EBOS Group Limited (EBO) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to EBOS Group Limited FY '24 Half Year Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, the 21st of February 2024. I would now like to hand the conference over to your first speaker today, Mr. John Cullity, CEO, EBOS Group. Please go ahead, John.

Thank you, [ Jolene ]. Welcome, everyone, to EBOS Group's Half Year 2024 Results Presentation. My name is John Cullity, CEO of EBOS Group, and I'm joined this morning by both Leonard Hansen, our CFO; and Martin Krauskopf, our GM for Strategy, M&A and Investor Relations. I'm very pleased to report that EBOS has achieved another strong result, reflecting the benefits of our diversified portfolio. The key financial headlines are revenue increased by 7.1% to $6.6 billion. Underlying EBITDA increased by 8.3% to $313 million. Underlying net profit after tax increased by 7.6% to approximately $152 million and underlying earnings per share increased by 6.6% to $0.795. Our balance sheet continues to remain strong with a leverage ratio of just under 2.1x. And the Board declared an interim dividend of [ NZD 0.57 ] per share representing an increase of 7.5%. Before we go through this morning's presentation, I should point out the following. The results are expressed in Australian dollars unless otherwise noted and the presentation refers to both statutory and underlying results. The underlying results exclude costs associated with noncash amortization expense attributable to the LifeHealthcare acquisition purchase price accounting and one-off M&A costs. The commentary this morning is predominantly based on our underlying results, and we have included in the appendix a reconciliation between the statutory and underlying numbers. The group once again saw strong performances from both the Healthcare and Animal Care segments, and we continued on our path of investing for future growth. Our Healthcare segment increased underlying EBITDA by approximately 8%. However, within this growth rate, our Australian business increased EBITDA by an impressive 12.4% and our Southeast Asian business increased EBITDA by 7.4%. We did, however, experience a decline in EBITDA from our New Zealand business, due to the falloff in nonrecurring COVID-19 activities within our Contract Logistics business. Key highlights of our performance were Community Pharmacy increased its wholesale market share, the TerryWhite Chemmart franchise network continued its store expansion and sales growth, and we had strong growth from our Symbion Hospitals and Med Tech businesses. Our Animal Care segment increased EBITDA by 8.6%, demonstrating strong resilience as the pet specialty experiences a shift in market share towards the larger national retailers. The strength of our brands and our long-standing relationships with these retailers positions us well in the changing environment. Our branded business continues to focus on its new product development pipeline and leveraging our in-house manufacturing capabilities. Consistent with our strategy of investing for growth, significant investments were undertaken in the half, including increasing our shareholding in our Southeast Asian medical technology distribution business Transmedic to 90%, completing the acquisition of Superior Pet Food Co., a leading New Zealand manufacturer and supplier of premium dog rolls, and we continue to invest in our operational infrastructure across Community Pharmacy, Institutional Healthcare and Contract Logistics. In terms of other group highlights, we recorded a solid ROCE result of 15.1% and our EBITDA margin of 4.76% improved again on the prior period. On this page, you can see that both our Healthcare and Animal Care segments recorded strong earnings growth contributing to the solid overall group performance. Our Community Pharmacy, Institutional Healthcare and Animal Care businesses all contributed to an uplift in GOR, and this was slightly offset by a small reduction in Contract Logistics GOR which I touched on earlier. Slide 7 provides further details on the group's financial performance on both the statutory and underlying basis. You can see the benefit of our successful ongoing focus on margin management reflected in the 5 basis point increase in our underlying EBITDA margin. During the period, underlying NPAT grew by $10.8 million to $152.4 million representing growth of 7.6% and underlying EPS grew by approximately 6.6%. When normalizing the group's EBITDA growth to exclude the Chemist Warehouse Australia contract, which concludes at the end of this financial year, underlying EBITDA growth was up by approximately 10%. A similar uplift occurs if wholesale sales of COVID-19 antivirals are excluded. This further highlights the strength of the underlying businesses and our diverse sources of growth. The first half of FY '24 continues our long-term track record of delivering strong results with a focus on earnings and dividend growth, return on capital employed, cash flow generation and maintaining a strong balance sheet. As mentioned earlier, consistent with our strategy of investing for growth, we increased our shareholding in Transmedic to 90%. We've also entered into an option arrangement of the remaining 10% interest, which will facilitate us moving to 100% in approximately 2 years' time. Transmedic is one of the largest independent medical device distributors in Southeast Asia with a presence in 7 countries and together with the rest of our Medical Technology business, it provides a unique offering to global medical device manufacturers looking to access the Asia Pacific region. This transaction reflects our confidence in the business and is consistent with our strategy to explore future growth opportunities in Southeast Asia. In addition to those investments, our focus on investing for growth also includes capital expenditure on our operational infrastructure. This is included completing the construction of 2 new Contract Logistics distribution centers in Auckland and Sydney and ongoing construction of 4 new distribution centers across Auckland, Melbourne and Sydney, for our pharmaceutical wholesale and medical consumables businesses. We are making solid progress on our near-term strategies to increase earnings. As previously stated, our underlying EBITDA, excluding the Chemist Warehouse Australia contract, has been growing at a higher rate than our earnings, including the contract, reflecting the strong growth in our base business and the diversity of our portfolio. The changing dynamics in the community pharmacy wholesaling industry continue to create new revenue opportunities for us. During the half, we had a number of new customer wins and have also had positive traction with new prospects. We