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

Good morning, everyone. On behalf of ACL, 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 land of the Wollongong people. Melinda and James are joining us from the land of the Wurundjeri and Boonwurrung peoples 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 Island of Peoples here today. Welcome to the Investor Webinar for Australian Clinical Labs Whole Year Financial Results. My name is Eleanor Padman, I'm 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 ECL's website after the event. By choosing to attend you are providing your consent to participating in the recording. If you would 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]. Once we move to Q&A, we will focus on the more frequently asked questions and we'll try to get to as many as possible in the time available. I'd now like to hand over to our Group CEO, Melinda McGrath.

Thanks, Elly. Welcome to Australian Clinical Labs First Half Financial Year '24 Results Presentation, and thank you for your time. To Slide 3, please, Joe. In the first half of financial year '24, Australian Clinical Labs delivered our expected results for the half despite the challenging macro environment. ACL recorded an underlying EBITDA of $87 million and an underlying EBIT of $23 million, which was in line with company expectations on the profit phasing of the year based on exiting the pandemic and the COVID testing this [indiscernible]. In the first half financial year '24, ACL achieved total revenue of $337 million, underlying EBITDA of $87 million, EBIT $23 million; NPAT $10 million and free cash flow before interest, tax and financing was $18 million. The half saw challenges in the macro environment with reduced referral availability, an increase in GP private billing affecting patient attendances and hospital challenges with medical and nursing availability issue. Government initiatives introduced in November 23 are expected to start having an impact in half 1. Adjusting for the decline in covered revenue, the first half of 2024 underlying EBIT grew 16.5%, driven by a combination of BAU revenue growth, full period impact of Med lag synergies and efficiency initiatives. Carbon revenue declined $36.5 million, which had an impact on the EBIT of $14.6 million. During the half, we chose not to renew collection centers with unattractive rent dynamics. We expect rent as a percentage of revenue to decrease as volumes revert to a more normal rate. We follow a disciplined strategy of collection center network optimization to protect margins, especially in an ongoing environment of subdued industry revenue and competition for collection centers. As a result, non-covered MBS revenue growth for the half was 5.4% compared to reported MBS market growth of around 6%. The second half of financial year '24 started strongly with revenue in January up 8.6% on January '23. The unaudited underlying EBIT for January was $4.9 million, up over 200% on the prior year in what is a seasonally weak month for pathology volumes. Excellent labor management in a difficult month contributed to this result. However, volume has softened further in February. The Board has declared an interim fully franked dividend of $0.03 per share, which represents 59% of first half financial year '24 underlying NPAT. And the Board target ratio is maintained at 50% to 70% of NPAT. Slide 4, please Joe. HCL expects financial year '24 underlying EBIT of $60 million to $65 million. Half 2 is expected to be stronger than half 1 due to higher volumes typically experienced in half 2 and the run rate impact of cost efficiencies implemented in half 1 exiting the pandemic. We have revised our guidance based on the following: half 2 underlying EBIT margin to return to double digits based on seasonally higher API volume on a fixed cost basis at $37 million to $42 million. Half 1 underlying EBIT of $23.4 million was in line with management expectations and was in line with the achievement of previous guidance based on anticipated half 1, half 2 seasonality. Based on volatility in GP attendances in half 1 and MBS outlays through mid-February, we are taking a more conservative approach to anticipated growth in half 2 and the revised guidance assumes revenue growth for February to June of between 4% and 6% versus previous assumption. Guidance assumes half 2 seasonal split of EBIT at 61% to 64% of financial year '24 EBIT, which is in line with financial year '23 performance on an ex-COVID basis. Note that half 1 last financial year saw around $13 million of EBIT covering more than half 2. Slide 5, please, Joe. We continue to actively explore value-accretive acquisition opportunities for the business as part of our growth strategy. We will continue to take a disciplined approach to acquisitions. In December, Clinical Labs withdrew its offer to acquire Healius due to concerns of Healius trading performance, a breach of conditions of the offer and the ACCC rejection of the deal. With the ACCC's rejection of the merger, ACL now has the ability to challenge the decision in the federal call if the forward onto it. The Board has reserved its position in relation to Healius and we'll continue to review its ongoing performance. We note their results announced yesterday, which the Board has not considered. The takeover was announced around this time last year, and it included an offer ratio and a number of conditions. And as I mentioned, many of these have subsequently been breached. Our shareholders have made it clear that while they see the rationale for the merger and support the potential merger at the right ratio, they are very happy with our plans without the merger and do not want to see any value transfer. The Board is acutely tuned into the relative valuation and risk reward efforts of each of our options to strategic acquisitions. We've had discussions with