Few chairmen of a $2.56 billion company board would answer questions about why shareholders should have faith in its leadership after multiple failings, then proceed to play an impromptu game of lawn bowls (and win).
Even fewer would step out of the boardroom to take on the role of chief executive in said company’s time of need.
That all makes Dean Hamilton, Ryman Healthcare’s now-executive chairman, an unshaken rarity.
In an extensive interview with the Herald’s Markets with Madison, Hamilton detailed every area in which the retirement village operator went wrong, and what he and Ryman’s refreshed board were doing to right the ship.
It started by agreeing with financial analysts - who had raised red flags on Ryman’s state of affairs for at least five years - that it had been a fiscal disaster.
“Yeah, I think the financial performance has slowly deteriorated.
“A bit like being in a boiling pot and then when you look at it five years later you go, ‘how did the business get to this position?’”
That position was a 98 per cent decline in Ryman’s annual net profit, to $4.8 million, from $689.9m of revenue, after changing the way its properties were valued on paper.
Its share price is down more than 35 per cent year to date to rub salt in the wound.
Reflecting on how it got this cooked, Hamilton said the grow-at-all-costs mentality, and Christchurch-centric operations, were the core of Ryman’s issues.
“The DNA of the place was all about 15 per cent growth. It was a kind of a mantra when you walk in.
“Ultimately, to keep up that level of growth, you take on more risk.”
And that it did.
At its peak, Ryman had 14 villages under construction at once, Hamilton said.
By the end of 2022, it had $3 billion in debt on its balance sheet - a mix of bank debt, retail bonds and United States private placement debt.
“It was enormous. And that just ultimately got beyond the capability of the organisation,” Hamilton said.
The company raised $902m from shareholders last year specifically to advance the pay down and deletion of the US debt portion, with added costs of $152m including interest.
It still had $2.5b of bank debt on its books, putting its gearing ratio at 36.2 per cent, above its medium-term target of 30 to 35 per cent.
The list of financial misgivings did not stop at borrowing levels, but also the way in which that debt was being used.
The company was previously using debt borrowings to pay dividends to shareholders, as it did not have positive operating cash flow to use.
Also on spending matters, its operational overhead costs had risen faster than its resident count across its 48 villages in New Zealand and Australia.
“So, a simple person like myself doing that maths, that doesn’t feel right,” Hamilton said.
Total expenses rose 20 per cent to more than $1b in the financial year to the end of March, with costs unrelated to retirement villages (meaning head office) alone up 19 per cent.
“That’s a work in progress, we need to stare at that.”
The final straw was former directors deciding on the value of its $12b property portfolio internally, using market values as a guide, effectively inflating the value of its assets on paper.
“Directors got comfortable, the auditor got comfortable.”
Within exactly one year at the company, Hamilton and his half newly-appointed board had reversed or were still working to reverse, almost all of the above.
Key executives had left, including former chief executive Richard Umbers and the former chief financial officer who led the near $1b capital raise in 2023.
The board had suspended dividend payments to investors until at least the 2026 financial year. Hamilton wanted future dividends to be financed by positive operating cash flow.
“You’ve got to earn it, to pay it, very simply.”
The pin had been pulled on the development of a handful of villages, with three land sites now up for sale.
The business was shifting out of Christchurch, with all new directors not residing there. Hamilton himself was based in Queenstown.
“It had become quite a Christchurch-centric business - directors, management, lawyers, accountants, auditors - and there was a sense that they had become quite insular, and [we questioned] whether that was being as objective as it could be.
“So, we’ve purposely changed it quite significantly.”
The auditor, Deloitte, may be removed, with a tender out for their replacement (or at the very least they would be forced to audit the business outside of Christchurch, as Hamilton had told Deloitte directly).
The company was now disclosing more details in its financial results, including splitting out where cash was actually earned.
Of course, Hamilton didn’t want to blame just the company’s former leaders and aides.
“I’m not sitting here throwing everybody before me under the bus. There was a lot of good things happening.
“But there’s a point in time ... where it’s time for change, and it was definitely a time for change.”
Noting the change in Government, he commended it for reviewing aged-care funding which previously had not kept pace with increases in costs, leading some smaller retirement homes to close.
“The whole age-care industry’s margins have collapsed in that time.”
When asked why investors should have faith in Hamilton and his team, and the next chief executive they appointed, when for so long Ryman’s leadership had failed to make meaningful change, he said he knew it was a case of, “show me, don’t tell me”.
“We’re not going to sit idle. We know what we need to do and we’re leaning into it.”
While investors were clearly not confident in the stock, Hamilton was quick to point out its reputation among retirees remained stellar.
“If we make a mistake there, that’s far different from making a financial mistake.
“We can fix this piece.”
Its core business - selling units in its retirement villages - was still working (although, it was slightly impacted by the state of the housing market and interest rates remaining high).
But bottom line, Ryman could not continue to sell units, nor provide quality care to its elderly residents, if it was not a viable commercial operation.
Balancing the two was the board’s immediate priority.
“That’s how Ryman used to be.”
On its 40th anniversary of existence, Hamilton was hellbent on returning Ryman to the purpose of the organisation started by Kevin Hickman and John Ryder in 1984.
The pair started it for their parents after they were disappointed about the care they received in other rest homes.
Ryman listed on the New Zealand Stock Exchange 25 years ago, in 1999, at a market capitalisation of $135m.
There’s been an 800 per cent increase in the company’s value since then (without accounting for inflation).
Hamilton wanted to see it continue to return capital growth to shareholders for decades to come yet.
Would he do that as chairman, or as chief executive, if required to stay in the hot seat for longer?
“A few people have kindly asked, would I do that? But look, I’ve done that ... I look forward to being chair again.
“We’re leaning in, and hopefully we’ll make it better by the time the person [CEO] arrives.”
Get investment insights from executives and experts on Markets with Madison every Monday and Friday here on the NZ Herald, on YouTube and wherever you get your podcasts.
Sponsored by CMC Markets.
Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.
Madison Reidy is host and executive producer of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
Hear from four of the company's executives in this episode of Markets with Madison.