Annual
Report
2020
ABN 24 004 196 909
Corporate Directory
DIRECTORS
Prof. M.R. Compton | Chairman
Dr C.S. Goldschmidt | Managing Director
Mr C.D. Wilks | Finance Director
Prof. S. Crowe
Dr P.J. Dubois
Mr N. Mitchell
Mr L.J. Panaccio
Ms K.D. Spargo
Dr E.J. Wilson
COMPANY SECRETARY
Mr P.J. Alexander
PRINCIPAL REGISTERED OFFICE IN AUSTRALIA
Level 22, Grosvenor Place,
225 George Street, Sydney
New South Wales, 2000, Australia
P 61 2 9855 5444
F 61 2 9878 5066
W www.sonichealthcare.com
E contactus@sonichealthcare.com.au
SHARE REGISTRY
Computershare Investor Services Pty Limited
Level 5, 115 Grenfell Street, Adelaide,
South Australia, 5000, Australia.
P 1300 556 161 (Within Australia)
P 61 3 9415 4000 (Outside Australia)
F 1300 534 987 (Within Australia)
F 61 3 9473 2408 (Outside Australia)
W www.computershare.com
E www.investorcentre.com/contact
AUDITOR
PricewaterhouseCoopers
SOLICITORS
Allens
Gilbert+Tobin
BANKERS
Australia and New Zealand Banking Group
BNP Paribas
Commerzbank
Commonwealth Bank of Australia
Crédit Industriel et Commercial
DNB Asia
HSBC
JPMorgan Chase Bank
Mizuho Bank
MUFG Bank
National Australia Bank
Westpac Banking Corporation
STOCK EXCHANGE LISTINGS
Sonic Healthcare Limited (SHL.AX) shares are
listed on the Australian Securities Exchange. Sonic
Healthcare Limited also has a Level 1 sponsored
American Depositary Receipt (ADR) facility managed
by BNY Mellon (the ‘Depositary’). Sonic Healthcare
Limited’s ADRs are traded under the code SKHHY.
Verification of Unaudited Information in this Annual Report
Unaudited information in this Annual Report comprises all information included in the Annual Report other
than the Financial Report, the Remuneration Report within the Directors’ Report, the Directors’ Declaration,
the Independent Auditor’s Report and the Auditor’s Independence Statement.
The integrity of the unaudited information has been verified as materially accurate and/or reasonable using
the following processes:
Financial information in the unaudited information has been tied to the current and/or previous audited
Financial Reports, or has been gathered using the same reporting and consolidation process as used for
the Financial Report (which includes several review layers), or has been sourced from third parties.
The unaudited information has been reviewed and approved by the Managing Director and Finance
Director individually, the Audit Committee, and the Board as a whole.
The independent auditor has read the unaudited information and has considered whether the information
is materially inconsistent with the Financial Report or their knowledge obtained in the audit, or otherwise
appeared to be materially misstated. The auditor had nothing to report in this regard.
Forward-looking statements and opinions included in the unaudited information (which may be identified
by the use of terminology including ‘expects’, ‘believes’, ‘targets’, ‘likely’, ‘should’, ‘could’, ‘intends’, ‘aims’,
‘is estimated’ or similar expressions) are not certainties, guarantees or predictions of future performance.
Readers are cautioned not to place undue reliance on forward-looking statements or opinions.
Cover
Phlebotomist/pathology
collector Natasha Ta
from Clinpath Pathology,
South Australia, collecting
a COVID-19 specimen
from a patient
Inset
Pathologists Dr Peter
McQuillan and Dr Mukta
Rayoo from Melbourne
Pathology consulting on
a diagnosis
Contents
Chairman’s Letter
CEO Report
Financial History
Directors’ Report
Auditor’s Independence Declaration
Corporate Governance Statement
Financial Report
Directors’ Declaration
Independent Auditor’s Report to the
Members of Sonic Healthcare Limited
Shareholders’ Information
03
04
07
10
54
55
68
152
153
159
Sonic Healthcare
produced a net profit
for the 2020 financial
year of A$528 million, on
revenues of A$6.8 billion.
Chairman’s
Letter
Dear Fellow Shareholders,
On behalf of Sonic Healthcare’s Board of Directors, I am
pleased to present the Company’s 2020 Annual Report.
Sonic Healthcare produced a net profit for the 2020 financial
year of A$528 million, on revenues of A$6.8 billion. Despite
the impacts of the COVID-19 pandemic on the 2020 financial
results (which are described elsewhere in this Report), the
Board has been able to support shareholders with a modest
1.2% increase in total dividends per share (to A$0.85) for the
year, continuing our progressive dividend policy.
Sonic’s balance sheet is very strong, underpinning the
Company’s operations and ready to support future growth.
Robust cash generation in 2020 facilitated a reduction in
net interest bearing debt of A$277 million (after payments
for acquisitions and dividends), resulting in Sonic’s gearing
being well below our long-term average. In fact, the ratio of
Net Debt to EBITDA was at the lowest level in 20 years, a solid
position to be in during these uncertain times.
In relation to Board renewal, development and diversity,
a number of important changes have occurred in the last
twelve months. The Board selected Mr Neville Mitchell as
the new (from 1 October 2019) Chair of the Audit Committee,
succeeding Mr Lou Panaccio, who retired from the Chair
position he has held for almost 10 years. Mr Panaccio will
remain a member of the Committee and has worked closely
with Mr Mitchell to ensure a seamless transition.
Professor Suzanne Crowe AO joined the Board from 6 April
2020 as an independent, Non-executive Director. Prof.
Crowe is a qualified medical specialist in Infectious Disease.
Whilst Suzanne had agreed to join our Board several months
earlier, the timing of her commencement could hardly have
been more beneficial, with her insights into the COVID-19
pandemic of great utility to the Board and the Company over
the last six months. Suzanne’s appointment was consistent
with, and continues to enrich, Sonic’s Medical Leadership
culture and strategy.
Dr Philip Dubois, who has been an Executive Director on the
Board since 2001, retired from his executive position with the
Company in June 2020. Philip is therefore now considered
a Non-executive Director. He has advised that he will retire
from the Sonic Board by the end of his current three year term
(November 2022).
Sonic’s Board now comprises seven Non-executive
Directors, six of whom are considered independent, plus two
Executive Directors (being the Chief Executive Officer and
the Chief Financial Officer). The Board includes a pathologist,
a radiologist, a medical specialist and a registered
general medical practitioner, in keeping with our Medical
Leadership culture.
Prof. Crowe’s appointment has also resulted in the Board
achieving its gender diversity objective to have at least 30%
female membership (now at 33%, up from 25% previously).
Board renewal, development and diversity remain areas of
active consideration for the Sonic Board.
As is the case each year, I heartily recommend that you read
Sonic’s latest Corporate Responsibility Report, available
on our website. This Report describes how Sonic cares
for its people, the environment, its own communities and
communities in acute need. Sonic’s standing as a socially
responsible company continues to be recognised by
external parties, including through ongoing inclusion in the
FTSE4Good Index Series. The Board is very proud of Sonic’s
efforts in these critical areas, and hopes that shareholders feel
this pride as well.
The COVID-19 pandemic has challenged and continues to
challenge Sonic’s leaders, the doctors and other healthcare
professionals we serve, their patients and our staff in ways
that are without precedent. The response from all parts of the
organisation has been nothing short of magnificent. Sonic’s
Medical Leadership culture and values that underpin all we
do each day have risen to the fore, and our people continue
to play a crucial role in combatting the pandemic. I have never
been more proud to be part of this Company, and I thank
every one of our 37,000 staff for their courage, dedication and
expertise. I include in this expression of thanks the directors of
the Company who have shown their usual great dedication,
diligence and expertise in a rapidly changing environment
with many unknowns as the pandemic unfolded. Their skill
and leadership is also to be commended.
I would also like to thank you, our shareholders, for your
continuing support of the Company and the Board.
Professor Mark Compton AM
Chairman
03
SONIC HEALTHCARE | ANNUAL REPORT 2020 CEO
Report
Sonic Healthcare’s 2020 financial year was dominated by the
impact of the COVID-19 pandemic, both in terms of the effect
on the Company’s financial results, but more importantly, the
impact on our people and communities. The response to the
pandemic of our leadership teams and 37,000 staff around
the world has been truly inspiring.
Throughout the pandemic to date, our operations have
continued seamlessly to provide our essential routine,
non-COVID healthcare services. In addition, our practices
and people have risen to play crucial frontline roles in
combating the pandemic. Our staff in Australasia, the USA
and Europe have used their experience, expertise and
company infrastructure to go from zero to testing thousands
of patients every day for COVID-19 in a matter of weeks. To
date, we have performed more than 6 million COVID-19 PCR
tests globally, and we continue to increase testing capacity
further to meet the needs of the communities in which we
operate. Our imaging and clinical services businesses have
also adjusted rapidly to the new environment in which we
find ourselves. Sonic’s Medical Leaders around the world are
collaborating internally and working with governments and
other healthcare authorities to develop, support and enhance
pandemic control initiatives.
In relation to our financial results, after reporting a strong first
half-year and starting the second half well, our businesses
around the world were almost simultaneously impacted
by dramatic falls in base business patient volumes from
mid-March 2020, caused by social restrictions and fear
of infection. With significant uncertainty surrounding the
potential extent of the falls and the timing to recovery, Sonic’s
operations responded swiftly, firstly to secure the safety of
staff and patients and then to reduce costs and conserve
cash to mitigate against the revenue shortfalls.
The declines in base business revenues varied significantly
by market, but early stabilisation of levels became evident in
late April, followed by commencing recovery during May, at
different rates in each market. Fortunately, our base business
volumes in most markets had largely recovered by 30 June
2020, and COVID-19 testing volumes ramped up through the
period providing a partial offset. This enabled Sonic to report
modest earnings growth for the year, and to maintain our final
dividend at the prior year level.
Since year-end, revenue growth rates have been substantially
higher than usual, boding well for the 2021 year, although it
is uncertain how long these high growth rates will continue
as they are dependent on potential fluctuations in both base
business and COVID-19 testing revenues.
Financial highlights for the 2020 financial year included:
¡ Underlying* revenue growth of 11.5% to A$6,839 million
¡ Underlying* EBITDA growth of 5.4% to A$1,109 million
¡ Underlying* net profit growth of 6.5% to A$552 million
¡ Statutory net profit of A$528 million
¡ Full year dividends up 1.2% to A$0.85 per share
* Underlying numbers exclude the impacts of the new lease accounting
standard AASB 16, which came into effect for Sonic from 1 July 2019, as
well as non-recurring gains and costs in the current and previous year.
Underlying revenue growth for 2020 was enhanced by
the Aurora Diagnostics acquisition in the USA, which was
completed 30 January 2019, and currency exchange rate
movements (which added A$221 million). Group organic
revenue growth averaged ~4% on a Constant Currency basis,
including 3% in the USA, 5% each in Australian Pathology,
Switzerland and the UK, 6% in Germany, -2% in Belgium, 4%
in Sonic Imaging and flat growth for Sonic Clinical Services
(‘SCS’). Organic growth rates were substantially impacted by
the COVID-19 pandemic and the extent to which the relevant
operations were able to ramp up COVID-19 testing in the last
quarter of the year. COVID-19 testing was not relevant to the
Imaging or SCS operations.
Sonic remains positioned for future growth, with well
established brands, leading market positions, our embedded
Medical Leadership culture, and a strong balance sheet
underpinning our global operations. We continue to target
organic revenue growth, as well as synergistic acquisitions,
joint ventures, and contract opportunities.
Sonic Healthcare continues to play a central role in
combating COVID-19, conducting the essential testing
that enables treatment, contact tracing and quarantining.
As a global healthcare company with established quality
credentials, and modern, extensive infrastructure in place,
Sonic was able to respond rapidly and with conviction
to make a meaningful contribution to pandemic control.
COVID-19 has proven that challenging times drive
innovation and that unimagined problems inspire previously
unimaginable solutions.
04
SONIC HEALTHCARE | ANNUAL REPORT 2020
The response to the pandemic of
our leadership teams and 37,000
staff around the world has been
truly inspiring.
In almost every facet of our operations, we have had to
adapt and innovate to meet the challenges and solve
the problems which this pandemic has presented. From
specimen collection arrangements, staff health and
safety and data entry to specimen processing, laboratory
information systems and reporting, there have been root-
and-branch changes required to adapt to our new normal.
Sonic’s people have risen magnificently to the COVID-19
pandemic and perhaps more than any other year, 2020
has demonstrated the stability, spirit and strength of the
Company, its culture and its people. This is a story of
dedication, expertise and professional heroism, which I
acknowledge with respect, admiration and humility, and I
take this opportunity to thank each and every member of
our global team for their contribution to an extraordinary
team effort that will never be forgotten.
Dr Colin Goldschmidt
CEO and Managing Director
Sonic remains positioned for future growth,
with well established brands, leading
market positions, our embedded Medical
Leadership culture, and a strong balance
sheet underpinning our global operations.
Financial
History
Note that 2020 reflects the impacts of adopting the new lease accounting standard AASB 16 from 1 July 2019 and is therefore
not comparable to the other years.
As at 30 June
20201
$’000
2019
$’000
2018
$’000
2017
$’000
2016
$’000
Revenue2,4
6,831,843
6,184,056
5,541,371
5,122,143
5,052,486
Earnings before interest, tax, depreciation
and amortisation (EBITDA)2,4
Net profit after tax2,3,4
Net cash flow from operations
Total assets
Total liabilities
Net assets
1,411,834
1,074,828
527,749
1,360,298
549,725
847,308
948,288
475,606
767,920
868,559
427,773
736,365
880,404
451,374
707,708
12,127,130
9,959,834
8,200,934
7,878,165
7,370,619
6,462,732
4,467,968
3,918,009
3,952,035
3,637,910
5,664,398
5,491,866
4,282,925
3,926,130
3,732,709
Net interest-bearing debt5
2,021,969
2,298,953
2,482,781
2,435,405
2,284,247
Statistics
Diluted earnings per share (cents)2,3,4
Dividends paid per ordinary share (cents)
Dividend payout ratio
Gearing ratio6
Interest cover (times)6
Debt cover (times)6
Net tangible asset backing per share ($)
Return (after tax) on invested capital2,4
Return (after tax) on equity2,3,4
110.6
85.0
76.5%
26.1%
11.5
1.8
(2.72)
7.3%
9.5%
122.1
82.0
66.4%
29.5%
10.5
2.1
(2.69)
8.7%
11.2%
112.2
78.0
69.1%
36.7%
10.1
2.5
(3.39)
8.6%
11.6%
102.1
75.0
73.0%
38.3%
10.8
2.7
(3.47)
8.1%
11.2%
109.3
71.0
64.0%
38.0%
11.5
2.6
(3.44)
9.1%
12.8%
1 2020 reflects the impacts of adopting the new lease accounting standard AASB 16 from 1 July 2019 and is therefore not comparable to the other years
2 2016 included a non-recurring pre- and post-tax gain of $34,766,000 on the sale and leaseback of properties
3 2018 included a non-recurring income tax benefit of $20,115,000 relating to the restatement of net deferred tax liabilities to the new 21% US corporate tax rate
4 2019 included a non-recurring pre-tax gain of $50,385,000 (post-tax $49,585,000) on the sale of GLP Systems
5 Net interest-bearing debt for 2020 excludes lease liabilities under AASB 16
6 Calculated using debt facility covenant definitions
SONIC HEALTHCARE | ANNUAL REPORT 2020
07
Inset
Chris Tresize,
radiographer from
Queensland X-Ray,
preparing a patient
for a CT scan
30 JUNE 2020
SONIC HEALTHCARE LIMITED
ABN 24 004 196 909
Annual
Report
2020
Directors’ Report
Your Directors present their report on the Group consisting of Sonic Healthcare Limited and the entities it controlled at the end of,
or during, the year ended 30 June 2020.
DIRECTORS
The following persons were Directors of Sonic Healthcare Limited during the whole of the financial year and up to the date of
this report:
Prof. M.R. Compton | Chairman
Dr C.S. Goldschmidt | Managing Director
Mr C.D. Wilks | Finance Director
Dr P.J. Dubois
Mr N. Mitchell
Mr L.J. Panaccio
Ms K.D. Spargo
Dr E.J. Wilson
Prof. S. Crowe was appointed as a Director of Sonic Healthcare with effect from 6 April 2020.
PRINCIPAL ACTIVITIES
During the year the principal continuing activities of the Group consisted of the provision of medical diagnostic services and the
provision of administrative services and facilities to medical practitioners.
DIVIDENDS
Details of dividends in respect of the current year and previous financial year are as follows:
Interim dividend paid on 25 March 2020 (2019: 26 March 2019)
Final dividend paid on 22 September 2020 (2019: 25 September 2019)
Total dividend for the year
2020
$’000
161,519
243,488
405,007
2019
$’000
156,366
242,148
398,514
On 19 August 2020, the Board declared a final dividend in respect of the year ended 30 June 2020 of 51 cents per ordinary
share, 30% franked (at a tax rate of 30%), paid on 22 September 2020, with a record date of 8 September 2020. An interim
dividend of 34 cents per ordinary share, 30% franked (at 30%), was paid on 25 March 2020. These dividends included no conduit
foreign income.
A final dividend of 51 cents per ordinary share was paid on 25 September 2019, in respect of the year ended 30 June 2019, out
of profits of that year. The interim dividend in respect of the year ended 30 June 2019 was 33 cents per ordinary share, paid on
26 March 2019. These dividends included no conduit foreign income.
DIVIDEND REINVESTMENT PLAN (‘DRP’)
The Company’s Dividend Reinvestment Plan remains suspended for the FY2020 final dividend.
10
SONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
Operations
Sonic Healthcare is one of the world’s leading providers of medical diagnostic services, contributing to the medical care of more
than 115 million patients per annum. The Group provides highly specialised pathology/clinical laboratory and diagnostic imaging
(including radiology) services to clinicians (GPs and specialists), hospitals, community health services, and their patients. Sonic
is the world’s third largest provider of pathology/clinical laboratory services (referred to in some markets as ‘laboratory medicine’)
and was the first company to do so on a global basis. Employing approximately 37,000 people, Sonic enjoys strong positions in the
laboratory markets of eight countries, being the largest private operator in Australia, Germany, Switzerland and the UK, the second
largest in Belgium and New Zealand and the third largest in the USA. In addition, Sonic is the largest operator of medical centres
and the largest occupational health provider in Australia, and the second largest participant in the Australian diagnostic imaging
market. These strong market positions allow Sonic to leverage existing infrastructure to realise synergies and to grow earnings.
Pathology is the study and diagnosis of disease through examination of organs, tissues, cells and bodily fluids. It is a broadly
defined and complex scientific field which seeks to understand the mechanisms of disease and abnormality of cells and tissues, as
well as the body’s means of responding to and repairing abnormalities. Pathology and laboratory tests are an essential component
in the delivery of modern healthcare services and are estimated to influence approximately 70% of healthcare decisions and 100%
of cancer diagnoses. Laboratory medicine is a unique medical specialty, in that pathologists and laboratory technicians typically
do not see patients directly, but rather serve as consultants to other physicians.
The clinical laboratory process is depicted below:
The Clinical Laboratory Process
COLLECTING SPECIMENS
Either the referring doctor or our
expertly trained collection staff will
collect a specimen from the patient.
THE DOCTOR
When a patient visits a doctor,
the doctor may order laboratory
tests to inform a diagnosis or
monitor treatment.
THE LABORATORY
Each specimen is examined by
our experienced scientific staff
using sophisticated instruments
and advanced technology.
TRANSPORTATION
Once collected, specimens are
transported to a Sonic state-of-the-art
laboratory by one of our team of
dedicated couriers.
LABORATORY DEPARTMENTS
Each department is staffed with
specialist pathologists, scientists
and laboratory assistants.
SPECIMEN RECEPTION
The patient specimen information
is accurately recorded into our
secure patient database. All
patient information is treated in
the strictest confidence.
RESULTS
Results are delivered by secure
electronic transfer, directly to the
referring doctor’s device, or are
printed and hand-delivered by
our couriers.
CLINICAL REPORTING
Test results are interpreted by
specialist pathologists who provide
diagnostic comments with reports
to assist referring doctors with the
management of their patients.
In some countries in which Sonic operates, laboratories offer specimen collection services, although referring doctors still do
some collections themselves. In Australia, approximately 25% of specimens are collected by the referring doctor. In Germany,
Belgium and Switzerland, laboratories generally do not offer specimen collection services.
11
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
Laboratory medicine tests generally fall into categories as shown below:
ANCILLARY FUNCTIONS
All technical functions are
supported by quality staff in
Collection Centres, IT,
Couriers, Specimen
Reception, Data Entry,
Stores, Accounts, Results
and Communications
BIOCHEMISTRY
The measurement of
different chemical
substances in the body
GENETICS
The prediction and
diagnosis of genetic
disorders and cancer using
cutting-edge technologies
that perform DNA, RNA and
chromosome testing
MICROBIOLOGY
The study of
disease-causing organisms,
including bacteria and fungi
IMMUNOSEROLOGY
The measurement of antibody
levels and other factors in the
blood to assess immune
status and diagnose diseases
Clinical
Laboratory
Testing
MOLECULAR PATHOLOGY
The study of DNA, RNA and
proteins for diagnostic and
prognostic purposes
CYTOPATHOLOGY
The study of cells and cell
structure to detect
cancerous and
pre-cancerous changes
HAEMATOLOGY
The study of blood cells,
blood-producing organs
and blood diseases
HISTOPATHOLOGY
The examination of tissue
samples by anatomical
pathologists to diagnose
cancer and other conditions
TOXICOLOGY
The testing of body
fluids to detect the
presence of
chemicals, drugs
or toxins
PRENATAL TESTING
Screening for genetic
conditions either prior to
conception, or during the
first and second trimesters
of pregnancy
Histopathology and cytopathology (‘anatomical pathology’) mainly involve the diagnosis of cancers by the examination of tissue
and cells. The testing of other body specimens (blood, urine, sputum etc.) is usually referred to as clinical laboratory or clinical
pathology testing. In some international markets, such as Australia and New Zealand, it is usual for laboratories to provide both
anatomical pathology and clinical laboratory testing as part of the one service. In other markets, anatomical pathology can be
seen as a separate service.
Sonic’s laboratories are highly sophisticated, providing broad menus of complex tests, in addition to state-of-the-art automation
for accurate and rapid turnaround of routine tests. Sonic offers a range of more than 3,000 different tests. Many of Sonic’s
large laboratories reach or exceed tertiary teaching hospital laboratory standards and are recognised for their esoteric testing
expertise, for example, in anatomical pathology, genetic and molecular testing.
As part of Sonic’s response to the COVID-19 pandemic, Sonic’s laboratories quickly established and ramped up capacity
to provide COVID-19 PCR (polymerase chain reaction) molecular pathology testing to diagnose the virus. To date, Sonic’s
laboratories have performed more than 6 million COVID-19 PCR tests. Sonic’s laboratories also offer an immunoserology test to
detect antibodies to COVID-19.
Diagnostic imaging (including radiology) is the medical specialty of using medical imaging technologies to diagnose and treat
diseases. The array of imaging technologies includes general X-ray, bone densitometry, mammography, ultrasound, computed
tomography (CT), nuclear medicine studies and magnetic resonance imaging (MRI). Diagnostic imaging also includes
interventional radiology, the performance of medical procedures under the guidance of imaging technologies.
12
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
In addition to clinical laboratories and diagnostic imaging, Sonic conducts a number of smaller complementary businesses
(disclosed in the Other category in the Segment information note, along with corporate office costs). The most significant of
these are the Independent Practitioner Network (‘IPN’) medical centre business and the Sonic HealthPlus occupational health
business, which together involve 227 primary care clinics across Australia, providing facilities and administrative services
to approximately 2,460 general practitioners. Seventy per cent of all Australians live within 10 kilometres of an IPN/Sonic
HealthPlus clinic.
Financial results
A summary of consolidated revenue and earnings is set out below. Sonic has adopted the new accounting standard AASB 16
Leases from 1 July 2019 and, under the transitional provisions, has not restated comparatives. Whilst the impact of AASB 16 in
the period is immaterial to Revenue from ordinary activities and Profit after tax from ordinary activities attributable to members,
it is material to components of the financial results. To enhance comparability, the analysis below and commentary in the
following pages of this report focus on financial performance excluding the impacts of AASB 16.
2020
Constant
Currency1
excluding
AASB 16
2020
Actual
Currency
excluding
AASB 16
2020
Statutory
2019
Statutory
$’000
$’000
$’000
$’000
% Change
Excluding AASB 16
2020
Constant
Currency1
v 2019
Statutory
2020
Actual
Currency
v 2019
Statutory
6,831,843
–
6,639,830
(19,767)
6,859,819
(21,068)
6,184,056
(50,385)
7.4%
10.9%
6,831,843
6,620,063
6,838,751
6,133,671
1,425,059
–
(13,225)
1,411,834
(540,658)
871,176
(65,210)
(106,903)
(157,160)
(14,154)
1,068,775
19,767
(12,822)
1,075,720
(226,909)
848,811
(63,494)
(75,430)
(162,483)
(13,853)
1,108,833
21,068
(13,225)
1,116,676
(233,204)
883,472
(65,210)
(78,500)
(168,065)
(14,154)
1,051,544
50,385
(27,101)
1,074,828
(209,856)
864,972
(63,288)
(79,427)
(163,188)
(9,344)
7.9%
1.6%
8.1%
0.3%
(5.0)%
(0.4)%
11.5%
5.4%
3.9%
Revenue
Non-recurring gains4
Underlying Revenue2
Underlying EBITDA2
Non-recurring gains4
Non-recurring costs5
EBITDA3
Depreciation
EBITA
Amortisation of intangibles
Net interest expense
Income tax expense
Net (profit) attributable to minority interests
Net profit attributable to Sonic shareholders
527,749
533,551
557,543
549,725
(2.9)%
1.4%
Less: after tax impacts of non-recurring items
Underlying net profit2
(5,440)
(31,412)
552,103
518,313
Cash generated from operations
1,360,298
1,066,828
847,308
6.5%
25.9%
Earnings per share
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
111.1
110.6
112.4
111.8
117.4
116.8
122.5
122.1
(8.4)%
(4.3)%
1 For an explanation of ‘Constant Currency’ refer to (a) on the following page
2 Underlying Revenue, EBITDA and Net Profit = Revenue, EBITDA and Net Profit adjusted to remove the impact of non-recurring items in the current and/or previous year
3 EBITDA = Earnings before interest, tax, depreciation and amortisation
4 Non-recurring gains: FY2020 gain on sale of Hawaii laboratory building. FY2019 gain on sale of GLP systems subsidiary.
5 Non-recurring costs mainly relate to acquisitions, contract bids, laboratory relocations, mergers and restructuring
An explanation of the figures reported above is provided in the following pages of this report. Additional information on the
impacts of the COVID-19 pandemic is included in the CEO Report within this Annual Report.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
Explanation of results
a) Constant Currency
As a result of Sonic’s expanding operations outside of Australia, Sonic is increasingly exposed to currency exchange rate
translation risk, meaning that Sonic’s offshore earnings and assets fluctuate when reported in AUD.
The average currency exchange rates for the year to 30 June 2020 for the Australian dollar (A$, AUD or $) versus the currencies
of Sonic’s offshore earnings varied from those in the comparative period, impacting Sonic’s AUD reported earnings (‘Statutory’
earnings). The underlying earnings in foreign currency are not affected.
As in prior periods, in addition to the statutory disclosures, Sonic’s results for the year have also been presented on a ‘Constant
Currency’ basis (that is, using the same exchange rates to convert the current period foreign earnings into AUD as applied in
the comparative period, being the average rates for that period). This facilitates comparability of the Group’s performance,
by providing a view on the underlying business performance without distortion caused by exchange rate volatility, so that an
assessment can be made of the growth in earnings in local currencies.
In preparing the Constant Currency reporting, the foreign currency elements of each line item in the Income Statement
(including net interest expense and tax expense) are restated using the relevant prior period average exchange rate. There is only
this one adjustment to each line item, so no reconciliation is required.
The average exchange rates used were as follows:
AUD/USD
AUD/EUR
AUD/GBP
AUD/CHF
AUD/NZD
2020 Statutory
2019 and Constant Currency
0.6712
0.6068
0.5328
0.6557
1.0544
0.7154
0.6270
0.5527
0.7116
1.0666
To manage currency translation risk, Sonic uses ‘natural’ hedging, under which foreign currency assets (businesses) are
matched to the extent possible with same currency debt. Therefore:
¡ as the AUD value of offshore assets changes with currency movements, so does the AUD value of the debt; and
¡ as the AUD value of foreign currency EBIT changes with currency movements, so does the AUD value of the foreign currency
interest expense.
As Sonic’s foreign currency earnings grow, debt is repaid, and interest rates change, the natural hedges have only a partial effect,
so AUD reported earnings do fluctuate. Sonic believes it is inappropriate to hedge translation risk (a non-cash risk) with real cash
hedging instruments.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
b) Revenue
Revenue breakdown
Laboratory – Australia and New Zealand
Laboratory – USA
Laboratory – Europe
Imaging – Australia
Other
Revenue – underlying
Non-recurring gain
Impact of new accounting standard (AASB 16)
Interest income
Total revenue
2020
Statutory
Revenue
AUD M
1,574
1,861
2,460
520
418
21
(28)
6
6,832
% of 2020
Statutory
Revenue
2020
Constant
Currency
Revenue
2019
Revenue
2020
Constant
Currency
v 2019
AUD M
AUD M
Growth
23%
27%
36%
8%
6%
1,573
1,746
2,358
520
418
20
–
5
4.6%
21.2%
5.0%
4.0%
(4.6%)
8.0%
1,504
1,441
2,244
500
438
6,127
50
–
7
6,640
6,184
7.4%
6,833
100%
6,615
Total revenue growth (excluding AASB 16 impact) for the year was 11%, enhanced by the Aurora Diagnostics acquisition
(completed 30 January 2019) and currency exchange rate movements (which added A$221M to Statutory Revenue). Group
organic revenue growth was ~4% at Constant Currency exchange rates (i.e. applying the average rates for the year ended 30
June 2019 to the current year results).
For the 8.5 months to mid-March 2020, Sonic’s revenue growth and trading results were in line with expectation, however in the
second half of March, the COVID-19 pandemic and associated lockdowns precipitated dramatic falls in base patient volumes
and revenues, almost simultaneously across Sonic’s global businesses. With significant uncertainty surrounding the potential
extent of the falls and the timing to recovery, Sonic’s operations responded swiftly, firstly to secure the safety of staff and then to
reduce costs to mitigate against the revenue shortfalls.
The declines in base business (i.e. excluding COVID-19 testing) revenues varied significantly by market, but early stabilisation of
levels became evident in late April, followed by commencing recovery during May, at different rates in each market. By 30 June
2020, the majority of Sonic’s divisions had returned to pre-COVID levels of base revenues. Base revenues in the USA, the UK,
Ireland, and Belgium were still below pre-COVID levels but trending positively. In addition to the recovery of base revenues, many
of Sonic’s laboratory businesses had ramped up substantial COVID-19 testing.
Flowing from this, Sonic’s revenues for March and April 2020 were substantially below forecast, with May and June results
stronger than expected. This positive trend has continued to date post-year end.
The Laboratory division achieved revenue growth of 14% in the year (9% on a Constant Currency basis), including ~4% organic
revenue growth (Constant Currency).
Sonic’s Australian Laboratory business achieved organic revenue growth of ~5%, including robust growth from COVID-19 and
genetic testing. None of Sonic’s Australian businesses received COVID-19 related government subsidies. Sonic did not qualify for
the JobKeeper government assistance program due to its size.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
US revenue grew 21% on a Constant Currency basis, including the Aurora acquisition. US organic revenue growth was
approximately 3% on a Constant Currency basis, including significant COVID-19 testing revenues. US revenue included US$20M
of government grants provided to ensure essential laboratory services were maintained during the pandemic.
Within Europe, Sonic’s UK operations achieved organic growth of ~5% (Constant Currency). UK revenue included £6.5M of
government support to ensure essential services were maintained during the pandemic. German organic growth was ~6%,
enhanced by significant COVID-19 testing volumes. Swiss and Belgian organic growth was ~5% and ~(2)% respectively
(Constant Currency).
Imaging revenue growth was ~4%, driven by investments in greenfield sites and new equipment in the current and prior periods
offsetting the COVID-19 volume declines.
Revenue growth for Sonic Clinical Services (‘SCS’), Sonic’s medical centre and occupational health businesses (the major
components of the Other segment, which also includes other minor operations), was flat, due to the impacts of the COVID-19
pandemic. The Other segment included revenue and earnings of GLP Systems in the comparative period, prior to its sale in
June 2019.
Non-recurring gains comprise the gain on sale of Sonic’s main laboratory building in Hawaii in FY2020, and the gain on sale
of GLP Systems in FY2019. The Hawaii laboratory was leased back on a long-term basis, and under AASB 16, the gain on sale
became a small loss.
c) EBITDA
Underlying EBITDA grew 5%, or 2% on a Constant Currency basis, excluding the impacts of AASB 16. The non-recurring costs of
A$13M related to acquisition and contract bidding expenses, and restructuring costs, including relating to rationalisation of sites
in the SCS businesses and efficiency improvements in the Laboratory and Imaging divisions. Other than some minor acquisition
costs in the second half, these costs were incurred in the first half of the year.
Margins declined for the full year due to the impacts of the COVID-19 pandemic. For the first half of the year both the Laboratory
and Imaging divisions had reported margin expansion. Despite organic revenue growth of ~4% for the full year, the size and
speed of the base business volume reductions due to the pandemic were such that the margin impact in March and April could
not be fully offset in May and June 2020. In addition, the pandemic caused costs such as medical consumables (including
personal protective equipment for Sonic’s staff) and freight to increase as a percentage of revenue.
Statutory EBITDA was increased by $A295M due to the impact of the new (effective 1 July 2019) lease accounting
standard AASB 16.
d) Depreciation
Depreciation increased 8% on the comparative period (at Constant Currency rates and excluding the impact of AASB 16),
reflecting the growth of the Company.
e) Intangibles amortisation
Intangibles amortisation relates to internally developed and purchased software.
f) Interest expense and debt facilities
Net interest expense decreased 5% on the prior year (at Constant Currency rates and excluding the impact of AASB 16), largely
due to the equity raisings associated with the Aurora acquisition in the prior year, and the strong cash generation in the year.
The majority of Sonic’s debt is drawn in foreign currencies as ‘natural’ balance sheet hedging of Sonic’s offshore operations (see
(a) Constant Currency above).
Interest rate risk management arrangements are in place in accordance with Sonic’s Treasury Policy.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
g) Tax expense
The effective tax rate (excluding AASB 16 impacts) is ~23%, similar to the rate in the prior year.
h) Cash flow from operations
Excluding the impacts of AASB 16, cash generated from operations was 26% higher than in the comparative period and gross
operating cash flow equated to 114% of EBITDA. Cash generation was augmented by cash preservation initiatives and the
receipt of prepayments of ~A$63M of US Medicare testing revenue. This amount is reversing in H1 FY2021 as the testing is
performed.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
Financial position
Sonic’s net assets at 30 June 2020 of A$5,664M increased by A$173M, or 3%, on the prior year. The main components of this
increase were:
¡ A$23M from the issue of ordinary Sonic shares resulting from the exercise of employee options and rights
¡ A$34M relating to net currency exchange rate translation impacts
¡ A$118M due to retained earnings (operating profit less dividends paid and other adjustments)
¡ A$20M reduction due to the transition impact of AASB 16
Excluding the impacts of AASB 16, which increased debt by A$1,364M at 30 June 2020, net (of cash) interest-bearing debt
decreased A$277M (12%) from the prior year level to A$2,022M. This net decrease largely resulted from strong cash flow
generated from operations, net of A$98M relating to payments for business acquisitions and A$31M of currency exchange rate
impacts. None of the business acquisitions completed in the year were material to Sonic. A significant component of the total
consideration for these acquisitions was attributable to goodwill.
Sonic’s net interest-bearing debt at 30 June 2020 (excluding AASB 16 impacts) comprised:
Facility limit (M)
Drawn (M)
AUD (M) available
Notes held by USA investors – USD (fixed coupons)
Notes held by USA investors – Euro (fixed coupons)
Bank debt facilities
USD limits
Euro limits
AUD (Multicurrency) limits
CHF limits
Debt drawn in facilities above in different
currencies to facility limits
AUD
GBP
Minor debt/leasing facilities
Cash
Available funds at 30 June 2020
+ Various currencies
Sonic’s credit metrics at 30 June 2020 were as follows:
US$800
€515
US$175
€390
A$48
CHF307
–
–
n/a
n/a
US$800
€515
US$120
€308
A$48
CHF182
113
66
A$17+
A$(1,230)+
–
–
80
134
–
192
(113)
(118)
–
1,230
1,405
30.6.20
31.12.19
30.6.19
Debt cover (times)
Interest cover (times)
1.8
11.5
2.1
11.2
2.1
10.5
Gearing ratio
26.1%
29.9%
29.5%
Definitions:
• Debt cover = Net Debt/EBITDA (bank covenant limit <3.5)
• Interest cover = EBITA/Net interest expense (bank
covenant limit >3.25)
• Gearing ratio = Net Debt/[Net Debt + equity] (USPP note
covenant limit <55%)
• Calculations as per Sonic’s senior debt facility definitions
Sonic’s debt cover ratio at 30 June 2020 was at its lowest level for 20 years.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
Sonic’s senior debt facility limits are due to expire as follows (note that the figures shown are the facility limits, not drawn debt):
Calendar Year
AUD (M)
USD (M)
Euro (M)
CHF (M)
2021 (USD January, CHF July)
2022
2023
2024
2026
2030
2032
2035
–
–
48
–
–
–
–
–
48
250
75
100
–
–
300
150
100
975
–
270
120
185
245
–
85
–
905
182
–
125
–
–
–
–
–
307
Sonic’s excellent relationships with its banks, its investment-grade credit metrics, staggered facility maturity profile, and its strong
and reliable cash flows significantly reduce refinancing risk.
