Sonic to weather spending cuts but warns of hit from interest rate burden

Sonic Healthcare reported a full-year net profit up 0.4% to $295 million. In constant currency terms profit rose 6.1% to $311 million, while revenue increased 3% to $3.096 billion.

Sonic has about $1.7 billion of debt. That matters because rising interest rates will increase its interest costs, which can reduce cash flow and earnings available to shareholders.

Sonic warned it expects interest-rate pain as older, low-rate loans roll off. It said its repayments would be about 30% higher than the $65 million of interest charges it paid in 2010–11.

CEO Colin Goldschmidt said a high dollar reduced revenue by roughly $200 million. He expects the dollar’s rise to ease in the coming financial year, which could help reported revenue.

Yes — Sonic told investors it can weather spending cuts across the northern hemisphere and said the company is well placed to combat any health funding reductions in those markets.

Sonic’s local pathology business rebounded in the second half of 2010–11, with revenue up 6% after two years of softer demand and government fee cuts.

Some of Sonic’s loans were taken before the 2008 financial crisis at rates as low as 2%. As those low-rate terms come to an end, Sonic expects its interest costs to rise.

Investors should monitor: interest rate movements and how they affect Sonic’s $1.7 billion debt and interest repayments; currency trends (the Australian dollar) that have trimmed reported revenue; and any government health spending or fee changes in the northern hemisphere.