OCA - Oceania Group - retirement villages

[Beagle]

I think your $1.5m is prior year .... Sept21 the difference is $16m

They've also told me in the past that sales/construction people costs are usually capitalised.

All very complicated isn't it ....that's why I tend to follow the money ..... through the cash flow statement

From memory they said they're in dispute with the Govt regarding underfunding the care sector by just on 5% so maybe that's not a permanent situation. Overall however, I think its always been accepted that there's an element of cross subsidization of healthcare costs from the property operations. My hope is this will reduce over time as they continue the premiumization of their care product offer. 70% premium care compared to 30% basic is the official goal, (about 5 years away), but I expect over time they will look to move the goal posts even further towards premium care.

[Ferg]

I think your $1.5m is prior year .... Sept21 the difference is $16m

They've also told me in the past that sales/construction people costs are usually capitalised.

All very complicated isn't it ....that's why I tend to follow the money ..... through the cash flow statement

Nice catch and fair call re following the cash. But I think the waters are being muddied for care operations vs village operations/sales with that view. I expect construction costs would be capitalised but not sales - that sounds very strange.

Re-running the numbers (for the correct year) shows employee costs have grown to 71% of total costs, up from 68%. Implied "care operations" employee costs have gone from $52m -> $60m. The absolute numbers need to be in the context of revenues, whereas the relative numbers suggest things are a-changing. I believe there was a $1.8m subsidy in the last fiscal year which explains a portion of the overall increased employee costs (i.e. not just care) - see my quick rec at the bottom of this post.

Unfortunately we don't get the reconciliation of operating cash flows to NPAT with the half year report but I do note that:

• trade payables were down $10.5m (= operating cash outflow)
• trade receivable were up $9.5m (= operating cash outflow, but was some non-care?)
• total impact of these 2 Balance Sheet items is -$20m operating cash outflow
• total cash shortfall per the top 3 lines of the cashflow statement is -$18m but IMO employee costs of the unit sales team would fall under village operations and that revenue is shown further down the CF statement, hence the raw comparison IMO is misleading

Quick rec of care operations wages:

Care Operations
	1H21	subsidy	growth	other	1H22
Revenues	$87		+$6		$93
est. Wages	$52	+$1	+$3	+$4	$60

Wages is estimated as previously posted, then adding back say half the subsidy (some would be non-care), adjusting for increased sales activity (staff costs would be variable / semi variable) leaves an unexplained $4m increase for 1H22. On an adjusted base of $53m, this implies inflationary and/or COVID requirements growth in "care operations" employee costs of 7-8%.

[Beagle]

this implies inflationary and/or COVID requirements growth in "care operations" employee costs of 7-8%.

About the average rate of increase since they listed more than four and a half years ago. This appears to be a systemic issue and something I have talked about extensively before and by FAR the biggest reason why I only run with a modest stake.

[Joshuatree]

Good post Forest. From memory late last year Gregory Tomlinson, (who is nobody's fool and a very astute and wealthy businessman) bought a couple of million at about $1.40. Caregiver and nurses wages have increased a LOT in the last few years and this is something I have commented about extensively already. Vastly more than the inflation rate. I believe experienced registered nurses now command very close to $40 per hour.

That said, from a TA point of view none of the charts of stocks in this sector look any good so at this point I am happy to run with a pretty modest ~ 7.5% allocation to this sector, most of which is OCA and the rest ARV and am reluctant to add other than at genuine rock bottom bargain prices.

The nurses do the medications and wound dressing but it's the caregivers mostly on $23 or less do all the real hard stuff,changing naps,feeding ,showering etc who look after our loved ones for peanuts.No wonder moral is so bad,the nurses have it so easy in comparison and earn so much more.

[Waltzing]

Surely that wage structure cant be sustainable in the future.

[winner69]

From memory they said they're in dispute with the Govt regarding underfunding the care sector by just on 5% so maybe that's not a permanent situation. Overall however, I think its always been accepted that there's an element of cross subsidization of healthcare costs from the property operations. My hope is this will reduce over time as they continue the premiumization of their care product offer. 70% premium care compared to 30% basic is the official goal, (about 5 years away), but I expect over time they will look to move the goal posts even further towards premium care.

Element of cross subsidisation .... cant continue for ever ...says beagle

My simplistic view of the cash flow mentioned earlier is that nearly 30% of the proceeds from selling things (units/licenses) went on 'subsidising' day to day operations

Only the last six month period but inflicting pain on shareholders and not past the point of inflection (sorry BP)

[Joshuatree]

Surely that wage structure cant be sustainable in the future.

Its endemic NZ wide in many industries.Import cheap labour because many kiwis are not prepared to be exploited or subsist.

[artemis]

The nurses do the medications and wound dressing but it's the caregivers mostly on $23 or less do all the real hard stuff,changing naps,feeding ,showering etc who look after our loved ones for peanuts.No wonder moral is so bad,the nurses have it so easy in comparison and earn so much more.

Common to hear frequently that different sectors deserve higher pay. Look a bit closer, bearing in mind that half of the working population is below average intelligence. Maybe the job they do is suited to their level of education or choice. If not, there's upskilling and building experience, and employers do often support that.

Meantime, for those on lower incomes there can be significant government support available.

There was some discussion a while back about some companies in the retirement sector that moved staff to roles that did not attract higher rates. Business decision, and unlikely those moved into different roles were the most versatile staff.

[Ggcc]

Its endemic NZ wide in many industries.Import cheap labour because many kiwis are not prepared to be exploited or subsist.

Or most residents don’t or can’t pay the true cost that would require staff to be “paid adequately” and so companies need to source elsewhere.

Most kiwis I speak to feel plain entitlement and don’t know how lucky they have it. As Artemis mentioned low skills means low pay. No one to blame but themselves. Sure we are in a different market nowadays and maybe rest homes could do slightly better. I would also like nurses and caregivers to earn way more, but how much more should they get?

Your thoughts sound like these guys make multi millions for caring for their patients, which we know they really don’t.

[Bjauck]

Or most residents don’t or can’t pay the true cost that would require staff to be “paid adequately” and so companies need to source elsewhere.

Most kiwis I speak to feel plain entitlement and don’t know how lucky they have it. Sure we are in a different market nowadays and maybe rest homes could do slightly better. I would also like nurses and caregivers to earn way more, but how much more should they get?

Your thoughts sound like these guys make multi millions for caring for their patients, which we know they really don’t.

Not really an Oceania specific issue, but surely it is the government that sets the maximum contribution for residential care, which is also the amount that residents, ineligible for a residential care government subsidy pay for the basic care package. This is set whether or not individual residents feel entitled. So is it the government that is squeezing the sector to avoid raising taxes to pay more adequately/generously for rest home services? Residents can still opt to pay for additional "premium" services.

Supply (whether from overseas or NZ) and demand may determine labour rates. So immigration policies do help to determine pay rates. Similarly, emigration affects supply - for example if NZ workers are enticed overseas by higher salaries and cheaper housing/accommodation.