EBOS Group Limited (EBO) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the EBOS Group Limited First Half Full Year 2023 Interim Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, the 22nd of February 2023. I would now like to hand the conference over to your first speaker today, John Cullity, CEO of EBOS Group. Please go ahead, John.

Thank you, Michelle, and welcome, everyone, to EBOS Group's half year 2023 results presentation. My name is John Cullity, CEO of the Group; and I'm joined this morning by both Leonard Hansen, our CFO; and Martin Krauskopf, our EGM for Strategy, M&A and Investor Relations. I'm very pleased to report that EBOS has achieved another record half year result driven by strong organic growth as well as benefiting from a significant contribution from acquisitions completed in the prior year, including LifeHealthcare, which performed in line with expectations. The strength and diversity of our portfolio is reflected in the result with both our Healthcare and Animal Care segments delivering double-digit EBITDA growth. The key financial headlines of our half year results are, revenue increased by 17% to over $6.1 billion, underlying EBITDA increased by 39.3% to $289 million, underlying NPAT increased by 29.6% to approximately $142 million and underlying earnings per share increased by 12% to $0.745. We also further strengthened our balance sheet, positioning the group to pursue further growth opportunities. And the Board declared a meaningful increase in the interim dividend of just under 13%. Before we go through this morning's presentation, I should point out the following. The results are expressed in Australian dollars unless we otherwise note and the presentation refers to both statutory and underlying results. The underlying results exclude $13.5 million before tax and $9.4 million after tax of noncash amortization expense attributable to the LifeHealthcare acquisition purchase price accounting. The commentary this morning is predominantly based on our underlying results and we have included in the appendix a reconciliation between the reported and underlying numbers as well as a further explanation of the purchase price accounting methodology. The group once again saw strong performances from both the Healthcare and Animal Care segments, highlighting the benefits of our diversified portfolio of businesses. Both segments achieved organic growth and as noted previously, the Healthcare segment benefited from a strong contribution from acquisitions, reinforcing our strategy of investing for growth. Our Healthcare segment increased underlying EBITDA by approximately 38%, driven by our Community Pharmacy, TerryWhite Chemmart, Institutional Healthcare and Contract Logistics businesses. Key highlights of this performance were, the Community Pharmacy wholesale volumes grew strongly, driven by both customer and market share growth as well as some benefit from COVID-19-related product sales. TWC continued to grow its network, which now exceeds some 540 stores and delivered total sales growth of just under 19%. Our Institutional Healthcare division recorded very significant growth, driven by our LifeHealthcare acquisition as well as increased wholesale sales to our hospital customers. The integration of LifeHealthcare is well-progressed. And as noted earlier, its financial performance was in line with our expectations, providing significant earnings growth for the group. Our Animal Care segment delivered EBITDA growth of approximately 32%, supported by strong pet market -- pet care market conditions and the benefits of our pet food manufacturing facility. Our key brands, Black Hawk and Vitapet continue to maintain their leadership positions in their respective markets. We are very pleased and encouraged by the performance of our new pet food manufacturing facility in Parkes, which is now fulfilling all of Black Hawk's production requirements and providing a competitive advantage for the brand. In terms of other group highlights, we recorded underlying operating cash flow of $161 million, up 41%, return on capital employed of 14.4%, which is in line with our expectations following the LifeHealthcare acquisition and net debt-to-EBITDA reduced to 1.76x, reflecting both strong cash flow and earnings growth. Leonard Hansen, our CFO, will take you through each of these points later in the presentation. The Group has performed very well despite operational challenges that have arisen due to the macroeconomic environment. These challenges have included instances of manufacturer out of stocks and increases in labor, freight and other input costs. Our businesses though have continued to implement strategies to mitigate these cost impacts. Our underlying EBITDA margin has increased by 76 basis points in this period as a result of these initiatives as well as the benefit of acquisitions of higher-margin businesses. On this page, you can see that all of our divisions contributed strongly to the Group's performance with each recording double-digit growth in gross operating revenue. You can also see the strong uplift in our Institutional Healthcare division with a near 100% increase in gross operating revenue, which was benefited from the acquisition of LifeHealthcare. This slide provides further details on the group's financial performance on both a reported and underlying basis. The increase in underlying EBITDA of $81.5 million or 39.3% reflects an increase in revenues of 17% and a meaningful expansion of our EBITDA margin to 4.7%. During the period, underlying net profit after tax grew by $32.4 million to $141.6 million, representing growth of approximately 30% and underlying EPS grew by 12%. The earnings per share growth is lower than the net profit after tax growth due to the impact of the LifeHealthcare acquisition, a large proportion of which was funded by issuing new shares. Our long-term track record and you can see the first half of FY '23 continues our long-term track record of delivering strong and steady performance to our shareholders with a focus on earnings and dividend growth, cash flow generation and maintaining a strong balance sheet. On sustainability. The last year has been a significant period for our ESG program as we have progressed new initiatives and accelerated our ambitions to become a carbon-neutral company. The EBOS Board took decisive action towards carbon neutrality by approving the scoping of an 18.8 megawatt solar array, which is forecast to meet all of the Group's Australian electricity requirements by FY '27. The first phase of this major infrastructure investment includes a 240 kilowatt roof-mounted array at our pet care manufacturing facility in Parkes, New South Wales. Phase 1 installation is on target for completion by the end of this year. And we're now preparing to deliver the second phase of the project, a 6 megawatt ground-mounted solar system, which is expected to be completed in FY '24. Last year