have also commenced cost reduction initiatives with respect to the group's approximately $1 billion cost base and the financial benefits of this initiative will be predominantly realized across the FY '25 and FY '26 financial years. In addition, we remain focused on supplementing our organic growth with strategic acquisitions. Our M&A pipeline remains active, and we will continue to explore opportunities. Our sustainability initiatives continue to also progress. With respect to climate change and recognizing our responsibility to act, we're investing in energy efficiencies, renewable power and low-carbon technologies. In FY '23, we achieved net zero Scope 1 emissions in New Zealand and Australia, using Australian Carbon Credit Units to offset direct emissions from our facilities. We have also completed the first phase of our 18.8 megawatt solar array project with the installation of a 500-kilowatt roof-mounted array in Parks, New South Wales, and preparations for the next phase are underway. There are many other ESG initiatives that the group is progressing within each of our 5 sustainability pillars and we will report on these in our 2024 sustainability report to be released in August. Moving now to our segment performance. Healthcare generated revenue growth of 7.5% and underlying EBITDA growth of 8%. The strong performance was driven by our leading market positions, organic growth and continued focus on margin management. Each of our Community Pharmacy, TerryWhite Chemmart and Institutional Healthcare businesses delivered solid performances. In terms of our geographic regions, our Australian health care business grew underlying EBITDA by 12.4%. Southeast Asia EBITDA grew strongly up 7.4%, driven by our Transmedic business. However, New Zealand EBITDA was impacted by a decline in nonrecurring COVID-19 activity within Contract Logistics. And despite cost pressures our Healthcare segment successfully maintained underlying EBITDA margins. Moving now to the specific components of Healthcare and starting with community pharmacy. The Community Pharmacy business continued its strong performance, recording revenue growth by $181 million, up 4.9% and GOR growth of $15.9 million, up 4.9%. There were several key drivers of the result including strong performances from our community pharmacy retail brands, including TerryWhite Chemmart and increased wholesale market share. If we adjusted revenues for the lower sales of COVID-19 antiviral medications in this half compared to the PCP, then our normalized revenue growth was 8.3%. Our TWC business continued its impressive growth, further strengthening its position as Australia's largest health advice-oriented community pharmacy store network. The 60-day dispensing policy change, which came into effect in September '23 has had a limited impact on our business to date, with the financial impact offset by the increase to the CSO funding pool. As part of the response to the policy change, the government has brought forward discussions regarding the eighth Community Pharmacy agreement. These discussions are currently underway. Institutional Healthcare generated double-digit revenue growth of approximately $206 million, up 11.7% and GOR growth of $17 million, up 6% largely due to the growth in Symbion Hospitals and our Medical Technology businesses. Symbion Hospitals business revenue grew by approximately 15%, predominantly due to increased sales of high-value specialty medicines. Our Medical Technology division delivered first half revenue growth of 10.2%, driven by increasing surgical volumes, particularly with the implant channels. Medical consumables contribute -- contribution was lower in this half due to the unwind of PPE and other COVID-19-related activity. In respect of Contract Logistics, it's GOR decreased by $1.5 million or down 2%. In Australia, the business continued to generate strong growth through new and existing principles and our recently completed facility in Sydney will accommodate ongoing growth in the business. In New Zealand, as I stated before, the business experienced a reduction in first half GOR due to a fall in demand for the storage and servicing of COVID-19 related products. Turning now to our Animal Care segment. Animal Care generated revenue of $286.2 million for the half, and underlying EBITDA was up by 8.6% to $55.4 million. The Animal Care segment demonstrated strong resilience as the pet specialty industry experiences market share shift towards the larger national retailers. The strength of our brands and our long-standing relationships with these retailers position us very well in this changing environment. The recently acquired Superior business has performed in line with expectations under our ownership, with growth in both dark roll products and bulk treats. Our pet food manufacturing facility based in Parkes continues to enhance our local supply chain capabilities and provides a competitive advantage for the Black Hawk and Vitapet food ranges through continuity of supply and new product launches. Underlying EBITDA margin for this segment improved again reflecting the relative performance of higher-margin businesses and the successful mitigation of cost inflation. Demonstrating the continued strength of our brand, Black Hawk and Vitapet continued to maintain their share leadership in their respective segments. Our branded business grew sales 3.6% within which was a softening in our portfolio of accessory products due to the more challenging consumer environment. Our wholesale business, Lyppard, delivered solid underlying performance. However, overall sales revenue were negatively impacted by 1 particular supplier commencing direct supply to vet clinics following the acquisition of it by another large direct supplier. In line with our animal care growth strategy, several new product launches have commenced or are planned for FY '24 including the Black Hawk Healthy Benefits Range and the relaunch and extension of our Black Hawk cat food range. Black Hawk healthy benefits is the first specific benefits line from Black Hawk. It appeared on shelves in leading pet specialty retailers and pet clinics in September '23 and has a positive early in-market performance. The new Black Hawk pet food range was specifically developed by cat nutritionists and vets, and features premium ingredients to support cats well-being and lifestyle. The new range of products were made available in Australia from this month. Our new product development strategy is designed to leverage our existing strong brands, manufacturing capabilities and retailer relationships to expand into new product categories where we see growth potential. I'll now hand over to Leonard, our CFO, to cover additional financial information.

