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Operator: Good day, and thank you for standing by. Welcome to the Sonic Healthcare Financial Year Ended 30th June 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Dr. Colin Goldschmidt, Chief Executive Officer and Managing Director. Please go ahead, sir.
Colin Stephen Goldschmidt: Thank you very much, Amber, and good morning and good day to everyone on the call. Colin Goldschmidt is my name, CEO of Sonic Healthcare, and I'm joined today by my colleagues, Chris Wilks, CFO of Sonic; and Paul Alexander, Deputy CFO of Sonic Healthcare. We are pleased to present our full year results today. And if I could direct you, we'll start the presentation with our headline numbers, which I'm hoping is Slide 3. I understand last time we were a bit out of sequence with the page numbers. But the headline slide shows a table of our headline results. And just a note on the table itself, the FY 2025 numbers are obviously the actual statutory numbers. And we've asterisked the FY 2024 comparative numbers to flag that they have been restated to exclude the $32 million gain on the sale of our West division in the U.S.A. So revenue came in at $9.645 billion, which was up 8% on the prior year. EBITDA came in at $1.725 billion, up 8%. Net profit was $514 million, up 7%. Cash generation came in just shy of $1.3 billion and earnings per share for the year came in at $0.1067. And then moving from statutory to constant currency numbers. we achieved our guidance for the year with EBITDA of $1.702 billion on a constant currency basis. And then adjusted for nonrecurring items, our EBITDA was $1.70 billion. That's on a constant currency basis. And I draw your attention to the box at the bottom. We have a slide in the appendix. I think it's the first slide in the appendix 1 of 2, which gives detail on the nonrecurring items. Organic revenue growth for the year was 5%. And our normalized EBITDA margin expanded by 40 basis points for the year. And here again, I refer you to the appendix for that margin analysis detail. On the subject of margins, we continue to be sharply focused on delivering ongoing margin expansion. And of course, we'll achieve this through our ongoing strong organic revenue growth and our cost efficiency programs. And just a point to note is that our margin expansion has been achieved despite some of our acquisitions and contracts having lower margins than Sonic's prevailing margins at the time of acquisition. So a good example of this is the Hartson West Essex NHS contract in the U.K. and our recent acquisitions in Switzerland. And in each case, the margins will lift in time as our synergies kick in, but initially, they are actually margin dilutive. So there's a balance that we're up against in driving our margin growth, which we are confident to achieve going forward. Our cash generation from operations was strong, and that was mainly due to higher tax payments in the prior year. And then looking to the FY 2026 year, we expect strong earnings growth driven by organic growth, our Swiss and German synergies coming through, in particular, the LADR acquisition in Germany and a range of initiatives in the U.S.A. And I guess it's important for us to say that our FY 2026 EBITDA earnings guidance equates to EPS growth of up to 19% using current exchange rates. If we go to the next slide, which is our guidance, and we're guiding for the FY 2026 year to $1.87 billion to $1.95 billion on a constant currency basis, which equates to a $1.94 billion to $2.02 billion EBITDA using current exchange rates. You'll see that the range there is now $80 million, which is a bit wider than our previous $50 million EBITDA range. And I will say here that this is not an indication of lack of confidence in our budgets, but rather a reflection of increased company size, and it's still about a 4% range out of that total EBITDA number. And we've expanded it slightly mainly to cater for synergies coming through from Switzerland and Germany and especially the LADR acquisition. And if appropriate, we'll have an opportunity to reassess the guidance at the half year mark and possibly tighten up the range at that time if it makes sense. So the guidance that we provided reflects up to 13% EBITDA growth on FY 2025, and that equates to about 16% growth using current exchange rates. And then talking about depreciation, interest and tax, depreciation expense as a percentage of revenue is expected to be in line with FY 2025. Interest expense, we expect to increase by 15% to 20% on a constant currency basis, reflecting the acquisitions in the FY 2026 year, and that includes both LADR and Cairo. And our effective tax rate, we expect to be around 27%. And then the key guidance considerations. The guidance includes completed acquisitions only, and that's obviously including LADR and Cairo Diagnostics. It excludes the potential PAMA fee cut, which could come in January 2026, although having been delayed now for, I think, 5 or 6 years, we expect it to be deferred again, if not canceled. And no other regulatory changes are assumed, and we assume current interest rates will prevail. The next slide is on dividends, and the Board of Sonic has ratified a dividend -- a final dividend of $0.63 per share, which is on a par with the final dividend last year. And total dividends for the year will be $1.07 per share, which is up 1% on the prior year. The final dividend will be franked to 35%, record date 4 September, payment date 18 September 2025. And regarding that final bullet point, we continue to stand behind our progressive dividend strategy into the future. And although the current dividend payout ratio is still relatively high, we expect the payment ratio to start coming down in line with our predicted strong earnings growth from here on. The next slide, which is 6, is on capital management. And this slide provides information on our capital management, and it really highlights our strong balance sheet position. Our headroom stands at approximately $1.4 billion before the final dividend payment. And our debt cover ratio is at approximately 2.1x at the 30th of June mark, and it moves up to approximate our pre-pandemic average of about 2.4 with the LADR and Cairo Diagnostics acquisitions. And I'll just make the comment that this does not preclude future acquisitions going forward. I guess with no further acquisitions, the ratio will obviously move downwards as our earnings grow. But with synergistic suitable acquisitions, it's possible that the ratio might spike above that 2.4x line temporarily as has occurred before. And I guess you can see that in the history of this chart where we have spiked above that line temporarily associated with acquisitions. The next slide is our traditional pie chart showing our revenue split. And although the whole pie has grown, obviously, with our revenue, it's just interesting to note a few points. We currently have 9 segments in this pie, and we're now probably going to have to add a 10th, which is Poland because we have a business operating in Poland now coming with the LADR acquisition, roughly AUD 50 million in revenue. And given that New Zealand gets its own segment, we probably need to cater for a new country, which is Poland. Not sure how we'll sort this out, whether we just add a segment or combine a couple of segments, we'll have to work that out in the future. But looking at the existing pie and looking at our 6 largest divisions, we have 3 divisions now which are in the range of around $2 billion in revenue. That's U.S.A., Australia and Germany. And we have 3 divisions which are in the ballpark of about AUD 1 billion in revenue, that's