Australian Clinical Labs Limited (ACL) Earnings Call Transcript & Summary

Good morning, everyone. I'd like to start by acknowledging the traditional custodians of the land on which we meet today. I'm based in Sydney on the lands of the Wangal people, one of the 29 tribes of the Eora Nation. Melinda and James are joining us from the lands of the Wurundjeri and Boonwurrung people of the Kulin Nation. We acknowledge the traditional custodians of country throughout Australia and the places from which our participants join us on this webinar and their connections to land, sea and community. We pay our respects to their elders past and present and extend that respect to Aboriginal and Torres Strait Islander peoples here today. Welcome to the investor webinar of Australian Clinical Labs full year financial results. My name is Eleanor Padman, and I am the Company Secretary at ACL. I'm joined today on this webinar by our Group CEO and Executive Director, Melinda McGrath; our CFO, James Davison; and our National Marketing Director, Joe Geran. Today's webinar will run for approximately an hour and will be recorded. A copy of the recording will be made available on ACL's website after the event. By choosing to attend, you are providing your consent to participating in the recording. If you'd like more information, a copy of our Privacy Policy can be found on our website. During the webinar, you'll hear presentations from Melinda and from James and then we'll have time for Q&A. [Operator Instructions] I'd now like to hand over to our Group CEO, Melinda McGrath.

Thanks, Ellie. Good morning, and thank you for attending Australian Clinical Labs End of Financial Year 2023 Results Presentation. I'll provide an overview of the results, hand over to James to provide more detail on the financials. And then I'll provide an operational overview and an outlook for financial year 2024. Slide 3, thanks, Ellie. In financial year '23 against the backdrop of the steep drop in COVID testing volumes and a slowed return of base volume, the Clinical Labs team has executed in a disciplined manner and delivered a continued strong financial performance. The EBIT of $70.3 million is in line with guidance of $68 million to $74 million. Key highlights from financial year '23 include revenue of $697 million, EBITDA of $193 million, which is a 28% margin, EBIT of $70.3 million, which is a 10% margin, NPAT of $35.9 million, non-COVID revenue growth of 11.3% on financial year '22. And we outperformed the Medicare market growth by 100 basis points. We've got strong operating cash flow pre-CapEx of $59.2 million with a 90% cash conversion. We continue to have low gearing with net debt of $45.7 million and a strong balance sheet with capacity for growth. The team did a great job of forecasting and managing the complexity of the transition out of the COVID environment. We delivered a strong top line and cost management in an environment in which non-COVID revenue has not fully returned to trend. We estimate there's more than $50 million of latent revenue opportunity as the market returns, including private hospitals, clinical trials and GP referrals. This is revenue that would have been there if the market had grown according to trend for us. Today, we declared a final dividend of $0.07 per share, which takes the full year dividend of $0.14 per share. The full year dividend represents 67% of NPAT and a 4.4% dividend yield based on the share price on 18th of August at $3.18 per share. Slide 4. Thank you. Just some comments on market growth. Market non-COVID pathology episodes are around 10% to 15% below trend, which is a more than $50 million impact on our revenue. There are early signs of recovery towards trend as market drivers improve. There has been a delay in the recovery of non-COVID pathology episodes to trend due to structural issues causing delays in the return in specific subsectors, including GP attendances, private hospital work and clinical trials. This is having a significant adverse clinical impact. Our pathologists report they're seeing more late-stage cancers and more developed chronic disease. The recent Deaths in Australia report highlighted that health outcomes have been worse in the period following COVID. There are various government actions to support the return of certain subsectors that are key referrers of pathology, such as the increase of the Bulk Bill Incentive for GPs from November 2023. Recent data shows early positive movement back towards trend growth. On to Slide 5. Thanks, Ellie. In financial year '23, we removed COVID-related costs in a timely and disciplined manner. We completed the integration of Medlab ahead of Plan, and we continue to focus on clinical innovation as a core strategy. Key operational highlights in financial year '23 include a disciplined wind-down of COVID-related costs in line with testing volumes. And I would like to acknowledge the excellent work of the Clinical Labs' teams at all levels of the organization, who forecast COVID dropper and match the revenue and costs very well, which is a difficult thing to do in an environment that also included payday crisis. We completed significant upgrade of the base Lab Information System and a rollout of Clinical Labs' patient-centered digitization program. We implemented key operational innovations, including Click to Collect of patient samples, which is an [indiscernible] sample pickup service for doctors and hospitals. And we implemented operational improvement projects that will continue to benefit into financial year '24. Key strategic growth initiatives in financial year '23 include, in 2018, Clinical Labs made a strategic investment in an innovative genomic testing business, Geneseq. During financial year '23, Geneseq completed validation studies for both early and late-stage melanoma detection using genetic technology applied to tissue and blood plasma. Commercialization is expected to begin in financial year '24 as final regulatory approvals are received. We have a 10-year exclusivity on the international patient pending technology. We also bought a new -- brought a new genetic test into Australia called EndoPredict for breast cancer and our work facilitated part-funding of the test of the MBS and we're exclusive provider of this test in Australia. We developed in-house and commenced sales of the Aspect Liquid Biopsy, which is a DNA blood test for lung cancer, colorectal cancer and melanoma. And we're the sole provider of these tests in Australia. We completed the Medlab integration ahead of schedule. We enhanced the digitization of the front end referral and patient facing processes, and we prepared for the introduction of carrier screening on the MBS in November '23. This is testing for mutations causing common genetic conditions such as cystic fibrosis, spinal muscular atrophy and Fragile X syndrome. And as we announced in July 2023, we continue to work constructively with the ACCC on the proposed Healius acquisition. The ACL Board believes that this potential transaction justifies continued effort given its highly accretive potential for shareholders. Slide 6, please, Ellie. The second year of execution of our ESG strategy continues to deliver strong performance across all areas of our ESG mission. I'll highlight a few. With regard to the environment, our carbon emissions reduced, we've implemented cold chain logistics in 8 major labs to reduce Styrofoam packaging and we have seen single-use plastic reduction as well. Electricity is by far our largest contributor to carbon emissions and we had 1,450 additional LED panels installed this year. And we have 19% digital referrals up from 11% in the first half of financial year '22. Just highlighting some social outcomes, a 3.78 lost time injury frequency rate is an improvement year-on-year, including acquisitions. Our patient feedback indicates 4.7 out of 5 positive experience. And the Phase II of the women in leadership training program is being implemented with a targeted personalized development program for key leaders in the organization. And with governance, the Board has a 33% female representation, which has been a focus for us and we are about to announce a new highly talented Board member to join our Board. That announcement is imminent. And we'll continue to focus on this key goal. The reconciliation action plan road map has been endorsed and governance and goals established. Over to James on Slide 8. Thanks, Ellie.