Thanks, John. Underlying cash flow from operations for the 6 months to December '23 was $115.6 million. This reflects the underlying EBITDA earnings of $313.2 million, partially offset by interest costs of $44.8 million, tax payments of $46.5 million and net working capital and other movements of $106.4 million for the period. The reduction in the group's underlying cash flows of $45.5 million was attributable to the timing of net working capital payments. Capital expenditure for the period was $66.4 million, primarily due to the operational structure projects to support the growth of the business going forward. . Working capital management remains a key focus for the group and enables our strategy to invest for growth opportunities while returning value to shareholders. Our investment in working capital of $473 million is up $71.4 million from 31 December '22, supporting the $437 million growth in revenue for the half compared to the prior corresponding period. Due to customer [ stable ] requirements and the impact of the holiday season on supply chains, we do typically see a seasonally higher investment in working capital at December compared to June each year. We expect to see our second half cash flow result be stronger [ from that ] reported in the first half with the working capital investment of approximately $60 million for the full year. The average cash conversion cycle of 17 days is consistent with prior periods and our return on capital employed ended 31 December '22 of 15.1% with an improvement on the 14.4% return on capital employed that we did report at 31 December '22, and is in line with our group's target of 15%. Net debt for the group, excluding leases, was $1.088 billion as at 31 December '23, an increase of $250 million compared to the prior period. The increase in net debt levels largely reflects the growth investment of strategic M&A activity with the acquisition of the Superior Pet Food business for $74 million (sic) [ $84 million ] and the increased ownership in Transmedic for an additional [ $135 million ] transferred. Our net debt-to-EBITDA ratio of 2.06x was higher than the 1.52x that we reported at the end of FY '23. That's also attributable to the associated M&A activities that we did undertake during the period. Our gearing lever -- our gearing levels remained conservative and within our target range, providing capacity for further acquisition and growth investments with approximately $300 million of debt headroom available, and that's excluding the earnings from the Chemist Warehouse Australia contract. Underlying EPS for the half is $0.795 per share. That growth from the same period for FY '23 of 6.6%. The EBOS Board had declared an interim dividend of [ NZD 0.57 ] per share, and this will be imputed to 25% for New Zealand tax resident shareholders and fully franked for Australian tax resident shareholders. FY '24 interim dividend is an increase of 7.5% on the FY '23 interim dividend and represents an underlying payout ratio of 66.4%. The group's dividend reinvestment plan, which has been strongly supported by shareholders in the past will be available for the FY '24 interim dividend, and shareholders can elect to take shares in lieu of the dividend at a discount of 2.5% to the volume weighted average share price. Thank you, John. I'll hand back to you.

