Thank you very much, and good morning and welcome to everyone on the call. My name is Colin Goldschmidt. I'm the CEO of Sonic Healthcare. And I'm joined today by Sonic's CFO, Chris Wilkes of Panasonic's Deputy CFO, Paul Alexander. I plan to take you through the presentation as the of First Step in this call.
And after that, we'll take your questions and answer them as a group. So thank you very much for being on the call. We're talking today about Sonic's full year result for the FY of my 2021 year ended 30th June 2021. I trust you have the presentation in front of you. And if I could ask you to go to Slide number 3, which is the headline slide, and we'll Just go through the sonic headlines for FY 2021.
Our revenue came in at of AUD8.8 billion, which is 28% up on the prior year. EBITDA at AUD2.6 billion, which is about 80% up on the previous year and our net profit at $1,300,000,000 which is around 150% up on the prior year. A key feature of Sonic as it stands today is the strength of our balance sheet where our gearing is at record low levels and we have substantial available liquidity currently at about of $1,500,000,000 The dividend for the final dividend will be $0.55 per share, of Frank to 65%. And I do want to just make the point under the headline heading, And it really is a feature of our entire performance for the year that In this pandemic, it's been a tough time for everyone, but a particularly tough time for of Sonic Healthcare, but the company has risen to perform in an amazing way. And I want to take the opportunity right at the outset to acknowledge what I can only call the heroic efforts of all Sonic staff right around the world, 38,000 people, who've contributed in a very meaningful to this result.
The next slide, which is Slide 4, is an opportunity just to talk about of Sonic and the pandemic and where we sit with COVID-nineteen at the moment. So clearly, we have found ourselves right at the heart of this pandemic and Have risen in an amazing way to turn on COVID PCR testing throughout the world. And of course, the result He's very much influenced by that particular testing that we're doing. I guess it's fair To say that we're making a contribution to the whole pandemic effort, not just with our COVID testing, but to maintain our routine healthcare services as well. So 138,000,000 patients were serviced in financial year 2021, which is a huge volume for not just our labs around the world, but of also our imaging practices, our primary care practices, our occupational health practices as well.
So the sheer volume increases that we've had to deal with have been a challenge second to none for Sonic, the business. Then the second point is the COVID PCR test that we're doing. And it's approximately 30,000,000 COVID tests I performed since the beginning of the pandemic in March last year, and we're doing these tests in approximately 60 separate labs right around the world. I need to make the point here that to turn on COVID PCR testing It was a huge undertaking, something that we did in a short space of time. It required The establishment of a brand new test, the COVID PCR test, but also huge amounts of staffing, Facilities that were needed, so just the space itself, getting the required equipment and consumables, so a lot of work on the Supply Chain and Procurement side.
And of course, there's IT work associated with that. And particularly in Australia, where we've had to do the swab taking ourselves as well and set up many, many drive through centers right around the country. We do a little bit of collection in Germany as well. But essentially other countries, we do not do the collection. And then I guess thirdly, our contribution is also now in the space of vaccinations.
We've begun participating in Australia's vaccination program at the moment confined to New South Wales. And I'll say a little bit more about that a bit further on. So you can see from this that Sonic, unlike many other companies, is Absolutely in the heart of pandemic activity, we've never been busier in the history of the company. I want to just also say that our contribution is very much underpinned by Our long standing and deeply embedded culture of medical leadership and that's a culture which puts the patient first and which puts Quality First and also our decades long commitment to investment in People and Infrastructure, we need to emphasize both because Sonic, when the pandemic hit was absolutely at the ready in terms of both people and infrastructure. And I guess it was vindication in some way of our strategy To keep our people absolutely at the top of their game and also to keep our facilities ultra of Modern and UpToDate as well.
So we could turn on this huge extra volume to assist with the pandemic effort. So the result that we released today is very much influenced by our COVID testing, Driving COVID Revenue and Earnings. And as a general statement about our COVID testing, which will come to by country, is that we saw more COVID testing in the first half of FY twenty twenty one than in the second half. But then, the Delta variant hit. And this result does not really show the effect of Delta.
But what Delta is of Duong is we're seeing that our COVID testing volumes are now picking up fairly dramatically of the company and that really only began in July. So we've got a pattern of maximal activity in H1 FY2021, Slightly lower volumes in H2 FY2021 and then going up again in H1 FY2022. I also just to end this slide make the point that our staff around the world have literally been working 20 fourseven Throughout this pandemic, there's no working from home when you're running labs and imaging practices and primary care centers and occupational health businesses. And so despite lockdowns, our businesses have been pedal to the floor, working in our labs and in our other facilities at all times. If we could move to the next slide, this is a slide where we're Wanting to show the relationship between our base business and our COVID revenue.
So base business revenue and COVID revenue. And just to be clear, we're defining base business revenue as any revenue that's come any revenue excluding of COVID Revenue. So it's all the work that we were doing before the pandemic. And in the chart, if I could take you there, the dark Blue represents our base business revenue and the turquoise represents the COVID revenue in total. And you'll see that if firstly just focusing in on our base business revenue, when you compare FY 2020 of 1, the year under review.
We have grown 6% against FY 2020 of the company and 4% against FY 2019. I guess the growth is slightly higher against FY 2020 because 2020 included the dip in our base business at the start of the pandemic. The other feature about our base business revenue is that we're seeing that it's now pretty resilient despite Waves of COVID or lockdowns. And as we go forward, we certainly Expect our base business revenue to keep growing. Then looking at our COVID revenue, you'll see that in FY of 2020.
It's relatively small and that's because pandemic only began in about March well into the second half of last financial year. But of course, FY 2021 is a full year of COVID, which I'll just repeat again. We Saw a slight dropping off in our COVID revenue in the second half, but now picking up again in FY 2022. Trying to predict what FY 2022 is going to be like in terms of both base business and COVID revenues It is of course difficult, especially when we try and predict the COVID revenue. Delta is causing a real uptick in our volumes, but it's really Too hard to say exactly what the revenue from COVID is going to be in FY 2022.
We do think that our base business We'll continue to grow as it is. And then of course, a prediction for further out in terms of COVID testing. We do expect COVID testing to be part of our business into the foreseeable future. So hopefully, when we get through this latest delta wave right around the world, We still expect that COVID PCR testing will be there, but obviously that will be at a baseline of Volume, and it's too difficult to say exactly when we're going to reach that particular point. If I could take you to the next slide, please, that's the financial summary.
We've already mentioned the first three numbers on that table. And just a comment about our cash generation. Cash generation is strong as expected with almost 100 percent conversion of EBITDA to gross operating cash flow. And just a comment on The Cash Flow Growth, I guess, following the commencement of the pandemic, which was in the second half of FY of 2020. We did institute a range of temporary measures to preserve cash And these were reversed in FY 2021.
And so that would explain the slight discrepancy in the growth between our of Cash Flow Growth and our Earnings Growth that you see on the chart. On Slide 7, which is titled FY 2022. Just like we did last financial year, We are not in position to provide earnings guidance for FY 2022. And the reason for that is almost exclusively of COVID Related Unpredictability. And as I've just mentioned, it's just too hard to actually of SAI, what is going to happen with our COVID volumes.
And of course, COVID volumes and revenues I'm going to play a big part in our results going forward. So Our COVID testing is ongoing and the Delta variant is driving volume increases right around the world. Our base business, as I mentioned, is increasingly resilient to pandemic waves. And the reason for that is really that the growth drivers of Healthcare. I'm still there unchanged.