related businesses that will grow our Australian business and a number of these discussions are ongoing. In addition, we believe our deep pathology experience as well as our unified pathology platform presents significant value creation opportunities in higher-priced pathology markets with many untapped operational improvement opportunities such as the United States. In addition, I'll note these markets, while operationally very similar, in general do not have the added cost of collection center deregulation such as rent, lobotomists and other associated costs due to deregulation in the Australian market. However, the ACL Board is very focused on considering risk and return of any potential international acquisitions, and Australia is our strong preference for our next acquisition. Next slide, please, Joe. Slide 6. The second year of execution of our strategy continues to deliver strong performance across all areas of our ESG mission. Our external audit has shown 1.25 kilograms of carbon dioxide per episode reduction from 1.4 kilograms in financial year '21, the first year of measurement. We've made good progress on electricity and packaging reduction and have increased our hybrid cars while reducing our kilometers per episode. Our digital ordering process reduces paper usage is now up to 16% of referrals. 4. -- 4.7 out of 5 patients responding to our SMS service feedback system rate of positive experience. The others are actively followed up for improvement opportunities. Our lost time frequency rate is 2, down from 3.2% in December '22. And 2 more to point out, the Board has the 43% female representation up from 33%. Management is 57% female, and our reflect wrap has been drafted and submitted to Reconciliation Australia for reviews. Next slide, please, Joe. On to Slide 7. On to our operational and strategic highlights. Material labor cost savings have been achieved through productivity improvements. Compared to the first half financial year '20, that is pre-COVID, labor as a percentage of revenue is down 5 percentage points from 50 to 45% in half 1 '24 despite labor cost inflation over the intervening years and including the steep escalation during and post COVID. We expect this ratio to improve in the second half based on the work we are doing and increased volume in the second half. As volume increases, we don't need to put on much labor, and we're dealing with an underutilized network due to the macro issues I mentioned earlier. Key drivers of the labor savings include a culture that understands the need to be dynamic and many digital solutions we have invested in and refined over the years. Further assignment of our digital labor management tool enabled enhanced precision and matching volumes to labor, particularly over the holiday period. Advancements in lab productivity via machine learning, automation and shift optimization, with teams achieving record lab productivity in the first half, with panels per work out up 16%. Improvements in courier route efficiencies from our route planning optimization tool and centralization of back-office functions such as call center and data entry operations. I might just comment here that I'm sometimes asked by investors what more can we do on labor and is there more. And I just want to have a reminder that we have a number of advantage that we have worked really hard to achieve. We have a commercially and service-focused management team with deep experience in pathology and what is possible and where the opportunities are, and we continually look for opportunities. We have one lab information system and have all of our pathology businesses integrated into one platform, which is a competitive advantage over our peers. It's very hard and disruptive to get to this position with the lab information system. As a result, we're able to drive performance improvement opportunities across the country at the same time, reduce duplicated cost and move work around seamlessly. We benchmark best demonstrated performance for service revenue by item or test combination and cost per episode, and we reward and enable best demonstrated performance. This is driven by leaders even to the lab floor, it's coupled with a very stable management team in each state and a cultural striving to be the best within our teams. I'll also make note that via our programs that we've instituted many of our staff at all levels, but including middle management, our shareholders. And we have a team of business improvement managers who focus on and are incentivized by process improvement. We have a mix of people who have deep pathology experience, coupled with lean qualifications and people from other industries who contribute to different thinking and who have engineering and science backgrounds coupled with process skills. Key strategic and growth initiatives progressed include ongoing investment and digitization initiatives, a major public hospital contract renewed at improved rates with further renewals expected in the next couple of months. Growth in high-value niche testing with 25% market share in genetic carrier screening listed on the MBS in November 2023. On a different note, after 23 years in the industry, 5 acquisitions at ACL and IPO and other corporate activity, ACL CFO, James Davison, has resigned to take a period of extended leave and spend more time with his family effective 26th of April. The Board wishes to thank James for his dedicated service, his work ethic and drive and his enormous contribution. I would personally like to thank James for his partnership with me in the past 8 years. We've had great teamwork with many achievements. Recruitment is advanced and an appointment is expected by the end of March. James is assisted by Lana Hudson, Deputy CFO; and Brad McCormick Financial Controller, who are well placed to manage any intervening period. Over to you, James, and thank you.

