Federal cutbacks in pathology put Primary revenue on the sick list

The company, which owns a chain of medical clinics and pathology laboratories, posted a $78.3 million net profit yesterday, down from $132 million the year before.

Hardest hit was the pathology business, the earnings of which declined 12.3 per cent to $118.7 million.

LINWAR Securities analyst John Hester said the results showed for the first time the full effect of government cuts to pathology, announced in December 2009.

"Effectively what they have done is take $45 million away from what the business was two years ago and that translates down to profitability of the division," Mr Hester said. "It's no great surprise to anyone. It's exactly what we thought it [would] be."

Nevertheless the shares shed 8?, or 2.9 per cent, to $2.66, while the broader market slipped 0.5 per cent.

Falls in patient demand for general practice and diagnostic service compounded the profit slide, the company said in a statement. After the government funding reshuffle, Primary Health Care began a radical cost-cutting program, which included axing 290 full-time equivalent jobs and closing 23 sites, mostly diagnostic practices.

Redundancies and lease obligations cost the company $28 million, but it said the cuts would generate savings of about $27 million a year.

Mr Hester said the headwinds the company faced appeared to be easing and UBS analyst Andrew Goodsall said the financial results appeared to show a stabilisation of the company.

Revenue rose 2 per cent to $1.322 billion, with most of the increase recorded in the second half of the year after the company's cost cuts. Primary Health Care said GP attendances had shown improvement last quarter while pathology referrals had returned to near historical levels.

Imaging referrals were up 5 per cent and health technology subscription renewal rates had remained strong. The company said it expected to move towards a "fee-for-service" model with radiologists next year. It will pay a final dividend of 5?, down from last year's 10?, on October 10.

Primary Health Care's chief executive, Edmund Bateman, said shareholders had shared the pain of the cost cuts with those who had lost their jobs in the cost-cutting program. "I think a material increase in dividends is well and truly justified," Dr Bateman said.