Thanks, Leonard. In conclusion, we're very pleased with the group's performance in the first half, which included strong earnings growth and continued successful management of our EBITDA margin in the current macroeconomic environment. Reiterating the key highlights. We generated solid underlying EBITDA and EPS growth, both Healthcare and Animal Care are performing well. The group's EBITDA growth is even stronger than reported when you exclude the Chemist Warehouse Australia contract. And we've been very disciplined in managing our EBITDA margin. We generated ROCE of just over 15%, in line with our target. We continue to invest in our growth whilst maintaining leverage in our target range and we increased dividends to shareholders by 7.5%. Looking ahead to the rest of FY '24, we expect the group will continue to generate organic earnings or earnings growth across both Healthcare and Animal Care and pursue further bolt-on acquisitions. This is supported by positive trading conditions in January which delivered underlying EBITDA growth rates consistent with the levels recorded in the first half, including and excluding the Chemist Warehouse Australia contract. And the group expects to record full year capital expenditure slightly above the FY '23 level as we continue to invest for growth and modernize our facilities, particularly within our New Zealand health care operations. We have a strong balance sheet, and we're well positioned to pursue our growth objectives. So that concludes the formal part of the presentation, and I'll now hand back to [ Dale ] to facilitate any questions. Thank you.

[Operator Instructions] our first question comes from the line of Saul Hadassin from Barrenjoey.

John, you touched on the growth in the Community Pharmacy business in terms of revenues in the first half. I'm wondering if you can go into a bit more detail as it relates to some of those customer wins and particularly any churn you're seeing following the announcement of the potential tie-up between one of your competitors and Chemist Warehouse?

Saul, I think probably the best way I could answer that is that we're getting good traction in the market with the future change in the dynamics that we expect to happen with Chemist Warehouse taking over Sigma. So we're quite positive. We've communicated before that we think for our business, that realistically for us to achieve around about $300 million in new organic growth in that market. Some of that is coming to this first half result. We expect that to further build as we get into FY '25 and FY '26, but that's what we're sort of aiming for.

And just a follow-up, John, I think you called out maybe 10% underlying growth if you normalize for Chemist Warehouse in that business. Do you have any sense of what the market growth would be? I mean is that doing that sort of double market growth or just a sense of where you guys are in terms of that growth versus the industry as a whole?

I think looking stronger than the market, what the market growth is, maybe -- it might be about double [indiscernible]. We think the market is probably growing 4%, 5%, Right?

And our next question comes from the line of Matt Montgomerie from Forsyth Barr.

While on another solid result, it looks like pretty good cost control in the health care segment in the first half. John, I was just wondering if you could please comment on where specifically this is coming from as part of the cost review. And then as you've advanced your thinking over the last 6 months with respect to the cost review, is the internal goal still that you take out sort of 2%, 2.5% of your cost base from that $1 billion base number?