Thanks, Melinda. Next slide, Joe. As Melinda has already discussed, the subdued trading conditions continued throughout the first half. For the half, we had revenue of $337 million, which comprised of non-COVID revenue of $314 million, which was up 4% on PCP, including as flagged at the full year, we had planned to restructure of the Queensland business, which has had a positive impact on the EBIT level, but reduced total revenue growth by a little over 1%. COVID revenue of $12 million was 76% down on PCP. In terms of COVID revenue, to keep it consistent with how we previously reported noting that it's now part of the respiratory [ light-up ]. We've used the total number of COVID tests multiplied by COVID [indiscernible] and BVI. Underlying EBITDA of $87 million was down from $96 million in 1 half '23, but $37 million -- are we still live?

We're still. Joe, we've looked for the presentation. Would you mind popping back up again for us, please?

I thank Joe might have frozen.

All right. Do you have a copy handy, James, would you want me to put.

Would that be possible?

Yes. Bear with me everybody. Can you see that now?

Yes, Slide 9, [indiscernible] screen.

So what slide number?

Slide 9. Underlying EBITDA of $87 million was down from $96 million in 1 half '20 to $37 million or 72% up on the pre-COVID and underlying EBIT of $23 million was down from $35 million per corresponding period but $17 million or over 270% up on the pre-COVID amount. The reduction in covered revenue of $37 million at a 40% margin, had a circa $15 million impact on underlying EBIT. Adjusting for this EBIT would have been up over 16% on PCP. Nonrecurring items of $7 million have been excluded and comprised $4 million in Healius' transaction costs, $1 million for an asset write-down for a piece of equipment that was damaged in fire. We have a pending insurance claim for that amount, $1 million relating to the Medlab acquisition and some legal and restructuring redundancy costs. A few key takeaways for the half firstly, in terms of the macro environment versus pre-COVID 1 half '20, the 2 primary drivers of the pathology volume being GP consults and specialist consoles have only increased by a total of 1.5% or a CAGR of 0.4%. Over the 4 years, GP consults had a CAGR of just 0.2%, up from $80.1 million to $80.7 million, and specialist consults a CAGR of 1.1%, up from $16.8 million to $17.6 million. In terms of pathology services, this has translated to a total increase of 1.1 million patient episodes, including COVID referrals at a CAGR of just under 1.3%. Over the 4 years, ACCC flex increased by $1.2 million. Histology volumes increased by 100,000, Southcorp wrap 100,000 inpatient services were flat and Doctor Flex stated by [indiscernible] $300,000. Dr. Flex now represents a little over 17x of total episodes, down from 20% pre-COVID with the number of ACCCs increasing by 312% over the same period. We expected the additional bulk billing incentives for GPs, which were introduced in November '23 will have a positive volume impact plus further growth upside for us due to our strong private hospital positioning in private inpatient and histology work. In terms of our business, we had a strong uplift in outpatient cashless revenue of over 8% for the