Switzerland, U.K. and Radiology. But with the LADR acquisition, Germany has essentially broken away from the pack. And next time around, this pie chart will show Germany as our clear #1 division in terms of revenue. And just to nail that, LADR alone is going to add revenue somewhere between AUD 650 million and AUD 700 million per annum to Germany's revenue. That excludes any other acquisitions or organic growth. Okay. Moving on to our country slides. Firstly, the U.S.A. So our statutory growth in the U.S.A. was negative 2%, and that was impacted by the sale of the West division in the second half of FY 2024. Organic growth came in at minus 1% on a constant currency basis. Our organic growth has been affected by the loss of a payer contract in Alabama and also the disruption caused by the Change Healthcare cyber attack, which we can talk about in question time if there's interest. We point out that our organic growth is stronger in clinical pathology than in anatomical pathology. And pleasingly, when we look at July's results, which are through, we're seeing a return to positive organic growth sitting at about 2.5%. We're very focused at the moment on strategies to drive revenue growth. And these include the recent gain of a new payer contract. This is a new contract for us in New Jersey with Horizon Blue Cross Blue Shield. And we're actually nearing completion with another payer contract. which is going to add potential revenue growth to our division as well. The other initiatives to drive revenue include things like restructuring our U.S. sales force where we've combined our CP and AP, that's clinical pathology and anatomical pathology sales reps. We're driving digital dermatopathology sales using our Pathology Watch platform. We're extending the good growth of sales of our exclusive thyroid cancer test, ThyroSeq. We're pursuing hospital laboratory deals, and we're planning to take the Cairo diagnostic test panels national. And I'll say a bit more about that just in a minute. And so there's a huge focus at the moment on lifting top line growth in the U.S. From an operations point of view, the rollout of our digital pathology and particularly our Pathology Watch platform continues according to plan. The enhanced revenue collection system, that's the XiFin platform rollout is going to plan, and we expect the majority of the benefits, as flagged previously, will flow through in FY 2026. We've also rationalized our lab in the Midwest, which we have deemed to be subscale, and we've transferred just about all the testing from that lab to our Sunrise medical laboratories in New York to their facility. Just a few words about the Cairo Diagnostics acquisition. It settled only a few days ago. And this is a successful Northeast-based lab. It's located just north of Manhattan, and it's actually near our CBLPath laboratory. And it's a lab that's focused on esoteric and genetic tests for mainly blood cancers, but also other cancers. Annual revenues of this business are approximately AUD 35 million, and it's a business with relatively high margins. And as I mentioned, our strategy is not only to grow this business regionally in the Northeast, but using Sonic's infrastructure to extend the service nationally. So just to explain this a bit further, Cairo Diagnostics is a specialist hemato-oncology lab or they call it hemonc -- in the jargon in the medical space. And it's a lab that provides essential high-end genetic and other testing for patients mainly who have leukemias and lymphomas. We're certainly excited about this partnership, not only because it adds a high-quality genetics lab to Sonic's stable, but also because we believe that there's a real opportunity to expand these services nationally using our existing infrastructure. And by that, I mean our collection centers, our couriers, our sales reps and importantly, our pathologists. And the fact that we are strong in anatomical pathology throughout the U.S. and deal with oncologists in that space will help us with that national rollout. Moving on to the next slide, which is Australian Pathology. This is a division that's performing very strongly. Organic revenue came in at 6%. Our earnings were enhanced in the year, not only by strong revenue growth, but also by tight cost management and a particular focus on our FTEs in the post-pandemic years. That tight control has continued. We're particularly proud to show strong organic growth in our genetic and other specialized testing. And I'll give a special shout out here to the success achieved by our Sonic Genetics team. Sonic Genetics is a combination of DHM in Sydney and Sullivan Nicolaides Pathology in Brisbane. And in my opinion, Sonic Genetics is now the preeminent genetics testing institute in the whole of Australia. And it's -- I'm confident that it's going to serve Sonic very well long into the future, given the shift that's occurring in the lab -- medical lab space towards higher-value tests, especially in the genetics space. So more generally, we're increasing the use of private billing for selected tests. And this includes tests which are not covered by the Medicare schedule as well as tests which are covered in the Medicare schedule. Our labor costs remain tightly managed even despite the fact that we're experiencing fairly strong volume growth. We were absolutely delighted to be selected to provide lab services for both North Shore Private Hospital in Sydney from July 2025 and Hollywood Private Hospital in Perth, which will start in February 2026. These are both Ramsay Healthcare Hospitals and are both large. North Shore Private Hospital, I believe, has more than 300 beds and Hollywood Private, I believe, has more than 900 beds and is the largest private hospital in Australia. We're actually honored to take over these contracts and our 2 involved labs, DHM in Sydney for North Shore Private and Clinipath in Perth for Hollywood are both equipped and already in Sydney, but will do in Perth, deliver outstanding lab services and add value to these fine Ramsay institutions where great service is provided to both patients and doctors. Also in terms of contract wins, there was a lengthy government tender process for the National Bowel Cancer Screening contract, and we were very pleased to have won that again. This will be a long-term contract once again. And after providing this outstanding service for so many years, we're very pleased to continue that service for the whole population of Australia. I think most of you know that annual indexation is going to be applied to around 1/3 of the Pathology Medicare schedule. The initial indexation of 2.4% commenced on 1 July of this year. And as we move forward, we continue to target the rationalization of collection centers, and we have closed about 50 of these collection centers over the past year, and that strategy is showing great success, and we plan to continue with it going forward. On to the next slide, Germany, another division that's performing really strongly. Statutory growth, 10% in revenue, organic growth, 4% on a constant currency basis. Our organic growth in the second half of FY 2025 was impacted by the change to the minimum KV quota for statutory insurance fees, that's the EBM schedule, which was effective 1 January 2025. That had an impact of approximately 1% annually across all our revenue. The specific EBM fee changes, which is different to the quota changes, which was also effective 1 January 2025, was net neutral for Sonic as we've flagged previously and as we expected it to be. At operations level, our German businesses continue to perform very strongly. We've had a number of successful laboratory