Thanks, Melinda, and good morning. So this should be the last time that we need to explain the numbers around COVID and looking back 3 or 4 years to find the last comparable period with the last half really being a return to much more normal trading conditions following a couple of years of heavily COVID-influenced results. However, as Melinda noted, Medicare volumes remain well below trend, with a negative impact on our Medicare revenue of around $50 million. As Melinda mentioned, we estimate that GP attendances around 23% below trend and pathology episodes excluding COVID around 13% down. Total revenue for the year of almost $700 million comprised of non-COVID revenue of $620 million, which was up 11% on FY '22 and COVID revenue of $58 million. The COVID revenue for the year was very much skewed towards the first half, with 78% or $45 million recorded in the first half and over 70% of that in Q1 and only $13 million or less than 4% of total revenue in the second half. Against prior year, COVID revenue was $362 million or 86% lower. EBITDA, excluding Healius transaction costs of $193 million was down from $373 million in FY '22, but $97 million or 101% up on pre-COVID pro forma FY '19. And EBIT, excluding Healius transaction costs of $70 million was down from $267 million in FY '22, but 63% or over 800% up on pre-COVID pro forma FY '19. A few of the key highlights for the year where the Medlab integration being completed ahead of schedule with greater-than-planned synergies achieved, we were able to quickly reset the cost base following the dropping COVID revenues and finished the year with over 180 fewer FTEs than we started it. We continue to grow faster than market with our Medicare pathology revenue, excluding Medlab, COVID and all non-MBS commercial work growing at 9% for the year versus comparable market of around 8%. We had a strong uplift in specialist revenue of over 11% in the second half, which was clear of any acquisition benefits and while still lagging, but what should provide a solid tailwind into FY '24 due to our strong private hospital positioning is growth in private inpatient and histology work. In comparison to the second half FY '19, Medicare market non-histology inpatient volume is only up 3.3% and histology volume 4.4%. Driving our improved performance across our core comparable pathology business being the Vic New South Wales SA and WA businesses from pre-COVID to FY '23, we have been able to decrease labor as a percentage of revenue from 45% to 38%; keep consumables flat at 17% of revenue, hold rent as a percentage of revenue pre-AASB 16 flat despite the below-trend revenue and cost escalations and decrease other costs from 10% of revenue to 9% of revenue. Over the same period, labor efficiency, as measured by episodes per work hour has improved by 11%. The EBIT margin, excluding Healius transaction costs of just over $0.27 for the second half is in line with our targeted sustainable level despite the significant gap to [ trending ] Medicare revenue. EBIT margin, in particular, the second half is lower than our target levels, wholly attributable to the soft revenue conditions and the business remains well-placed to maximize our operating leverage as the volumes return. And reported NPAT for the year was $36 million. However, normalizing for the Healius transaction cost was in line with guidance of $42 million. Next slide, please. We remain committed to converting our earnings and cash flows. For the year, we generated $52 million of cash before financing and investing, which represents an 80% conversion or excluding CapEx, a 90% conversion of cash EBITDA to operating cash flow with over 110% achieved in the second half as forecast in the half year results. While the unfavorable working cap adjustment was impacted by a number of movements, including the normalization of debtor credit and inventory balances post-COVID, increased leave utilization post the COVID period and the impact of bond rate movements on lead provisions. The primary driver was that the business is not carrying any short-term incentive provisions due to the performance of the missing target. As discussed at the half, the noncash items includes the $5 million worth of Medlab deferred consideration. CapEx for the year was $7 million or just below 1% of revenue, which included almost $1 million of Medlab integration-related expenditure. Full year CapEx was slightly down on our normal run rate of $8 million to $10 million in part due to the high spend in FY '22 and we continue to invest in the business as needed. Financing and investing of $59 million comprised of dividend payments of $97 million, the Medlab deferred consideration of $5 million, partially offset by debt drawdowns of $66 million; interest paid of $4 million and tax payments of $18 million, including $7 million which related to FY '22. Next slide, please. ACL has a very clean and strong balance sheet. The business is very conservatively leveraged with net debt, excluding lease liabilities of $46 million being only 0.7x LTM AASB 117 EBITDA and total net debt, including lease liabilities, being 1.6x LTM AASB 16 EBITDA. The main drivers of the balance sheet movements were a reduction in debtors' credit as an inventory, again, normalized in COVID, an increase in prepayments, reduction in plant and equipment due to CapEx being lower than annual depreciation and some provision movements as previously discussed. The final dividend will increase pro forma net debt to around $60 million, which equates to a net debt-to-EBITDA ratio of only 0.9x. Thank you.