half. Labor costs were flat on PCP and down 1.2% on one half '22. Between June '23 and November '23 with December being favorably leave impacted, we reduced our total FTE by over 2%. And over the last 4 years, we've been able to reduce our total FTE, excluding collection center and back office staff by 13%, excluding acquisition synergy benefits and including synergy benefits by over 17%. AASB 117 range for cash rent was up 3.4% on PCP, which is a bit higher than normal for well managed in the high inflationary environment. And looking at just our core pathology business units being Big New South Wales and Inside Business South Wales NSWI from pre-COVID one half '22 to one half '24. We've been able to decrease labor as a percentage of revenue from 45% to 40%. Old consumables flat at 17%, decreased other costs from 10% to 9%, with the only unfavorable movement being AASB 117 rent as a percentage of revenue, which increased by 1%, being negatively impacted by the below trend revenue and high inflationary environment. Over the same period, labor efficiency, as measured by [indiscernible] per work all improved by 13%. The underlying EBITDA margin of 26% for the half is only marginally lower than our targeted sustainable level despite the significant gap to trend in Medicare revenue, highlighting our ability to manage our costs with rent primarily below EBITDA, we have reduced this group of costs by $15 million or 5.5% on PCP, with labor flat consumables down $10 million or 3.7% and general expenses down $5 million or 10.6%. The underlying EBIT margin is lower than our targeted levels, wholly attributable to the soft revenue conditions and the business remains well placed to maximize our operating leverage as the volumes return. We expect to see EBIT margin back in double digits for the second half. Next slide, please, Joe. For the [indiscernible], OCL generated $18 million of cash before financing and investing activities, which represents an 82% conversion ratio or excluding CapEx, 100% conversion of cash EBITDA to operating cash flow. Working cuts for the half was flat, which is a positive as generally half-season unfavorable movement. Noncash items includes share-based payment expense plus the nonrecurring asset write-down. CapEx for the half was $4 million or around 1% of revenue and included $1 million for each of lab equipment, new and refreshed collection centers and mode vehicles. Dispense for the half is in line with the 8% annual maintenance spend with the business continuing to invest in CapEx as required. Finance and investing includes dividend payments, debt drawdowns and other investing related activities. Next slide, please, Joe. ACL has very clean and strong balance sheet. The business is very conservative leverage with net debt excluding lease liabilities of $54 million, being only 1.1x LTM AASB 117 EBITDA, and total net debt, including lease liabilities being 1.8x LTM AASB 16 EBITDA at a statutory level 0.8 or 1.7x, respectively, at an underlying level. We had minimal movements on the closing June balance sheet and the after the final dividend -- the final dividend will increase pro forma net debt to around $60 million, which equates to a net debt-to-EBITDA ratio of only 1.2x it sat. Back to you, Melinda.