we set a target to become carbon-neutral for Scope 1 emissions during FY '23. These emissions include, but are not limited to emissions from refrigerants and company motor vehicles and are on track to be measured and offset prior to the end of this financial year. In addition, we have recently developed a new Ethical Sourcing Strategy which aims to engage suppliers that are aligned to our corporate values. The strategy is supported by a Supplier Code of Conduct and an Ethical Sourcing Policy which outlines specific supplier requirements on child labor, employee payments and anti-discrimination and harassment. Following the recent weather events here in New Zealand, our teams ensured that supply channels remained open to continue to serve the affected local communities. In one instance our Onelink and Healthcare Logistics operations here in New Zealand combined with the New Zealand Defense Force and helped New Zealand to deliver urgent medicines and medical consumables into the Whangarei hospital in the Northland region that was impacted by road closures and flooding following the recent Cyclone Gabrielle. This is just another example of the critical importance of our healthcare businesses and how they relate to the supply of medicines and related products across both New Zealand and Australia and underlines the commitment of our people in times of natural disasters. And we look forward to providing everyone a more detailed account of our ESG program in our 2023 sustainability report. I'll now move to the discussion on our segments and first off, our Healthcare segment. Healthcare generated revenue growth of 17.6% and underlying EBITDA growth of just under 38%, with both our Australian and New Zealand and Southeast Asian regions growing earnings strongly. This performance was driven by organic growth across our Community Pharmacy, TWC, Institutional Healthcare and Contract Logistics businesses, supplemented by the performance of recently completed acquisitions. Reinforcing my earlier comments, despite ongoing cost pressures across labor and freight, our Healthcare segment maintained EBITDA margins for the base business and drove margin expansion through acquisitions. Moving now to the specific components of healthcare and starting with Community Pharmacy. The Community Pharmacy business continued its strong performance, recording revenue growth of just under $580 million, up 18.4% and GOR growth of $48 million, up 17.2%. There were several key drivers of the result, including customer and market share growth, strong performances from our Community Pharmacy retail brands, including TerryWhite Chemmart, above-market growth in ethical sales to our major wholesale customers, growth of high-value specialty medicines and growth in the OTC sales category across various categories like cough and cold. In addition, as I said before, the result did benefit from COVID-19-related product sales, including antiviral medications. The GOR margin in this area and the GOR margin percentage reduced slightly, largely reflecting the higher proportion of ethical sales as well as a fixed CSO income pool. Turning now to TerryWhite Chemmart. Our TerryWhite Chemmart business, which is reported within our Community Pharmacy result, continued its expansion with an additional 26 net new stores joining the network during the half. The TerryWhite Chemmart network now comprises more than 540 stores nationally, reinforcing its position as Australia's largest health advice orientated community pharmacy network. TWC network sales demonstrated strong performance with 18.6% total growth and 15.8% like-for-like growth. A continued focus and investment in our TWC catalog and promotional programs, increases in media spend, growth in our consumer brands and the development of the myTWC app, which provides customers with a convenient and safe way to order and manage medications and bookings all reinforced TWC's positive performance. Turning now to Institutional Healthcare. Institutional Healthcare generated very strong revenue growth of $286 million, up 19.4% and GOR growth of $129 million, up 81.3%, driven by the contributions of 5 acquisitions completed in the prior year as well as growth in our Symbion Hospitals business. Our recent acquisitions have significantly expanded our presence in both medical consumables and medical technology distribution. With respect to LifeHealthcare, further progress has been made during the half on its integration into the group's enlarged Medical Technology division. Management now anticipates that implementation of the integration activities to be undertaken in the second half of the financial year will result in a one-off cost of approximately $12.5 million before tax. The integration activities and expected costs include rationalization of operating sites and inventory lines, IT systems integration and stamp duty costs. The financial benefits from these activities and rationalization activities will be realized in FY '24 and beyond. Turning to Contract Logistics, which increased its GOR by $16 million, up 26%. This was primarily attributable to growth in Australia from new and existing principles and growth in New Zealand from continued demand for storage and servicing of protective equipment. Consistent with our strategy of investing in our operational infrastructure to support our growth, we're well-progressed with the construction of new contract logistics distribution centers in Auckland and Sydney, both of which will be completed in 2023. Turning now to our Animal Care segment. Our Animal Care business had a very strong organic growth performance with revenue growth of [ $17 million ], up 6.3% and underlying EBITDA growth of $12 million, up just under 32%. This growth was driven by strong performances from our leading brands and businesses, Black Hawk, Vitapet and Lyppard as well as the benefits of our new pet food manufacturing facility and growth as well in Animates, our New Zealand pet retail joint venture. Our Animal Care team have done an excellent job in bringing our manufacturing facility on-stream with the facility now operating efficiently and meeting all of our commercial production requirements. Our self-manufacture strategy is enhancing our local supply chain capabilities and providing a competitive advantage for the Black Hawk range. Strong pet market conditions have continued in this first half and our brand and benefit -- businesses have benefited from this. Black Hawk and Vitapet increased sales by 15.2% and 6.3% respectively on the prior corresponding period and they both continue to maintain share leadership in their respective segments. Lyppard also experienced strong growth at the GOR line with lower sales revenue growth being a function of a reduced exposure to lower-margin businesses. That concludes my commentary on our segment performance, and I'll now hand over to Leonard Hansen, our CFO, to cover the financial information.

