Sonic Healthcare chief executive Colin Goldschmidt said worry among patients that they would have to pay a co-payment for blood tests has subsided, which will allow the company to hit guidance for the full year despite a poor first half.
The company’s Australian pathology operations, which account for 29 per cent of revenue, had weak growth of just 2.8 per cent to $579 million in the first half of 2014-15. Dr Goldschmidt said he believed this was a consequence of political discussions around the proposed Medicare co-payment for pathology, imaging and doctor visits, which was first proposed by the Coalition in last year’s May budget.
The weakness in local pathology, combined with revenue growth of just 1 per cent growth in US pathology to $430 million, contributed to a fall in Sonic’s first-half profit of 1.9 per cent to $174 million, which fell short of market expectations. The US and Australian pathology businesses make up exactly half of revenue.
Earnings before interest, tax, depreciation and amortisation was flat at $344 million for the six months ended December 31. However, Dr Goldschmidt said the clearing up of the co-payment confusion and a return to US volume growth on the back of the Affordable Care Act, known as Obamacare, would allow Sonic to deliver on its guidance of EBITDA growth of 2 to 4 per cent for the full year. “We are on track to achieve that result after seven months of trading,” he said.
Australian Ethical portfolio manager Andy Gracey, whose firm is an investor, said he was confident Sonic would rebound to hit its guidance. “By the second quarter pathology volumes were stronger,” he said.
Although the co-payment talk dragged down Australian pathology revenue, the confusion did not effect Sonic’s IPN medical centres, which boast the biggest network of general practitioners in the country. Medical centre revenue rose 5 per cent to $180 million.
Dr Goldschmidt said a trial at IPN clinics in Queensland with Medibank Private, in which the private health insurer contributed administration costs in return for its members receiving guaranteed visits at busy times, had been positive. “The Medibank trial has been pretty successful in the sense that we did see increased volumes in those centres,” he said.
Sonic shares fell marginally by 0.2 per cent to $18.91, which is down from a 12-month high of $19.54 hit earlier this month. The stock has gained 11 per cent in the past year, compared with a 9 per cent rise in the benchmark S&P/ASX 200 index.