mergers where we go 3 into 1 or 2 into 1 in both Hamburg and Munich and these will provide synergy benefits and capacity for future growth. The LADR Laboratory Group acquisition settled on 1 July 2025, and there are already multiple integration and synergy work streams in train. The total revenue for this business exceeds $650 million. If you use today's exchange rates, it's a bit more than that. And we guide you again to the appendix, and this is a slide that we put in there that we have previously presented at the half year results release. In addition to LADR, there were 2 small synergistic acquisitions. They settled in October '24 and January '25. They've now been fully integrated, total annual revenue of about AUD 15 million. The next slide on Switzerland. A lot is happening in Switzerland, as I think you all know. Statutory growth, 21% organic growth, 4% on a constant currency basis. At operational level, we've now completed the rebranding of all 4 of the previously separate Swiss entities into one national integrated business that we're calling Sonic Swiss. We have a strong management team comprised of senior executives of all 4 of those entities. And just as a reminder, those entities were our original acquisition in Switzerland Medica based in Zurich and then MediSupport and then MediSyn and finally, the Roche Group. Our massive operational plan, which is concentrated on synergy capture from these acquisitions is proceeding to plan. And it's really great to see the significant synergies that have begun coming through and which will peak in this current financial year 2026 and FY 2027. And amongst these synergies, we've integrated IT functions into one system, and that's pretty well complete. And that's going to allow for standardization across the country, internal referrals and other efficiencies, which will flow. As far as physical lab mergers go, we've completed initial lab integrations in Geneva in clinical pathology and in Lausanne and Zurich in anatomical pathology, and there will be other lab and department mergers to follow in calendar 2026. So we're very pleased with the progress. This is a massive operation being led by an outstanding team. And really, it's wonderful, I'll just repeat again, to see synergies coming through, which will be in the 2026 numbers. The next slide, U.K. Revenue, 19% growth on a statutory basis, organic growth, 14% on a constant currency basis. At operational level, the Hartfordshire and West Essex NHS contract commenced 1 March of this year. We're in the process of fitting out a hub lab in Watford, just north of London, not only to service the Hearts and West Essex contract, but also to create capacity for growth for our general business. And the building works in this fit-out are on track to complete by June of next year. Since 1 March this year, we've successfully commissioned 2 new stat labs in the Hearts and West Essex group. And as part of the contract, we've taken on around 600 NHS staff. And just as a side bar to that point, just a number -- it's worth remembering that number if you're going to be looking at our total labor cost as a percentage of revenue for the whole company. So we've taken on 600 additional staff as part of that HWE contract. Your slide says we are currently documenting a new contract with Royal National Orthopedic Hospital. But a news flash is that overnight, this has now settled and signed. So it is a small contract, but an indication of yet another NHS outsourced contract won by our team in the U.K. This is a London-based small orthopedic hospital. And then moving outside of the NHS, we have secured a new contract to provide pathology services for one of the largest private specialist outpatient health care centers in the U.K. and services for that will begin in October of this year. And then looking ahead, we're obviously continuing to bid for new private and NHS contracts. And I can say that the future growth prospects for our U.K. division look really bright. Next slide is Belgium. Revenue growth, 3% statutory organic growth, 2% at constant currency. Our FY 2025 growth was impacted by the fee cut, which came in on 1 January 2024. But on the flip side, our organic growth has been augmented by a 3% indexation of the national fee schedule, which came in 1 January 2025. And the operations in Belgium are stable. Next slide is our Radiology division, which continues to perform strongly. Revenue growth, 10% organic EBITDA growth, 12%. At operations, our growth is particularly strong in the higher-value modalities, and those include CT, MRI and PET/CT. That trend appears to be continuing and will go on for many years to come. Unlike Pathology, annual Medicare fee indexation applies to the whole fee schedule, the Medicare fee schedule and a 2.4% increase was applied from 1 July 2025. We've opened 7 greenfield sites in the year-end review, and we have another 4 planned for FY 2026. The recent change -- recently introduced change in Medicare MRI licensing regulations from July 2025 has been beneficial for us and is driving revenue growth, and the change has meant an additional 23 of our MRI scanners have now become fully funded. We are active participants in the National Lung Cancer Screening Program, which commenced July 2025, and we're already seeing strong growth from the early phases of this excellent program. And we continue to make prudent investments in AI and other systems to optimize our workflows and efficiencies going forward. Next slide, Sonic Clinical Services. Revenue growth was 2%. And at operational levels, I should probably say that as a general statement, the primary care market conditions are improving somewhat as a result of the recent increase in Medicare funding. In addition, we are seeing strong performance from our occupational health division, that's Sonic Health Plus, including the Australian Defense Force pre-recruitment contract, which is now going pretty well. And as a result of these, we're expecting improved performance in FY 2026, driven by the fee changes and our internal cost management initiatives. During the year, we acquired the business of National Skin Cancer Clinics, which settled in April 2025. And just a little bit about this business. It has annual revenues of around AUD 25 million. And it gives us the opportunity for synergy capture from integration of NSCC into our existing skin cancer clinics, which are called ASCC, Australian skin cancer clinics. And when you combine these 2, NSCC and ASCC, Sonic is now Australia's leading provider of skin cancer clinics. The next slide on sustainability is a summary only of our sustainability progress and our external ratings as well. And I guess it's also to let you know that Sonic is making excellent progress in our ESG and sustainability endeavors. And that full details of these will be published in the FY 2025 sustainability report, which is due for release in November. And the final slide, which is -- summarizes our positioning for the future. I have to say the company is well positioned for the future with significant competitive advantages -- we have market-leading brands and positions in our major countries. We are fortunate to have stable and experienced managers and doctors leading the organization. Our balance sheet remains strong as we've demonstrated with investment-grade metrics, and we have our deeply embedded medical leadership culture, which provides unique market differentiation. And finally, for the year ahead, and as mentioned in this presentation, we are expecting strong EPS growth in FY 2026. And I'm now going to hand you back to our operator to take your questions. Thank you very much.