Countries of operation
(Years shown are the years Sonic entered each market)
2010
IRELAND
2002
UNITED KINGDOM
2005
UNITED STATES
2010
BELGIUM
2004
GERMANY
2007
SWITZERLAND
1987
AUSTRALIA
1999
NEW ZEALAND
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
Business model and strategies
Since the early 1990s, Sonic Healthcare has consistently pursued and promoted a management and operational philosophy
of Medical Leadership. The impact of this approach has been to develop a company whose services are optimally aligned with
the needs of physicians and their patients. Medical Leadership encompasses a management commitment to the maintenance
of professionalism and ‘good medicine’ at all times. It fosters an understanding of the doctor–patient relationship and it puts
quality first.
Sonic’s operations are structured as a federation, with individual subsidiaries or geographical divisions working in a synergistic
network to achieve best practice outcomes in terms of service and business excellence. The structure reinforces the identity
and management autonomy of each local operation. Each operation has its own CEO or President and management team.
When Sonic acquires businesses, they generally maintain their management autonomy, brand and, consequently, their local
‘flavour’. This is the structure that is most resonant with local medical communities and which best preserves acquired goodwill.
However, Sonic’s operations work in a collaborative way within the structure, via central executives and widespread inter-
company communication, to achieve synergies and improved performance. Detailed benchmarking within the Group leading to
best practice, group purchasing, IT, E-health, quality system sharing and centralisation of testing are all examples of continuous
improvement activities within the Group.
Sonic’s Medical Leadership philosophy and federation structure have resulted in significant brand differentiation in the
market place. The Company’s operations are viewed as specialist medical practices, rather than as businesses. This market
differentiation has not only fostered strong organic revenue growth over the years but has often made Sonic the preferred
acquirer when laboratory or imaging practice founders and owners wish to realise the value of their practices without seeing
their focus on the medical nature of the business lost to a more ‘corporatised’ acquirer. Similarly, hospital systems choose
to partner with Sonic for laboratory services on the basis of Sonic’s culture. Sonic’s culture and structure have also served to
attract and retain top pathologists, radiologists, scientific staff and managers, with staff turnover at this important senior level
consistently at very low levels.
Sonic’s strategy is to utilise its unique culture, values and structure to grow revenue organically (including through winning
laboratory outsourcing contracts) and to complete value-enhancing acquisitions and joint ventures, so as to achieve and build
upon leading positions in targeted geographic laboratory markets. These positions provide sufficient size and infrastructure to
facilitate synergies and economies of scale to drive margin improvements, earnings growth and increasing returns on capital
invested. Sonic has a successful track record of consolidating fragmented markets in Australia, Europe and the USA, using its
market differentiation to drive both organic revenue growth and to attract like-minded laboratories for acquisition. Sonic is also
well placed to benefit from the increasing trend for governments and others to outsource their diagnostic testing to the private
sector, in order to address growing healthcare costs.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
Prospects for future years
Sonic operates in attractive and growing global healthcare markets, carefully chosen based on a range of factors, including
political, legal and financial stability, reliable and stable healthcare funding systems, fragmentation of the market and cultural
understanding. Within these markets there is increasing demand for diagnostic services arising from growing and ageing
populations, new tests (for example, COVID-19 PCR testing) and preventative medicine. Against this favourable backdrop,
Sonic expects to continue for the foreseeable future to grow revenue, earnings and returns on investment organically, including
through outsourcing contracts, and further enhanced by synergistic business acquisitions and joint ventures. Organic growth
in the markets in which Sonic participates has, and in Sonic’s view is likely to continue to, average approximately 5% per annum
over the long term. Laboratory operations offer many levers which can be adjusted to optimise individual processes, and Sonic’s
managers are constantly seeking efficiency gains within their businesses, aided by the early adoption of new technologies and
the sharing of experiences with colleagues from around the globe.
The Aurora Diagnostics acquisition in January 2019 represented a major step for Sonic into the US anatomical pathology market,
which is estimated to be in excess of US$10B per annum (in addition to ~US$70B for the clinical laboratory market). It provides
a strategic platform for future growth in the USA, not only in anatomical pathology, but also in clinical laboratory services and
through hospital laboratory outsourcing. Aurora’s practices have relationships with approximately 23,000 referring physicians
and more than 100 hospitals. The 220 pathologists working in Aurora’s practices are significantly enriching Sonic’s Medical
Leadership culture, providing further differentiation in the US market. Anatomical pathology opportunities are also being targeted
in Germany with several acquisitions made to date addressing a highly fragmented €1B per annum market (in addition to at least
€4B for the clinical laboratory market). The strategy to expand in anatomical pathology in addition to clinical laboratory medicine
in these two markets is underpinned by Sonic’s deep anatomical pathology experience in other markets, especially Australia.
Within Sonic’s existing eight countries of operation, future acquisitions are most likely to occur in the USA and Germany, given
the size and fragmentation of those markets, although opportunities will also be targeted in Switzerland and Belgium. Sonic is
not actively seeking laboratory acquisitions in Australia (due to potential anti-trust limitations), New Zealand or Ireland. In the UK,
acquisitions are unlikely, as the market is dominated by the National Health Service (‘NHS’) and Sonic is by far the largest private
participant. However, substantial growth opportunities exist from potential NHS and private hospital laboratory outsourcing
contracts.
About half of the clinical laboratory market in the USA is represented by hospital laboratories, and Sonic has a strategy to seek
to partner with hospital groups for their laboratory services. Sonic currently has four joint ventures with US hospital groups, and
further partnerships are anticipated.
Whilst the present focus for acquisitions is on Sonic’s existing markets, a ‘watching brief’ is maintained to identify opportunities
that arise for further prudent and strategic international laboratory expansion. Sonic has no current intention to expand its
diagnostic imaging or medical centre businesses outside Australia.
Sonic intends:
¡ to maintain a solid investment-grade profile with conservative leverage
¡ to preserve Sonic’s reputation, culture and Core Values; and
¡ to ensure the attraction and retention of the best people to drive the business forward, including retaining key staff
from acquisitions.
With regard to more short-term prospects, Sonic has not provided 2021 annual earnings guidance to date due to COVID-19
related unpredictability. As advised to the market in August, revenue growth rates since year end have been substantially higher
than historical rates, augmented by strong COVID-19 testing volumes. Base laboratory business revenues during this period have
been higher than in the prior year in most countries, with negative but generally improving growth in the US and UK. Imaging
revenue has also been growing significantly above historical organic growth rates. The outlook is dependent on fluctuations in
base business and COVID-19 testing revenues. Due to the uncertain environment, current growth rates may not be sustained. In
general, Sonic’s experience has been that if base business volumes are negatively impacted by the pandemic, COVID-19 testing
volumes tend to increase.
A market update will be provided at Sonic’s Annual General Meeting on 12 November 2020.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
In light of the ongoing COVID-19 pandemic, the Board of Sonic has applied increased focus to issues such as going concern,
asset values and provisions. Given current trading conditions and experience of the pandemic to date, the strength of Sonic’s
balance sheet, liquidity and cash flows, and the industries and markets in which the Company operates, no significant issues
were identified.
As a result of Sonic’s size and global market presence, opportunities present themselves from time to time that are not
necessarily part of Sonic’s core strategies but may be synergistic. These opportunities are assessed by management and
the Board to determine whether their pursuit is in the best interests of shareholders. Further information on likely strategic
developments has not been included in this report because the Directors believe it would be likely to result in unreasonable
prejudice to the interests of the Group.
Risks
Sonic’s approach to identifying and managing business risks is described in the Corporate Governance Statement included in
the Annual Report 2020. The major risks to consider in assessing Sonic’s future prospects are:
¡ COVID-19 or another pandemic or epidemic could impact Sonic’s patient volumes and/or ability to provide core services.
Whilst the experience with the COVID-19 pandemic to date has demonstrated Sonic’s resilience and the important role of a
major laboratory company in such a scenario, this may not be the case in every circumstance.
¡ Sonic’s reported revenue and earnings will fluctuate with changes in the currency exchange rates between the Australian
dollar (Sonic’s reporting currency) and the currencies of Sonic’s offshore operations. As previously noted, Sonic uses foreign
currency borrowings as a partial (natural) hedge.
¡ In most of Sonic’s markets the majority of revenue is priced based on fee schedules set by government or quasi-government
bodies and, especially in the USA, insurance companies. As a result of the strong underlying volume growth drivers,
healthcare funders will sometimes use fee cuts or other adjustments to curb growth in their outlays. Sonic mitigates this risk
through its geographic and line-of-business diversification, by seeking diversified sources of revenue for its services within
markets, and by being one of the largest, more efficient operators and therefore less impacted by adverse market changes
than smaller, less efficient players. In general, fee pressures drive further market consolidation, feeding into Sonic’s core
strategy of growth both organically and by acquisition, with attendant synergy capture and economies of scale.
¡ Healthcare businesses are subject to significant levels of regulation. Changes in regulation can have the impact of increasing
costs or reducing revenue (through volume reductions). Sonic attempts to mitigate this risk by using its market leadership
positions to help shape the healthcare systems in which it operates. Sonic takes active roles in industry associations, and
encourages its people to take leadership positions in colleges and other professional and craft organisations. In addition,
Sonic’s size and efficiency allows it to benefit from market consolidation driven by the impacts of regulatory changes on
smaller players.
¡ Loss of a licence or accreditation required to operate one or more of Sonic’s businesses could impact revenue both directly
and through damage to Sonic’s reputation. The likelihood of this risk having a material impact is considered low, given the
focus on quality within Sonic.
¡ Sonic’s strategies include the acquisition of businesses and entering into joint ventures and long-term contracts to provide
diagnostic testing. There is a risk that an acquisition, joint venture or contract may not achieve its expected financial
performance, or give rise to an unexpected liability. Sonic seeks to mitigate these risks through thorough due diligence, and
through warranties and indemnities in acquisition and contract documentation.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 OPERATING AND FINANCIAL REVIEW
¡ There is always the risk of heightened competition in Sonic’s markets, whether from more aggressive behaviour of an
existing competitor, or from a new competitor. This could include a competitor introducing a new development in testing or
introducing new tests that result in less demand for Sonic’s services. A change in competition could impact revenue and/
or costs. Sonic’s leadership is alert to potential changes in the marketplace and reacts swiftly when threats are perceived.
Technological changes in diagnostic testing tend to happen more slowly than in industries such as consumer goods. For a
testing technology to reach the point of widespread use, it must first be proven to be ‘good medicine’, including obtaining
regulatory approvals and through peer review, and secondly, healthcare funders must be willing to pay for it (for example, by
inclusion on government or quasi-government fee schedules). These inherent delays allow competitors and other market
participants to revise their own strategies to address the competitive threat. In addition, the broad range of tests (~3,000)
offered by Sonic’s laboratories provides protection against new developments.
¡ Relationships with referring physicians (including general practitioners, surgeons and other specialists), hospital groups and
other parties with whom Sonic contracts to provide services are important to Sonic’s businesses. If, for any reason, Sonic
failed to maintain strong relationships with these parties or damaged its reputation with them, there would be a risk that it
could lose business to competitors.
¡ Sonic’s businesses rely on information technology systems. A disruption to a core IT platform, including as a result of a
cybersecurity breach, could have significant operational, financial and/or reputational impacts, particularly if confidential
patient data were to be obtained by unauthorised persons. Sonic has implemented strategies to mitigate this risk which
it believes comply with or exceed best practice in each of its countries of operation. The Company has a comprehensive
Information Security Management System in place, supported by staff training and awareness programs. External facing
systems are monitored and regularly tested (including third party penetration testing). As part of Sonic’s compliance work for
specific country requirements (such as KRITIS in Germany, ISM and ISO27001 in Australia, SOC2, ISO27001 and HITRUST in
USA) these protections are continually reviewed and improved.
¡ Whilst individual events are unlikely to have any significant impact, inaccurate diagnostic results due to actual or alleged
mistakes or errors could result in financial loss and/or reputational damage, particularly if the issue is systemic. Sonic maintains
insurance cover to mitigate its financial exposure and has processes in place to manage reputational risks.
¡ Sonic uses prudent levels of debt to reduce its cost of capital and to increase earnings per share. It is therefore subject to the
risk of rising interest rates (either on floating rate debt or when existing facilities expire), the future availability of funding, and
potential breach of a term or condition of its debt facilities. Sonic has a sophisticated Treasury Policy in place to manage these
risks, developed and overseen by Sonic’s Treasury Management Committee, which includes a renowned expert external
consultant.
¡ With operations in eight jurisdictions, Sonic is potentially exposed to changes in taxation legislation or interpretation which
could increase its effective tax rate.
After serious consideration including reviewing disclosures of peers, Sonic’s Board does not believe the Company has any other
material exposures to environmental or social sustainability risks, given the industries and geographies in which it operates.
The above list should not be taken to be a comprehensive list of risks associated with Sonic. In particular, it excludes risks relating
to the general economic environment and other generic risk areas that affect most companies.
Sonic’s geographic, business line and branding diversification, plus our federation structure, broad menu of tests offered and low
customer concentrations mean that few, if any, of the usual operating risks faced by a healthcare business would have a material
impact on Sonic as a whole.
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
Since the end of the financial year, the Directors are not aware of any matter or circumstance not otherwise dealt with in these
financial statements that has significantly or may significantly affect the operations of the Group, the results of those operations or
the state of affairs of the Group in subsequent financial years.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 INFORMATION ON DIRECTORS
a) Directors’ profiles
Professor Mark Compton AM
Chairman
BSc, MBA, FAICD, FCHSM, FAIM, FRS (NSW)
Non-executive, independent Director, appointed October 2014 (Chairman from 19 November 2015)
Prof. Compton has extensive senior executive experience in healthcare services. He is currently Adjunct
Professor in Management (Healthcare Leadership) at Macquarie University (Macquarie Business School),
Non-executive Director of ASX-listed Next Science Limited (since 2018) and Non-executive Chairman of not-
for-profit organisations St Luke’s Care and the Order of St John (St John Ambulance). His previous experience
includes Chief Executive Officer of each of St Luke’s Care, Immune Systems Therapeutics Limited and the
Royal Flying Doctor Service of Australia. He was also Chief Executive Officer and Managing Director of the
formerly ASX-listed companies SciGen Limited and Alpha Healthcare Limited. Prof. Compton has also held a
number of non-executive director roles, including for formerly ASX-listed Independent Practitioner Network
Limited, Chairman of the Woolcock Institute of Medical Research, Non-executive Director of Macquarie
University Hospital and Chairman and Chancellor of St John Ambulance Australia (having served as a
volunteer for more than 45 years). In recognition of his work in the healthcare sector and his service to the
community, he was awarded the Centenary Medal of the Commonwealth of Australia, appointed by Her
Majesty the Queen as a Knight in the Order of St John in 2004 and as Bailiff Grand Cross in 2017, and was
appointed as a Member of the Order of Australia (AM) in January 2010. He is a member of the Audit Committee
and the Remuneration and Nomination Committee.
Dr Colin Goldschmidt
CEO and Managing Director
MBBCh, FRCPA, FAICD
Executive Director, appointed January 1993
Dr Goldschmidt is the CEO and Managing Director of Sonic Healthcare. He is a qualified medical doctor
who then undertook specialist pathology training in Sydney, before gaining his qualification as a specialist
pathologist in 1986. Dr Goldschmidt became CEO of Sonic in 1993 and has led Sonic’s global expansion
by committing the Company to a model of Medical Leadership, which incorporates unique operational and
cultural attributes. He is a member of Sonic’s Risk Management Committee and holds memberships with
numerous industry, medical and laboratory associations.
Christopher Wilks
Finance Director
BCom, FAICD
Executive Director, appointed December 1989
Mr Wilks became Finance Director and Chief Financial Officer of Sonic Healthcare in 1993. He has a
background in chartered accounting and investment banking and was previously a partner in a private
investment bank. Mr Wilks has held directorships in a number of public companies and is currently a Non-
executive Director of Silex Systems Limited (since 1988), a listed company divested by Sonic in 1996.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 INFORMATION ON DIRECTORS
Professor Suzanne Crowe AO
MBBS (Hons), FRACP, MD, FAICD
Non-executive, independent Director, appointed 6 April 2020
Professor Crowe is a qualified medical specialist and physician-scientist, holding medical and MD degrees
from Monash University, and an internal medicine specialist qualification in Infectious Diseases from the Royal
Australasian College of Physicians. She is a Fellow of the Australian Institute of Company Directors and holds
a Diploma in Medical Laboratory Technology from the Royal Melbourne Institute of Technology. Professor
Crowe’s current positions include Non-executive Director of ASX-and NASDAQ-listed Avita Therapeutics Ltd
(from January 2016), Non-executive Director of St Vincent’s Health Australia Ltd (from January 2013), and
Emeritus Professor of Medicine at Monash University, Melbourne (from 2020). She retired from Burnet Institute
as Associate Director in 2018 following a 30-year research career, having played an integral role in Burnet’s
development as a global research organisation. Professor Crowe retired as Principal Specialist in Infectious
Diseases at The Alfred Hospital, Melbourne in 2019 after 35 years of service. She has served as a Member of
the Prime Minister’s Science Engineering and Innovation Council (India/China Working Group), as Head of the
World Health Organization (‘WHO’) Regional Reference Laboratory for HIV Resistance Testing and as an HIV
advisor to WHO for 25 years. She was appointed a Fellow of the Australian Academy of Health and Medical
Sciences in 2015, and an Officer of the Order of Australia (AO) in 2020, in recognition of her distinguished
service to health and aged care administration, clinical governance, biomedical research, and to education.
Dr Philip Dubois
MBBS, FRCR, FRANZCR, FAICD
Non-executive Director, appointed July 2001
Dr Dubois was appointed as an Executive Director of Sonic in July 2001 and retired from his executive position
as CEO of Sonic’s Imaging Division in June 2020. He remains on the Sonic Board as a Non-executive Director.
A neuroradiologist and nuclear imaging specialist, he is currently an Associate Professor of Radiology at the
University of Queensland Medical School. He has served on numerous government and craft group bodies,
including the councils of the Royal Australian and New Zealand College of Radiologists and the Australian
Medical Association, and as Vice-President of the Australian Diagnostic Imaging Association. He is a Non-
executive Director of Magnetica Limited (since December 2004).
Neville Mitchell
BCom, CA
Non-executive, independent Director, appointed September 2017
Mr Mitchell is a qualified Chartered Accountant with international healthcare and finance experience. He was
Chief Financial Officer and Company Secretary of ASX-listed Cochlear Limited (until March 2017), a world-
leading medical device developer, manufacturer and seller of hearing devices. Mr Mitchell was a key member
of Cochlear’s executive team, responsible for the setting and execution of the company’s growth strategy from
its listing in 1995 until his resignation.
Mr Mitchell currently holds non-executive director roles with ASX-listed healthcare companies Fisher and
Paykel Healthcare Corporation Limited (from November 2018) and Osprey Medical Inc. (from July 2012). He is
a Non-executive Director of QBiotics (from November 2017), an unlisted public company, and a member of the
Australian Board of Taxation. Mr Mitchell was previously a Non-executive Director of ASX-listed Sirtex Medical
Limited (from April 2017 to September 2018). He has also previously performed roles with a number of industry
and government committees, including Chairman of the Group of 100 (Australia’s peak body for senior finance
executives), and Chairman, Standing Committee (Accounting and Auditing), for the Australian Securities
and Investments Commission (‘ASIC’). Mr Mitchell is Chair of the Audit Committee and a member of the Risk
Management Committee.
25
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 INFORMATION ON DIRECTORS
Lou Panaccio
BEc, CA, MAICD
Non-executive, independent Director, appointed June 2005
Mr Panaccio is a Chartered Accountant with extensive executive management experience in business and
healthcare services. Mr Panaccio is currently on the boards of ASX- and NASDAQ-listed Avita Therapeutics Inc.
(Non-executive Chairman from July 2014) and ASX-listed Rhythm Biosciences Limited (Non-executive Director
from August 2017). He is also a Non-executive Director of Unison Housing Limited, Azure Health Technology
Limited, NeuralDx Limited and Metro Pain Group. Mr Panaccio was the Chief Executive Officer and Executive
Director of Melbourne Pathology (acquired by Sonic in 1999) for ten years to 2001, the Chief Executive
Officer of Monash IVF until 2009 and the executive Chairman of Health Networks Australia until 2017. He was
also a Non-executive Director of ASX-listed Genera Biosystems Limited from November 2010 until 28 June
2019 (Chairman from July 2011 until 28 June 2019). Mr Panaccio a member of the Audit Committee, the
Remuneration and Nomination Committee, and the Risk Management Committee.
Kate Spargo
LLB (Hons), BA, FAICD
Non-executive, independent Director, appointed July 2010
Ms Spargo has gained broad business experience as both a legal advisor, having worked in private practice
and government, and as a director. Ms Spargo has been a director of both listed and unlisted companies over
the last 20 years and her current directorships include the ASX-listed companies CIMIC Group Limited (from
September 2017), Adairs Limited (from May 2015) and Sigma Healthcare Limited (from December 2015).
She is also the Non-executive Chairman of CoInvest Limited, the Future Fuels Cooperative Research Centre,
and Geelong Football Club Limited. Ms Spargo was previously a Non-executive Director of Fletcher Building
Limited (March 2012 to September 2017), UGL Limited (October 2010 to January 2017) and Xenith IP Group
Limited (from April 2017 until 15 August 2019). Ms Spargo is Chair of the Remuneration and Nomination
Committee and is a member of the Audit Committee.
Dr Jane Wilson
MBBS, MBA, FAICD
Non-executive, independent Director, appointed July 2010
Dr Wilson is an independent Non-executive Director with a background in finance, banking and medicine. She
is a registered general medical practitioner. Dr Wilson is currently a Guardian of the Future Fund, Non-executive
Director of ASX-listed companies Transurban Group (since January 2017) and Costa Group Holdings Limited
(from April 2019). She is also Co-Chair of the Australian Government Advisory Board on Technology and
Healthcare Competitiveness. Dr Wilson was Deputy Chancellor of the University of Queensland and has
previously served on boards of ASX-listed companies, Government-owned Corporations and not-for-profit
companies.
Dr Wilson was awarded the 2016 Australian Institute of Company Directors Queensland Gold Medal Award for
contribution to business and the wider community. She holds a Bachelor of Medicine and an Honorary Doctor
of Business from the University of Queensland and an MBA from Harvard Business School. Dr Wilson is Chair
of the Risk Management Committee and is a member of the Remuneration and Nomination Committee.
26
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 INFORMATION ON DIRECTORS
b) Company Secretary
Paul Alexander
BEc, CA, FFin
Mr Alexander has been the Deputy Chief Financial Officer of Sonic Healthcare Limited since 1997 and
Sonic’s Company Secretary since 2001. Prior to joining Sonic, Mr Alexander gained 10 years’ experience
in professional accounting practice, mainly with Price Waterhouse, and was also Financial Controller and
Company Secretary of a subsidiary of a UK-headquartered multinational company for two years.
27
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 INFORMATION ON DIRECTORS
c) Directors’ interests in shares, options and performance rights as at 23 September 2020
Director’s name
Dr C.S. Goldschmidt
C.D. Wilks
Prof. M.R. Compton
Prof. S. Crowe
Dr P.J. Dubois
N. Mitchell
L.J. Panaccio
K.D. Spargo
Dr E.J. Wilson
Class of
shares
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Number of
shares
Interest
746,238
Personally
547,368
94,760
459
8,807
856
Personally
Beneficially
Personally
Beneficially
Personally
11,770
Beneficially
9,770
8,026
3,000
19,000
Beneficially
Beneficially
Personally
Beneficially
7,770
Personally
Number of
options
1,366,229+
606,964+
–
Number of
performance rights
148,664+
66,047+
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
+ Vesting of options and performance rights is subject to challenging performance conditions designed to align the interests of the executives with those of
shareholders. None of the performance rights have vested to date. 164,559 of Dr C.S. Goldschmidt’s and 73,107 of C.D. Wilks’ options have vested to date.
MEETINGS OF DIRECTORS
The numbers of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended
30 June 2020, and the numbers of meetings attended by each Director (while they were a member of the Board or relevant
Committee) were:
Meetings of Committees
Full meetings
of Directors
Audit
Remuneration and
Nomination
Risk
Management
Number of
meetings
attended
Number of
meetings
held
Number of
meetings
attended
Number of
meetings
held
Number of
meetings
attended
Number of
meetings
held
Number of
meetings
attended
Number of
meetings
held
12
12
12
5
12
12
12
12
12
12
12
12
5
12
12
12
12
12
–
–
6
–
–
6
6
6
–
–
–
6
–
–
6
6
6
–
–
–
4
–
–
–
4
4
4
–
–
4
–
–
–
4
4
4
3
–
–
–
–
3
3
–
3
3
–
–
–
–
3
3
–
3
Director’s name
Dr C.S. Goldschmidt
C.D. Wilks
Prof. M.R. Compton
Prof. S. Crowe+
Dr P.J. Dubois
N. Mitchell
L.J. Panaccio
K.D. Spargo
Dr E.J. Wilson
+ Note Prof. S. Crowe was appointed as a Director on 6 April 2020
28
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020
INSURANCE OF OFFICERS
The Company has entered into agreements to indemnify all Directors of the Company that are named above, and current and
former Directors of the Company and its controlled entities, against all liabilities to persons (other than the Company or related
entity) which arise out of the performance of their normal duties as Director or executive officer, unless the liability relates to
conduct involving lack of good faith. The Company has agreed to indemnify the Directors and executive officers against all costs
and expenses incurred in defending an action that falls within the scope of the indemnity and any resulting payments.
The Directors’ and officers’ liability insurance provides cover against costs and expenses, subject to the terms and conditions
of the policy, involved in defending legal actions and any resulting payments arising from a liability to persons (other than the
Company or related entity) incurred in their position as a Director or executive officer, unless the conduct involves a wilful breach
of duty or an improper use of inside information or position to gain advantage. The insurance policy does not allow disclosure of
the nature of the liabilities insured against or the premium paid under the policy.
ENVIRONMENTAL REGULATION
The Group is subject to environmental regulation in respect of the transport and disposal of medical waste. The Group contracts
with reputable, licensed businesses to dispose of waste. The Directors believe that the Group has complied with all relevant
environmental regulations and there have been no investigations or claims during the financial year.
NON-AUDIT SERVICES
The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s
expertise and experience with the Group are important.
Details of the amounts paid or payable to the auditor of the Group (PricewaterhouseCoopers) for non-audit services provided
during the year are set out below.
The Board of Directors has considered the position and, in accordance with the advice received from the Audit Committee,
is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor did not
compromise the auditor independence requirements of the Corporations Act 2001. In the opinion of the Directors, none of the
services provided undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for
Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making
capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards.
A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out
on page 54.
During the year the following fees were paid or payable for non-audit services provided by the auditors of the Group.
PricewaterhouseCoopers – Australian firm and related practices
(including overseas PricewaterhouseCoopers firms)
Taxation and other services
403,197
263,575
2020
$
2019
$
29
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 SHARE OPTIONS
Information on share options is detailed in Note 35 – Share based payments.
ROUNDING OF AMOUNTS
The Company is of a kind referred to in the ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191,
relating to the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in
accordance with that Instrument to the nearest thousand dollars or, in certain cases, to the nearest dollar.
30
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
Letter from the Chair of the Remuneration and Nomination Committee
Dear Shareholders,
We are pleased to present the 2020 Remuneration Report, which focuses on the impact of the COVID-19 pandemic, our
remuneration outcomes, and our response to the first ‘strike’ in 2019. We have detailed in this Remuneration Report a change to
remuneration for our executives for 2020, as well as changes for 2021.
There is no doubt that 2020 has been one of the most challenging years for Sonic Healthcare’s business, as for so many others.
The impact of the COVID-19 pandemic has placed enormous demands on our people, our resources and our processes. We
had been tracking to our earnings guidance until March this year, but our Company had to then rapidly adapt to the demands of
testing with respect to a new and dangerous virus. At the same time we saw major reductions in volumes of routine testing, as
people stayed away from their doctors.
Our facilities remained fully operational as we focussed on the health and safety of our staff, and our patients. Our international
expertise came to the fore, with collaboration and innovation in testing and resource management across our federation used to
provide millions of COVID-19 tests in a variety of settings.
Of particular significance was the way in which our people stepped up to manage the impact of the pandemic. Our procurement
people had to ensure that all of our global sites had adequate supplies of Personal Protective Equipment, testing equipment,
reagents and kits to cope with the extraordinary demand. Our staff coordinated the establishment of COVID-19 specimen
collection in dedicated collection centres, introduced self-collection and supervised self-collection of COVID-19 specimens, and
coordinated the early introduction of drive-through COVID-19 centres. We managed a very large decline in volumes from routine
testing, involving cost reductions in labour by a hiring freeze, no overtime, a halt to capex, hours reductions and salary sacrifice.
The Company has not participated in the JobKeeper or similar programs in Australia, and has received only relatively modest
support in some of our other jurisdictions.
As a testament to our Medical Leadership culture, our teams responded and adapted rapidly to a new operating environment
and our results in 2020 demonstrate the commitment of the staff and management through this challenging period. The Board
thanks our employees for their exemplary contributions and for their dedication to serving our communities.
Remuneration outcomes for 2020
The Board did not exercise any discretion with respect to incentive based remuneration. The Board, CEO and CFO reduced their
remuneration by 50% during April and May as a means of showing support for staff, given the challenges being faced.
The STI for the executives was paid at 25% of target. There was no award in relation to the quantitative earnings target for the STI,
while the full award to the executives was made in relation to the qualitative component.
The total STI payments were approximately one fifth of what they were last year. This year the executives have agreed to defer
30% of their STI payment into equity for 2 years.
For the LTI, there was less impact from COVID-19 on the outcome in relation to the measures, given the relatively shorter
duration of COVID-19 within the three year performance period. The LTI amount awarded was 70.9% of the target opportunity.
This was based on relative total shareholder return achieved at the 77th percentile, average ROIC of 8.5% and compound EPS
growth of 4.1%.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
Response to the first strike
At our AGM in 2019, 25.6% of votes were cast against the adoption of our 2019 Remuneration Report. We have considered
carefully the comments made by investors and proxy adviser firms, and the overall structure and measures in our remuneration
approach. We have also consulted further with investors and proxy adviser firms. There was a variety of reasons given by
investors and proxy advisers for the vote last year and we have tried to distil the main areas of concern and to respond to them.
We have made a number of changes for 2021 which we trust will address the concerns. We have been mindful of balancing
investor interests with those of our key executives. We want to reward our investors for their trust in the Company as well as
reward excellent, long serving and committed executives who have delivered consistent value to investors over many years.
The changes are detailed in the Remuneration Report but in summary:
On the STI, we have:
¡ increased the threshold performance hurdle and also increased the earnings performance target
¡ added a hurdle of achievement of 80% of target EBITDA growth before any contribution can be included from acquisitions
which are unknown at the time of setting the target. The amount which can be included as a result of such acquisitions is
capped at 1% of any additional earnings
¡ reweighted the qualitative component from 25% to 20% of the target opportunity
¡ removed the outperformance opportunity on the qualitative component, returning it to 100%
¡ agreed to defer into equity for 2 years 50% of any payment made with respect to the quantitative or earnings related
component of the STI, that is, on 80% of target opportunity.
On the LTI, we have:
¡ increased the threshold EPS CAGR target from 4% to 5% per year
¡ reduced the proportion available to vest at reaching threshold performance from 40% to 30%
¡ provided the executives with the opportunity to earn up to 150% of the target rather than 100% for performance above 10%
EPS growth
Also on the remuneration mix for Dr Goldschmidt, we have increased the weighting of the LTI opportunity relative to the STI
opportunity in line with market comparators.
We remain committed to achieving the appropriate balance between investor and executive rewards and we will continue to
monitor the alignment of our remuneration approach with Company performance.
You may notice that our Remuneration Report is in a new format this year. We have tried to enhance the readability of the Report
but of course, continue to welcome feedback on all aspects of our approach.
As we continue to travel through and out the other side of the COVID-19 pandemic we will continue to listen to feedback from
investors and other stakeholders as we craft remuneration arrangements that provide just encouragement and reward to the
executives whilst ensuring shareholders’ interests are kept at the fore.
Kate Spargo
23 September 2020
32
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
In this report
Key management personnel
a)
b) Year in review
– COVID-19 and business performance
– Response to 2019 first strike
2020 performance and remuneration outcomes
c)
d) 2020 Executive Director remuneration framework
e) Remuneration governance
f)
g) Statutory remuneration disclosures for key management personnel
h) Other statutory disclosures
Non-executive Director remuneration
a) Key management personnel
The table below lists the Directors of Sonic Healthcare Limited, who were the key management personnel (‘KMP’) of the Group
throughout the financial years ended 30 June 2020 and 2019 (unless otherwise indicated).
Name
Non-executive Directors
Prof. M.R. Compton
Prof S. Crowe (from 6 April 2020)
N. Mitchell
L.J. Panaccio
K.D. Spargo
Dr E.J. Wilson
Executive Directors
Dr C.S. Goldschmidt
C.D. Wilks
Dr P.J. Dubois
Position
Chairman
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Managing Director
Finance Director
Executive Director, CEO of Sonic Imaging
The Board is satisfied that in light of the way the Company operates in a federation structure and the consequent distributed
management model, there are no other KMP at the group level.
Dr P.J. Dubois retired from his executive position and therefore became a Non-executive Director effective 1 July 2020.
b) Year in review
i)
COVID-19 and business performance
The 2020 financial year was a busy and challenging period. For the 8.5 months to mid-March 2020, Sonic’s financial
performance was in line with the guidance given to the market in August 2019 of 6-8% underlying EBITDA growth on a Constant
Currency basis. Social restrictions and fear of infection relating to the COVID-19 pandemic then caused dramatic falls in patient
volumes and revenues from the second half of March, resulting in a short-term downturn in earnings. Sonic did not participate
in the JobKeeper or similar programs in Australia, and received only relatively modest support in other jurisdictions. By 30 June
2020 the majority of Sonic’s divisions had returned to pre-COVID-19 base volumes and revenues.
33
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
In addition to the recovery of base volumes/revenues, many of Sonic’s laboratory businesses had ramped up substantial
COVID-19 testing, playing an essential role in combatting the pandemic. Sonic reported underlying EBITDA growth on a
Constant Currency basis for the 2020 year of 1.6%.
Sonic Healthcare facilities remained fully operational throughout the pandemic. The health and safety of our 37,000 staff
operating at the frontline of the pandemic response remained paramount, with strong focus on staff and patient well-being in
working with potentially infective substances and patients.
In response to the pandemic, Sonic has completed more than 6 million COVID-19 PCR tests globally to date. Sonic Healthcare’s
Medical Leaders continue to support national initiatives in partnership with governments and public health authorities. Sonic has
leveraged its international expertise to optimise the medical and operational response to the pandemic, mobilising resources
and infrastructure to provide high-volume, rapid turn-around of COVID-19 testing, while managing supply chain challenges
amidst global shortages and maintaining parallel focus on continuing to provide essential non-COVID-19 diagnostic and clinical
services.
Revenue for the year was $6.8 billion, reflecting an underlying revenue increase of 11.5%. Reported net profit was $528 million,
an underlying increase of 6.5%. Strong operating cash generation was assisted by receipt of A$63 million of prepaid US Medicare
testing fees, and cash preservation initiatives. Dividends for the year totalled $0.85 per share, an increase of 1.2% over 2019,
supported by Sonic’s strong balance sheet, earnings and cash flows.
ii) Remuneration impacts and outcomes
The Board did not exercise discretion to adjust any variable remuneration performance targets or outcomes for 2020.
In light of 2020 performance, remuneration impacts and outcomes were as follows:
Fixed remuneration
The Board, including the Managing Director and Finance Director, and other executives proactively volunteered to sacrifice a
proportion of their salaries in response to the COVID-19 pandemic. All KMP sacrificed 50% of their 2020 fees/fixed remuneration
from the early days of the pandemic, when the potential impact of social restrictions on Sonic Healthcare was uncertain, for
an approximate eight week period. This decision reflected Sonic’s leaders’ dedication to Sonic Healthcare and displayed their
commitment to showing support for our employees, customers, shareholders and the broader community in the face of the
pandemic. Payment of fixed remuneration at full rates recommenced in June 2020.
Short Term Incentives (‘STI’)
¡ As a result of the impact of the COVID-19 pandemic on Sonic’s 2020 underlying EBITDA growth, the EBITDA performance
condition which relates to 75% of the target STI amount was not met.
¡ Reflecting strong performance against qualitative strategic targets, both Dr C.S. Goldschmidt and C.D. Wilks received 25% of
their STI target (FY2019: 119.1%). Refer to section c) for more information on the qualitative performance assessment.
¡ For the 2020 STI award, 70% will be delivered in cash following the end of the financial year, while the remaining 30% will
be deferred into rights to Sonic Healthcare shares. The rights and resulting shares are to be held for a total period of at least
two years.
Long Term Incentives (‘LTI’)
The 2018 LTI grant was tested for the performance condition period for the three years to 30 June 2020. The performance
and subsequent amounts vested for each performance condition are outlined in Section c). In aggregate 70.9% of the total
award vested.
Further detail on performance outcomes is included in Section c).