Thanks, John. Underlying cash flow from operations for the 6 months to December 2022 was $151.1 million. This represents improvement of $46.5 million on the prior corresponding period due to earnings growth with a higher underlying EBITDA of $81.5 million, offset by higher interest and tax payments of $19.6 million and $11.7 million respectively. Capital expenditure for the period was $35.4 million, lower than the prior period by $7.9 million. This provides an underlying free cash flow number after CapEx for the period of $125.7 million favorable to the prior period by $54.4 million. Working capital management remains a key focus for the Group and enables our strategy to invest in growth opportunities while returning value to our shareholders. Our recent working capital of $423 million is up $158 million from 31 December '21. This is primarily attributable to an increase in working capital of $120 million from the acquisition of LifeHealthcare in the second half of FY '22. Compared to June '22, we've invested a further $35 million in net working capital to support the 17% increase in sales that we have reported for the half year. Our cash conversion cycle of 17 days, an increase of 2 days from June 22 reflects the customer's stockholding requirement of our large medical devices business. Return on capital employed as at 31 December '22 of 14.4% reflects the impact of our strategic investment of the LifeHealthcare business and is in line with our expectations at the time of announcing the transaction. The Group remains committed to a 13% return on capital employed target and expects to exceed that level in the medium term. Net debt for the group, excluding leases, was $837.5 million as at 31 December 2022. That's a reduction of $22 million compared to June '22. Our net debt-to-EBITDA ratio of 1.76x is favorable to the 1.94x that we reported at the end of FY '22. Our conservative gearing provides capacity for further acquisitions and growth in business with approximately $400 million of debt headroom available. At 31 December 2022, the Group has a weighted average debt maturity profile of 2.6 years. Underlying EPS for the half is $0.745 per share growth upon the prior comparative period of 12%. The EBOS Board has declared an interim dividend of NZD 0.53 per share, and this will be [indiscernible] to 25% for New Zealand tax resident shareholders and fully franked for Australian tax resident shareholders. The FY '23 interim dividend is an increase of 12.8% on the FY '22 interim dividend and represents a payout ratio of approximately 70%. The Group's Dividend Reinvestment Plan, which was strongly supported by shareholders for the FY '22 full year dividend will be available for the FY '23 interim dividend. And shareholders can elect to take shares in lieu of dividend at a discount of 2.5% to the volume weighted average share price. Thank you, and I'll now hand you back to John.

