The Sonic Healthcare Ltd (ASX: SHL) share price has gone down 4% on Thursday morning after the ASX healthcare share announced its report.
The result is for the 12 months to 30 June 2023.
Sonic Healthcare share price drops after profit plunge
- Base business revenue rose 11% to $7.7 billion
- Total revenue fell 13% to $8.17 billion
- Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 40% to $1.7 billion
- Net profit after tax (NPAT) declined 53% to $685 million
- Final dividend increased 3.3% to 62 cents per share
- Annual dividend up 4% to $1.04 per share
The main cause of the profit decline was the 80% drop in COVID-19 (testing) revenue to $485 million. Those COVID test operations used similar infrastructure as the rest of the Sonic Healthcare business, largely enabling high-profit margins on that testing revenue.
However, Sonic Healthcare said that the FY23 second-half margins were impacted by "legacy COVID-19 related labour and infrastructure costs."
Compared to FY19, the company said that its earnings per share (EPS) was 19% higher in FY23.
There was 11% growth of non-COVID revenue, with 7% 'organic' revenue growth, with that measure normalising for working days, currency exchange rates and acquisitions.
What else happened in FY23?
During the second half of FY23, the company made three "synergistic" European acquisitions for a total enterprise value of around A$890 million.
That includes Synlab Suisse in Switzerland, Medical Laboratories Dusseldorf and Diagnosticum Laboratory Group in Germany. The Sonic Healthcare share price rose 2.5% after the Synlab acquisition.
It also bought a 19.9% stake in Microba Life Sciences Ltd (ASX: MAP) and entered into a partnership. This business is developing microbiome testing.
What did Sonic Healthcare management say?
In the post-pandemic environment, our management teams around the globe are focused on base business organic growth and margin improvement. We have locked in major initiatives in our businesses to promote earnings growth over coming years, including adjusting our workforce to match the vastly reduced COVID-related revenues.
Sonic expects that the use of artificial intelligence in pathology and radiology will cause step-changes in efficiency, quality, and capacity in coming years, and we are investing in IT and infrastructure, including for digital pathology, to unlock these material upsides.
Our Franklin.ai joint venture is nearing completion of its first AI product, with validation studies and field trials to commence in early 2024. Harrison.ai, in which Sonic has a 20% interest, continues to progress its radiology AI joint venture and Sonic is already using their chest X-ray product throughout our radiology operations, whilst the second product, for CT brain, is currently being evaluated by our practices.
What's next for Sonic Healthcare?
The company said it is progressing "several" new acquisition and contract opportunities.
Sonic Healthcare gave guidance that FY24 EBITDA could be between $1.7 billion to $1.8 billion, the low end would equate to EBITDA being flat, and $1.8 billion implies growth of up to 5% year over year. The base business is expected to offset the material reduction in COVID-19-related earnings.
It also noted that the interest expense will increase by around 25%, because of the recently-announced acquisitions. Net debt increased by A$74 million during FY23.
The majority of the acquisition synergies are expected to flow after FY24.
Sonic Healthcare share price snapshot
Prior to today's announcement, Sonic Healthcare shares had risen 14.7% in 2023, while the S&P/ASX 200 Index (ASX: XJO) had only gone up by 3.4%.
