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Healius: Result 2025
Missing cash and paltry margins, but the growth case remains intact.
By Graham Witcomb22 Aug 2025
Healius Limited - HLS
BUY
below 0.85
HOLD
up to 1.80
SELL
above 1.80
BUY at $0.70
Current price
$0.83 at 16:35 (22 August 2025)
Price at review
$0.70 at (22 August 2025)
Max Portfolio Weighting
3%
Business Risk
Very High
Share Price Risk
Very High
All Prices are in AUD ($)
Of all the numbers in Healius's result, the share price isn't one we're worried about. If anything, yesterday's 12% fall could be an opportunity. What does deserve attention, however, is something far more fundamental: a case of missing cash.
We had expected Healius to end the year with somewhere between $100m and $150m of cash after repaying its debts (see Healius: A shot at redemption). The actual figure came in well below that at just $57m, and it's worth taking a moment to understand why. Key Points
After digging through the footnotes, the main reason appears to be how Healius pays its landlords.
A bit of background: earlier this year, Healius sold its Lumus imaging division for $795m, after expenses. It was a fantastic result (see Healius: Debt free, finally).
We expected lease payments to drop after the Lumus sale, but they didn't. In 2024, Healius paid $267m in rent. This year, rents were up slightly at $270m, despite Lumus leaving the books months ago. Before the sale, Healius had $1.2bn of committed lease liabilities on its balance sheet; $267m of them were scooped off with Lumus, suggesting it accounted for around 20% of the total.
So, why is rent so high and cash so low? Because even though Lumus is now off Healius's balance sheet, the cash outflows haven't caught up. Under a transition services agreement, Healius continued making payments for many of Lumus's leases through most of the year. That agreement won't fully expire until the end of the 2026 financial year.
While the contracted lease liabilities have already fallen off the balance sheet, the actual cash savings are lagging behind. They'll only show up in next year's accounts, so—combined with a dip in earnings (see below)—2025's free cash flow was a painful $75m shortfall, chewing into our imagined net cash position.
Lease cash payments should drop by around 20% next year, but with a much smaller starting cash buffer than expected, Healius's operating result matters more than ever. Let's get to it. Operations
At first glance, the year to June was a disaster. Healius wrote off $495m of goodwill from the value of its pathology operations, almost the company's entire market capitalisation.
The important thing to remember about impairment charges is that they're an accounting convention, not cash flow. Healius didn't 'lose' $495m this year; the charge essentially reflects an overpayment for acquisitions in previous years, including the goodwill associated with purchases as far back as Symbion in 2007. The cash left the bank nearly 20 years ago.
When determining whether an impairment is necessary, management compares the carrying value of its assets against expected future cash flows, the company's market cap, and valuation multiples, among other things. During the investor briefing, chief executive Paul Anderson made it clear that, in this case, 'it doesn't relate to the cash flows we expect to have in terms of our 2027 ambitions and high-single-digit margins'. In other words, management still expects the pathology division to generate healthy profits and hit its long-term targets.
Healius's pathology revenue rose 6% to $1.3bn compared to last year, driven by a 3% lift in volumes and a 2% improvement in average fees. This was in line with the 6% organic growth Sonic Healthcare reported for its Australian division, suggesting stable market shares (see Sonic Healthcare: Result 2025).
It was disappointing to see volume growth slow in the second half of the year to just 2%, but revenue still rose 5%, suggesting a shift towards higher-value tests. The momentum seems to be in niche segments, such as genomics (revenue up 25% in July) and clinical trials (up 20%). Sonic reported a similar experience, and a shift in the volume mix to higher-value tests is a tailwind for margins. Management said overall volume growth picked up in July and August.
Healius's profitability is still in the dump, with underlying EBIT (earnings before interest and tax) falling from $24m to $17m, a meagre 1.3% margin compared to Sonic's 9%. We weren't expecting miracles this early in the turnaround and it's worth noting that EBIT would be 20% higher were it not for Cyclone Alfred causing a week of clinic and lab closures in Queensland.
