RYM-Ryman

[Basil]

I see Umbers got $1,525,000 for leaving.

6 months notice and severance and a bit of a bonus

After what he did to the company with the king sized USPP fiasco that's absolutely disgraceful and indicative of a very weak board.  This at a time when underlying earnings per share have been severely impacted and shareholders get no dividends until at least FY26.  To me, RYM is a pale shadow of its former self and the days of it being considered a blue chip are just a long distant memory.  Fully deserving of joining the "50% off NTA" club in my opinion.  A heck of a lot of really gnarly looking stuff in the presentation.  Very, very ugly.

[Greekwatchdog]

For Bars Review
At its FY24 result Ryman Healthcare's (RYM) new management and board lifted the veil on a decade plus of opaque accounting practices and half truths. What was behind the veil was worse than we had anticipated. The aggressive revenue recognition and poor cash recovery of capex was largely expected. Capitalising village start up costs (now abandoned), a meaningful valuation uplift (~+NZ$400m, now written down) at directors' discretion, as well as overstating expected cash recycling from villages under construction to the tune of ~NZ$250m was not. RYM needs a clear break with the past, and that, we believe, it has got. An entirely new management team and largely a new board, unencumbered by the past, has set out a credible path forward, focusing on all the right things. Namely, cash recovery of new developments and increasing cash generation of existing villages. The transition will be more painful than was expected, but the end result has the potential to be better. RYM is currently under earning meaningfully on its ~NZ$13bn of assets, with the sector's lowest (by far) deferred management fees and 'fixed fees for life'. The new management made it clear that everything is on the table and current levels of profitability is unacceptable. We reiterate OUTPERFORM, with a reduced target price of NZ$7.25.

What's changed?
Earnings: Annuity EBITDA reduced -13%/-6% over FY25/FY26, +2% in FY27 with less capitalised costs the key driver.
Target price: Reduced to NZ$7.25 (from NZ$8.25), driven by reduced annuity estimates, lower dividends and higher core debt.
Finding firmer ground
The aged care sector operates with largely non-GAAP measures as a marker of performance. RYM is making a clean break from the past. Going forward, cash generation and audited earning will be the focus. We expect the rest of the sector to eventually follow suit. With RYM's change of focus comes numerous minor and major changes in how it reports. The most relevant relates to lower capitalising of costs, abandoning new sale gains, and now only reporting units and beds that have been delivered. RYM also provided numerous new disclosures, in particular, in relation to cash generation for care, villages and head office. Over time this should provide firmer ground to stand on.


Fundamentals slightly ahead of expectations with strong DMF and resales gains more than offsetting higher costs
Fundamentals played second fiddle on the day, but RYM delivered a decent underlying result, with cash generation and annuity EBITDA slightly ahead of our estimates. Net debt remained broadly stable in 2H24 as guided. DMF and resales gains were strong, partly offset by higher costs. Guided deliveries for FY25 were ahead of expectations, but the change in approach makes it hard to compare. Build rate guidance for FY26/FY27 was substantially below our estimates and even further below previous ambitions. This make sense. RYM reiterated that it does not need capital, but our estimate of core debt has increased to well over NZ$1bn.

FY24 result; the good, the bad & the ugly
The good


DMF grew +15% year-over-year in 2H24, +5% ahead of our forecast. DMF is now up +50% over the last three years. Likely partly due to shortening the contractual terms over which the DMF is recognised. DMF is included in audited earnings.
Resale gains and resales cash flow. Resales gains increased +11% year-over-year and against our expectations of broadly flat. Resales cash flow was up +75% year-over-year to a record high of ~NZ$144m in 2H24, ~+NZ$30m ahead of our estimates. Since FY23, resales cash flow is up >+NZ$100m, almost +60%, and has more than doubled over the last three years. RYM's future treatment of the non-GAAP resales gain is 'up for review' but we expect at least the cash component (after ~NZ$20m of refurbishment costs) to feature going forward.
The bad


Impairment loss of NZ$244m. This primarily relates to the parts of the land bank with uncertain development plans.
~800 units and beds previously counted as delivered on a part complete basis taken out of its assets. Early recognition of deliveries has been known, and to some degree a communicated feature of RYM's for a long time. The magnitude was larger than we had anticipated.
Operating expenses, even allowing for a change in capitalisation policy and deducting some one-off costs, was ~+NZ$10m–$15m (~+3% to 5%) ahead of our 2H24 estimates.
The ugly


RYM took a ~NZ$400m write down on the fair value of its assets. We understand previous management had used a 'directors' range assumption' adjustment to the independent valuation of its properties. This involved assuming that new residents would pay a 30% DMF with no price adjustment. This compares to the valuers' assumptions of 20%, what RYM currently charges.
Capitalisation of village start-up costs. It was revealed that RYM has historically capitalised start-up costs for new villages. This will not happen on a go forward basis.
RYM restated its expectations of capital recycling from 10 villages under construction down by -NZ$256m. NZ$160m of this related to 'correction of cost allocation ... relating to head office and interest'.

