Healthscope (ASX:HSO)

Gordon Ballantyne
Market Cap (AUD): 4.3B
Sector: Health Care
Last Trade (AUD): 0 +0 (+0%)
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1. About

Healthscope is a leading private healthcare provider in Australia with 43 hospitals as well as a market leading international pathology operations across New Zealand, Malaysia, Singapore, and Vietnam.

The company believes in the provision of quality healthcare for our patients.

Healthscope team of over 18,000 employees understand that healthcare is a special business, 24/7, 365 days a year our team provide quality care and positively contribute to the clinical outcomes of its patients.

Healthscope formed in 1985, the Healthscope Group has a long and proud history in the Australian private healthcare industry and was initially listed on the Australian Securities Exchange (ASX) in 1994.

2. Business model


The Company operates the following divisions:[1]



Revenue ($M)

% of Revenue

% of Profit (before Int, Tax, Div & Amort.)

Profit drivers[2]

Hospitals Australia

(Continuing operations)




The Hospitals division delivered revenue of $2,100.6 million,up 4.3%, and Operating EBITDA of $344.7 million,down 4.1%. In 2H18, Hospital Operating EBITDA increased by 0.8% Year on year. This was a significant improvement on the 8.6% decline in 1H18 compared with 1H17 and was underpinned by operational efficiencies and the contribution of completed brownfield developments.

Pathology New Zealand

(Continuing operations)




New Zealand pathology, which operates through the Labtests, Northland Pathology, Southern Communities Laboratories, and Gribbles Veterinary brands, grew revenue in local currency by 1.6% with Operating EBIT up 2.5%. After the adverse impact of currency conversion, reported revenue of$240.2 million was down1.0%, operating EBITDA of $58.1million was down 2.7% and Operating EBIT of $46.7 million up 0.3%


(Continuing operations)





Asian Pathology (Discontinued operations)

$ 67.0




Medical Centres (Discontinued operations)





3. Strategy


Key strategies include:[3]


Healthscope has been pursuing a range of operational and growth strategies for each of the Group’s businesses, and these, together with the favourable long-term fundamentals of increasing demand for healthcare services across each market in which the Company operates, continues to provide a strong platform for growth in the medium to long-term.



1. Organic growth

Healthscope operates in an industry with an attractive medium to long-term demand characteristics for private hospital services. However, the industry and Healthscope’s own business are currently facing a number of short-term challenges which have impacted the division’s performance in FY18 and are expected to continue into FY19. As a result, in 2017 management established four key “must win” imperatives to drive performance improvement across the portfolio:

  • Accelerating profitable top-line growth
  • Driving greater operational efficiency
  • Optimising the portfolio
  • Continuing to successfully execute on the Group's hospital expansion program


2. Brownfields and “relocate and grow” projects

Healthscope has significant experience and knowledge in designing and building private hospital facilities. Deep knowledge of the industry means the Group is well positioned to forecast and meet additional patient demand by expanding its hospital facilities through brownfield and “relocate and grow” projects. Healthscope has focused on expansion in strategic locations where there is unmet demand or in population growth corridors where the potential for future demand is high.


New Zealand pathology

The priority for Healthscope in New Zealand remains in maintaining strong relationships with the DHBs by delivering high-quality services and superior operational efficiencies. Healthscope is focused on extracting further economies of scale, including cost synergies, through the operational integration made in its expanded laboratory network. As part of this process, Healthscope shares some of the long-term efficiencies generated with its DHB partners to strengthen existing relationships. Healthscope will seek to secure additional DHB contracts when opportunities arise and continue to expand its range of commercial non-government revenue streams.

