Sonic Healthcare : Full Year Statutory Accounts

ABN 24 004 196 909

Corporate Directory 1

Chairman's Letter 2

CEO Report 3

Financial History 4

Directors' Report 5

Corporate Governance Statement 35

Financial Report 46

Directors' Declaration 112

Independent Auditor's Report to the Members 113

Shareholders' Information 118

Corporate Responsibility Report 2017 - Please refer to the Sonic Healthcare website at: http://investors.sonichealthcare.com/corporate-responsibility/?page=corporate-responsibility

New South Wales, 2113, Australia. Ph: 61 2 9855 5444

Fax: 61 2 9878 5066

Website: www.sonichealthcare.com

South Australia, 5000, Australia.

Website: www.computershare.com

Email: www.investorcentre.com/contact

Citibank Commerzbank

Commonwealth Bank of Australia Crédit Industriel et Commercial DNB Asia

HSBC

JPMorgan Chase Bank Mizuho Corporate Bank National Australia Bank

The Bank of Tokyo-Mitsubishi UFJ Westpac Banking Corporation

Dear Fellow Shareholders,

On behalf of the Board of Sonic Healthcare, I am delighted to present to you the company's 2017 Annual Report.

This year Sonic celebrates its 30th year as an Australian Securities Exchange (ASX) listed company. Over that time Sonic became an ASX Top 50 company, and has been one of the best performing stocks on the ASX, with a total shareholder return of over 15,000%. Sonic acquired its first laboratory practice in 1987, Sydney based Douglass Hanly Moir Pathology (then known as Douglass Laboratories). It would have been hard to imagine in 1987 that in 2017 Sonic would provide medical services to over 108 million patients, and would be a critical part of the healthcare infrastructure of eight countries. However, the company's unwavering commitment to provide exceptional patient care and outstanding service to doctors would have been evident even at that early time.

Sonic reported a net profit for the 2017 financial year of A$428 million, on revenues of A$5,122 million. Strong underlying organic revenue growth and margin improvements in the Laboratory and Imaging divisions were further enhanced by synergistic business acquisitions and the formation of joint ventures during the year, which will be further accretive in 2018 and beyond.

Despite some currency translation headwinds impacting statutory profit in 2017, the Board determined to reward shareholders with a 4.1% increase in total dividends per share for the year, continuing our progressive dividend policy.

Sonic's 30 year anniversary brings to mind one of the many positive features of our company, being its ability to retain and develop dedicated and highly experienced senior staff, fostered by the binding effect of our unique corporate culture of Medical Leadership. This is perhaps best demonstrated by the many pathologists, radiologists, managers and scientific staff around the group who have sold their practices to Sonic in the past, but who have been enthusiastic to continue to work within Sonic, in some cases for more than two decades afterwards. Sonic's strong, positive and highly professional culture, centred on Medical Leadership, has continued to motivate them and made them very much part of the global Sonic family.

I would like to recommend that all shareholders take time to read Sonic's 2017 Corporate Responsibility Report, which you can find on our website. The environmental, social and governance activities described in the report are key elements of Sonic, and I believe that Sonic shareholders can be very proud of their company and its efforts in these areas. The report highlights our contributions to education, the steps we take to minimise our environmental impact, and our support for local communities. It also describes our support for communities in developing countries through our Catalyst Program, which involves using our medical expertise and resources to directly address the dire medical needs in some of the most disadvantaged regions in the world. Sonic's standing as a socially responsible company continues to be evidenced by our ongoing inclusion (since March 2008) in the FTSE4Good Index Series. To be included in the Series, Sonic has been independently assessed to have met stringent environmental, social and governance criteria.

Looking towards 2018 and beyond, Sonic expects ongoing strong organic revenue and earnings growth, bolstered by further acquisitions, joint ventures and contract opportunities. We have the talent, market positions, reputation and financial strength to capitalise on growth opportunities as they arise, whilst always looking to enhance our existing businesses, all focused on generating returns to shareholders through excellent service to our doctors, other clients and those for whom they care.

I wish to thank our talented management teams and all of Sonic's 33,000 plus hardworking fantastic staff for making the company what it is today, and I also thank you, our shareholders, for continuing to support us on the incredible journey that is Sonic Healthcare.

Chairman

Sonic's results for the 2017 financial year demonstrated again the stability and strength of the company, its culture, and its people.

Underlying revenue, EBITDA and Net Profit growth for 2017 were 5.8%, 5.3% and 4.4% respectively. Operating cash flow grew 4.0%, with 103% conversion of EBITDA to gross (pre-interest and pre-tax) operating cash flow. 2017 statutory results were impacted by foreign currency headwinds of ~4%. Comparisons of the statutory results to the prior year were also impacted by non-recurring items, the most significant of which was a gain of A$34.8 million (pre and post-tax) on the sale and leaseback of properties in 2016.

Perhaps the most pleasing aspects of the results were the improvement in margins in both our Laboratory and Imaging divisions, and in particular, the return to earnings growth and margin enhancement in our Australian laboratory business, which had been impacted by abnormal cost growth due to industry issues for several years. Our strategies to manage these costs are now in full effect and we are confident of ongoing earnings growth.

On an underlying constant currency basis, the Laboratory division revenue grew 6% (~4% organic growth) and EBITDA rose 8% with 25 basis points of margin accretion. Imaging division revenue grew 5% (~4% organic), with EBITDA climbing 7% with 30 basis points of margin accretion.

Our German and Swiss laboratory businesses once again performed exceptionally, with strong organic revenue growth and focussed cost control. The acquisitions we completed in the year, including Staber in Germany and West Pacific Medical in the USA, have performed to expectation and integration projects are well advanced. Since year end we have also welcomed Medical Laboratory Bremen into the Sonic family, and our pipeline of further acquisition prospects remains robust.

Sonic's strategy to partner with hospital networks in the USA to provide laboratory services is proving highly successful, with our joint ventures with Western Connecticut Health Network and Baptist Memorial Health Care underway since April and running smoothly, and with the recent signing of agreements with the New York University hospital system (NYU Langone Health) as partner to offer enhanced outreach laboratory services for NYU's more than 2,000 affiliated physicians and healthcare providers. We also have a strong pipeline of additional opportunities in prospect, as Sonic's reputation as a medically led, high quality, flexible partner spreads through the hospital systems in the USA.

Sonic's reputation has been further enhanced by our recent selection as the pathology partner for the Australian Government's National Bowel Cancer Screening Program. This appointment reflects our commitment to quality pathology and our deep experience in cancer prevention, testing and diagnosis. We look forward to partnering with the Australian Government in helping to deliver and enhance this important community health program.

Sonic Healthcare is in a prime position to continue our strategy of leading the consolidation of fragmented international laboratory markets and capitalising on attractive healthcare dynamics, underpinned by our:

• Medical Leadership culture, which unifies the company, augments our services and provides competitive advantage;

• Strong market positions, including market leadership in four major Western countries; and

• Stable, experienced and passionate global management teams.

I express my sincere thanks to Sonic's entire global team of over 33,000 people, for their support of Sonic's culture and goals, and their expertise and passion to offer the best possible healthcare services to our patients and medical colleagues.

CEO and Managing Director