Sonic Healthcare Limited · ASX:SHL
Sonic Healthcare — H1 FY2007 Earnings Presentation
24 slides from Sonic Healthcare's earnings presentation, Feb 27, 2007
Slide 1: Sonic Healthcare Interim Results
Sonic Healthcare Interim Results For the Half-year ended 31 December 2006 Dr Colin Goldschmidt CEO and Managing Director 27 February 2007
Slide 2: Solid first half performance
` Solid first half performance ◦ Revenue up 12% ◦ Net Profit up 12% ◦ EPS up 8% ` Full-year guidance unchanged ◦ Sonic tracking to guidance after 7 months ` Sonic operations ◦ Pathology division performing well ◦ Australian pathology division delivers excellent result ◦ Margin pressure in radiology
Slide 3: Sonic 2007 guidance unchanged since 22 August 2006
Sonic 2007 guidance unchanged since 22 August 2006 Sonic tracking to 2007 guidance after 7 months Includes CPL acquisition from 1 October 2005 and AEL acquisition from 8 January, 2007 Assumes no additional acquisitions Assumes constant currency exchange rates
Slide 4: Total pathology revenue growth 16.4%
` Total pathology revenue growth 16.4% ◦ Includes CPL (acquired 1 October 2005) ◦ Impacted by low growth rate of New Zealand market ◦ Australian pathology revenue growth 7.4% ` Total imaging revenue growth 1.3% ◦ Disposal of Hong Kong imaging business ◦ Effects of MRI licence allocations ◦ Competiti
Slide 5: Sonic's non-Australian revenue
Sonic’s Sonic’s non-Australian non-Australian revenue revenue (including (including AEL) AEL) comprises almost 50% of total group revenue comprises almost 50% of total group revenue
Slide 6: Earnings Growth
Earnings Growth 6 Months ended 6 Months ended | Growth 31.12.06 31.12.05 %
Slide 7: Typical strong second-half seasonality
` Typical strong second-half seasonality ` AEL acquisition ` Ongoing earnings improvement strategies ◦ Global procurement ◦ Benchmarking ◦ IT strategies ` Australian pathology fee increases ◦ DVA increase from 1 November 2006 ◦ Private fee increases in 2nd half 2006
Slide 8: Margin dilution and EBITA margin expansion
` Margin dilution due to ◦ CPL acquisition – CPL has lower margins than average of Sonic’s other businesses ◦ Imaging margins – Low revenue growth and cost pressures associated with radiologists’ remuneration restructuring ` EBITA margin expansion ◦ Sonic group – excluding CPL and Imaging – up >50 b
Slide 9: Dividend fully franked at 30%
` Dividend fully franked at 30% ` Record Date 14 March 2007 ` Payment Date 28 March 2007 ` Dividend Reinvestment Plan remains suspended
Slide 10: Current interest bearing debt ~A$1.1 billion
` Current interest bearing debt ~A$1.1 billion ◦ Debt at 31 December 2006 – A$812 million ◦ Plus acquisitions of AEL and CPL minorities – A$295 million ` Debt/EBITDA ratio ~2.7 (bank covenant <3.5) ` Current headroom ~A$250 million plus bridge facility ` Over A$50 million equity “raised” in CPL mino
Slide 11: Australian pathology division tracking strongly
` Australian pathology division tracking strongly ` Margin expansion of >50 basis points over first half last year ` Douglass Hanly Moir Pathology (New South Wales) ◦ Ongoing strong organic growth and margin expansion ◦ Market share gains in New South Wales ` Sullivan Nicolaides Pathology (Queenslan
Slide 12: Construction progressing smoothly
` Construction progressing smoothly ◦ On budget and ahead of schedule ` New lab will allow for enhanced efficiencies ◦ Centralisation of testing ◦ New autolab significantly more efficient than current lab ` Relocation will take place in late 2007
Slide 13: New Zealand market growth rates lower
` Market growth rates lower than Sonic’s other laboratory markets ` Tenders / RFP’s have dominated market over past year ` DML ◦ Subject to Judicial Review outcome ` Medlab South ◦ Sonic has gained revenue ◦ Christchurch status quo to remain, two community players ◦ Nelson Marlborough, new contract