4. Markets



Industry (Australia)

Industry Revenue (2018)

Growth rate (Annual 13-18)

Specialist Medical Services

$12 Billion


General Hospitals

$69 Billion


General Practices Medical Services

$12 Billion


5. Competition


Major competitors include:[5]


  • NSW Health
  • Queensland Health
  • Ramsay Health Care Limited (ASX:RHC)
  • Regis Healthcare Limited (ASX:REG)

6. History



The Company was formed



Listed on ASX



Business was acquired by a consortium of funds, advised and managed by TPG and The Carlyle Group and was subsequently delisted from the ASX



Re-listed on ASX



In July 2015 Healthscope sold the Australian component of Healthscope Pathology to Crescent Capital Partners



Healthscope Limited was pleased to be advised that it has settled the US$300 million US private placement note issue



Northern beaches hospital contract



Healthscope Limited announces sale of its medical centres to Fullerton health



Healthscope completed the sale of Asian Pathology

7. Team


Board of directors[7]


Ms. Paula J. Dwyer – Independent Non-Executive Chairman

Mr. Gordon Ballantyne – Managing Director and Chief Executive Officer

Mr. Antoni (Tony) M. Cipa – Director, Non-Executive

Mr. Rupert H. Myer AO – Non-Executive Director

Mr. Paul D. O'Sullivan – Non-Executive Director

Ms. Jane F. McAloon – Non-Executive Director

Dr. Ziggy Switkowski AO – Non-Executive Director

Dr. Michael P Stanford AM – Non-Executive Director


Management Team


Gordon Ballantyne – Managing Director & Chief Executive Officer

Michael Sammells – Chief Financial Officer

Mark Briscoe – General Manager Operations

Dr. Michael Coglin – Chief Medical Officer

Stephen Gameren – Hospitals State Manager (NSW & ACT)

Richard Herman – Head of Assurance

Cathy Jones – National Manager Quality & Compliance

Bronte Kumm – Hospitals State Manager VIC & TAS

Alan Lane – Hospitals State Manager (SA & ACHA CEO)

Katherine Paroz – Group Executive Human Resources

Ingrid Player – Group Executive Legal, Governance & Sustainability

Anoop Singh – General Manager, International Pathology

Arthur Yannakou – Hospitals State Manager, QLD, NT & WA

read more

8. Financials


2018 Full Year Results Presentation


Financial Year 2017/18 (ended 30 June):[8]



Revenue ($M)

% Change

Profit ((before Int, Tax, Div & Amort.) ($M)

% Change

Hospitals Australia

(Continuing operations)





Pathology New Zealand

(Continuing operations)






(Continuing operations)





Asian Pathology (Discontinued operations)

$ 67.0




Medical Centres (Discontinued operations)










9. Risk


Major risks include:[9]


Material business risks


Government policy and regulation

Healthscope operates in the healthcare industry which is subject to extensive laws and regulations relating to, among other things, the conduct of operations, the licensing and accreditation of facilities and the addition and development of facilities and services. There are a number of government policies and regulations that, if changed, may have a material adverse impact on Healthscope financial and operational performance.


Private health insurance funds

The majority of Healthscope’s revenue is derived from private health insurance funds. The profitability of Healthscope’s business is influenced by its ability to reach ongoing commercial agreements with private health insurance funds. A failure to reach a satisfactory commercial agreement with a key private health insurance fund has the potential to negatively impact Healthscope’s financial and Operational Performance.


Private health insurance fund membership and level of cover

A deterioration in the economic climate, changes to economic incentives, annual increases in private health insurance premiums and other factors may affect the participation rate or the level of private health insurance coverage of members in private health insurance funds. This has the potential to reduce demand for Healthscope’s services, resulting in decreased revenues. In addition, if the profitability of private health insurance funds deteriorates, there is a risk of increased pricing pressures on private hospital operators such as Healthscope.


Relationships with Accredited Medical Practitioners

Accredited Medical Practitioners prefer to work at hospitals, which, amongst other things, provide high-quality facilities, equipment and nursing staff; exceptional clinical safety outcomes and which are conveniently located. Accredited Medical Practitioners could cease to practice or stop referring patients to Healthscope facilities if the hospitals become a less attractive place to work. This would adversely impact Healthscope’s financial and operational performance.