And another important point is that our geographical Spread mitigates against fluctuations in our base business revenue to a large extent and also our business sector diversity. So you'll see in this result a very strong performance from of Imaging division, which was very welcome in the circumstances because there's no COVID testing in that division. We're also looking at a number of of Opportunities. And of course, if any of those come to fruition, they will influence our future results as well. The next slide, which is on dividends.
The Board of Sonic has resolved to pay a final dividend of $0.55 per share. That's an increase of 7.8% on the final dividend last year, and that brings our total dividend for the year to $0.91 per share, which is 7.1% up on the prior year. This maintains our progressive dividend of Policy. It's getting close to now 30 years. I think our maiden dividend was 1994 of the company and it has never gone backwards.
And of course, we're pretty proud of that record and certainly are determined to keep it going. The final dividend is franked to 65%. It was previously franked at 30% and that's a reflection of of Earnings in Australia. Record date, 8 September payment date, 22 September and our dividend reinvestment plan remains of Suspended. The next slide, which is our pie chart showing our revenue Split by division and by country.
There's not a whole lot to say about this relative to previous pie charts, except to say firstly that the entire pie has expanded by 28%. That's our revenue growth for the year. Excuse me. And also one thing to note is that We have experienced foreign exchange headwind over the course of the year, which amounts to of $375,000,000 and that headwind has preferentially impacted the non Australian of Divisions. So on a relative basis, if you're looking at the percentages and the sizes of each country, I guess the non Australian divisions have been pulled back relative to their constant currency growth.
Also another thing to note perhaps that the non laboratory divisions, of Imaging and Sonic Clinical Services, might be spuriously lower because of the great of Revenue Increasing COVID Testing, which didn't occur in their respective divisions.
Of the company.
Okay. Now we're going to go through the country's slides. We're on Slide 10 now. Starting off with our largest division, Sonic Healthcare USA, 34% organic growth in revenue at a constant currency level, an incredible performance, quite astonishing. Our base business in the U.
S. Grew at 5% relative to FY 2021. And this result does not include any grant money at all. So a grant that we did receive of US26 $1,000,000 has been repaid in full. In terms of our operations, it was very much dominated by high volume COVID PCR testing and some serology testing in 12 laboratories across the USA.
Like with of most of our divisions, COVID testing volumes fell somewhat in the second half, but are now increasing quite dramatically with the Delta variant. Have not quite got back to their peak levels from H1 FY 2021, But the rate of increase is quite spectacular actually, and we'll have to just track how that pans out going forward. We're also investigating several other non medical, if we could call it that, COVID testing opportunities in travel and other areas. And just a couple of other points, we are expecting a small Fee cut to the Medicare component of our total revenue and the U. S.
Medicare component is around 20% of total revenue. This is the so called PAMA legislation that's protecting access to Medicare Act, which will come in, in January 2022, and we estimate the impact to be around US8 1,000,000 It's an amount that's not going to be material in the scheme of our U. S. Numbers. A standout feature of our U.
S. Division is that Labus, which were implemented at the start of the pandemic, have been maintained throughout the pandemic. Of the company. And when the pandemic subsides and we hope that comes soon, we believe that we will have a more efficient operation than We had pre pandemic, an excellent achievement by the leadership and all our staff in the USA. Of the company.
Moving on to Germany, Sonic Healthcare Germany has also achieved outstanding results as a result of unbelievable performance. So 50% organic growth at constant currency level is unbelievable. I cannot stress this enough. A 50% increase in revenue equates more or less to a 50% increase in volume. And so for our labs to suddenly cope with such huge volume increases, unprecedented In our history by a long way is a huge feat and something that the whole of Sonic is very proud of that we've done this in all our divisions.
So 50% increase in growth in Germany with base business growing at approximately 5% over FY 2021. No government subsidies in the numbers at all. In Germany, we are the largest provider of COVID of testing in the country and we perform those tests in 30 sonic labs right across the country of Germany. Another really important feature of our German division is that we've been working very closely with the German government throughout of the pandemic to assist at many, many levels, to assist with track and tracing, specific testing protocols like Schools and Aged Care Facilities and more recently and very importantly to do whole genome sequencing to identify mutations, which in turn assists the tracking and tracing of positive cases. We've also found in the pandemic and especially in Germany that with all this COVID testing we're doing, We've developed systems to streamline and make all our testing much more efficient.
And so In Germany, we've got customized IT solutions for the testing itself for results transmission, travel passes and the like. Couple of other points, we've completed the build of a new lab in Giesen, and this is a new lab that will facilitate a couple of mergers in the area. And for the non German participants on the call, Geesen is a university town in the state of Hess to the north of Frankfurt, Population around 100,000, but we don't only serve the town of Giesen, we serve a fairly large area around Giesen as well. Another point just to note is that our Anatomical Pathology division, which is relatively new in the scheme of our German division, It's growing strongly, including cervical screening testing, which is now part and parcel of that division. Of the company.
Slide 12, our Australian Laboratory division, 28% organic growth, base business growth of 9% and there's no government subsidies in this of result including the Australian JobKeeper program. At the outset, I do want to just I acknowledge the work and contribution not just of Sonic in Australia, but the whole pathology sector in Australia, both private labs of and Public Labs who have stepped up so amazingly to provide huge numbers of COVID testing here in Australia and particularly now that we're in Sydney with a fairly heavy delta wave taking place. I mentioned earlier that Australian Pathology Labs are in a slightly different position in that We also have to organize all the swab taking. This is a huge part of what we do, not just the taking, but the setting up of safe facilities to do the testing and in particular, all the drive through centers that we operate. This requires it's a huge logistic exercise to do all this, requires lots of staffing, traffic management, IT management.
There's A whole lot of stuff that goes into running drive thru centers and to make them more efficient. And we continue to work on them so that they are now even more efficient than they were before. At operational level, Sonic is one of the leading providers of COVID testing in Australia. We continue with our national contract to provide COVID testing of 4 nursing homes or aged care facilities around the country, which is a huge undertaking for us. And like Germany and the U.
S, we've used the pandemic to bring in a whole range of innovations to meet the challenges of the pandemic and these include IT enhancements for our drive through centers, enhancements to data entry, providing results via text messages, travel certificates, telemedicine, it goes on. Of the company. We've completed a new lab in for Southern IML in Wollongong in New South Wales. This lab was well overdue and had commenced well before the pandemic. And for the non Australian participants on the call, Wollongong is a city to the south of Sydney on the coast, population around 300,000.
Of Wollongong. And again, this lab doesn't just serve the city of Wollongong, but goes all the way down the New South Wales South Coast as well. Couple of other points, Sonic has been awarded the Australian Bureau of Statistics Contract, it's a pilot contract at this stage, which basically measures the health of the nation. And our bowel screening cancer, which is a national contract as well, has been renewed and we're seeing, this is a fantastic service that we provide and most people on the call would be familiar with it. You will receive our packs in the mail, an incredible of Service, and we're finding that volumes are actually going up with increasing participation right across the nation.
Of the company. Moving on
to the next slide, which is UK and Ireland. Here, we've achieved 62% of organic revenue growth at constant currency level. Again, really incredible that we've stepped up to handle That sort of increase, perhaps the reason why this number, the revenue increase is slightly larger than in other divisions Is that FY 2021, the COVID testing revenues were relatively lower than in our other divisions with COVID testing coming on in a slightly more delayed fashion, but now running at full steam ahead. Base business grew at 9%. And at operational level, we've really ramped up our COVID testing through the year.
And volumes are staying high. And in fact, if we look at H1 and H2 of 2 in the year. They are very similar. We were asked to set up a COVID PCR surge lab by NHS England to cover Greater London and that opened in December 2020 and that's augmented our volumes as well. It's a privilege for us to be asked by NHS England to work with them to determine COVID variance by genetic sequencing as we've done in Germany.