Thanks, James. On to Slide 13. Just some more comments on Market. Non-COVID pathology volumes continue to lag historical trends. These charts show dramatic changes in attendances and referral patterns in the last 2 years since the onset of COVID. Market volumes are around 3% below trend. For us, this is a $40 million revenue shortfall. The downturn in GP attendances lagged historical levels by around 25%. However, we continue to expect volumes to return to trend as GP shortages ease over time, and government solutions take effect. Slide 14, please, Joe. Australian Pathology has recently launched a national campaign key pathology bulk bill, which calls on the federal government to increase rebates of pathology patient services. Just reminding people these are rebates that we collect on behalf of patients is a patient rebate, it's not a rebate to the company. And just as a plug for the campaign, the QR code is right there on the slide, if you're so incline to sign up. We're asking for the same indexation as other health care services have been provided. We believe there's a compelling case for indexation to ensure pathology providers can continue to provide bulk build services and regional and other services that Australians expect. Next slide, please, Joe. On to Slide 15. Our focus in the second half is on continuing disciplined footprint expansion and maximization, ongoing operational efficiency initiatives and investment in the lab of the future program. Our collection center and hospital services are underutilized due to the macro factors I mentioned and our focus will be on converting additional revenue to margin. Our business improvement activities will continue to optimize our cost base. With the lag of the future program, we are scoping to a redesign of the business's lab operations to create a highly automated, odorless national lab network that capitalizes on our experience in testing across borders. This will enable further footprint reduction, and this project includes opportunities for automation or further automation, further machine learning and AI. Some of these opportunities are available now, some are under development and a few years away. Geneseq, -- just as a reminder, clinical abated strategic investment in a company called Geneseq in 2018. Its Melaseq test is a liquid and solid tissue MicroRNA genetic test for melanoma. The test opens up the potential for earlier less invasive and more accurate screening and diagnosis of individuals at risk of melanoma. And importantly, it detects the cancer at all stages. Clinical Labs has convertible notes that provides with an effective 20% equity ownership of Geneseq and a 10-year exclusive Australasia license or the distribution of the Melaseq test. International patents are pending across several jurisdictions, including U.S., Europe, Australia, China, Japan, South Korea and Canada. The test has achieved very high validation scores. In July 23, Geneseq published groundbreaking research in the British Journal of Dermatology showing 93% sensitivity and 98% specificity for invasive melanoma detection. These are excellent results. In Australia, there are 2 million biopsies of melanoma per annum and around 2 million patients that are considered high risk for melanoma with 18,000 new cases per year. Screening or testing 5% of these biopsies or at-risk patients for atom has the potential to generate revenue in the region of $100 million per annum and materially reduced the costs associated with melanoma, social, medical and economic. We estimate the U.S. market is $2 billion and EUR 1 billion. The test approach is applicable for other common cancers, and Geneseq is currently working on the development of a noninvasive ovarian cancer test. And moving on, we continue investment in digitized refer and patient processes, automation and functions and e-results systems. And as previously outlined, we continue to explore strategic inorganic growth opportunities that makes sense financially for us. Before I finish, I would like to take the opportunity to thank our pathologists and scientists for their leadership and all clinical lab staff who come to work every day to positively impact our patients' lives. And I would like to finish by again thanking James and wishing him well in his future. I'll pause now for questions. Thanks, Elly.

Thank you. I'm just going to stop sharing this so I can manage the Q&A. Okay. So Lyanne, I think you were first to put your hand up. So Lyanne Harrison from Bank of America.

Can I start with guidance and your assumptions in the top line? I think there was a couple of points there. One, pointed to guidance being based off MBS revenue growth in the half or the second half of 4% to 6%. And then in the slides, it was saying guidance assumes revenue growth of 4% to 6%. So I was just trying to understand, have you factored in 4% to 6% MBS revenue growth, but is there any expectation there that ACL can grow faster than that given their experience previously of being able to take market share and exhibiting above market growth?

Yes. So the 4% to 6% is revenue growth. But what we've seen recently is the non-MBS revenue has been growing the sensor amount. So they find end in hand together. Absolutely. So we are -- we continue to obviously try and take share where it makes sense from a dollar point of view. The market -- we aggressively compete for question centers that we want to win. But obviously, it depends a little bit on offers that people have been received from other sites. I guess the one important note I will make and it's in the [indiscernible], it's in the presentation. We had a particularly strong January in terms of revenue, favorably impacted by an additional day and also strong average fee. But in terms of the forecast for February through June, for that period last year, we did just short of $30 million at an EBIT level. So the forecast the set for the remaining 4 months is not widely dissimilar to what we did last year. So I think that certainly does offer us some upside both in terms of cost control and additional revenue growth.

[indiscernible], We can make our growth double digits if we want. It's -- in this industry, you can't do that, but you have to do it at a margin detriment. So we're balancing revenue growth and responsible revenue growth so that we can maintain a profitable margin. So as you know, we could change that if we wanted to, but we're looking after our margin.