Yes. Matt, look, if I talk about the cost efficiencies we've got across the group and the project we have is -- it's really quite broad-based in terms of where we see efficiencies and some part of the efficiencies are in raw materials, there's some labor, there's freight, there's general corporate overheads, et cetera. So it's no real specific cost bucket per se. It's really quite general. We've set ourselves a target of achieving a reduction in the cost base of between 2.5% to 5%. And I can't be more prescriptive than that as to where that will land. I think we can probably comment further on that -- our progress on that when we get to the full year, but quite heartened by what I see at the moment and still feels like today that's a realistic target for us to strive for.

Great. And then secondly, on Animal Care margins, another very strong period. And the last result, maybe it was just conservatism from your part, you sort of commented that you didn't see scope for further margin expansion in that segment. I guess, the question now is your expectation that you can hold the margins or at least hold the margin you delivered in Animal Care in the first half looking ahead?

Well, look, Matt, we'd always think that we can hold our margins. We never expect to sort of go backwards. What's probably happened in this first half that we couldn't foresee at the time of our annual results is some of the cost of production in our manufacturing facility are lower in this first half. So that's benefited us. And also, of course, we've had the contribution of our -- of the Superior [ business ] as well.

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

John, on the commentary around Chemist Warehouse, which seems dilutive to growth. Is it still sort of rational behavior by Chemist Warehouse? Is it going to be a disciplined exit and there's nothing going on that's seeing them deliver lower growth in the group?

Sure. No, from our perspective, it's disciplined. To use your words, it's quite disciplined. There's nothing out of the normal happening in the trading coming through from CW. So the volumes are still coming through. We're still servicing them as we normally have and would. So we don't expect any change. That change we expect to happen on basically the 1st of July. I got no reason to think of it would be otherwise.

Great. And just a follow-up on the next CPA. Is there any particular new elements that you might like to highlight or points open for discussion that we might not be aware of?

I think from our perspective, we're expecting a favorable outcome on the CPA. I think the industry and the National Association of Wholesalers has made strong representations to government about the importance of the uninterrupted supply of medicines into the community. And we believe that the government understands our position there and is sympathetic to our view there. And I think if we can take some sort of comfort the additional CSO funding that we received in this first half by virtue of trying to compensate the wholesalers for the change in the 60-day dispensing policy is positive, but we sort of let that all take its course. But we're hopeful for a positive outcoming.

And I show our next question comes from the line of Marcus Curley from UBS.

Just firstly, could you talk a little bit about how we should think about the GOR margin in Community Pharmacy, obviously, up a touch in the first half? Is there any seasonality? Should we expect any, let's say, further improvement into the second half of the year? Or is a stable picture more likely?

I think it's pretty stable market, there's not a big change there from the PCP. So I wouldn't read too much into that.

Okay. Great. And then secondly, obviously, you talked to the working capital growth. Has there been any change in conditions post the 60 days dispensing with the pharmacies that have contributed to the working capital change?

No, Marcus. No, nothing there.

And just a follow-up on that, maybe from a cost perspective, could you just talk a little bit to where your average interest costs are at the moment relative to, let's say, market rates. So would you suggest the interest costs in the business have now fully normalized? Or is this still further to go in terms of the increase in the interest costs for the business?

Yes, my expectation for the full year is we'll land at a number of about approximately $90 million for interest costs. We do have quite considerable hedging in place. So we are benefiting from the hedging we have as far as [indiscernible]. So we do benefit from the fact that we don't get penalized with any further increase in interest rates. However, we will benefit longer term from a potential decrease in the benchmark rates going forward. So my expectation is that sort of [ $45 million, $46 million ] interest cost made for the half and take that through to the full year of approximately $90 million, but we do have some upside potentially if interest rates do decrease above the hedging we have in place.

Okay, Leonard. And when that hedging rolls off, is the 90% still the right [ solid ] number in the current condition?

I would [indiscernible] FY '24 that number is right. I would expect that number will lower as we go forward.

I show our next question comes from the line of Adrian Allbon from Jarden.

Good morning, team. Just on Slide 11, just focusing on the new medical consumables facilities that are sort of coming on stream. But how should we think about those facilities in terms of our modeling? Like is it providing extra capacity to your expected growth? Is it -- or is it lower unit costs? Or is it a combination of both?