We've also opened up a new lab in Manchester. This is a highly automated lab. Again, this lab was in planning long before the pandemic and we'll assist our nationwide operations in the U. K. We're very much looking forward to opening up a hospital lab in the Cleveland Clinic London, which is due to open itself in of the middle of the financial year.
So this is a hospital that undoubtedly will be a premier and of highly, highly prestigious private hospital in London and we're honored to have been selected to do the lab testing for that hospital. And finally, our subscale Irish laboratory business was sold in the second half of last year with a small gain on the sale and just a couple of comments about our Irish business. We commenced that business In 2010, basically as a greenfields operation, and we set it up specifically In response to a contract that we won to provide cervical screening services for Ireland, so that's pap smear services. Of the company. And then at a later stage, we commenced operating non cytology services, in other words, routine services On a fairly small scale, in anticipation of privatizations that appear to be muted for the Irish Healthcare System, which is essentially a nationalized system.
Unfortunately, those privatizations Never materialized and they have not materialized at all. And also we ceased our cytology services of this business in 2018 at the time when our contract ended. So at the time of the Sale of this business, our revenues were approximately €10,000,000 per annum. So you'll see that was a lab that Had prospects of growing, but didn't have them in the end. And so we think it was the prudent move to sell the lab.
Moving on to Slide 14, which is Switzerland. 22% organic revenue growth with base business growing at 8%. A summary of our Swiss business, which is very Solid and Stable. We're participating in national COVID testing programs like school testing, and we've established much greater capacity through the course of the pandemic in preparation for A 4th wave, which was expected and it's probably taking place in the form of Delta, which was not predicted earlier on. We've also modernized our Zurich laboratory over the course of the year with state of the art workflow automation now in place.
Slide 15 is Belgium, 30% organic growth at constant currency level. Our base business in Belgium is down 3% on the prior year, taking slightly longer to recover, but we expect it to keep recovering as we progress. As per other countries, we found that we did more COVID testing in H1 than H2, But now our numbers are increasing again with the Delta outbreak in that country. We've also done quite a bit of Work to grow our molecular and genetic testing outside of COVID testing, and that includes our non invasive of Prenatal Testing or NIPT. And we've also upgraded our main laboratory in Antwerp, which also now has of new and very modernized lab automation equipment installed replacing the previous generation that was there of FOL.
Moving on to Sonic Imaging, which is Slide 16. A very, very pleasing result with 19% revenue growth, which includes the acquisition of a majority position in Epworth Medical Imaging. But if you look at Organic growth, it sits at 15% with EBITDA growth of 24%, and it's really pleasing to see This degree of leverage in our Imaging division. We're more accustomed to seeing that in our lab divisions, but Fantastic performance by the Imaging division. As with all our other divisions, no government subsidies in these numbers.
Through the year, we have moved to 80% ownership of Epworth Medical Imaging. Annual revenues of that business, this is in Melbourne and annual revenues around $45,000,000 per annum and that was from March 2021. We've also previously announced the acquisition of Cambra Imaging Group with revenues of about $60,000,000 per annum and that acquisition will complete on 1 September 2021. So it's not in the FY 2021 numbers, it will be in FY 2022. We opened 4 greenfield sites in the financial year, and we have an additional 5 greenfield sites planned for FY 2022.
I want to acknowledge Outstanding performance by the Imaging division. And even though they're not doing COVID testing, operating In a pandemic, imaging businesses has not been easy at all. And yet, our radiologists and all our technical and all stuff have really risen to the occasion in a wonderful way. Of the company. Slide 17, Sonic Clinical Services.
This is our division in Australia that provides Primary Care Services and Occupational Healthcare Services. Revenue for the year was Slightly down on the prior year, very much pandemic related. So this is Patients being reluctant to see GPs essentially during periods of lockdowns of And When the Pandemic Was On. However, despite that slight drop in revenue, our earnings have been maintained, which is an outstanding result for the division. Again, no government subsidies in the result.
Of the company. And SCS or Sonic Clinical Services has now taken an important step into the area of Vaccinations here in Australia. And whilst at the moment, it's focused on New South Wales and particularly Sydney, This is an area of business that we would certainly hope we can carry forward into the future of medium and long term. So we're offering vaccination services at 3 levels in Australia. Number 1, through our more than 200 medical centers right across the country, so that's national.
And all our GPs over 2,000 of our GPs in those medical centers are offering vaccinations in their medical centers. Secondly, the contract that we won to provide vaccination services in New South Wales and Queensland of nursing homes, that's nursing home residents and staff in those two states is the second area. Of the company. And then thirdly, via mass vaccination centers, which are currently confined to Sydney. So we're currently operating 5 mass Vaccination Centers.
The 5th and substantially largest of these is actually opening today or has opened today already. Fantastic facility. These are facilities that we're very proud of covering large numbers of people of the company and we certainly hope to keep as many of these centers open for vaccinations in the first round, boosters going forward and potentially to open many more mass vaccination centers as we go forward. Our vaccination services in these mass centers are assisted by a partnership which we formed with St. John Ambulance.
And St. John Ambulance are helping us with some of the staffing in these mass vaccination centers. We have used SONICS infrastructure in a very big way in these mass vaccination centers. So we're using doctors, of Nursys. But these mass vaccination centers require lots of different people and our partnership with St.
John It has been very, very fruitful and successful to date, and we're very happy to take it forward into the future. Of the company. Slide 18 is our Capital Management slide, and I can only repeat what I said earlier that of TUM. Our capital management is in good shape, balance sheet in very strong position. With our gearing ratio at 12.5%, that's the lowest it's been in 20 years.
Debt cover down to 0.4 times, I can't remember it being that low ever before. And We've had an opportunity to reduce debt to over $1,000,000,000 over the year. This is redrawable debt. And we have substantial headroom as well of approximately $1,500,000,000 and that's before the final dividend and settlement of Canberra Imaging Group. So really the important point about our balance sheet is that It is primed and ready for growth of Sonic via acquisition, in particular.
And of course, we remain Very keen to look at opportunities going forward and there are significant opportunities for us that we are currently looking at the moment. The next slide, which is titled Sustainability. We're very pleased to include a slide on SONICS ESG or sustainability positioning. And it's not only to outline our work in this area to date, but also to give you a sense of what our plans are for the future. In so many ways, sustainability measures in with SONICS overall responsibilities as a global healthcare company.
And it also meshes in very well with our medical leadership culture, which really has care for our staff and patient care right at its very center. So over the past years, we have worked very diligently in this ESG and sustainability space. And we're now Keen to take it a notch higher and to bolster our efforts even further. And I guess this slide, our overall message is that We have taken and continue to take sustainability pretty seriously, and we certainly undertake To make it an essential and integral part of our business into the future, just a few points on the slide itself. We've taken steps quite recently to strengthen our dedicated sustainability leadership in Sonic.
We've appointed recently a Sustainability Manager, a Sustainability Director, and we're soon to convene a sustainability steering committee, which will be chaired by me as the CEO of Sonic and we'll comprise our CEOs from around the world together with selected people from our global office here in Sydney. And the purpose of this will be to absolutely lock in a system which Anebility, an integral part of our day to day business. In terms of environmental responsibility, we're continuing to focus on emissions and energy reductions and also to set targets for renewable energy use of the company and targets to get to net 0 greenhouse gas emissions. In terms of social responsibility and that's the S in ESG, of GE. Our core purpose, in fact, our mission as a company already was and has always been The provision of high quality, safe and accessible medical services to the communities that we provide.
