Primary Health Care suffers $45m setback

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

Hardest hit was the pathology business where earnings 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," he said. "It's no great surprise to anyone. It's exactly what we thought it would be."

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

The company said that falls in patient demand for general practice and diagnostic services had compounded its profit slide.

After the government funding reshuffle, Primary 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 that Primary 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 $1.32 billion, with most of the increase recorded in the second half of the year after the cost-cutting.

Primary said visits to GPs improved in the last quarter and pathology referrals had returned to near historical levels. Imaging referrals were up 5 per cent and health technology subscription renewal rates remained strong. Primary said the company 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.

The company hopes to lift dividend payments in the year ahead.

Chief executive Edmund Bateman said shareholders had shared the pain of the cost cuts with those who had lost their jobs. "I think a material increase in dividends is well and truly justified," Dr Bateman said.