CONCISE
ANNUAL
REPORT
2011
ABN XXXXXXXXXX
Directors
Mr R.P. Campbell, Chairman
Dr C.S. Goldschmidt, Managing Director
Mr C.D. Wilks, Finance Director
Dr P.J. Dubois
Mr C.J. Jackson
Mr L.J. Panaccio
Ms K.D. Spargo
Dr E.J. Wilson
Company Secretary
Mr P.J. Alexande
Principal registered office in Australia
14 Giffnock Avenue, Macquarie Park,
New South Wales, 2113, Australia.
Phone: XXXXXXXXXX
Fax: XXXXXXXXXX
Website: www.sonichealthcare.com
Share registry
Computershare Investor Services Pty Limited
Level 5, 115 Grenfell Street, Adelaide,
South Australia, 5000, Australia.
Phone: XXXXXXXXXXWithin Australia)
Phone: XXXXXXXXXXOutside Australia)
Fax: XXXXXXXXXX
Website: www.computershare.com
Email: www.investorcentre.com/contact
Auditor
PricewaterhouseCoopers
Solicitors
Allens Arthur Robinson
Bankers
Australia and New Zealand Banking Group Limited
Citibank, N.A.
Commonwealth Bank of Australia
JPMorgan Chase Bank, N.A.
Macquarie Bank Limited
National Australia Bank Limited
The Bank of Tokyo-Mitsubishi UFJ, Ltd
The Hongkong and Shanghai Banking
Corporation Limited
The Royal Bank of Scotland plc
Westpac Banking Corporation
Stock exchange listings
Sonic Healthcare Limited (SHL) shares are listed
on the Australian Securities Exchange.
Corporate Directory
Contents
03 Chairman’s Letter
05 Managing Director’s Report
08 Financial History
10 Directors’ Report
37 Corporate Governance Statement
48 Concise Financial Report
65 Directors’ Declaration
66 Independent Auditor’s Report to the Members
68 Shareholders’ Information
$3,096 Million
Revenue
CONCISE ANNUAL REPORT 2011 SONIC HEALTHCARE | 3
Chairman’s
Lette
My fellow shareholders,
I am honoured to write to you as your Chairman for the first time, following the
etirement of Ba
y Patterson from the Sonic Healthcare Board in late 2010. Ba
y was
Chairman for eleven years and a Director for seventeen years, during which time the
Company’s market value increased from around $20 million to more than $4 billion.
Ba
y is a hard act to follow, but I am delighted to have taken up the Chairman’s role
at a very exciting stage of Sonic’s development.
The Sonic Board consists of four
Independent Directors and four
Executives. Kate Spargo and Jane
Wilson joined the Board in July 2010
and have
ought a wealth of valuable
skills and experience. Their input
and influence are already making a
difference, and this will only increase
as they become ever more familiar
with the Company and its markets.
The 2011 financial year was a
challenging one, with ongoing foreign
cu
ency headwind, weak economic
conditions and extreme weather in
many of Sonic’s markets, and a full
year’s impact of regulatory changes
in the Australian pathology market.
Ignoring the effect of cu
ency
translation, revenue grew 10%,
EBITDA by 11% as a result of margin
expansion, and net profit by 6%.
The dividend per share was
maintained at the prior year level,
esulting in a payout ratio of 78%
for the second year in a row,
substantially higher than the long
term trend of 70%. The Board
ecognises the importance of the
dividend to our shareholders.
The Company has started to reap
the benefits of the investments we
have made over the last six years
to gain critical mass in the USA and
select Western European pathology
markets, and we are now at a point
where realisation of these benefits
will accelerate over the coming
years. Our strategy in these offshore
markets continues to be to use the
highly successful model of medical
leadership culture and a federated
structure to consolidate fragmented
markets, just as we did in Australia.
Sonic is cu
ently the largest
participant in each of the Australian,
German, UK and Belgium pathology
markets, and number three in the
USA and Switzerland. We are also
the second largest player in New
Zealand pathology and Australian
adiology. By becoming one of the
largest and most efficient operators in
these markets we insulate ourselves
against adverse regulatory changes
and ultimately benefit as a result of
further consolidation.
Geographic diversification also
mitigates the risk of regulatory change
and was part of the rationale for the
Company to expand into its cu
ent
overseas markets. With a presence
in eight countries, the Board believes
that it is now appropriate to focus
the Company’s efforts into synergy
capture and earnings’ growth,
in order to drive shareholder returns
to higher levels.
In conclusion, I am pleased to say
that your Company is in a very strong
financial position, with leading market
positions and sound management,
and is poised to deliver increasing
shareholder value in the years ahead.