It's a combination of both, but more slanted towards providing the capacity for growth markets -- or sorry, Adrian. So that cash profile that we will provide the group with additional 20%, 25% additional footprint capacity going forward.

And on the medical consumables side, were you referring to the whole slide?

Both ANZ health care business.

And are you -- within that medical consumables at the moment, are you running at quite high capacity or higher utilization?

Yes, it is Adrian. So when we open the new facilities, they won't be fully utilized, but there'll be a good percentage of them utilized.

Okay. And then like are you sort of -- we're sort of transitioning off this Chemist Warehouse contract in the year ahead, like, can you give us a sense of how like your management [ SDIs ] kind of struck for say like on a 12-month forward basis? Is that versus the counterfactual of like without a contract? Or they're just -- is pretty normal sort of more on an EPS basis overall?

We structure incentives based on the business unit EBITDA growth or group PBT growth, right? And they're set on an annual basis. So that was set for FY '24, inclusive of the CW contract. And when we come to set them for FY '25 when we come to do that, the Board will decide, but my anticipation would be that we follow largely the same format, right? We just won't have that contract...

Okay. Right. it's quite clear. And just -- sorry, I'll rejoin. Just in terms of like, I guess, on Slide 12, where you sort of said the pipeline for acquisitions remains active. Are you able to kind of -- like, sort of point to, like, where it is sort of active? Like, how we see the numerous parts of the business, like, are we talking more it on -- up into Southeast Asia or more back home in Australia?

Activity across basically all regions, Adrian, but I think you could probably expect to see that come the announcement at year-end that there's probably been a small bolt-on done in Southeast Asia, right. So -- but as you know, we've always been highly acquisitive and we continue to see good opportunities in our med tech area, in our medical consumables area and also other parts of the business, right? So will continue along that path and along that journey.

And I show our next question comes from the line of Stephen Hudson from Macquarie Securities.

John and Leonard, just 2 for me. Just firstly, on the cost out potential that you've been referencing, the $1 billion cost base looks to be excluding COGS. So I think you've got about $0.5 billion of wages and $0.5 billion of over of other over FY '23. So I was just wondering essentially the cost base that you can get -- that you teeth into is larger than the $1 billion, and therefore, larger than the sort of $25 million to $50 million that we've sort of inferred from the comments today. That's my first question. The second question is whether or not the $75 million EBITDA loss from the Chemist Warehouse contract that you've estimated as pre or post those cost-out numbers.

The $75 million EBITDA loss from CW is pre those cost out, right? And then the cost base is basically expense line we referred to is basically expenses, labor, freight, rentals, et cetera. So are there more savings potentially in raw materials unlike -- and COGS, et cetera, unlikely, right? There may be some, Stephen, but that's not what we're thinking is the major part of the 2.5%, to 5%.

It is 2.5% to 5% on the $1 billion, not any [indiscernible]. Yes, got it. Okay. And just quickly, I'll sneak in a kind of a semi third one, if I could. The Superior acquisition sounds that it's gone well. Can you give us a feel for the contribution this half?

It performed basically in line with expectations. If I go to some guide on the group EBITDA growth rate, was 85 -- was just over 8%. If I exclude the acquisitions, that would be like just over 7%, right? So it contributed about 1% to the group's growth rate.

And I show our next question comes from the line of Lyanne Harrison from Bank of America.

John, Leonard and Martin. I might go to Institutional Healthcare. You spoke about the hospital growth driver there being high-value specialty medicines. I just wanted to understand what's driving this. Is that sustainable and a permanent shift in doctors' prescriptions? Or is it a reflection of the mix of patients in the hospitals?

I think it's more to do with some new product listings going on, Lyanne, treat conditions, particularly through new cancer treatments, cystic fibrosis medications, is principally what's driving it. So what we call high-value specialty medicines is driving it. Plus there's been some shifts in market share there because Sigma exited the hospital distribution business, right? So there was some disruption, if you like, in terms of some hospital supply chain, and we were able to capture some additional share as a result of that. That's what's largely to that growth rate.