34
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
iii) Response to the first strike
At the 2019 Annual General Meeting (‘AGM’) Sonic Healthcare received a ‘first strike’ with 25.6% of votes cast against the
adoption of the 2019 Remuneration Report. A range of feedback from shareholders and proxy advisers was sought and
received. While some of the messages received were consistent, other aspects of Sonic’s remuneration approach were seen as
appropriate by some investors and proxy advisers but not others.
The Board values stakeholder feedback and insights, and consequently, undertook an extensive review of Sonic Healthcare’s
executive remuneration framework. Engagement with shareholders and proxy advisor groups was significantly increased to
understand the detail of the concerns, and in addition external experts in remuneration structures and reporting were consulted.
In summary, the key themes were:
¡ Executive remuneration opportunity: Investors wanted a clearer understanding of our approach to setting the remuneration
quantum for Sonic Healthcare’s Executive Directors relative to market peers.
¡ Pay for performance alignment and performance targets: Remuneration outcomes should be more strongly linked to
Company performance, in particular:
– Payment of stretch outcomes on the non-financial component of the STI.
– Consistency in the treatment of acquisitions in both the STI and LTI.
– The degree of challenge in STI and LTI performance targets, in particular the EBITDA STI target setting approach and
EPS LTI target.
¡ Transparency: The Remuneration Report should provide shareholders with a clearer explanation of decisions regarding
remuneration structures and quantum.
In light of stakeholder feedback and the review conducted, the Board decided to make changes to the remuneration framework,
with the focus on enhancing the pay for performance alignment, while also recognising the importance of acquisitions in Sonic’s
business strategy and creation of wealth for shareholders.
2020 changes
The table below outlines the changes made effective for 2020.
Element
Action taken
STI deferral
As an interim step, thirty per cent (30%) of Dr C.S. Goldschmidt’s and C.D. Wilks’ 2020 STI earned will be delivered
as rights to Sonic Healthcare shares, deferred for two years. No further performance hurdles will apply. The Board
considers that this may assist in assuring shareholders of the alignment of performance with shareholders’ longer
term interests. The Board also reflects that both Dr Goldschmidt and Mr Wilks retain substantial shareholdings in
the Company.
Transparency of
disclosures
The Remuneration Report for 2020 has been restructured and enhanced to provide greater transparency and
articulation of rationale for remuneration quantum, decisions and outcomes. One of the key pieces of feedback was
the approach to setting remuneration levels for Dr C.S. Goldschmidt and C.D. Wilks, which is outlined in section d(ii).
35
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
2021 changes
The following changes will be implemented effective for 2021.
Element
Action taken
Remuneration mix
EBITDA
performance
targets
STI
Weighting of
financial and
non-financial
performance
Deferral
Discretion
LTI
EPS target and
vesting schedule
The target remuneration mix for Dr C.S. Goldschmidt has been revised, reducing the target
STI opportunity with a corresponding increase in the LTI opportunity. This shift has resulted in
the following remuneration mix:
Fixed Remuneration 31% (unchanged); STI 29%; LTI 40%.
The annual EBITDA performance target is to be set based on the upper quartile of the market
earnings guidance range rather than the mid-point.
The 1% cap on the contributions from ‘unknown’ acquisitions arising during the financial year
has been retained, recognising the importance of acquisitions to the business strategy. The
Board considers it important to retain an incentive to reward the executives for the effective
identification and completion of appropriate acquisitions in the shorter term as well as the
longer term. However, acknowledging the feedback received in 2019, 80% of the target
EBITDA must be achieved without any contributions from ‘unknown’ acquisitions.
The strategic qualitative component of the STI will be reduced from 25% of the total STI
opportunity to 20%, with 80% of the award subject to the EBITDA hurdle. The Board considers
that the qualitative factors nominated are fundamental to the success of the Company
but also represent the way business is consistently carried out at Sonic Healthcare, led
by the executives. Consequently the Board has chosen to place greater emphasis on the
quantitative factors for 2021.
The 150% upside opportunity on the strategic qualitative component of the STI has been
removed i.e. now capped at 100%.
The potential upside will continue to apply to the EBITDA component of the STI award, in the
defined circumstances where there has been significant outperformance.
50% of the EBITDA component of the STI will be deferred into rights to Sonic Healthcare
shares. The rights/shares must be held for a total of at least two years.
There will be no deferral on any payments made under the strategic qualitative component of
the STI.
The Board will consider the approach to cessation of employment for the deferred STI and
any implications for malus as applicable for 2021 and beyond.
The threshold EPS CAGR growth target has been raised from 4% per annum to 5%.
The vesting schedule under the EPS performance measure has been revised as follows:
¡ The proportion to vest on the achievement of threshold EPS performance (i.e. at 5% EPS
CAGR) will be reduced from 40% to 30%.
¡ Correspondingly, participants will have the opportunity to earn up to 150% for maximum
performance (i.e. for performance above 10% CAGR).
There are no changes proposed to the vesting schedules for the relative TSR and ROIC
performance measures.
36
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
c) 2020 performance and remuneration outcomes
i)
STI outcomes
2020 performance assessment
As a result of the impact of the COVID-19 pandemic on Sonic’s 2020 underlying EBITDA growth, the EBITDA performance
condition which relates to 75% of the target STI amount was not met and that proportion of the potential award was forfeited.
The remaining 25% of the target STI award was subject to the qualitative strategic performance conditions and was met in full.
Detailed information was sought from a range of sources both within and outside of the Company and an assessment of the
performance of the executives was made by the Board with reference to the following factors.
¡ Promotion of, and adherence to, Sonic Healthcare’s Core Values and Foundation Principles
¡ The exercise and promulgation of Sonic’s Medical Leadership culture
¡ The Federation model employed at Sonic Healthcare, and its effective management
¡ Risk management within the Company
¡ The external standing and reputation of the Company
¡ Financial leadership and innovation (C.D. Wilks only)
These are ‘qualitative’ factors and are not able to be measured in the same way as the EBITDA target. However the Board
believes it is these factors, and the behaviours and actions which are linked to them, that are the basis of Sonic Healthcare’s
success as a healthcare provider and as a business. The current COVID-19 environment has strongly tested the quality of all
these factors. The Board believes that the Company is driven by the ideal of Medical Leadership, which means putting the
patient and their treating clinician at the centre of all Sonic does. Sonic’s Values and Principles derive from Medical Leadership,
and the Company’s standing and reputation have been built from it. Throughout the pandemic, the executives have called on
Sonic’s Medical Leadership culture to motivate and drive the Company’s staff to achieve outcomes during the most challenging
period in Sonic’s history. Sonic Healthcare’s long established culture has brought out the best in its people. It has served to
inspire them into action, not only to provide service and to make a contribution to community and their country, but also to make
enormous personal sacrifices to help Sonic Healthcare navigate the financial challenge presented by the pandemic.
Sonic’s culture supported its leaders as they managed the demands of the pandemic within our Australian and overseas
operations, went to exceptional lengths to ensure safety of staff, patients and colleague healthcare workers, and developed
innovative methods for effective and timely specimen collection and testing. The leadership teams found ways of reducing
costs and securing supply of essential materials in order for the Company to continue to provide its essential healthcare services
despite global shortages. Throughout the pandemic to date, Sonic has seamlessly maintained its provision of non-COVID-19
related business despite significant uncertainty and challenge.
The table below summaries the 2020 STI outcomes.
Dr C.S. Goldschmidt
2020
2019
C.D. Wilks
2020
2019
STI target as
a % of fixed
remuneration
Target STI $
% of Target
STI actually
awarded
% of Target
STI forfeited
Actual STI
award $
110%
110%
105%
105%
2,637,397
2,637,397
1,147,138
1,147,138
25%
119.1%
25%
119.1%
75%
0%
75%
0%
659,349
3,140,907
286,785
1,366,140
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
ii)
LTI outcomes
The options and performance rights issued as LTI for the executives are subject to challenging vesting conditions. Of the options
and performance rights with a performance measurement period for three years to 30 June 2020, 70.9% (2019: 35.4%) satisfied
the vesting conditions, as follows:
LTI outcomes (1 July 2017 to 30 June 2020)
Performance measure
Overall weighting
Performance achieved
% eligible to vest
Relative TSR
Aggregate EPS1
Target average ROIC2
Total
50%
25%
25%
100%
77th percentile
331.9 cents
100.4% of target ROIC
N/A
100%
41.3%
42.4%
70.9%
1 For the Aggregate EPS component of the LTI issue made in FY2018, the performance was as follows: FY2018 EPS: 110.2, FY2019 EPS: 115.7, FY2020 EPS: 106.0, for a
total aggregate EPS of 331.9 cents over the three-year performance period. EPS is calculated on a Constant Currency basis.
2 For the ROIC component of the LTI issue made in FY2018, the performance was as follows: FY2018 (target: 8.3%, achieved: 8.6%), FY2019 (target: 8.6%, achieved: 8.7%)
and FY2020 (target: 8.5%, achieved: 8.2% excluding the impacts of the new accounting standard AASB 16). This resulted in 100.39% of the target ROIC being achieved
over the three-year performance period.
iii) Company performance
Share price growth
The chart below shows the Company’s share price (SHL.AX) performance over the 5 years to 30 June 2020, versus the
relative performance of the ASX 200. The ASX 200 increased approximately 9% over the period, whereas SHL.AX increased
approximately 42%. Sonic’s share price has traded at or around all-time highs post release of the 2020 results.
Sonic Healthcare (SHL.AX) Share Price vs ASX 200
32.50
30.50
28.50
26.50
24.50
22.50
20.50
18.50
16.50
30 Jun 15
e
c
i
r
P
e
r
a
h
S
L
H
S
38
31 D ec 15
30 Jun 16
31 D ec 16
30 Jun 17
31 D ec 17
30 Jun 18
31 D ec 18
30 Jun 19
31 D ec 19
30 Jun 20
SHL
ASX 200
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020
REMUNERATION REPORT
Historical performance of the Group and relationship to remuneration of key management personnel
The table below summarises Sonic Healthcare’s performance over the last five years and the changes in remuneration of key
management personnel (but excluding Non-executive Directors who do not receive performance-based or equity-based
remuneration).
2016
2017
2018
2019
2020
Compound
average annual
growth rate1
Growth in Underlying EBITDA2
(excluding non-recurring items and
on a Constant Currency basis)
Growth in EBITDA2 (on a
Constant Currency basis)
Net profit attributable to
members ($’000)
13.8%
5.3%
6.4%
6.7%
1.6%
20.5%
2.5%
7.3%
9.5%
0.1%
451,374
427,773
475,606
549,725
527,749
Diluted earnings per share (cps)
109.3
102.1
112.2
122.1
110.6
Dividends paid per share (cps)
71
75
78
82
85
Enterprise value3 ($’000)
11,229,432
12,588,332
12,900,794
15,143,172
16,481,770
Total shareholder return4
63.0%
56.1%
23.1%
40.7%
40.7%
6.2%
7.4%
8.7%
5.2%
4.3%
9.3%
n/a
Change in total fixed remuneration
plus STI of executives5
Change in total remuneration
of executives6
44.3%
10.6%
(0.1)%
7.9%
(44.0)%
(0.7)%
34.4%
21.2%
13.1%
(6.3)%
(26.8)%
4.8%
1 The compound average annual growth rate is calculated over the five year period shown with 2015 as the base year.
2 EBITDA excludes the impacts of the new lease accounting standard AASB 16.
3 Enterprise value is the Company’s market capitalisation (number of issued shares times closing share price) plus net interest-bearing debt (excluding lease liabilities
under AASB 16) at 30 June.
4 Total shareholder return is calculated over a rolling three-year performance period and assumes dividend reinvestment.
5 Change in total fixed remuneration plus STI of executives is the percentage increase/(decrease) over the prior year of total fixed remuneration plus STI of all key
management personnel in place for all five years (but excluding Non-executive Directors).
6 Change in total remuneration of executives is the percentage increase/(decrease) over the prior year of total remuneration (cash plus long service leave accrued plus the
calculated value of equity remuneration) of all key management personnel in place for all five years (but excluding Non-executive Directors).
The table above demonstrates the relationship between the performance of the Group and the remuneration of its key
management personnel. Remuneration has fluctuated from year to year largely dependent on the extent to which the STI
performance hurdle related to EBITDA growth was met. Total remuneration has also fluctuated depending upon whether
elements of equity-based remuneration have met challenging (non-market based) performance conditions. Over the five-year
period, total remuneration has increased to reward the key management personnel for their part in delivering earnings growth
and strong Total Shareholder Returns.
39
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020
REMUNERATION REPORT
d) 2020 Executive Director remuneration framework
i)
Remuneration strategy
Sonic Healthcare’s remuneration opportunities are structured and set at levels that are intended to attract, motivate and retain
executives capable of leading and managing the Group’s operations, and to align remuneration with the creation of value for
shareholders.
Sonic Healthcare’s remuneration policy links the remuneration of the Managing Director and the Finance Director to Sonic’s
performance through the award of conditional entitlements. These conditional entitlements relate to the performance of the
Group and align reward with the creation of value for shareholders.
The remuneration strategy is designed to support Sonic’s business strategy. In particular, the approaches support the unique
nature of the decentralised federated structure, complexity of the global organisation and the acquisitive nature of the business.
Summary of remuneration components
The graphic below summarises the remuneration components and timing of delivery.
Year 1
Year 2
Year 3
Fixed
Remuneration (’FR’)
100% Cash
Base salary,
superannuation
and other benefits
STI
(Target is 110% of FR for
Dr C.S. Goldschmidt and
105% of FR for C.D. Wilks)
70% Cash
75% based on
EBITDA growth
25% based on
Strategic Objectives
30% Equity
(no performance
conditions apply)
LTI
(Target is 110% of FR for
Dr C.S. Goldschmidt and
107% of FR for C.D. Wilks)
50% granted
as Options
50% granted as
Performance Rights
50% Relative Total Shareholder Return
25% Aggregrate Earnings per Share
25% Target Average Return on Invested Capital
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
The table below outlines the purpose, performance link and value to shareholders of each remuneration component.
Fixed Remuneration
Short-term incentive (STI)
Long-term incentive (LTI)
Purpose
Performance link
Value delivered to
shareholders
Baseline level of remuneration to
attract and retain individuals with
the skills, experience and capability
to deliver the business strategy.
Executive Directors may take part of
their base salary as other benefits,
such as motor vehicles, including
any associated fringe benefits tax.
Reviewed annually, taking into
account market benchmarks,
performance and experience of
Executive Directors and Company
performance.
The remuneration of current
Executive Directors reflects the
individual’s significant commitment
to the success of Sonic Healthcare.
These individuals have led the
delivery of strategic outcomes
and shareholder returns over an
extended period of time, well in
excess of the average market tenure
for similar roles.
Motivate and reward for
contributing to the achievement
of annual financial and strategic
objectives.
Align participants with long-term
business strategy and the creation
of shareholder value and returns
over the long-term.
Performance is assessed against
EBITDA growth targets and
strategic objectives.
Performance is assessed against
Relative Total Shareholder Return
(TSR), Earnings per Share (EPS) and
Return on Invested Capital (ROIC).
Aligned to earnings growth
and delivery of annual strategic
objectives that support the longer-
term strategy.
Deferred portion delivered in equity.
The LTI is fully delivered as equity
and performance measures are
aligned to long-term shareholder
returns and value creation.
ii) Market positioning of fixed and total remuneration opportunities
Remuneration arrangements for Dr C.S. Goldschmidt and C.D. Wilks are reviewed annually by the Remuneration and Nomination
Committee, referencing market benchmarking.
Consideration is given to companies of similar size and complexity based on market capitalisation, global complexity
(determined by offshore portion of revenue) and industry. Companies in the Financials and Metals and Mining sectors are
excluded from market comparisons.
Fixed remuneration and Total Target Remuneration (being fixed remuneration, STI and LTI) are targeted at the 75th percentile
for the Managing Director and at the 80th percentile for the Finance Director. This market positioning reflects the value of the
specific individuals to Sonic Healthcare taking into consideration the following factors:
¡ The positioning of Sonic Healthcare, by market capitalisation, relative to other companies in the comparator groups. As
Sonic’s size placed it toward the top of the comparator groups considered, the positioning of the Managing Director and the
Finance Director’s remuneration towards the top of like roles within these groups is, in the Board’s view, appropriate.
¡ The current Managing Director and Finance Director have led the Company in driving sustained share price growth,
demonstrating medical leadership and delivering significant shareholder value over 27 years. Both are among the longest
tenured and successful incumbents in their respective roles within the ASX 200, having served in their roles since 1993. The
Board considers it appropriate to recognise the value of the knowledge, skills and experience the individuals bring to Sonic
Healthcare, as well as the sustained performance they have delivered.
¡ Reflecting their sustained performance, both the Managing Director and Finance Director have built and retained large
shareholdings with Sonic Healthcare over their significant tenure, resulting in a high level of alignment between the
Executives and shareholders.
¡ The role and strategic responsibilities of C.D. Wilks, Finance Director are considered broader than those of a typical CFO role.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
iii) Remuneration opportunity and mix
The table below provides a summary of target remuneration mix for Dr C.S. Goldschmidt and C.D. Wilks:
Dr C.S. Goldschmidt and C.D. Wilks
~32%
~34%
~34%
Fixed Remuneration
(% of total remuneration)
Target STI
(% of total remuneration)
LTI opportunity
(% of total remuneration)
Neither fixed nor total target remuneration has increased since 2017.
iv) Detailed overview of STI and LTI arrangements
Additional information for the STI and LTI awards for the year ended 30 June 2020 are detailed below for the Managing Director
and Finance Director:
STI Plan
Additional information for the STI award for the year ended 30 June 2020 is detailed below.
Key question
Sonic Healthcare approach
Who is eligible to
participate in the
STI plan?
What are Executive
Directors able to earn
under the STI plan?
How is the STI
delivered?
What is the mix
of performance
conditions?
How does the
EBITDA performance
condition work?
What are the Strategic
Objective measures?
The Managing Director and Finance Director are eligible to participate in the STI plan.
¡ Target opportunity: 110% of fixed remuneration for the Managing Director and 105% for the
Finance Director.
¡ Maximum opportunity: Both can earn up to 150% of target for the achievement of stretch performance.
For the 2020 STI, 70% of the award is delivered as cash, with the remaining 30% deferred as rights to Sonic
Healthcare shares. The rights/shares must be held for a period of at least two years.
The STI is determined based on the extent to which the following conditions are met:
¡ 75% based on EBITDA growth
¡ 25% based on Strategic Objectives
Year-on-year growth (using Constant Currency exchange rates to translate offshore earnings) in
underlying EBITDA.
EBITDA growth is used as a performance criterion as it is consistent with the way Sonic gives earnings guidance
to the market and is a clearer measure of operational performance than net profit or earnings per share as it is
not distorted by changes in income tax law, interest rates, or exchange rates.
Due to the COVID-19 pandemic, the threshold earnings growth was not achieved and therefore none of the STI
component subject to the underlying EBITDA target will be paid for 2020.
The Strategic Objectives applicable to the STI are as follows:
¡ Promotion of, and adherence to, Sonic Healthcare’s Core Values and Foundation Principles
¡ The exercise and promulgation of Sonic’s Medical Leadership culture
¡ The Federation model employed at Sonic Healthcare, and its effective management
¡ Risk management within the Company
¡ External standing and reputation (including stakeholder management, brand and quality)
¡ Financial leadership and innovation (for C.D. Wilks)
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
LTI Plan
The award features for the grant made during the 2020 financial year are as follows:
Key question
Sonic Healthcare approach
Who is eligible for
awards under the
LTI plan?
The Managing Director and Finance Director are eligible to participate in the LTI plan.
Are awards made on an
annual basis under the
LTI plan?
Yes, LTI grants are made on an annual basis, subject to shareholder approval at the Company’s Annual General
Meeting. This allows the Board to review the performance conditions on an annual basis and/or adjust the mix
between types of instruments for changes in circumstances.
What form do the
awards take?
Are dividends paid on
unvested LTI awards?
The LTI is delivered half in options and half in performance rights.
No, unvested options and performance rights are not eligible for dividends. Executive Directors are only
rewarded to the extent performance conditions have been achieved at the end of the performance period and
awards are exercised.
How is the number
of awards to grant
determined?
The number of options issued was determined based on a Black Scholes methodology valuation at the time of
grant. The valuation does not allow for any discounts relating to performance conditions. The exercise price of
the options is determined using the Volume Weighted five-day Average market Price (‘five-day VWAP’) for Sonic
Healthcare shares preceding the date of grant.
The number of performance rights issued was determined by dividing 50% of the maximum value of LTI (i.e.
the proportion granted as performance rights) by the five-day VWAP for Sonic Healthcare shares preceding the
date of grant.
What is the mix
of performance
conditions?
Awards will vest under the LTI plan based on the extent to which the following conditions are achieved over the
three year performance measurement period:
¡ Relative TSR (50% weighting)
¡ Aggregate EPS (25% weighting)
¡ Average Return on Invested Capital (‘ROIC’) (25% weighting)
How does the Relative
TSR performance
condition work?
Relative Total Shareholder Return (‘TSR’) provides a direct link between executive remuneration and
shareholder return relative to the Company’s peers.
Sonic Healthcare’s TSR is measured against the S&P ASX 100 Accumulation Index, excluding Banks and
Resource companies over the three-year performance period. Sonic Healthcare’s TSR performance is ranked
relative to the TSRs of the other constituents of this reference group.
2020 awards under the Relative TSR condition vest as follows:
TSR Ranking achieved
Below the 51st percentile
51st percentile
Greater than 51st and less than 75th percentile
Percentage of options and rights that vest
0% vesting of Relative TSR component
50% vesting of Relative TSR component
Pro rata between 50% and 100% vesting of
Relative TSR component
75th percentile and above
100% vesting of Relative TSR component
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
Key question
Sonic Healthcare approach
How does the
Aggregate EPS
performance
condition work?
How does the
Target Average
ROIC performance
condition work?
Sonic Healthcare’s Aggregate EPS over three years is measured against an Aggregate EPS target.
EPS is calculated as Net Profit after Tax, divided by the fully diluted weighted average number of ordinary
shares on issue during a year. EPS is calculated on a ‘Constant Currency’ basis (to AUD using average currency
exchange rates for the base financial year). Using a Constant Currency measure of EPS removes volatility from
exchange rate movements that are out of the control or influence of the Executive Directors.
Growth in EPS has been chosen as a condition as it is a direct measure of Company performance and maintains
a strong correlation with long-term shareholder return.
2020 awards under the aggregate EPS condition vest as follows:
Aggregate EPS (cents) for 3 years ending 2022
Percentage of options and rights that vest
Less than 361
Equal to 361
Between 361 and 405
0% vesting of aggregate EPS condition
40% vesting of aggregate EPS condition
Pro rata between 40% and 100% vesting
of aggregate EPS measure
Equal to or greater than 405
100% of aggregate EPS measure
361 cents and 405 cents equate to compound annual growth of 4% and 10% respectively, over the EPS for 2019
adjusted to remove the impact of the one-off $50 million gain on the sale of GLP Systems.
ROIC is calculated as follows (excluding the impact of AASB 16):
ROIC = (EBIT less minority interests less cash taxes paid in year) / Average invested capital.
The Board sets a ROIC target at the beginning of each measurement year, taking into account market
conditions and company-specific factors at the time. The ROIC target for the first year of the performance period
(2020) was 8.5%. After completion of the three-year measurement period, the average of the actual ROIC over
the three years will be compared to the average of the three ROIC targets (‘Target Average ROIC’).
Measurement of the average actual ROIC will exclude any significant uncontrollable or one-off events, and the
initial impact of business development initiatives, as approved by the Board.
ROIC has been chosen as a performance condition as the Board believes that a primary focus in coming
years should be improvement in the return from the substantial investments the Company has made into its
businesses.
Average ROIC over 3 years
Percentage of options and rights that vest
Less than Target Average ROIC
0% vesting of Average ROIC component
Equal to Target Average ROIC
40% vesting of Average ROIC component
Greater than Target Average ROIC and less than
110% of Target Average ROIC
Pro rata between 40% and 100% vesting of
average ROIC component
110% of Target Average ROIC or greater
100% vesting of average ROIC component
Does the LTI have
re-testing?
No, there is no re-testing. Options and performance rights for which the performance conditions are not
satisfied lapse immediately after the performance measurement is finalised.
How are the awards
delivered under
the LTI?
Vesting of LTI grants is dependent upon the achievement of the performance conditions outlined above over
the three-year performance period.
Options can only be exercised when the market price of Sonic Healthcare shares is higher than the
exercise price.
The performance rights will automatically exercise if and when the Board determines the performance
conditions have been achieved. Entitlements are satisfied either through an allotment of new Sonic Healthcare
ordinary shares to participants or the purchase of existing shares on-market.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
e) Remuneration governance
i)
Service agreements
None of the key management personnel of Sonic Healthcare Limited have a service contract. Rather, the terms and entitlements
of employment are governed by applicable employment laws.
Other than contributions to superannuation funds during employment periods and notice periods under applicable employment
laws, the Group does not contract to provide retirement benefits to Executive or Non-executive Directors.
Remuneration and other terms of employment for Executive Directors other than the Managing Director and Finance Director are
reviewed annually by the Managing Director, having regard to performance against goals set at the start of the year, performance
of the entity or function of the Group for which they have responsibility, and relevant comparative information.
Key remuneration-related terms for the Executive Directors are outlined below:
Cessation of employment
The Board has the discretion to determine the treatment of unvested awards where the participant is judged to be a ‘good
leaver’. The Board may choose to enable the participant to retain the portion of the LTI which vests (subject to the performance
conditions) for a specified period of time following the cessation of employment or to apply another treatment depending on the
circumstances surrounding the departure.
To be judged a ‘good leaver’ the Executive Director would need to provide sufficient notice, assist with succession planning and
transition and make themselves reasonably available to assist/answer queries of their replacement for a period post-employment.
The Board views this arrangement to be in the best interests of the Company and its shareholders, as the Executive Directors
will be incentivised to minimise disruption/loss of value associated with their departure. Cessation of employment in all other
circumstances will trigger forfeiture of all unvested entitlements, unless the Board determines otherwise.
The Board will consider the approach to cessation of employment for the deferred STI and any implications for malus as
applicable for 2021 and beyond.
Change of control
If a takeover bid or other public proposal is made for voting shares in the Company which the Board reasonably believes is likely
to lead to a change of control, unvested options and performance rights may vest at the Board’s discretion, having regard to pro
rata performance and the circumstances leading to the potential change of control.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
ii) Remuneration policy and governance oversight
The following diagram illustrates Sonic Healthcare’s remuneration governance framework and the key roles of the Remuneration
and Nomination Committee, which consists of four Non-executive independent Directors.
SONIC BOARD
¡ Oversees Non-executive Director and Executive Director remuneration and remuneration policies.
¡ With the support of the Remuneration and Nomination Committee, the Board is responsible for monitoring the
performance of Executive Directors and the alignment of remuneration policies with Sonic’s purpose, values, strategic
objectives and shareholders.
¡ Reviews and approves recommendations from the Remuneration and Nomination Committee.
REMUNERATION AND NOMINATION COMMITTEE
¡ Makes specific recommendations to the Board on remuneration packages and other terms of employment for the
Executive and Non-executive Directors.
¡ Advises the Board in relation to equity-based incentive schemes for all other employees.
¡ Seeks advice from the Risk Management Committee on risk related matters.
¡ Seeks advice from independent consultants where appropriate.
REMUNERATION ADVISORS
MANAGEMENT
¡ Provide independent advice to the Remuneration
and Nomination Committee or management on
remuneration market data, market practice or other
remuneration related matters.
¡ Makes recommendations to the Remuneration
Committee on the Group’s remuneration strategy
and framework.
¡ Provides relevant performance, financial and risk
¡ In 2020, Sonic’s Remuneration and Nomination
information to support decision-making.
Committee employed the services of Ernst & Young
to provide information in respect of remuneration
market data, support to the Board in responding to
the first strike and supporting the drafting of the 2020
Remuneration Report.
¡ No remuneration recommendations were made by
Ernst & Young in 2020.
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
f) Non-executive Director remuneration
The base fees payable to the Chairman and all other Non-executive Directors were reduced by 50% for a period of approximately
eight weeks during the financial year ended 30 June 2020. This was done to show support for Sonic’s shareholders and staff
given the challenges they have been facing with COVID-19 conditions.
Remuneration of Non-executive Directors is determined by the Board within the maximum amount approved by the
shareholders. At the Annual General Meeting on 22 November 2017, shareholders approved a maximum annual amount of
$2,000,000 for remuneration of Non-executive Directors, of which $1,306,274 was paid in 2020. In 2020 the Chairman’s annual
fee was $425,000, inclusive of all Board Committee work, and the base Non-executive Director fee was $185,000. Board
Committee fees were as follows:
Fees per annum
Audit
Risk Management
Remuneration and Nomination
Chair
$40,000
$30,000
$35,000
Members
$20,000
$15,000
$18,000
Non-executive Director fees have not increased since 1 July 2017. Options and performance rights are not issued and
performance based remuneration is not payable to Non-executive Directors.
g) Statutory remuneration disclosures for key management personnel
The following tables show the total remuneration for Sonic Healthcare’s KMP for 2019 and 2020. These disclosures have been
calculated in accordance with the accounting standards.
Non-executive Directors
Year
Name
Prof. M.R. Compton
Chairman
Prof. S. Crowe
Commenced on 6 April 2020
N. Mitchell
L.J. Panaccio
K.D. Spargo
Dr E.J. Wilson
Short-term employee benefits
Post-employment
benefits
Salary
& fees
$
Other
benefits1
$
Superannuation
$
Total
$
FY2020
FY2019
FY2020
FY2019
FY2020
FY2019
FY2020
FY2019
FY2020
FY2019
FY2020
FY2019
373,382
404,469
27,806
–
198,630
200,913
206,415
237,469
203,196
219,469
197,269
212,785
–
–
–
–
–
–
–
–
–
–
–
–
20,789
20,531
2,641
–
18,870
19,087
19,231
20,531
19,304
20,531
18,741
20,215
394,171
425,000
30,447
–
217,500
220,000
225,646
258,000
222,500
240,000
216,010
233,000
1 Other benefits include fringe benefits tax where applicable
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Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
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1
2
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020
REMUNERATION REPORT
h) Other statutory disclosures
i) Options and rights that were exercised during the financial year
During the financial year the following options and performance rights over ordinary shares in the Company were exercised by
key management personnel.
Dr C.S. Goldschmidt
C.D. Wilks
2020
Options issued in November 2014 with a performance measurement period to 30
June 2017 (having vested after satisfying performance conditions which caused
64.6% of the total options issued to be forfeited) with a $17.32 exercise price
Performance rights issued in November 2016 with a performance measurement
period to 30 June 2019 (having vested after satisfying performance conditions which
caused 64.6% of the total rights issued to be forfeited) with a nil exercise price
178,806
71,263
21,540
9,570
2020 Total intrinsic value of options and rights at the date of exercise
$2,789,998
$1,141,342
2019
Options issued in November 2011 with a performance measurement period to 30
June 2016 (having vested after satisfying performance conditions which caused
65% of the total options issued to be forfeited) with a $11.43 exercise price
Performance rights issued in November 2015 with a performance measurement
period to 30 June 2018 (having vested after satisfying performance conditions
which caused 53.5% of the total rights issued to be forfeited) with a nil exercise price
397,894
198,947
30,585
12,190
2019 Total intrinsic value of options and rights at the date of exercise
$6,334,881
$3,096,362
ii)
Equity disclosures relating to key management personnel
Options and performance rights held during the financial year
After approval by shareholders at the 2016, 2017, 2018 and 2019 Annual General Meetings, the Executive Directors were issued
the following LTI (the ‘FY2017 Issue’, ‘FY2018 Issue’, ‘FY2019 Issue’ and ‘FY2020 Issue’):
FY2017 Issue
FY2018 Issue
FY2019 Issue
FY2020 Issue
Dr C.S.
Dr C.S.
Dr C.S.
Dr C.S.
Goldschmidt C.D. Wilks
Goldschmidt C.D. Wilks
Goldschmidt C.D. Wilks
Goldschmidt C.D. Wilks
Options over shares
in Sonic Healthcare
Limited
Performance rights
over shares in Sonic
Healthcare Limited
464,659
206,430
467,467
207,678
462,372
205,415
407,747
181,147
60,822
27,021
60,766
26,996
60,626
26,934
44,941
19,966
49
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
Options exercise price
Performance condition
measurement period
Earliest vesting date, if
performance conditions are met
FY2017 Issue
FY2018 Issue
FY2019 Issue
FY2020 Issue
$21.62
$21.64
$21.69
$29.26
3 years to
30 June 2019
3 years to
30 June 2020
3 years to
30 June 2021
3 years to
30 June 2022
17 November 2019
22 November 2020
21 November 2021
19 November 2022
Expiry date
17 November 2021
22 November 2022
21 November 2023
19 November 2024
Fair value of each option at grant date
Fair value of each right at grant date
Percentage that satisfied
vesting conditions
$2.31
$14.73
35.4%
$1.89
$12.97
70.9%
$1.96
$13.09
tbd
$2.03
$18.70
tbd
The total value for remuneration purposes (to be allocated over the three-year vesting period) of the options and performance
rights that were issued in 2020 as part of remuneration was $1,666,492 for Dr C.S. Goldschmidt and $740,373 for C.D. Wilks.
Option holdings
The number of options over ordinary shares held beneficially or personally during the current financial year by the key
management personnel of the Group in relation to remuneration arrangements are set out below:
Director’s name
Balance at
1 July 2019
Issued
during the
2020 year
(Forfeited)
during the
2020 year
(Exercised)
during the
2020 year
Balance at
30 June
2020
(Forfeited)
since year
end
Vested and
exercisable at
30 June 2020
Dr C.S. Goldschmidt
1,828,312
407,747
(300,100)
(178,806)
1,757,153
(135,916)
C.D. Wilks
792,419
181,147
(133,323)
(71,263)
768,980
(60,383)
419,567
174,740
Performance rights
The number of performance rights held personally or beneficially during the current financial year by the key management
personnel of the Group in relation to remuneration arrangements are set out below:
Director’s name
Balance at
1 July 2019
Issued
during the
2020 year
(Forfeited)
during the
2020 year
(Exercised)
during the
2020 year
Balance at
30 June
2020
(Forfeited)
since year
end
Vested and
exercisable at
30 June 2020
Dr C.S. Goldschmidt
182,214
44,941
(39,282)
(21,540)
166,333
(17,669)
C.D. Wilks
80,951
19,966
(17,451)
(9,570)
73,896
(7,849)
–
–
50
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020
REMUNERATION REPORT
Share holdings
The number of shares held personally or beneficially during the current financial year by the key management personnel of the
Group are set out below:
Director’s name
Dr C.S. Goldschmidt
C.D. Wilks
Prof. M.R. Compton
Prof. S. Crowe
Dr P.J. Dubois
N. Mitchell
L.J. Panaccio
K.D. Spargo
Dr E.J. Wilson
Balance at
1 July 2019
790,884
699,662
7,511
–
8,770
9,770
6,026
19,000
3,770
Issued during
the 2020 year on
the exercise of
options or rights
Shares provided
as remuneration
during the
2020 year
Other
changes during
the 2020 year
Balance at
30 June 2020
200,346
80,833
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(250,000)
(120,000)
1,000
–
–
–
1,000
2,000
4,000
741,230
660,495
8,511
–
8,770
9,770
7,026
21,000
7,770
iii) Transactions with key management personnel
There were no other transactions with key management personnel during 2020 or 2019.
iv) Amounts receivable from/payable to other key management personnel
There were no amounts receivable from/payable to other key management personnel at 30 June 2020 (2019: $nil).
v) Doubtful debts
No provision for doubtful debts has been raised in relation to any receivable or loan balance with key management personnel,
nor has any expense been recognised.
vi) Securities trading policy
Under the Sonic Healthcare Securities Trading Policy, all Sonic Healthcare employees are prohibited from buying or selling
Sonic Healthcare securities (including shares, options, debt securities) at any time they are aware of any material price-sensitive
information that has not been made public, and are reminded of the laws against ‘insider trading’.
Certain ‘Designated Officers’, including all Directors and Executive Directors (and specified related parties), are also prohibited
from trading in periods other than in 8-week windows following the release of half year and full year results, five weeks after Sonic
Healthcare’s Annual General Meeting, and 2-week periods following Sonic Healthcare’s provision to the market at any other time
of definitive guidance regarding the next annual result to be released. The Sonic Healthcare Board of Directors must specifically
consider and approve the opening of the ‘trading window’ in each instance. Exceptions to this prohibition can be approved by
the Chairman (for Directors) or the Managing Director (for all other employees) in circumstances of severe financial hardship (as
defined in the Policy). Sonic Healthcare’s Chair or Managing Director may impose other periods when Designated Officers are
prohibited from trading because price–sensitive, non-public information may exist. All trading by Designated Officers must be
notified to the Company Secretary. Prohibitions also apply to trading in financial instruments related to Sonic Healthcare shares
and to trading in the shares of other entities using information obtained through employment with Sonic Healthcare.
51
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 REMUNERATION REPORT
In addition, the Managing Director and Finance Director are required to obtain approval from the Chair of the Sonic Healthcare
Board of Directors before selling any shares.
Designated Officers are prohibited from entering into transactions in products which limit the economic risk of participating
in unvested entitlements under any equity-based remuneration schemes and from short-term trading and short selling
arrangements in relation to Sonic Healthcare securities. Designated Officers are required to commit to these prohibitions by
signing the Securities Trading Policy and will forfeit their equity reward should they be found to be in breach. Directors of Sonic
Healthcare Limited are also prohibited from entering into margin lending or other secured financing arrangements in relation to
Sonic Healthcare securities without the prior approval of the Chair and disclosure of such arrangements to the Board.