Okay. And then on that comment on margin. So based on your revised guidance, approximately 60% or a little bit more of 60% of EBIT, it will be delivered in the second half. And by my calculations, that works out to be about maybe around 11% EBIT margin for that half. So I'm just trying to understand that, to what extent is that driven by volume growth? To what extent is there more cost out in the business and particularly what you're saying around labor and the savings you've achieved there. Is there more to come in second half '24 that helps expand those margins?

Yes. So you're right on the number. And obviously, like there's market volume, which is out of our control to a certain extent and then costs which are. So we found a nice balance between we are fairly comfortable, I think, around the revenue number, but we've also left ourselves a little bit of room from a cost point of view just to make sure that we're comfortable with where the numbers land.

Just on a couple of those -- just on a couple of those points. We expect as I said -- we expect the labor to improve as a percentage of revenue. That's due to activities that we put in place from a labor saving point of view in the first half that should flow through are flowing through this half and increase in volume. And with rent, obviously, renters -- we have really been refining our portfolio probably for the last 5 to 6 years. So we're not making dramatic changes to our portfolio, but we're refining it gently and with a view to our margin. And then as volume comes back, we anticipate rent as a percentage of revenue to improve as well. So that's primarily where we've had the biggest issue inside from the volume macro volume. The biggest issue is being rent escalation, which we can't really control if we want to keep our market share as it is or grow it.

And just one final question for me. Obviously, there's macro implications with the GP shortages and lower GP referrals. What proportion of your revenue is from GP?

I didn't say It a bit 2/3 probably.

We will really.

Depends -- so in the outpatient setting. So in -- if we leave aside commercial and hospital and just look at community work, it would be probably 80, 85%, 80% may be GP versus specialists. But then once you're adding the inpatient, the private hospitals and everything else, which is all MBS as well, then obviously, that's a lot higher weighted towards specialists and to bring it down. So in terms of MBS, it'd probably be 2/3, 1/3, but then there's commercial and veterinary and all the other avenues of revenue.

Andrew [indiscernible], you're next.

Wishing you all the best, James, for your future directions. Just coming back to -- I've asked this question throughout reporting season, but just in terms of what you're expecting the government might be able to provide and the timing of that, I presume, around budget.

The industry put in proposal to government, which we think is quite reasonable. We're asking for the same benefits that or same increases that other health care services have already been provided. We think that's reasonable. As you know, we've been working with no price increase for 25 years and we've absorbed inflation over that period, and we've absorbed the extra cost of deregulation of collection centers. So it's at a point in time where we need to really be saying to the government that something's got to change. It's either needs a reinvestment or we have to change our models of service and/or the patient needs to pay for the service that we're giving. So I think the government is acutely aware of our proposal and what we're requesting and we look forward to discussing it with them in terms of timing and amount, et cetera. I'm not going to foreshadow what the government may or may not do. So it's a matter for the government to decide which way they want to go on a manner.

Great. And just for James, just you dissected the EBIT ex-COVID, which I think I've sort of back sort and understand, but perhaps an easy way, if you have it, if you didn't have COVID testing in the first half '23, what would the underlying EBIT margin has looked like?

I'm not sure I got run on me. The reality -- so the way we've done it, the number is probably a little bit conservative because we've just used a flat 40% in terms of EBIT margin for COVID test versus first quarter -- first quarter of the first half was before the 17% fee cut. But if I take off the COVID revenue.

I'm sort of guessing that it's probably pretty flat. I mean I'm sort of thinking we've got a 7 against the 7, but I just didn't have all the facilities to do that.

Yes. Can we have one a second I'll tell you, no. If there's no targeted revenue, if I back out to COVID revenue and the margin of 40%, and it was probably a bit higher, it would be 5.

