained seven cents or 3.5% to $2.09 on Tuesday.

No admission of liability in settlement

Estia also pointed to the resolution of its shareholder class action as a positive moving forward.

As we reported here, the class action was launched in July 2019 on behalf of aggrieved shareholders by law firm Phi Finney McDonald which argued that Estia breached its continuous market disclosure obligations between August 2015 and October 2016.

Estia reached an agreement to settle the action in the Federal Court last week without any admission of liability.

The settlement requires the providers to contribute $11.7 million – reported as an expense in the results – with the remaining $26.05 million, inclusive of interest and costs, fully insured.

“Estia’s Board determined that the agreement to settle the shareholder class action was a commercial decision made in the best interests of the Company and its shareholders,” they told the market in a statement.

Estia has 69 homes in NSW, QLD, Victoria and SA.

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