All Sonic Healthcare securities dealings by Directors are promptly notified to the Australian Securities Exchange (‘ASX’) in
accordance with Sonic Healthcare’s Continuous Disclosure obligations.
52
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 This Directors’ Report is made in accordance with a resolution of the Directors.
Dr C.S. Goldschmidt
Director
C.D. Wilks
Director
Sydney
23 September 2020
53
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020 Auditor’s Independence Declaration
As lead auditor for the audit of Sonic Healthcare Limited for the year ended 30 June 2020, I declare
Auditor’s Independence Declaration
that to the best of my knowledge and belief, there have been:
As lead auditor for the audit of Sonic Healthcare Limited for the year ended 30 June 2020, I declare
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
(a)
that to the best of my knowledge and belief, there have been:
relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
(a)
This declaration is in respect of Sonic Healthcare Limited and the entities it controlled during the
period.
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Sonic Healthcare Limited and the entities it controlled during the
period.
Brett Entwistle
Partner
PricewaterhouseCoopers
Brett Entwistle
Partner
PricewaterhouseCoopers
Sydney
23 September 2020
Sydney
23 September 2020
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
PricewaterhouseCoopers, ABN 52 780 433 757
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
54
Liability limited by a scheme approved under Professional Standards Legislation.
Directors’ ReportSONIC HEALTHCARE | ANNUAL REPORT 2020
Corporate Governance Statement
The Board of Sonic Healthcare continues to place great importance on the governance of the Company, which it believes is vital
to its wellbeing and success. There are two elements to the governance of companies: performance and conformance. Both
are important, but it is critical that focus on conformance does not detract from the principal function of a business, which is to
undertake prudent activities to:
¡ generate rewards for shareholders who invest their capital
¡ provide services of value to customers
¡ provide meaningful employment for employees
and to do so in a way that contributes positively to the community.
The principal features of Sonic’s corporate governance framework are set out in this statement, which is current as at
23 September 2020, and has been approved by the Board.
Sonic’s Board and management are committed to governance that recognises that all aspects of the Group’s operations are
conducted ethically, responsibly and with the highest standards of integrity. The Board has adopted practices and policies
designed to achieve these aims. Sonic supports the ASX Corporate Governance Council Corporate Governance Principles
and Recommendations (‘the Recommendations’) in advancing good corporate governance, and has complied with the fourth
edition during the 2020 financial year. Sonic’s website (www.sonichealthcare.com) includes a Corporate Governance section
that sets out the information required by the Recommendations, plus other relevant information, including copies of all Policies,
Charters and Codes referred to in this report.
Sonic’s Code of Conduct and Core Values (listed below) set out the fundamental principles that govern the way that all Sonic
people conduct themselves. Sonic’s Core Values apply equally to every employee of Sonic and were formulated with significant
input from Sonic’s staff. They have been embraced throughout the Group. Sonic’s Core Values are:
¡ Commit to Service Excellence
To willingly serve all those with whom we deal, with unsurpassed excellence.
¡ Treat each other with Respect & Honesty
To grow a workplace where trust, team spirit and equity are an integral part of everything we do.
¡ Demonstrate Responsibility & Accountability
To set an example, to take ownership of each situation to the best of our ability and to seek help when needed.
¡ Be Enthusiastic about Continuous Improvement
To never be complacent, to recognise limitations and opportunities for ourselves and processes, and to learn through these.
¡ Maintain Confidentiality
To keep all information pertaining to patients, as well as professional and commercial issues, in strict confidence.
A description of the Company’s main corporate governance practices is set out below. All these practices, unless otherwise
stated, were in place throughout the 2020 financial year. Any issues of non-compliance with the Recommendations are
specifically noted and explained.
55
SONIC HEALTHCARE | ANNUAL REPORT 2020 1. BOARD OF DIRECTORS
Profiles of the Directors and Company Secretary are included in the Directors’ Report.
a) Role of the Board
The Board of Directors is accountable to shareholders for the performance of the Company and the Group and is responsible for
the culture, values and corporate governance practices of the Group. The Board’s principal objective is to increase shareholder
value in an enduring manner while ensuring that the Group’s activities are properly managed, including in accordance with it’s
culture and values.
Sonic’s corporate governance practices provide the structure which enables the Board’s principal objective to be achieved,
whilst ensuring that the business and affairs of the Group are conducted ethically and in accordance with the Company’s Core
Values, Code of Conduct, medical ethics and law.
The Board’s overall responsibilities include:
¡ demonstrating leadership at strategic and cultural levels
¡ defining the Group’s purpose and setting its strategic objectives
¡ approving the Group’s Core Values and Code of Conduct to underpin the desired culture within the Group
¡ overseeing management in its implementation of the Group’s strategic objectives, instilling of the Group’s values and
performance generally
¡ monitoring financial performance and reporting
¡ appointing the Chair and Managing Director, and assessing the performance of Directors
¡ setting the Group’s risk appetite and monitoring and ensuring the maintenance of adequate risk management identification,
control and reporting mechanisms
¡ ensuring the business is conducted ethically and transparently
The Board delegates authority for operational management of the business to the Managing Director and senior executives.
The Managing Director also oversees the implementation of strategies approved by the Board, and is responsible for providing
accurate and relevant information to enable the Board to perform its responsibilities. Senior executives reporting to the Managing
Director have their roles and responsibilities defined in specific position descriptions. The Board uses a number of Committees to
support it in matters that require more intensive review and involvement. Details of the Board Committees are provided below.
As part of its commitment to good corporate governance, the Board regularly reviews the practices and standards governing
the Board’s composition, independence and effectiveness, the accountability and compensation of Directors (and senior
executives) and the Board’s responsibility for the stewardship of the Group.
The role and responsibilities of the Board, the functions reserved for the Board and those delegated to management have been
formalised in the Sonic Board Charter.
The Company Secretary is appointed by the Board and is accountable directly to the Board, through the Chair, on all matters to
do with the proper functioning of the Board. Each Director is able to communicate directly with the Company Secretary.
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Corporate Governance StatementSONIC HEALTHCARE | ANNUAL REPORT 2020 1. BOARD OF DIRECTORS
b) Composition of the Board
The Directors of the Company in office at the date of this statement are:
Position
Expertise
Committees
Director’s name
Prof. Mark Compton
Age
59
Term of
office
(Years)
6
Dr Colin Goldschmidt
66
27
Mr Chris Wilks
62
30
Prof. Suzanne Crowe
69
0.5
Chairman,
Non-executive,
independent Director
Managing Director,
Chief Executive Officer
Finance Director,
Chief Financial Officer
Non-executive,
independent Director
Dr Philip Dubois
74
19
Non-executive Director +
Mr Neville Mitchell
61
3
Non-executive,
independent Director
Healthcare industry and
company management
Healthcare industry and
company management.
Pathologist
Finance, strategy, accounting,
banking, secretarial and
company management
Medicine, medical research,
governance and company
oversight
Diagnostic imaging
industry and company
management. Radiologist
Finance, tax, international
healthcare and company
management
Mr Lou Panaccio
63
15
Non-executive,
independent Director
Finance, healthcare industry
and company management
Ms Kate Spargo
68
10
Non-executive,
independent Director
Law, governance and
company oversight
Dr Jane Wilson
62
10
Non-executive,
independent Director
Medicine, finance,
governance and company
oversight. General Practitioner
+ Prior to 1 July 2020 Dr Dubois was an Executive Director and Chief Executive Officer of Sonic Imaging
Member of Audit Committee
and Remuneration and
Nomination Committee
Member of Risk Management
Committee
Chair of Audit Committee and
member of Risk Management
Committee
Member of Audit Committee,
Remuneration and Nomination
Committee and Risk
Management Committee
Chair of Remuneration and
Nomination Committee and
member of Audit Committee
Chair of Risk Management
Committee and member of
Remuneration and Nomination
Committee
The composition of Sonic’s Board is consistent with the principle of medical management and leadership, which has been a
core strategy of Sonic since 1993. Sonic’s Managing Director is a pathologist, and the Board also includes a radiologist, a general
practitioner and a medical specialist, ensuring that it has the capacity to understand complex medical issues and be in close
touch with the medical marketplace. The presence of medical practitioners on Sonic’s Board also gives comfort both to referring
doctors (Sonic’s customers) and to owners of diagnostic practices that Sonic seeks to acquire.
Dr Dubois was appointed to the Board following the acquisition of Queensland X-Ray (Sonic’s largest imaging practice), where
he was the practice leader. His presence on the Board has played an important role in consolidating Sonic’s imaging businesses
into a cohesive group. Dr Dubois retired from his executive role with the Company on 30 June 2020 and is therefore not
considered an independent Director. He has advised that he will retire from the Board by November 2022.
The Board currently comprises seven Non-executive Directors, six of whom are considered independent and two Executive
Directors. The independent Directors perform major roles in the Board Committees. All Board members speak English, the
language in which Board and shareholder meetings are held and key corporate documents are prepared.
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Corporate Governance StatementSONIC HEALTHCARE | ANNUAL REPORT 2020 1. BOARD OF DIRECTORS
The Sonic Board comprises members with a diverse mix of business skills, including industry specific management skills and
experience, broader management experience, including senior leadership positions in listed companies, finance, tax and legal
skills, expertise in corporate governance, and expertise in acquiring and merging healthcare businesses. The Board considers
that it currently has an appropriate mix of skills, expertise, tenure and diversity.
The Board has resolved that the position of Chairman of the Board is to be held by an independent Director. The independence
of each of the Non-executive Directors is assessed annually, and it is the view of the Board that each (other than Dr Dubois)
should continue to be regarded as independent. The tenure of Mr Panaccio was specifically addressed in his assessment
and the Board was satisfied that he has not become too close to management such that his capacity to bring independent
judgement to bear or to act in the best interests of all shareholders is compromised.
c) Board renewal
The size and composition of the Board is determined by the full Board acting on recommendations of the Remuneration and
Nomination Committee. Sonic’s constitution requires that the Board comprise no more than twelve and no fewer than three
Directors at any time. Sonic’s constitution also requires all Directors, other than the Managing Director, to offer themselves for re-
election at an AGM, such that they do not hold office without re-election for longer than three years.
The Board (with input from the Remuneration and Nomination Committee) regularly reviews its succession planning. A matrix
is used to guide the assessment of the current Directors, and to identify desirable characteristics for future appointments. The
matrix is as follows:
¡ Medical practitioners
¡ Industry-specific management experience
¡ Leadership experience (preferably CEO level)
¡ Experience on other listed entity boards
¡ Strategy and business development
¡ Strategic focus
¡ Medical technology development
¡ Financial acumen, including taxation knowledge
¡ Banking/treasury experience
¡ Risk management
¡ Corporate governance
¡ Legal
¡ International experience
¡ People management and remuneration
¡ Acquisitions and mergers
¡ Gender diversity
¡ Tenure diversity
Before appointing a Director or senior executive, Sonic undertakes comprehensive reference checks including education,
employment, character reference, criminal record and bankruptcy checks. Potential existing or foreseeable future conflicts of
interest are also considered.
Directors receive a letter of appointment and a deed of access and indemnity. The letter of appointment outlines Sonic’s
expectations of Directors with respect to their participation, time commitment and compliance with Sonic policies. An
induction process for incoming Directors is coordinated by the Company Secretary. To assist Directors to understand relevant
developments, the Board receives regular updates at Board meetings, workshops and site visits, along with timely relevant
reading materials.
d) Board meetings
The Board meets formally at least six times a year to consider a broad range of matters, including culture, strategy, financial
performance reviews, capital management and acquisitions. Details of meetings (both full Board and Committees) and
attendances are set out in the Directors’ Report.
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Corporate Governance StatementSONIC HEALTHCARE | ANNUAL REPORT 2020 1. BOARD OF DIRECTORS
e)
Independent professional advice and access to information
Each Director has the right to seek independent professional advice at the Company’s expense. However, prior approval of the
Chairman is required, which is not unreasonably withheld.
All Directors have unrestricted access to Company records and information and receive detailed financial and operational reports
from senior management during the year to enable them to carry out their duties. Directors also liaise with senior management as
required and may consult with other employees and seek additional information on request.
f) Conflicts of interest of Directors
The Board has guidelines dealing with disclosure of interests by Directors and participation and voting at Board meetings where
any such interests are discussed. In accordance with the Corporations Act, any Director with a material personal interest in a
matter being considered by the Board does not receive the relevant Board papers, must not be present when the matter is being
considered, and may not vote on the matter.
g) Securities trading
Under Sonic’s Securities Trading Policy, Sonic employees are prohibited from buying or selling or otherwise trading Sonic
Healthcare securities (including shares, options, debt securities) at any time they are aware of any material price-sensitive
information that has not been made public, and are reminded of the laws against ‘insider trading’. Certain ‘Designated Officers’,
including all Directors and senior executives (and specified related parties), are also prohibited from trading in periods other
than in 8-week windows following the release of half year and full year results, a 5-week window following the Annual General
Meeting, and 2-week periods following the provision to the market at any time by Sonic of definitive guidance regarding the next
annual result to be released. The Sonic Board of Directors must specifically consider and approve the opening of the ‘trading
window’ in each instance. Exceptions to this prohibition can be approved by the Chair (for other Directors) or the Managing
Director (for all other employees) in circumstances of severe financial hardship (as defined in the Policy). Sonic’s Chair or
Managing Director may impose other periods when Designated Officers are prohibited from trading because price-sensitive,
non-public information may exist. All trading by Designated Officers must be notified to the Company Secretary. Prohibitions also
apply to short-term trading, short selling, trading in financial instruments related to Sonic’s securities, including products that limit
the economic risk of unvested rights, options or shareholdings in Sonic, and to trading in the securities of other entities using
information obtained through employment with Sonic. Directors of Sonic Healthcare Limited are also prohibited from entering
into margin lending or other secured financing arrangements in relation to Sonic securities without the prior approval of the Chair
and disclosure of such arrangements to the Board. In addition, the Managing Director and Finance Director are required to obtain
approval from the Chair before selling any shares. All Sonic securities dealings by Directors are promptly notified to the Australian
Securities Exchange (‘ASX’).
h) Remuneration of Non-executive Directors
The current maximum total remuneration that may be paid to all Non-executive Directors is $2,000,000 per annum, as approved
by shareholders in November 2017. The total amount paid to Non-executive Directors in the 2020 financial year was $1,306,274.
This amount was reduced as the Non-executive Directors took a voluntary 50% reduction in fees for approximately eight weeks
as part of the response to the COVID-19 pandemic. This is discussed further in the 2020 Remuneration Report. Non-executive
Directors are not entitled to any performance based or equity based remuneration. No retirement benefit schemes (other than
statutory superannuation) apply to Non-executive Directors. Further details of Sonic’s remuneration policies for Executive
Directors and senior executives of the Company, and the relationship between such policy and the Company’s performance, are
provided in the Directors’ Report.
59
Corporate Governance StatementSONIC HEALTHCARE | ANNUAL REPORT 2020 2. BOARD COMMITTEES
To assist the Board in fulfilling its duties, there are currently three Board Committees whose terms of reference and powers are
determined by the Board. Details of Committee meetings and attendances are set out in the Directors’ Report.
a) Audit Committee
Members of the Audit Committee are:
Mr N. Mitchell | Chair (from 1 October 2019)
Prof. M.R. Compton
Mr L.J. Panaccio | (Chair until 30 September 2019)
Ms K.D. Spargo
The Committee operates under a formal Charter. The Charter requires that the Audit Committee comprises between three and
six members, all of whom must be independent Directors, and that the Chair of the Committee is not to be the Chair of the Board.
The principal role of the Audit Committee is to provide the Board, investors and other stakeholders with confidence that the
financial reports for the Company represent a true and fair view of the Company’s financial condition and operational results in all
material respects, and are in accordance with relevant accounting standards.
The responsibilities of the Audit Committee are set out in its Charter and include:
¡ assisting the Board in its oversight responsibilities by monitoring and advising on:
– the integrity of the financial statements of the Company
– the Company’s accounting policies and practices, in accordance with current and emerging accounting standards
– the external auditors’ independence and performance
– compliance with legal and regulatory requirements and related policies, including in relation to taxation
– compliance with the policy framework in place from time to time
– internal controls, and the overall efficiency and effectiveness of financial operations
¡ oversight of the Company’s internal audit function (known as the Sonic Business Assurance Program)
¡ providing a forum for communication between the Board, executive management and external auditors
¡ providing a conduit to the Board for external advice on audit and internal controls
The external auditors, the Managing Director and the Finance Director are invited to Audit Committee meetings at the discretion
of the Committee. The Committee meets at least twice per year.
In fulfilling its responsibilities, the Audit Committee receives regular reports from management, the head of the Business
Assurance Program and the external auditors. These reports include:
¡ any material breaches of the Company’s Code of Conduct
¡ any material incidents reported under the Company’s Global Whistleblower Policy
¡ any material breaches of the Company’s Anti-bribery and Corruption Policy
The Committee also meets with the external auditors at least twice per year, and more frequently if necessary, and reviews
any significant disagreements between the auditors and management, irrespective of whether they have been resolved. The
external auditors have a clear line of direct communication at any time to both the Chair of the Audit Committee and the Chair of
the Board.
The Audit Committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee
or external party.
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Corporate Governance StatementSONIC HEALTHCARE | ANNUAL REPORT 2020 2. BOARD COMMITTEES
b) Risk Management Committee
Members of the Risk Management Committee are:
Dr E.J. Wilson | Chair
Dr C.S. Goldschmidt
Mr N. Mitchell
Mr L.J. Panaccio
The Committee operates under a formal Charter. The Charter requires that the Risk Management Committee comprises at
least three members, the majority of whom must be independent Directors, and that the Chair of the Committee must be an
independent Director.
The Risk Management Committee’s responsibilities are set out in its Charter and include:
¡ assisting the Board in its oversight responsibilities by monitoring and advising on:
– the identification and management of risks, including but not limited to:
• business risks, including financial and strategic risks
• reputation risks
• operational risks, including clinical risks, business continuity and practice management risks
•
• environmental, social and governance risks
insurable risks, including legal liability claims and property losses
– internal controls and treatments for identified risks including the Company’s insurance program
– the Company’s overall risk management program
¡ providing a forum for communication between the Board, management and external risk management advisors
¡ providing a conduit to the Board for external advice on risk management
The Committee meets at least twice per year.
c) Remuneration and Nomination Committee
Members of the Remuneration and Nomination Committee are:
Ms K.D. Spargo | Chair
Prof. M.R. Compton
Mr L.J. Panaccio
Dr E.J. Wilson
The Remuneration and Nomination Committee operates under a formal Charter. The Charter requires that the Remuneration and
Nomination Committee comprises at least three members, all of whom are to be independent Directors.
The Remuneration and Nomination Committee’s role, as set out in its Charter, is to:
¡ review and make recommendations to the Board on remuneration packages and policies applicable to the Managing
Director, Finance Director and Non-executive Directors
¡ advise the Board in relation to equity-based incentive schemes for other employees
¡ ensure appropriate disclosure is provided to shareholders in relation to remuneration policies, and that equity-based
remuneration is within plans approved by shareholders
¡ review the Board and Board Committee structures
¡ advise the Board on the recruitment, appointment, retirement and removal of Directors
¡ assess and promote the enhancement of competencies of Directors
¡ review Board succession plans
¡ make recommendations to the Board in relation to workforce and Board diversity and measurable objectives in relation to
gender diversity, and monitor progress toward achievement of those objectives
The Committee meets on an as required basis.
The Remuneration and Nomination Committee, when deemed necessary, directly obtains independent advice on the
appropriateness of remuneration.
61
Corporate Governance StatementSONIC HEALTHCARE | ANNUAL REPORT 2020 3. APPROACH TO DIVERSITY
As a medical diagnostic company, Sonic Healthcare’s business relies on the services provided to referrers and patients by
thousands of Sonic staff every day. In addition, in seeking to continually improve Sonic’s services and financial performance, the
Company relies on the input and expertise of its Directors, managers, pathologists, radiologists, other medical practitioners and
staff. It is therefore critical that Sonic’s workforce brings a broad range of experiences, talents and viewpoints to the business.
Diversity is valued as it assists the Company to meet its objectives, and ensures that Sonic’s people at all levels of the Company
reflect our customers and the communities we serve.
Sonic Healthcare strives to maintain a healthy, safe, inclusive and productive environment that is free from discrimination and
harassment based on race, colour, religion, political beliefs, gender, gender identity, socio-economic or cultural background,
perspective, experiences, sexual orientation, marital or family status, age, national origin or disability. In addition, the Company
is committed to the continued development and implementation of initiatives to remove barriers that disadvantage any person
or group, such that everyone is able to compete on equal terms. Within Sonic, recruitment, development, promotion and
remuneration are based on merit. These principles are an integral part of Sonic’s corporate culture, and are encapsulated in the
Sonic Core Values and the Company’s Diversity Policy.
The Remuneration and Nomination Committee of the Sonic Board recommends annually measurable objectives for promoting
and maintaining gender diversity, and measures and reports on progress towards achievement of those objectives. The
Managing Director has discretion with regard to the specific initiatives to be implemented by management to achieve the
objectives.
The proportion of female employees to total employees within the Group at 30 June 2020 was:
Non-executive Directors of Sonic Healthcare Limited
Directors of Sonic Healthcare Limited
Executive staff of the Group+
Other senior leadership positions
Total senior leadership positions*
All employees
2020
50%
33%
38%
56%
53%
74%
2019
40%
25%
36%
57%
53%
75%
+ Includes executives to the ‘CEO-2’ level, plus, if not already included, direct reports to the heads of each of Sonic’s operating subsidiaries.
* Includes Directors, executive staff and other senior leadership positions.
The Company’s current objective in relation to gender diversity is to monitor and maintain the percentage of females in senior
leadership positions at a level greater than 40% and at least 50% in the workforce generally. These objectives were achieved in
2020. In addition, the Company has the objective to have not less than 30% of its Directors of each gender. This objective has
been achieved since 6 April 2020.
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Corporate Governance StatementSONIC HEALTHCARE | ANNUAL REPORT 2020 4. IDENTIFYING AND MANAGING BUSINESS RISKS
Sonic recognises that risk management is an integral part of good management and corporate governance practice and is
fundamental to driving shareholder value across the business.
Sonic views the management of risk as a core managerial capability. Risk management is strongly promoted internally and forms
part of the performance evaluation of key executives.
Sonic’s material business risks are described in the operating and financial review section of the Directors’ Report. Information
on Sonic’s impact on society and the environment can be found in Sonic’s Corporate Responsibility Reports available on
Sonic’s website.
a) Responsibilities
The Board determines the overall risk profile of the business and risk appetite for the Company and is responsible for monitoring
and ensuring the maintenance of adequate risk management policies, controls and reporting mechanisms.
To assist the Board in fulfilling its duties, it is aided by the Audit Committee and the Risk Management Committee. The Board has
delegated to these Committees responsibility for ensuring:
¡ the Company’s material business risks, including strategic, financial, operational, compliance (including taxation compliance),
environmental and social sustainability risks, are identified
¡ systems are in place to assess, manage, monitor and report on those risks, and that those systems are operating effectively
¡ management compliance with Board-approved policies
¡ internal controls are operating effectively across the business
¡ all Group companies are in compliance with laws and regulations relating to their activities
¡ the Company is operating within due regard to the risk appetite set by the Board
The Audit Committee and Risk Management Committee update the Board on all relevant matters.
Management is responsible for the identification, assessment and management of business risks. During the year, management
reported on these matters, including the effectiveness of the management of Sonic’s material business risks, to the Audit
Committee and Risk Management Committee, who then reported these matters to the Board. The Risk Management Committee
reviewed the Company’s risk management framework and reported on that review to the Board.
b) Risk management policies, systems and processes
Sonic’s activities across all of its operating entities are subject to regular review and continuous oversight by executive
management and the Board Committees. The Chief Executive Officers of the individual operating companies are responsible
for the identification and management of risk within their business. To assist in this, executive management has developed an
effective control environment to help manage the significant risks to its operations. This environment includes the following
components:
¡ clearly defined management responsibilities, management accountabilities and organisational structures
¡ established policies and procedures that are widely disseminated to, and understood by, employees
¡ regular internal review of policy compliance and the effectiveness of systems and controls
¡ central team for management of taxation-related risks
¡ comprehensive training programs for staff in relation to operational practices and compliance requirements
¡ strong management reporting framework for both financial and operational information
¡ creation of an open culture to share risk management information and to continuously improve the effectiveness of Sonic’s
risk management approach
¡ benchmarking across operations to share best practice and further reduce the operational risk profile
¡ Sonic’s Core Values, a uniting code of conduct embraced by Sonic employees
¡ Sonic’s Code of Conduct and Global Whistleblower Policy
¡ centrally administered Group insurance program, ensuring a consistent and adequate approach across all operating areas
¡ the ongoing engagement of a professional Risk Manager to coordinate the Company’s approach to material business risk
management
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Corporate Governance StatementSONIC HEALTHCARE | ANNUAL REPORT 2020 4. IDENTIFYING AND MANAGING BUSINESS RISKS
Control systems and policy compliance are reviewed by Sonic’s Business Assurance Program (Sonic’s internal audit function).
The Head of Business Assurance reports to the Audit Committee, and to the Company Secretary for administrative purposes.
The Business Assurance Program liaises with, but is independent of, the external auditor, and has full access to the Audit
Committee and Risk Management Committee, Sonic management and staff, and records. The Audit Committee determines
the scope for the Business Assurance Program each year and monitors management’s response to recommended system
enhancements.
c) Regulatory compliance
Sonic’s laboratory, imaging and medical centre activities are subject to Commonwealth and State law in Australia, and similar
regulatory control in offshore locations. These laws cover such areas as laboratory and collection centre operations, workplace
health and safety, radiation safety, privacy of information and waste management.
Sonic’s network of pathology laboratories, collection centres and imaging centres is required to meet and remain compliant with
set performance criteria determined by government and industry bodies.
To support this, Sonic’s operating policies and procedures are overseen by internal quality assurance and workplace health and
safety managers who review operational compliance.
In addition, practising pathologists and radiologists are required to be registered and licensed in accordance with Medical
Board and government regulations. The accreditation and licensing of locations, equipment and personnel is subject to regular,
random audits by government experts and medical peer groups. Sonic also undertakes internal reviews to ensure continued
best practice and compliance.
Sonic’s established procedures, focus on best practice, Medical Leadership model, structured staff training, and the external
review activities serve to mitigate operational risk and support regulatory compliance.
d) Managing Director and Finance Director certification
Sonic has adopted a policy requiring the Managing Director and the Finance Director to provide the Board with written
certification in relation to its financial reporting processes. For the 2020 financial year, the Managing Director and Finance
Director made the following certifications:
¡ that the financial records of the Company have been properly maintained
¡ that the financial statements and notes comply in all material respects with the relevant accounting standards
¡ that the financial statements and notes give a true and fair view, in all material respects, of the Company’s financial condition
and operational results
¡ that the statements above are founded on a sound system of risk management and internal control which operates effectively
in all material respects in relation to financial reporting risks
5. ETHICAL STANDARDS
The Company has a Code of Conduct that outlines the standards required so that the Directors and management conduct
themselves with the highest ethical standards. All employees of the Company and its controlled entities are informed of the
Code. The Directors regularly review this Code to ensure it reflects best practice in corporate governance. The Code is further
supported by the Sonic Core Values.
To augment the Code of Conduct and Core Values, the Company has formally implemented and disclosed the following global
policies:
¡ Anti-bribery and Corruption Policy
¡ Labour Standards and Human Rights Policy
¡ Supplier Code of Conduct
¡ Taxation Governance Statement
¡ Global Whistleblower Policy
¡ Diversity Policy
¡ Workplace Health and Safety Policy
¡ Privacy Policy
¡ Environmental Policy
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Corporate Governance StatementSONIC HEALTHCARE | ANNUAL REPORT 2020 6. CONTINUOUS DISCLOSURE
The Company Secretary has been nominated as the person responsible for communications with the ASX. This role includes
responsibility for ensuring compliance with the continuous disclosure requirements in the ASX listing rules, and overseeing and
coordinating information disclosure to the ASX, analysts, brokers, shareholders, the media and the public.
Sonic has formalised its policies and procedures on information disclosure in a Policy on Continuous Disclosure. The Policy
focuses on continuous disclosure of any information concerning the Company and its controlled entities that a reasonable
person would expect to have a material effect on the price of the Company’s securities, and sets out management’s
responsibilities and reporting procedures in this regard.
All information disclosed to the ASX is then immediately posted on the Company’s website and provided to the Directors.
Presentations to analysts on aspects of the Company’s operations are released to the ASX and posted on the Company’s website
ahead of the presentation.
The Company’s investor relations program facilitates effective two-way communication with investors and analysts. In addition to
large/institutional investors, the Company seeks to engage with retail shareholder groups, including meeting with representatives
of the Australian Shareholders’ Association at least annually. All investor relations discussions are conducted or monitored by the
Managing Director, Finance Director or Company Secretary and are limited to discussion of non-price sensitive information and
material previously announced on the ASX platform.
The Company discloses within the relevant report its process to verify the integrity of the contents of any periodic corporate
report it releases to the market that is not audited or reviewed by an external auditor.
7. THE ROLE OF SHAREHOLDERS
The Board aims to provide access and communicate openly with shareholders and to ensure that shareholders are informed of
all major developments affecting the Group’s state of affairs. Information is communicated to shareholders as follows:
¡ via the Company’s website (available at www.sonichealthcare.com), which includes electronic and other contact details.
Shareholders are able to register on the website to receive email alerts of all announcements made to the ASX
¡ the Annual Report is available to all shareholders on the Company’s website and is distributed to those shareholders who
elect to receive it. The Board ensures that the Annual Report includes relevant information about the operations of the Group
during the year, changes in the state of affairs of the Group and details of likely future developments, in addition to the other
disclosures required by law
¡ proposed major changes in the Group which may impact on share ownership rights are submitted to a vote of shareholders
To further facilitate communication with shareholders, the Company has established electronic shareholder communication
processes via its Share Registry. Shareholders are able to access online Annual Reports, notices of meetings, proxy forms and
voting, and receive electronic statements (for example, holding statements) by email.
Where possible, the Company provides advance notice of significant group briefings, including for the half and full year results
announcements, by publishing details on the Company website and extending open invitations. Telephone dial-in details are
generally made available. Records are kept of group and one-on-one briefings with investors and analysts. All shareholder
enquiries are responded to in a fair and respectful manner.
The Board encourages full participation of shareholders at the AGM to ensure a high level of accountability and identification
with the Group’s strategy and goals. AGMs are held at readily accessible locations (the 2020 AGM will be held virtually due to
the ongoing COVID-19 pandemic) and advance notice is provided on the Investor Calendar page of the Company’s website.
Ample opportunity is provided for shareholders to question the Board and the external auditor at the AGM. Important issues are
presented to the shareholders as single resolutions and all substantive resolutions are decided by a poll.
The shareholders are responsible for voting on the appointment of Directors. The Company ensures that the relevant Notice of
Meeting contains all material information in its possession relevant to a decision on whether to elect a Director.
65
Corporate Governance StatementSONIC HEALTHCARE | ANNUAL REPORT 2020 8. EXTERNAL AUDITORS
The Company’s policy is to appoint external auditors who clearly demonstrate quality and independence. The performance
of the external auditor is reviewed annually. Sonic requires its external auditor to attend the AGM and be available to answer
shareholder questions about the conduct of the audit and the auditor’s report. It is the policy of the external auditors to provide
an annual declaration of their independence to the Audit Committee.
9. PERFORMANCE EVALUATION OF THE BOARD, ITS COMMITTEES
AND DIRECTORS, AND KEY EXECUTIVE OFFICERS
a) The Board and its Committees
The Board carries out an annual evaluation of its own performance in meeting its key responsibilities in accordance with the
Board Charter, by undertaking the following activities:
¡ the Chairman discusses with each Director their individual performance and ideas for improvement based on surveys
completed by each Director
¡ the Board as a whole discusses and analyses its own performance, including suggestions for change or improvement and
assessment of the extent to which the Board has discharged its responsibilities as set out in the Board Charter
¡ periodically, an external consultant is engaged to coordinate the reviews and provide additional insights
The performance review covers matters such as contribution to strategy development, interaction with management, operation
and conduct of meetings, and specific performance objectives for the year ahead. The review also identifies any need for
Directors to undertake further professional development.
The Board also obtains feedback on its performance and operations from key people, such as the external auditors.
Each Committee of the Board is required to undertake an annual performance evaluation and report the results of this review to
the Board.
Performance evaluation results are discussed by the Board, and initiatives are undertaken, where appropriate, to strengthen
the effectiveness of the Board’s operation and that of its Committees. The Board periodically reviews the skills, experience and
expertise of its Directors and its practices and procedures for both the present and future needs of the Company.
Reviews of the performance of the Board, its Committees and individual Directors were conducted during the year.
66
Corporate Governance StatementSONIC HEALTHCARE | ANNUAL REPORT 2020 9. PERFORMANCE EVALUATION OF THE BOARD, ITS COMMITTEES
AND DIRECTORS, AND KEY EXECUTIVE OFFICERS
b) The Managing Director and Finance Director
The performances of the Managing Director and Finance Director are formally reviewed by the Board annually, including during
the 2020 year. The performance criteria include:
¡ economic results of the Group
¡ fulfilment of objectives and duties
¡ personnel and resource management
¡ promotion of and adherence to Sonic’s Core Values, Foundation Principles, Federation model and culture of
Medical Leadership
¡ corporate governance and compliance
¡ risk management
¡ external standing and reputation (including stakeholder management, brand and quality)
¡ additionally for the Finance Director, financial leadership and innovation
Performance evaluation results are considered by the Remuneration and Nomination Committee in determining the level and
structure of remuneration for the Managing Director and Finance Director.
c) Senior executives
The Managing Director evaluates senior executives at least annually (including during the 2020 year) with qualitative and
quantitative measures against agreed business and personal objectives. These business and personal objectives are consistent
with those used in the performance reviews for the Managing Director and Finance Director.
Senior executives receive letters of appointment with terms of employment governed by applicable employment laws.
67
Corporate Governance StatementSONIC HEALTHCARE | ANNUAL REPORT 2020 Financial
Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report to the
Members of Sonic Healthcare Limited
69
70
71
72
73
74
152
153
SONIC HEALTHCARE LIMITED
ABN 24 004 196 909
30 JUNE 2020
68
SONIC HEALTHCARE | ANNUAL REPORT 2020 Consolidated Income Statement
Revenue from operations
Other income
Total
Labour and related costs
Consumables used
Lease expense
Depreciation
Repairs and maintenance
Transportation
Utilities
Borrowing costs
Amortisation of intangibles
Other expenses from ordinary activities
Profit from ordinary activities before income tax expense
Income tax expense
Profit from ordinary activities after income tax expense
Net (profit) attributable to minority interests
Notes
3
3
4
4
4
4
6
Profit attributable to members of Sonic Healthcare Limited
28(b)
Basic earnings per share
Diluted earnings per share
37
37
2020
$’000
6,831,843
–
6,831,843
(3,173,784)
(1,117,373)
(51,344)
(540,658)
(193,058)
(177,248)
(148,907)
(112,851)
(65,210)
(552,347)
699,063
(157,160)
541,903
(14,154)
527,749
Cents
111.1
110.6
The above Consolidated Income Statement should be read in conjunction with the accompanying notes.
2019
$’000
6,133,671
50,385
6,184,056
(2,848,122)
(995,288)
(351,909)
(209,856)
(169,130)
(158,562)
(139,017)
(86,063)
(63,288)
(440,564)
722,257
(163,188)
559,069
(9,344)
549,725
Cents
122.5
122.1
69
SONIC HEALTHCARE | ANNUAL REPORT 2020FOR THE YEAR ENDED 30 JUNE 2020 Consolidated Statement of Comprehensive Income
Profit from ordinary activities after income tax expense
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Items that will not be reclassified to profit or loss
Actuarial (losses) on retirement benefit obligations
Other comprehensive income for the period, net of tax
Total comprehensive income for the period
Total comprehensive income attributable to
Members of Sonic Healthcare Limited
Minority interests
Notes
28(a)
25(f)
2020
$’000
541,903
33,175
(5,782)
27,393
569,296
555,809
13,487
569,296
2019
$’000
559,069
109,109
(22,203)
86,906
645,975
634,016
11,959
645,975
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
70
SONIC HEALTHCARE | ANNUAL REPORT 2020FOR THE YEAR ENDED 30 JUNE 2020 Consolidated Balance Sheet
AS AT 30 JUNE 2020
Current assets
Cash and cash equivalents
Receivables
Inventories
Other
Total current assets
Non-current assets
Receivables
Investments
Property, plant and equipment
Right-of-use assets
Intangible assets
Deferred tax assets
Other
Total non-current assets
Total assets
Current liabilities
Payables
Interest-bearing liabilities
Lease liabilities
Current tax liabilities
Provisions
Other
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Lease liabilities
Deferred tax liabilities
Provisions
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Parent entity interest
Contributed equity
Reserves
Retained earnings
Total parent entity interest
Minority interests
Total equity
Notes
38(a)
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
19
24
25
26
27
28(a)
28(b)
2020
$’000
1,230,149
986,770
163,425
74,761
2,455,105
50,429
91,754
1,230,498
1,267,582
6,954,904
70,759
6,099
9,672,025
12,127,130
983,831
364,198
298,923
145,163
259,826
18,192
2019
$’000
736,646
827,932
119,673
68,933
1,753,184
40,201
88,135
1,268,319
–
6,764,738
39,166
6,091
8,206,650
9,959,834
627,311
826,004
–
125,455
222,321
48,293
2,070,133
1,849,384
2,872,429
1,080,331
173,335
163,538
102,966
4,392,599
6,462,732
5,664,398
4,000,910
175,426
1,397,417
5,573,753
90,645
5,664,398
2,209,595
–
151,116
139,550
118,323
2,618,584
4,467,968
5,491,866
3,966,892
146,275
1,299,163
5,412,330
79,536
5,491,866
71
The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.