Operator: [Operator Instructions] We will now take our first question from the line of Lyanne Harrison from Bank of America. I'm not getting a response, we'll move to the next question. Our next question comes from Craig Wong-Pan from RBC.
Craig Wong-Pan: Just wanted to touch on Australian Pathology. I know if you look at the second half numbers, it looks like growth slowed a bit. I just wanted to see if that was kind of within your expectations or if there's anything that you could see explaining that change in growth in the second half?
Paul J. Alexander: Craig, it's Paul here. One of the factors involved in that is actually the cyclone situation in Queensland. It's not so much the cyclone itself, but the fact that the Queensland government effectively encouraged businesses to close down for several days. And so that actually impacted revenue not only in pathology, but also radiology and in our Sonic Clinical Services business. So that was one unexpected impact in that period. There was a bit of a difference in working days between the first half and the second half as well, which sort of exacerbates that -- what you're seeing as a slowdown there. So overall, I wouldn't say that growth necessarily slowed.
Colin Stephen Goldschmidt: No. All indications, Craig, are that there's a number of cycling effects in this as well. We offer selected tests, which we cycled through, and that's had a minor effect as well. But I think if you just take what Paul has said, I think we're going to be back to at least market growth from this year onwards.
Craig Wong-Pan: Okay. And then just to clarify, just moving to the U.S., the 2.5% organic revenue growth that you've seen in July, did that include the New Jersey contract win? Or is that before -- or is that kind of contract not started yet?
Colin Stephen Goldschmidt: No, it hasn't started yet. So that's without it.
Craig Wong-Pan: Okay. And then just my last question on radiology. The changes in MRI, you talked about sort of seeing some benefits there and lung cancer screening. Just wanted to see if you could talk about your expectations for growth in FY '26 for revenue. Like with those things, should you drive -- be able to achieve a higher revenue growth than the 10% you achieved in FY '25?
Colin Stephen Goldschmidt: I mean we haven't provided that information, that granular information, but I would assume it's not going to make a big difference. I mean we're showing very strong organic revenue growth, and we expect that to continue. That's probably all we can say at this point, Craig.
Operator: We will now take our next question from the line of Andrew Goodsall from MST Marquee.
Andrew Goodsall: Just you mentioned you're going to start additional private billing. Just wondering if you've got any thoughts on the magnitude of that and whether there's been any pushback at a regulatory level.
Colin Stephen Goldschmidt: So Andrew, this is a sensitive and potentially competitive issue, and we don't want to speak too much about it. But in general, where appropriate, we feel that it is the right thing to do. I don't want to be specific about which particular tests, and we don't have a national strategy here. Each lab is doing -- is applying private billing where they deem it appropriate for their particular market. But as we see it going forward, I think it's something that probably will increase slowly by all players in the market, even though I can't speak on anyone else's behalf, but it just is one of those things. There are so many tests now that are not included in the schedule at the high end of our testing menus. Plus there are some tests which we provide, which we believe are under remunerated and where private billing is accepted by patients.
Andrew Goodsall: And then just moving to Germany, the regulatory setting there, the KB quota 85, would you expect that will sort of annualize? Or I guess, how locked in stone is that level or will it revert back up? Give us...
Paul J. Alexander: So Andrew, the change that occurred from 1 January was that the minimum quota that could be applied moved down from 89 to 85. Now each KV, and there's a bunch of them, they're basically state-based, does run their own numbers every single quarter to work out what level of quota they will apply. So just because the minimum quota comes down doesn't mean that every KV will reduce their quota level. But it is fair to say that the ones that were paying at the minimum of 89 in general have now moved down to the 85 level. But our average level across Germany is more in the order of, call it, 87, 88, somewhere around there, whereas before it was above 90. So that's where it sits. It can change over time. As I said, they reassess it every quarter based on their budgets and their spend.
Andrew Goodsall: Yes, we hear that not everyone has gone down. Is the risk that more go down? Or -- and then historically, has anyone actually ever gone up?
Paul J. Alexander: Yes, they've definitely gone up. And certainly, the best example of that was in the early days of COVID, where our routine volumes went down by sort of 30% to 50%. And as a result of that, the quota level moved to 100% for virtually all the KVs for a period or 2.
Colin Stephen Goldschmidt: So Andrew, just it depends to a large extent on that particular KV's budget and the demand for testing in that particular period. And so it moves up and down depending on demand.
Paul J. Alexander: But there's no reason to think that all KVs would move to the minimum level just as they -- not all KVs paid at the minimum level when it was 89%.
Operator: We will now take our next question from Lyanne Harrison from Bank of America.
Lyanne Harrison: Can you hear me okay now?
Colin Stephen Goldschmidt: Yes.
Lyanne Harrison: Okay. I might start with the United States. You mentioned growth was a bit challenging in the second half. You lost a major contract there. Can you just give us a bit of explanation as to why you think you might have lost that major contract or the reasons for it?