Licenses and accreditation

If Healthscope is unable to secure or retain licenses or accreditations for the operation of its hospitals and pathology laboratories (where required) in the future, or any of its existing licenses or accreditations are adversely amended or revoked, this may adversely impact Healthscope’s ability to

operate its businesses.



There is a risk that the actions of Healthscope’s current or potential future competitors will negatively affect Healthscope’s ability to:

  • attract and retain Accredited Medical Practitioners to practice in Healthscope hospitals; and
  • successfully tender for DHB contracts in New Zealand.


Nursing labour

The most significant cost in Healthscope’s hospital operations is nursing labour, with an increase in cost or tightening of supply likely to have a material impact on financial and operational performance.


Medical indemnity claims and associated costs

Current or former patients may, in the normal course of business, commence or threaten litigation for medical negligence against Healthscope. Subject to indemnity insurance arrangements, future medical malpractice litigation, or threatened litigation, could have an adverse impact on Healthscope’s financial performance and position and Future Prospects.



Insurance coverage is maintained by Healthscope consistent with industry practice, including workers compensation, business interruption, property damage, public liability, and medical malpractice. However, no assurance can be given that such insurance will be available in the future on commercially reasonable terms or that any cover will be adequate and available to cover all or any future claims.


Development projects

Healthscope enters into development projects in its regular course of business such as brownfield and “relocate and grow” hospital developments. The Northern Beaches Hospital is a current major project which Healthscope is developing in partnership with NSW Health. There are a number of risks associated with development projects, including business disruption during construction, cost
overruns, and delays in anticipated revenues flowing from proposed developments.


New Zealand pathology contracts

Healthscope currently has contracts in place with a large number of DHBs for the provision of pathology services in New Zealand. There is a risk that each time a contract is set to expire, the relevant DHB selects another party or renews the contract on less favourable terms with Healthscope.


Information Security and Cyber Attacks

Healthscope may be affected by cyber-attacks or failure in critical data, processes or systems.


Interest rate risk

The Group has a policy of managing exposure to interest rate fluctuations by the use of fixed rate debt and interest rate swaps.


Foreign currency risk

The Group’s primary currency exposure is to US dollars as a result of issuing US Private Placement debt. In order to hedge this exposure, the Group has entered into cross currency swaps to fix the exchange rate on the USD debt until maturity. The Group agrees to pay a fixed USD amount in exchange for an agreed AUD amount with swap counterparties, and to re-exchange this again at maturity. These swaps are designated to hedge the principal and interest obligations of the US private placement debt.


Credit risk

The Group’s credit risk arises in relation to cash and cash equivalents, receivables, financial liabilities and liabilities under financial guarantees. Credit risk on financial assets which have been recognised on the balance sheet, is the carrying amount less any allowance for non-recovery. The Group actively manages this exposure by dealing only with counterparties with good credit standing and not having any significant credit risk with any single counterparty. Credit risk associated with financial liabilities arises from the potential failure of counterparties to meet their obligations under the contract or arrangement. The Group’s maximum credit risk exposure in respect of derivative contracts is detailed in the liquidity risk table on the next page. Credit risk includes liabilities under financial guarantees.For financial guarantee contract liabilities, the fair value at initial recognition is determined using a probability weighted discounted cash flow approach. The fair value of financial guarantee contract liabilities has been assessed as nil (2017:nil), as the possibility of an outflow occurring is considered remote.


Liquidity risk

Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet its obligations to repay its financial liabilities as and when they fall due.


  1. ^ Annual Report 2018, P.63
  2. ^ Annual Report 2018, P.3
  3. ^ Annual Report 2018, P. 28 - 29
  4. ^
  5. ^
  6. ^
  7. ^
    Annual Report 2018, P.18 - 19
  8. ^ Annual Report 2018, P.63
  9. ^ Annual Report 2018, P. 30 - 32 & 92