Thanks, Leonard. So in conclusion, we are very pleased with the Group's performance in the first half of FY '23, which included double-digit GOR growth from each of our divisions, reflecting strong levels of organic growth and significant contribution from acquisitions, including LifeHealthcare. And further, the Group generated double-digit EPS growth. We've reduced gearing. We generated ROCE in line with our expectations and we've increased dividends to shareholders. We've got very strong market positions in both healthcare and animal care. And we are, as shown by our first half results, successfully navigating through a very difficult operating environment. Our balance sheet is strong and we're well-positioned to pursue further growth opportunities. And with that, I'll conclude the formal part of the presentation and hand back to Michelle to facilitate any questions.

[Operator Instructions] And our first question comes from the line of Gretel Janu with Credit Suisse.

Firstly, just on Community Pharmacy, so 18% growth, very strong there. How much of this is driven by the growth in TerryWhite, and the expansion of your network versus your other customers? I'm just trying to work out what's the underlying market growth here relative to how much you're gaining share in this division?

Thank you, Gretel. We don't split out -- your first question is, I think, how much of the growth was driven by Terry -- at TerryWhite. So we don't split out how much of the growth is driven by individual customer groups per se. But you can see in the results that we had very strong growth in TerryWhite on its own with total sales growth there of just under 19%, right, which was slightly above, of course, the total growth that we've got in the Community Pharmacy segment. I think your second question, I think, was directed or was a question is on market share, I believe, is that correct, Gretel?

Yes, that's right. Market share to work out, what the underlying market growth would be?

Yes. We think, Gretel, we estimate and it's -- can be a bit rough, but we estimate that we've taken over the last, say, 12 months, just under about a 1% market share growth, right? So we've increased our market share by about another 1% in the last 12 months.

Excellent. So you're still basically saying that the underlying market is still growing more strongly than what it has historically. Is that a fair representation at the moment?

Yes, Gretel. The underlying market is very strong. And so particularly in the last 6-month period, we've had the benefit of -- in the whole markets had the benefit of strong sales of COVID anti-viral medicines and also in terms of sales revenue, new PBS lines that have come on. So the whole market is growing very strongly.

Excellent. Understood. And then just on Animal Care. In terms of the margin expansion that you're seeing there, is your new manufacturing facility operating at full utilization at the moment? And do you anticipate further margin expansion in the next 6 to 12 months as well?

The manufacturing facility is not operating at full capacity. It's operating at a capacity that can satisfy all of the Black Hawk production volumes at this point in time, but it still has additional capacity that it has -- it is capable of doing in terms of margin expansion, then I don't think there might be some further margin expansion to come, but I wouldn't be -- it wouldn't be anything significant, not like the uplift we've had in the first half.

Our next question comes from the line of Stephen Ridgewell with Craigs IP.

Congratulations on the first half. Just on the -- following up on the question, John, the core business and your comments that the industry growth has been strong and API clearly growing strongly, segment perhaps going backwards a little bit. Do you see the level of cold and flu demand that you've seen in the first half is sustainable? And really the question is, as demand that you saw in the first half of kind of cold and flu in anti-virals kind of well above what you would have seen historically and particularly pre-pandemic and then perhaps, in your pets, if that's the case, it's not sustainable? Or is it simply the case that it's bouncing back strongly from last year, we perhaps had a couple of very strong months at the end of first half '22 as COVID kind of came through and before that had been pretty low with lockdowns. Just interested in how you're seeing that demand profile for cold and flu, which has really been very strong in the last 6 months?

Yes. I think, look, Stephen, we don't have a crystal ball on it, but I think our take on would be that it's most unlikely that those growth rates that we achieved in the first half in OTC and also ethical sales would be repeated in the second half, right? And particularly, we don't have any further outbreaks of COVID, then we will see a decline in the sales of the antiviral medications, right? So they are particularly strong when we have the outbreaks. The cold and flu category is an interesting one because that overall category may be stronger on a year-round basis now than what it was previously. So that's just one we've probably got to monitor as we get into the second half. But hopefully, that gives you some extra flavor on the way we think about it.