Colin Stephen Goldschmidt: Yes. So the one we lost was in Alabama, and Alabama is an unusual state. It's not a typical state where a payer is providing service to the majority of the lives in that state. And so they have negotiated out a cheaper deal basically with one of our competitors and gone to an exclusive arrangement with that provider. So this is something that doesn't happen very often because most of the other states do not have this sort of almost monopoly situation as far as payers go. So that's the reason we lost that contract. And there's no other reason is that, that particular payer gets a better deal out of one of our competitors.
Lyanne Harrison: And then you also mentioned you won a new contract, one in New Jersey, you've got more in the pipeline. Is that -- is it safe to say that, that New Jersey one is probably not as big as the one you've lost in Alabama?
Colin Stephen Goldschmidt: No, I think it could be bigger. New Jersey is actually more populous. And the other new one that I did mention, we're not at liberty yet to talk about where it is or what it is. But maybe we can talk about it at another date when it crystallizes and it is going to crystallize.
Paul J. Alexander: I think, Colin, the New Jersey one covers about 9 million lives, whereas the Alabama one was 3 million lives, a bit of an scale. However, it will take us time to win the referrers to get access to that. So it's not like we've got the contract and the win or revenue comes instantly. It will build over the next few years.
Lyanne Harrison: Okay. Can I ask about anatomical testing now? You mentioned in the United States, clinical is stronger, anatomical is still a little bit weak. Is that because of industry-wide issues? Or is it particularly -- or is it due to any particular challenges that Sonic is facing in that market?
Colin Stephen Goldschmidt: Yes. Look, we have had some issues in our particular division where we've had pathologists retire and work going elsewhere. It's -- I wouldn't put this down to an industry issue, to be honest. Anatomical pathology is one of those sectors where the testing has to be done. It's not -- it's obligatory. So there is a market. And so we've had 1 or 2 situations which have affected our revenue growth in the AP division, which, of course, we're working on right now. We're combining some of our AP labs. Remember, when we did the Aurora deal, we bought over 20 separate AP practices, some of which were pretty small and did depend on local pathologists providing the service. And so that and a few other issues have resulted in us losing some revenue in that subdivision of our business in the U.S. We're very much focused on it right now, and we're hoping very much to turn it around because I think there's a lot of benefit for us going forward, to grow that particular market. So as an example, in skin pathology, which is AP, we're rolling out our Pathology Watch digital pathology system with AI to win new business in skin pathology. And that's just one example of a big operation that's taking place to turn the growth around in the AP division.
Paul J. Alexander: It's probably worth noting as well that a couple of those factors that we've called out there, like the Alabama contract loss and the Change Healthcare cyber disruption have affected our anatomic pathology operations more than our clinical. It has affected -- both have affected both. But in both cases, it's been more of an impact on anatomic pathology. So we had quite a more significant anatomic pathology presence in Alabama than on the clinical side. And likewise, with Change Healthcare, Change Healthcare, we're actually doing the billing for the majority of our anatomic pathology practice or practices. And so the disruption there has been more significant than on the clinical side, although there's some on the clinical side as well.
Lyanne Harrison: Okay. And just one last question, the enhanced revenue collection program. Does the estimate of $20 million to $25 million benefit for '26 still stand? And can you give us an indication on what the phasing first half, second half might be?
Christopher David Wilks: Yes. Look, it does still stand. It's taken probably a little longer to integrate those systems and all the staffing changes that go with that. But it's -- I think it would be a bit of a weighting to the second half. I know my guess is maybe 1/3, 2/3, something like that as it ramps up, particularly in our largest practice, which is the CPL practice in Austin, Texas. So that went live a bunch of months ago. And so that's where we're expecting and hoping that we'll get the biggest bang for our buck just because of the scale of the practice.
Operator: Our next question comes from David Low from JPMorgan.
David A. Low: So can I just start with the comment just made about anatomic path in the U.S. and the issues with Aurora. I didn't quite follow what you're saying, probably just me, but if I could you just explain that a bit more, please?
Colin Stephen Goldschmidt: What I mentioned was that we -- unlike buying a one big lab, anatomical pathology involved multiple small labs as part of the Aurora acquisition. And just -- and this is not a general comment about the whole division, but in selected cases, if a pathologist were to retire in a small AP lab, you run the risk of losing some business to somewhere else to a hospital or another provider. That's the only point I was making, David.
David A. Low: Do you think Aurora was a good acquisition?
Colin Stephen Goldschmidt: Yes, because we're very -- we're still very focused on driving the anatomical pathology space in the U.S. for it in its own right, for the surgical pathology that comes from it now with our skin pathology tool, the Pathology Watch tool. And thirdly, I think there's going to be a big integration between cancer testing and genetics, which I think will become more apparent in the years ahead.
David A. Low: Just on the private billing in Australia and just when we're thinking about how it plays out this year, do you think we should assume a volume impact as usually when you put prices up or put private billing in place, you see some volume impact. Just wondering whether you've seen that or whether you think we should expect that this year.
Colin Stephen Goldschmidt: Not at all. So the way we do this is very, very carefully. And we basically sort of sound out individual markets before we take the step. I can tell you that the private billing that we have introduced thus far is very successful, and there is no loss of volume. So I don't think -- it's not an issue.
David A. Low: All right. And then last question for me, a bit more delicate, but one I get regularly from investors. Colin, can I get you to talk about succession planning? I mean what are your plans for staying with the business, time frames? It's not a topic that we talk about much, and I know it's not necessarily one that you want to talk about, but can I get you to talk to where you see yourself in the business in the next 5 years?