SONIC HEALTHCARE | ANNUAL REPORT 2020 Consolidated Statement of Changes in Equity
Balance at 1 July 2018
Change in accounting
standards (AASB 15)
Restated balance at
1 July 2018
Profit for period
Other comprehensive income
for the period
Total comprehensive income
for the period
Share capital
Reserves
$’000
3,005,875
$’000
27,889
Retained
earnings
$’000
Total
$’000
Minority
interests
$’000
Total
$’000
1,143,643
4,177,407
105,518
4,282,925
–
–
(6,890)
(6,890)
–
(6,890)
3,005,875
27,889
1,136,753
4,170,517
105,518
4,276,035
–
–
–
–
549,725
549,725
9,344
559,069
106,494
(22,203)
84,291
2,615
86,906
106,494
527,522
634,016
11,959
645,975
Transactions with owners in their capacity as owners
Dividends paid
Shares issued
Transaction costs on shares
issued net of tax
Transfers to share capital
Share-based payments
Allocation of treasury shares
Sale of minority interests
Acquisition of minority interests
Dividends paid to
minority interests
–
–
(365,112)
(365,112)
964,499
(11,430)
(6,366)
2,413
–
471
–
–
–
–
(2,413)
3,878
(471)
1,505
20,823
–
–
–
–
–
–
–
–
–
953,069
(6,366)
–
3,878
–
1,505
20,823
–
Balance at 30 June 2019
3,966,892
146,275
1,299,163
5,412,330
–
–
–
–
–
–
(3,199)
(26,015)
(365,112)
953,069
(6,366)
–
3,878
–
(1,694)
(5,192)
(8,727)
79,536
(8,727)
5,491,866
Change in accounting standards
(AASB 16)
–
–
(20,046)
(20,046)
–
(20,046)
Restated balance at 1 July 2019
3,966,892
146,275
1,279,117
5,392,284
–
527,749
527,749
79,536
14,154
5,471,820
541,903
Profit for period
Other comprehensive income
for the period
Total comprehensive income
for the period
–
–
–
Transactions with owners in their capacity as owners
33,842
(5,782)
28,060
(667)
27,393
33,842
521,967
555,809
13,487
569,296
Dividends paid
Shares issued
Transfers to share capital
Share-based payments
Allocation of treasury shares
Contributions from
minority interests
Dividends paid to minority
interests in controlled entities
–
31,614
2,342
–
62
–
–
–
(403,667)
(403,667)
(8,617)
(2,342)
6,330
(62)
–
–
–
–
–
–
–
–
22,997
–
6,330
–
–
–
Balance at 30 June 2020
4,000,910
175,426
1,397,417
5,573,753
–
–
–
–
–
(403,667)
22,997
–
6,330
–
6,285
6,285
(8,663)
90,645
(8,663)
5,664,398
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
72
SONIC HEALTHCARE | ANNUAL REPORT 2020FOR THE YEAR ENDED 30 JUNE 2020 Consolidated Cash Flow Statement
Notes
Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax)
Payments to suppliers and employees (inclusive of goods and services tax)
Gross operating cash flow
Interest received
Borrowing costs
Income taxes paid
Net cash inflow from operating activities
38(b)
Cash flows from investing activities
Payment for purchase of controlled entities, net of cash acquired
Payments for property, plant and equipment
Proceeds from sale of subsidiaries and non-current assets
Payments for intangibles
Repayment of loans by other entities
Loans to other entities
2020
$’000
6,801,349
(5,209,415)
1,591,934
5,947
(101,170)
(136,413)
1,360,298
(97,783)
(234,900)
73,673
(98,192)
32,470
(10,185)
2019
$’000
6,258,438
(5,207,533)
1,050,905
6,636
(83,930)
(126,303)
847,308
(863,405)
(281,578)
141,433
(105,070)
13,142
(3,851)
Net cash (outflow) from investing activities
(334,917)
(1,099,329)
Cash flows from financing activities
Proceeds from issues of shares and other equity securities
(net of transaction costs and related taxes)
Proceeds from borrowings
Repayment of borrowings
Principal elements of lease payments
Dividends paid to Company’s shareholders
Dividends paid to minority interests in subsidiaries
Net cash (outflow)/inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
Financing arrangements
Non-cash financing and investing activities
38(a)
18,23
38(c)
22,997
1,468,184
(1,315,512)
(300,075)
(403,667)
(8,663)
(536,736)
488,645
736,646
4,858
1,230,149
943,975
1,363,839
(1,246,425)
–
(365,112)
(8,611)
687,666
435,645
313,268
(12,267)
736,646
The above Consolidated Cash Flow Statement should be read in conjunction with the accompanying notes.
73
SONIC HEALTHCARE | ANNUAL REPORT 2020FOR THE YEAR ENDED 30 JUNE 2020
Notes to the
Financial
Statements
Note 1 | Summary of significant accounting policies
Note 2 | Segment information
Note 3 | Revenue and other income
Note 4 | Expenses
Note 5 | Dividends
Note 6 | Income tax
Note 7 | Receivables – Current
Note 8 | Inventories – Current
Note 9 | Other assets – Current
Note 10 | Receivables – Non-current
Note 11 | Investments – Non-current
Note 12 | Property, plant and equipment – Non-current
Note 13 | Right-of-use assets
Note 14 | Intangible assets – Non-current
Note 15 | Deferred tax assets – Non-current
Note 16 | Other assets – Non-current
Note 17 | Payables – Current
Note 18 | Interest-bearing liabilities – Current
Note 19 | Lease liabilities
Note 20 | Tax liabilities – Current
Note 21 | Provisions – Current
76
96
98
99
100
101
103
104
104
105
105
106
107
108
110
110
111
111
111
112
112
74
SONIC HEALTHCARE | ANNUAL REPORT 2020 Note 22 | Other liabilities – Current
Note 23 | Interest-bearing liabilities – Non-current
Note 24 | Deferred tax liabilities – Non-current
Note 25 | Provisions – Non-current
Note 26 | Other liabilities – Non-current
Note 27 | Contributed equity
Note 28 | Reserves and retained earnings
Note 29 | Deed of cross guarantee
Note 30 | Investments in subsidiaries
Note 31 | Commitments for expenditure
Note 32 | Contingent liabilities
Note 33 | Secured borrowings
Note 34 | Remuneration of auditors
Note 35 | Share based payments
Note 36 | Related parties
Note 37 | Earnings per share
Note 38 | Statement of cash flows
Note 39 | Financial risk management
Note 40 | Parent company financial information
Note 41 | Events occurring after reporting date
113
113
115
116
119
119
122
123
126
132
134
134
134
135
140
141
141
143
150
151
75
SONIC HEALTHCARE | ANNUAL REPORT 2020 NOTE 1 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the Financial Report are set out below. These policies have been
consistently applied to all the periods presented, unless otherwise stated.
The financial Report includes financial statements for the Consolidated Group (‘the Group’) consisting of Sonic Healthcare
Limited (‘Parent Company’ or ‘Company’) and its subsidiaries. The financial statements were authorised for issue by the Directors
on 23 September 2020.
a) Basis of preparation
This general purpose Financial Report has been prepared in accordance with Australian Accounting Standards, Interpretations
issued by the Australian Accounting Standards Board and the Corporations Act 2001. The Company is a for-profit entity for the
purpose of preparing the financial statements.
Compliance with IFRS
The consolidated financial statements of the Group also comply with International Financial Reporting Standards (‘IFRS’) as
issued by the International Accounting Standards Board. The Parent Company financial information included in Note 40 also
complies with IFRS.
Historical cost convention
These financial statements have been prepared under the historical cost convention, except for the revaluation of financial assets
and liabilities (including derivative instruments) at fair value through profit or loss and plan assets of retirement benefit obligations
measured at fair value.
Comparatives may be restated to enhance comparability with the current year.
b) Principles of consolidation and equity accounting
The Consolidated Group financial statements incorporate the assets and liabilities of all subsidiaries controlled by Sonic
Healthcare Limited as at 30 June 2020 and the results of all subsidiaries for the year then ended. Sonic Healthcare Limited and its
controlled entities together are referred to in this Financial Report as the Group or the Consolidated Group.
Subsidiaries are all those entities (including special purpose entities) over which the Group has control. The Group controls an
entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
affect those returns through its power to direct the activities of the entity.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting
policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Minority interests in the results and equity of controlled entities are shown separately in the Income Statement, Statement of
Comprehensive Income, Statement of Changes in Equity and Balance Sheet respectively.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the
date that control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to Note 1(e)).
i)
Sonic Healthcare Limited Employee Share Trust (‘SHEST’)
The Group has formed a trust to obtain and hold shares for the purpose of providing shares under selected Group equity plans.
This trust is consolidated, as the substance of the relationship is that the trust is controlled by the Group. Shares held by SHEST
are disclosed as treasury shares and deducted from contributed equity.
76
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 ii) Changes in ownership interests
The Group treats transactions with minority interests that do not result in a loss of control as transactions with equity owners of
the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and minority
interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to minority
interests and any consideration paid or received is recognised in a separate reserve within equity.
When the Group ceases to have control, joint control or significant influence, any retained interest in the entity is remeasured
to its fair value with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for
the purposes of subsequently accounting for the retained interest as an associate, jointly controlled entity or financial asset. In
addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if
the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other
comprehensive income are reclassified to profit or loss.
If the ownership interest in a jointly-controlled entity or an associate is reduced but joint control or significant influence is retained,
only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss
where appropriate.
iii) Associates
Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case
where the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity
method of accounting, after initially being recognised at cost.
Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise
the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in
other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates
are recognised as a reduction in the carrying amount of the investment.
Where the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any
other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made
payments on behalf of the other entity.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in
these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred. Accounting policies of equity-accounted investees have been changed where necessary to ensure consistency with
the policies adopted by the Group.
77
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 c)
Income tax
The income tax expense or benefit for the period is the tax payable or receivable on the current period’s taxable income based
on the income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary
differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused
tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the
reporting period in the countries where the Company’s subsidiaries operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are
not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from
initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been
enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income
tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future
taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of
investments in controlled entities where the Group is able to control the timing of the reversal of the temporary differences and it
is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities
and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where
the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the
liability simultaneously.
Sonic Healthcare Limited and its wholly-owned Australian controlled entities have implemented the Australian tax consolidation
legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities
are offset in the consolidated financial statements.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in
equity, respectively.
Companies within the Group may be entitled to claim special tax deductions for investments in qualifying assets or in relation to
qualifying expenditure (e.g. the Research and Development Tax Incentive regime in Australia or other investment allowances).
The Group accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and
current tax expense.
78
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 d) Foreign currency translation
i)
Functional and presentation currency
Items included in the financial statements of each entity are measured using the currency of the primary economic environment
in which the entity operates (‘the functional currency’). The Group’s financial statements are presented in Australian dollars,
which is Sonic Healthcare Limited’s functional and presentation currency.
ii)
Transactions
Foreign currency transactions are initially translated into the functional currency using the rates of exchange prevailing at the date
of the transaction. At the balance sheet date amounts payable and receivable in foreign currencies are translated to Australian
currency at rates of exchange current at that date. Resulting foreign exchange differences are recognised in the Income
Statement except where they are deferred in equity as cash flow hedges and qualifying net investment hedges or are attributable
to part of the net investment in a foreign operation.
iii) Foreign controlled entities
The assets and liabilities of foreign controlled entities are translated into Australian currency at rates of exchange current at
the balance sheet date, while their income and expenses are translated at the average of rates prevailing during the year.
Exchange differences arising on translation are taken to the foreign currency translation reserve. Differences on foreign currency
borrowings that provide a hedge against a net investment in a foreign entity are recognised in other comprehensive income
and accumulated in the foreign currency translation reserve. When a foreign operation is sold, a proportionate share of such
exchange difference is reclassified to the Income Statement, as part of the gain or loss on sale where applicable.
e) Business combinations
The acquisition method of accounting is used to account for all business combinations regardless of whether equity instruments
or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the
assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes
the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary.
Acquisition-related costs are expensed as incurred. On an acquisition-by-acquisition basis, the Group recognises any minority
interest in the acquiree either at fair value or at the minority interest’s proportionate share of the acquiree’s net identifiable assets.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present
value as at the date of the acquisition. The discount rate used is the incremental borrowing rate, being the rate at which a similar
borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are
subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
Identifiable assets acquired and liabilities and contingent liabilities assumed in an acquisition are measured initially at their fair
values at the acquisition dates, irrespective of the extent of any minority interest. Goodwill is brought to account on the basis
described in Note 1(m)(i).
The excess of the consideration transferred, the amount of any minority interest in the acquiree and the acquisition-date fair value
of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is
recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the
measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase.
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Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 f) Revenue recognition
Revenue is recognised when services are transferred to a customer, in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those services by applying the five step model set out in AASB 15. Revenue is
recognised for the major business activities as follows:
i)
Laboratory medicine and imaging services
Laboratory medicine and imaging services revenue is recognised at a point in time when the test or service is completed.
ii) Other medical services
Revenue from other medical services is recognised over time as the performance obligation is satisfied. Revenue is recognised
based on the services provided at period end date. Payments to doctors in medical centre and occupational health businesses
in exchange for contracting the Group’s services for a period of time are capitalised as a contract asset and amortised on a
straight-line basis against revenue over the life of the contract.
iii)
Interest income
Interest income is recognised using the effective interest method.
iv) Dividends
Dividends are recognised as revenue when the right to receive payment is established. This applies even if they are paid out of
pre-acquisition profits. However, the investment may need to be tested for impairment as a consequence.
g) Receivables
All trade debtors are initially recognised at their fair value being the amounts receivable and subsequently measured at amortised
cost using the effective interest method, less provision for impairment. Trade debtors are generally required to be settled within
30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date.
Collectability of trade debtors is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off in the
period in which they are identified. A provision for impairment loss is recognised using the simplified approach to measuring
expected credit losses which uses a lifetime expected credit loss allowance for all trade receivables. To measure the expected
credit losses, trade receivables have been grouped on shared credit risk characteristics and days past due.
h)
Inventories
Inventories, comprising consumable stores stock, are valued at the lower of cost and net realisable value. Costs are assigned to
individual items of inventory on the first in, first out (‘FIFO’) basis.
i)
Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are
largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other
than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each financial year end.
In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset.
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Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 j)
Investments and other financial assets
i)
Classification
The Group classifies its financial assets in the following measurement categories:
¡ those to be measured subsequently at fair value (either through other comprehensive income or through profit or loss), and
¡ those to be measured at amortised cost.
The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the
cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For
investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable
election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income.
The Group reclassifies debt investments only when its business model for managing those assets changes.
ii) Recognition and derecognition
Purchases and sales of financial assets settled through the regular settlement for that particular investment are recognised on
trade date, being the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when
the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred
substantially all the risks and rewards of ownership.
iii) Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value
through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of
financial assets carried at fair value through profit or loss are expensed in profit or loss.
iv)
Impairment
The Group assesses on a forward-looking basis the expected credit losses on its debt instruments carried at amortised cost and
fair value through other comprehensive income. The impairment methodology depends on whether there has been a significant
increase in credit risk.
k) Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation and any impairment in value.
Depreciation is calculated using the straight-line method to allocate the net cost of each item of property, plant and equipment
(excluding land), net of their residual values over their estimated useful lives to the Group. Land is not depreciated. Estimates of
remaining useful lives and residual values are made on a regular basis for all assets, with annual reassessments for major items.
The estimated useful lives are as follows:
Buildings and improvements 40 years
Plant and equipment
3–15 years
The cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated
useful life of the improvement to the Group, whichever is the shorter.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances
indicate the carrying value of the asset is greater than its estimated recoverable amount (Note 1(i)). An item of property, plant and
equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of
the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the item) is included in the Income Statement in the period the item is derecognised.
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Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 l) Leases
The Group leases properties, equipment and vehicles under rental contracts which are typically made for fixed periods of
between 1 month and 23 years but may have extension options. Lease terms are negotiated on an individual basis and contain
a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security
interests in the leased assets that are held by the lessor.
A single recognition and measurement approach is applied to all leases that the Group is the lessee for, except for short-term
leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets.
i)
Lease liabilities
At the commencement date of the lease the Group recognises lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable
lease payments that depend on an index or rate, and amounts expected to be paid under residual value guarantees. The lease
payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of
penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate.
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included
in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease
liability is reassessed and adjusted against the right-of-use asset.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement,
if the interest rate implicit in the lease is not readily determinable. To determine the incremental borrowing rate the Group uses a
build-up approach that starts with appropriate swap and corporate bond rates with adjustments specific to the lease based on
term and currency.
After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the
lease payments made. The finance cost is charged to the Income Statement over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability for each period. In addition, the carrying amount of lease liabilities
is remeasured if there is a modification, such as a change in the lease term, a change in the in-substance fixed lease payments or
a change in the assessment to purchase the underlying asset.
Contracts may contain both lease and non-lease components. For leases where the non-lease component is not separately
identified the Group has elected not to separate lease and non-lease components and instead accounts for these as a single
lease component.
ii) Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses and adjusted for
any remeasurement of lease liabilities. The costs of right-of-use assets includes the amount of lease liabilities recognised less
any lease incentives received. The recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term. If the Group is reasonably certain to exercise a purchase option the right-of-use asset is
depreciated over the underlying asset’s useful life. Right-of-use assets are subject to annual impairment assessment.
iii) Short-term leases and leases of low-value assets
The Group applies the short-term recognition criteria exemption to its short-term leases (i.e. those leases that have a lease term
of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value
assets recognition exemption, which applies to miscellaneous low-value assets (e.g. IT equipment and small items of office
furniture) that do not have quantitative or qualitative significance. Lease payments on short-term leases and leases of low-value
assets are recognised as an expense on a straight-line basis over the lease term within the lease expense line item.
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Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 iv) Variable lease payments
Variable lease payments reflect the lease component of consumables expenditure in situations where supplier contracts
include the placement of equipment which the Group does not own. Such arrangements are used where it is commercially
advantageous to the Group. Variable lease payments are not significant in comparison to fixed lease payments and vary based
on a number of factors including the value and quantity of equipment placed and the length of the supplier contract.
The Group has adopted the practical expedient to not apply lease modification accounting for rent concessions occurring as a
direct consequence of COVID-19. The derecognition of any part of the lease liability forgiven is recognised as a negative variable
lease payment in the Income Statement.
v)
Extension and termination options
Extension and termination options are included in a number of property and equipment leases across the Group. These are used
to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and
termination options held are exercisable only by the Group and not the respective lessor. As at 30 June 2020 approximately 56%
of the Group’s leases have extension options of which 11% have been assessed as being reasonably certain to be exercised
(these options have therefore been included in the calculation of the lease liability at the period end). The value of payments
(undiscounted) for all optional periods represent approximately 424% of the 2020 year’s lease payments.
vi) Sale and leaseback
The Group may periodically sell land and buildings and lease them back where it is commercially advantageous to do so. These
types of transactions are not prevalent given the relatively small proportion of properties that the Group owns compared to
leased. If the transfer of an asset satisfies the requirements of AASB 15 to be accounted for as a sale, the right-of-use asset arising
from the leaseback is measured at the proportion of the previous carrying amount of the asset that relates to the right of use
retained by the Group. Accordingly, only the amount of any gain or loss that relates to the rights transferred are recognised in the
Income Statement. During 2020 a laboratory building in the US was sold for US$45M to be leased back over a period of 23 years
with 4 option periods.
vii) Lessor accounting
The Group enters into lease agreements as lessor in respect of some property leases (largely related to the medical centre
operations). Where the Group is an intermediate lessor it accounts for the head lease and the sub-lease as two separate
contracts.
The sub-lease is a finance lease where it transfers substantially all the risks and rewards of ownership to the lessee. All other
subleases are operating leases. The determination of whether a sub-lease is classified as a finance lease or operating lease is
made by reference to the right-of-use asset arising from the head lease. The majority of sub-leases have lease terms substantially
shorter than the head lease and accordingly are classified as operating leases. Rental income from operating leases is
recognised on a straight line basis over the term of the relevant lease.
The Group recognises on the Balance Sheet a net investment in a lease as the sum of the lease payments receivable plus any
unguaranteed residual value, discounted at the interest rate implicit in the lease.
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Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 m) Intangible assets
i)
Goodwill
Goodwill represents the excess of the cost of the business combination over the acquirer’s interest in the net fair value of
identifiable assets and liabilities acquired at the date of acquisition. Following initial recognition, goodwill is measured at cost less
any accumulated impairment losses. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for
impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
Any goodwill acquired is allocated to each of the cash-generating units (‘CGUs’) expected to benefit from the combination’s
synergies. The goodwill allocated to the CGUs for the purpose of assessing impairment is identified according to business
segment (laboratory and imaging) and country of operation (Australia, New Zealand, UK, USA, Germany, Switzerland, Belgium
and Ireland). Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill
relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is
recognised.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to that entity.
ii)
Intangible assets acquired from a business combination
Intangible assets acquired from a business combination are capitalised at fair value as at the date of acquisition. Following initial
recognition, the cost model is applied to the class of intangible assets.
The useful lives of these intangible assets are assessed to be either finite or indefinite.
Where amortisation is charged on assets with finite lives, this expense is taken to the Income Statement.
Intangible assets are tested for impairment where an indicator of impairment exists, and in the case of indefinite life intangibles
annually, either individually or at the cash-generating unit level. Useful lives are also examined on an annual basis and
adjustments, where applicable, are made on a prospective basis.
Included in intangibles is the value of certain brand names acquired as part of the purchase of certain laboratory businesses and
controlled entities.
The brand names have been assessed as having an indefinite useful life after consideration of the following factors:
¡ the length of time during which the brand name has been in use,
¡ the stability of the healthcare industry,
¡ the market perception and recognition of the brands which have consistently facilitated the retention and growth of revenue
in both the local and national market places,
¡ active promotion of the brands in the marketplace,
¡ brand names are a registered legal trademark of the business. The registration of brands is renewable at minimal cost and
minimal difficulty.
iii) Software development
Expenditure on software development is capitalised when it is probable that the project will, after considering its commercial
and technical feasibility, be completed and generate future economic benefits and the costs can be measured reliably. The
expenditure capitalised comprises all attributable costs. Capitalised software development costs are recorded as finite life
intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its estimated useful
life of 10 years. Capitalised development expenditure is stated at cost less accumulated amortisation. The carrying value is
reviewed for impairment annually, or more frequently, if an indicator of impairment arises.
The costs of acquiring computer software for internal use are capitalised as intangible non-current assets where the software is
used to support significant business systems and the expenditure leads to the creation of an asset. The expected useful life is
generally 3-10 years.
Gains or losses arising from the derecognition of an intangible asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in the Income Statement when the asset is derecognised.
84
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Intangible assets (other than software development costs) created within the business are not capitalised and expenditure is
charged against profits in the period in which the expenditure is incurred.
n) Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and
which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are
presented as current liabilities unless payment is not due within 12 months from reporting date. They are recognised initially at
their fair value and subsequently measured at amortised cost using the effective interest method.
o)
Interest-bearing liabilities
All loans and borrowings are initially recognised at fair value plus transaction costs, thereafter interest-bearing loans and
borrowings are measured at amortised cost using the effective interest method. Interest is accrued over the period it becomes
due and is recorded as part of other creditors. Fees paid on the establishment of loan facilities measured at amortised cost are
capitalised and amortised on a straight-line basis over the term of the facility.
Borrowings are removed from the Balance Sheet when the obligation specified in the contract is discharged, cancelled or
expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another
party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income
or other expenses.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at
least 12 months after the balance sheet date.
p) Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured
to their fair value at each reporting date. Changes in fair value are either taken to the Income Statement or an equity reserve (refer
below). The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:
¡ hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges);
¡ hedges of the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges), or;
¡ hedges of a net investment in a foreign operation (net investment hedges).
The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged
items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also
documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in
hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of
hedged items.
The fair values of various derivative financial instruments used for hedging purposes are disclosed in Note 39. Movements in the
hedging reserve in shareholders’ equity are shown in Note 28.
i)
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the Income
Statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognised in the Income
Statement within borrowing costs, together with changes in the fair value of the hedged fixed rate borrowings attributable to
interest rate risk. The gain or loss relating to the ineffective portion is recognised in the Income Statement within other income or
other expenses.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for
which the effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective
interest rate.
85
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 ii) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised
in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is
recognised immediately in the Income Statement within other income or other expenses.
Amounts accumulated in equity are recycled to the Income Statement in the periods when the hedged item will affect profit or
loss. The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the
Income Statement within borrowing costs.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting,
any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is
ultimately recognised in the Income Statement. When a forecast transaction is no longer expected to occur, the cumulative gain
or loss that was reported in equity is immediately transferred to the Income Statement.
The fair value of the Group’s cash flow hedges are determined by external advisors using the present value of estimated future
cash flows.
iii)
Net investment hedges
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity. The gain or loss
relating to the ineffective portion of the hedge is recognised immediately in the Income Statement within other income or other
expenses.
Gains and losses accumulated in equity are included in the Income Statement when the foreign operation is partially disposed
of or sold.
iv) Derivatives that do not qualify for hedge accounting
For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to
the Income Statement and are included in other income or other expenses.
q) Employee benefits
i) Wages and salaries, annual leave
Liabilities for wages and salaries and annual leave are recognised and are measured at the amounts expected to be paid when
the liabilities are settled.
ii)
Long service leave
The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in the current
provision for employee benefits and is measured in accordance with (i) above. The liability for long service leave expected to
be settled more than 12 months from the reporting date is recognised in the non-current provision for employee benefits and
measured as the present value of expected future payments to be made in respect of services provided by employees up to
the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and
periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with
terms to maturity that match, as closely as possible, the estimated future cash outflows.
iii) Retirement benefit obligations
Certain employees of the Group are entitled to benefits from defined contribution superannuation plans on retirement, disability
or death. The defined contribution plans receive fixed contributions from Group companies and the Group’s legal or constructive
obligation is limited to these contributions.
86
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Contributions to the defined contribution plans are recognised as an expense as they become payable. Prepaid contributions
are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
The Group also has defined benefit superannuation plans in relation to certain non-Australian employees, which provide defined
lump sum benefits based on years of service and final average salary.
A liability or asset in respect of defined benefit plans is recognised in the Balance Sheet, and is measured as the present value
of the defined benefit obligation at the reporting date less the fair value of the superannuation fund’s assets at that date. The
present value of the defined benefit obligation is based on expected future payments which arise from membership of the fund
to the reporting date, calculated annually by independent actuaries using the projected unit credit method.
Consideration is given to expected future wages and salary levels, experience of employee departures and periods of service.
Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to
maturity and currency that match, as closely as possible, the estimated future cash outflows. In countries where there is a deep
market in high quality corporate bonds, the market rates on those bonds are used rather than government bonds. Actuarial gains
and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they
occur, outside profit or loss, directly in the Statement of Comprehensive Income. Past service costs are recognised immediately
in the Income Statement.
iv) Profit sharing and bonus plans
A liability for employee benefits in the form of profit sharing and bonus plans is recognised in other creditors when there is no
realistic alternative but to settle the liability and at least one of the following conditions is met:
¡ there are formal terms in the plan for determining the amount of the benefit, or
¡ the amounts to be paid are determined before the time of completion of the Financial Report, or
¡ past practice gives clear evidence of the amount of the obligation.
Liabilities for profit sharing and bonus plans are expected to be settled within 12 months and are measured at the amounts
expected to be paid when they are settled.
v)
Employee benefit on-costs
Employee benefit on-costs, including payroll tax, are recognised and included in employee benefit liabilities and costs when the
employee benefits to which they relate are recognised as liabilities.
vi) Equity-based compensation benefits
Equity-based compensation benefits are provided to employees under various plans. Information relating to these plans is set
out in Note 35.
The fair value of equity remuneration granted under the various employee plans is recognised as an expense with a
corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the
employees become unconditionally entitled to the shares and options (‘the vesting period’). The fair value at grant date is
determined using a pricing model consistent with the Black Scholes methodology that takes into account the exercise price, the
term of the option, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price
volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the arrangement.
The fair value of the options and shares granted is adjusted to reflect market vesting conditions (using a Monte Carlo simulation)
but excludes the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions
about the number of shares and options that are expected to vest. At each balance sheet date, the entity revises its estimate of
the number of shares and options that are expected to vest. The employee benefit expense recognised each period takes into
account the most recent estimate.
No expense is recognised for shares and options that do not ultimately vest due to a failure to meet a non-market vesting
condition.
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Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Upon the exercise of options, the balance of the share based payments reserve relating to those options is transferred to
share capital.
The dilutive effect, if any, of outstanding shares and options is reflected as additional share dilution in the calculation of diluted
earnings per share.
The Parent Company issues options to employees of subsidiary companies as part of the Group’s remuneration strategy. When
options are exercised, the subsidiary company reimburses the Parent Company for the excess of the market price at the time
of exercise over the exercise price. These amounts are credited to contributed equity in the Parent Company’s accounts, and
eliminated on consolidation.
vii) Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee
accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is
demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without
possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
Benefits falling due more than 12 months after balance sheet date are discounted to present value.
r) Borrowing costs
Borrowing costs include:
¡ interest on bank overdrafts, short-term and long-term borrowings, including amounts paid or received on interest rate swaps,
¡ amortisation of discounts or premiums relating to borrowings,
¡ amortisation of ancillary costs incurred in connection with the arrangement of borrowings, and
¡ lease charges
Borrowing costs are expensed as incurred unless they relate to qualifying assets. Qualifying assets are assets that necessarily
take a substantial period of time to get ready for their intended use. In these circumstances, borrowing costs are capitalised to the
cost of the assets using the weighted average interest rate applicable to the entity’s outstanding borrowings during the year.
s) Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in
equity as a deduction, net of tax, from the proceeds.
t) Cash and cash equivalents
Cash and cash equivalents includes cash at bank and in hand, and deposits at call with financial institutions which are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
For the purposes of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above,
net of outstanding bank overdrafts.
u) Earnings per share
i)
Basic earnings per share
Basic earnings per share is calculated by dividing net profit after income tax attributable to members of the Parent Company by
the weighted average number of ordinary shares on issue during the financial year excluding treasury shares.
ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share by taking into account
the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential
ordinary shares.
88
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 v) Segment information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker. The chief operating decision makers who are responsible for allocating resources and assessing performance of the
operating segments have been identified as the Chief Executive Officer and the Board of Directors.
Segment revenues, expenses and results include transfers between segments. Such transfers are priced on an ‘arm’s-length’
basis and are eliminated on consolidation.
w) Dividends
Provision is made for the amount of any dividend declared, determined or publicly recommended by the Directors on or before
the end of a financial year but not distributed at balance date.
x) Repairs and maintenance
Plant and equipment and premises occupied require repairs and maintenance from time to time in the course of operations.
The costs associated with repairs and maintenance are charged as expenses as incurred, except where they relate to an
improvement in the useful life of an asset, in which case the costs are capitalised and depreciated in accordance with Note 1(k).
y) Non-current assets (or disposal groups) held for sale
Non-current assets (or disposal groups) are classified as held for sale and stated at the lower of their carrying amount and
fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction rather than through
continuing use and a sale is considered highly probable.
An impairment loss is recognised for any initial or subsequent write down of the asset (or disposal group) to fair value less costs
to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group) but not in
excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale
of the non-current asset (or disposal group) is recognised at the date of derecognition.
Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified
as held for sale.
z) Provisions
Provisions are recognised when the Group has a present legal, equitable or constructive obligation as a result of past
transactions or other past events, it is probable that an outflow of resources will be required to settle the obligation, and the
amount has been reliably estimated. Provisions are not recognised for future operating losses.
When there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be small.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present
obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessments
of the time value of money and the risks specific to the liability. Any increase in the provision due to the passage of time is
recognised as borrowing costs expense.
Restructuring provisions are recognised where the Group has completed a business combination where there is a detailed
formal plan for the restructure, and a present obligation immediately prior to the business combination and its execution was not
conditional upon it being acquired by the Group.
89
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 aa) Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable
from the taxation authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable
from, or payable to, the taxation authority is included within sundry debtors or sundry creditors in the Balance Sheet.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities
which are recoverable from, or payable to the taxation authority, are presented as operating cash flow.
ab) Rounding of amounts
The Company is of a kind referred to in ASIC Legislation Instrument 2016/191 issued by the Australian Securities & Investments
Commission, relating to the ‘rounding off’ of amounts in the Financial Report. Amounts in the Financial Report have been
rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar.
ac) Significant accounting estimates and assumptions
The preparation of financial statements requires the use of estimates and assumptions of future events to determine the carrying
amounts of certain assets and liabilities. The ongoing COVID-19 pandemic has not significantly increased the estimation
uncertainty in the preparation of the consolidated financial statements.
Key estimates and assumptions used in the preparation of the Financial Report are:
i)
Impairment of goodwill and intangibles with indefinite useful lives
The Group determines whether goodwill and intangibles with indefinite useful lives are impaired at least on an annual basis.
This requires an estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with
indefinite useful lives are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of
goodwill and intangibles with indefinite useful lives are discussed in Note 14.
ii)
Share based payment transactions
The Group measures the cost of equity-settled share based payments at fair value at the grant date using a pricing model
consistent with the Black Scholes methodology, taking into account the terms and conditions upon which the instruments were
granted, as discussed in Note 35.
iii) Provisional accounting of business combinations
The Group provisionally accounts for certain business combinations where the Group is in the process of ascertaining the
fair values of the identifiable assets, liabilities and contingent liabilities acquired. In doing so, the Group has relied on the best
estimate of the identifiable assets, liabilities and contingent liabilities as disclosed in Note 30, until the quantification and
treatment of items under review is complete.
iv) Pension benefits
The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a
number of assumptions. These assumptions used in determining the net cost (income) for pensions include the discount rate.
Any changes in these assumptions will impact the carrying amount of pension obligations.
The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to
determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In
determining the appropriate discount rate, the Group considers the interest rates of high quality corporate bonds that are
denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms
of the related pension liability. Market yields on government bonds are used in countries where there is no deep market in
corporate bonds.
Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed
in Note 25.
90
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 v)
Income tax
The Group is subject to income taxes in eight jurisdictions around the world. Significant judgement is required in determining
the provision for income taxes on a worldwide basis. Where the final tax outcome is different from amounts provided, such
differences will impact the current or deferred tax provisions in the period in which such outcome is obtained.
vi) Trade debtors
Accounts receivable assessments require significant judgement in the USA due to contractual allowances, being discounts
provided to certain payers against the Company’s patient fee schedules. Revenue is billed at the fee schedule rate, but is
recognised net of estimated contractual discounts. Adjustments are then made to revenue based on final payments received.
Management diligently reviews allowances to ensure that the recoverable amount of debtors is materially accurate.
vii) Determination of the lease term as the non-cancellable term of contracts with renewal options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option
to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers
all relevant factors that create an economic incentive for it to exercise the renewal including penalties to terminate, the value of
leasehold improvements remaining plus current and future expected economic performance from use of the asset. After the
commencement date, the Group generally can only make a reasonable certainty assessment within six to twelve months of the
exercise of an option or at other times if there is a significant event or change in circumstances that is within its control and affects
the ability to exercise (or not to exercise) the option to renew.
viii) Calculation of the incremental borrowing rates
Where the Group cannot readily determine the interest rate implicit in lease contracts the present value of the Group’s lease
liabilities are estimated using the incremental borrowing rate as if leasing over a similar term the funds necessary to obtain an
asset of a similar value to the right-of-use asset in a similar economic environment. The Group uses observable inputs such as
market interest rates as applicable.
ad) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not applicable to the Group for the financial
year ended 30 June 2020. The Group has elected not to early adopt these new standards and interpretations. These standards
are not expected to have a material impact on the entity in the current or future reporting periods or on foreseeable future
transactions.
91
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 ae) Changes in accounting policies
The Group has applied AASB 16 for the first time in the reporting period to 30 June 2020 with AASB 117 applying to the
comparative period only.
Accounting policy under AASB 117
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are
capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease
payments.
Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance costs are charged to the Income Statement.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term if there is no
reasonable certainty that the Group will obtain ownership at the end of the lease term.
Leases in which substantially all the risks and rewards of ownership of the asset are not transferred to the Group as lessee are
classified as operating leases. Operating lease payments are recognised as an expense in the Income Statement on a straight-
line basis over the lease term (net of any incentives received from the lessor).
Lessee accounting
AASB 16 supersedes the provisions of AASB 117 and primarily impacts accounting by lessees as it requires the recognition of
right-of-use assets and lease liabilities for all leases unless the lease term is less than 12 months or the underlying asset is of a
low value. Assets and liabilities arising from a lease are initially measured on a present value basis including non-cancellable
lease payments and any payments to be made in optional periods if the lessee is reasonably certain to extend the lease. Lease
payments, previously expensed through the operating lease rental expense line in the Income Statement, have been replaced
with a straight-line amortisation of the right-of-use asset and an interest expense from carrying the lease liability at present value.