I wish to acknowledge the work
of my fellow Directors at Board level
and to thank Sonic’s management
teams and staff for their contribution
to Sonic’s performance over the
past year.
Peter Campbell
Chairman
$295 Million
Net Profit
CONCISE ANNUAL REPORT 2011 SONIC HEALTHCARE | 5
Managing
Director’s
Report
Sonic Healthcare
has performed with
distinction over the 2011
financial year, despite
the challenging global
financial markets and the
headwind created by the
strong Australian dollar.
All Sonic divisions have
delivered strong results,
a credit to the expertise
and dedication of our
pathologists, radiologists,
managers and staff
around the world.
Perhaps the most pleasing aspect
of the financial results for the year
was the performance of our Australian
pathology division in the second half
of the year, with revenue growth of
6%, organic market share gains, and
significant margin improvement. These
esults followed a first half impacted
y low market growth rates, fee cuts
and other regulatory interventions.
The new five year funding agreement
from 1 July 2011 between the
industry and Government will
provide much needed stability and
predictability going forward. Sonic
is the market leader in Australian
pathology, 24% larger by revenue
than our nearest competitor.
Our laboratory operations in the USA
expanded further during the year,
oth through organic and acquisitional
growth. In December 2010, Sonic
acquired CBLPath, a leading
anatomical pathology company based
in New York. Then, in early calendar
2011, two high-quality clinical
laboratories in California (Physicians’
Automated Laboratory and Central
Coast Pathology Consultants) were
added to Sonic’s USA operations.
These latter two laboratories have
formed the base for a new “Western
Division” of Sonic Healthcare USA.
All three acquisitions have integrated
smoothly with Sonic’s existing
operations and synergy activity is
already well underway. Within six
years Sonic has grown to be the third
largest operator in the US laboratory
market, with annual revenues of over
US$700 million. The US laboratory
market remains fragmented, providing
Sonic with substantial growth potential
into the future. As a result of clear
market differentiation based on our
unique corporate culture, philosophy
and operating structure, Sonic
has established a solid foundation
in the US laboratory market. Our
management teams and their staff
have em
aced the Sonic model and
will use it to drive further value for
Sonic for years to come.
2009
XXXXXXXXXX
XXXXXXXXXX
171
XXXXXXXXXX
XXXXXXXXXX
Net Profit $M
2009
2007 1,886
2008 2,380
3,014
2010 2,995
2011 3,096
Gross Revenue $M
6 | SONIC HEALTHCARE CONCISE ANNUAL REPORT 2011
Sonic’s growth in Germany continued
during the year, along with significant
margin expansion as cost synergies
and other operational improvements
continue to bear fruit. In January
2011, a German head office was
established in Berlin, in order to
accelerate our national synergy
drive in coming years. Sonic is the
market leader in Germany with annual
evenues of around €400 million. With
a cu
ent market share of less than
10%, this is another exciting growth
market for Sonic.
Our subsidiaries in the UK, Ireland,
Belgium and Switzerland also
performed admirably during the year.
The UK and Ireland are well positioned
to grow via future government and
private hospital outsourcing contracts,
whilst in Belgium two acquisitions
in January 2011 were seamlessly
integrated into the Group, elevating
Sonic to market leadership with further
oom for growth.
The Radiology division, IPN, and
Sonic’s New Zealand pathology
operations also performed strongly
during the year.
Sonic Healthcare’s business model
is centred on building a strong and
successful company, in order to
enhance value for all stakeholders.
Our people represent the key
stakeholder group and are pivotal
to all outcomes of the model. Our
management style, our unique
Medical Leadership philosophy,
our federated structure and our
Core Values all serve to foster
job satisfaction and fulfilment, to
engender loyalty and passion
towards the Company and to create
the appropriate conditions for the
delivery of outstanding customer
service to refe
ing clinicians
and their patients.
Sonic’s Foundation Principles articulate
the essence of the Company –
who we are, what our
and and
image are and how we wish to be
perceived by our customers and the
oader community.
The Foundation Principles provide a
framework to facilitate the delivery of
premium-level services in healthcare
markets around the world. Sonic
Healthcare operates via an extensive
infrastructure comprising hundreds
of laboratories, radiology clinics and
primary care centres and thousands
of collection centres and courier
outes. Using this infrastructure,
Sonic’s 25,000 staff provide essential
healthcare services to over 75 million
patients a year.
Sonic’s business model is designed
to enhance shareholder value by
driving accretion in earnings per
share and return on invested capital.
The success of this model has
een proven in Australia over the
past two decades. Over the last six
years the Company has invested
heavily to establish significant market
presences in large, fragmented
northern hemisphere markets.