By Michael Smith
Although he runs a $12-billion ASX-listed company, investors do not know a lot about Sonic Healthcare’s new chief executive, Jim Newcombe.
Like his predecessor, Colin Goldschmidt, who grew the company from a single laboratory in Sydney into the world’s third-largest pathology player, Newcombe is a doctor who rose to the top of the management ranks.
Sydney-based Newcombe worked as a paediatrician, trained in clinical microbiology and worked as an infectious disease physician before joining Sonic eight years ago to run its Douglass Hanly Moir Pathology business in Sydney. Earnings and margins soared on his watch.
But Sonic’s investors, frustrated by years of Goldschmidt keeping them at arm’s length, are demanding better access to Newcombe.
There was less pressure when Goldschmidt was making them a fortune as his Australian pathology roll-up strategy sent the company’s share price soaring. He then moved offshore, buying pathology and radiology assets in Europe and the United States.
But like biotech CSL, the gloss has come off Sonic in the past two years as pathology growth slows.
The company’s shares have fallen 50 per cent from their peak in late 2021 and now trade around $23, valuing the company at $11 billion.
The stock is down 20 per cent since the company reported lower-than-expected full-year earnings.
Goldschmidt gave no indication to investors in August that he planned to step down, but then abruptly announced his departure a month later. Some asked why he did not stay on as a board member.
Newcombe, who is described as reserved, a quiet intellectual and a good listener, has big shoes to fill as he replaces Goldschmidt. Like his predecessor, he does not give media interviews.
In the weeks leading up to the leadership transition, he travelled with Goldschmidt to visit the company’s businesses in Europe and the US, including meeting members of the wealthy Kramer and Risch families in Germany and Switzerland, who are now invested in the company through its acquisitions.
During his second week in the job in late November, Newcombe met with key institutional shareholders. He was tight-lipped about his strategy, but some investors were heartened that he appeared willing to listen to their concerns.
“The clear message we gave him is that the returns of the business are too low, given the strong market positions they have in nearly every company they operate in. It needs to be fixed,” said Investors Mutual portfolio manager Daniel Moore.
Moore and other shareholders want Newcombe to get on top of two things.
The first is realising the cost synergies from the company’s recent acquisitions, particularly in Switzerland. Last year, the company also agreed to buy one of Germany’s biggest medical laboratory groups for $700 million.
The second task is reviewing the company’s huge US business, where returns are poor. Some investors want Newcombe to consider selling the business to one of its big competitors, potentially returning billions of dollars to shareholders and building a war chest for acquisitions in markets where it is stronger.
“They have been in the US over 20 years. They have spent over $2.5 billion building a business there, and it has been a drag on their organic growth for quite a long time,” said Moore.
“The reality is, it is the only division where they are the clear No. 3. In every other region they are No. 1.”
Sonic competes in the US with giants Quest Diagnostics and LabCorp.
“Even though the returns are poor, if they were to sell it, they would get a very good price from either Quest or LabCorp because the synergies would be significant,” said Moore.
Other shareholders were also open to the idea.
“With any new CEO, there is an opportunity to revisit every region they operate,” said Anna Milne, a deputy portfolio manager at Wilson Asset Management.
“The US has likely been the largest underperformer, so that does naturally beg the question: should they be there longer term?”
Sonic has been trimming and adjusting its US business, with losses in Alabama and acquisitions, such as Cairo Diagnostics, this year expanding its haematology oncology testing business.
With the US a core business accounting for more than 20 per cent of revenue, Newcombe may not be willing to sell.
While he is not too well known to investors at this stage, Newcombe has led one of Sonic’s largest labs globally, Douglass Hanly Moir, for some time.
Shareholders such as Milne like that he has indicated he would continue to drive a culture of medical leadership in the company. (Goldschmidt’s gripe was that many non-doctor healthcare chief executives did not understand their businesses properly.)
At the company’s annual meeting in November, Newcombe said he was focused on targeted acquisitions and increasing earnings per share and return on invested capital.
He also owns a stake in the company, with share options exercisable between $24 and $32.
“Winning market trust will require clear communication and consistent delivery on the promised synergies and earnings uplift from the European acquisitions,” said Milne.
Disclosure also topped investors’ wish lists.
“What I’m looking for is a bit more transparency,” said Jun Bei Liu, founder and fund manager at Ten Cap, which owns Sonic shares.
“The company run it like a private business, the communication is often not very clear.
“It’s been a growth company for many years, but more recently this has been more challenging. As such a large company listed on the ASX, you need to be more transparent.”
She also questioned the nature of Goldschmidt’s abrupt departure after 32 years. There was no talk of retiring when asked about it at the full-year results in August.
“I always felt Sonic was Colin’s baby. I thought he would never leave. It felt like there was a bit of an unhappy ending,” she said.
While Sonic has lost some of its former glory, there is little criticism about Goldschmidt’s achievements.
The company is unrecognisable from the one he joined in 1993 when it was a minnow with $33 million in revenues and $17 million in assets.
In fiscal 2025, the company posted $9.6 billion in revenue and its assets were worth $16 billion.
Goldschmidt was the longest-serving chief executive on the ASX50.
“There is no doubt over 30-plus years he has built a great platform,” said Moore. “Dominant market positions in Australia, Germany, Switzerland and the US. If you had to give him a black mark, it would be the US.”
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