Integral Diagnostics turns merger scale into stronger margins, cash flow and dividends
Integral Diagnostics has delivered the sort of full-year result investors wanted to see after the Capitol Health combination - strong revenue growth, a meaningful lift in margins, improving leverage and, perhaps most importantly, evidence that promised merger synergies are actually finding their way into the numbers.
Revenue and other income rose 25.6% to $788.7 million for FY26, while operating EBITDA increased 30.3% to $164.8 million. The faster growth in earnings pushed the operating EBITDA margin up 80 basis points to 20.9%, broadly confirming that greater scale is starting to produce operating leverage rather than merely adding revenue.
Operating NPAT jumped 50.1% to $47.4 million, while operating diluted earnings per share increased a more modest 23.6% to 12.6 cents. The gap is worth noting. The earnings result benefited from a bigger business, but shareholders also carried a full year's weighting of the enlarged share base following the Capitol transaction.
Statutory NPAT came in at $22.0 million, well below the operating number. The difference largely reflected $25.4 million of transaction and integration costs, restructuring expenses, remeasurement of contingent consideration liabilities and share-based expenses associated with transaction and integration activity, net of tax. For investors assessing the underlying business, the operating result provides the cleaner view - but the statutory figure is also a reminder that mergers rarely arrive without a sizeable bill attached.
The synergy number has moved in the right direction
One of the strongest features of the result is the progress on Capitol Health integration.
Integral Diagnostics says the merger integration is now largely complete and annual ongoing synergies have reached more than $14 million. That is comfortably ahead of the "at least $10 million" expected when the merger was struck.
Procurement savings have exceeded initial expectations, while Capitol radiologists have expanded the scale of the group's teleradiology platform. Management has also refined the organisational structure as it shifts attention from integration towards running the larger network more efficiently.
Chief executive Jason Martinez said the company had delivered "solid revenue growth, improved margins and disciplined execution", while pointing to higher shareholder returns, stronger free cash flow and lower leverage.
The next challenge is extracting further productivity benefits after the easiest merger gains have been captured. Synergy targets are useful during integration, but eventually investors want to see a business capable of expanding margins through normal operations.
Organic growth tells a more nuanced story
Underlying demand remains healthy, although not every part of the Australian operation is growing at the same speed.
Organic Australian revenue increased 7.4% on the company's adjusted basis, compared with Medicare growth of 9.4%. Legacy Integral Diagnostics operations grew 8.9%, supported by MRI deregulation and the National Lung Cancer Screening Program, while the former Capitol business grew 5.4%, reflecting softer GP attendances and referrals.
Average Australian fees per examination increased 6.5%, helped by Medicare indexation and a continuing shift towards higher-value CT, MRI and PET modalities. That mix benefit matters because diagnostic imaging economics are driven not simply by patient numbers, but by what kinds of scans are being performed.
New Zealand organic revenue increased 2.1% on a constant-currency basis after adjustment for a closed site.
The investment question is therefore shifting from whether imaging demand is growing to whether Integral Diagnostics can capture enough of that growth while improving the revenue mix and keeping costs contained.
Cash conversion gives the earnings result some muscle
Operating free cash flow rose 30.7% to $106.4 million, with cash conversion before replacement capital expenditure of 82.0%.
That cash generation is important because the business still carries significant debt. Net debt was broadly unchanged at $298.9 million, but leverage fell from 2.6 times to 2.3 times EBITDA as earnings expanded. This puts the group within its targeted 2.0 to 2.5 times range.
The cost of debt also eased, with the weighted average interest rate on the core facility falling to 5.36% from 6.24%. The company had $51.3 million of cash at year-end and $117 million of undrawn committed facilities, subject to covenant compliance.
Capital expenditure totalled $49.8 million, including $21 million directed towards growth initiatives such as brownfield and greenfield sites. FY27 replacement and growth capex is expected to rise to between $50 million and $60 million, meaning continued cash generation will be needed if management wants to expand while simultaneously reducing leverage.
Bigger dividend, but FY27 execution becomes the new yardstick
Shareholders will receive a fully franked final dividend of 6.0 cents per share, 50% higher than the previous corresponding period. Total fully franked dividends for FY26 amount to 9.3 cents per share, compared with 6.5 cents previously.
The stronger distribution reflects improving earnings and cash flow, but management is not declaring victory. FY27 priorities include sustainable revenue growth, greater productivity and capacity, improved patient access, further de-gearing and an EBITDA margin above 21.0%.
That last target is particularly relevant. FY26 ended at 20.9%, so the hurdle is hardly heroic, but maintaining margin momentum after a year boosted by merger synergies will provide a cleaner test of the underlying operating model.
Integral Diagnostics has largely done what it promised for FY26: integrate Capitol, beat the original synergy target, improve margins, lift cash flow and bring leverage down. The next phase is less about putting two businesses together and more about proving the enlarged group can compound those benefits without relying on another deal to keep the numbers moving.