Sorry. We can take it offline if you just give you some time to check it. I don't want to put you on the spot, but just trying to sort of see what you've done with the underlying business.

Margins improved 16% conservatively increasing dollar terms and the margin would have improved ex-COVID.

Okay. So directionally, you're traveling in the right direction on that front.

Yes. Yes, let's -- on the cost front, across every line, we've managed it really well. We've taken out a bunch of additional labor. We were early to get all of our over COVID past payout or range even touch at 3.4%, whilst higher than we'd like is being well managed at a cash level. So it's really just that macro environment being depressing top line growth.

And then just finally, the -- you've given some commentary on January and February so far. And obviously, there's extra days and so on in there. But is there anything in that number -- in the numbers you're seeing to sort of say, year-on-year, you're sort of seeing a distinct pickup that might give us some hope that were MBS will get back to the 4% to 6% range?

Yes. Well, the thing was, and if we were having this conversation 4 weeks ago, 6 weeks ago, my view we -- July was deeply strong, but July the prior year was -- obviously, there's a lot of COVID, August come down, but then so COVID still strong in August or prior year. September was strong, but if you normalize the additional Queens birthday, sorry -- in September the year before, then September was quite light. And then literally, every month, September, October, November, December, we saw significant growth in like-for-like non-COVID referrals. And so I thought that we'd already seen it then [indiscernible]. But James, over my 23 years, James are always a bit over the shop. And so it wasn't that concerned with [indiscernible] its own right. We have is where more people seem to take leave and years where they take less leave. And then Feb started soft -- it started to pick up a little bit and then moderate it again. So there's -- it's trying, but it's still -- it's like we've gone back 3 months in terms of volume. But I think there's enough signs or early signs that we may be starting to see some uplift.

Fantastic. So next on the list is Gretel Ganu from Credit Suisse.

So firstly, I just want to follow up with Andrew's question just there. So just in terms of just the bulk billing incentives that was increased from November, you expect to have a positive impact in the second half. Is that really one of the key drivers for you when you talk about a stronger second half growth? Do you think it's really coming from that? Or is it from other macro factors out there?

Yes. So in terms of first half, second half, if we go back to pre-COVID or 5 years ago, 10 years ago, generally speaking, for a stable path business, you'd be looking at probably a 45, 55 split first half, second half. Anyway, the second half has always been stronger fee is much stronger through February, March than what it is through the winter months, and there's a number of reasons for that. So generally speaking, we'd expect to see a stronger fee through February, March call, depending on vapes and some volume uplift and also cost into moderate a little bit. There's a couple of less working days in the second half. So the combination of stronger average fee, a little bit of additional volume and a couple of sorting days generally points to a stronger second half anyway. And like I said before, for the 4 months -- for the remaining 4 months through to June last year, we did just under $30 million. At the bottom of the range, it's only $32 million that we need to do for the balance. So it's not dependent on a miraculous uplift in volume growth or anything like that. And so we think -- so we think December was certainly much stronger than November. And so we put down a part of that to maybe the incentives and things like that. And we certainly think that will continue to make a difference and access to doctors' kind of has to improve. Even not in the histology numbers and stuff like that, but there's going to be some pretty bad outcomes if the government can't help sort some of these accessible or issues.

Sorry, but you have seen softness in February. I just want to confirm that.

Yes, sorry, correct. Sorry, I thought to cover that. Yes. So Feb hasn't gotten worse in Jan, but it hasn't gone back to what it was sort of November, December.

Okay. Very clear. And then just in terms of the ACCC that you've exited in Queensland. Can you just tell us how many you did exit? Is there more still to do on that front in the second half? Or are you happy with the -- your insertion?

All done in the first few months or primarily done in July. So that -- it was a favorable EBIT impact, but just obviously a sort of a little bit over 1% impact on revenue, which will be a little bit less in the second half.

And in terms of the EBIT contribution?

It will be positive. Look, it's only a small business in Queensland business. But it was a positive EBIT contribution in the first compared to what it was in the first half last year.

