Sonic Healthcare has posted a 53 per cent slump in FY23 interim earnings to $381.99 million in a sign that the pathology services provider’s COVID-19 boom is over.
The result was impacted by a sharp fall in COVID-related revenue to $378.6 million, down almost 72 per cent from the previous corresponding period.
However, shareholders weren’t swayed by the weaker result, marking up Sonic Healthcare’s shares by more than 10 per cent in the morning session as CEO Dr Colin Goldschmidt highlighted solid growth in the group’s core underlying operations.
While the COVID pullback led to a 14 per cent slide in total group revenue to $4.08 billion, Sonic Healthcare’s base business revenue was up 9 per cent compared to this time last year, and it now sits at 11 per cent higher than the pre-pandemic period of the first half of FY20.
“At face value, Sonic Healthcare’s result for the half-year shows declining revenue and earnings as a result of a dramatic reduction in revenue from COVID-19 related services against the same period in the prior year,” says Goldschmidt.
“Taking a longer-term view, our net profit for the half-year is an amazing 50 per cent higher than in the most recent pre-pandemic comparable period, being H1 FY 2020.
“The reduction in COVID-related revenues also tends to mask the performance of our base business, which remains strong and is gaining further momentum.”
Goldschmidt notes that base business revenue grew 6 per cent organically in the latest half, compared to a year ago, and it is 8 per cent up compared with the first half of FY20.
Momentum has stepped up even further in 2023 with January this year recording base business organic growth of 10 per cent compared with January 2020.
“I am particularly pleased with the growth momentum of our Australian Pathology business, where growth in January was 16 per cent versus January 2020,” says Goldschmidt.
“Comparing our own Australian base business Medicare billings to the national Medicare data over the last decade shows that Sonic has been consistently growing market share organically.”
Sonic Healthcare sees organic growth as a key strategy across its business divisions.
“We are well-positioned to capitalise on the accelerating trend towards higher value tests and modalities in both laboratory medicine and radiology,” says Goldschmidt.
“A further plank to our organic growth strategy is to participate in the growing trend for hospitals and other healthcare providers to outsource or joint venture laboratory services.
“Sonic has a successful track record in this space and we are currently pursuing several contract opportunities, including having been awarded preferred bidder status for the Hertfordshire and West Essex ICS Pathology Transformation Procurement, a large 15-year UK NHS laboratory contract.”
Sonic is winding down costs related to COVID testing, including overtime, casual and contractor hours.
Goldschmidt says its Franklin.ai joint venture with Sydney-based Harrison.ai to enhance diagnostic solutions for pathology through artificial intelligence has been “progressing at pace, leveraging the powerful synergy between the Sonic and Franklin teams”.
“Critical milestones have been achieved along the path to the release of the first histopathology solution within the next 18 months,” he says.
“Sonic intends to use Franklin products in-house to enhance efficiency and quality in our global operations, whilst Franklin’s strategy is to sell its AI products into global markets following regulatory approvals.”
Sonic Healthcare is paying an interim dividend of 42 cents per share, up 2 cents on the prior corresponding period.
The company’s shares were trading at $32.10, up $3.04, at 11.15am (AEDT).
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