Yes, that's helpful. And then perhaps just on your market share comments that you've gained so 1%, I mean, Sigma is now saying it's stabilized its ERP and think is reducing stock-out. I mean to the extent that's the case, would you still be confident of continuing to gain share in the second half or perhaps as they improve their performance, give up a little bit of their share as they improve your service levels to the pharmacy, just understand what you're seeing, you'll enter into the second half?

I think as we've discussed, probably with many of you, is that the business, we always expect the business to increase its market share in any particular period and we think the strength of our business and the strength of our TerryWhite Chemmart business and the growth that we're achieving there gives us confident in that thesis. So regardless of Sigma's operating performance, we still think we can continue to take market share.

And then just maybe one more. If you kind of break out the -- you had an update at the ACM where you broke out underlying EBITDA and it implies that in December quarter, that's lifted to about $147 million underlying EBITDA. If you can maintain that run rate, maybe [ consensus ] needs to move up about 3%. I guess the question is, is there anything to kind of call out that would suggest that the December run rate isn't sustainable at this point that you can see?

I think -- because we probably typically haven't released before quarterly information that you're referring to, but I'd just be a bit careful in extrapolating it like you potentially could do because the December quarter is probably the strongest quarter in the whole 12-month period, right? So it wouldn't be right the way we see it to just extrapolate that out, right? So I'd be cautious doing that.

Okay. That's helpful, John. Sorry, I'm going to sneak in one more. And...

I think I'd say what typically we see the business has done. Typically, it's first half, second half results have been pretty well 50-50 over the years. So it shouldn't be probably too much different from that after you maybe potentially adjust for things like the COVID antivirals, et cetera, and the strength of those.

And that's very helpful, John. And then just probably just one more. Just on the $12.5 million restructuring charge that you've kind of flagged, probably provide a little bit more detail on what's driving that. And I guess was there potentially you could have taken that charge against -- I presume it's when it gets LifeHealthcare in the first half? And then if you had taken that charge, would you still -- would you still be able to say that that company -- or that acquisition had met targets? Just a little bit more color, I think we're getting a few questions on it -- around the market as to what's behind that charge?

No, it's actually -- it's not related to the LifeHealthcare business. It's actually related to the old -- call it the old EBOS Medical Devices businesses. So it's related to businesses like our acquisition of LMT National Surgical, right, where we will -- with the integration into LifeHealthcare, we will no longer sell some of the LMT National Surgical inventory lines, we'll be selling the LifeHealthcare inventory lines, right? So there's inventory write-offs are about probably half of it. We are moving out of sites for LMT National Surgical Cryomed MD Solutions. So we're rationalizing operating sites. We're ending leases on those to have a more integrated medical technology division, right? We're integrating IT platforms into the LifeHealthcare IT platform, right? And then there's some stamp duty costs that we've got to incur. So just to be clear, it's not writing off anything to do with LifeHealthcare, right? It's integrating those other businesses which was always the plan and one of the benefits of the acquisition that we did with LifeHealthcare is that we acquired with LifeHealthcare, a fully developed management team and a medical technology distribution platform business for which we could then in effect slot our other businesses into. I think we saw -- we did communicate that at the time of doing the LifeHealthcare acquisition that that's what we would do. Of course, we didn't know at that time what the cost would be.

And our next question comes from the line of Dan Hurren with MST Marquee.

I was just wondering, could you talk about the impact of that price reform we saw in the first half, just with the shifting of prices or minimum prices for lower-priced drugs, is there any significant tailwind there? And how will that go into the future?

There's pretty minimal impact, Dan, in the first half from the price – the price reforms is expected to be though a far more significant impact when we get to 1 April of 2023 on the sales line. So largely minimal impact in this first half result.

Well, perhaps could you actually talk us through that next change then? What are you expecting an impact on your margins from that April change?

I probably have to wait, Dan, until we see it all in the various medicine categories. But maybe if I -- that adjustment in historical periods, not so much in recent times, but if I went back 4 or 5 years, that adjustment could be somewhere between $60 million of over $120 million. I think we had periods of impact of -- on the revenue line, right, from the price reform disclosure. So we just need to probably see the details of the actual impact before making a comment as to the exact amount that we expect.

And our next question comes from the line of Adrian Allbon with Jarden.