Just on to Slide 12. Thank you, James. We continue to enhance our suite of customer-friendly e-Health products, including eOrders, eDownloads and eResults. We have a team of in-house developers who focus on enhancements to the lab information system and a separate team -- hello? Can you hear me? Sorry, I've just been told I've been signed out. So apologies for that.

No, we can still hear you and see you, Melinda.

Sorry, I've just had a big green thing saying I've been signed out. Yes. So we have a separate team that focuses on user and front-facing applications. SMS eRequests are available for patients, allowing them to receive electronic copies of the referral directly from the doctor's practice management system. The paperless pathology project is underway and an increasing accuracy of pathology referrals and decrease in wastage and paper. And we've continued to roll out our eResults which I mentioned earlier. On to Slide 13. Clinical Labs made a strategic investment in a company called Geneseq in 2018 to develop a multi-tissue and blood plasma genomic test for melanoma. This is a really exciting development to aid in the diagnosis and appropriate treatment of the key cause of cancer. Melaseq is a liquid and solid tissue microRNA genetic test for melanoma that was developed by Founder Ryan Van Laar at Geneseq. Since investing, we have provided both strategic, clinical and financial support to Geneseq. The relationship leverages dermatological samples from Clinical Labs and SunDoctors and Clinical Labs' pathologists and scientists provide expertise to support efficacy analysis. Clinical Labs has convertible notes that provides it with an effective -- that provides it with an effective 20% equity ownership of Geneseq and a 10-year exclusive Australian license for the distribution of Melaseq test. International patents are pending across several jurisdictions on the test. The test has achieved very high validation scores. In July 2023 Geneseq published ground-breaking research in the British Journal of Dermatology, showing 93% sensitivity and 98% specificity for invasive melanoma detection. A highly sensitive test means that the test is able to correctly identify patients with the disease and there are a few false negative results and therefore, fewer cases of disease are missed. Specificity is the ability of the test to correctly identify people with [ adversities ]. The test opens up the potential for earlier, less invasive and more accurate screening and diagnosis of individuals at risk of melanoma. The test detects the cancer at all stages. Melanoma is a leading cause of cancer deaths in Australia with 18,000 new cases per annum. In Australia, there are 2 million biopsies of melanoma per annum and 2 million patients that are considered high risk for melanoma. Screening or testing just 5% of these biopsies or at-risk patients per annum has the potential to generate revenue in the range of $100 million per annum and materially reduce the costs associated with melanoma, with medical and economic costs. We estimate the U.S. market is $2 billion and the EU market is $1 billion. Final approval for the skin biopsy application of the test is expected in the next few months, quickly followed by plasma approval. The test approach is applicable to other common cancers in Geneseq is currently working on the development of a noninvasive ovarian cancer test. The plan is to commercialize the test for the melanoma applications within the 2024 financial year. Slide 14, please. As part of our growth plan, we've continued our commitment to bringing new genetic tests to Australia. As science develops, these look on part of a suite of personalized medicine options that our doctors and patients can turn to, to improve their outcomes. We're the only provider in Australia offering EndoPredict and we've been instrumental in working with Medicare to partially fund the cost of this test from November [Technical Difficulty]. This is an in vitro multi-gene prognostic test that provides information for different stages of treatment planning for patients with estrogen receptor positive, HER2-negative, primary breast cancer. It's the only prognostic test that can answer whether a patient can safely avoid chemotherapy, how beneficial chemotherapy would be and whether a patient can avoid extended endocrine therapy. Aspect Liquid Biopsy is a test developed in-house and is a noninvasive, safe and