Okay. And so it's safe to say that, that's a sustainable lift in the hospital growth?

We believe so. Yes.

Okay. And then on the Med Tech side and Institutional Healthcare, you pointed to higher surgical volumes, is that higher than average? Or is it sort of a reversion to mean?

It's more like a reversion to mean, Lyanne. So it's sort of as hospitals sort of start to come back through from the COVID period. So it's more reflective of that dynamic.

Okay. And if I might squeeze in one more on Animal Care. That supplier direct to clinic, is that a one-off because of that particular acquisition and increased scale of the supplier and I just want to confirm it's not a more broader industry change?

No, it's one-off Lyanne. The supply, you made, look, probably about 4 or 5 years ago, we had a supplier called [ Zoetis Go Direct ] as Zoetis has recently acquired the Jurox business. And so that -- they're taking their whole business now direct. So it's not reflective of the market change. It's specific really to the ways that we just go to market.

And I show our last question comes from the line of Dan Hurren from MST Market.

I was hoping you could talk a little bit more about the TerryWhite rollout. I think in the past, you gave some approximate rough metrics there, and perhaps similar to Saul's question, could you comment on any step change in momentum that you might have noticed following the announcement of that Sigma Chemist Warehouse tie-up?

I just missed the second part of your question, Dan, was something about step change from -- but if you could just clarify the second part of your question?

Sure. Just wondering if there's been any step change in momentum in the TerryWhite -- interest in the TerryWhite brand following the announcement of that Sigma and Chemist Warehouse tie-up.

Yes. No, I'm going to say that, Dan, I think the rollout is basically -- look, we guide the market. I've guided the market typically to growth -- average growth in TerryWhite new stores around about 30 per annum, right? That's what we typically strive for. And we're on track to do that in FY '24. At this point in time, I wouldn't say that there was a particular step change in momentum, but I look at that we can continue to grow our network by, say, 30 plus -- 30 stores per annum. We're doing very well, right?

I'm showing we have one more question in the queue from the line of Mathieu Chevrier from Citi.

My first one was just to clarify on your cost savings. So are you expecting your absolute dollar cost base to go to like $975 million to $950 million your savings net of inflation?

Yes, that's an interesting one, Mathieu. Look, I think best to probably say at this point in time, right, that we'll just hold the 2.5% to 5%. I think I could probably comment more on that on the full year, right? We're seeing -- but to help you, we're seeing the impacts of inflation on the cost base diminish quite significantly from where they've been, right? And you can see that even in our EBITDA margins across both Healthcare and Animal Care. So I think -- to answer your question, can we get the cost base down to $950 million post inflation impacts, time will tell.

Great. And then just on -- just to go back on the transformation you're seeing in the Animal Care business, I was just curious to understand the sort of opportunities that it may create for you or the sort of impact you may see on pricing and margins going forward?

I think the opportunities for us really in Animal care really -- and the future growth of that business will really be dependent on the NPD opportunities that we bring into market. So refer to some of those that we've already brought to market. There's new products coming in the second half. And when you're dealing with the national retailers, of course, it's more of a coordinated approach in going to market and probably more effective with the end consumers, right, in dealing with the larger national retailer. So what we see here is some the independent market is declining and that market share is going into those larger national retailers. So I think that bodes us well for our business and the way we've set our business up and we're very positive on what we can achieve in terms of those future NPD opportunities from there. Did I answer your question?

And the one final one -- yes. No, that's great. And then just one final one on your Med Tech business, you saw a 10% growth. Could you comment on the sort of surgical volumes you've been seeing in your business and, I guess, any discrepancy across the private and the public channel?

We can't comment on the latter part of the question. Maybe I can -- what I can say is that we've seen double-digit growth in the surgical volumes, right? So I think most of the business is sort of orientated towards the private part of the market so -- rather than the market.

This concludes our Q&A session. At this time, I'd like to turn the call back over to John Cullity, CEO, for closing remarks. Please go ahead, sir.

Thank you, [ Jolene ]. Thanks, everyone, for your interest on the call and look forward to updating you again when we get through our full year. So thanks very much. Bye for now.

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