Still, labour costs are chewing through half of revenue, which is far too much. On top of that, Healius is running 2,000 collection centres, many of which are underused. The company is paying a lot in rent for little return; each centre generates about a third less revenue than a typical Sonic collection point.
Nonetheless, Healius is operating at break-even, and with cost cuts just starting to flow through, profitability should only improve from here. As we explained in our recent upgrade, management has a viable plan to get to a 4-5% operating margin, or roughly $60m of EBIT.
The balance sheet is in better shape than ever, with no debt and $57m of net cash. That's less than we had hoped, but with a $300m untapped debt facility on the side, the company has the financial resources to make it through the next couple of years until the cost-cutting program improves margins.
Management hasn't changed its assumptions and is targeting the same recovery in profit it laid out a few months ago. We expect revenue to grow modestly from $1.3bn to over $1.4bn within a few years, and net profit of $45m is within reach. With the stock trading at 70 cents, or a $500m market cap, the forward price-to-earnings ratio may be just 11.
The current result doesn't change our investment case or valuation. A lack of cash flow and a slowdown in second-half volumes appear to have spooked investors, but if management can deliver even modest improvements, investors are unlikely to stay asleep for long. With a clean balance sheet, a 30% market share, and significant turnaround potential, the company is ripe for a takeover. We're sticking with BUY, for up to 3% of your portfolio.
IMPORTANT: Intelligent Investor is published by InvestSMART Financial Services Pty Limited AFSL 226435 (Licensee). Information is general financial product advice. You should consider your own personal objectives, financial situation and needs before making any investment decision and review the Product Disclosure Statement. InvestSMART Funds Management Limited (RE) is the responsible entity of various managed investment schemes and is a related party of the Licensee. The RE may own, buy or sell the shares suggested in this article simultaneous with, or following the release of this article. Any such transaction could affect the price of the share. All indications of performance returns are historical and cannot be relied upon as an indicator for future performance.
Missing cash and paltry margins, but the growth case remains intact.
By Graham Witcomb22 Aug 2025
Healius Limited - HLS
BUY
below 0.85
HOLD
up to 1.80
SELL
above 1.80
BUY at $0.70
Current price
$0.83 at 16:35 (22 August 2025)
Price at review
$0.70 at (22 August 2025)
Max Portfolio Weighting
3%
Business Risk
Very High
Share Price Risk
Very High
All Prices are in AUD ($)
Of all the numbers in Healius's result, the share price isn't one we're worried about. If anything, yesterday's 12% fall could be an opportunity. What does deserve attention, however, is something far more fundamental: a case of missing cash.
We had expected Healius to end the year with somewhere between $100m and $150m of cash after repaying its debts (see Healius: A shot at redemption). The actual figure came in well below that at just $57m, and it's worth taking a moment to understand why. Key Points
- Cash flow lagging Lumus sale
- Cyclone hit volumes in 2H
- Medium-term outlook unchanged
After digging through the footnotes, the main reason appears to be how Healius pays its landlords.
A bit of background: earlier this year, Healius sold its Lumus imaging division for $795m, after expenses. It was a fantastic result (see Healius: Debt free, finally).
We expected lease payments to drop after the Lumus sale, but they didn't. In 2024, Healius paid $267m in rent. This year, rents were up slightly at $270m, despite Lumus leaving the books months ago. Before the sale, Healius had $1.2bn of committed lease liabilities on its balance sheet; $267m of them were scooped off with Lumus, suggesting it accounted for around 20% of the total.
So, why is rent so high and cash so low? Because even though Lumus is now off Healius's balance sheet, the cash outflows haven't caught up. Under a transition services agreement, Healius continued making payments for many of Lumus's leases through most of the year. That agreement won't fully expire until the end of the 2026 financial year.
While the contracted lease liabilities have already fallen off the balance sheet, the actual cash savings are lagging behind. They'll only show up in next year's accounts, so—combined with a dip in earnings (see below)—2025's free cash flow was a painful $75m shortfall, chewing into our imagined net cash position.
