‘In a Nutshell’ – Make or Break

ASX Listed Aged Care Company Performance Summary - FY2020

‘In a Nutshell’ – Make or Break

COVID-19 has had a massive effect on the providers of care services to those most vulnerable to the pandemic. Media headlines have been dominated with the devastating impact on the lives of those living and working in residential aged care and the system as a whole. For an industry that had already been plagued by deteriorating occupancy, escalating operating costs and slow revenue growth, the challenge of protecting residents could not have come at a worse time.

And despite all this, the sector has shown remarkable resilience. Caught between a State and Federal Government blame game and negative media, providers have remained focused on protecting their residents and staff. They have been subject to substantial criticism from those far behind the front line, but they have had little time to focus on that while so many lives are at risk.

This unprecedented situation saw aged care become the epicentre of the pandemic. Despite repeated warnings (Urgent Call for Action), a coordinated plan was not formulated and providers were forced to fend for themselves. Relief funding finally came towards the end of peak infection, but the industry is still struggling to manage its resources to best support vulnerable people in their care.

The financial fallout is far from over. The listed company results mirror an industry event with serious long-term implications. Recovery from reduced occupancy will continue well into the FY 2021 as will the ongoing costs of infection control. The late funding relief will not cover those costs and, while subsidy increments are expected, it is unlikely to prevent continued losses and corporate failures in the coming months. Nor will it encourage investment which has hit all-time lows.

Since our first COVID-19 publications, we have been tracking the impact of the pandemic on the flow of resident deposits (RAD’s). As anticipated, the pandemic has accelerated the change in payment preferences away from RAD’s and we estimate that up to $1 billion in cash will leave the sector because of declining occupancy and changing preferences so far. A continuation of this trend will result in widespread sector failure.

If anything positive can be taken from this experience, it is that the Federal Government now will be forced to make aged care a priority. Successive Governments have avoided the challenge of structural reform to the sector and the COVID-19 experience has exposed this in a very public way. The Royal Commission may be able to leverage this impetus to encourage real change in its final report due in February 2021.

The listed providers have an opportunity to capitalise on these reforms, but first they must work through the greatest financial tsunami in the history of this sector.

Watch the Chartered Accountants / Ansell Strategic aged care financial analysis webinar.

Read more on how the the ASX listed providers performed this FY2020 by downloading our report.