Sonic Healthcare Limited

Good day and thank you for standing by. Welcome to the Sonic Healthcare Financial Half Year and 31st December 2024 conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To redraw your question, please press dial 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to hand you over to the Chief Executive Officer and Managing Director, Dr. Colin Goldschmidt. Please go ahead, sir.

Thank you, Amber, and good morning, ladies and gentlemen, and welcome to Sonic Healthcare's half-year result for the period ending 31 December 2024. I'm joined today by my long-standing colleagues, Chris Wilk, CFO of Sonic, Paul Alexander, Deputy CFO of Sonic Healthcare, and Diane Ayres, Senior Executive, Investor Relations and Financial Analysis. I trust you've got the presentation in front of you. And perhaps before we go to the deck itself, I'd like to just take a minute just to give you my view about the current company status and performance and how we see this result, particularly in the context of future performance of Sonic Healthcare. In many ways, this result reflects that Sonic has turned the corner in terms of our financials and that we're back on track following the massive disruption to the business over the pandemic and immediate post-pandemic periods. In the post-pandemic period today, and that's about two years, it's only two years, it's not even two years since the pandemic ended, there's been an incredible effort in Sonic from our leaders and all our staff worldwide to right-size the company. particularly in terms of labor cost, and that labor cost needed to be massively increased during the pandemic to respond to a huge operational, unprecedented as it was, operational call to perform millions and millions of COVID tests, as you all know. So it might have taken a bit longer to do this right-sizing than we or perhaps shareholders would have liked, but we're just about there right now. And if I could say that dialing down labor costs in a healthcare services company like Sonic needs to be done carefully and judiciously so that our services to patients and clinicians are maintained at first-rate levels and are not compromised in any way. And I'm actually pleased to say that our services have not been compromised and have remained outstanding at all times, which actually has been to the benefit of our reputation and standing worldwide. Unfortunately, we've experienced strong organic growth throughout these periods, and so combining strong organic growth with labor costs now at close to steady state level, we have operating leverage in the company once again, allowing us to deliver healthy EBITDA, net profit growth, earnings per share growth, and importantly, margin expansion once again. And we certainly do expect this to continue into future periods. And of course, finally, if you add to this the upside we expect from our recent M&A activity, particularly in Switzerland and Germany, it does feel like we're in clear air once again as we move ahead from here. Okay, so if I could take you to the deck, please, and we'll start with slide four where we give you our headline numbers. Sonics revenue for the half was at $4.669 billion, which is up 8%. EBITDA up 12% at $827 million, all in Australian dollars this is. Net profit up 17%. at 237 million, strong cash generation from operations at 620 million, which is up 37% on the prior period, and earnings per share growth at 15% at 49.2 cents per share. We confirm that we are on track to achieve the full year guidance that we issued in August of last year. And with 8% revenue growth overall, we're very pleased with the strong organic revenue growth of 6.1% for the half versus PCP. Our EBITDA margin was up 60 basis points in the period. And if you exclude the zero margin, initially zero margin acquisitions of the recent past, that's Dr. Rich Group and Pathology Watch, our EVA-DA margin expansion was actually 90 basis points up. And as I mentioned just before, we're now seeing the benefit of organic revenue growth and tight cost control, particularly at labor level, driving margin expansion, and we certainly expect that to go on from here. If you look at the numbers, you'll see that our labour cost as a percentage of revenue has reduced by 50 basis points, and whilst you might think that could perhaps have been higher, bear in mind that we are growing very strongly at the upper end of our testing, so the more complex higher value tests which are less automated but more profitable, and so that 50 basis point reduction in our labor cost as a percentage of revenue is very pleasing from our point of view. In terms of our acquisitions, all the Synergy initiatives are on track, but the majority of these benefits are yet to flow. We've had strong conversion of EBITDA to gross operating cash flow and we just reconfirm again that from 1 July we will be adding the acquisition of the LADA or Kramer Group acquisition which is going to add something in excess of 80 million Australian dollars per annum in EBITDA and that's based on the calendar 24 numbers So we expect that to be higher given that Kramer is growing at the present time. Slide five is a repeat essentially of our guidance as issued in August of last year. And I'll just call out the top line, which is EBITDA of $1.7 to $1.75 billion on a constant currency level. And I'll leave all the details. They're essentially unchanged from before. The board has declared a dividend of 44 cents for the interim period, which is up 2.3% on the same period last year. It will be unflanked with record date 6 March and payment date 20 March. And of course we provide our annual dividend history chart over there and we would like to continue with our progressive dividend strategy as that chart demonstrates. Our capital management on slide seven gives you the headline numbers, and I won't go through them all, other than to say that we have current headroom of 1.7 billion Australian dollars, but that's before the interim dividend and Kramer acquisition payments are made. And just for information that post-Kramer acquisition, we expect our debt cover ratio to still be below our long-term pre-pandemic average of around 2.4 times.

Okay.