SONIC Healthcare says it can wear spending cuts across the northern hemisphere, as US and European leaders battle to rein in spiralling government debt.
But Sonic expects to feel interest rate pain on its $1.7 billion debt, with the ASX-listed pathology dynamo facing a sharp rise in interest costs.
Sonic yesterday posted a 0.4 per cent rise in full-year net profit to $295 million. The figure was rosier in constant-currency terms, rising 6.1 per cent to $311 million.
Chief executive Colin Goldschmidt said the high Australian dollar ripped about $200 million from revenue, which increased 3 per cent to $3.096 billion.
Dr Goldschmidt said he expected the dollar's rise to ease this financial year and that the company was well placed to combat any health cuts across the northern hemisphere.
European authorities have demanded that highly indebted countries such as Greece introduce tough spending cuts before they get any more bailout money.
"Being in healthcare is a positive, but . . . you need to also have the strength of critical mass," Dr Goldschmidt said.
"In Germany there could be small fee cuts, but remember we are in a strong position in Germany. There are many, many small and medium players that are really going to be hurt by any kind of fee cut."
Germany contributed 18 per cent, or $541 million, to revenue for the year ending June 30.
Sonic expects interest rate pain as the terms of loans, with some at rates as low as 2 per cent, borrowed before the financial crisis struck in 2008, end.
It warned yesterday that its repayments would be 30 per cent higher than the $65 million in interest charges it paid in 2010-11.
Macquarie Equities Research analyst Craig Collie said that while Sonic's result was in line with expectations, news about its higher interest charges surprised the market.
The shares slid 23?, or 2 per cent, to $11.29, while the broader market climbed 2.2 per cent.
Dr Goldschmidt said Sonic's Australian pathology business had rebounded in the second half, achieving 6 per cent revenue growth after suffering soft demand and government fee cuts for the past two years.
He said a five-year funding deal struck with the federal government in July had created some certainty and the acquisition of Geoffrey Edelsten's Allied Medical Group had boosted the pathology division.
Sonic had achieved most of the pathology referrals from Allied's 21 clinics, he said. Sonic subsidiary IPN bought the Allied clinics this year for an undisclosed sum. Analysts valued the deal between $75 million and $100 million.
Sonic will pay a 35? final dividend, unchanged from the previous year, on September 21.
Frequently Asked Questions about this Article…
What were Sonic Healthcare's full‑year profit and revenue results?
Sonic Healthcare reported a full‑year net profit up 0.4% to $295 million (or +6.1% in constant‑currency terms to $311 million) and revenue rose about 3% to $3.096 billion.
How did the high Australian dollar affect Sonic Healthcare's revenue?
Sonic's chief executive said the strong Australian dollar shaved roughly $200 million off reported revenue, and the company expects the currency headwind to ease in the current financial year.
Is Sonic Healthcare exposed to interest‑rate risk because of its debt?
Yes. Sonic has about $1.7 billion of debt and warned it would feel 'interest‑rate pain' as older loans (some taken before 2008 at rates as low as 2%) roll off; it expects repayments and interest costs to be about 30% higher than the $65 million in interest charges paid in 2010–11.
Why did Sonic Healthcare's share price fall after the results?
Shares slipped around 2% to $11.29 after the results, as analysts and the market were surprised by the company’s higher expected interest charges even though the operating result broadly met expectations.
How well placed is Sonic Healthcare to handle government health spending cuts in Europe?
Management says being in healthcare is positive and Sonic has the 'critical mass' to withstand some fee cuts; while there could be small fee cuts in countries like Germany, Sonic believes its scale leaves it in a strong position compared with many smaller operators who would be more hurt.
How significant is Germany to Sonic Healthcare's revenue mix?
Germany is an important market for Sonic, contributing about 18% of group revenue – roughly $541 million for the year ending June 30.
What impact did the Allied Medical Group acquisition and federal funding deal have on Sonic's pathology business?
Sonic said a five‑year funding deal with the federal government provided more certainty, and the acquisition of Geoffrey Edelsten’s Allied Medical Group (IPN bought 21 clinics) boosted pathology referrals; management says most referrals from those clinics have been captured and analysts valued the deal in the $75–$100 million range.
What did Sonic Healthcare say about dividends and shareholder returns?
Sonic confirmed it will pay a final dividend that is unchanged from the prior year, with the payment scheduled for September 21.
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