And It does fit very well with the social responsibilities that are now measured under sustainability and ESG of G Programs. We, of course, will continue in the same space with our Catalyst program, where we are currently supporting of 6 very underprivileged hospitals in underprivileged areas of Africa. And we're also involved with Indigenous and other charities as well. And finally, just responsibility for our people. We will continue to focus on our employee health, which has always been a huge driver for us as a business, and we will keep our safety record as good as it's always been.
So we have an impeccable Track record in terms of staff safety and at the same time, we're going to be strengthening our goals in terms of diversity, inclusion,
of Engineering and Development in those areas. And by
the way, all of this will be written up in our Corporate Responsibility Report for 2021, which will be published nearer to Sonic's AGM of Tyme in November. Moving on to the final slide, that's Slide 20. And this slide provides a summary of where we see Sonic Healthcare now and how we plan to progress our growth and well-being into the future. Of at the end of this presentation and as CEO of Sonic, I do want to say how enormously proud I am of how our company has stepped up to meet the challenges of the pandemic. We really do have outstanding leaders of an outstanding staff right around the world.
And really, there couldn't have been a tougher challenge of this pandemic to showcase the dedication and I guess the willingness of SONICS People to respond to what I can only call a call to arms of the pandemic. It's been an incredible year for Sonic Healthcare, very hard to convey, but I know If there are Sonic staff listening to this, they will know exactly what I'm talking about. So A summary of Sonic is that we will continue to make a very material contribution, not just to the pandemic, but to the health of the communities we serve. So we are providing essential services in the healthcare space in the 7 countries in which we operate. We're very much leveraging the long term investments that we've made in people, in equipment and facilities and supply chains.
And we're supporting the global pandemic and we'll continue to do so through high volume COVID testing, through serology testing, even through rapid antigen testing and certainly through Destination Services wherever that's feasible. In terms of the growth of Sonic going forward, I've mentioned that our base business is showing increasing resilience to pandemic waves. And that's because the healthcare drivers Are still absolutely intact. And there's also an element of catch up that was lost at the beginning of the pandemic that we're seeing as well. We certainly expect the demand for COVID PCR testing to continue into the foreseeable future.
So excluding this current delta wave, we believe COVID PCR testing will be part of the lab of Menyoo going forward. And I mentioned earlier that our geographical diversification is providing Stability for SONICS base business revenue and I guess our COVID testing revenues as well as we go forward. I've also mentioned that acquisitions are very much on our mind and we're very Pleased that we have balance sheet power to look at some substantial acquisitions going forward. And it certainly is our view at management and Board level that the funds that are available to Sonic of our business, our best used via reinvestment in the company. So synergistic acquisitions and to set the business into even stronger position than it is today is our preferred way going forward.
These opportunities that we He exists in Australia and in the U. S. And in Europe. And so, we're certainly Looking forward to pursuing those and hopefully some of them will come to fruition. And the final point is that the driving force Behind this year's outstanding result is in fact and it's not just this year, it's all our achievements really is in fact our medical leadership culture and the outstanding commitment of our 38,000 staff right around the world.
And I do want to thank all the staff at this point because I know some would be on this call. Thank you very much. And I might hand you back to Zoe at the moment to take some questions. Thank you.
Of the company.
Thank you. We will now begin the question and answer session. Of of of
the company. Colin, if I could start with where you ended of Capital Management and M and A Opportunities. It would seem to me that a lot of your competitors of they've also seen their balance sheets improved pretty dramatically through the pandemic. And that might lead to greater competition for those assets that are out there. I was just wondering if you might comment on how competitive the landscape is and whether you're seeing any upward pressure on the prices of assets you'd like to Acquire.
Yes. So obviously, competition for acquisitions is out there. We're competing with industry players and we're competing with private equity funds. We're very aware of that. However, Sonic does bring to the table certain features, which some sellers of very interested in.
And we will just have to compete. Now we have a track record of growth through M and A over many, of the years. It's always been competitive. It's never been easy. We will use whatever we have at our means to achieve these acquisitions, but of course, exercise the same discipline that we have exercised over the years.
So we're not going to do anything untoward, but I certainly don't think that our acquisition history is over at all. Not at all.
No, I don't think I was implying that. I guess the related question, however, Yes, you do have a balance sheet now, which is very strong. And the other option is to return some funds to shareholders. Of but I think we heard that message that the Board and the management team don't view that as a sensible use of capital.
Yes. And so we certainly think it's in the best interest of shareholders that we deploy our capital to reinvest in the business through Synergistic Acquisitions to grow the business further. That has really been our strategy to date and we certainly see Big opportunities for Sonic going forward, which hopefully will not disappoint shareholders at all.
Of sorry, just keep harping on this. The dividend payout ratio is much lower than it has been, and I heard the commentary about progressive dividends. So that's not Neither do you see that as an option to refund some of this to shareholders in the current environment.
Well, so David, this is a decision that's been made at Board level. And all options were weighed up and I guess this was the preferred course that the Board has taken. And certainly at management level, we're fully in agreement with that decision. We think this is the best thing for Sonic, the best thing for Sonic shareholders.
Okay. I don't mean to be accusatory. I'm just wanting to make sure we understand.
No, that's fine.
Of the company.
One last question, Joe, can change topics. We haven't heard much about Agora Anatomical business in the U. S. And maybe the pandemic is not the best environment of could I get you to give us a bit of an update on how that's progressing and whether it's going according to plan, please?
It absolutely is. So, and we've I've been quite surprised that it's been pretty resilient through the pandemic. We've even in 1 or 2 of those labs that instituted some COVID testing, but the base business being Anatomical Pathology has gone pretty well. We did suffer some downturn through the year due to the pandemic as would be expected because we had that elsewhere. But basically, we're very, very happy with the progress of that acquisition and our Anatomical Pathology division in general in the U.
S. So all going good.
Of the
company. Your next question comes from Chris Cooper with GS. Please go ahead.
Of the company.
Good morning. Thank you. Colin, you commented that German volumes are in line with the value growth of 50%. I just wanted to Confirm whether that comment is true across the other regions too. Basically, you're not seeing any change in mix or revenue per share generally right now.
So Chris, that is an approximation. Don't go and do any serious modeling on that basis. Revenue and volume are not exactly equivalent, but by and large, the answer is yes. It's consistent throughout.
Okay. So the 4% growth in volumes in fiscal 'twenty one versus fiscal 'nineteen, that's sorry, the 4% growth in revenue in fiscal 'twenty one as of fiscal 'nineteen, that's also Synonymous with volume growth as well.
Approximately, yes.
Got it. Thank you. Just on COVID testing, Look, you've obviously reiterated your view that COVID testing is going to remain a sizable part of this business going forward. I appreciate this huge uncertainty here, but could flu be of reasonable sort of analog here in terms of potential contribution to the overall test mix over the sort of mid to long term.
Of the company. Yes, and I mean, there's a lot of unknowns there, Chris. I mean, COVID testing could become incorporated into a respiratory panel, of where instead of testing for flu and other respiratory viruses, we also test for COVID or it could be tested for separately. But I think the consensus is that COVID is here to stay. It's not going to go away and therefore, there will be testing needed into the future, I guess, A bit like flu and the other respiratory viruses.
Yes.
So if we assume on a pre pandemic basis, flu may be constituted, of let's call it a high single digit percentage of the overall test mix. Would that be around where you're thinking for where COVID is going to be in a couple of years' time?
Of the company.
I cannot say, Chris, sorry, this is where why we can't put out guidance. We just don't know. It's quite possible that COVID is treated slightly differently from flu. There might be a more Demand and need to do COVID testing rather than flu. We don't know what other variants might determine might of Eventuate whether there'll be mutations.
