Sonic Healthcare Reinstates FY20 Earnings Guidance | KOSEC

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Sonic Healthcare Reinstates FY20 Earnings Guidance

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Medical diagnostics firm, Sonic Healthcare Limited, has released its most recent trading update detailing its operational and financial performance. Back in March 2020, the extreme uncertainty in the broader macroeconomic environment had forced the firm to withdraw its FY20 earnings guidance. This is because Sonic had to play a critical frontline role in combating the virus. Specifically, laboratories in the US, Europe and Australia transformed into testing venues for potential COVID-19 patients.

Within Australia, Sonic was awarded a contract from the Australia Government to provide a specific pathology service for rapid sample for COVID-19 in aged care facilities. The firm has also engaged in a partnership with the Australian Government and the Minderoo Foundation to ramp us testing across Australia. The addition of testing platforms alongside Sonic’s state-of-the-art equipment have seen total tests constituting close to 20 per cent of all COVID-19 tests in the country.

More broadly speaking, performance in the 8.5 months leading up to March 2020 was desirable. This is because trading results were closely aligned to the earnings guidance previously provided. Yet, despite the prominent role the firm plays in the pandemic, its performance was severely affected. The pandemic and subsequently, lockdown restrictions led to a plunge in base patient volumes and revenues.

More notably, the firm witnessed a broad-based softness across its global operations. Nevertheless, Sonic resorted to securing the safety of its employees before moving on to adopting cost reduction measures. These include the voluntary 50 per cent reduction in remuneration by Sonic’s Chief Executive, Board of Directors and senior management, a temporary hiring freeze and reduction of overtime hours. At the start of the pandemic, Sonic had to resort to furloughing thousands of employees. Yet, along with government support schemes and resumption of volumes, employees have now recommenced work gradually.

The decline in base business income varied across regions but, the situation improved in late April. This is evident through Sonic’s trading results for March and April, which were significantly below expectations. Yet, a gradual rebound was witnessed in May and continues to persist in June.  Additionally, while base revenues in Ireland, Belgium, the United Kingdom and the US are still trending below pre-pandemic levels, the positive trend holds. Therefore, despite the ongoing uncertainty and volatility, Sonic Healthcare is ready to provide new earnings guidance for the current financial year.

For FY2019, the firm had reported Earnings Before Interest, Tax, Depreciation, and Intangibles Amortisation (EBITDA) of A$1.075 billion. Consequently, excluding the impact of the new accounting standard effective from July 2019, Sonic now expects underlying EBITDA to emerge at a similar level. More importantly, the guidance is provided based on actual FY2020 currency exchange rates alongside unaudited financial forecasts. Ultimately, existing market uncertainty has prevented Sonic from providing FY21 guidance. However, there exists greater clarity when Sonic releases its FY2020 results that is due to fall on 20 August 2020.

By Caroline Wong 

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Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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