ultrasensitive cancer screening and diagnostic option, which identifies genomic alterations from a blood test using circulating tumor DNA. And we offer this test for lung cancer, colorectal cancer and melanoma and we're the only lab in Australia offering this liquid biopsy test. Next slide, please, Ellie. Our strong financial performance is underpinned by what we believe is our superior operating model. We believe these are our competitive advantages, a single unified Lab Information System that connects all of the clinical labs to ensure best diagnostic practice, dynamic cost control and economies of scale of a larger pathology operator. We're the only national provider with one Lab Information System across the country, which provides us with a structural and competitive advantage. We've got robust internal processes that drive continuous improvement and best demonstrated performance. We have a disciplined approach to capital management, strategic investment and returning cash flow to shareholders. And we have a strong clinical management culture, which is performance-driven and focused on [Technical Difficulty] clinical, operational and shareholder outcomes. We have a highly experienced and stable clinical and management team and Board with a pedigree in the pathology industry. Next slide, please, Ellie. Slide 16. Our mission is to empower decision-making that saves and improves patients' lives and this drives our shared vision and values. We've got a well-defined growth strategy and we've executed on it consistently both before and after listing. The business is in a market and in normal times has predictable and consistent drivers of growth. As we mentioned earlier, since pre-COVID to 2023, there's about $450 million missing from the market growth trend. About $50 million of that would be additional revenue for ACL. We have embedded revenue opportunities, including our new general practitioner referrals, major private hospital groups and key contracts that have been affected by structural issues due to COVID that are being addressed. We expect an uplift from Medlab collection centers revenue due to our business development activities. We expect an uplift from SunDoctors, which has been affected by the structural issues affecting GPs. And we expect improved clinical trials revenue, which has also been affected by COVID. And we expect to benefit from new genetic tests such as carrier screening, which comes under Medicare schedule in November. We've continuously executed on our continuous improvement program and expect to get additional benefits from the single LIS and we expect an uplift from Medlab synergies. We also expect to grow our footprint in New South Wales and have targeted revenue opportunities in Queensland. And we'll continue to progress the takeover bid for Healius. We'll explore acquisitions and specialists in general pathology [Technical Difficulty] this financial year. And on to Slide 18, please, Ellie. In financial year '24, Australian Clinical Labs will continue to focus on capturing above-market revenue growth, delivering operating efficiencies and our ESG performance. We'll continue to focus on capturing above-market growth in revenue through disciplined opening of ACCs, new test initiatives and return of volume in our key referral channels, particularly in private hospitals, continuing to drive excellence in patient care and new test development, and we're focusing on commercializing Geneseq products this year and implementing the MBS-funded carrier screening. We have a number of cost reductions and operational improvement efficiencies to offset inflation. And we intend to maintain our values and outcomes-focused approach to investing in our ESG targets, including our Reconciliation Action Plan. And we'll continue to work with the ACCC in relation to our off-market takeover bid for all of the ordinary shares of Healius Limited. While the underlying core business continues to grow back to trend, negligible COVID revenue is expected in financial year '24, which will create a drag on total revenue growth. As a result, we believe we'll achieve a similar EBIT result in financial year '24 of between $65 million and $70 million. However, the business is expected to end financial year '24 run rating above the financial year '24 results, demonstrating the underlying strength and trajectory in the ACL core business. I'll pause now to take questions. Thanks, Ellie.

