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EUREKA Group's (ASX: EGH) FY17 financial performance has suffered at the hands of a board reshuffle and underperforming South Australian assets with the company today revealing a 37.5 per cent net profit drop to $6.5 million.
During a year of "fundamental change in the structure, operations and governance", the company's underlying earnings fell to $8.36 million and operating expenses sharply increased to more than $17 million.
Over the past two years Eureka has acquired three supported residential facilities, two in Adelaide and one in Mount Gambier.
According to Eureka, the assets were "showing strong EBITDA performance" at the time of acquisition but have since failed to live up to company expectations.
In March 2017, Eureka launched an improvement plan to try and lift the performance of its SA assets, however the company says it still assessing the viability of these businesses moving forward.
On February 8, Greg Rekers and former COO Kerry Potter resigned from the Eureka board and were each paid out $224,383 in salary plus bonuses.
Ryan Maddock, former CFO, also ceased his role in key management and received an annual salary sum of $230,112.
Eureka revealed that these extra payments, coupled with the impact of poor trading at its Adelaide facilities, increased its overall operating expenses.
On a more optimistic note, chief executive Jeff Weigh, who joined the board in early 2017, says changes to the company in the past year have helped improve operational structures and occupancy levels at its villages. He says in FY18 the company will focus more on its 'buy and build' strategy.
"In the next financial year there will be a continued commitment to Eureka's 'buy and build' strategy which has seen the company move away from its historical ownership of management rights only over low-cost rental retirement villages, to a dominant bricks and mortar village ownership and management model," says Weigh.
"[The strategy] has generated far superior returns to shareholders."
At the time of writing (12:53pm AEST) Eureka Group shares were trading down 5.2 per cent at $0.36.
The company has not declared a full year dividend.
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