The Group has adopted AASB 16 from 1 July 2019 and applied the modified retrospective provision from the standard which
allowed adjustments to be made to the amounts recognised in the Balance Sheet and retained earnings as at the date of initial
application without restating comparatives for the FY2019 reporting period. The Group recognised on transition, lease liabilities
which had been previously classified as ‘operating leases’. The liability was measured by applying the weighted average
incremental borrowing rate to the remaining lease payments. The associated right-of-use assets were measured at either an
amount equal to the lease liability or on a retrospective basis as if the new rules had applied since lease commencement.
92
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 The effect of adopting AASB 16 was as follows:
Impact on the Balance Sheet increase/(decrease) as at 1 July 2019
Current assets
Receivables
Other
Total current assets
Non-current assets
Receivables
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Payables
Interest-bearing liabilities
Lease liabilities
Provisions
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Lease liabilities
Provisions
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Retained earnings
Total equity
A$M
6
(3)
3
13
(4)
1,097
7
1,113
1,116
1
(1)
274
(1)
273
(2)
893
(2)
(26)
863
1,136
(20)
(20)
(20)
Depreciation of right-of-use assets of $309M and interest expense of $29M are included in the Income Statement for the year
ended 30 June 2020. Expense for these leases would have been recorded under operating lease rental expense prior to the
adoption of AASB 16.
93
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 The lease liabilities as at 1 July 2019 are reconciled to the operating lease commitments as at 30 June 2019 as follows:
Operating lease commitments as at 30 June 2019
Short-term, low-value and other leases not recognised as a liability
Extension options reasonably certain to be exercised
Non-lease components not included as a lease payment
Discounting of operating lease commitments+
Finance lease liabilities recognised as at 30 June 2019
Lease liabilities as at 1 July 2019
+ Using weighted average incremental borrowing rate of 2.3%
$’000
1,354,432
(92,702)
33,746
(16,929)
(117,166)
2,831
1,164,212
Cash payments for the principal portion of the lease liability are classified in the Cash Flow Statement within financing activities
and cash payments for the interest portion of the lease liability classified within interest paid. Operating lease payments were
previously included within net cash flow from operating activities.
In applying AASB 16 for the first time, the Group has used the following practical expedients permitted by the standard:
¡ Applying a single discount rate to a portfolio of leases with reasonably similar characteristics
¡ Accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-term leases
¡ Excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application, and
¡ Using hindsight in determining the lease term where the contract contains options to extend or terminate the lease
The Group has reassessed its contract portfolios at the date of initial application to ascertain whether a contract is, or contains a
lease, and not to rely on assessments made by applying AASB 117 and Interpretation 4.
Lessor accounting
Lessor accounting is fundamentally unchanged under AASB 16 however where the Group has an intermediate lessor
relationship a reassessment is required on transition as to whether a sublease should be classified as an operating lease or a
finance lease. A key indicator of being a finance lease is that the lease term is a major part of the economic life of the underlying
right-of-use asset. The Group has reassessed its intermediate leases on transition and has recognised on the Balance Sheet a net
investment in lease receivable. The net investment in a lease is the sum of the lease payments receivable by the lessor plus any
unguaranteed residual value, discounted at the interest rate implicit in the lease.
94
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 af) Parent Company financial information
The financial information for the Parent Company, Sonic Healthcare Limited, disclosed in Note 40 has been prepared on the
same basis as the consolidated financial statements, except as set out below.
i)
Investments in subsidiaries
Investments in subsidiaries are accounted for at cost in the financial statements of Sonic Healthcare Limited.
ii)
Tax consolidation legislation
Sonic Healthcare Limited and its wholly-owned Australian controlled entities implemented the tax consolidation legislation
with effect from 30 June 2004, and have notified the Australian Taxation Office of this event. The head entity, Sonic Healthcare
Limited, and the controlled entities in the tax consolidated group account for their own deferred tax amounts. These tax amounts
are measured as if each entity in the tax consolidated group continues to be a standalone tax payer in its own right. In addition
to its own current and deferred tax amounts Sonic Healthcare Limited, as the head entity in the tax consolidated group, also
recognises the current tax liabilities (or assets) assumed from the controlled entities in the tax consolidated group. Under tax
sharing and funding agreements amounts receivable or payable between the tax consolidated entities are recognised within
current amounts receivable/payable to controlled entities.
The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Sonic
Healthcare Limited for any current tax payable assumed and are compensated by Sonic Healthcare Limited for any current tax
receivable transferred under the tax consolidation legislation. The funding amounts are determined by reference to the amounts
recognised in the wholly-owned entities’ financial statements.
iii) Share based payments
The grant by the Parent Company of options over its equity instruments to the employees of subsidiary undertakings in the
Group is treated as a capital contribution to that subsidiary undertaking. The fair value of employee services received, measured
by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary
undertakings, with a corresponding credit to equity.
95
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020
NOTE 2 | SEGMENT INFORMATION
Business segments
The Group’s Chief Executive Officer and the Board of Directors (the chief operating decision makers) review the Group’s
performance both by the nature of services provided and geographic region. Discrete financial information about each operating
segment is reported to the Chief Executive Officer and the Board of Directors on at least a monthly basis and is used to assess
performance and determine the allocation of resources.
The Group has the following reportable segments:
i)
Laboratory
Pathology/clinical laboratory services provided in Australia, New Zealand, the United Kingdom, the United States of America,
Germany, Switzerland, Belgium and Ireland. The geographic regions have been aggregated into one reportable segment, as
they provide similar services and have similar expected growth rates, cost structures, risks and return profiles.
ii)
Imaging
Diagnostic imaging services provided in Australia.
iii) Other
Includes corporate office functions, medical centre operations (IPN), occupational health services (Sonic HealthPlus), laboratory
automation development (up until the sale on 26 June 2019 of GLP Systems) and other minor operations. The $50 million
gain on sale of GLP Systems is also included in FY2019. In addition, acquisition costs and certain other non-recurring costs are
expensed in this segment.
The internal reports use a ‘Constant Currency’ basis for reporting revenue and EBITA with foreign currency elements restated
using the relevant prior period average exchange rates. The segment revenue and EBITA have therefore been presented using
Constant Currency.
96
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 2020
Laboratory
Imaging
Other
Eliminations
$’000
$’000
$’000
$’000
Total
$’000
5,673,613
519,568
–
5,673,613
219,990
5,893,603
215
519,783
–
441,116
13,409
454,525
–
–
6,634,297
(13,624)
(13,624)
–
–
6,634,297
219,990
519,783
454,525
(13,624)
6,854,287
Revenue (Constant Currency)
External sales
Inter-segment sales
Total segment revenue (Constant Currency)
Currency exchange rate movements
Total segment revenue (Statutory)
AASB 16 revenue impact
Interest income excluding impact of AASB 16
Total revenue
Result
Segment result (Constant Currency)
Currency exchange rate movements
Segment result (Statutory)
AASB 16 EBITA impact
Amortisation of intangibles
Unallocated net interest expense
Profit before tax
Income tax expense
Profit after income tax expense
Depreciation
Depreciation expense excluding AASB 16 impact
Other non-cash items
822,001
34,661
856,662
59,965
(33,155)
–
–
59,965
(33,155)
394,637
168,930
31,743
60,753
33,896
8,547
85,268
30,378
12,698
–
–
–
–
–
–
(27,976)
5,532
6,831,843
848,811
34,661
883,472
(12,296)
(65,210)
(106,903)
699,063
(157,160)
541,903
540,658
233,204
52,988
Total
$’000
2019
Laboratory
Imaging
Other
Eliminations
$’000
$’000
$’000
$’000
Revenue
External sales
Inter-segment sales
Other income
5,188,773
499,553
–
–
221
–
Total segment revenue
5,188,773
499,774
438,709
12,969
50,385
502,063
–
6,127,035
(13,190)
–
–
50,385
(13,190)
6,177,420
Interest income
Total revenue
Result
Segment result
Amortisation of intangibles
Unallocated net interest expense
Profit before tax
Income tax expense
Profit after income tax expense
Depreciation
Other non-cash items
772,905
68,341
23,726
146,796
15,889
31,469
1,899
31,591
(45,931)
6,636
6,184,056
864,972
(63,288)
(79,427)
722,257
(163,188)
559,069
209,856
(28,143)
–
–
–
97
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Geographical information
Revenues from sales to external customers+
Non-current assets+^
2020
$’000
2,476,974
1,857,523
1,353,358
1,138,040
6,825,895
2019
$’000
2,389,473
1,440,987
1,249,723
1,046,852
6,127,035
2020
$’000
3,053,429
2,873,029
1,785,416
1,797,638
9,509,512
2019
$’000
2,327,746
2,742,287
1,587,061
1,510,390
8,167,484
Australia
United States of America
Germany
Other
Total
+ Note that changes between years are affected by exchange rate movements and the timing of business acquisitions.
^ Note that this includes all non-current assets other than financial instruments and deferred tax assets.
NOTE 3 | REVENUE AND OTHER INCOME
Services revenue
Medical services revenue
Other
Interest received or due and receivable
Finance income on net investment in lease
Income from sub-leasing right-of-use assets
Other revenue
Total
Other income
Gain on GLP Systems sale
Disaggregated revenue
Laboratory
Australia
Germany
USA
Switzerland
UK & Ireland
Belgium
New Zealand
Non-laboratory
Imaging
Other (medical centres, occupational health services etc.)
2020
$’000
2019
$’000
6,782,580
6,075,618
5,532
416
6,128
37,187
49,263
6,636
–
13,112
38,305
58,053
6,831,843
6,133,671
–
50,385
1,541,284
1,353,686
1,856,953
491,563
463,658
148,322
31,597
520,904
411,800
6,819,767
1,469,028
1,231,507
1,440,378
430,644
434,042
146,378
33,797
499,249
428,900
6,113,923
Contract asset balances of $9,263,000 (2019: $11,147,000) and $10,949,000 (2019: $13,719,000) have been recognised in
current receivables and non-current receivables as at 30 June 2020 relating to upfront doctor payments in the medical centre and
occupational health businesses.
98
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 4 | EXPENSES
Profit before income tax includes the following specific expenses
Finance costs
Finance charges on capitalised leases
Other borrowing costs
Total borrowing costs
Amortisation of
Intangibles
Leased plant and equipment
Total amortisation
Depreciation of
Plant and equipment
Buildings
Total depreciation
Depreciation charge of right-of-use assets
Buildings
Equipment
Total right-of-use asset depreciation
Lease expense
Short-term leases
Low-value leases
Variable leases - COVID-19 rent concession
Variable leases - Other
Total lease expense
Rental expense relating to operating lease payments
Minimum lease payments
Defined contribution superannuation expense
Bad and doubtful trade debtors
2020
$’000
28,884
83,967
112,851
65,210
–
65,210
221,309
10,025
231,334
303,271
6,053
309,324
30,525
8,173
(4,315)
16,961
51,344
–
134,043
170,453
2019
$’000
25
86,038
86,063
63,288
1,809
65,097
199,221
8,826
208,047
–
–
–
–
–
–
–
–
351,909
110,991
149,096
99
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 5 | DIVIDENDS
Total dividends paid on ordinary shares during the year
Final dividend for the year ended 30 June 2019 of 51 cents (2018: 49 cents) per share
paid on 25 September 2019 (2018: 27 September 2018), franked to 30% (2018: 30%)
Interim dividend for the year ended 30 June 2020 of 34 cents (2019: 33 cents) per
share paid on 25 March 2020 (2019: 26 March 2019), franked to 30% (2019: 20%)
Dividends not recognised at year end
In addition to the above dividends, since year end the Directors declared a final
dividend of 51 cents (2019: 51 cents) per ordinary share, franked to 30% (2019: 30%)
based on tax paid at 30%. The aggregate amount of the final dividend paid on 22
September 2020 out of retained earnings at the end of the year, but not recognised as
a liability is:
Franked dividends
The 2020 final dividend declared after the year end was 30% franked out of franking
credits available at year end and those arising from the payment of income tax in the
year ending 30 June 2021.
Franking credits available at the year end for subsequent financial years based
on a tax rate of 30%
2020
$’000
2019
$’000
242,148
208,746
161,519
403,667
156,366
365,112
243,488
242,148
4,956
8,579
The consolidated amounts include franking credits that would be available if distributable profits of subsidiaries not part of the
Australian tax group were paid as dividends.
Dividend Reinvestment Plan (‘DRP’)
The Company’s Dividend Reinvestment Plan remained suspended for the 2020 final dividend, as it was through the 2020 and
2019 financial years.
100
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 6 | INCOME TAX
a)
Income tax expense
Current tax
Deferred tax
Under/(over) provision in prior years
Income tax expense
Deferred income tax expense included in income tax expense comprises
(Increase)/decrease in deferred tax assets (Note 15)
Increase/(decrease) in deferred tax liabilities (Note 24)
2020
$’000
151,544
(509)
6,125
157,160
(29,430)
28,921
(509)
2019
$’000
147,732
11,981
3,475
163,188
(12,623)
24,604
11,981
b)
Income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense
in the financial statements as follows:
Profit before income tax expense
Tax at the Australian tax rate of 30% (2019: 30%)
Tax effect of amounts which are not deductible/
(taxable) in calculating taxable income
Non-assessable amount of GLP Systems gain
Difference in overseas tax rates
Other deductible/non-taxable items (net)
Income tax expense
699,063
209,719
–
(20,714)
(31,845)
157,160
722,257
216,677
(16,880)
(9,797)
(26,812)
163,188
c) Tax expense/(income) relating to items of others comprehensive income
Actuarial (losses) on retirement benefit obligations
(356)
(2,221)
d) Amounts recognised directly in equity
Aggregate current and deferred tax arising in the reporting
period and not recognised in net profit or loss or other
comprehensive income but credited directly to equity
Capital raising costs
–
(2,728)
101
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 e) Tax losses
Deferred tax assets of $36,921,000 (2019: $69,325,000) on the Group’s Balance Sheet at 30 June 2020 relate to income tax
losses (Note 15) across the Group. Income tax losses for which no deferred tax asset has been recognised (which relate to
offshore operations) total $4,117,000 (2019: $4,481,000).
The benefit of tax losses will only be obtained if:
i)
the Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from the
deductions for the losses to be realised, or
the losses are transferred to an eligible entity in the Group, and
the Group continues to comply with the conditions for deductibility imposed by tax legislation, and
ii)
iii)
iv) no changes in tax legislation adversely affect the Group in realising the benefit from the deductions for the losses.
f) Unrecognised temporary differences
Temporary differences relating to investments in subsidiaries for which
deferred tax assets and liabilities have not been recognised:
Foreign currency translation
Undistributed earnings
2020
$’000
75,389
2,580
77,969
2019
$’000
65,105
2,604
67,709
A deferred tax asset has not been recognised in respect of temporary differences arising as a result of the translation of the
financial statements of the Group’s overseas subsidiaries. The deferred tax asset will only arise in the event of disposal of the
subsidiaries, and no such disposals are expected in the foreseeable future.
Certain subsidiaries of Sonic Healthcare Limited have undistributed earnings which, if paid out as dividends, would be unfranked
and therefore subject to tax in the hands of the recipient. A taxable temporary difference exists, however no deferred tax liability
has been recognised as the Parent Company is able to control the timing of distributions from these subsidiaries and is not
expected to distribute these profits in the foreseeable future.
g) Tax consolidation legislation
Sonic Healthcare Limited and its wholly-owned Australian subsidiaries implemented the Australian tax consolidation legislation
at 30 June 2004. The accounting policy in relation to this legislation is set out in Note 1(c).
On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement.
In the opinion of the Directors, the tax sharing agreement is a valid agreement under the tax consolidation legislation and limits
the joint and several liability of the wholly-owned entities in the case of a default by Sonic Healthcare Limited.
The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Sonic
Healthcare Limited for any current tax payable assumed and are compensated by Sonic Healthcare Limited for any current tax
receivable and deferred tax assets related to unused tax losses or unused tax credits that are transferred to Sonic Healthcare
Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in
the wholly-owned entities’ financial statements.
The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head
entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of
interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current
intercompany receivables or payables.
102
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 7 | RECEIVABLES – CURRENT
Trade debtors
Less: provision for impairment (a)
Accrued revenue
Amounts owing from other entities and contract assets
Net investment in finance lease receivables
Sundry debtors
2020
$’000
859,231
(145,488)
713,743
154,883
12,607
6,936
98,601
986,770
2019
$’000
770,636
(160,070)
610,566
114,820
13,039
–
89,507
827,932
Significant terms and conditions
Trade debtors are generally required to be settled within 30 days.
Sundry debtors generally arise from transactions outside the usual trading activities of the Group. Collateral is not normally
obtained.
Transactions outside the usual operating activities of the Group have given rise to amounts owing from other entities.
Repayments are specified by agreements.
a)
Impaired trade debtors
A provision for impairment loss is recognised using the simplified approach to measuring expected credit losses which uses a
lifetime expected credit loss allowance for all trade receivables and adjusts for any known forward-looking issues specific to the
debtors and the economic environment. To measure the expected credit losses, trade receivables have been grouped based
on shared credit risk characteristics and the days past due. As at 30 June 2020 current trade debtors of the Group with a nominal
value of $145,488,000 (2019: $160,070,000) were impaired.
Movements in the provision for impairment of receivables were as follows:
Opening balance at 1 July
Provisions on acquisition of controlled entities
Provision for impairment expensed+
Foreign exchange movements
Receivables written off
Closing balance at 30 June
+ Excludes amounts written off directly to the Income Statement
2020
$’000
160,070
–
162,637
3,016
(180,235)
145,488
2019
$’000
146,473
31,262
137,455
7,315
(162,435)
160,070
Amounts charged to the provision account are generally written off when there is no expectation of recovering additional cash in
excess of the cost of recovery.
103
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 b) Ageing analysis
At 30 June 2020, the ageing analysis and expected credit losses of trade debtors are as follows:
Not past due
30-60 days past due
60-90 days past due
90-120 days past due
120 days+ past due
Closing balance at 30 June
Gross value
Expected credit losses
2020
$’000
510,061
108,045
62,825
45,319
132,981
859,231
2019
$’000
446,854
105,855
60,670
43,239
114,018
770,636
2020
$’000
22,231
20,692
17,177
21,753
63,635
2019
$’000
32,978
18,641
21,897
22,273
64,281
145,488
160,070
All other trade debtors and classes within ‘Receivables – current’ do not contain impaired assets and are not past due. Based on
the credit history of these receivables, it is expected that these amounts will be received when due. The Group does not hold
collateral in relation to these receivables.
c) Foreign exchange and interest rate risk
Information about the Group’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is
provided in Note 39. No material carrying amounts of the Group’s trade debtors are denominated in a non-functional currency.
d) Fair value and credit risk
Due to the short-term nature of these receivables, the carrying value is assumed to approximate their fair value. The maximum
exposure to credit risk at the reporting date is the fair value of each class of receivables mentioned above.
NOTE 8 | INVENTORIES – CURRENT
Consumable stores at cost
NOTE 9 | OTHER ASSETS – CURRENT
Prepayments
104
2020
$’000
163,425
2020
$’000
74,761
2019
$’000
119,673
2019
$’000
68,933
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 10 | RECEIVABLES – NON-CURRENT
Amounts owing from other entities and contract assets
Net investment in finance lease receivables
2020
$’000
39,167
11,262
50,429
2019
$’000
40,201
–
40,201
Undiscounted lease payments receivable
Over 1 and
less than 2
years
Over 2 and
less than 3
years
Over 3 and
less than 4
years
Over 4 and
less than 5
years
1 year
or less
Over 5
years
Total
Unearned
finance
income
Carrying
value
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Finance
leases
Operating
leases
7,261
4,591
2,762
1,841
876
1,756
19,087
(889)
18,198
578
7,839
53
4,644
23
2,785
–
1,841
–
876
–
654
–
–
1,756
19,741
Amounts owing from other entities
Transactions outside the usual operating activities of the Group give rise to these amounts receivable. Interest is charged at
commercial rates and repayments are specified by agreements.
Fair values
The carrying value of non-current receivables approximates their fair value.
Credit risk exposures
The credit risk on financial assets of the Group which have been recognised on the Balance Sheet, other than investments in
shares, is generally the carrying amount, net of any provisions for impairment. Where entities have a right of set-off and intend to
settle on a net basis, this set-off has been reflected in the financial statements in accordance with accounting standards.
None of the non-current receivables are past due or impaired.
NOTE 11 | INVESTMENTS – NON-CURRENT
Investments accounted for using the equity method
Other financial assets
2020
$’000
79,604
12,150
91,754
2019
$’000
73,995
14,140
88,135
The Group has interests in a number of associates and joint ventures that are accounted for using the equity method. The
contribution of these investments is not material to the Group.
105
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 12 | PROPERTY, PLANT AND EQUIPMENT – NON-CURRENT
Freehold land
& buildings
Plant &
equipment
Leased plant
& equipment
$’000
$’000
$’000
At 1 July 2018
Cost
Accumulated depreciation
Net book amount
Year ended 30 June 2019
Opening net book amount at 1 July 2018
Additions
Additions through business combinations
Disposals
Transfers
Depreciation/amortisation expense (Note 4)
Foreign exchange movements
Closing net book amount
At 30 June 2019
Cost
Accumulated depreciation
Net book amount
Year ended 30 June 2020
362,407
(60,388)
302,019
302,019
6,816
–
–
186
(8,826)
5,427
305,622
376,946
(71,324)
305,622
2,245,821
(1,395,592)
850,229
850,229
287,017
14,606
(9,344)
807
(199,221)
15,042
959,136
2,532,591
(1,573,455)
959,136
Opening net book amount at 1 July 2019
305,622
959,136
Change in accounting standards (AASB 16)
Additions
Additions through business combinations (Note 30)
Disposals
Depreciation/amortisation expense (Note 4)
Foreign exchange movements
Closing net book amount
At 30 June 2020
Cost
Accumulated depreciation
Net book amount
–
8,093
–
(39,297)
(10,025)
2,813
267,206
345,179
(77,973)
267,206
–
230,017
3,122
(13,228)
(221,309)
5,554
963,292
2,647,401
(1,684,109)
963,292
Non-current assets pledged as security
Refer to Note 33 for information on non-current assets pledged as security by the Group.
23,757
(20,524)
3,233
3,233
330
2,697
(69)
(993)
(1,809)
172
3,561
30,900
(27,339)
3,561
3,561
(3,561)
–
–
–
–
–
–
–
–
–
Total
$’000
2,631,985
(1,476,504)
1,155,481
1,155,481
294,163
17,303
(9,413)
–
(209,856)
20,641
1,268,319
2,940,437
(1,672,118)
1,268,319
1,268,319
(3,561)
238,110
3,122
(52,525)
(231,334)
8,367
1,230,498
2,992,580
(1,762,082)
1,230,498
106
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 13 | RIGHT-OF-USE ASSETS
Buildings
Equipment
2020
$’000
1,246,254
21,328
1,267,582
2019+
$’000
–
–
–
+ In the previous year, the Group only recognised lease assets in relation to leases that were classified as finance leases under AASB 117. The assets were presented in
property, plant and equipment.
Additions to the right-of-use assets during the 2020 financial year comprised $245,918,000 of new leases and $259,021,000 of
remeasured leases (including recognition of option periods).
107
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 14 | INTANGIBLE ASSETS – NON-CURRENT
At 1 July 2018
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 June 2019
Opening net book amount
Change in accounting standards (AASB 15)
Acquisition of businesses
Additions – externally acquired
Additions – internally generated
Disposals
Foreign exchange movements
Amortisation charge (Note 4)
Closing net book amount
At 30 June 2019
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 June 2020
Opening net book amount
Acquisition of businesses (Note 30)
Additions – externally acquired
Additions – internally generated
Disposals
Foreign exchange movements
Amortisation charge (Note 4)
Closing net book amount
At 30 June 2020
Cost
Accumulated amortisation and impairment
Brand names
Goodwill
Software+
$’000
$’000
$’000
Other
$’000
Total
$’000
188,282
(54,332)
133,950
5,337,656
600,251
(97,657)
(315,077)
132,795
(69,730)
6,258,984
(536,796)
5,239,999
285,174
63,065
5,722,188
133,950
5,239,999
285,174
63,065
5,722,188
–
–
–
–
–
–
–
–
925,459
–
–
(37,364)
192,636
–
133,950
6,320,730
190,148
(56,198)
133,950
6,422,865
671,689
(102,135)
(371,924)
6,320,730
299,765
–
770
28,406
57,345
(31,598)
–
–
–
(16,297)
(19,534)
4,182
(59,815)
299,765
1,833
(3,473)
10,293
16,858
(6,565)
10,293
(31,598)
926,229
28,406
57,345
(73,195)
198,651
(63,288)
6,764,738
7,301,560
(536,822)
6,764,738
133,950
6,320,730
299,765
10,293
6,764,738
–
–
–
(10)
–
–
93,409
–
–
–
72,195
–
133,940
6,486,334
10
23,875
60,741
(16)
779
(64,129)
321,025
–
4,470
–
–
(77)
(1,081)
93,419
28,345
60,741
(26)
72,897
(65,210)
13,605
6,954,904
189,136
(55,196)
6,586,063
743,519
(99,729)
(422,494)
21,250
(7,645)
7,539,968
(585,064)
Net book amount
133,940
6,486,334
321,025
13,605
6,954,904
+ Software includes both externally acquired software and capitalised development costs, being an internally generated intangible asset
108
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 a)
Impairment testing of goodwill and intangibles with indefinite useful lives
Goodwill is allocated to the Group’s cash-generating units (CGUs) for the purposes of assessing impairment according to
business segment and geographic location. A summary of the goodwill allocation is presented below.
2020
Australia
Laboratory
UK
Laboratory
USA
Laboratory
Germany
Laboratory
Switzerland
Laboratory
Belgium
Laboratory
Imaging
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Total
$’000
986,245
126,279
2,459,524
1,385,786
622,001
535,618
370,881
6,486,334
2019
Australia
Laboratory
UK
Laboratory
USA
Laboratory
Germany
Laboratory
Switzerland
Laboratory
Belgium
Laboratory
Imaging
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Total
$’000
976,249
127,436
2,397,328
1,320,492
597,814
532,663
368,748
6,320,730
The carrying value of brand names of $133,940,000 at 30 June 2020 relates solely to the Australia Laboratory CGU and the
recoverable amounts are assessed as part of the recoverable amount of the CGU.
The recoverable amount of a CGU is determined based on value in use calculations. These calculations use cash projections
based on financial budgets/forecasts approved by management covering a five year period. Cash flows beyond the five year
period are extrapolated using the terminal growth rates stated below. The growth rate does not exceed the long-term average
growth rate for the business in which the CGU operates.
b) Key assumptions used for value in use calculations
The recoverable amount of each cash-generating unit is the net present value of the future cash flows of the cash-generating
unit. Recoverable amounts have been assessed using management’s best estimates of:
¡ 2020/2021 Board reviewed profit and loss and cash flow forecasts for each cash-generating unit;
¡ cash flow growth factors consistent with historical growth rates and current performance: Australia Laboratory ~6% (2019:
~7%), UK ~7% (2019: ~11%), USA ~6% (2019: ~6%), Germany ~4% (2019: ~4%), Switzerland ~5% (2019: ~5%), Belgium ~2%
(2019: ~2%), Imaging ~3% (2019: ~7%);
¡ prevailing market based pre-tax discount rates of 5-10%, taking into account the interest rate environment of different
geographies (2019: 4-8%); and
¡ terminal growth rates: 1-3% (2019: 2-4%)
After performing sensitivity analysis, management believes that any reasonably possible change in the key assumptions on
which the recoverable amount has been assessed would not cause the carrying amount to exceed the recoverable amount in
any of the cash-generating units.
109
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 15 | DEFERRED TAX ASSETS – NON-CURRENT
Deferred tax assets
The balance comprises temporary differences attributable to
Amounts recognised in profit or loss
Doubtful debts
Employee benefits
Sundry accruals
Unrealised foreign exchange movements
Lease liability
Tax losses
Amounts recognised directly in equity/other comprehensive income
Share issue costs
Deferred tax assets
Less: amounts offset against deferred tax liabilities (Note 24)
Net deferred tax assets
Movements
Opening balance at 1 July
Credited/(charged) to the Income Statement (Note 6)
Foreign exchange movements
Acquisition/disposal of subsidiaries
Closing balance at 30 June
NOTE 16 | OTHER ASSETS – NON-CURRENT
Prepayments
110
2020
$’000
70,759
45,956
72,036
71,722
229
346,268
36,921
573,132
1,651
574,783
(504,024)
70,759
39,166
29,430
618
1,545
70,759
2020
$’000
6,099
2019
$’000
39,166
39,779
60,488
47,298
1,030
72
69,325
217,992
2,217
220,209
(181,043)
39,166
25,755
12,623
788
–
39,166
2019
$’000
6,091
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 17 | PAYABLES – CURRENT
Trade creditors
Sundry creditors and accruals
Fair value and risk exposure
2020
$’000
362,027
621,804
983,831
2019
$’000
229,670
397,641
627,311
Due to the short-term nature of these payables, the carrying value is assumed to approximate their fair value. Information about
the Group’s exposure to foreign currency exchange rate risk is provided in Note 39.
NOTE 18 | INTEREST-BEARING LIABILITIES – CURRENT
Secured
Lease liabilities (Note 31(b))
Unsecured
Bank loans
USPP notes (Note 23(b))
Amounts owing to vendors (a)
2020
$’000
–
–
363,161
1,037
364,198
2019
$’000
1,120
603,834
221,050
–
826,004
Details of the security, fair values and interest rate risk exposure relating to each of the secured and unsecured liabilities are set
out in Note 33 and Note 39.
a) Amounts owing to vendors
The amounts owing to vendors comprise deferred consideration for business acquisitions. These amounts are interest bearing.
The carrying value of these amounts approximates their fair value.
NOTE 19 | LEASE LIABILITIES
Current
Non–current
2020
$’000
298,923
1,080,331
1,379,254
2019+
$’000
–
–
–
+ In the previous year, the Group only recognised lease liabilities in relation to leases that were classified as finance leases under AASB 117. The liabilities were presented in
interest-bearing liabilities.
111
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020
NOTE 20 | TAX LIABILITIES – CURRENT
Income tax
NOTE 21 | PROVISIONS – CURRENT
Employee benefits
Lease exit costs
2020
$’000
145,163
2020
$’000
259,826
–
259,826
2019
$’000
125,455
2019
$’000
221,068
1,253
222,321
The lease exit costs represent future payments for leased premises under non-cancellable operating leases. Movements in lease
exit costs during the financial year are set out below:
Total
$’000
9,720
(2,967)
(874)
14,739
(677)
19,941
–
19,941
19,941
Carrying amount at 1 July 2019
Change in accounting standards (AASB 16)
Amounts used during year
Additional provisions recognised
Foreign exchange movements
Carrying amount at 30 June 2020
Representing lease exit costs:
Current
Non–current (Note 25)
112
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 22 | OTHER LIABILITIES – CURRENT
Unsecured
Amounts owing to vendors
Other
2020
$’000
17,051
1,141
18,192
2019
$’000
45,024
3,269
48,293
The amounts owing to vendors comprise deferred consideration for business acquisitions made in the current and prior periods
(refer Note 30). Amounts owing to vendors and other loans are non-interest bearing. The carrying value of these amounts
approximates their fair value.
NOTE 23 | INTEREST-BEARING LIABILITIES – NON-CURRENT
Secured
Lease liabilities (Note 31(b))
Unsecured
Amounts owing to vendors (a)
Bank loans
USPP notes (b)
Other
2020
$’000
–
–
1,233,344
1,639,085
–
2019
$’000
1,711
1,021
1,014,645
1,192,028
190
2,872,429
2,209,595
Details of the security, fair values and interest rate risk exposure relating to each of the secured and unsecured liabilities is set out
in Note 33 and Note 39.
a) Amounts owing to vendors
The amounts owing to vendors comprised deferred consideration for business acquisitions. These amounts were interest
bearing. The carrying value of these amounts approximated their fair value.
b) USPP notes
In January 2010 and January 2011 Sonic issued notes to investors in the United States Private Placement market, raising
US$405M of long-term (10 year) debt. In November 2014 Sonic issued €110M of notes with a tenor of 10 years. In June 2016 and
November 2016 Sonic issued €45M and €200M of notes with tenors of 10 years. In October 2017 Sonic issued €75M and €85M
of notes with tenors of 7 and 15 years respectively. In January 2020 Sonic issued a further US$300M, US$150M and US$100M of
notes with tenors of 10,12 and 15 years respectively.
113
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 c) Financing facilities available
At 30 June 2020, the following financing facilities were available:
2020
Bank overdraft
Bank loans
Syndicated facilities multi-currency USD limits
Syndicated facilities multi-currency Euro limits
Syndicated facilities multi-currency CHF limits
Club revolving facility AUD limits
Club revolving facility USD limits
Notes held by USA investors – USD
Notes held by USA investors – Euro
Leasing and hire purchase facilities
^ Includes debt drawn in AUD ($113.3M)
+ Includes debt drawn in GBP (£65.5M)
2019
Bank overdraft
Bank loans
Total facilities at
30 June 2020
Facilities used at
30 June 2020
Facilities unused
at 30 June 2020
000’s
A$4,317
000’s
A$0
US$75,000
€390,000
US$75,000
€377,241^
000’s
A$4,317
US$0
€12,759
CHF306,500
CHF258,187+
CHF48,313
A$48,000
A$48,000
A$0
US$100,000
US$45,000
US$55,000
US$800,000
US$800,000
€515,000
A$20,490
€515,000
A$15,490
US$0
€0
A$5,000
Total facilities at
30 June 2019
Facilities used at
30 June 2019
Facilities unused
at 30 June 2019
000’s
A$4,477
000’s
A$0
000’s
A$4,477
Syndicated facilities multi-currency USD limits
US$186,000
US$85,795
US$100,205
Syndicated facilities multi-currency Euro limits
Syndicated facilities multi-currency CHF limits
Bilateral facility USD limits
Club revolving facility AUD limits
Club revolving facility USD limits
Notes held by USA investors – USD
Notes held by USA investors – Euro
Leasing and hire purchase facilities
+ Includes debt drawn in GBP (£59M)
€425,000
€267,100
CHF316,500
CHF264,642+
US$313,064
US$313,064
€157,900
CHF51,858
US$0
A$48,000
A$0
A$48,000
US$161,000
US$161,000
US$405,000
US$405,000
€515,000
A$7,831
€515,000
A$2,831
US$0
US$0
€0
A$5,000
114
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 d) Fair values
The carrying amount of borrowings approximates their fair value.
e)
Interest rate risk exposures
Details of the Group’s exposure to interest rate changes on borrowings are set out in Note 39.
f) Security
Details of the security relating to each of the secured liabilities are set out in Note 33.
NOTE 24 | DEFERRED TAX LIABILITIES – NON-CURRENT
Deferred tax liabilities
The balance comprises temporary differences attributable to
Amounts recognised in profit or loss
Prepayments & sundry debtors
Inventories
Accrued revenue
Right-of-use assets
Intangibles
Property, plant & equipment
Capitalised costs
Less: amounts offset against deferred tax assets (Note 15)
Net deferred tax liabilities
Movements
Opening balance at 1 July
Charged/(credited) to the Income Statement (Note 6)
(Credited) to other comprehensive income
(Credited) to equity
Change in accounting standard
Acquisition/disposal of subsidiaries
Foreign exchange movements
Closing balance at 30 June
2020
$’000
173,335
3,212
15,955
17,515
334,736
230,300
70,697
4,944
677,359
(504,024)
173,335
151,116
28,921
(348)
–
(7,476)
–
1,122
173,335
2019
$’000
151,116
4,415
10,293
18,700
2,174
210,177
81,193
5,207
332,159
(181,043)
151,116
120,795
24,604
(2,278)
(2,728)
(1,011)
7,079
4,655
151,116
115
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 25 | PROVISIONS – NON-CURRENT
Employee benefits
Retirement benefit obligations
Lease exit costs
2020
$’000
31,808
111,789
19,941
163,538
2019
$’000
28,801
102,282
8,467
139,550
a) Retirement benefit obligations
Certain employees of the Group are entitled to benefits from superannuation plans on retirement, disability or death. The
Group contributes to defined contribution plans for the majority of employees. The defined contribution plans receive fixed
contributions from Group companies and the Group’s legal or constructive obligation is limited to these contributions. The Group
has defined benefit plans in relation to certain non-Australian employees. The defined benefit plans provide lump sum benefits
based on years of service and final average salary.
The following sets out details in respect of defined benefit plans only.
b) Balance Sheet amounts
The amounts recognised in the Balance Sheet are determined as follows:
Present value of the defined benefit plan obligations
Fair value of defined benefit plan assets
Net liability in the Balance Sheet
2020
$’000
382,535
(270,746)
111,789
2019
$’000
343,057
(240,775)
102,282
The Group has no legal obligation to settle this liability with an immediate contribution or additional one off contributions.
The Group intends to continue to contribute to the Medisupport Group and Medica Laboratory Group defined benefit plans
at a percentage of insured salaries (2.3% to 9.7% dependent on the employee’s age bracket) in line with the actuary’s latest
recommendations and Swiss laws. No contributions are required to be made by the Group to the Bioscientia Healthcare Group
defined benefit plan as future benefits are paid directly by Bioscientia and not from a separate plan asset pool.