Thank you, Melinda. Thank you, James. So I think Lyanne Harrison, you had your hand up first. So I'm just going to take you off mute.

Can we start with base volumes growth? Obviously, in terms of the base revenue, that's grown 11%. But can you talk about what the organic rate of growth has been for the business? And if you could talk about what that might mean for first half, second half as well? And is there any increasing momentum there?

Yes. Sure, no worries. So obviously, the second half was free of acquisition benefits or anything like that. Reported total revenue growth was a bit over 5%. That was impacted by some non-COVID pathology reimbursements received in the second half of FY '22. On a like-for-like basis, revenue growth was probably sort of 7%, 7.5% in total and Medicare only would have been probably higher than that for second half last year. For this year, what we're expecting is probably first half to be a similar sort of rate in 5% to sort of 7% and then a bit stronger again in the second half.

Okay. And so that's organic growth, 7.5% for second half '23. Did I hear that right?

Yes. Yes, give or take, 7%, 7.5%, yes.

Okay. And then just in terms of obviously some of the structural issues there that Melinda mentioned in terms of GP volumes being a little bit lower and hoping that that will return to trend and revenues recover. How does ACL think about that recovery time frame there? Because in my view, there's fewer GPs in the market, there's obviously decrease gap payments, the Bulk Bill Incentive doesn't come in until November '23. What's ACL thoughts on recovery towards trend? Obviously GP has got that 23% shortfall that you're showing in one of your graph?

Yes. Yes. So again, so not dissimilar. I expect at the moment for the first half of '24 to be not dissimilar to the second half of '23. So we'd expect revenue growth, excluding COVID sort of around 6% or 7% and then free to pick up a bit and be sort of high-single-digits in the second half. Certainly not expecting at all to return back through FY '24. I thought it was going to return faster through '23, but it hasn't yet. Like, I think the signs are there, and I think that there's enough things happening there in the market that will. Likewise, like carrier screening is coming on to the schedule this year, like you said, the incentives for the Bulk Bill should all be solid drivers. And also, as I said, like inpatient volumes and histology volumes remain well below trend, which should sort of start to normalize as well.

Yes. Okay. Just one final question for me before I go back in the queue is around the EBIT guidance of $65 million to $75 million. If I apply that EBIT guidance number to what consensus is expecting for '24 revenue, I get an EBIT margin of about 9.6%. So how should we be thinking about that? So that would imply a lower margin than what you reported for '23. Is it that margin is going to erode further into first half '24 before it recovers? Or is it that consensus revenues are perhaps a little bit too high?

Yes. No, I think half 1 revenue, once again, we're sort of just basing it on what we know at the moment. And I think that margin in the first half is certainly going to be a bit softer. Clearly, the expectation for the second half will be that we're well back into double digits. And we will exit the year a lot stronger than what we started.

Yes. But…

There's so much of cost, which is fixed. And so as the volume starts to come back, it has a disproportionate impact on the profitability. So 1% volume growth is probably worth $4 million to $5 million worth of EBIT. So it's not much of a shift that has a material impact on the business. So I think that, yes, first half is certainly going to be a bit softer in terms of margin, but we should end up the year close to 10%, but run rate is now quite a bit higher than that.

Thanks, Lyanne. We're now going to go to [ Dan Herron ].

Look, I think in the first half result, you commented that Medlab's EBIT run rate was to exceed about $20 million per annum. Can I just ask for an update on the performance of that, of Medlab?

Yes. So obviously, the revenue side of it has been impacted like the rest of the wider business, but the synergies have certainly been overachieved and delivering what we thought it was going to. There was a number of synergies achieved in '22 and then the balance through '23.

