RHC reported FY18 results in line with its pre-announced disappointing June 2018 trading update where the Company revised guidance.

Indeed, management noted “as disclosed to the market in June, our FY18 results were impacted by the significant downturn in NHS volumes in our UK business as well as softer growth rates in our Australian business and the decision to temporarily slow down the rollout of the Ramsay Pharmacy franchise network while we invest in infrastructure and resources to successfully scale this franchise business for the long term”.

Key highlights include:
1. Core Net Profit After Tax of $579.3m, up +6.8% increase on the previous corresponding period, which equates to core EPS of 279.8cps, up +7.0% on the 261.4 cents recorded in pcp and in line with the revised guidance provided in June 2018.
2. fully-franked final dividend of 86.5 cents, up +6.1% on the pcp, taking the full year dividend to 144.0 cents fully-franked, up +7.1% on the prior year.
3. Reported NPAT and after net non-core items of $388.3m, was down 20.6% on the prior year which reflect net non-core items of $191.0m (net of minorities and net of tax) recognised (mainly due to Ramsay UK recognising an onerous lease provision and asset write downs related to certain UK sites of $122.0m (net of tax) and Ramsay Générale de Santé (RGdS) recognising restructuring costs of $29.9m).
4. RHC has enough balance sheet flexibility to fund “continuing demand for brownfield capacity expansion, future acquisitions and ongoing working capital needs” with consolidated leverage ratio of 2.3x, well within internal parameters.

Longer term, we don’t doubt the quality of RHC (at the management level and assets) however, we yield to management’s warnings of short term weakness. We maintain our Neutral recommendation.