Let's hope they're not anymore as bad as Delta. There's so many unknowns that it's just impossible to predict. But I think what we can say is that there will be COVID testing into the long term future.
Okay. And final question on balance sheet. So, look, you mentioned, of course, there's lots of opportunities out there. We definitely agree, probably more so in terms of breadth of opportunity that I think we're seeing for some time in the pathology space. Can you just give us some commentary on what sort of areas interest you in particular?
Of the
company. So without talking out of school because of not making any announcements, we're obviously of the businesses that are directly in our space or associated with our space where there are synergies. Of the company. And our space means the lab business and the imaging business in particular. And so That's where it is.
And there are opportunities. We're not about to branch off into some unrelated of Business Even Healthcare. But there are a lot of businesses that are directly in our space and that are very close to our Space, which do make sense for us.
It's probably worth mentioning there could be other geographies that we move into.
And new geographies, absolutely. Yes. Yes.
Okay. Thanks very much.
Thank you.
Thank you. Your next question comes from Andrew Goodall with MST of TMRQ. Please go ahead.
Thanks very much and congratulations on the result and achievement. I was just trying to understand if you're seeing any patterns in the sort of surges. Obviously, we look at the test chart and of just I guess trying to see if there's any pattern that we could use in terms of modeling and understand sort of when you do see those troughs, of what your base business does, whether that steps up. I guess it's something we can't see in the half, but I guess it takes place across the half.
Yes, so just I guess talking in general mainly, our base business appears to be Fairly consistent and resilient. So and you've got to take the whole of Sonic here because we do have smoothing out because of the geographical of Diversification. But in terms of COVID testing, it is interesting your question because Here in New South Wales, in particular, where Sydney is in the heart of this delta wave, We have seen COVID testing rise dramatically, in fact, way beyond the Peak of FY 2021, the highest month that you can find in FY 2021. Now that we're in July August, Seeing testing volumes substantially higher than in FY 2021. If you then go to the U.
S, for example, and by the way, the U. S. And Europe and New South Wales are more or less in sync now with the Delta wave or the Delta variant. We were out of sync last year. We're in sync at least in Sydney and maybe Melbourne as well.
We're in sync now. So if you go to the U. S, what you're finding is that the COVID volumes are going up Fairly substantially, but they have not reached yet reached the peaks of FY 2021. What we're seeing in the U. S.
Is that our base business is pretty resilient. And I think with the opening up that's happened In the U. S. And Europe, in tandem with the Delta wave going on, people are more relaxed about seeing their doctors. And so base business is being maintained fairly well in the Northern Hemisphere because of opening up.
So what will happen to base business here in Sydney will tell us some more about What's going to happen in this delta wave, we don't yet know. So, so far base business is down a little bit, but reasonably holding up. And you can tell from what I'm saying, Andrew, that there is no real clear trend. You can't really Do a model on our COVID testing and that's why we're not putting out guidance. It's just very, very difficult to do.
All We can tell you is what's happening in this delta wave. This delta wave has changed the trend. The trend was clearly Up in H1, this is COVID testing revenue, up in H1 FY 2021, slightly lower in of H2 and we were expecting it then to hit a baseline and stay at that baseline. Delta has completely disrupted that. And so suddenly, in the Northern Hemisphere and here in Sydney, New South Wales, not just Sydney, That trend is gone.
And so it just gives you an indication of how difficult this is to predict. Sorry to give a long winded answer there.
That's helpful. Just trying to understand if I can think about any patterns there. I guess my follow-up question is just trying to understand where we've seen a few nations start to talk about, I guess, of funding for COVID PCR on a more permanent basis, dropping prices or potentially putting it in with, I guess, a panel of tests including the flu. I just want to know whether, a, that's changed under Delta or they've pushed those pushed some of those thoughts back or whether the I guess, you sort of think eventually everyone's going to go to that more standard, potentially slight lower priced arrangement. And
again, this is very hard to predict. We've seen a slight reduction in the fee that we get for COVID PCR testing in Germany, but not elsewhere yet. It's possible that the fee comes down a bit, but I do want to stress that The PCR test is not a straightforward test. It's a difficult test that does require High quality staff and equipment and huge endeavor. It really does.
So We're certainly hoping that labs that have really stood ready and responded won't be disappointed at the fees going forward. Impossible to answer your question at this stage.
Andrew, the message we get from governments around the world is more that they want us to maintain our capacity. They don't want to paying our capacity. They don't want to see labs dialing back the capacity because of the risk of things like this delta outbreak or wave. Of the company. And so it's I think it's a bit early to be thinking that they'll be looking to significantly reduce fees.
They need labs to be ready to go when these sorts of waves hit.
That's great. Thank you very much.
Thanks.
Of the company. Your next question comes from Sean Laman with Morgan Stanley. Please go ahead.
Of the company. Thank you and good morning, Colin, Chris and Paul. Hope you're all well. Colin, I was just my question is more regarding Sonic's permanent role in the containment of COVID going forward. I mean, just to flip gears for a minute, if we look at The vaccine situation, the government sort of procured what they thought was appropriate and no one could forecast sort of the fluctuations around of Medical opinion on AZ, for example, but I think where the job could have been better is on the distribution.
So I don't think the logistics We're really well thought through. Now thinking about going forward, if we get to the target vaccination rates of 70% to 80% and we might start considering Opening up orders and then sort of I guess sort of being potential preparation for that event. Above and beyond what Sonic might already provide at the minute, is there any discussions with respect to contracting, with respect to Sonic potentially playing, I guess, if you like, call it a border cop role? And what revenue opportunity might be available to the company in that sense?
So this Great question and it's early days, but we are very much investigating what sort of role We can play in terms of testing, travel passports, vaccination and testing. It's and then linking in with international air carriers, It's a big and complicated area and I don't think any country has fully worked it all out. We do think that Sonic could play a role, but it's still early days. We see ourselves in the space because we do cover COVID PCR testing, we can do rapid antigen testing and we certainly are involved with vaccination in an early stage in the mass vaccination sense of the word. So, yes, we are looking at it all and we're doing quite a lot of work at the moment in the travel space, if that's particularly where you were aiming your question and not just in Australia, but right around the world.
And we're trying at this point to find ways of linking our global operations to international carriers, for example, who are looking for global players to help them with, for example, COVID testing before people board planes. But then there's of course the border issues about entering countries, vaccination passports, of Rapid Testing, whether it's PCR or antigen rapid testing, all of this is yet to unfold and I hope it comes soon, and we'll certainly be involved there ourselves if we can.
It's worth saying, Colin, we've already won some contracts and talking to lots of corporate about of the company. So that the businesses like mining companies can feel comfortable that they're not going to have an outbreak within their workforce. So that's another area growing at some pace already.
Thanks, Chris. Just as a follow-up to that, Colin, you did call out on your German slide or during that of discussion. You've customized some IT, I guess, requests to serve patient of And I'm wondering and travel passports, etcetera. Is that something that proliferates? I mean, what does it actually mean?
Just to get some granularity around that would be really, Really interesting.
Yes. So in Germany, our apps are related to testing only. We're not linked in to Vaccination Apps. Over here in Australia where we have the opportunity to do both testing and vaccination, we're busy working On that particular issue, is there can we play a part in a travel of Passport Certificate, an app that has all of this. Now, it's quite likely that governments are going to do this, but it's possible that we can play a role there.
So we're involved when I mentioned apps, we're talking here about Linking results directly to patients and providing apps in that space rather than in the vaccination space or in the combined space, but it's still probably early days.
Thank you, Colin. That's all I have.