[Basil]

At its FY24 result Ryman Healthcare's (RYM) new management and board lifted the veil on a decade plus of opaque accounting practices and half truths. What was behind the veil was worse than we had anticipated. The aggressive revenue recognition and poor cash recovery of capex was largely expected. Capitalising village start up costs (now abandoned), a meaningful valuation uplift (~+NZ$400m, now written down) at directors' discretion, as well as overstating expected cash recycling from villages under construction to the tune of ~NZ$250m was not.
I thought the USPP debt fiasco was as bad as it could get but these practices are truly disgraceful.  Simon Challis would be truly ashamed of what this company has become.
RYM needs a clear break with the past, and that, we believe, it has got. An entirely new management team and largely a new board, unencumbered by the past, has set out a credible path forward, focusing on all the right things. Namely, cash recovery of new developments and increasing cash generation of existing villages. The transition will be more painful than was expected, but the end result has the potential to be better. RYM is currently under earning meaningfully on its ~NZ$13bn of assets, with the sector's lowest (by far) deferred management fees and 'fixed fees for life'. The new management made it clear that everything is on the table and current levels of profitability is unacceptable. We reiterate OUTPERFORM, with a reduced target price of NZ$7.25.

They must be joking with their price target.  That and their $1.00 price target for OCA, (extremely deep skepticism there because of Forsyth Barr's 5% stake in OCA) look wildly optimistic to me.  Honestly...who needs all this crap when there are vastly better managed companies to invest in...

[snapiti]

Me thinks the market place is well aware of the self serving nature of broker valuations....just treat them as entertainment

[Basil]

I wouldn't tarnish all brokers with the same brush.  Craigs analysis of OCA was spot on in my opinion and Jarden's price target also makes a lot of sense, (haven't seen the detail of their report).  Really its Forsyth Barr running a real "Punch and Judy" show all on their own in this sector.

[Breezy]

35 mill shares through pre open at $3.62, someone's keen. Up sharply on open to boot.

[Basil]

That's 5% of the shares on issue in one transaction.  That will require a substantial shareholder notice in the very near future from both sides so it will be interesting to see who's bought and who has sold.

[Greekwatchdog]

That's 5% of the shares on issue in one transaction.  That will require a substantial shareholder notice in the very near future from both sides so it will be interesting to see who's bought and who has sold.

Someone who has been in since day dot I guess. Certainly from a long term look its a good price thou one never knows with the market given the conditions the market is currently in. I hope they trust the management team..

[Crackity]

Chris Lee today fwiw


RYMAN Healthcare will likely be a leading player in coping with the longevity phenomenon.

Its current balance sheet clearly needs repair, its pricing model has been too lean, yet the security and care offerings combined with all the lively activities it provides suggests the likes of Ryman will remain in great demand.

It is highly ironic that two years ago we had screeching noise from someone whose career has always focussed behind the sponsorship of the public purse, loudly opining that the likes of Ryman were profiteering and exploiting their residents. The media gave the view oxygen.
In the past two years the targets of this baloney have seen their market values slashed by more than half, hardly endorsing an amateur's view that profits were too high. Nor are the shareholders, who put up capital and take risk, getting any return for the risk they take.

The criticism was based on childish research, rare anecdotal complaints, and utter ignorance of the immense financial challenges of coping with rapid growth in demand, stubborn refusal of the government to pay adequately for access to the care the Crown demanded, and the increases in the cost of building materials and nursing care.

No government will ever build a care model similar to those offered by the various retirement villages which offer hospital-like care facilities. Nor would anyone in need of care choose a public facility if they could afford the services of the likes of Ryman, Summerset, Oceania, BUPA and the like.

In my view, these providers, struggling to get fair returns for the risk they take, will overcome some obvious challenges.
For example, Ryman must surely reduce debt, possibly with a significant capital raise. It seems none of its domestic competitors could afford to buy Ryman's individual villages and rebadge them. Ryman must increase its charges and retain a higher figure to equate with its deferred costs, this being the model that allows the residents to "buy now, pay later".

Ryman and its competitors offer the elderly a lifestyle that 50 years ago was unimaginable until the wonderful Waikanae visionary, the late Lloyd Parker, envisaged a retirement based on a healthy, green environment with access to care and fellowship in a secure, affordable village. He built Parkwood in Waikanae with NO capital, funded entirely on debt, sponsored by the community who arranged voluntary labour, creating a village that remains, 50 years later, on the top rung of the sector's ladder.
Today's different operators followed the dream he converted to reality.

My guess is that in 50 years' time the likes of Ryman will still be seen as leaders in providing solutions that ensure the elderly are rewarded, not punished, for their longevity.