Just one first question. As I know they sort of like collapse the disclosure on or stop the disclosure on LifeHealthcare. Is the intention like when that divisions like fully formed or [ it sort ] of fully formed, are you going to kind of -- can you give us a bit more detail on that division, like why you sort of do with TerryWhite within Community Pharmacy?

Adrian, the -- what we're very open at the time of doing the LifeHealthcare acquisition that the Medical Technology division would form part of the Institutional Healthcare business. So we'll call out key highlights of that from time to time, but it might be reported separately and it was never intended to be reported separately.

Okay. As the core of that kind of division more like 35%, just mathematically, just to help us out?

I think we talk about the core of the Institutional Healthcare division. Adrian?

You do, but I guess it's like whether that is quite a separate -- presumably the Medical Technology division that goes a lot higher.

Well, it is high, but we don't call it out separately. We only disclose what we've got in the presentation, Adrian.

Okay. Just coming to the slide at the end and talk to on '22, where you talked about aiming to go back to your ROCE target of 15% over the medium term. Can you just -- look, if I just use consensus [ systems ], I would have thought it continues to sort of hedge you there a bit faster than what you define as the medium term. So just trying to understand, is there anything what was sort of missing on the capital envelope?

Adrian, we don't provide forecast, right? So I think that's the comment we make. And maybe we could update you a bit more on that when we get to the full year results, right, for FY '23, but we're very reluctant to put forecasts out there, which is our customer and everyone knows that.

Would -- just on -- I guess, on the more committed [ stuff ] like on in the second half, like, can you sort of talk about what the committed CapEx is likely to be? I mean, you sort of talked about solar arrays and stuff like that. Can you...

Yes. Leonard can comment on the expectation.

I would expect [indiscernible] that our CapEx in the second half will be a bit above our first half CapEx of sort of $55 million. So I would expect our total CapEx for the full year will be somewhere between $75 million to $80 million. That's lower than last year, but that's the sort of number I'm expecting. And then if we think about CapEx going forward, then sort of a number of about $55 million is what I think [indiscernible] that sort of normalized number, so to speak of CapEx for FY '24 going out.

And sorry, just on that latter comment, would that include some of these ESG stuff that -- like that you're investing, like in terms of like, I think, I can't quite recall what John was referring to earlier is like it was a Phase 2 of the solar stuff?

Yes, that's right. All the [indiscernible].

Okay. Okay. Very good. And then can you just -- like on the -- just coming back to the Institutional Healthcare business. Can you just give us a little bit more color around the share gains that you've made in the Symbion space?

In Hospitals business?

Yes.

In Hospitals business? I think it was up about 1% or 2%, Adrian, right? We might have to come back to you on that, but it wasn't anything -- there wasn't any huge jump in, I'll put it that way.

And our next question comes from the line of Saul Hadassin with Barrenjoey.

First one, just looking at the operating cost base for the Healthcare division through first half '23. John, your comments about those pressures that you've experienced through some of those cost lines. As we look into second half '23, is there anything to note as it relates to sort of another step up in that cost base now that you've absorbed LifeHealthcare in the first half, labor cost, [ EBA ], exploration, et cetera, anything that we should be aware of that might see that operating cost base increase again sequentially into second half '23?

I don't believe so. So I think if we give you some sort of flavor on sort of the increases that we've absorbed in the first half and on average, the cost base, of course, is and the numbers have been impacted by the acquisitions. But if you looked at, say, the roll labor increase across the Group, it's probably run at somewhere 4%, 4.5% across the Group, right? In freight, we've been taking -- we have taken double-digit rises in our freight costs, but that's in the first half result. We're not expecting that to -- we think that's probably leveled out now, those increases. So there's nothing else that we're expecting to increase in percentage terms on that cost base. I think actually, the business in terms of being able to preserve its EBITDA margins in the environment has done a really good job of doing that. So it's certainly a focus for us all and a watch. So I wouldn't be expecting anything untoward in my mind coming out in the second half on those -- on the operating cost baseline.

And then in Animal Care, just noting the leverage, the achieved between revenue and EBITDA, that retail revenue growth rate of 11%. I'm just wondering can you give us any insight as to how much was volume versus price?

The substantial majority of that would be price.

And do you think those price increases are sustainable on a go-forward basis? I assume they're sticking relatively well. You're not seeing a lot of impact on volume, but can you just give us a sense of how much further you think that price point has to flex higher?