116
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 c) Categories of plan assets
The major categories of plan assets as a percentage of total plan assets are as follows:
Cash – quoted
Mortgages – quoted
Real estate – quoted
Bonds – quoted
Equities – quoted
Alternative investments – quoted
d) Reconciliations
Reconciliation of the present value of the defined benefit
obligation, which is partly funded
Balance at the beginning of the year
Current service cost
Past service cost (due to plan amendment)
Interest cost
Actuarial losses
Benefits paid
Member contributions
Other
Foreign exchange movements
Balance at the end of the year
Reconciliation of the fair value of plan assets
Balance at the beginning of the year
Interest income
Actuarial (losses)/gains
Contributions by Group companies
Benefits paid
Member contributions
Other
Foreign exchange movements
Balance at the end of the year
2020
%
1.1
1.3
14.9
37.7
39.4
5.6
100.0
2020
$’000
343,057
10,340
–
2,184
3,928
(7,121)
7,760
8,353
14,034
382,535
2019
%
1.9
1.3
13.7
34.0
42.8
6.3
100.0
2019
$’000
279,344
9,464
(4,520)
3,077
31,058
(5,242)
6,685
3,776
19,415
343,057
240,775
201,743
1,950
(2,210)
10,000
(6,046)
7,760
8,353
10,164
270,746
2,327
6,634
9,766
(4,223)
6,685
3,776
14,067
240,775
117
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 e) Amounts recognised in Income Statement
Current service cost
Past service cost
Net interest expense
Total included in the employee benefit expense
f) Amounts recognised in Statement of Comprehensive Income
Actuarial (losses) recognised in the year
Cumulative actuarial (losses) recognised in the Statement of Comprehensive Income
g) Principal actuarial assumptions
The principal actuarial assumptions used (expressed as weighted averages) were as follows:
Discount rate
Future salary increases
2020
$’000
10,340
–
234
10,574
(5,782)
(49,707)
2020
%
0.64
1.22
2019
$’000
9,464
(4,520)
750
5,694
(22,203)
(43,925)
2019
%
0.49
1.48
If the discount rate had increased/decreased by 25 basis points (2019: 25 basis points), the impact on the net defined benefit
obligation would have been a decrease by 11.2%/increase by 12.4% (2019: decrease by 11.3%/increase by 11.8%). The sensitivity
analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur,
and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation
to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the
projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability
recognised in the Balance Sheet.
h) Employer contributions
Medisupport Group and Medica Laboratory Group defined benefit plans
Employer contributions to the defined benefit plans are based on recommendations by the plan’s actuary. Actuarial assessments
are made on a yearly basis.
The objective of funding is to ensure that the benefit entitlements of members and other beneficiaries are fully funded by the
time they become payable. To achieve this objective, the actuary has adopted a method of funding which seeks to have benefits
funded by means of a total contribution which is expected to be a percentage of members’ insured salaries over their working
lifetimes.
Using the funding method described above and actuarial assumptions, the actuary recommended in the latest actuarial review
the payment of employer contributions varying from 2.3% to 9.7% (2019: 2.3% to 10.3%) of the insured salaries of employees based
on the employee age bracket and in accordance with Swiss laws.
118
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Total employer contributions expected to be paid by Group companies for the year ending 30 June 2021 are based on the 2020
rates and are estimated at $9,232,000 (2019: $9,039,000).
The weighted average duration of the defined benefit obligation is 16.5 years (2019: 16.1 years).
i) Experience adjustments
Experience adjustments arising on plan liabilities
Experience adjustments arising on plan assets
NOTE 26 | OTHER LIABILITIES – NON-CURRENT
Unsecured
Amounts owing to vendors
Other
2020
$’000
(6,477)
(2,210)
2020
$’000
93,928
9,038
102,966
2019
$’000
(8,726)
6,634
2019
$’000
86,265
32,058
118,323
The amounts owing to vendors comprises deferred consideration for business acquisitions made in current and prior periods
(refer Note 30). These amounts are non-interest bearing. The carrying amount approximates their fair value.
NOTE 27 | CONTRIBUTED EQUITY
a) Share capital
Fully paid ordinary shares
Other equity securities
Treasury shares
2020
Shares
2019
Shares
2020
$’000
2019
$’000
475,182,416
473,956,404
4,001,057
3,967,101
(6,035)
(8,835)
(147)
(209)
475,176,381
473,947,569
4,000,910
3,966,892
119
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 b) Movements in ordinary share capital
Details
Date
2019
Number of
shares
Issue
price
1/7/18
Opening balance of the Group
18/12/18
Shares issued under an Institutional Placement
12/2/19
Shares issued under a Shareholder Purchase Plan
Various
Shares issued following exercise of employee options/rights
Various
Transfers from equity remuneration reserve
Various
Costs associated with shares issued net of future income tax benefits
30/6/19
Balance of the Group
424,704,991
30,769,231
16,830,066
1,652,116
–
–
473,956,404
$19.50
$19.50
Various
2020
1/7/19
Opening balance of the Group
473,956,404
Various
Shares issued following exercise of employee options/rights
1,226,012
Various
Various
Transfers from equity remuneration reserve
30/6/20
Balance of the Group
–
475,182,416
Total
$’000
3,006,555
600,000
327,839
36,660
2,413
(6,366)
3,967,101
$’000
3,967,101
31,614
2,342
4,001,057
c) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to
the number of shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy is
entitled to one vote, and upon a poll each share is entitled to one vote.
d) Options and performance rights
Details of options and performance rights issued, exercised and forfeited during the financial year and options and performance
rights outstanding at the end of the financial year are set out in Note 35.
e) Dividend reinvestment plan
The Company’s DRP remained suspended for the 30 June 2020 final dividend, as it was through the 2020 and 2019
financial years.
120
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 f) Treasury shares
Treasury shares are shares in Sonic Healthcare Limited that are held by the Sonic Healthcare Limited Employee Share Trust
(‘SHEST’) for the purpose of providing shares under selected Group equity plans.
Details
Date
2019
1/7/18
Opening balance
Various
Subscription for unissued shares by SHEST
Various
Transfer of shares to employees to satisfy exercise of options/rights
30/6/19
Balance of the Group
2020
1/7/19
Opening balance
Various
Subscription for unissued shares by SHEST
Various
Transfer of shares to employees to satisfy exercise of options/rights
30/6/20
Balance of the Group
Number of
shares
28,083
945,616
(964,864)
8,835
8,835
798,179
Total
$’000
680
24,151
(24,622)
209
$’000
209
23,279
(800,979)
(23,341)
6,035
147
121
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 28 | RESERVES AND RETAINED EARNINGS
a) Reserves
(i)
(ii)
(iii)
(iv)
(v)
Equity remuneration reserve
Foreign currency translation reserve
Share option reserve
Revaluation reserve
Transactions with minority interests
Movements
Equity remuneration reserve
Balance 1 July
Share based payments
Employee share scheme issue
Transfer to share capital (options exercised)
Balance 30 June
Foreign currency translation reserve
Balance 1 July
Net exchange movement on translation of foreign subsidiaries
Balance 30 June
Share option reserve
Balance 1 July
Movement
Balance 30 June
Revaluation reserve
Balance 1 July
Movement
Balance 30 June
Transactions with minority interests
Balance 1 July
Net exchange movement
Sale of minority interests
Acquisition of minority interests
Balance 30 June
122
2020
$’000
(83,265)
251,294
16,427
3,272
(12,302)
175,426
(78,574)
6,330
(8,679)
(2,342)
(83,265)
217,016
34,278
251,294
16,427
–
16,427
3,272
–
3,272
(11,866)
(436)
–
–
(12,302)
2019
$’000
(78,574)
217,016
16,427
3,272
(11,866)
146,275
(68,138)
3,878
(11,901)
(2,413)
(78,574)
109,291
107,725
217,016
16,427
–
16,427
3,272
–
3,272
(32,963)
(1,231)
1,505
20,823
(11,866)
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 i)
Equity remuneration reserve
The equity remuneration reserve reflects the fair value of equity-settled share based payments. Fair values are determined using
a pricing model consistent with the Black Scholes methodology and recognised over the service period up to the vesting date.
When shares are issued or options are exercised the associated fair values are transferred to share capital.
ii)
Foreign currency translation reserve
Exchange differences arising on translation of the foreign subsidiaries are taken to the foreign currency translation reserve as
described in accounting policy Note 1(d)(iii).
iii) Share option reserve
The share option reserve reflects the value of options issued as part of consideration for business combinations. The value of
the options represents the assessed fair value at the date they were granted and has been determined using a pricing model
consistent with the Black Scholes methodology that takes into account the exercise price, the term of the option, the impact of
dilution, the non-tradeable nature of the option, the current price and expected volatility of the underlying share, the expected
dividend yield, and the risk-free interest rate for the term of the option.
iv) Revaluation reserve
The revaluation reserve is used to record increments and decrements on the initial revaluation of non-current assets.
v) Transactions with minority interests
This reserve is used to record the differences described in Note 1(b) which may arise as a result of transactions with minority
interests that do not result in a loss of control in addition to transfers from the minority interests account on disposal of a
subsidiary.
b) Retained earnings
Retained earnings at the beginning of the financial year
Net profit attributable to members of Sonic Healthcare Limited
Dividends paid in the year (Note 5)
Change in accounting standards
Actuarial (losses) on retirement benefit obligations (Note 25)
Retained earnings at the end of the financial year
NOTE 29 | DEED OF CROSS GUARANTEE
2020
$’000
1,299,163
527,749
(403,667)
(20,046)
(5,782)
1,397,417
2019
$’000
1,143,643
549,725
(365,112)
(6,890)
(22,203)
1,299,163
The ‘Closed Group’ (refer Note 30) are parties to a Deed of Cross Guarantee dated 28 June 2007 under which each company
guarantees the debts of the others. By entering into the deed, the wholly-owned entities which are large proprietary companies
have been relieved from the requirements of the Corporations Act 2001 to prepare and lodge a financial report, directors’ report
and auditor’s report under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
The companies represent a ‘Closed Group’ for the purposes of the Instrument, and as there are no other parties to the Deed of
Cross Guarantee that are controlled by Sonic Healthcare Limited, they also represent the ‘Extended Closed Group’.
123
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 a) Consolidated Income Statement of the Extended Closed Group
Revenue
Labour and related costs
Consumables used
Lease expense
Depreciation
Utilities
Repairs and maintenance
Borrowing costs
Transportation
Amortisation of intangibles
Other expenses from ordinary activities
Profit before income tax expense
Income tax expense
Net profit attributable to members of the Extended Closed Group
2020
$’000
2,922,474
(1,333,385)
(270,101)
(21,176)
(314,326)
(70,990)
(68,260)
(89,348)
(17,271)
(26,598)
(156,469)
554,550
(67,604)
486,946
2019
$’000
2,721,085
(1,257,751)
(269,915)
(240,786)
(95,233)
(68,145)
(63,896)
(34,850)
(17,300)
(24,787)
(156,515)
491,907
(81,121)
410,786
b) Consolidated Statement of Comprehensive Income of the Extended Closed Group
Profit from ordinary activities after income tax expense
486,946
410,786
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Other comprehensive income for the period, net of tax
Total comprehensive income for the period
c) Reconciliation of retained earnings
Retained earnings at the beginning of the financial year
Change in accounting standards
Profit from ordinary activities after income tax expense
Dividends paid during the year
Retained earnings at the end of the financial year
3,299
3,299
490,245
428,221
(11,582)
486,946
(403,667)
499,918
5,461
5,461
416,247
384,450
(1,903)
410,786
(365,112)
428,221
124
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 d) Consolidated Balance Sheet of the Extended Closed Group
Current assets
Cash and cash equivalents
Receivables
Inventories
Other
Total current assets
Non-current assets
Receivables
Investments
Property, plant and equipment
Right-of-use assets
Intangible assets
Deferred tax assets
Other
Total non-current assets
Total assets
Current liabilities
Payables
Interest-bearing liabilities
Lease liabilities
Current tax liabilities
Provisions
Other
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Lease liabilities
Provisions
Deferred tax liabilities
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Parent Company interest
Contributed equity
Reserves
Retained earnings
Total equity
2020
$’000
441,929
442,499
40,262
20,193
944,883
40,233
2,962,846
625,646
683,262
1,635,974
29,362
53
5,977,376
6,922,259
446,507
–
205,740
59,474
198,366
664
910,751
960,234
519,014
23,456
24,654
509
1,527,867
2,438,618
4,483,641
4,024,196
(40,473)
499,918
4,483,641
2019
$’000
349,074
424,394
34,356
17,375
825,199
33,186
3,706,510
621,472
–
1,610,392
19,804
72
5,991,436
6,816,635
334,891
446,469
–
69,377
168,842
1,346
1,020,925
1,362,831
–
21,968
27,917
3,080
1,415,796
2,436,721
4,379,914
3,990,775
(39,082)
428,221
4,379,914
125
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 30 | INVESTMENTS IN SUBSIDIARIES
Details of subsidiaries
Subsidiaries of Sonic Healthcare Limited
Clinpath Laboratories Pty Limited (i)
Douglass Hanly Moir Pathology Pty Limited (i)
Lifescreen Australia Pty Limited (i)
Redlands X-Ray Services Pty Limited
Sonic Healthcare Genetics Pty Limited
Sonic Clinical Trials Pty Limited
Sonic Healthcare Services Pty Limited (i)
Sonic Imaging Pty Limited (i)
Southern Pathology Services Pty Limited (i)
Sonic Clinical Services Pty Limited (i)
Sonic Healthcare (UK) Pty Limited
Sonic Healthcare (Ireland) Limited
Sonic Healthcare Holding Company
Sonic Healthcare Europe GmbH
Sonic Healthcare Germany GmbH & Co. KG
Other subsidiaries in the Group
Capital Pathology Pty Limited (i)
Castlereagh Co Pty Limited (i)
Castlereagh Services Pty Limited (i)
Consultant Pathology Services Pty Limited (i)
Diagnostic Services Pty Limited (i)
Hanly Moir Pathology Pty Limited (i)
San Pathology Pty Limited (i)
Hunter Imaging Group Pty Limited (i)
Hunter Valley X-Ray Pty Limited
Sonic Pathology Australia Pty Limited (i)
IRG Co Pty Limited (i)
L & A Services Pty Limited (i)
Melbourne Pathology Pty Limited (i)
Melbourne Pathology Services Pty Limited
Melbourne Pathology Cabrini Pty Limited
Epworth Pathology
Northern Pathology Pty Limited (i)
Pacific Medical Imaging Pty Limited (i)
Paedu Pty Limited (i)
Queensland X–Ray Pty Limited (i)
126
Country of
incorporation
Class
of share
Beneficial
interest
Beneficial
interest
2020
2019
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ireland
United Kingdom
Germany
Germany
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50.1
50.1
100
100
100
100
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
50.1
100
100
100
100
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Details of subsidiaries
Country of
incorporation
Class
of share
Beneficial
interest
Beneficial
interest
Ultrarad No 2 Trust
SKG Radiology Pty Limited (i)
Sonic Healthcare International Pty Limited (i)
Sonic Healthcare Pathology Pty Limited
A.C.N. 094 980 944 Pty Limited (i)
Sonic Medlab Holdings Australia Pty Limited (i)
Sonic Pathology (Queensland) Pty Limited (i)
Sonic Pathology (Victoria) Pty Limited (i)
A.C.N. 002 889 545 Pty Limited (i)
Clinipath Pathology Pty Limited (i)
Sullivan Nicolaides Pty Limited (i)
Sunton Pty Limited (i)
IPN Healthcare Pty Limited (i)
IPN Medical Centres Pty Limited (i)
IPN Medical Centres (QLD) Pty Limited (i)
IPN Medical Centres (NSW) Pty Limited (i)
IPN Medical Centres (VIC) Pty Limited (i)
Medihelp Services Pty Limited (i)
Sonic HealthPlus Pty Limited (i)
Gemini Medical Services Pty Limited (i)
Prime Health Group Pty Limited (i)
IPN Clinics Victoria Pty Limited (i)
IPN Medical Victoria Pty Limited (i)
Matrix Skin Cancer Clinics Pty Limited (i)
DoctorDoctor Pty Limited
Sonic Nurse Connect Pty Limited
LabKom Biochemische Dienstleistungen GmbH
Bioscientia Institut für medizinische Diagnostik GmbH
Labor Augsburg MVZ GmbH
Labor 28 GmbH
GLP medical GmbH
Dr. Von Froreich – Bioscientia GmbH
Labor Lademannbogen MVZ GmbH
MVZ Labor für Cytopathologie Dr. Steinberg GmbH
MVZ Medizinisches Labor Oldenburg Dr. Müller GmbH
MVZ Pathologie Berlin Berger Fietze Linke Nadjari GmbH
Labor Deutscher Platz Leipzig MVZ GmbH
MVZ für Histologie, Zytologie und molekulare Diagnostik Trier GmbH
MVZ für Histologie, Zytologie und molekulare Diagnostik Düren GmbH
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
2020
%
99.9
2019
%
99.9
Units
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
127
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Details of subsidiaries
MVZ Medizinisches Labor Nord GmbH
Bioscientia MVZ Labor Duisberg GmbH
Biovis Diagnostik MVZ GmbH
Dr. Staber & Kollegen GmbH
Med–Lab Med. Dienstleistungs GmbH
Med–Lab GmbH Kassel
MVZ Medizinisches Labor Bremen GmbH
MVZ Medizinisches Labor Celle GmbH
Medlab Central Limited (i)
Medica Ärztebedarf AG
Medica Medizinische Laboratorien Dr F Käppeli AG
Medisupport SA
Dianalabs SA
Dianapath SA
MCL Medizinische Laboratorien AG
Ortho–Analytic AG
Polyanalytic S.A.
Proxilab analyses médicales SA
Aurigen SA
Laboratories BBV S.A.
Bioexam AG
Medizinische Laboratorien Dr. Toggweiler AG
Bioanalytica AG
Ecobion SA
The Doctors Laboratory Limited
TDL Genetics Limited
NWLHT Analytical LLP
NWLHT Facilities LLP
Health Services Laboratories LLP
HSL (Nominee) Ltd
HSL (Analytics) LLP
HSL (FM) LLP
HSL Pathology LLP
LABex Analytics LLP
LABex Facilities LLP
SH Euro Finance PLC
Medlab Pathology Limited
Sonic Healthcare Investments GP
Clinical Pathology Laboratories, Inc.
128
Country of
incorporation
Class
of share
Beneficial
interest
Beneficial
interest
2020
2019
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
New Zealand
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Ord
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Ireland
United States
United States
Ord
Ord
Ord
%
100
100
100
100
100
100
100
100
100
100
100
100
%
100
100
100
100
100
100
100
100
100
100
100
100
99.8
99.8
100
100
100
90
100
100
100
100
100
100
100
100
100
100
100
51
51
51
51
51
100
100
100
100
100
100
100
100
100
90
100
100
100
100
100
100
100
100
100
100
100
51
51
51
51
51
–
–
100
100
100
100
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Details of subsidiaries
Pathology Laboratories, Inc.
American Esoteric Laboratories, Inc.
Clinical Pathology Laboratories Southeast, Inc.
Memphis Pathology Laboratory
Sonic Healthcare USA, Inc.
Sunrise Medical Laboratories, Inc.
Clinical Laboratories of Hawaii, LLP
Pan Pacific Pathologists, LLC
BMHSI/AEL Microbiology Laboratory GP
East Side Clinical Laboratory, Inc.
Connecticut Laboratory Partnership, LLC
CBLPath, Inc.
WestPac Labs, Inc.
Aurora Diagnostics, LLC
Aurora Research Institute, LLC
Bernhardt Laboratories, Inc.
Cleveland Skin Pathology Laboratory, Inc.
Consultants in Laboratory Medicine of Greater Toledo, Inc.
Cytopath, Inc.
Dermpath New England, LLC
Greensboro Pathology, LLC
Pathology Solutions, LLC
Richard Bernert, LLC
Seacoast Pathology, Inc.
Twin Cities Dermatopathology, LLC
Sonic Healthcare Benelux NV
Medvet BV
A.M.L. BV
Medisch Labo. D. Van Waes - D. Declerck BV CVBA
Klinisch Labo Rigo BV
Laboratoires J. Woestyn SRL
Country of
incorporation
Class
of share
Beneficial
interest
Beneficial
interest
2020
2019
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Belgium
Belgium
Belgium
Belgium
Belgium
Belgium
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
%
100
100
100
100
100
100
100
100
74.6
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
%
100
100
100
100
100
100
100
100
74.6
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
(i) These subsidiaries comprise the ‘Closed Group’ under the Deed of Cross Guarantee. By entering into the deed wholly-owned entities which are large proprietary companies
have been granted relief from the necessity to prepare a financial report, directors’ report and auditor’s report in accordance with ASIC Corporations (Wholly-owned
Companies) Instrument 2016/785. For further information see Note 29.
129
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Business combinations
a) Acquisition of subsidiaries/business assets
Acquisitions of subsidiaries/business assets in the period included:
¡ German anatomical pathology business, Pathologie Hamburg, on 1 April 2020.
¡ A number of small healthcare businesses.
The initial accounting for these business combinations has only been determined provisionally at the date of this report, as the
Group is still in the process of reviewing acquisition balance sheets and identifying assets and liabilities not previously recorded
so as to determine the fair values of the identifiable assets, liabilities and contingent liabilities acquired. The contribution these
acquisitions made to the Group’s profit during the period was immaterial individually and in aggregate.
The aggregate cost of the acquisitions, the provisional values of the identifiable assets and liabilities, and the goodwill arising on
acquisition are detailed below:
Consideration – cash paid
Less: cash of entities acquired
Deferred consideration
Total consideration
Fair value of identifiable net assets of businesses acquired
Debtors & other receivables
Prepayments
Inventory
Property, plant & equipment
Identifiable intangibles
Deferred tax assets
Trade creditors
Sundry creditors & accruals
Current tax liabilities
Provisions
Goodwill
Total
$’000
62,180
(413)
61,767
27,254
89,021
334
2
327
3,122
10
76
(7)
(236)
(62)
(254)
3,312
85,709
The goodwill arising from the business acquisitions is attributable to their reputation in the local market, the benefit of marginal
profit and synergies expected to be achieved from integrating the business with existing operations, expected revenue growth,
future market development, the assembled workforce and knowledge of local markets. These benefits are not able to be
individually identified or recognised separately from goodwill. $4,846,000 of the purchased goodwill recognised is expected to
be deductible for income tax purposes, over a 15 year period.
Acquisition related costs of $2,134,000 are included in other expenses in the Income Statement.
The fair value of acquired debtors and other receivables is $334,000. The gross contractual amount due is $334,000, of which
$nil is expected to be uncollectible.
130
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 b) Reconciliation of cash paid to Cash Flow Statement
Cash consideration for acquisitions in the financial year
Cash consideration for Steinberg minority interest acquisition in the financial year
Acquisition costs
Cash consideration paid to vendors for acquisitions in previous financial years
Less: cash of entities acquired
Payment for purchase of controlled entities, net of cash acquired
2020
$’000
62,180
22,825
2,134
11,057
(413)
97,783
2019
$’000
844,391
–
7,867
14,122
(2,975)
863,405
c) Acquisition of Aurora Diagnostics, LLC (prior year)
The acquisition accounting for Aurora Diagnostics, LLC, acquired on 30 January 2019, was finalised in the current reporting
period. The aggregate cost of the acquisition, the value of the identifiable assets and liabilities, and the goodwill arising on
acquisition are detailed below:
Consideration – cash paid
Less: cash of entities acquired
Total consideration
Fair value of identifiable net assets of businesses acquired
Debtors & other receivables
Prepayments
Inventory
Property, plant & equipment
Identifiable intangibles
Trade creditors
Sundry creditors & accruals
Current tax liabilities
Deferred tax liabilities
Lease liabilities
Lease exit costs
Provisions
Other liabilities
Goodwill
Total
$’000
726,017
(1,606)
724,411
53,375
5,903
868
11,757
532
(16,362)
(39,063)
(57)
(7,763)
(2,787)
(68)
(2,156)
(36,921)
(32,742)
757,153
The total adjustment to goodwill during the reporting period as a result of finalising this business combination was an increase
of A$7,356,000.
131
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 31 | COMMITMENTS FOR EXPENDITURE
a) Capital commitments
Commitments for the acquisition of property, plant and equipment
contracted for at the reporting date but not recognised as liabilities, payable
Within one year
b) Lease commitments
Commitments in relation to leases contracted for at the reporting
date but not recognised as liabilities, payable
Within one year
Later than one year but not later than 5 years
Later than 5 years
Representing
Cancellable operating leases
Non–cancellable operating leases
Future finance charges on finance leases
i) Operating leases
2020
$’000
22,353
2020
$’000
–
–
–
–
–
–
–
–
2019
$’000
12,804
2019
$’000
320,703
655,300
378,461
1,354,464
1,847
1,352,585
32
1,354,464
As at 30 June 2019 the Group leased various premises under non-cancellable operating leases expiring within one month to
twenty four years. The leases had varying terms and renewal rights. On renewal, the terms of the leases were renegotiated.
Commitments for minimum lease payments in relation to
non–cancellable operating leases are payable as follows
Within one year
Later than one year but not later than 5 years
Later than 5 years
Commitments not recognised in the financial statements
Future minimum lease payments expected to be received in relation
to non–cancellable sub–leases of operating leases not recognised in
the financial statements
2020
$’000
–
–
–
–
–
2019
$’000
319,309
654,885
378,391
1,352,585
26,557
The Group also leased various plant and machinery under cancellable operating leases. The Group was generally required to
give six months’ notice for termination of these leases.
132
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Commitments for minimum lease payments in relation to
cancellable operating leases are payable as follows
Within one year
Later than one year but not later than 5 years
Later than 5 years
Commitments not recognised in the financial statements
2020
$’000
–
–
–
–
2019
$’000
1,378
399
70
1,847
From 1 July 2019, the Group has recognised right-of-use assets for operating leases, except for short-term and low-value leases.
See Note 1 for further information.
ii)
Finance leases
The Group finance leased various plant and equipment with a carrying amount in the prior year of $3,561,000 under contracts
which expired within eleven months to five years.
Within one year
Later than one year but not later than 5 years
Later than 5 years
Less: future finance charges
Total lease liabilities
Representing lease liabilities
Current (Note 18)
Non-current (Note 23)
The present value of finance lease liabilities is as follows
Within one year
Later than one year but not later than 5 years
Minimum lease payments
2020
$’000
–
–
–
–
–
–
–
–
–
–
–
2019
$’000
1,136
1,727
2,863
(32)
2,831
1,120
1,711
2,831
1,120
1,711
2,831
From 1 July 2019 finance lease liabilities were reclassified from interest-bearing liabilities to lease liabilities on adoption of the
new lease accounting standard. See Note 1 for further information.
The weighted average interest rate implicit in the contracts in the prior year was 0.58%.
133
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 32 | CONTINGENT LIABILITIES
Sonic Healthcare Limited and certain subsidiaries, as disclosed in Note 30, are parties to a Deed of Cross Guarantee under which
each company guarantees the debts of the others.
The Group has provided guarantees in respect of workers compensation insurance of $7,315,000 (2019: $10,124,000) and for
the performance of certain contracts by subsidiary entities. It is not expected that these guarantees will be called upon.
The Group presently has tax matters, litigation and other claims, for which the timing of resolution and potential economic
outflow are uncertain. Obligations assessed as having probable future economic outflows capable of reliable measurement are
provided at reporting date. Individually significant matters, including narrative on potential future exposures incapable of reliable
measurement have not been disclosed so as to not prejudice the Group.
NOTE 33 | SECURED BORROWINGS
Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements revert to the lessor
in the event of a default. The recognition of lease liabilities is a significant change in the current reporting period. Refer to Note
1 for a summary of the impact of AASB 16 on the financial statements and to Notes 13 and 19 for details of the carrying value of
leased assets and liabilities.
NOTE 34 | REMUNERATION OF AUDITORS
PricewaterhouseCoopers – Australian firm
Audit and review of financial reports of Group entities
Other assurance services
Taxation and other services
Total audit, taxation and other services
Related practices of PricewaterhouseCoopers Australian firm
(including overseas PricewaterhouseCoopers firms)
Audit and review of financial reports of Group entities
Other assurance services
Taxation and other services
Total audit, taxation and other services
Non-PricewaterhouseCoopers audit firms
2020
$
1,490,839
198,400
86,650
1,775,889
791,117
113,805
4,342
909,264
2019
$
1,395,256
–
33,833
1,429,089
749,526
157,484
72,258
979,268
Audit and review of financial reports of Group entities
339,228
281,121
The non-audit services provided are not considered to be of a nature which could give rise to a conflict of interest or loss of
independence for the external auditors.
134
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 35 | SHARE BASED PAYMENTS
The Group has several equity-settled share based compensation plans for executives and employees. The fair value of equity
remuneration granted under the various plans is recognised as an expense with a corresponding increase in equity. The fair
value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to
shares and options (‘the vesting period’). Details of the pricing model and the measurement inputs utilised to determine the fair
value of shares and options granted are disclosed in Note 1(q) to the financial statements.
a) Sonic Healthcare Limited Employee Option Plan
Options are granted under the Sonic Healthcare Limited Employee Option Plan for no consideration. Options granted are able to
be exercised subject to the following vesting periods unless otherwise specified:
¡ Up to 50% may be exercised after 30 months from the date of grant
¡ Up to 75% may be exercised after 42 months from the date of grant
¡ Up to 100% may be exercised after 54 months from the date of grant
Options granted under the plan expire after 58 months (unless otherwise specified) and carry no dividend or voting rights. When
exercisable, each option is convertible into one ordinary share. No option holder has any right under the options to participate in
any other share issue of the Company or of any other entity.
The grants of options on 11 December 2015, 5 December 2019 and 22 May 2020 are subject to different vesting and expiry
periods. For the options granted on 11 December 2015, one third were exercisable after 11 June 2018, two thirds after 11 June
2019 and up to 100% after 11 June 2020, subject to satisfying vesting conditions. For the options granted on 5 December 2019
and 22 May 2020, 100% are exercisable three years after grant date until expiry one year later, subject to vesting conditions.
The following options and performance rights+ were granted under executive Long-Term Incentive (‘LTI’) arrangements and are
also subject to different vesting and expiry periods. Vesting is subject to challenging performance conditions, details of which are
set out in the relevant annual Remuneration Report. The percentage of the options and rights which met the vesting conditions is
shown in the table below.
Grant date
Options
Performance
rights+
Earliest
vesting date^
Performance conditions
measurement period
%
vested
Expiry date
18 November 2011
1,705,263
188,976
18 November 2016
5 years to 30 June 2016
35.0%
18 November 2018
27 November 2014
706,108
100,085
27 November 2017
3 years to 30 June 2017
35.4%
27 November 2019
20 November 2015
766,969
91,988
20 November 2018
3 years to 30 June 2018
46.5%
20 November 2020
17 November 2016
671,089
87,843
17 November 2019
3 years to 30 June 2019
35.4%
17 November 2021
22 November 2017
675,145
87,762
22 November 2020
3 years to 30 June 2020
70.9%
22 November 2022
21 November 2018
667,787
87,560
21 November 2021
3 years to 30 June 2021
19 November 2019
588,894
64,907
19 November 2022
3 years to 30 June 2022
tbd
tbd
21 November 2023
19 November 2024
+ See b) below for details of the Performance Rights Plan
^ Options can only vest when the market price of Sonic shares is higher than the exercise price
135
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Sonic Healthcare ordinary shares to be awarded on exercise/conversion of the options and performance rights may be satisfied
by the issue of new shares or the purchase of shares on-market.
Set out below are summaries of options granted under the Sonic Healthcare Limited Employee Option Plan.
Grant
date
2020
Expiry
date
Exercise
price
Balance
at start of
the year
Granted
during
the year
Forfeited
during
the year
Exercised
during
the year
Expired
during
the year
Balance
at end of
the year
Exercisable
at end of
the year
Balance
at date of
this report
Number
Number
Number
Number
Number
Number
Number
Number
27/11/14
27/11/19
$17.32
30/01/15
30/11/19
$18.84
20/10/15
20/08/20
$18.49
20/11/15
20/11/20
$19.41
250,069
220,500
552,500
356,641
11/12/15
11/10/20
$19.78
1,661,333
17/11/16
17/09/21
$21.62
17/11/16
17/09/21
$22.02
17/11/16
17/11/21
$21.62
05/07/17
05/05/22
$23.34
22/11/17
22/11/22
$21.64
21/11/18
21/11/23
$21.69
800,000
200,000
671,089
970,000
675,145
667,787
14/12/18
14/10/23
$21.83
2,000,000
21/02/19
21/12/23
$24.30
1,000,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(250,069)
(220,500)
(137,500)
–
(427,833)
(84,000)
(45,000)
(433,423)
–
(55,000)
(30,000)
–
–
–
(20,000)
19/11/19
19/11/24
$29.26
05/12/19
05/12/23
$28.58
22/05/20
22/05/24
$27.28
–
–
–
588,894
–
4,346,199
(10,000)
5,170,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
415,000
415,000
356,641
356,641
–
–
–
–
1,233,500
1,233,500
150,000
716,000
516,000
454,000
155,000
105,000
117,500
237,666
237,666
237,666
885,000
432,500
795,000
675,145
667,787
2,000,000
980,000
588,894
4,336,199
5,170,000
–
–
–
–
–
–
–
478,846
667,787
2,000,000
980,000
588,894
4,336,199
5,170,000
Total
10,025,064 10,105,093 (518,423) (1,194,902)
– 18,416,832
3,296,307 15,975,892
Weighted average exercise price
$21.39
$27.95
$22.04
$19.25
–
$25.11
$20.54
136
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Grant date Expiry date
Exercise
price
Balance at
start of the
year
Granted
during the
year
Forfeited
during the
year
Exercised
during the
year
Expired
during the
year
Balance at
end of the
year
Exercisable
at end of
the year
2019
Number
Number
Number
Number
Number
Number
Number
18/11/11
18/11/18
$11.43
18/10/13
18/10/18
$15.43
13/12/13
13/12/18
$15.21
02/07/12
02/17/19
$12.57
27/11/14
27/11/19
$17.32
30/01/15
30/11/19
$18.84
20/10/15
20/08/20
$18.49
20/11/15
20/11/20
$19.41
596,841
125,000
50,000
35,000
250,069
515,000
850,000
766,969
11/12/15
11/10/20
$19.78
1,886,833
17/11/16
17/09/21
$21.62
17/11/16
17/09/21
$22.02
17/11/16
17/11/21
$21.62
800,000
200,000
671,089
05/07/17
05/05/22
$23.34
1,000,000
22/11/17
22/11/22
$21.64
675,145
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21/11/18
21/11/23
$21.69
14/12/18
14/10/23
$21.83
21/02/19
21/12/23
$24.30
–
–
–
667,787
2,000,000
1,000,000
(596,841)
–
(110,000)
(15,000)
–
–
–
–
–
–
–
(50,000)
(35,000)
–
(294,500)
(297,500)
(410,328)
–
–
–
–
–
(30,000)
–
–
–
–
(225,500)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
250,069
250,069
220,500
45,500
552,500
321,250
356,641
356,641
1,661,333
1,034,667
800,000
400,000
200,000
100,000
671,089
970,000
675,145
667,787
2,000,000
1,000,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
8,421,946
3,667,787
(440,328)
(1,609,341)
(15,000) 10,025,064
2,508,127
Weighted average exercise price
$19.72
$22.48
$19.68
$15.68
$15.43
$21.39
$19.68
The weighted average share price at the date of exercise for options exercised in the 2020 year was $28.95 (2019: $25.62).
The weighted average remaining contractual life of share options on issue at the end of the year was 3.0 years (2019: 2.8 years).
Fair value of options granted
The average assessed fair value of options granted during the year ended 30 June 2020 was $2.60 per option (2019: $2.03).
The valuation model inputs for options granted during the years ended 30 June 2020 and 30 June 2019 included:
Grant
date
Expiry
date
Exercise
price
21/11/18
21/11/23
14/12/18
14/10/23
21/02/19
21/12/23
19/11/19
19/11/24
05/12/19
05/12/23
22/05/20
22/05/24
$21.69
$21.83
$24.30
$29.26
$28.58
$27.28
Share price
at time of
grant
Expected life
(years from date
of issue)
Share price volatility
(based on 3 year
historic prices)
Risk
free rate
Dividend
yield
$21.69
$21.83
$24.30
$29.26
$28.58
$27.28
4.0
4.0
4.0
4.0
3.5
3.5
18.5%
17.9%
17.2%
15.9%
15.9%
22.1%
2.2%
2.1%
1.7%
0.7%
0.7%
0.3%
3.5%
4.2%
3.7%
3.3%
3.3%
3.0%
A Monte Carlo simulation was applied to fair value the relative Total Shareholder Return (‘TSR’) performance condition element of
options granted. The model simulated Sonic’s TSR and compared it against the peer group over the vesting periods.
137
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 b) Sonic Healthcare Limited Performance Rights Plan
Performance rights are granted under the Sonic Healthcare Limited Performance Rights Plan for no consideration and carry no
dividend or voting rights. When exercisable, each performance right is convertible into one ordinary share. No rights holder has
any right to participate in any other share issue of the Company or of any other entity.
Grant
date
2020
Expiry
date
Exercise
price
Balance
at start of
the year
Granted
during
the year
Forfeited
during
the year
Exercised
during
the year
Expired
during
the year
Balance
at end of
the year
Exercisable
at end of
the year
Balance
at date of
this report
Number
Number
Number
Number
Number
Number
Number
Number
17/11/16
17/11/21 Nil
22/11/17
22/11/22 Nil
21/11/18
21/11/23 Nil
19/11/19
19/11/24 Nil
16/12/19
02/10/20 Nil
87,843
87,762
87,560
–
–
–
–
–
64,907
2,800
(56,733)
(31,110)
–
–
–
–
–
–
–
(2,800)
Total
263,165
67,707
(56,733)
(33,910)
–
–
–
–
–
–
–
87,762
87,560
64,907
–
240,229
–
–
–
–
–
–
–
62,244
87,560
64,907
–
214,711
Grant
date
2019
Expiry
date
Exercise
price
Balance at
start of the
year
Granted
during the
year
Forfeited
during the
year
Exercised
during the
year
Expired
during the
year
Balance at
end of the
year
Exercisable
at end of
the year
Number
Number
Number
Number
Number
Number
Number
20/11/15
20/11/20 Nil
17/11/16
17/11/21 Nil
22/11/17
22/11/22 Nil
21/11/18
21/11/23 Nil
14/12/18
01/10/19 Nil
91,988
87,843
87,762
–
–
–
–
–
87,560
2,748
(49,213)
(42,775)
–
–
–
–
–
–
–
(2,748)
Total
267,593
90,308
(49,213)
(45,523)
–
–
–
–
–
–
–
87,843
87,762
87,560
–
263,165
–
–
–
–
–
–
The weighted average remaining contractual life of performance rights on issue at the end of the year was 3.3 years (2019:
3.4 years).
Fair value of rights granted
The average assessed fair value of rights granted during the year ended 30 June 2020 was $19.12 per right (2019: $13.33).
The valuation model inputs for performance rights granted during the years ended 30 June 2020 and 30 June 2019 included:
Grant
date
Expiry
date
Exercise
price
Share price
at time of
grant
Expected life
(years from date
of issue)
Share price volatility
(based on 3 year
historic prices)
Risk
free rate
Dividend
yield
21/11/18
21/11/23
14/12/18
01/10/19
19/11/19
19/11/24
16/12/19
02/10/20
Nil
Nil
Nil
Nil
$21.69
$21.83
$29.26
$28.93
3.0
0.2
3.0
0.2
18.5%
17.9%
15.9%
15.8%
2.1%
1.9%
0.7%
0.9%
3.5%
4.2%
3.3%
3.3%
A Monte Carlo simulation was applied to fair value the TSR performance condition element of performance rights granted. The
model simulated Sonic’s TSR and compared it against the peer group over the vesting periods.
138
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 c) Expenses arising from share based payment transactions
Total expenses arising from equity-settled share based payment transactions recognised during the period as part of employee
benefit expense were as follows:
Equity remuneration
2020
$’000
6,330
2019
$’000
3,878
d) Shares issued on the exercise of options/rights up to the date of this report
i)
Sonic Healthcare Limited Employee Option Plan options
A total of 1,194,902 ordinary shares of Sonic were issued during the year ended 30 June 2020 under the Sonic Healthcare
Limited Employee Option Plan. 2,244,641 options have been exercised since that date, but prior to the date of this report,
resulting in the issue of 2,244,641 ordinary shares. The amounts paid on issue of those shares were:
Number of options exercised
Amounts paid (per share)
250,069
552,500
220,500
356,641
1,511,333
346,000
82,500
120,000
3,439,543
$17.32
$18.49
$18.84
$19.41
$19.78
$21.62
$22.02
$23.34
ii)
Sonic Healthcare Limited Performance Rights Plan
A total of 33,910 performance rights were exercised during the year ended 30 June 2020 under the Sonic Healthcare Limited
Performance Rights Plan, satisfied by the issue of 31,110 new ordinary shares and by 2,800 shares purchased on-market. Nil
performance rights have been exercised since 30 June 2020 and up to the date of this report. No amounts were payable on
issue of those shares.
e) Options and rights granted to officers
During the year nil options or rights were issued to the five highest remunerated officers of the Company who are not already
disclosed as key management personnel.
139
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 36 | RELATED PARTIES
a) Parent entities and subsidiaries
Sonic Healthcare Limited is the ultimate Parent Company in the Group comprising the Company and its subsidiaries as detailed
in Note 30.
b) Key management personnel compensation
Details of remuneration of key management personnel and transactions with them have been disclosed in the Remuneration
Report within the Directors’ Report. The aggregate remuneration of the key management personnel is shown below:
Short-term employee benefits
Long-term employee benefits
Post-employment benefits
Share based payments
Total compensation
c) Transactions and outstanding balances with associates
Provision of services to associates
Provision of services from associates
Interest income
Current payables
Current receivables
Loans receivable
2020
$
5,793,577
22,188
162,585
2,555,286
8,533,636
2020
$’000
69,861
3,953
604
17,272
12,998
16,670
2019
$
10,018,589
56,654
165,832
1,009,313
11,250,388
2019
$’000
57,090
4,045
698
8,746
13,214
16,746
140
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 37 | EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
Weighted average number of ordinary shares used as the denominator
Weighted average number of ordinary shares used as the denominator in
calculating basic earnings per share
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share
2020
Cents
111.1
110.6
2020
Shares
2019
Cents
122.5
122.1
2019
Shares
474,827,551
448,784,480
477,161,002
450,309,430
Options and performance rights over ordinary shares are considered to be potential ordinary shares and have been included
in the determination of diluted earnings per share to the extent to which they are dilutive. The options and rights have not been
included in the determination of basic earnings per share.
Details of the options and rights exercised, forfeited and issued in the period between the reporting date and the date of this
report are detailed in Note 35.
Reconciliations of earnings used in calculating earnings per share
Net profit
Net (profit) attributable to minority interests
Earnings used in calculating basic and diluted earnings per share
NOTE 38 | STATEMENT OF CASH FLOWS
a) Cash at bank and on hand
Cash at bank and on hand
Cash balances bear interest rates of between 0.00% – 0.88% (2019: 0.00% – 2.65%).
2020
$’000
541,903
(14,154)
527,749
2020
$’000
1,230,149
2019
$’000
559,069
(9,344)
549,725
2019
$’000
736,646
141
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 b)
Reconciliation of net cash inflow from operating activities to operating profit after income tax
Operating profit after income tax
Add non-cash items
Add/(less) changes in assets and liabilities during the financial year:
(Increase)/decrease in sundry debtors and prepayments
(Increase)/decrease in trade debtors and accrued revenue
(Increase)/decrease in inventories
(Increase)/decrease in deferred tax assets
Increase/(decrease) in trade creditors and accrued expenses
Increase/(decrease) in deferred tax liabilities
Increase/(decrease) in current tax liabilities
Increase/(decrease) in other provisions
Increase/(decrease) in other liabilities
Increase/(decrease) in provision for employee entitlements
2020
$’000
541,903
597,120
(18,154)
(138,498)
(42,846)
(23,783)
346,299
20,632
19,401
12,767
385
45,072
2019
$’000
559,069
231,335
(7,873)
12,190
(12,878)
(8,620)
19,768
17,889
20,602
(2,724)
6,687
11,863
Net cash inflow from operating activities
1,360,298
847,308
c) Non-cash financing and investing activities
The following non-cash financing and investing activities occurred during the year and are not reflected in the Cash Flow
Statement:
¡ Acquisition of right-of-use assets (Note 13)
¡ Options and rights issued to employees for no cash consideration (Note 35)
¡ In the prior year plant and equipment with an aggregate fair value of $330,000 was acquired by means of finance lease
d) Reconciliation of liabilities arising from financing activities
Change in
accounting
standards
(AASB 16)
Cash flows
Acquisition/
(disposal)
Other
non-cash
movements
Foreign
exchange
adjustments
Balance at 30
June 2020
$’000
$’000
$’000
1,164,212
(300,075)
–
–
–
(187)
(435,639)
588,498
$’000
508,119
–
–
–
$’000
$’000
4,167
1,379,254
13
1,037
50,504
1,233,344
670
2,002,246
508,119
55,354
4,615,881
–
–
–
–
–
3,035,599
1,164,212
(147,403)
Balance at
1 July 2019
$’000
2,831
1,211
1,618,479
1,413,078
Lease liabilities
Other loans
Bank loans
USPP notes
Total
142
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 NOTE 39 | FINANCIAL RISK MANAGEMENT
The Group is exposed to the following categories of financial risks as part of its overall capital structure; market risk (including
currency risk and interest rate risk), credit risk and liquidity risk. The Group’s risk management program addresses the
unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group.
The Group has adopted the following philosophies towards financial risk management:
¡ to take a proactive approach in identifying and managing material treasury risks;
¡ not to take speculative derivative positions;
¡ to structure hedging to reflect underlying business objectives; and
¡ to reduce volatility and provide more certainty of earnings.
Financial risk management is carried out by a central treasury department (‘Group Treasury’) which identifies, evaluates and
hedges financial risks to support the Group’s strategic and operational objectives. Group Treasury operates within the parameters
of a Board approved Treasury Policy. The Treasury Policy provides written principles for overall financial risk management as
well as policies covering specific areas, such as liquidity, funding and interest rate risk, foreign exchange risk, credit risk, and
operational treasury risk. One of the key responsibilities of Group Treasury is the management of the Group’s debt facilities.
a) Capital risk management
The Group’s objectives when managing capital are to safeguard the consolidated entity’s ability to continue as a going concern
so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital
structure to reduce the cost of capital.
The capital structure of the Group is proactively managed by issuing new shares by way of institutional placements, shareholder
purchase plans, rights issues, as part consideration for acquisitions, or activation from time to time of the Company’s Dividend
Reinvestment Plan; by utilising the SHEST to buy Sonic’s shares on market; or by varying the amount of dividends paid to
shareholders.
The capital structure of the Group is mainly monitored on the basis of the Net Debt to Earnings Before Interest, Tax, Depreciation
and Amortisation (‘EBITDA’) Ratio, which is also a covenant under Sonic’s senior debt facilities (with a maximum permitted level
of 3.5 times). Other ratios considered are the Gearing Ratio and Interest Cover Ratio, which are also covenants under senior
debt facilities. Each covenant is calculated excluding the impact of AASB 16. Future compliance with these debt covenants is
modelled by reference to a rolling 5 year financial forecast model.
During 2019 and 2020 the Group maintained a Net Debt to EBITDA ratio of between 1.8 to 2.5 times. Short-term spikes are
considered to accommodate significant business acquisitions. The Company’s history demonstrates Net Debt to EBITDA being
conservatively and consistently managed around the middle of a 2 to 3 times range.
The Net Debt to EBITDA ratio is calculated as Net (of cash) Interest Bearing Debt divided by EBITDA. EBITDA is normalised for
acquisitions made during a period, equity remuneration expense (a non-cash item) and for acquisition-related costs which are
expensed under AASB 3 Business Combinations. Net Interest Bearing Debt is adjusted for currency rate fluctuations.
The Gearing Ratio is calculated as Net Interest Bearing Debt divided by Net Interest Bearing Debt plus Equity (per the Balance
Sheet), and must be maintained below 55% under most of the Company’s USPP note agreements. The Gearing Ratio is not a
covenant under the Company’s bank debt facilities and most recent USPP note agreement.
The Group is required to maintain an Interest Cover Ratio greater than 3.25 under the debt facilities, calculated as EBITA divided
by Net Interest Expense. EBITA is normalised for equity remuneration expense and acquisition-related costs.
These three ratios are the only financial undertakings under Sonic’s debt facilities.
143
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 The ratios calculated using the facility definitions, which exclude the impact of AASB 16, at 30 June 2020 and 30 June 2019
were as follows:
Net Debt to EBITDA (times)
Gearing
Interest Cover (times)
b) Market risk
i)
Foreign currency risk
2020
1.81
26.1%
11.49
2019
2.06
29.5%
10.52
Foreign currency risk refers to the risk that the value of a financial commitment, recognised asset or liability will fluctuate due to
changes in foreign currency rates.
Foreign currency risk arising on the translation of the net assets of the Group’s foreign controlled entities, which have a different
functional currency, is managed at the Group level. The Group manages this foreign exchange translation risk by ‘natural’
balance sheet hedges, i.e. having borrowings denominated in the same functional currencies of the foreign controlled entities.
The foreign currency gains or losses arising from this risk are recorded through the foreign currency translation reserve. As
Sonic’s foreign currency earnings grow, interest rates change and debt is repaid, the natural hedge becomes less effective, so
AUD reported earnings do fluctuate. The underlying earnings in foreign currency however are not affected. Capital hedging is
not undertaken given the cash flow implications of ongoing hedging and the long-term nature of investments.
The Group is not significantly exposed to transactional foreign currency risk associated with receipts and payments that are
required to be settled in foreign currencies. These transactions are limited in number; therefore the exposure is typically identified
and managed on a case by case basis, usually by the spot or forward purchase of foreign currencies.
The carrying amount of the Group’s bank loans and USPP notes are denominated in the following currencies:
2020
$’000
161,280
1,336,432
1,342,251
278,117
117,510
3,235,590
2019
$’000
–
1,376,012
1,268,819
279,842
106,884
3,031,557
AUD
USD
EURO
CHF
GBP
144
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Hedge of net investments in foreign operations
Of the total bank loans and USPP notes of $3,235,590,000 (2019: $3,031,557,000), $798,954,000 (2019: $798,431,000) are
denominated in USD and qualify as a hedge of the Group’s net investment in operations in the United States and $278,117,000
(2019: $279,842,000) are denominated in CHF and qualify as a hedge of the Group’s net investment in operations in Switzerland.
In the prior year $1,010,870,000 were denominated in Euro and qualified as a hedge of the Group’s net investment in operations
in Germany and Belgium. Gains or losses on retranslation of these borrowings are transferred to equity to offset any gains or
losses on translation of the net investment in these operations. The ineffectiveness recognised in the Income Statement from net
investment hedges was $nil (2019: $nil).
The remaining bank loans and USPP notes of $2,158,519,000 (2019: $942,414,000) denominated in AUD, USD, EUR and GBP
are in the same functional currencies as Sonic’s operations in Australia, the United States, Germany, Belgium and the United
Kingdom and act as a ‘natural’ balance sheet hedge against foreign currency earnings fluctuations.
Sensitivity analysis
Based on the financial instruments held at 30 June 2020, had the Australian dollar weakened/strengthened by 10% (2019: 10%)
against all relevant currencies, the Group’s post-tax profit would have been $nil higher/$nil lower (2019: $nil higher/$nil lower), as
a result of having minimal exposure to foreign currency denominated financial instruments. Other components of equity would
have been $nil lower/higher (2019: $nil lower/higher).
ii)
Interest rate risk
Sonic Healthcare Limited and certain subsidiaries are party (from time to time) to derivative financial instruments such as interest
rate swaps in the normal course of business in order to hedge exposure to fluctuations in interest rates. Derivatives are exclusively
used for hedging purposes i.e. not as trading or speculative instruments. The Group’s fixed rate borrowings are carried at
amortised cost. They are therefore not subject to interest rate risk as defined in AASB 7.
Interest rate swap contracts – cash flow hedge
The Group’s main interest rate risk arises from bank loans that are subject to variable interest rates (relevant loans totalling 2020:
$1,233,344,000; 2019: $1,618,479,000). It is the Group’s policy to protect against increasing interest rates by maintaining a level
of fixed rate debt instruments such as USPP notes, which represented 62% of total bank loans and USPP notes in 2020 (2019:
47%), and/or by entering into interest rate swap contracts under which it is obliged to receive interest at variable rates and to pay
interest at fixed rates.
The Group’s policy is to ensure exposure to increases in floating interest rates does not impact annual net profit after tax over a 3
year period by more than a specified percentage as defined within the hedging parameters of the Group’s Treasury Policy, and
will not result in a breach of the Interest Cover Ratio covenant under the Group’s debt facilities. Hedging is undertaken as and
when required to ensure exposure to interest rate risk is managed within these parameters.
There were no fixed interest rate swaps in place during the year or at balance sheet date in the current or previous financial year.
There was no ineffective portion of swaps during either the current or previous financial year.
Interest rate swap contracts – fair value hedge
The Group’s strategy is to minimise interest expense and ensure exposure to movements in market interest rates are managed
in line with the Treasury Policy. The Group enters into interest rate swap contracts from time to time under which it is obliged to
receive interest at fixed rates and to pay interest at variable rates. The contracts are settled on a net basis. There were no contracts
of this nature in place during 2020 and 2019.
145
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Interest rate risk exposures
The Group’s exposure to interest rate risk and the effective weighted average interest rate by maturity periods is set out in the
following tables.
30 June 2020
Assets
Cash and deposits
Trade debtors
Accrued revenue
Sundry debtors
Amounts owing from
other entities
Net investment in
finance leases
Investments
Total assets
Liabilities
Trade and other creditors
Amounts owing to vendors
Other liabilities
Lease liabilities
USPP notes
Total liabilities
30 June 2019
Assets
Cash and deposits
Trade debtors
Accrued revenue
Sundry debtors
Amounts owing from
other entities
Investments
Total assets
Liabilities
Fixed interest rate maturities
Notes
1 year or
less
Over 1
year and
less than
2 years
Over 2
years and
less than
3 years
Over 3
years and
less than
4 years
Over 4
years and
less than
5 years
Over 5
years
Non-
interest
bearing
Total
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
270,302
–
–
–
7
7
7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
254,401
524,703
859,231
859,231
154,883
154,883
98,601
98,601
7, 10
1,506
1,163
790
711
567
607
22,130
27,474
7, 10
11
6,936
4,405
2,621
1,753
–
–
–
–
818
–
1,665
–
–
91,754
18,198
91,754
278,744
5,568
3,411
2,464
1,385
2,272 1,481,000 1,774,844
17
22, 26
22, 26
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
983,831
983,831
110,979
110,979
10,179
10,179
19
298,923
240,124
185,874
141,645
104,696
407,992
18, 23
363,161
–
–
–
301,794 1,337,291
– 1,379,254
– 2,002,246
662,084
240,124
185,874
141,645
406,490 1,745,283 1,104,989 4,486,489
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
230,147
–
–
–
7
7
7
–
–
–
–
7, 10
1,294
1,030
11
–
–
231,441
1,030
–
–
–
–
769
–
769
–
–
44
637
–
681
–
–
–
–
365
–
365
–
–
15
72
–
87
–
–
–
–
263
–
263
–
–
15
58
–
73
–
–
–
–
83,984
314,131
770,636
770,636
114,820
114,820
89,507
89,507
661
26,250
30,632
–
88,135
88,135
661 1,173,332 1,407,861
–
–
28
–
835,496
627,311
627,311
131,289
131,289
35,327
35,517
–
2,831
– 1,413,078
835,524
793,927 2,210,026
Trade and other creditors
Amounts owing to vendors
Other liabilities
Lease liabilities
USPP notes
Total liabilities
17
22, 26
22, 23, 26
18, 23
18, 23
–
–
–
1,120
–
–
88
944
221,050
356,532
222,170
357,564
146
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Floating interest rate maturities
Notes
1 year or
less
Over 1
year and
less than
2 years
Over 2
years and
less than
3 years
Over 3
years and
less than
4 years
Over 4
years and
less than
5 years
Over 5
years
Total
Weighted
average
interest
rate
$’000
$’000
$’000
$’000
$’000
$’000
$’000
%
705,446
–
–
10
–
16,520
705,446
16,520
6,200
6,200
–
–
–
23
18
–
821,749
221,565
190,030
1,037
–
–
–
1,037
821,749
221,565
190,030
–
–
–
–
–
–
–
705,446
0.12
1,580
24,300
2.44
1,580
729,746
– 1,233,344
–
1,037
– 1,234,381
1.29
2.00
$’000
$’000
$’000
$’000
$’000
$’000
$’000
%
422,515
10
–
422,515
–
–
–
–
–
16,520
16,520
5,100
5,100
–
–
–
988
988
22,608
445,123
–
422,515
0.52
3.15
2.02
1.12
30 June 2020
Assets
Cash and deposits
Amounts owing from
other entities
Total assets
Liabilities
Bank loans
Amounts owing to vendors
Total liabilities
30 June 2019
Assets
Cash and deposits
Amounts owing from
other entities
Total assets
Liabilities
Bank loans
18, 23
603,834
–
678,155
229,606
106,884
– 1,618,479
Amounts owing to vendors
23
–
1,021
–
–
–
–
1,021
Total liabilities
603,834
1,021
678,155
229,606
106,884
– 1,619,500
Sensitivity analysis
If interest rates in all relevant currencies applied to financial instruments held at 30 June 2020 had changed by -10/+100 basis
points (2019: -50/+100 basis points) for the financial year with all other variables held constant, the Group’s post-tax profit for
the year would have been $201,000/$246,000 lower/lower (2019: $1,614,000/$8,627,000 higher/lower) mainly as a result
of lower/higher interest expense from bank loans. Note that the impact is reduced as Euro and CHF floating interest rates are
currently negative, however Sonic’s bank facilities have a zero base rate floor. Other components of equity would have been
$201,000/$246,000 lower/lower (2019: $1,614,000/$8,627,000 higher/lower) as a result of a decrease/increase in borrowing
costs. The impacts on profit and equity of either change in rates are lower in 2020 due to the zero base rate floor on debt
(whereas cash has no floor).
iii) Other price risk
The Group does not have significant exposure to fluctuations in the fair values or future cash flows of financial instruments
associated with changes in market prices.
147
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 c) Credit risk
The credit risk on financial assets of the Group which have been recognised on the Balance Sheet, other than investment in
shares, is generally the carrying amount, net of any provisions for impairment. Where entities have a right of set-off and intend to
settle on a net basis, this set-off has been reflected in the financial statements in accordance with accounting standards.
The Group does not have any material exposure to any individual customer or counterparty other than certain government or
statutory funded bodies in the countries in which the Group operates. There are no other significant concentrations of credit risk
within the Group.
Receivable balances and ageing analysis are monitored on an ongoing basis. In order to minimise the Group’s exposure to bad
debts, rigorously enforced processes are in place to send reminder notices, demands for repayments and ultimately to refer to
debt collection agencies. Credit limits are imposed and monitored for commercial customers. See Note 7 for further analysis of
credit risk for receivable balances.
The Group has not renegotiated any material collection/repayment terms of any financial assets in the current or previous
financial year.
Credit risk in the treasury context is defined as the risk of sustaining a loss as a result of a counterparty that has accepted a
deposit from the Group and/or entered into a financial transaction with the Group related to the management of treasury related
risks. Group Treasury seeks to only enter into transactions with counterparties who are senior lenders to the Group.
d) Liquidity risk
The Group is exposed to funding and liquidity risks including the risk that in refinancing its debt, the Group may be exposed to
an increased credit spread (the credit spread is the margin that must be paid over the equivalent government or risk free rate or
swap rate) and the risk of not being able to refinance debt obligations or meet other cash outflow obligations at a reasonable cost
when required.
The Group’s strong cash flows and Balance Sheet are a major mitigator of this type of risk, along with the dynamics of the
medical diagnostic services market. The Group seeks to further mitigate these risks by structuring its debt with a spread of
maturities, maintaining excellent relationships with a number of leading Australian and international banks, diversifying funding
sources by accessing the private placement bond market in the USA and the syndicated bank loan market in Europe, and
keeping sufficient committed credit lines available for short- to medium-term needs (balanced against the cost of maintaining
such lines) in accordance with Sonic’s Treasury Policy.
The tables below analyse the Group’s financial liabilities and net-settled derivative financial instruments into relevant maturity
groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the
table are the contractual undiscounted cash flows including interest (other than in the ‘carrying value’ column). The table ignores
the maturities of undrawn credit lines. For interest rate swaps the cash flows are estimated using forward interest rates applicable
at the reporting date.
148
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Contractual maturities of financial liabilities
Notes
1 year
or less
Over 1
year and
less than
2 years
Over 2
years and
less than
5 years
Over
5 years
Total
contractual
cash flows
Carrying
value
$’000
$’000
$’000
$’000
$’000
$’000
30 June 2020
Liabilities
Trade and other creditors
17
983,831
–
–
Amounts owing to vendors
18, 22, 26
Bank loans
USPP notes
Other
23
18, 23
22, 26
18,089
16,113
423,943
1,141
74,934
18,994
833,780
417,306
–
–
–
983,831
112,017
983,831
112,016
1,267,199
1,233,344
42,261
4,519
425,086
1,532,512
2,423,802
2,002,246
4,519
–
10,179
10,179
Lease liabilities
19
329,573
263,538
478,685
472,643
1,544,439
1,379,254
Financial guarantee contracts
7,315
–
–
–
7,315
–
Total liabilities
30 June 2019
Liabilities
1,780,005
1,219,032
1,344,590
2,005,155
6,348,782
5,720,870
$’000
$’000
$’000
$’000
$’000
$’000
Trade and other creditors
17
627,311
Amounts owing to vendors
22, 23, 26
Bank loans
USPP notes
Other
Lease liabilities
Financial guarantee contracts
18, 23
18, 23
22, 23, 26
18, 23
45,035
630,610
271,187
3,275
1,136
10,124
–
7,643
–
–
68,739
10,903
627,311
132,320
627,311
132,310
17,892
1,035,928
–
1,684,430
1,618,479
392,321
1,166
953
–
52,819
7,357
774
–
883,322
1,599,649
1,413,078
23,734
–
–
35,532
2,863
10,124
35,517
2,831
–
Total liabilities
1,588,678
419,975
1,165,617
917,959
4,092,229
3,829,526
The financial guarantee contracts relate to guarantees given by the Group in respect of workers compensation insurance. The
guarantees are the maximum amounts allocated to the earliest period in which the guarantees could be called. The Group does
not expect these payments to eventuate.
There have been no material breaches and no defaults of loans in the current or preceding reporting periods.
e) Net fair value of financial assets and liabilities
The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets and financial liabilities of the
Group approximates their carrying amounts.
The net fair value of other monetary financial assets and financial liabilities is based upon market prices where a market exists or
by discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles.
For non-traded equity investments, the net fair value is determined using valuation techniques (Note 1(j)).
149
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 f) Fair values
The carrying amounts of financial assets and liabilities on the Consolidated Group Balance Sheet approximate their fair values
except for fixed rate long-term borrowings.
Fair value hierarchy
AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value
measurement hierarchy:
i)
ii)
iii)
quoted prices (unadjusted) in active markets for identified assets or liabilities (level 1),
inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices)
or indirectly (derived from prices) (level 2), and
inputs for the asset or liability that are not based on observable market value (unobservable inputs) (level 3).
Level 3 includes amounts owing to vendors which are recognised based on the assessed fair value using the contractual nature
of the terms and conditions of the deferred consideration.
There were no transfers between fair value hierarchies or changes to valuation techniques for recurring fair value measurements
in the period.
NOTE 40 | PARENT COMPANY FINANCIAL INFORMATION
a) Summary financial information
The individual financial statements for the Parent Company show the following aggregate amounts:
2020
$’000
3,642,156
6,997,661
2,612,836
2,658,750
2019
$’000
2,460,486
6,734,384
2,450,677
2,459,386
4,066,750
4,029,225
(82,268)
16,427
338,002
4,338,911
435,959
435,959
(77,577)
16,427
306,923
4,274,998
445,560
445,560
Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders’ equity
Contributed equity
Reserves
Equity remuneration reserve
Share option reserve
Retained earnings
Total equity
Profit for the year
Total comprehensive income
150
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 b) Guarantees entered into by the Parent Company
The Parent Company is a party to the Deed of Cross Guarantee as disclosed in Note 29. No liabilities have been assumed by
the Parent Company in relation to this guarantee as it is expected the parties to the Deed of Cross Guarantee will continue to
generate positive cash flows. The Parent Company has further provided guarantees of $86,097,000 (2019: $80,655,000) in
respect of property leases and workers compensation insurance for subsidiary entities. In addition the Parent Company has
provided guarantees of the performance of certain contracts by subsidiary entities. No liability was recognised by the Parent
Company or the Consolidated Group in relation to these guarantees, as their fair values are immaterial.
c) Contingent liabilities of the Parent Company
The Parent Company had no contingent liabilities as at 30 June 2020 or 30 June 2019 other than as described in (b) above.
d) Contractual commitments for the acquisition of property, plant or equipment
The Parent Company had no contractual commitments of the acquisition of property, plant or equipment as at 30 June 2020.
NOTE 41 | EVENTS OCCURRING AFTER REPORTING DATE
Since the end of the financial year, no matter or circumstance not otherwise dealt with in these financial statements has arisen
that has significantly or may significantly affect the operations of the consolidated entity, the results of those operations or the
state of affairs of the consolidated entity in subsequent financial years.
151
Notes to the Financial StatementsSONIC HEALTHCARE | ANNUAL REPORT 202030 JUNE 2020 Directors’ Declaration
FOR THE YEAR ENDED 30 JUNE 2020
In the Directors’ opinion:
a)
b)
c)
the financial statements and Notes set out on pages 68 to 151 are in accordance with the Corporations Act 2001, including:
i)
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements; and
giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for the financial
year ended on that date; and
ii)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable; and
at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group
identified in Note 30 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of
the Deed of Cross Guarantee described in Note 29.
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
The Directors have been given the declarations by the Managing Director and Finance Director required by section 295A of the
Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Dr C.S. Goldschmidt
Director
C.D. Wilks
Director
Sydney
23 September 2020
152
SONIC HEALTHCARE | ANNUAL REPORT 2020 Independent auditor’s report
To the members of Sonic Healthcare Limited
Independent auditor’s report
Report on the audit of the financial report
To the members of Sonic Healthcare Limited
Our opinion
Report on the audit of the financial report
In our opinion:
Our opinion
The accompanying financial report of Sonic Healthcare Limited (the Company) and its controlled entities
(together the Group) is in accordance with the Corporations Act 2001, including:
In our opinion:
(a) giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial
The accompanying financial report of Sonic Healthcare Limited (the Company) and its controlled entities
(together the Group) is in accordance with the Corporations Act 2001, including:
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
(a) giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial
performance for the year then ended
performance for the year then ended
What we have audited
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
The Group’s financial report comprises:
the consolidated balance sheet as at 30 June 2020
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated balance sheet as at 30 June 2020
the consolidated cash flow statement for the year then ended
the consolidated statement of comprehensive income for the year then ended
the consolidated income statement for the year then ended
the consolidated statement of changes in equity for the year then ended
the notes to the financial statements, which include a summary of significant accounting policies
the consolidated cash flow statement for the year then ended
the directors’ declaration.
the consolidated income statement for the year then ended
the notes to the financial statements, which include a summary of significant accounting policies
the directors’ declaration.
●
What we have audited
●
The Group’s financial report comprises:
●
●
●
●
●
●
●
●
●
●
●
Basis for opinion
●
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial report
Basis for opinion
section of our report.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial report
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
section of our report.
our opinion.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
Independence
our opinion.
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards
Independence
Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the
We are independent of the Group in accordance with the auditor independence requirements of the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards
ethical responsibilities in accordance with the Code.
Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
PricewaterhouseCoopers, ABN 52 780 433 757
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
153
SONIC HEALTHCARE | ANNUAL REPORT 2020 Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion
on the financial report as a whole, taking into account the geographic and management structure of the
Group, its accounting processes and controls and the industry in which it operates.
Materiality
● For the purpose of our audit we used overall Group materiality of $35 million, which represents
approximately 5% of the Group’s profit before tax.
● We applied this threshold, together with qualitative considerations, to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the
financial report as a whole.
● We chose Group profit before tax because, in our view, it is the benchmark against which the performance of
the Group is most commonly measured.
● We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly
acceptable thresholds.
Audit Scope
● Our audit focused on where the Group made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
● The Group comprises entities located globally with the most financially significant operations being located in
Australia, the United States of America (“USA”) and Germany. Other financially significant operations are
located in Switzerland. Accordingly, we structured our audit as follows:
-
The group audit was led by our team from PwC Australia (“group audit team”). The group audit team
conducted an audit of the special purpose financial information of businesses operating in Australia and
the USA used to prepare consolidated financial statements.
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SONIC HEALTHCARE | ANNUAL REPORT 2020
- Under instruction from and on behalf of the group audit team, component auditors in Germany and
Switzerland performed an audit and review of the special purpose financial information for those
locations used to prepare the consolidated financial statements.
● The group audit team had continuous involvement in the work performed by the component auditors, with
each component team being provided with direct written instructions and regular dialogue with the group
audit team throughout the audit. The group audit team also held meetings with local management of each
financially significant operation.
● The group audit team undertook the remaining audit procedures, including over significant financial
statement items controlled at the Group level, the Group consolidation, the audit of the financial report and
remuneration report.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial report for the current period. The key audit matters were addressed in the context of our audit of the
financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. We
communicated the key audit matters to the Audit Committee.
Key audit matter
How our audit addressed the key audit matter
Implementation of new lease accounting
standard (AASB 16)
(Refer to note 1, 13, 19)
The Group adopted a new lease accounting policy
during the year due to the mandatory introduction of
AASB 16 Leases.
The new policy for the recognition and measurement of
leasing arrangements is disclosed within Note 1. The
adoption of the new lease accounting policy was a key
audit matter due to the:
●
●
financial significance of lease liabilities and
right-of-use assets to the consolidated balance
sheet; and
significant judgements required by the Group
in applying the new AASB 16 requirements,
such as determining the appropriate lease
term and the incremental borrowing rate.
Our audit procedures included, amongst others:
● developing an understanding of the Group’s
implementation plan, including relevant key
controls;
●
●
●
●
assessing whether the Group’s new accounting
policies were in accordance with the
requirements of AASB 16 through
consideration of accounting papers prepared
by the Group;
assessing the Group’s assumptions and
judgement applied in determining the lease
term;
assessing the completeness of leasing
arrangements identified with consideration to
the nature of arrangements that exist across
the Group;
for a sample of lease arrangements, we agreed
key inputs used in calculating the Group’s
lease liability and right-of-use asset, to
supporting documentation;
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SONIC HEALTHCARE | ANNUAL REPORT 2020
Key audit matter
How our audit addressed the key audit matter
Estimated recoverable amount of Goodwill
and Brand Names
(Refer to note 1, note 14)
Goodwill and brand names of $6.6 billion are
recognised on the consolidated balance sheet.
Under Australian Accounting Standards, the Group is
required to test these indefinite lived intangible assets
annually for impairment, irrespective of whether there
are indications of impairment. This assessment is
inherently complex and judgemental. It requires
judgement by the Group in forecasting the operational
cash flows of the cash generating units (“CGU”) of the
Group, and determining discount rates and terminal
value growth rates used in the discounted cash flow
models used to assess impairment (the models).
The recoverable amount of goodwill and brand names
was considered a key audit matter given:
●
●
the financial significance of the intangible
assets on the consolidated balance sheet; and
the judgement applied by the Group in
completing the impairment assessments.
●
●
●
engaging PwC debt experts to assess the
appropriateness of the incremental borrowing
rate methodology employed by the Group in
light of the requirements of AASB 16;
testing the mathematical accuracy of the
Group’s lease calculations; and
evaluating the related financial statement
disclosures for consistency with Australian
Accounting Standards requirements.
Assisted by PwC valuation experts in aspects of our
work, our audit procedures included, amongst others:
●
●
●
●
●
assessing that the methodology of the Group’s
value-in-use impairment model is consistent
with the requirements of Australian
Accounting Standards;
assessing the identification of the CGU’s for
the purposes of impairment testing and
attribution of net assets, revenues and costs to
those CGU’s.
assessing the reasonableness of cash flow
forecasts included in the models with
reference to Board reviewed forecasts,
historical performance and available market
data where possible;
testing the mathematical accuracy of
calculations within the model;
assessing the terminal value growth rates and
discount rates applied in the models by
comparing them to external information
sources;
● performing sensitivity analyses over the key
assumptions used in the models; and
●
evaluating the related financial statement
disclosures for consistency with Australian
Accounting Standards requirements.
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SONIC HEALTHCARE | ANNUAL REPORT 2020
Key audit matter
How our audit addressed the key audit matter
Income tax
(Refer to note 1, 6, 15, 20, 24)
Assisted by PwC taxation experts in aspects of our
work, our audit procedures included, amongst others:
Income tax was a key audit matter because the Group is
subject to taxation in multiple jurisdictions and, in
many cases, the final tax treatment is not certain until
resolved with the relevant tax authority. Consequently,
the determination of the income tax provision requires
judgement by the Group related to the determination
of temporary and permanent differences.
●
●
●
assessing the appropriateness of the Group’s
income tax provision;
assessing the likelihood of additional tax
exposures occurring based on our
understanding of the Group and relevant tax
laws; and
evaluating the related financial statement
disclosures for consistency with Australian
Accounting Standards requirements.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report for the year ended 30 June 2020, but does not include the financial report
and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
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SONIC HEALTHCARE | ANNUAL REPORT 2020
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing
and Assurance Standards Board website at:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our
auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 31 to 52 of the directors’ report for the year
ended 30 June 2020.
In our opinion, the remuneration report of Sonic Healthcare Limited for the year ended 30 June 2020
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the remuneration
report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the remuneration report, based on our audit conducted in accordance with Australian
Auditing Standards.
PricewaterhouseCoopers
Brett Entwistle
Partner
Sydney
23 September 2020
158
SONIC HEALTHCARE | ANNUAL REPORT 2020 Shareholders’ Information
1. INFORMATION RELATING TO SHAREHOLDERS
a) Distribution schedule as at 11 September 2020
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Voting rights
– on a show of hands
– on a poll
Percentage of total shares held by the twenty largest registered holders
Number of holders holding less than a marketable parcel
No. of holders
ordinary shares
49,772
26,359
2,138
938
90
79,297
1/member
1/share
72.17%
702
b)
Substantial shareholders as at 11 September 2020
The Company has received substantial shareholding notices to 11 September 2020 in respect of the following holdings:
BlackRock Group (including 2,224,695 American Depositary Receipts)
The members of the Veritas Group
No. of securities
Percentage held
38,709,344
30,408,242
8.11%
6.37%
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SONIC HEALTHCARE | ANNUAL REPORT 2020
Shareholders’ Information
1. INFORMATION RELATING TO SHAREHOLDERS
c) Names of the 20 largest registered holders of equity securities as at 11 September 2020
No. of securities
Percentage held
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
Jardvan Pty Ltd
National Nominees Limited
BNP Paribas Nominees Pty Ltd
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