Slide 14: Sonic/DML legal action over Auckland contract
` Sonic/DML initiated legal action over loss of Auckland community laboratory contract to Labtests ` Hearing completed (12-23 February), outcome expected in weeks ` Sonic/DML position: ◦ RFP process flawed – Sonic priced contract to maintain current services (as mandated in RFP), Labtests bid to mat
Slide 15: TDL continues to perform strongly
` TDL continues to perform strongly ◦ Solid revenue and earnings growth ◦ Margin expansion ` UCLH joint venture robust and beneficial to both partners ` TDL wins Ealing pathology contract tender ◦ Pathology provision for Ealing Hospital NHS Trust and Ealing Primary Care Trust ◦ Multi-million pound c
Slide 16: Steady performance from Schottdorf Group
` Steady performance from Schottdorf Group ◦ Lower growth rates in German laboratory market ◦ Provides excellent service for TDL esoteric tests ` Acquisition opportunities ◦ Currently pursuing several transactions in Western Europe ◦ German market fragmented, presents synergy potential with Schottdo
Slide 17: Sonic developing critical mass in US laboratory market
` Sonic developing critical mass in US laboratory market ◦ CPL acquisition in October 2005 ◦ AEL acquisition in January 2007 ◦ Annualised revenue approaching A$400 million ◦ Further acquisitions likely ` Sonic is the third-largest lab operator in the USA ` Sonic Healthcare model now widely recognise
Slide 18: CPL performing consistently and to expectation
` CPL performing consistently and to expectation ◦ Organic growth rate around 8% ` Sonic acquisition of CPL minority shareholders ◦ Decision driven by AEL acquisition ◦ Allows synergy capture between Sonic entities without conflict issues ◦ Averts the need for minorities to put up capital for acquis
Slide 19: Sonic acquisition of AEL completed in January 2007
` Sonic acquisition of AEL completed in January 2007 ` Purchase price US$180 million ` AEL annual revenues ~A$130 million ` AEL is a full-service laboratory operation ` Four main laboratory centres ◦ Memphis, Tennessee (market leader) ◦ Morristown, Tennessee ◦ Tyler, Texas (CPL overlap) ◦ Dallas, Te
Slide 20: Sonic Healthcare USA, Inc.
Sonic Healthcare USA, Inc. CEO Dr Robert Connor COO and President David Schultz Pathologists Divisional Corporate Sales CFO Presidents Robert Walker Paul Miller
Slide 21: Sonic's US corporate entity and operations
` Sonic’s US corporate entity ◦ Based in Austin, Texas ◦ Coordinate people and operations ◦ Financial management ◦ Drive growth, integration and synergy capture ◦ Acquisitions ` Sonic’s US operations ◦ CPL and AEL are outstanding businesses ◦ Further acquisitions in pipeline ` Sonic’s US lab model p
Slide 22: Imaging: revenue growth low, margin contraction
` Revenue growth low ◦ Rationalisation of Castlereagh Imaging ◦ Public hospital competition ◦ MRI licence allocations in Queensland in 2006 ◦ Sale of small, inherited Hong Kong business ` Margin contraction ◦ EBITDA margin 22.2% (25.1% in prior year) ◦ Low revenue growth ◦ Cost pressure from Radiolo
Slide 23: IPN delivers outstanding half-year result
` IPN delivers outstanding half-year result ◦ Net profit up 63% to $4.1 million ◦ Revenue from continuing operations up 6% to $44.7 million ◦ Operating cash flow up 93% to $6.1 million ◦ Earnings per share up 39% to $0.39 per share ` IPN pursuing organic and acquisitional growth ` Sonic support for
Slide 24: Sonic's core laboratory businesses tracking strongly
` Sonic’s core laboratory businesses tracking strongly ◦ Solid infrastructure in growing markets ◦ Margin expansion from ongoing growth ` Imaging turnaround expected in near term ` Acquisition and outsourcing opportunities ◦ USA laboratory market presents great potential for Sonic ◦ European laborat