So the next online is Craig Pan from RBC Capital Markets. Craig.

Just wanted to clarify, that $30 million of EBIT that you generated in the 4 months to June in the second half of fiscal '23, did that include COVID earnings as well? And are you assuming that COVID testing kind of stays about the same versus PCP?

Yes, correct. There wasn't a lot of cover in the remaining in the balance of the 4 months of last year from memory is, give or take, around that $12 million and probably not going to be that dissimilar this year.

Okay. And then there was a comment made in the presentation that you've been able to renew some public hospital contracts at better rates. Could you say kind of what the EBIT benefit that might have?

Can I come back to you? I know what the rate change was. I just don't have the dollar number to mind. I'll get that between now and talk.

Yes. And then just lastly, could you -- I think you mentioned it the cost inflation you're seeing on ACCC. I didn't quite catch the figure, but could you just talk about generally sort of what kind of inflation you're seeing across the business?

Well, our cash rents were up 3.4% on PCP. So that includes some exits, some renewals and some wins. So to Melinda's point, we make we review every single collection center every month. So opportunities and viability and the like. So there's certainly some that where rent expectations or offers have been were outside what we're comfortable with. But for us here, 3.4%.

And then like inflation across other parts like kind of consumables or staff?

So consumables is still 17% of revenue, which is what it was very COVID. And that's noting that obviously the respiratory to at uplift has a high consumable cost, but we've also got some procurement savings. So no change here and other costs, like I said, we've reduced by $5 million half-on-half our discretionary spend.

And then moving now to Mathieu Chevrier from Citibank.

All the best. Just had a quick one for you to start off with on the cash flow from investing is a cash advance of $7 million. I was just wondering what that was related to.

Yes. There was some management shareholders that were restricted from selling shares during the Hobart transaction. And for some of them, there was an exception made and there it was covered off by line. So that will be repaid now that the trading window will reopen.

Okay. Sorry I missed that. Its management shareholders, you said?

Yes. Yes. Some of the management shareholders were restricted from being able to sell shares whilst our transaction was on for.

Okay. And then your 4% to 6% -- sorry, if I missed it, does that include the COVID revenues? Are you looking at the $37 million that you did in the second half last year and you're going to grow 4 to 6% on top of that?

Yes. For the last 4 months, total revenue growth of around 4 yes, 4 to 6%, correct.

Got it. Okay. And then in terms of your labor costs, underlying labor cost growth, -- where is that sitting at currently?

Flat, flat half on half.

Yes. And in terms of underlying inflation, because I imagine you had to take some measures to control that. Do you have a number in mind that you're able to share? Or do you think you can manage that according to the volumes that you see?

As best we can. So we've certainly been able to continue and have a number of additional labor-based initiatives that we will -- some were implemented during the half that we'll get, obviously, a full half impact from. We've got some new ones that we're working on. And so we would expect that we might see a little bit of uplift through the second half, but it's -- I think it's taking into account them on award, the EBAs that we have and so it's staff, I think leaving aside efficiency gains and everything else, we've probably managed to sort of hold that in the somewhere between the 3 to 4% mark, maybe low end right to the lower end of that and then able to offset that through initiatives.

Got it. And then just one final one on your expectations around finance costs and D&A.

So I think D&A was up about 4.5%. I wouldn't expect it to be materially different in the second half of the first half.

And in terms of the full year finance costs?

So the interest on the debt will obviously be a little bit higher than the first half as we're carrying a little bit more debt, but the [indiscernible] related interest costs not dissimilar to the first half.

So I think we're at time, and we've altered all the questions with raised hands. So if there are any other questions you'd still like to raise. Please email and through to us at [email protected] or final team will address on our ASX releases. Thank you, Melinda. Thank you, James, for your presentations, and thank you to our participants for attending and for showing such an interest in ACL. We hope to see it at our next investor presentation later in the year. Thank you, and goodbye.