I greatly admire the endeavours of those people who create and maintain these services.
_ _ _ _ _ _ _ _ _ _

[KW]

The trading highlight was a group of European investors' block sale of 35m Ryman Healthcare shares. Ryman finished 5c ahead at $3.66 on trade worth $133.55m.

Shane Solly, portfolio manager with Harbour Asset Management, said the Europeans invested in Ryman three to five years ago, and it was a sad way to exit the investment.

They had expected more growth from the company. "The market was aware of the overhang of shares, and big cap stocks were sold off to fund the Ryman buying.

The management is addressing the issues to make Ryman more profitable but the Europeans lost trust six months ago."


Musta cost them unnamed Europeans a motza - they really have lost trust in RYM 🤔

The more interesting question is who bought them?  And if its institutions, how long do they plan on holding them before selling down?  Will RYM shareholders now be waterboarded as these shares are drip fed into an already weak market?

[Breezy]

BD tonight







The trading highlight was a group of European investors' block sale of 35m Ryman Healthcare shares. Ryman finished 5c ahead at $3.66 on trade worth $133.55m.

Shane Solly, portfolio manager with Harbour Asset Management, said the Europeans invested in Ryman three to five years ago, and it was a sad way to exit the investment.

They had expected more growth from the company. "The market was aware of the overhang of shares, and big cap stocks were sold off to fund the Ryman buying.

The management is addressing the issues to make Ryman more profitable but the Europeans lost trust six months ago."


Musta cost them unnamed Europeans a motza - they really have lost trust in RYM 🤔

Unless they bought them on the Covid lows they probably paid between $10-$14 each for them times 35.96 mill, thats serious losses.

[Mos]

I would not be surprised to see a class action law suit emerge in regards to the misleading financial reports over the past decade. Some of the practices admitted to as summarised in GWD's post of Forbar's review appear to be beyond judgement and well into misleading territory. Questions to the auditor of prior years accounts would also seem appropriate.

It also seems highly coincidental that Ryman only updated the market of $284 m in write downs and huge (albeit appropriate) changes in treatment of expenses and revenue recognition on the day annual results were reported to the market. It is hard to imagine the Board did not have visibility of these issues and contemplate them extensively in the weeks beforehand, which raises questions on whether continuous disclosure obligations have been complied with.

[Crackity]

Analysts have downgraded their target prices for Ryman Healthcare after the retirement village operator lifted the veil on its finances this week, revealing a number of areas of concern.

"What was behind the veil was worse than we had anticipated," Forsyth Barr analysts Aaron Ibbotson and Benjamin Crozier said in a note released after the result.

The pair said Ryman's aggressive revenue recognition and poor cash recovery of capital expenditure was largely expected.

But other factors including capitalising village start-up costs (a system now abandoned), a valuation uplift of $400 million that had now been written down and overstatement of cash recycling from villages under construction to the value of $250m was not expected.


Target price now $7.25


Closed yesterday at $3.66

[Basil]

I would not be surprised to see a class action law suit emerge in regards to the misleading financial reports over the past decade. Some of the practices admitted to as summarised in GWD's post of Forbar's review appear to be beyond judgement and well into misleading territory. Questions to the auditor of prior years accounts would also seem appropriate.

It also seems highly coincidental that Ryman only updated the market of $284 m in write downs and huge (albeit appropriate) changes in treatment of expenses and revenue recognition on the day annual results were reported to the market. It is hard to imagine the Board did not have visibility of these issues and contemplate them extensively in the weeks beforehand, which raises questions on whether continuous disclosure obligations have been complied with.

Well said and as an accountant I find it abhorrent that one of N.Z's largest companies (with their accounts being audited every year), engaged in these practices and the auditors signed off on them.  If this was the U.S. we would definitely see class actions against the directors for this and their gross negligence in the manner in which the company was exposed to horrendous close out costs on the USPP fiasco. 

I find it extraordinary that the analyst community by and large is happy to again be so positive on the company with some board members being new to the game and others deeply complicit in misleading shareholders so egregiously, with no current CEO, (rudderless ship) and questions remaining about other senior management.

I would have thought upmost caution is still warranted here in regard to let's wait and see if a new CEO appointment is any good and whether there are any more skeletons in the closet. (Highly likely)

Suggesting that the share price should double from here in the next 12 months when it seems clear we are in a deep and enduring recession, is frankly laughable and does nothing for the credibility of the analyst making that call.

[snapiti]

really your following statement could belong on the on the HGH thread as well

"I would have thought upmost caution is still warranted here in regard to let's wait and see if a new CEO appointment is any good and whether there are any more skeletons in the closet. (Highly likely)"

really most shares trade on sentiment more than anything else......I would suggest buying when sentiment is low rather than high works out better in the long run.
I have started to buy RYM, with a strategy of leveraging down if I have to over the next 6 months. At some stage sentiment will change