Right, so on track. And perhaps just quite a mundane question. Just costs associated with the Healius transaction into the future. I know Healius pulls the string with the process. But what are your thoughts there? And how should we think about it?

Yes. I think that, obviously, we continue to actively work with the ACCC. Their decision is due mid-October. Obviously there's still some forwards and backwards going on. There might be another $0.5 million to $1 million worth of costs associated with getting us through to the decision in October.

Thank you. I think next in the queue was Mathieu Chevrier.

Just one on the EBIT that you reported. I mean, it seems that it includes the insurance claim proceeds and the reassessment of Medlab. Am I correct?

Yes. But like we've sort of always said, Mathieu, like there's also integration costs for Medlab and stuff. So they seem to go both ways. From day 1, we've always just reported a number. The only thing that we've pulled out, which we flagged at the half was the Healius cost. And likewise, the bulk of those one-offs were also in the first half that we covered them.

Yes. Okay. Understood. And then looking at the inflation that you've been seeing, what kind of labor cost inflation have you been seeing and on the consumable side?

Yes. Consumables, we've done well on. So the vast, probably 70% of our consumables are fixed price, no FX. In addition, we renegotiated a few of the contracts with some of our major suppliers, which have actually resulted in reductions. So we're not seeing any upward pressure on our consumables as a percentage of revenue. Labor, obviously, the 5.75% for the modern award on the back of 4.6% the year before, plus the extra 1% payroll tax in Victoria is all a bit higher than what we had initially thought. Unfortunately, we have EBAs in [ Vic and WA ], in particular, which are set and quite a bit lower. There has been some additional cost due to some of the lower-level positions falling below the modern award. But other than that, yes, it sort of offset some of that uplift. And we think labor costs won't be materially different than what we'd initially thought moving forward.

And then maybe just one final one on your private hospital business. You've mentioned that it's probably been lagging a bit, and it's been a bit sluggish. I was just trying to understand what's been happening, what's holding it back given that we're hearing that surgeries are back and volumes are certainly back in the private hospital market?

Do you want me to do that, James?

Yes.

Yes, Mathieu, the hospitals have been really affected by a few different things, but mainly the availability of nurses, particularly at the first half of this financial year. It started to get better around April '23, but the end of '22 was quite difficult. And [indiscernible] as well cause bottlenecks in the theater. So we don't have enough [indiscernible], so it doesn't matter how many surgeons you've got, you can't do your operations. So there have been some people, personnel-related issues that have caused problems for hospitals and keep bottlenecks for getting work through hospitals. But we have seen a big increase since around April.

And I'm not sure if there's also a bit of cherry picking going on around what surgeries are being prioritized at the moment too. Like the Medicare stats are pretty clear like that the inpatient PIs, like you said, are only up 3.3% for the second half on what they were in second half FY '19.

Thank you. So next in line is [ Rita Fong ]. [Operator Instructions] Rita, we can't hear you. I'll try unmuting from this end. Go ahead. All right. Rita, I'll come back to you in a second. We might go to some written questions that have come through in the meantime. So the first one from [ David Bacher ]. Can we get a breakdown of the $8.3 million Healius transaction costs for the year? What are the expectations for additional costs in the first half of '24? I think you've answered the second part of that, James, but maybe the first part.

Yes, sure. It's primarily economists, legal and accounting work to support the synergies. So there's legal and economists [indiscernible] and then accounting work for the synergy work.

Thank you. And then another question from [ Claude Walker ]. Given the low probability of a transaction with Healius, how do shareholders benefit from the million spent on the Healius transaction?

I'll answer that one, James. Yes, we wouldn't have commenced and we wouldn't be continuing with the transaction if we thought that we had a low probability of success. And the Board believes there's significant potential benefits to shareholders. So the low probability is probably -- we don't agree with that. And I just refer people who are interested in the rationale for the bid to the publicly available documents on our website and ASX website that explain the rationale and the significant benefits for shareholders.

Thanks, Melinda. And Rita, we might try again. Do you want to try asking your question and see if we can hear you now? Okay. Lyanne, you've got your round up again, so.

Yes. I just wanted to understand what trends you're seeing in the mix of testing. So obviously, a bit of focus going forward on some of the genetic testing. But what are you seeing in terms of mix? Is it sort of the higher value testing? And how do you expect that trend to continue into '24?

