IRT Group slashes 2020/2021 capital expenditure by 50% after recording $20M loss – is scale needed to survive the storm?

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After a year that saw its villages, aged care homes and home care services hit by bushfires in NSW, storms in Queensland and the COVID pandemic, the Not For Profit is taking decisive action to resolve its financial situation.

At its AGM last Thursday, IRT CEO Patrick Reid (pictured left) revealed the difficult operating environment had led to a worse-than-expected financial result, with the organisation recording a $20 million underlying loss, mainly due to the costs of managing the bushfires and the pandemic.

‘Return to normal’ looking unlikely

While their cash position is stable, Patrick said they recognise ongoing losses are unsustainable – and a ‘return to normal’ is unlikely on the other side of the pandemic.

“In response, we have reduced our 2020/2021 capital expenditure by 50%, deferred major property development projects, and identified a range of other initiatives to make our organisation stronger and sustainable for the future,” he said.

“Our organisation was founded in 1969 on the principle that older people deserve the best. That’s what we’ve worked hard to provide them with for more than 50 years and it continues to be our driving force.”

IRT operates 31 retirement villages, 21 aged care centres and five home care regions in NSW, South East Queensland and the ACT with over 9,000 residents and customers, 2,800 employees and almost 600 volunteers.

Fronditha Care also declares deficit

The pandemic has brought some benefits, their annual report notes.

“In terms of our frontline operations, we saw ten years of innovation in three months. COVID-19 has rapidly pushed telehealth and telemedicine into our operations and we’ve embraced it wholeheartedly.”

But the results – and the dramatic response – demonstrate the even tougher operating environment that providers now face.

Other operators have shown they are in a similar boat. Last week, Victorian provider Fronditha Care unveiled a $6.5 million deficit for its five aged care homes.

Bolton Clarke increasing its EBITDA and footprint

Bolton Clarke, one of Australia’s largest Not For Profit aged care, home care and retirement living providers, saw its operating EBITDA strongly increase by 24% from $32 million to $40 million in FY2020.

But a $23 million reduction on the value of its retirement village assets for FY2020, with a $19 million non-cash impairment charge, primarily relating to goodwill, in the same period, resulted in a deficit of $54 million.

Despite, Bolton Clarke has opted for a proactive response.

As we covered here last month, its Chairman has revealed that the operator plans to double in size in the next five years by growing its home care business and expanding its RACs.

Both IRT and Bolton Clarke have the advantage of scale and a diverse range of operations that they can use to drive their businesses back to surpluses – but other operators are not so lucky.

Could this signal the start of more rapid consolidation in the sector?