Healthcare Services

DSO 0.1 ⇓

DIO 0.8 ⇑

DPO 8.1 ⇓

DWC 1.0 ⇑

The lowest DWC of all sector samples despite an increase in average DWC during the year.

Amid changing market conditions influenced by regulatory reform and the impending Aged Care Royal Commission, our sample of Healthcare Services companies achieved average revenue growth of 12% during 2019. Approximately 85% of the sampled companies reported top-line growth, driven by a mix of acquisitions and new clinic and facility openings. However, only 54% of the sample was able to achieve EBITDA growth.

The average DWC for our sampled companies was 9.9 days in 2019 highlighting that Healthcare Services companies are relatively “light” in terms of working capital burden. In 2019, the average DWC increased by 1.0 day, driven by an 8.1 day decrease in DPO, with 69% of the sample paying suppliers more quickly. Notably, of the companies that reduced DSO (or shortened their collection cycles), 67% passed the benefit onto their suppliers in part or in full by paying them more quickly.

Notwithstanding the above, collection terms are typically shorter than supplier payment terms for Healthcare Services companies. The gap between the two cycles was 68.9 days (on average), and all but one of the sampled companies benefited from this gap. A number of companies also held little or no inventory.

Monash IVF Group was the biggest improver in 2019 with a 4.6 day reduction in DWC, by reducing DSO by 1.2 days and extending supplier payments (increasing DPO) by 13.6 days. This assisted the business to reduce its debt by c.$9 million during the year. Whilst this sector reported the lowest DWC, the range between the highest and lowest was over 42 days suggesting opportunity for improvement for some sector participants.