Sonic Healthcare says its growth programs are on track, despite a sharp profit slide

A drop in ‘Covid revenue’ punched a hole in Sonic Healthcare’s results but it called out AI as part of a $350m growth strategy.

Sonic Healthcare has felt the impact of Covid revenue drying up.

Sonic Healthcare has called out artificial intelligence as part of $350m in growth programs which will drive future earnings, even as a sharp drop in “Covid revenue” punched a major hole in first half profits.

The radiology, laboratory and pathology services company said on Tuesday its “base business” revenue grew 15 per cent to $4.2bn, however Covid revenue dropped 90 per cent to $39m.

Net profit came in at $202m, down 47 per cent. Sonic will pay an unfranked dividend of 43c, up 1c, on March 21.

The company’s shares were heavily marked down on the result, falling more than 8 per cent by early afternoon to $29.13.

But chief executive Dr Colin Goldschmidt said on Tuesday the company had several programs under way which would provide a strong tailwind in the near future.

“Over the last two years, we have invested around $350m in carefully selected synergistic

diagnostic technologies which, while not currently providing a financial return, have very material future earnings potential,’’ Dr Goldschmidt said.

“These include PathologyWatch, Harrison.ai/Franklin.ai and Microba. In each case, Sonic is not just a financial investor, but rather an important partner capable of adding enormous value to the technology through our deep medical expertise, data repositories, and distribution capabilities.’’

Dr Goldschmidt said the use of AI in pathology and radiology in particular “is expected to cause step-changes in efficiency, quality, and capacity in coming years, and Sonic will be a major beneficiary’’.

“The first AI product of our Franklin.ai joint venture is now ready for validation studies and field trials are about to commence,’’ he said.

“Harrison.ai, in which Sonic has an ownership interest, continues to successfully progress its groundbreaking radiology AI products.

“PathologyWatch’s unique end-to-end digital pathology platform, incorporating a laboratory information system, digital pathology viewer, image storage and AI algorithms, will accelerate Sonic’s transition to digital pathology and related use of AI globally.’’

The company said it was also working on large-scale cost-out programs, and expected second half earnings to be “substantially’’ higher than the first half result.

Sonic’s profit result was in line with the guidance given at the company’s annual meeting, and while it said it was on track to hit its full year EBITDA guidance of $1.7bn-$1.8bn, the result would “more likely” be towards the lower end.

Dr Goldschmidt said FY24 was a transition year “as the impacts of the Covid pandemic dissipate, and we return to normal business’’.

“Whilst our headline numbers for the half-year show significantly lower earnings versus the comparative period, this is the result of having 90 per cent less Covid-related revenue in

the current period.

“Our base business revenue grew organically by 6.2 per cent on a like-for-like basis versus H1 FY23 and 14.3 per cent versus H1 FY20 (pre-pandemic).

“Organic base business growth was particularly strong in our Australian (9 per cent), German (8 per cent), and UK (13 per cent) laboratory businesses.’’

The company is considering further acquisitions and contract opportunities, it said, and since July last year had secured about $500m in new annual revenue through acquisitions and major contract wins.

Sonic shares were $2.09 lower at $29.62.