The Fund’s largest detractor from performance for the quarter was Healius (ASX:HLS, Financial), which operates numerous medical centers, pathology laboratories and diagnostic imaging centers in Australia. At the company’s annual general meeting this quarter, management announced lower than anticipated fiscal year 2020 guidance, which caused the stock price to drop. However, after we spoke with CEO Dr. Malcolm Parmenter, we concluded that Healius’s guidance was overly conservative. We believe the company’s pathology and imaging divisions, which account for over 75% of its earnings and cash flow generation, are performing well and gaining market share. In addition, the company has implemented several growth initiatives over the past two years, which should further boost revenues and lower costs across the company. The most negative part of Healius’s 2020 guidance focused on its medical centers division, which suffered due to slowing recruitment of general practitioners to serve its clinics. We believe, however, that this division remains on the right strategic trajectory and that management’s decision to appoint a new head for the division should speed up progress. As a result, our investment thesis for Healius remains intact as we believe its management team is working diligently to enhance shareholder value.
From David Herro (Trades, Portfolio)'s Oakmark Intl Small Cap (Trades, Portfolio) Fund fourth-quarter 2019 shareholder commentary.