Colin Stephen Goldschmidt: Okay. So David, obviously, this is possibly market sensitive. I can't really talk about it. But just to say that, yes, at some point, I'm going to retire, obviously, so is everyone, but mine is closer than most others. And that we have in Sonic Healthcare spent a lot of time, not just at the CEO position level, but at every senior position in the company, working on strategies for succession. So when the time comes, I think we're going to be very well equipped to find a replacement for me and anyone else at senior level, hopefully, internally because that's the exercise that we tend to do at the very senior levels. And we have lots of up-and-coming leaders throughout the organization who would be well equipped to place me and probably replace me for the better.
Operator: We will now take our next question from the line of Sasha Crane from Evans & Partners.
Unidentified Analyst: Can everyone hear me okay?
Colin Stephen Goldschmidt: Yes.
Unidentified Analyst: Okay. Great. Look, just a couple of questions on the U.S. to start with. I'm just wondering if the 2.5% July growth rate is sort of indicative of where you think organic revenue growth is going to be in FY '26? Because when you look at -- and that's before the New Jersey contract, of course, because when you look at the growth rate in the second half, it looks like it might have been as weak as minus 4%, and we're probably still going to cycle some of those impacts. So I'm just wondering how indicative do you think July is for the go forward?
Paul J. Alexander: Yes. Look, it's hard to tell on 1 month, obviously, but it is a bit of a green shoot. There's a whole lot of initiatives that Colin alluded to when he was running through the presentation. So probably a bit early to tell. We think that's probably more indicative of where the market is. I know Quest and LabCorp sometimes quote some bigger numbers than that. But some of that, we believe, has to do with the way they disclose some of their hospital deals, some of which they buy and some of which they take over contracts that's probably deemed to be organic. So I guess we're hoping that we can get to something like that 2.5%. Time will tell. And you're right, there is a little bit of a cycling, particularly of the Alabama contract loss. We call that a contract. It's actually -- I guess, technically, it is a contract. It's an insurance contract that just gives you access to those lives to provide service, you still got to win the business, but it's -- when you don't have a contract, then you can't provide the service. So that will have a bit of a cycling effect.
Unidentified Analyst: Maybe if you -- is there any way you can provide some quantification of what that contract represents of revenue?
Paul J. Alexander: It's not huge, but it affects growth, obviously, because it's at the margin, but...
Colin Stephen Goldschmidt: I think we consider that commercially sensitive.
Paul J. Alexander: It's probably commercially sensitive. So it's something we haven't disclosed formally, so probably shouldn't be disclosing it here.
Unidentified Analyst: Okay. And then just on PAMA sort of your presentation cites that you think it's going to be delayed again. I think there's been some press reports about a change in methodology and maybe the risk of it actually proceeding this time has increased. I'm just wondering if you can comment on that.
Colin Stephen Goldschmidt: Yes. Look, from what I read, I'm not getting that sense, although people have pointed out once again that the data that is being used is erroneous. They pulled less than 1% of the labs in the U.S. to get to what they call a market value. And that's why there was all the protesting about it and why it's been delayed so many times. So yes, there is an outside possibility that they start the whole process all over again and actually pull a majority of the labs. So remember, if you only pull a few hospital labs, you're going to get a much higher so-called market average than you would if you poll the independent lab providers as well, whom everyone knows average fees are lower with independents. But I think the majority -- the prevailing feeling is that this is going to be brought before the Senate or the Congress, I think, in the September sitting again, very shortly next month, with hopes that it will either be delayed again and there are moves to talk about actually extinguishing it. So I think those 2 are more likely than recasting all the numbers, which will be a big process.
Paul J. Alexander: It's effectively a new bill that's being put.
Colin Stephen Goldschmidt: It will be a new bill which I don't know what its name is, I don't think it's been named yet.
Paul J. Alexander: They've normally got a little acronym name, but...
Colin Stephen Goldschmidt: It's not that [indiscernible] bill because that's gone. So I just think that what we're hearing from the industry association we've got the year very close in D.C. is that it will either be postponed or even extinguished.
Unidentified Analyst: Okay. And 2 more quick questions, if I can. Just when you're talking about getting back to market growth in Australia, I guess first part of that question is, do you think you've lost share in that second half? And then secondly, what do you sort of think market growth is? It looks to us when we look at the Medicare data that some of the yield benefits that have been helping pathology over the last 18 months have reduced a bit. So I'm just wondering what you actually think market growth is going forward roughly?
Colin Stephen Goldschmidt: Yes. It's very hard to say if it's sitting at around 6% or 5%. We have generally, over many years, been at or better than market, even looking at the Medicare data and comparing them to our business, which is not quite apples-to-apples. Look, there's this issue of the collection centers, which needs to be raised in the context of this discussion. There is a player in the market who is growing collection centers enormously. That's the #4 player. And our strategy is actually counter to that, where we are closing what we deem to be unprofitable collection centers in favor of opening up stand-alone bigger collection centers. And so there might be a bit of switch of revenue in this, but not a profit. So if the #4 player is gaining revenue, one has to ask, so what's happening to the profit here. And so we're very happy if that is the reason for a small drop in our revenue growth, there's not an issue there because we know that our drop in collection centers and potentially a small amount of revenue is actually enhancing our bottom line.
Unidentified Analyst: Can I ask how much better the stand-alone centers are relative to one that's linked to a GP practice? And are you still getting the volumes when there's an associated center with those GP practices?
Colin Stephen Goldschmidt: Okay. So again, this is bordering into competitive information. But the answer is yes. The stand-alone centers are very popular, and they are very well patronized, including by competitor patients, patients who had a request form for a competitor practice. And they're often preferred by patients because there's usually better parking. They can be open on weekends, for example. And so the strategy that we're rolling out slowly is working and working very successfully. So -- and it also is dealing with this issue of extremely high rents. Remember also that when -- if we exit a collection center in a medical center, it's not axiomatic that you lose 100% of that revenue. That's not what happens. So some of that revenue, it is a minority, but a significant minority is actually retained in the stand-alone center despite the fact that it's referred from that medical center where somebody else might have taken your place, providing a collection center.