I'll start and then James might want to add something after. Yes, Lyanne, we have got some large pockets of referrals of average [indiscernible] affected by COVID. And by far, the biggest one is the private hospital referrers, private hospital inpatient and histology. And those are all high-value tests. So we anticipate, as I said, that stuff come back in April, but we anticipate that to be growing disproportionately for us because of our large hospital contracts that we have. The clinical trials, hospitals have been affected by the inability to get people to participate in their trials, again, due to COVID and lack of tourism, which is coming back again now. So we think that pocket of high-value average fee testing will come back again this year. So higher-value areas specialist testing is a bit laggy as well, which is high-value. And then there is a general skew towards higher-value test year-on-year. There's a trend in the average fee that goes up year-on-year in any case, but we think we'll be disproportionately benefiting from some of those laggard areas, pockets of referrals. Did you have anything else to add, James?

No, no, you've covered it well.

And just one more on Medlab. So you mentioned in some of the prepared remarks that you're seeing further revenue upside for Medlab in '24, including growing your footprint. Can you talk about how many collection centers you're thinking about opening in New South Wales and Queensland? What sort of the revenue opportunities you're targeting? And also what response has there been to date from some of the peers in that New South Wales and Queensland market?

So just speaking generally about the Medlab business that we acquired, Lyanne. So we obviously had synergies, cost synergies attached to that acquisition, but -- and we wouldn't include any revenue synergies with that acquisition. And one of the things that we know just basically with some of these acquisitions we've made is that they have collection centers, but they don't put a lot of effort into the relationship with the doctors and educating the doctors and providing them with value-add services, which is where when I was referring to Medlab revenue uplift, that's one of the areas where I think applying our business development activities to those collection centers and doctors will benefit from our approach to providing services to their patients. So that's one thing. The other thing is, as James mentioned, we bought Medlab, it was making $4 million to $5 million profit at the time and it's been affected as well by the drop in revenue. So across all of those collection centers we acquired, there's been a drop in revenue that's been similar to the drop in the market revenue. So we anticipate that that market revenue will come back up to where it was when we acquired it as well. So it has been affected generally as well. And each of the teams across the country has got targeted pipelines of new collection centers, which I won't go into, but the teams do a good job of targeting collection centers. And they are very disciplined in making sure that they pay market rate for those collection centers and that they look at profitable acquisitions of collection centers.

So Rita has put a question into the chat for us, so I will read it out. You mentioned you'll be implementing a number of cost reduction and operational efficiencies in FY '24. Will they require any cost to implement those programs? And will the FY '24 result have much of the benefit of those programs? Or will the benefit mostly flow through into FY '25?

So yes, there will be some cost to implement some of the initiatives we identified. But as always, that would just be recorded in our results and is included in our guidance at the moment. Yes, we will get some -- definitely get some benefit in the second half and exit with the full run rate into FY '25. There's some that are starting now. There's some that come in through sort of Q2, Q3 and then Q4 should have the bulk of them fully implemented.

Thanks, James. Mathieu, you've got your hand raised again.

Just on CapEx, it was a bit on the lighter side this year. Do you think that will just kind of go back above trend this year? Do you think there's some catch-up CapEx there to be done? And where do you expect CapEx to be in the next 2 to 3 years?

Yes. So no, it's certainly not a matter of things being deferred. We've invested and replaced what needed to be done. And the expectation is that it will go back to $8 million to $10 million. It's not that we under-spend or we didn't do things that needed to be done. We replaced what needed to be replaced and expect normal CapEx spend going forward.

Thanks, Mathieu. Another question on the chat line. Melinda, can you please outline -- so this is from David Bacher again. Melinda, can you please outline why you think the Healius transaction is not below probability?

Well, as we said earlier, we're working on construct [Technical Difficulty] ACCC and we have been working with them to further explain our economic analysis and our rationale and our position. We've got a really good legal argument and a really good economic argument that we're working with them on. So I probably can't go into anything further than that. And as James said there, their decision is due, I think in October.

Thank you. So I think that's all the questions. So if there are any questions, anyone would still like to raise, please can you e-mail them to us at investors.clinicallabs.com.au, and you'll find that e-mail address on our ASX releases. Thank you, Melinda, and thank you, James, for your presentations. Thank you to our participants for attending and for showing such an interest in ACL. We hope to see you all at our next investor webinar. Thank you again and goodbye.

Thank you. Bye-bye.