Thank you.
Thank you. Your next question comes from David Stanton with Jefferies. Please go ahead.
Of the company. Good morning, team, and thanks for taking my questions. Just in the past, you've given us some help regarding of tax rate, interest potential interest expense and potential CapEx spend. Just wondering if you could give us some any kind of color Regarding that for F 'twenty two over F 'twenty one, please.
Hi, David. It's Paul. Difficult to do given We're not quite sure what components or how our profit will be composed in FY 2022. Obviously, there are different tax rates in our different countries. And so that plays a part there.
And I guess, Having not given earnings guidance, it's difficult to give tax guidance. So probably your best guide is to look at this year And assume a similar sort of level, but it could vary a bit either way just depending of the company on where majority of our profits fall. So that's on the tax side. Interest, again, it's really going to depend on of the level of cash that we generate. So again, profitability, so difficult one to pitch.
You obviously have of the year. We've seen a significant decrease in the FY 2021 year with debt coming down. And so and of course, if we make acquisitions that will send it the other way, of the company. We wouldn't guide to that at this stage. So, yes, look, we've indicated I think you can sort of get an idea of what the rate is on our debt.
I think we gave an indication of that at the half. And so you're just going to have to make your assumptions around cash flow Depending on your assumptions around profitability, that's a tough one.
Maybe on the CapEx side, I'll answer that one. And that's complicated a bit by the AA16 effect on the depreciation number. But if you work back to what our of the company's name, which is kind of been at the level of depreciation, plus or minus 5% or 10%, something like that. Of the year. The year gone was a bit, was about in line with that, and that included about $40 plus 1,000,000 of expenditure on COVID testing platforms.
And in
the year to come, we're expecting it to be Similar again to that sort of number about what maintainable CapEx will be about this level of depreciation plus about 5%. And that includes we're now ramping up our expenditure in the cybersecurity area. So there's about a 20,000,000 of planned spend in that space for this coming year.
Understood. Very clear. Thank you. And again, no one's going to hold you to it, but knowing what we know today, I'd be interested in your views On overall base business growth in F 'twenty two, should we be thinking around the 4% number that we saw in 'twenty one compared to pre COVID levels.
I think that's fair enough. Something like that sort of
That's kind of the level that we have with our normal drivers. It depends a bit on lockdowns and the like, but that's a reasonable assumption.
Of the company. Understood. Thank you very much guys.
Thank you.
Thank you. Your next question comes from Steve Wain with
of Great. Good morning. Just wanted to add to that question from David just with regards to of the businesses that have come from COVID, in particular, genome sequencing, perhaps the serology tests of the company that are emerging and maybe even the vaccination assistance. Have you got any way that you can kind of of the company. Demonstrate or indicate how material they may be to contribute on a going forward basis.
Are these Really meaningful drivers for growth to your base business over time.
Steve, at the moment, They are not material in the scheme of our total results, especially if you take Genome Sequencing that's going to remain a niche and highly technical part of our business. Serology testing is a bit of an unknown. We're doing more serology testing in the U. S. Than elsewhere.
Of the company. And it has not come into its own, as one might have expected to measure immunity levels. And I guess the jury is out on serology testing. In terms of vaccination revenue and this would be confined to Australia at the moment, We're certainly hoping to take this forward and it could become a meaningful part of the Sonic Clinical Services business going forward. But again, we're at the very early stages of vaccination here in Australia, as you know.
We've set up incredible of systems to put in place in these mass vaccination centers. And of course, we have GPs all around the country. So over 2,000 GPs plus mass vaccination centers and if you assume that vaccination is here to stay, which it is, Then it could become a significant part of the SCS business.
Even the nursing homes, Colin.
And the nursing homes, including an ongoing business.
I think we have lead boosters every year.
Yes. Yes, great. Thanks for that. And then just I guess a comment relative to your base business. Considering the extraordinary numbers that you've been doing from PCR testing, of the company.
Has that had any effect on your efficiency of your base business? So just surprised, I guess, to a degree that 4% Growth is sort of what you'd expect going forward, particularly because there would be some amount of catch up, Perhaps I'm thinking there is some sort of ramifications from that from your labs doing those levels of volumes and PCR tests. Of the company.
Yes, so just to get the picture clear, when we do COVID testing, it involves and I'm going to exclude the collection of the COVID of Swab just for a second. It involves our couriers. So these big volumes of COVID testing impact couriers. They impact what we call the front end of the lab. That's the pre analytical stage, the data entry, the specimen reception.
Of the company and they impact the molecular lab that does the test. Now outside of that, so let's say for example, you're looking at of the microbiology lab or the hematology lab. The actual volumes do not impact those labs. So the Capacity to do additional base business in our regular departments remains intact. We've had to staff up those areas that I've just mentioned to cope with the COVID testing.
And of course, It has created a huge challenge. So I don't want to underplay it at all, but it certainly leaves The rest of the lab, that's the analytical stage of the parts of the lab, open and available to do their normal work. And if the volumes go up 4% or 5% or 6%, we would handle it as we normally would. The challenge will be for us at the front end of the lab where all specimens have to go through that stage before they get to the testing stage. And then of course, just finally, you've also got things like IT and procurement and management.
There's a whole lot of Other work that's required to deal with the big volumes as well. But I'm hoping that gives you an answer that We are now set up to do high volume COVID testing and to cope with growth in our base business as well. It shouldn't be a problem.
Of Right. Thanks, Colin. You
shouldn't take that 4% as some sort
of half of the guidance, right?
That was thrown out Client Analyst and we've said that we're not giving guidance, but that doesn't sound unreasonable. Will it be 4? Will it be 6? Will it be something different? We don't know.
But Colin's point is that our growth of our base business is not impacted by the level of COVID testing we're doing.
And there could be some bounce back from some of the tests that have fallen behind where people are probably undiagnosed in the market right now.
Yes. That's the sense that I was trying to get whether there really is a level of catch up that could take place through your business.
So it's very hard to predict that. We think there will be, especially in the Anatomical Pathology side of the business. But of the company. And we think that was actually happening until Delta hit. So but Again, this is not something that's very clearly measurable within the rest of our volume.
Of the
company. Thank you. Good morning, Colin, Chris, Paul. Colin, can I just ask you, at the first half result, there was a comment that you mentioned you have made that Sonic was currently bidding on some significant opportunities, A mix of contracts and acquisitions in Australia, the UK, in the USA as it relates of the Alberta Canada tender? Can you comment on what's happened in each of those regions as related to those opportunities that you were working on at the time?
Of
the company.
Yes, so it continues. We are still working on contract and acquisition opportunities in those of countries that you mentioned. In terms of the Canada opportunity, which was in Alberta, We made the decision in December, when was it? No. Sorry.
No. Of March sorry, after the half year result, to withdraw from that process. And that was a decision made very astutely by our management team based on the opportunity that we saw ahead of us. So we elected to withdraw from that process, but the rest of them are all still in train and some new opportunities that have risen since the half year result. So that statement stands to this day.
Perhaps you're a bit disappointed that they didn't happen in the 6 months to date, But stay tuned. Things take a while, especially in the pandemic.
Yes, sure. Understood. I guess the question was, of they're still in train. So would there be an expectation of some updates within this fiscal year 'twenty two at a reasonable timeframe?
Of the company.
I think that's probably the main ones we're referring to. Possibly.
Yes, I know.
I like to. Just a second question, if I could. Colin, just the strength of the COVID testing and the revenue generation that it's translated to, can you just comment on, I know you've spoken about PAMA in the U. S. But as it relates to Australian and German funding for base business, can you give us any thoughts or updates on what your expectations are refunding of base business in light of of the context of contribution by governments to COVID testing.
