Sonic Healthcare Limited

Good day, and thank you for standing by. Welcome to Sonic Healthcare's financial half year and the 31 December 2025 conference call. At this time, all participants are on 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 rejure your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Dr. Jim Newcomb, CEO and Managing Director of Sonic Healthcare. Please go ahead.

Thank you and good morning.

My name is Dr. Jim Newcomb. I'm the CEO and Managing Director of Sonic Healthcare. I'm joined by Mr. Chris Wilkes, Chief Financial Officer of Sonic Healthcare, and Mr. Paul Alexander, Deputy Chief Financial Officer of Sonic Healthcare. We will be available for questions after the presentation. It's my pleasure this morning to give the financial and operational review for Sonic Healthcare for the half year ended 31st of December 2025. In the first half of FY2026, Sonic Healthcare had revenue of $5.445 billion, with EBITDA of $907 million and net profit of $262 million. Earnings per share were 53.1 Australian cents. We are on track to achieve four-year earnings guidance with strong revenue growth, including organic growth of 5%. EPS is improving and remains a top management priority, which will drive improvements in return on invested capital. Operating leverage and synergy realisation are demonstrated by EBITDA margin enhancement for the majority of the business. Management has an ongoing focus on cost control across the business, including labour. An operating review of the US business is underway, including rationalisation of anatomical pathology operations. Several capital management initiatives are progressing, which we will update you on today. Today, we are maintaining EBITDA guidance previously issued in August and reaffirmed in November of $1.87 to $1.95 billion on a constant currency basis. In other guidance, Depreciation expense is forecast to be $770 to $780 million on a constant currency basis, which has been reduced from previous guidance. Interest expense has been tightened to be an increase of 15% on a constant currency basis versus the prior year, with an effective tax rate of 27%. This guidance excludes any gains from sale of properties, includes completed acquisitions only with no regulatory changes assumed and current interest rates assumed to prevail. Operating leverage and synergy realisation is demonstrated by EBITDA margin enhancement for the majority of the business. This table shows adjusted EBITDA margins when accounting for, first, acquisition costs of $8 million in the first half of 2026, Second, the German KV fee quota minimum level change, which took effect from 1 January 2025 and is now cycling through as of 2026 calendar year. The LADR acquisition, which settled on 1 July, and has had a lower initial margin than Sonics Average, as expected and previously advised. The HWE, Hudson West Essex, contract margin is improving, but still dilutive, as expected and also previously advised. We experienced a margin decline in the US operations due to low organic revenue growth and restructuring costs. This has less impact on the group margin expected to take place in the second half of this financial year, and we'll provide further details later on in the slides. Overall, the adjusted EBITDA margins show a 30 base point increase from first half 2025 to first half 2026. Our capital management priorities remain first to maintain an investment-grade balance sheet, then to maintain a progressive dividend with medium-term target dividend payout ratio of 70% to 80% of net profit. We are focused on strategic, selective, synergistic acquisitions, and finally on share buybacks using surplus capital, for example, from sale and leaseback or other property sales. Today, we announced a progressive dividend of 0.45 Australian dollars, an increase of 2.3% on the previous financial year interim dividend. This interim dividend is 60% franked with a record date of 5th of March and a payment date of 19th of March. Our credit metrics remain strong with a debt cover ratio at historic levels of 2.5. Recent increases in net debt relate to the acquisitions of the LADR Group and Cairo Diagnostics. Our currently available headroom is at $1 billion before the interim dividend payment. We would like to advise of several capital management initiatives, including a series of sale and leaseback transactions. A process is underway for the sale and leaseback of our Brisbane hub laboratory with a targeted completion of June 2026. We are expecting a significant gain on sale with potential tax capital gain partially sheltered by past capital losses. Further property sale and leaseback transactions are under consideration also with potential gains on sale. We have a conditional heads of agreement in place to sell a separate surplus Australian property with expected settlement next financial year. These capital management initiatives present an opportunity to use proceeds from property transactions to fund a possible on-market share buyback in future.