Lease cash payments should drop by around 20% next year, but with a much smaller starting cash buffer than expected, Healius's operating result matters more than ever. Let's get to it. Operations
At first glance, the year to June was a disaster. Healius wrote off $495m of goodwill from the value of its pathology operations, almost the company's entire market capitalisation.
The important thing to remember about impairment charges is that they're an accounting convention, not cash flow. Healius didn't 'lose' $495m this year; the charge essentially reflects an overpayment for acquisitions in previous years, including the goodwill associated with purchases as far back as Symbion in 2007. The cash left the bank nearly 20 years ago.
When determining whether an impairment is necessary, management compares the carrying value of its assets against expected future cash flows, the company's market cap, and valuation multiples, among other things. During the investor briefing, chief executive Paul Anderson made it clear that, in this case, 'it doesn't relate to the cash flows we expect to have in terms of our 2027 ambitions and high-single-digit margins'. In other words, management still expects the pathology division to generate healthy profits and hit its long-term targets.
Healius's pathology revenue rose 6% to $1.3bn compared to last year, driven by a 3% lift in volumes and a 2% improvement in average fees. This was in line with the 6% organic growth Sonic Healthcare reported for its Australian division, suggesting stable market shares (see Sonic Healthcare: Result 2025).
It was disappointing to see volume growth slow in the second half of the year to just 2%, but revenue still rose 5%, suggesting a shift towards higher-value tests. The momentum seems to be in niche segments, such as genomics (revenue up 25% in July) and clinical trials (up 20%). Sonic reported a similar experience, and a shift in the volume mix to higher-value tests is a tailwind for margins. Management said overall volume growth picked up in July and August.
| Revenue ($m) | 1,344 | 1,272 | 6 |
| EBITDA ($m) | 239 | 249 | (4) |
| Un'lying EBIT ($m) | 17.1 | 23.5 | (27) |
| Un'lying path. margin (%) | 2.4 | 2.7 | (30bp) |
| Goodwill write-off ($m) | 495 | 603 | na |
| Net cash/(debt) | 57 | (360) | na |
Still, labour costs are chewing through half of revenue, which is far too much. On top of that, Healius is running 2,000 collection centres, many of which are underused. The company is paying a lot in rent for little return; each centre generates about a third less revenue than a typical Sonic collection point.
Nonetheless, Healius is operating at break-even, and with cost cuts just starting to flow through, profitability should only improve from here. As we explained in our recent upgrade, management has a viable plan to get to a 4-5% operating margin, or roughly $60m of EBIT.
The balance sheet is in better shape than ever, with no debt and $57m of net cash. That's less than we had hoped, but with a $300m untapped debt facility on the side, the company has the financial resources to make it through the next couple of years until the cost-cutting program improves margins.
Management hasn't changed its assumptions and is targeting the same recovery in profit it laid out a few months ago. We expect revenue to grow modestly from $1.3bn to over $1.4bn within a few years, and net profit of $45m is within reach. With the stock trading at 70 cents, or a $500m market cap, the forward price-to-earnings ratio may be just 11.
The current result doesn't change our investment case or valuation. A lack of cash flow and a slowdown in second-half volumes appear to have spooked investors, but if management can deliver even modest improvements, investors are unlikely to stay asleep for long. With a clean balance sheet, a 30% market share, and significant turnaround potential, the company is ripe for a takeover. We're sticking with BUY, for up to 3% of your portfolio.
IMPORTANT: Intelligent Investor is published by InvestSMART Financial Services Pty Limited AFSL 226435 (Licensee). Information is general financial product advice. You should consider your own personal objectives, financial situation and needs before making any investment decision and review the Product Disclosure Statement. InvestSMART Funds Management Limited (RE) is the responsible entity of various managed investment schemes and is a related party of the Licensee. The RE may own, buy or sell the shares suggested in this article simultaneous with, or following the release of this article. Any such transaction could affect the price of the share. All indications of performance returns are historical and cannot be relied upon as an indicator for future performance.
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