Unidentified Analyst: Okay. And one final question. Just on your guidance, you've given EBITDA guidance, which is helpful. You don't provide sales guidance and there's a lot of moving parts on the margin at the moment with the acquisitions in particular. I'm just wondering, based on your guidance and your -- the budgeting on what that is based, should we be expecting margins to be up or down in FY '26?
Paul J. Alexander: So obviously, that depends where you think we're going to -- sorry, one of the factors is where you think we will end in our range. So we can't really be too specific about that. The LADR acquisition, as disclosed in our announcements, is lower margin than Sonic's overall group margin. So it will be dilutive in FY '26. We probably can't say too much more about that -- sorry, on that topic, given we haven't been explicit in the guidance.
Unidentified Analyst: The takeaway from those comments suggest that maybe at the top of the range, it's margins are up and the bottom of the range, maybe they're down. Is that fair? It's probably a reasonable assumption.
Operator: Your next question comes from Steven Wheen from Jarden.
Steven David Wheen: Can you hear me?
Colin Stephen Goldschmidt: Yes, we can now.
Steven David Wheen: Yes, sorry. Yes. I just wanted to ask -- when you gave us sort of July trading update for the U.S. I wonder if you could do something similar to your other big geographies, Australia and Germany. And just in particular, on Australia, can you give us an update as to how you're seeing the impact of the funding cuts for B12 and urine tests?
Colin Stephen Goldschmidt: So Steve, we obviously can't give details because we haven't released that information. We specifically released the number in the U.S. because we see it as a turnaround in revenue growth. I guess all we can say is that we are tracking to budget after July for the whole group. And in terms of Australia and your question about the B12, we are dealing with that, as I've mentioned, on a practice-by-practice basis in different states. It's a combination of strategies, including some private billing. And you can actually get that information by looking at the websites of our labs in each state.
Steven David Wheen: Okay. So when you talk about the increasing use of private billing, is that related to the strategy for how you're going to deal with that -- the impact of that -- those funding changes?
Colin Stephen Goldschmidt: No. It's partially, yes, but not universally, partially and different in different states. So when I speak about private billing, it doesn't only apply to B12. It applies to a whole range of tests that we offer. And as I mentioned, it includes tests that are not on the schedule, which we must private bill, but it also includes other tests that are on the schedule where we believe it's appropriate to bill privately.
Steven David Wheen: Okay. I mean, obviously, Mark Butler has a different stance on that. Just kind of -- could you give us some understanding as why you think it's appropriate that would allow you to charge private billing?
Colin Stephen Goldschmidt: Well, just as a general statement, if Medicare does not pay for a test that a patient wants or needs, I don't think we should be expected to provide that service free of charge. That's a general principle.
Steven David Wheen: Right. Yes. Okay. And then the other thing I just wanted to see if I could tease out is your comment about the EPS outlook for '26. Is it possible to get what that would look like without the acquisitions and contract wins, just so we can get a better understanding as to what you're anticipating your underlying business is going to do?
Paul J. Alexander: Again, we haven't released that information, Steve. So I don't think we can go into that level of detail. The main acquisition is obviously LADR. We've given a fair bit of information around its earnings, et cetera. Yes, I'm not sure that we can help you.
Christopher David Wilks: Cairo is pretty small. And again, we've disclosed something about that. So it shouldn't be too hard for you to work it out. I wouldn't have thought.
Steven David Wheen: Okay. And then just last one for me on the collection center closures. What sort of -- I don't know how we sort of put that into perspective in terms of the cost savings for your business, maybe through rent and labor. Can you give us any sort of parameters that we could sort of contemplate to put that into some context for the Australian business?
Colin Stephen Goldschmidt: It's extremely difficult. We've said that we've closed 50 in the year, but we've opened some stand-alone. It's a net number that. The rents are going to be different in the co-located versus stand-alone. I don't think I can give you any help there, Steve. I don't think we can -- you go.
Christopher David Wilks: They all vary in size and how many staff they might have and so...
Colin Stephen Goldschmidt: Too hard a question.
Operator: [Operator Instructions] We'll now take our next question from David Stanton from Jefferies.
David Andrew Stanton: A couple from me. Can you give us an update on your views on overall wage inflation growth for the business that you expect in the near to medium term? And I guess whether your reimbursement and volume continues to cover that?
Colin Stephen Goldschmidt: Yes. So David, I think that's a good question. So just to give the background, in the post-pandemic years, we went through 3 years of roughly 5% wage growth compounded, something that hasn't happened, I think, in Sonic's history, certainly for 20 years, which was extremely painful in terms of the financials and particularly the margins. Inflation has now dropped dramatically, and the pressure is right off in terms of salary pressure. And so I think we're very much back to what we would call steady-state business where we are growing revenue in excess of labor costs going up. And so we have now the capacity again to deliver margin expansion. given that labor is our biggest single cost. It's just a very, very different scenario now from what it was, say, 2 or 3 years ago.
David Andrew Stanton: Understood. Second question, Germany, you've talked about EBM changes. I'm wondering if you're thinking about or there's any indication of potential GOA change in 2026?
Christopher David Wilks: I think our general feeling and probably feeling of the market is that the GOA is still -- if anything, is still some years away. So certainly no thoughts of having any effect in '26 or '27 in our minds anyway.
David Andrew Stanton: And finally for me, slight increase in tax rate. Can you talk to us what's driving that, please?