Well, I think that probably depends on the environment, Saul, right? But there's probably still some further price adjustments to come through, probably not as significant. I don't believe is what's had to happen in the first half, but certainly the ones that have been put through in the first half has largely stuck, right, haven't impacted on sort of the volume growth of the business. So that's pleasing and we'll just see what conditions hold into the second half and what needs to be done.

And then last one for me. Just on that $12.5 million integration cost that you've called out for the second half, can you give us any sense of what a sustainable savings might be off the back of that cost?

I look at about $3 million or so.

And achieve beyond and see that in FY '24 sort of run rate we expect to see those benefits come through?

Yes, it will probably be based, at least half of it to come through in FY '24, right? And then ongoing from there.

Our next question comes from the line of Matt Montgomerie with for Forsyth Barr.

I might be reading into it a little bit too much, but the minority interest was quite high and higher than I thought potentially implying the Transmedic business in Asia is performing quite strongly within the LifeHealthcare business. Are you able to just comment here on that business and the sort of growth rates being experienced there?

It's actually -- yes, Matt, it's performing very well, but it's pretty well in line with how we thought it was going to perform. So I think -- in the overall results, I think what you've probably seen is there's probably been some disconnect between our expectations on areas like interest depreciation and the outside equity interest and what was sort of in consensus. So if that tightens up as a result of these reports into the full year sort of earnings projections and that's good. But yes, we're very pleased with the performance of the Transmedic business in Southeast Asia. As you know, for us, it was a key attribute of the whole acquisition thesis for us. So -- but yes, as I said, it's basically performed in line with our expectations.

And then maybe going back to one of Adrian's questions before on the GOR margins within Institutional Healthcare. I know you're not willing to disclose, but it looks to me as though on an underlying basis, the base, excluding the LifeHealthcare business has maybe declined 150 basis points versus the second half of last year. Yes, I would just be interested in your comments on is there any seasonality in the new base business? Or if last year was particularly high for some abnormal reasons?

I think -- yes, I wouldn't read probably too much into it, Matt. I think in any of the period, it could be some of the COVID products that are swaying the margins up and down like from last year to this year. So in that Institutional Healthcare business, there were some sales of rats in the prior period. So that could impact on it all without having the complete analysis in front of me, but I don't think I'd be reading anything too much into that.

Then maybe one more. You commented in the release just on the COVID benefits and the antivirals, et cetera. Are you able to quantify that in the Community Pharmacy signal for us?

Yes. So in that Community Pharmacy piece, we had overall revenue growth of sort of 18%. And we think -- we estimate that the antiviral probably contributed somewhere around about 7% of that growth, right? So you exclude that growth, you've got organic growth there of about 12% or so.

Our next question comes from the line of Sean Laaman with Morgan Stanley.

Congrats on a solid set of numbers. Just back on the ROCE target of midterm of 15%. Just on the -- the obvious question is, looking back, you've had 18% in the past. I know, John, you said you're not giving guidance. But is there anything that might warrant you not ever getting back to those levels again? Or maybe talk us through some of the working capital initiatives that could ultimately achieve that thing -- that level?

Yes. I think, Sean, what we said, if I provide a bit of background here, when it was up at 18%, 19%, et cetera, ROCE, then our internal view was that that was all very nice. But really what we strive to do at the group was return a ROCE of 15%, right? And we didn't want our ROCE performance to limit the strategic initiatives, growth initiatives of the Group. So I didn't think that was in the interest of long-term shareholders. So even though we had that of over-performance in ROCE, we're still looking for value accretive sort of deals that we could pursue and still bring the overall group ROCE in with around about the 15% level in a, call it, a medium-term time frame, right? So I'm quite pleased that at the end of the 6 months, we've been able to generate a group ROCE around about the 14.5% mark with such a significant acquisition that we undertook and be in line of sight of the 15% mark again. Now do we get the 15% mark in '24, '25, I just don't know, right? But certainly, just to sort of comfort our investors, et cetera, that the 15% mark is still a valid target for the Group to pursue.

And I'm showing no further questions at this time. And I would like to turn the conference back over to John Cullity for any further remarks.

Thank you, Michelle. So that concludes today's call. So I'd like to thank everyone for the attendance and your interest in the company and I wish everyone a good day. So goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect.