Tuesday, August 10, 2010

Gordon Macleod on Ryman Healthcare's Australian Expansion


One Year Ryman Healthcare Chart from NZX


I asked Gordon Macleod, the CFO of Ryman Healthcare Ltd [RYM.NZ] a question about Ryman moving their business model across the ditch before the announcement last week that they were looking at expanding there, so asked some additional questions in a much larger and broader ranging Share Investor Q & A about that move. If you dont want to trawl through the whole interview just check out the Australian questions and answers.

Here are the questions specific to Ryman's move into Australia:

SI- How long will the first village be assessed before expanding further?

GM – We will carefully assess the entire Australian experience, from land acquisition to consenting to constructing, sell down and operations. During the initial sell down phase of the first stages we will get a good feel for how we are going. We have strict business case criteria for capital pay back of a village and we will set the same criteria as we do in NZ for whether the opportunity stacks up.

SI - Just how much research was done before the move?

GM – We have undertaken substantial research over a number of years. Australia has always been an opportunity for Ryman, and we felt the time was right now to take the next step up.

SI - Is your business model different to how such villages operate in Australia?

GM – We are quite different to many, in that we plan to continue to building and operating our own unique villages (many others simply undertake acquisition activity). Most importantly, what we offer will be different in that we plan to offer the same sort of integrated village with a full range of care as we do in NZ. This means that residents will have the security of having their changing health needs met within one village.

SI - Why Melbourne, Victoria first?

GM – We have a number of contacts in that area and it is easy to get to from Christchurch. That said, other states on the East Coast remain a possibility too.

SI - Will business conditions, employments laws, tax structures etc allow you to operate the way you do in New Zealand or do you have to tweak the model for Australia?

GM – As always we will have adapt to local conditions to a certain extent. However, on the whole the overall industry attractiveness and dynamics are very similar which is good. Encouragingly, build costs are actually lower in Australia and on the care side of things providers can obtain an accommodation bond on top of the weekly fees (in NZ rest home / hospital care offers weekly fees only), which we see as an advantage.

SI - If successful in Melbourne what are 5 year growth plans for that State and other Australian States?

GM – We actually just plan to focus on this first village for now. We will develop our strategy once we have a better idea as to the long term opportunity.

SI - Will you concentrate on growth in Victoria first before other States are considered?

GM – Victoria is our initial front runner, as you need to focus your energies somewhere to get traction, but a site could equally pop up in Queensland or NSW first. Once the first site is underway our plan is just to focus on that before anything else is planned. Thereafter it would make sense to focus our energies in one State for a while.

SI - How will expansion in OZ be funded?

GM – Traditional debt funding from our bankers – ANZ and CBA, and through our strong operating cash flows.

SI - Will RYM consider listing on the ASX sometime in the future?

GM – Yes, this is a real option for us once we have a site established. An ASX listing could be a way to achieve better liquidity for investors and to broaden the base of Australian fund managers in the Ryman shareholder list. That said, we have no plans at this stage and the Board will assess this option when the time is right.


Disclosure: I own RYM shares in the Share Investor Portfolio


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