Paul J. Alexander: Yes. So we operate in 7 different jurisdictions, as you know, David. And so the relative profitability of one of those jurisdictions versus another, high tax rate versus low tax rate is hard to predict, and we don't always get that exactly right. But it's not a massive difference that we've seen. It's a little -- we reported 27.5%, I think, versus the guidance of up to 27%, so a little bit higher, as you say. But there's no one specific factor to call out. It really is just the combination of earnings of different businesses with different tax rates applicable.
Operator: We will now take our next question from the line of Davin Thillainathan from Goldman Sachs.
Davinthra Thillainathan: Just a question on, I guess, your earnings guidance into FY '26. trying to segregate that between LADR and your underlying business. I heard the comments that LADR total annual revenue is more than AUD 650 million. But could you give us a sense of what that looks like on a euro basis only because FX rates are moving around a fair bit, and we just want to compare it to the point of the closure, which I think was EUR 370 million.
Christopher David Wilks: So we did announce the euro number, as you say, the EUR 370 million, which was at a calendar year December '24 number. We haven't provided anything to the market since then. But as you would expect, that business is growing.
Paul J. Alexander: It's growing at similar rates, we would imagine -- you could imagine to our business in Germany. So you could extrapolate where that looks for '26, I think.
Davinthra Thillainathan: Okay. Great. Next question is on your Swiss acquisitions. I understand the commentary that synergies are largely tracking to your expectation. But again, just sort of help us put that into some numbers to work out the different moving parts into '26. Could you give us a sense of what type of EBITDA margins the combined businesses are doing now? So those are the 2 big acquisitions which you did comparing it, I guess, to the base where it was either flat to loss-making?
Colin Stephen Goldschmidt: Yes. So we have guided previously to a 20% EBITDA margin. It's just a matter of when that's going to be achieved. And I think my comments that they're largely going to be flowing through in this year, FY '26 and also some in FY '27, and we are still very confident that we will get to that margin.
Davinthra Thillainathan: Okay. And just one last one for me. And this is sort of bigger picture. I mean, into '26, your EPS guide is for double digits. And I know that's been assisted by FX. But even if you took FX out, it's still a pretty healthy clip of growth. If we think about how you think about the business, I guess, on a 3-year view, what sort of type of growth do you expect the business to generate? Just historically, that's not the type of growth which Sonic is typically accustomed to. Just curious on your thoughts on what kind of growth you would like to manage to, I guess, in a 3-year view?
Christopher David Wilks: Yes. Look, this is guidance for the next year, which obviously we've got budgets up our sleeves. So it's a bit hard to be disclosing something we haven't disclosed. But this year, we're obviously benefiting -- or this coming year, we're obviously planning on benefiting from some of the synergies that come from those acquisitions. They won't always repeat themselves going forward. So look, it's -- we used to have a history if we're growing our revenue organically at a decent level, which is how it's been for the recent years that we can grow our bottom line at least that rate or hopefully a bit better. So I really can't say anything more than that really. Otherwise, we're giving guidance for years beyond '26.
Operator: Our next question comes from David Bailey from Morgan Stanley.
David L Bailey: Just some quick ones from me. You've given 19% EPS at the top end. I'm getting about 8% at the bottom end. Just want to confirm if that's ballpark and correct. And then secondly, just the expected impact of currency at the NPAT level. You've given about $70 million at the EBITDA level. How that might wash through for fiscal '26 towards the NPAT level would be great or EPS as well, that would be good.
Paul J. Alexander: Well, we haven't put out those numbers, David, so I don't know that we can really confirm that.
Christopher David Wilks: Well, I mean, you've given the top end, I can kind of work backwards towards that. Like I'm just wondering if $1.15 is -- or 8% is kind of in the range of the low end. And equally, any contributions from currency as you can see at the moment in terms of NPAT for '26.
Colin Stephen Goldschmidt: I guess some of those below the EBITDA line won't change too much the likes of interest. And it might be worth me pointing out that just on interest, we have made an acquisition of a new building site in Melbourne just at the start of this year. So the interest on that is over about $100 million, and there's a build happening down in Melbourne. So we have -- part of the reason the interest is up as well as the M&A, there's the interest on that building. So we've effectively got interest on the building as well as the rent on the existing building. So for about 18 months, we'll have a little bit of a double up there that will disappear once we move into that new facility in Docklands. So -- but I don't think we can really -- I don't know, Paul, if you...
Paul J. Alexander: So just on the FX bit. So obviously, we use natural hedging. So our debt is mainly in currencies other than AUD. And so by the time you get to net profit, the effect is less. As you said, it's about a $70 million difference at EBITDA. It will be less than half of that at net profit line.
Operator: Our next question comes from Saul Hadassin from Barrenjoey.
Saul Hadassin: Can you hear me alright?
Colin Stephen Goldschmidt: Yes.
Saul Hadassin: Great. Maybe for Chris or Paul, just following up from David's question before and just to clarify, Chris, maybe what you said. On the interest expense and the growth, based on where rates are now, are you saying it won't have a significant impact on that 15% to 20% constant currency growth? I'm trying to get a sense of where actual interest expense is going to land if we looked at current rates.
Christopher David Wilks: Just looking at current exchange rates.
Saul Hadassin: Yes.
Christopher David Wilks: Current interest rates.
Saul Hadassin: No, current exchange rates. So if FX remains where it is and noting your European debt, whether the 15% to 20% growth in interest expense still stands using current rates or as in current FX, not interest rates? Or will the interest cost grow by 25% because of the euro and Swiss franc moves versus the Aussie.
Paul J. Alexander: I think that is a safe assumption that there is a bigger impact there because for the same reason, it's the opposite effect that we natural hedge...
Christopher David Wilks: Because we've got this natural hedge in place where we have borrowings in the relevant currencies to create that natural hedge.
Operator: I'm showing no further questions. And with that, we conclude our conference call for today. Thank you for your participation. You may now disconnect your lines.
Colin Stephen Goldschmidt: Thank you very much.