Thanks.
Yes. And Saul, it's all very stable. We didn't I put that on every slide and maybe we could have. But I think there's an appreciation by governments right around the world of the contribution of Made by Labs, Medical Labs. And because Labs have stepped up in such an enormous way Other than that PAMA potential cut, which has been in train for years now, There is nothing on the horizon in any of our countries that we're aware of.
So it's regulatory environment stable. Actually, Saul, just
to add to the PAMA position, I think Colin, when you were going through that slide, you mentioned 20% of our revenue was related of Medicare. It's more like in the post Aurora acquisition, it's like 12% or 13%. So perhaps it's 20% of our base business.
Yes, as of the U. S. Business. Got
it. Okay. Thank you. That's all I had.
Thank you.
Of the company.
Thank you. Your next question comes from Gretel Janu with Credit Suisse. Please go ahead.
Of the company. Thanks. Good morning all. Just firstly, on the base business, have you seen any significant changes in test mix or test patient or payer mix at all relative to of pre COVID that we should be aware of?
Not that I'm aware of. I'm just of Thinking Around the World. No, the base business has remained consistent in terms of its mix and volume, no change that I'm aware of.
Okay, understood. And then just thinking about the rapid antigen tests. So clearly, we've seen them get of Higher Active Adoption Offshore relative to Australia. So I guess how much share do you think that these could take from PCR testing rates? Of And what exact role could you have in that type of testing?
Yes. So we are already involved to some extent with Rapid Antigen Testing, particularly at industrial sites like mines, for example. Our reservation about Rapid antigen testing is all around the science and that is the low sensitivity and specificity of those tests, meaning of that. When you talk low sensitivity, there'll be a significant number of false negatives. And that's a critically important issue in the control of a pandemic.
And that's not to say that there may not be a place for rapid antigen testing, But it needs to just be borne in mind that the sensitivity and specificity are nothing like the PCR test, which is An unbelievably accurate test and hugely sensitive to the presence of COVID-nineteen. So we're keeping an open mind. Yes, it's possible that Rapid antigen tests take up some of the place of PCR testing only because they are rapid and I guess easier and possibly a bit cheaper. But we just got to stay sanguine about this that If anyone thinks that a rapid antigen test can replace a PCR test, I think that's a mistaken view because of the low sensitivity of the test relative to PCR. And the sensitivity of the test is low Where viral load is low, where perhaps you want to actually try and identify people early or in the recovery phase of the infection, It is true that they come into their own with people carrying high viral loads.
In other words, the people who are most infective, You'd be able to identify those people with a rapid antigen test. So, I think there's still so much debate going on about rapid antigen test right around the world. But we as a lab company are keeping an open mind about it and we'll participate of where it does make sense
going forward. It's probably worth mentioning also that the positive rapid antigen results generally confirmed by PCR as well. So the use of 1 triggers the other as well.
Of the company.
Understood. Thank you. And then just finally on costs, you did say that in the U. S. You've been able to maintain your labor savings there.
Is that consistent with your other regions as well? I'm just trying to get a sense in terms of where margins It could normalize once we see more normalized COVID test.
Yes. I think the phenomenon is more marked in the U. S. Than elsewhere. So there and perhaps the situation in our U.
S. Division It was more conducive to making those labor cuts, the industrial environment in particular. And so I don't think you should extrapolate that exactly to all our other markets. That was very much a U. S.
Centric phenomenon.
Question comes from John Deakin Bell with Citigroup. Please go ahead.
Thank you. And look, just To continue on the cost question, in your 4e, you had consumables up 45%, which makes sense, of Labour up 6%, perhaps a bit subdued because FX with FX, it might have been a bit hard. Can you just give us a feel for That comment you made earlier, Colin, about the front end being impacted. So, and You said you added in some costs for that. Can you just give us a feel for what the of the 6% growth, what was of permanent if you like.
And if revenues decline back to lower levels, does some of this come out or are we at a higher base of the company going forward and where do you think that will go from here?
Yes, I'll make a comment about the labor and then hand to Chris who can talk about the consumable side of it. The front end labor cost is very flexible. So we often use of part time casual staff. It's a and we flex it and we expand and contract it with seasonality as well. So that cost won't remain in place should COVID disappear.
Let's hope it does. Or even if COVID testing drops to a baseline level, we will match of the front end to match the number of accessions or patient specimens coming through. And Chris, maybe I'll hand to
you with it. Yes, just on the Sunnables. That pretty much is just the impact of the COVID kits. John, as you might imagine, during the pandemic too, the labs We weren't in a great position to negotiate particular rates. It was a matter of trying to get hold of whatever sources of tests You could get hold of at the time we're seeing now with some inversion of the supply and demand, some of repricing of those kits.
So I think going forward, the cost of those kits will be relatively lower, but they The actual cost of the kit is quite a high percentage of the reimbursement amount. So that's had an effect on the of the consumables as a percentage of revenue as well, but I think we'll see that come down probably more than in line with the volume changes because of some reduction in pricing in the coming months.
And in terms of the underlying labor costs, should we just There's no other real large changes should occur, right? So assuming We
should back you back to the pre pandemic level with a bit of the benefit coming through from the U. S. Side of things as we've discussed.
Got it. Okay. Thanks for that. Thank you.
Of the company. Your next question comes from Leanne Harrison with Bank of America. Please go ahead. Yes. Good morning, all.
Thank you for taking my questions. Of the company. I'm going to come back to U. S. COVID-nineteen testing.
And how is of the company. In those high COVID-nineteen states or the high unvaccinated of the bank where we're seeing that surge in the delta variant currently. Is Sonic getting similar testing share compared to where it was in 2019 or financial year 2021? Or is it varied from that given that you may not have labs positioned in those states?
Okay, that's a good question. Now I can't cover every single state, but I do know that in Texas and in Tennessee, Those are 2 states right in the thick of the pandemic in the U. S. Where if you look at the case numbers at the moment, They are higher on a per capita basis than elsewhere. And as it happens, we have big labs in both of those states.
So we are picking up testing in those states. Arizona is another state where the numbers are high and we don't have a lab to do COVID Testing in Arizona. But certainly, the Texas and surrounding states market, which is the Southwest of the U. S. Is covered by our big lab in Austin, of Sun Texas.
And the Tennessee and surrounding areas where COVID is particularly the Delta variant is rife at the moment, we cover in our lab in Memphis. So I think that just happened to be a quirk of fate that our 2 labs are in the space. And perhaps it does explain Why our COVID volumes are growing at the rate they are growing at the moment? So they are growing at a great pace, but have not yet, as I mentioned earlier, reached the peak levels of FY 2021. Whether they get there or not, I guess, remains to be seen.
Okay. Thank you. And just my follow-up of the question. Would you say that given the scale to where there is a possibility that we could get of the margin expansion, given that you're probably less likely this time around to have constraints around reagents and like. Of
the company.
Can you give this one to Paul?
So, Liam, we can't answer that question. It's for the all the reasons we've already really spoken about. Of You're right. There are some cost savings to be had around the consumables and even on things like freight costs, etcetera, compared to the early stages of the pandemic. Of the company.
But there's just too many moving parts there to comment.
Okay. Thank you very much.
Of the company.
Thank you. Your next question comes from Rod Sleeves with Raymond Equity Research. Please go
of
the company. Rod's not there.
Of Finance. Hello, Ken.
Sorry about that. I have these new earbuds and I just pressed a button on the side of them and of Accidentally, I lost you. First of all, I just want to say thank you very much for all the tests that you've conducted in the last 18 months. That's been fabulous, obviously, for all of us. Of the company.
But with regard to questions, look, the first question might be a stupid question. But with regard to the 65% of franking on the dividend for this year. Is that suggesting that you had disproportionately high profitability in Australia in 2021 versus of Elliot, yes.
No, Rod, it's not really. You've got to look at the payout ratio as it's actually been commented on earlier on the call. So It just means that given the payout ratio overall is low, the fact that our profits in Australia are up and therefore tax payments are up, of the company. We're able to increase that franking percentage. It's not clear yet whether we'll be able to hold it to that level going forward.
But we thought whilst we can, we'd get the value of those credits out to our shareholders as quickly as possible. Sure.
Of the company.
Perfect. That's great. But I was wondering if you could perhaps expand a little on the growth that you've seen in the imaging of business with that 15% underlying organic growth.
Yes. So this is a partly Sonic growing market share, but partly an industry wide phenomenon. So we've seen Strong growth in imaging right around Australia. The reason for it remains under discussion. Nobody knows for sure.
One of the theories is that all specialists are Unable to travel and therefore at work 100% of GPs and specialists, Therefore, seeing more patients, that was 1. I'm not saying these are definite. These are theories, but that was 1. So, yes, it's we see that our growth rate that 19%, 15% organic It's slightly higher than the Medicare rates, and so we think it's a combination of strong market growth and market share growth.
Of the company. Okay. All right. I guess just while we're on imaging as well, if we look at some of your of competitive in Australia, EyeMed, the smaller end, IDX. They are starting to introduce AI algorithms of the company.
Are you have you begun doing that at this stage? Otherwise, do you have a strategy for the introduction of AI into medical imaging. That's the first question. But then secondly, on a longer term basis, of the company. If AI becomes more pronounced in medical imaging, does it actually have the potential to move that business model closer of the as far as the closer to the pathology business model, whereas you don't have to have eventually a very expensive professional looking at every result.
Of the company.
Okay. So, we are very engaged in the AI space and starting off with our Imaging division. And we are expecting to make an announcement in the first half of the year sometime In the coming months, we will make a formal announcement about it. But we have formed a relationship, which we believe is a very attractive one for us, which will not only cover imaging, but also extend into our lab division, the pathology side of it. And it is quite an exciting thing that we're involved with at the moment.
Unfortunately, we're not yet in position to make that announcement, but we will shortly. In terms of the response, our feeling is and I think this is a worldwide feeling that AI will not replace of the neurologist. So AI will make the job a little easier and faster, but it will always require the radiologist to make the final diagnosis and to make the correlation with the clinical findings. So I think the idea of having AI of ex radiologist, just won't happen. And also you've said, will it bring it closer to pathology.
Now in the pathology space or in the lab space, I'm going to call it for the overseas participants on the call. Our view is that pathologists are absolutely essential, and we have taken the view over decades That labs are not factories where you can just churn results out of instruments. In order to provide the best of Quality. You have to have pathologists in the automated areas of the lab. And that By that, I mean hematology, chemistry, microbiology, genetics, etcetera.
And obviously, you need them for anatomical pathology to diagnose of Cancers and Other Tissue Based Conditions. So, this is a fundamental issue in The diagnostic space is that, you will always need according to Sonic and probably Most operators in the space, you will always need the medical professionals fully involved. So we don't actually see Necessarily a radiologist falling off in through the use of AI, but it will certainly make us more efficient because the diagnoses will be assisted by the AI process and that's already being used in a number of places already.
That's great. Thank you very much.
Of the company. Your next question comes from John Copley with Evans and Partners.
Of
the company. You may
be on mute again. Of
Jonathan.
No question there, Zoe. Of the company.
Thank you.
Apologies for that and good morning.
I was just hoping you'd be able
to quantify the opportunity that exists of the year in FY 'twenty two from COVID vaccine rollout, given that Sonic has a reasonable level of clarity on what the target vaccination rate is and that you have some lived experience running a few of Mass Vaccination Centers. Thank you.
So Jonathan, we're really not in a position To even give you an estimate of this, all we can say is that on the current of Trajectory and it's the 3 areas that we're involved in through our GP centers around the whole country through Potential contracts for nursing homes in selected states and then through mass centers, which we're only operating in Sydney at the moment. We're getting an early idea. We've only been involved for a number of months. It's very early on in the piece. As soon as we get a sense of what this trajectory is going to be, we will inform the market as much as we It's one of those things where we can see an opportunity where we have the infrastructure and the people To be able to offer a service in this space and we're very keen to take it further and make a contribution in that space and it could become a material part of our clinical business going forward.
It's as much as we can say and I'm really sorry if that's not going to satisfy you entirely.
No, you're right. It doesn't entirely, but I
understand that's all you can say at this point in time. Thanks very much, sir. That's all for me.
Thank you.
Thank you. Your next question is a follow-up question from Leanne Harrison with Bank of of
the of the company.
Getting a long pause, Leanne, you might be on mute as well.
Sorry, that's me. I was on mute. Of the company. Just a follow-up on John's question. If I think about the FCS business and what you're doing in vaccinations, is there a risk that your base of SPS business will decrease as some of your staff are, I get transferred to helping roll out the vaccine in Australia.
And then also wanting to understand margins for that SES business. Is the vaccines at a lower margin because you're not getting the patient's GAAP payments to support
that? Of
the company. So, Liana, I just want to say unequivocally that our business is predominantly providing clinical services. The vaccination component is something very new and we would never compromise our routine clinical services via staff cuts or anything like that. So that comes first and foremost. The reason that we've entered into a partnership with St.
John Ambulance Australia is to assist us with the staffing of the mass vaccination centers. And as I mentioned earlier, that's been a very, very fruitful and successful collaborative process. And it was designed specifically to address the issue that you're raising because for us to actually muster Fairly large numbers of staff, mainly for the mass vaccination centers, would have been very difficult, at short notice, whereas St. John were able to of Midas with suitable people to augment our medical and other staff. So, in terms of providing GP vaccinations that hasn't compromised our normal services.
I think GPs normally give vaccinations anyway. They're giving flu vaccinations and other vaccinations as part of their daily jobs. And in terms of providing vaccinations In nursing homes, we've been able to accommodate that within the normal staffing that we have for Sonic Clinical Services and that's gone particularly well. So remember those we need to go out to the aged care facility and of Vaccinate the residents on-site as opposed to a vaccination center where people come to you. And it has gone very well now.
In terms of your second part of your question, which was to do with margins, again, it's too early for us to say because We entered into this initiative with the intent of making a contribution to helping out of the Australian population. However, at the end of the day, we are a business of the company. And the fees that we are getting for the vaccinations have been set. They are fees that are not in any way exorbitant, But on the other hand, we're not losing money. Remember also that mass vaccination centers are very volume dependent.
There's a lot of It's that high fixed cost, it's very volume dependent essentially. So as you ramp up volumes, So the numbers get better. But I just want to make the point very clear that we're not entering The vaccination market as a cutthroat commercial endeavor at all, we want to make a contribution and we believe that we have of the infrastructure to do that. And so we're happy to leave it at that for the time being.
Okay. Thank you very much.
Of the
company. Thanks.
Thank you. Your next question comes from of Zane Konrad with Morningstar. Please go ahead.
Sorry, I thought I'd cancel
my question. Of Jono and Leanne took both of them. But thanks.
Okay. Thank you.
Of the company. Thank you. There are no further questions at this time. That does I'll now hand back to Doctor. Goldschmidt for closing
Thank you very much. No further closing remarks. I think we've covered it all. I just want to thank everyone for attending call. Have a good day.
Thank you. Bye bye.